Annual report and accounts 2013/14
UNLOCKING
BRITAIN’S
ENERGY
POTENTIAL
WELCOME
“We strive for continuous
improvement in informing
and educating, listening
and innovating.”
Who we are
Creating shared prosperity
IGas Energy plc is a leading onshore oil and
gas exploration and production business, with
licences to explore for oil and gas across the
country including the North West, East Midlands,
the Weald Basin in southern England and the
northern coastal area of the Inner Moray Firth
in Scotland.
The business has more than thirty years’
experience of successfully and safely extracting
oil and gas onshore in Britain, which has one
of the strictest regulatory regimes in the world.
We are a British business and employ 161 staff
around the country, many of whom live and
work in the areas in which we operate.
We believe in contributing to Britain’s energy
independence for generations to come.
£
We are committed
to the environment
and providing
safe and healthy
working conditions
for our employees
and contractors.
We are committed
to maintaining close
and responsive
relationships with
the communities
in which we
operate and we
have a long track
record of engaging
with local residents.
We have operated
our own Community
Fund for a number
of years which
has committed
to funding local
projects that
are charitable,
educational
or benevolent
in purpose.
30 years
IGas has more than thirty years’
experience of successfully and
safely extracting oil and gas
onshore in the UK
161
Number of staff
IGas Energy plc Annual report and accounts 2013/14 Financial highlights1,5
Revenues of £75.9m (2013: £68.3m)
Total Production c.1.0 mmboe (2013: c.0.9 mmboe)
EBITDA2 of £34.3m (2013: £32.3m)
Underlying operating profit3 of £20.3m (2013: £22.1m)
Net profit/(loss) before tax of £2.3m (2013: (£6.0m))
Net cash from operating activities £25.2m (2013: £28.9m)
Cash and cash equivalents at 31 March 2014 were
£28.3m (2013: £9.8m)
Net debt of £80.4m4 (2013: £77.4m)
Completed issue of US$165m secured bonds in
April 2013, and issued US$30m unsecured bonds
in December
Operating highlights
Farm-out agreement with Total E&P UK Limited (“Total”)
signed, under which Total acquired a 40% interest in
PEDL 139/140 Licences. Total will fund a fully carried
work programme of up to US$46.5m, with a minimum
commitment of US$19.5m. IGas was appointed operator
on the Licences with an increase in equity interest to 14.5%.
Exploration well successfully completed at Barton Moss,
Eccles. Full laboratory analysis of the cores is underway,
the results of which are expected in the autumn.
Following completion of seismic acquisition for PEDL
139/140 we are now implementing a programme to
acquire c.100km2 of 3-D seismic data in the North West
with a view to firming up several potential exploration
and development sites in the area.
Acquisition of Caithness from Caithness Petroleum plc
for £7.9m (including assumed borrowings and closing
adjustments) which was financed by issuing 7,488,301
Ordinary Shares.
Progress on ‘Chase the Barrels’ initiative continues with
a focus on sustainable long term production enhancements.
Post year end proposed acquisition of Dart Energy Limited
valuing the total share capital of Dart, on announcement,
at approximately A$211.5m on a fully diluted basis
(being equivalent to £117.1m).
Notes
1 On 28 February 2013, the Company completed the acquisition of PR Singleton from Providence
Resources plc and therefore the 2013 results reflect one month’s contribution from PR Singleton.
2 EBITDA relates to earnings before gains/(losses) on oil price derivatives, net finance costs, tax,
depletion, depreciation and amortisation, acquisition costs and impairment of exploration and
evaluation assets.
3 Underlying operating profit excludes the gains/(losses) on oil price derivatives, acquisition costs
and impairment of exploration and evaluation assets.
4 Net debt is borrowings less cash and restricted cash.
5 On 6 December 2013, the Company completed the acquisition of Caithness Oil Limited
and therefore the 2014 results reflect four months’ contribution from Caithness Oil.
STRATEGIC REPORT / HIGHLIGHTS
Highlights
At a Glance
Marketplace
Areas of Operation
Assets overview: Gas from shale
Assets overview: Producing assets
Chairman’s Statement
Q&A with the Chief Executive Officer
Chief Executive Officer’s Review
Chief Financial Officer’s Review
Risks and Uncertainties
Corporate Social Responsibility
Board of Directors
Corporate Governance
Directors’ Remuneration Report
Directors’ Report
Directors’ Statement of Responsibilities
in Relation to the Group Financial
Statements and Annual Report
Independent Auditor’s Report
to the Members of IGas Energy plc
Consolidated Income Statement
Consolidated Statement
of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement
of Changes in Equity
Consolidated Cash Flow Statement
Consolidated Financial Statements – Notes
Parent Company Financial
Statements – Directors’ Statement
of Responsibilities in Respect Thereof
Independent Auditor’s Report
to the Members of IGas Energy plc
Parent Company Statement
of Comprehensive Income
Parent Company Balance Sheet
Parent Company Statement
of Changes in Equity
Parent Company Cash Flow Statement
Parent Company Financial Statements – Notes
Oil and Gas Reserves
Glossary
General Information
For more information visit:
www.igasplc.com
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IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
STRATEGIC REPORT / AT A GLANCE
OUR PURPOSE
Energy is the foundation of our economy:
from heating our homes, hospitals and
schools to manufacturing and agriculture,
energy is a vital part of our daily lives.
At IGas we are at the heart of diversifying Britain’s energy
mix and reducing our reliance on imported oil and gas,
as North Sea production continues to decline.
IGas is extremely well positioned for the future as we
move closer to unlocking Britain’s as yet untapped oil
and gas resources.
IGas is committed to playing an active role in developing
the onshore supply chain and to support the growth
opportunity of shale gas particularly for British companies.
02
IGas Energy plc Annual report and accounts 2013/14 Britain’s current energy challenges
IGas is committed
to playing an active
role in developing
the onshore supply
chain and delivery
mechanisms to
support the growth
opportunity of shale
gas particularly for
UK companies.
Dependency on
gas imports
Decline in production
from the North Sea
Coal
accounted for
62%
38%
Imported energy
supplied to the UK
in 20131
Over the last three
years production has
fallen by 38%2
36.3%
Of UK electricity
generation in 20133
How we plan to deliver
Our strategy is aimed at building a material onshore energy company in Britain
in collaboration with the communities in which we operate. We believe that
supporting and sustaining these communities is fundamental to delivering more
domestic production. The Company is focused in three areas;
Developing the wider potential in
our portfolio through a drilling
programme to explore, appraise and
develop our assets and thereby create
long-term value for stakeholders
Our
Strategy
Increasing
our current oil
and gas production
by maximising
the potential
from our existing
assets
Acquiring
complementary
asset portfolios
We have a top-quality management
team with the operational and technical
capability to deliver our strategy.
Our Values
We are fully committed to preserving
the environment and providing safe
and healthy working conditions.
environment and we are committed to
answering those questions. We operate
in many sensitive areas and are committed
to preserving our landscapes and to
working closely with planning and all
other statutory authorities and local
people to minimise the environmental
impact of our operations.
The public, and our neighbours
in particular, may have questions
about how our activities affect their
Most of all, we are committed to
consultation with our neighbours
and interested parties.
1 Source: DECC: UK Energy Statistics 2014.
2 Source: Oil & Gas UK Activity Survey 2014.
3 Source: DECC: Energy trends and prices 2013.
03
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS STRATEGIC REPORT / MARKETPLACE
Game changer for Britain
Britain has a long heritage of onshore and offshore oil and gas production that dates
back to 1851. Today there is a large body of evidence suggesting that natural gas from
shale is a significant resource for Britain that can be extracted cleanly and safely.
“In 2000, shale gas
provided only 1%
of US natural gas
production; by 2011,
it was over 34%1.”
“The shale industry
supported 1.7m jobs
in 2012 and contributed
US$62bn in state and
federal tax revenue 1.”
The British industry
The onshore oil and gas industry in Britain
has been in existence for over 150 years.
Before the First World War, Britain acquired
almost all its oil and gas from outside the
country. Oil was discovered in Scotland in
1851 followed by gas in England in 1896
during construction of Heathfield rail station
in Sussex, when natural water wells were
being dug. The gas discovered was used
to power the lights for the station and
this gas was sourced from shale rock.
During both world wars the need for
Britain to produce its own oil to help
the war effort rather than rely on
imports became of real importance
to the Government and legislation
was introduced to enable companies
to explore for hydrocarbons
more readily.
In 1973, the Wytch Farm Oilfield in
Eastern Dorset was opened in an area
of outstanding natural beauty and today
it is the largest oilfield in Western Europe.
At around the same time, it is believed
the first hydraulic fracture in Britain
was performed.
Onshore oil and gas activity started
to accelerate again after the 1979 oil
crisis. As prices rose, domestic production
became increasingly important.
Around 2,000 wells have now been
drilled onshore in Britain with about
10% of them having been hydraulically
fractured. There are currently around
120 producing sites with c.300 operating
wells producing in excess of 20,000 barrels
of oil equivalent per day or about 1%
of Britain’s consumption. Approximately
250,000 barrels per day of produced
water is disposed of safely under permits
from the Environment Agency (EA)
and Scottish Environment Protection
Agency (SEPA).
As an island nation, Britain has long
relied on supplementing its domestic
energy reserves with imports from
abroad. However, these imports also
leave our economy vulnerable to forces
such as changing commodity prices,
as well as political instability in other
key energy-producing regions
of the world.
The decline in production from the North
Sea saw Britain become a net importer
of gas since 2004. IGas believes that
energy diversity is central to Britain’s
stability and security in the 21st Century.
Recent technological innovations can
unlock untapped resources that have
the potential to contribute to Britain’s
energy independence for generations
to come. By combining our considerable
experience in onshore operations with
a proven commitment to safety and the
environment, IGas is well positioned
to help unlock this national resource,
delivering direct benefits to local
communities as well as making a significant
contribution to our economy and energy
diversity at a national scale, as well
as contributing to decarbonisation.
1 Source: PWC Report: Shale energy: A potential game-changer: www.pwc.com/en_US/us/industrial-products/publications/assets/pwc-shale-energy-transportation-logistics-impact.pdf
2 Source: EY “Getting ready for UK shale gas Report” commissioned by UKOOG (April 2014): www.ukoog.org.uk/images/ukoog/pdfs/Getting_ready_for_UK_shale2_gas_FINAL2022.04.14.pdf
04
IGas Energy plc Annual report and accounts 2013/14 “The US experience
indicates that the
development of shale
gas can help improve
security of supply, and
increase employment
and investment
that cascade into
other sectors 2.”
“£33bn estimated
spend to bring UK
shale wells into
production between
2016 and 2032 2.”
Estimated resources
In June 2013, The British Geological Survey
(BGS) in association with The Department
of Energy and Climate Change (DECC)
estimated that the area between Wrexham
and Blackpool in the west and Nottingham
and Scarborough in the east contained
1,329 trillion cubic feet (Tcf) (in the mid
case) of shale gas in place.
According to figures from the Institute
of Directors (IoD), Britain’s shale gas
resources could supply a third of our
annual gas needs and IGas believes that
within its own licence area, covering 300
square miles between Manchester and
Liverpool, there is likely to be in the region
of 102 Tcf of gas in place (mid case). Even
if only a fraction of this can be recovered,
with Britain’s total gas use running at
3 Tcf a year, it is clear this is a significant
national resource.
Since the year end, BGS has issued
a report which estimates the resources
of the Jurassic shales of the Weald.
The area includes large parts of Sussex,
Hampshire, Surrey, and Kent, and covers
the South Downs National Park and several
Areas of Outstanding Natural Beauty. The
report concludes there is approximately
4.4 billion barrels of shale oil (mid case)
in the Weald.
Political and regulatory update
The financial year began with further
recognition from the British Government
of the onshore oil and gas industry’s
potential when, as part of his 2013 Budget,
the Chancellor of the Exchequer announced
a package of measures designed to facilitate
investment and support the development
of Britain’s shale gas industry. The areas
consulted on included community benefits,
planning and taxation.
At the end of April, the Energy and
Climate Change Select Committee
published their report, “The Impact
of Shale Gas on Energy Markets”.
The report highlighted the contribution
shale gas could make to Britain’s energy
security, helping to limit future energy
price rises and its contribution to tax
revenues, as well as focusing on the
necessity of community engagement.
In June, DECC announced a benefits
package for communities near new shale
gas drilling sites. Under the proposals
operators will offer local communities
£100,000 per hydraulically fractured well
at the exploratory stage, as well as 1%
of revenues once sites become commercial,
potentially worth several million pounds
per site.
In October 2013, Public Health England
published a report showing there is
a low risk to public health of properly
run and regulated shale gas extraction.
The Chancellor used his Autumn
Statement in December to announce
a new fiscal regime for the onshore oil
and gas sector, which was subsequently
enacted in the 2014 Finance Bill. The
regime reduces the tax rate on a portion
of a company’s profits from 62% to 30%
to reflect the challenges of shale gas
exploration. Companies will receive
an allowance equal to 75% of capital
spent on projects.
Last October saw DECC publish
a roadmap to provide an indicative
overview of the processes involved
in permitting onshore exploratory work
in oil and gas development, onshore
in Britain. The roadmap highlighted
the extensive legislation and regulation,
and identified required actions and
best practices at various stages.
In January, DECC announced that
Councils will be able to keep
100% of business rates generated
from onshore gas extraction sites
bringing onshore gas into line
with renewables projects.
Further information can be found at
www.ukoog.org.uk/images/ukoog/pdfs/Getting_ready_for_UK_shale2_gas_FINAL2022.04.14.pdf
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IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS DEC C
Licensing r o
R
e
g
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a
t
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A
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/
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r
y a
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Pla
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A
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y
How the
industry is
regulated
s
e
ti o nal phas
O perator
A
,
H
S
provals
a
O p e r
E & DECC
STRATEGIC REPORT / MARKETPLACE CONTINUED
Our regulatory environment
Britain has one of the world’s most stringent regulatory
regimes for onshore and offshore oil and gas extraction.
• Notified the HSE of the well design
and operation plans
• Ensured a complete examination
of well design and construction by
an independent and competent person
(known as an independent well examiner)
• Received planning permission from the
Minerals Planning Authority (MPA),
local council or equivalent
• Served notification of an intention
to drill on the EA under S199 of the
Water Resources Act, 1991
• Apply for consent to drill from DECC,
including submission of a hydraulic
fracturing plan if required
• Advised the British Geological Survey
In addition, the industry is governed by
14 separate pieces of European legislation.
There are a significant number of days
of statutory public consultation.
Given Britain’s long history of onshore oil
and gas production, the regulatory regime
the industry complies with is one of the
world’s most stringent.
Who regulates the onshore oil and
gas industry?
We are regulated by a number of statutory
bodies, including the Environment Agency
(EA) in England, the Scottish Environment
Protection Agency (SEPA) in Scotland and
Natural Resources Wales (NRW) in Wales,
the Health and Safety Executive (HSE)
and the Department of Energy and
Climate Change (DECC).
Before drilling a shale well an operator
who, like IGas, has committed to United
Kingdom Onshore Operator Group
(UKOOG) guidelines, must have:
• A petroleum licence from DECC
• Permission from the Coal Authority
• Completed an Environmental Risk
Assessment (ERA) Environmental
Impact Assessment (EIA) even
if not required by regulation
• Obtained all the appropriate
environmental permits from
the regional Environment Agency
including Mining Waste Permits
Further information can be found at
www.ukoog.org.uk/environment/regulation
06
IGas Energy plc Annual report and accounts 2013/14
Key benefits for Britain
The benefits of a well regulated onshore oil and gas extraction
industry are significant. A viable sector has the potential to
help Britain meet carbon emission targets, generate increased
revenue for Her Majesty’s Treasury and create a leading
onshore oil and gas supply chain.
One of the key drivers for diversifying
the British energy market through the
exploitation of the country’s onshore oil
and gas reserves will be to increase energy
security and thus become less dependent
on imported gas. While establishing secure
and reliable sources for natural gas globally
becomes increasingly complex, a productive
and thriving onshore British oil and gas
industry could mitigate this challenge.
The sector could generate upwards of
64,500 direct, indirect, and induced jobs1,
many of which will be highly-skilled with
above-UK average salaries. These jobs
wouldn’t be concentrated in any one area
but would be spread across Britain.
At a more local level, however, it is our
strong belief that the local communities
that host our sites should benefit. As such,
we adhere to the UKOOG community
benefits scheme. This sees some of the
revenue generated being reinvested into
local communities to support a variety
of projects and improvements.
Alongside the direct and indirect
benefits, developers will also be paying
increased business rates as a result
of their operations, 100% of which will
go directly back to local councils, again
benefiting local communities.
UK energy
production by source
%
7
4
%
9
2
%
6
%
6
1
%
1
%
1
29% COAL
6% RENEWABLE*
47% NATURAL GAS
1% HYDROELECTRIC
16% NUCLEAR
1% OIL
* Excluding Hydro
Energy sources UK 2010. Source: World Bank
64,500
A 64,500 jobs opportunity and
a requirement to grow skills
£17bn
Specialised equipment and skills
for hydraulic fracturing totalling
£17bn. This sector provides
a significant opportunity for
UK-based oilfield service and
manufacturing companies to
get involved
1 Source: EY “Getting ready for UK shale gas Report” commissioned by UKOOG (April 2014):
www.ukoog.org.uk/images/ukoog/pdfs/Getting_ready_for_UK_shale2_gas_FINAL2022.04.14.pdf
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IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS STRATEGIC REPORT / AREAS OF OPERATION
A FOCUSED
PORTFOLIO
We explore and develop gas and oil reserves at
onshore locations in the North West of England,
the East Midlands, the Weald Basin in Southern
England and the northern coastal area of the
Inner Moray Firth in Scotland.
Key milestones
2007
IGas listed on the Alternative
Investment Market of the
London Stock Exchange.
2009
IGas started commercial
sales of electricity generated
from CBM.
2011
Acquisition of Star Energy and
equity fundraising of £20.6m.
Signed an agreement with
Nexen Petroleum UK Limited
to acquire Nexen Exploration
UK Limited, making our Group
the operator and sole owner
of all our licences.
08
08
IGas Energy plc Annual report and accounts 2013/14 Caithness,
Scotland
North
West/
Staffs
East Midlands
c.50% current production
17 oil fields
80 sites
The East Midlands area is comprised
of two primary production centres:
Welton and Gainsborough.
The Welton area is made up of six fields
and a gathering centre where produced
oil, gas and water are separated. The
produced oil is typically transported to
Conoco Immingham via road tanker. Gas
is used for power generation and exported
to the National Grid and produced water
is pumped for reinjection.
Weald Basin
c.50% current production
11 oil fields
18 sites
There are 11 fields ranging from
Stockbridge, near Winchester, in the west
to Palmers Wood near Gatwick in the east
and now includes the Singleton field. The
area has produced more than 21 million
barrels of oil to date.
Oil is collected by tanker from our sites
and transported to our processing
facilities at Holybourne. Here we have
storage for more than 20,000 barrels
and a rail terminal allowing us to transport
our products to local refineries by train.
We also handle oil on behalf of other
operators in the area, providing us with
an additional revenue stream.
North West
In the North West we have seven
onshore licences, located in the counties
of Cheshire, Flintshire and Staffordshire,
that contain the Carboniferous Coal
Measures and Bowland-Hodder shales.
The total area under licence in this region
is 1,020km2 (approximately 252 k.acres),
where we own 100% working interest
in all licences.
Caithness, Scotland
In September 2013, we acquired
Caithness Petroleum Limited,
a privately-owned, British independent
oil and gas exploration and production
company. We currently produce
around 100 bopd from a single well.
East
Midlands
Weald
Basin
2012
Acquisition of Singleton
from Providence Resources.
Ince Marshes well drilled.
2013
Commenced exploration
well at Barton Moss.
2014
Farm out agreement with
Total for work programme
of up to US$46.5m.
Acquisition of
Caithness Petroleum.
09
09
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS STRATEGIC REPORT / ASSETS OVERVIEW
EYES ON
THE FUTURE
How it works
10
Well
Ground water table
Sandstone
Coal measures
Shale fractures
Shard
x6.5
Shale
Limestone
IGas Energy plc Annual report and accounts 2013/14 Gas from shale
“If safely and economically extracted, shale gas can develop a new onshore
gas industry, which provides local employment and ensures a security
of supply for the UK1.”
