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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ascent Resources Plc | LSE:AST | London | Ordinary Share | GB00BJVH7905 | ORD 0.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 2.20 | 2.10 | 2.30 | 2.20 | 2.10 | 2.20 | 176,932 | 08:00:24 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Crude Petroleum & Natural Gs | 581k | -41.89M | -0.1004 | -0.22 | 9.18M |
From Apr 2019 to Apr 2024
TIDMAST
RNS Number : 1499R
Ascent Resources PLC
26 June 2020
Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of MAR.
Ascent Resources plc
("Ascent" or the "Company")
Final Results for the Year ended 31 December 2019
Ascent Resources plc (LON: AST), the onshore Caribbean, Hispanic American and European energy and natural resources company, is pleased to announce its results for the year ended 31 December 2019. The information below is extracted from the Company's Annual Report and Accounts.
Developments in 2020 to date:
-- New Board of Directors focused on unlocking value in Slovenia and introducing a portfolio approach to broaden the Company's asset base
-- Launched new international growth strategy focused on Special Situations across Hispanic Americas, Caribbean and wider territories
-- Strategic review of Slovenian interests which resulted in restructuring proposal submitted to Joint Venture partners and decision to submit a Notice of Dispute to the Republic of Slovenia, expected shortly
-- Engaged new technical team to prepare the required environmental impact assessment and design the longer term field development plan for the Petišovci gas field
-- Entered Cuban oil and gas market with the acquisition of Energetical Limited, securing exclusive rights to negotiate the production sharing contract for Cuba onshore producing block 9B
-- Expanded interests in Cuba with three further MOUs direct with Cuban national oil and gas company ("CUPET") over onshore Blocks 9A, 12 and 15, in total covering over 7,000 km2
2019 Highilights:
-- Produced over 3 million standard cubic meters of gas and over 136 thousand litres of condensate during the year
For further information please contact:
Ascent Resources plc Via Vigo Communications Andrew Dennan WH Ireland, Nominated Adviser & Broker James Joyce / Chris Savidge 0207 220 1666 SP Angel, Joint Broker Richard Hail, Caroline Rowe 0203 470 0470
Chairman and Chief Executive Officers' Statement
The Ascent story has been transformed since the period under review ended, and the changes made since then point to an exciting future with a revamped strategy, re-energised senior team, and new assets already being accessed. In March 2020, the Company announced a complete restructuring of its business, including the appointment of a new Board of Directors and Executive Management, alongside new funding and the launch of an international growth strategy focused on unlocking select special situations across Hispanic Americas, the Caribbean and wider territories. As a first step in that growth strategy, the Company has announced exclusive negotiations on an onshore oil portfolio in Cuba.
Legacy Slovenian Asset:
Under the previous leadership, 2019 was a challenging year for the Company and its attempts to develop the Petišovci gas field in Slovenia. Throughout the year the Company experienced continued delays in permitting which have created significant headwinds for the Company to develop the Petišovci gas field commercially.
Notwithstanding these difficulties, some operational progress was achieved. Total production in 2019 was 3,074,842 scm of gas and 136,836 litres of condensate. An IPPC permit for a new gas processing plant was received in March 2019. An appeal against the decision of the Slovenian Environment Ministry to require an Environmental Impact Assessment ('EIA') for the proposed well stimulation work at its Petišovci project was submitted in July 2019. Whilst the stimulation work is considered essential in order to address the production decline and operations of this nature having been carried out in Slovenia more than a hundred times since the 1950's, the Company was made aware in June 2020 that the Administrative Court of the Republic of Slovenia had ruled that an EIA would be required to enable the re-stimulation of PG-10 and PG11A wells. Accordingly, the Company is beginning preparations for submission of an EIA.
Gas sales to INA are currently suspended as wellhead pressure is below the pipeline pressure. The sales contract remains valid and, should the Company receive permitting to stimulate the PG wells or add compression to the reservoir, production may be able to be resumed.
Despite the challenges faced in 2019, the Company remains firmly resolved to protect its Slovenian investment and extract value from its interests in the Petišovci field. With this goal in mind, the recently appointed Board initiated in Q1 2020 a review of its portfolio in Slovenia and has begun discussions with its partners and the government. This review has initially concluded;
i) That continued material production from the tight gas project will require regular stimulation activity and that the Slovenian government is clearly taking positive action to maximise the potential of the local resources and streamlining and positively reforming the local permitting framework (including the framework for EIAs). There will, however, always remain inherent permitting risk. This is a common issue for stimulation activities in other European countries and is considered by the new Board to be an ordinary risk of oil and gas developments;
ii) That further stimulation at PG-10 and PG-11A should have a material impact on production levels, potentially returning them to close to historic levels, on the assumption that the stimulation is designed and executed to the highest technical standards using modern techniques.
iii) That production is sold with reference to the Central European Gas Hub Index ("CEGH") and requires realised gas prices above EUR1.80 to EUR2.00 per Mscf (which means a CEGH index of Euro 10.5/MWh based on the current sales price formula) to generate positive cash flow. The Company notes that the average 2019 CEGH index was Euro 14.4/MWh and despite the recent collapse in global oil and gas prices that the 2021/22 gas futures are already circa Euro 13-15/MWh. Hence the Board see significant core economic value at Petis ovci and expect significant cash generation from the asset in the medium term with further upside if global oil and gas prices continue to recover.
iv) The potential legal claim against the Republic of Slovenia, to be brought under the Energy Charter Treaty, has some risks and inherent uncertainty at this stage but appears to have a valid legal basis. The Company is refining its view on the prospects of success and the likely quantum of any potential award.
Ascent has therefore decided upon a dual-pronged strategy which simultaneously progresses both industrial and legal alternatives for the next three months (as of the date of this document). The updated strategy accelerates the asset's development, as well as clearly setting out the Company's legal position and retaining optionality for that process if required.
Recently Launched International Growth Strategy:
The Company recently launched an international growth strategy focused on unlocking special situations across Hispanic Americas, the Caribbean and Europe. This strategy is being introduced counter cyclically against the backdrop of exceptionally volatile commodity markets for oil and gas driven by a combination of COVID-19 related demand decline and market oversupply from the disbandment of OPEC+ earlier this year. The Board believes that this volatile pricing environment provides a unique window of opportunity to expand the Company's asset footprint at favourable prices. The strategy is focused on securing low cost barrels with manageable capital commitments and material upside.
Cuba Market Entry:
The Republic of Cuba is one of the few remaining world-class, yet largely unexploited hydrocarbon systems. Cuba currently produces approximately 45,000 bopd of mostly heavy oil with c. 100 mscf/d of gas with clear targets for growth in their E&P sector to fuel electricity generation. Cuba has the advantage of offering an international investor access to good infrastructure and an educated workforce alongside significant under exploited hydrocarbon resource potential. To promote international investment Cuba enacted a new law in 2014 to offer protections to foreign investors, allowing payments in foreign currency and withdrawal of funds from the country. Cuba currently offers excellent fiscal and commercial terms for oil and gas operators, including nil cost entries into PSCs and the right to sell all crude at the wellhead priced in foreign currency, thereby securing oil commercialization.
The Company sees clear first mover opportunity for a quoted oil and gas Company to counter cyclically deploy its operational skill and access to capital in a country which has been starved of investment and technology and impacted by US Sanctions.
As the first step in advancing its international growth strategy the Company announced on 14 April 2020 the acquisition of Energetical Limited ('Energetical') for a total consideration of GBP652,500 of which GBP202,500 has been satisfied by the issue of 6 million new shares and, subject to the Company signing a production sharing contract ('PSC') over Cuban onshore producing block 9B, deferred consideration of GBP450,000 which will be satisfied by way of a cash payment of GBP100,000 and the issue of new shares for a consideration of GBP350,000 to be issued at the 30 day volume weighted average share price of the Company at the time of PSC signature.
The acquisition of Energetical has secured the rights for the Company to exclusively negotiate the production sharing contract for block 9B which is expected to give the Company an entitlement to incremental barrels produced above the existing base of circa 190 bbls/day from three wells. The Company has initially assessed that recovery rates could be significantly rejuvenated with the simple and relatively low-cost addition of basic equipment and reservoir management. It is also assessing the viability of new deviated onshore wells drilled into the crest of the fields which it expects to flow with an initial production rate in excess of 1,000 bopd. None of these operations require new seismic and none of the wells have yet to produce any water and no oil water contact has been identified. There are another three wells at Majaguillar and the San Anton field that are shut in at this time mainly due to the lack of basic equipment such as pumps.
Building momentum on this new market entry into Cuba, also post period in review, the Company announced the signature of binding MOUs with the Cuban national oil company CUPET over Cuban onshore exploration blocks 9A, 12 and 15 which covers an aerial extent over 7,000 km2 along the northern coast. The combination of Blocks 9a, 9b, 12 and 15 positions the Company with exclusive negotiating rights to potentially one of the largest non-state-owned, onshore Cuban portfolios. The portfolio provides a blend of existing production for low risk redevelopment with significant upside potential for both appraisal and exploration. The portfolio is consistent with the Company's strategy of counter cyclical acquisitive growth with a focus on low cost production, manageable initial capital commitments and near-term high growth potential.
This targeted portfolio is primarily low-cost barrels with a blend of development, appraisal and exploration potential, representing a balance of opportunities across the cycle, with selective mining assets also being considered.
Board Restructuring:
In March 2020, several new Board members joined to strengthen the management of the Company while bringing significant international oil, gas and mining experience and access to capital in order to take the Company forward including James Parsons as Executive Chairman, Ewen Ainsworth as Non-executive Director and Chairman of the Audit Committee and Leonardo Salvadori as Non-executive Director. In April the Company announced the appointment of Andrew Dennan as Chief Executive Officer.
Funding:
The recently appointed Board has reduced costs, dealt with various historical outstanding balances and raised some additional funds to enable the new Cuban work programme to be delivered. This has now positioned the company as a clean vehicle with strong management, access to capital and a growth trajectory.
During the course of 2019 the previous management of the Company accessed new equity funding totalling gross proceeds of circa GBP1.2 million from placings in January and April. In January the Company raised gross proceeds of GBP363,156 through the issue of new shares at a price of 0.3 pence per new share by way of an offer for shares conducted through PrimaryBid. In April the company raised gross proceeds of GBP750,000 at a price of 0.35 pence with a small number of institutional investors. Additionally, in September the Company entered into arrangements with RiverFort Global Opportunities PCC Limited which resulted in Ascent issuing to RiverFort 393m shares with an agreement to pay for them over 12 months under an Equity Sharing Agreement. At the same time RiverFort lent Ascent US$500k repayable on or before September 2020 under a US$1.0m loan facility. Each month RiverFort was allowed to sell up to a fixed number of shares in the market dependent on market liquidity and share price. The proceeds realised from these share sales were to be used to repay the US$500k loan (less interest and dealing commission). Once the loan was repaid the remaining funds for share sales were due to come directly to the company.
Post period in review, the new Board has sought and achieved a restructuring of the September 2019 RiverFort Arrangement. The Equity Sharing Agreement with RiverFort as announced on 20 September 2019 has now been cancelled, effective February 14, 2020. The outstanding US $468,776 loan (as of the restructuring date and inclusive of fees and commission) with Riverfort has been re-negotiated to a two-year coupon free bullet repayment due on maturity with conversion rights for the lender at 0.075 pence (7.5 pence per share post re-organisation, details below). No conversion can occur until the share price exceeds 0.1 pence (10 pence per share post re-organisation) for five consecutive days. The Company has a right to buy out up to 50% of the loan prior to its expiry at nil premium whilst the share price is below the conversion price. If the Company does exercise this right, then the conversion price is adjusted upwards to 0.0875 pence (8.75 pence post re-organisation) per conversion share. The 43 million warrants initially to be awarded to Riverfort, as announced on 20 September 2019, will no longer be awarded.
Post period in review, in March 2020, shareholders approved a share re-organisation, including a 100:1 consolidation, with the nominal value of the shares to be set to 0.05 pence. Further to the successful passing of the resolutions at the Company's General Meeting held on 5 March 2020 and despite the market volatility at the time, the Company completed a fundraising for gross proceeds of GBP685,000 at 5 pence per share. Furthermore, in support of funding work streams associated with advancing the Company's entry into Cuba the Company raised a further GBP212,500 by the issuance of new shares at 2.75 pence being a nil premium to the closing bid price at the time of issue in April.
COVID-19:
COVID-19 has had limited direct impact on Ascent's assets in Slovenia but there may be delays in obtaining the necessary governmental approvals and processes. Production operations in Slovenia have been unaffected to date, with the assets being managed through a combination of on-site working within social distancing guidelines or remote oversight, with all appropriate safety procedures remaining in place to protect staff and local communities, although the risk of future disruption remains.
Summary:
After a challenging 2019, we believe shareholders have good cause to be optimistic about the future of Ascent Resources as it enters a new growth phase targeting the Hispanic Americas, the Caribbean and Europe. As a new Board we are determined to both protect the Company's investment in Slovenia and expand our international footprint accessing special situations.
We thank our shareholders for their patience and support during 2019 and wish them, our advisors, staff and their family's safe passage through these turbulent times.
Andrew Dennan James Parsons Chief Executive Officer Executive Chairman
Strategic Report
Section 414C of the Companies Act 2006 ('the Act') requires that the Company inform its members as to how the Directors have performed their duty to promote the success of the Company by way of a Strategic Report which includes a fair review of the business, an analysis of the development and performance of the business and analysis of financial position and key performance indicators.
We have incorporated these requirements into the information set out below.
Company Overview
Ascent Resources plc ('Ascent' or 'the Company') is an independent oil and gas exploration and production ('E&P') company that was admitted to trading on AIM in November 2004 (AIM: AST). Ascent has been involved in Slovenia for just over 11 years where it operates the Petis ovci Tight Gas Project. To date it has invested around EUR50 million in this project. This asset, despite significant legal and permitting complexity, has significant oil and gas reserves and resources and an established, local production infrastructure with connections to local and export customers.
During 2017 the Company brought two wells into production and started export production from the Petis ovci field in Slovenia to INA in Croatia. In 2019 production was suspended and sales of gas to INA stopped as a result of well head pressure falling below the pipeline pressure.
Post period in review, the Company has undergone a transformation including the appointment of a new Board of Directors and new initial seed funding alongside the launch of a strategic review of its Slovenian portfolio and the implementation of a new international growth strategy focused on Hispanic Americas, the Caribbean and Europe which has already resulted in the announcement of a new market entry into Cuba.
Asset Overview
Slovenia - Petis ovci Tight Gas Project
The Petis ovci Tight Gas Project is in an area that has been exploited since 1943. The project targets the significant gas reserves and resources in the Middle Miocene Badenian or Petis ovci-Globoki ('Pg') gas reservoirs.
Using the results of an extensive 3D seismic survey conducted in 2009 by Ascent and its partners, the locations of two new wells were determined. These wells, Pg-11A and Pg-10 were successfully drilled, completed and stimulated between 2010 and 2012. During 2017 the Company brought both of these wells into production and started exporting gas from Petis ovci to INA in Croatia.
