Baron Oil PLC Annual Report 2018

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FY2018 Annual Report · Baron Oil PLC

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Annual Report and
Financial Statements
for the year ended 31 December 2018

Contents

Annual Report and Financial Statements 2018

Section

1. Corporate Information

2. Corporate Statement

3. Chairman’s Statement & Operations Report

4. Strategic Report

5. Report of the Directors

6. Corporate Governance Statement

7. Statement of Directors’ Responsibilities

in respect of the Strategic Report, the Report of the Directors,
and the Financial Statements

8. Report of the Independent Auditors

to the Members of Baron Oil Plc

9. Consolidated Income Statement
for the year ended 31 December 2018

10. Consolidated Statement of Comprehensive Income

for the year ended 31 December 2018

11. Consolidated Statement of Financial Position

as at 31 December 2018

12. Company Statement of Financial Position

as at 31 December 2018

13. Consolidated and Company Statement of Changes in Equity

for the year ended 31 December 2018

14. Consolidated and Company Statement of Cash Flows

for the year ended 31 December 2018

15. Notes to the Financial Statements

Page

1. Corporate Information

Advisers & General Information

Directors

Registered Ofﬁce

Malcolm Butler, Executive Chairman
Andrew Yeo, Managing Director
Jonathan Ford, 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 1 DJ

SP Angel Corporate Finance LLP
Prince Frederick House
35 Maddox Street
London W1S 2PP

Computershare Investor Services (Ireland) Limited
3100 Lake Drive
Citywest Business Campus
Dublin 24
D24 AK82
Ireland

Communications

Web Site www.baronoilplc.com

Company number

05098776 (England and Wales)

2. Corporate Statement

Annual Report and Financial Statements 2018

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 interests in ventures in
established hydrocarbon-bearing areas as part of an experienced group of partners. The
Company is committed to safeguarding the environment and minimising risk to its
employees, contractors and the communities in which it works. Through developing
sustainable long-term relationships with its partners and the community, Baron aims to
conduct business and enhance value in a responsible manner.

3. Chairman’s Statement & Operations Report

Finance and ﬁnancial results
The net result for the year was a loss before taxation of £3,280,000, which compares to a loss of £2,058,000 for the
preceding ﬁnancial year, and the loss after taxation attributable to Baron Oil shareholders was £2,495,000, compared
to a loss of £1,539,000 in the preceding year.

Turnover for the year was £nil (2017: £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.

Exploration and evaluation expenditure written off included in the Income Statement amounts to £1,526,000. This
arises from expenditure amounting to £1,312,000 on unsuccessful exploration in Licence P2235 (Wick), £164,000
expenditure in Peru on Block XXI (see below), £39,000 in costs regarding the South East Asia Joint Study Agreement
with SundaGas, and minor expenditures relating to the UK Offshore 31st Licensing Round. Most of the Wick costs
relate to the exploration well (11/24b-4), which was drilled during December 2018 and January 2019 and has been
written off direct to the Income Statement as there will be no further activity on this licence. Because the well began
drilling during 2018, the directors have taken the view that the entire cost should be written off in these Financial
Statements. Of this expenditure, £1,095,000 was invoiced in 2018, with the remainder invoiced and paid in 2019.

On the Colter exploration well (98/11a-6), although £376,000 was invoiced during 2018 in respect of preparations
for the drilling of the well, these costs have been treated as prepayments in the accounts because the well did not
begin drilling until February 2019.

There was an intangible asset impairment charge in the year of £1,360,000 arising on Peru Block XXI. The Group
incurred expenditure totaling £164,000 on its 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 it was considered likely that they would lead to the drilling of an exploration well during 2019.
Because of this, the Board believed that these costs should remain on the Balance Sheet as capitalised exploration
and evaluation expenditure. However, the block now has less than 6 months remaining in which to drill a well once
Force Majeure is lifted and no ﬁrm proposal has yet been received from a third party to drill the well. IFRS6 (the
relevant accounting standard) states that an asset should be impaired if there is a prospect of a licence coming to
an end in the near future, which for the purposes of this Annual Report would be the next 12 months. On this basis,
the decision has now been taken to impair the entire carrying amount.

In Colombia, Inversiones Petroleras de Colombia SAS (“Invepetrol”), in which the Company held a 50% interest, was put
into liquidation on 3 April 2018. The Company believes that there will be no residual liabilities to the Company and as a
result an earlier provision of £83,000 has now been released to the Income Statement.

Administration expenditure for the year was £549,000, compared to £510,000 in the preceding year, excluding the
effects of exchange rate movements. Directors and employee costs amount to £332,000, listing compliance and
other professional fees a further £135,000, and £82,000 in respect of other overheads.

During the year, we saw a modest weakening in the Pound Sterling against the US Dollar and, with the majority of
the group’s assets being denominated in US dollars, this has given rise to a gain of £130,000. This compares with a
loss of £508,000 in the preceding year, when the Pound Sterling showed some strengthening against the US Dollar.

The Company has re-examined its tax position in Peru and as a result, believes that provisions in previous years were
excessive with a resulting credit to Income Statement of £785,000.

At the end of the ﬁnancial year, free cash reserves of the Group had decreased to £1,709,000 from a level at the
preceding year end of £3,873,000.

3. Chairman’s Statement & Operations Report (continued)

Annual Report and Financial Statements 2018

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 what it considers to be 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.

Exploration activity
Following the recovery of US$3.6 million from the relinquishment of Peru Block Z-34 at the end of 2017, during
2018 Baron has followed a new strategy concentrating on near-term drilling opportunities in the United Kingdom,
which led to participation in the drilling of two offshore exploration wells.

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 paid 20% of the costs
of the Wick well (11/24b-4), up to a maximum gross cost of £4.2 million, and 15% of other costs on the the well and
licence in order to earn a 15% working interest in P2235. The Wick well was designed to test the Wick Prospect,
forming part of the larger Wick structural complex, and the prospect was deemed by the Operator (Corallian) to be
capable of containing unrisked recoverable Pmean Prospective Resources of 26 million barrels of oil equivalent.
Drilling commenced on 24 December 2018, using the Ensco-72 Jack-up rig, and reached a Total Depth of 1,000m
MD. Drilling operations were completed on 16 January 2019 and the well was plugged and abandoned without
encountering hydrocarbons. The primary target of the well, the Beatrice Sandstone, was encountered at a depth of
933.5m but was interpreted to be water bearing. Petrophysical analyses indicated that the Beatrice Sandstone had
a gross thickness of 22.8m with 19.8m of net sandstone of 17.2% average porosity. Unfortunately, the presence of
a thick, poorly-cemented sand body above the target reservoir created problems in running and cementing casing,
leading to cost overruns. The pre-drill ﬁnal AFE cost of the well was estimated at £5.7 million including back costs
(£1.1 million net to Baron) but the actual ﬁnal cost against items included in the AFE is estimated to have been
£6.97 million (£1.258 million net to Baron). Additional costs of £54,000 were incurred for items, such as insurance
and operator overhead, outside the scope of the AFE.

