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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Saffron Eng | LSE:SRON | London | Ordinary Share | GB00BDCFP425 | 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% | 4.10 | 4.00 | 4.20 | 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
TIDMSRON
RNS Number : 3355J
Saffron Energy PLC
29 March 2018
29 March 2018
Saffron Energy Plc (to be renamed Coro Energy Plc)
("Saffron" or the "Company")
Final Results
Saffron Energy, the pan Euro Asian gas explorer, announces its consolidated financial results for the financial year ended 31 December 2017.
During the period, the Company has:
- Made the following Board changes;
o Appointed James Parsons, Chief Executive Officer of Sound Energy plc and Chairman of Echo Energy plc, as Non-Executive Chairman of the Company
o Appointed Sara Edmonson as Chief Executive Officer of the Company
o Appointed Fiona MacAulay, Chief Executive Officer of Echo Energy plc, as a Non-Executive Director of the Company
o Appointed Marco Fumagalli, Managing Director of Continental Investment Partners, appointed as a Non-Executive Director of the Company
o David Garland has stepped down from the role of Chairman but remains on the Board as a Non-Executive Director until completion of the SEHIL acquisition
o Kevin Bailey has stepped down from the role of Non-Executive Director but remains on the Board as an observer until shareholder approval of the SEHIL acquisition
o Michael Masterman and Christopher Johannsen both stepped down from the Board
- Extended its offtake agreement with Shell Italia to 1 October 2018 - Repaid approximately Euro 991,000 of short term shareholders' loans - Was awarded the Production Concession for the Sant'Alberto gas field
- Initiated a reverse takeover process for the proposed acquisition of Sound Energy Holdings Italy Limited ("SEHIL") which is subject to shareholder approval at the General Meeting later today
- Initiated the leadership transition with the appointment of a new Board and subsequently with the appointment of key management personnel
- Completed the tie in of the Bezzecca gas field and commenced commercial production
- Announced a reduction in the remaining reserves of the Bezzecca gas field which resulted in an impairment of Euro 3.1m on the carrying value of this asset at 31 December 2017
- Improved performance at Bezzecca following a rig-less intervention which has led to positive improvements in production post year end
- Post period announced GBP14 million two-stage equity issue at market price and introduced Cornerstone Investor CIP Merchant Capital Limited alongside other Subscribers and Placees GBP13.4 million of funding is subject to shareholder approval
- New strategy announced post period focusing on multi-TCF gas exploration opportunities in South East Asia
Investors should note that a number of changes were proposed and completed in the period from December 2017 to 30 March 2018; specifically, later today, 29 March 2018, shareholders will vote on the proposed acquisition of SEHIL, funding and collective placements to raise GBP 13.4 million, change in company strategy to become a Pan Euro Asian explorer and name change from Saffron Energy to Coro Energy.
- Announced the appointment of James Menzies as Chief Executive Officer with effect from 1 May 2018
Chief Executive Officer of Saffron Energy, Sara Edmonson commented: "These results reflect the performance of our historic portfolio of three gas fields in Northern Italy. Our focus is now very much on driving the business forward from its Italian platform to identify exciting multi-TCF opportunities in South East Asia. To that end we have raised funds to support this new strategy and strengthened the senior team to provide the bandwidth and local knowledge required to take the company's next steps in that region. We are very excited about Coro's future and look forward to updating investors on our progress."
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
For further information please contact:
Hot Features
Premium
Saffron Energy plc / Coro Energy plc
s.edmonson@coroenergyplc.com
Sara Edmonson, Chief Executive Officer
j.parsons@coroenergyplc.com
James Parsons, Non-Executive Chairman
Grant Thornton UK LLP (Financial and Tel: +44 (0)20 383 5100
Nominated Adviser)
Colin Aaronson
Jen Clarke
Harrison J Clarke
Turner Pope Investments (TPI) Ltd Tel: +44 (0)20 3621 4120
(Broker)
info@turnerpope.com
Ben Turner
James Pope
CHAIRMAN & CHIEF EXECUTIVE OFFICER'S STATEMENT
Following its Initial Public Offering in February 2017 as an Italian gas producer, Saffron Energy plc is now positioned as an exciting growth focused pan Euro Asian gas explorer.
Since its IPO, Saffron made solid operational progress, extending the Shell offtake agreement in Italy and securing first gas and commercial production at Bezzecca in addition to operating its existing production concession Sillaro. The Company also advanced its Sant' Alberto licence with the granting of a production concession in October 2017 whilst benefitting from very strong Mediterranean gas prices (achieving an average gas sales price of EUR19.62 per megawatt hour during 2017). Full year revenues came in at EUR1.389M.
Following the signature of heads of terms in October 2017, the Company will change its name to Coro Energy Plc following approval by the shareholders at the AGM, secured GBP14M institutional funding, upgraded its Board and announced a two pronged strategy:
i) Italian consolidation and expansion
The SEHIL Acquisition will substantially increase the Company's hydrocarbon asset base and will create a balanced portfolio of production, development and exploration stage assets, along with the associated fixed plant infrastructure. The combined Italian portfolio will contain total 2P (Proved and Probable) gas reserves of approximately 205.10 MMscm and 2C (Contingent) gas resources of approximately 660.20 MMscm and total 2C oil resources of 2.40 MMbbls. The Directors believe that Italy remains an attractive market with gas and oil of high quality, an accessible and low-cost transportation network and a pricing environment that has been stable and higher than other comparable European countries.
ii) South East Asian exploration
South East Asia has some of the fastest developing economies in the world which combined with increasing regional gas shortages and recent underinvestment in exploration present a compelling investment proposition at this point in the cycle.
Building upon the expertise and connectivity of its new team, Saffron has therefore initiated an international growth strategy focused on multi Tcf (trillion cubic feet), low cost, onshore gas piped to high value, in growing South East Asian markets.
To facilitate its growth strategy, the Company has introduced a series of high profile Director and Management appointments including:
- Mr James Parsons was appointed to the Board as Non-Executive Chairman. James is currently CEO of Sound Energy Plc and Non-Executive Chairman of Echo Energy Plc. He has over 20 years' experience in the oil and gas industry having started his career with the Royal Dutch Shell Group in 1994.
- Mrs Fiona MacAulay was appointed to the Board as Non-Executive Director. Fiona is a Chartered Geologist and is currently CEO of Echo Energy Plc and brings with her over 30 years of experience in the oil and gas industry including prior roles as Chief Operating Officer and Technical Director. She is also the European President of the American Association of Petroleum Geologists.
- Mr Marco Fumagalli was appointed to the Board as Non-Executive Director. Marco is also a Non-Executive Director of Sound Energy Plc, Echo Energy Plc and CIP Merchant Capital Limited, the former of which supported the company with a cornerstone investment of GBP6M post period end.
- Mr Ilham Habibie was appointed to the Board post period end. Ilham is Indonesian and has been the CEO and President of a number of aerospace and other companies which he founded as well as being a Non-Executive Director of Sound Oil Plc (now known as Sound Energy Plc).
- Mr James Menzies. James is a qualified geologist with over 30 years' experience in the oil and gas industry. He is a specialist South East Asian explorer who founded Salamander Energy Plc, serving as CEO for 10 years before selling to Ophir Energy Plc in 2015 in a transaction that valued the business at $850M.
- Mrs Sara Edmonson stepped up to CEO from Non-Executive Director to lead the Company through the acquisition of SEHIL and post period end will take the position of Deputy CEO following the introduction of Mr James Menzies as CEO effective as of 1 May 2018. Sara was previously CEO of ASX listed Po Valley Energy Ltd.
