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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Nighthawk | LSE:HAWK | London | Ordinary Share | GB00B156TD53 | ORD 0.25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.115 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMHAWK
RNS Number : 4279G
Nighthawk Energy plc
26 May 2017
26 May 2017
NIGHTHAWK ENERGY PLC
("Nighthawk" or "the Company")
Final Results for the year ended 31 December 2016
Nighthawk, the US focused oil development and production company (AIM: HAWK and OTCQX: NHEGY), announces its final results for the year ended 31 December 2016.
Operational Summary
-- Sales volumes
o Gross oil sales for 2016 of 483,195 bbls (394,424 bbls net to Nighthawk's net revenue interest(1) ), down from 2015 sales volumes of 653,431 gross bbls (536,972 bbls net)
o Gross average daily oil sales for 2016 of 1,320 bbls/day (1,077 bbls day net) (2015: 1,791 bbls gross, 1,471 bbls net)
-- Implemented and commenced operations of the Company's Arikaree Creek water flood Pilot Project
Financial Summary
-- Group revenues decreased 30.8% to US$18.0 million in 2016 from US$29.6 million in 2015; mainly due to the 26.5% decrease in net sales volumes and a $4.9 million decrease in gains on hedging instruments
-- Normalised EBITDA(2) for 2016 of $5.8 million or US$ 12.10 per gross barrel sold as compared to US$14.5 million or US$22.17 per gross barrel sold for 2015
-- Non-cash impairment of $7.1 million attributable to exploration costs included in intangible assets
-- Obtained bank waivers of all debt non-compliance through 30 June 2017, the maturity date of the Company's reserve based loan facility. The Company is in negotiations over an extension to the maturity date and believe an equitable arrangement can be reached with the bank prior to that time.
The audited report and accounts for the year ended 31 December 2016 will be available on the Company's website at www.nighthawkenergy.com later today and will be posted to Shareholders, as applicable, together with the notice of Annual General Meeting and Form of Proxy shortly.
The financial information in this announcement does not constitute the Company's complete statutory financial statements for the year ended 31 December 2016 or 2015 within the meaning of section 434 of the Companies Act 2006, but is extracted from those financial statements. References to 'financial statements' in this announcement should not be considered to refer to the complete statutory financial statements. The Group's Auditor has reported on those financial statements; its reports were unqualified, but did contain an emphasis of matter paragraph in respect of the material uncertainty in respect of the going concern disclosure set out in Note 2.
The Auditor's Report did not contain statements under sections 498(2) or (3) of the Companies Act 2006. The emphasis of matter is set out below:
Emphasis of matter - Going concern
The audited statutory financial statements include an emphasis of matter (without modification of the audit opinion) concerning the group's ability to continue as a going concern. The Group's and Company's cash flow forecasts indicate that its ability to meet its liabilities as they fall due for next 12 months is dependent upon successfully extending the Commonwealth Bank of Australia ('CBA') existing loan facility which matures on 30 June 2017 on terms acceptable to the Company whilst alternative funding is secured. The ability to secure alternative funding is expected to depend on the success of the waterflood project and associated oil reserves upgrade. Whilst the Directors are confident that extensions to the CBA loan facility can be obtained, that alternative funding can be secured and that the waterflood project will prove successful and deliver the necessary increase in oil reserves, the outcomes of these negotiations and the waterflood project are unknown. These conditions indicate the existence of a material uncertainty which may cast significant doubt as to the Group's and Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group or the Company was unable to continue as a going concern.
Notes and Definitions:
1. Net revenue interest (NRI) - Nighthawk's share of oil, gas, and associated hydrocarbons produced, saved, and marketed, after satisfaction of all royalties, overriding royalties, or other similar burdens on or measured by production of oil, gas, and associated hydrocarbons
2. Normalised EBITDA is operating profit adjusted for depreciation, amortisation, and contribution from test revenue, exceptional expenses.
"Group" Nighthawk Energy plc and its subsidiaries "Parent Company" Nighthawk Energy plc
Enquiries:
Hot Features
Premium
Nighthawk Energy plc
Rick McCullough, Chairman +1 303 407 9600
+44 (0) 20 3582 1350
Kurtis Hooley, Chief Financial Officer +1 303 407 9600
Stockdale Securities +44 (0) 20 7601 6100
Richard Johnson
David Coaten
This announcement contains inside information under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Chairman's Statement
(all amounts are shown in US$)
When we wrote you a year ago, the oil market was in a much different position. The price of oil at West Texas Intermediate ("WTI") had reached a low price below $27 per barrel; there was uncertainty as to where OPEC and the oil and gas industry would go; and Nighthawk was facing significant challenges with our bank and future projects. Today, oil is near $50 per barrel and showing some signs of improvement and we have an exciting project in progress heading into 2017. Looking back over the past year, I am proud of the way our team responded positively and creatively to the challenges that faced the Company. We maintained our disciplined business approach and navigated this challenging time, emerging stronger than before.
Our focus remained on creating shareholder value. We continued to focus our efforts within one of the top-tier economic basins in the United States, the Denver-Julesburg basin. Although we did not drill any new wells during 2016, the Company completed its Water Flood Pilot Project in our Arikaree Creek field ("Pilot Project").
This project, if successful, is expected to provide increased reserves in the range of 1.5 Mmbbls to 2.3 Mmbbls. The Pilot Project covers roughly 700 of the total 1,400 acres in the Arikaree Creek field. The Company raised the required project financing in July from supportive stakeholders and began construction and implementation of the project. In November, injection commenced into the first well. We have started to see results and, based upon initial estimates, believe that there is significant upside both in reserves and production to be realized later this year. The remaining 700 acres provide an opportunity for development and the Company expects that in 2017, an application will be filed with the Colorado Oil and Gas Conservation Commission for development of the Arikaree Creek Northern acreage as a water flood project. Once approval is received, the Company expects to be able to capitalize on additional water flood volumes at a reduced price, as much of the infrastructure already exists within the Pilot Project. In addition, management continues to research, evaluate and investigate existing acreage for high quality, low risk development opportunities. The Company has over 70 miles of 3-D seismic and, with available cash flows, could exploit potential resources.
From a financial standpoint, fiscal 2016 was a year managing assets, opportunities and expectations. Heading into the year, oil prices in January averaged $31.78 per barrel. This low pricing created an environment where asset preservation, mainly cash, became a focal point for most oil and gas companies, including Nighthawk. The Company entered 2016 with approximately $6.0 million in cash but due to debt covenant violations, had to pay down $4.0 million of our reserve based loan in January 2016. Fortunately, the Company's hedging program had 197,000 bbls of oil hedged at an average price per barrel of $61.41. Through headcount and salary reductions, improved efficiencies in operations and a level of dedication by our team, Nighthawk was able to survive this period and emerged 2016 with $5.6 million in cash on hand.
As we look ahead, the future looks promising for Nighthawk and expectations continue to be high. With the potential of two water flood projects, over 150,000 net acres of undeveloped acreage and oil prices currently stabilizing, increased value creation is within reach. With the successful implementation of our water flood Pilot project, we have begun planning the Northern water flood project and evaluating our acreage position for potential drilling locations with reduced risk from 3-D seismic. Challenges still lie ahead including the refinancing of our existing debt facility, however, we believe we are well positioned to overcome these.
I speak for the Board of Directors and all the employees of the Company in expressing our gratitude for your support.
Rick McCullough
Executive Chairman
26 May 2017
Chief Financial Officer's Statement
(all amounts are shown in US$)
The following information relates to the accounts of Nighthawk Energy plc and its wholly-owned subsidiaries, collectively "Nighthawk" or the "Company".
As shown in the information that follows, 2016 was a year of challenges, uncertainty and volatility for the oil and gas industry and for Nighthawk. We began the year with oil prices being in a depressed state with the January 2016 realized oil price being $31.78. Fortunately, the oil market rebounded slightly and the Company realized an average sales price of $38.10 for the year 2016. This compares to $40.47 for 2015 and $82.16 for 2014. The low-price environment also impacted our Reserve Based Loan ("RBL") with our primary lender, Commonwealth Bank of Australia ("CBA"). Due to a decrease in reserve values, Nighthawk was required to pay down its RBL facility by $4.0 million in January 2016 and renegotiate its credit facility. The Company was able to amend the credit agreement with CBA to provide relief for many of the loan covenants and to extend the loan's maturity date until 30 June 2017. See Note 2 in the Notes to the Consolidated Financial Statements for further discussion.
From a financing side, the Company secured financing from existing loan and shareholders in the amount of $3.0 million to fund the Arikaree Creek Water Flood Pilot Project. As part of this financing, certain of the Company's existing loan note holders agreed to defer their interest until July 2017. In return for this consideration, the deferred interest earns a 15% coupon rate and the opportunity to convert the deferred interest into net shares of the Company. On 5 April 2017, the shareholders of the Company approved the authorities to permit the issuance of new shares in lieu of deferred interest, should the noteholders so elect.
The Company reported a Net Loss of $14.2 million for the year ended 31 December 2016 as compared to a net loss of $70.3 million for the year ended 31 December 2015. The decrease in net loss was due primarily to reduced non-cash impairments, which for the year ended 31 December 2016 were $7.1 million versus $75.1 million for the year ended 31 December 2015, as well as the release of contingent consideration provision of $2.7 million in 2015. The 2016 impairment charges relate to the assessment of the recoverability of the Company's undeveloped assets. This assessment is based upon factors such as market conditions, current spot and forward prices of oil, and future exploration and development plans. Due primarily to the continued depressed oil prices and no current plans to pursue an aggressive drilling program, $7.1 million was written off or impaired relating to the undeveloped assets as at 31 December 2016 as compared to $40.5 million at 31 December 2015.
Of the total impairment recorded at 31 December 2015 of $75.1 million, $38.5 million was attributable to exploration costs included in intangible assets and a $36.1 million was attributable to property, plant and equipment. Of the total impairment for property, plant and equipment, $11.5 million was related to leasehold land, $10.2 million was related to plant and equipment and $14.4 million related to production assets. The remainder of $0.5 million was attributable to costs incurred on wells previously fully impaired.
Net loss was also impacted by an $11.6 million reduction of total revenue to $18.0 million for the year ended 31 December 2016 as compared to $29.6 million for the year ended 31 December 2015. This decrease is primarily due to a 26.5% decrease in net sales volumes and a $4.9 million reduction in revenue from hedging.
A more detailed discussion of the results is presented below.
Financial Results
Revenue
The following is a comparative summary of net oil sales volumes, prices and revenues, including the impact of commodity derivative settlements:
2016 2015
-------------- --------------
Oil sales volumes, net 394,424 536,972
Average oil price (per barrel) $38.10 $40.47
-------------- --------------
Oil revenues 15,027,487 21,729,188
Gains on hedging instruments 2,941,972 7,837,223
Other income 53,874 42,504
-------------- --------------
Total Revenue $ 18,023,333 $ 29,608,915
============== ==============
The $6.7 million or 30.8% decline in oil revenues is the result of the 26.5% decrease in net sales volumes, due primarily to the natural decline of the Company's reservoirs, and a $2.37 or 5.8% per barrel decline in the price received. The Company, as part of its hedging program, also realised $3.7 million of gains resulting from hedging instruments settled during the year and a loss of $744,000 resulting from mark-to-market derivative instruments.
Sales Volume
The results of the Company's sales are shown in the following table:
2016 2015
--------- ---------
Gross barrels sold 483,195 653,431
Net barrels sold 394,424 536,972
Daily average barrels sold--gross 1,320 1,791
Daily average barrels sold-net 1,077 1,471
Average sales price per barrel $ 38.10 $ 40.47
The decline in net sales volumes of 142,548 or 26.5% is indicative of normal depletion of the Company's reserves offset by the workover and production enhancement projects performed in 2016.
Cost of Sales
The following is a comparative summary of cost of sales:
2016 2015
-------------- --------------
Lease operating costs $ 5,116,144 $ 5,765,018
Production severance taxes 967,035 1,543,507
Depreciation 3,582,915 6,594,358
Contribution from test revenue - 569,521
Production profit shares and royalties 325,835 321,030
Other 69,094 73,155
-------------- --------------
Total Cost of Sales $ 10,061,023 $ 14,866,589
============== ==============
Lease operating costs per gross barrel $ 10.59 $ 8.82
============== ==============
Lease operating costs per net barrel $ 12.97 $ 10.74
============== ==============
The increase in lease operating costs per barrel is primarily due to the decrease in sales volumes. The fixed charges associated with the operation of the Company's wells has lower volumes by which to be spread across. With decreased sales revenue, there have also been corresponding reductions to severance taxes, contribution from test revenue, and production profit shares and royalties. Depreciation shown above only includes the depreciation related to operating related assets and excludes office equipment and vehicle depreciation, which is recorded as part of general and administrative expenses. Depreciation has increased as compared to prior year as a result of a decline to the reserve base as at 31 December 2015, which resulted in the depreciation rate being higher on a per barrel rate than in 2015. The decline in reserve base as at 31 December 2015 was adversely impacted by a decline in oil prices and the corresponding reduction in well economics.
