Company number: 5966431
Caspian Sunrise plc
Annual report and financial statements
for the year ended
31 December 2016
0
Contents
Strategic Report
Chairman’s Statement
Directors’ report
Remuneration Committee Report
Report on Corporate Governance
Independent auditors’ report to the members of Caspian Sunrise plc
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Parent Company Statement of Changes in Equity
Consolidated Statement of Financial Position
Parent Company Statement of Financial Position
Consolidated and Parent Company Statement of Cash Flows
Notes to the Financial Statements
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6
16
18
20
21
23
24
25
26
27
28
29
30
1
Directors
Mr C Carver (Executive Chairman)
Mr K Oraziman (Chief Executive Officer)
Mr K Satylganov (Chief Financial Officer)
Lord Limerick (Non Executive Director)
Company Secretary
Mr Clive Carver
Registered Office and Business address
5 New Street Square, London EC4A 3TW
Company Number 5966431
Nominated Adviser and Broker
WH Ireland Limited
Solicitors
Fladgate LLP
16 Great Queen Street, London, WC2B 5DG
Auditors
BDO LLP, 55 Baker Street, London, W1U 7EU
Share Register
Capital Registrars
Northern House, Woodsome Park, Fenay Bridge,
Huddersfield, HD8 0LA
Principal Banker
HSBC bank London
1-3 Bishopsgate,
London, EC2N 3AQ
2
Strategic Report
Directors present their strategic report on the Group for the year ended 31 December 2016.
Introduction
The Company’s name was changed from Roxi Petroleum to Caspian Sunrise following shareholder approval of the Baverstock
Merger on 24 March 2017.
This strategic report comprises; the Group's objectives; the Group's strategy; the Group's business model; and a review of the
Group's business using key performance indicators.
The Chairman's statement, which also forms the main part of the strategic review, contains a review of the development and
performance of the Group’s business during the financial year, and the position of the Group's business at the end of that year.
Additionally, a summary of the principal risks and uncertainties facing the business is set out in this strategic report immediately
before the Chairman's statement.
Objectives
The Group's objective is to create shareholder value from the development of oil and gas projects and associated activities.
The Group has a number of secondary objectives, including promoting the highest level of health & safety standards,
developing our staff to their highest potential and being a good corporate citizen in our chosen countries of operations.
Strategy
The Group's long term strategy is to build an attractive portfolio of oil and gas exploration and production assets in Central Asia,
and in particular Kazakhstan where the board has the greatest experience.
Additionally the Group will seek to exploit associated opportunities where the board believes it can add significant value and
contribute towards the success of the Group as a whole.
At present the Group’s principal asset is its interest in BNG, which the Group will continue to develop.
Business model
The Board plans to further develop the BNG Contract Area such that by summer 2018, the expected date when a full
production licence will be applied for, the BNG Contract Area has been drilled to identify the greatest level of reserves and
production consistent with not unduly diluting Caspian Sunrise's shareholders interest in the asset.
Should the Group achieve reserves in excess of 100 tonnes (730 mbbls) by the date of this licence renewal it would qualify for
a 49-year production licence rather than the standard 29-year licence.
Over the medium term the Group will consider acquiring additional assets where the board believes an acquisition would
increase shareholder value. The Directors believe the Group is exceptionally well placed through its local presence to increase
shareholder value by opportunistic acquisitions of undervalued oil and gas assets.
Additionally, the Board believes there is a significant opportunity to assist much larger companies seeking to enter the vast
Kazakhstan oil and gas market where they wish to have a well placed local partner.
Notwithstanding the above should the board identify other projects where the Group’s status and positioning as a leading
Kazakh smaller resources company allows it to make opportunistic profitable investments in the wider oil & gas sector it would
seek to do so provided this did not compromise the Group’s wider plans.
Key performance indicators
Review of the Group's business using key performance indicators.
The Key Performance Indicators are:
Operational (wells drilled)
Production (oil produced)
Following the completion of the Baverstock Merger the Company will own 99% interests in the BNG and Munaily Contract
Areas. Production from BNG must under the terms of the current licence be sold at domestic prices although production under
the planned BNG Full Production licence would be capable of being sold at International prices. Production from Munaily may
be sold at international prices.
3
At the date of this report production from the:
BNG Contract Area was 1,300 bopd (2015: 825 bopd)
Munaily Contract Area was 80 bopd (2015: 75 bopd)
Details of the wells drilled are set out in the Chairman’s statement.
Reserves
Details of the Group's assets and reserves are set out in the Chairman's statement.
Financial
The principal expenses of the Company relate to the drilling programme at BNG. The Company’s drilling commitments under
the BNG licence include one shallow well (now drilled) and two deep wells by 30 June 2018. Day to day drilling costs have
recently been funded by the pre sales of oil, which is expected to be the principal source of funding for the remainder of the
2017 drilling programme. The deep wells will require additional debt or equity funding. There remains some $10.8 million
undrawn on the $40 million equity facility provided by Kairat Satylganov. However such funding would result in new equity
being raised at a price of some 7.41p per share, which is materially below the prevailing share price and, accordingly, it is not
currently the intention of the board to call further on this facility unless necessary. Whilst, if required, this facility would meet one
of the deep well commitments further funding will be required to complete the drilling program. In keeping with other oil and gas
exploration companies the Group frequently seeks to raise funds to undertake its drilling program as and when such funds are
required. The Directors remain confident that necessary funding will be obtained for the drilling program, either through
additional debt or equity.
In the event the Group decides to develop BNG at a rate faster than could be funded by current production or choses to
acquire other assets, additional equity or debt would also be required.
Other costs are the costs associated with G&A and maintaining the London listing for the Group's shares and for the period
under review and in 2017 the costs associated with the Baverstock merger.
The principal and other risks and uncertainties facing the business
The Company and the Group are subject to various risks relating to political, economic, legal, social, industry, business and
financial conditions. The following risk factors, which are not exhaustive, are particularly relevant to the Company and the
Group's business activities:
Financing risks
Despite the continued low price of rigs and crew exploring for oil is still an expensive business, with each well drilled potentially
costing typically US$1.5 million for a shallow well and between US$8 million and US$12 million for a 5,000 meter well.
The relatively low value of the Kazakh Tenge compared to the US$ mitigates the costs of exploration and production as most
workers and some equipment costs are denominated in Kazakh Tenge.
Following the proposed capitalisation of the US$10.1 million debt due to Vertom, which was approved by shareholders in March
2017, but remains subject to the completion of the Baverstock Merger, the Group will be free of long term debt with only short-
term financing from local oil traders based upon existing production.
The Group continually monitors the financing arrangements to ensure the continuation of the operational activities and expects
to fund the bulk of the costs of its planned development programme over the next 12 months from the proceeds of the receipt of
oil plus the introduction of new equity or debt as set out above. In the short term the continued availability of funding from local
oil traders remains crucial to the completion of the current work programme and additional funding is required to meet short
term working capital. To this end, the Group’s major shareholder has provided written undertakings to provide funding to meet
working capital requirements (excluding future drilling costs) if necessary. Further details regarding financing risks are set out in
note 1.1 to the financial statements.
Exploration risk
Despite our recent successes with our shallow wells there is no assurance that the Group's future exploration activities will
continue to be successful. Accordingly, the Group seeks to reduce this risk by acquiring and evaluating 3D seismic information
before committing to drill exploration and appraisal wells. The Company also seeks to engage suitably skilled personnel either
as employees or contractors to undertake detailed assessments of the areas under exploration.
Environmental and other regulatory requirements
Existing and possible future environmental legislation, regulations and actions could cause additional expense, capital
expenditures, restrictions and delays in the activities of the Group, the extent of which cannot be predicted.
4
Before exploration and production can commence the Group must obtain regulatory approval and there is no assurance that
such approvals will be obtained. No assurance can be given that new rules and regulations will not be enacted or existing
legislations will not be applied in a manner, which could limit or curtail the Group's activities.
The Group employs staff experienced in the requirements of the Kazakh environmental authorities and seeks through their
experience to mitigate the risk of non-compliance with accepted best practice.
Operational risks
It is the nature of oil and gas operations that each project is long term. It can be many years before the exploration and
evaluation expenditures incurred are proven to be viable and progress to reach commercial production.
To control these risks the Board arranges for the provision of technical support, directly or through appointed agents and also
as appropriate commissions technical research and feasibility studies both prior to entering into these commitments and
subsequently in the life of these projects.
In addition, operational risks include equipment failure, well blowouts, pollution, fire and the consequences of bad weather.
Where the Group is project operator, it takes an increased responsibility for ensuring that the Company is compliant with all
relevant legislation.
The Group has hired competent people with appropriate skills to manage such risks at the appropriate levels within the Group
structure. Additionally where appropriate the Group engages expert contractors.
Political risk
The Group currently operates primarily in Kazakhstan. The nature of the Group's investments requires the commitment of
significant funding to facilitate exploration and evaluation expenditure in Kazakhstan.
While the Group enjoys very good working relationships with the Kazakh regulatory authorities there can be no assurances that
the laws and regulations and their interpretation will not change in future periods and that as a result the Group’s activities
would be affected.
However, the Directors believe with the exceptionally high proportion of Kazakh nationals in key positions and the Group’s
prolonged experience of operating in Kazakhstan it is as well placed as any internationally listed company operating in
Kazakhstan to avoid inadvertently falling foul of local regulations or customs.
Pricing risk
As the Group increases production during the exploration and estimation phases of its licences its financial performance could
be adversely affected by a fall in the price of oil.
World prices have stabilised in the period under review and subsequently. The bulk of the oil sold is from the BNG Contract
Area and under the terms of the current licence must be sold at domestic prices, which in recent months have typically been
some US$16 per barrel. Until BNG is awarded a full production licence, the first opportunity being in June 2018, the Group will
not be able to sell oil produced from the BNG Contract Area at world prices.
Over the medium and longer terms the Group will inevitably be impacted by movements in the price of oil. Production levels to
date have not warranted active hedging and no oil price hedging is anticipated in the coming year.
Exchange rate risk
The Group's income is denominated in US$ and its expenditure is denominated in US$ and Kazakh Tenge. In the year under
review the exchange rate movement was limited. However in recent years the Tenge has suffered serious depreciation against
the US$, which has materially benefitted the Group. In the event the Kazakh Tenge is devalued further against the US$ the
Company benefits as income is unaffected but Tenge denominated costs fall when reported in US$.
The Group's presentational currency is the US$. Since 2014, the Kazakh Tenge has depreciated by approximately 82% against
the US$ resulting in an accounting reduction in the carrying value of our unproven oil and gas assets of approximately US$90
million as the result of devaluations in the Kazakh Tenge.
Given the relative strengths of the US$ and the Kazakh Tenge the Group has decided not to seek to hedge this foreign
currency exposure.
5
Chairman's Statement
A new start
The long planned merger with Baverstock marks the start of a new phase in the Group’s development. Once the merger, which
independent shareholders approved on 24 March 2017, has completed we will own a 99% interest of our flagship BNG asset.
We will therefore be free to develop the BNG Contract Area in the direction and at a pace to suit ourselves alone.
Additionally, with the capitalisation of the US$10.1 million Vertom loan which is also subject to the completion of the Baverstock
Merger, the Group will be free of long-term debt with only short-term financing from local traders based upon existing
production.
To mark the new phase in the Group’s development shareholders also approved the change of name to Caspian Sunrise. The
new name both identifies our principal operational location but also draws on the imagery depicted on the Kazakh national flag
with its rising sun in a clear blue sky.
Business performance overview
Introduction
During the period under review and subsequently the Group has made steady progress against the backdrop of an industry
recovering with broadly stable oil prices.
Our 58.41% (99% following the completion of the Baverstock Merger) interest in our principal asset, the BNG Contract Area,
remains a potentially very valuable asset, possibly comparable with other high profile assets in the area.
While we have been extremely successful with our shallow wells this is not yet the case with our deep wells. A consistent
theme with our deep wells over the past few years has been how to deal with the problems resulting from extremely high
pressure and temperatures. Once mastered, BNG, in the opinion of the Board, has the ability to become a very significant oil
producer.
BNG Background
The BNG Contract Area is located in the west of Kazakhstan 40 kilometers southeast of Tengiz on the edge of the Mangistau
Oblast, covering an area of 1,561 square kilometers of which 1,376 square kilometers has 3D seismic coverage acquired in
2009 and 2010.
In January 2016, we announced that the area of the Contract Area was extended at a cost of US$2 million with the addition of
140.6 square kilometres to the northeast of the current block. The extended BNG Contract Area now covers 1,702 square
kilometres.
We intend to acquire 3D seismic data on the new territory before finalising its drilling plans. Of particular interest is the deep
formation currently being explored by Deep Wells A5, 801 & A6, which the Company believes extends into the new extension
area.
The BNG Contract Area is similar in size to the area bounded by London’s M25 Motorway. It is sparsely populated and arid
region highly successful in oil production, being only 40 kilometers from the world-renowned Tengiz field.
BNG is located close to existing oil separation facilities and close to the CPC export pipeline, which provides a relatively low
cost option to export our oil when the licence terms permit and is expected to significantly reduce the funding required to bring
BNG into full field production. This together with low lifting costs are expected to place BNG in the bottom quartile as a low cost
producer.
Our approach to developing BNG
The Contract Area has a number of areas of interest both above the salt layer (shallow) and below the salt layer (deep).
Development of the shallow prospects is technically far easier than the deep prospects and much cheaper. Shallow well costs
have typically been approximately US$1.25 - US$1.5 million with successful wells repaying drilling costs in little over 12 months
even though production may only be sold at domestic prices under the current exploration licence (approximately US$16 per
barrel at the end of the period under review and subsequently).
We expect commercial production from certain shallow wells to be in excess of 600 bopd.
Development of the deeper prospects is technically difficult with problems from extreme high pressure and temperature to be
overcome. Costs of deep wells have typically been between US$8-US$15 million over the period drilled.
The rewards from a deep well are however expected to be much greater with wells expected to flow potentially at rates
between 2,000 – 3,000 bopd and with oil of a significantly higher quality, which on the open market would command a premium
over the oil produced from the shallow wells.
6
The quantity of oil to be discovered and produced from the deep prospects is also expected to be very significantly greater than
from shallow prospects.
We therefore have a mix of shallow and deep development activities. The shallow wells are quick to drill and have an excellent
pay-back period even from existing pilot production, which is partially funding the continued development of BNG. The
aggregate production from these and other shallow wells will, in the board’s opinion, be the basis for a very successful
commercial enterprise without any contribution from the deep prospects.
However the addition of successful deep prospects very materially increases the value of the Contract Area and our Group.
During 2016, a further US$10.5 million was invested into BNG (2015: US$11.7 million).
BNG Shallow
South Yelemes structure
The South Yelemes structure was first identified as an oil producing structure during the Soviet era. During the Group’s
involvement with BNG three new shallow wells (805,806 & 807) have been drilled and in aggregate these are producing at the
rate of 150 bopd.
Whilst useful these are not rates high enough to warrant further investment given the other opportunities at BNG. Accordingly
no new shallow wells are planned on this structure.
MJF structure
It was during the period under review that the full potential of the MJF structure became apparent.
Well 143 was drilled to a depth of 2,750 meters in 2013 to explore a potential new structure. During 2016, after delays in
clearing the well of excess drilling fluid, we tested the well at 5 separate intervals, with the result the well is currently producing
at the rate of 604 bopd using a 8 mm choke.
Also in 2016, we drilled wells 141 and 142 both to depths of 2,500 meters to assess the extent of the MJF structure. The
success of both Well 141 and Well 142 has resulted in aggregate production from the MJF structure of 1,150 bopd and the
extension of the area to a minimum of 10km2.
