Company number: 05966431
Caspian Sunrise plc
Annual report and financial statements
for the year ended 31 December 2022
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 Comprehensive Income
Consolidated Statement of Changes in Equity
Parent Company Statement of Changes in Equity
Consolidated Statement of Financial Position
Parent Company Statement of Financial Position
Consolidated and Parent Company Statement of Cash Flows
Notes to the Financial Statements
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9
12
15
16
18
19
20
23
26
29
37
39
40
48
49
50
51
52
53
54
55
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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
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CHAIRMAN’S STATEMENT
Introduction
Despite the on-going impact of the war in Ukraine, which has made export sales uneconomic and operating far more
difficult, the Group continues to prosper.
In the year under review we
•
reported record sales at $42.9 million, record gross profit of $32.3 million and record profit before tax of
$12.3 million
produced 792,284 barrels of oil, an increase of 48% on 2021
took an option to acquire Block 8, a Contract Area with similar promise to the BNG Contract Area
converted $6.2 million debt to equity
cancelled the share premium and deferred shares enabling the payment of dividends
•
•
•
•
• made the first of a series of dividend declarations
To date in 2023
• we announced Deep Well 802 flowed at the rate of 700- 900 bopd whilst we were still working to complete
the well
• we signed the first drilling contract for the Caspian Explorer
• we announced the conditional sale of 50% of the Caspian Explorer for $22.5 million, an estimated profit of
$20 million
production is currently approximately 2,000 bopd
•
Ukraine war
The two principal consequences of the Ukraine war have been to make international sales uneconomic and make
operating far more difficult.
Urals oil discount
Despite the UK and the EU specifically exempting oil produced in Kazakhstan and transported through the Russian
pipeline network from sanctions the large discounts for oil using the Russian pipeline network and emerging as Urals
Oil at the start of the war continue with no signs of lessening.
We have explored various alternatives to transport our oil but have yet to find a solution that would allow us to sell
at or close to international prices. We are therefore selling all our oil on the domestic market and at domestic prices.
Selling to the domestic market and to domestic mini refineries does have advantages, such as speed of payment and
the absence of significant deductions for tax, oil treatment and transportation. Nevertheless, we estimate the loss of
revenue to be running at an annualised rate of approximately $18 million based on recent production volumes.
For much of the period under review and subsequently our inability to sell on the international markets also led to
missed profits. However, the recent fall in international oil prices means we are currently achieving broadly the same
net outcome by selling to local mini refineries where the deductions to the headline price are much lower.
Operations
Before the Ukraine war the majority of international supplies and consumables were sourced via Russia. Now they
typically come from China, a vast country whose border with Kazakhstan is some 3,000 kilometers from the BNG
Contract Area and where originating destination is usually far further. The extra distance involved and the
complexities of this new supply route with long delays at the border has typically resulted in much greater lead times
for key supplies and consumables resulting in some significant operational delays. It has also required a much greater
investment in working capital as the supplies and consumables have to be paid for many months earlier than
previously.
Drilling at certain key wells was paused waiting for key parts and supplies with crews shifting from project to project.
The overall impact is that, while progress has been made across a number of wells, it has not been possible to complete
the work at any to increase production to the levels expected. Further, had we not decided several years ago to
purchase our own rigs these operational delays would have been much greater still.
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CHAIRMAN’S STATEMENT (CONTINUED)
BNG
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.
We continue to believe that the geological conditions at the super giant fields of Kashagan and Tengiz extend to the
BNG Contract Area and then through to Block 8.
If this is the case the potential volume of oil in these deep structures could be vast and the implications on the
Company’s fortunes of one or more commercially successful deep wells could be transformational. We remain
committed to bringing as many as possible of these deep wells into production.
Progress in the period under review and subsequently
Our focus at BNG for much of the year under review was on the deep structures. This was in part because of the
dramatic upside when a deep well flows at commercial levels but also to comply with our original deep well work
programme obligations.
Since the period end we have focused more on developing the production capacity at the MJF structure by working
to bring back into production previously successful wells, although more recently have returned to our deep well
priorities, most notably Deep Well 802.
Deep structures
Deep Well A8
Having extended the well from approximately 4,500 meters to approximately 5,400 meters in 2021 we attempted to
produce from three of the potential oil-bearing intervals identified. However, after some initial success, we concluded
that Deep Well A8 would not produce at commercial quantities and accordingly the well has been abandoned.
Deep Well 802
In June 2022 we spudded Deep Well 802 on the Yelemes Deep structure. This was the sixth and final deep well
required under the original BNG work programme.
The well had a planned Total Depth of 5,200 meters targeting oil in the easier to drill Sandstone rather than
Carboniferous rock, with an initial target at 4,300 meters. The well was drilled close to the site of a Soviet era blowout
and our advisers provided us with the highest estimate of success for any of our BNG deep wells drilled to date.
Oil was encountered sooner than expected at a depth of approximately 3,900 meters and before the well had been
completed, leading to a decision to drill a new side-track from a depth of 2,416 meters to approximately 4,100 meters,
targeting the oil at the higher level previously encountered.
With approximately 100 meters still to be drilled the well flowed over a period of 3 days at rates fluctuating between
700 and 900 bopd.
Work at Deep Well 802 was suspended waiting on additional equipment. Accordingly, the crew at Deep Well 802
was moved to work on Shallow Well 142. The crew has now returned to Deep Well 802 and we expect to complete
our work at Deep Well 802 in Q3 2023.
Other deep wells
Little was attempted in the period under review or subsequently at the other deep wells already drilled, A5, A6, A7
and 801. However, as rigs and crews become available, we intend to continue work to bring each of them into
production starting with Deep Well A5.
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CHAIRMAN’S STATEMENT (CONTINUED)
Shallow structures
MJF
Almost all the oil produced in the period under review and subsequently came from the MJF structure. However, for
most of the year and to date in the current financial year key wells were out of production either being worked over
with the use of horizontal drilling techniques or looking to eliminate water.
South Yelemes
The structure has four operational wells drilled in the Soviet era, Wells 54, 805, 806 & 807 from which approximately
22,500 barrels were produced representing approximately just 3% of total production. The focus at South Yelemes
has been preparation for a horizontal well targeting the shallow dolomite intervals.
Further details of the BNG wells are set out in the section entitled Our Oil & Gas Assets.
Horizontal drilling
Horizontal drilling continues to be used in all recent shallow well workovers and we are preparing to introduce it to
the deep wells at BNG. As crews and rigs become available we plan to continue to increase production from these
shallow structures with workovers and new drilling.
Shallow structure production
Average production in 2022 was 2,171 bopd compared to 1,462 bopd in 2021. Recently production from the shallow
structures has been approximately 2,000 bopd. However, once Wells 141 and 142 are brought back into production
this is expected to rise significantly.
Own equipment
Our decision to own the drilling rigs and much of the other equipment previously rented has proved to be correct. It
has significantly improved operational efficiency and reduced operating costs. More importantly, it has allowed us to
continue to operate, which would not have been possible to the same extent had we relied on rigs and other equipment
being supplied from China. We are in negotiations to acquire a more powerful G70 rig, which is expected to make
drilling deeper wells faster and easier.
Block 8
In September 2022 we announced the intention to acquire Block 8, a producing Contract Area located approximately
160 km from BNG, for a maximum consideration of $60 million, payable in cash from the future production from
Block 8 at the rate of $5 per barrel of oil produced.
Background
The Block 8 Contract Area is 2,823 sq km with three identified structures and production from two existing wells. The
Block 8 Contract Area is owned by a member of the Oraziman family, which holds approximately 48.4% of the shares
in Caspian Sunrise, and as such it would constitute a related party transaction.
Caspian Sunrise has an option to acquire the UAE registered holding company of EPC Munai LLP, which is the
Kazakh registered holder of the licence for the Block 8 Contract Area, conditional upon inter alia satisfactory due
diligence, including a review by an independent expert; the renewal of the existing licence; Independent Director and
Nominated Adviser approval; and the consents of the regulatory authorities in Kazakhstan the UAE and the UK.
The Company and the Oraziman family have entered into a loan agreement under which the Company has agreed to
advance cash and equipment of up to $5 million to Altynbek Boltazhan the owner of EPC Munai LLP, and a member
of the Oraziman family, to complete the work programme commitments under the existing licence. In the period
under review approximately $1.5 million of the loan was drawn. The loan is interest bearing at the rate of 7% and, in
the event the acquisition of Block 8 does not complete, would be repayable by the Oraziman family initially from
future dividend payments.
The Block 8 licence was previously owned by LG International the Korean conglomerate, who in 2006 started to
acquire 3D seismic data over approximately 456 sq km. In recent years two deep wells have been drilled to depths of
4,203 meters and 3,449 maters respectively, from which oil has flowed at rates of up to 800 bopd.
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CHAIRMAN’S STATEMENT (CONTINUED)
Block 8
Background (continued)
Current production from Block 8 is approximately 110 bopd, with oil transported to the same treatment and pumping
station used by BNG. The acquisition of Block 8 would bring a second flagship asset into the Caspian Sunrise Group
together with BNG with both having the ability to transform the value of the Group in the event of successful deep
drilling. CTS LLP, the Group’s drilling company is currently working under contract on two wells at Block 8.
Acquisition process
In the event the Independent Directors exercise the option, it is expected that the acquisition would take up to a further
six months to complete, with much of that time spent on securing the required regulatory approvals.
As the acquisition terms do not involve the issue of additional shares and the consideration is expected to be payable
solely from production from Block 8, exercise of the option is not expected to result in material dilution for existing
shareholders.
Related Party transaction
The Loan Agreement was considered a Related Party Transaction pursuant to the AIM Rules for Companies.
The Independent Directors considered, having consulted with WH Ireland, that the terms of the proposed Loan
Agreement were fair and reasonable in so far as shareholders of Caspian Sunrise and the Company are concerned.
Should the option to acquire Block 8 be exercised by the Independent Directors a further formal assessment by WH
Ireland, the Company’s Nominated Adviser, would be required at that time.
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.
Loan conversion
In March 2022 independent Caspian Sunrise shareholders voted to convert approximately $6.2 million of debt due to
the Oraziman family into 139,729,446 new Ordinary shares at a price of 3.2p per share, increasing the Oraziman
family's aggregate shareholding from 45.0% to 48.4%.
Cancelation of share premium
In April 2022 shareholders voted to cancel the share premium account and the deferred shares in Caspian Sunrise
Plc paving the way for the future declaration of dividends. In June 2022 the UK High Court confirmed the
cancellations, which took effect in the period under review.
Dividends
We commenced monthly dividends in November 2022 making four separate payments of $1.25 million (£1 million).
In March 2023 we announced we would look to move to quarterly dividend declarations with the next quarter to be
announced with these Financial Statements.
With no signs of an end to the adverse impact of the Ukraine war we need to base our dividend policy on what the
Group can reasonably afford to pay without materially detracting from our principal purpose of increasing shareholder
value by the continued development of our oil & gas assets.
Therefore, until either we increase production with MJF shallow wells 141 & 142 resuming production or Deep Well
802 commencing production, or until the proceeds from the conditional sale of 50% of the Caspian Explorer are
received, the board has reluctantly decided to suspend dividends payments for the remainder of the year.
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CHAIRMAN’S STATEMENT (CONTINUED)
Kazakhstan
In recent times Kazakhstan has been out of favour with international investors. It is nevertheless home to vast oil &
gas and mineral reserves.
The lack of international competition for assets has provided opportunities outside our narrow focus of exploring and
producing onshore oil & gas. A prime example being the Caspian Explorer, which 100% was acquired for less than
$3.7 million and for which we have agreed to sell 50% for $22.5 million, representing a $20 million gross profit while
we still own the remaining 50%.
Board changes
After 13 years as the senior independent non-executive director Edmund Limerick will on 07 July 2023 step down
from the board.
Edmund’s knowledge and advice has been invaluable in the development of the Group and he will be missed. The
Company will in due course appoint additional non-executive directors, following which the composition of the
various committees of the board will be reviewed.
Outlook
Despite the impact of sanctions, the Group continues to prosper. Our focus remains maximising short-term
production and getting as many of the BNG deep wells drilled to date into commercial production.
Clive Carver
Chairman
6 July 2023
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FINANCIAL REVIEW OF THE 12 MONTHS ENDED 31 DECEMBER 2022
Revenue
Revenue in 2022 increased by approximately 72 per cent to $42.9 million (2021: $25.0 million).
Oil prices
International prices rose from approximately $79 per barrel at the start of 2022 to a maximum of approximately $123
per barrel in March 2022 and then fell steadily from June 2022 over the rest of the year to approximately $75 per
barrel by the year end. Over the same period domestic prices rose from approximately $25 per barrel to approximately
$32 per barrel.
In a new development, sales to domestic mini refineries became possible with prices of approximately $38 per barrel
for most of the period under review and subsequently.
Production volumes
Production volume in 2022 at 792,284 barrels was some 48 % higher than in 2021 (533,857 barrels).
International vs Domestic sales
The continuing large discount for Kazakh oil sold from the Russian pipeline network despite there being no EU
sanctions together with the Kazakh authorities assessing export taxes at the full Brent related price rather than the
actual price achieved made international sales uneconomic for the majority of the period under review and
subsequently.
In the period before sanctions 237,144 barrels were sold on the international market at an average price of
approximately $85 per barrel. After the start of international sanctions, most sales were either at domestic prices or
to domestic mini refineries.
CTS
CTS LLP is the Group’s wholly owned drilling company, which in 2020, 2021 and 2022 undertook work at Block 8,
the Contract Area, which is owned by the Oraziman family and therefore a related party and over which the Group
has an option to acquire.
The work undertaken at Block 8 in these periods was approximately $5 million and at 31 December 2022 has either
been paid or is covered by advances. In 2022 approximately $3.7 million is included in 2022 income as more fully
described in notes 4 & 25.
Gross profit
Gross profit increased by approximately 66 per cent to approximately $32.3 million (2021: $19.4 million), from a
combination of the increase in production volumes and the impact of the sales possible at international prices before
the impact of sanctions.
Selling expenses
Selling expenses increased by approximately 29% to $9.8 million (2021: $7.6 million) and are mainly export and
customs duties, which are typically based on achieved oil prices.
Other administrative expenses
General and Administrative expenses were $9.8 million (2021: $3.3 million). The main reason for the increase was
additional staff costs in Kazakhstan of around $4.9 million.
