Baron Oil PLC Annual Report 2020

Plain-text annual report

Annual Report and Financial Statements for the year ended 31 December 2020 Contents Annual Report and Financial Statements 2020 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 2020 10. Consolidated Statement of Comprehensive Income for the year ended 31 December 2020 11. Consolidated Statement of Financial Position as at 31 December 2020 12. Company Statement of Financial Position as at 31 December 2020 13. Consolidated and Company Statement of Changes in Equity for the year ended 31 December 2020 14. Consolidated and Company Statement of Cash Flows for the year ended 31 December 2020 15. Notes to the Financial Statements 16. Glossary of Technical Terms Page 2 3 4 9 12 18 19 20 27 28 29 30 31 33 35 64 1 1. Corporate Information Advisers & General Information Directors Registered Ofﬁce John Wakeﬁeld, Non-executive Chairman Andrew Yeo, Chief Executive Ofﬁcer Jonathan Ford, Technical Director Finsgate 5-7 Cranwood Street London EC1V 9EE Company Secretary Geoffrey Barnes Auditors Solicitors Nominated advisor and joint broker Joint broker Registrars Jeffreys Henry LLP Finsgate 5-7 Cranwood Street London EC1V 9EE Armstrong Teasdale Limited 200 Strand London WC2R 1DJ Allenby Capital Limited 5 St Helen’s Place London EC3A 6AB Turner Pope Investments (TPI) LImited 8 Frederick’s Place London EC2R 8AB Computershare Investor Services (Ireland) Limited, 3100 Lake Drive Citywest Business Campus Dublin 24 D24 AK82 Ireland Communications Website www.baronoilplc.com Company number: 05098776 (England and Wales) 2 2. Corporate Statement Annual Report and Financial Statements 2020 Baron Oil Plc (“Baron” or “the Company”) is an independent oil and gas exploration company headquartered in London. The Company currently holds interests in exploration acreage in SE Asia (Timor-Leste), Latin America (Peru) and the UK. Shares in the company are quoted 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. We aim to achieve this by acquiring signiﬁcant equity interests in potentially large oil & gas prospects where there is the opportunity for high impact exploration and appraisal activity at low entry costs. 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 3. Chairman’s Statement & Operations Report Financial and Financial Results The net result for the year was a loss before taxation of £920,000, which compares to a loss of £1,674,000 for the preceding ﬁnancial year; the loss after taxation attributable to Baron Oil shareholders was £920,000, compared to a loss of £1,674,000 in the preceding year. Turnover for the year was £nil (2019: £nil), there being no sales activity during the period. Exploration and evaluation expenditure written off included in the Income Statement amounts to £145,000. This arises from expenditure of £114,000 in Peru on Block XXI, £29,000 in technical consultancy costs and £2,000 relating to the relinquished P2470 licence. Shortly after the period end on 31 January 2021, licence P1918 (Colter) and the nearby onshore licences PEDL330 and PEDL345 were relinquished. All expenditure on these licences was written off in the year, however as these prospects had already been fully impaired in 2019, there was no impact on the Income Statement. Impairment provisions in respect of Peru Block XXI were reduced by £133,000, this being attributable to exchange rate ﬂuctuations on the translation of US Dollar based Peruvian assets. The directors judged that no other exploration assets required impairment. Administration expenditure for the year was £710,000, compared to £442,000 in the preceding year, excluding the effects of exchange rate movements. Directors and employee costs (less £81,000 of share based charges) amounted to £374,000; listing, compliance and other professional fees were £198,000; and other overheads £55,000. The increase in Directors and employee cash costs are largely due to a temporary reduction in directors’ contracted salaries in 2019. During 2020, the Pound Sterling/US Dollar exchange rate was highly volatile, but a strengthening of the Pound towards the end of the year gave rise to an overall exchange gain of £157,000 (loss of £41,000 in 2019) on the Group’s holding of US Dollar assets. At the end of the ﬁnancial year, free cash reserves of the Group had increased to £1,190,000 from a level at the preceding year end of £347,000. The proceeds of new share issues in the year amounting to £2,500,000 gross (£2,295,000 net of costs) bolstered the Company’s cash reserves; excluding this, the overall cash outﬂow amounted to £1,452,000, consisting of £518,000 of investment in SundaGas (Timor-Leste Sahul) Pte.Ltd, exploration and evaluation activity of £145,000, and £789,000 of operating cash outﬂow. During March and April 2021, the Company undertook a further capital raise with a new ordinary share Placing and Subscription of £3,000,000 gross (£2,768,000 net). The Group continues to take a conservative view of its asset impairment policy, giving it a Statement of Financial Position that consists largely of net current assets and what the Board considers to be a realistic value for its exploration assets. Given limited cash resources, the Board will take a prudent approach in entering into new capital expenditures beyond those expected to be committed to existing ventures. Report On Operations Introduction It is hard to believe that we have now lived with the consequences of the COVID-19 pandemic for more than 18 months. We were fortunate enough to enter 2020 without any immediate drilling commitments and instead were able to focus on desktop studies to advance our projects whilst maintaining control over costs. The funding of the Chuditch Carry Agreement was a key milestone in March 2020 as it not only secured a substantial asset but was achieved in the early stages of the pandemic. 4 3. Chairman’s Statement & Operations Report (continued) Annual Report and Financial Statements 2020 A number of board changes were announced in October 2020, triggered by the retirement of Executive Chairman, Dr Malcolm Butler. John Wakeﬁeld was appointed as Independent Non-executive Chairman, Jon Ford changed his role to Technical Director, and Andrew Yeo became Chief Executive of the Company. Southeast Asia: Timor-Leste Tl-S0-19-16 PSC (“Chuditch PSC” or “PSC”) (Baron25%effectiveinterest,risingto63.75%post-reportingperiod) During 2020 Baron acquired a 33.33% interest in the shares of SundaGas Timor-Leste (Sahul) Pte. Ltd. (“TLS”), the parent company of the Timor-Leste subsidiary, SundaGas Banda Unipessoal Lda. (“Banda”), which is the Operator of and 75% interest holder in the offshore Timor-Leste TL-SO-19-16 PSC. Banda had put in place the required US$1 million Bank Guarantee (Baron assuming its share of US$0.333 million) against the initial work commitment, which included the reprocessing of legacy seismic data for the ﬁrst two years of the Initial Term of the PSC. Subject to satisfactory results from the reprocessing and other technical work, the subsequent commitment is for a well to be drilled in the third year of the Initial Term. The Chuditch PSC is located approximately 185 kilometres south of Timor-Leste, 100 kilometres east of the producing Bayu-Undan ﬁeld, 50 kilometres south of the Greater Sunrise potential development, and covers approximately 3,571km2 in water depths of 50-100 metres. The Shell operated Chuditch-1 discovery in 1998, which was drilled in 64 metres water depth in a total of 25 days for around US$8 million, encountered a 25 metre gas column in Jurassic Plover Formation reservoir sandstones on the ﬂank of what is interpreted to be a large faulted structure. The Chuditch area was largely covered by part of a regional 3D survey which was acquired by a previous operator in 2012. The initial work programme is designed to extract the maximum information from existing seismic data, utilising the technical expertise of the TLS team and incorporating a training programme for Timor-Leste nationals. There are issues with sea-bed topography and shallow geological features that impact the existing seismic image at the reservoir level local to the Chuditch area and a pre-stack depth migration (“PSDM”) processing routine, tailored to resolve these issues, is necessary. Although the work carried out previously by Shell determined that there were low reservoir, seal and hydrocarbon charge risks, such modern processing is necessary to deﬁne the size and shape of the accumulation, which impacts the gas volumes in place and the location of potential future wells. In particular, new advances in seismic processing technology enable a considerably enhanced subsurface image to be achieved in areas with complex seabeds and shallow geology. Accessing the original raw acquisition data for the existing seismic volumes was therefore critical for this programme. A combination of COVID-19 lockdowns and data access issues meant that at the 2020 year end TLS had yet to receive these key data for either 3D or 2D seismic. Despite this, the TLS team was able to perform baseline geological and geophysical studies and establish an initial presence in Dili, the capital of Timor-Leste. Since the beginning of 2021 we are pleased to report that considerable progress has been made on the Chuditch PSC project, building on the background work carried out during 2020: • • in January 2021, we announced a signiﬁcant upgrade in TLS’s non-SPE PRMS compliant gross volumes, based on the interpretation of legacy 2D (unreprocessed) seismic, well and regional data: o o o Mean gas initially in place volumes to 4,703 BCF (from 2,320 BCF) Mean prospective resources to 3,527 BCF (from 1,508 BCF) Inclusion of a signiﬁcant new lead within the licence area, Chuditch North East; in February 2021, Autoridade Nacional do Petróleo e Minerais (“ANPM”, the Timor-Leste state oil and gas regulatory authority) granted a year’s extension to Contract Year 1 of the PSC to enable the timely completion of the committed work programme, in particular the seismic reprocessing project; 5 3. Chairman’s Statement & Operations Report (continued) • in April 2021, we announced the completion of an Earn In and executed a seismic licensing and reprocessing contract: o o o o increasing our interest in TLS from 33.33% to 85%, thereby increasing Baron’s effective interest in the Chuditch PSC from 25% to 63.75%; net share of non-SPE PRMS compliant Mean prospective resources increased from 882 BCF to 2,248 BCF (375 MMBOE); Baron agreed to fund the remainder of the Chuditch PSC work programme to November 2022, estimated to be US$3.5 million. We successfully raised gross proceeds of £3 million by the issue of new shares to enable us to commit to this programme; Spectrum Geo Australia Pty Ltd., a wholly owned subsidiary of TGS-NOPEC Geophysical Company ASA (“TGS”), was engaged for the licensing and reprocessing of 1,270km2 of 3D seismic data covering the Chuditch-1 discovery and adjacent prospects. Obtaining a material interest in a very large potential asset and getting the seismic reprocessing back on track is judicious as we are seeing a convergence of events which together have the potential to make the Chuditch PSC an outstanding asset for the Company: • • • an