3rd Floor, Lansdowne House
57 Berkeley Square
London W1J 6ER
www.blockenergy.co.uk
Annual Report and Financial Statements
Year Ended
31 December 2021
Block Energy Plc
Contents
Strategic Report
3
4
5
6
8
10
12
17
20
Officers and Advisers
Highlights
Strategy and Business Model
Chairman’s Statement
Chief Executive Officer’s Statement
Chief Financial Officer’s Statement
Principal Risks and Uncertainties
Statement of Corporate Responsibility
Board of Directors
Report of the Directors
22
Report of the Directors
Governance Report
25
34
Corporate Governance Statement
Remuneration Report
Independent Auditor’s Report
39
Independent Auditor’s Report
Financial Statements – Group Financial Statements
47
48
49
50
51
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cashflows
Notes to the Consolidated Financial Statements
Financial Statements – Parent Company Financial Statements
76
77
78
79
Parent Company Statement of Financial Position
Parent Company Statement of Changes in Equity
Parent Company Statement of Cashflows
Notes to the Parent Company Financial Statements
2
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Block Energy Plc
Strategic Report
Officers and Advisers
Directors
Paul Haywood
William McAvock
Philip Dimmock
Jeremy Asher
Kenneth Seymour
Christopher Brown
Charles Valceschini
David Sandroshvili
Chief Executive Officer
Chief Financial Officer
Independent Non-Executive Chairman
Independent Non-Executive Director (appointed 12 August 2021)
Independent Non-Executive Director (appointed 7 September 2021)
Independent Non-Executive Director (resigned 22 July 2021)
Independent Non-Executive Director (resigned 3 December 2021)
Independent Non-Executive Director (resigned 22 July 2021)
UK Office
3rd Floor, Lansdowne House
57 Berkeley Square
London
W1J 6ER
UK company number: 05356303
www.blockenergy.co.uk
Company Secretary and Registered Office
Ben Harber
6th Floor, 60 Gracechurch Street
London
EC3V 0HR
Block Energy Plc is quoted on AIM (Symbol BLOE)
Broker
Registrar
Tennyson Securities
a trading name of Shard Capital Partners LLP
20 Fenchurch Street
London
EC3M 3BY
Nominated Adviser
Spark Advisory Partners Limited
5 St John’s Lane
London
EC1M 4BH
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Share Registrars Limited
3 The Millennium Centre
Crosby Way
Farnham
Surrey
GU9 7XX
Bank
Barclays Bank Plc
1 Churchill Place
Canary Wharf
London E14 5HP
Public Relations
Celicourt Communications Limited
Orion House
5 Upper St Martin’s Lane
London
WC2H 9EA
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Highlights
• Successfully integrated the assets acquired from Schlumberger and defined an asset-wide field
development and production enhancement plan.
• Commenced gas sales in February 2021, following completion of the Early Production Facility and
associated gas gathering line.
• Delivered on multipleobjectives set for 2021:
o
Fully integrated the substantial technical data base, following completion of the acquisition of SRCL,
o Completed a risking and ranking process, focussed on short term drilling and production enhancement
opportunities across the enlarged portfolio,
o Defined a two-well drilling programme consisting of a new horizontal well, designed to appraise areas of
low fracture density in the XIF license and a side track of an existing well, in the newly acquired XIB license,
whilst simultaneously executing a workover programme structured to reverse the natural decline of our
baseline production.
• Well JKT-01Z drilled and brought into production at 344 boepd, with rapid pay-back of drilling capex.
• Production enhancement programme, continues to deliver restoring and enhancing baseline production.
•
Information gathered via the drilling of well WR-B01a and well JKT-01Z have directly supported the Project I
development plan of 5 oil wells, due to commence in 2022.
• Asset wide study has defined two further projects:
o Project II - the infill development of the Middle Eocene oil reservoir in the Patardzeuli oil field in Block XIB,
and
o Project III - the appraisal and development of the natural gas resources in the Lower Eocene throughout
the XIF and XIB license areas.
• Over 399,000 operational man man-hours worked during the year, without any lost time incidents.
• Development of a three project strategy, tailored to provide additional short and medium term cashflows and
unlock significant gas potential.
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Strategy and Business Model
The Company’s goal is to be the leading independent oil and gas company in Georgia. We plan to develop and
exploit our portfolio of low cost, high impact development assets in a proven region of Georgia and scale up our
current production and reserves via efficient work programmes led by a management team with deep experience
of the Caucasus region and an operations team comprising local and international expertise.
During 2020, Block added two additional licences, Blocks IX and XIB, to its portfolio in the heart of Georgia's oil
and gas-bearing Kura Basin.
Block’s work programme is designed to unlock West Rustavi's 0.9 MMbbls of gross 2P reserves of oil, 38 MMbbls
of gross unrisked 2C contingent resources of oil and 608 BCF of gross unrisked 2C contingent resources of gas1
and Block XIB's 36 MMbbls of gross 2P reserves of oil, 160 BCF of gross 2P reserves of gas, and 333 BCF of
gross unrisked 2C contingent resources of gas2 .
The programme's core elements are to exploit existing fields, converting resources to reserves and reserves to
production. Blocks IX and XIB are also thought to contain significant high impact exploration potential.
Despite the challenges of Covid-19, Block made good progress over the year ended 31 December 2021:
• Sold crude oil at higher oil prices as 2021 progressed. The average realised price for Q1 was $52.18/bbl
and for Q4 was $72.74/bbl.
• Continued to build its management and technical teams in Georgia and London.
• Strengthened its board of directors with the appointment of two new independent non-executive directors
in Q3 2021.
• Commenced gas sales in February 2021.
As well as holding associated gas reserves and resources in the Middle Eocene across Blocks XIF (West Rustavi)
and XIB (Patardzeuli, Teleti, Krtsanisi and Samgori), the Group also holds large volumes of contingent natural gas
resources in the deeper Lower Eocene and Cretaceous reservoirs and it is an intrinsic element of the Company’s
strategy to appraise and develop these reservoirs. It is anticipated that, if these contingent gas resources are
proven and developed, the natural gas will be sold on a long-term basis, either to GOGC or directly to industrial
purchasers, and prices will reflect those being paid by GOGC for gas imported from Azerbaijan, rather than the
domestic spot price currently received by the Company for sales of associated gas.
The Company intends to increase the rate of development of its reserves and resources, through the number and
frequency of wells we drill, as we reduce our drilling costs and increase our understanding of the subsurface. The
finance required for development might be obtained by increasing equity and/or taking debt from the bond or other
markets in addition to our own internal cash generation.
We continue to review opportunities to build the Company through development and acquisition, particularly within
the immediate region.
The Company may also consider farm-out agreements with third parties as a means of funding future capital
expenditure and expediting development.
1 Source: CPR Gustavson Associates: 1 January 2018
2 Source: CPR Bayphase Limited: 1 July 2015
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Block Energy Plc
Chairman’s Statement
Despite the challenges posed by the ongoing pandemic, we delivered on our key milestones during the year 2021,
placing us in a good position to make solid progress this year and beyond.
Our main objectives for 2021 were:
•
•
to build on our understanding of the subsurface, to support future drilling and production success; and
to deliver a two-well drilling programme and a workover programme, to augment the existing production
from existing wells.
The first objective was of strategic importance. By using attribute analysis of the 3D-seismic survey that we
acquired on West Rustavi Block XIF and the data acquired by a previous operator on Block XIB, our geoscience
team has made a significant improvement in understanding the nature of our complex Eocene oil and gas
reservoirs.
This understanding has enabled us to make the investment case for Block Energy in 2022 by defining three
appraisal and development projects:
• Project I, the development of the Middle Eocene oil reservoir in the West Rustavi/Krtsanisi field which
straddles Blocks XIF and XIB;
• Project II, the infill development of the Middle Eocene oil reservoir in the Patardzeuli oil field in Block XIB;
and
• Project III, the appraisal and development of the natural gas resources throughout the Eocene in Blocks
XIF and XIB.
Projects I and II will provide additional cash flow in the short to medium term from the sale of crude oil and natural
gas while Project III promises to add significant value by better defining and ultimately monetising the extensive
natural gas resources that lie under our portfolio of leases. This makes an attractive investment case, particularly
at current oil prices, which should work well in Georgia, where the complexity of the subsurface geology is offset
by the positive and supportive regulatory framework. The result, we believe, is an excellent balance of risk and
reward.
We appreciate that the risk relating to individual development wells is significant when compared to many other
regions of the world where reservoirs are simpler. We think the best way to look at Block Energy is to consider
the totality of the opportunities in the planned portfolio of wells, rather than on a well-by-well basis. The nature of
the geological risk means that some wells will always be more successful than others, but our operations team is
driving costs down by a combination of careful planning, hard-nosed contracting and the introduction of innovative
techniques. This will make payback on the successful wells rapid, particularly at the current oil price, as well as
reducing the cost of any less successful wells. So, providing each portfolio of new wells is successful as a whole
in adding to production, we, the shareholders, will see material returns on the investments made and our strategy
going forward is to increase the number and frequency of wells that we drill.
We plan to commence Project I later this year which entails drilling five oil wells in the Krtsanisi anticline, newly
recognised in the West Rustavi/Krtsanisi field.
The achievement of the second objective for 2021, reflected in the success of well JKT-01Z, in terms of cost,
placement of the horizontal and production rate, and, ironically, the disappointing production rate from WR-B1
also was an important contributor to the first strategic objective.
None of this, of course, would be possible without the dedication and commitment shown by our team of 120
people in Georgia and six in London; a commitment that is reflected in their readiness to learn and adapt to deliver
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for us as the shareholders of our Company. I congratulate our people on quickly coming together after the
acquisition of the Schlumberger subsidiary to form a unified and effective team. On behalf of the Board and
shareholders, I take the opportunity to thank them for their dedication and the tremendous effort they make.
Despite the challenges of last year, your Company now has a stronger platform on which to realise its potential.
On behalf of the Board, I would like to thank you all for your support. We look forward to engaging with you with
further updates as the rest of the year unfolds.
Philip Dimmock
Non- Executive Chairman
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Chief Executive Officer’s Statement
In 2021, we saw a material improvement in the global demand for oil and gas. This really took hold in the latter
part of the year as the world emerged from Covid-19 and economies began to recover. The Company benefits
from much improved oil pricing, which strengthens our business case and enhances the platform to deliver
Projects .
Despite the challenging environment last year, the Board considered it vital to continue with prudent investments
to progress the business. Now, a year later, we are seeing the benefits of those decisions, with the Company’s
revenue more than covering cash costs and enabling us to reinvest more revenue in future development.
Operations
Following the acquisition and integration of Blocks IX and XIB, our Company embarked on two key initiatives
during 2021, both aimed at maximising production from our enlarged portfolio. These initiatives included a two-
well drilling programme to enhance production levels and a workover programme tailored to maximise production
from our existing well stock.
These two initiatives came on the back of actions put in place in 2020 to monetise gas production; the success of
which was realised in 2021, with gas sales commencing in February through the the Early Production Facility
(“EPF”) and associated gas gathering line installed in 2020. The Company’s investment in these facilities paid
further dividends in 2021 and 2022, with the immediate tie-in and monetising of oil and gas produced from the
WR-B01a and JKT-01Z wells.
Two Well Programme
Planning for the first of the two wells commenced early in 2021, with the aim of drilling WR-B01 around mid-year.
The objective of well WR-B01, Georgia’s first horizontal well, was to establish consistent production by targeting
an area of the reservoir that was less prone to fractures, . We learnt that the limited extent of the fracture networks
adversely affected the overall well productivity.
The information received from drilling the WR-B01a well enabled the Company to calibrate its subsurface model,
ahead of drilling the second well in the programme, JKT-01Z.
JKT-01Z was spudded in December 2021. The well was delivered early in 2022, significantly ahead of time and
under budget.
The rapid tie-in and monetisation of production from well JKT-01Z was made possible by the recently installed
infrastructure at an adjacent well, KRT-39, which has been in production for over 20 years. JKT-01Z produced at
a rate of 344 boepd, validating the Company’s improved understanding of the reservoir. It remains a solid
contributor to the Company’s overall production and cash flow profile, having already paid back the well-drilling
capex in line with forecast, whilst directly informing the Project I development plan.
Workover and Other Programmes
Through 2021, the operations team continued to execute well maintenance and production enhancement
intervention . This followed a well-by-well opportunity review that took place early in the year.
As part of that programme, well WR-38Z and WR-16aZ were both brought back into production in Q1, and both
wells required further work during the year to support ongoing production. WR-16aZ produced intermittently during
the first half and was supported by the installation of artificial lift in Q3. WR-38Z was on production more
consistently, but experienced natural decline, which was more than offset by the production gains from installing
the rod pump on WR-16aZ.
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Later in the year, we undertook a production enhancement programme, comprising technical well interventions,
such as wellbore cleaning and replacing artificial lift components. This programme was focussed on supporting
near-term production, whilst informing our technical evaluation of the mature development areas throughout Block
XIB, specifically the Patardzeuli field (which produced 100 MMbbls of oil). The team have since designed a staged
infill development programme, which seeks to recover over 97 million barrels of remaining oil from undrained
areas of this once-prolific field (Project II).
In a separate initiative, upgrading surface facilities at well KRT-39 in Block XIB enabled the monetisation from
January 2022 of the associated gas production from KRT-39 and JKT-01Z, boosting the Company’s revenue
whilst supporting strategic plans to advance the appraisal and development of the significant contingent gas
resources across our portfolio (Project III).
Health & safety and ESG
Over 399,000 operational man man-hours were worked by staff and contractors over during the year, without any
lost time incidents. This is a significant achievement and reflects the Company’s importance on health and safety.
It also demonstrates the quality and diligence of the management team on-site and their ongoing dedication to
working to the highest standards within the industry.
As part of the drive to improve the Company’s ESG credentials, we were pleased to be accepted into the UN
Global Compact Network ("UNGCN"). The UNGCN is a global platform promoting engagement on human rights,
labour, environmental and anti-corruption standards.
Through its increased focus on gas, the transition fuel, over the course of 2021, Block also reduced its emissions
on a sales-weighted basis. By selling associated gas produced, Block no longer has to flare it. Furthermore, by
selling gas into the automobile fuel market, the Company reduces regional transport emissions by displacing
higher carbon and more emissions-intensive alternative fuels.
Outlook
The Company is now benefitting from the various initiatives undertaken during 2021 to support production growth
and a broader oil development and gas appraisal programme. The Company has built an excellent portfolio of
assets and the exercise of strict capital discipline, combined with the benefits from higher oil and gas prices,
places us in a great position to develop them further in the year ahead. Supported by our cash flow positive
business and non-dilutive development financing options being explored, we plan to step up the rate of drilling in
2022 and 2023, to increase oil production and appraise the deeper gas play within our licences, which we believe
contains substantial gas resources. The robust domestic and regional demand for gas, and the unrestricted direct
access to European markets support the development of as much gas as possible.
Paul Haywood
Chief Executive Officer
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Chief Financial Officer’s Statement
Balance sheet – acquisitions, capital expenditure, equity placing and asset growth
In November 2020, Block Energy Plc acquired 100% of the shares of Block Rustaveli Limited (formerly
Schlumberger Rustaveli Company Limited), which holds the PSCs to Blocks IX and XIB in Georgia, for $6.8 million
consideration, which comprised $7.1 million in nil-cost options to acquire shares in Block Energy Plc less $0.3
million cash from the seller to adjust the consideration for liabilities that were for the seller’s account. The assets
and liabilities acquired, which are detailed in note 12 to the consolidated financial statements include the following
fair values: $6.3 million of development and production assets, $1.0 million of crude oil inventory, $1.5 million of
materials inventory, $1.6 million of decommissioning liabilities and $0.9 million of other liabilities.
The Group’s net assets have decreased from $29,694,000 as at 31 December 2020 to $27,065,000 as at 31
December 2021. At the end of the year, the Group’s cash balance was $1,244,000 (2020: $6,331,000).
Income statement
The Group’s revenue increased to $6,114,000 (2020: $1,255,000) and other income included $5,000 (2020:
$100,000) for sales of materials. The current year revenue from sales of crude oil of $5,518,000 (2020:
$1,255,000) comprised the sale of 86,700 barrels (2020: 34,421barrels) of oil, which equated to average revenue
of $63.65 (2020: $36.45) per barrel.
During the year, the Group produced 108,000 barrels of crude oil (2020: 25,000 barrels), with the increase in
production being due primarily to oil and gas produced from the wells in Block XIB (acquired in late 2020) and
from new wells/sidetracks. This gross production includes the state of Georgia's share of production.
In addition, the Group had over 20,000 barrels of crude oil inventory as at 31 December 2021 (31 December
2020: over 28,000 barrels). Following the year end, during the quarter ended 31 March 2022, the Group sold
24,413 barrels of crude oil inventory for net revenue of $2.168 million, which equates to average revenue of
$88.80 per barrel (Q1 2021: sold 26,349 barrels for $1.374 million or $52.18 per barrel).
The Group commenced gas sales on 15 February 2021 and, during the period from 15 February 2021 to 31
December 2021, it sold 191.5 Mcf of gas for net revenue of $596,000, which equates to an average gas price of
$3.11 per Mcf (2020: sold nil Mcf).
The loss for the year was $4,783,000 as compared with a $5,512,000 loss in the prior year. During the year, the
Group had not yet achieved sufficient scale for the revenue to cover the Group’s costs.
Future prospects
During Q1 2022, the Company produced 32.1 Mbbls of oil and 14.0 Mboe of gas, resulting in a combined total of
46.1 Mboe of oil and gas (Q1 2021: produced 29.8 Mbbls of oil and 14.6 Mboe of gas, resulting in a combined
total of 44.4 Mboe of oil and gas). The average production rate for Q1 2022 was 512 boepd (Q1 2021: 493 boepd).
The Company has always been focused on controlling administration costs and continues to keep these to a
minimum. We maintain a low-cost operation, and our Georgian portfolio offers a low-cost short-cycle production
base.
Liquidity, counterparty risk and going concern
The Group monitors its cash position, cash forecasts and liquidity regularly and has a conservative approach to
cash management, with surplus cash held on term deposits with major financial institutions.
The directors have prepared cash flow forecasts for a period of 18 months from the date of signing these financial
statements. The Group’s forecasts are reviewed regularly to assess whether any actions to curtail expenditure or
cut costs are required. The Group is in the final stages of preparing to drill a horizontal sidetrack in the WR-B01
well followed by sidetracks of other wells. The forecasts assume the wells will produce oil and gas, which would
be sold, and indicate the Group has sufficient funds to complete the drilling of the wells and to meet its liabilities
as they fall due until December 2023. However, if any of the new wells do not produce commercial quantities of
oil or gas, the Group would immediately revisit its plans to drill subsequent wells. The financial benefit of any
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additional capital projects would be assessed against capital requirements and balanced with ensuring that the
Group and the Company can continue to meet their liabilities and commitments through to December 2023. The
Company's forecasts are considered together with the Group's forecasts.
The Group’s operations presently generate sufficient revenues to cover operating costs and capital expenditures,
supporting the continued preparation of the Group’s accounts on a going concern basis. The directors are
nevertheless conscious that oil prices have risen rapidly during the past twelve months due in part to recent global
political uncertainty, and could rise further but could also fall back in the year ahead, and that future production
levels depend in part on the success of future drilling. As part of their going concern assessment, the directors
have performed a reverse stress test on a low oil price scenario in which future drilling is inhibited or unsuccessful,
and have concluded that it remains possible that future revenues in such a scenario might not cover all operating
costs and planned capital expenditures, creating a material uncertainty that may cast doubt over the Group’s
ability to continue as a going concern. Whilst acknowledging this material uncertainty, the directors remain
confident of making further cost savings and/or raising finance when required, and therefore the directors consider
it appropriate to prepare the financial statements on a going concern basis. The financial statements do not include
the adjustments that would result if the Group were unable to continue as a going concern.
Results and dividends
The results for the year and the financial position of the Group are shown in the following financial statements.
The Group has incurred a pre-tax loss of $4,783,000 (2020: loss of $5,512,000).
The Group has net assets of $27,065,000 (2020: net assets of $29,694,000).
The directors do not recommend the payment of a dividend (2020: $nil).
William McAvock
Chief Financial Officer
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Principal Risks and Uncertainties
There are general risks associated with the oil and gas extraction industry. The Board regularly reviews the risks
to which the Group is exposed and endeavours to mitigate these risks as far as it can. Given the current size and
simplicity of the business, the Board considers that there is no immediate necessity to establish an independent
internal audit function.
The following summary outlines the principal risks and uncertainties facing the Group at its present stage of
development:
Description
Strategic Risk
• Regional tensions
could have an adverse
effect on the local
economy and our
business
• Risks associated with
growth by acquisition
(such as overpaying
and conducting
insufficient due
diligence) and moving
into new areas (such
as geothermal)
Financial Risks
• Currency exchange
rate fluctuations may
negatively affect Block
Energy
Impact
Mitigation
Georgia shares borders with Russia, Azerbaijan,
Armenia and Turkey and could be adversely affected
by political unrest within its borders and in surrounding
countries. Georgia has had ongoing disputes with
Russia over the breakaway regions of Abkhazia and
the Tskhinvali Region/South Ossetia, since Georgian
independence in 1991. These disputes have led to
sporadic violence and breaches of peacekeeping
operations. Escalation of these issues could impact
the Group operationally, logistically and ultimately
financially.
Any acquisition might negatively affect the Group’s
cash flows, operating results or financial condition to a
material extent.
The Board monitors all political
developments on an ongoing
basis. This ensures swift
reaction should it be required.
The Group has the skills and
manage
expertise
to
acquisitions
the
(such as
acquisition of Schlumberger
Rustaveli Company Limited
during 2020 – see note 12).
