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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rose Petroleum Plc | LSE:ROSE | London | Ordinary Share | GB00BF44KY60 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.475 | 0.45 | 0.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMROSE
RNS Number : 4468R
Rose Petroleum PLC
30 June 2020
Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.
30 June 2020
Rose Petroleum plc
("Rose Petroleum", the "Company" or "Rose")
Final Results and notice of AGM
Rose (AIM: ROSE), the Rocky Mountain-focused oil and gas company, announces its audited results for the year ended 31 December 2019.
Highlights
2019 was a year of transformation for Rose. Milestones included:
-- A changing of the Board of Directors, with four of the five current Directors added during 2019, including a new Chairman and a new CEO. New Directors have significant experience in the upstream oil and gas sector, especially as related to operations, governance, acquisitions and turnarounds. Members of the new Board have purchased over 25% of Rose's share capital in order to be fully aligned with other shareholders;
-- A sharpening of focus - we are now 100% focused on responsible exploration and production ("E&P") investment in the Rocky Mountain region. The Group has closed all former subsidiaries not related to this singular focus;
-- A major restructuring of the Paradox Basin asset, which reduced project lease costs while granting direct working interest ownership and an extension of multiple lease terms;
-- The creation of a technology-led acquisition process designed to rapidly assess and acquire distressed E&P assets;
-- The announcement of a potential acquisition of the McCoy lease, a working interest in a two-mile horizontal redevelopment project operated by one of the most active industry participants in the DJ Basin;
-- The potential addition of further interests through acquisition, farm-in agreements or joint venture arrangements;
-- The redoubling of ESG efforts, including the broadening of Board level talent and corporate governance compliance;
-- The leveraging of partnerships (such as the U.S. Department of Energy, experienced operators in the DJ Basin and private equity investors); and
-- Tight financial control and cash conservation efforts.
In light of the significant changes above, the Board has proposed a name change and rebranding of the Company. Subject to shareholder approval at the Company's 2020 Annual General Meeting, the Board intends to change the name of the Company to Zephyr Energy plc.
Rick Grant, Non-Executive Chairman, said:
"2019 was a transformative year for Rose. The Company is now positioned as a clean, low-overhead, unlevered and value-focused vehicle from which to build. I believe we have the team, strategy and value set to deliver on all of our ambitious objectives, and I look forward to the future with cautious optimism."
Annual report and notice of Annual General Meeting
The Company also announces that its Annual General Meeting of shareholders ("AGM") will be held at 2 p.m. on 29 July 2020.
Currently, shareholders are strongly advised to not attend the annual general meeting given the Stay at Home Measures currently in force to limit the spread of COVID-19. Shareholders who do seek to attend the general meeting will not be admitted to the meeting. Shareholders are strongly urged to vote by proxy in advance of the deadline by completing their form of proxy in accordance with the instructions and further details are set out in the form of proxy.
The Board understands that beyond vo ti ng on the formal business of the mee ti ng, the general mee ti ng also serves as a forum for Shareholders to raise ques ti ons and comments to the Board. Therefore, if Shareholders do have any ques ti ons or comments rela ti ng to the business of the mee ti ng that they would
like to ask the Board then they are asked to submit those ques ti ons in writing via email to chris.eadie@rosepetroleum.com no later than 2 p.m. on 27 June 2020. The Board will publish a summary of any ques ti ons received which are of common interest, together with a written response on the Company's website as soon as prac ti cable a ft er the conclusion of the annual general mee ti ng. Only ques ti ons from registered Shareholders of the Company will be accepted.
A copy of the Company's annual report and accounts, which include the notice of AGM, will be available on its website, www.rosepetroleum.com , shortly and will be sent to Shareholders later today.
Broker change
The Company also announces that with effect from today, Turner Pope Investments Limited is now the Company's sole broker.
Extracts from the Annual Report are set out below.
Rose Petroleum plc Colin Harrington (CEO) Tel: +44 (0)20 7225 4599 Chris Eadie (CFO) Tel: +44 (0)20 7225 4599 Allenby Capital Limited - AIM Nominated Adviser Tel: +44 (0)20 3328 5656 Jeremy Porter / James Reeve / Liz Kirchner Turner Pope Investments Limited - Broker Andy Thacker / Zoe Alexander Tel: +44 (0)20 3657 0050
Chairman's Statement
OVERVIEW
During these very challenging times, I would first of all like to reiterate that the primary concern of the Company's Board of Directors ("Board") is the safety of all the Group's stakeholders and employees. We truly hope for good health for all.
While the period under review was dominated by a restructuring of the Group, our more recent focus, as a result of the current global turmoil, has been to protect the Group, safeguard its existing asset base and position it for attractive growth opportunities that we expect will arise from the current environment. As part of this process, we have implemented comprehensive cost reductions which will enable the Group to continue trading effectively. With the continued financial support of our brokers and major Shareholder we can now focus our efforts and attention on implementing our growth strategy.
The Group has no debt, very low fixed costs and no near-term capital commitments, and it is my firm belief that the Group is now well positioned for the future despite the tremendous economic and financial shockwaves caused by the dual impact of the coronavirus pandemic and the oil price volatility.
These factors have already inflicted considerable distress to the U.S. natural resource landscape, but I also believe this distress has created significant opportunity for the Group, as demonstrated by numerous Chapter 11 filings, increased asset sale activity and more attractive valuation entry points. Even in this challenging environment we believe that attractive, value-additive acquisitions exist. A disciplined focus on cash generation, sustainable and responsible growth, and value to Shareholders will be central to our decision-making.
GROUP RESTRUCTURING AND REVISED STRATEGY
The key objectives of the Group restructuring were to augment the Board with highly experienced individuals, to reduce the Group's operational cost base, and to define and implement a new strategy to ensure the Group is optimally positioned for success.
The restructuring resulted in the closure of subsidiaries related to legacy ventures in Cuba, Mexico, Germany and the U.S.A. We also conducted an overhaul of our existing asset in the Paradox Basin (the "Paradox", "Paradox acreage" or "Paradox project") in order to reposition the asset in such a way as to maximise value for Shareholders over the medium to longer term.
In September 2019, we unveiled the Group's new strategy, which in addition to developing the Paradox project, focuses solely on the upstream sector in the Rocky Mountain region of the U.S.A., an area with a significant number of production and development acquisition opportunities of a scale suited to our strengths and size. Our goal is to produce a tight, cost-effective path to near-term cash flow, and we are well underway with efforts to execute this strategy.
In November 2019, the Group announced that it had negotiated an option to acquire a working interest in the 317-acre McCoy lease located in the Denver-Julesburg Basin ("DJ Basin") in Weld County, Colorado, U.S.A. ("McCoy" or "McCoy acquisition"). The option has since been extended through to the end of December 2020 at no cost to the Group.
The DJ Basin is a world-class, liquids-rich resource play with over 4,000 horizontal wells drilled to date. There is significant infrastructure in place with available capacity and ready access to service providers and contractors. The Group's management team, together with that of our operating partner, has significant experience delivering production from horizontal development in close proximity to the McCoy project. The McCoy project is a low-risk development opportunity and the Board believes that it would complement and balance the Paradox project in the Group's portfolio. Although commodity prices in the spring of 2020 did not support the development of the McCoy project as originally envisaged, rapidly falling capex costs combined with a stabilised oil price will prove beneficial to the development of the project. We believe Great Western Petroleum, the operator of the project, will elect to move forward with drilling in the coming months, and the Group will likely seek to maximise its participation in the project if the economics are supportive and appropriate funding can be secured.
In addition, the Board believes the current market turmoil should deliver multiple attractive investment opportunities within our area of focus, and we are working with both industry and financial partners to identify high value targets which might be added to our portfolio.
BOARD AND MANAGEMENT CHANGES
Since the last Annual Report, we have made further changes to the structure of the Group's Board to ensure we have the team necessary to deliver our new strategy.
In September 2019, Colin Harrington became the Group's full time Chief Executive Officer at which point I moved to the position of non-executive Chairman.
In addition, the Group appointed two new independent non-executive Directors to the Board, and Matthew Idiens stepped down from the Board in August 2019.
Tom Reynolds was appointed as a Director in April 2019. Tom is a Chartered Engineer with over twenty-five years' experience in the energy sector and specialises in strategic planning, investment management and cross-border merger and acquisition transactions in the oil and gas, energy and infrastructure sectors.
Gordon Stein joined the Board in September 2019. Gordon has over 26 years of international experience in the oil and gas sector and has a significant track record of working with AIM quoted natural resources businesses. Gordon's financial experience and long-standing relationships in the sector will be invaluable over the coming months as the Group completes its transformation into a geographically-focused upstream participant. As part of the Group's intention to bolster its governance framework, Gordon has taken on the roles of Chairman of the Audit and Remuneration Committees.
I have been delighted by the dynamism and cohesiveness of the new Board and I believe we now have a Board structure that meets all our key criteria:
-- longstanding relationships and expertise in the geographical areas of focus (DJ Basin and the wider Rockies area);
-- significant experience with company turnarounds and special situations (with multiple successful exits);
-- successful track record of building and managing both small and large cap companies;
-- a Board that is aligned with our Shareholders (the Board's combined shareholding is over 25% of the Company's issued share capital);
-- access to capital and proven fundraising ability (including non-traditional funding sources); and
-- a strong background in ESG and corporate governance adherence.
COMPANY VISION AND REBRANDING
Following the comprehensive restructuring and refocusing of the Group over the period, the Board has also used this period of transition to kick off the rebranding and repositioning of the Group.
Not only has the Group changed its management team, strategy and restructured its existing asset base, it has also undergone a fundamental process of reviewing the Group's objectives and values in order to define how the Group wishes to operate in the future.
I will ensure that the Group puts its corporate and social responsibilities at the heart of everything it does, and we will be committing to benchmark ourselves against the highest Environmental, Social and Governance ("ESG") standards. As part of this effort, we are highly focused on (i) broadening partnerships within the local communities in which we work, (ii) evaluating our larger impact on the environment and (iii) more actively supporting organisations involved with land conservation and /or restoration of grasslands and wetlands in the areas in which we work. Over the coming weeks, the Group will complete the development of an operational framework which will be used to achieve this and which will be announced in due course.
As part of this rebranding, we are proposing to change the Group's name to Zephyr Energy plc ("Zephyr") and Shareholders will be asked to approve this name change at the forthcoming Annual General Meeting.
I want Zephyr to be a group of which all its stakeholders can be proud, one focused on delivering strong economic returns as well as being a responsible steward of its surrounding environment. I want Zephyr to stand for excellence not only in its operations but also in its pursuit of responsible growth.
OUTLOOK
Rose is now positioned as a clean, low-overhead, unlevered and value-focused vehicle from which to build. I believe we have the team, strategy and value set to deliver on all of our ambitious objectives, and I look forward to the future with cautious optimism.
We continue to follow the most up-to-date Government advice in respect of COVID-19. To date, thankfully, the Group's activities have continued in line with plans and the impact of the virus has been minimal on existing operations. We will continue to monitor the situation very closely.
Finally, I want to thank our Shareholders, employees and advisers for their continued support - we welcome and take seriously the opportunity to grow the value of your investment alongside ours.
RL Grant
29 June 2020
Strategic report
The Directors present their Strategic Report on the Group for the year ended 31 December 2019.
PRINCIPAL OBJECTIVES AND STRATEGIES
Rose Petroleum plc is an Oil & Gas ("O&G") exploration company. The key objective is to deliver sustainable Shareholder returns through responsible development of its existing assets and through future acquisitions.
To achieve this objective, the Group has prioritised:
-- building a Board consisting of professionals with significant experience in the O&G sector, with a particular focus on operations, development, governance, finance, merger and acquisition ("M&A") and turnaround experience;
-- a sharpening of focus - we are 100% focused on responsible Exploration and Production ("E&P") investment in the Rocky Mountain region;
-- the redoubling ESG efforts, including broadening board level talent and corporate governance compliance;
-- the building of a technology led acquisition process designed to rapidly assess and acquire distressed E&P assets, guided by a focus on geologically advantaged locations;
-- the optimisation of the existing asset base (including a major Paradox restructuring);
-- the leveraging of partnerships (such as the U.S. Department of Energy, experienced operators in the DJ Basin, and private equity investors);
-- the potential addition of further interests through acquisition, farm-in agreements or joint venture arrangements; and
-- tight financial control and cash conservation.
REVIEW OF OPERATIONS AND FUTURE DEVELOPMENTS
Background
Since I joined as Chairman just over twelve months ago, I have worked with the team to restructure the Group and transform the existing asset base, both in my capacity as a Director and also as the Group's major Shareholder. We have implemented a new strategy to diversify the Group through acquisition in order to deliver near-term value for the Group's Shareholders.
