Audited results: y/e 31 December 2020 -replacement
2 June 2021
Block Energy plc
("Block" or the "Company")
Audited results for the year ended 31 December 2020
This announcement replaces RNS No 5002A which was released at 700 a.m. on Wednesday 2 June 2021. The date on which the Company's Annual Report will be posted to shareholders has been amended from 4 June 2020 to 4 June 2021. All other details remain unchanged. The full amended text is shown below:
Block Energy plc, the development and production company focused on Georgia, is pleased to announce its audited final results for the year ended 31 December 2020.
The Company's Annual Report will shortly be made available on the Company's website at www.blockenergy.co.uk and posted to shareholders by 4 June 2021.
Highlights
Equity placing
· In December 2020, Block Energy Plc completed a placing of 176 million new Ordinary Shares, raising approximately £5.28 million, equivalent to $7.2 million (before expenses) with institutional investors at a placing price of 3 pence, equivalent to $0.04, per share.
Acquisition and business growth
· On 25 March 2020, the Company entered into a conditional sale and purchase agreement with Schlumberger B.V. ("Schlumberger") to acquire its subsidiary Schlumberger Rustaveli Company Limited ("SRCL"). The acquisition was completed on 23 November 2020. The acquired company holds the PSCs to Blocks IX and XIB in Georgia.
· Cash at 31 December 2020 was $6,331,000 (31 December 2019: $6,494,000).
Operations
· Production of oil and gas from the two horizontal wells (WR-16aZ and WR-38Z) in its West Rustavi licence area was suspended in April 2020 to avoid selling oil at low oil prices and conserve gas resources until the Early Production Facility ("EPF") and gas sales pipeline were completed.
· Gas sales agreement signed with Bago LLC, a prominent private gas supplier and purchaser in Georgia, for the offtake of gas produced at the Company's flagship West Rustavi field.
· Construction of an EPF, with capacity for up to six wells, to exploit Block Energy's associated gas and contingent gas resources, was completed on budget in November 2020.
· Following the year end, on 15 February 2021, the Company achieved its first gas sales.
· 100 km2 of 3D seismic survey data acquired over and beyond the entire area of the Company's West Rustavi licence was processed and interpreted, with results exhibiting good subsurface imaging of the main producing and prospective formations in the licence, thereby informing the drilling programme.
· The Group continued to produce approximately 20 bopd from the Norio and Satskhenisi fields.
· The Group maintains a strong focus on assuring Health, Safety and Environmental ("HSE") management.
· Following the year end, in March 2021, the Group entered into an agreement with Georgia Oil & Gas Limited to hire drilling and workover rigs and equipment.
Chairman's Statement
Despite the Covid-19 pandemic taking control of much of last year, I am pleased to report that Block Energy has continued to perform well and has made significant progress both operationally and corporately. I am very grateful to the Board and all employees for working relentlessly throughout 2020, diligently observing national restrictions and for their continued dedication to your Company.
2020 began with a strong start, with production tests at our WR-38Z well confirming West Rustavi's associated gas potential, to which Block responded swiftly by commencing the installation of an EPF to the field. Despite various Covid-19 lockdowns and restrictions in both the UK and Georgia, we continued to pursue our gas strategy with Bago LLC and were delighted to announce our inaugural gas sales in February 2021 - a great achievement, as Block managed to deliver its gas project safely, with zero LTIs, in the face of a very challenging global environment. As I have mentioned before, Block is committed to maintaining high environmental standards and to providing Georgia with an alternative clean and efficient fuel source in place of its current petroleum and diesel consumption.
In line with Block's objective to become the leading independent oil and gas producer in Georgia, the Company announced and completed the transaction to acquire two blocks, Block IX and Block XIB, from Schlumberger during the year. The acquisition significantly increased Block's access to production, reserves and resources and has provided multiple opportunities for future development and production. Following the acquisition, we welcomed the majority of the existing workforce and have now combined offices in Georgia, so the entire team is located at our Lilo base on Block XIB. The co-location of staff facilitates a more collaborative and productive working environment and is more cost-effective for the Company. Throughout the pandemic, all staff have meticulously observed the rules and regulations required by both the UK and Georgian governments.
In response to the Covid-19 pandemic and to low oil prices, Block moved swiftly to ensure the business could continue to run safely and sustainably. We decided to postpone capital expenditure and reduce our cash expenditure by 40% through a combination of cost-cutting measures, deferral of operating and administrative expenses and, in the UK, directors and employees agreed a scheme in which, from 1 April 2020, 40% of their salaries have been paid in nil-cost options to acquire ordinary shares in the Company, reducing monthly cash salary costs significantly. I believe it was these pragmatic decisions, along with the commitment of our staff, that has enabled Block to withstand the challenges of the past year. To help to implement our 2021 development strategy, the Company performed a fundraise of £5.28 million in December 2020, the proceeds of which will support Block's statement of financial position through its recently announced operational objectives.
Despite a year of turmoil, we remained focused on improving our corporate governance and welcomed Chuck Valceschini and Dato Sandroshvili as non-executive directors to the Board. Each has dedicated his career to the oil and gas industry and has brought a wealth of experience that has already proven invaluable to the Board and Block as a whole. In September 2020, we bade farewell to Roger McMechan from the Board but continue to benefit from his extensive sub-surface and Georgian operations expertise on a consultancy basis.
Another priority for Block remained the health and safety of our employees and wider stakeholders. I'm pleased to report that we had no lost time incident during the year. Overall, the safety record was very good for a new company that has brought a number of innovative and modern technologies to Georgia.
As we have proven this past year, Block benefits from the flexibility of being able to easily shut-in and restart production in reaction to the fluctuating oil price. Our cautious decision to do so last year has been rewarded with a much-improved oil price environment from which we are able to benefit fully. Our prudent choices made in relation to capex and general business expenditure have ensured our strong position today, providing a stable base from which to pursue our recently announced strategic objectives and the West Rustavi drilling programme. I look forward to continuing our robust progress over the next year as the world begins to normalise.
Finally, I would like to thank all employees for their loyalty, tenacity, and hard work, particularly in light of the past year's challenges. We look forward to updating shareholders with further news in the months to come.
Philip Dimmock
Chairman
Chief Executive Officer's Statement
2020 was an extraordinary year for all people, businesses, and countries. The oil industry was hit particularly hard due to decreased oil demand, and many companies have had to close operations. We decided early on in 2020 that prudent cash management was the best way forward, in terms of our employees and preserving our statement of financial position. We implemented a work-from-home policy where possible, and our operational teams maintained social distancing and regular virus testing. Our capital expenditure was deferred, and we executed a change in salary structure to conserve cash. With our prudent approach in place, Block still managed to enjoy operational successes in 2020 through the installation of an EPF at West Rustavi and, through our gas sales agreement with Bago LLP, construction of pipelines that enabled our inaugural gas sales in February 2021 and the completion of the Schlumberger acquisition.
Due to our decision to conserve cash, 2020 was an operationally quieter year than expected, and we took the opportunity to strengthen our technical teams and sub-surface knowledge. We welcomed Andrew Moncur as drilling manager, who set to work building a robust and experienced team, drawing on expertise from around the region, including Georgia, and focusing it on wellbore construction success and quality. Having acquired 3D seismic data in 2019, we combined its findings with data and information inherited from the Schlumberger acquisition to improve our understanding of the development potential of the Company's increased acreage. We also engaged EPI in June 2020, whose expertise in geophysical and geological interpretation, petrophysics and reservoir engineering has helped analyse the geological aspects of horizontal well design and the selection and ranking opportunities in West Rustavi and Block XIB. As a result, our substantial analysis and research have helped us devise three major strategic objectives that are all of scale, are potentially transformational for the Company, and are risked independently of one another. These three strategies - the development of West Rustavi, the production enhancement of existing mature fields, and the targeting of the Lower Eocene gas - provide a structure and direction integral to Block's future success as we gradually look beyond the Covid-19 pandemic.
The Board has established an Environmental, Social, and Corporate Governance ("ESG") Committee to establish the Company's ESG policy and to measure the sustainability and societal impact of the business. As a priority, the ESG Committee will evaluate the potential for geothermal energy in its licences and Georgia generally.
Block remains dedicated to contributing to the Georgian economy and maintaining close relationships with the relevant Georgian government authorities and industry leaders. Senior management have travelled to Georgia from the UK when restrictions have allowed and enjoyed constant communication between offices.
During the year, the Company continued to produce and sell oil from its Norio, and Satskhenisi licences and revenue from the oil sales in 2020 was $1,255,000, bolstering our cash position.
With a new strategic structure in place, I am optimistic 2021 will be a progressive year for Block and for all, supported by easing restrictions associated with Covid-19. I am especially grateful to all Block staff for their dedication to our company and their resilience in the face of incredible challenges. I look forward to updating the market with the results of our hard work, in particular our 2021 drilling campaign.
Paul Haywood
Chief Executive Officer
Chief Financial Officer's Statement
This report covers the year ended 31 December 2020, but the prior period covers the 18 months period ended 31 December 2019, because, in June 2019, to bring its financial reporting in line with peer companies and to carry out its year-end work when there is a seasonal reduction in operational activities, the Company changed its accounting reference date from 30 June to 31 December. Therefore, the current year ended 31 December 2020 is not directly comparable with the prior 18 months period ended 31 December 2019.
Balance sheet - acquisitions, capital expenditure, equity placing and asset growth
During the year ended 31 December 2020, Block Energy Plc continued to build its production and development base whilst maintaining a strong statement of financial position, because it acquired 100% of the shares of Block Rustaveli Limited (formerly Schlumberger Rustaveli Company Limited), which holds the PSCs to Blocks IX and XIB in Georgia, for $6.8 million consideration, which comprised $7.1 million in nil-cost options to acquire shares in Block Energy Plc less $0.3 million cash from the seller to adjust the consideration for liabilities that were for the seller's account. The assets and liabilities acquired are detailed in note 12 to the consolidated financial statements, but included the following provisional values: $6.3 million of development and production assets, $1.0 million of crude oil inventory, $1.5 million of materials inventory, $1.6 million of decommissioning liabilities and $0.9 million of other liabilities.
In April 2020, owing to the combined impacts of lower oil demand caused by Covid-19 and the Russia-Saudi Arabia oil price war, the Brent oil price collapsed from over $50 per barrel at the start of March 2020 to less than $20 per barrel in April 2020. The Company responded to the low oil price by postponing all new capital expenditure and reducing the monthly cash burn in Georgia by 40% from $107,000 to $64,000 through a combination of cost-cutting and deferral of operating and administration expenses. In the UK, directors and employees agreed to a scheme in which, with effect from 1 April 2020, 40% of their salaries were paid in nil-cost options to acquire Ordinary Shares in the Company, reducing monthly cash salary costs significantly.