The Group intends to engage
experienced industry partners
and
any
for
contracts
geothermal evaluations.
for
The Group’s consolidated financial statements are
presented in United States dollars, and certain
ongoing management costs will be denominated in
British pounds sterling. The markets
the
commodities produced are typically listed in US dollars
and so Block Energy expects that most of its future
revenues and operating expenses will be in US
dollars, British pounds sterling and Georgian Lari.
Consequently, Block Energy will be exposed to
ongoing currency risk. In the event of an acquisition
outside of Georgia, Block Energy may also have
operating expenses denominated in another currency.
Consequently, changes in the exchange rates of these
currencies may negatively affect the Group’s cash
flows, operating results or financial condition to a
material extent.
its cash
Block Energy does not intend to
hedge
resources
against risks associated with
disadvantageous movements
in currency exchange rates.
Therefore, currency exchange
rate
may
fluctuations
negatively affect the Group.
However, Block will endeavour
to immediately convert funds
raised in pounds sterling to US
dollars as a natural currency
hedge to fulfil operational work
plans, and will continue to place
foreign exchange orders
in
order to take advantage of
favourable
currency
fluctuations.
The Board has planned for
sustained period of low oil or
gas
Board
introduced measures in April
prices.
The
• The price of oil or gas
may decrease
significantly
Continual decreases in the oil or gas price over a
sustained period might negatively affect the Group’s
cash flows, operating results or financial condition to a
material extent.
12
• Substantial capital
requirements and
access to funding
might be limited
as
take
expenditure,
2020 (e.g. postponement of
capital
cost
reductions and cost deferrals)
similar
and would
measures
and when
required.
The Board will remain proactive
in identifying possible business
risks and funding shortfalls. A
fund warning structure is in
place, which is activated when
funding levels reach certain low
cash
resource parameters.
This will ensure the Board can
act swiftly as
to
mitigate these risks.
required
The
Company maintains
regular reporting structures, so
that all
issues are quickly
identified by the Board, be it
operational or
in
nature.
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Block Energy Plc
Strategic Report
The Company’s development strategy will require
significant expenditure to fully exploit its potential. The
Company will need to generate free cash flow from its
operations and raise debt or equity funding to be able
to finance these costs. If the Company’s revenues do
not recover or its reserves decline, it may have limited
ability to expend the capital necessary to undertake or
complete future drilling programmes and may require
additional financing to do so. If Block Energy is unable
to raise funding to support ongoing operations and to
fund capital expenditure, it may limit the Company’s
growth or may have a material adverse effect upon the
Company’s financial condition, results of operations or
prospects. The ability of Block Energy to arrange
financing in the future will depend in part upon the
prevailing capital market conditions, the perceived risk
associated with Georgia, and business performance of
the Company. Fluctuations in oil and gas prices may
affect lending policies for potential future lenders. This
in turn could limit growth prospects in the short-term or
may even require Block Energy to divert existing cash
balances or cash flows from other intended purposes
(e.g. capital expenditure), dispose of assets or raise
under
continue
equity
new
circumstances
prices,
disappointing drilling results, or economic or political
dislocation in Georgia. There can be no assurance
that debt or equity financing or cash generated by
operations will be available or sufficient to meet these
requirements or for other corporate purposes or, if
debt or equity financing is available, that it will be on
terms acceptable to the Company. This may be further
complicated by the limited market liquidity for shares
of smaller companies, restricting access to some
institutional investors. If additional financing is raised
by the issuance of shares from treasury of Block
Energy, control of the Company may change and
shareholders may suffer additional dilution. The
Company cannot predict the size of future issuances
of equity or the issuance of debt or the effect, if any,
that future issuances and sales of the Company’s
securities will have on the market price of the
Company’s shares.
operations
energy
declining
of
to
• Project Capital Cost
Performance
Higher costs might negatively affect the Group’s cash
flows, operating results or financial condition to a
material extent.
To gain the most competitive
pricing, control costs and limit
overruns, the Group will apply
contracting
fit-for-purpose
strategies
lump-sum
(e.g.
pricing, when appropriate) and
incorporate robust
tendering
procedures in the procurement
of materials and services.
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An inability to sell oil or gas might negatively affect the
• Over-reliance on one
Group’s cash flows, operating results or financial
condition to a material extent.
gas purchaser and few
oil purchasers
• Counterparty risk,
such as an oil or gas
purchaser not paying
Not receiving cash for oil or gas sold might negatively
affect the Group’s cash flows, operating results or
financial condition to a material extent.
Operational Risks:
• Poor production
performance
• Permits, licences and
leases
Less cash flow than forecast from operations might
negatively affect the Group’s cash flows, operating
results or financial condition to a material extent.
The Company’s operations require permits, licences
and leases from various governmental authorities in
Georgia. The Company may not be able to obtain all
necessary permits, licences and leases that are
required
future exploration and
development projects. If the present permits, licences
and leases are terminated or withdrawn, such event
could have an adverse effect of the Company’s
operations.
to carry out
• The Company’s
proposed development
plans are subject to
several operational
risks
Drilling and workover programmes carried out by the
Group involve potentially complicated and difficult
technical operations with which there are inherent
risks. These include human error by the drilling
operator, equipment failure, mistakes in the planning
of the operations and the encountering of unforeseen
difficulties within field operations.
• Global pandemic
negatively impacts
operations
If the global pandemic results in a lockdown or state of
emergency being declared, it could result in the Group
having to cease its operations, which might negatively
affect the Group’s cash flows, operating results or
financial condition to a material extent.
14
For oil sales, the Group holds
regular discussions with the
few purchasers and sells the oil
under the best terms.
the Group
For gas sales,
receives payment on a monthly
basis on the 27th day following
the month of supply, so the
impact is limited. For oil sales,
the Group receives between
50% and 100% prepayment.
the
its activities
respects with
The Group has a portfolio of
projects with varying
risk,
capital and production profiles,
which enables it to spread the
risk across its various licences.
The directors believe that the
in all
Group
is complying
the
material
terms of
licences and
permits granted to it in order to
in
undertake
Georgia. Furthermore,
the
provisions
contain
PSCs
obliging
the government of
Georgia to co-operate fully with
in obtaining all
the Group
and
consents
necessary
permits. Nevertheless,
the
Group’s ability
to obtain,
sustain or renew such licences
and permits on acceptable
terms are subject to change in
regulations and policies and to
the discretion of the applicable
regulatory
and
governments.
While these risks cannot be
eliminated,
to an
extent mitigated because the
geology and geophysics of
Block Energy’s assets are
becoming better understood, in
particular because of
the
number of wells previously
drilled in each of the licences.
Block
an
experienced
team
who have worked in Georgia for
many years. In addition, the
Group has overseen the drilling
of a number of wells in Georgia.
The Board has planned for
such a period of cessation of
operations.
Board
introduced measures in April
2020 (e.g. postponement of
has
technical
authorities
they are
Energy
The
Block Energy Plc
Strategic Report
HSE Risks:
• Accident and Incidents
associated with
operations (e.g.
blowout)
Serious accidents can result
operational sites and
reputation/licence.
in shut down of
loss of credible operator
• Environmental
contamination caused
by oil and water spills
loss of production revenue due
Increased operating expenditures due to clean-up
costs and
to
intermittent shut-downs and less oil to sell if it’s being
lost. Also, frequent spills could lead to fines being
levied by the state.
• Local community
protests prevent the
Group from operating
If the Group is unable to operate its wells or drill new
wells, this could have an adverse effect of the
Company’s operations.
Legal and Compliance Risks:
• Non-compliance with laws
or regulations
The Group might incur penalties and loss of good
reputation.
Organisational Risks:
• Dependence on key
relationships including,
inter alia, the State and
Georgian Oil and Gas
Corporation (“GOGC”)
The success of the business of the Group and the
effective operation of the Group’s interests in
Georgia is dependent in part on good relationships
and co-operation with these parties. The State is a
counterparty to the Group’s PSCs . Accordingly, if the
State, its Agency and/or the national oil company,
GOGC, can not cooperate with each other or the
Group, it could harm the business, operations, and
prospects of the Group.
15
expenditure,
capital
cost
reductions and cost deferrals)
similar
and would
and when
measures
required.
take
as
and
continues
to
The Group
develop its HSE Management
Policies. It has an emergency
response plan and carries out
of
inspections
frequent
operations by HSE
staff,
personnel safety training, daily
safety meetings,
worksite
improvements
to operating
provides
equipment,
personal protective equipment
to all field worksite personnel.
In response to the lost time
incident in 2019 and to prevent
the
future occurrence of a
similar incident, the Company
upgraded well-site equipment
in additional
invested
and
training of personnel.
The Group will continue to
repair
its
production facilities to reduce
to
risk of spills due
the
equipment failure.
Improved operating procedures
through training of operations
personnel to avoid the spill
situations.
The Group has a community
engagement strategy, hires
local community labour, and
funds
community
several
projects near its operations.
upgrade
and
The Group has a strong
compliance
framework, with
experienced advisers, policies
and
procedures,
and
compliance training.
Management maintains regular
communication with the State,
its Agency and GOGC.
Strategic Report
__________________________________________________________________________________________
Block Energy Plc
• Dependence on key
executives and personnel,
employee retention and
recruitment
Block Energy has a comparatively small number of
current and proposed employees. The future success
of the Group depends partially on the expertise of the
directors. The loss of key personnel and the inability
to recruit additional key personnel could have a
material adverse effect on the Group’s future by
impairing the day to day running of the Group and its
ability to exploit the opportunities open to it. An
inability to attract or retain additional key personnel
could have a material adverse effect on the Group’s
business and trading results. In addition, the loss of
the services of the executive directors or other key
employees could damage the Group’s business.
Executive directors have
notice periods of no less than
three months to ensure
sufficient time to hand over
responsibilities in the event of
a departure.
The Remuneration Committee
regularly evaluates
compensation and
incentivisation schemes to
ensure they remain
competitive.
16
Block Energy Plc
Strategic Report
Statement of Corporate Responsibility
Block Energy Plc has a practical and open approach to its Corporate Responsibility (“CR”). Our CR programme
is focused on doing the right thing, managing risk, and investing sustainably in the community in which we operate.
Impact of culture on decision-making
Our investment decisions carefully consider environmental and social impacts and how such impacts are best
managed for all stakeholders. Our operations should not compromise the well-being of current or future
generations. This responsible behaviour is a crucial element for our long-term business success.
For Block Energy this means:
• Acting with respect for people, communities and the environment
• Acting honestly and openly with all stakeholders, fully respecting the rule of law and human rights
• Contributing to the development goals of Georgia
•
• Providing clear public reporting on our management systems and performance.
Integrating sustainability and CR into our strategy, planning, implementation and management systems
In Georgia, the Group has prepared several detailed Environmental Impact Statements (“EIS”).
Health, safety, environmental and social performance
The Company strives for continuous improvement, and Block Energy is committed to maintaining high standards
of health, safety, environmental and social performance (“HSES”) across all its oil and gas exploration and
development operations. To achieve this, we will:
• As an integral part of our business, identify, assess and manage the HSES risks to people, the
environment and assets in order to avoid adverse direct or indirect effects from our operations.
• Ensure that our operations comply, as a minimum, with applicable health, safety, environmental and
social laws and regulations, as well as best practicable industry standards.
• Maintain high ethical standards in carrying out business activities.
• Provide necessary leadership and resources to enable effective HSES management throughout our
organisation.
• Prevent and minimise the impact of our operations on the environment.
• Ensure continuous improvement of HSES performance by setting objectives and targets and focused
auditing, reviews and external benchmarking.
• Select competent staff, contractors and suppliers to manage and support the business.
• Ensure that a high priority is placed on emergency preparedness and contingency planning, and that any
plans are tested regularly to ensure that any incidents are responded to in a timely and effective manner.
• Foster a culture where accidents, incidents and near misses are reported and investigated, and the
lessons learned are shared.
• Consult with and respond to the concerns of our stakeholders on our health, safety, environmental and
social performance.
• Ensure that this policy is clearly displayed in all Block Energy premises and operational sites, provided to
all contractors, and made publicly available.
• The Company's directors, employees and contractors have a responsibility for maintaining high HSES
standards and this Policy will be used to guide their activities.
17
Block Energy Plc
Strategic Report
__________________________________________________________________________________________
Stakeholder engagement
We understand that our long-term success depends on our relationships with our stakeholders. We strive to
provide our stakeholders with timely and effective information, responses and support. The following table
summarises how we identify and seek to meet their needs, interests and expectations.
Stakeholder
Reason for engagement
Employees: Our capacity to
design and execute our
strategy depends on the
health, development and
retention of our dedicated and
skilled staff.
Transparent and regular communications
with staff is essential for ensuring
understanding of commitment to the
Company’s objectives. As an oil and gas
production company we have particular
health, safety and environmental obligations
(see ‘Communities and environment’ below).
Shareholders. We provide
transparent, accessible and
balanced information to
investors to ensure support
and confidence.
Understanding shareholder sentiments
regarding the business, its prospects and the
performance of management and meeting
regulatory requirements.
Industry bodies, local and
national governments. Our
services must meet certain
legal and regulatory
requirements.
Communities and
environment. Our operations
are embedded within a
complex local economic and
ecosystem.
We work hard to meet our regulatory
obligations to retain our good standing with
regulators, the Georgian government, and
the wider oil and gas sector.
Our relationship with the local and national
government is a key to our success and has
taken a long time to develop.
We ensure that all our staff, particularly those
involved in operations, work in safe
conditions and that they protect the safety of
others. We also ensure that our exploration
and production activities are conducted with
due care for the environment and
neighbouring communities. We work with state
and local government to support the communities
in the areas where we operate and support
community programmes.
Suppliers. We engage
contractors and purchase from
a wide range of suppliers.
We must honour our obligations to the staff
of the companies that we contract, and
ensure they are aware of the HSE and
regulatory framework within which we
operate.
How we engage
Management in London and Georgia have
daily team meetings. A wider international
team has a weekly video meeting. The
executive directors make regular trips to
Georgia to work with our operations staff
onsite. The management team has regular
one-on-one meetings with every staff
member.
Other elements are: Training and
development sessions (on HSE, compliance,
event prevention); and corporate benefits.
We publish announcements on the London
Stock Exhange’s website and our website
and across our online channels. Interviews
with our directors are published as videos
and podcasts. We operate an investor
mailing list subscription service. We issue
regular updates to our corporate
presentation. We attend investor relations
events and communicate via the annual
report and AGM. We hold 1-2-1 sessions
with the largest shareholders.
We adhere to Georgian state regulations.
We commit to fulfilling our AIM obligations.
We engage an annual audit of Company
processes and financial risks. We have
developed comprehensive Market Abuse
Regulations (MAR) and anti-bribery policies.
We have appointed an experienced
professional to develop, enforce and oversee
our HSE policy. HSE is the first item
discussed during the operations section of
our monthly board meeting. Our Technical
Director also provides an HSE update during
our weekly team meeting. Our London office
operates a recycling policy for paper and
packaging. We intend to extend this policy to
our Georgian offices.
We integrate our MAR and HSE policies into
all agreements entered into by our
contractors. We have a robust financial
process for settling our invoices for
contractors and all other service providers.
We take care to ensure we source products
and services from ethical suppliers.
The Board is responsible for putting in place and communicating a sound system to manage risk and implement
internal control. We recognise that risk management is an essential business practice: we work to balance risk
and return, threat and opportunity.
18
Block Energy Plc
Strategic Report
Health, safety and environment
Our operations are conducted within a robust Health, Safety and Environment (“HSE”) framework. We employed
a full-time HSE adviser to work onsite in Georgia with our Georgian HSE manager to design and enforce our
policy. The Board has taken on the responsibility of formulating the HSE Policy and establishing an HSE
Management Plan for the remainder of 2022. It monitors performance against the Plan every month, assisted by
regular reports from the HSE manager. Any serious incident or high potential near miss will immediately be
brought to the attention of the Board, which will then oversee the appropriate remedial action.
Climate change
For our sector, there is a keen interest from several stakeholders and investors on the theme of climate change
and we can assure them that Block is wholly committed to good environmental stewardship. We have a robust
approach to corporate responsibility and sustainability issues, underpinned by our commitment to high standards
of health and safety and environmental stewardship. Consistent with our strategy, one of our environmental
achievements in 2021 was the installation of a separator and a 4.2 km gas pipeline from well KRT-39 to the early
processing facility in West Rustavi that enables the sale of the associated gas produced from well KRT-39 and
thereby reduce the emissions from the flaring of natural gas associated with the oil production. This will have a
positive impact on the carbon footprint of the output and help reduce carbon dioxide emissions.
19
Block Energy Plc
Strategic Report
__________________________________________________________________________________________
Board of Directors
The current Board consists of five directors: three independent non-executive directors, one with the role of
Chairman, and two executive directors.
Paul Haywood | Chief Executive Officer
Committee memberships: Nominations Committee; ESG Committee; HSE Committee
Paul has a wealth of experience and success in delivering value for his investment network through a blended
skill set of corporate banking and operational experience, building early stage and growth projects throughout the
UK, Europe, Africa and Middle East. Paul is a founder of Block Energy and has spent more than 15 years in the
natural resources sector, with over ten years in the Georgian oil and gas sector, leading the acquisition,
development and sale of many assets. Additionally, Paul has held senior management roles with UK and
Australian public companies in the natural resources sector.
Key skills and competencies: corporate and operational oil experience, Georgia knowledge and contacts, and
strong record of delivering projects.
William McAvock | Chief Financial Officer
Committee memberships: Disclosure Committee, ESG Committee (until 8 December 2021)
William has more than 15 years’ experience in strategic and operational finance roles within several listed natural
resources groups, including Gulf Keystone Petroleum Ltd, International Petroleum Ltd, African Minerals Ltd and
Adastra Minerals Inc, where he took leading roles in establishing and managing financial systems in Iraq, Russia,
Kazakhstan, Niger, Sierra Leone and the Democratic Republic of Congo. William is a qualified Chartered Certified
Accountant and holds a BA (Hons) in Accounting from London Guildhall University.
Key skills and competencies: finance and accounting, operational oil experience.
Philip Dimmock | Non-Executive Chairman
Committee memberships: Audit and Risk Committee (until 8 December 2021); Disclosure Committee;
Nominations Committee (Chair); Technical Committee; HSE Committee (Chair)
Philip spent a significant part of his career at BP in a wide variety of senior positions, including manager of the
Forties oil field. Subsequently, his executive roles included Vice President International/Managing Director UK at
Ranger Oil Ltd/Canadian Natural Resources and Vice President Operations at Vanco Energy. In non-executive
board positions, Philip was a director of Nautical Petroleum Plc and the Senior Independent Director of Gulf
Keystone Petroleum Ltd. He currently serves as Adviser to Oando Energy Resources Inc. Philip has an MA in
Physics from the University of Oxford.
Key skills and competencies: extensive oil and gas sector experience and knowledge, career board member
Jeremy Asher | Non-Executive Director
Committee memberships: Audit and Risk Committee (Chair); Nominations Committee; Remuneration Committee;
Disclosure Committee
Jeremy is Chairman & CEO of Tower Resources plc. In recent years he served as a director of NYSE-listed
Pacific Drilling SA, Deputy Chairman of London-listed Gulf Keystone Petroleum Ltd, and as a director of TASE-
listed Oil Refineries Ltd. Previously he co-headed the global oil products business at Marc Rich & Co (now
Glencore AG) and then acquired and developed a 275,000 b/d oil refinery in Germany, before serving as CEO
of PA Consulting Group and advising and investing in numerous companies in the energy sector. He holds a
BSc (Econ) from the London School of Economics and an MBA from the Harvard Business School.
Key skills and competencies: extensive oil and gas sector experience, professional consultant and manager
20
Block Energy Plc
Strategic Report
Kenneth Seymour | Non-Executive Director
Committee memberships: Audit and Risk Committee; Technical Committee (Chair); Remuneration Committee
(Chair); ESG Committee (Chair); HSE Committee
Kenneth graduated from Leeds University, UK with a first class BSc honours degree in Mining Engineering & a
PhD in Rock Mechanics. He has worked with IOCs and independent E&P companies for over 40 years as
Drilling Engineer, Drilling Superintendent, Drilling Manager, General Manager, Director and Adviser in the North
Sea, China, Pakistan, Angola, Nigeria and Indonesia. He obtained an MBA in 1994 from the Aberdeen
Universities and has authored over thirty presentations on well engineering and upstream management.
The strategic report was approved by the directors and signed on behalf of the Board on 30 June 2022.
Paul Haywood
Chief Executive Officer
30 June 2022
21
Block Energy Plc
Report of the Directors
__________________________________________________________________________________________
The directors present their report and the audited financial statements of Block Energy Plc (“the Group”) for the
year ended 31 December 2021.
Principal activity
The principal activity of the Group is oil and gas extraction and development.
Incorporation and admission to trading on AIM
The Company was incorporated on 8 February 2005 and was admitted to trading on AIM on 11 June 2018.
Results and dividends
The results for the year are set out on page 47.
This report covers the year ended 31 December 2021.
The directors do not recommend payment of a dividend (2020: $nil).
Review of business and future developments
A review of the business and likely future developments of the Company are contained in the CEO’s Statement
on page 8.
Going concern
The Group’s operations presently generate sufficient revenues to cover operating costs and capital expenditures,
supporting the continued preparation of the Group’s accounts on a going concern basis. The directors are
nevertheless conscious that oil prices have risen rapidly during the past twelve months due in part to recent global
political uncertainty, and could rise further but could also fall back in the year ahead, and that future production
levels depend in part on the success of future drilling. As part of their going concern assessment, the directors
have performed a reverse stress test on a low oil price scenario in which future drilling is inhibited or unsuccessful,
and have concluded that it remains possible that future revenues in such a scenario might not cover all operating
costs and planned capital expenditures, creating a material uncertainty that may cast doubt over the Group’s
ability to continue as a going concern. Whilst acknowledging this material uncertainty, the directors remain
confident of making further cost savings and/or raising finance when required and therefore the directors consider
it appropriate to prepare the financial statements on a going concern basis. The financial statements do not include
the adjustments that would result if the Group were unable to continue as a going concern.