Administrative Expenses
Administrative expenses decreased $1.7 million or 23.2% to $5.8 million for the year ended 31 December 2016 from $7.5 million for the year ended 31 December 2015 primarily due to reductions in legal costs, reduction of headcount and overall salary reductions.
Financing Costs
Financing costs increased $3.1 million or 60.9% to $8.2 million for the year ended 31 December 2016 from $5.1 million for the year ended 31 December 2015 due primarily to the write off of deferred loan costs of $710,000, an increase in total interest expense of $678,000 and increase in the exchange rate losses on financial liabilities of $1.4 million.
Normalised EBITDA
Normalised EBITDA ("NEBITDA") is presented to provide an analysis of the Company's operations, excluding certain non-cash related items. NEBITDA is defined as operating profit or loss adjusted for interest, income taxes, depreciation, amortisation, test revenue contribution adjustments, and exceptional administrative expenses. For the year ended 31 December 2016, NEBITDA was $5.9 million as compared to $14.5 million for the year ended 31 December 2015. This decline in NEBITDA reflected the decline in the price of crude oil, a decrease in production volumes and a decrease in revenue from the Company's commodity derivatives. NEBITDA per gross and net barrel sold was $12.10/bbl and $14.83/bbl for the year ended 31 December 2016, respectively, as compared to $22.17/bbl and $26.98/bbl, respectively, for the year ended 31 December 2015.
The following table reflects the calculation to reconcile the net loss under IFRS to NEBITDA for 2016 and 2015.
2016 2015
---------------- ----------------
Net loss $ (14,218,130) $ (70,332,136)
Exceptional administrative expenses 6,797,041 72,477,603
Finance income (582) (173,641)
Finance costs 8,172,019 5,078,442
Taxation 1,419,971 150,668
---------------- ----------------
Normalised operating profit(1) 2,170,319 7,200,936
Depreciation, amortisation and contribution
from test revenue 3,677,776 7,285,137
---------------- ----------------
Normalised EBITDA $ 5,848,095 $ 14,486,073
================ ================
Normalised EBITDA per barrel sold-gross $ 12.10 $ 22.17
Normalised EBITDA per barrel sold--net $ 14.83 $ 26.98
The following table provides the consolidated income statement to arrive at normalised operating profit and NEBITDA.
2016 2015
-------------- --------------
Revenue $ 18,023,333 $ 29,608,915
Cost of sales (10,061,023) (14,866,589)
-------------- --------------
Gross profit 7,962,310 14,742,326
Administrative expenses (5,791,991) (7,541,390)
-------------- --------------
Normalised operating profit(1) 2,170,319 7,200,936
Depreciation, amortisation and contribution
from test revenue 3,677,776 7,285,137
-------------- --------------
Normalised EBITDA $ 5,848,095 $ 14,486,073
============== ==============
1. Normalised operating profit is operating profit adjusted for DD&A, contribution from test revenue and exceptional administrative expenses.
Cash flows
The following is a comparative summary of cash flow from operating, investing and financing activities:
2016 2015
------------- --------------
Cash flow from operating activities $ 6,821,144 $ 16,663,460
------------- --------------
Cash flow from investing activities
Purchase of intangible assets (1,083,530) (15,197,473)
Purchase of property, plant and equipment (2,417,206) (11,251,875)
Other 6,082 8,765
------------- --------------
Net cash from investing activities (3,494,654) (26,440,583)
------------- --------------
Cash flow from financing activities
Repayment of loans (4,000,000) (3,000,000)
Proceeds on issue of loans, net of issue costs 3,000,000 7,000,000
Proceeds on issue of convertible loan notes - 9,710,000
Interest paid (2,289,665) (3,102,589)
Other (94,375) 130,137
------------- --------------
Net cash flow from financing activities (3,384,040) 10,737,548
------------- --------------
Net (decrease) increase in cash and cash equivalents (57,550) 960,425
Cash and cash equivalents at beginning of financial year 5,969,485 5,019,527
Effects of exchange rate changes (342,894) (10,467)
------------- --------------
Cash and cash equivalents at end of financial year $ 5,569,041 $ 5,969,485
============= ==============
Cash flows from operating activities
For the year ended 31 December 2016, cash flow from operating activities was $6.8 million as compared to cash flows of $16.7 million for the year ended 31 December 2015 reflecting the decrease in NEBITDA discussed above.
Net Cash flow from investing activities
For the year ended 31 December 2016, net cash flow used in investing activities was $3.5 million and comprised principally of capital expenditures for the Pilot Project. For the year ended 31 December 2015, net cash flow used in investing activities was $26.4 million and comprised principally of capital expenditures in the drilling and completion of new wells. The decline in spending in 2016 as compared to 2015 of 86.8% was a result of reduced cash available commensurate with the decline in economics within the oil and gas industry.
Net cash flow from financing activities
For the year ended 31 December 2016, net cash from financing activities during the year totalled $3.4 million and comprised principally of $3.0 million raised via debt facilities offset by $4.0 million in debt repayments and $2.3 million in interest payments. For the year ended 31 December 2015, net cash flow from financing activities totalled $10.7 million and was comprised of $16.7 million proceeds from debt facilities, offset by $3.0 million in debt repayments and $3.1 million in interest payments.
Debt Facilities
The Company had the following outstanding debt at 31 December 2016:
GBP to
Conversion Balance US$ Conversion Balance
Description Interest Rate Price GBP Rate US$
--------------------- ---------------- ------------- ------------------ ----------------- ---------------
Libor + 6 per
Reserve Based Loan cent NA GBP 18,631,025 1.23 $ 23,000,000
2012 Convertible
Loan Note Zero Coupon GBP0.025 GBP 5,167,500 1.23 $ 6,379,279
2013 Convertible
Loan Note 9 per cent GBP0.055 GBP 3,135,000 1.23 $ 3,870,158
2013 Loan Note 15 per cent NA GBP 8,100,446 1.23 $ 10,000,000
2015 Convertible
Loan Note Zero Coupon GBP0.03 GBP 6,400,000 1.23 $ 7,900,800
2016 Loan Note 15 per cent NA GBP 2,430,134 1.23 $ 3,000,000
GBP 43,864,105 $ 54,150,237
======================================================================= ===============
The above table only includes the outstanding principal and coupon interest rate and does not include the effect of account discounting or deferred interest rate. During 2016, two significant debt related activities occurred. On 8 January 2016, the Company completed negotiations with CBA to include a reduction to the net borrowing base from $27.0 million to $23.0 million. As part of these negotiations, the Company was required to pay $4.0 million in January 2016 to reduce the outstanding loan balance to the net borrowing base amount. The CBA facility covenants were amended to revise the leverage ratio and eliminate the minimum liquidity requirement. At the end of the first quarter of 2016, CBA notified the Company that the borrowing base had been further reduced from $23.0 million to $13.0 million. On 30 June 2016, Nighthawk entered into an amendment, which among other modifications, changed the maturity date of the outstanding loan balance to 30 June 2017.
Also, on 28 July, 2016, the Company entered into a $3.0 million second lien note, with certain existing debt holders, for the purpose of funding the Pilot Project. The notes bear interest at 15% and a one per cent overriding royalty on the incremental volume realised from the Pilot Project. As part of negotiations with CBA to allow for this new secured loan instrument, the Company also agreed to amend the terms of the existing interest bearing unsecured facility agreements issued in 2013 and loan notes under which interest was being paid. This interest is to be deferred during the amended term of the CBA agreement that expires on 30 June 2017, unless extended by CBA at their sole discretion. The loan notes under which the interest was deferred have the option to receive shares or cash for the amounts deferred. See Note 19 in the Notes to the Consolidated Financial Statements for more detailed discussion.
Hedging
As at 31 December 2016, the Company held the following oil commodity derivative hedge positions:
2016
---------
Swap contracts
Total remaining volumes (bbls) 65,350
Price (WTI NYMEX; average) $ 58.52
Costless collar contracts
Total volumes (bbls) 96,000
Ceiling $ 47.00
Floor $ 52.75
Note: All commodity hedge prices are WTI NYMEX, averaged across the total contracts for swap contracts.
One of the commodity hedging swap contracts, entered into during 2015, is accounted under IFRS hedge accounting in respect of the Company's commodity derivative hedge positions and represents a total of 17,350 remaining bbls. Under hedge accounting, the change in fair value is recorded as an equity movement in the cash flow hedge reserve rather than through the income statement. Upon utilisation of the oil swap when the oil sales take place, the amounts held in equity are recycled to revenue. All other derivative instruments are accounted for as a mark-to-market hedge instrument through profit or loss.
Shareholders' equity
As at 31 December 2016 there were 964,076,330 ordinary shares of 0.25 pence each in issue. Additionally, as at 31 December 2016, a total of up to 911,066,081 new ordinary shares may be issued pursuant to the exercise of 38,750,000 share options, 130,000,000 warrants, 477,033,333 on convertible loan notes and up to 265,282,748 on conversion of deferred interest payments added during 2016.
As at 31 December 2015 there were 964,076,330 ordinary shares of 0.25 pence each in issue. Additionally, as at 31 December 2015, a total of up to 652,383,333 new ordinary shares may be issued pursuant to the exercise of share options, warrants or convertible loan notes.
Dividends
The Directors do not recommend the payment of a dividend for the year ended 31 December 2016.
Cautionary Statement
This Annual Report contains certain judgements, forward-looking statements and assumptions that are subject to the normal risks and uncertainties associated with the exploration, development and production of hydrocarbons. Whilst the Directors and management believe that expectations reflected throughout this Annual Report are reasonable based on the information available at the time of approval of this Annual Report, actual outcomes and results may be materially different due to factors either beyond the Company's reasonable control or within the Company's control but, for example, following a change in project plans or corporate strategy. Therefore, absolute reliance should not be placed on these judgements, assumptions and forward-looking statements.