A further shallow well (Well 144) is planned to be spudded in Q2 2017 to assess further the MJF structure. This well has a
planned total depth of 2,500 meters is targeting the same Jurassic Callovian sands at a depth of 2,200 meters with a secondary
objective in the Cretaceous Valinginian limestone at a depth of 1,900 meters as wells 141, 142 and 143. Total depth is
expected to be reached by the end of Q2 2017. Well 144 is located some 0.89 km from well 141 and some 2 km from Well
143, which is believed to be near the centre of the MJF structure. If successful Well 144 should extend the minimum size of the
MJF structure from the current 10 km2.
Potential New structure
We have also explored a potential new structure with Well 808, which was spudded in Q1 2017 targeting Cretaceous Jurassic
and possible Triassic horizons and reached its total depth of 3,200 meters in March 2017.
The well has six intervals with potential hydrocarbons. The lower intervals tested between 3,038 – 3030 meters and between
3,014 and 3,008 meters contained shows of oil films but tested water with gas and are not considered worth pursuing.
The remaining intervals between 2714 – 2716 meters; 2646 – 2648 meters; 2557 – 2559 meters & 2356 – 2363 meters are
planned for perforation and testing in in Q2 2017.
In the event the results of testing the remaining intervals at Well 808 indicate the presence of a significant quantity of oil a
further two wells are planned for later in 2017.
Shallow reserves
Production from the South Yelemes structure and Well 143 in the MJF structure led to Gaffney Cline & Associates to ascribe
29.3 mmbls of P2 reserves to these structures. Since 31 December 2015 cut off date for the information considered we have
successfully drilled Well 141 & Well 142 and spudded Well 144 on the MJF structure and successfully drilled and tested Well
808 on the new structure. In due course we will ask Gaffney Cline & Associates to reconsider their assessment of the reserves
attributable to our shallow structures.
BNG Deep
Work in the period under review and subsequently has focused on getting the three wells drilled to flow freely to allow well tests
to be undertaken.
Deep Well A5
Deep Well A5 was the first of the deep wells to be drilled and like deep Well A6 has been drilled on the Airshagyl structure.
The well has produced for a few hours at the rate of 2,000 bopd but has not yet flowed sufficiently for a prolonged well test.
7
Extreme high pressure and temperature resulted in a difficult drilling phase, which led to the initial decision to test the well on
an open-hole basis. We no longer believe an open-hole test is the best way forward and have decided to side-track from a
depth of 4,000 meters, following which we would hope to be able to conduct the long waited flow test.
The preparation work for the side-track is at an advanced stage and we expect to be able to report on the outcome of the
remedial work by the end of Q2 2017.
Deep Well 801
Deep Well 801 was the second deep well to be drilled and was drilled under contract by Sinopec, the leading Chinese
contractor. To date this is the only deep well drilled on the Yelemes structure.
As with deep Well A5 the issue was that the high pressure in the well has made clearing the drilling fluid used while drilling to
control the well very difficult. As with Deep Well A5 the well has flowed for short periods at the rate of 2,000 bopd before
becoming blocked.
The technique being used on this well is a mixture of chemical washes and to use the natural pressure in the well to slowly
remove the excess drilling fluids. These techniques were used successfully on Shallow Well 143, which is currently flowing at
the rate of 604 bopd. Additionally work is underway to free instances where the 5-inch liner has become caught at a number of
casing points on the pipe.
Deep Well A6
Deep Well A6 was the third deep well drilled. Lessons were learned from the earlier wells and with the exception of delays
penetrating the salt layer the drilling of the well was less eventful than for either deep Well A5 or deep Well 801.
A gross interval of in excess of 100 meters was identified from mud and wireline logs as being potentially hydrocarbon bearing.
In January 2017, as previously announced, the lower 46 meters were poorly perforated although the limited recoveries tested
with oil films, water and gas.
In April the top 60 meters of the 100-meter plus interval were successfully perforated using a different leading international
contractor. To date limited recoveries from the well have been possible and the well is being prepared for a chemical wash to
stimulate the flows to allow a proper assessment of what is there.
Deep Well summary
Drilling deep wells through salt in the presence of extremely high temperature and pressure is not easy. We have learnt as we
have drilled, principally by employing individual local staff with direct experience of high pressure drilling rather than relying on
the standard operating procedures employed by the large international contractors.
The three deep wells drilled to date have been drilled at a fraction of the costs likely had each been drilled by a large
international company. The relative ease with which deep Well A6, the third of the deep wells, was drilled, demonstrates how
the pressures can be controlled during drilling without spending tens of millions per well.
The positives from our deep drilling campaign to date are that we know where the oil is and that it is of high quality. Dependent
upon further testing, once flowing we would expect the potential for significant quantities and a target of production levels
between 2,000 – 3,000 bopd.
That said we are yet to get any of the deep wells flowing sufficiently long enough for information to be provided to Gaffney
Cline & Associates to allow them to begin to estimate BNG’s deep reserves. Were we to do so it should transform our stated
reserves and the Group cash-flows to allow a faster development of the BNG than possible at present.
Getting the deep wells to flow remains our first priority.
Our licences and work programme obligations
In June 2015 the BNG licence was successfully extended until June 2018. During this estimation phase any oil produced from
exploration and appraisal activities at BNG must be sold on the domestic Kazakh market, with prices significantly lower than
international prices.
A condition of the licence renewal was that one further shallow well and two further deep wells be drilled before the next
anticipated licence renewal in June 2018. The obligations are being met with the drilling of Shallow Well 808 & Deep Well A6
(which have been drilled) and Deep Well 802 which remains to be drilled.
In January 2016, Roxi invested a further $2.2 million in extending the area of its BNG Contract Area by 140.6 square kilometres
to the north west of the existing BNG Contract Area. The minimum work programme commitment for the extension area is one
additional deep well. This will be satisfied by drilling Deep Well A8.
The successful renewal and extension of the BNG licence in June 2018 is a priority for the Company.
The licence at Munaily is a full production licence, with an expiry term of 8 years where production can be sold at export prices.
Our work programme commitments at Munaily will be satisfied by the well re-entry programme referred to below.
8
Our Assets
Asset
BNG
Munaily
Beibars
Asset
BNG
Munaily
Beibars
Interest (%)
Following the completion
of the Baverstock merger
31 December 2016 31 December 2015
99.00
99.00
50.00
58.41
58.41
50.00
58.41
58.41
50.00
Wells drilled and completed at
31 December 2016
31 December 2015
12
1
-
8
1
-
9
Reserves and Resources
In January 2011, BNG engaged Gaffney Cline & Associates ("GCA") to undertake a technical audit of the BNG Contract Area and
subsequently Petroleum Geology Services ("PGS") to undertake depth migration work, based on the 3D seismic work carried out in
2009 and 2010.
The work of GCA resulted in confirming total unrisked resources of 900 million barrels from 37 prospects and leads mapped from
the 3D seismic work undertaken in 2009 and 2010. The report of GCA also confirmed risked resources of 202 million barrels as well
as Most Likely Contingent Resources of 13 million barrels on South Yelemes.
The depth migration work that was carried out by PGS enabled Roxi to gain a greater understanding of some of the deeper
prospects yet to be explored. Roxi believes the greater potential exists in the pre salt prospects and has plans to drill further wells to
validate this belief.
In September 2016 Gaffney Cline & Associates assessed the reserves attributable to the BNG shallow structures as set out below.
The reserves attributable to Munaily are taken from balances held by the Kazakh authorities.
Asset
BNG
Shallow (P1)
Shallow (P2)
Deep (P1)
Deep (P2)
Munaily
P1
Beibars
31 December 2016
31 December 2015
MMBLS
MMBLS
18.3
29.3
-
-
1.2
0
-
-
-
-
1.2
0
We plan to have Gaffney Cline & Associates revisit these finding based on additional information from well 143 and information
from new wells 141 & 142 and if appropriate Well 808.
10
Well Summary
Well
Date
spudded
Depth
(Meters)
Structure
Working
Status
BOPD
interest
post
completion
the
of
Baverstock
Merger
(%)
BNG
A5
A6
801
54
805
806
807
808
141
142
143
144
Munaily
July 2013
4,432 Aryshagal
99 Preparing to undertake a side-
N/A
Nov 2015
4,516 Aryshagal
track
99 Preparing
following
perforation
for well stimulation
successful
a
N/A
Dec 2014
5,050 Yelemes deep
99 Undergoing periodic chemical
N/A
washs
Soviet era
3,000 Yelemes
99 Shut in
2010
2010
Sep 2013
Jan 2017
Aug 2016
Oct 2016
2,505 Yelemes
99 Producing under test
2,557 Yelemes
99 Producing under test
2,500 Yelemes
99 Producing under test
3,200 New
2,500 MJF
2,500 MJF
99 Testing 5 intervals
99 Producing under test
99 Producing under test
April 2013
2,750 MJF
99 Producing under test
April 2017
2,500 MJF
99 Drilling
N/A
61
47
48
N/A
367
163
605
N/A
H1
2008
1,300 Munaily
99 Producing at export prices
80
Operator status
BNG Ltd LLP, of which, following completion of the Baverstock Merger, Caspian Sunrise will own 99%, has been the operator at
BNG since 2011.
Work programme
In the remainder of 2017 Caspian Sunrise plans to test the remaining four intervals at well 808 in the extension area, drill a further
deep well at BNG between Deep Wells A5 and 801 and 2 further shallow wells in the MJF Structure and subject to the success of
well 808, two further shallow wells at the potential new structure.
Other assets
Munaily
The Munaily field is located in the Atyrau Region approximately 70 kilometres southeast of the town of Kulsary. The field was
discovered in the 1940s and produced from 12 reservoirs in the Cretaceous through to the Triassic. Caspian Sunrise acquired 58.41
per cent interest of the 0.67 square kilometres rehabilitation block in 2008 and funded two wells and one well re-entry.
The field is capable of producing at the rate of 80 bopd. Sales of oil from Munaily are at export prices.
We have concluded an agreement with a Chinese company to re-enter up to 24 wells drilled during Soviet times with our Chinese
partner with it bearing the drilling costs and any incremental production being split between us on a 50:50 basis. To date four wells
have been re-entered but it is too early to predict with confidence how successful they will be.
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Beibars
In 2007, Roxi acquired a 50 per cent interest in Beibars Munai LLP, which operates the 167 square kilometer Beibars Contract Area
on the Caspian shoreline south of the city of Aktau. While acquiring 3D seismic in 2008, the licence was put under Force Majeure
when the acreage was allocated as a military exercise area (Polygon), by the Ministry of Defence. Since then no operations have
been carried out, and Caspian Sunrise operates a care and maintenance administrative budget on the project.
At some point we expect to be invited to resume our interest in Beibars but are not able to predict with certainty when that might be.
The costs of maintaining our interest at the Beibars Contract Area are not material.
Baverstock Merger
Independent shareholders voted to approve the Baverstock merger on 24 March 2017, subject to completion of certain conditions
precedent. Under the terms of the merger upon completion 651,436,544 new Caspian Sunrise shares representing 41.59% of the
then enlarged share capital will be issued to the Baverstock quotaholders in return for the Company acquiring 41.59% of BNG, so
that in aggregate the enlarged company will have a 99% interest in the BNG Contract Area.
Also approved by independent shareholders was the capitalisation of approximately US$10.1 million due to Vertom again subject to
the completion of the Baverstock Merger, a company controlled by Kuat Oraziman, the Company’s CEO, which will be satisfied by
the issue of a further 80,804,200 new Caspian Sunrise shares making the Group free of long term debt with only short-term
financing from local traders based upon existing production.
On 12 May 2017 we announced the receipt of the final material condition to the merger, being the receipt of the formal approval of
the relevant Kazakh authorities. Finalisation of the Baverstock merger is now dependent only upon a number of procedural steps,
with completion expected before the end of Q2 2017.
In addition to the advantages of greater size and greater control of the development of the BNG asset the Group will now be able to
reorganise to simplify the wider Caspian Sunrise Group for commercial advantage and to better comply with various international
administrative and requirements.
Most important though is the ability to develop the BNG asset at a rate faster than may have been possible otherwise.
Funding
Recent development at BNG has been in part funded by the pre sale of oil from the shallow wells at BNG. The deep wells will
require additional debt or equity funding.
There remains some $10.8 million undrawn on the $40 million equity facility provided by Kairat Satylganov. However such funding
would result in new equity being raised at a price of some 7.41p per share, which is materially below the prevailing share price and,
accordingly, it is not currently the intention of the board to call further on this facility unless necessary. Whilst, if required, this facility
would meet one of the deep well commitments further funding will be required to complete the drilling program. In keeping with other
oil and gas exploration companies the Group frequently seeks to raise funds to undertake its drilling program as and when such
funds are required.
In the event the Board decides to continue to develop BNG at a rate faster than can be funded solely by current production
additional equity or debt would be required.
Based on enquiries should the board seek new equity capital they believe it would be available to fund the continued development
of BNG.
Dividends
There is no current intention to pay a dividend. Revenue from production is being used to fund further development.
Financial statements
The Group incurred capitalised exploration costs of US$10.4 million in the year, principally related to the drilling programme at BNG,
which after the completion of the work programme obligations are essentially discretionary. Total assets increased by US$0.2
million to US$85.2 million with cash balances reducing from US$10.4 million to US$0.4 million as a result of the exploration
expenditure.
In respect of funding, the loans due to Vertom International NV (“Vertom”) falls due for repayment in April 2018. However, the loan
is due to be converted into equity on completion of the Baverstock Merger and Vertom have provided written undertakings that, in
the event the Baverstock Merger is delayed they will extend the term of the loan to 30 June 2018.
The Group generated revenue of US$1.6 million (2015: US$1.1 million) reflecting increased production. Total administrative costs
were broadly stable at US$3.1 million (2015: US$2.8 million), which mainly refer to costs associated with maintaining the London
listing for the Group's shares for the period under review. The Group generated a loss for the year of US$5.4 million (2015: profit of
US$10.6 million). The 2015 profit included US$14.2 million of profit, net of taxation, on discontinued operations relating to the sale of
Galaz and a gain of US$2.2 million associated with the settlement of royalty liabilities.
The Group incurred net cash flows from operating activities of US$0.03 million and cash outflows from investing activities of US$9.9
million related mainly to exploration expenditure on the BNG asset. In 2015 the Group incurred operating cash outflows of US$7.9
million due to payments to suppliers and repayments of advances from customers, generated net cash inflows of US$16.2 million
from investing activities including exploration expenditure of US$16.9 million and receipts from the Galaz disposal of US$21.9
million and repayments of loans of US$11.3 million, whilst net cash inflows from financing activities were US$1.5 million including
proceeds from equity issued and repayment of loans.
12
Tenge Depreciation
Since 2014 the Kazakh Tenge has depreciated against the US$, the functional accounting currency of the Group, by approximately
82%, although in the period under review and subsequently it has been relatively stable. Commercially this is very much to the
Group's advantage as all income and the value of our reserves are denominated in US$ and only costs are denominated in Tenge.
However, as for previous years, the international accounting standards require that we translate assets, liabilities and results of our
Kazakh subsidiaries, which have a Tenge functional currency, into US$. Whilst the Tenge was relatively stable in 2016, the carrying
value of the Company's assets has been depreciated on a cumulative basis by approximately US$90 million since the start of 2013,
when for all commercial purposes it has significantly appreciated in value.
Impairment assessment
The carrying value of the Group's principle asset BNG has to date been based on implied valuations from a succession of financing
arrangements. It also reflects the impact of the depreciation of the Tenge against the US$ (see above).
Following the strengthening of the world oil price and the operational progress made during the period under review, albeit without
the desired breakthrough at a deeper well, the Caspian Sunrise board has concluded that no impairment to the carrying value of our
flagship asset, BNG would be appropriate.
Going Concern
The financial statements have been prepared on a going concern basis. Refer to note 1.1 in the financial statements and the
Strategic Report and Chairman’s Statement for details.
