Borgestad Annual Report 2018

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FY2018 Annual Report · Borgestad

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borders&southern
petroleum plc&southern

Borders & Southern Petroleum plc
33 St James’s Square
London SW1Y 4JS
United Kingdom

Tel: +44 (0)20 7661 9348
Fax: +44 (0)20 7661 8055

info@bordersandsouthern.com
www.bordersandsouthern.com

Borders & Southern Petroleum plc

ANNUAL REPORT &
ACCOUNTS 2018

Borders & Southern is an independent oil and
gas company. Its principal area of activity is
in the Falkland Islands, where it holds three
Production Licences covering nearly 10,000 square
kilometres. The Company was successful with
its first exploration well, making a significant gas
condensate discovery.

Our Purpose:

To explore for new hydrocarbon resources that can be monetised
for the benefit of all our stakeholders. We will do so safely and
with due respect for the environment and the communities in
which we operate.

Highlights 2018

· Farm-out process active

Independent un-risked best estimate total

recoverable liquids from Darwin East & West:

462 million barrels

· Cash balance at 31 December 2018: $5.6 million

CONTENTS

Strategic Report

< Highlights
02 Chairman’s Statement
03 At a Glance
04 Why Invest
06 CEO Review
07 Business Model and Strategy
08 Principal Risks and Uncertainties

Governance

Introduction to Governance

10
11 Board of directors
12 QCA Principles
15 Remuneration Committee Report
16 Directors’ Report
18

Independent Auditor’s Report

Financial Statements

Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Company Statement
of Financial Position
Company Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Company Statement
of Cash Flows

28 Notes to the Financial

Statements
IBC Corporate Directory

Further information:
www.bordersandsouthern.com

Borders & Southern Petroleum plc Annual Report and Accounts 2018

CHAIRMAN’S STATEMENT

BORDERS & SOUTHERN AT A GLANCE

Our history

Our vision

Our strategy

Our values

“The aim is to
commercialise Darwin
as quickly as possible
for the benefit of all
stakeholders”.

Our success to date

We do this in the knowledge that from a sub-
surface and commercial perspective, Darwin
is a very attractive project and competitive
against other global opportunities.

Despite frustrations with our rate of progress,
our vision remains clear. The aim is to
commercialise Darwin as quickly as possible for
the benefit of all stakeholders. The Company
was fortunate in making a significant discovery
with its first exploration well, but it needs to
build on that early success. Our commitment
to progressing Darwin through appraisal into
development remains undiminished. Financial
stability has been maintained. At the end of
2018 cash reserves amounted to $5.6 million,
with no debt. The board of Directors believes
that the Company has all the necessary
resources to achieve its immediate objectives.

Harry Dobson
Non-Executive Chairman
29 March 2019

We began 2018 on a positive note by
announcing the results of an independent
evaluation of the Darwin discovery. This
included a substantial increase in the estimated
resource. Un-risked, best estimate, total
recoverable liquids (condensate and LPG) for
Darwin East and Darwin West was reported
as 462 million barrels. Commercial analysis
suggested that the break-even oil price for the
discovery’s potential development was around
$35 per barrel. These encouraging metrics
provided us with optimism that we would be
able to secure partners and funding for the
next phase of operations.

Unfortunately, this has not happened as
quickly as we had hoped. Whilst the industry
has benefited from a relatively stable oil price
throughout the year, upstream spending has
continued to be restrained. Unconventional
shale plays are still attracting a significant
proportion of global capital expenditure.
However, activity is slowly returning to
conventional offshore exploration and
development and a few global hot spots are
emerging, such as Guyana, Brazil, Gulf of
Mexico and eastern Mediterranean.

It is against this backdrop that we have to
compete with our project. Many companies
have strategies that include a specific
geographical focus. Our particular challenge is
to convince companies to widen their horizons
and consider the Falkland Islands.

Borders & Southern Petroleum plc Annual Report and Accounts 2018

Borders & Southern Petroleum plc Annual Report and Accounts 2018FINANCIAL STATEMENTSGOVERNANCE REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTSTRATEGIC REPORTBorders & Southern Petroleum plc was founded in 2004 and licensed its acreage in the Falkland Islands later that year. The Company listed on the London Stock Exchange (AIM) in 2005 and immediately commenced its work programme to evaluate the hydrocarbon potential of the offshore area, south of the Falkland Islands. After compiling a comprehensive prospect inventory, the Company drilled two wells in 2012, the first of which resulted in the discovery of a significant gas condensate resource - Darwin.To focus on frontier or emerging basins where substantial volumes of hydrocarbons are yet to be found, where multiple large-scale prospects can be defined, and where discoveries are commercially robust throughout the commodity cycle. We will apply rigorous technical and commercial discipline across all activities, paying due care to the assessment and management of all risks.The Darwin discovery is a significant, liquids rich, gas condensate accumulation. It has been independently assessed to contain un-risked contingent and prospective condensate and LPG resources of 462 million barrels. The reservoir comprises high quality, laterally continuous, Aptian-aged shallow marine sands that are exceptionally imaged on 3D seismic. Our prospect inventory contains attractive follow-up targets within a 15 kilometre radius of the discovery.To be a successful explorer through the discovery of commercial hydrocarbon resources and thereby create value for all our stakeholders.To act with integrity, honesty and with respect for others. Our drive to succeed will not compromise high standards of business ethics. We will act safely and responsibly at all times.STRATEGIC REPORT

GOVERNANCE REPORT

FINANCIAL STATEMENTS

WHY INVEST

Borders & Southern holds a 100%
equity interest and operatorship in three
Production Licences in the Falkland Islands.
These licenses provide exclusive rights for
surveying, drilling and production within
the specified area. The acreage is located
approximately 150 kilometres south-east
of the Islands. To date, the Company has
acquired 2,517km of 3D seismic and drilled
two exploration wells.

Darwin Discovery

Overview
Darwin is a large, liquids rich, gas condensate discovery,
located 150 km southeast of the Falkland Islands in 2000m
of water. It consists of two simple tilted fault blocks,
exceptionally imaged on 3D seismic. The Cretaceous
reservoir comprises high quality, laterally continuous,
shallow marine sands with average porosity of 22% (up
to 30%) and average permeability of 337 mD (up to 1D).
The discovery well (6117-1) was drilled on the eastern fault
block, encountering a gross interval of 84.5m with net pay
of 67.8m. In addition to the 46°-49° API condensate, the
wet gas contains a high volume of LPGs. The hydrocarbons
are marked by a clear flat spot and amplitude conformance
to structure on 3D seismic data. The undrilled western
fault block displays similar seismic attributes. Independent
reservoir studies estimate the un risked contingent and
prospective resource to be 462 million barrels.

Darwin West

Darwin East

3,160

2,110

1,759

1,360

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High

Best

Low

High

Best

Low

Development
A number of development scenarios have been considered,
but the current preferred option is to develop both Darwin
East and West together, producing the liquids (condensate
and LPG) via a leased FPSO and re-injecting the dry gas
back into the reservoir. This would involve six production
wells and four gas injection wells. Production rates would
peak at over 90,000 barrels of liquids per day. The FPSO
would be located either in 2000m of water, close to
the discovery, or in 1100m of water, connected by a 14
kilometre sub-sea flow line.

Next steps
Planning for the next phase of operations includes a
vertical well drilled on Darwin West along with a deviated
side-track. Key objectives will be to confirm the resource
estimates, provide data on reservoir deliverability, confirm
the gas/water contact and investigate the possibility of
an oil rim. An independent assessment of the geological
chance of success of finding hydrocarbons is 0.81.

115

Darwin East
Contingent (2C)

202

Darwin West
Prospective

170

Darwin East
Contingent (2C)

292

Darwin West
Prospective

Condensate
(MMSTB)

Condensate & LPG
(MMBBL)

Growth potential
The Company has a strong portfolio of exploration
prospects that can provide future growth. These include
relatively low risk, amplitude supported, near-field prospects
(within 15km of the discovery) in Aptian and pre-Aptian
aged reservoirs. Management’s total un-risked resource
estimate for these prospects exceeds one billion barrels.

Higher risk, but large-scale, structural and stratigraphic
traps have been mapped in other parts of the licenced
acreage. However, the next phase of exploration is likely to
concentrate on the near-field prospects first.

Near-field Prospects

Morgan

W i c k h a m

10 km

D a r w i n E a s t

Darwin West

Stokes

g t o

v i n

u liv

Reservoir

Albian / Aptian

Aptian
Pre-Barremian

Borders & Southern Petroleum plc Annual Report and Accounts 2018

Borders & Southern Petroleum plc Annual Report and Accounts 2018FINANCIAL STATEMENTSGOVERNANCE REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTSTRATEGIC REPORT

CEO REVIEW

STRATEGY AND BUSINESS MODEL

Explore

Appraise

Develop

The Company is a focused explorer,
targeting frontier or emerging basins that
have the potential to yield significant
yet-to-find resources. Early opportunity
identification is critical. Prior to access
we must be confident of a working
petroleum system and that the area is
capable of generating multiple, large-
scale prospects.

In order to minimise the sub-surface
risk and with the constraint of limited
financial resources, it is important that
we make the right data acquisition
choices, ensuring it is of high quality.
This allows us to perform a rigorous
petroleum systems analysis and
the compilation of an attractive
prospect inventory.