James Parsons Sara Edmonson Non-Executive Chairman Chief Executive Officer
28 March 2018
OPERATIONS REPORT
Production Assets
Production for the period was from the Company's Sillaro and Bezzecca gas fields. Bezzecca commenced commercial production in the second quarter of the year and in July increased further following the installation of a downhole choke.
Total Production for the year amounted to 7 million standard cubic metres of gas (circa 247 million standard cubic feet). Production in 2016 for the same period was 4.4 million standard cubic metres (circa 156 million standard cubic feet).
The development and tie in of the Bezzecca gas field was completed and commissioned in Q2 with first gas flows on 18 April and full commercial production commencing at a steady state from the Level A interval in mid-May 2017. Layer R was not put on production due to unexpected water production even at limited rates. Over the first two weeks of July, layer S was added to production and produced in comingle with layer A. Well production rates and pressure were adjusted in order to allow for increased aggregate production from both levels. During 4Q 2017, the Bezzecca 1 well began to show signs of early water cuts in the reservoir. In order to prevent field production decline and increase overall production, the decision was made to perform a water shut off operation to open level R, which represented approximately 70% of the original total 2P reserves. Level R is circa 16 meters thick and was perforated at 4 different intervals with a relatively thick clay seal between the top two and bottom two perforations. The water shut off operation which targeted the bottom two perforations and the associated tests was deemed successful. Production restarted with layer R initially with at a rate of 18,000 scm/day with limited water production. Bezzecca-1 is currently producing from layer A at an average of 15,000 scm/day with limited water production.
Sillaro production from the current C0 level has exceeded the 3P estimates published at the time of the February 2017 IPO of Saffron Energy Plc. This level is near depletion and is expected to be fully depleted within June 2018. Increased production at Sillaro will be driven by a planned deviation well from Sillaro 1dir to access remaining reserves and contingent resources in the Miocene and Pliocene levels.
Development Assets
In Q3, the Company secured a full production concession for the gas field Sant'Alberto. The Sant' Alberto licence covers an area of 19.51km2 and is located very close to the Sillaro field. It requires a simple development, involving the installation of a modular gas processing facility and connection of this gas processing facility to the Italian national grid. The processing facility will comprise a separation and hydration system, nitrogen generation and a tank/vent. Completion of this development is expected within 2018.
2018. The Sant' Alberto production concession has 2P Reserves of 2.0 bcf (59.5 MMscm) and production capability is expected to peak at 29,500 scm / day.
Post period end, CGG has completed an evaluation of Saffron's reserves and associated value. As at 16 February 2018, the Company's ownership in its three existing Italian licenses had 2P reserves of 186.1 MMscm (6.5 Bcf) and resources of 102.4 MMscm (3.6 Bcf).
Enzo Vegliante
Production and Development Manager
28 March 2018
FINANCIAL REPORT
During the 12 months to 31 December 2017, net production generated revenues of EUR1.389M. These revenue numbers were strengthened with the commercialisation of gas being produced from Bezzecca in the second quarter of the year. The Group's direct operating expenses were EUR1.117M, allowing the Group to make a small operating profit for the financial year in review.
Property, plant and equipment (comprising producing properties) as at end December 2017 stood at EUR2,148M while resource property costs, including exploration phase and production phase, stood at EUR1,904M. Non-cash impairments to the carrying value of the Group's assets have been provided for in the results for the year ended 31 December 2017 totalling EUR3.595M. Of this total impairment, EUR654k is against Sillaro and EUR2.941M against Bezzecca which is largely attributable to the sub-surface issues realised in the fourth quarter, which now appear to be resolved.
During the year, the Company raised total gross proceeds of GBP3,750,000. The Company raised GBP2,500,000 as it admitted to trading on AIM in February 2017. These funds were to be applied towards the development of the Company's two production licences and one near-term production concession. In September the Company raised a further gross amount of GBP1,250,000 with these proceeds being applied towards advancement and evaluation of new corporate growth opportunities as well as advancing initiatives to increase production at Sillaro and Bezzecca. A total of 85,907,500 new ordinary shares in the Company were issued over the period.
The Company continues to make repayment of vendor financing relating to the pipeline tie in for Bezzecca. This remains at a modest amount which is currently more than covered from production revenues and is paid monthly in equal instalments.
Post period end and in support of the proposed merger, new Board and launch of international growth strategy the Company announced it had secured conditional funding of GBP14,000,000. This was corner-stoned by new investor CIP Merchant Capital Limited. The Company closed a firm placing raising GBP561,138 with CIP in January 2018 and the balance of GBP13,438,862 remains conditional only subject to shareholder approval which is being sought contemporaneously with the approval for the proposed merger at the General Meeting scheduled for 29 March 2018.
Andrew Dennan
Chief Financial Officer
28 March 2018
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2017
Group Company
31 December 31 December 31 December
2017 2016 2017
NOTE EUR'000 EUR'000 EUR'000
Non-Current Assets
Inventory 252 733 -
Loans to subsidiary 26 - - 3,124
Investments 21 - - 5,637
Deferred tax assets 12 1,995 1,995 -
Property, plant & equipment 15 2,148 2,337 -
Resource property costs 16 1,904 5,602 -
Other assets 72 138 -
------------ ------------ ------------
Total non-current assets 6,371 10,805 8,761
------------ ------------ ------------
Current Assets
Cash and cash equivalents 365 107 262
Trade and other receivables 17 664 241 87
------------ ------------ ------------
Total current assets 1,029 348 349
------------ ------------ ------------
Total assets 7,400 11,153 9,110
============ ============ ============
Liability and equity
Current Liabilities
Trade and other payables 18 2,100 1,627 383
Borrowings 26 - 346 -
Provisions 19 38 52 -
------------ ------------ ------------
Total current liabilities 2,138 2,025 383
------------ ------------ ------------
Non-Current Liabilities
Long term borrowings - 1,446 -
Provisions 19 4,802 4,962 -
Total non-current liabilities 4,802 6,408 -
------------ ------------ ------------
Total Liabilities 6,940 8,433 383
============ ============ ============
Group Company
31 December 31 December 31 December
2017 2016 2017
NOTE EUR'000 EUR'000 EUR'000
Equity
Share capital 20 217 19,128 217
Share premium 20 13,748 - 13,748
Merger reserve 21 9,128 - -
Accumulated losses (22,633) (16,408) (5,238)
------------ ------------ ------------
Total equity 460 2,720 8,727
------------ ------------ ------------
Total equity and liabilities 7,400 11,153 9,110
------------ ------------ ------------
The Accounting Policies and Notes on pages 29 to 53 form part of these financial statements.
The financial statements were approved by the Board of Directors on 28 March 2018.
James Parsons
Non-Executive Chairman
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2017
Group
NOTE 31 December 31 December
2017 2016
EUR'000 EUR'000
Revenue 5 1,389 701
Operating costs (1,117) (440)
Depreciation and amortisation
expense 6 (256) (591)
------------ ------------
Gross profit / (loss) 16 (330)
Other income 36 170
Employee benefits - corporate 8 (774) (723)
Depreciation expense 6 (6) (10)
Corporate overheads 7 (1,199) (606)
Exploration costs expensed (4) (287)
Impairment losses 9 (4,844) (4,615)
------------ ------------
Loss from operating activities (6,775) (6,401)
Finance income - -
Finance expense (252) (71)
------------ ------------
Net finance cost 10 (252) (71)
------------ ------------
Loss before income tax expense
(6,472)
Income tax expense 12 (7,027) 506
------------ ------------
Loss for the period (7,027) (5,966)
Other comprehensive income - -
Total comprehensive loss for
the period (7,027) (5,966)
============ ============
Loss attributable to:
Owners of the Company (7,027) (5,966)
Non-controlling interests - -
------------ ------------
Loss for the period (7,027) (5,966)
============ ============
Total comprehensive loss attributable
to:
Owners of the Company (7,027) (5,966)
Non-controlling interests - -
------------ ------------
Total comprehensive loss for
the period (7,027) (5,966)
============ ============
Basic and diluted earnings
per share (EUR) 13 (0.046) (0.85)
As permitted by s408 of Companies Act 2006, the Company has not presented its own income statement. The Company loss for the 14-month period to 31 December 2017 was EUR5,238k.
