Company number: 05966431
Caspian Sunrise plc
Annual report and financial statements
for the year ended 31 December 2020
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Contents
Chairman’s Statement
Qualified Person & Glossary
The Kazakh oil and gas licensing and taxation environment
Strategic Report
Directors’ report
Principal and other risks and uncertainties facing the business
Environmental, Social and Corporate Governance Report
Remuneration Committee Report
Audit Committee Report
Independent auditors’ report to the members of Caspian Sunrise plc
Consolidated Statement of Profit or Loss
Consolidated Statement of Other 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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Directors
Mr C Carver
Mr K Oraziman
Mr S Shin
Lord Limerick
Mr A Oraziman
Chairman
Chief Executive Officer
Chief Operating Officer
Non-Executive Director
Non-Executive Director
Company Secretary
Mr C Carver FCA, FCT
Registered Office
and Business address
5 New Street Square,
London EC4A 3TW
Company Number
05966431
Nominated Adviser
and Broker
WH Ireland Limited,
24 Martin Lane, London, EC4R 0DR
Solicitors
5DG
Auditors
Fladgate LLP 16 Great Queen Street, London, WC2B
BDO LLP, 55 Baker Street, London, W1U 7EU
Share Registrar
Link Asset Services,
6th Floor, 65 Gresham Street, London, EC2V 7NQ
Principal Banker
Barclays Bank, 1 Churchill Place, London, E14 5HP
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CHAIRMAN’S STATEMENT
Introduction
Without doubt 2020 was our toughest year to date. Actions taken at the onset of Covid-19 together with the
recovery in international oil prices ensured the Group’s survival, however, progress on our medium / longer
term objectives was limited during the year under review.
Now, with a much improved international oil price and a recently doubled domestic price together with
positive recent news at 3A Best and the Caspian Explorer, we are on a path to recovery.
The impact of Covid-19
We were fortunate that when Covid-19 struck we had sufficient production from the shallow MJF structure
at our flagship BNG asset from which to fund the Group’s day-to-day operations. Nevertheless we were
forced to take some difficult decisions.
Cost cutting
It was clear to the Board that Covid-19 would severely affect the Group both financially and operationally.
The sharp fall in international and domestic prices began in Q1 2020 followed by disruption to operations,
most notably crew changeovers and the supply of almost everything required to make an oilfield work
meant we had to make changes.
In March 2020, principally in light of restrictions in crew changeovers, we announced that the suspension
of all new drilling activities and that we would focus only on the completion of work likely to generate
early revenue. In early May 2020, as part of wider measures we announced that following earlier reductions
the costs of the Board had been further reduced to 25% of previous levels and these reductions remain in
place. In addition we announced cuts to the workforce in the field and in the corporate offices in Almaty.
We also announced that we had secured additional financial support from local oil traders.
£1 million equity placing
Our policy where possible is to avoid dilutive equity placings to fund day-to-day operations. However, the
Covid-19 induced squeeze on an already tight working capital position meant we were obliged to raise £1
million before expenses by issuing 36,363,629 new shares at a price of 2.75p per share. The funds raised
were used to pay existing liabilities.
Oil prices
International prices have recovered from a low of approximately $16 per barrel to approximately $75 per
barrel and this additional revenue has been instrumental in the Group’s survival. However, the domestic
price at which we are obliged to sell 40-45% of oil produced fell from approximately $19 per barrel before
Covid-19 to approximately $6 per barrel during the period under review, which resulted in a loss on each
barrel sold to the domestic market. After the period end the domestic price doubled to approximately $12
per barrel and has recently increased further to approximately $18 per barrel.
Our oil & gas assets
BNG Contract Area
The Group’s principal asset is its 99% interest in the BNG Contract Area. We first took a stake in the BNG
Contract Area in 2008, as part of the acquisition of 58.41% of portfolio of assets owned by Eragon
Petroleum Limited.
In 2017, we increased our stake to 99% upon the completion of the merger with Baverstock GmbH. Since
2008, approximately $100 million has been spent at BNG.
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. We became operators at BNG in 2011, since when we
have identified and developed both shallow and deep structures.
Shallow structures
There are two confirmed and producing shallow structures at BNG with the possibility of a third.
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MJF structure
In 2013, we announced the discovery of the MJF structure and have subsequently drilled 8 wells of which
6 are currently producing with an aggregate capacity of approximately 1,300 bopd.
The productive Jurassic aged reservoir consists of stacked pay intervals with most ranging in thickness
from two meters to 17 meters. The current mapped lateral extent of the MJF field is now approximately
13km2.
The producing wells range in depth from 2,192 meters to 2,450 meters.
In December 2018, we applied to move the MJF structure, which was part of the overall BNG licence, from
an appraisal licence to a full production licence, under which the majority of the oil produced from the MJF
wells may be sold by reference to world rather than domestic Kazakh prices. The full production licence
became effective in July 2019, with the first revenues based on international prices received in August
2019.
Following the award of the MJF export licence the Kazakh regulatory authorities assessed historic costs of
$32 million against the MJF structure, repayable quarterly over a 10 year period. As previously announced
we believe such an assessment to be mistaken as despite the MJF structure representing only 1% of the
surface area of the BNG Contract Area it has been assessed to bear 100% of the BNG historic costs.
However, the Kazakh courts have recently denied our appeal and we have no further appeal options open
to us.
Well 154 has a Planned Depth of 2,480 meters and will be the first horizontal well drilled on the BNG
Contract Area. The well is targeting a Middle Jurassic reservoir.
South Yelemes
This structure remains the subject of a slow moving licence upgrade application for a separate 25 year
production licence. Until the application is approved we are unable produce from the four existing wells on
the structure.
The first wells were drilled on the South Yelemes structure during the Soviet era. Well 54 was intermittently
active between periods of being shut in to allow pressure to be restored. There are three other wells at South
Yelemes (805, 806 & 807). The production capacity from the existing wells at South Yelemes was in
aggregate approximately 300 bopd.
Until recently these older wells were the only wells on the BNG Contract Area to use artificial lift to assist
the oil to flow to the surface. We believe the structure may have untapped quantities of oil at higher levels
than previously explored making it potentially suitable for a horizontal drilling campaign once the improved
licence is awarded.
Deep structures
We have identified two deep structures at the BNG Contract Area. The first is the Airshagyl structure,
which extends to 58 km2. The second is the Yelemes Deep structure which extends over an area of 36 km2.
Sub-surface conditions at the two discovered deep structures at BNG present significant technical
challenges in drilling and completing the wells. These are the extremely high temperature and extreme over
pressure that exist below the salt layer. At the Airshagyl structure the salt layer is typically found at depths
between 3,700 and 4,000 meters where at the Yelemes Deep structure the salt layer is typically found at
depths between 3,000 and 3,500 meters.
The extreme pressure below the salt layer requires the use of high density drilling fluid to maintain control
of the well during drilling. The high density drilling fluid’s principal role is to help prevent dangerous blow-
outs. The attributes of the high density barite weighted drilling fluid, which allow the wells to be controlled
during the drilling phase, act against us when we attempt to clear the well for production.
To the extent that drilling fluids, which include solid particles added to increase density, are not fully
recovered they can form a barrier between the wellbore and the reservoir impeding the flow of hydrocarbons
into the well.
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Competent third party experience has been difficult to find, as the exceptional temperature and pressure are
unusual for many international consultancies more used to conventional shallower exploration. We have
however, developed our drilling techniques and now use drilling fluids with lower density, which we have
found easier to remove once drilling has been completed.
3A Best
In January 2019, we acquired 100% of the 3A Best Group JSC, a Kazakh corporation owning an existing
Contract Area of some 1,347 sq. km located near the Caspian port city of Aktau, for a final consideration
of $11.8 million payable by the issue of 149,253,732 Caspian Sunrise shares issued at a price of 6.15p per
share.
The Contract Area, which has been designated by the Kazakh authorities as a strategic national asset,
surrounds and goes below the established shallow field at Dunga, currently owned by Total, which we
believe to be producing at the rate of approximately 15,000 bopd.
In June 2021, we announced a farm out of 15% of the 3A Best Contract Area in return for our new partners
assuming responsibility for the current 3A Best work programme commitments, the farm out is conditional
on the deferral of obligations under the licence and the extension of the license to be granted. We also
granted our new partners an option to acquire the remaining 85%, exercisable after completion of the current
work programme commitments, at a price to be determined by an independent expert.
Caspian Explorer
In January 2020, we announced the proposed acquisition of the Caspian Explorer for a headline
consideration of $25 million to be satisfied by the issue of 160,256,410 shares at an issue price of 12p per
share.
In parts of the northern Caspian Sea, where we believe there are attractive oil producing prospects, the
water levels are extremely shallow and the prospects cannot be explored with traditional deep water rigs.
The principal ways of exploring these properties are either from a land base or by the use of a specialist
shallow drilling vessel such as the Caspian Explorer, which we believe to be the only one of its class
operational in the Caspian Sea.
Land based options typically involve either the creation of man-made islands from which to drill as if
onshore or less commonly drilling out from an onshore location. Both are expensive compared to the use
of a specialist drilling platform such as the Caspian Explorer.
The acquisition completed in October 2020, by when the fall in the Company’s share price reduced the
headline price paid to $3.7 million. The acquisition of the Caspian Explorer marks the Group’s first step
into off-shore exploration, which is typically more expensive and complicated than on-shore exploration
but if successful can provide greater returns.
We were pleased in June 2021, to announce the first charter for the Caspian Explorer being a part of the
Group. The charter is with the North Caspian Operating Company (“NCOC”) the principal operator in the
region, comprising the Republic of Kazakhstan working through KazMunaiGas (KMG), and international
oil companies including Shell, ExxonMobil, Eni, Total and CNPC, the consortium operating the Kashagan
field. The charter, which will be undertaken in Q3 2021, is safety related rather than new drilling. We look
forward to further charters as development of the northern Caspian Sea progresses.
Licences & Work Programmes
BNG
BNG LLP Ltd holds two contracts for a subsoil use. The first is the exploration contract, covering the full
extent of the BNG Contract Area (except the MJF structure), originally issued in 2007 and successively
extended until 2024.
The second is the export contract covering just the MJF structure which runs to 2043 and under which the
majority of oil produced may be sold by reference to international rather than domestic prices.
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During 2020, certain work programme obligations at the BNG Contract Area were deferred from 2020 to
2021. While we are yet to fully comply with both the BNG work programme commitments and payment
of the social obligations, given the issues imposed by Covid-19, the Board are not unduly concerned about
any impact on the BNG licence given the penalties can be applied until the commitments are fulfilled and
the absence of a significant non-compliance.
The Company is in discussions with third parties to work together to drill A9, a further deep well which
forms part of the current BNG work commitment.
3A Best
Similarly at 3A Best we are not in compliance with existing work programme commitments, largely as we
have been waiting for a revised work programme, which is agreed in principle but yet to be formally
confirmed. The Group has applied for a deferral of the amounts due and work program commitments during
2020. On the date of this report the Group is still negotiating with the Ministry and local officials. The
recent farm-out transaction has been structured such that our new partners will fund drilling the well
forming the bulk of the existing work programme, following which we would be in compliance.
Accordingly, the Board does not believe the level of compliance with the previous work programme is a
threat to the licence.
Reserves
BNG
In 2011 Gaffney Cline & Associates (“GCA”) undertook a technical audit of the BNG license 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.
In September 2016 GCA assessed the reserves attributable to the BNG shallow structures (MJF & South
Yelemes). Between then and the end of 2020, approximately 2.5 mmbls of oil were produced, which
under financial reporting rules are deducted from the assessment of reserves as at 31 December 2020.
As at 31 December 2020
mmbls
As at 31 December 2019
mmbls
15.6
26.8
Nil
Nil
16.1
27.3
Nil
Nil
BNG
Shallow P1
Shallow P2
Deep P1
Deep P2
Operational review
Introduction
The impact of Covid-19 meant we did not drill any new wells in the period under review. All operational
activities were targeted at improving production at producing wells and in getting wells previously drilled
to flow.
MJF structure
Approximately 96% of all the oil produced in 2020 was from the MJF structure.
The first wells were drilled on the MJF structure in 2016, since when it has produced in aggregate
approximately 2.1 million barrels. As the original wells drilled continue to age additional work is required
to keep them operational.
During the period under review we produced 545,667 barrels of oil at an average of 1,491 bopd (2019:
506,620 barrels at an average of 1,388 bopd). Subsequently, Well 154 was spudded in April 2021 with a
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Planned Measured Depth of 2,480 meters. Drilling is nearing completion with much of the casing laid. This
is the first horizontal well on the BNG Contract Area.
South Yelemes structure
Test production commenced in 1994 on the South Yelemes structure. Since 2010 it has produced
approximately 405,000 barrels. No production has been allowed at this structure since May 2020 when we
submitted our application to upgrade the structure to a 25 year production licence under which a majority
of the oil produced could be sold by reference to international rather than domestic prices.
Typically such an application would take 6 months. We therefore believe it to be an indirect casualty of the
impact of Covid-19. Our expectation is for a Q3 2021 approval.
Airshagyl structure
Three deep wells have been drilled to date on the Airshagyl structure, A5, A6 & A8.
A5
Well A5 was spudded in July 2013, and drilled to a total depth of 4,442 meters with casing set to a depth
of 4,077 meters to allow open-hole testing. Core sampling revealed the existence of a gross oil-bearing
interval of at least 105 meters from 4,332 meters to at least 4,437 meters.
We have struggled during the period under review and subsequently with stuck pipes in this well. Remedial
work undertaken in the period under review and subsequently to remove the obstructions in the well has
not proved successful. At various times work paused to allow equipment and crews to be used on other
wells. Our intention is now to drill a new side-track from a depth of 4,500 meters.
Other deep wells
A local contractor has been hired for hydraulic fracking at Deep Wells A6, A8 & 801, which if successful
could lead to H2 production. Commencement of the work has been delayed pending final agreement of the
chemical composition of the materials to be used given the extreme temperatures in the wells.
A6
The second well drilled on the Airshagyl structure was Deep Well A6, which was spudded in 2015 and
drilled to a depth of 4,528 meters. Initially problems in perforating the well prevented it being put on test.
Latterly the issue has been blockages from unrecovered drilling fluid. During the period under review we
conducted several acid treatments to clear the well ready for commercial production but these were not
successful.
A8
In November 2018, Deep Well A8 was spudded with a planned Total Depth of 5,300 meters, initially
targeting the same pre-salt carbonates that were successfully identified in the Deep Well A5 at depths of
4,342 meters but with a prime target being the deeper carbonate of the Devonian to Mississippian ages
towards the planned Total Depth of 5,300 meters.
We identified intervals of interest at depths of 4,342 meters. We then had to decide whether to seek to
produce from the intervals identified or whether to continue to the original Total Depth of 5,300 meters.
Using pipes and crews previously in use at Deep Well A5 further we tried to clear the well to allow
production from the interval between 4,343 meters and 4,499 meters. While this resulted in limited gas and
oil shows they were not at commercial levels.
Our intention is to fracture and complete the well at the current 4,500 meter depth. In the event this does
not result in commercial quantities of oil we plan to drill a further 800 meters to the original Devonian
target at a depth of 5,300 meters.
New wells
We are looking at ways of partnering with others to drill a fourth deep well, A9, to comply with the existing
2021 work programme commitments.
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Yelemes Deep structure
The only well drilled to date on the Yelemes Deep Structure is Deep well 801 which was drilled in 2014 /
2015 to a depth of 5,050 meters.
No significant development work was conducted on the Yelemes Deep Structure in the period under review
or subsequently. As noted above the next event will be the fracking exercise.
3A Best
No work was undertaken in the period under review or subsequently, in part as we were waiting on the
Kazakh authorities to agree to a revised licence and work programme schedule. Our new partners have
taken responsibility for compliance with existing work programme commitments, which include drilling a
well to a depth of 2,500 metres, which we expect to cost approximately $2.5 million and would bring us
into compliance with the existing work programme commitments.
Caspian Explorer
We became owner of the Caspian Explorer in October 2020. In the period under review and subsequently
the Caspian Explorer has been inactive and is moored at its home port of Aktau.
In addition to the safety related charter announced in June 2021, we have held discussions with potential
hirers, which could lead to contracts in 2022 and beyond, However, there are no other contracts yet in place.
Financial review
Review of the results for the 12 months to 31 December 2020
Revenue
Revenue in 2020 increased by approximately 18 per cent to $14.3 million (2019: $12.1 million)
Oil prices
Export prices fell from the mid $60’s per barrel to a low of $16 per barrel before recovering steadily to the
mid / high $60’s per barrel per barrel. Domestic prices fell from approximately $19 per barrel at the start
of the period to approximately $6 per barrel as the full impact of Covid-19 bit and have yet to recover.
Production volumes
Production volumes in 2020 were some 7.7% higher at 545,667 barrels at an average of 1,491 bopd
compared to 506,620 barrels in 2019 at an average of 1,388 bopd. This increase is despite the missing
contribution from the South Yelemes field.
International vs Domestic sales
The proportion of oil sold on the international market in 2020 was materially greater than in 2019, as the
export licence only became effective in August 2019.
Net effect
The combination of greater production volumes, lower prices and a greater portion of sales being to the
export market resulted in an 18 per cent increase in revenues for 2020.
Gross profit
The method of accounting for production sold under an exploration phase of an appraisal licence differs
from the sale of oil under a full production licence in which commercial production is considered to have
been reached.
Under an appraisal licence revenues are treated as a contribution to the costs associated with the main
objective, which is to ascertain the productive capabilities of the producing wells concerned. Therefore,
whilst revenue is recorded and equivalent amount is included as a cost of sale resulting in a zero gross
profit.
Under a production licence only the actual costs of production are recorded as costs of sales so that any
excess of receipts over direct costs is shown as gross profit.
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Gross profit increased by approximately 84 per cent to $9.4 million (2019: $5.1 million), principally as the
result of a greater proportion of sales being for the export market.
Selling expenses
Selling expenses were $3.9 million (2019: $2.2 million) and relate to export and customs duties.
Other administrative expenses
Other administrative expenses declined by 6 per cent to $3.7 million (2019: $3.9 million).