While the impacts of both coronavirus and the prevailing market price of oil are undoubtedly having a significant effect on our operating landscape, I remain confident that the recent restructuring and clear forward vision have positioned the Group for future growth and profitability.
This new strategy, as outlined in the Chairman's Statement, focuses solely on the upstream sector in the Rocky Mountain region of the U.S.A., a region in which the team has had past success and which offers a plethora of opportunities for the Group.
In light of the opportunities presented by the current market and economic conditions, and as a direct result of the considerable experience of the new Board in operating in the new area of geographical focus, the Group is moving forward with its efforts to deliver a more balanced portfolio of production, development and exploration assets.
Over the coming months, the Group will continue to be focused on two fronts:
-- the acquisition of additional near-term, low risk production and development projects in the states of Colorado, Utah and Wyoming; and
-- the creation of longer-term value from the Group's high potential appraisal project in the Paradox Basin.
Acquisition Rationale and Criteria
The Board believes that strong financial returns can be generated from the highly fragmented smaller end of the U.S.A. oil exploration and production sector, and we have restructured the Group so that it can be a stable public growth vehicle targeting this part of the market. The Board also believes that the construction of a balanced portfolio, exhibiting both free cash flow and long-term development opportunities, is core to successful growth. The Board's vision for a balanced portfolio includes:
-- production assets acquired at compelling valuations;
-- near-term, lower-risk yet highly economic development opportunities located in core acreage positions in established basins. In particular, we will target infill horizontal development drilling opportunities in basins long established through vertical production; and
-- longer-term, high-potential appraisal and exploration projects designed to add significant scale, such as the current opportunity in the Paradox.
The Board believes that the Group already has significant long-term appraisal and exploration exposure through its restructured Paradox Basin asset, and as such will concentrate Group acquisition efforts on near-term development and production opportunities. As part of this process, the Board has implemented the following high-level methodology for screening potential acquisitions based on the following factors, and all acquisitions will need to be consistent with the criteria listed below:
Hot Features
Premium
Geographic criteria: Utah, Colorado or Wyoming (the "Rocky Mountain
Region")
Portfolio criteria: Near term development ("PUD") or accretive producing
("PDP") opportunities
Expertise criteria: Prior management experience of operating such
an asset or similar assets
Cash flow criteria: Cash flow generative within 12 months of acquisition
Entry criteria: Proprietary acquisition angle (such as via land
strategy, relationship, or unique view on upside
opportunity) or uncommonly good value
Partner validation: Strategic financial or industry partner validation
Running room: Growth potential for future development on the
asset acquired or via options for additional acreage
acquisition
In addition to this screening criteria, and in an effort to build increased predictability, accuracy and efficiency into our project screening and valuation process, management has developed a series of proprietary tools for use in evaluating assets in our region of focus.
Led by the Group's technical team, and building from datasets compiled by independent analytics providers, we are creating a comprehensive geological basin model which allows the Group to quickly review and rank operators, locations and wells in order to focus on targets perceived as having the highest value. This technology-led strategy has already proven useful, both as a deal identification and rapid screening tool, and in demonstrating the value which the Group brings to potential investor and industry partnerships. It is an initiative that will add significant value to the Group as we move forward.
The Board also believes that this technology-led approach gives the Group an advantage over other local market participants, and we have already seen the benefits while appraising new opportunities. Our technological edge, combined with the network and experience of the Board, has allowed us to find and screen many potential investment opportunities in a highly efficient manner. Our combined technology and relationship approach is encompassed within the proposed investment in the McCoy project, announced in November 2019.
Proposed McCoy Acquisition
In November 2019, the Group announced that it had entered into a Letter of Intent ("LOI") with Captiva Energy Holdings II, LLC ("CEH") for the proposed acquisition of an initial 10% of CEH's 89.5% net working interest in the 317-acre McCoy lease located in the Denver-Julesburg Basin ("DJ Basin") in Weld County, Colorado, U.S.A.
In addition, the Group has an option to acquire, at its sole discretion, up to a further 80% of CEH's 89.5% working interest in the McCoy lease ("Option"). This Option will expire at the end of December 2020.
The Board believes that the proposed McCoy acquisition will provide the Group with near-term, low-risk horizontal development drilling exposure in the prolific Niobrara shale play, and on acreage contiguous to other major DJ Basin operators including Occidental Petroleum Corporation, Great Western Operating Company LLC, (a subsidiary of Great Western Petroleum), and Crestone Peak Resources. The DJ Basin is a mature oil basin currently undergoing a resurgence as vertical production is replaced with successful one and two-mile horizontal well developments. The McCoy lease is located in an active part of the DJ Basin and a horizontal redevelopment of the existing productive lease is proposed, with a forecast commencement date in the first half of 2021, for an initial 12 well drilling programme with two-mile long laterals.
The McCoy acquisition has multiple commercial benefits for the Group:
-- a low risk development opportunity alongside Great Western Petroleum, one of the most active developers in the DJ Basin, and one with a long track record of successful horizontal development in the immediate area;
-- near-term production programme proposed, with drilling anticipated in the first half of 2021; and
-- optionality to acquire up to a further 80% of CEH's working interest in the McCoy lease at the Group's sole discretion.
The acquisition will give the Group access to prime acreage within the prolific DJ Basin Niobrara shale play with optionality to significantly increase its working interest position. It also marks the beginning of a partner relationship with CEH and its operating affiliate Captiva Energy Partners ("CEP"). This partnership will provide further deal flow, access to proven competence and a wealth of experience in the Rocky Mountain region. The deal fits well with the stated strategy of the Group, targeting low-risk, low-entry cost acquisitions which can deliver near-term production to balance the Group's asset portfolio currently comprised of the longer-term Paradox Basin appraisal asset.
CEP is managed by Paul Onsager and Bill Hayworth, two professional engineers, each with more than 30 years' domestic U.S.A. and international oil and gas industry experience, with the last five years focused almost exclusively on the DJ Basin. Since founding CEP in 2016, the team executed a successful horizontal development on farm-out acreage from Anadarko, sold a horizontal development to Great Western Petroleum and purchased CEH's interest in the McCoy lease from Vanguard Natural Resources. Prior to CEP, Paul and Bill led a DJ Basin horizontal development programme for a Colorado-based private equity backed oil and gas firm. Paul was VP Operations for the Rockies Asset team at Pioneer Natural Resources, former VP for Reservoir Engineering at Norwest Corp and former Reservoir Engineering team leader at the U.S. Bureau of Land Management. Bill is the former President of PRB / Black Raven Energy and the former VP of Operations at Intoil (both Rocky Mountain-focused oil companies), and he has held senior engineering and operations roles at Unit Corporation, Patrick Petroleum and Phillips Petroleum. Both Bill and Paul are registered Professional Engineers in the State of Colorado.
Due to the economic crises related to coronavirus and the associated downturn in the oil price since the Group signed the McCoy deal, the McCoy project was not drilled in the first half of 2020 as originally planned. However, the Board has been able to extend the Group's Option to proceed with the acquisition until the end of December 2020. This is expected to give time for a recovery in the oil price and in market sentiment. In addition, capital costs to drill two-mile wells in the DJ Basin have been reduced by over 30% over the last three months, significantly lowering break even prices on horizontal developments. The Group believes that in the current market with lowered capital costs, the breakeven oil price at McCoy will be below US$30 per barrel of oil equivalent ("BOE").
Subsequent Milestones
In February, the Group announced that several key milestones in the acquisition process had been reached.
Firstly, CEH executed a lease amendment with Weld County Land Investors, Inc. ("WCLI"), the lessor of the McCoy lease, which allows for the pooling of the underlying Niobrara and Codell reservoirs in relation to a potential two-mile horizontal well development across the McCoy lease.
Secondly, on a related front, CEH elected to support Great Western Petroleum's 1,280-acre Drilling Spacing Unit ("DSU") permit application (covering Sections 33 and 34, Township 4 North, Range 68 West, 6(th) P.M.) for a two-mile horizontal development which will include the McCoy lease. Great Western Petroleum has submitted permit applications for 26 two-mile horizontal wells to be drilled from the Margil pad in Section 34 and, if drilled, these wells will extend through the McCoy lease.
The Group now anticipates the drilling of 12 of the two-mile long horizontal wells (the "Initial Drilling Programme") taking place in the first half of 2021, subject to approval of Great Western Petroleum's permit applications, funding and general economic conditions.
Under this development plan, CEH and Great Western Petroleum will each hold a working interest in the proposed DSU in proportion to its respective net acreage position. Great Western Petroleum will be the operator of the DSU and will own a majority of the working interest.
CEH'S McCoy lease will hold an approximate 22.2% working interest in the DSU, and as such, the Group's proposed initial acquisition of 10% of CEH's working interest in the McCoy lease will result in it holding an approximate 2.22% working interest in the DSU, rising to a maximum approximate 20% working interest should the Group's option to acquire up to a further 80% of CEH's working interest in the DSU be exercised in full.
The Board considers the completion of the lease amendment and confirmation of CEH's participation in the DSU to be highly positive steps towards completion of the Group's acquisition. The Group's proposed participation in the McCoy lease project is an important part of the Group's strategy of building a balanced asset portfolio in the U.S.A. Rocky Mountain region .
CEH's work to make the McCoy lease applicable for inclusion into a two-mile development by Great Western Petroleum will enable McCoy working interest owners to share in the resurgence seen across the DJ Basin as vertical production is replaced with one and two-mile horizontal well developments. In addition, Great Western Petroleum has significant horizontal drilling and operations expertise within the immediate area surrounding the DSU, and as such the Board believes their participation will help to ensure the successful development of the initial drilling programme.
Great Western Operating Company LLC is a subsidiary of Great Western Petroleum, one of the leading private operators in the DJ Basin with existing gross production of over 50,000 barrels of oil equivalent per day ("BOEPD"). The company is a top 100 operator in the United States and the sixth largest producer in the DJ Basin's Wattenberg Field, having drilled and operated more than 600 wells in the region.
The Group is also pleased that CEH agreed to extend the Group's Option exercise period to 31 December 2020 while the acquisition is completed and preparations for the initial drilling programme are finalised. Under the terms of the LOI, in addition to the initial 10% acquisition, the Group received the Option, originally valid until 28 February 2020 and extendable at the sole discretion of CEH, to acquire up to a further 80% of CEH's interest in the McCoy leasehold (excluding ownership of the existing vertical wellbores). The Option is subject to the Group demonstrating sufficient means to fund its share of the related McCoy development CAPEX budget for any additional working interest acquired.
The Group is in substantive discussions with third parties, including potential joint-venture and industry partners, with respect to securing the necessary funding to enable it to exercise the Option should it so choose.
Key Terms of the McCoy Acquisition
The consideration payable by the Group to CEH for its initial investment in the McCoy project (the "Initial Tranche") will be calculated based on CEH's pro-rata portion of all back costs (including acquisition and development costs) associated with the Initial Tranche. CEH's back costs to-date have been US$2.7 million, so the pro-rata portion net to the Group's interest is US$0.3 million (approximately GBP0.2 million) (the "Consideration"). The Consideration will be satisfied by the issue of new ordinary shares in Rose Petroleum plc to CEH, priced at 1.32 pence per share (being calculated as a 20% premium to the most recent Placing share price).
During the Option period, the Group can acquire any percentage that it chooses, in several tranches and at its sole discretion up to a further 80% of CEH's working interest in the McCoy lease. The price for these subsequent tranches in the lease will be calculated on the same basis as the Initial Tranche (linked directly to pro-rata back costs, adjusted to reflect any subsequent development costs incurred by CEH) and will also be payable in new ordinary shares in Rose Petroleum plc. The number of shares to be issued for exercising the Option will be determined by the 60-day volume weighted average price of ordinary shares on the date the Option is exercised divided into the pro-rata back costs.
In addition, the Group will also carry CEH to an equivalent 11.1% of Rose's CAPEX on the first 20 wells drilled on the McCoy lease (the "Carry"). If the Group exercises its Option so that it acquires a 50% working interest or greater in the McCoy lease, it will also be responsible for CEH's proportionate share of the plugging and abandonment costs of the five existing vertical wellbores prior to horizontal redevelopment, which it is currently estimated would cost in the region of US$250,000.
Paradox Project, Utah
Another key priority for the period under review was to complete a major restructuring of the Group's Paradox project.
Background
A full review of the Paradox project was undertaken by the new management team, including a detailed look at the historical activity carried out on the project and the farm-in process. The team also reviewed the timeframe and plan for spudding the first project well in line with the expectations of the U.S. Bureau of Land Management ("BLM"), who continue to support the development of the project as soon as commercially possible and in spite of the very challenging market conditions.