Kurtis Hooley
Chief Financial Officer
26 May 2017
Consolidated Income Statement
all amounts are shown in US$
For the Year Ended 31 December
Notes 2016 2015
---------------- ----------------
Continuing operations:
Revenue 4 $18,023,333 $ 29,608,915
Cost of sales (10,061,023) (14,866,589)
Gross profit 7,962,310 14,742,326
Administrative expenses (5,791,991) (7,541,390)
Exceptional administrative expenses 9 (6,797,041) (72,477,603)
Total administrative expenses (12,589,032) (80,018,993)
Operating loss 5 (4,626,722) (65,276,667)
Finance income 582 173,641
Finance costs 8 (8,172,019) (5,078,442)
Loss before taxation (12,798,159) (70,181,468)
Taxation 10 (1,419,971) (150,668)
---------------- ----------------
Net loss $(14,218,130) $(70,332,136)
================ ================
Attributable to:
Equity shareholders of the Company $(14,218,130) $(70,332,136)
Loss per share from continuing operations 11
Basic loss per share $(0.01) $(0.07)
Diluted loss per share $(0.01) $(0.07)
Consolidated Statement of Comprehensive Income and Expenditure
all amounts are shown in US$
For the Year Ended 31 December
2016 2015
---------------- ----------------
Net loss $(14,218,130) $(70,332,136)
Other comprehensive income (expense)
Items that may be reclassified subsequently to profit or loss:
Foreign exchange gains on consolidation 4,438,314 1,247,495
(Loss)/gain on hedging instruments designated as cash flow hedges (311,695) 6,304,905
Deferred tax on hedging instruments designated as cash flow hedges 110,968 (2,244,635)
Items reclassified to profit or loss:
Loss on hedging instruments designated as cash flow hedges (3,686,396) (7,837,223)
Deferred tax 1,312,409 2,790,161
Other comprehensive income, net of tax 1,863,600 260,703
Total comprehensive loss for the financial year $(12,354,530) $(70,071,433)
================ ================
Consolidated Balance Sheet
all amounts are shown in US$
As at 31 December
Notes 2016 2015
--------------- --------------
Assets
Non-current assets
Property, plant and equipment 13 $ 22,704,185 $ 25,428,745
Intangible assets 12 8,274,560 11,891,746
Derivative financial assets 17 - 502,648
--------------- --------------
30,978,745 37,823,139
Current assets
Inventory 15 785,904 917,039
Derivative financial assets 17 329,702 3,997,996
Trade and other receivables 16 2,353,503 3,013,846
Cash and cash equivalents 5,569,041 5,969,485
--------------- --------------
9,038,150 13,898,366
--------------- --------------
Total Assets $40,016,895 $ 51,721,505
Equity and liabilities
Capital and reserves attributable to the Company's equity shareholders
Share capital 20 $ 4,007,795 $ 4,007,795
Share premium 20 1,402,644 1,402,644
Foreign exchange translation reserve 21 12,151,619 7,713,305
Special (restricted) reserve 22 29,760,145 29,760,145
Retained deficit (79,611,117) (65,650,773)
Share-based payment reserve 23 5,157,045 5,367,376
Equity option on convertible loans 24 6,992,276 6,992,276
Cash flow hedging reserve 25 212,324 2,787,038
Total equity (19,927,269) (7,620,194)
--------------- --------------
Current liabilities
Trade and other payables 18 5,174,900 5,059,434
Finance lease payables 32 622,563 -
Derivative financial liabilities 628,099 -
Borrowings 19 23,139,502 26,311,365
--------------- --------------
29,565,064 31,370,799
--------------- --------------
Non-current liabilities
Borrowings 19 27,402,697 24,776,368
Finance lease payables 32 166,592 -
Provisions and contingent consideration 30 2,809,811 3,194,532
30,379,100 27,970,900
--------------- --------------
Total liabilities 59,944,164 59,341,699
Total equity and liabilities $ 40,016,895 $ 51,721,505
=============== ==============
The financial statements were approved by the Board of Directors on 26 May 2017 and were signed on its behalf by:
Rick McCullough,
Executive Chairman
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
all amounts are shown in US$
Foreign Share Equity
exchange Special based option on Cash flow
Share Share translation (restricted) Retained payment convertible hedging
capital premium reserve reserve deficit reserve loans reserve Total
$ $ $ $ $ $ $ $ $
Balance at 1
January 2016 4,007,795 1,402,644 7,713,305 29,760,145 (65,650,773) 5,367,376 6,992,276 2,787,038 (7,620,194)
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
For the year
ended 31
December 2015
Loss for the
year - - - - (14,218,130) - - - (14,218,130)
Other - - - - - - - - -
comprehensive
income
(expense):
Foreign
exchange gain
on
consolidation - - 4,438,314 - - - - - 4,438,314
Loss on
hedging
instruments
designated in
cash flow
hedges - - - - - - - (311,695) (311,695)
Deferred tax
on hedging
instruments
designated in
cash flow
hedges - - - - - - - 110,968 110,968
Gain
reclassified
to profit or
loss - - - - - - - (3,686,396) (3,686,396)
Deferred tax
on gain
reclassified
to profit - - - - - - - 1,312,409 1,312,409
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
Total
comprehensive
income loss - - 4,438,314 - (14,218,130) - - (2,574,714) (12,354,530)
Share-based
payments - - - - - 47,455 - - 47,455
Exercised and
expired
options and
warrants - - - - 257,786 (257,786) - - -
Balance at 31
December 2016 4,007,795 1,402,644 12,151,619 29,760,145 (79,611,117) 5,157,045 6,992,276 212,324 (19,927,269)
=========== =========== ============= ============== ============== =========== ============= ============= ==============
Balance at 1
January 2015 4,001,288 1,279,014 6,465,810 29,760,145 4,376,618 5,420,455 3,592,505 3,773,830 58,669,665
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
For the year
ended 31
December 2015
Loss for the
year - - - - (70,332,136) (70,332,136)
Other
comprehensive
income
(expense):
Foreign
exchange gain
on
consolidation - - 1,247,495 - - - - - 1,247,495
Gain on
hedging
instruments
designated in
cash flow
hedges - - - - - - - 6,304,905 6,304,905
Deferred tax
on hedging
instruments
designated in
cash flow
hedges - - - - - - - (2,244,635) (2,244,635)
Gain
reclassified
to profit or
loss - - - - - - - (7,837,223) (7,837,223)
Deferred tax
on gain
reclassified
to profit - - - - - - - 2,790,161 2,790,161
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
Total
comprehensive
income (loss) - - 1,247,495 - (70,332,136) - - (986,792) (70,071,433)
Share-based
payments - - - - - 251,666 - - 251,666
Issue of share
capital for
cash 6,507 123,630 - - - - - - 130,137
Exercised and
expired
options and
warrants - - - - 304,745 (304,745) - - -
Issue of
convertible
loan notes - - - - - - 3,399,771 - 3,399,771
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
Balance at 31
December 2015 4,007,795 1,402,644 7,713,305 29,760,145 (65,650,773) 5,367,376 6,992,276 2,787,038 (7,620,194)
=========== =========== ============= ============== ============== =========== ============= ============= ==============
Consolidated Cash Flow Statement
all amounts are shown in US$
For the Year Ended 31 December
Notes 2016 2015
---------------- ----------------
Net cash flow from operating activities 26 $ 6,821,144 $ 16,663,460
---------------- ----------------
Cash flow from investing activities
Purchase of intangible assets (1,083,530) (15,197,473)
Purchase of property, plant and equipment (2,417,206) (11,251,875)
Proceeds on disposal of property, plant and equipment 5,500 8,410
Interest received 582 355
Net cash from investing activities (3,494,654) (26,440,583)
---------------- ----------------
Cash flow from financing activities
Proceeds on issue of new shares - 130,137
Proceeds from derivative financial instruments 56,525 -
Repayment of loans (4,000,000) (3,000,000)
Proceeds on issue of loans net of issue costs 3,000,000 7,000,000
Proceeds on issue of convertible loan notes - 9,710,000
Capital payments on finance leases (129,423) -
Interest on finance leases (21,477) -
Interest paid (2,289,665) (3,102,589)
Net cash flow from financing activities (3,384,040) 10,737,548
---------------- ----------------
Net (decrease) increase in cash and cash equivalents (57,550) 960,425
Cash and cash equivalents at beginning of financial year 5,969,485 5,019,527
Effects of exchange rate changes (342,894) (10,467)
Cash and cash equivalents at end of financial year $ 5,569,041 $ 5,969,485
================ ================
Notes to the Consolidated Financial Statements
Year ended 31 December 2016
all amounts are shown in US$
1. General Information
Nighthawk Energy PLC (the "Parent") is a company incorporated in England and Wales, under the Companies Act 2006. The address of the registered office is given on the back cover. The nature of the Company's operations and its principal activities are the exploration for, development and sale of, hydrocarbons. The Company operates solely in the state of Colorado USA where it currently owns interests in over 150,000 net mineral acres in and around Lincoln County.
The accompanying financial statements cover the year to 31 December 2016 for the Parent and its subsidiaries (the "Company" or "Nighthawk").
2. Significant accounting policies
Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and therefore the Company financial statements comply with Article 4 of the EU Regulations and applied in accordance with those provisions of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared on the historical cost basis except for derivatives and certain royalty instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets at the date of transaction. The principal accounting policies adopted are set out below.
The principal accounting policies set out below have been consistently applied to all periods presented.
Going Concern
The Directors have reviewed cash forecasts, the current operations of the Group and Company and plans for the next 12 months and consider that the use of the going concern basis of accounting and preparation of the financial statements is appropriate however, there is a material uncertainty related to events or conditions that may cast significant doubt about the ability of the Group and Company to continue as a going concern. Currently, the Group and Company are meeting its day-to-day operational working capital requirements and oil prices have stabilized. Successful implementation of the water flood Pilot Project is expected to provide adequate cash flow for the foreseeable future to meet operating cash flow requirements and debt service costs. However, the Directors note there is a material liquidity risk related to the outstanding loan with Commonwealth Bank of Australia ("CBA") given the 30 June 2017 maturity date. The Group's and Company's ability to meet its liabilities as they fall due for next 12 months is dependent upon successfully extending the existing loan facility on terms acceptable to the Group whilst securing alternative funding.
Based on the discussions with CBA and previous extensions, the Board remains confident that necessary extensions can be secured whilst the debt is refinanced. The Board has held discussions with potential alternative lenders and are confident that the requisite funding can be secured on acceptable terms. Whilst the ability to secure alternative funding is expected to depend on the success of the waterflood project and associated oil reserves upgrade the Board remains confident that the project will deliver the required level of production and PDP reserves based on its status.
The financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern.
Basis of Consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the Company as if they formed a single entity. Intercompany transactions and balances between companies are therefore eliminated in full.
Intracompany transactions with subsidiaries are eliminated on consolidation. Transactions, balances, income and expenses with Joint Operations are eliminated to the extent of the Company's interest in these entities.
In accordance with the exemption in IFRS 1, where merger accounting has been used prior to the transition date the accounting method has not been restated.
Any difference between the nominal value of the shares acquired by the Company and those issued by the Company to acquire these shares is accounted for as merger reserve.
Segmental Reporting
The Company has only one operating segment: the production of, exploration for and investment in hydrocarbons in one geographical area, the United States of America.
Significant Customer
The Company sell all its oil production to an independent third party. The Company has alternative buyers available in the event the existing agreement is discontinued
New and amended IFRS standards in interpretations
The following new or revised Standards and Interpretations have been adopted during the year.
New/Revised International Financial Reporting Standards Effective Date: Annual EU
periods beginning on or after: adopted
IAS 1 Disclosure Initiative - Amendments 1 January 2016 Yes
Annual Improvements to IFRSs 2012-2014 Cycle 1 January 2016 Yes
At the date of authorisation of these financial statements, the following Standards and interpretations which have not been applied in these financial statements were in issue but not yet effective (and, in some cases, had not yet been adopted by the European Union) (standards not expected to have any impact on the Company are not included):
New/Revised International Financial Reporting Standards Effective Date: Annual EU
periods beginning on or after: adopted
IFRS 9 Financial Instruments: Classification and Measurement 1 January 2018 Yes
IFRS 15 Revenue from Contracts with Customers 1 January 2018 Yes
IFRS 16 Leases 1 January 2019 No
IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of revenue recognition. This standard modifies the determination of when to recognize revenue and how much revenue to recognize. The core principle is that an entity recognizes revenue to depict the transfer of promised goods and services to the customer of an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Management are currently assessing the impact of this standard.
IFRS 16 introduces a single lease accounting model. This standard requires lessees to account for all leases under a single on-balance sheet model. Under the new standard, a lessee is required to recognize all lease assets and liabilities on the balance sheet; recognize amortization of leased assets and interest on lease liabilities over the lease term; and separately present the principal amount of cash paid and interest in the
cash flow statement. Management are currently assessing the impact of this standard.
IFRS 9 "Financial instruments" addresses the classification and measurement of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI. There is now a new expected credit loss model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. Management are currently assessing the standard's full impact.
Joint Operations
The Company participates in Joint Operations, which involve the joint control of assets used in the Company's oil and gas exploration and producing activities.
The Company accounts for its share of assets, liabilities, income and expenditure of Joint Operations in which it holds an interest, classified in the appropriate Balance Sheet and Income Statement headings.
Details of the Company's interests in unincorporated Joint Operations are given in Note 14.
Revenues
Oil revenue represents the sales value of the Company oil production during the year and is recognised when sales transactions can be reasonably measured and the risks and rewards of ownership have transferred substantially to the buyer, which occurs at transfer of the hydrocarbons from the Company's facilities to the purchaser's tanker or infrastructure. Revenue is measured at the Company's share of fair value of the consideration received or receivable and represents amounts receivable for oil products in the normal course of business, net discounts and sales related taxes. Royalty interests are recognised on an accruals basis, in accordance with the substance of the relevant agreement.
Oil and gas assets - exploration and evaluation assets (intangibles)
The Company follows a successful-efforts based accounting policy for oil and gas assets. During the geological and geophysical exploration phase, expenditures are charged against income as incurred. Once the legal right to explore has been acquired, expenditures directly associated with exploration and evaluation are capitalised as intangible assets and are reviewed at each reporting date to confirm that there is no indication of impairment and that development is in progress or planned. If no future exploration or development activity is planned in the leased area, the exploration licence and leasehold property acquisition costs are written off. Pre-leasing expenditures on oil and gas assets are recognised as an expense within the income statement when incurred.
Oil and gas assets - development and production assets
Once a well or project is commercially feasible and technically viable, which in practice is when results indicate that hydrocarbon reserves exist in adequate quantity and there is reasonable evidence that the reserves are commercially viable, the carrying values of the associated exploration license and property acquisition costs and the related cost of exploration wells are transferred to development oil and gas properties after an impairment test. Development and production assets are accumulated generally on a well-by-well basis and represent the cost of developing the commercial reserves discovered and bringing them into production. The cost of development and production assets also includes the cost of acquisitions and purchases of such assets, directly attributable overheads, finance costs
capitalised, and the cost of recognising provisions for future restoration and decommissioning. If a drilled well does not show commercially viable reserves, the capitalized costs are written off upon completion of the well.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less depreciation and recognised impairment losses. Cost includes expenditure that is directly attributable to the acquisition or construction of these items.
Subsequent costs are included in the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Company and the costs can be measured reliably. All other costs, including repairs and maintenance costs, are charged to the income statement in the period in which they are incurred.
Depreciation is provided on all property, plant and equipment and is calculated on a straight-line basis or unit of production basis as follows:
Plant and equipment 5% Leasehold land 10% Office equipment 25%
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.
Depreciation of producing assets
The net book values of producing assets are depreciated on a well-by-well basis using the unit-of-production method by reference to the ratio of production in the year and the related economic commercial reserves of the well, taking into account future development expenditures necessary to bring those reserves into production.
Where property, plant and equipment has been acquired for the purposes of exploration, and technical feasibility of the project has yet to be established, the depreciation on the property, plant and equipment is added back to the cost of the intangible assets within exploration costs.
The gain or loss arising on disposal or scrapping of an asset is determined as the difference between the sales proceeds, net of selling costs, and the carrying amount of the asset and is recognised in the income statement.
