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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Solo Oil Plc | LSE:SOLO | London | Ordinary Share | GB00BF1BK408 | ORD 0.20P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.85 | 1.80 | 1.90 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSOLO
RNS Number : 5556X
Solo Oil Plc
01 September 2020
1 September 2020
Solo Oil plc
("Solo" or "the Company")
Full-Year Results 2019 and Notice of AGM
Solo (AIM: SOLO), the AIM investing company targeting attractive production and development opportunities within the European energy market, is pleased to announce its audited annual results for the period ended 31 December 2019.
Period and Post-Period Highlights
-- Launched new company strategy as set out in March 2019 to identify assets within the European energy market for long-term sustainable growth
-- Proposed name change to Scirocco Energy plc subject to shareholder approval at the 2020 Annual General Meeting ("AGM")
-- Formal process ongoing to explore value realisation for its assets in Tanzania with encouraging level of interest
-- In April 2020, the Joint Venture for the Ruvuma asset received the extension of the Mtwara Licence in respect to the Ntorya Location from the Ministry of Energy of Tanzania
-- In June 2020, the Company entered into an investment facility for up to US$5,000,000 with Prolific Basins LLC
-- Continued focus on cost discipline including salary sacrifices and implementation of option based remuneration for Executives
-- Continue to screen business development opportunities in line with stated strategy
The Company's Annual General Meeting ("AGM") will be held at 11a.m. BST on 25 September at The Gleneagles Hotel, Auchterarder PH3 1NF. The location has been selected as a Covid regulations compliant venue and is being held at the location at no cost to the Company.
The Board is closely monitoring the current Coronavirus situation and the UK Government's 'stay alert measures' and related guidance on social distancing and public gatherings ("COVID-19 Related Measures"). The Board recognises that the annual general meeting ("AGM") typically represents an opportunity to engage with members, and provides a forum that enables members to ask questions of, and speak with, the Board. However, in light of the current restrictions, the Board hopes that members will understand that the AGM will be held on a closed basis and this year members will not be able to attend. This decision has been taken to protect the health and safety of our colleagues and shareholders in light of the COVID-19 Related Measures currently in place and recognising the possibility of increased measures being introduced nearer to the date of the AGM. The AGM will be held as a closed meeting that is solely functional in format - the meeting will comprise only the formal votes without any business update or question and answer session. A very limited number of persons from the Company will be present to conduct the meeting such that relevant legal requirements can be satisfied.
As shareholders will not be able to attend in person, we strongly encourage voting on all resolutions by completing a proxy appointment form appointing the 'Chair of the Meeting' as your proxy. All valid proxy votes to be exercised by the 'Chair of the Meeting' will also be included in any vote taken at the meeting. The results of the votes on the proposed resolutions will be announced in the normal way, via poll, as soon as practicable after the conclusion of the AGM. Shareholders are encouraged to raise any questions on the business of the AGM in advance of the AGM with the Company Secretary at Solo@buchanan.uk.com (with "Solo Oil PLC AGM 2020" in the subject box). Questions must be received by 5.00 p.m. on 18 September 2020. Appropriate thematic questions will be replied to by the Board after the AGM
The Annual Report and notice convening the AGM will be posted to shareholders today and will be available shortly on the website www.solooil.co.uk
Tom Reynolds CEO commented: "During an unprecedented time for the industry, we are committed to working hard to deliver our strategy. We continue to explore options for the Tanzanian assets, and will ensure any decision is based on the best outcome for our shareholders. In the meantime, we are focused on identifying potential opportunities to grow the Company and are encouraged by the pipeline we are seeing, with the current challenges in the industry creating a broader range of opportunities in the European energy market. We look forward to updating our shareholders as things develop in the coming months."
For further information:
Solo Oil plc Tom Reynolds, CEO Doug Rycroft, COO +44 (0) 20 7466 5000 Strand Hanson Limited, Nominated Adviser & Broker James Spinney / Ritchie Balmer / Rory Murphy +44 (0) 20 7409 3494 Buchanan, Financial PR Ben Romney / Kelsey Traynor / James Husband +44 (0) 20 7466 5000
On behalf of the Board of Directors, I hereby present the financial statements of Solo Oil plc (the "Company") for the year ended 31 December 2019.
I am pleased to provide the following statement as part of the 2019 Annual Report. The financial and operational highlights provide good context for the market backdrop and, more importantly, the Board's ambitions to execute its stated growth strategy.
Strategy and execution update
The focus for the Company through 2019/20 has been on execution of the strategy set forth in March 2019 Strategy Update, and while progress has undoubtedly been achieved as set out below, we are yet to deliver a transformational transaction due to a combination of factors that resulted in the very difficult market conditions that we are experiencing today.
This is a source of disappointment, especially given the amount of work that went into the ONE Dyas transaction that ultimately did not proceed, however also reflects the Board's unwavering commitment to only execute deals that will benefit our shareholders in the long-run.
Our strategy is intended to create a sustainable business capable of delivering long-term growth, and is therefore centred around an industry theme that we believe provides longevity and where we see an increasing opportunity to capitalise on a compelling divestment window.
While the European gas thematic represents the future of Solo Oil (to be re-named Scirocco Energy), the next chapter in the Company's story, numerous challenges have emerged since we set that strategy in motion which have made it more difficult to transact. Namely, as the commodity prices dipped to recent historic lows on account of macro factors regarding supply imbalance, accelerated by the ongoing pandemic, it has exacerbated what was already a difficult business environment by widening the expectation gap between buyers and sellers, resulting in challenges in agreeing terms that suit both parties.
While the European gas thematic represents the future of Solo Oil (to be re-named Scirocco Energy), the next chapter in the Company's story, numerous challenges have emerged since we set that strategy in motion which have made it more difficult to transact. Namely, as the commodity prices dipped to recent historic lows on account of macro factors regarding supply imbalance, accelerated by the ongoing pandemic, it has exacerbated what was already a difficult business environment by widening the expectation gap between buyers and sellers, resulting in challenges in agreeing terms that suit both parties.
We witnessed this reality ourselves with the terminated ONE Dyas deal, as the unforeseen changes in opex and lower forward gas pricing that occurred after we signed the SPA in October 2019 eroded the value of that deal to an unacceptable level which meant it was not in our interest to proceed on the agreed terms, and we were unable to agree amended terms that suited both parties. While this was extremely frustrating given the amount of work that went into that deal it was undoubtedly the correct decision by the Board, even more so with the power of hindsight, and reflects our priority of finding "the right deals" rather than bowing to the pressure to deliver an immediate deal. The signing of that SPA also reflected the Board's ability to identify and access opportunities with credible operators and indicated the type and scale of opportunities on which we will seek to realise our growth ambitions.
These are uncertain times for the industry and the global economies which makes the execution of our strategy more challenging, despite also providing a more compelling deal flow pipeline to consider. It is for this reason that we recently expanded the strategy to identify emerging opportunities within the broader transitional energy space. The uncertainty caused by recent developments is perhaps the most profound challenge we face, as would-be vendors, lenders and investors await better visibility in order to embolden confidence in decision making.
The Board has augmented its strategy to invest in a broader European energy market strategy targeting attractive growth opportunities predominantly within the European gas and energy transition market whilst maximising value for shareholders from the Company's existing portfolio.
The Board is seeking opportunities which meet the following criteria:
-- cash generative, with the potential to re-invest operational cash flow in further growth; -- situated within the broad energy space, a market which the Board knows well;
-- primary targets within the natural gas space, augmented by opportunities which may benefit from low carbon and electrification dynamics;
-- assets which can attract the necessary investment capital, taking appropriate account of growing investor sentiment towards ESG and SRI indicators; and
assets which deliver stable returns, with lower exposure to global commodity prices
While the Board cannot control macro factors, it is wholly focussed on the outcomes it can control, and taking all appropriate action to ensure the company is well positioned for growth. To support this, the Company remains focused on delivering quality transactions that fully meet our stated investment criteria, and we continue to screen a pipeline of opportunities in various stages of discussions. We have focused on transitioning Solo into a vehicle capable of delivering the longer-term vision, and made strong progress in reshaping the portfolio through divestment of non-core assets.
Section 172 (1) Statement
The Company was admitted to the AIM Market of the London Stock Exchange on 12 April 2007 and has been a public company from this date. The Company is required to provide a Section 172(1) statement under the terms of its AIM listing. This disclosure aims to describe how the Directors have acted to promote the success of the company for the benefit of its members as a whole, taking into account (amongst other matters) the matters set out in section 172(1)(a) to (f) of the Companies Act which are set out below.
(a) the likely consequences of any decision in the long term
As previously discussed, the deal with ONE DYAS did not go through in the current year. The Company has not made any other decisions which will likely affect the company in the long term in the current financial year.
(b) the interests of the company's employees
Aside from the Directors, the Company does not have any other employees.
(c) the need to foster the company's business relationships with suppliers, customers and others
Aside from a small number of service providers, the success of the Company's investment strategy will be driven in part by the business relationships that exist between the Directors and the management of other oil and gas companies and as such the maintenance of such relationships is given a very high priority by the Directors.
(d)the impact of the company's operations on the community and the environment
During the current investment phase the Company has no operations. The Directors are nevertheless cognisant of the potential impact of future investments on affected communities and the environment and such factors will continue to be considered as part of investment appraisal and decision making.
(e) the desirability of the company maintaining a reputation for high standards of business conduct
The Company's standing and reputation with other oil and gas companies, equity investors, providers of debt, advisers and the relevant authorities are key in the Company achieving its investment objectives and the Company's ethics and behaviour, as summarised in the Company's Business Principle and Ethics, will continue to be central to the conduct of the Directors. The Company is advised by blue-chip experienced advisers which also assist in maintaining high standards of conduct.
(f) the need to act fairly as between members of the company
The Directors will continue to act fairly between the members of the Company as required under the Companies Act, the AIM Rules and QCA corporate governance principles.
Proposed name change
As announced, in October 2019 the Company intends to change its name to Scirocco Energy plc subject to shareholder approval at the Annual General Meeting ("AGM"). The change of name reflects the Company's ongoing strategic evolution towards a European gas, infrastructure and energy player focused on delivering investor returns in the transitional energy economy.
Portfolio Review
Solo's existing portfolio continues to be progressed through technical work, with an independent resource report verifying 2C contingent resource estimate of 763 billion cubic feet ("bcf") and Pmean gross gas initially in place ("GIIP") upgraded to 1.87 trillion cubic feet ("tcf"), Solo now holds net resources of approximately 467 bcf Pmean GIIP, resulting in excess of 190 bcf (over 30 million barrels oil equivalent ("mmboe")) of most likely contingent resources net to its 25% interest in the Ruvuma project.
In July 2018, Aminex announced a significant proposed farmout transaction in which it will be selling 50% of its interest in Ruvuma to ARA, a wholly owned subsidiary of the Zubair Corporation, who will also become Operator upon formal ratification of the transaction. The transaction represents a very significant milestone for Solo as it validates the commercial attractiveness of the project, and also brings in a well-capitalised and credible Operator into the JV to help drive the project forward towards successful development. Post-period end, Aminex have announced that it has completed all the requirements to allow the Minister of Energy to grant approval, being the final condition, to the completion of the 50% sale. At the time of writing, this approval has not yet been granted and Aminex and ARA have announced several extensions to the long-stop date for the completion, the most recent of which extended the date to the 30 September 2020.
Aminex's transaction emphasised the significant discount of value currently ascribed to Solo's material interest in this project. The transaction has galvanised Solo's confidence in its ability to divest its interest at a significant premium to the value currently assigned by the market, and the Company's efforts to realise value from this core investment have intensified.
In April 2020, the Joint Venture formally received the extension of the Mtwara Licence in respect to the Ntorya Location from the Ministry of Energy of Tanzania. The extension, which was applied for in late 2017, is valid for one year. Under the terms of the extension, the Company, through the Ruvuma PSA Joint Venture, is committed to acquire 200 square kilometres (surface coverage) of 3D seismic, drill the Chikumbi-1 exploration well, complete the negotiation of the Gas Terms for the Ruvuma PSA with the TPDC and using the data gathered from Chikumbi-1 and the seismic acquisition, prepare and submit an application for a Development Licence for the Ntorya Location area.
It is acknowledged by all parties that the full work programme is unlikely to be completed during this extension period and the Company will therefore apply for an additional extension(s) as necessary and as permissible under the current legislation.
Whilst the intention remains to divest of part or all of our interest in Ruvuma, we will only do so if it is in the best interest of shareholders. Our interest in Ruvuma remains the jewel in our current crown, however the strategy to diversify the business in line with our strategic vision will ensure the company is not reliant on a binary divestment outcome, the timelines and value of which remain uncertain.
Solo's investment in Helium One continues to represent one of the core investments in the portfolio and one that the Board believes will deliver a significant return on investment at the appropriate time, given the strong underlying fundamentals in the global supply / demand balance of helium.
As a result of the delay associated with the licence discussions, in April 2019 Helium One raised US$ 1 million for working capital purposes through the issuance of a convertible loan note ("CLN"). Solo subscribed for US$100,000 - maintaining its ownership position at 12.03%. Solo's total invested cost to date is approximately GBP2.93 million.
We expect to see further progress during 2020/21 in delivering a route to liquidity.
Whilst Solo's interest in Kiliwani-North is small at 8.3%, it remains a core asset within the portfolio given the upside potential within the lower horizons and the Kiliwani South prospect, and provides a clear path to monetise new volumes quickly into existing infrastructure and under the existing gas sales agreement. Solo remains supportive of the operators plan to re-establish gas flow from the well through remedial work subject to approval from the Tanzanian authorities to conduct the work.
Prior year adjustments
In the current year, there have been adjustments to the figures previously reported in 2018. Within the FVOCI reserve (previously the AFS reserve), a revision in accounting policy has resulted in a restatement of 2018 profit. There has also been a decommissioning provision, which was previously not recognised for wells in Tanzania. This was as a result of an accounting error and has been adjusted in 2018. Detail of this can be found in note 30.
Outlook
The pending outcome of the Tanzanian sales process remains critical for our broader strategy and we are encouraged, but not surprised, by the level of interest in that process. It is our job to extract maximum value from that portfolio, particularly the high quality Ruvuma asset that remains the jewel in our crown, and critically we strengthened our negotiating position and optionality with the recent debt financing facility with Prolific Basins LLC as we signalled to the market that we are able to fund our near-term commitments and remain in the JV, unless we receive sensible offers that reflect what we believe to be in the best interest of the company and its shareholders. The Board remains pragmatic about what can be achieved in terms of realising fair value in this challenging climate, and must balance this fact with the strategic requirement of that sales process providing a better catalyst and optionality with regards to implementation of the broader strategy.
Cost discipline and cash preservation have been a core focus of the Board for some time and this has become even more important in recent times. We have successfully reduced G&A through aggressive cost cutting measures, and renegotiating contracts with advisors and contractors. I thank the Board and Executive Management team for the salary sacrifices that they have made and their alignment in terms of taking options in lieu of salary as part of the cash management programme in 2020. The management team is a core USP for this Company and central to our investment case. It's therefore imperative that we keep the team together and continue to back them to deliver on the long-term objectives, and the implementation of incentive schemes has been initiated with this objective in mind. The focus on cost discipline and cash preservation will continue indefinitely.
The Company remains in a state of transition and the focus for the remainder of this fiscal year will be to complete that transition into Scirocco Energy. To enable that to occur, the near-term priorities will be to obtain a satisfactory outcome with the Tanzanian sales process, crystallize a route to value realisation for our investment in Helium One, manage our balance sheet effectively with cost discipline and utilisation of the debt facility, if required, to provide flexibility and optionality, and of course to deliver an acquisition. The outcome and timing of all of these, bar the management of balance sheet, are largely dependent on market conditions and the Board will remain wholly focused on the tasks at hand and will update shareholders accordingly.
