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Petro Matad Limited LSE:MATD London Ordinary Share IM00B292WR19 ORD USD0.01
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Oil & Gas Producers 0.6 -12.7 -1.9 - 16

Petro Matad Limited Final Results

15/06/2020 7:00am

UK Regulatory (RNS & others)


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Petro Matad Limited

15 June 2020

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY PETRO MATAD LIMITED TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). ON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE ("RIS"), THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

15 June 2020

Petro Matad Limited

("Petro Matad" or the "Company")

Final results for year ended 31 December 2019

Petro Matad Limited ("Petro Matad" or "the Company"), the AIM quoted Mongolian oil explorer, announces its audited final results for the year ended 31 December 2019. All dollar values are expressed in United States dollars unless otherwise stated.

Operational Highlights

-- Three wells in Block XX, Heron-1 and Gazelle-1 in the northern part of the block and Red Deer-1 in the southern area, were completed within the 2019 drilling season and within budget .

-- All three wells found oil shows, with Heron-1 declared a discovery after recording one of the highest flow rates recorded in Mongolia with 821 barrels of oil per day (bopd) produced during drill stem testing, achieved without use of artificial lift or fracking, in what the Company believes are commercial quantities.

-- Gazelle-1 found two thin oil pay zones however due to the onset of winter weather the well was suspended as a potential oil discovery without being tested and so will be fully evaluated in the future, Red Deer-1 was plugged and abandoned with no oil pay zones detected.

-- Application made for an Exploitation Licence covering the Heron and Gazelle discoveries which will allow the Company to move into development and production.

Post period end

-- The Block XX Exploitation Licence application continues to progress through the government's approval process and is now with expert auditors appointed by the Ministry of Mining and Heavy Industry.

-- Plan of Development documentation is nearing completion and will be ready for submission to the Ministry once the Reserves Report has been approved.

-- The Company applied for and has been granted moratoria on Block V and Block XX which stop the clock on the Exploration Periods of the respective PSCs. The moratorium on Block XX avoids the possibility of the exploration period expiring in July 2020 before the Exploitation Licence has been granted by the Mongolian government.

-- The impact of the Covid-19 pandemic on Petro Matad's activities has been limited as Government ministries have been open and functioning as normal throughout. The Company is liaising with the authorities and taking all precautions to ensure the safety of its staff and contractors.

Financial Highlights

-- As at 31 December 2019, the Group's cash position was $4.3 million, including Term Deposits (Financial Assets) (31 December 2018: $21.3 million)

-- The Group's current cash position is $2.3 million, which in conjunction with previously announced cost saving measures will be sufficient, in absence of new fundraising, for the Company to operate until the end of Q1 2021. Implementation of additional cost saving measures would extend this to the end of Q2 2021. Importantly, the Company has retained sufficient key staff to remain in an operational ready state.

-- The Group's net loss after tax for the twelve months ended 31 December 2019 was $16.8 million (31 December 2018: loss $18.4 million)

-- No dividends have been paid or are proposed in respect of the year ended 31 December 2019 (2018: Nil).

About Petro Matad

Petro Matad is the parent company of a group focussed on oil exploration, as well as future development and production in Mongolia. At the current time, Petro Matad holds 100% working interest and the operatorship of three Production Sharing Contracts with the Government of Mongolia. Block XX has an area of 10,367 square kilometres in the far eastern part of the country and Blocks IV and V have an area of 29,062 square kilometres and 21,143 square kilometres, respectively, in the central western part of the country.

Petro Matad Limited is incorporated in the Isle of Man under company number 1483V. Its registered office is at Victory House, Prospect Hill, Douglas, Isle of Man, IM1 1EQ.

For more information, please contact:

 
 Petro Matad Limited 
                                     +97 670 141 099 / +97 675 751 
 Mike Buck, CEO                       099 
 
 Shore Capital (Nominated Adviser and Broker) 
 Toby Gibbs 
  Jerry Keen 
  John More                          +44 (0) 20 7408 4090 
 
   FTI Consulting (Communications 
   Advisory Firm) 
 Sara Powell 
  Ben Brewerton                      +44 (0) 20 3727 1000 
 

Annual Report and Accounts

The Company's statutory annual report and accounts will be dispatched electronically to shareholders shortly and will be posted shortly to shareholders who have elected to receive hard copies of the Annual Report. Additional copies of the Annual Report may be requested directly from the Company and an electronic copy is available on the Company's website www.petromatadgroup.com .

Annual General Meeting ("AGM")

A notice of the Company's AGM will be distributed in due course and made available on the Company's website www.petromatadgroup.com .

All Reserves and Resources definitions and estimates shown in this report are based on the 2007 SPE/AAPG/WPC/SPEE Petroleum Resource Management System ("PRMS").

Technical information in this news release has been reviewed by the Company's Exploration Manager, Mr. Jerry Smart. He has 37 years of industry experience in oil and gas exploration and production with LASMO, Eni, Salamander Energy and Ophir Energy. He holds a B.Sc. in Geology from King's College, London.

Directors' Statement

Summary

The Company focused its activities on Block XX in 2019 where three wells were drilled. Heron-1 and Gazelle-1 were drilled in the northern part of the block and Red Deer-1 was drilled in the southern area of the PSC. All three wells found oil shows although Red Deer-1 was plugged and abandoned with no oil pay zones detected. Heron-1 was declared a discovery after testing and is a significant milestone for the Company. Gazelle-1 found two thin oil pay zones however due to the onset of winter weather the well was suspended as a potential oil discovery without being tested and so will be fully evaluated in the future.

The testing of the Heron-1 well exceeded expectations as the well proved to be capable of sustaining natural flow of oil to surface. This is unusual for wells in the basin. The well also recorded one of the highest flow rates recorded in Mongolia with 821 barrels of oil per day (bopd) produced during drill stem testing, which was achieved without use of artificial lift or fracking, in what the Company believes are commercial quantities. The Company is in the process of applying for an Exploitation Licence covering the Heron and Gazelle discoveries which will allow the Company to move into development and production. The Company has also proposed to the Mongolian government to relinquish its holding in Block IV in western Mongolia and to retain the proven petroliferous basins of the adjacent Block V for future work. The Company expects MRPAM will provide approval once they have completed their review.

Covid-19

In response to the Covid-19 pandemic, the Mongolian Government has taken a very proactive approach starting at a very early stage of the outbreak. The government was very quick to close schools, ban public gatherings, close cinemas, gyms, bars and all but essential retail outlets and as a result was able to prevent community spread. Closing of land borders, except for essential transport of goods was also a measure taken early on as well as the suspension of all international flights. The cases of Covid-19 in the country have been directly tied to returning Mongolian citizens and a few returning foreign nationals resident in Mongolia. Citizens and foreign nationals have been quarantined upon entering the country since early March which controlled spread within the wider community. These measures have obviously impacted the Mongolian economy and these restrictions in addition to a drop in demand for oil has seen a reduction in the country's oil production and development activity in the first half of 2020.

The impact of the pandemic on Petro Matad's activities in the same period has been limited as the Company's focus has been on working with the Mongolian authorities to secure approvals and permits. The Government ministries have been open and functioning as normal throughout. The Company is liaising with the authorities and taking all precautions to ensure the safety of its staff and contractors.

2019 Review

HSSE

As part of the Board's ongoing process of continual improvement, the Company's Health, Safety, Security and Environmental Management System (HSSE MS) has been fully structured to follow International Association of Oil and Gas Producers (IOGP) guidelines. All incidents are fully investigated, recorded and classified according to IOGP guidelines and learnings are openly shared through the management review process.

The Company is fully committed to environmental protection and ensures all practical measures are implemented to fully comply with national and international standards with reference to ISO 14001 as the benchmark.

The Company is pleased to report that Petro Matad along with its sub-contractors followed all prescribed procedures during the 2019 operations. Environmental specialists were contracted to undertake base line and environmental impact studies and to generate independent reports on the Company's compliance to environmental policies. There were no environmental incidents during the Company's field activities in 2019.

The Company had no lost time injuries (LTI) in 2019 or 2018 and remains committed to continuing its goal of zero LTI which it strives to maintain in all of its activities.

Operations

The 2019 work programme was primarily focused on preparation and execution of an exploration drilling programme of three wells in Block XX. The highlights and results of each drilling programme follow.

Heron-1

Heron-1 was drilled with DQE Rig 40105 to a total depth of 2960 metres with the top Lower Tsagaantsav reservoir, the primary target for the well, encountered at 2803 metres, 5 metres shallower than the pre-drill prognosis. The formation drilled from 2803 to 2880 metres was predominantly sandstone interbedded with shales and siltstones. Oil and gas shows were recorded over this interval and on the basis of the drilling data, the gross reservoir interval in Heron-1 is very similar to the productive reservoirs found in oil wells immediately to the north in Block XIX.

Wireline logs were acquired and supported the interpretation of a 77 metre gross interval of potential oil reservoir. Within this interval the logs also defined three zones with a total gross thickness of 22 metres exhibiting better porosity and permeability characteristics than is generally seen within the Lower Tsagaantsav at this depth in the basin.

Intervals for two separate cased hole drill stem tests were chosen. The first test was performed over a three metre zone at 2,872 metres, near the base of the sands seen in the well. This zone proved to be tight with very limited inflow recorded. Oil was present in the test string when the tools were recovered to surface indicating that the zone is indeed oil-bearing and so proving an oil column height of at least 70 metres in the well.

The second test was performed over a 12 metre interval from 2,834 metres in the upper portion of the Lower Tsagaantsav Formation. The zone flowed oil and some associated gas to surface without the need for any artificial lift. This is highly unusual for the Tamsag Basin where only a few of the hundreds of wells drilled have had the capability to produce oil to surface on natural flow. The peak production recorded during the test was 821 bopd. For the main flow period, the well was choked back on an 0.3-inch choke to optimise the collection of pressure data. Through this period, the well flowed at an average rate of 200 bopd with a well head flowing pressure of 250 psi. The oil recovered is light, with an API gravity of 46 degrees making it one of the lightest oils recorded in the basin. This may be a function of Heron-1 being one of the deeper discovery wells so far drilled and tested in the area. No formation water was produced during the test. At the conclusion of testing operations, the Heron-1 well was suspended as a potential future oil producer and significant discovery for the Company.