The Company’s acreage in the Falkland
Islands was acquired outside of a
competitive license round. Our entry idea
was to test the large structural traps in
the South Falkland Basin, confident in the
presence of a high-quality Late Jurassic
to Early Cretaceous marine source rock.
The acquisition of exceptional 3D seismic
confirmed our predictions and led us
to drill Darwin as the Company’s first
exploration well.

Once a discovery has been made, the
next stage is to assess its commerciality.
Analysis of the well and seismic data,
along with detailed reservoir modelling,
provides an early estimate of the
hydrocarbon volume in-place and the
potential volume that might be recovered.
Depending on fiscal terms and oil price
assumptions, a view on the discovery’s
commerciality can be gained. If positive,
then an appraisal work programme can
be defined.

In the case of Darwin, we believe that
our estimated volume of gas condensate
could support commercial development.
But in order to be confident we need
further well penetrations of the reservoir,
together with a flow-test This can be
achieved through a vertical well and
deviated side-track, both of which would
be cored.

Key objectives of the appraisal campaign
will be to confirm resource estimates
and reservoir deliverability, confirm the
gas / water contact and investigate the
potential for an oil rim. We are currently
working on funding solutions to deliver
this programme.

If an appraisal programme is successful,
the next stage involves detailed
engineering and cost analysis of the
development infrastructure. Design
concepts, cost estimates and the project
commerciality will be evaluated during
front end engineering design (FEED),
prior to final investment decision (FID
and project sanction.

Based on our current understanding of
the recoverable resource from the Darwin
reservoir, the Company has undertaken
a scoping development study with basic
cost analysis. The study concluded that
if the appraisal programme does confirm
our current views on discovery size and
deliverability, then hydrocarbons could
be commercialised via an FPSO vessel,
utilising existing, proven technology.

Darwin East and West could be
developed together, with a total of six
production wells and four injection wells.
The condensate and LPGs would be
stripped out or the wet gas and the dry
gas re-injected into the reservoir. Peak
production would reach over 90,000
barrels per day The condensate and
LPGs would be shipped to market via
shuffle tankers.

“The discovery of
Darwin has laid a solid
foundation for the
Company. An attractive
portfolio of prospects
will provide future
growth options”.

The year ending 31 December 2018 was a
relatively frustrating period for the Company. We
started the year on an upbeat note, reporting
on an independent evaluation of our 100 per
cent owned Darwin gas condensate discovery
that highlighted a substantial increase in the
estimation of recoverable liquids (a best estimate
gross contingent and prospective resource of
over 450 million barrels of liquids condensate
and LPG). However, our main objective of the
year was to secure partners to help fund the next
phase of operations in the Falkland Islands.

We worked hard to achieve this, but
unfortunately, the farm-out process is taking
longer than we had hoped, for reasons outside
our control, such as the wider oil and gas industry
reduced capital expenditure on offshore projects
and on alternative geographical focus areas.

To advise and assist us in the farm-out process,
we have taken on a leading independent
investment bank. The bank has reached out
across the industry and the response has been
good. Data-rooms and technical sessions have
been facilitated, and these continue. Feedback
about the sub-surface geology is always positive,
so we are optimistic that we can secure the
partners that we need. The farm-out will continue
to be our main focus over the coming months.

The Company is in a stable financial position.
The year-end cash balance was $5.6 million, and
the Company remains debt-free. The loss from
operations was $1.96 million. This was a slight
increase from last year and reflects adverse
movements in the sterling/dollar exchange rate.

Administrative expense was $1.8 million, a small
increase on last year, due to marginally higher
consultant fees during the period.

In parallel with our commercial activities, we
continue to fine tune the technical case, both
in the sub-surface evaluation and our planning
for the next drilling campaign. Our current plans
include the drilling of a vertical well on Darwin
West followed by a deviated side-track. Key
objectives for the drilling programme will be
to confirm resource estimates and reservoir
deliverability, confirm the gas-water contact
and test for a potential oil rim. Positive results
from this programme would allow us to start
focusing on development using a conventional
FPSO based scheme. As reported previously, the
intention would be to strip out the liquids from
the wet gas and re-inject the dry gas back in to
the reservoir. Reservoir modelling indicates that
six production wells could deliver peak production
of over 90,000 barrels of condensate and LPG
per day.

The discovery of Darwin has provided a solid
foundation for the Company. An attractive
portfolio of additional prospects will provide
growth options. However, the board of Directors
recognise that the prime objective must be to
appraise, develop and monetise the discovery as
quickly as possible and to achieve that, we need
to continue to focus on securing a partner and
therefore development funding. We will continue
to investigate all options to accelerate the
achievement of that objective.

Howard Obee
Chief Executive Officer
29 March 2019

cipline T e c hnical Rigour

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Our strengths

Technical Rigour:
Our experienced in-house team is supported
by expert consultants, producing a high
standard of technical work, acquiring and
interpreting high quality data and ensuring the
maximum information can be extracted from
it. This meticulous technical rigour helped the
Company make a significant discovery with its
first exploration well.

Commercial Discipline:
The Company has a strong balance sheet and
no debt. Robust financial controls are in-place.
Our financial resources are used effectively,
ensuring expenditures are directed towards the
Company’s goal of monetising our discovery
and then adding to it.

Risk Management:
We operate carefully and respectfully, aiming
to develop strong relationships with all our
stakeholders. Our activities are underpinned
by thorough risk identification, monitoring and
mitigation across the business.

Asset Quality:
The Company holds a high-quality discovery: a
liquids rich, gas condensate accumulation in an
attractive fiscal regime. The scale of resource
has been independently verified. Additionally,
the Company holds a multi-billion barrel
prospect inventory.

Borders & Southern Petroleum plc Annual Report and Accounts 2018Borders & Southern Petroleum plc Annual Report and Accounts 2018FINANCIAL STATEMENTSGOVERNANCE REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTSTRATEGIC REPORT

PRINCIPLE RISKS AND UNCERTAINTIES

As an oil and gas exploration and production
company, Borders & Southern is subject to a
variety of risks and uncertainties. Managing risk
effectively is a critical element of delivering safe and
responsible business plans and strategic objectives.

Risk

Nature of risks

RS Mitigating factors

Sub-surface

Exploration for oil and gas is inherently risky
and whilst many of these risks can
be mitigated, they cannot be eliminated.

The independent resource assessment
during 2017 increased the size of the Darwin
discovery and stated that the probability
of funding hydrocarbons in a Darwin West
exploration well was 81%.

Health, safety
and environment

Conducting operations in a remote,
environmentally sensitive location presents
many challenges.

Prior to operations, detailed risk assessments
and mitigation plans are put in place. Policies,
plans and actions closely follow industry’s
best practice.

Funding

The Company continues to have a strong
balance sheet with sufficient funds for
overheads in the foreseeable future. The
challenge is to secure funds for the Darwin
appraisal programme. There is one well
commitment on the licences that is
effectively contingent on funding

Our economic modelling of Darwin shows
that it is one of the lowest cost projects in
terms of break-even oil price. Therefore we
are confident of securing funding.

Oil price

Rapid changes in commodity prices have
a material impact on the industry in terms
of economics and capital spending.

The combination of higher oil prices and lower
costs has improved investment conditions in
the oil industry. Darwin is a very attractive
investment proposition at current oil prices.

Key personnel

As a small company, we are reliant upon a small
number of experienced personnel.

The Company has service contracts with key
employees that provide for notice periods
that would allow sufficient time to source
replacements. Also, the Company has a wide
network of experienced contractors.

Supply chain

The geographical location and political
backdrop provide logistical challenges.

Several drilling campaigns have now been
undertaken over the last decade so the supply
chain has been well tested.

Political

Argentina continues to challenge the
sovereignty of the Falkland Islands.

The British Government consistently provides
strong support for the Falkland Islanders’
right to determine their own future. Recent
discussions between the UK and Argentinian
governments have enhanced relations.

RS – Risk Status

Risk Decrease

Risk Unchanged

Risk Increase

The Strategic Report was approved by the directors on 29 March 2019 and signed on its behalf by

Harry Dobson
Non-Executive Chairman

BOARD OF DIRECTORS

Our board develops strategy and leads
Borders and Southern to achieve long
term success.

A Audit Committee

R Remuneration Committee

E Executive Director

Harry Dobson
Non-executive Chairman

Howard Obee
Chief Executive Officer

Peter Fleming
Finance Director

Nigel Hurst-Brown
Non-executive Director

Committee Memberships
Chairman of the Remuneration
Committee and member
of the Audit Committee

Committee Memberships
–

Experience
• Former investment banker

and senior partner of Yorkton
Securities plc

Experience
• 30 years experience in the
oil industry, with BP and
BHP Billiton

• Former Chairman of American

• Trained as an exploration

Pacific Mining Company
Inc, Lytton Minerals Limited,
Kirkland Lake Gold Inc and
Rambler Metals and Mining plc
• Former director of Copper Bay
Limited, Glenmore Highlands
Inc., Belvedere Resources Ltd
and Concordia Resource Corp.

geologist

• Numerous technical and

commercial roles with strategic
planning and business
development

• Seismic and drilling

experiences in frontier basins,
including those in deep water.

Experience
• Over 25 years of upstream
oil and gas experience, at
BHP Billiton.

• Held senior positions in

exploration and business
development, investment
evaluation, acquisitions
and disposals and strategic
planning.

• Masters degrees in business
administration and finance.

