Company number: 05966431
Caspian Sunrise plc
Annual report and financial statements
for the year ended 31 December 2021
1
CONTENTS
Chairman’s Statement
Financial Review
Our Oil & Gas Assets
Licences, Work programme & Reserves
Caspian Explorer
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 auditor’s 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
4
8
11
14
15
16
17
18
21
24
26
34
36
37
45
46
47
48
49
50
51
52
2
DIRECTORS, REGISTERED OFFICE & ADVISERS
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
Registered Office
and Business address
5 New Street Square,
London EC4A 3TW
Company Number
05966431
ADVISERS
Nominated Adviser
and Broker
WH Ireland Limited,
24 Martin Lane, London, EC4R 0DR
Solicitors
Auditor
Share Registrar
Principal Banker
Taylor Wessing LLP,
5 New Street Square, London EC4A 3TW
BDO LLP,
55 Baker Street, London, W1U 7EU
Link Asset Services,
6th Floor, 65 Gresham Street, London, EC2V 7NQ
Barclays Bank,
1 Churchill Place, London, E14 5HP
3
CHAIRMAN’S STATEMENT
Introduction
Our company has come through a difficult period in good shape and is set to prosper in the coming years.
We are producing record amounts of oil and selling it at prices greater than at any time since we commenced
production. Debt has been paid down or converted to equity and we expect to declare our first dividend later this
year. Further, by the end of 2022 we expect to have completed all the mandatory BNG work programme
commitments.
With international oil prices well above $100 per barrel the position is a world away from 2020, when we faced $16
per barrel and limited interest in our oil. Over the same period the domestic price of oil has increased from
approximately $6 per barrel to approximately $25 per barrel.
Russian sanctions
As with much of Kazakh oil production our oil is transported to international markets via the Russian pipeline
network, emerging as “Urals Oil” as our oil was until very recently termed once mixed with Russian oil. While we
have not experienced any significant issues in delivering our oil, recent prices for Urals Oil have been some $25 -
$35 per barrel below Brent prices.
We firmly believe the Russian pipeline network will remain available to transport our Kazakh oil, however if that
were not to be the case, or if the discount to Brent of our oil significantly widens, we would seek alternative
distribution options avoiding Russia.
Other delivery destinations include China, Azerbaijan and Uzbekistan with each option involving additional
transportation costs. An alternative would be to sell all oil produced on the domestic market. A better alternative
would be to sell direct to one of the new mini refineries setting up in the region, which would eliminate a large part
of the transportation and delivery costs.
Our expectation however, is that through natural market arbitrage led by those countries not signed up to Russian
sanctions such as China, India and other Asian countries, the current discount will significantly reduce.
Also, with a new KEBCO designation for Kazakh oil and the EU confirming that Kazakh oil transported through the
Russian pipeline systems is not subject to any sanctions we expect to be able to sell oil to our international oil trader
partners in Kazakhstan at prices much closer to Brent.
We estimate the impact of the sanctions related Urals Oil discount to currently be of the order of $30 million per
annum based on current production volumes and prevailing international prices. Any reversal of the impact of the
Urals Oil discount would flow directly to revenues and a large portion to profits.
As Kazakh economy is closely linked to the Russian economy the value of the Kazakh Tenge could decline against
the dollar. While this would affect the price at which we account in US$ for oil sold domestically it would also reduce
the US$ reported operating costs incurred in Tenge, which account for approximately 50% of the Group’s total costs.
Strategy
To date
Since our IPO in 2007, the Group’s strategy has been to exploit oil & gas opportunities in Central Asia, focusing on
Kazakhstan where the management team has the most experience.
During that period we have successfully brought into production shallow structures at our flagship asset BNG. During
the same period we have completed four of the six deep wells required under the BNG Contract Area work programme
commitment, with a fifth well part drilled and the sixth underway and expected to complete in Q4 2022.
Going forward
Our focus will remain on exploiting oil and gas assets in Kazakhstan, in particular at our flagship BNG asset,
prioritising production from the shallow structures.
4
CHAIRMAN’S STATEMENT (CONTINUED)
While we will continue to look at early-stage projects, such as in 2008 when we acquired our interest in BNG, our
concentration will be on cashflow positive producing assets and for the right projects we would look beyond
Kazakhstan.
A decade ago we looked at alternative energy projects but concluded the returns then available did not match those
at BNG. The economics of alternative energy are now markedly better. We are therefore looking over time to become
a diversified energy group rather than one focused solely on oil. In particular we are looking at wind energy projects.
Operational Review
BNG
Horizontal drilling
A big positive in the period under review and subsequently has been the successful introduction of horizontal drilling
techniques.
Horizontal drilling has been used to improve the production of existing wells and will in the coming months be used
in new wells at both the MJF structure and at South Yelemes, where we believe significant volumes of oil may lie at
depths as shallow as 2,500 meters.
Shallow structures
All of the oil produced in 2021 was from the MJF structure. The production capacity at the MJF structure has
increased to 3,750 bopd, with seven wells producing and a further two wells planned before the year end, including
Well 141 which is due to re-enter production shortly following a horizontal drilling workover.
Following the award of the export status at the South Yelemes structure we have been able to re-open wells there,
which were shut in for the whole of 2021. The production capacity of these existing wells is approximately 300 bopd.
As noted above we plan to drill a new well at a depth of 2,500 meters exploiting horizontal drilling targeting oil in
the dolomite.
Our target with these new wells is as soon as possible to increase production capacity to 5,000 bopd solely from our
shallow structures.
Deep structures
The three deep wells drilled in previous years on the Airshagyl structure are Wells A5, A6 & A8. The existing deep
well on the Yelemes Deep Structure is Well 801.
Funding constraints in the period under review limited the work that we could undertake to bring these wells into
production. Little was achieved at Wells A5, A6 and 801. At Well A8, however we drilled from a depth of 4,500
meters to 5,400 meters identifying three oil bearing intervals covering in aggregate 140 meters.
Since the period end we perforated two of the three intervals identified as potentially oil bearing but neither flowed
oil at commercial quantities. The rig used at A8 has been reallocated to drill a shallow well on the MJF structure.
A7 is the fourth deep well to be drilled on the Airshagyl structure and the fifth in total. It was spudded in late December
2021 with a planned Total Depth of 5,300 meters targeting oil in the Carboniferous and the Devonian. Drilling reached
a depth of 2,150 meters before pausing to allow the rig to be used elsewhere.
The final deep well required under the BNG Work Programme commitment is Deep Well 802, which spudded in
June 2022, with a Total Depth of 5,300 meters and will target oil in the Carboniferous and the Devonian and an initial
target at a depth of 4,300 meters. At the date of this report drilling had reached 650 meters without incident.
Our approach to BNG
At BNG we have two proven and commercially viable shallow structures, MJF and South Yelemes, and two deep
structures Airshagyl and Yelemes Deep with huge potential but to date with no production.
As noted above our plan is to prioritise production from the shallow structures with a series of new wells and
workovers of existing wells.
5
CHAIRMAN’S STATEMENT (CONTINUED)
This does not mean we are moving away from the hugely prospective deep structures at BNG. We already have four
deep wells drilled to their total depths, a fifth part drilled and a sixth underway. This is the final deep well required
under the BNG work programme commitments, which are expected to be complete before the end of the year.
We continue to believe that the geological conditions at the super giant fields of Kashagan and Tengiz extend to the
BNG Contract Area. If this is the case the potential volume of oil in these deep structures is vast and the implications
on the Company’s fortunes of one or more commercial deep wells would be transformational. We remain committed
to bring as many as possible of these six deep wells into production. However, until we are successful in bringing at
least one of these six deep wells into production, it is unlikely we will drill any further deep wells at BNG.
Given the current high oil price and the relatively low risk opportunities on our shallow structures our focus is now
to maximise cashflow from production.
Own equipment
The move to own the drilling rigs and much of the other equipment previously rented has significantly improved
operational efficiency and reduced operating costs. The Covid-19 related prolonged closure of the Chinese / Kazakh
border and the sanctions on Russia have also underlined the importance of being self-reliant for rigs and drilling
consumables.
Since the period end we have acquired a further workover rig with the $750,000 consideration satisfied by the issue
of approximately 19 million new shares.
The impact of Covid-19
Although there were several periods when the Almaty office was closed following staff testing positive for Covid-
19, the impact on operations in the oilfields were far less pronounced than in 2020. More impactful was the Covid-
19 related closure of the Chinese / Kazakh border and the resultant sharp rise in the price of equipment and
consumables sourced from Russia. Happily, the Chinese / Kazakh border has reopened.
The impact of the drilling slow-down in 2020 became apparent in 2021 with no new wells coming on stream in the
first half of 2021, resulting in a 2% fall in the volume of oil produced for the year as a whole.
3A Best
There was little progress at 3A Best in the period under review or subsequently. The farm-out announced in June
2021 was conditional on the renewal of the 3A Best Licence. We continue to work with the Kazakh authorities to
renew the licence, following which we will assess its place within the Group. In the meantime, our investment in 3A
Best has been fully provided for.
Caspian Explorer
During the period under review the Caspian Explorer was chartered for a safety related contract by the North Caspian
Operating Company, the leading operator in the region. Daily rates for safety related work are much lower than for
drilling contracts but the income from the charter covered the Caspian Explorer’s costs for the year.
While we have serious interest in both safety related and drilling charters for 2023 no contracts have yet been signed,
although a tender has been submitted for a 2023 drilling programme. We have also received several early-stage
approaches to buy the Caspian Explorer.
Dividends
It has been our objective for some time to commence regular dividend payments. Not only will this reward
shareholders for their continued support it should also signal to the wider investment community that the Group has
moved to the next stage in its development.
We have worked to create sufficient distributable reserves to allow dividends to be paid. This required a formal
Capital Reduction to cancel the share premium account and the deferred shares to boost distributable reserves. The
Capital Reduction was approved by shareholders in April 2022 and approved by the UK High Court in June 2022.
In assessing the size and timing of any dividends the board will have regard to the matters disclosed in note 1.1, which
include the Group’s free cashflows and its existing and future financial commitments. The Board will also need to be
satisfied there are no additional adverse impacts from Russian sanctions.
6
CHAIRMAN’S STATEMENT (CONTINUED)
Based on their current assessment and subject to the points noted above the Board anticipates declaring the first
dividend later this year.
Board changes
On 4 March 2021 we were pleased to welcome Seokwoo Shin, Chief Operating Officer, to the Board as an executive
director. He worked for the Korean National Oil Corporation from 1987 until 2018 with spells in Korea, the United
Kingdom, Russia and most recently Kazakhstan, where he was responsible for KNOC’s Kazakh oil fields. He joined
Caspian Sunrise in 2018.
Employees
The Group currently employees 215 staff, including Directors, of whom 213 are based in Kazakhstan and split
principally between the corporate offices in Almaty and in the field.
Outlook
We look forward to further increasing production from the shallow structures at BNG.
Even at current prices and despite the Urals Oil discount the company is doing well, however, as noted above, we do
not expect the current discount for Urals Oil to apply to our oil for much longer. A drilling charter for the Caspian
Explorer in 2023 would also make a material difference to the Group’s trading. However, the greatest impact on the
value of our Company would be success at our BNG deep structures.
Clive Carver
Chairman
24 June 2022
7
FINANCIAL REVIEW OF THE 12 MONTHS ENDED 31 DECEMBER 2021
Revenue
Revenue in 2021 increased by approximately 75 per cent to approximately 25 million (2020: $14.3 million).
Oil prices
International export prices rose steadily from approximately $50 per barrel at the start of 2021 to approximately $77
per barrel by the year end. Over the same period domestic prices rose from approximately $6 per barrel to
approximately $25 per barrel.
Production volumes
Production volume in 2021 was at 533,857 barrels some 2.2% lower than in 2020, reflecting the limited investment
in workovers and new wells during the height of the Covid-19 restrictions in 2020.
International vs Domestic sales
The proportion of oil sold on the international market in 2021 was similar to that in 2020 as the export status at South
Yelemes was not received until late December 2021.
Gross profit
Gross profit increased by approximately 106 per cent to approximately $19.4 million (2020: $9.4 million), principally
as the result of the increase in the oil price.
Selling expenses
Selling expenses increased by approximately 94% at $7.6 million (2020: $3.9 million) and are mainly export and
customs duties, which are typically based on achieved oil prices.
Operating loss
The operating loss was $4.0 million (2020: $0.7 million) This includes a provision in respect of the carrying value of
3A Best of $12.5 million.
Other administrative expenses
The Board’s pay reductions introduced in 2020 continued through 2021 and throughout H1 2022, with the result that
in the period under review General and Administrative expenses fell a further 11% to $3.3 million (2020: $3.7
million).
Tax charge
The tax charge reduced to $0.7 million (2020: $1.8 million). and the reduction in the tax charge reflected lower
provisions for Kazakh withholding tax on intercompany loans with taxes on trading being covered by past losses.
