Baron Oil Plc
Annual Report and
Financial Statements
for the year ended 31 December 2017
Contents
for the year ended 30 April 2010
Section
1 Corporate Information
2 Corporate Statement
3 Chairman’s Statement and Operations Report
4
5
Strategic Report
Report of the Directors
6 Corporate Governance Statement
7
8
Statement of Directors’ Responsibilities
in respect of the Strategic Report, the Report of the Directors
and the Financial Statements
Report of the Independent Auditors
to the Members of Baron Oil Plc
9 Consolidated Income Statement
for the year ended 31 December 2017
10 Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
11 Consolidated Statement of Financial Position
as at 31 December 2017
12 Company Statement of Financial Position
as at 31 December 2017
13 Consolidated and Company Statement of Changes in Equity
for the year ended 31 December 2017
14 Consolidated and Company Statement of Cash Flows
for the year ended 31 December 2017
15 Notes to the Financial Statements
16 Notice of Annual General Meeting
Page
2
3
4
8
10
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16
17
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59
Baron Oil Plc
Financial Report 31 December 2017
1
1 Corporate Information
for the year ended 30 April 2010
Directors
Registered Office
Malcolm Butler Chairman and Chief Executive Officer
Geoffrey Barnes Finance Director
Andrew Yeo Non-executive Director
Finsgate
5-7 Cranwood Street
London EC1V 9EE
Company Secretary
Geoffrey Barnes
Auditors
Solicitors
Nominated Advisor
and Broker
Registrars
Jeffreys Henry LLP
Finsgate
5-7 Cranwood Street
London EC1V 9EE
Kerman & Co LLP
200 Strand
London WC2R 1DJ
SP Angel Corporate Finance LLP
Prince Frederick House
35-39 Maddox Street
London W1S 2PP
Computershare Investor Services (Ireland) Limited
Heron House
Corrig Road
Sandyford Industrial Estate
Dublin 18
Ireland
Communications
Website www.baronoilplc.com
Company number
05098776 (England and Wales)
Baron Oil Plc
Financial Report 31 December 2017
2
2 Corporate Statement
for the year ended 30 April 2010
Baron Oil Plc (“Baron” or “The Company”) is an independent oil and gas exploration
company headquartered in London. The Company currently owns exploration acreage
in the UK and Peru. Shares in the company are listed in the UK on the AIM market of
the London Stock Exchange – (BOIL.L).
The Company’s objective is to deliver shareholder value through generating substantial
increases in net asset value by discovering commercial quantities of hydrocarbons while
mitigating both risks and costs whenever possible by taking minority interests in ventures
in established hydrocarbon-bearing areas. The Company is committed to safeguarding
the environment and minimising risk to our employees, contractors and the communities
in which we work. Through developing sustainable long-term relationships with its
partners and the community, Baron aims to conduct business and enhance value in a
responsible manner.
Baron Oil Plc
Financial Report 31 December 2017
3
3 Chairman’s Statement and Operations Report
for the year ended 31 December 2017
Finance and financial results
The net result for the year was a loss before taxation of £2,058,000, which compares to a loss of £175,000
for the preceding financial year, and the loss after taxation attributable to Baron Oil shareholders was
£1,539,000, compared to a loss of £32,000 in the preceding year.
Turnover for the year was £nil (2016: £nil), there being no sales activity since the cessation of production in July
2015 from the Nancy-Burdine-Maxine fields (“NBM”) in Colombia and the expiry of the licence in October 2015.
During 2017, the local staff of Inversiones Petroleras de Colombia SAS (“Invepetrol”) finalised all the steps
necessary to administer the relinquishment of the licence, the clearance of equipment from the well site and
to obtain all necessary environmental approvals. The remaining staff left the company before the end of the
year. The Group has held a 50% interest in Invepetrol since 2014 but consolidated the results as it held
effective management control. However, during 2017 our 50% partner, CI International Fuels, took control of
the Board and, as a result, Invepetrol has been deconsolidated. Furthermore, steps have been taken to place
Invepetrol into liquidation. The effect of deconsolidation is to release net liabilities previously included in the
Statement of Financial Position and to give rise to a credit to the Income Statement of £831,000. While the
directors believe that the Company will not have any further liabilities from Colombia, we retain sufficient
provision in the Statement of Financial Position against any unforeseen eventualities.
Exploration and evaluation expenditure written off included in the Income Statement amounts to £109,000.
This arises from £90,000 in costs regarding the South East Asia Joint Study Agreement with SundaGas, mainly
relating to the period up to 31 March 2017, and residual costs of £19,000 on block Z-34 in Peru (see below).
In Peru, the decision to relinquish block Z34 leads to a write off in the Income Statement of £1,837,000.This
reflects primarily the write off of the US$2 million receivable from Union Oil & Gas Group following their
failure to meet their obligation under the farm-out agreement, plus some additional expenditure incurred
locally in Peru. This should be considered in the context of US$3.6 million being released from cash cover to
support the Z-34 guarantee to Perupetro, this amount being added to the free cash resources of the Group
as shown in the cash flow statement.
A further effect of the write off of the Union Oil and Gas Group receivable is a write back of the related
provision for Peruvian tax amounting to £519,000, this amount being credited to the Income Statement.
Also in Peru, the Group incurred expenditure totaling £84,000 on our 100%-owned onshore block XXI, arising
from both direct costs and local staff and support costs. In accordance with our accounting policy, the Group
has been charging unsuccessful exploration costs direct to the Income Statement; however, the results of the
2015/16 2D seismic on block XXI were encouraging and may lead to the drilling of an exploration well during
2018. Accordingly, the Board are of the view that this phase of exploration is ongoing and that the expenditure
should remain on the Balance Sheet as capitalised exploration and evaluation expenditure until the results of
any such well are known, the carrying amount being £1,260,000.
Administration expenditure for the year was £510,000, down from £700,000 in the preceding year, excluding
the effects of exchange rate movements. This cost saving arises from the cessation in activities in Colombia at
£122,000, reduced cost in Peru of £49,000, with the remainder due to cost reductions in the UK.
During the year, we saw a relative weakening in the US Dollar and, with the majority of the group’s assets being
denominated in that currency, this has given rise to a loss of £508,000. This compares with a gain of £1,131,000
in the preceding year, when there was a major impact on the Pound Sterling following the Brexit referendum result.
At the end of the financial year, free cash reserves of the Group had increased to £3,873,000 from a level at
the preceding year end of £2,158,000. This increase in cash reserves arises from the release of cash cover
funds held against the guarantee in respect of Peru block Z-34 at £2,674,000 (US$3,600,000), offset by an
operational cash outflow of £959,000.
The Group continues to pursue a conservative view of its asset impairment policy, giving it a Balance Sheet
that consists largely of net current assets and a realistic value for its remaining exploration assets. Given the
limited cash resources, the Board will take a prudent approach in entering into new capital expenditures
beyond those already committed to existing ventures.
Baron Oil Plc
Financial Report 31 December 2017
4
3 Chairman’s Statement and Operations Report
for the year ended 31 December 2017
New exploration activity
Following the recovery of $3.6 million from the relinquishment of Peru block Z-34, of which details are given
below, Baron has followed a new strategy concentrating on near-term drilling opportunities in the United
Kingdom, as follows:
United Kingdom Offshore Licence P2235 (“Wick” Prospect) (Baron 15%)
Baron announced on 19 February 2018 that it had signed an option to farm in to UK Offshore Licence P2235
(Block 11/24b) containing the Wick Prospect. This option was exercised on 13 March 2018, when Baron
signed a definitive Farmout Agreement with Corallian Energy Limited, (“Corallian”) under which the Company
will pay 20% of the costs of the Wick well, up to a maximum gross cost of £4.2 million, and 15% of other
costs on the licence to earn a 15% working interest in P2235. The Wick Prospect lies close to the shore of NE
Scotland, 5 kilometres north and updip from the Lybster Field, which has been developed from onshore
facilities. The prospect has been defined by 3D seismic mapping by Baron and others and a recent
announcement by Upland Resources Limited stated it has estimated in-place P50 Prospective Resources of
around 250 million barrels of oil (unrisked) in sands of Jurassic and Triassic age in the licence area, a large
part of which will be tested by the Wick well. The Wick well will be drilled to a total depth of 1,250 metres
subsea in a water depth of 38 metres. Baron announced on 15 May 2018 that Corallian had entered into a
letter of intent with Ensco UK Limited to provide a jack-up drilling rig to drill this prospect in the third or fourth
quarter of 2018, subject to necessary approvals and consents. The total well cost has increased, due largely
to more rigorous site survey requirements and substantially higher fuel costs, and is currently estimated at
£5.2 million. Including a 15% share of back costs unrelated to the well, the total payable by the Company is
currently estimated at some £1,020,000 to earn a 15% interest in the licence.1
United Kingdom Offshore Licence P1918 (“Colter” Prospect) and Onshore PEDLs 330 & 345 (Baron 5%)
Baron entered into a Farmout Agreement with Corallian on 5 March 2018 under which it will earn a 5%
working interest in UK Offshore Licence P1918, which contains the Colter Prospect, on which a well is planned
to be drilled this year. By participating in this well, Baron will also earn a 5% interest in nearby onshore licences
PEDL 330 and PEDL 345.
The Colter Prospect lies in Poole Bay, immediately southeast of the Wytch Farm oilfield which has been
developed from onshore facilities. Recent re-mapping of pre-stack depth migrated 3D seismic data by
Corallian indicates that the 98/11-3 well, which encountered oil in the Triassic Sherwood sandstone
reservoir, lies on the flank of a structure that has the potential to hold unrisked Mean Prospective Resources
of 23 million barrels of recoverable oil equivalent. The Colter Prospect will be appraised by a well drilled to
a total depth of 1,850 metres subsea in a water depth of 16 metres. Baron announced on 15 May 2018
that Corallian had entered into a letter of intent with Ensco UK Limited to provide a jack-up drilling rig to
drill this prospect in the third or fourth quarter of 2018, subject to necessary approvals and consents. The
total well cost has increased, due largely to more rigorous site survey requirements and substantially higher
fuel costs, and is currently estimated at £7.2 million. Under the terms of the agreement with Corallian,
subject to governmental consents, the Company would pay 6.67% of the costs related to this well, capped
at a gross cost of £8.0 million: costs above this cap would be funded at 5%. Including a 5% share of back
costs unrelated to the well, the total payable by the Company is currently estimated at some £490,000 to
earn a 5% interest in the licence.1
1Under pre-existing agreements between Corallian and InfraStrata plc, Baron is obligated to pay to InfraStrata plc on a
monthly basis an amount equivalent to 1% of the pre-tax net profits generated to Baron from the sales of oil and gas from
licences P1918 and P2235, taking into account, in each case, cumulative costs and expenses of exploration, appraisal,
development and production.
Baron Oil Plc
Financial Report 31 December 2017
5
3 Chairman’s Statement and Operations Report
for the year ended 31 December 2017
Legacy exploration activity
Peru Offshore Block Z-34 (Baron Oil 50% interest relinquished in December 2017)
In November 2017, the Company elected to relinquish the contract for block Z-34, in which it held a 50%
interest through its Peruvian subsidiary, Gold Oil Peru SAC (“GOP”). Earlier in the year, Union Oil & Gas
Group (UOGG) defaulted on its obligation to pay GOP US$2 million when a 30% interest in Z-34 was
formally assigned to it by the Peruvian Government under a Public Deed. Following protracted discussions, it
was agreed to terminate and unwind the 2013 Farmout Agreement with UOGG and the 30% interest under
the Joint Operating Agreement (“JOA”) was returned to GOP on 10 September 2017. UOGG retained
ownership of Plectrum Petroleum Limited, which continued to hold a 50% interest in Z-34. However, neither
UOGG nor Plectrum paid cash calls due to GOP as operator under the terms of the JOA. On 1 September
2017 both UOGG and Plectrum were formally placed into default for non-payment of the August cash call
and, following termination of the Farmout Agreement, Plectrum compounded its default position by not paying
cash calls for September and November.
Taking into account the partner default, the failure of an extended effort by UOGG to farm out its interests in
Z-34 and the fact that the contract had been in Force Majeure since 2014 because of the lack of legislation
and regulations necessary to allow drilling operations in this deep-water environment, GOP proposed that the
block be relinquished. An Operating Committee Meeting was held in accordance with the JOA at the
beginning of November 2017, at which Plectrum could not exercise its vote because of its default, and the
unanimous decision was made to relinquish block Z-34.
Notice of relinquishment was given to Perupetro on 9 November 2017 and the relinquishment became
effective on 9 December. At this point, GOP notified Perupetro that the terms of the Z-34 contract allowed it
to claim the release of the $3.6 million bond held as guarantee for the work programme if the contract had
been in Force Majeure for a period exceeding one year. This was accepted by Perupetro on 14 December
2017 and the funds were released on 19 December. Following delays over the Christmas period, the funds
were finally cleared in the Company’s UK bank account on 5 January 2018.
