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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Nautilus Marine Services Plc | LSE:NAUT | London | Ordinary Share | GB0031461949 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.75 | 0.50 | 1.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMNAUT
RNS Number : 9509R
Nautilus Marine Services PLC
06 March 2019
NAUTILUS MARINE SERVICES PLC
(the "Group" or "Nautilus")
AUDITED FINAL RESULTS FOR THE YEARED 31 DECEMBER 2018
Nautilus Marine Services PLC (AIM: NAUT), the Group focused on making strategic investments in service providers, technologies, and assets to offer integrated and innovative solutions for multiple offshore service industries, today announces its audited final results for the year ended 31 December 2018 (the "Period").
Highlights:
-- The Group received multiple offers for its Colombia operations in late 2018, many on terms that, if realised, would be agreeable to the Company. As announced in January 2019 (post-period end), it is therefore likely that the Company will divest of its Bolivar and Bocachico contracts or the entities holding them (the "Disposal Group") during 2019. Accordingly, the Disposal Group has been classified as held for sale at year end. In accordance with International Financial Reporting Standards ("IFRS"), the Group has reported these assets and their associated liabilities as a "disposal group" within its Consolidated Statement of Financial Position as at 31 December 2018, and income/(loss) from the Disposal Group are reflected as discontinued operations within the Consolidated Statement of Comprehensive Income for all periods presented.
-- $11 million cash as at 31 December 2018.
-- Losses from continuing operations of $9.2 million, representing a $2.0 million decrease in losses as compared to the prior year period.
-- $1.8 million (64%) decrease in operating expenses for offshore vessels and equipment as a result of cost reduction initiatives implemented during late 2017.
-- $1.1 million (20%) decrease in administrative expenses for continuing operations primarily due to staffing reductions within the corporate group implemented during 2017 and 2018.
-- $643 thousand gain on disposals, primarily due to sales of non-strategic offshore vessels and equipment during the year.
-- $666 thousand impairment charge on certain vessels within the Group's offshore fleet as a result of decreased third party fleet valuation reports at year-end.
-- $1.7 million impairment reversal (included within income from discontinued operations) as a result of the initial measurement of the Disposal Group to the estimated recoverable amount of fair value less costs to sell upon classification as held for sale.
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The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.
Forward-looking statements
This annual report may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this annual report and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the industry. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the development of the markets and the industries in which the Group operates may differ materially from those described in, or suggested by, any forward-looking statements contained in this annual report. In addition, even if the development of the markets and the industries in which the Group operates are consistent with the forward-looking statements contained in this annual report, those developments may not be indicative of developments in subsequent periods. A number of factors could cause developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency fluctuations (including the US dollar), changes in its business strategy, political and economic uncertainty. Save as required by law, the Company is under no obligation to update the information contained in this annual report.
Past performance cannot be relied on as a guide to future performance.
Chairman's Statement
2018 Strategic Initiatives
Following its decision during the prior year to shift the Group's focus from Latin American oil and gas exploration and production to global offshore services, the Group spent substantial time during the year seeking and evaluating opportunities to acquire or otherwise invest in offshore service companies as well as related offshore service assets and technologies. The offshore industry conditions have made it increasingly difficult for the Group to locate investment opportunities at attractive pricing. As a result, the Group began to investigate expanded energy investment strategies during the second half of the year.
While the Group continued to actively monitor and assess offshore market conditions to identify opportunities to either put its offshore vessels and equipment into service or sell these at attractive pricing, it also concurrently implemented further significant reductions in its administrative and offshore operating cost structures. These reductions included additional staff reductions, the transition of the fleet closer to cold layup status, and relocation and down-sizing of its corporate office. The Group expects to keep this reduced cost structure in place while depressed market conditions persist.
The Group also worked during the year to address contractual concerns over the continuity of production at its two remaining oil and gas fields in Colombia. In response to these concerns, the Group developed and initiated a plan to resume production and/or development activities at both of its fields. These plans include testing and analysis of its current wellbores to evaluate their potential to restore production given advances in technologies. Further, the Group intends to obtain new seismic studies which will aid in the identification of potential well sites. The Group is confident that these actions will assuage any contractual concerns and that the Group will continue to enjoy full title over these assets until they are sold.
As the Group worked to develop these plans for the Colombia assets, it also began to receive increasingly attractive offers to purchase these assets. Following initial evaluations of these offers, the Board and management concluded that it is in the Group's best interests to pursue the divestiture of these properties during 2019, and as a result this operating segment is reflected at year-end as discontinued operations within the Group's reporting. Until the Group is able to identify and complete an acceptable transaction for its Colombian assets, it intends to continue to focus on controlling costs at these fields while maintaining contractual and environmental compliance and progressing its reactivation plans.
Outlook
The Group took appropriate steps during 2018 to identify opportunities to sell non-strategic vessels and equipment at premiums over acquisition costs. Management intends to continue to closely monitor costs and opportunistically divest from this pool of assets until it is able to establish profitable operations.
During January and February 2019, the Company received optional conversion notifications from McLarty Capital Partners ("McLarty"), the holder of a majority of the Series A Convertible Notes (as defined and described in the Company's AIM Admission Document published on 16 January 2017), and Aeterna Capital Fund II, LLC ("Aeterna"). As a result of these conversions, the Company paid approximately $1.49 million for the settlement of accrued interest and issued approximately 16.4 million ordinary shares using the conversion price of 50 pence per ordinary share at a fixed exchange rate of GBP1/US$1.22. Following this conversion, McLarty and Aeterna hold approximately 23.85 per cent and 7.37 per cent, respectively, of the Company's outstanding shares. The outstanding principal balance of its Series A Convertible Notes decreased from $10.5 million to $500 thousand, which will save the Company approximately $811 thousand in annual interest. The conversion of these notes into permanent capital presents a significant improvement in the Group's financial position.
The Group believes this reduced cost structure and improved financial position, combined with opportunistic divestitures, will allow the Group to not only survive the duration of this industry downturn, but to also maintain a level of liquidity to allow it to take advantage of opportunities created during this trying period.
Mikel Faulkner
Non-Executive Chairman
5 March 2019
Financial Review of Operations
Overview
The Group continued to struggle to identify opportunities to operate its offshore vessels and equipment profitably at prevailing market rates, and as a result did not generate any revenues from continuing operations during the year. Loss from continuing operations fell by $2.0 million during the current year, however. This was primarily due to cost reduction initiatives that were implemented over the past two years. The Group also worked throughout the year to identify opportunities for its inactive assets, and as a result was able to divest of certain non-strategic vessels and equipment for proceeds of $902 thousand. These assets had a cost basis of $244 thousand at the time of their sale, resulting in significant gains in spite of demand for offshore vessels and equipment remaining low throughout the period.
The Group also determined it was likely to divest of its Colombian Oil and Gas segment (the "Disposal Group") during the year following interest being expressed by multiple parties during late 2018. In accordance with International Financial Reporting Standards ("IFRS"), it has reported these assets and their associated liabilities as a disposal group within its Consolidated Statement of Financial Position as at 31 December 2018, and income/(loss) from the Disposal Group are reflected as discontinued operations within the Consolidated Statement of Comprehensive Income for all periods presented.
Group Performance
In order to conserve its resources while its assets remain inactive, management implemented additional reductions in its cost structure, and the operations teams at the oil fields in Colombia and the dock facility in Louisiana also identified and implemented strategies to reduce their respective costs. The Group believes that its current cost structure will be sufficient to maintain and preserve its assets until they are able to return to operations and/or be sold upon a return to favourable pricing in the energy industry.
Cost of Sales
Cost of sales from continuing operations, excluding depreciation and amortisation, were $1.0 million during 2018 and primarily consisted of operations staffing, dock and facility costs, vessel maintenance, property taxes, and insurance. These 2018 costs decreased by 64% from the prior year costs of $2.8 million. The current year benefited from staff reductions and the transition of the vessels toward a cold-stack status, as this transition eliminated crewing and ship management costs and greatly reduced its utility costs. The prior year period also contained approximately $566 thousand in one-time transition and assessment costs which were incurred in relation to the initial acquisition and receipt of the offshore assets.
There was not a significant change in depreciation and amortisation charges from continuing operations between the two periods, as the 2018 period includes charges of $2.0 million, and the 2017 period includes charges of $1.9 million. The slight increase between the two periods is due to the acquisition of vessels and equipment occurring during February of 2017, which resulted in one less month of depreciation during the prior year.
Administrative Costs
Administrative costs from continuing operations decreased by $1.1 million, or 20%, primarily due to personnel reductions which were implemented during 2017 and 2018. The Group employed eleven administrative employees following its acquisition of the offshore vessels and equipment during February 2017, and it currently employs six. It is expected that there will be further reductions in administrative costs during 2019 as a result of the staffing reductions implemented during late 2018.
Finance Income and Gain on Sales
Interest income from continuing operations remained consistent during the 2017 and 2018 periods due to the Everest Note Receivable of $4 million remaining outstanding during both periods. Interest income was $320 thousand during the 2018 period and $320 thousand during the 2017 period.
Gains from asset sales from continuing operations increased significantly during the current period, up from $100 thousand during the prior year to $643 thousand during the current year. The current year gain primarily resulted from the sale of the DC Polo, DC Star, and DC Fred vessels along with certain offshore equipment, while the prior year gain resulted from the scrapping of the DC Victory, DC Sterling and DC Triumph vessels. Proceeds from the current year sales were $904 thousand.
Finance Costs
Finance costs from continuing operations increased from $1.8 million up to $2.0 million during the year due to interest and accretion on the Group's convertible notes which were issued during February, March, and April of 2017. These notes were issued in conjunction with the February 2017 transaction pursuant to which the Group received $10.5 million in cash along with offshore vessels and equipment. There was $10.5 million in principal outstanding on the Series A Convertible Notes at 31 December 2018 which bear interest of 8 per cent per annum, and a combined total of $21.1 million in principal outstanding on the Series B and C Convertible Notes which bear interest of 6 per cent per annum.