acceleration in Timor-Leste regional hydrocarbon exploitation, including drilling activity and planned extensions of existing infrastructure; exposure to the SE Asia liquid natural gas (“LNG”) market, where future demand is forecast to exceed supply; a sufﬁcient level of prospective resources to attract the interest of major regional gas players and other potential funding partners. The seismic reprocessing results are likely to be delivered across the period from 4th quarter 2021 to 2nd quarter 2022. Seismic data interpretation, geological and other studies will occur in parallel ahead of a decision by Q4 2022 on whether to enter the drilling phase, with the potential for a high impact drilling programme in 2023. The recent uptick in oil & gas activity in Timor-Leste follows the Santos US$1.25 billion acquisition of ConocoPhillips’ northern Australia and Timor-Leste assets, completed in May 2020. This package delivered Santos operatorship of a portfolio of natural gas assets (Bayu-Undan and Barossa), partnerships with some of SE Asia’s largest LNG players, power generators and utility companies, and a strategic holding in LNG infrastructure of pipelines and the Darwin LNG plant located at Wickham Point, Northern Territories, Australia. This interconnected system, centred on Bayu- Undan (the only producing ﬁeld currently in Timor-Leste), is key to the evacuation and monetisation of gas from the Timor Sea area. The Chuditch PSC lies only 100 kilometres east of these facilities. Santos and its partners have so far committed to expenditure of more than US$4.5 billion to extend the life of existing ﬁelds and pipelines, bring new ﬁelds onstream, and increase capacity at the Darwin LNG plant from around 4 million tonnes per annum (mtpa) to 10mtpa. There are also moves being made by ENI (operator of the Evans Shoal and Blackwood gas ﬁelds) and Santos to cooperate in offshore developments in northern Australia and Timor-Leste, the sharing of infrastructure, and CO2 capture and storage with a Joint Memorandum of Understanding being announced in May 2021. In the context of these ongoing activities, the Chuditch PSC is well placed to beneﬁt from these activities, in terms of future operational synergies and commercial development of gas in the event of drilling success at Chuditch. 6 3. Chairman’s Statement & Operations Report (continued) Annual Report and Financial Statements 2020 Peru: Block XXI, Onshore Licence (Baron 100%) Baron has a 100% operated interest in onshore Block XXI, in the Sechura Desert of northern Peru. As indicated in March 2021, the Company intends to make a decision on the drilling of the El Barco-3X project during the second half of 2021. We maintain a preference for bringing in a drilling partner with operator capabilities as we believe this represents the best way to develop and monetise any discovery. However, strict COVID restrictions remain in place throughout Peru, which prevents any progress in relation to the drilling project, and it is unclear when and how quickly oil and gas exploration activity will be allowed to recommence. Currently the licence remains in Force Majeure. Our application for a three year extension option to the licence, a prerequisite for attracting a drilling partner, given that we currently have only six months to drill and evaluate well results once Force Majeure is lifted, is currently being assessed by Perupetro, the Peru state regulatory authority. Once approved, this will trigger a prescribed Government process which, if successful, should allow a way forward for the project. In the Piura area where the proposed well is situated, we are required to undertake workshops with the local communities of Belisario and El Barco ahead of any drilling authorisation. United Kingdom Offshore Licence P2478 (Baron 15%) Innovate Licence P2478, awarded in September 2019, is held by Corallian Energy Limited (Operator, 45%), Upland Resources (UK Onshore) Limited (40%) and Baron (15%). The licence’s current modest work commitment is to undertake reprocessing of legacy 2D and 3D seismic data and perform other studies in order to reduce risk and reﬁne volumetric estimates ahead of making a “drill or drop” decision before the end of Phase A of the licence period in July 2023. Covering blocks 12/27c, 17/5, 18/1 and 18/2 in the Inner Moray Firth area of the North Sea, the licence contains the Dunrobin prospect which consists of large shallow rotated fault blocks which are mapped mostly on 3D seismic data including Direct Hydrocarbon Indicators. The prospect is understood to be one of the few remaining targets with Pmean prospective resources of the order of 100 MMBOE yet to be drilled in the North Sea. In April 2020, the joint venture partners signed a Work Sharing and Conﬁdentiality Agreement with a large European E&P Company (“Interested Party”) for licence P2478. Under the terms of the agreement the Interested Party completed its own regional technical work and shared its data and interpretations over the area with Corallian and its partners in February 2021. The technical studies delivered by the Interested Party conﬁrmed and enhanced our geological understanding and corroborated our view of Dunrobin as a potentially attractive and substantial target. The results are being incorporated into the ongoing work programme which includes preparations for the seismic reprocessing in order to reduce further the pre-drill risk on the prospect. Other United Kingdom Licences In keeping with its revised strategy to focus on high potential impact projects, and by way of the normal course of portfolio management, Baron has relinquished its interests in all other United Kingdom Licences. 7 3. Chairman’s Statement & Operations Report (continued) Conclusions Over the next 12 months our focus – both operational and ﬁnancial – will be on driving the Chuditch PSC forward. Through the operator SundaGas Banda we have already engaged TGS, and will be working with them to undertake the critical 3D seismic reprocessing which will provide an up-to-date assessment of the true potential of the Chuditch discovery and offset prospects. Notwithstanding the expected beneﬁts of global economic recovery as normality gradually returns, SE Asia gas prices are already ahead of pre-COVID levels. An acceleration in Timor-Leste’s oil & gas activity is expected and the Chuditch PSC with its potential Mean gross prospective resources of 3,527 BCF of gas is sufﬁcient to get noticed. The Earn In increased Baron’s net share of estimated non-SPE PRMS compliant Mean gas prospective resources to 2,248BCF (equivalent to 375MMBOE). Activity in Peru is likely to remain subdued in the short term. In the UK, we expect to see activity on P2478 once the results of the regional technical work have been incorporated into the ongoing work programme. Whilst we only have a modest 15% interest, it remains a signiﬁcant opportunity. The Company continues to screen opportunities for acquiring signiﬁcant equity interests in high potential impact exploration and appraisal activity at low entry costs. As for the next twelve months, our current commitments are fully funded and we look forward to executing on our ambitious plans. I would like to thank my colleagues and partners for their warm welcome and hard work in ensuring that Baron is well-placed to evaluate the potential of its Chuditch asset during the current year as well as consider opportunities for our other and future assets in due course. John Wakeﬁeld Non-executiveChairman 26 May 2021 8 4. Strategic Report Annual Report and Financial Statements 2020 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 2020. Principal activities The principal activity of the Group is that of oil and gas exploration. Business review A review of the Group’s business during the ﬁnancial period and its likely development is given in the Chairman’s Statement & Operations Report. Key performance indicators (KPIs) The KPIs for 2020 included the management of cash resources; concluding the Chuditch PSC agreements; and drilling the El-Barco well in Peru; the results for which are as follows: • The board took an early view that activities would be negatively impacted by the onset of the COVID-19 pandemic, particularly around drill site access in Peru. We therefore focused efforts on desk top studies to advance our projects whilst maintaining control over costs. We ended the year, having made a £0.518 million investment in SundaGas (Timor-Leste Sahul) Pte.Ltd, with free cash reserves (net of the Peru Performance Bond) of £1.19 million (£0.347 million: 2019). • We concluded the Chuditch Agreements which resulted in Baron acquiring a 33.33% shareholding in TLS. A combination of COVID-19 lockdowns and data access issues meant that we were unable to advance to an independent assessment of the resources of the Chuditch-1 discovery and surrounding structures, but in January 2021 we were able to announce a signiﬁcant upgrade in estimated non-SPE PRMS compliant gross volumes based on the interpretation of legacy 2D seismic, well and regional data. Since then we have been granted a year’s extension to Contract Year 1 of the PSC licence term and increased our shareholding in TLS to 85% by way of an Earn In. • Tight COVID restrictions in Peru throughout the year prevented any progress towards the drilling of the El Barco-3x well. However, the licence currently remains in good standing despite being in Force Majeure. The KPIs for 2021 are operational: • • • Progress existing ventures to deliver on Baron’s strategic objectives; In particular, work closely with the TLS team and TGS to ensure that the Chuditch reprocessing project extracts the maximum information from the existing seismic data, delivers on time and satisﬁes the PSC work commitment; Continue to screen and bring forward new opportunities which are consistent with Baron’s new asset criteria. 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 takes to minimise those risks. Oil and Gas prices The Group’s results and activities are and will be inﬂuenced by oil and gas prices which are dependent on a number of factors impacting both world and regional supply and demand. Due to these factors, oil and gas prices may be subject to signiﬁcant ﬂuctuations from year to year. While we are not insulated from any particular oil price shock, it should be noted that the Group’s assets are all in the pre-production exploration phase. Following the award of the Chuditch PSC and the Earn In, the Group is now more heavily weighted towards gas where regional markets play a greater role in pricing. 