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Petro Matad Ltd (MATD)

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Monday 17 June, 2019

Petro Matad Ltd

Final Results

RNS Number : 3958C
Petro Matad Limited
17 June 2019
 

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

 

17 June 2019

Petro Matad Limited

("Petro Matad" or the "Company")

 

Final results for year ended 31 December 2018

 

Petro Matad Limited ("Petro Matad" or "the Company"), the AIM quoted Mongolian oil explorer, announces its audited final results for the year ended 31 December 2018. All dollar values are expressed in United States dollars unless otherwise stated.

 

Operational Highlights

·    Drilled two frontier exploration wells, Snow Leopard 1 and Wild Horse 1, in the previously undrilled Valley of the Lakes in central western Mongolia. Operations were completed within the 2018 drilling season and within budget

·    Snow Leopard 1 in Block V proved up a working petroleum system in the Taats Basin, high grading nearby prospects as potential follow-up targets for future drilling

·    Secured access to 3D seismic data in northern Block XX, completed 2D seismic reprocessing and remapped the prospects close to producing fields in neighbouring Block XIX

·    Selected Block XX targets for the 2019 drilling campaign including the Heron 1 well which will appraise a structure already proven to be oil bearing on Block XIX immediately to the north

 

Post period end

·    Contracted two rigs to execute the 2019 drilling campaign. Contracts allow the rigs to be retained for immediate appraisal of any discoveries made

·    Three wells will be drilled in Block XX in 2019: Heron 1 and Red Deer 1 are expected to spud in July. Gazelle 1 will follow the drilling of Heron 1. Site construction is now complete at Heron and Gazelle, and is underway at Red Deer

·    A fourth well is planned to be drilled in Block V or Block XX, depending on well results

·    Applications submitted for two-year PSC extensions (until July 2021) on Block IV and Block V

 

Financial Highlights

 

·    Two successful equity placings announced in January 2018 and June 2018, raising gross proceeds of $35.1 million to execute the Company's multi-well drilling programme in 2018 and 2019

·    The Group's net loss after tax for the twelve months ended 31 December 2018 was $18.4 million (31 December 2017: loss $9.9 million)

·    As at 31 December 2018, the Group's cash position was $21.3 million, including Term Deposits (Financial Assets) (31 December 2017: $8.1 million)

·    Since the year end, preparations for the 2019 drilling programme have been underway. As at 14 June 2019, the Group's cash position was $16.6 million, including Terms Deposits (Financial Assets)

 

No dividends have been paid or are proposed in respect of the year ended 31 December 2018 (2017: Nil).

 

About Petro Matad

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

 

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

 

For more information, please contact:

 

Petro Matad Limited

 

Mike Buck, CEO

+97 670 141 099 / +97 675 751 099

 

 

Stockdale (Nominated Adviser and Broker)

Richard Johnson

Andy Crossley

David Coaten

+44 (0) 20 7601 6100

 

Stifel Nicolaus Europe Limited (Broker)

 

Callum Stewart

Nicholas Rhodes

Ashton Clanfield

+44 (0) 20 7710 7600

 

FTI Consulting (Communications Advisory Firm)

Sara Powell

Ben Brewerton

+44 (0) 20 3727 1521

 

 

Annual Report and Accounts

 

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

 

Annual General Meeting ("AGM")

 

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

 

 

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

 

Technical information in this news release has been reviewed by the Company's Exploration Manager, Mr. Jerry Smart, who has recently joined the Petro Matad team. He has 36 years of industry experience in oil and gas exploration and production with LASMO, Eni, Salamander Energy and Ophir Energy. He holds a B.Sc. in Geology from King's College, London.

 

 

Glossary

 

MMbo

Million barrels of oil

Mean

The arithmetic average of the low, mid and high case estimates of recoverable prospective resources

Prospective Resources

Estimated volumes associated with undiscovered accumulations. These represent quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from oil and gas deposits identified on the basis of indirect evidence but which have not yet been drilled

 

 

 

Directors' Statement

 

Summary

The Company successfully raised funds in two rounds in the first half of 2018 in order to execute a multi-well drilling programme spread over two years (2018 and 2019). In the first placing, in January 2018, a total of 186.6 million new shares were placed with new and existing institutional investors, and certain Directors and senior management of the Company, raising gross proceeds of US$16.8 million at 6.5 pence per share.  Petro Matad's major shareholder, Petrovis Matad Inc. was the single largest participant in this raise.

The second raise, in June 2018, resulted in a total of 136.8 million new shares being placed with new and existing institutional investors, and certain Directors and senior management of the Company. The placing was conducted at a price of 10 pence per share and raised gross proceeds of US$18.1 million. 

With funds in hand, the Company moved quickly to complete all necessary permitting and operational preparations for drilling and was able to complete the two wells during the 2018 drilling season. Activities were focused on Blocks IV and V in the previously undrilled Valley of the Lakes Basin of central western Mongolia and involved the drilling of Snow Leopard 1 in Block V and Wild Horse 1 in Block IV, both of which were drilled within budget and without any safety or environmental incidents. While the wells did not discover commercial hydrocarbons, they did provide excellent data to allow the calibration of the geology with the seismic and other data sets in these frontier blocks, which has enhanced the Company's understanding and has helped to formulate plans for the next phase of exploration. The results of Snow Leopard 1 in particular have high graded the potential of prospects defined in Block V which are now the subject of further study to mature them to drillable status.

Having re-established the Company's operating capability in 2018, preparations are in hand for a four well campaign in 2019 focusing initially on Block XX in the east of Mongolia adjacent to oil fields in production.

 

2018 Review

HSSE

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

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

Both the Company and its sub-contractors followed all prescribed procedures during 2018 operations which were conducted in full legal compliance at all times. Environmental specialists were contracted to undertake base line and environmental impact studies and to generate independent reports on the Company's compliance with environmental policies. There were no environmental incidents during the Company's field activities in 2018.

The Company had no lost time injuries (LTI) and no reportable incidents during the year. The Company has an overall goal of zero LTI and strives to maintain this as part of all activities performed.

 

Operations

The 2018 work programme was primarily focused on preparation and execution of exploration drilling in Blocks IV and V. The Company also planned to drill in Block XX during the year but delays in securing a rig in advance of the winter drilling shut down resulted in the Block XX programme being postponed until 2019. This additional time before drilling in Block XX allowed for seismic reprocessing, re-mapping and ranking of prospects to be completed ahead of target selection for 2019 drilling.