3 Tcf
Britain’s total gas use
running at 3 Tcf a year
102 Tcf
IGas believes that within its North
West licence area there is up
to 102 Tcf of shale gas (mid case)
The best way to ensure security of supply
is to source energy domestically. Much
of the natural gas we currently consume
is sourced from a range of locations
including Norway, Russia and Qatar.
With a long heritage of onshore oil and gas
production dating back to 1851, the safe
and responsible exploitation of Britain’s
onshore natural gas resources has the
potential to be central in improving
energy independence.
The economic case
In addition to achieving energy
independence, other significant benefits
of developing Britain’s onshore oil and
gas industry are economic. According to
the recent EY Report, “Getting ready for
UK shale gas”1, commissioned by UKOOG,
the potential opportunities include:
• UK-based oil field service and
manufacturing companies providing
specialised equipment and skills for
hydraulic fracturing totalling £17bn
• A £4.1bn waste, storage and
transportation requirement
• A £2.3bn steel requirement in Britain
• The potential for a new £1.65bn
rig manufacturing industry
• A new market for existing
British businesses
• A 64,500 jobs opportunity and
a requirement to grow skills
What is shale gas?
Shale oil and gas are hydrocarbons
contained within underground shale
beds, a type of sedimentary rock laid
down millions of years ago. This shale
rock acts as the hydrocarbon source rock.
Shales containing the right quantities
of gas for extraction have a number of
common properties such as being rich
in organic material and being in an area
of high heat and pressure which has
allowed oil to be converted into gas.
Conventional gas reservoirs are formed
when shale gas migrates into more
permeable rocks from which it can
naturally flow.
The gas can be held in natural fractures,
open pore spaces or absorbed into organic
material. Shale rock doesn’t usually have the
right permeability to allow significant flow
of gas. Unlike drilling into a conventional
reservoir where there is at least some flow
of oil and gas immediately, an accumulation
of shale oil or gas is produced directly from
the source rock and must be stimulated
in some way before it will begin to flow.
Shale gas has been produced for many
years from places with natural fractures
but hydraulic fracturing allows the fractures
to be extended and to stimulate the oil
or gas either to begin or continue flowing.
Why do we need natural gas from shale?
Britain’s energy mix is changing. Coal-fired
power plants are being closed to meet
carbon emission targets and oil and gas
production from the North Sea is declining.
The growth in renewable energy sources
has gone someway to fill the energy gap
but natural gas remains key to ensuring
that Britain continues to meet its base-
load requirements whilst enjoying reliable
and affordable energy with a lower carbon
footprint than coal.
1 Source: EY “Getting ready for UK shale gas Report” commissioned by UKOOG (April 2014):
www.ukoog.org.uk/images/ukoog/pdfs/Getting_ready_for_UK_shale2_gas_FINAL2022.04.14.pdf
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IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS STRATEGIC REPORT / ASSETS OVERVIEW CONTINUED
Producing assets
IGas currently has 30 fields with 117 oil and gas wells in Britain,
producing predominantly oil.
Current production
The average net production in the twelve
months to 31 March 2014 was 2,783 boepd
(2013: 2,470 boepd).
Our production is evenly spread between
our fields in the East Midlands in the North
and the Weald Basin in the South. Following
the Caithness acquisition oil production
from the Lybster field has been average
over 100 bopd.
We continue to identify opportunities
to enhance recovery and production from
our conventional fields. Our ‘Chase the
Barrels’ initiative and other technical
studies have demonstrated the potential
to add new production.
Our total conventional reserves and
resources have been independently
assessed by Senergy this year as
23.9 mmboe (2P and 2C). In comparison,
the assessment at the time of 2012 CPR
by Senergy was 16.4 mmboe (2P and 2C).
The 2014 figures include the 2P reserves
and resources in relation to the acquisitions
of Singleton (including the Baxter’s Copse
field) and Caithness assessed by Senergy.
The Doe Green pilot Coal Bed Methane
(“CBM”) site continues to produce gas
which is used to generate electricity and
is then exported to the National Grid.
Chase the Barrels
Progress on our ‘Chase the Barrels’
initiative has continued with activity to
realise incremental production and opex
optimisation. This has been augmented
by an increasing focus on more sustainable
long term production enhancements such
as the pilot water flood initiatives at Welton
and Beckingham. It is hoped that success
in these areas will help lift reserves.
During the period, the technical team
continued to evaluate a number of
opportunities to increase oil production
through relatively low cost well intervention
and production enhancement operations.
Based on comprehensive subsurface
studies the most attractive short term
well entry opportunities, including for
example re-perforations, water shut offs
and recompletions were identified, ranked
and some have been implemented.
12
We have continued to pursue well
interventions to enhance performance,
examples include, workover of Stockbridge
and Storrington wells to enhance
production and install downhole gauges
(STOR-1) to monitor reservoir pressure
and optimise offtake. Similar activities
have been conducted to optimise jet
pump performance at various locations.
We continue to look for new innovative
technology applications that may be
of benefit, notable examples include the
re-perforation of Glentworth-11. Other
examples include running perforating tools
on rods which have significant cost savings
over more traditional approaches.
We have also successfully trialled the
installation of a wax reduction tool in
a number of wells. The results from the
long Clawson C2 well suggest that we can
reduce the need for “hot washing” from
twenty six times per annum to just four
which results in a reduction of deferred
production of some 2,000 bbls per annum.
This trial is to be extended to other wells
which have a similar waxing issues.
If successful, this will increase well up-time
and reduce the need for costly workovers
and associated deferred production.
The programme of work for the installation
of technology to optimise rod pumping wells
using Rod Pump Off Controllers (RPOC)
has continued. To date we have installed
49 systems out of the initial tranche of 50.
In addition to increased well uptime due
to lower rod wear/breakages and associated
operating expenditure savings, we have
also seen a significant reduction in deferred
production. Due to the success of the initial
installations, we plan to extend this initiative
across the portfolio where appropriate.
The pilot water flood projects at Welton
and Beckingham are progressing well with
surface infrastructure enabling works largely
completed (intelligent pigging of existing
lines, pipeline hydraulics completed, Project
HAZOP, modifications to manifolds and
equipment orders placed). The completions
in the candidate water injection wells have
been installed and commissioning of the
plant is expected in the second half of the
2014/15 financial year.
There are a number of stranded gas
monetisation projects that are being
evaluated including Albury. Planning
permission was granted earlier this year
for a change of use for the Albury site,
including the potential installation of
a Liquefied Natural Gas (LNG) plant. This
will allow natural gas production from
the site to be compressed into LNG for
transportation off-site. There are many uses
for LNG, including as an alternative road
fuel. Advanced commercial negotiations are
currently nearing completion for the offtake
of the LNG from the site, as a precursor
to formal project sanction. The potential
for using this mini LNG technology
elsewhere in the portfolio as a means
of monetising stranded gas is something
we are actively pursuing and evaluating.
Similar studies are underway to assess
how to monetise the gas potential
at Lybster. Preliminary studies indicate
a solution involving Compressed Natural
Gas. A project team to advance this
has been established.
Field development studies continue
aimed at increasing ultimate recovery
and reserves and identifying infill well
drilling opportunities.
21 mboe
Based in southern England, the Weald
Basin consists of 11 fields within
which there are 18 production sites
and 21 million barrels of oil have
been produced to date
47 mboe
The East Midlands area under
licence consists of 17 oil fields and
80 sites and has produced more
than 47 million barrels of oil to date
IGas Energy plc Annual report and accounts 2013/14 SUCCESSFUL
ENERGY
PRODUCER
1313
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS STRATEGIC REPORT / CHAIRMAN’S STATEMENT
“Our vision is to be
the leading onshore
independent British
company developing
and producing
discovered hydrocarbons.”
Financial results
Revenues attributable to oil and gas
production during the period were
£75.9m (2013: £68.3m) on production
of c.1.0 mmboe (2013: c.0.9 mmboe).
EBITDA2 for the year to 31st March 2014
was £34.3m (2013: £32.3m) and we made
a net profit of £2.3m against a loss in 2013
of £6.0m.
The Company ended the period with
£28.3m of cash and cash equivalents
(2013: £9.8m), net debt of £80.4m
(2013: £77.4m) and net current assets
of £74.3m (2013: £59.1m).
We completed a successful refinancing of
the Macquarie debt through the completion
of US$165m five year term bonds in April
2013, which listed on the Oslo Børs in
September. In December we completed the
arrangement of a US$30m senior unsecured
bonds issue, which were listed on the Oslo
alternative bond market shortly thereafter.
Operational review
In December 2013 we acquired Caithness
Oil Limited, a producing asset in Scotland,
with upside potential through the
monetisation of associated gas. This is
in line with our strategy of supplementing
organic growth with acquisitions that have
a complementary fit with the business.
Earlier this year IGas, along with our
partners Egdon Resources, Dart Energy and
eCorp signed a Farm-out Agreement with
Total E&P UK Limited for a fully funded
work programme of up to US$46.5m
on two of our licence areas in the
Gainsborough Trough in Lincolnshire.
IGas became operator of the licences on
completion of the deal in February and
unusually increased its interest in the
licence through the transaction.
The entry of the first super major into British
shale gas licences is a further endorsement
of the potential that exists following the
commitments by Centrica and GDF Suez to
other UK acreage, and demonstrates strong
support for our operating capability.
We completed drilling operations at our
exploration well at Barton Moss in Eccles
in a safe and environmentally responsible
manner. The well encountered the coal
measures at anticipated depths and also
found a package comprising the Sabden
and Bowland Shale formations.
With three decades of experience of
onshore exploration and developments
in Britain, the IGas Group is well aware
of the challenge of managing both above
and below ground risks. The former,
in particular, have grown in complexity
more recently as we are rightly being held
ever more accountable for the impact
of our operations.
I am delighted to report on a year of
material developments for both IGas
and the wider onshore oil and gas industry
in Britain.
Production has been in line with budget,
we have acquired an additional producing
asset in Scotland, successfully completed
an exploration well in the North West and
have a significant forward programme for
both our existing producing assets as well
as shale and coal bed methane appraisal.
During the course of the year there
has been meaningful progress made
in developing the regulatory and
associated framework to support shale
gas development. The Government has
now put its full support behind shale gas
and there is a broad cross party consensus
in favour of its development in Britain.
As part of this progress the Government
is putting in place a considerable number
of measures whereby local communities
will benefit directly from shale activity,
starting at the exploratory phase and
increasing very substantially in the event
of commercial production.
Recent studies in Britain by a number
of eminent institutions and individuals
including the Royal Society and Royal
Academy of Engineering, Public Health
England, the Chartered Institute of Water
and Environmental Management and
Professor David Mackay and Dr Tim Stone
have all concluded that any potential risks
associated with hydraulic fracturing can be
managed in a properly regulated industry.
14
IGas Energy plc Annual report and accounts 2013/14 £75.9m
Revenue (2013: £68.3m)
We are investing heavily in building our
organisational capabilities, continuously
seeking to improve our understanding,
engagement and social performance.
We are determined to maximise local
business opportunities and are committed
to engaging with the communities in which
we operate with integrity and transparency.
People
Enabling people to fulfil their potential
is central to achieving both our strategy
and our vision of creating shared prosperity
for our shareholders, our staff and the
communities with whom we work.
Our workforce now totals 161 people.
We remain focused on building capacity
in our areas of operation and creating
local employment opportunities.
The contribution and efforts of the
executive team at IGas has led to significant
value creation for your Company over
the last year and I would like to commend
them particularly on this result.
I would also like to thank all of our
employees and contractors for their
hard work and commitment to the
future success of the Company.
Outlook
The global appetite for energy continues
to grow. Domestically, North Sea oil and
gas output has fallen by 38% over the last
three years and by 2020 Britain is set to
be reliant on imports to meet 70% of the
country’s gas needs. The vulnerability of
energy supplies has also been exposed by
international political unrest. When it comes
to security of supply, there is a pressing
need for solutions and we believe we have
successfully positioned IGas to be part
of the solution.
Since the year end, as part of our strategy
to secure access to more resources, we
have announced the proposed acquisition
of Dart Energy which will create a market
leading onshore British oil and gas company
with the largest area in Britain under licence
of over 1 million net acres, including
a presence in each of Britain’s major
shale basins.
We also intend to be an active
participant in the 14th UK Onshore
licensing round which is currently
expected to be announced around
mid-year.
Your Board remains committed to
creating long-term sustainable value
for all of our stakeholders.
Francis Gugen
Non-Executive Chairman
2 EBITDA relates to earnings before gains/(losses) on oil price derivatives, net finance costs, tax, depletion,
depreciation and amortisation, acquisition costs and impairment of exploration and evaluation assets.
15
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS STRATEGIC REPORT / Q&A WITH THE CHIEF EXECUTIVE OFFICER
Q&ANorth Sea tax revenues have been
What difference do you think
the onshore industry could make
to Britain?
Britain needs to secure its future energy mix
and offset declining North Sea production.
Whilst doing this, it must also reduce carbon
emissions from reliance on coal power and
ensure an affordable future energy supply for
consumers. Gas is vital to Britain, it currently
provides more than 80% of our heating needs
and around 30% of our electricity generation.
The benefits of the shale industry will
be felt across the country in lower imports,
higher revenues to the Exchequer, job creation,
supply chain development and energy security.
What are the key challenges faced
by IGas and other operators?
It is a combination of both above surface and
below surface. Above surface is about showing
the public that this can be carried out safely
and responsibly. Onshore oil and gas regulation
in Britain has been recognised as an exemplar
by the rest of the world oil and gas has for over
three decades been safely explored, developed
and produced onshore at IGas sites.
Below surface, while we know there is gas,
we still need to establish that we can we make
it flow at commercially viable rates. Britain has
several advantages over the US because of our
existing infrastructure, density of resource and
clarity of regulation.
Can an onshore gas industry ever
have sufficient scale to be material
like the North Sea was in the
last century?
Yes I believe it can. Aberdeen welcomed the
development of a new offshore industry and
the city grew to become the energy capital
of Europe and now exports its expertise
globally. We could see this replicated
onshore in the areas in which we operate.
According to the IOD Report, based on
a recovery rate of 10% the combined gas
in place estimates of the exploration
companies would equate to a recoverable
resource of 30.9 trillion cubic feet, nearly
two thirds of Britain’s potentially recoverable
conventional gas resources.
1616
considerable, accounting for more than
5% of total government receipts for much
of the 1980s. Shale gas production could
also generate significant tax revenue
for the country.
What value could this unlock for
shareholders? How would such
growth be funded?
This represents a tremendous opportunity
to be at the forefront of new and potentially
significant industry. On completion of the
Dart Energy acquisition, IGas will have the
materiality and scale that will enable it to
find partners at the asset level to help supply
the capital that exploiting these resources
will require, while retaining the position
of operator of choice.
How does IGas engage with
communities and ensure their
concerns are listened to?
We engage in a number of ways using
traditional methods such as face to face
meetings, exhibitions, information days
and direct mail as well as digital and social
media such as microsites for local projects.
We run a public information line as well as
a freepost address and online enquiries
so that the public can reach us through
whichever medium they feel most
comfortable with.
What role does onshore gas
have in decarbonizing the British
economy? Is it consistent with
our climate change targets and
renewable industry policies?
Natural gas is a vital component of Britain’s
energy mix – not only electricity for
generation but also for heating and cooking.
According to the European Commission’s
landmark ‘Energy Roadmap 2050’ report,
gas must play a key role in the transition
to a greener energy future, and is critical
for the transformation of Europe’s energy
system from fossil fuel to renewables.
Gas produced locally would generate lower
emissions than imported gas, as it doesn’t
have to be transported from places like
Russia and Qatar. Gas also produces half
the CO2 generated by burning coal, which
currently accounts for 31% of Britain’s
electricity. Developing our shale resources
will help us move away from coal and
decarbonize our economy.
Who regulates IGas’s activities?
The industry is regulated by a number
of statutory bodies including the
Environment Agency (EA) in England,
Scottish Environment Protection Agency
(SEPA) in Scotland and Natural Resources
Wales (NRW) in Wales, Health and Safety
Executive (HSE) and the Department
of Energy and Climate Change (DECC).
Onshore oil and gas regulation in Britain
has been recognised as an exemplar by
the rest of the world. In addition the
industry is governed by 14 separate
pieces of European legislation.
What are the wider community
benefits of IGas’s operations?
We are committed to the environment
and the communities in which we operate
and we have a long track record of engaging
with local residents and we operate our
own Community Fund.
There is a much wider opportunity for
communities in addition to the direct
community benefits of £100,000 when
wells are tested and 1% of revenue at
production. DECC has announced that
Councils will be able to keep 100 per
cent of business rates generated from
shale gas extraction sites. Together these
benefits are potentially worth several
million pounds.
As we proceed with the exploration of
shale there is an opportunity for local
and national businesses of all sizes in
the supply chain. The recent EY
Report “Getting ready for UK shale gas”,
commissioned by UKOOG, has highlighted
an enormous opportunity for Britain with
potentially £33bn spend in the next
15 or so years. The report also outlines
the need for some 64,500 jobs (direct,
indirect, induced) at peak production.
IGas Energy plc Annual report and accounts 2013/14 1717
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS STRATEGIC REPORT / CHIEF EXECUTIVE OFFICER’S REVIEW
“Managing trust locally, while
addressing the national energy
challenge and in the process,
potentially creating a new industry
has to be the heart of planning
for 2014/15.”
This has been another successful year
for IGas. We continued to deliver our
strategy of becoming the leading onshore
independent company developing and
producing discovered hydrocarbons
in Britain.
We have seen further growth in the
business whilst constantly maintaining
our focus on operational excellence.
The recent announcement of the proposed
acquisition of Dart Energy will create
a British national energy champion with
a track record of drilling wells safely and
on budget, placing the enlarged group in
a strong position to deliver on its existing
asset base and for future licensing rounds.
Confidence in British shale has been
demonstrated over the period by Centrica’s
investment into Cuadrilla’s acreage, which
is situated close to our licences in the North
West, GDF Suez’s farm-in transaction with
Dart Energy, whose acreage is located
immediately to the South of our acreage in
the North West and adjacent to our licences
in the East Midlands and our own farm-out
agreement with Total E&P UK Limited in
our PEDL 139/140 Licences located in the
Gainsborough Trough.
During the year significant progress has
been made in developing the regulatory
and associated framework to support
shale gas development.
In June 2013, the DECC announced
a benefits package for communities
near new shale gas drilling sites. Under
the proposals operators will offer local
communities £100,000 per hydraulically
fractured well when wells are tested,
as well as 1% of revenues once sites
become commercial. The industry, under
the umbrella of the United Kingdom
Onshore Operators Group (UKOOG), the
representative body for UK onshore oil and
gas companies, subsequently launched a
pilot scheme, for the first few exploration
sites. The scheme will be in partnership with
UK Community Foundations (UKCF), which
works for communities through a UK-wide
network of community foundations, to
independently administer the funds on
behalf of the community. UKOOG has also
launched a consultation programme across
a range of stakeholders to gauge community
opinion on a number of different potential
schemes to create a community benefit
mechanism to distribute the 1% share
of production revenue.
The EA has published draft technical
guidance for onshore oil and gas
exploration drilling, covering both
conventional and unconventional targets.
This consultation closed on 23rd October
2013. The EA has announced that it will
develop a single application pack for all
Environmental Permit Regulators including
mining waste and NORM (naturally
occurring radioactive materials),
to streamline the existing processes.
In September 2013, the Government
published the Mackay Stone report
compiled by Professor David MacKay,
chief scientific advisor at DECC, and
Dr Tim Stone, Special Advisor to the
Secretary of State, into the subject of
greenhouse gas emissions from shale gas
operations. The report concluded that,
with the right safeguards in place, the net
effect on greenhouse gas emissions from
shale gas production in Britain will be
relatively small and is likely to have
a greenhouse gas footprint similar to
other fossil fuels that society currently
depends on.
Public Health England released a report
in October on the potential public health
risks from shale gas production. The report
states that properly run and regulated
shale gas extraction represents a low
risk to public health.
In the Autumn Statement the Chancellor
announced a new fiscal regime for the
onshore oil and gas sector. The regime
reduces the tax rate on a portion of
a company’s profits from 62% to 30%
to reflect the challenges of shale gas
exploration. Companies will receive an
allowance equal to 75% of capital spent
on projects.
In January 2014, DECC announced that
local councils will be able to keep 100%
of business rates generated from onshore
production sites bringing new sites into line
with renewables projects.