Risk management
Risk management is integral to the business with management continuously monitoring and managing risk within
the relevant business areas. Every material decision is preceded by an evaluation of applicable business risks.
Regular reviews of risks and management of these are undertaken and presented to the Board.
Principal risks and uncertainties
The principal risks the Board have reviewed are disclosed on pages 12 to 16 of the Strategic Report.
Share capital
Details of shares issued by the Company during the year are set out in Note 18 to the financial statements.
22
Block Energy Plc
Report of the Directors
Directors and directors' interests
The directors of the Company who served during the year ended 31 December 2021 are listed below, and the
current Board members’ biographies are on pages 20 and 21.
Paul Haywood
William McAvock
Philip Dimmock
Jeremy Asher
Kenneth Seymour
Christopher Brown
Charles Valceschini
David Sandroshvili
Chief Executive Officer
Chief Financial Officer
Independent Non-Executive Chairman
Independent Non-Exectuive Director (appointed 12 August 2021)
Independent Non-Exectuive Director (appointed 7 September 2021)
Independent Non-Executive Director (resigned 22 July 2021)
Independent Non-Executive Director (resigned 3 December 2021)
Independent Non-Executive Director (resigned 22 July 2021)
Details of directors' interests in shares are disclosed on page 37.
Directors’ and officers’ liability insurance
The Group provided directors’ and officers’ liability insurance at a cost of $28,000 (2020: $10,000).
Statement of 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 year. Under that law the
directors have elected to prepare the Group and company financial statements in accordance with UK adopted
international accounting standards as applied in accordance with the provisions of the Companies Act 2006.
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 and
company for that period. The directors are also required to prepare financial statements in accordance with the
rules of the London Stock Exchange for companies trading securities on AIM.
In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and accounting estimates that are reasonable and prudent;
•
state whether they have been prepared in accordance with IFRSs as applied in accordance with the
provisions of the Companies Act 2006, 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
company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006.
They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring the annual report and the financial statements are made available on
a website. Financial statements are published on the Company's website in accordance with legislation in the
United Kingdom governing the preparation and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity of the company's website is the responsibility of
the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements
contained therein.
23
Block Energy Plc
Report of the Directors
__________________________________________________________________________________________
Governance statement
We have chosen to adhere to the Quoted Company Alliance’s Corporate Governance Code for Small and Mid-
Size Quoted Companies 2018 version. Our full statement of compliance with the QCA Code is provided in the
Governance Report from pages 25 to 33.
Engagement with employees in the UK
We have few UK staff and our London based staff have daily team meetings, and the executive team has regular
one-on-one meetings with every staff member.
Engagement with stakeholders
This is discussed in the Statement of Corporate Responsibility on pages 17 to 19. Furthermore, the Board has
appointed Kenneth Seymour to serve as its Employee Representative.
Engagement with shareholders
The directors attach great importance to maintaining good relationships with shareholders and the Company is
active in communicating with both its institutional and private shareholders. The Company also issues regular
updates to shareholders. Market sensitive information is notified in accordance with the AIM Rules and the Market
Abuse Regulation.
Political contributions
During the year ended 31 December 2021, political donations totalled $nil (2020: $nil).
Financial instruments
The main financial risks arising from the Group’s activities are liquidity risk, commodity price risk, increased costs
and currency risk. These are monitored by the Board and were not considered to be significant at the reporting
date.
Budgets are regularly prepared and fund-raising initiatives undertaken as and when required. Risk is inherent in
the nature of the business and is managed to the best of the Board’s ability. Further detail on financial instruments
is shown in note 23.
Auditors and disclosure of information to auditors
All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any
information needed by the relevant Auditors for the purposes of their audit and to establish that the Auditors are
aware of that information. The directors are not aware of any relevant audit information of which the Auditors are
unaware.
The Directors’ Report was approved and authorised for issue on 30 June 2022.
Paul Haywood
Director
Date: 30 June 2022
24
Block Energy Plc
Governance Report
Corporate Governance Statement
Introduction
We believe in the value and importance of good corporate governance and in our accountability to our
stakeholders, including shareholders, staff, contractors, clients, suppliers, and the communities within which we
operate.
Corporate governance was improved in January 2021 by establishing a new ESG Committee and in 2019 by
establishing a Technical Committee of the board. More frequent meetings of the board and its committees
continued during 2020. The Company’s succession plans include greater diversity.
QCA Corporate Governance Code (2018)
From 28 September 2018, AIM rules require AIM listed companies to apply a recognised Corporate Governance
Code. We have chosen to adhere to the Quoted Company Alliance’s Corporate Governance Code for Small and
Mid-Size Quoted Companies to meet the new requirements of AIM Rule 26.
The QCA Code is constructed around 10 broad principles and a set of disclosures. The QCA has stated what it
considers to be appropriate arrangements for growing companies and asks companies to explain how they are
meeting the principles through the prescribed disclosures. This statement explains how Block will follow the 10
principles of the QCA Code, quoted in the headings below, as specified in the AIM Rules for Companies published
by the London Stock Exchange.
Principle One: ‘Establish a strategy and business model which promote long-term value for shareholders’
Block’s aim is to become the leading independent oil and gas producer in Georgia by realising the potential of
previously discovered fields suited for the deployment of selected Western well technology and completion
techniques. Georgia is a stable, business friendly nation with proven but underdeveloped reserves, and is of
increasing interest to major producers.
Block has working interests in five licences: Block IX (100%), Block XIB (100%), West Rustavi (100%), Norio
(100%) and Satskhenisi (90%). All are within the region’s prolific Kura basin, which at its peak produced
approximately 67,000 bopd and in the course of its history has produced over 180 MMbbl.
We have designed a robust business model to implement our strategy:
• The Company has raised a total of £22 million ($29 million) between June 2018 and December 2020 to
fund a multi-well drilling programme to accelerate exploration and production at West Rustavi and Block
XIB. A 3D seismic survey of the field has been acquired to identify optimal drilling locations. Storage
facilities have been upgraded, and a gas offtake agreement secured.
• Successful execution of Block’s plan requires a management and technical team with extensive
knowledge of Georgia’s oil and gas sector and its legal and regulatory environment. Block is led by a
management team with deep and broad experience, with networks both in Georgia and across the
international oil and gas industry. One of our shareholders, Georgia Oil & Gas Limited, is a well-
established operator and asset owner within the region. The Company has also assembled a team of
geologists and geophysicists with first-hand experience of working on major Georgian oil fields.
• Block’s principal technical challenges are to identify technologies suitable for the near-wellbore damage
believed to exist in the wells drilled earlier within our licences, and to successfully deploy sidetracking and
suitable completion techniques to optimise production from the fractured and compartmentalised
reservoirs present. In meeting these challenges, Block is bringing proven, cost-efficient technology to
Georgia. A state-of-the-art 3D seismic survey of West Rustavi has been completed, the results of which
are being analysed by an experienced technical team. We have recruited a highly skilled and experienced
technical team, drawing on specialist consultants as required, to design and implement horizontal
sidetracking operations at West Rustavi and Block XIB. And we have selected an enhanced perforation
technology that our research indicates will be ideal for overcoming legacy wellbore damage, able to bore
multiple small holes from the wellbores and circumvent historic issues.
25
Block Energy Plc
Governance Report
__________________________________________________________________________________________
• All our operations are conducted within a developing robust HSE framework. The Board has set a number
of short-term objectives to bring the legacy facilities up to industry standards and has recruited an industry
professional with decades of experience overseeing HSE in Georgia for multinational oil and gas
companies as a full time HSE adviser. He is working onsite to further develop and enforce our policies.
• The Board recognises the critical importance of developing effective communications channels with
current and prospective investors. We regularly update the market as appropriate with announcements,
which are posted automatically to our website as soon as they appear on the London Stock Exchange’s
Regulatory News Service (“RNS”). Our directors are frequently interviewed on investor news channels.
We also distribute our RNS announcements and other Block news through social media and a mailing
list subscription service and continue to make the Company’s business case at investor meetups and
other events around the UK. All of our communications are available on our website and social media
channels. We intend to meet our major institutional investors on a regular basis and, beyond the Annual
General Meeting of shareholders, to hold investor days periodically.
• The Company contracts an experienced financial communications company to assist with preparing our
RNS announcements, presentations and the management of our social media channels.
• Our directors continually investigate and evaluate new exploration and production opportunities in
Georgia and beyond. In 2019, we identified two additional Georgian licences operated by Schlumberger
and acquired them during 2020. We are an ambitious, flexible and open-minded operator, alert to fresh
opportunities for applying the latest production and exploration technologies and processes to take
advantage of discoveries.
Principle Two: ‘Seek to understand and meet shareholder needs and expectations’
The Board strives to keep shareholders informed with clear and transparent information on the Company’s
operations, strategy and financial position. Details of all shareholder communications are provided on the
Company website, in accordance with the AIM Rules for Companies. RNS updates are published to the
‘Announcements’ section; reports and circulars to the ‘Investors’ section; and videos, podcasts, presentations and
images from our field operations to Block's social media - Twitter and LinkedIn - and the website's ‘Media’ section.
Primary responsibility for investor relations rests with the Chief Executive Officer, supported by the other directors.
Since Block began trading on AIM on 11 June 2018, the Company has used multiple channels to understand the
needs and expectations of its shareholder base.
The AGM is our principal forum for dialogue with private shareholders, and usually we encourage all shareholders
to attend and participate, but attendance at the next AGM is likely to be restricted by Covid-19 measures. The
Notice of Meeting is sent to shareholders at least 21 days before the meeting. The chairs of the Board and all
committees, together with all other directors whenever possible, attend the AGM and are available to answer
questions raised by shareholders. Shareholders vote on each resolution by way of a poll. We intend to announce
the number of votes withheld, received for and against each resolution and publish them on our website.
In addition to maintaining the digital communications channels discussed under Principle One above, the
Company maintains a dedicated email address (info@blockenergy.co.uk) which investors can use to contact the
Company. This is displayed prominently on our website, together with an online enquiries form and our address
and phone number. All enquiries are reviewed and distributed to our directors as appropriate. We also contract a
financial communications agency to assist with the preparation and maintenance of our investor announcements,
presentations and social media channels.
The directors continually review our channels with private shareholders. As discussed under Principle One above,
we intend to hold investor days which shareholders will be encouraged to attend either in person or by
teleconference, in addition to our AGM.
The directors also take every opportunity to communicate our objectives to institutional shareholders. They make
presentations to institutional shareholders and analysts immediately following the release of the Company’s full-
year results. We keep in touch with institutional investors through a combination of formal meetings, participation
at investor conferences, roadshows and informal briefings with management. The majority of meetings with
shareholders and potential investors are arranged by the Company’s brokers or direct with the Company. After
meetings, the broker provides anonymised feedback to the Board from all of the fund managers we meet with to
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Block Energy Plc
Governance Report
gather and monitor sentiments, expectations and intentions. In addition, we review analyst notes to achieve a
wide understanding of investor views and develop our investor relations strategy.
Principle Three: ‘Take into account wider stakeholder and social responsibilities and their implications
for long-term success’
We understand that our long-term success depends on our relationships with our stakeholders. Please see our
Statement of Corporate Responsibility in the Strategic Report element of this Annual Report as presented on
pages 17 to 19.
Principle Four: ‘Embed effective risk management, considering both opportunities and threats,
throughout the organisation’
The Board is responsible for putting in place and communicating robust systems to manage risk and implement
internal control. We recognise that risk management is an essential business practice: we work to balance risk
and return, threat and opportunity.
Audit and Risk Committee
The Board has established an Audit and Risk Committee to meet as necessary to consider the scope of the
annual audit and the interim financial statements and to assess the effectiveness of the Company’s system of
internal controls. It reviews the results of the external audit, its cost effectiveness and the objectives of the auditor.
Given the present size of the Company the Audit and Risk Committee considers an internal audit function is not
currently justified. The Audit and Risk Committee currently comprises Jeremy Asher (Chair), and Kenneth
Seymour. During 2021, it comprised David Sandroshvili (until 22 July 2021), Philip Dimmock (until 8 December
2021), Charles Valceschini (until 3 December 2021), Jeremy Asher (from 13 August 2021) and Kenneth Seymour
(from 8 December 2021).
Remuneration Committee
The Remuneration Committee reviews the performance of the executive directors and makes recommendations
to the Board on matters relating to their remuneration and terms of employment. The Remuneration Committee
also makes recommendations to the Board on proposals for granting share options and other equity incentives
pursuant to any share option scheme or equity incentive scheme in operation. The Board sets the remuneration
and terms and conditions of appointment of the non-executive directors of the Group. The executive directors are
invited to attend for agenda items that require their contributions although they do not take part in any discussion
on their own benefits and remuneration. The Remuneration Committee currently comprises Kenneth Seymour
(Chair) and Jeremy Asher. During 2021, it comprised Chris Brown and David Sandroshvili.
Nominations Committee
The Nominations Committee meets as and when necessary to consider appointments to the Board, senior
management positions and succession planning. The Nominations Committee currently comprises Philip
Dimmock (Chair), Jeremy Asher and Paul Haywood. During 2021, it comprised Philip Dimmock, David
Sandroshvili and Paul Haywood.
Disclosure Committee
The Disclosure Committee has the primary responsibility and authority to make decisions on disclosure delay for
the purposes of Market Abuse Regulations (“MAR”). The Disclosure Committee currently comprises Jeremy Asher
(Chair), Philip Dimmock and William McAvock. During 2021, it comprised Philip Dimmock and William McAvock.
Technical Committee
The Technical Committee meets every month and sometimes more frequently on an informal basis to consider
surface and sub-surface technical and operational matters. The Technical Committee currently comprises
Kenneth Seymour (Chair) and Philip Dimmock. During 2021, it comprised Chris Brown and Charles Valceschini.
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__________________________________________________________________________________________
HSE Committee
Our operations are conducted within a robust Health, Safety and Environment (“HSE”) framework. We have
employed a full time HSE manager to work onsite in Georgia to design and enforce our policy: a professional
petroleum engineer with decades of experience overseeing HSE in Georgia for multinational oil and gas
companies.
The Board has established a HSE Committee. It has taken on the responsibility of formulating the HSE policy and
establishing an HSE management plan for the remainder of 2021. It monitors performance against the plan every
month, assisted by regular reports from the HSE Manager. Any serious incident or high potential near miss will
immediately be brought to the attention of the Board which will then oversee the appropriate remedial action. The
HSE Committee currently comprises Philip Dimmock (Chair), Kenneth Seymour and Paul Haywood. During 2021,
it comprised Philip Dimmock (Chair), Charles Valceschini and Paul Haywood.
ESG Committee
The Board has established an Environmental, Social, and Corporate Governance (“ESG”) Committee to establish
the Company’s ESG policy and to measure the sustainability and societal impact of the business. The ESG
Committee currently comprises Kenneth Seymour (Chair), Paul Haywood and Simon Barry. During 2021, it
comprised David Sandroshvili, Chris Brown and William McAvock.
Principle Five: ‘Maintain the Board as a well-functioning, balanced team led by the Chair’
The members of the Board have a collective responsibility and legal obligation to promote the interests of the
Company, and are jointly responsible for defining corporate governance arrangements. Ultimate responsibility for
the quality of, and approach to, corporate governance lies with the Chairman.
The Board currently consists of six directors, two of whom are executives and four independent non-executives
(including the Chairman). The Board has established a set of committees to support its work (see Principle Nine
below).
Board meetings are held regularly. All directors, executive and non-executive, are required to attend, and to make
every effort to attend in person. They are also required to be available at other times as necessary for face-to-
face (if permitted under Covid-19 restrictions) and telephonic and video conferencing meetings with staff and
investors.
Executive and non-executive directors’ attendance at Board and committee meetings during the year ended 31
December 2021 is summarised below:
Director name
Jeremy Asher(4)
Chris Brown(3)
Philip Dimmock
Paul Haywood
William McAvock
David
Sandroshvili(2)
Kenneth
Seymour(5)
Charles
Valceschini(1)
Board
meetings
6/21
13/21
21/21
21/21
21/21
13/21
5/21
20/21
Audit and Risk
Committee
2/5
Remuneration
Committee
3/6
3/6
Nominations
Committee
1/2
Technical
Committee
5/5
3/5
5/5
2/2
2/2
3/6
3/6
6/7
3/7
5/7
(1) Appointed as a director on 15 December 2020 and appointed to the Audit and Risk Committee, Technical Committee, and HSE Committee
on 29 January 2021. Resigned as a director on 3 December 2021.
(2) Appointed as a director on 21 December 2020 and appointed to the Audit and Risk Committee, Remuneration Committee, Nominations
Committee, and ESG Committee on 29 January 2021. Resigned as a director on 22 July 2021.
(3) Resigned as a director on 22 July 2021.
(4) Appointed as a director on 12 August 2021 and appointed to the Audit and Risk Committee on 13 August 2021, and to the Remuneration
Committee, Nominations Committee, and Disclosure Committee on 8 December 2021.
(5) Appointed as a director on 7 September 2021 and appointed to the Audit and Risk Committee, Remuneration Committee, Technical
Committee, ESG Committee, and HSE Committee on 8 December 2021.
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The Board follows a schedule of regular business, financial and operational matters, and each committee has
compiled a schedule of work to ensure that all areas for which the Board has responsibility are addressed and
reviewed during the period. The Chairman is responsible for ensuring directors receive accurate, sufficient and
timely information to facilitate their decision-making. The Company’s Legal Counsel minutes the meetings.
Directors are aware of the right to have any concerns minuted and to seek independent advice at the Company’s
expense where appropriate.
The Board has at least one formal meeting every six weeks. Papers are issued covering the full range of subjects
of interest to the Board in good time for review prior to each meeting. The directors also dedicate time to committee
meetings. The committees meet from two to four times a year. The directors will attend the AGM, whenever
possible, and will review the Annual Report and Statement of Accounts in preparation. The directors also visit
Georgia regularly (except when travel restrictions are in place) to perform safety inspections and meet staff and
stakeholders. In addition to these formal events, the directors frequently discuss day-to-day Company matters in
person and by conference call. The number of days committed to the Company is challenging to quantify because
directors make themselves available as required.
The Board believes its blend of experience, skills, personal qualities and capabilities is sufficient to enable it to
execute the Company’s strategy successfully. The directors attend seminars and other regulatory and trade
events to help ensure their knowledge remains current.
The Board has established a Nominations Committee, which meets at least twice a year. As well as making
appointments to the Board it maintains a list of candidates for future selection.
Principle Six: ‘Ensure that between them the directors have the necessary up-to-date experience, skills
and capabilities’
On the Company’s admission to AIM in June 2018, the founding directors brought new directors onto the Board
to ensure that the directors have the collective experience and skills to oversee the Company's activities and the
successful execution of its strategy. Together, the directors have broad and deep experience in the governance
of publicly listed companies, HSE management, well and production operations, petroleum reservoir engineering,
geoscience, oil and gas field development, contract negotiation, commercial, finance, accounting and government
and community relations. Furthermore, three of our directors have experience of applying all of these skills within
Georgia.
Profiles of our executive and non-executive directors demonstrating their suitability for the responsibilities with
which they have been entrusted are available in this report and the ‘About Us’ page of our website.
All of the directors accept personal responsibility for undertaking continuous professional development - through
means including seminars, conferences and self-directed study - to understand and take advantage of the most
recent developments in the sector, whether technical, commercial or related to governance.
The Nominations Committee will continue to assess the suitability of the Board’s skills and expertise for
developing and implementing the Company’s strategy and, when warranted, will appoint new directors with the
required skills.
The Board is kept abreast of developments of governance and AIM regulations. Hill Dickinson, the Company’s
lawyers, provides updates on governance issues. In the course of a new director’s onboarding, the Company’s
nominated adviser, Spark Advisory Partners, provides the initial training on the AIM Rules for Companies.
The directors have access to the Company’s nominated advisers, lawyers and auditors as and when required and
are able to obtain advice from other external bodies when necessary.
Principle Seven: ‘Evaluate Board performance based on clear and relevant objectives, seeking
continuous improvement‘
The performance of each member of the Board (and senior management) is evaluated to assess their contribution
to the Company's success. The Board is collectively responsible for the evaluation of the performance of each
member. The executive directors are incentivised to seek continuous improvement and innovation through
remuneration schemes linked to share price and, ultimately, Company performance.
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Block Energy Plc
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__________________________________________________________________________________________
It is intended that a questionnaire method of measuring the performance of the Board will be introduced for the
financial year ending 31 December 2021.
Principle Eight: ‘Promote a corporate culture that is based on ethical values and behaviours’
Our core values underpin our long-term growth:
• We continually work to develop and maintain excellent relationships with all of our stakeholders: with
staff, shareholders, suppliers and the communities within which our operations work is embedded.
• We are an agile and ambitious company with a team carefully selected for their skills and experience,
commitment to our values, and dedication to the successful execution of our current and future strategy.
• We are committed to employing cost-effective technology and processes to achieve our objectives and
deliver value to our stakeholders.
• We are courteous, honest and straightforward in all our dealings, honouring diversity, individuality and
personal differences, and are committed to observing the highest personal, professional and ethical
standards in conducting our business.
• We are acutely conscious of our particular responsibilities as an oil and gas producer. Our HSE
obligations are the first operations-related agenda item at all of our Board meetings, and we have
employed an experienced full time professional onsite in Georgia to develop and manage our HSE
processes.
Our values are expressed and communicated regularly to staff through internal communications and forums. They
are enshrined in the contract signed by all new employees, and evidence of commitment to these values by
candidates is considered as part of the selection process.
The Board believes the suffusion of our core values across the Company’s operations also gives Block a critical
competitive advantage, improving our internal efficiency and the quality of our stakeholder relationships.