Committee Memberships
Chairman of the Audit Committee
and member of the Remuneration
Committee

Experience
• Qualified chartered

accountant and chairman of
Lloyd’s Investment Managers.

• Former director of Mercury

Asset Management

• Managing director of Merrill
Lynch Investment Managers.

• Current external chief

executive of Hotchkis and
Wiley (UK) Limited and its
US parent company

• Non-executive Chairman
of Central Asia Metals plc.

Respect

Transparency

Leadership

“We have decided
to adopt the
QCA Corporate
Governance Code”.

Insurances
The Company has taken out Directors and
Officers insurance that provides insurance
cover for all Directors and senior officers of the
Company. This insurance is reviewed annually.

Key performance indicators
At this stage in its development, the Company
is focused on the development of the Darwin
discovery. When the Company commences
production, KPIs will be developed and
reported as appropriate. The Directors do,
however, closely monitor certain financial
information, in particular overheads and
cash balances.

Harry Dobson
Non-Executive Chairman
29 March 2019

Principles of corporate governance
I, along with the rest of the board, are
responsible for corporate governance. The
board currently comprises the
Chairman, two Executive Directors and one
Non-executive Director. The roles of the
Chairman and CEO are separate and clearly
defined. All of the Directors bring independent
judgement to bear on issues of strategy,
performance, resources, key appointments
and standards. The board meets regularly
throughout the year and all the necessary
information is supplied to the Directors on
a timely basis to enable them to discharge
their duties effectively. The board considers
that the current balance of Executive and
Non-executive Directors is appropriate for
the Company, taking into account its size and
status. All Directors retire by rotation.

QCA Corporate Governance
During 2018 the company adopted the QCA
corporate governance code. This code was
chosen as it was the most appropriate for a
company of our size and stage of development.
A review was undertaken to ascertain the level
of compliance with the QCA code and it was
clear that the company was fully compliant
with the code. As the code evolves, we will, of
course, make adjustments to internal controls,
for example, to ensure we continue to be fully
compliant.

My role as Chairman
I have been Chairman of the Company since
its inception. As Chairman, I am responsible
for the effective running of the board and for
ensuring that it plays a constructive role in the
development of the Company. Together with
the Chief Executive Officer, I also set and run
the agenda for board meetings.

Role of the Non-executive Director
Nigel Hurst-Brown brings a wealth of
business experience to the board and its
Committees. He provides independent views
on the Company’s performance, operations
and strategy.

Audit Committee
The Audit Committee comprises two Non-
executive Directors. The members of the Audit
Committee and their attendance at meetings of
the Audit Committee during 2018 are detailed
in the Directors’ Report.

The objectives of the Audit Committee are to
ensure:

• the accuracy and integrity of the financial

statements and related disclosures;

• the keeping of adequate books, records and

internal controls;

• compliance with legal and regulatory

requirements.

FINANCIAL STATEMENTSGOVERNANCE REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTSTRATEGIC REPORTBorders & Southern Petroleum plc Annual Report and Accounts 2018Borders & Southern Petroleum plc Annual Report and Accounts 2018QCA PRINCIPLES

As an AIM-listed company, Borders & Southern intends to adopt as far as possible the principles of the Quoted Companies Alliance Corporate
Governance Code (the “QCA Code”). The QCA Code identifies ten principles to be followed in order for companies to deliver growth in long term
shareholder value, encompassing and efficient, effective and dynamic management framework accompanied by good communication to promote
confidence and trust.

The sections below set out the ways in which the company applies the ten principles of the QCA Code in support of the Company’s medium to long-
term success.

We will provide annual updates on our compliance with the QCA Code.

QCA Code
Principle

1. Establish a

strategy and
business model
which promote
long-term value
for shareholders

Application
(as set out by the QCA)

The board must be able to express a shared view of
the company’s purpose, business model and strategy.
It should go beyond the simple description of products
and corporate structures and set out how the company
intends to deliver shareholder value in the medium to
long-term. It should demonstrate that the delivery of
long-term growth is underpinned by a clear set of values
aimed at protecting the company from unnecessary risk
and securing its long-term future.

2. Seek to

understand and
meet shareholder
needs and
expectations

Directors must develop a good understanding of the
needs and expectations of all elements of the company’s
shareholder base.

The board must manage shareholders’ expectations
and should seek to understand the motivations behind
shareholder voting decisions.

3. Take into account
wider stakeholder
and social
responsibilities
and their
implications for
long term success

Long-term success relies upon good relations with a
range of different stakeholder groups both internal
(workforce) and external (suppliers, customers,
regulators and others). The board needs to identify the
company’s stakeholders and understand their needs,
interests and expectations.

Where matters that relate to the company’s impact on
society, the communities within which it operates or the
environment have the potential to affect the company’s
ability to deliver shareholder value over the medium to
long-term, then those matters must be integrated into
the company’s strategy and business model.

Feedback is an essential part of all control mechanisms.
Systems need to be in place to solicit, consider and act
on feedback from all stakeholder groups.

What we do and why

Borders & Southern is a London based, London Stock
Exchange (AIM) listed company, engaged in the exploration
and appraisal of oil and gas. The company’s principal asset is a
large gas condensate discovery in the Falkland Islands: Darwin.

The company’s business model and strategy are detailed in this
Annual Report.

The key challenges to the business and how these are
mitigated is detailed on page 08 of this Report.

The company’s main shareholders (those that hold greater than
3%) own 49% of the issued capital. Regular contact is made
with these shareholders by the CEO who ensures that their
views are communicated fully to the board. Many of these
main shareholders have been so since the Company listed on
AIM in 2005.

The company provides updates to all shareholders as required
principally through its public announcements and its website
and the CEO makes a presentation at the AGM each year.
The board recognizes the AGM as an important opportunity
to meet private shareholders. The Directors are also available
to listen to the views of shareholders informally immediately
following the AGM.

Where voting decisions are not in line with the company’s
expectations the board will engage with those shareholders to
understand and address any issues.

The company operates safely and respectfully, aiming to build
strong relationships with all its stakeholders.

Many of the non-critical areas of the company are outsourced
to reduce costs and most of these relationships are long
standing with reputable companies largely based in the UK.
The company regularly reviews these relationships and makes
changes where necessary.

In The Falkland Islands during operations the company used
local suppliers and contractors where possible.

Outside of operations, the company maintains regular
contact with local Falkland Island suppliers to maintain these
relationships. Equally, regular contact is made with the relevant
departments within The Falkland Islands Government giving,
amongst other things, updates on the company’s activities.

QCA Code
Principle

Application
(as set out by the QCA)

What we do and why

4. Embed effective

risk management,
considering both
opportunities
and threats,
throughout the
organisation

The board needs to ensure that the company’s risk
management framework identifies and addresses all
relevant risks in order to execute and deliver strategy;
companies need to consider their extended business,
including the company’s supply chain, from key suppliers
to end-customer.

Setting strategy includes determining the extent of
exposure to the identified risks that the company is
able to bear and willing to take (risk tolerance and risk
appetite).

The company’s activities are underpinned by thorough risk
identification, monitoring and mitigation across the business.

The key challenges to the business and how these are
mitigated are detailed on page 08 of this Report.

The board considers risk to the business at every board
meeting (usually at least two meetings are held each year). The
company formally reviews and documents the principal risks to
the business at least annually.

The board are responsible for reviewing and evaluating risk
and the Executive Directors meet regularly to review ongoing
trading performance, discuss budgets and forecasts and new
risks associated with ongoing operations and activities. The
board’s risk management policy and internal controls are
considered appropriate for a company of its size and business
activities.

5. Maintain the

board as a well-
functioning,
balanced team
led by the chair

The board members have a collective responsibility and
legal obligation to promote the interests of the company,
and are collectively responsible for defining corporate
governance arrangements. Ultimate responsibility for the
quality of, and approach to, corporate governance lies
with the chair of the board.

The number of board meetings each year is set out in the
Annual Report. The number during 2018 is on page 17 of this
report. In addition to formal board meetings there is regular
contact between board members on all matters concerning the
company’s activities. The company circulates an annual budget
and reports to the board against the budget during the year.

The board (and any committees) should be provided with
high quality information in a timely manner to facilitate
proper assessment of the matters requiring a decision or
insight.

The board should have an appropriate balance between
executive and non-executive directors and should have
at least two independent non- executive directors.
Independence is a board judgement.

The board should be supported by committees
(e.g. audit, remuneration, nomination) that have the
necessary skills and knowledge to discharge their duties
and responsibilities effectively.

Directors must commit the time necessary to fulfil their
roles.

The board must have an appropriate balance of sector,
financial and public markets skills and experience, as
well as an appropriate balance of personal qualities and
capabilities. The board should understand and challenge
its own diversity, including gender balance, as part of its
composition.

The board should not be dominated by one person
or a group of people. Strong personal bonds can be
important but can also divide a board.

As companies evolve, the mix of skills and experience
required on the board will change, and board
composition will need to evolve to reflect this change.

6. Ensure that

between them
the directors have
the necessary
up-to-date
experience, skills
and capabilities

The company believes that it has an appropriate balance
between executive and non-executive directors for a company
of its size. The company does not have two independent
non-executive directors but this is regularly reviewed by the
Chairman and, at an appropriate time, it is expected that
further directors will be appointed including independent non-
executives.

The directors backgrounds and experience are outlined on
page 11 of this report. The Chairman considers that the board
composition is appropriate at this time.