The 2018 exploration drilling activities began with the spudding in early July of the Snow Leopard 1 well in the Taats Basin in Block V. The well was drilled into granitic basement to a total measured depth of 2,930 metres. No sands were encountered at the shallower of the two primary targets of the well although drilling gases (C1 to C5) and oil in the drilling mud were observed across the interval. The gases are indicative of an active petroleum system in the basin and the oil observed in the mud is suspected to have entered the well from one of the prospect bounding faults which may be acting as a conduit for migrating oil. The deeper objective of the well was encountered in line with the pre-drill depth prognosis with good development of sandstones in an overall gross interval of more than 400 metres. However, no oil or gas shows were observed while drilling through these sediments and subsequent logging confirmed them to be water bearing. The well was plugged and abandoned and the post-well evaluation has confirmed that the well penetrated a thick sequence of organically rich oil prone source rocks of Late Jurassic to Early Cretaceous age. The presence of thick source rocks and an active petroleum system in Snow Leopard 1 has high graded the potential of other prospects in the Taats Basin and the adjacent Tugrug Basin immediately to the east. Of particular interest is the Raptor trend, an inversion anticline with three four-way dip closed culminations approximately 7 km to the south of Snow Leopard 1. Work is underway to mature a prospect on the Raptor trend to the drillable status and to rank it against other targets in the Taats and Tugrug Basins with a view to high grading it for the 2019 programme.

Upon completion of drilling operations at Snow Leopard 1 the contracted Sinopec rig was moved westwards into Block IV and spudded the Wild Horse 1 well in late October. Wild Horse 1 was drilled into granitic basement to a total measured depth of 1,490 metres. In line with the pre-drill prognosis, the well encountered interbedded sands and shales throughout the prospective section from 650 metres to total depth (TD) but no oil shows were observed, and background gas readings were generally low. Basement was encountered several hundred metres shallower than had been prognosed reflecting the frontier nature of the well which was more than 200 km away from any other exploration well. Post-well analyses are ongoing, and a small amount of oil was extracted from well cuttings just above basement suggesting that elsewhere within the Baatsagaan Basin there may be an active source rock although one was not penetrated at the Wild Horse 1 location.

The results of the two wells drilled in 2018 and the post-well analyses have been used to design work programmes for the next exploration phases of Blocks IV and V and these plans have been submitted to MRPAM as part of the PSC extension applications.

The delay in Block XX drilling in 2018 allowed the Company to conduct seismic reprocessing and to secure access to an existing 3D seismic survey, facilitating the re-interpretation and remapping of high graded areas of the Block XX in order to refresh the risk ranking and resource assessments of the prospect inventory. This work has generated a number of attractive prospects, three of which will be targeted in the 2019 Block XX drilling campaign.

 

Production Sharing Contracts

As the current terms of the Blocks IV and V Production Sharing Contracts (PSCs) expire on 29 July 2019, the Company has applied for two-year extensions in each PSC, which, if approved, will enable the Company to retain the Blocks until 29 July 2021. As cumulative financial expenditure in both Blocks exceeds the cumulative commitments to the end of the current terms, no issues are expected in obtaining the extensions other than agreeing with the regulator the appropriate work programme for the next phases of exploration.

The exploration period of the Block XX PSC runs until July 2020. In the event of commercial success in the 2019 exploration drilling programme, the PSC provides for a relatively quick transition to development and production status and the exploitation phase of the PSC runs for 25 years (extendable by a further ten-year period).

 

Governance

The Company was pleased to welcome Ms. Shinezaya Batbold to the Board, following the retirement of Ms. Oyungerel Janchiv. Ms. Oyungerel was a founder of the Company, served on the Board for many years and made an invaluable contribution to Petro Matad.

 

Community Relations

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

A focused programme of community projects is undertaken in areas where operations are conducted, and this is done in cooperation with the local government.

The Company views engagement with local communities as key to conducting safe and successful operations.

 

2019 Operations and Outlook

To fulfil the multi-well drilling programme for which the Company raised funds in 2018, two drilling rigs have been contracted for the 2019 campaign.

The Company has contracted with DQE International, Mongolia's most experienced and active drilling operator, for its Rig 40105, to drill the Heron 1 and Gazelle 1 wells in the north of Block XX. The contract gives the Company the option to drill an additional well to allow for immediate appraisal of any discovery made during the 2019 drilling programme. Any discovery will be tested using a separate workover rig. DQE's rig was drilling in neighbouring Block XIX up until the end of the last drilling season, so mobilisation is expected to be short and logistically straightforward. 

The second rig contract is with Daton Petroleum Engineering and Oilfield Service LLC, for their Rig DXZ1, to drill the Red Deer 1 well in the south of Block XX. The contract gives Petro Matad the option to drill a second well, to either appraise any discovery made in Red Deer 1 or for drilling in Block V in western Mongolia. Any testing operations will be performed by a separate workover rig. Daton's rig was working until the end of 2018 and is currently located approximately 125 km east of the Red Deer location, so mobilisation to Block XX is relatively short.

The Company expects to spud Heron 1 in early July. The well will be drilled to a planned TD of 3,050 metres and will take approximately 40 days to drill and log. The Heron Prospect is the southerly extension of the proven oil-bearing structure drilled by the T19-46-3 discovery well in adjacent Block XIX. The latest mapping based on reprocessed 2D and newly accessed 3D seismic shows the majority of the structure, including the crest of the trap, lying in Block XX. The Heron Prospect is estimated to have mean recoverable prospective resource potential of 25 MMbo. Heron 1 will be located 1.1 km south of the T19-46-3 oil well and is prognosed to encounter the top of the primary reservoir targets at approximately 2,800 metres.

On completion of operations at Heron 1, the rig will immediately move to the Gazelle 1 location. The planned TD of Gazelle 1 is 2,500 metres and the well is expected to take approximately 35 days to drill and log. The Gazelle Prospect is located on the south-western flank of the Tamsag Basin, which is the primary source kitchen charging the Block XIX discoveries. The Gazelle 1 well will be drilled 5 km west of Heron 1 and 4.5 km southwest of the T19-46-1 oil well in Block XIX. The mean prospective recoverable resource assessment for the Gazelle Prospect is 13 MMbo.

The Red Deer 1 well will be drilled with the Daton rig and is expected to spud later in July and is forecast to take 35 days to drill and log. The planned TD of the well is 2,100 metres. The Red Deer 1 well will target a basin centre, fault bounded, structural closure in the southern part of Block XX. The mean prospective recoverable resource assessment for the Red Deer Prospect is 48 MMbo. On completion of drilling and depending on the success of the well, the Company will then take the decision to whether to drill a further well at Red Deer, move the rig to drill a well in Block V, or focus on activities in the north of Block XX.

Running two rigs, with a separate workover rig for any testing operations, should give the Company sufficient time to complete its 2019 drilling campaign before the winter operational shutdown in late Q4 2019.