No further activity is currently planned on Licence P2235.

United Kingdom Offshore Licence P1918 (“Colter” Prospect) (Baron 8%)
Baron announced on 13 March 2018 that it had entered into a Farmout Agreement with Corallian under which it
would earn a 5% working interest in UK Offshore Licence P1918, which contains the Colter Prospect, and on 25 July
2018 the Company announced that it had agreed to increase its working interest to 8% in this project. Under the
terms of the revised agreement with Corallian, which operates the licence, the Company would pay 10.67% of the
costs related to this well, capped at a gross cost of £8.0 million. Costs above this cap were to be funded at 8%.(1)
The ﬁnal pre-drill AFE cost of the well was estimated at £7.5 million including back costs (£810,000 net to Baron).

The Colter Prospect area lies in Bournemouth Bay, immediately southeast of the Wytch Farm oilﬁeld which has been
developed from onshore facilities. Mapping of 3D seismic data by Corallian indicated that the 98/11-3 well, which
encountered oil in the Triassic Sherwood sandstone reservoir in 1986, lay on the ﬂank of a structure that had the
potential to hold unrisked P50 Prospective Resources of 26.8 million barrels of oil recoverable from this reservoir. Drilling
of the Colter well (98/11a-6) commenced on 6 February 2019, using the Ensco-72 jack-up rig, and reached a Total
Depth of 1,870m MD in the Sherwood Sandstone on 24 February 2019.

(1) Under pre-existing agreements between Corallian and a third party, Baron is obligated to pay to such third party 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.

3. Chairman’s Statement & Operations Report (continued)

The 98/11a-6 well unexpectedly remained on the southern side of the Colter Prospect bounding fault but
encountered oil and gas shows over a 9.4m interval at the top of the Sherwood Sandstone reservoir. A petrophysical
evaluation of the logging while drilling data has calculated a net pay of 3m. Similar indications of oil and gas were
encountered in the 98/11-1 well, drilled in 1983 by British Gas, within the Colter South fault terrace. Provisional
analysis of the new data indicates that the two wells may a share a common oil-water-contact, having both
intersected the down-dip margin of the Colter South Prospect.

A decision was made by the Joint Venture to drill a side-track (98/11a-6z) to the north to evaluate the original Colter
Prospect, at an estimated AFE cost of £2.30 million. The well was drilled to a Total Depth of 1,910m MD and
encountered the Sherwood Sandstone below the oil-water-contact of the 98/11-3 well. Initial evaluation of the data
from both wells indicates that the Colter Prospect is smaller than pre-drill estimates. It has now been determined
that the majority of the Prospective Resource resides within the Colter South portion of the play. Pre-drill, Corallian
(Operator of the licence) had an estimated Pmean recoverable Prospective Resource volume of 15 mmbbls for the
Colter South Prospect. Work continues on the re-mapping and evaluation of the area, which will be used to determine
the forward plan to maximise the potential value associated with the Colter and Colter South Prospects.

The estimated ﬁnal combined cost for items included within the AFEs for 98/11a-6 and the 98/11a-6z sidetrack was
some £10.87 million (£1.09 million net to Baron). Additional costs of £56,000 were incurred for items, such as
insurance and operator overhead, outside the scope of the AFE.

United Kingdom Onshore Licences PEDL330 & PEDL345 (Baron 8%)
By participating in the drilling of the Colter well, the Company also earned an 8% interest in adjacent onshore
Licences PEDL330 and PEDL345. PEDL345 includes a major part of the Purbeck Prospect, in which the presence of
oil and gas was demonstrated by the Southard Quarry-1 well, drilled by BP in 1990.

The Colter side-track also encountered live oil and gas shows in the Jurassic Cornbrash-Lower Oxfordian interval, the
producing reservoir zone in the onshore Kimmeridge oilﬁeld. This upgrades the Purbeck Prospect, in which the
Cornbrash is one of the targets, and other potential leads on trend to the west of the Colter area within these onshore
licences, which are held by the same Joint Venture group as offshore Licence P1918.

United Kingdom Offshore 31st Licensing Round
Applications for licences in the 31st Offshore Licensing Round closed on 7 November 2018. As disclosed by the UK’s
Oil & Gas Authority (OGA), the Round attracted 36 applications covering 164 blocks in frontier areas of the UK
Continental Shelf (UKCS).

Baron has applied as a non-operator with two groups. The directors understand that the OGA intends to offer awards
to successful applicants as early as possible during the ﬁrst half of 2019.

Peru Onshore Block XXI (Baron Oil 100%)
Baron continues its farm-in discussions on Block XXI with several parties, although no ﬁrm offer has yet been received.
The Block is in the 5th and last exploration phase with about 6 months left in which to drill when Force Majeure is
lifted. The well location and Environmental Impact Assessment have been approved. In order to maximise the chances
of ﬁnding a partner, Baron has negotiated a 3-year extension, to be approved once the well has been drilled. The
current period of Force Majeure has been agreed by Perupetro to run from 1 January 2019 but the ﬁnal documentation
is still to be received by the Company.

3. Chairman’s Statement & Operations Report (continued)

Annual Report and Financial Statements 2018

South East Asian Study Group
The separate SE Asia block application made by SundaGas in 2016 remains live and we hope that the previous delays
on a decision to award the block may now be coming to an end. If the block is awarded to SundaGas, Baron will have
the right to hold a 25% interest. In the meantime, Baron continues to discuss with SundaGas the possibility of
participation in other exploration opportunities in SE Asia.

Conclusions
This has been an eventful time for the Company, with participation in two wells after a long period with little activity.
It is unfortunate that drilling the Wick Prospect was unsuccessful and that difﬁculties were encountered that caused
a cost overrun. However, the Colter well and its sidetrack provided encouragement that there is an oil accumulation
present in Licence P1918 that has commercial potential. The partners in P1918 are now looking again at both 2D and
3D seismic data to help understand the morphology of this accumulation and determine how and when it could be
commercialised.

We continue to look to SE Asia as an area for growth and I hope we will be able to bring to fruition the existing
application with SundaGas, which has the potential to add signiﬁcant shareholder value.

I am pleased that Andy Yeo has agreed to become an executive of the Company, as Managing Director, and I believe
he will help increase our proﬁle in the City as we go forward. The appointment of Jon Ford, a highly experienced
exploration manager, as non-executive director gives us the beneﬁt of an independent view of proposals for new
ventures as well as broader access to opportunities. Although Geoff Barnes stepped down from the Board at the end
of March 2018, we are pleased that he has agreed to remain as Financial Controller and Company Secretary.

Malcolm Butler
ExecutiveChairman

30 May 2019

4. Strategic Report

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 2018.

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
Administrative expenses

Year ended
31 December
2018
£’000

Year ended
31 December
2017
£’000

£1,709
£549

£3,873
£510

Change

-55.9%
+7.6%

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.