Impairment of development and production assets
An impairment test is performed at least twice a year or whenever events and circumstances arising during the development or production phase indicate that the carrying value of a development or production asset may exceed its recoverable amount. The carrying value is compared against the expected recoverable amount of the asset, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. The cash flows are discounted using a pre-tax discounted rate adjusted for risks specific to the assets. The cash generating unit applied for impairment test purposes is generally at the well level, except that a number of individual well interests may be combined as a single cash generating unit where the cash inflows of each well are interdependent, as in a unit. Commercial reserves consist of proved and probable oil, which are defined as the estimated quantities of crude oil where geological, geophysical and engineering data has demonstrated, with a specified degree of certainty, to be recoverable in future years from known reservoirs and which are considered commercially viable. There should be at least a 50% statistical probability that the actual quantity of recoverable reserves will be equal to or more than the amount estimated as proved and probable reserves. Any impairment identified is charged to the income statement. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the income statement, net of any depreciation that would have been charged since the impairment.
Impairment of Exploration costs
The Company's intangible exploration cost assets are assessed for impairment when facts and circumstances suggest that the carrying amount of the exploration cost assets may exceed the assets recoverable amount. In accordance with IFRS 6, the Company firstly considers the following facts and circumstances in their assessment of whether the Company's exploration and appraisal assets may be impaired:
-- Whether the period for which the Company has the right to explore in a specific area has expired during the period or will expire in the near future, and is not expected to be renewed;
-- Whether substantive expenditure on further exploration for and appraisal of mineral resources in a specific area is neither budgeted nor planned;
-- Whether exploration for and evaluation of oil in a specific area has not led to the discovery of commercially viable quantities of oil and the Company has decided to discontinue such activities in the specific area; and
-- Whether sufficient data exists to indicate that, although a development in a specific area is likely to proceed, the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full from successful development or by sale.
If any such facts or circumstances are noted, the Company, as a next step, performs an impairment test in accordance with the provisions of IAS 36 as set out above.
Asset Retirement Obligation
An asset retirement obligation provision for plugging, abandonment and reclamation costs has been included within the exploration costs intangible assets and production assets and within liabilities based on management's assessment of asset retirement costs that will be incurred at the end of each project's life. The estimated current date cash flows are adjusted for inflation and are discounted at a risk-free rate. The cash flows used in the provision are risk adjusted.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Cost comprises direct materials, and where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale.
Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Contingent consideration
The Company was party to a deferred contingent consideration agreement in respect of its acquisition of an addition 25% working interest in the Jolly Ranch and Smoky Hill Project in 2012, under which the Company acquired operatorship of the joint operation and increased its interest from 50% to 75%. The Company initially recorded the
fair value of the deferred contingent consideration as part of the acquisition and the obligation is classified as a provision and subsequently carried at the best estimate of the payment that will be required to settle the obligation. Subsequent changes in fair value are recorded in profit or loss. As the contingent consideration provision has expired in January 2017, no amounts are included on the accompanying balance sheet as at 31 December 2016.
Equipment leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. The interest element of finance lease payments is charged to profit or loss as finance costs over the period of the lease. All other leases are classified as operating leases.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Foreign Currency
For the purpose of the consolidated financial statements, the results and financial position of each company are expressed in US Dollars, which is the reporting currency for the consolidated financial statements. The functional currency of the Company's subsidiaries is US Dollars. Foreign currency transactions, by company, are recorded in their functional currencies at the exchange rate at the date of the transaction. Monetary assets and liabilities have been translated at rates in effect at the balance sheet date, with any exchange adjustments being charged or credited to the Income Statement.
The Parent Company's functional currency is the British Pound Sterling. On consolidation, the assets and liabilities of the Parent Company are translated into the Company's reporting currency at the exchange rate at the balance sheet date and the income and expenditure account items are translated at the average rate for the reporting period. The exchange difference arising on the translation from functional currency to presentational currency of the Parent Company is classified as other comprehensive income and is accumulated within equity as a translation reserve.
Taxation
Current Taxation
Current tax for each taxable entity in the Company is based on the statutory tax rate enacted or substantively enacted at the balance sheet date and includes adjustments to taxes payable or recoverable in respect of previous periods.
Taxes that arise from production are recorded as cost of sales and accrue as production arises. A deferred tax asset is recorded when there is sufficient certainty that production taxes paid will give rise to tax deductions in future periods.
Deferred Taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. 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.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rate that is expected to apply in the period when the liability is settled or the asset is realised based on tax laws, and rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
Financial Instruments
Financial assets and financial liabilities are recognised on the Balance Sheet when the Company becomes a party to the contractual provisions of the instrument.
Trade and other receivables
Trade receivables are measured on initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Company will not be able to collect all amounts due. The amount of any provision is recognised in the income statement.
Trade and other payables
Trade and other payables are initially recorded at fair value and subsequently measured at amortised cost using the effective interest rate method.
Borrowings and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Borrowings are initially recorded at fair value and subsequently measured at amortised cost using the effective interest method. If the terms of borrowings are modified, the Company determines whether the modification represents a substantial modification under IFRS. A modification is considered substantial if the discounted present value of the cash flows under the new terms, including any fees paid, net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. Borrowings that are considered to be substantially modified
are derecognised and transaction costs associated with such loan modifications, are written off to the income statement. Transaction costs arising from modifications of borrowings that do not qualify as substantially modified are deducted from the liability and amortised prospectively through the effective interest rate method.
Royalty or profit share interests associated with loans are recorded at fair value through profit or loss, unless the royalty terminates upon disposal of the wells or a change in control, when such events form part of the Company's strategy. In such circumstances the royalty is recorded on an accrual basis as production arises. Where royalties are issued in conjunction with debt financing, the initial fair value is treated as a transaction cost and deducted from the loan liability and subsequently amortised through the effective interest rate. The royalty liability is subsequently revalued.
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Compound instruments
The component parts of compound instruments (convertible notes and loans with detachable warrants) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash for a fixed number of the Company's own equity instruments is an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is subsequently recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date.
The conversion option or detachable warrant classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently re-measured. No gain or loss is recognised in profit or loss upon conversion or expiration of the conversion option.
Transaction costs that relate to the issue of the compound instruments are allocated to the liability and equity components in proportion to the fair value of the debt and equity components. Transaction costs relating to the equity component are recognised directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortised over the lives of the compound instruments using the effective interest method.
If the terms of a compound financial instrument are modified the Company determines whether the modification represents a substantial modification under IFRS. A modification is considered substantial if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial instrument. Compound financial instruments that are substantially modified are derecognised and transaction costs incurred as part of the loan modifications are recorded to the income statement and equity accounts in proportion to the relative fair value of the debt and equity component at the time of extinguishment. If the transaction costs can be specifically attributed to the new instrument, the portion attributable to the debt component is amortised prospectively through the effective interest rate.
Incremental fair value changes arising from the modification of warrants originally issued as part the compound financial instrument are considered to represent transaction costs and are determined using the Black-Scholes valuation model.
Derivative nancial instruments
The Company enters into derivative financial instruments in the form of oil price swaps and costless collars to manage its exposure to oil price risk. Derivatives are initially recognised at fair value at the date the derivative contracts are
entered into and are subsequently re-measured to their fair value at the end of each reporting period. Fair value is determined inclusive of adjustments for the Company's own credit risk and the credit risk of counterparty to the derivative. The resulting gain or loss is recognised in profit or loss immediately, unless the instrument has been designated as a hedging instrument.
Hedge accounting
The Company designates certain hedging instruments, which are derivatives, in respect of commodity price risk, as cash flow hedges. At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. The Company enters into such derivatives to manage the risk associated with oil price fluctuations and therefore the impact of credit risk adjustments are excluded from the hedging relationship. Furthermore, at the inception of the hedge and on an on-going basis, the Company documents whether the hedging instrument is highly effective in offsetting cash flows of the hedged item attributable to the hedged risk. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in a cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. The portion of the change in fair value of the derivative attributable to credit risk adjustments is recognised immediately in profit and loss. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged volumes affects profit or loss, and recorded in the same line as the recognised hedge item.
Hedge accounting is discontinued when the Company revokes the hedging relationship; when the hedging instrument expires or is sold, terminated or exercised; or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
Finance expenses
Interest is recognised using the effective interest method which calculates the amortised cost of a financial liability and allocates the interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments, through the expected life of the financial liability to the net carrying amount of the financial liability.
Share-Based Payments
Equity settled share-based payments are measured at the fair value of the equity instruments at the date of grant. The fair value includes the effect of market-based vesting conditions. Details regarding the determination of the fair value of equity settled share-based transactions are set out in Note 23.
The fair value determined at the date of grant of the equity-settled share-based payment is expensed on a straight-line basis over the vesting period, based on the Company's estimate of the number of equity instruments that will eventually vest. At each balance sheet date, the Company revises its estimated number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the Income Statement.
Warrants
Share warrants have been issued in lieu of interest on certain convertible loans in the prior years; as such the associated cost of these is accounted for as a finance cost.
The fair value of the warrants is measured at the grant date. The Black Scholes valuation model is used to assess the fair value, taking into account the terms and conditions attached to the warrants. The finance costs recorded are measured by reference to the fair value of warrants.
Share warrants are recognised as an increase in equity immediately on issue as warrants vest immediately. The expense associated with the share warrants is recognised in accordance with the substance of the transaction, either as an immediate expense in the income statement or as a transaction cost associated with the issue or extension of loan notes.
Employment Benefits
Provisions are made in the financial statements for all employee benefits. Liabilities for wages and salaries, including non-monetary benefit and annual leave obliged to be settled within 12 months of the balance sheet date, are recognised as accrued liabilities.
The Company's contributions to defined contribution pension plans are charged to the income statements in the period to which the contributions relate.
3. Critical accounting judgements and estimates
In the application of the Company's accounting policies, which are described in Note 2, the Directors and management are required to make critical accounting judgments and assumptions. The assumptions are based on historical experience and other factors that are considered to be relevant.
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the prevailing circumstances.
The following are the critical judgements that the Directors have made in the process of applying the Company's accounting policies, and that have the most significant effect on the amounts recognised in the financial statements.
Exploration and Evaluation Costs
The Company's accounting policy leads to the capitalisation of tangible (Note 13) and intangible (Note 12) fixed assets, where it is considered likely that the amount capitalized will be recoverable by future exploitation, sale or, alternatively, where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. This requires management to make estimates and assumptions as to the future events and circumstances, especially in relation to whether an economically viable extraction operation can be established. Such estimates are subject to change and, should it become apparent that recovery of the expenditure is unlikely following initial capitalisation, the relevant capitalised amount will be written off to the Income Statement.
Judgment is further required in determining the date at which exploration assets achieve commercial production and commence depreciation. In forming that assessment, the Company considers factors such as the availability of economically recoverable reserves and the production rates delivered by wells.
Carrying value of exploration, development and producing properties
Management reviews intangible exploration cost assets (Note 12) for indicators of impairment under IFRS 6 at the end of each reporting period. This review of assets for potential indicators of impairment requires judgment including whether renewal of licences is planned, interpretation of the results of exploration activity and the extent to which the Company plans to continue substantive expenditure on the assets. In determining whether substantive expenditure remains in the Company's plan, management considers factors including future oil prices, plans for lease renewal and development and future drilling plans. If impairment indicators exist, the assets are then tested for impairment and carried at the lower of the estimated recoverable amount and net book value.
The carrying value of development and producing oil and gas assets (Note 13) is subject to judgement as to their recoverable value. The calculation of recoverable value requires estimates of future cash flows within complex value-in-use models. At each balance sheet date the Directors review the carrying amounts of the Company's development and producing properties to determine whether there is any indication that those assets have suffered an impairment loss.
For development and producing oil and gas properties, the following are examples of the indicators used:
-- A significant and unexpected decline in the asset's market value or likely future revenue; -- A significant change in the asset's reserves assessment;
-- Significant changes in the technological, market, economic or legal environments for the asset; or
-- Evidence is available to indicate obsolescence or physical damage of an asset, or that it is underperforming expectations.
The assessment of impairment indicators requires the exercise of judgement. If an impairment indicator exists, then the recoverable amount of the cash-generating unit and/or individual asset is determined based on the higher of value-in-use and fair value less cost of disposal calculations. This requires the use of estimates and assumptions, such as: future oil prices, life of field/well, discount rates, operating costs, future capital requirements, exploration potential, recompletion potential, oil reserves and operating performance.
The key estimates were as follows:
-- Oil prices - determined based on the market WTI forward curve as at year end, together with a discount to reflect the terms of sales contracts.
-- Oil reserve quantities - determined based on estimated economically recoverable reserves, based on external competent person assessments.
-- Production Costs-costs incurred to produce oil -- Transportation costs
-- Discount rate - pre-tax discount rate specific to the risks associated with the assets determined at 12%.
-- Capital development costs
In addition, wells which have been plugged and abandoned during the year, or wells for which a decision has been taken during the year to plug and abandon the well, have been impaired.
These estimates and assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or Cash Generating Units (CGUs).
The Company has recorded an impairment of $7.1 million in 2016 as compared to $75.1 million in 2015, in respect of exploration costs and property, plant and equipment as detailed in Note 9. A 10% decrease in realised oil prices would increase the impairment by $nil million. An increase in the discount rate to 15% would increase impairment by $nil million. The Directors consider the inputs used to be appropriate best estimates.
Reserve Estimates
Reserves are estimates of the amount of oil that can be economically and legally extracted from the Company's properties. In order to calculate the reserves, estimates and assumptions are required for a range of geological, technical and economic factors, including those detailed above.