The current board have external business interests that keep
them up to date with the best industry practise.

QCA PRINCIPLES (CONTINUED)

REMUNERATION COMMITTEE REPORT

On 18 May 2005 all of the Company’s Directors entered into a service agreement with the Company.

The board has a Remuneration Committee comprising myself and one non-executive Director. The members of the Remuneration Committee are
detailed in the Directors’ Report.

The purpose of the Remuneration Committee is to independently ensure the company remunerates fairly and responsibly and ensure that the level
and composition of remuneration for all employees is competitive. Both short and long term performance-based components are reviewed. The
Company benchmarks its remuneration and overheads with comparable peer group companies.

The remuneration of the Directors for the year ended 31 December 2018 was as follows:

Harry Dobson
Howard Obee
Nigel Hurst-Brown
Peter Fleming

Basic
salary

Share-based
payment

Total
2018

Total
2017

–
250,000
–
200,000

–
318,430
–
254,745

–
–
1,819
–

–
–
2,316
–

–
250,000
1,819
200,000

–
318,430
2,316
254,745

–
250,000
1,819
200,000

–
320,674
2,342
256,539

450,000

573,175

1,819

2,316

451,819

575,491

451,819

579,555

The company paid £56,784 ($71,000) – 2017 £62,088 ($80,700) in National Insurance for its Directors during the year.

The Group operates a pension scheme for its employees.

QCA Code
Principle

Application
(as set out by the QCA)

What we do and why

7. Evaluate board
performance
based on clear
and relevant
objectives,
seeking
continuous
improvement

8. Promote a

corporate culture
that is based on
ethical values and
behaviours

9. Maintain

governance
structures and
processes that
are fit for purpose
and support good
decision-making
by the board

10. Communicate

how the company
is governed and
is performing
by maintaining
a dialogue with
shareholders and
other relevant
stakeholders

The board should regularly review the effectiveness of its
performance as a unit, as well as that of its committees and
the individual directors.

The Chairman is responsible for reviewing the performance of the
board and the individual members of the board. Reviews to date
have been internal and at least annual.

The board performance review may be carried out internally
or, ideally, externally facilitated from time to time. The
review should identify development or mentoring needs of
individual directors or the wider senior management team.

It is healthy for membership of the board to be periodically
refreshed. Succession planning is a vital task for boards. No
member of the board should become indispensable.

The board should embody and promote a corporate culture
that is based on sound ethical values and behaviours and
use it as an asset and a source of competitive advantage.

The policy set by the board should be visible in the actions
and decisions of the chief executive and the rest of the
management team. Corporate values should guide the
objectives and strategy of the company.

The culture should be visible in every aspect of the
business, including recruitment, nominations, training and
engagement. The performance and reward system should
endorse the desired ethical behaviours across all levels of
the company.

The corporate culture should be recognisable throughout
the disclosures in the annual report, website and any other
statements issued by the company.

The company should maintain governance structures and
processes in line with its corporate culture and appropriate
to its:

• Size and complexity; and
• Capacity, appetite and tolerance for risk.

The governance structures should evolve over time in
parallel with its objectives, strategy and business model to
reflect the development of the company.

Any new or existing board members are evaluated using the
following criteria:
• The have a sound understanding of, and the competencies

to deal with, the current and emerging issues in the Company’s
business;

• Able to exercise independent judgement; and
• Can effectively review and challenge management’s

performance.

The Chairman considers that the current board composition
is appropriate and it is performing in line with sound industry
practice. The company has a succession policy for its key
executives and recognizes that as the company evolves additional
non-executive directors will need to be added to the board when
appropriate. Whilst the board has not materially changed since
inception, it is acknowledged by the Chairman that as the company
develops, the board will need to also change.

The key executives in the company have had many years
experience and training within large oil companies across the world.
The oil and gas industry has well established transparent processes
to ensure that industry best practice procedures and processes are
followed before, during and after operations.

The roles of the various board committees are in this report
detailed on page 10.

The executive directors have discretion to approve expenditures
up to a certain amount with board approval required for costs
above that.

The Chairman considers the board composition and skills
to be appropriate for the company as its current stage of
development

A healthy dialogue should exist between the board and
all of its stakeholders, including shareholders, to enable all
interested parties to come to informed decisions about the
company.

The company communicates with shareholders through the Annual
Report and Accounts, full-year and half-year announcements, the
AGM and one-to-one meetings with large existing or potential new
shareholders.

In particular, an appropriate communication and reporting
structure should exist between the board and all constituent
parts of its shareholder base. This will assist:

• the communication of shareholders’ views to the

board; and

• the shareholders’ understanding of the unique

circumstances and constraints faced by the company.

It should be clear where these communication practices are
described (annual report or website).

A range of corporate information (including all company
announcements and presentations) is also available to
shareholders, investors and the public on the company’s corporate
website. Information on the work of the various board Committees
and other relevant information are included on page 10.

After each AGM, the company informs the London Stock Exchange
the outcome of the resolutions. Suitable explanations of any
actions undertaken as a result of any significant votes against
resolutions shall also be disclosed on the Company’s website.

During the 2018 AGM all resolutions were passed unanimously.

DIRECTORS’ REPORT

Directors and their interests
The beneficial and other interests of the Directors and their families in the share capital at 31 December 2018 and at 31 December 2017, were as
follows:

Directors’ responsibilities
The Directors are responsible for preparing the Directors’ Report, the Strategic Report and the financial statements in accordance with applicable law
and regulations.

Harry Dobson
Howard Obee
Peter Fleming
Nigel Hurst-Brown

At 31 December
2018
Number

At 31 December
2017
Number

26,670,000
10,000,000
2,200,000
1,530,000

The ordinary shares in which Harry Dobson is interested are held by the Zila Corporation, a company owned by the Whitmill Trust Company Limited,
as trustee of The Lotus Trust of which he is a beneficiary.

The Group has provided the Directors with qualifying third party indemnity insurance.

Share options

Number of
options held at
the beginning
of the year

Number of
options held at
the end
of the year

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group
and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under
company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs
of the Group and Company and of the profit or loss of the Group for that 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 adopted by the European Union, subject to any material departures disclosed

and explained in the financial statements;

• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company 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.

Fair value of
Options

Exercise price

Vesting period

Number of board meetings during 2018

Howard Obee
Peter Fleming
Nigel Hurst-Brown

1,250,000
1,250,000
1,250,000

24-30 pence
24-30 pence
0.5-32 pence

51-58 pence
51-58 pence
1.8-58 pence

three years
three years
three years

The share-based payments are the amortisation over the vesting period of the fair value of options issued to Directors in previous years. See note 7
for more details.

Attendance

Harry Dobson
Howard Obee
Peter Fleming
Nigel Hurst-Brown

Board

Remuneration
Committee

Audit
Committee

3
3
3
3

–
–
–
–

2
–
–
2

Substantial shareholders
At 31 December 2018, the following held 3% or more of the nominal value of the Company’s shares carrying voting rights:

Lansdowne Partners Limited Partnership
Allianz Global Investors
Interactive Investor
Stephen Posford
Zila Corporation
LGT Vestra
Hargreaves Lansdowne Asset Management
Barclays Wealth

Number of

Ordinary shares % of share capital

67,613,605
33,921,782
26,921,455
27,500,000
26,670,000
21,861,246
20,976,240
14,891,639

13.97%
7.01%
5.56%
5.68%
5.51%
4.52%
4.33%
3.08%

Domicile
The Parent Company of the Group, Borders & Southern Petroleum plc, is a public limited company and is registered and domiciled in England.

Results and dividends
The Group Statement of Comprehensive Income is set out on page 21 and shows the result for the year.
The Directors do not recommend the payment of a dividend (2017 – $nil).

Review of business and future developments
A review on the operations of the Group is contained in the CEO Review on page 06.

Post reporting date events
There are no events that have occurred since the year end which require reporting.

Charitable and political donations
There were no political or charitable contributions made by the Company or the Group during the year (2017 – $nil).

Financial instruments

Details of the use of financial instruments by the Company and its subsidiary undertakings are contained in note 20 of the financial statements.

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.

Auditor
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
Company’s auditor for the purposes of its audit and to establish that the auditor is aware of that information.
The Directors are not aware of any relevant audit information of which the auditor is unaware.

BDO LLP has expressed its willingness to continue in office and a resolution to reappoint them will be proposed at the Annual General Meeting.

By order of the board

William Slack
Company Secretary
29 March 2019

INDEPENDENT AUDITOR’S REPORT
to the members of Borders & Southern Petroleum Plc

Opinion
We have audited the financial statements of Borders & Southern Petroleum Plc (“the Parent Company”) and its subsidiaries (“the Group”) for the year
ended 31 December 2018 which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position,
the consolidated statement of changes in equity, the company statement of financial position, the company statement of changes in equity, the
consolidated statement of cash flows, the company statement of cash flows and the related notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group and Parent Company financial
statements is applicable law and International Financial Reporting Standards (IFRS’s) as adopted by the European Union and as regards the Parent
Company financial statements as applied in accordance with the Companies Act 2006.

In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and the Parent Company’s affairs as at 31 December 2018 and of the

Group’s loss for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied

in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been properly prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent
of the Parent Company and the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s

ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial
statements are authorised for issue.

Key audit matters (“KAMs”)
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.