18
IGas Energy plc Annual report and accounts 2013/14 Our business model
Exploration well at Barton Moss
Exploration of
conventional resources
Exploration of
unconventional resources
Extract resources safely and responsibly
Acquire complementary assets
Getting value for resources
Deliver for stakeholders
“The shale gas revolution…
can be very consistent with
low-carbon development…
Gas can be very helpful
as a bridge technology.”
Ottmar Edenhofer, co-chairman of the IPCC report and professor
of climate change economics at the Technical University Berlin.
At the end of November 2013 we spudded
an exploration well at Barton Moss in Eccles,
Greater Manchester.
The primary objective of the well was to take rock samples which
will enable us to understand what is beneath the surface more
fully and thereby identify the resource potential in the underlying
geological formations.
We worked extensively throughout the project with the various
authorities to ensure the safety of everyone on and around site
including protestors and neighbours.
As with all our operations our relationship with local residents was
vital to us. At Barton we worked with a community liaison group
in the area since we were originally granted planning permission
back in 2010.
We put in place a comprehensive relationship programme
including a community information day last September ahead of
the commencement of the operation and we launched a microsite
www.igas-barton.co.uk to ensure that as many people as possible
could view and understand the work that we were carrying out
in the area.
We believe the onus is on operators to ensure that the public are
informed as to the safe extraction of oil and gas resources. During
the exploration project at Barton we continued to inform and
explain with regular newsletters, updates to the microsite and
a drop-in community Q&A surgery session attended by senior
members of the IGas team.
To learn more about the exploration well at Barton Moss online visit:
www.igasplc.com/our-operations/where-we-operate/north-west
19
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
STRATEGIC REPORT / CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
More recently, the latest Intergovernmental
Panel on Climate Change (IPCC) Report
stated that shale gas can help the world
to avoid dangerous climate change
if it replaces coal in power stations.
Operational review
Producing assets
The average net production in the
12 months to 31 March 2014 was
2,783 boepd (2013: 2,470 boepd).
We have made good progress on our
‘Chase the Barrels’ initiative and during
the period, the technical team has
investigated a number of opportunities
to increase oil production through
relatively low cost well intervention
and production enhancement operations.
Comprehensive subsurface studies were
carried out to identify and rank the
most attractive short term well re-entry
opportunities, including for example
re-perforations, water shut offs
and recompletions.
Caithness
In December 2013, we acquired Caithness
Oil (which includes a 100% interest in the
Lybster field), a subsidiary of Caithness
Petroleum Limited, a privately-owned
British independent oil and gas exploration
and production company for a total
consideration of £7.9m (including assumed
borrowings and closing adjustments) paid
through the issue of 7,488,301 shares.
The Lybster field was discovered in 1996
by Premier Oil and was put into production
in May 2012. The oil is currently transported
and sold to facilities at Nigg. We have
carried out routine workovers on the well
and production has averaged over 100 bopd.
This acquisition represented a good
opportunity to increase our existing
production and one that offers significant
upside potential through gas monetization
of up to 2 mmscf/d of associated gas
as well as additional upside through
utilisation of significant existing tax losses.
20
North West
Last June we released our estimated
volume of Gas Initially In Place associated
with the Shales in the North West,
including the Bowland Shale, at up
to 102 Tcf (in the midcase).
We constructed a geological model
utilising 330kms of reprocessed seismic
lines, subsurface data (including cores, logs)
from c.20 offset wells and geological data
from our well at Ince Marshes. This data
has been analysed to give estimates of
the reservoir characteristics of the shale
formations and the thickness of the shale.
These estimates cover an area of 300 square
miles giving an average mid case in place
volume of c.340 Bcf/square mile with
a range of 93 Bcf/square mile to 677 Bcf/
square mile across our North West acreage.
As part of our drilling programme to further
refine these estimates we successfully
drilled an exploration well at Barton
Moss in Eccles, Greater Manchester
over the winter.
Exploration well at Barton Moss
The operation commenced in November
2013 and the drilling was completed
in March and on budget.
The well encountered the coal measures
at anticipated depths and also successfully
intersected the secondary target of the
Dinantian limestone to calibrate the seismic
data and in doing so, the well also found
a package comprising the Sabden and
Bowland Shale formations. Over 400 feet
of core was acquired across the shale
intervals and a full suite of wire line logs
was run which together with the core
data will be used to further evaluate the
prospectivity of both the shale interval
as well as the coal measures.
The well is now suspended and full
laboratory analyses of the cores is
underway the results of which are
expected in the late Autumn. The results
from the core analyses together with the
wireline log data will be integrated and
utilised to determine the next steps
in the appraisal process. The core data
will be very beneficial in understanding
the geomechanical aspects of the shales
and this will help provide key data
to optimise the design of any future
programme involving hydraulic
fracturing of the Bowland Shale.
We are now in the process of implementing
a programme to acquire c.100km2
of 3-D seismic data in the North West
with a view to firming up several potential
exploration and development sites in the
area, prior to the drilling of our next well.
This 3-D seismic will also be fully compliant
with UKOOG Shale Gas guidelines, the
recommendations of the Royal Society
and Royal Academy of Engineers and
the requirements of the DECC consent
process prior to any shale gas hydraulic
fracturing and flow testing operations being
undertaken. This data will inform any future
hydraulic fracture design and help
to ensure minimal environmental impact.
East Midlands – PEDL 139/140
In February, IGas and our partners
Egdon Resources, Dart Energy and eCorp
announced a Farm-out Agreement with
Total E&P UK Limited (“Total”), under which
Total acquired a 40% interest in the
PEDL 139/140 Licences. Total will fund
a fully carried work programme of up to
US$46.5m, with a minimum commitment
of US$19.5m. The Licences cover an area of
240km2 and border PL178 and PEDL 006 at
Beckingham, one of our existing producing
fields. We were appointed operator on the
Licences at completion, which together with
the increase in our own equity holding as
a result of the farm-out, is an endorsement
of the value of our operating capability.
The programme will include the acquisition
of 3-D seismic; the drilling and testing of
a vertical exploration well and associated
well pad construction; and, conditional on
the success of the testing of the exploration
well, the drilling and testing of a second
appraisal horizontal well.
We have now completed our 3-D seismic
acquisition on PEDL 139/140 on behalf
of our joint venture partners. Accordingly,
we will now appraise the results with
a view to site selection, before preparing
both an Environmental Risk Assessment and
subsequently a full Environmental Impact
Assessment for the identified exploration
well. In parallel, a comprehensive
community engagement programme
in the selected area is being implemented.
Health & Safety
Nothing is more important to IGas
than safety – from our people and the
communities in which we operate,
to the integrity of the assets and
facilities that we manage and operate.
I am delighted that we have been
awarded a RoSPA Gold Award for the
eighth consecutive year and have had
no lost time incidents through the period.
IGas Energy plc Annual report and accounts 2013/14
The proposed acquisition of Dart Energy will
be voted on by both sets of shareholders
in the coming weeks. With their support,
the combined asset base of the businesses
would reinforce our position at the heart
of unlocking Britain’s energy potential and
further demonstrates our commitment
to, and confidence in, the British onshore
oil and gas sector. The transaction would
further strengthen our position financially,
operationally and also significantly increase
our licensed acreage.
We are committed to delivering both
existing and potential hydrocarbons
across the country in partnership with
local communities, as we work together
to unlock what could be a strategically
important resource for Britain.
Andrew Austin
Chief Executive Officer
IGas in the community
Supporting and sustaining the communities
in which we operate is fundamental
to our success and communicating
with our neighbours is an essential part
of our everyday operations.
We have now announced the successful
recipients of the 2014 round of our
IGas Energy Community Fund. This
independently administered fund was
established to help local communities
located close to the oil and gas exploration
and production sites where we operate.
Share Incentive Plan
In 2013 we introduced an Inland Revenue
approved all-employee Share Incentive
Plan (“SIP”) to encourage wider share
ownership amongst staff and to reward
the achievement of quarterly production
forecast targets with company sponsored
‘matching shares’. Under the plan,
employees contribute up to £150 per
month (£125 per month prior to April
2014) from their gross salary which is used
to acquire shares in IGas, which are held
in Trust to benefit from income and capital
gains tax allowances.
Following the initial subscription and
matching award in March 2013, the
Company has subsequently made
2-for-1 matching contributions in 3
of the 4 quarterly periods, reflecting
the successes there have been with
production. Employees who have made
the maximum contribution since inception
have now contributed £3,000 towards the
plan and in addition to their holding of
3,475 ‘Partnership’ shares, also hold 6,498
performance-related Company ‘matching’
shares, with a combined value in excess
of £13,000.
The scheme has already won two awards:
the ESOP Best Employee Share Ownership
Plan for companies with fewer than 1,500
employees and the IFS Proshare Best
Commitment to Employee Share Ownership
(Small Company).
Outlook
In addition to exploration wells it is our
intention, in conjunction with partners,
to drill and flow test wells during 2015
on either side of the Pennines; one in the
North West, and one in the East Midlands,
subject to being able to obtain all the
necessary permits in place. The acquisition
of c.100km2 of 3-D seismic surveys is
underway across the North West with
a view to confirming suitability of potential
exploration and development sites in
the area.
Our ‘Chase the Barrels’ initiative continues
to help us get the most out of our producing
assets and work continues on an increasing
number of gas monetisation opportunities.
The results of technical work designed
to produce a detailed understanding of
our producing reservoirs is being used
to develop work programmes which
will continue this coming year. If successful,
these programmes will offset natural
decline and support current production.
We also continue to identify infill
drilling opportunities.
IGas and the environment
Our desire to sustain and enhance the
environments in which we operate means that
we work in collaboration with local communities
and other organizations involved in preserving
and protecting local flora and fauna.
On every site IGas works hard to ensure its operations have
minimum impact on the surrounding land and our neighbours.
Key to this is a thorough understanding of the starting position
for the site in terms of the prevailing environment. IGas works with
independent environmental consultants, to assess our sites both
before work starts and throughout the life of the project.
At our exploration site at Barton Moss we carried out a series
of tests to understand the condition of air, water and soil on site.
This information provided a baseline against which we could
measure our ongoing operation. Monitoring of the site continues
after demobilisation.
21
£100,000
The industry has pledged to give
communities £100,000 for test
drilling sites
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
STRATEGIC REPORT / CHIEF FINANCIAL OFFICER’S REVIEW
“The acquisition of Caithness
Oil Limited represented a good
opportunity to increase the
Group’s existing production and
offer significant upside potential
through gas monetisation.”
In December 2013, the Company issued
US$30m of unsecured bonds, which
were shortly thereafter listed on the Oslo
alternative bond market. The bonds have
a 5 year tenure carry a fixed interest of
10% p.a., payable semi-annually, and have
a borrowing limit of US$60m. The proceeds
from the bond issue will be used for
general corporate purposes, including
gas monetisation.
Income Statement1,3
The Group recorded revenues of £75.9m
in the year (2013: £68.3m), £65.5m
excluding 3rd party oil of £10.4m
(2013: £61.0m). As stated above,
the Group completed the acquisition
of Caithness Oil on 6 December 2013
and therefore the income statement
includes approximately four months’
contribution from Caithness.
Group production in the year was
1,015,866 boe, representing an average
of 2,783 boepd (2013: 2,470 boepd).
If the Group had owned Caithness since
1 April 2013, Group production would
have averaged 2,838 boepd for the year
ended 31 March 2014.
The average realised price per barrel
pre-hedge was £66.5 (US$106.1)
(2013: £69.4 (US$109.6)) with narrow
discounts to Brent continuing to be
achieved. After taking into account the
cash effect of hedging, which amounted
to an average of £2.0 (US$3.2) per barrel
(2013: £6.9 (US$10.9)), the average realised
oil price was £64.5 (US$102.9) (2013: £62.5
(US$98.7)) per barrel. The Company has
now changed the way in which it hedges
oil production through the use of zero cost
collars and therefore this cost is expected
to be reduced moving forward.
Cost of sales of £47.9m (2013: £38.0m),
includes depreciation, depletion and
amortisation (“D,D&A”) of £13.9m
(2013: £10.0m) and operating costs
of £34.1m (2013: £28.1m) including
£9.9m in relation to third party oil
(2013: £7.0m) and £1.1m in relation
to Caithness. Operating costs per barrel
of oil equivalent (“boe”) were £23.3
(2013: £21.6), excluding costs associated
with third party oil. Operating costs
include transportation costs of £2.84/boe
(2013: £3.15/boe) and the costs of our
well service team of £3.45/boe (2013:
£2.89/boe). Net back per boe (on an
Income Statement basis) were US$56.3
(£35.3) (2013: US$62.0 (£39.3)).
The year ended 31 March 2014 has been
another extremely active year for the IGas
Group, including the completion of the
US$165m secured bond issue in April 2013,
which was subsequently listed on the Oslo
Bors in September 2013, the completion
of the acquisition of Caithness Oil Limited
(“Caithness”) and the arrangement of
US$30m unsecured bonds.
On 6 December 2013, the Company
completed the acquisition of Caithness
from Caithness Petroleum plc for £7.9m
(including assumed borrowings) which
was financed by issuing 7,488,301 Ordinary
Shares. The acquisition represented
a good opportunity to increase the
Group’s existing production and offer
significant upside potential through gas
monetisation. Caithness also came with
significant existing tax losses.
£34.3m
EBITDA (2013: £32.3m)
22
IGas Energy plc Annual report and accounts 2013/14 Revenues
EBITDA2
Underlying operating profit3
Profit/(loss) before tax
Net cash from operating activities
Net debt4
Cash and cash equivalents
Net assets
Year to
31 March 20141
Year to
31 March 20135
£75.9m
£34.3m
£20.3m
£2.3m
£25.2m
£80.4m
£28.3m
£74.3m
£68.3m
£32.3m
£22.1m
(£6.0m)
£28.9m
£77.4m
£9.8m
£59.1m
Notes
1 On 6 December 2013, the Company completed the acquisition of Caithness Oil Limited and therefore the 2014
results reflect approximately four months’ contribution from Caithness Oil.
2 EBITDA relates to earnings before gains/(losses) on oil price derivatives, net finance costs, tax, depletion,
depreciation and amortisation, acquisition costs and impairment of exploration and evaluation assets.
3 Underlying operating profit excludes the gains/(losses) on oil price swaps, acquisition costs and impairment
of exploration and evaluation assets.
4 Net debt is borrowings less cash and restricted cash.
5 On 28 February 2013, the Company completed the acquisition of PR Singleton from Providence Resources plc
and therefore the 2013 results reflect one month’s contribution from PR Singleton.
Administrative expenses were £7.9m
(2013: £8.4m). A charge for the impairment
of exploration and evaluation assets of
£3.3m (2013: £1.1m) was incurred during
the year following the relinquishment of
PEDLs 116, 107 and SSPL 1481 exploration
licences in Staffordshire and Point of Ayr.
Loss on oil price derivatives was £2.1m
(2013: profit £0.9m).
Net finance costs were £12.5m (2013:
£27.9m), which primarily relates to the
net effect of bond interest payable
(£11.6m) and loss on the fair valuation
of warrants outstanding (£8.1m), offset
by a net revaluation gain of £7.8m, due
to the strengthening of £ sterling versus
the US dollar over the past twelve months.
US$106.1
Realised price
per barrel
Other income amounted to £0.2m
(2013: £0.2m).
US$0
Gross profit of £28.0m was recognised in
the year (2013: £30.3m) with underlying
profit3 of £20.3m (2013: £22.1m).
US$56.3 NET BACK TO IGAS PER BOE
US$12.7
SG&A PER BOE
US$27.1 OTHER OPERATING COST
US$5.5 WELL SERVICES
US$4.5
TRANSPORTATION & STORAGE
23
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
STRATEGIC REPORT / CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
“Group production in the year
was 1,015,866 boe, representing
an average of 2,783 boepd
(2013: 2,470 boepd).”
£28.3m
Cash and cash equivalents
(2013: £9.8m)
Net debt, being borrowings less cash
and restricted cash, at the year-end
amounted to £80.4m (2013: £77.4m).
Transaction costs of £3.7m (2013: £2.8m)
associated with the debt are offset against
the drawn debt within the balance sheet
and will be recognised over the life of
the loan in accordance with the Group’s
accounting policies.
A deferred tax charge of £10.3m has been
incurred for the year which has been
created by the recognition of certain
tax losses and other temporary timing
differences within the Group. This has
increased the deferred tax liability to
£57.7m as at the balance sheet date.
As at 31 March 2014, the Group has
recognised corporation tax losses
of £50.5m.
Stephen Bowler
Chief Financial Officer
Cash Flow
Cash and cash equivalents at 31 March
2014 were £28.3m (2013: £9.8m).
Cash generated from operating activities
in the year amounted to £25.2m
(2013: £28.9m).
On 6 December 2013, the Company raised
US$28.8m by issuing unsecured bonds,
as set out above.
During the year, the Group repaid £5.1m
(US$8.25m) of debt principal in addition
to interest of £10.6m (US$16.3m) to the
secured bonds.
The Group’s capital expenditure in the
year ended 31 March 2014 was £14.4m
(2013: £3.6m).
Balance Sheet
The Group’s non-current assets increased
by £7.1m during the period to £245.7m,
principally due to the drilling of the well
at Barton Moss and the acquisition of
Caithness. The Caithness acquisition
has been accounted for as a business
combination by the acquisition method
of accounting with an effective date of
6 December 2013, being the date the
Group gained control of Caithness.
Goodwill of £7.1m was added to the
balance sheet due to the acquisition
of Caithness.
24
IGas Energy plc Annual report and accounts 2013/14 STRATEGIC REPORT / RISKS AND UNCERTAINTIES
The Group constantly monitors the Group’s risk exposures and
reports to the Audit Committee and the Board on a regular basis.
The Audit Committee receives and reviews these reports and
focuses on ensuring that the effective systems of internal financial
and non-financial controls including the management of risk are
maintained. The results of this work are reported to the Board,
which in turn performs its own review and assessment.
The principal risks for the Group can
be summarised as:
• The Group is exposed to planning,
environmental, licensing and other
permitting risks associated with its
operations and, in particular, with drilling
and production operations. The Group
considers that such risks are partially
mitigated through compliance with
regulations, proactive engagement with
regulators, communities and the expertise
and experience of its team.
• The Group is exposed to risks associated
with geological uncertainty. No guarantee
can be given that oil or gas can be
produced in the anticipated quantities
from any or all of the Group’s assets
or that oil or gas can be delivered
economically. The Group considers that
such risks are mitigated partly given
that its producing assets are located
in established oil and gas producing
areas coupled with the extensive
expertise and experience of its
operating staff.
• The Group is exposed to market price risk
through variations in the wholesale price
of oil in the context of the production
from oil fields it owns and operates. The
Group has hedged a total of 757,000
barrels over the period to 31 March 2015,
through simple Put and Call options at
zero cost (collars). Going forward, the
Board will seek to underpin the Group’s
future cash flows by entering into
a combination of Put and Call options
structured at zero cost for baseline
production to cover on average 12
months forward. The Board will continue
to monitor the benefits of such hedging.
• The Group is also exposed to market price
risk through variations in the wholesale
price of gas and electricity in the context
of its future unconventional production
volumes. Currently the Group has not
entered into any forward contracts to
fix the prices of these commodities.
The Board will continue to monitor the
benefit of entering into such contracts
at the appropriate time.
• The Group is exposed to exchange rate
risk through both its major source of
revenue and its major borrowings being
priced in US$. The sterling denominated
oil price Puts have been taken out in
order to mitigate this risk as it affects
the need to fund operating and
administration costs which are
normally paid in pounds sterling.
• The Group is exposed, through its
operations, to liquidity risk, which
is managed by the Board who regularly
review the Group’s cash forecasts
and the adequacy of available facilities
to meet the Group’s cash requirements.
• The Group is exposed to Political
risk. This can include changes in
Government or the effect of local
or national referendum. These
political risks can result in changes
in the regulatory or fiscal environment
(including taxation) which could
affect the Group’s ability to deliver
its strategy. However, through UKOOG
and other industry associations the
Group engages with government and
other appropriate organisations to
ensure the Group is kept abreast of
expected potential changes and takes
an active role in making appropriate
representations.
• The Group is also exposed to
a variety of other risks including
those related to:
• operational matters (including cost
increases, availability of equipment
and successful project execution);
• competition;
• key personnel; and
• litigation.
• The Group is exposed to capital risk
resulting from its capital structure.
However, the capital structure is
continually monitored to ensure
it is in line with the business needs
and ongoing asset development.
Further details of the Group’s capital
management policy are disclosed
in note 23 to the consolidated
financial statements.