Conclusion
In summary, it has been a mixed year in terms of delivering progress, but not yet the transformation that we were hoping for. The Board remains confident that it has the right strategy in place, and the right team in place to deliver that strategy for the long-term benefit of our shareholders. The Board has a long-term view and remains confident in its ability to achieve its ambitions in the previously stated timelines, albeit acknowledging the timing impact of the aforementioned challenges. The significant work already put in by the team to stabilise the Company, enhance its overall Governance and ensure it's on a path to sustainable value creation cannot be underestimated and will hold the Company in good stead as we move forward.
With our proposed name change to Scirocco Energy taking effect, we are continuing our metamorphosis into the company we want to be and anticipate major transformation in the coming year as we deliver on our strategic priorities. We remain steadfast in our strategy, patient in our approach and confident in our ability to reward shareholders for their faith.
I would like to take this opportunity to thank the Board and the Executive Management for their hard work and commitment throughout this period.
Alastair Ferguson
Non-Executive Chairman
Date: 31/8/2020
Strategic Report
Tanzania
Solo holds interests in natural gas and industrial gas assets in Tanzania.
These projects have been selected for their significant subsurface potential. with existing reserves, significant prospective resources and proximity to existing infrastructure location Solo believes that its projects are well positioned to deliver investor returns.
Despite slow operational progress in 2019 due to challenges in receiving Tanzanian government approvals to progress operations the Board believes that all of its projects made progress from a technical evaluation and planning perspective. The projects are well placed to progress operationally once the relevant approvals are received.
A. Ruvuma PSA Aminex plc (operator) 75% Solo Oil plc 25%
In 2019 Solo held a 25% working interest in the Ruvuma Petroleum Sharing Agreement ("Ruvuma PSA") in the south-east of Tanzania covering an area of 3,447 square kilometres of which approximately 90% lies onshore and the balance offshore. The Ruvuma PSA is in a region of southern Tanzania where very substantial gas discoveries have been made offshore in recent years and where gas has also been discovered onshore and along the coastal islands at Ntorya, Mnazi Bay, Kiliwani North and Songo-Songo.
During 2018 the Joint Venture conducted further technical work with the support of RPS Energy Consultants Limited, on the resource estimates, and by IO Consulting, on the development engineering and economics, leading to the upgraded resource estimates included in Table 1. The independent studies now estimate gross 2C contingent resources of 763 bcf, of which 191 bcf are net to Solo's working interest, equivalent to approximately 31.8 mmbbls oil equivalent.
During 2019, the operator Ndovu Resources Limited (a wholly owned subsidiary of Aminex plc) has completed an updated well design for the Chikumbi-1 exploration well and has redesigned a significantly larger 3D seismic programme than was originally planned. The changes to the seismic programme reflect the intent of the Joint Venture to gather all of the information required in order to rapidly progress and early production scheme and then to full-field development delivering early cashflow from the Ntorya gas field.
The proposed gross 2020 contingent work programme and budget for Ruvuma includes approximately US$40 million of drilling and seismic work where Solo would be expected to fund approximately US$10 million. These costs are contingent on regulatory and joint venture approvals and the Company has not yet entered into any agreements to commit these costs.
In April 2020, the Joint Venture formally received the extension of the Mtwara Licence in respect to the Ntorya Location from the Ministry of Energy of Tanzania. The extension, which was applied for in late 2017, is valid for one year. Under the terms of the extension the Company, through the Ruvuma PSA Joint Venture, is committed to acquire 200 square kilometres of 3D seismic (surface coverage), drill the Chikumbi-1 exploration well, complete the negotiation of the Gas Terms for the Ruvuma PSA with the TPDC and prepare and submit an application for a Development Licence for the Ntorya Location area (using the data gathered from Chikumbi-1 and the seismic acquisition).
It is acknowledged by all parties that the full work programme is unlikely to be completed during this extension period and the Joint Venture will therefore apply for additional extensions as necessary and as permissible under the current legislation.
Hot Features
Premium
Resource summary - Ntorya Field
Gross Licence Basis (bcf)
Gross Mean unrestricted
Licence 1C 2C 3C GIIP
Mtwara Development pending 26 81 213
Mtwara Development unclarified 324 682 950 1,870
763
Resource summary excluding Ntorya Field
Prospective Resources (bcf)*
Gross on Licence
Prospect/Lead 1U 2U 3U Mean unrisked Pg %
Chikumbi Jurassic 399 936 1,798 1,351** 8***
Namisange 56 235 1,925 1,183 8***
Likonde updip 39 166 702 444 10***
Ziwani NW 8 35 153 68 <5***
Ziwani SW 12 54 236 105 <5***
* Assuming development licence is ratified
** P50
*** RPS assessment of PG
B. Kiliwani North Development Licence ("KNDL")
In 2018, following the exit of Bounty Oil and Gas NL from the Joint Venture, Solo increased its working interest holding to 8.3918% in the Kiliwani North Development Licence, although TPDC has a back-in right to take up an interest in the KNDL which would reduce Solo's interest to 7.975%. To date TPDC have not taken up that option.
During 2019, as a result of natural depletion and fluid build-up [in the well], the Kiliwani North-1 well has not produced. In late 2018 the operator conducted analysis which concluded that the sub-surface safety valve ("SSSV") had become stuck in the closed position. Schlumberger was mobilised to location and the SSSV was repaired. During the operation the well was fully opened, and test gas flowed to the plant for a short period. The Joint Venture believes that there is a fluid column in the well and is analysing the operational and testing data. The execution of the preliminary remedial work resulted in temporary gas flow to the gas facility.
The well has produced approximately 6.4 bcf of gas to date.
The Joint Venture has been exploring various options to reinstate production from the well. The Operator has prepared, and is awaiting approval for, a remedial work programme intended to establish fluid levels in the well bore, measure reservoir pressure and to unload fluid using foam treatment technology.
If successful, this operation is expected to re-establish gas production from the well. The Joint Venture has identified appropriate equipment and will begin sourcing as soon as approvals have been received. The Joint Venture has been awaiting final approvals for a significant period of time and whilst the Joint Venture is reassured that the unloading operation can be carried out, there is no firm timeline on when the approvals will be granted which would allow the operation carried out. The Joint Venture estimates that once approvals are in place the work could be carried out within a 3 to 6 month time period subject to travel restrictions associated with the ongoing Corona virus pandemic being lifted.
Following a reinterpretation of the existing seismic, the Joint Venture identified the Kiliwani South prospect, estimated by the Operator to contain 57 bcf unrisked mean GIIP. It is envisaged that as part of a larger 3D seismic programme, most of the Kiliwani North development licence will be covered by 3D seismic. This would then allow for the Kiliwani South prospect to be progressed to drill ready status and to target the remaining potential with the Kiliwani North structure.
In preparation for acquiring the 3D seismic over the Kiliwani North Development Licence, the Joint Venture reprocessed certain existing 2D seismic data. In combination with a fresh look at the regional data, remapping based on the reprocessed seismic data has identified multiple structural and stratigraphic leads across the licence which are ideally located in shallow waters and in close proximity to existing offtake infrastructure, meaning that any discovery could be rapidly monetised with relatively low-cost drilling and tie-backs.
A resource report by LR Senergy, completed in May 2015, attributed approximately 28 bcf gross best estimate contingent resource to the Kiliwani North field. These estimates were revisited by RPS in 2018 following production over an 18-month period totalling approximately 6.4 bcf. A new Pmean GIIP of 30.8 bcf and a remaining gross 2P reserve of 1.94 bcf. It is felt that with further intervention additional gas can be recovered from the KN-1 well.
The Operator continues, on behalf of the Joint Venture to meet regularly with the relevant Tanzanian authorities to discuss and resolve the issue of outstanding receivables from previous gas sales from KNDL.
The well has not produced since the first quarter of 2018, during which the Kiliwani North-1 ("KN-1") well produced intermittently. The well performance was driven mainly as a result of increased water production, natural reservoir depletion and a relatively high inlet pressure at the Songo Songo Island Gas Processing Plant ("SSIGPP").
The Joint Venture has identified the possibility of perforating a lower and potentially gas saturated section of the reservoir. Operator conducted analysis indicates the possibility of providing up to 8 BCF of additional resource from KN-1. The Joint Venture will continue to look at plans for 3D seismic acquisition over Kiliwani North would aid in identifying further drilling or side-track opportunities required to drain the remainder of the structure.
C. Helium One (12.03% interest)
Solo holds 12.03% in Helium One Limited ("Helium One") following an original equity subscription in 2017 and participation within a convertible loan note issuance in early 2019. Helium One owns exploration licences in a number of highly prospective helium properties in Tanzania.
As a result of the delay associated with the licence discussions, in April 2019 Helium One raised US$ 1 million for working capital purposes through the issuance of a convertible loan note ("CLN"). Solo subscribed for US$100,000 - maintaining its ownership position at c.12%. Solo's total invested cost to date is approximately GBP2.93 million.
Originally identified by means of helium macro-seeps the prospects under investigation by Helium One have been mapped using soil geochemistry anomalies, airborne geophysical tools and on legacy 2D seismic data acquired previously during the 1980s. The identified macro-seepage indicates high concentrations of helium (up to in excess of 10% by volume) in association with nitrogen that may be trapped in the subsurface.
Netherland & Sewell Associates International ("NSAI") has independently assessed the most mature of the projects, in the Rukwa Basin of the East African Rift Valley, as having the gross potential for close to 100 bcf of helium in place.
Global helium demand is approximately 6 bcf per annum. Supply is delivered by extracting helium from hydrocarbon production projects in a number of countries including the USA, Qatar, Algeria and Russia. Future supplies are also associated with hydrocarbon development projects where the development is driven by the demand for natural gas.
Demand for helium has been growing at a rate of between 1.5 to 3 per cent per annum over the last decade and is a vital component of many modern technologies. As a result of its unique properties as a super fluid, it plays a vital role in devices which use super conducting magnets; as in MRI machines. As an inert gas helium also plays a vital role in the production of many critical electronic components such as disk drives and fibre optics, and is additionally used for industrial testing, purging and leak detection. Helium, as a lifting gas in hybrid air vehicles (and other forms of airship), has also begun to have increased significance.
However, the US government has been selling its strategic reserve and will close the facility for international sales no later than September 2021, after which there is projected to be a significant shortage of helium available on world markets. In June 2017, several countries abruptly cut diplomatic relations with Qatar and imposed trade and travel bans. The ramifications for global helium supply were significant, with both Qatari plants being turned off for a period, as exports of helium were unable to pass the trade barriers imposed on Qatar. While only a temporary situation, it did highlight the fragility of the helium supply chain, and reliance on Qatari supplies. It should also be noted that helium output from LNG plants can only be increased if LNG demand also increases and as a result much of the global helium supply is highly illiquid.
Helium One holds one of the only known high-volume, standalone helium resource projects which is not reliant on associated hydrocarbon development. If successful it could provide much needed stability to global helium supply and if commercial volumes are discovered, could be developed as a major swing producer to global markets.
The Helium One Tanzania projects have excellent supply economics and, once liquefied close to production well sites, the helium could be transported to world markets via the deep-water port at Dar es Salaam. Given the competitive demand for crude helium on world markets Solo and Helium One would expect to sell helium at the wellhead through an off-take agreement with a large industrial gas company who would liquefy and transport the helium to market. During the 2018 auction of crude helium by the Bureau of Land Management ("BLM") in the USA the average price set for crude helium was US$280 per thousand cubic feet with spot prices reported at levels significantly higher than that level.
Investment Case
Solo believes that its participation in Helium One continues to provide exposure to attractive upside valuation in the event of a successful test of in place resources through appraisal drilling. Key positives supporting this:
-- In situ Helium seeps at surface with Helium concentrations measured in the range of 8-10.2% which, if proven through appraisal drilling, would represent a world class source of Helium;
-- A number of mapped structures potentially capable of holding approximately 100Bcf Helium in aggregate as indicated by an independent report prepared by Netherland Sewell and Associates;
-- An experienced management team, recently augmented, with a proven track record of developing value in the natural resources sector;
-- Robust supply/demand dynamics in the global helium market which support highly attractive valuation of any resource, if proven; and
-- Engaged community of offtake parties in the specialty industrial gas market willing to fund the installation and operation of the necessary liquefaction and purification facilities.
Events in the period
Helium One activity within the period focused on the identification and characterisation of a number of prospective structures in order to high grade drilling targets and specify a drilling programme. The company also progressed discussions with the relevant authorities within Tanzania to clarify licence conditions and drilling permits. These discussions took longer than expected and as a result the IPO and operational programme originally planned for late 2019 has been deferred into 2020.
Events following the period
At the time of writing Helium One informed Solo that it has received confirmation from the Tanzanian authorities which will allow the operational programme to proceed.
Helium One is now focused on three key initiatives:
-- IPO. A key objective for Helium One is to complete an IPO on a recognised stock exchange to provide access to capital for ongoing investment;
-- Drilling programme. To execute a programme of appraisal wells to test selected target structures for the presents of Helium rich gas which can be recovered to surface; and
-- Offtake programme. To engage with relevant counterparties in the speciality industrial gases sector regarding the offtake and sale of helium in a success case.
Receipt of licence extension from the Tanzanian authorities represents a crucial step towards achieving this. Solo remains supportive of Helium One and the above initiatives which will deliver a liquid platform for the company's shares which has the capacity to recognise the significant value upside which would be delivered by a successful drilling programme.
Other investments
A. Burj Africa, Nigeria, West Africa (20% interest)
Between 2013 and 2015 Solo made an investment into various ventures aimed at accessing known reserves in fields in Nigeria. These have resulted in a 20% interest in Burj Petroleum Africa Limited ("Burj Africa") a company which had applied for various undeveloped fields in the 2014 Nigerian Marginal Fields Bid Round ("Marginal Fields Round") along with joint venture partners Global Oil and Gas and Truvent Consulting.
In 2019, Solo disposed of its 20% interest in Burj Africa to Burj Petroleum Corporation, an existing shareholder in Burj Africa, for a nominal fee. In doing so Solo relinquished any future costs associated with Burj Africa and further achieved the Board's objective to exit historical positions and rationalise the portfolio.
B. Ontario, Canada (28.56% interest)
On 22 March 2019, Solo announced that as part of the portfolio rationalisation, the Company had signed Heads of Terms ("HoT") with Levant Exploration and Production Corp. ("Levant") for the divestment of Solo's 28.56% in Reef Resources Limited ("Reef") to Levant. The divestment of the Company's shareholding in Reef is subject to definitive documentation being agreed and further demonstrates the Company's commitment to rationalise its existing portfolio as it delivers its growth strategy.
Further to this announcement, on 8th July 2020 Solo announced that it had entered into an Asset Purchase Agreement with Reef Resources Limited and Levant Exploration and Production Corp., the Board expect the deal to close once the conditions precedent have been met.