Loss for the year
The loss for the year before tax was $1.7 million of which approximately $2.6 million related to impairment
provisions (2019: profit of $0.9 million).
Tax charge
The tax charge for 2020 fell by approximately 25 per cent to $1.8 million (2019: $2.3 million).
Oil and gas assets
Unproven oil & gas assets
The carrying value of unproven oil and gas assets increased to $61.4 million (2019: $60.0 million).
Plant, property and equipment
The value of plant property and equipment increased to approximately $52.8 million (20191: $51.3
million), reflecting the acquisition in the year of the Caspian Explorer.
Other receivables
Other receivables fell from $11.4 million to $10.4 million as the result of a $1 million fall in prepayments
resulting from the diminished drilling activities, an increase of $0.5 million in recoverable VAT and a
decrease of $0.5 million in other receivables.
Cash position
At the year-end we had cash balances of approximately $0.3 million (2019: $4.1 million). This reflects the
extremely tight working capital position following the impact of Covid-19.
Liabilities
Trade and other payables under 12 months
Trade and other payables fell to approximately $11.0 million (2019: 14.8 million), short term borrowings
increased to $5.6 million (2019: $4.1 million) and the provisions for payments in less than 12 months stayed
broadly similar at approximately $9.3 million (2019: $9.5 million) of which the provision for BNG licence
payments was $3.2 million in both years.
Historic costs estimate
Following the award of the MJF export licence the Kazakh regulatory authorities assessed historic costs of
$32 million against the MJF structure, repayable quarterly over a 10 year period. This is in addition to the
extremely, low domestic price for oil is too great a financial burden for the MJF structure to bear and
produce significant additional cash for further drilling.
As previously announced we believe such an assessment to be mistaken as despite the MJF structure
representing only 1% of the surface area of the BNG Contract Area it has been assessed to bear 100% of
the BNG historic costs. However, the Kazakh courts have recently denied our appeal and we have no further
appeal options open to us. We will therefore continue to make the quarterly payments of approximately
$800,000. The aggregate liability, discounted over the period to 2029 fell from $27.4 million at 31
December 2019 to $25.1 million at 31 December 2020 as the results of payments made in the period under
review.
Production from other structures on the BNG Contract Area should be without further assessed historic
costs as these have been fully allocated against the MJF structure.
Cashflows
During the period under review approximately $10.8 million was received from customers and
approximately $12.5 million paid out to suppliers, creditors and staff with a further $1.5 million spent on
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unproven oil and gas assets and $3.0 million spent on property, plant and equipment. This was in part
funded by $2.5 million raised via the issue of equity and additional loans and resulted in cash balances at
the year falling by $3.7 million to $0.3 million.
Oraziman family loans
During the period under review the support from the Oraziman family in the form of subordinated loans
increased from $4.1 million to $5.6 million.
Funding Policy
Our approach to funding the business since our IPO in 2007 is where possible to minimise the issuance of
equity and therefore to use other forms of funding to develop our assets. In this way we seek to preserve
the upside for existing shareholders, even if this is at the expense of higher costs in the short term.
However, the full impact of the Covid-19 virus hit the Group at a time when our finances were already
stretched following the move of the MJF structure to a full production licence, with the associated working
capital hit. Accordingly we were forced to raise £1 million to meet existing liabilities not capable of being
funded from the reduced operational cashflow.
Going concern
The financial outlook has improved when compared to the position 12 months ago but not yet to the point
where the material uncertainty in respect of going concern highlighted in the 2019 Financial Statements
and the 2020 interim statements has fully receded.
At 31 December 2020, the Group had cash of $0.3 million and net current liabilities of $19.0 million. The
imbalance reflects the financial impact of Covid-19 and market volatility in respect of commodity prices.
As at 1 June 2021 the Group had cash of approximately $0.7 million.
On the brighter side the dramatic decline in international prices, which fell as low as $16 per barrel has
been reversed with the Brent price recently exceeding $75 per barrel. As is the case with domestic prices
which have recently tripled.
The Caspian Explorer has its first charter as part of the Group and the current work programme costs at 3A
Best are to be funded by our new partners subject to the license extension.
On the negative side we have yet to see any meaningful production from any of the deep wells and the BNG
historic costs on the MJF structure, which were assessed and now confirmed at $32 million payable
quarterly over a ten year period will continue to consume a large proportion of the cash generated from
international sales at the MJF structure.
The Board have assessed cash flow forecasts prepared for a period of at least 12 months from the of approval
of the financial statements and assessed the risks and uncertainties associated with the operations and
funding position, including the potential further effects of the COVID-19 pandemic.
Inevitably, there is an international price below which the Group would need to take further action to
conserve costs or raise additional funding. The Board considers that price to be around the $54 per barrel
level.
The Group’s liquidity remains dependent on a number of key factors:
• The Group continues to forward sell its domestic production and receive advances from oil traders with
$2.5m currently advanced and the continued availability of such arrangements is important to working
capital. Whilst the Board anticipate such facilities remaining available given its trader relationships
and recent oil price increases, should they be withdrawn or reduced more quickly than forecast cash
flows allow then additional funding would be required.
• The Group has approximately $0.2m of aged creditors which are being settled over the coming months
from operating cash flows. Whilst relations are positive with the suppliers, if their support is withdrawn
additional funding may be required.
• The Group has $5.6m of loans due on demand or within the forecast period to its largest shareholder
and their connected companies. Whilst the Board has received assurances that the facilities will not be
called for payment unless sufficient liquidity exists, there are no binding agreements currently in place
to this effect and if repayment was required additional funding would be needed.
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• The Group has $6.0m of liabilities due on demand under social development program and $3.2 of BNG
licence payments due within the forecast period to the Kazakh government. Whilst the Board has
forecasted the payment of BNG licence payments, there are no payments planned for social
development program within the forecast period as the Board expects additional payment deferrals to
be approved.
• The Group is looking to partner with others to drill further deep wells thereby reducing the costs.
• As noted above, the forecasts remain sensitive to oil prices, which have shown significant volatility.
Independent of the factors above, if international oil prices fell below $54/bbl additional actions would
be required including some or all of the following: further cost reductions, additional payment deferrals
and raising funds.
These circumstances continue to indicate the existence of a material uncertainty which may cast significant
doubt about the Group’s ability to continue as a going concern and therefore 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 Group was unable to continue as a going concern.
Notwithstanding the material uncertainty described above, after making enquiries and assessing the
progress against the forecast, projections and the status of the mitigating actions referred to above, the
Directors have a reasonable expectation that the Group will continue in operation and meet its commitments
as they fall due over the going concern period. Accordingly, the Directors continue to adopt the going
concern basis in preparing the financial statements.
Board changes
In August 2020, Aibek Oraziman joined the board as a non-executive director.
By Q4 2020, it became clear that the temporary cost saving measures announced earlier in the year would
need to be extended. Accordingly, Tim Field who had been a non-executive director since January 2019,
left the board and I ceased to be Executive Chairman and Chief Financial Officer and became a non-
executive director.
Talgat Kuzbakov, who has been with the Group for 10 years was appointed Chief Financial Officer but not
a board member.
In December 2020, we also announced that Seokwoo Shin our Chief Operating Officer who has been with
the Group for three years and had previously spent more than 30 years with the Korea National Oil
Corporation would join the Board.
The board now comprises two executive directors and three non-executive directors. The composition of
the various board committees has been updated to reflect these changes as is set out more fully in the
Corporate Governance Report.
Employees
The Group currently employees 201 staff, including Directors, of whom 200 are based in Kazakhstan and
split principally between the corporate offices in Almaty and in the field.
Outlook
To benefit from the expected upturn in economic activity we first needed to survive. In the absence of
further unexpected shocks we believe the actions taken to deal with the impact of Covid-19 has secured
that survival.
The dramatic recovery in international and domestic oil prices provides a significant boost to operating
cashflows. A much greater positive impact would be for one or more of our deep wells to start to flow at
commercial rates, which remains our principal objective.
Clive Carver
Chairman
28 June 2021
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Qualified Person & Glossary
Qualified Person
Mr. Assylbek Umbetov, a member Association of Petroleum Engineers, has reviewed and approved the
technical disclosures in these financial statements.
Glossary
SPE – the Society of Petroleum Engineers
Bopd – barrels of oil per day mmbls – million barrels.
Proven reserves
Proven 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 categorised 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.
13
The Kazakh oil and gas licensing and taxation environment
Introduction
Oil & gas is a heavily regulated industry throughout the world, with strict rules on licencing and taxation.
Set out below is a summary of the position in Kazakhstan.
Licensing
Exploration licences
The initial licence to develop a field is typically an exploration licence where the focus is on completing
agreed work programmes. Exploration licence are typically two years in duration and it is usual for there
to be several consecutive two-year exploration licence extensions agreed during the exploration phase.
Appraisal licences
In the event the project appears commercial, the exploration licence is usually upgraded to an appraisal
licence.
Under an appraisal licence, oil produced incidentally while exploring and assessing may be sold but only
at domestic prices. Taxation under an appraisal licence is limited with only modest deductions. Changes to
the legislation in the last few years has reduced the length of appraisal licences from six to five years, with
a concession of reduced social obligation payments.
Full production licences
To sell oil by reference to world prices requires either the Contract Area as a whole or a particular structure
to be upgraded to a full production licence. Under a full production licence there is only limited scope to
develop areas not already drilled. Additionally, a significant minority portion of production typically
remains at domestic prices although the majority is sold by reference to world prices.
Taxes
There are five different taxes that apply to Kazakh oil & gas producers. Each has its own basis of calculation
with some being related to profits, others by reference to world oil prices and yet others by reference to the
volume of oil sold.
The overall impact is that as world prices increase so does the percentage taken by the Kazakh state.
14
Strategic Report
The Directors present their strategic report on the Group for the year ended 31 December 2020.
Introduction
This strategic report comprises: the Group's objectives; the strategy; the 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 immediately
after the Directors’ report.
Objectives
The Group's objective is to create shareholder value from the development of oil and gas projects and
associated activities. However, as set out in the Chairman’s statement as the impact of Covid-19 struck the
Board’s immediate focus switched to survival.
The Group has a number of secondary objectives, including promoting the highest level of health and 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 initially 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.
The Group’s principal asset is its 99 per cent interest in BNG. Additionally, the Group owns a 100 per cent
interest in the 3A Best Contract Area, of which it has agreed to sell 15% to fund existing 3A Best work
programme commitments and granted an option for the sale of the remaining 85% at a valuation to be
assessed by an independent expert. During 2020 the Group also acquired a 100% interest in the Caspian
Explorer, a shallow water drilling vessel designed for the Northern parts of the Caspian Sea.
Business model
The business model is straightforward. To take assets at any stage of the development cycle and to improve
them to the point they contribute to the Group’s profitability or that they may be sold on at a profit to
provide funding for additional development.
Our main asset BNG has been developed over the past 13 years with more than $100 million spent and is
set to be a very substantial asset for many years to come.
While we seek to grow our asset portfolio with appropriately timed acquisitions we are also prepared and
able to sell assets when their value to others exceeds the value we can see. This was the case in 2015, when,
in poor market conditions, we sold our then second asset Galaz for a headline price of $100 million, which
represented a profit of $15 million on our interest in the asset, and which provided $33 million to re-invest
into BNG.
Further growth by acquisition
When appropriate the Group will consider acquiring additional assets or related businesses where the Board
believes they would increase shareholder value, including by providing funding or infrastructure to develop
the Group’s other assets.
In Kazakhstan the Directors believe the Group is exceptionally well placed through its local presence to
identify and buy undervalued oil and gas assets on an opportunistic basis.
15
Key performance indicators
The Non-Financial Key Performance Indicators are:
• Operational (wells drilled at end of year) 2020: 17 (2019: 17)
• Aggregate production for 2020 was 545,667 barrels (2019: 506,620) an increase of approximately
7.7%
• Reserves at 31 December 2020 P1 15.6 mmbls & P2 26.8 mmbls (2019: P1 16.1 mmbls & P2 27.3
mmbls)
The Financial Key Performance Indicators are:
• Revenue: up 18% at $14.3 million (2019: $12.1 million)
• Loss after tax for the year $3.5 million (2019: $1.4 million)
• Cash at bank: $0.3 million (2019: $4.1 million)
• Total assets: $125.7 million (2019: $127.5 million)
• Exploration assets $61.4 million (2019: $60.0 million)
• Plant, property & equipment $52.8 million (2019: $51.3 million)
January – May 2021 production was at the average rate of 1,379 bopd, with a production capacity of 2,000
bopd from existing wells including those at South Yelemes
Assets & Reserves
Details of the Group's assets and reserves are set out in the Chairman's statement.
Financial
At current international prices and with current levels of production the income from export sales is
sufficient to cover day to day Group operations and G&A costs but insufficient to fund significant additional
drilling.
In the event any of our four deep wells already drilled start to produce oil, the associated revenues should
transform the Group’s cash flows. The same would be the case in the event the Caspian Explorer is chartered
at market rates.
Drilling wells at a rate faster than could be funded from oil sales, would require additional funding, as
would any acquisitions to be funded by cash. Potential sources of such funding would include: further
advances from local oil traders for the sale of oil yet to be produced; industry funding in the form of
partnerships with larger industry players; further support from existing shareholders; and equity funding
from financial institutions. Additionally, funding may be available from selected asset sales.
Dividends
It is the policy of the Board to work towards a position where meaningful dividends can be paid. This
requires not only consistently profitable trading but also in all likelihood a corporate reorganisation to create
distributable reserves. New corporate subsidiaries have been incorporated in the UAE, with a view
improving and simplifying the Group structure and easing the future payment of dividends.
Any dividend declared will be set at an affordable level that does not conflict with the need to fund value
enhancing growth, whether by further investments in our existing fields or by acquisition.
S 172 Statement
The Board is mindful of the duties of directors under S.172 of the Companies Act 2006.
Directors act in a way they consider, in good faith, to be most likely to promote the success of the Company
for the benefit of its members. In doing so, they each have regard to a range of matters when making
decisions for the long term success of the Company.
Our culture is that of treating everyone fairly and with respect and this extends to all our principal
stakeholders. Through engaging formally and informally with our key stakeholders, we have been able to
develop an understanding of their needs, assess their perspectives and monitor their impact on our strategic
ambition.
16
As part of the Board’s decision-making process, the Board and its Committees consider the potential impact
of decisions on relevant stakeholders whilst also having regard to a number of broader factors, including
the impact of the Company’s operations on the community and environment, responsible business practices
and the likely consequences of decisions on the long term.
Our objective is to act in way that meets the long term needs of all our main stakeholder groups. However,
in so doing we pay particular regard to the longer term needs of shareholders.
We engage with investors on our financial performance, strategy and business model and until the Covid-
19 virus struck our Annual General Meeting provided an opportunity for investors to meet and engage with
members of the Board.
In particular during the period under review and subsequently the Board concluded that the Group’s survival
during unprecedented conditions was the best way to seek to meet stakeholders expectations over the
medium / longer term.
The Board continues to encourage senior management in each location to engage with staff, suppliers,
customers and the community in order to assist the Board in discharging its obligations.
During 2020 the Board has been particularly mindful of the impact of the ongoing Covid-19 pandemic
when making any decision. This has impacted all areas of decision making and is not limited to ensuring
that its impact on employees, contractors, suppliers and the communities in which we operate is factored
into any decision, but also to ensure that its reputational, financial and other impact is also considered. As
a consequence of this focus additional prudent precautionary measures were designed in to operational
proposals made to the Board, the 2020 drilling activities were revised, additional equity funds raised, certain
work programme obligations of BNG were deferred to 2021, work program commitments of 3A Best were
applied for a deferral, these decision were made to ensure financial sustainability (see Chairman’s
Statement for more information).
Further details of how the Directors have had regard to the issues, factors and stakeholders considered
relevant in complying with S 172 (1) (a)-(f), the methods used to engage with stakeholders and the effect
on the Group’s decisions during the year can be found throughout this report and in particular at page 4
(in relation to decision-making), page 15 (where the Group’s strategy, objectives and business model are
addressed), page 18 (in relation to employees) the ESG report on page 24 (in relation to social and
environmental matters).
We seek to attract and retain staff by acting as a responsible employer. The health and safety of our
employees is important to the Company and an area we have to regularly report on the Kazakh regulatory
authorities.
We continue to provide support to communities and governments through the provision of employment,
the payment of taxes and supporting social and economic development in the surrounding areas, both
through social investment and local procurement. We have contributed to a range of social programmes for
well over a decade.
We have established long-term partnerships that complement our in-house expertise, and have built a
network of specialised partners within the industry and beyond.
Clive Carver
Chairman
28 June 2021
17
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 2020.
The Strategic report forms part of the business review for this year.
Principal activity
The principal activity of the Group is oil and gas exploration and production.
Results and dividends
The consolidated statement of profit or loss is set out on page 40 and shows a $3.5 million loss for the year
after tax (2019: US$1.4 million).
The Directors do not recommend the payment of a dividend for the year ended 31 December 2020 (2019:
US$ nil).
The position and performance of the Group is discussed below and further details are given in the business
review.
Review of the year
The review of the year and the Directors’ strategy are set out in the Chairman’s Statement and the Strategic
Report.
Events after the reporting period
Other than the operational and financial matters set out in these financial statements there have been no
material events between 31 December 2020, and the date of this report, which are required to be brought to
the attention of shareholders. Please refer to note 28 of these financial statements for further details.
Board changes
On 24 August 2020 Aibek Oraziman joined the Board as a non-executive director
On 1 December 2020; Tim Field, a non-executive director since January 2019, left the board Clive
Carver, previously Executive Chairman and Chief Financial Officer, reverted to being non-executive
Chairman.
On 4 March 2021, Seokwoo Shin joined the Board as Chief Operating Officer, an executive director.
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 and staff are kept informed of major
developments through email updates. They also have access to the Group’s website.
The Group 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.
