Argos Resources Ltd
Annual Report
Year ended 31 December 2017
Contents
Highlights
Chairman’s statement and
Managing Director’s review
Directors
Statutory information
Statement of directors’ responsibilities
Corporate governance statement
Remuneration report
Risk management report
Group financial statements
Independent auditor’s report
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
Page
2
3
4
6
10
12
15
16
18
23
24
25
26
Notes to the consolidated financial statements
27-41
Parent Company accounts
Statement of financial position
Statement of cash flows
Statement of changes in equity
Notes to the accounts
Investor Information and advisors
42
43
44
45-49
50
Argos Resources Ltd
Annual report 2017
Page 1
Highlights
Argos Resources Ltd (AIM: ARG.L), the Falkland Islands based exploration company focused on the
North Falkland Basin, announced its financial results for the year ended 31 December 2017 on 15
March 2018.
US$118,000 profit
US$758,000 cash reserves at 31 December 2017
The Company retains an Overriding Royalty Interest (the “ORRI”) of 5% of all oil and gas
produced over the life of Licence PL001 in the North Falkland Basin (the “Licence”) from
all hydrocarbon discoveries developed within the Licence area
All future expenditures incurred on the Licence will be at no cost to the Company
The Company will receive future cash payments of $405,000 per annum from Noble
Energy Falklands Limited (“Noble”) and Edison International S.p.A (“Edison”) which will be
sufficient to meet its ongoing running costs until first oil production
A three year extension of the Licence was approved in 2016 which extends the current
Second Phase of the Licence to November 2019
Argos Resources Ltd
Annual report 2017
Page 2
Combined Chairman’s statement and Managing Director’s review
Oil prices rose steadily during the second half of 2017, supported by sustained production curtailments
from a number of leading OPEC and non-OPEC producers. The Brent oil price at year end 2017
approached $67 per barrel, an increase of over $10 per barrel from the beginning of the year. The
industry response to this has so far been muted, with concerns about the sustainability of these price
levels continuing for the long term.
A Participation Agreement between Noble, Edison and the Company continues to be in effect. The
Participation Agreement confirms the Company’s entitlement to a 5 percent Overriding Royalty
Interest in Licence PL001 in the North Falkland Basin. This royalty interest entitles the Company to 5
percent of all oil and gas produced over the life of the Licence, free and clear of all costs. Also, under
the terms of the Participation Agreement, the Company has been receiving quarterly cash payments
totalling £300,000 per annum during 2017, which is sufficient to meet its ongoing running costs.
The Company announced in August 2016 that a three-year extension to the Licence had been
approved by the Executive Council of the Falkland Islands Government and by the UK Secretary of
State for Foreign and Commonwealth Affairs. This approval extends the current Second Phase of the
Licence to November 2019, after which a Third Licence Phase of 10 years is available to the Licensees.
With world-wide exploration drilling activities still suppressed, the Company cannot yet forecast when
drilling operations might commence on the Licence. However, the Overriding Royalty Interest in the
Licence continues through the Second Phase of the Licence and any further phases beyond, and the
Company’s future running costs are covered, so we remain well positioned. The Company continues
to be positive about the exploration potential of the Licence Area.
Ian Thomson
Chairman
15 March 2018
John Hogan
Managing Director
Argos Resources Ltd
Annual report 2017
Page 3
Directors
Ian Thomson OBE
Executive Chairman (aged 78)
Skills and experience
Ian, a Chartered Engineer, founded Argos in 1995. After an early career in the mining and energy equipment
industry, he became the Managing Director of Evergreen Resources Inc.’s exploration and production interests
in the UK and Europe.
External appointments
He is a director of a number of Falkland Islands and overseas companies engaged in fishing and other operations.
Committee membership
None
John Hogan
Managing Director (aged 64)
Skills and experience
John joined the board in 2005. John is a qualified geologist who has spent over 40 years in the oil industry. He
was Chief Operating Officer of LASMO PLC and Managing Director of LASMO North Sea between 1989 and 2000.
Since 2000, he has been active at board level in a number of privately held and quoted energy businesses
internationally.
External appointments
He is Chairman of Celtique Energie Holdings Ltd and a non-executive director of Chrysaor Holdings Ltd.
Committee membership
None
Andrew Irvine FCCA
Finance Director (aged 56)
Skills and experience
Drew joined the board in 2005. After qualifying as a Chartered Certified Accountant in Scotland, Drew managed
the Pannell Kerr Foster related accounting practice in the Falkland Islands. Drew is now a Falkland Islands
resident and is a director of a number of Falkland Island companies.
External appointments
He is Chairman of the Falkland Islands Pensions Scheme and a member of the board of the Falkland Islands
Fishing Companies Association.
Committee membership
None
Argos Resources Ltd
Annual report 2017
Page 4
Directors (continued)
Dennis Carlton
Senior Non-executive Director (aged 67)
Skills and experience
Dennis joined the board in 2005, having served on the board of Argos Exploration since 1995. Dennis is a qualified
petroleum geologist and has been involved with the North Falkland Basin since 1995. He was Chief Operating
Officer of Evergreen Resources Inc. between 1981 and 2004, and following its merger, Vice President of
Exploration, Western Division for Pioneer Natural Resources USA Inc. until 2008.
External appointments
He is currently consulting for a number of other private companies operating in the energy and other sectors.
Committee membership
Dennis is a member of the Audit Committee and Chairman of the Remuneration Committee.
Christopher Fleming
Non-executive Director (aged 58)
Skills and experience
Christopher joined the board in 2008. Christopher graduated from Aberdeen University with an M.A. in
Economics and Law and joined Morgan Grenfell in 1985. Between 1987 and 2005 he was involved in the
development of the Gilt Sales operations of Bankers Trust, Deutsche Bank and SBC Warburg as Head of
Government Bond Sales of each of the banks. From 2005 to 2009 he was Head of EMEA Flow Rates, Credit and
Currency Sales for RBS Global Markets and retired as Head of Global Markets EMEA Sales for Nomura
International PLC in August 2016. In June 2017 Chris returned to Nomura as Vice Chairman of EMEA Wholesale
External appointments
Christopher is Chairman and co-founder of “mentorxchange", a company set up in 2016.
Committee membership
Christopher is a member of the Audit Committee and a member of Remuneration Committee.
James Ragg LLB, FCA
Non-executive Director (aged 52)
Skills and experience
James joined the board in 2008. James qualified as a Chartered Accountant in 1995, and after eight years with
Saffery Champness, joined a Haines Watts accountancy practice as an audit and assurance partner in 2004. He
subsequently managed the de-merger of his firm from Haines Watts and its renaming as Blue Spire South LLP
where he was a Management Partner until September 2012, and a non-executive partner until September 2013.
External appointments
He is currently heading up the finance and development operations for a group of private companies.
Committee membership
James is Chairman of the Audit Committee and a member of the Remuneration Committee.
Argos Resources Ltd
Annual report 2017
Page 5
Statutory information
The directors submit their report and the consolidated financial statements of Argos Resources Ltd and
its subsidiary (the “Group”), for the year ended 31 December 2017.
Principal activity
The Company’s wholly-owned subsidiary, Argos Exploration Ltd, holds an Overriding Royalty Interest
(ORRI) in production licence PL001 which entitles it to 5% of all oil and gas produced from all
hydrocarbon discoveries developed within the Licence. The Licence is held by Noble Energy Falklands
Ltd and Edison International S.p.A and it covers an area of approximately 1,126 square kilometres in
the North Falkland Basin.
The current Second Phase of the Licence expires in November 2019, after which a Third Licence Phase
of 10 years is available to the Licensees.
Results and dividend
The results for the year and the Group’s financial position as at the year-end are shown in the attached
financial statements. The directors have not recommended a dividend for the year (2016: $nil).
Business review
The Group has returned a profit for the year ended 31 December 2017 of $118,000 (2016: loss of
$16,000) which equates to a profit per share of 0.05 cents (2016: loss per share of 0.007 cents). The
profit reflects the full effects of management efforts to cut costs in 2016, positive foreign exchange
differences and the receipt of income under the Participation Agreement.
Administration expenses were $329,000 in 2017 compared to $427,000 in 2016.
Shareholders’ equity has increased marginally from $29.32 million to $29.46 million in the year since
31 December 2016, as receipts under the Participation Agreement offset the administration costs
leaving a small surplus. Cash in the year increased from $701,000 to $758,000.