9 4. Strategic Report (continued) Impact Oil and gas prices can ﬂuctuate widely and could have a material impact on the Group’s asset values, revenues, earnings and cash ﬂows. In addition, 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 and gas prices. As we do not have any assets in production at the current time, the Group has no need to hedge oil or gas prices. However, in the future we may enter into a hedge programme for oil or gas where the Board determines it is in the Group’s interest to provide greater certainty over future cash ﬂows. COVID-19 There is growing optimism that the worst may be behind us in terms of the COVID-19 pandemic with experience, vaccination, seasonality, and acquired immunity all playing a part. However, it remains unclear how long and in what form business conﬁdence will return. This is not just a case of economics. Impact Drilling activity requires site access and the provision of services which remain adversely affected by the pandemic, which is particularly the case for our Peru project. Action The Group’s proposed work programme for the next 12 months is funded. There is no obligation to drill before 2023 in Timor-Leste or the UK. In Peru, until COVID-19 restrictions are lifted little progress can be made; thereafter, permitting requirements will need to be in place before drilling can commence. Performance guarantees The Group has given performance guarantees in respect of its licence in Peru and the PSC in Timor-Leste. In the event that work commitments under the licences are not met, then these guarantees are likely to be called in. Impact In the event that the Group forfeits a deposit under any guarantee, this will lead to a permanent reduction in asset value. The Peru guarantee sums are shown as cash not available on the Consolidated and Company Statement of Cash Flows; for Timor-Leste they are shown as a receivable since the Company’s interest in SundaGas (Timor-Leste Sahul) Pte.Ltd is not consolidated. Action The Group actively manages its work programmes under the licences to the extent that it is able to, paying close attention to milestones and expiry dates, in order to minimise the risk that licence commitments are not met. Liquidity The Group is exposed to liquidity risks, including the risk that ﬁnancial assets cannot readily be converted to cash without the loss of value. Impact Failure to manage ﬁnancing risks could have a material impact on the Group’s cash ﬂows, earnings and ﬁnancial position as well as reducing the funds available to the Group for working capital, capital expenditure, acquisitions, future dividends and other general corporate purposes. Action The Group manages liquidity risk by maintaining adequate levels of cash balances. 10 4. Strategic Report (continued) Annual Report and Financial Statements 2020 Taxation As the tax legislation in South America and Timor-Leste 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. Currency Currency risk arises because the Group has operations whose functional currency is not the same as the functional currency that the Group operates under. It is the Group’s policy to ensure that individual Group entities enter into local transactions in their functional currency wherever possible. Impact With the addition of Baron’s interest in the Chuditch PSC, alongside Peru, some 60% of Baron’s expenditure is now transacted in US Dollars. The Company, its directors and main banking arrangements continue to be based in the UK and reports in Sterling. Action Corporate and capital expenditure budgets are set annually, partly by the Group and partly at the asset level, and reviewed regularly. Due to the nature of the project arrangements, typically monthly cash calls with a two month forecast, monies are held in US Dollars in the UK and transferred overseas as required. It is the Group’s policy to look to cover up to 12 months expenditure in any given currency at or around the level of the agreed budget. Due to the relatively modest amount of overall expenditure, the Company has not previously entered into any hedging arrangements or structured products. S172 Companies Act 2006 Refer to the statement, Directors’ duties – S172 Companies Act 2006 Directors’ duties to promote the long-term success of the Company, on page 18. By order of the Board John Wakeﬁeld Non-executiveChairman 26 May 2021 11 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 2020. Directors The following are biographical details of the directors of Baron Oil Plc. John Wakefield, Non-executive Chairman John Wakeﬁeld, aged 66, is an experienced quoted company director, corporate ﬁnancier and nominated adviser. He qualiﬁed as a solicitor with McKenna & Co and lectured in law at the University of Newcastle before moving into corporate ﬁnance. He is currently a NED at Drumz plc (LSE:DRUM.L) and has been a member of the AIM Advisory Group, chairman of the London Stock Exchange Regional Advisory Group for the South West, and chairman of South West Angel and Investor Network Limited (SWAIN). He holds a Bachelor of Civil Law degree from Oxford. Andrew Yeo, Chief Executive Officer Andy Yeo, aged 58, 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 more than 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, Technical Director Jon Ford, aged 61, has more than 39 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. Dr Malcolm Butler resigned from the Board on 30 October 2020. Proposed dividend The directors do not recommend the payment of a dividend in respect of the ﬁnancial year ended 31 December 2020. 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 creditor days as at 31 December 2020 were 12 days (2019: 18 days). 12 5. Report of the Directors (continued) Annual Report and Financial Statements 2020 Activities and results A loss of £920,000 (2019: £1,674,000), of which £920,000 (2019: £1,674,000) was attributable to equity shareholders, was recorded for the year. Net assets of the Group at 31 December 2020 amounted to £1,796,000 (2019: £455,000), of which £1,796,000 (2019: £455,000) 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 & Operations Report. Issue of shares During the year, the Company issued 2,500,000,000 Ordinary Shares of 0.025p each, raising £2,500,000 gross (£2,295,000 net of costs), see also Events after the Reporting Period below. The Environment The Company is ﬁrmly committed to protecting the environment wherever it does business. We will do our utmost 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 The directors believe it is the Group’s responsibility as a good corporate citizen to improve the quality of life in the communities in which it does business. Where possible, the Group 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 & 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: M Butler (resigned 30 October 2020) A Yeo J Ford 31 December 2020 31 December 2019 No. of Ordinary shares – 106,250,000 7,500,000 % Holding No. of Ordinary shares – 26,000,000 2.4% 56,250,000 – 0.2% 113,750,000 2.6% 82,250,000 % Holding 1.4% 2.9% – 4.3% 13 5. Report of the Directors (continued) Options held by the directors are as follows: M Butler (resigned 30 October 2020) M Butler (resigned 30 October 2020) A Yeo A Yeo J Ford Total 31 December 2020 Number of options £0.0035(1) 31 December 2019 Number of Options £0.0035(1) – 20,000,000 Number of options £0.00435(2) Number of Options £0.00435(2) – 10,000,000 Number of options £0.0044(3) Number of Options £0.0044(3) 10,000,000 10,000,000 Number of options £0.001(4) 125,000,000 Number of options £0.001(5) 75,000,000 Number of Options £0.001(4) – Number of Options £0.001(5) – 210,000,000 40,000,000 (1) (2) (3) (4) (5) Each £0.0035 option grants the holder the right to subscribe for one Ordinary Share at £0.0035 per share, and were 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. Each £0.001 option grants the holder the right to subscribe for one Ordinary Share at £0.001 per share, and are granted under one option contract exercisable at any time prior to 26 May 2030. Each £0.001 option grants the holder the right to subscribe for one Ordinary Share at £0.001 per share, and are granted under one option contract exercisable at any time prior to 10 November 2030. Except as shown in note 27 to the Financial Statements (Related Party Transactions) on page 62, 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 maintains a policy of paying fair salaries compared with peer companies in the independent oil and gas sector. All current salaries are without pension beneﬁts. The Remuneration Committee has reviewed the incentive opportunities available for the management team. It identiﬁed four main elements of the Remuneration Package for Executives: Base Salary, Beneﬁts, Share Options and Discretionary Bonuses. As part of these arrangements the Company has created an Enterprise Management Incentive (EMI) share option scheme. The EMI is an HMRC approved tax efﬁcient option scheme that enables companies to attract and retain key staff by rewarding them with equity participation in the business. 14 5. Report of the Directors (continued) Annual Report and Financial Statements 2020 Salaries and beneﬁts Basic salaries are reviewed annually or when individuals change positions or responsibility or the Company’s position changes. Details of salaries plus non-cash beneﬁts paid during the year are shown below. Chairman M Butler (resigned 30 October 2020) J Wakeﬁeld (appointed 30 October 2020) Executive Directors A Yeo G Barnes (resigned 31 March 2019) J Ford (Non-executive until 30 October 2020) 2020 (£) 2019 (£) 73,493 8,333 164,497 – 36,667 61,333 – 97,000 19,000 15,000 282,990 192,333 Refer to note 27 on page 62 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. The directors did not receive any other emoluments, compensation or cash or non-cash beneﬁts other than that disclosed above. 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 26 March 2021, the Company issued 1,525,000,000 new ordinary shares of 0.025p each, followed by a further issue of 4,475,000,000 new ordinary shares of 0.025p each on 14 April 2021. The two share issues combined was for new capital of £3,000,000 gross, £2,768,000 net of costs. It is intended that the proceeds of the placing and subscription are used to increase its equity stake in SundaGas (Timor-Leste Sahul) Pte.Ltd (“SundaGas TLS”), to fund the Company’s share of the ongoing TL-SO-19-16 PSC (“Chuditch PSC”) work programme in Timor-Leste as well as providing additional working capital. On 23 April 2021, the Company increased its shareholding in SundaGas TLS from 33.3% to 85% at a cost of £890,000. The sole asset of SundaGas TLS is its 100% shareholding in SundaGas Banda Unipessoal Lda., Operator of the Chuditch PSC, in which it holds a 75% interest. Financial Review Liquidity & Share Trading The Board believes that liquidity is important in attracting both small and institutional investors to Baron. 15 5. Report of the Directors (continued) Shares in Issue and Shareholders Profile The number of shares in issue at 17 May 2021 was 10,426,406,576 Ordinary Shares, each share having equal voting rights. Baron Oil Plc has 1,136 shareholders. The shareholding distribution at 17 May 2021 is as follows: Range >10% 5-10% 1-5% 0.5-1% <0.5% No of shares No of shareholders 5,767,084,556 601,133,174 1,964,321,182 770,095,547 1,323,775,117 10,426,409,576 4 1 8 10 1,113 1,136 Significant shareholdings The Company has been informed that, as of 17 May 2021, the following shareholders owned 3% or more of the issued share capital of the Company: Name Hargreaves Lansdown (Nominees) Limited JIM Nominees Limited Interactive Investor Services Nominees Limited HSDL Nominees Limited Barclays Direct Investing Nominees Limited Vidacos Nominees Limited Shares % of company 2,052,791,885 1,387,257,471 1,272,482,050 1,054,553,150 601,133,174 519,844,524 19.69% 13.31% 12.20% 10.11% 5.77% 4.99% Listing The Company’s ordinary shares have been traded on the AIM market of the London Stock Exchange since 14 July 2004. Allenby Capital Limited is the Company’s Nominated Adviser and Joint Broker; Turner Pope Investments (TPI) Limited is the Company’s other Joint Broker. The closing mid-market price on 17 May 2021 was 0.1p. 