The clear conclusion from this review was that the scale and potential of the project are of sufficient magnitude to justify the Group's ongoing involvement in the project. The review also concluded that with more favourable positioning and better market conditions, investment from industry and financial partners will be achievable. Furthermore, the review illustrated the need to balance the overall scale of the project with the current market backdrop, timing obligations to the BLM and ongoing holding costs of the significantly sized acreage package.
On the basis of all of these factors, the Board elected to pursue a strategy for the project which included:
-- focusing on the most attractive acreage (as identified by the 3D seismic acquisition undertaken by the Group);
-- releasing acreage that the Group believed to be non-prospective or on too short a lease to merit further exploration work and/or expenditure; and
-- actively acquiring further contiguous acreage in areas the Board considers to have the greatest potential.
Following this review, the Group entered into discussions with its joint venture partner, Rockies Standard Oil Corporation ("RSOC") to restructure the joint venture in order that the project might be positioned and developed in line with this new strategy.
New Agreement
Following a period of renegotiation, in October 2019 the Group announced that it had negotiated a new agreement (the "Agreement") with RSOC.
The Agreement, which superseded all previous arrangements with RSOC, enabled the Group to gain an immediate 75% working interest ownership and operatorship of key acreage, replacing the earn-in structure in the original agreement with RSOC. The Agreement has resulted in a significant reduction in the Group's annual lease costs and allows further time to develop and market the project, while maintaining a highly valuable acreage position that is drill-ready.
Under the terms of the Agreement, the Group will initially focus on the high quality 12,920-acre position of which 5,240 acres have a nine-year lease term remaining (and a 12.75% royalty) and the residual 7,680 acres have a two-year lease extension subject to regulatory approval (and a 20% royalty). These leases are almost entirely covered by the 3D seismic data previously obtained and contain 21 drilling targets from the base case development, including the fully permitted GV22-1 drill location. The gross Estimated Ultimate Recovery ("EUR") from each of the wells targeting the Cane Creek reservoir zone is estimated to be 0.85 million barrels of oil equivalent ("mmboe").
Based on the 2018 Competent Person's Report ("CPR") methodology, as applied by Gaffney Cline and Associates ("GCA"), the 12,920 acres contain estimated 2C contingent recoverable resources of 8.3 mmboe net to the Group.
The resource and valuation metrics do not include the additional exploration potential contained within a further five stacked, high-graded prospective zones on the acreage. Successful efforts in these zones may create a multi-zone play which could add substantial further value through resource addition and from development cost optimisations.
In return for this restructuring, the Group maintains the obligation from the original earn-in agreement to carry RSOC for a 25% working interest on the first well drilled on the project (expected to be circa US$1.9 million). The Group has also agreed to carry RSOC for a 25% working interest for the acquisition of specific targeted leases in and around the core acreage area, in aggregate, up to a total of US$0.5 million, but it is the current view of both the Group and RSOC that the final figure will be considerably lower and any payments would be incurred over an extended period of time. If the Group does not drill its first project well within a five-year period, all leases, with the exception of the 5,240 leases with nine-year lease terms, will be assigned back to RSOC.
Further, the Group has terminated its remaining farm-in rights over less prospective acreage and has reassigned those rights back to RSOC. This re-assignment is consistent with the Group's intent to focus its efforts on the area covered by the existing 3D seismic data.
Subsequent Updates
After the Group's announcement on 14 October 2019, the Group has worked with RSOC and the appropriate regulatory bodies to finalise the restructuring of the project. As part of this process, the Group and RSOC agreed to voluntarily terminate the original Federal Unit Agreement (the Gunnison Valley Unit ("GVU")). Subsequently, with the GVU agreement terminated and pursuant to U.S.A. Federal Oil and Gas Regulation 43 CFR 3107.4, the Group announced that a subset of leases located within the project core have been extended for a further two years and added back into the Group's portfolio of leases.
The extension of these further leases, together with the new RSOC Agreement, enables the Group to refocus on a core acreage position of circa 19,900 acres which contains estimated net 2C Contingent Recoverable Resources of circa 9 mmboe associated with 22 drilling targets in the Cane Creek reservoir. The Group also recognises further exploration potential in 5 shallower reservoir targets which could add further value to the project over time.
With the project restructuring completed and the land position now clarified, the Group plans to recommence the farm-out process for the project in the near term.
DOE Partnership and Grant
A key part of maximising the value of the Paradox asset is to increase the understanding and visibility of the Paradox Basin to a broader group of market participants. As such, the Group was pleased to announce during the period that, subject to contract, grant funding to the Group from the U.S. Department of Energy (the "DOE") and the University of Utah is potentially available to the Group. The overall study relates to "Improving Production in Utah's Emerging Northern Paradox Unconventional Oil Play" and raising the profile of the northern Paradox Basin. The focus of the grant funding is to fully characterise, quantify and interpret the geological, structural, and geomechanical settings of the northern Paradox oil play in order to optimise production processes.
As part of this effort, the DOE project team is planning to drill a vertical stratigraphic well in 2020 to gather data to improve the understanding of the play. The well will target the Cane Creek and potentially the C18/19 reservoirs, acquiring both core data and a comprehensive well log suite in order to provide a highly valuable new data point in the basin. The location of the well has yet to be finalised.
The final amount of the grant funding is still to be agreed. The Company will keep Shareholders fully updated on progress.
FINANCIAL REVIEW
Income Statement
The Group reports a net loss after tax from continuing operations of US$3.0 million or a loss of 1.74 cents per share for the year ended 31 December 2019 (2018: net loss after tax from continuing operations of US$1.0 million or 0.74 cents per share). Administrative costs for the year of US$1.8 million were slightly higher than those in the prior year (2018: US$1.6 million) primarily due to the costs of the Group restructuring. The impact of the current cost reduction programme will be reflected in the annual results for the year ended 31 December 2020.
The Company has made loans to its subsidiary entities which are denominated in sterling. Foreign exchange losses on the restatement of these loans at 31 December 2019 were US$0.8 million (2018: gain of US$1.1 million). These unrealised losses have a significant impact on the total Group net loss after tax when compared to the prior year.
Balance Sheet
Total investment in the Group's intangible exploration and evaluation assets at 31 December 2019 was US$13.5 million (2018: US$13.1 million) reflecting continuing investment in the Paradox project.
Cash and cash equivalents at 31 December 2019 were US$1.1 million (2018: US$0.6 million). During the period, the Company raised gross proceeds of US$2.0 million (2018: US$1.3 million) through the placing of new ordinary shares in the Company.
During the period the Group disposed of its residual minority shareholdings in Encore Energy Corporation and Magellan Gold Corporation. These shareholdings were consideration received from the disposal of the Group's legacy mining assets.
Going Concern
The Directors have prepared cash flow forecasts for the Group for the period to 30 June 2021 based on their assessment of both the discretionary and the non-discretionary cash requirements of the Group during this period. These cash flow forecasts include its normal operating costs for operations together with all committed development expenditure.
Whilst the Board remains confident that the Group will be able to secure the required funding through equity issue or other financial instruments to support its ongoing activities, the Company does not currently have sufficient funding in place to enable it to meet is financial liabilities for the next twelve months. Whilst the Board is confident of securing necessary funding to meet its liabilities, there can also be no certainty over the timing of this funding or the extent of cash flows arising from the Group's exploration activities. There is therefore material uncertainty arising in the event that satisfactory funding cannot be raised.
However, based on the prepared cash forecasts, the Group's current cash position and the Board's ongoing discussions with its major Shareholders and brokers, the Directors are confident that the Group has, or has access to, sufficient resources to enable it to continue in operation for at least the next twelve months.
The Directors therefore continue to adopt the going concern basis in preparing the consolidated financial statements. The financial statements do not include any adjustment that would result from the basis of preparation being inappropriate.
JC Harrington
Chief Executive Officer
29 June 2020
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2019
Restated
2019 2018
Notes US$'000 US$'000
Continuing operations
Administrative expenses (1,785) (1,601)
Development expenses 6 (206) (178)
Foreign exchange (losses)/gains (819) 1,082
Operating loss (2,810) (697)
Impairment of financial assets 7 (201) -
Fair value loss on investments 8 - (284)
Finance income 9 - 3
Loss on ordinary activities before
taxation 10 (3,011) (978)
Taxation charge 13 - -
Loss for the year from continuing operations (3,011) (978)
Discontinued operations
Profit from discontinued operations,
net of tax 14 1,987 1,077
(Loss)/profit for the year attributable
to owners of the parent company (1,024) 99
(Loss)/profit per Ordinary Share
From continuing operations
Basic and diluted, cents per share 15 (1.74) (0.74)
From continuing and discontinued operations
Basic and diluted, cents per share 15 (0.59) 0.08
2019 2018
US$'000 US$'000
(Loss)/profit for the year attributable
to owners of the parent company (1,024) 99
Other comprehensive income
Items that may be subsequently reclassified
to profit or loss, net of tax
Foreign currency translation differences
on foreign operations (1,669) 2,394
Total comprehensive (loss)/ income
for the year attributable to owners
of the parent company (2,693) 2,493
CONSOLIDATED BALANCE SHEET
As at 31 December 2019
2019 2018
Notes US$'000 US$'000
Non-current assets
Intangible assets 16 13,549 13,148
Property, plant and equipment 17 77 22
13,626 13,170
Current assets
Investments 18 - 464
Trade and other receivables 19 112 426
Cash and cash equivalents 20 1,084 616
1,196 1,506
Total assets 14,822 14,676
Current liabilities
Trade and other payables 21 (442) (387)
Lease liabilities 22 (45) -
(487) (387)
Non-current liabilities
Lease liabilities 22 (8) -
Provisions 24 (57) -
(65) -
Total liabilities (552) (387)
Net assets 14,270 14,289
Equity
Share capital 25 40,688 40,504
Share premium account 27 37,975 36,472
Warrant reserve 26 568 341
Share-based payment reserve 27 3,748 3,645
Cumulative translation reserve 27 (9,972) (8,909)
Retained deficit 27 (58,737) (57,764)
Equity attributable to owners
of the parent company 14,270 14,289
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
Share Share-based Cumulative
premium Warrant payment translation Retained
Share capital account reserve reserve reserve deficit Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January
2018 40,463 35,657 - 3,687 (6,864) (58,134) 14,809
Transactions with
owners in their
capacity as owners:
Issue of equity
shares 41 1,304 - - - - 1,345
Expenses of issue
of equity shares - (148) - 67 - - (81)
Transfer to warrant
reserve - (341) 341 - - - -
Share-based payments - - - 172 - - 172
Transfer to retained
deficit in respect
of forfeited options - - - (271) - 271 -
Effect of foreign
exchange rates - - - (10) - - (10)
Total transactions
with owners in
their capacity
as owner 41 815 341 (42) - 271 1,426
Profit for the
year - - - - - 99 99
Other comprehensive
income:
Currency translation
differences - - - - 2,394 - 2,394
Total other
comprehensive
income for the
year - - - - 2,394 - 2,394
Total comprehensive
income for the
year - - - - 2,394 99 2,493
Currency translation
differences on
equity at historical
rates - - - - (3,614) - (3,614)
Recycled foreign
currency translation
differences on
discontinued
operations - - - - (825) - (825)
As at 31 December
2018 40,504 36,472 341 3,645 (8,909) (57,764) 14,289 Transactions with owners in their capacity as owners: Issue of equity shares 184 1,851 - - - - 2,035 Expenses of issue of equity shares - (121) - 46 - - (75) Transfer to warrant reserve - (227) 227 - - - - Share-based payments - - - 100 - - 100 Transfer to retained deficit in respect of lapsed warrants - - - (51) - 51 - Effect of foreign exchange rates - - - 8 - - 8 Total transactions with owners in their capacity as owner 184 1,503 227 103 - 51 2,068 Loss for the year - - - - - (1,024) (1,024) Other comprehensive income: Currency translation differences - - - - (1,669) - (1,669) Total other comprehensive income for the year - - - - (1,669) - (1,669) Total comprehensive income for the year - - - - (1,669) (1,024) (2,693) Currency translation differences on equity at historical rates - - - - 2,515 - 2,515 Recycled foreign currency translation differences on discontinued operations - - - - (1,909) - (1,909) As at 31 December 2019 40,688 37,975 568 3,748 (9,972) (58,737) 14,270
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2019
Notes 2019 Restated
US$'000 2018
US$'000
Operating activities
Loss before taxation from continuing
operations (3,011) (978)
Profit before taxation from discontinued
operations 14 1,987 1,077
(1,024) 99
Fair value (gain)/loss on investments (27) 284
Other income - (264)
Finance income - (3)
Adjustments for:
Depreciation of property, plant and equipment 35 5
Gain on disposal of property, plant and
equipment (5) (6)
Gain on disposal intangible exploration
and evaluation assets (122) -
Impairment of intangible exploration
and evaluation assets 4
Impairment of financial assets 201 -
Share-based payments 100 172
Unrealised foreign exchange gain (1,076) (2,023)
Operating outflow before movements in
working capital (1,918) (1,732)
Decrease in trade and other receivables 119 260
Increase/(decrease) in trade and other
payables 142 (204)
Cash used in operations (1,657) (1,676)
Income tax recovered - -
Net cash used in operating activities (1,657) (1,676)
Investing activities
Interest received - 3
Purchase of intangible exploration and
evaluation assets (428) (1,002)
Proceeds on disposal of property, plant
and equipment 5 6
Proceeds on disposal of intangible exploration
and evaluation assets 122 -
Proceeds on disposal of investments 502 -
Net cash inflow on disposal of discontinued
operations - 53
Loans advanced - (195)
Net cash from/(used) in investing activities 201 (1,135)
Financing activities
Proceeds from issue of shares 2,035 1,345
Expenses of issue of shares (75) (81)
Repayment of lease liabilities (38) -
Net cash from financing activities 1,922 1,264
Net increase/(decrease) in cash and cash
equivalents 466 (1,547)
Cash and cash equivalents at beginning
of year 616 2,185
Effect of foreign exchange rate changes 2 (22)
Cash and cash equivalents at end of year 1,084 616
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2019
The figures for the years ended 31 December 2019 and 2018 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The figures for the year ended 31 December 2019 have been extracted from the statutory accounts for that year on which the auditor has issued an unqualified audit report containing a material uncertainty in relation to going concern paragraph which have yet to be delivered to the Registrar of Companies. The figures for the year ended 31 December 2018 have been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies and on which the auditor has issued an unqualified audit report. No statement has been made by the auditor under Section 498(2) or (3) of the Companies Act 2006 in respect of either of these sets of accounts. This announcement was approved by the board of directors on 29 June 2020 and authorised for issue on 30 June 2020.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ('IASB') and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together 'IFRS') as endorsed by the European Union. The information in this preliminary statement has been extracted from the audited financial statements for the year ended 31 December 2019 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with the International Financial Reporting Standards ('IFRS').