Outlook for the next financial year
The Participation Agreement with Noble and Edison means that the Group will continue to receive
quarterly cash payments totalling £300,000 per annum, in Sterling which equates to $405,000 at the
year-end exchange rate and covers the Group’s ongoing costs. There is a risk that Noble and Edison
withdraw from the agreement. In such circumstances the Licence would revert back to Argos, subject
to Government approval. Given that Noble and Edison have been granted an extension to the Licence,
which now runs until November 2019, withdrawal is considered unlikely. The Group is therefore fully
funded for the foreseeable future.
Key performance indicators
At this stage in its development, the directors do not consider that standard industry key performance
indicators are relevant.
Argos Resources Ltd
Annual report 2017
Page 6
Statutory information (continued)
Principal risks and uncertainties
Risks in relation to financial instruments are explained within note 2 to the Group financial statements.
A discussion of other potential risks can be found in the risk management report on page 16.
Substantial shareholders
As at 5 March 2018, the Company has been notified of interests in 3% or more of the Company’s voting
rights, based on an issued share capital of 220,713,205, as shown below:
Shareholder/Fund manager
Ian Thomson*
Iain Aylwin**
Orian Partners LP
Salida Capital International
JP Morgan Asset Management (UK) Ltd
Portogon Investments SA
Robert Smith
Percentage of
voting rights
12.67
9.16
6.83
6.36
4.95
4.55
4.29
*Ian Thomson also has a 51.68% interest in the issued share capital of Argos Georgia Ltd.
**Iain Aylwin also has a 25.84% interest in the issued share capital of Argos Georgia Ltd.
Argos Georgia Ltd held 700,000 ordinary shares of 2 pence at 31 December 2017 and there has been
no change in the shareholding in the period to 15 March 2018.
Directors and their interests
The interests of the directors and their immediate families and of persons connected with the directors,
within the meaning of the Acts, in the share capital of the Company are as follows:
Name
I M Thomson*
J Hogan
A Irvine
D Carlton
C Fleming
J Ragg
Total
Chairman
Managing Director
Finance Director
Non-executive
Non-executive
Non-executive
At 31 December 2017
Ordinary shares of
2 pence each
27,844,701
3,000,000
2,125,000
3,750,000
2,625,000
200,000
At 31 December 2016
Ordinary shares of
2 pence each
27,844,701
2,000,000
2,125,000
3,750,000
2,625,000
200,000
39,544,701
38,544,701
The directors also hold options in the Company’s shares which are detailed in the directors’ remuneration report
on page 15.
*See preceding note on substantial shareholders for information on shares held by Ian Thomson in Argos Georgia
Ltd. The number of shares held by Ian Thomson in the table above does not include those held by virtue of his
position as a shareholder in Argos Georgia Ltd.
Argos Resources Ltd
Annual report 2017
Page 7
Statutory information (continued)
Directors’ service agreements
The terms of the directors’ service agreements or letters of engagement are summarised as follows.
The Company entered into a service agreement with the executive directors Ian Thomson, John Hogan
and Andrew Irvine on 8 July 2010 setting out the terms of their employment following the admission
to AIM, which took place on 29 July 2010. The terms of the service contracts permit termination by
either party giving notice to the other of not less than 12 months in the case of John Hogan and 6
months for Andrew Irvine. There are no specific entitlements on termination of any of the
employments concerned.
Dennis Carlton, Christopher Fleming and James Ragg are engaged as non-executive directors upon the
terms of various letters of appointment, the principal terms of which are that each of them is
appointed for an initial term of up to three years commencing at the time of admission, subject to
early termination rights of not less than three months’ notice by either party.
Related party transactions
See note 18.
Events after the reporting date
See note 21.
Financial instruments
For the year under review the Group held no financial instruments outside of cash and receivables.
The policies for financial risk management are disclosed in note 2.
Political and charitable contributions
The Group made no political or charitable donations in the year under review (2016: $nil).
Creditor payment policy
It is the Group’s policy to ensure that all of its suppliers are paid promptly and in accordance with
contractual obligations. Average creditor days for the year were 3 days (2016: 1 days), on the basis of
accounts payable (excluding retention held) as a percentage of purchase ledger turnover which
includes amounts capitalised.
Directors’ and officers’ insurance
The Group purchased directors’ and officers’ liability insurance. The directors may also, in their
capacity as directors, obtain independent legal advice at the Group’s expense if they consider it
necessary to do so.
Employees
The Group employees consisted of three executive and three non-executive directors during the course
of the year who are included in the total staff numbers shown in note 6 to these accounts.
Health, safety and the environment
It is the Company’s objective to maintain the highest standards for health and safety and the
protection of the environment which adhere to all applicable laws and represent best practice.
Argos Resources Ltd
Annual report 2017
Page 8
Statutory information (continued)
Social and community
As a holder of an ORRI in the North Falkland Basin the Company’s activities have a limited impact on
the community but the directors remain aware that the Falkland Islands is a small community and
continue to believe that working closely with the Falkland Islands Government and seeking views
through consultation with stakeholder groups should help to ensure a positive impact from any of the
Company’s operations on the Falkland Islands and its population.
Argos Resources Ltd
Annual report 2017
Page 9
Statement of directors’ responsibilities in respect of the annual report and the
financial statements
The directors are responsible for preparing the annual report and the Group and parent Company
financial statements in accordance with applicable law and regulations.
Company law, the Companies Act 1948 as amended by the Companies (Amendment) Ordinance 2006
(Falkland Islands Companies Act) requires the directors to prepare Group and parent Company financial
statements for each financial year. Under that law the directors have elected to prepare the Group
and Parent Company financial statements in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRSs).
Under company law the directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group and parent Company and of the
Group’s profit or loss for that period. The directors are also required to prepare financial statements
in accordance with the rules of the London Stock Exchange for companies trading securities on the
Alternative Investment Market. In preparing each of the Group and parent Company financial
statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether the Group and parent Company financial statements have been prepared in
accordance with IFRSs as adopted by the European Union, subject to any material departures
disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Group and parent Company will continue in business.
The directors are responsible for keeping proper accounting records that are sufficient to show and
explain the Company’s transactions and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the financial statements comply with the
Companies Act 1948 as amended by the Companies (Amendment) Ordinance 2006 (Falkland Islands
Companies Act) as it applies in the Falkland Islands. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for ensuring the annual report and the financial statements are made
available on a website. Financial statements are published on the Company’s website in accordance
with legislation in the Falkland Islands governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of
the Company’s website is the responsibility of the directors. The directors’ responsibility also extends
to the ongoing integrity of the financial statements contained therein.
Statement as to disclosure of information to the auditor
Each director in office at the date of this report has confirmed, as far as he is aware, that there is no
relevant information of which the auditor is unaware. Each such director has confirmed that he has
taken all the steps that he ought to have taken as a director in order to make himself aware of any
relevant audit information and to establish that the auditor is aware of that information.
Argos Resources Ltd
Annual report 2017
Page 10
Statement of directors’ responsibilities in respect of the annual report and the
financial statements (continued)
Auditor
In accordance with the provisions of the Companies Act 1948 as amended by the Companies
(Amendment) Ordinance 2006 (Falkland Islands Companies Act) as it applies in the Falkland Islands, a
resolution is to be proposed at the Annual General Meeting of the Company for the reappointment of
BDO LLP as auditor of the Company.
On behalf of the board
Ian Thomson
Chairman
Date: 15 March 2018
Argos Resources Ltd
Annual report 2017
Page 11
Corporate governance statement
As an AIM company, Argos Resources Ltd is not required to comply with the UK Corporate Governance
Code. Although the Company does not comply with the Code, the board has sought to comply with a
number of the provisions of the Code in so far as it considers them to be appropriate to a company of
this size and nature.
An outline of how it does this is as follows:
The board
The Argos Resources Ltd board is currently comprised of three executive and three non-executive
directors. It is therefore compliant with the Code’s recommendation for smaller companies that at
least two of the board members are independent non-executive directors.
Whilst the non-executive directors are shareholders in the Company and hold options to acquire
shares in the Company, this is not considered a significant threat to their independence. One of the
non-executive directors, James Ragg, is a senior employee within the Argos Georgia group. Argos
Georgia Ltd owns 0.32% of the Company’s shares. The board has considered, in conjunction with its
advisors, whether this has any impact on Mr Ragg’s independence and has concluded that it does not.
Apart from these matters and their directors’ fees the non-executive directors have no other financial
interests in the Company or business relationships that would interfere with their independent
judgement.
Dennis Carlton is the senior non-executive director. Dennis is considered a valuable member of the
Board and his experience in the oil industry more than outweighs any perceived loss of independence
due to the time he has served as non-executive.
Should shareholders have concerns which have not been adequately addressed by the chairman or
managing director, he can be contacted by sending an email to info@argosresources.com. The same
address can also be used to contact James Ragg, chairman of the audit committee.