Board responsibilities
The senior management team comprises Kuat Oraziman, CEO, who has overall responsibility for managing the Group's affairs in
Kazakhstan; Kairat Satylganov, CFO, with responsibility for the Group's finances in Kazakhstan, and Clive Carver, Executive
Chairman, who is responsible for the Group's overall finances and its activities in the UK, including the activities arising from
Caspian Sunrise being a publicly listed company.
Edmund Limerick is the Group's senior non-executive Director, and chairman of the audit and remuneration committees.
Staffing
We have 90 employees based in Kazakhstan, the vast majority of whom are all of Kazakh nationals, who we thank once again for
their continued hard work and commitment.
Shareholders
I would also like to take this opportunity to thank shareholders for their continued support.
Following Independent shareholder approval of the Baverstock Merger and the change in the Group’s name we have launched a
new website (www.caspiansunrise.com) which is up to date and contains new features such as interviews with management and
analysts forecasts. We would encourage anyone interested in Caspian Sunrise to log onto the website.
The Board is looking to build a lasting business on the foundations of our BNG asset. We recognise that the pace of development
has not always been as fast as shareholders would like.
Part of the issue has been dealt with by way of the Baverstock Merger. Once we overcome the issues of pressure and temperature
at our deep wells at BNG the future should look very good.
Social Programmes
Under Kazakh regulations part of our obligations under various work programmes on the assets in which we have an interest are
paid in the form of contributions to local social programmes. Caspian Sunrise is pleased to have assisted in the development of
these projects.
Environmental
No significant environmental issues have arisen at any of the properties acquired to date.
Current trading
Oil prices grew steadily during much of the period under review and have held up since and remain significantly above the lowest
seen in recent periods. We remain pleased with the production from the shallow wells and in particular from the MJF structure. Even
using the domestic price of US$16 per barrel required under our current Estimation & Appraisal Licence this production together
with production from BNG’s South Yelemes structure and from Munaily is helping to fund the continued development of BNG.
Rig prices remain low, although the costs of consumables such as drill pipes and drilling mud is rising. With a high proportion of our
costs in Kazakh Tenge the overall costs of drilling remains low by historic standards.
The Group is well placed to continue with its planned development activity at BNG.
Prospects
Our focus in 2017 and the first six months of 2018 will be to do all possible to maximise the period of the BNG full production
licence, which first becomes possible in June 2018, without unduly diluting shareholders.
To qualify for a 49-year production licence we would need to report reserves in excess of 100 tonnes (730 mmbls).
13
While we expect the reserves attributable to our shallow drilling success to increase as we pass new information to Gaffney Cline &
Associates. It will only be the success with the deeper wells that would permit us to reach our June 2018 reserves target.The
Strategic Report and these financial statement were approved and authorised by the Board for issue on 12 May 2017 and signed on
its behalf by
Clive Carver
Chairman
12 May 2017
14
Qualified Person & Glossary
Qualified person
Mr.Nurlybek Ospanov, the Company's Chief Geologist & Technical Director, who is a member of the Society of Petroleum
Engineers (“SPE”), has reviewed and approved the technical disclosures in this announcement.
Glossary
SPE – The Society of Petroleum Engineers
Bopd - barrels of oil per day.
Mmbs – million barrels.
Proven reserves
Proved reserves (P1) are those quantities of petroleum which, by analysis of geosciences and engineering data, can be estimated
with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined
economic conditions, operating methods, and government regulations. If deterministic methods are used, the term reasonable
certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used,
there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate.
Probable reserves
Probable reserves are those additional Reserves which analysis of geosciences and engineering data indicate are less likely to be
recovered than proved reserves but more certain to be recovered than possible reserves. It is equally likely that actual remaining
quantities recovered will be greater than or less than the sum of the estimated proved plus probable reserves (2P). In this context,
when probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or
exceed the 2P estimate.
Possible reserves
Possible reserves are those additional reserves which analysis of geosciences and engineering data indicate are less likely to be
recovered than probable reserves. The total quantities ultimately recovered from the project have a low probability to exceed the
sum of proved plus probable plus possible (3P), which is equivalent to the high estimate scenario. In this context, when probabilistic
methods are used, there should be at least a 10% probability that the actual quantities recovered will equal or exceed the 3P
estimate.
Contingent resources
Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known
accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more
contingencies. Contingent resources may include, for example, projects for which there are currently no viable markets, or where
commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to
clearly assess commerciality. Contingent resources are further categorized in accordance with the level of certainty associated with
the estimates and may be sub-classified based on project maturity and/or characterized by their economic status.
Prospective resources
Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from
undiscovered accumulations. Potential accumulations are evaluated according to their chance of discovery and, assuming a
discovery, the estimated quantities that would be recoverable under defined development projects.
15
Directors' report
The Directors present their annual report on the operations of the Company and the Group, together with the audited financial
statements for the year ended 31 December 2016. The Strategic report forms part of the business review for this year.
Results and dividends
The consolidated statement of profit or loss is set out on page 23 and shows US$ 5.4 million loss for the year. The Directors do not
recommend the payment of a dividend (2015: US$ nil). The position and performance of the Group is discussed below and further
details are given in the business review.
Events after the reporting period
Other than as disclosed in this annual report, including notes to the financial statements, there have been no material events
between 31 December 2016 and the date of this report, which are required to be brought to the attention of shareholders.
Employees
Staff employed by the Group are based primarily in Kazakhstan. The recruitment and retention of staff, especially at management
level, is increasingly important as the Group continues to build its portfolio of oil and gas assets.
As well as providing employees with appropriate remuneration and other benefits together with a safe and enjoyable working
environment, the Board recognises the importance of communicating with employees to motivate them and involve them fully in the
business. For the most part, this communication takes place at a local level but staff are kept informed of major developments
through email updates. They also have access to the Company's website.
The Company has taken out full indemnity insurance on behalf of the Directors and officers.
Health, safety and environment
It is the Group's policy and practice to comply with health, safety and environmental regulations and the requirements of the
countries in which it operates, to protect its employees, assets and environment.
Charitable and Political donations
During the year the Group made no charitable or political donations.
Directors and Directors' interests
The Directors of the Group and the Company who served throughout the year were:
Clive Carver
Kuat Oraziman
Kairat Satylganov
Edmund Limerick
Directors interests
Director
Clive Carver
Kuat Oraziman
Kairat Satylganov
Number of shares
Number of shares
Number of shares
Following the
completion of the
Baverstock Merger
As at 31 December 2016
As at December 2015
nil
763,706,614
205,428,656
2,235,000
nil
374,408,033
205,428,656
2,235,000
nil
374,408,033
205,428,656
655,000
Edmund Limerick*
* includes 1,135,000 shares held by his wife
Biographical details of the current Directors are set out on the Company's website www.caspiansunrise.com.
16
Details of the Directors' individual remuneration, service contracts and interests in share options are shown in the Remuneration
Committee Report.
Financial instruments
Details of the use of financial instruments by the Group and its subsidiary undertakings are contained in note 25 of the financial
statements.
Statement of disclosure of information to auditors
All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information
needed by the Group's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The
Directors are not aware of any relevant audit information of which the auditors are unaware.
Auditors
BDO LLP were appointed auditors to the Company on 29 November 2016. BDO LLP have indicated their willingness to continue in
office and a resolution concerning their reappointment will be proposed at the next Annual General Meeting.
Directors' responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have
elected to prepare the Group's and Company's financial statements in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union. Under Company's law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the
Group and Company for that period. The Directors are also required to prepare financial statements in accordance with the rules of
the London Stock Exchange for companies trading securities on the London Stock Exchange AIM Market.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any
material departures disclosed and explained in the financial statements;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and
the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the
Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and 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 Group and 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.
Clive Carver
Chairman
12 May 2017
17
Remuneration Committee Report
Remuneration Committee
The Remuneration Committee comprises Edmund Limerick, Kuat Oraziman and Clive Carver, and is chaired by Edmund Limerick.
Remuneration policy
The Group’s and the Company’s policy is to provide remuneration packages that will attract, retain and motivate its executive
Directors and senior management. This consists of a basic salary, ancillary benefits and other performance-related remuneration
appropriate to their individual responsibilities and having regard to the remuneration levels of comparable posts. The Remuneration
Committee determines the contract term, basic salary, and other remuneration for the members of the Board and the senior
management team.
Service contracts
Details of the current Directors’ service contracts are as follows:
Executive
Clive Carver
Kuat Oraziman
Kairat Satylganov
Non-Executive
Edmund Limerick
Basic salary and benefits
Date of service
agreement/appoin
tment letter
Date of last
renewal
of appointment
1 June 2012
1 April 2007
11 February 2013
1 June 2012
11 February 2013
11 February 2013
1 February 2010
1 February 2010
The basic salaries of the Directors who served during the financial year are established by reference to their responsibilities and
individual performance. The amounts received by the Directors are set out below in US$.
Directors
Clive Carver
Executive Chairman
Kuat Oraziman
Kairat Satylganov
CEO
CFO
Edmund Limerick
Non-Executive
Hyunsik Jang
Non-Executive
2016
Salary/fees
US$
2016
Share options
US$
2016
Total
US$
2015
Total
US$
240,000
122,382
122,382
40,356
-
136,441
376,441
376,441
136,441
258,823
253,255
136,441
258,823
257,946
34,110
74,466
79,360
-
-
25,875
Total
525,120
443,433
968,553
992,877
Share option amounts refer to the IFRS 2 accounting charge. Mr Hyunsik Jang was Non-Executive Director from 1 January 2014
and resigned 24 July 2015.
Bonus schemes
All Executive Directors are eligible for consideration of participation in the Company bonus scheme. However, as in previous years
no bonuses are payable in respect of the year ended 31 December 2016 (2015: nil).
18
Remuneration Committee Report (continued)
Share options
The current interests as at approval of accounts of the current Directors and as at 31 December 2016 in share options agreements
are as follows:
Directors
Clive Carver
Kuat Oraziman
Edmund Limerick
Directors
Clive Carver
Kuat Oraziman
Edmund Limerick
Directors
Clive Carver
Kuat Oraziman
Edmund Limerick
Directors
Clive Carver
Kuat Oraziman
Kairat Satylganov
Edmund Limerick
Directors
Clive Carver
Kuat Oraziman
Directors
Clive Carver
Clive Carver
Kuat Oraziman
Kuat Oraziman
Granted
2,400,000
4,200,000
1,200,000
Exercise Price
4p
4p
4p
Expiry date
14 December 2021
14 December 2021
14 December 2021
Granted
538,264
269,132
200,000
Exercise Price
12p
12p
12p
Expiry date
14 August 2019
14 August 2019
15 February 2020
Granted
750,000
3,090,000
750,000
Exercise Price
13p
13p
13p
Expiry date
12 January 2021
12 January 2021
12 January 2021
Granted
3,000,000
3,000,000
3,000,000
750,000
Exercise Price
20p
20p
20p
20p
Expiry date
21 August 2024
21 August 2024
21 August 2024
21 August 2024
Granted
1,345,660
672,830
Exercise Price
38p
38p
Expiry date
22 May 2017
22 May 2017
Granted
1,215,385
387,692
607,692
193,846
Exercise Price
65p
65p
65p
65p
Expiry date
29 February 2018
22 April 2018
29 February 2018
22 April 2018
On behalf of the Directors of Caspian Sunrise plc
Edmund Limerick
Chairman of Remuneration Committee
12 May 2017
19
Report on Corporate Governance
The Directors consider it important that appropriately high standards of corporate governance are maintained. They have therefore
put in place governance structures and provide information, which would be expected for companies listed on the Alternative
Investment Market of the London Stock Exchange and in light of the Group’s size, stage of development and resources. However,
the Company is not required to comply with the UK Corporate Governance Code (the “Code”), as published by the Financial
Reporting Council, so this report does not describe compliance with or departures from the Code.
The Company has one Non-Executive Director and three Executive Directors as follows:
Clive Carver
Kuat Oraziman
Kairat Satylganov
Edmund Limerick
Executive Chairman
Chief Executive Officer
Chief Financial Officer
Non-Executive Director
The Board retains full and effective control over the Company. The Company holds a Board meeting at least once per quarter, at
which operational, financial and other reports are considered and, where appropriate, voted on.
Apart from regular meetings, additional meetings are arranged when necessary to review strategy, planning, operational, financial
performance, risk and capital expenditure and human resource and environmental management.
The Board is also responsible for monitoring the activities of the Management.
Board of meetings
The Board met 7 times and 18 times during 2016 and 2015 respectively, with the following attendance:
C Carver
E Limerick
K Oraziman
K Satylganov
H S Jang
The Board has established the following committees:
Audit & Risk Committee
2016
2015
7
7
5
4
NA
18
18
6
3
4
The Audit & Risk Committee, which comprises Edmund Limerick and Clive Carver, with Edmund Limerick acting as Chairman,
determines and examines any matters relating to the financial affairs of the Group including the terms of engagement of the Group’s
auditors and, in consultation with the auditors, the scope of the audit.
The Audit & Risk Committee receives and reviews reports from the management and the external auditors of the Group relating to
the annual and interim amounts and the accounting and internal control systems of the Group. In addition it considers the financial
performance, position and prospects of the Group and the Company and ensures they are properly monitored and reported on.
Remuneration Committee
The Remuneration Committee, which comprises Edmund Limerick, Kuat Oraziman and Clive Carver, with Edmund Limerick acting
as Chairman, reviews the performance of the senior management, sets and reviews their remuneration and the terms of their
service contracts and considers the Group’s bonus and option schemes.
Rule 21
The Directors comply with Rule 21 of the AIM Rules relating to Directors’ dealing and take all reasonable steps to ensure
compliance by the Group’s applicable employees. The Company has adopted and operates a share dealing code for Directors and
employees in accordance with the AIM Rules.
Internal controls
The Board acknowledges responsibility for maintaining appropriate internal control systems and procedures to safeguard the
shareholders’ investments and the assets, employees and the business of the Group.
The Board has established and operates a policy of continuous review and development of appropriate financial controls together
with operating procedures consistent with the accounting policies of the Group.
The Board does not consider it appropriate for the current size of the Group to establish an internal audit function.
20
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
CASPIAN SUNRISE PLC
We have audited the financial statements of Caspian Sunrise plc for the year ended 31 December 2016 which comprise the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity, the parent company statement of changes in equity, the consolidated statement of
financial position, the parent company statement of financial position, the consolidated and parent company statement of cash flows
and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company
financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion
on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at
www.frc.org.uk/auditscopeukprivate.
Opinion on 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 2016 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Emphasis of matter – going concern
In forming our opinion of the financial statements, which is not modified, we have considered the adequacy of the disclosures made
in Note 1.1 to the financial statements concerning the Group’s ability to continue as a going concern. Further funding will be required
to meet the Group’s drilling commitments by 30 June 2018. While the Directors are confident of being able to secure the funding to
meet liabilities as they fall due, the necessary funding is not currently in place. These conditions indicate the existence of a material
uncertainty, which may cast significant doubt about the Group’s ability to continue as a going concern. The financial statements do
not include the adjustments that would result if the Company was unable to continue as a going concern.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.
21
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters where 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.
Ryan Ferguson
(Senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
12 May 2017
22
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Revenue
Cost of sales
Gross (loss)/profit
Share-based payments
Revaluation of royalty liability
Other administrative costs
Total administrative expenses
Operating loss
Finance cost
Finance income
Loss before taxation
Tax charge*
Loss after taxation from continuing operations
Profit for the year from discontinued operations (net of tax)*
(Loss)/profit for the year
(Loss)/profit attributable to owners of the parent
(Loss)/profit attributable to non-controlling interest
(Loss)/profit for the year
Earnings per share
Basic (loss)/earnings per ordinary share (US cents)*
From continuing operations
From discontinued operations
Total
Diluted (loss)/earnings per ordinary share (US cents)*
From continuing operations
From discontinued operations
Total
Notes
24
4
7
8
9
29,30
10
Year to
31 December
2016
US$’000
1,571
(1,589)
(18)
(555)
-
(3,085)
(3,640)
(3,658)
(826)
235
(4,249)
(1,124)
(5,373)
-
(5,373)
(3,582)
(1,791)
(5,373)
(0.38)
-
(0.38)
(0.38)
-
(0.38)
Year to
31 December
2015
US$’000
1,051
(1,049)
2
(555)
2,183
(2,787)
(1,159)
(1,157)
(946)
234
(1,869)
(1,749)
(3,618)
14,213
10,595
7,829
2,766
10,595
(0.06)
0.91
0.85
(0.06)
0.90
0.84
*
Refer to note 1.2 for details of reclassifications in respect of the taxation charge and profit on discontinued operations in
the 2015 comparative, together with the impact on earnings per share in 2015.