Peru Onshore Block XXI (Baron Oil 100%)
The Company owns a 100% interest in the contract for block XXI through GOP. The block lies onshore in the
Sechura Desert, close to the town of Piura, and covers a current area of 2,425 square kilometres.
The El Barco prospect has been identified in the area to the northeast of the 1954 Minchales-1X well and a
drilling prognosis has been prepared for a well to 1,850 metres. Mapping of the El Barco prospect by GOP
indicates that unrisked Prospective Resources are in the range of 6.4 billion cubic feet of recoverable gas in
a low-risk shallow sand and 7.1 million barrels of recoverable oil in a much higher risk fractured basement
play. Initial estimates are that the actual drilling of this well will cost some US$1.4 million but additional costs
of some US$500,000 are expected to be incurred for the necessary civil engineering and environmental work
involved in building a suitable track from the Pan-American Highway across the desert and scrub to the
proposed wellsite, a distance of some 15 kms.
Farmout negotiations with interested parties continue since, as previously stated, the directors wish to find a
partner to pay at least 50% of the costs of the El Barco well. Discussions are also underway with qualified
drilling contractors. The block XXI contract is currently in Force Majeure, because of local opposition to the
drilling at El Barco, which adds a further potential expense to the drilling operation. If the well is not drilled
within 6 months of expiry of the current Force Majeure situation, the contract will terminate and the Company
will forfeit its guarantee bond of US$160,000.
Northern Ireland Onshore Licence PL 1/10 Licence (Baron Oil 12.5%)
No significant activity took place on this licence in 2017 and in February 2018 Baron gave notice that it would
withdraw from the licence. This became effective in April 2018 and the Company has no further obligations.
Baron Oil Plc
Financial Report 31 December 2017
6
3 Chairman’s Statement and Operations Report
for the year ended 31 December 2017
Operations in Colombia
During the year, the remaining staff in Colombia completed the administration of the cessation of the NBM
licence, which took effect in October 2015. By the end of the year, all staff had left the local operation.
NBM was operated by Invepetrol in which we are 50% shareholders and in which control effectively passed
to our partner, CI International Fuels, in 2017. Proceedings to liquidate this company are expected to
commence shortly.
Sea Asia Study Group
Baron entered into a joint study agreement in September 2016 with SundaGas Pte Ltd, based in Singapore.
The purpose was to give the Company accelerated access to a range of exploration and production activities
in prospective areas of South East Asia without the need to increase its own staff and overhead. The agreement
ran for a six-month period to 31 March 2017, during which time the group considered a broad range of
possibilities and entered into preliminary negotiations on several potential projects, one of which is still active.
The directors had hoped that this project would come to fruition during 2017 but a decision by the host
government continues to be delayed and it seems unlikely that an award, if any, will be made before the fourth
quarter of 2018.
Conclusions
Although the directors were forced to spend a great deal of time during the year in difficult negotiations with
our recalcitrant partners in Peru block Z-34, the final outcome at year-end was a satisfactory one. It had
become clear that it would be impossible to drill the block in the timeframe of the contract for administrative,
technical and financial reasons and the block was relinquished in a way that enabled the Company to recover
the entire guarantee bond. The additional US$3.6 million of free cash has enabled the Company to be
re-positioned and, after due consideration, the board has decided that near-term drilling activities in areas
where discoveries can easily and profitably be developed represent the best way forward. Each of the Wick
and Colter prospects offers an excellent opportunity to drill a relatively low-risk well this year with significant
potential and provides the possibility of early, low cost development. Success in either of these wells would
provide shareholders with a meaningful uplift in the asset value of the Company.
The Company remains debt-free and is fully funded for its currently planned activities in 2018.
I would like to pay a personal tribute to Bill Colvin, who resigned as Chairman in February 2018. Bill took
over the reins under very difficult circumstances in January 2015 and guided the Company through the difficult
period when our partners in block Z-34 prevented us from moving forward with activities on the block, refused
to honour their obligations under the Farmout Agreement and defaulted on their payment obligations under
the JOA. It was good that he was able to savour the success of regaining the guarantee bond and participate
in the re-positioning of the Company. We wish him every success in his other ventures.
I would also like to welcome Andrew Yeo as an independent non-executive director. His experience in the City
and in the oil industry will be of great value to the board and he has been appointed to chair the audit and
remuneration committees.
Malcolm Butler
Chairman and Chief Executive
24 May 2018
Baron Oil Plc
Financial Report 31 December 2017
7
4 Strategic Report
for the period ended 31 December 2017
The directors now present their strategic report with the financial statements of Baron Oil Plc (“the Company”)
and its subsidiaries (collectively “the Group”) for the year ended 31 December 2017.
Principal activities
The principal activity of the Group is that of oil and gas exploration and production.
Business review
A review of the Group’s business during the financial period and its likely development is given in the
Chairman’s Statement and Operations Report.
Key performance indicators
At this stage in the Company’s development, the key performance indicators that the directors monitor on a
regular basis are management of liquid resources, that is cash-flows and bank balances and also general
administrative expenses, which are tightly controlled. Specific exploration-related key performance indicators
that will be relevant in the future include: the probability of geological success (Pg), the probability of
commerciality or completion (Pc) and the probability of economic success (Pe).
The following table summarises the key changes in the two KPIs during the period.
Liquid cash reserves – GBP
Liquid cash reserves – USD
Administrative expenses
Year ended
31 December
2017
000
Year ended
31 December
2016
000
749
3,124
510
1,267
891
700
Change
–40.9%
+250.6%
–27.1%
Key risks and uncertainties
Exploration for hydrocarbons is speculative and involves significant degrees of risk. The key risks and their
impact to the Group are summarised below along with the impact on the Group and the action that the board
take to minimise those risks.
Oil prices
Baron’s results are strongly influenced by oil prices which are dependent on a number of factors impacting
world supply and demand. Due to these factors, oil prices may be subject to significant fluctuations from year
to year. The Group’s normal policy is to sell its products under contract at prices determined by reference to
prevailing market prices on international petroleum exchanges.
Impact
Oil prices can fluctuate widely and could have a material impact on the Group’s asset values, revenues,
earnings and cash flows. In addition, oil price increases could cause supply or capacity constraints in areas
such as specialist staff or equipment.
Action
The Group keeps under regular review its sensitivity to fluctuations in oil prices. The Group does not as a
matter of course hedge oil prices, but may enter into a hedge programme for oil where the Board determines
it is in the Group’s interest to provide greater certainty over future cash flows.
Baron Oil Plc
Financial Report 31 December 2017
8
4 Strategic Report
for the period ended 31 December 2017
Performance guarantees
The Group has given performance guarantees in respect of licenses in Peru. In the event that work
commitments under the licences are not met, then these guarantees are likely to be called in.
Impact
In the event that the Group is required to make payments under any of the guarantees, this will lead to a
permanent reduction in the cash balance. Note that these guarantee sums are shown as cash not available
on the Consolidated and Company Statement of Cash Flows on page 30.
Action
The Group actively manages its work programmes under the licences to the extent that it is able to, paying
close attention to milestones and expiry dates, in order to minimise the risk that licence commitments are
not met.
Liquidity
The Group is exposed to liquidity risks, including the risk that financial assets cannot readily be converted to
cash without the loss of value.
Impact
Failure to manage financing risks could have a material impact on the Group’s cash flows, earnings and
financial position as well as reducing the funds available to the Group for working capital, capital expenditure,
acquisitions, dividends and other general corporate purposes.
Action
The Group manages liquidity risk by maintaining adequate levels of cash balances.
Taxation
As the tax legislation in South America is developing, tax risks are substantially greater than typically found in
countries with more developed tax systems. Tax law is evolving and is subject to different and changing
interpretations, as well as inconsistent enforcement. Tax regulation and compliance is subject to review and
investigation by the authorities who may impose severe fines, penalties and interest charges.
Impact
The uncertainty of interpretation and application, and the evolution, of tax laws create a risk of additional and
substantial payments of tax by the Group, which could have a material adverse effect on the Group’s cash
flows, earnings and financial position.
Action
The Group makes every effort to comply with tax legislation. The Group takes appropriate professional tax
advice and works closely with the tax authorities to ensure compliance.
By order of the Board
Malcolm Butler
Chairman and Chief Executive
24 May 2018
Baron Oil Plc
Financial Report 31 December 2017
9
5 Report of the Directors
for the year ended 30 April 2010
The directors submit their report together with the audited financial statements of Baron Oil Plc (“the Company”)
and its subsidiaries (collectively “the Group”), for the year ended 31 December 2017.
Directors
The following are biographical details of the directors of Baron Oil Plc.
Dr Malcolm Butler Chairman and Chief Executive Officer
Malcolm Butler, aged 69, has extensive operational and financial experience, having worked for over 40 years
as an explorationist and senior executive in the international oil and gas industry and having taken on a
secondary role as an investment banker. He was responsible, as CEO, for the IPOs of Industrial Scotland
Energy PLC and Brabant Resources PLC and later became CEO of Houston-based Energy Development
Corporation until its circa $800 million sale to Noble Energy. In 1998, Malcolm joined HSBC Investment Bank
as Advisory Director responsible for oil & gas mandates in the UK, Libya, Russia, Indonesia and China, and
following that acted as senior adviser on energy-related matters to Seymour Pierce Limited from 2003 to
2013. Malcolm holds a BSc in Geology from Aberystwyth and a PhD in Geology from Bristol. He has been
awarded the Aberconway Medal of The Geological Society of London, in recognition of his contributions to
the oil and gas industry and in 1995 he was appointed an Honorary Professor at the University of Aberystwyth.
Geoffrey Barnes Finance Director
Geoffrey Barnes, aged 65, is a Director of Langley Associates Limited, an accountancy practice he founded
in 1994. Geoff qualified as a Chartered Accountant in 1976 having trained with one of the major
international accounting practices before moving into industry where he held several senior finance positions
including Director of Finance at PJB Publications Limited, the publisher of business information for the global
pharmaceutical, medical device and agrochemical industries.
Andrew Yeo Non-executive Director (appointed 28 April 2018)
Andrew Yeo, aged 55, has significant expertise in the oil and gas sector, having had a variety of roles including
private equity and operational and financial experience in exploration and production activities as CFO of Wessex
Exploration PLC. In addition, he brings 20 years’ experience in multi-discipline corporate advisory services,
having worked for UBS and ABN AMRO Hoare Govett before becoming a founder member of Evolution
Securities, where he was a board member and executive director. Andrew is currently an executive director of Path
Investments plc (TIDM: PATH), an oil and gas company focused on the acquisition of production, or near
production, oil and gas assets.
William Colvin resigned from the Board on 28 February 2018.
Proposed dividend
The directors do not recommend the payment of a dividend in respect of the financial year ended 31 December
2017.
Political and charitable contributions
In the year ended 31 December 2017 the Group made no political or charitable contributions.
Policy and practice on payment of creditors
The Group and Company policy, in relation to all of its suppliers, is to settle the terms of payment when
agreeing the terms of the transactions and to abide by those terms. The Group and the Company do not
follow any code or statement on payment policy. The creditors’ days as at 31 December 2017 were 20 days
(2016: 52 days).
Baron Oil Plc
Financial Report 31 December 2017
10
5 Report of the Directors
for the year ended 30 April 2010
Activities and results
A loss of £1,539,000 (2016: £288,000), of which £1,539,000 (2016: £32,000) was attributable to equity
shareholders, was recorded for the year. Net assets of the Group at 31 December 2017 amounted to
£4,263,000 (2016: £6,073,000), of which £4,263,000 (2016: £5,726,000) was attributable to equity
shareholders. No dividends or transfers to reserves are proposed.
Details of the Group’s affairs and the development of its various activities during the period, important events
since the period end, and details of the Company’s plans for the next year are given in the Chairman’s
Statement and Operations Report.
Issue of shares
No shares were issued during the year.
The environment
The Company is firmly committed to protecting the environment wherever it does business. We will do our
upmost to minimise the impact of the business on the environment. Both the Company and its employees will
try to be recognised by regulatory agencies, environmental groups and governments where we do business
for our efforts to safeguard the environment.
Community
We believe it is our responsibility as a good corporate citizen to improve the quality of life in the communities
in which we do business. Where we can we will seek to contribute towards local cultural and educational
organisations.
Future outlook
Details of the Group’s affairs and the development of its various activities during the period, important events
since the period end, and details of the Company’s plans for the next year are given in the Chairman’s
Statement and the Operations Report.
