Registration n umb er: 1069 9593
ANNUAL REPORT AND FINANCIAL
STATEMENTS FOR THE YEAR
ENDED 31 DECEMBER 2019
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Contents
Highlights and Outlook ........................................................................................... 2
Chairperson’s and Chief Executive’s Statement .................................................. 6
Strategic Report .................................................................................................... 10
Board of Directors ................................................................................................. 16
Directors’ Report ................................................................................................... 19
Corporate Governance Report ............................................................................. 30
Independent Auditors Report ............................................................................... 37
Consolidated Statement of Comprehensive Income.......................................... 42
Consolidated Statement of Financial Position ................................................... 43
Company Statement of Financial Position .......................................................... 44
Consolidated Statement of Changes in Equity ................................................... 45
Company Statement of Changes in Equity ......................................................... 46
Consolidated Statement of Cash Flow ................................................................ 47
Company Statement of Cash Flow ...................................................................... 48
Notes Forming Part of the Financial Statements ............................................... 49
Corporate Information .......................................................................................... 75
i3 Energy PLC
1
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Highlights and Outlook
HIGHLIGHTS AND OUTLOOK
Completed equity placings, raising gross proceeds of approximately £24.4 million prior
to expenses
Redeemed all outstanding Convertible Loan Notes totalling £433,153 in principal and
paid interest in accordance with the terms on the maturity date of 31 March 2019
Conducted a site survey for the 2019 multi-well drilling campaign at the Company’s UK
North Sea licences
Closed investments with funds managed by Bybrook Capital LLP, BP Oil International
Investment Managers Group and James Caird Asset
Limited, Lombard Odier
Management for a £22 million Loan Note facility
Entered into a contract with Dolphin Drilling for the Borgland Dolphin semi-submersible
rig for a multi-well, 94-day drilling programme commencing in Summer 2019
Executed a crude oil offtake and marketing agreement with BP Oil International Limited
to market future UK crude production
Awarded Baker Hughes, a GE Company (“BHGE”), contracts for the Company’s 2019
summer drilling programme on its Liberator and Serenity assets
Completed drilling of the Liberator 13/23c-9 pilot well; 13/23c-9 was plugged and
abandoned as planned following completion of the vertical seismic profile ("VSP") survey
and shear wave sonic logging
Linda Beal appointed as a non-executive director of the Company
Completed drilling of the 13/23c-10 exploration well, discovering the Serenity oil field
Completed drilling of the Liberator 13/23c-11 well; the 13/23c-11 well was plugged and
abandoned as planned
Extended the Funding Long-stop Date of the Company’s Loan Note facility from 30
November 2019 to 30 April 2020, by which time i3 was required to enter a reserve-
based lending (“RBL”) facility or to source alternative development financing for the
Liberator Phase I development. Subsequent to the year-end the Company announced
that the Funding Long-stop Date had been waived and a new Corporate Development
Long-stop Date had been set for 30 September 2020 prior to which the Company has to
achieve certain conditions as detailed below in Post Period and Outlook 23 June 2020.
Post Period and Outlook
On 2nd January 2020, the Company announced a corporate and funding update.
Well and fluid data from the Serenity 13/23c-10 discovery well encountered sweet, 31.5° API
crude in 11 feet of upper Captain oil-bearing sands confirming the strong commercial
potential of the Serenity area. Though Liberator wells 13/23c-9 and 13/23c-11 did not meet
the Company’s expectations, post-drill mapping of the entire Liberator structure still shows
significant in place resources in the Liberator West and Minos High areas. With the highly
successful Serenity discovery and remaining potential at Liberator, the Company is planning
a multi-well appraisal programme and conducting a farm down process of its licences to
potentially fund that drilling campaign.
The Company issued 2,816,739 warrants to subscribe for Ordinary Shares at an exercise
price of 56.85 pence per Ordinary Share to GE Oil & Gas UK Limited ("GE UK"), in addition
to the 2,204,574 issued to GE UK in October 2019. These warrants relate to deferred
i3 Energy PLC
2
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Highlights and Outlook
payments for Oilfield Service ("OFS") contracts entered into between the Company and
Baker Hughes. To 30 November 2019, Baker Hughes had performed and invoiced the
Company for £3,000,000 worth of oilfield services. GE UK can exercise the warrants via
cash settlement or in exchange for payments due to Baker Hughes under OFS contracts
with the Company.
On 7th February 2020, the Company provided a Board update where it announced that Linda
Beal would become the interim Chairperson of the company, replacing David Knox. After
nearly 3 years as the Chairperson of the Board, David stepped down to pursue another role
in the renewable energy sector in Australia. The Company also announced plans to list its
shares on a secondary exchange, for administrative reasons related to the Company's Loan
Notes issued 31st May 2019.
On 19th March 2020, the Company entered into a drilling contract with Dolphin Drilling
Limited ("Dolphin") to utilise either the Borgland Dolphin or Blackford Dolphin semi-
submersible drilling rig for a minimum 82-day programme which was due to commence not
later than 1st September 2020 or as otherwise agreed between the parties. The contract was
conditional on the Company confirming availability of funds to satisfy its obligations under
the contract, 90 days prior to drilling commencement. The Company also agreed that
Dolphin could earn up to a 10% economic interest in Block 13/23c via a Net Revenue
Sharing Agreement in exchange for Dolphin forgoing its drilling contract profit margin above
its opex, up to a maximum amount of US$14.4 million (the "Dolphin Commitment").
Accordingly, the Dolphin Commitment would cover approximately 22% of the total expected
gross drilling costs. Under the terms of the drilling contract, i3 was to notify Dolphin not later
than 90 days prior to 1st September 2020 that it had sufficient financial capacity to fund the
minimum 82-day drilling programme. i3 was not in a position to do so on 1st June 2020. The
parties remain in discussion on the potential timing of future drilling at the Company’s UK
licences.
On 30th March 2020, the Company announced that it had entered into an Option agreement
to acquire all the issued and outstanding common shares of Toscana Energy Income
Corporation ("Toscana" or "TEIC"), a TSX listed oil and gas corporation with assets in the
Western Canadian Sedimentary Basin ("WCSB") in Alberta and Saskatchewan, Canada (the
"Option"). Upon the Company’s exercise of the Option, Toscana shareholders will be offered
up to 4,399,224 i3 shares for TEIC's entire share capital, representing dilution of
approximately 4% to the Company's current shareholders and having a market value at
March 27th of approximately C$0.55 million. The Company also announced that on March
27th it had purchased the rights and interests in Toscana's senior and junior debt facilities
(which were in default). The Company acquired Toscana's C$24.8 million senior facility for
C$3.0 million and its C$3.2 million junior facility for C$0.4 million, with cash consideration for
each being paid 50% up front and 50% at year-end. The total aggregate consideration being
paid by the Company for TEIC's debt and equity totals approximately C$3.95 million. Upon
completion of the transaction with Toscana, the Company intends that its enlarged share
capital would also be listed on the TSX, satisfying the Company's obligation under its
existing Loan Notes to seek a secondary listing for its shares.
On 1st May 2020, the Company announced an update relating to the Development Funding
Long-stop date of its Loan Note facility. On 8th November 2019, the majority noteholders
had agreed to extend the date by which the Company was required to enter into a reserve-
based lending facility or find an alternative means of funding to achieve first oil from the
Liberator field, to 30th April 2020. i3 was not in a position to enter into such a facility by 30th
April, but the Company remained in discussion with all noteholders to waive this condition.
i3 Energy PLC
3
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Highlights and Outlook
On 23rd June 2020, the Company announced that the obligation to enter into a development
facility for Liberator by a certain date (30th April 2020 – the Development Funding Long-stop
Date) had been waived. A new Corporate Development Long-stop Date has been set for
30th September 2020 prior to which the Company has to achieve one of the following
Corporate Development Long-stop Conditions:
Secure firm irrevocable commitments for a minimum of £15 million of unsecured or
fully subordinated financing, subject only to closing mechanics; or
Agree a farm-out and/or funding term sheet, subject only to legal documentation to
fund the drilling of at least one appraisal well on Serenity during 2020 or 2021; or
Execute an acquisition agreement for at least 2500 boepd of production net to i3.
In addition, the Company has an obligation to achieve net corporate production at or above
5000 boepd by 30th April 2021.
As part of the above Loan Note restructuring, all warrants associated with the Loan Notes
had their strike prices reset to the nominal value of i3 shares (£0.0001/share). The Loan
Note Instrument amendments include the requirement that the currently outstanding i3
management options be cancelled and replacement options issued to i3 staff and directors
which replicate the terms of the adjusted Loan Note warrants (the “New Options”) in relation
to the exercise price, to seek alignment between the Noteholders and management.
On 23rd June 2020, the Company announced that it had exercised the above-mentioned
Option to acquire all of the issued and outstanding common shares of Toscana Energy
Income Trust, a TSX-listed oil and gas company. Upon completion, i3 will also be listed on
the Toronto Stock Exchange, thereby satisfying a requirement under the Company’s Loan
Notes to obtain a listing on an HMRC-recognized exchange, which AIM is not. Under the
Loan Notes, i3 was to apply for this additional listing not later than 28th February 2020 and
have admitted to that secondary exchange not later than 30 April 2020.
Also on 23rd June 2020, the Company announced that it had entered into a non-binding
letter of intent to acquire a package of producing Canadian oil and gas assets (the
“Proposed Assets”). In 2019, the Proposed Assets produced at over 10,000 boepd and
generated over US$34 million in field netback from multiple, low-decline, long-life, light oil
and gas fields. Upon completion, the proposed transaction would add 2019 year-end
reserves of over 25 MMboe PDP and over 65 MMboe 2P to i3’s portfolio. The total
consideration to be paid for the Proposed Assets under the letter of intent is just under
US$60 million, representing approximately 1.7x 2019 field netback and approximately 2x
that forecasted for the next 12 months, ~US$5,500/boepd, and ~US$0.85/boe of 2P
reserves. The proposed transaction would be a reverse take-over under the AIM Rules for
Companies and, at i3’s request, the Company’s shares were suspended from trading on AIM
until i3 either publishes a “Readmission Document” detailing the proposed acquisition or
provides confirmation that discussions have ceased.
On 3rd July 2020 (the “PSA Date”), i3 entered a binding purchase and sale agreement with
Gain Energy Ltd. (“Gain”) to acquire 100% of its producing and non-producing petroleum
assets in the Canadian provinces of Alberta and Saskatchewan, the aforementioned
Proposed Assets (the “Gain Assets”). In Q4 of 2019, the Gain Assets produced on average
10,645 boepd (47% liquids) to which Gain’s independent reserve evaluator had attributed
PDP reserves of 26.4 MMboe with a before-tax NPV10 of ~US$177 million, and 2P reserves
of 69.4 MMboe with a before-tax NPV10 of ~US$397 million. In 2019, the Gain Assets
produced ~US$34 million
field EBITDA (revenues minus royalties, opex and
transportation) from 242 Gain-operated wells at an average working interest of 78% and
in
i3 Energy PLC
4
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Highlights and Outlook
1,633 non-operated wells at an average working interest of 11%, and include 174k net
developed acres and 186k net undeveloped acres of land.
Further specifics and updates regarding the Gain transaction and other matters will be
released as part of i3’s Readmission Document when published.
The Company’s focus for the remainder of 2020 will be on 3 key areas:
1 The completion of the Gain Transaction and i3’s Readmission to AIM
2 The completion of the TEIC transaction and the integration of the Company’s UK and
Canadian businesses
3 The farmout of i3’s UK licences to conduct further appraisal drilling at Serenity and/or
Liberator
The Company continuously evaluates opportunities to strengthen its balance sheet whilst
maintaining tight control of its costs and working capital position.
i3 Energy PLC
5
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Chairperson’s and Chief Executive’s Statement
CHAIRPERSON’S AND CHIEF EXECUTIVE’S STATEMENT
2019 was an intensely active year for i3 on all fronts, with the period separated into three key
phases – funding, operational preparation, and drilling. Entering the year, the team was
excited with the prospect of proving up its subsurface analysis of the Company’s UK North
Sea blocks 13/23c and 13/23d, seeing the potential to target an estimated 500 million barrels
of oil within the Liberator and Serenity structures on its licences.
2019’s mixed drilling results hold unrecognized value
In order to properly evaluate our UK assets and to ensure funding could be secured for future
development works, the Company spent the year making preparations for and conducting a
multi-well appraisal drilling campaign. In January, i3 executed an LOI with Dolphin Drilling to
conduct an expected US$41 million drilling programme starting in Q3. Having a 2018 year-
end market capitalisation of circa £16 million meant the Company would be required to
source a multiple of its enterprise value in order to meet this commitment. Given the
continual struggle to match sufficient capital with planned operational demands, the
Company advanced all funding options simultaneously, while recognizing that a "first past the
post" approach would be necessary if our operational commitments and associated
contractual agreements were to be satisfied.
During early Q1 it became evident that our intended summer drilling program could only
remain on track if funded through a loan note facility i3 had been negotiating, in combination
with an equity raise, and the Company quickly moved to conclude these initiatives. To
secure the Dolphin Drilling contract and to ensure all drilling operations were completed in
2019, i3 concluded a funding exercise between January and July which raised from equity,
debt and supply chain investors an aggregate amount of £43 million – a number far in
excess of our market capitalisation coming into 2019 and a very significant achievement for
a small cap oil and gas company with no production. Sizeable anchor investments from the
likes of Bybrook Capital, Lombard Odier and Miton, additional commitments from James
Caird Asset Management, and material contributions from respected industry players such
as BP Oil International and Baker Hughes GE enabled i3 to commit to a three-well drilling
programme.
Operational activity on our assets commenced in April with the completion of a site survey
over the surface locations for our summer 2019 drilling campaign, and on May 31st we
confirmed our contract with Dolphin Drilling for the Borgland Dolphin semi-submersible rig to
conduct a minimum 94-day programme to start mid-summer, with two wells planned at
Liberator and one at Serenity. Following the seamless re-activation of the Borgland Dolphin
rig between April and August, with much anticipation i3 began its drilling operations. A
summary of that campaign follows.
On October 4th we announced that the Serenity 13/23c-10 well had been spud. The purpose
of this well was to confirm that the Serenity structure was hydrocarbon bearing. On October
29th, i3 announced a successful oil discovery had been made at the Serenity structure and
that key geologic horizons were encountered within the prognosed tolerances. The well was
drilled down-dip from the Repsol Sinopec operated Tain discovery and encountered a
sequence of oil-bearing sands. Importantly, the oil-water contact was estimated to be at
5270ft based on pressure measurements, the same level as seen in the Blake and Liberator
fields. The net oil interval encountered in the 13/23c-10 well was thicker (c.10ft TVD) than in
the up-dip Tain discovery and was consistent with our expectation that the Captain sands
thicken to the west in Serenity. Reservoir quality is expected to be equivalent to that seen in
the Tain wells, one of which (13/23b-5Z) tested at an estimated 2750 bopd from a circa 5ft
interval in the Captain sand. The results of the Serenity 13/23c-10 well were closely in line
i3 Energy PLC
6
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Chairperson’s and Chief Executive’s Statement
with the Company's expectations and confirmed the strong commercial potential of the
Serenity area, of which i3 owns 100%.
Countering the Company’s Serenity success were the two wells drilled in the potential
Liberator Phase I development area, the 13/23c-9 and 13/23c-11 wells, which delivered
unexpected results. Frustratingly for our shareholders and our team, on September 10th i3
announced that preliminary petrophysical information obtained from the Measurement While
Drilling (“MWD”) tools in the 13/23c-9 well indicated that the targeted upper Captain sand
was not penetrated and that these were pinched out at that location. While the Company
sent the Borgland rig northward to drill Serenity, i3 acquired the only other seismic dataset
available in an attempt to remap the field and reconcile the subsurface interpretation with the
13/23c-9 well results. Following completion of this work, i3 selected a re-positioned location
to the north of Liberator’s 2013 13/23d-8 discovery well, and on November 8th the Company
announced that it had spud well 13/23c-11. Disappointingly, on November 25th we
announced that the sand thickness with oil indications in the 13/23c-11 well was circa 20ft,
which is thinner than the level i3 would target for a development well location. The
disappointing results from these two wells, which were deemed to be relatively low-risk,
exemplify an inherent risk in the oil and gas business – the drill bit remains the only way to
definitively resolve geological uncertainty.
The Liberator results were discouraging and led to the Company’s inability to secure the
necessary funding for a small Liberator Phase I development. With the timing of obtaining
first production and near-term cash flow from the Company’s UK assets becoming uncertain,
i3 experienced substantial downward pressure on its share price. However, the Company
remains confident in the resource potential of the Serenity prospect and holds that the
Liberator West and Minos High areas offer tremendous potential. Though the outcome of our
2019 campaign was mixed, we believe that with further appraisal drilling the value of these
fields will eventually be recognized.
Shortening the path to shareholder value
For the reasons stated above, we believe it is necessary to diversify our asset portfolio in
order to spread and mitigate risk. Ideally this would balance multiple aspects of our business,
including geological, project life cycle, project capital intensity and capital market risks, whilst
also being accretive to shareholders. The Company also believes it is critical to add
production to its asset portfolio to provide internal free cash flow to grow the company and
provide a near-term return to our shareholders. Having considered a number of global oil and
gas basins and specific opportunities, including the UK North Sea in the context of our
acquisition criteria, we concluded in late 2019 that the Western Canadian Sedimentary Basin
(the “WCSB”) provides a unique, time-limited opportunity to build a portfolio of production
assets on superior metrics not achievable elsewhere. A short to medium term lack of
infrastructure to transport Canadian oil and gas to international markets in combination with
depressed gas prices in North America due to the growth in gas supply from shale drilling
has led to many small and mid-cap oil and gas producers, particularly those with
overleveraged balance sheets and heavily gas-weighted portfolios, to become financially
distressed and to have limited access to the North American capital markets to fund
maintenance opex or growth capex. Many of these companies contain excellent, long-life,
low-decline production assets, with solid growth potential that may be acquirable at attractive
metrics.
In March 2020, i3 announced that it had acquired the rights and interests in the senior-
secured and subordinated debt of Toscana Energy Income Corporation (“Toscana” or
“TEIC”), a TSX-listed oil and gas corporation with assets and operations in the WCSB.
i3 Energy PLC
7
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Chairperson’s and Chief Executive’s Statement
As a result of accessing debt to acquire assets in a much stronger commodity environment,
Toscana had struggled for some years and was in default under the terms of its debt facility
agreements. i3 purchased Toscana’s C$28 million senior and junior debt facilities for a total
of C$3.4 million. At the same time, the Company announced its entry into an Option
agreement with Toscana to acquire 100% of the issued share capital of TEIC under which
Toscana shareholders would receive 4,399,224 i3 ordinary shares, representing dilution of
approximately 4% to i3’s shareholders at the time of announcement. On 23rd June 2020, i3
announced that it had exercised its Option with Toscana, the result of which will see i3’s
enlarged share capital also being listed on the TSX, post-completion.
Toscana’s strong management and operations teams, and production and asset base,
provides a platform for i3’s entry into Canada. As stated in March 2020, i3 intended to swiftly
leverage the TEIC platform to execute an M&A driven growth strategy to build a large, low
capital intensity, long-life production base in Canada. On 23rd June 2020, with further detail
on 6th July 2020, i3 announced the planned acquisition of all the petroleum assets of Gain
Energy Ltd., a private Canadian company with assets in the Western Canadian Sedimentary
Basin. Under the AIM Rules, the Gain Transaction constitutes a reverse take-over, and at the
Company’s request its shares were suspended from trading on AIM.