The board has agreed to meet four times per year or more frequently if it needs to do so. There is a
schedule of matters reserved for board approval and this ensures that the board exercises control over
all key areas.
The board’s executive chairman, Ian Thomson, is not considered independent as he holds a substantial
number of the Company’s shares and he has been on the board for more than 10 years. The Company
considers, however, that the benefit of his experience and long involvement with business in the
Falkland Islands more than outweighs the benefits of an independent chairman. He meets with the
non-executive directors, without the other executive directors present, at least once per year.
The Company complies with Rule 21 of the AIM Rules for Companies regarding dealings in the
Company’s shares and has adopted a code on dealing in securities to ensure compliance by directors.
Audit committee
The audit committee comprises James Ragg (committee chairman), Dennis Carlton and Chris Fleming.
The board considers all three members of the committee to be independent and is satisfied that at
least one, James Ragg, has recent and relevant financial experience.
Argos Resources Ltd
Annual report 2017
Page 12
Corporate governance statement (continued)
The committee invites the remainder of the board and the external auditor to attend its meetings as
observers. It meets the external auditor, in the absence of the remainder of the board, at least once
per year.
The role and responsibilities of the audit committee have been set out in written terms of reference
which include:
risk assessment, particularly, but not exclusively, in respect of financial reporting risks;
assessment of processes relating to the Company’s control environment;
oversight of financial reporting;
evaluation of internal and external audit processes; and
development and implementation of policy on the provision of non-audit services by the
external auditor.
The full terms of reference for the audit committee are available on the Company’s website.
The audit committee has established procedures by which concerns regarding accounting or audit
matters may be brought to the committee chairman’s attention and the chairman can be contacted
by sending an email to info@argosresources.com.
The audit committee has considered the need for an internal audit function and regards this as
unnecessary given the Company’s current size and lack of complexity.
The audit committee makes recommendations to the board regarding the appointment,
reappointment and removal of external auditors. At the Annual General Meeting the shareholders
are requested to authorise the audit committee to fix the remuneration of the external auditors.
The audit committee recognises that, for smaller companies, it is cost-effective to procure certain non-
audit services from the external auditor but there is a need to ensure that provision of such services
does not impair, or appear to impair, the auditor’s independence or objectivity. The committee has
therefore put in place a written policy on the use of external auditors which includes clear limits on
the level of non-audit work beyond which the chairman of the audit committee must be consulted
before the assignment can be awarded to the external auditor.
The audit committee was satisfied throughout the year that the external auditor’s objectivity and
independence were in no way impaired by the nature of the non-audit work undertaken or any other
factors including the level of non-audit fees charged.
The audit committee held one meeting during the year. During the period since the year end one
further meeting has been held.
The chairman of the audit committee reports to the board on the committee’s discussions and minutes
of the committee’s meetings are circulated to all directors.
Nominations committee
The board considers that, at its current stage of development, the Company does not require a
separate nominations committee. The functions of that committee, namely consideration of any new
appointments of directors to the board, are therefore carried out by the board as a whole.
Argos Resources Ltd
Annual report 2017
Page 13
Corporate governance statement (continued)
No appointments to the board were made in the year under review.
Internal controls and risk management
The board of directors is responsible for implementing and reviewing the effectiveness of the Group’s
system of internal control.
The system of internal control is designed to mitigate rather than eliminate risk and therefore provides
reasonable rather than total assurance against material misstatement or loss.
As noted above, the board does not consider it necessary, at the Company’s current stage of
development, to implement an internal audit capability.
Going concern
As at the date of approval of the financial statements the board is of the opinion that the Group and
Company have adequate resources to continue in existence for at least 12 months from that date. The
board has therefore continued to adopt the going concern basis in preparation of the financial
statements. See also Accounting Policy note 1 on page 29.
Capital
Capital is managed to ensure that the Group is able to continue as a going concern. The Group is not
subject to any externally imposed capital requirements.
Directors’ attendance
Directors’ attendance at board and committee meetings for the year is as set out below:
I M Thomson (Chairman)
J Hogan
A Irvine
D Carlton (chairman, remuneration
committee)
C Fleming
J Ragg (chairman, audit committee)
Total meetings during the year
Board
meetings
5
5
5
5
2
4
5
Audit
committee
meetings
-
-
-
Remuneration
committee
meetings
-
-
-
1
1
1
1
1
1
1
1
Argos Resources Ltd
Annual report 2017
Page 14
Remuneration report
The remuneration committee comprises Dennis Carlton (committee chairman), Chris Fleming and
James Ragg. The board considers that all members of the remuneration committee are independent.
The committee’s role is to establish the Company’s policy for the remuneration of the executive
directors in order to ensure that all members of the executive management of the Company are
provided with appropriate incentives to encourage enhanced performance.
The committee met formally once during the year under review and held a number of informal
discussions. The committee did not recommend any changes to remuneration for executive members
of the Board.
Directors’ remuneration for the year is as set out below:
I M Thomson
J Hogan
A Irvine
D Carlton
C Fleming
J Ragg
Total directors’
remuneration
Remuneration above
converted to $’000
2017
Fees
£’000
-
50
20
10
10
10
100
129
2017
Pension
contributions
£’000
-
-
1
-
-
-
1
2
2017
Total
£’000
-
50
21
10
10
10
101
2016
Fees and
total
£’000
-
58
23
12
12
12
117
131
158
Share options
The share options in place as at 31 December 2017 and held by directors are as follows:
Date of grant
12/11/2009
12/11/2009
12/11/2009
12/11/2009
12/11/2009
Number of
options
brought
forward
5,805,818
-
875,000
-
1,025,000
Exercised
during the
year
Number of
options carried
forward
Exercise
price
(pence)
(1,000,000)
-
-
-
-
4,805,818
-
875,000
-
1,025,000
2
2
2
2
2
7,705,818
(1,000,000)
6,705,818
J Hogan
A Irvine
D Carlton
C Fleming
J Ragg
Total
The share options were exercisable from 30 October 2010 and expire on 11 November 2019.
Argos Resources Ltd
Annual report 2017
Page 15
Risk management report
The Group’s business, financial condition and results could be materially adversely affected by a
number of factors.
General exploration risk
Whilst results in the surrounding area are encouraging with respect to the oil and gas potential of the
area and interpretation of the seismic data has indicated extensive prospectivity within the licence
area in which the Group retains an overriding royalty interest, no commercial volumes of oil or gas
have yet been discovered and there is no certainty that such discoveries will ever be made.
Mitigation: On 13 April 2015, the Company announced that its wholly-owned subsidiary, Argos
Exploration Ltd, had entered into a Farmout Agreement, which was replaced by a Participation
Agreement in February 2016, with Noble Energy Falklands Ltd and Edison International S.p.A,
providing evidence that other industry participants see potential in the licence area.
Licence risk
The licence on which the ORRI is based requires a well to be drilled by 25 November 2019. There is a
risk that the licence will expire and not be extended.
Mitigation: In August 2016 an extension of 3 years was approved by the Executive Council of the
Falkland Islands Government and by the UK Secretary of State for Foreign and Commonwealth Affairs.
This approval extended the current Second Phase of the Licence to November 2019, after which a
Third Licence Phase of 10 years is available to the Licensees.
Commercial risk
Even if quantities of oil or gas are discovered, there is a risk that these will not be developed.
Mitigation: The Group have entered into a Farmout Agreement, since replaced by a Participation
Agreement, with partners with strong financial backgrounds and track records of expediting the
process from commercial discovery to production.
Future funding requirements
There is a risk that Noble and Edison withdraw from the agreement. In such circumstances the licence
would revert back to Argos, subject to government approval, but funding would need to be found to
cover overheads.
Mitigation: Under the Participation Agreement the Group will not need to raise additional funding in
relation to future exploration and development in the Licence area and given that Noble and Edison
have recently applied for and been granted an extension to the Licence, which now runs until
November 2019, withdrawal is considered unlikely.
In the event that funding ceased the cash balance held by the Company is sufficient to meet the
ongoing overhead for a period of more than one year, during which time the Company would seek to
raise further finance.
Argos Resources Ltd
Annual report 2017
Page 16
Risk management report (continued)
Political risk
The Argentine Government has not relinquished its claims to sovereignty over the Falkland Islands and
the surrounding maritime areas.
Mitigation: In a referendum, conducted in 2013, the Falkland Islanders voted unequivocally to remain
as a British Overseas Territory and the UK Government has stated that it has no doubt about its
sovereignty and remains fully committed to the offshore prospecting policy pursued by the Falkland
Islands Government.