Principle Nine: ‘Maintain governance structures and processes that are fit for purpose and support good
decision-making by the Board’
The Board is supported by the following governance structure:
The Board
The Board provides the Company’s strategic leadership and operates within the scope of a robust corporate
governance framework. It ensures the delivery of long-term shareholder value by setting and promoting the
culture, values and practices that operate throughout the business, and defining the Company’s strategic goals.
The Board delegates certain defined responsibilities to its committees. The chair of each committee (defined
below) reports its activities to the Board.
The Chairman has overall responsibility for the quality of corporate governance. The Chair:
leads and chairs the Board;
•
• ensures that committees are properly structured and operate with appropriate terms of reference;
• ensures that performance of individual directors, the Board and its committees are reviewed on a regular
basis;
leads the development of strategy and setting objectives;
•
• oversees communication between the Company and its shareholders.
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Block Energy Plc
Governance Report
The Chief Executive Officer oversees the coherent leadership and management of the Company. The CEO:
leads the development of objectives, strategies and performance standards as agreed by the Board;
•
• monitors, reviews and manages key risks and strategies with the Board;
• ensures that the Company’s assets are maintained and safeguarded;
•
leads on investor relations activities to ensure the Company’s standing with shareholders and financial
institutions is maintained;
• ensures the Board is aware of the views and opinions of employees on relevant matters.
The executive directors are responsible for implementing and delivering the operational decisions agreed by the
Board, making operational and financial decisions required in the day-to-day operation of the Company, providing
executive leadership to managers, championing the Company’s core values and promoting talent management.
The independent non-executive directors contribute independent thinking and judgement through the application
of their external experience and knowledge, scrutinise the performance of management, provide constructive
challenge to the executive directors, and ensure that the Company is operating within the governance and risk
framework approved by the Board.
The executive directors are responsible for providing clear and timely information flow to the Board and its
committees and the Company Secretary and Legal Counsel support the Board on matters of corporate
governance and risk.
The matters reserved for the Board are:
setting long-term objectives and commercial strategy;
changing the share capital or corporate structure of the Company;
•
• approving annual operating and capital expenditure budgets;
• establishing and monitoring the implementation of the HSE Policy and Management Plan
•
• approving results and reports;
• approving dividend policy and the declaration of dividends;
• approving major investments, disposals, capital projects or contracts;
• approving resolutions to be put to general meetings of shareholders and the associated documents or
circulars; and
• approving changes to the Board structure.
The Board has approved the adoption of the QCA Code as its governance framework against which this statement
has been prepared. The Board will monitor the suitability of this Code on an annual basis and revise its
governance framework as appropriate as the Company evolves.
Audit and Risk Committee
Please see the description of our Audit and Risk Committee above.
Nominations Committee
Please see the description of our Nominations Committee above.
Remuneration Committee
Please see the description of our Remuneration Committee above.
Disclosure Committee
Please see the description of our Disclosure Committee above.
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Governance Report
__________________________________________________________________________________________
Block Energy Plc
Technical Committee
Please see the description of our Technical Committee above.
HSE Committee
Please see the description of our HSE Committee above.
ESG Committee
Please see the description of our ESG Committee above.
Principle Ten: ‘Communicate how the company is governed and is performing by maintaining a dialogue
with shareholders and other relevant stakeholders’
All historical annual reports, notices of general meetings and other corporate governance related material are
available on the ‘Investors’ section of our website. Here are brief summaries of the work of our committees since
30 June 2018:
Audit and Risk Committee Report
The Audit and Risk Committee meets as and when required to consider the Company’s risks and mitigating
actions (including financial controls), review plans and completion reports prepared by its auditor, and to review
financial statements and recommend them for approval by the Board. The Audit and Risk Committee met five
times during the year ended 31 December 2021.
Nominations Committee Report
The Nominations Committee meets as and when necessary to consider appointments to the Board and senior
management positions and has met [nine] times during the year ended 31 December 2021. It has developed
criteria for selecting non-executive directors to formulate a succession plan. During 2021, the Committee recruited
two non-executive directors to the Board, and has a strategy for further strengthening the Board.
The Nominations Committee comprises two non-executive director members and one executive director member,
as follows:
•
•
•
Philip Dimmock (Chair)
Jeremy Asher
Paul Haywood
The Nominations Committee has responsibilities relating to:
• Reviewing the structure, size and composition of the Board and recommending any succession planning
related changes required;
• Developing the process for appointments, and ensuring plans are in place for orderly succession to both
the Board and senior management positions, and
• Overseeing the identifying and nominating of potential board candidates.
The Nominations Committee feels that, following the recruitment of the two non-executive directors in August and
September 2021, the Company has a skilled and talented team of executives and managers in place that is fit for
purpose for Block’s current operations.
Remuneration Committee Report
See the Remuneration Report in the section below.
Disclosure Committee Report
There has been no call to convene the Disclosure Committee since 30 June 2018.
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Block Energy Plc
Governance Report
Technical Committee Report
A Technical Committee meeting (“TCM”) is usually held every six weeks and approximately one week before each
board meeting. A brief summary of the key findings of each TCM is then added to the board papers for the board’s
information. Each TCM commences with a summary of HSE matters and is followed by sections on subsurface
matters and surface (operational) matters. The agenda is agreed ahead of each TCM by the TCM Chairman and
the respective technical managers.
The purpose of the TCM is to share key findings of the ongoing technical work programme and to provide a degree
of independent peer review and critical assessment of work done. Minutes of the TCMs are produced and also a
list of critical action points arising that are then reviewed at subsequent TCMs.
During the course of 2021, the Company drilled well WR-B01a and spudded well JKT-1Z.
HSE Committee Report
The HSE Committee is newly established and did not meet during 2021.
ESG Committee Report
During 2021, the ESG Committee was established and met once.
General Meeting voting
The Company maintains that, if there is a resolution passed to a General Meeting with 20% or more votes against,
the Company will seek to understand the reason for the result and, where appropriate, take suitable action.
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Block Energy Plc
Governance Report
__________________________________________________________________________________________
Remuneration Report
This Remuneration Report covers the year ended 31 December 2021. The Remuneration Committee currently
comprises Kenneth Seymour (Chairman) and Jeremy Asher, and, during the year ended 31 December 2021,
comprised Chris Brown (Chairman) and David Sandroshvili. Paul Haywood at times attends as a guest, and other
directors attend on an ad hoc basis. During the year, the Remuneration Committee met eight times.
Remuneration policy
The Remuneration Committee, in forming its policy on remuneration, gives due consideration to the needs of the
Group, the shareholders, and the provisions of the QCA Code. The ongoing policy of the Remuneration
Committee is to provide competitive remuneration packages to enable the Group to retain and motivate its key
executives and to cost-effectively incentivise them to deliver long-term shareholder value.
The Remuneration Committee keeps itself informed of relevant developments and best practice in the field of
remuneration and seeks advice where appropriate from external advisers. It maintains oversight of the
remuneration of staff, which is the responsibility of the Chief Executive Officer.
The remuneration policy for the non-executive directors is determined by the Board, considering best practice and
the Articles of Association. It is the aim of the Remuneration Committee to reward key executives for delivering
value for the Group and for shareholders. The Remuneration Committee also applies the broader principle that
Block Energy’s executive remuneration should be competitive with the remuneration of directors of comparable
companies.
Components of the remuneration package
The main components of the remuneration package for executive directors and senior management are:
• Base salary;
• Pension and other benefits;
• Performance-related annual cash bonus scheme; and
• Long-term incentive plan (“LTIP’’).
Base salary
The policy is to pay a fair and reasonable base salary, set around the median level of comparable companies.
The base salary is reviewed at least annually by the Remuneration Committee, having regard to the performance
of the Company and economic conditions and taking note of any changes to an individual’s job scope.
During 2020, owing to the impact of lower demand for oil caused by Covid-19, the Brent oil price collapsed from
over $50 per barrel at the start of March 2020 to less than $20 per barrel in April 2020. The Company responded
by agreeing with its executive directors and senior management a scheme in which, with effect from 1 April 2020,
40% of their salary will be paid in nil-cost options to acquire Ordinary Shares in the Company, reducing monthly
cash salary costs. Options are priced at a volume-weighted average price (“VWAP”) over the monthly salary
period. This cash salary sacrifice scheme continued throughout 2021 and will continue until economic conditions
allow the full salary to be paid in cash.
Pension and other benefits
The Company pays for a pension contribution of 10% of base salary for the executive directors.
During 2022, the company intends to provide other benefits, such as private medical cover and life cover, for
some of its employees.
Performance-related cash bonus scheme
The Remuneration Committee has developed a set of individual and Company key performance indicators
(“KPIs”) with the aim of measuring performance accurately, consistently and of rewarding performance
appropriately.
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Block Energy Plc
Governance Report
For executives and staff, the KPIs are weighted 60% for the individual and 40% for the company. The CEO has
100% of his salary available for a bonus payment, while the potential maximum bonus payment for the Chief
Financial Officer is 60%. Senior management can receive up to 50% of their base salary as a bonus.
For each KPI, measures are established at the beginning of the period for Threshold, Target and Stretch levels.
The bonus payments made in April 2022 were for the year ended 31 December 2021 and were accrued in the
2021 accounts. In keeping with the current practice of preserving as much cash as possible for operations, these
bonuses were paid mainly in the form of nil cost share options in lieu of cash. The next bonus payments are
planned to be paid in early 2023, depending on the economic environmental conditions and the financial resources
of the Company at that time, and will be for the year ending 31 December 2022.
Description of Company KPIs for the year ended 31 December 2021
• HSE - sought to reward top performance across all sections of the business and was measured by the
number of lost time incidents. During the period there were no major lost time incidents and the Stretch
measure was achieved.
• Production – set ambitious production targets to be achieved from all company operations, and the
Threshold measure was not reached.
• Work Programme – set targets for in country operations, such as drilling and a level between the Target
and the Stretch measures was achieved.
• Budget – encouraged meeting or coming under the agreed financial budget by setting targets for costs
being below the budget, and a level between the Threshold and the Target measures was achieved.
• Governance - rewarded compliance with and enhancement of set company policies and procedures. For
a company the size and maturity of Block Energy, a high standard of governance was maintained and
the Stretch measure was achieved.
• Risk Register – regular meetings to review the risk register were held and the Stretch measure was
achieved.
Description of Chief Executive Officer’s KPIs for the year ended 31 December 2021
• Business Development and New Ventures – given the company’s stated aim of becoming one of
Georgia’s leading oil and gas companies, there needs to be a concerted effort in building Block Energy’s
portfolio and, therefore, targets are designed to motivate the building of Block Energy’s portfolio. The
Threshold measure was achieved.
• Strategic Financing – growing the business requires sourcing additional funding and the Target measure
was achieved with two financing proposals submitted to the board of directors.
• Planning / Execution - rewarded oversight of the company meeting its key objective of drilling a number
of wells. Two wells were drilled during 2021 and the Target measure was achieved.
• Leadership – this is a discretionary measure. During the year, the Stretch measure was achieved.
•
Investor Relations – the CEO secured the support of major shareholders to defeat two sets of resolutions
that were put at two general meetings called by a shareholder group and therefore the Stretch measure
was achieved.
Description of Chief Financial Officer KPIs for the year ended 31 December 2021
• Cost Management – close adherence of the agreed budget is required for both operations and G&A.
Targets for costs being below the budgeted level were set, and a level between the Threshold and the
Target measure was achieved.
• Value Adding Initiatives – the CFO is encouraged to pursue money saving initiatives throughout the year.
In 2021, a number of these were identified and enacted and between the Target and the Stretch measures
was achieved.
• Strategic Financing – the CFO is expected to ensure there are sufficient funds for running the business
and future operations. In 2021, a level between the Threshold and the Target measures was achieved.
• Leadership – this is a discretionary measure. During the year, the CFO displayed good leadership and
•
the Target measure was achieved.
Investor Relations – the CFO helped to secure the support of major shareholders to defeat two sets of
resolutions that were put at two general meetings called by a shareholder group and therefore the Stretch
measure was achieved.
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Block Energy Plc
Governance Report
__________________________________________________________________________________________
Description of KPIs for the year ending 31 December 2022
For 2022, the executives have been set a similar set of KPIs as the ones set for the year ended 31 December
2021 at both company and individual levels, with the weighting of individual KPIs being 40% and the weighting of
company KPIs being 60% of the total. The KPIs are based on production, work programme and cost management,
in addition to HSE excellence at the corporate level.
At the individual level, KPIs for the Chief Executive Officer prioritised planning and execution, while KPIs for the
Chief Financial Officer focused on cost management. Both CEO and CFO are expected to deliver on strategic
financing.
Long-Term Incentive Plan (“LTIP”)
The LTIP aligns executive director interests with those of shareholders and drives superior long-term
performance. Under the LTIP, executive directors and other members of the management team may be provided
with awards in the form of share options that will vest over a three year period. From January 2021, the vesting
of any LTIP awards granted to executive directors is conditional on the certain performance milestones being
satisfied.
Directors’ remuneration
Salary
$
Bonus
$
Fees
$
Pension
$
LTIP
$
Year
ended 31
December
2021
Total
$
Year
ended 31
December
2020
Total
$
Non-Executive Directors
Jeremy Asher6
Christopher Brown3
Philip Dimmock
Roger McMechan1
David Sandroshvili4
Kenneth Seymour7
Charles Valceshini5
Subtotal
Executive Directors
Paul Haywood
Roger McMechan2
William McAvock
Subtotal
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
265,175
-
189,410
454,585
454,585
198,880
-
70,831
269,711
269,711
16,000
23,206
63,366
-
24,636
13,192
40,186
180,586
-
-
-
-
180,586
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,000
23,206
63,366
-
24,636
13,192
40,186
180,586
26,517
-
18,941
45,458
45,458
76,943
-
98,916
175,859
175,859
567,515
-
378,098
945,613
1,126,199
-
37,220
59,039
12,684
-
-
-
108,943
441,662
158,411
265,781
865,854
974,797
1 Resigned as a director on 30 September 2020.
2 Resigned as an employee and transferred from an executive director to a non-executive director on 3 June 2020.
3 Resigned as a director on 22 July 2021.
4 Appointed as a director on 21 December 2020 and resigned as a director on 22 July 2021.
5 Appointed as a director on 15 December 2020 and resigned as a director on 3 December 2021.
6 Appointed as a director on 12 August 2021.
7 Appointed as a director on 7 September 2021.
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Block Energy Plc
Governance Report
Directors’ interests in shares
The directors who held office at the end of the year had the following interests in the Ordinary Shares of the
Company:
Non-Executive Directors
Jeremy Asher
Philip Dimmock
Kenneth Seymour
Sub-total
Executive Directors
Paul Haywood
William McAvock
Sub-total
31 December
2021
31 December
2020
592,445
1,678,289
1,019,108
3,289,842
12,544,381
4,039,130
16, 583,511
-
626,649
-
626,649
2,143,419
-
2,143,419
Total
19,873,353*
2,770,068
*The directors held 3.04% of the total share capital of the Company at 31 December 2021.
37
Block Energy Plc
Governance Report
__________________________________________________________________________________________
Directors’ interests in options
The directors who held office at the end of the year had the following interests in options to acquire Ordinary
Shares of the Company:
31 December 2021
31 December 2020
Non-Executive Directors
Jeremy Asher*
Philip Dimmock*
Kenneth Seymour*
Sub-total
Executive Directors
Paul Haywood*
William McAvock*
Sub-total
Total
247,296
732,700
208,646
1,188,642
16,320,890
9,430,278
25,751,168
-
569,205
-
569,205
14,157,101
4,554,052
18,711,153
26,939,810
19,280,358
* The options issued to directors during both years were partly due to the issue of nil cost options in lieu of cash
payment of 40%-50% of salary/fees
Director
Grant date
Expiry date
Paul Haywood
Paul Haywood
Paul Haywood
William McAvock
William McAvock
William McAvock
William McAvock
Philip Dimmock
Jeremy Asher
Kenneth Seymour
9 June 2018
1 March 2021
6 April 2021 to 3
December 2021
21 October 2019
1 July 2020 to
2 November 2020
1 March 2021
6 April 2021 to 3
December 2021
6 April 2021 to
3 December 2021
1 September 2021 to
3 December 2021
2 October 2021 to
3 December 2021
11 June 2028
1 March 2031
6 April 2031 to 3
December 2031
21 October 2029
1 May 2030 to
1 November 2030
1 March 2031
6 April 2031 to 3
December 2031
6 April 2031 to 3
December 2031
1 September 2031 to
3 December 2031
2 October 2031 to 3
December 2031
Life
(years)
10.0
10.0
Number
7,756,428
6,000,000
Exercise
price
(pence)
4.0
4.0
10.0
10.0
2,564,462
3,125,000
0.0
11.0
10.0
10.0
494,526
4,500,000
0.0
4.0
10.0
1,310,752
0.0
10.0
732,700
0.0
10.0
247,296
0.0
10.0
208,646
0.0
26,939,810
Kenneth Seymour
Chairman of the Remuneration Committee
30 June 2022
38
Block Energy Plc
Independent Auditor’s Report
Independent auditor’s report to the members of Block Energy Plc
Opinion on the financial statements
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 2021 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with UK adopted international
accounting standards;
the Parent Company financial statements have been properly prepared in accordance with UK adopted
international accounting standards and as applied in accordance with the provisions of the Companies
Act 2006;; and
the financial statements have been prepared in accordance with the requirements of the Companies Act
2006.
We have audited the financial statements of Block Energy Plc (the ‘Parent Company’) and its subsidiaries (the
‘Group’) for the year ended 31 December 2021 which comprise the consolidated the statement of financial
position, the consolidated statement of comprehensive income, the consolidated statement of changes in equity,
the consolidated statement of cash flows, the Parent Company statement of financial position, the Parent
Company statement of changes in equity, the Parent Company statement of cashflows and the notes to the
financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and UK adopted
international accounting standards and, as regards the Parent Company financial statements, as applied in
accordance with the provisions 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 believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent 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.
Material uncertainty related to going concern
We draw attention to note 1 of the financial statements which notes the uncertainty in the global economy, oil
prices, and the potential consequential impact on the Group’s ability to secure additional funding. It further notes
that these uncertainties may bring practical challenges to the timetables for drilling new wells and the consequent
sale of oil and gas from those wells. Should such downside scenarios occur the Group and Parent Company
would be required to secure further funding. As stated in note 1, these conditions are necessarily considered to
represent a material uncertainty that may cast significant doubt over the Group's and the Parent Company’s ability
to continue as a going concern. Our opinion is not modified in respect of this matter.
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. Given the conditions and uncertainties
disclosed in note 1, we considered going concern to be a Key Audit Matter. Our evaluation of the Directors’
assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of
accounting and in response to the Key Audit Matter included evaluating the following:
• We critically assessed the Directors' financial forecasts through comparing actual outcomes in the current
year against prior forecasts. Underlying key assumptions, including revenue, production volumes,
operating and capital expenditure were assessed by considering factors such as commitments under
39
Block Energy Plc
Independent Auditor’s Report
_________________________________________________________________________________________
licences, historical revenue profiles, historical actuals and forecasted production levels, and operating
expenditure historic actuals in order to assess the reasonableness of the forecasts.
• We considered the Group’s ability to produce gas and sell oil and gas at increased levels during a period
of at least twelve months from the date of approval of the financial statements. We considered sensitivities
over various sales volumes.
• We assessed the reasonableness of key assumptions underpinning the forecasts by reference to Brent
crude oil prices, Georgian gas prices, current production sharing agreements, expenditure and
commitments and considered the implications of the trends in the global economy on the Group. As
appropriate we confirmed the key inputs to publically available information and underlying source
documentation.
• We performed sensitivity analysis on the cash flow forecast to consider the available headroom under
different reasonably possible scenarios such as a decrease in oil and gas prices, an increase in exchange
rate, lower than anticipated initial production rates from new wells and additional capex.
• We performed a reverse stress test that considered the possible impact on cash flows if no production
were to occur on WR-B01 well.
• We made enquiries of Management and Directors and reviewed Board minutes and key operational
contracts to assess the completeness of commitments considered in the cash flow forecasts.
• We evaluated the adequacy of disclosures made in the financial statements in respect of going concern.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the
relevant sections of this report.
Overview
Coverage1
Key audit matters
97% (2020: 94%) of Group loss before tax
93% (2020: 98%) of Group total assets
99% (2020: 100%) of Group Revenue
1. Carrying value oil and
gas development
assets
2. Going concern
3. Business combination
2021 2020
✓
✓
✓
✓
✓
✓
Materiality
Group financial statements as a whole
$482,000 (2020:$300,000) based on 1.5% (2020: 1%) of Total
Assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the
Group’s system of internal control, and assessing the risks of material misstatement in the financial statements.
We also addressed the risk of management override of internal controls, including assessing whether there was
evidence of bias by the Directors that may have represented a risk of material misstatement.
Our Group audit scope focused on the companies within the Group which hold the Group’s assets being Block
Energy Plc, Block Norioskhevi Limited, Georgian New Ventures Inc, Block Rustaveli Limited and Block Operating
Company LLC which were all subject to a full scope audit. Together with the Group consolidation, which was also
subject to a full scope audit, these represented the significant components of the Group. All audit work on the
significant components was conducted by the Group audit team with the assistance of staff from the local
Georgian BDO Member Firm.
1These are areas which have been subject to specific and full scope audit procedures.
40
Block Energy Plc
Independent Auditor’s Report
The remaining components of the Group were considered non-significant and were principally subject to analytical
review procedures. These procedures were performed by the Group audit team.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that 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. In addition to the matter
described in the Material Uncertainty related to going concern section, we have determined the matters described
below to be the key audit matter to be communicated in our report.
Key audit matter
Carrying
value of oil
and gas
development
assets
Refer to
Accounting
policies and
Note 13.