The notes on pages 30 to 58 are essential part of these financial statements
23
Consolidated Statement of Comprehensive Income
(Loss)/profit after taxation
Other comprehensive income:
Exchange differences on translating foreign operations from continuing operations*
Exchange differences and recycling of exchange differences on translating foreign
operations from discontinued operations
Total comprehensive loss for the year
Total comprehensive loss attributable to:
Owners of parent
Non-controlling interest
Year ended
31 December
2016
Year ended
31 December
2015
US$000
US$000
(5,373)
10,595
2,311
(70,861)
-
(3,062)
(2,055)
(1,007)
2,650
(57,616)
(29,703)
(27,913)
*Items which may be reclassified to the consolidated statement of profit or loss. Refer to note 1.2 for details of the reclassification of
the recycling of exchange differences on disposal of Galaz in 2015.
The notes on pages 30 to 58 are essential part of these financial statements
24
Consolidated Statement of Changes in Equity
Total equity as at 1 January 2016
Loss after taxation
Exchange differences on translating foreign operations
Total comprehensive income/(loss) for the year
Arising on employee share options
Stock options exercised
Total equity as at 31 December 2016
Share
capital
US$’000
Share
premium
US$’000
15,979
-
-
-
-
21
16,000
146,664
-
-
-
-
64
146,728
Share
capital
US$’000
Share
premium
US$’000
Total equity as at 1 January 2015
Income after taxation
Exchange differences on translating foreign operations
Total comprehensive income/(loss) for the year
Arising on share issues
Arising on employee share options
Conversion of debts to equity
Stock options exercised
Total equity as at 31 December 2015
14,761
-
-
-
405
-
726
87
15,979
136,674
-
-
-
2,595
-
7,083
312
146,664
Deferred
shares
US$’000
64,702
-
-
-
-
-
64,702
Deferred
shares
US$’000
64,702
-
-
-
-
-
-
-
64,702
Cumulative
translation
reserve
US$’000
(56,533)
-
1,527
1,527
-
-
(55,006)
Cumulative
translation
reserve
US$’000
Other
reserves
US$’000
Retained
deficit
US$’000
(583)
-
-
-
(583)
(124,316)
(3,582)
-
(3,582)
555
-
(127,343)
Other
reserves
US$’000
Retained
deficit
US$’000
(19,001)
-
(37,532)
(37,532)
-
-
-
-
(56,533)
(583)
-
-
-
-
-
-
-
(583)
(132,700)
7,829
-
7,829
-
555
-
-
(124,316)
Total attributable
to the owner of
the Parent
US$’000
45,913
(3,582)
1,527
(2,055)
555
85
44,498
Total
attributable to
the owner of the
Parent
US$’000
63,853
7,829
(37,532)
(29,703)
3,000
555
7,809
399
45,913
Non-
controlling
interests
US$’000
3,624
(1,791)
784
(1,007)
-
-
2,617
Non-
controlling
interests
US$’000
31,537
2,766
(30,679)
(27,913)
-
-
-
-
3,624
Total
equity
US$’000
49,537
(5,373)
2,311
(3,062)
555
85
47,115
Total
equity
US$’000
95,390
10,595
(68,211)
(57,616)
3,000
555
7,809
399
49,537
Refer to note 1.2 for details of the reclassification of the recycling of exchange differences on disposal of Galaz in 2015.
Equity
Share capital
Share premium
Deferred shares
Cumulative translation reserve
Other reserves
Retained deficit
Non-controlling interest
Description and purpose
The nominal value of shares issued
Amount subscribed for share capital in excess of nominal value
The nominal value of deferred shares issued
Gains/losses arising on retranslating the net assets of overseas operations into US Dollars, less amounts recycled on disposal of subsidiaries and joint ventures
Fair value of warrants issued and capital contribution arising on discounted loans
Cumulative losses recognised in the consolidated statement of profit or loss
The interest of non-controlling parties in the net assets of the subsidiaries
The notes on pages 30 to 58 are essential part of these financial statements
25
Parent Company Statement of Changes in Equity
Total equity as at 1 January 2016 (restated)
Total comprehensive loss for the year
Arising on employee share options
Stock options exercised
Total equity as at 31 December 2016
Total equity as at 1 January 2015 (as previously stated)
Prior year restatement (note 27)
Total equity as at 1 January 2015 (restated)
Total comprehensive loss for the year
Arising on share issues
Conversion of debts to equity
Arising on employee share options
Stock options exercised
Total equity as at 31 December 2015 (restated)
Refer to note 1.2 and 27 for details of the prior year restatement.
Share
capital
US$’000
15,979
-
-
21
16,000
Share
premium
US$’000
146,664
-
-
64
146,728
Deferred
shares
US$’000
64,702
-
-
-
64,702
Share
capital
US$’000
14,761
-
14,761
-
405
726
-
87
15,979
Share
premium
US$’000
136,674
-
136,674
-
2,595
7,083
-
312
146,664
Deferred
shares
US$’000
64,702
-
64,702
-
-
-
-
-
64,702
Other
reserves
US$’000
16,715
-
-
-
16,715
Other
reserves
US$’000
16,715
-
16,715
-
-
-
-
-
16,715
Retained deficit
US$’000
(134,439)
(9,891)
555
-
(143,775)
Retained deficit
US$’000
(119,085)
(14,566)
(133,651)
(1,343)
-
555
-
(134,439)
Total attributable to the
owner of the Parent
US$’000
109,621
(9,891)
555
85
100,370
Total attributable to the
owner of the Parent
US$’000
113,767
(14,566)
99,201
(1,343)
3,000
7,809
555
399
109,621
Equity
Share capital
Share premium
Deferred shares
Other reserves
Retained deficit
Description and purpose
The nominal value of shares issued
Amount subscribed for share capital in excess of nominal value
The nominal value of deferred shares issued
Fair value of warrants issued and capital contribution arising on discounted loans
Cumulative losses recognised in the profit or loss
The notes on pages 30 to 58 are essential part of these financial statements
26
Consolidated Statement of Financial Position
Company number 5966431
Notes
Group
2016
US$’000
Group
2015
US$’000
68,086
223
10
7,738
283
76,340
8,490
405
8,895
85,235
16,000
146,728
64,702
(583)
(127,343)
(55,006)
44,498
2,617
47,115
5,643
809
3,692
10,144
9,935
7,748
679
9,614
27,976
38,120
85,235
57,323
195
12
14,640
271
72,441
2,096
10,462
12,558
84,999
15,979
146,664
64,702
(583)
(124,316)
(56,533)
45,913
3,624
49,537
5,732
308
2,957
8,997
9,903
7,485
780
8,297
26,465
35,462
84,999
Assets
Non-current assets
Unproven oil and gas assets
Property, plant and equipment
Inventories
Other receivables
Restricted use cash
Total non-current assets
Current assets
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital
Share premium
Deferred shares
Other reserves
Retained deficit
Cumulative translation reserve
Equity attributable to the owners of the Parent
Non-controlling interests
Total equity
Current liabilities
Trade and other payables
Short - term borrowings
Current provisions
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Non-current provisions
Other payables
Total non-current liabilities
Total liabilities
Total equity and liabilities
11
12
14
15
15
16
17
17
18
19
20
21
22
20
18
Approved by the Board and authorized for issue:
Clive Carver,
Chairman,
12 May 2017
Company number: 5966431
The notes on pages 30 to 58 are essential part of these financial statements
27
Parent Company Statement of Financial Position
Company number 5966431
Notes
Assets
Non-current assets
Investments in subsidiaries
Other receivables
Total non-current assets
Current assets
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital
Share premium
Deferred shares
Other reserves
Retained deficit
Equity attributable to the owners of the Parent
Total equity
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Borrowings
Other payables
Total non-current liabilities
Total liabilities
Total equity and liabilities
13
15
15
16
17
17
18
21
18
Company
2016
US$’000
Company
2015
US$’000
(restated)
Company
2014
US$’000
(restated)
126,342
2,728
129,070
3,204
10
3,214
132,284
16,000
146,728
64,702
16,715
(143,775)
100,370
100,370
606
606
9,935
21,373
31,308
31,914
132,284
107,307
52,628
159,935
2
25
27
159,962
15,979
146,664
64,702
16,715
(134,439)
109,621
109,621
1,204
1,204
9,903
39,234
49,137
50,341
159,962
117,698
49,512
167,210
122
18
140
167,350
14,761
136,674
64,702
16,715
(133,651)
99,201
99.201
6,121
6,121
9,075
52,953
62,028
68,149
167,350
The Company incurred loss for the year ended 31 December 2016 in the amount of US$ 9,891,000 (2015: US$ 1,343,000).
Refer to note 1.2 and 27 for details of the prior year restatement.
Approved by the Board and authorized for issue:
Clive Carver,
Chairman,
12 May 2017
Company number: 5966431
The notes on pages 30 to 58 are essential part of these financial statements
28
Consolidated and Parent Company Statements of Cash Flows
Group
2016
US$’000
Group
2015
US$’000
Company
2016
US$’000
Company
2015
US$’000
Notes
12
11
30
Cash flows from operating activities
Cash received from/(repaid to) customers*
Payments made to suppliers for goods and services
Payments made to employees
Net cash flow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Additions to unproven oil and gas assets **
Transfers from/(to) restricted use cash
Loans repaid by joint ventures
Disposal of joint venture (net of cash disposed and
taxation)
Advances repaid by subsidiaries
Advances issued to subsidiaries
Return of exclusivity payment received in advance
Net cash flow from investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Loans repaid
Loans received
Repayment of loans provided by subsidiaries
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
3,823
(2,256)
(1,541)
26
(64)
(9,840)
(12)
-
-
-
-
-
(3,125)
(3,089)
(1,699)
(7,913)
(30)
(16,915)
52
11,280
21,908
-
-
-
-
(1,363)
(744)
(2,107)
-
-
-
-
-
8,302
-
-
(9,916)
16,295
8,302
85
(753)
501
-
(167)
(10,057)
10,462
3,399
(1,924)
-
-
1,475
9,857
605
85
(753)
-
(5,542)
(6,210)
(15)
25
10
-
(927)
(455)
(1,382)
-
-
6,900
-
10,391
(12,102)
(1,000)
4,189
3,399
-
-
(6,199)
(2,800)
7
18
25
Cash and cash equivalents at the end of the year
16
405
10,462
Significant non-cash transactions include the following and details can be found in notes 6, 7, 8, 15, 24, 30:
-
Share-based payments in the amount of US$ 555,000 (2015: US$ 555,000);
- Withholding tax in the amount of US$ 1,124,000 (2015: US$ 1,126,000);
-
-
-
-
-
-
-
-
-
-
-
Discounting of receivables in the amount of US$ 235,000 (2015: US$234,000);
Exchange differences on translating foreign operations of US$ 2,311,000 (2015: US$ 68,211,000);
Depreciation charge of US$ 42,000 (2015: US$ 40,000);
Conversion of debt to equity of US$ 0 (2015: US$ 7,809,000);
Interest expense of US$ 826,000 (2015: US$ 946,000);
Change in the fair value of derivative of US$ 0 (2015: US$ 2,183,000);
Adjustment of the net working capital position at the date of Galaz disposal of US$ 0 (2015: US$ 966,000);
Adjustment of the net assets disposed for Galaz disposal of US$ 0(2015: US$ 7,247,000);
Adjustment for the release of the cumulative translation reserve of US$ 0 (2015: US$ 2,361,000);
Adjustment for the taxation on Galaz disposal being paid on behalf of the Group by new owners of US$ 0 (2015: US$
3,521,000);
Adjustment for the deferred consideration on Galaz disposal of US$ 225,000 (2015: US$ 1,827,000).
* The amount of cash returned to the customers of US$ 3,125,000 in 2015 includes prepayments received by Galaz from traders
being returned by the Group.
** Additions to unproven oil and gas assets contain the amount of US$ 211,000 in relation to payroll expenses capitalized
(2015: US$: 302,000).
The Parent Company cash flow comparatives for 2015 include reclassifications of advances issued to subsidiaries, advances
repaid by subsidiaries and repayment of loans provided by subsidiaries. Net cash flows from investing activities were
previously stated as an outflow of US$4,910,000 and net cash flows from financing activities were previously stated as an
inflow of US$6,299,000 prior to the reclassifications.
29
The notes on pages 30 to 58 form part of these financial statements
Notes to the Financial Statements
General information
Caspian Sunrise plc (“the Company”) is a public limited company incorporated and domiciled in England and Wales. The address of
its registered office is 5 New Street Square, London, EC4A 3TW. These consolidated financial statements were authorised for issue
by the Board of Directors on 12 May 2017.
The principal activities of the Group are exploration and production of crude oil.
1 Principal accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
1.1 Basis of preparation
The Group’s and Parent’s financial statements have been prepared in accordance with International Financial Reporting Standards
as adopted by the European Union (“IFRSs”), and with those parts of the Companies Act 2006 applicable to companies reporting
under IFRSs.
The Directors have prepared cash flow forecasts for the next 12 months which demonstrate that the Group will have sufficient funds
to meet its liabilities as they fall due and operate as a going concern, including completion of its planned drilling program. The
forecasts include growth in revenue including the impact of anticipated deep well test production.
The Group’s $10.1m loan from Vertom is due be converted to equity upon completion of the Baverstock Merger, which remains
subject to conditions precedent although these are not substantive in nature. In the event it is not converted the loan is due for
repayment in April 2018, Vertom have provided a written undertaking to extend the loan repayment to June 2018.
The Group has minimal current cash balances and its operations are currently being financed by local oil traders from existing
production, such that the Group is dependent upon oil trader funding remaining available as well as additional funding being
secured in the immediate future to meet its short term working capital requirements. The Directors are confident that the existing oil
trader funding will continue, based on the production profile and relationships with the oil traders, and the Group’s major shareholder
has provided a written undertaking to provide financial support as required to meet the Group’s working capital requirements
excluding future drilling costs.
The Group’s committed drilling program requires one shallow well (now drilled) and two deep wells to be drilled under its licence
obligations by 30 June 2018, which will require additional debt or equity funding over and above the short term working capital
requirements. There remains some $10.8 million undrawn on the $40 million equity facility provided by Kairat Satylganov. However
such funding would result at new equity being raised at a price of some 7.41p per share, which is materially below the prevailing
share price and, accordingly, it is not currently the intention of the board to call further on this facility unless necessary. Whilst this
facility would meet one of the deep well commitments further funding will be required to complete the drilling program. In keeping
with other oil and gas exploration companies the Group frequently seeks to raise funds to undertake its drilling program as and
when such funds are required. The Directors remain confident that necessary funding will be obtained for the drilling program, either
through additional debt or equity.
However, there can be no guarantee as to the Group’s ability to secure sufficient funding to meet its drilling commitments under the
licence on a timely basis. This condition represents a material uncertainty which may cast significant doubt on the Group’s ability to
continue as a going concern such that it may be unable to realise its assets and discharge its liabilities in the normal course of
business.
The financial statements do not include the adjustments that would result if the Company were unable to continue as a going
concern.
The Company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit or loss in these
financial statements. The Group loss for the year included a loss on ordinary activities after tax of US$9,891,000 in respect of the
Company.
The preparation of financial statements in conformity with IFRSs requires the Management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts in the financial statements. The areas involving a higher
degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements are
disclosed in note 2.