Operating profit
The operating profit was $12.8 million (2021: loss of $4.0 million).
Profit / (Loss) for the year before tax
Profit before tax was $12.3 million (2021: loss of $4.8 million).
Tax charge
The tax charge was $2.4 million (2021: $0.7 million). The tax is payable in Kazakhstan where historic losses have
been fully utilised.
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FINANCIAL REVIEW (CONTINUED)
Profit / (Loss) for the year after tax and before dividends
The profit for the year after tax but before dividends was $9.9 million (2021: loss of $5.5 million).
Dividends
Dividends of approximately $2.4 million were declared in the year (2021: nil).
Oil and gas assets
Unproven oil & gas assets
The carrying value of unproven oil and gas assets fell by approximately $2.3 million to approximately $43.8 million
(2021: $46.1 million) largely as the result of the transfer of the shallow Yelemes South structure to proven oil & gas
assets, which was shown previously within property, plant and equipment.
Plant, property and equipment
The value of plant property and equipment increased by approximately $3.7 million to approximately $60.7 million
(2021: $57.1 million), again principally as the result of the reclassification of the South Yelemes structure.
Other receivables
Other receivables due within 12 months increased from approximately $5.0 million to approximately $5.2 million, in
part as the result of the approximately $1.5 million drawn down from the $5 million loan in respect of the proposed
acquisition of Block 8.
Cash position
At the year-end we had cash balances of approximately $3.7 million (2021: $0.4 million).
Liabilities
Trade and other payables under 12 months
Trade and other payables increased to approximately $15.9 million (2021: $13.2 million). Short term borrowings
provided by the Oraziman family fell to $0.4 million following the debt conversion approved by independent
shareholders in March 2022 (2021: $6.4 million).
The provisions for payments in less than 12 months were approximately $6.0 million (2021: $5.5 million).
BNG historic costs
We have continued to pay down the historic costs assessed against BNG. At 31 December 2022, of the original $32
million levied in 2019 approximately $19 million remains to be paid over the next seven years, of which
approximately $3.2 million is to be paid within 12 months.
Cashflows
During the period under review approximately $45.9 million was received from customers and approximately $27.5
million paid out to suppliers, creditors and staff with a further $11.5 million spent on unproven oil and gas assets and
$0.5 million spent on property plant and equipment. A further $2.3 million was paid to related parties including $1.5
million relating to the Block 8 loan, and approximately $1.1 million was paid in dividends, resulting in cash balances
at the year-end increasing from $0.4 million to $3.7 million.
Going Concern
With net current liabilities of approximately $16.0 million as at 31 December 2022, the assessment of going concern
needs careful consideration. The Board has assessed cash flow forecasts prepared for a period of at least 12 months
from the approval of the financial statements and assessed the risks and uncertainties associated with the operations
and funding position, including the potential acquisition of Block 8. These cash flows are dependent on a number of
key factors including:
• The Group’s cashflow is sensitive to oil price and volume sold. Given the large discounts encountered since the
start of the war in Ukraine we have assumed all sales will be either domestic sales or sales to the domestic mini
refineries. If sales to the new local mini refineries did not continue as expected and in the continuing absence of
any international sales additional funding would be required.
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FINANCIAL REVIEW (CONTINUED)
• The Group continues to forward sell its domestic production and receives advances from oil traders with $2.2
million advanced at the reporting date the continued availability of such arrangements is important to working
capital. Whilst the Board anticipate such facilities remaining available given its trader relationships, should they
be withdrawn or reduced more quickly than forecast cash flows allow then additional funding would be required.
• The Group has $5.9 million of liabilities due on demand under social development programmes and $3.2 million
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
programmes 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 it 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.
While none of the following can be relied upon until cash is received there are a number of expected events, which
could provide significant additional working capital in the short term:
• The Group is due to receive $22.5 million relating to the conditional sale of a 50% interest in the holding company
for the Caspian Explorer;
• A Kazakh bank’s credit committee has approved a $5 million loan, which has yet to be drawn;
• A Kazakh oil trader has offered an additional $3 million advance, which is yet to be accepted.
Should it be necessary, the Board has the following actions to mitigate any short-term funding issues
• To seek additional funding from advance oil sales
• To slow down the pace at which BNG is further developed
• To defer the exercise of the option to acquire Block 8, as this would defer development expenditure
• To sell all or part of one or more of the Group’s assets
• To defer further dividend payments
• To seek additional equity capital
• Cease or reduce the amount of discretionary dividend payments (payment of which is subject to the cash inflows
outlined above).
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
6 July 2023
11
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 a 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 2.8
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.
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 13 km2. 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 $20 million remained
payable at 31 December 2022.
Recently we have been working to bring wells 141 and 142 back into production.
In 2022 we produced 792,284 barrels of oil at an average of 2,171 bopd (2021: 533,857 barrels at an average of 1,462
bopd). At the date of this report production is approximately 2,000 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 375,000 barrels, including approximately 25,000 barrels in 2022.
Following an upgrade in the South Yelemes licence we are now allowed to sell most of the oil produced from the
South Yelemes structure by reference to international rather than domestic prices. However, as set out elsewhere in
these financial statements, we currently choose not to do so.
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OUR OIL & GAS ASSETS (CONTINUED)
South Yelemes structure (continued)
We believe the structure may have untapped quantities of oil at higher levels than previously explored, which we
intend to explore with horizontal drilling targeting a Dolomite reservoir when crews become available.
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
Four deep wells have been drilled on the Airshagyl structure.
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
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.
A7
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 4,000 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. Drilling is planned to continue
when a rig becomes available.
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 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, the well has been abandoned.
Yelemes Deep structure
Deep Well 801 was drilled in 2014 / 2015 to a depth of 5,050 meters. During 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. This is the final deep well
required under the BNG work programme. Work at Deep Well 802 was put on hold pending the arrival of specialist
equipment. In the meantime, the rig and crew were switched to bring Well 142 back into production. Once finished
at Well 142 the rig and crew will return to work on Well 802.
One further deep well, Deep Well 803, is required to be drilled this year under our new work programme obligations.
Our intention is to spud this well in Q3 2023 and complete the drilling by the end of the year.
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 extreme high temperature and 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 whereas at the
Yelemes Deep structure the salt layer is typically found at depths between 3,000 and 3,500 meters.
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OUR OIL & GAS ASSETS (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, 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.
14
LICENCES & WORK PROGRAMMES AND RESERVES
LICENCES & WORK PROGRAMMES
BNG
BNG LLP Ltd holds three contracts for 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.
Well 802 was the final deep well required under the original BNG work programme commitments.
The current work programme requires a further deep well, Well 803 to be drilled before the end of the year. The well
is expected to be spudded in Q3 2023.
Additionally, a further 10 shallow wells are to be drilled on the MJF structure, including a number of horizontal wells,
by the end of 2026, with one being Well 155 to be drilled this year.
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 licence area and subsequently
Petroleum Geology Services (“PGS”) undertook 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 2022, approximately 3.8 mmbls of oil were produced, which under financial reporting
rules are deducted from the assessment of reserves as at 31 December 2022.
BNG
As at 31 December 2022
mmbls
As at 31 December 2021
mmbls
Shallow P1
Shallow P2
14.3
25.5
15.1
26.3
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.
15
CASPIAN EXPLORER
Introduction
The Caspian Explorer is a drilling vessel designed specifically for use in the shallow northern Caspian Sea where
traditional deep water rigs cannot be used.
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.
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
Safety contract
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.
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.
Drilling contract
In March 2023 we announced that the first drilling contract for the Caspian Explorer under the Group’s ownership
had been signed.
An offshore well is scheduled to be drilled in the summer of 2024 to a planned depth of 2,500 meters. It will be drilled
for the Isatay Operating Company LLP (“IOC”), a Kazakh registered explorer, in which Italy’s ENI is a leading
participant. The work is expected to take approximately two months.
Daily rates have been agreed for both drilling days and days when no drilling occurs. On the basis of these rates and
the Group’s assessment of the likely total number of days required to complete the assignment the Group expects net
income after costs of approximately $15 million.
The contract also provides for a second well in the event the first is deemed successful. That second well would most
likely be drilled in 2025 on terms similar to the first assignment and is again expected to produce net income after
costs of $15 million.
16
CASPIAN EXPLORER (CONTINUED)
Other charters
Discussions continue with a number of parties interested in chartering the Caspian Explorer, either on normal
commercial terms or where the involvement of the Caspian Explorer allows Caspian Sunrise to take an interest in the
project.
Conditional sale
In June 2023 we announced the conditional sale of 50% of Prosperity Petroleum, the UAE registered holding
company for the Caspian Explorer for $22.5 million.
Summary
The Caspian Explorer has been written down in previous financial statements so that its carrying value at 31 December
2022 is $1.7 million. We believe the drilling contract announced in March 2023 will be the first of a number as
exploration of the shallow northern Caspian Sea increases.
17
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.
18
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 licences 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 typically does the percentage taken by the Kazakh state.
Despite in practice oil sold on the international market being subject to a hefty Ural Oil discount of approximately
$30 - $35 per barrel or more taxes on any international sales are still levied according to the international Brent price.
19
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. We are now also considering mineral opportunities in Kazakhstan.
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 consider other opportunities, including now mineral opportunities, where the board believes it can add
significant value and contribute towards the success of the Group as a whole.
The Group’s principal asset is its 99 per cent interest in BNG. Additionally, the Group owns a 100 per cent interest
in the 3A Best Contract Area, which is subject to licence renewal. 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. In June 2023 it was
announced that the Group had conditionally agreed to sell 50% of the Caspian Explorer’s holding company for a cash
consideration of $22.5 million.
In September 2022 the Group took an option to acquire the Block 8 Contract Area for a maximum consideration of
$60 million.
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 15 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. It was also the case
when we recently announced the conditional sale of 50% of the Caspian Explorer for $22.5 million.
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.
The Directors believe the Group is exceptionally well placed through its strong local Kazakh presence to identify and
buy undervalued oil & gas assets and other assets on an opportunistic basis.
Climate Change
The Group’s purpose is to supply energy in an environmentally conscious manner to the benefit of all stakeholders.
As an exploration and production company, we recognise our environmental responsibilities to all our stakeholders
and in particular to the local communities in which we operate.
However, 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.
20
STRATEGIC REPORT (CONTINUED)
Key performance indicators
The Non-Financial Key Performance Indicators are:
• Operational (wells drilled and not abandoned at end of year) 2022: 20 (2021: 18)
• Aggregate production for 2022 was barrels 792,284 (2021: 533,857) an increase of approximately 48%
• Reserves at 31 December 2022 P1 14.3 mmbls & P2 25.5 mmbls (2021: P1 15.1 mmbls & P2 26.3 mmbls)
The Financial Key Performance Indicators are:
• Revenue: up 72% at $42.9 million (2021: $25.0 million)
• Operating profit 12.8 million (2021: loss of $4.0 million)
• Profit after tax for the year $9.9 million (2021: loss $5.5 million)
• Dividends $2.4 million (2021: nil)
• Cash at bank: $3.7 million (2021: $0.4 million)
• Total assets: $117 million (2021: $114 million)
• Exploration assets $43.8 million (2021: $46.1 million)
• Plant, property & equipment $60.7 million (2021: $57.1 million)
Current production
• Approximately 2,000 bopd (2021: 1,462 bopd)
Assets & Reserves
Details of the Group's assets and reserves are set out in the Chairman's statement.
Financial
At current domestic and domestic mini refinery prices and with current levels of production the income from current
production is sufficient to cover day-to-day Group operations and G&A costs.
In addition, the Group expects to receive the $22.5 million proceeds due from the sale of 50% of the Caspian Explorer
and its 50% share of net income of approximately $15 million in respect of the drilling contract scheduled for 2024
which was signed in March 2023.
In the event the option to acquire Block 8 is exercised, the income from the oil being produced there now and in the
future is expected to cover the repayment of the $5 million loan and Block 8 drilling costs.
In the event any of the deep wells drilled start to produce oil in commercial quantities the associated revenues should
transform the Group’s cash flows.
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 required 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 to improving and simplifying
the Group structure thus easing the future payment of dividends. The final step was the approval of shareholders and
the UK Court of a Capital Reduction. Shareholders approved the Capital Reduction in April 2022, which was
approved by the UK High Court in June 2022.
The Company’s first dividend was declared in November 2022 and was followed by 3 further monthly dividends. In
March 2023 the Company announced that future dividends would be declared on a quarterly rather than monthly
basis.
21
STRATEGIC REPORT (CONTINUED)
However, as set out above in the Chairman’s Statement, with no signs of an end to the adverse impact of the Ukraine
war we need to base our dividend policy on what the Group can reasonably afford to pay without materially detracting
from our principal purpose of increasing shareholder value by the continued development of our oil & gas assets.
Therefore, until either we increase production with MJF shallow wells 141 & 142 resuming production or Deep Well
802 commencing production, or until the proceeds from the conditional sale of 50% of the Caspian Explorer are
received, the board has reluctantly decided to suspend dividend payments for the remainder of the year.
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.
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. Our Annual General Meeting
provides 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.
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
20 (where the Group’s strategy, objectives and business model are addressed), page 23 (in relation to employees) the
ESG report on page 29 (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 to 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
6 July 2023
22
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 2022.
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. The Group also owns and operates the
Caspian Explorer, a drilling vessel specifically designed for operation in the shallow northern Caspian Sea. The Group
also has its own drilling company, which on occasion works on projects not owned by the Group.
Results and dividends
The consolidated statement of profit or loss is set out on page 49 and shows a $9.9 million profit for the year after tax
(2021: loss US$5.5 million).
The Company declared its first monthly dividend of £1 million in November 2022 and has subsequently declared a
further 3 monthly dividends. In March 2023 the Company announced it was moving to quarterly dividends but in
these financial statements has announced a suspension of dividend payments for the remainder of the financial year,
or until production from wells 141, 142 or 802 allow payments or upon the receipt of the $22.5 million consideration
expected from the sale of the Caspian Explorer.
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 2022, and the date of this report, which are required to be brought to the attention of
shareholders. Please refer to note 27 of these financial statements for further details.
Board changes
After 13 years as the senior independent non-executive director Edmund Limerick will on 7 July 2023 step down
from the board.
Edmund’s knowledge and advice has been invaluable in the development of the Group and he will be missed. The
Company will in due course appoint additional non-executive directors, following which the composition of the
various committees of the board will be reviewed.