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2017
Attributable to equity shareholders of the Parent
Share Premium Merger Reserve Accumulated
Share capital EUR'000 EUR'000 Losses Total
EUR'000 EUR'000 EUR'000
Balance at 1 January 2016 10,000 - - (16,202) (6,201)
Total comprehensive loss for the period:
Loss for the period - - - (5,966) (5,966)
Other comprehensive income - - - - -
-------------- -------------- --------------- ------------ ---------
Total comprehensive income for the period - - - (5,966) (5,966)
Contributions by owners - - - 5,245 5,245
Issue of share capital 9,128 - - - 9,128
Balance at 31 December 2016 19,128 - - (16,408) 2,720
============== ============== =============== ============ =========
Balance at 1 January 2017 19,128 - - (16,408) 2,720
Total comprehensive loss for the period:
Loss for the period - - - (7,027) (7,027)
Other comprehensive income - - - - -
-------------- -------------- --------------- ------------ ---------
Total comprehensive income for the period - - - (7,027) (7,027)
-------------- -------------- --------------- ------------ ---------
Transactions with owners recorded directly
in equity:
Contributions by owners - - - 802 802
Group reorganisation (refer note 21) (19,128) - 9,128 - (10,000)
Issue of share capital 212 14,212 - - 14,424
Share based payments for services rendered
(non-cash) 5 251 - - 256
Transaction costs relating to issue
of shares - (715) - - (715)
-------------- -------------- --------------- ------------ ---------
Balance at 31 December 2017 217 13,748 9,128 (22,633) 460
============== ============== =============== ============ =========
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE 14 MONTHSED 31 DECEMBER 2017
Attributable to equity Shareholders
Share Premium Accumulated
Share capital EUR'000 Losses Total
EUR'000 EUR'000 EUR'000
Total comprehensive loss for the period:
Loss for the period - - (5,238) (7,174)
Other comprehensive income - - - -
---- ------- -------- --------
Total comprehensive income for the period - - (5,238) (7,174)
---- ------- -------- --------
Transactions with owners recorded directly
in equity:
Issue of share capital 154 4,270 - 4,424
Share based payments for services rendered
(non-cash) 5 251 - 256
Share based payments for acquisition of
subsidiary (non-cash) 58 9,942 - 10,000
Transaction costs relating to issue of
shares - (714) - (714)
---- ------- -------- --------
Balance at 31 December 2017 217 13,748 (5,238) 8,727
==== ======= ======== ========
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2017
Group Company
14 months
ended 31
31 December 31 December December
2017 2016 2017
NOTE EUR'000 EUR'000 EUR'000
Cash flows from operating
activities
Receipts from customers 1,352 1,103 -
Payments to suppliers and
employees (3,191) (2,610) (362)
Interest paid (47) (1) -
Net cash used in operating
activities (1,886) (1,508) (362)
------------ ------------ ----------
Cash flows from investing
activities
Receipts for resource property
costs from joint operations
partners 128 522 -
Payments for resource property
costs and production plant
and equipment (741) (765) -
------------ ------------ ----------
Net cash used in investing
activities (613) (243) -
------------ ------------ ----------
Cash flows from financing
activities
Proceeds from issues of shares 4,326 - 4,326
Transaction costs relating
to issue of shares (578) - (578)
Proceeds from borrowings 678 1,746 -
Repayment of borrowings (1,669) (2,297) -
Loans to subsidiary undertaking - - (3,124)
------------ ------------ ----------
Net cash provided by / (used
in) financing activities 2,757 (551) 624
------------ ------------ ----------
Net increase / (decrease)
in cash and cash equivalents 258 (2,302) 262
------------ ------------ ----------
Cash and cash equivalents
at the beginning of the year 107 2,409 -
------------ ------------ ----------
Cash and cash equivalents
at the end of the year 365 107 262
============ ============ ==========
NOTES TO THE CONSOLIDATED FINACIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2017
Note 1: CORPORATE INFORMATION
Saffron Energy Plc ("the Company") is a company incorporated in England in November 2016. The consolidated financial statements for the year ended 31 December 2017 comprises the Company and its interests in its 100% owned subsidiary and jointly controlled operations (together referred to as the "Group").
The Group is primarily involved in the exploration, appraisal, development of and production from gas properties in the Po Valley region in Italy.
Note 2: BASIS OF PREPARATION (a) STATEMENT OF COMPLIANCE
The financial Statements are prepared in accordance with International Financial Reporting Standards and IFRIC interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
(b) BASIS OF MEASUREMENT
These financial statements have been prepared on the basis of historical cost.
(c) GOING CONCERN
The financial statements have been prepared assuming that the Group will continue as a going concern. Under the going concern assumption, the entity is ordinarily viewed as continuing its business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations.
The assessment has been made based on the Group's economic prospects, which included those of the proposed enlarged group, which have been included in the forecast, in particular for 12 months from the date of approval of the financial statements.
Consideration has also been given in respect of development of the proposed fundraising. Based on the available information the Directors continue to adopt the going concern basis in the preparation of the financial statements.
(d) FUNCTIONAL AND PRESENTATION CURRENCY
The consolidated financial statements are presented in Euro, rounded to the nearest EUR1,000 (EUR'000), which is the Company's and the Group entities functional currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss as finance income or expense.
Non-monetary assets and liabilities denominated in foreign currencies are translated at the date of transaction.
(e) USE OF ESTIMATES AND JUDGEMENTS
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The Group based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Group. Actual results may differ from these estimates.
Estimates and underlying assumptions are based on complex or subjective judgments and past experience of other assumptions deemed reasonable in consideration of the information available at the time and are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Reserve estimates
Estimation of reported recoverable quantities of Proven and Probable reserves include estimates regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows. It also requires interpretation of complex geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. The Group reserves and mineral resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the reserve and suitable production techniques and recovery rates.
A change in any, or a combination of, the key assumptions used to determine the reserve estimates could have a material impact on the carrying value of the project via depreciation rates or impairment assessments. The reserve estimates are reviewed at each reporting date and any changes to the estimated reserves are recognized prospectively to depreciation and amortisation. Any impact of the change in the reserves is considered on asset carrying values and impairment losses, if any, are immediately recognized in the profit or loss.
Rehabilitation provisions
Costs relating to rehabilitation are many years in the future and the precise requirements this will have to be met when the removal event occurs are uncertain. Technologies and costs are constantly changing, as well as political, environmental, safety and public expectations.
The value of these provisions represents the discounted value of the present obligations to restore, dismantle and rehabilitate each well site. Significant estimation is required in determining the provisions for rehabilitation and closure as there are many transactions and other factors that will affect ultimate costs necessary to rehabilitate the sites. The discounted value reflects a combination of management's best estimate of the cost of performing the work required, the timing of the cash flows and the discount rate.