 

Acknowledgements

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

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2018

 

 

 

Consolidated

 

 

 

 

 

 

 

31 Dec 2018

31 Dec 2017

 

 

 Note

$'000

$'000

 

 

 

 

 

 

Continuing operations

 

 

 

 

Revenue

 

 

 

 

Interest income

4(a)

583

203

 

Other income

4(a)

8

7

 

 

 

591

210

 

Expenditure

 

 

 

 

Consultancy fees

 

(97)

(55)

 

Depreciation and amortisation

 

(277)

(271)

 

Employee benefits expense

4(b)

(3,830)

(2,845)

 

Exploration and evaluation expenditure

4(c)

(11,466)

(4,416)

 

Other expenses

4(d)

(3,359)

(2,553)

 

(Loss)/Profit from continuing operations before income tax

 

(18,438)

(9,930)

 

 

 

 

 

 

Income tax expense

5

-

-

 

(Loss)/Profit from continuing operations after income tax

 

(18,438)

(9,930)

 

 

 

 

 

 

Net (loss)/profit for the year

 

(18,438)

(9,930)

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

Exchange differences on translating foreign operations, net of income tax of $Nil (2017: $Nil)

 

(62)

18

 

Other comprehensive (loss)/income for the year, net of income tax

 

(62)

18

 

 

 

 

 

 

Total comprehensive (loss)/income for the year

 

(18,500)

(9,912)

 

 

 

 

 

 

 

 

 

 

 

(Loss)/Profit attributable to owners of the parent

 

(18,438)

(9,930)

 

 

 

 

 

 

Total comprehensive (loss)/income attributable to owners of the parent

 

(18,500)

(9,912)

 

 

 

 

 

 

 

 

 

 

 

 (Loss)/Earnings per share (cents per share)

 

 

 

 

 

 

 

 

 

Basic (loss)/earnings per share

6

(3.2)

(3.2)

 

Diluted (loss)/earnings per share

6

(3.2)

(3.2)

           

 

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

 

 

 

Consolidated Statement of Financial Position

As at 31 December 2018

 

 

 

Consolidated

 

 

 

 

 

 

31 Dec 2018

31 Dec 2017

 

 Note

$'000

$'000

 

 

 

 

ASSETS

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

7

2,111

5,090

Trade and other receivables

8

9

6

Prepayments

9

202

220

Financial assets

10

19,161

3,010

Inventory

11

213

254

Total Current Assets

 

21,696

8,580

 

 

 

 

Non-Current Assets

 

 

 

Exploration and evaluation assets

12

15,275

15,275

Property, plant and equipment

13

340

604

Total Non-Current Assets

 

15,615

15,879

TOTAL ASSETS

 

37,311

24,459

 

 

 

 

LIABILITIES

 

 

 

Current Liabilities

 

 

 

Trade and other payables

14

1,286

3,389

Total Current Liabilities

 

1,286

3,389

 

 

 

 

TOTAL LIABILITIES

 

1,286

3,389

 

 

 

 

NET ASSETS

 

36,025

21,070

 

 

 

 

 

 

 

 

EQUITY

 

 

 

Equity attributable to owners of the parent

 

 

 

Issued capital

15

143,174

109,769

Reserves

16

2,660

2,980

Accumulated losses

 

(109,809)

(91,679)

TOTAL EQUITY

 

36,025

21,070

 

 

 

 

 

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

 

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2018

 

 

 

Consolidated

 

 

 

 

 

 

31 Dec 2018

31 Dec 2017

 

 Note

$'000

$'000

 

 

 

 

Cash flows from operating activities

 

 

 

Payments to suppliers and employees

(20,187)

(7,677)

Interest received

 

583

203

Farm-out proceeds

 

-

5,000

Net cash flows (used in)/provided by operating activities

7

(19,604)

(2,474)

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment

 

(65)

(81)

Purchase of financial assets

 

(16,151)

(3,010)

Proceeds from the sale of property, plant and equipment

 

17

-

Net cash flows used in investing activities

 

(16,199)

(3,091)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from issue of shares

 

35,195

4,186

Capital raising cost

 

(2,309)

(15)

Net cash flows from financing activities

 

32,886

4,171

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(2,917)

(1,394)

 

 

 

 

Cash and cash equivalents at beginning of the year

 

5,090

6,479

Net foreign exchange differences

 

(62)

5

Cash and cash equivalents at the end of the year

7

2,111

5,090

 

 

 

 

 

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

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2018

 

 

 

Consolidated

 

 

Attributable to equity holders of the parent

 

 

Issued

Capital

Accumulated Losses

Other

Reserves

Total

 

 

 

 

Note 16

 

 

 Note

$'000

$'000

$'000

$'000

As at 1 January 2017

 

106,150

(83,396)

4,109

26,863

 

 

 

 

 

 

Net loss for the year

 

-

(9,930)

-

(9,930)

Other comprehensive income

 

-

-

18

18

Total comprehensive gain/(loss) for the year

 

-

(9,930)

18

(9,912)

 

 

 

 

 

 

Issue of share capital

15

4,818

-

-

4,818

Cost of capital raising

15

(1,251)

-

602

(649)

Share-based payments

15 & 16

-

-

(50)

(50)

Exercise of Options

15, 16 & 17

52

-

(52)

-

Expiry of Options

16 & 17

-

1,647

(1,647)

-

As at 31 December 2017

 

109,769

(91,679)

2,980

21,070

 

 

 

 

 

 

Net loss for the year

 

-

(18,438)

-

(18,438)

Other comprehensive income

 

-

-

(62)

(62)

Total comprehensive gain/(loss) for the year

 

-

(18,438)

(62)

(18,500)

 

 

 

 

 

 

Issue of share capital

15

35,195

-

-

35,195

Cost of capital raising

15

(2,309)

-

-

(2,309)

Share-based payments

15 & 16

-

-

569

569

Exercise of Awards

15, 16 & 17

519

-

(519)

-

Expiry of Options

16 & 17

-

308

(308)

-

As at 31 December 2018

 

143,174

(109,809)

2,660

36,025

 

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

 

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2018

 

1    Corporate information

 

The financial report of Petro Matad Limited (Company) for the year ended 31 December 2018 was authorised for issue in accordance with a resolution of the Directors dated 13 June 2019, which was approved on 14 June 2019.

 

This financial report presents the consolidated results and financial position of Petro Matad Limited and its subsidiaries (together, the "Group").  The Group's principal activity in the course of the financial year consisted of oil exploration in Mongolia.

 

Petro Matad Limited (Company) a company incorporated in the Isle of Man on 30 August 2007 has four wholly owned subsidiaries, including Capcorp Mongolia LLC and Petro Matad LLC (both incorporated in Mongolia), as well as Central Asian Petroleum Corporation Limited (Capcorp) and Petromatad Invest Limited (both incorporated in the Cayman Islands). The Company and its subsidiaries are collectively referred to as the "Group".

 

Petrovis Matad Inc. is a major shareholder of the Company, holding approximately 22.06% of the shareholding at the year end of 2018.

 

2    Summary of significant accounting policies

 

(a)  Basis of preparation

 

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

 

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

 

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

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

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

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

 

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

 

(b)  Statement of compliance

 

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

 

(c)  Going concern note

 

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

 

The Group generated a loss of $18.44 million (2017: $9.93 million loss) and experienced net cash outflows from operating activities of $19.60 million (2017: $2.47 million outflow). In addition, as outlined in note 18(b) the Group is required to meet minimum exploration commitments in the next 12 months on its PSCs of approximately $9.00 million with further commitments of $11.60 million thereafter.

 

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

 

Although the Company is fully funded for its planned 2019 work programme the ability of the Company and the Consolidated Entity to continue as a going concern beyond 2019 is principally dependent upon one or more of the following:

 

·      Negotiating a reduction in Block XX financial commitments;

·      Raising additional equity;

·      Securing farm-out agreements to fund operations beyond 2019.