In December 2020, Block Energy Plc completed a placing of 176 million new Ordinary Shares, raising £5.28 million (equivalent to $7.2 million) before expenses with institutional investors at a placing price of 3 pence (equivalent to $0.04) per share.
The Group's financial position has changed significantly over the past year, with Group net assets increasing from $20,610,000 as at 31 December 2019 to $29,866,000 owing to the acquisition of Block Rustaveli Limited and the $7.2 million cash raised in the equity placing in December 2020. At the end of the year, the Group's cash balance was $6,331,000 (2019: $6,494,000).
Income statement
The Group's revenue increased to $1,255,000 (2019: $314,000) and other income included $100,000 (2019: $nil) for sales of materials. The current year revenue from sales of crude oil of $1,255,000 (2019: $314,000) comprised the sale of 34,421 barrels (2019: 5,210 barrels) of oil, which equated to average revenue of $36.45 (2019: $60.29) per barrel.
In addition, the Group had over 28,000 barrels (2019: over 14,000 barrels) of crude oil inventory as at 31 December 2020. Following the year end, during the quarter ended 31 March 2021, the Group sold 26,349 barrels of crude oil inventory for net revenue of $1.374 million, which equates to average revenue of $52.18 per barrel.
Following the year end, the Group commenced gas sales on 15 February 2021 and, during the period from 15 February 2021 to 31 March 2021, it sold 38.4 Mcf of gas for net revenue of $123,000, which equates to an average gas price of $3.20 per Mcf.
The loss for the year was $5,512,000 as compared with a $6,130,000 loss in the prior period. The main reason for the decrease in the loss is the income statement covers a shorter period of 12 months compared with 18 months in the prior period. During the year, the Group was still loss-making because, for most of the year, the wells in West Rustavi were shut in and not producing oil and gas to help to cover the Group's cost base.
Future prospects
Wells WR-38Z and WR-16aZ were returned to production on 28 January 2021 and 3 February 2021 respectively. During Q1 2021, the Company produced 29.8 Mbbls of oil and 14.6 Mboe of gas, resulting in a combined total of 44.4 Mboe of oil and gas. The average production rate for February and March 2021, after WR-38Z had commenced production but excluding WR-16aZ (as the well is currently suspended), was 573 boepd. The average production rate for the four-month period ended 31 May 2021 (excluding WR-16aZ) was 526 boepd.
The Company has always been focused on controlling administration costs and continues to endeavour to keep these to a minimum. We maintain a low-cost operation, and our Georgian portfolio offers a low-cost short-cycle production base.
Liquidity, counterparty risk and going concern
The Group monitors its cash position, cash forecasts and liquidity regularly and has a conservative approach to cash management, with surplus cash held on term deposits with major financial institutions.
The directors have prepared cash flow forecasts for a period of 13 months from the date of signing these financial statements. The Group's forecasts are reviewed regularly to assess whether any actions to curtail expenditure or cut costs are required. The Group is in the final stages of preparing to drill a well at WR-BA location and, by the end of the year, plans to drill a second well and spud a third well. The forecasts assume the wells will produce oil and gas, which would be sold, and indicate the Group has sufficient funds to complete the drilling of the wells and to meet its liabilities as they fall due until June 2022. However, if any of the new wells do not produce commercial quantities of oil or gas, the Group would immediately revisit its plans to drill subsequent wells. The financial benefit of any additional capital projects would be assessed against capital requirements and balanced with ensuring that the Group and the Company can continue to meet their liabilities and commitments through to June 2022. The Company's forecasts are considered together with the Group's forecasts.
The directors note that Covid-19 has had a significant negative impact on the global economy and oil prices, which may mean it is harder to secure additional funding than it has historically been. As part of their going concern assessment, a reverse stress test has been performed, based on the scenario whereby, due to Covid-19 restrictions, if the Group were unable to continue with normal operations or were required to significantly reduce the forecasted production due to the capital expenditure not being incurred to complete the additional wells, a cash shortfall may occur. The global pandemic may also bring practical challenges to the timetables for drilling the new wells and the consequent sale of oil and gas from those wells. The directors are confident that current capital projects are funded and have a reasonable expectation that they could secure additional funding, if needed, to fund additional capital projects. However, these conditions are necessarily considered to represent a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern. Whilst acknowledging this material uncertainty, the directors remain confident of making further cost savings and/or raising finance when required, and therefore the directors consider it appropriate to prepare the financial statements on a going concern basis. The financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.
Results and dividends
The results for the period and the financial position of the Group are shown in the following financial statements. The Group has incurred a pre-tax loss of $5,512,000 (2019: loss of $6,130,000).
The Group has net assets of $29,694,000 (2019: net assets of $20,610,000).
The directors do not recommend the payment of a dividend (2019: nil).
William McAvock
Chief Financial Officer
Consolidated Statement of Comprehensive Income for the year ended 31 December 2020
|
|
Note |
|
Year ended 31 December 2020 |
18 months period ended 31 December 2019 |
||
|
|
|
|
|
|
||
|
Continuing operations |
|
|
$'000 |
$'000 |
||
|
|
|
|
|
|
||
|
Revenue |
4 |
|
1,255 |
314 |
||
|
|
|
|
|
|
||
|
Other cost of sales |
|
|
(2,203) |
(633) |
||
|
Depreciation and depletion of oil and gas assets |
5 |
|
(781) |
(574) |
||
|
|
|
|
|
|
||
|
Total cost of sales |
|
|
(2,984) |
(1,207) |
||
|
|
|
|
|
|
||
|
Gross loss |
|
|
(1,729) |
(893) |
||
|
|
|
|
|
|
||
|
Other administrative costs |
|
|
(3,295) |
(3,783) |
||
|
Share based payments charge |
|
|
(641) |
(862) |
||
|
Total administrative expenses |
6,7 |
|
(3,936) |
(4,645) |
||
|
|
|
|
|
|
||
|
Foreign exchange movement |
|
|
49 |
(657) |
||
|
|
|
|
|
|
||
|
Operating loss |
|
|
(5,616) |
(6,195) |
||
|
|
|
|
|
|
||
|
Finance income |
8 |
|
14 |
69 |
|
|
|
Other income |
9 |
|
100 |
- |
|
|
|
Finance expense |
|
|
(10) |
(4) |
|
|
|
|
|
|
|
|
||
|
Loss for the year/period before taxation |
|
|
(5,512) |
(6,130) |
||
|
|
|
|
|
|
||
|
Taxation |
10 |
|
- |
- |
||
|
|
|
|
|
|
||
|
Loss for the year/period from continuing operations (attributable to the equity holders of the parent) |
|
|
(5,512) |
(6,130) |
||
|
|
|
|
|
|
||
|
Items that may be reclassified subsequently to profit and loss: |
|
|
|
|
||
|
|
|
|
|
|
||
|
Exchange differences on translation of foreign operations |
|
|
(389) |
483 |
||
|
|
|
|
|
|
||
|
Total comprehensive loss for the year/period (attributable to the equity holders of the parent) |
|
|
(5,901) |
(5,647) |
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
Loss per share basic and diluted |
11 |
|
(1.31)c |
(1.96)c |
||
All activities relate to continuing operations.
The notes on pages 51 to 77 form part of these consolidated financial statements.
Consolidated Statement of Financial Position at 31 December 2020
|
|
|
31 December 2020 |
31 December 2019 |
|
|
Note |
$'000 |
$'000 |
|
Non-current assets |
|
|
|
|
Intangible assets |
13 |
- |
- |
|
Property, plant and equipment |
14 |
21,311 |
12,713 |
|
|
|
21,311 |
12,713 |
|
Current assets |
|
|
|
|
Inventory |
15 |
4,114 |
2,519 |
|
Trade and other receivables |
17 |
2,256 |
303 |
|
Cash and cash equivalents |
18 |
6,331 |
6,494 |
|
Total current assets |
|
12,701 |
9,316 |
|
|
|
|
|
|
Total assets |
|
34,012 |
22,029 |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Capital and reserves attributable to equity holders of the Parent Company: |
|
|
|
|
Share capital |
21 |
3,353 |
2,623 |
|
Share premium |
22 |
34,234 |
27,985 |
|
Other reserves |
23 |
9,120 |
1,114 |
|
Foreign exchange reserve |
|
44 |
433 |
|
Accumulated deficit |
|
(17,057) |
(11,545) |
|
Total equity |
|
29,694 |
20,610 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Trade and other payables |
20 |
1,656 |
1,143 |
|
|
|
|
|
|
Provisions |
16 |
2,662 |
276 |
|
Total current liabilities |
|
4,318 |
1,419 |
|
|
|
|
|
|
Total equity and liabilities |
|
34,012 |
22,029 |
The financial statements were approved by the Board of Directors and authorised for issue on 1 June 2021 and were signed on its behalf by:
William McAvock Paul Haywood
Director Director
The notes on pages 51 to 77 form part of these consolidated financial statements.
Consolidated Statement of Changes in Equity at 31 December 2020
|
|
Share Capital $'000 |
Share Premium $'000 |
Accumulated deficit $'000 |
Other Reserves $'000 |
Foreign Exchange Reserve $'000 |
Total Equity $'000 |
|
Balance at 30 June 2018 |
2,192 |
12,221 |
(5,623) |
460 |
(50) |
9,200 |
|
Loss for the period |
- |
- |
(6,130) |
- |
- |
(6,130) |
|
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
483 |
483 |
|
Total comprehensive loss for the period |
- |
- |
(6,130) |
- |
483 |
(5,647) |
|
Issue of shares |
431 |
16,655 |
- |
- |
- |
17,086 |
|
Cost of issue |
- |
(891) |
- |
- |
- |
(891) |
|
Share based payments |
- |
- |
208 |
654 |
- |
862 |
|
Total transactions with owners |
431 |
15,764 |
208 |
654 |
- |
17,057 |
|
Balance at 31 December 2019 |
2,623 |
27,985 |
(11,545) |
1,114 |
433 |
20,610 |
|
Loss for the year |
- |
- |
(5,512) |
- |
- |
(5,512) |
|
Exchange differences on translation of foreign operations |
- |
- |
- |
- |
(389) |
(389) |
|
Total comprehensive loss for the year |
- |
- |
(5,512) |
- |
(389) |
(5,901) |
|
Issue of share options on acquisition of BRL |
- |
- |
- |
7,304 |
- |
7,304 |
|
Issue of shares |
730 |
6,654 |
- |
- |
- |
7,384 |
|
Cost of issue |
- |
(405) |
- |
- |
- |
(405) |
|
Share based payments |
- |
- |
- |
702 |
- |
702 |
|
Total transactions with owners |
730 |
6,249 |
- |
8,006 |
- |
14,985 |
|
Balance at 31 December 2020 |
3,353 |
34,234 |
(17,057) |
9,120 |
44 |
29,694 |
|
|
|
|
|
|
|
|
The notes on pages 51 to 77 form part of these consolidated financial statements.