Upon the Company’s production of a Readmission Document and upon the completion of an
ongoing fundraising effort to finance the Gain Transaction, the acquired assets are expected
to deliver immediate shareholder value.
Production + Growth Potential = Dividend + Upside
The Company expects to become a dividend payer as i3’s Canadian business expands.
Under current market conditions, residual free cash flow above the dividend will likely be
redeployed to acquire additional developed producing reserves or to exploit the best
production adding opportunities within the Canadian portfolio, in order to replace natural
decline and increase production levels. At such time as markets improve and acquisition
multiples become unattractive, i3 will focus on unlocking the material value held in its
acquired proven undeveloped (PUD) and 2P inventory, which has the capacity to more than
double current production levels into a strengthening commodity price environment. Fresh
production will be hedged in these strengthening markets to secure future cash flow or,
alternatively, the Company may monetize new production so that it returns additional value to
shareholders.
Financial review
During the year ended 31 December 2019, the Group incurred a net loss of £10,851,177 (31
December 2018 – net loss of £1,959,802). The majority of the loss resulted from the Group’s
expenses relating to day-to-day operations, finance costs, interest expenses and stock
option scheme expense.
A total of £24.4 million of equity (before expenses) was issued during the year ended 31
December 2019 through the placing of 66,701,962 ordinary shares at an average price of 35
pence per share.
In addition, the Company closed a £22 million H1-2019 Loan Note facility. Proceeds from the
equity issuances and the Loan Notes were used for Liberator and Serenity drilling and working
capital requirements.
Moving forward we will continue to manage our existing cash resources, which stood at
£19,069,541 at the end of December 2019.
i3 Energy PLC
8
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Chairperson’s and Chief Executive’s Statement
Looking Forward
The COVID-19 virus has had a significant impact, affecting economies and populations
globally. The spread of COVID-19 has been unlike any previous virus, taking governments
and countries by surprise. It is anticipated that the world economy will be severely impacted
by COVID-19 despite measures taken by governments to protect against it. i3 Energy is
preserving its capabilities and cash position while ensuring all staff are safe and abiding by
government guidelines and recommendations. The directors anticipate there will be
distressed M&A opportunities that will arise as a result of this situation and are positioning
themselves to take advantage of these as they arise.
We maintain our strong belief that there is substantial value to be created in the UK North
Sea through the development of small and mid-sized fields which lie proximal to aging but
well-maintained infrastructure. Potential satellite developments from fields such as Serenity
and Liberator closely adhere to guidance provided by the OGA in regards to maximising
economic recovery from the UK’s resources, and i3 continues to work diligently on creating
value there.
We are additionally very excited for our entry into Western Canada and believe it holds
tremendous potential to deliver substantial near-term returns to i3’s shareholders. The
Canadian transactions are expected to create a solid foundation to aggressively build upon,
and we are very much looking forward to integrating our UK and Canadian teams together in
the coming months.
We extend deep gratitude for the commitment and effort of the Company’s management
team and staff. The highs and lows of 2019 only increased their resolve to ensure we are
building a company for the benefit of its owners. Collectively holding a meaningful portion of
the Company, the management and board remain closely aligned to the interests of all i3
stakeholders.
As always, we also thank our noteholders, institutional investors, and shareholders. We will
be very intentional in the coming years about structuring a Company and organization that
returns value to you as it is created.
“Linda Beal”
“Majid Shafiq”
Linda Beal
Interim Non-Executive Chairperson
6 August 2020
Majid Shafiq
Chief Executive Officer
6 August 2020
i3 Energy PLC
9
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Strategic Rep ort
STRATEGIC REPORT
Business Review and Strategy
As a junior oil & gas company operating in difficult market conditions, the management team
was proud of accomplishing everything that was required to fund and drill 3 wells on a 100%
basis during the course of 2019. However, the mixed drilling results and the Company’s
resulting share price reveals that its single-asset exposure is too high, and that movement
towards a full-cycle portfolio is required in order to bring stability to i3’s future. With that, the
Company’s 100% owned position in the Serenity discovery will be used as currency to fund
further appraisal of our assets in the North Sea. i3 has been running a farmout process since
early 2020 and, though there has been major pressure on the sector this year, we remain
confident that seeking a farminee is the right approach for the UK portfolio.
The Company has for some time been analysing other basins for potential production
acquisitions, as we see legacy North Sea production as better suited to larger entities willing
to accept sizeable decommissioning exposure – something we have always intended on
avoiding. As announced in March, the Company has selected the Western Canadian
Sedimentary Basin as the first region where it intends to build a material production base.
Why the Western Canadian Sedimentary Basin?
Systemic issues driving near-term opportunity
The Western Canadian Sedimentary Basin has been affected by a dearth of M&A and A&D
transactions resulting from overleverage and/or a lack of support in Canadian equity and
debt capital markets, compounded by the effects of only having single-market access (other
than domestic use, the United States has been the only buyer of Canadian oil and gas), and
a US shale oil industry that has driven over-supply resulting in substantial pricing differentials
between Canadian and US benchmark crude prices. These have all put downward pressure
on what are many small, typically overleveraged, upstream producers, enabling the
opportunity to secure assets on very attractive acquisition metrics.
At a time when these difficulties for some WCSB producers is at an apex, a number of
previously stalled, large-scale pipeline and infrastructure projects (Trans Mountain pipeline
expansion, TC Energy’s Keystone XL, Enbridge Line 3 Expansion, Shell’s $40B LNG
Canada project on the west coast) are progressing. Upon completion, these projects will
multiply the export capacity from the WCSB and should have the effect of normalizing
Canadian commodity prices to better align with world markets. i3 expects this to resolve one
of the main issues that has instigated the financial hardship of many Canadian producers.
It is this backdrop of slumping deal activity and sector-wide depression in the Canadian
upstream sector, converging with long-awaited systemic improvements to egress optionality,
that i3 believes will result in a rebound in Canadian asset values. The Company sees this as
a time-limited opportunity to acquire undervalued asset portfolios.
i3 acquiring on historically excellent metrics
COVID-19 and a stand-off between large-scale producers, Russia and Saudi Arabia, drove
unprecedented and not previously seen oil price volatility between March and May (with WTI
going negative). This provided the Company with an excellent opportunity to capture assets
at very attractive metrics in the context of historical transactions.
i3 Energy PLC
10
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Strategic Rep ort
Though world oil markets are highly volatile at present, the Canadian transactions are
expected to provide substantial revenue from a long-life portfolio of assets, with undeveloped
upside that offer drillable potential at such time as commodity prices strengthen.
i3’s WCSB strategy: acquire developed producing portfolios below 3x CF with PUD/2P
upside at no/low-cost
The Company is seeking out assets or portfolios that have developed producing reserves
that can be acquired for less than 3x next 12 months (NTM) field netback, but that also
contain material PUD and 2P inventory that may be drilled at a later date under stronger
commodity pricing. i3 will remain acquisitive as long as finding, development, and acquisition
(FD&A) costs remain below finding and development (F&D) costs. Once FD&A overtake F&D
costs, the Company will focus on drilling its highest return PUD and 2P inventory, and
thereafter materially hedge this fresh production to secure future cash flow or, alternatively,
consider selling either outright or partially this new production to capture value. The latter will
give the Company the opportunity to potentially return additional value to shareholders over
and above its planned dividend policy. This strategy is expanded upon in the graphic below.
To reiterate, the Company believes there is a time-limited opportunity, driven by the systemic
and market-based issues outlined above, within which to build a material Canadian
production business through M&A that secures a portfolio of future growth opportunities at
minimal or zero cost, which can be exploited once oil and gas prices stabilize under the new
normal that will result from current world events.
i3 Energy PLC
11
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Strategic Rep ort
Key Operating and Financial Risks
The Company operates in the oil and gas industry in an environment subject to a range of
inherent risks and uncertainties. The current focus of the Company’s risk management
processes is in the regulatory, financial and growth areas for the Company but as the
Company adds producing assets, this will shift towards a greater focus on the full range of
operational risks.
The current key risks and associated mitigation are set out below.
Key Risk
Mitigation
Sub-surface assessment and production,
reserve, and resource estimation
● Experienced sub-surface professionals with deep knowledge of
different play types and contractors.
● External assessments and development of Competent
Persons Reports.
Development of assets through to
production
● Experienced drilling personnel and contractors.
● Discussions with potential partners.
Cost overruns
● Tight control of costs.
● Regular monitoring of costs against budget.
Ability to raise funds for exploration and
development and corporate activity
Access to third party infrastructure at
appropriate cost
Ability to meet the Corporate Development
Long-stop Conditions
Commodity price volatility
Health, Safety, Environment and Security
Availability and delivery of growth
opportunities
Political risk including adverse taxation and
legislative changes
Staff retention and access to future skills
Covid-19 Pandemic
● Being publicly listed provides access to equity capital markets
and potential loan arrangements provide avenues for future
funding requirements.
● Discussions with industry partners ongoing.
● Experienced technical and commercial professionals.
● Working with regulators to ensure consistent application of
industry practice and standards.
● Negotiated agreements.
● Continued focus on Canadian producing asset opportunities.
● Planning based on a range of commodity prices.
● Future price mitigation strategies at the point of investment
including the possibility of hedging if appropriate.
●
●
Integrated Management System (IMS) set up to ensure all
regulatory and environmental and safety requirements are
met, appropriate training is in place and compliance verified.
IT security is ensured through an external service provider.
● Engagement with a range of advisors and active competitor
monitoring provide a range of opportunities for screening.
● Experienced professionals spanning key disciplines screen
and fully assess opportunities.
● Liaison with Government bodies and stakeholders re
upcoming proposals.
● Membership of and support to industry bodies, participation in
lobbying.
● Strong alignment to Company success through significant
equity ownership and options held by key employees.
● Remuneration Committee set up to provide governance and
ensure market competitiveness.
● UK government and the World Health Organization have
procedures designed to limit staff exposure and isolate those
suspected of contracting the virus. i3 is implementing those
procedures alongside enhanced hygiene and sanitation
protocols for UK staff.
● All UK staff are able to work from home when required
i3 Energy PLC
12
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Strategic Rep ort
Key Risk
Mitigation
Claims
Regulatory and compliance risks
Brexit
following UK Government guidelines.
● The Company insures the risks appropriate for the Company’s
needs and circumstances. In particular, events like the drilling
of the Liberator and Serenity appraisal/exploration wells carry
inherent financial and operations risks and these are insured,
where possible, under specific policies with insurers.
● The Group manages its regulatory and compliance risks
through the employment of sufficient competent personnel
and through retaining suitably proficient advisors.
● The Company does not see Brexit having a significant impact
on its business. The global oil market is not forecast to be
significantly directly impacted by an exit of the UK from the
EU and there is significant demand for oil domestically.
Access to overseas personnel and equipment may be
affected to a greater or lesser extent, depending on the
precise Brexit outcome.
The risks set out above are not exhaustive and it is likely that the risks identified will evolve
and that additional risks will arise in the future. Any of these risks could have a material
adverse effect on the business.
Cash Resources
As at 31 December 2019, the Group had £19,069,541 of cash in the bank. Management
continues to remain lean and cost efficient while the oil & gas sector continues to struggle
with the impacts of COVID-19, making access to capital more difficult for smaller, non-
producing companies such as i3. As at 24 July 2020, the Group had approximately £895,856
of cash in the bank.
Consolidated Statement of Comprehensive Income
During 2019, to facilitate its development of its Liberator and Serenity assets, the Company
incurred a loss of £10,851,177 comprised of day-to-day operating expenses, finance costs,
interest expense and stock option scheme expense.
Financing
During 2019, the Company raised approximately £46.4 million (before expenses) through
equity placings of 66,701,962 ordinary shares at an average price of 35 pence per share and
the closing of a £22 million H1-2019 loan note facility. Proceeds from the equity issuances
and the H1-2019 loan note facility were used for asset appraisal, development and working
capital requirements.
Key Performance Indicators (“KPI’s”)
During the second half of the year the Company drilled three wells on a 100% basis, safely,
with no environmental, health or safety issues and all within budget. Each well was drilled
within its allotted timeline, though the findings resulted in delays between wells while
analysis was conducted and well plans and permits were updated. These delays also
extended the campaign into late November which resulted in an amount of additional down-
time due to waiting on weather. Though the drilling campaign brought mixed results, the
Company has delivered a solid result from Serenity which the Company intends to farm-
down in order to conduct future appraisal which, on success, would increase shareholder
value by a multiple of the current level.
i3 Energy PLC
13
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Strategic Rep ort
The Directors do not consider other standard industry key performance indicators to be
relevant as yet. The Group currently has no oil and gas production and therefore has no
income. The Group will report profits once it acquires production assets or develops its
currently non-producing fields. Successful execution of the Company’s Canadian production
acquisition strategy described above is expected to deliver near-term shareholder returns by
way of a robust dividend policy, with substantial portfolio upside being deliverable within a
strengthening commodity environment.
Section 172 Statement
Section 172 (1) of the Companies Act obliges the Directors to promote the success of the
Company for the benefit of the Company’s members as a whole. This section specifies that
the Directors must act in good faith when promoting the success of the Company and in
doing so have regard (amongst other things) to:
a. the likely consequences of any decision in the long term,
b. the interests of the Company’s employees,
c. the need to foster the Company’s business relationship with suppliers, customers and
others,
d. the impact of the Company’s operations on the community and environment,
e. the desirability of the Company maintaining a reputation for high standards of business
conduct, and
f. the need to act fairly as between members of the Company.
The Board of Directors is collectively responsible for formulating the Company’s strategy,
which is to i) acquire undervalued developed producing fields, and ii) ultimately deliver
hydrocarbon projects into production by graduating assets through the industry life cycle of
exploration, appraisal, development, production and optimization.
Some key decisions were taken by the Board since the beginning of 2019 which were aimed
to deliver on this strategy. These included:
Raising £40 million of equity and debt in order to conduct its planned 2019 drilling
programme;
Investing significant resources into its UK licences which resulted in the Serenity oil
discovery for which the Company is now seeking farminees;
Securing a Canadian production company whose portfolio could be expanded
through a targeted M&A growth strategy; and
Acquisition of a sizeable developed producing portfolio in Canada which the
Company expects, on completion, will fund a regular dividend and provide capital for
additional organic or inorganic expansion.
The Board places equal importance on all shareholders and strives for transparent and
effective external communications, within the regulatory confines of an AIM-listed company.
The primary communication tool for regulatory matters and matters of material substance is
through the Regulatory News Service, (“RNS”). The Company’s website is also updated
regularly and provides further details on the business as well as links to helpful content such
as our latest investor presentations. We also hold regular investor events which are open to
all shareholders and provide an environment where shareholders can interact with the Board
and management, ask questions and raise their concerns.
Our employees are one of the primary assets of our business and will be critical to the future
success of the Company. First and foremost, the Directors strive to ensure a safe working
environment for all its staff and contractors, and we are proud of our safety achievements in
i3 Energy PLC
14
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Strategic Rep ort
2019. We also seek to reward employees with remuneration packages which align the
interests of the Company and its shareholders with those of employees. We believe we have
achieved this through the award of share options. Employees are also provided with
challenging work and external training opportunities to ensure their continual development.
The Directors believe they have acted in the way they consider most likely to promote the
success of the Company for the benefit of its members as a whole, as required by Section
172 (1) of the Companies Act 2006.
Linda Beal
Interim Non-Executive Chairperson
6 August 2020
i3 Energy PLC
15
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Board of Directors
BOARD OF DIRECTORS
The Directors of the company who were in office during the year and up to the date of
signing the financial statements were:
David Knox
Chairperson of the Board (Resigned 7 February 2020)
Mr. Knox held the position of Non-Executive Chairperson of the board until 7th February
2020 at which time he resigned to focus on his role as Chair of Snowy Hydro Limited,
Australia’s largest renewable energy provider and an iconic Australian company.
Mr. Knox, BSc (Hons) Mech Eng, MBA, FIEAust, FTSE, GAICD, served as the Chief Executive
Officer and Managing Director of Santos Limited from 2008 to 2015, after joining the company in
2007 as the Executive Vice President of Growth Businesses. Mr. Knox has global experience in
the Petroleum Industry. Prior to Santos, Mr. Knox served as the Managing Director of BP
Exploration and Production in Australasia, having previously held management and engineering
roles at BP, ARCO and Shell across United Kingdom, Pakistan, United States, the Netherlands
and Norway. He served as Director of Santos, the Santos Group Companies. and Santos Finance
until December 2015. He was also Chair of the Australian Petroleum Production and Exploration
Association (APPEA) 2011 to 2013. Mr. Knox was MD and CEO of Australian Naval Infrastructure
(ANI). Originally from Edinburgh, Scotland. Mr. Knox holds a first-class honours degree in
Mechanical Engineering from Edinburgh University and a Masters of Business Administration from
the University of Strathclyde. Mr. Knox has also been a director on the board of the Botanic
Gardens and State Herbarium in South Australia, a member of the Commonwealth Science
Council and deputy chair of the Economic Development Board of South Australia. He is a Fellow
of the Australian Institute of Mechanical Engineering and also a Fellow of the Australian Academy
of Sciences ATSE and a graduate of the Institute of Company Directors. He is currently a director
of the Commonwealth Science and Industry Research Organisation (CSIRO), the Adelaide
Festival and chair of The Australasian Centre for Social Innovation (TACSI). Mr. Knox has also
been a director of Redflow Limited since March 2017, and a council member of Royal Institution
Australia (RIAUS).
Linda Beal
Non-Executive Chairperson (Appointed Interim Chairperson of the Board on 7
February 2020)
Ms. Beal has over 30 years’ experience advising international E&P clients and since 2016
has been a board member of various companies. As a director of other small cap natural
resources businesses, she brings corporate governance and financial expertise and
experience as Audit & Risk Committee Chair. Ms. Beal joined Grant Thornton in 2013 as a
Tax Partner and was Global Leader for Energy and Natural Resources, mandated to build its
global energy and natural resources capability. Previously, she spent 30 years at PwC and
its legacy firm Price Waterhouse in Audit and Tax, 16 of them as a Partner. Launching
PwC's Natural Resources Independents business in the mid-2000s, she focused on advising
international E&P clients across the AIM, FTSE350, overseas listed and private sectors.
Ms. Beal graduated in 1982 from the University of Nottingham with a BSc (Hons) in
Mathematics, thereafter, qualifying at Price Waterhouse as a Chartered Accountant in 1985.
i3 Energy PLC
16
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Board of Directors
Majid Shafiq
Chief Executive Officer
Mr. Shafiq has over thirty years of technical and investment banking experience focused on the
global E&P sector. Prior to founding Argentil Capital Partners (UK) Limited as CEO in 2015,
Majid spent circa fifteen years in energy investment banking advising on asset level
acquisitions and divestments, corporate M&A and equity financing for the private and public,
small to mid-cap oil and gas sector. During that time he worked for Waterous and Co, Tristone
Capital Ltd and FirstEnergy Capital LLP as Managing Director, Corporate Finance. Prior to his
investment banking career, he worked for Mobil Oil Corporation for 13 years in various
petroleum engineering and commercial roles in the UK and the Netherlands. Mr. Shafiq holds a
Bachelors degree in Nuclear Engineering from Manchester University, a Masters degree in
Petroleum Engineering from Heriot-Watt University and an MBA from London Business School.
