Annual Report and Accounts
for the year ended 31 July 2016
Exploration
Discovery
Production
D
Europa Oil & Gas (Holdings) plc
Annual Report and Accounts for the year ended 31 July 2016
Highlights
Operational highlights
Financial performance
Group revenue
£1.3m
(2015: £2.2m)
Reduction in cost of sales from lower operating costs
33%
Reduction in administrative expenses from
non-recurring 2015 items and other savings
39%
Pre-tax loss excluding exploration write-off
and impairment of
£0.7m
(2015: loss £0.8m)
Pre-tax loss of after £1.2m exploration write-off in
Béarn des Gaves
£1.9m
(2015: loss £4.1m after £2.2m exploration write-off in PEDL181
and £1.1m impairment against the West Firsby field)
Post-tax loss for the year
£1.6m
(2015: loss £1.8m)
Cash used in operating activities
£0.3m
(2015: cash used £0.3m)
Net cash balance as at 31 July 2016
£1.7m
(31 July 2015: £3.2m)
• Proceeding with development of Wressle discovery
in North Lincolnshire with production expected to
commence early 2017
• Three new UK onshore awards in 14th Round
(one subsequently declined)
• Five new Licensing Options (“LOs”) awarded
offshore Ireland
• Europa estimates 2.1 billion barrels of oil equivalent
(“boe”) and 1.5 tcf gas gross mean unrisked
prospective and indicative resources on new
Irish LOs
• 100% interest and operatorship secured for FEL 2/13
and FEL 3/13 offshore Ireland following transfer
from Kosmos
• Mean unrisked NPV10 of US$7 billion for 100%
interest in three prospects with 1.5 billion boe in FEL
3/13 provided by ERC Equipoise
• Positive Holmwood planning decision, preparatory
work for drilling in 2017 underway
• Farm out of 7.5% of PEDL143 licence; Europa retains
32.5% interest, paying 25% of the Holmwood
exploration well up to a gross well cost of
£3.2 million
• 123 boepd produced from UK onshore
(2015: 141 boepd)
Post reporting date events
• Extension of phase 1 of FEL 2/13 and FEL 3/13
licences to 4 July 2017
• Acquisition of Shale Petroleum (UK) Limited
(renamed as “Europa Oil & Gas (UK) Limited”)
increasing Europa’s interest in PEDL299 (including
the Hardstoft oil field) to 33.32% and in PEDL343
(containing the Cloughton gas discovery) to 45%
• Elected not to accept the award of PEDL286
in the southern Cleveland basin
• Wressle and Broughton North CPR published
• Sold 3.34% interest in PEDL180 (Wressle) and
PEDL182 (Broughton North) to Union Jack Oil
plc for £0.6 million cash
< The cover shows the areas currently
licensed offshore Ireland. Europa’s
licences are highlighted in red.
Contents
Europa Oil & Gas
(Holdings) plc is an AIM
listed exploration and
production company
focused on Europe.
It offers an attractive
mix of high impact
exploration offshore
Ireland, supported by
exploration, appraisal and
production onshore UK.
1
Highlights
Chairman’s statement
Year in review
Strategic report
Our strategy
– Our key performance indicators
– Operations and development
Operations
Risks and uncertainties
Governance
Board of Directors
Directors’ report
Statement of Directors’ responsibilities
Report of the independent auditor
Financial statements
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Company statement of financial position
Company statement of changes in equity
Consolidated statement of cash flows
Company statement of cash flows
Notes to the financial statements
Advisers
Directors and advisers
IFC
2
4
6
7
7
8
17
18
20
22
23
24
25
26
27
28
29
30
31
IBC
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 2
Chairman’s statement
Our focus in the last year
has been on managing
our costs and asset base
to ensure we remain
fully funded for future
operations and this
will continue in 2017.
Dear shareholders,
With the low oil price environment seen in the twelve months to
31 July 2016, we have been concentrating on reducing our cost base
through a number of operational efficiencies and through voluntary
temporary salary reductions amongst head office staff. These changes
have resulted in a year-on-year 33% reduction in our cost of sales and
a 39% reduction in our administrative expenses. Despite this reduction
in costs, Hugh and the team have continued with our programme
of selectively expanding Europa’s portfolio and maturing its assets.
Highlights during this period have included:
• The addition of two new licences onshore UK, which contain
hydrocarbon discoveries and where gas and oil appraisal opportunities
have been identified.
• The addition of five new Licensing Options offshore Ireland, including
the strategically important exploration block LO 16/2 adjacent to our
FEL 3/13 licence in the Porcupine basin. This acreage was awarded in
the first phase of the recent Atlantic Margin Licensing Round, which was
a highly competitive process, with awards being granted to a number
of major international oil companies, including Eni, ExxonMobil, Nexen,
Statoil, Woodside and BP. The other LOs awarded in the second phase
cover acreage near the Corrib gasfield; near our existing FEL 2/13 licence
in the South Porcupine basin; and in the Padraig basin.
• Europa has already identified significant potential resource across
the new licences totalling 2.1 billion boe and 1.5 tcf gas (gross mean
unrisked prospective and indicative resources). Work continues on the
farmout process for our Irish acreage where we have seen considerable
interest from major oil companies.
• The transfer of interest from Kosmos such that Europa now holds
100% and is operator of FEL 2/13 and FEL 3/13 offshore Ireland
with a further 2.1 billion boe gross mean unrisked prospective
and indicative resources.
• Work continues on the development of Wressle with first production
expected early in 2017.
• Successful planning approval was obtained for an exploration well
at Holmwood, which is a conventional prospect with gross mean
unrisked prospective resources of 5.6 million boe. Located in the Weald
basin, near the recent drilling success at Horse Hill, Holmwood is a very
exciting prospect for Europa and its partners. Following the farmout
Europa retains a 32.5% interest in the PEDL143 licence and will pay 25%
of the Holmwood well up to a gross cost of £3.2 million. Work continues
on well planning and we anticipate drilling in 2017.
These activities are part of our ongoing programme to mature and grow
our portfolio of prospects and leads and most importantly prove these
up via the drill bit. We also continue to evaluate potential corporate
transactions to follow on from the farmout of Holmwood and the post
year end acquisition of Shale Petroleum (UK) Limited and sale of interest
in PEDL180 and PEDL182.
All of this has been against a backdrop of continued low oil prices which
has seen the price achieved for sales during the twelve months to end
July 2016 average US$41.5 per barrel (2015: US$68.2). Europa’s board
continues to work hard to maximise efficiencies and to avoid incurring
debt for its activities, preferring to farmout exploration obligations and/or
monetise assets wherever possible. Our focus in the last year has been on
managing our costs and asset base to ensure we remain fully funded for
future operations and this strategy will continue in 2017.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016 3
Financials
The fall in oil price has a direct effect on our revenues and the average of
123 boepd recovered from our UK onshore fields generated £1.3 million
in revenues (2015: 141 boepd and £2.2 million). Net cash spent on
operations was £0.3 million (2015: cash spent £0.3 million). Our cash
balance at the end of July 2016 was £1.7 million (31 July 2015:
£3.2 million).
We have seen the results of the initial technical work on our Porcupine
basin interests translated into prospective resources confirmed by a
Competent Persons Report (“CPR”) on FEL 3/13 with Europa exposed
to 1.5 billion boe of gross mean unrisked prospective resources with
a mean Risked NPV10 of US$7 billion. This excludes the recently awarded
LO 16/2 with a further 895 million boe and FEL 2/13 with 595 million boe
of gross mean unrisked prospective resources.
In the UK, with Wressle moving from discovery to producer, we are poised
to see an increase in production, revenue and cash flow, which should
coincide with work preparing for the exploration well at Holmwood.
I would like to thank the management, operational teams, my fellow
Board members and our advisers for their hard work over the year.
Finally I would like to reiterate my thanks to our shareholders for their
continued support during what has been a challenging year for all of
the oil and gas sector, but particularly small exploration and production
companies like Europa.
Colin Bousfield
Non-executive Chairman
30 September 2016
If Wressle were to produce at the expected initial flowrate of 500 bopd
gross, even at today’s sub US$50 per barrel oil price, Europa will return
to a positive operating cash flow. It should be noted that following the
March 2016 UK Budget which halved the Supplementary Charge with
effect from 1 January 2016, Europa’s future profits would be taxed at
40% (previously 50%).
Oil and gas exploration onshore France is frustrated by the French
Government’s lack of support for the industry. This is demonstrated by
the continuing delay, since February 2015, in approving Europa’s farmout
of the Tarbes val d’Adour permit interest to Vermillion. In fact no onshore
France permits have been issued or renewed in the past twelve months.
Europa will continue to progress its operations in France, but has taken
the decision to write down the carrying value of the Béarn des Gaves
permit to nil – resulting in an exploration write-off in the current period
of £1.2 million (2015: exploration write-off £2.2 million for the Kiln Lane
well and impairment of the producing West Firsby field £1.1 million).
Outlook
The continuing low oil price presents challenges for all E&P companies,
but I am confident that through a combination of cost efficiencies and
sound asset management Europa is now well poised to deliver growth
by maturing its diverse portfolio of assets. Through the recent awards
in Ireland and the UK, Hugh and the team have developed a pipeline
of licence interests at various stages of maturity, which will provide
cash flow to cover corporate overheads and, in some cases, have the
exploration potential to be company makers. I am very excited by the
Irish acreage position we have put in place and the arrival of the majors
and supermajors in the last licensing round indicates that the basin
is seen as having strong potential. This bodes well for our ongoing
farmout discussions.
Cost reductions achieved
Cost of sales :
33%
Administrative expenses:
39%
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 4
Year in review
A year of continued
progress
Two existing licences FEL
2/13 and FEL 3/13 offshore
Ireland extended and
now at 100% interest
Recent discoveries offshore Newfoundland and Senegal,
backed up by our own technical analysis of our proprietary
3D seismic, demonstrate the clear potential for both FEL 2/13
and 3/13 to hold new exploration plays and new exploration
prospects in addition to the Cretaceous play that we
have already identified.
Europa’s portfolio of seven offshore Ireland
licences cover
5,818 km2
Estimated to hold combined gross mean unrisked
prospective and indicative resources of
4.2 bn barrels
of oil equivalent
Five new Licensing Options
awarded offshore Ireland
Europa has substantially grown its position in Ireland through
successful applications in the 2015 Atlantic Margin Licensing Round
to become a leading exploration company in the Atlantic basins
offshore Ireland. This was achieved against stiff competition from
the majors. Many of our new neighbours are strong companies
who have undertaken, or will be undertaking, significant exploration
programmes including 3D seismic and exploration drilling which
will enhance technical and commercial appreciation of the basins
and Europa’s licences. Our priority in the short term is to secure a
farmin partner for our South Porcupine licences with whom we
can drill one or more of the drill-ready prospects we have already
identified using our state of the art 3D seismic.
1.5 tcf of gas
in various prospects in the Cretaceous fan,
pre-rift, syn-rift and Triassic plays
Two new UK onshore awards
in 14th Round
The new awards comprise a mix of field
rejuvenation and appraisal assets and build
on our technical and commercial experience
in the East Midlands and Cleveland basin.
Both new licences have strong partner groups
and we are excited by the opportunity to take
these new assets forward.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016 5
Positive Holmwood planning
decision, enabling us to prepare
for drilling in 2017
With gross mean unrisked prospective resources of 5.6 million barrels
of oil, as estimated in a CPR published in June 2012, and a one in three
chance of success, we regard Holmwood as one of the best undrilled
conventional prospects in onshore UK.
Proceeding with Wressle
development
We are very confident in the reservoir engineering analysis
that indicates initial production rates in excess of 500 bopd
could be achieved from the Ashover Grit interval at Wressle.
Were production to come in at or around this level, our interest
in the field would transform our existing production, reserves
and revenue profile.
Farmout of 7.5% of our PEDL143 licence.
Europa interest is now 32.5%, paying
25%
of the cost of the Holmwood exploration well
Up to a gross well cost of
£3.2m
Acquisition of Shale Petroleum (UK)
Limited post year end bolsters equity
As a consequence of this acquisition Europa has
increased its equity interest in PEDL299 and PEDL343
to 33.32% and 45% respectively. Europa has purchased
100% of the issued share capital of Shale Petroleum (UK)
Limited, a subsidiary of Shale Petroleum Limited (“SPL”)
a privately held Canadian independent oil & gas explorer
headquartered in Calgary.