Consolidated Statement of Cashflows for the year ended 31 December 2020
|
|
Note |
Year ended 31 December 2020
$'000 |
18 months period ended 31 December 2019 $'000 |
|
Cash flow from operating activities |
|
|
|
|
Loss for the year/period before tax |
|
(5,512) |
(6,130) |
|
Adjustments for: |
|
|
|
|
Depreciation and depletion |
5 |
781 |
574 |
|
Impairment of PP&E |
2,14 |
172 |
- |
|
Finance income |
8 |
(15) |
(69) |
|
Finance expense |
|
9 |
4 |
|
Share based payments expense |
7 |
641 |
862 |
|
Foreign exchange movement |
|
(49) |
657 |
|
Operating cash flows before movements in working capital |
|
(3,973) |
(4,102) |
|
|
|
|
|
|
(Increase) in trade and other receivables |
|
(513) |
(134) |
|
Increase in trade and other payables |
|
342 |
703 |
|
Decrease/(increase) in inventory |
|
955 |
(2,185) |
|
Net cash used in operating activities |
|
(3,189) |
(5,718) |
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
Income received |
|
15 |
37 |
|
Expenditure in respect of intangible assets |
|
- |
(264) |
|
Expenditure in respect of PP&E |
|
(2,617) |
(8,050) |
|
Net cash used in investing activities |
|
(2,602) |
(8,277) |
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
Proceeds from issue of equity |
|
5,754 |
16,087 |
|
Costs related to issue of equity |
|
(405) |
(891) |
|
Interest paid |
|
(9) |
(4) |
|
Net cash inflow from financing activities |
|
5,340 |
15,192 |
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents in the year/period |
|
(451) |
1,197 |
|
|
|
|
|
|
Cash and cash equivalents at start of year/period |
|
6,494 |
5,278 |
|
Effects of foreign exchange rate changes on cash and cash equivalents |
|
288
|
19 |
|
Cash and cash equivalents at end of year/period |
|
6,331 |
6,494 |
The notes on pages 51 to 77 form part of these consolidated financial statements.
Significant non-cash transactions
The only significant non-cash transactions were the issue of shares and share options detailed in notes 12 and 21.
Notes forming part of the Consolidated Financial Statements
Corporate information
Block Energy Plc ("Block Energy") gained admission to AIM on the 11 June 2018, trading under the symbol of BLOE.
The Consolidated financial statements of the Group, which comprises Block Energy Plc and its subsidiaries, for the year ended 31 December 2020 were authorised for issue in accordance with a resolution of the directors on 1 June 2021. Block Energy is a Company incorporated in the UK whose shares are publicly traded. The address of the registered office is given in the officers and advisers section of this report. The Company's administrative office is in London, UK.
The nature of the Company's operations and its principal activities are set out in the Strategic Report on pages 3 to 19 and the Report of the Directors on pages 20 to 23.
1. Significant Accounting policies
IAS 8 requires that management shall use its judgement in developing and applying accounting policies that result in information which is relevant to the economic decision-making needs of users, that are reliable, free from bias, prudent, complete and represent faithfully the financial position, financial performance and cash flows of the entity.
Basis of preparation
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. In the prior year, the Group changed its presentational currency from the pound sterling to the US dollar, which represented a change in accounting policy. All amounts presented are in thousands of US dollars unless otherwise stated. Foreign operations are included in accordance with the policies set out below.
During the prior period, the Group changed its accounting reference date from 30 June to 31 December and consequently the prior period covers the 18 months period ended 31 December 2019.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRIC Interpretations Committee ('IFRS IC') and in conformity with the requirements of the Companies Act 2006. The Financial Statements have also been prepared under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information or more experience. Such changes are recognised in the period in which the estimate is revised.
New and amended standards adopted by the Group
During the current year the Group adopted all the new and revised standards, amendments and interpretations that are relevant to its operations and are effective for accounting periods beginning on 1 January 2020. This adoption did not have a material effect on the accounting policies of the Group.
New standards that have been adopted in the financial statements for the year ended 31 December 2020 include:
Definition of a Business (Amendments to IFRS 3)
Amendments to IFRS 3 were mandatorily effective for reporting periods beginning on or after 1 January 2020. The Group has applied the revised definition of a business for acquisitions occurring on or after 1 January 2020 in determining whether an acquisition is accounted for in accordance with IFRS 3 Business Combinations. The amendments do not permit the Group to reassess whether acquisitions occurring prior to 1 January 2020 met the revised definition of a business. See note 12 for disclosures relating to the Group's business combination occurring during the year ended 31 December 2020.
IFRS 16 Leases
The new standard recognises a lease asset and a lease liability for almost all leases and requires them to be accounted for in a consistent manner. This introduces a single lessee accounting model and eliminates the previous distinction between an operating lease and a finance lease. Management have identified material lease arrangements, and have assessed the impact of the Standard as immaterial, as almost all current leases in the Group are short term.
New Accounting Standards issued but not yet effective
The standards and interpretations that are relevant to the Group, issued, but not yet effective, up to the date of the Financial Statements are listed below. The Group intends to adopt these standards, if applicable, when they become effective.
|
Standard |
Impact on initial application |
Effective date |
|
IFRS 17 |
Insurance Contracts |
1 January 2023 |
|
IFRS 10 and IAS 28 (Amendments) |
Long term interests in associates and joint ventures |
Unknown |
|
Amendments to IAS 1 |
Classification of Liabilities as current or non- current |
1 January 2023 |
|
Amendments to IFRS 3 |
Reference to the Conceptual Framework |
1 January 2022 |
|
Amendments to IAS 16 |
Property, Plant and Equipment - Proceeds before intended use |
1 January 2022 |
|
Amendments to IAS 37 |
Onerous contracts - Cost of fulfilling a contract |
1 January 2022 |
|
Annual Improvements to IFRS Standard 2018-2020 Cycle |
Amendments to IFRS 1 First time adoption of IFR Standards, IFRS 9 Financial Instruments, IFRS Leases
|
1 January 2022 |
The Directors have evaluated the impact of transition to the above standards and do not consider that there will be a material impact of transition on the financial statements.
Basis of consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. De-facto control exists in situations where the Company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the Company considers all relevant facts and circumstances, including:
· The size of the Company's voting rights relative to both the size and dispersion of other parties who hold voting rights;
· Substantive potential voting rights held by the Company and by other parties;
· Other contractual arrangements; and
· Historic patterns in voting attendance.
Business combinations and Goodwill
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The difference between the consideration paid and the acquired net assets is recognised as goodwill. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Any difference arising between the fair value and the tax base of the acquiree's assets and liabilities that give rise to a deductible difference results in recognition of deferred tax liability. No deferred tax liability is recognised on goodwill. For the purposes of the current period of reporting the figures related to the transaction accounting are considered provisional as permitted under the requirements of the accounting standards. These figures will be finalised within a period of twelve months from the acquisition date of the transaction.
Acquisitions
The Group and Company measure goodwill at the acquisition dates as:
· The fair value of the consideration transferred; plus
· The recognised amount of any non-controlling interests in the acquiree
· Plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Cost related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination, are expensed as incurred.
Asset Acquisition
Acquisitions of mineral exploration licences through the acquisition of non-operational corporate structures that do not represent a business, and therefore do not meet the definition of a business combination, are accounted for as the acquisition of an asset. An example of such would be increases in working interests in licences.
The consideration for the asset is allocated to the assets based on their relative fair values at the date of acquisition.
Going concern
The directors have prepared cash flow forecasts for a period of 13 months from the date of signing these financial statements. The Group's forecasts are reviewed regularly to assess whether any actions to curtail expenditure or cut costs are required. The Group is in the final stages of preparing to drill a well at WR-BA location and, by the end of the year, plans to drill a second well and spud a third well. The forecasts assume the wells will produce oil and gas, which would be sold, and indicate the Group has sufficient funds to complete the drilling of the wells and to meet its liabilities as they fall due until June 2022. However, if any of the new wells do not produce commercial quantities of oil or gas, the Group would immediately revisit its plans to drill subsequent wells. The financial benefit of any additional capital projects would be assessed against capital requirements and balanced with ensuring that the Group and the Company can continue to meet their liabilities and commitments through to June 2022. The Company's forecasts are considered together with the Group's forecasts.
The directors note that Covid-19 has had a significant negative impact on the global economy and oil prices, which may mean it would be more difficult to secure additional funding than it has historically been. As part of their going concern assessment, a reverse stress test has been performed, based on the scenario whereby, due to Covid-19 restrictions, if the Group were unable to continue with normal operations or were required to significantly reduce the forecasted production due to the capital expenditure not being incurred to complete the additional wells, a cash shortfall may occur. The global pandemic may also bring practical challenges to the timetables for drilling the wells and the consequent sale of oil and gas from those wells. The directors are confident that current capital projects are funded and have a reasonable expectation that they could secure additional funding, if needed, to fund additional capital projects. However, these conditions necessarily indicate that a material uncertainty exists that may cast significant doubt over the Group and Company's ability to continue as a going concern and therefore their ability to realise their assets and discharge their liabilities in the normal course of business. Whilst acknowledging this material uncertainty, the directors remain confident of making further cost savings and/or raising finance when required and, therefore, the directors consider it appropriate to prepare the financial statements on a going concern basis. The financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.
Intangible Assets
Exploration and evaluation costs
The Group applies the full cost method of accounting for Exploration and Evaluation (E&E) costs, having regard to the requirements of IFRS 6 'Exploration for and Evaluation of Mineral Resources'. Under the full cost method of accounting, costs of exploring and evaluating properties are accumulated and capitalised by reference to appropriate cash generating units ("CGUs"). Such CGU's are based on geographic areas such as a licence area, type or a basin and are not larger than an operating segment - as defined by IFRS 8 'Operating segments.
E&E costs are initially capitalised within 'Intangible assets'. Such E&E costs may include costs of licence acquisition, technical services and studies, seismic acquisition, exploration drilling and testing, but do not include costs incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the statement of comprehensive income as they are incurred. Plant and equipment assets acquired for use in exploration and evaluation activities are classified as property, plant and equipment.
However, to the extent that such an asset is consumed in developing an unproven oil and gas asset, the amount reflecting that consumption is recorded as part of the cost of the unproven oil and gas asset.
Exploration and unproven oil and gas assets related to each exploration license/prospect are not amortised but are carried forward until the technical feasibility and commercial feasibility of extracting a mineral resource are demonstrated.
Impairment of Exploration and Evaluation assets
All capitalised exploration and evaluation assets and property, plant and equipment are monitored for indications of impairment. Where a potential impairment is indicated, assessment is made for the Group of assets representing a cash generating unit.
In accordance with IFRS 6 the Group firstly considers the following facts and circumstances in their assessment of whether the Group's exploration and evaluation assets may be impaired, whether:
· the period for which the Group has the right to explore in a specific area has expired during the period or will expire in the near future, and is not expected to be renewed;
· unexpected geological occurrences render the resource uneconomic;
· a significant fall in realised prices or oil and gas price benchmarks render the project uneconomic; or
· an increase in operating costs occurs.