Cumulative gas production from the Pg gas field since 1988, including fuel and flare use and accounting for the gas equivalent of the historical condensate production, is 9.8 Bcfe (277.6 MMsm3). This is 2% of the currently estimated gas initially in place ('GIIP') of 456 Bcfe, (12.9 Bsm3), based on independent third-party estimates.
Further details of the asset and current reserves and resources can be found on page 18.
Ascent operates the Petis ovci project on behalf of the Joint Venture between Ascent Slovenia Limited and Geoenergo. Ascent has a 75% working interest in the project and carries 100% of the costs. Until Ascent has recovered its costs in full it will receive 90% of the net revenues.
Cuba - MOUs blocks 9A, 9B, 12 and 15
Post period in review, the Company announced the acquisition of Energetical Limited which has secured the rights for the Company to exclusively negotiate the production sharing contract for Cuban onshore producing oil block 9B which is expected to give the Company an entitlement to incremental barrels produced above the existing base of circa 190 bbls/day from three wells.
The Company has initially assessed that recovery rates could be significantly rejuvenated with the simple and relatively low-cost addition of basic equipment and reservoir management. It is also assessing the viability of new deviated onshore wells drilled into the crest of the fields which it expects to flow with an initial production rate in excess of 1,000 bopd. None of these operations require new seismic and none of the wells have yet to produce any water and no oil water contact has been identified. There are another three wells at Majaguillar and the San Anton field that are shut in at this time mainly due to the lack of basic equipment such as pumps.
Additionally, the Company has also secured binding MOUs with the Cuban national oil company CUPET over Cuban onshore exploration blocks 9A, 12 and 15 which covers an aerial extent over 7,000 km2 along the northern coast. The combination of Blocks 9a, 9b, 12 and 15 positions the Company with exclusive negotiating rights to potentially one of the largest non-state owned, onshore Cuban portfolios. The portfolio provides a blend of existing production for low risk redevelopment with significant upside potential for both appraisal and exploration. The portfolio is consistent with the Company's strategy of counter cyclical acquisitive growth with a focus on low cost production, manageable initial capital commitments and near term inflection points.
Our strategy
Historically the Company has focussed all of its resources on its Slovenian project, directing available funding towards bringing Petis ovci into production. The commencement of production during 2017 was a significant milestone. The development of the project stalled during 2018 due to the Slovenian environmental permitting process. The appointment of a new government and the award of the IPPC Permit in April 2019 may provide some confidence that the remaining permit can be obtained in due course but there is no certainty of this happening. In 2020 we have observed recent changes being introduced by the new Slovenian Government including proposals to make amendments to the Nature Preservation Act and Environment Protection Act intended to better facilitate to development of industrial projects.
Following a strategic review in Q1 2020 the new Board identified that the successful commercialisation of the Petis ovci field is economic at the prevailing 2021/2022 gas future prices of circa Euro 13-15/Mwh and that stimulation is required to materially increase and sustain production at the field. In June 2020 the Administrative Court of the Republic of Slovenia decided that the JV partner's appeal against ARSO decision to require an EIA to re-stimulate PG-10 and PG-11A well was rejected and an EIA would be required. The Company has started work to submit an EIA and contracted a new expert consultancy team of professionals to review the historic stimulation data at Petis ovci, design the detailed forward stimulation programme so that equipment can be procured without delay when permits are received, and prepare a full Field Development Plan. This strategy will take maximum advantage of the current reduction in industry contractor and stimulation equipment rates and avoid further project delays and increase production levels.
Additionally, the new Board of Directors have launched an international growth strategy focused on unlocking latent value in special situations across Hispanic Americas, the Caribbean and Europe. This will see the Company diversify its breadth and become a portfolio of assets. This strategy is being introduced counter cyclically against the backdrop of exceptionally volatile commodity markets for oil and gas driven by a combination of COVID-19 related demand decline and market oversupply from the disbandment of OPEC+. The Board believe that this volatile pricing environment provides a unique window of opportunity to expand the Company's asset footprint at favourable prices. The strategy is focused on securing low cost barrels with manageable capital commitments.
Our markets
Dependency on imported gas is very high throughout the EU, particularly in Slovenia. This, and the history of relatively stable gas prices in Europe underpins our strategy of exploration, development and production in this region. Our wells are connected to existing processing facilities, intra-field and international pipelines, ensuring low cost connection and easy access to the market.
The Board recognises the attractiveness of the region for oil and gas development and many countries outside of Slovenia have strong gas prices, well organised regulatory frameworks and a history of oil and gas development.
The Company has identified the Caribbean and Hispanic America region as highly prospective for oil and gas, even when taking into consideration current volatile markets and the recent decline in global oil prices.
The Republic of Cuba is one of the few remaining world-class, yet largely unexploited hydrocarbon systems. The Company sees clear first mover opportunity for a quoted oil and gas Company to counter cyclically deploy its operational skill and access to capital in a country which has been starved of investment and technology and impacted by US Sanctions. Cuba currently produces approximately 45,000 bopd of mostly heavy oil with c. 100 mscf/d of gas with clear targets for growth in their E&P sector to fuel electricity generation. Cuba has the advantage of offering an international investor access to good infrastructure and an educated workforce alongside significant under exploited hydrocarbon resource potential.
Directors' Statement under Section 172 (1) of the Companies Act 2006
The Section 172 (1) of the Companies Act obliges the Directors to promote the success of the Company for the benefit of the Company's members as a whole.
The section specifies that the Directors must act in good faith when promoting the success of the Company and in doing so have regard (amongst other things) to:
a. the likely consequences of any decision in the long term, b. the interests of the Company's employees, c. the need to foster the Company's business relationship with suppliers, customers and others, d. the impact of the Company's operations on the community and environment,
e. the desirability of the Company maintaining a reputation for high standards of business conduct, and
f. the need to act fairly as between members of the Company.
The Board of Directors is collectively responsible for the decisions made towards the long-term success of the Company and how the strategic, operational and risk management decisions have been implemented throughout the business is detailed in this Strategic Report on page 6to 9.
The Company has gone through significant change during the last year. The previous Board worked with the newly appointed directors and management team to provide a transition across to the new management for the benefit of all stakeholders of the Company. The newly appointed Board has taken the important strategic decision to continue its commitment in Slovenia and to try and work with the Government and authorities in to move the business forward in country. At the same time steps have been taken to develop a growth strategy within Hispanic Americas, the Caribbean and Europe. This has been combined with capital raises to fund the business moving forward for the benefit of all stakeholders: shareholders, employees and suppliers alike.
Stakeholder engagement
The Board recognises that our employees are one of the key resources of our business which enables delivery of Company's vision and goals. Annual pay and benefit reviews are carried out to determine whether all levels of employees are benefited equally and to retain and encourage skills vital for the business. The Remuneration Committee oversees and make recommendations of executive remuneration and any long-term share/option awards. The employees are informed of the results and important business decisions and are encouraged to feel engaged and to improve career potential.
In light of COVID-19 all employees within the business are working from home, this situation will continue to be monitored and at a point when it is considered right return to work will be managed and considered by the Company will full consultation of its employees.
The Board acknowledges that a strong business relationship with suppliers and customers is a vital part of the growth. Whilst day to day business operations are delegated to the executive management, the Board sets directions with regard to new business ventures. The Board uphold ethical business behaviour and encourages management to seek comparable business practices from all suppliers and customers doing business with the Company. We value the feedback we receive from our stakeholders and we take every opportunity to ensure that where possible their wishes are duly considered.
The Board considers that relationships and dealings with host Governments plays an integral part of developing oil and gas ventures and accordingly interacts with host Governments and the respective authorities.
Policies and processes
Under the direction of the Board, the Company operates a Management System that embodies Environmental, Health, Safety ('EHS') and Social Responsibility ('SR') principles. This system defines objectives to be met by the Company, its subsidiaries, affiliates, associates and operated joint ventures, in the management of EHS and SR.
The Board is fully accountable for the necessary practices, procedures and means being in place so as to ensure that each EHS and SR objective is demonstrated in full and that continuous improvement practices are operating to ensure that the required practices, procedures and means are being monitored, refined and optimised as necessary.
In accordance with this policy, the Executive Directors are directly and collectively responsible to the Board for demonstrating that the EHS and SR objectives are attained throughout the Business. The Executive Directors have adopted Management System Guidelines as guidance for demonstrating this.
The Board periodically reviews the health and safety measures implemented in the business premises and improvements are recommended for better practices.
Maintaining High Standards of Business Conduct
The Company is incorporated in the UK, governed by the Companies Act 2006 and carries out its business in Cuba and Slovenia. The Board guides management and the employees to conform with relevant statutory and regulatory provisions in the United Kingdom and any other prevailing regulations and best practices at other operative locations.
The Company has adopted the Quoted Companies Alliance Corporate Governance Code 2018 and the Board recognises the importance of maintaining a good level of corporate governance, which together with the requirements to comply with the AIM Rules ensures that the interests of the Company's stakeholders are safeguarded.
The Board has prompted that ethical behavior and business practices should be implemented across the business. Anti -corruption and anti-bribery training are provided to staff and contractors and the anti-bribery statement and policy is contained in the Company's Employee Manual. The Company's expectation of honest, fair and professional behaviour is reflected by this and there is zero tolerance for bribery and unethical behaviour by anyone relating to the Company.
The importance of making all employees feel safe in their environment is maintained and a Whistleblowing policy is in place to enable staff to confidentially raise any concerns freely and to discuss any issues that arise. Strong financial controls are in place and are well documented.
Shareholders
The Board places equal importance on all shareholders and recognises the significance of transparent and effective communications with shareholders. As an AIM listed company there is a need to provide fair and balanced information in a way that is understandable to all stakeholders and particularly our shareholders.
The Company values the views of its shareholders, the newly appointed directors are keen to engage with shareholders and work with them so that they are aligned to the strategy and growth of the business. Once the restrictions in place with the COVID-19 pandemic have been lifted the Company will seek to engage with shareholders in person.
The primary communication tool with our shareholders is through the Regulatory News Service, ("RNS") on regulatory matters and matters of material substance. The Company's website provides details of the business, investor presentations and details of the Board and Board Committees, changes to major shareholder information, QCA Code disclosure updates under AIM Rule 26. Changes are promptly published on the website to enable the shareholders to be kept abreast of Company's affairs. The Company's Annual Report and Notice of Annual General Meetings (AGM) are available to all shareholders. The Interim Report and other investor presentations are also available on our website.
The AGM is an annual opportunity for shareholders to meet with the Company and receive a full update of the business from both the Board and management. With the constraints of the Coronavirus pandemic (Covid-19) and the inability to hold the 2020 AGM in the usual format the Company intends to keep shareholders engaged through the Company's website. There will be full transparency of the voting on the resolutions at the AGM, with the Company disclosing the proxy votes received on each resolution in the RNS released shortly after the AGM.
In order to increase shareholder awareness, the Company has recorded a number of media interviews which are available to download on leading investor-focused websites and from the media section of the Company's website. An email alert service has also established to which shareholders can subscribe to receive company announcements as and when they are released.
Community and Environment
The Board places utmost importance of matters pertaining Environmental, Health safety and Social Responsibility and guides the Company on following due policies and processes in order to protect the Community the Company operates within. A management system has been implemented with set of clearly defined objectives of the Environmental, Health, Safety and Social Responsibility Policy. Health and Safety measures implemented in the business premises are reviewed periodically and the necessary improvements are recommended for better practices. The Company recognises its role as an oil and gas exploration and production company and is aware of the potential impact that it may have on the environment. The Company ensures that its subsidiary companies comply with the local regulatory requirements with regard to the environment.
Financial Report
Revenue for 2019 was GBP0.298 million, down from GBP1.9 million in the prior year due to a decrease in stabilised production rates and gas sales prices realised.
Administrative expenses increased from GBP1.760 million in 2018 to GBP2.132 million in 2019. Administrative costs principally comprise staff costs, overheads and listing related expenses with the increase in 2019 being attributable to an increase in consultancy fees and legal fees incurred in relation to the Slovenian project.
Finance costs increased from GBP9k in 2018 to GBP924k, principally due to the fair value loss associated with amounts receivable under the equity sharing agreement, reflecting the decrease in the Company's share price during the period which reduced the value of the amounts receivable.
The loss for the year totalled GBP3.660 million versus GBP1.365 million in 2018, with the increase in loss most notably due to the contraction of revenues and increase in administrative and finance expenses.
Operating cash flow was an outflow of GBP1.668 million In 2019 versus a positive inflow of GBP0.36 million in 2018. This reflects the reduction in revenue and an increase in expenditures with the principal difference to the overall accounting loss represented by non-cash depreciation charges and non-cash finance costs.
Cash at the end of the period was GBP77k versus GBP376k at the end of 2018.
Borrowings at the end of the year were GBP385k mostly constituted of the Riverfort Loan arrangement announced in September 2019.
Financial KPI's 2019 2018 Variance
Revenue 298 1,942 (1,644)
Administrative Expenses (2,132) (1,760) (372)
EBITDA (2,296) (589) (1,707)
Operating Cash Flow (1,668) 360 (2,028)
Cash Balance 77 376 (299)
Operational Performance
The Company produced 3,074,842 cubic metres of gas and 136,836 litres of condensate during the year and earned GBP298k in revenue.
Production has declined further over the period. Once the necessary permits are in place the Company will be able to re-stimulate both wells to restore both to their full potential.
Hot Features
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Production KPI's Jan-2019 Feb-2019 Mar-2019 Apr-2019 May-2019 June-2019
Total production (000s
Cubic Metres) 412.76 311.44 334.41 296.07 292.38 249.97
Total production (Mcf) 14,574.56 10,996.95 11,808.02 10,454.23 10,323.94 8,826.44
Average daily - 000s
cubic metres 13.31 11.12 10.79 9.87 9.43 8.33
Average daily - MMscfd 0.47 0.39 0.38 0.35 0.33 0.29
Condensate production
(litres) 16,956.00 12,744.00 14,634.00 12,798.00 15,336.00 12,258.00
Litres per 1000 cubic
metres of gas 41.08 40.92 43.76 43.23 52.45 49.04
BOE - Gas 2,512.65 1,895.87 2,035.70 1,802.31 1,779.85 1,521.68
BOE - Condensate 99.72 74.95 86.06 75.26 90.19 72.09
64.91 40.24 36.56 35.98 33.21
Revenue (EUR000's) EUR EUR EUR EUR EUR 21.43
Production KPI's Jul-2019 Aug-2019 Sep-2019 Oct-2019 Nov-2019 Dec-2019
---------- ---------- ---------- ---------- ---------- ----------
Total production (000s
Cubic Metres) 216.91 237.9 231.33 221.6 102.69 167.392
Total production (Mcf) 7,659.09 8,400.25 8,168.26 7,824.70 3,625.98 5,910.61
Average daily - 000s
cubic metres 7.00 7.67 7.71 7.15 3.42 5.40
Average daily - MMscfd 0.25 0.27 0.27 0.25 0.12 0.19
Condensate production
(litres) 7,884.00 10,584.00 11,502.00 12,312.00 3,942.00 5,886.00
Litres per 1000 cubic
metres of gas 36.35 44.49 49.72 55.56 38.39 35.16
BOE - Gas 1,320.43 1,448.20 1,408.21 1,348.98 625.12 1,018.99
BOE - Condensate 46.37 62.24 67.64 72.41 23.18 34.62
13.34 13.41 14.76 12.74 10.78
Revenue (EUR'000s) EUR EUR EUR EUR EUR 0
---------- ---------- ---------- ---------- ---------- ----------
Our Principal risks and uncertainties
Commodity The Group is exposed to risks arising from fluctuations
Prices in the demand for, and price of, hydrocarbons. Oil
and gas prices depend on numerous factors over which
the Group does not have any control, including global
supply, international economic trends (such as the
current downturn caused by COVID-19), currency exchange
fluctuations, inflation, consumption patterns and
global or regional political events. This risk impacts
revenues from the Group's existing asset portfolio
in Slovenia, projects under development including
the Cuban MOUs, and evaluation of business development
opportunities where commerciality depends on assumptions
around future commodity prices.
