Borders & Southern Petroleum Plc
ANNUAL REPORT AND ACCOUNTS 2020
Borders & Southern is an independent oil and gas exploration company, currently active in the Falkland
Islands where it holds three Production Licences covering an area of nearly 10,000 square kilometres. The
Company was successful with its first exploration drilling campaign, making a significant gas condensate
discovery, Darwin.
CONTENTS
Strategic Report
Highlights 2020 and Company Overview
Chairman’s and CEO’s Review
Darwin Gas Condensate Discovery
Business Model
Principal Risks and Uncertainties
Governance
Introduction to Governance
Board of Directors
Remuneration Committee Report
Directors’ Report
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
Notes to the Financial Statements
Corporate Directory
2
3
4
5
6
9
10
11
12
14
20
21
22
23
24
25
26
27
43
Further information:
www.bordersandsouthern.com
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Highlights 2020
•
•
Cash Balance on 31 December 2020: $2.18 million (2019: $3.68 million).
Administrative expense for the year: $1.0 million (2019: $1.45 million).
• Operating loss of $1.01 million (2019: $1.37 million)
•
The farm-out process has been extensive and far-reaching - the Company continues to investigate all possible options for
funding the next drilling programme.
Company Overview
Borders & Southern is listed on the London Stock Exchange (AIM). The Company holds an operating interest (100%) in three
Production Licences in the Falkland Islands which provide exclusive rights for surveying, drilling and production within the
specified area. The acreage covers nearly 10,000 square kilometres and is located approximately 150 km south-east of the
Islands.
The Company has acquired 2,517km of 3D seismic data and drilled two exploration wells. The first well, Darwin, resulted in a
major, liquids rich, gas condensate discovery. The second well, Stebbing, had good hydrocarbon shows, but failed to reach
its target depth. The Company’s strategic imperative is to monetise the Darwin discovery prior to exploiting its extensive
exploration prospect inventory.
Our vision is to be a successful explorer through the discovery and monetisation of hydrocarbons for the benefit of all our
stakeholders.
Our values are to act with integrity and honesty at all times. Our drive to succeed will not compromise high standards of
business ethics. We will act safely and responsibly in all activities.
Our strategy is 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, identifying, assessing and managing risks
associated with all aspects of our business.
Our short-term objective is to monetise the Darwin discovery as quickly as possible prior to returning to the exploration drill
bit to test of our extensive prospect inventory. The first step is to secure funding / partners for the next phase of operations.
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Chairman’s and CEO’s Review
Borders & Southern’s strategic objective is to monetise its Darwin discovery for the benefit of all its stakeholders. To achieve
this and to initiate the next step, the Company’s principal focus has been to acquire partners and funding for Darwin’s appraisal
programme. However, in the past few years, industry and capital market fundamentals have not helped our progress. 2020
continued in the same vein. But despite the challenge, the Board believes that the quality of the Darwin project merits the
continuation of its strategy and the Board’s commitment remains undiminished.
The loss from operations in 2020 was $1,046,000 (compared to $1,370,000 in 2019). The Company has always maintained strong
financial control and a low overhead. However, further cost savings have been made during the past year, including a reduction
in salaries by 50%. Administrative expense for the year was $1.0 million, compared to $1.47 million in 2019. The cash balance at
year-end was $2.18 million (2019: $3.68 million). The Company remains debt-free. With a decreasing cash balance, and in the
event that market conditions prevent us from sourcing partner funding, it may be necessary to raise additional capital in the
coming year.
The farm-out process has been extensive and far reaching. To assist the marketing, considerable effort has been put into
minimising drilling costs for the next campaign, addressing both the well designs and the service company costs. Potential
savings of up to 25% have been identified and this has formed the basis of our current conversations with potential partners.
The project fundamentals are strong. Economic projections are attractive, the break-even oil price is low (less than $35 per
barrel), sub-surface risks are low, and the environmental footprint low. As the industry enters the energy transition to a lower
carbon future, we believe that Darwin (with its estimated 460 million barrels of condensate and LPGs) is a worthy development,
comparing favourably to many global alternatives. Prior to the start of the next phase of operations, the Company commits
to fully integrating climate change into its business plan. We will define measures, report transparently, and mitigate our own
emissions as far as practicable.
Outlook for the industry remains challenging, although signs of optimism are noted. Brent crude has risen during the first
quarter of 2021, approaching $70 per barrel before declining to around $60 later in the quarter. Whilst this has not yet impacted
company expenditure patterns, if the trend were to continue, and energy demand accelerates as the world comes out of the
Covid pandemic crisis, there will be a need to bring additional resources into production. Borders & Southern aim to be part of
that production increase.
Harry Dobson
Non-Executive Chairman
Howard Obee
Chief Executive
13 April 2021
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Darwin Gas Condensate Discovery
Darwin’s reservoir comprises high quality, laterally continuous shallow marine sands. The trap consists of two contiguous
tilted fault blocks. The discovery is exceptionally imaged on 3D seismic data, where hydrocarbons are marked by a clear flat
spot and amplitude conformance to structure. The area of seismic amplitude anomaly is 26 square kilometres. The wet gas
discovery contains a large volume of LPGs as well condensate. An independent un-risked resource assessment concluded:
Estimated Wet Gas Initially In-place (Bscf):
Darwin East
Darwin West
Best Estimate Gross Contingent & Prospective Resource:
Low
659
1,361
Best
1,096
2,110
High
1,759
3,160
Condensate
(MMSTB)
Condensate &
LPG (MMBBL)
115
202
170
292
Darwin East (2C Contingent Resource)
Darwin West (Prospective Resource)
Darwin - Key Facts
Licence: PL018
Discovery well number: 61/17-1
Water Depth: 2011 metres
Structure: Tilted fault blocks
B&S interest: 100%
Discovery date: April 2012
Total depth: 4876 metres
Reservoir: Early Cretaceous
Gross reservoir interval: 84.5 metres
Net pay: 67.8 metres
Average porosity: 22% (up to 30%)
Average permeability: 337 mD (up to 1D)
Initial condensate yield: 148 stb/MMscf
Condensate API:
46 to 49 degrees
Exploration Inventory
The Company holds an exciting portfolio of amplitude supported prospects. Management’s total un-risked best estimate
prospective resource for near-field prospects exceeds one billion barrels. Additional, higher risk, structural and stratigraphic
prospects within the licensed acreage (nearly 10,000 square kilometres) exceed 5 billion barrels (management estimates).
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Business Model
Our aim is to create value through the discovery and monetisation of hydrocarbons by applying our core strengths:
Technical rigour
Our experienced in-house team is supported by expert consultants who have worked with the Company over a long period of
time. This team has a proven track record of discovery and evaluation.