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 57. 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. 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. 16 5. Report of the Directors (continued) Annual Report and Financial Statements 2020 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 brought against its directors and ofﬁcers. By order of the Board Geoffrey Barnes Secretary 26 May 2021 17 6. Corporate Governance Statement The directors recognise the importance of sound corporate governance. The Company has adopted the 2018 QCA Corporate Governance Code (“QCA Code”), which the directors consider appropriate for a company of its size and nature. The QCA Code 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” regime 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 its AIM Notice 50 Statement, which can be downloaded from the Company’s website. The Board The Board comprises two executive directors and one non-executive director, details of whom are contained in the Report of the Directors included in this report. The Board meets at least four times a year. The Board is responsible for the strategy, review and approval of acquisition opportunities, capital expenditures, budgets, trading performance and all signiﬁcant ﬁnancial and operational issues. The Audit Committee The Audit Committee is comprised of two directors with John Wakeﬁeld 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’s accounting policies and all issues with the annual audit. The Remuneration Committee The Remuneration Committee is comprised of three directors with John Wakeﬁeld as Chairman and Jon Ford and Andy 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 its 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. Directors’ duties – S172 Companies Act 2006 Directors’ duties to promote the long-term success of the Company The directors behave and carry out their activities to promote long-term success of the Group for the beneﬁt of the Company’s shareholders, employees, suppliers and other stakeholders. They engage with shareholders, employees, suppliers and other stakeholders to reﬂect their insights and views when making decisions on strategy; delivering operational effectiveness; making plans; driving initiatives; and committing to deliver outcomes that enhance social value. The culture and values promoted by the directors create a focus across the Group on observing and maintaining the highest standards of business conduct whilst promoting the long-term success of the Company. 18 Annual Report and Financial Statements 2020 7. Statement of Directors’ Responsibilities in respect of the Strategic Report, the Report of the Directors and the Financial Statements Directors’ responsibilities The directors are responsible for preparing the annual report and the ﬁnancial statements in accordance with applicable law and regulations. Company law requires the directors to prepare ﬁnancial statements for each ﬁnancial period in accordance with applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European Union. Under Company law the directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair view of the state of affairs of the Group and Company and of the proﬁt or loss of the Group for that year. The directors are also required to prepare the ﬁnancial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the AIM market. In preparing those ﬁnancial statements, the directors are required: • • • • 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 and the 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 auditors 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 John Wakeﬁeld Non-executiveChairman 26 May 2021 19 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 2020 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 International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 2020 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 In auditing the ﬁnancial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the ﬁnancial statements is appropriate. Our evaluation of the directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included a detailed review of the Group’s forecasts in comparison to available management accounts at the date of these ﬁnancials to assess the reasonability of the estimates made. We have further performed a sensitivity analysis to conclude on the degree to which current cash reserves will be able to sustain the Group for at least a further twelve months from the date of these ﬁnancials. Based on the work we have performed, we have not identiﬁed any material uncertainties relating to events or conditions that, individually or collectively, may cast signiﬁcant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from when the ﬁnancial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 20 Annual Report and Financial Statements 2020 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 judgment, were of most signiﬁcance in our audit of the ﬁnancial statements of the current period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to fraud) 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 evaluation assets. Impairment of parent company investment in associate and recoverability of loan to associate. These are explained in more detail below Auditscope • We conducted audits of the Group and Parent Company ﬁnancial information of Baron Oil Plc. • We performed speciﬁed procedures over certain account balances and transaction classes at other Group companies. • Taken together, the Group companies over which we performed our audit procedures accounted for 100% of the absolute proﬁt before tax (i.e. the sum of the numerical values without regard to whether they were proﬁts or losses for the relevant reporting units) and 100% of revenue. Key audit matters Key audit matter How our audit addressed the key audit matter Carrying value of intangible assets – Group financial statements The Company had intangibles of £18k at the year ended 31 December 2020. (31 December 2019: £5k). The total value of exploration and evaluation costs expensed during the period is £145k. A reduction in impairment of £59k was considered at year end due to currency exchange translation. IFRS 6 Exploration for and Evaluation of Mineral Resources sets out the requirement under which an E&E asset is assessed for impairment. The impairment review performed by directors shows that an impairment was not required for Inner Moray Firth project at the end of the reporting period. We have assessed and understood the methodology used by the directors in this analysis and determined it to be reasonable. Intangibles are only assessed for impairment when indicators of impairment exist. The Group continues farm-in discussions on Block XXI to ﬁnance drilling within six months of the end of Force Majeure on the licence. We have assessed the ongoing projects’ viability and ensure that they met the criteria deﬁned in the accounting standards. 21 8. Report of the Independent Auditors (continued) to the Members of Baron Oil Plc Key audit matter How our audit addressed the key audit matter Impairment of the parent company investment in and loan to associate The Company had investment in an associate of £194k at the end of the reporting period. During the current period, the Company made a loan to associate of £323k. The Directors have conﬁrmed that the investment in and loan to associate were adequately recognised and disclosed, with no impairment being recognised at the end of the reporting period. We have assessed the methodology used by management to estimate the recoverable amount of the investment and the loan. We have assessed the reasonableness of the key assumptions used in management’s estimates of the recoverable value. We have assessed the recoverability of loan provided to associate in line with the contractual agreement any related conditions and obligations, to ensure appropriate value is disclosed at the end of the reporting period. Based on the audit work performed, we are satisﬁed that management have performed the impairment review appropriately and in accordance with the relevant accounting standards. 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 judgment, we determined materiality for the ﬁnancial statements as a whole as follows: Overall materiality Group ﬁnancial statements Company ﬁnancial statements £52,000 (31 December 2019: £43,000). £50,000 (31 December 2019: £42,000). How we determined it Based on 5% of loss before tax. Based on 5% of loss before tax. Rationale for benchmark applied We believe the most adequate basis for materiality is based on loss before tax as a primary measure used by shareholders in assessing the performance of the Group. This is a generally accepted auditing benchmark. We believe the most adequate basis for materiality is based on loss before tax as a primary measure used by shareholders in assessing the performance of the Company. This is a generally accepted auditing benchmark. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components is ranged from £6,000 and £52,000. We agreed with the Audit Committee that we would report to them misstatements identiﬁed during our audit above £2,600 (Group audit) (31 December 2019: £2,150) and £2,500 (Company audit) (31 December 2019: £2,100) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. 22 Annual Report and Financial Statements 2020 8. Report of the Independent Auditors (continued) to the Members of Baron Oil Plc 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 judgments, for example in respect of signiﬁcant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the ﬁnancial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group ﬁnancial statements are a consolidation of 2 reporting units, comprising the Group’s operating businesses and holding companies. We performed audits of the complete ﬁnancial information of the Group and Parent Company of Baron Oil Plc reporting units, which were individually ﬁnancially signiﬁcant and accounted for 100% of the Group’s revenue and 100% of the Group’s absolute proﬁt before tax (i.e. the sum of the numerical values without regard to whether they were proﬁts or losses for the relevant reporting units). We also performed speciﬁed audit procedures over goodwill and other intangible assets, as well as certain account balances and transaction classes that we regarded as material to the Group at the 2 reporting units. The Group engagement team performed all audit procedures, with the exception of the audit of Gold Oil Peru S.A.C which were performed by a component auditor in Peru. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the ﬁnancial statements and our auditor’s report thereon. Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the ﬁnancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the ﬁnancial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 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. 