In terms of evaluating and sanctioning new investments,
the Group adopts a conservative price forecast to
ensure capital is allocated to projects with robust
economics, even in lower commodity price environments.
Permitting The single biggest issue when carrying out operations
risk in Slovenia over the past six years has been the
environmental permitting process. This is not unique
to Ascent and it is our opinion that inefficiencies
and uncertainties within the environmental permitting
process are a significant hurdle to economic growth
in Slovenia.
Permitting risk exists for any element of the field
development plan which requires an environmental
permit; mainly well stimulation and the installation
of processing equipment. This risk is managed by
our detailed understanding of the process and our
actions to ensure Slovenian and EU regulations are
followed properly by Slovenian officials.
The award of the IPPC Permit during the year gives
the Board an increased degree of confidence that
the permits necessary for field development can be
obtained. An appeal against the decision of the Slovenian
Environment Ministry to require an Environmental
Impact Assessment ('EIA') for the proposed well stimulation
work at its Petišovci project was submitted
in July 2019. Whilst the stimulation work is considered
essential in order to address the production decline
and operations of this nature having been carried
out in Slovenia more than a hundred times since the
1950's, the Company was made aware in June 2020 that
the Administrative Court of the Republic of Slovenia
had ruled that an EIA would be required to enable
the re-stimulation of PG-10 and PG11A wells. Accordingly,
the Company is beginning preparations for submission
of an EIA. Should the JV partners EIA be successful
further permits will be required to begin intended
operational activities, which the Company would expect
to receive in due course, however there can be no
guarantee of receipt of the necessary permitting.
-------------------------------------------------------------
Concession The date when the concession is due to be renewed
extension is now only two years away which means that before
risk any further significant investment in facilities
is made the Company and its partners will need to
have obtained an early extension of the concession.
The Company and its partners have, for over a year
now, been completing the documentation required to
seek an early extension of the concession which is
due to expire in 2022. While we are confident that
an extension will be granted as a matter of course,
there is no guarantee that this will be the case.
This risk is mitigated by the goals of the partners
being well aligned; the fact that we have brought
the field into production safely and successfully
and we have started the preparatory work well in
advance of the concession end date. As a result,
we believe that the extension should be awarded in
due course.
-------------------------------------------------------------
Sub-surface The nature of the Petišovci Project is such
risk that a range of health and safety, drilling, production
and commercial risks are identified for the development
of the resource.
The Petišovci Pg reservoirs are over-pressured
and hot, relative to normal hydrostatic and thermal
gradients. The reservoir gas contains some carbon
dioxide and low levels of hydrogen sulphide and mercaptan
sulphur.
There is a risk that the Company is unable to effectively
exploit the proven reserves and resources from the
Petišovci field which may result in a lower
than anticipated return on investment. This risk
is mitigated by the experience of the expert technical
consultants and sub-contractors retained by the Company
and the knowledge acquired by the Company from production
to date.
-------------------------------------------------------------
Risks associated Although there continues to be considerable uncertainty,
with the UK at this time the Directors do not expect the implementation
withdrawal of Brexit to have a materially adverse impact on
from the European the operations of the Company or the Group but as
Union a UK registered Company with operations in the EU,
there could potentially be a risk of a negative impact
from the UK's departure from the European Union,
mainly given to the consequences that the withdrawal
could have on the application of EU law.
This risk is mitigated as we operate through locally
owned subsidiaries selling gas produced in Slovenia
to Croatia, another EU member state. The Company's
entry in Cuba will also be structured in a way to
ensure that we benefit from the protection provided
by the EU legislation in that respect.
-------------------------------------------------------------
Operator qualification As part of international expansion the Company, post
risk period in review, the Company has secured four MOUs
for onshore oil and gas blocks in Cuba. As part of
being awarded the PSCs for these blocks and before
any work on the ground can begin the Company needs
to qualify as an onshore operator in Cuba. Whilst
the management believes the requirements imposed
under Cuban law can be met, and the Company has a
long history and operational track record in oil
and gas operations, there can be no guarantee of
such since the evaluation is to be carried by an
independent body of the Cuban administration in accordance
with the applicable law. Failure of the Company to
qualify as an operator in new jurisdictions will
limit the ability of the Company to achieve strategic
growth.
-------------------------------------------------------------
Cuba US Sanction The Company intends to do business in Cuba, a country
risk which is currently under a US embargo. The EU and
the UK do not impose any sanctions against Cuba.
The Company is implementing a robust set of policies
to safeguard the Company from being exposed to any
US nexus in dealings related to Cuba, including the
prohibition of use of USD currency. The main impact
of EU and UK sanctions on the Project is the interaction
of EU measures (and potentially UK measures, post-Brexit)
with US sanctions and their attempt to provide both
a shield and sword to any claims of US jurisdiction
over transactions in Cuba. For this reason, the Company
is also structuring its Cuba entry in a way to ensure
it benefits from EU legislation protection on Sanctions.
The main risk for the Group would be to become subject
to US jurisdiction and the extensive US embargo that
is in place against Cuba
-------------------------------------------------------------
COVID-19 risk COVID-19 has had limited direct impact on Ascent's
assets in Slovenia but there may be delays in obtaining
the necessary governmental approvals. In addition,
the pandemic has created increased commodity price
volatility as detailed above and may impact availability
of funding or the terms on which such funding is
available. Production operations in Slovenia have
been unaffected to date, with the assets being managed
through a combination of on-site working within social
distancing guidelines or remote oversight, with all
appropriate safety procedures remaining in place
to protect staff and local communities. However,
the potential for future disruption to operations
remains.
-------------------------------------------------------------
How we operate
The Company utilises a full range of advanced geophysical, geological and other state-of-the-art technology to evaluate and de-risk projects and to reap maximum benefit from its appraisal, development and production activities. Our Petis ovci project is operated through a local entity in a joint venture.
Our people
Ascent has a small executive team implementing a clear growth strategy and a more operationally focused team based in Slovenia. This is supplemented, as the need requires, with regional technical and operational expertise to ensure the highest standards are delivered on our projects. As an important local employer in our area of operation we take our environmental and social responsibilities seriously and always strive to be a good corporate citizen.
Approved for issue by the Board of Directors and signed on its behalf
James Parsons
Executive Chairman
25 June 2020
Summary of Group Net Oil and Gas Reserves As of 31 Dec 2019
Net Reserves and Resources
Net Attributable Net Attributable Net Attributable
Reserves Contingent Reserves Prospective Resources
(bcfe) (bcfe) (bcfe)
P90 P50 P10 Low Best High Low Best High
------ ------ ----- ------- ------- ------- ------- -------- --------
Slovenia 41 84 162 35 73 145 - - -
------ ------ ----- ------- ------- ------- ------- -------- --------
These figures are based on RPS Energy "Updated Independent Volumetric Review of the Petišovci Area" gas-in-place estimates with a management assumption of a 50% recovery factor and Ascent's 75% participation.
Tested and/or produced commercial sands are included as Reserves while untested and unproduced sands remain as Resources. The condensate content of gas is not included.
Remaining reserves have been adjusted to take into account historic field production since 1963, including estimates of process flare and fuel, which to the end of 2019 were 12.60 bcf. Ascent's share of this production and gas use is 9.45 bcf.
Proven Reserves (P90) are those quantities of petroleum which can be estimated with reasonable certainty to be commercially recoverable, from known reservoirs and under current economic conditions, operating methods and government regulations.
Proven + Probable Reserves (P50) includes those unproven reserves which are more likely than not to be recoverable.
For the P90 (P50 and P10) Reserves there is at least a 90% (50%; 10%) probability that the quantities actually recovered will equal or exceed the estimate.
Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent resources may include, for example, projects for which there are currently no viable markets or where commercial recovery is dependent on technology under development or where evaluation of the accumulation is insufficient to clearly assess commerciality.
Prospective Resources are those quantities of petroleum which are estimated to be potentially recoverable from undiscovered accumulations.
The range of estimates shown for each category of reserves or resources is a measure of the uncertainty inherent in the estimation of producible volumes and includes the current perceptions of geological, operational and commercial risk.
Directors' Report
The Directors present their Directors' Report and Financial Statements for the year ended 31 December 2019 ('the year').
Principal activities
The principal activities of the Group comprise gas and oil exploration and production. The Company is registered in England and Wales and is quoted on the AIM Market of the London Stock Exchange.
The Group's corporate management is in London and its oil and gas interests are in Slovenia and post period end Cuba. The Group operates its own undertakings both through subsidiary companies and joint ventures. The subsidiary undertakings affecting the Group's results and net assets are listed in Note 11 to the Financial Statements.
Future developments
The Company has identified the European gas market as a relatively stable and secure arena in which to compete. The European market continues to be a net importer of gas whilst diversity of supply is central to the energy security strategy of most nations. The Petišovci field in Slovenia has the potential to supply a significant proportion of the country's gas requirement for many years. As part of its ongoing strategic review in Europe, the Company is pleased to confirm that given its existing skill sets and regional relationships, it continues to evaluate multiple opportunities to grow its European footprint, including in neighbouring Central Eastern European countries and in the United Kingdom.
Post period in review, as part of an expanded international strategic review, the Company has also identified the Caribbean and Hispanic America region as highly prospective for oil and gas, and a region where the new team's industry experience, existing relationships and skill set can add value for shareholders. The Company is focused initially on attractive production and appraisal portfolios and views the current low oil price environment as an opportunity to secure advantageous entry terms. It also notes recent legislative and licence changes to encourage foreign investment with attractive fiscal terms, reduced tax rates and tax holidays in some jurisdictions. We expect Ascent will benefit from a counter cyclical early mover advantage as one of the few active foreign independent E&P companies in the region.
Financial risk management
Details of the Group's financial instruments and its policies with regard to financial risk management are given in Note 24 of the Financial Statements.
Results and dividends
The loss for the year after taxation was GBP3.7 million (2018: GBP1.4 million). The Directors do not recommend the payment of a dividend (2018: Nil).
Post balance sheet events
Post year in review, in February 2020 , the new Board has achieved a restructuring of the September 2019 RiverFort Arrangement. The Equity Sharing Agreement with RiverFort as announced on 20 September 2019 has now been cancelled, effective February 14, 2020. The outstanding US $468,776 loan (including fees and commission) with Riverfort has been re-negotiated to a two-year coupon free bullet repayment due on maturity with conversion rights for the lender at 7.5 pence per share (post re-organisation). No conversion can occur until the share price exceeds 10 pence per share for five consecutive days. The Company has a right to buy out up to 50% of the loan prior to its expiry at nil premium whilst the share price is below the conversion price. If the Company does exercise this right, then the conversion price is adjusted upwards to 0.0875 pence (8.75 pence post re-organisation) per conversion share. The 43 million warrants initially to be awarded to Riverfort, as announced on 20 September 2019, will no longer be awarded.
Post period in review, in March 2020, shareholders approved a share re-organisation, including a 100:1 consolidation, with the nominal value of the shares to be set to 0.05 pence. Further to the successful passing of the resolutions at the Company's General Meeting held on 5 March 2020 and despite the market volatility at the time, the Company completed a fundraising for gross proceeds of GBP685,000 at 5 pence per share. Furthermore, in support of funding work streams associated with advancing the Company's entry into Cuba the Company raised a further GBP212,500 by the issuance of new shares at 2.75 pence being a nil premium to the closing bid price at the time of issue in April alongside the issue of 8,727,272 warrants exercisable by paying 5.5 pence per new share at any time in the two years from issue.
Post Period in review the Company has announced a new country entry into Cuba via, initially the acquisition of Energetical Limited securing exclusive rights to negotiate the PSC for onshore production block 9B, followed quickly with the announcement of a signature of a further 3 memorandum of understanding directly with Cuban National oil company CUPET over onshore blocks 9A, 12 and 15. This positions the Company with exclusive rights to negotiate the production sharing contracts to one of the largest non-state owned portfolios of exploration and production licenses in Cuba covering over 7,000 km2.
Directors
The Directors of the Company that served during the year, and subsequently, were as follows:
Colin Hutchinson (resigned 5 March 2020) Clive Nathan Carver (resigned 15 January 2019) Nigel Sandford Johnson Moore (resigned 18 February 2019) William Cameron Davies (resigned 29 July 2019) John Edmund Buggenhagen (appointed 18 February 2019, resigned 14 April 2020) Louis Emmanuel Castro (appointed 18 February 2019, resigned 5 March 2020) James Parsons (appointed 5 March 2020) Ewen Ainsworth (appointed 5 March 2020) Leonardo Salvadori (appointed 14 April 2020) Andrew Dennan (appointed 5 May 2020)
Relevant details of the Directors, which include committee memberships, are set out in the full annual report.
Directors' interests
The beneficial and non-beneficial interests in the issued share capital and Convertible Loan Notes ("CLN") of the Company were as follows:
Ordinary shares of 0.2p each.
At 31 December 2019 At 31 December 2018
Clive Carver* n.a 3,304,231
Nigel Moore* n.a 1,339,275
Cameron Davies* n.a 1,340,800
Colin Hutchinson 1,570,370 1,570,270
Louis Castro n.a. n.a
John Edmund Buggenhagen n.a. n.a
*Resigned in period.
Directors' emoluments
Details of Directors' share options and remuneration are set out in the Remuneration Committee report.
Third party indemnity provision
The Company has provided liability insurance for its Directors. The annual cost of the cover is not material to the Group. The Company's Articles of Association allow it to provide an indemnity for the benefit of its Directors which is a qualifying indemnity provision for the purposes of the Companies Act 2006.
Share capital
Details of changes to share capital in the period are set out in Note 18. to the Financial Statements.
As at 30 April 2020 the Company has been notified of the following significant interests in its ordinary shares, being a holding of 3% and above:
Number of ordinary
shares %
Halifax Share Dealing Clients 5,779,038 9.78
Hargreaves Lansdown Private Client 5,428,811 9.18
Interactive Investor Clients 2,548,100 4.31
Shard Capital 2,409,090 4.08
Novum Securities 2,100,000 3.55
Andrew Dennan 1,900,000 3.21
Ewen Ainsworth 454,545 0.77
Shareholder communications
The Company's website, www.ascentresources.co.uk, provides a platform for the purposes of improving information flow to shareholders, as well as potential investors.