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 6
Our strategy
Creating value
Strategy
Europa’s objective is to generate substantial shareholder
value by finding and producing oil and gas.
To increase the probability of success whilst managing risk, a disciplined
approach to the management of the Company’s hydrocarbon
assets is applied at all stages of the life of a licence. The Company
is committed to taking commercial decisions on the entire asset base
with management focused on exiting projects at the point of maximum
value for investors through the rigid application of a drill, drop, dilute or
divest policy. Europa’s highly prospective exploration portfolio is actively
managed with each project being subjected to first class technical as
well as commercial analysis allowing management to make informed
decisions on whether individual projects ought to be pushed down
the exploration and production funnel or out of it.
Management recognises the need to repopulate and replenish the asset
base with new licences as existing projects are progressed along the
development curve. An acceptable risk/reward profile for an individual
project depends on its impact on the overall portfolio, the balance of
assets at the time and the objective of the Company. Industry leading
portfolio management methodologies are deployed to ensure the
risk/reward trade-off inherent in the portfolio is transparent to ensure
shareholder value is maximised.
Europe is the current geographic focus.
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Read our Year in review
= page 4
Read more on our Operations
= page 8
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Strategic report
7
Our key performance indicators
Revenue
Financial KPIs
1.
2.
3.
4. Net cash balance
Profit
Cash from operations
= Financial analysis is provided in the Chairman’s Statement (page 2)
Non-financial KPIs
1. Health, safety and environmental measures
2.
3.
4.
Production (boepd and non-productive time)
Participation in ongoing and future licensing rounds
Progress with all the licences in which the Group has interests
Operations and development
The principal activity of the Group is investment in oil and gas exploration, development and production. The Group’s assets and activities are located
in the United Kingdom, Ireland and France. The Board regards Atlantic Margin Ireland and onshore UK as core areas where we are actively seeking to
build our portfolio. The Board has considered and will continue to consider investments in onshore Europe, North Atlantic and the Mediterranean.
Our portfolio
Country
Area
Ireland
South Porcupine
Slyne basin
Padraig basin
East Midlands
UK
France
Weald
SNS
Aquitaine
Licence
FEL 2/13
FEL 3/13
LO 16/2
LO 16/19
LO 16/20
LO 16/21
LO 16/22
DL 003
DL 001
PL 199/215
PEDL180
PEDL181
PEDL182
PEDL299
PEDL343
PEDL143
Block 41/24
Béarn des Gaves
Tarbes val d’Adour
Field/
Prospect
Doyle A/B/C, Heaney
Beckett, Wilde, Shaw
3 prospects
2 leads
2 leads
4 leads
6 leads
West Firsby
Crosby Warren
Whisby-4
Wressle
Broughton North
Hardstoft
Cloughton
Holmwood
Maxwell
Berenx
Operator
Equity
Europa
Europa
Europa
Europa
Europa
Europa
Europa
Europa
Europa
BPEL
Egdon
Europa
Egdon
Ineos
Third Energy
Europa
Europa
Europa
Vermilion
100%
100%
100%
100%
100%
100%
100%
100%
100%
65%
30%1
50%
30%1
33.3%
45%
32.5%
50%
100%
20%
Status
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Production
Production
Production
Development
Exploration
Exploration
Field rejuvenation
Appraisal
Exploration
Promote
Exploration
Exploration
1Following the post year end sale to Union Jack Oil plc and assuming OGA approval.
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers
8
Operations
Ireland
Porcupine
UK
Southern North Sea
UK
East Midlands
UK
Weald
France
Aquitaine
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Strategic report 9
LO 16/21
LO 16/20
LO 16/22
FEL 2/13
LO 16/19
FEL 3/13
LO 16/2
Expansion in Ireland
Gross mean unrisked
prospective and
indicative resources
Licence
Area km2
Basin
Term Oil million boe
Gas tcf
FEL 2/13
FEL 3/13
LO 16/2
LO 16/19
LO 16/20
LO 16/21
LO 16/22
Total
768
782
523
976
945
832
992
5,818
South Porcupine
South Porcupine
South Porcupine
South Porcupine
Slyne basin
Slyne basin
Padraig basin
Phase 1 of 15 year
Phase 1 of 15 year
2 year
2 year
3 year
3 year
3 year
595
1,500
895
700
500
4,190
1.0
0.5
1.5
Europa has a 100% interest in,
and is operator of
7 licences
Covering
5,818 km2
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers
10
Operations (continued)
Ireland
Exploration
Europa is now a leading operator in Irish exploration. We are ranked top
for net operated area under licence (5,818 km2), equal top for number
of operated licences (seven) and we were awarded more licences in the
2015 Atlantic Margin Licensing Round than any other operator (five).
Corrib
Ireland - Porcupine
Europa now has four licences in the South Porcupine basin,
these can be considered as two licence pairs:
FEL 3/13 and LO 16/2 on the east flank of the basin
Europa identified three new pre-rift prospects in LO 16/2 which have
combined gross mean unrisked prospective resources of 895 million
boe. The pre-rift play has proved very successful in the Flemish
Pass basin offshore Newfoundland and it is believed that this play
may also be developed in the South Porcupine basin in addition
to the Cretaceous fan play.
The three new prospects were mapped on Europa’s proprietary 3D
seismic which was acquired in 2013 and covers both FEL 3/13 and
LO 16/2.
Connemara
Spanish Point
Burren
Doyle A,B,C
Heaney
FEL 2/13 (100%)
Dunquin
Galway
The Cretaceous fan play is developed in FEL 3/13. A CPR by ERC Equipoise
confirmed gross mean unrisked prospective resources of 1.5 billion boe
and unrisked NPV10 of US$7 billion across three Cretaceous fan prospects
on the licence: prospects Wilde, Beckett and Shaw. Prospect Wilde is
considered drill ready. Wilde has a geological chance of success of one in
five, gross mean unrisked prospective resources are 428 million boe and
the drill costs are estimated to be US$37 million excluding mobilisation
and demobilisation.
Cork
There is clear technical and commercial synergy between the two
licences. The one year extension for FEL 3/13 phase 1 will enable
completion of technical work and integration with LO 16/2.
The combined audited and unaudited gross mean unrisked
prospective resource of the two licences is almost 2.4 billion boe.
Beckett, Wilde &
Shaw
FEL 3/13 (100%)
0
km
50
South Porcupine / FEL 2/13; FEL 3/13; LO 16/2; LO 16/19
In June 2016 we announced the receipt of consent from Ireland’s Minister
for Communications, Climate Action and the Environment for the transfer of
interest in FEL 2/13 and FEL 3/13 from Kosmos Energy Ireland. Following the
transfer, Europa has 100% interest in, and is operatorship of both licences.
In February and May 2016 two additional LOs in the South Porcupine
were awarded to Europa: LO 16/2 and LO 16/19.
In August 2016, we announced that phase 1 of FEL 2/13 and FEL 3/13
had been extended by one year to 4 July 2017. This extension allows
us to mature existing prospects and perform detailed mapping of all
potential prospective levels on both licences, including the pre-rift, syn-rift
and post-rift plays, whilst continuing to seek a farmout partner for drilling.
FEL 2/13 and LO 16/19 on the west flank of the basin
Europa has a 100% interest in FEL 2/13 and LO 16/19. FEL 2/13 contains
a number of Cretaceous submarine channels mapped on Europa’s
proprietary 948 km2 3D seismic survey which cross the licence from
west to east feeding submarine fans developed in LO 16/19. The seismic
architecture of the channels in FEL 2/13 contain features consistent
with sandstone deposition and Europa believes that these sandstones
are also deposited in the fans in LO 16/19. In addition, there is evidence
of gas escape features on seismic and sea bed pock marks suggesting
the presence of an active source rock. BP well 43/13-1 drilled in 1998
approximately 20 km from LO 16/19 saw oil shows and encountered
source rocks.
Four prospects (Doyle A, B, C and Heaney) were mapped on 3D seismic
in FEL 2/13 with gross mean unrisked prospective resources of 595 million
boe. There is potential for several Cretaceous submarine fans with a range
of 300 million to 1 billion boe gross mean unrisked prospective resources
in LO 16/19.
During the period of the LO Europa will further mature the prospect
inventory and will seek a farmin partner with which to convert to an FEL,
acquire a 3D seismic survey and in due course drill an exploration well
(subject to a positive technical and commercial outcome from the 3D
seismic programme). The one year extension for FEL 2/13 phase 1 will
enable completion of technical work and integration with LO 16/19.
Europa’s experience in the basin leads the Directors to believe that 3D
seismic over LO 16/19 will profoundly change the prospect inventory
and a positive outcome may not only provide greater clarity on
prospect mapping and volumetrics, but may also substantially de-risk
the prospects. Other operators are exploring for Cretaceous fans in the
basin and any exploration drilling success in the Cretaceous fan play
has the potential to further de-risk the prospects in all of Europa’s South
Porcupine licences.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Strategic report 11
Padraig basin / LO 16/22
The Padraig basin is a remnant Jurassic basin on the eastern margin of
the Rockall Trough. The most relevant analogue is the conjugate margin
play offshore Newfoundland, in the Flemish Pass basin. Good quality 1998
2D seismic suggest structures of significant size and multiple leads have
been mapped in water depths ranging from 800 to 2,000 metres in both
pre-rift and syn-rift hydrocarbon plays.
Gross mean unrisked indicative resources are estimated to be in the range
of 300 to 600 million boe.
Our strategy is to expedite exploration by utilising the historic 2D seismic
and wealth of high quality technical work previously performed by major
oil companies to mature existing leads to drillable prospect status and
secure a farmin partner with which to drill an exploration well.
Following Statoil’s exploration success at the play-opening Bay du Nord
oil discovery in the Flemish Pass basin offshore Newfoundland, there
is considerable industry interest in analogues offshore west Ireland.
Whilst most of the industry is currently focused on exploring for this
play in the South Porcupine basin our restoration of the conjugate
margin prior to Atlantic seafloor spreading suggests the possibility
that the Padraig basin may be a better fit with the Flemish Pass basin.
Ireland - Slyne Basin
LO
16/21
LO
16/20
Corrib field
& pipeline
Slyne basin / LO 16/20; LO 16/21
Not everything offshore west Ireland is high risk, deepwater, frontier
exploration. LO 16/20 and 16/21 in the Greater Corrib area of the Slyne
basin represent exploration in a proven play, in the vicinity of the
Corrib gas field that is newly on production and with substantial gas
infrastructure already in place. The Greater Corrib play comprises Triassic
sandstone reservoirs in tilted fault block structures with hydrocarbons
generated from Carboniferous source rocks. Water depths range from
300 to 2000 metres and the licences are partially covered by historic
3D seismic data as well as extensive 2D seismic.
Our strategy is to expedite exploration by reprocessing historic 3D seismic
over LO 16/20 and LO 16/21, maturing leads to drillable prospect status
and securing a farmin partner with which to drill a low-cost, low-risk
exploration well.
Gross mean unrisked prospective and indicative resources:
• LO 16/20 1.0 tcf gas
• LO 16/21 0.5 tcf gas
Clearly we are at a very early stage in the exploration cycle, however,
equally clearly we have a well-defined work programme to de-risk the
play. In particular it is hoped that successful reprocessing of historic 3D
seismic might allow us to mature existing leads to drillable prospect
status without the need to acquire new seismic data.
Prospect TR1 in LO 16/20 lies 16 km to the northwest of Corrib in water
depths of 500 metres. Were the prospect to achieve drillable status it is
expected that the geological chance of success will be high, drill costs
will be low (reflecting the comparatively shallow water depth) and the
proximity to gas infrastructure is potentially a very favourable factor.
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 12
Operations (continued)
Ireland (continued)
Valuation
US$7 billion net mean unrisked NPV10 for FEL3/13 prospects
ERCE's independent assessment of NPV followed their CPR on the Prospective Resources associated with the Wilde, Beckett and Shaw prospects on FEL
3/13 based on 3D seismic data acquired in 2013. These prospects are at the pre-drill stage and realisation of this potential value will require the drilling
of exploration wells. ERCE estimates Unrisked and Risked NPV at a 10% discount rate (“NPV10”) for an uncarried 100% working interest as at 1 January
2015 for the Low, Best and High estimates of Prospective Resources as tabulated below:
FEL 3/13
Prospect
Wilde
Beckett
Shaw
Total
Gross Oil & Gas
Unrisked Prospective Resources
mmboe
Low
Best
61
109
57
239
424
198
High
952
1,661
681
Low
-170
-170
-170
Best
122
1,692
110
Net Unrisked
NPV10
(US$ million)
Chance
of
Success
Net Risked
NPV10
(US$ million)
High
Mean
5,595
11,628
4,631
1,676
4,114
1,302
7,092
%
19
15
13
Mean
318
617
169
1,105
Notes:
1. The discounted cash flow analysis has been carried out assuming exploration drilling results in discovery of oil. However, due to the significant uncertainties in the available
geological information, there is a possibility that exploration drilling, if successful, will result in the discovery of gas.