18
Directors and Directors' interests
The Directors of the Group and the Company who held office during the period under review and up to the
date of the Annual Report are as follows:
Directors’ interests
Director
Clive Carver
Kuat Oraziman*
Edmund Limerick
Tim Field
Aibek Oraziman**
Seokwoo Shin
As at 31 December 2020
As at 31 December 2019
Number of Ordinary Shares
2,245,000
41,485,330
7,911,583
1,461,987
861,944,255
nil
nil
41,485,330
6,430,000
nil
N/A
nil
* taken together on 31 December 2020 Mr Oraziman and his adult children held 903,429,585 shares
representing 43.2% of the issued share capital shares
** Aibek Oraziman and his sister Aidana Urazimanova each hold a 50% stake in Akku Investments LLP,
which held 861,944,255 Caspian Sunrise shares, including 57,369,124 shares previously held by the late
Rafik Oraziman.
Biographical details of
www.caspiansunrise.com.
the current Directors are
set out on
the Company's website
Details of the Directors' individual remuneration, service contracts and interests in share options are shown
in the Remuneration Committee Report.
Shareholders over 3% at the date of this report
Shareholder
Akku Investments LLP
Dae Han New Pharm Co Limited
Kairat Satylganov
Raushen Sagdieyva
Shares held
%
861,944,255
224,830,964
221,625,001
66,425,290
41.22
10.75
10.60
3.18
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 auditor
All of the current Directors have taken all the steps that they ought to have taken to make themselves aware
of any information needed by the Group's auditor 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 auditor is unaware.
Auditor 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 and Company financial statements in accordance with
international accounting standards in conformity with the requirements of the Companies Act 2006.
Under Company law the Directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of
the Group for that period.
The Directors are also required to prepare financial statements in accordance with the rules of the London
Stock Exchange for companies trading securities on the London Stock Exchange AIM Market.
19
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 international accounting standards in
conformity with the requirements of the Companies Act 2006 subject to any material departures
disclosed and explained in the financial statements; and
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 Group’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 Group’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
28 June 2021
20
Principal and other risks and uncertainties facing the business
Introduction
Risk assessment and evaluation is an essential part of the Group’s planning and an important aspect of the
Group’s internal control system.
Oil & gas exploration and production is a dangerous activity and as such is necessarily subject to an
extremely rigorous health and safety regime. The Board aims to identify and evaluate the risks the Group
faces or is likely to face in future both from its immediate activities and from the wider environment. This
helps to inform and shape the Group’s strategy and to quantify its tolerance to risk.
Operational success generally helps to mitigate financial risks. Typically with increases in production as
new wells come on stream the ability to generate cash improves the Group’s financial position which can
then lead to further operational success.
As the Group develops, its approach to risk management and mitigation will be refined. In due course we
plan to include a formal risk register including all the principal operational and non-operational risks to the
business. Such a risk register would be reviewed and assessed at least once a year by our new Corporate
Governance Committee.
The Group is 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
Group's business activities and are listed in the Board assessment in the order of greatest potential impact.
Covid-19 risk
A significant and current risk to the business is the prolonged worldwide impact of the COVID-19
pandemic.
As set out more fully in the Chairman’s Statement and the Strategic Report the impact to date has been
extensive both financially in the sharp decline in revenues and operationally as getting crews, equipment
and consumables to site has proved difficult under extensive lockdown restrictions.
We have sought to mitigate the impact of Covid-19 by cost cutting and reducing the pace of new drilling
operations. At this stage however, it is not possible to know how long the impact of Covid-19 will last and
its long term impact on the Group.
Pricing risk
As has been witnessed following Covid-19 the Group’s financial performance will be adversely affected
by a prolonged fall in the price of oil, international or domestic.
Brent oil prices below $54 per barrel for a prolonged period would require further cost cutting and may
require raising addition equity funding on onerous terms.
Financing risks
Despite owing our own rigs exploring for oil is still an expensive business. However, the relatively low
value of the Kazakh Tenge compared to the US$ reduces the costs of exploration and production as most
staff costs and some equipment costs are denominated in Kazakh Tenge.
For domestic sales the Group typically enters into contracts with oil traders to forward sell its production
and receives advances as part of its operating activities. With respect to export sales again we typically use
different local oil traders but usually have to wait two months for payment. The continued availability of
such arrangements is important to working capital and, in the event the Group was unable to continue to
access these arrangements, additional funding would be required.
The risk is considered reduced given the expected growth in production revenues and is mitigated by
maintaining strong relationships with the oil traders.
Group financial forecasts based on revenues from export sales indicate sufficient working capital is
available to meet all shallow structure cost and the Group’s G&A expenditure.
21
However, pending any meaningful contribution from oil sales from our deep wells new drilling will require
additional funding. Potential sources of funding include further advances from local traders; industry
funding in the form of partnerships with larger industry player; if appropriate equity funding from financial
institutions; further support from existing shareholders; and selected asset sales.
Refer to note 1.1 for further details on funding and going concern.
Exploration risk
Despite the success of our shallow wells there is no assurance that the Group's future exploration activities
will continue to be successful. In particular, the high pressure and high temperature encountered when
drilling below the salt layer has proved extremely difficult to control to allow prolonged flow tests to
commence.
The Group seeks to reduce this risk by acquiring and evaluating 3D seismic information before committing
to drill exploration and appraisal wells.
The Group also seeks to engage suitably skilled personnel either as employees or contractors to undertake
detailed assessments of the areas under exploration.
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 can 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 Group is compliant with all relevant legislation. The Group endeavours to use 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.
Permitting risks
We operate in a highly regulated industry. As such we are only able to fulfil our work programme
obligations once agreed with the Kazakh regulatory authorities after we receive all the required permits,
licences and other permissions. Delays in receiving these regulatory clearances usually results in additional
costs.
Regulatory delays are inevitable, common place and likely to increase as a result of the impact of the Covid-
19 virus. Our experienced Kazakh workforce has both a thorough knowledge of the complex rules and a
detailed practical understanding of the workings of each of the regulatory bodies with whom we need to
deal. Accordingly, we believe we are well placed to minimise the financial impact of regulatory delays.
Covid-19 has resulted in work programmes being deferred from one year to another, as is the case at the
BNG Contract Area, and management have detected a more lenient approach from the Kazakh regulatory
authorities.
The recent 3A Best farm-out has been entered into to provide the funding to meet existing work programme
commitments.
Environmental
Risks relating to environmental matters are now set out in the new Environmental, Social and Governance
Report.
Other regulatory requirements
Existing and possible future 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.
22
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.
The impact of the Covid-19 virus is likely to add to the times required to obtain the required regulatory
approvals.
The impact of the BNG historic costs assessed against the MJF structure and the delays in renewing licences
at 3A Best and the BNG South Yelemes structure indicate the financial consequences of regulatory issues.
Political risk
To date the Group operates solely 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 good working relationships with the Kazakh regulatory authorities there can be no
assurances that the laws and regulations and their reinterpretation 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.
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 Tenge depreciated against the US$ by approximately 11%. In the event that
the Kazakh Tenge is devalued further against the US$, the Group benefits as income is unaffected. With
approximately 50% of the Group’s costs incurred in Tenge the depreciation of the Tenge against the US$
materially benefits the Group commercially. Given the relative strengths of the US$ and the Kazakh Tenge,
the Group has decided not to seek to hedge this foreign currency exposure.
23
Environmental, Social and Governance (ESG) Report
Introduction
This report covers our ESG approach and performance for the year ended 31 December 2020.
We aim to work in an open and transparent manner, both within the Company and with all our stakeholders,
including:
• Employees
• Local communities
• Shareholders
• Suppliers
• Contractors
• Regulators
ENVIRONMENTAL
Introduction
Oil and gas exploration and production is a long term activity requiring effective environmental
stewardship. We have operated in Kazakhstan now for more than 15 years and have only been able to do
by complying with all applicable environmental standards.
We recognise that society is transitioning towards a low-carbon future, and we support this goal. However,
even in the most ambitious scenarios, this shift will be gradual, and will require significant energy and
economic prosperity to be achieved.
We believe that oil will continue to play an important role in the global economy for decades to come, and
new sources of oil supply are required for a sustainable energy transition.
Climate change
Assessing the risks
We have no particular insights into assessing climate control risks beyond those underpinning the
regulations in Kazakhstan. We therefore look to the Kazakh regulatory authorities to set the standards to
which we work.
Compliance with the standards
We comply with all relevant Kazakh environmental requirements, including environmental laws and
regulations and industry guidelines.
Specific initiatives
• We seek to recycle gas produced as a by-product at BNG to power the Contract Area’s day-to-day
operations.
• We seek wherever possible to avoid flaring, which in any event is a regulated activity.
• Our workers at the BNG Contract Area are drawn from the local community, lessening the
transportation carbon footprint
• We make extensive use of existing oil pipelines to move our oil
• Largely as the result of Covid-19 restriction the use of international travel for management and
board meetings has been severely restricted with no full face to face board meetings for more than
12 months
Health and safety
Our daily operations prioritise health and safety and protecting the environment and we seek to comply
with all health and safety related regulations.
SOCIAL
Since the Group’s formation in 2006, the social obligations payments made principally to the authorities in
the regions in which the group operates have funded a range of projects for the benefit of the local
communities concerned.
24
GOVERNANCE
Introduction
In 2019 we introduced a new Corporate Governance committee to oversee the way the Group conducts
itself.
The Committee currently comprises Clive Carver, Edmund Limerick and Aibek Oraziman with Clive
Carver acting as chairman.
Remit of the Committee
Overall compliance with the Group’s compliance, corporate governance, risk management, market
disclosure and related obligations rests with the Board. Nonetheless, the Board recognises that the Group
is required to assess such matters on an ongoing basis and make timely and accurate disclosure of price
sensitive the Market Abuse Regulations and the AIM Rules for Companies.
At the appropriate time the Board plans to include a formal risk register including all the principal
operational and non-operational risks to the business to be considered by the Governance & Risk
Committee. This will be in addition to the procedures already in place as set out elsewhere in this document.
The Board changes noted above have delayed the adoption of the formal risk register.
Meetings of the Committee
The committee intends to meet at least once a year.
Share dealing policy
The Group 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 intends to establish and operate 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 notes however, that in periods of severe cost cutting it becomes more difficult to implement and
operate control systems reliant on the fullest segregation of duties.
Internal audit
The Board does not consider it appropriate for the current size of the Group to establish an internal audit
function. However, this will be kept under review.
Bribery and corruption
The Bribery Act 2010 came into force on 1 July 2011.
The Company is committed to acting ethically, fairly and with integrity in all its endeavours and compliance
with legislation is monitored. The principal terms of the Bribery Act have been translated into Russian and
circulated to our Kazakh based staff. Consideration of the Bribery Act is a standing item at board meetings.
The Company’s culture
Our culture might best be described as one where we strive for commercial success while treating others
fairly and with respect. The Board firmly believes that sustained success will best be achieved by following
this simple philosophy. Accordingly, in dealing with each of the Groups principal stakeholders, we
encourage our staff to operate in an honest and respectful manner.
Given the simplicity of the culture we do not believe lengthy illustrations of our culture in action add much.
We also believe in getting proper value for money spent. Given the high percentage of the Groups shares
represented by senior management figures we seek to spend the Groups money very carefully. We believe
this goes hand in hand with being a low-cost operator.
25
Kazakhstan plays an important part in the Group’s culture. It is where we operate; where almost all staff
are based; it is the nationality of most staff and of the majority of shareholders.
The Group is committed to promoting a culture based on ethical values and behaviours across the business.
Policies are in place covering key matters such as equality, protection of sensitive information, conflicts of
interest, whistleblowing and health and safety as well as environmental concerns.
The impact of Covid-19
The cost saving measures introduced in response to the severe impact of Covid-19 on the business and in
particular the changes at board level have inevitably resulted in a slowing of the pace at which we seek to
move to a better level of Corporate Governance. In particular none of the Group’s non-executive directors
qualifies as fully independent, either for reasons of length of service, previous executive roles or being a
significant shareholder.
QCA Code
In September 2018, new regulations took force under which all companies with shares trading on AIM
were required to comply with a recognised corporate governance code and to disclose how the
implementation of the governance code has been applied or to explain any areas of departure from its
requirements.
Caspian Sunrise, in line with the majority of AIM companies, elected to apply the rules of the Quoted
Companies Alliance (QCA) Corporate Governance Code (“QCA Code”), which is based around 10 broad
principles.
The QCA Code requires significant additional disclosures which have been made to our corporate website
www.caspiansunrise.com. It also requires explanations of departures from the guidelines of the QCA code.
Under the QCA regulations we have the option to cross refer to disclosures made on the website rather than
repeat them all in this annual report.
The principal disclosures such as the Remuneration Committee and Directors’ report will continued to be
included in this annual report. However, for a full assessment of the Company you are encouraged to review
the website for both the regulatory disclosures, and as we progress, more information on the activities of
the Company.
Board composition, skills and capabilities
• Between 1 January 2020 and 21 August 2020, the Board had two executive directors and two non-
executive directors.
• Between 21 August and 1 December 2020, the Board had two executive directors and three non-
executive directors
• Between 1 December and 31 December 2020, the Board comprise one executive director and three
non-executive directors.
The Board currently comprises two executive directors and three non-executive directors.
Clive Carver, non-executive Chairman
Clive is a fellow of the Institute of Chartered Accountants in England and Wales (FCA) and a fellow of the
Association of Corporate Treasurers (FCT). He was from 2012 until 1 December 2020, Executive Chairman
and Chief Financial Officer. He is an experienced non-executive director having been chairman of a number
of AIM companies in recent years. He is currently Executive Chairman and Chief Financial Officer of an
unquoted technology company and an non-executive director of the UK’s only listed architectural practice.
Kuat Oraziman, Chief Executive Officer
Kuat Oraziman runs the Company’s operations in Kazakhstan. Kuat Oraziman is a trained geologist and
member of the Academy of Sciences. He has more than 26 years oil and gas experience in Kazakhstan. The
Oraziman family hold in aggregate approximately 43% of the Company’s shares and as at 31 December
2020 provided $5.6 million by way of cash advances against a master loan agreement.
Seokwoo Shin, Chief Operating Officer
Seokwoo Shin was educated at Sungkyunkwan University in Korea. He worked for the Korean National
Oil Corporation from 1987 until 2019 with spells in Korea, the United Kingdom, Russia and most recently
26
Kazakhstan, where he was responsible for KNOC’s Kazakh oil fields. He joined Caspian Sunrise in 2018
and on 4 March 2021, was appointed the board as chief Operating Officer.
Edmund Limerick, Senior Non-Executive Director
Edmund is a Russian speaking former lawyer and investment banker who ran an institutional investment
fund focused on Central Asia. Edmund was called to the Bar in 1987, and served as an officer in the Foreign
& Commonwealth Office until 1992 with postings in Paris, Dakar and Amman. He was an international
corporate lawyer at Clifford Chance, Freshfields and Milbank Tweed (where he headed the Moscow Office)
before joining Deutsche Bank as a director in Moscow, London and Dubai. In 2006, he joined Altima
Partners where he managed the Altima Central Asia Fund, focusing on Kazakhstan. Edmund has served as
a director of Caspian Sunrise plc since 2010, and chairs the Audit and Remuneration Committees.
Aibek Oraziman, Non-executive director
Aibek Oraziman was educated in Kazakhstan and in the United Kingdom. He more than 12 years oil and
gas experience in Kazakhstan, including 3 years in the field at Aktobe working for a local oil company. He
was appointed to the Caspian Sunrise board on 21 August 2020 and together with is sister he holds
861,944,255 shares representing 41.3% of the shares in issue.
The Board believes it possesses the skills required to build a successful and durable oil and gas business
focused on Kazakhstan.
Operational skills are maintained through an active day-to-day interaction with leading international
consultancies and contractors engaged to assist in the development of the Group’s assets. Non-operational
skills are maintained principally via the Group’s interaction with its professional advisers plus the
experience gained from sitting on the boards of other commercial enterprises. Where gaps are identified as
the Group evolves and as funding permits, new appointments will be made. The Board retains full and
effective control over the Group.
The Group holds at least four Board meetings each year, at which operational, financial and other reports
are considered and, where appropriate, voted on.
The Board also has a list of standing items, including compliance with the UK Bribery Act, litigation and
existence of open and closed periods for director dealings, which are considered at each meeting. Apart
from these formal board meetings, which have taken place in the year, additional meetings and calls are
arranged when necessary to review strategy, planning, operational, financial performance, risk and capital
expenditure and human resource and environmental management.
The Group currently does not evaluate board performance on a formal basis. However, it intends at the
appropriate time to formalise the assessment of both executive and non-executive board members.
The Group is aware of its need to facilitate succession planning and in the period under review conducted
a detailed assessment of the risks relating to succession. Currently board audit, remuneration and corporate
governance committees contain only non-executive directors.
Board and committee meetings
Attendances of Directors at board and committee meetings convened in the year, and which they were
eligible to attend in person or by phone, are set out below:
Director
Clive Carver
Kuat Oraziman
Edmund Limerick
Tim Field
Aibek Oraziman
Board meetings
attended
6 of 6
6 of 6
6 of 6
5 of 5
2 of 2
Remuneration Committees
attended
N/A
N/A
2 of 2
2 of 2
N/A
Audit Committee attended
N/A
N/A
2 of 2
2 of 2
1 of 1
Aibek Oraziman joined the board on 21 August 2020
Tim Field resigned from the board on 1 December 2020
27
Board committee membership in 2020
Director
Audit Committee
Remuneration Committee
Corporate Governance
Committee
Clive Carver
Kuat Oraziman
Edmund Limerick
Tim Field
Aibek Oraziman
Served from
1 December
N/A
1 January
1 January
21 August
Served to
31 December
N/A
31 December
30 November
31 December
Served from
1 December
N/A
1 January
1 January
21 August
Served to
31 December
N/A
31 December
30 November
31 December
Served from
1 December
N/A
1 January
1 January
21 August
Served to
31 December
N/A
31 December
30 November
31 December
The Board has established the following committees:
Audit Committee
The Audit Committee which currently comprises Edmund Limerick, Aibek Oraziman 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 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 currently comprises Edmund Limerick Aibek 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.