Impairment Loss
The Group utilises a third-party offshore shipbroker to provide valuation certificates for its vessels to assist with its impairment evaluations at each year-end. As a result of the 2018 valuations, the Group recognised an impairment charge from continuing operations of $666 thousand due to the assessed fair value of three of its offshore vessels being less than their net book values at 31 December 2018. The decrease in values is primarily due to lower pricing levels being observed for divestitures of similar vessels during 2018.
Income from Discontinued Operations
The Disposal Group generated net income of $77 thousand and $2.2 million for the 2018 and 2017 periods, respectively. Although the Disposal Group achieved an overall reduction in administrative and operating costs in the current year, the $4.0 million impairment reversal in the prior year, as compared to $1.7 million in the current year, resulted in decreased net income during the current year.
At 31 December 2017, management estimated the value of the contingent reserves at Bolivar to be $3.9 million as a result of the higher oil price, while the Bocachico reserves remained uneconomic. As a result of this increase in value, the Group recorded a $4.0 million impairment reversal on its Bolivar contract during the 2017 period. At 31 December 2018, prior to classifying the Disposal Group as held for sale, management determined that the amount expected to be recovered through a disposal transaction (fair value less costs to sell) was greater than the carrying value and as a result, a further impairment reversal of $1.7 million was recognised relating to the Bocachico and Bolivar areas.
Cash Flow and Liquidity
The Group had $11.0 million in cash and $14.8 million in working capital from its continuing operations at 31 December 2018. The Group expects that its current cash resources, along with the collection of its Note Receivable from Everest Hill Group, Inc. and opportunistic divestitures, will provide sufficient support for the organisation and its initiatives until its assets are able to generate cash from operations.
Sarah Gasch
Managing Director and Finance Director
5 March 2019
PRIMARY FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017*
$'000 $'000
Continuing Operations
-------------------------------------- --- -------- -------------------------
Revenue - -
Cost of sales (3,023) (4,699)
-------------------------------------------- -------- -------------------------
Gross loss (3,023) (4,699)
-------------------------------------------- -------- -------------------------
Gain on disposal of assets 643 100
Administrative expenses (4,539) (5,582)
Impairment charge (666) (53)
-------------------------------------------- -------- -------------------------
Operating loss from continuing
operations (7,585) (10,234)
-------------------------------------------- -------- -------------------------
Finance income and other 526 863
Finance expense and other (2,003) (1,827)
Loss before taxation from continuing
operations (9,062) (11,198)
-------------------------------------------- -------- -------------------------
Tax expense (94) -
-------------------------------------- --- -------- -------------------------
Loss from continuing operations,
net of tax (9,156) (11,198)
-------------------------------------------- -------- -------------------------
Income from discontinued operations,
net of tax 77 2,239
-------------------------------------------- -------- -------------------------
Total loss for the year attributable
to the equity owners of the parent (9,079) (8,959)
--------------------------------------------
Other comprehensive income/(loss) - -
Total comprehensive loss for the
year attributable to the equity
owners of the parent (9,079) (8,959) -------------------------------------------- -------- ------------------------- Loss per share for continuing operations - Basic and diluted $ (0.25) $ (0.31) Income per share for discontinued operations - Basic and diluted $ 0.00 $ 0.06 Total loss per share - Basic and diluted $ (0.25) $ (0.25) --------------------------------------- -------- -------------------------
*The prior year has been adjusted to reflect the presentation of the Oil and Gas segment as discontinued operations in 2018 (see note 4).
Figures in thousands except for per share information.
Consolidated Statement of Financial Position
As at 31 December 2018
2018 2017
$'000 $'000
-------------------------------------- --------- ---------
Assets
Non-current assets
Intangible assets 15 130
Other non-current assets 16 946
Property, plant and equipment 8,672 15,427
--------------------------------------- --------- ---------
Total non-current assets 8,703 16,503
--------------------------------------- --------- ---------
Current assets
Inventories 111 146
Note receivable and accrued interest 4,013 4,013
Trade and other receivables 74 7
Prepayments and other assets 97 303
Cash and cash equivalents 10,964 16,758
--------------------------------------- --------- ---------
15,259 21,227
Assets in disposal group classified 7,117 -
as held for sale
-------------------------------------- --------- ---------
Total current assets 22,376 21,227
Total assets 31,079 37,730
--------------------------------------- --------- ---------
Liabilities
Non-current liabilities
Convertible loan notes and accrued
interest (17,814) (15,809)
Long-term provisions - (2,712)
--------------------------------------- --------- ---------
Total non-current liabilities (17,814) (18,521)
--------------------------------------- --------- ---------
Current liabilities
Trade and other payables (380) (533)
Short-term provisions - (361)
Corporate and equity tax liabilities (48) (55)
Derivative financial liabilities (39) (262)
--------------------------------------- --------- ---------
(467) (1,211)
Liabilities directly associated (3,861) -
with assets in disposal group
classified as held for sale
-------------------------------------- --------- ---------
Total current liabilities (4,328) (1,211)
--------------------------------------- --------- ---------
Total liabilities (22,142) (19,732)
--------------------------------------- --------- ---------
Net assets 8,937 17,998
--------------------------------------- --------- ---------
Capital and reserves attributable
to equity holders of the parent
Share capital 608 608
Share premium 27,139 27,139
Capital reserve 30,435 30,435
Other reserves 1,307 1,307
Accumulated losses (50,552) (41,491)
--------------------------------------- --------- ---------
Total equity 8,937 17,998
--------------------------------------- --------- ---------
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
2018 2017
$'000 $'000
----------------------------------------- -------- ---------
Cash flows from operating activities
Cash used by operations (6,584) (10,343)
Tax paid (continuing and discontinued
operations) (203) (203)
------------------------------------------ -------- ---------
Net cash used in operating activities (6,787) (10,546)
------------------------------------------ -------- ---------
Cash flows from investing activities
Interest on note receivable 320 366
Proceeds from disposal of assets 904 116
Purchase of intangible assets
and property, plant and equipment (6) (124)
------------------------------------------ -------- ---------
Cash provided by investing activities
- continuing operations 1,218 358
Cash used in investing activities
- discontinued operations (46) -
Net cash provided by investing
activities 1,172 358
------------------------------------------ -------- ---------
Cash flows from financing activities
Issuance of convertible loan
notes pursuant to Transaction
B - 10,500
Cash settlement of share-based
payment options (168) -
----------------------------------------- -------- ---------
Cash (used in)/provided by financing
activities - continuing operations (168) 10,500
Cash used in financing activities
- discontinued operations - -
Net cash (used in)/provided by
financing activities (168) 10,500
------------------------------------------ -------- ---------
(Decrease)/increase in cash and cash
equivalents for the year (5,783) 312
Cash and cash equivalents at
beginning of year 16,758 16,446
Cash and cash equivalents at
the end of year (1) 10,975 16,758
------------------------------------------ -------- ---------
(1) Includes cash of $12 thousand from discontinued operations which is included in Assets in Disposal Group as at 31 December 2018.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share Share Capital Other Accumulated Total
capital premium reserve reserves losses equity
$'000 $'000 $'000 $'000 $'000 $'000
----------------------------------- -------- -------- --------- --------- ------------ --------
At 1 January 2017 608 27,139 51,855 - (53,966) 25,636
Comprehensive loss for
the year:
Total loss for the year - - - - (8,959) (8,959)
Other comprehensive income/(loss) - - - - - -
----------------------------------- -------- -------- --------- --------- ------------ --------
Total comprehensive loss
for the year attributable
to equity owners of the
parent - - - - (8,959) (8,959)
Transaction with owners:
Share-based payment -
options equity settled - - - - 14 14
Capital reserve transfer - - (21,420) - 21,420 -
Equity proportion of
convertible loan note - - - 1,307 - 1,307
------------------------------------ -------- -------- --------- --------- ------------ --------
Other movements within
equity - - (21,420) 1,307 21,434 1,321
------------------------------------ -------- -------- --------- --------- ------------ --------
At 1 January 2018 608 27,139 30,435 1,307 (41,491) 17,998
Comprehensive loss for
the year:
Total loss for the year - - - - (9,079) (9,079)
Other comprehensive income/(loss) - - - - - -
----------------------------------- -------- -------- --------- --------- ------------ --------
Total comprehensive loss
for the year attributable
to equity owners of the
parent - - - - (9,079) (9,079)
Transaction with owners:
Share-based payment -
options equity settled - - - - 28 28
Cash settlement of share-based
payment options - - - - (10) (10)
Other movements within
equity - - - - 18 18
------------------------------------ -------- -------- --------- --------- ------------ --------
At 31 December 2018 608 27,139 30,435 1,307 (50,552) 8,937
------------------------------------ -------- -------- --------- --------- ------------ --------
ABRIDGED NOTES TO THE PRIMARY FINANCIAL STATEMENTS
For the twelve months ended 31 December 2018
1. Accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.
In forming its opinion as to going concern, the Board prepares a working capital forecast based upon its assumptions. The Board also prepares a number of alternative scenarios modelling the business variables and key risks and uncertainties. Based upon these, the Board remains confident that the Group's current cash on hand and internally generated cash flows will enable the Group to fully finance its future working capital and discretionary expenditures beyond the period of 12 months of the date of this report.
The financial statements of the Group for the 12 months ended 31 December 2018 have been prepared in accordance with International Financial Reporting Standards ("IFRS") and their interpretations issued by the International Accounting Standards Board ("IASB") as adopted by the European Union ("EU").