Key audit matter identified
Carrying value of exploration and evaluation assets
The Group’s exploration and evaluation (E&E) assets associated with the Darwin and Stebbing licence areas in the Falkland Islands represent the key
assets on the Group’s statement of financial position. See note 11.

Our response:
We assessed Management’s impairment indicator review to establish whether it was performed in accordance with the requirements of the relevant
accounting standard.

In doing so we obtained and read third party documents relating to the licence status and commitments.

We considered whether there was evidence in the Group’s cashflow that funding was available to maintain and continue to spend on the E&E assets.

We have reviewed the economic models prepared by third party management experts. Our work in this regard was completed in order to assess
whether there was any evidence in the models of further potential triggers for impairment which had not been previously identified.

As we reviewed the reports prepared by the third party management experts, we have considered the expert’s independence, competence and
objectivity.

Our application of materiality

FY 2018

FY 2017

$4.2m

$4.5m

Materiality has been based on 1.4% of Group assets

Materiality was based on 1.5% of Group assets.

Group Materiality

Basis for materiality

Total Assets was determined as an appropriate basis for materiality as the principal focus of the Group, remains fundamentally on the development of
its E&E assets.

A specific materiality was set at 10% of loss before taxation being $196,000 (2017: $140,000) in order to ensure sufficient testing was performed on
the Group income statement.

Materiality for the Parent Company was set at $3.2m (2017: $4.0m). Parent Company materiality was also based on a 1.4% of net assets but was
been restricted to 75% of the Group materiality figure (2017: based on 1.5% of net assets, restricted to 90% of Group materiality).

We apply the concept of materiality both in planning and performing our audit, and in evaluation of the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are
taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we
also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the
financial statements as whole.

Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
Performance materiality was set at 75% (2017: 75%).

We agreed with the Audit Committee that we would report to the Committee all individual audit differences identified during the course of our audit
in excess of $83,000 (2017: $225,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative
grounds.

Management are required to perform an assessment of potential impairment indicators at the year end. If impairment indicators are identified
Management are required to perform an assessment of the recoverable value of the E&E assets under the provisions of the relevant accounting
standard. Management did not identify any potential impairment indicators.

Whilst materiality for the financial statements as a whole was $4.2m the significant components of the Group were audited to a lower level of
materiality ranging from $3.0m to $3.2m which were used to determine the financial statement areas that were included within the scope of the
Component audits and the extent of sample sizes used during the audits.

Given the inherent judgement involved in the assessment of the existence of potential impairment indicators we consider this to be a significant
audit risk.

An overview of the scope of our audit
In approaching the audit, we considered how the Group is organised and managed. Our audit strategy focused on the Group’s significant components
which comprised Borders & Southern Petroleum Plc and Borders & Southern Falkland Islands Ltd, which represented all of the Group companies. All
of the components were subject to full scope audit procedures and all were audited by BDO LLP.

STRATEGIC REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTBorders & Southern Petroleum plc Annual Report and Accounts 2018Borders & Southern Petroleum plc Annual Report and Accounts 2018
INDEPENDENT AUDITOR’S REPORT continued
to the members of Borders & Southern Petroleum Plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018

Administrative expenses

Loss from operations
Finance income
Finance expense

Loss before tax
Tax expense
Loss for the year and total comprehensive loss for the year
attributable to equity owners of the parent

Note

2
8
8

2018
$000

(1,802)

(1,802)
29
(193)

(1,966)
–
(1,966)

2017
$000

(1,734)

(1,734)
542
–

(1,192)
–
(1,192)

Basic and diluted loss per share (see note 3)

(0.41) cents

(0.25) cents

The notes on pages 28 to 38 form part of the financial statements

Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the
financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ report for the financial year for which the financial statements are prepared is

consistent with the financial statements; and

• the Strategic Report and the Directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the 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, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Responsibilities of Directors
As explained more fully in the directors’ responsibilities statement set out on page 17, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determines 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 ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.
frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Anne Sayers (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
29 March 2019

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

STRATEGIC REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTBorders & Southern Petroleum plc Annual Report and Accounts 2018Borders & Southern Petroleum plc Annual Report and Accounts 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018

Assets
Non-current assets
Property, plant and equipment
Intangible assets

Total non-current assets

Current assets
Other receivables
Cash and cash equivalents

Total current assets

Total assets

Liabilities
Current liabilities
Trade and other payables

Total net assets

Equity
Share capital
Share premium
Other reserves
Retained deficit
Foreign currency reserve

Total equity

Note

2018

$000

260
5,626

10
11

13
16

$000

15
291,367

291,382

5,886

297,268

(337)

296,931

8,530
308,602
1,775
(21,960)
(16)

296,931

2017

$000

440
8,251

$000

11
290,826

290,837

8,691

299,528

(633)

298,895

8,530
308,602
1,773
(19,994)
(16)

298,895

Balance at 1 January 2017
Loss and total comprehensive loss for the year
Expiry of share options
Recognition of share-based payments

Balance at 31 December 2017
Loss and total comprehensive loss for the year
Recognition of share-based payments

Balance at 31 December 2018

Share
capital
$000

8,530
–
–
–

8,530
–
–

8,530

Share
premium
$000

308,602
–
–
–

308,602
–
–

308,602

Other
reserves
$000

2,418
–
(663)
18

1,773
–
2

1,775

Retained
deficit
$000

(19,465)
(1,192)
663
–

(19,994)
(1,966)
–

(21,960)

Foreign
currency
reserve
$000

(16)
–
–
–

(16)
–
–

(16)

Total
$000

300,069
(1,192)
–
18

298,895
(1,966)
2

296,931

The following describes the nature and purpose of each reserve within owners’ equity:

Reserve
Share capital

Share premium

Other reserves

Retained deficit

Description and purpose
This represents the nominal value of shares issued.

Amount subscribed for share capital in excess of nominal value.

Fair value of options issued, less transfers to retained deficit on expiry.

Cumulative net gains and losses recognised in the Consolidated Statement of
Comprehensive Income.

Foreign currency reserves

Differences arising on change of presentation and functional currency to US dollars.

The notes on pages 28 to 38 form part of the financial statements.

The financial statements were approved by the board of Directors and authorised for issue on 29 March 2019.

Howard Obee
Director

Company Number: 5147938

Peter Fleming
Director

COMPANY STATEMENT OF FINANCIAL POSITION
At 31 December 2018

COMPANY STATEMENT OF CHANGES IN EQUITY
At 31 December 2018

Assets
Non-current assets
Property, plant and equipment
Investments
Inter-company loan

Total non-current assets

Current assets
Other receivables
Cash and cash equivalents

Total current assets

Total assets

Liabilities
Current liabilities
Trade and other payables

Total net assets

Equity
Called up share capital
Share capital
Other reserves
Retained deficit
Foreign currency reserve

Total equity

Note

2018

$000

260
5,626

10
12
13

13
16

$000

15
–
291,546

291,561

5,886

297,447

(337)

297,110

8,530
308,602
1,775
(21,779)
(18)

297,110

2017

$000

440
8,251

$000

11
–
291,005

291,016

8,691

299,707

(633)

299,074

8,530
308,602
1,773
(19,813)
(18)

299,074

The Parent Company has taken advantage of the exemption from the requirement to publish its own income statement.
The Parent Company loss for the year ended 31 December 2018 was $1,966,000 (2017: $1,192,000). The notes on pages 28 to 38 form part of the
financial statements.

The financial statements were approved by the board of Directors and authorised for issue on 29 March 2019.

Howard Obee
Director

Company Number: 5147938

Peter Fleming
Director

Balance at 1 January 2017
Loss and total comprehensive loss for the year
Expiry of share options
Recognition of share-based payments

Balance at 31 December 2017
Loss and total comprehensive loss for the year
Recognition of share-based payments

Balance at 31 December 2018

Share
capital
$000

8,530
–
–
–

8,530
–
–

8,530

Share
premium
reserve
$000

308,602
–
–
–

308,602
–
–

308,602

Other
reserves
$000

2,418
–
(663)
18

1,773
–
2

1,775

Retained
deficit
$000

(19,284)
(1,192)
663
–

(19,813)
(1,966)
–

(21,779)

Foreign
currency
reserve
$000

(18)
–
–
–

(18)
–
–

(18)

Total
$000

300,248
(1,192)
–
18

299,074
(1,966)
2

297,110

The following describes the nature and purpose of each reserve within owners’ equity:

Reserve
Share capital

Share premium

Other reserves

Retained deficit

Description and purpose
This represents the nominal value of shares issued.

Amount subscribed for share capital in excess of nominal value.

Fair value of options issued, less transfers to retained deficit on expiry.

Cumulative net gains and losses recognised in the Consolidated Statement of
Comprehensive Income.

Foreign currency reserve

Differences arising on change of presentation and functional currency to US dollars.