If any such facts or circumstances are noted, the Group perform an impairment test in accordance with the provisions of IAS 36.
The aggregate carrying value is compared against the expected recoverable amount of the cash generating unit. The recoverable amount is the higher of value in use and the fair value less costs to sell. An impairment loss is reversed if the asset's or cash-generating unit's recoverable amount exceeds its carrying amount. A reversal of impairment loss is recognised in the profit or loss immediately.
Property, plant and equipment - development and production (D&P) assets
Capitalisation
The costs associated with determining the existence of commercial reserves are capitalised in accordance with the preceding policy and transferred to property, plant and equipment as development assets following impairment testing. All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons have been demonstrated are capitalised within development assets on a field-by-field basis. Subsequent expenditure is only capitalised where it either enhances the economic benefits of the development asset or replaces part of the existing development asset (where the remaining cost of the original part is expensed through the income statement). Costs of borrowing related to the ongoing construction of development and production assets and facilities are capitalised during the construction phase. Capitalisation of interest ceases once an asset is ready for production.
Depreciation
Capitalised oil assets are not subject to depreciation until commercial production starts. Depreciation is calculated on a unit-of-production basis in order to write off the cost of an asset as the reserves that it represents are produced and sold. Any periodic reassessment of reserves will affect the depreciation rate on a prospective basis. The unit-of-production depreciation rate is calculated on a field-by-field basis using proved, developed reserves as the denominator and capitalised costs as the numerator. The numerator includes an estimate of the costs expected to be incurred to bring proved, developed, not-producing reserves into production. Infrastructure that is common to a number of fields, such as gathering systems, treatment plants and pipelines are depreciated on a unit-of-production basis using an aggregate measure of reserves or on a straight line basis depending on the expected pattern of use of the underlying asset.
Proven oil and gas properties
Oil and gas properties are stated at cost less accumulated depreciation and impairment losses. The initial cost comprises the purchase price or construction cost including any directly attributable cost of bringing the asset into operation and any estimated decommissioning provision.
Once a project reaches the stage of commercial production and production permits are received, the carrying values of the relevant exploration and evaluation asset are assessed for impairment and transferred to proven oil and gas properties and included within property plant and equipment.
Proven oil and gas properties are accounted for in accordance with provisions of the cost model under IAS 16 "Property Plant and Equipment" and are depleted on unit of production basis based on the estimated proven and probable reserves of the pool to which they relate.
Impairment of development and production assets
A review is performed for any indication that the value of the Group's D&P assets may be impaired such as:
· significant changes with an adverse effect in the market or economic conditions which will impact the assets; or
· obsolescence or physical damage of an asset; or
· an asset becoming idle or plans to dispose of the asset before the previously expected date; or
· evidence is available from internal reporting that indicates that the economic performance of an asset is or will be worse than expected.
For D&P assets when there are such indications, an impairment test is carried out on the CGU. CGUs are identified in accordance with IAS 36 'Impairment of Assets', where cash flows are largely independent of other significant asset Groups and are normally, but not always, single development or production areas. When an impairment is identified, the depletion is charged through the Consolidated Statement of Comprehensive Income if the net book value of capitalised costs relating to the CGU exceeds the associated estimated future discounted cash flows of the related commercial oil reserves.
The CGU's identified by the company are Corporate along with West Rustavi, Rustaveli, Satskhenisi and Norio given they are independent projects under individual Production Sharing Contracts ("PSCs"). An assessment is made at each reporting as to whether there is any indication that previously recognised impairment charges may no longer exist or may have decreased. If such an indication exists, the Group estimates the recoverable amount. A previously recognised impairment charge is reversed only if there has been a change in the estimates used to determine the assets recoverable amount since the last impairment charge was recognised. If this is the case the carrying amount of the asset is increased to its recoverable amount, not to exceed the carrying amount that would have been determined, net of depreciation , had no impairment charges been recognised for the asset in prior years.
Property, plant and equipment and depreciation
Property, plant and equipment which are awaiting use in the drilling campaigns, and storage, are recorded at historical cost less accumulated depreciation. Property, plant and equipment are depreciated using the straight line method over their estimated useful lives, as follows:
· PP&E - 6 years
The carrying value of Property, plant and equipment is assessed annually and any impairment charge is charged to the Consolidated Statement of Comprehensive income.
Leases
In the current year, the Group adopted 'IFRS 16: Leases', which requires operating and finance leases to be accounted for in a consistent manner. There was no material impact on the Group from the adoption of this standard year-on-year.
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
Inventories
Crude oil inventories are stated at the lower of cost and net realisable value. The cost of crude oil is the cost of production, including direct labour and materials, depreciation and an appropriate portion of fixed overheads allocated based on normal operating capacity of the production facilities, determined on a weighted average cost basis. Net realisable value of crude oil is based on the market price of similar crude oil at the balance sheet date and costs to sell, adjusted if the sale of inventories after that date gives additional evidence about its net realisable value at the balance sheet date.
The cost of crude oil is expensed in the period in which the related revenue is recognised.
Inventories of drilling tubulars and drilling chemicals are valued at the lower of cost or net realisable value, where cost represents the weighted average unit cost for inventory lines on a line by line basis. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
Decommissioning provision
Provisions for decommissioning are recognised in full when wells have been suspended or facilities have been installed.
A corresponding amount equivalent to the provision is also recognised as part of the cost of either the related oil and gas exploration and evaluation asset or property, plant and equipment as appropriate. The amount recognised is the estimated cost of decommissioning, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements.
Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to the related asset.
The unwinding of the discount on the decommissioning provision is included as a finance cost.
Taxation and deferred tax
Income tax expense represents the sum of the current tax and deferred tax charge for the period.
The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases and is accounted for using the balance sheet liability method .
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.
Judgement is applied in making assumptions about future taxable income, including oil and gas prices, production, rehabilitation costs and expenditure to determine the extent to which the Group recognises deferred tax assets, as well as the anticipated timing of the utilisation of the losses.
Deferred tax is calculated at the tax rates that have been enacted or substantively enacted and are expected to apply in the period when the liability is settled, or the asset realised. Deferred tax is charged or credited to the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the rates of exchange prevailing at the reporting date: $1.3678/£1 (2019: $1.3254/£1). Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Exchange differences are taken to the Statement of Comprehensive Income.
The Company's functional currency is the pound sterling and its presentational currency is the US dollar and accordingly the financial statements have also been prepared in US dollars. The functional currencies of Block Norioskhevi Ltd, Satskhenisi Limited, Georgia New Ventures Inc and Block Rustaveli Limited are the US dollar and the functional currencies of their branches in Georgia are the Georgian Lari.
Foreign operations
The assets are translated into US dollars at the exchange rate at the reporting date and income and expenses of the foreign operations are translated at the average exchange rates. Exchange differences arising on translation are recognised in other comprehensive income and presented in the other reserves category in equity.
Determination of functional currency and presentational currency
The determination of an entity's functional currency is assessed on an entity by entity basis. A company's functional currency is defined as the currency of the primary economic environment in which the entity operates. The functional currency of the Parent Company is the pound sterling, because it operates in the UK, where the majority of its transactions are in pounds sterling. The functional currencies of Block Norioskhevi Ltd, Satskhenisi Limited, Georgia New Ventures Inc and Block Rustaveli Limited are the US dollar, because the majority of their transactions by value is in US dollars, and the functional currencies of their branches in Georgia are the Georgian Lari, because the majority of their transactions by value is in Georgian Lari.
The presentational currency of the Group for year ended 31 December 2020 is US dollars. The presentational currency is an accounting policy choice.
Revenue
Revenue from contracts with customers is recognised when the Group satisfies its performance obligation of transferring control of oil to a customer. Transfer of control is usually concurrent with both transfer of title and the customer taking physical possession of the oil, which is determined by reference to the oil sales agreement. This performance obligation is satisfied at that point in time.
The transaction price is agreed between the Group and the customer, with the amount of revenue recognised being determined by considering the terms of the Production Sharing Contract ("PSC") and the oil sales agreement for each oil sale.
Finance income and expenses
Finance costs are accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Finance expenses comprise interest or finance costs on borrowings.
Borrowings
Borrowings are recorded initially at fair value, net of attributable transaction costs. Borrowings are subsequently carried at their amortised cost and finance charges, including any premium payable on settlement or redemption, are recognised in the profit or loss over the term of the instrument using the effective rate of interest.
Financial instruments
The Group adopted the amendments to IFRS 9 in the prior period. The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the 'solely payments of principal and interest' (SPPI) condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, financial assets with prepayment features with negative compensation do not automatically fail SPPI.
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes party to the contractual provisions of the instrument.
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All assets and liabilities, for which fair value is measured or disclosed in the Financial Statements, are categorised within the fair value hierarchy, described as follows, based on the lowest-level input that is significant to the fair value measurement as a whole:
Level 1 - quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2 - valuation techniques for which the lowest-level input that is significant to the fair value measurement is directly or indirectly observable; and
Level 3 - valuation techniques for which the lowest-level input that is significant to the fair value measurement is unobservable.
Financial assets
Financial assets are initially recognised at fair value, and subsequently measured at amortised cost, less any allowances for losses using the expected credit loss model, being the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive.
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset.
For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.
Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit and loss (FVTPL) or as other financial liabilities. The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged or cancelled, or they expire.
Financial liabilities are classified at FVTPL when the financial liability is either held for trading or it is designated at FVTPL. A financial liability is classified as held for trading if it has been incurred principally for the purpose of repurchasing it in the near term or is a derivative that is not a designated or effective hedging instrument.
Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair value recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Share based payments
The fair value of options and warrants granted to directors and others in respect of services provided is recognised as an expense in the Statement of Comprehensive Income with a corresponding increase in equity reserves - 'other reserves'.
On exercise or cancellation of share options and warrants, the proportion of the share based payment reserve relevant to those options and warrants is transferred from other reserves to the accumulated deficit. On exercise, equity is also increased by the amount of the proceeds received.
The fair value is measured at grant date charged in the accounting period during which the option and warrants becomes unconditional.
The fair value of options and warrants are calculated using the Black-Scholes model, taking into account the terms and conditions upon which the options and warrants were granted. Vesting conditions are non-market and there are no market vesting conditions. These vesting conditions are included in the assumptions about the number of options and warrants that are expected to vest. At the end of each reporting period, the Company revises its estimate of the number of options and warrants that are expected to vest. The exercise price is fixed at the date of grant and no compensation is due at the date of grant. Where equity instruments are granted to persons other than employees, the statement of comprehensive income is charged with the fair value of the goods and services received.
2. Critical accounting judgments, estimates and assumptions
The Group makes estimates and assumptions regarding the future. Estimates and judgements are continuously evaluated based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.