4. Strategic Report (continued)

Annual Report and Financial Statements 2018

Performance guarantees
The Group has given performance guarantees in respect of its licence in Peru. In the event that work commitments
under the licenses are not met, then this guarantee is likely to be called in.

Impact
In the event that the Group forfeits a deposit under any guarantee, 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 29.

Action
The Group actively manages its work programmes under the licence 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
ExecutiveChairman

30 May 2019

5. Report of the Directors

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 2018.

Directors
The following are biographical details of the directors of Baron Oil Plc.

Dr Malcolm Butler, Executive Chairman
Malcolm Butler, aged 70, 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.

Andrew Yeo, Managing Director (appointed 28 April 2018)
Andrew Yeo, aged 56, 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.

Jonathan Ford, Non-Executive Director (appointed 31 March 2019)
Jon Ford, aged 59, has more than 37 years’ experience in the upstream oil and gas industry in a variety of roles in
petroleum geoscience and senior management. Following an initial 10 years with BP in the UK, the Netherlands,
Italy and Indonesia, Jon has worked worldwide in the junior sector as a senior technical manager for listed oil
companies including Clyde Petroleum, Paladin Resources and Stratic Energy, and advised multiple clients as a
consultant. Jon has a BSc in Geology & Geophysics from Durham University and is a Fellow of the Geological Society.

Geoffrey Barnes resigned from the Board on 31 March 2019.

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
2018.

Political and charitable contributions
In the year ended 31 December 2018 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 2018 were 6 days (2017: 20 days).

5. Report of the Directors (continued)

Annual Report and Financial Statements 2018

Activities and results
A loss of £2,495,000 (2017: £1,539,000), of which £2,495,000 (2017: £1,539,000) was attributable to equity
shareholders, was recorded for the year. Net assets of the Group at 31 December 2018 amounted to £1,790,000
(2017: £4,263,000), of which £1,790,000 (2017: £4,263,000) 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 (resigned 28 February 2018)
M Butler
G Barnes
A Yeo

31 December 2018

31 December 2017

No. of
Ordinary
shares

–
1,000,000
1,379,310
–

2,379,310

%
Holding

No. of
Ordinary
shares

–

1,000,000
0.1% 1,000,000
1,379,310
0.1%
–
–

0.2%

3,379,310

%
Holding

0.1%
0.1%
0.1%
–

0.3%

5. Report of the Directors (continued)

Options held by the directors are as follows:

W Colvin (resigned 28 February 2018)

W Colvin (resigned 28 February 2018)
M Butler
G Barnes

M Butler
G Barnes

A Yeo

31 December 2018
Number of
options
£0.0145*

31 December 2017
Number of
Options
£0.0145*

–

35,172,414

Number of
options
£0.0035**

–
20,000,000
10,500,000

Number of
options
£0.00435***

10,000,000
10,000,000

Number of
options
£0.0044****

10,000,000

60,500,000

Number of
Options
£0.0035**

10,500,000
20,000,000
10,500,000

Number of
Options
£0.00435***

–
–

Number of
Options
£0.0044****

–

76,172,414

Expired 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.

***

Each £0.00435 option grants the holder the right to subscribe for one Ordinary Share at £0.00435 per share, and are granted under one
option contract exercisable at any time prior to 27 November 2021.

**** Each £0.0044 option grants the holder the right to subscribe for one Ordinary Share at £0.0044 per share, and are granted under one option

contract exercisable at any time prior to 3 December 2021.

Except as shown in note 27 to the Financial Statements (Related Party Transactions) on page 57, 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 modest 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.

5. Report of the Directors (continued)

Annual Report and Financial Statements 2018

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 (resigned 28 February 2018)
M Butler
Executive Directors
M Butler
G Barnes
A Yeo

2018
(£)

2017
(£)

10,000
125,000

50,000
–

25,000
76,000
27,667

122,500
70,500
–

263,667

243,000

Refer to note 27 on page 57 for details of related party transactions with companies controlled by directors.

The share options held by the directors are disclosed above and no pension contributions were made during the
period for the directors.

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 6 February 2019, drilling of the exploration well 98/11a-6 in UK Offshore Licence P1918 (“Colter”) commenced
and back-to-back drilling of the sidetrack 98/11a-6z was completed on 8 March 2019. The Company holds an 8%
working interest in this licence and the cost to the Company of this phase of exploration was £1,145,000.
98/11a-6 encountered oil and gas in the Sherwood Sandstone of the Colter South Prospect and, in common with its
other joint venture partners, the Company is remapping the Colter Area structures in the licence to determine their
extent and update the estimates of the Prospective Resources.

5. Report of the Directors (continued)

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 22 May 2019 was 1,376,409,576 Ordinary Shares, each share having equal voting
rights. Baron Oil Plc has 1,119 shareholders.

The shareholding distribution at 22 May 2019 is as follows:

Range

>10%
5-10%
1-5%
0.5-1%
<0.5%

No of shares

168,333,117
362,864,064
476,059,894
175,646,912
193,505,589

1,376,409,576

No of shareholders

1
4
14
18
1,082

1,119

Significant shareholdings
The Company has been informed that, as of 22 May 2019, the following shareholders own 3% or more of the issued
share capital of the Company:

Name

The Bank of New York (Nominees)
Rock (Nominees) Limited
Interactive Investor Services
Barclays Direct Investing Nominees
Lynchwood Nominees Limited
HSDL Nominees Limited
W B Nominees Limited
HSBC Global Custody Nominee

Total

168,333,117
115,435,413
92,736,406
79,298,723
75,393,522
67,019,634
63,707,110
56,063,218

717,987,143

% of company

12.23%
8.39%
6.74%
5.76%
5.48%
4.87%
4.63%
4.07%

52.17%

Listing
The Company’s ordinary shares have been traded on the AIM market of the London Stock Exchange since 14 July
2004. SP Angel is the Company’s Nominated Adviser and Broker. The closing mid-market price on 22 May 2018 was
0.13p.

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 on page 53.

5. Report of the Directors (continued)

Annual Report and Financial Statements 2018

Going concern
The directors have prepared a cash ﬂow forecast covering a period extending beyond 12 months from the date of
these ﬁnancial statements which contains certain assumptions about the development and strategy of the business.
The directors are aware of the risks and uncertainties facing the business but the assumptions used are the directors’
best estimate of its future development.

The Group forecasts include additional funding requirements upon which the Group is dependent. The directors are
satisﬁed that these funding requirements will be met. Additionally, in the event that the Group fails to meet its
ﬁnancing predictions, the directors have outlined cost saving measures which will include the non-drawing of salaries
to ensure there are enough funds to operate for at least the next twelve months. The directors are satisﬁed that this
can be achieved.

After considering the forecasts and the risks, the directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt
the going concern basis of accounting in preparing the annual ﬁnancial statements.

The ﬁnancial statements do not include any adjustments that would result if the Group was unable to continue as
a going concern.