Mr. Shafiq served as a Non-executive Director of the Company until 8 October 2018 at which
time he succeeded Mr. Carson as Chief Executive Officer of the Company.
Graham Heath
Chief Financial Officer
Prior to co-founding i3 in late 2014, Mr. Heath, BComm, served as VP Corporate
Development and later as Interim CFO at Iona Energy from December 2010 alongside Mr.
Carson. During his time at Iona, Mr. Heath worked with the senior management team to build
the company from infancy to 40MMboe of 2P reserves and production above 6,000 boe/day,
listing the company on the Toronto Venture Exchange, and structuring equity, debt, and
derivative financings in excess of US$670 million. As VP Corporate Development he was a
proactive engager of all external stakeholders and as Interim CFO led a finance and
administration team that expanded internal financial controls while improving quarter-on-
quarter quality and delivery of financial reporting. Before joining Iona, Mr. Heath’s 15-year
career focused on energy-related tech startups and consulting within Alberta’s Oil and Gas
Industry. Between 1998 and 2010, Mr Heath consulted to Colt Engineering, PanCanadian
Petroleum, EnCana Corporation and Cenovus Energy. From 2002 to 2006, Mr. Heath was
Cofounder and VP of Strategic Development for The CO2 Hub – a marketplace created to
facilitate the sale and purchase of carbon dioxide and its related purification, compression,
storage, and transportation services – designed to foster the aggregation of CO2 supply and
demand for its use in enhanced oil recovery. Mr Heath holds a Bachelor of Commerce from
the University of Calgary.
Neill Carson
Non-Executive Director
Mr. Carson, Bsc (Hons) Combined Geology & Physics, MSC Geophysics, has 33 years of
management and international project experience in the oil & gas industry. On completion of
his Bachelors (with First Class Honours) and Master degrees in the geosciences from Ulster
University and Birmingham University respectively, he joined Amoco in 1981. During his 14
years with Amoco he was responsible for numerous exploration and production projects within
the UKCS. Mr. Carson’s international career widened through exploration management
positions for BP Amoco in the Netherlands, Bolivia, and Pakistan. As Performance Unit Leader
for BP Pakistan, Mr. Carson was responsible for the delivery and growth of approximately
12,000 boe/day and capital budgets in excess of US$50m. Through his career with BP
Amoco, Mr. Carson executed growth plans through successful oil and gas discoveries, and the
i3 Energy PLC
17
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Board of Directors
development and management of commercial portfolios. He contributed as a select member of
a targeted team to BP’s world-wide new venture screening initiative in 2003. In early 2004, Mr
Carson co-founded Ithaca Energy Inc. (‘‘Ithaca’’) where he served as its President and a
director from April 2004 and acted as Chief Operating Officer until late 2007. While at Ithaca,
Mr. Carson was responsible for asset acquisitions, all aspects of operations and safety,
general corporate strategy, and the drilling of four successful oil wells. Across his 4 years with
Ithaca, the portfolio grew to 39MMboe of 2P reserves and was on plan to deliver 8,000
boe/day of production. Mr. Carson founded Iona Energy Inc. (‘‘Iona’’) in late 2007 where he
served as Chief Executive Officer until his departure in mid 2014 to form i3. Responsible for all
aspects of corporate strategy and portfolio development, he grew Iona to 40MMboe of 2P
reserves and saw peak production of 6,700 boe/day.
Mr. Carson served as Chief Executive Officer of the Company until 8 October 2018 at which
time he was succeeded by Mr. Shafiq. Mr. Carson continues to serve on the Board as a Non-
Executive Director.
Richard Ames
Non-Executive Director
Mr Ames BS MS, brings to the Board 36 years of broad range experience in the oil and gas
industry with senior executive roles in full-cycle oil and gas exploration and production,
information technology and oil and gas services. He has held several Vice President
positions in TNK-BP, Sidanco, and Amoco in Russia & Kazakhstan, where he was
responsible for government liaison, the implementation of business strategies and the
management of exploration and new venture projects. Mr. Ames has recently held Board
and Advisory Board of Director positions in
Iona, Accenture Russia, the Kiawah
Conservancy, and DataSpace. Mr Ames graduated from Duke University with a Bachelor of
Science degree in Geology, and from the University of Georgia with a Master of Science in
Geology. Mr. Ames joined Amoco in 1981 and worked as a geologist responsible for
reserve definition in several international petroleum basins including the North Sea.
i3 Energy PLC
18
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
DIRECTORS’ REPORT
The Directors are please to present this year’s annual report together with the audited
consolidated financial statements for the year ended 31 December 2019.
Principal Activities
The principal activities of the Group consist of the development and production of oil and gas
in the UK North Sea. The Company’s wholly-owned subsidiary, i3 Energy North Sea Limited,
is an independent oil and gas company with assets in the UK. The Company’s principal
activity is that of a listed holding company.
Business Review and Future Developments
Despite the budgetary constraints and challenging market conditions in i3’s sector, the
Group continued to progress the appraisal and development of its asset base. The Business
Developments during the year are highlighted in the Chairperson and Chief Executive
Officer’s Statement.
Results and Dividends
The loss on ordinary activities of the Group after taxation amounted to £10,851,177 (2018 -
£1,959,802). There were no dividends paid in 2019 (2018 - Nil).
Events after the reporting period
On 2nd January 2020, the Company announced a corporate and funding update.
Well and fluid data from the Serenity 13/23c-10 discovery well encountered sweet, 31.5° API
crude in 11 feet of upper Captain oil-bearing sands confirming the strong commercial
potential of the Serenity area. Though Liberator wells 13/23c-9 and 13/23c-11 did not meet
the Company’s expectations, post-drill mapping of the entire Liberator structure still shows
significant in place resources in the Liberator West and Minos High areas. With the highly
successful Serenity discovery and remaining potential at Liberator, the Company is planning
a multi-well appraisal programme and conducting a farm down process of its licences to
potentially fund that drilling campaign.
The Company issued 2,816,739 warrants to subscribe for Ordinary Shares at an exercise
price of 56.85 pence per Ordinary Share to GE Oil & Gas UK Limited ("GE UK"), in addition
to the 2,204,574 issued to GE UK in October 2019. These warrants relate to deferred
payments for Oilfield Service ("OFS") contracts entered into between the Company and
Baker Hughes. To 30 November 2019, Baker Hughes had performed and invoiced the
Company for £3,000,000 worth of oilfield services. GE UK can exercise the warrants via
cash settlement or in exchange for payments due to Baker Hughes under OFS contracts
with the Company.
On 7th February 2020, the Company provided a Board update where it announced that Linda
Beal would become the interim Chairperson of the company, replacing David Knox. After
nearly 3 years as the Chairperson of the Board, David stepped down to pursue another role
in the renewable energy sector in Australia. The Company also announced plans to list its
shares on a secondary exchange, for administrative reasons related to the Company's Loan
Notes issued 31st May 2019.
i3 Energy PLC
19
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
On 19th March 2020, the Company entered into a drilling contract with Dolphin Drilling
Limited ("Dolphin") to utilise either the Borgland Dolphin or Blackford Dolphin semi-
submersible drilling rig for a minimum 82-day programme which was due to commence not
later than 1st September 2020 or as otherwise agreed between the parties. The contract was
conditional on the Company confirming availability of funds to satisfy its obligations under
the contract, 90 days prior to drilling commencement. The Company also agreed that
Dolphin could earn up to a 10% economic interest in Block 13/23c via a Net Revenue
Sharing Agreement in exchange for Dolphin forgoing its drilling contract profit margin above
its opex, up to a maximum amount of US$14.4 million (the "Dolphin Commitment").
Accordingly, the Dolphin Commitment would cover approximately 22% of the total expected
gross drilling costs. Under the terms of the drilling contract, i3 was to notify Dolphin not later
than 90 days prior to 1st September 2020 that it had sufficient financial capacity to fund the
minimum 82-day drilling programme. i3 was not in a position to do so on 1st June 2020. The
parties remain in discussion on the potential timing of future drilling at the Company’s UK
licences.
On 30th March 2020, the Company announced that it had entered into an Option agreement
to acquire all the issued and outstanding common shares of Toscana Energy Income
Corporation ("Toscana" or "TEIC"), a TSX listed oil and gas corporation with assets in the
Western Canadian Sedimentary Basin ("WCSB") in Alberta and Saskatchewan, Canada (the
"Option"). Upon the Company’s exercise of the Option, Toscana shareholders will be offered
up to 4,399,224 i3 shares for TEIC's entire share capital, representing dilution of
approximately 4% to the Company's current shareholders and having a market value at
March 27th of approximately C$0.55 million. The Company also announced that on March
27th it had purchased the rights and interests in Toscana's senior and junior debt facilities
(which were in default). The Company acquired Toscana's C$24.8 million senior facility for
C$3.0 million and its C$3.2 million junior facility for C$0.4 million, with cash consideration for
each being paid 50% up front and 50% at year-end. The total aggregate consideration being
paid by the Company for TEIC's debt and equity totals approximately C$3.95 million. Upon
completion of the transaction with Toscana, the Company intends that its enlarged share
capital would also be listed on the TSX, satisfying the Company's obligation under its
existing Loan Notes to seek a secondary listing for its shares.
On 1st May 2020, the Company announced an update relating to the Development Funding
Long-stop date of its Loan Note facility. On 8th November 2019, the majority noteholders
had agreed to extend the date by which the Company was required to enter into a reserve-
based lending facility or find an alternative means of funding to achieve first oil from the
Liberator field, to 30th April 2020. i3 was not in a position to enter into such a facility by 30th
April, but the Company remained in discussion with all noteholders to waive this condition.
On 23rd June 2020, the Company announced that the obligation to enter into a development
facility for Liberator by a certain date (30th April 2020 – the Development Funding Long-stop
Date) had been waived. A new Corporate Development Long-stop Date has been set for
30th September 2020 prior to which the Company has to achieve one of the following
Corporate Development Long-stop Conditions:
Secure firm irrevocable commitments for a minimum of £15 million of unsecured or
fully subordinated financing, subject only to closing mechanics; or
Agree a farm-out and/or funding term sheet, subject only to legal documentation to
fund the drilling of at least one appraisal well on Serenity during 2020 or 2021; or
Execute an acquisition agreement for at least 2500 boepd of production net to i3.
i3 Energy PLC
20
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
In addition, the Company has an obligation to achieve net corporate production at or above
5000 boepd by 30th April 2021.
As part of the above Loan Note restructuring, all warrants associated with the Loan Notes
had their strike prices reset to the nominal value of i3 shares (£0.0001/share). The Loan
Note Instrument amendments include the requirement that the currently outstanding i3
management options be cancelled and replacement options issued to i3 staff and directors
which replicate the terms of the adjusted Loan Note warrants (the “New Options”) in relation
to the exercise price, to seek alignment between the Noteholders and management.
On 23rd June 2020, the Company announced that it had exercised the above-mentioned
Option to acquire all of the issued and outstanding common shares of Toscana Energy
Income Trust, a TSX-listed oil and gas company. Upon completion, i3 will also be listed on
the Toronto Stock Exchange, thereby satisfying a requirement under the Company’s Loan
Notes to obtain a listing on an HMRC-recognized exchange, which AIM is not. Under the
Loan Notes, i3 was to apply for this additional listing not later than 28th February 2020 and
have admitted to that secondary exchange not later than 30 April 2020.
Also on 23rd June 2020, the Company announced that it had entered into a non-binding
letter of intent to acquire a package of producing Canadian oil and gas assets (the
“Proposed Assets”). In 2019, the Proposed Assets produced at over 10,000 boepd and
generated over US$34 million in field netback from multiple, low-decline, long-life, light oil
and gas fields. Upon completion, the proposed transaction would add 2019 year-end
reserves of over 25 MMboe PDP and over 65 MMboe 2P to i3’s portfolio. The total
consideration to be paid for the Proposed Assets under the letter of intent is just under
US$60 million, representing approximately 1.7x 2019 field netback and approximately 2x
that forecasted for the next 12 months, ~US$5,500/boepd, and ~US$0.85/boe of 2P
reserves. The proposed transaction would be a reverse take-over under the AIM Rules for
Companies and, at i3’s request, the Company’s shares were suspended from trading on AIM
until i3 either publishes a “Readmission Document” detailing the proposed acquisition or
provides confirmation that discussions have ceased.
On 3rd July 2020 (the “PSA Date”), i3 entered a binding purchase and sale agreement with
Gain Energy Ltd. (“Gain”) to acquire 100% of its producing and non-producing petroleum
assets in the Canadian provinces of Alberta and Saskatchewan, the aforementioned
Proposed Assets (the “Gain Assets”). In Q4 of 2019, the Gain Assets produced on average
10,645 boepd (47% liquids) to which Gain’s independent reserve evaluator had attributed
PDP reserves of 26.4 MMboe with a before-tax NPV10 of ~US$177 million, and 2P reserves
of 69.4 MMboe with a before-tax NPV10 of ~US$397 million. In 2019, the Gain Assets
produced ~US$34 million
field EBITDA (revenues minus royalties, opex and
transportation) from 242 Gain-operated wells at an average working interest of 78% and
1,633 non-operated wells at an average working interest of 11%, and include 174k net
developed acres and 186k net undeveloped acres of land.
in
Further specifics and updates regarding the Gain transaction and other matters will be
released as part of i3’s Readmission Document when published.
Board of Directors
The Board of Directors at the year-end included two Executive-Directors and four Non-
Executive Directors. The Directors are of the opinion that the recommendations of the QCA
code have been implemented to an appropriate level. The Board, through the Non-
Executive Chairperson and Non-Executive Directors, maintain regular contact with its
i3 Energy PLC
21
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
advisors and public relations consultants in order to ensure that the Board develops an
understanding of the views of major shareholders of the Company.
The Board meets regularly throughout the year, for both Committee and Board meetings.
During the year to 31 December 2019 the Board met for a total of ten meetings and passed
resolutions in writing on one occasion. The Board is responsible for formatting, reviewing
and approving the Group’s strategy, financial activities and operating performance. Day-to-
day management is devolved to the Chief Executive Officer of the Company, who is charged
with consulting with the Board on all significant financial and operational matters.
Consequently, decisions are made promptly and following consultation among directors
concerned where necessary and appropriate.
All necessary information is supplied to the Directors on a timely basis to enable them to
discharge their duties effectively, and all directors have access to independent professional
advice, at the Company’s expense, as and when required.
Board Meetings:
David Knox
Graham Heath
Majid Shafiq
Neill Carson
Richard Ames
Linda Beal
Eligible to Attend
Attended
10
10
10
10
10
2
10
10
10
10
10
2
In addition to the above meetings there were also three meetings of sub-committees of the
Board.
Committees
Audit & Risk Committee
The Audit & Risk Committee comprises of David Knox (Non-Executive Director) (Chair, until
13 September 2019 and committee member until resignation on 7 February 2020), Linda
Beal (Non-Executive Director) (Chair, appointed 13 September 2019) and Neill Carson (Non-
Executive Director) (Committee member until 13 September 2019) and Richard Ames (Non-
Executive Director) (Appointed to committee on 7 February 2020). The committee met for a
total of two meetings during the calendar year.
All Directors received a copy of the respective Audit & Risk Committee reports prior to these
meetings and had an opportunity to comment. The meeting for the audited financial
statements was attended by the auditor. The Chief Financial Officer and a representative of
the external auditor are normally invited to attend meetings. Other directors or staff may be
invited to attend, as considered beneficial by the committee.
The Audit & Risk Committee’s primary responsibilities are internal control and risk
management, to review the effectiveness of the Company’s systems of internal control, to
i3 Energy PLC
22
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
review with the external auditor the nature and scope of their audit and the results of the
audit, to evaluate and select the external auditors.
Corporate Governance Committee
The Corporate Governance Committee comprises of David Knox (Non-Executive Director)
(Chair, resigned 7 February 2020), Linda Beal (Non-Executive Director) (Chair, appointed 7
February 2020) and Richard Ames (Non-Executive Director) (Committee member until 7
February 2020) and Neill Carson (Appointed committee member 7 February 2020). The
committee met for a total of two meetings during the calendar year.
The committee’s primary purpose is to develop and recommend to the Board guidelines,
policies and procedures relating to corporate governance, identify individuals qualified to
become Board members and recommend to the Board director nominees for election to the
Board when it is determined it is suitable and/or necessary to add to the Board, evaluate the
performance and effectiveness of the Board and committees of the Board.
Reserves Committee
The Reserves Committee comprises of Neill Carson (Non-Executive Director)(Chair,
appointed committee Chair on 7 February 2020, member prior to being appointed Chair) and
Richard Ames (Non-Executive Director) (Chair until 7 February 2020 and member
thereafter). The committee met for a total of two meetings during the calendar year.
The Reserves Committee assists the Board in monitoring and reviewing the appointment of
the independent engineering firm retained by the Company to report on the quantity and the
value of the Company’s oil and gas reserves. The Reserve Committee reviews the
procedures by which the Company provides information to the independent engineering firm
to be used as the basis of evaluation and audit, ensuring disclosure complies with applicable
laws and regulations, and is also responsible for matters relating to the preparation and
public disclosure of estimates of the Company’s reserves.
Remuneration Committee
The Remuneration Committee comprise of Richard Ames (Non-Executive Director)(Chair,
appointed committee Chair on 7 February 2020, member prior to being appointed Chair) and
David Knox (Non-Executive Director)(resigned 7 February 2020) and Linda Beal (Non-
Executive Director)(appointed as committee member 7 February 2020). The committee met
for a total of four meetings during the calendar year.
The Group’s policy is to remunerate senior executives fairly in such a manner as to facilitate
the recruitment, retention and motivation of staff. The Remuneration Committee agrees with
the Board a framework for the remuneration of the Chairperson, the Executive Directors and
the senior management group.
Directors
The names of the Directors who served to the date of this report are set out below:
Director
Executive Directors
Majid Shafiq
Graham Heath
Date of Appointment
18 July 2017 (Non-Executive to October 2018)
30 March 2017
i3 Energy PLC
23
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
Non-Executive Directors
David Knox
Neill Carson
Richard Ames
Linda Beal
18 July 2017
30 March 2017
18 July 2017
13 September 2019
Mr. Knox served as Chair until 7 February 2020 at which time he resigned and Ms. Beal was appointed interim
Chair.
Directors’ Remuneration
The Group remunerates the Directors at levels commensurate with its size and the experience
of its Directors. The Remuneration Committee has reviewed the Directors’ remuneration and
believes the levels uphold these objectives. Details of the Directors’ emoluments and payments
made for professional services rendered are set out in note 10 to the financial statements.
Directors’ Interests
The beneficial interests of the Directors in the shares and options of the Company are as follows:
Director
David Knox
Neill Carson
Graham Heath
Majid Shafiq
Richard Ames
Linda Beal
2019 Shares
2018 Shares
2019 Options
2018 Options
411,638
6,712,133
6,816,213
143,765
204,575
-
138,871
6,500,000
6,500,000
Nil
Nil
-
461,318
534,376
1,734,282
2,807,776
534,376
123,058
311,318
411,318
490,527
1,311,318
411,318
-
None of the Directors exercised any share options during the year.