Argos Resources Ltd
Annual report 2017
Page 17
Independent auditor’s report to the members of Argos Resources Ltd
Opinion
We have audited the financial statements of Argos Resources Ltd (the ‘parent company’) and its
subsidiaries (the ‘group’) for the year ended 31 December 2017 which comprise the consolidated
statements of comprehensive income, the consolidated and company statements of financial position,
the consolidated and company statements of changes in equity, the consolidated and company
statements of cash flows and notes to the financial statements including a summary of significant
accounting policies. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the parent company financial statements, as applied in accordance with
company law in the Falkland Islands.
In our opinion:
the financial statements give a true and fair view of the state of the group’s and of the parent
company’s affairs as at 31 December 2017 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as
adopted by the European Union;
the parent company’s financial statements have been properly prepared in accordance with
IFRSs as adopted by the European Union as applied in accordance with company law in the
Falkland Islands; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 1985 as it applies in the Falkland Islands by virtue of the Companies
(Amendment) Ordinance 2006.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of
the group and the parent company in accordance with the ethical requirements that are relevant to
our audit of the financial statements, including the FRC’s Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with section 235 of
the Companies Act 1985 as it applies in the Falkland Islands by virtue of the Companies (Amendment)
Ordinance 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
Argos Resources Ltd
Annual report 2017
Page 18
Independent auditor’s report to the members of Argos Resources Ltd
(continued)
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require
us to report to you where:
the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the group’s or the parent company’s ability
to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
Argos Resources Ltd
Annual report 2017
Page 19
Independent auditor’s report to the members of Argos Resources Ltd
(continued)
Key audit matter
Our response
Impairment of Intangible Assets
As detailed in notes 1 and 12 to the financial statements, at the year end the
Group’s principal asset was a 5% overriding royalty interest (ORRI) in Licence
PL001.
Management is required to assess the Royalty Interest Asset, at least
annually, for indicators of impairment.
The underlying asset over which the Group has a royalty interest is an
exploration asset, and is therefore subject to the risks facing exploration
businesses. Reviewing indicators of impairment often requires significant
estimates and judgements and therefore we have identified this as an area in
which there is significant risk of material misstatement and a key audit
matter.
We reviewed Management's consideration of whether there were any
indicators of impairment.
The royalty interest is similar in economic terms to holding a direct interest
in the underlying licence as there is only a right to receive benefit from the
ORRI on production and therefore many of the risks faced by the Group are
the same as those faced by the owner of the licence.
We have considered the indicators of impairment applicable to exploration
businesses, including the following indicators identified in IFRS 6 ‘Exploration
for and Evaluation of Mineral Resources’:
The period for which the entity has the right to explore in the specific area
has expired during the period or will expire in the near future, and was not
expected to be renewed.
Substantive expenditure on further exploration for and evaluation of mineral
resources in the specific area is neither budgeted nor planned.
Exploration for and evaluation of mineral resources in the specific area have
not led to the discovery of commercially viable quantities of mineral
resources and the entity has decided to discontinue such activities in the
specific area.
Sufficient data exists to indicate that, although a development in the specific
area is likely to proceed, the carrying amount of the exploration and
evaluation asset is unlikely to be recovered in full from successful
development or by sale.
We considered Management’s assessment of the indicators of impairment
and we confirmed there is an ongoing expectation that exploration in the
licence areas will continue. We have also reviewed the licence agreement and
the Participation .
Agreement between the Group and the operator of Licence PL001. We noted
that the licence and the Participation Agreement remains valid.
We concur with management’s view that there were no indicators of
impairment.
Argos Resources Ltd
Annual report 2017
Page 20
Independent auditor’s report to the members of Argos Resources Ltd
(continued)
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the
effect of misstatements. We consider materiality to be the magnitude by which misstatements,
including omissions, could influence the economic decisions of reasonable users that are taken on the
basis of the financial statements. Importantly, misstatements below these levels will not necessarily
be evaluated as immaterial as we also take account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their effect on the financial statements
as a whole.
Materiality for the financial statements as a whole was set at $500,000 for 2016 and 2017 being 1.5%
of total assets which we consider to be the most significant determinant of the group’s financial
performance used by shareholders.
In performing the audit, we apply a lower performance materiality at the individual account or balance
level which is set at an amount to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds materiality. Performance
materiality was set at 75 per cent of the above materiality levels.
We agreed with the audit committee that we would report to the committee all individual audit
differences identified during the course of our audit in excess of $25,000. We also agreed to report
differences below these thresholds that, in our view warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including
the group’s system of internal control, and assessing the risks of material misstatement in the financial
statements at the group level.
The group audit team performed an audit of Argos Resources Limited and Argos Exploration Limited,
being the parent company and wholly owned subsidiary respectively, along with the consolidation.
Other information
The other information comprises the information included in the annual report, other than the
financial statements and our auditor’s report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Argos Resources Ltd
Annual report 2017
Page 21
Independent auditor’s report to the members of Argos Resources Ltd
(continued)
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where company law in the Falkland
Islands requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate
for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records
and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view,
and for such internal control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the
parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations, or have no realistic alternative but
to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when
it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
BDO LLP
Statutory auditor
London
United Kingdom
Date: 15 March 2018
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
Argos Resources Ltd
Annual report 2017
Page 22
Consolidated statement of comprehensive income
Year ended 31 December 2017
Other income
Administrative expenses
Finance income
Foreign exchange gains/(losses)
Profit/(loss) for the year attributable to
owners of the parent
Total comprehensive income for the period
attributable to owners of the parent
Basic and diluted earnings/(loss) per share
(cents)
Note
4
5
9
17
11
The notes on pages 27 to 41 form part of the financial statements.
Year
ended
Year
ended
31 December
31 December
2017
$’000
380
(329)
1
66
118
118
0.05
2016
$’000
505
(427)
1
(95)
(16)
(16)
(0.007)
Argos Resources Ltd
Annual report 2017
Page 23
Consolidated statement of financial position
As at 31 December 2017
Assets
Non-current assets
Royalty interests
Current assets
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total liabilities
Total net assets
Capital and reserves attributable to
equity holders of the Company
Share capital
Share premium
Retained losses
Total shareholders’ equity
Note
12
14
15
16
17
17
2017
$’000
28,749
28,749
14
758
772
2016
$’000
28,749
28,749
15
701
716
29,521
29,465
59
59
148
148
29,462
29,317
6,696
30,071
(7,305)
6,669
30,071
(7,423)
29,462
29,317
The notes on pages 27 to 41 form part of the financial statements.
These financial statements were approved by the directors and authorised for issue on 15 March 2018
and are signed on their behalf by:
I M Thomson
Chairman
Argos Resources Ltd
Annual report 2017
Page 24
Consolidated statement of cash flows
Year ended 31 December 2017
Cash flows from operating activities
Profit/(loss) for period before taxation
Adjustments for:
Finance income
Foreign exchange
Depreciation
Net cash inflow from operating activities
before changes in working capital
Decrease in other receivables
(Decrease)/increase in other payables
Net cash (outflow)/inflow from operating activities
Investing activities
Interest received
Proceeds on the sale of assets
Net cash received from investment activities
Financing activities
Issue of ordinary shares (share options exercised)
Net cash from financing activities
Net (decrease)/ increase in cash and cash
equivalents
Cash and cash equivalents at beginning of period
Exchange gains/(losses) on cash and cash
equivalents
Cash and cash equivalents at end of the year
Note
9
13
12
Year
ended
Year
ended
31 December
31 December
2017
$’000
2016
$’000
118
(1)
(67)
-
50
1
(89)
(38)
1
-
1
27
-
(10)
701
67
758
(16)
(1)
92
3
78
37
54
169
1
172
173
-
-
342
451
(92)
701
The notes on pages 27 to 41 form part of the financial statements.
Argos Resources Ltd
Annual report 2017
Page 25
Consolidated statement of changes in equity
Year ended 31 December 2017
At 1 January 2016
Total comprehensive income for
the year
At 31 December 2016
And 1 January 2017
Total comprehensive income for
the year
Shares issued (share options
exercised)
Share
capital
$’000
6,669
Share
premium
$’000
30,071
Retained
losses
$’000
(7,407)
Total
equity
$’000
29,333
-
-
(16)
(16)
6,669
30,071
(7,423)
29,317
-
27
-
-
118
-
118
27
At 31 December 2017
6,696
30,071
(7,305)
29,462
The share premium reserve comprises the amount subscribed for share capital in excess of its nominal
value.
Retained losses represent the accumulated gains and losses recognised in the financial statements and
the share payment reserve.
The notes on pages 27 to 41 form part of the financial statements.