Publication on company’s website
Financial statements are published on the Company’s website (www.baronoilplc.com). The maintenance and integrity
of the website are 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
Secretary

30 May 2019

6. Corporate Governance Statement

The directors recognise the importance of sound corporate governance. The Company has adopted the QCA Code,
which the directors consider appropriate for a company of its size and nature. The QCA takes key elements of good
governance and allows companies to apply them in a manner which is appropriate for the differing needs of small
companies. The “Comply or Explain” maxim allows companies to inform shareholders where policies differ from the
norm and why. The details of the Company’s policies in this respect are set out in it its AIM Notice 50 Statement,
which can be downloaded from the Company’s website https://www.baronoilplc.com/wp-content/uploads/2018/
11/QCACGC260918.pdf

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 three directors with Malcolm Butler as Chairman and Jon Ford 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 two directors with Jon Ford as Chairman and Malcolm Butler and
Andrew Yeo as 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.

Annual Report and Financial Statements 2018

7. Statement of Directors’ Responsibilities
in respect of the Strategic Report, the Directors’ Report 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:

•

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;

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
ExecutiveChairman

30 May 2019

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 2018 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, including Financial
Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).

In our opinion:

•

the ﬁnancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs
as at 31 December 2018 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; 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:

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.

•

Annual Report and Financial Statements 2018

8. Report of the Independent Auditors (continued)
to the Members of Baron Oil Plc

Our audit approach

Overview
Keyauditmatters
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.

•

Impairment of intangible exploration and evaluations assets.

Accounting for share capital, options, convertibles and warrants.

Key audit matters

Key audit matter

How our audit addressed the key audit matter

Intangibles are only assessed for impairment when
indicators of impairment exist.

We participated in meeting with the Board of Directors
to understand the current status and future intentions
for the assets. We identiﬁed a licence close to expiry and
challenged management intentions.

We have understood and assessed the methodology
utilised to estimate the Company’s share-based
payment charge calculations and checked that the
the provision was mathematically
calculation of
accurate.

We have audited the share-based payment by reviewing
the key inputs used in the model for reasonableness.

Carrying value of intangible assets
The Group had intangibles of £65,813 at the year ended
31 December 2018 (31 December 2017: £1,259,315) and
an impairment of £1,360,000 was made at the year end.

IFRS6 Exploration for and Evaluation of Mineral
Resources sets out the requirement under which an E&E
asset is assessed for impairment.

The Group continues farm-in discussions to ﬁnance
drilling within six months of the end of Force Majeure
on the licence.

Accounting for share capital, options, convertibles
and warrants
The charge for the year is made up as follows:

Options granted £32,919

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.

8. Report of the Independent Auditors (continued)
to the Members of Baron Oil Plc

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

Group ﬁnancial statements

Company ﬁnancial statements

£57,000
(31 December 2017: £114,000).

£57,000
(31 December 2017: £98,500).

How we determined it

Based on 1.5% of gross assets.

Based 2% of gross assets.

Rationale for benchmark applied

We believe that loss before tax is a
primary measure used 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.

For each component in the scope of our Group audit, we allocated a materiality that is the same as our overall Group
materiality of £57,000.

We agreed with the Audit Committee that we would report to them misstatements identiﬁed during our audit above
£57,000 (Group audit) (31 December 2017: £114,000) and £57,000 (Company audit) (31 December 2017: £98,500)
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.

Annual Report and Financial Statements 2018

8. Report of the Independent Auditors (continued)
to the Members of Baron Oil Plc

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.

Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the strategic report and the directors’ report for the ﬁnancial year for which the ﬁnancial
statements are prepared is consistent with the ﬁnancial statements; and

the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the 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:

•

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 17, 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.

8. Report of the Independent Auditors (continued)
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. A further description of our
responsibilities for the audit of the Financial Statements are located on the Financial Reporting Council’s website at
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

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.

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

30 May 2019

9. Consolidated Income Statement
for the year ended 31 December 2018

Annual Report and Financial Statements 2018

Revenue

Cost of sales

Gross proﬁt

Exploration and evaluation expenditure
Intangible assets written off
Intangible asset impairment
Receivables and inventory impairment
Deconsolidation of Colombian entity
Administration expenses
Proﬁt/(loss) 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

2018
£’000

2017
£’000

–

(1,526)
–
(1,360)
(54)
–
(549)
130
83

(3,276)

(10)
6

–

(109)
(1,837)
–
43
831
(510)
(508)
21

(2,069)

(8)
19

(3,280)

(2,058)

785

519

(2,495)

(1,539)

–

(2,495)

(1,539)

(2,495)
–

(2,495)

(1,539)
–

(1,539)

(0.181p)
(0.181p)

(0.112p)
(0.112p)

11
3

3
4

6
6

10. Consolidated Statement of Comprehensive Income
for the year ended 31 December 2018

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

Notes

2018
£’000

2017
£’000

(2,495)

(1,539)

(11)

(2,506)

(1,504)

11. Consolidated Statement of Financial Position
at 31 December 2018

Annual Report and Financial Statements 2018

Assets
Noncurrentassets
Property plant and equipment
– oil and gas assets
– others
Intangibles
Goodwill

Currentassets
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

Currentliabilities
Trade and other payables
Taxes payable

Total equity and liabilities

Notes

2018
£’000

2017
£’000

10
10
11
12

14
15

17
18
18
18
18

16
16

–
–
66
–

503
1,838

2,341

2,407

–
–
1,260
–

1,260

18
3,992

4,010

5,270

344
30,237
74
1,712
(30,577)

344
30,237
122
1,723
(28,163)

1,790

4,263

594
23

617

2,407

195
812

1,007

5,270

The ﬁnancial statements were approved and authorised for issue by the Board of Directors on 30 May 2019 and
were signed on its behalf by:

Malcolm Butler
Director

Company number: 05098776

Andrew Yeo
Director

12. Company Statement of Financial Position
at 31 December 2018

Assets
Noncurrentassets
Property plant and equipment
– oil and gas assets
Intangibles
Investments

Currentassets
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

Currentliabilities
Trade and other payables
Taxes payable

Total equity and liabilities

Notes

2018
£’000

2017
£’000

11
13

14
15

17
18
18
18
18

16
16

–
66
25

502
1,692

2,194

2,285

–
565
25

590

14
3,863

3,877

4,467

344
30,237
74
(163)
(30,510)

344
30,237
122
(163)
(27,892)

(18)

2,648

2,295
8

2,303

2,285

1,812
7

1,819

4,467

The ﬁnancial statements were approved and authorised for issue by the Board of Directors on 30 May 2019 and
were signed on its behalf by:

Malcolm Butler
Director

Company number: 05098776

Andrew Yeo
Director

Annual Report and Financial Statements 2018

13. Consolidated and Company Statement of Changes in Equity
for the year ended 31 December 2018

Share
capital
£’000

Share
premium
£’000

Retained
Earnings
£’000

Share
option
reserve
£’000

Foreign
exchange
translation
£’000

Non-
controlling
interests
£’000

Total
equity
£’000

GROUP
As at 1 January 2017

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 period

344

30,237

(26,624)