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 the 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:
23
Directors’ interests
Director
Number of Ordinary Shares
As at 31 December 2022
As at 31 December 2021
Clive Carver
Kuat Oraziman*
Edmund Limerick
Aibek Oraziman*
Seokwoo Shin
2,245,000
nil
7,911,583
946,887,599
nil
2,245,000
nil
7,911,583
592,857,583
nil
* taken together on 31 December 2022 the Oraziman Family, comprising Kuat Oraziman, Aibek Oraziman, Aidana
Urazimanova,
Altynbek Boltazhan and Boltazhan Kerimbayev held 1,089,544,792 shares representing
approximately 48% of the issued share capital.
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
Dae Han New Pharm Co Limited
Al Marri Family
Abai Kalmyrzayev
Shares held
%
224,830,964
221,625,001
79,058,642
9.99
9.85
3.51
Financial instruments
Details of the use of financial instruments by the Group and its subsidiary undertakings are contained in note 24 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.
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.
•
24
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 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. www.caspiansunrise.com/investors/reports
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
6 July 2023
25
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.
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 seeks to adopt 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 in Kazakhstan 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 in 2022.
Like most oil produced in Kazakhstan for the international market
the Company’s oil is transported to international buyers via the
Russian oil pipeline network.
The decision by the Kazakh authorities to re designate oil
produced in Kazakhstan as Kazakhstan Export Blend Crude Oil
(“KEBCO”) seems to have had little impact and we still suffer
large discounts for what many still refer to as “Urals Oil.”
This is despite confirmation from the UK and the European Union
that oil produced in Kazakhstan and transported via the Russian
pipeline network is not subject to sanctions.
With the Urals Oil discounts and export taxes still levied based on
the full international price selling on the international market is
not commercially viable.
26
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.
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.
Pricing risk
Environmental
risk
There would be serious
consequences in the event of a
polluting event.
Climate
change
That climate change might
impact the prospects for the
Group
Exchange rate
risk
Movements in exchange rates
may result in actual losses or in
the results reported in the Group
financial statements.
Loss of major
shareholder
support
In previous periods the Group
has relied on the financial
support of the Oraziman family,
which holds 48% of the
Company’s shares.
We therefore currently sell all our oil either on the traditional
domestic market or the relatively new domestic mini refinery
market where taxes and other deductions are much lower.
Equipment and consumables previously sourced from Russia are
now found elsewhere, typically China, adding time and expense.
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.
We have no influence on the price at which we 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 $50 per barrel
for a prolonged period that we would need to consider cost cutting
to match income and expenditures.
The Group seeks to maintain compliance with all applicable
regulatory standards and practices.
Further information is set out in the Environmental, Social and
Governance Report.
The board does not believe in the short to medium term climate
change will have a material impact on the Group’s revenues or
operations. In particular the board believes the demand for oil will
continue for at least the next decade and that climate change is
unlikely to materially impact the Group’s ability to produce that
oil.
The Group's income is denominated in US$ and Kazakh Tenge its
expenditure is denominated principally in US$, Kazakh Tenge
and UK £.
In the year under review the Tenge broadly maintained its
exchange rate against the US$. Since the year end the Kazakh
Tenge has fallen by approximately 7.2% 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.
The Group is now producing significant volumes of oil and is
financially a self-supporting enterprise.
However, in the event further support was required it would
clearly be in the interests of the Oraziman family as the major
shareholding group to provide it.
27
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.
Recently the war in Ukraine has
resulted in supplies no longer
being sourced from Russia.
Replacement supplies from
China are taking much longer to
arrive.
We have been operating the BNG Contract Area for more than a
decade during which we have encountered numerous supply
issues, all of which have been overcome.
Managing supplies has become one of the most important aspects
of the business.
With the majority of supplies now coming from China, whose
border is approximately 3,000 kilometers from the BNG Contract
Area lead times are now much greater. In addition, the working
capital investment is also much greater as supplies need to be paid
for much earlier than before.
28
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT
This report covers our ESG approach and performance for the year ended 31 December 2022.
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 16 years and have only been able to do so by complying with
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 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 & 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.
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 typically meets 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.
Following the AGM, we intend to re-constitute the various Board committees.
Share dealing policy
The Group has adopted and operates a share dealing code for Directors and employees in accordance with the AIM
Rules.
29
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT
GOVERNANCE (continued)
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 UK 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 UK Bribery Act have been translated into Russian and circulated
to our Kazakh based staff. Consideration of the UK 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
Establish a strategy and
business model which
promotes long term
value for shareholders
Objective
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 & gas and other projects.
Growth in long term value will be measured by a sustainable appreciation in the
Company’s share price.
Principal assets
The Group’s principal asset is its 99% 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.
30
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
The Group also has a 100% interest in the 3A Best Contract Area and a 100% interest
in the Caspian Explorer drilling vessel, although recently the Group has conditionally
agreed to sell 50% of its interest in the Caspian Explorer for $22.5 million.
The Group has an option to acquire the Block 8 Contract Area for a maximum
consideration of $60 million to be paid from production from Block 8 at the rate of $5
per barrel.
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, suppliers and customers 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 the Mangistau 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.
31
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
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 assisted 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.
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 26 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 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 28 years oil and gas experience in Kazakhstan.
Seokwoo Shin 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.
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 46.7% of the Company’s
shares. He has more than 13 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 non-operational matters.
32
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.
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 eight 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.
33
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
Culture
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
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.
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 reports 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.
34
Board composition, skills and capabilities
From 1 January 2022 the Board comprised three executive directors and two non-executive directors:
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 28 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 has more than 13 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 telephone, are set out below:
Director
Clive Carver
Kuat Oraziman
Edmund Limerick
Seokwoo Shin
Aibek Oraziman
Board meetings attended
7 of 7
7 of 7
7 of 7
7 of 7
7 of 7
Remuneration Committees attended
2 of 2
N/A
2 of 2
N/A
2 of 2
Audit Committee attended
2 of 2
N/A
2 of 2
N/A
2 of 2
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.
35
Board committee membership in 2022
Director
Audit
Committee
Remuneration
Committee
Corporate Governance
Committee
Clive Carver
Kuat Oraziman
Edmund Limerick
Seokwoo Shin
Aibek Oraziman
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
6 July 2023
36
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, 2022 and to date in 2023.
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
Date of service agreement / appointment letter
Date of last renewal of appointment
Clive Carver
Kuat Oraziman
Edmund Limerick
Aibek Oraziman
Seokwoo Shin
20 March 2019
6 December 2019
25 January 2019
21 August 2020
4 March 2021
30 June 2022
22 July 2021
26 June 2020
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
Aibek Oraziman
Total
Chairman
CEO
COO
Non-executive
Non-executive
2022
Salary / fees
US$
2022
Share options
US$
2022
Total
US$
2021
Total
US$
152,698
156,753
54,000
16,319
-
379,770
-
-
-
-
-
-
152,698
156,753
54,000
16,319
-
379,770
120,000
142,055
54,025
15,600
-
331,680
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 2022 (2021: nil).
37
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
Edmund Limerick
Seokwoo Shin
Granted
Exercise price
2,400,000
3,000,000
3,000,000
750,000
1,000,000
1,000,000
2,500,000
4p
20p
20p
20p
20p
5.5p
5.5p
Expiry Date
14 December 2023
21 August 2024
21 August 2024
21 August 2024
5 June 2029
9 January 2032
9 January 2032
There were no options exercised in 2022.
Cash based incentives
In May 2019, we introduced 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
6 July 2023
38
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 two 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
6 July 2023
39
Independent auditor’s report to the members of Caspian Sunrise plc
Qualified opinion on the Group financial statements and unmodified opinion on the Parent Company financial
statements
In our opinion, except for the possible effects on the Group financial statements of the matter described in the Basis
for qualified opinion on the Group financial statements and unmodified opinion on the Parent Company financial
statements section of our report:
•
•
•
•
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 2022 and of the Group’s profit 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 2022 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 the 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 qualified opinion on the Group financial statements and unmodified opinion on the Parent Company
financial statements
In 2022 and 2021 the Group’s subsidiary, CTS LLP, provided drilling services to both an external related party, EPC
Munai LLP, and within the Group to BNG Ltd.
For drilling services provided to external entities, costs should be recognised in cost of sales, which impacts the
amount of revenue recognised under the input method as detailed in note 1.19. Drilling costs provided to other entities
in the Group may be capitalised, subject to compliance with relevant accounting standards as detailed in note 1.8.
In 2021, no amounts were recognised in the income statement in respect of drilling costs provided by the Group’s
subsidiary CTS LLP to its customer, the external related party, EPC Munai LLP. As a result of this an amount of
$2.2m was reversed from property, plant and equipment to cost of sales and an amount of $4.8m was reversed from
property, plant and equipment to unproven oil and gas assets in the current year.
In 2022, CTS LLP has applied the input method of revenue recognition in accounting for revenue on its drilling
contracts to EPC Munai LLP.
As a result, in 2022, included in the Group revenue and cost of sales is $3.7m (2021: nil) of drilling revenue to EPC
Munai LLP and $4.1m (2021: nil) of related cost of sales. As at 31 December 2022 the Group has reported advances
received from EPC Munai LLP of $0.7m (2021: $2.1m) and drilling costs capitalised of $11m (2021: $7.1m) as part
of the Group’s proven and unproven oil and gas assets. These amounts are reported within balances included in notes
4, 12, 13, 16 and 19.
As disclosed in note 2.2.3 to the financial statements, the Directors have been unable to obtain reliable information
for CTS LLP in respect of the timing of the costs being incurred, their allocation between different contracts with
EPC Munai LLP, or whether the costs should have been allocated to cost of sales (which impacts external revenue
recognised), or capitalised in the Group’s Property Plant and Equipment or Unproven oil and gas assets. In addition,
the Directors have been unable to provide updated budgets for estimated costs to complete. This information is
necessary to determine revenue, costs of sales, advances received/ receivables, provisions for losses on contracts,
property, plant and equipment, unproven oil and gas assets, related tax balances and related party disclosures and as
a result these balances may be materially higher or lower than the current recorded values.
40
Consequently, we were unable to obtain sufficient appropriate audit evidence over the valuation of the Group’s
external drilling revenues or the completeness and validity of its cost of sales allocation, nor were we able to determine
whether any adjustments to the advances received/receivables, provisions for losses on contracts, unproven oil and
gas assets, property, plant and equipment, related tax balances or related party disclosures at the current and prior
year ends were necessary as a result.
Were any adjustment to the related accounts and disclosures as set out in the financial statements to be required as a
result of the above, the Directors’ report and the Strategic report would also need to be amended.
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 qualified opinion on the Group financial statements and our unmodified opinion
on the Parent Company financial statements.
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 the Group and Parent Company’s ability to meet its liabilities
and commitments as they fall due, without additional funding being obtained, is sensitive to the oil volumes sold and
prices realised, deferral of financial obligations and the continued availability of oil trader advances. As stated in note
1.1, these events or conditions, along with other matters as set out in Note 1.1, 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:
• We obtained the Directors’ 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 impact of sanctions against Russia on the Group’s operations with the Directors 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 ability to sell oil to the domestic mini refineries, and the continuing absence of any international
sales.
• 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 the Directors 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 management’s judgment that the exploration licence would be capable of
being extended beyond 2024 including assessment of the legislative process, the forecast economic value of the
assets beyond the expiry date and risks and uncertainties within the operating environments.
• 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 and the history of transactions with the oil traders.
• We assessed the validity of any mitigating actions identified by the Directors.
41
• 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
89% (FY21: 83%) of Group profit/(loss) before tax, 100% (FY21:100%) of Group
revenue and 97% (FY20: 96%) of Group total assets.
Carrying value of unproven oil and gas assets
Key audit matters
Carrying value of proven oil and gas assets
BNG production licence payment obligations
Going concern
CTS drilling services *
2022
☑
2021
☑
-
-
☑
☑
☑
☑
☑
-
*Refer to the Basis for qualified opinion on the Group financial statements and
unmodified opinion on the Parent Company financial statements section of our report
Carrying value of proven oil and gas assets is no longer considered to be a key audit
matter given the Cash generating unit has significant headroom.
The BNG production licence payment obligations is no longer considered to be a key
audit matter because the Group stopped contesting the amount levied by the authorities
and the amount of the obligation became enforceable by law and has been classified as
payables.
Group financial statements as a whole
Materiality
US$1.7m (2021: US$1.9m) based on 1.5% (2021: 1.7%) of total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including assessing whether there was evidence of
bias by the Directors that may have represented a risk of material misstatement.
The Group’s operations principally comprise oil and gas exploration and production in Kazakhstan. We assessed
there to be four significant components comprising BNG, 3A Best, Caspian Explorer and the Parent Company. These
components, which were subject to full scope audit procedures, represent the principal business units.
Non-BDO member firms performed a full scope audit of BNG, 3A Best and Caspian Explorer in Kazakhstan, under
our direction and supervision as Group auditors. The audit of the Parent Company and the Group consolidation were
performed in the United Kingdom by the Group audit team.
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. Specific audit procedures were performed on the
non-significant component, CTS LLP, by the Group audit team, including testing revenue from drilling services. The
Group audit team performed additional procedures in respect of certain significant risk areas that represented Key
Audit Matters.
42
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 and the matter disclosed in the Basis for qualified opinion on the Group
financial statements and unmodified opinion on the Parent Company financial statements section above, we
determined the matter described below to be the key audit matter to be communicated in our report.
Key audit matter
Carrying value of unproven
oil and gas assets
As at 31 December 2022, the
Group’s unproven oil and gas
assets related to the BNG
licence were
exploration
carried at US$43.9m as
shown in notes 12.
At each reporting period end,
management are required to assess
the exploration and evaluation
assets for indicators of impairment
and, where such indicators exist,
perform an impairment test.
How the scope of our audit addressed
the key audit matter
title and assessed
We inspected the licences to confirm the
validity of
the
compliance with the licence conditions
through review of correspondence with the
authorities and inquiries of management.
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
in notes 1.8 and 2.1,
detailed
including
the
likelihood of
exploration licence being renewed
or converted to a production licence
following its expiry in 2024.
the
Given the judgment required by
management, we considered this
area to be a key focus for our audit
and hence a key audit matter.
that
judgment
We considered the appropriateness of
management’s
the
exploration licence would be capable of
being extended beyond 2024 including
assessment of the legislative process, the
forecast economic value of the assets
beyond the expiry date and risks and
uncertainties within
operating
environments.
the
that
We inspected budgets and work programs
submitted to the Kazakh authorities to
confirm
and
further
exploration is planned for the licence. We
considered
the results of exploration
activity in the period for indications that
the licences would be abandoned or that
the recoverable value would be below cost.
drilling
Key observations:
We found management’s judgements that
support the carrying value of the unproven
oil and gas assets to be appropriate.