Commercial discipline
The Company has always maintained a healthy balance sheet with no debt. Robust financial controls are in-place. Our financial
resources are effectively directed towards our strategic objectives.
Risk Management
All our activities are underpinned by thorough risk identification, monitoring and mitigation. We operate responsibly, displaying
care and respect to all our stakeholders.
How we create value:
Exploration
The Company has an exploration strategy focused on frontier or emerging basins. The aim is to build significant acreage
positions at relatively low cost. The basins must have the potential to yield substantial yet-to-find resources, large prospect
sizes and display good evidence of a working source rock. Comprehensive technical screening prior to access helps mitigate
the sub-surface risks, whilst economic modelling ensures project rewards justify the investment decision. We carefully deploy
our limited financial resources on acquiring the highest quality data, then apply our rigorous petroleum systems analysis to
compile a comprehensive prospect inventory with high-graded drilling targets.
Appraisal
If successful in the exploration phase, a discovery will be assessed for its commerciality. Analysis of well results, detailed
reservoir modelling, and integration of the new data into existing interpretations allow us to estimate the hydrocarbon volume
in-place and the potential recovery volume. If the project economics look positive, an appraisal drilling programme is designed
and executed in order to constrain resource estimates and test reservoir deliverability.
Development
Following successful appraisal and with continued positive project economic projections, detailed engineering and cost
analysis of development concepts are undertaken prior to design selection and final project sanction. First production and
cash flow might be several years after project sanction.
Given the scale of investment required for a major development, partners can be brought into the project at any time during
the exploration, appraisal or development phases.
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Principal Risks and Uncertainties
As an oil and gas exploration company, Borders & Southern is subject to a variety of risks and uncertainties. Managing risk
effectively is fundamental to delivering safe and responsible business plans and strategic objectives. Our approach is to ensure
that all significant risks are identified, their potential impact understood, and the likelihood of their occurrence assessed. The
Board of Directors review the risk register and ensure management plans are put in place where appropriate.
Sub-surface risk - exploration for oil and gas is inherently a risky business and commercial success cannot be guaranteed.
Whilst many of the technical risks can be mitigated, they cannot be eliminated.
The Company has an experienced sub-surface team with a proven track record. Industry experts provide specialist
supplementary skills. Current technologies and techniques are used in all evaluations.
Health and Safety risk – drilling for oil and gas in a remote, offshore environment presents many risks to personal safety
including serious injury or death.
The Company employs experienced drilling management teams. Prior to operations, detailed risk assessments and
mitigation plans are put in place, along with emergency response exercises, closely following industry best practices.
Environmental risk – the Falkland Islands are located in a remote area with an abundant range of wildlife and plant life that
could be at risk from operational incidents.
Prior to operations, the Company undertakes detailed environmental impact assessments and baseline studies using
industry specialists. Mitigation plans are put in place including oil response training for all relevant personnel.
Climate change risk – the activities of exploration and production companies could be subject to restrictions or moratoriums
in response to carbon emission reduction targets.
A Darwin development would have a lower carbon signature than many oil developments around the world. There is no
indication that the Falkland Islands Government want to place restrictions on the production of hydrocarbons as the
potential revenues will have a profound economic benefit to the Islands.
Financial (access to capital) risk – constraints in the capital markets could impact the Companies ability to carry out the
appraisal programme, future development programme and fund on-going overheads.
The Company holds a high-quality asset (Darwin) with a low break-even oil price and a relatively small environmental
footprint. Based on economic and environmental considerations, the Board considers Darwin to be very competitive against
other global opportunities.
If the Company is unable, in the short term, to complete a farm-out to fund the appraisal programme, the Company may
need to raise additional funds to ensure it is able to meet its overheads.
Financial (commodity price) risk – volatility in oil and gas prices can have a material impact on project economics and the
access to capital.
The Darwin project appears very robust at current levels in oil price. Project modelling suggests it is economic down to at
least $35 per barrel.
Political risk – the sovereignty of the Falkland Islands is challenged by Argentina
In the 2013 referendum in the Falkland Islands the people voted unequivocally to remain as a British Overseas Territory. The
British Government strongly supports the Falkland Islands right to determine their own future and rebuts Argentina’s claim to
sovereignty.
Key Personnel risk – to keep a low overhead the Company outsources many non-core roles. It is therefore reliant on a small
number of in-house personnel. Potential disruption to business and loss of Corporate knowledge could occur if these were to
depart the company.
The Company has service contracts with key employees that provide notice periods that allow sufficient time to source
experienced replacements. Additionally, the Company has a wide network of experienced contractors.
ESG
Borders & Southern’s business is to create value through the discovery and monetisation of hydrocarbons. To be successful,
we recognise that all our stakeholders should benefit, including shareholders, host governments, the communities in which
we operate, employees and partners. We aim to conduct our operations safely, in line with industry best practice. We focus on
limiting and mitigating our impact on the environment and we aim to conduct ourselves in an ethical and transparent way with
strong corporate governance.
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Principal Risks and Uncertainties continued
Climate Change and the Energy Transition
The 2016 Paris Agreement sets out targets to reduce the anthropogenic emissions of gasses that contribute towards global
warming. Energy production through the combustion of fossil fuels is one of several factors that contribute to greenhouse
gas emissions. But with energy demand expected to increase in line with continued global population growth and economic
development, the transition away from fossil-based energy resources to greener, renewable forms of energy is complex.
During the transition, hydrocarbons will remain an important resource, although high grading of projects is likely to occur.
The Company believes that Darwin is a worthy project to progress during the energy transition, due to the condensed
environmental impact of the development and the nature of the produced hydrocarbons.
At present the Company is in a non-operational phase. Our environmental footprint is minimal. But this will change when we
enter the appraisal drilling phase, with an increase in emissions. Prior to the start of operations, the Company commits to
fully integrating climate change into its business plan. We will define measures, report transparently, and mitigate our own
emissions as far as practicable.
Directors’ Duties
The Directors act in accordance with a set of duties detailed in section 172 of the Companies Act which are summarised as
follows:
•
A director of a company must act in the way they consider, in good faith, would be the most likely to promote the success
of the company for the benefit of its shareholders as a whole and, in doing so, have regard to:
·
·
·
·
·
·
The likely consequences of any decisions in the long term;
The interests of the company’s employees;
The need to foster the company’s business relationships with suppliers, customers and others;
The impact of the company’s operations on the community and environment;
The desirability of the company maintaining a reputation for high standards of business conduct; and
The need to act fairly between shareholders of the company.
Going concern
These consolidated financial statements have been prepared on a going concern basis which assumes the continuity of normal
business activity and the realisation of assets and settlement of liabilities in the normal course of business.