1.2 Restatement
Company level
The Parent company statement of financial position as at 31 December 2015 and 1 January 2015 as well as Parent statement of
changes in equity for the year ended 31 December 2015 have been restated. Interest was incorrectly accrued in respect of several
non-current advances provided to the subsidiary from 1 January 2012 onwards. The prior year comparatives have been restated
accordingly to exclude this accrued interest.
In addition, in order to properly reflect the nature of the advances provided by the Parent company, which are in substance an equity
30
investment and formed part of the net investment in subsidiaries, the relevant non-current intercompany receivables have been
reclassified as part of investments in subsidiaries.
For the reconciliation between the previously reported financial position for the years ended 31 December 2015 and 31 December
2014 and the restated financial position refer to note 27. As a result of the restatement, the Parent company's retained loss has
been increased from US$ 115,968,000 to US$ 134,439,000 at 31 December 2015 and the profit and total comprehensive income
for 2015 of US$ 2,562,000 has been restated to a loss and total comprehensive expense of US$ 1,343,000.
Consolidated level
Taxation of US $3,531,000 in relation to Galaz disposal in 2015 was previously included as part of the taxation charge rather than
as a deduction from the profit for the year from discontinued operations. The amount has been reclassified in the current year
comparatives, reducing the tax charge and the profit on discontinued operations accordingly. There was no impact on total equity or
the profit for 2015. Basic earnings and diluted earnings per share for continued and discontinued operations have been adjusted
accordingly as a result as detailed in note 10.
Additionally, the amounts relating to the recycling of unrealised foreign exchange of US$2,361,000 was previously recorded as part
of the profit on discontinued operations and as an increase in the cumulative translation reserve. The 2015 comparative has been
adjusted to reflect the release of the unrealised foreign exchange within other comprehensive income. The adjustment had no
effect on profit or total equity but resulted in a decrease in the total comprehensive loss for 2015 of US$2,361,000 from
US$ 59,977,000 to US$57,616,000.
1.3 New and revised standards and interpretations applied
The following new standards and amendments to standards are mandatory for the first time for the Group for financial year
beginning 1 January 2016. The implementation of these standards did not have a material effect on the Group.
31
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.3
New and revised standards and interpretations applied (continued)
Standard
Effective date
Annual Improvements to IFRSs (2012 - 2014 Cycle)
IAS1 – Presentation of Financial Statements
IFRS 10, IFRS 12, IAS 28 – Investment Entities
IAS 16 and IAS 38 – Depreciation and Amortisation
IFRS 11 – Joint Operations
IAS 27 - Separate Financial Statements
1 Jan 2016
1 Jan 2016
1 Jan 2016
1 Jan 2016
1 Jan 2016
1 Jan 2016
Impact on initial
application
No impact
No impact
No impact
No impact
No impact
No impact
Standards, amendments and interpretations, which are effective for reporting periods beginning after the date of this financial
information which have not been adopted early:
Standard
IFRS 9
IFRS 15
IFRS 16
IAS 12*
IAS 7*
IFRS 2*
Description
Financial Instruments
Revenue from Contracts with Customers
Leases
Amendment – Recognition of deferred tax assets for
unrealised losses
Amendment – Disclosure initiative
Amendment – Classification and measurement of
share based payment transactions
Effective date
1 Jan 2018
1 Jan 2018
1 Jan 2019*
1 Jan 2017
1 Jan 2017
1 Jan 2018
*Not yet been endorsed by the European Union at the date that this financial information was approved and authorised for issue by
the Board.
IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of revenue recognition. This
standard modifies the determination of when to recognise revenue and how much revenue to recognize. The core principle is that
an entity recognises revenue to depict the transfer of promised goods and services to the customer of an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. Management are currently
assessing the standard’s full impact.
IFRS 16 introduces a single lease accounting model. This standard requires lessees to account for all leases under a single on-
balance sheet model. Under the new standard, a lessee is required to recognise all lease assets and liabilities on the balance
sheet; recognise amortization of leased assets and interest on lease liabilities over the lease term; and separately present the
principal amount of cash paid and interest in the cash flow statement. Management are currently assessing the impact of this
standard as whilst there are no material operating leases in the Group it may be relevant to future operations.
IFRS 9 addresses the classification and measurement of financial assets and financial liabilities. The complete version of IFRS 9
was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial
instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories
for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. The
basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset.
Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at
inception to present changes in fair value in OCI. There is now a new expected credit loss model that replaces the incurred loss
impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the
recognition of changes in credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss.
Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. Management are currently
assessing the standard’s full impact.
The remaining items in the table are still being assessed by the Group.
32
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.4 Basis of consolidation
Subsidiary undertakings are entities that are directly or indirectly controlled by the Group. Control is achieved when the Group is
exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through
its power over the investee. Generally, there is a presumption that a majority of voting rights result in control. To support this
presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee. The consolidated financial statements present
the results of the Company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and
balances between group companies are therefore eliminated in full.
The purchase method of accounting is used to account for the acquisition of subsidiary undertakings by the Group. The cost of an
acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date
of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of
acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill.
Where the Group holds interests in jointly ventures, it accounts for its interests using the equity method.
1.5 Operating Loss
Operating loss is stated after crediting all operating income and charging all operating expenses, but before crediting or charging the
financial income or expenses.
1.6 Foreign currency translation
1.6.1 Functional and presentational currencies
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in US
Dollars (“US$”), which is the Group’s presentational currency. Beibars Munai LLP, Munaily Kazakhstan LLP, BNG Ltd LLP and Roxi
Petroleum Kazakhstan LLP, subsidiary undertakings of the Group, undertake their activities in Kazakhstan and the Kazakh Tenge is
the functional currency of these entities. The functional currency for the Company, Beibars BV, Ravninnoe BV, Galaz Energy BV,
BNG Energy BV and Eragon Petroleum FZE is USD as USD reflects the underlying transactions, conducts and events relevant to
these companies.
1.6.2 Transactions and balances in foreign currencies
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency
(“foreign currencies”) are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date,
monetary items denominated in foreign currencies are retranslated at the rates prevailing at the reporting date. Non-monetary items
carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value
was determined. Non-monetary items, including the parent’s share capital, that are measured in terms of historical cost in a foreign
currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise.
1.6.3 Consolidation
For the purpose of consolidation all assets and liabilities of Group entities with a functional currency that is not US$ are translated at
the rate prevailing at the reporting date. The profit or loss is translated at the exchange rates approximating to those ruling when
the transaction took place. Exchange difference arising on retranslating the opening net assets from the opening rate and results of
operations from the average rate are recognised directly in other comprehensive income (the “cumulative translation reserve”). On
disposal of a foreign operator related cumulative foreign exchange gains and losses are reclassified to profit and loss and are
recognized as part of the gain or loss on disposal.
1.7 Current tax
Current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the profit or loss because it
excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the reporting date.
1.8 Deferred tax
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial
recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and
differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax liabilities are generally recognised for all taxable temporary differences. A deferred tax asset is recorded only to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.
33
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.9 Unproven oil and gas assets
The Group applies the full cost method of accounting for exploration and unproven oil and gas asset costs, having regard to the
requirements of IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’. Under the full cost method of accounting, costs of
exploring for and evaluating oil and gas properties are accumulated and capitalised by reference to appropriate cost pools. Such
cost pools are based on license areas. The Group currently has two cost pools.
Exploration and evaluation costs include costs of license acquisition, technical services and studies, seismic acquisition, exploration
drilling and testing, but do not include costs incurred prior to having obtained the legal rights to explore an area, which are expensed
directly to the profit or loss as they are incurred.
Plant and equipment assets acquired for use in exploration and evaluation activities are classified as property, plant and equipment.
However, to the extent that such asset 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 asset.
The amounts included within unproven oil and gas assets include the fair value that was paid for the acquisition of partnerships
holding subsoil use in Kazakhstan. These licenses have been capitalised to the Group’s full cost pool in respect of each license
area.
Exploration and unproven oil and gas assets related to each exploration license/prospect are not amortised but are carried forward
until the technical feasibility and commercial usability of extracting a mineral resource are demonstrated.
Commercial reserves are defined as proved oil and gas reserves.
Proven oil and gas properties
Once a project reaches the stage of commercial production and production permits are received, the carrying values of the relevant
exploration and evaluation asset are assessed for impairment and transferred to proven oil and gas properties and included within
property plant and equipment.
Proven oil and gas properties are accounted for in accordance with provisions of the cost model under IAS 16 “Property Plant and
Equipment” and are depleted on unit of production basis based on commercial reserves of the pool to which they relate.
Impairment
Exploration and unproven intangible assets are reviewed for impairments if events or changes in circumstances indicate that the
carrying amount may not be recoverable as at the reporting date. Intangible exploration and evaluation assets that relate to
exploration and evaluation activities that are not yet determined to have resulted in the discovery of the commercial reserve remain
capitalised as intangible exploration and evaluation assets subject to meeting a pool-wide impairment test as set out below.
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;
substantive expenditure on further exploration for and evaluation of mineral resources in a specific area is neither
budgeted nor planned;
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
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 perform an impairment test in accordance with the provisions of IAS 36. The
aggregate carrying value is compared against the expected recoverable amount of the cash generating unit, being the relevant cost
pool. The recoverable amount is the higher of value in use and the fair value less costs to sell.
An impairment loss is reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount.
Workovers/Overhauls and maintenance
From time to time a workover or overhaul or maintenance of existing proven oil and gas properties is required, which normally fall
into one of two distinct categories. The type of workover dictates the accounting policy and recognition of the related costs:
Capitalisable costs – cost will be capitalised where the performance of an asset is improved, where an asset being overhauled is
being changed from its initial use, the assets’ useful life is being extended, or the asset is being modified to assist the production of
new reserves.
Non-capitalisable costs – expense type workover costs are costs incurred as maintenance type expenditure, which would be
considered day-to-day servicing of the asset. These types of expenditures are recognised within cost of sales in the statement of
comprehensive income as incurred. Expense workovers generally include work that is maintenance in nature and generally will not
increase production capability through accessing new reserves, production from a new zone or significantly extend the life or
change the nature of the well from its original production profile.
34
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.10 Abandonment
Provision is made for the present value of the future cost of the decommissioning of oil wells and related facilities. This provision is
recognised when the asset is installed. The estimated costs, based on engineering cost levels prevailing at the reporting date, are
computed on the basis of the latest assumptions as to the scope and method of decommissioning. The corresponding amount is
capitalised as a part of the oil and gas asset and, when in production is amortised on a unit-of-production basis as part of the
depreciation, depletion and amortisation charge. Any adjustment arising from the reassessment of estimated cost of
decommissioning is capitalised, while the charge arising from the unwinding of the discount applied to the decommissioning
provision is treated as a component of the interest charge.
1.11 Restricted use cash
Restricted use cash is the amount set aside by the Group for the purpose of creating an abandonment fund to cover the future cost
of the decommissioning of oil and gas wells and related facilities and in accordance with local legal rulings.
Under the Subsoil Use Contracts the Group must place 1% of the value of exploration costs in an escrow deposit account. At the
end of the contract this cash will be used to return the field to the condition that it was in before exploration started.
1.12 Property, plant and equipment
All property, plant and equipment assets are stated at cost or fair value on acquisition less accumulated depreciation. Depreciation
is provided on a straight-line basis, at rates calculated to write off the cost less the estimated residual value of each asset over its
expected useful economic life. The residual value is the estimated amount that would currently be obtained from disposal of the
asset if the asset were already of the age and in the condition expected at the end of its useful life. Expected useful economic life
and residual values are reviewed annually.
The annual rates of depreciation for class of property, plant and equipment are as follows:
- motor vehicles
- other
over 7 years
over 2-4 years
The Group assesses at each reporting date whether there is any indication that any of its property, plant and equipment has been
impaired. If such an indication exists, the asset’s recoverable amount is estimated and compared to its carrying value.
1.13 Investments (Company)
Non-current asset investments in subsidiary undertakings are shown at cost less allowance for impairment. Long term advances to
subsidiaries form part of the net investment in the subsidiary and are recorded at cost as part of the investment.
1.14 Financial instruments
The Group classifies financial instruments, or their component parts on initial recognition, as a financial asset, a financial liability or
an equity instrument in accordance with the substance of the contractual agreement.
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the
financial instrument and are measured initially at fair value adjusted for transaction costs, except for those carried at fair value
through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities
is described below.
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial
asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished,
discharged, cancelled or expires.
The Group’s financial assets consist of cash and other receivables. Cash and cash equivalents are defined as short term cash
deposits which comprise cash on deposit with an original maturity of less than 3 months. Other receivables are initially measured at
fair value and subsequently at amortised cost.
The Group’s financial liabilities are non-interest bearing trade and other payables, other interest bearing borrowings and profit oil
royalties. Non-interest bearing trade and other payables and other interest bearing borrowings are stated initially at fair value and
subsequently at amortised cost. Profit oil royalties are recognised and measured at fair values through profit or loss.
Where a loan is renegotiated on substantially different terms, this is treated as an extinguishment of the original financial liability and
the recognition of a new financial liability. The terms are considered to be ‘substantially different’ if the discounted present value of
the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective
interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial
liability. In addition to this quantitative test, a qualitative test is also applied.
Share capital issued to extinguish financial liabilities is fair valued with any difference to the carrying value of the financial liability
taken to the profit or loss.
1.15 Inventories
Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs
of purchase and other costs incurred in bringing the inventories to their present location and condition.
35
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.16 Other provisions
A provision is recognised 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. If the effect is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability.
1.17 Share capital
Ordinary and deferred shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction from the proceeds.
1.18 Share-based payments
The Group has used shares and share options as consideration for services received from employees.
Equity-settled share-based payments to employees and others providing similar services are measured at fair value at the date of
grant. The fair value determined at the grant date of such an equity-settled share-based instrument is expensed on a straight-line
basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest.
Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods or services received,
except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments
granted, measured at the date the entity obtains the goods or the counterparty renders the service. The fair value determined at the
grant date of such an equity-settled share-based instrument is expensed since the shares vest immediately. Where the services are
related to the issue of shares, the fair values of these services are offset against share premium where permitted.
Fair value is measured using the Black-Scholes model. The expected life used in the model has been adjusted based on the
Management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
1.19 Warrants
Warrants are separated from the host contract as their risks and characteristics are not closely related to those of the host contracts.
Where the exercise price of the warrants is in a different currency to the functional currency of the Company, at each reporting date
the warrants are valued at fair value with changes in fair values recognised through profit or loss as they arise. The fair values of the
warrants are calculated using the Black-Scholes model. Where the warrant exercise price is in the same currency as the functional
currency of the issuer and involve the issuance of a fixed number of shares the warrants are recorded in equity.
1.20 Revenue
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for oil and gas
products provided in the normal course of business, net of discounts, VAT and other sales related taxes to third party customers.
Revenues are recognised when the risks and rewards of ownership together with effective control are transferred to the customer
and the amount of the revenue and associated costs incurred in respect of the relevant transaction can be reliably measured.
Revenue is not recognised unless it is probable that the economic benefits associated with the sales transaction will flow to the
Group.
1.21 Cost of sales
During test production cost of sales cannot be reliably estimated and therefore a cost of sales equal to revenue is recognised and
credited to the unproven oil and gas assets.
1.22 Segmental 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 and making strategic decisions, has been identified as the Board of Directors. The Group has two operating segment
being oil exploration and production in Kazakhstan and one reporting segment.
1.23 Interest receivable and payable
Interest income and expense are reported on an accrual basis using the effective interest rate method.
1.24 Exchange rates
For reference the year end exchange rate from sterling to US$ was 1.23 and the average rate during the year was 1.36. The year
end exchange rate from KZT to US$ was 333.29 and the average rate during the year was 342.16.