Estimating the quantity and/or grade of reserves requires the size, shape and depth of fields to be determined by analysing geological data such as drilling samples and 3D seismic. This process may require complex and difficult geological judgements and calculations to interpret the data.
Given that economic assumptions used to estimate reserves may change from year to year, and because additional geological data is generated during the course of operations, estimates of reserves may change from year to year.
Changes in reported reserves may affect the Company's financial results and financial position in a number of ways, including the following:
-- Asset carrying values, detailed in Notes 12 and 13, may be affected by possible impairment due to adverse changes in estimated future cash flows and the commercial viability of reserves.
-- Depreciation, depletion and amortisation (detailed in Note 5) that is charged in the Income Statement may change where such charges are determined by the unit of production basis, or where the useful economic life of asset changes.
-- Provisions for plugging and abandoning a well may change as a result of revisions to the timing of such plugging and abandonment efforts.
Judgments associated with debt finance
During the year, the Company obtained a new loan as detailed in Note 19 and modifications to existing instruments. The accounting requires judgments and estimates which are set out in the note including the valuation of the royalty associated with the new loan and assessments as to the valuation of conversion rights associated with the modified debt.
Derivative valuations
The Company's oil swaps and costless collars are carried at fair value. The fair value is determined based on mark-to-market valuations provided by third parties, which in turn is dependent on estimates regarding risk free discount rates and oil prices. Additionally, when material, the mark-to-market valuations are adjusted for credit risk associated with the Company and counterparty which are determined based on credit spreads applicable to the Company and the counterparty. Refer to Note 17 for details.
4. Revenue
An analysis of the Company's revenue is as follows:
2016 2015
-------------- --------------
Continuing operations
Sales revenue $ 15,027,487 $ 21,729,188
Gains on hedging instruments reclassified from equity to profit or loss 3,686,396 7,837,223
Mark-to-market losses on hedging instruments (744,424) -
Other income 53,874 42,504
-------------- --------------
$ 18,023,333 $ 29,608,915
============== ==============
5. Operating loss
The operating loss before taxation for the years has been arrived at after charging:
2016 2015
------------- -------------
Depreciation $ 3,673,404 $ 6,711,917
Amortisation and contribution to match test revenue 4,372 573,220
Equity settled share-based payments 47,455 251,666
Production profit share expense 325,835 321,030
6. Auditor's remuneration
The analysis of auditor's remuneration is as follows:
2016 2015
----------- -----------
Fees payable to the Company's auditors for the audit of the annual financial
statements $ 116,384 $ 132,140
Fees payable to the Company's auditor and their associates for other services to
the Company:
Tax legislative assistance 16,496 21,890
Tax advice and other advisory 8,603 10,607
----------- -----------
$ 141,483 $ 164,637
=========== ===========
7. Staff Costs
The aggregate payroll costs of the employees, including both management and executive Directors, were as follows:
2016 2015
-------------- -------------
Staff costs
Wages and salaries $2,758,440 $ 4,063,190
Social security costs 116,146 189,819
Pension costs 256,312 383,507
-------------- -------------
3,130,898 4,636,516
Equity settled share-based payments 47,455 251,666
-------------- -------------
$ 3,178,353 $ 4,888,182
============== =============
Average number of persons employed by the Company during the year was as follows:
2016 2015
------ ------
United Kingdom 1 2
United States 12 14
------ ------
13 16
====== ======
2016 2015
----------------- -------------
Remuneration of Directors
Emoluments for qualifying services $ 725,799 $ 1,157,622
Company pension contributions and benefits 14,341 94,974
Social security costs 21,595 49,865
----------------- -------------
$ 761,735 $ 1,302,460
================= =============
The number of Directors during 2016, accruing benefits under money purchase pension scheme arrangements was one in 2016 as compared to two during 2015.
During the year no Directors exercised any share options.
During 2015 Steve Gutteridge, who retired from the Board of Directors on 30 September 2014, exercised share options to acquire 1,700,000 ordinary shares.
Details of each director's remuneration and share options granted are included in the Remuneration Report.
2016 2015
------------------ ----------------
Highest paid director
Remuneration $ 377,440 $ 369,600
Company pension contributions and benefits 30,461 48,019
------------------ ----------------
$ 407,901 $ 417,619
================== ================
8. Finance Costs
2016 2015
------------- -------------
Imputed interest on convertible loan notes $ 2,013,122 $ 1,571,189
Interest on shareholder loan issued with warrants 1,639,569 1,584,916
Interest on bank loan 1,390,993 1,508,528
Interest on shareholder loan 277,241
Finance lease interest 21,477 -
------------- -------------
Total interest expense 5,342,402 4,664,633
------------- -------------
Loss on rescheduling of loans 709,720 -
Exchange losses on financial liabilities 1,790,208 384,928
Other 329,689 28,881
------------- -------------
$ 8,172,019 $ 5,078,442
============= =============
Finance costs include certain non-cash transactions in respect of effective interest rate charges and losses on loan rescheduling.
9. Exceptional administrative expenses
2016 2015
------------- --------------
Exceptional Administrative Expenses:
Impairment of exploration and production assets $ 7,130,541 $ 75,144,103
Release of contingent consideration provision (333,500) (2,666,500)
------------- --------------
$ 6,797,041 $ 72,477,603
============= ==============
The Company assessed the recoverability of its undeveloped exploration assets based upon factors such as market conditions, current spot and forward prices of oil, and future exploration and development plans. Due primarily to the continued depressed oil prices, and with no plans to pursue an aggressive drilling program, $7.1 million, was written off as at 31 December 2016 as compared to $40.5 million as at 31 December 2015. No other impairment were made for 2016.
During 2015, the Company drilled five wells that did not result in commercial economic reserves. As a result, the costs to drill and complete these wells were written off as of 31 December 2015, and totalled $5.2 million. In addition, an impairment charge of $28.9 million was taken to the income statement and represented an impairment of certain wells which mainly arose from a reduction in the spot and forward oil price assumptions used in estimating the future discounted cash flows for each well.
Of the total 2015 impairment of $75.1 million, $38.5 million was attributable to exploration costs included in intangible assets, and $11.5 million, $10.2 million and $14.4 million were attributable to leasehold land, plant and equipment and production assets, respectively, or a total of $36.1 million included in property, plant and equipment. An additional $0.5 million was recorded as impairments for costs incurred during the current period for wells which had been fully impaired in prior periods.
During 2016, the Company released $333,500 of the contingent consideration provision as compared to $2.7 million during 2015. Refer to Note 30.
10. Taxation
The Parent Company is subject to taxation in the United Kingdom at an estimated rate of 20% for 2016 and 20.25% in 2015, and the Company's subsidiaries are subject to taxation in the United States at an estimated rate of 38.00% for 2016 and 2015.
As of 31 December 2016, there was a current tax credit of $Nil arising in the US in the nancial year (2015: $394,858 current tax credit). No tax charge arose in the UK for either 2016 or 2015.
The reasons for the di erences between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied losses for the year are as follows:
Reconciliation of the effective tax charge: 2016 2015
---------------- ----------------
Loss before taxation $ (12,798,159) $ (70,181,468)
================ ================
Current tax (credit) expense:
Loss before taxation multiplied by standard rate of corporation tax in
the UK of 20% (2015:
20.25%) (2,559,632) $ (14,242,255)
Tax effects of:
Other expenses not deductible for tax purposes 1,246 55,310
Di erent tax rates applied in overseas jurisdictions (1,045,250) (8,959,430)
Effect of tax rate change (1,355,415) 404,959
Adjustments related to prior year (2,270,286) -
Unrecognised tax losses 6,506,922 22,346,558
Other 722,415
---------------- ----------------
Current tax credit - (394,858)
Deferred tax expense (credit):
Tax losses recognised (utilised) during the year related to hedging 1,419,971 545,526
---------------- ----------------
Tax in income statement and effective tax rate 1,419,971 $ 150,668
================ ================
Amounts recorded in other comprehensive income (loss):
Deferred tax on hedging instruments designated in cash flow hedges $ 110,968 $ 2,244,635
Deferred tax on gain reclassified to income statement for
cash flow hedging instruments 1,312,409 (2,790,161)
Deferred tax on hedging from rate change (3,406) -
---------------- ----------------
Total $1,419,971 $545,526
================ ================
2016 2015
-------------- --------------
Deferred tax
Deferred tax liabilities:
Accelerated tax deductions $ - $ -
Fair value of derivatives (122,187) (1,540,756)
Deferred tax assets:
Accelerated book deductions 4,235,400 1,062,144
Intercompany interest 1,522,180 478,612
Loss carry forward 62,606,562 57,553,740
Deferred tax not recognized (68,241,955) (57,553,740)
Net deferred tax $ - $ -
============== ==============
No deferred tax asset has been recognised at 31 December 2016 and 2015, for the net federal tax operating loss carry forwards of $172.1 million and $163.6 million, respectively, which are available under US tax statutes, due to uncertainty over the timing of future pro ts as well as the fact that the Company's ability to utilise some of these tax losses is restricted under Section 382 of the Internal Revenue Code to an amount of $0.4 million per annum. The unrecognized taxable losses in the U.S. can be carried forward for U.S. Federal and Colorado State income tax purposes for up to 20 years. These losses, if not utilized, will expire in the years 2026 through 2033.
A deferred tax asset in respect of $13.2 million at 31 December 2016 and $20.4 million at 31 December 2015 of taxable losses available in the UK has not been recognised due to the uncertainty over timing of future pro ts. The taxable losses available in the UK can be carried forward inde nitely.
11. Loss Per Share
Loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
2016 2015
---------- ----------
Basic loss per share
Loss per share from continuing operations $ (0.01) $ (0.07)
========== ==========
Diluted loss per share
Loss per share from continuing operations $ (0.01) $ (0.07)
========== ==========
The Company has 911,066,081 potentially dilutive shares in issue, in respect of options to acquire 38,750,000 shares of the Company, warrants to acquire 130,000,000 shares of the Company, loan conversion rights to acquire 477,033,333 shares of the Company and deferred interest conversion rights to acquire 265,282,748 shares of the Company. Due to the Company's reported losses, share options and warrants were not taken into account when determining the weighted average number of ordinary shares in issue during the year as the options and warrants were anti-dilutive. Subsequent to the balance sheet date, no shares were issued.
The loss and weighted average number of ordinary shares used in the calculation of basic and diluted net loss per share are as follows:
2016 2015
Net loss used in the calculation of total basic and diluted loss
per share from continuing
operations $ (14,218,130) $ (70,332,136)
================ ================
Number of shares
Weighted average number of ordinary shares for the purposes of
basic net loss per share 964,076,330 963,629,481
Dilutive effect of options, conversion shares and warrants - -
---------------- ---------------------
Weighted average number of ordinary shares for the purposes of
diluted net loss per share 964,076,330 963,629,481
================ =====================
12. Intangible Assets
Exploration Royalty
costs interests Total
-------------- ------------ --------------
Cost
At 31 December 2014 $106,325,273 $ 359,391 $106,684,664
Additions 17,008,354 - 17,008,354
Transfers (note 13) (17,409,792) - (17,409,792)
At 31 December 2015 105,923,835 359,391 106,283,226
Additions 5,321,691 - 5,321,691
Transfers (note 13) (867,517) - (867,517)
At 31 December 2016 $110,378,009 $ 359,391 $110,737,400
============== ============ ==============
Amortisation and impairment
At 31 December 2014 $55,255,249 $ 36,499 $55,291,748
Charge - 3,700 3,700
Contribution to match revenue 569,521 - 569,521
Impairment 38,526,511 - 38,526,511
At 31 December 2015 94,351,281 40,199 94,391,480
Charge - 4,372 4,372
Transfers (note 13) 954,882 - 954,882
Impairment 7,112,106 - 7,112,106
At 31 December 2016 $102,418,269 $ 44,571 $102,462,840
============== ============ ==============
Net book value
At 31 December 2016 $ 7,959,740 $ 314,820 $ 8,274,560
============== ============ ==============
At 31 December 2015 $ 11,572,554 $ 319,192 $ 11,891,746
============== ============ ==============
At 31 December 2014 $ 51,070,024 $ 322,892 $ 51,392,916
Management reviews each exploration project for indication of impairment at each balance sheet date based on IFRS 6 criteria. Indicators of impairment were considered, which included expiring leases, future development plans for the leases, abandoned leases/wells and the estimated fair value less cost to sell of the underlying assets.
Due to these indicators being present at 31 December 2016 and 2015, and the resultant impairment test, impairments were recorded in the 2016 and 2015 financial year. Consequentially, certain full and partial impairments, as appropriate, of the remaining values were recognised, as disclosed in Note 9.