Mr Tom Reynolds
Director
Date: 31/8/20
Glossary and Notes
2D seismic seismic data collected using the two-dimensional common depth
point method
3D three-dimensional
AIM London Stock Exchange Alternative Investment Market
API American Petroleum Institute
barrel or 45 US gallons
bbl
bbls barrels of oil
bcf billion cubic feet
best estimate the most likely estimate of a parameter based on all available
or P50 data, also often termed the P50 (or the value of a probability
distribution of outcomes ta the 50% confidence level)
billion 10 to the power of 9
bopd barrels of oil per day
CNG condensed natural gas
contingent those quantities of petroleum estimated, at a given date,
resources to be potentially recoverable from known accumulations, but
the associated projects are not yet considered mature enough
for commercial development due to one or more contingencies
CPR Competent Persons Report
discovery a petroleum accumulation for which one or several exploratory
wells have been established through testing, sampling and/or
logging the existence of a significant quantity of potentially
moveable hydrocarbons
electric tools used within the wellbore to measure the rock and fluid
logs properties of the surrounding formations
GIIP gas initally in place
GSA gas sales agreement
HH-1 Horse Hill-1 well
HHDL Horse Hill Developments Limited
KN-1 Kiliwani North-1 well
KNDL Kiliwani North Development Licence
m thousand (ten to the power 3)
mm million (ten to the power 6)
mmbbls milion barrels of oil
mmscf million standard cubic feet of gas
mmscfd millon standard cubic feet of gas per day
OGA UK Oil and Gas Authority (formally the Department of Energy
and Climate Change
oil in place stock tank oil initally in place, those quantities of oil
or STOIIP that are estimated to be known reservoirs prior to production
commencing
pay reservoir in portion of a reservoir formation that contains
economically producible hydrocarbons. The overall interval
in which pay sections occur is the gross pay; the portion
of the gross pay that meets specific criteria such as minimum
porosity, perme
PEDL Petroleum Exploration and Development Licence
permeability the capability of a porous rock or sediment to permit the
flow of fluids through the pore space
petrophysics the study of the physical and chemical properties of rock
formations and their interactions with fluids
play a set of known or postulated oil or gas accumulations sharing
similarr geologic properties
porosity the percentage of void space in a rock formation
prospective those quantities of petroleum which are estimated, at a given
resources date, to be potentially recovered from undiscovered accumulations
proven reserves those quantities of petroleum, which, by analysis of geoscience
and engineering data, can be estimated with reasonable certainty
to be commercially recoverable (1P), from a given data forward,
from known reservoirs and under defined economic conditions,
probable those additional reserves which analysis of geoscience and
reserves engineering data indicate are less likely to be recovered
than Proven Reserves but more certain to be recovered than
Possible Reserves. It is equally likely that actual remaining
quantities recover
possible reserves those additional reserves which analysis of geoscience
and engineering data suggest are less likely to be recoverable
than Probable Reserves. The total quantities ultimately
recovered from the projkect have a low probability to
exceed the sum of Proved reserves
PSA petroleum sharing agreement
PRMS Petroleum Resources Management system
reserves those quantities of petroleum anticipated to be commercially
recovered by application of development projects to known
accumulations from a given date forward under defined
conditions
reservoir a subsurface rock formation containing an individual natural
accumulation of moveable petroleum
SPE Society of Petroleum Engineers
tcf trillion cubic feet
trillion 10 to the power of 12
unconventional widely accepted to mean those hydrocarbon reservoirs that
reservoir are tight; that is have low permeability
The Directors are pleased to present this year's annual report together with the financial statements for the period ended 31 December 2019.
A statement on Corporate Governance is set out on pages 19 to 32.
Principal Activities
The principal activity is to acquire a diverse global portfolio of direct and indirect interests in attractive production and development opportunities within the European energy market. The Board is seeking to invest in a broader European energy market strategy in opportunities which meet the following criteria:
-- cash generative, with the potential to re-invest operational cash flow in further growth; -- situated within the broad energy space, a market which the Board knows well;
-- primary targets within the natural gas space, augmented by opportunities which may benefit from low carbon and electrification dynamics;
-- assets which can attract the necessary investment capital, taking appropriate account of growing investor sentiment towards ESG and SRI indicators; and
-- assets which deliver stable returns, with lower exposure to global commodity prices.
The Company may invest by way of outright acquisition or by the acquisition of assets, including the intellectual property, of a relevant business, partnerships or joint venture arrangements. Such investments may result in the Company acquiring the whole or part of a company or project (which in the case of an investment in a company may be private or listed on a stock exchange, and which may be pre-revenue), and such investments may constitute a minority stake in the company or project in question. The Company's investments may take the form of equity, joint venture debt, convertible instruments, licence rights, or other financial instruments as the Directors deem appropriate.
Solo intends to be a long-term investor and the Directors will place no minimum or maximum limit on the length of time that any investment may be held.
There is no limit on the number of projects into which the Company may invest, nor the proportion of the Company's gross assets that any investment may represent at any time.
Business Review and Future Developments
A detailed review of the Company's business is set out in the Chairman's statement incorporating the strategic report (pages 1-10).
Details of expected future developments for the Company are set out in the Chairman's statement incorporating the strategic report (pages 1-10).
Results and Dividends
Loss on ordinary activities after taxation amounted to GBP2.561 million (2018 restated: GBP0.974 million). The Directors do not recommend payment of a dividend (2018: nil).
Key Performance Indicators
Given the nature of the business and that the Company had adopted a new strategy and is in the early stages of developing new operations, the directors are of the opinion that analysis using KPI's is not appropriate for an understanding of the development, performance or position of our businesses at this time. The Board has agreed to introduce this for 2021.
Directors
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Executive Directors Date of Appointment Date of Resignation Daniel Maling* 7 February 2019 Jonathan Fitzpatrick Alastair Ferguson** Thomas Reynolds*** Non-Executive Directors Donald Nicolson**** 11 November 2019 * Mr Daniel Maling resigned from his role as Managing Director on 11 February 2019 ** Mr Alastair Ferguson assumed the Executive Chairman role from 11 February 2019 to 8 October 2019 *** Mr Thomas Reynolds was a Non-Executive Director until 8 October 2019 upon which date he became Chief Executive Officer **** Mr Donald Nicolson was appointed as a Non-Executive Director on 11 November 2019
Directors' Remuneration
The Company remunerates the Directors at a level commensurate with the size of the Company and the experience of its Directors. The Remuneration Committee has reviewed the Directors' remuneration and believes it upholds the objectives of the Company with regard to these issues. Details of the Director emoluments and payments made for professional services rendered are set out in Note 7 to the financial statements.
Directors' Interests
The Directors' interests in the share capital of the Company at 31 December 2019 were:
At 31 December 2019 or At 31 December 2018 or
date of resignation date of resignation
Director Shares Options Shares Options
Daniel Maling 11,150,847 3,250,000 11,150,847 3,250,000
Jonathan Fitzpatrick 28,708,641 * 2,500,000 28,708,641 * 2,500,000
Alastair Ferguson 16,825,397 - 16,825,397 -
Tom Reynolds 2,464,108 ** - 2,464,108 ** -
Donald Nicolson
*** - - - -
* includes indirect interest of 916,624 shares held by Carolyn Fitzpatrick
** includes indirect interest of 286,738 shares held by Paula Reynolds
*** Donald Nicolson joined the Board on 11 November 2019
No Director had, during the year or at the end of the year, other than disclosed above, a material interest in any contract in relation to the Company's activities except in respect of service agreements. Gneiss Energy maintains a service contract for the provision of operational and technical management services (including the provision of an outsourced COO and technical personnel with the competency to approve the Company's public technical statements), guidance and support on public relations and market engagement strategy, flexible work space and meeting rooms, telephones, company secretary support and corporate finance advisory services with the Company the details of which are disclosed in Note 24 to the financial statements.
Subject to the conditions set out in the Companies Act 2006, the Company has arranged appropriate Directors' and Officers' insurance to indemnify the Directors against liability in respect of proceedings brought by third parties. Such provisions remain in force at the date of this report.
Substantial Shareholdings
At 27 August 2020 the following had notified the Company of disclosable interests in 3% or more of the nominal value of the Company's shares:
Shareholder Number of shares % of Issued Capital Interactive Investor Services Nominees Limited 69,811,575 10.78% Barclays Direct Investing Nominees Limited 48,605,804 7.51% Hargreaves Lansdown (Nominees) Limited 45,098,085 6.96% HSDL Nominees Limited 39,303,408 6.07% Hargreaves Lansdown (Nominees) Limited 35,002,292 5.41% Hargreaves Lansdown (Nominees) Limited 33,206,960 5.13% Interactive Investor Services Nominees Limited 32,132,623 4.96% Mr Jonathan Fitzpatrick 28,708,641 4.43% HSBC Client Holdings Nominee (UK) Limited 27,935,032 4.31% The Bank of New York (Nominee) Limited 24,525,123 3.79% Pershing Nominee Limited 24,325,395 3.76% HSDL Nominees Limited 20,886,148 3.23%
Environmental Responsibility
The Company is aware of the potential impact that its investee companies may have on the environment. The Company ensures that it, and its investee companies at a minimum comply with the local regulatory requirements and the revised Equator Principles with regard to the environment.
Supplier Payment Policy
The Company's policy is to agree terms and conditions with suppliers in advance; payment is then made in accordance with the agreement provided the supplier has met the terms and conditions. Suppliers are typically paid within 30 days of issue of invoice.
Employment Policies
The Company will be committed to promoting policies which ensure that high calibre employees are attracted, retained and motivated, to ensure the ongoing success for the business. Employees and those who seek to work within the Company are treated equally regardless of sex, marital status, creed, colour, race or ethnic origin
Political Contributions and Charitable Donations
During the period the Company did not make any political contributions or charitable donations.
Financial Instruments
See Note 23 to the financial statements.
Related Party Transactions
See Note 24 to the financial statements.
Post Reporting Date Events
At the date these financial statements were approved, being 31 August 2020, the Directors were not aware of any significant post balance sheet events other than those set out in the notes to the financial statements.
Annual General Meeting ("AGM")
This report and nancial statements will be presented to shareholders for their approval at the AGM. The Notice of the AGM will be distributed to shareholders together with the Annual Report.
Health and Safety
The Company's aim will always be to achieve and maintain the highest standard of workplace safety. In order to achieve this objective the Company sets demanding standards for workplace safety and will provide comprehensive training and support to employees.
Auditor
Chapman Davis LLP resigned as auditors to the Company and were replaced by the appointment of PKF Littlejohn LLP as auditors. A resolution to re-appoint the auditor, PKF Littlejohn LLP, will be proposed at the next Annual General Meeting.
Going Concern
The Directors note the losses that the Company has made for the year ended 31 December 2019. The Directors have prepared cash ow forecasts for the period ending 30 September 2021 which take account of the current cost and operational structure of the Company.
The cost structure of the Company comprises a high proportion of discretionary spend and therefore in the event that cash ows become constrained, costs can be quickly reduced to enable the Company to operate within its available funding.
These forecasts demonstrate that the Company has su cient cash funds available to allow it to continue in business for a period of at least twelve months from the date of approval of these nancial statements. Accordingly, the nancial statements have been prepared on a going concern basis.
Comments on going concern are included in the Operations report and note 1. The critical assumption in the going concern determination is that the progress on the Ruvuma PSA and the associated development of the Ntoyra natural gas discovery. If additional funding was not available there is a risk that commitments could not be fulfilled, and assets would be relinquished.
Prior year adjustments
In the current year, there have been adjustments to the figures previously reported in 2018. Within the FVOCI reserve (previously the AFS reserve), a revision in accounting policy has resulted in a restatement of 2018 profit. There has also been a decommissioning provision, which was previously not recognised for wells in Tanzania. This was as a result of an accounting error and has been adjusted. Detail of this can be found in note 30.
Statement of Disclosure to the Auditor
In the case of each person who was a Director at the time this report was approved:
-- So far as that Director was aware there was no relevant available information of which the Company's auditor was unaware; and
-- That Director had taken all necessary steps to make themselves aware of any relevant audit information, and to establish that the Company's auditors were aware of that information.
Electronic Communication
The maintenance and integrity of the Company's website is the responsibility of the Directors: the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
The Company's website is maintained in accordance with AIM Rule 26.
Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
On behalf of the board
Mr Tom Reynolds
Director
31 August 2020
The Directors are responsible for preparing the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Financial Statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the financial year and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgments and accounting estimates that are reasonable and prudent;
-- state whether the applicable IFRSs as adopted by the European Union have been followed subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
The Company is compliant with AIM Rule 26 regarding the Company's website.
As Chairman of Solo Oil plc, it is my responsibility to ensure that the Board is performing its role effectively and has the capacity and ability, structure and support to enable it to continue to do so.
How we govern the Company
Information on how the Company organises its Corporate Governance is set out below and can also be found on the Company's website www.solooil.co.uk and is, in the opinion of the Board, fully in accordance with the revised requirements of AIM Rule 26.
From September 2018, onwards, all AIM quoted companies are required to set out details of the recognised corporate governance code that the Board of Directors has decided to adopt and provide reasons for any departures where it does not comply with the code. The Company has elected to adopt the 2018 Quoted Companies Alliance Corporate Governance Code for Small and Mid-Sized Companies (the "QCA Code"). The Company intends to adhere to the recommendations of the QCA Code to the extent it considers them appropriate in light of the Company's size, liquidity and capital resources.
The QCA code is constructed around 10 broad principles and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation of how they are meeting the principles through the prescribed disclosures. We have considered how we apply each principle to the extent that the Board judges these to be appropriate in the circumstances, and below we provide an explanation of the approach take in relation to each. The Board considers that it does not depart from any of the principles of the QCA Code during the period under review.
2019 and 2020 have seen, amongst others, the following governance developments:
-- The Chairman and CEO met with major shareholders and hosted a number conference calls with investors;
-- Conducted a full strategy review in Q1 2019; -- Addition of Donald Nicolson to the Board; -- Establishment of the AIM Rules Compliance and Disclosures Committee; and -- Appointment of a CEO and a COO.
Board of Directors
The Board is responsible for the overall governance of the Company. Its responsibilities include setting the strategic direction of the Company, providing leadership to put the strategy into action and to supervise the management of the business.
During 2019, the Solo operated with both a three-member and a four-member Board as changes were made following the exit of the Company's Managing Director in February 2019. Following the exit of the Managing Director the company's Non-Executive Chairman, Alastair Ferguson, assumed the role of Executive Chairman. In October 2019, upon announcing the Company's intention to acquire producing and development gas assets offshore Netherlands, the company announced that Tom Reynolds would step up from his role as a Non-Executive to CEO. At this time Alastair Ferguson returned to his role as Non-Executive Chairman. The Board was further strengthened in November 2019 when it was joined by an Independent Non-Executive Director, Mr Donald Nicolson.
The Board currently comprises three non-executive Directors ('NEDs') and the CEO. Biographies of the Directors are on pages 22. Due to their shareholding in the Company, two of the NEDs are not considered by the Board to be independent. The roles and responsibilities of the Chairman, CEO, Independent Director ('INED') and Company Secretary are set out on the website and summarised below.
The Board has established the corporate governance values of the Company and has overall responsibility for setting the Company's strategic aims, de ning the business plan and strategy and managing the nancial and operational resources of the Company. Overall supervision, acquisition, divestment and other strategic decisions are considered and determined by the Board. The Executive team is supported by the wider team and external service providers as required. The Directors are of the opinion that the Board comprises a suitable balance and that the recommendations of the QCA Code have been implemented to an appropriate level.
The Board, through the Chairman in particular, maintains regular contact with its advisers and public relations consultants in order to ensure that the Board develops an understanding of the views of major shareholders about the Company.
Terms of Reference
The Terms of Reference of all Board Committees are available on the website.
Record of meetings
The Board meets regularly throughout the year. For the period ending 31 December 2019 the Board met 14 times (2018: 10, 2017: 4) in relation to normal operational matters and on an ad hoc basis as required to transact additional business to support the Company's activities.
The Board is responsible for formulating, reviewing and approving the Company's strategy, nancial activities and operating performance. Day-to-day management is devolved to the Executive Directors' and management who are charged with consulting the Board on all signi cant nancial and operational matters. All Directors have access to the advice of the Company's solicitors and the Company Secretary necessary information is supplied to the Directors on a timely basis to enable them to discharge their duties e ectively and all Directors have access to independent professional advice, at the Company's expense, as and when required.
Internal controls
The Directors acknowledge their responsibility for the Company's systems of internal controls and for reviewing their effectiveness. These internal controls are designed to safeguard the assets of the Company and to ensure the reliability of nancial information for both internal use and external publication. Whilst they are aware that no system can provide absolute assurance against material misstatement or loss, in light of increased activity and further development of the Company, continuing reviews of internal controls will be undertaken to ensure that they are adequate and e ective.
Compliance
The Company has also reviewed the appropriate policies and procedures to ensure compliance with the UK Bribery Act. The Company continues actively to promote good practice throughout the Company and has initiated a rolling programme of anti-bribery and corruption training for all relevant employees and consultants.
QCA Principles
Review of each of the QCA Principles:
Principle 1:
Establish a strategy Solo Oil plc is a natural resources investment
and business model which company whose strategy is to acquire a diverse
promote long-term value portfolio of direct and indirect interests
for shareholders in attractive production and development
opportunities within the European energy
market. In 2020, the Board announced its
plan to review and augmented its strategy
to invest in a broader European energy market
strategy targeting attractive growth opportunities
predominantly within the European gas and
energy transition market whilst maximising
value for shareholders from the Company's
existing portfolio.