1.25 Joint venture agreements
The Group’s investments in joint arrangements are characterised as a joint venture in which the Group has rights to a share of the
arrangement’s net assets rather than direct rights to underlying assets and obligations for underlying liabilities. Investments in joint
ventures are accounted for using the equity method. The carrying amount of the investment in joint ventures is increased or
decreased to recognise the Group’s share of the profit or loss and other comprehensive income of the joint venture, adjusted where
necessary to ensure consistency with the accounting policies of the Group. Unrealised gains and losses on transactions between
the Group and its joint ventures are eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are
eliminated, the underlying asset is also tested for impairment.
36
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.26 Discontinued operations
A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale. Profit or loss
from discontinued operations comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss resulting
from the measurement and disposal of assets classified as held for sale
Non-current assets classified as held for sale are presented separately and measured at the lower of their carrying amounts
immediately prior to their classification as held for sale and their fair value less costs to sell. However, some held for sale assets
such as financial assets or deferred tax assets, continue to be measured in accordance with the Group’s relevant accounting policy
for those assets. Once classified as held for sale, the assets are not subject to depreciation or amortisation. Any profit or loss
arising from the sale or re-measurement of discontinued operations is presented as part of a single line item, profit or loss from
discontinued operations.
2 Critical accounting estimates and judgements
In the process of applying the Group’s accounting policies, which are described in note 1, the Management has made the following
judgements and key assumptions that have the most significant effect on the amounts recognised in the financial statements.
2.1 Recoverability of exploration and evaluation costs
Under the full cost method of accounting for exploration and evaluation costs, such costs are capitalised as intangible assets by
reference to appropriate cost pools, and are assessed for impairment on a concession basis based on the IFRS 6 impairment
indicators detailed in the accounting policy note 1.9. As at 31 December 2016, the Group assessed the exploration and evaluation
assets disclosed in note 11 and determined that no indicators of impairment existed at a cost pool level in respect of the BNG cost
pool. In forming this assessment, the Board considered the results of the Competent Person report, the economic models
associated with the shallow wells, the results of exploration activity to date, the status of licences and future plans for the licence
areas. The Beibars cost pool remains impaired based on the continuance of the force majeure.
2.2 Merger completion and carrying value of receivables
The Group has receivables due from Baverstock as detailed in note 15. As at 31 December 2016 the receivables have been
classified as current receivables as they are due to form part of the effective consideration paid as part of the Baverstock Merger
detailed in note 28.
2.3 Decommissioning
Provision has been made in the accounts for future decommissioning costs to plug and abandon wells in note 20. The costs of
provisions have been added to the value of the unproven oil and gas asset and will be depreciated on the unit of production basis.
The decommissioning liability is stated in the accounts at discounted present value and accreted up to the final expected liability by
way of an annual finance charge.
The Group has potential decommissioning obligations in respect of its interests in Kazakhstan. The extent to which a provision is
required in respect of these potential obligations depends, inter alia, on the legal requirements at the time of decommissioning, the
cost and timing of any necessary decommissioning works, and the discount rate to be applied to such costs. Actual costs incurred in
future periods may substantially differ from the amounts of provisions. In addition, future changes in environmental laws and
regulations, estimates of deposit useful lives and discount rates may affect the carrying value of this provision
2.4 Share-based compensation
In order to calculate the charge for share-based compensation as required by IFRS 2, the Group makes estimates principally
relating to the assumptions used in its option-pricing model as set out in note 25.
3 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 the performance of the operating
segments and making strategic decisions, has been identified as the Board of Directors.
The Group operates in one operating segment (exploration for and production of oil in Kazakhstan). All revenues from test
production are generated domestically in Kazakhstan.
75% of Group’s revenue was derived from the major customer Petroleum Operating LLP.
37
Notes to the Financial Statements (continued)
4 Operating loss
Group operating profit for the year has been arrived after charging:
Depreciation of property, plant and equipment (note 12)
Auditors’ remuneration (note 5)
Staff costs (note 6)
Share based payment remuneration (note 6)
Loss from investment in equity accounted joint venture (note 29)
5 Group Auditor’s remuneration
Fees payable by the Group to the Company's auditor BDO and its associates in respect of the year:
Fees for the audit of the annual financial statements
Auditing of accounts of associates of the Company
Other services – corporation tax compliance
Group
2016
US$’000
Group
2015
US$’000
(42)
(170)
(1,541)
(555)
-
(40)
(220)
(1,699)
(555)
(914)
Group
2016
US$’000
Group
2015
US$’000
90
-
59
149
-
-
-
-
Fees payable by the Group to the Company's previous auditor Grant Thornton and its associates in respect of the year:
Fees for the audit of the annual financial statements
Auditing of accounts of associates of the Company
Other services – corporation tax compliance
6 Employees and Directors
Staff costs during the year
Wages and salaries
Social security costs
Pension costs
Share-based payments
Group
2016
US$’000
Group
2015
US$’000
-
21
-
21
104
9
107
220
Group
2016
US$’000
Group
2015
US$’000
1,541
128
83
555
2,307
1,699
176
126
555
2,556
Payroll expenses were capitalized in the amount of US$ 211,000 (2015: US$ 302,000).
Average monthly number of people employed
(including executive Directors)
Group
2016
Group
2015
Technical
Field operations
Finance
Administrative and support
13
46
9
22
90
14
34
9
21
78
38
Notes to the Financial Statements (continued)
Directors’ remuneration
Director’s emoluments
Share-based payments
Group
2016
US$’000
Group
2015
US$’000
525
443
968
549
443
992
The Directors are the key management personnel of the Company and the Group. Details of Directors' emoluments and interests in
shares are shown in the Remuneration Committee Report. The highest paid director had emoluments totalling US$240,000 (2015:
US$240,000).
7 Finance cost
Loan interest payable
Unwinding of discount on provisions (note 20)
8 Finance income
Unwinding of discount of loan receivable from Baverstock (note 15)
Other
9 Taxation
Analysis of charge for the year
Current tax charge
Deferred tax charge
Loss on ordinary activities before tax
Tax on the above at the standard rate of corporate income tax in the UK 20% (2015:
21.5%)
Effects of:
Non-deductible expenses
Effect of different tax rates overseas
Withholding tax on interest expense
Unrecognised tax losses carried forward
Group
2016
US$’000
765
61
826
Group
2016
US$’000
235
-
235
Group
2016
US$’000
1,124
-
1,124
Group
2016
US$’000
(4,249)
(850)
305
-
1,124
545
1,124
Group
2015
US$’000
828
118
946
Group
2015
US$’000
215
19
234
Group*
2015
US$’000
1,749
-
1,749
Group
2015
US$’000
(1,869)
(402)
251
499
1,126
275
1,749
* Refer to note 1.2 for details of the reclassification of taxation between the taxation charge and profit on discontinued activities in
2015.
39
Notes to the Financial Statements (continued)
10 Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the income/(loss) attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the year including shares to be issued.
In order to calculate diluted earnings/(loss) per share, the weighted average number of ordinary shares in issue is adjusted to
assume conversion of all dilutive potential ordinary shares according to IAS33. Dilutive potential ordinary shares include share
options granted to employees and directors where the exercise price (adjusted according to IAS33) is less than the average market
price of the Company’s ordinary shares during the period.
The calculation of income/(loss) per share is based on:
The basic weighted average number of ordinary shares in
issue during the year*
The diluted average number of ordinary shares in issue during the year
The income/(loss) for the year attributable to owners of the parent from continuing
operations (US$’000)
The income/(loss) for the year attributable to owners of the parent from discontinued
operations (US$’000)
2016
2015**
937,191,981
945,591,981
914,698,721
924,586,221
(3,582)
-
(557)
8,386
* Including shares to be issued from the day the funds were received for such shares.
** Refer to note 1.2 for details of the reclassification of taxation between the taxation charge and profit on discontinued activities in
2015 and its impact on the 2015 EPS for continuing activities and discontinued activities.
The loss per share from continuing operations for 2015 was previously stated at US cents 0.29 and the EPS from discontinued
operations was previously stated at US cents 1.14.
40
Notes to the Financial Statements (continued)
11 Unproven oil and gas assets
COST
Cost at 1 January 2015
Additions
Sales from test production
Foreign exchange difference
Cost at 31 December 2015
Additions
Sales from test production
Foreign exchange difference
Cost at 31 December 2016
ACCUMULATED IMPAIRMENT
Accumulated impairment at 1 January 2015
Foreign exchange difference
Accumulated impairment at 31 December 2015
Foreign exchange difference
Accumulated impairment at 31 December 2016
Net book value at 1 January 2015
Net book value at 31 December 2015
Net book value at 31 December 2016
Group
US$’000
153,079
11,734
(882)
(91,803)
72,128
10,470
(997)
1,622
83,223
Group
US$’000
36,985
(22,180)
14,805
332
15,137
116,094
57,323
68,086
41
Notes to the Financial Statements (continued)
11 Unproven oil and gas assets (continued)
Unproven oil and gas assets represent license acquisition costs and subsequent exploration expenditure in respect of two licenses
held by Kazakh group entities. The carrying values of those assets at 31 December 2016 were as follows: Beibars Munai LLP US$
nil (2015: US$ nil), BNG Ltd LLP US$68,086,000 (2015: US$57,323,000).
The Directors have carried out an impairment review of these assets on a cost pool level as detailed in note 2.1. No impairment
indicators were identified for BNG.
As a result of military training activities the Group currently cannot access the Beibars license area which resulted in a force-majeure
situation. Due to this ongoing force-majeure situation and the uncertainties surrounding the Beibars asset the carrying value
remains fully impaired.
12
Property, plant and equipment
Following the commencement of commercial production in December 2012 the Group reclassified its Munaily assets from unproved
oil and gas assets to proved oil and gas assets. The assets was impaired in 2013 and remains fully impaired based on an
assessment of the value in use of the asset.
Group
Cost at 1 January 2015
Additions
Foreign exchange difference
Cost at 31 December 2015
Additions
Foreign exchange difference
Cost at 31 December 2016
Depreciation at 1 January 2015
Charge for the year
Foreign exchange difference
Depreciation at 31 December 2015
Charge for the year
Foreign exchange difference
Depreciation at 31 December 2016
Net book value at:
01 January 2015
31 December 2015
31 December 2016
Proved
oil and gas
assets
Motor
Vehicles
Other
Total
US$’000
US$’000
US$’000
US$’000
47
-
-
47
-
-
47
47
-
-
47
-
-
47
135
-
(31)
104
45
4
153
78
12
(38)
52
13
2
67
524
30
(252)
302
19
7
328
226
28
(95)
159
29
3
191
-
-
-
57
52
86
298
143
137
706
30
(283)
453
64
11
528
351
40
(133)
258
42
5
305
355
195
223
The net book value presented above relates only to BNG area.
42
Notes to the Financial Statements (continued)
13 Investments (Company)
Investments (equity and long term advances)
Cost
At 1 January 2015
Additions
Receipt
At 31 December 2015
Reclassification from receivables
Receipt
At 31 December 2016
Impairment
At 1 January 2015
Impairment
At 31 December 2015
Impairment
At 31 December 2016
Net book value at:
31 December 2015
31 December 2016
Company
US$’000
*(restated)
181,951
-
(10,391)
171,560
27,337
(8,302)
190,595
64,253
-
64,253
-
64,253
107,307
126,342
As at 31 December 2016 the Company had invested US$ 124,802,000 in equity shares of subsidiaries (2015: US$ 124,775, 000)
and US$ 65,793,000 (2015: US$ 46,785,000) in the long term advances to the subsidiaries. Impairment reserve relates to equity
investments only. Refer to note 15 for long term advances impairments.
Direct investments
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December
2016
Effective holding and
proportion
of voting
rights held
at 31 December 2015
Nature
of business
Registered
address
Eragon Petroleum Limited
United Kingdom
59%
Eragon Petroleum FZE
Dubai
100%
59%
5 New Street
Square
London
EC4A 3TW
Holding
Company
100%
CN-135789,
Jebel Ali, Dubai,
UAE
Management
Company
Beibars BV
Netherlands
100%
100%
Ravninnoe BV
Netherlands
100%
100%
Roxi Petroleum Kazakhstan LLP
Kazakhstan
100%
100%
Utrechtseweg 79
1213 TM
Hilversum
The Netherlands
Utrechtseweg 79
1213 TM
Hilversum
The Netherlands
152/140 Karasay
Batyr Str.,
Almaty,
Kazakhstan
Holding
Company
Holding
Company
Management
Company
*Refer to note1.2 and note 27 for details of the restatement.
43
Notes to the Financial Statements (continued)
13 Investments (continued)
Indirect investments held by Eragon Petroleum Limited
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December
2016
Effective holding
and
proportion
of voting
rights held
at 31 December
2015
Registered
address
Nature
of business
Galaz Energy BV
Netherlands
100%
100%
BNG Energy BV
Netherlands
100%
100%
BNG Ltd LLP
Kazakhstan
99%
99%
Munaily Kazakhstan LLP
Kazakhstan
99%
99%
Indirect investments held by Beibars BV
Utrechtseweg 79
1213 TM
Hilversum
The Netherlands
Utrechtseweg 79
1213 TM
Hilversum
The Netherlands
152/140 Karasay
Batyr Str., Almaty,
Kazakhstan
152/140 Karasay
Batyr Str., Almaty,
Kazakhstan
Holding Company
Holding Company
Exploration Company
Exploration Company
Name of undertaking
Country
incorporation
of
Effective
holding and
proportion
of voting
rights held
at 31 December
2016
Effective holding
and
proportion
of voting
rights held
at 31 December
2015
Beibars Munai LLP
Kazakhstan
50%
50%
Registered
address
Nature
of business
152/140 Karasay
Batyr Str., Almaty,
Kazakhstan
Exploration
Company
Beibars Munai LLP is a subsidiary as the Group is considered to have control over the financial and operating policies of this entity.
Its results have been consolidated within the Group.
44
Notes to the Financial Statements (continued)
14 Inventories
Materials and supplies
15 Other receivables
Amounts falling due after one year:
Prepayments made
VAT receivable
Loan provided to Baverstock
Receivable from Baverstock due to royalty
settlement
Intercompany receivables
Amounts falling due within one year:
Loan provided to Baverstock
Receivable from Baverstock due to royalty
settlement
Prepayments made
Receivable under SPA (note 30)
Other receivables
Group
2016
US$’000
10
10
Group
2016
Group
2015
Company
2016
US$ ‘000
US$ ‘000
US$ ‘000
4,187
3,551
-
-
-
7,738
3,154
3,202
116
1,602
416
8,490
5,479
3,040
2,919
3,202
-
14,640
-
-
87
1,827
182
2,096
32
-
-
-
2,696
2,728
-
3,202
2
-
-
3,204
Group
2015
US$’000
12
12
Company
2015
US$’000
(restated)
-
50
-
3,202
49,376
52,628
-
-
2
-
-
2
The VAT receivables relate to purchases made by operating companies in Kazakhstan and will be recovered through VAT payable
resulting from sales to the local market and, after the commencement of oil production and its export from Kazakhstan, through cash
refunds in accordance with Kazakh tax legislation.
The loan provided to Baverstock relates to the US$10,000,000 facility provided by Galaz Energy BV (a subsidiary of the Company)
to Baverstock exclusively for the repayment of Kuat Oraziman’s loan received in July 2007 (note 26.1 (a)). The total amount
outstanding at the reporting date was US$5,406,000 (2015: US$ 5,406,000) which represent US$5,000,000 of principal and accrued
interest until 01 January 2012. The loan is interest free and is repayable from future dividends receivable from BNG by Baverstock.
The carrying value of the receivable has been adjusted to fair value to reflect the present value of the estimated cash flows
discounted at 8%. As at 31 December 2016, the receivable has been classified as a current asset as it is due to be extinguished as
part of the consideration for the merger, expected to be finalised in 2017 (note 28).