Certain prior year amounts in the Consolidated Statement of Financial Position and Consolidated Statement of Comprehensive Income have been reclassified to conform with current year presentation for the purposes of comparability. These reclassifications include the presentation of discontinued operations in the Consolidated Statement of Comprehensive Income for the year ended 31 December 2017 to conform to the Oil and Gas segment's classification as held for sale at December 2018.
2. Acquisition of Offshore Service Vessel-Owning Companies
Shareholders approved the acquisition of offshore service vessel-owning companies through two separate transactions on 8 February 2017, and the Company's shares were re-admitted to the AIM, a market operated by the London Stock Exchange, as Nautilus Marine Services PLC (LSE-AIM: "NAUT"). These two acquisitions are described below:
Transaction A: The Group acquired three offshore service vessels through the acquisition of vessel-owning companies from Everest Hill Group, Inc. ("Everest"), a related party, in exchange for: (i) forgiveness of $8 million of the outstanding principal amount of the Note Receivable; (ii) the amendment of the terms of the Note Receivable to reduce the interest rate from 12 per cent to 8 per cent per annum and to extend the maturity date from 15 January 2017 to 15 September 2018; and (iii) contingent additional consideration equal to the lower of $5 million or 75 per cent of the net cash inflows attributable to the three vessels for the period of eighteen months following completion of their acquisition by the Group. Part of the existing collateral under the Note Receivable, comprising Everest's and its affiliates' shareholdings in HKN, which is a substantial shareholder in the Company, will remain in place. Please see note 13 for further information on the Note Receivable.
For accounting purposes, this acquisition has been treated as an asset acquisition with the acquisition date fair value of $8 million in consideration issued allocated between the three offshore service vessels acquired based on independent, third-party valuations. The fair value of the consideration was determined to be the value of the forgiveness of the outstanding Note Receivable. No gain or loss was recorded on the extinguishment of the debt as a result of the proximity of the maturity date of the original loan and the extinguishment date upon acquisition and the amended note terms being at arms-length terms. In addition, the fair value of the contingent consideration related to the future net cash inflows of the three vessels was determined to be $nil as of the acquisition date and as at 31 December 2017. This Level 3 fair value was based on internal probability weighted cash projections and operating assumptions related to the three vessels (see note 16 for further information). The duration of the 18-month contingency measurement period expired during August 2018 and there was no contingent consideration due or paid to Everest. As at 31 December 2018, the Group had no contingent consideration liabilities.
Transaction B: The Group acquired (i) a barge vessel through the acquisition of Everest Vessel Holdings, LLC from a related-party, Alan Quasha, HKN's Chairman of the Board, and (ii) eight offshore service vessels along with related offshore dive equipment through the acquisition of a vessel-owning company, Maritime Finance, LLC, owned by McLarty Capital Partners ("MCP") and Caleura Limited. As consideration, the Group issued three series of convertible loan notes: Series A Convertible Loan Notes ("Series A Loan Notes"), Series B Convertible Loan Notes ("Series B Loan Notes") and Series C Convertible Loan Notes ("Series C Loan Notes"). In addition to the acquired vessels and equipment, the Group received $10.5 million in cash. Please see note 14 for further information on the convertible loan notes.
For accounting purposes, this acquisition has been treated as an asset acquisition. The acquisition date fair value of $16.1 million in consideration issued consisted of $10.5 million received in cash, with the remaining $4 million allocated to the offshore service vessels and $1.6 million allocated to offshore equipment and inventory based on independent, third-party valuations. The fair value of the convertible loan notes issued as consideration was based on an independent, third-party valuation using a binomial lattice model. This Level 3 fair value was calculated with inputs such as volatility, risk-free interest rate and credit spread (see note 16 for further information).
3. Assets and Liabilities in Disposal Group Classified as Held for Sale
In December 2018, the Group, with the support of the Board, committed to divest of its Oil and Gas segment, which is comprised of its three wholly-owned subsidiaries, Global Energy Management Resources-Colombia, Inc., Lagosur Petroleum Colombia, Inc. and Cinco Ranch Petroleum Colombia, Inc. (the "Disposal Group"). The Disposal Group holds the Bolivar and Bocachico Contracts in the Magdalena Valley of Colombia. The Group began evaluating divestment and strategic partnering opportunities for the Disposal Group during 2017. Following these initial evaluations, the Board and Group's management team believe the sale of the Group's assets in the Middle Magdalena Basin presents a significant opportunity to realise cash value from these non-strategic assets while eliminating the associated annual operating costs and future abandonment obligations. While several expressions of interest have been made, as at 31 December 2018 a purchase and sale agreement had not been executed. However, the Group expects a sale to be complete within 12 months.
Prior to classifying the Oil and Gas segment as held for sale, the carrying amounts of the non-current assets and liabilities were measured and reviewed for possible impairment or impairment reversal as required by IFRS 5. This review resulted in an impairment reversal of $1.7 million at 31 December 2018 (see notes 12 and 15). Upon classification as held for sale as at 31 December 2018, the Disposal Group was measured at the lower of the carrying amount and the fair value less costs to sell, which is categorised as a Level 3 non-recurring fair value measurement. Depending on the terms of a final purchase and sale agreement, a subsequent recognition of a gain or loss on the sale of the Disposal Group may result.
The following major classes of assets and liabilities related to this Disposal Group that have been classified as held for sale in the Consolidated Statement of Financial Position as at 31 December 2018:
2018
$'000
Intangible assets 157
Property, plant and equipment 6,189
Other non-current assets (1) 678
Inventories 20
Trade and other receivables 6
Prepayments and other assets 55
Cash and cash equivalents 12
Assets in disposal group classified
as held for sale 7,117
-------------------------------------- ------
Decommissioning and environmental
provisions (2) 3,215
Trade and other payables 603
Corporate and equity tax liabilities 43
Liabilities directly associated with
assets in disposal group classified
as held for sale 3,861
-------------------------------------- ------
(1) Other non-current assets represent VAT deposits that do not expire and are not expected to be offset against taxes payable during the next year.
(2) See note 1 for discussion regarding these provisions and note 15 for a roll-forward of these provisions for the current and prior year periods.
4. Discontinued Operations of Oil and Gas Segment
In December 2018, the Group classified its Oil and Gas segment as held for sale. As a result, the operations of the Disposal Group have been treated as discontinued operations for the year ended 31 December 2018, with comparable presentation for the prior year period ended 31 December 2017. The table below provides further details of the amounts shown in the Consolidated Statement of Comprehensive Income for the discontinued operations of the Oil and Gas segment for the 12 months ended 31 December 2018 and 2017:
2018 2017
$'000 $'000
-------------------------------------- ------ ------
Revenue - 250
Cost of sales (476) (853)
Gross loss (476) (603)
-------------------------------------- ------ ------
Administrative expenses (696) (767)
Impairment reversal 1,711 4,021
Finance income and other 6 14
Finance expense and other (364) (247) -------------------------------------- ------ ------ Income before taxation 181 2,418 Tax expense (104) (179) -------------------------------------- ------ ------ Income from discontinued operations, net of tax 77 2,239 -------------------------------------- ------ ------
The Group's business units did not generate any revenues during the year ended 31 December 2018. During 2017, all revenues from the Group's business units were generated from oil liftings from the Group's Bocachico field located in Colombia. This activity resulted in sales of crude oil to one Colombia-based customer which amounted to $250 thousand for the year ended 31 December 2017. The Bocachico field was shut-in during late 2017 in order to decrease operating costs and environmental risk while the contract area remains uneconomic, and the field continued to be shut-in during the 2018 period.
For the year ended 31 December 2018, the Group's recognised an impairment reversal of $1.7 million related to the Bocachico and Bolivar areas. These impairment reversals were the result of management's estimated recoverable amounts being higher than the current carrying amount of the net assets immediately prior to classification as held for sale. Based on discussions with potential counter parties, management determined that the amount expected to be recovered through a disposal transaction (fair value less costs to sell) is higher than the value-in-use, as determined by a third-party reserve valuation as at 31 December 2018.
For the year ended 31 December 2017, the Disposal Group recognised a net impairment reversal of $4 million. This was comprised of an impairment reversal of $4.1 million related to the Bolivar area as a result of a view of stabilisation of increased oil pricing at 31 December 2017 of $66.87 per barrel and a decrease in the decommissioning provision, partially offset by an impairment charge of $57 thousand for the Bocachico area due to increases in the decommissioning and environmental provisions, as this area remained uneconomic at the 31 December 2017 pricing.
5. Notes to the Consolidated Statement of Cash Flows
(a) Reconciliation of loss before taxation to net cash flow used by operations
2018 2017
$'000 $'000
------------------------------------------ -------- ---------
Continuing operations
Loss before tax (9,062) (8,767)
Adjustments for:
Depreciation of property, plant
& equipment 1,980 1,843
Amortisation of intangible assets 15 15
Gain on derivative financial instruments (199) (543)
Gain on sale of assets (643) (100)
Impairment charge/(reversal) 666 (3,968)
Inventory obsolescense provision
and write downs 1 380
Share based expense 185 14
Interest income (320) (366)
Interest and accretion expense
on convertible loan notes 2,005 1,756
Unwinding of discount on decommissioning
provision - 219
------------------------------------------ -------- ---------
Operating cash flow before movements
in working capital (5,372) (9,517)
------------------------------------------ -------- ---------
Decrease in inventories - 36
Decrease in trade and other receivables 63 28
Increase/(decrease) in trade and
other payables 89 (876)
------------------------------------------ -------- ---------
Cash used in continuing operations (5,220) (10,329)
------------------------------------------ -------- ---------
Discontinued operations
Loss before tax 181 (13)
Adjustments for:
Depreciation of property, plant
& equipment 2 -
Loss on sale of assets 1 -
Impairment reversal 4 (1,711) -
Provision for uncollectible accounts - 1
Unwinding of discount on decommissioning
provision 273 -
------------------------------------------ -------- ---------
Operating cash flow before movements
in working capital (1,254) (12)
------------------------------------------ -------- ---------
Decrease in inventories 5 -
Decrease in trade and other receivables 268 -
Decrease in trade and other payables (383) (2)
------------------------------------------ -------- ---------
Cash used in discontinued operations (1,364) (14)
------------------------------------------ -------- ---------
Cash used by operations (6,584) (10,343)
------------------------------------------ -------- ---------
(b) Significant non-cash transactions
During the year ended 31 December 2017, the Group acquired property, plant and equipment comprised of offshore service vessels and dive and operating equipment valued at $13.3 million and inventory valued at $303 thousand through the forgiveness of $8 million of the outstanding principal amount of the Note Receivable and issuance of convertible loan notes (see note 2 for additional information).