Loss for the year
The loss for the year after tax was $5.5 million, after the $12.5 million provision in respect of 3A Best. (2020: loss of
$3.5 million).
Oil and gas assets
Unproven oil & gas assets
The carrying value of unproven oil and gas assets fell by approximately $15.3 million to approximately $46.2 million
(2020: $61.4 million) largely as the result of the $12.5 million provision in respect of 3A Best and exchange rate
differences of approximately $3.5 million.
The approval for export sales from the South Yelemes which was granted in December 2021 required further
information to be supplied in the following 6 months for the formal export licence to be confirmed. Accordingly, at
31 December 2021 the South Yelemes asset has remained as part of unproven oil & gas assets and will be moved to
proven oil and gas assets in the 2022 financial statements.
Plant, property and equipment
The value of plant property and equipment increased by approximately $4.3 million to approximately $57.1 million
(2020: $52.8 million), reflecting the acquisition in the year of drilling rigs and equipment.
8
FINANCIAL REVIEW OF THE 12 MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
Other receivables
Other receivables fell from approximately $6.2 million to approximately $4.9 million principally as the result of lower
pre-payments. Receivables due in more than one year were approximately $4.3 million (2020: $4.2 million) and are
principally Kazakh VAT related.
Cash position
At the year-end we had cash balances of approximately $0.4 million (2020: $0.3 million). This reflects the continuing
extremely tight working capital position following the impact of Covid-19.
Liabilities
Trade and other payables under 12 months
Trade and other payables increased to approximately $13.2 million (2020: 11.0 million), largely as the result of higher
tax due on oil sales. Short term borrowings provided by the Oraziman family increased to $6.4 million (2020: $5.6
million) and the provisions for payments in less than 12 months stayed broadly similar at approximately $8.7 million
(2020: $9.3 million) of which the provision for BNG licence payments was $3.2 million in both years.
On 9 March 2022, following the period end Independent Shareholders approved the conversion of approximately
$6.2 million due to the Oraziman family into 139,729,446 new ordinary shares.
BNG historic costs
We have continued to pay down the historic costs assessed against BNG. At 31 December 2021, of the original $32
million levied in 2019 approximately $22.5 million remains to be paid over the next seven years.
Cashflows
During the period under review approximately $24.3 million was received from customers and approximately $16.6
million paid out to suppliers, creditors and staff with a further $0.7 million spent on unproven oil and gas assets and
$7.1 million spent on property, plant and equipment, resulting in cash balances at the year increasing slightly from
$0.3 million to $0.4 million.
Going Concern
The financial position of the Group and the Company has improved in the past year and as at 1 June 2022 the Group
had cash of $1 million.
• At current oil prices, even with the Urals Oil price discount, the Company enjoys positive operational cash flows
• Deep Well 802 is the final well required under the BNG work programme. Any further deep wells drilled at BNG
will be on a discretionary basis
• As is the case for the MJF structure, the South Yelemes structure with current production of approximately 300
bopd is now able to sell most of its oil at international prices
$6.2 million of debt has been converted to equity
•
Nevertheless, with net current liabilities of approximately $22 million as at 31 December 2021, the assessment of
going concern needs to be properly considered. 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. These
cash flows, which include the payment of discretionary dividend, are dependent on a number of key factors including:
• The Group’s cashflow is sensitive to oil price and volume sold. This is impacted by its current reliance on
exporting a portion of its oil sales through the Russian pipeline network. If due to sanctions on Russia, this
pipeline network is no longer available, or the discount on oil exported through this network increased over a
prolonged period, to continue to generate positive cash the Group would either seek alternative distribution routes
via Uzbekistan, Azerbaijan or China or alternatively sell all oil produced on the domestic market or to one of the
new mini refineries opening in the region, where prices are typically better than the domestic price and buyers
collect the oil from the wellhead. As none of these alternatives have yet been tested, if the oil price achieved or
volume sold declined, these factors could result in the Group requiring additional funding.
9
FINANCIAL REVIEW OF THE 12 MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
• The Group continues to forward sell its domestic production and receive advances from oil traders with $1.8m
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 $6.0m of liabilities due on demand under social development program and $0.4m 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. Should the deferrals not occur
additional funding would be required.
These circumstances continue to indicate the existence of a material uncertainty which may cast significant doubt
about the Group and the Company’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 and the Company 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 and the Company 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.
Clive Carver
Chairman
24 June 2022
10
OUR OIL & GAS ASSETS
BNG CONTRACT AREA
Introduction
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, more
than $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.
MJF structure
The first wells were drilled on the MJF structure in 2016, since when it has produced in aggregate approximately 2.7
million barrels. We have embarked on a programme of redrilling the older wells using horizontal drilling techniques
to increase production. At the date of this report work at three of the older wells has been completed.
In 2013, we announced the discovery of the MJF structure and have subsequently drilled eight wells of which seven
are currently producing with an aggregate capacity of approximately 3,750 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, of which approximately $22 million remained
payable at 31 December 2021.
Wells 154 and 153 were the first new wells drilled using horizontal techniques both targeting a Middle Jurassic
reservoir. Recently Well 142 recommenced production following use of horizontal drilling and is producing at
approximately 1,400 bopd.
All of the oil produced in 2021 was from the MJF structure. In 2021 we produced 533,857 barrels of oil at an average
of 1,462 bopd (2020: 545,667 barrels at an average of 1,495 bopd).
South Yelemes structure
The first wells were drilled on the South Yelemes structure during the Soviet era, with test production commencing
in 1994.
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). Since 2010 the South Yelemes shallow structure has produced
approximately 350,000 barrels.
No production was allowed at this structure between May 2020 when we submitted our application to upgrade the
structure to export status in late December 2021. We are now able to sell most of the oil produced from the South
Yelemes structure by reference to international rather than domestic prices.
11
OUR OIL & GAS ASSETS (CONTINUED)
South Yelemes structure (Continued)
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, which we intended to explore with horizontal drilling targeting a Dolomite reservoir.
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.
Airshagyl structure
Three deep wells have been drilled on the Airshagyl structure, A5, A6 & A8 a fourth A7 was spudded in December
2021.
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. For 15 days the well produced at the rate of approximately 3,000
bopd before production fell to approximately 1,000 bopd, leading to the well being shut in for remedial treatment.
Limited rig availability resulted in little work on this well in 2021 or subsequently. We remain believers in the well
and intend to drill a new side-track from a depth of 4,500 meters when a rig becomes available.
A6
Deep Well A6 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 year
the year under review there was no significant progress with the well. Further development work will depend on rig
availability and a decision on which acid formulation to use.
A8
Deep Well A8 was spudded in 2018 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.
During 2021 we decided to resume drilling towards the original objective in the Devonian. Drilling reached a final
depth of 5,400 meters in early December. Neither of the two intervals of interest perforated resulted in commercial
quantities of oil with pressures below the levels expected. Accordingly, work has stopped at A8 and the rig has been
reassigned.
New wells
New Deep Well A7 was spudded in December 2021, with a planned Total Depth of 5,300 meters but primarily
targeting an interval at a depth of 5,300 meters. In March 2022 drilling at A7 was paused at a depth of 2,150 meters
to allow the rig to be used to drill a horizontal well on the shallow South Yelemes structure.
Yelemes Deep structure
Deep Well 801 was drilled in 2014 / 2015 to a depth of 5,050 meters. During the year the year under review there
was no progress with the well. As with Deep Well A6 on the Airshagyl structure further development work will
depend on rig availability.
Deep Well 802 was spudded in June 2022, with a planned Total Depth of 5,300 meters. At the date of this report
drilling had reached 650 meters without incident. This will be the final deep well required under the BNG work
programme.
Deep well drilling issues
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 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.
12
OUR OIL & GAS ASSETS (CONTINUED)
Deep well drilling issues (Continued)
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.
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.
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 Energies, 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. However, the farm out was conditional on the
deferral of obligations under the licence and the extension of the license which are yet 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.
We continue to work with the Kazakh authorities to renew the 3A Best licence. Until we are successful on this the
farm-out will not proceed. Our investment in 3A Best has been fully provided for.
13
LICENCES & WORK PROGRAMMES AND RESERVES
LICENCES & WORK PROGRAMMES
BNG
BNG LLP Ltd holds three contracts for a subsoil use. The first is the appraisal contract, covering the full extent of
the BNG Contract Area (except the MJF and South Yelemes structures), 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 the third is the export
contract covering the South Yelemes structure, which runs to 2046. Under the MJF and South Yelemes licences the
majority of oil produced may be sold by reference to international rather than domestic prices.
Wells A7 and 802 are the final two deep wells required under the BNG work programme commitments. Well A7 was
spudded in December 2021 and Well 802 was spudded in June 2022.
3A Best
The licence renewal at 3A Best was delayed as the result of outstanding social payments due from the assets previous
owners. We continue to work with the Kazakh authorities to renew the 3A Best 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 2021, approximately 3.0 mmbls of oil were produced, which under financial reporting
rules are deducted from the assessment of reserves as at 31 December 2021.
BNG
As at 31 December 2021
mmbls
As at 31 December 2020
mmbls
Shallow P1
Shallow P2
15.1
26.3
15.6
26.8
Despite the last external review of the Group’s reserves being in 2016, the Board considers their assessment as set
out in the above table to be valid.
14
CASPIAN EXPLORER
Introduction
In 2020 we acquired the Caspian Explorer, a drilling vessel designed specifically for use in the shallow northern
Caspian Sea where traditional deep water rigs cannot be used. We believe it to be the only vessel of its type operating
in the Caspian Sea.
The principal ways of exploring in such shallow waters are either from a land base or using 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 Caspian Explorer was conceived of by a consortium of leading Korean companies including KNOC, Samsung
and Daewoo Shipbuilding. The vessel was assembled in the Ersay shipyard in Kazakhstan between 2010 and 2011
for a construction cost believed to be approximately $170 million. The total costs after fit-out are believed to have
been approximately $200 million. We understand a replacement would today cost in excess of $300 million and take
several years to become operational.
The Caspian Explorer became operational in 2012 at a time of relatively low oil prices and reduced exploration
activity in the Northern Caspian Sea.
In June 2021 we announced the first charter for the Caspian Explorer since it has been a part of the Group. The charter
was with the North Caspian Operating Company (“NCOC”), which is 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 has been completed
and payment received.
We have submitted a tender for a drilling charter in 2023.
Operational characteristics
The Caspian Explorer:
•
•
•
•
•
•
•
operates principally between May and November as the Northern Caspian Sea is subject to winter ice
operates in depths between 2.5 meters and 7.5 meters
can drill to depths of 6,000 meters
typically has a crew to operate the drilling vessel of 20
has accommodation for approximately 100
costs approximately $100,000 per month while moored in port
is generally able to pass on other costs incurred while operational to the clients hiring the vessel
Commercial activity
•
•
In 2017, the Caspian Explorer was hired out to a KazMunaiGas / Indian state oil company joint venture
for $28 million after costs and drilled one exploration well to a depth of 3.5 km.
In 2018, the Caspian Explorer was hired out KazMunaiGas for up to $24 million drilling one exploration
well to a depth of 1.8 km.
• The Caspian Explorer did not operate in 2019 or in 2020. In 2021 $1.2 million was received for a safety
related charter
• A tender is outstanding for a 2023 drilling contract at prices broadly consistent with the rates achieved in
2017 and 2018
15
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.
16
THE KAZAKH OIL AND GAS LICENCING 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 has 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.
17
STRATEGIC REPORT
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.
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.
This strategy has been refined during the year under review and subsequently to favour cash producing assets and to
seek to exploit alternative energy project, specifically wind energy project.
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 subject to licence renewal 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. The Group also owns 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 14 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.
Climate Change
Other than a general move away from fossil fuels, the Board is not aware of any indications that the impact of climate
change is likely to have a material impact on the Group’s business over the short and medium terms. We believe the
current need for oil will continue for at least the next decade.
18
STRATEGIC REPORT (CONTINUED)
Key performance indicators
The Non-Financial Key Performance Indicators are:
• Operational (wells drilled at end of year) 2021: 18 (2020: 17)
• Aggregate production for 2021 was 533,857 barrels (2020: 545,667) a decrease of approximately 2.2%
• Reserves at 31 December 2021 P1 15.1 mmbls & P2 26.3 mmbls (2020: P1 15.6 mmbls & P2 26.8 mmbls)
The Financial Key Performance Indicators are:
• Revenue: up 75% at $25.0 million (2020: $14.3 million)
• Operating loss $4.0 million (2020: loss of $0.7 million) after a $12.5 million provision in respect of 3A Best
• Loss after tax for the year $5.5 million (2020: $3.5 million)
• Cash at bank: $0.4 million (2020: $0.3 million)
• Total assets: $114 million (2020: $125.6 million)
• Exploration assets $46.3 million (2020: $61.4 million)
• Plant, property & equipment $57.1 million (2020: $52.8 million)
Current production capacity
4,000 bopd
•
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
all day-to-day Group operations; and G&A costs; the costs of the two new deep wells A7 & 802; and to fund planned
dividend payments.