25
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
STRATEGIC REPORT / CORPORATE SOCIAL RESPONSIBILITY
ENGAGED &
COMMITTED
26
IGas Energy plc Annual report and accounts 2013/14 Harnessing our experience to safeguard the environment
At IGas, we are committed to the environment, our employees
and the communities in which we operate.
Summary
Over the course of the year we have
worked alongside an array of groups,
organisations and officials including
a number of Community Liaison Groups,
planning officials, the Health and Safety
Executive (HSE), the Environment Agency
(EA), the Department for Energy and
Climate Change (DECC) and the United
Kingdom Onshore Operators Group
(UKOOG). A key tenant of these efforts
is to inform those responsible for regulating
our operations and communicating our
activities to local communities.
In addition to this work, we also work
with a range of other partners and the
wider industry to share best practice
and to maintain and improve our
environmental and safety standards.
Our people
Our continued growth and development
as a company is dependent on us
recruiting and retaining the highest calibre
of employee. Building on the skills of our
team is an integral part of this and, due
to us operating in several locations, we
play a part in supporting local employment
and local economies the length and
breadth of Britain.
As of March 2014, we had 161 employees
(excluding Directors and Non-Executives)
of which 39 (24%) were women. We
recently employed two graduates and
have three apprentices at different stages
of their training. In addition, we identified
opportunities for six interns in the last
year and recruited six entry level trainee
operators our Southern operations.
Local engagement
At every one of our operating locations
we are committed to working alongside
the neighbouring communities and
establishing transparent and effective
dialogue. We understand that where we
work we become a part of that community
and we work to ensure that we consult in
an open, meaningful and effective way.
In order to maintain our social licence
to operate it is incumbent upon us to
ensure we educate and inform communities
about our activities. It is only by doing this
that we can bring lasting benefits and work
to resolve any local concerns. We undertake
this work before and during the planning
process, and for the life of the development.
We have over 90 employees engaged in
production, maintenance and well servicing
operations across our sites and the average
service for that group is now over 11 years.
Drivers and vehicle maintenance are still
over 12 years.
Our community
The nature of our business means that we
have a presence in several locations across
the country. This has given us a long history
of engaging with, and recruiting from,
local communities. This gives us excellent
experience in building strong, productive
relationships and supporting those who live
in and around the areas in which we work.
The Shannon Bradshaw Trust
A grant was awarded to The Shannon Bradshaw
Trust to help open their new community centre
in Penketh, Warrington.
It is the first community centre in the area to help all sections
of the community offering get-togethers for the elderly, such
as lunches and bingo sessions, as well as a ‘mums and tots’ group
and a drop in youth club for teenagers. The Trust works alongside
the police who share this new facility and offer advice and
counselling services to the community. The centre will also
provide training courses free of charge, helping local people
of all ages to obtain NVQs and learn a variety of new skills,
depending on their needs.
27
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
STRATEGIC REPORT / CORPORATE SOCIAL RESPONSIBILITY CONTINUED
Goodworth Clatford
Riverside Walk – Weald
The River Anton in Hampshire is a much loved
beauty spot visited by many local residents
as well as visitors to the area.
The timber boardwalk which forms part of the popular riverside
walk along the River Anton was old and dilapidated and repairs
were urgently needed. A local environment group sought our help
to replace the boards with virtually indestructible recycled plastic.
The site had to be closed on safety grounds and unless this project
went ahead, the site would have had to remain closed. A grant of
£6,000 from the IGas Community Fund has meant that the boards
have now been replaced and the area is now back open for the
local community to enjoy.
For further information visit:
www.igascommunityfund.co.uk
This year the projects that benefited ranged
from upgrading the heating system at
a swimming baths in Penketh to helping
replace a community cricket pavilion in
Storrington. Funds were also directed to
a variety of sporting and leisure projects
including a Multi-Use Games Area (MUGA)
for teenagers in Nettleham and a variety
of improvements to community buildings
across all areas.
Of particular note were grants awarded
to projects supporting young people.
They included funding the refurbishment
of a caravan in Salford, to convert it into
a mobile youth centre and helping Surrey
Police set up a boxing and fitness club as
a response to problems with anti-social
behaviour in South Godstone.
The panel gave priority to projects located
closest to our oil and gas operations and
to those where the benefits would go
to the widest span of the community.
They also looked for projects that would
be sustainable long-term without further
substantial fund-raising.
In addition to the Community Fund, IGas
supported several of its staff in their
efforts to volunteer or raise money
for charity. Charitable donations in
the period totalled £18,001.
Health, safety & environment
As we expand further onshore all our
operations will continue to be run to the
highest standards of safety, reliability and
environmental management working in
partnership with the communities in which
we operate.
The security, health and safety of our
workforce is of paramount importance
and an integral part of everything we
do. A positive, safe and productive work
environment for all of our team comes from
ensuring the contribution of each team
member towards building and sustaining
a strong safety culture. We conduct routine
assessments of our operating standards
and review on an on-going basis our facility
HSE and ER Plans. These include risk
assessments and mitigation that extend
from site facilities to considering issues
within the local geographical area.
In terms of site safety, we have emergency
preparedness and response arrangements
and incident response and reporting
processes in place. We place great
importance in ensuring the effectiveness
of our response, and the ultimate safety
and security of our site personnel and
others who may be affected by
our activities.
IGas Energy Community Fund
Established in 2008, the IGas Energy
Community Fund was established to
provide a means of revitalising and
investing back into the communities
in which we operate. With a focus on
charitable, educational or benevolent
projects, it is an independently managed
fund with allocations being selected
by members of community groups
and Parish Councils from the areas
surrounding our operations.
The projects it funds benefit, not only
the local communities, but also provide
support to children and young people,
vulnerable members of our communities,
regeneration, self-help groups delivering
basic services, wildlife projects and
projects providing education and skills
development opportunities.
In the period the Fund awarded nearly
£149,000 worth of grants to support
25 projects in towns and villages close
to its operations.
The latest awards were made by a panel
made up of two senior executives from
the company plus four representatives
from community action organisations
in the North West, East Midlands and
Southern England. A total of over £53,624
went to Cheshire and Salford, £43,047
to Lincolnshire, Leicestershire and
Nottinghamshire and £37,000 to
Surrey, Hampshire and West Sussex.
28
IGas Energy plc Annual report and accounts 2013/14
Health, safety & environment
As we expand further onshore all our operations
will continue to be run to the highest standards of
safety, reliability and environmental management
working in partnership with the communities in
which we operate.
Our Company track record includes:
• inherent health and safety regulation framework
implemented with no history of major incident
• impact mitigation applied throughout the lifecycle
of an operation
• HSE and Emergency Response plans implemented
for site safety purposes and extended to
encompass local geographical issues
• 14 greenfield planning permissions have been
granted since 2002
The Strategic Report, as set out on
pages 01 to 29, has been approved
by order of the Board
Mofo Secretaries Limited
Secretary
IGas Energy plc
Registered Office:
7 Down Street
London
W1J 7AJ
Our management system is aligned to the
requirements of the occupational health
and safety standard OHSAS 18001, and we
remain committed to pursuing certification
to this standard.
During the reporting period we have had
no Lost Time Injuries (“LTIs”), assisted by our
continued commitment to safe operations.
Our environment
We have successfully maintained our
certification to the International Quality
Management standard ISO 9001, and the
Environmental Management standard,
ISO 14001 through our on-going
commitment to maintaining the
requirements of these standards.
Our mandatory environmental operating
standards are applied to all operating
facilities. Initial risk assessments are
conducted, along with baseline surveys,
applying impact mitigation throughout
all phases up to site restoration.
Our desire to sustain and enhance the
environments in which we operate
means that we work in collaboration with
organisations involved in protecting local
flora and fauna including, for example,
The Royal Society for Protection of Birds.
29
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
CORPORATE GOVERNANCE / BOARD OF DIRECTORS
Strong leadership
The Board is a highly experienced team of experts, committed
to delivering shareholder value and to working in partnership
with the communities in which IGas operates.
Francis Gugen
Non-Executive Chairman
Francis is a founder and Non-Executive Chairman and has over 40 years’ oil and gas
industry experience. Between 1982 and 2000 he helped grow Amerada Hess in North
West Europe, ultimately becoming CEO. Currently he is also Non-Executive Chairman
of Petroleum Geophysical Services ASA and of Chrysaor Limited and a board member
of SBM Offshore NV, all involved in conventional oil & gas. Until 2006 he served
as Non-Executive Chairman of the start up North Sea gas fields and pipelines
operator CH4 Energy Limited, which was then disposed of for €224m.
Andrew Austin
Chief Executive Officer
Andrew is a founder of IGas, has been an Executive Director since 2004 and the Chief
Executive Officer for the last five years with responsibility for the day to day operations
and business development. Andrew is responsible for the transformation of IGas from
a non-operating partner to delivering material hydrocarbon production to Britain’s
energy market.
Prior to joining IGas, Andrew has been involved in a number of ventures as principal,
specialising in energy projects in the gas, electricity and renewable sectors.
Stephen Bowler
Chief Financial Officer
Steve started his career at Touche Ross, now Deloitte, where he qualified as a chartered
accountant having spent time in both their audit and corporate finance divisions. In 1999,
Steve joined ABN Amro Hoare Govett, now Jefferies Hoare Govett, where he acted as
adviser and broker to a wide range of companies with a particular focus on E&P. Steve
joined IGas on 1st November 2011. Since Steve joined IGas, the Group has, inter alia,
successfully completed three acquisitions, two bond raising and an equity issue.
John Blaymires
Chief Operating Officer
John has 30 years of international experience in the oil and gas industry gained with
Hess Corporation and Shell International. Before joining IGas he was Director of
Technology Development for Hess based in Houston, where he helped develop a global
engineering and geoscience technology group responsible for providing support across
the E&P business, from deepwater to unconventional resources. Prior to that John was
Technical Director for Hess’ operations in West Africa, and subsequently South East Asia
with responsibility for several major oil and gas developments. John has a BSc and PhD
in Mining Engineering from Leeds University.
30
IGas Energy plc Annual report and accounts 2013/14 John Bryant
Senior Independent
Non-Executive Director
John is the Chairman of AIM listed Weatherley International plc, and a board member
of AIM listed China Africa Resources Plc. He was until recently a board member of the
Attiki Gas Company, which supplies natural gas to Athens and the surrounding districts.
John previously served as president of Cinergy Global Resources Corp, responsible for
all international business and global renewable power operations of this US based
electricity and gas utility provider.
Robin Pinchbeck
Non-Executive Director
Rob has 40 years of international experience in the oil and gas sector, having held
leadership positions in both oil and oil-services sectors with BP, Atlantic Power, PGS
and most recently, with Petrofac Limited where he founded and led the Operations
Services division, and served as Group Director of Strategy.
Rob’s past Non-Executive positions include Sondex plc, SLR Consulting Ltd, Enquest
plc and Sparrows Offshore Group Limited (where he was Chairman). He is currently
a Non-Executive Director at Enteq Upstream plc, Seven Energy International Limited
and Starn Energy Services Limited and is Chairman at PTS Consulting Limited.
Cuth McDowell
Non-Executive Director
Cuth has 33 years of international experience in the oil and gas sector, having held
a range of leadership positions in Exploration and Production. He began his career
with BP where he held various commercial and management roles over eight years.
Cuth then joined Clyde Petroleum plc, initially as Senior Economist, subsequently
becoming Group Commercial Manager before Clyde was bought by Gulf Canada.
In 1997, Cuth joined Paladin Resources plc, where he served primarily as Finance
Director. The company raised £120m in four separate primary offerings before it
was sold to Talisman Energy Inc. for approximately £1.2bn in 2006. Cuth is currently
a Non-Executive Director at Pitkin Petroleum, a privately owned international upstream
oil and gas company.
31
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Corporate Governance
The Board of Directors support high standards of corporate governance and the guidance set out in the UK Corporate Governance
Code. As an AIM listed Company, IGas Energy plc is not obliged to comply with The UK Corporate Governance Code published
in September 2012 (the “Code”) but instead uses its provisions as a guide, only as considered appropriate to the circumstances
of the Company.
The Board and its committees
The Board of the Company consists of three Executive Directors and four Non-Executive Directors; with Mr Bryant, Mr Pinchbeck
and Mr McDowell being considered to be independent. The Senior Independent Non-Executive Director is John Bryant and biographies
of all the Directors are included within this statement.
The Board retains full and effective control over the Group. The Board meets regularly, at least eight times a year, to consider
reports on the operational and financial performance of the Group and to decide on matters reserved unto itself, which include
reviewing and approving the Group’s strategy, budgets, major items of capital expenditure and senior personnel appointments.
The Directors have established separate committees each chaired by a Non-Executive Director as follows:
Audit committee
The Committee comprises only Non-Executive Directors; being chaired by Cuth McDowell and having as other members John Bryant
and Robin Pinchbeck. The Chairman and the Executive Directors may attend only at the invitation of the Committee.
The Committee receives and reviews reports from management and the Group’s auditors relating to the Group’s annual report and
accounts and to interim results announcements. The Committee focuses particularly on compliance with legal requirements, accounting
standards and the AIM Rules and on ensuring that effective systems of internal financial and non-financial controls (including for the
management of risk and whistle-blowing) are maintained. However, the ultimate responsibility for reviewing and approving the annual
report and accounts remains with the Board of Directors. The Committee is also responsible for making recommendations to the Board
of Directors on the appointment of the external auditors and their remuneration. The Committee keeps under review the external
auditors’ independence and considers the nature, scope, and results of the auditor’s work and develops policy on and reviews
(reserving the right to approve) any non-audit services that are provided by the external auditors.
The Committee normally meets at least three times a year and meets the external auditors at least annually without the presence
of the Executive Directors.
Remuneration committee
The Committee comprises only Non-Executive Directors, being chaired by John Bryant and having as other members Robin Pinchbeck
and Cuth McDowell. The Committee, which normally meets at least twice a year, has responsibility for making recommendations to
the Board of Directors on the Company’s policy on the remuneration of the Chairman, Executive Directors and other senior executives
(as are delegated to the Committee to consider) and for determining, within agreed terms of reference, specific remuneration packages
for each of them, including pension rights, any compensation payments and the implementation of executive incentive schemes.
In accordance with the Committee’s terms of reference, no Director may participate in discussions relating to their own terms and
conditions of service or remuneration.
Nomination committee
The Nomination committee is chaired by the Chairman, Francis Gugen, and its other member is the Senior Independent Non-Executive
Director, John Bryant. The Committee, which meets as required throughout the year, has responsibility for considering the size,
structure and composition of the Board of Directors, retirements and appointments of additional and replacement Directors and making
appropriate recommendations to the Board of Directors. The Committee is also tasked with ensuring that plans are in place for orderly
succession to the Board of Directors and senior management positions, so as to maintain an appropriate balance of skills and experience
within the Group and the Board of Directors. The Chief Executive Officer of the Company is invited to attend meetings of the Committee
when the Committee is discussing matters related to executive management and such other matters as the Committee chairman
deems appropriate.
At each Annual General Meeting at least one third of the Directors shall retire from office by rotation. The Directors to retire by rotation
shall include, firstly, any Director who wishes to retire at the meeting and not offer himself for re-election and, secondly, those Directors
who have been longest in office since their last appointment or reappointment, provided always that each Director shall be required to
retire and offer himself for re-election at least every three years. Directors appointed by the Board hold office only until the dissolution
of the Annual General Meeting of the Company next following such appointment.
32
IGas Energy plc Annual report and accounts 2013/14CORPORATE GOVERNANCE Internal control
The Board acknowledges that it is responsible for establishing and maintaining the Group’s system of internal controls and reviewing
its effectiveness. The procedures that include, inter alia, financial, operational, health & safety, compliance matters and risk management
(as detailed in the Strategic Report) are reviewed on an on-going basis. The Group’s internal control procedures include Board approval
for all significant projects, including corporate transactions and major capital projects. The Board receives and reviews regular reports
covering both the technical progress of projects and the Group’s financial affairs to facilitate its control. The Group has in place internal
control and risk management systems in relation to the Group’s financial reporting process and the Group’s process for preparing
consolidated accounts. These systems include policies and procedures to ensure that adequate accounting records are maintained and
transactions are recorded accurately and fairly to permit the preparation of Consolidated financial statements in accordance with IFRS.
The Audit committee reviews draft annual and interim reports before recommending their publication to the Board. The Audit committee
discusses with the Chief Executive Officer, Chief Financial Officer and external auditors the significant accounting policies, estimates and
judgments applied in preparing these reports. The internal control system can only provide reasonable and not absolute assurance against
material misstatement or loss. The Board has considered the need for a separate internal audit function but, bearing in mind the present
size and composition of the Group, does not consider it necessary at the current time.
UK Bribery Act
IGas has reviewed the appropriate policies and procedures to ensure compliance with the UK Bribery Act. The Company continues
actively to promote good practice throughout the Group and has initiated a rolling programme of anti-bribery and corruption training
for all relevant employees.
Relations with shareholders
Communications with shareholders are considered important by the Directors. The primary contact with shareholders, investors and
analysts is the Chief Executive Officer. The other Executive Directors, however, regularly speak to investors and analysts during the year.
Company circulars and press releases have also been issued throughout the year for the purpose of keeping investors informed about
the Group’s progress.
The Company also maintains a website (www.igasplc.com) that is regularly updated and contains a wide range of information about
the Group.
33
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Directors’ Remuneration Report
This report explains our remuneration policy for Directors and sets out how decisions regarding Directors’ pay for the period
under review have been taken.
Remit of the Remuneration committee
The remit of the Remuneration committee (the “Committee”) is provided in the Corporate Governance section.
The Committee has engaged the services of PricewaterhouseCoopers LLP (“PwC”) to provide wholly independent advice on executive
compensation and to assist the Committee in the implementation and evaluation of its long term incentive arrangements. There were
no other services provided by PwC to the Group during the period.
Remuneration policy
The Company’s policy is to maintain levels of remuneration sufficient to attract, motivate and retain senior executives of the highest
calibre who can deliver growth in shareholder value. Executive remuneration currently consists of basic salary, pensions, benefits,
annual bonus (based on annually set targets), and long term incentives (to reward long term performance). The Company seeks to
strike an appropriate balance between fixed and performance related reward, therefore, the total remuneration package is structured
so that a significant proportion is subject to the achievement of performance targets, forming a clear link between pay and performance.
The performance targets are aligned to the key drivers of the business strategy, thereby creating a strong alignment of interest between
executives and shareholders.
The Committee will continue to review the Company’s remuneration policy and make amendments, if necessary, to ensure it remains
fit for purpose for the Company, driving high levels of executive performance and remains competitive in the market.
Base salary
The purpose of the base salary is to:
• help recruit and retain key individuals;
• reflect the individual’s experience, role and contribution within the Company; and
• ensure fair reward for “doing the job”.
The Committee reviews base salaries annually to ensure that Executive Directors pay remains competitively aligned with external
market practices.
The Committee will retain the discretion to increase an individual’s salary where there is a significant difference between
current levels and a market competitive rate for similar positions in similar organisations (based on size, complexity and sector).
However in determining whether to increase levels the Committee will take the following into consideration:
• the performance of the individual Director;
• the individual Director’s experience and responsibilities;
• impact on fixed costs of any increase; and
• pay and conditions throughout the Company.
Bonus
Executives and employees are eligible to participate in a discretionary bonus plan. The percentage of maximum bonus entitlement
received is based on the achievement of challenging corporate and personal targets. The maximum potential bonus entitlement
for Directors under the plan is to up to 100% of base salary. The Committee can exceed this limit in exceptional circumstances.
The Committee will determine on an annual basis the level of deferral, if any, of the bonus payment into Company shares.
Maximum bonus levels and the proportion payable for on target performance are considered in the light of market bonus levels
for similar roles among the industry sector.
For the year ended 31 March 2014, the Committee set clear objectives for each individual Director relating to Group KPIs plus individual
and strategic targets taking into account where an individual has particular influence and responsibility. The Committee also takes into
account overall corporate performance in determining the actual annual bonus payment.
34
IGas Energy plc Annual report and accounts 2013/14CORPORATE GOVERNANCE The following criteria sets out the performance metrics which the Remuneration committee determined the bonus against the relevant
KPIs and individual and strategic targets and the relative weighting for each Executive Director (the Committee have determined that
it is inappropriate to disclose the actual targets due to commercial sensitivity):
A list of the Performance metrics are as follows:-
• HSE targets;
• production targets;
• reserves and resources targets (conventional and unconventional);
• Opex and G&A costs;
• cashflow;
• annual share price performance relative to an appropriate comparator Group; and
• personal and strategic development goals.