The Group’s development and
production assets (“D&P”)
which are categorised within
property, plant and equipment
represent the most significant
asset on the consolidated
statement of financial position
(see note 13). As explained in
Note 1 to the consolidated
financial statements, the
indicators of impairment
assessment in relation to the
D&P assets under the relevant
accounting standard and the
resulting assessment of the
assets’ recoverable amount
require the exercise of
significant judgement by
Management and the
Directors.
Management and the Directors
are required to assess whether
there are any potential
impairment triggers which
would indicate that the carrying
value of the assets may not be
recoverable for each cash
generating unit.
Management and the Directors
identified the current market
capitalisation of the Group
during the period as an
impairment trigger, and as a
result, performed a detailed
assessment of the recoverable
amount of the D&P assets in
accordance with the relevant
accounting standards.
Given the significance of the
assets to the Group’s
How the scope of our audit addressed
the key audit matter
We evaluated the Directors’ and
Management’s impairment review for each
cash generating unit identified. We critically
challenged the considerations made
regarding indicators of impairment
identified and the resulting assessment of
the recoverable amount of the assets in
accordance with the relevant accounting
standards by performing the following
procedures:
• We assessed the Directors’ and
Management’s impairment
indicator review to establish
whether it was performed in
accordance with the requirements
of the relevant accounting
standards.
• We obtained and read third party
documents relating to the licence
status and commitments to check
legal title and validity of each of the
licences.
• We assessed the function of the
operating facilities through
enquiries of Directors and
Management in order to confirm
our understanding of the
operations and in order to assess
whether there are any additional
indicators of impairment. We
further reviewed board minutes and
other publicly available information.
• We agreed the key assumptions
used by the Directors and
Management in determining the
recoverable amount of the D&P
asset such as oil price and
discount rates and compared to
industry averages and
benchmarked these against
publicly available information and
other third party information. We
considered assumptions such as
41
Independent Auditor’s Report
_________________________________________________________________________________________
Block Energy Plc
consolidated statement of
financial position and the
significant management
judgements and estimates
involved in this area, we
considered this a key audit
matter.
Business
combination
Refer to
Accounting
Policies and
Note 12.
On 23 November 2020 the
Group acquired a new
subsidiary, Block Rustaveli
Limited (‘BRL’), which included
material producing oil and gas
assets and inventory balances.
.
Management’s and the
Directors’ assessment of the
transaction required making a
number of judgements, for
example fair value
judgements, and the resulting
accounting can be complex.
Provisional fair values were
used to value the assets and
liabilities acquired and
assumed in the business
combination as at 31
December 2020. The
provisional fair values were
finalised in the 2021 reporting
period.
Given the significant
management judgements and
estimates involved to
determine the final fair values
this was considered
to be a key audit matter.
production levels and sales in the
light of historic results and
underlying agreements such as the
production sharing agreements and
performed sensitivity analysis to
determine the appropriateness
thereof.
• We reviewed third party reports
obtained from the Directors and
Management’s experts relating to
the reserves and resources
impacting the impairment model.
• We performed an assessment of
the competence, independence
and objectivity of the expert.
Key observations:
Based on the work performed we
considered the key assumptions used by
Management and the Directors in
performing their impairment assessment to
be reasonable and appropriate.
We critically challenged the Group’s
considerations of their assessment of the
fair value of the net assets acquired in
accordance with the relevant accounting
standards.
In so doing we performed the following
procedures:
• We challenged the Directors’ and
Management’s determination of the
fair value of the assets, liabilities
and any contingent assets and
liabilities acquired in order to
assess whether the fair values are
supportable by agreeing those fair
values to third party valuation
reports prepared to determine a
range of fair values defined as the
price that would be received to sell
an asset or paid to transfer a
liability in an orderly transaction
between market participants at the
measurement date.
• We challenged the Directors’ and
Management’s assessment of
contingent liabilities evident in the
PSC as identified by the expert.
• We performed an assessment of
the competence, independence
and objectivity of the expert.
Key observations:
Based on the work performed we
considered the key assumptions used by
Management and the Directors in
performing their
assessment of the final fair values of the
transaction to be reasonable and
appropriate.
42
Block Energy Plc
Independent Auditor’s Report
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions,
could influence the economic decisions of reasonable users that are taken on the basis of the financial
statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we
use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
Group financial statements
2021
US$
482,000
1.5% of Total
Assets
2020
US$
300,000
1.% of Total
Assets
We considered total assets to be
the most significant
consideration for users of the
financial statements as the
Group continues to develop its
portfolio of oil and gas assets
through to production. The
increase in the basis for
materiality is indicative of our
enhanced understanding of the
entity’s significant components
and assets and experience of
the Company and Group.
225,000
362,000
Company
financial
Parent
statements
2021
US$m
433,000
90% of Group
Materiality
2020
US$
220,000
80% of Group
Materiality
Capped at 80% or 90%, for the
respective period, of
Group materiality given the
assessment of the components
aggregation risk, and size based on
total assets of the Group. The
increase in the basis for materiality
is indicative of our enhanced
understanding of the Parent
Company.
325,000
165,000
75% (2020: 75%) of materiality . In reaching our conclusion on the
level of performance materiality to be applied we considered a number
of factors including the expected total value of known and likely
misstatements (based on past experience), our knowledge of the
Group’s control environment and management’s attitude towards
proposed adjustments.
.
Materiality
Basis for
determining
materiality
Rationale
benchmark applied
for
the
Performance
materiality
Basis
determining
performance
materiality
for
Component materiality
We set materiality for each component of the Group based on a percentage of between 50% and 90% of Group
materiality dependent on the size and our assessment of the risk of material misstatement of that component.
Where the statutory materiality for the Parent company was lower to the Group allocated materiality, the lower
value was selected as a final component materiality. Component materiality ranged from $152,000 to $443,000
(2020: $150,000 to $220,000). In the audit of each component, we further applied performance materiality levels
of 75% (2020: 75%) of the component materiality to our testing to ensure that the risk of errors exceeding
component materiality was appropriately mitigated.
43
Block Energy Plc
Independent Auditor’s Report
_________________________________________________________________________________________
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of
US$9,000 (2020:US$6,000). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information comprises the information included
in the Annual Report and Financial Statements 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. 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 course of 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 this gives rise to a material misstatement in the financial
statements themselves. 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.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are
required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic
report and
Directors’
report
Matters on
which we are
required to
report by
exception
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.
•
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, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
44
Block Energy Plc
Independent Auditor’s Report
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.
Extent to which the audit was capable of detecting irregularities, including fraud
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:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group
and Parent Company and the industry in which it operates, and considered the risk of acts by the Group
and Parent Company that were contrary to applicable laws and regulations, including fraud.
• We considered the significant laws and regulations to be those relating to the accounting framework,
Companies Act 2006, tax legislation and Oil and Gas Regulations.
• Based on our understanding we designed our audit procedures to identify non-compliance with such laws
and regulations impacting the Group and Parent Company. Our procedures involved making enquiries of
Management and those charged with governance to understand their awareness of any non-compliance
of laws or regulations, inquiring about the policies that have been established to prevent non-compliance
with laws and regulations by officers and employees of the Group and Parent Company, inquiring about
the Group and Parent Company’s methods of enforcing and monitoring compliance with such policies
and reviewing board minutes to identify any instances of non-compliance.
• We assessed the susceptibility of the Group and Parent Company’s financial statements to material
misstatement, including how fraud might occur by obtaining an understanding of the controls that the
Group and Parent Company has established to address risks identified by the entity, or that otherwise
seek to prevent, deter or detect fraud and considered this to be in management override of controls.
• We addressed the risk of management override of internal controls, including testing a risk based
selections of journals and evaluating whether there was evidence of bias in Management’s estimates
that represented a material misstatement due to fraud.
• We also communicated relevant identified laws and regulations and potential fraud risks to all
engagement team members and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events and transactions reflected in the
financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent 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 Parent
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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
45
Independent Auditor’s Report
_________________________________________________________________________________________
Block Energy Plc
Anne Sayers (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
30 June 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
46
Block Energy Plc
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2021
Continuing operations
Revenue
Note
4
Other cost of sales
Depreciation and depletion of oil and gas assets
5
Total cost of sales
Gross profit / (loss)
Other administrative costs
Share based payments charge
Total administrative expenses
Foreign exchange movement
Operating loss
Finance income
Other income
Finance expense
Loss for the year before taxation
Taxation
Loss for the year from continuing operations
(attributable to the equity holders of the parent)
Items that may be reclassified subsequently to
profit and loss:
Exchange differences on translation of foreign
operations
6,7
8
9
10
Total comprehensive
the year
(attributable to the equity holders of the parent)
loss
for
Year ended 31
December 2021
Year ended 31
December 2020
$'000
6,114
(2,982)
(2,901)
(5,883)
231
(3,432)
(1,494)
(4,926)
(6)
$'000
1,255
(2,203)
(781)
(2,984)
(1,729)
(3,295)
(641)
(3,936)
49
(4,701)
(5,616)
-
5
(87)
14
100
(10)
(4,783)
(5,512)
-
-
(4,783)
(5,512)
202
(389)
(4,581)
(5,901)
Loss per share basic and diluted
11
(0.76)c
(1.31)c
All activities relate to continuing operations.
The notes on pages 51 to 75 form part of these consolidated financial statements.
47
Block Energy Plc
Consolidated Statement of Financial Position
at 31 December 2021
Non-current assets
Property, plant and equipment
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves attributable to
equity holders of the Parent Company:
Share capital
Share premium
Other reserves
Foreign exchange reserve
Accumulated deficit
Total equity
Liabilities
Trade and other payables
Provisions
Total current liabilities
Total equity and liabilities
Note
13
14
16
17
19
20
21
18
15
31 December 2021
31 December 2020
$'000
24,345
4,585
752
1,244
6,581
30,926
3,482
34,625
10,260
246
(21,548)
27,065
1,556
2,305
3,861
30,926
$'000
21,311
4,114
2,256
6,331
12,701
34,012
3,353
34,234
9,120
44
(17,057)
29,694
1,656
2,662
4,318
34,012
The financial statements were approved by the Board of Directors and authorised for issue on 30 June 2022 and
were signed on its behalf by:
William McAvock
Director
Paul Haywood
Director
The notes on pages 51 to 75 form part of these consolidated financial statements.
48
Block Energy Plc
Consolidated Statement of Changes in Equity
at 31 December 2021
Share
Capital
$’000
Share
Premium
$’000
Accumulated
deficit
$’000
Other
Reserves
$’000
Foreign
Exchange
Reserve
$’000
2,623
-
27,985
-
(11,545)
(5,512)
1,114
-
433
-
Total
Equity
$’000
20,610
(5,512)
-
-
-
730
-
-
730
-
-
-
6,654
(405)
-
6,249
-
(5,512)
-
-
-
-
-
3,353
-
34,234
-
(17,057)
(4,783)
-
-
7,304
-
-
702
8,006
9,120
-
-
-
52
-
77
-
129
-
-
255
-
136
-
391
-
-
(4,783)
-
-
210
82
-
-
1,494
(272)
(82)
(389)
(389)
(389)
(5,901)
-
-
-
-
-
44
-
202
202
-
-
-
-
7,304
7,384
(405)
702
14,985
29,694
(4,783)
202
(4,581)
307
1,494
151
-
292
1,140
-
1,952
3,482
34,625
(21,548)
10,260
246
27,065
Balance at 31
December 2019
Loss for the year
Exchange differences
on translation of foreign
operations
Total comprehensive
loss for the year
Issue of share options
on acquisition of BRL
Issue of shares
Cost of issue
Share based payments
Total transactions with
owners
Balance at 31
December 2020
Loss for the year
Exchange differences
on translation of foreign
operations
Total comprehensive
loss for the year
Issue of shares
Share based payments
Options exercised
Options expired
Total transactions with
owners
Balance at 31
December 2021
The notes on pages 51 to 75 form part of these consolidated financial statements.
49
Block Energy Plc
Consolidated Statement of Cashflows
for the year ended 31 December 2021
Cash flow from operating activities
Loss for the year before tax
Adjustments for:
Depreciation and depletion
Decommissioning finance charge
Impairment of PP&E
Disposal of PP&E at nil value
Other income
Finance expense
Share based payments expense
Foreign exchange movement
Operating cash flows before movements in
working capital
Increase in trade and other receivables
Increase in trade and other payables
(Increase)/ decrease in inventory
Net cash used in operating activities
Cash flow from investing activities
Cash received from acquisition of BRL
Income received
Expenditure in respect of intangible assets
Expenditure in respect of PP&E
Net cash used in investing activities
Cash flow from financing activities
Proceeds from issue of equity
Costs related to issue of equity
Interest paid
Net cash inflow from financing activities
Net decrease in cash and cash equivalents in the
year
Cash and cash equivalents at start of year
Effects of foreign exchange rate changes on cash and
cash equivalents
Cash and cash equivalents at end of year
Year ended
31 December
2021
Year ended
31 December
2020
Note
$'000
$'000
(4,783)
(5,512)
5
15
2,13
8
7
2,901
66
-
49
(5)
3
1,494
6
(269)
(4)
179
(471)
(565)
278
5
-
(6,407)
(6,124)
1,465
-
(3)
1,462
(5,227)
6,331
140
1,244
781
-
172
-
(15)
9
641
(49)
(3,973)
(513)
342
955
(3,189)
-
15
-
(2,617)
(2,602)
5,754
(405)
(9)
5,340
(451)
6,494
288
6,331
The notes on pages 51 to 75 form part of these consolidated financial statements.
Significant non-cash transactions
The only significant non-cash transactions were the issue of shares and share options detailed in notes 19 and
23.
50
Block Energy Plc
Notes forming part of the Consolidated Financial Statements
Corporate information
Block Energy Plc (“Block Energy”) gained admission to AIM on the 11 June 2018, trading under the symbol
of BLOE.
The Consolidated financial statements of the Group, which comprises Block Energy Plc and its subsidiaries,
for the year ended 31 December 2021 were authorised for issue in accordance with a resolution of the
directors on 30 June 2022. Block Energy is a Company incorporated in the UK whose shares are publicly
traded. The address of the registered office is given in the officers and advisers section of this report. The
Company's administrative office is in London, UK.
The nature of the Company's operations and its principal activities are set out in the Strategic Report on
pages 3 to 21 and the Report of the Directors on pages 22 to 24.
1. Significant Accounting policies
IAS 8 requires that management shall use its judgement in developing and applying accounting policies that
result in information which is relevant to the economic decision-making needs of users, that are reliable, free
from bias, prudent, complete and represent faithfully the financial position, financial performance and cash
flows of the entity.
Basis of preparation
The principal accounting policies adopted in the preparation of these consolidated financial statements are
set out below. The policies have been consistently applied to all the years presented, unless otherwise
stated. In the prior year, the Group changed its presentational currency from the pound sterling to the US
dollar, which represented a change in accounting policy. All amounts presented are in thousands of US
dollars unless otherwise stated. Foreign operations are included in accordance with the policies set out
below.
The consolidated financial statements have been prepared in accordance with UK international accounting
standards and in conformity with the requirements of the Companies Act 2006. The Financial Statements
have also been prepared under the historical cost convention, as modified by the revaluation of financial
assets at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions are based on historical
experience and factors that are believed to be reasonable under the circumstances, the results of which
form the basis of making judgements about carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting
estimates may be necessary if there are changes in the circumstances on which the estimate was based,
or as a result of new information or more experience. Such changes are recognised in the period in which
the estimate is revised.
51
Block Energy Plc
Notes forming part of the Consolidated Financial Statements(continued)
New and amended standards adopted by the Group
There were no new or amended accounting standards adopted by the Group for the year ended 31
December 2021.
New accounting standards issued but not yet effective
The standards and interpretations that are relevant to the Group, issued, but not yet effective, up to the date
of the Financial Statements are listed below. The Group intends to adopt these standards, if applicable,
when they become effective.
Standard
IFRS 17
IFRS 10 and
(Amendments)
Amendments to IAS 1
IAS 28
Amendments to IAS 1 and
IFRS Practice Statement 2
Amendments to IAS 8
Amendments to IAS 12
Amendments to IFRS 3
Amendments to IAS 16
Amendments to IAS 37
to
Improvements
Annual
IFRS Standard 2018-2020
Cycle
Impact on initial application
Insurance Contracts
Long term interests in associates and joint
ventures
Classification of Liabilities as current or non-
current
Disclosure of Accounting Policies
Definition of Accounting Estimates
Deferred Tax Related to Assets and Liabilities
arising from a Single Transaction
Reference to the Conceptual Framework
Property, Plant and Equipment – Proceeds
before intended use
Onerous contracts – Cost of fulfilling a contract
Amendments to IFRS 1 First time adoption of
IFRS,
IFRS
Leases
IFRS 9 Financial
Instruments,
Effective date
1 January 2023
Unknown
1 January 2023
1 January 2023
1 January 2023
1 January 2023
1 January 2022
1 January 2022
1 January 2022
1 January 2022
The Directors have evaluated the impact of transition to the above standards and do not consider that there
will be a material impact of transition on the financial statements.
Basis of consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an
investee if all three of the following elements are present: power over the investee, exposure to variable
returns from the investee, and the ability of the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate that there may be a change in any of
these elements of control. De-facto control exists in situations where the Company has the practical ability
to direct the relevant activities of the investee without holding the majority of the voting rights. In determining
whether de-facto control exists the Company considers all relevant facts and circumstances, including:
• The size of the Company’s voting rights relative to both the size and dispersion of other parties who
hold voting rights;
• Substantive potential voting rights held by the Company and by other parties;
• Other contractual arrangements; and
• Historic patterns in voting attendance.
Business combinations and Goodwill
The consolidated financial statements incorporate the results of business combinations using the purchase
method. In the consolidated statement of financial position, the acquiree’s identifiable assets, liabilities and
contingent liabilities are initially recognised at their fair values at the acquisition date. The difference between
the consideration paid and the acquired net assets is recognised as goodwill. The results of acquired
operations are included in the consolidated income statement from the date on which control is obtained.
Any difference arising between the fair value and the tax base of the acquiree’s assets and liabilities that
give rise to a deductible difference results in recognition of deferred tax liability. No deferred tax liability is
recognised on goodwill. For the purposes of the current period of reporting the figures related to the
transaction accounting are considered provisional as permitted under the requirements of the accounting
52
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
standards. These figures will be finalised within a period of twelve months from the acquisition date of the
transaction.
Acquisitions
The Group and Company measure goodwill at the acquisition dates as:
• The fair value of the consideration transferred; plus
• The recognised amount of any non-controlling interests in the acquiree
• Plus, if the business combination is achieved in stages, the fair value of the existing equity interest in
the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired
and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Cost related to the acquisition, other than those associated with the issue of debt or equity securities, that
the Group incurs in connection with a business combination, are expensed as incurred.
Asset Acquisition
Acquisitions of mineral exploration licences through the acquisition of non-operational corporate structures
that do not represent a business, and therefore do not meet the definition of a business combination, are
accounted for as the acquisition of an asset. An example of such would be increases in working interests in
licences.
The consideration for the asset is allocated to the assets based on their relative fair values at the date of
acquisition.
Going concern
The directors have prepared cash flow forecasts for a period of 18 months from the date of signing these
financial statements. The Group’s forecasts are reviewed regularly to assess whether any actions to curtail
expenditure or cut costs are required. The Group is in the final stages of preparing to drill a horizontal
sidetrack in the WR-B1 well followed by sidetracks of other wells. The forecasts assume the wells will
produce oil and gas, which would be sold, and indicate the Group has sufficient funds to complete the drilling
of the wells and to meet its liabilities as they fall due until December 2023. However, if any of the new wells
do not produce commercial quantities of oil or gas, the Group would immediately revisit its plans to drill
subsequent wells. The financial benefit of any additional capital projects would be assessed against capital
requirements and balanced with ensuring that the Group and the Company can continue to meet their
liabilities and commitments through to December 2023. The Company's forecasts are considered together
with the Group's forecasts.
The Group’s operations presently generate sufficient revenues to cover operating costs and capital
expenditures, supporting the continued preparation of the Group’s accounts on a going concern basis. The
directors are nevertheless conscious that oil prices have risen rapidly during the past twelve months due in
part to recent global political uncertainty, and could rise further but could also fall back in the year ahead,
and that future production levels depend in part on the success of future drilling. As part of their going
concern assessment, the directors have performed a reverse stress test on a low oil price scenario in which
future drilling is inhibited or unsuccessful, and have concluded that it remains possible that future revenues
in such a scenario might not cover all operating costs and planned capital expenditures, creating a material
uncertainty that may cast doubt over the Group’s ability to continue as a going concern. Whilst
acknowledging this material uncertainty, the directors remain confident of making further cost savings and/or
raising finance when required and, therefore, the directors consider it appropriate to prepare the financial
statements on a going concern basis. The financial statements do not include the adjustments that would
result if the Group were unable to continue as a going concern.
Intangible Assets
Exploration and evaluation costs
The Group applies the full cost method of accounting for Exploration and Evaluation (E&E) costs, having
regard to the requirements of IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’. Under the full
cost method of accounting, costs of exploring and evaluating properties are accumulated and capitalised by
53
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
reference to appropriate cash generating units (“CGUs”). Such CGU’s are based on geographic areas such
as a licence area, type or a basin and are not larger than an operating segment - as defined by IFRS 8
‘Operating segments.
E&E costs are initially capitalised within ‘Intangible assets’. Such E&E 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 an area, which are expensed
directly to the statement of comprehensive income as they are incurred. Plant and equipment assets
acquired for use in exploration and evaluation activities are classified as property, plant and equipment.
However, to the extent that such an asset is consumed in developing an unproven oil and gas asset, the
amount reflecting that consumption is recorded as part of the cost of the unproven oil and gas asset.
Exploration and unproven oil and gas assets related to each exploration license/prospect are not amortised
but are carried forward until the technical feasibility and commercial feasibility of extracting a mineral
resource are demonstrated.