13. Property, Plant and Equipment
Leasehold Plant and Office Leased equipment Production
equipment equipment assets Total
------------- ------------- ------------ ------------------ ------------- --------------
Cost
At 31 December 2014 $44,574,485 $24,642,899 $198,674 - $28,388,648 $97,804,706
Additions 4,961,565 3,991,321 48,188 - - 9,001,074
Transfers (note 12) - - - - 17,409,792 17,409,792
Disposals (4,173,339) (1,766,763) (4,801) - - (5,994,903)
Foreign exchange
variance - - (257) - - (257)
At 31 December 2015 45,362,711 26,867,457 241,804 - 45,798,440 118,270,412
------------- ------------- ------------ ------------------ ------------- --------------
Additions 1,389,739 1,114,052 - 918,578 - 3,422,369
Transfers (note 12) - - - - 867,517 867,517
Foreign exchange
variance - - (212) - - (212)
At 31 December 2016 $46,752,450 $27,981,509 $241,592 $918,578 $46,665,957 $122,560,086
============= ============= ============ ================== ============= ==============
Accumulated
Depreciation
At 31 December 2014 $29,479,745 $4,975,559 $74,390 - $16,145,560 $50,675,254
Charge 4,803,356 1,395,378 29,199 - 5,776,885 12,004,818
Impairment 11,487,855 10,212,595 - - 14,407,087 36,107,537
Disposals (4,173,339) (1,766,763) (4,330) - - (5,944,432)
Foreign exchange
variance - - (1,510) - - (1,510)
At 31 December 2015 41,597,617 14,816,769 97,749 - 36,329,532 92,841,667
Charge 4,119,481 1,467,217 77,467 138,695 2,147,851 7,950,711
Impairment 18,435 18,435
Transfers (note 12) (954,882) (954,882)
Foreign exchange
variance - - (30) - - (30)
At 31 December 2016 $44,762,216 $16,302,421 $175,186 $138,695 $38,477,383 $99,855,901
============= ============= ============ ================== ============= ==============
Net book value
At 31 December 2016 $1,990,234 $11,679,088 $66,406 $779,883 $8,188,574 $22,704,185
============= ============= ============ ================== ============= ==============
At 31 December 2015 $3,765,094 $12,050,688 $144,055 - $ 9,468,908 $ 25,428,745
============= ============= ============ ================== ============= ==============
At 31 December 2014 $15,094,740 $19,667,340 $124,284 - $12,243,087 $ 47,129,451
============= ============= ============ ================== ============= ==============
Impairments during the 2015 financial year relate to 1) the decision taken to plug and abandon certain wells and 2) a reduction in the net present value of the producing assets of the Company due primarily to the decline in oil prices used to estimate the value of wells. Consequentially, certain impairments have been recognised, as disclosed in Note 9. The Company determines the recoverable amount for individual assets on a well-by-well basis.
For the year ended 31 December 2016, depreciation charges of $4,083,814 and $193,531 relating to leasehold land and plant and equipment, respectively, have been capitalised within intangible assets additions. For the year ended 31 December 2015, depreciation charges of $5.3 million have been capitalised within intangible assets additions.
14. Investment in Jointly Controlled Operations
As at 31 December 2016, the Company was involved in a joint development agreement ("JDA") with an unrelated third party. The El Dorado Joint Development area covers 40,372 net mineral acres around the Company's existing acreage. As the owner of a 15% working interest, the Company has the right, but is not obligated, to participate in the drilling of any well in the Joint Development area.
As at 31 December 2015, the Company also was involved in a second JDA. The Monarch Joint Development area is operated by the Company, covers 23,619 net mineral acres southwest from the Arikaree Creek field and Snow King Project. To earn its 50% working interest in the underlying acreage, the Company bore 100% of the $3.4 million in costs to drill four wells prior to 31 December 2015, three of which were dry holes, and one of which was completed to produce a minimal amount of crude oil, rendering it uneconomic. All of the costs to drill the four wells were impaired at 31 December 2015. In addition, the Company was to bear 100% of the costs to drill two additional wells on or before 30 June 2016, with estimated dry hole costs of $0.60 million per well, and completed well costs of $0.6 million per well. During 2016, the Company renegotiated the JDA with its partner whereby Nighthawk would: 1) make a payment to JDA partner of US$500,000; 2) Nighthawk would complete an up-hole zone in the Monarch 10-15 well, at the Company's expense; 3)Nighthawk would assign an increased revenue share from the Monarch 10-15 well and a 2% net overriding revenue interest in the land section surrounding the Monarch 10-15 wellbore; and 4) in exchange for the above consideration, the Company received from the JDA partner, an assignment of their working interest in all remaining acreage in the JDA.
During 2015, a 3D seismic program over the entire area was completed, covering both the Monarch and El Dorado Joint Development acreage. By the terms of the JDA, the Company bore 100% of the $2.3 million cost of the seismic in exchange for a proportional percentage ownership in the data within the Monarch Joint Development area. This cost is included in Intangible Assets.
15. Inventory
2016 2015
----------- -----------
Oil in tanks $ 147,379 $ 172,071
Spares, consumables and equipment 638,525 744,968
----------- -----------
$ 785,904 $ 917,039
=========== ===========
Inventory includes oil held in tanks at year end in addition to casing, tubing and equipment to be used in existing and future wells. The inventories are held at the lower of cost or net realisable value.
16. Trade and Other Receivables
2016 2015
------------- -------------------
Trade receivables $ 1,380,442 $ 1,122,195
Commodity derivative settlements from financial institutions 121,802 797,256
Other receivables 373,266 346,892
Prepayments 477,993 526,503
Income tax receivable - 221,000
------------- -------------------
$ 2,353,503 $ 3,013,846
============= ===================
The Directors consider the carrying value of trade and other receivables to approximate to their fair value.
17. Derivative Financial Assets and Liabilities
2016 2015
------------- --------------------
Derivatives designated and effective as hedging instruments
--Oil price swaps and costless collars $ 329,702 $ 4,327,794
Derivatives that are not designated in hedge accounting
-- Oil price swaps (628,099) 172,850
------------- --------------------
Total $ (298,397) $ 4,500,644
Current $ (298,397) $ 3,997,996
Non-current - 502,648
------------- --------------------
Total $ (298,397) $ 4,500,644
============= ====================
18. Trade and Other Payables
2016 2015
------------- -----------------
Trade payables $ 942,225 $ 916,903
Royalty payables 742,736 62,130
Accrued expenses 3,489,939 4,080,401
------------- -----------------
$ 5,174,900 $ 5,059,434
============= =================
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amounts of trade and other payables are approximate to their fair values.
19. Borrowings
The following table sets out the carrying values of the loans and borrowings:
Loan A B C D E F Total
---------------- ------------ ------------ ------------- ------------- ------------- ------------ -------------
Date of issue January June July September August July
2012 2013 2013 2014 2015 2016
------------ ------------ ------------- ------------- ------------- ------------
Effective
interest
rate 12% 12% 12% 5% 12% 15%
------------ ------------ ------------- ------------- ------------- ------------ -------------
Borrowings at
31
December 2014 3,802,506 4,489,001 9,791,447 22,000,020 - - 40,082,974
------------ ------------ ------------- ------------- ------------- ------------ -------------
Foreign
exchange
variance (227,411) (264,450) (16,350) - (359,303) - (867,514)
6,310
Issue of loans - - - - ,229 - 6,310,229
Additional
loan
drawdown - - - 7,000,000 - - 7,000,000
Repayment of
loan
capital - - - (3,000,000) - - (3,000,000)
Interest
expense 723,393 506,934 1,584,916 1,508,528 340,862 - 4,664,633
Interest paid - (405,406) (1,500,000) (1,197,183) - - (3,102,589)
------------- ------------
Borrowings at
31
December 2015 $4,298,488 $4,326,079 $9,860,013 $26,311,365 $6,291,788 $ - $51,087,733
============ ============ ============= ============= ============= ============ =============
Foreign
exchange
variance (763,793) (690,738) (40,040) - (1,065,814) (123,704) (2,684,089)
Issue of loans - - - - - 3,000,000 3,000,000
Royalty
interest
recognised
separately - - - - - (602,425) (602,425)
Repayment of
loan
capital - - - (4,000,000) - - (4,000,000)
Loss on
rearrangement
of loan - - - 709,720 - - 709,720
Interest
expense 761,215 454,200 1,604,210 1,390,993 785,755 277,241 5,273,614
Interest paid - (189,144) (747,945) (1,272,576) - (80,000) (2,289,665)
Interest on
deferral
of interest
payment - 11,952 35,359 - - - 47,311
------------- ------------
Borrowings at
31
December 2016 $4,295,910 $3,912,349 $10,711,597 $23,139,502 $6,011,729 $2,471,112 $50,542,199
============ ============ ============= ============= ============= ============ =============
Except for loan D, as at 31 December 2016, all loan maturities are greater than one year and the loans are classified as non-current in the Consolidated Balance Sheet.
At 31 December 2016, the loans and borrowings include $0.7 million of unamortised transaction costs held as a reduction in the carrying value of the loans and borrowings. At 31 December 2015, the loans and borrowings include $2.4 million of unamortised transaction costs held as a reduction in the carrying value of the loans and borrowings. This includes transaction costs on rescheduled loans that did not qualify as significant modifications, as well as transaction costs on significant modifications when such costs were considered wholly attributable to the new loans.
Summary of borrowing arrangements
A. The Company issued $15,604,889 (GBP10,000,000) nominal of unsecured convertible loan notes, zero coupon over a three-year term on 23 January 2012. The loan notes are convertible by holders at any time into such number of ordinary shares as is calculated by dividing the nominal value of notes to be converted by 2.5 pence per share at any time up to and including the redemption date. Additionally, 100,000,000 share warrants were issued to holders of these convertible loan notes. This debt was originally repayable on demand after three years (if not previously converted), hence its fair value on initial recognition was the US$ equivalent of GBP10m discounted originally from three years. In September 2014, the Company and the holders of the remaining carrying value of $8,160,214 (GBP5,019,724) nominal agreed to extend the redemption and final conversion date out to March 2019. As at 31 December 2016, the loan is convertible into 206,700,000 shares of the Company.
The 2014 extension was considered to represent a substantial modification of the convertible loan notes. The existing liability portion of the loan notes was derecognised and the equity option on the loan notes was transferred to retained earnings (deficit). The revised convertible loan notes was recognised with the liability component determined based on the future cash flows discounted at 12%, which was determined to be a market rate for equivalent debt without conversion options. The difference between the loan notes principal and the fair value of the liability component was recorded in the equity option on the convertible loan note reserve. The incremental fair value associated with extending the warrants was considered to represent a transaction cost for new convertible loan notes and the portion attributable to the liability was deducted from the liability account and amortised over the remaining term through the effective interest rate. The incremental fair value of the warrant was determined using a Black-Scholes model.
B. The Company issued $5.8 million (GBP3.8 million) nominal of unsecured convertible loan notes at 9% p.a. interest originally over a two year term on 3 June 2013.
The loan notes are convertible into ordinary shares at 5.5 pence per share originally at any time up to and including the second anniversary of issue. In September 2014, the Company and the holders of the remaining unconverted carrying value of $5,008,290 million (GBP3,080,830) nominal agreed to extend the redemption and final conversion date out to March 2019. At 31 December 2016, the loan is convertible into 57,000,000 shares of the Company. As part of the negotiations for the extension of Note D in June 2016, the loan note holders agreed to defer interest payments until July 2017. The deferred interest amount will accrue interest at 15%. At the end of the deferral period, the loan note holders may, at their option, convert the deferred interest amount into shares of the Company at 1.0 pence, or received the deferred interest plus accrued interest in cash. The fair value of the conversion right was assessed and determined to be immaterial.
The extension was considered to represent a substantial modification of the convertible loan note and was accounted for in line with Loan A above, excluding the warrant extension which was not applicable to this loan note.
C. Shareholder loan issued July 2013 for $12,000,000 (GBP7,728,799) at 9% p.a. interest, with 30,000,000 embedded detachable warrants (included within the loan agreement in lieu of arrangement fees).
The terms of the loan were subsequently varied as follows:
i) In November 2013, the terms of the loan were varied such that the remaining balance of $9 million would be repaid in three repayments of $3 million on or before 30 April 2014, 31 July 2014 and 31 October 2014.
Additionally, in consideration for the revised repayment profile, the lender was granted a royalty payment equal to 1% of the Company's net revenue interest in six new well bores being or to be drilled commencing with the Big Sky 12-11 well, which survives until the Company is sold or the Company sells the wells subject to the royalty payment.
ii) In April and May 2014, the terms of the loan were further varied such that an additional amount totalling $4.5 million was made available and drawn with the entire loan to be repaid in three instalments by 31 January 2015. The coupon was increased from 9% to 15% p.a.
iii) In September 2014, $3,500,000 of the loan principal was repaid. The balance of $9,967,124 carrying value principal was extended at 15% p.a. interest with a bullet repayment in March 2019, which can be repaid earlier at the Company's sole election without penalty. The warrants attached to the loan were also extended to March 2019.
The extension and modification of the coupon in April and May 2014 was considered to represent a substantial modification and the loan was derecognised and unamortised transaction costs expensed. The subsequent extension was not considered to represent a significant modification. The incremental fair value associated with extending the warrants was considered to represent a transaction cost and is amortised over the remaining term through the effective interest rate. The incremental fair value of the warrant was determined using the Black-Scholes model.
As part of the negotiations for the extension of Note D in June 2016, the loan note holders agreed to defer interest payments until July 2017. The deferred interest amount will accrue interest at 15%. At the end of the deferral period, the loan note holders may, at their option, convert the deferred interest amount into shares of the Company at 1.0 pence, or received the deferred interest plus accrued interest in cash. The fair value of the conversion right was assessed and determined to be immaterial.