Red Deer-1

In the southern part of Block XX, Red Deer-1 was drilled with Daton Petroleum Engineering and Oilfield Service's Rig DXZ1 to a total depth of 2,000 metres. Good oil shows were encountered in the well although associated drilling gas values remained low throughout. Petrophysical analysis of the wireline log data confirmed the absence of any zones of interest and the well was plugged and abandoned. However, the presence of good oil shows highlights the potential of this previously undrilled basin.

Gazelle-1

Gazelle-1 was drilled with the DQE Rig 40105 5km west of Heron-1 to a total depth of 2,550 metres and wireline logs were then acquired. 3 metres of net oil pay in good quality sandstone were identified on the logs. Casing was run to bottom and the well was suspended pending further evaluation. The onset of cold weather prevented immediate testing operations from being undertaken.

Production Sharing Contracts (PSC)

The industry regulator, Mineral Resources and Petroleum Authority of Mongolia (MRPAM) was formally advised that the Company wished to relinquish Block IV as insufficient time remained in the exploration period to define and mature prospects to drillable status. The relinquishment process is protracted but is progressing. The Company also proposed to focus its efforts in Block V on the proven petroliferous Tugrug and Taats Basins and so proposed a partial relinquishment, the process for which is progressing. The retained area of Block V contains among other identified prospects, the high graded Raptor trend comprising a series of high impact, low cost targets for future drilling.

With the Company's focus on securing the Exploitation Licence for the discoveries made in Block XX and recognising that the exploration period on Block XX will expire in July 2020 and on Block V in July 2021, the Company applied for moratoria on the two PSCs to effectively stop the clock until permits are in hand. MRPAM has approved the moratoria on both Blocks and the details are currently being formalised. Importantly, the moratorium on Block XX avoids the possibility of the exploration period expiring in 2020 before the Exploitation Licence has been granted by the Mongolian government.

Community Relations

The Company takes its responsibilities in community engagement and community relations very seriously. In advance of any work programme activity being undertaken, the Company obtains the necessary approvals from MRPAM and all other relevant authorities. Company staff participate in joint meetings with the regulator and the local communities to present and discuss planned activities. In addition to meeting local government officials, the socialisation programmes will typically include town hall meetings where questions from local residents are answered. Company representatives will also meet with nomadic herders who may be in proximity to planned operations. Representatives from the Community Relations team are stationed at site during all operational activities.

A focused programme of community projects is undertaken in areas where operations are conducted, and this is done in cooperation with local government. The Company views the engagement with local communities as key to conducting safe and successful operations that will in turn benefit the local area. The community projects undertaken in 2019 were designed in conjunction with the local authorities to benefit the communities in the areas around the three drill sites and were successfully executed. However, Petro Matad did suffer some obstruction to normal operations when its use of land was challenged by the provincial government. The problem arose as a result of the adoption by the government of new legislation in 2017 that impacted the rights of all PSC holders to conduct operations on land within their PSC areas. The legislation required central and provincial government to take certain steps which had not been executed and this left the Company's operations open to legal challenge. Through sensible and constructive dialogue, the relevant branches of government were able to allow Petro Matad's 2019 operations to continue to completion in the year. The government has now determined the process to be followed to avoid any recurrence of the problems experienced and that legislation is now progressing through the approvals process and is expected to be in place before any further operational activity is undertaken by the Company.

2020 Operations and Outlook

Petro Matad's main activity in 2020 is focused on incorporating all the data gathered in the 2019 drilling campaign, and in particular the Heron-1 results, into a rapid reinterpretation of Block XX and engagement with the Mongolian government to secure the necessary 25 year Exploitation Licence which will allow the Heron discovery to be put in to commercial production. The Exploitation Licence application process in Mongolia is quite a complex process but it is progressing. Petro Matad has been advised by the Mongolian authorities that there is support at the highest levels of Government to grant the Exploitation Licence as the government recognises that the Company has been the country's most active oil explorer over recent years and that the success of its 2019 exploration efforts is very well timed in light of the government's commitment to the construction of the new domestic oil refinery.

Competent Persons' Report (CPR) and reservoir stimulation studies

As part of the Reserves Reporting process, the Company commissioned Leap Energy to prepare a CPR for the northern part of Block XX where the Company's discoveries are located. The CPR concluded that the Heron structure has mean, unrisked in-place oil resource potential of 194 million barrels. This is 20% higher than the Company's initial internal assessment and offers the potential for substantial commercial value given the low-cost, onshore operating environment and the favourable Mongolian fiscal regime.

Fenix Consulting Delft, a specialist in reservoir stimulation, has modelled the Heron-1 well test data to assess the production and recovery potential of the Tsagaantsav oil sands found in the well and has concluded that modern stimulation techniques and reservoir pressure support through produced water re-injection can improve oil recovery significantly from the levels achieved to date in neighbouring blocks. Further enhancement by slanted or horizontal drilling to increase reservoir contact and radial drilling to enhance wellbore drainage are additional technologies under consideration to increase well productivity. These techniques have not been widely used in Mongolia to date.

The work conducted by Fenix combined with the resource numbers from the CPR support the base case submitted to the Mongolian Government of an appraisal/development programme on the Heron discovery targeting a mean recoverable reserve of 33 million barrels using a recovery factor of only 17%. This is in line with what has been achieved to date in Mongolia and there is considerable upside potential that could be realised through the application of the improved oil recovery techniques as detailed above.

Cost Cutting

In order to ensure that the Company's current financial resources can sustain the organisation through the processing of its Block XX Exploitation Licence application and, at the same time, recognising the impact that the ongoing Covid-19 pandemic has had on global financial markets, Petro Matad's Board of Directors has implemented certain cost saving measures, including salary cuts effective 1 April 2020, averaging 50% for all Executive Directors, Non-Executive Directors and other senior managers. In addition, the Company's professional advisers have also agreed to reduce fees by up to 45%.

With these measures implemented, the overhead costs of the Company have been halved whilst maintaining its operating capability. Further cost cutting measures have been identified and can be executed if market conditions make this necessary. The measures already undertaken will enable Petro Matad to continue to operate with the cash resources it currently has on hand ($2.3 million, with no loans or debt) up to the end of Q1 2021, and if the identified further cost cutting measures are implemented, up to the end of the first half of 2021.

Conclusion

After a long period of exploration in Mongolia with some encouragement but no commercial potential defined, 2019 finally saw the Company discover potentially commercially recoverable hydrocarbons. This now gives the Company the opportunity to move from pure exploration into exploration and production activities with the chance to begin generating revenue quickly by exploiting available infrastructure adjacent to the Heron discovery. The Company's focus is now on securing all necessary permits to allow Heron to be delineated and produced in short order and to continue to lead the industry in the exploration of Mongolia targeting low cost, near field prospects with good chance of success in the East of the country as well as the high impact but still low cost opportunities that it has identified in the West.

Acknowledgements

The Directors would like to express their appreciation to the staff of Petro Matad, both technical and non-technical, who have worked with enthusiasm and diligence throughout the year and to congratulate them on their long hoped for but previously elusive success. The Board looks forward to an exciting time ahead with the full commitment of the Petro Matad team. The Board is fully committed to creating shareholder value and would like to express its gratitude to shareholders for their continued support of the Company.

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2019

 
                                                      Consolidated 
 
                                                    31 Dec     31 Dec 
                                                     2019       2018 
                                            Note    $'000      $'000 
                                                  ---------  --------- 
 
 Continuing operations 
 Revenue 
 Interest income                           4(a)         765        583 
 Other income                              4(a)           4          8 
                                                  ---------  --------- 
                                                        769        591 
 Expenditure 
 Consultancy fees                                     (130)       (97) 
 Depreciation and amortisation                        (174)      (277) 
 Employee benefits expense                 4(b)     (4,092)    (3,830) 
                                           4( c 
 Exploration and evaluation expenditure      )     (10,916)   (11,466) 
                                           4( d 
 Other expenses                              )      (2,291)    (3,359) 
 (Loss)/Profit from continuing 
  operations before income tax                     (16,834)   (18,438) 
 
 Income tax expense                          5            -          - 
                                                  ---------  --------- 
 (Loss)/Profit from continuing 
  operations after income tax                      (16,834)   (18,438) 
 
 Net (loss)/profit for the year                    (16,834)   (18,438) 
                                                  ---------  --------- 
 
 Other comprehensive income 
 Items that may be reclassified 
  subsequently to profit or loss: 
 Exchange differences on translating 
  foreign operations, net of income 
  tax of $Nil (2018: $Nil)                             (14)       (62) 
 Other comprehensive (loss)/income 
  for the year, net of income tax                      (14)       (62) 
 
 Total comprehensive (loss)/income 
  for the year                                     (16,848)   (18,500) 
                                                  =========  ========= 
 
 
 (Loss)/Profit attributable to 
  owners of the parent                             (16,834)   (18,438) 
                                                  =========  ========= 
 
 Total comprehensive (loss)/income 
  attributable to owners of the 
  parent                                           (16,848)   (18,500) 
                                                  =========  ========= 
 
 
  (Loss)/Earnings per share (cents 
   per share) 
 
 Basic (loss)/earnings per share             6        (2.5)        (3.2) 
 
   Diluted (loss)/earnings per share         6        (2.5)        (3.2) 
 
 

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

Consolidated Statement of Financial Position

As at 31 December 2019

 
                                              Consolidated 
 
                                          31 Dec      31 Dec 
                                           2019        2018 
                                   Note     $'000       $'000 
                                         ----------  ---------- 
 