  

On 19 January 2018, the Company announced a $16.8 million fundraise (gross before deduction of broker commissions and fees) through issuance of 127,420,294 shares to new institutional investors and a further 59,167,335 shares to the Company's largest shareholder (Petrovis Matad Inc) and management of the Company.

 

A second fundraise was announced in June 2018, which resulted in a total of 136,842,892 New Ordinary Shares in Petro Matad Limited being placed with new and existing institutional investors and certain Directors and senior management of the Company. The placing raised gross proceeds of US$18.1 million. 

 

With the two successful fundraises in 2018, the Company secured financing for not only its planned exploration drilling programme in 2018, but also the planned 2019 programme. The Company continues to evaluate farmout opportunities as conclusion of an agreement that meets the Company's expectations would preserve its cash and enable expansion of the work programme while sharing the risk of exploration with the farminee.

 

Cumulative expenditures in Block IV to the end of 2018 had exceeded financial obligations for the initial ten-year exploration period ending July 2019, by $6.68 million. An application for a further two-year extension to July 2021 has been lodged with MRPAM, with a proposed new commitment of $1 million for the two-year extended period.

 

Cumulative expenditures in Block V to the end of 2018 had exceeded financial obligations for the initial ten-year exploration period ending July 2019, by $4.83 million. An application for a further two-year extension to July 2021 has been lodged with MRPAM, with a proposed new commitment of $1 million for the two-year extended period. 

 

Expenditures in Block XX were $20.60 million below cumulative expenditure requirements at the end of 2018. As the 2019 work programme includes three Block XX wells, the outstanding commitment will be substantially reduced by end 2019, to circa $7 million.

 

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

 

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

 

Should the Company and the Consolidated Entity be unable to achieve the matters referred to above, there is a material uncertainty whether the Company and the Consolidated Entity will be able to continue as going concerns beyond 2019 and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business and at amounts stated in the financial report.

 

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

 

(d)  Application of new and revised Accounting Standards

 

Accounting Standards that are mandatorily effective for the current reporting period

 

The Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) that are relevant to its operations and effective for an accounting period that begins on or after 1 January 2018.

 

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

 

·      IFRS 9 Financial Instruments and related amending Standards

·      IFRS 15 Revenue from Contracts with Customers and related amending Standards

 

IFRS 9 Financial Instruments and related amending Standards

 

In the current year, the Group has applied IFRS 9 Financial Instruments (as amended) and the related consequential amendments to other Accounting Standards that are effective for an annual period that begins on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate comparatives however there was no material impact on adoption of the standard.

 

Additionally, the Group adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures.

 

In summary IFRS 9 introduced new requirements for:

·      The classification and measurement of financial assets and financial liabilities,

·      Impairment of financial assets, and

·      General hedge accounting.

 

IFRS 15 Revenue from Contracts with Customers and related amending Standards

 

In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers (as amended) which is effective for an annual period that begins on or after 1 January 2018. IFRS 15 introduced a 5-step approach to revenue recognition. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios.

 

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

 

New Accounting Standards for application in future periods

 

Accounting Standards issued the IASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncement on the Group when adopted in future periods, are disclosed below:

 IFRS 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019).

When effective, this Standard will replace the current accounting requirements applicable to leases in IAS 17:   Leases and related Interpretations. IFRS 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases.

 The main changes introduced by the new Standard are as follows:

·      recognition of a right-of-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets);

·      depreciation of right-of-use assets in line with IAS 16:   Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components;

·      inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the lease liability using the index or rate at the commencement date;

·      application of a practical expedient to permit a lessee to elect not to separate non-lease components and instead account for all components as a lease; and

·      inclusion of additional disclosure requirements. 

The transitional provisions of IFRS 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with IAS 8 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application.

Although the Directors anticipate that the adoption of IFRS 16 will impact the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. 

(e)  Basis of consolidation

       

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

·      has power over the investee;

·      is exposed, or has rights, to variable returns from its involvement with the investee; and

·      has the ability to use its power to affect its returns.

 

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

 

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

 

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

 

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

 

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

 

(f)   Foreign currency translation

 

Functional and presentation currency

 

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

                                                                                                                                                                    

Transactions and balances

 

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

 

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

 

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

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

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

 

Translation of subsidiaries' functional currency to presentation currency

 

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

 

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

 

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

 

(g)  Cash and cash equivalents

       

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

 

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

 

(h)  Trade and other receivables

 

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

 

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

 

(i)   Plant and equipment

       

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

 

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

 

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

 

Derecognition

 

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

 

(j)   Financial instruments

 

Initial Recognition and Measurement

 

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

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

 

Classification and Subsequent Measurement

 

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

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

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

 

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

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

 

(ii)   Financial Liabilities

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

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

 

Fair value

 

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

 

Derecognition

 

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

 

(k)  Inventory

 

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

 

(l)   Exploration and evaluation expenditure

 

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

 

(m) Exploration and evaluation assets

 

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

 

 

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

       

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

 

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

       

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

 

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

 

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

 

·              Unexpected geological occurrences that render the resource uneconomic;

·              Title to asset is compromised;

·              Variations in prices that render the project uneconomic; or

·              Variations in the currency of operation.

 

 

(o)  Trade and other payables

 

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

 

(p)  Provisions

       

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

 

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

 

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

 

(q)  Leases

       

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

 

Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit and loss.

 

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

 

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as the lease income.

 

Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term.

 

(r)   Contributed equity

 

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

 

(s)  Revenue

 

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

 

Interest revenue

 

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

 

(t)   Share-based payment transactions

       

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

(u)  Income tax

 

Current tax

 

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

 

Deferred tax

 

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

 

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

 

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

 

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

 

Current and deferred tax for the year

 

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

 

(v)  Earnings per share

 

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

 

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

 

·      Costs of servicing equity (other than dividends);

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

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

 

(w)  Significant accounting judgments, estimates and assumptions

 

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

 

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

 

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

 

Share-based payments

 

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

 

Recovery of the exploration and evaluation assets

 

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

 

Going Concern

 

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

 

3    Operating segments

 

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

 

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

 

 

 

31 Dec 2018

31 Dec 2017

 

 

$'000

$'000

 

4    Revenues and expenses

 

(a)    Revenue

 

Interest income

 

583

203

Other income:

 

 

 

        Other income

 

8

7

 

 

591

210

 

(b)   Employee benefits expense

 

Included in employee benefits expense are the following:

 

Wages and salaries

 

2,735

2,101

 Non-Executive Directors' fees (including

Directors of affiliates)

174

148

Consultancy fees

 

352

646

Share-based payments

 

569

(50)

 

 

3,830

2,845

 

(c)    Exploration and evaluation expenditure

       

Exploration and evaluation expenditure relate to the following PSCs:

 

Block XX

 

121

49

Blocks IV and V

 

11,345

4,367

 

 

11,466

4,416

 

(d)   Other expenses

       

Included in other expenses are the following:

 

Administration costs

 

2,217

1,432

PSC administration costs

 

758

754

Audit fees

 

85

79

Travel expenses

 

299

288

 

 

3,359

2,553

 

 

 

 

 

 

31 Dec 2018

31 Dec 2017

 

 Note

$'000

$'000

 

5    Income tax                                                                                                                   

 