2. mmboe means millions of barrels of oil plus gas converted to oil using a conversion rate of six thousand cubic feet of gas for each barrel of oil.
3.
“Gross Oil and Gas Unrisked Prospective Resources” are 100% of the volumes estimated to be recoverable from an undrilled prospect before applying the geological chance
of success (“COS”).
4. The COS is an estimate of the probability that drilling the prospect would result in a discovery.
5. Prospective Resources are “Unrisked” in that the volumes have not been multiplied by the COS.
6. Net Unrisked NPV10 means the NPV10 at 10% discount rate as at 1 January 2015 attributable to Europa’s 100% working interest in the Prospect before multiplying by the COS.
7. Net Risked NPV10 means the NPV10 at 10% discount rate as at 1 January 2015 attributable to Europa’s 100% working interest in the Prospect after multiplying by the COS.
8. The analysis for the Best and High cases assumes the successful drilling of an exploration well on each prospect in 2017 followed in each case by appraisal drilling and
then development.
9. The Low estimates of NPV10 for each prospect comprise the Net cost to Europa of an exploration and appraisal well, this is because discounted cash flow modelling of each
of the Low cases resulted in a more negative NPV10.
10. The Mean estimate of the NPV10 for each prospect has been calculated by adding the Low, Best and High estimates of NPV10 weighted by 0.3, 0.4 and 0.3 respectively
(the Swanson’s Mean).
11. The NPV10 calculations presented in this report simply represent discounted future cash flow values. Though NPV estimates form an integral part of fair market value
estimations; without consideration for the exploration risk factor (COS) and other economic criteria, including market perception of risk, they are not to be construed
as opinions of fair market value.
12. The cash flows and NPV10 estimates were calculated assuming a nominal oil price of US$57 bbl in 2015 rising to US$87 bbl by 2019 and inflated at 2% thereafter.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Strategic report
13
UK
Exploration
Crosby Warren
(100%)
PEDL182 (30%)
Broughton
PEDL180 (30%)
Wressle
Cloughton-1
PEDL343 (45%)
Scarborough
UK - East Midlands
Bridlington
York
Immingham
Oil Refinery
Leeds
Cuxwold
PEDL181 (50%)
Crosby Warren (100%)
PEDL182 (30%)
PEDL180 (30%) - Wressle
PEDL181 (50%)
UK - East Midlands
0
km
10
East Midlands / PEDL181
In July 2016, Europa announced entry into the second phase of the
licence – having fulfilled phase 1 work obligations by the drilling of
the Kiln Lane well in 2015. Following analysis of seismic and geological
data, together with the results of the Kiln Lane well, Europa elected to
relinquish 380 km2 of the licence. An area of 160 km2 in the southeast
of the licence was retained. The retained area provides exposure to the
conventional and unconventional hydrocarbon potential of the Humber
basin. It has technical synergy with the adjacent licence PEDL334 which
was awarded to an Egdon led group in the 14th Round for the purpose
of conventional and unconventional exploration.
West Firsby
Lincoln
Whisby
Hardstoft
PEDL299 (33.32%)
East Midlands / PEDL299 (Hardstoft)
PEDL299 contains the Hardstoft oil field. This was discovered in 1919
by the UK’s first ever exploration well and produced 26,000 barrels of
oil from Carboniferous limestone reservoir. A CPR on Hardstoft, issued
by joint venture partner Upland Resources, identified gross 2C contingent
resources of 3.1 million boe and gross 3C contingent resources of 18.5
million boe in PEDL299. Production testing methodologies for carbonate
reservoirs have evolved since 1919 and our hope is that commercial oil
flowrates can be obtained.
As a consequence of our acquisition of Shale Petroleum (UK) Limited post
year end we have we have increased our equity from 16.66% to 33.32%.
Europa’s interest in PEDL299 is restricted to the conventional prospectivity,
and Ineos are operator.
East Midlands / PEDL343 (Cloughton)
PEDL343 (initially granted as PEDL348) was our top ranked block out of
our three 14th Onshore Licensing Round applications. PEDL343 is operated
by Third Energy and contains the Cloughton gas discovery made by Bow
Valley. The 1986 exploration well flowed a small amount of gas to surface
on production test from Carboniferous sandstone reservoirs. We regard
Cloughton as a gas appraisal opportunity with the critical challenge being
to obtain commercial flowrates from future production testing operations.
The acquisition of Shale Petroleum (UK) Limited post year end increased
our equity in the licence from 22.5% to 45%.
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 14
Operations (continued)
UK (continued)
Exploration (continued)
UK - Weald
M25
Guildford
Dorking
Albury
Brockham
Holmwood-1
(Proposed)
Block 41 / 24 (50%)
Maxwell discovery
Scarborough
Filey
PEDL143 (40%)
0
km
10
UK - Southern North Sea
Southern North Sea / Block 41/24
This is a promote licence awarded in July 2015 over Block 41/24 in the
Southern North Sea to a joint venture comprising Europa and Arenite
Petroleum Limited. The licence was awarded as part of the 28th Seaward
Licensing Round. Block 41/24 adjoins the Yorkshire coast and contains the
Maxwell gasfield which was discovered in Permian Zechstein carbonates
by Total with the drilling of offshore well 41/24a-1 in 1969. Two follow-up
appraisal wells: (41/24a-2 drilled by Total (1981) and 41/24-3 by Conoco
(1992) targeted were drilled into this fractured Zechstein carbonate
reservoir and flowed gas and condensate. The exploration emphasis
of the licence is to address the Carboniferous prospectivity in the
Namurian and Dinantian sequences. The adjoining onshore extension
of the Cleveland basin contains a number of gas fields and discoveries
including Kirby Misperton, Ebberstone Moor and Cloughton.
The Promote licence is for two years duration and requires financial,
technical and environmental capacity to be in place and a firm drilling
(or agreed equivalent substantive activities) commitment to have been
made by the end of the second year.
0
km
10
Crawley
M23
Weald / PEDL143 (Holmwood)
PEDL143 contains the Holmwood conventional oil prospect.
Europa regards this as one of the best undrilled prospects in onshore
UK. Following the farmout to Union Jack Oil plc, we remain as
operator with a 32.5% interest in the licence and have a partial carry
on our share of the exploration well costs up to a cap of £3.2 million.
The well is currently being planned for drilling in 2017.
The results of the Horse Hill well 12 km to the east of the Holmwood
prospect in PEDL137 are relevant. Horse Hill is along-strike from
Holmwood in a very similar geological structure. Correlation of
seismic data indicates that the Holmwood well will penetrate a similar
stratigraphic section to that at Horse Hill. Whilst we cannot guarantee
that Holmwood will encounter similar hydrocarbons to Horse Hill the
results are encouraging.
In addition to producing oil from Portland sandstone reservoirs, Horse Hill
also produced oil from micritic limestone formations in the Kimmeridge
section. This is an interesting development. One of the peculiarities of
limestone reservoir rocks (compared with sandstones) is that typically
there are no or very weak, direct hydrocarbon shows whilst drilling and
often only inconclusive indications of hydrocarbons on electric logs. It is
therefore encouraging that perseverance at Horse Hill yielded 1,365 bopd
aggregate flowrate from two limestone intervals. It is possible that the
micritic limestone may be a “missed pay” in the Weald basin.
Whilst the results of Horse Hill are encouraging our estimate of geological
chance of success is unchanged at one in three and our guidance for
gross mean prospective resources remains at 5.6 million boe with a range
of one to eleven million barrels. At 5.6 million boe, Holmwood would be
the fifth largest onshore field in UK history.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Strategic report 15
France - Aquitaine
Percorade
Vic Bilh
Lacq
Pau
Lagrave
Tarbes val
d’Adour
(20%)
Castera
Lou
Cassourat
Meillon
Ger
Tarbes
Jacque
& Osmets
Berenx
Béarn des
Gaves (100%)
0
km
10
Aquitaine / Tarbes val d’Adour
Europa announced a farmout to Vermilion Energy on 16 February 2015.
The farmout agreement being subject to the relevant approvals from
the French authorities:- for the transfer of equity and operatorship to
Vermilion and the granting of an extension to the permit. The approvals
processes started in 2014.
We continue to try to progress the necessary approvals, but we believe
that it is prudent at this stage to assume that the relevant approvals will
not be forthcoming.
Aquitaine / Béarn des Gaves / Berenx
The current phase of the permit expires in March 2017. Although we
successfully obtained a farmin partner for Tarbes Val d’Adour we have
been unable to find a partner for Béarn des Gaves. It is unlikely that we
will be able to conclude a farmin in the time remaining, and even if
we did, it is unlikely that we could obtain the necessary approvals and
extension from the French authorities. We have therefore decided to
write-off the carrying value of the permit in the current year.
Crosby Warren
(100%)
PEDL182 (30%)
Scunthorpe
PEDL180 (30%)
Cuxwold
Broughton
Wressle
Immingham
Oil Refinery
Grimsby
Easington
Gas
Terminal
France
Exploration
Dax
Gainsborough-
Beckingham
PEDL181 (50%)
Mablethorpe
Gas Terminal
West Firsby
(100%)
Keddington
Saltfleetby
Welton
Lincoln
Whisby-4
(65%)
0
km
10
UK - East Midlands
Development
East Midlands / PEDL180 (Wressle); PEDL182 (Broughton North)
The operator Egdon continues to bring the Wressle oil discovery forward
to development. Reservoir engineering analyses indicate an initial
production flow rate of 500 bopd gross from the Ashover Grit interval,
which even at sub US$50 per barrel oil prices, will return Europa to
a positive operating cash flow. An application for planning permission
and applications for Environment Agency permits were submitted in June
2016. The Field Development Plan (“FDP”) was submitted on 8 September
2016 and a CPR issued on 26 September. On 27 September Europa
announced the sale of 3.34% interest in PEDL180 and PEDL182 to Union
Jack Oil plc for a cash consideration of £600,000. The transaction implies
a mark to market value of £5.4 million for Europa’s remaining 30% interest
in the licences. The CPR identifies gross 2P reserves of 0.65 mmboe in
the Ashover and Wingfield Flags and gross 2C contingent resources of
1.86 million boe in the Penistone Flags on the Wressle structure; and gross
mean unrisked prospective resources of 0.6 million boe at the Broughton
North exploration prospect.
Production
East Midlands / West Firsby; Crosby Warren; Whisby-4
Production from the three fields declined in line with expectations.
In the year 123 boepd were recovered, down from 141 boepd in 2015.
The change to beam pumps (nodding donkeys) away from jet pumps at
West Firsby, and successful rateable vale appeals were the main drivers of
the 33% reduction in cost of sales which was achieved. The pump change
enabled savings in utility costs, chemicals and the need for interventions
in order to keep the field producing.
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 16
Operations (continued)
Financials
With a small contribution from the Wressle testing our production
this year averaged 123 boepd and generated £1.3 million in revenues
(2015: 141 boepd and £2.2 million). The average oil price achieved
in the year was US$41.5 per barrel (2015: US$68.2).
As announced last year, while most of the costs associated with our
production are fixed in nature we implemented various cost saving
measures to help mitigate the effect of the falling oil price and as a result
we have reduced cost of sales to £1.3 million (2015: £1.9 million). The cost
of sales savings arise partly from lower production rates, successful
appeals against property rateable values, and from the switch to nodding
donkeys, as opposed to jet pumps, at West Firsby.
Administrative expenses also showed a significant reduction at £0.6
million (2015: £1.0 million). Some of the saving occurred as a result of the
non-recurrence of 2015 costs associated with licence applications and
the Tarbes farmout. Material savings arose from a voluntary, temporary,
salary reduction agreed with head office staff. There were further savings
generated from the sublet, and eventual sale, of the Abingdon property.
Our cash balance at 31 July 2016 stood at £1.7 million
(31 July 2015: £3.2 million).