1. CORPORATE INFORMATION
Rose Petroleum plc (the "Company" and, together with its subsidiaries, the "Group") is domiciled and incorporated in the United Kingdom under the Companies Act 2006 and is limited by shares. The address of the registered office is 20-22 Wenlock Road, London, N1 7GU.
The nature of the Group's operations and its principal activity is the exploration and development of O&G resources.
2. ADOPTION OF NEW AND REVISED STANDARDS
STANDARDS ADOPTED DURING THE YEAR
The Group has adopted all of the new or amended Accounting Standards and interpretations issued by the International Accounting Standards Board ("IASB") that are mandatory and relevant to the Group's activities for the current reporting period.
IFRS 16 - Leases
The Group adopted IFRS 16 Leases with effect from 1 January 2019. The Group assessed the impact that initial application of IFRS 16 will have on its consolidated financial statements, as described below.
IFRS 16 eliminates the classification of leases as either operating or finance leases and introduces a single accounting model requiring lessees to recognise assets and liabilities for all leases unless the underlying asset has a low value or the lease term is twelve months or less. Lessees are required to recognise on the balance sheet right-of-use assets which represent the right to use underlying assets during the lease term and a lease liability representing the minimum lease payments for all leases.
Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was timing difference between actual lease payments and the expense recognised.
The Group has now recognised new assets and liabilities in respect of its leases of office facilities in the UK and U.S.A. The nature of the expense related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and an interest expense on lease liabilities.
The Group has applied the modified retrospective approach. The cumulative effect of adopting IFRS 16 has not been recognised as an adjustment to the opening balance of retained earnings at 1 January 2019 on the basis that it is considered to be immaterial. In accordance with the modified retrospective approach, there has been no restatement of comparative information. The adoption of IFRS 16 has increased both non-current assets and total liabilities at 31 December 2019 by US$0.06 million (2018: US$0.04 million) but has not had a material impact on the overall result for the year in the income statement.
The Group has applied the recognition exemption for short-term leases which end within twelve months of the date of initial application, and have accounted for these as an operating expense on a straight-line basis over the term of the lease.
The Group applied the practical expedient to grandfather the definition of a lease on transition, applying IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.
A number of other new standards are also effective from 1 January 2019, but they do not have a material effect on the Group's financial statements.
-- Amendments to IAS 19 - Employee benefits
-- IFRIC 23 - Uncertainty over income tax treatments
-- Amendments to IAS 28 - Long-term interests in associates and joint ventures
-- Amendments to IFRS 9 - Prepayment features with negative compensation
-- Amendments resulting from annual improvements to IFRS Standards 2015-2017
-- Amendments to references to conceptual framework in IFRS Standards
STANDARDS ISSUED BUT NOT YET EFFECTIVE
Any new or amended Accounting Standards or interpretations that are not yet mandatory (and in some cases, had not yet been adopted by the EU) have not been early adopted by the Group for the year ended 31 December 2019. They are as follows:
-- Amendments to IFRS 3 - Definition of a business
-- Amendments to IAS 1 and IAS 8 - Definition of material
-- Amendments to IAS 1 - Classification of liabilities as current or non-current
The Directors do not expect that the adoption of these Standards or Interpretations in future periods will have a material impact on the financial statements of the Company or the Group.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs").
The financial statements have been prepared on the historical cost basis, other than certain financial assets and liabilities which are stated at their fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
The financial statements are presented in United States dollars ("US$") as the Group's business is influenced by pricing in international commodity markets which are primarily US$ based. All amounts have been rounded to the nearest thousand, unless otherwise indicated.
As described below, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements. The financial statements do not include any adjustment that would result from the basis of preparation being inappropriate.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the comparative income statement has been re-presented so that the disclosures in relation to discontinued operations relate to all operations that have been discontinued by the balance sheet date.
Judgements made by the Directors in the application of these accounting policies that have significant impact on the financial statements and estimates with a significant risk of material adjustment in the next year, are discussed in note 4.
GOING CONCERN
As an exploration group, the Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the exploration programme and raise additional working capital on an ad hoc basis to support the Group's activities. The Group has no bank facilities and has been meeting its working capital requirements from cash resources. At the year end, the Group had cash and cash equivalents amounting to US$1.1 million (2018: US$0.6 million).
The Directors have prepared cash flow forecasts for the Group for the period to June 2021 based on their assessment of both the discretionary and the non-discretionary cash requirements of the Group during this period. These cash flow forecasts include its normal operating costs for operations together with all committed development expenditure, and they indicate that the Group does not currently have sufficient cash resources to service these costs over the forecast period.
Whilst the Board remains confident that the Group will be able to secure the required funding through equity issue or other financial instruments, the timing and availability of funding sources is outside of the control of the Board. There can also be no certainty over the timing and extent of cash flows arising from the Group's exploration activities and hence any forecasts prepared by the Board will have inherent uncertainties.
Based on these forecasts, the current cash position and from their ongoing discussions with its major Shareholders and brokers, the Directors are confident that the Group has, or has access to, sufficient resources to continue in operation for at least the next twelve months. However, given that none of this funding is committed at the date of these financial statements this condition represents a material uncertainty regarding the use of the going concern basis.
Whilst noting the material uncertainty above, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements. The financial statements do not include any adjustment that would result from the basis of preparation being inappropriate.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings (together, "the Group") made up to 31 December each year.
Subsidiary undertakings are those entities controlled directly or indirectly by the Company. Control is achieved when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date on which control is transferred to the Group or, up to the date that control ceases, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used by the Group.
The Group applies the acquisition method to account for business combinations. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquire.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
Long term investments representing interests in subsidiary undertakings are stated at cost less any provision for impairment in the value of the non-current investment.
INTANGIBLE EXPLORATION AND EVALUATION ASSETS
The Group applies the full cost method of accounting for Exploration and Evaluation ("E&E") costs, having regard to the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources. Under the full cost method of accounting, costs of exploring for and evaluating mineral resources are accumulated by reference to appropriate cost centres being the appropriate licence area but are tested for impairment on a cost pool basis as described below.
E&E assets comprise costs of (i) E&E activities that are on-going at the balance sheet date, pending determination of whether or not commercial reserves exist and (ii) costs of E&E that, whilst representing part of the E&E activities associated with adding to the commercial reserves of an established cost pool, did not result in the discovery of commercial reserves.
Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as they are incurred.
Exploration and evaluation costs
All costs of E&E are initially capitalised as E&E assets. Payments to acquire the legal right to explore, costs of technical services and studies, seismic acquisition, exploratory drilling and testing are capitalised as intangible E&E assets.
Intangible costs include directly attributable overheads together with the cost of other materials consumed during the exploration and evaluation phases.
Treatment of E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each exploration licence/project are carried forward until the existence (or otherwise) of commercial reserves has been determined. If commercial reserves have been discovered, the related E&E asset are assessed for impairment on a cost pool basis as set out below and any impairment is recognised in the income statement. The carrying value, after any impairment loss, of the relevant E&E assets is then reclassified as development and production assets.
Intangible E&E assets that related to E&E activities that are determined not to have resulted in the discovery of commercial reserves remain capitalised as intangible E&E assets at cost less accumulated amortisation, subject to meeting a pool-wide impairment test in accordance with the accounting policy for impairment of E&E assets set out below. Such E&E assets are amortised on a unit-of-production basis over the life of the commercial reserves of the pool to which they relate.
IMPAIRMENT OF INTANGIBLE EXPLORATION AND EVALUATION ASSETS
E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such indicators include, but are not limited to, those situations outlined in paragraph 20 of IFRS 6 Exploration for and Evaluation of Mineral Resources and include the point at which a determination is made as to whether or not commercial reserves exist.
Where there are indications of impairment, the E&E assets concerned are tested for impairment. Where the E&E assets concerned fall within the scope of an established full cost pool, the E&E assets are tested for impairment together with all development and production assets associated with that cost pool, as a single cash generating unit.
The aggregate carrying value is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash flow expected to be derived from production of commercial reserves. Where the E&E assets to be tested fall outside the scope of any established cost pool, there will generally be no commercial reserves and the E&E assets concerned will generally be written off in full.
If the recoverable amount of a cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the 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 cash-generating unit in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
The Group considers each area of oil and gas exploration, on a geographical basis to be a separate cost pool and therefore aggregates all specific assets for the purposes of determining whether impairment of E&E assets has occurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset into use.
Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives at the following rates:
Plant and machinery over 5 years
The estimated useful lives, residual value and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
LEASES
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.
The lease liability is presented as a separate line in the Balance Sheet and is subsequently measured by reducing the carrying amount to reflect the lease payments made.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset.
The right-of-use assets are presented within property, plant and equipment in the consolidated and company Balance Sheet.
The Group applies IAS 36 Impairment of assets to determine whether a right-of-use asset is impaired.
FOREIGN CURRENCIES
For the purpose of the consolidated financial statements, the results and financial position are expressed in United States dollar, which is the presentation currency for both company and consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the functional currency of each group company ("foreign currencies") are translated into the functional currency at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated into the functional currency at the rates prevailing on the reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Foreign exchange differences are recognised in the profit or loss in the period in which they arise, except for foreign exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur and which, therefore, form part of the net investment in the foreign operation. Foreign exchange differences arising on the translation of the Group's net investment in foreign operations are recognised as a separate component of Shareholders' equity via the statement of other comprehensive income. On disposal of foreign operations and foreign entities, the cumulative translation differences are recognised in the income statement as part of the gain or loss on disposal.
For the purpose of presenting company and consolidated financial statements, the assets and liabilities of the Company, and the Group's operations which have a functional currency other than United States dollar, are translated using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Foreign exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity. Equity items are translated at the exchange rates at the date of transactions and foreign exchange differences arising, if any, are accumulated directly in equity.
On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign operation or loss of joint control over a jointly controlled entity that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss. Where there is no change in the proportionate percentage interest in an entity then there has been no disposal or partial disposal and accumulated exchange differences attributable to the Group are not reclassified to profit or loss.
Fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in equity.
RETIREMENT BENEFITS
The Group makes contributions to the personal pension schemes for some of its employees and Directors. Payments to these schemes are charged as an expense in the income statement in respect of pension costs payable in the year.