During the year ended 31 December 2018, the Group had no significant non-cash transactions.
(c) Reconciliation of liabilities arising from financing activities
Non-cash changes
----------------------------------------------------------
Foreign Fair
Cash exchange value Interest
flows Acquisition movement changes Payable Accretion
2017 $'000 $'000 $'000 '$'000 '$'000 '$'000 2018
------------------------ ------- ------- ------------ ---------- --------- --------- ---------- -------
Convertible loan
notes 15,809 - - - - 2,135 (130) 17,814
Derivative liabilities 262 - - (24) (199) 0 0 39
Total liabilities
from financing
activities 16,071 - - (24) (199) 2,135 (130) 17,853
------------------------ ------- ------- ------------ ---------- --------- --------- ---------- -------
Non-cash changes
----------------------------------------------------------
Foreign Fair
Cash exchange value Interest
flows Acquisition movement changes Payable Accretion
2016 $'000 $'000 $'000 '$'000 '$'000 '$'000 2017
------------------------ ------ ------- ------------ ---------- --------- --------- ---------- -------
Convertible loan
notes - 10,500 3,553 - - 1,663 93 15,809
Derivative liabilities - - 780 25 (543) - - 262
Total liabilities
from financing
activities - 10,500 4,333 25 (543) 1,663 93 16,071
------------------------ ------ ------- ------------ ---------- --------- --------- ---------- -------
6. Loss per Share
Basic loss per share amounts are calculated by dividing loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding for the year.
Diluted loss per share amounts are calculated by adjusting the loss attributable to ordinary equity holders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, comprised of those related to convertible loan notes and share options. The convertible loan notes are assumed to have been converted into ordinary shares and the net loss is adjusted to eliminate the related finance costs, including interest and accretion, and any gain or loss recognised on the derivative financial liability related to the convertible loan notes. The calculation of the dilutive potential ordinary shares related to employee and Director share option plans includes only those options with exercise prices below the average share trading price for each year.
The following table reflects the loss and share data used in the basic and diluted loss per share calculations:
(Figures in thousands except for share and per share information which is disclosed in $)
2018 2017
$'000 $'000
------------------------------------------ --- ----------- -----------
Loss from continuing operations after
taxation (9,156) (11,198)
Income from discontinued operations
after taxation 77 2,239
----------- -----------
Net loss attributable to equity holders (9,079) (8,959)
----------------------------------------------- ----------- -----------
Loss per share for continuing operations
- Basic and diluted $ (0.25) $ (0.31)
Income per share for discontinued
operations
- Basic and diluted $ 0.00 $ 0.06
Total loss per share
- Basic and diluted $ (0.25) $ (0.25)
Basic weighted average number of shares 36,112,187 36,112,187
Dilutive potential ordinary shares:
Employee and Director share option
plans - -
Shares on conversion of loan notes - -
Diluted weighted average number of
shares 36,112,187 36,112,187
----------------------------------------------- ----------- -----------
Basic and diluted loss per share are the same because the following potentially dilutive shares were considered to be anti-dilutive due to the loss arising in the period:
2018 2017
-------------------------------------- ----------- -----------
Employee and Director share option
plans - 2,350,000
Shares on conversion of loan notes 26,728,060 26,205,533
--------------------------------------- ----------- -----------
(1) Of these shares, 925,464 shares are related to shares to be issued for accrued interest payable upon the conversion of loan notes which can be settled in cash or shares at the Company's option (2017: 402,937 shares).
7. Operating loss from continuing operations
Loss from continuing operations is stated after charging:
2018 2017 (1)
$'000 $'000
----------------------------------------- ------ ---------
Depreciation and amortisation (included
in cost of sales):
Property plant and equipment 1,980 1,841
Intangible assets 15 15
Gain on disposal of assets (643) (100)
Operating expenses 1,028 2,843
Employee costs 3,023 4,165
Auditor's remuneration 300 348
Other administrative costs 1,216 1,069
Impairment charge 666 53
Total cost of sales, administrative
and other operating costs 7,585 10,234
----------------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation of the Oil and Gas segment as discontinued operations in 2018 (see note 4).
During the year, the Group obtained the following services from the Group's auditors at costs as detailed below:
Analysis of auditors' remuneration
2018 2017 (1)
$'000 $'000
--------------------------------------- ------ ---------
Group Auditors
Audit Services
Statutory audit 99 98
Review of interim report 13 22
Non-audit Services
Due diligence related services 65 7
Other services (tax and consulting) 123 122
Other Auditors
Prior year statutory audit 0 7
Transaction-related due diligence
services (2) 0 52
Other services (tax and consulting) 0 40
--------------------------------------- ------ ---------
Total auditors' remuneration 300 348
--------------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation of the Oil and Gas segment as discontinued operations in 2018 (see note 4).
(2) See note 2 for additional information regarding the transaction.
8. Employee costs
Group employee costs (including Executive Directors) during the year amounted to:
2018 2017 (1)
$'000 $'000
----------------------------------------------- ------ ---------
Wages and salaries 2,292 3,533
Social security costs and other payroll
taxes 130 195
Insurance and other benefits 268 268
Company contributions to defined contribution
plan 148 155
Share-based payments - options - equity
settled 185 14
----------------------------------------------- ------ ---------
Total employee costs 3,023 4,165
----------------------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation of the Oil and Gas segment as discontinued operations in 2018 (see note 4).
The average number of Group employees (including Executive Directors) was:
2018 2017
------------------------------- ----- -----
Technical and operations 3 7
Management and administrative 11 15
------------------------------- ----- -----
Total Group employees 14 22
------------------------------- ----- -----
(1) The current year includes 1 technical and operations employee and 3 management and administrative employees of the Oil and Gas segment, which was classified as discontinued operations in 2018 (see note 4).
The employee costs and number of employees above do not include contract and casual labour in field operations which are charged directly to operating expense as incurred. These employees are not on the Group's payroll and are contracted through third parties.
Key management personnel in the prior year comprised of the Executive Chairman, Managing Director, Finance Director, and Director of Business Development. As a result of personnel reductions, key management personnel in the current year comprised of the Executive Chairman, Managing Director, Finance Director, Company Secretary and Treasurer. Compensation paid to the Non-executive Directors and key management personnel:
2018 2017
$'000 $'000
------------------------------------------------- ------ ------
Non-executive Director fees (1) 264 240
Compensation and benefits paid to
key management personnel:
Compensation paid 1,253 1,363
Termination benefits 146 -
Performance bonuses 7 270
Social security costs and other payroll
taxes 62 61
Health and life insurances 94 72
Other benefits 63 47
Company contributions to defined
contribution plan 57 66
Share-based payments - options - equity-settled
(2) 174 12
------------------------------------------------- ------ ------
Total 2,120 2,131
------------------------------------------------- ------ ------
(1) Includes social security contributions by the Group of $20 thousand in 2018 (2017: $24 thousand).
(2) The increase in 2018 is primarily due to the termination of the share-based payment option plan in December 2018 (see note 18).
As at 31 December 2018, there were no amounts due to or from key management personnel (2017: nil). Directors' remuneration for the current and prior year, as well as shareholdings and share options interests are shown in the tables below:
Other
Termination Benefits Bonus Total Total
Salary Benefits (2) (3) Fees 2018 2017
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------- ------- ------------ ---------- ------ ------ ------ -------
Executives
Mikel Faulkner 320 117 57 122 - 616 651 (4)
Non-executives (1)
Alan Henderson - - - 6 88 94 80
David Quint - - - 6 88 94 80
Zac Phillips - - - 2 88 90 80
-------------------- ------- ------------ ---------- ------ ------ ------ -------
Total 320 117 57 136 264 894 891
-------------------- ------- ------------ ---------- ------ ------ ------ -------
(1) The non-executive fees were paid in Pounds Sterling in the amount GBP60 thousand each (2017: GBP60 thousand).
(2) Included in benefits is $29 thousand related to the fair value of the company vehicle gifted to Mr. Faulkner upon his retirement as an executive.
(3) The 2018 bonuses consisted of the share option plan termination payment in exchange for the cancellation of the outstanding options.
(4) This included 2016 salary of $75 thousand contingent on the completion of the transaction in 2017 to acquire offshore service assets.
As at 31 December
2018 As at 1 January 2018
-------------------- -----------------------
Ordinary Ordinary
Shares Options Shares Options
---------------- ---------- -------- ---------- -----------
Mikel Faulkner 370,000 - 370,000 2,140,000
Alan Henderson 14,527 - 14,527 150,000
David Quint 135,000 - 135,000 150,000
Zac Phillips 15,241 - 15,241 50,000
Total 534,768 - 534,768 2,490,000
---------------- ---------- -------- ---------- -----------
All the holdings are beneficially held.
In December 2018, the Group terminated the Group's equity-settled option scheme. As a result, grantees with valid outstanding options received a cash payment in exchange for the cancellation of the options. As at 31 December 2018, the Group had no options outstanding.