In the event any of the six deep wells drilled or being drilled start to produce oil in commercial quantities the
associated revenues should transform the Group’s cash flows. The same would be the case in the event the Caspian
Explorer is chartered for drilling projects 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
For some years it has been 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 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. The final step was the approval of shareholders and the
UK Court of a Capital Reduction. Shareholder approved the Capital Reduction in April 2022, which was approved
by the UK High Court in June 2022.
The Group’s then expects to declare and pay dividends on a regular basis, subject to the comments set out in the
Chairman’s Statement.
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.
19
STRATEGIC REPORT (CONTINUED)
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 a 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.
The Board continues to encourage senior management to engage with staff, suppliers, customers and the community
in order to assist the Board in discharging its obligations.
During 2021 the Board was particularly mindful of the impact of the ongoing Covid-19 pandemic when making
decisions. 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.
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
18 (where the Group’s strategy, objectives and business model are addressed), page 21 (in relation to employees) the
ESG report on page 26 (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
24 June 2022
20
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 2021.
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 45 and shows a $5.5 million loss for the year after tax
(2020: loss US$3.5 million).
Subject to the comments set out in the Chairman’s Statement, the Directors expect to declare the Company’s first
dividend later this year.
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 2021, 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 4 March 2021, Seokwoo Shin, Chief Operating Officer joined the Board as 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.
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:
21
Directors’ interests
Director
Clive Carver
Kuat Oraziman*
Edmund Limerick
Aibek Oraziman**
Seokwoo Shin
As at 31 December 2021
As at 31 December 2020
Number of Ordinary Shares
2,245,000
nil
7,911,583
592,857,583
nil
2,245,000
41,485,330
7,911,583
528,476,278
nil
* taken together on 31 December 2021 the Oraziman Family, comprising Kuat Oraziman, Aibek Oraziman, Aidana
Urazimanova, the Estate of the late Rafik Oraziman, Altynbek Boltazhan and Boltazhan Kerimbayev held
949,815,346 shares representing 45% of the issued share capital shares.
Since the year end and following the $6.2 million Debt Conversion completed in March 2021 the Oraziman family
hold 1,089,544,792 shares representing 48.41% of the issued share capital.
** comprises 492,836,151 shares held direct plus 100,021,432 shares held by Akku Investments in which Aibek
Oraziman has a 50% interest. The entry as at 31 December 2020 was made on the basis that all shares held by
Aibek Oraziman and Aidana Urazimanova were pooled in Akku Investments, in which Aibek Oraziman had a 50%
interest.
Biographical details of the Directors are set out on the Company's website www.caspiansunrise.com.
Details of the Directors' individual remuneration, service contracts and interests in share options are shown in the
Remuneration Committee Report.
Other shareholders over 3% at the date of this report
Shareholder
Aidana Urazimanova***
Dae Han New Pharm Co Limited
Al Marri Family
Shares held
%
496,703,756
224,830,964
221,625,001
22.07
9.99
9.85
*** comprises 396,682,324 shares held direct plus 100,021,432 shares held by Akku Investments in which Aidana
Urazimanova has a 50% interest.
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
The 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 UK adopted
international accounting standards.
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.
22
The Directors are also required to prepare financial statements in accordance with the rules of the London Stock
Exchange for companies trading securities on the London Stock Exchange AIM Market.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and accounting estimates that are reasonable and prudent;
•
state whether they have been prepared in accordance with UK adopted international accounting standards
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 Group’s website. www.caspiansunrise.com has recently been updated and readers of these financial statements
are encouraged to visit the website. The maintenance and integrity of the Group’s website is the responsibility of the
Directors.
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 Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
Responsibility statement
The Directors confirm that to the best of their knowledge
•
•
•
the financial statements, prepared in accordance with the relevant financial reporting framework, give a true
and fair view of the assets, financial position and profit or loss of the Company and the undertakings included
in the consolidation taken as a whole
the Strategic Report includes a fair review of the development and performance of the business and the
position of the Company and the undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties
the Annual Report and the financial statements taken as a whole, are fair balanced and understandable and
provide the information necessary for shareholders to assess the Company’s position, performance, business
model and strategy.
Clive Carver
Chairman
24 June 2022
23
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. Increases in production as new wells come on stream
generates cash and 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.
Risk
Description
Mitigation
Operating risk Oil & gas exploration and
production is a dangerous
activity. The Group is exposed
to risks such as well blowouts,
fire, pollution, bad weather and
equipment failure.
Despite the success of the BNG
shallow structures, there can be
no assurance the Group’s
exploration activities in the BNG
deep structures or anywhere else
will be successful.
Exploration
risk
Political
Risk
Political division which leads to
civil disorder is likely to have an
adverse impact on the Group’s
operations.
Russian
sanctions
The sanctions imposed on
Russia may affect both the
Group’s ability to transport its
oil and the price at which the oil
may be sold.
It may also affect the Group’s
ability to source equipment and
other consumables required to
produce oil.
The Group ensures that it adopts best in class industry operating
standards and complies with rigorous health & safety regulations.
The Group also seeks to work with contractors who can
demonstrate similar high standards of safety.
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.
Widespread disorder had been absent since the Group’s formation
until the beginning of 2022, when the Group together with other
operators was forced to suspend operations due to civil unrest.
The importance of the oil & gas industry to the Kazakh economy
makes a prolonged suspension of operations unlikely, as was the
case earlier this year.
Like most oil produced in Kazakhstan the Company’s oil is
transported to international buyers via the Russian oil pipeline
network, and has until recently emerged as “Urals Oil”, which has
traded at about a $30-35 discount to Brent.
The recent decision by the Kazakh authorities to re designate oil
produced in Kazakhstan as Kazakhstan Export Blend Crude Oil
(“KEBCO”) and the confirmation from the European Union that
oil produced in Kazakhstan and transported via the Russian
pipeline network is not subject to sanctions is expected to mitigate
the impact of Russian sanctions.
In the event the Russian pipelines are unavailable or the discount
to Brent widens further the Company would seek to distribute its
oil using alternative routes, although this would likely be at a
higher cost.
Equipment and consumables typically sourced from Russia will
need to be found elsewhere, typically China.
24
Permitting
risks
Every stage of the Group’s
operations requires the approval
of the industry regulators.
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.
Covid-19 risk Measures introduced to tackle
the Covid-19 pandemic may
adversely affect the Group’s
performance.
Pricing risk
We operate in an industry where
the international price is set by
world markets and the domestic
price is set by the Kazakh
regulatory authorities.
Environmental
risk
There would be serious
consequences in the event of a
polluting event.
Exchange rate
risk
Movements in exchange rates
may result in actual losses or in
the results reported in the Group
financial statements.
Supplier risk
Continued operations depend on
regular deliveries to site of
consumables, such as water,
food, heating oil and
replacement parts for our drilling
equipment. Delays in such
deliveries to site could impact
production volumes.
Regulatory delays are inevitable and common place.
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 was the case at the BNG Contract Area,
and management have detected a more lenient approach from the
Kazakh regulatory authorities.
As set out more fully in the Chairman’s Statement and the
Strategic Report the impact to date was 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.
While we have learnt how best to deal with the day-to-day impact
of measures to limit to spread of Covid-19 it is not possible to
know how long the impact of Covid-19 will last and its long term
impact on the Group.
We have no influence on the price at which can sell our oil.
Greater storage and or financial hedging would provide some
protection against adverse price movements but would be
expensive and short lived.
It would only be with international oil prices below $50 per barrel
for a prolonged period that we would need to consider costs
cutting to match income and expenditures.
The Group maintains compliance with all applicable regulatory
standards and practices.
Further information is set out in the Environmental, Social and
Governance Report
The Group's income is denominated in US$ and its expenditure is
denominated in US$ and Kazakh Tenge.
In the year under review the Tenge maintained its exchange rate
against the US$. Since the year end the Kazakh Tenge has fallen
by approximately 2.2% against the US $.
Any decline in the Kazakh Tenge against the US$ affects the US$
reported income for domestic sales which transacted in Tenge.
However, in such circumstances the Group generally benefits as
international income is unaffected but approximately 50% of the
Group’s costs are incurred in Tenge reducing the US$ reported
operating costs.
Given the relative strengths of the US$ and the Kazakh Tenge, the
Group has decided not to seek to hedge this foreign currency
exposure.
We have been operating the BNG Contract Area for almost a
decade during which we have encountered numerous supply
issues, all of which have been overcome.
With the impact of Covid-19 apparently receding, we are
confident in dealing with whatever delivery issues occur.
25
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT
This report covers our ESG approach and performance for the year ended 31 December 2021.
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 so by complying with all
applicable environmental standards.
We recognise that society is transitioning towards a low-carbon future, and we support this goal. However, we believe
that oil will continue to play an important role in the global economy for many years to come, and new sources of oil
supply will be 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 seek to 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 24 months.
Health and safety
Our daily operations prioritise health and safety and protecting the environment and we seek to comply with all
applicable 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.
GOVERNANCE
Introduction
Overall responsibility over the Group’s corporate governance, risk management, market disclosure and related
obligations rests with the Board.
The Governance & Risk Committee comprises Clive Carver, Edmund Limerick and Aibek Oraziman with Clive
Carver acting as chairman. The committee intends to meet at least once a year to review the Group’s governance
procedures compared to accepted industry best practice.
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.
Share dealing policy
The Group has adopted and operates a share dealing code for Directors and employees in accordance with the AIM
Rules.
26
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 also
intends to periodically review the Group’s financial controls and operating procedures.
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. We also believe in getting proper value for money spent and believe this goes
hand in hand with being a low-cost operator.
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.
QCA Code
Caspian Sunrise, in line with most 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.
Principle 1
Objective
Establish a strategy and
business model which
promotes long term
value for shareholders
Caspian Sunrise’s objective is to create shareholder value from the development of oil
and gas projects and associated activities.
The Group has a number of secondary objectives, including promoting the highest
level of health 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 in Central Asia, 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.
Our business model
Our business model is to invest in and develop promising oil and gas projects.
Growth in long term value will be measured by a sustainable appreciation in the share
price.
Principal assets
The Group’s principal asset is its interest in the BNG Contract Area, which is in the
west of Kazakhstan, 40 kilometres southeast of Tengiz on the edge of the Mangistau
Oblast.
The Group also has 100% interests in the 3A Best Contract and the Caspian Explorer
drilling vessel.
27
Principle 2
Seek to understand and
meet shareholder needs
and expectations
Principle 3
Take into account wider
stakeholder and social
responsibilities and their
implications for long
term success
Further acquisitions are expected.
Shareholder communications
The Company communicates with its shareholders via RNS announcements, its
website, formal company meetings and periodic investor presentations.
The need to avoid selectively releasing price sensitive information often limits our
ability to provide the answers many investors seek.
The Company’s management meets prospective institutional investors from to time to
time to assess the availability of large-scale institutional funding to advance the
company’s plans.
Our shareholders
A large proportion of the Company’s shares are held by a relatively small group,
namely: The Oraziman family (48%); other Kazakh shareholders (5%); Korean
shareholders (10%); shareholders in the UAE (10)%; with the remaining (27)% being
principally UK based investors.
There
is a contact form available for
https://www.caspiansunrise.com/contact/contact-form/
Our stakeholders
investors
to use on
the website:
In addition to our shareholders the Company regards its employees and their families,
local and national government and its shareholders to be the core of the wider
stakeholder group.
Employees
Almost all staff employed by the Group are based in Kazakhstan. The Group draws
most of its field workers from the Mangistau region where alternative employment
opportunities are limited. At our head office in Almaty we employ further staff, some
of whom hold highly skilled positions.
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 communication with employees to motivate them and involve them fully
in the business. For the most part, this communication takes place at a local level, but
staff are kept informed of major developments through email updates and staff
meetings.
Local communities
The Group has provided significant financial support to this region for over a decade
by way of social payments sometimes delivered in the form of medical or educational
facilities for the local population.
Part of our work programme obligations are paid in the form of contributions to local
social programmes. We are pleased to have assisted in the development of these
projects and look forward to contributing to others in the coming years.
Kazakh Government agencies and regulators
The Kazakh authorities are responsible for granting licences to explore for and produce
oil. Licences are awarded subject to agreed work programmes being adhered to over
the period of each licence renewal. This includes compliance with rules designed to
preserve the environment.
Caspian Sunrise has an extremely high proportion of Kazakh nationals in our
workforce and among our core shareholder group. The Board believes that this helps
create a positive relationship with the Kazakh authorities and has assists in the Group’s
day-to-day dealings with the regulators.
External stakeholders
Many additional jobs have been funded in the Company’s suppliers, partners and
professional advisers.
28
Principle 4
Embed effective risk
management,
considering both
opportunities and
threats, throughout the
organisation
Principle 5
Maintain the board as a
well-functioning,
balanced team led by the
chair
Feedback
The Company considers feedback from its stakeholders in its decisions and actions.