28 June 2021
28
Remuneration Committee Report
Remuneration Committee
The Remuneration Committee currently comprises Edmund Limerick, Aibek 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:
Date of service agreement / appointment
letter
Executive
Date of last renewal of appointment
Clive Carver
Kuat Oraziman
Edmund Limerick
Aibek Oraziman
Seokwoo Shin
20 March 2019
6 December 2019
25 January 2019
21 August 2020
4 March 2021
21 June 2019
19 June 2018
13 June 2017
N/A
N/A
Notwithstanding their service agreements or letters of appointment the directors who served throughout the
period under review have agreed until further notice to restrict their remuneration to approximately 25% of
previous amounts without any accrual for the 75% sacrificed.
Basic salary and benefits
The basic salaries of the Directors who served during the financial year are established by reference to their
responsibilities and individual performance.
Directors
Clive Carver
Kuat Oraziman
Edmund Limerick
Tim Field
Total
Chairman
CEO
Non-executive
Non-executive
2020
Salary / fees
US$
311,800
251,393
40,320
39,020
642,533
2020
Share options
US$
-
-
10,839
10,839
21,678
2020
Total
US$
311,800
251,393
51,159
49,859
664,211
2019
Total
US$
425,289
170,620
81,781
76,996
754,686
Share option amounts refer to the IFRS 2 accounting charge.
There were no company pension contributions in respect of any director
A significant portion of the reduced amounts relating to 2020 were taken in the form of Ordinary Shares,
issued at a price of 3.2p per share.
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 2020
(2019: nil).
29
Long term incentives
Share options
The current interests as at approval of accounts of the current Directors in share options agreements are as
follows:
Directors
Clive Carver
Directors
Clive Carver
Kuat Oraziman
Edmund Limerick
Edmund Limerick
Seokwoo Shin
Granted
2,400,000
3,000,000
3,000,000
750,000
1,000,000
nil
Exercise price
Expiry Date
4p
20p
20p
20p
20p
[Nil
14 December 2021
21 August 2024
21 August 2024
21 August 2024
5 June 2029
N/A
There were no options exercised in 2020.
The following options have lapsed to date in 2021
Directors
Clive Carver
Kuat Oraziman
Edmund Limerick
Expired
Exercise price
Expiry date
750,000
3,090,000
750,000
13p
13p
13p
12 January 2021
12 January 2021
12 January 2021
Cash based incentives
In May 2019, we introduced a cash based long term incentive arrangements for the senior management
team since 2012, Kuat Oraziman and Clive Carver.
Under these arrangements, provided the share price growth exceeds pre-set targets starting at 17.23p, then
for every $500 million increase in the Group’s market capitalisation above $300 million, as adjusted to take
account of dividends paid, both Kuat Oraziman and Clive Carver, would receive payments of $3 million
each.
The principal hurdles under these arrangements are set out in the table below.
Market cap threshold
$’ billion
Share price target
Pence per share
Pay-out rate (each)
%
Pay-out amount (each)
$’ million
0.8
1.3
1.8
2.3
2.8
17.23
20.67
24.81
29.77
35.72
0.6
0.6
0.6
0.6
0.6
3.0
3.0
3.0
3.0
3.0
The scheme continues beyond the numbers in the table such that with the threshold for market capitalisation
increasing at the rate of $0.5 billion and the corresponding share price threshold increasing from the earlier
threshold by a constant factor of 1.2.
Each threshold must be sustained for at least 30 consecutive days for the awards to be triggered. There may
be only one pay-out for each market capitalisation threshold crossed no matter how many times it is crossed.
For the avoidance of doubt the arrangements described above remain in full force despite the changes to
board composition and roles as set out in this Remuneration Committee report and elsewhere in these
financial statements.
Whilst the Incentive Scheme is in place neither of the recipients will be granted any further options.
On behalf of the Directors of Caspian Sunrise plc
Edmund Limerick
Chairman of Remuneration Committee
28 June 2021
30
Audit Committee Report
The Audit Committee
The Audit Committee, which currently comprises Edmund Limerick, Clive Carver and Aibek Oraziman,
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.
Role and responsibilities
The Audit Committee is responsible for monitoring the integrity of the Company’s financial statements,
reviewing significant financial reporting issues, reviewing the effectiveness of the Group’s internal control
and risk management systems.
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. It oversees the relationship with the Auditor
(including advising on their appointment, agreeing the scope of the audit and reviewing the audit findings).
The committee met on two occasions during the year under review.
The Board and the Audit Committee do not consider it appropriate for the current size of the Group to
establish an internal audit function. However, this will be kept under review.
Edmund Limerick
Chairman of Audit Committee
28 June 2021
31
Independent auditor’s report to the members of Caspian Sunrise plc
Opinion on the financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2020 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006;
the Parent Company financial statements have been properly prepared in accordance with
international accounting standards in conformity with the requirements of the Companies Act
2006 and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements of Caspian Sunrise plc (the ‘Parent Company’) and its subsidiaries
(the ‘Group’) for the year ended 31 December 2020 which comprise the Consolidated Statement of Profit
or Loss, 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
Statements of Cash Flows and notes to the financial statements, including a summary of significant
accounting policies. The financial reporting framework that has been applied in their preparation is
applicable law and international accounting standards in conformity with the requirements of the
Companies Act 2006 and, as regards the Parent Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as
applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
Material uncertainty in relation to going concern
We draw attention to note 1.1 in the financial statements concerning the Group and the Parent Company’s
ability to continue as a going concern. Note 1.1 highlights that Group and Parent Company’s ability to meet
its liabilities and commitments as they fall due without additional funding is sensitive to the oil prices
realised across the forecast period and, separately, it is dependent upon the deferral of financial obligations
and drilling commitments associated with its licences, the continued availability of oil trader advances and
the continued support of certain creditors together with other matters set out therein. These factors are
outside the control of the Group and the Parent Company and there is no certainty that any funding that
may therefore be required can be secured within the necessary timescales. These events or conditions
indicate that a material uncertainty exists that may cast significant doubt on the Group and the Parent
Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis
of accounting in the preparation of the financial statements is appropriate. We consider going concern to
be a Key Audit Matter based on our assessment of the risk and the effect on our audit.
Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to
adopt the going concern basis of accounting, and our response to this key audit matter included:
32
• We discussed the potential impact of Covid-19 with management and the Audit Committee including
their assessment of risks and uncertainties associated with areas such as production disruption,
commodity price volatility and the impact on the availability of funding. We formed our own
assessment of risks and uncertainties based on our understanding of the business and oil sector.
• We obtained management’s cash flow forecasts and critically assessed the key inputs. In doing so, we
compared oil prices to market data, production levels to recent performance trends and operating costs
to historical data.
• We evaluated the completeness of forecast licence related expenditure against the licence work
programs and payments due under the 3A Best licence. We inspected submissions made to the relevant
authorities for deferral of work program commitments and payments due and held discussions with
management and the Audit Committee regarding the status of such applications.
• We compared the forecast cash payments in respect of the BNG production licence award against the
$32m assessment received from the Government payable in instalments over 10 years. We discussed
the status of the court process with management and the Audit Committee which seeks to reduce the
payments, while noting the relevant instalments are included in the forecast.
• We considered the appropriateness of the Board’s judgment regarding the availability of sufficient oil
trader funding through the forecast period. In doing so, we considered factors such as the production
profile, oil price trends, the terms of the arrangements and the history of transactions with the oil
traders.
• We assessed the terms of the loans provided from the Group’s largest shareholder and his connected
companies, the dependence on continued support and the Board’s conclusion that the loans will not be
called for payment for at least the next 12 months unless the Group has sufficient liquidity. We obtained
written representation from the Board regarding this assessment.
• We evaluated management’s sensitivity analysis and performed our own sensitivity analysis in respect
of the key assumptions underpinning the forecasts, including specific scenarios such as reduced
revenue cash flows or the impact of one or more adverse events such as withdrawal of facilities,
withdrawal of creditor support or licence payments or commitments being enforced.
• We assessed the validity of any mitigating actions identified by Management.
• We reviewed the adequacy and completeness of the disclosure included within the financial statements
in respect of going concern against the requirement of the accounting standards and the results of our
audit testing.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in
the relevant sections of this report.
Overview
Coverage
Key audit matters
81% (FY19: 83%) of Group (loss)/profit before tax, 100%
(FY19:100%) of Group revenue and 92% (FY19: 90%) of Group
total assets.
Carrying value of non-current assets
BNG production licence payment
obligations
Going concern
Revenue recognition
2020
☑
2019
☑
☑
☑
☒
☑
☑
☑
Revenue recognition was identified as a key audit matter in 2019 as
that was the first year of export related revenues following the award
of the production licence which required greater allocation of
resource and audit effort by the engagement team in the first year the
accounting policy was established.
33
Materiality
Group financial statements as a whole
US$1.9m (2019: US$1.9m) based on 1.5% (2019: 1.5%) of total
assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including
the Group’s system of internal control, and assessing the risks of material misstatement in the financial
statements. We also addressed the risk of management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may have represented a risk of material
misstatement.
The Group’s operations principally comprise oil and gas exploration and production in Kazakhstan. We
assessed there to be four significant components comprising BNG, 3A Best, Caspian Explorer and the
Parent Company. These components, which were subject to full scope audit procedures, represent the
principal business units.
Non-BDO member firms performed a full scope audit of BNG, 3A Best and Caspian Explorer in
Kazakhstan, under our direction and supervision as Group auditors. The audit of the Parent Company and
the Group consolidation were performed in the United Kingdom by the Group audit team.
Our involvement with component auditors
For the work performed by component auditors, we determined the level of involvement needed in order
to be able to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our
opinion on the Group financial statements as a whole. Our involvement with component auditors included
the following:
• Detailed Group reporting instructions were sent to the component auditors, which included the
significant areas to be covered by the audit.
• We reviewed the component auditor’s work papers remotely, as a result of Covid-19 travel restrictions,
reviewed Group reporting submissions received and held regular calls with the component audit teams
during the planning and completion phases of their audit to discuss significant findings from their audit.
• We held calls and meetings with members of Group and component management to discuss accounting
and audit matters arising.
• The Group audit team was actively involved in the direction of the audits performed by the component
auditors, along with the consideration of findings and determination of conclusions drawn. We
performed additional procedures in respect of the significant risk areas where considered necessary.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified, including those which had the
greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts
of the engagement team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters. In
addition to going concern, described in the Material uncertainty related to going concern section above, we
determined the matters described below to be the key audit matters to be communicated in our report.
Key audit matter
Carrying value of non-current assets
How the scope of our audit addressed the key audit
matter
As at 31 December 2020, the Group’s oil and
gas assets related to the 3A Best exploration
licence, the BNG exploration and production
3A Best
We assessed whether indicators of impairment existed
in respect of the 3A Best unproven oil and gas assets.
34
licences, and the drilling rig vessel related to
Caspian Explorer. These were carried at
US$114.3m as shown in notes 11 and 12. At
each reporting period end, management are
required to assess the non-current assets for
indicators of impairment and, where such
indicators exist, perform an impairment test.
In performing the impairment indicator review
for the unproven oil and gas assets in the
exploration phase, management are required to
make a number of judgements as detailed in
notes 1.8 and 2.1. In respect of the 3A Best oil
and gas assets, as detailed in note 2.1 the
company is not in compliance with its licence
commitments and management has applied
significant judgment in concluding that its
application to the Government for deferral of
the payments due in July 2020 under the
licence will be successful and that the licence
will be renewed. As a result of the impairment
assessment, no impairment was recorded by
management.
the BNG production and
In respect of
exploration licences and the drilling rig vessel,
as detailed in note 2.3 and 2.6 management
assessed there was no impairment trigger and
the carrying amounts were recoverable.
Given the judgment and estimation required by
management, we considered this area to be a
key focus for our audit.
included reviewing
Audit procedures performed
correspondence from
the Government regarding
licence payment obligations which, as unfulfilled,
provide the Government with the right to withdraw the
licence. We discussed management’s judgment that
the obligations would ultimately be deferred and the
licence be extended with the Audit Committee. In
assessing this judgment, we inspected applications
submitted
the history of
investment in Kazakh oil fields by the Group and the
previous extensions and revisions to work program
commitments and obligations. We also reviewed the
disclosures of this risk included in note 2.1 of the
financial statements.
the Government,
to
BNG production and exploration assets
We inspected the licences to confirm valid title and
assessed the compliance with the licence conditions
through review of correspondence with the authorities
and inquiries of management.
For the exploration licence, we inspected budgets and
work programs submitted to the Kazakh authorities to
confirm that further drilling and exploration is planned
for the licence. We considered the results of
exploration activity in the period for indications that
the
the
recoverable value would be below cost. We also
reviewed the disclosures of this risk included in note
2.1 and 11 of the financial statements.
licences would be abandoned or
that
For the production licence we reviewed management’s
impairment indicator analysis and formed our own
assessment of potential impairment indicators. As part
of the impairment indicator analysis we evaluated
management’s ceiling test by assessing the inputs into
the net present value forecasts. In doing so, we
compared the oil price forecasts as at 31 December
2020 to market consensus forecasts and compared
operational production and cost assumptions to the
2015 Competent Person’s Report, historical data and
other third party sources. We recalculated the discount
rate and performed sensitivity analysis in respect of
significant inputs. We also reviewed the disclosures of
this risk included in note 2.3 and 12 of the financial
statements.
We relied on our previous years work on evaluation of
the independence and competence of the Competent
Person as a management expert and assessed if any
changes were required.
Caspian explorer vessel
Due to the lack of charters since the asset was
acquired, we obtained and challenged management’s
vessel valuation, which supports the carrying value of
the vessel through resale.
In addition we obtained the signed charter agreement
for the vessels use in Q3 2021, which provides
evidence to support management’s plans to realise the
35
BNG production licence payment
obligations
Under the terms of the BNG licence, on award
of the production contract the Group incurred
an obligation for payments under the licence as
detailed in note 2.7 and 20. Whilst the quantum
to be paid has been assessed by
the
Government authorities, it remains subject to
dispute. Management recorded a provision of
$25.1m as at 31 December 2020. The estimate
of the provision requires Management to
exercise judgment and estimate in terms of the
extent of the obligation and the applicable
discount rate.
Given the judgment and estimation required
and the material impact of the transaction, this
was considered to be a focus for our audit and
a key audit matter.
value of the vessel through future charters. We also
reviewed the disclosures of this risk included in note
2.6 and 12 of the financial statements.
Key observations:
We found management’s conclusion that the carrying
value of the 3A Best, BNG oil and gas assets and
Caspian Explorer drilling rig vessel are supportable to
be appropriate. We found the judgments made by
management to be reasonable and the disclosures in
the notes to be sufficient.
We reviewed the terms of the licence to confirm that a
payment obligation was triggered upon award of the
contract.
We reviewed correspondence with the relevant
authorities regarding the assessment of the quantum of
the payment due and the terms of payment which
formed the basis for the amounts recorded as a
provision.
We recalculated the provision and compared the
discount rate to market bond yield data for similar
termed instruments.
We evaluated the accounting policy established by
management against relevant IFRS literature and the
nature of the transaction. In particular, this involved
assessing the extent to which capitalisation of the cost
was appropriate in conjunction with our technical
specialists.
We assessed the disclosures included in the financial
statements at notes 2.7 and 20.
Key observations:
We found the judgments and estimates made by
management in respect of the BNG production licence
payment obligations to be appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect
of misstatements. We consider materiality to be the magnitude by which misstatements, including
omissions, could influence the economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality,
we use a lower materiality level, performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also
take account of the nature of identified misstatements, and the particular circumstances of their occurrence,
when evaluating their effect on the financial statements as a whole.
36
Based on our professional judgement, we determined materiality for the financial statements as a whole
and performance materiality as follows:
Group financial statements
2019
2020
US$
1,900,000
US$
1,900,000
for
1.5% of total assets
Parent company financial statements
2020
US$
1,500,000
of
80%
Group
materiality
2019
US$
1,710,000
90% of Group
materiality
Materiality
Basis
determining
materiality
Rationale for the
benchmark
applied
We have determined an asset based measure is appropriate as the Group
continues to focus on developing its oil and gas projects that requires
significant capital expenditure.
Performance
materiality
Basis
determining
performance
materiality
for
1,200,00
1,425,000
1,000,000
1,280,000
65% of Group
Materiality
considering the
of
nature
and
activities
historic
audit
adjustments
75% of Group
Materiality
considering the
of
nature
and
activities
historic
audit
adjustments
65% of Parent
Company
Materiality
considering the
of
nature
and
activities
audit
historic
adjustments
Parent
75%
of
Company
Materiality
considering
the
nature of activities
and historic audit
adjustments
Component materiality
We set materiality for each component of the Group based on a percentage of between 26% and 80% of
Group materiality dependent on the size and our assessment of the risk of material misstatement of that
component. Component materiality ranged from US$500,000 to US$1,500,000. In the audit of each
component, we further applied performance materiality levels of 65% of the component materiality to our
testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess
of US$95,000 (2019: US$70,000). We also agreed to report differences below this threshold that, in our
view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the Annual Report and Financial Statements other than the financial statements and our auditor’s
report thereon. Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon. Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the course
of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or
apparent material misstatements, we are required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
37
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we
are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as
described below.
Strategic report
and Directors’
report
Matters
on
which we are
to
required
report
by
exception
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic report and the Directors’ report for the
financial year for which the financial statements are prepared is consistent with
the financial statements; and
the Strategic report and the Directors’ report have been prepared in accordance
with applicable legal requirements.