Result for the year
The Group loss for the year after taxation from continuing activities
was £1,638,000 (2015: £1,784,000).
HGD Mackay
Chief Executive Officer
30 September 2016
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Strategic report Risks and uncertainties
17
Europa’s activities are subject to a range of financial risks including commodity prices, liquidity, exchange rates and loss of operational equipment or
wells. These risks are managed with the oversight of the Board and the Audit Committee through ongoing review taking into account the operational,
business and economic circumstances at that time. The primary risk facing the business is that of liquidity.
Key risk
Description and impact
Mitigation
Detailed cash forecasts are prepared
frequently and reviewed by management
and the Board.
The Group’s production provides a monthly
inflow of cash and is the main source
of working capital and project finance.
Additional cash is available through the
placing of Europa shares in the market
and the trading assets.
The Board has considered the use of
financial instruments to hedge oil price
and US Dollar exchange rate movements.
To date, the Board has not hedged against
price or exchange rate movements, but
intends to regularly review this policy.
Current production comes from five
oil wells located at three different sites.
This diversity of producing assets gives
Europa resilience in the event of a
problem with one well, or site.
Appropriate insurance cover is obtained
annually for all of Europa’s exploration,
development and production activities.
Financial risk
Funding
Significant expenditure is required to establish the extent of oil and gas
reserves through seismic surveys and drilling and there can be no certainty that
oil and gas reserves will be found. The exploration and development of oil and
gas assets may be curtailed, delayed or cancelled by unusual or unexpected
geological formation pressures, hazardous weather conditions or other factors.
Licences may be revoked by the relevant issuing authority if commitments
under those licences are not met. Further details of current licence
commitments are given in notes 11 and 24.
Commodity
price and foreign
exchange
Each month’s oil production is sold at a small discount to Brent price in
US Dollars. These funds are matched where possible against expenditures
within the business. As most capital and operating expenditures are Sterling
denominated, US Dollars are periodically sold to purchase Sterling. A fall in oil
price could make some projects economically unviable.
All oil production is sold to one UK based refinery – if they were to stop
buying Europa’s crude, additional transportation costs would be incurred.
The business of exploration and production of oil and gas involves a high
degree of risk. Few prospects that are explored are ultimately developed
into producing oil and gas fields.
Securing planning consent for onshore wells takes times and the outcome
of planning applications is not certain.
There are numerous risks inherent in drilling and operating wells, many
of which are beyond the Company’s control. Operations may be curtailed,
delayed or cancelled as a result of environmental hazards, industrial accidents,
occupational and health hazards, technical failures, shortage or delays in
the delivery of rigs and other equipment, labour disputes and compliance
with governmental requirements.
Drilling may involve unprofitable efforts, not only with respect to dry wells,
but also to wells which, though yielding some oil or gas, are not sufficiently
productive to justify commercial development. Completion of a well does
not assure a profit on the investment or recovery of drilling, completion
and operating costs.
Operational risk
Exploration,
drilling and
operational risk
On behalf of the Board
Phil Greenhalgh
Finance Director
30 September 2016
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 18
Board of Directors
William Ahlefeldt-Laurvig
Colin Bousfield
Roderick Corrie
Role
Non-executive Director
Skills and experience
William helped take Europa onto AIM
and remains its largest shareholder.
He started his career at Maersk as a
petroleum engineer followed, in 1987,
by IPEC, a London-based consultancy,
where he was responsible for field
reserves estimations. In 1990, he became
an independent consultant, undertaking
field and portfolio evaluations for
acquisitions and field development work
on a range of projects in the North Sea,
former Soviet Union and Middle East.
He is also the founder of IFX Infoforex.
William has continued to be active in
petroleum engineering consulting,
carrying out portfolio evaluations and
project management.
Committees
A R
Role
Non-executive Chairman
Skills and experience
Colin is an Associate of the Chartered
Institute of Banking having spent over
30 years in banking with Barclays, Bank of
Scotland, RBS and Commonwealth Bank
of Australia, primarily involved in providing
finance and corporate advice to oil and
gas companies. Colin was CFO for a
private unconventional resources group
active in Europe, Composite Energy, prior
to its sale to Dart Energy Ltd of Australia.
He was then CFO for a European onshore
drilling services company, Geometric
Drilling Ltd, prior to its sale to the
Entrepose Contracting group.
Committees
A R
Role
Non-executive Director
Skills and experience
Roderick is a graduate of Cambridge
University and an Associate of the
Chartered Institute of Banking. He is
a strategic adviser and financier with
a variety of companies and holds or
has held executive or non-executive
roles in corporate finance, strategic
advice, TV advertising, financial services,
health, property, internet services,
mineral exploration & development,
investment and manufacturing companies.
Committees
A R
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Governance Committees member key
A Audit committee
R Remuneration committee
Chair of committee
Member of committee
19
G
o
v
e
r
n
a
n
c
e
Phil Greenhalgh
Hugh Mackay
Role
Finance Director
Skills and experience
Phil graduated from Imperial College
with a BEng in chemical engineering
and subsequently became a member of
the Chartered Institute of Management
Accountants. He began his financial
career as Financial Controller with Kelco
International, a subsidiary of Merck & Co.
He moved to Monsanto plc before
becoming Finance Director with Pharmacia
Ltd. He moved to Whatman plc, a FTSE
250 company, where he led the financing
of a €50 million acquisition, oversaw
a substantial share price recovery and was
a key player in the Whatman turnaround.
Role
Chief Executive Officer
Skills and experience
Hugh, a geologist who joined Europa
in 2011, has a wealth of experience in
the oil and gas sector, including eight
years at BP in a variety of roles in the UK,
Oman and Egypt, then at Enterprise Oil in
leadership roles, culminating as head of
the SE Asia division. Hugh sold the Peak
Group to AGR ASA for US$50 million and
founded Avannaa Resources, a leading
mineral exploration company in Greenland.
Hugh has a BSc in Geology from the
University of Edinburgh and a Sloan MSc in
Management from London Business School.
Strategic reportFinancial statementsAdviserswww.europaoil.com
20
Directors’ report
Business review
A detailed review of the Group’s business is set out in the Chairman’s statement (page 2) and Strategic report (page 6).
Future developments
Details of expected future developments for the Group are set out in the Chairman’s statement (page 2) and Strategic report (page 6).
Dividends
The Directors do not recommend the payment of a dividend (2015: £nil).
Directors and their interests
The Directors’ interests in the share capital of the Company at 31 July were:
CW Ahlefeldt-Laurvig1
C Bousfield
RJHM Corrie2
P Greenhalgh
HGD Mackay
Number of
ordinary shares
Number of ordinary
share options
2016
2015
2016
2015
35,002,442
273,958
805,287
520,973
3,370,906
25,502,442
273,958
574,739
520,973
2,507,549
—
500,000
650,000
4,275,000
8,200,000
—
500,000
500,000
3,075,000
6,600,000
1. CW Ahlefeldt-Laurvig holds his shares with HSBC Global Custody Nominee (UK) Limited.
2. RJHM Corrie has interest in 663,396 shares held directly, plus 79,200 shares held by Corrie Limited, of which Mr Corrie is a Director and 62,691 shares held via a 50% interest in RT Property
Investments Limited.
In addition to their interest in the ordinary shares of the Company, C Bousfield and RJHM Corrie hold stock options. These options were awarded in
connection with their appointment to the Board, with a further 150,000 options granted to RJHM Corrie this year. Full details of the options are included
in note 21. The Board has listened to comments raised by certain investors and discussed the subject with advisers. Whilst recognising that the granting
of options to non-executive Directors is contrary to the principles of the UK corporate governance code the Board considers that the quantum of
options granted is not so significant as to raise any issue concerning the independence of these Directors. In addition, the Board wishes to retain the
ability to grant stock options to non-executive Directors in future.
Details of the vesting conditions of the Directors’ stock options are included in note 21.
Directors’ interests in transactions
No Director had, during the year or at the end of the year, other than disclosed above, a material interest in any contract in relation to the Group’s
activities except in respect of service agreements.
Subject to the conditions set out in the Companies Act 2006, the Company has arranged appropriate Directors’ and Officers’ insurance to indemnify
the Directors against liability in respect of proceedings brought by third parties. Such provisions remain in force at the date of this report.
Financial instruments
See notes 1 and 22 to the financial statements.
Related party transactions
See note 25 to the financial statements.
Post reporting date events
See note 26 to the financial statements.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Governance
21
Capital structure and going concern
Further details on the Group’s capital structure are included in note 20. Comments on going concern are included in note 1.
Accounting policies
A full list of accounting policies is set out in note 1 to the financial statements. The Group has not made any material changes to its accounting policies
in the year to 31 July 2016.
Disclosure of information to the auditor
In the case of each person who was a Director at the time this report was approved:
• So far as that Director was aware there was no relevant available information of which the Company’s auditor was unaware.
• That Director had taken all necessary steps to make themselves aware of any relevant audit information, and to establish that the Company’s auditors
was aware of that information.
Auditor
A resolution to re-appoint the auditor, BDO LLP will be proposed at the next Annual General Meeting.
On behalf of the Board
Phil Greenhalgh
Finance Director
30 September 2016
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 22
Statement of Directors’ responsibilities
Directors’ responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the
Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
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 year. 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 Alternative Investment Market.
In preparing these financial statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
• State whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed
and explained in the financial statements; and
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the
requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are
published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the
Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Governance Report of the independent auditor
23
Independent auditor’s report to the members of Europa Oil & Gas (Holdings) plc
We have audited the financial statements of Europa Oil & Gas (Holdings) plc for the year ended 31 July 2016 which comprise the consolidated
statement of comprehensive income, the consolidated and Company statement of financial position, the consolidated and Company statement
of changes in equity, the consolidated and Company statement of cash flows and the related notes. The financial reporting framework that has
been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and,
as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting
Council’s (FRC’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• The financial statements give a true and fair view of the state of the Group’s and the parent Company’s affairs as at 31 July 2016 and of the Group’s
loss for the year then ended;
• The Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• The parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied
in accordance with the provisions of the Companies Act 2006; and
• The financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic report and Directors’ report for the financial year for which the financial statements are prepared
is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• Adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• The parent Company financial statements are not in agreement with the accounting records and returns; or
• Certain disclosures of Directors’ remuneration specified by law are not made; or
• We have not received all the information and explanations we require for our audit.
Scott Knight, Senior Statutory Auditor
For and on behalf of BDO LLP, statutory auditor
London, United Kingdom
30 September 2016
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 24
Consolidated statement of comprehensive income
For the year ended 31 July
Revenue
Cost of sales
Exploration write-off
Impairment of producing fields
Total cost of sales
Gross loss
Administrative expenses
Profit/(loss) on fixed asset disposal
Finance income
Finance expense
Loss before taxation
Taxation credit
Note
2
2
11
12
6
7
8
3
9
2016
£000
1,269
(1,282)
(1,162)
—
(2,444)
(1,175)
(593)
28
64
(228)
2015
£000
2,205
(1,900)
(2,205)
(1,100)
(5,205)
(3,000)
(975)
2
55
(208)
(1,904)
(4,130)
266
2,346
Total comprehensive loss for the year attributable to the equity shareholders of the parent
(1,638)
(1,784)
Earnings per share (EPS) attributable to the equity shareholders of the parent
Basic and diluted EPS
The accompanying notes form part of these financial statements.
Note
10
Pence
per share
Pence
per share
(0.67)
(0.86)
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
Consolidated statement of financial position
As at 31 July
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Derivative
Short-term borrowings
Total current liabilities
Non-current liabilities
Long-term borrowings
Deferred tax liabilities
Long-term provisions
Total non-current liabilities
Total liabilities
Net assets
Capital and reserves attributable to equity holders of the parent
Share capital
Share premium
Merger reserve
Retained deficit
Total equity
25
2015
£000
4,839
1,562
—
6,401
13
374
3,151
3,538
9,939
(1,043)
(141)
(32)
(23)
(1,239)
(141)
(109)
(2,143)
(2,393)
(3,632)
6,307
2,449
15,901
2,868
(14,911)
6,307
Note
2016
£000
11
12
18
14
15
16
16
17
17
18
19
20
20
20
4,453
1,060
157
5,670
23
210
1,718
1,951
7,621
(444)
(148)
—
—
(592)
—
—
(2,347)
(2,347)
(2,939)
4,682
2,449
15,901
2,868
(16,536)
4,682
These financial statements were approved by the Board of Directors and authorised for issue on 30 September 2016 and signed on its behalf by:
Phil Greenhalgh
Finance Director
Company registration number 5217946
The accompanying notes form part of these financial statements.