Directors’ interests
The interests of the directors who were in office at the year end, and their families, in the issued share capital
of the Company are as follows:
W Colvin
M Butler
G Barnes
31 December 2017
31 December 2016
Number of
Ordinary
shares
1,000,000
1,000,000
1,379,310
3,379,310
%
Holding
0.1%
0.1%
0.1%
0.3%
Number of
Ordinary
shares
1,000,000
1,000,000
1,379,310
3,379,310
%
Holding
0.1%
0.1%
0.1%
0.3%
Baron Oil Plc
Financial Report 31 December 2017
11
5 Report of the Directors
for the year ended 30 April 2010
Options held by the directors are as follows:
W Colvin
W Colvin
M Butler
G Barnes
31 December
2017
Number of
options
£0.0145*
31 December
2016
Number of
options
£0.0145*
35,172,414
35,172,414
Number of
options
£0.0035**
Number of
options
£0.0035**
10,500,000
20,000,000
10,500,000
41,000,000
–
–
–
–
76,172,414
35,172,414
*Each £0.0145 option grants the holder the right to subscribe for one Ordinary Share at £0.0145 per share,
and are granted under one option contract exercisable at any time prior to 23 March 2018.
**Each £0.0035 option grants the holder the right to subscribe for one Ordinary Share at £0.0035 per share,
and are granted under one option contract exercisable at any time prior to 7 July 2020.
Except as shown in note 27 to the Financial Statements (Related Party Transactions), there have been no contracts
or arrangements of significance during the period in which the directors of the Company were interested.
Currently there are service contracts in place with all directors of the Company and the contracts are available
for inspection at the registered office of the Company on request.
Remuneration policy
The Remuneration Committee takes into account both Company and individual performance, market value
and sector conditions in determining director and senior employee remuneration. The Company has
maintained a policy of paying only minimum salaries compared with peer companies in the oil and gas
independent sector until the Company establishes a good position with acreage, assets, income and cash at
hand. All current salaries are without pension benefits.
Basic salaries
Basic salaries are reviewed annually or when individuals change positions or responsibility or the Company’s
position changes. Details of salaries paid during the year are shown below.
Chairman
W Colvin
Executive Directors
M Butler
G Barnes
2017
£
2016
£
50,000
115,000
122,500
70,500
243,000
115,000
67,000
297,000
The share options held by the directors are disclosed above and no pension contributions were made during
the period for the directors.
Baron Oil Plc
Financial Report 31 December 2017
12
5 Report of the Directors
for the year ended 30 April 2010
Employees
The Group seeks to keep employees informed and involved in the operations and progress of the business by
means of regular staff meetings by country open to all employees and directors.
The Group operates an equal opportunities policy. The policy provides that full and fair consideration will be
given to disabled applications for employment and that existing employees who become disabled will have
the opportunity to retrain and continue in employment wherever possible.
Events after the reporting period
On 5 March 2018, the Company executed a Farmout Agreement in respect of UK Offshore Licence P2235
(“the Wick Prospect”), and will pay 20% of the costs to earn a 15% interest in the licence. There is a current
commitment to pay £1,020,000.
Also on 5 March 2018, the Company executed a Farmout Agreement in respect of UK Offshore Licence P1918
(“the Colter Prospect”), and will pay 6.67% of the costs of the Colter Well to earn a 5% interest in P1918 and
UK Onshore licences PEDL330 and PEDL345. There is a current commitment to pay £490,000.
Financial review
Liquidity & Share Trading
The Board believes that high liquidity is important in attracting both small and institutional investors to Baron.
During the last financial period Baron has had a reasonably high stock liquidity on the E&P sector on AIM.
Shares in Issue and Shareholders Profile
The number of shares in issue at 16 May 2018 was 1,376,409,576 Ordinary Shares, each share having
equal voting rights. Baron Oil Plc has 1,152 shareholders.
The shareholding distribution at 16 May 2018 is as follows:
Range
>10%
5-10%
1-5%
0.5-1%
<0.5%
Number of
shares
206,333,117
404,594,792
447,501,651
104,739,694
213,240,322
1,376,409,576
Number of
shareholders
1
5
17
11
1,118
1,152
Significant shareholdings
The Company has been informed that, as of 9 May 2018, the following shareholders own 3% or more of the
issued share capital of the Company:
Name
Pershing Nominees Limited
Rock Nominees Limited
Barclays Direct Investing Nominees
Interactive Investor Services
Lynchwood Nominees Limited
W B Nominees Limited
HSBC Global Custody Nominee
Interactive Investor Services
Total
Shares
206,333,117
96,491,543
80,500,423
78,152,194
75,743,522
73,707,110
66,063,218
56,235,003
733,226,130
% of company
14.99%
7.01%
5.85%
5.68%
5.50%
5.36%
4.80%
4.09%
53.27%
Baron Oil Plc
Financial Report 31 December 2017
13
5 Report of the Directors
for the year ended 30 April 2010
Listing
The Company’s ordinary shares have been traded on the AIM market of the London Stock Exchange since
14 July 2004. Cantor Fitzgerald Europe were the Company’s Nominated Adviser and Joint Broker until
28 April 2018. SP Angel was appointed as Joint Broker in February 2017 and was appointed as Nominated
Advisor and Broker on 28 April 2018. The closing mid-market price on 16 May 2018 was 0.52p.
Financial instruments
Details of the financial risk management objectives and policies, and details on the use of financial instruments
by the Company and its subsidiary undertakings, are provided in note 22 to the financial statements.
Going concern
Taking into account the cash reserves, the Group’s medium term investment plans in Peru and the UK show,
in the directors’ opinion, that there is a reasonable expectation that the resources available to the Company
will allow it to continue operations. Thus, the going concern basis for the preparation and reporting of
financial statements has been adopted.
Publication on Company’s website
Financial statements are published on the Company’s website (www.baronoilplc.com). The maintenance and
integrity of the website is the responsibility of the directors. The directors’ responsibility also extends to the
financial statements contained therein. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other countries.
Indemnity of officers
The Group may purchase and maintain, for any director or officer, insurance against any liability and the Group
does maintain appropriate insurance cover against legal action bought against its directors and officers.
By order of the Board
Geoffrey Barnes
Director and Secretary
24 May 2018
Baron Oil Plc
Financial Report 31 December 2017
14
6 Corporate Governance Statement
for the year ended 30 April 2010
The directors recognise the importance of sound corporate governance commensurate with the Group’s size
and the interests of shareholders. As the Group grows, policies and procedures that reflect the FRC’s UK
Corporate Governance Code will be developed. The Company has taken into account a number of the
provisions in the Code in so far as it considers them to be appropriate for a company of this size and nature.
The Board
The Board comprises two executive directors and one non-executive director, details of whom are contained
in the Report of the Directors included in this report.
The Board meets at least four times a year.
The Board is responsible for the strategy, review and approval of acquisition opportunities, capital
expenditures, budgets, trading performance and all significant financial and operational issues.
The Audit Committee
The Audit Committee is comprised of two directors with Andrew Yeo as Chairman and Dr Malcolm Butler as
the other member. The Audit Committee meets at least twice a year and the external auditors have the
opportunity to meet with members of the Audit Committee without any executive management being present.
The Audit Committee’s terms of reference include the review of the Interim and Annual Financial Statements,
review of internal controls, risk management and compliance procedures, consideration of the Company
accounting policies and all issues with the annual audit.
The Remuneration Committee
The Remuneration Committee is comprised of three directors with Andrew Yeo as Chairman; Dr Malcolm
Butler and Geoff Barnes are the other members. The Remuneration Committee determines the contract terms,
remuneration and other benefits of the directors and senior employees. The Remuneration Committee meets
as required, but at least twice a year.
The Nominations Committee
Due to the small size of the Group, it is not considered necessary to have a Nominations Committee at this
time in the Company’s development and the Board reserves to itself the process by which a new director is
appointed.
Communications
The Company provides information on Group activities by way of press releases, Interim and Annual Financial
Statements and also the website (www.baronoilplc.com). The Company’s website is updated regularly and
contains all operational reports, press releases and Interim and Annual Financial Statements.
Internal control
The Board has the overall responsibility for identifying, evaluating and taking the necessary action to manage
the risks faced by the Company and the Group. The process of internal control is not to eliminate risk, but to
manage the risk to reasonably minimise loss.
Baron Oil Plc
Financial Report 31 December 2017
15
7 Statement of Directors’ Responsibilities
in respect of the Strategic Report, the Report of the Directors and the Financial Statements
Directors’ responsibilities
The directors are responsible for preparing the annual report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial period in accordance
with applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European
Union. Under Company law the directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss
of the Group for that year. The directors are also required to prepare the financial statements in accordance
with the rules of the London Stock Exchange for companies trading securities on the AIM market.
In preparing those financial statements, the directors are required:
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to select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether financial statements have been prepared in accordance with IFRS 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 company will continue in business.
The directors are responsible for keeping adequate accounting records which disclose with reasonable
accuracy at any time the financial position of the Company and the Group and to enable them to ensure that
the financial statements comply with the Companies Act 2006. They have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the Company and the Group and to prevent
and detect fraud and other irregularities.
Statement of disclosure to auditor
So far as the directors are aware, there is no relevant audit information of which the Group’s auditors are
unaware, and they have taken all steps that they ought to have taken as directors in order to make themselves
aware of any relevant audit information and to establish that the Group auditors are aware of that information.
Auditors
A resolution for the reappointment of Jeffreys Henry LLP as auditors will be proposed at the forthcoming
Annual General Meeting.
By order of the Board
Malcolm Butler
Chairman and Chief Executive Officer
24 May 2018
Baron Oil Plc
Financial Report 31 December 2017
16
8 Report of the Independent Auditors
to the Members of Baron Oil Plc
Opinion
We have audited the financial statements of Baron Oil PLC (the ‘parent company’) and its subsidiaries
(the ‘group’) for the year ended 31 December 2017 which comprise the consolidated income statement,
consolidated statement of comprehensive income, consolidated statement of changes in equity, company
statement of changes in equity, consolidated statement of financial position, company statement of financial
position, consolidated statement of cash flows, company statement of cash flows and notes to the financial
statements, including a summary of significant accounting policies. The financial reporting framework that has
been applied in the preparation of the group financial statements is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has
been applied in the preparation of the parent company financial statements is applicable law and United
Kingdom Accounting Standards.
In our opinion:
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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 loss 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 financial statements have been properly prepared in accordance with IFRS’s as
adopted by the European Union as applied in accordance with the provisions of the Companies Act
2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the financial statements section of our report. We are independent of the company in
accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
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:
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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.
Baron Oil Plc
Financial Report 31 December 2017
17
8 Report of the Independent Auditors
to the Members of Baron Oil Plc
Our audit approach
Overview
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a
complete list of all risks identified by our audit.
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Carrying value of investments and intangible assets.
Accounting for share capital, options, convertibles and warrants.
These are explained in more detail below.
Audit scope
l We conducted audits of the Group and Parent Company financial information of Baron Oil Plc.
l We performed specified procedures over certain account balances and transaction classes at other
Group companies.
l
Taken together, the Group companies over which we performed our audit procedures accounted for
100% of the absolute profit before tax (i.e. the sum of the numerical values without regard to whether
they were profits or losses for the relevant reporting units) and 100% of revenue.
Key audit matters
Key audit matter
Carrying value of investments and intangible
assets
The Company had intangibles of £566,351 at the
year ended 31 December 2017 (31 December
2016: £566,351).
The Directors have confirmed all intangibles, were
correctly recognised.
How our audit addressed the key audit matter
The analysis work undertaken by the directors shows
that the Group has the cash resources to undertake
the work programmes to which it is committed. We
have understood and assessed the methodology
used by the directors in this analysis and determined
it to be reasonable. The release of the bond relating
to Block Z-34 has generated cash inflow for future
projects.
The Group has applied the successful efforts method
of accounting for Exploration and Evaluation costs.
Under the successful efforts accounting, exploration
expenditure which is general in nature is charged
directly to the income statement.
The Directors have applied the successive efforts
method appropriately.
Baron Oil Plc
Financial Report 31 December 2017
18
8 Report of the Independent Auditors
to the Members of Baron Oil Plc
Key audit matter
How our audit addressed the key audit matter
We have understood and assessed the methodology
utilised to estimate the Company’s share-based
payment charge calculations and checked that the
calculation of the provision was mathematically
accurate.
We have audited the share-based payment by
reviewing the key inputs used in the model for
reasonableness.
Accounting for share capital, options,
convertibles and warrants
The charge for the year is made up as follows:
Options granted
£41,332
All share options that vest in the period have been
reviewed for the purpose of calculating an
appropriate share-based payment charge. The
Black-Scholes model has been used to value the
options at the grant date.
Options have estimated vesting periods based on
management’s assumptions and the share-based
payment is spread evenly over this period from the
date of grant.
Options vested on the grant date and the share
based payment was fully charged to the profit and
loss during the year.
There is therefore judgement in the valuation of
share-based payments, owing to the estimation
uncertainty that exists around future vesting periods.
Our application of materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds
for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit
and the nature, timing and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as
follows:
Overall materiality
How we determined it
Rationale for benchmark applied
Group financial statements
Company financial statements
£114,000 (31 December 2016:
£145,000).