Impairment of Exploration and Evaluation assets
All capitalised exploration and evaluation assets and property, plant and equipment are monitored for
indications of impairment. Where a potential impairment is indicated, assessment is made for the Group of
assets representing a cash generating unit.
In accordance with IFRS 6 the Group firstly considers the following facts and circumstances in their
assessment of whether the Group’s exploration and evaluation assets may be impaired, whether:
•
the period for which the Group has the right to explore in a specific area has expired during the period
or will expire in the near future, and is not expected to be renewed;
• unexpected geological occurrences render the resource uneconomic;
• a significant fall in realised prices or oil and gas price benchmarks render the project uneconomic; or
• an increase in operating costs occurs.
If any such facts or circumstances are noted, the Group perform an impairment test in accordance with the
provisions of IAS 36.
The aggregate carrying value is compared against the expected recoverable amount of the cash generating
unit. The recoverable amount is the higher of value in use and the fair value less costs to sell. An impairment
loss is reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount. A
reversal of impairment loss is recognised in the profit or loss immediately.
Property, plant and equipment – development and production (D&P) assets
Capitalisation
The costs associated with determining the existence of commercial reserves are capitalised in accordance
with the preceding policy and transferred to property, plant and equipment as development assets following
impairment testing. All costs incurred after the technical feasibility and commercial viability of producing
hydrocarbons have been demonstrated are capitalised within development assets on a field-by-field basis.
Subsequent expenditure is only capitalised where it either enhances the economic benefits of the
development asset or replaces part of the existing development asset (where the remaining cost of the
original part is expensed through the income statement). Costs of borrowing related to the ongoing
construction of development and production assets and facilities are capitalised during the construction
phase. Capitalisation of interest ceases once an asset is ready for production.
Depreciation
Capitalised oil assets are not subject to depreciation until commercial production starts. Depreciation is
calculated on a unit-of-production basis in order to write off the cost of an asset as the reserves that it
represents are produced and sold. Any periodic reassessment of reserves will affect the depreciation rate
on a prospective basis. The unit-of-production depreciation rate is calculated on a field-by-field basis using
proved, developed reserves as the denominator and capitalised costs as the numerator. The numerator
includes an estimate of the costs expected to be incurred to bring proved, developed, not-producing reserves
into production. Infrastructure that is common to a number of fields, such as gathering systems, treatment
54
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
plants and pipelines are depreciated on a unit-of-production basis using an aggregate measure of reserves
or on a straight line basis depending on the expected pattern of use of the underlying asset.
Proven oil and gas properties
Oil and gas properties are stated at cost less accumulated depreciation and impairment losses. The initial
cost comprises the purchase price or construction cost including any directly attributable cost of bringing the
asset into operation and any estimated decommissioning provision.
Once a project reaches the stage of commercial production and production permits are received, the carrying
values of the relevant exploration and evaluation asset are assessed for impairment and transferred to
proven oil and gas properties and included within property plant and equipment.
Proven oil and gas properties are accounted for in accordance with provisions of the cost model under IAS
16 “Property Plant and Equipment” and are depleted on unit of production basis based on the estimated
proven and probable reserves of the pool to which they relate.
Impairment of development and production assets
A review is performed for any indication that the value of the Group’s D&P assets may be impaired such as:
• significant changes with an adverse effect in the market or economic conditions which will impact the
assets; or
• obsolescence or physical damage of an asset; or
• an asset becoming idle or plans to dispose of the asset before the previously expected date; or
• evidence is available from internal reporting that indicates that the economic performance of an asset
is or will be worse than expected.
For D&P assets when there are such indications, an impairment test is carried out on the CGU. CGUs are
identified in accordance with IAS 36 ‘Impairment of Assets’, where cash flows are largely independent of
other significant asset Groups and are normally, but not always, single development or production areas.
When an impairment is identified, the depletion is charged through the Consolidated Statement of
Comprehensive Income if the net book value of capitalised costs relating to the CGU exceeds the associated
estimated future discounted cash flows of the related commercial oil reserves.
The CGU’s identified by the company are Corporate along with West Rustavi, Rustaveli, Satskhenisi and
Norio given they are independent projects under individual Production Sharing Contracts (“PSCs”). An
assessment is made at each reporting as to whether there is any indication that previously recognised
impairment charges may no longer exist or may have decreased. If such an indication exists, the Group
estimates the recoverable amount. A previously recognised impairment charge is reversed only if there has
been a change in the estimates used to determine the assets recoverable amount since the last impairment
charge was recognised. If this is the case the carrying amount of the asset is increased to its recoverable
amount, not to exceed the carrying amount that would have been determined, net of depreciation, had no
impairment charges been recognised for the asset in prior years.
Property, plant and equipment and depreciation
Property, plant and equipment which are awaiting use in the drilling campaigns, and storage, are recorded
at historical cost less accumulated depreciation. Property, plant and equipment are depreciated using the
straight line method over their estimated useful lives, as follows:
• PP&E - 6 years
The carrying value of Property, plant and equipment is assessed annually and any impairment charge is
charged to the Consolidated Statement of Comprehensive income.
Leases
In the current year, the Group adopted 'IFRS 16: Leases', which requires operating and finance leases to
be accounted for in a consistent manner. There was no material impact on the Group from the adoption of
this standard year-on-year.
55
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group
recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in
which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less)
and leases of low value assets (such as tablets and personal computers, small items of office furniture and
telephones). For these leases, the Group recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease unless another systematic basis is more representative of the
time pattern in which economic benefits from the leased assets are consumed.
Inventories
Crude oil inventories are stated at the lower of cost and net realisable value. The cost of crude oil is the cost
of production, including direct labour and materials, depreciation and an appropriate portion of fixed
overheads allocated based on normal operating capacity of the production facilities, determined on a
weighted average cost basis. Net realisable value of crude oil is based on the market price of similar crude
oil at the balance sheet date and costs to sell, adjusted if the sale of inventories after that date gives
additional evidence about its net realisable value at the balance sheet date.
The cost of crude oil is expensed in the period in which the related revenue is recognised.
Inventories of drilling tubulars and drilling chemicals are valued at the lower of cost or net realisable value,
where cost represents the weighted average unit cost for inventory lines on a line by line basis. Cost
comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to
their present location and condition.
Decommissioning provision
Provisions for decommissioning are recognised in full when wells have been suspended or facilities have
been installed.
A corresponding amount equivalent to the provision is also recognised as part of the cost of either the related
oil and gas exploration and evaluation asset or property, plant and equipment as appropriate. The amount
recognised is the estimated cost of decommissioning, discounted to its net present value, and is reassessed
each year in accordance with local conditions and requirements.
Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with
prospectively by recording an adjustment to the provision, and a corresponding adjustment to the related
asset.
The unwinding of the discount on the decommissioning provision is included as a finance cost.
Taxation and deferred tax
Income tax expense represents the sum of the current tax and deferred tax charge for the period.
The Group's liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the reporting date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the
financial information and the corresponding tax bases and is accounted for using the balance sheet liability
method.
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.
Judgement is applied in making assumptions about future taxable income, including oil and gas prices,
production, rehabilitation costs and expenditure to determine the extent to which the Group recognises
deferred tax assets, as well as the anticipated timing of the utilisation of the losses.
Deferred tax is calculated at the tax rates that have been enacted or substantively enacted and are expected
to apply in the period when the liability is settled, or the asset realised. Deferred tax is charged or credited
to the statement of comprehensive income, except when it relates to items charged or credited directly to
equity, in which case the deferred tax is also dealt with in equity.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the rates
of exchange prevailing at the reporting date: $1.3523/£1 (2020: $1.3678/£1). Transactions in foreign
56
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
currencies are translated at the exchange rate ruling at the date of the transaction. Exchange differences
are taken to the Statement of Comprehensive Income.
The Company’s functional currency is the pound sterling and its presentational currency is the US dollar and
accordingly the financial statements have also been prepared in US dollars. The functional currencies of
Block Norioskhevi Ltd, Satskhenisi Limited, Georgia New Ventures Inc and Block Rustaveli Limited are the
US dollar and the functional currencies of their branches in Georgia are the Georgian Lari.
Foreign operations
The assets are translated into US dollars at the exchange rate at the reporting date and income and
expenses of the foreign operations are translated at the average exchange rates. Exchange differences
arising on translation are recognised in other comprehensive income and presented in the other reserves
category in equity.
Determination of functional currency and presentational currency
The determination of an entity’s functional currency is assessed on an entity by entity basis. A company’s
functional currency is defined as the currency of the primary economic environment in which the entity
operates. The functional currency of the Parent Company is the pound sterling, because it operates in the
UK, where the majority of its transactions are in pounds sterling. The functional currencies of Block
Norioskhevi Ltd, Satskhenisi Limited, Georgia New Ventures Inc and Block Rustaveli Limited are the US
dollar, because the majority of their transactions by value is in US dollars, and the functional currencies of
their branches in Georgia are the Georgian Lari, because the majority of their transactions by value is in
Georgian Lari.
The presentational currency of the Group for year ended 31 December 2021 is US dollars. The
presentational currency is an accounting policy choice.
Revenue
Revenue from contracts with customers is recognised when the Group satisfies its performance obligation
of transferring control of oil or gas to a customer. Transfer of control is usually concurrent with both transfer
of title and the customer taking physical possession of the oil or gas, which is determined by reference to
the oil or gas sales agreement. This performance obligation is satisfied at that point in time.
The transaction price is agreed between the Group and the customer, with the amount of revenue recognised
being determined by considering the terms of the Production Sharing Contract (“PSC”) and the oil sales
agreement for each oil sale or the gas sales agreement for each gas sale.
Finance income and expenses
Finance costs are accrued on a time basis, by reference to the principal outstanding and at the effective
interest rate applicable. Finance expenses comprise interest or finance costs on borrowings.
Financial instruments
The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets
the ‘solely payments of principal and interest’ (SPPI) condition, the party exercising the option may pay or
receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other
words, financial assets with prepayment features with negative compensation do not automatically fail SPPI.
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group
becomes party to the contractual provisions of the instrument.
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. All assets and liabilities, for which fair
value is measured or disclosed in the Financial Statements, are categorised within the fair value hierarchy,
described as follows, based on the lowest-level input that is significant to the fair value measurement as a
whole:
Level 1 – quoted (unadjusted) market prices in active markets for identical assets or liabilities;
57
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
Level 2 – valuation techniques for which the lowest-level input that is significant to the fair value
measurement is directly or indirectly observable; and
Level 3 – valuation techniques for which the lowest-level input that is significant to the fair value
measurement is unobservable.
Financial assets
Financial assets are initially recognised at fair value, and subsequently measured at amortised cost, less
any allowances for losses using the expected credit loss model, being the difference between all contractual
cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group
expects to receive.
Impairment provisions for receivables from related parties and loans to related parties are recognised based
on a forward looking expected credit loss model. The methodology used to determine the amount of the
provision is based on whether there has been a significant increase in credit risk since initial recognition of
the financial asset.
For those where the credit risk has not increased significantly since initial recognition of the financial asset,
twelve month expected credit losses along with gross interest income are recognised. For those for which
credit risk has increased significantly, lifetime expected credit losses along with the gross interest income
are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along
with interest income on a net basis are recognised.
Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit and loss (FVTPL) or
as other financial liabilities. The Group derecognises financial liabilities when, and only when, the Group’s
obligations are discharged or cancelled, or they expire.
Financial liabilities are classified at FVTPL when the financial liability is either held for trading or it is
designated at FVTPL. A financial liability is classified as held for trading if it has been incurred principally for
the purpose of repurchasing it in the near term or is a derivative that is not a designated or effective hedging
instrument.
Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair
value recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest
paid on the financial liability.
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs
and are subsequently measured at amortised cost using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the financial liability, or, where
appropriate, a shorter period, to the net carrying amount on initial recognition.
Share based payments
The fair value of options granted to directors and others in respect of services provided is recognised as an
expense in the Statement of Comprehensive Income with a corresponding increase in equity reserves –
‘other reserves’.
On exercise or cancellation of share options, the proportion of the share based payment reserve relevant to
those options is transferred from other reserves to the accumulated deficit. On exercise, equity is also
increased by the amount of the proceeds received.
The fair value is measured at grant date and charged over the accounting periods which the option becomes
unconditional.
The fair value of options are calculated using the Black-Scholes model, taking into account the terms and
conditions upon which the options were granted. Vesting conditions are non-market and there are no market
vesting conditions. These vesting conditions are included in the assumptions about the number of options
that are expected to vest. At the end of each reporting period, the Company revises its estimate of the
number of options that are expected to vest. The exercise price is fixed at the date of grant and no
58
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
compensation is due at the date of grant. Where equity instruments are granted to persons other than
employees, the statement of comprehensive income is charged with the fair value of the goods and services
received.
Warrants issued for services rendered are accounted for in accordance with IFRS 2 recognising either the
costs of the service if it can be reliably measured or the fair value of the warrant (using the Black-Scholes
model). The fair value is recognised as an expense in the accounting period that the warrant is granted and
there is no revision to this estimate in future accounting periods.
Warrants issued as part of share issues have been determined as equity instruments under IAS 32. Since
the fair value of the shares issued at the same time is equal to the price paid, these warrants, by deduction,
are considered to have been issued at nil value.
2. Critical accounting judgments, estimates and assumptions
The Group makes estimates and assumptions regarding the future. Estimates and judgements are
continuously evaluated based on historical experiences and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. In the future, actual experience may
deviate from these estimates and assumptions. The key assumptions concerning the future and other key
sources of estimation uncertainty at the reporting date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year, are described
below.
Recoverable value of Development & Production assets –judgement, estimates and assumptions
Costs capitalised in respect of the Group’s development and production assets are required to be assessed
for impairment under the provisions of IAS 36. Such an estimate requires the Group to exercise judgement
in respect of the indicators of impairment and also in respect of inputs used in the models which are used to
support the carrying value of the assets. Such inputs include estimates of oil and gas reserves, production
profiles, oil price, oil quality discount, capital expenditure (including an allocation of salary costs), inflation
rates, and pre-tax discount rates that reflect current market assessments of (a) the time value of money;
and (b) the risks specific to the asset for which the future cash flow estimates have not been adjusted. The
directors concluded that there was no indication of impairment in the current year (an impairment of $172,000
on the carrying value of the development and production assets at Satskhenisi oilfield was recognised in the
prior year).
Asset Decommissioning Provisions –estimates and assumptions
The Group’s activities are subject to various laws and regulations governing the protection of the
environment. The Group recognises management’s best estimate of the asset decommissioning costs in
the period in which they are incurred. Such estimates of costs include pre-tax discount rates that reflect
current market assessments of (a) the time value of money; and (b) the risks specific to the asset for which
the future cash flow estimates have not been adjusted. Actual costs incurred in future periods could differ
materially from the estimates.
Additionally, future changes to environmental laws and regulations, life of development and production
assets, estimates and discount rates could affect the carrying amount of this provision. The Board assessed
the extent of decommissioning required as at 31 December 2021 and concluded that a provision of
$2,040,000 (2020: $1,917,000) should be recognised in respect of future decommissioning obligations at
Rustaveli, West Rustavi, Satskhenisi and Norio (refer note 15).
Share Options – estimates and assumptions
Share options issued by the Group relates to the Block Energy Plc Share Option Plan. The grant date fair
value of such options is calculated using a Black-Scholes model whose input assumptions are derived from
market and other internal estimates.
The key estimates include volatility rates and the expected life of the options, together with the likelihood of
non-market performance conditions being achieved. Refer note 23.
Accounting for business combinations and fair value – estimates and assumptions
59
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
Business combinations are accounted for at fair value. The assessment of fair value is subjective and
depends on a number of assumptions. These assumptions include assessment of discount rates, and the
amount and timing of expected future cash flows from assets and liabilities. In addition, the selection of
specific valuation methods for individual assets and liabilities requires judgment. The specific valuation
methods applied will be driven by the nature of the asset or liability being assessed. The consideration given
to a seller for the purchase of a business or a company is accounted for at its fair value. When the
consideration given includes elements that are not cash, such as shares or options to acquire shares, the
fair value of the consideration given is calculated by reference to the specific nature of the consideration
given to the seller. See note 12.
3. Segmental disclosures
IFRS 8 requires segmental information for the Group on the basis of information reported to the chief
operating decision maker for decision making purposes. The Company considers this role as being
performed by the Board of Directors. The Group’s operations are focused on oil and gas development and
production activities (Oil Extraction segment) in Georgia and has a corporate head office in the UK
(Corporate segment). Based on risks and returns the directors consider that there are two operating
segments that they use to assess the Group’s performance and allocate resources being the Oil Extraction
in Georgia, and the Corporate segment including unallocated costs.
The segmental results are as follows:
Year ended 31 December 2021
Revenue
Cost of sales
Depreciation and depletion
Administrative costs
Other income
Net Finance costs and Forex
Loss from operating activities
Total non-current assets
Year ended 31 December 2020
Revenue
Cost of sales
Depreciation and depletion
Administrative costs
Other income
Net Finance costs and income
Loss from operating activities
Total non-current assets
Segmental Assets
Oil exploration – Georgia
Corporate and other
Segmental Liabilities
Oil
Extraction
$'000
Corporate
and other
$'000
6,114
(2,982)
(2,896)
(1,201)
5
(90)
(1,050)
24,341
-
-
(5)
(3,725)
-
(3)
(3,733)
4
Group Total
$'000
6,114
(2,982)
(2,901)
(4,926)
5
(93)
(4,783)
24,345
Oil
Extraction
$'000
Corporate
and other
$'000
Group Total
$'000
1,255
(2,203)
(768)
(807)
100
29
(2,394)
21,304
-
-
(13)
(3,129)
-
24
(3,118)
7
1,255
(2,203)
(781)
(3,936)
100
53
(5,512)
21,311
31 December 2021
$'000
31 December 2020
$'000
23,745
7,181
30,926
26,483
7,529
34,012
31 December 2021 31 December 2020
$'000
$'000
Oil exploration – Georgia
3,087
3,239
60
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
Corporate and other
4. Revenue
Crude oil revenue
Gas revenue
5. Depreciation and Depletion on Oil and Gas assets
Depreciation of PP&E
Depletion of oil and gas assets
6. Expenses by nature
Employee benefit expense
Share option charge
Warrants charge
Security expense
Fees to Auditor in respect of the Group audit
Fees to Auditor in respect of the Company audit
Fees to Auditor for other non-audit services
Regulatory fees
Operating lease expense
7. Directors and employees
Employment costs (inc. directors’ remuneration):
Wages and salaries
Pensions
Share based payments
Social security costs
61
774
3,861
1,079
4,318
Year ended
31 December
2021
Year ended
31 December
2020
$'000
5,519
595
6,114
$'000
1,255
-
1,255
Year ended
31 December
2021
Year ended
31 December
2020
$'000
238
2,663
2,901
$'000
109
672
781
Year ended
31 December
2021
Year ended
31 December
2020
$’000
1,720
1,224
270
162
93
93
7
51
49
$’000
1,559
460
181
-
94
94
39
38
57
Year ended
31 December
2021
Year ended
31 December
2020
$’000
1,453
55
1,449
212
3,169
$’000
2,149
147
641
48
2,985
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
The share based payments comprised the fair value of options granted to directors and employees in respect
of services provided.
Wages and salaries include amounts that are recharged between subsidiaries. Some of these costs are
then capitalised as development and production assets and others are administration expenses.
The average monthly number of employees during 2021 was 176 (2020:102) split as follows:
Management
Technical
Administration
Amounts attributable to the highest paid director:
Director’s salary and bonus
Pension
Share based payments
Key management and personnel are considered to be the directors.
8. Finance Income
Other finance income
9. Other income
Sale of materials
Year ended
31 December
2021
Year ended
31 December
2020
18
135
23
176
5
77
20
102
Year ended
31 December
2021
Year ended
31 December
2020
$’000
$’000
358
27
183
568
350
25
67
442
Year ended
31 December
2021
Year ended
31 December
2020
$’000
-
-
$’000
14
14
Year ended
31 December
2021
Year ended
31 December
2020
$'000
5
5
$'000
100
100
During the year, materials to be used in the construction of the gas pipeline from the Early Production Facility
at West Rustavi were sold for $5,000 (2020: $100,000).
10. Taxation
62
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
Based on the results for the year, there is no charge to UK or foreign tax. This is reconciled to the accounting
loss as follows:
UK taxation
UK Loss on ordinary activities
Loss before taxation at the average UK standard rate of 19%
(2020:19%)
Effect of:
Zero tax rate income
Tax losses for which no deferred income tax asset was
recognised
Current tax
Year ended
31 December
2021
Year ended
31 December
2020
$'000
(4,783)
$'000
(5,512)
(909)
(1,047)
(1,162)
2,071
-
(257)
1,304
-
The Group offsets deferred tax assets and liabilities if, and only if, it has a legally enforceable right to offset
current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities related to
corporation taxes levied by the same tax authority. Due to the tax rates applicable in the jurisdictions of the
Group’s subsidiary entities (being 0%) no deferred tax liabilities or assets are considered to arise.
For any other jurisdictions which the Group has not recognised deferred income tax assets for tax losses
carried forward for entities in which it is not considered probable that there will be sufficient future taxable
profits available for offset. Unrecognised deferred income tax assets related to unused tax losses. The
Company has UK corporation tax losses available to carry forward against future profits of approximately
$18,591,000 (2020: $13,808,000).