 ASSETS 
 Current Assets 
 Cash and cash equivalents          7         2,815       2,111 
 Trade and other receivables        8            23           9 
 Prepayments                        9           155         202 
 Financial assets                  10         1,510      19,161 
 Inventory                         11           226         213 
                                         ----------  ---------- 
 Total Current Assets                         4,729      21,696 
 
 Non-Current Assets 
 Exploration and evaluation 
  assets                           12        15,275      15,275 
 Property, plant and equipment     13           260         340 
 Total Non-Current Assets                    15,535      15,615 
                                         ----------  ---------- 
 TOTAL ASSETS                                20,264      37,311 
                                         ----------  ---------- 
 
 LIABILITIES 
 Current Liabilities 
 Trade and other payables          14           502       1,286 
 Total Current Liabilities                      502       1,286 
 
 TOTAL LIABILITIES                              502       1,286 
                                         ----------  ---------- 
 
 NET ASSETS                                  19,762      36,025 
                                         ==========  ========== 
 
 
 EQUITY 
 Equity attributable to owners 
  of the parent 
 Issued capital                    15       143,174     143,174 
 Reserves                          16         3,062       2,660 
 Accumulated losses                       (126,474)   (109,809) 
                                         ----------  ---------- 
 TOTAL EQUITY                                19,762      36,025 
                                         ==========  ========== 
 
 

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows

For the year ended 31 December 2019

 
                                                      Consolidated 
 
                                                    31 Dec     31 Dec 
                                                     2019       2018 
                                            Note    $'000      $'000 
                                                  ---------  --------- 
 
 Cash flows from operating activities 
 Payments to suppliers and employees               (17,598)   (20,187) 
 Interest received                                      765        583 
 Net cash flows (used in)/provided 
  by operating activities                    7     (16,833)   (19,604) 
 
 Cash flows from investing activities 
 Purchase of property, plant and 
  equipment                                           (105)       (65) 
 Proceeds from the sale of financial 
  assets                                             17,651   (16,151) 
 Proceeds from the sale of property, 
  plant and equipment                                     5         17 
 Net cash flows used in investing 
  activities                                         17,551   (16,199) 
 
 Cash flows from financing activities 
 Proceeds from issue of shares                            -     35,195 
 Capital raising cost                                     -    (2,309) 
 Net cash flows from financing 
  activities                                              -     32,886 
 
 Net (decrease)/increase in cash 
  and cash equivalents                                  718    (2,917) 
 
 Cash and cash equivalents at beginning 
  of the year                                         2,111      5,090 
 Net foreign exchange differences                      (14)       (62) 
                                                  ---------  --------- 
 Cash and cash equivalents at the 
  end of the year                            7        2,815      2,111 
                                                  =========  ========= 
 
 

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

 
                                                              Consolidated 
                                                     Attributable to equity holders 
                                                              of the parent 
                                               Issued    Accumulated     Other 
                                               Capital      Losses      Reserves    Total 
                                                                        Note 16 
                                      Note     $'000        $'000        $'000      $'000 
                                             ---------  ------------  ----------  --------- 
 As at 1 January 2018                          109,769      (91,679)       2,980     21,070 
 
 Net loss for the year                               -      (18,438)           -   (18,438) 
 Other comprehensive income                          -             -        (62)       (62) 
                                             ---------  ------------  ----------  --------- 
 Total comprehensive gain/(loss) 
  for the year                                       -      (18,438)        (62)   (18,500) 
 
 Issue of share capital               15        35,195             -           -     35,195 
 Cost of capital raising              15       (2,309)             -           -    (2,309) 
 Share-based payments               15 & 16          -             -         569        569 
                                    15, 16 
 Exercise of Options                  & 17         519             -       (519)          - 
 Expiry of Options                  16 & 17          -           308       (308)          - 
 As at 31 December 2018                        143,174     (109,809)       2,660     36,025 
                                             =========  ============  ==========  ========= 
 
 Net loss for the year                               -      (16,834)           -   (16,834) 
 Other comprehensive income                          -             -        (14)       (14) 
                                             ---------  ------------  ----------  --------- 
 Total comprehensive gain/(loss) 
  for the year                                       -      (16,834)        (14)   (16,848) 
 
 Issue of share capital               15             -             -           -          - 
 Cost of capital raising              15             -             -           -          - 
 Share-based payments               15 & 16          -             -         585        585 
                                    15, 16 
 Exercise of Awards                   & 17           -             -           -          - 
 Expiry of Options                  16 & 17          -           169       (169)          - 
 As at 31 December 2019                        143,174     (126,474)       3,062     19,762 
                                             =========  ============  ==========  ========= 
 

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Notes to the Consolidated Financial Statements

For the year ended 31 December 2019

   a)   Corporate information 

The financial report of Petro Matad Limited (Company) for the year ended 31 December 2019 was authorised for issue in accordance with a resolution of the Directors dated 11 June 2020, which was approved 15 June 2020.

This financial report presents the consolidated results and financial position of Petro Matad Limited and its subsidiaries.

Petro Matad Limited (Company) incorporated in the Isle of Man on 30 August 2007 has four wholly owned subsidiaries, including Capcorp Mongolia LLC and Petro Matad LLC (both incorporated in Mongolia), as well as Central Asian Petroleum Corporation Limited (Capcorp) and Petromatad Invest Limited (both incorporated in the Cayman Islands). The Company and its subsidiaries are collectively referred to as the "Group". The Group's principal activity in the course of the financial year consisted of oil exploration in Mongolia.

Petrovis Matad Inc. is a major shareholder of the Company, holding approximately 22.06% of the shareholding at the year end of 2019.

   b)   Summary of significant accounting policies 

(a) Basis of p reparation

This financial report complies with International Financial Reporting Standards (IFRS) as adopted by the European Union.

This financial report has been prepared on a historical cost basis, except where otherwise stated. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

-- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

-- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

   --      Level 3 inputs are unobservable inputs for the asset or liability. 

For the purpose of preparing the consolidated financial statements, the Company is a for-profit entity.

(b) Statement of c ompliance

This general-purpose financial report has been prepared in accordance with the requirements of all applicable IFRS as adopted by the European Union and related Interpretations and other authoritative pronouncements .

(c) Going concern

The financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business.

The Group generated a loss of $16.83 million (2018: $18.44 million loss) and experienced net cash outflows from operating activities of $16.83 million (2018: $19.60 million outflow). In addition, as outlined in note 18(b) the Group is required to meet minimum exploration commitments in the next 12 months on its PSCs of approximately $7.43 million with no commitments thereafter. However, by virtue of a moratorium approve by MRPAM, details of which are being finalized, this commitment will not be required to be spent until 2021.

These conditions indicate a material uncertainty that may cast significant doubt over the Group's ability to continue as going concerns.

Although the Company is fully funded for its planned activities in 2020, the ability of the Group to continue as a going concern beyond 2020 is principally dependent upon one or more of the following:

-- Obtaining agreement from MRPAM that the remaining Block XX financial commitment will be applied to appraisal and development activities planned to be undertaken in the exploitation period;

   --      Raising additional equity; 
   --      Securing farm-out agreements to fund operations beyond 2020. 

Cumulative expenditures to end 2019 in Block IV exceed financial commitments by $4.40 million to the end of the PSC term (July 2021). In late 2019, the Company requested to relinquish the block in its entirety with no financial commitment remaining. MRPAM has tentatively agreed to the relinquishment which is currently being formalized.

Cumulative expenditures to end 2019 in Block V exceed financial commitments by $4.14 million to the end of the PSC term (July 2021). In late 2019, the Company requested to relinquish 13,206.41 sq kms of the block (retaining 7,936.95 sq kms). MRPAM has tentatively agreed to the relinquishment which is currently being formalized

Expenditures in Block XX were $7.43 million below cumulative expenditure requirements at the end of 2019. Subject to funding, the Company plans to spend this shortfall on appraisal work programme activities in the Heron development area in the northern part of the block.

The Directors have prepared a cash flow forecast which indicates that the Group will have sufficient cash to meet their working capital requirements for the twelve-month period from the date of signing the financial report.

The Directors are satisfied that they will achieve successful outcomes in relation to the matters set out above and therefore the going concern basis of preparation is appropriate. The financial report has therefore been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

Should the Group be unable to achieve the matters referred to above, there is a material uncertainty whether the Group will be able to continue as going concerns beyond 2020 and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business and at amounts stated in the financial report.

The financial report does not include adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.

(d) Application of new and revised Accounting Standards

Accounting Standards that are mandatorily effective for the current reporting period

The Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) that are relevant to its operations and effective for an accounting period that begins on or after 1 January 2019.

New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include:

   --     IFRS 16 Leases 

IFRS 16 Leases

The Group has adopted IFRS 16: Leases retrospectively with the cumulative effect of initially applying IFRS 16 recognised at 1 January 2019. In accordance with IFRS 16 the comparatives for the 2019 reporting period have not been restated.

Based on the assessment by the Group, it was determined that there was no impact on the Group because the Group's leases are short term and as such meet the exception under IFRS 16.

There was no material impact on adoption of the standard and no adjustment made to current or prior period amounts.

(e) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

   --      has power over the investee; 
   --      is exposed, or has rights, to variable returns from its involvement with the investee; and 
   --      has the ability to use its power to affect its returns. 

The Company reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction.

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.

   (f)   Foreign currency translation 

Functional and presentation currency

Both the functional and presentation currency of Petro Matad Limited is United States Dollars (USD). The Cayman Island subsidiaries' functional currency is USD. The Mongolian subsidiaries' functional currency is Mongolian Tugrugs (MNT) which is then translated to the presentation currency, USD.

Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

-- Exchange differences on transactions entered into to hedge certain foreign currency risks; and

-- Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal on the net investment.

Translation of s ubsidiaries ' functional currency to presentation currency

The results of the Mongolian subsidiaries are translated into USD (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at the reporting date.