Income tax recognised in the statement of profit or loss:

 

Tax expense/(benefit) comprises:

 

 

 

Current tax expense/(benefit)

 

-

-

Deferred tax expense/(benefit) relating to the

origination and reversal of temporary differences

 

-

-

Total tax expense/(benefit) reported in the statement of profit or loss

 

-

-

         

 

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

 

Net (loss)/profit for the year

 

(18,438)

(9,930)

 

 

 

 

Income tax benefit calculated at 10%

(i)

1,844

993

 

 

 

 

Effect of different tax rates on entities in different jurisdictions

(ii)

(425)

(280)

Change in unrecognised deferred tax assets

 

(1,419)

(713)

 

 

-

-

 

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

 

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

 

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

 

6    (Loss)/Earnings per share

 

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

 

 

 

 

 

 

31 Dec 2018

31 Dec 2017

 

cents per share

cents per share

 

 

 

Basic (loss)/earnings per share

(3.2)

(3.2)

 

 

 

Diluted (loss)/earnings per share

(3.2)

(3.2)

 

 

 

 

 

 

 

$'000's

$'000's

The loss and weighted average number of ordinary shares used in the calculation of basic and diluted (loss)/earnings per share are as follows:

 

 

 

 

 

Net (loss)/profit attributable to owners of the parent

(18,438)

(9,930)

 

 

 

Weighted average number of ordinary shares for the purposes of diluted (loss)/earnings per share (in thousands)

571,762

308,465

 

 

 

Weighted average number of ordinary shares for the purposes of basic (loss)/earnings per share (in thousands)

571,762

308,465

 

 

 

         
 

 

 

 

31 Dec 2018

31 Dec 2017

 

 

$'000

$'000

 

7    Cash and cash equivalents

 

 

 

 

Cash at bank and in hand

 

2,111

5,090

 

 

2,111

5,090

 

Cash at bank and in hand earns interest at fixed and floating rates based on prevailing bank rates, and the fair value of the above cash and cash equivalents is $2,111,000 (2017: $5,090,000) due to the short-term nature of the instruments.

 

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

 

Net (loss)/gain after tax

 

(18,438)

(9,930)

 

 

 

 

Adjustments for:

 

 

 

Depreciation and amortisation

 

277

271

Net (profit)/loss on disposal of property, plant and equipment

 

16

-

Share based payments

 

569

(50)

Unrealised foreign exchange (gains)/ losses

 

19

-

 

 

 

 

Changes in assets and liabilities

 

 

 

Decrease/(increase) in trade and other receivables

 

(3)

5,149

Decrease/(increase) in prepayments

 

18

2

Decrease/(increase) in inventory

 

41

47

Increase/(decrease) in trade and other payables

 

(2,103)

2,037

 

 

 

 

Net cash flows used in operating activities

 

19,604

2,474

 

Non-cash investing and financing activities

 

There were no non-cash investing or financing activities undertaken in the 2018 financial year or prior year, other than the exercise of Awards of $0.574 million (2017: $0.106 million).

 

8    Trade and other receivables

 

Current

 

 

 

Other debtors

 

9

6

 

 

9

6

 

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

 

9    Prepayments

 

Prepayments

 

202

220

 

 

202

220

 

 

10   Financial assets

 

Long Term Deposits

 

19,161

3,010

 

 

19,161

3,010

 

The Group holds term deposits with an average weighted interest rate of 5.4%. The deposits have maturity dates greater than 3 months. None of these assets had been past due or impaired at the end of the reporting period.

 

  

 

 

 

31 Dec 2018

31 Dec 2017

 

 

$'000

$'000

 

11   Inventory

 

Raw materials

 

213

254

 

 

213

254

 

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

 

 

12   Exploration and evaluation assets

 

Exploration and evaluation assets

 

15,275

15,275

 

 

15,275

15,275

 

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

 

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

 

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

 

13   Property, plant and equipment

 

Plant and equipment at cost

 

966

1,250

Accumulated depreciation and impairment

 

(626)

(646)

 

 

340

604

 

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

 

 

 

Plant and equipment

Total

 

 

$'000

 

 

 

As at 1 January 2017 (net of accumulated depreciation)

 

783

Additions

 

81

Disposals

 

-

Foreign exchange

 

11

Depreciation charge for the year

 

(271)

 

 

 

As at 31 December 2017 (net of accumulated depreciation)

 

604

 

 

 

Additions

 

65

Disposals

 

(32)

Foreign exchange

 

(20)

Depreciation charge for the year

 

(277)

 

 

 

As at 31 December 2018 (net of accumulated depreciation)

 

340

 

 

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

 

Plant and equipment - 3 to 10 years

 

 

 

 

31 Dec 2018

31 Dec 2017

 

 

$'000

$'000

 

14   Trade and other payables (current)

 

Trade payables

 

1,286

3,389

 

 

1,286

3,389

 

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

 

15   Issued capital

 

Ordinary Shares

 

 

 

 

662,196,306 shares issued and fully paid

 (2017: 333,258,252)

 

143,174

109,769

 

 

143,174

109,769

           

 

Movements in ordinary shares on issue:

 

Number of Shares

Issue

Price $

$'000

 

 

 

 

As at 1 January 2017

287,494,775

 

106,150

Issue of shares to Directors and employees on 24 March 2017 on exercise of Options (note (a))

197,500

$0.136

27

Issue of shares to a Director on 24 March 2017 on exercise of Options (note (b))

75,000

$0.093

7

Issue of shares to a Director and employees on 24 March 2017 on exercise of Options (note (c))

16,000

$0.250

4

Issue of shares to employees on 24 March 2017 on exercise of Options (note (d))

141,000

$0.113

16

Issue of commencement shares to Bergen (note (e))

2,151,951

$0.294

632

Issue of collateral shares to Bergen (note (f))

3,500,000

$0.066

232

Issue of ordinary shares to Bergen (note (g))

9,507,963

$0.126

1,200

Issue of ordinary shares to Bergen (note (h))

13,389,719

$0.090

1,200

Issue of ordinary shares to Bergen (note (i))

16,784,344

$0.089

1,500

Capital raising cost

 

 

(1,251)

Exercise of Options

 

 

52

As at 31 December 2017

333,258,252

 

109,769

 

 

 

 

Direct subscription shares on 9 February 2018 (note (j))

59,167,335

$0.090

5,340

Placement shares through Pareto on 9 February 2018 (note (k))

19,708,520

$0.090

1,779

Placement shares through Stifel on 9 February 2018 (note (l))

67,057,398

$0.090

6,052

Placement shares through Stockdale on 9 February 2018 (note (m))

40,654,376

$0.090

3,669

Exercise of Bonus Share Awards on 3 April 2018 (note (n))

2,598,911

$0.010

26

Exercise of Bonus Share Awards on 16 April 2018 (note (o))

2,868,065

$0.010

29

Direct subscription shares on 4 July 2018 (note (p))

1,846,439

$0.134

247

Placement shares through Pareto on 4 July 2018 (note (q))

13,256,520

$0.134

1,773

Placement shares through Stifel on 4 July 2018 (note (r))

104,701,135

$0.134

14,002

Placement shares through Stockdale on 9 February 2018 (note (s))

17,038,798

$0.134

2,278

Exercise of Bonus Share Awards on 1 November 2018 (note (t))

40,557

$0.010

-

Capital raising cost

 

 

(2,309)

Exercise of Awards

 

 

519

As at 31 December 2018

662,196,306

 

143,174

 

 

 

 

 

(a)   On 24 March 2017, 197,500 shares were issued to Directors and employees upon exercise of Options under the Group's Plan, with an exercise price per share of GBP0.11.