Directors’ Third Party Indemnity Provisions
The Company maintained during the period and to date of approval of the financial
statements indemnity insurance for its Directors and Officers against liability in respect of
proceedings brought by third parties, subject to the terms and conditions of the Companies
Act 2006.
Share Capital
At 31 December 2019, 107,719,400 ordinary shares with a nominal value of £0.0001 each
and 5,000 deferred shares of £10 each were issued and fully paid. Each ordinary share
carries one vote and the deferred shares do not confer any voting rights.
i3 Energy PLC
24
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
Substantial Shareholders
At 24 July 2020, notification had been received by the Company of the following who had a
disclosable interest in 3% or more of the nominal value of the ordinary share capital of the
Company:
JP Morgan Prime Nominees
Hargreaves Lansdown (Nominees) Limited
Interactive Investor Services
Graham Heath
Neill Carson
BBHISL Nominees Limited
Barclays Direct Investing
JIM Nominees Limited Jarvis Acct
13.87%
10.42%
8.13%
6.33%
6.23%
3.44%
3.31%
3.25%
Save for Messrs Carson and Heath, this does not include the shareholdings of the Directors
which are disclosed separately. As at 24 July 2020 the Company had not been notified of
any other person who had an interest in 3% or more of the nominal value of the ordinary
share capital of the Company.
Corporate Governance
A statement of Corporate Governance is set out on pages 30 to 36. The Group has adopted
the Quoted Companies Alliance Corporate Governance Code (“the Code”). Details of how
the Group complies with the Code, and the reasons for any non-compliance, are set out on
page 30 to 35, together with the principles contained within the Code.
Key Performance Indicators
During the second half of the year the Company drilled three wells on a 100% basis, safely,
with no environmental, health or safety issues and all within budget. Each well was drilled
within its allotted timeline, though the findings resulted in delays between wells while
analysis was conducted and well plans and permits were updated. These delays also
extended the campaign into late November which resulted in an amount of additional down-
time due to waiting on weather. Though the drilling campaign brought mixed results, the
Company has delivered a solid result from Serenity which the Company intends to farm-
down in order to conduct future appraisal which, on success, would increase shareholder
value by a multiple of the current level.
The Directors do not consider other standard industry key performance indicators to be
relevant as yet. The Group currently has no oil and gas production and therefore has no
income. The Group will report profits once it acquires production assets or develops its
currently non-producing fields. Successful execution of the Company’s Canadian production
acquisition strategy described above is expected to deliver near-term shareholder returns by
way of a robust dividend policy, with substantial portfolio upside being deliverable within a
strengthening commodity environment.
Health and safety – number of reported incidents
There were no reportable incidents in the current or prior year.
i3 Energy PLC
25
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
Principal Risks and Uncertainties
Set out below are the principal risks and uncertainties facing the Group:
Material risks that could negatively affect the Company’s results and performance include:
Oil and gas exploration and development activities are dependent on the availability of
skilled personnel, drilling and related equipment in the particular areas where such
activities will be conducted. Demand for such personnel or equipment, or access
restrictions may affect the availability to the Company.
Oil and gas drilling is a speculative activity and involves numerous risks and substantial
and uncertain costs that could adversely affect the Company.
Reserve data and estimated discounted future net cash flows are projections based on
assumptions that may be inaccurate and are based on existing economic and operating
conditions that may change in the future.
The Company is dependent on the successful development of its oil and gas assets and
requires access to infrastructure.
The Company’s business involves significant capital expenditure and given the current
liquidity position of the Company as at the date of this report the Company will require
additional funding to meet its operational requirements. There is no guarantee that such
additional funding will be available on acceptable terms at the relevant time.
Instability in the global financial system may have impacts on the Company’s liquidity
and financial condition that currently cannot be predicted.
The Company has to achieve one of the Corporate Development Long-stop conditions.
Oil and gas prices are highly volatile, and lower oil and gas prices will negatively affect
the Company’s financial position, capital expenditures and results of operations.
The Company is subject to various environmental risks and governmental regulations
and future regulations may be more stringent.
Climate change and climate change legislation and regulatory initiatives could result in
increased operating costs and decreased demand for oil and gas.
Offshore operations are subject to various operating and other casualty risks that could
result in liability exposure.
The Company is seeking opportunities to expand its portfolio of assets but may not find
such assets or be able to deliver value from such acquisitions.
The Company may be exposed to adverse taxation and legislative changes that impact
its return from assets.
The Company may be exposed to cyber security and other risks and may not have
enough insurance to cover all of its risks.
The Company has a small senior management and director team and needs to retain
skilled personnel.
COVID-19 could adversely affect operations and ability to raise funds.
The Company is subject to various regulations and compliance requirements.
Exchange rate fluctuations could have a negative effect on the Company’s financial
position, capital expenditures and results of operations.
i3 Energy PLC
26
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
The outcome of Brexit and the resulting uncertainty about the status of the UK could
adversely affect the Company’s business.
Environmental Responsibility
The Group is aware of the potential impact that its subsidiary and investments may have on
the environment. Accordingly, the Group ensures that with regard to the environment, it and
its subsidiaries and associated companies at a minimum comply with applicable European
Union and local regulatory requirements.
Employment Policy
The Group is committed to promoting policies to ensure that high calibre employees are
attracted, motivated and retained for the ongoing success of the business. Employees and
those who seek to work within the Group are treated equally regardless of sex, marital
status, creed, colour, race or ethnic origin.
Health and Safety
The Group’s aim is to maintain a high standard of workplace safety. In order to achieve this,
the Group provides training and support to employees and sets demanding standards for
workplace safety.
Insurance
The Group maintains insurance in respect of its Directors and Officers against liabilities in
relation to the Company and the Group. The Group maintains insurance in respect of its
exploration and development and operational projects in the North Sea.
Statement of Disclosure of Information to the Auditor
As at the date of this report the serving Directors confirm that:
So far as each Director is aware, there is no relevant audit information of which the
Group’s auditor is unaware, and
The Directors have taken all the steps that they ought to have taken in order to make
themselves aware of any relevant audit information and to establish that the Group’s
auditor is aware of that information.
Auditor
PKF Littlejohn LLP has signified its willingness to act as the Company’s auditor.
i3 Energy PLC
27
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
Going Concern
The financial statements have been prepared on a going concern basis. The Group’s assets
are not generating revenues, an operating loss has been reported and an operating loss in the
UK is expected in the 12 months subsequent to the date of these financial statements and as a
result the Company will need to raise funding to provide additional working capital to finance
their ongoing activities and non-discretionary expenditures. The Board has previously
successfully raised monies and consider that they would be supported in any further raise.
The net proceeds of any placing would be used towards potential acquisitions, exploration,
development and general corporate purposes. Based on the Board’s assessment that the cash
flow budgets can be achieved, which include consideration of the impact of COVID-19 and that
the necessary funds will be raised, the Directors have a reasonable expectation that the Group
and the Company has access to adequate resources to continue in operation for the
foreseeable future. Thus, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements for the year ended 31 December 2019.
These conditions indicate the existence of material uncertainties that may cast significant doubt
regarding the applicability of the going concern assumption and the auditors have made
reference to this in their audit report.
Should the Group be unable to continue trading, adjustments would have to be made to reduce
the value of the assets to their recoverable amounts, to provide for further liabilities which might
arise and to classify fixed assets as current.
Board Committees
Information on the Audit & Risk Committee, Corporate Governance Committee, Reserves
Committee and Remuneration Committee is included in the Corporate Governance section of the
Annual Report.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements
in accordance with applicable law and regulations.
The Directors are required to prepare financial statements for each financial year. The
Directors have elected to prepare the Group Financial Statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 of the profit or loss of the Group
for that year. 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 applicable IFRSs as adopted by the European Union have been followed,
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 Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to
show and explain the Group’s transactions and disclose with reasonable accuracy at any
i3 Energy PLC
28
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Directors’ Report
time the financial position of the Group. They are also responsible for safeguarding the
assets of the Group, and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and
financial information included on the Group’s website. The Group is compliant with AIM Rule
16 regarding the Group’s website.
Independent Auditors
A resolution to reappoint PKF Littlejohn LLP as Auditors will be proposed at the forthcoming
General Meeting at a fee to be agreed in due course by the Audit & Risk Committee and the
Directors.
Annual General Meeting
The Annual General Meeting of the Company was held on 30 June 2020 as stated in the
Notice of Meeting.
A General Meeting of the Company will be held on 4 September 2020.
This report was approved by the Board and was signed on its behalf:
Linda Beal
Interim Non-Executive Chairperson
6 August 2020
i3 Energy PLC
29
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Corporate G overnanc e Report
CORPORATE GOVERNANCE REPORT
Corporate Governance Statement
The Board of i3 Energy plc (the “Company”) has adopted the QCA Corporate Governance
Code (“the Code”) as its code of corporate governance. The Code is published by the
Quoted Companies Alliance (“QCA”) and is available at www.theqca.com.
The Code sets out 10 principles that should be applied. These are listed below together with
a short explanation of how the Board applies each of the principles, including where
applicable any deviation from those principles:
Principle One
Business Model and Strategy
The Board has concluded that the highest near to medium-term value can be delivered to its
shareholders through the above described strategy of acquiring developed producing assets
in the Western Canadian Sedimentary Basin which provide upside drilling opportunities that
can be drilled and brought into production if and when commodity prices recover, while
farming down i3’s UK North Sea licences for further appraisal drilling and development. This
will enable the Company to become a dividend payer that has multiple options for future
capital allocation.
Principle Two
Understanding Shareholder Needs and Expectations
The Board is committed to maintaining good communication and having constructive
dialogue with its shareholders. The Company has ongoing relationships with its retail
shareholders. Institutional shareholders and analysts have the opportunity to discuss issues
and provide feedback at meetings or via telephone conference with the Company. In
addition, all shareholders, when applicable and safe to do so and in consideration of UK
Government guidance, are encouraged to attend the Company’s Annual General Meeting.
Investors also have access to current information on the Company through its website,
www.i3.energy and via Camarco, the Company’s communications advisor, who is available
to answer investor relations enquires.
Principle Three
Considering wider stakeholder and social responsibilities
The Board recognises that the long-term success of the Company is reliant upon the efforts
of the employees of the Company and its contractors, suppliers, regulators and other
stakeholders. The Board has put in place a range of processes and systems to ensure that
there is close oversight and contact with its key relationships. For example, the Non-
Executive Chairperson conducts visits to the Company’s Aberdeen office and encourages a
full and open dialogue process which is designed to ensure that there is an open and
confidential dialogue with each person in the Company to help ensure successful two-way
communication with agreement on goals, targets and aspirations of the employee and the
Company. These feedback processes help to ensure that the Company can respond to new
issues and opportunities that arise to further the success of employees and the Company.
i3 Energy PLC
30
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Corporate G overnanc e Report
The Company has ongoing relationships with a broad range of its stakeholders and has
regular and direct interaction with various levels of government and provides these
stakeholders with the opportunity to raise issues and provide feedback to the Company.
Principle Four
Risk Management
In addition to its other roles and responsibilities, the Audit & Risk Committee is responsible
to the Board for ensuring that procedures are in place and are being implemented effectively
to identify, evaluate and manage the significant risks faced by the Company.
A detailed list of the Company’s key risks are listed on pages 12, 13, 25 and 26 of this
Annual Report.
The Directors have established procedures, as represented by this statement, for the
purpose of providing a system of internal control. An internal audit function is not considered
necessary or practical due to the size of the Company. However, the Audit Committee and
the Board will continue to monitor the need for an internal audit function. The Board works
closely with and has regular ongoing dialogue with the Chief Financial Officer of the
Company and has established appropriate reporting and control mechanisms to ensure the
effectiveness of its control systems.
Principle Five
A Well-Functioning Board of Directors
As at the date hereof the Board comprised of two Executive Directors, Mr. Majid Shafiq and
Mr. Graham Heath, Interim Chairperson Ms. Linda Beal and two Non-Executive Directors,
Mr. Richard Ames and Mr. Neill Carson. Mr. David Knox resigned on 7 February 2020 and
Ms. Linda Beal was appointed Interim Chairperson on that same date. The Executive
Directors have direct responsibility for business operations, whilst the Chairperson leads and
chairs the Board and, along with the Non-Executive Directors, has a responsibility to bring
independent, objective judgement to bear on Board decisions. Biographical details of the
current Directors are set out on the Company’s website under the heading “About Us / Board
& Executive”. Executive and Non-Executive Directors are subject to re-election at each
Annual General Meeting.
At the time of this report, the Non-Executive Chairperson of the Board and the Non-
Executive Directors held shares and options to acquire shares in the Company. The Board
has considered, in conjunction with its advisors, whether these have any impact on their
independence and have concluded they do not. Apart from these matters and their directors’
fees the Non-Executive Directors have no other financial interests in the Company or
business relationships that would interfere with their independent judgement.
The Board meets at least six times per annum. It has established an Audit & Risk
Committee, a Corporate Governance Committee, a Reserves Committee and a
Remuneration Committee, particulars of which appear hereafter. The Board has agreed that
appointments to the Board are made by the Board as a whole, with recommendations from
the Corporate Governance Committee, and therefore has not created a Nominations
Committee. The Board considers the above appropriate given the Company’s current stage
of operations. It shall continue to monitor the need to match resources to its operational
performance and the matter will be kept under review going forward. The Non-Executive
i3 Energy PLC
31
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Corporate G overnanc e Report
Directors are considered to be independent. The Board notes that the QCA recommends a
balance between executive and Non-Executive Directors and recommends that there be two
independent Non-Executives. The Board shall review further appointments as scale and
complexity grows.
All Directors have access to the advice of the Parent Company’s solicitors. Necessary
information is supplied to the Directors on a timely basis to enable them to discharge their
duties effectively, and all Directors have access to independent professional advice, at the
Group’s expense, as and when required.
Attendance at Board and Committee Meetings
The Company shall report annually on the number of Board meetings held during the year
and the attendance record of individual Directors. In order to be efficient, the Directors meet
formally and informally both in person and by telephone.
Principle Six
Appropriate Skills and Experience of the Directors
The board currently consists of five Directors and, in addition, the Company has employed
the outsourced services of Burness Paull to act as the Company Secretary. The Company
believes that the current balance of skills in the Board as a whole, reflects a very broad
range of commercial and professional skills across geographies and industries and each of
the Directors has experience in public markets. The professional experience of each of the
Directors is set out on the Company’s website.
The Board includes one female director and various nationalities. Diversity will form a part of
any future recruitment consideration if the Board concludes that replacement or additional
directors are required.
The Board shall review annually the appropriateness and opportunity for continuing
professional development whether formal or informal.
Principle Seven
Evaluation of Board Performance
Internal evaluation of the Board, the Committee and individual Directors is undertaken on an
ad hoc basis in the form of appraisal by the Chairperson, who consults with the other
Directors as appropriate regarding effectiveness and performance as well as the Directors’
continued independence.
The results and recommendations that come out of the evaluation of the Board shall identify
the key targets and requirements that are relevant to the Board.
Principle Eight
Corporate Culture
The Board recognises that their decisions regarding strategy and risk will impact the
corporate culture of the Company as a whole and that this will impact their performance of
the Company. The Board is very aware that the tone and culture set by the Board will
greatly impact all aspects of the Company as a whole and the way that employees perform.
The corporate governance arrangements that the Board has adopted are designed to ensure
i3 Energy PLC
32
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Corporate G overnanc e Report
that the Company delivers long-term value to its shareholders and that shareholders have
the opportunity to express their views and expectations for the Company in a manner that
encourages open dialogue with the Board. A large part of the Company’s activities is
centred upon what needs to be an open and respectful dialogue with employees, suppliers
and other stakeholders. Therefore, the importance of sound ethical values and behaviours
is crucial to the ability of the Company to successfully achieve its corporate objectives. The
Board places great import on this aspect of corporate life and seeks to ensure that this flows
through all that the Company does. The Directors consider that at present the Company has
an open culture facilitating comprehensive dialogue and feedback and enabling positive and
constructive challenge. The Company has adopted a code for directors’ and employees’
dealings in securities which is appropriate for a company whose securities are traded on AIM
and in accordance with the requirements of the Market Abuse Regulation which came into
effect in 2016.
Principle Nine
Maintenance of Governance Structures and Processes
Ultimate authority for all aspects of the Company’s activities rests with the Board. The
Executive Directors have day-to-day responsibility for the operational management of the
Company’s activities. The Non-Executive Directors are responsible for bringing independent
and objective judgment to the Board decisions. There is clear separation of the roles of the
Chief Executive Officer and Non-Executive Chairperson. The Chairperson is responsible for
overseeing the running of the Board, ensuring that no individual or group dominates the
Board’s decision-making and ensuring the Non-Executive Directors are properly briefed on
matters.
The Chairperson has overall responsibility for corporate governance matters in the Company
and chairs the Corporate Governance Committee.
The Board receives monthly reports regarding the principal areas of activity of the Company
and has unrestricted access to management and employees of the Company. The Board
also has the authority to retain and terminate external legal counsel, consultants or other
advisors to assist it in fulfilling its responsibilities and to set and pay the respective
reasonable compensation of these advisors without consulting or obtaining the approval of
any officer of the Company. The Company shall provide appropriate funding, as determined
by the Board, for the services of these advisors.
Furthermore, the Executive Chairperson maintains close dialogue with other Directors, both
through the forum of Board meetings and through ad hoc communication on an individual
level.
Audit & Risk Committee
The Audit & Risk Committee will meet at a minimum of twice a year. As of the date of this
document, the members of the Audit & Risk Committee are Ms. Linda Beal (Chair) and Mr.
Richard Ames. Each of the members of the Audit & Risk Committee are independent. Each
of the members of the Audit & Risk Committee are familiar with accounting principles,
financial statements and financial reporting requirements and possess experience that is
relevant to the performance of their duties as members of the Audit & Risk Committee of the
Company.
i3 Energy PLC
33
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Corporate G overnanc e Report
The Audit & Risk Committee’s primary responsibilities, amongst other things, is the planning
and reviewing of the annual report and interim statements and accounts and where
appropriate, the external auditors, internal controls and risk management is maintained. The
Audit & Risk Committee also approves external auditors’ fees and ensures the auditors’
independence as well as focusing on compliance with legal requirements and accounting
standards. It is also responsible for ensuring that an effective system of internal controls is
maintained. The ultimate responsibility for reviewing and approving the annual financial
statements and interim statements remains with the Board.
The full terms of reference for the Audit & Risk Committee are available on the Company’s
website.
Corporate Governance Committee
The Corporate Governance Committee meets as required, but at least once a year. Its
members are Ms Linda Beal (Chair) and Mr Neill Carson.
The Corporate Governance Committee’s primary purpose is to develop and recommend to
the Board guidelines, policies and procedure relating to corporate governance identify
individuals qualified to become Board members, recommend to the Board director nominees
the Board committee composition and
to
for election
appointments, evaluate the performance and effectiveness of the Board and committees of
the Board and review and make recommendations to the Board on non-employee director
compensation.
the Board, recommend
to
Reserves Committee
The Reserves Committee meets as required, but at least twice a year. Its members are Mr
Neill Carson (Chair) and Mr Richard Ames. The Chief Executive Officer, the Chief Financial
Officer and other Directors may also attend and speak at meetings of the reserves
committee.