A change in any, or a combination of, the key assumptions used to determine the provisions could have a material impact on the carrying value of the provisions. The provision recognised for each site is reviewed at each reporting date and updated based on the facts and circumstances available at that time. Changes to the estimated future costs for operating sites are recognised in the statement of financial position by adjusting both the restoration and rehabilitation asset and provision.
Impairment of non-current assets
Assets are impaired when there are events or changes in circumstances that indicate the carrying values of the assets are not recoverable. The ultimate recoupment of the value of resource property costs and property plant and equipment is dependent on successful development and commercial exploitation, or alternatively, sale, of the underlying properties, all of which are subject to numerous variables. The Group undertakes at least on an annual basis, a comprehensive review for indicators of impairment of these assets. Should an impairment indicator exist, the Cash Generating Unit is tested for impairment. There is significant estimation involved in determining the inputs and assumptions used in determining the recoverability amounts.
The key areas of estimation involved in determining recoverable amounts include:
-- Recent drilling results and reserves and resources estimates -- Environmental issues that may impact the underlying licences -- The estimated market value of assets at the review date
-- Fundamental economic factors such as the gas price and current and anticipated operating costs in the industry
-- Future production rates and sales prices
The estimated value in use is based on the present values of expected future cash flows net of disposal costs. The expected future cash flows used for impairment analyses are based on judgmental assessments of future production volumes, prices and costs, considering available information at the date of review and are discounted by using a rate that considers the risks specific to the asset.
The pre-tax discount rate used for impairment purposes is 10.0% and which reflects the current market valuation of the time value of money and of the specific risks of the asset not reflected in the estimate of the future cash flows. Further details are in note 16.
Recoverability of deferred tax asset
The recoverability of deferred tax assets is dependent on the availability of profits in future years. The Group undertakes a forecasting exercise at each reporting date to assess its expected utilisation of these losses.
The key areas of estimation involved in determining the forecasts include:
-- Future production rates
-- Economic factors such as the gas price and current and anticipated operating costs in the industry
-- Capital expenditure expected to be incurred in the future
A change in any, or a combination of, the key assumptions used to determine the estimates could have a material impact on the carrying value of the deferred tax asset. Changes to estimates are recognised in the period in which they arise.
Carrying value of inventory
Historically inventory has been recorded at cost. In preparation of the year-end accounts, Management commissioned an independent appraisal of the Company's inventory. As a direct result, at 31 December 2017 the inventory balance represents the market value.
Note 3: SIGNIFICANT ACCOUNTING POLICIES
The Group has consistently applied the accounting policies set out in notes below to all periods presented in the financial statements. The Company's figures are for 14 months being the first reporting period for the Company from incorporation to 31 December 2017. See note 3a) for the explanation as to their being comparatives for the group.
All new and amended accounting standards and Interpretations effective from 1 January 2017 have been adopted.
(a) PRINCIPLES OF CONSOLIDATION (i) Group reorganisation
In November 2016 a new parent company, Saffron Energy Plc, was introduced for the purposes of acquiring Northsun Italia S.p.A (the subsidiary) from the groups ultimate controlling entity Po Valley Energy Ltd.
The introduction of a new holding company constitutes a Group reconstruction and has been accounted for using merger accounting principles. Therefore, although the Group reconstruction become effective in January 2017, the consolidated financial statements of Saffron Energy Plc are presented as if Saffron Energy Plc had always been part of the same Group. Accordingly, the results of the Group for the entire year ended 31 December 2017 are shown in the consolidated financial statements and the comparative figures for the year ended 31 December 2016 are also prepared on this basis.
The consolidated financial statements include the results of Saffron Energy Plc and its subsidiary undertaking made up to the same accounting date. All intra-Group balances, transactions, income and expenses are eliminated in full on consolidation.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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 financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.
Investments in subsidiaries are carried at cost less any impairment losses.
(iii) Joint arrangements
The Group classifies its interests in joint arrangements as either joint operations or joint ventures (see below) depending on the Group's rights to the assets and obligation for the liabilities of the arrangements. When making this assessment, the Group considers the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances.
Joint operation - when the Group has rights to the assets, and obligations for the liabilities, relating to an arrangement, it accounts for each of its assets, liabilities and transactions, including its share of those held or incurred jointly, in relation to the joint operation.
(iv) Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
(b) TAXATION
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity or in comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the date of the statement of financial position, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted at the date of the statement of financial position.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Judgement is required to determine which arrangements are considered to be a tax on income as opposed to an operating cost. Judgement is also required to determine whether deferred tax assets are recognised in the statement of financial position. Deferred tax assets, including those arising from unutilised tax losses, require management to assess the likelihood that the Company will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred tax assets.
Assumptions about the generation of future taxable profits depend on management's estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, oil and natural gas prices, reserves, operating costs, decommissioning costs, capital expenditure, dividends and other capital management transactions) and judgement about the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realise the net deferred tax assets recorded at the reporting date could be impacted. In addition, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company to obtain tax deductions in future periods.
(c) IMPAIRMENT (i) Financial assets (including receivables)
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost that are debt securities, the reversal is recognised in profit or loss.
(ii) Non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset (or CGU) may be impaired. Management has assessed its CGUs as being an individual field, which is the lowest level for which cash inflows are largely independent of those of other assets. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's or CGU's recoverable amount. The recoverable amount is the higher of an asset's or CGU's fair value less costs of disposal (FVLCD) and value in use (VIU). The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the asset is tested as part of a larger CGU to which it belongs. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset/CGU is considered impaired and is written down to its recoverable amount.
The Group bases its impairment calculation on detailed budgets and forecasts, which are prepared separately for each of the Group's CGUs to which the individual assets are allocated. These budgets and forecasts generally cover the forecasted life of the CGUs. VIU does not reflect future cash flows associated with improving or enhancing an asset's performance.
Impairment losses of continuing operations, including impairment of inventories, are recognised in the statement of profit or loss and other comprehensive income in those expense categories consistent with the function of the impaired asset.
For assets/CGUs, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's/CGU's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset/CGU does not exceed either its recoverable amount, or the carrying amount that would have been determined, net of depreciation/amortisation, had no impairment loss been recognised for the asset/CGU in prior years. Such a reversal is recognised in the statement of profit or loss and other comprehensive income.
(d) PROPERTY PLANT & EQUIPMENT (i) Recognition and measurement
Items of property, plant and equipment are recorded at cost less accumulated depreciation, accumulated impairment losses and pre-commissioning revenue and expenses.
The cost of plant and equipment used in the process of gas extraction are accounted for separately and are stated at cost less accumulated depreciation and impairment costs.
Cost includes expenditure that is directly attributable to acquisition of the asset.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised within "other income" in profit or loss.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with expenditure will flow to the Group.
(iii) Depreciation
Gas producing assets
When the gas plant and equipment is installed ready for use, cost carried forward will be depreciated on a unit-of -production basis over the life of the economically recoverable reserve. The depreciation rate of gas plant and equipment incurred in the period for each project in production phase is as follows:
2017 2016
Bezecca 3.40% -
Sillaro 5.23% 11.29%
Oil and gas properties are depreciated using the UOP method over total proved developed and undeveloped hydrocarbon reserves. This results in a depreciation/amortisation charge proportional to the depletion of the anticipated remaining production from the field.
The life of each item, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the field at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves and estimates of future capital expenditure. The calculation of the UOP rate of depreciation/amortisation will be impacted to the extent that actual production in the future is different from current forecast production based on total proved reserves, or future capital expenditure estimates change.
Changes to proven reserves could arise due to changes in the factors or assumptions used in estimating reserves, including:
-- The effect on proved reserves of differences between actual commodity prices and commodity price assumptions
-- Unforeseen operational issues.