Employees
The Company's Board composition provides the platform for sound corporate governance and robust leadership in implementing the Company's strategies to meet its stated goals and objectives.
The Group's employees and consultants play an integral part in executing its strategy and the overall success and sustainability of the organisation. The Group has a highly skilled and dedicated team of employees and consultants and places great emphasis on attracting and retaining quality staff. As an international oil and gas company, we facilitate the development of leadership from the communities in which we operate. There is a large pool of qualified upstream oil and gas exploration and production professionals in the areas in which we operate, and we are committed to building and developing our teams from these talent pools.
The Group holds its employees and consultants at all levels to high standards and expects the conduct of its employees to reflect mutual respect, tolerance of cultural differences, adherence to the corporate code of conduct and an ambition to excel in their various disciplines.
Disclosure of information to auditors
In the case of each person who was a Director at the time this report was approved:
-- so far as that Director was aware there was no relevant audit information of which the Company's auditors were unaware; and
-- that Director had taken all steps that the Director ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditors were aware of that information.
This information is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.
Going Concern
The Financial Statements of the Group are prepared on a going concern basis as detailed in Note 1. to the financial statements.
The Company has raised GBP0.8975 million in new equity since the balance sheet date from new and existing investors. Under the Group's forecasts, the funds raised together with existing bank balances provide sufficient funding for at least the next two months, as of the date of the publication of this report, based on anticipated outgoings and in the absence of the receipt of revenues from production.
COVID-19 has had limited direct impact on Ascent's assets in Slovenia but there may be delays in obtaining the necessary governmental approvals and processes. Production operations in Slovenia have been unaffected to date.
In addition to the need to raise additional funding in the next two months, the forecasts are sensitive to the timing and cash flows associated with operational continuation in Slovenia and discretionary spend incurred on advancing the Cuban initiative including deferred consideration that would become payable if the Company elects to enter a PSC for Block 9b. As such, the Company will need to raise new capital within the forecast period to fund such discretionary spend.
Based on historical and recent support from new and existing investors the Board believes that such funding, when required, could be obtained through new debt or equity issuances. However, the ability to raise these funds is not guaranteed at the date of signing these financial statements.
As a consequence, there is material uncertainty which may cast significant doubt over the Group and Parent Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.
Auditors
In accordance with Section 489 of the Companies Act 2006, a resolution for the reappointment of BDO LLP as auditors of the Company is to be proposed at the forthcoming Annual General Meeting.
Approved for issue by the Board of Directors
and signed on its behalf
James Parsons
Chairman
25 June 2020
Consolidated Income Statement &
Statement of Other Comprehensive Income
For the year ended 31 December 2019
Notes Year ended Year ended
31 December 31 December
2019 2018
GBP '000s GBP '000s
Revenue 2 298 1,942
Cost of sales 2 (462) (771)
Depreciation of oil & gas assets 9 (440) (793)
------------------------ ------------------------
Gross (loss) / profit (604) 378
Administrative expenses 3 (2,132) (1,760)
------------------------ ------------------------
Operating loss (2,736) (1,382)
Finance income 5 - 26
Finance cost 5 (924) (9)
------------------------ ------------------------
Net finance costs (924) 17
Loss before taxation (3,660) (1,365)
Income tax expense 6 - -
------------------------ ------------------------
Loss for the period after tax (3,660) (1,365)
Loss for the year attributable
to equity shareholders (3,660) (1,365)
Loss per share
Basic & fully diluted loss per
share (Pence) 8 (0.14) (0.06)
Year ended Year ended
31 December 31 December
2019 2018
GBP '000s GBP '000s
Loss for the year (3,660) (1,365)
Other comprehensive income
Foreign currency translation differences
for foreign operations* (1,700) 310
Total comprehensive loss for the year (5,360) (1,055)
*Items which may be recycled through the income statement in future periods.
The Notes are an integral part of these consolidated financial statements .
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Share Share Merger Equity Share Translation Retained Total
capital premium Reserve reserve based reserve earnings
payment
reserve
GBP '000s GBP '000s GBP '000s GBP '000s GBP '000s GBP '000s GBP '000s GBP '000s
Balance at 1
January
2018 6,101 71,647 300 16 1,569 1,090 (36,992) 43,731
Comprehensive -
income
Loss for the year - - - - - - (1,365) (1,365)
Other comprehensive
income
Currency
translation
differences - - - - - 310 - 310
Total comprehensive
income - - - - - 310 (1,365) (1,055)
Transactions with -
owners
Conversion of loan
notes - 1 - - - - - 1
Shares issued under
the Trameta
acquisition 45 - 270 - (315) - - -
Share-based
payments - - - - 403 - - 403
Balance at 31
December
2018 6,146 71,648 570 16 1,657 1,400 (38,357) 43,080
-------------------- ---------- ---------- ---------- ---------- ---------- ------------ ---------- ----------
Balance at 1
January
2019 6,146 71,648 570 16 1,657 1,400 (38,357) 43,080
Comprehensive -
income
Loss for the year - - - - - - (3,660)) (3,660)
Other comprehensive
income
Currency
translation
differences - - - - - (1,700) - (1,700)
Total comprehensive
loss - - - - - (1,700) (3,660) (5,360)
Transactions with -
owners
Issue of ordinary
shares
net of costs 1,458 682 - - - - - 2,140
Expiry on loan note
conversion rights - - - (16) - - - (16)
Share-based
payments - - - - 216 - 53 269
Balance at 31
December
2019 7,604 72,330 570 - 1,873 (300) (41,964) 40,113
-------------------- ---------- ---------- ---------- ---------- ---------- ------------ ---------- ----------
The Notes are an integral part of these consolidated financial statements.
Company Statement of Changes in Equity
For the year ended 31 December 2019
Share capital Share premium Merger Equity reserve Share based Retained Total
Reserve payment earnings
reserve
GBP '000s GBP '000s GBP '000s GBP '000s GBP '000s GBP '000s GBP '000s
Balance at 1
January 2018 6,101 71,647 300 16 1,569 (32,539) 47,094
Comprehensive -
income
Profit and
comprehensive
profit for
the year - - - - - 794 794
Total
comprehensive
income - - - - - 794 794
Transactions
with owners
Conversion of
loan notes - 1 - - - - 1
Shares issued
under the
Trameta
acquisition 45 - 270 - (315) - -
Share-based
payments and
expiry of
options - - - - 403 - 403
Balance at 31
December
2018 6,146 71,648 570 16 1,657 (31,745) 48,292
--------------- -------------- -------------- -------------- --------------- ------------ ---------- ----------
Balance at 1
January 2019 6,146 71,648 570 16 1,657 (31,745) 48,292
Comprehensive -
income
Loss and
comprehensive
loss for the
year (8,362) (8,362)
Total
comprehensive
loss - - - - - (8,362) (8,362)
Transactions
with owners
Issue of
ordinary
shares
net of costs 1,458 682 - - - - 2,140
Expiry on loan
note
conversion
rights - - - (16) - - (16)
Share-based
payments and
expiry of
options - - - - 216 53- 269
Balance at 31
December
2019 7,604 72,330 570 - 1,873 (40,054) 42,323
--------------- -------------- -------------- -------------- --------------- ------------ ---------- ----------
The Notes are an integral part of these consolidated financial statements.
Consolidated Statement of Financial Position
As at 31 December 2019
Notes 31 December 31 December
2019 2018
Assets GBP '000s GBP '000s
Non-current assets
Property, plant and equipment 9 22,069 23,779
Exploration and evaluation costs 10 18,576 18,968
Prepaid abandonment fund 12 240 240
------------------------ ------------------------
Total non-current assets 40,885 42,987
Current assets
Inventory - 3
Trade and other receivables 12 254 233
Cash and cash equivalents 23 77 376
Restricted cash 23 - 180
------------------------ ------------------------
Total current assets 331 792
Total assets 41,216 43,779
======================== ========================
Equity and liabilities
Attributable to the equity holders
of the Parent Company
Share capital 18 7,604 6,146
Share premium account 72,330 71,648
Merger reserve 570 570
Equity reserve - 16
Share-based payment reserve 1,873 1,657
Translation reserves (300) 1,400
Retained earnings (41,964) (38,357)
------------------------ ------------------------
Total equity attributable to the shareholders 40,113 43,080
Total equity 40,113 43,080
------------------------ ------------------------
Non-current liabilities
Borrowings 14 - 44
Provisions 15 255 263
Total non-current liabilities 255 307
Current liabilities
Borrowings 14 385 -
Trade and other payables 16 463 392
Total current liabilities 848 392
Total liabilities 1,103 699
------------------------ ------------------------
Total equity and liabilities 41,216 43,779
======================== ========================
The Notes are an integral part of these consolidated financial statements.
These financial statements were approved and authorised for issue by the Board of Directors on 25 June 2020 and signed on its behalf by:
James Parsons
Executive Chairman
25 June 2020
Company Statement of Financial Position
As at 31 December 2019
Notes 31 December 31 December
2019 2018
Assets GBP '000s GBP '000s
Non-current assets
Property, plant and equipment - 1
Investment in subsidiaries and joint
ventures 11 15,443 15,443
Intercompany receivables 20 27,180 32,713
------ ------------------------ ------------------------
Total non-current assets 42,623 48,157
Current assets
Trade and other receivables 13 196 11
Cash and cash equivalents 23 64 112
Restricted cash 23 - 180
------ ------------------------ ------------------------
Total current assets 260 303
Total assets 42,883 48,460
====== ======================== ========================
Equity and liabilities
Share capital 18 7,604 6,146
Share premium account 72,330 71,648
Merger reserve 570 570
Equity reserve - 16
Share-based payment reserve 1,873 1,657
Retained loss (40,054) (31,745)
------ ------------------------ ------------------------
Total equity attributable to the shareholders 42,323 48,292
Non-Controlling interest - -
------ ------------------------ ------------------------
Total equity 42,323 48,292
------ ------------------------ ------------------------
Non-current liabilities
Borrowings 14 - 44
Total non-current liabilities - 44
Current liabilities
Borrowings 14 385 -
Trade and other payables 17 175 124
Total current liabilities 560 124
Total liabilities 560 168
------ ------------------------ ------------------------
Total equity and liabilities 42,883 48,460
====== ======================== ========================
The Company loss for the year was GBP8,362,000 (2018: profit of 0.8 million).
The Notes are an integral part of these consolidated financial statements.
These financial statements were approved and authorised for issue by the Board of Directors on 25 June 2020 and signed on its behalf by:
James Parsons
Executive Chairman
25 June 2020
Consolidated Cash Flow Statement
For the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
GBP '000s GBP '000s
Cash flows from operations
Loss after tax for the year (3,660) (1,365)
Depreciation 440 793
Change in inventory (3) 1
Change in receivables 152 530
Change in payables 71 (184)
Share-based payments 269 403
Exchange differences (40) 24
Finance income - (26)
Finance cost 924 9
Transfer from restricted cash 180 175
Net cash generation (used in)/from operating
activities (1,667) 360
------------------------- ------------------------
Cash flows from investing activities
Interest received (3) 24
Payments for fixed assets (3) (411)
Payments for investing in exploration - (319)
Net cash used in investing activities (6) (706)
------------------------- ------------------------
Cash flows from financing activities
Interest paid and other finance fees (67) (1)
Loans received 410
Loans repaid (27)
Proceeds from issue of shares 1,114 -
Share issue costs (55) -
Net cash generated from financing activities 1,375 (1)
------------------------- ------------------------
Net increase in cash and cash equivalents
for the year (299) (347)
Effect of foreign exchange differences - 2
Cash and cash equivalents at beginning
of the year 376 721
Cash and cash equivalents at end of the
year 77 376
========================= ========================
* Restricted cash related to monies held on deposit by Ascent as collateral against a bank guarantee in favour of INA to cover any potential future penalties under the gas sales agreement.
The Notes are an integral part of these consolidated financial statements.
Company Cash Flow Statement
For the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
GBP '000s GBP '000s
Cash flows from operations
(Loss)/ profit after tax for the year (8,362) 794
Adjustments for:
Change in receivables (12) 44
Change in payables 51 (50)
Expected credit loss charge 4,796 -
Change in intercompany receivables (1,853) (1,513)
Increase in share-based payments 269 403
Exchange differences 2,692 (450)
Finance cost 853 8
Transfer from restricted cash 180 175
Net cash generation (used in) operating
activities (1,386) (589)
------------------------ ------------------------
Cash flows from investing activities
Advances to subsidiaries (102) -
Net cash used in investing activities (102) -
------------------------ ------------------------
Cash flows from financing activities
Interest paid and other finance fees (5) (1)
Loans advance received 410
Loans repaid (27)
Proceeds from issue of shares 1,114 -
Share issue costs (55) -
Net cash generated from financing activities 1,438 (1)
------------------------ ------------------------
Net increase in cash and cash equivalents
for the year (50) (590)
Effect of foreign exchange differences 2 2
Cash and cash equivalents at beginning
of the year 112 700
Cash and cash equivalents at end of the
year 64 112
======================== ========================
* Restricted cash related to monies held on deposit by Ascent as collateral against a bank guarantee in favour of INA to cover any potential future penalties under the gas sales agreement.
The Notes are an integral part of these consolidated financial statements.
Notes to the accounts
1 Accounting policies
Reporting entity
Ascent Resources plc ('the Company' or 'Ascent') is a company domiciled and incorporated in England. The address of the Company's registered office is 5 New Street Square, London, EC4A 3TW. The consolidated financial statements of the Company for the year ended 31 December 2019 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in associates and joint ventures. The Parent Company financial statements present information about the Company as a separate entity and not about its Group.
The Company is admitted to AIM, a market of the London Stock Exchange.
The financial information set out herein does not constitute the Group's statutory financial statements for the year ended 31 December 2019, but is derived from the Group's audited financial statements. The auditors have reported on the 2019 financial statements and their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006 but did contain a material uncertainty in relation to going concern.
The financial information in this statement is audited but does not have the status of statutory accounts within the meaning of Section 434 of the Companies Act 2006.
Statement of compliance
The financial statements of the Group and Company, which form part of the 2019 Annual Report, have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted by the European Union, and with the Companies Act 2006 as applicable to companies reporting under IFRS.
The Group's and Company's financial statements for the year ended 31 December 2019 were approved and authorised for issue by the Board of Directors on 25 June 2020 and the Statements of Financial Position were signed on behalf of the Board by James Parsons.
Both the Parent Company financial statements and the Group financial statements give a true and fair view and have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('IFRSs').
Basis of preparation
In publishing the Parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in Section 408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements. The Company loss for the year was GBP8,362,000 (2018: profit of GBP794,000)
Measurement Convention
The financial statements have been prepared under the historical cost convention, except for financial instruments measured at fair value. The financial statements are presented in sterling and have been rounded to the nearest thousand (GBP'000s) except where otherwise indicated.