The notes on pages 28 to 38 form part of the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2018

COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2018

Note

$000

2018

2017

Note

$000

2018

2017

Cash flow from operating activities
Loss before tax
Adjustments for:
Depreciation
Share-based payment
Net finance costs
Net finance income
Realised foreign exchange gains/(losses)

Cash flows used in operating activities
before changes in working capital
Decrease in other receivables
Increase in trade and other payables

Net cash outflow from operating activities
Cash flows used in investing activities
Interest received
Purchase of intangible assets
Purchase of tangible fixed assets
Net cash used in investing activities

Cash flows from financing
Cash flows from financing activities
Net decrease in cash and cash equivalents

Cash and cash equivalents at the beginning of the year
Exchange (loss)/gain on cash and cash equivalents

Cash and cash equivalents at the end of the year

(1,966)

1
2
164
–
21

(1,778)

180
(296)

(1,894)

(517)

–
(2,411)

8,251
(214)

5,626

(1,192)

1
18
–
(542)
(17)

(1,732)

728
(503)

(1,507)

(434)

–
(1,941)

9,645
547

8,251

11
(445)
–

29
(541)
(5)

Cash flow from operating activities
Loss before tax
Adjustments for:
Depreciation
Share-based payment
Net finance costs
Net finance income
Realised foreign exchange gains/(losses)

Cash flows used in operating activities
before changes in working capital
Decrease in other receivables
Increase in trade and other payables

Net cash outflow from operating activities
Cash flows from investing activities
Interest received
Increase in amounts due
from group undertaking
Purchase of tangible fixed assets

Net cash used in investing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at the beginning of the year
Exchange (loss) /gain on cash and cash equivalents

Cash and cash equivalents at the end of the year

(1,966)

1
2
164
–
21

(1,778)

180
(296)

(1,894)

(517)

(2,411)

8,251
(214)

5,626

(541)
(5)

(1,192)

1
18
–
(542)
(18)

(1,732)

728
(503)

(1,507)

(434)

(1,941)

9,645
547

8,251

(445)
–

STRATEGIC REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTBorders & Southern Petroleum plc Annual Report and Accounts 2018Borders & Southern Petroleum plc Annual Report and Accounts 2018NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2018

1 Accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below and have been consistently applied to all
years presented.

1 Accounting policies continued
Going concern
The Directors are of the opinion that the Group has adequate financial resources to enable it to undertake its planned programme of exploration and
appraisal activities for 2019 and for a period of not less than twelve months from the date of approval of the financial statements.

These consolidated and Parent financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and
IFRIC interpretations) issued by the International Accounting Standards board (IASB) as adopted by the European Union and with those parts of the
Companies Act 2006 applicable to companies preparing their accounts under IFRS.

The consolidated financial statements have been prepared under the historical cost convention.

Adoption of new and revised International Financial Reporting Standards
The Group and Company have adopted the following standards, amendments to standards and interpretations which are effective for the first time
this year. None of the new amendments have had a material impact on the financial statements of the Company.

Loss for the financial year
The Company has taken advantage of the exemption allowed under Section 408 of the Companies Act 2006 and has not presented its own income
statement in these financial statements. The Group loss for the year includes a loss after tax of $1,966,000, (2017 – loss after tax of $1,192,000)
which is dealt with in the financial statements of the Parent Company.

The Company’s investments in subsidiaries
The Parent Company’s subsidiaries are carried at cost less amounts provided for impairment.

Finance income
Finance income consists of interest on cash deposits and foreign exchange gains.

IFRS 9: Financial Instruments
IFRS 15: Revenue from contracts with customers
IFRS 15: Clarifications to IFRS 15 revenue from contracts with customers
IFRIC 22: Foreign currency transactions and advance consideration
IFRS 2: Amendments – Classification and measurement of share-based payment transactions

Effective period
commencing on
or after

1 Jan 2018
1 Jan 2018
1 Jan 2018
1 Jan 2018
1 Jan 2018

Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified
as the board of Directors.

Property, plant and equipment
Office equipment is initially recorded at cost. Depreciation is provided on office equipment so as to write off the cost, less any estimated residual
value, over their expected useful economic life as follows:

Standards effective in future periods
Certain new standards, amendments and interpretations to existing standards have been published that are relevant to the Company’s activities and
are mandatory for the Company’s accounting periods beginning after 1 January 2019 or later periods and which the Company has decided not to
early adopt. These include:

Annual improvements to IFRSs (2015-2017 Cycle)*
IFRS 16: Leases*

* Endorsed by the EU

Effective period
commencing on
or after

1 Jan 2019
1 Jan 2019

IFRS 16 ‘Leases’ provides a new model for lessee accounting in which all leases, other than short-term and small-ticket-item leases, will be accounted
for by the recognition on the balance sheet of a right-to-use asset and a lease liability, and the subsequent amortisation of the right-to-use asset
over the lease term. IFRS 16 will be effective for annual periods beginning on or after 1 January 2019. The Company will adopt IFRS 16 on
1 January 2019. The requirements of IFRS 16 will extend to the Company’s operating leases for buildings and as such the Company does not
expect this to have a material impact on the balance sheet.

Basis of consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control
ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used
by other members of the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Office equipment 331/3%

Assets are depreciated from the date of acquisition and on a straight-line basis.

Exploration and evaluation expenditure
The Group applies the requirements of IFRS 6 Exploration For and Evaluation of Mineral Resources in respect of its exploration and evaluation
expenditure. The requirements of IFRS 6 are not applied to expenditure incurred by the Group before legal title to explore for and evaluate
hydrocarbon resources in a specific area, generally referred to as pre-licence expenditure. Likewise, the Group does not apply the requirements of
IFRS 6 after the point at which the technical feasibility and commercial viability of extracting hydrocarbons are demonstrable.

The costs of exploring for and evaluating hydrocarbon resources are accumulated and capitalised as intangible assets by reference to appropriate
cash-generating units (CGUs), generally referred to as full cost accounting. Such CGUs have been determined by the Group to be a Darwin CGU
and a Stebbing CGU and are noted as not being larger than an operating segment as determined in accordance with IFRS 8 Operating Segments.
Whilst the short term focus is on developing Darwin, Stebbing remains a viable prospect for growth beyond Darwin.

Capitalised exploration and evaluation expenditure may include, amongst other costs, costs of licence acquisition, third party technical services and
studies, seismic acquisition, exploration drilling and testing, but do not include general overheads. Any property, plant and equipment (PPE) acquired
for use in exploration and evaluation activities is classified as property, plant and equipment. However, to the extent that such PPE is consumed in
developing an intangible exploration and evaluation asset, the amount reflecting that consumption is recorded as part of the cost of the intangible
exploration and evaluation asset.

Intangible exploration and evaluation assets are not depreciated and are carried forward, subject to the provisions of the Group’s impairment of
exploration and evaluation policy, until the technical feasibility and commercial viability of extracting hydrocarbons are demonstrable. At such point,
exploration and evaluation assets are assessed for impairment and any impairment loss is recognised before reclassification of the assets to a category
of property, plant and equipment.

Impairment of exploration and evaluation expenditure
The Group’s exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of the
exploration and evaluation assets may exceed the assets’ recoverable amount.

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;

• whether substantive expenditure on further exploration for and evaluation of mineral resources in a specific area is neither budgeted nor planned;
• whether exploration for and evaluation of hydrocarbons in a specific area have not led to the discovery of commercially viable quantities of

hydrocarbons and the Group has decided to discontinue such activities in the specific area; and

• whether sufficient data exists to indicate that although a development in a specific area is likely to proceed, the carrying amount of the exploration

and evaluation assets is unlikely to be recovered in full from successful development or by sale.

If any such facts or circumstances are noted, the Group, as a next step, perform an impairment test in accordance with the provisions of IAS 36.
In such circumstances, the aggregate carrying value of the exploration and evaluations assets is compared against the expected recoverable amount
of the CGU. The recoverable amount is the higher of value in use and the fair value less costs to sell. The Group has identified two cash-generating
units, a Darwin CGU and a Stebbing CGU. In accordance with the provisions of IFRS 6 the level identified for the purposes of assessing the Group’s
exploration and evaluation assets for impairment may comprise one or more cash-generating units.

NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018

Provisions
A provision is recognised in the Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will be required to settle the obligation.

Foreign currencies
Transactions in foreign currencies are translated into US dollars at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the closing rates at the reporting date and the
exchange differences are included in the Statement of Comprehensive Income. The functional and presentational currency of the Parent and all Group
companies is the US dollar.

Operating leases
Rentals payable under operating leases are charged to the Statement of Comprehensive Income on a straight-line basis over the lease term.

Share-based payments
The fair value of employee share option plans is calculated using the Black-Scholes pricing model. Non-employee options granted as part of
consideration for services rendered are valued at the fair value of those services. Where information on the fair value of services rendered is not
readily available, the fair value is calculated using the Black-Scholes pricing model.

1 Accounting policies continued
Critical accounting estimates and key sources of estimation uncertainty
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues,
expenses, assets and liabilities, and the disclosure of contingent liabilities at the date of the financial statements. If in the future such estimates and
assumptions, which are based on management’s best judgement at the date of the financial statements, deviate from the actual circumstances, the
original estimates and assumptions will be modified as appropriate in the year in which the circumstances change. Where necessary, the comparatives
will be reclassified from the previously reported results to take into account presentational changes.

Critical judgements in applying the Group’s accounting policies
Management has made the following judgements which have the most significant effects on the amounts recognised in the financial statements:

Recoverability of exploration and evaluation costs
Management has made the judgement to group two CGU’s together for impairment purposes as both resources are contained within the same license
and are close proximity. Expenditure is capitalised as an intangible asset by reference to the CGUs and is assessed for impairment when circumstances
suggest that the carrying amount may exceed its recoverable value. This assessment involves judgement as to whether these circumstances are
considered to be an indicator of impairment but due to the positive resource report communicated in 2018 and the strengthening of the oil price,
management have concluded that there are no indicators of impairment at year end.