Recoverable value of Development & Production assets -judgement, estimates and assumptions
Costs capitalised in respect of the Group's development and production assets are required to be assessed for impairment under the provisions of IAS 36. Such an estimate requires the Group to exercise judgement in respect of the indicators of impairment and also in respect of inputs used in the models which are used to support the carrying value of the assets. Such inputs include estimates of oil and gas reserves, production profiles, oil price, oil quality discount, capital expenditure, inflation rates, and pre-tax discount rates that reflect current market assessments of (a) the time value of money; and (b) the risks specific to the asset for which the future cash flow estimates have not been adjusted. The directors concluded that there was an impairment of $172,000 on the carrying value of the develoment and production assets at Satskhenisi oilfield.
Asset Decommissioning Provisions -estimates and assumptions
The Group's activities are subject to various laws and regulations governing the protection of the environment. The Group recognises management's best estimate of the asset decommissioning costs in the period in which they are incurred. Such estimates of costs include pre-tax discount rates that reflect current market assessments of (a) the time value of money; and (b) the risks specific to the asset for which the future cash flow estimates have not been adjusted. Actual costs incurred in future periods could differ materially from the estimates.
Additionally, future changes to environmental laws and regulations, life of development and production assets, estimates and discount rates could affect the carrying amount of this provision. The Board assessed the extent of decommissioning required as at 31 December 2020 and concluded that a provision of $1,641,000 (2019: $276,000) should be recognised in respect of future decommissioning obligations at Rustaveli, West Rustavi, Satskhenisi and Norio (refer note 16).
Share Options - estimates and assumptions
Share options issued by the Group relates to the Block Energy Plc Share Option Plan. The grant date fair value of such options is calculated using a Black-Scholes model whose input assumptions are derived from market and other internal estimates.
The key estimates include volatility rates and the expected life of the options, together with the likelihood of non-market performance conditions being achieved. Refer note 25.
Accounting for business combinations and fair value - estimates and assumptions
Business combinations are accounted for at fair value. The assessment of fair value is subjective and depends on a number of assumptions. These assumptions include assessment of discount rates, and the amount and timing of expected future cash flows from assets and liabilities. In addition, the selection of specific valuation methods for individual assets and liabilities requires judgment. The specific valuation methods applied will be driven by the nature of the asset or liability being assessed. The consideration given to a seller for the purchase of a business or a company is accounted for at its fair value. When the consideration given includes elements that are not cash, such as shares or options to acquire shares, the fair value of the consideration given is calculated by reference to the specific nature of the consideration given to the seller. See note 12.
3. Segmental disclosures
IFRS 8 requires segmental information for the Group on the basis of information reported to the chief operating decision maker for decision making purposes. The Company considers this role as being performed by the Board of Directors. The Group's operations are focused on oil and gas development and production activities (Oil Extraction segment) in Georgia and has a corporate head office in the UK (Corporate segment). Based on risks and returns the directors consider that there are two operating segments that they use to assess the Group's performance and allocate resources being the Oil Extraction in Georgia, and the Corporate segment including unallocated costs.
The segmental results are as follows:
|
|
Oil Extraction |
Corporate and other |
Group Total |
|
Year ended 31 December 2020
|
$'000 |
$'000 |
$'000 |
|
Revenue |
1,255 |
- |
1,255 |
|
Cost of sales |
(2,203) |
- |
(2,203) |
|
Depreciation and depletion |
(768) |
(13) |
(781) |
|
Administrative costs |
(807) |
(3,129) |
(3,936) |
|
Other income |
100 |
- |
100 |
|
Net Finance costs and income |
29 |
24 |
53 |
|
Loss from operating activities |
(2,394) |
(3,118) |
(5,512) |
|
Total non-current assets |
21,304 |
8 |
21,311 |
|
|
|
|
|
|
|
|
|
|
|
|
Oil Extraction |
Corporate and other |
Group Total |
|
18 month period ended 31 December 2019 |
$'000 |
$'000 |
$'000 |
|
|
|
|
|
|
Revenue |
314 |
- |
314 |
|
Cost of sales |
(633) |
- |
(633) |
|
Depreciation and depletion |
(571) |
(3) |
(574) |
|
Administrative costs |
(1,049) |
(3,596) |
(4,645) |
|
Net Finance costs, income and forex |
- |
(592) |
(592) |
|
Loss from operating activities |
(1,939) |
(4,191) |
(6,130) |
|
Total non-current assets |
12,702 |
11 |
12,713 |
|
Segmental Assets |
31 December 2020 $'000 |
31 December 2019 $'000 |
|
|
|
|
|
Oil exploration - Georgia |
26,483 |
15,991 |
|
Corporate and other |
7,529 |
6,038 |
|
|
34,012 |
22,029 |
|
Segmental Liabilities |
31 December 2020 |
31 December 2019 |
|
|
$'000 |
$'000 |
|
|
|
|
|
Oil exploration - Georgia |
3,239 |
1,157 |
|
Corporate and other |
1,079 |
262 |
|
|
4,318 |
1,419 |
|
|
|
|
4. Revenue
|
|
Year ended
2020
$'000 |
18 months period ended
$'000 |
|
Crude oil revenue |
1,255 |
314 |
|
|
1,255 |
314 |
Block Rustaveli Limited contributed $308,000 of new crude sales to the group since acquisition on 23 November 2020.
The first crude oil sale from the West Rustavi oil field was made in November 2019.
5. Depreciation and Depletion on Oil and Gas assets
|
|
Year ended
2020
$'000 |
18 months period ended
$'000 |
|
Depreciation of PP&E |
109 |
52 |
|
Depletion of oil and gas assets |
672 |
522 |
|
|
781 |
574 |
6. Expenses by nature
|
|
Year ended
2020
|
18 months period ended
|
|
|
$'000 |
$'000 |
|
Employee benefit expense |
1,559 |
2,132 |
|
Share option charge |
460 |
660 |
|
Warrants charge |
181 |
202 |
|
Fees to Auditor in respect of the Group audit |
94 |
38 |
|
Fees to Auditor in respect of the Company audit |
94 |
38 |
|
Fees to Auditor for other non-audit services |
39 |
- |
|
Regulatory fees |
38 |
81 |
|
Operating lease expense |
57 |
54 |
7. Directors and employees
|
|
Year ended
2020
$'000 |
18 months period ended
$'000 |
|
Employment costs (inc. directors' remuneration): |
|
|
|
Wages and salaries |
2,149 |
2,341 |
|
Pensions |
147 |
251 |
|
|
|
|
|
Share based payments |
641 |
862 |
|
Social security costs |
48 |
108 |
|
|
2,985 |
3,562 |
The share based payments comprised the fair value of options granted to directors and employees in respect of services provided.
Wages and salaries include amounts that are recharged between subsidiaries. Some of these costs are then capitalised as development and production assets and others are administration expenses.
The average monthly number of employees during 2020 was 102 (2019: 37) split as follows:
|
|
Year ended
2020
|
18 months period ended
|
|
|
|
|
|
Management |
5 |
7 |
|
Technical |
77 |
17 |
|
Administration |
20 |
13 |
|
|
102 |
37 |
|
|
Year ended 2020
$'000 |
18 months period ended $'000 |
|
Amounts attributable to the highest paid director: |
|
|
|
Director's salary and bonus |
350 |
399 |
|
Pension |
25 |
31 |
|
Share based payments |
67 |
- |
|
|
442 |
430 |
Key management and personnel are considered to be the directors.
8. Finance Income
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Settlement of loan |
- |
32 |
|
Other finance income |
14 |
37 |
|
|
14 |
69 |
During the prior period, the Company reached a settlement agreement on the loan for $59,000, whereby it was agreed to settle the loan for an amount of £20,000 ($27,000), through the issue of 500,000 at £0.04p, resulting in a gain on settlement of loan of £24,550 ($32,000) being recorded in finance income.
9. Other income
|
|
Year ended
2020
$'000 |
18 months period ended
$'000 |
|
Sale of materials |
100 |
- |
|
|
100 |
- |
During the period, materials to be used in the construction of the gas pipeline from the Early Production Facility at West Rustavi were sold for $100,000 (2019: $nil).
10. Taxation
Based on the results for the period, there is no charge to UK or foreign tax. This is reconciled to the accounting loss as follows:
|
UK taxation |
Year ended 31 December 2020
$'000 |
18 months period ended 31 December 2019 $'000 |
|
|
|
|
|
UK Loss on ordinary activities |
(5,512) |
(6,034) |
|
|
|
|
|
Loss before taxation at the average UK standard rate of 19% (2019:19%) |
(1,047) |
(1,146) |
|
Effect of: |
|
|
|
Zero tax rate income |
(257) |
(60) |
|
Tax losses for which no deferred income tax asset was recognised |
1,304 |
1,206 |
|
|
|
|
|
Current tax |
- |
- |
The Group offsets deferred tax assets and liabilities if, and only if, it has a legally enforceable right to offset current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities related to corporation taxes levied by the same tax authority. Due to the tax rates applicable in the jurisdictions of the Group's subsidiary entities (being 0%) no deferred tax liabilities or assets are considered to arise.
|
Unrecognised gross deferred tax position |
Year ended 31 December 2020
$'000 |
18 months period ended 31 December 2019 $'000 |
|
|
|
|
|
Tax losses bought forward |
8,296 |
2,262 |
|
Timing differences bought forward |
- |
- |
|
Total unrecognised gross deferred tax position at start of year/period |
8,296 |
2,262 |
|
Tax losses not recognised in the year/period |
5,512 |
6,034 |
|
Movement in timing differences |
- |
- |
|
Tax losses carried forward |
13,808 |
8,296 |
|
Timing differences carried forward |
- |
- |
|
Total unrecognised gross deferred tax position at start of year/period |
13,808 |
8,296 |
|
Unrecognised deferred tax asset |
Year ended 31 December 2020
$'000 |
18 months period ended 31 December 2019 $'000 |
|
|
|
|
|
Tax losses |
1,304 |
1,206 |
|
Timing differences |
- |
- |
|
Total unrecognised deferred asset |
1,304 |
1,206 |
For any other jurisdictions which the Group has not recognised deferred income tax assets for tax losses carried forward for entities in which it is not considered probable that there will be sufficient future taxable profits available for offset. Unrecognised deferred income tax assets related to unused tax losses. The Company has UK corporation tax losses available to carry forward against future profits of approximately
$13,808,000 (2019: $8,296,000).
11. Loss per share
The calculation for earnings per Ordinary Share (basic and diluted) is based on the consolidated loss attributable to the equity shareholders of the Company is as follows:
|
|
Year ended 31 December 2020
|
18 months period ended 31 December 2019 |
|
|
|
|
|
Loss attributable to equity Shareholders ($'000) |
(5,512) |
(6,130) |
|
|
|
|
|
Weighted average number of Ordinary Shares |
419,300,390 |
312,998,744 |
|
|
|
|
|
Loss per Ordinary share ($/cents) |
(1.31)c |
(1.96)c |
Earnings and diluted loss per Ordinary Share are calculated using the weighted average number of Ordinary Shares in issue during the period. Diluted share loss per share has not been calculated as the options and warrants have no dilutive effect given the loss arising in the year/period.