 

(b)   On 24 March 2017, 75,000 shares were awarded to a Director upon exercise of Options under the Group's Plan, with an exercise price per share of GBP0.0788.

 

(c)   On 24 March 2017, 16,000 shares were awarded to a Director and employees upon exercise of Options under the Group's Plan, with an exercise price per share of GBP0.1975.

 

(d)   On 24 March 2017, 141,000 shares were awarded to employees upon exercise of options under the Group's Plan, with an exercise price per share of GBP0.0888.

 

(e)   On 11 May 2017, the Company issued 2,151,951 commencement shares to Bergen as part of the initial closing under the Private Placement arrangement.

 

(f)    On 11 May 2017, the Company issued 3,500,000 collateral shares to Bergen as part of the initial closing under the Private Placement arrangement.

 

(g)   On 13 June 2017, the Company issued 9,507,963 new ordinary shares to Bergen in relation to the first tranche payment.

 

(h)   On 18 July 2017, the Company issued 13,389,719 new ordinary shares to Bergen in relation to the second tranche payment.

 

(i)    On 1 September 2017, the Company issued 16,784,344 new ordinary shares to Bergen in relation to the issue of a convertible note.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(t)    On 1 November 2018, 40,557 shares were awarded to an employee upon exercise of Awards under the Group's Plan, with an exercise price per share of $0.01.

 

 

16   Reserves

 

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

 

 

 

Merger reserve

Equity benefits reserve

Foreign currency translation

Total

 

$'000

$'000

$'000

$'000

 

 

 

 

 

As at 1 January 2017

831

4,423

(1,145)

4,109

Currency translation differences

-

-

18

18

Cost of capital raising

-

602

-

602

Expiry of Options

-

(1,647)

-

(1,647)

Exercise of Options

-

(52)

-

(52)

Share based payments

-

(50)

-

(50)

As at 31 December 2017

831

3,276

(1,127)

2,980

 

 

 

 

 

Currency translation differences

-

-

(62)

(62)

Expiry of Options

-

(308)

-

(308)

Exercise of Awards

-

(519)

-

(519)

Share based payments

-

569

-

569

As at 31 December 2018

831

3,018

(1,189)

2,660

 

 

Nature and purpose of reserves

 

Merger reserve

 

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

 

Equity benefits reserve

 

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

 

Foreign currency translation reserve

 

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

 

 

17   Share based payments

 

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

 

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

 

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

 

Conditional Share Awards shall vest subject to continuing service and appropriate and challenging service and performance conditions determined by the Remuneration Committee relating to the overall performance of the Group.

 

Conditional Share Awards based on performance conditions will vest on achievement of the following performance conditions:

·                25% vest on the first discovery of oil on a commercial scale, estimated by management as being by 31 December 2019;

·                25% vest on the first production of oil on a commercial scale, estimated by management as being by 31 December 2021; and

·                50% vest on the Company achieving the sale of 1 million barrels of oil, estimated by management as being by 31 December 2022.

 

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

 

(b)     Option pricing model

 

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

 

No Options have been issued during 2017 and 2018.

 

The Company issued 3,900,000 warrants to Bergen Global Opportunity Fund, LP on 8 May 2017. Refer to Note 17 (h).

 

(c)     Movement in Share Options

 

The weighted average fair value for all options in existence as at 31 December 2018 is 0.82 (2017: 0.62).

 

 

 

Opening balance at 1 January 2017

Granted during the year

Forfeited during the year

 

 

 

Exercised during the year

Closing balance as at 31 December 2017

 

 

Exercisable as at 31 December 2017

 

 

 

 

 

 

 

Grant of Options on 3 June 2008

380,000

-

-

-

380,000

380,000

Grant of Options on 8 April 2009

216,250

-

-

(197,500)

18,750

18,750

Grant of Options on 9 July 2010

620,400

-

-

-

620,400

620,400

Grant of Options on 6 April 2011

75,000

-

-

-

75,000

75,000

Grant of Options on 5 July 2011

150,000

-

-

-

150,000

150,000

Grant of Options on 22 Nov 2011

120,000

-

-

-

120,000

120,000

Grant of Options on 5 Dec 2011

39,600

-

-

(16,000)

23,600

23,600

Grant of Options on 25 Apr 2012

550,000

-

(150,000)

-

400,000

400,000

Grant of Options on 16 Jul 2012

165,000

-

-

(141,000)

24,000

24,000

Grant of Options on 5 Oct 2012

75,000

-

-

(75,000)

-

-

Grant of Options on 4 Dec 2012

6,000

-

-

-

6,000

6,000

Grant of options on 9 July 2013

50,000

-

-

-

50,000

50,000

 

2,447,250

-

(150,000)

(429,500)

1,867,750

1,867,750

Weighted Average Exercise Price (cents per option)

63.25

-

36.30

15.36

76.42

76.42

 

 

 

Opening balance at 1 January 2018

Granted during the year

Forfeited during the year

 

 

 

Exercised during the year

Closing balance as at 31 December 2018

 

 

Exercisable as at 31 December 2018

 

 

 

 

 

 

 

Grant of Options on 3 June 2008

380,000

-

(380,000)

-

-

-

Grant of Options on 8 April 2009

18,750

-

-

-

18,750

18,750

Grant of Options on 9 July 2010

620,400

-

(144,000)

-

476,400

476,400

Grant of Options on 6 April 2011

75,000

-

-

-

75,000

75,000

Grant of Options on 5 July 2011

150,000

-

-

-

150,000

150,000

Grant of Options on 22 Nov 2011

120,000

-

-

-

120,000

120,000

Grant of Options on 5 Dec 2011

23,600

-

-

-

23,600

23,600

Grant of Options on 25 Apr 2012

400,000

-

(300,000)

-

100,000

100,000

Grant of Options on 16 Jul 2012

24,000

-

-

-

24,000

24,000

Grant of Options on 4 Dec 2012

6,000

-

-

-

6,000

6,000

Grant of options on 9 July 2013

50,000

-

-

-

50,000

50,000

 

1,867,750

-

(824,000)

-

1,043,750

1,043,750

Weighted Average Exercise Price (cents per option)

76.42

-

60.04

-

89.36

89.36

 

 

(d)     Share Options Contractual Life

 

The weighted average remaining contractual life of outstanding share Options is 2.3 years (2017: 2.8 years).

 

(e)    Conditional Share Awards pricing model

 

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

 

No Awards have been issued during 2017.