9. Cost of sales
A reconciliation of cost of sales by nature is as follows:
2018 2017 (1)
$'000 $'000
------------------------------- ------ ---------
Operating expenses 1,028 2,843
Depreciation and amortisation 1,995 1,856
------------------------------- ------ ---------
Total cost of sales 3,023 4,699
------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation of the Oil and Gas segment as discontinued operations in 2018 (see note 4).
10. Finance income and other
2018 2017 (1)
$'000 $'000
----------------------------------------- ------ ---------
Income on note receivable and other 327 320
Unrealized gain on derivative financial
liabilities (2) 199 543
----------------------------------------- ------ ---------
Total finance income and other 526 863
----------------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation of the Oil and Gas segment as discontinued operations in 2018 (see note 4).
(2) The derivative financial liabilities are a result of the convertible loan notes issued in connection with the transaction (see note 2). The gains are primarily due to the decrease in the Company's share price.
11. Finance expense and other
2018 2017 (1)
$'000 $'000
--------------------------------------- ------- ---------
Accretion expense on convertible loan
notes (130) 93
Interest expense on convertible loan
notes 2,135 1,663
Foreign currency exchange (gain)/loss (2) 71
---------------------------------------
Total finance expense and other 2,003 1,827
--------------------------------------- ------- ---------
(1) The prior year has been adjusted to reflect the presentation of the Oil and Gas segment as discontinued operations in 2018 (see note 4).
12. Property, plant and equipment
Offshore
equipment Office
and Facilities
site and equipment
Oil and
Vessels improvements properties pipelines other Total
$'000 $'000 $'000 $'000 '$'000 $'000
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Cost
At 1 January 2017 - - 45,264 2,956 867 49,087
Additions 12,025 1,359 - - 78 13,462
Disposals - (18) - - (400) (418)
Change in decommissioning
and environmental provision - - (163) - - (163)
At 31 December 2017 12,025 1,341 45,101 2,956 545 61,968
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Additions - - 501 - 5 506
Disposals (208) (100) (65) - (80) (453)
Change in decommissioning
and environmental provision - - 171 - - 171
Reclassified to assets held
for sale - - (45,708) (2,956) (436) (49,100)
At 31 December 2018 11,817 1,241 - - 34 13,092
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Depreciation:
At 1 January 2017 - - (45,264) (2,956) (846) (49,066)
Provided during the year (1,512) (300) - - (31) (1,843)
Disposals - 4 - - 396 400
Impairment (charge)/reversal (53) - 4,021 - - 3,968
At 31 December 2017 (1,565) (296) (41,243) (2,956) (481) (46,541)
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Provided during the year (1,634) (316) - - (32) (1,982)
Disposals 35 42 8 - 62 147
Impairment (charge)/reversal (666) - 1,711 - - 1,045
Reclassified to assets held
for sale - - 39,524 2,956 431 42,911
At 31 December 2018 (3,830) (570) - - (20) (4,420)
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Net book value at 31 December
2018 7,987 671 - - 14 8,672
Net book value at 31 December
2017 10,460 1,045 3,858 - 64 15,427
Net book value at 1 January
2017 - - - - 21 21
As a result of the February 2017 asset acquisitions, the Group acquired 11 offshore service vessels, one barge vessel, and related offshore equipment. Three of the acquired offshore service vessels were sold as scrap prior to delivery to the Group's dock facility and certain offshore equipment was sold during the prior year period. These disposals resulted in a gain on disposal of assets of $100 thousand for the year ended 31 December 2017. During 2018, the Group closed on the sale of three of its offshore service vessels and certain offshore equipment for proceeds of $894 thousand. These disposals resulted in a gain on disposal of assets of $659 thousand for the year ended 31 December 2018.
The Group performed its annual impairment assessment as at 31 December 2018. For the purposes of assessing impairment for the vessels, the Group obtained an independent, third-party valuation to determine the fair value of each vessel at 31 December 2018. As a result, the Group recognised an impairment charge of $666 thousand related to the offshore service vessels as a result of decreased current market valuations (2017: $53 thousand). The Group did not identify any factors that would indicate the value of its offshore service equipment may be impaired since the acquisition date measurement in February 2017 (see note 2 for additional information).
Property, plant and equipment in the Group's Oil and Gas segment was assessed for impairment as at 31 December 2018 immediately prior to being reclassified as held for sale. As such, the Group considered the recoverable amounts of the two CGUs, the Bolivar area and the Bocachico area, by measuring the value-in-use and fair value less costs to sell.
The value-in-use calculations using risked cash flow projections include estimates about the future financial performance of each CGU. All estimates and assumptions included in the value-in-use calculations are derived from the reserve report developed by Ralph E. Davis Associates, Inc., an independent petroleum engineering firm, and are based on the PRMS joint reserve and resource definitions of the Society of Petroleum Engineers, the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers consistent with UK reporting practices. The projected risked discounted cash flows are calculated using the Brent oil pricing as at 31 December 2018 of $53.80 per bbl with an escalation of 3 per cent each following year (2017: $66.87 per bbl), with historical pricing discounts and historical operating costs. The pre-tax discount rate applied to the cash flow projections is 10 per cent (2017: 10 per cent). As a result of the decreased oil pricing and oil price projections as of the current year end, both of the Group's oil properties were determined to be uneconomic with no estimated value-in-use as at 31 December 2018.
The Group estimated fair value less costs to sell based on an average of the cash consideration discussed with potential counter parties. Non-cash consideration included in these offers, such as royalties, were not assigned any value. This is due to the significant amount of judgements and uncertainty regarding inputs to this valuation, including the timing and scope of a purchaser's development plans that are not in the Group's control. Based on these estimates, which are categorised as a non-recurring level 3 fair value measurement, management determined that the amount expected to be recovered through a disposal transaction (fair value less costs to sell) is higher than the value-in-use. This recoverable amount was greater than the carrying value and as a result, an impairment reversal of $1.7 million was recognised related to the Bocachico and Bolivar areas.
Prior to 2018, these assessments were based on a recoverable amount which was determined based on value-in-use calculations derived from third-party reserve reports, as there was no reliable market to estimate fair value less costs to sell. As a result, the Group recognised a net impairment reversal of $4 million primarily due to the increase in oil pricing and a view of stabilisation of the increased oil pricing at as 31 December 2017. This comprised of an impairment reversal of $4.1 million related to the Bolivar area based upon the reserve report valuation of the discounted cash flows for the contingent reserves within this contract. However, the Bocachico area remained uneconomic at the increased 31 December 2017 pricing. As a result, an impairment charge of $57 thousand was recognised due to increases in the decommissioning and environmental provisions during 2017.
13. Note receivable
2018 2017
$'000 $'000
----------------------------------- ------ ------
Note receivable 4,000 4,000
Accrued interest receivable 13 13
Total note receivable and accrued
interest as at 31 December 4,013 4,013
----------------------------------- ------ ------
Cash received for interest income 320 366
----------------------------------- ------ ------
On 15 September 2015, the Group and HKN, Inc. ("HKN") (collectively as "Co-Lenders") entered into a secured, short-term financing note agreement ("Note Receivable") with Everest Hill Energy Group Ltd. ("Everest") for the principal amount of $10 million. Everest is an affiliated company of the Quasha family trusts which also have an interest in Lyford Investments, Inc., an existing shareholder of the Group. HKN Inc, ("HKN"), the Group's principal shareholder, Lyford Investments, Inc. and its parties acting in concert with it are interested in 22,567,016 shares of the Group, representing 62.49 per cent of the issued share capital of the Company. By virtue of these holdings, entry into this Note Receivable constituted a related party transaction.
Under the Note Receivable, the Group participated as a Co-Lender by loaning $8.0 million and HKN participated by loaning $2.0 million of the principal amount to Everest. The Note Receivable is secured by all of Everest's and its subsidiaries' holdings of the Group and HKN. The Group serves as the collateral agent for the Co-Lenders. The Note Receivable was subject to an interest charge of 12 per cent per annum, payable monthly in arrears, with the principal amount being repayable in full on 15 March 2016. Everest paid to the Group a 2 per cent transaction fee of $160 thousand in September 2015 upon the closing of the Note Receivable.
On 29 February 2016, the Co-Lenders amended the Note Receivable with Everest. Under this amendment, the Group loaned an additional $2.0 million principal amount to Everest and extended the maturity date six months to 15 September 2016. In addition, the Group was granted right of first refusal to purchase certain offshore oil service vessels owned by Everest and its affiliates. Everest paid to the Group a 2 per cent transaction fee of $40 thousand upon the execution of the amendment.
On 9 September 2016, the Co-Lenders extended the maturity date of the amended Note Receivable by thirty days to 15 October 2016. On 14 October 2016, the Co-Lenders extended the maturity date thirty days from 15 October 2016 to 15 November 2016. On 28 October 2016, the Group acquired HKN's rights of their outstanding principal amount of $2.0 million in respect of the Note Receivable and as a result the Group is now the sole lender of the Note Receivable with collateral remaining in place and securing the obligation. On 14 November 2016, the Group extended the maturity date to 15 January 2017. The Note Receivable continued to be subject to an interest charge of 12 per cent per annum, payable monthly in arrears.
On 8 February 2017, the Note Receivable was amended as a result of the completion of Transaction A (as disclosed in note 2). As a result, the principal balance of the note decreased from $12 million to $4 million and the maturity date was extended from 15 January 2017 to 15 September 2018. In addition, interest was amended from payable monthly in arrears at 12 per cent per annum to payable quarterly in arrears at 8 per cent per annum.