23 8. Report of the Independent Auditors (continued) to the Members of Baron Oil Plc 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 19, 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. 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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: The extent to which the audit was considered capable of detecting irregularities including fraud Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows: the senior statutory auditor ensured the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations; we identiﬁed the laws and regulations applicable to the company through discussions with directors and other management. we focused on speciﬁc laws and regulations which we considered may have a direct material effect on the ﬁnancial statements or the operations of the company, including taxation legislation, data protection, anti-bribery, employment, environmental, health and safety legislation and anti-money laundering regulations. • • • 24 Annual Report and Financial Statements 2020 8. Report of the Independent Auditors (continued) to the Members of Baron Oil Plc • • • we assessed the extent of compliance with the laws and regulations identiﬁed above through making enquiries of management and inspecting legal correspondence. identiﬁed laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit; and we assessed the susceptibility of the company’s ﬁnancial statements to material misstatement, including obtaining an understanding of how fraud might occur, by: o o making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations. To address the risk of fraud through management bias and override of controls, we: • • • • • performed analytical procedures to identify any unusual or unexpected relationships; tested journal entries to identify unusual transactions; assessed whether judgements and assumptions made in determining the accounting estimates set out in note 2 of the Group ﬁnancial statements were indicative of potential bias; investigated the rationale behind signiﬁcant or unusual transactions. In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: o o o o agreeing ﬁnancial statement disclosures to underlying supporting documentation; reading the minutes of meetings of those charged with governance; enquiring of management as to actual and potential litigation and claims; reviewing correspondence with HMRC and the group’s legal advisors. There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from ﬁnancial transactions, the less likely it is that we would become aware of noncompliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion. A further description of our responsibilities for the audit of the ﬁnancial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters that we are required to address The non-audit services prohibited by the FRC’ 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. 25 8. Report of the Independent Auditors (continued) to the Members of Baron Oil Plc Use of this report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Sanjay Parmar Senior Statutory Auditor For and on behalf of Jeffreys Henry LLP (Statutory Auditors) Finsgate 5-7 Cranwood Street London EC1V 9EE 26 May 2021 26 9. Consolidated Income Statement for the year ended 31 December 2020 Revenue Cost of sales Gross proﬁt Exploration and evaluation expenditure Intangible asset impairment Property, plant and equipment impairment and depreciation Receivables and inventory impairment Administration expenses Loss on exchange Operating loss Loss from associated undertaking Loss before interest and taxation Finance cost Finance income Loss on ordinary activities before taxation Income tax 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 Annual Report and Financial Statements 2020 Notes 2020 £’000 2019 £’000 – – – (145) 59 (2) 74 (710) (157) (881) (44) (925) – 5 – – – (160) (1,047) – 16 (442) (41) (1,674) – (1,674) (1) 1 (920) (1,674) – – (920) (1,674) – – (920) (1,674) (920) – (920) (1,674) – (1,674) (0.023p) (0.023p) (0.099p) (0.099p) 10 9 3 3 3 12 5 5 6 8 27 10. Consolidated Statement of Comprehensive Income for the year ended 31 December 2020 Loss on ordinary activities after taxation attributable to the parent Other comprehensive income: Release of option reserve Exchange difference on translating foreign operations Total comprehensive loss for the year Total comprehensive loss attributable to owners of the parent Notes 2020 £’000 (920) 41 (115) (994) (994) 2019 £’000 (1,674) – (69) (1,743) (1,743) 28 11. Consolidated Statement of Financial Position at 31 December 2020 Annual Report and Financial Statements 2020 Assets Noncurrentassets Property plant and equipment – oil and gas assets – others Intangibles Goodwill Associated undertaking 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 Non-currentliabilities Lease ﬁnance Total equity and liabilities Notes 2020 £’000 2019 £’000 9 9 10 11 12 14 15 18 19 19 19 19 16 16 17 – 43 18 – 151 212 376 1,311 1,687 1,899 – – 5 – – 5 49 472 521 526 1,107 32,156 135 1,528 (33,130) 1,796 482 30,507 74 1,643 (32,251) 455 58 16 74 29 1,899 64 7 71 – 526 The ﬁnancial statements were approved and authorised for issue by the Board of Directors on 26 May 2021 and were signed on its behalf by: John Wakeﬁeld Director Company number: 05098776 Andrew Yeo Director 29 12. Company Statement of Financial Position at 31 December 2020 Assets Noncurrentassets Property plant and equipment – oil and gas assets – others 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 Non-currentliabilities Lease ﬁnance Total equity and liabilities Notes 2020 £’000 2019 £’000 9 10 13 14 15 18 19 19 19 19 16 16 17 – 43 18 195 256 375 1,183 1,558 1,814 – – 5 25 30 46 336 382 412 1,107 32,156 135 (163) (31,523) 1,712 482 30,507 74 (163) (32,261) (1,361) 58 15 73 29 1,814 1,766 7 1,773 – 412 The ﬁnancial statements were approved and authorised for issue by the Board of Directors on 26 May 2021 and were signed on its behalf by: John Wakeﬁeld Director Company number: 05098776 Andrew Yeo Director 30 13. Consolidated and Company Statement of Changes in Equity for the year ended 31 December 2020 Annual Report and Financial Statements 2020 Share capital £’000 Share premium £’000 Retained earnings £’000 Share option reserve £’000 Foreign exchange translation £’000 30,237 (30,577) 74 1,712 GROUP As at 1 January 2019 Shares issued Transactions with owners Loss for the year attributable to equity shareholders Foreign exchange translation adjustments Total comprehensive income for the period As at 1 January 2020 Shares issued Transactions with owners Loss for the year attributable to equity shareholders Share based payments Share option reserve released Foreign exchange translation adjustments Total comprehensive income for the period 344 138 138 – – – 482 625 625 – – – – – 270 270 – – – – – (1,674) – (1,674) 30,507 (32,251) 1,670 1,670 – (21) – – (21) – – (920) – 41 – (879) As at 31 December 2020 1,107 32,156 (33,130) – – – – – 74 – – – 102 (41) – 61 135 Total equity £’000 1,790 408 408 (1,674) – – – (69) (69) (69) (1,743) 1,643 – – – – – (115) (115) 1,528 455 2,295 2,295 (920) 81 – (115) (954) 1,796 31 13. Consolidated and Company Statement of Changes in Equity for the year ended 31 December 2020 Share capital £’000 Share premium £’000 Retained earnings £’000 Share option reserve £’000 Foreign exchange translation £’000 30,237 (30,510) 74 (163) COMPANY As at 1 January 2019 Shares issued Transactions with owners Loss for the year Total comprehensive income for the period As at 1 January 2020 Shares issued Transactions with owners Proﬁt for the year Share based payments Share option reserve released Total comprehensive income for the period 344 138 138 – – 482 625 625 – – – – 270 270 – – – – (1,751) (1,751) 30,507 (32,261) 1,670 1,670 – (21) – (21) – – 697 – 41 738 As at 31 December 2020 1,107 32,156 (31,523) Share capital is the amount subscribed for shares at nominal value. Total equity £’000 (18) 408 408 (1,751) (1,751) (1,361) 2,295 2,295 697 81 – 778 1,712 – – – – 74 – – – 102 (41) 61 135 – – – – (163) – – – – – – (163) 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. 32 14. Consolidated and Company Statement of Cash Flows for the year ended 31 December 2020 Annual Report and Financial Statements 2020 Operating activities Investing activities Return from investment and servicing of ﬁnance Advances to subsidiary and associated undertakings Acquisition of intangible assets Investment in associated undertaking Financing activities Proceeds from issue of share capital Lease ﬁnancing Net cash inﬂow Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Reconciliation to Consolidated Statement of Financial Position Cash not available for use Cash and cash equivalents as shown in the Consolidated Statement of Financial Position Group 2020 £’000 (919) 5 (323) (14) (195) (527) 2,295 (6) 843 347 1,190 Company 2020 £’000 (797) 5 (441) (14) (195) (645) 2,295 (6) 847 336 1,183 Group 2019 £’000 (724) 1 – (1,047) – (1,046) 408 – Company 2019 £’000 (563) 1 (155) (1,047) – (1,201) 408 – (1,362) (1,356) 1,709 347 1,692 336 121 – 1,311 1,183 125 472 – 336 33 14. Consolidated and Company Statement of Cash Flows for the year ended 31 December 2020 Group 2020 £’000 Company 2020 £’000 Group 2019 £’000 Company 2019 £’000 Operating activities Loss for the year attributable to controlling interests Depreciation, amortisation and impairment charges Share based payments Finance income shown as an investing activity Proﬁt on disposal of subsidiary undertaking Income from associated undertaking Foreign exchange translation (920) (57) 81 (5) – 44 (52) Operating cash outﬂows before movements in working capital (909) (Increase)/decrease in receivables Tax paid Decrease in payables (4) – (6) 697 90 81 (5) (1,679) – 30 (786) (5) – (6) Net cash outﬂows from operating activities (919) (797) (1,674) 1,047 – (1) – – (4) (632) 454 – (546) (724) (1,751) 1,240 – (1) – – 23 (489) 456 – (530) (563) 34 15. Notes to the Financial Statements Annual Report and Financial Statements 2020 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 9. 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. 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. 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 Adoption of new and revised standards There are no IFRSs or IFRIC interpretations that are effective for the ﬁrst time for the ﬁnancial period beginning January 2020 that would be expected to have a material impact on the Company. The Group has adopted the following accounting pronouncements, which have become effective this year, and are as follows: IFRS 16 – Leases IAS 28 – Investments in Associates The following new standards, amendments to standards and interpretations have been issued, but are not effective for the ﬁnancial period beginning 1 January 2020 and have not been early adopted. The Directors anticipate that the adoption of these standard and the interpretations in future periods will have no material impact on the ﬁnancial statements of the Company. 