Exchange differences resulting from the translation are recognised in other comprehensive income and accumulated in the foreign currency translation reserve in equity.

On consolidation, exchange differences arising from the translation of the net investment in Mongolian subsidiaries are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. If a Mongolian subsidiary was sold, the proportionate share of exchange difference would be transferred out of equity and recognised in profit and loss.

(g) Cash and cash equivalents

Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(h) Trade and other receivables

Trade receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment.

Collectability of trade receivables is reviewed on an ongoing basis. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Objective evidence of impairment includes financial difficulties of the debtor, default payments or debts more than 60 days overdue. The amount of the impairment loss is the amount by which the receivable carrying value exceeds the present value of the estimated future cash flows, discounted at the original effective interest rate.

   (i)   Plant and equipment 

Plant and equipment is stated at historical cost less accumulated depreciation and any impairment in value.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset and is currently estimated to be an average of 6.5 years.

The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

   (j)   Financial instruments 

Initial Recognition and Measurement

Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instruments. For Financial assets, this is equivalent to the date that the Company commits itself to either purchase or sell the asset (i.e. trade date accounting is adopted).

Financial instruments are initially measured at fair value plus transaction costs, except where the instruments is classified at 'Fair value through profit or loss' in which case transaction costs are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Classification and Subsequent Measurement

Financial instruments are subsequently measured at either fair value, amortised cost using the effective interest rate method or cost. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in orderly transaction between market participants at the measurement date. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted.

Amortised cost is calculated as (i) the amount at which the financial asset or financial liability is measured at initial recognition; (ii) less principal repayments; (iii) plus or minus the cumulative amortization of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and (iv) less any reduction for impairment.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliability predicted, the contractual term) of the financial instrument to the net carry amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The Group does not designate any interest in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial statements.

   (i)    Financial assets at fair value through profit and loss or through other comprehensive Income 

Financial assets are classified at 'Fair value through profit or loss' or Fair value through other comprehensive Income' when they are either held for trading for purposes of short term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss if electing to choose 'fair value through profit or loss' or other comprehensive income if electing 'Fair value through other comprehensive income'.

   (ii)   Financial Liabilities 

The Group's financial liabilities include trade and other payables, loan and borrowings, provisions for cash bonus and other liabilities which include deferred cash consideration and deferred equity consideration for acquisition of subsidiaries & associates.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, and payables, net of directly attributable transaction costs.

Fair value

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm's length transactions, reference to similar instruments and option pricing models.

Derecognition

Financial assets are derecognised where the contractual rights to receipts of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risk and benefits associated with the asset. Financial Liabilities are recognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

(k) Inventory

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

   (l)   Exploration and evaluation expenditure 

Exploration and evaluation expenditure incurred by the Group is expensed separately for each area of interest. The Group's policy is to expense all exploration and evaluation costs funded out of its own resources.

(m) Exploration and evaluation assets

Exploration and evaluation assets arising out of business combinations are capitalised as part of deferred exploration and evaluation assets. Subsequent to acquisition exploration expenditure is expensed in accordance with the Group's accounting policy.

(n) Impairment of tangible and intangible assets other than goodwill

At each reporting date, the Group assesses whether there is any indication that tangible and intangible asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount for each asset or cash generating unit to determine the extent of the impairment loss (if any). Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset's value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the assets (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of impairment loss is treated as a revaluation increase.

Impairment review for deferred exploration and evaluation assets are carried out on a project-by-project basis, where each project representing a single cash generating unit. An impairment review is undertaken when indicators of impairment arise, typically when one of the following circumstances apply:

   --              Unexpected geological occurrences that render the resource uneconomic; 
   --              Title to asset is compromised; 
   --              Variations in prices that render the project uneconomic; or 
   --              Variations in the currency of operation. 

(o) Trade and other payables

Trade and other payables are initially recognised at fair value. After initial recognition, trade and other payables are carried at amortised cost and due to their short-term nature are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

(p) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. If the effect of the time-value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

(q) Leases

The Group as lessee

At inception of a contract, the Group assesses if the contract contains or is a lease. If there is a lease present, a right-of-use asset and a corresponding lease liability are recognised by the Group where the Group is a lessee. However, all contracts that are classified as short-term leases (ie a lease with a remaining lease term of 12 months or less) and leases of low-value assets are recognised as an operating expense on a straight-line basis over the term of the lease.

Initially the lease liability is measured at the present value of the lease payments still to be paid at the commencement date. The lease payments are discounted at the interest rate implicit in the lease. If this rate cannot be readily determined, the Group uses the incremental borrowing rate.

Lease payments included in the measurement of the lease liability are as follows:

   --      fixed lease payments less any lease incentives; 

-- variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

   --      the amount expected to be payable by the lessee under residual value guarantees; 

-- the exercise price of purchase options, if the lessee is reasonably certain to exercise the options;

-- lease payments under extension options, if the lessee is reasonably certain to exercise the options; and

-- payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, any lease payments made at or before the commencement date and any initial direct costs. The subsequent measurement of the right-of-use assets is at cost less accumulated depreciation and impairment losses.

Right-of-use assets are depreciated over the lease term or useful life of the underlying asset, whichever is the shortest.

Where a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group anticipates to exercise a purchase option, the specific asset is depreciated over the useful life of the underlying asset.

The Group as lessor

Upon entering into each contract as a lessor, the Group assesses if the lease is a finance or operating lease.

A contract is classified as a finance lease when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases not within this definition are classified as operating leases.

Rental income received from operating leases is recognised on a straight-line basis over the term of the specific lease.

Initial direct costs incurred in entering into an operating lease (for example, legal cost, costs to set up equipment) are included in the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

Rental income due under finance leases are recognised as receivables at the amount of the Group's net investment in the leases.

When a contract is determined to include lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under the contract to each component.

   (r)   Contributed equity 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

(s) Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific criteria must also be met before revenue is recognised:

Interest revenue

Revenue is recognised on an accrual basis using the effective interest method.

   (t)   Share-based payment transactions 

The Group provides to certain key management personnel share-based payments, whereby they render services in exchange for rights over shares (equity-settled transactions).

The cost of these equity-settled transactions is measured by reference to the fair value at the date at which they are granted. The fair value is determined by use of the Black Scholes model.

In determining the fair value of the equity-settled transactions, vesting conditions that are not market conditions are not taken into account.

The cost of equity-settled transactions is recognised as an expense on a straight-line basis, together with a corresponding increase in equity, over the period in which they vest.

The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects:

   --       the extent to which the vesting period has expired; and 

-- the number of awards that, in the opinion of the Directors of the Group, will ultimately vest.

This opinion is formed based on the best available information at the reporting date. The impact of the revision of original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

(u) Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the year. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior years is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred tax

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) that affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the year

Current and deferred tax is recognised as an expense or income in the profit or loss, except when it relates to items credited or debited directly to equity/other comprehensive income, in which case the deferred tax is also recognised directly in equity/other comprehensive income, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill.

(v) Earnings per share

Basic earnings per share is calculated as net profit attributable to owners of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable to owners of the parent, adjusted for:

   --      Costs of servicing equity (other than dividends); 

-- The after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and

-- Other non-discretionary changes in revenues or expenses during the year that would result from the conversion of dilutive potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

(w) Significant accounting judgments, estimates and assumptions

In applying the Group's accounting policies, management continually evaluates judgments, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgments, estimates and assumptions.

Any revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both the current and future periods.

The following are the most critical estimates and judgments made by management in applying the accounting policies and have the most significant effect on the amounts recognised in the financial statements.

Share-based payments

The Group measures the cost of equity-settled transactions with Directors and employees at the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Black Scholes model. One of the inputs into the valuation model is volatility of the underlying share price which is estimated on the historical share price.

Recovery of the exploration and evaluation assets

The ultimate recoupment of the exploration and evaluation assets is dependent upon successful development and commercial exploitation or alternatively the sale of the respective areas of interest at an amount at least equal to book value. At the point that it is determined that any capitalised exploration and evaluation expenditure is not recoverable, it is written off.

Going Concern

The Group assesses the going concern of the Group on a regular basis, reviewing its cash flow requirements, commitments and status of PSC requirements and funding arrangements. Refer to Note 2 (c) for further details.

   3.   Operating segments 

Operating segments have been identified on the basis of internal reports of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance.

The chief operating decision maker has been identified as the Board of Directors. On a regular basis, the Board receives financial information on a consolidated basis similar to the financial statements presented in the financial report, to manage and allocate their resources. Based on the information provided to the Board of Directors, the Group has one operating segment and geographical segment, being Mongolia; as such no separate disclosure has been provided.

 
 
 
        31 Dec     31 Dec 
         2019       2018 
        $'000      $'000 
      ---------  --------- 
 
 
 
   4.   Revenues and expenses 
   a)   Revenue 
 
          Interest income         765   583 
          Other income: 
                 Other income       4     8 
                                  769   591 
                                 ====  ==== 
 
   b)    Employee benefits expense 

Included in employee benefits expense are the following:

 
          Wages and s alaries                           2,708   2,735 
          Bonuses                                         269       - 
           Non-Executive Directors' fees (including 
            Directors of affiliates)                      166     174 
          Consultancy fees                                364     352 
          Share-based payments                            585     569 
                                                       ------  ------ 
                                                        4,092   3,830 
                                                       ======  ====== 
 
   c)     Exploration and e valuation e xpenditure 

Exploration and e valuation e xpenditure relates to the following PSCs:

 
          Block XX            10,726      121 
          Blocks IV and V        190   11,345 
                              10,916   11,466 
                             =======  ======= 
 
   d)    Other e xpenses 

Included in other expenses are the following:

 
          Administration costs         1,161   2,217 
          PSC administration costs       745     758 
          Audit fees                      83      85 
          Travel expenses                302     299 
                                       2,291   3,359 
                                      ======  ====== 
 
 
 
 
            31 Dec     31 Dec 
             2019       2018 
    Note    $'000      $'000 
          ---------  --------- 
 
 
   5.   Income tax 

Income tax recognised in the statement of profit or loss:

 
  Tax expense/(benefit) comprises: 
  Current tax expense/(benefit)                -   - 
  Deferred tax expense/(benefit) 
   relating to the 
   origination and reversal of temporary 
   differences                                 -   - 
  Total tax expense/(benefit) reported 
   in the statement of profit or 
   loss                                        -   - 
                                            ==== 
 
 

The prima facie income tax benefit on pre-tax accounting loss from continuing operations reconciles to the income tax expense/(benefit) in the financial statements as follows:

 
  Net (loss)/profit for the year                     (16,834)   (18,438) 
 
  Income tax benefit calculated 
   at 10%                                     (i)       1,683      1,844 
 
  Effect of different tax rates 
   on entities in different jurisdictions    (ii)       (245)      (425) 
  Change in unrecognised deferred 
   tax assets                                         (1,438)    (1,419) 
                                                    ---------  --------- 
                                                            -          - 
                                                    =========  ========= 
 

(i) The tax rate used in the above reconciliation is the corporate tax rate of 10% payable by Mongolian corporate entities on taxable profits up to 3 billion MNT under Mongolian tax law.