Year ended
31 December
2021
Year ended
31 December
2020
$'000
13,808
13,808
4,783
18,591
18,591
$'000
8,296
8,296
5,512
13,808
13,808
Year ended
31 December
2021
Year ended
31 December
2020
$'000
1,304
767
2,071
$'000
1,206
98
1,304
Unrecognised gross deferred tax position
Tax losses bought forward
Total unrecognised gross deferred tax position at start of year
Tax losses not recognised in the year
Tax losses carried forward
Total unrecognised gross deferred tax position at end of year
Unrecognised deferred tax asset
Total unrecognised deferred asset brought forward
Increase in asset
Total unrecognised deferred asset carried forward
63
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
11. Loss per share
The calculation for loss per Ordinary Share (basic and diluted) is based on the consolidated loss attributable
to the equity shareholders of the Company is as follows:
Year ended
31 December
2021
Year ended
31 December
2020
Loss attributable to equity Shareholders ($’000)
(4,783)
(5,512)
Weighted average number of Ordinary Shares
630,629,894
419,300,390
Loss per Ordinary share ($/cents)
(0.76)c
(1.31)c
Loss and diluted loss per Ordinary Share are calculated using the weighted average number of Ordinary
Shares in issue during the year. Diluted share loss per share has not been calculated as the options and
warrants have no dilutive effect given the loss arising in the year.
12. Acquisition of Subsidiaries and associated PSC interests
Acquisition of Block Rustaveli Limited (“BRL”) in prior year
On 23 November 2020, the Company acquired 100% of the share capital of Schlumberger Rustaveli
Company Limited ("SRCL"). The completion of the acquisition means the Company now holds licences for
Georgian onshore blocks IX and XIB. The Company changed the name of the acquired company to Block
Rustaveli Limited on 9 December 2020. The principal activity is oil and gas extraction and it was acquired
for the purposes of expanding the Company’s production and development business in Georgia.
On acquisition, the Company issued Schlumberger one US dollar and an option to acquire 120 million 0.25p
Ordinary Shares in Block Energy Plc, at a nil exercise price, representing 16% of Block's enlarged ordinary
share capital (at 31 December 2020). The Options are exercisable between 12 and 24 months from 23
November 2020.
The fair value of the 120 million share options issued was based on the published closing price of the
Ordinary Shares in Block Energy Plc on 23 November 2020 of 4.45p per share. Following the acquisition,
the finalisation of the completion statement led to a payment by Schlumberger of $278,190 to Block Energy
Plc, which has been recognised as a reduction in the fair value of the consideration paid by Block Energy
Plc for this acquisition, because the payment was a contractual working capital adjustment to compensate
Block Energy Plc for liabilities that were deemed to be for the seller’s account.
Under IFRS 3, a business must have three elements: inputs, processes and outputs. BRL has these three
elements and, therefore, this transaction has been accounted for as a business combination.
64
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed of the business
combination are as set out in the table below:
Development and production assets
Exploration and evaluation assets
PP&E
Oil inventory
Inventory and spare parts
Financial liabilities
Provision for baseline oil liability
Provision for decommissioning costs
Total identifiable assets acquired and
liabilities assumed
Provisional Fair Value of Consideration
Paid:
Share options issued at nil cost
Less cash received from seller to adjust
consideration
Total consideration
Provisional goodwill on acquisition
Analysis of cash flows on acquisition
Payment on acquisition of subsidiary
Net cash acquired on acquisition
Net cash inflow of acquisition
Net book value
of assets
acquired
$’000
-
6,593
506
867
1,535
(275)
-
(1,562)
7,664
Fair value
adjustments
$’000
6,258
(6,593)
147
-
-
(655)
-
(843)
Fair value of
assets
acquired
$’000
6,258
-
506
1,014
1,535
(275)
(655)
(1,562)
6,821
$’000
7,099
(278)
6,821
-
$’000
-
-
-
Since the acquisition of BRL on 23 November 2020, BRL contributed $308,000 and $183,000 in the year
ended 31 December 2020 to the Group revenue and loss respectively. If the acquisition had occurred on 1
January 2020, consolidated pro-forma revenue and loss for the year ended 31 December 2020 would have
been $483,000 and $7,534,000 respectively.
All of the identifiable assets acquired and liabilities assumed were fair valued. PP&E and spare parts
inventory were fair valued based on the items' condition and application of an industry accepted discount
to the original cost. The oil inventory was fair valued by management based on the net realisable value at
the acquisition date. Given the subjectivity in valuing undeveloped reserves and unevaluated acreage, a
market approach was used to fair value the development and production assets, whereby the seller
marketed the business for sale and the acquisition price paid was deemed to be the fair value of the sum of
the identifiable assets acquired and liabilities assumed. Therefore, the fair value of the development and
production assets was calculated as the difference between the acquisition price paid and the fair value of
the other identifiable assets acquired and liabilities assumed.
65
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
13. Property, Plant and Equipment
Cost
At 1 January 2020
Additions
Additions through acquisition
Disposals
Foreign exchange movements
At 31 December 2020
Reallocation of assets
Additions
Disposals
Reduction in BLO (see note 15)
Foreign exchange movements
At 31 December 2021
Accumulated Depreciation
At 1 January 2020
Disposals
Charge for the year
Impairment charge
At 31 December 2020
Reallocation of assets
Disposals
Charge for the year
Foreign exchange movements
At 31 December 2021
Carrying Amount
At 1 January 2020
At 31 December 2020
At 31 December 2021
Development &
Production Assets
$'000
PPE/Computer /
Office Equipment /
Motor Vehicles
$'000
13,204
2,772
6,258
(138)
-
22,096
(780)
6,182
(38)
(498)
-
26,962
613
-
672
172
1,457
(91)
-
2,663
-
4,029
12,591
20,639
22,933
129
210
506
(54)
(14)
777
780
290
(12)
-
(33)
1,802
7
(11)
109
-
105
91
(1)
238
(43)
390
122
672
1,412
Total
$'000
13,333
2,982
6,764
(192)
(14)
22,873
-
6,472
(50)
(498)
(33)
28,764
620
(11)
781
172
1,562
-
(1)
2,901
(43)
4,419
12,713
21,311
24,345
Carrying amount of property plant and equipment by cash generative unit:
Carrying amount
At 31 December
2021
At 31 December
2020
Norio
$'000
2,222
2,298
Satsk
henisi
$'000
West
Rustavi
$'000
Rustaveli
$’000
Corporate
$'000
Total
$'000
176
230
14,045
7,721
11,767
6,866
181
150
24,345
21,311
At the end of the current year, the directors concluded there were no impairment indicators in the current
year that warranted impairment testing to be prepared with respect to the carrying value of the assets of
the Group.
66
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
14. Inventory
Spare parts and consumables
Crude oil
31 December
2021
$’000
3,174
1,411
4,585
31 December
2020
$’000
2,918
1,196
4,114
Inventories recognised in cost of sales during the year amounted to $(279,000), (2020: $886,000).
15. Provisions
Decommissioning provision
Baseline oil liability
Decommissioning provision
Brought forward
Decommissioning provision arising from the acquisition
Additional decommissioning provision in the year
Carried forward
Baseline oil liability
Brought forward
Baseline oil liability (reducing)/arising from the acquisition
Additional baseline oil liability provided in the year
Carried forward
31 December
2021
$’000
2,040
265
2,305
31 December
2021
$’000
1,917
-
123
2,040
31 December
2021
$’000
745
(498)
18
265
31 December
2020
$’000
1,917
745
2,662
31 December
2020
$’000
276
1,562
79
1,917
31 December
2020
$’000
-
654
91
745
Decommissioning provisions are based on management estimates of work and the judgement of the
directors. By its nature, the detailed scope of work required, and timing of such work is uncertain.
The baseline oil liability arose from the acquisition of BRL during the prior year. Under the production sharing
contract for Block XIB, BRL is obliged to deliver a certain quantity of oil to the State of Georgia in quarterly
instalments by May 2022. As at 31 December 2021, BRL owed 586 tonnes of baseline oil with a present
value of $262,000 to the State of Georgia.
16. Trade and other receivables
Other receivables
Prepayments
31 December
2021
$’000
657
95
752
31 December
2020
$’000
2,196
60
2,256
In prior year, other receivables included proceeds receivable from the share issue on 30 December 2020
amounting to $1,314,000 and $278,000 receivable from Schlumberger following the Completion Statement
and acquisition of BRL.
67
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
17. Cash and cash equivalents
Cash and cash equivalents
31 December
2021
$’000
1,244
31 December
2020
$’000
6,331
Cash and cash equivalents consist of balances in bank accounts used for normal operational activities. The
vast majority of the cash was held at year end in an institution with a Fitch’s credit rating of BB-.
18. Trade and Other Payables
Trade and other payables
Accruals
31 December
2021
$’000
845
711
1,556
31 December
2020
$’000
989
667
1,656
Trade and other payables principally comprise amounts outstanding for corporate services and operational
expenditure.
19. Share capital
Called up, allotted, issued and fully paid
No. Ordinary
Shares
No. Deferred
Shares
Nominal Value
$
As at 1 January 2020
Issue of equity on 1 June 2020
Issue of equity on 10 June 2020
Issue of equity on 1 July 2020
Issue of equity on 1 August 2020
Issue of equity on 1 September 2020
Issue of equity on 1 October 2020
Issue of equity on 2 November 2020
Issue of equity on 1 December 2020
Issue of equity on 31 December 2020
394,438,662
1,654,824
39,609,348
188,435
407,374
544,400
724,433
450,541
524,076
176,000,000
2,095,165,355
-
-
-
-
-
-
-
-
-
2,622,866
5,204
126,134
588
1,333
1,814
2,343
1,456
1,754
589,017
As at 31 December 2020
614,542,093
2,095,165,355
3,352,509
Issue of equity on 4 January 2021
Issue of equity on 12 January 2021
Issue of equity on 1 February 2021
Issue of equity on 15 February 2021
Issue of equity on 1 March 2021
Issue of equity on 12 March 2021
Issue of equity on 16 March 2021
Issue of equity on 7 April 2021
Issue of equity on 5 May 2021
Issue of equity on 7 June 2021
Issue of equity on 2 July 2021
Issue of equity on 2 September 2021
Issue of equity on 15 September 2021
Issue of equity on 4 October 2021
Issue of equity on 8 October 2021
Issue of equity on 2 November 2021
617,571
397,904
839,996
180,715
232,248
865,896
6,590,707
58,972
171,715
125,696
1,355,805
62,005
24,877,230
746,668
299,412
262,403
68
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,098
1,362
2,937
632
800
2,983
22,752
204
611
434
4,713
209
83,684
2,556
1,025
873
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
Issue of equity on 5 December 2021
522,489
-
1,766
As at 31 December 2021
652,749,525
2,095,165,355
3,482,148
On 4 January 2021, the Company issued 617,571 Ordinary Shares to a service provider in lieu of cash
settlement for services provided to the Company with a total value of £20,984 ($28,509).
On 12 January 2021, the Company issued 397,904 Ordinary Shares to a Chris Brown, Non-executive
Director, on exercise of his nil cost options.
On 1 February 2021, the Company issued 839,996 Ordinary Shares to six service providers in lieu of cash
settlement for services provided to the Company with a total value of £29,251 ($40,914).
On 15 February 2021, the Company issued 180,715 Ordinary Shares to a former employee/director on
exercise of their nil cost options.
On 1 March 2021, the Company issued 232,248 Ordinary Shares to four service providers in lieu of cash
settlement for services provided to the Company with a total value of £7,542 ($10,395).
On 12 March 2021, the Company issued 865,896 Ordinary Shares to Philip Dimmock, Chairman and a
Contractor, on exercise of their nil cost options.
On 16 March 2021, the Company issued 4,400,000 Ordinary Shares to Paul Haywood, Executive Director,
on exercise of his options, at an exercise price of 2.5 pence per share. Additionally on this date, the Company
issued 2,190,707 Ordinary Shares to a service provider in lieu of cash settlement for services provided to
the Company with a total value of £72,134 ($100,000).
On 7 April 2021, the Company issued 58,972 Ordinary Shares to one service provider in lieu of cash
settlement for services provided to the Company with a total value of £1,717 ($2,372).
On 5 May 2021, the Company issued 171,715 Ordinary Shares to two service providers in lieu of cash
settlement for services provided to the Company with a total value of £4,751 ($6,765).
On 7 June 2021, the Company issued 125,696 Ordinary Shares to two service providers in lieu of cash
settlement for services provided to the Company with a total value of £3,234 ($4,468).
On 2 July 2021, the Company issued 1,355,805 Ordinary Shares to a former employee on exercise of their
nil cost options at a value of $44,269 to the Company as it met the income tax cost of this issue.
On 2 September 2021, the Company issued 62,005 Ordinary Shares to a service provider in lieu of cash
settlement for services provided to the Company with a total value of £155 ($209).
On 15 September 2021, the Company issued 24,877,230 Ordinary Shares at their nominal value to the
Employee Benefit Trust.
On 4 October 2021, the Company issued 746,668 Ordinary Shares to four service providers in lieu of cash
settlement for services provided to the Company with a total value of £20,148 ($27,589).
On 8 October 2021, the Company issued 299,412 Ordinary Shares to a former Director, on exercise of their
nil cost options.
On 2 November 2021, the Company issued 262,403 Ordinary Shares to two service providers in lieu of cash
settlement for services provided to the Company with a total value of £5,533 ($7,367).
On 5 December 2021, the Company issued 522,489 Ordinary Shares to two service providers in lieu of cash
settlement for services provided to the Company with a total value of £8,033 ($10,863).
On 2 June 2020, the Company issued 1,654,824 Ordinary Shares, details of which are set out below:
150,731 Ordinary Shares have been allotted to Philip Dimmock, Chairman, at an average price of 3.98p
in settlement of fees amounting to £6,000 due to him and 100,486 Ordinary Shares have been allotted
to Chris Brown, Non-Executive Director, at an average price of 3.98p in settlement of fees of £4,000 due
to him.
1,124,058 Ordinary Shares have been allotted to two consultants to the Company as settlement for
services provided on the Georgian operations during the period from February 2019 to March 2020 with
a total value of £57,229.
69
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
75,000 Ordinary Shares have been allotted to Timothy Parson, former Non-Executive Director of the
Company, as settlement for services provided on the Georgian operations during 2017 with a total value
of £3,000.
204,549 Ordinary Shares have been allotted to an adviser to the Company in lieu of cash settlement for
services provided to the Company during the two months period from 1 April 2020 to 31 May 2020 with
a total value of £3,433.
On 10 June 2020, the Company issued 39,609,348 new Ordinary Shares at their nominal value to the EBT.
On 1 July 2020, the Company issued 188,435 Ordinary Shares to two service providers in lieu of cash
settlement for series provided to the Company with a total value £4,417 ($5,513).
On 3 August 2020, the Company issued 407,374 Ordinary Shares of 0.25p each to three service providers
in lieu of cash settlement for services provided to the Company with a total value of £10,000 ($13,088).
On 2 September 2020, the Company issued 544,400 Ordinary Shares 0.25p each to three service providers
in lieu of cash settlement for services provided to the Company with a total value of £13,184 ($17,574).
On 2 October 2020, the Company issued 724,433 Ordinary Shares 0.25p each to four service providers in
lieu of cash settlement for services provided to the Company with a total value of £19,212 ($24,853).
On 2 November 2020, the Company issued 450,451 Ordinary Shares 0.25p each to four service providers
in lieu of cash settlement for services provided to the Company with a total value of £11,268 ($14,565).
On 2 December 2020, the Company issued 524,076 Ordinary Shares 0.25p each to seven service providers
in lieu of cash settlement for services provided to the Company with a total value of £15,819 ($21,177).
On 30 December 2020, the Company raised gross proceeds of £5,280,000 ($7,068,287) through the placing
of 176,000,000 Ordinary Shares at 3p per share.
The Ordinary Shares consist of full voting, dividend and capital distribution rights and they do not confer any
rights for redemption. The Deferred Shares have no entitlement to receive dividends or to participate in any
way in the income or profits of the Company, nor is there entitlement to receive notice of, speak at, or vote
at any general meeting or annual general meeting.
20. Share premium account
Balance at 1 January 2021
Premium arising on issue of equity shares
Share issue costs
Balance at 31 December 2021
Balance at 1 January 2020
Premium arising on issue of equity shares
Share issue costs
Balance at 31 December 2020
21. Reserves
$’000
34,234
391
-
34,625
$’000
27,985
6,654
(405)
34,234
The following describes the nature and purpose of each reserve within owners’ equity.
Reserves
Description and purpose
Share Capital
Amount subscribed for share capital at nominal value.
Share premium
account
Amount subscribed for share capital in excess of nominal value, less attributable
costs.
Other reserves
The other reserves comprises the fair value of all share options and warrants which
have been charged over the vesting period, net of the amount relating to share
options which have expired, been cancelled and have vested. It also comprises of
the fair value of the share options issued as part of the consideration paid for the
70
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
acquisition of the subsidiary BRL and the movement has been shown in the
Consolidated Statement of the Changes in Equity.
Foreign exchange
reserve
Exchange differences on translating the net assets of foreign operations
Accumulated deficit Cumulative net gains and losses recognised in the income statement and in respect
of foreign exchange.
22. Warrants
Outstanding at the
beginning of the year
Additions
Outstanding at the
end of the year
Number of
Warrants
16,820,502
-
16,820,502
31 December 2021
weighted average
exercise price
6p
-
6p
Number of
Warrants
8,070,335
8,750,167
16,820,502
31 December 2020
weighted average
exercise price
10p
3p
6p
As at 31 December 2021, all warrants were available to exercise and were exercisable at prices between
3p and 12.5p (31 December 2020: 3p and 12.5p). The weighted average life of the warrants is 2.65 years
(31 December 2020: 3.6 years). No new warrants were issued and no existing warrants were exercised or
lapsed during the year. The additions during the prior year represent warrants issued with 5 year terms. The
fair value of additions during the year was $nil (2020: $376,000).
23. Share based payments
During the year, the Group operated a Block Energy Plc Share Option Plan (Share Option Scheme).
Under IFRS 2, an expense is recognised in the statement of comprehensive income for share based
payments, to recognise their fair value at the date of grant. The application of IFRS 2 gave rise to a charge
of $1,494,000 for the year ended 31 December 2021. The equivalent charge for the year ended 31
December 2020 was $641,000. The Group recognised total expenses (all of which related to equity settled
share-based payment transactions) under the current plans of:
Share option scheme
Warrants charge
Share Option Scheme
2021
$'000
1,224
270
1,494
2020
$'000
460
181
641
The vesting period varies between 0 days to 3 years. The options expire if they remain unexercised after
the exercise period has lapsed and have been valued using the Black Scholes model.
The following table sets out details of all outstanding options granted under the Share Option Scheme.
Outstanding at beginning of
year
Granted during the year
Exercised during the year
2021
Options
31,338,713
44,136,726
(25,211,024)
2021
Weighted
average
exercise price
$0.05
$0.02
$0.01
2020
Options
27,437,856
9,230,112
(1,997,622)
2020
Weighted
average
exercise price
$0.07
$0.00
$0.03
71
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
$0.06
(3,331,633)
(3,198,464)
$0.04
Expired during the year
Outstanding at the end of
the year
Exercisable at the end of the
year
47,065,951
$0.05
31,338,713
29,161,323
$0.03
30,040,857
$0.05
$0.01
The weighted average exercise price of the share options exercisable at 31 December 2021 is $0.03 (31
December 2020: $0.01). The weighted average contractual life of the share based payments outstanding at
31 December 2021 is 9.8 years (31 December 2020: 3.6 years).
The estimated fair values of options which fall under IFRS 2, and the inputs used in the Black-Scholes model
to calculate those fair values are as follows:
Date of grant
30 June 2017
6 April 2018
11 June 2018
21 October 2019
1 March 2021
31 December 2020
Number
of options
1,200,000
4,400,000
18,098,332
6,325,000
10,800,00
Warrants
8,750,167
Estimated
fair value
$0.04
$0.05
$0.04
$0.05
$0.04
Share
price
$0.01
$0.04
$0.05
$0.06
$0.04
Exercise
price
$0.03
$0.03
$0.05
$0.15
$0.06
Expected
volatility
84%
84%
84%
109%
192%
Expected
life
5.5 years
10 years
10 years
9.0 years
9.5 years
Risk free
rate
1.16%
1.34%
1.23%
0.63%
0%
Expected
dividends
0%
0%
0%
0%
0%
$0.04
$0.04
$0.04
190%
5 years
0%
0%
All share based payment charges are calculated using the fair value of options.
For the options granted prior to 30 June 2018, expected volatility was determined by reviewing benchmark
values from comparator companies. For the options granted after 30 June 2018, expected volatility was
determined by reference to the volatility of historic trading prices of the Company’s shares.
24. Financial instruments
Capital Risk Management
The Company manages its capital to ensure that entities in the Group will be able to continue as a going
concern while maximising the return to stakeholders. The overall strategy of the Company and the Group is
to minimise costs and liquidity risk.
The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising
issued share capital, foreign exchange and other reserves and retained earnings as disclosed in the
Consolidated Statement of Changes of Equity.
The Group is exposed to a number of risks through its normal operations, the most significant of which are
interest, credit, foreign exchange and liquidity risks. The management of these risks is vested to the Board
of Directors.
The sensitivity has been prepared assuming the liability outstanding was outstanding for the whole period.
In all cases presented, a negative number in profit and loss represents an increase in finance expense /
decrease in interest income.
Fair Value Measurements Recognised in the Statement of Financial Position
The following provides an analysis of the Group’s financial instruments that are measured subsequent to
initial recognition at fair value, grouped into Levels 1 & 2 based on the degree to which the fair value is
observable.
- Level 1 fair value measurements are those derived from inputs other than quoted prices that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 2 fair value measurements are those derived from valuation techniques that include inputs for
the asset or liability that are not based on observable market data (unobservable inputs).
- Level 3 assets are assets whose fair value cannot be determined by using observable inputs or
measures, such as market prices or models. Level 3 assets are typically very illiquid, and fair values
can only be calculated using estimates or risk-adjusted value ranges.
72
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
Credit risk
Credit risk is the risk that the Group will suffer a financial loss as a result of another party failing to discharge
an obligation and arises from cash and other liquid investments deposited with banks and financial
institutions and receivables from the sale of crude oil.