35 15. Notes to the Financial Statements (continued) 1. Signiﬁcant accounting policies (continued) The new standards include: IFRS 3 IAS 1 IAS 8 IFRS 9 IAS 39 IFRS 17 Amendments to conceptual framework(1) Business Combinations (amendments)(1) Presentation of Financial Statements (amendments)(1 & 3) Accounting Policies, Changes in Accounting Estimates and Errors(1) Financial instruments (amendments)(1) Financial instruments(1) Insurance Contracts(1 & 2) (1) Effective for annual periods beginning on or after 1 January 2020 (2) Effective for annual periods beginning on or after 1 January 2021 (3) Effective for annual periods beginning on or after 1 January 2022 The directors anticipate that the adoption of these standards and interpretations in future periods will have no material effect on the ﬁnancial statements of the group. 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. Investments in associates and joint ventures Investments in associates and joint ventures are accounted for using the equity method. The carrying amount of the investment in associates and joint ventures is increased or decreased to recognise the Group’s share of the proﬁt or loss and other comprehensive income of the associate and joint venture, adjusted where necessary to ensure consistency with the accounting policies of the Group. Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment. 36 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 1. Signiﬁcant accounting policies (continued) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identiﬁable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets’. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to beneﬁt from the business combination in which the goodwill arose. The Group allocates goodwill to each business segment in each country in which it operates. Impairment of non-financial assets Assets that have an indeﬁnite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. At each statement of ﬁnancial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash ﬂows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indeﬁnite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset for which the estimates of future cash ﬂows have not been adjusted. 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’. 37 15. Notes to the Financial Statements (continued) 1. Signiﬁcant accounting policies (continued) 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 licence acquisition, technical services and studies, seismic acquisition; exploration drilling and testing but do not include costs incurred prior to having obtained the legal rights to explore the area. Under successful efforts accounting, exploration expenditure which is general in nature is charged directly to the income statement and that which relates to unsuccessful drilling operations, though initially capitalised pending determination, is subsequently written off. Only costs which relate directly to the discovery and development of speciﬁc commercial oil and gas reserves will remain capitalised and to be depreciated over the lives of these reserves. The success or failure of each exploration effort will be judged on a well-by-well basis as each potentially hydrocarbon-bearing structure is identiﬁed and tested. Exploration and evaluation costs are capitalised within intangible assets. Capital expenditure on producing assets is accounted for in accordance with SORP ‘Accounting for Oil and Gas Exploration’. Costs incurred prior to obtaining legal rights to explore are expensed immediately to the income statement. All lease and licence acquisition costs, geological and geophysical costs and other direct costs of exploration, evaluation and development are capitalised as intangible or property, plant and equipment according to their nature. Intangible assets comprise costs relating to the exploration and evaluation of properties which the directors consider to be unevaluated until reserves are appraised as commercial, at which time they are transferred to tangible assets as ‘Developed oil and gas assets’ following an impairment review and depreciated accordingly. Where properties are appraised to have no commercial value, the associated costs are treated as an impairment loss in the period in which the determination is made. Costs are amortised on a ﬁeld by ﬁeld unit of production method based on commercial proven and probable reserves, or to the expiry of the licence, whichever is earlier. The calculation of the ‘unit of production’ amortisation takes account of the estimated future development costs and is based on the current period and un-escalated price levels. Changes in reserves and cost estimates are recognised prospectively. E&E costs are not amortised prior to the conclusion of appraisal activities. Property, plant and equipment 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. 38 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 1. Signiﬁcant accounting policies (continued) Decommissioning Site restoration provisions are made in respect of the estimated future costs of closure and restoration, and for environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the accounting period when the related environmental disturbance occurs. The provision is discounted where material and the unwinding of the discount is included in ﬁnance costs. Over time, the discounted provision is increased for the change in present value based on the discount rates that reﬂect current market assessments and the risks speciﬁc to the liability. At the time of establishing the provision, a corresponding asset is capitalised where it gives rise to a future beneﬁt and depreciated over future production from the ﬁeld to which it relates. The provision is reviewed on an annual basis for changes in cost estimates, discount rates or life of operations. Any change in restoration costs or assumptions will be recognised as additions or charges to the corresponding asset and provision when they occur. For permanently closed sites, changes to estimated costs are recognised immediately in the income statement. 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. 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. 39 15. Notes to the Financial Statements (continued) 1. Signiﬁcant accounting policies (continued) Revenue Oil and gas sales revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for the Group’s share of oil and gas supplied in the period. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. Revenue is recognised when the oil and gas produced is despatched and received by the customers. Taxation 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. 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. 40 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 1. Signiﬁcant accounting policies (continued) Share-based compensation The fair value of the employee and suppliers services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, proﬁtability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each statement of ﬁnancial position date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Share based payments (Note 20) The fair value of share-based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted based on management’s best estimate, for the effects of non- transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management’s best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry. Equity instruments Ordinary shares are classiﬁed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from proceeds. 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. 41 15. Notes to the Financial Statements (continued) 1. Signiﬁcant accounting policies (continued) 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. 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 Functional and presentation currency i) 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. Transactions and balances ii) 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. 42 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 1. Signiﬁcant accounting policies (continued) 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. 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 judgements 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. 43 15. Notes to the Financial Statements (continued) 1. Signiﬁcant accounting policies (continued) 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. 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. 44 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 United Kingdom £’000 South America £’000 South East Asia £’000 2. Segmental information (continued) Exploration and production year ended 31 December 2020 Revenue – oil Cost of sales Gross proﬁt Exploration and evaluation expenditure Intangible asset impairment Property, plant and equipment impairment and depreciation Receivables and inventory impairment Administration expenses Loss on exchange Operating (loss)/proﬁt Income from associated undertaking Loss before interest and taxation Finance cost Finance income (Loss)/proﬁt before taxation Income tax expense Loss/(Proﬁt) after taxation Assets and liabilities Segment assets Cash and cash equivalents Total assets Segment liabilities Current tax liabilities Total liabilities Other segment items Capital expenditure Depreciation, amortisation and impairment charges – – – (31) – (2) – (706) (157) (896) – (896) – 5 (891) – (891) 113 1,183 1,296 81 15 96 59 – – – – (114) 59 – 74 (4) – 15 – 15 – – 15 – 15 1 128 129 6 1 7 – 2 Total £’000 – – – (145) 59 (2) 74 (710) (157) (881) (44) (925) – 5 (920) – (920) 588 1,311 1,899 87 16 103 – – – – – – – – – – (44) (44) – – (44) – (44) 474 – 474 – – – – (133) 59 (131) 45 15. Notes to the Financial Statements (continued) 2. Segmental information (continued) Exploration and production year ended 31 December 2019 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 Operating loss Finance costs Finance income Loss before taxation Income tax expense Loss before taxation Assets and liabilities Segment assets Cash and cash equivalents Total assets Segment liabilities Current tax liabilities Total liabilities Other segment items Capital expenditure Depreciation, amortisation and impairment charges 3. Operating loss – – – 15 (1,108) – (442) (41) (1,576) – 1 (1,575) – (1,575) 46 336 382 62 – 62 1,047 1,108 – – – (133) 61 16 – – (56) (1) – (57) – (57) 8 136 144 2 7 9 – (77) – – – (42) – – – – (42) – – (42) – (42) – – – – – – – – Total £’000 – – – (160) (1,047) 16 (442) (41) (1,674) (1) 1 (1,674) – (1,674) 54 472 526 64 7 71 1,047 1,031 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 Impairment of intangible assets Depreciation of property, plant and equipment Impairment of foreign tax receivables (Gain)/loss on exchange 46 2020 £’000 2019 £’000 32 32 2 2 145 (59) 2 (74) 157 26 21 5 5 160 1,047 – (16) 41 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 3. Operating loss (continued) The analysis of development and administrative expenses in the consolidated income statement by nature of expense is: Employee beneﬁt expense Share based payments Exploration and evaluation expenditure Depreciation, amortisation and impairment charges Legal and professional fees Loss on exchange Other expenses 2020 £’000 374 81 145 (131) 198 157 57 881 2019 £’000 258 – 160 1,031 133 41 51 1,674 4. Staff numbers and cost The average number of persons employed by the Group (including directors) during the year, analysed by category, were as follows: Directors Administration Total The aggregate payroll costs of these persons were as follows: Wages and salaries Directors’ fees, salaries and beneﬁts Share based payments Social security costs 5. Finance income Bank and other interest received Finance cost Total 6. Income tax expense The tax charge on the loss on ordinary activities was:- UK Corporation Tax – current Foreign taxation 2020 Number 2019 Number 3 1 4 £’000 52 283 81 39 455 3 1 4 £’000 43 192 – 23 258 2020 £’000 2019 £’000 5 – 5 1 (1) – 2020 £’000 2019 £’000 – – – – – – 47 15. Notes to the Financial Statements (continued) 6. Income tax expense (continued) 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% (2019: 19%) Effects of: Losses not subject to tax Movement on capital allowances Increase in tax losses Foreign taxation Tax expense 2020 £’000 (920) (174) 340 (126) (40) – – 2019 £’000 1,674 (318) 221 (153) 250 – – At 31 December 2020, the Group has tax losses of £28,990,000 (2019 – £28,208,000) to carry forward against future proﬁts. The deferred tax asset on these tax losses at 19% of £5,508,000 (2019: at 19%, £5,359,000) has not been recognised due to the uncertainty of the recovery. 