D. On 26 September 2014, the Company entered into a $100 million senior secured credit facility ("Facility') with Commonwealth Bank of Australia ("Bank"). The Facility contained both a four year Revolving Credit Facility and a Letter of Credit Facility. Interest was historically charged on monies drawn down at a margin of up to 4.0% over US Libor and a margin of 0.5% is charged on undrawn amounts within the borrowing base. The amounts available to be drawn under the borrowing base at 31 December 2016 was $23 million as compared to $27.0 million at 31 December 2015. Transaction costs of $1.1 million were deducted from the carrying value of the loan at the origination date and were amortised through the effective interest rate. As of 31 December 2015, the Company was not in compliance with certain of the loans covenants and provisions. The Company obtained covenant waivers through 10 June 2016. Effective 30 June 2016, the Company reached an agreement with CBA which, among other items, set the maturity date as 30 June 2017 and changed the interest rate to 6.0% over US Libor. As part of this modification, unamortized debt costs of $0.7 million were written off. Due to the maturity date, the Facility has been recorded as a currently liability on the accompanying financial statements. Management believes that a mutually beneficial agreement can be reached with CBA prior to the maturity date.
E. On 14 August 2015, the Company issued $10,000,000 (GBP6,400,000) nominal of unsecured convertible loan notes carrying zero coupon over a period up to March 2019. The loan notes are convertible by holders at any time into such number of ordinary shares as is calculated by dividing the nominal value of notes to be converted by 3 pence at any time up to and including the redemption date. The liability was recorded at fair value, based on the present value of the debt cash flows discounted at 12% with the residual of the proceeds recorded in equity. As a result, $3,399,771 of the fair value was assigned to the equity component of this loan. Gross proceeds were reduced by $290,000 of transaction costs which are shown net in the issue of loans amount. As at 31 December 2016 (and 31 December 2015), the loan is convertible into 213,333,333 shares of the Company.
F. On 28 July 2016, the Company issued a $3.0 million secured loan note at 15% p.a. interest and matures 30 April 2019. The loan note included a royalty payment equalling to 1% of the Company's net revenue interest in two specific well bores for the life of the wells. The royalty payment is recorded at fair value through profit and loss and its fair value is principally a function of future production estimates, oil price estimates, operating cost estimates, discount rates and decline rates. The fair value as at 31 December 2016 is $654,413.
Not included in the above table was a loan issued January 2014 at 9% p.a. interest with a royalty payment equalling to 3% of the Company's net revenue interest in two specific well bores for the life of the wells. The loan was repaid in full in September 2014. The royalty payment is recorded at fair value through profit and loss and its fair value is principally a function of future production estimates, oil price estimates, operating cost estimates, discount rates and decline rates. The fair value as at 31 December 2016 is $88,323. At 31 December 2015, the fair value was $62,130.
Notes A, B, C, E and F include holdings by related parties. See Note 33 for details.
20. Share Capital and Premium
Presented below are the transactions which occurred during the year relating to the Company's ordinary shares of 0.25 pence per share. Shares are allotted, issued and fully paid.
Year ended December 2016 # of Shares Share Capital and Premium
At beginning of the year 964,076,330 $ 5,410,439
At end of the year 964,076,330 $ 5,410,439
============= ===========================
Year ended December 2015 # of Shares
At beginning of the year 962,376,330 $ 5,280,302
Shares issued for exercise of share options at 5 p per share 1,700,000 130,137
At end of the year 964,076,330 $ 5,410,439
============= =============
21. Foreign exchange translation reserve
Foreign exchange translation reserve represents the exchange differences arising from the translation of the financial statements of the Parent Company into the Company's reporting currency and the translation at the closing rate of the net investment in the subsidiaries.
22. Special (restricted) reserve
Special (restricted) reserve represents the restricted-use reserves created as a result of the capital reduction exercise in November 2013. The Special (restricted) reserve is not distributable and shall remain un-distributable as long as all debts or claims against the Company that were in existence as at 20 November 2013 remain outstanding.
23. Share-based payment reserve
The Company operates a share option scheme to which Directors, senior management and employees of the Company participate. Options are exercisable at a price equal to the average market price of the Company's shares on the date of grant or higher at the discretion of the Remuneration Committee. The vesting period is three years or shorter at the discretion of the Remuneration Committee and may be subject to performance conditions. The options are settled in equity once exercised.
The Company has also issued share warrants in prior financial years which were exercisable immediately upon issuance.
Details of the number of share options and warrants and the weighted average exercise price (WAEP) outstanding during the year are as follows:
Exercise
Number of price range Number WAEP
of
options GBP warrants GBP
---------------------- --------------- ------------- ----------
Outstanding at the beginning
of the year 45,350,000 0.025-0.1275 130,000,000 0.054938
Exercised - - - -
Expired (6,600,000) 0.0624-0.12 130,000,000 0.054938
---------------------- --------------- ------------- ----------
Outstanding at the year end 38,750,000 0.025-0.1275 130,000,000 0.054938
====================== =============== ============= ==========
Number vested and exercisable
at end of year 36,050,000 0.025-0.1275 130,000,000 0.054938
====================== =============== ============= ==========
2015
Exercise
Number of price range Number WAEP
of
options GBP warrants GBP
---------------------- --------------- ------------- ----------
Outstanding at the beginning
of the year 52,350,000 0.025-0.1275 130,000,000 0.054938
Exercised (1,700,000) 0.0500 - -
Expired (5,300,000) 0.0624-0.1200 - -
---------------------- --------------- ------------- ----------
Outstanding at the year end 45,350,000 0.025-0.1275 130,000,000 0.054938
====================== =============== ============= ==========
Number vested and exercisable
at end of year 42,650,000 0.025-0.1200 130,000,000 0.054938
====================== =============== ============= ==========
As at 31 December 2016, the number of share options and their expiration by year are as follows:
2017 8,750,000
2021 2,500,000
2022 27,500,000
Total 38,750,000
============
24. Equity option on convertible loans
Equity option on convertible loans represents the equity component of convertible loan notes issued discussed in Note 19.
25. Cash flow hedging reserve
The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into that, for accounting purposes, qualify as cash flow hedges. At the time in which the gains or losses are recorded, the associated deferred tax is also recorded. As the cash flow hedge volume is realized, the cumulative gain or loss arising on changes in fair value of the hedging instruments related to the associated volumes are reclassified to profit or loss.
2016 2015
----------------- -----------------
Balance at beginning of year $ 2,787,038 $ 3,773,830
Gain arising on changes in fair value of hedging instruments entered into for
cash flow hedges:
Unrealised (loss) gain on oil hedging instruments (311,695) 6,304,905
Deferred tax on unrealised gain on oil hedging instruments 110,968 (2,244,635)
Gains reclassified to profit and loss:
Realised gain on oil hedging instruments reclassified to profit and loss (3,686,396) (7,837,223)
Deferred tax on realised gain on oil hedging instruments reclassified
to profit and loss 1,312,409 2,790,161
----------------- -----------------
Balance at end of year $ 212,324 $ 2,787,038
================= =================
26. Cash Flow from Operating Activities
2016 2015
----------------- ----------------
Loss before tax $ (12,798,159) $ (70,181,468)
Finance income (582) (173,641)
Finance costs 8,172,019 5,078,442
Share-based payment 47,455 251,666
Release of contingent consideration provision (333,500) (2,666,500)
Gain on disposal of property, plant and equipment (5,500) (7,940)
Fair value loss on royalty liability - 2,371
Loss on derivative financial instruments 744,424 -
Impairment of intangible assets net of provision released for asset retirement
costs 7,112,106 38,526,511
Impairment of property, plant and equipment 18,435 36,617,592
Depreciation 3,673,404 6,711,917
Amortisation and contribution from test revenue 4,372 573,221
Other (13)
----------------- ----------------
6,634,461 14,732,171
Changes in working capital
Decrease in inventory 131,138 134,153
Decrease in trade and other receivables 442,751 1,008,766
(Decrease) increase in trade and other payables (387,206) 788,370
----------------- ----------------
6,821,144 16,663,460
Taxes paid - -
----------------- ----------------
Net cash flow from operating activities $ 6,821,144 $ 16,663,460
================= ================
27. Financial Instruments
Categories of financial instruments
The tables below set out the Company's accounting classification of each class of its financial assets and liabilities.
2016 2015
-------------- --------------
Financial assets
Cash and cash equivalents $ 5,569,041 $ 5,969,485
Derivatives not qualifying for hedge accounting carried at fair value through
profit and loss - 172,850
Hedging instruments carried at fair value 329,702 4,327,794
Trade and other receivables (excluding prepayments) 1,875,510 2,487,343
Total $ 7,774,253 $ 12,957,472
============== ==============
Financial liabilities
Future loan royalty payments held at fair value through profit and loss $ 742,736 $ 62,130
Derivatives not qualifying for hedge accounting carried at fair value through 628,099 -
profit and loss
Financial liabilities held at amortised cost 55,763,518 58,085,037
Contingent consideration - 333,500
-------------- --------------
Total $ 57,134,353 $ 58,480,667
============== ==============
Fair value measurements
This note provides information about how the Company determines fair values of various financial assets and financial liabilities.
Fair value of the Company's financial assets and financial liabilities that are measured at fair value on a recurring basis:
Some of the Company's financial assets are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of the material financial assets are determined.
Relationship
of
Significant unobservable
Fair value Valuation unobservable inputs
Financial Fair value at hierarchy technique input(s) to fair
assets 31 December and key value
/ financial 2016 2015 input
liabilities
Oil price swaps
(designated for Discounted
hedging) $ 329,702 $ 4,327,794 Level 2 cash flow N/A N/A
Oil price swaps
and collars
(not
designated for Discounted
hedging) $ (628,099) $ 172,820 Level 2 cash flow N/A N/A
Future loan
royalty
payments held
at Discounted
fair value $ (742,736) $ (62,130) Level 3 cash flow (a) (a)
(a) Future loan royalty payments are based upon future revenue from production which is unobservable as of the date of these financial statements. A 10% change in forecasted oil production would have a $60,000 impact of the fair value.
Credit risk was not significant to derivative fair values.
Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis
The Directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values (due to their nature and short times to maturity).
28. Financial Instrument, Financial and Capital Risks Management
The Company is exposed to various financial risks that arise during the normal course of business. It has adopted financial risk management policies and utilised a variety of techniques to manage its exposure to these risks:
(a) Credit risk
The Company's credit risk is primarily attributable to its cash balances and trade receivables, together with oil swap derivative counterparties. Although the Company markets its crude oil to one counterparty, the Company has not historically experienced any bad debts or delays in payment with respect to its trade receivables.
Trade and other receivables
The Company's total credit risk amounts to the total of the sum of the receivables and derivative assets.
Cash and cash equivalents
Cash at bank is held with creditworthy financial institutions which are licensed banks in the countries that the Company operates.
(b) Liquidity risk
In managing liquidity risk, the main objective of the Company is to ensure that it has the ability to pay all of its liabilities as they fall due. The Company monitors its levels of working capital to ensure that it can meet its liabilities as they fall due. The Company ensures it has appropriate levels of working capital through operational cash flows, debt facilities and, as applicable, accessing equity markets, to meet its obligations as they fall due.
The table below shows the undiscounted cash flows on the Company's financial liabilities as at 31 December 2016 and 31 December 2015 on the basis of their earliest possible contractual maturity.
Total 0-60 Days 61-180 Days 181 -365 days 1-2 years 2-5 years
------------- ------------- ------------- --------------- ------------ -------------
At 31 December 2016
Trade payables $942,225 $942,225 $- $- $- $-
Royalty payables 993,495 10,125 24,260 99,862 251,370 607,878
Accruals 3,489,939 - 3,489,939 - - -
Shareholder loan issued
with warrants 14,352,055 - - 2,256,164 1,500,000 10,595,890
Convertible loan notes -
Jan 12 6,372,613 - - - - 6,372,613
Convertible loan notes -
Jun 13 4,907,104 - - 612,011 348,903 3,946,190
Convertible loan notes -
Aug 15 7,892,544 - - - - 7,892,544
Bank loan 23,139,502 139,502 23,000,000 - - -
Shareholder loan issued
with royalty 4,172,500 115,000 226,250 230,000 451,250 3,150,000
Finance lease payables 848,700 116,600 233,200 328,900 170,000 -
------------- ------------- ------------- --------------- ------------ -------------
$67,110,677 $24,323,452 $3,973,649 $3,526,937 $2,721,523 $32,565,115
============= ============= ============= =============== ============ =============
Total 0-60 Days 61-180 Days 181 -365 Days 1-2 years 2-5 years
------------- ------------- ------------- --------------- ------------ -------------
At 31 December 2015
Trade payables $ 916,903 $ 916,903 $ - $ - $ - $ -
Royalty payables 62,130 3,175 6,350 9,525 16,105 26,975
Accruals 4,080,401 - 4,080,401 - - -
Shareholder loan issued
with warrants 15,100,000 378,082 369,863 756,164 1,500,000 12,095,891
Convertible loan notes -
Jan 12 7,628,971 - - - - 7,628,971
Convertible loan notes -
Jun 13 5,977,249 - 207,704 209,986 417,690 5,141,869
Convertible loan notes -
Aug 15 9,448,557 - - - - 9,448,557
Bank loan 27,022,329 - - 27,022,329 - -
Contingent Consideration 333,500 - - 333,500 -
------------- ------------- ------------- --------------- ------------ -------------
$70,570,040 $28,320,489 $4,664,318 $975,675 $2,267,295 $34,342,263
============= ============= ============= =============== ============ =============
(c) Market Risk
Interest rate risk and sensitivity analysis
The Company has borrowings at fixed and variable rates. At the balance sheet date, the Company's exposure to variable interest rates was not considered a material risk and no interest rate hedge contracts had been entered into. The interest rate risk on both interest received and paid is immaterial.