•
In the light of the knowledge and understanding of the Group and Parent Company
and its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which
the Companies Act 2006 requires us to report to you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
the Parent Company financial statements are not in agreement with the
accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for
such internal control as the Directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below:
38
• Holding discussions with management and the audit committee to understand the laws and
regulations relevant to the Group and the Parent company. These included the significant laws and
regulations of Kazakhstan to be those relating to the oil and gas industry, elements of financial
reporting framework, tax legislation and environmental regulations;
• Holding discussions with management and the audit committee to determine any known or suspected
instances of non-compliance with laws and regulations or fraud identified by them;
• Testing the appropriateness of journal entries made through the year by applying specific criteria to
detect possible irregularities and fraud;
• Reviewing the licences to assess the extent to which the Group was in compliance with the
conditions of the licence and considering management’s assessment of the impact of instances of
non-compliance where applicable;
• Performing a detailed review of the Group’s year-end adjusting entries and investigating any that
appear unusual as to nature or amount and agreeing to supporting documentation;
• For significant and unusual transactions, particularly those occurring at or near year-end, obtaining
evidence for the rationale of these transactions and the sources of financial resources supporting the
transactions;
• Assessing the judgements made by management when making key accounting estimates and
judgements, and challenging management on the appropriateness of these judgements (refer to key
audit matters above);
• Reviewing minutes from board meetings of those charges with governance to identify any instances
of non-compliance with laws and regulations;
• Communicating relevant identified laws and regulations and potential fraud risks to all engagement
team members and remaining alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit; and
• Directing the auditors of the significant components to ensure an assessment is performed on the
extent of the components compliance with the relevant local and regulatory framework.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent limitations in the audit procedures performed
and the further removed non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the
Parent Company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Ryan Ferguson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London,
United Kingdom
28 June 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
39
Consolidated Statement of Profit or Loss
Revenue
Cost of sales
Gross profit
Selling expense
Impairment reversal of unproven and proved oil and gas assets
Provision for expected credit losses of long-term assets
Share-based payments
Other administrative costs
Total administrative expenses
Operating (loss) / income
Finance cost
Finance income
(Loss) / Profit before taxation
Tax charge
Loss after taxation from continuing operations
Loss for the year from discontinued operations
Loss for the year
Loss attributable to owners of the parent
Loss attributable to non-controlling interest
Loss for the year
Basic and diluted profit/(loss) per ordinary share (US cents)
Notes
3
12
15
4
7
8
9
Year to
31 December
2020
US$’000
14,298
(4,864)
9,434
(3,897)
-
(2,551)
(22)
(3,662)
(6,235)
(698)
(1,067)
20
(1,745)
(1,748)
(3,493)
-
(3,493)
(3,413)
(80)
(3,493)
(0.18)
Year to
31 December
2019
US$’000
12,108
(6,971)
5,137
(2,220)
2,414
-
(31)
(3,907)
(1,524)
1,393
(452)
-
941
(2,343)
(1,402)
-
(1,402)
(1,278)
(124)
(1,402)
(0.07)
The notes on pages 47 to 77 are essential part of these financial statements
40
Consolidated Statement of Comprehensive Income
Loss after taxation
Other comprehensive income:
Exchange differences on translating foreign operations
Total comprehensive loss for the year
Total comprehensive loss attributable to:
Owners of parent
Non-controlling interest
Year ended
31 December
2020
Year ended
31 December
2019
US$000
US$000
(3,493)
(1,402)
403
(3,090)
(3,010)
(80)
268
(1,134)
(1,010)
(124)
The notes on pages 47 to 77 are essential part of these financial statements
41
Consolidated Statement of Changes in Equity
Share
capital
US$’000
Share
premium
US$’000
Deferred shares
US$’000
Cumulative
translation reserve
US$’000
Other
reserves
US$’000
Retained
deficit
US$’000
Total attributable to
the owner of the
Parent
US$’000
Non-controlling
interests
US$’000
Total
equity
US$’000
Total equity as at 1 January 2020
Loss after taxation
Exchange differences on translating foreign operations and
recycling of exchange differences on disposal of subsidiaries
Total comprehensive income/(loss) for the year
Shares issue
Debts to equity conversion (note 17)
Shares placing in cash (note 17)
Arising on employee share options
Total equity as at 31 December 2020
Total equity as at 1 January 2019
Loss after taxation
Exchange differences on translating foreign operations and
recycling of exchange differences on disposal of subsidiaries
Total comprehensive income/(loss) for the year
Shares issue
Share options exercised
Arising on employee share options
28,120
-
246,299
-
-
-
2,095
112
477
-
30,804
-
-
1,571
246
834
-
248,950
Share
capital
US$’000
Share
premium
US$’000
25,416
-
229,020
-
-
-
2,648
56
-
-
-
17,115
164
-
64,702
-
-
-
-
-
-
-
64,702
Deferred shares
US$’000
64,702
-
-
-
-
-
-
(55,643)
-
(2,362)
-
(220,477)
(3,413)
403
403
-
-
-
-
(55,240)
-
-
-
-
-
-
(2,362)
Cumulative
translation reserve
US$’000
Other
reserves
US$’000
-
(3,413)
-
-
-
22
(223,868)
Retained
deficit
US$’000
(55,911)
-
(2,362)
-
(219,230)
(1,278)
268
268
-
-
-
-
-
-
-
-
-
(1,278)
-
-
31
Total equity as at 31 December 2019
28,120
246,299
64,702
(55,643)
(2,362)
(220,477)
60,639
(3,413)
403
(3,010)
3,666
358
1,311
22
62,986
(5,729)
(80)
-
(80)
-
-
-
-
(5,809)
54,910
(3,493)
403
(3,090)
3,666
358
1,311
22
57,177
Total attributable to
the owner of the
Parent
US$’000
Non-controlling
interests
US$’000
Total
equity
US$’000
41,635
(1,278)
268
(1,010)
19,763
220
31
60,639
(5,605)
(124)
-
(124)
-
-
-
(5,729)
36,030
(1,402)
268
(1,134)
19,763
220
31
54,910
Equity
Share capital
Share premium
Deferred shares
Cumulative translation reserve
Other reserves
Retained deficit
Non-controlling interest
Description and purpose
The nominal value of shares issued
Amount subscribed for share capital in excess of nominal value
The nominal value of deferred shares issued
Gains/losses arising on retranslating the net assets of overseas operations into US Dollars, less amounts recycled on disposal of subsidiaries and joint ventures
Fair value of warrants issued and capital contribution arising on discounted loans
Cumulative losses recognised in the consolidated statement of profit or loss, adjustments on the acquisition of non-controlling interests and transfers in respect of share based payments
The interest of non-controlling parties in the net assets of the subsidiaries
The notes on pages 47 to 77 are essential part of these financial statements
42
Parent Company Statement of Changes in Equity
Total equity as at 1 January 2020
Total comprehensive loss for the year
Shares issue
Debts to equity conversion (note 17)
Shares placing in cash (note 17)
Arising on employee share options
Total equity as at 31 December 2020
Total equity as at 1 January 2019
Total comprehensive loss for the year
Restructuring of Intragroup Debt (note 17)
Shares issue
Stock options exercised
Arising on employee share options
Total equity as at 31 December 2019
Share
capital
US$’000
Share
premium
US$’000
Deferred
shares
US$’000
Other reserves
US$’000
Retained deficit
US$’000
Total attributable to the
owner of the Parent
US$’000
28,120
-
2,095
112
477
-
30,804
246,299
-
1,571
246
834
-
248,950
64,702
-
-
-
-
-
64,702
-
-
-
-
-
-
-
25,416
229,020
64,702
-
-
2,648
56
-
28,120
-
-
17,115
164
-
246,299
-
-
-
-
-
64,702
14,936
-
(14,936)
-
-
-
-
(138,167)
(104,436)
-
-
-
22
(242,581)
(144,911)
(8,223)
14,936
-
-
31
(138,167)
200,954
(104,436)
3,666
358
1,311
22
101,875
189,163
(8,223)
-
19,763
220
31
200,954
Equity
Share capital
Share premium
Deferred shares
Other reserves
Retained deficit
Description and purpose
The nominal value of shares issued
Amount subscribed for share capital in excess of nominal value
The nominal value of deferred shares issued
Capital contribution arising on discounted loans
Cumulative losses recognised in the profit or loss
The notes on pages 47 to 77 are essential part of these financial statements
43
Consolidated Statement of Financial Position
Company number 5966431
Notes
Group
2020
US$’000
Group
2019
US$’000
Assets
Non-current assets
Unproven oil and gas assets
Property, plant and equipment
Other receivables
Restricted use cash
Total non-current assets
Current assets
Inventories
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves attributable to equity holders of the parent
Share capital
Share premium
Deferred shares
Other reserves
Retained deficit
Cumulative translation reserve
Equity attributable to the owners of the Parent
Non-controlling interests
Total equity
Current liabilities
Trade and other payables
Short - term borrowings
Provision for BNG licence payment
Other current provisions
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Provision for BNG licence payment
Other non-current provisions
Other payables
Total non-current liabilities
Total liabilities
Total equity and liabilities
Approved by the Board and authorized for issue:
Clive Carver,
Chairman,
28 June 2021
Company number: 5966431
11
12
15
14
15
16
17
17
27
18
19
20
20
23
20
20
18
61,413
52,845
4,246
241
118,745
392
6,195
329
6,916
125,661
30,804
248,950
64,702
(2,362)
(223,868)
(55,240)
62,986
(5,809)
57,177
11,012
5,600
3,178
6,117
25,907
6,629
21,887
413
13,648
42,577
68,484
125,661
60,040
51,326
5,745
241
117,352
384
5,663
4,060
10,107
127,459
28,120
246,299
64,702
(2,362)
(220,477)
(55,643)
60,639
(5,729)
54,910
14,836
4,050
3,178
6,304
28,368
7,244
24,216
428
12,293
44,181
72,549
127,459
The notes on pages 47 to 77 are essential part of these financial statements
44
Parent Company Statement of Financial Position
Company number 05966431
Notes
Company
2020
US$’000
Company
2019
US$’000
Assets
Non-current assets
Investments in subsidiaries
Other receivables
Total non-current assets
Current assets
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital
Share premium
Deferred shares
Retained deficit
Equity attributable to the owners of the Parent
Total equity
Current liabilities
Short-term borrowings
Trade and other payables
Total current liabilities
Non-current liabilities
Total non-current liabilities
Total liabilities
Total equity and liabilities
13
15
15
16
17
17
19
18
15,487
89,265
104,752
9
3
12
104,764
30,804
248,950
64,702
(242,581)
101,875
101,875
2,069
820
2,889
-
-
2,889
104,764
223,781
10,704
234,485
7
87
94
234,579
28,120
246,299
64,702
(138,167)
200,954
200,954
1,814
31,811
33,625
-
-
33,625
234,579
The Company incurred a loss for the year ended 31 December 2020 in the amount of US$ 104,436,000 (2019: loss of US$ 8,223,000).
Approved by the Board and authorized for issue:
Clive Carver,
Chairman,
28 June 2021
Company number: 05966431
The notes on pages 47 to 77 are essential part of these financial statements
45
Consolidated and Parent Company Statements of Cash Flows
Cash flows from operating activities
Cash received from 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
Advances repaid by subsidiaries
Advances issued to subsidiaries
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
Cash and cash equivalents at the end of the year
Notes
Group
2020
US$’000
Group
2019
US$’000
Company
2020
US$’000
Company
2019
US$’000
10,807
(11,124)
(1,423)
(1,740)
(3,019)
(1,520)
-
-
16,465
(6,767)
(1,226)
8,472
(669)
(5,822)
-
-
(4,539)
(6,491)
1,311
-
1,237
-
2,548
(3,731)
4,060
329
220
(28)
1,330
-
1,522
3,503
557
4,060
-
-
(1,263)
(1,128)
(399)
(597)
(1,662)
(1,725)
-
-
302
(35)
267
1,311
-
-
-
1,311
(84)
87
3
-
-
108
(100)
8
220
-
1,330
(38)
1,512
(205)
292
87
25
25
16
Significant non-cash transactions include the following and details can be found in notes 6, 7, 9, 11, 12, 13, 16, 17:
-
Acquisition of 100% interest at KC Caspian Explorer in exchange of issue of 160,256,410 new Caspian Sunrise with the consideration
value of US$ 3,666,000 on the date (2019: Acquisition of 100% interest at 3A Best in exchange of issue of 149,253,732 new Caspian
Sunrise shares with the consideration value of US$ 11,795,000);
-
Share-based payments in the amount of US$ 22,000 (2019: US$ 31,000);
- Withholding tax in the amount of US$ 1,748,000 (2019: US$ 1,860,000);
-
-
-
-
-
Exchange differences on translating foreign operations of US$ 6,000 (2019: US$ 49,000);
Depreciation charge of US$ 1,688,000 (2019: US$ 148,000);
Interest expense of US$ 1,067,000 (2019: US$ 452,000);
Issuance of 8,938,570 ordinary shares at 3.2 pence per share with the consideration value of US$ 357,319 in settlement of outstanding
salary and expenses.
Impairment of $145.7 million to the Parent Company’s investment in subsidiaries arising following a reduction in the Group’s market
capitalisation.
* Additions to unproven oil and gas assets contain the amount of US$ 8,275 in relation to payroll expenses capitalized (2019: US$: 185,500).
The notes on pages 47 to 77 form part of these financial statements
46
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 28 June 2021.
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 accounting standards in conformity with the
requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act 2006
Going concern
The financial outlook has improved when compared to the position 12 months ago but not yet to the point where the material un certainty in respect
of going concern highlighted in the 2019 Financial Statements and the 2020 interim statements has fully receded.
At 31 December 2020, the Group had cash of $0.3 million and net current liabilities of $19.0 million. The imbalance reflects the financial impact
of Covid-19 and market volatility in respect of commodity prices. As at 1 June 2021 the Group had cash of approximately $0.7 million.
On the brighter side the dramatic decline in international prices, which fell as low as $16 per barrel has been reversed with the Brent price recently
exceeding $75 per barrel. As is the case with domestic prices which have recently tripled.
The Caspian Explorer is forecast to start generating income H2 and the current work programme costs at 3A Best are to be funded by our new
partners subject to the license extension.
On the negative side we have yet to see any meaningful production from any of the deep wells and the BNG historic costs on the MJF structure,
which were assessed and now confirmed at $32 million payable quarterly over a ten-year period will continue to consume a large proportion of the
cash generated from international sales at the MJF structure.
The Board have assessed cash flow forecasts prepared for a period of at least 12 months from the of approval of the financial statements and
assessed the risks and uncertainties associated with the operations and funding position, including the potential further effects of the COVID-19
pandemic.
Inevitably, there is an international price below which the Group would need to take further action to conserve costs or raise additional funding.
The Board considers that price to be around the $54per barrel level in the absence of any reduction to the assessed BNG historic costs.
The Group’s liquidity remains dependent on a number of key factors:
•
The Group continues to forward sell its domestic production and receive advances from oil traders with $2.5m currently advanced and the
continued availability of such arrangements is important to working capital. Whilst the Board anticipate such facilities remaining available
given its trader relationships and recent oil price increases, should they be withdrawn or reduced more quickly than forecast cash flows allow
then additional funding would be required.
The Group has approximately $0.2m of aged creditors which are being settled over the coming months from operating cash flows. Whilst
relations are positive with the suppliers, if their support is withdrawn additional funding may be required.
The Group has $5.6m of loans due on demand or within the forecast period to its largest shareholder and their connected companies. Whilst
the Board has received assurances that the facilities will not be called for payment unless sufficient liquidity exists, there are no binding
agreements currently in place to this effect and if repayment was required additional funding would be needed.
The Group has $6.0m of liabilities due on demand under social development program and $3.2m of BNG licence payments due within the
forecast period to the Kazakh government. Whilst the Board has forecasted the payment of BNG licence payments, there are no payments
planned for social development program within the forecast period as the Board expects additional payment deferrals to be approved.
The Group is looking to partner with others to drill further deep wells thereby reducing the costs.
As noted above, the forecasts remain sensitive to oil prices, which have shown significant volatility. Independent of the factors above, if
international oil prices fell below $54/bbl additional actions would be required including some or all of the following: further cost reductions,
additional payment deferrals and raising funds.
•
•
•
•
•
These circumstances continue to indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to
continue as a going concern and therefore 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 Group was unable to continue as a going concern.
Notwithstanding the material uncertainty described above, after making enquiries and assessing the progress against the forecast, projections and
the status of the mitigating actions referred to above, the Directors have a reasonable expectation that the Group will continue in operation and meet
its commitments as they fall due over the going concern period. Accordingly, the Directors continue to adopt the going concern basis in preparing
the financial statements.
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 preparation of financial statements in conformity with IFRSs requires the Management to make judgement s, 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.
47
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.2 New and revised standards and interpretations
The Group applied for the first time, certain standards and amendments, which are effective for annual periods beginning on or after 1 January
2020. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The nature
and effect of the changes that result from the adoption of these new standards are described below. Other than the changes described below, the
accounting policies adopted are consistent with those of the previous financial year.
Several other amendments and interpretations apply for the first time in 2020, but do not have an impact on the consolidated financial statements
of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
Amendments to IFRS 3: Definition of a Business
The amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of activities and assets must include,
at a minimum, an input and a substantive process that, together, significantly contribute to the ability to create output. Furthermore, it clarifies that
a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated
financial statements of the Group, but may impact future periods should the Group enter into any additional business combinations.
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform
The amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all
hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to
uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments have
no impact on the consolidated financial statements of the Group as it does not hedge.
Amendments to IAS 1 and IAS 8 Definition of Material
The amendments provide a new definition of material that states, “information is material if omitting, misstating or obscurin g it could reasonably
be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements,
which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend o n the nature or
magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement
of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact
on the consolidated financial statements of, nor is there expected to be any future impact to the Group.
Conceptual Framework for Financial Reporting issued on 29 March 2018
The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard.
The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies
where there is no applicable standard in place and to assist all parties to understand and interpret the standards. This will affect those entities which
developed their accounting policies based on the Conceptual Framework. The revised Conceptual Framework includes some new concepts, updated
definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the
consolidated financial statements of the Group.
Amendments to IFRS 16 Covid-19 Related Rent Concessions
On 28 May 2020, the IASB issued Covid-19-Related Rent Concessions - amendment to IFRS 16 Leases
The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct
consequence of the Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from
a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the Covid-19 related
rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification.
New standards, interpretations and amendments not yet effective
Below is a list of new and revised IFRSs that are not yet mandatorily effective (but allow early application) for the year ending 31 December 2020
and have not been early adopted by the Group. These standards are not expected to have a material impact on the Group in the future reporting
periods and on foreseeable future transactions.
1.3
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.
48
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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.
1.4 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.