TAXATION
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interest are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted at the reporting date.
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
DISCONTINUED OPERATIONS
A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business area or operation, or is a subsidiary acquired exclusively with a view to resale.
Classification of a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held for sale.
The results of discontinued operations are presented separately on the face of the income statement and other comprehensive income. The comparative statement of profit or loss and other comprehensive income is re-presented as if the operations had been discontinued from the start of the comparative year.
INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
Recognition of financial assets and financial liabilities
Financial assets and financial liabilities are recognised on the Group's Balance Sheet when the Group becomes a party to the contractual provisions of the instrument, and are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss.
Investments and other financial assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless an accounting mismatch is being avoided.
Financial liabilities are subsequently measured at either amortised cost or fair value.
Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset only when the contractual rights to cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset and financial liability a gain or loss is recognised in profit or loss.
Financial assets at fair value through profit or loss
Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be held for trading, where they are acquired for the purpose of selling in the short term with an intention of making a profit. Gains and losses arising from changes in fair value are recognised directly in profit or loss.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on financial assets which are measured at amortised cost. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss.
Trade and other receivables
Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses.
The Group has applied the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables are grouped on the basis of days overdue.
Cash and cash equivalents
Cash and cash equivalents comprise cash-in-hand and on-demand deposits.
Trade and other payables
Trade and other payables are initially measured at their fair value, and are subsequently measured at amortised cost using the effective interest rate method.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
The costs of an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that would otherwise have been avoided.
PROVISIONS
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic resources will result and that outflow can be reliably measured.
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, considering the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flow estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Decommissioning
Provision for decommissioning is recognised in full when the related assets are installed. The decommissioning provision is calculated as the net present value of the Group's share of the expenditure expected to be incurred at the end of the life of the asset. The cost of recognising the decommissioning provision is included as part of the cost of the relevant asset and is thus charged to the income statement in accordance with the Group's policy for depreciation of property, plant and equipment or for impairment of intangible exploration and evaluation assets, depending upon the stage of the assets at the time of retirement. Periodic charges for changes in the net present value of the decommissioning provision arising from discounting are included in finance costs.
FAIR VALUE MEASUREMENT
Measurement of fair value is based on 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, and assumes that the transactions will take place either, in the principal market, or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are measured at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement.
SHARE-BASED PAYMENTS
The Group has applied the requirements of IFRS 2 Share-based Payment for all grants of equity instruments.
The Group operates an equity-settled share option plan and a share-based compensation plan in respect of certain Directors, employees and consultants. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value of the service received in exchange for the grant of options and equity is recognised as an expense. The fair value determined at the grant date of equity-settled share-based payment is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.
Fair value of option grants is measured by use of the Black Scholes model for non-performance-based options. The expected life used in the model has been adjusted, based on management's best estimate, for the effect of non-transferability, exercise restrictions and behavioural considerations.
The grant by the Company of options and share-based compensation plans over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts.
OPERATING EXPENSES
Costs incurred prior to obtaining the legal rights to explore an area together with any costs which cannot be allocated to a specific exploration project are expensed directly to the income statement and included as operating expenses.
DEVELOPMENT EXPENSES
Costs incurred by the Group in respect of the assessment and pursuit of potential new projects are expensed directly to the income statement and included as development expenses. Material expenses relating to a specific project are disclosed on a separate line in the income statement.
SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments and making strategic decisions, has been identified as the Board of Directors.
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group's accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both the current and future periods.
The following are the critical judgements and estimations that the Directors have made in the process of applying the Group's and Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements:
RECOVERABILITY OF INTANGIBLE EXPLORATION AND EVALUATION ASSETS - GROUP
Determining whether an exploration and evaluation asset is impaired requires an assessment of whether there are any indicators of impairment, including by reference to specific impairment indicators prescribed in IFRS 6 Exploration for and Evaluation of Mineral Resources. If there is any indication of potential impairment, an impairment test is required based on the recoverable amount of the asset. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.
At 31 December 2019, the Directors considered the indicators of impairment as set out in IFRS 6 and have satisfied themselves that there was no requirement to perform an impairment test.
During the year ended 31 December 2019, the Group completed a restructure of the Paradox project and entered into a new agreement with its partner RSOC. The agreement enables the Group to focus on a potentially highly economic core acreage position which contains multiple high-priority drilling targets whilst also allowing the Group to reduce the overall cost of maintaining the project. The Group is now focusing on this core acreage whilst also recognising further exploration potential in five shallower reservoir targets which could add even further value to the project over time. The Board believes that the restructured project is a highly attractive investment opportunity and ensures that the project will remain a central part of the Group's future focus and activity.
The carrying amount of intangible exploration and evaluation assets at the balance sheet date was US$13.5 million (2018: US$13.1 million) and the Directors did not consider that it was appropriate to make a provision for impairment in respect of these assets at 31 December 2019.
RECOVERABILITY OF LOANS TO SUBSIDIARY UNDERTAKINGS - COMPANY ONLY
The Company has outstanding loans from its directly held subsidiaries which have then made a number of loans to indirectly held subsidiaries as the primary method of financing the activity of those subsidiaries. The principal loans are shown in the Company balance sheet on the basis that the loans incur interest at a commercial rate according to the Group's inter-company loan policy, which is being rolled up until such time as the subsidiaries are in a position to settle. However, there is a risk that the indirectly held subsidiaries will not commence revenue-generating activities and that the carrying amount of the Company's investment will, therefore, exceed the recoverable amount.
In accordance with IFRS 9 Financial instruments, as the subsidiary undertakings cannot repay the loans at the reporting date, the Board has made an assessment of expected credit losses ("ECL"). Having considered multiple scenarios on the manner, timing, quantum and probability of recovery of the receivables, a cumulative lifetime ECL of US$31.2 million has been recognised at 31 December 2019 (2018: US$30.2 million).
The calculation of the allowance for lifetime ECL requires a significant degree of estimation and judgement, in particular in determining the probability weighted likely outcome for each scenario considered. The Directors assessment of ECL included repayment through future cash flows over time (which are inherently difficult to forecast for the Group at its current stage of development), the amount that could be realised through an immediate sale of the subsidiary undertakings or its underlying assets and the loss that would arise should commercial extraction not occur. The Directors' assessment of repayment through future cash flows included a scenario where the loan was not recovered in full. The Directors' allocated a probability weighting of 65% to scenarios where recovery would be repayment over time, 10% to the scenario where immediate sale of the subsidiary undertaking or its underlying assets was contemplated, and 25% to the scenario where no extraction would occur.
At 31 December 2019, the Company has total loans in its directly held subsidiaries of US$46.4 million (2018: US$43.2 million) See note 18.
The outcome of any assessment is materially sensitive to the key assumptions inherent in the calculation and any downside in these estimates would result in an additional impairment of the underlying loans.
5. SEGMENTAL INFORMATION
Subsequent to the discontinuance of the Group's uranium and copper operations during the year (the 'discontinued operations') the Group has one main operating segment, the exploration and development of O&G resources, which is primarily based in U.S.A. This division is the basis on which the Group reports its segmental information.
Segmental information about this division is presented below.
Restated
2019 2018
US$'000 US$'000
Income statement
Segmental results
O&G (1,294) 687
Total segmental results (1,294) 687
Unallocated results (1,717) (1,665)
Loss after taxation from continuing operations (3,011) (978)
Discontinued operations, net of tax 1,987 1,077
(Loss)/profit after taxation (1,024) 99
The unallocated results of US$1.7 million (2018: US$1.7 million) include costs associated with the development of new projects, Directors remuneration and other general and administrative costs incurred by the Company only.
2019 2018
US$'000 US$'000
Depreciation
O&G 24 5
Unallocated results 11 -
35 5
Restated
2019 2018
US$'000 US$'000
Net foreign exchange (gains)/losses
O&G 795 (1,065)
Unallocated 24 (17)
Discontinued operations (1,912) 895
(1,093) (187)
Employees
The average numbers of employees for the year for each of the Group's principal divisions were as follows:
Restated
2019 2018
Number Number
O&G 1 1
Discontinued operations - 1
Total segmental employees 1 2
Unallocated employees 2 2
Total employees 3 4
Restated
2019 2018
US$'000 US$'000
Balance Sheet
Segmental assets
O&G 13,586 13,244
Total segmental assets 13,586 13,244
Unallocated assets including cash and cash
equivalents 1,236 1,089
Continuing operations 14,822 14,333
Discontinued operations - 343
Total assets 14,822 14,676
Restated
2019 2018
US$'000 US$'000
Segmental liabilities
O&G 171 219
Total segmental liabilities 171 219
Unallocated liabilities 381 154
Continuing operations 552 373
Discontinued operations - 14
Total liabilities 552 387
Segmental net assets
O&G 13,415 13,025
Total segmental net assets 13,415 13,025
Unallocated net assets including cash and
cash equivalents 855 935
Discontinued operations - 329
Total net assets 14,270 14,289
Restated
2019 2018
US$'000 US$'000
Additions to intangible assets
O&G 401 1,050
Discontinued operations - 4
401 1,054
6. DEVELOPMENT EXPENSES
Continuing Continuing
2019 2018
US$'000 US$'000
U.S.A. 206 178
Development expenses represent material expenditure incurred by the Group in respect of the assessment and pursuit of specific projects.
7. IMPAIRMENT OF FINANCIAL ASSETS
Continuing Continuing
2019 2018
US$'000 US$'000
Other receivables 201 -
At 31 December 2018, classified within other receivables, the Group's balance sheet included the sum of US$0.2 million, in respect of a loan made to Magellan Gold Corporation ("Magellan"). The loan was made to facilitate completion of the sale of its Mexico assets, is non-interest bearing and due for repayment when Magellan recovers indirect tax incurred in Mexico upon acquisition of the Group's ore processing mill in the year ended 31 December 2017. See note 14.
In accordance with IFRS 9 Financial instruments, whilst the Board intends to pursue repayment of the loan in full, it has assessed expected credit losses ("ECL") and, having considered the current trading position of Magellan within Mexico, a cumulative lifetime ECL of US$ 0.2 million has been recognised at 31 December 2019 (2018: nil).
8. FAIR VALUE LOSS ON INVESTMENTS
Continuing Continuing
2019 2018
US$'000 US$'000
Change in fair value of investments - 284
On 9 September 2017, the Group entered into a Stock Purchase Agreement with Magellan, which resulted in the disposal of the majority of the Group's ore processing mill in Mexico, together with its associated assets, licences and agreements. See note 14. The consideration for the transaction, which completed on 1 December 2017, included US$0.5 million in restricted common stock in Magellan. By reference to the quoted price of Magellan stock, the Directors considered that the fair value of the stock at 31 December 2018 was US$0.2 million, which approximated to its market value at that date of US$0.31 million. This resulted in a charge of US$0.3 million in respect of the change in fair value during the year ended 31 December 2018.
The Group completed the sale of its holding in Magellan during the year ended 31 December 2019. See note 18.
9. FINANCE INCOME
Continuing Continuing
2019 2018
US$'000 US$'000
Interest on bank deposits - 3
10. LOSS BEFORE TAXATION
The loss before taxation for the year has been arrived at after charging/(crediting):
Restated
Continuing Continuing
2019 2018
US$'000 US$'000
Other income (20) -
Impairment of receivables 201 -
Depreciation of property,
plant and equipment 5 5
Depreciation of right-of-use
assets 30 -
Staff costs excluding share-based
payments 747 526
Share-based payments 100 172
Operating leases - land
and buildings - 24
Expense relating to short-term
leases 19 -
Net foreign exchange losses/
(gains) 819 (1,082)
11. AUDITOR'S REMUNERATION
Amounts payable to the external auditors and their associates in respect of both audit and non-audit services:
Continuing Continuing
2019 2018
US$'000 US$'000
Audit of these financial
statements 46 54
Amounts receivable by the
Company's auditor and its
associates in respect of:
Audit of financial statements
of subsidiaries of the Company 5 10
Taxation services - compliance 11 6
62 70
12. STAFF COSTS
The average monthly number of employees (including Executive Directors) was:
Group Company
Restated
Continuing Continuing Continuing Continuing
2019 2018 2019 2018
Number Number Number Number
Office and management 2 2 2 2
Operations 1 1 1 1
3 3 3 3
Their aggregate remuneration comprised:
Group Company
Restated
Continuing Continuing Continuing Continuing
2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000
Wages and salaries 688 512 553 483
Social security costs 73 60 64 58
Other pension costs 30 36 30 36
Share-based payments 62 118 62 83
853(1) 726 709 660
(1) A proportion of staff costs were deferred during the year. See note 30.