Other property, plant and equipment
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The depreciation will commence when the asset is installed ready for use.
The estimated useful lives of each class of asset fall within the following ranges:
Office furniture & equipment 3 - 5 years
The residual value, the useful life and the depreciation method applied to an asset are reviewed at each reporting date.
(e) FINANCIAL INSTRUMENTS (i) Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables.
Non-derivative financial instruments are recognised initially as fair value plus, for instruments not at fair value through profit and loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group's contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group's obligation specified in the contract expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
(ii) Share Capital
Ordinary Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.
Dividends
Dividends are recognised as a liability in the period in which they are declared.
(f) RESOURCE PROPERTY COSTS
Resource property costs are accumulated in respect of each separate area of interest.
(i) Exploration properties
Exploration properties are carried at date of statement of financial position at cost less accumulated impairment losses. Exploration properties include the cost of acquiring resource properties, mineral rights and exploration, evaluation expenditure incurred subsequent to acquisition of an area of interest.
Exploration properties are carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest, or, where exploration and evaluation activities in the area of interest have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.
Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technically feasibility and commercial viability or facts and circumstances suggest that the carrying value amount exceeds the recoverable amount.
Exploration and evaluation assets are tested for impairment when any of the following facts and circumstances exist:
-- The term of the exploration license in the specific area of interest has expired during the reporting period or will expire in the near future, and is not expected to be renewed;
-- Substantive expenditure on further exploration for an evaluation of mineral resources in the specific area are not budgeted nor planned;
-- Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the decision was made to discontinue such activities in the specific area; or
-- Sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.
Areas of interest which no longer satisfy the above policy are considered to be impaired and are measured at their recoverable amount, with any subsequent impairment loss recognised in the profit and loss.
(ii) Production properties
Production properties are carried at balance sheet date at cost less accumulated amortisation and accumulated impairment losses. Production properties represent the accumulation of all exploration, evaluation and development and acquisition costs in relation to areas of interest in which production licences have been granted and the related project has moved to the production phase.
Amortisation of costs is provided on the unit-of-production basis, separate calculations being performed for each area of interest. The unit-of-production base results in an amortisation charge proportional to the depletion of economically recoverable reserves. The amortisation rate incurred in the period for each project in production phase is as follows:
2017 2016
Bezecca 3.40% -
Sillaro 5.23% 11.29%
Amortisation of resource properties commences from the date when commercial production commences.
When the value of the exploitable production property has diminished below cost, the asset is written down to its recoverable amount.
The Group reviews the recoverable amount of resource property costs at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated
(g) RESTORATION PROVISIONS
Long term environmental obligations are based on the Group's environmental and rehabilitation plans, in compliance with current environmental and regulatory requirements.
Full provision is made based on the net present value of the estimated cost of restoring the environmental disturbances that have occurred up to the date of the statement of financial position and abandonment of well sites and production fields. Increases due to additional environmental disturbances, relating to the development of an asset, are capitalised and recorded in resource property costs, and amortised over the remaining useful lives of the areas of interest. The net present value is determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the liability.
Annual increases in the provision relating to the unwind of the discount rate are accounted for in the statement of profit or loss as finance expense.
The estimated costs of rehabilitation are reviewed annually and adjusted against the relevant rehabilitation asset, as appropriate for changes in legislation, technology or other circumstances including drilling activity and are accounted for on a prospective basis. Cost estimates are not reduced by potential proceeds from the sale of assets.
(h) EMPLOYEE BENEFITS (i) Long-term service benefits
The Group's net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including on-costs and expected settlement dates and is discounted using the rates attached to the Government bonds at the balance sheet date which have maturity dates approximating to the terms of the Group's obligations.
(ii) Wages, salaries, annual leave, sick leave and non-monetary benefits
Liabilities for employee benefits for wages, salaries, annual leave and sick leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees services provided to reporting date, are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax.
(iii) Superannuation
The Group contributes to defined contribution superannuation plans. Contributions are recognised as an expense as they are due.
(i) REVENUE
Revenues is measured at fair value of the consideration received or receivable, net of the amount of value added tax ("VAT") payable to the taxation authority. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, there is no continuing management involved with the goods, and the amount of revenue can be measured reliably.
Gas sales revenue is recognised when control of the gas passes at the delivery point. Proceeds received in advance of control passing are recognised as unearned revenue.
(j) INVENTORY - WELL EQUIPMENT
Inventory is comprised of well equipment expected to be utilised in future development of known wells with specific characteristics. Inventory is carried at cost less impairment. Any impairment on value is taken to profit and loss.
(k) CHANGES TO ACCOUNTING POLICIES, DISCLOSURES, STANDARDS AND INTERPRETATIONS
International Financial Reporting Standards and Interpretations issued but not effective for the reporting period ending 31 December 2017 which are relevant to the Group are outlined below:
Reference Title Summary Application date Impact on Application date
of standard financial for Group
statements
---------- ----------------- ----------------------------------------------------------------- ----------------- ----------------- -----------------
IFRS9 Financial Classification and measurement 1 January 2018 The application 1 January 2018
Instruments In July 2014, the IASB issued the final version of IFRS 9 of this new
Financial Instruments that replaces standard will
IAS 39 and all previous versions of IFRS 9. IFRS 9 is effective not have a
for annual periods beginning material impact
on or after 1 January 2018, with early application permitted. on the financial
Except for hedge accounting, report,
retrospective application is required, but the provision of as the
comparative information is not classification
compulsory. of the debt
The main changes to the Group accounting policy are described instruments will
below: not change.
* Financial assets that are debt instruments will be
classified based on (1) the objective of the entity's
business model for managing the financial assets; (2)
the characteristics of the contractual cash flows.
---------- ----------------- ----------------------------------------------------------------- ----------------- ----------------- -----------------
IFRS 9 Financial Financial liabilities 1 January 2018 The application 1 January 2018
Instruments Changes introduced by this standard in respect of financial of this new
liabilities are limited to the standard will
measurement of liabilities designated at fair value through not have a
profit or loss (FVPL) using the material impact
fair value option on the financial
Where the fair value option is used for financial report
liabilities, the change in fair value is as the Group
to be accounted for as follows: does not hold
* The change attributable to changes credit risk are FVPL
presented in other comprehensive income (OCI) liabilities.
* The remaining change is presented in profit or loss
The Standard also removes the volatility in profit or loss
that was caused by changes in the
credit risk of liabilities elected to be measured at fair
value. This change in accounting
means that gains or losses attributable to changes in the
entity's own credit risk would be
recognised in OCI. These amounts recognised in OCI are not
recycled to profit or loss if the
liability is ever repurchased at a discount.
Impairment
The standard introduces a new expected-loss impairment
model that will require more timely
recognition of expected credit losses. Specifically, the
new Standard requires entities to
account for expected credit losses from when financial
instruments are first recognised and
to recognise full lifetime expected losses on a more timely
basis.
------------ ----------------- ----------------------------------------------------------------- ----------------- ----------------- ---------------
IFRS 15 Revenue from The Standard replaces IAS 18 and specifies the accounting 1 January 2018 The application 1 January 2018
contracts with treatment for revenue arising from of this Standard
customers contracts with customers.The core principle is that an entity will not have a
recognises revenue to depict material impact
the transfer of promised goods or services to customers in an on the financial
amount that reflects the consideration report as
to which the entity expects to be entitled in exchange for those the transaction
goods or services. An entity price and
recognises revenue in accordance with that core principle by performance
applying the following steps: obligations for
(a) Step 1: Identify the contract(s) with a customer the Group's
(b) Step 2: Identify the performance obligations in the contract revenue from
(c) Step 3: Determine the transaction price contracts as
(d) Step 4: Allocate the transaction price to the performance determined under
obligations in the contract IFRS15 criteria
(e) Step 5: Recognise revenue when (or as) the entity satisfies will be the same
a performance obligation as under the
current standard
IAS18.