 

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

 

 

(1)

 

13 Feb 18

Conditional Share Awards granted

5,507,533

Share price at grant date

$0.1006

Expected Volatility (%)

68

Risk-free interest rates (%)

0.50

Expected life (years)

10

Exercise Price

$0.01

Estimated fair value of each Conditional Share Award at the grant date

 

$0.0942

   

 Items (1): Conditional Share Awards vested immediately.

 

(f)     Movement in Conditional Share Awards

        

          The weighted average fair value for all awards in existence as at 31 December 2018 is 0.81 (2017: 0.81)

 

 

Consolidated

 

Opening balance at 1 January 2017

Granted during the year

Exercised during the year

Forfeited during the year

Closing balance

as at 31 December 2017

Exercisable as at 31 December 2017

 

 

 

 

 

 

 

Grant of Conditional Share Awards on 3 Jun 2008

515,000

-

-

-

515,000

-

 

Grant of Conditional Share Awards on 8 Apr 2009

80,000

-

-

-

80,000

-

 

Grant of Conditional Share Awards on 9 Jul 2010

647,000

-

-

-

647,000

-

 

Grant of Conditional Share Awards on 6 Apr 2011

144,000

-

-

-

144,000

-

 

Grant of Conditional Share Awards on 5 Jul 2011

180,000

-

-

-

180,000

-

 

Grant of Conditional Share Awards on 22 Nov 2011

50,000

-

-

-

50,000

-

 

Grant of Conditional Share Awards on 5 Dec 2011

39,600

-

-

-

39,600

-

 

Grant of Conditional Share Awards on 25 Apr 2012

850,000

-

-

(300,000)

550,000

-

 

Grant of Conditional Share Awards on 5 Oct 2012

150,000

-

-

-

150,000

-

 

Grant of Conditional Share Awards on 4 Dec 2012

3,000

-

-

-

3,000

-

 

Grant of Conditional Share Awards on 9 Jul 2013

120,000

-

-

-

120,000

-

 

 

2,778,600

-

-

(300,000)

2,478,600

-

 

 

 

 

 

 

 

 

 

Weighted Average Exercise Price (cents per award)

1.00

-

-

1.00

1.00

-

 

 

 

Consolidated

 

Opening balance at 1 January 2018

Granted during the year

Exercised during the year

Forfeited during the year

Closing balance

as at 31 December 2018

Exercisable as at 31 December 2018

 

 

 

 

 

 

 

Grant of Conditional Share Awards on 3 Jun 2008

515,000

-

-

-

515,000

-

 

Grant of Conditional Share Awards on 8 Apr 2009

80,000

-

-

-

80,000

-

 

Grant of Conditional Share Awards on 9 Jul 2010

647,000

-

-

-

647,000

-

 

Grant of Conditional Share Awards on 6 Apr 2011

144,000

-

-

-

144,000

-

 

Grant of Conditional Share Awards on 5 Jul 2011

180,000

-

-

-

180,000

-

 

Grant of Conditional Share Awards on 22 Nov 2011

50,000

-

-

-

50,000

-

 

Grant of Conditional Share Awards on 5 Dec 2011

39,600

-

-

-

39,600

-

 

Grant of Conditional Share Awards on 25 Apr 2012

550,000

-

-

-

550,000

-

 

Grant of Conditional Share Awards on 5 Oct 2012

150,000

-

-

-

150,000

-

 

Grant of Conditional Share Awards on 4 Dec 2012

3,000

-

-

-

3,000

-

 

Grant of Conditional Share Awards on 9 Jul 2013

120,000

-

-

-

120,000

-

 

Grant of Performance Share Awards on 13 Feb 2018

-

5,507,533

(5,507,533)

 

-

-

 

 

2,478,600

5,507,533

(5,507,533)

-

2,478,600

-

 

 

 

 

 

 

 

 

 

Weighted Average Exercise Price (cents per award)

1.00

1.00

1.00

1.00

1.00

-

 

 

(g)    Conditional Share Awards Contractual Life

 

        The weighted average remaining contractual life of outstanding Conditional Share Awards is 9.5 years (2017: 10.5 years).

 

(h)      Warrants

 

The Company granted 3,900,000 warrants to Bergen Global Opportunity Fund, LP on 8 May 2017 as consideration for the private placement. These Warrants were valued using the Black-Scholes model with the following inputs:

 

Expected volatility is based on the historical share price volatility over the past 2 years.

 

 

8 May 17

Warrant issued

3,900,000

Share price at grant date (GBP)

0.2375

Exercise Price (GBP)

0.4219

Expected Volatility (%)

100

Option life (years)

3

Dividend yield

-

Risk-free interest rates (%)

0.01

Exchange rate on grant date (GBP: USD)

0.76991

Fair value per Warrant (GBP)

0.119

Fair value per Warrant (USD)

0.155

 

  

(i)       Summary of Share Based Payments

 

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

 

 

 

31 Dec 2018

31 Dec 2017

 

 Note

$'000

$'000

 

Issue of 3,900,000 Warrants to Bergen

17 (h)

-

602

Issue of 2,151,951 commencement shares to Bergen

15 (e)

-

632

Vesting of Awards and Options

17

569

(50)

 

 

569

1,184

 

 

18   Commitments and contingencies

 

(a)     Operating lease commitments

 

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

 

Due to prepayment of rent, the Group has no commitment for office lease in Mongolia as at 31 December 2018.

The Group has committed to warehouse lease in Mongolia in the amount of $7,000 for 2019

 

 

 

31 Dec 2018

31 Dec 2017

 

 

$'000

$'000

 

 

 

 

 

Operating Leases:

 

 

 

 

Within one year

 

7

-

After one year but not more than five years

 

-

-

Greater than five years

 

-

-

 

 

7

-

           

 

(b)     Exploration expenditure commitments

 

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

 

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

 

 

 

31 Dec 2018

31 Dec 2017

 

 

$'000

$'000

 

 

 

 

 

Production Sharing Contract Fees:

 

 

 

Within one year

 

485

869

After one year but not more than five years

 

75

606

Greater than five years

 

-

-

 

 

560

1,475

           

 

Minimum Exploration Work Obligations:

 

 

 

Within one year

 

8,997

9,846

Greater than one year but no more than five years

 

11,600

18,800

Greater than five years

 

-

-

 

 

20,597

28,646

 

(c)     Contingencies

 

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

 

19   Related party disclosures

 

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

 

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

 

 

Equity Interest

 

 

 

 

 

Country of

2018

2017

 

 Incorporation

%

%

 

 

 

 

Central Asian Petroleum Corporation Limited

Cayman Islands

100

100

Capcorp Mongolia LLC

Mongolia

100

100

Petromatad Invest Limited

Cayman Islands

100

100

Petro Matad LLC

Mongolia

100

100

 

 

 

 

 

Subsidiary Details

 

Capcorp Mongolia LLC was acquired on the 14 August 2006, on incorporation of the Company. Capcorp holds 1,000,000 ordinary shares of MNT150 each.

 

Petromatad Invest Limited was acquired on 12 November 2007. Petro Matad Limited and Capcorp each hold 25,000 shares of $1 each.

 

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

 

Petro Matad LLC is 100% owned by Petromatad Invest Limited. Petromatad Invest Limited holds 15,000 ordinary shares of     MNT10,000 each.