Included within Group wages and salaries is US$0.04 million (2018: US$0.08 million) capitalised to intangible exploration and evaluation assets.
Included within Company wages and salaries is US$0.2 million (2018: US$0.1 million) which was recharged to other Group entities.
Included within both Group and Company wages and salaries are the sums of US$0.06 million in respect of pay in lieu of notice and US$0.03 million in respect of an ex-gratia payment made to a former Director.
The remuneration of certain Company Directors is paid through a subsidiary entity and is therefore not included in the Company only aggregate remuneration.
Refer to note 30 for details regarding the remuneration of the highest paid Director.
13. TAXATION
2019 2018
US$'000 US$'000
Current tax:
Current year - -
Deferred tax:
Origination and reversal
of temporary differences - -
Tax charge on loss for the - -
year
The charge for the year can be reconciled to the loss per the income statement as follows:
Restated
Continuing Continuing
2019 2018
US$'000 US$'000
Loss before tax (3,011) (978)
Loss multiplied by the rate
of corporation tax for UK
companies of 19% (2018:
19%) (572) (186)
Effects of:
Expenses/(income) not deductible/chargeable
for tax purposes 38 (19)
Share-based payments 19 33
Unrelieved tax losses carried
forward 515 172
Tax charge on loss for the - -
year
There has been no impact due to changes in UK taxation rates during the years reported.
Unrelieved tax losses carried forward, as detailed in note 24, have not been recognised as a deferred tax asset, as there is currently insufficient evidence that the asset will be recoverable in the foreseeable future. The losses must be utilised in relation to the same operations.
14. DISCONTINUED OPERATIONS
MEXICO MINING OPERATIONS
On 9 September 2017, the Group entered into a Stock Purchase Agreement with Magellan, which resulted in the disposal of the majority of the Group's ore processing mill in Mexico, together with its associated assets, licences and agreements. The transaction completed on 1 December 2017.
The Mexico operations were treated as discontinued operations in the year ended 31 December 2018, and together with additional winding up costs related to the disposal incurred during the year ended 31 December 2019, have been shown within a single amount on the face of the consolidated income statement.
U.S.A. URANIUM AND COPPER EXPLORATION
Whilst all remaining licences relating to the Group's U.S.A. copper projects had previously been relinquished, AVEN Associates LLC, the Group's U.S.A. copper exploration company finally ceased all activity and was closed during the year ended 31 December 2018.
During the year ended 31 December 2019, the Group further relinquished its remaining uranium projects and VANE Minerals (US) LLC, the Group's U.S.A. uranium exploration company ceased all activity and was closed.
In accordance with IAS 21, all cumulative translation reserves relating to the entity have been recycled to the profit or loss, and the results have been disclosed as a single amount within the results of discontinued operations for the year ended 31 December 2019. The income statement for the prior period has been restated to conform to this presentation.
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
The results of the discontinued operations, which have been included in the consolidated income statement were as follows:
2019 2018
US$'000 US$'000
MEXICO MINING OPERATIONS
Expenses (55) (36)
Gain on disposal of property, plant and equipment - 6
Foreign exchange gains 11 -
Recycled currency translation differences, net
of tax - 11
Loss from discontinued operations, net of tax (44) (19)
Restated
2019 2018
US$'000 US$'000
U.S.A. URANIUM AND COPPER EXPLORATION
Other income - 264
Expenses (24) (48)
Impairment of intangible exploration and evaluation
assets - (4)
Gain on disposal of property, plant and equipment 5 -
Gain on disposal of intangible exploration and
evaluation assets 122 -
Fair value gain on investments 27 -
Foreign exchange (losses)/gains (8) 70
Recycled currency translation differences, net
of tax 1,909 814
Profit from discontinued operations, net of
tax 2,031 1,096
Restated
2019 2018
US$'000 US$'000
TOTAL DISCONTINUED OPERATIONS
Loss from Mexico mining operations (44) (19)
Profit from U.S.A. uranium and copper exploration 2,031 1,096
Profit from discontinued operations, net of
tax 1,987 1,077
Restated
2019 2018
US$'000 US$'000
Profit per Ordinary Share
Basic and diluted, cents per share 1.15 0.82
During the year, the discontinued operations contributed US$0.1 million outflow (2018: US$0.05 million outflow) to the Group's net cash outflow from operating activities, US$0.4 million inflow (2018: US$0.05 million inflow) to inflow from investing activities and US$ nil (2018: US$ nil) to net cash inflow from financing activities.
15. (LOSS)/PROFIT PER ORDINARY SHARE
Basic (loss)/profit per Ordinary Share is calculated by dividing the net (loss)/profit for the year attributable to owners of the parent company by the weighted average number of Ordinary Shares in issue during the year. The calculation of the basic and diluted (loss)/profit per Ordinary Share is based on the following data:
Continuing Restated Continuing
Continuing and discontinued Continuing and discontinued
operations operations operations operations
2019 2019 2018 2018
US$'000 US$'000 US$'000 US$'000
(Losses)/profits
(Losses)/profits for
the purpose of basic
profit/(loss) per Ordinary
Share being net (loss)/profit
attributable to owners
of the parent company (3,011) (1,024) (978) 99
Number Number Number Number
'000 '000 '000 '000
Number of shares
Weighted average number
of shares for the purpose
of basic (loss)/profit
per Ordinary Share 172,550 172,550 131,814 131,814
(Loss)/profit per Ordinary
Share
Basic and diluted, cents
per share (1.74) (0.59) (0.74) 0.08
Due to the losses incurred from continuing operations in the years reported, there is no dilutive effect from the existing share options, share based compensation plan or warrants.
16. INTANGIBLE ASSETS
Exploration
and
evaluation
assets
US$'000
Cost
At 1 January 2018 17,863
Additions 1,054
Exchange differences 1
At 1 January 2019 18,918
Additions 401
Disposals - discontinued operations (5,770)
At 31 December 2019 13,549
Impairment
At 1 January 2018 5,765
Impairment charge 4
Exchange differences 1
At 1 January 2019 5,770
Disposals - discontinued operations (5,770)
At 31 December 2019 -
Carrying amount
At 31 December 2019 13,549
At 31 December 2018 13,148
At 1 January 2018 12,098
ROCKIES STANDARD AGREEMENT
In March 2014, the Group signed an agreement under which its subsidiary, Rose Petroleum (Utah) LLC ("Rose Utah"), acquired the right to commence earning into a 75 per cent working interest of certain oil, gas and hydrocarbon leases in Grand and Emery Counties, Utah, from Rockies Standard Oil Company LLC ("RSOC"), which retained the remaining 25 per cent working interest.
In October 2019, the Group signed a new agreement with RSOC which gave it an immediate 75 per cent working interest ownership and operatorship of key acreage. This agreement replaced the earn-in structure of the original agreement and gave the Group immediate ownership of the highest potential 12,920 lease acres. The Group has terminated its remaining farm-in rights over less prospective acreage and has reassigned those rights back to RSOC.
The Group retains its obligations under the original earn-in agreement to carry RSOC for a 25 per cent working interest on the first well drilled on the project and has also agreed to carry RSOC for a 25 per cent working interest for the acquisition of specified targeted leases in and around the core acreage area, in aggregate, up to a total of US$0.5 million. It is the current view of both the Group and RSOC that the final figure will be considerably lower and any payments would be incurred over an extended period of time.
Costs incurred by the Group under both the original farm-in agreement and the revised agreement are accounted for as required by the relevant accounting standards, including the capitalisation of intangible exploration and evaluation assets in accordance with IFRS 6.
The Group's total expenditure in respect of its U.S.A. O&G assets, included within intangible exploration and evaluation assets, as at 31 December 2019 is US$13.5 million (2018: US$13.1 million).
U.S.A. URANIUM PROJECTS
The US$5.5 million carrying value of the Group's U.S.A. uranium projects was impaired in full at 31 December 2018. During the year ended 31 December 2019, the Group agreed the sale of its Eastern Star property and relinquished its interest in all other assets. These have now been classified as discontinued operations. See note 14.
TANGO PROJECT
On 25 August 2014, Minerales VANE S.A. de C.V., a wholly owned subsidiary of the Group, entered into an agreement with Minera Camargo S.A de C.V. ("Camargo"), in respect of both gold and silver and base metal exploration.
No expenditure on this project has been incurred in either of the years presented and the US$0.3 million carrying value of these assets was impaired in full at 31 December 2018.
During the year ended 31 December 2019, the Group relinquished its interest in these assets which have now been classified as discontinued operations. See note 14.
U.S.A. COPPER PROJECTS
On 2 March 2016, the Group entered into an agreement with Burdett Gold LLC ("Burdett") to conduct exploration drilling on the Ardmore copper project. The terms included a cash payment of US$5,350 and the Group retained a 15 per cent net profit interest in the Ardmore project and any other claims that Burdett might acquire within a three-mile area. No payments have been received in respect of the project in either of the years presented.
IMPAIRMENT OF INTANGIBLE EXPLORATION AND EVALUATION ASSETS
At 31 December 2019, the Directors considered the indicators of impairment as set out in IFRS 6 and have satisfied themselves that there was no requirement to perform an impairment test.
During the year ended 31 December 2019, the Group completed a restructure of the Paradox project and entered into a new agreement with its partner RSOC. The agreement enables the Group to focus on a potentially highly economic core acreage position which contains multiple high-priority drilling targets whilst also allowing the Group to reduce the overall cost of maintaining the project. The Group is now focusing on this core acreage whilst also recognising further exploration potential in five shallower reservoir targets which could add even further value to the project over time. The Board believes that the restructured project Is a highly attractive investment opportunity and ensures that the project will remain a central part of the Group's future focus and activity.
As a result, the Directors did not consider that it was appropriate to make a provision for impairment in respect of these assets at 31 December 2019.
17. PROPERTY, PLANT AND EQUIPMENT
Group Company
Plant and Right-of-use Plant Right-of-use
machinery assets Total and machinery assets Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January
2018 183 - 183 - - -
Group transfer - - - 22 - 22
Disposals -
discontinued
operations (21) - (21) - - -
Derecognition (3) - (3) - - -
At 31 December
2018 159 - 159 22 - 22
Recognition
of right-of-use
assets on initial
application
of IFRS 16 - 35 35 - - -
Additions -
right-of-use
assets - 55 55 - 55 55
At 31 December
2019 159 90 249 22 55 77
Accumulated
depreciation
At 1 January
2018 156 - 156 - - -
Charge for the
year 5 - 5 - - -
Disposals -
discontinued
operations (21) - (21) - - -
Derecognition (3) - (3) - - -
At 1 January
2019 137 - 137 - - -
Charge for the
year 5 30 35 5 5 10
At 31 December
2019 142 30 172 5 5 10
Carrying amount
At 31 December
2019 17 60 77 17 50 67
At 31 December
2018 22 - 22 22 - 22 At 1 January 2018 27 - 27 - - -
The Group depreciation charge has been allocated to the income statement as follows:
Continuing Continuing
2019 2018
US$'000 US$'000
Administrative expenses 35 5
Leases under IFRS 16
The Group applied IFRS 16 on 1 January 2019, and has now recognised new assets and liabilities in respect of leased office premises in the UK and U.S.A. Until 1 January 2019, leases of property, plant and equipment were classified as operating leases but on application of IFRS 16 are now recognised as right-of-use assets with corresponding lease liabilities. The nature of the expense related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and an interest expense on lease liabilities, where appropriate.
In accordance with the modified retrospective approach, there has been no restatement of comparative information.
The Group has applied the recognition exemption for short-term leases which end within twelve months of the date of initial application. Accordingly, at 1 January 2019, the Group did not recognise one of its UK office leases under IFRS 16 as the remaining lease term was less than twelve months and have accounted for this as an operating expense on a straight-line basis over the term of the lease. A new lease was entered into during the year and has been accounted for under IFRS 16.