The Reserves Committee assists the Board in monitoring and reviewing the appointment of
an independent engineering firm retained by the Company to report on the quantity and the
value of the Company’s oil and gas reserves. The Reserves Committee reviews the
procedures by which the Company provides information to the independent engineering firm
to be used as the basis of evaluation and audit, ensuring disclosure complies with applicable
laws and regulations, and is also responsible for matters relating to the preparation and
public disclosure of estimates of the Company’s reserves.
The Remuneration Committee
The Remuneration Committee meets at least twice a year. Its members are Mr. Richard
Ames (Chair) and Ms. Linda Beal. The Chief Executive Officer, the Chief Financial Officer
and other Directors may also attend and speak at meetings of the remuneration committee.
The Company’s policy is to remunerate senior executives fairly in such a manner as to
facilitate the recruitment, retention and motivation of staff. The Remuneration Committee
agrees with the Board, a framework for the remuneration of the Chairperson, the Executive
Directors and the senior management of the Company.
The principal objective of the committee is to ensure that members of the executive
management of the Company are provided incentives to encourage enhanced performance
i3 Energy PLC
34
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Corporate G overnanc e Report
and are, in a fair and responsible manner, rewarded for their individual contributions to the
success of the Company. Non-Executive fees are considered and agreed by the Board as a
whole.
The terms of reference of the Remuneration Committee are available on the Company’s
website.
Principle Ten
Shareholder Communication
The Board is committed to maintaining good communication and having constructive
dialogue with its shareholders. The Company has ongoing relationships with its retail
shareholders. Institutional shareholders and analysts have the opportunity to discuss issues
and provide feedback at meetings with the Company. In addition, all shareholders, when
applicable and safe to do so and in consideration of UK Government guidance, are
encouraged to attend the Company’s Annual General Meeting.
Investors also have access to current information on the Company through its website,
www.i3.energy and via Camarco, the Company’s communication advisor, who is available to
answer investor relations enquiries.
The Company shall include, when relevant, in its annual report, any matters of note arising
from the audit or remuneration committees.
Internal controls
The Directors acknowledge their responsibility for the Group’s systems of internal controls
and for reviewing their effectiveness. These internal controls are designed to safeguard the
assets of the Group and to ensure the reliability of financial information for both internal use
and external publication. Whilst the Directors are aware that no system can provide absolute
assurance against material misstatement or loss, regular reviews of internal controls are
undertaken to ensure that they are adequate and effective.
Risk management
The Board considers risk assessment important in achieving its strategic objectives. There is
a process of evaluation of performance targets through regular reviews by the Board who
compare actual progress to forecasts. Project milestones and timelines are regularly
reviewed.
Risks and uncertainties
Risk assessment and evaluation is an essential part of the Group’s planning and an
important aspect of the Group’s internal control system. The principal risks facing the Group
are set out in the Strategic Report.
Risk management and treasury policy
The Board considers risk assessment to be important in achieving its strategic objectives,
with the Board regularly reviewing its projects and activities in this regard.
The Group finances its operations through equity and holds its cash as a liquid resource to
fund the obligations of the Group. Decisions regarding the management of these assets are
i3 Energy PLC
35
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Corporate G overnanc e Report
approved by the Board. Please refer to note 21 for further detail on how the Board manages
risk.
Securities trading
The Board has adopted a Share Dealing Code that applies to Directors, senior management
and any employee who is in possession of “inside information”. All such persons are
prohibited from trading in the Company’s securities if they are in possession of “inside
information”. Subject to this condition and trading prohibitions applying to certain periods,
trading can occur provided the relevant individual has received the appropriate prescribed
clearance from the Company’s Nomad.
Relations with shareholders
The Board is committed to providing effective communication with the shareholders of the
Company. Clear communication with shareholders and all stakeholders is an important
aspect of the role of the Group’s Board and senior management. In addition to the regulatory
forms of communication, including annual and interim reports and Regulatory News Service
releases, enquiries from shareholders are encouraged and are to receive a timely response
from either the Company or its representatives.
Details of the Group’s activities can be found at the Company’s website (www.i3.energy).
All shareholders are offered the choice of receiving shareholder documentation electronically
or in paper format, as well as the choice of submitting proxy votes either electronically or by
post.
“Linda Beal”
Linda Beal
6 August 2019
i3 Energy PLC
36
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Independent Auditors Report
INDEPENDENT AUDITORS REPORT
Independent Auditors Report to Members of I3 Energy Plc
Opinion
We have audited the financial statements of i3 Energy Plc (the ‘Parent Company’) and its
subsidiary (the ‘Group’) for the year ended 31 December 2019 which comprise the
Statement of Consolidated Comprehensive Income, the Statement of Consolidated and
Parent Company Financial Position, the Statement of Consolidated and Parent Company
Changes in Equity, the Statement of Consolidated and Parent Company Cash Flows and the
notes to the financial statements, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their preparation is applicable law and
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.
In our opinion:
the financial statements give a true and fair view of the state of the Group’s and of the
Parent Company’s affairs as at 31 December 2019 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.
i3 Energy PLC
37
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Independent Auditors Report
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described in
the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and Parent Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including
the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty relating to going concern
We draw your attention to note 2 in the financial statements which identifies conditions that
may cast significant doubt on the Group’s ability to continue as a going concern. The Group
incurred a net loss of £10,851,177 and incurred operating cash outflows of £7,604,706, and
it is not expected to generate any revenue of positive cashflows from the operations of
assets currently held in the twelve months from the date of these financial statements were
signed.
The financial statements have been prepared on the going concern basis. The ability of the
Group to meet its operational objectives is dependent on its ability to raise additional funds.
As stated in note 2, these events of conditions along with other matters elsewhere indicate
that a material uncertainty exists that may cast significant doubt on the ability of the Group
and Company to continue as a going concern.
Our opinion is not modified in this respect.
Our application of materiality
Materiality for the group has been applied separately for the statement of financial position
and the statement of comprehensive income. Materiality applied to the statement of financial
position items is £1,309,800, being 2% of gross assets. Materiality applied to the statement
of comprehensive income items has been set at £147,900, being 2% of expenditure for the
year.
Our basis for calculation of materiality has changed from the prior year, at 3% of gross
assets, is a result of the significant increase in gross assets in the year. This also would not
be proportional to the statement of comprehensive items in the year and hence a separate
materiality calculated to ensure sufficient appropriate audit evidence is obtained. We
consider the gross assets balance to be the most significant determinant of the Group’s
financial position and performance used by shareholders.
The same basis for calculation was used for all components of the group. We apply the
concept of materiality both in planning and performing our audit, and in evaluating the effect
of misstatements. At the planning stage materiality is used to determine the financial
statement areas that are included within the scope of our audit and the extent of sample
sizes during the audit.
i3 Energy PLC
38
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Independent Auditors Report
We agreed with the audit committee that we would report to the committee all individual
audit differences identified during our audit in excess of £63,490 for statement of financial
position items and £7,395 for the statement of comprehensive income items.
There were no misstatements identified during our audit that were individually, or in
aggregate, considered to be material, with the exception of an adjustment to re-state the
share-based payment expense.
An overview of the scope of our audit
As part of designing our audit, we determined materiality and assessed the risk of
material misstatement in the financial statements. In particular, we looked at areas involving
significant accounting estimates and judgements by the Director’s and considered future
events that are inherently uncertain. As in all our audits, we also addressed the risk of
management override of internal controls, including among other matters consideration of
whether there was evidence of bias that represented a risk of material misstatement due to
fraud. The Liberator asset, held through the Group’s only subsidiary undertaking, represents
the principal business unit in the Group upon which we performed audit procedures. A full
scope audit was undertaken on the financial statements of both the Parent Company and
Subsidiary.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether or not due to fraud) we
identified, including those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
Carrying value of exploration and evaluation assets
The carrying value of intangible assets as at 31 December 2019 was £46.1m which
comprises of exploration and evaluation expenditure on the Liberator asset. There is the risk
that the carrying value of this project is impaired and that exploration and development costs
capitalised during the year have not been capitalised in accordance with IFRS 6.
How the scope of our audit responded to the key audit matter
Our work included:
Reviewing and considering the impairment indicators in IFRS 6 in relation to the
asset held;
Obtaining and reviewing the Competent Person’s Report (“CPR”), for any indicators
of impairment;
Obtaining support for ownership;
Reviewing with management the basis for impairment or non-impairment and
challenging any assumptions made; and
Performing substantive testing on capitalised expenditure during the year to ensure it
met the capitalisation criteria of IFRS 6
i3 Energy PLC
39
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Independent Auditors Report
Other information
The other information comprises the information included in the annual report, other than the
financial statements and our auditor’s report thereon. The directors are responsible for the
other information. Our opinion on the Group and Parent Company financial statements does
not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. In connection with our
audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year
for which the financial statements are prepared is consistent with the financial
statements; and
the strategic report and the directors’ report have been prepared in accordance with
applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and
their environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting
records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities , the directors are
responsible for the preparation of the Group and Parent Company financial statements and
for being satisfied that they give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
i3 Energy PLC
40
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Independent Auditors Report
In preparing the Group and Parent Company financial statements, the directors are
responsible for assessing the Group’s and the Parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or
the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located
on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
This report is made solely to the 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.
Joseph Archer (Senior Statutory Auditor)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
6 August 2020
15 Westferry Circus
Canary Wharf
London E14 4HD
i3 Energy PLC
41
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Consolidated Statement of Comprehensive Income
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
Notes
Year Ended 31
December 2019
Year Ended 31
December 2018
£
£
Administrative expenses
5
(7,228,669)
(2,369,529)
Operating loss
Finance expense:
Finance costs
Other – CLN interest expense (reclaimed)
Interest payable and similar costs
Total finance expense
Loss on ordinary activities before taxation attributable to
owners of the parent
Tax charge for the year
(7,228,669)
(2,369,529)
7
7
7
8
(2,251,162)
(25,370)
-
553,658
(1,371,346)
(118,561)
(3,622,508)
409,727
(10,851,177)
(1,959,802)
–
–
Net loss for the year and total comprehensive loss for the
year attributable to owners of the parent
(10,851,177)
(1,959,802)
Earnings per ordinary share
Basic and diluted
All operations are continuing.
11
(0.13)
(0.05)
The accompanying notes on pages 49 – 74 form part of these financial statements.
i3 Energy PLC
42
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Consolidated Statement of Financial Positio n
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Assets
Notes
31 December 2019
31 December 2018
£
£
Non-current assets
Property, plant & equipment
Exploration and evaluation assets
12
Total non-current
Current assets
Cash at bank and in hand
Trade and other receivables
Total current assets
Current liabilities
Trade and other payables
Convertible loan notes payable
Total current liabilities
Net current assets
Non-current liabilities
Non-current accounts payable
Loan notes payable
Total non-current liabilities
Total net assets
Net assets
Capital and reserves
Called up share capital – ordinary shares
Called up share capital – deferred shares
Share premium
Share-based payment reserve
Warrants – LNs
Retained earnings
Shareholders’ funds
14
15
16
15
17
18
18
18
19
17
7,602
46,527,633
46,535,235
19,069,541
305,438
19,374,979
(18,204,752)
-
(18,204,752)
1,170,227
(3,000,000)
(13,046,184)
(16,046,184)
31,659,278
31,659,278
10,772
50,000
32,571,978
3,802,849
11,375,184
(16,151,505)
31,659,278
12,937
5,706,646
5,719,583
598,039
159,068
757,107
(1,229,903)
(591,562)
(1,821,465)
(1,064,358)
-
-
-
4,655,225
4,655,225
4,102
50,000
9,215,598
685,853
-
(5,300,328)
4,655,225
The consolidated financial statements of i3 Energy plc, company number 10699593, were
approved by the Board of Directors and authorized for issue on 6 August 2020.
Signed on behalf of the Board of Directors by:
Majid Shafiq
Director
The accompanying notes on pages 49 – 74 form part of these financial statements.
i3 Energy PLC
43
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Compa ny Statement of F inancial Position
COMPANY STATEMENT OF FINANCIAL POSITION
Notes
31 December 2019
£
31 December 2018
£
Assets
Non-current assets
Investment in subsidiary
Loans to subsidiary company
Total non-current
Current assets
Cash at bank and in hand
Other receivables
Total current assets
Current liabilities
Trade and other payables
Convertible loan notes payable
Total current liabilities
Net current assets / (liabilities)
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital – ordinary shares
Called up share capital – deferred shares
Share premium
Share-based payment reserve
Warrants – LNs
Retained earnings
Shareholders’ funds
Company number 10699593
13
20
14
15
16
18
18
18
19
17
145,700
31,532,751
31,678,451
10,332,262
15,514
10,347,776
(187,581)
-
(187,581)
10,160,195
41,838,646
41,838,646
10,772
50,000
32,571,978
3,799,392
11,375,184
(5,968,680)
41,838,646
145,700
8,035,890
8,181,590
500,838
6,062
506,900
(265,684)
(591,562)
(857,246)
(350,346)
7,831,244
7,831,244
4,102
50,000
9,215,598
682,397
-
(2,120,853)
7,831,244
The Company has elected to take the exemption under Section 408 of the Companies Act
2006 from presenting the Parent Company Statement of Comprehensive Income. The loss
for the Parent Company for the year was £3,847,827 (2018 - £920,728).
Signed on behalf of the Board of Directors by:
Majid Shafiq
Director
6 August 2020
The accompanying notes on pages 49 – 74 form part of these financial statements.
i3 Energy PLC
44
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Consolidated Statement of Changes in Equity
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Notes Called up
share
capital
Share
premium
Deferred
shares
Share-
based
payment
reserve
£
£
£
£
Balance at 31 December 2017
2,569 3,517,417
50,000
145,230
Loss for the year and total
comprehensive income
Transactions with owners:
Issue of share capital
Share-based payment expense
–
–
18
19
1,533 5,698,181
–
–
–
–
–
–
–
540,623
Balance at 31 December 2018
4,102
9,215,598
50,000
685,853
Balance at 31 December 2018
4,102 9,215,598
50,000
685,853
Warrrants -
LNs
Retained
earnings
Total
£
-
-
-
-
-
-
£
£
(3,340,526)
374,690
(1,959,802)
(1,959,802)
–
–
5,699,714
540,623
(5,300,328)
4,655,225
(5,300,328)
4,655,225
-
(10,851,177) (10,851,177)
Loss for the year and total
comprehensive income
Transactions with owners:
–
–
Issue of share capital
18
6,670 23,356,380
Warrants – LNs
Share-based payment expense
19
-
–
-
–
–
–
-
–
–
-
-
11,375,184
– 3,116,996
-
–
-
–
23,363,050
11,375,184
3,116,996
Balance at 31 December 2019
10,772 32,571,978
50,000 3,802,849
11,375,184
(16,151,505)
31,659,278
The following describes the nature and purpose of each reserve within equity:
Reserve
Description and purpose
Ordinary shares
Represents the nominal value of shares issued
Share premium account
Amount subscribed for share capital in excess of nominal value
Deferred shares
Share-based payment
reserve
Warrants – LNs
Represents the nominal value of shares issued, the shares have full capital
distribution (including on wind up) rights and do not confer any voting or dividend
rights, or any of redemption
Represents the accumulated balance of share-based payment charges
recognised in respect of share options granted by the Company less transfers
to retained deficit in respect of options exercised or cancelled/lapsed
Represents the accumulated balance of share-based payment charges
recognised in respect of warrants granted by the Company in respect to
warrants granted to the loan note holders
Retained earnings
Cumulative net gains and losses recognised in the Consolidated Statement of
Comprehensive Income
Note: The issued share capital comprises of both ordinary and deferred shares and the consolidated nominal
value exceeds the required minimum issued capital of £50,000.
The accompanying notes on pages 49 – 74 form part of these financial statements.
i3 Energy PLC
45
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Compa ny Statement of Changes in Equity
COMPANY STATEMENT OF CHANGES IN EQUITY
Notes Called up
share
capital
Share
premium
Deferred
shares
Share-
based
payment
reserve
£
£
£
£
Balance at 31 December 2017
2,569 3,517,417
50,000
141,774
Loss for the year and total
comprehensive income
Issue of share capital
Share-based payment expense
18
19
–
–
–
1,533 5,698,181
–
-
–
–
–
540,623
Balance at 31 December 2018
4,102
9,215,598
50,000
682,397
Balance at 31 December 2018
4,102 9,215,598
50,000
682,397
Warrrants -
LNs
Retained
earnings
Total
£
-
-
-
-
-
-
-
-
11,375,184
£
£
(1,200,125)
2,511,635
(920,728)
(920,728)
–
–
5,699,714
540,623
(2,120,853)
7,831,244
(2,120,853)
7,831,244
(3,847,827)
(3,847,827)
–
-
–
23,363,050
11,375,184
3,116,995
Loss for the year and total
comprehensive income
–
–
Issue of share capital
18
6,670 23,356,380
Warrants – LNs
Share-based payment expense
19
-
–
-
–
–
–
-
–
–
-
– 3,116,995
-
Balance at 31 December 2019
10,772 32,571,978
50,000 3,799,392
11,375,184
(5,968,680)
41,838,646
The accompanying notes on pages 49 – 74 form part of these financial statements.
i3 Energy PLC
46
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Consolidated Statement of Cash Flow
CONSOLIDATED STATEMENT OF CASH FLOW
OPERATING ACTIVITIES
Loss for the year
Adjustments for:
Unrealized FX (Gain)
Share-based payment expense
19
Depletion, depreciation and amortization
Loan note – accretion
Interest expense – settled with warrants
Operating cash flows before movements in working
capital:
(Increase) in receivables / prepaid expenses
Increase / (Decrease) in current liabilities
Notes
Year ended 31
December 2019
£
Year ended 31
December 2018
£
(10,851,177)
(1,959,802)
(27,880)
3,116,995
8,742
1,226,637
1,194,731
(146,371)
294,985
(10,161)
540,623
7,528
-
-
(7,427)
(91,187)
Net cash used in operating activities
(5,183,338)
(1,520,426)
INVESTING ACTIVITIES
Property, plant & equipment
(3,407)
(1,278)
Expenditure on exploration and evaluation assets
(21,031,852)
(2,220,304)
Net cash used in investing activities
(21,035,259)
(2,221,582)
FINANCING ACTIVITIES
Proceeds on issue of ordinary shares, net of issue
costs
Proceeds on issuance of LNs
Repayment CLNs
Outflow from employee loans
18
17
16
23,363,050
3,866,133
22,000,000
-
(433,153)
(112,782)
-
(44,555)
Net cash from financing activities
44,929,897
3,708,796
Effect of exchange rate changes on cash
(239,798)
2,862
Net (Decrease) / Increase in cash and cash
equivalents
Cash and cash equivalents, beginning of year
CASH AND CASH EQUIVALENTS, END OF YEAR
Net debt reconciliation is shown on page 63
18,471,502
(30,350)
598,039
19,069,541
628,389
598,039
The accompanying notes on pages 49 – 74 are an integral part of these financial
statements.
i3 Energy PLC
47
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Compa ny Statement of Cash Flow
COMPANY STATEMENT OF CASH FLOW
Notes
Year ended 31
December 2019
£
Year ended 31
December 2018
£
OPERATING ACTIVITIES
Loss for the year
Adjustments for:
Unrealized FX (Gain)
Share-based payment expense
19
Operating cash flows before movements in working
capital:
(Increase) in prepaid expenses
(Decrease) / Increase in current liabilities
Net cash from / (used in) operating activities
INVESTING ACTIVITIES
Investment in subsidiary
Loans to subsidiary company
Net cash used in investing activities
FINANCING ACTIVITIES
Proceeds on issue of ordinary shares, net of issue
costs
Repayment loan notes
Warrants - LNs
Net cash from financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
CASH AND CASH EQUIVALENTS, END OF YEAR
20
18
16
17
(3,847,827)
(920,728)
(5,833)
3,116,995
-
540,623
(9,452)
(233,531)
(979,648)
-
(23,496,861)
(23,496,861)
(6,062)
60,802
(325,365)
-
(2,919,850)
(2,919,850)
23,363,050
3,866,133
(433,153)
11,375,184
34,305,081
2,852
9,831,424
500,838
10,332,262
(112,782)
3,753,351
(7,298)
500,838
-
500,838
The accompanying notes on pages 49 – 74 form part of these financial statements.
i3 Energy PLC
48
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
1
Summary of significant accounting policies
General Information and Authorisation of Financial Statements
i3 Energy plc (“the Company”) is a Public Company, limited by shares, registered in England
and Wales under the Companies Act 2006 with registered number 10699593. The Company’s
ordinary shares are traded on the AIM Market operated by the London Stock Exchange. The
address of the Company’s registered office is New Kings Court, Tollgate, Chandler’s Ford,
Eastleigh, Hampshire, SO53 3LG.