1.5 Foreign currency translation
1.5.1 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, 3A_Best
Group JSC, and Caspian Technical Services LLP subsidiary undertakings of the Group during the period, 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.
1.5.2 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.
1.5.3 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 rate 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.
1.6 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.
In case of the uncertainty of the tax treatment, the Group assess, whether it is probable or not, that the tax treatment will be accepted, and to
determine the value, the Group use the most likely amount or the expected value in determining taxable profit (tax loss), tax bases, unused tax
losses, unused tax credits and tax rates.
Withholding tax payable at Kazakhstan
According to requirements of the Tax Code of Kazakhstan, withholding taxes payable for non-residents should be withheld from the total amount
of interest income of non-residents and paid to the government when interest is paid (in cash) to non-residents. The companies should pay taxes
from non-residents’ interest income derived from sources in the Republic of Kazakhstan on behalf of these non-residents.
1.7 Deferred tax
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial report ing 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 onl y to the extent that it is
probable that taxable profit will be available, against which the deductible temporary differences can be utilised.
1.8 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 t he 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.
49
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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 unproven oil and gas asset, the amount reflecting that consumption is recorded as part of
the cost of the unproven oil and gas 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 feasibility 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.
The costs transferred comprise direct costs associated with the relevant wells and infrastructure, together with an allocation of the wider unallocated
exploration costs in the cost pool such as original acquisition costs for the field.
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.
As part of the Kazakh licencing regime, upon award of a production contract in respect of the BNG licence area, an obligation to make a payment
to the licencing authority is triggered, settled over a 10 year period in equal quarterly instalments. Such payments are considered to form a cost of
the licence and are capitalised to proven oil and gas assets and subsequently depreciated on a units of production basis in accordance with the
Group’s depreciation policy. In circumstances where the amount assessed by the authorities is contested, the Group records a provision discounted
using a Kazakh government bond yield with a term approximating the payment profile and the discount is unwound over the payment term and
charged to finance costs. Payments made are charged against the provision.
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.
Impairment of development and production assets and other property, plant and equipment
At each balance sheet date, the Group reviews the carrying amounts of its PP&E to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use.
Fair value less costs to sell is determined by discounting the post-tax cash flows expected to be generated by the cash-generating unit, net of
associated selling costs, and takes into account assumptions market participants would use in estimating fair value including future capital
expenditure and development cost for extraction of the field reserves. In assessing value in use, the estimated future cash f lows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
50
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no
impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income
immediately.
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 falls 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.
1.9 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.
1.10 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, unless agreed otherwise
with the Ministry of Energy. 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.
1.11 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
4-5 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.
1.12 Investments (Company)
Investments in subsidiary undertakings are shown at cost less allowance for impairment. Long-term advances to subsidiaries are discounted at
estimated market rate of interest with the difference between a fair value and a face value of the advance being recorded within investments.
Loan are amortised cost is assessed for expected credit loss under IFRS 9.
1.13 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.
51
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
Financial assets
Financial assets are classified as either financial assets at amortised cost, at fair value through other comprehensive income (“FVTOCI”) or at fair
value through profit or loss (“FVPL”) depending upon the business model for managing the financial assets and the nature of the contractual cash
flow characteristics of the financial asset.
A loss allowance for expected credit losses is determined for all financial assets, other than those at FVPL, at the end of each reporting period. The
Group applies a simplified approach to measure the credit loss allowance for any trade receivables using the lifetime expected credit loss provision.
The lifetime expected credit loss is evaluated for each trade receivable taking into account payment history, payments made subsequent to year end
and prior to reporting, past default experience and the impact of any other relevant and current observable data. The Group applies a general
approach on all other receivables classified as financial assets. The general approach recognises lifetime expected credit losses when there has been
a significant increase in credit risk since initial recognition.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to another party. The Group derecognises financial liabilities when the
Group’s obligations are discharged, cancelled or have expired.
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. Non-interest bearing trade and
other payables and other interest bearing borrowings are stated initially at fair value and subsequently at amortised cost.
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 with a gain or loss recorded in the income statement. In accordance with IFRS 9, following a modification or
renegotiation of a financial asset or financial liability that does not result in de-recognition, an entity is required to recognise any modification gain
or loss immediately in profit or loss. Any gain or loss is determined by recalculating the gross carrying amount of the financial liability by
discounting the new contractual cash flows using the original effective interest rate. The difference between the original contractual cash flows of
the liability and the modified cash flows discounted at the original effective interest rate is recorded in the income statem ent.
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.
1.14 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.
1.15 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.
1.16 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.
1.17 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.
52
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.18 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.
1.19 Revenue
Revenue from contracts with customers is recognised when or as the Group satisfies a performance obligation by transferring a promised good or
service to a customer. A good or service is transferred when the customer obtains control of that good or service. The transfer of control of oil sold
by the Group usually coincides with title passing to the customer. The Group satisfies its performance obligations at a point in time.
Under the terms of domestic oil sales arrangements, the performance obligation is satisfied when the local refinery provides the seller and the
customer with the act of acceptance of crude oil of quantity and quality according to the agreement between the parties.
Under the terms of export sales arrangements, the performance obligation is satisfied when the Ocean Bill of Lading is issued by the transport
company that reflects the fact of boarding the crude oil of specified quantity and quality on the tanker.
Revenue is measured at the fair value of the consideration received, excluding value added tax (“VAT”) and other sales taxes or duty. Royalties
are not included in revenue, they are paid on production and recorded within cost of sales.
Payments in advance by oil traders are recorded initially as deferred revenue, reflecting the nature of the transaction. Subsequently, the deferred
revenue is reduced and revenue is recorded, as sales are made under the Group’s revenue recognition policy with the performance obligation
satisfied.
Revenue from the use by third parties of the Caspian Explorer will be recognised when the contracted services are performed.
1.20 Cost of sales
The Group started to calculate the cost of sales on crude oil sold during 2019 because its asset BNG has received the production license on part of
its contract territory in July 2019. On the rest of its territory (%) BNG continues to work under Exploration license. During test production on
Exploration 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.
1.21 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 one operating segment being oil exploration and production in Kazakhstan
and therefore one reporting segment. The Group has several cost pools divided based on the different contractual territory of its assets. As the
activity of all cost pools is the same (oil exploration and production) and all of them operate geographically in Kazakhstan, the Group reports one
segment in its financials.
1.22 Interest receivable and payable
Interest income and expense are reported on an accrual basis using the effective interest rate method.
1.23 Forward Sales
Advance payments are taken for oil to be sold on the domestic market with the liability reduced over time as oil is delivered based on the then
prevailing domestic oil price.
1.24 Exchange rates
For reference the year end exchange rate from sterling to US$ was 1.36 and the average rate during the year was 1.3. The year-end exchange rate
from KZT to US$ was 420.91 and the average rate during the year was 412.95.
53
Notes to the Financial Statements (continued)
2 Critical accounting estimates and judgements
In the process of applying the Group’s accounting policies, which are described in note 1, 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 Carrying value of exploration and evaluation costs (note 11)
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 impairment indicators detailed in accounting policy note
1.8. As at 31 December 2020, 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. The Group also considered whether the factors that gave rise to the original
impairment loss no longer existed and reversal of the impairment is appropriate. In forming this assessment, the Board considered the oil reserves
and resources associated with the licence area, the results of exploration activity to date, the successful transition to production of the MJF licence
area in the previous year and the net present value of the shallow structures, the status of licences and future plans for the licence areas. In forming
its assessment, the Board considered the Group’s commitments under the licence detailed in note 20 and the impact of outstanding obligations.
Having undertaken this assessment the Group concluded that no indicators of impairment existed and that no reversal in respect of previous
impairment provisions attributable to the unproven oil and gas assets of US$9,479,000 was yet appropriate given the absence of a significant
breakthrough on the deep structures at 31 December 2020.
Judgment has been applied in assessing whether impairment of the exploration and evaluation assets asset of 3A Best is required at 31 December
2020 noting that the application for deferral of obligations under the licence and the extension of the license has been submitted and management
anticipate such approvals being provided given the impact of Covid-19, their understanding of the Kazakh market and plans for the asset.. However,
the authorities have the right to withdraw the licence as payments due by July 2020 have not been made in respect of obligations. The Board
considers the risk of the licence being withdrawn to be remote given the history of investment by the Group in Kazakhstan, the impact of COVID-
19 in 2020 on the Group’s cash generation and ability to undertake work program commitments and past experience. An application to extend the
licence has been submitted together with an application to defer the obligations and commitments in 2020. In addition, thet carrying value of 3A
Best has not been impaired based on discussions before the year end which resulted in a farm out of 15% of the Contract Area for a deemed cost
of $2.5 million, which implies a cost of 100% greater than it carrying value.
The Beibars cost pool remains impaired based on the continuance of the force majeure. The Group has decided to formally relinquish any interest
in Beibars.
2.2 Transfer of costs to proven oil and gas assets (prior year) (note 11 & 12)
Judgment has been applied in assessing that the MJF area assets meets the criteria for reclassification to proven oil and gas assets under the Group’s
accounting policy in note 1.8. In concluding that it was appropriate to transfer the asset to proven oil and gas assets management took account of
the award of a production licence enabling exports and sales at international prices together with the production volumes. In August 2019 BNG has
received the required production license for its MJF structure and got the export permission starting September 2019. According to the approach
above BNG moved the related O&G assets to the production stage in August 2019 and accordingly started charging DD&A expense. The Board
considers the remaining BNG contract area to remain in an exploration phase given the level of wells and production relative to plans for the field,
the exploration status of the licence and the requirement to sell its test oil in the domestic market which represents a substantial discount to the
international market such that production is primarily a by product of continued exploration and appraisal.
2.3 Recoverability of proven oil and gas assets (note 12)
The proven oil and gas assets, representing the MJF structure, have been assessed for indicators of impairment at 31 December 2020 including
assessment of the discounted cash flows indicated by the Group’s field plan. This analysis required judgment and estimation in determining forecast
prices as at 31 December 2020 based on conditions existing at that time, future production and reserves, operating costs and development costs for
the field and the discount rate. The forecasts demonstrated significant headroom with prices based on forward prices of $51 bbl adjusted for net
back adjustments, reserves calculated using the most recent Competent Person’s report and discount rates run at 10% and 15%. Having undertaken
this assessment the Group concluded that no indicators of impairment existed.
Having undertaken this assessment at 31 December 2019 the Group concluded that the factors no longer applied, noting the successful exploration
activity and the transition to commercial production and decided to release the previous impairment attributable to the unproven oil and gas assets
of US$2,414,000. The allocation between proven and unproven oil and gas assets required judgment and was based on relative costs incurred
between the proven and unproven asset categories as the original impairment arose when the proven oil and gas assets formed part of the single
BNG unproven oil and gas cost pool.
2.4 Recoverability of VAT (note 15)
The Group holds VAT receivables of $3.8 million (2019: $3.3million) as detailed in note 15 which are anticipated to be primarily recovered through
offset of future VAT payable in accordance with Kazakh legislation. Management have assessed the recoverability of the asset based on forecast
levels of VAT payables which demonstrate that the balance will be recovered within 3 years (2019: 3.5 years). This required estimates regarding
future production, oil prices and expenditure.
2.5 Decommissioning (note 20)
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 a 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.
54
Notes to the Financial Statements (continued)
2 Critical accounting estimates and judgements (continued)
2.6 Acquisition of Caspian Explorer (note 22)
Judgment was required in assessing the accounting treatment for the purchase of Caspian Explorer as an asset purchase rather than a business
combination. In forming this assessment, management elected to make the optional concentration test according to IFRS. 80% of the total assets
of the acquired entities were represented by the carrying value of the submersible drilling rig and related assets (the barge). Therefore, the
management concluded that the fair value of the gross assets acquired were concentrated in a single identifiable asset (group of assets). As such,
the fair value of the purchase consideration was allocated to the assets and liabilities acquired, costs associated with the transaction capitalised and
no deferred tax arose on the transaction.
Judgment has been applied in assessing whether impairment of the asset is required at 31 December 2020 noting that the scrap value of the barge
plus the cost of the separate drilling rig supported by a clear comparable sale approach as well as the future expected cash flows and supports the
recoverability of the vessel’s carrying value.
2.7 Provision for BNG licence payments (note 10, 11, 20)
As part of the Kazakh licencing regime, upon award of a production contract in respect of the BNG licence area, an obligation to make a payment
to the licencing authority was triggered, settled over a 10 year period in equal quarterly instalments. Judgment was required in assessing the
appropriate accounting policy for the transaction including assessment of the terms of the arrangement. Such payments are considered to form a
cost of the licence and are capitalised to proven oil and gas assets. As at 31 December 2020, the Group was contesting the amount levied by the
authorities although at the date of these financial statements final judgment has been made against the company. As such, a provision for the
amounts due has been made based on the received judgment. Estimation was also required in selecting an appropriate discount rate for the provision
and a rate of 2.7% has been applied, based on US dollar Eurobonds yields in Kazakhstan with a comparable term. Estimation was also required in
selecting an appropriate discount rate for the provision and a rate of 2.7% has been applied, based on US dollar Eurobonds yields in Kazakhstan
with a comparable term.
2.8 Uncertain tax positions (note 20)
As detailed in note 20, judgment has been applied in assessing the extent to which tax treatments adopted by the Group historically will be accepted
or rejected by the relevant tax authority and the resulting measurement of uncertain tax positions in circumstances were it is probable that the
treatment will be challenged.
2.9 Indemnity receivables in relation to 3A Best acquisition (note 21)
Under the terms of the SPA for 3A Best, the three vendors provided indemnities that obligations related to the period prior to acquisition would be
reimbursed. Judgment has been applied in assessing the recoverability of the indemnity receivables detailed in note 21, which included assessment
of the terms of the SPA, confirmations received from the vendors and assessments of the ability to meet such payments. The Board while still
intending to obtain full recovery has made a provision for two thirds of the amounts due on the expected credit losses as at 31 December 2020 (note
15).
2.10 Recoverability of investments (note 13)
The recoverability of investments is dependent upon the future production of the subsidiaries from existing producing assets and unproven
exploration assets, and future prices achieved, which will determine if any provision is required against investments. The directors have assessed
the impairment indicators, and made judgements in reflection to recoverability and make impairments as appropriate. The manag ement has
estimated that a provision was required of US$145.7m at the year end (2019: nil).
2.11 Estimation of credit losses of receivables from subsidiaries (note 15)
In the parent company there are substantial receivables from the subsidiaries. Management has used judgement to determine to the expected credit
losses against these receivable’s which involves estimates of over the ability of the subsidiaries to repay these loans. Management has estimated an
expected credit loss was required of US$19.9m at the year end (2019: US$12.9m).
55
3
Segment reporting & revenue
Operating segments
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 operated in two operating segments during 2020: Exploration for and production
of oil and oil and gas services in Kazakhstan. All revenues from test phase and commercial phase production are generated domestically in
Kazakhstan. 100% of the Group’s oil revenue was derived from three major customers (two local market operators – 15% and the export trader –
85%). The revenue split of oil sales in 2020 between the domestic traders (ANK-Energo LLP, Petro Synthesis) and the export trader (Euro-Asian
Oil SA) was US $2,112,000 and US $12,186,000 respectively.
Revenue
The Group's revenues are derived from the sale of oil in Kazakhstan. After moving part of O&G assets into Production phase The Group started to
receive export revenues in September 2019.
Under the terms of sales on the local market, the performance obligation is the supply of oil and the performance obligation is satisfied at a point
in time, being the delivery of oil to the refinery. Control passes to the customer at this point with title and risk transferred.
Under the terms of export sales control over the oil delivered is with the Group until the customer confirms it has been shipped on the board of the
tanker. When advances are received from oil traders for delivery of future production at specified prices, deferred revenue is recorded and the
liability reduced as oil is delivered.
Where advances are made for future production and the financing component of such transactions is material, a finance charge is recorded based
on the market rate of interest.
No trade receivables or accrued income was applicable at year end (2019: $Nil).
56
Notes to the Financial Statements (continued)
4 Operating (loss)/income
Group operating (loss)/income for the year has been arrived after charging:
Staff costs (note 6)
Depreciation of property, plant and equipment (note 12)
Auditors’ remuneration (note 5)
Share based payment remuneration (note 6)
Expected credit loss provision against amount due in respect of 3A Best (note15)
Reversal of impairment (notes 11 and 12)
5 Group Auditor’s remuneration
Fees payable by the Group to the Company's auditor BDO and its member firms in respect of the year:
Fees for the audit of the annual financial statements
Audit related services
Other services – tax related
Fees payable by the Group to Grant Thornton and its associates in respect of the year:
Group
2020
US$’000
(1,256)
(1,688)
(188)
(22)
(2,551)
-
Group
2019
US$’000
(1,420)
(148)
(196)
(31)
-
2,414
Group
2020
US$’000
Group
2019
US$’000
146
5
9
160
Group
2020
US$’000
28
28
153
9
8
170
Group
2019
US$’000
26
26
Auditing of accounts of subsidiaries of the Company
6 Employees and Directors
Staff costs during the year
Wages and salaries
Social security costs
Pension costs
Share-based payments
Group
2020
US$’000
Company
2020
US$’000
Group
2019
US$’000
Company
2019
US$’000
1,256
56
83
22
1,417
432
-
-
22
454
1,420
76
90
31
1,617
590
12
-
31
633
Payroll expenses were capitalized in the amount of US$8,275 (2019: US$185,500) and expensed as cost of sales in
the amount of US$258,510 (2019: US$ $109,315).
Average monthly number of people employed
(including executive Directors)
Group
2020
Company
2020
Group
2019
Company
2019
Technical
Field operations
Finance
Administrative and support
Directors’ remuneration
Director’s emoluments
Share-based payments
9
145
8
19
181
-
-
2
2
4
11
47
9
16
83
Group
2020
US$’000
643
22
665
1
-
2
2
5
Group
2019
US$’000
729
25
754
57
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$312,000 (2019: US$425,289).