Argos Resources Ltd
Annual report 2017
Page 26
Notes to the consolidated financial statements
Year ended 31 December 2017
1 Accounting policies
The Group and its operations
Argos Resources Ltd is an AIM quoted, limited liability company. The Group comprises the ultimate
parent Company, Argos Resources Ltd, and its wholly owned subsidiary Argos Exploration Ltd. Argos
Resources Ltd is incorporated and domiciled in the Falkland Islands under registration number 10605.
The address of its registered office is Argos House, H Jones Road, Stanley, Falkland Islands, FIQQ 1ZZ.
The Company’s wholly-owned subsidiary, Argos Exploration Ltd, holds an Overriding Royalty Interest
(ORRI) in production licence PL001 which entitles it to 5% of all oil and gas produced from all
hydrocarbon discoveries developed within the Licence. The Licence is held by Noble Energy Falklands
Ltd and Edison International S.p.A and it covers an area of approximately 1,126 square kilometres in
the North Falkland Basin.
The current Second Phase of the Licence expires in November 2019, after which a Third Licence Phase
of 10 years is available to the Licensees.
Statement of compliance
The consolidated financial statements are prepared in compliance with International Financial
Reporting Standards as adopted by the European Union (IFRSs) and interpretations of those standards
as issued by the International Accounting Standards Board, and applicable legislation. The
consolidated financial statements were approved for issue by the board of directors on 15 March 2018
and are subject to adoption at the Annual General Meeting of shareholders which is expected to be
held in Stanley, Falkland Islands, in October 2018.
Basis of preparation
These financial statements have been prepared under the historical cost convention, using the
accounting policies set out below, which have been consistently applied unless stated otherwise. The
functional and presentational currency of the parent and subsidiary companies is considered to be US
Dollars (US$). All values are rounded to the nearest thousand Dollars ($’000) except where otherwise
indicated.
Changes in accounting standards
The standards which applied for the first time this year have been adopted and have not had a material
impact.
The International Accounting Standards Board (IASB) has issued the following new and revised
standards, amendments and interpretations to existing standards that are not effective for the financial
year ending 31 December 2017 and have not been adopted early. The Group is currently assessing the
impact of these standards and based on the Group’s current operations do not expect them to have a
material impact on the financial statements.
Argos Resources Ltd
Annual report 2017
Page 27
Notes to the consolidated financial statements
Year ended 31 December 2017
Accounting policies (continued)
New Standards
IFRS 15 Revenue from Contracts with Customers
IFRS 9 Financial Instruments
IFRS 16 Leases
IFRS 17 Insurance contracts
Amendments to Existing Standards
Clarifications to IFRS 15 revenue from Contracts with Customers
Classification and Measurement of Share-based Payment Transactions
(Amendments to IFRS 2)*
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts (Amendments to IFRS 4)
IFRIC 22 Foreign Currency Transactions and Advance Consideration *
Annual Improvements to IFRSs (2014–2016 Cycle)*
IFRIC 23 Uncertainty over Income Tax Treatments*
Amendments to IFRS 9: Prepayment Features with Negative Compensation*
Annual Improvements to IFRSs (2015-2017 Cycle)*
* Not yet adopted by European Union
Effective date
01-Jan-18
01-Jan-18
01-Jan-19
01 Jan-21
01 Jan-18
01-Jan-18
01-Jan-18
01-Jan-18
01-Jan-18
01-Jan-19
01-Jan-19
01-Jan-19
Argos Resources Limited has progressed further its projects dealing with the implementation of these
key new accounting standards and is able to provide the following information regarding their likely
impact:
IFRS 9 ‘Financial Instruments’
The standard replaces all phases of the financial instruments project and IAS 39 'Financial Instruments:
Recognition and Measurement'. The standard is effective from periods beginning on or after l .January
2018 and introduces:
new requirements for the classification and measurement of financial assets and financial
Liabilities;
a new model for recognising provisions based on expected credit Losses; and,
simplified hedge accounting by aligning hedge accounting more closely with an entities risk
management methodology.
The adoption of IFRS 9 is unlikely to have a material impact on the consolidated results of the Group.
Any impact of IFRS 9 will be quantified in the Annual Report and Financial Statements for the year
ending 31 December 2018.
Argos Resources Ltd
Annual report 2017
Page 28
Notes to the consolidated financial statements
Year ended 31 December 2017
Accounting policies (continued)
IFRS 15 ‘Revenue from Contracts with Customers’
The standard is effective for periods commencing on or after 1 January 2018. This standard introduces
a new revenue recognition model and replaces IAS 18 'Revenue', IAS 11 'Construction Contracts', IFRIC
13 'Customer Loyalty Programmes', IFRIC 15 'Agreements for the Construction of Real Estate', IFRIC 18
'Transfer of Assets from Customers' and SIC-31 'Revenue – Barter Transactions Involving Advertising
Services'. While the introduction of IFRS 15 is expected to have a significant impact for many
companies, the directors have carefully considered the potential effects in the context of the group's
revenues and have concluded that on adoption there will be no significant changes to the way in which
the group's performance obligations to customers are identified or deemed to be satisfied and,
therefore, no material impact on the revenues recognised in the financial statements.
IFRS 16 ‘Leases’
The standard is effective for periods commencing on or after 1 January 2019 but has not yet been
endorsed by the EU. Under the provisions of the standard most leases, including the majority of those
previously classified as operating leases, will be brought onto the statement of financial position, as
both a right-of-use asset and a largely offsetting lease liability. The right-of-use asset and lease liability
are both based on the present value of lease payments due over the term of the lease, with the asset
being depreciated in accordance with IAS 16 'Property, Plant and Equipment' and the liability increased
for the accretion of interest and reduced by lease payments. The directors have carefully considered
the potential effects in the context of the Group’s financial statements and have concluded that on
adoption that there will not be a material impact on the consolidated results of the Group.
Going concern
There is a risk that Noble and Edison withdraw from the Participation Agreement, which was signed in
2016. In such circumstances the licence would revert back to Argos, subject to government approval.
Given that Noble and Edison have been granted an extension to the Licence, which now runs until
November 2019 withdrawal is considered unlikely. In the event that funding ceased the cash balance
held by the Company is sufficient to meet the ongoing overhead for a period of more than one year,
during which time the Company would seek to raise further finance.
The directors consider that the Group is therefore fully funded for the foreseeable future and that the
Group’s available financial resources are adequate to provide working capital for the foreseeable
future, being at least 12 months from the date on which the financial statements were signed. The
financial statements have therefore been prepared on a going concern basis.
Basis of consolidation
The consolidated financial statements incorporate the results of Argos Resources Ltd and its wholly
owned subsidiary undertaking as at 31 December 2017 using the acquisition method of accounting.
Where the acquisition method is used, the results of subsidiary undertakings are included from the
date of acquisition.
All inter-company accounts and transactions have been eliminated on consolidation.
Argos Resources Ltd
Annual report 2017
Page 29
Notes to the consolidated financial statements
Year ended 31 December 2017
Accounting policies (continued)
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision maker has been identified as the board
of directors.
The Group’s operations consisted entirely of oil and gas exploration around the Falkland Islands until
the Farmout Agreement and subsequent Participation Agreement with Noble Energy Falklands Ltd and
Edison International S.p.A. Under these Agreements the Group has disposed of Licence PL001 but
retains an overriding royalty interest (ORRI) in the Licence area. In the opinion of the directors there
is only one business segment and the information contained in the financial statements reflects the
operations within that segment.
Intangible assets – royalty interests and impairment
Overriding royalty interest (ORRI)
As part of a Participation Agreement the Group retains an ORRI of 5% of all oil and gas produced from
all hydrocarbon discoveries developed within Licence PL001.
The Group considers that the ORRI is similar in economic terms to holding a direct interest in the
underlying licence as there is only a right to receive benefit from the ORRI on production and many of
the risks faced by the Group are the same as those faced by the owner of the licence. These risks are
seen as:
Existence risk - whether oil is found in commercially extractable quantities;
Production risk – whether the operator is able to get any discovery to commercial production;
Timing risk – commencement and quantity as determined by the operator; and,
Price risk – determined by future commodity supply and demand.
The Group believes therefore that the most appropriate method of accounting for the retained ORRI
is to classify it as an intangible asset in accordance with IAS 38. As an initial fair value could not be
reliably determined the ORRI intangible has been measured at cost, which was the carrying amount of
the E&E asset given up, with no gain or loss. The ORRI is therefore presented as an intangible asset
and will be carried at cost less accumulated amortisation and any impairment provision.