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26
Consolidated statement of changes in equity
Balance at 1 August 2014
Issue of share capital (net of costs, note 20)
Loss for the year attributable to the equity shareholders
of the parent
Share based payment (note 21)
Share
capital
£000
2,049
400
—
—
Share
premium
£000
14,080
1,821
—
—
Merger
reserve
£000
2,868
—
—
—
Retained
deficit
£000
(13,154)
—
(1,784)
27
Balance at 31 July 2015
2,449
15,901
2,868
(14,911)
Total
equity
£000
5,843
2,221
(1,784)
27
6,307
Attributable to the equity holders of the parent
Balance at 1 August 2015
Loss for the year attributable to the equity shareholders
of the parent
Share based payment (note 21)
2,449
15,901
2,868
(14,911)
6,307
—
—
—
—
—
—
(1,638)
13
(1,638)
13
4,682
Balance at 31 July 2016
2,449
15,901
2,868
(16,536)
The accompanying notes form part of these financial statements.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
Company statement of financial position
As at 31 July
Note
2016
£000
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Amounts due from Group companies
Total non-current assets
Current assets
Other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Derivative
Short-term borrowing
Total current liabilities
Non-current liabilities
Long-term borrowings
Total non-current liabilities
Total liabilities
Net assets
Capital and reserves attributable to equity holders of the parent
Share capital
Share premium
Merger reserve
Retained deficit
Total equity
11
12
13
25
15
16
16
17
17
20
20
20
43
4
2,335
491
2,873
44
1,250
1,294
4,167
(172)
—
—
(172)
—
—
(172)
3,995
2,449
15,901
2,868
(17,223)
3,995
2,449
15,901
2,868
(14,948)
6,270
27
2015
£000
1,160
321
2,332
331
4,144
64
2,423
2,487
6,631
(165)
(32)
(23)
(220)
(141)
(141)
(361)
6,270
These financial statements were approved by the Board of Directors and authorised for issue on 30 September 2016 and signed on their behalf by:
Phil Greenhalgh
Finance Director
Company registration number 5217946
The accompanying notes form part of these financial statements.
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28
Company statement of changes in equity
Balance at 1 August 2014
Issue of share capital (net of costs, note 20)
Total comprehensive loss for the year
Share based payment (note 21)
Share
capital
£000
2,049
400
—
—
Share
premium
£000
14,080
1,821
—
—
Balance at 31 July 2015
2,449
15,901
Balance at 1 August 2015
Total comprehensive loss for the year
Share based payment (note 21)
Balance at 31 July 2016
2,449
—
—
2,449
15,901
—
—
15,901
The accompanying notes form part of these financial statements.
Merger
reserve
£000
2,868
—
—
—
2,868
2,868
—
—
2,868
Retained
deficit
£000
(12,890)
—
(2,085)
27
(14,948)
(14,948)
(2,288)
13
(17,223)
Total
equity
£000
6,107
2,221
(2,085)
27
6,270
6,270
(2,288)
13
3,995
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
Consolidated statement of cash flows
For the year ended 31 July
Cash flows used in operating activities
Loss after tax from continuing operations
Adjustments for:
Share based payments
Depreciation
Exploration write-off
Impairment of property, plant & equipment
Disposal of fixed asset
Finance income
Finance expense
Taxation credit
Decrease in trade and other receivables
(Increase)/decrease in inventories
Decrease in trade and other payables
Net cash used in operating activities
Cash flows used in investing activities
Purchase of property, plant and equipment
Sale of property
Purchase of intangible assets
Repayment of derivative
Expenditure on well decommissioning
Interest received
Net cash used in investing activities
Cash flows (used in)/from financing activities
Proceeds from issue of share capital (net of issue costs)
(Decrease)/increase in payables relating to share capital issue costs
Repayment of borrowings
Finance costs
Net cash (used in)/from financing activities
Net decrease in cash and cash equivalents
Exchange gain on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes form part of these financial statements.
29
Note
2016
£000
2015
£000
(1,638)
(1,784)
21
12
11
12
6
7
8
9
20
13
195
1,162
—
(28)
(64)
228
(266)
170
(10)
(84)
(322)
(1)
338
(1,224)
(30)
—
4
(913)
—
(71)
(164)
(17)
(252)
(1,487)
54
3,151
1,718
27
386
2,205
1,100
2
(55)
208
(2,346)
79
19
(102)
(261)
(4)
—
(3,394)
—
(4)
7
(3,395)
2,221
71
(22)
(18)
2,252
(1,404)
54
4,501
3,151
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30
Company statement of cash flows
For the year ended 31 July
Cash flows used in operating activities
Loss after tax from continuing operations
Adjustments for:
Share based payments
Depreciation
Disposal of asset
Exploration write-off
Provision against investment in subsidiary
Movement in intercompany loan
Finance income
Finance expense
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Net cash used in operating activities
Cash flows used in investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Sale of property
Repayment of derivative
Movement on loan to Group companies
Interest received
Net cash used in investing activities
Cash flows (used in)/from financing activities
Proceeds from issue of share capital (net of issue costs)
(Decrease)/increase in payables relating to issue of share capital
Repayment of borrowings
Finance costs
Net cash (used in)/financing activities
Net (decrease)/increase in cash and cash equivalents
Exchange gain on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying notes form part of these financial statements.
Note
2016
£000
2015
£000
(2,288)
(2,085)
12
20
10
10
(28)
1,162
—
1,443
(470)
15
20
79
(47)
(1)
(48)
338
(30)
(1,139)
4
(876)
—
(71)
(164)
(15)
(250)
(1,173)
—
2,423
1,250
21
27
2
—
1,000
853
(387)
419
(12)
(72)
(234)
(4)
(125)
—
—
(1,026)
2
(1,153)
2,221
71
(22)
(16)
2,254
867
7
1,549
2,423
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
Notes to the financial statements
31
1 Accounting policies
General information
Europa Oil & Gas (Holdings) plc is a Company incorporated and domiciled in England and Wales with registered number 5217946. The address
of the registered office is 6 Porter Street, London, W1U 6DD. The Company’s administrative office is at the same address.
The functional and presentational currency of the Company is Sterling (£).
Basis of accounting
The consolidated financial statements have been prepared in accordance with applicable International Financial Reporting Standards (IFRS) as adopted
by the EU. The policies have not changed from the previous year.
The accounting policies that have been applied in the opening statement of financial position have also been applied throughout all periods presented
in these financial statements. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 31 July 2016.
Going concern
In their assessment of going concern the Directors did not renew the bank facility when it expired in January 2016. Given the continuing cash inflow
from the Group’s producing assets and the firm expectation of cash inflow from development assets, the Directors have concluded, at the time of
approving the financial statements, that there is a reasonable expectation, based on the Group’s cash flow forecasts, that the Group can continue in
operational existence for the foreseeable future, which is deemed to be at least twelve months from the date of signing these financial statements.
Accordingly they continue to adopt the going concern basis in preparing the financial statements.
Future changes in accounting standards
The IFRS financial statements have been drawn up on the basis of accounting standards, interpretations and amendments effective at the beginning
of the accounting period.
The following are amendments to existing standards and new standards which may apply to the Group in future accounting periods. Except for the
disclosure requirements of IFRS 9, which the Directors are continuing to assess, none of the following are considered to affect the Company.
IFRS 9 *
IFRS 15 *
IFRS 11
IFRS 16 *
IAS 1
IAS 7
IAS 12
IAS 16 and 38
*Not yet endorsed by the EU.
Effective date
(periods beginning on or after)
Financial instruments
Revenue from Contracts with Customers
Amendments – acquisition of interests in joint operations
Leases
Amendments – disclosure initiative
Disclosure initiative
Recognition of deferred tax assets for unrealised losses
Amendments – clarification of acceptable depreciation and amortisation methods
1 Jan 2018
1 Jan 2017
1 Jan 2018
1 Jan 2019
1 Jan 2016
1 Jan 2017
1 Jan 2017
1 Jan 2016
Basis of consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements
are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those
variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
Intra Group balances are eliminated on consolidation. Unrealised gains on transactions between the Group and its subsidiaries are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the
financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
The Group is engaged in oil and gas exploration, development and production through unincorporated joint ventures.
Joint arrangements
Joint arrangements are those arrangements in which the Group holds an interest on a long-term basis which are jointly controlled by the Group and
one or more venturers under a contractual arrangement. When these arrangements do not constitute entities in their own right, the consolidated
financial statements reflect the relevant proportion of costs, revenues, assets and liabilities applicable to the Group’s interests in accordance with
IFRS 11. The Group’s exploration, development and production activities are presently conducted jointly with other companies in this way.
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers
32
Notes to the financial statements (continued)
1 Accounting policies (continued)
Revenue recognition
Revenue, excluding value added tax and similar taxes, represents net invoiced sales of the Group’s share of oil and gas revenues in the year.
Revenue is recognised at the end of each month based upon the quantity and price of oil and gas delivered to the customer.
Non-current assets
Oil and gas interests
The financial statements with regard to oil and gas exploration and appraisal expenditure have been prepared under the full cost basis. This accords
with IFRS 6 which permits the continued application of a previously adopted accounting policy. The unit of account for exploration and evaluation
assets is the individual licence.
Pre-production assets
Pre-production assets are categorised as intangible assets on the statement of financial position. Pre-licence expenditure is expensed as directed by
IFRS 6. Expenditure on licence acquisition costs, geological and geophysical costs, costs of drilling exploration, appraisal and development wells, and
an appropriate share of overheads (including Directors’ costs) are capitalised and accumulated on a licence by licence basis. These costs which relate
to the exploration, appraisal and development of oil and gas interests are initially held as intangible non-current assets pending determination of
technical feasibility and commercial viability. On commencement of production these costs are tested for impairment prior to transfer to
production assets.
Production assets
Production assets are categorised within property, plant and equipment on the statement of financial position. With the determination of commercial
viability and approval of an oil and gas project the related pre-production assets are transferred from intangible non-current assets to tangible
non-current assets and depreciated upon commencement of production within the appropriate cash generating unit.
Impairment tests
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash generating units) as disclosed in notes 11 and 12. As a result, some assets are tested individually for impairment and some are tested
at cash generating unit level.
Impairment tests are performed at least annually and when indicators as described in IFRS 6 are identified. In addition, indicators such as a lack of
funding or farmout options for a licence which is approaching termination, or the implied value of a farmout transaction are considered as indicators
of impairment.
An impairment loss is recognised for the amount by which the asset’s or cash generating unit’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted
cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the
carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception
of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs
and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised
within provisions.
Depreciation
All expenditure within tangible non-current assets is depreciated from the commencement of production, on a unit of production basis, which is the
ratio of oil and gas production in the period to the estimated quantities of proven plus probable commercial reserves at the end of the period, plus
the production in the period. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated
future field development costs within each licence. Changes in the estimates of commercial reserves or future field development costs are dealt
with prospectively.
Furniture and computers are depreciated on a 25% per annum straight line basis.
Leasehold buildings are depreciated on a 2% per annum straight line basis.
Reserves
Proven and probable oil and gas reserves are estimated quantities of commercially producible hydrocarbons which the existing geological,
geophysical and engineering data shows to be recoverable in future years. The proven reserves included herein conform to the definition approved
by the Society of Petroleum Engineers (SPE) and the World Petroleum Congress (WPC). The probable and possible reserves conform to definitions of
probable and possible approved by the SPE/WPC using the deterministic methodology. Reserves used in accounting estimates for depreciation are
updated periodically to reflect management’s view of reserves in conjunction with third party formal reports. Reserves are reviewed at the time of
formal updates or as a consequence of operational performance, plans and the business environment at that time.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements 33
1 Accounting policies (continued)
Reserves (continued)
Reserves are adjusted in the year that formal updates are undertaken or as a consequence of operational performance and plans, and the business
environment at that time, with any resulting changes not applied retrospectively.