On 2 August 2018, the Group (the "Lender") amended the Note Receivable with Everest. Under the amendment, the Group extended the maturity date from 15 September 2018 to 30 April 2019. In addition, the amendment provides for a Lender's Call Option which requires Everest to pay $2 million of the outstanding principal amount no later than thirty days after the Group provides written notice of the exercise of the Lender's Call Option to Everest. The Note Receivable continues to be subject to an interest charge of 8 per cent per annum, payable quarterly in arrears, and the existing collateral, comprised of Everest's and its affiliates' shareholdings in HKN, which is a substantial shareholder in the Company, remains in place. The change in maturity date did not impact the classification of the Note Receivable on the Consolidated Statement of Financial Position as it continues to be a current asset.
In accordance with application of IFRS 9 at 1 January 2018, the Group assessed the credit risk of the Note Receivable. The credit risk at the time of initial recognition was considered low and using the credit risk indicators outlined in note 17, management assessed whether the credit risk had increased significantly. Although, the Group modified the terms of the Note Receivable, these modifications were not a result of a deterioration of credit quality. Further, as no other indicators were identified as being present, the Group determined there had not been a significant increase in credit risk as of the reporting date. As such, a loss allowance equal to the twelve month expected credit losses was measured using a probability weighted cash flow approach for a range of possible outcomes. This included estimations by management using significant unobservable inputs, such as the assumption regarding credit worthiness of the borrower, in addition to the payment history of interest obligations. Due to the estimated current value of the collateral exceeding the expected credit losses, no cash shortfall is estimated. As such, no allowance for expected credit losses related to the Note Receivable was recognised within opening equity at 1 January 2018 or as at 31 December 2018 as part of the application of IFRS 9.
14. Convertible Loan Notes and Interest Payable
As a result of the completion of Transaction B on 8 February 2017 (as disclosed in note 2), the Group issued three series of convertible loan notes in exchange for $10.5 million in cash and vessels, equipment and inventory with a fair market value of $5.6 million.
After the reporting period, the Group received voluntary conversion notices from noteholders for the conversion of Series A Loan Notes with a combined nominal value of $10 million (see note 20 for further details).
A summary of the terms of the convertible loan notes are as follows:
Convertible Loan Note
--------------------------------------------------------------------------------------
Term: Series A Series B Series C
------------ --------------------------- --------------------------- ----------------------------
Principal
Amount: $10.5 million $6.1 million $15.0 million
Maturity 1 January 2027 1 January 2029 1 January 2032 (unless
Date: (unless converted (unless converted converted to Ordinary
to Ordinary Shares to Ordinary Shares Shares before then).
before then). before then). Payments Payments on maturity
Payments on on maturity are are to be settled
maturity are to be settled in in cash or satisfied
to be settled cash or satisfied in whole or in part
in cash. in whole or in by the issue of Ordinary
part by the issue Shares at the option
of Ordinary Shares of the Company.
at the option of
the Company.
Interest: Non-compounding Non-compounding Non-compounding interest
interest will interest will be will be payable upon
be payable upon payable upon maturity maturity or conversion
maturity or conversion or conversion (calculated (calculated on a
(calculated on on a 360-day calendar 360-day calendar
a 360-day calendar year) at 6 per year) at 6 per cent,
year) at 8 per cent, payable in payable in cash or
cent. cash or satisfied satisfied by the
by the issue of issue of Ordinary
Ordinary Shares Shares at the option
at the option of of the Company.
the Company.
Conversion The outstanding The outstanding The outstanding principal
Price: principal amount principal amount amount will be convertible
will be convertible will be convertible into Ordinary Shares
into Ordinary into Ordinary Shares at 225 pence per
Shares at 50 at 160 pence per share, subject to
pence per share, share, subject adjustment in certain
subject to adjustment to adjustment in circumstances.
in certain circumstances. certain circumstances.
A holder of convertible loan notes may convert any portion of the outstanding principal amount and (in the case of the Series B Loan Notes and Series C Loan Notes only) any unpaid and accrued interest of the convertible loan notes into Ordinary Shares at the applicable conversion price at any time following thirty days from the issue of the relevant convertible loan notes with a 20-day notice to the Company. All three series of convertible loan notes contain both a fixed exchange rate of $1.22:GBP1 and the right for the Company to force conversion if the Company's average share price equals or exceeds 110 per cent of the conversion price for a period of ten consecutive business days. Furthermore, the Company may redeem each issue of convertible loan notes any time after issuance at their nominal value with a 10-day notice to the note holder. For the Series B Loan Notes and Series C Loan Notes only, any amounts not previously converted into shares at maturity will be repaid in cash or by the issuance of shares at a price equal to the higher of (i) the conversion price and (ii) 110 per cent of the average closing price of the Company's shares for ten consecutive business days, at the option of the Company. As a result, the Series B Loan Notes and Series C Loan Notes failed the 'fixed for fixed' classification under IAS 32.
The Group determined the convertible loan notes issued to be compound financial liabilities. The Group classified the conversion features of the Series A Loan Notes as equity due to the fixed settlement terms. Accordingly, the proceeds received on issuance were allocated into their liability and equity components. The Group classified the conversion features of the Series B Loan Notes and Series C Loan Notes as derivative financial liabilities. Accordingly, the proceeds received on issuance were allocated into their host debt liability and embedded derivative components. The following table details the movements of the convertible loan note issuances during the periods ended 31 December 2018 and 2017:
2018 2017
$'000 $'000
------- --------
Balance at 1 January 15,809 -
Issuance of convertible loan notes - 16,140
Proportion classified as equity - (1,307)
Proportion classified as derivative
financial liabilities - (780)
Interest payable 2,135 1,663
Accretion expense (130) 93
------- --------
Convertible loan notes and accrued
interest 17,814 15,809
------- --------
(1) Of the interest payable, $1.5 million and $673 thousand was related to the Series A loan note, which is payable by the Group in cash upon conversion as at 31 December 2018 and 2017, respectively.
15. Decommissioning and environmental provisions
2018 2017
Long-term provisions $'000 $'000
--------------------------------------------- -------- ------
Decommissioning liability at start
of year, non-current (1) 2,712 2,161
Unwinding of discount 273 219
Reclassification from short-term provisions
(2) - 578
Decrease in provision (3) (240) (246)
Reclassified to liabilities held for
sale (5) (2,745) -
Decommissioning liability at end of
year, non-current - 2,712
--------------------------------------------- -------- ------
Total long-term provision - 2,712
--------------------------------------------- -------- ------
2018 2017
Short-term provisions $'000 $'000
--------------------------------------------- -------- ------
Decommissioning liability at start
of year, current (1) 314 810
Reclassification to long-term provisions
(2) - (578)
Increase in provision(3) 145 82
Reclassified to liabilities held for
sale (5) (459) -
--------------------------------------------- -------- ------
Decommissioning liability at end of
year, current - 314
--------------------------------------------- -------- ------
Environmental provision - current,
at start of year (4) 47 138
Decrease in provision (36) (91)
Reclassified to liabilities held for
sale (5) (11) -
Environmental provision - current,
at end of year - 47
--------------------------------------------- -------- ------
Total short-term provision - 361
--------------------------------------------- -------- ------
(1) The decommissioning provision represents the present value of decommissioning costs for existing assets in the Group's oil operations, which are expected to be incurred between 2018 and 2024. These provisions have been generated based on the Group's internal estimates, and where available, studies and analyses from external sources. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. As at 31 December 2017, these estimates are included within short-term and long-term provisions within the Consolidated Statement of Financial Position. As a result of the Oil and Gas segment being classified as held for sale in 2018, these estimates were reclassified as liabilities directly associated with assets in disposal group classified as held for sale for within the Consolidated Statement of Financial Position as at 31 December 2018. These estimates are reviewed periodically to take into account any material changes to those assumptions.
(2) During 2017, the Group reassessed the scope of the discretionary projects designated as current at the Bolivar area and decided to defer a portion to be performed upon the expiration of the contracts in order to preserve cash on hand. This resulted in the reclassification from short-term to long-term provisions of $578 thousand during 2017.
(3) Decommissioning cost estimates increase or decrease as a result of management current estimates and identification of any additional requirements for the final decommissioning for both Contract Areas. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning work required at the time assets are decommissioned and abandoned. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates, which in turn is dependent upon future oil and gas prices that are inherently uncertain.
(4) The environmental provision represents the creation of an environmental investment reserve to reflect a liability under Colombian law for certain exploration and producing contracts requiring the Group to perform additional reinvestment in the amount of 1 per cent of specified investment activity to provide for the recovery, conservation, preservation, and monitoring of the hydrographic basin of the exploration areas and obligations to perform social contract requirements. For the 1 per cent reinvestment obligation, a provision is provided and an amount equal to the provision is recognised within the cost of the respective asset and amortised on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provisions and the associated fixed asset. Changes in estimate of other environmental and social obligations are recognised in cost of sales.
(5) As at 31 December 2018 all the decommissioning and environmental liabilities were associated with the Group's Colombian oil operations, which were classified as held for sale at 31 December 2018. As a result, these liabilities are included within liabilities held for sale at 31 December 2018 (see note 3).
16. Financial Instruments- Fair Value Measurement
During 2018, the Group issued financial instruments measured at fair value. The Group has assessed the different levels in the fair value hierarchy, for its financial instruments, based on the inputs used in the valuation techniques. The following tables show the valuation techniques used in measuring level 3 fair values, as well as the significant unobservable inputs used.