43
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:
Materiality
Group financial statements
Parent company financial statements
2022
US$
1,700,000
2021
US$
1,900,000
2022
US$
1,200,000
2021
US$
1,300,000
Basis for determining
materiality
1.5% of total
assets
1.7% of total
assets
70% of Group
materiality
70% of Group
materiality
Rationale for the benchmark
applied
We have determined an asset-
based measure is appropriate as
the Group continues to focus on
developing its oil and gas projects
that requires significant capital
expenditure.
The Company is a holding company
therefore materiality was set at 70% of
Group materiality given the assessment
of aggregation risk.
Performance materiality
1,100,000
1,200,000
800,000
800,000
Basis for determining
performance materiality
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.
Component materiality
We set materiality for each significant component of the Group based on a percentage of between 24% and 65%
(2021: 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$400,000 to US$1,100,000 (2021: from
US$500,000 to US$1,300,000). In the audit of each component, we further applied performance materiality levels of
65% (2021: 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$34,000 (2021: US$38,000). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in
the Annual Report and Financial Statements other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that
fact.
44
As described in the basis for qualified opinion section of our report, we were unable to satisfy ourselves concerning
the valuation of the Group’s external drilling revenues or the completeness and validity of its cost of sales allocation
in 2022 and 2021 and we were unable to determine whether any adjustments to the advances received/receivables,
provisions for losses on contracts, unproven oil and gas assets, property, plant and equipment, related tax balances
and related party disclosures at the current and prior year ends were necessary as a result of this. We have concluded
that where the other information refers to these balances it may be materially misstated for the same reason.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required
by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report and
Directors’ report
Matters on which we
are required to report
by exception
Except for the possible effects on the Group financial statements of the matter
described in the Basis for qualified opinion on the Group financial statements and
unmodified opinion on the Parent Company financial statements section of our
report, 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.
•
Except for the possible effects on the Group financial statements of the matter
described in the Basis for qualified opinion on the Group financial statements and
unmodified opinion on the Parent Company financial statements section of our
report, 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.
Arising solely from the limitation on our work on the Group financial statements
relating to external drilling services in CTS LLP described above:
• We have not obtained all the information and explanations that we considered
necessary for the purpose of our audit; and
• We were unable to determine whether adequate accounting records have been
kept by the Parent Company.
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:
•
•
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.
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.
45
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:
Non-compliance with laws and regulations
Based on:
• Our understanding of the Group and the industry in which it operates;
• Discussion with management, the Audit Committee and those responsible for legal and compliance
procedures of how the Group is complying with those legal and regulatory frameworks;
• Obtaining and understanding of the Group’s policies and procedures regarding compliance with laws and
regulations; and
• Our understanding of the legal and regulatory frameworks that are applicable to the Group and the Parent
company,
we considered the significant laws and regulations to be the financial reporting framework (UK adopted
international accounting standards, the Companies Act 2006, the AIM rules and the QCA Corporate Governance
Code), the oil and gas laws and regulations of Kazakhstan, local taxation legislation and environmental regulations,
and the terms and requirements included in the Group’s production and exploration licences.
The Group is also subject to laws and regulations where the consequence of non-compliance could have a material
effect on the amount or disclosures in the financial statements, for example through the imposition of fines or
litigations. We identified such laws and regulations to be the health and safety legislation, licensing and
environmental regulations.
Our procedures in respect of the above included:
• Review of minutes of meeting of those charged with governance for any instances of non-compliance with
laws and regulations;
• Directing the auditors of the significant components to ensure an assessment was performed on the extent
of the component’s compliance with the relevant local and regulatory framework and a review of
correspondence with regulatory and tax authorities was performed for any instances of non-compliance
with laws and regulations;
• 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;
• Review of financial statement disclosures and agreeing to supporting documentation to assess compliance
with relevant laws and regulations noted above; and
• Review of legal expenditure accounts to understand the nature of expenditure incurred.
Fraud
We assessed the susceptibility of the financial statements to material misstatement, including fraud. Our risk
assessment procedures included:
• Enquiry with management and the Audit Committee regarding any known or suspected instances of fraud;
• Obtaining an understanding of the Group’s policies and procedures relating to:
o Detecting and responding to the risks of fraud; and
o
Internal controls established to mitigate risks related to fraud.
• Review of minutes of meeting of those charged with governance for any known or suspected instances of
fraud;
• Discussion amongst the engagement team as to how and where fraud might occur in the financial
statements;
46
• Performing analytical procedures to identify any unusual or unexpected relationships that may indicate
risks of material misstatement due to fraud; and
• Considering remuneration incentive schemes and performance targets and the related financial statement
areas impacted by these.
Based on our risk assessment, we considered the areas most susceptible to fraud to be completeness of related party
disclosures, management override of controls and revenue recognition.
Our procedures in respect of the above included:
• Testing a sample of journal entries made throughout the year, which met a defined risk criteria to detect
possible irregularities and fraud, by agreeing to supporting documentation;
• 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;
Involvement of forensic specialists to test the completeness of the related party disclosures by testing the
Group and director’s relationship with a sample of targeted suppliers and customers;
•
• Testing a sample of revenue transactions to supporting documentation, including testing a sample of
revenue transactions in the period proceeding and preceding year end to check that revenue was recognised
in the correct period. In addition, we obtained a sample of significant sales agreements, evaluated key
terms and assessed the appropriateness of revenue recognition policies against the relevant accounting
standards; and
• Assessing significant judgements and estimates made by management for bias and challenging
management on the appropriateness of these judgements and estimates (refer to key audit matters above).
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team
members including component engagement teams who were all deemed to have appropriate competence and
capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations throughout
the audit. For component engagement teams, we also reviewed the results of their work performed in this regard.
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. In addition, the extent to which the audit was capable of detecting
irregularities, including fraud was limited by the matter described in the Basis for qualified opinion on the Group
financial statements and unmodified opinion on the Parent Company financial statements section of our report.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the
Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Peter Acloque (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London,
United Kingdom
6 July 2023
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
47
Consolidated Statement of Profit or Loss
Revenue
Cost of sales
Gross profit
Selling expense
Impairment of unproven oil and gas assets
Other administrative costs
Operating income / (loss)
Finance cost
Finance income
Profit / (loss) before taxation
Tax charge
Profit / (loss) after taxation from continuing operations
Income / (loss) for the year
Income / (loss) attributable to owners of the parent
Income attributable to non-controlling interest
Income / (loss) for the year
Notes
4
12
5
8
9
10
Basic and diluted profit/(loss) per ordinary share (US cents)
11
Year to
31 December
2022
US$’000
42,949
(10,637)
32,312
(9,751)
-
(9,767)
12,794
(585)
59
12,268
(2,371)
9,897
9,897
9,763
134
9,897
0.44
Year to
31 December
2021
US$’000
24,996
(5,624)
19,372
(7,578)
(12,464)
(3,332)
(4,002)
(859)
24
(4,837)
(709)
(5,546)
(5,546)
(5,554)
8
(5,546)
(0.26)
The notes on pages 55 to 85 are essential part of these financial statements
48
Consolidated Statement of Comprehensive Income
Profit / (loss) after taxation
Other comprehensive income/(loss):
Exchange differences on translating foreign operations
Total comprehensive profit /(loss) for the year
Total comprehensive profit/(loss) attributable to:
Owners of parent
Non-controlling interest
Year ended
31 December
2022
US$000
Year ended
31 December
2021
US$000
9,897
(5,546)
(4,418)
5,479
5,345
134
(6,863)
(12,409)
(12,417)
8
The notes on pages 55 to 85 are an essential part of these financial statements
49
Consolidated Statement of Changes in Equity
Total equity as at 1 January 2022
Income after taxation
Exchange differences on translating foreign operations
and recycling of exchange differences on disposal of
subsidiaries
Total comprehensive income/(loss) for the year
Shares issue (note 18)
Cancellation of share premium and deferred shares *
Dividends declared **
Total equity as at 31 December 2022
Share
capital
US$’000
Share
premium
US$’000
31,118
-
164,817
-
-
-
4,273
(169,090)
-
-
-
1,942
-
-
33,060
Deferred
shares
US$’000
64,702
-
-
-
-
(64,702)
-
Cumulative
translation
reserve
US$’000
(62,103)
Other
reserves
US$’000
Merger
reserve
US$’000
(2,362)
-
11,511
-
(4,418)
(4,418)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(66,521)
(2,362)
11,511
Retained
profit /
(deficit)
US$’000
(156,239)
9,763
-
9,763
-
233,792
(2,444)
84,872
Total attributable
to the owner of the
Parent
US$’000
Non-controlling
interests
US$’000
51,444
9,763
(4,418)
5,345
6,215
-
(2,444)
60,560
(5,801)
134
-
134
-
-
-
(5,667)
Total equity as at 1 January 2021
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
Share
capital
US$’000
Share
premium
US$’000
30,804
-
164,313
-
-
-
264
50
31,118
-
-
486
18
164,817
Deferred
shares
US$’000
64,702
-
-
-
-
-
64,702
Cumulative
translation
reserve
US$’000
Other
reserves
US$’000
Merger
reserve
US$’000
Retained
profit /
(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)
(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)
*in 2022 the Company preformed a capital reduction (note 3).
**During 2022 the Company declared its first dividends in November and December 2022 in aggregate US$2,444,000 (note 18).
Total
equity
US$’000
45,643
9,897
(4,418)
5,479
6,215
-
(2,444)
54,893
Total
equity
US$’000
57,177
(5,546)
(6,863)
(12,409)
750
125
45,643
Equity
Share capital
Share premium
Deferred shares
Cumulative translation reserve
Other reserves
Merger reserves The excess of the fair value of the issues share capital over the nominal value of these shares issued for acquisition of at least 90 percent equity holding in subsidiaries
Retained profit/(deficit)
Non-controlling interest
Description and purpose
The nominal value of shares issued
Amount subscribed for share capital in excess of the nominal value
The nominal value of the deferred shares issued
Gains/losses arising on retranslating the net assets of overseas operations into US Dollars, less amounts recycled on disposal of subsidiaries and joint ventures
Fair value of warrants issued and capital contribution arising on discounted loans
Cumulative losses recognised in the consolidated statement of profit or loss, adjustments on the acquisition of non-controlling interests and transfers in respect of share based payments
The interest of non-controlling parties in the net assets of the subsidiaries
The notes on pages 55 to 85 are an essential part of these financial statements
50
Parent Company Statement of Changes in Equity
Total equity as at 1 January 2022
Total comprehensive loss for the year
Shares issued in connection with the completed debt conversion (note 18)
Cancellation share of premium and deferred shares *
Dividends declared **
Total equity as at 31 December 2022
Share
capital
US$’000
Share
premium
US$’000
31,118
-
1,942
-
-
33,060
164,817
-
4,273
(169,090)
-
-
Deferred
shares
US$’000
64,702
-
-
(64,702)
-
-
Merger reserve
Retained profit /
US$’000
11,511
-
-
-
-
11,511
(deficit)
US$’000
(171,203)
(1,133)
-
233,792
(2,444)
59,012
Total attributable to the
owner of the Parent
US$’000
100,945
(1,133)
6,215
-
(2,444)
103,583
Total equity as at 1 January 2021
Total comprehensive loss for the year
Shares issue (note 18)
Shares issued to employees and consultants (note 18)
Arising on employee share options
Total equity as at 31 December 2021
Share
capital
US$’000
Share
premium
US$’000
Deferred
shares
US$’000
30,804
-
264
50
-
31,118
164,313
-
486
18
-
164,817
64,702
-
-
-
-
64,702
Merger reserve
Retained profit /
US$’000
11,454
-
-
57
-
(deficit)
US$’000
(169,398)
(1,805)
-
-
-
11,511
(171,203)
Total attributable to the
owner of the Parent
US$’000
101,875
(1,805)
750
125
-
100,945
*in 2022 the Company performed a capital reduction (note 3)
**During 2022 the Company declared its first dividends in November and December 2022 in aggregate US$2,444,000 (note 18).
Equity
Share capital
Share premium
Deferred shares
Other reserves
Merger reserves The excess of the fair value of the issues share capital over the nominal value of these shares issued for acquisition of at least 90 percent equity holding in subsidiaries
Retained profit/(deficit)
Description and purpose
The nominal value of shares issued
Amount subscribed for share capital in excess of nominal value
The nominal value of deferred shares issued
Capital contribution arising on discounted loans
Cumulative losses recognised in the profit or loss
The notes on pages 55 to 85 are an essential part of these financial statements
51
Consolidated Statement of Financial Position
Company number 5966431
Notes
Group
2022
US$’000
Group
2021
US$’000
Assets
Non-current assets
Unproven oil and gas assets
Property, plant and equipment
Other receivables
Restricted use cash
Total non-current assets
Current assets
Inventories
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves attributable to equity holders of the parent
Share capital
Share premium
Deferred shares
Other reserves
Merger reserve
Retained profit / (deficit)
Cumulative translation reserve
Equity attributable to the owners of the Parent
Non-controlling interests
Total equity
Current liabilities
Trade and other payables
Short - term borrowings
BNG historic costs payable
Current provisions
Total current liabilities
Non-current liabilities
Deferred tax liabilities
BNG historic costs payable
Non-current provisions
Other payables
Total non-current liabilities
Total liabilities
Total equity and liabilities
Approved by the Board and authorized for issue:
Clive Nathan Carver,
Chairman,
6 July 2023
Company number: 5966431
12
13
16
15
16
17
18
18
26
19
20
19
21
22
19
21
19
43,813
60,746
2,533
694
107,786
492
5,191
3,682
9,365
117,151
33,060
-
-
(2,362)
11,511
84,872
(66,521)
60,560
(5,667)
54,893
15,871
352
3,178
5,977
25,378
6,335
16,297
469
13,779
36,880
62,258
117,151
46,137
57,134
4,263
634
108,168
664
4,950
429
6,043
114,211
31,118
164,817
64,702
(2,362)
11,511
(156,239)
(62,103)
51,444
(5,801)
45,643
13,240
6,425
3,178
5,482
28,325
6,463
19,290
487
14,003
40,243
68,568
114,211
The notes on pages 55 to 85 are an essential part of these financial statements
52
Parent Company Statement of Financial Position
Company number 05966431
Notes
Company
2022
US$’000
Company
2021
US$’000
Assets
Non-current assets
Investments in subsidiaries
Other receivables
Total non-current assets
Current assets
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital
Share premium
Deferred shares
Merger reserve
Retained profit / (deficit)
Equity attributable to the owners of the Parent
Total equity
Current liabilities
Short-term borrowings
Trade and other payables
Total current liabilities
Non-current liabilities
Total non-current liabilities
Total liabilities
Total equity and liabilities
14
16
16
17
18
18
20
19
15,487
88,883
104,370
14
2,405
2,419
106,789
33,060
-
-
11,511
59,012
103,583
103,583
-
3,206
3,206
-
-
3,206
106,789
15,487
88,559
104,046
10
4
14
104,060
31,118
164,817
64,702
11,511
(171,203)
100,945
100,945
2,382
733
3,115
-
-
3,115
104,060
The Company incurred loss for the year ended 31 December 2022 in the amount of US$ 1,133,000 (2021: loss of US$ 1,805,000).