 

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

 

Petrovis Matad Inc. is a major shareholder of the Company, holding approximately 22.06% of the shareholding at year end of 2018.

 

 

20   Key management personnel

 

(a)   Details of Directors

 

The names of the Company's Directors, having authority and responsibility for planning, directing and controlling the activities of the Group, in office during 2017 and 2018, are as below:

 

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

 

Directors

 

Oyungerel Janchiv                                     Non-Executive Director                          Retired 20 September 2018

Enkhmaa Davaanyam                               Non-Executive Chairperson                  

Philip Arthur Vingoe                                 Non-Executive Director                          Retired 10 March 2017

Amarzul Tuul                                            Executive Director                                  Stepped down 11 September 2017

John Rene Henriksen                                Chief Financial Officer                          

 Mehmed Ridvan Karpuz                             Chief Executive Officer                        Stepped down 15 October 2017        

 Timothy Paul Bushell                                  Non-Executive Director                       Appointed 10 March 2017 

 Michael James Buck                                 Chief Executive Officer                          Appointed 22 November 2017 

 Shinezaya Batbold                                    Non-Executive Director                          Appointed 20 September 2018               

 

(b)     Compensation of Directors

 

 

Consolidated

 

 

 

 

 

 

 

 

31 Dec 2018

31 Dec 2017

 

 

 

$'000

$'000

 

 

 

 

 

 

Short-term employee benefits

 

1,075

1,176

 

Post-employment benefits

 

-

-

 

Share based payment expense

 

205

11

 

 

 

1,280

1,187

 

 

 

 

 

 

 

 

 

 

             

 

(c)    Other key management personnel transactions

 

There were no other key management personnel transactions during the year (2017: Nil).

 

 

21   Financial risk management objectives and policies

 

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

 

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

 

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

 

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

 

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

 

Risk Exposures and Responses

 

Interest rate risk

 

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

 

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

 

 

 

31 Dec 2018

31 Dec 2017

 

 Weighted Average Int. rate

$'000

$'000

Financial Assets

 

 

 

Cash and cash equivalents

0.89%

2,111

5,090

*Other financial assets

1.61%

19,161

3,010

 

 

21,272

8,100

Trade and other receivables

0%

9

6

 

 

21,281

8,106

Financial Liabilities

 

 

 

Trade and other payables

0%

1,286

3,389

 

 

1,286

3,389

Net exposure

 

19,995

4,717

 

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

 

Sensitivity Analysis

If the interest rate on cash balances at 31 December 2017 and 2018 weakened/strengthened by 1%, there would be no material impact on profit or loss. There would be no effect on the equity reserves other than those directly related to other comprehensive income movements.

 

Foreign currency risk

 

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

 

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

 

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

 

The following significant exchange rates applied during the year:

 

 

 

Average rate

Spot rate at the balance date

USD

 

2018

2017

2018

2017

 

 

 

 

 

 

Mongolian Tugrug (MNT) 1

 

2,472.17

2,439.40

2,642.92

2,427.13

 

 

 

 

 

 

Australian Dollar (AUD) 1

 

1.341186

1.305155

1.417654

1.281089

Great British Pound (GBP) 1

 

0.749780

0.776810

0.785200

0.741150

 

Sensitivity Analysis

A 5% strengthening/weakening of the MNT against USD at 31 December 2017 and 2018 would not have a material effect on profit and loss or on equity.

 

Price risk

 

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

 

Credit risk

 

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

 

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

 

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

 

Maximum exposure to credit risk at reporting date:

 

 

 

 

 

 

 

 

 

 

31 Dec 2018

31 Dec 2017

 

 Note

$'000

$'000

Financial Assets

 

 

 

Trade and other receivables

8

9

6

Net exposure

 

9

6

 

Impairment Losses:

 

None of the Group's receivables are past due at 31 December 2018 (2017: Nil)

 

Liquidity risk

 

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

 

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

 

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

 

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

 

 

Weighted average interest rate

 

6 months or less

6-12 months

1-5

years

over 5 years

Total

 

$'000

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

Cash and Cash Equivalents

0.89%

2,111

-

-

-

2,111

Trade and Other Receivables

-

9

-

-

-

9

Financial Assets

1.61%

19,161

-

-

-

19,161

As at 31 December 2018

 

21,281

-

-

-

21,281

 

 

 

 

 

 

 

Cash and Cash Equivalents

2.08%

5,090

-

-

-

5,090

Trade and Other Receivables

-

6

-

-

-

6

Financial Assets

2.37%

3,010

-

-

-

3,010

As at 31 December 2017

 

8,106

-

-

-

8,106

 

 

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

 

 

 

31 Dec 2018

31 Dec 2017

 

 

$'000

$'000

 

 

 

 

6 months or less

 

1,286

3,389

6-12 months

 

-

-

1-5 years

 

-

-

over 5 years

 

-

-

 

 

1,286

3,389

 

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

 

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

 

Fair Value of Financial Assets and Liabilities

 

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

 

 

 

Fair Value Hierarchy as at 31 December 2018

 

 

Level 1

Level 2

Level 3

Total

Financial Assets

 

 

 

 

 

Trade and other receivables

 

-

9

-

9

Total

 

-

9

-

9

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

Trade and other payables

 

-

1,286

-

1,286

Total

 

-

1,286

-

1,286

 

 

 

 

Fair Value Hierarchy as at 31 December 2017

 

 

Level 1

Level 2

Level 3

Total

Financial Assets

 

 

 

 

 

Trade and other receivables

 

-

6

-

6

Total

 

-

6

-

6

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

Trade and other payables

 

-

3,389

-

3,389

Total

 

-

3,389

-

3,389

 

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

 

 

22   Capital management

 

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

 

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

 

The Group is not subject to externally imposed capital requirements.

 

23   Events after the reporting date

 

On 12 April 2019, the Company applied for two-year extensions on its Blocks IV and V PSCs. The current terms for both Blocks expire on 29 July 2019. Approval of the applications by MRPAM would extend the PSCs to 29 July 2021. $1 million in new commitments in each Block has been offered in the extended period.

 

On 16 April 2019, The Company announced it has signed drilling contracts with DQE International to drill the Heron 1 and Gazelle 1 wells in the north of Block XX and with Daton Petroleum Engineering and Oilfield Service LLC to drill the Red Deer 1 well in the south of Block XX. Drilling is expected to commence in July 2019. 

 

 

 

 

 

24   Auditors' remuneration

 

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

 

 

31 Dec 2018

31 Dec 2017

 

 

$'000

$'000

Amounts received or due and receivable by Bentleys (WA) Pty Ltd:

 

 

 

 

 

 

 

 - an audit or review of the financial report of the entity and any other entity in the Group

 

45

39

 - other services in relation to the entity and any other entity in the Group

 

-

-

 

 

45

39

Amounts received or due and receivable by Deloitte Onch Audit LLC for:

 

 

 

 

 

 

 

 - an audit or review of the financial report of subsidiary entities

 

40

40

 - other services in relation to the subsidiary entities

 

-

-

 

 

40

40

 

 

85

79

 

 

 

 

 

 


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