(ii) Petromatad Invest Limited and Capcorp are exempt of Mongolian corporate tax on profits derived from the sale of oil under their PSCs once production commences and are subject to Cayman Islands income tax at a rate of 0%. As a consequence, no provision for Mongolian corporate tax or Cayman Islands current tax or deferred tax has been made in the Company's accounts in relation to them.

Petro Matad Limited is subject to Isle of Man income tax at a rate of 0%. As a consequence, no provision for Isle of Man current tax or deferred tax has been made in the Company's accounts.

   6.   (Loss)/Earnings per share 

The following reflects the loss and share data used in the total operations basic and diluted (loss)/earnings per share computations:

 
 
 
                                                                                   31 Dec 2019           31 Dec 2018 
                                                                                 cents per share       cents per share 
                                                                            ------------------------  ---------------- 
 
  Basic (loss)/earnings per share                                                              (2.5)             (3.2) 
                                                                            ========================  ================ 
 
  Diluted (loss)/earnings per share                                                            (2.5)             (3.2) 
                                                                            ========================  ================ 
 
 
                                                                                             $'000's           $'000's 
                                                                            ------------------------  ---------------- 
  The loss and weighted average number of ordinary 
  shares used in the calculation of basic and 
  diluted (loss)/earnings per share are as follows: 
 
  Net (loss)/profit attributable to owners of 
   the parent                                                                               (16,834)          (18,438) 
                                                                            ------------------------  ---------------- 
 
  Weighted average number of ordinary shares 
   for the purposes of diluted (loss)/earnings 
   per share (in thousands)                                                                  662,196           571,762 
 
  Weighted average number of ordinary shares 
   for the purposes of basic (loss)/earnings per 
   share (in thousands)                                                                      662,196           571,762 
                                                                            ------------------------  ---------------- 
 
 
 
         31 Dec                              31 Dec 
          2019                                 2018 
         $'000                                $'000 
       ---------  ------------------------------------------------------------ 
 
 
 
   7.   Cash and cash equivalents 
 
 
       Cash at bank and in hand     2,815   2,111 
                                    2,815   2,111 
                                   ======  ====== 
 

Cash at bank and in hand earns interest at fixed and floating rates based on prevailing bank rates, and the fair value of the above cash and cash equivalents is $2,815,000 (2018: $2,111,000) due to the short-term nature of the instruments.

Reconciliation from the net gain/(loss) after tax to the net cash flows from operations:

 
  Net (loss)/gain after tax                (16,834)   (18,438) 
 
  Adjustments for: 
  Depreciation and amortisation                 174        277 
  Net (profit)/loss on disposal 
   of property, plant and equipment               -         16 
  Share based payments                          585        569 
  Unrealised foreign exchange (gains)/ 
   losses                                         6         19 
 
  Changes in assets and liabilities 
  Decrease/(increase) in trade 
   and other receivables                       (14)        (3) 
  Decrease/(increase) in prepayments             47         18 
  Decrease/(increase) in inventory             (13)         41 
  Increase/(decrease) in trade 
   and other payables                         (784)    (2,103) 
 
  Net cash flows used in operating 
   activities                                16,833     19,604 
                                          =========  ========= 
 

Non-cash investing and financing activities

There were no non-cash investing or financing activities undertaken in the 2019 financial year (2018: $0.574 million).

   8.   Trade and other receivables 
 
  Current 
  Other debtors     23   9 
                    23   9 
                   === 
 

All amounts are recoverable and are not considered past due or impaired.

   9.   Prepayments 
 
  Prepayments     155   202 
                  155   202 
                 ====  ==== 
 

10. Financial assets

 
       Long Term Deposits     1,510   19,161 
                              1,510   19,161 
                             ======  ======= 
 

The Group holds term deposits with an average weighted interest rate of 4.0%. The deposits have maturity dates greater than 3 months. None of these assets had been past due or impaired at the end of the reporting period.

 
 
 
        31 Dec     31 Dec 
         2019       2018 
        $'000      $'000 
      ---------  --------- 
 
 

11. Inventory

 
       Raw materials     226   213 
                         226   213 
                        ====  ==== 
 

Inventory are mainly consumables, including casing, mud and drilling materials purchased for Block XX.

12. Exploration and evaluation assets

 
  Exploration and evaluation assets     15,275   15,275 
                                       -------  ------- 
                                        15,275   15,275 
                                       =======  ======= 
 

The exploration and evaluation asset arose following the initial acquisition in February 2007 of 50% of Petromatad Invest Limited, together with acquisition on 12 November 2007 of the remaining 50% not already held by the Group, for a consideration of 23,340,000 ordinary shares credited as fully paid up and with an estimated fair value of $0.50 per share, taking into account assets and liabilities acquired on acquisition. This relates to the exploration and evaluation of PSC Block XX.

The ultimate recoupment of exploration and evaluation expenditure is dependent upon successful development and commercial exploitation or alternatively the sale of the respective areas of interest at an amount at least equal to book value.

Management have reviewed for impairment indicators on Block XX and no impairment has been noted.

The Company was focused on exploration drilling of three wells in Block XX in 2019. Petro Matad discovered and flow tested oil to surface at the Heron-1 well at rates that the Company believes are potentially commercial. An Exploitation Licence over circa 300 sq kms has been applied for through the Mongolian Regulator, which if approved, will allow the Company to appraise, develop and produce oil from the area. An Exploitation Licence has a 25-year term and is extendable by up to 10-years (two times 5-years)

13. Property, plant and equipment

 
  Plant and equipment at cost                   917     966 
  Accumulated depreciation and impairment     (657)   (626) 
                                             ------  ------ 
                                                260     340 
                                             ======  ====== 
 

Reconciliation of carrying amounts at the beginning and end of the year:

 
 
                                                              Plant 
                                                           and equipment 
                                                               Total 
                                                              $'000 
                                                         --------------- 
 
          As at 1 January 2018 (net of accumulated 
           depreciation)                                             604 
          Additions                                                   65 
          Disposals                                                 (32) 
          Foreign exchange                                          (20) 
          Depreciation charge for the year                         (277) 
          As at 31 December 2018 (net of accumulated 
          depreciation)                                              340 
                                                         =============== 
 
          Additions                                                  105 
          Disposals                                                  (5) 
          Foreign exchange                                           (6) 
          Depreciation charge for the year                         (174) 
          As at 31 December 2019 (net of accumulated 
          depreciation)                                              260 
                                                         =============== 
 

The following useful lives are used in the calculation of depreciation:

Plant and equipment - 3 to 10 years

 
 
 
        31 Dec     31 Dec 
         2019       2018 
        $'000      $'000 
      ---------  --------- 
 
 
 

14. Trade and other payables ( c urrent)

 
       Trade payables     502   1,286 
                          502   1,286 
                         ====  ====== 
 

Trade payables are non-interest bearing and are normally settled within 60 day terms.

15. Issued capital

 
       Ordinary Shares 
       662,196,306 shares issued and fully 
        paid 
        (2018: 662,196,306)                    143,174   143,174 
                                              --------  -------- 
                                               143,174   143,174 
                                              ========  ======== 
 
 

Movements in ordinary shares on issue:

 
                                                                                Issue 
                                                                    Number       Price 
                                                                   of Shares       $      $'000 
                                                                 ------------  -------  -------- 
 
          As at 1 January 2018                                    333,258,252            109,769 
          Direct subscription shares on 9 February 2018 (note 
           (a))                                                    59,167,335   $0.090     5,340 
          Placement shares through Pareto on 9 February 2018 
           (note (b))                                              19,708,520   $0.090     1,779 
          Placement shares through Stifel on 9 February 2018 
           (note (c))                                              67,057,398   $0.090     6,052 
          Placement shares through Stockdale on 9 February 
           2018 (note (d))                                         40,654,376   $0.090     3,669 
          Exercise of Conditional Share Awards on 3 April 2018 
           (note (e))                                               2,598,911   $0.010        26 
          Exercise of Conditional Share Awards on 16 April 
           2018 (note (f))                                          2,868,065   $0.010        29 
          Direct subscription shares on 4 July 2018 (note (g))      1,846,439   $0.134       247 
          Placement shares through Pareto on 4 July 2018 (note 
           (h))                                                    13,256,520   $0.134     1,773 
          Placement shares through Stifel on 4 July 2018 (note 
           (i))                                                   104,701,135   $0.134    14,002 
          Placement shares through Stockdale on 4 July 2018 
           (note (j))                                              17,038,798   $0.134     2,278 
          Exercise of Conditional Share Awards on 1 November 
           2018 (note (k))                                             40,557   $0.010         - 
          Capital raising cost                                                           (2,309) 
          Exercise of Awards                                                                 519 
          As at 31 December 2018                                  662,196,306            143,174 
 
          No transaction during 2019                                                           - 
          As at 31 December 2019                                  662,196,306            143,174 
                                                                 ============           ======== 
 
 
 
 
 
 
   15    Issued Capital ( c ontinued) 

(a) On 9 February 2018, the Company issued 59,167,335 shares through direct subscriptions at a price of GBP0.065 per share.