The principal accounting policies set out below have been consistently applied to all periods presented.
Going Concern
The Board have reviewed cash flow forecasts covering a period of at least the next twelve months from the date of approval of the financial statements.
The Company has raised GBP0.8975 million in new equity since the balance sheet date from new and existing investors. Under the Group's forecasts, the funds raised together with existing bank balances provide sufficient funding for at least the next two months, as of the date of the publication of this report, based on anticipated outgoings and in the absence of the receipt of revenues from production.
COVID-19 has had limited direct impact on Ascent's assets in Slovenia but there may be delays in obtaining the necessary governmental approvals and administrative court processes. Production operations in Slovenia have been unaffected to date.
In addition to the need to raise additional funding in the next two months, the forecasts are sensitive to the timing and cash flows associated with operational continuation in Slovenia and discretionary spend incurred on advancing the Cuban initiative including deferred consideration that would become payable if the Company elects to enter a PSC for Block 9b. As such, the Company will need to raise new capital within the forecast period to fund such discretionary spend.
Based on historical and recent support from new and existing investors the Board believes that such funding, when required, could be obtained through new debt or equity issuances. However, the ability to raise these funds is not guaranteed at the date of signing these financial statements.
As a consequence, there is material uncertainty which may cast significant doubt over the Group and Parent Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.
New and amended Standards effective for 31 December 2019 year-end adopted by the Group:
i. The following new standards and amendments to standards are mandatory for the first time for the Group for the financial year beginning 1 January 2019. The adoption of these standards and amendments has had no material effect on the Group's results, although they have given rise to changes to disclosures.
Standard Description Effective
date
IFRS 16 Leases 1 January
2019
--------------------------------------- ----------
IFRS 23 Uncertainty over Income Tax Treatments 1 January
2019
--------------------------------------- ----------
IFRS 9 Amendments to IFRS 9 Prepayment 1 January
Features with Negative Compensation 2019
--------------------------------------- ----------
Annual improvements to IFRS Standards 1 January
2015-2017 Cycle 2019
--------------------------------------- ----------
The new standards effective from 1 January 2019, as listed above, did not have a material effect on the Group's financial statements.
Management have undertaken a review of contracts for potential lease arrangements. Based on the analysis the Group does not have any leases requiring recognition and therefore IFRS 16 has had no impact on the Group. The Group applied the modified retrospective approach to adoption of IFRS 16. The Group has taken the exemption within IFRS 16 not to record leases for low value items and arrangements with a term of less than 12 months.
The Group has adopted IFRIC 23 Uncertainty over Income Tax Treatments which is effective for accounting periods beginning on or after January 1, 2019. The interpretation is applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. The adoption of this interpretation has not had a material impact on the financial statements of the Group.
.
ii. Standards, amendments and interpretations, which are effective for reporting periods beginning after the date of these financial statements which have not been adopted early:
Standard Description Effective
date
IFRS Business combinations 1 January
3 2020
-------------------------------------------- ----------
IAS 1 Presentation of Financial Statements and 1 January
IAS 8 Accounting Policies, Changes in 2020
Accounting Estimates and Errors (Amendment
- Definition of Material)
-------------------------------------------- ----------
IAS 1 Amendments to IAS 1 Classification of 1 January
Liabilities as Current or Non-current 2020
-------------------------------------------- ----------
Revised Conceptual Framework for Financial 1 January
Reporting 2020
-------------------------------------------- ----------
The Group is currently assessing the impact of these new accounting standards and amendments. None of these are expected to have a material impact on the financial statements.
Critical accounting estimates and assumptions and critical judgements in applying the Group's accounting policies
The preparation of the consolidated financial statements in conformity with IFRSs requires management to make estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income, expenses and related disclosures. The estimates and underlying assumptions are based on practical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based or as a result of new information. Such changes are recorded in the period in which the estimate is revised.
The application of the Group's accounting policies may require management to make judgements, apart from those involving estimates, which can have a significant effect on the amounts amortised in the financial statements. Management judgement is particularly required when assessing the substance of transactions that have a complicated structure or legal form.
Exploration and evaluation assets - exploration and evaluation costs are initially classified and held as intangible fixed assets rather than being expensed. The carrying value of intangible exploration and evaluation assets are then determined. Management considers these assets for indicators of impairment under IFRS 6 at least annually based on an estimation of the recoverability of the cost pool from future development and production of the related oil and gas reserves which requires judgement. This assessment includes assessment of the underlying financial models for the Petišovci field and requires estimates of gas reserves, production, gas prices, operating and capital costs associated with the field and discount rates (see Note 10 ) using the fair value less cost to develop method which is commonplace in the oil and gas sector. The forecasts are based on the JV partners submitting and obtaining approval for an environmental impact assessment, which the Board considers to be an ordinary risk for oil and gas developments, and other environmental permits which the Board anticipate being issued. In forming this judgment, the Board considered all facts and circumstances including the IPPC award in 2019, the Court ruling regarding the environmental permit applications and noting the recent amendments to both the Nature Preservation Act as well as law regarding building permits for facilities that could be considered relevant. The carrying value of exploration assets at 31 December 2019 was GBP18,576,000 (2018: GBP18,968,000).
Commercial reserves - Commercial reserves are proven, and probable oil and gas reserves calculated on an entitlement basis and are integral to the assessment of the carrying value of the exploration, evaluation and production assets. Estimates of commercial reserves include estimates of the amount of oil and gas in place, assumptions about reservoir performance over the life of the field and assumptions about commercial factors which, in turn, will be affected by the future oil and gas price.
Carrying value of property, plant and equipment (developed oil and gas assets) - developed oil and gas assets are assessed for indicators of impairment and tested for impairment at each reporting date when indicators of impairment exist. An impairment test was performed based on a discounted cash flow model using a fair value less cost to develop approach commonplace within the oil and gas sector. Key inputs requiring judgment and estimate included gas prices, production and reserves, future costs and discount rates. Gas prices in the near term are forecast based on management's expectation of market prices less deductions under the INA contract, before reverting to market prices with reference to the forward curve following the approval of the IPPC permit and transition to gas sales taking place into the Slovenian market. The forecasts include future well workovers to access the reserves included in the model together with the wider estimated field development costs to access field reserves. Refer to Note 9. The impairment test demonstrates significant headroom despite the underperformance of the wells given the delays obtaining permits for well stimulation. As with the exploration and evaluation assets, judgment was required regarding the likelihood of the necessary environmental permits being granted, which are key to the commercial value of the assets.
Depreciation of property, plant and equipment - Upon commencing commercial production we began to depreciate the assets associated with current production. The depreciation on a unit of production basis requires judgment and estimation in terms of the applicable reserves over which the assets are depreciated and the extent to which future capital expenditure is included in the depreciable cost when such expenditure is required to extract the reserve base. The calculations have been based on actual production, estimates of P50 reserves and best estimate resources the estimated future workover costs on the producing wells to extract this reserve. The depreciation charge for the year was GBP434,000 (2018: GBP793,000) including both depreciation associated with the unit of production method and straight-line charges for existing processing infrastructure. This is included in Notes 9 and 10 below.
Deferred tax - judgment has been required in assessing the extent to which a deferred tax asset is recorded, or not recorded, in respect of the Slovenian operations. Noting the history of taxable losses and the initial phases of production, together with assessment of budgets and forecasts of tax in 2019 the Board has concluded that no deferred tax asset is yet applicable. This is included at Note 7 .
Intercompany receivables - In line with the requirements of IFRS 9 the Board has carried out an assessment of the potential future credit loss on intercompany receivables under a number of scenarios. Arriving at the expected credit loss allowance involved considering different scenarios for the recovery of the intercompany loan receivables, the possible credit losses that could arise and the probabilities for these scenarios. The Company would suffer a credit loss where the permits necessary for the development of the field are not obtained and a court case for damages against the Republic of Slovenia is unsuccessful. Based on legal advice received in relation to the permit process and the strength of our case we consider the risk of credit loss to be relatively limited. A provision of GBP4.8million (2018: GBP1.7 million) has been recognised in the Company accounts against a receivable of GBP32 million (2018: GBP34.4 million).
Riverfort receivable - during the current year the Company entered into a financing arrangement with Riverfort Global Investors. Under the subscription agreement Riverfort subscribed for shares at market price with equity issued at inception, the payment for these shares was effectively deferred under an equity sharing agreement with the proceeds receivable in instalments over 12 months with the value dependent on the share price performance during that period. Accordingly, the transaction gave rise to a receivable held at fair value. In addition, the Company entered an investment agreement under which the Company was advanced a $500,000 10% coupon loan repayable by September 2020 and which was to be repaid from the proceeds of the equity sharing agreement share sales. In addition, RiverFort were entitled to receive 43,000,000 warrants under the investment agreement with a subscription price at the lower of 0.33p, 120% of the closing share price at the date of warrant agreement or 120% of the share price in certain fundraising events.
In respect of the receivable associated with the equity sharing agreement classified at fair value through profit and loss, estimates were required in determining the fair value at year end based under a valuation model with key inputs being the share price and future share price volatility scenarios. The fair value of the warrants were assessed based on a Black-Scholes model at inception and year end and was immaterial. Refer to notes 12 and 22 for details.
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 and its subsidiaries as if they formed a single entity. Inter-company transactions and balances between Group companies are therefore eliminated in full.
The results of undertakings acquired or disposed of are consolidated from or to the date when control passes to or from the Group. The results of subsidiaries acquired or disposed of during the period are included in the Consolidated Income Statement from the date that control commences until the date that control ceases.
Where necessary, adjustments are made to the results of subsidiaries to bring the accounting policies they use into line with those used by the Group.
Business combinations
On acquisition, the assets, liabilities and contingent liabilities of subsidiaries are measured at their fair values at the date of acquisition. Any excess of cost of acquisition over net fair values of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the net fair values of the identifiable assets, liabilities and contingent liabilities acquired (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition.
Joint arrangements
The Group is party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.
The Group classifies its interests in joint arrangements as either joint ventures, where the Group has rights to only the net assets of the joint arrangement, or joint operations where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.
All of the Group's joint arrangements are classified as joint operations. The Group accounts for its interests in joint operations by recognising its assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.
The Group has one joint arrangement, the Petišovci joint venture in Slovenia in which Ascent Slovenia Limited (a 100% subsidiary of Ascent Resources plc) has a 75% working interest.
Oil and Gas Exploration Assets
All licence/project acquisitions, exploration and appraisal costs incurred or acquired on the acquisition of a subsidiary, are accumulated in respect of each identifiable project area. These costs, which are classified as intangible fixed assets are only carried forward to the extent that they are expected to be recovered through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves.
Pre-licence/project costs are written off immediately. Other costs are also written off unless commercial reserves have been established or the determination process has not been completed. Thus, accumulated cost in relation to an abandoned area are written off in full to the statement of comprehensive income in the year in which the decision to abandon the area is made.
Transfer of exploration assets to property, plant and equipment
Assets, including licences or areas of licences, are transferred from exploration and evaluation cost pools to property, plant and equipment when the existence of commercially feasible reserves have been determined and the Group concludes that the assets can generate commercial production. This assessment considers factors including the extent to which reserves have been established, the production levels and margins associated with such production. The costs transferred comprise direct costs associated with the relevant wells and infrastructure, together with an allocation of the wider unallocated exploration costs in the cost pool such as original acquisition costs for the field. The producing assets start to be depreciated following transfer.
Depreciation of property plant and equipment
The cost of production wells is depreciated on a unit of production basis. The depreciation charge is calculated based on total costs incurred to date plus anticipated future workover expenditure required to extract the associated gas reserves. This depreciable asset base is charged to the income statement based on production in the period over their expected lifetime P50 production extractable from the wells per the field plan.
The infrastructure associated with export production is depreciated on a straight-line basis over a two-year period as this is the anticipated period over which this infrastructure will be used.
Impairment of oil and gas exploration assets
Exploration/appraisal assets are reviewed regularly for indicators of impairment following the guidance in IFRS 6 'Exploration for and Evaluation of Mineral Resources' and tested for impairment where such indicators exist.
In accordance with IFRS 6 the Group considers the following facts and circumstances in their assessment of whether the Group's oil and gas exploration assets may be impaired:
-- whether the period for which the Group has the right to explore in a specific area has expired during the period or will expire in the near future, and is not expected to be renewed;
-- whether substantive expenditure on further exploration for and evaluation of mineral resources in a specific area is neither budgeted nor planned;
-- whether exploration for and evaluation of oil and gas reserves in a specific area have not led to the discovery of commercially viable quantities of oil and gas and the Group 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 Group, as a next step, perform an impairment test in accordance with the provisions of IAS 36. In such circumstances the aggregate carrying value of the oil and gas exploration and assets is compared against the expected recoverable amount of the cash generating unit. The recoverable amount is the higher of value in use and the fair value less costs to sell.
The Group has identified one cash generating unit, the wider Petišovci project in Slovenia. Any impairment arising is recognised in the Income Statement for the year.
Where there has been a charge for impairment in an earlier period that charge will be reversed in a later period where there has been a change in circumstances to the extent that the discounted future net cash flows are higher than the net book value at the time. In reversing impairment losses, the carrying amount of the asset will be increased to the lower of its original carrying values or the carrying value that would have been determined (net of depletion) had no impairment loss been recognised in prior periods.
Impairment of development and production assets and other property, plant and equipment
At each balance sheet date, the Group reviews the carrying amounts of its PP&E to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell (otherwise referred to as fair value less cost to develop in the oil and gas sector) and value in use. Fair value less costs to sell is determined by discounting the post-tax cash flows expected to be generated by the cash-generating unit, net of associated selling costs, and takes into account assumptions market participants would use in estimating fair value including future capital expenditure and development cost for extraction of the field reserves. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
Decommissioning costs
Where a material obligation for the removal of wells and production facilities and site restoration at the end of the field life exists, a provision for decommissioning is recognised. The amount recognised is the net present value of estimated future expenditure determined in accordance with local conditions and requirements. An asset of an amount equivalent to the provision is also added to oil and gas exploration assets and depreciated on a unit of production basis once production begins. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated asset.
Foreign currency
The Group's strategy is focussed on developing oil and gas projects across Europe funded by shareholder equity and other financial assets which are principally denominated in sterling. The functional currency of the Company is sterling.
Transactions in foreign currency are translated to the respective functional currency of the Group entity at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated to the functional currency at the rates prevailing on the reporting date. Exchange gains and losses on short-term foreign currency borrowings and deposits are included with net interest payable.
The assets and liabilities of foreign operations are translated to sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to sterling at the average rate ruling during the period. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity. Foreign exchange differences arising on inter-company loans considered to be permanent as equity are recorded in equity. The exchange rate from euro to sterling at 31 December 2019 was GBP1: EUR1.1755 (2018: GBP1: EUR1.1126).
On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated income statement as part of the profit or loss on disposal.
Exchange differences on all other transactions, except inter-company foreign currency loans, are taken to operating loss.