Impairment
The ORRI will be assessed for indicators of impairment at each period end under IAS 36. If such an
indication is identified, the recoverable amount of the asset is estimated in order to determine the
extent of any impairment. The recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated cash flows are discounted to their present value
using a pre-tax discount rate. If the recoverable amount of the asset is estimated to be less than its
carrying value, the carrying amount of the asset is reduced to its recoverable amount. An impairment
loss is also recognised in the income statement.
Should an impairment loss subsequently reverse, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment been recognised. A reversal
of an impairment loss is also recognised in the income statement.
Argos Resources Ltd
Annual report 2017
Page 30
Notes to the consolidated financial statements
Year ended 31 December 2017
Accounting policies (continued)
On production the income generated by the ORRI will be recognised as revenue in the income
statement and the intangible asset will be amortised on a systematic basis.
Financial instruments
Financial assets
The Group classifies its financial assets depending on the purpose for which the asset was acquired.
The Group has not classified any of its financial assets as held to maturity, available for sale or fair
value through profit and loss.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are initially recognised at fair value plus costs that are directly
attributable to the acquisition or issue and subsequently carried at amortised cost less any provision
for impairment. The Group’s loans and receivables comprise cash and cash equivalents and other
receivables in the statement of financial position. Cash and cash equivalents comprise current account
balances or short term deposits at variable interest rates that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value. Any interest earned
is accrued and classified as interest receivable.
The effect of discounting on these financial instruments is not considered to be material.
Financial liabilities
The Group classifies its financial liabilities depending on the purpose for which the liability was
incurred. All are non-derivative liabilities and are measured at amortised cost. There are no financial
liabilities which are measured at fair value through profit and loss.
Financial liabilities held at amortised cost are initially recognised at fair value and subsequently at
amortised cost.
The effect of discounting on these financial instruments is not considered to be material.
Cash and cash equivalents
This includes cash in hand and deposits held with banks.
Foreign currencies
The functional and presentational currency is US Dollars (US$). Transactions denominated in
currencies other than US$ are translated at the rate of exchange ruling at the date of the transaction.
Monetary amounts held in currencies other than US$ are converted at the rate ruling at the year end.
Any translation differences are dealt with in the consolidated statement of comprehensive income.
The year-end rates of exchanges used were:
£:US$
2017
1.35
2016
1.23
Argos Resources Ltd
Annual report 2017
Page 31
Notes to the consolidated financial statements
Year ended 31 December 2017
Accounting policies (continued)
Income taxes and deferred taxation
Deferred tax assets and liabilities are not discounted and shall be measured using the liability method
at the tax rates that are expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the
reporting date. Deferred income tax assets are recognised only to the extent that it is probable that
future taxable profit will be available against which the temporary differences can be utilised.
Share based remuneration
The Company has issued share options to directors and key personnel. The Group accounts for the
costs of the issue of these options in line with IFRS 2 “Share based payments”. Under this standard,
the cost of providing for such options is based on the fair value of the options at the date of grant and
is charged to the consolidated statement of comprehensive income or, if appropriate, capitalised over
the expected vesting period of the options and credited to retained losses.
Revenue and income
Income from the Participation Agreement is recognised in the period to which it relates.
Investment income consists of interest receivable for the period. Interest income is recognised as it
accrues.
2
Financial instruments
The Group’s financial assets comprise of cash and cash equivalents and other receivables, which are
categorised as “Loans and other receivables”. Financial liabilities comprise other payables which are
categorised as financial liabilities held at amortised cost and these are all current financial liabilities.
It is, and has been throughout the period of the financial statements, the Group’s policy that no trading
in financial instruments shall be undertaken.
The policy for managing financial risks is set by the board following recommendations from the Finance
Director. Certain risks are managed centrally, while others are managed locally following guidelines
communicated from the centre. The policy for each of the above risks is described in more detail
below.
Foreign exchange
As the functional currency is US$ and some of the current monetary assets and liabilities are in Sterling
there is a risk of loss in relation to the net Sterling financial assets position, should there be a
devaluation of Sterling against US$. The risk of any loss, in terms of meeting future liabilities, is
however eliminated by matching the currencies of cash balances with the currencies of projected
liabilities.
Argos Resources Ltd
Annual report 2017
Page 32
Notes to the consolidated financial statements
Year ended 31 December 2017
Financial instruments (continued)
As of 31 December 2017 the Group's financial assets and financial liabilities were denominated in a
mixture of US$ and Sterling which consisted of:
Current assets
Other receivables
Less: prepayments
Cash and cash equivalents
Liabilities
Other payables
Add: amounts received in advance
Net financial assets
Sterling
denominated
$’000
US$
denominated
$’000
14
(10)
756
760
(59)
-
701
-
-
2
2
-
2
At 31 December 2016 the comparative balances were:
Current assets
Other receivables
Less: prepayments
Cash and cash equivalents
Liabilities
Other payables
Add: amounts received in advance
Net financial assets
Sterling
denominated
$’000
US$
denominated
$’000
15
(11)
699
703
(148)
92
647
-
-
2
2
-
2
Total
$’000
14
(10)
758
762
(59)
-
703
Total
$’000
15
(11)
701
705
(148)
92
649
If the US$ had strengthened against Sterling by 10%, the profit for the year would decrease and equity
would reduce by $70K (2016: increase in loss and decrease in equity of $65K). Conversely if the US$
weakens against Sterling by 10% the profit for the year and equity would increase by $70K (2016:
decrease in loss and increase in equity of $65K).
Argos Resources Ltd
Annual report 2017
Page 33
Notes to the consolidated financial statements
Year ended 31 December 2017
Financial instruments (continued)
Counter-parties
This is the risk that a third party failure results in loss to the Group such as a bank collapse resulting in
the loss of deposits. To mitigate against this risk cash deposits are spread between two high quality
institutions, Lloyds Bank PLC, which is part owned by the British government, and Standard Chartered
Bank. The following was the split of funds between the various institutions at 31 December 2017:
Institution
Lloyds Bank PLC
Standard Chartered Bank
HSBC
2017
$’000
665
93
-
758
2016
$’000
566
129
6
701
Interest rates
The Group is not exposed to interest rate risk as there are no interest bearing loans or balances
outstanding to providers of finance.
Liquidity
This is the risk that the Group cannot meet its liabilities as these fall due. As the timing of significant
payments carries a degree of uncertainty cash balances are being kept in interest bearing term
deposits with periods of no longer than 6 months.
Credit risk
The Group is not exposed to credit risk as it does not trade, and the cash balances held by the Group
are spread between three reputable institutions. The comments made above in relation to counter-
party risk are relevant.
Fair values
The fair values of the Group’s financial assets and liabilities are not materially different from the
carrying values in the consolidated statement of financial position and notes to the financial
information.
3
Significant accounting judgements, estimates and assumptions
Impairment of intangible assets
When conducting an impairment review of its assets, the Group exercises judgement in making
assumptions about future oil and gas prices, oil and gas reserves/resources and future development
and production costs. By their nature, impairment reviews include significant estimates regarding
future financial resources and commercial and technical feasibility to enable the successful realisation
of the exploration and evaluation expenditure or capitalised value of the royalty interest. Changes in
the estimates used can result in significant charges to the statement of comprehensive income as any
impairment loss arising from the review is charged to the statement of comprehensive income
whenever the carrying amount of the asset exceeds its recoverable amount.
Argos Resources Ltd
Annual report 2017
Page 34
Notes to the consolidated financial statements
Year ended 31 December 2017
4 Other income
Income from the Participation Agreement
Total
2017
$’000
380
380
2016
$’000
505
505
Other income represents amounts received as part of the Participation Agreement following the
replacement of the Farmout Agreement in February 2016.
5 Administrative expenses
Directors’ remuneration (see note 6)
Professional fees
Depreciation
Other expenses
Total
6 Directors’ remuneration
Remuneration and fees
Pensions*
Total
2017
$’000
131
139
-
59
329
2017
$’000
129
2
131
2016
$’000
158
174
3
92
427
2016
$’000
156
2
158
*A Irvine is accruing retirement benefits under a defined contribution pension arrangement.
Directors’ remuneration, by director, is disclosed in the directors’ remuneration report on page 15.
The average monthly number of employees, including directors, during this and the preceding year
was 6.
7 Auditor’s remuneration
Fees payable to the Company’s auditor for the
audit of the Company’s annual financial
statements
Fees payable to the Company’s auditor for the
audit of the subsidiary’s annual financial
statements
Review of interim accounts
Total payable for audit related services
Fees payable to the Company’s auditor for
other services:
Taxation
Fees payable to the Company’s auditor for the
Taxation services for the subsidiary company
2017
$’000
2016
$’000
25
5
-
30
4
4
38
24
5
-
29
6
9
44
Argos Resources Ltd
Annual report 2017
Page 35
Notes to the consolidated financial statements
Year ended 31 December 2017
8
Share based remuneration
In 2009 Argos Resources Ltd introduced an equity-settled share based remuneration scheme for
employees and key personnel, the only vesting condition being that the individual remains a director
or employee of the Group or, where not an employee, serves out the full contract term over the
vesting period.