The Company and its subsidiaries (together, “the Group”) principal activities consist of the
development and production of oil and gas in the UK North Sea. The Company’s wholly-
owned subsidiary, i3 Energy North Sea Limited, is an independent oil and gas company with
assets in the UK. The Company’s principal activity is that of a listed holding company.
Changes in accounting standards
The standards which applied for the first time this year have been adopted and have not had
a material impact.
IFRS 16 ‘Leases’
IFRS 16 Leases became applicable to the current reporting period, replacing IAS 17 Leases.
The key change under IFRS 16 is that most leases designated as "operating leases" under
IAS 17 now qualify for balance sheet recognition, subject to certain exceptions. The Group
reviewed all its leasing arrangements and identified one contract previously classified as
operating leases which would require recognition as lease liabilities in the 1 January 2019
balance sheet.
The Group has concluded that the effect of the impact on implementation of IFRS 16 is not
material to the financial statements and therefore no adjustment has been processed.
IAS 19 ‘Employee Benefits’
The standard is effective on or after 1 January 2019. Under the provisions of the
amendment, when a change to the defined benefit plan – an amendment, curtailment or
settlement occurs, IAS 19 now requires that the current service cost and the net interest for
the period after remeasurement are determined using the updated assumptions used for the
remeasurement. The change in the effect of the asset ceiling that may result from the plan
amendment, curtailment or settlement is recognized in other comprehensive income. The
company continues to monitor the potential impact to group’s financial statements but does
not expect material impact in the current year.
IFRS 3 ‘Business Combination’ and IFRS 11 ‘Joint Operations’
The standard is effective on or after 1 January 2020. Both the amendments to IFRS 3 and
IFRS 11 are related to changes in group composition. If a joint operation becomes a
subsidiary during the year, the previously held interest in the joint operation should be
remeasured at fair value. However, no such remeasurement is required in the joint operation
if the entity obtains joint control of another entity that is a joint operation. The company
i3 Energy PLC
49
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
1 Summary of significant accounting policies - continued
continues to monitor the potential impact to group’s financial statements but does not expect
material impact in the current year.
IAS 12 ‘Income Taxes’
The standard is effective on or after 1 January 2019 with earlier application permitted and
disclosed. The Company must recognize all income tax consequences of dividends in profit
or loss, other comprehensive income or equity, depending on where the entity recognised
the originating transaction or event that generated the distributable profits giving rise to the
dividend. The Company does not expect material impact to the group’s financial statements
as a result of this amendment.
IAS 23 ‘Borrowing Costs’
The standard is effective on or after 1 January 2019 with earlier application permitted and
disclosed. Under the amendment, when a qualifying asset is ready for its intended use or
sale, and some of the specific borrowing related to the qualifying asset is outstanding, that
borrowing should be included to calculate capitalization rate on general borrowings. The
Company has determined that this amendment is not applicable for the financial year 2019.
IASB New and Revised Standards
The International Accounting Standards Board (IASB) has issued the following new and
revised standards, amendments and interpretations to existing standards that are not
effective for the financial year ending 31 December 2019 and have not been adopted early.
The Group is currently assessing the impact of these standards and based on the Group’s
current operations do not expect them to have a material impact on the financial statements.
New Standards
Amendment in IFRS 3 Business Combinations
Amendments to IAS 1 and IAS 8
IFRS 3 ‘Business Combination’
Effective
Date
01-Jan-20
01-Jan-20
The standard is effective for periods beginning on or after 1 January 2020 and will be applied
prospectively. The amendments narrowed and clarified the definition of business include an
election to use a concentration test. This is a simplified assessment that results in an asset
acquisition, if substantially all of the fair value of the gross assets is concentrated in a single
identifiable asset or a group of similar identifiable assets. If an election to use a
concentration test is not made, or the test failed, then the assessment focuses on the
existence of a substantive process.
2
Basis of preparation
The financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) as adopted by the
European Union.
i3 Energy PLC
50
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
2 Basis of preparation - continued
The financial information is presented in Pounds Sterling (£) to the nearest £ unless
otherwise stated.
The principal accounting policies applied in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied unless
otherwise stated. The Company has elected not to present individual financial statements as
it is not required to do so.
Basis of Consolidation
The consolidated financial statements consolidate the audited financial statements of i3
Energy plc and the financial statements of its subsidiary undertakings made up to 31
December 2019.
Subsidiaries are entities over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
They are de-consolidated from the date that control ceases.
When necessary, adjustments are made to the financial statements of subsidiaries to bring
their accounting policies into line with the Group’s accounting policies. All intra-group assets
and liabilities, equity, income, expenses and cash flows relating to transactions between
members of the Group are eliminated in full on consolidation.
Going concern
The financial statements have been prepared on a going concern basis. The Group’s assets
are not generating revenues, an operating loss has been reported and an operating loss in the
UK is expected in the 12 months subsequent to the date of these financial statements and as a
result the Company will need to raise funding to provide additional working capital to finance
their ongoing activities and non-discretionary expenditures. The Board has previously
successfully raised monies and consider that they would be supported in any further raise.
The net proceeds of any placing would be used towards potential acquisitions, exploration,
development and general corporate purposes. Based on the Board’s assessment that the cash
flow budgets can be achieved, which include consideration of the impact of COVID-19 and that
the necessary funds will be raised, the Directors have a reasonable expectation that the Group
and the Company has access to adequate resources to continue in operation for the
foreseeable future. Thus, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements for the year ended 31 December 2019.
These conditions indicate the existence of material uncertainties that may cast significant doubt
regarding the applicability of the going concern assumption and the auditors have made
reference to this in their audit report.
Should the Group be unable to continue trading, adjustments would have to be made to reduce
the value of the assets to their recoverable amounts, to provide for further liabilities which might
arise and to classify fixed assets as current.
i3 Energy PLC
51
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
3
Significant accounting policies
The accounting policies adopted are consistent with those applied in the previous financial
year, unless otherwise indicated.
Financial instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and cash held on current account or on
short-term deposits at variable interest rates with original maturity periods of up to three
months. Any interest earned is accrued monthly and classified as interest income within
finance income.
Trade and other receivables
Trade and other receivables are initially recognised at fair value when related amounts are
invoiced then carried at this amount less any impairment of these receivables.
Trade and other payables
These financial liabilities are all non-interest bearing and are initially recognised at the fair
value of the consideration payable.
Loan Notes
These financial liabilities are all non-interest bearing and are initially recognised at amortised
costs and include the transaction costs directly related to the issuance. The transaction costs
are amortised using the effective interest rate method over the life of the Loan Notes.
Impairment of financial assets
In relation to financial assets, a provision for impairment is made when there is objective
evidence (such as the probability of insolvency or significant financial difficulties of the
debtor) that the Company will not be able to collect all of the amounts due under the original
terms of the invoice. The carrying amount of receivables is reduced through use of an
allowance account. Impaired debts are derecognised when they are assessed as
uncollectible.
Financial liabilities at Fair Value Through Profit or Loss (“FVTPL”)
Financial liabilities at FVTPL comprise of the Company’s convertible loan notes payable.
Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent
consideration that may be paid by an acquirer as part of a business combination to which
IFRS 3 applies, (ii) held for trading, or (iii) it is designated as at FVTPL.
A financial liability is classified as held for trading if:
it has been incurred principally for the purpose of repurchasing it in the near term; or
on initial recognition it is part of a portfolio of identified financial instruments that the
Company manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.
i3 Energy PLC
52
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
3 Significant accounting policies - continued
A financial liability other than a financial liability held for trading or contingent
consideration that may be paid by an acquirer as part of a business combination may be
designated as at FVTPL upon initial recognition if:
such designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise; or
the financial liability forms part of a group of financial assets or financial liabilities or
both, which is managed and its performance is evaluated on a fair value basis, in
accordance with the Company’s documented risk management or investment strategy,
and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and IFRS
Financial Instruments: Recognition and Measurement permits the entire combined
contract (asset or liability) to be designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-
measurement recognised in profit or loss. The net gain or loss recognised in profit or loss
incorporates any interest paid on the financial liability and is included in the ‘other gains and
losses’ line item in the income statement.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as
separate derivatives when their risks and characteristics are not closely related to those of
the host contracts and the host contracts are not measured at FVTPL.
Equity
Equity instruments issued by the Company are usually recorded at the proceeds received,
net of direct issue costs, and allocated between called up share capital and share premium
accounts as appropriate.
Foreign currency
The Company does not have any foreign operations. Transactions denominated in
currencies other than functional currency are translated at the exchange rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
re-translated at the rate of exchange ruling at the balance sheet date. All differences that
arise are recorded in the income statement.
For the purpose of the financial statements, the results and financial position are expressed
in GBP, being the functional and presentational currency of all entities within the Group.
Taxation
Tax is recognised in the consolidated Statement of Comprehensive Income, except to the
extent that it relates to items recognised in other comprehensive income or directly in equity.
In this case, the tax is also recognised in other comprehensive income or directly in equity
respectively.
Deferred tax is accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax bases used in the
i3 Energy PLC
53
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
3 Significant accounting policies - continued
computation of taxable profit. However, deferred tax liabilities are not recognised if they arise
from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business combination that at
the time of the transaction affects neither accounting nor taxable profit or loss.
In principle, deferred tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that taxable profit will be
available against which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on
investments in subsidiaries and associates, and interests in joint ventures, except where the
Company is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred tax assets and liabilities
relate to taxes levied by the same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle the balances on a net basis.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the
asset is realised or the liability is settled. Deferred tax assets and liabilities are not
discounted.
Intangible assets
Exploration and evaluation expenditures (E&E):
a Development expenditure
Expenditure on the construction, installation and completion of infrastructure facilities such
as platforms, pipelines and the drilling of development wells, including service, is capitalized
initially within intangible fixed assets and when the well has formally commenced commercial
production, then it is transferred to property, plant and equipment and is depreciated from
the commencement of production as described in the accounting policy for property, plant
and equipment
b Drilling costs and intangible licenses
The Group applies the successful efforts method of accounting for oil and gas assets, having
regard to the requirements of IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’.
Costs incurred prior to obtaining the legal rights to explore an area are expensed
immediately to the Statement of Comprehensive Income.
Expenditure incurred on the acquisition of a licence interest is initially capitalised within
intangible assets on a licence by licence basis. Costs are held, unamortised, within
Petroleum mineral leases until such time as the exploration phase of the licence area is
complete or commercial reserves have been discovered. The cost of the licence is
subsequently transferred into “Producing Properties” within property, plant and equipment
and depreciated over its estimated useful economic life.
i3 Energy PLC
54
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
3 Significant accounting policies - continued
Exploration expenditure incurred in the process of determining exploration targets is
capitalised initially within intangible assets as drilling costs. Drilling costs are initially
capitalised on a well by well basis until the success or otherwise has been established.
Drilling costs are written off on completion of a well unless the results indicate that
hydrocarbon reserves exist and there is a reasonable prospect that these reserves are
commercially viable. Drilling costs are subsequently transferred into ‘Drilling expenditure’
within property, plant and equipment and depreciated over their estimated useful economic
life. All such costs are subject to regular technical, commercial and management review on
at least an annual basis to confirm the continued intent to develop or otherwise extract value
from the discovery. Where this is no longer the case, the costs are immediately expensed to
the Statement of Comprehensive Income.
Impairment of Non-Financial Assets
The Group assesses at each reporting date whether there is an indication that an asset may
be impaired. This includes consideration of the IFRS 6 impairment indicators for any intangible
exploration and evaluation assets capitalised as intangible costs. If any such indication exists,
or when annual impairment testing for an asset is required, the Group makes an estimate of
the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value
less costs to sell and its value in use. This is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent of those from other assets
or groups of assets, and the asset’s value in use cannot be estimated to be close to its fair
value. In such cases, the asset is tested for impairment as part of the cash-generating unit to
which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its
recoverable amount, it is considered impaired and is written down to its recoverable amount.
In assessing value in use, estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. Impairment losses relating to continuing operations
are recognised in those expense categories consistent with the function of the impaired asset,
unless the asset is carried at revalued amount (in which case the impairment loss is treated as
a revaluation decrease). An assessment is also made at each reporting date as to whether
there is any indication that previously recognised impairment losses may no longer exist or
may have decreased. If such indication exists, the recoverable amount is estimated. A
previously recognised impairment loss is reversed only if there has been a change in the
estimates used to determine the asset’s recoverable amount since the last impairment loss
was recognised. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the carrying amount that would
have been determined, net of depreciation, had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in the Statement of Comprehensive Income
unless the asset is carried at revalued amount, in which case the reversal is treated as a
revaluation increase. After such a reversal, the depreciation charge is adjusted in future
periods to allocate the asset’s revised carrying amount, less any residual value, on a
systematic basis over its remaining useful life.
Finance income
Finance income consists of bank interest on cash and cash equivalents which is recognised
as accruing on a straight-line basis, over the period of the deposit.
i3 Energy PLC
55
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
3 Significant accounting policies - continued
Investments
Investments in subsidiary undertakings are stated at cost less any provision for impairment
in value, prior to their elimination on consolidation.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any
accumulated impairment losses. Depreciation is provided on all property, plant and
equipment to write off the cost less estimated residual value of each asset over its expected
useful economic life on a straight-line basis at the following annual rates:
Office equipment 20% or straight line over the life of the equipment – whichever is the
lesser;
Field equipment – between 5% and 25%.
All assets are subject to annual impairment reviews.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with
the item will flow to the Group and the cost of the item can be measured reliably. The
carrying amount of the replacement part is derecognised. All other repairs and maintenance
are charged to the Statement of Comprehensive Income during the financial period in which
they are incurred. The asset’s residual value and useful economic lives are reviewed, and
adjusted if appropriate, at the end of each reporting period. An asset’s carrying value is
written down to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount. Gains and losses on disposal are determined by comparing
the proceeds with the carrying amount and are recognised within the Statement of
Comprehensive Income.
Share-based payments
Equity-settled share-based payments to employees and others providing similar services are
measured at the fair value of the equity instruments at the grant date. The fair value
excludes the effect of non-market-based vesting conditions.
The fair value determined at the grant date of the equity-settled share-based payments is
expensed on a straight-line basis over the vesting period, based on the Company’s estimate
of equity instruments that will eventually vest. At each balance sheet date, the Company
revises its estimate of the number of equity instruments expected to vest as a result of the
effect of non-market-based vesting conditions. The impact of the revision of the original
estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the
revised estimate, with a corresponding adjustment to equity reserves.
Earnings per share
Basic Earnings per share is calculated as profit attributable to equity holders of the parent for
the period, adjusted to exclude any costs of servicing equity (other than dividends), divided
by the weighted average number of ordinary shares, adjusted for any bonus element.
i3 Energy PLC
56
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
3 Significant accounting policies - continued
Significant accounting judgements, estimates and assumptions
Critical Accounting Estimates and Judgements
The preparation of financial statements using accounting policies consistent with IFRS
requires the Directors to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities and the reported
amounts of income and expenses. The preparation of financial statements also requires the
Directors to exercise judgement in the process of applying the accounting policies. Changes
in estimates, assumptions and judgements can have a significant impact on the financial
statements.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised prospectively from the period in which the estimates
are revised.
There are no critical judgements identified, apart from those involving estimations (which are
dealt with separately below) that the Directors have made in the process of applying the
Company’s accounting policies and that have the most significant effect on the amounts
recognised in the financial statements.
Carrying value of exploration and evaluation assets
At 31 December 2019, the Group held oil and gas exploration and evaluation assets of
£46.53m (2018: £5.71m), note 12. Management assesses whether there are indicators of
impairment in accordance with the accounting policies. In making the assessment
Management considers the results of drilling activities, management’s intentions to develop
the asset, the remaining period of exploration available and changes in the general
economic environment which would indicate that the carrying amount is unlikely to be
recovered.
These estimates and assumptions are subject to risk and uncertainty and therefore a
possibility that changes in circumstances will impact the assessment of impairment
indicators.
Fair value measurements and valuation processes
Some of the Company’s assets and liabilities are measured at fair value for financial
reporting purposes, see note 21. The Board of Directors of the Company determine the
appropriate valuation techniques and inputs for fair value measurements.
In estimating the fair value of an asset or liability, the Company uses market-observable data
to the extent it is available. Where Level 1 inputs are not available, the Company works
closely with the qualified external valuers to establish the appropriate valuation techniques
and inputs to the model.
Information about the valuation techniques and inputs used in determining the fair value of
various assets and liabilities are disclosed in notes 19 and 21.
i3 Energy PLC
57
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
4
Segmental reporting
The Chief Operating Decision Maker (CODM) is considered to be the Board of Directors. They
consider that the Group operates in a single segment, that of oil and gas exploration, appraisal
and development, in a single geographical location, the North Sea of the United Kingdom. As
a result, the financial information of the single segment is the same as set out in the
consolidated statement of comprehensive income, consolidated statement of financial position,
consolidated statement of Changes in Equity and Consolidated Statement of Cashflows.
5
Administrative expenses
Directors’ fees
Wages and salaries
Travel and subsistence expenses
Professional fees – legal, consulting, exploration
Auditor’s remuneration – audit
Exploration expenditures
Stock-based compensation expense – employee share options
Stock-based compensation expense - warrants
Insurance expense
Office, marketing and nomad expense
Corporate communications expense
Other expenses
Realised FX (gain) / loss
Unrealised FX loss
Total operating expenses
5 (a) Auditor remuneration
2019
£
159,021
1,520,288
131,711
1,869,516
36,851
6,402
1,205,722
1,911,273
108,489
392,736
85,256
41,204
(267,680)
27,880
2018
£
156,210
919,746
135,205
132,699
22,625
12,037
540,623
-
44,451
308,877
73,867
15,032
5,295
2,862
7,228,669
2,369,529
During the year, the Group obtained the following services from the Company’s auditor:
Fees payable to the Company’s auditor and its associates for the
audit of the Parent Company and consolidated financial statements
6
Employee information
Group staff costs comprised:
Wages, salaries and benefits
Share-based payments expense
Less: capitalised exploration expenditure
Charge to the profit or loss
2019
£
36,851
36,851
2019
£
2,871,015
1,205,722
2018
£
22,625
22,625
2018
£
1,460,119
540,623
(1,350,727)
(540,373)
2,726,010
1,460,369
i3 Energy PLC
58
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
6 Employment information - continued
i3 Energy plc had no staff during the year ended 31 December 2019 (2018 - Nil) and
therefore no payments were made. Director remuneration is disclosed in note 10.