12. Acquisition of Subsidiaries and associated PSC interests
Acquisition of Block Rustaveli Limited ("BRL")
On 23 November 2020, the Company acquired 100% of the share capital of Schlumberger Rustaveli Company Limited ("SRCL"). The completion of the acquisition means the Company now holds licences for Georgian onshore blocks IX and XIB. The Company changed the name of the acquired company to Block Rustaveli Limited on 9 December 2020. The principal activity is oil and gas extraction and it was acquired for the purposes of expanding the Company's production and development business in Georgia.
On acquisition, the Company issued Schlumberger one US dollar and an option to acquire 120 million 0.25p Ordinary Shares in Block Energy Plc, at a nil exercise price, representing 16% of Block's enlarged ordinary share capital (at 31 December 2020). The Options are exercisable between 12 and 24 months from 23 November 2020.
The fair value of the 120 million share options issued was based on the published closing price of the Ordinary Shares in Block Energy Plc on 23 November 2020 of 4.45p per share. Following the acquisition, the finalisation of the completion statement led to a payment by Schlumberger of $278,190 to Block Energy Plc, which has been recognised as a reduction in the fair value of the consideration paid by Block Energy Plc for this acquisition, because the payment was a contractual working capital adjustment to compensate Block Energy Plc for liabilities that were deemed to be for the seller's account.
Under IFRS 3, a business must have three elements: inputs, processes and outputs. BRL has these three elements and, therefore, this transaction has been accounted for as a business combination.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed of the business combination are as set out in the table below:
|
|
Net book value of assets acquired |
Provisional Fair value adjustments |
Provisional Fair value of assets acquired |
|
$'000 |
$'000 |
$'000 |
|
|
Development and production assets |
- |
6,258 |
6,258 |
|
Exploration and evaluation assets |
6,593 |
(6,593) |
- |
|
PP&E |
506 |
|
506 |
|
Oil inventory |
867 |
147 |
1,014 |
|
Inventory and spare parts |
1,535 |
- |
1,535 |
|
Financial liabilities |
(275) |
- |
(275) |
|
Provision for baseline oil liability |
- |
(655) |
(655) |
|
Provision for decommissioning costs |
(1,562) |
- |
(1,562) |
|
Total identifiable assets acquired and liabilities assumed |
7,664 |
(843) |
6,821 |
|
|
|
|
|
|
Provisional Fair Value of Consideration Paid: |
|
|
$'000 |
|
Share options issued at nil cost |
|
|
7,099 |
|
Less cash received from seller to adjust consideration |
|
|
(278) |
|
Total consideration |
|
|
6,821 |
|
Provisional goodwill on acquisition |
|
|
- |
|
|
|
|
|
|
Analysis of cash flows on acquisition |
|
|
$'000 |
|
Payment on acquisition of subsidiary |
|
|
- |
|
Net cash acquired on acquisition |
|
|
- |
|
Net cash inflow of acquisition |
|
|
- |
Since the acquisition of BRL on 23 November 2020, BRL has contributed $308,000 and $183,000 in the current year to the Group revenue and loss respectively. If the acquisition had occurred on 1 January 2020, consolidated pro-forma revenue and loss for the year ended 31 December 2020 would have been $483,000 and $7,534,000 respectively.
All of the identifiable assets acquired and liabilities assumed were fair valued. PP&E and spare parts inventory were fair valued based on the items' condition and application of an industry accepted discount to the original cost. The oil inventory was fair valued by management based on the net realisable value at the acquisition date. Given the subjectivity in valuing undeveloped reserves and unevaluated acreage, a market approach was used to fair value the development and production assets, whereby the seller marketed the business for sale and the acquisition price paid was deemed to be the fair value of the sum of the identifiable assets acquired and liabilities assumed. Therefore, the fair value of the development and production assets was calculated as the difference between the acquisition price paid and the fair value of the other identifiable assets acquired and liabilities assumed. For the purposes of the current period of reporting, the fair values related to the transaction accounting are considered provisional, as permitted under the requirements of the accounting standards. These fair values will be finalised within a period of twelve months from the acquisition date.
Acquisition of interest in the West Rustavi PSC
At 30 June 2018, the total Group interest in the West Rustavi PSC was 25%.
During the 18 months period ended 31 December 2019, Block Energy Plc, through Georgia New Ventures Inc. ("GNV"), increased its working interest in the West Rustavi PSC from 25% to 100% through a three staged settlement, as follows:
· Stage 1 : Increase from 25% to 71.5% working interest by acquiring an additional 46.5% working interest for the consideration of $250,000 cash and $500,000 in shares -completed on 13 March 2019.
· Stage 2 : increase from 71.5% to 90% working interest by acquiring an additional 18.5% working interest for the consideration of $250,000 in cash -completed on 12 July 2019.
· Stage 3 : increase from 90% to 100% working interest by acquiring an additional 10% working interest for the consideration of $500,000 in shares -completed on 19 July 2019.
The increases in working interest on this transaction have been treated as asset acquisitions and recorded at cost.
13. Intangible assets
|
|
Licences |
Exploration |
Total |
|
|
$'000 |
$'000 |
$'000 |
|
Cost |
|
|
|
|
At 1 July 2018 |
1,894 |
- |
1,894 |
|
Additions during the period |
250 |
14 |
264 |
|
Transfer to property, plant and equipment |
(2,144) |
(14) |
(2,158) |
|
At 31 December 2019 |
- |
- |
- |
|
|
|
|
|
|
At 31 December 2020 |
- |
- |
- |
|
|
|
|
|
The additions in the prior period are a result of the West Rustavi PSC increase from 25% to 100%. The transfer to PP&E in the prior period relates to the West Rustavi ($1,887,000) and Satskhenisi PSC ($257,000).
14. Property, Plant and Equipment
|
|
Licence |
Development / Production Assets |
Computer / Office Equipment / Motor Vehicles |
Total |
|
|
|
$'000 |
$'000 |
$'000 |
$'000 |
|
|
Cost |
|
|
|
|
|
|
At 1 July 2018 |
1,641 |
208 |
- |
1,849 |
|
|
Transfer from intangibles |
2,158 |
- |
- |
2,158 |
|
|
Additions |
1,186 |
8,011 |
129 |
9,326 |
|
|
At 31 December 2019 |
4,985 |
8,219 |
129 |
13,333 |
|
|
|
|
|
|
|
|
|
Additions |
2,207 |
565 |
210 |
2,982 |
|
|
Additions through acquisition |
|
6,258 |
506 |
6,764 |
|
|
Disposals |
(69) |
(69) |
(54) |
(192) |
|
|
Foreign exchange movements |
- |
- |
(14) |
(14) |
|
|
At 31 December 2020 |
7,123 |
14,973 |
777 |
22,873 |
|
|
|
|
|
|
|
|
|
Accumulated Depreciation |
|
|
|
|
|
|
At 1 July 2018 |
18 |
28 |
- |
46 |
|
|
Charge for the period |
- |
567 |
7 |
574 |
|
|
At 31 December 2019 |
18 |
595 |
7 |
620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals |
- |
- |
(11) |
(11) |
|
|
Charge for the year/period |
607 |
65 |
109 |
781 |
|
|
Impairment charge |
172 |
- |
- |
172 |
|
|
At 31 December 2020 |
779 |
660 |
105 |
1,562 |
|
|
|
|
|
|
|
|
|
Carrying Amount |
|
|
|
|
|
|
At 31 December 2019 |
4,967 |
7,624 |
122 |
12,713 |
|
|
At 31 December 2020 |
6,326 |
14,313 |
672 |
21,311 |
|
Carrying amount of property plant and equipment by cash generative unit:
|
|
Norio |
Satsk henisi |
West Rustavi |
Rustaveli |
Corporate |
Total |
|
|
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
|
Carrying amount |
|
|
|
|
|
|
|
At 31 December 2020 |
2,298 |
230 |
11,767 |
6,866 |
150 |
21,311 |
|
At 31 December 2019 |
2,465 |
435 |
9,671 |
- |
142 |
12,713 |
At the end of the current year, the directors concluded there were no impairment indicators in the current period that warranted impairment testing to be prepared with respect to the carrying value of the assets of the Group.
15. Inventory
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Spare parts and consumables |
2,918 |
1,763 |
|
Crude oil |
1,196 |
756 |
|
|
4,114 |
2,519 |
Inventories recognised as an expense during the year amounted to $886,000 (2019: $756,000).
16. Provisions
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Decommissioning provision |
1,917 |
276 |
|
Baseline oil liability |
745 |
- |
|
|
2,662 |
276 |
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
At 1 January |
276 |
- |
|
Decommissiong provision arising from the acquistion |
1,562 |
- |
|
Additional decommissioning provision in the year/period |
79 |
276 |
|
Baseline oil liablity arising from the acquisition |
654 |
- |
|
Additional baseline oil liability provided in the year |
91 |
- |
|
At 31 December |
2,662 |
276 |
Decommissioning provisions are based on management estimates of work and the judgement of the directors. By its nature, the detailed scope of work required, and timing of such work is uncertain.
The baseline oil liability arises from the acquisition of BRL during the year. Under the production sharing contract for Block XIB, BRL is obliged to deliver a certain quantity of oil to the State of Georgia in quarterly instalments by May 2022. As at 31 December 2020, BRL owed 2,534.5 tonnes of baseline oil with a present value of $745,000 to the State of Georgia.
17. Trade and other receivables
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Other receivables |
2,196 |
166 |
|
Prepayments |
60 |
137 |
|
|
2,256 |
303 |
As at 31 December 2020, other receivables includes proceeds receivable from the share issue on 30 December 2020 amounting to $1,314,000 and $278,000 receivable from Schlumberger following the Completion Statement and acquisition of BRL (see note 12).
18. Cash and cash equivalents
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Cash and cash equivalents |
6,331 |
6,494 |
Cash and cash equivalents consist of balances in bank accounts used for normal operational activities. The vast majority of the cash was held in an institution with a Standard & Poor's credit rating of A-1.
19. Non-cash transactions
See note 21 for all non-cash transactions.
20. Trade and Other Payables
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Trade and other payables |
989 |
1,066 |
|
Accruals |
667 |
77 |
|
|
1,656 |
1,143 |
Trade and other payables principally comprise amounts outstanding for corporate services and operational expenditure.