Approved by the Board and authorized for issue:
Clive Nathan Carver,
Chairman,
6 July 2023
Company number: 05966431
The notes on pages 55 to 85 are an essential part of these financial statements
53
Consolidated and Parent Company Statements of Cash Flows
Group
2022
Group
2021
US$’000
Company
2022
Company
2021
Notes
US$’000
US$’000
US$’000
Cash flows from/used in operating activities
Cash received from customers
Payments made to suppliers for goods and services
Payments made to employees
Net cash flow from/used in operating activities
Cash flows from/used in investing activities
Purchase of property, plant and equipment
Additions to unproven oil and gas assets
Loan provided to the related party as part of the potential
acquisition
Other payment to the related party
Transfers to restricted use cash
Advances repaid by subsidiaries
Net cash flow from/used in investing activities
Cash flows from/used in financing activities
Dividends paid
13
12
16, 25
20, 25
Loans received from the related parties
20, 25
Net cash flow from/used in financing activities
Net increase 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
17
45,862
(26,546)
(964)
18,352
(502)
(11,470)
(1,523)
(800)
(59)
-
(14,354)
(1,097)
352
(745)
3,253
429
3,682
24,308
(15,509)
(1,051)
7,748
(7,136)
(719)
-
-
(393)
-
(8,248)
-
600
600
100
329
429
-
(1,280)
(186)
(1,466)
-
(834)
(163)
(997)
-
-
-
-
-
4,944
4,944
(1,097)
20
(1,077)
2,401
4
2,405
-
-
-
-
-
840
840
-
158
158
1
3
4
The notes on pages 55 to 85 form part of these financial statements
54
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 6 July 2023.
The principal activities of the Group are the exploration for and the 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 in conformity with
the requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act 2006.
Going concern
With net current liabilities of approximately $16.0 million as at 31 December 2022, the assessment of going concern needs careful consideration. The
Board has assessed cash flow forecasts prepared for a period of at least 12 months from the approval of the financial statements and assessed the risks and
uncertainties associated with the operations and funding position, including the potential acquisition of Block 8. These cash flows are dependent on a
number of key factors including:
•
•
•
The Group’s cashflow is sensitive to oil price and volume sold. Given the large discounts encountered since the start of the war in Ukraine we have
assumed all sales will be either domestic sales or sales to the domestic mini refineries. If sales to the new local mini refi neries did not continue as
expected and in the continuing absence of any international sales additional funding would be required.
The Group continues to forward sell its domestic production and receives advances from oil traders with $2.2 million advanced at the reporting date
the continued availability of such arrangements is important to working capital. Whilst the Board anticipate such facilities remaining available given
its trader relationships, should they be withdrawn or reduced more quickly than forecast cash flows allow then additional funding would be required.
The Group has $5.9 million of liabilities due on demand under social development program and $3.2 million 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 programmes 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 it 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.
While none of the following can be relied upon until cash is received there are a number of expected events, which could provide significant additional
working capital in the short term
•
•
•
The Group is due to receive $22.5 million relating to the conditional sale of a 50% interest in the holding company for the Caspian Explorer;
A Kazakh bank’s credit committee has approved a $5 million loan, which has yet to be drawn;
A Kazakh oil trader has offered an additional $3 million advance, which is yet to be received.
Should it be necessary, the Board has the following actions to mitigate any short-term funding issues
•
•
•
•
•
•
•
To seek additional funding from advance oil sales
To slow down the pace at which BNG is further developed
To defer the exercise of the option to acquire Block 8, as this would defer development expenditure
To sell all or part of one or more of the Group’s assets
To defer further dividend payments
To seek additional equity capital
Cease or reduce the amount of discretionary dividend payments (payment of which is subject to the cash inflows outlined above).
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 as sumptions 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.
55
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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 2022. 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 2022, but do not have an impact on the consolidated financial statements of the
Group.
New standards, interpretations and amendments adopted from 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).
These amendments to various IFRS standards are mandatorily effective for reporting periods beginning on or after 1 January 2022. See the applicable
notes for further details on how the amendments affected the Group.
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) IAS 37 defines an onerous contract as a contract in which the unavoidable
costs (costs that the Group has committed to pursuant to the contract) of meeting the obligations under the contract exceed the economic benefits expected
to be received under it.
The amendments to IAS 37.68A clarify, that the costs relating directly to the contract consist of both:
• The incremental costs of fulfilling that contract- e.g. direct labour and material; and
• An allocation of other costs that relate directly to fulfilling contracts: e.g. allocation of depreciation charge on property, plant and equipment used in
fulfilling the contract.
The Group, prior to the application of the amendments, did not have any onerous contracts. Therefore these amendments had no impact on the year-end
consolidated financial statements of the Group.
Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 & IAS 41)
• IFRS 1: Subsidiary as a First-time Adopter (FTA)
• IFRS 9: Fees in the ‘10 per cent’ Test for Derecognition of Financial liabilities
• IAS 41: Taxation in Fair Value Measurements
References to Conceptual Framework (Amendments to IFRS 3)
In May 2020, the IASB issued amendments to IFRS 3, which update a reference to the Conceptual Framework for Financial Reporting without changing
the accounting requirements for business combinations.
These amendments to various IFRS standards are mandatorily effective for reporting periods beginning on or after 1 January 2022. The amendments
provide relief in respect of loans whose contractual terms are affected by interest benchmark reform. There is no impact on the current reporting period.
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.
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 2023:
• 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).
The following amendments are effective for the period beginning 1 January 2024:
• IFRS 16 Leases (Amendment – Liability in a Sale and Leaseback)
• IAS 1 Presentation of Financial Statements (Amendment – Classification of Liabilities as Current or Non-current)
• IAS 1 Presentation of Financial Statements (Amendment – Non-current Liabilities with Covenants)
The Group is currently assessing the impact of these new accounting standards and amendments. The Group does not believe that the amendments to IAS
1 will have a significant impact on the classification of its liabilities, as the conversion feature in its convertible debt instruments is classified as an equity
instrument and therefore, does not affect the classification of its convertible debt as a non-current liability.
The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the group.
[The following is a list of other new and amended standards which, at the time of writing, had been issued by the IASB but which are effective in future
periods. The amount of quantitative and qualitative detail to be given about each of the standards will depend on each entity’s own circumstances.
• IFRS 17 Insurance Contracts (effective 1 January 2023) - In June 2020, the IASB issued amendments to IFRS 17, including a deferral of its effective
date to 1 January 2023.]
56
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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 Income/(loss)
Operating income /(loss) is stated after crediting all operating income and charging all operating expenses, but before crediting or charging the financial
income or expenses.
1.5 Foreign currency translation
1.5.1 Functional and presentational currencies
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which
the entity operates (“the functional currency”). The consolidated financial statements are presented in US Dollars (“US$”), which is the Group’s
presentational currency. Beibars Munai LLP, Munaily Kazakhstan LLP, BNG Ltd LLP and Roxi Petroleum Kazakhstan LLP, 3A_Best Group JSC, and
Caspian Technical Services LLP subsidiary undertakings of the Group during the period, undertake their activities in Kazakhstan and the Kazakh Tenge
is the functional currency of these entities. The functional currency for the Company, Beibars BV, Ravninnoe BV, Galaz Energy BV, BNG Energy BV
and Eragon Petroleum FZE is USD as USD reflects the underlying transactions, conducts and events relevant to these companies.
1.5.2 Transactions and balances in foreign currencies
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (“foreign currencies”)
are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies
are retranslated at the rates prevailing at the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items, including the parent’s share capital, that are
measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which
they arise.
1.5.3 Consolidation
For the purpose of consolidation all assets and liabilities of Group entities with a functional currency that is not US$ are translated at the rate prevailing
at the reporting date. The profit or loss is translated at the exchange rate approximating to those ruling when the transaction took place. Exchange difference
arising on retranslating the opening net assets from the opening rate and results of operations from the average rate are recognised directly in other
comprehensive income (the “cumulative translation reserve”). On disposal of a foreign operator, related cumulative foreign exchange gains and losses are
reclassified to profit and loss and are recognized as part of the gain or loss on disposal.
1.6 Current tax
Current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the profit or loss because it excludes items of income
or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current
tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
In case of the uncertainty of the tax treatment, the Group assess, whether it is probable or not, that the tax treatment will be accepted, and to determine the
value, the Group use the most likely amount or the expected value in determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates.
Withholding tax payable in 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.
57
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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.
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 ar e
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.
58
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
Impairment of development and production assets and other property, plant and equipment
At each reporting 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 acce ssing new reserves,
production from a new zone or significantly extend the life or change the nature of the well from its original production profile.
1.9 Abandonment
Provision is made for the present value of the future cost of the decommissioning of oil wells and related facilities. This provision is recognised when the
asset is installed. The estimated costs, based on engineering cost levels prevailing at the reporting date, are computed on the basis of the latest assumptions
as to the scope and method of decommissioning. The corresponding amount is capitalised as a part of the oil and gas asset and, when in production is
amortised on a unit-of-production basis as part of the depreciation, depletion and amortisation charge. Any adjustment arising from the reassessment of
estimated cost of decommissioning is capitalised, while the charge arising from the unwinding of the discount applied to the decommissioning provision
is treated as a component of the interest charge.
1.10 Restricted use cash
Restricted use cash is the amount set aside by the Group for the purpose of creating an abandonment fund to cover the future cost of the decommissioning
of oil and gas wells and related facilities and in accordance with local legal rulings.
Under the Subsoil Use Contracts the Group must place 1% of the value of exploration costs in an escrow deposit account, unless agreed otherwise with
the Ministry of Energy. At the end of the contract this cash will be used to return the field to the condition that it was in before exploration started.
1.11 Property, plant and equipment
All property, plant and equipment assets are stated at cost or fair value on acquisition less accumulated depreciation. Depreciation is provided on a Unit
of production method based on commercial proved and probable reserves at producing BNG assets and straight-line basis at other entities, at rates
calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is the estimated
amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful
life. Expected useful economic life and residual values are reviewed annually.
The annual rates of depreciation for class of property, plant and equipment are as follows:
- motor vehicles
- other
4-5 years
over 2-4 years
The Group assesses at each reporting date whether there is any indication that any of its property, plant and equipment has been impaired. If such an
indication exists, the asset’s recoverable amount is estimated and compared to its carrying value.
1.12 Investments (Company)
Investments in subsidiary undertakings are shown at cost less allowance for impairment. Long-term advances to subsidiaries are discounted at an estimated
market rate of interest with the difference between a fair value and a face value of the advance being recorded within investments.
Loan amortised cost is assessed for expected credit loss under IFRS 9.
59
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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.
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 i s 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.
60
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
Oil sold
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
following loading of 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.
Drilling services
The Group has applied the input method of revenue recognition in accounting for revenue on unit rate/lump sum contracts, under which revenue is
recognised over time according to the stage of completion reached in the contract by measuring the proportion of costs incurred for work performed
relative to the total estimated costs.
External drilling services contain distinct goods and services, but these are not considered distinct in the context of the contract and are therefore combined
into a single performance obligation. At contract inception management generally considers all applicable factors to determine whether the contract
contains a single performance obligation or multiple performance obligations.
A change to an existing contract for a project of the Group is a modification, which could change the scope of the contract, the price of the contract, or
both. The Group uses two methods to account for a contract modification: (1) as a separate contract when the modification promises distinct goods or
services and the price reflects the stand alone selling price; or (2) as a cumulative catch-up adjustment when the modification does not add distinct goods
or services and is part of the same performance obligation.
Contract costs are recognised in the income statement when incurred. When it is probable that the total contract costs will exceed total contract revenue,
the expected loss is recognised immediately. As per IAS 37 an onerous contract is a contract in which the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be received under it. In line with the principles of IAS 37 the loss will be recognised if there
is a present obligation, payment is probable and the amount can be estimated reliably.
The amount recognised will be the best estimate of the expenditure required to settle the present obligation at the reporting date.
In previous accounting periods revenue for such contracts was recognised in full on acceptance being received.
See note 2.2.3 for additional information.
1.20 Cost of sales
For structures or contract areas with full production licences oil sales are recognised as revenue and the associated costs a s costs of sales. At other structures
or contract areas with exploration licences any test production is considered incidental to the main purpose of the licence with the cost of sales equal to
the revenue is recognised and credited to 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 m aker. 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 four operating segments being oil exploration and production; onshore drilling services in Kazakhstan
provided by CTS LLP, offshore drilling services provided using the Caspian Explorer, and the expenses corporate allocated, and therefore there are four
reporting segments. The Group has several cost pools divided based on the different contractual territory of its assets.
1.22 Interest receivable and payable
Interest income and expense are reported on an accrual basis using the effective interest rate method.
61
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
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 1.21 and the average rate during the year was 1.24. The year-end exchange rate from
KZT to US$ was 462.65 and the average rate during the year was 460.48.
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.
62
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 key estimates and
judgements that have the most significant effect on the amounts recognised in the financial statements.
2.1
Estimates
2.1.1
Recoverability of proven oil and gas assets (note 13)
The proven oil and gas assets, representing the MJF and South Yelemes shallow structures, have been assessed for indicators of impairment at 31
December 2022 including assessment of the discounted cash flows indicated by the Group’s field plan.
This analysis required an estimation in determining forecast prices as at 31 December 2022 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 $32 per barrel 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.