(b) On 9 February 2018, the Company concluded a placement by issuing 19,708,520 shares at a price of GBP0.065 per share arranged through its broker, Pareto.

(c) On 9 February 2018, the Company concluded a placement by issuing 67,057,398 shares at a price of GBP0.065 per share arranged through its broker, Stifel.

(d) On 9 February 2018, the Company concluded a placement by issuing 40,654,376 shares at a price of GBP0.065 per share arranged through its broker, Stockdale.

(e) On 3 April 2018, 2,598,911 shares were awarded to employees upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of $0.01.

(f) On 16 April 2018, 2,868,065 shares were awarded to Directors and employee upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of $0.01.

(g) On 4 July 2018, the Company issued 1,846,439 shares through direct subscriptions at a price of GBP0.10 per share.

(h) On 4 July 2018, the Company concluded a placement by issuing 13,256,520 shares at a price of GBP0.10 per share arranged through its broker, Pareto.

(i) On 4 July 2018, the Company concluded a placement by issuing 104,701,135 shares at a price of GBP0.10 per share arranged through its broker, Stifel.

(j) On 4 July 2018, the Company concluded a placement by issuing 17,038,798 shares at a price of GBP0.10 per share arranged through its broker, Stockdale.

(k) On 1 November 2018, 40,557 shares were awarded to an employee upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of $0.01.

 
 
 
 
 

16. Reserves

A detailed breakdown of the reserves of the Group is as follows:

 
                                                           Equity       Foreign 
                                                Merger     benefits     currency 
                                                reserve    reserve     translation   Total 
                                                $'000       $'000        $'000       $'000 
                                             ----------  ----------  -------------  ------ 
 
          As at 1 January 2018                      831       3,276        (1,127)   2,980 
          Currency translation differences            -           -           (62)    (62) 
          Expiry of Options                           -       (308)              -   (308) 
          Exercise of Options                         -       (519)              -   (519) 
          Share based payments                        -         569              -     569 
                                             ----------  ----------  -------------  ------ 
          As at 31 December 2018                    831       3,018        (1,189)   2,660 
 
          Currency translation differences            -           -           (14)    (14) 
          Expiry of Options                           -       (169)              -   (169) 
          Exercise of Awards                          -           -              -       - 
          Share based payments                        -         585              -     585 
          As at 31 December 2019                    831       3,434        (1,203)   3,062 
                                             ==========  ==========  =============  ====== 
 

Nature and purpose of reserves

Merger reserve

The merger reserve arose from the Company's acquisition of Capcorp on 12 November 2007. This transaction is outside the scope of IFRS 3 'Business Combinations' and as such Directors have elected to use UK Accounting Standards FRS 6 'Acquisitions and Mergers'. The difference, if any, between the nominal value of the shares issued plus the fair value of any other consideration, and the nominal value of the shares received in exchange are recorded as a movement on other reserves in the consolidated financial statements.

Equity benefits reserve

The equity benefits reserve is used to record the value of Options and Conditional Share Awards provided to employees and Directors as part of their remuneration, pursuant to the Group's Long-Term Equity Incentive Plan (referred to as "Plan" or "Group's Plan"). Refer to Note 17 for further details of these plans.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

 
 
 
 
 

17. Share based payments

   (a)    Long Term Equity Incentive Plan ("Plan" or "Group's Plan") 

The Group provides long term incentives to employees (including Executive Directors) , Non-Executive Directors and consultants through the Group's Plan based on the achievement of certain performance criteria. The Plan provides for share awards in the form of Options and Conditional S hare A wards. The incentives are awarded at the discretion of the Board, or in the case of Executive Directors, the Remuneration Committee of the Board, who determine the level of award and appropriate vesting, service and performance conditions taking into account market practice and the need to recruit and retain the best people.

Options may be exercised, subject only to continuing service, during such period as the Board may determine. Options have a term of 10 years.

Conditional S hare A wards shall vest subject to continuing service and appropriate and challenging service and performance conditions determined by the Remuneration Committee relating to the overall performance of the Group.

Conditional S hare A wards based on performance conditions will vest on achievement of the following performance conditions:

-- 25% vest on the first discovery of oil on a commercial scale, estimated by management as being by 31 December 2020;

-- 25% vest on the first production of oil on a commercial scale, estimated by management as being by 31 December 2022; and

-- 50% vest on the Company achieving the sale of 1 million barrels of oil , estimated by management as being by 31 December 2023.

Other Conditional Share Awards have service conditions tied to employment continuity and are available for vesting in three equal annual instalments on various dates.

   (b)     Option pricing model 

The fair value of Options granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the Options were granted.

No Options have been issued during 2018 and 2019.

 
 
 
 
 
   17    Share based payments (continued) 
   (c)     Movement in Share Options 

The weighted average fair value for all Options in existence as at 31 December 2019 is 0.85 (2018: 0.82).

 
 
                                         Opening                                             Closing 
                                         balance                                              balance      Exercisable 
                                           at 1       Granted    Forfeited     Exercised       as at          as at 
                                         January       during      during       during      31 December    31 December 
                                           2018       the year    the year     the year        2018           2018 
 
                 Grant of Options on 
                  3 June 
                  2008                     380,000           -   (380,000)             -              -              - 
                 Grant of Options on 
                  8 April 
                  2009                      18,750           -           -             -         18,750         18,750 
                 Grant of Options on 
                  9 July 
                  2010                     620,400           -   (144,000)             -        476,400        476,400 
                 Grant of Options on 
                  6 April 
                  2011                      75,000           -           -             -         75,000         75,000 
                 Grant of Options on 
                  5 July 
                  2011                     150,000           -           -             -        150,000        150,000 
                 Grant of Options on 
                  22 Nov 
                  2011                     120,000           -           -             -        120,000        120,000 
                 Grant of Options on 
                  5 Dec 
                  2011                      23,600           -           -             -         23,600         23,600 
                 Grant of Options on 
                  25 Apr 
                  2012                     400,000           -   (300,000)             -        100,000        100,000 
                 Grant of Options on 
                  16 Jul 
                  2012                      24,000           -           -             -         24,000         24,000 
                 Grant of Options on 
                  4 Dec 
                  2012                       6,000           -           -             -          6,000          6,000 
                 Grant of options on 
                  9 July 
                  2013                      50,000           -           -             -         50,000         50,000 
                                         1,867,750           -   (824,000)             -      1,043,750      1,043,750 
                                      ============  ==========  ==========  ============  =============  ============= 
                 Weighted Average 
                  Exercise 
                  Price (cents per 
                  option)                    76.42           -       60.04             -          89.36          89.36 
                                      ============  ==========  ==========  ============  =============  ============= 
 
 
 
                                         Opening                                             Closing 
                                         balance                                              balance      Exercisable 
                                           at 1       Granted    Forfeited     Exercised       as at          as at 
                                         January       during      during       during      31 December    31 December 
                                           2019       the year    the year     the year        2019           2019 
 
                 Grant of Options on 
                  8 April 
                  2009                      18,750           -    (18,750)             -              -              - 
                 Grant of Options on 
                  9 July 
                  2010                     476,400           -   (225,000)             -        251,400        251,400 
                 Grant of Options on 
                  6 April 
                  2011                      75,000           -           -             -         75,000         75,000 
                 Grant of Options on 
                  5 July 
                  2011                     150,000           -           -             -        150,000        150,000 
                 Grant of Options on 
                  22 Nov 
                  2011                     120,000           -           -             -        120,000        120,000 
                 Grant of Options on 
                  5 Dec 
                  2011                      23,600           -           -             -         23,600         23,600 
                 Grant of Options on 
                  25 Apr 
                  2012                     100,000           -           -             -        100,000        100,000 
                 Grant of Options on 
                  16 Jul 
                  2012                      24,000           -           -             -         24,000         24,000 
                 Grant of Options on 
                  4 Dec 
                  2012                       6,000           -           -             -          6,000          6,000 
                 Grant of options on 
                  9 July 
                  2013                      50,000           -           -             -         50,000         50,000 
                                         1,043,750           -   (243,750)             -        800,000        800,000 
                                      ============  ==========  ==========  ============  =============  ============= 
                 Weighted Average 
                  Exercise 
                  Price (cents per 
                  option)                    89.36           -       65.86             -          96.52          96.52 
                                      ============  ==========  ==========  ============  =============  ============= 
 
   (d)     Share Options Contractual Life 

The weighted average remaining contractual life of outstanding share Options is 1.5 years (2018: 2.3 years).

 
 
 
 
   17    Share based payments (continued) 
   (e)    Conditional Share Awards pricing model 

The fair value of Conditional Share Awards granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the Awards were granted.

The following Table summarizes Conditional Share Awards granted during 2018 and 2019, along with relevant details in relation to the grant.

 
                                     (1)         (2) 
                                   13 Feb       18 Dec 
                                      18          19 
 Conditional Share Awards 
  granted                         5,507,533   14,926,000 
 Share price at grant date         $0.1006     $0.0425 
 Expected Volatility (%)             68           57 
 Risk-free interest rates 
  (%)                               0.50         0.75 
 Expected life (years)               10           10 
 Exercise Price                     $0.01       $0.01 
 Estimated fair value of 
  each Conditional Share Award 
  at the grant date                 $0.0942     $0.0364 
 

Items (1) and (2): Conditional Share Awards vested immediately.