Risk assessment
Oil & gas exploration and production is a dangerous activity and as such is necessarily
subject to an extreme health and safety regime. Risk assessment and evaluation is an
essential part of the Company’s planning and an important aspect of the Company’s
internal control system.
It is planned to introduce 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 the Audit Committee.
A summary of the principal risks facing the Group are set out in the Principal Risks
section on page 24 of these Financial Statements.
Board composition
The board comprises three executive directors and two non-executive directors.
Executive directors
At the executive level Kuat Oraziman, Chief Executive Officer, and Seokwoo Shin
Chief Operating Officer run the Company’s operations in Kazakhstan with Clive
Carver, Executive Chairman, taking the lead on all non-operational matters including
financial matters and all aspects related to the listing of the Company’s shares on AIM,
Corporate Governance compliance and Investor Relations.
Kuat Oraziman is a trained geologist and member of the academy of sciences. He has
more than 27 years oil and gas experience in Kazakhstan.
Seokwoo Shin for the Korean National Oil Corporation from 1987 until 2018 with
spells in Korea, the United Kingdom, Russia and most recently Kazakhstan, where he
was responsible for KNOC’s Kazakh oil fields. He joined Caspian Sunrise in 2018.
Clive Carver is a fellow of the Institute of Chartered Accountants in England and Wales
(FCA) and a fellow of the Association of Corporate Treasurers (FCT). While working
in the UK broking industry Clive gained more than 15 years’ experience as a Qualified
Executive under the AIM Rules having led the Corporate Finance departments of
several of the larger and more active Nominated Adviser firms.
Non-executive directors
Edmund Limerick, Senior Independent Non-executive director is a Russian speaking
former lawyer and investment banker who ran an institutional investment fund focused
on Central Asia.
Aibek Oraziman, is the Company’s largest shareholder with 26.3%. He has more than
12 years oil and gas experience in Kazakhstan, including 3 years in the field at Aktobe
working for a local oil company.
The board believes it possesses the skills required to build a successful and durable oil
and gas business focused on Kazakhstan.
The board meets a minimum of four times each year supported by periodic telephone
meetings. At such meetings the board receives a report from Kuat Oraziman on all
matters operational and from Clive Carver on all non-operational matters.
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.
The number of board meetings attended each year by the directors is set out in the
Directors’ report which forms part of the Annual Report and Financial Statements.
29
Departures from the Code
Executive Chairman
The principal reason advanced by proponents of the Code that the Chairman be non-
executive is to split the roles of Chairman and Chief Executive Officer as combining
them puts too much control in one pair of hands. This is not the case with our Company
where the Chief Executive Officer’s family is the largest shareholder, with some 48%.
Clive Carver was appointed Non-Executive Chairman of the Company in 2006 in the
lead-up to the IPO the following year. In 2012 he was appointed Executive Chairman
at the same time as Kuat Oraziman moved from Non-Executive Director to Chief
Executive Officer.
In the past decade, Clive Carver has served as non-executive chairman of seven AIM
listed companies. In addition, his 15 years as a Qualified Executive and head of active
corporate finance departments make him a very suitable candidate to be Chairman,
notwithstanding his executive status.
Non-Executive Directors’ participation in Option Schemes
In common with many AIM listed companies we actively encourage non-executive
directors to participate in the Company’s option schemes. Proponents of the Code
believe this affects the independence of the non-executive directors concerned.
We believe that independence is a matter of independence of mind, judgement and
integrity. We consider our non-executives’ ability to act independently to be unaffected
by the level of participation in the Company’s option scheme.
Size of the board – requiring the involvement of Executive Directors in the various
board committees
With only two non-executive directors it is inevitable that the board committees will
comprise executive and non-executive directors. The Company accepts this is not a
long-term solution and at the appropriate time will look to appoint an additional non-
executive director.
Experience
The experience of the directors and the operational board is set out in the response to
principle 5 above and in the Annual Report and Financial Statements.
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
Company’s assets.
Non-operational skills are maintained principally via the Company’s interaction with
its professional advisers plus the experience gained from sitting on the boards of other
commercial enterprises.
As the Company develops and moves from predominantly an oil exploration company
to a balanced production and exploration company, the board will periodically re-
assess the adequacy of the skills on both the main board and the operational board.
Where gaps are found, new appointments will be made.
Performance
The Company currently does not evaluate board performance on a formal basis.
However, it will in the near term seek to formalise the assessment of both executive
and non-executive board members.
The Company is aware of its need to facilitate succession planning and the board
evaluation process will form part of this going forward.
Culture
Our culture can 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.
30
Principle 6
Ensure that between
them the directors have
the necessary up-to-date
experience, skills and
capabilities
Principle 7
Evaluate board
performance based on
clear and relevant
objectives, seeking
continuous improvement
Principle 8
Promote a corporate
culture that is based on
ethical values and
behaviours
Principle 9
Maintain governance
structures and processes
that are fit for purpose
and support good
decision-making by the
board
Principle 10
Communicate how the
company is governed
and is performing by
maintaining a dialogue
with shareholders and
other relevant
stakeholders
Accordingly, in dealing with each of the Company’s principal stakeholders, we
encourage our staff to operate in an honest and respectful manner.
Operating with integrity is clearly good business and forms an important part of the
annual assessment of staff and in setting their pay for future periods.
Governance
The Company believes that its governance structures and processes are consistent with
its current size and complexity. The Board is aware that it must continue to review its
practices as the Company evolves and grows.
The executive members of the Board have overall responsibility for managing the day-
to-day operations of the Company and the Board as a whole is responsible for
implementing the Company’s strategy.
The Audit Committee typically meets before each set of results (interim and final) are
published and the Remuneration Committee typically meets at least once a year, when
the Financial Statements for the Full year results are approved. All Committee
members attend these meetings.
Our Report and Accounts contain report from the Chairman of the Remuneration. and
the Audit Committee.
The appropriateness of the Company’s governance structures will be reviewed
annually in light of further developments of accepted best practice and the development
of the Company.
Communications
The Company reports formally to its shareholders and the market twice each year with
the release of its interim and full year results.
The Annual Report and Financial Statements set out how the corporate governance of
the Company has been applied in the period under review including the work
undertaken by the Audit Committee and the Remuneration Committee.
The Annual Report and Financial Statements contain full details of the principal events
of the relevant period together with an assessment of current trading and prospects.
They are sent to shareholders and made available on the Company’s website to anyone
who wishes to review them.
The Board already discloses the result of general meetings by way of RNS
announcements, disclosing the voting numbers.
The Company’s website also contains all the information prescribed for an AIM
Company under Rule 26.
Further details of the Company’s dialogue with its shareholders are set out under
Principle 2 above
Employee stakeholders are regularly updated with the development of the Company
and its performance.
We are in almost constant communication with our Governmental and regulatory
stakeholders via their involvement in our day-to-day operational activities.
Board composition, skills and capabilities
• Between 1 January 2021 and 4 March 2021 the Board comprised one executive director and three non-
executive directors.
• Between 4 March 2021 and 31 December 2021, the Board comprised two executive directors and three non-
executive directors.
• From 1 January 2022 the Board comprised three executive directors and two non-executive directors
31
Clive Carver, 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 is an experienced public company director having been chairman of
a number of AIM companies in recent years.
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 27 years oil and gas experience in Kazakhstan.
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 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.
The Board believes it possesses the skills required to build a successful and durable oil and gas business focused on
Kazakhstan.
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
Seokwoo Shin
Aibek Oraziman
Board meetings attended
6 of 6
6 of 6
6 of 6
5 of 5
6 of 6
Remuneration Committees attended
1 of 1
N/A
1 of 1
N/A
1 of 1
Audit Committee attended
3 of 3
N/A
3 of 3
N/A
2 of 3
Note: Seokwoo Shin joined the board on 4 March 2021
The Board has established the following committees:
Audit Committee
The Audit Committee which 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 auditor, the scope of the audit.
The Audit Committee receives and reviews reports from the management and the external auditor of the Group
relating to the annual and interim amounts and the accounting and internal control systems of the Group. In addition,
it considers the financial performance, position and prospects of the Group and the Company and ensures they are
properly monitored and reported on.
Remuneration Committee
The Remuneration Committee, which comprises Edmund Limerick 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.
32
Board committee membership in 2021
Director
Clive Carver
Kuat Oraziman
Edmund Limerick
Seokwoo Shin
Aibek Oraziman
Audit
Committee
Remuneration
Committee
Corporate Governance
Committee
Served from
1 January
N/A
1 January
N/A
1 January
Served to
31 December
N/A
31 December
N/A
31 December
Served from
1 January
N/A
1 January
N/A
1 January
Served to
31 December
N/A
31 December
N/A
31 December
Served from
1 January
N/A
1 January
N/A
1 January
Served to
31 December
N/A
31 December
N/A
31 December
Clive Carver
24 June 2022
33
REMUNERATION COMMITTEE REPORT
Remuneration Committee
The Remuneration Committee 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. However, the Covid-19 impact on the Group’s finance required the Directors to accept very
significant reductions in the amounts received which continued throughout 2021 and the first six months of 2022.
The Remuneration Committee determines the contract term, basic salary, and other remuneration for the members of
the Board and the senior management team.
Service contracts
Details of the current Directors’ service contracts are as follows:
Executive
Clive Carver
Kuat Oraziman
Edmund Limerick
Aibek Oraziman
Seokwoo Shin
Date of service agreement / appointment letter
Date of last renewal of appointment
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
Role
Clive Carver
Kuat Oraziman
Seokwoo Shin
Edmund Limerick
Tim Field
Aibek Oraziman
Total
Chairman
CEO
COO
Non-executive
Non-executive
Non-executive
2021
Salary / fees
US$
120,000
142,055
54,025
15,600
-
-
331,680
2021
Share options
US$
-
-
-
-
-
-
-
2021
Total
US$
120,000
142,055
54,025
15,600
-
-
331,680
2020
Total
US$
311,800
251,393
-
51,159
49,859
-
664,211
Share option amounts refer to the IFRS 2 accounting charge.
There were no company pension contributions in respect of any director
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 2021 (2020: nil).
34
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
Clive Carver
Kuat Oraziman
Edmund Limerick
Edmund Limerick
Seokwoo Shin
Granted
Exercise price
Expiry Date
2,400,000
3,000,000
3,000,000
750,000
1,000,000
nil
4p
20p
20p
20p
20p
Nil
14 December 2023
21 August 2024
21 August 2024
21 August 2024
5 June 2029
N/A
There were no options exercised in 2021. On 26 November 2021, the exercise date for the options held by Clive
Carver were extended from 14 December 2021 to 14 December 2023.
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.
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
24 June 2021
35
AUDIT COMMITTEE REPORT
The Audit Committee
The Audit Committee, which 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 auditor, 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).
Meetings
The committee met on three occasions during the year under review.
Internal audit
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. Attendance at Audit Committee meetings Please see
the table in the preceding Corporate Governance Report for attendance by the members of the Audit Committee.
On behalf of the Directors of Caspian Sunrise plc
Edmund Limerick
Chairman of Audit Committee
24 June 2022
36
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 2021 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with UK adopted international
accounting standards;
the Parent Company financial statements have been properly prepared in accordance with UK adopted
international accounting standards and as applied in accordance with the provisions of the Companies Act
2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Caspian Sunrise plc (the ‘Parent Company’) and its subsidiaries (the
‘Group’) for the year ended 31 December 2021 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 UK adopted international accounting standards and, as
regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Material uncertainty 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 and volumes sold which
is impacted by its ability to export a portion of its oil sales through the Russian pipeline network. Note 1.1 also
highlights that the Group and Parent Company is dependent upon the deferral of financial obligations, 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:
37
• We obtained management’s base case cash flow forecast and a reasonable plausible downside cash flow forecast
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 discussed the potential impact of sanctions against Russia on the Group’s operations 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. This included
considering the Group’s reliance on selling oil through the Russian pipeline network, and should this no longer
be a viable export route, the alternatives available to the Group.
• We formed our own assessment of risks and uncertainties based on our understanding of the business and oil
sector.
• We evaluated the completeness of forecast licence related expenditure against the licence work programs and
payments due under the 3A Best licence. We 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 ensured that the relevant
instalments are included in the forecast.
• We considered the appropriateness of the Board’s judgement 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 reviewed the agreement that converted the loans provided from the Group’s largest shareholder and his
connected companies to equity after the period end.
• We assessed the validity of any mitigating actions identified by the Directors including drilling new wells.
• 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
Materiality
83% (FY20: 83%) of Group loss before tax, 100% (FY20:100%) of
Group revenue and 96% (FY20: 92%) of Group total assets.
Carrying value of oil and gas assets
BNG production licence payment obligations
Going concern
Group financial statements as a whole
2021
☑
2020
☑
☑
☑
☑
☑
US$1.9m (2020: US$1.9m) based on 1.7% (2020: 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.
38
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.