Taxation
The tax expense represents the sum of the tax currently payable and any deferred tax.
The tax currently payable is based on the estimated taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using the expected tax rate applicable to annual earnings.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting 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.
Equity-settled share-based payments
The cost of providing share-based payments to employees is charged to the income statement over the vesting period of the related share options or share allocations. The cost is based on the fair values of the options and shares allocated determined using the binomial method. The value of the charge is adjusted to reflect expected and actual levels of vesting. Charges are not adjusted for market related conditions which are not achieved. Where equity instruments are granted to persons other than directors or employees the Consolidated Income Statement is charged with the fair value of any goods or services received.
Grants of options in relation to acquiring exploration assets in licence areas are treated as additions to Slovenian exploration costs at Group level and increases in investments at Company level.
Provisions
A provision is recognised in the Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Convertible loan notes
Upon issue of a new convertible loan, where the convertible option is at a fixed rate, the net proceeds received from the issue of CLNs are split between a liability element and an equity component at the date of issue. The fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the CLNs and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity and is not re-measured.
Subsequent to the initial recognition the liability component is measured at amortised cost using the effective interest method.
When there are amendments to the contractual loan note terms these terms are assessed to determine whether the amendment represents an inducement to the loan note holders to convert. If this is considered to be the case the estimate of fair value adjusted as appropriate and any loss arising is recorded in the income statement.
Where there are amendments to the contractual loan note terms that are considered to represent a modification to the loan note, without representing an inducement to convert, the Group treats the transaction as an extinguishment of the existing convertible loan note and replaces the instrument with a new convertible loan note. The fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The fair value of the conversion right is recorded as an increase in equity. The previous equity reserve is reclassified to retained loss. Any gain or loss arising on the extinguishment of the instrument is recorded in the income statement, unless the transaction is with a counterparty considered to be acting in their capacity as a shareholder whereby the gain or loss is recorded in equity.
Where the loan note is converted into ordinary shares by the loan note holder; the unaccreted portion of the loan notes is transferred from the equity reserve to the liability; the full liability is then converted into share capital and share premium based on the conversion price on the note.
Non-derivative financial instruments
Non-derivative financial instruments comprise of investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables.
Financial instruments
Classes and categories
Financial assets that meet the following conditions are measured subsequently at amortised cost using effective interest rate method:
-- The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and,
-- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets for which the amount of future receipts are dependent upon the Company's share price over the term of the instrument do not meet the criteria above and are recorded at fair value through profit and loss.
Financial assets - Recognition and derecognition
The settlement date is used for initial recognition and derecognition of financial assets as these transactions are generally under contracts whose terms require delivery within the time frame established in the contract. Financial assets are derecognised when substantially all the Groups rights to cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risk and rewards of ownership.
Measurement
Financial assets at amortised cost
A financial asset is measured at amortised cost only if both of the following conditions are met: (i) it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.
Impairment
For trade receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. The Group's trade receivables are generally settled on a short time frame without material credit risk.
The Group recognises a loss allowance for expected credit losses on financial assets which are measured at amortised cost. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a twelve-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next twelve months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
Lifetime expected credit losses (ECLs) for intercompany loan receivables are based on the assumptions that repayment of the loans are demanded at the reporting date due to the fact that the loan is contractually repayable on demand. The subsidiaries do not have sufficient funds in order to repay the loan if demanded and therefore the expected manner of recovery to measure lifetime expected credit losses is considered. A range of different recovery strategies and credit loss scenarios are evaluated using reasonable and supportable external and internal information to assess the likelihood of recoverability of the balance under these scenarios.
Financial assets measured at fair value through profit and loss
Financial assets measured at fair value through profit and loss are carried in the statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income in the finance income or expense line.
Financial liabilities at amortised cost
Financial liabilities are initially recognised at fair value net of transaction costs incurred. Subsequent to initial measurement financial liabilities are recognised at amortised costs. The difference between initial carrying amount of the financial liabilities and their redemption value is recognised in the income statement over the contractual terms using the effective interest rate method. This category includes the following classes of the financial liabilities, trade and other payables, bonds and other financial liabilities. Financial liabilities at amortised costs are classified as current or non-current depending whether these are due within 12 months after the balance sheet date or beyond.
Financial liabilities are derecognised when either the Group is discharged from its obligation, they expire, are cancelled, or replaced by a new liability with substantially modified terms.
Warrants
Warrants granted as part of a financing arrangement which fail the fixed-for-fixed criteria as a result of either the consideration to be received or the number of warrants to be issued is variable, are initially recorded at fair value as a derivative liability and charged as transaction cost deducted against the loan and subsequently amortised through the effective interest rate. Subsequently the derivative liability is revalued at each reporting date with changes in the fair value recorded within finance income or costs.
Equity
Equity instruments issued by the Company are recorded at the proceeds received, net of any direct issue costs.
Investments and loans
Shares and loans in subsidiary undertakings are shown at cost. Provisions are made for any impairment when the fair value of the assets is assessed as less than the carrying amount of the asset. Inter-company loans are repayable on demand but are included as non-current as the realisation is not expected in the short term.
Leases
As per IFRS 16 Leases the Group have applied the modified retrospective transition approach. On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as of 1 January 2019. Until the 2019 financial year, leases of property, plant and equipment were classified as either finance leases or operating leases. From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: ' fixed payments (including in-substance fixed payments), less any lease incentives receivable and variable payments based on index or rate ' amounts expected to be payable by the Group under residual value guarantees ' payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Chief Executive Officer ('CEO').
Revenue recognition
Sales represent amounts received and receivable from third parties for goods and services rendered to the costumers. Sales are recognised when control of the goods has transferred to the customer, which is at the border to Croatia under the contract and is recorded at this point. Condensate, which is collected at a separating station and transported via trucks to a customer in Hungary is recorded on delivery according the terms of the contract. At this point in time, the performance obligation is satisfied in full with title, risk, entitlement to payment and customer possession confirmed. Revenue is measured as the amount of consideration which the Group expects to receive, based on the market price for gas and condensate after deduction of costs agreed per the Restated Joint Operating Agreement ("RJOA") and sales taxes.
Revenue is derived from the production of hydrocarbons under the Petišovci Concession, which Ascent Slovenia Limited holds a 75% working interest. Under the terms of the RJOA, and in accordance with Slovenian law, the concession holder retains the rights to all hydrocarbons produced. The concession holder enters into sales agreements with customers and transfers the relevant portion of hydrocarbon sales to Ascent Slovenia Limited for the services it provides under the RJOA.
Payments are typically received around 30 days from the end of the month during which delivery has occurred. There are no balances of accrued or deferred revenue at the balance sheet date.
Under the RJOA, the Group is entitled to 90% of the revenues until 25% of Investments in the Petišovci area have been recovered and the Group records revenue on the entitlement basis accordingly.
Credit terms are agreed per RJOA contract and are short term, without any financing component.
The Group has no sales returns or reclamations of services since it has only one costumer. Sales are disaggregated by geography.
2 Segmental Analysis
The Group has two reportable segments, an operating segment and a head office segment, as described below. The operations and day to day running of the business are carried out on a local level and therefore managed separately. The operating segment reports to the UK head office which evaluates performance, decide how to allocate resources and make other operating decisions such as the purchase of material capital assets and services. Internal reports are generated and submitted to the Group's CEO for review on a monthly basis.
The operations of the Group as a whole are the exploration for, development and production of oil and gas reserves.
The two geographic reporting segments are made up as follows:
Slovenia - exploration, development and production UK - head office
The costs of exploration and development works are carried out under shared licences with joint ventures and subsidiaries which are co-ordinated by the UK head office. Segment revenue, segment expense and segment results include transfers between segments. Those transfers are eliminated on consolidation. Information regarding the current and prior year's results for each reportable segment is included below.
2019 UK Slovenia eliminations Total
GBP '000s GBP '000s GBP '000s GBP '000s
Hydrocarbon sales - 298 298
Intercompany sales 1,187 232 (1,419) -
Total revenue 1,187 530 (1,419) 298
Cost of sales - (462) (462)
Administrative expenses (8,660) (1,236) 7,764 (2,132)
Material non-cash items
Depreciation - (440) - (440)
Net finance costs (889) (1,178) 1,143 (924)
----------------------------------- ---------- ---------- ------------- ----------
Reportable segment profit/(loss)
before tax (8,362) (2,785) 7,487 (3,660)
Taxation - - - -
Reportable segment profit/(loss)
after taxation (8,362) (2,785) 7,487 (3,660)
----------------------------------- ---------- -------------
Reportable segment assets
Carrying value of exploration
assets - 18,968 - 18,968
Additions to exploration assets - 52 - 52
Effect of exchange rate movements - (444) (444)
Total plant and equipment - 22,069 - 22,069
Prepaid abandonment fund - 240 - 240
Investment in subsidiaries 15,443 - (15,443) -
Intercompany receivables 27,180 (27,180) -
Total non-current assets 42,623 40,885 (42,623) 40,885
Other assets 260 71 - 331
Consolidated total assets 42,883 40,956 (42,623) 41,216
----------------------------------- ---------- -------------
Reportable segmental liabilities
Trade payables (115) (277) - (392)
External loan balances (385) - - (385)
Inter-group borrowings - (33,986) 33,986 -
Other liabilities (60) (266) - (326)
Consolidated total liabilities (560) (34,529) 33,986 (1,103)
2018 UK Slovenia Elims Total
GBP '000s GBP '000s GBP '000s GBP '000s
Hydrocarbon sales - 1,942 1,942
Intercompany sales 1,356 428 (1,784) -
Total revenue 1,356 2,370 (1,784) 1,942
Cost of sales - (771) (771)
Administrative expenses (2,791) 445 585 (1,761)
Material non-cash items -
Depreciation - (793) - (793)
Net finance costs 23 (1,205) 1,199 17
----------------------------------- ---------- ---------- ---------- ----------
Reportable segment (loss)/profit
before tax (1,412) 46 - (1,365)
Taxation - - - -
Reportable segment (loss)/profit
after taxation (1,412) 46 - (1,366)
----------------------------------- ---------- ----------
Reportable segment assets -
Carrying value of exploration
assets - 18,587 - 18,587
Additions to exploration assets - 319 - 319
Effect of exchange rate movements - 62 62
Total plant and equipment 1 23,778 - 23,779
Prepaid abandonment fund - 240 - 240
Investment in subsidiaries 15,443 - (15,443) -
Intercompany receivables 32,713 (32,713) -
Total non-current assets 48,157 42,986 (48,156) 42,987
Other assets 303 489 - 792
Consolidated total assets 48,460 43,475 (48,156) 43,779
----------------------------------- ---------- ----------
Reportable segmental liabilities -
Trade payables (53) (229) - (282)
External loan balances (44) - - (44)
Inter-group borrowings - (32,713) 32,713 -
Other liabilities (71) (302) - (373)
Consolidated total liabilities (168) (33,244) 32,713 (699)
Revenue from customers
Revenue was earned by the Slovenian segment through the joint venture structure; sales were made to end customers in Slovenia GBP99,000; Croatia GBP160,000 and Hungary GBP39,000 (2018: Slovenia GBP178,000, Croatia GBP1,633,000, and Hungary GBP131,000). Gas sales comprised GBP259,000 (2018: GBP1,811,000) whilst condensate sales totalled GBP39,000 (2018: GBP131,000). The performance obligations are set out in the Group's revenue recognition policy and no outstanding performance obligations existed at year end. The price for the sale of gas and condensate is set with reference to the market price at the date the performance obligation is satisfied.
3 Operating loss is stated after charging:
Year ended Year ended
31 December 31 December
2019 2018
GBP '000s GBP '000s
Employee costs 693 653
Share based payment charge 269 402
Depreciation 440 793
Included within Admin Expenses
Audit Fees 70 72
Fees payable to the company's auditor - -
other services
------------------------ ------------------------
70 72
4 Employees and directors
a. Employees
The average number of persons employed by the Group, including Executive Directors, was:
Year ended Year ended
31 December 31 December
2019 2018
Management and technical 8 9
============= =============
b. Directors and employee's remuneration
Year ended Year ended
31 December 31 December
2019 2018
Employees & Directors GBP '000s GBP '000s
Wages and salaries 611 570
Social security costs 27 37
Pension costs 53 41
Share-based payments 269 423
Taxable benefits 2 2
962 1,073
============= =============
c. Directors remuneration
Salary/fees Pension Total Share Employers
Based NIC
Payments
expense
2019 GBP GBP GBP GBP GBP
Executive Directors
J Buggenhagen 155,372 - 155,372 - -
C Hutchinson 182,673 1,947 184,620 133,223 23,757
Non-executive Directors -
C Davies 29,167 - 29,167 26,645 3,368
L Castro 48,556 - 48,556 - 3,423
------------ -------- -------- ---------- ----------
Total 421,939 1,947 423,886 159,867 30,547
Salary/fees Bonus* Pension Total Share Employers
Based NIC
Payments
expense
2018 GBP GBP GBP GBP GBP GBP
Executive Directors
C Hutchinson 158,900 - 904 159,804 199,543 19,825
Non-executive
Directors
C Carver 43,333 - - 43,333 79,817 5,737
C Davies 21,667 - - 21,667 39,909 2,287
N Moore 21,667 - - 21,667 39,909 2,070
------------ ------- -------- -------- ---------- ----------
Total 245,567 - 904 246,471 359,178 29,919
The highest paid Director in the year ended 31 December 2019 was Colin Hutchinson earning GBP182,763 (2018: C Hutchinson earning GBP158,900). Colin Hutchinson is a member of the defined contribution pension scheme which commenced in December 2017; contributions during the year were GBP1,947 (2018: GBP904).
d. Directors' incentive share options
Share
Opening Granted/ Closing Date Price Exercise Exercise Period
2019 (Lapsed) Granted at Grant Price Start End
C Hutchinson 265,688 - 265,688 23-May-13 16.4p 20p 23-May-16 23-May-23
C Hutchinson 34,964,709 - 34,964,709 05-May-16 1.58p 1.58p 05-May-19 06-May-26
C Hutchinson 34,031,255 - 34,031,255 07-Nov-17 1.975p 1.975p 06-Nov-20 08-Nov-27
Share
Opening Granted/ Closing Date Price Exercise Exercise Period
2018 (Lapsed) Granted at Grant Price Start End
C Carver 1,328,443 - 1,328,443 30-Apr-13 16.4p 20p 30-Apr-16 30-Apr-23
C Carver 13,985,884 - 13,985,884 05-May-16 1.58p 1.58p 05-May-19 06-May-26
C Carver 13,612,502 - 13,612,502 07-Nov-17 1.975p 1.975p 06-Nov-20 08-Nov-27
C Hutchinson 265,688 - 265,688 23-May-13 16.4p 20p 23-May-16 23-May-23
C Hutchinson 34,964,709 - 34,964,709 05-May-16 1.58p 1.58p 05-May-19 06-May-26
C Hutchinson 34,031,255 - 34,031,255 07-Nov-17 1.975p 1.975p 06-Nov-20 08-Nov-27
N Moore 6,992,942 - 6,992,942 05-May-16 1.58p 1.58p 05-May-19 06-May-26
N Moore 6,806,251 - 6,806,251 07-Nov-17 1.975p 1.975p 06-Nov-20 08-Nov-27
C Davies 6,992,942 - 6,992,942 05-May-16 1.58p 1.58p 05-May-19 06-May-26
C Davies 6,806,251 - 6,806,251 07-Nov-17 1.975p 1.975p 06-Nov-20 08-Nov-27
5 Finance income and costs recognised in the year
Year ended Year ended
31 December 31 December
2019 2018
Finance income GBP '000s GBP '000s
Foreign exchange movements realised - 1
Other income - 25
- 26
======================== ========================
Finance costs
Accretion charge on convertible loan notes (3) (8)
Interest charge on loans (40) -
Change in fair value of receivable under (814) -
Equity Sharing Agreement
Bank charges (67) (1)
------------------------ ------------------------
(924) (9)
======================== ========================
Please refer to Note 14 for a description of financing activity during the year.