On 24 July 2015 the Company entered into an agreement with Canamens Limited and Sector Spesit IV to cancel future royalty
payments due to them from production from Company’s BNG asset in return for the issue of 46,661,654 fully paid Company’s
ordinary shares. That resulted in the revaluation and the cancellation of the derivative financial liability in the amount of US$2.2
million and US$4.6 million respectively, and recognition of the receivable from Baverstock in the amount of US$3.2 million related to
the Baverstock attributable 41% portion of the Company's royalty obligation. The receivable is recovered through future royalties
arising on revenue from the BNG licence. As at 31 December 2016, the receivable has been classified as a current asset as it is
due to be extinguished at US$3,202,000 as part of the consideration for the merger, expected to be finalised in 2017 (note 28).
The current intercompany receivable bear interest rates between LIBOR + 2% and LIBOR + 7%.
Long-term advances to the subsidiaries in note 13 are shown net of provisions of US$33.3 million (2015: US$26.6 million). The
movement of the bad debt allowance related to the long-term advances was as follows:
Denomination
As at 1 January
Charge
As at 31 December
Group
2015
US$’000
-
-
Company
2016
US$’000
26,550
6,760
Company
2015
US$’000
25,100
1,450
-
33,310
26,550
Group
2016
US$’000
-
-
-
45
Notes to the Financial Statements (continued)
16 Cash and cash equivalents
Cash at bank and in hand
Group
2016
US$’000
405
Group
2015
US$’000
10,462
Company
2016
US$’000
10
Company
2015
US$’000
25
Funds are held in US Dollars, Sterling, Euros, Kazakh Tenge and other foreign currency accounts to enable the Group to trade and
settle its debts in the currency in which they occur and in order to mitigate the Group's exposure to short-term foreign exchange
fluctuations. All cash is held in floating rate accounts.
Group
2016
US$’000
51
7
347
405
Group
2015
US$’000
10,415
3
44
10,462
Company
2016
US$’000
3
7
-
10
Company
2015
US$’000
22
3
-
25
Denomination
US Dollar
Sterling
Kazakh Tenge
17 Called up share capital
Group and Company
Balance at 1 January 2015
Share issue in exchange of cash provided by a
shareholder
Share options exercised
Liability converted to equity (note 15)
Balance at 31 December 2015
Share options exercised
Balance at 31 December 2016
Number
of ordinary
shares
858,433,994
25,137,429
5,712,500
46,661,654
935,945,577
1,487,500
937,433,077
US$’000
14,761
405
87
726
15,979
21
16,000
Number
of deferred
shares
373,317,105
-
-
-
373,317,105
-
373,317,105
US$’000
64,702
-
-
-
64,702
-
64,702
As at 31 December 2016 the Company issued total 244,670,973 ordinary shares in favour of Mr. Satylganov in exchange of
US$29,200,000 funding according to the US$40 million funding agreement. As at 31 December 2016 US$10.8million is still
available under the US$40million funding agreement.
46
Notes to the Financial Statements (continued)
18 Trade and other payables – current
Trade payables
Taxation and social security
Accruals
Other payables
Advances received (deferred revenue)
CIT payable
Group
2016
US$’000
674
101
225
2,020
2,421
202
5,643
Group
2015
US$’000
372
2,225
212
1,995
165
763
5,732
Company
2016
US$’000
183
26
195
-
-
202
606
Company
2015
US$’000
212
34
180
15
-
763
1,204
As at 31 December 2015 the Group has accrued US$ 2,168,000 bonus related to the extended territory at the BNG oil field. That
amount was paid to the tax authorities during 2016.
Other payables relate mainly to the payable for the purchase of Munaily oil field.
As at 31 December 2016 the Group has received a significant amount of prepayments from the oil traders in relation to increasing
production on the BNG oil field.
Trade and other payables – non-current
Intercompany payables
Taxation and social security
Group
2016
US$’000
-
9,614
9,614
Group
2015
US$’000
-
8,297
8,297
Company
2016
US$’000
21,373
-
21,373
Company
2015
US$’000
39,234
-
39,234
Taxation and social security payable relate to withholding tax accrued on the interest expense.
19 Short-term borrowings
Other borrowings
Group
2016
US$’000
809
809
Group
2015
US$’000
308
308
Company
2016
US$’000
-
-
Company
2015
US$’000
-
-
Short-term loans provided by Kazakhstan based individuals and are repayable on demand. US$809,000 (2015: US$308,000) was
provided by local individuals during 2007-2016 in the form of financial aid to Kazakhstan based entities for their work programs
execution. Of the total amount borrowed by the Group at 31 December 2016 US$809,000 (2015: US$140,000) was payable to Kuat
Oraziman (note 26.1 (c)). The loans are interest free.
47
Notes to the Financial Statements (continued)
20 Provisions
Group only
Balance at 1 January 2015
Increase/(decrease) in provision
Paid in the year
Unwinding of discount
Foreign exchange difference
Balance at 31 December 2015
Non-current provisions
Current provisions
Balance at 31 December 2015
Group only
Balance at 1 January 2016
Increase/(decrease) in provision
Paid in the year
Unwinding of discount
Foreign exchange difference
Balance at 31 December 2016
Non-current provisions
Current provisions
Balance at 31 December 2016
Employee
holiday
provision
US$’000
Liabilities
under Social
Development
Program
US$’000
Abandonment
fund
2015
Total
US$’000
US$’000
154
(21)
-
-
(71)
62
-
62
62
3,982
1,121
(693)
112
(987)
3,535
640
2,895
3,535
Employee
holiday
provision
US$’000
Liabilities
under Social
Development
Program
US$’000
62
25
(21)
-
2
68
-
68
68
3,535
751
(232)
48
48
4,150
526
3,624
4,150
231
9
-
6
(106)
140
140
-
140
Abandonment
fund
4,367
1,109
(693)
118
(1,164)
3,737
780
2,957
3,737
2016
Total
US$’000
US$’000
140
(3)
-
13
3
153
153
-
153
3,737
773
(253)
61
53
4,371
679
3,692
4,371
Liabilities and commitments in relation to Subsoil Use Contracts are disclosed below:
a) Beibars Munai LLP
During 2007 Beibars Munai LLP, a subsidiary undertaking, and the Ministry of Energy and Mineral Resources of the Republic of
Kazakhstan signed a Contract for oil exploration within the block XXXVII-10 in Mangistauskaya oblast (Contract #2287). The
contract term expired in January 2012 and the Group has applied to the Ministry of Oil and Gas for the extension of the Beibars
exploration license, given the force majeure situation. The situation did not change as of 31 December 2016.
In accordance with the terms of the contract Beibars Munai LLP committed to the following:
to invest at least 5% of annual capital expenditures on exploration during the exploration period on the professional training of
Kazakh personnel involved in contractual operations;
to invest US$1,000,000 on the development of Astana during the second period of the Contract;
to invest US$1,000,000 on a social development of Mangystau region, in equal tranches over 5 years. The obligation was
settled in 2007 only in the amount of US$200,000;
total amount of investments must be at least US$22,362,000 during the exploration period;
to pay a subscription bonus of US$1,500,000 within 30 calendar days from the effective date of the Contract. The subscription
bonus was paid in full;
transfer of 1% of exploration costs to the liquidation fund maintained on a special deposit in any bank located on the territory of
the Republic of Kazakhstan, on an annual basis.
The subsoil use rights are not unlimited in time, and each extension should be agreed before the respective subsoil use agreement
or license expires. These rights may be cancelled by the authorised state bodies of the Republic of Kazakhstan if the Company fails
to fulfill its contractual obligations.
The Group considers that Beibars Munai LLP has complied with the above obligations as it is in the state of force majeure (see note
11).
48
Notes to the Financial Statements (continued)
20 Provisions (continued)
b) Munaily Kazakhstan LLP
Munaily Kazakhstan LLP, a subsidiary, signed a contract # 1646 dated 31 January 2005 with the Ministry of Energy and Mineral
Resources of RK (now the Ministry of Oil and Gas (MOG) for the exploration and extraction of hydrocarbons on Munaily deposit
located in the Atyrau region.
The contract is valid for 25 years. On 13 July 2011 Munaily Kazakhstan LLP and a competent authority signed Addendum No. 5 to
the Subsoil Use Contract (SSUC), which stipulates the oil production period to be 15 years to 2025 and approves the minimum work
program for the production period.
In accordance with the terms of the contract and addendums Munaily Kazakhstan LLP remains committed to the following:
Social development of Atyrau region – US$600,000* over the period of the contract;
To allocate US$400,000* to the Astana city development program;
Professional education of engaged Kazakhstan personnel – not less than 1% of total investments;
Transferring, on an annual basis, 1% of production expenditures to a liquidation fund through a special deposit account in a
bank located within the Republic of Kazakhstan; and
To fund the minimum work program during the 15 year production period of US$29,271,756;
Once the production stage begins, to pay the remaining part of historical costs of US$1,579,770 within 10 years in equal
quarterly instalments.
*Unpaid amounts in respect of the above social obligations are included within liabilities for social programs above.
c) BNG Ltd LLP
BNG Ltd LLP a subsidiary, signed a contract #2392 dated 7 June 2007 with the Ministry of Energy and Mineral Resources of RK
for exploration at Airshagyl deposit, located in Mangistau region. Under addendum No.1 dated 17 April 2008, the Contract Area
was increased. The contract was valid for 4 years and expired on 7 June 2011. Addendum No. 6 to the Subsoil Use Contract for
extension of exploration period up to June 2013 was obtained on 13 July 2011. On 16 July 2013 BNG Ltd LLP signed Addendum
No. 7 extending the exploration period for two consecutive years until June 2015. On 22 June 2015 BNG Ltd LLP signed Addendum
No. 9 extending the exploration period for three consecutive years until June 2018. On 24 December 2015 BNG Ltd LLP signed
Addendum No.10 according to which the geological territory was extended by 140.6 sq kilometres.
In accordance with the terms of the contract and addendums, BNG Ltd LLP remains committed to the following:
For the three-year extension period up to 2018 US$700,000 per annum should be invested in the social development of the
region;
To fund minimum work program during the extended exploration period of US$16,540,000
Investing not less than 1% of total investments in professional training of Kazakhstani personnel engaged in work under the
contract; and
Transferring, on an annual basis, 1% of exploration expenditures to a liquidation fund through a special deposit account in a
bank located within the Republic of Kazakhstan.
49
Notes to the Financial Statements (continued)
21 Borrowings
Loan from Vertom
Group
2016
US$’000
9,935
9,935
Group
2015
US$’000
9,903
9,903
Company
2016
US$’000
9,935
9,935
Company
2015
US$’000
9,903
9,903
On 29 September 2011 the Company entered into the loan facility with Vertom International NV (“Vertom”) whereby Vertom agreed
to lend up to US$5 million to the Company with an associated interest of 12% per annum. The Company has offered Vertom
security over its investments in its operating assets in respect to this loan facility. On 30 April 2012 the Group extended the term of
the loan facility arrangement with Vertom for further two years to 30 April 2014 and at the same time increased the facility amount to
US$7 million. On 28 June 2013 the term of the loan facility was extended until 30 April 2016. On 26 June 2015 the term of the loan
facility was extended until 30 April 2018. The loan extension represented a substantial modification of the terms of the existing
financial liability and was accounted for as an extinguishment of the original financial liability and recognition of a new financial
liability in 2015. The loan is due to be converted to the Company's shares during 2017 subject to the finalization of the merger with
Baverstock (note 28).
22 Deferred tax
Deferred tax liabilities comprise:
Deferred tax on exploration and evaluation assets acquired
Group
2016
US$’000
7,748
7,748
Group
2015
US$’000
7,485
7,485
The Group recognises deferred taxation on fair value uplifts to its oil and gas projects arising on acquisition. These liabilities reverse
as the fair value uplifts are depleted or impaired.
The movement on deferred tax liabilities was as follows:
At beginning of the year
Foreign exchange
Group
2016
US$’000
7,485
263
7,748
Group
2015
US$’000
11,164
(3,679)
7,485
As at 31 December 2016 the Group has accumulated deductible tax expenditure related to its Kazakhstan assets of approximately
US$118 million (2015: US$106 million) available to carry forward and offset against future profits. This represents an unrecognised
deferred tax asset of approximately US$23.5 million (2015: US$21 million).
23 Share option scheme
During the year the Group and the Company had in issue equity-settled share-based instruments to its Directors and certain
employees. Equity-settled share-based instruments have been measured at fair value at the date of grant and are expensed on a
straight-line basis over the vesting period, based on an estimate of the shares that will eventually vest. Options generally vest in
four equal tranches over the two years following the grant.
The options were issued to Directors and employees as follows:
Number of
options granted
Number of options
expired
Options
exercised
Total options
outstanding
Weighted
average
exercise price
in pence (p)
per share
As at 31 December 2015
Directors
Employees and others
As at 31 December 2016
(8,412,500) 44,188,092
85,708,226 (33,107,634)
-
-
-
- (1,487,500) 1,262,500
(9,900,000) 45,450,592
88,458,226 (33,107,634)
-
2,750,000
19
-
20
20
31,600,592 outstanding options as at 31 December 2016 are exercisable.
The range of exercise prices of share options outstanding at the year end is 4p – 65p (2015: 4p – 65p). The weighted average
remaining contractual life of share options outstanding at the end of the year is 4.9 years (2015: 5.5 years).
50
Notes to the Financial Statements (continued)
Total number of options
Fair value at measurement date
Exercise price
Volatility
Probability of vesting condition (admission)
Expected life of warrants
Risk free rate
As at
02 September
2016
As at
8 November
2016
As at
25 September
2014
1,750,000
1,000,000
12,200,000
£0.11
£0.20
80%
3 years
5 years
1.10%
£0.11
£0.20
80%
3 years
5 years
1.10%
£ 0.17
£0.20
80%
3 years
5 years
2.50%
24 Derivative financial liability and warrants
Derivative liability - royalty
During 2009 the Company entered into a sale and purchase agreement to dispose of 35% of its interest in BNG Ltd LLP to
Canamens BNG BV (“Canamens”). The deal subsequently was terminated on 10 May 2011, the Group received back its 35%
interest in BNG Ltd LLP from Canamens. In return for the reassignment of the loans the Company agreed to pay Canamens a
royalty equivalent to 1.5% of the future gross revenues generated from the BNG operating asset. The fair value of the royalty
payable at 31 December 2014 comprised US$6.7 million.
On 24 July 24 2015 the Company entered into an agreement with Canamens Limited and Sector Spesit IV to cancel future royalty
payments due. That resulted to the revaluation and the cancellation of the derivative financial liability in the amount of US$2.2
million and US$4.6 million respectively, and recognition of the receivable from Baverstock in the amount of US$3.2 million related to
the Baverstock portion of the Company's royalty obligation (note 15).
Equity - warrants
The Company has 7.5 million warrants valid until 21 May 2017 that are recognised in equity in the amount of US$1,779 thousand.
The total number of warrants that remained outstanding at the yearend was 7,500,000 (2015: 7,500,000). They were accounted in
other reserves.
51
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management
In common with all other businesses, the Group and Company are exposed to risks that arise from its use of financial instruments.
This note describes the Group and Company’s objectives, policies and processes for managing those risks and the methods used
to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.
The significant accounting policies regarding financial instruments are disclosed in note 1.
There have been no substantive changes in the Group or Company’s exposure to financial instrument risks, its objectives, policies
and processes for managing those risks or the methods used to measure them from previous years unless otherwise stated in this
note.