7 Finance cost
Loan interest payable
Unwinding of discount on BNG licence payment provision (note 20)
Unwinding of discount on provisions (note 20)
8 Finance income
Interest income at BNG LLP and KC Caspian
9 Taxation
Analysis of charge for the year
Current tax charge
Deferred tax charge (note 23)
(Loss) / Profit before tax
Tax on the above at the standard rate of corporate income tax in the UK 19% (2019: 19%)
Effects of:
Non-deductible expenses
Withholding tax on interest expense
Utilization of tax losses not previously recognized
Unrecognised tax losses carried forward
Group
2020
US$’000
368
685
14
1,067
Group
2020
US$’000
20
Group
2020
US$’000
1,748
-
1,748
Group
2020
US$’000
(1,745)
(332)
-
1,748
(1,070)
1,402
1,748
Group
2019
US$’000
82
368
2
452
Group
2019
US$’000
-
Group
2019
US$’000
1,860
483
2,343
Group
2019
US$’000
941
179
1,183
1,860
(1,888)
1,009
2,343
10 Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the income/(loss) attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the year including shares to be issued.
There is no difference between the basic and diluted loss per share as the Group made a loss for the current and prior year. Dilutive potential
ordinary shares include share options granted to employees and directors where the exercise price (adjusted according to IAS33) is less than the
average market price of the Company’s ordinary shares during the period.
The calculation of earnings/(loss) per share is based on:
The basic weighted average number of ordinary shares in
issue during the year
The earnings / (loss) for the year attributable to owners of the parent from continuing operations
(US$’000)
The loss for the year attributable to owners of the parent from discontinued operations (US$’000)
2020
2019
1,871,288,151
1,824,955,952
(3,413)
-
(1,278)
-
There were 2,500,000 potentially dilutive instruments in the year (2019: 3,000,000).
58
Notes to the Financial Statements (continued)
11 Unproven oil and gas assets
COST
Cost at 1 January 2019
Additions
Sales from test production net of costs of sales
Acquisitions (note 21)
Reclassification to PP&E
Foreign exchange difference
Cost at 31 December 2019
Additions
Sales from test production net of cost of sales
Foreign exchange difference
Cost at 31 December 2020
ACCUMULATED IMPAIRMENT
Accumulated impairment at 1 January 2019
Reclassification to PP&E
Foreign exchange difference
Accumulated impairment at 31 December 2019
Foreign exchange difference
Accumulated impairment at 31 December 2020
Net book value at 1 January 2019
Net book value at 31 December 2019
Net book value at 31 December 2020
Group
US$’000
68,488
8,886
(5,466)
11,293
(12,000)
(1,507)
69,694
1,520
(149)
(173)
70,892
Group
US$’000
12,801
(2,414)
(733)
9,654
(175)
9,479
55,687
60,040
61,413
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 2020 were as follows: 3A Best-Group JSC US$11,521,000 (2019:
US$ 12,666,000) and BNG Ltd LLP US$49,892,000 (2019: US$47,374,000).
The Directors have carried out an impairment review of these assets on a cost pool level as detailed in note 2.1.
A previous impairment provision amount of US$12,068.000 (US$ 9,654,000 net of deferred tax) was partly reversed in 2019. The reversal of
US$ 2,414.000 has been made by the means of reclassification to proved oil and gas assets in 2019. At 31.12.2020 the balance of accumulated
impairment was US$ 9,479,000 (see note 2).
59
Notes to the Financial Statements (continued)
12 Property, plant and equipment
Following the commencement of commercial production in July 2019 the Group reclassified part of BNG assets from unproven oil and gas
assets to proven oil and gas assets.
Group
Cost at 1 January 2019
Additions
Transferred from unproved oil and gas assets
Additions to Proved O&G assets related to BNG licence
payment provision
Reversal of impairment (note 11)
Disposals
Foreign exchange difference
Cost at 31 December 2019
Additions
Acquisitions (Caspian Explorer) (note 22)
Foreign exchange difference
Cost at 31 December 2020
Depreciation at 1 January 2019
Charge for the year
Disposals
Foreign exchange difference
Depreciation at 31 December 2019
Charge for the year
Foreign exchange difference
Depreciation at 31 December 2020
Net book value at:
01 January 2019
31 December 2019
31 December 2020
Proved
oil and gas
assets
US$’000
-
564
12,000**
28,335***
2,414
-
5
43,318
1,366
-
(962)
43,722
-
Motor
Vehicles
Other
Total
US$’000
US$’000
US$’000
56
-
-
-
-
-
-
56
-
-
-
56
31
266
8,071*
-
-
-
(3)
-
8,334
19
2,837
(13)
11,177
203
322
8,635
12,000
28,335
2,414
(3)
5
51,708
1,385
2,837
(975)
54,955
234
130
-
-
130
1,230
30
8
-
-
39
8
-
10
(3)
3
213
450
10
148
(3)
3
382
1,688
40
1,390
47
673
2,110
-
43,188
42,332
25
17
9
63
8,121
10,504
88
51,326
52,845
*$7,966,000 of $8,071,000 relate to the acquisition during 2019 of drilling rigs and other fixed assets. The Group acquired the drilling rigs
in September 2019 with 58,333,333 shares issued as consideration with the assets recorded based on the market price of the shares issued.
**$12,000,000 – the amount of O&G assets transferred from Unproven O&G to Proved O&G assets at BNG asset for the MJF structure.
Refer to note 2.
*** Refer to notes 20 and 2 for details.
60
Notes to the Financial Statements (continued)
13
Investments (Company)
Investments
Cost
At 1 January 2019
Increase in investments
At 31 December 2019
Increase in investments
Reclassification related to intercompany restructuring
At 31 December 2020
Impairment
At 31 December 2019
Impairment
At 31 December 2020
Net book value at:
31 December 2019
31 December 2020
Company
US$’000
276,239
11,795
288,034
3,666
(66,259)
225,441
-
64,253
145,701
209,954
223,781
15,487
During 2020 the Company acquired 100% interest at Caspian Explorer for US$3,666,000 by means of issuing the Company’s shares. The
carrying value of the investments has been assessed by the Directors including the fair value associated with the asset (please see note 22 for
the transaction details).
During 2020 the Group simplified its intragroup loans as follows: (i) the Company acquired Eragon Petroleum Limited’s long term receivable
of $18.9m due from BNG Ltd LLP in exchange for a loan payable to Eragon Petroleum Limited; (ii) the Company’s long term receivables
from BNG Ltd LLP were transferred to Eragon FZE in exchange for a receivable from Eragon FZE; (iii) Eragon UK declared a dividend of
$49.3m to Caspian Sunrise plc which it settled by offset against receivables due from Caspian Sunrise (see note 18). The receivable from
Eragon FZE is repayable on demand but is classified as long term because this reflects the expected timing of actual funds flow. As part of
the restructuring US$ 66m at the Company’s standalone accounts were reclassified from the investments to the receivables from subsidiaries
(note 15).
The directors review the investments recoverability on a regular basis, together with the associated future cash flows of each company. During
2020 the reduction in the Group’s market capitalisation was considered an impairment trigger. The discount rate used for the assessment was
15%, which the Directors believe to appropriate in the circumstances. Based on this assessment the Company considers that the carrying
value of the investments may not be fully recoverable as the subsidiaries may not generate sufficient future profits and accordingly, these
amounts have been impaired. The Company recorded an impairment in relation to the investments of $145.7m as at 31 December 2020 (2019:
nil).
During 2019 the Company acquired 100% interest at 3A-Best group JSC for US$11,975,000 by means of issuing the Company’s shares. The
carrying value of the investments has been assessed by the Directors including consideration of the discounted cash flows associated with the
proven oil and gas assets, underlying BNG and 3A-Best contract area progress and the continued exploration value of the assets.
61
Notes to the Financial Statements (continued)
13
Investments (Company, continued)
Direct investments
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December
2020
Effective holding and
proportion
of voting
rights held
at 31 December 2019
Registered
address
Nature
of business
Eragon Petroleum Limited
United Kingdom
100%
100%
Eragon Petroleum FZE
Dubai
100%
100%
Beibars BV
Netherlands
100%
100%
Ravninnoe BV
Netherlands
100%
100%
Roxi Petroleum Kazakhstan LLP
Kazakhstan
100%
100%
Indirect investments held by Eragon Petroleum Limited
5 New Street
Square
London
EC4A 3TW
Holding
Company
CN-135789, Jebel
Ali, Dubai, UAE
Management
Company
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
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December 2020
Effective holding
and
proportion
of voting
rights held
at 31 December 2019
Registered address
Nature
of business
Galaz Energy BV
Netherlands
100%
100%
BNG Energy BV
Netherlands
100%
100%
BNG Ltd LLP
Kazakhstan
99%
99%
3A-Best Group JSC Kazakhstan
100%
100%
CTS LLP
Kazakhstan
100%
100%
Prosperity Petroleum Ltd*
UAE
100%
-
KC Caspian LLP*
Kazakhstan
100%
100%
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
Holding
Company
Holding
Company
152/140 Karasay
Batyr Str., Almaty,
Kazakhstan
Oil Production
Company
152/140 Karasay
Batyr Str., Almaty,
Kazakhstan
Exploration
Company
152/140 Karasay
Batyr Str., Almaty,
Kazakhstan
Drilling &
Service Company
CN-135789, Jebel
Ali, Dubai, UAE
Management
Company
152/140 Karasay
Batyr Str., Almaty,
Kazakhstan
Drilling Vessel
owner
62
13
Investments (Company, continued)
*During 2020 the Company has acquired 100% interest in Prosperity Petroleum Ltd and KC Caspian LLP, the companies owing
submersible drilling vessel (pls see note 22 for details).
During 2019 Eragon Petroleum FZE has established the subsidiary with100% interest: Caspian Technical Services LLP (CTS LLP). The
main activity of the new subsidiary is drilling services for the companies of the group.
Indirect investments held by Beibars BV
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December 2018
Effective holding and
proportion
of voting
rights held
at 31 December
2017
Registered address
Nature
of business
Beibars Munai LLP
Kazakhstan
50%
50%
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.
63
Notes to the Financial Statements (continued)
14 Inventories
Materials and supplies
15 Other receivables
Amounts falling due after one year:
Prepayments made
VAT receivable
Intercompany receivables (note 13)
Amounts falling due within one year:
Prepayments made
Other receivables*
Group
2020
US$’000
392
392
Group
2019
US$’000
384
384
Group
2020
Group
2019
Company
2020
US$ ‘000
US$ ‘000
US$ ‘000
Company
2019
US$’000
435
3,811
-
4,246
2,187
4,008
6,195
2,459
3,286
5,745
1,159
4,504
5,663
-
53
89,212
89,265
9
-
9
-
69
10,635
10,704
7
-
7
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.
*US$1,275,000 out of US$4,008,000 (2019: US$3,826,000) at Other receivables of the Group accounts represent the amounts reimbursable
by the vendors of 3A Best under the indemnities provided on acquisition of the exploration asset (note 21). At 31.12.2020 the amount is shown
net of provision for expected credit losses: during 2020 the amount has been impaired on US$2,551,000 or 2/3 of the originally recognised
due to the uncertainty of the 100% recoverability the receivable in future periods.
The current intercompany receivables bear interest rates between LIBOR + 2% and LIBOR + 7%.
Inter-company receivables has been assessed for expected credit losses considering factors such as the status of underlying licenses, reserves,
financial models and future risks and uncertainties. The provision substantially refers to balances considered credit impaired. Inter-company
receivables from the subsidiaries in the table above are shown net of provisions of US$19.9 million (2019: US$12.9 million). The movement
in the expected credit loss provision related to the inter-company receivables was as follows:
Denomination
As at 1 January
Charge
As at 31 December
Group
2020
US$’000
-
-
-
Group
2019
US$’000
-
-
-
Company
2020
US$’000
12,913
6,999
19,912
Company
2019
US$’000
12,212
701
12,913
The Company recognised US$ 6,999,000 of expected loss on provisions in relation to its receivables from subsidiaries in 2020 (2019: loss of
US$ 701 thousand).
64
Notes to the Financial Statements (continued)
16 Cash and cash equivalents
Cash at bank and in hand
Group
2020
US$’000
329
Group
2019
US$’000
4,060
Company
2020
US$’000
3
Company
2019
US$’000
87
Funds are held in US Dollars, Sterling and Kazakh Tenge 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.
Denomination
US Dollar
Sterling
Kazakh Tenge
17 Called up share capital
Group and Company
Balance at 1 January 2019
Share options exercised
Acquisition of 100% interest at 3A Best-Group JSC
(note 21)
Equipment bought during 2019 (note 11)
Balance at 31 December 2019
Shares issued to the directors to repay salary debts*
Shares issued in exchange of £1m cash**
Acquisition of 100% interest at KC Caspian Explorer
(note 22)
Balance at 31 December 2020
Group
2020
US$’000
292
2
35
329
Group
2019
US$’000
3,842
-
218
4,060
Number
of ordinary
shares
1,670,873,820
4,200,000
149,253,732
58,333,333
1,882,660,885
8,938,570
36,363,629
160,256,410
2,088,219,494
US$’000
25,416
56
1,919
729
28,120
112
477
2,095
30,804
Company
2020
US$’000
1
2
-
3
Number
of deferred
shares
373,317,105
-
-
-
373,317,105
-
-
-
373,317,105
Company
2019
US$’000
87
-
-
87
US$’000
64,702
-
-
-
64,702
-
-
-
64,702
Caspian Sunrise Plc has authorised share capital of £100,000,000 divided into 6,640,146,055 ordinary shares of 1p each and 373,317,105
deferred shares of 9p each.
* On 6 July 2020 the Company has issued total 8,938,570 ordinary shares at 3.2 pence per share in settlement of outstanding salary and
expenses.
** On 4 August 2020 the Company raised £1 million through placing of 36,363,629 new ordinary shares to new and existing investors at an
issue price of 2.75 pence per share. The cash has entirely been spent on repayments to the Company creditors.
18 Trade and other payables – current
Trade payables
Taxation and social security
Accruals
Other payables
Intercompany payables
Advances received (deferred revenue)
Group
2020
US$’000
2,892
1,629
136
3,369
-
2,986
11,012
Group
2019
US$’000
1,384
1,813
282
4,368
-
6,989
14,836
Company
2020
US$’000
191
22
109
382
116
-
820
Company
2019
US$’000
575
22
172
364
30,678
-
31,811
As at 31 December 2020 and 31 December 2019, the Group received a significant amount of prepayments from the oil traders in r elation to
increasing production on the BNG oil field.
65
Notes to the Financial Statements (continued)
During 2020 the Group simplified its intragroup loans as follows: (i) the Company acquired Eragon Petroleum Limited’s long term receivable
of $18.9m due from BNG Ltd LLP in exchange for a loan payable to Eragon Petroleum Limited; (ii) the Company’s long term receivables
from BNG Ltd LLP were transferred to Eragon FZE in exchange for a receivable from Eragon FZE; (iii) Eragon UK declared a dividend of
$49.3m to Caspian Sunrise plc which it settled by offset against receivables due from Caspian Sunrise (see note 13).
.
18 Trade and other payables – non-current
Intercompany payables
Taxation
Group
2020
US$’000
-
13,648
13,648
Group
2019
US$’000
-
12,293
12,293
Company
2020
US$’000
Company
2019
US$’000
-
-
-
-
-
-
Taxation payable relate to withholding tax accrued on the interest expense at the BNG subsidiary level.
19 Short-term borrowings
Mr. Oraziman (a)
Fosco BV (b)
Other borrowings (c)
Group
2020
US$’000
3,624
672
1,304
5,600
Group
2019
US$’000
2,288
661
1,101
4,050
Company
2020
US$’000
777
-
1,292
2,069
Company
2019
US$’000
727
-
1,087
1,814
a) At the start 2019 Eragon Petroleum FZE, a wholly owned subsidiary, had an outstanding loan of US$ 913,000 from Kuat Oraziman. Caspian
Sunrise had an outstanding loan of US$ 400,000 from Kuat Oraziman. During 2019 Mr. Oraziman provided an additional US$300,000 to
Caspian Sunrise. The total balance of these loans as at 31 December 2019, including the accrued interest, was US$ 1,704,000. Additionally,
during 2019 a loan due from Roxi Kazahstan LLP to KC Caspian Explorer, an entity controlled by Aibek Oraziman, was assigned to Kuat
Oraziman. The balance of the loan at 31 December 2020 was US$ 531,000 (2019: US$ 584,000).
During 2020 the companies of the Group accrued US$ 145,000 of interest on the existing loans. In addition Kuat Oraziman has provided
direct loans to the following subsidiaries: US$ 616,000 to CTS LLP, US$ 575,000 to BNG LLP. Both loans are not interest bearing and were
nominated in Kazakh tenge.
b) During July 2016 Fosco BV, a company controlled by Mr Oraziman, therefore a related party of the Group, provided an on demand loan
to BNG LLP in the amount of US$ 0.63 million. The loan is interest bearing with the rate of Libor+ 1%.
c) The total amount borrowed by the Group at 31 December 2020 US$1,304,000 (2019: US$1,101,000) was payable to Kuat Oraziman and a
legal entities controlled by Mr Oraziman. The loans are interest bearing with the rate of 7% and repayable during 2021.
During 2021 all the loans payable by the Group to Mr. Kuat Oraziman and the related companies have been assigned to Akku Investment
LLP, the company controlled by Oraziman family.