£98,500 (31 December 2016:
£95,000).
Based on the average of 10% of
loss before tax and 1.5% of gross
assets.
Based on the average of 10% of
loss before tax and 1.5% of gross
assets.
used
We believe that loss before tax is a
primary measure
by
shareholders in assessing the
performance of the Group whilst
gross asset values and revenue are
a representation of the size of the
Group; both are generally
accepted auditing benchmarks.
We believe that loss before tax is
a primary measure used by
shareholders in assessing the
performance of the Company
whilst gross asset values are a
representation of the size of the
Company; both are generally
accepted auditing benchmarks.
Baron Oil Plc
Financial Report 31 December 2017
19
8 Report of the Independent Auditors
to the Members of Baron Oil Plc
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall
Group materiality. The range of materiality allocated across components is ranged from £23,000 and
£98,500.
We agreed with the Audit Committee that we would report to them misstatements identified during our
audit above £114,000 (Group audit) (31 December 2016: £145,000) and £98,500 (Company audit)
(31 December 2016: £95,000) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
An overview of the scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in
the financial statements. In particular, we looked at where the directors made subjective judgements, for
example in respect of significant accounting estimates that involved making assumptions and considering
future events that are inherently uncertain. As in all of our audits we also addressed the risk of management
override of internal controls, including evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial statements as a whole, taking into account the structure of the Group and the Company, the
accounting processes and controls, and the industry in which they operate.
The Group financial statements are a consolidation of 2 reporting units, comprising the Group’s operating
businesses and holding companies.
We performed audits of the complete financial information of the Group and Parent Company of Baron Oil
Plc reporting units, which were individually financially significant and accounted for 100% of the Group’s
revenue and 100% of the Group’s absolute profit before tax (i.e. the sum of the numerical values without
regard to whether they were profits or losses for the relevant reporting units). We also performed specified
audit procedures over goodwill and other intangible assets, as well as certain account balances and
transaction classes that we regarded as material to the Group at the 2 reporting units.
The Group engagement team performed all audit procedures, with the exception of the audit of Gold Oil Peru
S.A.C which were performed by a component auditor in Peru.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon. 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.
Baron Oil Plc
Financial Report 31 December 2017
20
8 Report of the Independent Auditors
to the Members of Baron Oil Plc
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
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the information given in the strategic report and the directors’ report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and parent company and its environment
obtained in the course of the audit, we have not identified material misstatements in the strategic report or the
directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
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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 set out on page 16, 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 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.
Baron Oil Plc
Financial Report 31 December 2017
21
8 Report of the Independent Auditors
to the Members of Baron Oil Plc
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.
As part of an audit in accordance with ISAs (UK), we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
l
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
l Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the group’s internal control.
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Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the group’s or the parent company’s ability to continue as
a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions may cause the group or the parent
company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
l Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group to express an opinion on the consolidated financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were
of most significance in the audit of the consolidated financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Baron Oil Plc
Financial Report 31 December 2017
22
8 Report of the Independent Auditors
to the Members of Baron Oil Plc
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a
body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent
in writing.
Other matters which we are required to address
We were appointed as auditors by the Company at the Annual General Meeting on 30 June 2017. Our total
uninterrupted period of engagement is 12 years, covering the periods ending to 31 December 2017.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent
company and we remain independent of the group and the parent company in conducting our audit.
Our audit opinion is consistent with the additional report to the audit committee.
Sanjay Parmar
Senior Statutory Auditor
For and on behalf of Jeffreys Henry LLP (Statutory Auditors)
Finsgate
5-7 Cranwood Street
London EC1V 9EE
24 May 2018
Baron Oil Plc
Financial Report 31 December 2017
23
9 Consolidated Income Statement
for the year ended 31 December 2017
Revenue
Cost of sales
Gross profit
Exploration and evaluation expenditure
Intangible assets written off
Intangible asset impairment
Property, plant and equipment impairment and depreciation
Goodwill impairment
Receivables and inventory impairment
Disposal of Colombian subsidiary
Disposal of Colombia branch operations
Administration expenses
(Loss)/profit on exchange
Other operating Income
Operating loss
Finance cost
Finance income
Loss on ordinary activities
before taxation
Income tax credit/(expense)
Loss on ordinary activities
after taxation
Dividends
Loss for the year
Loss on ordinary activities
after taxation is attributable to:
Equity shareholders
Non-controlling interests
Earnings per ordinary share – continuing
Basic
Diluted
Notes
2017
£’000
2016
£’000
–
–
–
(109)
(1,837)
–
–
–
43
831
–
(510)
(508)
21
(2,069)
(8)
19
(2,058)
519
(1,539)
–
(1,539)
(1,539)
–
(1,539)
–
–
–
(739)
–
(370)
95
(81)
73
–
31
(700)
1,131
319
(241)
(35)
101
(175)
(113)
(288)
–
(288)
(32)
(256)
(288)
(0.112p)
(0.112p)
(0.002p)
(0.002p)
11
10
12
3
4
3
6
6
7
9
Baron Oil Plc
Financial Report 31 December 2017
24
10 Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
Loss on ordinary activities after taxation attributable to the parent
Other comprehensive income:
Exchange difference on translating foreign operations
Total comprehensive income for the year
Total comprehensive income attributable to Owners of the parent
2017
£’000
(1,539)
35
(1,504)
(1,504)
2016
£’000
(32)
(290)
(322)
(322)
Baron Oil Plc
Financial Report 31 December 2017
25
11 Consolidated Statement of Financial Position
as at 31 December 2017
ASSETS
Non current assets
Property, plant and equipment
– oil and gas assets
– others
Intangibles
Goodwill
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Capital and reserves attributable to owners of the parent
Share capital
Share premium account
Share option reserve
Foreign exchange translation reserve
Retained earnings
Capital and reserves attributable to non-controlling interests
Total equity
Current liabilities
Trade and other payables
Taxes payable
Total equity and liabilities
Notes
2017
£’000
2016
£’000
10
10
11
12
14
15
17
18
18
18
18
19
16
16
–
–
1,260
–
1,260
18
3,992
4,010
5,270
344
30,237
122
1,723
(28,163)
–
4,263
195
812
1,007
5,270
3
–
1,325
–
1,328
2,070
5,231
7,301
8,629
344
30,237
81
1,688
(26,624)
347
6,073
1,054
1,502
2,556
8,629
The financial statements were approved and authorised for issue by the Board of Directors on 24 May 2018
and were signed on its behalf by:
Malcolm Butler
Director
Company number: 05098776
Geoffrey Barnes
Director
Baron Oil Plc
Financial Report 31 December 2017
26
12 Company Statement of Financial Position
as at 31 December 2017
ASSETS
Non current assets
Property, plant and equipment
– oil and gas assets
Intangibles
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Capital and reserves attributable to owners of the parent
Share capital
Share premium account
Share option reserve
Foreign exchange translation reserve
Retained earnings
Total equity
Current liabilities
Trade and other payables
Taxes payable
Total equity and liabilities
Notes
2017
£’000
2016
£’000
10
11
13
14
15
17
18
18
18
18
16
16
–
565
25
590
14
3,863
3,877
4,467
344
30,237
122
(163)
(27,892)
2,648
1,812
7
1,819
4,467
–
566
25
591
162
5,023
5,185
5,776
344
30,237
81
(163)
(26,550)
3,949
1,816
11
1,827
5,776
The financial statements were approved and authorised for issue by the Board of Directors on 24 May 2018
and were signed on its behalf by:
Malcolm Butler
Director
Company number: 05098776
Geoffrey Barnes
Director
Baron Oil Plc
Financial Report 31 December 2017
27
13 Consolidated and Company Statement of Changes in Equity
for the year ended 31 December 2017
GROUP
Share
Capital
£’000
Share
Premium
£’000
Retained
Earnings
£’000
Foreign
Share
Option
Reserve Translation
£’000
Non-
Exchange controlling
Interests
£’000
£’000
Total
Equity
£’000
As at 1 January 2016
344
30,237
(26,797)
286
1,978
603
6,651
Shares issued
Transactions with owners
(Loss) for the year attributable
to equity shareholders
Disposal of interest
Share based payments
Foreign exchange translation
adjustments
Total comprehensive income
for the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(32)
–
205
–
–
–
–
–
(205)
–
–
–
–
–
–
–
–
–
(256)
–
–
(288)
–
–
–
(290)
–
(290)
173
(205)
(290)
(256)
(578)
As at 1 January 2017
344
30,237
(26,624)
81
1,688
347
6,073
Shares issued
Transactions with owners
(Loss) for the year attributable
to equity shareholders
Disposal of interest
Foreign exchange translation
adjustments
Total comprehensive income
for the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,539)
–
–
(1,539)
As at 31 December 2017
344
30,237
(28,163)
–
–
41
–
–
41
122
–
–
–
–
–
–
–
–
–
(347)
(1,498)
(347)
35
–
35
35
(347)
(1,810)
1,723
–
4,263
Baron Oil Plc
Financial Report 31 December 2017
28
13 Consolidated and Company Statement of Changes in Equity
for the year ended 31 December 2017
COMPANY
Share
Capital
£’000
Share
Premium
£’000
Retained
Earnings
£’000
Share
Option
Reserve
£’000
Foreign
Exchange
Translation
£’000
Total
Equity
£’000
As at 1 January 2016
344
30,237
(26,802)
286
(234)
3,831
Shares issued
Transactions with owners
Profit for the year
Share based payments
Foreign exchange translation
adjustments
Total comprehensive income
for the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47
205
–
252
As at 1 January 2017
344
30,237
(26,550)
Shares issued
Transactions with owners
(Loss) for the year
Foreign exchange translation
adjustments
Total comprehensive income
for the year
–
–
–
–
–
–
–
–
–
–
–
–
(1,342)
–
(1,342)
As at 31 December 2017
344
30,237
(27,892)
–
–
–
(205)
–
–
–
–
–
71
–
–
47
–
71
(205)
81
–
–
41
–
41
122
71
(163)
118
3,949
–
–
–
–
–
(163)
–
–
(1,301)
–
(1,301)
2,648
Baron Oil Plc
Financial Report 31 December 2017
29
14 Consolidated and Company Statement of Cash Flows
for the year ended 31 December 2017
Operating activities
Investing activities
Return from investment and servicing of finance
Sale of Intangible assets
Cash previously not available now released
Disposal of tangible assets
Loan to subsidiary (advanced)/repaid
Acquisition of intangible assets
Acquisition of tangible fixed assets
Financing activities
Proceeds from issue of share capital
Net cash inflow
Cash and cash equivalents at the
beginning of the year
Cash and cash equivalents at the
end of the year
Reconciliation to Consolidated Statement
of Financial Position
Cash not available for use
Cash and cash equivalents as shown in the
Consolidated Statement of Financial Position
Group
2017
£’000
(680)
19
–
2,674
–
–
(298)
–
2,395
Company
2017
£’000
Group
2016
£’000
Company
2016
£’000
(508)
(2,326)
284
19
–
2,674
–
(283)
(119)
–
2,291
101
1,784
–
82
–
(492)
(1)
1,474
–
(852)
90
–
–
82
(246)
(74)
–
(148)
–
136
–
–
1,715
1,783
2,158
2,080
3,010
1,944
3,873
3,863
2,158
2,080
119
–
3,073
2,943
3,992
3,863
5,231
5,023
Baron Oil Plc
Financial Report 31 December 2017
30
14 Consolidated and Company Statement of Cash Flows
for the year ended 31 December 2017
Group
2017
£’000
Company
2017
£’000
Group
2016
£’000
Company
2016
£’000
(1,539)
(1,342)
(32)
331
–
–
(257)
–
(101)
113
(1,319)
(1,265)
(440)
71
(692)
(2,326)
47
61
–
–
–
246
(90)
–
(430)
(166)
1,178
(2)
(726)
284
–
120
41
–
74
(19)
–
478
(648)
148
(4)
(4)
(508)
Operating activities
Loss for the year attributable to
controlling interests
Depreciation, amortisation and
impairment charges
Loss on disposal of assets
Share based payments
Non-cash movement arising on consolidation
of non-controlling interests
Impairment of investment
Finance income shown as an investing activity
Tax (benefit)/expense
Foreign exchange translation
Operating cash outflows before movements
in working capital
(Increase)/decrease in receivables
Tax paid
Increase/(decrease) in payables
2
–
41
(347)
–
(19)
(519)
512
(1,869)
2,052
(4)
(859)
Net cash (outflows)/inflows from operating activities
(680)
Baron Oil Plc
Financial Report 31 December 2017
31
15 Notes to the Financial Statements
for the year ended 31 December 2017
General information
Baron Oil Plc is a company incorporated in England and Wales and quoted on the AIM market of the London
Stock Exchange. The address of the registered office is disclosed on page 2 of the financial statements. The
principal activity of the Group is described in the Strategic Report in section 4.