For deposits lodged at banks and financial institutions these are all held through a recognised financial
institution. The maximum exposure to credit risk is $1,244,000 (2020: $6,331,000). The Group does not hold
any collateral as security.
The carrying value of cash and cash equivalents and financial assets represents the Group’s maximum
exposure to credit risk at year end. The Group has no material financial assets that are past due.
The Company has made unsecured interest-free loans to its subsidiary companies. Although the loans are
repayable on demand, they are unlikely to be repaid until the projects become successful and the
subsidiaries start to generate revenues. An assessment of the expected credit loss arising on intercompany
loans is detailed in note 6 to the parent Company financial statements.
Market risk
Market risk arises from the Group's use of interest bearing and foreign currency financial instruments. It is
the risk that future cash flows of a financial instrument will fluctuate because of changes in interest rates
(interest rate risk), and foreign exchange rates (currency risk).
There are no variable interest bearing loans in the Group. No risk therefore identified.
Currency risk
Foreign currency risk can only arise on financial instruments that are denominated in a currency other than
the functional currency in which they are measured. Translation-related risks are therefore not included in
the assessment of the entity’s exposure to currency risks. Translation exposures arise from financial and
non-financial items held by an entity (for example, a subsidiary) with a functional currency different from the
group’s presentation currency. However, foreign currency-denominated inter-company receivables and
payables which do not form part of a net investment in a foreign operation would be included in the sensitivity
analysis for foreign currency risks; this is because, even though the balances eliminate in the consolidated
balance sheet, the effect on profit or loss of their revaluation under IAS 21 is not fully eliminated.
A 10% increase in the strength of the pound sterling against the US dollar would cause an estimated increase
of $480,000 (2020: $629,000 increase) in the loss after tax of the Group for the year ended 31 December
2021, with a 10% weakening causing an equal and opposite decrease. The impact on equity is the same
as the impact on loss after tax.
The Group’s cash and cash equivalents and liquid investments are mainly held in US dollars, pounds sterling
and Georgian Lari. At 31 December 2021, 3% of the Group’s cash and cash equivalents and liquid
investments were held in pounds sterling, 88% in Georgian Lari and the remainder in US dollars, Euros and
Canadian dollars (31 December 2020: 90% in pounds sterling).
Liquidity risk
Liquidity risk arises from the possibility that the Group and its subsidiaries might encounter difficulty in settling
its debts or otherwise meeting its obligations related to financial liabilities. In addition to equity funding,
additional borrowings have been secured in the past to finance operations. The Company manages this risk
by monitoring its financial resources and carefully plans its expenditure programmes. Financial liabilities of
the Group comprise trade payables which mature in less than twelve months.
73
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
________________________________________________________________________________________
25. Categories of financial instruments
In terms of financial instruments, these solely comprise of those measured at amortised cost and are as
follows:
Liabilities at amortised cost
Cash and cash equivalents at amortised cost
Financial assets at amortised cost
No collateral has been pledged in relation thereto.
31 December
2021
$’000
1,556
1,556
31 December
2020
$’000
1,656
1,656
1,244
657
1,901
6,331
2,196
8,527
26. Subsidiaries
At 31 December 2021, the Group consists of the following subsidiaries, which are wholly owned by the
Company.
Company
Block Norioskhevi Ltd
Satskhenisi Ltd
Georgia New Ventures Inc.
Block Operating Company LLC
Block Rustaveli Limited
Country of
Incorporation
British Virgin Islands
Marshall Islands
Bahamas
Georgia
British Virgin Islands
Proportion
of voting
rights and
equity
interest
2021
100%
100%
100%
100%
100%
Proportion
of voting
rights and
equity
interest
2020
100%
100%
100%
100%
100%
Subsidiaries - Nature of business
The principal activity of Georgia New Ventures Inc, Satskhenisi Ltd, Block Norioskhevi Ltd and Block
Rustaveli Limited is oil and gas development and production.
The principal activity of Block Operating Company LLC is to be the operator of the oil and gas licenses held
in Georgia.
Registered Office
The registered office of Georgia New Ventures Inc. is Bolam House, King and George Streets, P.O. Box CB
11.343, Nassau, Bahamas.
The registered office of Satskhenisi Ltd is Trust Company Complex, Ajeltake road, Ajeltake Island, Majuro,
Marshall Islands MH96960.
The registered office of Block Norioskhevi Ltd is Trident Chambers, P.O.Box 146, Road Town, Tortola,
British Virgin Islands.
The registered office of Block Operating Company LLC is 13A Tamarashvili Street, Tbilisi 0162, Georgia.
The registered office of Block Rustaveli Limited is Craigmuir Chambers, Road Town, Tortola, VG1110,
British Virgin Islands.
74
Block Energy Plc
Notes forming part of the Consolidated Financial Statements (continued)
27. Commitments
Commitments at the reporting date that have not been provided for were as follows:
Operating lease commitment
UK operating lease commitment
At 31 December 2021 and 31 December 2020, the total of future minimum lease payments under non-
cancellable operating leases for each of the following periods was:
Within 1 year
Between 1 and 5 years
Total
28. Related party transactions
31 December
2021
$'000
-
-
-
31 December
2020
$'000
-
-
-
Key management personnel comprises of the directors and details of their remuneration are set out in Note
7 and the Remuneration Report.
In the prior year, on 1 June 2020, 75,000 Ordinary Shares were issued to Timothy Parson, former Non-
Executive Director of the Company, as settlement for services provided on the Georgian operations during
2017 with a total value of £3,000 ($4,000).
29. Events occurring after year end
There were no material events occurring after the year end.
75
Block Energy Plc
Parent Company Statement of Financial Position
At 31 December 2021
Company number: 05356303
Non- current assets
Investments
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Capital and reserves attributable to
equity shareholders
Share capital
Share premium
Other reserves
Foreign exchange reserve
Accumulated deficit
Total equity
Current liabilities
Trade and other payables
Total current liabilities
Total equity and liabilities
Note
4
5
6
7
9
10
2021
$’000
6,939
4
6,943
25,628
133
25,761
32,704
3,482
34,625
10,260
366
(16,803)
31,930
774
774
32,704
2020
$’000
7,027
8
7,035
22,816
5,657
28,473
35,508
3,336
34,234
9,121
449
(12,711)
34,429
1,079
1,079
35,508
The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 by
choosing not to present its individual Statement of Comprehensive Income and related notes that form part
of these approved financial statements.
The Company’s loss for the year from continuing and discontinued operations is $4,384,000 (2020: loss of
$3,091,000).
The financial statements were approved by the Board of Directors and authorised for issue on 30 June 2022
and were signed on its behalf by:
William McAvock
Director
Paul Haywood
Director
The notes on pages 79 to 84 form part of these financial statements.
76
Block Energy Plc
Parent Company Statement of Changes in Equity
At 31 December 2021
Balance at 31 December 2019
Comprehensive income
Loss for the year
Exchange differences on
translation of foreign operations
Total comprehensive income for
the year
Transactions with owners
recognised directly in equity
Shares issued
Cost of issue
Share based payments
Total transactions with owners
Balance at 31 December 2020
Comprehensive income
Loss for the year
Exchange differences on
translation of foreign operations
Total comprehensive income for
the year
Transactions with owners
recognised directly in equity
Shares issued
Foreign exchange rate correction
Share based payments
Options exercised
Options expired
Total transactions with owners
Balance at 31 December 2021
Share
capital
$’000
2,606
Share
premium
$’000
27,985
Accumulated
deficit
$’000
(9,620)
Other
reserve
$’000
1,115
-
-
-
-
-
-
730
-
-
730
3,336
6,654
(405)
-
6,249
34,234
-
-
-
-
-
-
52
17
-
77
-
146
3,482
255
-
136
-
391
34,625
(3,091)
-
(3,091)
-
-
-
-
(12,711)
(4,384)
-
(4,384)
-
-
210
82
292
(16,803)
-
-
-
-
-
8,006
8,006
9,121
-
-
-
-
(1)
1,494
(272)
(82)
1,139
10,260
Foreign
currency
reserve
$’000
400
Total
equity
$’000
22,486
-
(3,091)
49
49
-
-
-
-
449
49
(3,042)
7,384
(405)
8,006
14,985
34,429
-
(4,384)
(66)
(66)
(66)
(4,450)
-
(17)
-
-
-
(17)
366
307
(1)
1,494
151
-
1,951
31,930
77
Block Energy Plc
Parent Company Statement of Cashflows
for the year ended 31 December 2021
Note
Cash flow from operating activities
Loss for the year before income tax
Adjustments for:
Depreciation
Intercompany interest/ Finance income
Increase in ECL Provisions for loans
Share based payments expense
Foreign exchange movement
Operating cash flows before movements in working
capital
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Net cash used in operating activities
6
10
Cash flow from investing activities
Cash from acquisition of BRL
Finance income
Expenditure in respect of property, plant and equipment
Inter-Group amounts (drawn down)
Net cash used in investing activities
Cash flow from financing activities
Proceeds from issue of ordinary share capital
Costs related to issue of ordinary share capital
Net cash inflow from financing activities
Net decrease in cash and cash equivalents in the
year
Cash and cash equivalents at start of year
Effects of foreign exchange
Cash and cash equivalents at end of year
7
2021
$'000
(4,384)
5
(2,558)
3,205
1,449
4
(2,279)
(9)
(26)
(2,314)
278
-
(1)
(4,920)
(4,643)
1,465
-
1,465
(5,492)
5,657
(32)
133
2020
$'000
(3,091)
5
(15)
-
725
29
(2,347)
(14)
922
(1,439)
-
15
(1)
(4,136)
(4,122)
5,737
(405)
5,332
(229)
5,865
21
5,657
Significant non-cash transactions
Please refer to note 8 in the Parent company notes for non-cash transactions.
78
Block Energy Plc
Notes forming part of the Parent Company Financial Statements
1. Accounting policies
Basis of preparation
These financial statements have been prepared on a historical cost basis and in line with UK international
accounting standards and in conformity with the Companies Act 2006. All accounting policies are consistent
with those adopted by the Group. These accounting policies are detailed in the notes to the consolidated
financial statements, note 1. Any deviations from these Group policies by the Company are detailed below.
Going concern
The directors have prepared cash flow forecasts for a period of 18 months from the date of signing these
financial statements. The Group’s forecasts are reviewed regularly to assess whether any actions to curtail
expenditure or cut costs are required. The Group is in the final stages of preparing to drill a horizontal
sidetrack in the WR-B1 well followed by sidetracks of other wells. The forecasts assume the wells will produce
oil and gas, which would be sold, and indicate the Group has sufficient funds to complete the drilling of the
wells and to meet its liabilities as they fall due until December 2023. However, if any of the new wells do not
produce commercial quantities of oil or gas, the Group would immediately revisit its plans to drill subsequent
wells. The financial benefit of any additional capital projects would be assessed against capital requirements
and balanced with ensuring that the Group and the Company can continue to meet their liabilities and
commitments through to December 2023. The Company's forecasts are considered together with the Group's
forecasts.
The Group’s operations presently generate sufficient revenues to cover operating costs and capital
expenditures, supporting the continued preparation of the Group’s accounts on a going concern basis. The
directors are nevertheless conscious that oil prices have risen rapidly during the past twelve months due in
part to recent global political uncertainty, and could rise further but could also fall back in the year ahead,
and that future production levels depend in part on the success of future drilling. As part of their going concern
assessment, the directors have performed a reverse stress test on a low oil price scenario in which future
drilling is inhibited or unsuccessful, and have concluded that it remains possible that future revenues in such
a scenario might not cover all operating costs and planned capital expenditures, creating a material
uncertainty that may cast doubt over the Group’s ability to continue as a going concern. Whilst acknowledging
this material uncertainty, the directors remain confident of making further cost savings and/or raising finance
when required and therefore the directors consider it appropriate to prepare the financial statements on a
going concern basis. The financial statements do not include the adjustments that would result if the Group
were unable to continue as a going concern.
Investments in subsidiaries
Investments in subsidiaries are recorded at cost. The Company assesses investments for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If
any such indication of impairment exists, the Company makes an estimate of its recoverable amount.
Where the carrying amount of an investment exceeds its recoverable amount, the investment is considered
impaired and is written down to its recoverable amount. Where these circumstances have reversed, the
impairment previously made is reversed to the extent of the original cost of the investment.
79
Block Energy Plc
Notes to Parent Company Financial Statements
For the year ended 31 December 2021
_________________________________________________________________________________________
2. Employees
Employment costs consist of:
Wages and salaries
Pension
Share based payments
Social security costs
Year ended
31 December 2021
$'000
Year ended
31 December 2020
$'000
651
55
1,449
210
2,365
1,022
147
641
48
1,858
The average monthly number of employees during the year was 13 (2020: 9) split as follows:
Management
Technical
Administration
3. Directors’ Emoluments
Year ended
31 December
2021
$’000
Year ended
31 December
2020
$’000
5
6
2
13
5
3
1
9
Directors’ Emoluments are disclosed in the Remuneration Report of the consolidated financial statements.
4.
Investments
Shares in Group undertakings
Balance at 1 January
Additions in year – acquisition of BRL
FX movement on translation of assets
Balance at 31 December
2021
$’000
7,027
-
(88)
6,939
2020
$’000
1
6,821
205
7,027
Investments in subsidiaries are recorded at cost, which is the fair value of the consideration paid. On 23
November 2020, the Company acquired 100% of the issued share capital of Block Rustaveli Limited for a
total consideration of $6,821,000. For a breakdown of consideration, including details of the fair value of the
identifiable assets acquired and liabilities assumed, please refer to note 12 to the consolidated financial
statements.
At 31 December 2021, the carrying amount of the Company’s net assets of $31,930,000 exceeded the
Group’s net assets of $27,065,000. This is identified by IAS 36 Impairment of Assets as an indicator that
assets may be impaired. Following a review of the assets held by the Company, the directors do not believe
an impairment is necessary at this time, but will keep this under review.
80
Block Energy Plc
Notes forming part of the Parent Company Financial Statements
5. Property, plant and equipment
Cost
At 1 January 2021
Additions
At 31 December 2021
Depreciation
At 1 January 2021
Depreciation charge
At 31 December 2021
Carrying amount
At 1 January 2021
At 31 December 2021
6. Trade and other receivables
Prepayments
Other receivables
Amounts due from Group undertakings
Computer
Equipment
$'000
Office
Equipment
$'000
15
1
16
(8)
(5)
(13)
7
3
1
-
1
-
-
-
1
1
2021
$’000
27
383
25,218
25,628
Total
$'000
16
1
17
(8)
(5)
(13)
8
4
2020
$’000
47
1,862
20,907
22,816
All of the above amounts are due within one year.
Other receivables in prior year included an amount of $278,190 which was due from Schlumberger following
the Completion Statement for the acquisition of the subsidiary BRL. This was received in March 2021.
All trade and other receivables are denominated in pounds sterling. Amounts due from Group undertakings
are denominated in US dollars and repayable on demand. The Company charges 5% interest per annum on
intercompany loans.
Under IFRS 9, the Expected Credit Loss (“ECL”) Model is required to be applied to the intercompany loans
receivable from subsidiary companies, which are held at amortised cost. An assessment of the expected
credit loss arising on intercompany loans has been calculated and a loss allowance of $3,710,000 has been
provided for in the parent Company financial statements ($3,206,000 in 2021 and $504,000 in 2019).
7. Cash at bank
Cash and cash equivalents
2021
$’000
133
2020
$’000
5,657
Cash and cash equivalents consist of balances in bank accounts used for normal operational activities. The
bank account is held within an institution with a credit rating of A-1.
At 31 December 2021, 76% of the cash balances held by the Company were held in US Dollars and the
remained in UK sterling.
81
Block Energy Plc
Notes to Parent Company Financial Statements
For the year ended 31 December 2021
_________________________________________________________________________________________
8. Non – cash transactions
Details of non-cash transactions can be found in notes 19 and 23 to the consolidated financial statements.
9. Share capital
Details of share capital and movements in the year are set out in note 19 to the consolidated financial
statements.
10. Trade and other payables
Trade and other payables
Accruals
2021
$’000
296
478
774
2020
$’000
413
666
1,079
Trade and other payables at 31 December 2021 comprised balances in US dollars and pounds sterling.
11. Categories of financial instruments
In terms of financial instruments, these solely comprise of those measured at amortised cost and are as
follows:
31 December 2021 31 December 2020
$’000
$’000
Trade and other payables
Total financial liabilities at amortised cost
774
774
1,079
1,079
The carrying amounts of trade and other payables are considered to be the same as their fair values due to
their short-term nature.
Other receivables
Amounts due from Group undertakings
Cash and cash equivalents at amortised cost
Total financial assets at amortised cost
31 December 2021 31 December 2020
$’000
1,862
20,907
5,657
28,426
$’000
383
25,218
133
25,734
The amounts due from Group undertakings includes a loss allowance of $3,710,000 (2020: $504,000). The
loans are repayable on demand and include a 5% per annum interest rate charge. They are all denominated
in US dollars, which differs from the parent Company’s functional currency of pounds sterling, and therefore
there is an exposure to foreign currency risk. There is no exposure to price risk as the underlying investments
are expected to be held to maturity.
82
Block Energy Plc
Notes forming part of the Parent Company Financial Statements
12. Financial and Capital Risk Management
The Company’s exposure to financial risks is managed as part of the Group. Full details about the Group’s
exposure to financial risks and how these risks could affect the Group’s future financial performance are
given in note 24 to the consolidated financial statements. Information specific to the Company is given below.
Credit risk
For deposits lodged at banks and financial institutions these are all held through a recognised financial
institution. The maximum exposure to credit risk is $133,000 (2020: $5,657,000). The Company does not
hold any collateral as security.
The Company has made unsecured interest payable loans to its subsidiary companies and repayments have
commenced during the year. Although the loans are repayable on demand, they are unlikely to be fully repaid
until the projects become more developed and the subsidiaries start to generate increased revenues. An
assessment of the expected credit loss arising on intercompany loans has been calculated and a loss
allowance of $3,710,000 has been provided for in the parent Company financial statements.
Currency risk
Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.
The Company undertakes transactions denominated in currencies other than its functional currency (which
is the pound sterling). For transactions denominated in US dollars, the Company manages this risk by holding
US dollar against actual or expected US dollar commitments to act as an economic hedge against exchange
rate movements.
The Company’s cash and cash equivalents and liquid investments are mainly held in pounds sterling and US
dollars. At 31 December 2021, 24% of the Group’s cash and cash equivalents and liquid investments were
held in pounds sterling. A 10% movement in the strength of the pound sterling against the US dollar would
increase the net assets of the Company by $3,500.
The exposure to other foreign currency exchange movements is not material. This sensitivity analysis
includes foreign currency denominated monetary items and assumes all other variables remain unchanged.
Whilst the effect of any movement in exchange rates upon revaluing foreign currency denominated monetary
items is charged or credited to the income statement, the economic effect of holding pounds sterling against
actual or expected commitments in pounds sterling is an economic hedge against exchange rate movements.
Capital management
The capital of the Company is managed as part of the capital of the Group as a whole. Full details, are
contained in note 24 to the consolidated financial statements.
13. Commitments
Commitments at the reporting date that have not been provided for were as follows:
UK operating lease commitment
At 31 December, the total of future minimum lease payments under non-cancellable operating leases for
each of the following periods was:
Within 1 year
Between 1 and 5 years
Total
2021
$'000
-
-
-
2020
$'000
-
-
-
83
Block Energy Plc
Notes to Parent Company Financial Statements
For the year ended 31 December 2021
_________________________________________________________________________________________
14. Related party transactions
At 31 December 2021, the following subsidiaries owed the parent Company for payments made and
recovered on their behalf.
• Block Norioskhevi Ltd – $3,815,000 (31 December 2020: $3,703,000)
• Georgia New Ventures Inc – $18,212,000 (31 December 2020: $15,115,000)
• Satskhenisi Ltd – $310,000 (31 December 2020: $668,000)
• Block Operating Company LLC – $1,819,000 (31 December 2020: $1,142,000)
• Block Rustaveli Limited - $1,063,000 (31 December 2020: $261,000)
A total loss allowance of $3,710,000 (2020: $504,000) was recognised in relation to the loans to Satskhenisi
Ltd and Georgia New Ventures Inc. Further detail on related party transactions can be found in note 28 to
the consolidated financial statements. The disclosure of fees paid to consultancy companies for key
management services can be seen in the Remuneration Report.
15. Information included in the notes to the consolidated financial statements
Some of the information included in the notes to the consolidated financial statements is directly relevant to
the financial statements of the Company. Please refer to the following:
Note 6 – Auditors’ remuneration
Note 23 – Share-based payments
Note 26 – Subsidiaries
Note 29 – Events occurring after the year end
84
Block Energy Plc
Contents
Strategic Report
3
4
5
6
8
10
12
17
20
Officers and Advisers
Highlights
Strategy and Business Model
Chairman’s Statement
Chief Executive Officer’s Statement
Chief Financial Officer’s Statement
Principal Risks and Uncertainties
Statement of Corporate Responsibility
Board of Directors
Report of the Directors
22
Report of the Directors
Governance Report
25
34
Corporate Governance Statement
Remuneration Report
Independent Auditor’s Report
39
Independent Auditor’s Report
Financial Statements – Group Financial Statements
47
48
49
50
51
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cashflows
Notes to the Consolidated Financial Statements
Financial Statements – Parent Company Financial Statements
76
77
78
79
Parent Company Statement of Financial Position
Parent Company Statement of Changes in Equity
Parent Company Statement of Cashflows
Notes to the Parent Company Financial Statements
2
Perivan 263937
3rd Floor, Lansdowne House
57 Berkeley Square
London W1J 6ER
www.blockenergy.co.uk
Annual Report and Financial Statements
Year Ended
31 December 2021