The Board is seeking opportunities which
meet the following criteria:
-- cash generative, with the potential to
re-invest operational cash flow in further
growth;
-- situated within the broad energy space,
a market which the Board knows well;
-- primary targets within the natural gas
space, augmented by opportunities which
may benefit from low carbon and electrification
dynamics;
-- assets which can attract the necessary
investment capital, taking appropriate
account of growing investor sentiment towards
ESG and SRI indicators; and
-- assets which deliver stable returns, with
lower exposure to global commodity prices.
Principle 2:
Seek to understand and The Board is committed to maintaining good
meet shareholder needs communication and having constructive dialogue
and expectations with all its shareholders. The Company has
close ongoing relationships with its private
shareholders. Institutional shareholders
and analysts have the opportunity to discuss
issues and provide feedback at meetings with
the Company. In addition, all shareholders
are encouraged to attend, where possible,
the Company's Annual General Meeting. Investors
also have access to current information on
the Company though its website, www.solooil.co.uk
, and via Tom Reynolds (CEO) and Doug Rycroft
(COO) , who are available to answer investor
relations enquiries. The Company in conjunction
with its investor relations advisor has developed
a Communications Strategy to formalise how
shareholder communications are managed.
Principle 3:
Take into account wider The Board recognises that the long term success
stakeholder and social of the Company is reliant upon its ability
responsibilities and and willingness to engage with the broader
their implications for range of stakeholders to positively influence
long-term success the development of the Company and the communities
we interact with operationally and corporately.
The Board has put in place a range of processes
and systems to ensure that there is close
oversight and contact with its key resources
and relationships.
Given that Solo Oil plc is a small company
there is close interaction between the Board
and Executive Management to help ensure successful
two way communication with agreement on goals,
targets and aspirations for the Company.
Solo Oil plc through its advisers and JV
partners has developed close ongoing relationships
with a broad range of its stakeholders and
provides them with the opportunity to raise
issues and provide feedback to the Company.
Principle 4:
Embed effective risk It is critical that Solo Oil plc has a robust
management, considering view of its risk profile and appetite so
both opportunities and as to ensure both its existing and new investments
threats, throughout are managed within acceptable margins of
the organization. risk. The processes are in place to understand
the Company's key drivers for success and
to be able to assess the associated risks
in delivering on its strategy successfully.
Given the specialised nature of investing
in, and being involved in, the operations
of development and production assets in the
natural resource sector, it is imperative
that the Board considers at all times that
it has the appropriate risk management system
including both people and processes to successfully
mitigate these risks.
The Board encourages a dynamic and constructuve
dialogue between Executive Management, its
advisers and the Board including the willingness
to challenge assumptions and the consideration
of emerging and interrelated risks for its
investment portfolio.
In addition to its other roles and responsibilities,
the Audit Committee is responsible to the
Board for ensuring that procedures are in
place and are being implemented effectively
to identify, evaluate and manage the significant
risks faced by the Company. The risk assessment
matrix below sets out those risks, and identifies
the controls that are currently in place.
This matrix is updated as changes arise in
the nature of risks or the controls that
are implemented to mitigate them. The Audit
Committee reviews the risk matrix and the
effectiveness of scenario testing on a regular
basis. The Board has a comprehensive review
of the risks every six months and works with
Executive Management to understand and agree
on the types and format of risk information
that the Board requires. In addition the
Board periodically assesses the risk oversight
processes and ensure suitability with/and
alongside its current policies.
See risk management section which begins
on page 27.
The Board shall review annually the appropriateness
and opportunity for continuing professional
development whether formal or informal.
Alastair Ferguson (Non-Executive Chairman)
Mr Ferguson is a Chartered Engineer and has
over 40 years' experience in the oil and
gas industry, the last seven of which have
been spent in various Chairman and non-executive
director positions. Mr Ferguson has considerable
commercial management experience and has
specific expertise in business development
and managing projects in complex political
environments.
Jon Fitzpatrick (Non-Executive Director)
Mr Fitzpatrick is a qualified corporate lawyer,
petroleum economist, investment banker and
energy sector adviser. He began his career
in 1994 as a research associate at the Centre
for Energy, Petroleum, Mineral Law and Policy
at the University of Dundee. In 2016, Jon
founded his own advisory practice, Gneiss
Energy Limited, operating exclusively within
the energy and resources sectors.
Solo Oil plc and Gneiss Energy Limited have
an ongoing advisory relationship.
Donald Nicolson (Independent Non-Executive
Director)
Mr Nicolson is a senior business leader with
more than 35 years experience in oil, gas,
mining and natural stone sectors. During
this time, he has held multiple board roles,
executive & non-executive, in both publicly-listed
and private companies. Between 2016 and 2019,
Mr Nicolson held the role of Chairman and
interim CEO for Levantina Natural Stone Co.,
having previously held Vice Chairman, non-Executive
Director and Advisor roles. Mr Nicolson spent
more than 26 years with BP Exploration, during
which he held roles including Director of
BP North Sea, Chief of Staff to BP CEO (E&P),
Vice President for BP Alaska and Vice President
for BP Canada.
Tom Reynolds (CEO)
Mr Reynolds is a Chartered Engineer with
over 25 years' experience in the energy sector,
including a range of technical and commercial
roles with BP plc, Total SA and British Nuclear
Fuels plc. He has also held management positions
at private equity investment and advisory
firms, including 3i plc, and specialises
in strategic planning, investment management
and cross-border M&A transaction execution
in the oil, gas, energy and infrastructure
sectors.
Principle 5:
Maintain the Board as The Board is currently comprised of four
a well-functioning, Directors; Alastair Ferguson, Non-Executive
balanced team led by Chairman; Jon Fitzpatrick, Non-Executive
a chair Director; Donald Nicolson, Independent Non-Executive
Director and Tom Reynolds, CEO. Biographical
details of the current Directors are set
out within Principle Six below.
The Board notes that the QCA recommends a
balance between executive and non-executive
Directors and recommends that there be two
independent non-executives. At this current
time, the Board only comprises one independent
non-executive director and therefore the
Company diverges in this regard from the
QCA Code. As the Company develops, it will
keep under review the potential appointment
of a further suitably qualified independent
non-executive director.
Executive and Non-Executive Directors are
subject to re-election at intervals of no
more than three years. The letters of appointment
of all Directors are available for inspection
at the Company's registered office during
normal business hours. The Executive Director
is considered to be a full time employee
whilst the Non-Executive Directors are considered
to be part time but are expected to provide
as much time to the Company as is required.
The Board elects a Chairman to chair every
meeting.
The Board notes that the QCA recommends that
the Chairman's responsibilities should be
devolved from the day-to-day running of the
business in order to ensure independence.
Following the resignation of the former Managing
Director in February 2019, Alastair Ferguson
temporarily assumed the role of Executive
Chairman in order to maintain a balance between
executive and non-executive roles on the
Board and to ensure the Company has sufficient
executive oversight. The appointment of Tom
Reynolds as CEO in October 2019 enabled Alastair
Ferguson to step back into the role of Non-Executive
Chairman.
The Board meets at least four times per calendar
year. It has established an Audit Committee,
a Remuneration Committee and an AIM Rules
Compliance and Disclosures Committee, which
are set out in more detail below. At this
stage, the Board does not consider it necessary
to establish a separate Nominations Committee.
It shall continue to monitor the need to
match resources to its operational performance
and costs and the matter will be kept under
review going forward.
Attendance at Board and Committee Meetings
The Company reports annually on the number
of Board meetings held during the year and
the attendance record of individual Directors.
To date in the current financial year the
Directors have a good record of attendance
at such meetings. In order to be efficient,
the Directors meet formally and informally
both in person and by telephone. To date
there have been at least quarterly meetings
of the Board, and the volume and frequency
of such meetings is expected to continue
at this rate.
Principle 6:
Ensure that between The Board currently consists of four Directors.
them the Directors have The Company believes that the current balance
the necessary up-to-date of skills and experience in the Board as
experience, skills and a whole, reflects a very broad range of commercial
capabilities and professional skills across geographies
and industries and all of the Director's
have experience in public markets.
The Board recognises that it currently has
a limited diversity and this will form a
part of any future recruitment consideration
if the Board concludes that replacement or
additional directors are required.
The Board shall review annually the appropriateness
and opportunity for continuing professional
development whether formal or informal.
Alastair Ferguson (Non-Executive Chairman)
Mr Ferguson is a Chartered Engineer and has
over 40 years' experience in the oil and
gas industry, the last seven of which have
been spent in various Chairman and non-executive
director positions. Mr Ferguson has considerable
commercial management experience and has
specific expertise in business development
and managing projects in complex political
environments.
Jon Fitzpatrick (Non-Executive Director)
Mr Fitzpatrick is a qualified corporate lawyer,
petroleum economist, investment banker and
energy sector adviser. He began his career
in 1994 as a research associate at the Centre
for Energy, Petroleum, Mineral Law and Policy
at the University of Dundee. In 2016, Jon
founded his own advisory practice, Gneiss
Energy Limited, operating exclusively within
the energy and resources sectors.
Solo Oil plc and Gneiss Energy Limited have
an ongoing advisory relationship.
Donald Nicolson (Independent Non-Executive
Director)
Mr Nicolson is a senior business leader with
more than 35 years experience in oil, gas,
mining and natural stone sectors. During
this time, he has held multiple board roles,
executive & non-executive, in both publicly-listed
and private companies. Between 2016 and 2019,
Mr Nicolson held the role of Chairman and
interim CEO for Levantina Natural Stone Co.,
having previously held Vice Chairman, non-Executive
Director and Advisor roles. Mr Nicolson spent
more than 26 years with BP Exploration, during
which he held roles including Director of
BP North Sea, Chief of Staff to BP CEO (E&P),
Vice President for BP Alaska and Vice President
for BP Canada.
Tom Reynolds (CEO)
Mr Reynolds is a Chartered Engineer with
over 25 years' experience in the energy sector,
including a range of technical and commercial
roles with BP plc, Total SA and British Nuclear
Fuels plc. He has also held management positions
at private equity investment and advisory
firms, including 3i plc, and specialises
in strategic planning, investment management
and cross-border M&A transaction execution
in the oil, gas, energy and infrastructure
sectors.
Principle 7:
Evaluate Board performance Internal evaluation of the Board, the Committees
base on clear and relevant and individual Directors is to be undertaken
objectives, seeking on an annual basis in the form of peer appraisal
continuous improvement. and discussions to determine their effectiveness
and performance as well as testing the Directors'
continued independence. This will be undertaken
in conjunction with external advisers as
appropriate.
The results and recommendations that come
out of the appraisals for the directors shall
identify the key corporate and financial
targets that are relevant to each Director
and their personal targets in terms of career
development and training. Progress against
previous targets shall also be assessed where
relevant.
Principle 8:
Promote a corporate The Board is aware that the tone and culture
culture that is based set by the Board will greatly impact all
on ethical values and aspects of the Company as a whole and the
behaviours way that partners, contractors and advisors
behave. The corporate governance arrangements
that the Board has adopted are designed to
ensure that the Company delivers long term
value to its shareholders and that shareholders
have the opportunity to express their views
and expectations for the Company in a manner
that encourages open dialogue with the Board.
A large part of the Company's activities
is centred upon what needs to be an open
and respectful dialogue with partners, clients
and other stakeholders. Therefore, the importance
of sound ethical values and behaviours is
crucial to the ability of the Company to
successfully achieve its corporate objectives.
The Board places great import on this aspect
of corporate life and seeks to ensure that
this flows through all that the Company does.
The directors consider that at present the
Company has an open culture facilitating
comprehensive dialogue and feedback and enabling
positive and constructive challenge. The
Company has adopted a code for Directors'
and employees' dealings in securities which
is appropriate for a company whose securities
are traded on AIM and is in accordance with
the requirements of the Market Abuse Regulation
which came into effect in 2016.
Principle 9:
Maintain governance Ultimate authority for all aspects of the
structures and process Company's activities rests with the Board,
that are fit for purpose the respective responsibilities of the Chairman
and support good decision and Executive Director arising as a consequence
making by the Board of delegation by the Board. The Board has
adopted appropriate delegations of authority
which set out matters which are reserved
to the Board. The Chairman is responsible
for the effectiveness of the Board, while
management of the Company's business and
primary contact with shareholders has been
delegated by the Board to the Executive Director.
Audit Committee
The Audit Committee is comprised of Donald
Nicolson (Chairman) and Alastair Ferguson.
This committee has primary responsibility
for monitoring the quality of internal controls
and ensuring that the financial performance
of the Company is properly measured and reported.
It receives reports from the Executive Management
and auditors relating to the interim and
annual accounts and the accounting and internal
control systems in use throughout the Company.
The Audit Committee shall meet not less than
twice in each financial year and it has unrestricted
access to the Company's auditors.
Remuneration Committee
The Remuneration Committee is comprised of
Alastair Ferguson (Chairman), Jon Fitzpatrick
and Donald Nicolson. The Remuneration Committee
reviews the performance of the executive
directors and employees and makes recommendations
to the Board on matters relating to their
remuneration and terms of employment. The
Remuneration Committee also considers and
approves the granting of share options pursuant
to the share option plan and the award of
shares in lieu of bonuses.
AIM Rules Compliance and Disclosures Committee
The AIM Rules Compliance and Disclosure Committee
is responsible for ensuring the Company has
at all times sufficient procedures, resources
and controls in place to enable compliance
with the AIM Rules for Companies and make
accurate disclosures to meet its disclosure
obligations under MAR. The committee is comprised
of Jon Fitzpatrick (Chairman), Donald Nicolson,
and Tom Reynolds.
Non-Executive Directors
The Board has adopted guidelines for the
appointment of Non-Executive Directors which
have been in place and which have been observed
throughout the year. These provide for the
orderly and constructive succession and rotation
of the Chairman and non-executive directors
insofar as both the Chairman and non-executive
directors will be appointed for an initial
term of five years and may, at the Board's
discretion believing it to be in the best
interests of the Company, be appointed for
subsequent terms.
In accordance with the Companies Act 2006,
the Board complies with: a duty to act within
their powers; to promote the success of the
Company; to exercise independent judgement;
to exercise reasonable care, skill and diligence;
to avoid conflicts of interest; not to accept
benefits from third parties and to declare
any interest in a proposed transaction or
arrangement.
External Representation
The Company has in the past invested in projects
and jurisdictions where it believes it has
a competitive advantage in providing early
stage capital alongside specialist knowledge
to realise potential value. In order to ensure
the Company has full visibilty and appropriate
controls over the projects it has invested
in the Company has representative participation
in the various operating committees and /
or Boards. The detail of which is outlined
in the table below;
Asset
Ruvuma PSC - Operating Committee
Kiliwani North Development Licence - Operating
Committee
Helium One - Board representation
Principle 10:
Communicate how the The Board is committed to maintaining good
company is governed communication and having constructive dialogue
and is performing by with all of its shareholders. The Company
maintaining a dialogue has close ongoing relationships with its
with shareholders and private shareholders. Institutional shareholders
other relevant stakeholders and analysts have the opportunity to discuss
issues and provide feedback at meetings with
the Company. In addition, all shareholders
are encouraged, where possible, to attend
the Company's Annual General Meeting. As
part of the Communications Strategy the Board
has engaged investor relations advisers to
guide the Company on best practice methods
of communicating through digital, print and
verbal mediums.
Investors also have access to current information
on the Company though its website and via
the Executive Management Team comprising
of Tom Reynolds (CEO) and Doug Rycroft (COO),
who are available to answer investor relations
enquiries. The Company proposes in 2020,
subject to the necessary formalities, to
move to electronic communications with shareholders.
The Company shall include, when relevant,
in its annual report, any matters of note
arising from the three Board committees.
Risk Management
Solo's activities are subject to a range of financial risks including commodity prices, liquidity, exchange rates and loss of operational equipment or wells.
These risks are managed with the oversight and the Audit Committee through ongoing review, considering the operational business and economic circumstance at that time. The primary risk facing the business is that of liquidity.