The remaining components of the Group were considered non-significant and these components were principally
subject to analytical review procedures 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 in Kazakhstan, 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 oil and gas
assets
to
the
As at 31 December 2021, the
Group’s oil and gas assets
BNG
related
exploration and production
licence. These were carried at
US$103.3m as shown
in
notes 12 and 13.
How the scope of our audit addressed
the key audit matter
3A Best
We assessed if the $12.5m impairment in
respect of the 3A Best unproven oil and gas
assets was in accordance with applicable
accounting standards. Audit procedures
reviewing
included
performed
correspondence from
the Government
regarding licence payment obligations and
the licence withdrawal for related subsoil
use contract.
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
At each reporting period end,
management are required to assess
the non-current assets for indicators
of impairment and, where such
indicators
an
impairment test.
perform
exist,
the
In performing
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
the
Kazakh authorities to renew its
licence at 3A best and as a result has
impaired this asset in full.
is working with
In respect of the BNG production
and exploration licences as detailed
in notes 2.1 and 2.3 management
assessed there was no impairment
39
trigger and the carrying amounts
were recoverable.
indications that the licences would be
abandoned or that the recoverable value
would be below cost.
disclosures
Given the judgment, estimation and
the
by
management, we considered this
area to be a key focus for our audit
and hence a key audit matter.
required
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 21.
Whilst management has contested
the quantum to be paid, a final
judgement has been made by the
Government authorities for a total
payment of $32m payable
in
quarterly fixed instalments over 10
years. Management recorded a
provision of $22.5m as at 31
December 2021 which is net of
amounts already paid and a discount
for the time value of money.
Given the estimation required in
determining the applicable discount
rate, this was considered to be a
focus for our audit and a key audit
matter.
40
impairment
For the production licence we reviewed
management’s
indicator
analysis and formed our own assessment of
potential impairment indicators as at 31
December 2021. As part of the impairment
indicator
evaluated
analysis, we
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 2021 to
market consensus forecasts and compared
production
operational
cost
the 2015 Competent
to
assumptions
Person’s Report, historical data and other
third party sources. We recalculated the
discount rate and performed sensitivity
analysis in respect of significant inputs.
and
We relied on our previous years’ work on
evaluation of
independence and
competence of the Competent Person as a
management expert and assessed if any
changes were required.
the
Key observations:
We found management’s conclusion that
the carrying value of the 3A Best, BNG oil
and gas assets to be appropriate. We found
the judgments made by management to be
reasonable.
We reviewed the terms of the licence to
confirm that a payment obligation was
triggered upon award of the contract.
authorities
We reviewed correspondence with the
the
relevant
assessment of
the
remaining payment due and the terms of
payment which formed the basis for the
amounts recorded as a provision.
the quantum of
regarding
We recalculated the amount recorded as a
provision by agreeing payments already
made to bank statements, recalculating the
discount for the time value of money and
comparing the discount rate used to market
bond yield data for instruments with a
similar term and risk.
Key observations:
We found the judgments and estimates
made by management in respect of the
BNG
payment
licence
production
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
Group financial statements
2020
2021
US$
1,900,000
US$
1,900,000
Parent company financial statements
2021
US$
1,300,000
2020
US$
1,500,000
for
1.7% of total
assets
1.5% of total
assets
70% of Group
materiality
80% of Group
materiality
Materiality
Basis
determining
materiality
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.
1,200,000
1,200,000
800,000
1,000,000
65%
of Group Materiality
considering the nature of activities
and historic audit adjustments.
65% of Parent Company Materiality
considering the nature of activities and
historic audit adjustments.
Rationale
benchmark applied
for
the
Performance
materiality
Basis for
determining
performance
materiality
Component materiality
We set materiality for each significant component of the Group based on a percentage of between 26% and 68% 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$1,300,000. 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$38,000 (2020: US$95,000). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
41
Other information
The directors are responsible for the other information. The other information comprises the information included in
the Annual Report and Financial Statements other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that
fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required
by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report
and Directors’
report
Matters
on
which we are
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.
42
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in
line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including
fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and the Parent
company. We determined that the most significant which are directly relevant to specific assertions in the financial
statements are those related to the reporting framework (UK adopted international accounting standards, the
Companies Act 2006, the AIM rules and the QCA Corporate Governance Code), the significant laws and regulations
of Kazakhstan relating to the oil and gas industry, local taxation legislation and environmental regulations, and the
terms and requirements included in the Group’s production and exploration licences.
Our procedures included the following:
• We gained an understanding of how the Group is complying with those legal and regulatory frameworks by
making inquiries of Management and the Audit Committee, and those responsible for legal and compliance
procedures. We corroborated our inquires through our review of board minutes and other supporting
documentation;
• We directed the auditors of the significant components to ensure an assessment is performed on the extent of the
component’s compliance with the relevant local and regulatory framework; and
• We reviewed the financial statement disclosures and tested to supporting documentation to assess compliance
with relevant laws and regulations noted above.
We assessed the susceptibility of the financial statements to material misstatement, including fraud and considered
the fraud risk areas to be management override of controls and revenue recognition.
Our procedures included:
• 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); and
• Communicating relevant potential fraud risks to all engagement team members and remaining alert to any
indications of fraud throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations
or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-
compliance with laws and regulations is from the events and transactions reflected in the financial statements, the
less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
43
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.
Peter Acloque (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London,
United Kingdom
24 June 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
44
Consolidated Statement of Profit or Loss
Revenue
Cost of sales
Gross profit
Selling expense
Impairment of unproven oil and gas assets
Provision for expected credit losses of long-term assets
Share-based payments
Other administrative costs
Total administrative expenses
Operating loss
Finance cost
Finance income
Loss 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 loss per ordinary share (US cents)
Notes
4
12
16
5
8
9
10
Year to
31 December
2021
US$’000
24,996
(5,624)
19,372
(7,578)
(12,464)
-
-
(3,332)
(3,332)
(4,002)
(859)
24
(4,837)
(709)
(5,546)
-
(5,546)
(5,554)
8
(5,546)
(0.26)
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)
The notes on pages 52 to 82 are essential part of these financial statements
45
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
2021
Year ended
31 December
2020
US$000
US$000
(5,546)
(3,493)
(6,863)
(12,409)
(12,417)
8
403
(3,090)
(3,010)
(80)
The notes on pages 52 to 82 are essential part of these financial statements
46
Consolidated Statement of Changes in Equity
Share
capital
US$’000
Share
premium
US$’000
30,804
-
164,313
-
Deferred
shares
US$’000
64,702
-
Cumulative
translation
reserve
US$’000
Other
reserves
US$’000
Merger
reserve
US$’000
Retained
deficit
US$’000
Total attributable
to the owner of the
Parent
US$’000
Non-controlling
interests
US$’000
(55,240)
-
(2,362)
-
11,454
-
(150,685)
(5,554)
Total equity as at 1 January 2021 (restated)
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 (note 18)
Shares issued to employees and consultants (note 18)
Total equity as at 31 December 2021
-
-
264
50
31,118
-
-
486
18
164,817
-
-
-
-
64,702
(6,863)
(6,863)
-
-
(62,103)
-
-
-
-
(2,362)
-
-
-
57
11,511
-
(5,554)
-
-
(156,239)
62,986
(5,554)
(6,863)
(12,417)
750
125
51,444
(5,809)
8
-
8
-
-
(5,801)
Total
equity
US$’000
57,177
(5,546)
(6,863)
(12,409)
750
125
45,643
Share
capital
US$’000
Share
premium
US$’000
Deferred shares
US$’000
Cumulative
translation
reserve
US$’000
Other
reserves
US$’000
Merger
reserve
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 (as previously
reported)
Adjusted (note 3)
Total equity as at 1 January 2020 (restated)
Loss after taxation
foreign
Exchange differences on
operations and recycling of exchange differences on
disposal of subsidiaries
translating
Total comprehensive income/(loss) for the year
Shares issue (restated)
Merger reserve transfer (restated) (note 3)
Debts to equity conversion (note 18)
Shares placing in cash (note 18)
Arising on employee share options
28,120
-
28,120
-
-
-
2,095
-
112
477
-
246,299
(83,066)
163,233
-
64,702
-
64,702
-
(55,643)
-
(55,643)
-
(2,362)
-
(2,362)
-
-
(220,477)
83,066
83,066
-
-
(220,477)
(3,413)
-
-
-
-
246
834
-
-
-
-
-
-
-
-
403
403
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,571
(73,183)
-
-
-
-
(3,413)
-
73,183
-
-
22
Total equity as at 31 December 2020 (restated)
30,804
164,313
64,702
(55,240)
(2,362)
11,454
(150,685)
60,639
-
60,639
(3,413)
403
(3,010)
3,666
-
358
1,311
22
62,986
(5,729)
-
(5,729)
(80)
-
(80)
-
-
-
-
-
(5,809)
54,910
-
54,910
(3,493)
403
(3,090)
3,666
-
358
1,311
22
57,177
Equity
Share capital
Share premium
Deferred shares
Cumulative translation reserve
Other reserves
Merger reserve
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
The excess of the fair value of the issues share capital over the nominal value of these shares issued for acquisition of at least 90 percent equity holding in subsidiaries.
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 52 to 82 are essential part of these financial statements
47
Parent Company Statement of Changes in Equity
Total equity as at 1 January 2021 (restated)
Total comprehensive loss for the year
Shares issue (note 18)
Shares issued to employees and consultants (note 18)
Arising on employee share options
Total equity as at 31 December 2021
Total equity as at 1 January 2020 (as previously reported)
Adjusted (note 3)
Total equity as at 1 January 2020 (restated)
Total comprehensive loss for the year
Shares issue (restated)
Merger reserve transfer (restated) (note 3)
Debts to equity conversion (note 18)
Shares placing in cash (note 18)
Arising on employee share options
Total equity as at 31 December 2020 (restated)
Share
capital
US$’000
Share
premium
US$’000
Deferred
shares
US$’000
Merger reserve
US$’000
Retained deficit
US$’000
Total attributable to the
owner of the Parent
US$’000
30,804
-
264
50
-
31,118
Share
capital
US$’000
28,120
28,120
-
2,095
-
112
477
-
30,804
164,313
-
486
18
-
164,817
64,702
-
-
-
-
64,702
11,454
-
-
57
-
11,511
(169,398)
(1,805)
-
-
-
(171,203)
101,875
(1,805)
750
125
-
100,945
Share
premium
US$’000
Deferred
shares
US$’000
Merger reserve
US$’000
Retained deficit
US$’000
Total attributable to the
owner of the Parent
US$’000
246,299
(83,066)
163,233
-
-
-
246
834
-
164,313
64,702
-
64,702
-
-
-
-
-
-
64,702
-
83,066
83,066
-
1,571
(73,183)
11,454
(138,167)
-
(138,167)
(104,436)
-
73,183
-
-
22
(169,398)
200,954
-
200,954
(104,436)
3,666
-
358
1,311
22
101,875
Equity
Share capital
Share premium
Deferred shares
Other reserves
Merger reserve
Retained deficit
Description and purpose
The nominal value of shares issued
Amount subscribed for share capital in excess of nominal value
The nominal value of deferred shares issued
Capital contribution arising on discounted loans
The excess of the fair value of the issues share capital over the nominal value of these shares issued for acquisition of at least 90 percent equity holding in subsidiaries.
Cumulative losses recognised in the profit or loss
The notes on pages 52 to 82 are essential part of these financial statements
48
Consolidated Statement of Financial Position
Company number 5966431
Notes
Group
2021
US$’000
Group
2020 (restated)
US$’000
Group
2019 (restated)
US$’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
Merger reserve
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,
24 June 2022
Company number: 5966431
12
13
16
15
16
17
18
18
27
19
20
21
21
23
21
21
19
46,137
57,134
4,263
634
108,168
664
4,950
429
6,043
114,211
31,118
164,817
64,702
(2,362)
11,511
(156,239)
(62,103)
51,444
(5,801)
45,643
13,240
6,425
3,178
5,482
28,325
6,463
19,290
487
14,003
40,243
68,568
114,211
61,413
52,845
4,246
241
118,745
392
6,195
329
6,916
125,661
30,804
164,313
64,702
(2,362)
11,454
(150,685)
(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
163,233
64,702
(2,362)
83,066
(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 52 to 82 are essential part of these financial statements
49
Parent Company Statement of Financial Position
Company number 05966431
Notes
Assets
Non-current assets
Investments in subsidiaries
Other receivables
Total non-current assets
Current assets
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital
Share premium
Deferred shares
Merger reserve
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
14
16
16
17
18
18
20
19
Company
2021
US$’000
Company
2020 (restated)
US$’000
Company
2019 (restated)
US$’000
15,487
88,559
104,046
10
4
14
104,060
31,118
164,817
64,702
11,511
(171,203)
100,945
100,945
2,382
733
3,115
-
-
3,115
104,060
15,487
89,265
104,752
9
3
12
104,764
30,804
164,313
64,702
11,454
(169,398)
101,875
101,875
2,069
820
2,889
-
-
2,889
104,764
223,781
10,704
234,485
7
87
94
234,579
28,120
163,233
64,702
83,066
(138,167)
200,954
200,954
1,814
31,811
33,625
-
-
33,625
234,579
The Company incurred a loss for the year ended 31 December 2021 in the amount of US$ 1,805,000 (2020: loss of US$ 104,436,000).