------------ ----------------- ----------------------------------------------------------------- ----------------- ----------------- ---------------
(l) SHARE-BASED PAYMENTS
Share based payments relate to transactions where the Group receives services and the terms of the arrangements include payment of a part or whole of consideration by issuing shares to the counterparty. The Group measures the services received from non-employees, and the corresponding increase in equity, at the fair value of the goods or services received. When the transactions are with the employees, the fair value is measured by reference to the fair value of the shares issued.
Note 4: FINANCIAL REPORTING BY SEGMENTS
The Group reportable segments as described below are the Group's strategic business units. The strategic business units are classified according to field licence areas which are managed separately. All strategic business units are in Italy. For each strategic business unit, the CEO reviews internal management reports on a monthly basis. Exploration, Development and Production gas and oil are the operating segments identified for the Group.
Exploration Development and Production Total
31 December 31 December 31 December 31 December 31 December 31 December
2017 2016 2017 2016 2017 2016
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
External revenues - - 1,389 701 1,389 701
Segment loss before tax (775) (287) (4,060) (4,945) (4,835) (5,232)
Depreciation and amortisation - - (256) (591) (256) (591)
Impairment on resource
property
costs (771) (287) (4,075) (4,615) (4,847) (4,902)
31 December 31 December 31 December 31 December 31 December 31 December
2017 2016 2017 2016 2017 2016
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Reportable segment assets:
Resource property costs 1,745 5,003 159 599 1,904 5,602
Property, Plant & Equipment - - 2,141 2,325 2,141 2,325
Receivables - - 267 145 267 145
Inventory - - 252 732 252 732
Capital expenditure 165 179 783 64 948 243
(Decrease) / increase in
rehabilitation
assets (131) 49 (86) 47 (217) 96
Reportable segment liabilities (1,156) (2,214) (4,897) (3,938) (6,054) (6,152)
Reconciliation of reportable segment profit 31 December 31 December
or loss, assets and liabilities 2017 2016
Profit or loss: EUR'000 EUR'000
Total profit loss for reportable segments (4,835) (5,232)
Unallocated amounts:
Net finance income / (expense) (248) (71)
Corporate expenses (1,944) (1,169)
------------ ------------
Loss before income tax (7,027) (6,472)
============ ============
Assets:
Total assets for reportable segments 4,564 8,828
Other assets 2,836 2,325
------------ ------------
Total assets 7,400 11,153
============ ============
Liabilities:
Total liabilities for reportable segments (6,054) (6,152)
Other liabilities (886) (2,281)
------------ ------------
Total liabilities (6,940) (8,433)
============ ============
Geographical Information
All of the Group's revenue is currently attributed to gas sales in Italy through an off-take agreement with Shell Italia. For the current year, the Group's only customer contributed the entire revenue.
Note 5: REVENUE
Group
31 December 31 December
2017 2016
EUR'000 EUR'000
Sales Revenue - Gas 1,389 701
============ ============
Note 6: DEPRECIATION AND AMORTISATION
Group
31 December 31 December
2017 2016
Sillaro: EUR'000 EUR'000
Depreciation of production property,
plant & Equipment (115) (194)
Amortisation of Resource Property
Costs (31) (397)
Bezzecca:
Depreciation of production property,
plant & Equipment (5) -
Amortisation of Resource Property
Costs (105) -
Corporate:
Other property, plant & equipment (6) (10)
------------ ------------
Total Depreciation and Amortisation (262) (601)
============ ============
Note 7: CORPORATE OVERHEADS
Group
31 December 31 December
2017 2016
EUR'000 EUR'000
Company administration and compliance 197 117
Professional fees 679 118
Office costs 146 120
Travel and entertainment 75 41
Other expenses 102 210
------------ ------------
1,199 606
============ ============
Note 8: EMPLOYEES AND DIRECTORS
Group
31 December 31 December
2017 2016
EUR'000 EUR'000
Wages and salaries 525 591
Contributions to defined contribution
superannuation plans and social
security costs
Directors remuneration 61 132
Share based payments 131 -
57 -
------------ ------------
Total employee benefits 774 723
------------ ------------
Average number of employees 5 5
============ ============
Note 9: IMPAIRMENT LOSSES
Group Company
31 December 31 December 31 December
2017 2016 2017
EUR'000 EUR'000 EUR'000
Inventory written down 481 - -
Production property, plant and
equipment (Note 15) 71 - -
Resource property costs - exploration
(Note 16) 768 - -
Resource property costs - production
(Note 16) 3,524 4,615 -
Impairment of investments in subsidiary - - 4,363
------------ ------------ ------------
4,844 4,615 4,363
============ ============ ============
Note 10: NET FINANCE COSTS
Group
31 December 31 December
2017 2016
EUR'000 EUR'000
Interest expense 47 2
Unwinding of discount on restoration provision 58 69
Foreign exchange losses (net) 147 -
------------ ------------
Net finance costs 252 71
============ ============
Note 11: AUDITORS' REMUNERATION
Services provided by the Group's auditor and its associates
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company's auditor and its associates:
31 December
31 December 2017 2016
EUR'000 EUR'000
Fees payable to the Company's auditor
for the audit of the Parent Company and
consolidated financial statements 15 -
Note 12: INCOME TAX
12.1 INCOME TAX EXPENSE
Numerical reconciliation between aggregate tax expense recognised in the statement of profit or loss and other comprehensive income and tax expenses calculated per the statutory income tax rate
Group
31 December
31 December 2017 2016
EUR'000 EUR'000
Loss for the year before tax (7,027) (6,472)
Income tax benefit using the Group tax
rate of 24% 1,686 1,553
Current year losses and temporary differences
for which no deferred tax asset was recognised (613) (204)
Changes in temporary differences (154) (393)
Other non-deductible expenses (919) (450)
----------------- ------------
Income tax expense / (benefit) - 506
================= ============
12.2 DEFERRED TAX ASSETS
Deferred tax assets have been recognised in respect of tax losses
and temporary differences based on management assessment that future
taxable profit will be available against which the Group can utilise
the benefits therefrom. Deferred tax assets amounting to EUR1,994,913
have been recognised in relation to the Italian subsidiary's available
tax losses and temporary differences.
Note 13: Earnings PER SHARE
31 December 31 December
2017 2016
Basic loss per share (EUR) (0.046) (0.85)
Diluted loss per share (EUR) (0.046) (0.85)
The calculation of basic loss per share was based on the loss attributable
to shareholders of EUR7,027,000 (2016: EUR5,966,000) and a weighted
average number of ordinary shares outstanding during the year of
152,665,466 (2016: 6,998,872).
On 7 March 2018, the Company announced GBP13.4 million share subscription
was fully subscribed. The issue of shares as a result will impact
the loss per share by dilution.