–

–
–
–

–

–
–
–

–

(1,539)
–
–

–

(1,539)

As at 1 January 2018

344

30,237

(28,163)

Shares issued

Transactions with owners

(Loss) for the year attributable
to equity shareholders
Share based payments
Release of option reserve
Foreign exchange
translation adjustments

Total comprehensive income
for the period

–

–
–
–

–

–
–
–

–

(2,495)
–
81

–

(2,414)

As at 31 December 2018

344

30,237

(30,577)

–

–
–
41

–

122

–

–
33
(81)

–

(48)

1,688

347

6,073

–

–
–
–

1,723

–

–
–
–

(11)

1,712

–

–
(347)
–

(1,539)
(347)
41

–

(347)

(1,810)

–

–
–
–

–

4,263

–

(2,495)
33
–

(11)

(2,473)

1,790

13. Consolidated and Company Statement of Changes in Equity
for the year ended 31 December 2018

Share
capital
£’000

Share
premium
£’000

Retained
earnings
£’000

Share
option
reserve
£’000

Foreign
exchange
translation
£’000

Total
equity
£’000

COMPANY
As at 1 January 2017

Shares issued

Transactions with owners

(Loss) for the year
Share based payments
Foreign exchange translation
adjustments

Total comprehensive income
for the period

344

30,237

(26,550)

–

–
–

–

–
–

–

(1,342)
–

–

(1,342)

As at 1 January 2018

344

30,237

(27,892)

Shares issued

Transactions with owners

(Loss) for the year
Share based payments
Release of option reserve
Foreign exchange translation
adjustments

Total comprehensive income
for the period

–

–
–
–

–

–
–
–

–

(2,699)
–
81

–

(2,618)

As at 31 December 2018

344

30,237

(30,510)

Share capital is the amount subscribed for shares at nominal value.

–

122

–

–
33
(81)

–

(48)

(163)

3,949

–

–
–

–

(163)

–

–
–
–

–

(163)

–

(1,342)
41

–

(1,301)

2,648

–

(2,699)
33
–

–

(2,666)

(18)

Share premium represents the excess of the amount subscribed for share capital over the nominal value of those
shares net of share issue expenses.

Retained earnings represents the cumulative loss of the group attributable to equity shareholders.

Foreign exchange translation occurs on consolidation of the translation of the subsidiaries balance sheets at the
closing rate of exchange and their income statements at the average rate.

14. Consolidated and Company Statement of Cash Flows
for the year ended 31 December 2018

Annual Report and Financial Statements 2018

Operating activities

Investing activities
Return from investment and servicing of ﬁnance
Cash previously not available now released
Loan to subsidiary (advanced)/repaid
Acquisition of intangible 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

Group
2018
£’000

Company
2018
£’000

(2,104)

(1,875)

6
–
–
(66)

(60)

–

(2,164)

3,873

1,709

6
–
(236)
(66)

(296)

–

(2,171)

3,863

1,692

Group
2017
£’000

(680)

19
2,674
–
(298)

2,395

–

1,715

2,158

3,873

Company
2017
£’000

(508)

19
2,674
(283)
(119)

2,291

–

1,783

2,080

3,863

129

–

119

–

Cash and cash equivalents as shown in the Consolidated
and Company Statement of Financial Position

1,838

1,692

3,992

3,863

14. Consolidated and Company Statement of Cash Flows
for the year ended 31 December 2018

Group
2018
£’000

Company
2018
£’000

Group
2017
£’000

Company
2017
£’000

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

(2,495)
1,360
–
33

–
–
(6)
(785)
(73)

(2,699)
923
–
33

–
–
(6)
–
(122)

(1,539)
2
–
41

(347)
–
(19)
(519)
512

(1,966)

(1,871)

(1,869)

(485)
(53)
400

(488)
–
484

2,052
(4)
(859)

(680)

(1,342)
–
120
41

–
74
(19)
–
478

(648)

148
(4)
(4)

(508)

Net cash outﬂows from operating activities

(2,104)

(1,875)

15. Notes to the Financial Statements

Annual Report and Financial Statements 2018

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 on page 8.

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
The directors have prepared a cash ﬂow forecast covering a period extending beyond 12 months from the date of
these ﬁnancial statements which contains certain assumptions about the development and strategy of the business.
The directors are aware of the risks and uncertainties facing the business but the assumptions used are the directors’
best estimate of its future development.

The ﬁnancial statements do not include any adjustments that would result if the Group was unable to continue as
a going concern.

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.

Changes in accounting policies and disclosures
(a) NewandamendedstandardsadoptedbytheGroup
The Group has applied any applicable new standards, amendments to standards and interpretations that are
mandatory for the ﬁnancial year beginning on or after 1 January 2018 including IFRS 9.

(b) New,amendedstandards,interpretationsnotadoptedbytheGroup
A number of new standards, amendments to standards and interpretations to existing standards have been published
that are mandatory for the Group’s accounting periods beginning after 1 January 2018, or later periods, where the
Group intends to adopt these standards, if applicable, when they become effective. The Group has disclosed below
those standards that are likely to be applicable to the Group and is currently assessing the impact of these standards.

•

IFRIC 23 “Uncertainty over Income Tax Treatments”, effective date 1 January 2019 clariﬁes application of
recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income
tax treatments.

15. Notes to the Financial Statements (continued)

1. Signiﬁcant accounting policies (continued)
Management has not yet fully assessed the impact of these standards but does not believe they will have a material
impact on the ﬁnancial statements.

New and revised IFRSs in issue but not yet effective
Baron Oil Plc and its subsidiaries has not applied the following new and revised IFRSs that have been issued but are
not yet effective:

Reference

Title

IFRS 2

IFRS 9

Leases

Prepayment features with
Negative Compensation

Summary

Original issue

Application date
of standard
(Periods commencing
on or after)

01 January 2019

IFRS 11

Joint Arrangements

Annual Improvements 2015-2017 Cycle

01 January 2019

IAS 12

IAS 19

IAS 23

IAS 28

Income Taxes

Annual Improvements 2015-2017 Cycle

01 January 2019

Plan Amendment, Curtailment
or settlement

01 January 2019

Borrowing Costs

Annual Improvements 2015-2017 Cycle

01 January 2019

Long term interests in
associates and joint ventures

01 January 2019

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.

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

1. Signiﬁcant accounting policies (continued)

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 IFRS3 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
IFRS3 using the purchase method.

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.

15. Notes to the Financial Statements (continued)

1. Signiﬁcant accounting policies (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.

Intangible Assets
Oilandgasassets:explorationandevaluation
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.

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

1. Signiﬁcant accounting policies (continued)
Property, plant and equipment
Oilandgasassets:developmentandproduction
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.

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.

Nonoilandgasassets
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.

15. Notes to the Financial Statements (continued)

1. Signiﬁcant accounting policies (continued)

Investments
Investments are stated at cost less provision for any impairment in value.

Trade and other 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.

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
Incometax
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.