Principal financial instruments
The principle financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:
Financial assets
Group
2016
US$’000
Group
2015
US$’000
Company
2016
US$’000
Intercompany receivables
Loan provided to Baverstock
Receivable from Baverstock due to royalty
settlement
Receivable under SPA (note 30)
Other receivables
Restricted use cash
Cash and cash equivalents
-
3,154
3,202
1,602
416
283
405
9,062
-
2,919
3,202
1,827
182
271
10,462
18,863
Company
2015
US$’000
(restated)
49,376
-
3,202
-
-
-
25
2,696
-
3,202
-
-
-
10
5,908
52,603
Financial liabilities
Trade and other payables
Other payables - non-current
Borrowings – current
Borrowings - non-current
Group
2016
US$’000
Group
2015
US$’000
Company
2016
US$’000
Company
2015
US$’000
2,919
-
809
9,935
2,579
-
308
9,903
13,663
12,790
378
21,373
-
9,935
31,686
407
39,234
-
9,903
49,544
The Baverstock receivable due to royalty settlement was initially measured at fair value based on the Baverstock share of the
royalty obligations settled through the issue of the Company’s shares in 2015 (note 24). As at 31 December 2016 the fair value of
the asset has been measured with reference to the value attributed to the receivable as part of the Baverstock merger as detailed in
note 28.
During 2016 and 2015 the movement in Group and Company’s derivative financial liabilities were as follows:
Derivative Financial Liability
Balance at the beginning of the year
Change in value taken to the Profit or Loss
Settled during the year
Balance at 31 December
Principal financial instruments
2016
$’000
-
-
-
-
2015
$’000
6,790
(2,183)
(4,607)
-
The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:
other receivables
cash at bank
trade and other payables
borrowings
52
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management (continued)
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group and Company’s risk management objectives and policies
and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that
ensure the effective implementation of the objectives and policies to the Group and Company’s finance function. The Board receives
regular reports from the finance function through which it reviews the effectiveness of the processes put in place and the
appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group and
Company’s competitiveness and flexibility. Further details regarding these policies are set out below:
Credit risk
Credit risk arises principally from the Group’s other receivables. It is the risk that the counterparty fails to discharge its obligation in
respect of the instrument. The maximum exposure to credit risk equals the carrying value of these items in the financial statements.
When commercial exploitation commences sales will only be made to customers with appropriate credit rating. Sales during test
production are made on prepayment base thereby eliminating credit risk. The Group hold amounts due in respect of the sale of
Galaz of US$1.6 million which are past due but not impaired based on confirmations received from the counterparty of settlement in
due course.
Credit risk with cash and cash equivalents is reduced by placing funds with banks with high credit ratings.
Capital
The Company and Group define capital as share capital, share premium, deferred shares, other reserves, retained deficit and
borrowings. In managing its capital, the Group’s primary objective is to provide a return for its equity shareholders through capital
growth. Going forward the Group will seek to maintain a gearing ratio that balances risks and returns at an acceptable level and also
to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making
decisions to adjust its capital structure to achieve these aims, either through new share issues or the issue of debt, the Group
considers not only its short-term position but also its long-term operational and strategic objectives.
The Group’s gearing ratio as at 31 December 2016 was 22% (2015:21%).
There has been no other significant changes to the Group’s Management objectives, policies and processes in the year.
Liquidity risk
Liquidity risk arises from the Group and Company’s Management of working capital and the amount of funding committed to its
exploration programme. It is the risk that the Group or Company will encounter difficulty in meeting its financial obligations as they
fall due.
The Group and Company’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they
become due. To achieve this aim, it seeks to raise funding through equity finance, debt finance and farm-outs sufficient to meet the
next phase of exploration and where relevant development expenditure.
The Board receives cash flow projections on a periodic basis as well as information regarding cash balances. The Board will not
commit to material expenditure in respect of its ongoing exploration programmes prior to being satisfied that sufficient funding is
available to the Group to finance the planned programmes.
For maturity dates of financial liabilities as at 31 December 2016 and 2015 see table below. The amounts are contractual payments
and may not tie to the carrying value:
Group 2016 US$’000
Group 2015 US$’000
Company 2016 US$’000
Company 2015 US$’000
Interest rate risk
On
Demand
Less than
3 months
3-12
months
1- 5 years
809
308
-
-
2,919
2,579
378
407
-
-
-
-
10,300
14,103
10,300
14,103
Over 5
years
-
-
30,000
58,066
Total
14,028
16,990
40,678
72,561
The majority of the Group’s borrowings are at fixed rate. As a result the Group is not exposed to the significant interest rate risk.
53
Notes to the Financial Statements (continued)
Currency risk
The Group and Company’s policy is, where possible, to allow group entities to settle liabilities denominated in their functional
currency (primarily US$ and Kazakh Tenge) in that currency. Where the Group or Company entities have liabilities denominated in a
currency other than their functional currency (and have insufficient reserves of that currency to settle them) cash already
denominated in that currency will, where possible, be transferred from elsewhere within the Group.
In order to monitor the continuing effectiveness of this policy, the Board receives a periodic forecast, analysed by the major
currencies held by the Group and Company.
25 Financial instrument risk exposure and management (continued)
The Group and Company is primarily exposed to currency risk on purchases made from suppliers in Kazakhstan, as it is not
possible for the Group or Company to transact in Kazakh Tenge outside of Kazakhstan. The finance team carefully monitors
movements in the US$/Kazakh Tenge rate and chooses the most beneficial times for transferring monies to its subsidiaries, whilst
ensuring that they have sufficient funds to continue its operations. The currency risk relating to Tenge is significant.
In the event that Kazakhstani Tenge devalues against the US$ by 30% the Group would incur foreign exchange losses in the
amount of US$48 million (2015: US$48 million) that would be reflected in other comprehensive income. The impact of such a
devaluation on the translation of monetary assets and liabilities held in Kazakhstan and denominated in non-Tenge currencies
would be exchange losses recorded in the statement of changes in equity of US$48 million (2015: US$48 million).
26
Related party transactions
The Company has no ultimate controlling party.
26.1 Loan agreements
a) Loan to Baverstock
In August 2010 Galaz Energy BV (a subsidiary of the Company) provided Baverstock GmbH (holds 41% interest in Eragon) with a
loan facility of up to US$10,000,000, it was initially at LIBOR +7%, from 01 January 2012 the loan is interest free. The amounts
borrowed under this loan agreement were to be used exclusively for the repayment of Kuat Oraziman’s US$10,000,000 loan
received in July 2007. The facility is to be repaid through future dividends receivable by Baverstock from Eragon. In December 2010
the first tranche of US$5,000,000 under the facility agreement was transferred to Kuat Oraziman directly by Galaz Energy BV to be
repaid by Baverstock (Kuat Oraziman is a main shareholder in Baverstock).
b) Receivable from Baverstock due to royalty
On 24 July 2015 the Company entered into an agreement with Canamens Limited and Sector Spesit IV to cancel future royalty
payments due to them from production from Company’s BNG asset in return for the issue of 46,661,654 fully paid Company’s
ordinary shares. That resulted to cancellation of the derivative financial liability in the amount of US$6.8 million and recognition of
the receivable from Baverstock in the amount of US$3.2 million related to the Baverstock portion of the Company's royalty obligation
(note 15). As at 31 December 2016 the fair value of the receivable has been measured with reference to the value attributed to the
receivable as part of the Baverstock merger as detailed in note 28.
c) Other loans payable to Kuat Oraziman
The Company had other loans outstanding as at 31 December, 2016 and 2015 with Kuat Oraziman, details of which have been
summarised in the note 19. The loans provided are interest free.
d) Loan payable to Vertom
During the year ended 31 December 2011 the Company entered into two loan facilities with Vertom International NV, details of
which have been summarised in note 21. The loan payable at 31 December 2016 was US$9,935,000 (2015: US$9,903,000). A
director of the Company Kuat Oraziman is a director of and holds 100% of the issued share capital of both Vertom International N.V.
(“Vertom”) and Vertom International BV. Interest accrued for the year is US$ 765,000 (2015: US$ 776,000).
e) US$40 million funding agreement
During 2015 the Company received US$3,000,000 from Mr. Kairat Satylganov, Company's shareholder and CFO, according to the
US$40 million funding agreement.
26.2
Key management remuneration
Key management comprises the Directors and details of their remuneration are set out in note 6.
26.3
Purchases
During 2016 the Group purchased drilling services from the related party STK Geo LLP, the company registered in Kazakhstan,
which is owned by the member of Kuat Oraziman’s family, in the amount of US$4.4 million (2015: US$4.8 million). These expenses
were capitalized to unproven oil and gas assets. As at year end the Group has prepayments made in the amount of US$2.4 million
(2015: US$4.9 million) and trade receivables in the amount of US$69,300 (2015: US$67,900) in relation to these drilling services.
54
Notes to the Financial Statements (continued)
27 Restatement
The Parent company statement of financial position as at 31 December 2015 and 1 January 2015 as well as Parent statement of
changes in equity for the year ended 31 December 2015 and 1 January 2015 have been restated. Interest was incorrectly accrued
in respect of several non-current advances provided to the subsidiary from 1 January 2012 onwards. The prior year comparatives
have been restated accordingly to exclude this accrued interest.
In addition, in order to properly reflect the nature of the advances provided by the Parent company, which are in substance an equity
investment and formed part of the net investment in subsidiaries, the relevant non-current intercompany receivables have been
reclassified as part of investments in subsidiaries.
For the reconciliation between the previously reported financial position for the years ended 31 December 2015 and 31 December
2014 and the restated financial position refer to note 27. As a result of the restatement, the Parent company's retained loss has
been increased from US$ 115,968,000 to US$ 134,439,000 at 31 December 2015 and the profit and total comprehensive income
for 2015 of US$ 2,562,000 has been restated to a loss and total comprehensive expense of US$ 1,343,000.
The reconciliation between the previously reported financial position for the years ended 31 December 2015 and 1 January 2015
and the restated financial position are as follows:
31-Dec-15 Adjustment
US$’000
US$’000
Investments in subsidiaries
60,522
46,785
117,884
(65,256)
178,406
(18,471)
31 December 2015
(restated)
US$’000
107,307
52,628
159,935
Other receivables
Non-current assets
Current assets
Non-current liabilities
Borrowings
Other payables
Current liabilities
Net assets
27
-
27
(9,903)
(39,234)
(9,903)
(39,234)
(1,204)
-
(1,204)
128,092
(18,471)
109,621
Share capital, premium and
deferred shares
Other reserves
Retained deficit
Total equity
227,345
-
16,715
-
(115,968)
(18,471)
128,092
(18,471)
Profit/(loss) for the year
2,562
(3,905)
227,345
16,715
(134,439)
109,621
(1,343)
55
1 Jan 2015 Adjustment
US$’000
US$’000
1 Jan 2015
(restated)
US$’000
Investments in subsidiaries
60,522
57,176
117,698
Other receivables
121,254
(71,742)
49,512
Non-current assets
181,776
(14,566)
167,210
Current assets
140
-
140
Non-current liabilities
Borrowings
Other payables
Current liabilities
Net assets
Share capital, premium and
other reserve
Other reserves
Retained deficit
Total equity
(9,075)
(52,953)
(9,075)
(52,953)
(6,121)
-
(6,121)
113,767
(14,566)
99,201
216,137
16,715
-
-
216,137
16,715
(119,085)
(14,566)
(133,651)
113,767
(14,566)
99,201
56
Notes to the Financial Statements (continued)
28 Events after the reporting period
Baverstock merger
On 24 March 2017 the Company's shareholders voted to approve the merger with Baverstock (the company that owns 41% in
Eragon Petroleum Limited) subject to satisfaction of conditions precedent including approval of the transaction by the Kazakh
authorities. On May 12 2017 the Company announced that approval had been received from the Kazakh Authority. Under the terms
of the merger 651,436,544 new Caspian Sunrise shares representing 41% of the then enlarged share capital will be issued to the
Baverstock quotaholders in return for the Company acquiring 40.59% of BNG Ltd LLP, so that in aggregate the enlarged Group will
have a 99% interest in the BNG Contract Area.
The number of shares issued as consideration was subject to adjustments to the number of shares to reflect amounts receivable by
the Group from Baverstock, together with adjustments to the number of shares for liabilities which are due to be shared with
Baverstock as a result of the merger. As such, the receivables will be extinguished as part of the merger and form part of the
effective consideration for the asset. The Company fair valued its receivables due from Baverstock based on the terms of the
merger.
Also approved by independent shareholders was the capitalisation of approximately US$10.1 million due to Vertom (expected value
of the loan at the merger date), a company controlled by Kuat Oraziman, to be satisfied upon completion of the Baverstock Merger
by the issue of a further new Caspian Sunrise shares, following which the Group will be free of material long term debt with only
short-term financing from local traders based upon existing production.
The merger with Baverstock is expected to be finalised by 30 June 2017.
29 Discontinued operation in equity accounted joint venture
The Company changed its accounting policy on joint ventures from 1 January 2014 following the introduction of IFRS 11 Joint
arrangements. The joint venture agreements and structures for Galaz and Company LLP provided the Company with interests in the
net assets of Joint venture, rather than interests in its underlying assets and obligations. Accordingly, under IFRS 11, the group’s
share of joint venture were accounted for using the equity method rather than proportionately consolidated, from the beginning of
the earliest period presented.
On 10 February 2015 Galaz Energy BV entered into a SPA with Netherlands Sinian Investment BV (“SI BV”) for the sale of its
residual 58% interest in Galaz and Company LLP, resulting in a profit on disposal before tax of US$18.7million as disclosed in Note
30. The transaction was finalized on 20 May 2015.
Set out below is the summarised financial information for Galaz and Company LLP which was accounted for using the equity
method up to 20 May 2015 (amounts stated at 58% that represent Group’s interest in Galaz and Company LLP).
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Equity attributable to owners of the parent
Non-controlling interests
Expenses
Loss after tax
Year ended 31
December 2016
Year ended 31
December 2015
US$’000
US$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(914)
(914)
57
Notes to the Financial Statements (continued)
29.
Discontinued operation in equity accounted joint venture (continued)
Reconciliation of the summarized financial information presented to the carrying amount of the group's interest in the Galaz and
Company LLP joint venture:
Opening net assets
Loss for the period
Other comprehensive loss
Closing net assets
Carrying value
Total comprehensive loss for the year attributable to owners of the parent
Total comprehensive loss for the year attributable to NCI
Total comprehensive loss for the year
Year ended 31
December 2016
Year ended 31
December 2015
US$’000
US$’000
-
-
-
-
-
-
-
-
7,872
(914)
289
(7,247)
-
-
(369)
(256)
30 Galaz disposal
On 10 February 2015 Galaz Energy BV entered into a SPA with Netherlands Sinian Investment BV (part of consortium led by
Xinjiang Zhundong Petroleum Technology Co., a Company listed on the Shenzhen Stock Exchange in China) for the sale of its 58%
of the equity in Galaz and Company LLP for US$29.2 million.
This transaction completed on 20 May 2015. Consequently as a result of the transaction Roxi lost its share in Galaz and Company
LLP.
Up to the date of disposal, Galaz and Company LLP was treated as an investment in equity accounted joint venture.
The gain on disposal of Galaz and Company LLP was determined as follows:
Total consideration under SPA
Adjustment for net working capital position at the date of disposal
Total consideration after adjustment for net working capital position
Net assets disposed
Less release of cumulative translation reserve
Gain on disposal recognised in the income statement
Loss for the period – note 29
Gain on disposal net of losses
Taxation
Gain on disposal net of taxation
At date of
disposal
US$’000
29,232
(966)
28,266
(7,247)
(2,361)
18,658
(914)
17,744
(3,531)
14,213
Net cash inflow
22,908
The US$2,361,000 release of cumulative translation reserves arose from the disposal of Galaz B.V. 58% interest in Galaz and
Company LLP to SI BV. This represents the previously capitalised translation losses attributed to the interest sold, written off during
2015.
Of the net US$28,266,000 purchase consideration US$3,531,000 was withheld by SI BV in order to pay withholding tax on the
capital gain that arose in Galaz Energy BV. Purchase consideration in the amount of US$22,908,000 was received during 2014 and
2015. US$225,000 was withheld based on the agreement during 2016. The residual part of the purchase consideration net of
withhold amounts of US$1,602,000 is expected to be received by the end of 2017. This amount is presented in other receivables
line of Consolidated Statement of Financial Position.
58