In accordance with IFRS 2 Share-based Payments the resulting cost is charged to the Statement of Comprehensive Income over the vesting period
of the options. The amount of charge is adjusted each year to reflect expected and actual levels of options vesting.

2 Loss from operations

Where equity-settled share options are awarded, the fair value of the options at the date of grant is charged to the Statement of Comprehensive
Income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to
vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that
eventually vest. Market vesting conditions are factored into the fair value of the options granted.

As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied.
The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before
and after the modification, is also charged to the Consolidated Statement of Comprehensive Income over the remaining vesting period.

Financial instruments
Financial instruments are initially recorded at fair value. Subsequent measurement depends on the designation of the instrument, as follows:
• Other receivables are initially recognised at fair value and subsequently at amortised cost using the effective rate of interest, net of expected

credit losses.

• Trade and other payables are initially recognised at fair value and subsequently at amortised cost using the effective rate of interest.
• Financial instruments issued by Group companies are treated as equity only to the extent that they do not meet the definition of a financial liability.
• The Group’s and Company’s ordinary shares are all classified as equity instruments.
• Cash and cash equivalents consist of cash at bank on demand and balances on deposit with an original maturity of three months or less.
•

Inter-company receivables are held in order to collect contractual cash flows and the contractual cash flows are solely payments of principal
and interest. These receivables are initially recognised at fair value and are subsequently carried at amortised cost.

IFRS 9: Impairment of financial assets
IFRS 9 replaces the incurred loss model of IAS 39 with a model based on expected credit losses. The standard requires entities
to use an expected credit loss model for impairment of financial assets. Under the new standard, the loss allowance for a financial instrument will be
calculated at an amount equal to 12 month expected credit losses or lifetime expected credit losses if there has been a significant increase in credit
risk of the financial instrument.

Staff costs (note 5)
Share-based payment – equity-settled
Services provided by the auditors:
Fees payable to the Company’s auditors for the audit of the Parent Company
and consolidated annual accounts
Fees payable to the Company’s auditor and its associates for other services:
Tax services
Depreciation of office equipment
Operating lease expenses – property

Foreign exchange loss/(gain)

2018
$000

959
2

6
1
324

193

2017
$000

915
18

6
1
299

(530)

3 Basic and dilutive loss per share
The calculation of the basic and dilutive loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average
number of shares in issue during the year. The loss for the financial year for the Group was $1,966,000 (2017 – loss $1,192,000) and the weighted
average number of shares in issue for the year was 484,098,484 (2017 – 484,098,484). During the year the potential ordinary shares are anti-dilutive
and therefore diluted loss per share has not been calculated. At the Statement of Financial Position date, there were 7,050,000 (2017: 7,050,000)
potentially dilutive ordinary shares being the share options (see note 7 for further details).

4 Segment analysis
The Company operates in one operating segment (exploration for oil and gas) and in substantially one geographical market (the Falkland Islands),
therefore no additional segmental information is presented.

The Company has provided a loan to its 100% owned subsidiary that is the license holder in The Falkland Islands. Management have completed a
scenario based assessment of the expected credit loss in accordance with IFRS 9 and concluded that this loss is immaterial.

Of the Group’s total non-current assets, the property, plant and equipment is based in the UK and all other non-current assets are located in the
Falkland Islands.

Taxes
The major components of tax on the profit or loss include current and deferred tax.

Current tax is based upon the profit or loss for the year adjusted for items that are non-assessable or disallowed and is calculated using tax rates that
have been enacted, or substantively enacted, by the reporting date.

Tax is charged or credited to the Statement of Comprehensive Income, except where the tax relates to items credited or charged directly to equity,
in which case the tax is also dealt within equity.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the Statement of Financial Position differs
to its tax base.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference
can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are
expected to apply when deferred tax liabilities and assets are settled or recovered.

STRATEGIC REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTBorders & Southern Petroleum plc Annual Report and Accounts 2018Borders & Southern Petroleum plc Annual Report and Accounts 2018NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018

5 Staff costs
Company and Group:
Staff costs (including Directors) comprise:

Wages and salaries
Employers’ national insurance contributions
Employers’ pension contributions

Share-based payment – equity-settled

7 Share-based payment continued
The following information is relevant in the determination of the fair value of the options granted during 2016 under the scheme operated
by the Company.

2018
$000

846
108
5

959
2

961

2017
$000

808
104
3

915
18

933

Equity-settled scheme
Option pricing model used
Weighted average share price at grant date
Exercise price
Weighted average contractual life (days)
Expected volatility
Risk-free interest rate
Fair value of options

Option life

2016

Black-Scholes
1.8p
1.8p
1,460
60%
1.0%
0.5p

4 years

The average number of employees (including Directors) employed during the year by the Company was five (2017 – five) and for the Group was five
(2017 – five). All employees and Directors of the Group and the Company are considered to be the key management personnel.

Of the $2,000 (2017 – $18,000) share-based payment charge included in the Consolidated Statement of Comprehensive Income, $2,000
(2017 – $18,000) has been charged in respect of share options granted to staff (including Directors) in the current and prior years.

The expected volatility used to calculate the share-based remuneration expense is based on the standard deviation of the Company’s monthly close
share prices since inception.

6 Directors’ emoluments
The Directors’ emoluments for the year are as follows:

Directors’ fees
Share-based payments – equity-settled

2018
$000

605
2

607

2017
$000

577
2

579

The fees and share-based payments made to each Director are disclosed in the Remuneration Committee Report. During the year, the highest paid
director received total remuneration of $335,883 (2017 – $322,077).

In 2016, the Group granted 1,000,000 share options to a Director of the Group with a total fair value of $6,714. Of this amount, $2,316 has been
expensed during the year. The options vest after three years and expire after ten years.

Due to the difficulty in measuring the fair value of the services received, this has been determined by reference to the fair value of the options
granted. A Black-Scholes model has been used to determine the fair value of options granted (see note 7).

7 Share-based payment

Outstanding at the beginning of the year
Granted during the year

Outstanding at the end of the year

Exercisable at the end of the year

2018
Weighted
average
exercise price

39p

33p

30p

2018
Number

7,050,000
–

7,050,000

4,650,000

2017
Weighted
average
exercise price

39p

33p

30p

2017
Number

7,050,000
–

7,050,000

4,650,000

The weighted average contractual life of the options outstanding at the year end was three years (2017 – five years).

The range of exercise prices of share options outstanding at the end of the year is 1.8-74p (2017 – 1.8p-74p).

8 Finance income and expense

Finance income

Bank interest received
Foreign exchange gain

Finance expense

Foreign exchange loss

9 Tax expense

Current tax expense

UK corporation tax on loss for the year at 19.00% (2017 – 19.25%)
Adjustments recognised in the current year in relation to the current tax of prior years

Total current and deferred tax for the year

2018
$000

29
–

2018
$000

193

2018
$000

–
–

–

2017
$000

12
530

542

2017
$000

–

2017
$000

–
–

–

Factors affecting current year tax charge
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to losses for the
year are as follows:

STRATEGIC REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTBorders & Southern Petroleum plc Annual Report and Accounts 2018Borders & Southern Petroleum plc Annual Report and Accounts 2018NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018

9 Tax expense continued

Loss before taxation
Standard corporation tax charge at 19.00% (2017 – 19.25%)
Expenses not deductible for tax purposes
Prior year amendments
Effect of change in tax rates
Movement in unrecognised deferred tax for the year

2018
$000

-1,966
-334
205
-40
17
152

2017
$000

-1,192
-229
201
64
3
-39

Total current and deferred tax for the year

–

Factors that may affect future tax charges
The Group has a deferred tax asset of approximately $1,173,294 (2017 – $987,766) in respect of unrelieved tax losses of approximately $6,901,727
at 31 December 2018 (2017 – $5,810,392). The rate of tax used in the calculation of the deferred tax asset is 17% (2017 – 17%).The deferred tax
asset has not been recognised in the financial statements as the timing of the economic benefit is uncertain.

10 Property, plant and equipment

Group and company

Cost
As at 1 January 2017

As at 31 December 2017

Depreciation
As at 1 January 2017
Charge for the year

As at 31 December 2017

Net book value

As at 01 January 2017

As at 31 December 2017

Cost
As at 1 January 2018
Additions

As at 31 December 2018

Depreciation
As at 1 January 2018
Charge for the year

As at 31 December 2018

Net book value

As at 01 January 2018

As at 31 December 2018

Office equipment
$000

115

103
1

104

Office equipment
$000

115
5

120

104
1

105

11 Intangible assets

Group

Cost
As at 1 January 2017
Additions

As at 31 December 2017

Net book value

As at 01 January 2017

As at 31 December 2017

Group

Cost
As at 1 January 2018
Additions

As at 31 December 2018

Net book value

As at 01 January 2018

As at 31 December 2018

Exploration and
evaluation costs
$000

290,381
445

290,826

290,381

290,826

Exploration and
evaluation costs
$000

290,826
541

291,367

290,826

291,367

On 31 May 2016 the Company received notice from The Falkland Islands Government that the Company’s application to extend the expiry date of
the Second Term for Production Licensees PL018, PL019 and part of PL020 was extended until 31 October 2020. On the same day the Company
also received notice that the expiry date of Darwin East Discovery Area was extended until 31 January 2022.