Activity Risk Impact Control(s)
Financial Liquidity, market Inability to continue Robust capital management
and credit risk as a going concern policies and procedures
Reduction in asset values
Inappropriate controls Incorrect reporting Appropriate authority
and accounting policies of assets and investment levels
as agreed and delegated
by the Board
Adherence to Statement
of Accounting Policies
as detailed in financial
statements
Audit Committee
Regulatory Breach of rules Censure of withdrawl Strong compliance regime
adherence of listing authorisation instilled at the management,
advisory and Board levels
of the Company
Company established an
AIM Rules Compliance
and Disclosure Committee
in 2020
Strategic Damage to reputation Inability to secure Effective communication
new capital or investments with shareholders coupled
with consistent messaging
to potential investees
Robust compliance and
adherence to the Company's
ABC Policy
Inadequate disaster Loss of key operational Secure off-site storage
recovery procedures and financial data of data
Operational Significant operational Damage/loss of equipment Review of operator emergency
event in JVs and injury/death response plans and appropriate
contingency plans
Significant geopolitical Loss of operating Stakeholders engagement
event in one of ability and/or major plans to ensure visibility
our operating theatres project delays in political operating
environment
Management Recruitment and Reduction in operating Alignment of company's
retention of key capability recruitment and retention
staff and advisors objectives to ensure
a motivated workforce
and a safe working environment
Balancing salary with
longer term incentive
and retention plans aligning
participants directly
to the shareholder experience
Tom Reynolds
Director
Audit Committee Report
Solo's Audit Committee meets at least twice a year and is presently chaired by Donald Nicolson and Alastair Ferguson is the other member of the Committee. Mr Nicolson joined the Board on 11th November 2019 and assumed the role of Audit Committee Chairman. Prior to Nr Nicolson's appointment to the Board, the Audit Committee was chaired by Jon Fitzpatrick.
During the course of 2019 and 2020 the Committee has reviewed:
-- Internal financial controls systems and other internal control and risk management systems;
-- The statements to be included in the Annual report concerning internal control, risk management and the going concern statement;
-- The carrying values of the producing and intangible assets;
-- The adequacy and security of the Company's arrangements for its employees and contractors to raise concerns about possible wrongdoing in financial reporting or other matters;
-- The procedures for detecting fraud; -- The systems and controls for the prevention of bribery; and -- The need for an internal audit function.
The committee has overseen the relationship with the external auditor, including:
-- Approved their remuneration for audit and non-audit services; -- Approved their terms of engagement and the scope of the audit;
-- Satisfied itself that there are no relationships between the auditor and the Company which could adversely affect the auditor's independence and objectivity;
-- Monitored the auditor's processes for maintaining independence, its compliance with relevant UK law, regulation, other professional requirements and the Ethical Standard, including the guidance on the rotation of audit partner and staff;
-- Assessed the qualifications, expertise and resources, and independence of the external auditor and the effectiveness of the external audit process;
-- Evaluated the risks to the quality and effectiveness of the financial reporting process in the light of the external auditor's communications with the committee;
-- Met with the external auditor without management being present, to discuss the auditor's remit and any issues arising from the audit; and
-- Discussed with the external auditor the factors that could affect audit quality and reviewed and approved the annual audit plan, ensuring it is consistent with the scope of the audit engagement, having regard to the seniority, expertise and experience of the audit team.
The committee reviewed the findings of the audit with the external auditor, including:
-- A discussion of issues which arose during the audit, including any errors identified during the audit; and the auditor's explanation of how the risks to audit quality were addressed;
-- Key accounting and audit judgements; -- The auditor's view of their interactions with senior management;
-- A review of any representation letters requested by the external auditor before they were signed by management;
-- A review of the management letter and management's response to the auditor's findings and recommendations; and
-- A review of the effectiveness of the audit process, including an assessment of the quality of the audit, the handling of key judgements by the auditor, and the auditor's response to questions from the committee.
Donald Nicolson Jonathan Fitzpatrick
Audit Committee Chair (current) Audit Committee Chair (1 January to 10
November 2019)
Remuneration Committee Report
Solo's Remuneration Committee reviews the scale and structure of the Executive Directors' remuneration and the terms of their service contracts.
The remuneration and terms and conditions of appointment of the Non-Executive Directors are set by the Board.
Alastair Ferguson chairs the committee and Jon Fitzpatrick is the other member. The Remuneration Committee met twice in the year. Following the reporting period end Donald Nicolson joined the Remuneration Committee in 2020.
In setting the remuneration for the Executive Directors and key staff, the committee compares published remuneration data for other AIM and Main LSE Board oil and gas companies of a similar market capitalisation and seeks to ensure that the remuneration of the Executive Directors is broadly comparable to their peers in other similarly sized organisations.
In 2019:
-- There were no changes to remuneration policy, pension rights and any compensation payments; and
-- There were no other changes to pay and employment conditions across the Company, and no salary increases.
Alastair Ferguson
Remuneration Committee Chair
AIM Rules Compliance and Disclosures Committee
Solo's AIM Rules Compliance and Disclosures Committee is responsible for ensuring the Company has, at all times, sufficient procedures, resources and controls in place to enable compliance with the AIM Rules for Companies and make accurate disclosures to meet its disclosure obligations under MAR. The committee is comprised of Jon Fitzpatrick (Chairman), Donald Nicolson, and Tom Reynolds.
The Committee was established in 2020 and has been active as part of the process in producing the financial statements. The Committee has established protocols to:
-- Ensure that each meeting of the full Board includes discussions of AIM matters, in particular to brief the Board as to issues raised with the Nomad and advice given, as they arise;
-- Ensure that the executive Directors are communicating as necessary with the Company's Nomad regarding ongoing compliance with the AIM Rules and in relation to proposed or potential transactions;
-- Ensure that advice received from the Nomad is recorded and taken into account;
-- Ensure that all announcements made have been verified and approved by the Nomad whose name must be on all material announcements to RNS;
-- Ensure that the Nomad is supplied with information on the Company's financial condition on a regular and timely basis and of any other key developments in the Company from time to time;
-- Ensure that the Nomad is maintaining regular contact with the Company;
-- Circulate to other members of the Board details of any rule changes which are notified to the Chairman of the Committee by the Nomad; and
-- Ensure that the executive Directors take into account advice given by the Nomad from time to time.
Jonathan Fitzpatrick
AIM Rules Compliance and Disclosures Committee Chair
Opinion
We have audited the financial statements of Solo Oil Plc (the 'company') for the year ended 31 December 2019 which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
-- give a true and fair view of the state of the company's affairs as at 31 December 2019 and of its loss for the year then ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and -- have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of matter - Covid 19
We draw your attention to note 1 of the financial statements, which describes the company's assessment of the COVID-19 impact on its ability to continue as a going concern. The company have explained that the events arising from the COVID-19 outbreak do not impact its use of the going concern basis of preparation nor do they cast significant doubt about the company's ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue.
Our opinion is not modified in this respect.
Emphasis of matter - Recoverability of receivables
We draw your attention to note 3 of the financial statements, which describes the company's assessment of the recoverability over the receivables of GBP255k which remains outstanding. The company have explained their assessment over the recoverability within critical accounting estimates and conclude that there is no further impairment due. The financial statements do not include the adjustments that would result if the Company was unable to fully recover the debt,
Our opinion is not modified in this respect.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
-- the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
-- the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Our application of materiality
Materiality
In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified.
We use a different level of materiality ('performance materiality') to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment.
Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors' remuneration.
We agreed with the Audit Committee to report to it all identified errors in excess of GBP10,400. Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds.
An overview of the scope of our audit
In designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular we looked at areas involving significant accounting estimates and judgements by the Directors in respect of the carrying values of the Company's investments and considered future events that are inherently uncertain., We also addressed the risk of management override of internal controls, including evaluation whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter How the scope of our audit responded
to the key audit matter
Valuation of Intangible Assets
The entity has capitalised deferred Our work in this area included
exploration and evaluation expenditure. but was not limited to:
Management are required to ensure * Testing an appropriate sample of movement during the
that only costs which meet the IFRS year to supporting documentation;
criteria of an asset and accord
with the company's accounting policy
are capitalised. Additionally, in * Ensuring the reasonableness of the valuation of
accordance with the requirements intangible assets;
of IFRS, management are required
to assess whether there is any indication
of impairment of these assets. * Considering whether there were indications of
The significance of the intangible impairment of the intangible assets such as expiring
non-current assets on the company's concessions, licences or rights, projections of
statement of financial position declining oil and gas prices and/or declining demand
and the significant management judgement and projections of increased future capital costs or
involved in the determination and operating costs;
the assessment of the carrying values
of these assets there is increased
risk of material misstatement or * Reviewing management's assessment of the impairment
that the values will not be recovered of intangible assets and Challenging their
due to the inherent uncertainties assumptions and estimates used as a basis to value
which exist with oil and gas exploration the intangible assets. We will also review the
activities. financial statements of the joint operator; and
* Reviewing the movement of intangible assets to ensure
it is accounted for and disclosed correctly.
In forming our opinion on the
financial statements, which is
not modified, we draw to the users
attention to the fact that the
latest available financial statement
of the Joint Venture Partner and
operator, Aminex Plc for the year
ended 31 December 2019 makes reference
to a material uncertainty on going
concern . If Aminex Plc are unable
to secure the necessary funds
over the next twelve months, or
divestment to a related party
does not materialise, there may
be an impact to the carrying value
of investments. The financial
statements do not include the
adjustments that may be required
to the carrying value of these
assets.
Valuation and impairment of Investments
The Company held investments with Our work in this area included;
a value of GBP2.9m as at 31 December * Reviewing the valuation methodology for the
2019. These are valued in accordance investment held and ensuring that the carrying values
with IFRS 13 and the fair value are supported by sufficient and appropriate audit
hierarchy; and classified as per evidence;
IFRS 9.
There is the risk that these investments
have not been valued in accordance * Ensuring that all asset types are categorised
with IFRS 13 and IFRS 9 and require according to IFRS, including the accounting
impairment. disclosures ;
* Ensuring that Solo Oil Plc has full title to the
investments held;
* Ensuring that appropriate disclosures surrounding the
estimates made in respect of any valuations are
included in the financial statements; and
* Considering whether the transactions have been
accounted for correctly within the financial
statements.
Our work indicated that the investments
are fairly stated in the financial
statements.
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
-- the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
-- the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
-- adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
-- the financial statements are not in agreement with the accounting records and returns; or -- certain disclosures of directors' remuneration specified by law are not made; or -- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor's report.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: http://www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Zahir Khaki (Senior Statutory Auditor)
for and on behalf of PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus, London, E14 4HD
Date: 31/8/2020
2019 2018
as restated
Notes GBP000 GBP000
Revenue from contracts with
customers 5 17 -
Administrative expenses 6 (2,558) (2,048)
Operating expenses - (181)
Loss before investment activities 6 (2,541) (2,229)
Interest income 5 55 -
Finance costs 9 (12) (50)
Other gains and losses 10 (63) 1,248
Other income 8 - 57
Loss before taxation (2,561) (974)
Income tax expense 11 - -
Loss and total comprehensive
income for the year (2,561) (974)
Total comprehensive income for the year
attributable to equity shareholders of
the parent (2,561) (974)
Earnings per share (pence)
Basic and diluted 12 (0.41) (0.19)
The accounting policies and notes on pages 43 to 76 form part of
these financial statements.
31 Dec 31 Dec 1 Jan
2019 2018 2018
as restated
Notes GBP000 GBP000 GBP000
Non-current assets
Intangible assets 13 15,092 15,119 13,816
Oil & gas properties 14 358 365 365
Investments 15 2,927 2,903 3,226
18,377 18,387 17,407
Current assets
Financial assets held at
FVTPL 16 - 1,523 -
Trade and other receivables 18 1,437 716 1,395
Cash and cash equivalents 1,064 2,999 396
2,501 5,238 1,791
Total assets 20,878 23,625 19,198
Current liabilities
Trade and other payables 19 365 548 324
Borrowings - - 1,080
Provisions 20 184 184 -
549 732 1,404
Net current assets 1,952 4,506 387
Non-current liabilities
Long term provisions 20 168 171 171
Total liabilities 717 903 1,575
Net assets 20,161 22,722 17,623
Equity
Called up share capital 21 1,264 1,264 785
Share premium account 21 37,316 37,316 31,749
Deferred share capital 21 1,831 1,831 1,831
Share based payments 22 1,135 1,135 1,129
FVOCI reserve - - (693)
Retained earnings (21,385) (18,824) (17,178)
Total equity 20,161 22,722 17,623
The accounting policies and notes on pages 43 to 76 form part of these financial statements.
The financial statements were approved by the board of directors and authorised for issue on 31 August 2020 and are signed on its behalf by:
Mr Tom Reynolds
Director
Company Registration No. 05542880
Share Share Revaluation Equity Deferred Share FVOCI Retained Total
capital premium reserve reserve share based (previously earnings
account capital payments AFS reserve)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
As restated for the period
ended 31
December 2018:
Balance at 1
January 2018 785 31,749 - - 1,831 1,129 (693) (17,178) 17,623
Effect of
change in
accounting
policy 30 - - - - - - - - -
Balance at 1
January 2018 785 31,749 - - 1,831 1,129 (693) (17,178) 17,623
Year ended 31
December
2018 :
Loss and total
comprehensive
income for
the year - - - - - - - (1,667) (1,667)
Issue of share
capital 479 5,567 - - - - - - 6,046
Share-based
payment
charge - - - - - 27 - - 27
Transfers - - - - - - 693 - 693
Release of
expired share
options - - - - - (21) - 21 -
Balance at 31
December
2018 (as
restated) 1,264 37,316 - - 1,831 1,135 - (18,824) 22,722
Year ended 31
December
2019:
Loss and total
comprehensive
income for
the year - - - - - - - (2,561) (2,561)
Balance at 31
December 2019 1,264 37,316 - - 1,831 1,135 - (21,385) 20,161
On 1 January 2018 (the date of initial application of IFRS 9), the Company's management have assessed
that assets previously held under assets held for sale no longer apply. As a result, the remaining
value was transferred into retained earnings in the year to 31 December 2018. This is a restatement
from the 2018 accounts in which this was written off through profit and loss.
2019 2018
as restated
Notes GBP000 GBP000 GBP000 GBP000
Cash flows from operating activities
Cash absorbed by operations 28 (2,514) (266)
Interest paid (12) -
Net cash outflow from operating
activities (2,526) (266)
Investing activities
Purchase of intangible assets (147) (1,341)
Proceeds on disposal of investments 1,668 -
Payments to acquire investments (854) -
Increase in loans and receivables (76) -
Interest received - 57
Net cash generated from/(used
in) investing activities 591 (1,284)
Financing activities
Proceeds from issue of shares - 5,431
Share issue costs - (311)
Repayment of borrowings - (967)
Net cash generated from
financing activities - 4,153
Net (decrease)/increase in cash
and cash equivalents (1,935) 2,603
Cash and cash equivalents at
beginning of year 2,999 396
Cash and cash equivalents
at end of year 1,064 2,999
The accounting policies and notes on pages 43 to 76 form part of
these financial statements.
1 Accounting policies
Company information
Solo Oil plc ("Solo", the "Company") is a public listed company incorporated in England & Wales. The address of its registered office 1 Park Row, Leeds, United Kingdom, LS1 5AB. The Company's ordinary shares are traded on the AIM Market operated by the London Stock Exchange. The financial statements of Solo Oil plc for the year ended 31 December 2019 were authorised for issue by the Board on 31 August 2020 and the statement of financial position is signed on the Board's behalf by Mr Reynolds.
Investing policy
Solo's investing policy is to acquire a diverse portfolio of direct and indirect interests in exploration, development and production oil and gas assets, and any other subsurface gas assets of potential commercial significance, located worldwide but predominantly in the Americas, Europe or Africa.
The Company may invest by way of outright acquisition or by the acquisition of assets, including the intellectual property, of relevant business, partnerships or joint venture arrangements. Such investments may result in the Company acquiring the whole part of a company or project (which in the case of an investment in a company may be private or listed on a stock exchange, and which may be pre-revenue), may constitute a minority stake in the Company or project in question and may take the form of equity, joint venture debt, convertible instruments, license rights, or other financial instruments as the Directors deem appropriate.