6 Income tax expense
Year ended Year ended
31 December 31 December
2019 2018
GBP '000s GBP '000s
Current tax expense - -
Deferred tax expense - -
Total tax expense for the year - -
======================== ========================
The difference between the total tax expense shown above and the amount calculated by applying the standard rate of UK corporation tax to the loss before tax is as follows:
Year ended Year ended
31 December 31 December
2019 2018
GBP '000s GBP '000s
Loss for the year (3,660) (1,365)
Income tax using the Company's domestic
tax rate at 19% (2017: 19%) (696) (259)
Effects of:
Net increase in unrecognised losses c/f 2,816 257
Effect of tax rates in foreign jurisdictions 32 36
Other non-taxable items (2,152) (34)
Other non-deductible expenses - -
Total tax expense for the year - -
======================== ========================
Unrecognised losses have increased for year ended 31 December 2019 as a result of the actual tax losses generated by the Slovenian business.
7 Deferred tax - Group & Company
2019 2018
GBP '000s GBP '000s
Group
Total tax losses - UK and Slovenia (48,424) (36,684)
Unrecorded deferred tax asset at 17%
(2018: 17%) 8,232 6,236
---------- ----------
Company
Total tax losses (11,772) (11,829)
Unrecorded deferred tax asset at 17%
(2018: 17%) 2,001 2,011
---------- ----------
No deferred tax asset has been recognised in respect of the tax losses carried forward. Refer to critical accounting estimates and judgments. The tax losses in the UK and Slovenia do not expire.
8 Loss per share
31 December 31 December
2019 2018
GBP '000s GBP '000s
Result for the year
Total loss for the year attributable
to equity shareholders (3,660) (1,365)
Weighted average number of ordinary Number Number
shares
For basic earnings per share 26,590,316 22,709,682
Loss per share (Pence) (0.14) (0.06)
In March 2020, shareholders approved a share re-organisation, including a 100:1 consolidation, with the nominal value of the shares to be set to 0.05 pence. The weighted average number of shares of 2019 and 2018 reflects the impact of the consolidation.
As the result for the year was a loss, the basic and diluted loss per share are the same. At 31 December 2019, potentially dilutive instruments in issue were 145,076,254 (2018: 184,833,861). Dilutive shares arise from share options, the 43 million warrants to be issued pursuant to the Riverfort funding arrangement and CLNs issued by the Company and from the deferred consideration on the Trameta transaction.
9 Property, Plant & Equipment - Group
Computer Developed Total
Equipment Oil & Gas
Assets
Cost
At 1 January 2018 6 24,135 24,141
Additions - 411 411
Effect of exchange rate movements - 262 262
At 31 December 2018 6 24,808 24,814
------------------------ ------------------------ ------------------------
At 1 January 2019 6 24,808 24,814
Additions - 3 3
Effect of exchange rate movements - (1,328) (1,328)
At 31 December 2019 6 23,483 23,489
------------------------ ------------------------ ------------------------
Depreciation
At 1 January 2018 - (239) (239)
Charge for the year - (793) (793)
Effect of exchange rate movements - (3) (3)
At 31 December 2018 - (1,035) (1,035)
------------------------ ------------------------ ------------------------
At 1 January 2019 - (1,035) (1,035)
Charge for the year (6) (434) (440)
Effect of exchange rate movements - 55 55
At 31 December 2019 (6) (1,414) (1,420)
------------------------ ------------------------ ------------------------
Carrying value
At 31 December 2019 - 22,069 22,069
------------------------ ------------------------ ------------------------
At 31 December 2018 6 23,773 23,779
------------------------ ------------------------ ------------------------
At 1 January 2018 6 24,135 24,141
------------------------ ------------------------ ------------------------
No impairment has been recognised during the year, this assumes that the Group can obtain the necessary environmental permits and the concession extension due in 2022 to continue with the planned development of the Petišovci field. Details of the impairment judgments and estimates in the fair value less cost to develop assessment as set out in Note 1, including the significant judgment regarding the ability to renew the concession and obtain required permits. Should the permits not be granted, or the concession extension confirmed, the carrying value of these assets would be impaired as the permits are required to maintain commercial production rates at the wells and in the absence of renewal of the concession the Company would not hold title to the asset.
10 Exploration and evaluation assets - Group
Slovenia Total
Cost
At 1 January 2018 18,587 18,587
Additions 319 319
Effects of exchange rate movements 62 62
At 31 December 2018 18,968 18,968
----------------------- -----------------------
At 1 January 2019 18,968 18,968
Additions 52 52
Effects of exchange rate movements (444) (444)
At 31 December 2019 18,576 18,576
----------------------- -----------------------
At 31 December 2019 18,576 18,576
----------------------- -----------------------
At 31 December 2018 18,968 18,968
----------------------- -----------------------
At 1 January 2018 18,587 18,587
----------------------- -----------------------
For the purposes of impairment testing the intangible oil and gas assets are allocated to the Group's cash-generating unit, which represent the lowest level within the Group at which the intangible oil and gas assets are measured for internal management purposes, which is not higher than the Group's operating segments as reported in Note 2. Details of the impairment judgments and estimates and the fair value less cost to develop assessment as set out in Note 1, including the significant judgment regarding the ability to renew the concession and obtain required permits.
The amounts for intangible exploration assets represent costs incurred on active exploration projects. Amounts capitalised are assessed for impairment indicators under IFRS 6 at each period end as detailed in the Group's accounting policy. In addition, the Group routinely reviews the economic model and reasonably possible sensitivities and considers whether there are indicators of impairment. As at 31 December 2019 and 2018 the net present value significantly exceeded the carrying value of the assets. The key estimates associated with the economic model net present value are detailed in Note 1. The outcome of ongoing exploration, and therefore whether the carrying value of intangible exploration assets will ultimately be recovered, is inherently uncertain.
11 Investment in subsidiaries - Company
GBP000s
At 1 January 2017, 31 December 2018 & 31
December 2019 15,443
========
Name of company Principal activity Country % of share % of share
of incorporation capital capital
held 2019 held 2018
Ascent Slovenia
Limited
Tower Gate Place
Tal-Qroqq Street
Msida, Malta Oil and Gas exploration Malta 100% 100%
Ascent Resources
doo
Glavna ulica 7
9220 Lendava
Slovenia Oil and Gas exploration Slovenia 100% 100%
Infrastructure
Trameta doo owner Slovenia 100% 100%
Glavna ulica 7
9220 Lendava
Slovenia
Ascent Resources
Netherlands BV
c/o Ascent Resources
plc
5 New Street Square
London EC4A 3TW Oil and Gas exploration Netherlands 100% 100%
All subsidiary companies are held directly by Ascent Resources plc.
12 Trade and other receivables - Group
2019 2018
GBP '000s GBP '000s
Trade receivables 54 198
VAT recoverable 25 29
Prepaid abandonment liability 240 240
Amounts receivable on ESA 173 -
Prepayments & accrued income - 6
494 473
======================= ========================
Less non-current portion (240) (240)
Current portion 254 233
======================= ========================
Refer to note 1 for details of the accounting treatment and associated fair value estimates associated with the amounts receivable on the equity sharing agreement (ESA).
13 Trade and other receivables - Company
2019 2018
GBP '000s GBP '000s
VAT recoverable 16 5
Amounts receivable on ESA 173 -
Prepayments & accrued income 7 6
196 11
======================== ========================
14 Borrowings - Group & Company
2019 2018
Group GBP '000s GBP '000s
Current
Borrowings 368 -
Convertible loan notes 17 -
Non-current
Convertible loan notes - 44
385 44
----------------------- -----------------------
Company
Current
Borrowings 368 -
Convertible loan notes 17 -
Non-current
Convertible loan notes 44
-
385 44
----------------------- -----------------------
The Borrowings relate to the loan arrangement entered into with Riverfort Global Opportunities in September 2019, which post period in review was refinanced in March 2020 as detailed in note 21. The loan bears interest at 10% coupon and is repayable on or before September 2020 with accrued interest. The loan was unsecured.
The convertible notes were due for redemption on 19 November 2019 and at the balance sheet date GBP17,000 remained unclaimed.
15 Provisions - Group
GBP000s
At 1 January 2018 266
Foreign exchange movement (3)
At 31 December 2018 263
----------------------
At 1 January 2019 263
Foreign exchange movement (8)
At 31 December 2019 255
----------------------
The amount provided for decommissioning costs represents the Group's share of site restoration costs for the Petišovci field in Slovenia. The most recent estimate is that the year-end provision will become payable after 2037. The Company has placed EUR300,000 (GBP279,000) on deposit as collateral against this liability see Note 12.
16 Trade and other payables - Group
2019 2018
GBP '000s GBP '000s
Trade payables 392 282
Tax and social security payable 5 15
Other payables - 29
Accruals and deferred income 66 66
463 392
======================== =======================
17 Trade and other payables - Company
2019 2018
GBP '000s GBP '000s
Trade payables 115 53
Tax and social security payable 6 3
Other payables - 9
Accruals and deferred income 54 59
175 124
========== ==========
18 Called up share capital
2019 2018
GBP '000s GBP '000s
Authorised
10,000,000,000 ordinary shares of 0.10p
each 10,000 10,000
Allotted, called up and fully paid
3,019,648,452 (2018: 2,291,310,686) ordinary
shares of 0.2pence each (2018: 0.2p each) 7,604 6,146
Reconciliation of share capital movement 2019 2018
Number Number
At 1 January 2,291,310,686 2,268,750,320
------------------------ ------------------------
Loan note conversions - 60,366
Issue of Trameta consideration shares - 22,500,000
Placings 728,337,766 -
At 31 December 3,019,648,452 2,291,310,686
======================== ========================
Shares issued during the year
The Company raised funds through placings during the year:
-- On 25 January 2019, the Company raised GBP363,156 (GBP345,703 net of costs) via the Placing of 121,052,097 Ordinary Shares with investors using the PrimaryBid.com platform.
-- On 24 April 2019, the Company raised GBP750,000 (GBP708,950 net of costs) via the Placing of 214,285,669 Ordinary Shares with various institutional investors.
-- On 23 September 2019, the Company raised GBP1,080,750 (GBP1,071,744 net of costs) via the Placing of 393,000,000 Ordinary Shares with Riverfort Global Investors.
Shares issued during the prior year
There was one conversion request processed during the prior year and shares were issued in connection with deferred consideration for the Trameta transaction.
Shares issued post the year in review
Please see Note 21 Events subsequent to the reporting period
Reserve description and purpose
The following describes the nature and purpose of each reserve within owners' equity:
-- Share capital: Amount subscribed for share capital at nominal value.
-- Merger reserve: Value of shares, in excess of nominal value, issued with respect of the Trameta acquisition in 2016.
-- Equity reserve: Amount of proceeds on issue of convertible debt relating to the equity component and contribution on modification of the convertible loan notes, i.e. option to convert the debt into share capital.
-- Share premium: Amounts subscribed for share capital in excess of nominal value less costs of shares associated with share issues.
-- Share-based payment reserve: Value of share options granted and calculated with reference to a binomial pricing model. When options lapse or are exercised, amounts are transferred from this account to retained earnings.
-- Translation reserve: Exchange movements arising on the retranslation of net assets of operation into the presentation currency.
-- Accumulated losses: Cumulative net gains and losses recognised in consolidated income. 19 Exploration expenditure commitments
In order to maintain an interest in the oil and gas permits in which the Group is involved, the Group is committed to meet the conditions under which the permits were granted and the obligations of any joint operating agreements. The timing and the amount of exploration expenditure commitments and obligations of the Group are subject to the work programmes required as per the permit commitments. This may vary significantly from the forecast programmes based upon the results of the work performed. Drilling results in any of the projects may also cause variations to the forecast programmes and consequent expenditure. Such activity may lead to accelerated or decreased expenditure. It is the Group's policy to seek joint operating partners at an early stage to reduce its commitments.
At 31 December 2019, the Group had exploration and expenditure commitments of GBP Nil (2018 - Nil).
20 Related party transactions
a. Group companies - transactions
2019 2018
Cash Services Total Cash Services Total
Ascent Slovenia Limited 111 1,858 1,969 1,209 302 1,511
Ascent Resources doo (9) (5) (14) - 2 2
Trameta doo 2 - 2 - - -
102 1,853 1,955 1,209 304 1,513
----- --------- ------ ------ --------- ------
b. Group companies - balances
2019 2018
Cash Services Total Cash Services Total
Ascent Slovenia Limited 17,084 5,404 22,488 23,303 4,455 27,758
Ascent Resources doo 2,951 1,730 4,681 3,118 1,828 4,946
Trameta doo 11 - 11 9 - 9
20,046 7,134 27,180 26,430 6,283 32,713
------- --------- ------- ------- --------- -------
Cash refers to funds advanced by the Company to subsidiaries. Services relates to services provided by the Company to subsidiaries. The loans are repayable on demand but are classified as non-current reflecting the period of expected ultimate recovery.
Following the introduction of IFRS 9 Management have carried out an assessment of the potential future credit loss the loans classified as 'stage 3' under IFRS 9 and assessed for lifetime expected credit loss given their on-demand nature under a number of scenarios. The Company would suffer a credit loss where the permits necessary for the development of the field are not obtained and a court case for damages against the Republic of Slovenia is unsuccessful. Based on legal advice received in relation to the permit process and the strength of our case we consider the risk of credit loss to be low. A provision of GBP4.8m (2018: GBP1.7m) has been recognised in the Company accounts.
2019 2018
GBP '000s GBP '000s
Expected credit loss provision start of 1,700 -
the year
Change in expected credit loss 4,800 1,700
Expected credit loss provision at the end
of the year 6,500 1,700
========== ==========
c. Directors
Key management are those persons having authority and responsibility for planning, controlling and directing the activities of the Group. In the opinion of the Board, the Group's key management are the Directors of Ascent Resources plc. Information regarding their compensation is given in Note 4 .
2019
There were no transactions involving directors during the year.
2018
There were no transactions involving directors during the year.