1
Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements
are set out below. These policies have been consistently applied to all the periods presented, unless
otherwise stated.
Going concern basis
These financial statements have been prepared on the assumption that the Group is a going concern.
When assessing the foreseeable future, the directors have looked at a period of twelve months from the
date of approval of this report. The forecast cash-flow requirements of the business for this period are
covered by existing cash resources.
The uncertainty as to the timing and volume of the future growth in sales and source of funds from
investment partners requires the directors to consider the Group’s ability to continue as a going concern.
Notwithstanding this uncertainty, the directors believe that the Group has demonstrated progress in
achieving its objective of positioning the assets for future investment.
After making enquiries, the directors firmly believe that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern
basis in preparing the financial statements.
Were the Group to be unable to continue as a going concern, adjustments may have to be made to the
statement of financial position of the Group to reduce statement of financial position values of assets to
their recoverable amounts, to provide for future liabilities that might arise and to reclassify non-current
assets and long-term liabilities as current assets and liabilities.
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRSs) and IFRIC interpretations issued by the International Accounting Standards Board
(IASB) as adopted by the European Union and with those parts of the Companies Act 2006 applicable
to companies reporting under IFRS. The financial statements have been prepared under the historical
cost convention. The principal accounting policies adopted are set out below.
New and amended standards adopted by the company
There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year
beginning on or after 1 January 2017 that would be expected to have a material impact on the
Company.
Baron Oil Plc
Financial Report 31 December 2017
32
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Standards, interpretations and amendments to published standards that are not yet effective
The following new standards, amendments to standards and interpretations have been issued, but are
not effective for the financial period beginning 1 January 2017 and have not been early adopted. The
Director anticipates that the adoption of these standard and the interpretations in future period will have
no material impact on the financial statements of the Company.
Reference
Title
Summary
Application date
of standard
Application
date of
Company
Amendments First-time
to IFRS 1
Adoption of
International
Financial
Reporting
Standards
Amendments resulting from
Annual Improvements 2014-2016 beginning on or after 2018
Cycle (removing short-term
exemptions)
1 January 2018
Annual periods
1 January
Amendments Share-based
to IFRS 2
payments
Amendments to clarify the
classification and measurement of
share based payment transactions
Annual period
beginning on or after 2018
1 January 2018
1 January
Amendments Insurance
Contracts
to IFRS 4
Amendments regarding the
interaction of IFRS 4 and IFRS 9
Amendments Financial
to IFRS 9
Instruments
Amendments regarding the
interaction of IFRS 4 and IFRS 9
IFRS 15
Revenue from Original issue
Contracts with
Customers
IFRS 16
Leases
Original issue
Annual period
beginning on or after 2018
1 January 2018
1 January
Annual period
beginning on or after 2018
1 January 2018
1 January
Annual periods
beginning on or after 2018
1 January 2018
1 January
Annual periods
beginning on or after 2019
1 January 2019
1 January
Annual periods
1 January
Amendments Investments in Amendments resulting from
to IAS 28
Associates and Annual improvements 2014-2016 beginning on or after 2018
Joint Ventures
January 2018
cycle (Clarifying certain fair value
measurements)
Amendments Financial
to IAS 39
Instruments:
Recognition
and
measurement
Amendments Investment
to IAS 40
Property
Applies when IFRS9
applied
1 January
2018
Amendments to permit entity to
elect to continue to apply the
hedge accounting requirements in
IAS 39 for a fair value hedge of the
interest rate exposure of a portion
of a portfolio of financial assets or
financial liabilities when IFRS9 is
applied and to extend the fair value
option to certain contracts that meet
the ‘own use’ scope exception
Amendments to clarify transfers or Annual period
property to, or from investment
property
beginning on or after 2018
January 2018
1 January
The directors anticipate that the adoption of these standards and the interpretations in future periods will
have no material impact on the financial statements of the Company.
Baron Oil Plc
Financial Report 31 December 2017
33
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its
subsidiaries and associated undertakings.
Subsidiaries
Subsidiaries are all entities over which Baron Oil Plc has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights, or where
Baron Oil Plc exercises effective operational control. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when assessing whether the Group controls
another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the
Company. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority
interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable
net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between Group companies
are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset
transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Joint ventures
Where the Group is engaged in oil and gas exploration and appraisal through unincorporated joint
ventures, the Group accounts for its share of the results and net assets of these joint ventures as jointly
controlled assets. The Group’s interests in jointly controlled entities are accounted for by proportionate
consolidation. The Group combines its share of the joint ventures’ individual income and expenses,
assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial
statements. The Group recognises the portion of gains or losses on the sale of assets by the group to the
joint venture that is attributable to the other venturers. The Group does not recognise its share of profits
or losses from the joint venture that result from the Group’s purchase of assets from the joint venture until
it re-sells the assets to an independent party. However, a loss on the transaction is recognised
immediately if the loss provides evidence of a reduction in the net realisable value of current assets, or
an impairment loss. In addition, where the Group acts as operator of the joint venture, the gross liabilities
and receivables (including amounts due to or from non-operating partners) of the joint venture are
included in the Consolidated Statement of financial position.
Business combinations
The Group has chosen to adopt IFRS 3 prospectively from the date of transition and not restate historic
business combinations from before this date. Business combinations from the date of transition are
accounted for under IFRS 3 using the purchase method.
Baron Oil Plc
Financial Report 31 December 2017
34
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the
net identifiable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on
acquisitions of subsidiaries is included in ‘intangible assets’. Separately recognised goodwill is tested
annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on
goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is
made to those cash-generating units or groups of cash-generating units that are expected to benefit from
the business combination in which the goodwill arose. The Group allocates goodwill to each business
segment in each country in which it operates.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are
tested annually for impairment.
At each statement of financial position date, the Group reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted 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 for
which the estimates of future cash flows have not been adjusted.
Impairment of non-financial assets continued
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a
re-valued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (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 asset (cash-generating unit) in prior periods. A reversal of an impairment loss is
recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which
case the reversal of the impairment loss is treated as a revaluation increase.
Baron Oil Plc
Financial Report 31 December 2017
35
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Intangible assets
Oil and gas assets: exploration and evaluation
The Group has continued to apply the ‘successful efforts’ method of accounting for Exploration and
Evaluation (“E&E”) costs, having regard to the requirements of IFRS 6 ‘Exploration for the Evaluation of
Mineral Resources’.
The successful efforts method means that only the costs which relate directly to the discovery and
development of specific oil and gas reserves are capitalised. Such costs may include costs of license
acquisition, technical services and studies, seismic acquisition; exploration drilling and testing but do not
include costs incurred prior to having obtained the legal rights to explore the area. Under successful
efforts accounting, exploration expenditure which is general in nature is charged directly to the income
statement and that which relates to unsuccessful drilling operations, though initially capitalised pending
determination, is subsequently written off. Only costs which relate directly to the discovery and
development of specific commercial oil and gas reserves will remain capitalised and to be depreciated
over the lives of these reserves. The success or failure of each exploration effort will be judged on a well-
by-well basis as each potentially hydrocarbon-bearing structure is identified and tested. Exploration and
evaluation costs are capitalised within intangible assets. Capital expenditure on producing assets is
accounted for in accordance with SORP ‘Accounting for Oil and Gas Exploration’. Costs incurred prior
to obtaining legal rights to explore are expensed immediately to the income statement.
All lease and licence acquisition costs, geological and geophysical costs and other direct costs of
exploration, evaluation and development are capitalised as intangible or property, plant and equipment
according to their nature. Intangible assets comprise costs relating to the exploration and evaluation of
properties which the directors consider to be unevaluated until reserves are appraised as commercial, at
which time they are transferred to tangible assets as ‘Developed oil and gas assets’ following an impairment
review and depreciated accordingly. Where properties are appraised to have no commercial value, the
associated costs are treated as an impairment loss in the period in which the determination is made.
Costs are amortised on a field by field unit of production method based on commercial proven and
probable reserves, or to the expiry of the licence, whichever is earlier.
The calculation of the ‘unit of production’ amortisation takes account of the estimated future
development costs and is based on the current period and un-escalated price levels. Changes in reserves
and cost estimates are recognised prospectively.
E&E costs are not amortised prior to the conclusion of appraisal activities.
Property, plant and equipment
Oil and gas assets: development and production
Development and production (“D&P”) assets are accumulated on a well by well basis and represent the
cost of developing the commercial reserves discovered and bringing them into production, together with
the E&E expenditures incurred in finding commercial reserves transferred from intangible E&E assets as
outlined above. The carrying values of producing assets are depreciated on a well by well basis using
the unit of production method based on entitlement to provide by reference to the ratio of production in
the period to the related commercial reserves of the well, taking into account any estimated future
development expenditures necessary to bring additional non producing reserves into production.
An impairment test is performed for D&P assets whenever events and circumstances arise that indicate
that the carrying value of development or production phase assets may exceed its recoverable amount.
The aggregate carrying value is compared against the expected recoverable amount of each well,
generally by reference to the present value of the future net cash flows expected to be derived from
production of commercial reserves.
The cost of the workovers and extended production testing is capitalised within property, plant and
equipment as a D&P asset.
Baron Oil Plc
Financial Report 31 December 2017
36
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Property, plant and equipment continued
Decommissioning
Site restoration provisions are made in respect of the estimated future costs of closure and restoration, and
for environmental rehabilitation costs (which include the dismantling and demolition of infrastructure,
removal of residual materials and remediation of disturbed areas) in the accounting period when the
related environmental disturbance occurs. The provision is discounted where material and the unwinding
of the discount is included in finance costs. Over time, the discounted provision is increased for the change
in present value based on the discount rates that reflect current market assessments and the risks specific
to the liability. At the time of establishing the provision, a corresponding asset is capitalised where it gives
rise to a future benefit and depreciated over future production from the field to which it relates. The
provision is reviewed on an annual basis for changes in cost estimates, discount rates or life of operations.
Any change in restoration costs or assumptions will be recognised as additions or charges to the
corresponding asset and provision when they occur. For permanently closed sites, changes to estimated
costs are recognised immediately in the income statement.
Non oil and gas assets
Non oil and gas assets are stated at cost of acquisition less accumulated depreciation and impairment
losses. Depreciation is provided on a straight-line basis at rates calculated to write off the cost less the
estimated residual value of each asset over its expected useful economic life. The residual value is the
estimated amount that would currently be obtained from disposal of the asset if the asset were already
of the age and in the condition expected at the end of its useful life.
Buildings, plant and equipment unrelated to production are depreciated using the straight-line method
based on estimated useful lives.
The annual rate of depreciation for each class of depreciable asset is:
Equipment and machinery
4-10 years
The carrying value of tangible fixed assets is assessed annually and any impairment is charged to the
income statement.
Investments
Investments are stated at cost less provision for any impairment in value.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method, less provision for impairment. A provision for impairment is
established when there is objective evidence that the Group will not be able to collect all amounts due
according to the original terms of the receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency
in payments are considered indicators that the trade receivable is impaired.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term
highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities on the statement of financial position.
Inventories
Inventories, including materials, equipment and inventories of gas and oil held for sale in the ordinary
course of business, are stated at weighted average historical cost, less provision for deterioration and
obsolescence or, if lower, net realisable value.
Baron Oil Plc
Financial Report 31 December 2017
37
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Revenue
Oil and gas sales revenue is measured at the fair value of the consideration received or receivable and
represents amounts receivable for the Group’s share of oil and gas supplied in the period. Revenue is
shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.
Revenue is recognised when the oil and gas produced is despatched and received by the customers.
Taxation
Income tax
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit or loss for the year. Taxable profit or loss differs from
profit or loss as reported in the same income statement because it excludes items of income or expense
that are taxable or deductible in other periods and it further excludes items that are never taxable or
deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the statement of financial position date.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the statement of financial position liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax is reviewed at each statement of financial position date and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled
or the asset realised. Deferred tax is charged or credited to income statement, except when it relates to
items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and 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.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Fair values
The carrying amounts of the financial assets and liabilities such as cash and cash equivalents, receivables
and payables of the Group at the statement of financial position date approximated their fair values, due
to relatively short term nature of these financial instruments.
The Company provides financial guarantees to licensed banks for credit facilities extended to a
subsidiary company. The fair value of such financial guarantees is not expected to be significantly
different as the probability of the subsidiary company defaulting on the credit lines is remote.
Baron Oil Plc
Financial Report 31 December 2017
38
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Share-based compensation
The fair value of the employee and suppliers services received in exchange for the grant of the options is
recognised as an expense. The total amount to be expensed over the vesting period is determined by
reference to the fair value of the options granted, excluding the impact of any non-market vesting
conditions (for example, profitability and sales growth targets). Non-market vesting conditions are
included in assumptions about the number of options that are expected to vest. At each statement of
financial position date, the entity revises its estimates of the number of options that are expected to vest.