At 31 December 2020, the Group had a net cash position of $2.184m (31 December 2019 : $3.682m).The Group does not have
any external borrowings or debts. The Group has a commitment to drill a well before the expiry of its production license in
January 2022 (see note 18). The Group plans to fund the well through a farm-out. If the Group is not able to farm-out before
January 2022, the Group is confident that it will be able to extend the production licenses and the associated commitment to
drill the well. This is in line with previous extensions.
The Group’s board of directors have reviewed the Group’s forecasts for a period of no less than twelve months from the date of
approval of these financial statements, the period to 31 March 2022.
Based on these forecasts, in the absence of a farm-out, the directors have identified that further funding may be required to
cover administrative costs and licence fees beyond December 2021. Therefore, a material uncertainty exists which may cast
significant doubt about the Group’s continued ability to operate as a going concern beyond December 2021.
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Principal Risks and Uncertainties continued
Section 172 Statement
In addition to that outlined in the Chairman’s and CEO’s report (page 3) the ESG section above and in the Director’s Report
(pages 11-12), the Directors fulfilled their duties during the year in the following ways.
Throughout the year the Company has engaged with its key stakeholders and has incorporated their feedback into the Board’s
main strategic decisions. The two principal areas of strategic focus have been the pursuit of funding/partners for the next phase
of operations and the advancement of the sub-surface technical work.
As a company active in the Falkland Islands we ensure we represent the interests of the Falkland Islands community, the
Falkland Islands Government, Department of Minerals and environmental groups. As a member of FIPLA (Falkland Islands
Petroleum Licensee’s Association), not only do we foster relationships with other Falkland Islands operating companies, but
also engage with the government on petroleum policy development and matters impacting our business. We also provide
support to environmental groups for base-line studies with the objective of minimising our impact on the natural environment.
Through our monthly reporting to the Falkland Islands Department of Minerals we communicate developments in our sub-
surface work and listen to any feedback offered by their advisors at the British Geological Survey.
The Company’s strategies, results and on-going developments are communicated to shareholders and other stakeholders
through the Company’s website, incorporating Stock Exchange public releases and presentation material. The Board of
Directors are made aware of shareholder comments and feedback. Shareholders are encouraged, where possible, to attend the
annual AGM to offer direct feedback to all the Company’s Directors.
As a relatively small company with a business structure that has a limited number of in-house roles supported by expert out-
sourced functions, we are able to ensure a high level of communication with all employees. This cultivates a good appreciation
of business risks and objectives and provides employees with direct access to all Board members and input into critical
decision making.
The Strategic Report was approved by the Directors on 13 April 2021 and signed on its behalf by:
Harry Dobson
Non-Executive Chairman
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
INTRODUCTION TO GOVERNANCE
Principles of corporate
governance
I am, along with the rest of the
directors, responsible for corporate
governance. The board currently
comprises the Non-Executive 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. One of the critical roles of
the board is to make decisions that are
in the best interests of the Company
and that follow the six key factors in
S172(1) of the Companies Act. The
board meets formally or informally
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
The Company follows the QCA
corporate governance code which was
chosen as the most appropriate for
the time being. The Company remains
compliant with the principles of the
code and further details can be found
on its website under investor relations/
corporate governance.
My role as Chairman
I have been Chairman of the Company
since its inception and 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
board meeting agendas. I am in regular
contact with the Chief Executive Officer
on matters to do with the strategy.
Role of the Non-executive
Director
William Hodson brings oil and gas
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 2020 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; and
oversight and communication with
the Auditors
Internal Controls
The board is responsible for approving
all major projects, external reports
and budgets. During operations the
Company has robust internal controls
and risk management procedures
which are reviewed regularly to ensure
they are aligned with best practice.
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 13 April 2021
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
BOARD OF DIRECTORS
Harry Dobson
Non-executive Chairman
Howard Obee
Chief Executive Officer
Peter Fleming
Finance Director
William Hodson
Non-executive Director
Committee
Memberships
Chairman of the Audit
Committee and member
of the Remuneration
Committee
Experience
•
17 years’ experience
advising clients in the
natural resources sector.
•
•
Former partner of Ocean
Equities Limited
Former partner in Pareto
Securities Limited
Committee
Memberships
Chairman of the
Remuneration Committee
and member of the Audit
Committee
Committee
Memberships
None
Committee
Memberships
None
Experience
•
Former investment
banker and senior
partner of Yorkton
Securities plc
Experience
• Over 30 years’
experience in the oil
industry, with BP and
BHP Billiton
Experience
• Over 25 years of
upstream oil and gas
experience, at BHP
Billiton
•
Trained as an
exploration geologist
• Numerous technical and
commercial roles with
strategic planning and
business development
•
Seismic and drilling
operational experience.
• Held senior positions
in exploration and
business development,
investment evaluation,
acquisitions and
disposals and strategic
planning
• Masters degrees in
business administration
and finance.
•
•
Former Chairman
of American 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.
Number of board meetings during 2020
Attendance
Harry Dobson
Howard Obee
Peter Fleming
Nigel Hurst-Brown
William Hodson
Remuneration
Committee
Audit
Committee
Board
1
1
1
1
2
–
–
2
2
–
–
2
N/A
N/A
N/A
During the year Nigel Hurst-Brown resigned from the board (date of resignation: 29 December 2020) and William Hodson was
appointed to the board (date of appointment: 29 December 2020).
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
REMUNERATION COMMITTEE REPORT
On 18 May 2005 all of the Company’s Directors entered into a service agreement with the Company except for William Hodson
who joined during 2020.
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 2020 was as follows:
Harry Dobson
Howard Obee
Nigel Hurst-Brown
Peter Fleming
William Hodson
Basic salary
Share-based payment
Total 2020
Total 2019
£
–
$
–
154,167
197,589
–
–
123,333
158,071
–
–
277,500
355,660
£
–
–
–
–
–
–
$
–
–
–
–
–
–
£
–
$
–
£
–
$
–
154,167
197,589
250,000
337,840
–
–
1,819
2,458
123,333
158,071
200,000
270,270
–
–
–
–
277,500
355,660
451,819
610,568
During 2020 the Company commenced several initiatives to reduce overheads by approx. 25% including a 50% reduction in
salaries for the Executive Directors.
The Company paid £35,870 ($45,993) (2019: £56,784 ($76,735)) in National Insurance for its Directors during the year. The Group
operates a pension scheme for some of its employees.
Harry Dobson
Chairman of the Remuneration Committee
13 April 2021
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT
Directors and their interests
The beneficial and other interests of the Directors and their families in the share capital at 31 December 2020 and at 31
December 2019, were as follows:
Harry Dobson
Howard Obee
Peter Fleming
Nigel Hurst-Brown
William Hodson
At 31 December
2020
Number
At 31 December
2019
Number
26,670,000
10,000,000
2,200,000
N/A
–
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.