21 Events subsequent to the reporting period
COVID-19 has had limited direct impact on Ascent's assets in Slovenia but there may be delays in obtaining the necessary governmental approvals. Production operations in Slovenia have been unaffected to date, with the assets being managed through a combination of on-site working within social distancing guidelines or remote oversight, with all appropriate safety procedures remaining in place to protect staff and local communities although the potential for future disruption to operations remains. The pandemic has also created volatility in commodity markets with gas prices having reduced subsequent to the period end. A sustained reduction in the gas price over the longer term may impact the economic value of the Slovenian assets, although current futures markets indicate pricing that supports the economics of the field.
Changes to the Board of Directors in March and April of 2020 included the appointment of new Executive Chairman James Parsons, Chief Executive Officer Andrew Dennan, Non-Executive Directors Ewen Ainsworth and Leonardo Salvadori.
The Company has completed a restructuring of the RiverFort equity sharing and loan arrangements and cancellation of warrants due to be issued to RiverFort. As a result, the existing Equity Sharing Agreement announced on 20 September 2019 has been cancelled. The outstanding loan of $468,776 at the date of the agreement with Riverfort has been re-negotiated to a two-year coupon free bullet with conversion rights for the lender at 0.075 pence per share (7.5 pence per share post consolidation). No conversion can occur until the share price exceeds 0.1 pence (10 pence post consolidation) per share for five consecutive days. The Company has a right to buy out up to 50% of the loan prior to its expiry at nil premium whilst the share price is below the conversion price. If the Company does exercise this right, then the conversion price is adjusted upwards to 0.0875 (8.75 pence post consolidation). The 43 million warrants initially to be awarded to Riverfort, as announced on 20 September 2019, will no longer be awarded.
The Company has launched a new international growth strategy focused on Caribbean, Hispanic Americas and Europe. As part of the strategy new country entry to Cuba arose with the acquisition of Energetical Limited securing MOU to producing block 9B and the signature of three MOUs with Cuban National Oil Company CUPET over a further three exploration blocks 9A, 12 and 15 covering over 7,000 km2 onshore Cuba.
On 14 April 2020 the Group acquired Energetical for a total consideration of GBP652,500 of which GBP202,500 has been satisfied by the issue of 6 million new shares and, subject to the Company signing a production sharing contract ('PSC') over Cuban onshore producing block 9B, deferred consideration of GBP450,000 which will be satisfied by way of a cash payment of GBP100,000 and the issue of new shares for a consideration of GBP350,000 to be issued at the 30 day volume weighted average share price of the Company at the time of PSC signature.
The acquisition of Energetical has secured the rights for the Company to exclusively negotiate the production sharing contract for block 9B which is expected to give the Company an entitlement to incremental barrels produced above the existing base of circa 190 bbls/day from three wells.
In March 2020, shareholders approved a share re-organisation, including a 100:1 consolidation, with the nominal value of the shares to be set to 0.05 pence.
On 5 March 2020 the Company completed a fundraising for gross proceeds of GBP685,000 at 5 pence per share and on 30 April 2020 a further GBP212,500 by the issuance of new shares at 2.75 pence.
22 Share based payments
The Company has provided the Directors, certain employees and institutional investors with share options and warrants. Options are exercisable at a price equal to the closing market price of the Company's shares on the date of grant. The exercisable period varies and can be up to seven years once fully vested after which time the option lapses.
Details of the share options outstanding during the year are as follows:
Shares Weighted Average
price (pence)
Outstanding at 1 January 2018 152,576,254 2.38
Outstanding at 31 December 2018 152,576,254 2.38
Exercisable at 31 December 2018 5,685,738 20.00
Outstanding at 1 January 2019 152,576,254 2.38
Outstanding at 31 December 2019 152,576,254 2.38
Exercisable at 31 December 2019 77,013,744 2.94
The value of the options is measured by the use of a binomial pricing model. The inputs into the binomial model made in 2017 were as follows. No options were issued in 2018 and 2019 and so no equivalent table is disclosed for 2018 and 2019.
Share price at grant date 1.32p - 1.58p Exercise price 1.54p - 2.00p Volatility 50% Expected life 3-5 years Risk free rate 0.5% Expected dividend yield 0%
Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous 5 years. The expected life is the expiry period of the options from the date of issue.
Options outstanding at 31 December 2019 have an exercise price in the range of 1.58p and 20.00p (31 December 2018: 1.58p and 20.00p) and a weighted average contractual life of 9.9 years (31 December 2018: 7.6 years).
Trameta acquisition
During 2016, the Company acquired Trameta doo which owned land and access rights over the export pipeline. Consideration for the transaction was 75 million ordinary shares which vest in four tranches on the one-year anniversary of various conditions being met. An option over a further 7.5 million ordinary shares at an exercise price of 2 pence is valid for three years from November 2016 when the second condition was met.
The 75 million consideration shares, not including the option, were valued using the Black-Scholes model under the assumption that 100% of the shares will vest as management expects all four of the vesting criteria to be successfully achieved. The conditions have been met for the first three tranches, being completion of the SPA, the certification of the pipeline and the transmission of the first million cubic metres of gas along the export pipeline. As at the balance sheet date 27,500,000 remain outstanding valued at GBP385,000.
The value of the options was measured by the use of a binomial pricing model. The inputs into the binomial model in respect of the Trameta consideration shares were as follows:
Share price at grant date 1.425p Exercise price Nil Volatility 101% - 130% Expected life 1 -3 years Risk free rate 1.75% Expected dividend yield 0%
Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous comparable periods. The expected life is the expiry period of the options from the date of issue.
The value of the shares and options was GBP1.1 million which was recognised in 2016 as an addition to exploration and evaluation costs. The option with a value of GBP52,500 expired in the year and the amount has therefore been reclassified from share based payment reserve to retained earnings.
Riverfort Warrants
In September 2019 the Company entered into financing arrangements with Riverfort which included an agreement to issue 43 million warrants in the future. The Warrants were to be issued subject to shareholder approval, and subsequent to post period in review events will now not be issued as detailed in note 21. However, the Company had agreed to issue the warrants and consequently the warrants had a value at the time of agreement to be issued of GBP43,018. The value of the options was measured by the use of a binomial pricing model. The inputs into the binomial model in respect of the warrants were as follows:
Share price at grant date 0.275p Exercise price 0.33p Volatility 50% Expected life 4 years Risk free rate 3% Expected dividend yield 0%
As at the balance sheet date the fair value of the 43 million warrants proposed to be issued to Riverfort was GBP4,901 as a result of the reduction in the Company share price.
23 Notes supporting the statement of cash flows
Group 2019 2018
GBP '000s GBP '000s
Cash at bank and available on demand 77 376
Cash held on deposit against bank guarantee - 180
77 556
======================== ======================
Company 2019 2018
GBP '000s GBP '000s
Cash at bank and available on demand 64 112
Cash held on deposit against bank guarantee - 180
64 292
======================== ======================
Included within cash and equivalents in the prior year was GBP180,000 which is held as EUR200,000 on deposit as a security against a bank guarantee against a gas sales agreement. The Gas Sales Agreement originally lasted a minimum term of 12 months which expired in November 2018 and was extended to May 2019. All amounts held on deposit were released during the year.
Under the terms of the equity sharing agreement, RiverFort subscribed for 393,00,000 shares for GBP1,080,750 with a receivable established for the amounts to be received which depended on the subsequent share price performance as detailed in note 1. Accordingly, the cash received under the arrangement was not equal to the shares subscribed.
Significant other non-cash transactions are as follows:
2019 2018
GBP '000s GBP '000s
Conversion of loan notes - -
Fair value movement on equity 814 -
sharing agreement receivable
Interest charged on loans 40 -
Accretion charge on convertible
loan notes 3 8
A reconciliation of the debt is as follows:
Borrowings Convertible Receivables
Loan at fair
value
Balance at 1 January 2019 - 44 -
Loans advanced 400 - -
Loans repaid (32) (27) -
Accretion interest - 3 -
Receivable recognised on ESA - - 1,081
Shares sales under ESA - - (95)
Write down Adjustment to fair
value - - (812)
--------------------- --------------------- ---------------------
Balance at 31 December 2019 368 17 173
24 Financial risk management
Group and Company
The Group's financial liabilities comprise CLNs, borrowings, warrants and trade and other payables. All liabilities are measured at amortised cost except for the warrants which are immaterial. These are detailed in Notes 14 , 15 and 16 .
The Group has various financial assets, being trade and other receivables and cash, which arise directly from its operations. All are classified at amortised cost except for the amounts receivable under the equity sharing agreement at 31 December 2019 which are held at fair value through profit and loss as disclosed in note 12. These are detailed in Notes 12 , 13 and 23 .
The main risks arising from the Group's financial instruments are credit risk, liquidity risk and market risk (including interest risk and currency risk). The risk management policies employed by the Group to manage these risks are discussed below:
a. Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group makes allowances for impairment of receivables where there is an ECL identified. Refer to Note 20 for details of the intercompany loan ECL assessment.
The credit risk on cash is considered to be limited because the counterparties are financial institutions with high and good credit ratings assigned by international credit rating agencies in the UK.
The carrying amount of financial assets, trade receivables and cash held with financial institutions recorded in the financial statements represents the exposure to credit risk for the Group.
At Company level, there is the risk of impairment of inter-company receivables if the full amount is not deemed as recoverable from the relevant subsidiary company. These amounts are written down when their deemed recoverable amount is deemed less than the current carrying value. An IFRS 9 assessment has been carried out as per Note 1.
b. Market risk (i) Currency risk
Currency risk refers to the risk that fluctuations in foreign currencies cause losses to the Company.
The Group's operations are predominantly in Slovenia. Foreign exchange risk arises from translating the euro earnings, assets and liabilities of the Ascent Resources doo and Ascent Slovenia Limited into sterling. The Group manages exposures that arise from receipt of monies in a non-functional currency by matching receipts and payments in the same currency.
The Company often raises funds for future development through the issue of new shares in sterling. These funds are predominantly to pay for the Company's exploration costs abroad in euros. As such any sterling balances held are at risk of currency fluctuations and may prove to be insufficient to meet the Company's planned euro requirements if there is devaluation.
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the European Union (the euro).
The Group operates internationally and is exposed to currency risk on sales, purchases, borrowings and cash and cash equivalents that are denominated in a currency other than sterling. The currencies giving rise to this are the euro.
Foreign exchange risk arises from transactions and recognised assets and liabilities.
The Group does not use foreign exchange contracts to hedge its currency risk.
Sensitivity analysis
The following table details the Group's sensitivity to a 10% increase and decrease in sterling against the stated currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents the management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis comprises cash and cash equivalents held at the balance sheet date. A positive number below indicates an increase in profit and other equity where sterling weakens 10% against the relevant currency.
Euro currency change
Group Year ended Year ended
31 December 31 December
2019 2018
Profit or loss
10% strengthening of sterling 14 33
10% weakening of sterling (2) (55)
Equity
10% strengthening of sterling (3,448) (3,897)
10% weakening of sterling 4,726 4,764
Company
Profit or loss
10% strengthening of sterling (108) (123)
10% weakening of sterling 132 151
Equity
10% strengthening of sterling (4,036) (4,542)
10% weakening of sterling 4,932 5,551
(ii) Interest rate risk
Interest rate risk refers to the risk that fluctuations in interest rates cause losses to the Company. The Group and Company have no exposure to interest rate risk except on cash and cash equivalent which carry variable interest rates. The Group carries low units of cash and cash equivalents and the Group and Companies monitor the variable interest risk accordingly.
At 31 December 2019, the Group and Company has GBP loans of GBP385,000 rates of 0% - 12% per annum. At 31 December 2018, the Group and Company had GBP loans of GBP44,000 rates of 0% per annum.
(iii) Liquidity risk
Liquidity risk refers to the risk that the Company has insufficient cash resources to meet working capital requirements.
The Group and Company manages its liquidity requirements by using both short- and long-term cash flow projections and raises funds through debt or equity placings as required. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short-, medium- and long-term funding and liquidity management requirements.
The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced, and sensitivities run for different scenarios (see Note 1). For further details on the Group's liquidity position, please refer to the Going Concern paragraph in Note 1 of these accounts.
Group Company
2019 2018 2019 2018
GBP '000s GBP '000s GBP '000s GBP '000s
Less than six months - loans
and borrowings 385 - 385 -
Less than six months - trade
and other payables 458 377 169 121
Between six months and a
year - loans and borrowings - 44 - 44
Over one year - - - -
c. Capital management
The Group manages its shares and CLN's as capital.
d. There are no externally imposed capital requirements. e. Fair value of financial instruments
Set in the foregoing is a comparison of carrying amounts and fair values of the Group's and the Company's financial instruments:
Carrying Fair Value Carrying Fair Value
Capital management - Group amount amount
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2019 2019 2018 2018
Financial assets measured
at amortised cost
Cash and equivalents - unrestricted 77 77 375 375
Cash and equivalents - restricted - - 180 180
Trade receivables 54 54 198 198
Prepaid abandonment fund
(refundable) 240 240 240 240
Financial assets measured
at fair value
Receivable under ESA 173 173 - -
Financial liabilities measured
at amortised cost
Trade and other payables 458 458 282 282
Loans at fixed rate 385 385 - -
Convertible loans at fixed
rate 17 17 44 44
Capital management - Company
Carrying Fair Value Carrying Fair Value
amount amount
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2019 2019 2018 2018
Financial assets measured
at amortised cost
Cash and equivalents - unrestricted 63 63 112 112
Cash and equivalents - restricted - - 180 180
Trade receivables - - - -
Financial assets measured
at fair value
Receivable under ESA 173 173 - -
Financial liabilities measured
at amortised cost
Trade and other payables 169 169 377 377
Loans at fixed rate 385 385 - -
Convertible loans at fixed
rate - - 44 44
Convertible loan at fixed rate
Fair value of convertible loans has been determined based on tier 3 measurement techniques. The fair value is estimated at the present value of future cash flows, discounted at estimated market rates. Fair value is not significantly different from carrying value.
Trade and other receivables/payables & inter-company receivables
All trade and other receivables and payables have a remaining life of less than one year. The ageing profile of the Group and Company receivable and payables are shown in Notes 12 , 13 , 14, 16 and 17 .
Loans at fixed rate
Loans are initially measured at fair value and subsequently at amortised costs. The fair values of the Group and Company loans are considered equal to the book value as the effect of discounting on the financial instruments is not considered to be material.
Equity sharing agreement receivable
The equity sharing agreement receivable has been deemed to be level 2 assets under the fair value hierarchy. The receivable has been valued using the monte carlo model. The inputs to the fair value assessment included the Company's share price, modelled scenarios for future share price volatility movements and a risk free discount rate.
Cash and cash equivalents
Cash and cash equivalents are all readily available and therefore carrying value represents a close approximation to fair value.
25 Commitments & contingencies
Following first commercial revenues in Slovenia the Group received legal claims relating to past activities. Based on legal advice received we consider these to be spurious and without merit. The Board will vigorously reject such opportunistic approaches.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR SEUESIESSEDM
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June 26, 2020 02:00 ET (06:00 GMT)
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