Approved by the Board and authorized for issue:
Clive Carver,
Chairman,
24 June 2022
Company number: 05966431
The notes on pages 52 to 82 are essential part of these financial statements
50
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
Transfers from/(to) restricted use cash
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 received from third parties
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
2021
US$’000
Group
2020
US$’000
Company
2021
US$’000
Company
2020
US$’000
24,308
(15,509)
(1,051)
7,748
(7,136)
(719)
(393)
-
-
10,807
(11,124)
(1,423)
(1,740)
(3,019)
(1,520)
-
-
-
(8,248)
(4,539)
-
600
600
100
329
429
1,311
1,237
2,548
(3,731)
4,060
329
26
17
-
(834)
(163)
(997)
-
(1,263)
(399)
(1,662)
-
-
-
840
-
840
-
158
158
1
3
4
-
-
-
302
(35)
267
1,311
-
1,311
(84)
87
3
The notes on pages 52 to 82 form part of these financial statements
51
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 24 June 2022.
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 UK-adopted international accounting standards and as
applied in accordance with the provisions of the Companies Act 2006
Going concern
The financial position of the Group and the Company has improved in the past year and as at 1 June 2022 the Group had cash of $1 million.
•
•
•
•
At current oil prices, even with the Urals Oil price discount, the Company enjoys positive operational cash flows
Deep Well 802 is the final well required under the BNG work programme. Any further deep wells drilled at BNG will be on a discretionary
basis
As is the case for the MJF structure, the South Yelemes structure with current production of approximately 300 bopd is now able to sell most
of its oil at international prices
$6.2 million of debt has been converted to equity
Nevertheless with net current liabilities of approximately $22 million as at 31 December 2021, the assessment of going concern needs to be properly
considered. 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. These cash flows, which include the payment of discretionary dividend, are dependent on a number of key factors including:
•
•
•
The Group’s cashflow is sensitive to oil price and volume sold. This is impacted by its current reliance on exporting a portion of its oil sales
through the Russian pipeline network. If due to sanctions on Russia, this pipeline network is no longer available, or the discount on oil
exported through this network increased over a prolonged period, to continue to generate positive cash the Group would either seek alternative
distribution routes via Uzbekistan, Azerbaijan or China or alternatively sell all oil produced on the domestic market or to one of the new mini
refineries opening in the region, where prices are typically better than the domestic price and buyers collect the oil from the wellhead. As
none of these alternatives have yet been tested, if the oil price achieved or volume sold declined, these factors could result in the Group
requiring additional funding.
The Group continues to forward sell its domestic production and receive advances from oil traders with $1.8m 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 $6.0m of liabilities due on demand under social development program and $0.4m 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. Should
the deferrals not occur additional funding would be required.
These circumstances continue to indicate the existence of a material uncertainty which may cast significant doubt about the Group and the
Company’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 and the Company 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 and the Company 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 judgements, estimates and assumptions that
affect the application of policies and reported amounts in the financial statements.
The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements
are disclosed in note 2.
1.2 New and revised standards and interpretations to be updated
The Group applied for the first time, certain standards and amendments, which are effective for annual periods beginning on or after 1 January
2021. 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 2021, 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.
52
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
a) New standards, interpretations and amendments adopted from 1 January 2021
Interest Rate Benchmark Reform – IBOR ‘phase 2’ (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
These amendments to various IFRS standards are mandatorily effective for reporting periods beginning on or after 1 January 2021. The amendments
provide relief respect of loans whose contractual terms are affected by interest benchmark reform. There is no impact on the current reporting
period.
b) New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future
accounting periods that the Group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January 2022:
• Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
• Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
• References to Conceptual Framework (Amendments to IFRS 3).
The following amendments are effective for the period beginning 1 January 2023:
• Amendments IFRS 17 Insurance contracts (Initial Application of IFRS 17 and IFRS 9 – Comparative Information)
• Amendments to IAS 1 Presentation of Financial Statements (Classification of Liabilities as Current or Non-Current)
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
• Definition of Accounting Estimates (Amendments to IAS 8); and
• Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
These standards are not expected to have a material impact on the entity in the current or 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.
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.
53
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.5 Foreign currency translation (continued)
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 reporting purposes and the
amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the reporting date.
Deferred tax liabilities are generally recognised for all taxable temporary differences. A deferred tax asset is recorded only to the extent that it is
probable that taxable profit will be available, against which the deductible temporary differences can be utilised.
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 the requirements of
IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’. Under the full cost method of accounting, costs of exploring for and evaluating oil
and gas properties are accumulated and capitalised by reference to appropriate cost pools. Such cost pools are based on license areas. The Group
currently has two cost pools.
Exploration and evaluation costs include costs of license acquisition, technical services and studies, seismic acquisition, exploration drilling and
testing, but do not include costs incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the profit or
loss as they are incurred.
Plant and equipment assets acquired for use in exploration and evaluation activities are classified as property, plant and equipment. However, to
the extent that such asset is consumed in developing an 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.
54
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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 flows 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.
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.
55
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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
over 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.
56
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 statement.
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.
57
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 1.35 and the average rate during the year was 1.38. The year-end exchange rate
from KZT to US$ was 431.67 and the average rate during the year was 426.03.
1.25 Merger reserve
Merger reserve represents the excess of the fair value of the issued share capital over the nominal value of these shares issued for acquisition of
investments in subsidiaries where the Company has secured at least 90 percent equity holding in accordance with section 612 of the Companies
Act 2006. The Company allocates merger reserve to the retained earnings/deficit account on disposal of the investment the reserve relates to or if
this investment is written down for impairment.
58
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 12)
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 2021, 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 21 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 2021.
The Board is working with the Kazakh authorities to renew the licence at 3A Best, following which the Board will assess 3A Best’s position in the
Group. While the Board remains confident that the licence will be renewed on favourable terms, the Group cannot currently make any progress
with the asset. Accordingly, the Board has decided to impair the asset in full, resulting in a $12.5 million impairment charge in 2021.
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 12 & 13)
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 13)
The proven oil and gas assets, representing the MJF structure, have been assessed for indicators of impairment at 31 December 2021 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 2021 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.
2.4 Recoverability of VAT (note 16)
The Group holds VAT receivables of $3.8 million (2020: $3.8million) as detailed in note 16 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 2 years (2020: 3 years). This required estimates regarding
future production, oil prices and expenditure.
2.5 Decommissioning (note 21)
Provision has been made in the accounts for future decommissioning costs to plug and abandon wells in note 21. 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.
59
Notes to the Financial Statements (continued)
2 Critical accounting estimates and judgements (continued)
2.6 Acquisition of Caspian Explorer (prior year, 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 2021 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 12, 13, 21)
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 2021, 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.
2.8 Uncertain tax positions (note 23)
As detailed in note 23, 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 where it is probable that the
treatment will be challenged.
2.9 Indemnity receivables in relation to 3A Best acquisition
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, 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 2021 (note 16).
2.10 Recoverability of investments (note 14)
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 management has
estimated that no additional provision was required in 2021 (provision of US$145.7m was recognised in 2020).
2.11 Estimation of credit losses of receivables from subsidiaries (note 16)
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$20.7m at the year end (2020: US$19.9m).
60
Notes to the Financial Statements (continued)
3 Prior period adjustment
An error was identified in the accounting for several acquisitions of subsidiaries in 2017-2020 for the issue of shares in which no share premium
should have been recorded. The premium over the nominal value of shares issued should have instead been credited to a merger reserve, which is
an unrealised profit. A portion of this unrealised profit became realised on the impairment of the acquired assets during 2020 and in accordance
with the accounting policy it should have been transferred from merger reserve to retained earnings.
Given the error occurred prior to the beginning of the comparative period, it has been corrected by restating each of the affected financial statement
line items as at 1 January 2020 and 31 December 2020 as per tables below. There is no impact on profit or loss or other comprehensive income:
Parent Company Balance Sheet lines
Share premium
Merger reserve
Share premium
Merger reserve
Retained deficit
1 January 2020
Correction of merger
reserve
1 January 2020
restated
246,299
-
(83,066)
83,066
163,233
83,066
31 December
2020
Correction of merger
reserve
31 December 2020
restated
248,950
-
(242,581)
(84,637)
11,454
73,183
164,313
11,454
(169,398)
Group Balance Sheet lines
Share premium
Merger reserve
Share premium
Merger reserve
Retained deficit
1 January 2020
Correction of merger
reserve
1 January 2020
restated
246,299
-
(83,066)
83,066
163,233
83,066
31 December
2020
Correction of merger
reserve
31 December 2020
restated
248,950
-
(223,868)
(84,637)
11,454
73,183
164,313
11,454
(150,685)
61
Notes to the Financial Statements (continued)
4
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 2021: Exploration for and production of crude oil and drilling services at the Caspian shelf
using the submersible drilling rig. Both operating segments perform their activities and generate revenues in Kazakhstan.
BNG Ltd. LLP mainly presents the Exploration and production. Total revenue from crude oil sales generated by BNG in 2021 was US$ 23,725,000,
net operating income for the year was US$4,968,000. 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 2021 between the domestic traders (Petroleum Operating LLP, Petro
Synthesis) and the export trader (Euro-Asian Oil SA) was US $3,691,000 and US $20,034,000 respectively.
KC Caspian Explorer (KCCE) LLP, presenting the drilling services operating segment, historically provided drilling services at Kazakh section of
Caspian See shelf for the third party oil and gas operators. Before acquisition in 2020 the vessel, equipped with the drilling rig, provided exploration
services on total US $38,000,000 (US $21m in 2017 and US $17m in 2018). In 2021 the KCCE vessel has provided NCOC, Kashagan oil field
operator, with the services not related to drilling services. At the standalone financial accounts of KCEE the property plant and equipment valued
at US $34,000,000 and minor payables to third parties. Information about the revenues of the segment for the period is provided below.
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.
During 2021 KCCE LLP provided services for North Caspian Operating Company (NCOC), the operator of Kashagan offshore oil field. KCCE
provided the vessel for training purposes on Caspian Shelf. The total related revenue comprised US$1.27 million with direct cost of US $656
thousand.
No trade receivables or accrued income was applicable at year end (2020: $Nil).
Below is the summary of the results of the segments during 2021:
Caspian
Explorer
$000
Oil & Gas
assets
$000
Corporate
allocated
$000
Total
$000
External revenues
Cost of sales
Gross profit
Administrative expenses
Selling expense
Impairment of unproven oil and gas assets
Segment operating loss
Finance income
Finance costs
Loss before income tax
Total assets
Total liabilities
23,725
(4,968)
18,757
(1,230)
(7 578)
(12 464)
(2,515)
11
(575)
(3,079)
111,489
60,556
–
–
–
(1,235)
–
–
(1,235)
–
(284)
(1,519)
101
7,912
24,996
(5,624)
19,372
(3,332)
(7,578)
(12,464)
(4,002)
24
(859)
(4,837)
114,211
68,568
1,271
(656)
615
(867)
–
–
(252)
13
–
(239)
2,621
100
62
Notes to the Financial Statements (continued)
5 Operating loss
Group operating loss for the year has been arrived after charging:
Impairment of unproven oil and gas assets (note 12)
Staff costs (note 7)
Depreciation of property, plant and equipment (note 13)
Auditor remuneration (note 6)
Share based payment remuneration (note 7)
Expected credit loss provision against amount due in respect of 3A Best (note16)
6 Group Auditor’s remuneration
Fees payable by the Group to the Company's auditor BDO and its member firms in respect of the year:
Fees for the audit of the annual financial statements
Audit related services
Other services – tax related
Fees payable by the Group to Grant Thornton and its associates in respect of the year:
Group
2021
US$’000
(12,464)
(1,051)
(3,557)
(212)
-
-
Group
2020
US$’000
-
(1,256)
(1,688)
(188)
(22)
(2,551)
Group
2021
US$’000
Group
2020
US$’000
153
-
11
164
Group
2021
US$’000
48
48
146
5
9
160
Group
2020
US$’000
28
28
Auditing of accounts of subsidiaries of the Company
7 Employees and Directors
Staff costs during the year
Wages and salaries
Social security costs
Pension costs
Share-based payments
Group
2021
US$’000
Company
2021
US$’000
Group
2020
US$’000
Company
2020
US$’000
1,051
72
102
-
1,225
315
-
-
-
315
1,256
56
83
22
1,417
432
-
-
22
454
Payroll expenses were not capitalized in 2021 (2020: US$8,275) and expensed as cost of sales in the amount of US$254,000 (2020: US$ $258,510).
Average monthly number of people employed
(including executive Directors)
Group
2021
Company
2021
Group
2020
Company
2020
Technical
Field operations
Finance
Administrative and support
Directors’ remuneration
Director’s emoluments
Share-based payments
14
170
7
24
215
-
-
1
3
4
9
145
8
19
181
-
-
2
2
4
Group
2021
US$’000
332
-
Group
2020
US$’000
643
22
665
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$142,000 (2020: US$312,000).