Solo intends to be a long-term investor and the Directors will place no minimum or maximum limit on the length of time that any investment may be held.
There is no limit on the number of projects into which the Company may invest, nor the proportion of the Company's gross assets that any investment may represent at any time and the Company will consider possible opportunities anywhere in the world.
All of Solo's assets will be held in its own name, or through wholly owned subsidiaries.
Statement of compliance with IFRS
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. The principal accounting policies adopted by the Company are set out below.
Accounting convention
The financial statements have been prepared on the historical cost basis, except for the measurement to fair value of assets and financial instruments as described in the accounting policies below, and on a going concern basis.
The financial report is presented in Pound Sterling (GBP) and all values are rounded to the nearest thousand pounds (GBP'000) unless otherwise stated. The functional currency of the company is also GBP.
1 Accounting policies
Going concern
The Directors noted the losses that the Company has made for the Year Ended 31 December 2019. The Directors have prepared cash flow forecasts for the period ending 30 September 2021 which take account of the current costs and operational structure of the Company.
The cost structure of the Company comprises a high proportion of discretionary spend and therefore in the event that cash flows become constrained, costs can be quickly reduced to enable the Company to operate within its available funding.
These forecasts, demonstrate that the Company has sufficient cash resources available to allow it to continue in business for a period of at least twelve months from the date of approval of these financial statements. Accordingly, the financial statements have been prepared on a going concern basis.
In their assessment of going concern the directors have considered the current and developing impact on the business as a result of the COVID-19 virus and the oil price crash, including revisions where required to budgets and projections. The COVID-19 pandemic has not had a significant, immediate impact on the Company's operations but the Directors are aware that if the current situation becomes prolonged then this may change. Having regard to the above, the directors continue to believe it appropriate to adopt the going concern basis of accounting in preparing the financial statements. The financial statements do not include any adjustments that may result from any significant changes in the assumptions noted above in preparing the financial statements on a going concern basis.
It is the prime responsibility of the Board to ensure the Company remains a going concern. The Company has sufficient funding to meet their debts as they fall due. At 31 December 2019 the Company had cash and cash equivalents of GBP1,064k and borrowings of GBPnil. The Company has minimal contractual expenditure commitments and the Board considers the present funds sufficient to maintain the working capital of the Company for a period of at least 12 months from the date of signing in the Annual Report and Financial Statements taking into account the current COVID-19 and oil price environment. For these reasons the Directors adopt the going concern basis in the preparation of the Financial Statements.
Revenue recognition
Revenue is recognised to the extent that the right to consideration is obtained in exchange for performance. Payment received in advance of performance is deferred on the balance sheet as a liability and released as services are performed or products are exchanged as per the agreement with the customer.
Revenue is generated from one main source of income currently. In the current year, revenue is being generated from the Company's Farm-in interests, on an accrued monthly basis, along with associated costs.
Revenue from the production of gas, in which the Company has an interest with other producers, is recognised based on the Company's working interest and the terms of the relevant production sharing contracts. Differences between gas lifted and sold and the Company's share of production are not significant.
Intangible assets
Externally acquired intangible assets comprising deferred exploration and evaluation expenditure are initially recognised at cost in compliance with IFRS 6 "Exploration for an evaluation of mineral resources."
The Company follows the successful efforts method of accounting for exploration and evaluation expenditure. All license, acquisition, exploration and evaluation costs are capitalised in cost centres by area of interest pending determination of the commercial viability of the relevant product.
1 Accounting policies
Impairment of tangible and intangible assets
At each balance sheet date the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If there is such indication then an estimate of the asset's recoverable amount is performed and compared to the carrying amount.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted at their present value. Where the asset does not generate cash flows that are independent from other assets, the Company estimated the recoverable amount of the cash-generating unit to which the asset belongs.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the assets is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease,
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Fair value measurement
IFRS 13 establishes a single source of guidance for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The resulting calculations under IFRS 13 affected the principles that the Company uses to assess the fair value, but the assessment of fair value under IFRS 13 has not materially changed the fair values recognised or disclosed. IFRS 13 mainly impacts the disclosures of the Company. It requires specific disclosures about fair value measurements and disclosures of fair values, some of which replace existing disclosure requirements in other standards. There is one financial instrument measured at fair value, details of which can be seen at Note 23.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks.
1 Accounting policies
Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet when the Company has become a party to the contractual provisions of the instrument.
Classification
The company classifies its financial assets and liabilities in the following measurement categories:
-- those to be measured subsequently at fair value (either through Other Comprehensive Income or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.
Recognition and measurement
A financial instrument is recognised if the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Company's contractual rights to the cash flows from the financial assets expire or if the Company 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 Company commits itself to purchase or sell the asset.
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss ("FVTPL"), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.
Subsequent measurement of debt instruments depends on the Company's business model for managing the asset and the cash flow characteristics of the asset. Currently, the Company's financial assets are all held for collection of contractual cash flows, which are solely payments of principal and interest. Accordingly, the Company's financial assets are measured subsequent to initial recognition at amortised cost.
Impairment
On a forward-looking basis, the Company estimates the expected credit losses associated with its receivables and other financial assets carried at amortised cost, and records a loss allowance for these expected losses.
Trade and other receivables
Trade and other receivables outside of normal payment terms accrue interest at a rate determined by the operator and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Financial liability and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.
Trade and other payables
Trade and other payables are non interest bearing and are stated at their nominal value.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs
1 Accounting policies
Equity reserves
Share capital is determined using the nominal value of shares that have been issued.
The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.
The share based payment reserve represents the cumulative amount which has been expensed in the income statement in connection with share based payments, less any amounts transferred to retained earnings on the exercise of share options.
FVOCI reserve represents the market value movement of FVOCI investments.
Retained earnings includes all current and prior period results as disclosed in the income statement.
Taxation
The tax expense represents the sum of the current tax and deferred tax.
Current tax
The current tax is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such 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 tax profit not the accounting profit.
Provisions
Provisions are recognised for liabilities of uncertain timings or amounts that have arisen as a result of past transactions and are discounted at a pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the liability.
1 Accounting policies
Share-based payments
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period.
Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received. Equity-settled share-based payments are measured at a fair value at the date of grant except if the value of the service can be reliably established. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company's estimate of shares that will eventually vest.
Foreign exchange
Transactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the income statement for the period.
1 Accounting policies
Oil and gas properties and other property, plant and equipment
(i) Initial recognition
Oil and gas properties and other property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning obligation and, for qualifying assets (where relevant), borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. The capitalised value of a finance lease is also included within property, plant and equipment.
When a development project moves into the production stage, the capitalisation of certain construction/development costs ceases, and costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalisation relating to oil and gas property asset additions, improvements or new developments.
(ii) Depreciation/amortisation
Oil and gas properties are depreciated/amortised on a unit-of production basis over the total proved developed and undeveloped reserves of the field concerned, except in the case of assets whose useful life is shorter than the lifetime of the field, in which case the straight-line method is applied. Rights and concessions are depleted on the unit-of-production basis over the total proved developed and undeveloped reserves of the relevant area.
The unit-of production rate calculation for the depreciation/amortisation of field development costs takes into account expenditures incurred to date, together with sanctioned future development expenditure. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss and other comprehensive income when the asset is derecognised.
The asset's residual values, useful lives and methods of depreciation/amortisation are reviewed at each reporting period and adjusted prospectively.
(iii) Major maintenance, inspection and repairs
Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement assets or parts of asset, inspection costs and overhaul costs. Where an asset, or part of an asset that was separately depreciated and is now written off is replaced and it is probably that future economic benefits associated with the item will flow to the Company, the expenditure will be capitalised. Where part of the asset replaced was not separately considered as a component and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced asset(s) and is immediately written off. Inspection costs associated with major maintenance programmes are capitalised and amortised over the period of the next inspection. All other day-to-day repairs and maintenance costs are expensed as incurred.
1 Accounting policies
Provision for rehabilitation / Decommissioning Liability
The Company recognises a decommissioning liability where it has a present legal or constructive obligation as a result of past events, and it is probably that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of obligation can be made.
The obligation generally arises when the asset is installed or the ground/environment is disturbed at the field location. When the liability is initially recognised, the present value of the estimated costs is capitalised by increasing the carrying amount of the related oil and gas assets to the extent that it is incurred by the development/construction of the field. Any decommissioning obligations that arise through the production of inventory are expensed when the inventory item is recognised in cost of goods sold.
Changes in the estimated timing or cost of decommissioning are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to oil and gas assets. Any reduction in the decommissioning liability and, therefore, any deduction from the asset to which it relates, may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to the statement of profit or loss and other comprehensive income.
Segmental reporting
A business segment is a group of assets or operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing services within a particular economic environment that is subject to different risks and returns from other segments in other economic environments. The company has two segments; corporate head office costs and Tanzania.
Investments
The Company's financial asset investments are classified and measured at fair value, under IFRS 9, with changes in fair value recognised in profit and loss as they arise.
Gains and losses on investments disposed of or identified are included in the net profit or loss for the period.
Investments held by the Company are held for resale. Therefore where the Company's equity stake in an investee company is 20% or more equity accounting for associates is not considered to be appropriate.
Correction of error
In the prior year, there was an error in the presentation of impairment of assets previously held for sale. This resulted in profit for the year being understated by GBP693k. This has no impact upon equity as it was a transfer between the FVOCI reserve and retained earnings.
There has also been a restatement for a decommissioning provision which should have been recognised relating to obligations for fields in Tanzania. This has no impact on equity as the provision results in an increase in the asset value held under oil and gas properties.
2 Adoption of new and revised standards and changes in accounting
policies
In the current year, the following new and revised Standards
and Interpretations have been adopted by the Company. The adoption
of these standards has had no impact on the current period however
may have an effect on future periods.
IFRS 9 Prepayment features with negative
compensation
IFRS 16 Leases
Standards which are in issue but not yet effective
At the date of authorisation of these financial statements,
the following Standards and Interpretations, which have not
yet been applied in these financial statements, were in issue
but not yet effective (and in some cases had not yet been adopted
by the EU):
IFRS 10 and IAS 28 (Amendments) Sale of Contribution of Assets
between an Investor and Associate
or Joint Venture
IFRS 3 (Amendments) Definition of a business
IAS 1 and IAS 8 (Amendments) Definition of material
Conceptual Framework Amendments to References to the
Conceptual Framework in IFRS Standards
The directors do not expect that the adoption of the other Standards
listed above will have a material impact on the financial statements
of the Company aside from additional disclosures.
3 Critical accounting estimates and judgements
The Company makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions 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.
Useful lives of intangible assets and property, plant and equipment (note 13)
Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are based on judgement and experience and periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the income statement in specific periods.
Share-based payments (note 22)
The Company utilised an equity-settled share-based remuneration scheme for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options are estimated by using Black-Scholes valuation method as at the date of grant. The assumptions used in the valuation are described in Note 22 and include, among others, the expected volatility, expected life of the options and number of options expected to vest.
3 Critical accounting estimates and judgements
Deferred taxation (note 11)
Deferred tax assets are recognised when it is judged more likely than not that they will be recovered. Deferred tax assets are currently nil based on the likelihood of recovery.
Hydrocarbon reserve and resource estimates (note 14)
Hydrocarbon reserves are estimates of the amount of hydrocarbons that can be economically and legally extracted from the Company's oil and gas properties. The Company estimates its commercial reserves and 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 hydrocarbon body and suitable production techniques and recovery rates. Commercial reserves are determined using estimates of oil and gas in place, recovery factors and future commodity prices, the latter having an impact on the total amount of recoverable reserves and the proportion of the gross reserves which are attributable to the host government under the terms of the Production-Sharing Agreements. A breakdown of reserves can be found below. Future development costs are estimated using assumptions as to the number of wells required to produce the commercial reserves, the cost of such wells and associated production facilities, and other capital costs. The current long-term gas price assumption used in the estimation of commercial reserves currently held by the Company is US$3/MMTBU. The carrying amount of oil and gas development and production assets at 31 December 2019 is shown in note 14.
The Company estimates and reports hydrocarbon reserves in line with the principles contained in the SPE Petroleum Resources Management Reporting System (PRMS) framework. As the economic assumptions used may change and as additional geological information is obtained during the operation of a field, estimates of recoverable reserves may change. Such changes may impact the Company's financial position and results which include:
-- The carrying value of exploration and evaluation assets; oil and gas properties; property and plant and equipment may be affected due to changes in estimated future cash flows
-- Depreciation and amortisation charges in the income statement may change where such charges are determined using the Units of Production (UOP) method, or where the useful life of the related assets change
-- Provisions for decommissioning may require revision - where changes to the reserve estimates affect expectations about when such activities will occur and the associated cost of these activities.
3 Critical accounting estimates and judgements
Resource summary - Ntorya Field
Gross Licence Basis (bcf)
Gross Mean
unrestricted
Licence 1C 2C 3C GIIP
Development
Mtwara pending 26 81 213
Development
Mtwara unclarified 324 682 950 1,870
763
Resource summary excluding Ntorya Field
Prospective Resources (bcf)*
Gross on Licence
Prospect/Lead 1U 2U 3U Mean unrisked Pg %
Chikumbi Jurassic 399 936 1,798 1,351** 8***
Namisange 56 235 1,925 1,183 8***
Likonde updip 39 166 702 444 10***
Ziwani NW 8 35 153 68 <5***
Ziwani SW 12 54 236 105 <5***
* Assuming development licence is ratified
** P50
*** RPS assessment of PG
3 Critical accounting estimates and judgements
Exploration and evaluation expenditures (note 13)
The application of the Company's accounting policy for exploration and evaluation expenditure requires judgement to determine whether future economic benefits are likely, from either future exploitation or sale, or whether activities have not reached a stage which permits a reasonable assessment of the existence of reserves. The determination of reserves and resources is itself an estimation process that involves varying degrees of uncertainty depending on how the resources are classified. These estimates directly impact when the Company defers exploration and evaluation expenditure. The deferral policy requires management to make certain estimates and assumptions about future events and circumstances, in particular, whether an economically viable extraction operation can be established. Any such estimates and assumptions may change as new information becomes available. If, after expenditure is capitalised, information becomes available suggesting that the recovery of the expenditure is unlikely, the relevant capitalised amount is written off in the income statement and in the period when the new information becomes available.
Units of production (UOP) depreciation of oil and gas assets (note 14)
Oil and gas properties are depreciated using the UOP method over total proved development 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 the proved 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
Recoverability of oil and gas assets (note 14)
The Company assesses each asset or cash generating unit (CGU) each reporting period to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs of disposal (VLCD) and value in use (VIU). The assessments require the use of estimates and assumptions such as long-term oil prices (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, decommissioning costs, exploration potential reserves (see(a) Hydrocarbon reserves and resource estimates above) and operating performance (which includes production and sales volumes). These estimates and assumptions are subject to risk and uncertainty. Therefore, there is possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or CGUs.
Decommissioning provisions (note 20)
There is uncertainty around the cost of decommissioning as cost estimates can vary in response to many factors, including changes to the relevant legal requirements, the emergence of new technology or experience at other assets. The expected timing, work scope and amount and currency mix of expenditure may also change. Therefore, significant estimates and assumptions are made in determining the provision for decommissioning.
The estimated decommissioning costs are reviewed annually by an internal expert from the joint venture partner. Provision for environmental clean-up and remediation costs is based on current legal and contractual requirements, technology and management's estimate of costs with reference to current price levels. Future cost estimates are discounted to present value using a rate that approximates the time value of money, which is currently 5.89%. The discount rate is based on the average yield on Tanzanian Government bonds for foreign currency loans of a duration of more than 10 years.
3 Critical accounting estimates and judgements
Operating segments (note 4)
The Board considers operating segments to be operations in Tanzania and head office costs.