Nigel Hurst-Brown resigned as a director during the year.
The Group has provided the Directors with qualifying indemnity insurance from a third party.
Share options
Howard Obee
Peter Fleming
Number of
options held at
the beginning of
the year
Number of
options held at
the end of the
year
1,000,000
1,000,000
1,000,000
1,000,000
Fair value of
Options
24 pence
24 pence
Exercise price
Vesting period
51 pence
51 pence
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.
Substantial shareholders
At 31 March 2021, the following held 3% or more of the nominal value of the Company’s shares carrying voting rights:
Damille Partners
Interactive Investor
Hargreaves Lansdowne
Julius Baer Private Banking
Zila Corporation
LGT Vestra
HDSL
Barclays Smart Investor
Killik
Number of
Ordinary shares
% of share
capital
46,400,000
41,142,561
28,154,764
28,127,160
26,670,000
25,517,145
24,166,166
18,207,906
16,997,604
9.58%
8.50%
5.82%
5.81%
5.51%
5.27%
4.99%
3.76%
3.51%
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 26 and shows the result for the year. The Directors do not
recommend the payment of a dividend (2019 – $nil).
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Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT continued
Review of business and future developments
A review on the operations of the Group is contained in the Chairman and CEO’s Review on page 3 onwards.
Post reporting date events
There are no Company or Group specific 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 (2019 – $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.
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.
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, and
interpretations (collectively IFRSs) in conformity with the requirements of the Companies Act 2006. Under company law the
Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the Group 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 and Interpretations (collectively IFRSs) in conformity with
the requirements of the Companies Act 2006, subject to any material departures disclosed and explained in the financial
statements;
Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the 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.
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 13 April 2021
13
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Independent auditor’s report
to the members of Borders & Southern Petroleum Plc
Opinion on the financial statements
In our opinion:
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31
December 2020 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
the Parent Company financial statements have been properly prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the
provisions of the Companies Act 2006; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Borders & Southern Petroleum Plc (the ‘Parent Company’) and its subsidiaries
(the ‘Group’) for the year ended 31 December 2020 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 notes to the financial statements, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their preparation is applicable law and international accounting
standards in conformity with the requirements of the Companies Act 2006 and, as regards the Parent Company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
Material Uncertainty related to going concern
In auditing the financial statements, we draw attention to Note 1of the financial statements, which indicates that the Group
and the Parent Company require additional funding during the 12 months following the approval of the financial statements in
order to continue as a going concern.
As stated in Note 1, these events or conditions, indicate that a material uncertainty exists that may cast significant doubt on the
Group’s and Parent Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
We consider this area to be a key audit matter.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent
Company’s ability to continue to adopt the going concern basis of accounting included:
• Obtaining, challenging and assessing the Group and Parent Company’s base case cash flow forecasts and the underlying
assumptions which have been approved by the Board.
Challenging the Directors on the reasonableness of forecast assumptions applied in the model and assessing these against
prior year costs and considering the reasonableness of cost reduction policies proposed by Management.
Challenging and obtaining audit evidence to ensure that key inputs applied in the cash flow forecasts relating to
committed costs and working capital requirements were consistent with other financial and operational information
obtained during the course of the audit.
Performing reverse stress testing analysis on the cash flows in order to determine the point at which liquidity is breached.
Our testing considered whether such scenarios, including assessing the costs relating to the renewal of the Discovery and
Production licences impacted the going concern assessment.
•
•
•
14
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Independent auditor’s report
to the members of Borders & Southern Petroleum Plc continued
•
•
•
Discussing and seeking views from Management and the Audit Committee on the potential impacts of Covid-19 including
their assessment of risks and uncertainties.
Comparing the Group’s actual results for the year ended 31 December 2020 to the planned budgeted out turn for 2020 to
assess the quality of Management’s budgetary process.
Reviewing and considering the adequacy of the disclosure within the financial statements relating to the Directors’
assessment of the going concern basis of preparation.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
Overview
Coverage
Key audit matters
Materiality
100% (2019: 100%) of Group loss before tax
100% (2019: 100%) of Group total assets
KAM 1
KAM 2*
2020
2019
Carrying value of
exploration and
evaluation assets
Going concern
Carrying value of
exploration and
evaluation assets
N/A
* This is considered to be a key audit matter for the year end given the
material uncertainty relating to going concern.
Group financial statements as a whole
$ 4.1m (2019:$ 4.2m) based on 1.4% (2019: 1.4%) of total
assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system
of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of
management override of internal controls, including assessing whether there was evidence of bias by the Directors that may
have represented a risk of material misstatement.
We determined that there were two significant components and both of these were subject to a full scope audit. Together
with the Parent Company and its Group consolidation, which were both also subject to a full scope audit, these represent the
significant components of the Group.
The audits of each of the significant components were performed in the UK. All of the audit work was conducted by BDO LLP.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) that we identified, including those which had the greatest effect on the overall audit strategy, the allocation of
resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters. In addition to going concern, described in the Material uncertainty related to going concern section above, we
determined the matter described below to be a key audit matter.
15
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Independent auditor’s report
to the members of Borders & Southern Petroleum Plc continued
Key audit matter
Carrying value of
exploration and
evaluation assets
(Please refer to note 11)
The Group’s exploration and evaluation
assets associated with the Darwin and
Stebbing license areas in the Falkland
Islands represent the key assets on the
Group’s statement of financial position. As at
31 December 2020, the Group’s exploration
and evaluation assets totaled $294.80m
(2019: $291.82m).
Management performed an impairment
indicator review to assess whether there
were any indicators of impairment for the
exploration assets and whether impairment
was appropriate, noting that the Group holds
title to all licences until January 2022.
Given the inherent judgement involved in
the assessment of potential impairment
triggers and in considering the carrying value
of the exploration and evaluation assets, we
considered the carrying value of exploration
and evaluation assets to be a key audit matter
for the audit.
How the scope of our audit addressed the
key audit matter
• We assessed and challenged
Management’s impairment indicator
review to establish whether it was
performed in accordance with the
accounting policy and relevant
accounting standard.
• We obtained and read third party
documents relating to the licences status
which included detail of the underlying
well commitments.
• We assessed Management’s conclusion
on their ability to renew both licences
and checked Management’s conclusion
against publically available information
on the Falkland Island’s licensing renewal
regime.
• We considered whether there was
evidence in the Group cash flow that
funding was available to maintain
the Exploration & Evaluation assets
– alongside the material uncertainty
relating to going concern above.
• We reviewed the economic models
prepared by third party Management
experts and considered their
independence, competence and
objectivity.