The table below sets out the percentage achieved for each Executive Director:-
Percentage of Performance Metric achieved
Bonuses were paid in cash and are not pensionable.
Andrew Austin John Blaymires Stephen Bowler
83.58%
84.82%
83.32%
Benefits
The Company provides Executive Directors with benefits in kind, with a pension contribution up to 15% of base salary (as well as other
less significant benefits in kind).
Long Term Incentives
Long Term Incentive Plan (“LTIP”)
In 2011, the Company adopted a Long Term Incentive Plan (“LTIP”) scheme for certain key employees of the Group. Under the LTIP,
participants can each be granted two types of award: an Initial Award and an Annual Award. Both types of award are in the form of a nil
cost option. If the relevant conditions attaching to the awards are met then the Director has seven years in which to exercise the award.
The maximum individual limit for an Initial Award is 300% of salary and 150% of salary for an Annual Award. The primary purpose of the
Initial Award is to aid recruitment and retention of key executives with the Annual Award focused on the achievement of challenging
growth targets.
Initial Awards were granted in 2011. These awards vest at the end of a three year performance period provided the Company’s share
price performance exceeds the Company’s weighted average cost of capital of 10%.
Annual Awards will vest at the end of a three year period provided certain challenging corporate performance conditions have been met.
In addition, awards will only vest provided that up to 50% of an Executive Director’s post tax bonus paid in the year of grant has been
invested into Company shares and retained over that period. No Annual Awards have been granted this year.
35
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Directors’ Remuneration Report
continued
Review of Directors’ Incentive rewards
The Committee has reviewed the Company’s remuneration policy for incentive awards to Executive Directors to ensure that the arrangements
act as an appropriate tool with which to attract, retain and motivate key value drivers who are critical to executing the business strategy.
As a result, the Committee has recommended, and the Board has agreed, the intent to make the changes detailed below to the Executive
Director long-term incentive rewards. A resolution will be put to the Board to implement these intended changes at a future date:
• To compensate the Executive Directors for the absence of regular annual LTIP awards over recent years, a one-off award equal to 200% of base
salary is planned to be made to each Director. These awards will vest at the end of a three year performance period provided the Company’s
share price performance exceeds IGas’ weighted average cost of capital of 10%. No further LTIP awards will be made to Executive Directors
following this award.
• To recognise the changing requirements of the business and to support the achievement of IGas’ growth objectives over the medium to
long term, a new long-term incentive award will be introduced for Executive Directors, namely the IGas 2014 Value Creation Plan (“VCP”):
• Under the VCP, performance units will be granted which convert into a certain number of shares at end of 3 year performance period.
• The VCP requires creation of shareholder value in excess of threshold hurdle, i.e. 10% annualised share price growth from 1 April 2014.
• If this hurdle is met at the end of performance period, participants will receive in aggregate 12.5% of the shareholder value created above
the hurdle.
• 50% of this value will vest in shares of equivalent value at end of the performance period and 25% at the end of each of the following
two years.
• In implementing the above arrangement, the Committee will ensure to place an overall limit on the number of new issue shares that can
be issued under any share scheme of 10% of the issued share capital in any rolling 10 year period (in line with best practice UK corporate
governance guidelines).
Share Investment Plan (“SIP”)
In 2013, the Company adopted an Inland Revenue approved Share Investment Plan for all employees of the Group. The scheme is a tax efficient
incentive plan pursuant to which all employees are eligible to acquire up to £125 (or 10% of salary, if less) worth of IGas Ordinary Shares per
month or £1,500 per annum. From April 2014, employees are eligible to acquire up to £150 (or 10% of salary, if less) worth of IGas Ordinary Shares
per month or £1,800 per annum. An initial lump sum purchase was offered in March 2013 to allow participants to acquire up to £1,500 of IGas
Ordinary Shares, which the Company matched on a 2to1 basis.
On an ongoing basis shares will be acquired on a quarterly basis. The Company will match the shares purchased on a 1to1 basis and subject to
the Company having met pre-defined quarterly production targets, will increase the matching element of that quarter to 2to1. To receive their
allocation of matching shares, employees must ordinarily remain employed by the Company for a period of 3 years from the date of grant of the
matching award.
Share price movements during the year
The Group’s share price as at 31 March 2014 was 123.50p per share. The highest price during the period was 160.25p per share and the lowest
share price during the period was 68.50p per share.
36
IGas Energy plc Annual report and accounts 2013/14CORPORATE GOVERNANCE Current arrangements
Executive Directors
The Executive Directors are employed under rolling contracts with notice periods of 12 months or less from the Company or executive.
Directors’ emoluments for the period were as follows:
Executive Directors
A Austin – CEO
S Bowler – CFO
J Blaymires – COO
Total – Executive Directors
Non-Executive Directors
F Gugen – Non-Executive Chairman
J Bryant – Senior Independent
R Pinchbeck (Appointed 11 July 2012)
C McDowell (Appointed 20 December 2012)
R Armstrong (Resigned 20 December 2012)
J Hamilton (Resigned 20 December 2012)
Total – Non-Executive Directors
* Part of these emoluments are paid to Companies that provide the services.
Year ended 31 March 2014
Year ended
31 March 2013
Salary
£000
310
225
225
760
Taxable
Bonus
£000
263
188
187
638
Benefits
£000
11
2
1
14
Pensions
£000
47
34
34
115
Total
£000
631
449
447
1,527
Total
£000
760
383
352
1,495
Year ended 31 March 2014
Emoluments
£000
105*
75*
50
60
–
–
290
Taxable
Benefits
£000
–
–
–
–
–
–
–
Pensions
£000
–
–
–
–
–
–
–
Year ended
31 March 2013
Total
£000
105
75
50
60
–
–
290
Total
£000
80
45
25
10
34
47
241
Each of the Executive Directors devotes such time as is required to discharge his duties, which in the case of A Austin, J Blaymires and S Bowler
is full time.
As at 31 March 2014, the outstanding long term incentives held by the Directors who served during the year are set out in the table below:
Existing long term incentive arrangements:
A Austin
J Blaymires
S Bowler
Date of
Grant
At
1 April
2013
21/11/2011 1,029,702
681,743
21/11/2011
396,040
21/11/2011
–
30/09/2013
Granted
–
–
–
285,703
Exercised
–
–
–
–
Waived
Earliest
vesting
date
As at
31 March
2014
Lapse
date
– 1,029,702 21/11/2014 21/11/2021
681,743 21/11/2014 21/11/2021
–
396,040 21/11/2014 21/11/2021
–
285,703 21/11/2014 21/11/2021
–
Non-Executive Directors
The Non-Executive Directors are employed under rolling contracts with notice periods of three months, under which they are not entitled
to any pension, benefits or bonuses.
John Bryant
Chairman Remuneration committee
25 June 2014
37
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Directors’ Report
The Directors present their report together with the Group and Parent Company financial statements for the year ended 31 March 2014.
Business review and future developments
A review of the business and the future developments of the Group are presented in the Chairman’s statement, the Chief Executive’s
statement and the Chief Financial Officer’s review which are all sections within the Strategic report.
Dividends
The Directors do not recommend the payment of any dividend (2013: £nil).
Going concern
The Directors consider that, having taken into consideration the factors set out in note 1(b) in the financial statements, the expected
operating cash flows of the Group combined with the Bond monies give them confidence that the Group has adequate resources to
continue as a going concern. The financial statements have, therefore, been prepared on the going concern basis.
Principal activity
The Group’s principal area of activity is exploring for, appraising, developing and producing oil and gas in Great Britain.
Share capital
Details of changes to share capital in the year are set out in note 24 to the consolidated financial statements.
Directors and their interests
The Directors who served during the year were as follows:
F Gugen
A Austin
J Blaymires
S Bowler
J Bryant
R Pinchbeck
C McDowell
Non-Executive Chairman
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Non-Executive
Non-Executive
Non-Executive
The interests of the Directors in the shares of the Company at 31 March 2014 were as follows:
F Gugen
A Austin
J Blaymires
S Bowler
J Bryant
R Pinchbeck
C McDowell
31 March 2014
Ordinary 10p Shares
31 March 2013
Ordinary 10p Shares
Number
%
Number
27,615,764
10,968,182
28,929
78,929
59,045
141,000
–
13.49
5.36
0.01
0.04
0.03
0.07
–
27,615,764
10,659,253
20,000
70,000
59,045
141,000
–
%
14.80
5.71
0.01
0.04
0.03
0.08
–
In addition to the table above, on 22 April 2014, A Austin, J Blaymires and S Bowler subscribed to their full entitlement under the initial
subscription of the Group’s share scheme and accordingly were each allotted 1,044 shares under the Share Investment Plan (“SIP”).
Further details of the SIP can be found in the Remuneration Report.
The interests of the Directors in the 10% Bonds issued by the Company at 31 March 2014 were as follows:
F Gugen
C McDowell
31 March
2014
US$
31 March
2013
US$
2,800,000 5,000,000
285,000 –
Rotation and re-election of Directors
In accordance with the Articles of Association J Blaymires, R Pinchbeck and S Bowler retire by rotation and, being eligible, offer
themselves for re-election.
38
IGas Energy plc Annual report and accounts 2013/14CORPORATE GOVERNANCE
Directors’ insurance and indemnity provisions
Subject to the conditions set out in the Companies Act 2006, the Company has arranged appropriate Directors and officers insurance
to indemnify the Directors and officers against liability in respect of proceedings brought by third parties. Such provision remains in force
at the date of this report.
The Company indemnifies the Directors against actions they undertake or fail to undertake as Directors or officers of any Group Company,
to the extent permissible for such indemnities to meet the test of a qualifying third party indemnity provision as provided for by the
Companies Act 2006. The nature and extent of the indemnities is as described in Section 60 of the Company’s Articles of Association
as adopted on 20 June 2010. These provisions remained in force throughout the year and remain in place at the date of this report.
Substantial shareholders
At 31 March 2014, in addition to the Directors’ interests as set out above, the Company had received notification from the following
institutions of interests in excess of 3% of the Company’s issued Ordinary Shares with voting rights:
Nexen Petroleum UK Limited
Brent Cheshire
Henderson Global Investors
Baillie Gifford & Co
Number of Shares
39,714,290
11,429,253
9,002,036
8,088,217
%
19.40
5.58
4.40
3.95
Financial instruments
The Group’s principal financial instruments comprise cash balances, borrowings, derivative instruments and other debtors and creditors
that arise through the normal course of business as set out in note 23 to the consolidated financial statements. The Group’s financial risk
management objectives are set out in note 23 to the consolidated financial statements and the Strategic report.
Employment policy
It is the policy of the Group to operate a fair employment policy. No employee or job applicant is less favourably treated than another on
the grounds of their sex, sexual orientation, age, marital status, religion, race, nationality, ethnic or national origin, colour or disability and
all appointments and promotions are determined solely on merit. The Directors encourage employees to be aware of all issues affecting
the Group and place considerable emphasis on employees sharing in its success.
Political contributions
The Group made no political donations during the year (2013: £nil).
Status
The Company is a closed Company as defined in the Income and Corporation Taxes Act 1988.
The Company is domiciled in the UK and incorporated and registered in England.
Board committees
Information on the Audit, Remuneration and Nomination committees is included in the Corporate Governance section of the annual report.
Auditor
A resolution to reappoint Ernst & Young LLP as auditor will be proposed at the Annual General Meeting at a fee to be agreed in due course
by the Audit committee and the Board.
Directors’ statement as to disclosure of information to the auditor
So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being
information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of
fellow Directors, each Director has taken all the steps that a Director might reasonably be expected to have taken as a Director in order
to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
By order of the Board
Mofo Secretaries Limited
Secretary
IGas Energy plc
Registered Office:
7 Down Street
London
W1J 7AJ
Registered in the United Kingdom number: 04981279
39
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Directors’ Statement of Responsibilities in Relation to the Group
Financial Statements and Annual Report
The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable
United Kingdom law and regulations. Company law requires the Directors to prepare Group financial statements for each financial year.
Under that law, the Directors are required to prepare Group financial statements under International Financial Reporting Standards as
adopted by the European Union. Under Company Law the Directors must not approve the Group 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 period.
In preparing the Group financial statements the Directors are required to:
• present fairly the financial position, financial performance and cash flows of the Group;
• select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information;
• make judgements that are reasonable;
• provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is
insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group‘s financial
position and financial performance; and
• state whether the Group financial statements have been prepared in accordance with IFRSs as adopted by the European Union, subject
to any material departures disclosed and explained in the financial statements.
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 time the financial position of the Group and enable them to ensure that the Group financial
statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. 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 also responsible for preparing the Directors’ Report and the Strategic Report in accordance with the Companies Act 2006 and
applicable regulations.
Directors’ responsibility statement
The Directors confirm that, to the best of their knowledge;
• The financial statements, prepared in accordance with International Financial Reporting standards as adopted by the European Union,
gives a true and fair view of the assets, liabilities, financial position and profit and loss of the Group and the undertakings included in
the consolidation taken as a whole, and
• The Strategic Report and the Directors’ Report includes a fair review of the development and performance of the business and the
position of the Group, together with a description of the principal risks and uncertainties faced.
By order of the Board
Andrew Austin
Chief Executive Officer
25 June 2014
Stephen Bowler
Chief Financial Officer
25 June 2014
40
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS Independent Auditor’s Report to the Members of IGas Energy plc
We have audited the Group financial statements of IGas Energy plc for the year ended 31 March 2014 which comprise the Consolidated
Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement
of Changes in Equity, the Consolidated Cash Flow Statement and the related notes 1 to 29. 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.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Statement of Responsibilities, the directors are responsible for the preparation of the Group
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the
financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify
material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the Group financial statements:
• give a true and fair view of the state of the Group’s affairs as at 31 March 2014 and of its loss for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion 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 Group financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if,
in our opinion:
• 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.
Other matter
We have reported separately on the parent company financial statements of IGas Energy plc for the year ended 31 March 2014.
Daniel Trotman
(Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 June 2014
41
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Consolidated Income Statement
For the year ended 31 March 2014
Revenue
Cost of sales:
Depletion, depreciation and amortisation
Other costs of sales
Total cost of sales
Gross profit
Administrative costs
Relinquishment of exploration and evaluation assets
Other income
(Loss)/gain on oil price derivatives
Operating profit
Exceptional item
Costs relating to acquisitions
Finance income
Finance costs
Net finance costs
Profit/(loss) on ordinary activities before tax
Income tax charge
Loss from continuing operations attributable to equity shareholders of the Group
Basic and diluted loss per share (pence/share)
Adjusted basic and adjusted diluted earnings/(loss) per share (pence/share)
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2014
Loss for the year
Other comprehensive income for the year
Total comprehensive loss for the year
42
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
Notes
2
75,917
68,304
(13,878)
(34,062)
(47,940)
(9,975)
(28,067)
(38,042)
27,977
30,262
(7,875)
(3,259)
174
(2,095)
14,922
(8,351)
(1,093)
225
938
21,981
(47)
(59)
7,893
(20,422)
(12,529)
2,346
26
(27,947)
(27,921)
(5,999)
(10,277)
(7,931)
(12,356)
(18,355)
(4.10p)
2.88p
(11.11p)
(1.91p)
3
6
6
7
8
8
Year ended
31 March
2014
£000
(7,931)
– –
(7,931)
Year ended
31 March
2013
£000
(18,355)
(18,355)
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
Consolidated Balance Sheet
As at 31 March 2014
Non-current assets
Intangible exploration and evaluation assets
Property, plant and equipment
Goodwill
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other financial assets – Restricted cash
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings – Bond
Borrowings – Macquarie
Other liabilities
Derivative financial instruments
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Borrowings – Bond
Deferred tax liabilities
Provisions
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Accumulated deficit
Shareholders’ funds
31 March
2013
£000
Restated
(note 29)
81,702
124,711
32,166
238,579
31 March
2014
£000
90,997
115,478
39,227
245,702
1,344
11,403
28,301
–
41,048
1,056
8,569
9,831
102,865
122,321
(10,960)
–
(4,948)
–
(6,804)
(50)
(22,762)
18,286
263,988
(14,056)
(3,006)
(5,466)
(89,710)
(8,208)
(10,001)
(130,447)
(8,126)
230,453
(103,753)
(57,665)
(28,248)
(189,666)
74,322
(94,942)
(47,388)
(29,005)
(171,335)
59,118
17,226
58,933
41,239
(667)
(42,409)
74,322
15,407
37,747
41,239
(797)
(34,478)
59,118
Notes
11
12
10
14
15
16
16
17
18
18
19
23
18
7
20
24
25
25
26
These financial statements were approved and authorised for issue by the Board on 25 June 2014 and are signed on its behalf by:
Andrew Austin
Chief Executive Officer
Stephen Bowler
Chief Financial Officer
43
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
For the year ended 31 March 2014
Balance at 1 April 2012
Changes in equity for year ended 31 March 2013 (Restated)
Total comprehensive loss for the year
Employee share plans (note 26)
Cancellation of Deferred Shares (note 25)
Issue of shares during the year
Balance at 31 March 2013 (Restated)
Changes in equity for year ended 31 March 2014
Total comprehensive loss for the year
Employee share plans (note 26)
Warrants exercised (note 19)
Issue of shares during the year
Balance at 31 March 2014
Called up
share capital
(note 24)
£000
Restated
54,213
Share
premium
account
(note 25)
£000
18,036
Capital
redemption
reserve
(note 25)
£000
Restated
Other
reserves Accumulated
deficit
(note 26)
£000
£000
Total
£000
–
1,140
(16,151)
54,958
–
–
(41,239)
2,433
15,407
–
–
–
1,819
17,226
–
–
–
19,711
37,747
–
–
9,508
11,678
58,933
–
–
41,239
–
41,239
–
–
–
–
41,239
–
343
–
–
(797)
–
130
–
–
(667)
(18,355)
28
–
–
(34,478)
(7,931)
–
–
–
(42,409)
(18,355)
371
–
22,144
59,118
(7,931)
130
9,508
13,497
74,322
44
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
Consolidated Cash Flow Statement
For the year ended 31 March 2014
Operating activities:
Profit/(loss) before tax for the year
Depreciation, depletion and amortisation
Share based payment charge
Gain on derivative financial instruments
Finance income
Finance costs
(Increase)/decrease in trade and other receivables
(Decrease) in trade and other payables, net of accruals related to investing activities
(Increase)/decrease in inventories
Relinquishment of exploration and evaluation licenses
Abandonment costs incurred
Other non-cash adjustments
Bad debt provision
Taxation paid*
Net cash from operating activities
Investing activities
Acquisition of exploration and evaluation assets
Acquisition of property, plant and equipment
Acquisitions, net of cash acquired
Interest received
Net cash used in investing activities
Financing activities
Cash proceeds from issue of Ordinary Share Capital
Share issue costs
Interest paid
Cash proceeds from loans and borrowings**
Loan issue costs
Repayment of loans and borrowings
Repayment of assumed borrowings and associated fees relating to acquisitions
Repayment of finance lease/hire purchase agreement
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents in the year
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
* Tax paid related to the tax payable of acquired Star Group as at 18 December 2011.
** Cash proceeds from loans and borrowings are shown net and consists of gross proceeds from bond borrowings of £126.2 million less repayment of Macquarie
loan of £89.7 million and hedges and early cancellation fees of £12 million. Further details on the repayment of the Macquarie loan can be found in note 18.
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
Notes
2,346
14,069
494
46
(7,893)
20,422
(1,631)
(2,537)
(287)
3,259
(168)
36
–
(3,006)
25,150
(9,875)
(4,499)
2
87
(14,285)
4,451
–
(10,568)
24,505
(3,690)
(5,128)
–
–
9,570
20,435
(1,965)
9,831
28,301
3
6
6
9
24
24
16
(5,999)
10,152
347
(6,939)
(26)
27,949
4,473
(2,287)
17
1,093
(29)
(122)
252
(1)
28,880
(2,453)
(1,123)
(13,877)
25
(17,428)
23,114
(970)
(6,727)
21,410
(1,887)
(16,735)
(28,286)
(51)
(10,132)
1,320
596
7,915
9,831
45
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
As at 31 March 2014
1 Accounting policies
(a) Basis of preparation of financial statements
The consolidated financial statements of IGas Energy plc (the “Company”) and subsidiaries (the “Group”) have been prepared under the
historical cost convention and in accordance with International Financial Reporting Standards, adopted for use by the European Union
(“IFRSs”) as they apply to the Group for the year ended 31 March 2014 and with the Companies Act 2006. The accounts were approved
by the board and authorised for issue on 25 June 2014. IGas Energy plc is a public limited Company incorporated, registered in England
and Wales and is listed on the Alternative Investment Market (“AIM”).