Deferredtax
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.

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

1. Signiﬁcant accounting policies (continued)
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 and other payables
Trade payables are not interest bearing and are stated at their nominal value. Trade and other payables are initially
recognised at fair value. They are subsequently measured at amortised cost using the effective interest method
unless the effect of discounting would be immaterial, in which case they are stated at cost.

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.

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.

15. Notes to the Financial Statements (continued)

1. Signiﬁcant accounting policies (continued)

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.

Financial assets
On initial recognition, ﬁnancial assets are classiﬁed as either ﬁnancial assets at fair value through the statement of
proﬁt or loss, held-to-maturity investments, loans and receivables ﬁnancial assets, or available-for-sale ﬁnancial
assets, as appropriate.

Loans and receivables
The Group classiﬁes all its ﬁnancial assets as trade and other receivables. The classiﬁcation depends on the purpose
for which the ﬁnancial assets were acquired.

Trade receivables and other receivables that have ﬁxed or determinable payments that are not quoted in an active
market are classiﬁed as loans and receivables ﬁnancial assets. Loans and receivables ﬁnancial assets are measured
at amortised cost using the effective interest method, less any impairment loss.

The Group’s loans and receivables ﬁnancial assets comprise other receivables (excluding prepayments) and cash and
cash equivalents included in the Statement of Financial Position.

Financial liabilities
Financial liabilities are recognised when, and only when, the Group becomes a party to the contracts which give rise
to them and are classiﬁed as ﬁnancial liabilities at fair value through the proﬁt and loss or loans and payables as
appropriate. The Group’s loans and payable comprise trade and other.

When ﬁnancial liabilities are recognised initially, they are measured at fair value plus directly attributable transaction
costs and subsequently measured at amortised cost using the effective interest method other than those categorised
as fair value through income statement.

Fair value through the income statement category comprises ﬁnancial liabilities that are either held for trading or
are designated to eliminate or signiﬁcantly reduce a measurement or recognition inconsistency that would otherwise
arise. Derivatives are also classiﬁed as held for trading unless they are designated as hedges. There were no ﬁnancial
liabilities classiﬁed under this category.

The Group determines the classiﬁcation of its ﬁnancial liabilities at initial recognition and re-evaluate the designation
at each ﬁnancial year end.

A ﬁnancial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

When an existing ﬁnancial liability is replaced by another from the same party on substantially different terms, or
the terms of an existing liability are substantially modiﬁed, such an exchange or modiﬁcation is treated as a de-
recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying
amounts is recognised in the income statement.

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.

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

1. Signiﬁcant accounting policies (continued)

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.

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), 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) 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;

(b)

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.

15. Notes to the Financial Statements (continued)

1. Signiﬁcant accounting policies (continued)

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.

Carrying value of intangible exploration and evaluation assets
Valuation of oil and gas properties: judgements regarding timing of regulatory approval, the general economic
environment, and the ability to ﬁnance future activities has an impact on the impairment analysis of intangible
exploration and evaluation assets. All these factors may impact the viability of future commercial production from
unproved properties, and therefore may be a need to recognise an impairment. The timing of an impairment review
and the judgement of when there could be a signiﬁcant change affecting the carrying value of the intangible
exploration and and evaluation asset is a critical accounting judgement in itself.

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.

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

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.

Exploration and production year ended 31 December 2018

United
Kingdom
£’000

South
America
£’000

South East
Asia
£’000

Revenue – oil
Cost of sales

Gross proﬁt

Exploration and evaluation expenditure
Intangible asset impairment
Receivables and inventory impairment
Administration expenses
Proﬁt on exchange
Other operating income

Operating loss

Finance costs
Finance income

Loss before taxation

Income tax expense

Loss after 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

–
–

–

(1,323)
–
–
(534)
130
–

(1,727)

–
6

–
–

–

(164)
(1,360)
(54)
(15)
–
83

(1,510)

(10)
–

(1,721)

(1,520)

–

(1,721)

502
1,692

2,194

591
–

591

66
–

785

(735)

67
146

213

3
23

–
1,414

–
–

–

(39)
–
–
–
–
–

(39)

–
–

(39)

–

(39)

–
–

–

–
–

–

–
–

Total
£’000

–
–

–

(1,526)
(1,360)
(54)
(549)
130
83

(3,276)

(10)
6

(3,280)

785

(2,495)

569
1,838

2,407

594
23

617

66
1,414

15. Notes to the Financial Statements (continued)

2. Segmental information (continued)

Exploration and production year ended 31 December 2017

Revenue – oil
Cost of sales

Gross proﬁt
Exploration and evaluation expenditure
Intangible asset written off
Receivables impairment
Deconsolidation of Colombian entity
Administration expenses
Loss on exchange
Other operating income

Operating (loss)/proﬁt

Finance costs
Finance income

Loss before taxation

Income tax expense

Loss after 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

United
Kingdom
£’000

South
America
£’000

South East
Asia
£’000

–
–

–
–
–
–
–
(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

298
(43)

–
–

–
(90)
–
–
–
–
–
–

(90)

–
–

(90)

–

(90)

–
–

–

–
–

–

–
–

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)

Annual Report and Financial Statements 2018

15. Notes to the Financial Statements (continued)

3. Operating loss

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
Intangible asset written off
Impairment of intangible assets
Impairment of foreign tax receivables
(Gain)/loss on exchange

2018
£’000

2017
£’000

22
22
5
5
1,526
–
1,360
54
(130)

21
21
5
5
109
1,837
–
(43)
508

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

2018
£’000

323
1,526
1,414
159
(130)
67

3,359

2018
£’000

83
–

2017
£’000

311
109
(43)
140
508
59

1,084

2017
£’000

–
21

5. Staff numbers and cost
The average number of persons employed by the Group (including directors) during the year, analysed by category,
was as follows:

2018
Number

2017
Number

Directors
Technical and production
Administration

Total

3
–
–

15. Notes to the Financial Statements (continued)

5. Staff numbers and cost (continued)
The aggregate payroll costs of these persons were as follows:

Wages and salaries
Directors’ salaries
Share based payments
Social security costs

The Company is compliant with pensions auto-enrolment legislation.

6. Finance income

Bank and other interest received
Finance cost

Total

Income tax expense

The tax charge on the loss on ordinary activities was:-
UK Corporation Tax – current
Foreign taxation

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 19% (2017: 21.1%)

Effects of:
(Proﬁts)/losses not subject to tax
Change of tax rate on brought forward tax loss
Increase in tax losses
Foreign taxation

Tax expense

£’000

–
264
33
27

324

2018
£’000

6
(10)

(4)

2018
£’000

–
(785)

(785)

–
243
41
27

311

2017
£’000

19
(8)

2017
£’000

–
(519)

(519)

2018
£’000

2017
£’000

(3,280)

(2,058)

(623)

(434)

(269)
(148)
1,040
(785)

(785)

9
(168)
593
(519)

(519)

At 31 December 2018, the Group has losses to carry forward against future proﬁts. The losses from UK operations
include exploration losses of £29,460 (2017 – £29,458), management expenses of £5,881,321 (2017 – £5,510,747),
capital losses of £5,706,782 (2017 – £5,706,782) and non-trade relationship deﬁcits of £467,317 (2017 – £467,317).
Additionally, there are foreign exploration losses of £13,809,207 ( 2017 – £13,308,839) to carry forward against
future proﬁts. The deferred tax asset on UK tax losses at 17% of £11,969,652 (2017: at 19%, £ 11,599,076) has not
been recognised due to the uncertainty of the recovery.