332
63
Notes to the Financial Statements (continued)
8 Finance cost
Loan interest payable
Unwinding of discount on BNG licence payment provision (note 21)
Unwinding of discount on provisions (note 21)
9 Finance income
Interest income at BNG LLP and KC Caspian
10 Taxation
Analysis of charge for the year
Current tax charge
Deferred tax charge
Lossbefore tax
Tax on the above at the standard rate of corporate income tax in the UK 19% (2020 19%)
Effects of:
Non-deductible expenses
Withholding tax on interest expense
Utilization of tax losses not previously recognized
Unrecognised tax losses carried forward
Group
2021
US$’000
237
616
6
859
Group
2020
US$’000
368
685
14
1,067
Group
2021
US$’000
24
Group
2020
US$’000
20
Group
2021
US$’000
709
-
709
Group
2021
US$’000
(4,837)
Group
2020
US$’000
1,748
-
1,748
Group
2020
US$’000
(1,745)
(919)
(332)
(1,310)
709
(1,730)
3,959
709
-
1,748
(1,070)
1,402
1,748
11 Loss per share
Basic loss per share is calculated by dividing the income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year including shares to be issued.
There is no difference between the basic and diluted loss per share as the Group made a loss for the current and prior year. Dilutive potential
ordinary shares include share options granted to employees and directors where the exercise price (adjusted according to IAS33) is less than the
average market price of the Company’s ordinary shares during the period.
The calculation of loss per share is based on:
The basic weighted average number of ordinary shares in
issue during the year
The loss for the year attributable to owners of the parent from continuing operations (US$’000)
The loss for the year attributable to owners of the parent from discontinued operations (US$’000)
There were 2,500,000 potentially dilutive instruments in the year (2020: 2,500,000).
2021
2020
2,097,978,787
(5,554)
-
1,871,288,151
(3,413)
-
64
Notes to the Financial Statements (continued)
12 Unproven oil and gas assets
COST
Cost at 1 January 2020
Additions
Sales from test production net of cost of sales
Foreign exchange difference
Cost at 31 December 2020
Additions
Foreign exchange difference
Cost at 31 December 2021
ACCUMULATED IMPAIRMENT
Accumulated impairment at 1 January 2020
Foreign exchange difference
Accumulated impairment at 31 December 2020
Impairment related to 3A-Best (100%)
Foreign exchange difference
Accumulated impairment at 31 December 2021
Net book value at 1 January 2020
Net book value at 31 December 2020
Net book value at 31 December 2021
Group
US$’000
69,694
1,520
(149)
(173)
70,892
719
(3,579)
68,032
Group
US$’000
9,654
(175)
9,479
12,464
(48)
21,895
60,040
61,413
46,137
Unproven oil and gas assets represent license acquisition costs and subsequent exploration expenditure in respect of the licenses held by Kazakh
group entities. The carrying values of those assets at 31 December 2021 were 100% represented by BNG Ltd LLP (2020: US$49,892,000). 100%
cost of the unproven oil and gas assets related to 3A Best-Group JSC of US$ 12,464,000 was impaired at the Group level after received a notification
from the Ministry of Energy of Kazakhstan that due to the fact the Subsoil Use contract has not been prolonged in July 2020 the named contract
deemed expired starting that date (note 21).
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 31.12.2021 the balance of accumulated impairment
was US$ 21,895,000.
65
Notes to the Financial Statements (continued)
13 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 2020
Additions
Acquisitions (Caspian Explorer) (note 22)
Foreign exchange difference
Cost at 31 December 2020
Additions
Disposals
Acquisitions
Foreign exchange difference
Cost at 31 December 2021
Depreciation at 1 January 2020
Charge for the year
Foreign exchange difference
Depreciation at 31 December 2020
Charge for the year
Disposals
Foreign exchange difference
Depreciation at 31 December 2021
Net book value at:
01 January 2020
31 December 2020
31 December 2021
Proved
oil and gas
assets
US$’000
43,318
1,366
-
(962)
43,722
1,757
-
-
(550)
44,929
Motor
Vehicles
Other
Total
US$’000
US$’000
US$’000
56
-
-
-
56
2,198
-
-
(128)
2,126
8,334
19
2,837
(13)
11,177
4,938
(11)
53
(212)
15,945
51,708
1,385
2,837
(975)
54,955
8,893
(11)
53
(890)
63,000
130
1,230
30
1,390
1,339
-
42
39
8
-
47
482
-
40
213
450
10
673
1,736
(7)
124
382
1,688
40
2,110
3,557
(7)
206
2,771
569
2,526
5,866
43,188
42,332
42,158
17
9
1,557
8,121
10,504
13,419
51,326
52,845
57,134
66
Notes to the Financial Statements (continued)
14
Investments (Company)
Investments
Cost
At 1 January 2020
Increase in investments
Reclassification related to intercompany restructuring
At 31 December 2020
Increase in investments
At 31 December 2021
Impairment
At 1 January 2020
Impairment
At 31 December 2020
Impairment
At 31 December 2021
Net book value at:
31 December 2020
31 December 2021
Company
US$’000
288,034
3,666
(66,259)
225,441
-
225,441
64,253
145,701
209,954
-
209,954
15,487
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 $49.3m to
Caspian Sunrise plc which it settled by offset against receivables due from Caspian Sunrise (see note 19). The receivable from Eragon FZE is
repayable on demand but is classified as long term because this reflects the expected timing of actual funds flow. As part of the restructuring US$
66m at the Company’s standalone accounts were reclassified from the investments to the receivables from subsidiaries (note 16).
The directors review the investments for the recoverability on a regular basis, together with the associated cash flows of each company, and assess
their impairment. 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 no impairment
in relation to the investments in 2021 (impairment charge for 2020: $145.7m).
67
Notes to the Financial Statements (continued)
14
Investments (Company, continued)
Direct investments
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December
2021
Effective holding and
proportion
of voting
rights held
at 31 December 2020
Registered
address
Nature
of business
Eragon Petroleum Limited
United Kingdom
100%
100%
Eragon Petroleum FZE
Dubai
100%
100%
Prosperity Petroleum LTD
Dubai
100%
100%
Beibars BV
Netherlands
100%
100%
Ravninnoe BV
Netherlands
100%
100%
Roxi Petroleum Kazakhstan LLP
Kazakhstan
100%
100%
5 New Street Square
London
EC4A 3TW
CN-135789, Jebel Ali,
Dubai, UAE
CN-135789, Jebel Ali,
Dubai, UAE
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
Holding
Company
Management
Company
Management
Company
Holding
Company
Holding
Company
152/140 Karasay Batyr
Str., Almaty, Kazakhstan
Management
Company
Indirect investments held by Eragon Petroleum Limited
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December 2021
Effective holding
and
proportion
of voting
rights held
at 31 December 2020
Registered address
Nature
of business
Galaz Energy BV
Netherlands
100%
100%
BNG Energy BV
Netherlands
100%
100%
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
Holding
Company
Holding
Company
68
14
Investments (Company, continued)
Indirect investments held by Eragon Petroleum FZE
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December 2021
Effective holding
and
proportion
of voting
rights held
at 31 December 2020
Registered address
Nature
of business
BNG Ltd LLP
Kazakhstan
99%
99%
3A-Best Group JSC Kazakhstan
100%
100%
CTS LLP
Kazakhstan
100%
100%
Sur Nedr LLP*
Kazakhstan
100%
SK-NS Aktau LLP*
Kazakhstan
100%
-
-
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
152/140 Karasay Batyr
Str., Almaty,
Kazakhstan
Drilling &
Service Company
152/140 Karasay Batyr
Str., Almaty,
Kazakhstan
Drilling &
Service Company
*During 2021 CTS LLP has acquired 100% interest in Sur Nedr and SK-NS Aktau LLP, the 2 companies with drilling licenses and minor assets
on their balances. The consideration paid for 100% interest at the companies was insignificant cash payment (nominal value of the share capital).
Indirect investments held by Prosperity Petroleum LTD
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December 2021
Effective holding
and
proportion
of voting
rights held
at 31 December 2020
Registered address
Nature
of business
KC Caspian LLP**
Kazakhstan
100%
100%
152/140 Karasay Batyr
Str., Almaty,
Kazakhstan
Drilling Vessel
owner
**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 21 for details).
In both cases above the management of the Group considered the acquisitions as the asset acquisitions.
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.
69
Notes to the Financial Statements (continued)
15 Inventories
Materials and supplies
16 Other receivables
Amounts falling due after one year:
Prepayments made
VAT receivable
Intercompany receivables (note 14)
Amounts falling due within one year:
Prepayments made
Other receivables*
Group
2021
US$’000
664
664
Group
2020
US$’000
392
392
Group
2021
Group
2020
Company
2021
US$ ‘000
US$ ‘000
US$ ‘000
Company
2020
US$’000
448
3,815
-
4,263
1,294
3,665
4,950
435
3,811
-
4,246
2,187
4,008
6,195
-
51
88,508
88,559
10
-
10
-
53
89,212
89,265
9
-
9
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$3,665,000 (2020: US$4,008,000) 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. At 31 December 2021 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 are interest free.
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$20.7 million (2020: US$19.9 million). The movement in the
expected credit loss provision related to the inter-company receivables was as follows:
Denomination
As at 1 January
Charge
As at 31 December
Group
2021
US$’000
-
-
-
Group
2020
US$’000
-
-
-
Company
2021
US$’000
19,912
797
20,709
Company
2020
US$’000
12,913
6,999
19,912
The Company recognised US$ 797,000 of expected loss on provisions in relation to its receivables from subsidiaries in 2021 (2020: loss of US$
6,999,000).
70
Notes to the Financial Statements (continued)
17 Cash and cash equivalents
Cash at bank and in hand
Group
2021
US$’000
429
Group
2020
US$’000
329
Company
2021
US$’000
4
Company
2020
US$’000
3
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
18 Called up share capital
Group and Company
Group
2021
US$’000
45
-
384
429
Group
2020
US$’000
292
2
35
329
Company
2021
US$’000
Company
2020
US$’000
4
-
-
4
1
2
-
3
Balance at 1 January 2020
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 21)
Balance at 31 December 2020
Shares issued to repay intermediary services
Shares issued to repay new rig acquisition
Bonus paid to employees
Balance at 31 December 2021
Number
of ordinary
shares
1,882,660,885
8,938,570
36,363,629
160,256,410
2,088,219,494
3,017,956
18,972,164
562,500
2,110,772,114
Number
of deferred
shares
373,317,105
-
-
-
373,317,105
-
-
-
373,317,105
US$’000
28,120
112
477
2,095
30,804
42
264
8
31,118
US$’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.
During 2021 the Company made the following issues of its ordinary shares to cover the incurred during 2021 debts. 1) 3,017,956 ordinary shares
as the payment of the intermediary services for the deal to buy 100% interest at Prosperity Petroleum Ltd and KC Caspian LLP. 2) 18,972,164 new
ordinary shares as the consideration paid to the third party owner of the workover rig. The total consideration was US$750,000. 3) 562,500 new
ordinary shares issued to the staff member (below board level) as the reward for successful drilling works.
19 Trade and other payables – current
Trade payables
Taxation and social security
Accruals
Other payables
Intercompany payables
Advances received (deferred revenue)
Group
2021
US$’000
2,684
2,977
152
3,502
-
3,925
13,240
Group
2020
US$’000
2,892
1,629
136
3,369
-
2,986
11,012
Company
2021
US$’000
64
20
106
485
58
-
733
Company
2020
US$’000
191
22
109
382
116
-
820
As at 31 December 2021 and 31 December 2020, the Group received a significant amount of prepayments from the oil traders in relation to
increasing production on the BNG oil field.
71
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 $49.3m to
Caspian Sunrise plc which it settled by offset against receivables due from Caspian Sunrise (see note 14).
19 Trade and other payables – non-current
Intercompany payables
Taxation
Group
2021
US$’000
-
14,003
14,003
Group
2020
US$’000
-
13,648
13,648
Company
2021
US$’000
-
-
-
Company
2020
US$’000
-
-
-
Taxation payable relate to withholding tax accrued on the interest expense at the BNG subsidiary level.
20 Short-term borrowings
Akku Investments LLP
Mr. Oraziman
Other borrowings
Group
2021
US$’000
4,433
1,424
568
6,425
Group
2020
US$’000
-
3,624
1,976
5,600
Company
2021
US$’000
2,224
-
158
2,382
Company
2020
US$’000
-
777
1,292
2,069
At the start of 2021 the entities of the Group had the following loans payable: US$ 1,125,000 loan payable by Eragon Petroleum FZE to Mr. K.