The Group financial statements are presented in UK pounds sterling and all values are rounded to the nearest thousand (£000) except
when otherwise indicated.
The comparative amounts have been amended to reflect the finalisation of acquisition accounting for the Singleton acquisition
(see note 9).
During the year, the Group adopted the following new and amended IFRSs which were applicable to the Group’s activities as of 1 April 2013.
International Accounting Standards (IFRS/IAS):
IAS 1
IFRS 7
IFRS 10/IAS 27 Revised
Amendment to IAS 1 – Financial Statement Presentation – This amendment changes the grouping
of items presented in Other Comprehensive Income. Items that could be reclassified to profit and
loss at a future point in time (for example, upon de-recognition or settlement) would be presented
separately from items which will never be reclassified. The amendment affects presentation only
and therefore has no impact on the Group’s financial position or performance.
IFRS 7 – Financial Instruments: Disclosures. The amendment to IFRS 7 on offsetting of financial
instruments is intended to clarify existing application issues relating to the offsetting rules and
reduce the level of diversity in current practice. The Group has considered the effect of this
amendment and that it has no impact on the disclosures in the financial statements.
IFRS 10 – Consolidated Financial Statements and IAS 27 – Separate Financial Statements.
IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that
addresses the accounting for consolidated financial statements. It also includes the issues raised
in SIC-12 Consolidation – Special Purpose Entities. IFRS 10 establishes a single control model that
applies to all entities including special purpose entities. The changes introduced by IFRS 10 requires
management to exercise significant judgement to determine which entities are controlled,
and therefore, are required to be consolidated by a parent, compared with the requirements
that were in IAS 27. The Group has concluded that the standards have no impact on the financial
statements. This has been adopted early by the Group.
Effective date*
1 July 2012
1 January 2014
1 January 2014
IFRS 11/IAS 28
IFRS 12
IFRS 11 – Joint Arrangements and IAS 28 – Investment in Associates and Joint Ventures.
IFRS 11 establishes the principles of the financial reporting by parties to a joint arrangement.
IFRS 11 supersedes IAS 31. It removes the option for jointly controlled entities (JCE) using
proportionate consolidation. The Group has concluded that there has been no impact on the
financial statements. This has been adopted early by the Group.
1 January 2014
IFRS 12 – Disclosures of involvement with other entities – IFRS 12 combines, enhances and replaces
the disclosure requirement for subsidiaries, joint arrangements, associates and in consolidated
structured entities. The Group has concluded that there has been no impact on the financial
statements. This has been adopted early by the Group.
1 January 2013
46
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
1 Accounting policies continued
(a) Basis of preparation of financial statements continued
IFRS 13
IFRS 13 – Fair Value Measurement – IFRS 13 defines fair value, setting out in a single IFRS a framework
for measuring fair value and requires disclosure about fair value measurements. IFRS 13 applies
when other IFRSs require or permit fair value measurements. It does not introduce any new
requirements to measure an asset or liability at fair value, change what is measured at fair value in
IFRS or address how to present changes in fair value. The new standard also requires new disclosures
to assist users in understanding the valuation techniques and inputs used to develop fair value
measurement and the effect of fair value measurement on profit and loss. The relevant disclosure
is found in note 23. The Group has concluded that there has not been a material impact on the
measurement of assets and liabilities.
Effective date*
1 January 2013
New and amended Standards and Interpretations
Certain new standards, interpretations and amendments to existing standards have been published and are mandatory only for the
Group’s accounting periods beginning on or after 1 April 2014 or later periods and which the Group has not adopted early. Those that
may be applicable to the Group in future are as follows:
International Accounting Standards (IFRS/IAS)
IFRS 9
IAS 19
IAS 32
IAS 36
IFRS 9 – Financial Instruments
IAS 19 – Employee Benefits (Revised)
IAS 32 – Offsetting Financial assets and Financial liabilities
IAS 36 – Recoverable Amount Disclosures for Non – Financial assets disposal
For financial period
commencing on or after*
Not yet stated
1 July 2014
1 January 2014
1 January 2014
* The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with
IFRS as adopted by the European Union (EU), the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU
endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for
endorsement restricts the Group‘s discretion to early adopt standards.
The Group does not anticipate that the adoption of these standards and interpretations will either individually or collectively have
a material impact on the Group’s financial statements in the period of initial application. The Group does not anticipate adopting
these standards and interpretations ahead of their effective date.
(b) Going concern
The Group regularly monitors forecasts to determine that breaches in covenants are not anticipated to occur in the future. On the basis
of the Group’s current forecasts, no breaches in covenants are anticipated. However these forecasts are based on certain assumptions
particularly in relation to oil prices, production rates, operating costs, capital and general expenditure. After reviewing the Group’s budgets
and cash flow projections for 2014 and 2015, and taking into consideration the current operating environment, mitigating factors which
are within the control of the Group, the risks and the Group’s liquidity risk management outlined in note 23, the Directors are satisfied
that the Group has adequate resources to continue as a going concern. It is therefore appropriate to adopt the going concern basis in
preparing the 2013-2014 Annual Report and Financial Statements.
47
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
1 Accounting policies continued
(c) Basis of consolidation
The consolidated financial statements present the results of IGas Energy plc and its subsidiaries as if they formed a single entity.
The financial statements of subsidiaries used in the preparation of consolidated financial statements are based on consistent accounting
policies to the parent. All intercompany transactions and balances between Group Companies, including unrealised profits arising from
them, are eliminated in full. Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, it is treated
as an extension of the entity.
At 31 March 2014, the Group comprised the Company and entities controlled by IGas Energy plc (its subsidiaries). The results of subsidiaries
acquired during the year are included in the consolidated Income Statement from the date that control passed to the Company.
(d) Business combinations
Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange
for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition
under IFRS 3 are recognised at their fair value at the acquisition date. Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised
immediately in the Income Statement. Acquisition costs are expensed and shown as a separate line in the Income Statement.
(e) Joint arrangements
A small proportion of the Group’s licence interests are held jointly with others under arrangements whereby unincorporated and jointly
controlled ventures are used to explore, evaluate and ultimately develop and produce from its oil and gas interests. Accordingly, the
Group accounts for its share of assets, liabilities, income and expenditure of these joint operations, classified in the appropriate balance
sheet and Income Statement headings, except where its share of such amounts remain the responsibility of another party in accordance
with the terms of carried interests as described at (j) below. Where the Group enters into a farm-up agreement involving a licence in the
exploration and evaluation phase, the Group records all costs that it incurs under the terms of the joint operating agreement as amended
by the farm-up agreement as they are incurred.
When the Group, acting as an operator or manager of a joint arrangement, receives reimbursement of direct costs recharged to the joint
arrangement, such recharges represent reimbursements of costs that the operator incurred as an agent for the joint arrangement and
therefore have no effect on profit or loss.
(f) Significant accounting judgements and estimates
The preparation of the Group’s consolidated financial statements in conformity with IFRS requires management to make judgements
and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and
assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.
In particular, the Group has identified the following areas where significant judgements and estimates are required, and where if actual
results were to differ, this could materially affect the financial position or financial results reported in future periods. Further information
on each of these and how they impact the various accounting policies are described in the relevant notes to the financial statements.
Carrying value of intangible exploration and evaluation assets
The Group has capitalised intangible exploration and evaluation assets in accordance with IFRS 6, which are evaluated for impairment
as described at (j) below. Any impairment review, where required, involves estimates and assumptions related to matters (when
appropriate), such as recoverable reserves, production profiles, review of forward oil, gas and electricity prices, development, operating
and off-take costs, nature of land access agreements and planning permissions, application of taxes and other matters. Where the final
outcome or revised estimates related to such matters differ from the estimates used in any earlier impairment reviews, the results of such
differences, to the extent that they actually affect any impairment provisions, are accounted for when such revisions are made. Details
of the Group’s intangible exploration and evaluation assets are disclosed in note 11.
48
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS 1 Accounting policies continued
f) Significant accounting judgements and estimates continued
Carrying value of property, plant and equipment
Management reviews the Group’s property, plant and equipment periodically for impairment indicators. The determination of recoverable
amounts in any resulting impairment test requires judgement around key assumptions. Key assumptions in the impairment models
include those related to prices that are based on forward curves and long-term corporate assumptions thereafter, discount rates, that
are risked to reflect conditions specific to individual assets, future costs, both capital and operating that are based on management’s
estimates having regard to past experience and the known characteristics of the individual assets, reserves and future production,
discussed further below. Details of the Group’s property, plant, and equipment are disclosed in note 12.
Recoverable amount of goodwill
The Group assesses goodwill each reporting period to determine whether there is any impairment. The assessment requires the use
of estimates and assumptions such as long-term oil prices, discount rates, reserves, production profiles and capital expenditure.
These estimates and assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances
will impact these projections, which may impact goodwill.
Proved and probable reserves
The volume of proven and probable oil and gas reserves is an estimate that affects the unit of production depreciation of producing
oil and gas property, plant and equipment as well as being a significant estimate affecting decommissioning provisions, impairment
calculations and the valuation of oil and gas properties in business combinations. Proved and probable reserves are estimated using
standard recognised evaluation techniques. Estimates are reviewed at least annually and are regularly estimated by independent
consultants. Future development costs are estimated taking into account the level of development required to produce the reserves
by reference to operators, where applicable, and internal engineers.
Decommissioning costs
The estimated cost of decommissioning at the end of the producing lives of fields is reviewed periodically and is based on forecast price
levels and technology at the balance sheet date. Provision is made for the estimated cost at the balance sheet date, using a discounted
cash flow methodology and a risk free rate of return. Details of the Group’s decommissioning costs are disclosed in note 20.
Business combinations
When the Group acquires a business, it assesses the fair value of the assets acquired and liabilities assumed by reference to the
contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Those petroleum reserves and resources
that can be reliably measured are recognised in the assessment of fair values on acquisition by reference to independent assessments
of reserves and resources and discounted cash flow models to reflect the revenues and expenditures related to the extraction of those
reserves and resources. Other assets and liabilities are valued by reference to market-based observations or independent valuations
where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Details of business
combinations occurring in the current and prior year are disclosed in note 9.
Functional currency
The determination of functional currency often requires significant judgement where the primary economic environment in which
a Company operates may not be clear. The parent entity reconsiders the functional currency of its entities if there is a change in the
events and conditions which determines the primary economic environment.
(g) Exceptional items
Exceptional items are material items of income or expenditure which, in the opinion of the Directors, due to their nature and infrequency
require separate identification on the face of the Income Statement to allow a better understanding of the financial performance in the
year. A full explanation of such items is given, where applicable, in the notes to the financial statements.
(h) Revenue
Revenue comprises the invoiced value of goods and services supplied by the Group, net of value added tax and trade discounts. Revenue
is recognised in the case of oil, gas and electricity sales when goods are delivered and title has passed to the customer. This generally
occurs when the product is physically delivered to the customer’s premises or transferred into a vessel, pipe or other delivery mechanism.
Revenue from the production of oil from fields in which the Group has an interest with other producers, is recognised based on the
Group’s working interest and the terms of the relevant production sharing contracts. Where oil produced by third parties is processed and
delivered to a refinery by the Group, the measurement of the revenue depends upon whether physical title to the oil passes to the Group
or whether the Group simply acts as agent for the producer.
Revenue from services rendered is recognised only once a legally binding contract is in place. Amounts billed for services where the
contract provides for their delivery over a period of time are recognised evenly over the relevant period; amounts due for all other
services are recognised as the services are provided.
49
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Consolidated Financial Statements – Notes
continued
1 Accounting policies continued
(i) Non-current assets
Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised over
the fair value of the identifiable net assets acquired and liabilities assumed in a business combination.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is tested for impairment annually (as at 31 March) and when circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or Group of CGUs) to which the goodwill
relates. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses
relating to goodwill cannot be reversed in future periods.
Intangible exploration and evaluation assets
The Group accounts for exploration and evaluation costs in accordance with the requirements of IFRS 6 “Exploration for and Evaluation of
Mineral Resources” as follows:
• Any costs incurred prior to obtaining the legal rights to explore an area are expensed immediately to the Income Statement. Expenditures
related to development and production activities are not recognised as exploration and evaluation assets.
• Expenditures recognised as exploration and evaluation assets comprise those related to acquisition of rights to explore, topographical,
geological, geochemical and geophysical studies, exploratory drilling (including coring and sampling), activities in relation to evaluating
the technical feasibility and commercial viability of extracting hydrocarbons (including appraisal drilling and production tests) and
any land rights acquired for the sole purpose of effecting these activities. These costs include employee remuneration and directly
attributable overheads, materials and consumables, equipment costs and payments made to contractors.
• Tangible assets acquired for use in exploration and evaluation activities are classified as property, plant and equipment. However, to the
extent that such tangible assets are consumed in developing an intangible exploration and evaluation asset, the amount reflecting that
consumption is recorded as part of the exploration and evaluation asset.
• Expenditures recognised as exploration and evaluation assets are initially accumulated and capitalised by reference to appropriate
geographic areas.
• Exploration and evaluation assets are carried at cost less any impairment and are not depreciated or amortised.
• Expenditure recognised as exploration and evaluation assets are transferred to property plant and equipment, interests in oil and gas
properties when technical feasibility and commercial viability of extracting hydrocarbons is demonstrable. Exploration and evaluation
assets are assessed for impairment (on the basis described below), and any impairment loss recognised, before reclassification.
Impairment testing of exploration and evaluation assets
Expenditures recognised as exploration and evaluation assets are tested for impairment whenever facts and circumstances suggest that
they may be impaired, which includes when a licence is approaching the end of its term and is not expected to be renewed, there are
no substantive plans for continued exploration or evaluation of an area, the Group decides to abandon an area, or whilst development is
likely to proceed in an area there are indications that the exploration and evaluation asset costs are unlikely to be recovered in full either
by development or through sale.
Property plant and equipment – interests in oil and gas properties
Property plant and equipment, interests in oil and gas properties are accounted for as follows:
• Oil and gas properties and other property, plant and equipment are stated at cost, less accumulated depreciation and accumulated
impairment losses.
• The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset
into operation, the initial estimate of the decommissioning obligation and, for qualifying assets (where relevant), borrowing costs.
The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire
the asset. The capitalised value of a finance lease is also included within property, plant and equipment.
• When a development project moves into the production stage, the capitalisation of certain construction/development costs ceases,
and costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalisation.
• Expenditure relating to interests in oil and gas properties includes both expenditure which is depleted on a unit of production basis,
commencing at the start of commercial production and expenditure which is depreciated on a straight line basis over the relevant asset’s
estimated useful life. Where expenditure is depreciated on a unit of production basis, the depletion charge is calculated according to the
proportion that production bears to the recoverable reserves for each property.
• The Group’s interests in oil and gas properties are assessed for indications of impairment including events or changes in circumstances
indicating that the carrying value of an asset may not be recoverable, when impairment is computed on the basis as set out below.
Any impairment in value is charged to the Income Statement as additional depreciation.
50
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS 1 Accounting policies continued
(i) Non-current assets continued
• Net proceeds from any disposal of development/producing assets are compared to the previously capitalised costs for the relevant asset
or Group of assets. A gain or loss on disposal of a development/producing asset is recognised in the Income Statement to the extent that
the net proceeds exceed or are less than the appropriate portion of the net capitalised costs of the asset or Group of assets.
Impairment
Impairment reviews, when required as described above, are carried out on the following basis:
• By comparing the sum of any amounts carried in the books as compared to the recoverable amount.
• The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The Group generally assesses the value
in use using the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset or CGU.
• Where there has been a charge for impairment in an earlier period that charge will be reversed in a later period where there has been a
change in circumstances to the extent that the recoverable amount is higher than the net book value at the time. In reversing impairment
losses, the carrying amount of the asset will be increased to the lower of its original carrying value and the carrying value that would have
been determined (net of depletion) had no impairment loss been recognised in prior periods.
Decommissioning
Where a liability for the removal of production facilities or site restoration exists, a provision for decommissioning is recognised.
The amount recognised is discounted to its present value and is reflected in the Group’s non-current liabilities. A corresponding asset is
included in the appropriate category of the Group’s non-current assets (intangible exploration and evaluation assets and property plant
and equipment), depending on the accounting treatment adopted for the underlying operations/asset leading to the decommissioning
provision. The asset is assessed for impairment and depleted in accordance with the Group’s policies as set out above.
Carried interests
Where the Group has entered into carried interest agreements in exploration and evaluation projects and the Group’s interest is being
carried by a third party, no amounts are recorded in the financial statements where expenditure incurred under such agreements is
not refundable. Where expenditure is refundable, out of what would but for the carry agreements have been the Group’s share of
production, the Group records amounts as non-current assets, with a corresponding offset in current liabilities or non-current liabilities, as
appropriate, but only once it is apparent that it is more likely than not that future production will be adequate to result in a refund under
the terms of any carry agreement; the Group records refunds only to the extent that they are expected to be repayable.
Other property plant and equipment
Other property plant and equipment is stated at cost to the Group less accumulated depreciation. Depreciation is provided on such assets,
with the exception of freehold land, at rates calculated to write off the cost of fixed assets, less their estimated residual values, over their
estimated useful lives at the following rates, with any impairment being accounted for as additional depreciation:
Equipment used for exploration and evaluation
Freehold Land
Buildings/leasehold property improvements
Fixtures, fittings and equipment
Motor Vehicles
– between six and twelve years on a straight line basis
– indefinite useful life
– over five to ten years on a straight line basis/over the period of the lease
– between three and twenty years on a straight line basis
– over four years on a straight line basis
The Group does not capitalise amounts considered to be immaterial.
(j) 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.
Other financial assets – Restricted cash
Where cash is held in escrow, funds are only classified as cash and cash equivalents when monies are transferred to and under the control
of the Group.
Trade and other receivables
Trade receivables are initially recognised at fair value when related amounts are invoiced, then carried at this amount less any allowances
for doubtful debts or provision made for impairment of these receivables.
51
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Consolidated Financial Statements – Notes
continued
1 Accounting policies continued
(j) Financial instruments continued
Trade and other payables
These financial liabilities are all non-interest bearing and are initially recognised at the fair value of the consideration payable.
Derivative financial instruments and hedge accounting
The Group enters into derivatives to manage its exposure to variability in the price of a proportion of its crude oil production.
All derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently re-measured at their fair value at each period end. Apart from those derivatives designated as qualifying cash flow
hedging instruments, all changes in fair value are recorded as financial income or expense in the year in which they arise,
otherwise they are recognised in other comprehensive income.
Fair value is the amount for which a financial asset, liability or instrument could be exchanged between knowledgeable and willing parties
in an arm’s length transaction. It is determined by reference to quoted market prices adjusted for estimated transaction costs that would
be incurred in an actual transaction, or by the use of established estimation techniques such as option pricing models and estimated
discounted values of cash flows. The fair value of derivative financial instruments has been calculated on a discounted cash flow basis
by reference to forward market prices and risk free returns adjusted in the case of derivative financial liabilities by an appropriate
credit spread.
Derivatives embedded in host contracts, such as warrants attached to loans, are accounted for as separate derivatives and recorded at fair
value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held
for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair
value recognised in the Income Statement.
Warrants
When warrants do not qualify as equity instruments under IAS 39 due to the variable number of shares that would be issued in each case
they are accounted for as financial liabilities. The warrants are initialised at fair value on the date they are issued and are subsequently
remeasured to fair value at each period end. All changes in fair value are recognised in the Income Statement.
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 Group 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.
(k) Borrowings
Borrowings are measured initially at fair value. After initial recognition, interest bearing loans and borrowings are subsequently measured
at amortised cost using the Effective Interest Rate (“EIR”) method. Gains and losses are recognised in the Income Statement when the
liabilities are derecognised as well as through the EIR amortisation process. When management estimates of the amounts or timings of
cash flows are revised, borrowings are re-measured using the revised cash flow estimates under the original effective interest rate with
any consequent adjustment being recognised in the Income Statement.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part
of the EIR. The EIR amortisation is included in finance costs in the Income Statement.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use or sale, are added to the cost of these assets, until such time as the
assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the Income Statement in the period in which they are incurred.
(l) Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date
including whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys
a right to use the asset.