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

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 proﬁt/(loss)

9. Earnings per share

Loss per ordinary share
– Basic
– Diluted

2018
£’000

2017
£’000

(2,699)

(1,342)

2018

2017

(0.181p)
(0.181p)

(0.112p)
(0.112p)

Earnings per ordinary share is based on the Group’s loss attributable to controlling interests for the year of
£2,495,000 (2017: £1,539,000).

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 options issued

2018
Number

2017
Number

1,376,409,576
46,671,139

1,376,409,576
28,859,896

Weighted average ordinary shares for diluted earnings per share

1,423,080,715

1,405,269,472

Due to the Group’s results, the diluted earnings per share was deemed to be the same as the basic earnings per share
for that year.

15. Notes to the Financial Statements (continued)

10. Property, plant and equipment

Group
Cost
At 1 January 2017
Foreign exchange translation adjustment
Expenditure
Disposals

At 1 January 2018
Foreign exchange translation adjustment

At 31 December 2018

Depreciation
At 1 January 2017
Foreign exchange translation adjustment
Charge for the period
Disposals

At 1 January 2018
Foreign exchange translation adjustment

At 31 December 2018

Net book value
At 31 December 2018

At 31 December 2017

Development

and production Equipment and
machinery
£’000

costs
£’000

Vehicles
£’000

Total
£’000

–
–
–
–

–
–

–

–
–
–
–

–
–

–

38
(5)
–
(1)

32
2

35
(5)
2
–

32
2

–

23
–
–
(23)

–
–

–

23
–
–
(23)

–
–

–

61
(5)
–
(24)

32
2

58
(5)
2
(23)

32
2

–

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

11. Intangible ﬁxed assets

Group
Cost
At 1 January 2017
Foreign exchange translation adjustment
Expenditure
Disposals

At 1 January 2018
Foreign exchange translation adjustment
Expenditure

At 31 December 2018

Impairment
At 1 January 2017
Disposals

At 1 January 2018
Charge for the period

At 31 December 2018

Net book value
At 31 December 2018

At 31 December 2017

Company
Cost
At 1 January 2017
Expenditure
Disposals

At 1 January 2018
Expenditure

At 31 December 2018

Impairment
At 1 January 2017
Disposals

At 1 January 2018
Charge for the year

At 31 December 2018

Net book value
At 31 December 2018

At 31 December 2017

Exploration
and evaluation
costs
£’000

Licence
£’000

–
–
–
–

–
–
–

–

–
–

–

4,309
(334)
298
(1,953)

2,320
100
66

2,486

2,984
(1,924)

1,060
1,360

2,420

1,260

Exploration
and evaluation
costs
£’000

Licence
£’000

Total
£’000

4,309
(334)
298
(1,953)

2,320
100
66

2,486

2,984
(1,924)

1,060
1,360

2,420

1,260

Total
£’000

1,695
119
(1,180)

634
67

701

–
–
–

–
–

–

–
–

–

1,695
119
(1,180)

634
67

701

1,129
(1,060)

69
566

635

565

69
566

635

565

15. Notes to the Financial Statements (continued)

11. Intangible ﬁxed assets (continued)
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 XXI Peru: this licence has been fully impaired during the year.

12. Goodwill

Group
Cost
At 1 January 2017
Disposals

At 1 January and 31 December 2018

Impairment
At 1 January 2017
Disposals

At 1 January and 31 December 2018

Net book value
At 31 December 2018

At 31 December 2017

The carrying value of goodwill represents the purchase of shares in Gold Oil Peru SAC.

Goodwill on
consolidation
of subsidiaries
£’000

2,407
(2,326)

–

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

13. Investments

Company
Cost
At 1 January 2017
Exchange rate adjustment
Disposals
Net loan movements

At 1 January 2018
Exchange rate adjustment
Additions
Disposals
Net loan movements

At 31 December 2018

Impairment
At 1 January 2017
Charge for the year
Disposals

At 1 January 2018
Charge/(release) for the year
Disposals

At 31 December 2018

Carryingvalue
At 31 December 2018

At 31 December 2017

Loans to
group
undertaking
£’000

Shares in
group
undertaking
£’000

2,996
(208)
(723)
283

2,348
41
–
–
(1,834)

555

2,996
75
(723)

2,348
(1,793)
–

555

–

6,790
–
(3,118)
–

3,672
–
1,947
(150)
–

5,469

6,765
–
(3,118)

3,647
1,947
(150)

5,444

Total
£’000

9,786
(208)
(3,841)
283

6,020
41
1,947
(150)
(1,834)

6,024

9,761
75
(3,841)

5,995
154
(150)

5,999

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 had operational control and the results and ﬁnancial position
of that company were deconsolidated in 2017. Invepetrol was put in liquidation during the course of 2018 and the
Company’s interest in that company has now been fully written off.

During the year, the Group capitalised £1,949,000 of an intercompany loan to Gold Oil Per S.A.C. as equity.

The Company has made provision on the investment in Gold Oil Peru S.A.C. of £5,999,000 (2017: £5,884,000).

Ayoopco Limited, a UK subsidiary, was dissolved on 21 August 2018.

15. Notes to the Financial Statements (continued)

13. Investments (continued)
The Company’s subsidiary undertakings at the year end were as follows:

Subsidiary/controlled entity

Gold Oil Peru S.A.C

Place of
incorporation
and operation
%

Peru

Gold Oil Caribbean Limited

Commonwealth
of Dominica

All shareholdings are in ordinary, voting shares.

The results of subsidiaries is as follows:

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

14. Trade and other receivables

Trade receivables
Other receivables
Prepayments and accrued income

15. Cash and cash equivalents

Bank current accounts
Bank deposit accounts

Proportion of
ownership
interest
%

100

Proportion
of voting
power held

Method used to
account for
investment

100

equity
method

business

Exploration of
oil and gas

2018
£’000

1,460
194

1,421
–

2017
£’000

(672)
(2,162)

1,421
–

2018

2017

Company
£’000

Group
£’000

Company
£’000

–
111
391

502

–
10
8

–
6
8

2018

2017

Company
£’000

898
794

1,692

Group
£’000

1,183
2,809

3,992

Company
£’000

1,183
2,680

3,863

Group
£’000

–
111
392

503

Group
£’000

898
940

1,838

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 2018, bank deposits included £129,000 (2017: £119,000) that are being held as a guarantee until
the Group fulﬁlls certain licence commitments in Peru and are not available for use . This is not considered to be liquid
cash and has therefore been excluded from the cash ﬂow statement.