66
Notes to the Financial Statements (continued)
20 Provisions and contingencies
Group only
Balance at 1 January 2019
Increase in provision
Paid in the year
Unwinding of discount
Foreign exchange difference
Balance at 31 December 2019
Non-current provisions
Current provisions
Balance at 31 December 2019
Group only
Balance at 1 January 2020
Increase in provision
Change in estimate
Paid in the year
Unwinding of discount
Foreign exchange difference
Balance at 31 December 2020
Non-current provisions
Current provisions
Balance at 31 December 2020
BNG licence
payments*
Employee
holiday
provision
US$’000
US$’000
Liabilities under
Social
Development
Program and
historical cost
US$’000
Abandonment
fund
2019
Total
US$’000
US$’000
-
28,652
(1,626)
368
-
27,394
24,216
3,178
27,394
75
-
(75)
-
-
-
-
-
-
3,440
3,048
(339)
-
5
6,154
-
6,154
6,154
BNG licence
payments*
Employee
holiday
provision
US$’000
US$’000
Liabilities under
Social
Development
Program and
historical cost
US$’000
27,394
-
-
(3,014)
685
-
25,065
21,887
3,178
25,065
-
-
-
-
-
-
-
-
-
-
6,154
-
-
-
-
(181)
5,973
-
5,973
5,973
125
450
-
2
1
578
428
150
578
Abandonment
fund
3,640
32,150
(2.040)
370
6
34,126
24,644
9,482
34,126
2020
Total
US$’000
US$’000
578
91
(81)
-
14
(45)
557
413
144
557
34,126
91
(81)
(3,014)
699
6
31,595
22,300
9,295
31,595
*The subsoil use contract held by BNG Ltd for the Yelemes field stipulates that it must make a payment to the Kazakhstan Government upon
award of a production contract after commercial feasibility. The Kazakhstan Government has assessed the amount payable as a total of
US$32.5m. The sum is paid on a quarterly basis from 1 July 2019 in equal instalments and the final payment is due to be paid on 1 April 2029.
The payments have been discounted to their net present value. This discounted value has been capitalised as Property, plant and equipment
(note 11) and will be amortised over the productive period. Any changes in estimated payments and discount rate are dealt with prospectively
and result in a corresponding adjustment to property plant and equipment. The Group is currently contesting the value of the amount assessed.
Amounts in relation to Subsoil Use Contracts are included in the table above and relate to the licence areas disclosed below:
a) 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. On 23 September 2016 addendum No.11 was signed that reduced the penalties for non-
fulfilment of the contractual obligations from 30% to 1%. On 20 December 2017 BNG Ltd LLP signed addendum No.12 where amended its
contractual obligations increasing the minimal work program for 2016-2018 from US$16.5 million to US$21.5 million. All other obligations,
including social obligations, remained the same. In June 2018 BNG Ltd LLP signed the Addendum No.13 with the Ministry of Energy for the
6 years appraisal period on the BNG oilfield until June 2024.
67
Notes to the Financial Statements (continued)
20 Provisions and contingencies (continued)
In accordance with the terms of the addendum #13, BNG Ltd LLP remains committed to the following:
• For the six-year appraisal period US$238,000 per annum should be invested in the social development of the region starting from January
2019;
• To fund minimum cumulative work program during the appraisal period of US$ 28,103,000
•
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.
The license commitments are established for the license term as a whole, with annual schedules contained therein under the li cense. Should
the company have unfulfilled commitments or outstanding payments under social programs, a 1% penalty is applied until the commitments
are fulfilled. Refer to table above. During 2020, certain work programme obligations at the BNG Contract Area were deferred from 2020 to
2021. While we are yet to fully comply with both the BNG work programme commitments and payment of the social obligations, given the
issues imposed by Covid-19, the Board are not unduly concerned about any impact on the BNG licence given the penalties can be applied
until the commitments are fulfilled and the absence of a significant noncompliance.
On 11 July 2019, BNG Ltd LLP has signed the Production contract with the Ministry of Energy of Republic of Kazakhstan on the part of the
territory. The Contract is valid during 25 years till 2043.
b) 3A-Best Group JSC
As at 31.12.2019 3A-Best had the following debts related to its SSU contract: US$2,500,000 of social development payment and about $US
1,000,000 of the debts related to previous years’ work program obligations. According to the Addendum #8 to the Contract signed by the
company on January 20 2020 3A-Best has agreed the following schedule of payments related to the social development and the work program
related to previous SSUC extension(s):
• To make payment of US$580,000 quarterly during 6 quarters till June 2021;
• To drill 2 shallow wells with the total depth of 5,750 meters during the period January-June 2020;
• To make investments of approximately US$2,350,000 during the period January-June 2020.
According to the SPA related to the acquisition of 3A-Best the Company has been indemnified by the previous owners from any previous
debts (quarterly payments of US$580,000 to discharge the historic obligations) and they guaranteed to make repayments on a timely basis.
The Group is responsible for the work program obligations agreed with the Ministry of Energy of Kazakhstan for the period January-June
2020 (US$2,350,000). The Group is not in compliance with these work program obligations. The Group has applied for a deferral of the
amounts due and work program commitments during 2020. On the date of this report the Group is still negotiating the payments schedule
with the Ministry and local officials.
The recent farm-out of 15% of the 3A Best Contract Area is expected to provide the funding required to bring the work programme into
compliance. The Group continues to pursue the 3A Best vendors for the historic amounts due.
Contingent liabilities
A subsidiary of the Group is subject to an open tax assessment in respect of the 2012 tax year. The Group has taken professional advice and
continues to dispute the assessment. If the Group is unsuccessful in defending its position, the amount payable based on the assessment would
be US$2 million plus potential fines and penalties. The assessment involves interpretation of contractual arrangements between companies in
the Group. The matter is considered to represent an uncertain tax position under IFRS and management have determined that the most likely
outcome method of measurement is most appropriate. Based on professional advice, the development of the matter over several years and all
relevant facts and circumstances no provision is considered to be applicable.
68
Notes to the Financial Statements (continued)
21 Purchase of 3A-Best Group JSC
On 21 January 2019, the Company acquired 100% of the shares of 3A-Best Group JSC, a company that owns a 1,347 sq km Contract
Area located close to the Caspian port city of Aktau in the Mangystau Province of Kazakhstan.
The purchase price is satisfied by the issue of 149,253,732 new Companies shares at the price of 6.15 p per share, that represents closing
price of Company's shares at the date the SPA was signed and the substantive conditions had been met such that control passed to the
Company, notwithstanding delays in the shares of 3A-Best being legally transferred to the Company and associated issuance of the
Company's shares in consideration owing to procedural delays. Management have analysed the structure of the transaction and the
underlying activities and concluded that the transaction represents an asset purchase.
The fair value of the identifiable assets and liabilities of 3ABest as at the date of acquisition were:
Exploration assets
Receivable from sellers recognized in other non-current
receivables*
Other non-current receivables
Total assets
Current contractual provisions
Other payables related to contractual obligations
Total liabilities
Total identifiable net assets at fair value
Total value of shares issued as consideration
Additional fair value recorded to unproven oil and gas assets
US$'000
6,404
3,826
502
10,732
2,906
920
3,826
6,906
11,795
4,889
* Based on the terms of SPA previous owners of 3A-Best must compensate the Group for all contractual obligations of 3ABest incurred in
the period up to SPA sign off date under an indemnification in the SPA. Therefore, the Group has recognized the receivable equal to the
contractual provisions and other payables related to the contractual obligations in the completion date balance sheet. The Group assessed the
receivable for expected credit losses, considering scenarios around the probability of default by one or more of the vendors and concluded no
expected credit loss is applicable as 31 December 2019.
69
Notes to the Financial Statements (continued)
22 Purchase of Caspian Explorer
On 19 October 2020 the Company announced the completion of the transaction to acquire Caspian Explorer, the entities (Prosperity
Petroleum Limited and KC Caspian Explorer LLP) owing a drilling vessel that designed to operate in the shallow waters of
the northern Caspian Sea. The consideration has been satisfied by the issue of 160,256,410 new Caspian Sunrise shares at a price of
1.75p per share (the "Consideration Shares"). The acquisition was approved by independent shareholders in February 2020. Management
has analysed the structure of the transaction and the underlying activities and concluded that the transaction represents an asset purchase.
The fair value of the identifiable assets and liabilities of Caspian Explorer as at the date of acquisition were:
Property, Plant and Equipment
Other non-current assets
Other current assets*
Total assets
Trade and other payables
Total liabilities
Total identifiable net assets at fair value
Total value of shares issued as consideration
US$'000
2,837
96
833
3,776
100
100
3,666
3,666
* US $ 530,000 of this amount was receivable from EPC-Munai LLP at the date of acquisition, the related party to the Company (note 26.1).
23 Deferred tax
Deferred tax liabilities comprise:
Deferred tax on exploration and evaluation assets acquired
Group
2020
US$’000
6,629
6,629
Group
2019
US$’000
7,244
7,244
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
Deferred tax related to impairment reversal
Foreign exchange
Group
2020
US$’000
7,244
-
(615)
6,629
Group
2019
US$’000
6,733
483
28
7,244
As at 31 December 2020 the Group has accumulated deductible tax expenditure related to BNG expenditure of approximately US$85 million
(31 December 2019 US$89 million) available to carry forward and offset against future profits. This represents an unrecognised deferred tax
asset of approximately US$17 million (31 December 2019: US$17.8 million). Given the uncertainties regarding such deductions and the
developing nature of the relevant tax system no deferred tax asset is recorded. Beibars have tax losses carried forward of US$5.1 million (31
December 2019: US$5.1 million). This asset is fully impaired and there is insufficient certainty of future profitability to utilise these
deductions.
70
Notes to the Financial Statements (continued)
24 Share option scheme and LTIP 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 three equal tranches over the three 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
As at 31 December 2019
Directors
Employees and others
As at 31 December 2020
91,458,226
-
-
91,458,226
(55,818,226)
(1,000,000)
(2,950,000)
(59,768,226)
(15,300,000)
-
-
(15,300,000)
20,340,000
(1,000,000)
(2,950,000)
16,390,000
16,390,000 outstanding options as at 31 December 2020 are exercisable.
Weighted
average
exercise price
in pence (p)
per share
15
-
-
15
The range of exercise prices of share options outstanding at the yearend is 4p – 20p (2019: 4p – 20p). The weighted average remaining
contractual life of share options outstanding at the end of the year is 2.9 years (2019: 4.3 years).
Long Term Incentive Plan (LTIP) scheme:
On 5 June 2019 the Company made awards under a long term incentive plan. Clive Carver, Non-executive Chairman, and Kuat Oraziman,
Chief Executive Officer, are entitled to receive cash payments to be triggered by the Company's attainment of both pre-set market capitalisation
and share price targets as follows:
Market cap threshold
$ billion
Share price target
Pence per share
Pay-out rate (each)
%
Pay-out amount (each)
$' million
0.8
1.3
1.8
2.3
2.8
17.23
20.67
24.81
29.77
35.72
0.6
0.6
0.6
0.6
0.6
3.0
3.0
3.0
3.0
3.0
The scheme continues beyond the numbers in the table such that with the threshold for market capitalisation increasing at the rate of $0.5
billion and the corresponding share price threshold increasing from the earlier threshold by a constant factor of 1.2. Each threshold must be
sustained for at least 30 consecutive days for the awards to be triggered. Payments shall be made only when the Company has free cash either
in the form of distributable reserves or as a result of a non interest bearing subordinated shareholder loan or an equity placing at a price not
below the relevant share price threshold.
There may be only one pay-out for each market capitalisation threshold crossed no matter how many times it is crossed.
The Group has determined that at inception and 31 December 2019 and 2020, the fair value of the cash settled share based payment award is
immaterial based on analysis of the thresholds, historical volatility rates and the applicable share price and market capitalisation in the period.
71
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
Intercompany receivables
Other receivables
Restricted use cash
Cash and cash equivalents
Financial liabilities
Trade and other payables
Other payables - current
Other payables - non-current
Borrowings – current
Group
2020
US$’000
Group
2019
US$’000
Company
2020
US$’000
Company
2019
US$’000
-
4,008
241
329
4,625
-
4,504
241
4,060
4,979
89,212
-
-
3
10,635
-
-
87
96,504
10,722
Group
2020
US$’000
Group
2019
US$’000
Company
2020
US$’000
Company
2019
US$’000
6,397
-
-
5,600
6,634
-
-
4,050
11,998
10,656
682
117
-
2,069
2,868
1,111
13,115
17,563
1,814
33,603
72
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management (continued)
Changes in liabilities arising from financial activities
Below is the movement of financial liabilities of the Group for the years ended 31 December 2020 and 2019:
1 January
2020
Loans
received
Interest
accrued
Disposal of
loans
Repayment
Foreign exchange
difference, net
31 December
2020
Financial
liabilities
Borrowings
4,050
1,237
313
-
-
-
5,600
1 January
2019
Loans
received
Interest
accrued
Disposal of
loans
Repayment
Foreign exchange
difference, net
31 December
2018
Financial
liabilities
Borrowings
2,572
1,330
160
-
(28)
3
4,050
Below is the movement of financial liabilities of the Company for the years ended 31 December 2020 and 2019:
1 January
2020
Loans
received
Interest
accrued
Disposal of
loans
Repayment
Foreign exchange
difference, net
31 December
2020
Financial
liabilities
Borrowings
1,814
134
121
-
-
-
2,069
1 January
2019
Loans
received
Interest
accrued
Conversion to
equity
Repayment
Foreign exchange
difference, net
31 December
2018
Financial
liabilities
Borrowings
400
1,330
84
-
-
-
1,814
73
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management (continued)
Principal financial instruments
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
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
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet which at the year end
amounted to US$ 4.6 million (2019: US$ 8.8 million).
Credit risk with respect to Group receivables and advances is mitigated by active and continuous monitoring the credit quality of its
counterparties through internal reviews and assessment.
The Company is exposed to credit risk on its receivables from its subsidiaries. The subsidiaries are exploration and development companies
with no current commercial exploitation sales and therefore, whilst the receivables are due on demand, they are not expected to be paid until
there is a successful outcome on a development project resulting in commercial exploitation sales being generated by a subsidiary. In
application of IFRS 9 the Company has calculated the expected credit loss from these receivables (Note 15).
The carrying amount of financial assets recorded in the Group and Company financial statements, which is net of any impairment losses,
represents the Group’s and Company’s maximum exposure to credit risk.
Credit risk with cash and cash equivalents is reduced by placing funds with banks with high credit ratings.
74
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management (continued)
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 2020 was 10% (2019: 9%).
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 2020 and 2019 see table below. The amounts are contractual payments and may
not tie to the carrying value:
Group 2020 US$’000
Group 2019 US$’000
Company 2020 US$’000
Company 2019 US$’000
Interest rate risk
On
Demand
Less than
3 months
3-12
months
1- 5 years
Over 5
years
5,600
4,050
2,069
1,814
2,891
1,384
681
575
3,506
5,222
117
536
-
-
-
-
-
-
-
30,678
Total
11,997
10,656
2,867
33,603
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.
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 curr ency 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.
The Group and Company are 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$40
million (2019: US$49 million) that would be reflected in other comprehensive income. The impact of such a devaluation on the translation
of monetary assets and liabilities (predominantly intercompany loans) held in Kazakhstan and denominated in non-Tenge currencies would
be exchange losses recorded in the statement of changes in equity of US$40 million (2019: US$49 million).
75
Notes to the Financial Statements (continued)
26 Related party transactions (please see also note 27)
The Company has no ultimate controlling party.
26.1
Loan agreements
The Company has loans outstanding as at 31 December, 2020 and 2019 with members of the Oraziman family and legal entities controlled by
the Oraziman family, details of which have been summarised in note 199.
At 31.12.2020 KC Caspian Explorer LLP, the group 100% subsidiary, had at its list of receivables the interest free loan provided to EPC-
Munai LLP on the amount of US $530,000. EPC-Munai is the company controlled by Oraziman family.
26.2
Key management remuneration
Key management comprises the Directors and details of their remuneration are set out in note 6.
* On 6 July 2020 the Company has issued total 8,938,570 ordinary shares at 3.2 pence per share in settlement of outstanding salary and
expenses.
26.3
3A Best
At 31 December 2020, three Caspian Sunrise shareholders owed US$ 1,275,000 each in respect of indemnities provided on the acquisition of
3A Best. During 2020 the Group recognised a credit loss provision of US $2,551,000 related to the asset (note 15). The liability of one of the
shareholders, the late Rafik Oraziman, is covered by amounts due by the Company to the Oraziman family. The Company continues to work
with the other two shareholder to recover the amounts due but in these financial statements has provided in full for the amounts due.
26.4
Caspian Explorer
The purchase of the Caspian Explorer and 3A Best (note 22) was from vendors including members of the Oraziman family.
26.5
Purchases
During 2019 the Group had purchased drilling and workover services from the related party KazSmartEnerKon LLP, a company registered in
Kazakhstan, which was owned by Mr. Kuat Oraziman, amounted US$ 3 million. These expenses were capitalized to unproven oil and gas
assets. At 31.12.2020 the Group has no payable and receivable from KazSmartEnerKon LLP in relation to these drilling services.
27 Non-controlling interest
Balance at the beginning of the year
Share of loss for the year
Group
2020
US$’000
(5,729)
(80)
(5,809)
Group
2019
US$’000
(5,605)
(124)
(5,729)
As at 31 December 2020 non-controlling interest represents minority share in BNG Ltd LLP and Beibars Munai LLP (as at 31 December
2019: BNG Ltd LLP and Beibars Munai LLP).
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Notes to the Financial Statements (continued)
28 Events after the reporting period
Issue of shares
On 13 May 2021 the Company has issued 3,017,956 ordinary shares at the price of 2.35p per share to satisfy a non-related party existing debt.
3A-Best farm-out
On 3 June 2021, the Group announced that Eragon Petroleum FZE, its 100% subsidiary, has entered into a farm out agreement with a local
partner under which that partner has agreed to complete the outstanding work programme commitments in return for a 15% interest in the 3A
Best Contract Area conditional on the license extension.
The work in question is principally the drilling of a 2,250 meter well at an expected approximate cost of $2.5 million.
The local partner has also been granted an option, exercisable after the completion of the current work programme commitments, to acquire
the remaining 85% of the 3A Best Contract Area at a price to be determined by an independent expert to be appointed by the parties should
the option be exercised by the local partner.
Caspian Explorer
Also on 3 June 2021, the Group announced the first charter for the Caspian Explorer, the shallow water drilling vessel acquired in 2020 and
specialising in operations in the shallow northern Caspian Sea.
The charter is with North Caspian Operating Company (“NCOC”) the principal operator in the region, comprising the Republic of Kazakhstan
working through KazMunaiGas (KMG), and international oil companies including Shell, ExxonMobil, Eni, Total and CNPC, the consortium
operating the Kashagan field.
The charter, which will be undertaken this year, is safety related rather than new drilling. Accordingly the period of the charter is shorter than
for a new drill and the fee much lower.
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