Key observations:
Our audit procedures did not identify any
material misstatements in the carrying value
of exploration and evaluation assets or in the
disclosure as required by IFRS 6.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.
We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these
levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
16
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Independent auditor’s report
to the members of Borders & Southern Petroleum Plc continued
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance
materiality as follows:
Materiality
Group financial statements
Parent Company financial
statements
2020
$m
4.1
2019
$m
4.2
2020
$m
3.1
2019
$m
3.1
Basis for determining materiality
Materiality was set at 1.4% (2019: 1.4%) of the total assets.
Rationale for the benchmark applied
Performance materiality
Basis for determining performance materiality
We consider total assets to be the financial metric of the most
interest to shareholders and other users of the financial statements,
given the Group is a natural resources exploration entity.
Performance materiality was set at 75% (2019: 75%) of the above
materiality levels.
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% (2019: 75%) of the above materiality levels.
Lower Threshold
For items included within the income statement we also considered a lower threshold for testing given these items could
influence users of the financial statements. Thus, we have set a lower testing threshold for those the expenses in the income
statement which is based on 10% of loss before tax.
Component materiality
We set materiality for each component of the Group based on a percentage of between 99% and 100% of Group materiality
dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality
ranged from $ 3,074,000 to $ 3,105,000. In the audit of each component, we further applied performance materiality levels
of 75% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was
appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of $ 82,000 (2019:$
83,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of
the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information; we are required to report that fact.
We have nothing to report in this regard.
17
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Independent auditor’s report
to the members of Borders & Southern Petroleum Plc continued
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report and
Directors’ report
Matters on which we are
required to report by
exception
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic report and the Directors’ report for the financial
year for which the financial statements are prepared is consistent with the financial
statements; and
the Strategic report and the Directors’ report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent Company
and its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting
records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to
which our procedures are capable of detecting irregularities, including fraud is detailed below:
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, our procedures included the following:
• Making enquiries of Management including obtaining and reviewing supporting documentation, concerning the Group’s
policies and procedures relating to:
·
identifying, evaluating and complying with laws and regulations including Falkland Islands regulations and assessing
whether they were aware of any instances of non-compliance with such;
18
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Independent auditor’s report
to the members of Borders & Southern Petroleum Plc continued
·
·
detecting and responding to the risks of fraud from potential management override of controls and assessing whether
Management have knowledge of any actual, suspected or alleged fraud; and
reviewing the internal controls, through the testing of their design and implementation, to establish whether they are
able to mitigate risks related to fraud or non-compliance with laws and regulations.
Performing targeted journal entry testing based on identified characteristics the audit team considered could be indicative
of fraud, for example capitalisation entries to exploration and evaluation assets without a corresponding entry to cash or
trade payables
Critically assessing areas of the financial statements which include judgement and estimates, as set out in note 1 to the
financial statements
•
•
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are
inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is
from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
Anne Sayers (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
13 April 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
19
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
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
Basic and diluted loss per share (see note 3)
The notes on pages 27 to 42 form part of the financial statements.
Note
2
8
8
9
2020
$000
(1,046)
(1,046)
55
(11)
2019
$000
(1,447)
(1,447)
88
(11)
(1,002)
(1,370)
–
–
(1,002)
(1,370)
(0.21) cents
(0.28) cents
20
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2020
2020
2019
Note
$000
$000
$000
$000
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 attributable to the equity owners of the parent
company
Share capital
Share premium
Other reserves
Retained deficit
Foreign currency reserve
Total equity
233
3,682
225
2,184
10
11
13
14
16
15
151
292,241
292,392
2,409
294,801
(240)
294,561
8,530
308,602
1,777
(24,332)
(16)
294,561
The notes on pages 27 to 42 form part of the financial statements.
The financial statements were approved by the board of Directors and authorised for issue on 13 April 2021.
Howard Obee
Director
Company Number: 05147938
Peter Fleming
Director
118
291,765
291,883
3,915
295,798
(235)
295,563
8,530
308,602
1,777
(23,330)
(16)
295,563
21
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
Share
capital
$000
Share
premium
$000
Other
reserves
$000
Retained
deficit
$000
Foreign
currency
reserve
$000
Total
$000
Balance at 1 January 2019
8,530
308,602
1,775
(21,960)
(16)
296,931
Loss and total comprehensive loss for the
year
Recognition of share-based payments
–
–
–
–
–
2
(1,370)
–
–
–
(1,370)
2
Balance at 31 December 2019
8,530
308,602
1,777
(23,330)
(16)
295,563
Loss and total comprehensive loss for the
year
–
–
–
(1,002)
–
(1,002)
Balance at 31 December 2020
8,530
308,602
1,777
(24,332)
(16)
294,561
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 the translation of foreign operation to US dollars.
The notes on pages 27 to 42 form part of the financial statements.
22
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS COMPANY STATEMENT OF FINANCIAL POSITION
At 31 December 2020
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 attributable to owners of the parent company
Share capital
Share premium
Other reserves
Retained deficit
Foreign currency reserve
Total equity
2020
2019
Note
$000
$000
$000
$000
225
2,184
10
12
13
13
14
16
15
151
–
292,420
292,571
2,409
294,980
(240)
294,740
8,530
308,602
1,777
(24,151)
(18)
294,740
233
3,682
118
–
291,944
292,062
3,915
295,977
(235)
295,742
8,530
308,602
1,777
(23,149)
(18)
295,742
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 2020 was $1,002,000 (2019: $1,370,000). The notes on pages 27 to 42
form part of the financial statements.
The financial statements were approved by the board of Directors and authorised for issue on 13 April 2021.
Howard Obee
Director
Company Number: 05147938
Peter Fleming
Director
23
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY
At 31 December 2020
Share
premium
reserve
$000
Other
reserves
$000
Retained
deficit
$000
Foreign
currency
reserve
$000
Total
$000
Share capital
$000
Balance at 1 January 2019
8,530
308,602
1,775
(21,779)
(18)
297,110
Loss and total comprehensive loss for the
year
Recognition of share-based payments
–
–
–
–
–
2
(1,370)
–
–
–
(1,370)
2
Balance at 31 December 2019
8,530
308,602
1,777
(23,149)
(18)
295,742
Loss and total comprehensive loss for the
year
Recognition of share-based payments
–
–
–
–
–
–
(1,002)
–
–
–
(1,002)
–
Balance at 31 December 2020
8,530
308,602
1,777
(24,151)
(18)
294,740
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 the translation of foreign operation to US dollars.
The notes on pages 27 to 42 form part of the financial statements.