7. Proﬁt/(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) 8. Earnings per share Loss per ordinary share – Basic – Diluted 2020 £’000 697 2019 £’000 (1,751) 2020 2019 (0.023p) (0.023p) (0.099p) (0.099p) Earnings per ordinary share is based on the Group’s loss attributable to controlling interests for the year of £920,000 (2019: £1,674,000). 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 Weighted average potentially dilutive options and warrants issued 3,988,470,466 373,396,517 1,685,313,686 82,150,685 Weighted average ordinary shares for diluted earnings per share 4,361,866,983 1,767,464,371 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. 2020 Number 2019 Number 48 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 9. Property, plant and equipment Development and Equipment and machinery production costs £’000 £’000 Right for use asset £’000 Total £’000 Group Cost At 1 January 2019 Foreign exchange translation adjustment At 1 January 2020 Foreign exchange translation adjustment Expenditure At 31 December 2020 Depreciation At 1 January 2019 Foreign exchange translation adjustment At 1 January 2020 Foreign exchange translation adjustment Charge for the period At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 Company Cost At 1 January 2019 and 2020 Expenditure At 31 December 2020 Depreciation At 1 January 2019 and 2020 Charge for the period At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 – – – – – – – – – – – – – – – – – – – – – – 34 (4) 30 (1) – 29 34 (4) 30 (1) – 29 – – – – – – – – – – – – – – 45 45 – – – – 2 2 43 – – 45 45 – 2 2 43 – 34 (4) 30 (1) 45 74 34 (4) 30 (1) 2 31 43 – – 45 45 – 2 2 43 – Included in the above line items is a right-of-use asset of £43,000 (2019: nil) in respect of a motor vehicle. At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date. The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. On the statement of ﬁnancial position, right-of-use assets have been included in property, plant and equipment. 49 15. Notes to the Financial Statements (continued) 10. Intangible ﬁxed assets Group Cost At 1 January 2019 Foreign exchange translation adjustment Expenditure At 1 January 2020 Foreign exchange translation adjustment Expenditure Disposals At 31 December 2020 Impairment At 1 January 2019 Charge for the period At 1 January 2020 Charge for the period Disposals At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 Company Cost At 1 January 2019 Expenditure At 1 January 2020 Expenditure Disposals At 31 December 2020 Impairment At 1 January 2019 Charge for the year At 1 January 2020 Charge for the year Disposals At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 50 Exploration and evaluation costs £’000 Licence £’000 – – – – – – – – – – – – – – – – 2,486 (61) 1,047 3,472 (59) 14 (1,108) 2,319 2,420 1,047 3,467 (59) (1,107) 2,301 18 5 Exploration and evaluation costs £’000 Licence £’000 – – – – – – – – – – – – – – 701 1,047 1,748 14 (1,109) 653 635 1,108 1,743 – (1,108) 635 18 5 Total £’000 2,486 (61) 1,047 3,472 (59) 14 (1,108) 2,319 2,420 1,047 3,467 (59) (1,107) 2,301 18 5 Total £’000 701 1,047 1,748 14 (1,109) 653 635 1,108 1,743 – (1,108) 635 18 5 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 10. 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 was fully impaired in 2018. UK offshore block P1918 (“Colter”): the drilling of an exploration well commenced on 6 February 2019 and was completed on 25 February 2019, with a further side-track well being drilled, completing on 8 March 2019. This licence continued into the second term with effect from 1 February 2020 but the Company has now written off this asset against the impairment provision, as the licence, along with related licences PEDL330 and PEDL 345, were relinquished on 31 January 2021. 11. Goodwill Group Cost At 1 January 2019, 1 January and 31 December 2020 Impairment At 1 January 2019, 1 January and 31 December 2020 Net book value At 31 December 2020 At 31 December 2019 The carrying value of goodwill represents the purchase of shares in Gold Oil Peru SAC. Goodwill on Consolidation of subsidiaries £’000 81 81 – – 51 15. Notes to the Financial Statements (continued) 12. Associated undertaking Group Grossinvestmentvalue At 1 January 2019 and 2020 Additions Share of post acquisition net result At 31 December 2020 Impairment At 1 January 2019 and 2020, and 31 December 2020 Carryingvalue At 31 December 2020 At 31 December 2019 Shares in associated undertaking £’000 – 195 (44) 151 – 151 – Total £’000 – 195 (44) 151 – 151 – On 27 April 2020, the Group acquired a 33.33% interest in SundaGas (Timor-Leste Sahul) Pte. Ltd, incorporated in Singapore at a gross cost of £195,000. In accordance with IAS28, the Group accounts for its investment in this company using the equity method. 13. Investments Company Cost At 1 January 2019 Exchange rate adjustment Net loan movements At 1 January 2020 Additions Exchange rate adjustment Net loan movements Disposals At 31 December 2020 Impairment At 1 January 2019 Charge/(release) for the year At 1 January 2020 Charge/(release) for the year At 31 December 2020 Carryingvalue At 31 December 2020 At 31 December 2019 52 Loans to group undertaking £’000 Shares in group undertaking £’000 Shares in associated undertaking £’000 555 (23) 155 687 – (30) 118 – 775 555 132 687 88 775 – – 5,469 – – 5,469 – – – (25) 5,444 5,444 – 5,444 – 5,444 – 25 – – – – 195 – – – 195 – – – – – 195 – Total £’000 6,024 (23) 155 6,156 195 (30) 118 (25) 6,414 5,999 132 6,131 88 6,219 195 25 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 13. Investments (continued) The Company elects to recognise the investment in associate in respect of SundaGas (Timor-Leste Sahul) Pte. Ltd. under the cost model. On 27 April 2020, the Group acquired a 33.33% interest in SundaGas (Timor-Leste Sahul) Pte. Ltd, incorporated Singapore at a gross cost of £195,000. The cost of investment related to Gold Oil Caribbean Limited is shown as a disposal as the company is considered to have been dissolved. The company has made provision on the investment in Gold Oil Peru S.A.C. of £6,219,000 (2019: £6,131,000). 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 Proportion of ownership interest % Proportion of voting power held % Peru 100 100 Method used to account for investment Nature of business equity method Exploration of oil and gas All shareholdings are in ordinary, voting shares. The Company’s associated undertaking at the year end was as follows: Associated entity SundaGas (Timor-Leste Sahul) Pte. Ptd. Place of incorporation and operation Singapore Proportion of ownership interest % Proportion of voting power held % 33.33 33.33 Method used to account for investment Nature of business equity method Exploration of oil and gas 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 14. Trade and other receivables Trade receivables Other receivables Amounts owed by associate undertaking Prepayments and accrued income 2020 £’000 1,714 (117) 2019 £’000 1,947 (65) 2020 2019 Group £’000 Company £’000 Group £’000 Company £’000 – 10 323 43 376 – 9 323 43 375 – 8 – 41 49 – 8 – 38 46 53 15. Notes to the Financial Statements (continued) 15. Cash and cash equivalents Bank current accounts Bank deposit accounts 2020 2019 Group £’000 265 1,046 1,311 Company £’000 265 918 1,183 Group £’000 335 137 472 Company £’000 335 1 336 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 2020, bank deposits included £121,000 (2019: £125,000) that is being held as a guarantee until the Group fulﬁlls certain licence commitments in Peru and is not available for use. This is not considered to be liquid cash and has therefore been excluded from the cash ﬂow statement. 16. Trade and other payables Trade payables Amounts owed to subsidiary undertakings Accruals and deferred income Lease ﬁnance liability due within 12 months Taxation Non-current liabilities Lease ﬁnance liability due after 12 months 2020 2019 Group £’000 Company £’000 Group £’000 Company £’000 13 – 35 9 16 73 29 12 – 37 9 15 73 29 32 – 32 – 7 71 – 2020 £’000 9 29 38 29 1,705 32 – 7 1,773 – 2019 £’000 – – – 17. Finance lease Lease liabilities are presented in the statement of ﬁnancial position as follows: Current Non-current At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of ﬁxed payments (including in substance ﬁxed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reﬂect any reassessment or modiﬁcation, or if there are changes in in-substance ﬁxed payments. 54 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 17. Finance lease (continued) When the lease liability is remeasured, the corresponding adjustment is reﬂected in the right-of-use asset, or proﬁt and loss if the right-of-use asset is already reduced to zero. Interest payable and similar charges include interest payable, ﬁnance charges on shares classiﬁed as liabilities and ﬁnance leases recognised in proﬁt or loss using the effective interest method, unwinding of the discount on provisions, and net foreign exchange losses that are recognised in the proﬁt and loss account. On the statement of ﬁnancial position, lease liabilities have been included in current and non-current liabilities. 18. Share capital Allotted,calledupandfullypaid Equity: 4,426,409,576 (2019: 1,926,409,576) ordinary shares of £0.00025 each 2020 £’000 1,107 1,107 2019 £’000 482 482 The Company issued 2,500,000,000 new ordinary shares of £0.00025 each for cash at £0.001 per share. 