At 1 January 2016
and 31 December 2016
Exercised – 4 September 2017
At 31 December 2017
Average share
price on date
exercised
(pence)
3.125
Exercise price
(pence)
Number
2
2
2
9,080,818
1,000,000
8,080,818
All options outstanding at the end of the year and at the end of the comparative period had vested
and remained exercisable. The weighted average contractual life of the options is 8.87 years.
9
Finance income
Interest on bank deposits
2017
$’000
1
2016
$’000
1
Argos Resources Ltd
Annual report 2017
Page 36
Notes to the consolidated financial statements
Year ended 31 December 2017
10 Taxation
Total tax:
Corporation tax on losses for the year
Reconciliation of total tax:
Profit/(loss) before tax
Profit/(loss) on ordinary activities multiplied by
the standard rate of corporation tax of 26%
Effects of:
Unrelieved tax losses and other deductions
arising in the period
Receipts not taxable
Interest receivable not taxable
Expenses not deductible for tax purposes
Total tax for the year
2017
$’000
-
118
31
68
(99)
-
-
-
2016
$’000
-
(16)
(4)
125
(131)
-
10
-
The Group has capital tax losses carried forward of $23m. The resulting deferred tax assets and
liabilities have been offset and the Group and Company intend to manage the assets in the future so
as to utilise all of the carried forward capital and trading losses.
The group has the following temporary differences:
Trading Losses Carried forward
Capital losses carried forward
Accelerated tax depreciation
Net Deferred Tax Asset
2017
$’000
7,900
23,200
(28,900)
2,200
2016
$’000
7,100
24,200
(28,900)
2,400
The resulting deferred tax assets and liabilities have been offset and the Group and Company intend
to manage the assets in the future so as to utilise all of the carried forward losses.
In respect of the net deferred tax asset, no deferred tax asset has been recognised due to the uncertain
timing of the utilisation of losses.
Argos Resources Ltd
Annual report 2017
Page 37
Notes to the consolidated financial statements
Year ended 31 December 2017
11 Loss per share
Shares in issue brought forward (2 pence shares)
Options exercised
Shares in issue carried forward
Weighted average shares in issue
Profit/(loss) for the year
Weighted average number of ordinary shares
in issue during the year
2017
Number
219,713,205
1,000,000
2016
Number
219,713,205
-
220,713,205
219,713,205
220,036,493
219,713,205
2017
$’000
118
2016
$’000
(16)
220,036,493
219,713,205
Basic and diluted earnings/(loss) per ordinary share (cents)
0.05
(0.007)
Basic earnings/(loss) per share has been computed by dividing the earnings/(loss) by the weighted
average number of shares in issue during the period. Diluted earnings/(loss) per share is calculated by
dividing the earnings/(loss) by the weighted average number of shares, plus the weighted average
number of dilutive securities in issue during the period but not converted.
12 Royalty interest (ORRI)
Cost:
At 1 January
Disposal of assets
At 31 December
2017
$’000
2016
$’000
28,749
28,921
-
(172)
28,749
28,749
The Group’s capitalised E&E expenditure was re- classified as “royalty interests” on completion of the
farmout in September 2015. Details of the accounting policies adopted by the Group for these types
of assets and the consideration of impairment is detailed in note 1 on page 30.
Argos Resources Ltd
Annual report 2017
Page 38
Notes to the consolidated financial statements
Year ended 31 December 2017
13 Plant and equipment
2017
$’000
2016
$’000
Cost:
At 1 January
Additions
At 31 December
Depreciation:
At 1 January
Charge for year
At 31 December
Net book value:
At 31 December
14 Other receivables
Prepayments
Other
15 Trade and other payables
Trade payables
Other creditors
Accruals
16 Share capital
Authorised:
500,000,000 ordinary shares of 2 pence each
Allotted, issued and fully paid:
Ordinary shares of 2 pence each
At 1 January 2016
and 31 December 2016
Shares issued (share options exercised) during 2017
81
-
81
81
-
81
-
2017
$’000
10
4
14
2017
$’000
1
-
58
59
2017
$’000
81
-
81
78
3
81
-
2016
$’000
11
4
15
2016
$’000
1
92
55
148
2016
$’000
14,960
14,960
Number
$’000
219,713,205
6,669
1,000,000
27
At 31 December 2017
220,713,205
6,696
Argos Resources Ltd
Annual report 2017
Page 39
Notes to the consolidated financial statements
Year ended 31 December 2017
17 Reserves
Movements on the various reserves are detailed in the consolidated statement of changes in equity
on page 26. The nature and purpose of each reserve is set out below the statement of changes in
equity.
18 Related party transactions
Argos Georgia Ltd is a related party of the Group due to one of the Group’s directors, Ian Thomson,
having a significant shareholding in Argos Georgia Ltd. Transactions with Argos Georgia Ltd during the
year are as follows:
Due to Argos Georgia Ltd at 1 January
Expenses paid on behalf of the Group
Loans repaid/creditor balances paid
Office running costs*
Due to Argos Georgia Ltd at 31 December
2017
$’000
-
-
-
-
-
2016
$’000
(12)
(1)
24
(11)
-
* The services and agency agreement between the Company and Argos Georgia Ltd in which Argos Georgia Ltd
provided certain agency, accounting, secretarial and operational services to the Company was terminated with
effect from 31 March 2016. The cost of continued provision of these services, which has not been charged for,
is $15,000. Key management personnel are the directors only.
There have been no transactions with directors during the year other than remuneration paid to each
director which is disclosed in the directors’ remuneration report on page 15 and in note 6.
19 Commitments
(a) Capital commitments
There were no capital commitments at 31 December 2017 nor for the comparative period.
(b) Operating commitments
The services and agency agreement between the Company and Argos Georgia Ltd in which Argos
Georgia Ltd provides certain agency, accounting, secretarial and operational services to the Company
was terminated with effect from 31 March 2016. There are therefore no ongoing commitments at 31
December 2016 and 31 December 2017.
Argos Resources Ltd
Annual report 2017
Page 40
Notes to the consolidated financial statements
Year ended 31 December 2017
20 Contingent liabilities
The Group has no anticipated material contingent liabilities.
21 Events after the reporting date
There were no reportable events occurring after the balance sheet date.
Argos Resources Ltd
Annual report 2017
Page 41
Parent Company financial statements
Statement of financial position
As at 31 December 2017
Assets
Non-current assets
Investments
Current assets
Other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Total liabilities
Total net assets
Capital and reserves attributable to
equity holders of the company
Share capital
Share premium
Retained losses
Total shareholders’ equity
Note
6
7
8
9
2017
$’000
2016
$’000
2,120
2,120
25,752
758
2,120
2,120
25,661
701
26,510
26,362
28,630
28,482
41
41
38
38
28,589
28,444
6,696
30,071
(8,178)
6,669
30,071
(8,296)
28,589
28,444
The notes on pages 45 to 49 form part of the financial statements.
These financial statements were approved by the directors and authorised for issue on 15 March 2018
and are signed on their behalf by:
Ian Thomson
Chairman
Argos Resources Ltd
Annual report 2017
Page 42
Parent Company financial statements
Statement of cash flows
Year ended 31 December 2017
Cash flows from operating activities
Profit/(loss) for period before taxation
Adjustments for:
Finance income
Foreign exchange
Depreciation
Net cash inflow from operating activities
before changes in working capital
(Increase)/decrease in other receivables
Increase/(decrease) in other payables
Net cash (outflow)/inflow from operating activities
Investing activities
Interest received
Net cash used in investment activities
Financing activities
Issue of ordinary shares (share options exercised)
Net cash from financing activities
Net (decrease)/increase in cash and cash
equivalents
Cash and cash equivalents at beginning of period
Exchange gains/(losses) on cash and cash
equivalents
Cash and cash equivalents at end of the year
The notes on pages 45 to 49 form part of the financial statements.