52
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS 1 Accounting policies continued
(l) Leases continued
Operating leases
Rentals are charged to the Income Statement on a straight line basis over the period of the lease.
Finance leases
Assets held under finance leases are included in tangible fixed assets at their capital value and depreciated over their useful lives.
Capital value is defined as the amount equal to the fair value of the leased property or, if lower, the present value of the minimum lease
payments, each determined at the inception of the lease. Lease payments consist of capital and finance charge elements; the finance
charge element is charged to the Income Statement.
(m) Inventories
Inventories, consisting of crude oil, drilling materials and maintenance materials, are stated at the lower of cost and net realisable value.
Costs comprise all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and
condition. Weighted average cost is used to determine the cost of ordinarily inter-changeable items.
(n) Taxation
The tax expense represents the sum of current tax and deferred tax.
Current income tax assets and liabilities are measured at the amount expected to be recovered or paid to the tax authorities.
Taxable profit/(loss) differs from the profit/(loss) before taxation as reported in the Income Statement because it excludes items
of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date except
when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Temporary differences
arise from differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax liabilities are not discounted. Deferred tax assets are recognised to the extent that it is regarded as more
likely than not that they will be recovered.
The carrying amount of deferred tax is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are
reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the
liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in
correlation to the underlying transaction either in other comprehensive income or directly in equity.
(o) Share based payments
Where Share Options or warrants are awarded to employees including Directors, the fair value of the options or warrants at the date of
the grant is recorded in equity over the vesting period. Non-market vesting conditions, but only those related to service and performance,
are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately,
the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. All other vesting
conditions, including market vesting conditions, are factored into the fair value of the options or warrants granted. As long as all other
vesting conditions are satisfied, the amount recorded is computed irrespective of whether the market vesting conditions are satisfied.
The cumulative amount recognised is not adjusted for the failure to achieve a market vesting condition; although equity no longer
required for options or warrants may be transferred to another equity reserve.
Where the terms and conditions of options or warrants are modified before they vest, the increase in the fair value of the options,
measured by the change from immediately before to after the modification, is also recorded in equity over the remaining vesting period.
When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised or
the award is recognised immediately.
Where equity instruments are granted to persons other than employees, the amount recognised in equity is the fair value of goods and
services received.
53
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Consolidated Financial Statements – Notes
continued
1 Accounting policies continued
(o) Share based payments continued
Charges corresponding to the amounts recognised in equity are accounted for as a cost against profit and loss unless the services
rendered qualify for capitalisation as a non-current asset. Costs may be capitalised within non-current assets in the event of services being
rendered in connection with an acquisition of intangible exploration and evaluation assets or property plant and equipment.
Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, the value of such shares at issue will be
recorded in share capital and share premium account in the ordinary way, but will not affect shareholders’ funds since this same value will
be shown as a deduction from shareholders’ funds by way of a separate component of equity.
(p) Post-retirement benefits
A subsidiary within the Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those
of the Group in an independently administered fund. The amount charged to the Income Statement represents the contributions payable
to the scheme in respect of the accounting period.
(q) 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.
(r) Foreign currency
The consolidated financial statements are presented in UK pound sterling, which is the parent Company’s and its subsidiaries’ functional
currency. The Group 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.
2 Revenue and segment information
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly
reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions about resources to be allocated to the segments and assess
their performance, and for which financial information is available. In the case of the Group the CODM are the Chief Executive Officer
and the Board of Directors and all information reported to the CODM is based on the consolidated results of the Group as one operating
segment as the Group’s activities all relate to UK oil and gas. Therefore the Group has one operating and reportable segment as reflected
in the Group’s consolidated financial statements.
All revenue, which represents turnover, arises within the United Kingdom and relates to external parties. £63.6 million of the Group’s
revenue was derived from 3 customers (2013: £61.7 million derived from 2 customers).
All the Group’s non-current assets are in the United Kingdom.
3 Operating profit/loss
Operating profit/(loss) is stated after charging:
Staff costs (see note 4)
Depletion, depreciation and amortisation
Auditor’s remuneration:
Audit fee
Audit of accounts of any associate of the Company
Audit-related assurance of services
All taxation advisory services other than tax compliance
Non-assurance services
Operating lease charges:
Land and buildings
Other
54
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
10,194
14,069
9,867
10,152
199
56
72
37 –
25
207
140
117
41
1,723
196
1,464
197
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
4 Employee information
Staff costs comprised:
Wages and salaries
Social security costs
Company contribution to pension scheme
Employee share based payment cost under IFRS 2
Average number of employees including Directors in the year:
Operations, including services
Administrative
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
9,600
1,457
760
577
12,394
8,872
790
571
274
10,507
No.
No.
128
39
167
112
41
153
In the year ended 31 March 2014 £2.2 million (2013: £0.64 million) of the Group’s remuneration costs have been capitalised
in accordance with the Group’s accounting policy.
5 Directors’ emoluments
The remuneration of the Directors for the year was as follows:
Executive Directors
A Austin – CEO
S Bowler – CFO
J Blaymires – COO
Total – Executive Directors
Non-Executive Directors
F Gugen – Non-Executive Chairman*
J Bryant – Senior Independent*
R Pinchbeck (Appointed 11 July 2012)
C McDowell (Appointed 20 December 2012)
R Armstrong (Resigned 20 December 2012)
J Hamilton (Resigned 20 December 2012)
Total – Non-Executive Directors
* Part of these emoluments are paid to Companies that provide the services.
Year ended 31 March 2014
Salary
£000
310
225
225
760
Bonus
£000
263
188
187
638
Emoluments
£000
105
75
50
60
–
–
290
Taxable
Benefits
£000
11
2
1
14
Taxable
Benefits
£000
–
–
–
–
–
–
–
Pensions
£000
47
34
34
115
Pensions
£000
–
–
–
–
–
–
–
Year ended
31 March
2013
Total
£000
760
383
352
1,495
Total
£000
80
45
25
10
34
47
241
Total
£000
631
449
447
1,527
Total
£000
105
75
50
60
–
–
290
55
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
5 Directors’ emoluments continued
Directors’ share schemes/warrants
At 31 March 2014 the Executive Directors held the following awards under the Long Term Incentive Plan as follows:
Long Term Incentive Plans
A Austin
J Blaymires
S Bowler
6 Finance income and costs
31 March
2014
Number
Exercise
price
(p/share)
31 March
2013
Number
Exercise
price
(p/share)
1,029,702
681,743
681,743
– 1,029,702
–
681,743
–
396,040
–
–
–
Finance income:
Interest on short-term deposits
Foreign exchange gains
Finance income recognised in Income Statement
Finance expense:
Finance lease charges
Other interest
Interest on borrowings – Bond
Interest on borrowings – Macquarie
Interest on borrowings – Macquarie debt costs written off under amortised cost*
Interest expense
Loss on interest rate swaps
Foreign exchange loss
Unwinding of discount on provisions (note 20)
Loss on fair value of warrants (note 19)
Finance charges – early settlement fees for assumed Singleton loan
Finance expense recognised in Income Statement
* Costs are in relation to the Group refinancing, further details can be found in note 18.
7 Taxation
i) Tax charge on profit/(loss) on ordinary activities
UK corporation tax:
Current tax on income for the year
Adjustments in respect of prior year
Total current tax charge/(credit)
Deferred tax:
Current year charge relating to the origination or reversal of temporary differences
Credit in relation to prior year
Total deferred tax charge
Tax charge on profit on ordinary activities
56
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
87
7,806 –
7,893
–
130 –
11,626
–
–
11,756
–
–
562
8,104
–
20,422
26
26
25
322
8,882
7,647
16,876
573
3,275
457
5,402
1,364
27,947
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
– –
–
–
10,317
(40)
10,277
10,277
(161)
(161)
13,274
(757)
12,517
12,356
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
7 Taxation continued
ii) Factors affecting the tax charge
The majority of the Group’s profits are now generated by “ring-fence” businesses which attract UK corporation tax and supplementary
charge at a combined rate of 62%. The tax assessed for the year does not reflect a charge equivalent to the profit on ordinary activities
multiplied by the rate of corporation tax and supplementary charge for ring-fenced businesses in the United Kingdom. A reconciliation
of the UK statutory corporation tax rate applicable to the Group’s profit/(loss) before tax to the Group’s total tax charge is as follows:
Profit/(loss) on ordinary activities before tax
Expected tax charge/(credit) based on profit or loss on ordinary activities multiplied by the
combined rate of corporation tax and supplementary charge in the UK of 62% (2013: 62%)
Prior year deferred tax credit
Prior year current tax credit
Tax effect of expenses not allowable for tax purposes
Tax effect of expenses not allowable for supplementary charge purposes
Impact of profits or losses taxed or relieved at different rates
Net (decrease)/increase in unrecognised losses carried forward
Other
Tax charge on profit/(loss) on ordinary activities
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
2,346
(5,999)
1,454
(40)
–
6,529
4,641
(1,522)
(781)
(4)
10,277
(3,719)
(757)
(161)
720
4,883
7,389
3,981
20
12,356
During the year legislation was enacted to reduce the main rate of corporation tax to 21% with effect from 1 April 2014 and to 20%
with effect from 1 April 2015. These rates are reflected in the calculation of deferred tax balances in respect of the Group’s non-ring
fence activities.
iii) Deferred tax
The movement on the deferred tax liability in the year is shown below:
Opening liability at beginning of year
Tax credit relating to prior year
Tax charge during the year recognised in Income Statement
Deferred tax liability arising from business combinations
Closing liability at end of year
The following is an analysis of the deferred tax liability by category of temporary difference:
Accelerated capital allowances
Tax losses carried forward
Decommissioning provision
Unrealised gains or losses on derivative contracts
Share based payments
Deferred tax liabilities
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
47,388
(40)
10,317
–
57,665
31 March
2014
£000
85,928
(19,999)
(7,775)
(31)
(458)
57,665
20,552
(757)
13,274
14,319
47,388
31 March
2013
£000
89,051
(24,555)
(11,192)
(5,718)
(198)
47,388
iv) Tax losses
Deferred tax assets have been recognised in respect of tax losses and other temporary differences where the Directors believe
it is probable that these assets will be recovered. Such tax losses include £50.5 million of ring-fence corporation tax losses.
The Group has further tax losses and other similar attributes carried forward of approximately £120.7 million (2013: £59.5 million)
for which no deferred tax asset is recognised due to insufficient certainty regarding the availability of appropriate future taxable profits.
This may affect future tax charges should certain subsidiaries in the Group produce taxable trading profits in future period where there
is currently uncertainty of the timing of future taxable profits.
57
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
8 Earnings per share (EPS)
Basic EPS amounts are calculated by dividing the loss for the year attributable to ordinary equity holders of the parent by the weighted
average number of Ordinary Shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the loss attributable to the ordinary equity holders of the parent by the weighted average
number of shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on the
conversion of all the potentially dilutive Ordinary Shares into Ordinary Shares.
Adjusted basic EPS amounts are calculated by dividing the adjusted profit/(loss) for the year, after adjusting for exceptional items, “mark
to market” valuation adjustments and other one-off costs listed below which do not reflect the trading of the Group, attributable to the
ordinary equity holders of the parent by the adjusted weighted average number of shares outstanding during the year.
Adjusted diluted EPS amounts are calculated by dividing the adjusted profit/(loss) for the year, after adjusting for exceptional items, “mark
to market” valuation adjustments and other one-off costs listed below which do not reflect the trading of the Group, attributable to the
ordinary equity holders of the parent by the weighted average number of shares outstanding during the year plus the weighted average
number of Ordinary Shares that would be issued on the conversion of all the potentially dilutive Ordinary Shares into Ordinary Shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Basic EPS – Ordinary Shares of 10p each (Pence)
Diluted EPS – Ordinary Shares of 10p each (Pence)
Adjusted basic EPS – Ordinary Shares of 10p each (Pence)
Adjusted diluted EPS – Ordinary Shares of 10p each (Pence)
Loss for the year attributable to equity holders of the parent – £000
Add back: Loss/(Gain) on oil price derivatives
Loss on interest rate swaps
Acquisition costs
Relinquishment of exploration and evaluation assets
Loss on revaluation of warrants
Early settlement fees for assumed Singleton loan
Debt costs written off
Adjusted profit /(loss)for the year
Weighted average number of Ordinary Shares in the year – basic, diluted, adjusted basic and adjusted diluted EPS
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
(4.10p)
(4.10p)
2.88p
2.88p
(7,931)
2,095
–
47
3,259
8,104
–
–
5,574
(11.11p)
(11.11p)
(1.91p)
(1.91p)
(18,355)
(938)
573
59
1,093
5,402
1,364
7,647
(3,155)
193,410,155 165,257,078
There are 13,004,060 potentially dilutive warrants and options over the Ordinary Shares at 31 March 2014 (2013: 24,682,523), which are
not included in the calculation of diluted earnings per share and adjusted earnings per share in 2014 because they were anti-dilutive for
the year as their conversion to Ordinary Shares would decrease the loss per share.
58
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
9 Acquisitions
Acquisition of Caithness Oil Limited (Renamed IGas Energy (Caithness) Limited)
On 6 December 2013, the Company acquired the entire issued share capital of Caithness Oil Limited (“Caithness”), an unlisted oil and
gas exploration and production Company for a consideration of £7.9 million (including assumed borrowings of £7.9 million) which was
funded by the issue of 7,488,301 Ordinary Shares of the Company. In addition to increasing IGas’ current production, the acquisition
offers additional upside through utilisation of significant existing tax losses and monetisation of associated gas.
The Caithness acquisition has been accounted for as a business combination by the acquisition method of accounting with an effective
date of 6 December 2013, being the date the Group gained control of Caithness. The fair values of property, plant and equipment,
provisions and related tax effect are provisional subject to further analysis of the oil and gas properties acquired, including the assessment
of potential gas monetisation.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Caithness as at the date of acquisition were:
Assets
Property, plant and equipment (note 12)
Cash and cash equivalents
Trade and other receivables
Liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Provisions (note 20)
Total identifiable net liabilities at fair value
Purchase consideration
Goodwill
Provisional
fair value
£000
2,346
2
317
2,665
(970)
(7,947)
–
(809)
(9,726)
(7,061)
–
7,061
The fair value of contractual receivables amounts to £0.2 million. The gross value of the contractual receivables amounts to £0.2 million
all of which is expected to be received.
Transaction costs in respect of the Caithness acquisition of £47 thousand have been recognised in the Income Statement.
From the date of acquisition, Caithness has contributed £0.7 million of revenue and £0.5 million loss towards the net profit before tax
of the Group. If the combination had taken place at 1 April 2013, the Group’s revenue from continuing operations for the year would
have been £77.0 million and the Group’s operating profit before tax and acquisition costs for the Group would have been £14.4 million.
The goodwill of £7.1 million is discussed further in note 10.
Analysis of cash flows on acquisition
Consideration paid for Caithness net of cash acquired
Net cash flow on acquisition of Caithness
£000
2
2
59
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
9 Acquisitions continued
Acquisition of P.R. Singleton Limited (Renamed Island Gas (Singleton) Limited)
On 28 February 2013, the Company acquired the entire issued share capital of P.R. Singleton Limited (“Singleton”), an unlisted oil
and gas exploration and production Company for a cash consideration of £15.1 million and assumed borrowings of £28.3 million.
The acquisition of Singleton added 100% of PEDL 240, 50% of PEDL 233, bringing a number of development opportunities and an
experienced execution team.
The Singleton acquisition has been accounted for as a business combination by the acquisition method of accounting with an effective
date of 28 February 2013, being the date the Group gained control of Singleton.
The accounting for the acquisition of Singleton as of 28 February 2013 (acquisition date) was provisionally determined in respect of the
fair values of certain assets acquired and liabilities assumed in the financial statements for the year ended 31 March 2013. During the year
ended 31 March 2014, the necessary valuations and assessments have been undertaken so that the accounting for this acquisition has
been finalised. The details of the adjustments of the provisionally determined fair values of assets acquired and liabilities assumed are
shown below:
Assets
Exploration & evaluation assets (note 11)
Property, plant and equipment (note 12)
Cash and cash equivalents
Trade and other receivables
Inventories
Liabilities
Borrowings
Deferred tax liabilities
Provisions
Total identifiable net assets at fair value
Purchase consideration transferred
Goodwill
Provisional
fair value Adjustments
£000
£000
Comments
1
1
1
–
41,568
–
1,178
362
43,108
(26,939)
(7,125)
(4,776)
(38,840)
4,268
15,092
10,824
23,033
(13,667)
–
–
–
9,366
–
(7,193)
–
(7,193)
2,173
–
(2,173)
Final
fair values
£000
23,033
27,901
–
1,178
362
52,474
(26,939)
(14,318)
(4,776)
(46,033)
6,441
15,092
8,651
1 Adjustments to the fair value of PP&E and E&E following remeasurement of 2P reserves and 2C resources and additional E&E assets related to Baxters Copse
and related tax effects.
10 Goodwill
Opening balance
Acquisitions
31 March
2014
£000
32,166
7,061
39,227
31 March
2013
£000
23,515
8,651
32,166
Goodwill of £7.1 million was generated in the year, as described in note 9 above.
Goodwill all relates to the acquisitions of Star, Singleton and Caithness and arises principally because of the following factors:
1) the requirement to recognise deferred income tax assets and liabilities for the difference between the assigned fair values and the tax
bases of assets acquired and liabilities assumed in a business combination at amounts that do not reflect fair value;
2) the intangible value of an experienced team of oil industry professionals with experience of operating in the UK onshore market;
3) the relationships and reputation developed by the acquired business with central and local government in Great Britain;
4) the considerable potential for discovery of additional reserves of both conventional and unconventional resources in Star’s, Singleton’s
and Caithness’s licence areas; and
5) the potential to utilise existing tax losses that have not been recognised at acquisition date.
60
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
10 Goodwill continued
Impairment testing of Goodwill
Goodwill has been assigned to the UK business segment, the level at which goodwill is monitored for internal management purposes.
The UK business segment is considered the cash generating unit for the purpose of any impairment testing of this goodwill.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.
The Company has undertaken an impairment test of goodwill as at 31 March 2014. The Group assessed whether goodwill was impaired
by calculating value-in-use using discounted future cash flows of the cash generating unit and comparing this to the total carrying value
of the cash generating unit including goodwill.
Value-in-use calculations are based on cash flows expected to be generated by projected oil production profiles up to the expected
cessation of production dates. Future operating and capital expenditure were based on management’s assessment, and production
and reserve profiles were based on proved and probable reserves as determined by an independent reserve evaluator.
The calculation of value-in-use includes the following key assumptions:
• Future production volumes
• Crude oil prices
• Discount rate
Estimated future production volumes are based on detailed data for each of the Group’s fields and take into account development plans
for the fields agreed by management as part of the long-term planning process.
The crude oil prices used are based on the forward oil price curve and on management’s view of long term price.
The pre-tax discount rate in 2014 is 16%. The period over which the Group has projected cash flows is in excess of five years and
is considered to be appropriate by the Group as it is underpinned by estimates of commercial reserves.
It was determined that the carrying amount of goodwill is not impaired.
The Directors have considered the sensitivity of the key assumptions and have concluded that any possible changes that may be
reasonably contemplated in these key assumptions would not result in the value-in-use falling below the carrying value of goodwill.
61
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Consolidated Financial Statements – Notes
continued
11 Intangible exploration and evaluation assets
Cost
At 1 April 2012
Additions
Acquisitions (note 9)
Changes in decommissioning
Licence relinquishments
At 31 March 2013
Additions
Changes in decommissioning
Licence relinquishments
At 31 March 2014
Amortisation
At 1 April 2012
Charge for the period
At 31 March 2013
Charge for the year
At 31 March 2014
Net book amount
At 31 March 2013
At 31 March 2014
Exploration and
evaluation
£000
57,237
2,502
23,033
23
(1,093)
81,702
12,512
42
(3,259)
90,997
–
–
–
–
–
81,702
90,997
£3.3 million of costs were written off during the year (2013: £1.1 million) relating to previously capitalised expenditure on licences
PEDL 107, 116 and SSPL 1481 (2013: PEDL 115) where no future exploration activity was planned and these licenses were
therefore relinquished.
Under the terms of the Secured Bond agreement, the Bondholders have a fixed and floating charge over these assets.