2.1.2
Revenue recognition and long-term contract accrued income
The determination of anticipated costs for completing a contract is based on estimates that can be affected by a variety of f actors such as potential variances
in scheduling and cost of materials along with the availability and cost of qualified labour and subcontractors, productivity, and possible claims from
subcontractors.
The determination of anticipated revenues includes the contractually agreed revenue and may also involve estimates of future revenues from claims and
unapproved variations, if such additional revenues can be reliably estimated and it is considered probable that they will be recovered.
A variation results from a change to the scope of the work to be performed compared to the original contract signed. An example of such contract variation
could be a change in the specifications or design of the project, whereby costs related to such variation might be incurred prior to the client’s formal
contract amendment signature. A claim represents an amount expected to be collected from the client or a third party as reimbursement for costs incurred
that are not part of the original contract.
A modification is only then accounted for as a separate contract if the goods and services are distinct in that the customer can benefit from the good or
service on its own. In both cases, management’s judgments are required in determining the probability that additional revenue will be recovered from
these variations and in determining the measurement of the amount to be recovered.
As risks and uncertainties are different for each project, the sources of variations between anticipated costs and actual costs incurred will also vary for
each project. The long-term nature of certain arrangements usually results in significant estimates related to scheduling and prices.
The determination of estimates is based on internal policies as well as historical experience.
2.1.3
Recoverability of VAT (note 16)
The Group holds VAT receivables of $1.7 million (2021: $3.8 million) 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 1 year (2021: 2 years). This required estimates regarding future production,
oil prices and expenditure.
2.1.4
Decommissioning (note 21)
Provision has been made in the accounts for future decommissioning costs to plug and abandon wells as set out 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.
2.1.5
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 the ability of the subsidiaries to repay these loans. Management has e stimated an expected credit
loss was required of US$20.7m at the year-end (2021: US$20.7m).
63
Notes to the Financial Statements (continued)
2 Critical accounting estimates and judgements (continued)
2.2
Judgements
2.2.1
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 asset s 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 2022, the Group assessed the exploration and evaluation assets disclosed in note 12 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. We applied our judgement when considered the exploration contract at BNG that is
expiring in 2024. We believe that BNG be granted the extension of the contract after confirming it committed all the requirements.
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 shallow area in the previous year and South Yelemes in the current financial year and the net
present value of these 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 2022.
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.
The Group cannot currently make any progress with the asset, which in 2021 was fully impaired.
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.
2.2.2
Transfer of costs to proven oil and gas assets (notes 12 & 13)
Judgement has been applied in assessing South Yelemes shallow 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 December 2021 BNG has received th e required production
license for its South Yelemes structure and got the export permission starting June 2022. Before that date, BNG could sell the oil from South Yelemes
only on the internal market. Accordingly, BNG moved the related oil & gas assets to the production stage in June 2022 and 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.
2.2.3
Recognition of revenue and costs of the drilling and repair services
CTS LLP, is a wholly owned subsidiary of the Group and undertakes drilling and other operational work both for the Group and third parties.
In 2021 and earlier periods work for third parties was not recognised as it should have been as revenue with the associated expenditure as costs of sales
but was treated in the same way as work for the Group, with the costs debited to work in progress within property, plant and equipment.
While the accounting policies described in note 1.19 have been applied in the 2022 financial statements, including applying the input method of revenue
recognition in accounting for revenue on drilling contracts, these accounting errors have not been corrected in the 2021 financial statements as there is
insufficient data to accurately assess the timing of when the costs were incurred and the allocation between Group assets and services provided to external
entities. In addition, due to the absence of detailed budgets being updated regularly since contract inception date, the directors have not been able to
reliably assess the stage of completion and further costs required to complete each contract. The absence of this information represents a significant
limitation on both the estimation of revenue recognised and if expected loss provisions should be recognised.
Additionally, in 2021, some work on the Group’s deep wells was also capitalised to property, plant and equipment, where it should have been capilised
to unproven oil and gas assets. No retrospective adjustment has been made in the 2021 financial statements, and the amount has been adjusted in 2022 in
notes 12 and 13.
The absence of reliable information over all of these areas represents a significant limitation on the valuation of the Group ’s external drilling revenues,
the completeness and validity of its cost of sales allocation, and if any adjustments to the advances received/receivables, provisions for losses on contracts,
unproven oil and gas assets, property, plant and equipment and any related taxation impacts at the current and prior year ends were necessary. As a result,
the related accounts’ values for these items could be materially higher or lower than currently recorded values.
2.2.4
Payable for BNG licence historic costs (notes, 19, 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, to be 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.
In previous reporting periods, the related obligations were disclosed as part of the provisions as the Group was contesting the amount levied by the
authorities. However, as a final court judgment was made in June 2021 and the amount of the obligation became enforceable by law as at 31 December
2021 the amounts due should have been reclassified from provisions to payables as a financial liability.
64
Notes to the Financial Statements (continued)
2 Critical accounting estimates and judgements (continued)
In 2022 the Group corrected this error and reclassified the related obligations and has restated the comparative figures with the inclusion of the amount
due as financial liability.
Judgement was also required in selecting an appropriate discount rate for the financial liability, with the applied rate of 2.7% being based on US dollar
Eurobonds yields in Kazakhstan with a comparable term.
2.2.5
Uncertain tax positions (note 22)
As detailed in note 22, 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.
2.2.6
Indemnity receivables in relation to the 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. Judgement 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 seeking full recovery has made a
provision for two thirds of the amounts due on the expected credit losses as at 31 December 2022 (note 16).
2.2.7
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 estim ated that no additional
provision was required in 2022 (no additional provision was recognised in 2021).
3 Capital reduction made in 2022
In order to start paying dividends, the Company had to achieve positive balance of the retained earnings account. Accordingly, on 22 April 2022, the
Company’s shareholders granted their approval for the a capital reduction. On 22 June 2022, the UK High Court confirmed the capital reduction.
Consequently, the Company cancelled its share premium and deferred shares accounts, resulting in positive retained earnings from that date as follows.
Share premium account reduced by US$169,089,000.
Deferred shares account reduced by US$64,702,000.
Retained earnings account increased in total by US$233,791,000.
65
Notes to the Financial Statements (continued)
4
Segment reporting & revenue
Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision m aker. The chief operating
decision maker, who is responsible for allocating resources and assessing the performance of the operating segments and making strategic decisions, has
been identified as the Board of Directors.
The Group operated in three operating segments during 2022 and 2021: Exploration for and production of crude oil; onshore drilling services (CTS LLP)
and offshore drilling services (Caspian Explorer). All three segments operate and generate revenues in Kazakhstan.
In 2021 onshore drilling services (CTS LLP) was included within Exploration for and production of crude oil.
BNG Ltd. LLP (BNG) currently accounts for 100% of the exploration and production revenues. Total revenue from crude oil sales generated by BNG in
2022 was US$ 39,245,000 (2021: US$ 23,725,000), net operating income for the year from the exploration and production of crude oil was US$15,526,000
(2021: loss of US$1,983,000).
100% of the Group’s oil revenue was derived from three major customers (being two local market traders (46%) and an export trader (54%). The revenue
split of oil sales in 2022 between the domestic traders and the export trader (Euro-Asian Oil SA) was US $17,974,000 and US $21,271,000, respectively.
KC Caspian Explorer LLP (KCCE), representing the offshore drilling services operating segment, historically providing drilling and related services in
the shallow northern Caspian Sea. In 2021 the KCCE provided NCOC, Kashagan oil field operator, with safety related services. In 2022 KCCE had no
revenue.
In 2022 Caspian Technical Services LLP (CTS LLP), provided onshore drilling and repair services to BNG and to assets not owned by the Group.
Revenue
The Group's revenues are principally derived from the sale of oil in Kazakhstan. In September 2019 following the award of a full production licence, oil
produced from the MJF structure at BNG started being sold on the export market.
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 sales on the local market, to local mini refineries the performance obligation is the supply of oil and the performance obligation is
satisfied at a point in time, being the collection of oil at the wellhead. 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 onto the t anker. 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 provided training and safety related services for North Caspian Operating Company (NCOC), the operator of Kashagan offshore oil
field. The total related revenue was approximately US$1.27 million with direct costs of US $656,000. In 2022 KCCE earned no revenue.
In 2022 CTS LLP provided onshore drilling and repair services for Group and for EPC Munai LLP, a related party, for in total US$ 3,704,000. As set out
more fully in note 25, CTS LLP also worked for EPC Munai in 2020 and in 2021 but did not separately record the income and expenditure on those
contracts as revenue and cost of sales as should have been the case.
Below is the summary of the results of the segments during 2022 and 2021:
Oil & Gas assets
Drilling services by
$000
CTS
$000
$000
Drilling services by
Caspian
$000
Explorer
Corporate allocated
Total
$000
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
External revenues
39,245
23,725
3,704
Cost of sales
Gross profit
Other administrative costs
Selling expense
Impairment of unproven
oil and gas assets
Segment operating
profit/(loss)
Finance income
Finance costs
Income / Loss before
income tax
Total assets
Total liabilities
(6,554)
(4,968)
(4,083)
32,691
18,757
(7,416)
(9,751)
(698)
(7,578)
–
(12,464)
(379)
(230)
–
–
–
–
–
–
–
–
1,271
(656)
615
–
–
–
–
–
–
42,949
24 ,996
(10,637)
(5,624)
32,312
19,372
(532)
(633)
(867)
(1,488)
(1,235)
(9,767)
(3 ,332)
–
–
–
–
–
–
–
–
–
–
(9,751)
(7,578)
–
(12,464)
15,526
(1,983)
(609)
(532)
(633)
(252)
(1,488)
(1,235)
12,794
(4 002)
51
(549)
11
(575)
–
–
–
–
15,028
(2,547)
103,794
51,755
95,807
56,358
(609)
7,775
2,314
(532)
15,682
4,198
8
–
(633)
2,254
69
13
–
–
(36)
–
59
24
(284)
(585)
(859)
(239)
(1,524)
(1,519)
12,268
(4 ,837)
2,621
100
3,328
8,120
101 117,151 114,211
7,912
62,258
68,568
66
Notes to the Financial Statements (continued)
5 Operating income / (loss)
Group operating income / (loss) for the year has been arrived after charging:
Impairment of unproven oil and gas assets (note 12)
Staff costs (note 7)
Depreciation of property, plant and equipment (note 13)
Auditor remuneration (note 6)
6 Group Auditor’s remuneration
Fees payable by the Group to the Company's auditor BDO and its member firms in respect of the year:
Fees for the audit of the annual financial statements
Other services – tax related
Fees payable by the Group to Grant Thornton and its associates in respect of the year:
Auditing of accounts of subsidiaries of the Company
7 Employees and Directors
Staff costs during the year
Wages and salaries
Social security costs
Pension costs
Group
2022
US$’000
5,842*
524
111
6,477
Company
2022
US$’000
262
-
-
262
Group
2022
US$’000
-
(6,477)
(2,498)
(239)
Group
2022
US$’000
180
11
191
Group
2022
US$’000
48
48
Group
2021
US$’000
1,051
72
102
1,225
Group
2021
US$’000
(12,464)
(1,051)
(3,557)
(212)
Group
2021
US$’000
153
11
164
Group
2021
US$’000
48
48
Company
2021
US$’000
315
-
-
315
Payroll expenses of US$ 1,230,000 were capitalized into unproven oil and gas assets in 2022 (2021: nil) and expensed as cost of sales in the amount
of US$409,000 (2021: US$ $254,000).
* During 2022 the Group declared payment of US $ 4,878,000 of bonus to the employees of the Group who were the key personnel in achieving
high production and selling results at the major asset, BNG, during 2020-2022.
Average monthly number of people employed
(including executive Directors)
Group
2022
Company
2022
Group
2021
Company
2021
Technical
Field operations
Finance
Administrative and support
Directors’ remuneration
Director’s emoluments
Share-based payments
18
233
8
25
284
-
-
1
3
4
14
170
7
24
215
-
-
1
3
4
Group
2022
US$’000
380
-
380
Group
2021
US$’000
332
-
332
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$157,000 (2021: US$142,000).
67
Notes to the Financial Statements (continued)
8 Finance cost
Loan interest payable
Unwinding of discount on BNG licence payment payable
Unwinding of discount on provisions (note 21)
9 Finance income
Interest income at BNG LLP and KC Caspian
10 Taxation
Analysis of charge for the year
Current tax charge
Deferred tax charge
Profit / (Loss) before tax
Tax on the above at the standard rate of corporate income tax in the UK 19% (2021: 19%)
Effects of:
Differences in tax rates
Non-deductible expenses
Withholding tax on interest expense
Utilization of tax losses not previously recognized
Unrecognised tax losses carried forward
Group
2022
US$’000
11
550
24
585
Group
2021
US$’000
237
616
6
859
Group
2022
US$’000
59
Group
2021
US$’000
24
Group
2022
US$’000
2,371
-
2,371
Group
2022
US$’000
12,268
2,331
(948)
103
711
-
174
2,371
Group
2021
US$’000
709
-
709
Group
2021
US$’000
(4,837)
(919)
-
(1,310)
709
(1,730)
3,959
709
11 Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year including shares to be issued.
There is no difference between the basic and diluted income / (loss) per share in the current and prior year. Dilutive potential ordinary shares include share
options granted to employees and directors where the exercise price (adjusted according to IAS33) is less than the average market price of the Company’s
ordinary shares during the period.
The calculation of earnings/(loss) per share is based on:
Basic weighted average number of ordinary shares in issue during the year
Earnings / (loss) for the year attributable to owners of the parent from continuing operations
(US$’000)
The loss for the year attributable to owners of the parent from discontinued operations (US$’000)
There were 6,000,000 potentially dilutive instruments in the year (2021: 2,500,000).