24
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Cash flow from operating activities
Loss before tax
Adjustments for: Depreciation
Share-based payment
Finance costs
Finance income
Unrealised foreign currency movements
Cash flows used in operating activities before
changes in working capital
Decrease in other receivables
Increase/(Decrease) in trade and other payables
Net cash outflow from operating activities
Cash flows used in investing activities
Interest received
Purchase of tangible fixed assets
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing
Cash flows from financing activities
Lease interest
Lease payments
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange gain on cash and cash equivalents
Cash and cash equivalents at the end of the year
The notes on pages 27 to 42 form part of the financial statements.
2020
2019
Note
$000
$000
$000
$000
(1,002)
(1,370)
10
7
8
8
8
13
16
8
10
11
8
16
14
95
–
11
(54)
2
(948)
8
(61)
(1,000)
92
2
11
(88)
27
(1,326)
29
(176)
(1,473)
2
–
(476)
(11)
(62)
27
(11)
(398)
(474)
(382)
(11)
(112)
(123)
(1,978)
5,626
34
3,682
(73)
(1,547)
3,682
49
2,184
25
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Cash flow from operating activities
Loss before tax
Adjustments for: Depreciation
Share-based payment
Finance costs
Finance income
Unrealised foreign currency movements
Cash flows used in operating activities before
changes in working capital
Decrease in other receivables
Increase/(Decrease) in trade and other payables
Net cash outflow from operating activities
Cash flows used in investing activities
Interest received
Increase in amounts due from Group undertaking
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing
Cash flows from financing activities
Lease interest
Lease payments
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange gain on cash and cash equivalents
Cash and cash equivalents at the end of the year
The notes on pages 27 to 42 form part of the financial statements.
2020
2019
Note
$000
$000
$000
$000
(1,002)
(1,370)
10
7
8
8
8
13
16
8
13
11
8
16
14
95
–
11
(54)
2
(948)
8
(61)
(1,000)
92
2
11
(88)
27
(1,326)
27
(176)
(1,475)
2
(476)
–
(11)
(62)
27
(396)
(11)
(474)
(380)
(11)
(112)
(123)
(1,978)
5,626
34
3,682
(73)
(1,547)
3,682
49
2,184
26
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
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.
These consolidated and Parent financial statements have been prepared in accordance with International Financial Reporting
Standards, and Interpretations (collectively IFRSs) in conformity with the requirements of the Companies Act 2006.
The consolidated financial statements have been prepared under the historical cost convention.
Adoption of new and revised International Financial Reporting Standards
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 on 1 January 2020. These include:
Amendments to References to Conceptual Framework
IFRS3: Definition of a business
The above standards had no material impact on the group’s financial statements.
Effective period
commencing on
or after
1 Jan 2020
1 Jan 2020
Standards effective in future periods
A number of new and amended accounting standards and interpretations have been published that are not mandatory for
the Group’s accounts for the year ended 31 December 2020 and nor have they been early adopted. These standards, which are
detailed below are not expected to have a material impact on the Group’s consolidated Financial Statements:
•
•
•
•
Amendments IAS 1: Classification of liabilities as current or non-current
Amendments to IAS 16: Property, plant and equipment
Amendments to IAS 37: Provisions, contingent liabilities and contingent assets; and
Amendments to IFRS 9, IAS 39 IFRS 7, IFRS 4 and IFRS 16: Interest rate benchmark reform
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.
Going Concern
The Directors are of the opinion that the financial statements of the Group should continue to be prepared on the going
concern basis, following its review of the Group and Company’s financial resources and other financing options available, for a
period of not less than twelve months from the date of approval of the financial statements. As noted in the Director’s report,
the Group does have a licence commitment to drill a well on its production licences before January 2022 which is the current
expiry date of the Production licence. At present the Group and Company does not have funds to complete this commitment
but the Directors are seeking the funds to meet this obligation through a farm-out. If the Group is not able to farm-out the
licence and associated commitment before January 2022 it remains confident that it will be able to extend the production
licence and the associated commitment to drill the well. This is in line with previous extensions.
Based on the factors above the Group and Company will need further funding beyond December 2021 through either a farm-
out or an equity issue to cover administrative costs and licence fees. Therefore, a material uncertainty exists which may cast
significant doubt about the Group’s continued ability to operate as a going concern beyond December 2021.
27
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
1 Accounting policies continued
The financial statements do not include the adjustments which would be required if the Group or Company were not
considered to be a going concern.
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
$1,010,000 (2019 – loss after tax of $1,370,000) 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. Interest is recognised using the effective
interest method.
Finance expense
The finance expense consists of interest on lease liabilities. Interest paid is recognised using the effective interest method.
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:
Office equipment - 331/3%
Right-of-use assets (Property) – over term of lease
Assets are depreciated from the date of acquisition and on a straight-line basis. Right of use assets are depreciated from the
date that the asset is available for use.
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
rights to explore in a specific area have been granted, 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
prior to aggregation 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.
28
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
1 Accounting policies continued
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.
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.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
•
•
Leases of low value assets; and
Leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily
determinable, in which case the Group’s incremental borrowing rate on commencement of the lease is used. Variable lease
payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial
measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other
variable lease payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes amounts expected to be payable under any residual
value guarantee;
•
•
Right of use assets are initially measured at the amount of the lease liability incentives received, and increased for lease
payments made at or before commencement of the lease; and
initial direct costs incurred
29
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
1 Accounting policies continued
Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the
remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease
term.
When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted using a revised discount rate.
The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a
rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the
carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease
term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.
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.
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.
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 from inception.
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.
•
•
•
30
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
1 Accounting policies continued
IFRS 9: Impairment of financial assets
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.
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 and laws 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 other comprehensive income or equity, in which case the tax is also dealt within other comprehensive
income or equity respectively.
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 and laws 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.
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 signing 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 in 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 there are any circumstances which are considered to be an indicator of
impairment. The Production licences associated with the CGUs expire in January 2022 having been extended in 2020. The
Discovery Area Licence is due for renewal also in January 2022. To extend the licences requires the consent of the Falkland
Islands Government and there is a risk that the licences will not be extended or renewed. However, we note that other
company’s licences have recently been extended. When taken alongside the positive resource report communicated in 2018
and the expected cash flows from the development of Darwin, management have concluded that there is no impairment of the
CGUs at the year end.
Recoverability of inter-group receivable balances (Company only)
Management are required to apply their judgement in the assessment of whether the inter-group receivable balances held by
the Company are subject to any potential expected credit loss. Management have assessed the recoverability of the balances
by reference to chances of success of finding first liquids attributed to the specific assets, probabilities around funding and the
overall indicative value of the assets derived from third party reports.