19. Share premium and reserves Group At beginning of the year Loss for the year attributable to controlling interests Issue of new shares Share issue costs Share-based payments Share option reserve released Foreign exchange translation adjustments Company At beginning of the year Proﬁt for the year Issue of new shares Share issue costs Share-based payments Share option reserve released Share premium account £’000 30,507 – 1,875 (205) (21) – – 32,156 30,507 – 1,875 (205) (21) – 32,156 Share Option reserve £’000 Foreign exchange translation reserve £’000 74 – – – 102 (41) – 135 74 – – – 102 (41) 135 1,643 – – – – – (115) 1,528 (163) – – – – – (163) Profit and loss account £’000 (32,251) (920) – – – 41 – (33,130) (32,261) 697 – – – 41 (31,523) 55 15. Notes to the Financial Statements (continued) 19. Share premium and reserves (continued) Details of options and warrants issued, exercised and lapsed during the year together with options outstanding at 31 December 2020 are as follows: Issue date 7 July 2017 27 November 2018 3 December 2018 6 August 2019 26 March 2020 26 May 2020 10 November 2020 Final exercise date 7 July 2020 27 November 2021 3 December 2021 6 August 2022 26 March 2023 26 May 2030 10 November 2030 Exercise price 1 January 2020 Number New Issue Number Exercised Number Lapsed Number 31 December 2020 Number – £0.00350 41,000,000 – £0.00435 20,000,000 – £0.00440 10,000,000 – £0.00080 27,500,000 – £0.00100 117,125,001 – 290,000,000 £0.00100 75,000,000 – £0.00100 – 41,000,000 – – – – – – – – 20,000,000 10,000,000 – 27,500,000 – – 117,125,001 – 290,000,000 75,000,000 – 98,500,000 482,125,001 – 41,000,000 539,625,001 Details of options and warrants issued, exercised and lapsed during the year together with options outstanding at 31 December 2019 are as follows: Issue date 7 July 2017 27 November 2018 3 December 2018 6 August 2019 Final exercise date 7 July 2020 27 November 2021 3 December 2021 6 August 2022 Exercise price 1 January 2019 Number New Issue Number Exercised Number Lapsed Number 31 December 2019 Number £0.00350 41,000,000 £0.00435 20,000,000 £0.00440 10,000,000 £0.00080 – – – – 27,500,000 71,000,000 27,500,000 – – – – – – 41,000,000 – 20,000,000 – 10,000,000 – 27,500,000 – 98,500,000 20. Share based payments The fair values of the options and warrants granted have been calculated using Black-Scholes model assuming the inputs shown below: Grant date Number of options or 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 10 November 2020 26 May 2020 26 March 2020 6 August 2019 3 December 2018 27 November 2018 75,000,000 290,000,000 117,125,001 27,500,000 10,000,000 20,000,000 0.435p 0.435p 3 years 0.85% 75% 0% 0.11p 0.05p 0.1p 10 years 0.86% 80% 0% 0.02p 0.08p 0.1p 10 years 0.86% 80% 0% 0.03p 0.44p 0.44p 3 years 0.85% 75% 0% 0.11p 0.06p 0.08p 3 years 0.86% 80% 0% 0.01p 0.08p 0.1p 3 years 0.86% 80% 0% 0.02p The warrants and options will not normally be exercisable during a closed period, and furthermore can only be exercisable if the performance conditions are satisﬁed. Warrants and 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 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. 56 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 21. Directors’ emoluments Directors’ remuneration Compensation for loss of ofﬁce Share based payments Highest paid director emoluments and other beneﬁts are as listed below. Remuneration Share based payments 2020 £’000 283 – 73 356 2020 £’000 164 31 195 2019 £’000 198 10 – 208 2019 £’000 103 – 103 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. 57 15. Notes to the Financial Statements (continued) 22. Financial instruments (continued) 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 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 number of counterparties and customers. As at 31 December 2020 and 2019 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. 58 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 22. Financial instruments (continued) 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 2020 UK sterling US dollar (USD) Peruvian Nuevo Sol (PEN) 31 December 2019 UK sterling US dollar (USD) Peruvian Nuevo Sol (PEN) Financial assets on which interest earned £’000 Financial assets on which interest not earned £’000 401 638 – 1,039 139 185 1 325 Financial assets on which interest earned £’000 Financial assets on which interest not earned £’000 – 125 – 125 329 53 14 396 Total £’000 540 823 1 1,364 Total £’000 329 178 14 521 The Group earned interest on its interest bearing ﬁnancial assets at rates between 0.3% and 1% (2019 0.1% and 1%) 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 2019 was prepared under the same assumptions. Instruments bearing variable interest (£’000) Change of 1.0% in the interest rate as of 31 December 2020 31 December 2019 Increase of 1.0% 10 Decrease of 1.0% (10) Increase of 1.0% 1 Decrease of 1.0% (1) 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. 59 15. Notes to the Financial Statements (continued) 22. Financial instruments (continued) 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 2020 At 31 December 2020 Average for year ended 31 December 2019 At 31 December 2019 USD 1.29 1.36 1.28 1.32 PEN 4.47 4.88 4.28 4.37 Liquidity risk Liquidity risk arises from the Group’s management of working capital and the ﬁnance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difﬁculty in meeting its ﬁnancial obligations as they fall due. The Group’s policy is to ensure that it will always have sufﬁcient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain readily available cash balances (or agreed facilities) to meet expected requirements for a period of at least 60 days. The Group currently has no long term borrowings. Price risk Oil and gas sales revenue is subject to energy market price risk. Given current production levels, it is not considered appropriate for the Group to enter into any hedging activities or trade in any ﬁnancial instruments, such as derivatives. This strategy will continue to be subject to regular review. It is considered that price risk of the Group at the reporting date has not increased compared to the previous period end. 60 15. Notes to the Financial Statements (continued) Annual Report and Financial Statements 2020 22. Financial instruments (continued) Volatility of oil and gas prices A material part of the Group’s revenue will be derived from the sale of oil and gas that it expects to produce. A substantial or extended decline in prices for oil and gas 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 2020 48 36 Average price 2019 56 44 31 December 2018 61 46 Oil and gas prices are dependent on a number of factors impacting world supply and demand. Due to these factors, 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 exchanges. However, these prices had no effect on on the Group’s results for 2020, 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 2020, there were no capital commitments (2019: none). 24. Contingent Liabilities The Group and the Company have given guarantees of US$160,000 (31 December 2019: – 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. 25. Events after the reporting period On 26 March 2021, the Company issued 1,525,000,000 new ordinary shares of 0.025p each, followed by a further issue of 4,475,000,000 new ordinary shares of 0.025p each on 14 April 2021. The two share issues combined was for new capital of £3,000,000 gross, £2,768,000 net of costs. It is intended that the proceeds of the placing will be used to increase its equity stake in SundaGas (Timor-Leste Sahul) Pte.Ltd (“SundaGas TLS”) and to fund the Company’s share of the ongoing TL-SO-19-16 PSC (“Chuditch PSC”) work programme in Timor-Leste, and provide additional working capital. On 23 April 2021, the Company increased its shareholding in SundaGas TLS from 33.3% to 85% at a cost of £890,000. The sole asset of SundaGas TLS is its 100% shareholding in SundaGas Banda Unipessoal Lda., Operator of the Chuditch PSC, in which it holds a 75% interest. 61 15. Notes to the Financial Statements (continued) 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 2020 Year ended 31 December 2019 Balance £’000 775 Loan advance/ (repayment) £’000 87 Balance £’000 688 Loan advance £’000 133 * The company has provided for an impairment of 775,000 (2019: £688,000) on the outstanding loans. Group and company The company paid £17,096 (2019: £9,915) for services rendered by Tedstone Oil and Gas Limited, a company controlled by Mr J Ford, a director. The company paid £nil (2019:£2,250) for services rendered by Langley Associates Limited, a company controlled by Mr G Barnes, a director until 31 March 2019. The Company was owed £322,718 (2019: £Nil) by its associate undertaking, SundaGas (Timor-Leste Sahul) Pty. Ltd., which is interest-free and repayable on demand within the terms of the contractual agreement between the parties. The directors’ aggregate remuneration and any associated beneﬁts in respect of qualifying services is disclosed in note 21. During the year, Mr A Yeo and Mr J Ford respectively subscribed for 50,000,000 and 7,500,000 new ordinary shares in the Company at a price of 0.1p per new ordinary share as part of a placing of new ordinary shares that was announced by the Company on 14 February 2020.The aggregate number and percentage of shares held directly and indirectly by directors are disclosed in the report of directors. 62 Annual Report and Financial Statements 2020 [THIS PAGE INTENTIONALLY LEFT BLANK] 63 16. Glossary of Technical Terms BCF Billion cubic feet. Geological chance of success The estimated probability that exploration activities will conﬁrm the existence of a signiﬁcant accumulation of potentially recoverable petroleum. GIIP Mean MMBBLS MMBOE Prospective Resources SPE PRMS Volume of natural gas initially in-place in a reservoir. Reﬂects an unrisked median or best case volume estimate of resource derived using probabilistic methodology. This is the mean of the probability distribution for the resource estimates and is often not the same as 2U as the distribution can be skewed by high resource numbers with relatively low probabilities. Million barrels of oil. Million barrels of oil equivalent. Volume derived by dividing the estimate of the volume of natural gas in billion cubic feet by six in order to convert it to an equivalent in million barrels of oil and, where relevant, adding this to an estimate of the volume of oil in millions of barrels. Quantities of petroleum that are estimated to exist originally in naturally occurring reservoirs, as of a given date. Crude oil in-place, natural gas in- place, and natural bitumen in-place are deﬁned in the same manner. The Society of Petroleum Engineers’ (“SPE”) Petroleum Resources Management System (“PRMS”) is a system developed for consistent and reliable deﬁnition, classiﬁcation, and estimation of hydrocarbon resources prepared by the Oil and Gas Reserves Committee of SPE and approved by the SPE Board in June 2018 following input from six sponsoring societies: the World Petroleum Council, the American Association of Petroleum Geologists, the Society of Petroleum Evaluation Engineers, the Society of Exploration Geophysicists, the European Association of Geoscientists and Engineers, and the Society of Petrophysicists and Well Log Analysts. Quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. The total quantity of petroleum that is estimated to exist originally in naturally occurring reservoirs, as of a given date. Crude oil in-place, natural gas in-place, and natural bitumen in-place are deﬁned in the same manner. SPE PRMS Unrisked Prospective Resources Denotes the unrisked estimate qualifying as SPE PRMS Prospective Resources. 64 Printed by Michael Searle & Son Limited www.baronoilplc.com

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