Differences between the operating lease commitments disclosed at 31 December 2018 under IAS 17 and lease liabilities recognised at 1 January 2019 are explained below:
Group Company
US$'000 US$'000
Minimum operating lease commitments
disclosed at 31 December
2018 69 69
Lease omitted from prior
year disclosure 35 -
Exclude operating leases
exempt under IFRS 16 (69) (69)
Lease liability recognised
at 1 January 2019 35 -
18. INVESTMENTS
Group Company
Investment Investment Shares in Loans to
carried carried subsidiary subsidiary
at fair value at fair value undertakings undertakings Total
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2018 500 500 5,256 43,296 49,052
Additions 264 - - 2,565 2,565
Change in fair
value (284) (284) - - (284)
Capital contribution - - - (197) (197)
Exchange differences (16) (16) (294) (2,453) (2,763)
At 1 January 2019 464 200 4,962 43,211 48,373
Additions - - - 1,397 1,397
Disposals -
continuing
operations (200) (200) - - (200)
Disposals -
discontinued (302) - - - -
operations
Change in fair
value 27 - - - -
Capital contribution - - - 18 18
Exchange differences 11 - 199 1,744 1,943
At 31 December
2019 - - 5,161 46,370 51,531
Impairment
At 1 January 2018 - - 5,002 30,498 35,500
Impairment charge - - (136) 1,459 1,323
Exchange differences - - (274) (1,770) (2,044)
At 1 January 2019 - - 4,592 30,187 34,779
Impairment charge - - 370 (218) 152
Exchange differences - - 198 1,201 1,399
At 31 December
2019 - - 5,160 31,170 36,330
Carrying amount
Non-current assets - - 1 15,200 15,201
At 31 December
2019 - - 1 15,200 15,201
Carrying amount
Non-current assets - - 370 13,024 13,394
Current assets 464 200 - - 200
At 31 December
2018 464 200 370 13,024 13,594
Group
On 9 September 2017, the Group entered into a Stock Purchase Agreement with Magellan, which resulted in the disposal of the majority of the Group's ore processing mill in Mexico, together with its associated assets, licences and agreements. See note 14. The consideration for the transaction, which completed on 1 December 2017, included US$0.5 million in restricted common stock in Magellan. By reference to the quoted price of Magellan stock, the Directors considered that the fair value of the stock at 31 December 2018 was US$0.2 million, which approximated to its market value at that date of US$0.31 million. This resulted in a charge of US$0.3 million in respect of the change in fair value during the year ended 31 December 2018. The Group completed the sale of its holding in Magellan during the year ended 31 December 2019 for US$0.2 million.
On 27 November 2018, the Group announced that it had entered into an agreement with enCore Energy Corporation ("ENCORE") in respect of its U.S.A. uranium exploration project database. The agreement gave ENCORE exclusive access to the Group's database for an initial term of five years to enable them to identify exploration projects which could be developed into commercial operations. Under the terms of the agreement ENCORE issued 3 million Ordinary Shares to the Group's wholly owned subsidiary, VANE Minerals (US) LLC, which represented approximately 2.1% of the existing share capital of ENCORE.
The Group recognised the ENCORE shares as investments at fair value through the profit or loss, with a corresponding credit to other income during the year ended 31 December 2018, now presented within discontinued operations. The Group disposed of its entire holding in ENCORE during the year ended 31 December 2019 for US$0.3 million, with a fair value gain being recognised within discontinued operations. See note 15.
Company
The Company investment at fair value in the prior year relates to the Magellan Stock Purchase Agreement described above.
The Company has outstanding loans made to its subsidiaries which incur interest at a commercial rate, according to the Group's inter-company loan policy. The loans are due for repayment once the subsidiaries commence revenue-generating activities which is not anticipated within the next twelve months and, therefore the loans are presented within non-current assets. The Board has assessed the recoverability of the loans and investments based on the expected future cash flows arising to the Company from its subsidiary entities and consider that a provision of US$0.15 million (2018: US$1.3 million) should be recognised in the period.
The Company had investments in the following subsidiary undertakings as at 31 December 2019:
Place of
incorporation Proportion Proportion
(or registration) of ownership of voting Principal
and operation interest power held activity
Directly owned:
VANE Minerals (UK) Holding
Limited UK 100% 100% company
Rose Petroleum (UK) Holding
Limited UK 100% 100% company
Indirectly owned:
Minerales VANE S.A.
de C.V. Mexico 100% 100% Mining
Rose Petroleum (US) Holding
LLC U.S.A. 100% 100% company
Rose Petroleum
(Utah)
LLC U.S.A. 100% 100% Exploration
During the year ended 31 December 2019, the Group closed VANE Minerals (US) LLC, which previously held the Group's U.S.A. uranium assets. Expenditure incurred has been classified as discontinued operations, and primarily comprises costs of cessation and recycling of foreign currency reserves through profit or loss. See note 14.
During the year ended 31 December 2019, Naab Energie GmbH which previously held the Group's German licences was legally dissolved.
The Group also closed Rose Cuba Limited, Rose Resources Limited and Rose Gypsum Limited, companies which had been dormant since incorporation.
The registered office address of all companies incorporated in the United Kingdom is 20-22 Wenlock Road, London, N1 7GU.
The registered office address for Minerales VANE S.A. de C.V. is Humboldt No. 121, Colonia del Valle, C.P. 78200, San Luis Potosi, S.L.P.
The registered office address for Rose Petroleum (US) LLC and Rose Petroleum (Utah) LLC is 383 Inverness Parkway, Ste 330, Englewood, CO 80112.
19. TRADE AND OTHER RECEIVABLES
Group Company
2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000
VAT recoverable 29 28 29 17
Tax recoverable - 48 - -
Other receivables 2 267 - 195
Prepayments & accrued income 81 83 60 52
112 426 89 264
At 31 December 2018, other receivables included the sum of US$0.2 million in respect of a loan made to Magellan. The loan was made to facilitate completion of the sale of its Mexico assets, is non-interest bearing and due for repayment when Magellan recovers indirect tax incurred in Mexico upon acquisition of the Group's ore processing mill in the year ended 31 December 2017. In accordance with IFRS 9 Financial instruments, whilst the Board intends to pursue repayment of the loan in full, it has assessed expected credit losses ("ECL") and, having considered the current trading position of Magellan within Mexico, a cumulative lifetime ECL of US$ 0.2 million has been recognised at 31 December 2019 (2018: nil). See note 7.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value, and represents the Group's maximum exposure to credit risk.
20. CASH AND CASH EQUIVALENTS
Cash and cash equivalents held by the Group and the Company as at 31 December 2019 were US$1.1 million and US$1.1 million respectively (2018: US$0.6 million, US$0.6 million). The Directors consider that the carrying amount of these assets approximate to their fair value.
21. TRADE AND OTHER PAYABLES
Group Company
2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000
Trade payables 84 160 73 39
Taxes and social security 17 22 17 22
Other payables 115 116 1 -
Accruals 226 89 122 87
442 387 213 148
Trade payables and accruals principally comprise amounts outstanding for trade purchases and on-going costs.
Other payables primarily represent the potential liability due to the German licencing authorities in respect of the relinquished hydrocarbon licences in south-western Germany. The Group has continued to recognise the remaining potential liability although it continues to negotiate further reductions with the German licencing authorities.
No interest is generally charged on balances outstanding.
The Group has financial risk management policies to ensure that all payables are paid within the credit time frame.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
22. LEASE LIABILITIES
The Group applied IFRS 16 on 1 January 2019, and has now recognised new assets and liabilities in respect of its leases of office facilities. See note 17.
The Group has applied the recognition exemption for short-term leases which end within twelve months of the date of initial application, and have accounted for these as an operating expense on a straight-line basis over the term of the lease.
Group Company
2019 2018 2019 2018US$'000
US$'000 US$'000 US$'000
Current 45 - 35 -
Non-current 8 - 8 -
53 - 43 -
Group Company
2019 2018 2019 2018US$'000
US$'000 US$'000 US$'000
Maturity analysis
Amounts due within one year 45 - 35 -
Amounts due in 2-5 years 8 - 8 -
53 - 43 -
The Group does not face a significant liquidity risk with regard to lease liabilities.
23. DEFERRED TAX
There are unrecognised deferred tax assets in relation to:
2019 2018
US$'000 US$'000
UK tax losses 5,372 5,178
U.S.A. tax losses 7,173 16,367
Mexican tax losses 337 511
12,882 22,056
Reductions to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2016 on 6 September 2016 which would reduce the main rate to 17% from 1 April 2020. However, in a pre-election manifesto Boris Johnson pledged to put the reduction from 19% to 17% on hold if the Conservatives won the election and having done so, the freeze in rate was substantively enacted during the 2020 Budget. A deferred tax asset has not been provided in respect of these losses as there is currently insufficient evidence that the asset will be recoverable in the foreseeable future.
24. PROVISIONS
Group
Decommissioning
2019 2018
US$'000 US$'000
At 1 January - -
Additions 57 -
At 31 December 57 -
Non-current provision 57 -
In accordance with the Group's environmental policy and applicable legal requirements, the Group expects to restore sites where it has carried on activities, following final conclusion of those activities.
Under the terms of the revised agreement with RSOC, the Group acquired ownership of the State 16-42 well including all restoration obligations in respect of this asset. Restoration is not expected to take place within the next twelve months.
25. SHARE CAPITAL
Group and Company
2019 2018
Number Number
'000 US$'000 '000 US$'000
Authorised
Ordinary Shares of 0.1p each 7,779,297 10,323 7,779,297 9,926
Deferred Shares of 9.9p each 227,753 29,921 227,753 28,768
8,007,050 40,244 8,007,050 38,694
Allotted, issued and fully
paid
Ordinary Shares of 0.1p each 287,112 383 143,414 199
Deferred Shares of 9.9p each 227,753 40,305 227,753 40,305
514,865 40,688 371,167 40,504
The Deferred Shares are not listed on AIM, do not give the holders any right to receive notice of, or to attend or vote at, any general meetings, have no entitlement to receive a dividend or other distribution or any entitlement to receive a repayment of nominal amount paid up on a return of assets on a winding up nor to receive or participate in any property or assets of the Company. The Company may, at its option, at any time redeem all of the Deferred Shares then in issue at a price not exceeding GBP0.01 from all Shareholders upon giving not less than 28 days' notice in writing.
ISSUED ORDINARY SHARE CAPITAL
On 10 May 2018, the Company issued 11,264,000 Ordinary Shares of 0.1p each at a price of 3.25p per share, raising gross proceeds of US$0.5 million (GBP0.4 million).
On 22 May 2018, the Company issued 19,505,231 Ordinary Shares of 0.1p each at a price of 3.25p per share, raising gross proceeds of US$0.8 million (GBP0.6 million).
On 30 May 2019, the Company issued 25,000,000 Ordinary Shares of 0.1p each at a price of 1.2p per share, raising gross proceeds of US$0.4 million (GBP0.3 million).
On 28 August 2019, the Company issued 2,500,000 Ordinary Shares of 0.1p each at a price of 0.6p per share, raising gross proceeds of US$0.018 million (GBP0.015 million).
On 8 November 2019, the Company issued 31,182,780 Ordinary Shares of 0.1p each at a price of 1.1p per share, raising gross proceeds of US$0.4 million (GBP0.35 million).
On 22 November 2019, the Company issued 82,453,584 Ordinary Shares of 0.1p each at a price of 1.1p per share, raising gross proceeds of US$1.2 million (GBP0.9 million).
On 22 November 2019, the Company issued 1,325,757 Ordinary Shares of 0.1p each at a price of 1.1p per share, raising gross proceeds of US$0.019 million (GBP0.015 million).
On 9 December 2019, the Company issued 1,235,545 Ordinary Shares of 0.1p each at a price of 1.1p per share, raising gross proceeds of US$0.018 million (GBP0.014 million).
Ordinary Deferred Shares
Shares
Number Number
'000 '000
At 1 January 2018 112,645 227,753
Allotment of shares 30,769 -
At 1 January 2019 143,414 227,753
Allotment of shares 143,698 -
At 31 December 2019 287,112 227,753
26. WARRANT RESERVE
In May 2018, the Company issued 30,769,231 Ordinary Shares of 0.1p each. In addition to the placing shares, subscribers were issued warrants to subscribe for 30,769,231 new Ordinary Shares, representing one warrant for each placing share. The warrants are exercisable at a price of 6.5 pence per Ordinary Share for a period of two years from the date of issue.
In November 2019, the Company undertook a fundraise which resulted in the issue of 31,182,780 Ordinary Shares of 0.1p each on 8 November followed by a further 82,453,584 Ordinary Shares of 0.1p each on 22 November 2019, resulting in the total issue of 113,636,364 Ordinary Shares. See note 25. In respect of this particular share issue, subscribers were also issued warrants to subscribe for 56,818,182 new Ordinary Shares, representing one warrant for every two placing shares. The warrants are exercisable at a price of 2 pence per Ordinary Share for a period of two years from the date of issue.
Warrants
Number
'000
At 1 January 2018 3,572
Granted 30,769
At 1 January 2019 34,341
Granted 56,818
At 31 December 2019 91,159
The fair value of the subscriber warrants issued during the year has been calculated using the Black-Scholes model. The significant inputs into the model for the IFRS 2 valuation were as follows:
Issued in year
56,818,182
warrants
Exercise price (pence) 2
Expected volatility (%) 78
Expected life (years) 2
Risk free rates (%) 0.53
Expected dividends -
Performance condition None
Expected volatility was calculated considering Rose Petroleum plc share price movements over a period commensurate with the expected term immediately prior to the grant date.