2022
2,221,391,258
2021
2,097,978,787
9,763
-
(5,554)
-
68
Notes to the Financial Statements (continued)
12 Unproven oil and gas assets
COST
Cost at 1 January 2021
Additions
Foreign exchange difference
Cost at 31 December 2021
Additions
Transfer from Property, plant and equipment (note 13)
Transfer to Property, plant and equipment (note 13) *
Foreign exchange difference
Cost at 31 December 2022
ACCUMULATED IMPAIRMENT
Accumulated impairment at 1 January 2021
Impairment related to 3A-Best (100%)
Foreign exchange difference
Accumulated impairment at 31 December 2021
Foreign exchange difference
Accumulated impairment at 31 December 2022
Net book value at 1 January 2021
Net book value at 31 December 2021
Net book value at 31 December 2022
Group
US$’000
70,892
719
(3,579)
68,032
11,470
4,810
(14,025)
(6,077)
64,210
Group
US$’000
9,479
12,464
(48)
21,895
(1,498)
20,397
61,413
46,137
43,813
Unproven oil and gas assets represent license acquisition costs and subsequent exploration expenditure in respect of the licenses held by Kazakh
group entities. The carrying values of those assets at 31 December 2022 were 100% represented by BNG Ltd LLP (2021: by BNG Ltd. LLP). 100%
cost of the unproven oil and gas assets related to 3A Best-Group JSC of US$ 12,464,000 was impaired at the Group level in 2021 after the
notification by the Ministry of Energy of Kazakhstan about the expiration of the subsoil use contract (see note 21 for details).
The Directors have carried out an impairment review of these assets on a cost pool level as detailed in note 2.1. As at 31 December 2022, the
balance of accumulated impairment was US$ 20,397,000.
* In 2021 BNG applied for the production license on its South Yelemes shallow structure. The Ministry of Energy of Kazakhstan extended the term
in accordance with the additional agreement No. 1 dated June 24, 2023, until 23 June 2044. The related capitalised assets which were in total
US$14,025,000 were moved to Proved Oil and Gas assets.
69
Notes to the Financial Statements (continued)
13 Property, plant and equipment
Following the commencement of commercial production in July 2019 the Group reclassified part of BNG assets from unproven oil and gas assets
to proven oil and gas assets.
Group
Cost at 1 January 2021
Additions
Disposals
Acquisitions
Foreign exchange difference
Cost at 31 December 2021
Additions
Disposals
Transfer to Unproven oil and gas assets*
Additions (note 12)
Foreign exchange difference
Cost at 31 December 2022
Depreciation at 1 January 2021
Charge for the year
Disposals
Foreign exchange difference
Depreciation at 31 December 2021
Charge for the year
Disposals
Foreign exchange difference
Depreciation at 31 December 2022
Net book value at:
01 January 2021
31 December 2021
31 December 2022
Proven
oil and gas
assets
US$’000
43,722
1,757
-
-
(550)
44,929
323
(110)
-
14,025
(425)
58,742
Motor
Vehicles
Other
Total
US$’000
US$’000
US$’000
56
2,198
-
-
(128)
2,126
176
-
-
-
(111)
2,191
11,177
4,938
(11)
53
(212)
15,945
3
-
(4,810)
-
(2,668)
8,470
54,955
8,893
(11)
53
(890)
63,000
502
(110)
(4,810)
14,025
(3,204)
69,403
1,390
1,339
-
42
2,771
2,079
(19)
189
47
482
-
40
569
61
-
11
673
1,736
(7)
124
2,526
358
-
112
2,110
3,557
(7)
206
5,866
2,498
(19)
312
5,020
641
2,996
8,657
42,332
42,158
53,722
9
1,557
1,550
10,504
13,419
5,474
52,845
57,134
60,746
* Amount of Other PP&E that was transferred to Unproven Oil and gas assets being by nature part of work in progress accumulated by CTS LLP
but not yet accepted by BNG as part of drilling and repair services for the blocks under exploration program.
70
Notes to the Financial Statements (continued)
14
Investments (Company)
Investments
Cost
At 1 January 2021
Change in investments
At 31 December 2021
Change in investments
At 31 December 2022
Impairment
At 1 January 2021
Impairment
At 31 December 2021
Impairment
At 31 December 2022
Net book value at:
31 December 2021
31 December 2022
Company
US$’000
225,441
-
225,441
-
225,441
209,954
-
209,954
-
209,954
15,487
15,487
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 if 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, then these amounts may be impaired. The Company recorded no impairment
in relation to the investments in 2022 (impairment charge for 2021: nil).
71
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
2022
Effective holding and
proportion
of voting
rights held
at 31 December 2021
Registered
address
Nature
of business
Eragon Petroleum Limited
United Kingdom
100%
100%
Eragon Petroleum FZE
Dubai
100%
100%
Prosperity Petroleum LTD
Dubai
100%
100%
Ravninnoe BV
Netherlands
-*
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
152/140 Karasay Batyr
Str., Almaty, Kazakhstan
Holding
Company
Management
Company
Management
Company
Holding
Company
Management
Company
Indirect investments held by Eragon Petroleum FZE
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December 2022
Effective holding
and
proportion
of voting
rights held
at 31 December 2021
Registered address
Nature
of business
Galaz Energy BV
Netherlands
-*
100%
BNG Energy BV
Netherlands
100%
100%
BNG Ltd LLP
Kazakhstan
99%
99%
3A-Best Group JSC Kazakhstan
100%
100%
CTS LLP
Kazakhstan
100%
100%
Sur Nedr LLP**
Kazakhstan
100%
100%
SK-NS Aktau LLP**
Kazakhstan
100%
100%
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
Holding
Company
Holding
Company
152/140 Karasay Batyr
Str., Almaty,
Kazakhstan
Oil Production
Company
152/140 Karasay Batyr
Str., Almaty,
Kazakhstan
Exploration
Company
152/140 Karasay Batyr
Str., Almaty,
Kazakhstan
Drilling &
Service
Company
152/140 Karasay Batyr
Str., Almaty,
Kazakhstan
Drilling &
Service
Company
152/140 Karasay Batyr
Str., Almaty,
Kazakhstan
Drilling &
Service
Company
72
14
Investments (Company, continued)
* During 2022 Ravninnoe BV and Galaz Energy BV both previously dormant were liquidated.
**During 2021 CTS LLP has acquired 100% interest in Sur Nedr and SK-NS Aktau LLP, the two companies have drilling licenses and other minor
assets on their balances. The consideration paid for 100% interest in these companies was insignificant and the Group’s management consider the
acquisition to be an asset acquisitions.
Indirect investments held by Prosperity Petroleum LTD
Name of undertaking
Country of
incorporation
Effective
holding and
proportion
of voting
rights held
at 31 December 2022
Effective holding and
proportion
of voting
rights held
at 31 December
2021
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 acquired a 100% interest in Prosperity Petroleum Ltd and KC Caspian LLP, the companies owing an offshore drilling
vessel. The management of the Group considered the acquisition 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 2022
Effective holding and
proportion
of voting
rights held
at 31 December
2021
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.
73
Notes to the Financial Statements (continued)
15 Inventories
Materials and supplies
16 Other receivables
Amounts falling due after one year:
Prepayments made
VAT receivable
Long-term loan to the related party
Other receivable from related parties
Intercompany receivables
Amounts falling due within one year:
Prepayments made
VAT receivable
Other receivables
Group
2022
US$’000
492
492
Group
2021
US$’000
664
664
Group
2022
US$ ‘000
Group
2021
US$ ‘000
Company
2022
US$ ‘000
Company
2021
US$’000
9
-
1,523
1,001
-
2,533
1,256
1,723
2,212
5,191
448
3,815
-
-
-
4,263
1,285
-
3,665
4,950
-
62
1,523
-
87,298
88,883
14
-
-
14
-
51
-
-
88,508
88,559
10
-
-
10
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.
On 25 September 2022, the Independent Directors approved an interest-bearing loan with rate of 7% to a maximum value of $5 million to Altynbek
Bolatzhan, a member of the Oraziman family, in connection with the proposed related party acquisition of Block 8. At 31 December 2022,
$1,356,000 of that loan had been drawn down. The loan is to be repaid whether or not Block 8 is acquired. Further details of the loan is set out in
Note 25. Another US$ 167,000 of the receivable by the Company as at 31 December 2022 is the amount due from Mr. Kuat Oraziman after
restructuring the loans with the related parties made in 2022 (note 20, 25).
US$1,275,000 out of US$2,212,000 (2021: US$3,656,000) shown as of Other receivables represent the amounts reimbursable by the vendors of
3A Best under the indemnities provided on acquisition of the exploration asset. At 31 December 2022, the amount is shown net of provision for
expected credit losses: During 2020 the amount has been impaired on US$2,551,000 or 2/3 of the originally recognised amount due to the
uncertainty of recovering 100%of the amounts due in future periods.
The current intercompany receivables are interest free. In 2021, the Company recognised US$ 797,000 of expected loss on provisions in relation
to its receivables from subsidiaries.
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 (2021: US$20.7 million).The movement in the
expected credit loss provision related to the inter-company receivables was as follows:
Denomination
As at 1 January
Charge
As at 31 December
Group
2022
US$’000
-
1,659*
1,659
Group
2021
US$’000
-
-
-
Company
2022
US$’000
20,709
-
20,709
Company
2021
US$’000
19,912
797
20,709
*During 2022 BNG Ltd. LLP accrued the allowance on the advance payment made to Sinopec in 2019. Sinopec, the Chinese drilling contractor,
was engaged to drill Deep Well A8. However, BNG did not accept the drilling works and did not pay any amount beyond the prepaid amount. At
the date of this report, the parties have yet to come to a final agreement. Accordingly, the Group’s management has decided to reserve 100% of the
receivable from Sinopec.
74
Notes to the Financial Statements (continued)
17 Cash and cash equivalents
Cash at bank and in hand
Group
2022
US$’000
3,682
Group
2021
US$’000
429
Company
2022
US$’000
2,405
Company
2021
US$’000
4
Funds are held in US Dollars, Sterling and Kazakh Tenge currency accounts to enable the Group to trade and settle its debts in the currency in
which they occur and in order to mitigate the Group's exposure to short-term foreign exchange fluctuations. All cash is held in floating rate
accounts.
Denomination
US Dollar
GB Sterling
Kazakh Tenge
18 Called up share capital
Group and Company
Group
2022
US$’000
3,245
1
436
3,682
Group
2021
US$’000
45
-
384
429
Company
2022
US$’000
2,404
1
-
2,405
Balance at 1 January 2021
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
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
US$’000
30,804
42
264
8
31,118
Company
2021
US$’000
4
-
-
4
US$’000
64,702
-
-
-
64,702
Debt to equity conversion (note 20)
Balance at 31 December 2022
139,729,445
2,250,501,559
1,942
33,060
(373,317,105)
(64,702)
- -
Caspian Sunrise Plc had authorised share capital of £100,000,000 divided into 6,640,146,055 ordinary shares of 1p each and 373,317,105 deferred
shares of 9p each at 31 December 2021. During 2022 the Company cancelled the deferred shares account (note 3).
During 2021 the Company made the following issue of its ordinary shares:
(1) 3,017,956 ordinary shares being payment of the intermediary services relating to the purchase of 100% of Prosperity Petroleum Ltd
(2) 18,972,164 new ordinary shares as the consideration for the purchase of a US$ 750,000 workover rig.
(3) 562,500 new ordinary shares issued to staff members (below board level) as the reward for successful drilling works.
On 9 March 2022 the Company completed the debt conversion first announced in 2021. Accordingly, 139,729,446 Debt Conversion shares were
issued to convert US$ 6,215,000 loans payable to Oraziman family and related entities (note 20).
On 4 November 2022 the Company announced its first interim dividend to shareholders of in total £1,000,000 (equivalent of US$ 1,222,000),
which was paid in December 2022. Additionally, in December 2022 the Company declared a second dividends which was paid in January 2023.
Total declared in 2022 dividends were US$ 2,444,000. Further dividends were declared in January and February 2023 and paid in February and
March 2023 respectively. In the Company’s accounts at 31 December 2022 the dividends payable were US $1,347,000 (note 19), of which around
10% were unpaid November dividends held due to dispute over share ownership. In 2023 the outstanding at 31 December 2022 dividends were
paid.
75
Notes to the Financial Statements (continued)
19 Trade and other payables
Current payables
Trade payables
Taxation and social security
Accruals
Other payables
Intercompany payables
Dividends payable
Advances received (deferred revenue)
Group
2022
US$’000
1,817
3,376
4,031
2,385
-
1,347
2,915
Group
2021
US$’000
Company
2022
US$’000
Company
2021
US$’000
2,684
2,977
152
3,502
-
-
3,925
21
20
106
18
1,693
1,348
-
3,206
64
20
106
485
58
-
-
733
15,871
13,240
At 31 December 2022 and 31 December 2021, the Group had received significant prepayments from the customers both oil sales and on CTS LLP
contracts. The amount of the advances received from oil traders at 31 December 2022 was US$ 2,192,000 (2021: US$ 1,822,000). The amount
received by CTS LLP at 31 December 2022 was US$ 704,000 (2021: US$ 2,103,000).
Long-term withholding CIT payable
Taxation
BNG historic costs payable*
Current
Non-current
Group
2022
US$’000
13,779
13,779
Group
2022
US$’000
3,178
16,297
19,475
Group
2021
US$’000
14,003
14,003
Group
2021
US$’000
3,178
19,290
22,468
Company
2022
US$’000
Company
2021
US$’000
-
-
-
-
Company
2022
US$’000
-
-
-
Company
2021
US$’000
-
-
-
*The subsoil use contract held by BNG Ltd for the MJF 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$32.5m. The sum
is payable on a quarterly basis from 1 July 2019 in equal instalments with the final payment due to be paid on 1 April 2029. The future payments
have been discounted to their net present value. This discounted value has been capitalised as Property, plant and equipment and will be amortised
over the productive period. Any changes in estimated payments and discount rate are dealt with prospectively and result in a corresponding
adjustment to property plant and equipment.
In previous reporting periods, the related obligations were disclosed as part of the provisions as the Group was contesting the amount levied by the
authorities. However, an error was identified in the classification of these obligations as at 31 December 2021 as a final court judgment was made
against the Group in June 2021 and the amount of the obligation became enforceable by law and should have been reclassified from provisions to
payables as a financial liability. In 2022 the Group corrected this error and reclassified the related obligations and the comparative figure to payables
and added a relevant financial liability line and maturity dates within liquidity risk in note 24.
Taxation payable relate to withholding tax accrued on the interest expense at the BNG subsidiary level.