21. Share capital
|
Called up, allotted, issued and fully paid |
No. Ordinary Shares |
No. Deferred Shares |
Nominal Value |
|
|
|
|
|
|
As at 1 July 2018 |
259,047,601 |
2,095,165,355 |
2,192,028 |
|
Issue of equity on 4 March 2019 |
1,846,791 |
- |
6,045 |
|
Issue of equity on 13 March 2019 |
9,550,000 |
- |
31,654 |
|
Issue of equity on 15 April 2019 |
1,837,500 |
- |
5,941 |
|
Issue of equity on 1 May 2019 |
3,624,326 |
- |
11,783 |
|
Issue of equity on 15 May 2019 |
225,000 |
- |
715 |
|
Issue of equity on 21 May 2019 |
42,820,000 |
- |
135,405 |
|
Issue of equity on 23 May 2019 |
1,723,650 |
- |
5,434 |
|
Issue of equity on 4 June 2019 |
66,270,000 |
- |
210,175 |
|
Issue of equity on 15 June 2019 |
1,469,125 |
- |
4,672 |
|
Issue of equity on 13 June 2019 |
650,674 |
- |
2,052 |
|
Issue of equity on 5 July 2019 |
375,000 |
- |
1,174 |
|
Issue of equity on 15 July 2019 |
4,098,995 |
- |
12,858 |
|
Issue of equity on 19 December 2019 |
900,000 |
- |
2,930 |
|
|
|
|
|
|
As at 31 December 2019 |
394,438,662 |
2,095,165,355 |
2,622,866 |
|
|
|
|
|
|
Issue of equity on 1 June 2020 |
1,654,824 |
- |
5,204 |
|
Issue of equity on 10 June 2020 |
39,609,348 |
- |
126,134 |
|
Issue of equity on 1 July 2020 |
188,435 |
- |
588 |
|
Issue of equity on 1 August 2020 |
407,374 |
- |
1,333 |
|
Issue of equity on 1 September 2020 |
544,400 |
- |
1,814 |
|
Issue of equity on 1 October 2020 |
724,433 |
- |
2,343 |
|
Issue of equity on 2 November 2020 |
450,541 |
- |
1,456 |
|
Issue of equity on 1 December 2020 |
524,076 |
- |
1,754 |
|
Issue of equity on 31 December 2020 |
176,000,000 |
- |
589,017 |
|
|
|
|
|
|
As at 31 December 2020 |
614,542,093 |
2,095,165,355 |
3,352,509 |
On 2 June 2020, the Company issued 1,654,824 Ordinary Shares, details of which are set out below:
150,731 Ordinary Shares have been allotted to Philip Dimmock, Chairman, at an average price of 3.98p in settlement of fees amounting to £6,000 due to him and 100,486 Ordinary Shares have been allotted to Chris Brown, Non-Executive Director, at an average price of 3.98p in settlement of fees of £4,000 due to him.
1,124,058 Ordinary Shares have been allotted to two consultants to the Company as settlement for services provided on the Georgian operations during the period from February 2019 to March 2020 with a total value of £57,229.
75,000 Ordinary Shares have been allotted to Timothy Parson, former Non-Executive Director of the Company, as settlement for services provided on the Georgian operations during 2017 with a total value of £3,000.
204,549 Ordinary Shares have been allotted to an adviser to the Company in lieu of cash settlement for services provided to the Company during the two months period from 1 April 2020 to 31 May 2020 with a total value of £3,433.
On 10 June 2020, the Company issued 39,609,348 new Ordinary Shares at their nominal value to the EBT.
On 1 July 2020, the Company issued 188,435 Ordinary Shares to two service providers in lieu of cash settlement for series provided to the Company with a total value £4,417 ($5,513).
On 3 August 2020, the Company issued 407,374 Ordinary Shares of 0.25p each to three service providers in lieu of cash settlement for services provided to the Company with a total value of £10,000 ($13,088).
On 2 September 2020, the Company issued 544,400 Ordinary Shares 0.25p each to three service providers in lieu of cash settlement for services provided to the Company with a total value of £13,184 ($17,574).
On 2 October 2020, the Company issued 724,433 Ordinary Shares 0.25p each to four service providers in lieu of cash settlement for services provided to the Company with a total value of £19,212 ($24,853).
On 2 November 2020, the Company issued 450,451 Ordinary Shares 0.25p each to four service providers in lieu of cash settlement for services provided to the Company with a total value of £11,268 ($14,565).
On 2 December 2020, the Company issued 524,076 Ordinary Shares 0.25p each to seven service providers in lieu of cash settlement for services provided to the Company with a total value of £15,819 ($21,177).
On 30 December 2020, the Company raised gross proceeds of £5,280,000 ($7,068,287) through the placing of 176,000,000 Ordinary Shares at 3p per share.
The Ordinary Shares consist of full voting, dividend and capital distribution rights and they do not confer any rights for redemption. The Deferred Shares have no entitlement to receive dividends or to participate in any way in the income or profits of the Company, nor is there entitlement to receive notice of, speak at, or vote at any general meeting or annual general meeting.
22. Share premium account
|
|
|
$'000 |
|
Balance at 1 January 2020 |
|
27,985 |
|
Premium arising on issue of equity shares |
6,654 |
|
|
Share issue costs |
|
(405) |
|
Balance at 31 December 2020 |
|
34,234 |
|
|
|
$'000 |
|
Balance at 1 July 2018 |
|
12,221 |
|
Premium arising on issue of equity shares |
16,655 |
|
|
Share issue costs |
|
(891) |
|
Balance at 31 December 2019 |
|
27,985 |
23. Reserves
The following describes the nature and purpose of each reserve within owners' equity.
|
Reserves |
Description and purpose |
|
Share Capital |
Amount subscribed for share capital at nominal value. |
|
Share premium account |
Amount subscribed for share capital in excess of nominal value, less attributable costs. |
|
Other reserves |
The other reserves comprises the fair value of all share options and warrants which have been charged over the vesting period, net of the amount relating to share options which have expired, been cancelled and have vested. It also comprises of the fair value of the share options issued as part of the consideration paid for the acquisition of the subsidiary BRL and the movement has been shown in the Consolidated Statement of the Changes in Equity.
|
|
Foreign exchange reserve |
Exchange differences on translating the net assets of foreign operations |
|
Accumulated deficit |
Cumulative net gains and losses recognised in the income statement and in respect of foreign exchange. |
24. Warrants
|
|
Number of Warrants |
31 December 2020 weighted average exercise price |
Number of Warrants |
31 December 2019 weighted average exercise price |
|
Outstanding at the beginning of the period |
8,070,335 |
10p |
11,142,115 |
6p |
|
Additions |
8,750,167 |
3p |
6,011,308 |
11p |
|
Exercised |
- |
- |
(7,612,500) |
4p |
|
Lapsed |
- |
- |
(1,470,588) |
15p |
|
Outstanding at the end of the period |
16,820,502 |
6p |
8,070,335 |
10p |
As at 31 December 2020, all warrants were available to exercise and were exercisable at prices between 3p and 11p (31 December 2019: 4p and 11p). The weighted average life of the warrants is 3.6 years (31 December 2019: 3.2 years). The additions during the period represent warrants issued with 5 year terms (2019: 3 years). The fair value of additions during the period was $376,000 (2019: $500,000).
25. Share based payments
During the year, the Group operated a Block Energy Plc Share Option Plan (Share Option Scheme).
Under IFRS 2, an expense is recognised in the statement of comprehensive income for share based payments, to recognise their fair value at the date of grant. The application of IFRS 2 gave rise to a charge of $641,000 for the year ended 31 December 2020. The equivalent charge for the 18 months period ended 31 December 2019 was $862,000.
The Group recognised total expenses (all of which related to equity settled share-based payment transactions) under the current plans of:
|
|
2020 $'000 |
2019 $'000 |
|
|
|
|
|
Share option scheme |
460 |
660 |
|
Warrants charge |
181 |
202 |
|
|
641 |
862 |
Share Option Scheme
The Option Plan provides for an exercise price equal to or higher than the closing market price of the Group shares on the date of the grant. The vesting period varies between 66 days to 3 years. The options expire if they remain unexercised after the exercise period has lapsed and have been valued using the Black Scholes model.
The following table sets out details of all outstanding options granted under the Share Option Scheme.
|
|
2020 |
2020 |
2019 |
2019 |
|
|
Options |
Weighted average exercise price |
Options |
Weighted average exercise price |
|
Outstanding at beginning of year/period |
27,437,856 |
$0.07 |
23,698,332 |
$0.05 |
|
Granted during the year |
9,230,112 |
$0.00 |
6,325,000 |
$0.15 |
|
Exercised during the year |
(1,997,622) |
$0.03 |
(1,723,650) |
$0.05 |
|
Expired during the year |
(3,331,633) |
$0.06 |
(861,826) |
$0.05 |
|
Outstanding at the end of the year/period |
31,338,713 |
$0.01 |
27,437,856 |
$0.07 |
|
Exercisable at the end of the year/period |
30,040,857 |
$0.01 |
12,494,603 |
$0.04 |
The weighted average exercise price of the share options exercisable at 31 December 2020 is $0.01 (31 December 2019: $0.04). The weighted average contractual life of the share based payments outstanding at 31 December 2020 is 3.6 years (31 December 2019: 8.5 years).
The estimated fair values of options which fall under IFRS 2, and the inputs used in the Black-Scholes model to calculate those fair values are as follows:
|
Date of grant |
Number of options |
Estimated fair value |
Share price |
Exercise price |
Expected volatility |
Expected life |
Risk free rate |
Expected dividends |
|
30 June 2017 |
1,200,000 |
$0.04 |
$0.01 |
$0.03 |
84% |
5.5 years |
1.16% |
0% |
|
6 April 2018 |
4,400,000 |
$0.05 |
$0.04 |
$0.03 |
84% |
10 years |
1.34% |
0% |
|
11 June 2018 |
18,098,332 |
$0.04 |
$0.05 |
$0.05 |
84% |
10 years |
1.23% |
0% |
|
21 October 2019 |
6,325,000 |
$0.05 |
$0.06 |
$0.15 |
109% |
9.0 years |
0.63% |
0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All share based payment charges are calculated using the fair value of options.
For the options granted prior to 30 June 2018, expected volatility was determined by reviewing benchmark values from comparator companies. For the options granted after 30 June 2018, expected volatility was determined by reference to the volatility of historic trading prices of the Company's shares.
26. Borrowings
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Short term loans - unsecured |
- |
- |
|
|
- |
- |
All loans are denominated in pounds sterling and presented in US dollars.
As at 1 July 2018 there was a current loan balance of $59,000. The interest was payable annually at the rate of 20%. During the prior period, the Company reached a settlement agreement on the loan for an amount of £20,000 ($27,000), through the issue of 500,000 at £0.04p, resulting in a gain on settlement of loan of £24,550 ($32,000) being recorded in finance income.