The fair value of the warrants granted to subscribers during the year was US$0.2 million (2018: US$0.3 million), and this has been recognised out of gross proceeds as a warrant reserve within equity.
27. RESERVES
The share premium account represents the sum paid, in excess of the nominal value, of shares allotted, net of the costs of issue.
The warrant reserve represents accumulated charges made in respect of the issue of warrants to Shareholders. See note 26.
The share-based payment reserve represents accumulated charges made under IFRS 2 in respect of share-based payments.
The cumulative translation reserve represents foreign exchange differences arising on the translation of foreign operations and any net gain/(loss) on the hedge of net investment in foreign subsidiaries. The cumulative translation reserve also represents the net effect of the fact that the functional currency of the parent undertaking is GBP, whilst its reporting currency is US$, resulting in exchange differences on translation of the parent undertakings equity.
The retained deficit includes all current and prior period retained losses.
28. SHARE-BASED PAYMENTS
EQUITY SETTLED SHARE OPTION PLAN
The Company has a Share Option Plan, 2013 Share Option Plan Part A (employees) and 2013 Share Option Plan Part B (non-employees), under which options to subscribe for the Company's shares have been granted to certain Directors and to selected employees and consultants.
On 6 April 2018, the Company issued 7.9 million share options with an exercise price of 3.5 pence per Ordinary Share, which vest in three equal tranches on 6 April 2019, 2020 and 2021. The options can be exercised up until the tenth anniversary of the grant date.
At 31 December 2019, 11.3 million share options had been granted under the terms of the Share Option Plans and not exercised.
The Company has no legal or constructive obligation to repurchase or settle the options in cash. The latest date for exercise of the options is 6 April 2028 and, unless otherwise agreed, the options are forfeited if the employee or consultant leaves the Group before the options vest, or if those options which have vested are not exercised within three months of leaving.
Details of the share options outstanding at the end of the year were as follow:
2019 2018
Number of options Weighted average exercise Number of options Weighted average
'000 price '000 exercise price
Outstanding at 1 January 11,267 25.75p 3,799 189.0p
Granted - - 7,900 3.5p
Forfeited/cancelled - - (432) 60.65p
Outstanding at 31 December 11,267 25.75p 11,267 25.75p
Exercisable at 31 December 5,300 49.4p 1,967 120.82p
The options outstanding and not yet vested at 31 December 2019 had an estimated weighted average remaining contractual life of 8 years (2018: 9 years), with an exercise price ranging between 3.5p and 14p.
The fair value of the options granted during the year ended 31 December 2018 was US$0.2 million.
In the year ended 31 December 2019, the Company recognised a total expense of US$0.1 million (2018: US$0.2 million) in respect of the Share Option Plan.
WARRANTS
On 22 May 2018, the Company issued 1,538,461 warrants to TPI, in respect of broker services provided by them in relation to the placing of the Company's shares. The warrants permit the holder to subscribe for one new Ordinary Share at a price of 6.5 pence per share and are exercisable at any time until 22 May 2020. The fair value of the services provided to the Company can be measured directly and, therefore, the fair value of the warrants issued during the year to TPI has been made with reference to the terms of the agreement which stated that the number of warrants issued should be based on 5 per cent of the equity proceeds raised by TPI.
On 22 November 2019, the Company issued 2,727,273 warrants to TPI, in respect of broker services provided by them in relation to the placing of the Company's shares. The warrants permit the holder to subscribe for one new Ordinary Share at a price of 1.32 pence per share and are exercisable at any time until 22 November 2022. The fair value of the services provided to the Company can be measured directly and, therefore, the fair value of the warrants issued during the year to TPI has been made with reference to the terms of the agreement which stated that the number of warrants issued should be based on 5 per cent of the equity proceeds raised by TPI.
On 26 October 2019, 428,571 warrants issued in previous years lapsed without being exercised. The fair value of the warrants previously recognised was US$0.05 million and has been recognised as a transfer between equity reserves.
The fair value of the warrants issued during the year was US$0.05 million (2018: US$ 0.06 million). In accordance with the Group's accounting policy, the costs of an equity transaction are accounted for as a deduction from equity to the extent that they are incremental costs directly attributable to the equity transaction that would otherwise have been avoided. As a result, there is no impact on the Group's income statement during the year ended 31 December 2019.
Details of the warrants included in share-based payments and outstanding at the end of the year were as follow:
Warrants
Number
'000
At 1 January 2018 4,054
Granted 1,538
At 1 January 2019 5,592
Granted 2,727
lapsed (428)
At 31 December 2019 7,891
29. FINANCIAL INSTRUMENTS
FINANCIAL RISK MANAGEMENT OBJECTIVES
Management provides services to the business, co-ordinates access to domestic and international financial markets and monitors and manages the financial risks relating to the operations of the Group. These risks include foreign currency risk, credit risk, liquidity risk and cash flow interest rate risk.
The policies for managing these risks are regularly reviewed and agreed by the Board.
The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns, while maximising the return to Shareholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from 2018.
The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.
The Group is not subject to externally imposed capital requirements.
The Group plans its capital requirements on a regular basis and as part of this review the Directors consider the cost of capital and the risks associated with each class of capital.
SIGNIFICANT ACCOUNTING POLICIES
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3.
CATEGORIES OF FINANCIAL INSTRUMENTS
Group Company
2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000
Financial assets measured at
amortised cost
Cash and cash equivalents 1,084 616 1,070 598
Other receivables 2 267 - 195
Loans to subsidiary undertakings - - 13,300 13,024
1,086 883 14,370 13,817
Group Company
2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000
Financial assets measured at
fair value
Investments
Hierarchy, Level 1 - 464 - 200
Group Company
2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000
Financial liabilities measured
at amortised cost
Trade payables 84 160 73 39
Other payables 115 116 1 -
Lease liabilities 53 - 43 -
Accruals 226 89 122 87
478 365 239 126
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Directors consider that the carrying amount of its financial instruments approximates to their fair value.
FOREIGN EXCHANGE RISK AND FOREIGN CURRENCY RISK MANAGEMENT
The Group undertakes certain transactions denominated in foreign currencies, with the result that exposure to exchange rate fluctuations arise.
The Group does not normally hedge against the effects of movements in exchange rates. The Group policy is not to repatriate any currency where there is the requirement or obligation to spend in the same denomination. When foreign exchange is required the Group purchases using the best spot rate available. As a result, there is limited currency risk within the Group other than cash and cash equivalents whose functional currency is different to presentation currency.
The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
Liabilities Assets
2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000
GBP 114 116 535 354
Foreign currency sensitivity analysis
The functional currencies of the Group are Pound Sterling (GBP), US dollars (US$) and Mexican Peso (MXN). The financial statements of the Group's foreign subsidiaries are denominated in foreign currencies.
The Group is exposed primarily to movements in US$ in respect of foreign currency risk arising from recognised assets.
Sensitivity analysis has been performed to indicate how the profit or loss would have been affected by changes in the exchange rate between GBP and US$. The analysis is based on the weakening and strengthening of US$ by five per cent. A movement of five per cent reflects a reasonably positive sensitivity when compared to historical movements over a three to five-year timeframe. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a five per cent change in foreign currency rates.
The table below details the Group's sensitivity to a five per cent decrease in US$ against GBP. A positive number below indicates an increase in profit where US$ strengthens five per cent against GBP. For a five per cent weakening of US$ there would be an equal and opposite impact on the profit, and the balance below would be negative.
2019 2018
US$'000 US$'000
Income statement (1,090) (988)
INTEREST RATE RISK MANAGEMENT
The Group's policy on interest rate management is agreed at Board level and is reviewed on an on-going basis.
The Group has no substantial exposure to fluctuating interest rates on its liabilities. The Group has no liabilities which attract interest charges at 31 December 2018.
LIQUIDITY RISK MANAGEMENT
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flow.
CREDIT RISK MANAGEMENT
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group does not have any significant credit risk exposure on trade and other receivables.
The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets. The Group does not hold any collateral.
Generally, financial assets are written off when there is no reasonable expectation of recovery.
The credit risk on liquid funds (cash) is considered to be limited because the counterparties are financial institutions with high and good credit ratings assigned by international credit-rating agencies.
30. RELATED PARTY TRANSACTIONS
AMOUNTS DUE FROM SUBSIDIARIES
Group
Balances and transactions between the Company and its subsidiaries which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Company
The Company has entered into a number of unsecured related party transactions with subsidiary undertakings. The most significant transactions carried out between the Company and their subsidiary undertakings are management charges for services provided to the subsidiary company and long-term financing. Details of these transactions are as follows:
2019 2018
Transactions Amounts Transactions Amounts
in the year owing in the year owing
US$'000 US$'000 US$'000 US$'000
Loans 386 34,662 1,164 32,956
Management charges 630 5,137 749 4,309
Interest (1.75%) 356 5,558 685 4,989
Capital contribution 18 1,013 (197) 957
REMUNERATION OF KEY MANAGEMENT PERSONNEL
The remuneration of key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
2019 2018
Purchase of Amounts Purchase of services Amounts
services owing US$'000 owing
US$'000 US$'000 US$'000
Short-term employee
benefits 622 125 444 -
Ex-gratia payment 32 - - -
Consultancy payments 20 - 54 6
Post-employment benefits 26 9 34 2
Share-based payments 59 - 107 -
______ _____ ______ ______
759 134 639 8
______ _____ ______ ______
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.
All transactions with related parties have been conducted on an arm's length basis.
DIRECTORS' EMOLUMENTS
Remuneration paid to Directors during the year was as follows:
2019
Emoluments Emoluments(1) Emoluments(1)
entitlement taken not taken Consultancy Ex-gratia Pension Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Executive Directors
JC Harrington 325 54(2) 80(2) - - - 134
MC Idiens 192 197(3) - - 32 13 242
CJ Eadie 130 137 - - - 13 150
KB Scott 13 - 4(4) - - 4
Non-executive
Directors
PE Jeffcock 32 17(5) - - - - 17
RL Grant 65 11(6) 19(6) - - - 30
TH Reynolds 46 20(7) 12(7) - - - 32
GB Stein 46 8(8) 7(8) - - - 15
849 444 118 4 32 26 624
(1) Emoluments include benefits-in-kind which are not included in emoluments entitlement
(2) Emolument from the date of appointment on 24 May 2019
(3) Emolument to the date of resignation on 30 August 2019, including pay in lieu of notice
(4) Emolument to the date of resignation on 23 April 2019
(5) Emolument to the date of resignation on 11 April 2019
(6) Emolument from the date of appointment on 27 June 2019
(7) Emolument from the date of appointment on 23 April 2019
(8) Emolument from the date of appointment on 3 September 2019
2018
Emoluments Emoluments(1)
entitlement taken Consultancy Pension Total
US$'000 US$'000 US$'000 US$'000 US$'000
Executive Directors
MC Idiens 200 208 - 20 228
KB Scott 13 13 54 - 67
CJ Eadie 136 143 - 14 157
Non-executive
Directors
PE Jeffcock 34 34 - - 34
383 398 54 34 486
(1) Emoluments include benefits-in-kind which are not included in emoluments entitlement
The remuneration of Directors and key executives is decided by the remuneration committee having regard to comparable market statistics.
Directors' share options are detailed in the Directors Report.
Directors' pensions
2019 2018
No No
The number of Directors to whom retirement
benefits are accruing under money purchase
schemes was 2 3
31. POST BALANCE SHEET EVENTS
Following the year end, and the outbreak of Coronavirus (COVID-19), the priority of the Board has been on the health and safety of its employees and technical staff. Like many organisations, plans have been implemented and active measures have been taken to mitigate risk, such as no one-to-one contact and a move to virtual meetings. The Board is also in frequent contact with the Group's partners and technical team to assess any potential impact on the Group's assets.
We continue to follow the most up-to-date Government advice and engage with the regulatory bodies and stakeholders. To date the Group's activities have continued in line with plans and with minimal impact from COVID-19. However, the Board recognises COVID-19 and associated geo-political factors have created uncertainty around the price and demand for oil.
The long-term dynamics of the Group's intangible exploration and evaluation assets held in the U.S.A. remain strong and the Board does not consider that any impairment of these assets is likely as a result of COVID-19. However, the Board continues to monitor the situation closely and will, through consultation with its stakeholders, make any appropriate adjustments as and when required.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR EAEKNAEFEEAA
(END) Dow Jones Newswires
June 30, 2020 02:00 ET (06:00 GMT)
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