Future decommissioning costs
A provision for decommissioning is recognised in full at the point that the Group has an obligation to decommission an appraisal, development
or producing well. A corresponding non-current asset (included within producing fields in note 12) of an amount equivalent to the provision is
also created. The amount recognised is the estimated cost of decommissioning, discounted to its net present value and is reassessed each year
in accordance with local conditions and requirements. For producing wells, the asset is subsequently depreciated as part of the capital costs of
production facilities within tangible non-current assets, on a unit of production basis. Any decommissioning obligation in respect of a pre-production
asset is carried forward as part of its cost and tested annually for impairment in accordance with the above policy.
Changes in the estimates of commercial reserves or decommissioning cost estimates are dealt with prospectively by recording an adjustment to
the provision, and a corresponding adjustment to the decommissioning asset. The unwinding of the discount on the decommissioning provision
is included within finance expense.
Taxation
Current tax is the tax payable based on taxable profit/(loss) for the year.
Deferred income taxes are calculated using the balance sheet liability method on temporary differences. Deferred tax is generally provided on the
difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition
of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting
profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary
differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Tax losses available to be carried
forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying
deductible temporary difference will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at
tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the reporting date.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the statement of comprehensive income, except where
they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
Foreign currency
The Group and Company prepare their financial statements in Sterling.
Transactions denominated in foreign currencies are translated at the rates of exchange ruling at the date of the transaction. Monetary assets and
liabilities in foreign currencies are translated at the rates of exchange ruling at the reporting date. Non-monetary items that are measured at historical
cost in a foreign currency are translated at the exchange rate at the date of transaction. Non-monetary items that are measured at fair value in a
foreign currency are translated using the exchange rates at the date the fair value was determined.
Any exchange differences arising on the settlement of items or on translating items at rates different from those at which they were initially recorded
are recognised in the Statement of comprehensive income in the period in which they arise. Exchange differences on non-monetary items are
recognised in the Statement of changes in equity to the extent that they relate to a gain or loss on that non-monetary item taken to the Statement
of changes in equity, otherwise such gains and losses are recognised in the Statement of comprehensive income.
Europa Oil & Gas (Holdings) plc is domiciled in the UK, which is its primary economic environment and the Company’s functional currency is Sterling.
The Group’s current operations are based in the UK, Ireland and France, and the functional currencies of the Group’s entities are the prevailing local
currencies in each jurisdiction. Given that the functional currency of the Company is Sterling, management has elected to continue to present the
consolidated financial statements of the Group and Company in Sterling.
Investments
Investments, which are only investments in subsidiaries, are carried at cost less any impairment. Additions include the net value of share options issued
to employees of subsidiary companies less any lapsed, unvested options.
Financial instruments
An asset or component is classified as discontinued if the component has been disposed of or is classified as held-for-sale, and the component
represents a separate line of business or area of operation and there is a plan to remove that separate line of business or area of operation.
When non-current assets are classified as held-for-sale, they are measured at the lower of the carrying amount and fair value less cost to sell.
Any subsequent increases in fair value less cost to sell of the asset are recognised in profit and loss.
The results of discontinued operations are reported in a separate section of the income statement.
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers 34
Notes to the financial statements (continued)
1 Accounting policies (continued)
Financial instruments (continued)
Financial assets and liabilities are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of
the instrument. The Group and Company classifies its financial assets into loans and receivables, which comprise trade and other receivables and cash
and cash equivalents. The Group has not classified any of its financial assets as held to maturity or available for sale or fair value through profit or loss.
Trade and other receivables are measured initially at fair value plus directly attributable transaction costs, and subsequently at amortised cost using
the effective interest rate method, less provision for impairment. A provision is established when there is objective evidence that the Group will not
be able to collect all amounts due. The amount of any provision is recognised in the Statement of comprehensive income.
Cash and cash equivalents comprise cash held by the Group, short-term bank deposits with an original maturity of three months or less and
bank overdrafts.
The Group and Company classify financial liabilities into one of two categories, depending on the purpose for which the asset was acquired.
The accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises only out-of-the-money derivatives. They are carried in the statement of financial position at fair value with changes in fair
value recognised in the consolidated Statement of comprehensive income. Other than these derivative financial instruments, the Group does not
have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss.
Other financial liabilities
Include the following items:
Bank and other borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument.
Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any
interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position.
Interest expense in this context includes initial transaction costs and any interest or coupon payable while the liability is outstanding.
Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost
using the effective interest method.
Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the contractual arrangements
entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
Leased assets
During the current and prior year the Group and Company did not have any finance leases. All leases are regarded as operating leases and the
payments made under them are charged to the statement of comprehensive income on a straight line basis over the lease term. Lease incentives
are spread over the term of the lease.
Treatment of finance costs
All finance costs are expensed through the income statement. The Group does not incur any finance costs that qualify for capitalisation.
Defined contribution pension schemes
The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period.
Inventories
Inventories comprise oil in tanks stated at the lower of cost and net realisable value. Cost is determined by reference to the actual cost of production
in the period.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements 35
1 Accounting policies (continued)
Share-based payments
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded
using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted
to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and
sales growth targets).
All equity-settled share-based payments are ultimately recognised as an expense in the statement of comprehensive income with a corresponding
credit to reserves. Where options over the parent Company’s shares are granted to employees of subsidiaries of the parent, the charge is recognised
in the statement of comprehensive income of the subsidiary. In the parent Company accounts there is an increase in the cost of the investment in
the subsidiary receiving the benefit.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate
of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options
expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment
is made to any expense recognised in prior periods if the number of share options ultimately exercised is different to that initially estimated.
Upon exercise of share options the proceeds received, net of attributable transaction costs, are credited to share capital, and where appropriate
share premium.
Critical accounting judgements and key sources of estimation uncertainty
Details of the Group’s significant accounting judgements and critical accounting estimates are set out in these financial statements and include:
Accounting judgements and estimates:
• Carrying value of intangible assets (note 11) – carrying values are justified by reference to future estimates of reserves and costs to extract,
discounted at appropriate rates.
• Carrying value of property, plant and equipment (note 12) – carrying values are justified by reference to future estimates of cash flows,
discounted at appropriate rates.
• Deferred taxation (note 18) – assumptions regarding future rates of taxation and the future profitability of the Group.
• Decommissioning provision (note 19) – inflation and discount rate estimates are used in calculating the provision, along with third party estimates
of remediation costs.
• Share-based payments (note 21) – various estimates, referenced to external sources where possible, are used in determining the fair value of options.
2 Operating segment analysis
In the opinion of the Directors the Group has three reportable segments as reported to the chief operating decision maker, being the UK, Ireland,
and France.
The reporting on these segments to management focuses on revenue, operating costs and capital expenditure. The impact of such criteria is discussed
further in the Chairman’s statement and Strategic report of this Annual Report.
Income statement for the year ended 31 July 2016
Revenue
Cost of sales
Exploration write-off
Impairment of producing fields
Cost of sales
Gross loss
Administrative expenses
Profit on disposal of fixed asset
Finance income
Finance costs
Loss before tax
Taxation
Loss for the year
UK
£000
1,269
(1,282)
—
—
(1,282)
(13)
(498)
28
92
(228)
(619)
266
(353)
Ireland
£000
—
—
—
—
—
—
(76)
—
(28)
—
(104)
—
(104)
France
£000
—
—
(1,162)
—
(1,162)
(1,162)
(19)
—
—
—
(1,181)
—
(1,181)
Total
£000
1,269
(1,282)
(1,162)
—
(2,444)
(1,175)
(593)
28
64
(228)
(1,904)
266
(1,638)
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36
Notes to the financial statements (continued)
2 Operating segment analysis (continued)
Segmental assets and liabilities as at 31 July 2016
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Other segment items
Capital expenditure
Depreciation
Share based payments
Income statement for the year ended 31 July 2015
Revenue
Cost of sales
Exploration write-off
Impairment of producing fields
Cost of sales
Gross loss
Administrative expenses
Finance income
Finance costs
Loss before tax
Taxation
Loss for the year
Segmental assets and liabilities as at 31 July 2015
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Other segment items
Capital expenditure
Depreciation
Share based payments
UK
£000
4,913
1,951
6,864
(2,342)
(592)
(2,934)
926
195
13
UK
£000
2,205
(1,900)
(2,205)
(1,100)
(5,205)
(3,000)
(690)
55
(208)
(3,843)
2,346
(1,497)
UK
£000
4,774
3,538
8,312
(2,393)
(1,229)
(3,622)
3,003
291
27
Ireland
£000
757
—
757
(5)
—
(5)
294
—
—
France
£000
—
—
—
—
—
—
5
—
—
Ireland
£000
France
£000
—
—
—
—
—
—
(181)
—
—
(181)
—
(181)
Ireland
£000
467
—
467
—
(10)
(10)
282
—
—
—
—
—
—
—
(106)
—
—
(106)
—
(106)
France
£000
1,160
—
1,160
—
—
—
113
—
—
Total
£000
5,670
1,951
7,621
(2,347)
(592)
(2,939)
1,225
195
13
Total
£000
2,205
(1,900)
(2,205)
(1,100)
(5,205)
(3,000)
(977)
55
(208)
(4,130)
2,346
(1,784)
Total
£000
6,401
3,538
9,939
(2,393)
(1,239)
(3,632)
3,398
291
27
100% of the total revenue (2015: 100%) relates to UK based customers. Of this figure, one single customer (2015: one) commands more than
99% of the total.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
37
Note
12
5
11
12
24
2016
£000
195
878
1,162
—
42
4
40
—
2015
£000
386
1,001
2,205
1,100
43
2
40
19
3 Loss before taxation
Loss before taxation is stated after charging:
Depreciation on property, plant & equipment
Staff costs including Directors
Exploration write-off
Impairment of property, plant and equipment
Fees payable to the auditor for the audit
Fees payable to the auditor for taxation services
Operating leases – land and buildings
Amount of inventory recognised as an expense
The Company has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to publish its individual statement
of comprehensive income and related notes. The loss dealt with in the financial statements of the parent Company is £2,288,000 (2015: loss
of £2,086,000).
4 Directors’ emoluments
Directors’ salaries and fees
WH Adamson (resigned 30 April 2015)
CW Ahlefeldt-Laurvig
C Bousfield
RJHM Corrie
P Greenhalgh
HGD Mackay
Directors’ pensions
P Greenhalgh
HGD Mackay
The above charge represents premiums paid to money purchase pension plans during the year.
Directors’ share based payments
WH Adamson (resigned 30 April 2015)
C Bousfield
2016
£000
—
23
36
23
138
160
380
20
23
43
2016
£000
—
6
6
2015
£000
30
25
32
25
154
183
449
23
21
44
2015
£000
1
11
12
The above represents the accounting charge in respect of share options. No share options were exercised during the period (2015: nil).
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38
Notes to the financial statements (continued)
4 Directors’ emoluments (continued)
Directors’ total emoluments
Salaries and fees
Social security costs
Pensions
Share based payments
5 Employee information
Average monthly number of employees including Directors
Management and technical
Field exploration and production
Staff costs
Wages and salaries (including Director’s emoluments)
Social security
Pensions
Share based payment (note 21)
6 Profit on disposal of fixed asset
Sales price
Net book value of asset
Legal fees
The property in Abingdon was sold on 20 July 2016 for £337,500.
7 Finance income
Bank interest received
Interest rate swap fair value credit (note 22)
Exchange rate gains
2016
£000
380
48
43
6
477
2015
£000
449
52
44
12
557
2016
Number
2015
Number
8
4
12
2016
£000
697
86
82
13
878
2016
£000
338
(308)
(2)
28
2016
£000
4
2
58
64
9
5
14
2015
£000
792
98
84
27
1,001
2015
£000
—
(2)
—
(2)
2015
£000
7
3
45
55
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
8 Finance expense
Bank interest payable
Loan interest payable
Unwinding of discount on decommissioning provision (note 19)
Interest due on tax payment
Bank charges
9 Taxation
Movement in deferred tax asset (note 18)
Movement in deferred tax liability (note 18)
Tax credit
2016
£000
10
3
204
7
4
228
2016
£000
(157)
(109)
(266)
UK corporation tax is calculated at 30% (2015: 30%) of the estimated assessable profit for the year being the applicable rate for a ring-fence trade
excluding the Supplementary Charge of 20% to December 2015 and 10% from January 2016 (2015: 32% (to December 2014) and 20% from
January 2015). Taxation in other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
Loss before tax
Tax reconciliation
Loss multiplied by the standard rate of corporation tax in the UK of 30% (2015: 30%)
Non taxable income
Expenses not deductible for tax purposes
Other reconciling items including UK Supplementary Charge
Total tax credit
2016
£000
(1,904)
(571)
—
353
(48)
(266)
39
2015
£000
11
4
184
5
4
208
2015
£000
(84)
(2,262)
(2,346)
2015
£000
(4,130)
(1,239)
—
1,000
(2,107)
(2,346)
10 Earnings per share
Basic earning per share EPS has been calculated on the loss after taxation divided by the weighted average number of shares in issue during the period.