31
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
1 Accounting policies continued
Right-of-use (ROU) assets and lease obligations
The measurement of ROU assets and the corresponding obligations are subject to management’s judgement of the applicable
incremental borrowing rate and the expected lease term. The net book value of the ROU assets, lease obligations, and
interest and depreciation expense may differ due to changes in the expected lease terms. Where the discount rate determined
by reference to the rate inherent in the lease (as is typically the case) is not readily determinable, the group’s incremental
borrowing rate on commencement of lease is used as the discount rate. The weighted average cost of capital is used as an
input when determining the incremental borrowing rate.
The Group has applied judgement to determine the lease term for some lease contracts that include renewal options. The
assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly
affects the amount of lease liabilities and right-of-use assets recognised.
2 Loss from operations
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
Foreign exchange (gain)
2020
$000
590
–
55
6
95
(52)
2019
$000
916
2
52
3
92
(61)
During 2020 the Executive Directors agreed to a 35% reduction in salaries as part of a 25% reduction in total overheads. These
reductions are not deferred and subject to be re-evaluated during 2021.
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 $1,010,000 (2019 –
loss $1,370,000) and the weighted average number of shares in issue for the year was 484,098,484 (2019 – 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 6,100,000 (2019: 6,100,000) 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.
Of the Group’s total non-current assets, the property, plant and equipment are based in the UK and all other non-current assets
are located in the Falkland Islands.
32
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
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
2020
$000
522
63
5
590
–
590
2019
$000
806
103
7
916
2
918
The average number of employees (including Directors) employed during the year by the Group and the Company was five
(2019 – five). All employees and Directors of the Group and the Company are considered to be the key management personnel.
The National Insurance payments made during the year are detailed in the Remuneration Committee Report.
Of the $Nil (2019 – $1,718) share-based payment charge included in the Consolidated Statement of Comprehensive Income,
$Nil (2019 – $1,718) has been charged in respect of share options granted to staff (including Directors) in the current and prior
years.
6 Directors’ emoluments
The Directors’ emoluments for the year are as follows:
Executive directors
Wages and salaries
Share-based payments – equity-settled
2020
$000
356
–
356
2019
$000
575
2
577
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 $197,589 (2019 – $337,840).
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,
$Nil has been expensed during 2020. 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.
33
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
7 Share-based payment
Outstanding at 1 January
Granted during the year
Outstanding at 31 December
Exercisable at 31 December
2020
Weighted
average
exercise price
2019
Weighted
average
exercise price
2020
Number
2019
Number
29p
6,100,000
30p
7,050,000
–
29p
29p
6,100,000
6,100,000
29p
29p
–
6,100,000
6,100,000
The Company operates a share option scheme. The options are issued at market price at the time of issue, vest after three
years and have a life of ten years. When exercised they are equity-settled. The weighted average contractual life of the options
outstanding at the year end was four years (2019 – five years). The range of exercise prices of share options outstanding at the
end of the year is 1.8p-51p (2019 – 1.8p-74p).
8 Finance income and expense
Finance income
Bank interest received
Foreign exchange gain
Finance expense
Lease interest
9 Tax expense
Current tax expense
UK corporation tax on loss for the year at 19% (2019 – 19%)
Adjustments recognised in the current year in relation to the current tax of prior years
Total current and deferred tax for the year
2020
$000
2
53
55
2020
$000
11
11
2020
$000
–
–
–
2019
$000
27
61
88
2019
$000
11
11
2019
$000
–
–
–
34
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
9 Tax expense continued
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:
Loss before taxation
Standard corporation tax charge at 19% (2019 -19%)
Expenses not deductible for tax purposes
Prior year adjustment
Adjust closing deferred tax rate to average rate 19% (2018 -19%)
Adjust opening deferred tax rate to average rate 19% (2018 -19%)
Remeasurement of deferred tax for changes in tax rate
Movement in unrecognised deferred tax for the year
Fixed asset differences
IFRS 16 adjustment
Total current and deferred tax for the year
2020
$'000
(1,002)
(190)
–
–
–
–
(186)
376
–
–
2019
$'000
(1,368)
(260)
–
(183)
187
(160)
–
413
1
2
–
The Group has a deferred tax asset of approximately $1,962,874 (2019: $1,607,622) in respect of unrelieved tax losses of
approximately $10,229,437 at 2020 (2019: $9,456,602) and fixed asset timing differences of $101,478 at 2020 (2019: $nil). The tax
rate of tax used in the calculation for the deferred tax asset is 19% (2019: 17%). The deferred tax asset has not been recognised
in the financial statements as the timing of the economic benefit is uncertain.
35
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
10 Property, plant and equipment – Group and Company
Cost
As at 1 January 2019
Recognition due to adoption of IFRS 16
As at 31 December 2019
Depreciation
As at 1 January 2019
Charge for the year
As at 31 December 2019
As at 1 January 2019
As at 31 December 2019
Cost
As at 1 January 2020
Additions
As at 31 December 2020
Depreciation
As at 1 January 2020
Charge for the year
As at 31 December 2020
As at 1 January 2020
As at 31 December 2020
36
Right-of-use
assets
$’000
Office
equipment
assets
$’000
Office
equipment
and
right-of-use
$’000
-
184
184
-
89
89
-
95
120
11
131
105
3
108
11
23
Right of use
asset
(Property)
$’000
Office
equipment
$’000
184
127
311
89
89
178
95
133
131
-
131
108
6
114
23
18
120
195
315
105
92
197
11
118
Total
$’000
315
127
442
197
95
292
118
151
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
11 Intangible assets
Group
Cost
As at 1 January 2019
Additions
As at 31 December 2019
Net book value
As at 1 January 2019
As at 31 December 2019
Group
Cost
As at 1 January 2020
Additions
As at 31 December 2020
Net book value
As at 1 January 2020
As at 31 December 2020
Exploration and
evaluation costs
$000
291,367
398
291,765
291,367
291,765
Exploration and
evaluation costs
$000
291,765
476
292,241
291,765
292,241
In November 2020 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 Licences PL018, PL019 and part of PL020 was extended until 31
January 2022. The expiry date of Darwin East Discovery Area licence is also 31 January 2022. As noted, the Company has a one
exploration well commitment on its production licences.
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 have been made.
12 Investment in subsidiary
Company
Cost
As at 1 January and 31 December
Net book value
As at 31 December
2020
$
2
2
2019
$
2
2
The Company owns the one ordinary £1 subscriber share, being 100% of the issued share capital, in Borders & Southern
Falkland Islands Limited. The Company is registered in England and its principal activity is oil and gas exploration. Company’s
registered office is in One Fleet Place, London EC4M 9AF.