Oil price risk
The Company enters into certain crude oil price swap contracts, costless collars and derivative financial instruments referenced to WTI-NYMEX over a proportion of its oil sales volume in order to manage its exposure to oil price risk associated with sales of oil.
As at 31 December 2016, the Company held the following contracts:
Product and type Remaining quantity Fixed price Estimated fair
of hedging contract (Bbls) WTI NYMEX Index Remaining term value
-------------------- ------------------ ------------------ ----------------
Swaps:
Jan 17 - Nov
A-Oil 17,350 $75.30 17 $ 329,702
Jan 17- June
B-Oil 48,000 $52.45 17 (154,851)
Costless collars:
Jan 17- Dec
C-Oil 96,000 $47.00-$52.75 17 (473,248)
--------------------
161,350 $( 298,397)
==================== ================
Current 161,350 $(298,397)
Non-current - -
----------------
The swap contract A outstanding at 31 December 2016 was designated as cash flow hedges of highly probable forecast transactions at inception and were assessed to be highly effective. Based upon hedge effectiveness testing, the cash flow hedges were deemed highly effective at year end, with a fair value movement of $0.3 million charged directly in the cash flow hedging reserves. None of these hedges were ineffective. Swap contract B and costless collar C were not designated as a cash flow hedge.
During the year 2016, cash flow hedge swap contracts for 138,314 barrels matured (2015: 373,464 barrels) generating income of $3.7 million compared to $7.8 million for 2015. This income is an addition to sales revenue.
The following table indicates the impact, for a change in crude oil prices, on the value of the Company's swap contracts and costless collars at the balance sheet date, and with all other variables being held constant.
Change in WTI Crude Oil Price December 2016
----------------------------------- -------------------
WTI Oil Price +10.0% $(837,132)
-10.0% $ 781,873
Change in WTI Crude Oil Price December 2015
----------------------------------- -------------------
WTI Oil Price +10.0% $(876,649)
-10.0% $ 882,472
Refer to the Consolidated Statement of Comprehensive Income and Expenditure and Notes 2, 17 and 25 for further relevant information.
Foreign exchange risk
The Company's principal exposure to foreign exchange risk is in relation to the United States Dollar and Sterling exchange rates, due to the concentration of cash and cash equivalents and convertible loan notes that are held in Sterling.
The following table presents the financial assets and liabilities of the Company.
The amounts which are held in Pound Sterling have been converted to US$.
2016 Carrying values Sterling US Dollars
----------------- ------------- -------------
Financial assets
Cash and cash equivalents $ 5,569,041 $ 121,198 $ 5,447,843
Derivatives designated and effective as hedging instruments
carried at fair value 329,702 - 329,702
Trade and other receivables (excluding prepayments) 1,875,510 21,371 1,854,139
----------------- ------------- -------------
$ 7,774,253 $ 142,569 $ 7,631,684
================= ============= =============
Financial liabilities
Fair value of future loan royalty payments $ 742,736 - $ 742,736
Derivatives not qualifying for hedge accounting 628,099 - 628,099
Amortised cost 55,763,518 14,564,993 41,198,525
$57,134,353 $14,564,993 $42,569,360
================= ============= =============
2015 Carrying values Sterling US Dollars
----------------- ------------- --------------
Financial assets
Cash and cash equivalents $ 5,969,485 $ 310,072 $ 5,659,413
Derivatives designated and effective as hedging instruments
carried at fair value 4,327,794 - 4,327,794
Derivatives not qualifying for hedge accounting 172,850 - 172,850
Trade and other receivables (excluding prepayments) 2,487,343 6,848 2,480,495
----------------- ------------- --------------
$ 12,957,472 $ 316,920 $ 12,640,552
================= ============= ==============
Financial liabilities
Fair value of future loan royalty payments $ 62,130 $ 62,130 $ -
Amortised cost 56,085,037 25,063,080 31,021,957
Contingent consideration 333,500 - 333,500
----------------- ------------- --------------
$56,480,667 $25,125,210 $ 31,355,457
================= ============= ==============
The foreign exchange rate risk on the value of the cash and cash equivalents at the balance sheet date is immaterial.
The following table indicates the impact of a change in foreign exchange rate on the value of the Sterling denominated loan notes at the balance sheet date, and with all other variables being held constant, on the Company's equity.
Change in
Change in US$/GBP US$/GBP
exchange rate December 2016 exchange rate December 2015
------------------- --------------- ---------------- ---------------
Sterling +5.0% $(710,440) +5.0% $(745,571)
-5.0% $ 710,440 -5.0% $ 745,571
Capital Management
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, to provide returns for shareholders and to maintain an optimal capital structure to manage the cost of capital effectively. The Company defines capital as being share capital plus reserves as disclosed in the Consolidated Statement of Changes in Equity, and monitors its capital profile using a net debt to equity ratio. The Board of Directors monitor the level of capital as compared to the Company's commitments and, where necessary, adjusts the level of capital as is determined to be necessary by issuing new shares.
The Company is not subject to any externally imposed capital requirements.
2016 2015
--------------------------- ---------------------------
Debt:
Straight $ 36,322,212 $ 36,171,378
Convertible 14,219,988 14,916,355
--------------------------- ---------------------------
50,542,200 51,087,733
Cash (5,569,041) (5,969,485)
--------------------------- ---------------------------
Net debt $ 44,973,159 $ 45,118,248
=========================== ===========================
Equity $ (19,927,269) $ (7,620,194)
=========================== ===========================
Debt to equity ratio n/a n/a
=========================== ===========================
29. Financial Commitments
The Company had no financial commitments at 31 December 2016 (31 December 2015: $nil) .
30. Provisions and contingent consideration
The Company has recorded the following provisions for future obligations.
2016 2015
------------- --------------
Contingent consideration
At 1 January 2016 $333,500 $3,000,000
Release of contingent consideration provision (333,500) (2,666,500)
------------- --------------
At 31 December 2016 - 333,500
------------- --------------
Asset retirement obligations
At 1 January 2016 2,861,032 2,071,927
Recognition of obligations - 765,734
Accretion expense 22,779 23,371
Provision released to match costs incurred (74,000) -
------------- --------------
At 31 December 2016 2,809,811 2,861,032
------------- --------------
Total $ 2,809,811 $ 3,194,532
============= ==============
The contingent consideration relates to the acquisition on 23 January 2012 of an additional 25% interest in the Jolly Ranch Project from Running Foxes Petroleum, Inc. ("RFP") (the "Acquisition"), which increased the Company's working interest from 50% to 75%, prior to the subsequent purchase of the remaining 25% in 2013. The provision which gave rise to the contingent consideration has expired in January 2017 and therefore the value was reduced to nil as at 31 December 2016.
The asset retirement obligation provision represents costs estimated to be incurred for plugging, abandoning and reclaiming existing wells sites. The obligation has been recognised and included within the exploration costs intangible assets and production assets based on management's assessment of asset retirement costs that will be incurred at the end of each project's life. The project lives are estimated to range from 1 to 7 years.
31. Operating Lease Arrangements
During the year to 31 December 2016, the Company incurred $38,000 for two new operating lease arrangements which expired during the year. These operating leases related to the Pilot Project equipment.
During the year to 31 December 2015, the Company incurred $461,328 in relation to operating leases which expired during that year. These operating leases primarily related to drilling rig commitments.
32. Finance Lease Arrangements
The Company leased certain of its water flood Pilot Project equipment under finance leases. The lease terms vary between 18 months to 5 years as at 31 December 2016 (2015: N/A).
The Company's obligations under finance leases are secured by the lessors' title to the leased assets.
Finance lease liabilities minimum lease payments:
2016 2015
Not later than one year $ 678,700 -
Later than one year and not later than five years 170,000 -
848,700
Less: future finance charges (59,545) -
----------- ------
Present value of minimum lease payments $ 789,155 -
=========== ======
Finance lease liabilities are included in liabilities:
2016 2015
Current 622,563 -
Non-current 166,592 -
$ 789,155 -
=========== ======
33. Related Party Transactions
The only related party transactions during the year were with the Directors and certain senior management. Key management during the years presented refers to the Board, Mr. K. Hooley and Mr. M. Thomsen.
Short-term benefits
2016 2015
--------------------- -------------
Remuneration:
Mr R. McCullough $ 265,005 $ 320,572
Mr J. Claesson 40,333 45,763
Mr R. Swindells(*) - 372,873
Mr K. Hooley 233,369 32,813
Mr M. Thomsen(*) - 672,698
Mr S. Eaton 48,496 48,814
Mr C. Wilson 377,440 369,600
--------------------- -------------
964,643 1,863,133
--------------------- -------------
Social security costs 27,429 90,774
Share-based payments 47,455 153,213
Pension contributions 30,424 102,056
$ 1,069,951 $ 2,209,716
===================== =============
*Includes severance payments upon termination of employment.
As discussed in Note 19, loans A, B, C, E and F are loans and convertible loans in which Johan Claesson, his close family or companies controlled by him have a material interest.
In the financial years ended 31 December 2016 and 2015, such material interests were, in aggregate, as follows:
2016 2015
-------------- --------------
Brought forward balance $ 25,581,670 $ 19,455,216
New principal lent in year 1,650,000 7,180,000
Foreign exchange movement (2,483,556) (890,985)
Production pro t share and royalty stream charged in year 221,744 355,713
Production pro t share and royalty stream paid in year (94,902) (518,274)
Interest charged in year 1,809,438 1,729,410
Interest paid in year (851,960) (1,729,410)
Balance owing at end of year (principal and interest) $ 25,832,434 $ 25,581,670
============== ==============
During the year, Johan Claesson, family members and entities controlled by Mr. Claesson subscribed for $1.65 million (GBP1.23 million) of loan notes.
During 2015, Johan Claesson, family members and entities controlled by Mr. Claesson subscribed for $7.18 million (GBP4,595,200) of zero coupon convertible loan notes.
In addition to the loans noted above, Mr. Claesson and a company controlled by Johan Claesson also hold a total of 65,000,000 warrants to subscribe for new ordinary shares at 5.0 pence per share that were issued with the zero coupon convertible loan note in January 2012. In the financial year ended 31 December 2013, in connection with the $12.0 million debt facility summarised in Note 19, a company controlled by Johan Claesson was granted 30,000,000 warrants to subscribe for new ordinary shares at 7.25 pence per share.
All related party loan transactions are presented on a contractual basis, rather than an effective interest recognition basis.
34. Investment in Subsidiaries
The Company's Parent Company holds the issued share capital of the following subsidiary undertakings, which are incorporated in the USA and have been included in these consolidated financial statements.
Company Address Principal activities Class Percentage held
------------------------------- ----------------------- -------------------------- ----------- -------------------
1805 Shea Ct Dr #290
Highlands Ranch CO
Nighthawk Royalties LLC 80129 Oil and gas development Ordinary 100%
Nighthawk Production LLC 1805 Shea Ct Dr #290 Oil and gas development Ordinary (indirectly) 100%
Highlands Ranch CO
80129
OilQuest USA LLC 1805 Shea Ct Dr #290 Oil and gas development Ordinary (indirectly) 100%
Highlands Ranch CO
80129
35. Contingent Liabilities
The Directors are aware of one, remote contingent liability within the Group or the Company at 31 December 2016, which expired January 2017.
36. Ultimate Controlling Party
As at 31 December 2016, Nighthawk Energy plc had no ultimate controlling party.
37. Events After the Balance Sheet Date
On 5 April, 2017, the shareholders of the Company approved a Waiver to Rule 9 of the Code, giving the Company the authority to issues shares to certain noteholders in the event the conversion feature on the deferred portion of interest payments is exercised. Refer to Note 19 for additional discussion.
38. Litigation
As of the date of issuance of this report, there is no material litigation in which the Company is involved.
The Group previously announced on 20 September 2016, that the Group reached a global settlement of all litigation and claims arising out of agreements with Running Foxes Petroleum, Inc. (RFP) and related issues with RFP's joint-venture partner, American Patriot Oil and Gas Inc. (APO). Under the terms of the settlement, Nighthawk, RFP and APO were released from all past, current, and future claims related to all current, pending and potential future issues between the parties within the Arikaree Creek Field. The parties agreed to dismiss all current and pending federal and state litigation and administrative regulatory matters, between them related thereto.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SELFLMFWSEII
(END) Dow Jones Newswires
May 26, 2017 11:03 ET (15:03 GMT)
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