Recoverability of trade receivables (note 18)
The Company considers the recoverability of trade receivables to be a key area of judgement. The Company considers trade receivables to be credit impaired once there is evidence a loss has been incurred. An expected credit loss is calculated on an annual basis. The directors believe that the debtor is still recoverable based on their knowledge of the market in Tanzania and historical evidence of similar receivables being paid.
4 Operating Segments
Based on risks and returned, the directors consider that the primary reporting format is by business segment. The directors consider that there are two business segments:
-- Operations on its investments in Tanzania -- Head office support from the UK
In the prior year, the company held investments with companies operating in Canada. These have been disposed of in the current year.
2019 Canada Tanzania UK Total
GBP000 GBP000 GBP000 GBP000
Revenue - 17 - 17
Administrative expenses - - (2,558) (2,558)
Interest income - 55 - 55
Finance costs - (12) - (12)
Other gains and losses (67) - 4 (63)
Other income - - - -
Profit/(Loss) from operations
per reportable segment (67) 60 (2,554) (2,561)
Additions to non-current assets - 337 - 337
Reportable segment assets 125 18,639 2,167 20,931
Reportable segment liabilities - 168 600 768
2018 Canada Tanzania UK Total
GBP000 GBP000 GBP000 GBP000
Revenue - - - -
Administrative expenses - - (2,048) (2,048)
Operating expenses - - (181) (181)
Interest income - - - -
Finance costs - - (50) (50)
Other gains and losses - 1,777 (529) 1,248
Other income - 57 - 57
Profit/(Loss) from operations
per reportable segment - 1,834 (2,808) (974)
4 Operating Segments
2018 Canada Tanzania UK Total
GBP000 GBP000 GBP000 GBP000
Additions to non-current assets - 1,844 - 1,844
Reportable segment assets 201 18,230 5,249 23,680
Reportable segment liabilities - 171 787 958
5 Revenue
2019 2018
GBP000 GBP000
Revenue analysed by class of business
Natural gas sales 17 -
2019 2018
GBP000 GBP000
Other significant revenue
Interest income 55 -
2019 2018
GBP000 GBP000
Revenue analysed by geographical market
Tanzania 17 -
Contract balances
2019 2018
GBP000 GBP000
Trade receivables 283 294
Accrued income and interest 76 -
5 Revenue
Trade receivables accrued interest for non payment. Outstanding debtors accrue interest at a rate in accordance with the joint venture agreement and are generally on terms of 30 days. In 2019, there is a provision of GBP28k for expected credit losses on trade receivables.
Interest income relates to interest charged on outstanding invoices.
An operating segment is a distinguishable component of the Company that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Company's chief operating decision maker to make decisions about the allocation of resources and assessment of performance and about which discrete financial information is available.
The Company's current revenue from customers is all generated in Tanzania from oil & gas production in accordance with its farm-in/profit sharing agreements, within Tanzania. However this segment is only in its third period of production, and the only major related transactions are the carrying value of the oil & gas properties assets as described in Note 14. This year's revenue from this segment was GBP17k (2018:GBPnil). All revenue is recognised at a point in time. In the current year, there was no production, however revenue was recognised as a result of under accrued gas sales relating to 2017.
Subject to further acquisitions, the Company expects to further reviews its segmental information during the forthcoming financial year and update accordingly.
Performance obligations
Under our sales contracts, we are entitled to payment from purchasers once its performance obligations have been satisfied upon delivery of the product, at which point payment is unconditional. Revenues are recorded when production is transported by pipeline or when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred, title has transferred and collectability of the revenue is probable. We record invoiced amounts as "Trade receivables" in the accompanying statement of financial position.
5 Revenue
Trade receivables accrued interest for non payment. Outstanding debtors accrue interest at a rate in accordance with the joint venture agreement and are generally on terms of 30 days. In 2019, there is a provision of GBP28k for expected credit losses on trade receivables.
Interest income relates to interest charged on outstanding invoices.
An operating segment is a distinguishable component of the Company that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Company's chief operating decision maker to make decisions about the allocation of resources and assessment of performance and about which discrete financial information is available.
The Company's current revenue from customers is all generated in Tanzania from oil & gas production in accordance with its farm-in/profit sharing agreements, within Tanzania. However this segment is only in its third period of production, and the only major related transactions are the carrying value of the oil & gas properties assets as described in Note 14. This year's revenue from this segment was GBP17k (2018:GBPnil). All revenue is recognised at a point in time. In the current year, there was no production, however revenue was recognised as a result of under accrued gas sales relating to 2017.
Subject to further acquisitions, the Company expects to further reviews its segmental information during the forthcoming financial year and update accordingly.
Performance obligations
Under our sales contracts, we are entitled to payment from purchasers once its performance obligations have been satisfied upon delivery of the product, at which point payment is unconditional. Revenues are recorded when production is transported by pipeline or when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred, title has transferred and collectability of the revenue is probable. We record invoiced amounts as "Trade receivables" in the accompanying statement of financial position.
6 Expenses by Nature
2019 2018
GBP000 GBP000
Exchange losses 65 84
Fees payable to the Company's auditor for the
audit of the Company's financial statements 23 14
Professional, legal and consulting fees 855 820
AIM related costs including investor relations 246 243
Costs relating to OneDYAS transaction 653 -
Accounting related services 196 51
Travel and subsistence 85 68
Office and administrative expenses 46 11
Other expenses 19 9
Share-based payments - 27
Directors remuneration 299 607
Wages and salaries and other related costs 71 114
2,558 2,048
7 Employees
The average number of employees (excluding executive directors)
was:
2019 2018
- 1
There was one employee during the year who resigned in March
2019 therefore average employee numbers for the year ended 31
December 2019 was nil.
2019 2018
GBP000 GBP000
Their aggregate remuneration comprised :
Wages and salaries 8 40
Directors remuneration 299 607
Salary and Share-based Termination Total
fees payments payments
GBP000 GBP000 GBP000 GBP000
Year ended 31 December 2019
Dan Maling (resigned 7 February
2019) 38 - - 38
Jonathan Fitzpatrick 62 - - 62
Alastair Ferguson 134 - - 134
Tom Reynolds 52 - - 52
Don Nicolson (appointed 11
November 2019) 8 - - 8
Don Strang (resigned 26 November
2018) 5 - - 5
299 - - 299
7 Employees
Salary and Share-based Termination Total
fees payments payments
GBP000 GBP000 GBP000 GBP000
Year ended 31 December 2018
Neil Ritson (resigned 6 August
2018) 99 - - 99
Don Strang (resigned 26 November
2018) 45 - - 45
Dan Maling (resigned 7 February
2019) 220 - - 220
Fergus Jenkins (including
termination provision) 28 - 62 90
Jon Fitzpatrick (appointed
2 May 2018) 107 27 - 134
Alastair Ferguson (appointed
6 August 2018) 19 - - 19
Tom Reynolds (appointed 4
December 2018) - - - -
518 27 62 607
No directors received pension contributions in 2019 or 2018.
8 Other income
2019 2018
GBP000 GBP000
Other interest income - 57
Total other income - 57
Finance income represents interest receivable on the loan to
Horse Hill Developments Ltd, which was disposed of in 2018.
9 Finance costs
2019 2018
GBP000 GBP000
Finance fees - 50
Other interest payable 7 -
Unwinding of discount on provisions 5 -
12 50
10 Other gains and losses
2019 2018
GBP000 GBP000
Gain on disposal of Horse Hill Developments - 1,777
Loss on revaluation of shares - (529)
Loss on disposal of shares in Deloro Energy (67) -
Loss on disposal of UKOG Shares (236) -
Gain on disposal of UKOG PEDL 331 240 -
(63) 1,248
11 Income tax expense
2019 2018
GBP000 GBP000
UK corporation tax on profits for the current
period - -
Total UK current tax - -
Deferred tax
Origination and reversal of temporary differences - -
- -
Total tax charge - -
11 Income tax expense
The charge for the year can be reconciled to the loss per the
income statement as follows:
2019 2018
GBP000 GBP000
Loss before taxation (2,561) (974)
The reason for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the UK applied
to profits for the year are as follows:
Expected tax credit based on a corporation
tax rate of 19.00% (487) (185)
Effect of expenses not deductible in determining
taxable profit 201 (105)
Adjustment in respect of prior years - 23
Other permanent differences - (62)
Deferred tax not recognised 256 33
Adjust deferred tax to average rate of 19.00% 30 3
Adjustments to losses - 293
Taxation charge for the year - -
No deferred tax asset has been recognised because there is uncertainty
of the timing of suitable future profits against which they can
be recovered. The company has losses carried forward of GBP2,347k
(2018: GBP1,439k).
12 Earnings per share
The calculation of loss per share is based on the loss after taxation
divided by the weighted average number of shares in issue during
the year.
2019 2018
GBP000 GBP000
Number of shares
Weighted average number of ordinary shares for
basic loss per share (000) 631,704 509,360
Earnings
Continuing operations
Loss for the period from continued operations (2,561) (974)
Earnings per share for continuing operations
Basic and diluted loss per share (pence) (0.41) (0.19)
As inclusion of the potential ordinary shares would result in
a decrease in the loss per share they are considered to be anti-dilutive,
as such, a diluted loss per share is not included.
13 Intangible assets
Exploration and
evaluation expenditure
GBP000
Cost
At 1 January 2018 16,474
Additions 1,341
Foreign currency adjustments (38)
At 1 January 2019 17,777
Additions 237
Disposals (264)
At 31 December 2019 17,750
Impairment
At 1 January 2018 and 2019 2,658
Carrying amount
At 31 December 2019 15,092
At 31 December 2018 15,119
The additions to deferred exploration and evaluation expenditure
during the period relate mainly to the completion of drilling
operations for the Ntorya-2 appraisal and subsequent testing
of the well.
During the year ended 31 December 2019 the loan to UKOG PEDL
331 was disposed in full and a gain of GBP240k was recognised
on disposal.
Following a review of the carrying value and future prospects
for Solo's assets no impairment has been recongnised as the carrying
value is deemed appropriate based on the future outlook.
14 Oil & Gas properties
2019 2018
as restated
GBP000 GBP000
Cost
At 1 January 2019 1,124 1,124
Foreign exchange (7) -
At 31 December 2019 1,117 1,124
Accumulated depreciation
At 1 January 2019 and 31 December 2019 759 759
Carrying value
At 31 December 2019 358 365
At 31 December 2018 365 194
The Oil & Gas properties comprise the 8.29% participating interest
in the Kiliwani North Development Licence, in Tanzania.
A decommissioning provision has been recognised in 2018 for future
liabilities relating to oil and gas properties. This future obligation
is denominated in USD therefore there has been a foreign exchange
on this in 2019.
Accumulated amortisation has been calculated on a units of production
basis. As there was no production during 2019, the amortisation
charge for the year is nil (2018: GBPnil).
Impairment Review
The Directors have carried out an impairment review as at 31
December 2019, and determined that an impairment charge is not
currently required. The Directors based this assessment on continuing
operational work schedules that are ongoing to improve operational
efficiencies and production.
15 Investments - unquoted equity investments
GBP000
Cost
At 31 December 2017 4,377
Additions 277
Disposals (600)
At 31 December 2018 4,054
Additions 100
Disposals (1,227)
At 31 December 2019 2,927
Impairment
At 31 December 2017 1,151
Charge in the period -
Disposals -
At 31 December 2018 1,151
Charge in the period -
Disposals (1,151)
At 31 December 2019 -
Net book value
At 31 December 2019 2,927
At 31 December 2018 2,903
The investments in the current year relate to an equity investment
held in Helium One Ltd, a company incorporated in the British
Virgin Islands. Their subsidiaries hold helium mining licences
across Tanzania. The balance of the investment at December 2019
relates to the investment in Helium One.
During 2019 Solo Oil PLC paid supplier invoices on behalf of
Helium One totalling GBP100k. This was considered an addition
to the value of the investment in Helium One.
On 8 October 2019 the investment in Burj Africa was disposed
for a consideration of GBP1. This investment was fully impaired
at the date of disposal and at 31 December 2018.
On 9 December 2019 the investment in Petroteq shares (formerly
Deloro Energy) was disposed for a consideration of GBP9k. This
investment was held at GBP76k and a loss on disposal of GBP67k
was recognised.
16 Financial assets held at FVTPL
2019 2018
GBP000 GBP000
Investments held for resale - 1,523
In the prior year, the company disposed of its entire 15% interest
in Horse Hill Developments Limited ("HHDL") to UK Oil and Gas
plc ("UKOG") for a total cash consideration of GBP4.5 million
together with a simultaneous purchase of 234,042,221 new ordinary
shares in UKOG equivalent to a 4.2% interest in UKOG at the time
of the transaction. At the end of 2018, 106,842,221 shares were
held as a Level 1 quoted investment. Subsequently, the company
received 17,989,326 shares on disposal of the UKOG PEDL 331 interest.
All of these were sold during 2019 for a loss of GBP236k as seen
in Note 10.
17 Subsidiary company
The only subsidiary of Solo Oil Plc is Scirocco Energy International
Limited a wholly-owned, UK incorporated micro-entity, which is
dormant, and has been since incorporation with an issued share
capital of GBP1. The registered office of the subsidiary is 1
Park Row, Leeds, United Kingdom, LS1 5AB. The subsidiary has not
been consolidated into these accounts as it does not have a material
impact on Solo Oil Plc as it is dormant.
18 Trade and other receivables
2019 2018
GBP000 GBP000
Trade receivables 283 294
Provision for bad and doubtful debts (note 23) (28) -
255 294
Other receivables 774 300
VAT recoverable 122 -
Loan to Helium One Ltd 76 100
Prepayments 210 22
1,437 716
The directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
In 2018, Solo Oil PLC paid supplier invoices on behalf of Helium
One totalling GBP100k. This was a debtor at the end of 2018.
In 2019, this has been reclassified and is now considered an
addition to the value of the investment in Helium One.
On 1 March 2019 the Company subscribed to USD $1,000,000 convertible
loan notes from Helium One Limited for USD $100,000. In accordance
with the terms of the agreement, a redemption note can be issued
with five days notice. This currently has a carrying value of
GBP76,000.
19 Trade and other payables
2019 2018
GBP000 GBP000
Trade payables 193 171
Accruals 167 93
Other payables 5 284
365 548
The directors consider that the carrying amount of trade payables
approximates to their fair value.
20 Provisions for liabilities
2019 2018
as restated
GBP000 GBP000
PAYE Settlement 184 184
Decommissioning Provision 168 171
352 355
Analysis of provisions
Provisions are classified based on the amounts that are expected
to be settled within the next 12 months and after more than 12
months from the reporting date, as follows:
Current liabilities 184 184
Non-current liabilities 168 171
352 355
Movements on provisions: PAYE Settlement Decom Provision Total
GBP000 GBP000 GBP000
At 1 January 2019 184 171 355
Unwinding of discount - 5 5
Adjustment for change
in discount rate - (1) (1)
Exchange difference - (7) (7)
Other - - -
At 31 December 2019 184 168 352
The PAYE settlement provision relates to the amounts owed by
Daniel Maling, former Managing Director for the PAYE on the share
settled transactions.
20 Provisions for liabilities
Decommissioning costs are expected to be incurred over the remaining
lives of the wells, which are estimated to end between 2036 and
2042. the provision for decommissioning is reviewed annually
and at 31 December 2018 and 2019 relates to wells in Tanzania.
The provision has been calculated assuming industry established
oilfield decommissioning techniques and technology at current
prices which are discounted at 5.89% per annum.
21 Share capital
Number of shares Nominal value
GBP000
a) Called up, allotted, issued and fully paid: Ordinary shares of
0.2 p each
As at 31 December 2018 and 2019 631,704,118 1,264
2019 2018
GBP000 GBP000
b) Deferred shares
Deferred shares of 265,324,634 at 0.69
pence each 1,831 1,831
c) Total Share options in issue
During the year no options were granted (2018:nil).
As at 31 December 2019, the unexercised options in issue were restated
as:
Exercise Price Amended Expiry Date Amended Original Options
(original) in Issue
31 December 2019
0.5p 10p 31 December 2020 10,200,000 204,000,000
0.5p 10p 31 December 2020 3,425,000 68,500,000
0.3p 6p 31 December 2020 5,000,000 100,000,000
0.35p 7p 31 October 2021 10,625,000 212,500,000
29,250,000 585,000,000
d) Total warrants in issue
No warrants lapsed in the year and no warrants were issued, cancelled
or exercised during the year (2018: 1,597,658).