20 Short-term borrowings
Akku Investments LLP
Mr. Oraziman
Other borrowings
Group
2022
US$’000
-
-
352
352
Group
2021
US$’000
4,433
1,424
568
6,425
Company
2022
US$’000
-
-
-
-
Company
2021
US$’000
2,224
-
158
2,382
At the start of 2021 the entities of the Group had the following loans payable to Kuat Oraziman / companies owned by the Oraziman family: (1)
US$ 1,125,000 interest bearing loan to Eragon Petroleum FZE from Kuat Oraziman, interest rate: 7%;
(2) US$ 777,000 interest bearing loan to Caspian Sunrise plc from Kuat Oraziman, interest rate: 7%;
(3) US$ 1,733,000 loan to other Group subsidiaries from Kuat Oraziman, interest free;
(4) US$ 672,000 interest bearing loan provided by Fosco BV, a company owned by the Oraziman family to BNG LLP, interest rate: 7%;
(5) US$ 1,293,000 interest bearing loan to Caspian Sunrise PLC from Vertom International NV and Kernhem International BV, companies owned
by the Oraziman family, interest rate: 7%.
During 2021 the major part of these loans were assigned to Akku Investment LLP, another company the company controlled by the Oraziman
family. Kuat.Oraziman then provided additional US$ 229,000 loan to BNG and CTS LLPs during 2021 (nominated in KZT, interest free). The
Oraziman family also provided a US$ 596,000 to other Group entities in 2021.
76
Notes to the Financial Statements (continued)
20 Short-term borrowings (continued)
On 9 March 2022 following the approval by independent Caspian Sunrise shareholders US$6,215,166 of the above debt was converted to equity
with the issue of 139,729,445 shares at a price of 3.2p per share, comprising:
(1)
(2)
100,021,431 shares issued to offset the loans payable by the Group to Akku Investments LLP
39,708,014 shares issued to repay loans and salary debts to Kuat Oraziman (US$1,766,212).
During 2022 the Group entity, Prosperity Petroleum Limited paid Kuat Oraziman US$800,000. Total US$633,080 of the payable to Kuat Oraziman
and controlled by him entities were offset versus this amount during 2022. As the result of the operation, at 31 December 2022 Kuat Oraziman
owed to Caspian Sunrise plc US$ 167,000. In addition, after the restructurings done, repayments and additional loans provision (net addition of
US$142,000) at 31 December 2022 the Group owed Vertom International, a company controlled by Kuat Oraziman, US$352,000 of loans received
in 2022. The loans were nominated in tenge with no interest.
21 Provisions and contingencies
Group only
Liabilities under Social
Development Program
Abandonment fund
US$’000
US$’000
2021
Total
(restated*)
US$’000
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
Group only
Balance at 1 January 2022
Increase in provision
Change in estimate
Paid in the year
Unwinding of discount
Foreign exchange difference
Balance at 31 December 2022
Non-current provisions
Current provisions
Balance at 31 December 2022
5,973
-
-
(618)
-
(14)
5,341
-
5,341
5,341
557
103
(34)
-
6
(4)
628
487
141
628
Liabilities under Social
Development Program
US$’000
Abandonment fund
US$’000
5,341
733
-
(49)
-
(172)
5,853
-
5,853
5,853
628
79
(89)
-
24
(49)
593
469
124
593
6,530
103
(34)
(618)
6
(18)
5,969
487
5,482
5,969
2022
Total
US$’000
5,969
812
(89)
(49)
24
(221)
6,446
469
5,977
6,446
* Provisions note was restated for 2021 in the 2022 financial accounts as Historic costs payable at BNG were mistakenly disclosed as provisions
rather than as a financial liability in 2021 (details in the note 19).
Amounts in relation to Subsoil Use Contracts are included in the table above and relate to the licence areas disclosed below:
a) BNG Ltd LLP
BNG Ltd LLP a subsidiary, signed a contract #2392 dated 7 June 2007 with the Ministry of Energy and Mineral Resources of the Republic of
Kazakhstan for exploration at Airshagyl deposit, located in Mangistau region. According to the latest Amendments BNG is required to pay around
US$ 231,650 annually in respect of social programs in the 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 the training of Kazakh personnel of an amount of 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 2022 BNG was in compliance with all the requirements listed above.
On 11 July 2019, BNG Ltd LLP signed a production contract with the Ministry of Energy of the Republic of Kazakhstan at the North-West Yelemes
structure. The Contract is valid for 25 years till 2043. On 23 December 2021, BNG signed the production contract at South Yelemes structure for
an initial period of 6 months. The terms were extended in accordance with the additional agreement No. 1 dated 24 June 2023, and valid until June
23, 2044. No additional social obligations were added for the 2019 and 2022 contract extensions and upgrades.
77
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 sub soil use (SSU) contract: US$2,500,000 of social development payment
and approximately $US 1,million of debts related to the previous years’ work programme obligations. According to the Addendum #8 to the
Contract signed by the Company on 20 January 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 payments of US$580,000 quarterly for the 6 quarters ending in 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 company did not meet all the above in full but made some payments while seeking a solution to the situation. In 2021 the Group received a
notification from the Ministry of Energy of Kazakhstan that as the Subsoil Use contract was not extended in July 2020 the contract was deemed to
have expired on 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 $12.5 million impairment charge in 2021.
22 Deferred tax
Deferred tax liabilities comprise:
Deferred tax on exploration and evaluation assets acquired
Group
2022
US$’000
6,335
6,335
Group
2021
US$’000
6,463
6,463
The Group recognises deferred taxation on fair value uplifts to its oil and gas projects arising on acquisition. These liabilities reverse as the fair
value uplifts are depleted or impaired.
The movement on deferred tax liabilities was as follows:
At beginning of the year
Foreign exchange
Group
2022
US$’000
6,463
(128)
6,335
Group
2021
US$’000
6,629
(166)
6,463
As at 31 December 2022 the Group has accumulated deductible tax expenditure related to BNG of approximately US$62 million (31 December
2021 US$65 million) available to carry forward and offset against future profits. This represents an unrecognised deferred tax asset of approximately
US$12 million (31 December 2021: US$13 million). Given the uncertainties regarding such deductions and the developing nature of the relevant
tax system no deferred tax asset is recorded.
78
Notes to the Financial Statements (continued)
23 Share option scheme and LTIP scheme
During the year 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.
On 10 January 2022 Shin Seokwoo, Chief Operating Officer was granted 2,500,000 options exercisable at 5.5p and Edmund Limerick, non-
executive director was granted 1,000,000 options exercisable at 5.5p per share. Both option grants being exercisable until 9 January 2032.
Number of
options granted
Number of options
expired
Options exercised
Total options
outstanding
Weighted
average exercise
price in pence (p)
per share
As at 31 December 2021
Directors
Employees and others
As at 31 December 2022
91,458,226
3,500,000
-
94,958,226
(64,808,226)
-
-
(64,808,226)
(15,300,000)
-
-
(15,300,000)
11,350,000
3,500,000
-
14,850,000
11
-
-
11
14,850,000 outstanding options as at 31 December 2022 are exercisable.
The range of exercise prices of share options outstanding at the yearend is 4p – 20p (2021: 4p – 20p). The weighted average remaining contractual
life of share options outstanding at the end of 2022 is around 3.5 years (2021: 2 years).
Long Term Incentive Plan (LTIP) scheme:
On 5 June 2019 the Company made awards under a long term incentive plan. Clive Carver, 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 2021 and 2022, 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.
79
Notes to the Financial Statements (continued)
24 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 principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:
Financial assets
Intercompany receivables
Other receivables
Other receivables from related parties
Receivables from the related parties
Restricted use cash (related to decommissioning)
Cash and cash equivalents
Financial liabilities
Trade and other payables
BNG historic costs payable
Intercompany payables
Borrowings – current
Group
2022
US$’000
Group
2021
US$’000
Company
2022
US$’000
Company
2021
US$’000
-
2,212
1,001
1,523
694
3,682
9,112
-
2,247
1,409
-
634
429
4,719
87,298
-
-
1,523
-
2,405
91,226
Group
2022
US$’000
Group
2021
US$’000
Company
2022
US$’000
8,253
19,475
352
28,080
6,338
22,468
6,425
35,231
146
-
1,693
-
1,839
88,508
-
-
-
-
4
88,512
Company
2021
US$’000
655
-
58
2,382
3,095
80
Notes to the Financial Statements (continued)
24 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 2022 and 2021:
1 January
2022
Loans
received
Interest
accrued
Disposal of
loans
Repayment
Foreign exchange
difference, net
31 December
2022
Financial
liabilities
Borrowings
6,425
352
11
(6,215)
(633)
412
352
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
Below is the movement of financial liabilities of the Company for the years ended 31 December 2022 and 2021:
1 January
2022
Loans
received
Interest
accrued
Disposal of
loans
Repayment
Foreign exchange
difference, net
31 December
2022
Financial
liabilities
Borrowings
2,382
20
11
(2,413)
-
-
-
1 January
2021
Loans
received
Interest
accrued
Conversion to
equity
Repayment
Foreign exchange
difference, net
31 December
2021
Financial
liabilities
Borrowings
2,069
158
155
-
-
-
2,382
81
Notes to the Financial Statements (continued)
24 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. Whilst retaining
ultimate responsibility for these objectives and policies, 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$ 9.0 million (2021: US$ 4.7 million).
Credit risk with respect to Group receivables and advances is mitigated by active and continuous monitoring of 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.
82
Notes to the Financial Statements (continued)
24 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. 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 2022 was 1% (2021: 14%).
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 2022 and 2021 see the table below. The amounts are contractual payments and may
not tie to the carrying value:
Group 2022 US$’000
Group 2021 US$’000
Company 2022 US$’000
Company 2021 US$’000
Interest rate risk
On
Demand
Less than 3
months
352
6,425
1,693
2,382
9.066
3,497
-
655
3-12
months
2,439
6,093
-
58
1- 5 years
Over 5
years
17,891
24,397
-
-
-
-
-
-
Total
29,748
40,412
1,693
3,095
The majority of the Group’s borrowings are at fixed rate. As a result the Group is not exposed to 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, wher e 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$38
million (2021: US$43 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$38 million (2021: US$43 million).
83
Notes to the Financial Statements (continued)
25 Related party transactions
The Company has no ultimate controlling party.
25.1
Loan agreements
The Company had loans outstanding as at 31 December 2022 and 2021 with members of the Oraziman family and legal entities controlled by the
Oraziman family, details of which have been summarised in note 20. The terms of the loans are in accordance with a framework agreement entered
into by the Company and the Oraziman family under which interest is charged at the rate of 7% per annum.
25.2
Block 8 Loan and Option agreements
Loan agreements
In September 2022, the Company agreed to provide a loan to Mr. Altynbek Bolatzhan, a member of the Oraziman family, of up to $5 million,
guaranteed by other Oraziman family members, and to be used in finalising the Block 8 exploration work programme and to obtain a production
license at Block 8. In the event the acquisition of Block 8 does not complete the loan would be repayable by the Oraziman family. At 31 December
2022, of the $5 million total the Company had advanced $1,356,000 to Mr. Bolatzhan, with the interest rate of 7%.
During 2022 the Group entity, Prosperity Petroleum Limited paid Kuat Oraziman US$800,000. Total US$633,080 of the payable to Kuat Oraziman
and controlled by him entities were offset versus this amount during 2022. As the result of the operation, at 31 December 2022 Kuat Oraziman
owed to Caspian Sunrise plc US$ 167,000. In addition, after the restructurings done, at 31 December 2022 the Group still owed Vertom
International, a company controlled by Kuat Oraziman, US$352,000 of the loans received in 2021-2022. The loans are nominated in tenge with no
interest.
Option agreement
In September 2022, the Company entered into an option agreement with Mr. Altynbek Bolatzhan, an Oraziman family member, for the Company
to acquire EPC Munai LLP (Block 8).
The maximum consideration for the asset is $60 million, payable in cash from future production from Block 8, at the rate of $5 per barrel of oil
produced.
25.3
Key management remuneration
Key management comprises the Directors and details of their remuneration are set out in note 7.
25.4
Sales of services
As set out more fully in note 4 CTS LLP, the Group’s onshore drilling subsidiary undertook repair and drilling work at Block 8 (EPC LLP), which
is owned by members of the Oraziman family and for which the Group has an option to acquire.
As at 31 December 2021 CTS LLP received US$ 2,103,000 of the advances for drilling and repair works at Block 8. In 2022 CTS has accrued US$
3,704,000 of revenue from services to Block 8. The related cost of sales was US$ 4,083,000 (note 4). The balance of the advances received at 31
December 2022 was US $704,000.
In 2020 CTS LLP conducted limited repair work at Wells P1 and P2 for a price of $757,653. In 2021 CTS LLP conducted limited repair work on
Well P1 for a price of $646,373. During 2021-2022 CTS LLP drilled a side-track at Well P1 for a price of $972,658.
During 2022 CTS LLP has entered into additional contracts with EPC Munai to drill a further 2 deep wells on Block 8’s Skolkar a structure (note
2.2.3).
Well P3
The first is Well Р-3, with a contract value is $6,484,000.
At 31 December 2022 only the preparatory works had been completed, which we estimate to be approximately 10% of the total work. During 2023
work at the well has been put on hold to allow other projects to proceed. At 31 December 2022 $470,000 had been paid to CTS LLP for the drilling
works.
Well AKD
The second is Well AKD where the contract value is $4,323,000.
At 31 December 2022 the well had reached a depth of 2,187 meters, representing approximately 20% of the total work. At 31 December 2022
$1,652,000 had been paid to CTS LLP for the drilling works.
For additional information on related party transactions with the Oraziman family and entities controlled by them see notes 16, 20.
84
Notes to the Financial Statements (continued)
26 Non-controlling interest
Balance at the beginning of the year
Share of profit / (loss) for the year
Group
2022
US$’000
(5,801)
134
(5,667)
Group
2021
US$’000
(5,809)
8
(5,801)
As at 31 December 2022 non-controlling interest represents minority share in BNG Ltd LLP and Beibars Munai LLP (as at 31 December 2021:
BNG Ltd LLP and Beibars Munai LLP).
27 Events after the reporting period
Conditional sale of 50% of the Caspain Explorer
On 12 June 2023 the Company announced the conditional sale of 50% of the shares in Prosperity Petroleum FZE, the UAE registered holding
company of KCCE Investments, the Kazakh registered company that owns the Caspian Explorer for a cash consideration of $22.5 million. By the
time of this report publishing the Company did not receive any amount from the potential buyer.
Bank loan to BNG
On 30 June 2023 BNG Ltd. LLP, the subsidiary, received an official letter from Fortebank (Kazakhstan) with approval of a revolving credit line
on 36 months, 7%, of up to US$ 5,000,000. The aim of the loan is to finance the current operations of the entity.
85