It recognises the impact of the revision to original estimates, if any, in the income statement, with a
corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are credited to share capital
(nominal value) and share premium when the options are exercised.
Share based payments (Note 20)
The fair value of share-based payments recognised in the income statement is measured by use of the
Black Scholes model, which takes into account conditions attached to the vesting and exercise of the
equity instruments. The expected life used in the model is adjusted; based on management’s best
estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The
share price volatility percentage factor used in the calculation is based on management’s best estimate
of future share price behaviour and is selected based on past experience, future expectations and
benchmarked against peer companies in the industry.
Equity instruments
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from proceeds.
Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event, and
it is probable that the Company will be required to settle that obligation. Provisions are measured at the
directors’ best estimate of the expenditure required to settle the obligation at the statement of financial
position date, and are discounted to present value where the effect is material.
Financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other
receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair
value through profit or loss, any directly attributable transactions costs, except as described below.
Subsequent to initial recognition non-derivative financial instruments are measured as described below.
A financial instrument is recognised when the Group becomes a party to the contractual provisions of
the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from
the financial assets expire or if the Group transfers the financial assets to another party without retaining
control or substantially all risks and rewards of the asset. Regular purchases and sales of financial assets
are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset.
Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are
discharged or cancelled.
Baron Oil Plc
Financial Report 31 December 2017
39
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Foreign currencies
(i)
Functional and presentation currency
Items included in the financial statements of the Group are measured using the currency of the
primary economic environment in which the entity operates (the functional currency), which are
mainly in Pounds Sterling (£), US Dollars (USD), Colombian Pesos (COP) and Peruvian Nuevo Sol
(PEN). The financial statements are presented in Pounds Sterling (£), which is the Group’s
presentation currency.
(ii)
Transactions and balances
Foreign currency transactions are translated into the presentational currency using exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at period-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the income statement.
(iii) Group companies
The results and financial position of all Group entities (none of which has the currency of a hyper-
inflationary economy) that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
(a)
(b)
assets and liabilities for each statement of financial position presented are translated at the
closing rate at the date of that statement of financial position;
income and expenses for each income statement are translated at average exchange rates
(unless this average is not a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and expenses are translated at the
rate on the dates of the transactions); and
(c)
all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign
operations, and of borrowings and other currency instruments designated as hedges of such
investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or
sold, exchange differences that were recorded in equity are recognised in the income statement as
part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as
assets and liabilities of the foreign entity and translated at the closing rate.
Management of capital
The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when
they become due. The principal liabilities of the Group arise in respect of committed expenditure in
respect of its ongoing exploration work. To achieve this aim, it seeks to raise new equity finance and debt
sufficient to meet the next phase of exploration and where relevant development expenditure.
The Board receives cash flow projections on a monthly basis as well as information on cash balances.
The Board will not commit to material expenditure in respect of its ongoing exploration work prior to
being satisfied that sufficient funding is available to the Group to finance the planned programmes.
Dividends cannot be issued until there are sufficient reserves available.
Critical accounting judgments and key sources of estimation uncertainty
The preparation of the consolidated financial statements requires management to make estimates and
assumptions concerning the future that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. The resulting accounting estimates will,
by definition, differ from the related actual results.
Baron Oil Plc
Financial Report 31 December 2017
40
15 Notes to the Financial Statements
for the year ended 31 December 2017
1
Significant accounting policies continued
Plant and equipment, intangible assets & impairment of goodwill
Intangible assets plant and equipment are amortised or depreciated over their useful lives. Useful lives
are based on management’s estimates of the period that the assets will generate revenue, which are
periodically reviewed for continued appropriateness. Changes to the estimates used can result in
significant variations in the carrying value.
The Group assesses the impairment of plant and equipment and intangible assets subject to amortisation
or depreciation whenever events or changes in circumstances indicate that the carrying value may not
be recoverable.
Additionally, goodwill arising on acquisitions is subject to impairment review. The Group’s management
undertakes an impairment review of goodwill annually or more frequently if events or changes in
circumstances indicate that the carrying value may not be recoverable.
The discount rate used by the Group during the period for impairment testing was 10%.
The complexity of the estimation process and issues related to the assumptions, risks and uncertainties
inherent in the application of the Group’s accounting estimates in relation to plant and equipment and
intangible assets affect the amounts reported in the financial statements, especially the estimates of the
expected useful economic lives and the carrying values of those assets. If business conditions were
different, or if different assumptions were used in the application of this and other accounting estimates,
it is likely that materially different amounts could be reported in the Group’s financial statements.
The directors have carried out a detailed impairment review in respect of goodwill. The Group assesses
at each reporting date whether there is an indication that an asset may be impaired, by considering the
net present value of discounted cash flows forecasts which have been discounted at 10%. The cash flow
projections are based on the assumption that the Group can realise projected sales. A prudent approach
has been applied with no residual value being factored. At the period end, based on these assumptions
there was no indication of impairment of the value of goodwill.
However, if the projected sales do not materialise there is a risk that the value of the intangible assets
shown above would be impaired.
Commercial reserves estimates
Oil and gas reserve estimates: estimation of recoverable reserves include assumptions regarding
commodity prices, exchange rates, discount rates, production and transportation costs all of which
impact future cashflows. It also requires the interpretation of complex geological and geophysical models
in order to make an assessment of the size, shape, depth and quality of reservoirs and their anticipated
recoveries. The economic, geological and technical factors used to estimate reserves may change from
period to period. Changes in estimated reserves can impact developed and undeveloped property
carrying values, asset retirement costs and the recognition of income tax assets, due to changes in
expected future cash flows. Reserve estimates are also integral to the amount of depletion and
depreciation charged to income.
Decommissioning costs
Asset retirement obligations: the amounts recorded for asset retirement obligations are based on each
field’s operator’s best estimate of future costs and the remaining time to abandonment of oil and gas
properties, which may also depend on commodity prices.
Accounting estimates
The preparation of the consolidated financial statements requires management to make estimates and
assumptions concerning the future that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. The resulting accounting estimates will,
by definition, differ from the related actual results.
Baron Oil Plc
Financial Report 31 December 2017
41
15 Notes to the Financial Statements
for the year ended 31 December 2017
2
Segmental Information
In the opinion of the Directors the Group has one class of business, being the exploration for, and
development and production of, oil and gas reserves, and other related activities.
The Group’s primary reporting format is determined to be the geographical segment according to the
location of the oil and gas asset. There are currently three geographic reporting segments: South
America, which has been involved in production, development and exploration activity, South East Asia
where production, development and exploration activity is being assessed, and the United Kingdom
being the head office and where exploration activity is taking place.
United
Kingdom
£’000
South
America
£’000
South East
Asia
£’000
Exploration and production
year ended 31 December 2017
Revenue – oil
Cost of sales
Gross profit
Exploration and evaluation expenditure
Intangible asset written off
Intangible asset impairment
Goodwill impairment
Receivables and inventory impairment
Disposal of Colombian subsidiary
Administration expenses
(Loss)/profit on exchange
Other operating income
Operating (loss)/profit
Finance costs
Finance income
(Loss)/Profit before taxation
Income tax expense
Loss/(Profit) after taxation
Assets and liabilities
Segment assets
Cash and cash equivalents
Total assets
Segment liabilities
Current tax liabilities
Total liabilities
–
–
–
–
–
–
–
–
–
(510)
(508)
9
(1,009)
–
19
(990)
–
(990)
14
3,863
3,877
108
7
115
–
–
–
(19)
(1,837)
–
–
43
831
–
–
12
(970)
(8)
–
(978)
519
(459)
1,264
129
1,393
87
805
892
Other segment items
Capital expenditure
Depreciation, amortisation and
impairment charges
–
–
298
(43)
Baron Oil Plc
Financial Report 31 December 2017
42
Total
£’000
–
–
–
(109)
(1,837)
–
–
43
831
(510)
(508)
21
(2,069)
(8)
19
(2,058)
519
(1,539)
1,278
3,992
5,270
195
812
1,007
298
(43)
–
–
–
(90)
–
–
–
–
–
–
–
–
(90)
–
–
(90)
–
(90)
–
–
–
–
–
–
–
–
15 Notes to the Financial Statements
for the year ended 31 December 2017
2
Segmental Information continued
Exploration and production
year ended 31 December 2016
United
Kingdom
£’000
South
America
£’000
South East
Asia
£’000
Revenue – oil
Cost of sales
Gross profit
Exploration and evaluation expenditure
Intangible asset impairment
Property, plant and equipment impairment
Goodwill impairment
Receivables impairment
Disposal of Colombia branch operations
Administration expenses
(Loss)/profit on exchange
Other operating income
Operating (loss)/profit
Finance costs
Finance income
(Loss)/Profit before taxation
Income tax expense
(Loss)/profit before taxation
Assets and liabilities
Segment assets
Cash and cash equivalents
Total assets
Segment liabilities
Current tax liabilities
Total liabilities
Other segment items
Capital expenditure
Depreciation, amortisation and
impairment charges
–
–
–
(658)
–
–
–
–
–
(529)
1,091
308
212
–
90
302
–
302
163
5,023
5,186
155
11
166
–
–
–
–
–
–
(370)
95
(81)
73
31
(171)
40
11
(372)
(35)
11
(396)
(113)
(509)
3,235
208
3,443
899
1,491
2,390
521
283
–
–
–
(81)
–
–
–
–
–
–
–
–
(81)
–
–
(81)
–
(81)
–
–
–
–
–
–
–
–
Total
£’000
–
–
–
(739)
(370)
95
(81)
73
31
(700)
1,131
319
(241)
(35)
101
(175)
(113)
(288)
3,398
5,231
8,629
1,054
1,502
2,556
521
283
Baron Oil Plc
Financial Report 31 December 2017
43
15 Notes to the Financial Statements
for the year ended 31 December 2017
3
(Loss) from operations
The loss on ordinary activities before taxation is stated after charging:
Auditors’ remuneration
Group – audit
Company – audit
Group – other non-audit services
Company – other non-audit services
Exploration and evaluation expenditure
Depreciation of non oil and gas assets
Depreciation of oil and gas assets
Intangible asset written off
Impairment of intangible assets
Impairment of property, plant and equipment
Impairment of foreign tax receivables
Loss/(gain) on exchange
2017
£’000
21
21
5
5
109
–
–
1,837
–
–
(43)
508
2016
£’000
29
15
5
5
739
–
–
–
451
95
(73)
(1,131)
The analysis of development and administrative expenses in the consolidated income statement by nature
of expense is:
Employee benefit expense
Exploration and evaluation expenditure
Depreciation, amortisation and impairment charges
Legal and professional fees
Loss/(gain) on exchange
Other expenses
4 Other operating income
Release of historic liabilities
Other
2017
£’000
311
109
(43)
140
508
59
1,084
2017
£’000
–
21
21
2016
£’000
423
739
283
180
(1,131)
97
591
2016
£’000
304
15
319
Baron Oil Plc
Financial Report 31 December 2017
44
15 Notes to the Financial Statements
for the year ended 31 December 2017
5
Staff numbers and cost
The average number of persons employed by the Group (including directors) during the year, analysed
by category, were as follows:
2017
Number
2016
Number
Directors
Technical and production
Administration
Total
The aggregate payroll costs of these persons were as follows:
3
–
–
3
3
2
3
8
£’000
£’000
Wages and salaries
Directors’ salaries
Share based payments
Social security costs
6
Finance income
Bank and other interest received
Finance cost
Total
7
Income tax expense
The tax charge on the loss on ordinary activities was:
UK Corporation Tax – current
Foreign taxation
–
243
41
27
311
2017
£’000
19
(8)
11
2017
£’000
–
(519)
(519)
The total charge for the year can be reconciled to the accounting profit as follows:
(Loss) before tax
Continuing operations
Tax at composite group rate of 21.1% (2016: 21.9%)
Effects of:
Losses/(profits) not subject to tax
Change of tax rate on brought forward tax loss
Increase in tax losses
Foreign taxation
Tax expense
2017
£’000
(2,058)
(434)
9
(168)
593
(519)
(519)
92
297
–
34
423
2016
£’000
101
(35)
66
2016
£’000
–
113
113
2016
£’000
(175)
(38)
(61)
13
86
113
113
At 31 December 2017, the Group has trading tax losses of £22,249,000 (31 December 2016:
£22,052,000) to carry forward against future profits, plus capital losses of £5,707,000 (2016: £2,589,000)
to offset against future capital gains. The deferred tax asset on these tax losses at 21.1% of £5,899,000
(31 December 2016: at 21.8%, £5,371,000) has not been recognised due to the uncertainty of the recovery.