37
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
13 Other receivables
Amount due from subsidiary
Other receivables
Prepayments
Subtotal
Total other receivables
Group
2020
$000
–
77
148
225
225
Company
2020
$000
2019
$000
292,412
291,944
77
148
225
90
143
233
292,637
292,177
2019
$000
–
90
143
233
233
All amounts owed by or to entities outside the group are shown as other receivables and prepayments and fall due for payment
within one year. The Group’s exploration licenses are held by a wholly owned subsidiary and all costs incurred by the subsidiary
have been financed by the parent company. The amount due from the subsidiary is interest free and payable on demand and is
expected to be repaid from the revenues of the Darwin field production. Management considers the loan to be in stage 3. All the
internal and external technical and economic studies undertaken to date have confirmed Darwin to be economic. Sensitivities
have been applied to the key inputs into the models used to analyse Darwin and the field has been proven to be robust under
different scenarios. 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.
14 Cash and cash equivalents and restricted use cash
Group and Company
Cash available on demand
Cash on deposit
Total
2020
$000
321
1,862
2,184
2019
$0000
320
3,362
3,682
Cash and cash equivalents consist of cash at bank on demand and balances on deposit with an original maturity of three
months or less.
All of the Company’s bank deposits are with Lloyds Bank plc. It has a P-2 credit rating with Moody’s, F1 with Fitch and A-2 with
Standard & Poor’s.
15 Share capital
Authorised
2020
$000
2019
$000
750,000,000 ordinary shares of 1 pence each (2019 – 750,000,000)
14,926
14,926
Allotted, called up and fully paid
484,098,484 ordinary shares of 1 pence each (2019 – 484,098,484)
8,530
8,530
Share capital
At 1 January
At 31 December
Share premium
At 1 January
At 31 December
There are no restrictions on the share capital.
38
8,530
8.530
308,602
308,602
8,530
8,530
308,602
308,602
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
16 Trade and other payables
Trade payables
Other taxes and social security costs
Lease liabilities
Accruals
Total
Group
Company
2020
$000
3
19
137
81
240
2019
$000
–
35
72
128
235
2020
$000
3
19
137
81
240
2019
$000
–
35
72
128
235
In accordance with IFRS 16 and using the modified retrospective approach, lease liabilities of $184,000 were recognised as at 1
January 2019. During 31 December 2020 $62,000 had been repaid to leave an amount due of $10,000 at year end and interest of
$11,000 was paid during the year. In October 2020 the lease was extended to 31 January 2022, resulting in an increased liability
of $137,000 at 31 December 2020 all due within one year. Due to changes in the way people may work after the COVID related
travel restrictions are lifted may impact the lease cost level and expiry date.
17 Related party transactions
Company
During the year Borders & Southern Petroleum Plc paid expenses of $476,000 (2019 – $478,000) on behalf of its 100% owned
subsidiary Borders & Southern Falkland Islands Limited. At the year end $292,412,000 (2019 – $291,944,000) was due from the
subsidiary.
18 Commitments
The Group Production Licence commitment is to drill one exploration well before 31 January 2022.
19 COVID-19
The Company has throughout the pandemic complied with Government guidelines. However, the company is not significantly
impacted as employees are able to work from home. Once the travel restrictions are lifted it is expected that employees will
combine coming into the office with working from home. During operations a full risk assessment on all matters would be
completed.
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.
39
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
20 Financial instruments continued
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
2020
$000
77
2,184
240
2019
$000
53
3,682
200
Other receivables do not include items that are not financial instruments.
The fair values of the Group’s financial assets and liabilities at 31 December 2019 and at 31 December 2020 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 2020 the Group held cash at bank and in deposits under its control of $2,183,823 (2019 – $3,681,581), which
forms the majority of the Group’s working capital. Of the cash at bank and in deposit, $321,403 (2019 – $319,348) 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 $1,862,420 (2019 – $3,362,233) with a weighted average
fixed interest rate of 0.1% (2019 – 0.2%) for three months. If there was 1% change in interest rates the impact on the Statement
of Comprehensive Income would be $18,624 (2019 – $33,622).
b) Foreign currency translation risk
The operational currency of the oil and gas exploration and evaluation activities of the Group is US$ 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$.
40
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
20 Financial instruments continued
The foreign currency profile of financial assets and liabilities of the Group and the Company are as follows:
Group
Company
Other
receivables
measured at
amortised
cost
2020
$000
Other
receivables
measured at
amortised cost
2019
$000
Other
receivables
measured at
amortised
cost
2020
$000
Other
receivables
measured at
amortised cost
2019
$000
77
2,155
2,232
–
29
90
3,664
3,754
–
18
77
2,155
2,232
90
3,664
3,754
292,420
291,944
29
18
2,261
3,772
294,449
295,716
Current financial assets
Held in UK £:
Trade and other receivables
Cash and cash equivalents
Total current financial assets held in UK£
Held in US$:
Trade and other receivables
Cash and cash equivalents
Total financial assets
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 $223,200 (2019: $375,000) for the Group and Company.
Group
Company
Financial
liabilities
measured at
amortised
cost
2020
$000
Financial
liabilities
measured at
amortised cost
2019
$000
Financial
liabilities
measured at
amortised
cost
2020
$000
Financial
liabilities
measured at
amortised cost
2019
$000
240
240
235
235
240
240
235
235
Held in UK£:
Trade and other payables
Total financial liabilities
41
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
20 Financial instruments continued
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:
Cash and cash equivalents
Maximum credit risk exposure
2020
2019
Carrying
Value
$000
2,184
2,184
Maximum
exposure
$000
2,184
2,184
Carrying
Value
$000
3,682
3,682
Maximum
exposure
$000
3,682
3,682
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.
42
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CORPORATE DIRECTORY
Directors
Secretary
Registered office
Business address
Nominated adviser and Joint Broker
Joint Broker
Solicitors
Registrars
Bankers
Independent Auditors
Investor Relations
Harry Dobson
Howard Obee
Peter Fleming
William Hodson
William Slack
One Fleet Place
London
EC4M 7WS
33 St James’s Square
London
SW1Y 4JS
Strand Hanson
26 Mount Row
London
W1K 3SQ
Auctus Advisors
Robsacks Long Barn Road
Weald
Sevenoaks
Kent TN14 6NJ
SNR Denton UK LLP
One Fleet Place
London
EC4M 7WS
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Lloyds TSB Bank plc
19-21 The Quadrant
Richmon
Surrey TW9 1BP
BDO LLP
55 Baker Street
London
W1U 7EU
Tavistock
1 Cornhill
London
EC3V 3ND
43
Borders & Southern Petroleum Plc ANNUAL REPORT AND ACCOUNTS 2020STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES
Produced by
london@blackandcallow.com
www.blackandcallow.com
020 3794 1720
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