The average number of persons employed by the Company, including Executive Directors,
was:
Average number of persons employed
2019 Number
2018 Number
Operations
Administration
7
Interest payable and similar costs
Commission payable on loan notes
Other – CLNs interest expense – reclaim after conversion of CLNs
Interest payable on loan notes
Total interest payable and similar costs
8
Taxation
Taxation reconciliation
8
4
12
7
3
10
Year ended
31 December 2019
£
Year ended
31 December 2018
£
(2,251,162)
-
(25,370)
553,658
(1,371,346)
(118,561)
(3,622,508)
409,727
The below table reconciles the tax charge for the year to the expected tax charge based on
the result for the year and the corporation tax rate.
Loss before income tax
Rate of Corporate Tax
Expected tax recovery
Interest and other not deductible for SCT
Effects of:
Permanent differences
Non-taxable income/Non-deductible expenses for tax purposes
Derecognition of deferred tax asset
Other
Total income tax expense
2019
£
2018
£
(10,851,177)
(1,959,802)
40%
(4,340,471)
362,861
40%
(783,921)
(23,816)
1,372,231
315,984
-
2,570,643
34,736
–
-
492,926
(1,173)
–
As at 31 Dec 2019 the Group had taxable losses of £14,942,652 (31 Dec 2018 –
£1,950,442) and mineral extraction allowances of £46,527,633 (31 Dec 2018 – £5,706,646) .
The taxable losses do not expire.
i3 Energy PLC
59
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
8 Taxation - continued
Recognized
in net
income
£
31-Dec-19
£
000s
000s
31-Dec-18
£
000s
Tax loss carry forwards
(4,568)
(18,899)
(23,467)
Property and equipment
2,296
16,325
18,621
Decommissioning Provision
-
-
-
Unrecognised DTA
2,272
2,574
4,846
Total income tax expense
-
-
-
The unrecognised deferred tax asset is due to uncertainty over the availability of future
taxable profits to offset these losses against so a deferred tax asset has not been
recognised in accordance with IAS 12.
9
Dividends
No dividends were proposed. (2018 - Nil).
10 Directors’ remuneration
Salary / Fees
Bonus Share based payments
2019
Executive Directors
Majid Shafiq
Graham Heath
Neill Carson
Non-Executive Directors
David Knox
Neill Carson
Richard Ames
Linda Beal
£
270,833
200,835
-
60,000
35,000
45,000
14,946
£
-
162,750
110,000
–
–
-
–
£
319,333
146,188
-
-
29,667
29,667
-
Total
£
590,166
509,773
110,000
60,000
64,667
74,667
14,946
2018
Salary / Fees
Bonus Share based payments
Total
626,614
272,750
524,855
1,424,219
Executive Directors
Neill Carson
Majid Shafiq
Graham Heath
Non-Executive Directors
David Knox
Majid Shafiq
Neill Carson
Richard Ames
311,989
57,796
135,000
60,000
34,644
10,356
45,000
654,785
-
-
-
–
–
–
-
-
185,333
33,213
-
-
18,533
18,533
311,989
243,129
168,213
60,000
34,644
28,889
63,533
255,612
910,397
i3 Energy PLC
60
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
10 Directors’ remuneration - continued
No pension benefits are provided for any Directors (2018 - Nil).
The total amount of Directors’ fees to the Non-Executive Directors, in 2019, in the amount of
£116,216 (2018 - £150,000) had been accrued. The accrued Non-Executive Directors’ fees
were paid 1 April 2020.
11
Earnings per share
From continuing operations
The calculation of the basic and diluted earnings per share is based on the following data:
Year Ended 31
December 2019
Year Ended 31
December 2018
Earnings
Earnings for the purposes of basic earnings per share being net loss
attributable to owners of i3 Energy (£)
(10,851,177)
(1,959,802)
Weighted average number of Ordinary Shares
80,869,438
37,800,091
Loss for the purposes of diluted earnings per share (£)
(0.13)
(0.05)
The 31 December 2019 and 31 December 2018 calculations use the Ordinary Shares, both basic and
diluted, held at these dates. The diluted loss per Ordinary Share is calculated by adjusting the weighted
average number of Ordinary shares outstanding to consider the impact of options, warrants and other
dilutive securities. As the effect of potential dilutive Ordinary Shares would be anti-dilutive, they are not
included in the above calculation of diluted earnings per Ordinary Share.
12
Exploration and evaluation assets (Intangible)
As at 31 December 2017
Additions
As at 31 December 2018
Additions
As at 31 December 2019
Exploration and evaluation assets
£
3,879,859
1,826,787
5,706,646
Total
£
3,879,859
1,826,787
5,706,646
40,820,987
40,820,987
46,527,633
46,527,633
13
Investment in subsidiaries
At 31 December 2019 the Company held 100% of the share capital of the following wholly
owned subsidiary:
Company
Place of Business
Registered Office
% Ownership held
Nature of business
I3 Energy North
Sea Limited*
England and Wales New Kings Court
100
Tollgate
Chandler’s Ford
Eastleigh,
Hampshire
SO53 3LG
*Wholly owned subsidiary of i3 Energy plc.
Exploration &
Production
i3 Energy PLC
61
–
6,062
6,062
Prepayments & other
receivables
Total trade and other
receivables
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
13 Investment in subsidiaries - continued
As at 31 December 2018
Additions
As at 31 December 2019
14
Trade and other receivables
Investment in subsidiaries
£
Total
£
145,700
145,700
–
–
145,700
145,700
As at
31 December
2019
£
As at
31 December
2018
£
Parent Company
As at 31 December
2019
£
Parent Company
As at 31 December
2018
£
VAT receivable
289,573
148,862
15,865
10,206
9,148
6,366
305,438
159,068
15,514
Other receivables are all due within one year.
Loans advanced from or to the subsidiary are unsecured, interest free and have no fixed
repayment date, see note 20.
The fair value of other receivables is the same as their carrying values as stated above.
Other receivables do not contain any impaired assets.
The maximum exposure to credit risk at the reporting date is the carrying value of each class
of receivable mentioned above. The Group does not hold any collateral as security.
15
Trade and other payables
As at
31 December
2019
£
12,023,845
6,180,907
As at
31 December
2018
£
Parent Company
As at 31 December
2019
£
Parent Company
As at 31 December
2018
£
350,698
682,270
-
196,935
24,421
163,160
-
–
265,684
-
18,204,752
1,229,903
187,581
265,684
Trade creditors
Accruals
Provision – Payment in
Lieu (Leavers)
Total trade and other
payables falling due
within one year
The average credit period taken for trade purchases is 30 days. No interest is charged on the
trade payables. The carrying values of trade and other payables are considered to be a
reasonable approximation of the fair value and are considered by the Directors as payable
within one year.
i3 Energy PLC
62
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
15 Trade and other payables - continued
On 2 July, 2019 the Company agreed with a supplier that £3,000,000 of oilfield service and
oilfield equipment contract payments will not become payable until such time as i3 has received
its first sales revenues from Liberator Phase I. This payable has been recorded as a non-
current accounts payable.
16 Convertible loan notes
Liability component at 31 December 2017
Issuance of convertible loan notes
CLNs Converted
CLNs Redeemed
CLN Interest Paid on Redemption
Interest charged
Foreign exchange
Liability component at 31 December 2018
CLNs Converted as part of Placement
Repayment convertible loan notes
Interest charged
Foreign exchange
Liability component at 31 December 2019
Net debt reconciliation
Net debt as at 1 January 2018
(Decrease) through conversion and financing cash flows
(Decrease) through reversal/recognition of interest
Foreign exchange adjustments
Net debt as at 31 December 2018
(Decrease) through conversion and financing cash flows
(Decrease) through repayment and financing cash flows
(Decrease) through reversal/recognition of interest
Foreign exchange adjustments
Non-current accounts payable – Baker Hughes
Loan notes
Net debt as at 31 December 2019
17 H1-2019 Loan Note Facility
£
2,995,914
-
(1,833,580)
(83,542)
(29,240)
(450,692)
(7,298)
591,562
(65,163)
(367,990)
(151,869)
(6,540)
-
Convertible loans
£
2,995,914
(1,917,122)
(479,932)
(7,298)
591,562
(65,163)
(367,990)
(151,869)
(6,540)
3,000,000
13,046,184
16,046,184
In May 2019, the Company completed a £22 million H1-2019 loan note facility (“H1-2019
LN”). The H1-2019 LNs have a term of 4 years, maturing on 31 May 2023 and bearing
interest, payable on a quarterly basis at the Company’s option (i) in cash at a rate of 8% per
i3 Energy PLC
63
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
17 H1 2019 Loan Note Facility - continued
annum, or (ii) in kind (at i3’s option) at a rate of 11% per annum by the issuance of additional
H1-2019 LNs.
The noteholders were granted warrants (“H1-2019 LN Warrants”) in the notional amount of
£1 for each £1 of loan notes issued, with H1-2019 Warrants being issued proportionately
across three series. The H1-2019 LN Warrants vested on the issue date and expire 4 years
thereafter and can be exercised through either/or a combination of a cash payment and/or
surrender of H1-2019 LNs plus accrued interest equal to the aggregate notional amount of
the H1-2019 LN Warrants being exercised. Each H1-2019 LN Warrant gives the holder the
right to convert the notional amount into such number of shares as is derived by dividing the
notional amount by the exercise price.
Notional
amount of
warrants (£)
Exercise
price
(£/share)
Share price at
issuance (£)
Shares to be
issued upon
exercise of
warrants
Time to
maturity
(years)
Value
(£/share)
Tranche 1
7,333,333
0.4070
18,018,018
Tranche 2
7,333,333
0.4810
15,246,015
Tranche 3
7,333,333
0.5550
13,213,213
0.39
0.39
0.39
4
4
4
0.2557
0.2435
0.2313
The fair value of the Tranche 1 warrants were determined by the Black-Scholes method. In
the Black Scholes model the inputs were share price of £0.39, exercise price of £0.4070,
time to maturity of 4 years, volatility as 94.67% and the Risk-Free Interest Rate as
0.9755%.
The fair value of the Tranche 2 warrants were determined by the Black-Scholes method. In
the Black Scholes model the inputs were share price of £0.39, exercise price of £0.4810,
time to maturity of 4 years, volatility as 94.67% and the Risk-Free Interest Rate as
0.9755%.
The fair value of the Tranche 3 warrants were determined by the Black-Scholes method. In
the Black Scholes model the inputs were share price of £0.39, exercise price of £0.5550,
time to maturity of 4 years, volatility as 94.67% and the Risk-Free Interest Rate as
0.9755%.
Total fair value of the Tranche 1, Tranche 2 and Tranche 3 warrants on issuance was
£11,375,184 and was bifurcated from the debt contract and classified as equity.
The H1-2019 LNs are comprised of the following components: the debt contract, the
conversion feature, the interest rate payment option and the early conversion feature (at
i3’s option). At inception the debt component was recorded at an estimated fair value of
£10,624,816. The debt balance is unwound using the effective interest rate method to the
principal value at maturity with a corresponding non-cash accretion charge to earnings.
The H1-2019 LNs are redeemable before the maturity date and the holders are secured
against the Company’s assets. The Company may repay all or part of the H1-2019 LNs
within the first 12 months at 116% of par and at par plus accrued interest thereafter. The
fair value of the repayment option is nil at 31 December 2019.
i3 Energy PLC
64
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
17 H1 2019 Loan Note Facility - continued
Interest expense and accretion expense to 31 December 2019 was £1,226,637 and
£1,194,731 respectively.
18 Authorised, issued and called-up share capital
Issuance
Date
Ordinary
Shares
Deferred
Shares
Nominal
Value £ per
Share
Share
Issuance
Costs
Called up
Share
Capital
Premium
Share
Capital
Before
Share
Issue
Costs
Premium
Share
Capital
After
Share
Issue
Costs
As at 31 December 2016
7,010,000
Issue of ordinary shares
30 Mar 17
1
Issue of ordinary shares
17 Jul 17
9,489,999
-
-
-
Issue of deferred shares
17 Jul 17
-
5,000
Issue of ordinary shares
18 Jul 17
9,190,892
-
0.0001
0.0001
0.0001
10.00
0.0001
As at 31 December 2017
25,690,892
5,000
-
-
-
-
-
-
-
701
-
-
-
-
-
949
94,050
94,050
50,000
-
-
919
3,423,367
3,423,367
52,569
3,517,417
3,517,417
Issuance of ordinary shares 30 Jan 18
8,563,630
Issuance of ordinary shares 27 Feb 18
1,516,876
Issuance of ordinary shares 21 Mar 18
925,926
Issuance of ordinary shares 25 May 18
925,926
Issuance of ordinary shares 07 June 18
1,851,852
Issuance of ordinary shares 01 Aug 18
1,542,336
-
-
-
-
-
-
0.0001
221,035
856
2,568,232
2,347,197
0.0001
0.0001
0.0001
0.0001
-
-
-
-
0.0001
101,373
152
363,067
363,067
93
93
185
154
359,157
359,157
370,278
370,278
740,556
740,556
1,619,299
1,517,926
As at 31 December 2018
41,017,438
5,000
-
322,408
54,102
9,538,006
9,215,598
Issuance of ordinary shares 18 Mar 19
11,005,527
Issuance of ordinary shares
01 Apr 19
32,237,716
Issuance of ordinary shares
04 Apr 19
2,131,538
Issuance of ordinary shares
05 Apr 19
983,059
Issuance of ordinary shares 31 May 19
5,405,405
Issuance of ordinary shares 31 May 19
653,002
Issuance of ordinary shares
6 Dec 19
14,285,715
-
-
-
-
-
-
-
0.0001
265,986
1,101
4,070,944
3,804,958
0.0001
704,155
3,224 11,924,731 11,220,576
0.0001
0.0001
-
-
213
788,456
788,456
98
363,634
363,634
0.0001
100,000
540
1,999,459
1,899,459
0.0001
0.0001
-
-
65
280,726
280,726
1,429
4,998,571
4,998,571
As at 31 December 2019
107,719,400
5,000
- 1,392,549
60,772 33,964,527 32,571,978
The ordinary shares confer the right to vote at general meetings of the Company, to a
repayment of capital in the event of liquidation or winding up and certain other rights as set
out in the Company’s articles of association.
The deferred shares do not confer any voting rights at general meetings of the Company and
do confer a right to a repayment of capital in the event of liquidation or winding up, they do
not confer any dividend rights or any of redemption.
On 18 March 2019, 11,005,527 ordinary shares with a nominal of £1,101 were issued at a
price of £0.37 per share as part of placing in which the company raised £17.15 million.
Share issuance costs of £265,986 were incurred which have been recognised as direct costs
of capital against share premium.
i3 Energy PLC
65
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
18 Authorised, issued and called-up share capital - continued
On 1 April 2019, 32,237,716 ordinary shares with a nominal of £3,224 were issued at a price
of £0.37 per share as part of placing in which the company raised £17.15 million. Share
issuance costs of £704,155 were incurred which have been recognised as direct costs of
capital against share premium.
On 4 April 2019, 2,131,538 ordinary shares with a nominal of £213 were issued at a price of
£0.37 per share as part of placing in which the company raised £17.15 million.
On 5 April 2019, 983,059 ordinary shares with a nominal of £98 were issued at a price of
£0.37 per share as part of an open offer in relation to an equity placing in which the company
raised £17.15 million.
On 31 May 2019, 5,405,405 ordinary shares with a nominal of £540 were issued at a price of
£0.37 per share in conjunction with the Company’s placing of H1-2019 loan notes. Share
issuance costs of £100,000 were incurred which have been recognised as direct costs of
capital against share premium.
On 31 May 2019, 653,002 ordinary shares with a nominal of £65 were issued at a price of
£0.43 per share as payment in kind for finance costs in relation to the Company’s H1-2019
loan note facility.
On 6 December 2019, 14,285,715 ordinary shares with a nominal of £1,429 were issued at a
price of £0.35 per share as part of an equity issuance managed by Bybrook Capital LLP.
19
Share based payments
During the year the Company had share based payment expense of £3,116,995 (2018 -
£540,623).
Share Options
During the year the Company had share based payment expense relating to the issuance of
share options of £1,205,722 (2018 - £540,623).
The following share options were issued during the year and £670,933 (2018 - £540,623) of
share-based payment expense relates to the 20 March 2019 vested share options which
was calculated using the Black Scholes method:
Weighted Avg
Price
(pence)
Number
Exercise
Price
(pence)
Vested
Share
Options
Share price
at grant
(pence)
Weighted
Avg
Term (years)
20 Mar
2019
11 Oct
2019
8 Nov
2019
TOTAL
0.395
5,920,000
0.395
1,973,331
0.385
0.395
100,000
0.395
0.350
2,142,859
0.35
-
-
0.215
0.345
8,162,859
1,973,331
10
10
10
Value
0.556
0.183
0.556
In the Black Scholes model the inputs were stock price of £0.385 (2018 – £0.635), exercise
price of £0.395 (2018 – £0.635), time to maturity of 10 years
i3 Energy PLC
66
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
19 Share-based payments - continued
(2018 - 10 years), Volatility as 98% (2018 – 94.62%), and the Risk-Free Interest Rate as
1.177% (2018 – 1.665%).
On 12 October 2019, 912,609 share options, issued on 12 October 2018, vested and the
cost of £534,789 was calculated using the Black Scholes method. In the Black Scholes
model the inputs were stock price of £0.215, exercise price of £0.395, time to maturity of 9
years, Volatility as 98%, and the Risk-Free Interest Rate as 1.177%.
Other Share Based Payments
During the year the Company had share based payment expense relating to the issuance of
warrants of £1,911,273 (2018 - Nil).
Weighted Avg
Price
(pence)
Number
Exercise
Price
(pence)
Vested
Warrants
Share price
at grant
(pence)
Weighted
Avg
Term (years)
18
Sept
2019
08 Nov
2019
06 Dec
2019
TOTAL
0.275
5,021,313
0.5685
5,021,313
0.275
0.385
8,000,000
0.4000
8,000,000
0.385
0.190
1,503,798
0.4000
1,503,798
0.190
14,525,111
14,525,111
2
2
2
Value
0.090
0.171
0.062
GE Oil & Gas UK Limited
On 18th September 2019, as part of an agreement announced 2nd July 2019, the Company
issued 5,021,313 warrants to subscribe for Ordinary Shares in the Company at an exercise
price of £0.5685 per ordinary share to GE Oil and Gas UK Limited. The warrants relate to
deferred payments for Oilfield Service contracts entered into between i3 and Baker Hughes.
In the Black Scholes model the inputs were stock price of £0.275 (2018 - Nil), exercise price
of £0.5685 (2018 - Nil), time to maturity of 2 years (2018 - Nil), Volatility as 96% (2018 – Nil)
and the Risk-Free Interest Rate as 0.4635% (2018 – Nil) for a share based payment
expense of £452,420.