Baron Oil Plc
Financial Report 31 December 2017
45
15 Notes to the Financial Statements
for the year ended 31 December 2017
8
Loss for the period
As permitted by section 408 of the Companies Act 2006, the Parent Company’s income statement has
not been included in these financial statements. The loss for the financial year is made up as follows:
Parent company’s (loss)/profit
9
Earnings per share
Loss per ordinary share
– Basic
– Diluted
2017
£’000
(1,342)
2016
£’000
47
2017
2016
(0.112p)
(0.112p)
(0.002p)
(0.002p)
Earnings per ordinary share is based on the Group’s loss attributable to controlling interests for the year
of £1,539,000 (2016: £32,000).
The weighted average number of shares used in the calculation is the weighted average ordinary shares
in issue during the year.
Weighted average ordinary shares in issue
during the year
Potentially dilutive warrants issued
Weighted average ordinary shares for diluted
earnings per share
2017
Number
2016
Number
1,376,409,576
28,859,896
1,376,409,576
35,172,414
1,405,269,472
1,411,581,990
Due to the Group’s results for the year, the diluted earnings per share was deemed to be the same as
the basic earnings per share for that year.
Baron Oil Plc
Financial Report 31 December 2017
46
15 Notes to the Financial Statements
for the year ended 31 December 2017
10 Property, plant and equipment
GROUP
Development
and production
costs
£’000
Equipment
and
machinery
£’000
Vehicles
£’000
Total
£’000
Cost
At 1 January 2016
Foreign exchange translation adjustment
Expenditure
Disposals
At 1 January 2017
Foreign exchange translation adjustment
Expenditure
Disposals
At 31 December 2017
Depreciation
At 1 January 2016
Foreign exchange translation adjustment
Charge for the period
Disposals
Impairment charge
At 1 January 2017
Foreign exchange translation adjustment
Charge for the period
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
879
(111)
1
(731)
38
(5)
–
(1)
32
875
(112)
2
(633)
(97)
35
(5)
2
–
32
–
3
23
–
–
–
23
–
–
(23)
–
23
–
–
–
–
23
–
–
(23)
–
–
–
902
(111)
1
(731)
61
(5)
–
(24)
32
898
(112)
2
(633)
(97)
58
(5)
2
(23)
32
–
3
Baron Oil Plc
Financial Report 31 December 2017
47
15 Notes to the Financial Statements
for the year ended 31 December 2017
10 Property, plant and equipment continued
COMPANY
Cost
At 1 January 2016
Expenditure
Disposals
At 1 January 2017
Expenditure
Disposals
At 31 December 2017
Depreciation
At 1 January 2016
Charge for the year
Disposals
At 1 January 2017
Charge for the period
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Development
and production
costs
£’000
Equipment
and
machinery
£’000
Total
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
–
(7)
–
–
–
–
7
–
(7)
–
–
–
–
–
–
7
–
(7)
–
–
–
–
7
–
(7)
–
–
–
–
–
–
Baron Oil Plc
Financial Report 31 December 2017
48
15 Notes to the Financial Statements
for the year ended 31 December 2017
11 Intangible fixed assets
GROUP
Cost
At 1 January 2016
Foreign exchange translation adjustment
Expenditure
Disposals
At 1 January 2017
Foreign exchange translation adjustment
Expenditure
Disposals
At 31 December 2017
Impairment
At 1 January 2016
Foreign exchange translation adjustment
Charge for the period
Disposals
At 1 January 2017
Foreign exchange translation adjustment
Charge for the period
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Exploration
and
evaluation
costs
£’000
6,280
598
492
(3,061)
4,309
(334)
298
(1,953)
2,320
3,732
200
370
(1,318)
2,984
–
–
(1,924)
1,060
1,260
1,325
Licence
£’000
1,896
–
–
(1,896)
–
–
–
–
–
1,896
–
–
(1,896)
–
–
–
–
–
–
–
Total
£’000
8,176
598
492
(4,957)
4,309
(334)
298
(1,953)
2,320
5,628
200
370
(3,214)
2,984
–
–
(1,924)
1,060
1,260
1,325
Baron Oil Plc
Financial Report 31 December 2017
49
15 Notes to the Financial Statements
for the year ended 31 December 2017
11 Intangible fixed assets continued
COMPANY
Cost
At 1 January 2016
Expenditure
Disposals
At 1 January 2017
Expenditure
Disposals
At 31 December 2017
Impairment
At 1 January 2016
Charge for the year
Disposals
At 1 January 2017
Expenditure
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Exploration
and
evaluation
costs
£’000
Licence
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,272
74
(1,651)
1,695
119
(1,180)
634
2,719
(559)
(1,031)
1,129
–
(1,060)
69
565
566
Total
£’000
3,272
74
(1,651)
1,695
119
(1,180)
634
2,719
(559)
(1,031)
1,129
–
(1,060)
69
565
566
The exploration and evaluation costs above represent the cost in acquiring, exploring and evaluating the
company’s and group’s assets.
The impairment of all intangible assets has been reviewed, giving rise to the following impairment
charges, or reduction in impairment charges.
Block Z34 offshore Peru: following the relinquishment of the contract in December 2017, the whole of
the net carrying value of the intangible asset relating to this block has now been written off.
Block XXI Peru: this contract is fully impaired except for the cost of seismic acquisition and analysis
incurred in 2015 and 2016 where encouraging results are expected to lead to the drilling of an
exploration well.
Baron Oil Plc
Financial Report 31 December 2017
50
15 Notes to the Financial Statements
for the year ended 31 December 2017
12 Goodwill
GROUP
Cost
At 1 January 2016
Additions
At 1 January 2017
Disposals
At 31 December 2017
Impairment
At 1 January 2016
Charge for the period
At 1 January 2017
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Goodwill on
consolidation
of subsidiaries
£’000
2,326
81
2,407
(2,326)
81
2,326
81
2,407
(2,326)
81
–
–
The carrying value of goodwill represents the purchase of shares in Gold Oil Peru SAC.
Baron Oil Plc
Financial Report 31 December 2017
51
15 Notes to the Financial Statements
for the year ended 31 December 2017
13 Investments
COMPANY
Cost
At 1 January 2016
Exchange rate adjustment
Additions
Disposals
Net loan movements
At 1 January 2017
Exchange rate adjustment
Disposals
Net loan movements
At 31 December 2017
Impairment
At 1 January 2016
Charge/(release) for the year
Disposals
At 1 January 2017
Charge/(release) for the year
Disposals
At 31 December 2017
Carrying value
At 31 December 2017
At 31 December 2016
Loans to
group
undertaking
£’000
Shares in
group
undertaking
£’000
2,831
569
–
–
(404)
2,996
(208)
(723)
283
2,348
2,831
165
–
2,996
75
(723)
2,348
–
–
8,612
–
81
(1,903)
–
6,790
–
(3,118)
–
3,672
8,587
81
(1,903)
6,765
–
(3,118)
3,647
25
25
Total
£’000
11,443
569
81
(1,903)
(404)
9,786
(208)
(3,841)
283
6,020
11,418
246
(1,903)
9,761
75
(3,841)
5,995
25
25
In April 2014, the Group disposed of a 50% interest in Inversiones Petroleras de Colombia SA
(“Invepetrol”), incorporated in Colombia. In previous years, the company had effective control of the
operations and the results of the company’s operations were consolidated with the 50% no longer held
by the Group being shown as a non-controlling interest. In March 2017, the 50% partner, CI
International Fuels of Colombia, took control of the board of Invepetrol and, as a result, the company
no longer has operational control and the results and financial position of that company have been
deconsolidated. It is expected that Invepetrol will be liquidated during the course of 2018 and the
company’s interest in that company has now been fully written off.
The company has made provision on the the investment in Gold Oil Peru S.A.C. of £5,884,000
(2016: £5,771,000).
Baron Oil Plc
Financial Report 31 December 2017
52
15 Notes to the Financial Statements
for the year ended 31 December 2017
13 Investments continued
The Company’s subsidiary undertakings at the year end were as follows:
Subsidiary/
controlled entity
Place of
incorporation
and operation
Proportion
of ownership
interest
%
Proportion
of voting
power held
%
Method
used to
account for
investment
Nature of business
Gold Oil Peru S.A.C Peru
Gold Oil
Caribbean Limited
Commonwealth of
Dominica
Ayoopco Ltd (i)
England
100
100
100
All shareholdings are in ordinary, voting shares.
The results of subsidiaries is as follows:
Gold Oil Plc Sucursal Colombia
Aggregate capital and reserves
Profit/(Loss) for the year
Gold Oil Peru S.A.C
Aggregate capital and reserves
Profit/(Loss) for the year
Gold Oil Caribbean Limited
Aggregate capital and reserves
Profit for the year
Ayoopco Ltd
Aggregate capital and reserves
(Loss) for the year
Nexxus Energy Corporation
Aggregate capital and reserves
Profit/(Loss) for the year
Inversiones Petroleras de Colombia SA
Aggregate capital and reserves
Profit/(Loss) for the year
(i)
In the course of dissolution.
100
100
equity method
Exploration of oil and gas
equity method
Exploration of oil and gas
100
equity method
Exploration and
production of oil and gas
2017
£’000
–
–
(672)
(2,162)
1,421
–
–
–
–
–
–
–
2016
£’000
–
(11)
1,533
(174)
1,705
284
–
–
–
–
(1,472)
(512)
Baron Oil Plc
Financial Report 31 December 2017
53
15 Notes to the Financial Statements
for the year ended 31 December 2017
14 Trade and other receivables
Trade receivables
Other receivables
Short term loan
Amounts owed by subsidiary and
associate undertakings
Prepayments and accrued income
2017
Group
£’000
Company
£’000
–
10
–
–
8
18
–
6
–
–
8
14
Group
£’000
–
314
1,621
–
135
2,070
2016
Company
£’000
–
153
–
–
9
162
15 Cash and cash equivalents
2017
2016
Bank current accounts
Bank deposit accounts
Group
£’000
1,183
2,809
3,992
Company
£’000
1,183
2,680
3,863
Group
£’000
2,074
3,157
5,231
Company
£’000
2,074
2,949
5,023
Bank deposit accounts comprise cash held by the Group and short-term bank deposits with an original
maturity of three months or less and earn interest at respective short-term deposit rates. The carrying
amount of these assets approximates to their fair value.
As at 31 December 2017, bank deposits included £119,000 (2016: £3,073,000) that is being held as
a guarantee until the Group fulfills certain licence commitments in Peru and is not available for use. This
is not considered to be liquid cash and has therefore been excluded from the cash flow statement.
16 Trade and other payables
Bank loans and overdrafts
Trade payables
Other payables
Amounts owed to subsidiary and
associate undertakings
Accruals and deferred income
Provisions
Taxation
2017
Group
£’000
Company
£’000
–
9
–
–
186
–
812
1,007
–
3
–
1,705
104
–
7
1,819
17 Share capital
Allotted, called up and fully paid
Equity: 1,376,409,576 (2016: 1,376,409,576)
ordinary shares of £0.00025 each
No shares were issued during the year.
Group
£’000
–
99
604
–
351
–
1,502
2,556
2016
Company
£’000
–
8
–
1,705
103
–
11
1,827
2017
£’000
2016
£’000
344
344
Baron Oil Plc
Financial Report 31 December 2017
54
15 Notes to the Financial Statements
for the year ended 31 December 2017
18 Share premium and reserves
GROUP
At beginning of the year
Loss for the year attributable to
controlling interests
Share based payments current year
Foreign exchange translation adjustments
COMPANY
At beginning of the year
Loss for the year
Share based payments current year
Foreign exchange translation adjustments
Share
premium
account
£’000
30,237
–
–
–
Share
option
reserve
£’000
81
–
41
–
Foreign
exchange
translation
reserve
£’000
Profit
and loss
account
£’000
1,688
(26,624)
–
–
35
(1,539)
–
–
30,237
122
1,723
(28,163)
Share
premium
account
£’000
30,237
–
–
–
30,237
Share
option
reserve
£’000
81
–
41
–
122
Foreign
exchange
translation
reserve
£’000
(163)
–
–
–
(163)
Profit
and loss
account
£’000
(26,550)
(1,342)
–
–
(27,892)
Details of options issued, exercised and lapsed during the year together with options outstanding at
31 December 2017 are as follows:
Issue date
Final exercise
date
Exercise
price
1 January
2017
Number
New
issue Exercised
Number Number
Lapsed
Number
31 December
2017
Number
23 March 2015 23 March 2018 £0.0145 35,172,414
7 July 2017
7 July 2010
£0.0035
–
– 41,000,000
35,172,414 41,000,000
–
–
–
– 35,172,414
– 41,000,000
– 76,172,414
Details of options issued, exercised and lapsed during the year together with options outstanding at
31 December 2016 are as follows:
Issue date
Final exercise
date
Exercise
price
1 January
2016
New
issue Exercised
Number Number Number
Lapsed
Number
31 December
2016
Number
27 January 2013
27 June 2013
27 June 2013
23 March 2015
27 January 2016 £0.0075 22,000,000
£0.0160 11,250,000
27 June 2016
£0.0167
27 June 2016
2,990,431
£0.0145 35,172,414
23 March 2018
71,412,845
–
–
–
–
–
– 22,000,000
– 11,250,000
–
2,990,431
–
–
–
–
– 35,172,414
– 36,240,431 35,172,414
Baron Oil Plc
Financial Report 31 December 2017
55
15 Notes to the Financial Statements
for the year ended 31 December 2017
19 Non-controlling interests
At beginning of the year
Deconsolidation of Inversiones Petroleras de Colombia SA (note 13)
Share of loss for the year
2017
£’000
347
(347)
–
–
2016
£’000
603
–
(256)
347
At the end of the year, 50% of the issued share capital of Inversiones Petroleras de Colombia SA was
held by CII International Fuels Limited ("CII"). In March 2017, CII took operational control over the
underlying assets and, as a result, the operations of this company have been deconsolidated.