Movement in borrowings is analysed as follows:
|
|
2020 $'000 |
2019 $'000 |
|
At beginning of year/period |
- |
59 |
|
Settlement of loan through issue of shares |
- |
(27) |
|
Gain on settlement of loan recorded through SOCI |
- |
(32) |
|
At end of year/period |
- |
- |
27. Financial instruments
Capital Risk Management
The Company manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders. The overall strategy of the Company and the Group is to minimise costs and liquidity risk.
The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, foreign exchange and other reserves and retained earnings as disclosed in the Consolidated Statement of Changes of Equity.
The Group is exposed to a number of risks through its normal operations, the most significant of which are interest, credit, foreign exchange and liquidity risks. The management of these risks is vested to the Board of Directors.
The sensitivity has been prepared assuming the liability outstanding was outstanding for the whole period. In all cases presented, a negative number in profit and loss represents an increase in finance expense / decrease in interest income.
Fair Value Measurements Recognised in the Statement of Financial Position
The following provides an analysis of the Group's financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 & 2 based on the degree to which the fair value is observable.
- Level 1 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 2 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
- Level 3 assets are assets whose fair value cannot be determined by using observable inputs or measures, such as market prices or models. Level 3 assets are typically very illiquid, and fair values can only be calculated using estimates or risk-adjusted value ranges.
Credit risk
Credit risk is the risk that the Group will suffer a financial loss as a result of another party failing to discharge an obligation and arises from cash and other liquid investments deposited with banks and financial institutions and receivables from the sale of crude oil.
For deposits lodged at banks and financial institutions these are all held through a recognised financial institution. The maximum exposure to credit risk is $6,331,000 (2019: $6,494,000). The Group does not hold any collateral as security.
The carrying value of cash and cash equivalents and financial assets represents the Group's maximum exposure to credit risk at year end. The Group has no material financial assets that are past due.
The Company has made unsecured interest-free loans to its subsidiary companies. Although the loans are repayable on demand, they are unlikely to be repaid until the projects become successful and the subsidiaries start to generate revenues. An assessment of the expected credit loss arising on intercompany loans is detailed in note 6 to the parent Company financial statements.
Market risk
Market risk arises from the Group's use of interest bearing and foreign currency financial instruments. It is the risk that future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), and foreign exchange rates (currency risk).
There are no variable interest bearing loans in the Group. No risk therefore identified.
Currency risk
Foreign currency risk can only arise on financial instruments that are denominated in a currency other than the functional currency in which they are measured. Translation-related risks are therefore not included in the assessment of the entity's exposure to currency risks. Translation exposures arise from financial and non-financial items held by an entity (for example, a subsidiary) with a functional currency different from the group's presentation currency. However, foreign currency-denominated inter-company receivables and payables which do not form part of a net investment in a foreign operation would be included in the sensitivity analysis for foreign currency risks; this is because, even though the balances eliminate in the consolidated balance sheet, the effect on profit or loss of their revaluation under IAS 21 is not fully eliminated.
A 10% increase in the strength of the pound sterling against the US dollar would cause an estimated increase of $628,577 (2019: $140,000 increase) in the profit after tax of the Group for the year ended 31 December 2020, with a 10% weakening causing an equal and opposite decrease. The impact on equity is the same as the impact on profit after tax.
The Group's cash and cash equivalents and liquid investments are mainly held in US dollars, pounds sterling and Georgian Lari. At 31 December 2020, 90% of the Group's cash and cash equivalents and liquid investments were held in pounds sterling. 9% in Georgian Lari and the remainder in US dollars, Euros and Canadian dollars (31 December 2019: 76% in US dollars).
Liquidity risk
Liquidity risk arises from the possibility that the Group and its subsidiaries might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. In addition to equity funding, additional borrowings have been secured in the past to finance operations. The Company manages this risk by monitoring its financial resources and carefully plans its expenditure programmes. Financial liabilities of the Group comprise trade payables which mature in less than twelve months. .
28. Categories of financial instruments
In terms of financial instruments, these solely comprise of those measured at amortised cost and are as follows:
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Liabilities at amortised cost |
1,656 |
1,143 |
|
|
1,656 |
1,143 |
|
|
|
|
|
Cash and cash equivalents at amortised cost |
6,331 |
6,494 |
|
Financial assets at amortised cost |
2,196 |
166 |
|
|
8,527 |
6,660 |
No collateral has been pledged in relation thereto.
29. Subsidiaries
At 31 December 2020, the Group consists of the following subsidiaries, which are wholly owned by the Company.
|
Company |
Country of Incorporation |
Proportion of voting rights and equity interest |
Proportion of voting rights and equity interest |
|
|
|
2020 |
2019 |
|
Block Norioskhevi Ltd |
British Virgin Islands |
100% |
100% |
|
Satskhenisi Ltd |
Marshall Islands |
100% |
100% |
|
Georgia New Ventures Inc. |
Bahamas |
100% |
100% |
|
Block Operating Company LLC |
Georgia |
100% |
100% |
|
Block Rustaveli Limited* |
British Virgin Islands |
100% |
- |
|
Ensign Resources Limited** |
Isle of Man |
- |
100% |
*The company was acquired on 23 November 2020.
**The company was liquidated during the year.
Subsidiaries - Nature of business
The principal activity of Georgia New Ventures Inc, Satskhenisi Ltd, Block Norioskhevi Ltd and Block Rustaveli Limited is oil and gas development and production.
The principal activity of Block Operating Company LLC is to be the operator of the oil and gas licenses held in Georgia.
Ensign Resources is dormant, but held the Antubia Ltd company and associated Ghanaian mining asset until February 2018.
Registered Office
The registered office of Georgia New Ventures Inc. is Bolam House, King and George Streets, P.O. Box CB 11.343, Nassau, Bahamas.
The registered office of Satskhenisi Ltd is Trust Company Complex, Ajeltake road, Ajeltake Island, Majuro, Marshall Islands MH96960.
The registered office of Block Norioskhevi Ltd is Trident chambers, P.O.Box 146, Road Town, Tortola, British Virgin Islands.
The registered office of Block Operating Company LLC is 13A Tamarashvili Street, Tbilisi 0162, Georgia.
The registered office of Block Rustaveli Limited is Craigmuir Chambers, Road Town, Tortola, VG1110, British Virgin Islands.
The registered office of Ensign Resources Limited is Falcon Cliff, Palace Road, Douglas, Isle of Man, IM2 4LB.
30. Commitments
Commitments at the reporting date that have not been provided for were as follows;
Operating lease commitment
UK operating lease commitment
At 31 December 2020 and 31 December 2019, the total of future minimum lease payments under non-cancellable operating leases for each of the following periods was:
|
|
31 December 2020 $'000 |
31 December 2019 $'000 |
|
Within 1 year |
|
37 |
|
Between 1 and 5 years |
- |
- |
|
Total |
|
37 |
31. Related party transactions
Key management personnel comprises of the directors and details of their remuneration are set out in Note 7 and the Remuneration Report.
On 1 June 2020, 75,000 Ordinary Shares were issued to Timothy Parson, former Non-Executive Director of the Company, as settlement for services provided on the Georgian operations during 2017 with a total value of £3,000 ($4,000).
In the prior year, on 5 June 2019, the Company issued 1,091,291 Ordinary Shares as payment of deferred consideration per the Taoudeni Resources Limited share purchase agreement (details of which were set out in the Company's AIM Admission Document dated 4 June 2018). 977,383 of these Ordinary Shares were allotted to Plutus Strategies Limited, a company in which Paul Haywood, Chief Executive, and Niall Tomlinson, former Executive Director, have an interest. The agreement to issue these shares was completed on 3 March 2016 at a time when the Company's share price (adjusted for subsequent share consolidations) was 15p.
As a result of the issues on 5 June 2019 of 163,418 Ordinary Shares to Philip Dimmock and 69,957 Ordinary Shares to Chris Brown, UK income tax and employee's National Insurance contributions were payable. The Company paid these liabilities of $10,000 for Philip Dimmock and $3,000 for Chris Brown to the tax collector during September 2019 and this effectively formed a loan to the two directors. Both directors had repaid the loans in full by 31 December 2019.
During the prior period, the Company registered as an employer in Canada and Canadian income tax and employee's social security were payable. In December 2019, the Company paid these liabilities of $77,000 for Roger McMechan to the tax collector and this effectively formed a loan to the director. This loan was fully repaid to the Company on 3 June 2020 by offsetting it against the payment in lieu of notice payable pursuant to the termination of his employment.
32. Events occurring after year end
On 15 February 2021, the Company commenced its first gas sales from its West Rustavi field.
**ENDS**
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION NO 596/2014 WHICH IS PART OF ENGLISH LAW BY VIRTUE OF THE EUROPEAN (WITHDRAWAL) ACT 2018, AS AMENDED. ON PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.
For further information please visit http://www.blockenergy.co.uk/ or contact:
|
Paul Haywood (Chief Executive Officer) |
Block Energy plc |
Tel: +44 (0)20 3468 9891 |
|
Neil Baldwin (Nominated Adviser) |
Spark Advisory Partners Limited |
Tel: +44 (0)20 3368 3554 |
|
Peter Krens (Corporate Broker) |
Tennyson Securities |
Tel: +44 (0)20 7186 9030 |
|
Billy Clegg / Owen Roberts / Violet Wilson (Financial PR) |
Camarco |
Tel: +44 (0)20 3757 4980 |
Notes to editors
Block Energy plc is an AIM-listed independent oil and gas company focused on production and development in Georgia, applying innovative technology to realise the full potential of previously discovered fields.
Block has a 100% working interest in Georgian onshore licence blocks IX and XIB. Licence block XIB is Georgia's most productive block, with 2P oil and gas reserves of 64 MMboe, which is comprised 2P oil reserves of 36 MMbbls and 2P gas reserves of 28 MMboe (Source: CPR Bayphase Limited: 1 July 2015) and historic production of over 180 MMbbls of oil from the Middle Eocene, peaking in the mid-1980s at 67,000 bopd.
The Company has a 100% working interest in the highly prospective West Rustavi onshore oil and gas field with multiple wells that have tested oil and gas from a range of geological horizons. The field has so far produced 50 Mbbls of light sweet crude and has 0.9 MMbbls of gross 2P oil reserves in the Middle Eocene. It also has 38 MMbbls of gross unrisked 2C contingent resources of oil and 608 Bcf of gross unrisked 2C contingent resources of gas in the Middle, Upper and Lower Eocene formations (Source: CPR Gustavson Associates: 1 January 2018) .
Block also holds 100% and 90% working interests respectively in the onshore oil producing Norio and Satskhenisi fields.
The Company offers a clear entry point for investors to gain exposure to Georgia's growing economy and the strong regional demand for oil and gas.
Glossary
1. bbls: barrels. A barrel is 35 imperial gallons.
2. boe: barrels of oil equivalent.
3. bopd: barrels of oil per day.
4. Mbbls: thousand barrels.
5. MMboe: million barrels of oil equivalent.
6. MMbbls: million barrels.
7. Bcf: billion cubic feet.
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