Oraziman, (7% interest bearing); US$ 777,000 loan payable by Caspian Sunrise plc to Mr. K. Oraziman, (7% interest bearing); interest free loans
provided by Mr. K. Oraziman to Kazakh subsidiaries on total US$ 1,733,000. Other borrowings provided by the entities controlled by Oraziman
family: US$ 672,000 loan provided by Fosco BV to BNG LLP, US$ 1,293,000 provided by Vertom International NV and Kernhem International
BV to Caspian Sunrise plc.
During 2021 major part of the loans payable by the Group to Mr. Kuat Oraziman and the related companies were assigned to Akku Investment
LLP, the company controlled by the Oraziman family. Akku Investments provided no new loans during the period. Mr. K.Oraziman provided
additional US$ 229,000 of loans to BNG and CTS LLPs during 2021 (nominated in KZT, interest free). Another US$ 568,000 of new loans provided
by the entities controlled by the Oraziman family other than Akku Investments (loans by Vertom International NV (US$488,000, 7%) and Herie
NV (US$ 80,000, 7%) to the Group entities in 2021.
72
Notes to the Financial Statements (continued)
21 Provisions and contingencies
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
Group only
Balance at 1 January 2021
Increase in provision
Change in estimate
Paid in the year
Unwinding of discount
Foreign exchange difference
Balance at 31 December 2021
Non-current provisions
Current provisions
Balance at 31 December 2021
BNG licence
payments*
US$’000
Liabilities under Social
Development Program
and historical cost
US$’000
Abandonment
fund
2020
Total
US$’000
US$’000
27,394
-
-
(3,014)
685
-
25,065
21,887
3,178
25,065
6,154
-
-
-
-
(181)
5,973
-
5,973
5,973
BNG licence
payments*
US$’000
Liabilities under Social
Development Program
and historical cost
US$’000
25,065
-
-
(3,140)
616
(73)
22,468
19,290
3,178
22,468
5,973
-
-
(618)
-
(14)
5,341
-
5,341
5,341
578
91
(81)
-
14
(45)
557
413
144
557
Abandonment
fund
34,126
91
(81)
(3,014)
699
(226)
31,595
22,300
9,295
31,595
2021
Total
US$’000
US$’000
557
103
(34)
-
6
(4)
628
487
141
628
31,595
103
(34)
(3,758)
622
(91)
28,437
19,777
8,660
28,437
*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$32.5m.
The sum is paid on a quarterly basis from 1 July 2019 in equal instalments and the final payment is due to be paid on 1 April 2029. The payments
have been discounted to their net present value. This discounted value has been capitalised as Property, plant and equipment (note 13) and will be
amortised over the productive period. Any changes in estimated payments and discount rate are dealt with prospectively and result in a
corresponding adjustment to property plant and equipment.
Amounts in relation to Subsoil Use Contracts are included in the table above and relate to the licence areas disclosed below:
a) BNG Ltd LLP
BNG Ltd LLP a subsidiary, signed a contract #2392 dated 7 June 2007 with the Ministry of Energy and Mineral Resources of RK for exploration
at Airshagyl deposit, located in Mangistau region. According to the latest Amendments BNG is required to pay around US$ 231,650 annually for
social programs of Mangistau Region for the period from 7 June 2018 to 7 June 2024. Also, it is required to pay 1% of investments under the
Contract on production during the period based on the results of the previous year. For the exploration period extended to June 2024, the amount
of the commitments under the work program according to the Contract on exploration is US$ 28 million dollars. BNG is also required to invest in
training of Kazakh personnel not less than 1% of annual amount of investments. Another requirement of the company is to accumulate funds for
the Site Restoration by transferring annually 1% of annual exploration costs to a special deposit in accordance with the Contract on exploration. As
at 31 December 2021 BNG was in compliance with all the requirements listed above.
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.
73
Notes to the Financial Statements (continued)
21 Provisions and contingencies (continued)
b) 3A-Best Group JSC
As at 31 December 2020 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.
The above mentioned debt was still payable at 31 December 2021. The company did not meet all the above in full but made some payments and
tried to find a solution of the situation. During 2021 the Group received a notification from the Ministry of Energy of Kazakhstan that due to the
fact the Subsoil Use contract has not been prolonged in July 2020 the named contract deemed expired starting that date.
The Board is working with the Kazakh authorities to renew the licence at 3A Best, following which the Board will assess 3A Best’s position in the
Group. While the Board remains confident that the licence will be renewed on favourable terms, the Group cannot currently make any progress
with the asset. Accordingly, the Board has decided to impair the asset in full, resulting in a $12.5 million impairment charge in 2021.
74
Notes to the Financial Statements (continued)
22 Purchase of Caspian Explorer
On 19 October 2020 the Company announced the completion of the transaction to acquire Caspian Explorer, the entities (Prosperity Petroleum
Limited and KC Caspian Explorer LLP) owing a drilling vessel that designed to operate in the shallow waters of the northern Caspian Sea.
The consideration has been satisfied by the issue of 160,256,410 new Caspian Sunrise shares at a price of 1.75p per share (the "Consideration
Shares"). The acquisition was approved by independent shareholders in February 2020. Management has analysed the structure of the
transaction and the underlying activities and concluded that the transaction represents an asset purchase.
The fair value of the identifiable assets and liabilities of Caspian Explorer as at the date of acquisition were:
Property, Plant and Equipment
Other non-current assets
Other current assets*
Total assets
Trade and other payables
Total liabilities
Total identifiable net assets at fair value
Total value of shares issued as consideration
US$'000
2,837
96
833
3,766
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. At 31 December
2021 the amount reduced to US$516,000 subject to updated KZT/USD exchange rate (note 26.1).
23 Deferred tax
Deferred tax liabilities comprise:
Deferred tax on exploration and evaluation assets acquired
Group
2021
US$’000
6,463
6,463
Group
2020
US$’000
6,629
6,629
The Group recognises deferred taxation on fair value uplifts to its oil and gas projects arising on acquisition. These liabilities reverse as the fair
value uplifts are depleted or impaired.
The movement on deferred tax liabilities was as follows:
At beginning of the year
Foreign exchange
Group
2021
US$’000
6,629
(166)
6,463
Group
2020
US$’000
7,244
(615)
6,629
As at 31 December 2021 the Group has accumulated deductible tax expenditure related to BNG expenditure of approximately US$65 million (31
December 2020 US$85 million) available to carry forward and offset against future profits. This represents an unrecognised deferred tax asset of
approximately US$13 million (31 December 2020: US$17 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 2020: US$5.1
million). This asset is fully impaired and there is insufficient certainty of future profitability to utilise these deductions.
75
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 2020
Directors
Employees and others
As at 31 December 2021
91,458,226
-
-
91,458,226
(59,768,226)
(4,590,000)
(450,000)
(64,808,226)
(15,300,000)
-
-
(15,300,000)
16,390,000
(4,590,000)
(450,000)
11,350,000
11,350,000 outstanding options as at 31 December 2021 are exercisable.
Weighted
average
exercise price
in pence (p)
per share
15
-
-
11
The range of exercise prices of share options outstanding at the yearend is 4p – 20p (2020: 4p – 20p). The weighted average remaining contractual
life of share options outstanding at the end of the year is 2.0 years (2020: 2.9 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 2020 and 2021, 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.
76
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 (re decommissioning)
Cash and cash equivalents
Financial liabilities
Trade and other payables
Other payables - current
Other payables - non-current
Borrowings – current
Group
2021
US$’000
Group
2020
US$’000
Company
2021
US$’000
Company
2020
US$’000
-
3,656
634
429
4,719
-
4,008
241
329
4,578
88,508
-
-
4
89,212
-
-
3
88,512
89,215
Group
2021
US$’000
Group
2020
US$’000
Company
2021
US$’000
Company
2020
US$’000
6,338
-
-
6,425
6,397
-
-
5,600
12,763
11,997
655
-
-
2,382
3,037
682
117
-
2,069
2,868
77
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 2021 and 2020:
1 January
2021
Loans
received
Interest
accrued
Disposal of
loans
Repayment
Foreign exchange
difference, net
31 December
2021
Financial
liabilities
Borrowings
5,600
600
237
-
(12)
-
6,425
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
Below is the movement of financial liabilities of the Company for the years ended 31 December 2021 and 2020:
1 January
2021
Loans
received
Interest
accrued
Disposal of
loans
Repayment
Foreign exchange
difference, net
31 December
2021
Financial
liabilities
Borrowings
2,069
158
155
-
-
-
2,382
1 January
2020
Loans
received
Interest
accrued
Conversion to
equity
Repayment
Foreign exchange
difference, net
31 December
2020
Financial
liabilities
Borrowings
1,814
134
121
-
-
-
2,069
78
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$ 4.7 million (2020: US$ 4.6 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 16).
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.
79
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 2021 was 14% (2020 10%).
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 2021 and 2020 see table below. The amounts are contractual payments and may not
tie to the carrying value:
Group 2021 US$’000
Group 2020 US$’000
Company 2021 US$’000
Company 2020 US$’000
Interest rate risk
On
Demand
Less than 3
months
3-12
months
1- 5 years
Over 5
years
6,425
5,600
2,382
2,069
2,684
2,891
655
681
3,654
3,506
58
117
-
-
-
-
-
-
-
-
Total
12,763
11,997
3,095
2,867
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 currency other than their functional
currency (and have insufficient reserves of that currency to settle them) cash already denominated in that currency will, where possible, be
transferred from elsewhere within the Group.
In order to monitor the continuing effectiveness of this policy, the Board receives a periodic forecast, analysed by the major currencies held by the
Group and Company.
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$43
million (2020: US$40 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$43 million (2020: US$40 million).
80
Notes to the Financial Statements (continued)
26 Related party transactions (please see also note 26)
The Company has no ultimate controlling party.
26.1
Loan agreements
The Company had loans outstanding as at 31 December 2021 and 2020 with members of the Oraziman family and legal entities controlled by the
Oraziman family, details of which have been summarised in note 19.
At 31 December 2021 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 $516,000. EPC-Munai is the company controlled by Oraziman family.
26.2
Key management remuneration
Key management comprises the Directors and details of their remuneration are set out in note 7.
26.3
3A Best
At 31 December 2020, three Caspian Sunrise shareholders owed US$ 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 $2,551,000 related to the asset (note 16). The liability of one of the
shareholders, the late Rafik Oraziman, is covered by amounts due by the Company to the Oraziman family. Accordingly, in the financial statements
as at 31 December 2021 and 2020 the provision was made for two thirds of the amounts due.
The Company continues to work with the other two shareholders to recover the amounts due but in 2020 and 2021 financial statements has provided
in full for the amounts due.
26.4
Caspian Explorer
The purchase of the Caspian Explorer (note 22) was from vendors including members of the Oraziman family.
26.5
Sales of services
During 2021 CTS LLP, the subsidiary of the Company, accepted cash advances for drilling and repair services from EPC Munai LLP, the
company controlled by the Oraziman family. The total amount of the outstanding advances at 31 December 2021 was US$ 908,000. No related
services accepted as finalised by EPC Munai at 31 December 2021.
27 Non-controlling interest
Balance at the beginning of the year
Share of loss for the year
Group
2021
US$’000
(5,809)
8
(5,801)
Group
2020
US$’000
(5,729)
(80)
(5,809)
As at 31 December 2021 non-controlling interest represents minority share in BNG Ltd LLP and Beibars Munai LLP (as at 31 December 2020:
BNG Ltd LLP and Beibars Munai LLP).
81
Notes to the Financial Statements (continued)
28 Events after the reporting period
Issue of shares
Debt Conversion
On 9 March 2022 Independent Shareholders approved the resolution required to implement a conversion of approximately $6.2 million debt for
new Ordinary shares in the Company. Accordingly, 139,729,446 Debt Conversion shares were issued at a price of 3.2p per share.
Capital Reduction
On 22 April 2022 shareholders approved resolutions cancelling the Share Premium account and the Deferred Shares as part of wider
arrangements to enable the payment of dividends.
Application has been approved by the UK High Court in June 2022.
Civil unrest
In early January 2022, Kazakhstan experienced a period of significant civil unrest during which the Company’s drilling and administrative
operations were suspended. The civil unrest subsided after approximately 10 days and the Company’s drilling and administrative operations
resumed. Since that date no further episodes of civil unrest have occurred.
Russian sanctions
Following Russia’s invasion of the Ukraine on 24 February 2022, significant economic sanctions were imposed by a number of countries on Russia.
While Russian oil was not initially covered by the sanctions the decision by international oil purchasers to boycott Russian oil led to Urals Oil
trading at a $30-35 per barrel discount to Brent. As oil produced in Kazakhstan and transported via the Russian pipeline network emerges as Urals
Oil this discount has applied to the oil the Group sells on international markets.
In June 2022, the Kazakh authorities re-designated oil produced in Kazakhstan as Kazakhstan Export Blend Crude Oil (“KEBCO”) in an attempt
to differentiate oil produced in Kazakhstan from oil produced in Russia. Additionally in June 2022, the EU confirmed that oil produced in
Kazakhstan and transported vis the Russian pipeline network is not covered by any sanctions.
82