20 Share based payments
The fair values of the options granted have been calculated using Black-Scholes model assuming the
inputs shown below:
Grant date
Number of warrants granted
Share price at grant date
Exercise price at grant date
Option life
Risk free rate
Expected volatility
Expected dividend yield
Fair value of option
7 July
2017
41,000,000
0.35p
0.35p
3 years
1.40%
75%
0%
0.10p
The options will not normally be exercisable during a closed period, and furthermore can only be
exercisable if the performance conditions are satisfied. Subsisting options will lapse no later than 3 years
after the date of grant. Options, which have vested immediately before either the death of a participant
or his ceasing to be an eligible employee by reason of injury, disability, redundancy, retirement or
dismissal (otherwise than for good cause) shall remain, exercisable (to the extent vested) for 12 months
after such cessation, and all non-vested options shall lapse.
21 Directors’ emoluments
Directors’ remuneration
Directors’ fees
Share based payments
Highest paid director emoluments and other benefits are as listed below.
Remuneration
Share based payments
2017
£’000
243
–
41
284
2017
£’000
123
20
143
2016
£’000
297
–
–
297
2016
£’000
115
–
115
Baron Oil Plc
Financial Report 31 December 2017
56
15 Notes to the Financial Statements
for the year ended 31 December 2017
22 Financial instruments
The Group’s activities expose it to a variety of financial risks: credit risk, cash flow interest rate risk,
foreign currency risk, liquidity risk, price risk and capital risk. The Group’s activities also expose it to non-
financial risks: market risk. The Group’s overall risk management programme focuses on unpredictability
and seeks to minimise the potential adverse effects on the Group’s financial performance. The Board,
on a regular basis, reviews key risks and, where appropriate, actions are taken to mitigate the key risks
identified.
Financial instruments – Risk Management
The Group is exposed through its operations to the following risks:
l
l
l
l
l
l
l
Credit risk
Cash flow interest rate risk
Foreign exchange risk
Liquidity risk
Price risk
Capital risk
Market risk
In common with all other businesses, the Group is exposed to risks that arise from its use of financial
instruments. This note describes the Group’s objectives, policies and processes for managing those risks
and the methods used to measure them. Further quantitative information in respect of these risks is
presented throughout these financial statements.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its
objectives, policies and processes for managing those risks or the methods used to measure them from
previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises are as
follows:
l
l
l
l
l
Loans and receivables
Trade and other receivables
Cash and cash equivalents
Short term investments
Trade and other payables
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies and, whilst retaining responsibility for them it has delegated the authority for designing and
operating processes that ensure the effective implementation of the objectives and policies to the
Group’s finance function. The Board receives regular updates from the Executive Directors through which
it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and
policies it sets. The overall objective of the Board is to set policies that seek to reduce as far as possible
without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these
policies are set out below:
Baron Oil Plc
Financial Report 31 December 2017
57
15 Notes to the Financial Statements
for the year ended 31 December 2017
22 Financial instruments continued
Credit risk
The Group’s principal financial assets are bank balances and cash, trade and other receivables. The
credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned
by international credit-rating agencies. The Group’s credit risk is primarily attributable to its trade. The
amounts presented in the statement of financial position are net of allowance for doubtful receivables.
An allowance for impairment is made where there is an identified loss event which, based on previous
experiences, is evidence of a reduction in the recoverability of the cash flows. The Group has no
significant concentration of credit risk, with exposure spread over a large number of counterparties and
customers.
As at 31 December 2017 the ageing analysis of trade receivables is as follows:
31 December 2017
31 December 2016
Neither past
due nor
impaired
£’000
–
–
Total
£’000
–
198
Cash flow interest rate risk
The Group is exposed to cash flow interest rate risk from its deposits of cash and cash equivalents with
banks. The cash balances maintained by the Group are proactively managed in order to ensure that the
maximum level of interest is received for the available funds but without affecting the working capital
flexibility the Group requires.
The Group is not at present exposed to cash flow interest rate risk on borrowings as it has no significant
debt. No subsidiary company of the Group is permitted to enter into any borrowing facility or lease
agreement without the prior consent of the Company.
Interest rates on financial assets and liabilities
The Group’s financial assets consist of cash and cash equivalents, loans, trade and other receivables.
The interest rate profile at period end of these assets was as follows:
31 December 2017
UK sterling
US dollar (USD)
Colombian pesos (COP)
Peruvian Nuevo Sol (PEN)
Financial
assets on
which interest
earned
£’000
Financial
assets on
which interest
not earned
£’000
–
2,798
–
–
2,798
763
445
–
4
1,212
Total
£’000
763
3,243
–
4
4,010
Baron Oil Plc
Financial Report 31 December 2017
58
15 Notes to the Financial Statements
for the year ended 31 December 2017
22 Financial instruments continued
Interest rates on financial assets and liabilities continued
31 December 2016
Financial
assets on
which interest
earned
£’000
UK sterling
US dollar (USD)
Colombian pesos (COP)
Peruvian Nuevo Sol (PEN)
6
3,073
48
–
3,127
Financial
assets on
which interest
not earned
£’000
1,286
2,572
283
33
4,174
Total
£’000
1,292
5,645
331
33
7,301
The Group earned interest on its interest bearing financial assets at rates between 0.1% and 3%
(2016: 0.1% and 5%) during the period.
A change in interest rates on the statement of financial position date would increase/(decrease) the equity
and the anticipated annual income or loss by the theoretical amounts presented below. The analysis is
made on the assumption that the rest of the variables remain constant. The analysis with respect to
31 December 2016 was prepared under the same assumptions.
Instruments bearing variable interest (£’000)
31
(31)
Increase
of 1.0%
Decrease
of 1.0%
Increase
of 1.0%
31
Decrease
of 1.0%
(31)
Change of 1.0% in the interest rate as of
31 December 2017
31 December 2016
It is considered that there have been no significant changes in cash flow interest rate risk at the reporting
date compared to the previous period end and that therefore this risk has had no material impact on
earnings or shareholders’ equity.
Foreign exchange risk
Foreign exchange risk arises because the Group has operations located in various parts of the world
whose functional currency is not the same as the functional currency in which other Group companies
are operating. Although its geographical spread reduces the Group’s operation risk, the Group’s net
assets arising from such overseas operations are exposed to currency risk resulting in gains and losses
on retranslation into Sterling. Only in exceptional circumstances will the Group consider hedging its net
investments in overseas operations, as generally it does not consider that the reduction in foreign
currency exposure warrants the cash flow risk created from such hedging techniques. It is the Group’s
policy to ensure that individual Group entities enter into local transactions in their functional currency
wherever possible and that only surplus funds over and above working capital requirements should be
transferred to the parent company treasury. The Group considers this policy minimises any unnecessary
foreign exchange exposure.
In order to monitor the continuing effectiveness of this policy the Board, through its approval of both
corporate and capital expenditure budgets and review of the currency profile of cash balances and
management accounts, considers the effectiveness of the policy on an ongoing basis.
The following table discloses the major exchange rates of those currencies utilised by the Group:
Foreign currency units to £1 UK sterling (rounded)
Average for year ended 31 December 2017
At 31 December 2017
Average for year ended 31 December 2016
At 31 December 2016
USD
1.29
1.35
1.37
1.23
COP
–
–
4,117
3,669
PEN
4.14
4.17
4.49
4.06
Baron Oil Plc
Financial Report 31 December 2017
59
15 Notes to the Financial Statements
for the year ended 31 December 2017
22 Financial instruments continued
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and
principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due.
The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when
they become due. To achieve this aim, it seeks to maintain readily available cash balances (or agreed
facilities) to meet expected requirements for a period of at least 60 days. The Group currently has no
long term borrowings.
Price risk
Oil and gas sales revenue is subject to energy market price risk.
Given current production levels, it is not considered appropriate for the Group to enter into any hedging
activities or trade in any financial instruments, such as derivatives. This strategy will continue to be subject
to regular review.
It is considered that price risk of the Group at the reporting date has not increased compared to the
previous period end.
Volatility of crude oil prices
A material part of the Group’s revenue will be derived from the sale of oil that it expects to produce. A
substantial or extended decline in prices for crude oil and refined products could adversely affect the
Group’s revenues, cash flows, profitability and ability to finance its planned capital expenditure. The
movement of WTI crude oil prices is shown below:
Per barrel – US$
Per barrel – £
31 December
2017
Average price
2017
31 December
2016
60
44
48
35
37
25
Oil prices are dependent on a number of factors impacting world supply and demand. Due to these
factors, oil prices may be subject to significant fluctuations from year to year. The Group’s normal policy
is to sell its products under contract at prices determined by reference to prevailing market prices on
international petroleum exchanges. However, these prices had no effect on on the Group’s results for
2017, since it had no production.
Capital risk
The Group’s objectives when managing capital are to safeguard the ability to continue as a going
concern in order to provide returns for shareholders and benefits to other stakeholders and to maintain
an optimal capital structure to reduce the cost of capital.
Market risk
The market may not grow as rapidly as anticipated. The Group may lose customers to its competitors.
The Group’s major competitors may have significantly greater financial resources than those available
to the group. There is no certainty that the group will be able to achieve its projected levels of sales or
profitability.
Baron Oil Plc
Financial Report 31 December 2017
60
15 Notes to the Financial Statements
for the period ended 31 December 2017
23 Capital commitments
As of 31 December 2017, there were no capital commitments.
24 Contingent liabilities
The Group and the Company have given guarantees of US$160,000 (31 December 2016: US$3,760,000)
to Perupetro SA to fulfil licence commitments for block XXI and Z34. The Company has made provision
in respect of decommissioning costs of producing fields and there is the possibility of decommissioning
costs in respect of abandoned field which have yet to be quantified (if any) by the operator. Other than
that, the Company does not consider that there are any further contingent liabilities in this regard.
25 Events after the reporting period
On 5 March 2018, the Company executed a Farmout Agreement in respect of UK Offshore Licence
P2235 (“the Wick Prospect”), and will pay 20% of the costs to earn a 15% interest in the licence. There
is a current commitment to pay £1,020,000.
Also on 5 March 2018, the Company executed a Farmout Agreement in respect of UK Offshore Licence
P1918 (“the Colter Prospect”), and will pay 6.67% of the costs of the Colter Well to earn a 5% interest in
P1918 and UK Onshore licences PEDL330 and PEDL345. There is a current commitment to pay
£490,000.
26 Ultimate controlling party
Baron Oil Plc is listed on the AIM market operated by the London Stock Exchange. At the date of the
Annual Report in the directors’ opinion there is no controlling party.
27 Related party transactions
Company
During the year, the Company advanced loans to its subsidiaries. The details of the transactions and the
amount owed by the subsidiaries at the year end were:
Gold Oil Peru S.A.C*
Inversiones Petroleras de Colombia SA**
Year ended
31 December 2017
Year ended
31 December 2016
Balance
£’000
2,348
723
Loan
advance
£’000
283
2
Balance
£’000
2,276
721
Loan advance
(repayment)
£’000
(404)
–
*The Company has provided for an impairment of £2,348,000 (2016: £2,275,000) on the outstanding loans.
**During the year, the Company has written off its investment. In 2016, the Company provided for an impairment of
£721,000 on the outstanding loans.
Group and company
There were related party transactions in the year as follows:
The company paid £nil (2016: £8,000) for services rendered by GeoSolutions Limited, a company
controlled by Dr M Butler, a director.
The company paid £8,250 (2016: £18,000) for services rendered by Langley Associates Limited, a
company controlled by Mr G Barnes, a director.
Baron Oil Plc
Financial Report 31 December 2017
61
Shareholder Notes
for the period ended 31 December 2017
Baron Oil Plc
Financial Report 31 December 2017
62
Shareholder Notes
for the period ended 31 December 2017
Baron Oil Plc
Financial Report 31 December 2017
63
Shareholder Notes
for the period ended 31 December 2017
Baron Oil Plc
Financial Report 31 December 2017
64
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