Diluted EPS uses an average number of shares adjusted to allow for the issue of shares on the assumed conversion of all in-the-money options.
As the Group made a loss from continuing operations in both the current and prior years, any potentially dilutive instruments are considered
to be anti-dilutive. Therefore the diluted EPS is equal to the basic EPS. As at 31 July 2016 there were 15,445,000 (2015: 13,356,626) potentially
dilutive instruments in issue.
The calculation of the basic and diluted earnings per share is based on the following:
Loss for the year attributable to the equity shareholders of the parent
Weighted average number of shares
For the purposes of basic and diluted EPS
2016
£000
(1,638)
2015
£000
(1,784)
244,888,011
206,526,969
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40
Notes to the financial statements (continued)
11 Intangible assets
Intangible assets – Group
At 1 August
Additions
Exploration write-off
At 31 July
Intangible assets comprise the Group’s pre-production expenditure on licence interests as follows:
France Béarn des Gaves
Ireland FEL 2/13 (Doyle A/B/C, Heaney)
Ireland FEL 3/13 (Beckett, Wilde, Shaw)
Ireland LO 16/2
Ireland LO 16/19-22
UK PEDL143 (Holmwood)
UK PEDL180 (Wressle)
UK PEDL181
UK PEDL182 (Broughton North)
UK PEDL299 (Hardstoft)
UK Block 41/24 (Maxwell)
Total
Exploration write-off
France (Béarn des Gaves)
PEDL181 (Kiln Lane)
Total
2016
£000
4,839
776
(1,162)
4,453
2016
£000
—
224
487
35
8
721
2,672
47
223
5
31
4,453
1,162
—
1,162
2015
£000
3,553
3,491
(2,205)
4,839
2015
£000
1,160
149
318
—
—
681
2,270
43
218
—
—
4,839
—
2,205
2,205
The UK PEDL143 exploration licence carries a well commitment by September 2018. If the Group elects to continue with this licence, it will need to fund
the drilling of a well by raising funds or by farming down. If the Group is not able to raise funds, farm-down, or extend the PEDL143 licence; or elects not
to continue in any other licence, then the impact on the financial statements will be the impairment of some or all of the intangible assets disclosed
above. Further details of commitments are included in note 23.
Intangible assets – Company
At 1 August
Additions
Exploration write-off
Disposals – transferred to Group companies
At 31 July
Licence interests relating to Ireland were transferred from the Company to two new subsidiaries in November 2014.
Intangible assets comprise the Company’s pre-production expenditure on licence interests as follows:
France (Béarn des Gaves permit)
Ireland LO 16/2
Ireland LO 16/19-22
Total
2016
£000
1,160
45
(1,162)
—
43
2016
£000
—
35
8
43
2015
£000
1,248
100
—
(188)
1,160
2015
£000
1,160
—
—
1,160
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
41
Total
£000
11,270
4
(2)
11,272
1
(437)
Furniture &
computers
£000
Leasehold
building
£000
Producing
fields
£000
48
4
(2)
50
1
—
51
40
4
—
44
3
—
47
8
6
4
437
—
—
437
—
(437)
—
99
23
—
122
7
(129)
—
338
315
—
10,785
—
—
10,785
—
—
10,785
10,836
8,085
359
1,100
9,544
185
—
9,729
2,700
1,241
1,056
8,224
386
1,100
9,710
195
(129)
9,776
3,046
1,562
1,060
12 Property, plant and equipment
Property, plant & equipment – Group
Cost
At 1 August 2014
Additions
Disposal
At 31 July 2015
Additions
Disposal
At 31 July 2016
Depreciation, depletion and impairment
At 1 August 2014
Charge for year
Impairment in year
At 31 July 2015
Charge for year
Disposal
At 31 July 2016
Net Book Value
At 31 July 2014
At 31 July 2015
At 31 July 2016
The producing fields referred to in the table above are the production assets of the Group, namely the oilfields at Crosby Warren and West Firsby,
and the Group’s interest in the Whisby W4 well, representing three of the Group’s cash generating units.
The carrying value of each producing field was tested for impairment by comparing the carrying value with the value in use. The value in use was
calculated using a discounted cash flow model with production decline rates of 7 to 8%, Brent crude prices rising from US$54 per barrel in 2017
to US$74 in 2020 and a pre-tax discount rate of 18%. The pre-tax discount rate is derived from a post-tax rate of 10%, and is high because of the
applicable rate of tax in the UK. Cash flows were projected over the expected life of the fields which is expected to be longer than five years.
There was no impairment in the year (2015: £1,100,000 relating to the West Firsby site).
The leasehold property at Abingdon was sold in the period.
Sensitivity to key assumption changes
Variations to the key assumptions used in the value in use calculation would cause impairment of the producing fields as follows:
Production decline rate (current assumption 7 to 8%)
10%
20%
Brent crude price per barrel (current assumption US$54/bbl in 2016 rising to US$74 in 2020)
10% reduction in the assumed forward price
20% reduction in the assumed forward price
Impairment of
producing fields
£000
—
—
—
100
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42
Notes to the financial statements (continued)
12 Property, plant and equipment (continued)
Property, plant and equipment – Company
Cost
At 1 August 2014
Additions
Disposals
At 31 July 2015
Additions
Disposals
At 31 July 2016
Depreciation
At 1 August 2014
Charge for the year
At 31 July 2015
Charge for year
Disposals
At 31 July 2016
Net Book Value
At 31 July 2014
At 31 July 2015
At 31 July 2016
Furniture &
computers
£000
Long leasehold
building
£000
48
4
(2)
50
1
—
51
40
4
44
3
—
47
8
6
4
437
—
—
437
—
(437)
—
99
23
122
7
(129)
—
338
315
—
Total
£000
485
4
(2)
487
1
(437)
51
139
27
166
10
(129)
47
346
321
4
The Abingdon property was vacated and put up for sale in 2012. The property has been sub-let since February 2015 and in July 2016 the property was
sold for £337,500. The proceeds were used to fully repay the loan secured against the property (see note 17) and the interest rate swap (see note 16).
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
43
2016
£000
2,332
—
3
2,335
2015
£000
3,326
(1,000)
6
2,332
13 Investments – Company
Investment in subsidiaries
At 1 August
Provide against investment in subsidiary
Current year additions
At 31 July
The Company’s investments at the reporting date include 100% of the share capital the following unlisted companies:
• Europa Oil & Gas Limited, which undertakes oil and gas exploration, development and production in the UK;
• Europa Oil & Gas (West Firsby) Limited, which is non-trading;
• Europa Oil & Gas (Ireland West) Limited, which holds the interest in the FEL 2/13 licence;
• Europa Oil & Gas (Ireland East) Limited, which holds the interest in the FEL 3/13 licence.
All four companies are registered in England and Wales.
The results of the four companies have been included in the consolidated accounts. Europa Oil & Gas Limited owns 100% of the ordinary share
capital of Europa Oil & Gas Resources Limited (this UK company is non-trading).
In 2015, with the impairment of intangible assets (note 11) and property, plant and equipment (note 12) held by Europa Oil & Gas Limited, the Directors
considered that the recoverable amount of investment by the Company in the subsidiary was also impaired. The value of the investment was therefore
written down to the net asset value, which is considered to equate to the fair value.
Additions to the cost of investments represent the net value of options over the shares of the Company issued to employees of subsidiary companies
less any lapsed, unvested options.
14 Inventories – Group
Oil in tanks
15 Trade and other receivables
Current trade and other receivables
Trade receivables
Other receivables
Prepayments
Non-current other receivables
Owed by Group undertakings (note 25)
16 Trade and other payables
Trade payables
Other payables
Derivative liability
Interest rate swap
2016
£000
23
2016
£000
—
—
44
44
2015
£000
13
Company
2015
£000
—
13
51
64
491
331
2016
£000
58
114
172
—
Company
2015
£000
106
59
165
32
2016
£000
120
—
90
210
—
2016
£000
313
131
444
—
Group
2015
£000
187
101
86
374
—
Group
2015
£000
918
125
1,043
32
Group other payables includes advances received from partners on projects in UK. More information on the interest rate swap is included in note 22.
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44
Notes to the financial statements (continued)
17 Borrowings
The Directors decided not to renew The Royal Bank of Scotland (RBS) multi-currency facility which lapsed in January 2016. The facility had provided
an overdraft of up to £350,000 (2015: £350,000) and was not in use at 31 July 2015.
The loan secured against the Abingdon property was fully repaid on the sale of the property in July 2016.
Loans repayable in less than 1 year
Property loan
Total short-term borrowing
Property loan
Repayable in 1 to 2 years
Total loans repayable in 2 to 5 years
Total loans repayable after 5 years
Total long-term borrowing
18 Deferred Tax – Group
Recognised deferred tax liability/(asset):
As at 1 August
Credited to statement of comprehensive income
At 31 July
2016
£000
—
—
—
—
—
—
Group
2015
£000
23
23
23
71
47
141
2016
£000
—
—
—
—
—
—
2016
£000
109
(266)
(157)
Company
2015
£000
23
23
23
71
47
141
2015
£000
2,371
(2,262)
109
The Group has a deferred tax liability of £1,487,000 (2015: £1,797,000) arising from accelerated capital allowances and a deferred tax asset of £1,644,000
(2015: £1,688,000) arising from trading losses which will be utilised against future taxable profits. These have been offset against each other resulting
in the total net asset of £157,000 (2015: net liability £109,000). This offsetting is required because the Group settles current tax assets and liabilities on
a net basis.
Non-recognised long-term deferred tax asset
The Group has a non-recognised deferred tax asset of £3,378,000 (2015: £3,371,000), which arises mainly in relation to non ring-fence UK trading losses
of £11.8 million (2015 £12.2 million) and Company losses of £0.1 million (2015: £0.7 million), that have not been recognised in the accounts as the timing
of the utilisation of the losses is considered uncertain.
No deferred tax assets or liabilities are recognised in the Company.
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
45
19 Provisions – Group
Decommissioning provisions are based on third party estimates of work which will be required and the judgement of Directors. By its nature,
the detailed scope of work required and timing is uncertain.
Short-term provisions
As at 1 August
Utilised in year – Hykeham
At 31 July
Long-term provisions
As at 1 August
Charged to statement of comprehensive income (note 8)
At 31 July
No provisions have been recognised in the Company.
20 Called up share capital
Allotted, called up and fully paid ordinary shares of 1p
At 1 August 244,888,011 shares (2015: 204,883,024)
Issued in the year – nil shares (2015: 40,004,987)
At 31 July 244,888,011 shares (2015: 244,888,011)
Date
Type of issue
Number of shares
Issue price
Ordinary shares issued 2015
10 July 2015
24 July 2015
24 July 2015
Placing
Placing
Open offer
20,000,000
2,630,000
17,374,987
40,004,987
6p
6p
6p
All of the allotted shares are ordinary shares of the same class and rank pari passu.
2016
£000
—
—
—
2016
£000
2,143
204
2,347
2016
£000
2,449
—
2,449
Raised net
of costs
£000
1,059
150
1,012
2,221
2015
£000
4
(4)
—
2015
£000
1,959
184
2,143
2015
£000
2,049
400
2,449
Nominal
value
£000
200
26
174
400
In 2005, the Company issued 39,999,998 ordinary shares of 1p at a nil premium in exchange for the entire shareholding of Europa Oil & Gas Limited.
This gave rise to the merger reserve at 31 July 2016 of £2,868,000 (2015: £2,868,000).
The following describes the purpose of each reserve within owners’ equity:
Reserve
Share premium
Merger reserve
Retained deficit
Description and purpose
Amount subscribed for share capital in excess of nominal value.
Reserve created on issue of shares on acquisition of subsidiaries in prior years.
Cumulative net gains and losses recognised in the consolidated statement of comprehensive income.
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46
Notes to the financial statements (continued)
21 Share based payments
There are 15,445,000 ordinary 1p share options outstanding (2015: 13,356,626). These are held by certain members of the Board: C Bousfield 500,000;
RJHM Corrie 650,000; P Greenhalgh 4,275,000; HGD Mackay 8,200,000 and employees of the Group 1,820,000.