 
 
 
 
 
   17    Share based payments (continued) 
   (f)     Movement in Conditional Share Awards 

The weighted average fair value for all Awards in existence as at 31 December 2019 is 0.15 (2018: 0.81)

 
 
                                         Opening                                         Closing 
                                         balance                                          balance        Exercisable 
                                         at 1      Granted     Exercised     Forfeited    as at              as at 
                                         January    during      during        during      31 December     31 December 
  Consolidated                           2018       the year    the year      the year    2018               2018 
                                      ----------  ----------  ------------  ----------  -------------  --------------- 
 
  Grant of Conditional Share Awards 
   on 3 Jun 2008                         515,000           -             -           -        515,000              - 
  Grant of Conditional Share Awards 
   on 8 Apr 2009                          80,000           -             -           -         80,000              - 
  Grant of Conditional Share Awards 
   on 9 Jul 2010                         647,000           -             -           -        647,000              - 
  Grant of Conditional Share Awards 
   on 6 Apr 2011                         144,000           -             -           -        144,000              - 
  Grant of Conditional Share Awards 
   on 5 Jul 2011                         180,000           -             -           -        180,000              - 
  Grant of Conditional Share Awards 
   on 22 Nov 2011                         50,000           -             -           -         50,000              - 
  Grant of Conditional Share Awards 
   on 5 Dec 2011                          39,600           -             -           -         39,600              - 
  Grant of Conditional Share Awards 
   on 25 Apr 2012                        550,000           -             -           -        550,000              - 
  Grant of Conditional Share Awards 
   on 5 Oct 2012                         150,000           -             -           -        150,000              - 
  Grant of Conditional Share Awards 
   on 4 Dec 2012                           3,000           -             -           -          3,000              - 
  Grant of Conditional Share Awards 
   on 9 Jul 2013                         120,000           -             -           -        120,000              - 
  Grant of Conditional Share Awards 
   on 13 Feb 2018                              -   5,507,533   (5,507,533)                          -              - 
                                       2,478,600   5,507,533   (5,507,533)           -      2,478,600              - 
                                      ==========  ==========  ============  ==========  =============  ============= 
 
  Weighted Average Exercise Price 
   (cents per award)                        1.00        1.00          1.00        1.00           1.00              - 
                                      ==========  ==========  ============  ==========  =============  ============= 
 
 
 
                                         Opening                                        Closing 
                                         balance                                         balance        Exercisable 
                                         at 1      Granted      Exercised   Forfeited    as at            as at 31 
                                         January    during       during      during      31 December      December 
  Consolidated                           2019       the year     the year    the year    2019               2019 
                                      ----------  -----------  ----------  ----------  -------------  -------------- 
 
  Grant of Conditional Share Awards 
   on 3 Jun 2008                         515,000            -           -           -        515,000             - 
  Grant of Conditional Share Awards 
   on 8 Apr 2009                          80,000            -           -           -         80,000             - 
  Grant of Conditional Share Awards 
   on 9 Jul 2010                         647,000            -           -           -        647,000             - 
  Grant of Conditional Share Awards 
   on 6 Apr 2011                         144,000            -           -           -        144,000             - 
  Grant of Conditional Share Awards 
   on 5 Jul 2011                         180,000            -           -           -        180,000             - 
  Grant of Conditional Share Awards 
   on 22 Nov 2011                         50,000            -           -           -         50,000             - 
  Grant of Conditional Share Awards 
   on 5 Dec 2011                          39,600            -           -           -         39,600             - 
  Grant of Conditional Share Awards 
   on 25 Apr 2012                        550,000            -           -           -        550,000             - 
  Grant of Conditional Share Awards 
   on 5 Oct 2012                         150,000            -           -           -        150,000             - 
  Grant of Conditional Share Awards 
   on 4 Dec 2012                           3,000            -           -           -          3,000             - 
  Grant of Conditional Share Awards 
   on 9 Jul 2013                         120,000            -           -           -        120,000             - 
  Grant of Conditional Share Awards            -            -           -           -              -             - 
   on 13 Feb 2018 
  Grant of Conditional Share Awards 
   on 18 Dec 2019                              -   14,926,000           -           -     14,926,000    14,926,000 
                                       2,478,600   14,926,000           -           -     17,404,600    14,926,000 
                                      ==========  ===========  ==========  ==========  =============  ============ 
 
  Weighted Average Exercise Price 
   (cents per award)                        1.00         1.00        1.00        1.00           1.00             - 
                                      ==========  ===========  ==========  ==========  =============  ============ 
 
   (g)    Conditional Share Awards Contractual Life 

The weighted average remaining contractual life of outstanding Conditional Share Awards is 9.8 years (2018: 9.5 years).

 
 
 
 
 
   17    Share based payments (continued) 
   (h)      Summary of Share Based Payments 

A reconciliation of all share-based payments made during the year is as follows:

 
                                                   31 Dec   31 Dec 
                                                    2019     2018 
                                            Note   $'000    $'000 
                                                  -------  ------- 
 
          Vesting of Awards and Options     17        585      569 
                                                  -------  ------- 
                                                      585      569 
                                                  =======  ======= 
 
 
 
 
 
 

18. Commitments and contingencies

   (a)     Operating lease commitments 

Operating leases relate to premises used by the Group in its operations, generally with terms between 2 and 5 years. Some of the operating leases contain options to extend for further periods and an adjustment to bring the lease payments into line with market rates prevailing at that time. The leases do not contain an option to purchase the leased property.

Due to prepayment of rent, the Group has no commitment for office and warehouse leases in Mongolia as at 31 December 2019.

 
                                                31 Dec    31 Dec 
                                                 2019      2018 
                                                $'000     $'000 
                                              ---------  ------- 
 
          Operating Leases: 
          Within one year                              -        7 
          After one year but not more than 
           five years                                 -        - 
          Greater than five years                     -        - 
                                              ---------  ------- 
                                                      -        7 
  =========                                              ======= 
 
 
   (b)     Exploration expenditure commitments 

Petromatad Invest Limited and Capcorp have minimum spending obligations, under the terms of their PSCs on Blocks IV, V and XX with MRPAM.

The amounts set out below do not include general and administrative expenses.

 
                                                31 Dec   31 Dec 
                                                 2019     2018 
                                                $'000    $'000 
                                               -------  ------- 
 
          Production Sharing Contract Fees: 
          Within one year                          273      485 
          After one year but not more than 
           five years                              112       75 
          Greater than five years                    -        - 
                                               -------  ------- 
                                                   385      560 
                                               =======  ======= 
 
 
 
          Minimum Exploration Work Obligations: 
          Within one year                           7,427    8,997 
          Greater than one year but no more 
           than five years                              -   11,600 
          Greater than five years                       -        - 
                                                   ------  ------- 
                                                    7,427   20,597 
                                                   ======  ======= 
 
   (c)     Contingencies 

On 5 August 2016, Shell through its Affiliate company announced it would be withdrawing from Blocks IV and V in West/Central Mongolia. As part of the negotiations leading to formal Mongolian Government approval of the reassignment of interest from Shell's Affiliate to Petro Matad's Affiliate, Shell agreed to a payment of $5 million to be remitted to Petro Matad's Affiliate upon such government approval being received. A condition to the payment by Shell is that the proceeds would be repaid to Shell by Petro Matad in the event a farmout is concluded in future prior to the development of either Block IV or V. There is no certainty that such farmout will be concluded in future in which case funds would not be repaid. The $5 million payment was received on 1 February 2017.

 
 
 

19. Related party disclosures

The immediate parent and ultimate controlling party of the Group is Petro Matad Limited.

The consolidated financial statements include the financial statements of Petro Matad Limited and the subsidiaries listed in the following table:

 
                                                                    Equity Interest 
 
                                                      Country of      2019      2018 
                                                   Incorporation         %         % 
                                                ----------------  --------  -------- 
 
          Central Asian Petroleum Corporation 
           Limited                                Cayman Islands       100       100 
          Capcorp Mongolia LLC                          Mongolia       100       100 
          Petromatad Invest Limited               Cayman Islands       100       100 
          Petro Matad LLC                               Mongolia       100       100 
 
 

Subsidiary Details

Central Asian Petroleum Corporation Limited was acquired on 12 November 2007. Petro Matad Limited holds 43,340,000 ordinary shares of $0.01 each.

Capcorp Mongolia LLC is 100% owned by Capcorp. Capcorp holds 1 ,0 00,000 ordinary shares of MNT150 each.

Petromatad Invest Limited was acquired on 12 November 2007. 25,000 shares of $1 each held by Capcorp was transferred to Petro Matad Limited on 25 November 2019 resulting in Petro Matad Limited holding 50,000 shares of $1 each.

Petro Matad LLC is 100% owned by Petromatad Invest Limited. Petromatad Invest Limited holds 15,000 ordinary

shares of     MNT10,000 each. 

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.

Petrovis Matad Inc. is a major shareholder of the C ompany, holding approximately 22.06% of the shareholding at year end of 2019.

 
 
 
 
 

20. Key management personnel

   (a)   Details of Directors 

The names of the Company's Directors, having authority and responsibility for planning, directing and controlling the activities of the Group, in office during 2018 and 2019, are as below:

The Directors were in office until the date of this report and for this entire period unless otherwise stated .

D irectors

   Oyungerel Janchiv                                Non-Executive Director (Retired 20 September 2018) 
   Enkhmaa Davaanyam                         Non-Executive Chairperson 
   John Rene Henriksen                           Chief Financial Officer 
    Timothy Paul Bushell                          Non-Executive Director 
    Michael James Buck                            Chief Executive Officer 

Shinezaya Batbold Non-Executive Director (Appointed 20 September 2018)

   (b)     Compensation of Directors 
 
                                                      Consolidated 
 
                                                     31 Dec      31 Dec 
                                                      2019        2018 
                                                     $'000       $'000 
                                                 -------------  ------- 
 
                 Short-term employee benefits            1,257    1,075 
                 Post-employment benefits                    -        - 
                 Share based payment expense               102      205 
                                                         1,359    1,280 
                                                 =============  ======= 
 
 
 
 
   (c)   Other key management personnel transactions 

There were no other key management personnel transactions during the year (2018: Nil).