Note 14: TRADE AND OTHER RECEIVABLES
Group Company
31 December 31 December 31 December
2017 2016 2017
EUR'000 EUR'000 EUR'000
Trade receivables from gas
sales customers 126 69 -
Accrued revenue for gas sales 159 76 -
Non-profit taxes receivable 315 64 27
Other receivables 64 32 60
------------ ------------ ------------
664 241 87
============ ============ ============
Note 15: PROPERTY, PLANT & EQUIPMENT
Group
31 December 31 December
2017 2016
EUR'000 EUR'000
Office Furniture & Equipment:
At cost 202 200
Accumulated depreciation (195) (189)
------------ ------------
7 11
------------ ------------
Gas producing plant and equipment
At cost 7,673 7,667
Accumulated depreciation (5,532) (5,341)
------------ ------------
2,141 2,326
------------ ------------
2,148 2,337
============ ============
Group
31 December 31 December
2017 2016
EUR'000 EUR'000
Reconciliations:
Reconciliation of the carrying
amounts for each class of
Plant & equipment are set out
below:
Office Furniture & Equipment:
Carrying amount at beginning
of period 11 21
Acquisition of assets 2 -
Depreciation expense (6) (10)
------------ ------------
Carrying amount at end of period 7 11
------------ ------------
Gas Producing plant and equipment:
Carrying amount at beginning
of period 2,325 1,903
Acquisition of assets - 633
Additions 6 -
Depreciation expense (119) (210)
Impairment loss (71) -
------------ ------------
Carrying amount at end of period 2,141 2,326
------------ ------------
2,148 2,337
============ ============
Note 16: RESOURCE PROPERTY COSTS
Group
31 December 31 December
2017 2016
EUR'000 EUR'000
Resource Property costs
Exploration 1,745 5,003
Production 159 599
------------ ------------
1,904 5,602
============ ============
Reconciliation of carrying amount of resource properties:
Group
31 December 31 December
2017 2016
Exploration Phase EUR'000 EUR'000
Carrying amount at beginning
of period 5,003 3,535
Acquisition of assets - 268
Exploration expenditure 165 1,454
Transfer to Production phase (2,524) 33
Change in estimate of rehabilitation
assets (131) -
Impairment losses (768) (287)
------------- -------------
Carrying amount at end of
period 1,745 5,003
============= =============
Resource property costs in the exploration and evaluation phase have
not yet reached a stage which permits a reasonable assessment of the
existence of, or otherwise, economically recoverable reserves. The
ultimate recoupment of resource property costs in the exploration
phase is dependent upon the successful development and exploitation,
or alternatively sale, of the respective areas of interest at an amount
greater than or equal to the carrying value.
During the period, the Group completed the development of the Bezzecca
field. Accumulated costs relating to this field were transferred to
production phase assets as production commenced in the second quarter
of the year.
The Group reviewed the carrying value of its assets and cash generating
units using a Value in Use CGU; in particular a valuation on Sant'
Alberto was calculated by CGG Services (UK) Limited for the purposes
of the Admission Document used for the restoration of trading of Saffron
Energy Plc on the AIM Board of the LSE. As a result of this assessment,
the recoverable value of Sant' Alberto at 31 December 2017 was EUR1.7million
resulting in an impairment of EUR768k being recognised.
Group
31 December 31 December
2017 2016
Production Phase EUR'000 EUR'000
Carrying amount at beginning
of period 599 3,350
Additions 782 64
Transfer from exploration 2,524 -
Acquisition of interest from
related party - 2,151
Change in estimate of rehabilitation
assets (86) 30
Amortisation of producing
assets (136) (381)
Impairment loss (3,524) (4,615)
------------ ------------
Carrying amount at end of
period 159 599
============ ============
The Group reviewed the carrying value of its assets and cash generating
units using a Value in Use CGU valuation. A valuation on Sillaro and
Bezzecca fields was calculated by CGG Services (UK) Limited for the
purposes of the Admission Document used for the restoration of trading
of Saffron Energy Plc on the AIM Board of the LSE.
The parameters used in the valuation model were as follows:
The discount rate applied was 10% post tax (10% at 31 December 2016).
As per price assumptions, a price deck provided by specialist advisors
CGG Services (UK Limited) for the Competent Persons Report used for
the Admission Document referred above. The complete Competent Persons
Report is available in the Admission Document of Saffron Energy Plc
which can be downloaded on the Company's web site www.saffronenergy.co.uk.
As a result of the revised assessment, the recoverable amounts of
the cash generating units (which includes production plant and equipment)
of Sillaro was EUR2.0 million and of Bezzecca was EUR0.3 million resulting
in impairment of EUR3,595k being recognised in the Financial Statements
(EUR71k of this amount was recognised against the production property,
plant and equipment of Sillaro - Note 15).)
Note 17: Trade and other receivables
Group Company
31 December 31 December 31 December
2017 2016 2017
EUR'000 EUR'000 EUR'000
Trade receivables 285 156 -
VAT and other taxes 314 78 27
Other receivables 65 7 60
664 241 87
============ ============ ============
Note 18: TRADE AND OTHER PAYABLES
Group Company
31 December 31 December 31 December
2017 2016 2017
EUR'000 EUR'000 EUR'000
Trade payables 1,152 1,181 137
Wages payable and related
taxes 40 23 -
Other payables 205 213 -
Accrued expenses 703 210 244
------------ ------------ ------------
2,100 1,627 382
============ ============ ============
Note 19: PROVISIONS
Group
31 December 31 December
2017 2016
EUR'000 EUR'000
Current:
Employee leave entitlements 38 31
Other provisions - 20
------------ ------------
38 51
Non-Current:
Restoration provision 4,802 4,962
============ ============
Reconciliation of restoration
provision:
Opening balance 4,962 3,616
Increase in provision by
acquisition of interest from
related party - 1,214
Increase in provision from
unwind of discount rate 57 63
Changes in provision due
to revised estimates (Note
16) (217) 69
------------ ------------
Closing balance 4,802 4,962
============ ============
Note 20: SHARE CAPITAL AND share premium
31 December 31 December
2017 2017
Number Share Capital Share Premium Total
000's EUR'000 EUR'000 EUR'000
At 31 December 2015 19,231 10,000 - 10,000
Issued following conversion
of liabilities 12,025 6,253 6,253
Issued for acquisition of
assets 5,529 2,875 2,875
------------ -------------- -------------- ------------
At 31 December 2016* 36,785 19,128 - 19,128
Issued on incorporation
(i) 50,000 60 - 60
Issued for the acquisition
of subsidiary 50,000 58 9,942 10,000
Group restructure (Note
21) (36,785) (19,128) - (19,128)
Issued for services rendered 3,720 4 210 214
Issued for cash on subscription
on AIM listing 50,000 59 2,884 2,943
Issued for services rendered 938 1 42 43
Issued for cash on private
placement 31,250 35 1,384 1,419
Share issue costs - (714) (714)
------------ -------------- -------------- ------------
Closing balance - 31 December
2017 185,908 217 13,748 13,965
============ ============== ============== ============
(i) 50,000 shares were issued for cash on 10 November 2016 and on 9 December 2016, the total shares on issue were subdivided into 50,000,000 shares.
All ordinary shares are fully paid and carry one vote per share and the right to dividends. In the event of winding up the Company, ordinary shareholders rank after creditors. Ordinary shares have a par value of GBP0.001 per share.
Share premium reserve
The company has nominal share price of 0.1pence per share. Share Premium Reserve represents value of securities above nominal value.
No dividends were paid or declared during the current period.
Note 21: INVESTMENTS IN SUBSIDIARIES
Company
2017
EUR'000
Cost 10,000
Impairment (4,363)
Net carrying value 5,637
=========
The Company's investments in subsidiaries include:
Name Registered office Nature of business Class of shares % held
held
Northsun Italia
S.p.A Italy Exploration Ordinary 100%
Group reorganisation
Po Valley Energy in 2016 initiated a capital re-structuring in order to separate its existing production and near-term production assets from its longer-term development assets, with the existing production and near-term production assets being transferred to the Group via the reorganisation of the ownership of Northsun Italia S.p.A.