The fair values of all options were determined using a Black Scholes Merton model. Volatility is based on the Company’s share price volatility
since flotation.
The inputs used to determine the values of the 3,560,000 options granted in 2016 are detailed in the table below:
Grant date
Number of options
Share price at grant
Exercise price
Volatility
Dividend yield
Risk free investment rate
Option life (years)
Fair value per share
13 July
2016
610,000
3.75p
6.5p
75%
nil
0.41%
6
1.9p
13 July
2016
1,550,000
3.75p
6.5p
75%
nil
0.41%
6
1.33p
13 July
2016
980,000
3.75p
6.5p
75%
nil
0.41%
6
1.9p
13 July
2016
420,000
3.75p
6.5p
75%
nil
0.41%
6
1.9p
The 610,000 options are exercisable twelve months after grant, with no further vesting conditions.
The 1,550,000 options vest if the share price is above 10p for 30 days. The 980,000 and 420,000 options vest subject to a farmout of the Irish licences
and Wressle production respectively.
The latest date at which these options can be exercised is the 10th anniversary of the grant date.
Based on the fair values above, the charge arising from employee share options was £13,000 (2015: £27,000). The charge relating to non-employee
share options was £nil (2015: £nil). In the year 1,391,626 options were expired, 80,000 forfeited and none were exercised (2015: no options were granted,
160,000 were expired, 500,000 forfeited and none were exercised).
Outstanding at the start of the year
Granted
Expired
Forfeited
Outstanding at the end of the year
Exercisable at the end of the year
2016
Number
of options
2016
Average
exercise price
2015
Number
of options
2015
Average
exercise price
13,356,626
3,560,000
(1,391,626)
(80,000)
15,445,000
11,285,000
12.38p
6.5p
6.0p
9.45p
11.62p
13.37p
14,016,626
—
(160,000)
(500,000)
13,356,626
12,213,288
12.51p
—
25p
12p
12.38p
12.69p
The weighted average remaining contractual life of share options outstanding at the end of the period was 6.1 years (2015: 5.4 years).
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
47
22 Financial instruments
The Group’s and Company’s financial instruments comprise cash and cash equivalents, bank borrowings, loans, interest rate derivatives, and items such
as trade and other receivables and trade and other payables which arise directly from its operations. Europa’s activities are subject to a range of financial
risks the main ones being: credit; liquidity; interest rates; commodity prices; foreign exchange and capital. These risks are managed through ongoing
review taking into account the operational, business and economic circumstances at that time.
Credit risk
The Group is exposed to credit risk as all crude oil production is sold to one multinational oil company. The customer is invoiced monthly for the oil
delivered to the refinery in the previous month and invoices are settled in full on the 15th of the following month. At 31 July 2016 trade receivables
were £120,000 representing one month of oil revenue and receivables due from project partners (2015: £187,000 representing one month of oil
revenue). The fair value of trade receivables and payables approximates to their carrying value because of their short maturity. Any surplus cash is
held on short-term deposit with Royal Bank of Scotland. The maximum credit exposure in the year was £140,000 (2015: £278,000).The Company
exposure to third party credit risk is negligible. All material intercompany balances have been fully provided.
Liquidity risk
The Company currently has no overdraft facility with its bankers (2015: £350,000 flexible multi-currency overdraft facility). At the year end there
was no overdraft (2015: no overdraft).
The Group and Company monitor their levels of working capital to ensure they can meet liabilities as they fall due. The following table shows
the contractual maturities (representing the undiscounted cash flows) of the Group’s financial liabilities.
At 31 July 2016
6 months or less
Total
At 31 July 2015
6 months or less
6-12 months
1-2 years
2-5 years
Over 5 years
Total
Trade
and other
payables
£000
(444)
(444)
(1,043)
—
—
—
—
(1,043)
Derivative
at fair value
£000
Short-term
borrowings
£000
Long-term
borrowings
£000
—
—
(4)
(4)
(7)
(14)
(3)
(32)
—
—
(11)
(12)
—
—
—
(23)
—
—
—
—
(23)
(71)
(47)
(141)
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48
Notes to the financial statements (continued)
22 Financial instruments (continued)
Liquidity risk (continued)
The following table shows the contractual maturities (representing the undiscounted cash flows) of the Company’s financial liabilities:
At 31 July 2016
6 months or less
Over 5 years
Total
At 31 July 2015
6 months or less
6-12 months
1-2 years
2-5 years
Over 5 years
Total
Trade
and other
payables
£000
(172)
—
(172)
(165)
—
—
—
—
(165)
Derivative
at fair value
£000
Short-term
borrowings
£000
Long-term
borrowings
£000
—
—
—
(4)
(4)
(7)
(14)
(3)
(32)
—
—
—
(11)
(12)
—
—
—
(23)
—
—
—
—
—
(23)
(71)
(47)
(141)
Cash and cash equivalents in both Group and Company are all available at short notice.
Trade and other payables do not normally incur interest charges. There is no difference between the fair value of the trade and other payables and their
carrying amounts. Borrowings bear interest at variable rates, except for the property loan which was repaid in July 2016 (2015: £164,000) which was
swapped for a fixed rate of interest.
Interest rate risk
The Group had interest bearing liabilities as described in note 17. The multi-currency facility, which was not renewed, was secured over the assets
of Europa Oil & Gas (Holdings) plc and Europa Oil & Gas Limited. Interest was charged on the multi-currency facility at base rate plus 3%.
The Group fully repaid the loan that had been secured on the Abingdon property when the property was sold in July 2016 (2015: £164,000 loan
was secured over the long lease property and was repayable over seven years). At the time of the purchase of the property in 2007, the Company
considered it prudent to enter into an interest rate swap which fixed the interest rate for the life of the loan (until May 2022) at 5.52%. The swap
was also repaid at the time of the property sale (2015: fair value of swap £32,000 and this had been recorded as a current liability of the Company).
The table below shows the sensitivity of the swap to changes in interest rates. There would be a corresponding charge or credit to the statement
of comprehensive income.
Fair value of swap
Long-term
forward
Sterling
base rate
1%
3%
5%
2016
£000
—
—
—
2015
£000
33
18
4
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016Financial statements
49
22 Financial instruments (continued)
Commodity price risk
The selling price of the Group’s production of crude oil is set at a small discount to Brent prices. The table below shows the range of prices achieved
in the year and the sensitivity of the Group’s Loss Before Taxation (LBT) to such movements in oil price. There would be a corresponding increase
or decrease to net assets. There is no commodity price risk in the Company.
Oil price
Highest
Average
Lowest
Month
Jun 16
Jan 15
Price
2016
US$/bbl
47.3
41.5
30.0
LBT
2016
£000
(1,731)
(1,904)
(2,257)
Price
2015
US$/bbl
100.1
68.1
46.8
Foreign exchange risk
The Group’s production of crude oil is invoiced in US$. Revenue is translated into Sterling using a monthly exchange rate set by reference
to the market rate. The table below shows the range of average monthly US$ exchange rates used in the year and the sensitivity of the Group’s
LBT to similar movements in US$ exchange. There would be a corresponding increase or decrease to net assets.
Oil price
Highest
Average
Lowest
Month
Oct 15
Jul 16
2016
Rate
US$/£
1.544
1.452
1.327
2016
LBT
£000
(1,979)
(1,904)
(1,785)
2015
Rate
US$/£
1.661
1.561
1.485
The table below shows the Group’s currency exposures. Exposures comprise the net financial assets and liabilities of the Group that are not
denominated in the functional currency.
Currency
Euro
US Dollar
Total
Item
Cash and cash equivalents
Trade and other payables
Cash and cash equivalents
Trade and other receivables
Trade and other payables
2016
£000
1
(49)
397
326
(15)
660
Group
2015
£000
8
(23)
778
373
(4)
1,132
2016
£000
1
(18)
8
—
(3)
(12)
LBT
2015
£000
(3,108)
(4,130)
(4,816)
2015
LBT
£000
(4,262)
(4,130)
(4,017)
Company
2015
£000
8
(1)
3
—
(2)
8
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for
shareholders and maintain an optimal capital structure to reduce the cost of capital. The Group defines capital as being the consolidated shareholder
equity (note 20) and bank borrowings (note 17). The Board monitors the level of capital as compared to the Group’s long-term debt commitments and
adjusts the ratio of debt to capital as is determined to be necessary, by issuing new shares, reducing or increasing debt, paying dividends and returning
capital to shareholders. The Group is not subject to any externally imposed capital requirements.
23 Capital commitments and guarantees
At the reporting date, the Group had a contractual commitment to drill a well on PEDL143 (Holmwood) before September 2018. Europa’s share of the
well cost is expected to be £0.8 million. For PEDL299 (Hardstoft) and PEDL343 (Cloughton) there is a commitment to acquire seismic and Europa’s share
of combined cost is expected to be £0.9 million. The five Irish LOs have a total work commitment which is expected to cost £1.1 million.
If the Group is not able to raise funds, farm-down, or extend licences; or elects not to continue in an exploration licence, then the impact on the financial
statements will be the impairment of the relevant intangible asset disclosed in note 11.
24 Operating lease commitments
Europa Oil & Gas Limited pays an annual site rentals for the land upon which the West Firsby and Crosby Warren oil field facilities are located. The West
Firsby lease runs until September 2022 and can be terminated upon giving two months’ notice. The annual cost is currently £20,000 (2015: £20,000)
and increases annually in line with the retail price index. The Crosby Warren lease runs until December 2022 and can be terminated on three months’
notice. The annual cost is currently £20,000 (2015: £20,000).
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50
Notes to the financial statements (continued)
25 Related party transactions
Key management are those persons having authority and responsibility for planning, controlling and directing the activities of the Group. In the
opinion of the Board, the Group’s and the Company’s key management are the Directors of Europa Oil & Gas (Holdings) plc. Information regarding
their compensation is given in note 4.
During the year, the Company provided services to subsidiary companies as follows:
Europa Oil & Gas Limited
Europa Oil & Gas (Ireland West) Limited
Europa Oil & Gas (Ireland East) Limited
Total
2016
£000
1,129
22
24
1,175
During the year, the Company increased the provision for the intercompany loan to Europa Oil & Gas Limited by £1,443,000 (2015: £853,000).
At the end of the year the Company was owed the following amounts by subsidiaries:
Europa Oil & Gas (Ireland West) Limited
Europa Oil & Gas (Ireland East) Limited
Total
2016
£000
173
318
491
26 Post reporting date events
• Extension of phase 1 of FEL 2/13 and FEL 3/13 licences to 4 July 2017;
• Acquisition of Shale Petroleum (UK) Limited (renamed as “Europa Oil & Gas (UK) Limited”) increasing Europa’s interest in PEDL299 (including
the Hardstoft oil field) to 33.32% and increasing interest in PEDL343 (containing the Cloughton gas discovery) to 45%;
• Elected not to accept the award of PEDL286 in the southern Cleveland basin.
2015
£000
1,235
2
2
1,239
2015
£000
108
223
331
Europa Oil & Gas (Holdings) plc Annual Report and Accounts for the year ended 31 July 2016
Advisers
Directors and advisers
Company registration number
5217946
Registered office
6 Porter Street
London
W1U 6DD
Directors
Secretary
Banker
Solicitor
Auditor
Nominated advisor and broker
Registrar
CW Ahlefeldt-Laurvig – Non-executive
C Bousfield – Non-executive Chairman
RJHM Corrie – Non-executive
P Greenhalgh – Finance Director
HGD Mackay – Chief Executive Officer
P Greenhalgh
Royal Bank of Scotland plc
1 Albyn Place
Aberdeen
AB10 1BR
Charles Russell Speechlys LLP
5 Fleet Place
London
EC4M 7RD
BDO LLP
55 Baker Street
London
W1U 7EU
finnCap Ltd
60 New Broad Street
London
EC2M 1JJ
Computershare Investor Services plc
PO Box 82
The Pavilions
Bridgwater Road
Bristol
BS99 7NH
Design & production
www.carrkamasa.co.uk
www.europaoil.comStrategic reportGovernanceFinancial statementsAdvisers
EUROPA OIL & GAS (HOLDINGS) PLC
6 Porter Street
London, W1U 6DD
Tel: +44 (0)20 7224 3770
www.europaoil.com