As at 31 December 2019 there were 3,547,129 at 2.25p outstanding
(31 December 2018: 3,547,129 at 2.25p).
22 Share based payment
The Company used the Black-Scholes model to determine the value
of the options and the inputs. There were no share options for
the year ended 31 December 2019. The value of the options and
the inputs for the year ended 31 December 2018 were as follows:
Issue 12/02/2018
Share price at grant (pence) 0.032
Fair Value at grant (pence) 0.0109
Expected volatility (%) 82.2%
Expected life (years) 3 years
Risk free rate (%) 0.61%
Expected dividends (pence) nil
Expected volatility was determined by using the Company's share
price for the preceding 12 months.
The total share-based payment expense in the year for the Company
was GBPnil in relation to issue of options (2018: GBP27,000) and
GBPnil finance charges in relation to warrants (2018: GBPnil).
Employee Benefit Trust
The Company established on 7 December 2012, an employee benefit
trust called the Solo Oil Employee Benefit Trust ("EBT") to implement
the use of the Company's existing share incentive plan over 5%
of the Company's issued share capital from time to time in as
efficient a manner as possible for the beneficiaries of that plan.
The EBT is a discretionary trust for the benefit of directors
and employees of the Company and its subsidiaries.
No further subscriptions for shares in the Company has been made
by the EBT during the years ended 31 December 2019 and 2018.
23 Financial instruments
Categories of financial instruments
The following table combines information about:
* Classes of financial instruments based on their
nature and characteristics; and
* The carrying amounts of financial instruments.
2019 2018
GBP000 GBP000
Financial assets at amortised cost
Trade receivables 255 294
Other debtors 774 300
Prepayments and accrued
income 210 22
Current Loans - Helium
One - 100
Cash and cash equivalents 1,064 2,999
2,303 3,715
23 Financial instruments
Book Value Fair Value Book Value Fair Value
2019 2019 2018 2018
GBP000 GBP000 GBP000 GBP000
Financial assets at fair
value
Non-current Investment
- Helium One 2,927 2,927 - -
Current Loans - Helium
One 76 76 - -
3,003 3,003 - -
2019 2018
GBP000 GBP000
Financial liabilities at amortised
cost
Trade payables 193 171
Accruals and deferred
income 167 93
359 264
The table below analyses financial instruments carried at fair
value, by valuation method.
Fair values are categorised into different levels in a fair value
hierarchy based on the inputs used in the valuation techniques
as follows:
* Level 1: quoted prices (unadjusted) in active markets
for identical assets or liabilities.
* Level 2: inputs other than quoted prices included in
Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or
indirectly (i.e derived from prices).
* Level 3: inputs for the asset or liability that are
not based on observable market data (unobservable
inputs).
The fair values for the Company's assets and liabilities are not
materially different from their carrying values in the financial
statements.
The following table presents the Company's financial assets that
are measured at fair value:
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
Non-current Investment
- Helium One - - 2,927 2,927
Current Loans - Helium
One - - 76 76
The Company does not have any liabilities measured at fair value.
There have been no transfers in to or transfers out of fair value
hierarchy levels in the period.
Financial instruments
in level 1
The fair value of financial instruments traded in active markets
is based on quoted market prices at the reporting date. A market
is regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual
and regularly occurring market transactions on an arm's length
basis. The quoted market price used for financial assets held by
the Company is the current bid price. No investments are valued
using level 1 inputs in the period.
23 Financial instruments
Financial instruments in level 2
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. No investments are valued using level 2 inputs in the period.
Financial instruments in level 3
If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. Following the guidance of IFRS 9, these financial instruments have been assessed to determine the fair value of the instrument. In their assessment, the Directors have considered both external and internal indicators to decide whether an impairment charge must be made or whether there needs to be a fair value uplift on the instrument. Instruments included in Level 3 comprise of convertible loan notes held with Helium One. Details of this can be found at Note 18.
The carrying value of the Company's financial assets and liabilities measured at amortised cost are approximately equal to their fair value.
The Company is exposed through its operations to one or more of the following financial risk:
-- Fair value or cash flow interest rate risk -- Foreign currency risk -- Liquidity risk -- Credit risk -- Market risk -- Expected credit losses
Policy for managing these risks is set by the Board. The policy for each of the above risks is described in more detail below.
Fair value and cashflow interest rate risk
Generally the Company has a policy of holding debt at a floating rate. The directors will revisit the appropriateness of this policy should the Company's operations change in size or nature. Operations are not permitted to borrow long-term from external sources locally.
Foreign currency risk
Foreign exchange risk arises because the Company has operations located in various parts of the world whose functional currency is not the same as the functional currency in which the Company's investments are operating. The Company's net assets are exposed to currency risk giving rise to gains or losses on retranslation into sterling. Only in exceptional circumstances will the Company consider hedging its net investments in overseas operations as generally it does not consider that the reduction in volatility in net assets warrants the cash flow risk created from such hedging techniques.
23 Financial instruments
The Company's exposure to foreign currency risk at the end of the reporting period is summarised below. All amounts are presented in GBP equivalent.
23 Financial instruments
The Company's exposure to foreign currency risk at the end of the
reporting period is summarised below. All amounts are presented
in GBP equivalent.
2019 2019 2018 2018
as restated as restated
GBP000 GBP000 GBP000 GBP000
USD EUR USD EUR
Trade and other receivables 283 659 294 -
Cash and cash equivalents 94 - 204 -
Trade and other payables (41) - - -
Provisions (352) - (355)
Net exposure 117 659 273 -
Sensitivity analysis
As shown in the table above, the Company is primarily exposed to
changes in the GBP:USD exchange rate through its cash balance held
in USD and trading balances and to changes in the GBP:EUR exchange
rate due to the deposit denominated in EUR. The table below shows
the impact in GBP on pre-tax profit and loss of a 10% increase/decrease
in the GBP to USD exchange rate, holding all other variables constant.
Also shown is the impact of a 10% increase/decrease in the GBP
to EUR exchange rate, being the other primary currency exposure.
2019 2018
as restated
GBP000 GBP000
GBP:USD exchange rate increases 10% 11 25
GBP:USD exchange rate decreases 10% (13) (30)
GBP: EUR exchange rate increases 10% 60 -
GBP: EUR exchange rate decreases 10% (73) -
Liquidity risk
The liquidity risk of each entity is managed centrally by the treasury
function. Each operation has a facility with treasury, the amount
of the facility being based on budgets. The budgets are set locally
and agreed by the board annually in advance, enabling the cash
requirements to be anticipated. Where facilities of entities need
to be increased, approval must be sought from the finance director.
Where the amount of the facility is above a certain level agreement
of the board is needed.
All surplus cash is held centrally to maximise the returns on deposits
through economies of scale. The type of cash instrument used and
its maturity date will depend on the forecast cash requirements.
The table below analyses the company's financial liabilities into
relevant maturity groupings based on their contractual maturities.
The amounts presented are the undiscounted cash flows.
23 Financial instruments
Less than 6 to 12 months Between 1 Between
6 months and 2 years 2 and 5
years
GBP000 GBP000 GBP000 GBP000
31 December 2019
Trade and other payables 365 - - -
Provisions - 184 - -
Total 365 184 - -
31 December 2018
Trade and other payables 548 - - -
Provisions - - 184 -
Total 548 - 184 -
Credit risk
The Company is mainly exposed to credit risk from credit sales. It is Company policy, implemented locally, to access the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices.
The Company does not enter into complex derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate such risks if it is sufficiently concentrated.
Market risk
As the Company is now investing in listed companies, the market risk will be that of finding suitable investments for the Company to invest in and the returns that those investments will return given the markets that in which investments are made.
Expected credit losses
Allowances are recognised as required under the IFRS 9 impairment model and continue to be carried until there are indicators that there is no reasonable expectation of recovery.
For trade and other receivables which do not contain a significant financing component, the Company applies the simplified approach. This approach requires the allowance for expected credit losses to be recognised at an amount equal to lifetime expected credit losses. For other debt financial assets the Company applies the general approach to providing for expected credit losses as prescribed by IFRS 9, which permits for the recognition of an allowance for the estimated expected loss resulting from default in the subsequent 12-month period. Exposure to credit loss is monitored on a continual basis and, where material, the allowance for expected credit losses is adjusted to reflect the risk of default during the lifetime of the financial asset should a significant change in credit risk be identified.
The majority of the Company's financial assets are expected to have a low risk of default. A review of the historical occurrence of credit losses indicates that credit losses are insignificant due to the size of the Company's clients and the nature of the services provided. The outlook for the oil and gas industry is not expected to result in a significant change in the Company's exposure to credit losses. As lifetime expected credit losses are not expected to be significant the Company has opted not to adopt the practical expedient available under IFRS 9 to utilise a provision matrix for the recognition of lifetime expected credit losses on trade receivables. Allowances are calculated on a case-by-case basis based on the credit risk applicable to individual counterparties.
23 Financial instruments
Exposure to credit risk is continually monitored in order to identify financial assets which experience a significant change in credit risk. In assessing for significant changes in credit risk the Company makes use of operational simplifications permitted by IFRS 9. The Company considers a financial asset to have low credit risk if the asset has a low risk of default; the counterparty has a strong capacity to meet its contractual cash flow obligations in the near term; and no adverse changes in economic or business conditions have been identified which in the longer term may, but will not necessarily, reduce the ability of the counterparty to fulfil its contractual cash flow obligations. Where a financial asset becomes more than 30 days past its due date additional procedures are performed to determine the reasons for non-payment in order to identify if a change in the exposure to credit risk has occurred.
Should a significant change in the exposure to credit risk be identified the allowance for expected credit losses is increased to reflect the risk of expected default in the lifetime of the financial asset. The Company continually monitors for indications that a financial asset has become credit impaired with an allowance for credit impairment recognised when the loss is incurred. Where a financial asset becomes more than 90 days past its due date additional procedures are performed to determine the reasons for non-payment in order to identify if the asset has become credit impaired.
The Company considers an asset to be credit impaired once there is evidence that a loss has been incurred. In addition to recognising an allowance for expected credit loss, the Company monitors for the occurrence of events that have a detrimental impact on the recoverability of financial assets. Evidence of credit impairment includes, but is not limited to, indications of significant financial difficulty of the counterparty, a breach of contract or failure to adhere to payment terms, bankruptcy or financial reorganisation of a counterparty or the disappearance of an active market for the financial asset.
A financial asset is only written off when there is no reasonable expectation of recovery.
A provision matrix can be used based on historical data of default rates adjusted for a forward looking estimate. The history of default rates needs to be accessed in conjunction with the aging of the trade receivable balance. The aging of a balance alone does not require a provision but can be used as a structure to apply the rates calculated. The historical default rates are used in accordance with forward looking information. From a commercial perspective the TPDC has continued to delay settlement of the trade receivables balance based on requests from the TPDC to Aminex for payments of certain amounts which they wish to offset against the trade receivables. Until this issue is resolved there will be no payment of the invoices and as such an ECL is required to be recognised.
In order to determine the amount of ECL to be recognised in the financial statements, Solo is using a provision matrix based on its historical observed default rates which is adjusted for forward-looking estimates and establishes that ECL should be calculated as:
Non-past due 0.5% of carrying value 30 days past due 2% of carrying value 31-60 past due 4% of carrying value 61-90 past due 6% of carrying value More than 90 days past 10% of carrying value due
The simplified approach enables Solo to make an estimate of ECL as they are unable to track the credit worthiness of customers. The matrix above reflects the best estimate of the directors that the claim by TPDC will be successful and is the lifetime credit loss expected.
The total outstanding amount is GBP283k at 31 December 2019 which is all over 90 days past due resulting in an ECL of GBP28k in the current year.
24 Related party transactions
The Company had the following amounts outstanding from its investee
companies (Note 18) at 31 December:
2019 2018
GBP000 GBP000
Helium One 76 100
There were no transactions between the parent and its dormant
subsidiary, which are related parties, during the year. Details
of director's remuneration, being key personnel, are given in
Note 7.
The Company entered into transactions with the following related
parties who have common directors during the current year:
2019 2018
GBP000 GBP000
NR Global Consulting Ltd - provision of management
services - common director Neil Ritson (14) 44
Gneiss Energy Limited - provision of
corporate finance advisory - common
director Jonathan Fitzpatrick 538 763
Quixote Advisors Ltd - provision of
management services - common director
Tom Reynolds 53 -
25 Ultimate controlling party
In the opinion of the directors there is no controlling party.
26 Commitments
As at 31 December 2019, the Company had no material commitments
(2018: GBPnil).
27 Retirement benefit scheme
The Company operates only the basic pension plan required under
UK legislation, contributions thereto during the year amounted
to GBPnil (2018: GBP1,000).
28 Cash generated from operations
2019 2018
GBP000 GBP000
Loss for the year after tax (2,561) (974)
Adjustments for:
Finance costs 12 41
Investment income - (57)
Loss on disposal of investments 236 -
Other gains and losses - 511
Equity settled share based payment expense - 27
(Decrease)/increase in provisions (3) 355
Movements in working capital:
Decrease/(increase) in trade and other receivables 107 (13)
Decrease in trade and other payables (305) (156)
Cash absorbed by operations (2,514) (266)
29 Post balance sheet event
Covid-19
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced in China and has spread around the world resulting in worldwide business and social disruption. This has resulted in a drop in oil prices. The assets which the Company holds are currently not operational therefore they have not felt a strong impact of the COVID-19 pandemic, however the Board are aware that this may impact the valuation of the assets held and potential target companies.
Sale of Tanzanian Assets
The Board announced on the 2nd of March that the most appropriate course of action regarding Tanzanian assets is to run a formal process to explore value realisation options for the assets including, but not limited to, the sale of Solo's interests in the certain, or all, of its Tanzanian assets. In particular, the Board is confident in the inherent value of its 25% interest in the Ruvuma asset and will consider reasonable offers that reflect the quality of the asset and its significant upside potential. A formal dataroom has been established and the formal process was begun in March.
30 Prior period adjustment
Changes to the statement of financial position
At 31 December 2018
Previously Adjustment As restated
reported
GBP000 GBP000 GBP000
Fixed assets
Investment properties 194 171 365
Provisions for liabilities
Other provisions (184) (171) (355)
Net assets 22,006 - 22,006
30 Prior period adjustment
At 31 December 2018
Previously Adjustment As restated
reported
Capital and reserves
Total equity 22,722 - 22,722
Changes to the income statement
Period ended 31 December 2018
Previously Adjustment As restated
reported
GBP000 GBP000 GBP000
Revenue 1,758 (1,758) -
Cost of sales (2,442) 2,442 -
Administrative expenses (2,750) 702 (2,048)
Other operating income 2,461 (2,461) -
Finance costs (41) (9) (50)
Other gains and losses (529) 1,777 1,248
Loss for the financial period (1,667) 693 (974)
Reconciliation of changes in loss for the previous financial
period
2018
Notes GBP000
Loss as previously reported (1,667)
Adjustments to prior year
Removal of impairment charge 693
Loss as adjusted (974)
Notes to reconciliation
There has been a restatement to the 2018 accounts. This is as a result of reviewing the activities which the directors class as revenue generating. As a result, a number of gains on investment have been moved as post operating profit activities, while these were previously classed as revenue. Foreign exchanges gains and losses have also been consolidated to report these fully through administration expenses.
On 1 January 2018 (the date of initial application of IFRS 9), the Company's management have assessed that assets previously held under assets held for sale no longer apply. As a result, the remaining value was transferred into retained earnings in the year to 31 December 2018. This is a restatement from the 2018 accounts in which this was written off through profit and loss.
There has also been the recognition of a decommissioning provision previously not recognised. This has increased assets and liabilities by GBP171,000.
These restatements have no overall impact on the equity as reported at 31 December 2018.
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END
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September 01, 2020 02:00 ET (06:00 GMT)
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