Bybrook Work Fee
The Company announced on 29 October 2019 that it was obligated to enter a reserve-based
lending facility by no later than December 2019 to remain in compliance with the terms of its
Loan Notes. The Majority Noteholders agreed to extend the date by which the Company
must enter an RBL or find an alternative means of funding to achieve first oil from its assets
to 30 April 2020. For their previous and ongoing work and allocation of resources to
structure and support the Company’s funding requirements as it undertook a large-scale
drilling programme, the loan note holders were issued 8,000,000 warrants on 8 November
2019 and 1,503,798 warrants on 6 December 2019 to subscribe for ordinary shares in the
Company at an exercise price of £0.40 per ordinary share.
i3 Energy PLC
67
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
19 Share-based payments - continued
In the Black Scholes model, for the warrants issued on 8 November 2019, the inputs were
stock price of £0.385 (2018 - Nil), exercise price of £0.40 (2018 - Nil), time to maturity of 2
years (2018 - Nil), Volatility as 102% (2018 – Nil) , and the Risk-Free Interest Rate as
0.5271% (2018 – Nil) for a share based payment expense of £1,366,353.
In the Black Scholes model, for the warrants issued on 6 December 2019, the inputs were
stock price of £0.19 (2018 - Nil), exercise price of £0.40 (2018 - Nil), time to maturity of 2
years (2018 - Nil), Volatility as 119% (2018 – Nil) , and the Risk-Free Interest Rate as
0.5449% (2018 – Nil) for a share based payment expense of £92,500.
EMI Options
The Company operates an Employee Management Incentive (EMI) share option scheme.
Grants were made as set out below on 14th April 2016 and 6th December 2016. The scheme is
based on eligible employees being granted EMI options. The right to exercise the option is at
the employee’s discretion for a ten-year period from the date of issuance. 500,000 options are
exercisable at a price equal to £0.11 per share respectively. As the Options may be exercised
at any time, the vesting period is deemed to be immediate. If the options remain unexercised
after a period of ten years from the date of grant the options expire. Employees who leave i3
Energy have 60 days to exercise the Options prior to them being forfeited.
Number of share options Weighted average exercise price (in £)
As at 31 Dec 2018
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at the end of the year
Exercisable at the end of the year
500,000
–
–
–
–
500,000
500,000
0.11
–
–
–
–
0.11
0.11
The options outstanding at 31 December 2019 had a weighted average exercise price of
£0.11 (Dec 18 - £0.11), and a weighted average remaining contractual life of 6.92 years.
20 Related party transactions
The Company had the following related party transactions:
a During the year ended 31 December 2019, two Non-Executive Directors, Neill Carson
(served as Executive Director until 7 October 2018 and a Non-Executive Director
thereafter) and Richard Ames, held convertible loan notes in the amounts of £112,782
(2018 - £112,782) and £150,780 (2018 - £156,620) respectively. The loan notes were
settled on 4 April 2019 and 8 April 2019, respectively.
b During the year the Company provided funds amounting to £24,592,137 for total funds
provided to date of £33,876,085 (2018 - £9,283,948) to its subsidiary and received funds
in the amount of £1,095,276 (2018 - £1,248,058) during the year for total funds received
to date of £2,343,334 from its subsidiary. The total net receivable during the year from
its subsidiary was £23,496,861 with total funds receivable at 31 December 2019 of
£31,532,751 (2018 - £8,035,890).
i3 Energy PLC
68
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
20 Related party transactions - continued
Transactions between the Company and its subsidiaries, which are related parties, have
been eliminated on consolidation and are not disclosed in this note.
Remuneration of Key Management Personnel
Directors of the Company are considered to be Key Management Personnel. The
remuneration of the Directors is set out in note 10.
21
Financial instruments and capital risk management
Financial Risk Management
Financial Risk Factors
The Group’s activities expose it to a variety of financial risks; market risk (including foreign
currency risk and price risk), credit risk and liquidity risk. The Group’s overall risk
management programme focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the Group’s financial performance.
Risk management is carried out by the Board of Directors under policies approved at Board
meetings. The Board frequently discusses principles for overall risk management including
policies for specific areas such as foreign exchange.
a Market Risk
i
Foreign Exchange Risk
The Group is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the UK pound sterling and the US dollar. Foreign exchange risk
arises from recognised monetary assets and liabilities (USD bank account) where they may
be denominated in a currency that is not the Group’s functional currency.
The exposure to this risk is not considered material to the Group’s operations and thus the
Directors consider that, for the time being, no hedging or other arrangements are necessary
to mitigate this risk.
On the assumption that all other variables were held constant, and in respect of the Group
and the Company’s expenses the potential impact of a 1% increase / decrease in the UK
Sterling: US Dollar Foreign exchange rate on the Group’s loss for the year and on equity is
not material and therefore has not been shown.
b Credit Risk
Credit risk arises from cash and cash equivalents.
The Group considers the credit ratings of banks in which it holds funds in order to reduce
exposure to credit risk. The Group will only keep its holdings of cash with institutions which
have a minimum credit rating of ‘A’.
The Group considers that it is not exposed to major concentrations of credit risk.
The Group holds cash as a liquid resource to fund its obligations. The Group’s cash
balances are held in Sterling and US Dollar. The Group’s strategy for managing cash is to
maximise interest income whilst ensuring its availability to match the profile of the Group’s
i3 Energy PLC
69
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
21 Financial instruments and capital risk management - continued
expenditure. This is achieved by regular monitoring of interest rates and monthly review of
expenditure forecasts.
c Liquidity Risk
To date the Group has relied upon equity funding to finance operations. The Directors are
confident that adequate funding will be forthcoming with which to finance operations.
Controls over expenditure are carefully managed.
The Group ensures that its liquidity is maintained by a management process which includes
projecting cash flows and considering the level of liquid assets in relation thereto, monitoring
Balance Sheet liquidity and maintaining funding sources and back-up facilities.
Fair Value Estimation
The following table presents the Group’s financial asset and financial liabilities that are
measured at fair value at 31 December 2019.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of
financial instruments by valuation technique:
Fair value measurements
To estimate fair value of the risk management contracts, the Company uses quoted market
prices when available, or industry accepted third-party models and valuation methodologies
that utilise observable market data. In addition to market information, the Company
incorporates transaction specific details that market participants would utilise in a fair value
measurement, including the impact of non-performance risk. The Company characterises
inputs used in determining fair value using a hierarchy that prioritises inputs depending on
the degree to which they are observable. However, these fair value estimates may not
necessarily be indicative of the amounts that could be realised or settled in a current market
transaction.
The three levels of the fair value hierarchy are as follows:
Level 1 – inputs represent quoted prices in active markets for identical assets or
liabilities (for example, exchange-traded commodity derivatives). Active markets are
those in which transactions occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
Level 2 – inputs other than quoted prices included within Level 1 that are observable,
either directly or indirectly, as of the reporting date. Level 2 valuations are based on
inputs, including quoted forward prices for commodities, market interest rates, and
volatility factors, which can be observed or corroborated in the marketplace.
Level 3 – inputs that are less observable, unavailable or where the observable data does
not support the majority of the instruments fair value.
In forming estimates, the Company utilises the most observable inputs available for valuation
purposes. If a fair value measurement reflects inputs of different levels within the hierarchy,
i3 Energy PLC
70
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
21 Financial instruments and capital risk management - continued
the measurement is categorised based upon the lowest level of input that is significant to the
fair value measurement.
All financial assets are classified as loans and receivables and are accounted for on an
amortised cost basis. All financial liabilities are classified as other liabilities. The carrying
amount of the other financial assets and liabilities approximates the fair value due to its short
maturities.
Fair value measurements recognised in the statement of financial position
Financial liabilities at FVTPL
Financial liabilities designated at FVTPL
Total
Level 1
Level 2
Level 3
£
£
– 13,046,184
– 13,046,184
£
-
-
2019
Total
£
13,046,184
13,046,184
There were no transfers between Level 1 and 2 during the current or prior year. Trade and
other receivables and trade and other payables are held at approximate fair value therefore
the financial instruments noted above do not require fair value disclosure.
The Company’s convertible Loan Notes were issued in both GBP and USD. The Loan Notes
issued in USD are subject to the FX fluctuation between the USD and GBP rates and can
impact the fair value reported in GBP. All convertible Loan Notes were paid in full in April
2019.
Capital Risk Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to
position as a going concern and to continue its exploration and production activities. The
Group has debt of £34,250,936 as at 31 December 2019 (2018 - £1,821,465) and has
capital, defined as the total equity and reserves of the Group of £31,659,278 (2018 -
£4,655,225).
The group monitors its level of cash resources available against future planned exploration
and evaluation activities and may issue new shares in order to raise further funds from time to
time.
22 Commitments
Future aggregate minimum lease payments
Not less than one year
Later than one year but not later than five years
Total lease commitment
2019
£
45,000
56,250
101,250
2018
£
45,000
101,250
146,250
On 1 April 2017, I3 Energy North Sea Limited, at that time i3 Energy Limited, entered into a
5-year lease agreement to rent space. The lease expires in April 2022.
i3 Energy PLC
71
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
22 Capital commitments - continued
As at 31 December 2019, the Company had cancellation exposure to certain long-lead items
for its Liberator development totalling £3,959,781 (2018 - £5,817,612). As at 30 June 2020 the
Company’s cancellation exposure for long-lead items was £3,959,781 (2018 - £6,593,284).
23 Ultimate controlling party
There is no ultimate controlling party of i3 Energy plc.
24
Events after the reporting period
On 2nd January 2020, the Company announced a corporate and funding update.
Well and fluid data from the Serenity 13/23c-10 discovery well encountered sweet, 31.5° API
crude in 11 feet of upper Captain oil-bearing sands confirming the strong commercial
potential of the Serenity area. Though Liberator wells 13/23c-9 and 13/23c-11 did not meet
the Company’s expectations, post-drill mapping of the entire Liberator structure still shows
significant in place resources in the Liberator West and Minos High areas. With the highly
successful Serenity discovery and remaining potential at Liberator, the Company is planning
a multi-well appraisal programme and conducting a farm down process of its licences to
potentially fund that drilling campaign.
The Company issued 2,816,739 warrants to subscribe for Ordinary Shares at an exercise
price of 56.85 pence per Ordinary Share to GE Oil & Gas UK Limited ("GE UK"), in addition
to the 2,204,574 issued to GE UK in October 2019. These warrants relate to deferred
payments for Oilfield Service ("OFS") contracts entered into between the Company and
Baker Hughes. To 30 November 2019, Baker Hughes had performed and invoiced the
Company for £3,000,000 worth of oilfield services. GE UK can exercise the warrants via
cash settlement or in exchange for payments due to Baker Hughes under OFS contracts
with the Company.
On 7th February 2020, the Company provided a Board update where it announced that Linda
Beal would become the interim Chairperson of the company, replacing David Knox. After
nearly 3 years as the Chairperson of the Board, David stepped down to pursue another role
in the renewable energy sector in Australia. The Company also announced plans to list its
shares on a secondary exchange, for administrative reasons related to the Company's Loan
Notes issued 31st May 2019.
On 19th March 2020, the Company entered into a drilling contract with Dolphin Drilling
Limited ("Dolphin") to utilise either the Borgland Dolphin or Blackford Dolphin semi-
submersible drilling rig for a minimum 82-day programme which was due to commence not
later than 1st September 2020 or as otherwise agreed between the parties. The contract was
conditional on the Company confirming availability of funds to satisfy its obligations under
the contract, 90 days prior to drilling commencement. The Company also agreed that
Dolphin could earn up to a 10% economic interest in Block 13/23c via a Net Revenue
Sharing Agreement in exchange for Dolphin forgoing its drilling contract profit margin above
its opex, up to a maximum amount of US$14.4 million (the "Dolphin Commitment").
Accordingly, the Dolphin Commitment would cover approximately 22% of the total expected
gross drilling costs. Under the terms of the drilling contract, i3 was to notify Dolphin not later
than 90 days prior to 1st September 2020 that it had sufficient financial capacity to fund the
minimum 82-day drilling programme. i3 was not in a position to do so on 1st June 2020. The
i3 Energy PLC
72
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
24 Events after reporting period - continued
parties remain in discussion on the potential timing of future drilling at the Company’s UK
licences.
On 30th March 2020, the Company announced that it had entered into an Option agreement
to acquire all the issued and outstanding common shares of Toscana Energy Income
Corporation ("Toscana" or "TEIC"), a TSX listed oil and gas corporation with assets in the
Western Canadian Sedimentary Basin ("WCSB") in Alberta and Saskatchewan, Canada (the
"Option"). Upon the Company’s exercise of the Option, Toscana shareholders will be offered
up to 4,399,224 i3 shares for TEIC's entire share capital, representing dilution of
approximately 4% to the Company's current shareholders and having a market value at
March 27th of approximately C$0.55 million. The Company also announced that on March
27th it had purchased the rights and interests in Toscana's senior and junior debt facilities
(which were in default). The Company acquired Toscana's C$24.8 million senior facility for
C$3.0 million and its C$3.2 million junior facility for C$0.4 million, with cash consideration for
each being paid 50% up front and 50% at year-end. The total aggregate consideration being
paid by the Company for TEIC's debt and equity totals approximately C$3.95 million. Upon
completion of the transaction with Toscana, the Company intends that its enlarged share
capital would also be listed on the TSX, satisfying the Company's obligation under its
existing Loan Notes to seek a secondary listing for its shares.
On 1st May 2020, the Company announced an update relating to the Development Funding
Long-stop date of its Loan Note facility. On 8th November 2019, the majority noteholders
had agreed to extend the date by which the Company was required to enter into a reserve-
based lending facility or find an alternative means of funding to achieve first oil from the
Liberator field, to 30th April 2020. i3 was not in a position to enter into such a facility by 30th
April, but the Company remained in discussion with all noteholders to waive this condition.
On 23rd June 2020, the Company announced that the obligation to enter into a development
facility for Liberator by a certain date (30th April 2020 – the Development Funding Long-stop
Date) had been waived. A new Corporate Development Long-stop Date has been set for
30th September 2020 prior to which the Company has to achieve one of the following
Corporate Development Long-stop Conditions:
Secure firm irrevocable commitments for a minimum of £15 million of unsecured or
fully subordinated financing, subject only to closing mechanics; or
Agree a farm-out and/or funding term sheet, subject only to legal documentation to
fund the drilling of at least one appraisal well on Serenity during 2020 or 2021; or
Execute an acquisition agreement for at least 2500 boepd of production net to i3.
In addition, the Company has an obligation to achieve net corporate production at or above
5000 boepd by 30th April 2021.
As part of the above Loan Note restructuring, all warrants associated with the Loan Notes
had their strike prices reset to the nominal value of i3 shares (£0.0001/share). The Loan
Note Instrument amendments include the requirement that the currently outstanding i3
management options be cancelled and replacement options issued to i3 staff and directors
which replicate the terms of the adjusted Loan Note warrants (the “New Options”) in relation
to the exercise price, to seek alignment between the Noteholders and management.
On 23rd June 2020, the Company announced that it had exercised the above-mentioned
Option to acquire all of the issued and outstanding common shares of Toscana Energy
i3 Energy PLC
73
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Notes Forming Part of th e Financial Statements
24 Events after reporting period - continued
Income Trust, a TSX-listed oil and gas company. Upon completion, i3 will also be listed on
the Toronto Stock Exchange, thereby satisfying a requirement under the Company’s Loan
Notes to obtain a listing on an HMRC-recognized exchange, which AIM is not. Under the
Loan Notes, i3 was to apply for this additional listing not later than 28th February 2020 and
have admitted to that secondary exchange not later than 30 April 2020.
Also on 23rd June 2020, the Company announced that it had entered into a non-binding
letter of intent to acquire a package of producing Canadian oil and gas assets (the
“Proposed Assets”). In 2019, the Proposed Assets produced at over 10,000 boepd and
generated over US$34 million in field netback from multiple, low-decline, long-life, light oil
and gas fields. Upon completion, the proposed transaction would add 2019 year-end
reserves of over 25 MMboe PDP and over 65 MMboe 2P to i3’s portfolio. The total
consideration to be paid for the Proposed Assets under the letter of intent is just under
US$60 million, representing approximately 1.7x 2019 field netback and approximately 2x
that forecasted for the next 12 months, ~US$5,500/boepd, and ~US$0.85/boe of 2P
reserves. The proposed transaction would be a reverse take-over under the AIM Rules for
Companies and, at i3’s request, the Company’s shares were suspended from trading on AIM
until i3 either publishes a “Readmission Document” detailing the proposed acquisition or
provides confirmation that discussions have ceased.
On 3rd July 2020 (the “PSA Date”), i3 entered a binding purchase and sale agreement with
Gain Energy Ltd. (“Gain”) to acquire 100% of its producing and non-producing petroleum
assets in the Canadian provinces of Alberta and Saskatchewan, the aforementioned
Proposed Assets (the “Gain Assets”). In Q4 of 2019, the Gain Assets produced on average
10,645 boepd (47% liquids) to which Gain’s independent reserve evaluator had attributed
PDP reserves of 26.4 MMboe with a before-tax NPV10 of ~US$177 million, and 2P reserves
of 69.4 MMboe with a before-tax NPV10 of ~US$397 million. In 2019, the Gain Assets
field EBITDA (revenues minus royalties, opex and
produced ~US$34 million
transportation) from 242 Gain-operated wells at an average working interest of 78% and
1,633 non-operated wells at an average working interest of 11%, and include 174k net
developed acres and 186k net undeveloped acres of land.
in
Further specifics and updates regarding the Gain transaction and other matters will be
released as part of i3’s Readmission Document when published.
COVID-19
The assessment of the COVID-19 situation will need continued attention and will evolve over
time. In our view, COVID19 is considered to be a non-adjusting post statement of financial
position event and no adjustment is made in the financial statements as a result. The rapid
development and fluidity of the COVID-19 virus make it difficult to predict the ultimate impact
at this stage. Management will continue to assess the impact of COVID-19 on the Group and
Company and will put plans in place to mitigate any impact as far as possible, however, it is
not possible to quantify the impact, if any, at this stage.
i3 Energy PLC
74
i3 Energy PLC 20 19 A nnual Report and Financial Statem ents
Corporate I nformation
CORPORATE INFORMATION
Registered number
10699593
Directors
Company Secretary
Registered Office
Independent Auditor
Solicitors
Nominated Advisor and Broker
Brokers
Registrars
Principal Bankers
Company Website
David John Wissler Knox – Non-Executive Chairperson (Retired from
i3’s Board 07 February 2020)
Majid Shafiq – Chief Executive Officer
Graham Andrew Heath – Chief Financial Officer
Neill Ashley Carson – Non-Executive Director
Richard Millington Ames – Non-Executive Director
Linda Beal – Non-Executive Director (Joined i3 Board 13 September
2019, Appointed Interim Non-Executive Chairperson 07 February 2020)
Burness Paull LLP
New Kings Court
Tollgate
Chandler’s Ford
Eastleigh, Hampshire
United Kingdom
S053 3LG
PKF Littlejohn LLP (Registered Auditor)
15 Westferry Circus
Canary Wharf
London E14 4HD United Kingdom
Burness Paull LLP
50 Lothian Road
Festival Square
Edinburgh
EH3 9WJ
WH Ireland Limited
24 Martin Lane
London
EC4R 0DR
Mirabaud Securities Limited
10 Bressenden PL
Westminster
London
SW1E 5DH
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Royal Bank of Scotland
www.i3.energy
Company Telephone Number
+44 (0) 1224 945 980
i3 Energy PLC
75