Significant unobservable
Type Level Measurement Valuation technique inputs
-------------------------- ------ ------------ --------------------- -------------------------
Derivative financial 3 Recurring Binomial lattice Share price volatility
liabilities (derivative model
component of convertible
loan notes)
-------------------------- ------ ------------ --------------------- -------------------------
Contingent consideration 3 Recurring Probability weighted Operating and cash
cash forecasts flow projections
-------------------------- ------ ------------ --------------------- -------------------------
The following table details the movements of the derivative financial liabilities during the periods ended 31 December 2018 and 2017:
2018 2017
$'000 $'000
------ ------
Balance at 1 January 262 -
Proportion of convertible loan notes
classified as derivative financial
liabilities - 780
Unrealized gain on derivative financial
liabilities (199) (543)
Foreign exchange movement (24) 25
------ ------
Derivative financial liabilities 39 262
------ ------
During the years ended 31 December 2018 and 2017, gains of $199 thousand and $543 thousand, respectively, were recognised on the revaluation of the derivative financial liabilities within finance income and other in the Consolidated Statement of Comprehensive Income.
The contingent consideration relates to the acquisition of offshore service vessel-owning companies which own three vessels as a result of the completion of Transaction B (as disclosed in note 2). The fair value of the contingent consideration related to the future net cash inflows through August 2018 of the three vessels was determined to be $nil at acquisition and as at 31 December 2017. The duration of the 18-month contingency measurement period expired during August 2018 and there was no contingent consideration due or paid to Everest.
17. Financial Instruments- Risk Measurement
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:
-- Note receivable -- Cash and cash equivalents -- Trade and other payables -- Convertible loan notes -- Derivative financial liabilities
The Group is exposed through its continuing operations to the following risks through holding and issuing financial instruments:
-- Market risk -- Credit risk -- Foreign exchange risk -- Liquidity risk
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board receives regular reports from the Group's Managing Director through which it reviews the effectiveness of the processes in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further quantitative information in respect of these risks is presented throughout these financial statements and details regarding these policies are set out below.
2018 2017
Financial assets and liabilities as per
Consolidated Statement of Financial Position: $'000 $'000
------------------------------------------------- ------- -------
Financial assets (all at amortised cost):
Trade and other receivables, continuing
operations 74 7
Trade and other receivables, discontinued
operations 6 -
Note receivable 4,013 4,013
Cash and cash equivalents 10,964 16,758
Total financial assets 15,057 20,778
------------------------------------------------- ------- -------
Financial liabilities:
At amortised cost
Trade and other payables, continuing operations 380 533
Trade and other payables, discontinued
operations 603 -
Convertible loan notes 17,814 15,809
At fair value
Derivative financial liabilities 39 262
Total financial liabilities 18,836 16,604
------------------------------------------------- ------- -------
Market risk
The Group does not consider itself exposed to significant cash flow interest rate risk from its deposits of cash and cash equivalents with banks. The cash balances maintained by the Group are proactively managed in order to ensure that the maximum level of benefit is received for the available funds without affecting the working capital flexibility the Group requires.
The Group does not consider itself exposed to cash flow interest rate risk related to debt instruments in the form of convertible loan notes, which carry fixed interest rates within the terms of the agreements. Through fixing the interest rates within the agreements, the Company considers it has minimised the exposure of the Group to cash flow interest rate risk. No subsidiary company of the Group is permitted to enter into any borrowing facility without the prior consent of the Board. The Group has no floating rate debt. During 2017, the Group issued long-term convertible loan notes, which comprised its fixed rate debt, ranging from fixed interest rates of 6 per cent to 8 per cent.
The interest rate profile of the Group's financial assets and liabilities at 31 December 2018 was as follows:
US Dollar
US Dollar equivalent of: $'000
----------------------------------- ----------
Cash at bank on which no interest
is received 10,964
Fixed rate debt (1) (17,814)
Net cash (6,850)
----------------------------------- ----------
(1) Of this fixed rate debt, $16.96 million can be settled by the issue of ordinary shares of the Company under the terms of the convertible loan notes (see note 14). See note 20 for post reporting date transaction involving this fixed rate debt.
The profile at 31 December 2017 for comparison purposes was as follows:
US Dollar
US Dollar equivalent of: $'000
----------------------------------- ----------
Cash at bank on which no interest
is received 16,743
Fixed rate debt (1) (15,809)
Net cash 934
----------------------------------- ----------
(1) Of this fixed rate debt, $15.14 million can be settled by the issue of ordinary shares of the Company under the terms of the convertible loan notes (see note 14).
At 31 December 2018, the Group held cash of $12 thousand (2017: $15 thousand) in demand deposits and money market investments denominated in Colombian Pesos within its assets classified as held for sale which were subject to floating rates which averaged 0.1 per cent during the year (2017: averaged 0.1 per cent return on investment). Changes in the interest rates would not have a significant impact on the Group's finance income for the interest income generated.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its contractual obligations.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade and other receivables. Due to the current low number of trade and other receivables, the Group assessed the expected credit losses on an individual account basis. During this process, the probability of the non-payment of the trade receivable is evaluated based on credit quality of the associate and aging of the receivable. As at 31 December 2018, all trade receivables were current and no accounts were identified as having a probability of non-payment due to the nature of the associate. As such, as at 31 December 2018, no allowance for expected credit losses related to trade and other receivables was recognised.
The Group assesses credit risk on its Note Receivable using forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. Management considers the following indicators to assess whether there has been a significant increase in credit risk on the note receivable:
-- Past due contractual payments (more than 30 days past due),
-- Changes to existing terms of the note because of changes in the credit risk of the financial instrument,
-- Deterioration of the value of the collateral, -- Changes in the behavior of the borrower, -- Significant changes to the financial position of the borrower, and
-- Expected or increased potential for breaches of covenants and/or events of default.
The credit risk as the time of initial recognition was considered low, the loan was considered fully collateralized and the credit risk for the Note Receivable was not considered to have increased significantly since the initial recognition as of the reporting date. As such, no allowance for expected credit losses related to the note receivable was recognised within opening equity or as at 31 December 2018 as part of the application of IFRS 9 (see note 13 for further discussion).
Credit risk arises from cash and cash equivalents and from exposure via deposits with banks. For cash and cash equivalents, the Group only uses recognised banks with high credit ratings. The Group's cash deposits are mainly held in two banks, which are both independently rated with a minimum grading of "A".
Foreign exchange risk
Foreign exchange risk arises because the Group has operations located in various parts of the world whose local operational currency is not the same as the presentation currency of the Group. Although its wider market penetration reduces the Group's operational risk, the Group's net assets arising from such overseas operations are exposed to currency risk resulting in gains and losses on translation into US Dollars. Only in exceptional circumstances will the Group consider hedging its net investments in overseas operations as generally it does not consider that the reduction in foreign currency exposure warrants the cash flow risk created from such hedging techniques. It is the Group's policy to ensure that individual Group entities enter into local transactions in their operational currency and that surplus funds over and above working capital requirements should be transferred to the parent company treasury. The Group considers this policy minimises any unnecessary foreign exchange exposure.
In order to monitor the continuing effectiveness of this policy, the Board, through their approval of capital expenditure budgets and review of management accounts, considers the effectiveness of the policy on an ongoing basis. The following table discloses the exchange rates of those currencies utilised by the Group:
Discontinued
Operations
-------------
Pound Colombian
Foreign currency units to
$1.00 US Dollar Sterling Peso
--------------------------- --------- -------------
At 31 December 2018 0.787 3,250
--------------------------- --------- -------------
At 31 December 2017 0.741 2,984
--------------------------- --------- -------------
Currency exposures
The monetary assets and liabilities of the Group that are not denominated in US Dollars and are therefore exposed to currency fluctuations are shown below. The amounts shown represent the US Dollar equivalent of local currency balances.
Pound
Sterling
US Dollar equivalent
of exposed net monetary
liabilities from operations $'000
------------------------------ ----------
At 31 December 2018 (122)
------------------------------ ----------
At 31 December 2017 (139)
------------------------------ ----------
Colombian
Peso
US Dollar equivalent
of exposed net monetary
liabilities held for
sale $'000
------------------------------ ----------
At 31 December 2018 (3,572)
------------------------------ ----------
At 31 December 2017 (3,696)
------------------------------ ----------
Foreign currency sensitivity analysis
As at 31 December 2018, the Group holds net monetary liabilities in foreign currencies, mainly in the form of trade payable and accrued liabilities payable in Pound Sterling. Further, the Group's liabilities classified as held for sale is comprised of decommissioning and environmental provisions denominated in the Colombian Peso. As such, the Group is exposed to fluctuations in exchange rates.
A sensitivity analysis based on a 10 per cent volatility assumption is used to estimate the potential impact of variations in foreign exchange rates from the US Dollar against the relevant foreign currencies. A positive number below indicates a decrease in the net loss from operations where the US Dollar strengthens against the relevant currency. For a 10 per cent weakening of the US Dollar against the relevant currency, there would be a comparable impact increasing the loss from operations, and the balances below would be negative.
Pound
Sterling
Currency Impact on Loss
from Operations $'000
------------------------- ---------
At 31 December 2018 12
------------------------- ---------
At 31 December 2017 14
------------------------- ---------
Colombian
Peso
Currency Impact on Loss $'000
from Discontinued Operations
------------------------------- ----------
At 31 December 2018 357
------------------------------- ----------
At 31 December 2017 370
------------------------------- ----------
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the investment activities. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. As at 31 December 2018, the Group has no near-term debt and its interest payment obligations are not due until the maturity of its long-term debt. In addition, the Group does not have any mandatory drilling obligations related to its Oil and Gas segment or long-term commitments related to its Offshore segment. The Group will seek to reduce future liquidity risk through strong cost controls, divestitures of non-strategic assets, and monthly updates of its forecast results and cash flows, in order to provide the Group with solid tools to monitor define and approve all cash uses with the purpose of ensuring the funds required to develop the expected operational activities.
The Group maintains an integrated business performance and cash flow forecasting model, incorporating the most recent Consolidated Statement of Financial Position information (updated monthly) with the business plan and current year budget and management expectations. The Group's performance against budget and associated cash flow forecast is evaluated on a monthly basis. The Group's management reviews rolling 12-month cash flow projections on periodic basis as well as information regarding cash balances and Group performance against budget. At the reporting date, these projections indicate that the Group expected to have sufficient liquidity to meet its obligations under all reasonably expected circumstances.