In January 2017, the Company acquired 100 percent of the shares in Northsun Italia S.p.A from Po Valley Energy Ltd. Consideration of EUR10,000,000 for the acquisition was settled by the issue of 50,000,000 ordinary shares at GBP0.0175 each. The transaction resulted in the recognition of a merger reserve of EUR9,128,000 for the group being the difference between the value of shares issued and the nominal value of the subsidiary's shares received.
Note 22: FINANCIAL INSTRUMENTS
Carrying amount versus fair values
The fair values of financial assets and financial liabilities, together with the carrying amounts in the consolidated statement of financial position, are as follows.
31 December 2017 Carrying amount Fair value
EUR'000 EUR'000
Current financial assets
Trade and other receivables 664 664
Cash and cash equivalents 365 365
Current financial liabilities
Trade and other payables 2,100 2,100
31 December 2016 Carrying amount Fair value
EUR'000 EUR'000
Current financial assets
Trade and other receivables 240 240
Cash and cash equivalents 107 107
Current financial liabilities
Trade and other payables 1,627 1,627
Short term borrowings 802 346
Determination of fair values
The carrying value of cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair value.
The Group does not have any other financial instruments.
Financial risk management
Exposure to credit, market and liquidity risks arise in the normal course of the Group's business.
This note presents information about the Group's exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital.
Risk recognition and management are viewed as integral to the Group's objectives of creating and maintaining shareholder value, and the successful execution of the Group's strategies in gas exploration and development. The Board as a whole is responsible for oversight of the processes by which risk is considered for both ongoing operations and prospective actions. In specific areas, it is assisted by the Parent's Audit and Risk Committee.
Management is responsible for establishing procedures which provide assurance that major business risks are identified, consistently assessed and appropriately addressed.
(i) Credit risk
The Group is not exposed to significant credit risk. Credit risk with respect to cash is held with recognised financial intermediaries with acceptable credit ratings.
The Group has limited its credit risk in relation to its gas sales in that all sales transactions fall under an offtake agreement with Shell Italia which expires in October 2018. Shell currently has an option to extend the contract a second Gas Year from October 2018 to September 2019.
The Group has a concentration of credit risk exposure to its one customer (Shell Italia). Payment terms are 35 days and the customer has an investment grade credit rating.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset as shown in the table above.
(ii) Market Risk
Interest rate risk
The Group is primarily exposed to interest rate risk arising from cash and cash equivalents that are interest-bearing.
Currency risk
The Group is exposed to currency risk in respect to monetary assets and liabilities held in currencies other than Euro. The currency giving rise to this risk is primarily Pound Sterling.
Group
Amounts receivable/(payable) in foreign 2017 2016
currency other than functional currency: EUR'000 EUR'000
Cash 262 -
Current - Payables (137) -
Net Exposure 125 -
========= =========
The following significant exchange rates applied during the year:
Average rate Reporting date
spot rate
2017 2016 2017 2016
Pound Sterling (GBP) 1.142 - 1.126 -
Sensitivity Analysis
A 5 percent strengthening of the Pound Sterling (GBP) against the Euro (EUR) at 31 December would have increased (decreased) equity and profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. There were no material balances in 2016 that would impact on the currency risk.
Group
Profit or
loss Equity
31 December 2017 EUR'000 EUR'000
Pound Sterling (GBP) to Euro (EUR) 6 -
A 5 percent weakening of the Pound Sterling (GBP) against the Euro (EUR) at 31 December would have the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
(iii) Capital Management
The Group's policy is to maintain a strong capital base so as to maintain creditor confidence and to sustain future development of the business, safeguard the Group's ability to continue as a going concern and provide returns for shareholders. The Group currently does not hold any debt instruments. Capital is maintained from issue of new shares (note 20).
The Group is not subject to externally imposed capital requirements.
(iii) Liquidity Risk
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due.
Refer to the Going Concern note 2(c) for further commentary
Note 23: COMMITMENTS
The Italian oil and gas industry operates under a "drill or drop" regime whereby companies are obligated to carry out a work program filed and agreed with the Italian Ministry of Economic Development. The work program can only be carried out however when environmental (and other permitting) approval is received for the various activities. There are no mandatory work requirements for 2018 (the same as was the case for 2017).
Note 24: SHARE BASED PAYMENTS
The company issued the following shares in lieu of payments for services rendered:
No of shares Value of service
'000s EUR'000
Recognised in profit and loss and other comprehensive
income:
Sara Edmondson - bonus for completion
of AIM listing 1,000 57
Spencer Davey - consultant to
the Company 1,000 57
Cassiopeia - for services provided 720 41
------------- -----------------
2,720 155
============= =================
Recognised as share issue costs
in equity:
Turner Pope - broker remuneration
for completion of AIM listing 1,000 57
Turner Pope - for broker fees 938 42
------------- -----------------
1,938 99
============= =================
Note 25: JOINT OPERATIONS
The Group's interests in joint arrangements at 31 December 2017 are as follows:
Principal Principal
place of Activity
Joint Operation business Manager Group's Interest (Exploration)
Cascina Castello Production Italy Northsun 90% Gas
licence Italian
S.p.A
The Group has a farm-out agreement with Petrorep Italiana S.p.A ('Petrorep') which permits Petrorep to earn a 10% interest in the Cascina Castello Production licence. In exchange for a 10% economic interest, Petrorep will commit to the first EUR600,000 (plus VAT) in capital expenditure for the development of the Bezecca field (located in within the above licence). Contributions of EUR128,314 have been made by Petrorep for the year to 31 December 2017 (2016: $521,741) in respect of this commitment
Note 26: RELATED PARTY DISCLOSURES
Directors' remuneration is disclosed on page 12.
The loan of EUR3,124,000 advanced from the Company to NSI is unsecured, interest free and does not have fixed terms of repayment.
The Group had received short term funding from third parties related to its ultimate controlling party (Po Valley Energy Ltd) during the year. Loans were on normal commercial terms with interest charged at 10% p.a. There were no amounts payable as at 31 December 2017 (2016: EUR346,000). Interest paid during the period amounted to EUR47,228.
All Group's borrowing were from the ultimate controlling party. The movement in liabilities reconciles to cash flows arising from financing activities as follows:
1-Jan-17 Cash flows Non-cash changes 31-Dec-17
Foreign exchange Contribution
movements to equity
EUR'000s
EUR'000s EUR EUR'000s EUR'000s EUR'000s
Long-term borrowings 1,446 (645) - (802) -
Short-term borrowings 346 (347) 1 - -
--------- ----------- ----------------- ------------- ----------
Total 1,792 (991) 1 (802) -
========= =========== ================= ============= ==========
Note 27: ULTIMATE CONTROLLING PARTY
The Group's ultimate controlling party at 31 December 2017 is Po Valley Energy Ltd, an Australian public company listed on the Australian Securities Exchange which holds 50% of the Company's shares.
Note 28: SUBSEQUENT EVENTS
Post period end and in support of the proposed merger, new Board and launch of international growth strategy the Company announced it had secured conditional funding of GBP14,000,000. This was corner-stoned by new investor CIP Merchant Capital Limited. The Company has closed a firm placing raising GBP561,137.74 with CIP in January 2018 and the balance of GBP13,438,862.30 remains conditional only subject to shareholder approval which is being sought contemporaneously with the approval for the proposed merger.
Other than matters already disclosed in the financial statements, there were no other events between the end of the half-year and the date of this report that, in the opinion of the Directors, affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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