In considering the carrying value of intangible assets, the Company used external independent estimates of resource volume, production rates
and operating and capital costs to compare the carrying value with net present value to assess whether there were any issues that would trigger an
impairment assessment and based on these third party reports, it was concluded that there were no triggers so no impairments were made.

12 Investments in subsidiary

Company

Cost
As at 1 January and 31 December

Net book value

As at 31 December

2018
$

2017
$

The Company owns the one ordinary £1 subscriber share, being 100% of the issued share capital, in Borders & Southern Falkland Islands Limited.
The Company was registered in England and its principal activity is oil and gas exploration. Company’s registered office is in One Fleet Place, London
EC4M 9AF.

STRATEGIC REPORTSTRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTBorders & Southern Petroleum plc Annual Report and Accounts 2018Borders & Southern Petroleum plc Annual Report and Accounts 2018NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018

13 Other receivables

Inter-company loan
Other receivables
Prepayments and accrued income

Group

Company

2018
$000

–
113
147

260

2017
$000

–
290
150

440

2018
$000

291,546
113
147

291,806

2017
$000

291,005
290
150

291,445

All amounts owed by or to entities outside the group shown as other receivables and prepayments and accrued income fall due for payment within
one year. Management have completed a scenario based assessment of the expected credit loss in accordance with IFRS 9 and concluded that this
loss is immaterial. The inter-company loan is on demand and expected to be repaid from the revenues of the Darwin field production. Management
consider the inter-company loan to be in stage 3. All the technical and economic studies undertaken to date have confirmed Darwin to be economic.
Management have also completed a scenario based assessment based on their judgments of the expected credit loss in accordance with IFRS 9 and
concluded that any loss is immaterial.

All of the company’s bank deposits are with Lloyds Bank plc. It has a P-1 credit rating with Moodys, F! with Fitch and A-1 with Standard & Poors.

Amounts owed by Group undertakings are not interest-bearing and are payable on demand.

14 Trade and other payables

Trade payables
Other taxes and social security costs
Accruals and deferred income

15 Share capital

Authorised

Group

Company

2018
$000

46
37
254

337

2017
$000

355
38
240

633

2018
$000

46
37
254

337

2018
$000

2017
$000

355
38
240

633

2017
$000

750,000,000 ordinary shares of 1 pence each (2017 – 750,000,000)

14,926

Allotted, called up and fully paid

484,098,484 ordinary shares of 1 pence each (2017 – 484,098,484)

Share capital
Brought forward

Carried forward

Share premium
Brought forward

Carried forward

There are no restrictions on the share capital.

16 Cash and cash equivalents and restricted use cash

Group and Company

Cash available on demand
Cash on deposit

Total

8,530

8.530

308,602

2018
$000

256
5,370

5,626

8,530

308,602

2017
$0000

540
7,711

8,251

17 Related party transactions
Company
During the year Borders & Southern Petroleum Plc paid expenses of $541,828 (2017 – $819,873) on behalf of its 100% owned subsidiary
Borders & Southern Falkland Islands Limited. At the year end $291,546,000 (2017 – $291,005,000) was due from the subsidiary.

Borders & Southern Falkland Islands Limited’s registered office is One Fleet Place, London EC4M 7WS.

The employees and Directors of the Group and the Company are considered to be the key management personnel. There were no transactions
between the Group, the Company and the key management personnel during the year. The remuneration paid to the key management personnel
is disclosed in note 6.

18 Commitments
The total future value of minimum lease payments on office property is due as follows:

Not later than one year

The Group licence commitment is to drill one exploration well before 1 November 2020.

19 Events after the reporting period
There were no reportable events post reporting date.

Land and Buildings

2018
$000

2017
$000

20 Financial instruments
The main risks arising from the Group’s operations are cash flow interest rate risk, foreign currency translation risk and credit risk. The Group monitors
risk on a regular basis and takes appropriate measures to ensure risks are managed in a controlled manner.

The Group’s deposits are held with Lloyds on short term deposits. Whilst there is a risk of Lloyds’ ability to repay these deposits, the Group considers
this risk to be low.

Liquidity is not considered to be a risk due to the sufficient cash funds readily available to the Group at the year end.

The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes
for managing those risks and the methods used to measure them. There have been no substantive changes in the Group’s exposure to financial
instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless
otherwise stated in the note.

Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises, held by category, are as follows:

Amortised Cost

Other receivables

Cash and cash equivalents

Trade and other payables

2018
$000

173

5,626

300

2017
$000

362

8,251

595

The fair values of the Group’s financial assets and liabilities at 31 December 2017 and as at 31 December 2018 are materially equivalent to the
carrying value as disclosed in the Statement of Financial Position and related notes.

a) Cash flow interest rate risk
The Group is exposed to cash flow interest rate risk from monies held at bank and on deposit at variable rates. The considerations below and the
figures quoted are the same for both Group and Company.

The Group’s financial assets and liabilities accrue interest at prevailing floating rates in the United Kingdom or at pre-arranged fixed rates, as described
further below. The Group does not currently use derivative instruments to manage its interest rate risk.

At 31 December 2018 the Group held cash at bank and in deposits under its control of $5,626,124 (2017 – $8,250,678), which forms the majority
of the Group’s working capital. Of the cash at bank and in deposit, $256,265 (2017 – $540,892) relates to deposits placed with banking institutions
that are available on demand which carry interest at prevailing United Kingdom deposit floating rates. The balance represents restricted deposits of
$5,369,859 (2017 – $7,709,786) with a weighted average fixed interest rate of 0.2% (2017 – 0.2%) for three months. If there was 1% change in
interest rates the impact on the Statement of Comprehensive Income would be $53,698 (2017 – $77,098).

Cash and cash equivalents consist of cash at bank on demand and balances on deposit with an original maturity of three months or less.

GOVERNANCE REPORT

FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS continued
For the year ended 31 December 2018

CORPORATE DIRECTORY

b) Foreign currency translation risk
The operational currency of the oil and gas exploration and evaluation activities of the Group is US$ and the Group’s presentational currency is US$.
Foreign exchange risk arises because the Group’s services and treasury function is UK sterling, which results in gains or losses on retranslation into
US$. To minimise this foreign currency risk, cash balances are held in both £ sterling and US$.

The foreign currency profile of financial assets and liabilities of the Group and the Company are as follows:

Current financial assets

Held in UK£:
Other receivables
Cash and cash equivalents

Total current financial assets held in UK£
Held in US$:
Trade and other receivables
Cash and cash equivalents

Total financial assets

Group

Company

Other
receivables
measured at
amortised cost
2018
$000

Other
receivables
measured at
amortised cost
2017
$000

Other
receivables
measured at
amortised cost
2018
$000

Other
receivables
measured at
amortised cost
2017
$000

260
5,599

5,859

–
27

5,886

362
7,711

8,151

–
540

8,691

260
5,599

5,859

291,546
27

297,432

1,166
8,892

10,058

288,230
752

299,040

If there was a 10% change in the year end exchange rate there would be a movement in the US$ equivalent of financial assets held in UK£ of
$604,500 (2017: $815,100) for the Group and Company.

Held in UK£:
Trade and other payables

Total financial liabilities

Group

Company

Financial
liabilities
measured at
amortised cost
2018
$000

Financial
liabilities
measured at
amortised cost
2017
$000

Financial
liabilities
measured at
amortised cost
2018
$000

Financial
liabilities
measured at
amortised cost
2017
$000

300

595

300

595

Directors

Secretary

Registered office

Business address

Nominated advisor

Broker

Solicitors

Registrars

Bankers

If there was a 10% change in the year end exchange rate there would be a movement in the US$ equivalent of financial liabilities held in the UK£ of
$53,100 (2017 – $63,200) for the Group and Company.

Independent Auditors

c) Credit risk
Neither the Group nor the Company have customers, so formal credit procedures are in the process of being established. Credit risk on cash balances
is managed by only banking with reputable financial institutions with a high credit rating. The only significant concentration of credit risk on an
ongoing basis is cash held at bank and the maximum credit risk exposure for the Group and Company is detailed in the table below:

Investor Relations

Cash and cash equivalents

Maximum credit risk exposure

2018

2017

Carrying
Value
$000

5,626

Maximum
exposure
$000

8,251

Carrying
Value
$000

5,626

Maximum
exposure
$000

8,251

Capital
The objective of the Directors is to maximise shareholder return and minimise risk by keeping a reasonable balance between debt and equity. To date,
the Group has minimised risk by being purely equity financed. The Group considers its capital to comprise its ordinary share capital, share premium,
accumulated retained deficit and other reserves.

Harry Dobson
Howard Obee
Peter Fleming
Nigel Hurst-Brown

William Slack

One Fleet Place
London
EC4M 7WS

33 St James’s Square
London
SW1Y 4JS

Strand Hanson
26 Mount Row
London
W1K 3SQ

Mirabaud Securities LLP
5th Floor
The Verde Building
10 Bressenden Place
London
SW1E 5DH

SNR Denton UK LLP
One Fleet Place
London
EC4M 7WS

Link Asset Services
The Registry
34 Beckenham Road
Beckenham
BR3 4TU

Lloyds TSB Bank plc
19-21 The Quadrant
Richmond
Surrey
TW9 1BP

BDO LLP
55 Baker Street
London
W1U 7EU

Tavistock
1 Cornhill
London
EC3V 3ND

STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE REPORTBorders & Southern Petroleum plc Annual Report and Accounts 2018