Annual Report and Financial Statements 2018

15. Notes to the Financial Statements (continued)

16. Trade and other payables

2018

2017

Group
£’000

Company
£’000

Group
£’000

Company
£’000

Bank loans and overdrafts
Trade payables
Other payables
Amounts owed to subsidiary and associate undertakings
Accruals and deferred income
Taxation

–
362
–
–
232
23

617

–
358
–
1,705
232
8

2,303

17. Share capital

Allotted,calledupandfullypaid
Equity: 1,376,409,576 (2017: 1,376,409,576) ordinary shares of £0.00025 each

–
9
–
–
186
812

1,007

2018
£’000

344

No shares were issued during the year.

18. Share premium and reserves

Group
At beginning of the year
Loss for the year attributable to controlling interests
Share based payments
Option reserve released
Foreign exchange translation adjustments

Company
At beginning of the year
Loss for the year
Share based payments
Option reserve released
Foreign exchange translation adjustments

Share
premium
account
£’000

30,237
–
–
–
–

30,237

30,237
–
–
–
–

30,237

Share
Option
reserve
£’000

Foreign
exchange
translation
reserve
£’000

122
–
33
(81)
–

1,723
–
–
–
(11)

1,712

(163)
–
–
–
–

(163)

–
3
–
1,705
104
7

1,819

2017
£’000

344

Profit
and loss
account
£’000

(28,163)
(2,495)
–
81
–

(30,577)

(27,892)
(2,699)
–
81
–

(30,510)

15. Notes to the Financial Statements (continued)

18. Share premium and reserves (continued)
Details of options issued, exercised and lapsed during the year together with options outstanding at 31 December
2018 are as follows:

Issue date

23 March 2015
7 July 2017
27 November 2018
3 December 2018

Final exercise date

23 March 2018
7 July 2020
27 November 2021
3 December 2021

Exercise
price

1 January
2018
Number

New
Issue
Number

Exercised
Number

Lapsed
Number

31 December
2018
Number

£0.0145
35,172,414
£0.0035 41,000,000

£0.00435
£0.00440

–
–
– 20,000,000
– 10,000,000

76,172,414 30,000,000

–
–
–
–

–

35,172,414

–
– 41,000,000
– 20,000,000
– 10,000,000

35,172,414 71,000,000

Details of options issued, exercised and lapsed during the year together with options outstanding at 31 December
2017 are as follows:

Issue date

23 March 2015
7 July 2017

Final exercise date

23 March 2018
7 July 2020

Exercise
price

£0.0145
£0.0035

1 January
2017
Number

New
Issue
Number

35,172,414

–
– 41,000,000

35,172,414 41,000,000

Exercised
Number

Lapsed
Number

31 December
2017
Number

–
–

–

–
35,172,414
– 41,000,000

–

76,172,414

19. Non-controlling interests

At beginning of the year
Deconsolidation of Inversiones Petroleras de Colombia SA (note 13)

2018
£’000

–
–

–

2017
£’000

347
(347)

–

Share based payments

20.
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

3 December 2018

27 November 2018

10,000,000
0.44p
0.44p
3 years
0.85%
75%
0%
0.11p

20,000,000
0.435p
0.435p
3 years
0.85%
75%
0%
0.11p

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.

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

21. Directors’ emoluments

Directors’ remuneration
Share based payments

Highest paid director emoluments and other beneﬁts are as listed below.

Remuneration
Share based payments

2018
£’000

264
33

297

2018
£’000

150
11

161

2017
£’000

243
41

284

2017
£’000

123
20

143

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:

•

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:

•

Loans and receivables

Trade and other receivables

Cash and cash equivalents

Short term investments

Trade and other payables

15. Notes to the Financial Statements (continued)

22. Financial instruments (continued)

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:

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 2018 and 2017 there were no trade receivables.

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
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 2018

UK sterling
US dollar (USD)
Peruvian Nuevo Sol (PEN)

31 December 2017

UK sterling
US dollar (USD)
Peruvian Nuevo Sol (PEN)

Financial assets
on which
interest earned
£’000

Financial assets
on which
interest not earned
£’000

–
923
–

923

1,213
202
3

1,418

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

1,213
1,125
3

2,341

Total
£’000

763
3,243
4

4,010

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

22. Financial instruments (continued)
The Group earned interest on its interest bearing ﬁnancial assets at rates between 0.1% and 3% (2017 0.1% and 3%)
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 2017 was
prepared under the same assumptions.

Instruments bearing variable interest (£’000)

Change of 1.0% in the interest rate as of

31 December 2018

31 December 2017

Increase
of 1.0%

Decrease
of 1.0%

(9)

Increase
of 1.0%

Decrease
of 1.0%

(31)

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:

Average for year ended 31 December 2018
At 31 December 2018
Average for year ended 31 December 2017
At 31 December 2017

USD

1.33
1.27
1.29
1.35

PEN

4.37
4.28
4.14
4.17

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.

15. Notes to the Financial Statements (continued)

22. Financial instruments (continued)
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 crude oil prices is
shown below:

Per barrel – US$
Per barrel – £

31 December
2018

Average
price

31 December
2017

45
36

64
48

60
44

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 2018, 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.

23. Capital commitments
As of 31 December 2018, there were capital commitments in respect of exploration activity amounting to £703,000
(2017 – nil).

24. Contingent Liabilities
The Group and the Company have given guarantees of US$160,000 (31 December 2016: – US$160,000) to Perupetro
SA to fulﬁl licence commitments for Block XXI. The Company considers that there are no potential decommissioning
costs in respect of abandoned ﬁelds.

15. Notes to the Financial Statements (continued)

Annual Report and Financial Statements 2018

25. Events after the reporting period
On 6 February 2019, drilling of the exploration well 98/11a-6 in UK Offshore Licence P1918 (“Colter”) commenced
and back-to-back drilling of the sidetrack 98/11a-6z was completed on 8 March 2019. The Company holds an 8%
working interest in this licence and the cost to the Company of this phase of exploration was £1,145,000.
98/11a-6 encountered oil and gas in the Sherwood Sandstone of the Colter South Prospect and, in common with its
other joint venture partners, the Company is remapping the Colter Area structures in the licence to determine their
extent and update the estimates of the Prospective Resources.

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 *

Year ended
31 December 2018

Year ended
31 December 2017

Balance
£’000

555

Loan advance/
(repayment)
£’000

(1,793)

Balance
£’000

2,348

Loan
advance
£’000

283

* The company has provided for an impairment of £555,000 (2017: £2,348,000) on the outstanding loans.

Group and company
The company paid £9,000 (2017:£8,250) for services rendered by Langley Associates Limited, a company controlled
by Mr G Barnes, a director.

The company paid £9,000 (2017: nil) for services rendered by Praetorian Advisors 2 Limited, a company controlled
by Mr A Yeo, a director.

For your Notes

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