The following tables illustrate the contractual maturity analysis of the Group's financial liabilities:
2018 2017
Analysis of current financial liabilities
include: $'000 $'000
------------------------------------------- ------ ------
Up to 3 months (1) 963 402
3 to 6 months - 131
Over 6 months (2) 20 -
Total current financial liabilities 983 533
------------------------------------------- ------ ------
(1) Includes $583 thousand in trade payable and accrued liabilities included within liabilities held for sale in the current year (note 3).
(2) Includes $20 thousand in trade payable and accrued liabilities included within liabilities held for sale in the current year (note 3).
2018 2017
Analysis of debt include: $'000 $'000
---------------------------- ------- -------
Between five and ten years 8,346 -
In ten years or more 9,468 15,809
Total 17,814 15,809
---------------------------- ------- -------
Capital management policies
The Board has established guidelines and policies which are for the management of the Group's capital resources, including shareholder equity and debt, based on a long-term strategy against which the Board continually evaluates and monitors the achievement of corporate objectives and the development of the Group's portfolio in core areas. Specific capital management policies set forth include the following:
-- the reinvestment of all profits into new and existing assets that fit the corporate objectives;
-- consolidation of positions in developing regions and disposition of assets of low materiality or where meaningful operational influence cannot be achieved;
-- identification of the appropriate mix of debt, equity and partner sharing opportunities in order to balance the highest returns to shareholders overall with the most advantageous timing of investment flows;
-- the hiring and maintenance of highly qualified employees through effective manpower management processes, including compensation and benefit programmes in concert with ongoing training and motivational programmes; and
-- the retention of maximum flexibility to allocate capital resources between projects based on available funds and quality of opportunities.
On a monthly basis, management receives financial and operational performance reports that enable continuous management of assets, liabilities and liquidity. In addition, management communicates frequently with the Board of Directors to provide consistent information and data to evaluate and measure the achievement of objectives. The above policies and practices are consistent with strategies and objectives employed in prior years and are expected to remain consistent in the extension of future resource allocation objectives.
18. Share-based payments
Equity-settled - Discretionary share option incentive plan
Prior to December 2018, the Group periodically granted share options to employees and Directors, as approved by the Board under the Company's share option scheme. The vesting period and expiration date of the granted options is determined for each grant. For grants prior to 2017, vested options can be exercised up to expiration, or 24 months after the resignation or termination of the Director or employee, whichever is the earlier.
In December 2018, the Group terminated the Company's equity-settled option scheme. As a result, the remaining share-based payment expense was accelerated and the grantees with valid outstanding options received a cash payment in exchange for the cancellation of the options. As at 31 December 2018 and 2017 the following share options were outstanding in respect of the ordinary shares:
Year ended 31 December 2018
Number
Cancelled exercisable
Year Number Issued upon Number at Price
of of in Forfeited/ plan of year Start End per
grant shares year lapsed termination shares end date date share
-------- ---------- ------- ----------- ------------ -------- ------------ ------------ ------------ --------
2002 1,400,000 - - (1,400,000) - - 31.01.2002 31.01.2019 50.0p
2004 240,000 - - (240,000) - - 03.12.2004 03.12.2019 151.1p
2005 40,000 - - (40,000) - - 08.12.2005 08.12.2018 265.1p
2008 250,000 - - (250,000) - - 11.02.2008 11.02.2018 100.0p
2008 260,000 - - (260,000) - - 11.12.2008 11.12.2018 70.0p
2011 - - - - - - 06.10.2011 06.10.2021 83.0p
2012 50,000 - (50,000) - - - 13.07.2012 13.07.2022 100.0p
2013 60,000 - - (60,000) - - 01.10.2013 01.10.2023 100.0p
2014 50,000 - - (50,000) - - 01.04.2014 01.04.2024 100.0p
2017 1,110,000 - (250,000) (860,000) - - 31.03.2017 31.03.2027 50.0p
2017 25,000 - (25,000) - - - 26.10.2017 26.10.2027 50.0p
Total 3,485,000 - (325,000) (3,160,000) - -
-------- ---------- ------- ----------- ------------ -------- ------------ ------------ ------------ --------
Number
exercisable Price
Year Number Issued Forfeited/ Number at year Start per
of grant of shares in year lapsed of shares end date End date share
----------- ----------- ---------- ------------ ----------- ------------- ------------ ------------ --------
2002 2,415,196 - (1,015,196) 1,400,000 1,400,000 31.01.2002 31.01.2019 50.0p
2004 450,000 - (210,000) 240,000 240,000 03.12.2004 03.12.2019 151.1p
2005 40,000 - - 40,000 40,000 08.12.2005 08.12.2018 265.1p
2008 300,000 - (50,000) 250,000 250,000 11.02.2008 11.02.2018 100.0p
2008 500,000 - (240,000) 260,000 260,000 11.12.2008 11.12.2018 70.0p
2011 125,000 - (125,000) - - 06.10.2011 06.10.2021 83.0p
2012 50,000 - - 50,000 50,000 13.07.2012 13.07.2022 100.0p
2013 63,334 - (3,334) 60,000 60,000 01.10.2013 01.10.2023 100.0p
2014 50,000 - - 50,000 50,000 01.04.2014 01.04.2024 100.0p
2017 - 1,560,000 (450,000) 1,110,000 - 31.03.2017 31.03.2027 50.0p
2017 - 25,000 - 25,000 - 26.10.2017 26.10.2027 50.0p
Total 3,993,530 1,585,000 (2,093,530) 3,485,000 2,350,000
----------- ----------- ---------- ------------ ----------- ------------- ------------ ------------ --------
The initial fair values of awards granted under the Group's equity option plan have been calculated using the Black-Scholes option pricing model that takes into account factors specific to share incentive plans such as the vesting periods, estimated share price volatility, the expected dividend yield on the Company's shares and expected exercise of share options. The following principal assumptions were used in the valuation:
Risk-free
Share
price Fair
at investment Employee value
Grant date Exercise Option Dividend
date of grant price Volatility life yield rate turnover of options
-------- ---------- --------- ----------- ----------- --------- ----------- ---------- -----------
3 Dec
2004 151.1p 151.1p 36.73% 5 Dec 2019 0% 4.65% 3.7 years 51p
8 Dec
2005 265.1p 265.1p 33.02% 8 Dec 2018 0% 4.23% 3.3 years 76p 11 Feb 11 Feb 2008 82.4p 100.0p 53.14% 2018 0% 4.49% 4.2 years 47p 11 Dec 11 Dec 2008 67.5p 70.0p 55.63% 2018 0% 4.49% 3.8 years 32p 6 Oct 2011 87.0p 83.0p 49.57% 6 Oct 2021 0% 1.58% 5.0 years 23p 13 Jul 13 Jul 2012 76.0p 100.0p 49.57% 2022 0% 0.75% 3.0 years 19p 1 Oct 2013 98.5p 100.0p 49.57% 1 Oct 2023 0% 1.53% 3.0 years 34p 1 Apr 2014 72.5p 100.0p 49.57% 1 Apr 2024 0% 1.99% 3.0 years 18p 31 Mar 31 Mar 2017 14.0p 0.50p 55.00% 2027 0% 1.16% 7.4 years 4p 26 Oct 26 Oct 2017 9.8p 0.50p 55.00% 2027 0% 1.38% 7.4 years 2p -------- ---------- --------- ----------- ----------- --------- ----------- ---------- -----------
Expense arising from share-based payments
The expense arising from equity-settled share options made to employees was $185 thousand for the period, of which $173 thousand was related to the cancellation payment for the plan termination, of which $16 thousand is related to the accelerated vesting of the shares granted in 2017. In addition, expense arising from equity settled share options based on the initial fair values of the awards granted and expected employee turnover was $12 thousand (2017: $14 thousand).
19. Related party disclosures
HKN, Everest, and its parties in concert are major shareholders of the Company. During 2017, the Group completed the acquisition of offshore service vessel-owning companies through two separate transactions from Everest and other related parties (see note 2). As part of the transactions, the Group amended its outstanding Note Receivable with Everest (see note 13).
In addition, during the year ended 31 December 2017, the Group purchased an automobile for $35 thousand and $8 thousand in furniture and computer equipment from HKN. No payments were made for assets during 2018.
The Group entered into agreements with Oil and Advisors LTD, in which Zac Phillips, a non-executive director, performed independent consulting services. The Group paid $15 thousand and $17 thousand for contract services during the years ended 31 December 2018 and 2017, respectively.
In December 2018, the Group entered into an agreement with Mr. Faulkner, to perform advisory services effective 1 January 2019 through 30 June 2019. This agreement may be terminated by either party with 30 days' notice. The total fees to be paid over the term of this agreement, if not early terminated, amount to $60 thousand. No payments were paid or payable under this agreement as at 31 December 2018.
20. Post reporting date events
After the reporting date, the Group received voluntary conversion notices from noteholders. In January 2019, McLarty Capital Partners, converted all of their Series A Loan Notes with a nominal value of $7.64 million. As a result of the conversion, the Group made payments for the settlement of accrued interest payable of $1.1 million and issued 12,524,590 new ordinary shares at 1p each. In February 2019, Aeterna Capital Fund II, LLC, converted all their Series A Loan Notes transferred from Caleura Limited with a nominal value of $2.36 million. As a result of the conversion, the Group made payments for the settlement of accrued interest payable of $366 thousand and issued 3,868,852 new ordinary shares at 1p each.
In addition, the Group closed on sales of certain offshore equipment and inventory for proceeds of $506 thousand after the reporting date. These disposals resulted in a gain on disposal of assets of $91 thousand.
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
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