Year
ended
31 December
Year
ended
31 December
2017
$’000
2016
$’000
118
(1)
(67)
-
50
(91)
3
(38)
1
1
27
27
(10)
701
67
758
(4)
(1)
92
3
90
287
(36)
341
1
1
-
-
342
451
(92)
701
Argos Resources Ltd
Annual report 2017
Page 43
Parent Company financial statements
Statement of changes in equity
Year ended 31 December 2017
Share
capital
$’000
Share
premium
$’000
Retained
earnings/
(deficit)
$’000
Total
equity
$’000
At 1 January 2016
6,669
30,071
(8,292)
28,448
Loss for year
At 31 December 2016
and 1 January 2017
-
-
(4)
(4)
6,669
30,071
(8,296)
28,444
Profit for year
Shares issued (share options exercised)
-
27
-
-
118
-
118
27
At 31 December 2017
6,696
30,071
(8,178)
28,589
The notes on pages 45 to 49 form part of the financial statements.
Argos Resources Ltd
Annual report 2017
Page 44
Notes to the parent Company financial statements
Year ended 31 December 2017
1 Accounting policies
Basis of preparation
The financial statements have been prepared under the historical cost convention. All accounting
policies are consistent with those adopted in the Group financial statements except as otherwise
noted below.
The amount due from the subsidiary company is repayable on demand.
Investments
Investments are stated at fair value at acquisition date.
The Group’s financial assets comprise of cash and cash equivalents and other receivables, which are
categorised as “loans and other receivables”. Financial liabilities comprise other payables which are
categorised as financial liabilities held at amortised cost and these are all current financial liabilities.
Changes in accounting standards
Please refer to Changes in accounting standards, Note 1 in the group financial statements.
There is not expected to be any significant changes in relation to IFRS 15 or 16.
IFRS 9 ‘Financial Instruments’
The adoption of IFRS 9 is unlikely to have a material impact on the results of the Company,
Management’s initial assessment of the potential impact of IFRS 9 has focused on the changes in IFRS
9 around expected credit losses on trading and intercompany balances. The impact of the new
Standard on these areas is not assessed to be material. Any impact of IFRS 9 will be quantified in the
Annual Report and Financial Statements for the year ending 31 December 2018.
2 Financial instruments
It is, and has been throughout the period of the financial statements, the Company’s policy that no
trading in financial instruments shall be undertaken.
The policy for managing financial risks is set by the board following recommendations from the Finance
Director. Certain risks are managed centrally, while others are managed locally following guidelines
communicated from the centre. The policy for each of the above risks is described in more detail
below.
Argos Resources Ltd
Annual report 2017
Page 45
Notes to the parent Company financial statements
Year ended 31 December 2017
Financial instruments (continued)
Foreign exchange
As the functional currency is US$ and some of the current monetary assets and liabilities are in Sterling
there is a risk of loss in relation to the net Sterling financial assets position, should there be a
devaluation of Sterling against US$. The risk of any loss, in terms of meeting future liabilities, is
however eliminated by matching the currencies of cash balances with the currencies of projected
liabilities.
As of 31 December 2017 the Company’s financial assets and financial liabilities were denominated in
a mixture of US$ and Sterling which consisted of:
Current assets
Other receivables
Less: prepayments
Cash and cash equivalents
Other payables
Sterling
denominated
$’000
14
(10)
756
US$
denominated
$’000
25,738
-
2
Total
$’000
25,752
(10)
758
760
25,740
26,500
(41)
719
-
(41)
25,740
26,459
At 31 December 2016 the comparative balances were:
Current assets
Other receivables
Less: prepayments
Cash and cash equivalents
Liabilities
Other payables
Net financial assets
Sterling
denominated
$’000
15
(11)
699
US$
denominated
$’000
25,646
-
2
Total
$’000
25,661
(11)
701
703
25,648
26,351
(38)
665
-
(38)
25,648
26,313
If the US$ had strengthened against Sterling by 10%, the profit for the year would decrease and equity
would reduce by $72K (2016: increase in loss and decrease in equity of $67K). Conversely if the US$
weakens against Sterling the profit for the year and equity would increase by $72K (2016: decrease in
loss and increase in equity of $67K).
Argos Resources Ltd
Annual report 2017
Page 46
Notes to the parent Company financial statements
Year ended 31 December 2017
Financial instruments (continued)
Counter-parties
This is the risk that a third party failure results in loss to the Group such as a bank collapse resulting in
the loss of deposits. To mitigate against this risk cash deposits are spread between two high quality
institutions, Lloyds Bank PLC, which is part owned by the British government, and Standard Chartered
Bank. The following was the split of funds between the various institutions at 31 December 2017.
Institution
Lloyds Bank PLC
Standard Chartered Bank
HSBC
2017
$’000
665
93
-
758
2016
$’000
566
129
6
701
Interest rates
The Company is not exposed to interest rate risk as there are no interest bearing loans or balances
outstanding to providers of finance.
Liquidity
This is the risk that the Company cannot meet its liabilities as these fall due. As the timing of significant
payments carries a degree of uncertainty cash balances are being kept in interest bearing term
deposits with periods of no longer than 6 months.
Credit
The Company is not exposed to credit risk, other than amounts due from the subsidiary company, as
it does not trade and the cash balances held by the Company are spread between three reputable
institutions. Although there is uncertainty the recovery of the intercompany debt is supported by the
potential value of the ORRI. The comments made above in relation to counter-party risk are also
relevant.
Fair values
The fair values of the Company’s financial assets and liabilities are not materially different from the
carrying values in the statement of financial position and notes to the financial information.
3 Loss attributable to the members of the parent Company
The profit for the year was $118 thousand (2016: loss of $4 thousand). A separate income statement
for the Company has not been presented as permitted by the Companies Act 1948 as amended by the
Companies (Amendment) Ordinance 2006 (Falkland Islands Companies Act) as it applies in the Falkland
Islands.
4 Staff costs
The information given in note 6 of the consolidated financial statements relates wholly to the
Company. There is no difference between the directors’ remuneration of the parent Company and
the Group.
Argos Resources Ltd
Annual report 2017
Page 47
Notes to the parent Company financial statements
Year ended 31 December 2017
5 Plant and equipment
2017
$’000
2016
$’000
Cost:
At 1 January
Additions
At 31 December
Depreciation:
At 1 January
Charge for year
At 31 December
Net book value:
At 31 December
6
Investments
Investment in subsidiary
Cost:
At 1 January and
31 December
39
-
39
39
-
39
-
39
-
39
36
3
39
-
2017
$’000
2016
$’000
2,120
2,120
The principal undertaking in which the Company’s interest at the year-end was 20% or more is as
follows:
Investment in subsidiary
Country of
incorporation
Percentage of voting
rights and ordinary
share capital held
Nature of business
Argos Exploration Ltd
Falkland Islands
100
7 Other receivables
Amounts due from subsidiary company
Prepayments
Other
2017
$’000
25,738
10
4
25,752
Oil and gas
exploration
2016
$’000
25,646
11
4
25,661
Argos Resources Ltd
Annual report 2017
Page 48
Notes to the parent Company financial statements
Year ended 31 December 2017
8 Trade and other payables
Trade payables
Accruals
9 Share capital
2017
$’000
1
40
41
2016
$’000
1
37
38
Share capital movements are set out note 16 on page 39 of the consolidated financial statements.
10 Other statutory disclosures
Audit services
Costs incurred on audit and other services provided by the auditor are provided on a consolidated
basis in note 7 of the consolidated financial statements.
Share based remuneration
The information given in note 8 of the consolidated financial statements relates wholly to the
Company.
Related party transactions
The information given in note 18 of the consolidated financial statements relates wholly to the
Company.
Commitments
The information given in note 19 of the consolidated financial statements relates wholly to the
Company.
Events after the balance sheet date
There were no reportable events occurring after the balance sheet date.
Argos Resources Ltd
Annual report 2017
Page 49
Registrars
Computershare Investor Services (Jersey) Ltd
Queensway House
Hilgrove Street
St Helier
Jersey, JE1 1ES
Bankers
Lloyds Bank PLC
3-5 Bridge Street
Newbury
UK, RG14 5HB
Bankers
Lloyds Bank International Ltd
Corporate Banking
9 Broad Street
St Helier
Jersey, JE4 8RS
Bankers
Standard Chartered Bank
Ross Road
Stanley
Falkland Islands
Website
www.argosresources.com
Investor Information and advisors
Registered office
Argos House
H Jones Road
Stanley
Falkland Islands
Business address
Argos House
H Jones Road
Stanley
Falkland Islands
Company Secretary
Kevin Kilmartin
Argos House
H Jones Road
Stanley
Falkland Islands
Nominated advisor and broker
Cenkos Securities PLC
6.7.8 Tokenhouse Yard
London, EC2R 7AS
Solicitors (Falkland Islands law)
Kevin Kilmartin
Argos House
H Jones Road
Stanley
Falkland Islands
Auditors
BDO LLP
55 Baker Street
London, W1U 7EU
Argos Resources Ltd
Annual report 2017
Page 50