 
 
 
 
 

21. Financial risk management objectives and policies

The Group's principal financial instruments comprise cash and short-term deposits classified as loans and receivables financial assets.

The main purpose of these financial instruments is to raise capital for the Group's operations.

The Group also has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk.

The Board is responsible for identification and control of financial risks. The Board reviews and agrees policies for managing each of these risks as summarised below.

Risk Exposures and Responses

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument or cash flow associated with the instrument will fluctuate due to changes in market interest rate. Interest rate risk arises from fluctuations in interest bearing financial assets and liabilities that the Group uses. Interest bearing assets comprise cash and cash equivalents which are considered to be short-term liquid assets. It is the Group's policy to settle trade payables within the credit terms allowed and the Group does therefore not incur interest on overdue balances.

The following table sets out the carrying amount of the financial instruments that are exposed to interest rate risk:

 
                                                       31 Dec 2019   31 Dec 2018 
                                           Weighted 
                                            Average 
                                           Int. rate      $'000         $'000 
                                                      ------------  ------------ 
          Financial Assets 
          Cash and cash equivalents         0.18%            2,815         2,111 
          *Other financial assets           4.05%            1,510        19,161 
                                                      ------------  ------------ 
                                                             4,325        21,272 
          Trade and other receivables        0%                 23             9 
                                                             4,348        21,281 
          Financial Liabilities 
          Trade and other payables           0%                502         1,286 
                                                      ------------  ------------ 
                                                               502         1,286 
          Net exposure                                       3,846        19,995 
                                                      ============  ============ 
 

*Other financial assets are comprised of cash deposits placed in the banks for terms exceeding 90 days.

Sensitivity Analysis

If the interest rate on cash balances at 31 December 2018 and 2019 weakened/strengthened by 1%, there would be no material impact on profit or loss. There would be no effect on the equity reserves other than those directly related to other comprehensive income movements.

Foreign currency risk

As a result of operations overseas, the Group's Statement of Financial Position can be affected by movements in various exchange rates.

The functional currency of Petro Matad Limited and presentational currency of the Group is deemed to be USD because the future revenue from the sale of oil will be denominated in USD and the costs of the Group are likewise predominately in USD. Some transactions are however dominated in currencies other than USD. These transactions comprise operating costs and capital expenditure in the local currencies of the countries w here the Group operates. These currencies have a close relationship to the USD and management believes that changes in the exchange rates will not have a significant effect on the Group's financial statements.

The Group does not use forward currency contracts to eliminate the currency exposures on any individual transactions.

The following significant exchange rates applied during the year:

 
                                             Average rate        Spot rate at the balance 
                                                                           date 
          USD                               2019       2018         2019          2018 
                                         ---------  ---------  -------------  ------------ 
 
          Mongolian Tugrug (MNT) 1        2,663.31   2,472.17       2,733.52      2,642.92 
 
          Australian Dollar (AUD) 1       1.438632   1.341186       1.425832      1.417654 
          Great British Pound (GBP) 1     0.783349   0.749780       0.758392      0.785200 
 

Sensitivity Analysis

A 5% strengthening/weakening of the MNT against USD at 31 December 2018 and 2019 would not have a material effect on profit and loss or on equity.

Price risk

The Group's exposure to price risk is minimal as the Group is currently not revenue producing other than from interest income .

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is exposed to credit risk on its cash and cash equivalents and other receivables as set out in Notes 7 and 8 which also represent the maximum exposure to credit risk. The G roup only deposits surplus cash with well-established financial institutions of high quality credit standing.

In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.

There are no significant concentrations of credit risk within the Group.

Maximum exposure to credit risk at reporting date:

 
 
 
                                                 31 Dec   31 Dec 
                                                  2019     2018 
                                          Note   $'000    $'000 
                                                -------  ------- 
          Financial Assets 
          Trade and other receivables      8         23        9 
                                                -------  ------- 
          Net exposure                               23        9 
                                                =======  ======= 
 

Impairment Losses:

None of the Group's receivables are past due at 31 December 2019 (2018: Nil)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group's objective is to ensure that sufficient funds are available to allow it to continue its exploration activities.

The following table details the Group's expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted maturities of the financial assets including interest that will be earned on those assets.

 
                                         Weighted 
                                          average 
                                          interest     6 months                  1-5     over 5 
                                            rate       or less    6-12 months    years    years   Total 
                                                       $'000         $'000      $'000    $'000    $'000 
                                                    -----------  ------------  -------  -------  ------- 
 
          Cash and Cash Equivalents        0.18%          2,815             -        -        -    2,815 
          Trade and Other Receivables        -               23             -        -        -       23 
          Financial Assets                 4.05%          1,510             -        -        -    1,510 
                                                    -----------  ------------  -------  -------  ------- 
          As at 31 December 2019                          4,348             -        -        -    4,348 
 
          Cash and Cash Equivalents        0.89%          2,111             -        -        -    2,111 
          Trade and Other Receivables        -                9             -        -        -        9 
          Financial Assets                 1.61%         19,161             -        -        -   19,161 
          As at 31 December 2018                         21,281             -        -        -   21,281 
                                                    ===========  ============  =======  =======  ======= 
 

The remaining contractual maturities of the Group's and parent entity's financial liabilities are:

 
                               31 Dec   31 Dec 
                                2019     2018 
                               $'000    $'000 
                              -------  ------- 
 
          6 months or less        502    1,286 
          6-12 months               -        - 
          1-5 years                 -        - 
          over 5 years              -        - 
                              -------  ------- 
                                  502    1,286 
                              =======  ======= 
 

All of the Group's amounts payable and receivable are current.

Further, the Group has exploration expenditure commitments on its PSCs as disclosed in Note 18(b).

Fair Value of Financial Assets and Liabilities

The fair value of cash and cash equivalents and non-interest bearing financial assets and financial liabilities of the Group approximate their carrying value due to their short term duration.

 
                                             Fair Value Hierarchy as at 31 December 
                                                               2019 
                                            Level                    Level 
                                              1         Level 2         3       Total 
                                         ----------  ------------  ---------  --------- 
          Financial Assets 
          Trade and other receivables             -            23          -         23 
                                          ---------  ------------  ---------  --------- 
          Total                                   -            23          -         23 
                                          =========  ============  =========  ========= 
 
          Financial Liabilities 
          Trade and other payables                -           502          -        502 
          Total                                   -           502          -        502 
                                          =========  ============  =========  ========= 
 
 
                                             Fair Value Hierarchy as at 31 December 
                                                               2018 
                                            Level                    Level 
                                              1         Level 2         3       Total 
                                         ----------  ------------  ---------  --------- 
          Financial Assets 
          Trade and other receivables             -             9          -          9 
                                          ---------  ------------  ---------  --------- 
          Total                                   -             9          -          9 
                                          =========  ============  =========  ========= 
 
          Financial Liabilities 
          Trade and other payables                -         1,286          -      1,268 
          Total                                   -         1,286          -      1,286 
                                          =========  ============  =========  ========= 
 

The fair values of the financial assets and financial liabilities included in the level 2 category above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.

22. Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The management of the Group and the Group's capital is regularly reviewed by the Board. The capital structure of the Group consists of cash and bank balances (Note 7) and equity of the Group (comprising issued capital, reserves and retained earnings as detailed in Notes 15 and 16). This is reviewed by the Board of Directors as part of their regular Board meetings.

The Group monitors its capital requirements based on the funding required for its exploration activities in Mongolia and operations of the company.

The Group is not subject to externally imposed capital requirements.

23. Events after the reporting date

On 3 January 2020, 7,954,000 shares were awarded to Directors and employee upon exercise of Awards under the Group's Plan, with an exercise price per share of $0.01.

On 12 February 2020, 3,039,000 shares were awarded to employees upon exercise of Awards under the Group's Plan, with an exercise price per share of $0.01.

On 8 April 2020, the Company applied for a one-year moratorium on Block XX while the processes for obtaining an Exploitation Licence continue. MRPAM has approved the moratorium which is currently being formalized.

On 16 April 2020, the Company applied for a one-year moratorium on Block V. MRPAM has approved the moratorium which is currently being formalized.

On 4 May 2020, the Board approved grant of 3.3 million Conditional Share Awards to departing employees as part of severance payment.

The Mongolian Government has taken a very proactive approach from the start of the coronavirus outbreak and was as a result was able to prevent community spread. All cases of Covid-19 in the country have been directly tied to returning Mongolian citizens and a few returning foreign nationals resident in Mongolia, all of whom were quarantined or hospitalised. There has been no significant impact on Petro Matad's operations and the Company's office has remained open throughout. The Government ministries are open and functioning as normal. Petro Matad's senior Mongolian managers are in country and working normally. Some international members of the team are working from their home locations. The Company is liaising with the authorities and taking all precautions to ensure the safety of its staff and contractors.

 
 
 
 

24. Auditors' remuneration

The auditor of Petro Matad Limited is Bentleys (WA) Pty Ltd.

 
                                                   31 Dec   31 Dec 
                                                    2019     2018 
                                                   $'000    $'000 
                                                  -------  ------- 
       Amounts received or due and receivable 
        by Bentleys (WA) Pty Ltd : 
 
         - an audit or review of the financial 
          report of the entity and any other 
          entity in the Group                          43       45 
         - other services in relation to 
          the entity and any other entity 
          in the Group                                  -        - 
                                                  -------  ------- 
                                                       43       45 
       Amounts received or due and receivable 
        by Deloitte Onch Audit LLC for: 
 
         - an audit or review of the financial 
          report of subsidiary entities                40       40 
         - other services in relation to 
          the subsidiary entities                       -        - 
                                                  -------  ------- 
                                                       40       40 
                                                  -------  ------- 
                                                       83       85 
                                                  =======  ======= 
 

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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