62
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
12 Property, plant and equipment
Equipment
used for
exploration
and evaluation
£000
Freehold
Buildings/
lease hold
property
land improvements
£000
£000
Oil and gas
properties
£000
Fixtures,
fittings and
equipment
£000
Cost
At 1 April 2012
Additions
Disposals
Acquisitions (note 9)
Changes in decommissioning
At 31 March 2013
Additions
Disposals
Acquisitions (note 9)
Changes in decommissioning
At 31 March 2014
Depreciation and impairment
At 1 April 2012
Charge for the year
Disposals
At 31 March 2013
Charge for the year
Disposals
At 31 March 2014
Net book amount
At 31 March 2013
At 31 March 2014
179
–
–
–
–
179
–
–
–
–
179
31
20
–
51
20
–
71
866
–
–
–
–
866
–
–
–
–
866
–
–
–
–
–
–
–
539
–
–
–
–
539
359
–
–
–
898
336
164
–
500
196
–
696
100,429
1,055
(29)
27,899
5,396
134,750
4,098
(30)
2,346
(2,001)
139,163
2,756
9,523
–
12,279
13,550
–
25,829
128
108
866
866
39
202
122,471
113,334
667
28
(14)
2
–
683
106
(89)
–
–
700
143
203
(10)
336
163
(49)
450
347
250
Under the terms of the Secured Bond agreement, the Bondholders have a fixed and floating charge over these assets.
Motor
vehicles
£000
1,226
–
(173)
–
–
1,053
18
(15)
–
–
1,056
95
260
(162)
193
160
(15)
338
Total
£000
103,906
1,083
(216)
27,901
5,396
138,070
4,581
(134)
2,346
(2,001)
142,862
3,361
10,170
(172)
13,359
14,089
(64)
27,384
860
718
124,711
115,478
63
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
13 Interest in joint arrangements
Interests in joint operations
The Group, jointly with other participants, has an interest in PEDL 139 and PEDL 140. The Group’s share is 14.5%.
Farm-out-arrangement
The Group and its partners entered into an agreement with Total E&P UK Limited (“Total”), under which Total acquire at a 40% interest in
the UK. Onshore PEDL 139 and PEDL 140 located in the Gainsborough Trough in Lincolnshire. Under the agreement, Total agreed to fund
a fully carried work programme of up to US$46.5 million with a minimum commitment of US$19.5 million. On 4th February 2014,
the Farm-out Agreement with Total was completed and the Group became the operator of these licences.
14 Inventories
Oil Stock
Drilling materials
Maintenance materials
15 Trade and other receivables
VAT recoverable
Trade debtors
Other debtors
Prepayments
31 March
2014
£000
31 March
2013
£000
795
228
321
1,344
31 March
2014
£000
1,096
5,962
2,798
1,547
11,403
836
43
177
1,056
31 March
2013
£000
305
6,529
404
1,331
8,569
Trade receivables are non-interest bearing and are generally on 30 day terms. The carrying value of the Group’s trade and other
receivables as stated above is considered to be a reasonable approximation of their fair value.
The ageing of the financial assets (trade debtors and certain other debtors) is as follows:
Not yet due
Amounts overdue but not impaired:
Overdue by not more than three months
More than three months but not more than six months
More than six months but not more than one year*
* Outstanding amount relates to the receivables acquired as part of the Caithness acquisition.
31 March
2014
£000
8,097
31 March
2013
£000
6,783
– –
– –
155 –
8,252
6,783
64
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
16 Cash and cash equivalents
Cash at bank and in hand
31 March
2014
£000
28,301
28,301
31 March
2013
£000
9,831
9,831
The carrying value of the Group’s cash and cash equivalents as stated above is considered to be a reasonable approximation of their
fair value.
The Group only deposits cash surpluses with major banks that have acceptable credit ratings of “A” or better, with the exception of banks
where the UK government is the major shareholder.
Other financial assets – Restricted cash
Restricted cash
31 March
2014
£000
–
–
31 March
2013
£000
102,865
102,865
On 22 March 2013 the Company issued bonds to a value of US$156.2 million. The cash relating to these bonds were received into,
and held in, escrow, remaining restricted until all of the conditions precedent were satisfied in relation to the Bond issued.
On 10 April 2013, all conditions precedent were met by the Group and the funds in escrow were reclassified as cash and cash equivalents.
Part of these funds were used to repay the bank facility agreement with Macquarie Bank Ltd, plus outstanding interest and all associated
break fees, termination fees and costs of closing out hedges. See note 18 for further details of refinancing.
17 Current liabilities
Trade and other payables:
Trade creditors
Employment related taxation
Accruals and other creditors
31 March
2014
£000
31 March
2013
£000
3,989
295
6,676
10,960
2,102
209
11,745
14,056
The carrying value of each of the Group’s financial liabilities is considered to be a reasonable approximation of its fair value. All creditors
are payable within one month and no creditors have been outstanding for longer than three months (2013: all within one month).
65
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
18 Borrowings
Borrowings are measured at amortised cost in accordance with IAS 39.
Bonds – secured*
Bonds – unsecured*
Sub total
Macquarie
Total
31 March 2014
Within
1 year
£000
4,948
–
4,948
–
4,948
Greater
than 1 year
£000
87,186
16,567
103,753
–
103,753
Total
£000
92,134
16,567
108,701
–
108,701
31 March 2013
Greater
than 1 year
£000
94,942
–
94,942
–
94,942
Within
1 year
£000
5,466
–
5,466
89,710
95,176
Total
£000
100,408
–
100,408
89,710
190,118
* Transaction costs of raising debt of £3.7 million (2013: £2.8 million) have been netted off against the liability.
Bond issuance
Secured Bonds
On 21 March 2013, the Company and Norsk Tillitsmann (“Bond Trustee”) entered into a Bond Agreement for the Company to issue
up to US$165.0 million secured bonds. At 31 March 2013 US$156.2 million of bonds had been placed with the funds paid into escrow.
By 10 April 2013, the conditions precedent under the Bond Agreement were met, with the related cash then released from escrow
to the Company. Part of the net proceeds of the Bond were used to repay the outstanding loan balance with Macquarie Bank Ltd,
plus outstanding interest and all associated break fees, termination fees and to pay costs associated with closing out hedges.
The remainder is being used for general corporate purposes by the Group.
The Bond carries a coupon of 10% per annum (where interest is payable semi-annually in arrears) and semi-annual amortisation
of 2.5% of the initial loan amount. Final maturity on the notes will be 22 March 2018.
The Bond Agreement contains certain representations, warranties and covenants customary for an instrument of this nature.
Such covenants include the provision of financial and reporting information, compliance with environmental law, maintenance
of financial ratios and certain restrictions on mergers, acquisitions, joint ventures, granting of security, disposals, issuances of loans,
incurrence of financial indebtedness and on payments of dividends by the Company and its operating subsidiaries. The Bond Agreement
also contains customary events of default, the occurrence of which allows The Bond Trustee (on behalf of the bond holders) to accelerate
outstanding bonds and terminate the commitments. Under the terms of the Secured Bond agreement, the Bondholders have a fixed
and floating charge over all these assets.
Unsecured Bonds
On 11 December 2013, the Company and Norsk Tillitsmann (“Bond Trustee”) entered into a Bond Agreement for the Company to issue
US$30.0 million unsecured bonds, issued at 96% of par. The new bonds have been listed on the Alternative bond market in Oslo and the
proceeds are to be used for general corporate purposes.
The Bond carries a coupon of 10% per annum (where interest is payable semi-annually in arrears) and has a borrowing limit of
US$60.0 million. Final maturity on the notes will be 11 December 2018.
The Bond Agreement contains certain representations, warranties and covenants customary for an instrument of this nature.
Such covenants include the provision of financial and reporting information, compliance with environmental law, maintenance
of financial ratios and certain restrictions on mergers, acquisitions, joint ventures, granting of security, disposals, issuances of loans,
incurrence of financial indebtedness and on payments of dividends by the Company and its operating subsidiaries. The Bond Agreement
also contains customary events of default, the occurrence of which allows The Bond Trustee (on behalf of the bond holders) to
accelerate outstanding bonds and terminate the commitments.
Macquarie financing
At 31 March 2013, the Group had outstanding borrowings with Macquarie (Macquarie facilities) but was undergoing a refinancing.
In accordance with IAS 1 the Macquarie facilities were re-classified as current liabilities as at 31 March 2013 as the Group had intended
to repay these facilities upon completion of the Bonds. The facilities were re-measured to £89.7 million at 31 March 2013 to take into
account the change in the estimated future cashflows to repay the Macquarie facilities. A £7.6 million loss on re-measurement was
recognised in finance costs in the Income Statement for the year ended 31 March 2013. On 10 April 2013, the Macquarie facilities were
repaid in full, being the re-measured amount, plus £0.3 million of accrued interest.
66
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
19 Other liabilities
At 1 April 2012
Warrants issued during year
Revaluation loss
As at 31 March 2013
Warrants issued during year
Warrants exercised during year
Revaluation loss
As at 31 March 2014
£000
2,806
–
5,402
8,208
–
(9,508)
8,104
6,804
During the year the Group issued 9,975,657 Ordinary Shares with a nominal value of 10p each upon the exercise of £9.5 million warrants
(31 March 2013: nil shares issued).
Warrants issued can be exercised in three different ways and, although the cost to the Group would be the same under each exercise
option, these warrants do not qualify as equity instruments under IAS 39 due to the variable number of shares that would be issued in
each case. Accordingly they have been accounted for as financial liabilities.
All warrants vested on grant and accordingly the key assumptions made in arriving at the Black-Scholes valuations were: share price on
date of valuation, adjusted for subsequent consolidations where appropriate and the length of time for which the warrants were expected
to remain exercisable. A risk free interest rate of 1.09% and an implied volatility of 35% were used in valuing the warrants at the time of
grant, and an interest rate of 1.38% and an implied volatility of 43.13% at 31 March 2014. It was also assumed that no dividends would be
paid during the life of the warrants.
The movement in warrants during the period was as follows:
At 1 April 2012
Granted in year
Lapsed in year
Outstanding at 31 March 2013
Exercisable at 31 March 2013
Granted in year
Lapsed in year
Exercised in the year
Outstanding at 31 March 2014
Exercisable at 31 March 2014
The weighted average remaining contractual life for the warrants outstanding as at 31 March 2014 is 3.75 years.
Weighted
average
exercise price
(pence)
No.
21,286,646
–
–
21,286,646
21,286,646
–
–
12,286,646
9,000,000
9,000,000
55.8
–
–
55.8
55.8
–
–
55.8
55.8
55.8
67
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
20 Provisions for liabilities and charges
Decommissioning
£000
2014
Other
£000
At the beginning of the year
Acquisition of a subsidiary
Unwinding of discount
Reassessment of decommissioning provision/liabilities
Utilisation/write back of provision
At the end of the year
28,930
781
562
(1,932)
(153)
28,188
75
–
–
–
(15)
60
Total Decommissioning
£000
£000
29,005
781
562
(1,932)
(168)
28,248
18,283
4,776
457
5,419
(5)
28,930
2013
Other
£000
100
–
–
–
(25)
75
Total
£000
18,383
4,776
457
5,419
(30)
29,005
Provision has been made for the discounted future cost of restoring fields to a condition acceptable to the relevant authorities.
The abandonment of the fields is expected to happen at various times between 1 to 35 years from the period end. These provisions have
been created based on the Groups’ internal estimates. Assumptions based on the current economic environment have been made, which
management believes are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to take
into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market
prices for the necessary decommissioning works required that will reflect market conditions at the relevant time. Furthermore, the timing
of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. This, in turn, will depend upon
future oil and gas prices, which are inherently uncertain.
The risk free rate range of 0.25% to 3.02% is used in the calculation of the provision as at 31 March 2014 (2013: Risk free rate range
of 0.25% to 3.02%).
21 Pension Scheme
The Group operates a defined contribution pension scheme. The pension charge for the year ended 31 March 2014 represents
contributions payable by the Group to pension funds and amounted to £760,000 (2013: £571,000).
Contributions amounting to £321,958 (2013: £97,500) were accrued at 31 March 2014 and are included in creditors.
22 Commitments
The Group’s capital commitments comprised:
Capital commitments:
Obligation under 13th licensing round
Total capital commitments
Operating lease commitments:
Minimum lease payments under operating leases recognised in profit for the year
At the balance sheet date the Group had minimum lease payments under non-cancellable operating leases
for each of the following years:
– expiring within 1 year
– expiring within 2 to 5 years
– over 5 years
Total
68
31 March
2014
£000
31 March
2013
£000
1,320
1,320
2,000
2,000
Year
ended
31 March
2014
£000
Year
ended
31 March
2013
£000
1,919
1,661
505
1,244
–
1,749
496
1,634
378
2,508
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
23 Financial instruments and risk management
Fair values
The fair value of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, other than those with
carrying amounts that are a reasonable approximation of their fair values, are as follows:
Financial liabilities
Amortised cost
Borrowings (floating rate)1
Borrowings (fixed rate)1
Fair value through profit and loss
Commodity price derivatives2
Interest rate swaps2
Warrants3
Carrying amount
Fair value
31 March
2014
£000
31 March
2013
£000
31 March
2014
£000
31 March
2013
£000
–
108,701
89,710
100,408
–
112,326
89,710
103,150
50
–
6,804
9,222
779
8,208
50
–
6,804
9,222
779
8,208
1 The fair value of borrowings and other financial liabilities (hierarchy level 2) have been calculated by discounting the expected future cash flows at prevailing market
interest rates for instruments with substantially the same terms and characteristics.
2 The fair value of commodity price derivatives are determined using the Black-Scholes model with adjustments to volatility regarding the type of the option.
Interest swaps are determined using discounted cash flow analysis at quoted commodity prices.
3 The fair value of warrants (hierarchy level 2) is estimated using a Black-Scholes valuation model.
Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
• Level 2: other valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
• Level 3: valuation techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
For financial instruments there are no non-recurring fair value measurements nor have there been any transfers between levels of the
fair value hierarchy.
The financial assets and liabilities measured at fair value are categorised into the fair value hierarchy as at the reporting dates as follows:
At 31 March 2014
Derivative financial instruments
Commodity price derivatives
Warrants
Total
At 31 March 2013
Derivative financial instruments
Commodity price swaps
Interest rate swaps
Warrants
Total
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
–
–
–
–
–
–
–
50
6,804
6,854
9,222
779
8,208
18,209
–
–
–
–
–
–
–
50
6,804
6,854
9,222
779
8,208
18,209
The fair values of the commodity price options at 31 March 2014 were provided by counterparties with whom the trades have been
entered into. These consist of Asian style put and call options to sell/buy oil. The options are valued using a Black-Scholes methodology;
however, certain adjustments are made to the spot-price volatility of oil prices due to the nature of the options. These adjustments are
made either through Monte Carlo simulations or through statistical formulae. The inputs to these valuations include the price of oil,
its volatility, and risk free interest rates.
69
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
23 Financial instruments and risk management continued
Fair value hierarchy continued
The fair values of the commodity price and interest rate swaps at 31 March 2013 were valued using valuation techniques with market
observable inputs. The models incorporate various inputs including the credit quality of the counterparty and forward rate curves
of the underlying commodity.
The warrants are valued using Black-Scholes method, which incorporates the inputs as detailed in note 19.
Derivative financial instruments
In the current year the Group has entered into certain put/call options in order to manage its exposure to commodity price risk associated
with sales of oil in US dollars.
The outstanding contracts as at 31 March 2014 were as follows:
Term
Contract amount
Contract price/rate
Contract price/rate
Contract price/rate
GB pound puts
US dollar puts
US dollar calls
US dollar calls
Apr – Jun 2014
Apr – Jun 2014
Jul – Sept 2014
Oct – Dec 2014
60k bbls oil
130k bbls oil
200k bbls oil
200k bbls oil
Buy Put
GBP55.70/bbl
US$90/bbl
US$90/bbl
US$90/bbl
Sell Call
–
–
US$115.25/bbl
US$115/bbl
Buy Call
–
–
US$125/bbl
US$125/bbl
Fair value at
31 March 2014
£000
2
3
(53)
(2)
The above derivatives mature over the period from 1 April 2014 to 31 December 2014. During the year to 31 March 2014 oil hedges for
972 thousand barrels (2013: 573 thousand barrels) matured generating a net cost of £2.1 million (2013: £5.9 million).
The outstanding contracts as at 31 March 2013 were as follows:
US dollar commodity price swaps
Pound sterling commodity price swaps
Interest rate swaps
Term
Contract amount
Contract price/rate
1,251 Mbbls oil
2013–2017
2013–2017
1,610 Mbbls oil
2012–2016 US$51.9m declining
to US$22.8m
US$90–US$105.65/bbl
GBP56.70–GBP63.60/bbl
0.91%–1.36%
Average Fixed
Price/Rate
US$97.97/bbl
GBP60.74/bbl
1.20%
Fair value at
31 March 2013
£000
2,060
7,162
779
The Group‘s interest rate swaps matured over the period from 1 April 2013 to 13 December 2016 with a profile linked to the expected
repayment of principal on the Macquarie Facilities prior to the refinancing in April 2013. As no derivative instrument was designated
for hedge accounting, all gains and losses were recognised immediately in the Income Statement within finance costs. All derivatives
at 31 December 2013 were settled in early 2014 as part of the refinancing (see note 18).
Financial risk management
The Group’s principal financial liabilities, other than derivatives, comprise borrowings, warrants and trade and other payables. The main
purpose of these financial liabilities is to finance the Group’s operations, including the Group’s capital expenditure programme, and to
fund acquisitions. The Group has trade and other receivables and cash and cash equivalents that are derived directly from its operations
and restricted cash. The Group also enters into derivative transactions.
The Group manages its exposure to key financial risks in accordance with its financial risk management policy. The objective of the policy
is to support the Group’s financial targets while protecting future financial security. The Group is exposed to the following risks:
• Market risk, including commodity price and foreign currency risks
• Credit risk
• Liquidity risk
The Group is not exposed to interest rate risk as at 31 March 2014 as all Group’s borrowings are at a fixed rate.
Management reviews and agrees policies for managing each of these risks which are summarised below. It is the Group’s policy that all
transactions involving derivatives must be directly related to the underlying business of the Group. The Group does not use derivative
financial instruments for speculative exposures.
70
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market factors,
such as commodity price and foreign currency.
The sensitivity analyses below have been prepared on the basis that the amount of net debt and the proportion of financial instruments
in foreign currencies are all constant and that financial derivatives are held to maturity. The sensitivity analysis is intended to illustrate the
sensitivity to changes in market variables on the Group’s financial instruments and show the impact on profit or loss and shareholders’
equity, where applicable.
The following assumptions have been made in calculating the sensitivity analysis:
• The sensitivity of the relevant profit before tax item is the effect of the assumed changes in respective market risks. This is based on the
financial assets and financial liabilities held at 31 March 2014 and 31 March 2013; and
• The impact on equity is the same as the impact on profit before tax and ignores the effects of deferred tax, if any.
Commodity price risk
The Group is exposed to the risk of fluctuations in prevailing market commodity prices (primarily crude oil) on the mix of oil and gas
products it produces. The Group’s policy is to manage these risks through the use of derivative financial instruments.
The following table summarises the impact on profit before tax for changes in commodity prices on the fair value of derivative financial
instruments. The impact on equity is the same as the impact on profit before tax as these derivative financial instruments have not been
designated as hedges and are classified as held-for-trading.
The analysis is based on hedges existing at balance sheet date, the assumption that crude oil price moves 10% over all future periods,
with all other variables held constant.
10% increase in the price of oil
10% decrease in the price of oil
Increase/(decrease) in profit before tax
for the year ended and to
equity as at
31 March
2014
£000
(8)
8
31 March
2013
£000
(15,681)
15,681
Foreign currency risk
The Group has transactional currency exposures. Such exposure arises from sales or purchases in currencies other than the UK pound
sterling, the functional currency of all Group Companies. The Group’s sales are denominated in US dollars, and around 5% of costs are
denominated in currencies other than the functional currencies of the entities within the Group, primarily US dollars. The Group manages
this risk through the use of derivative financial instruments (commodity puts) which fix the price of oil in pounds sterling.
The following table summarises the impact on profit before tax for changes in the US dollar/pound sterling exchange rate on the financial
assets and liabilities in the balance sheet at period end. The impact on equity is the same as the impact on profit before tax.
The analysis is based on the assumption that the pound moves 10%, with all other variables held constant.
10% strengthening of the pound against the US dollar
10% weakening of the pound against the US dollar
Increase/(decrease) in profit before tax
for the year ended and to
equity as at
31 March
2014
£000
7,938
(7,938)
31 March
2013
£000
8,694
(8,694)
Credit risk
The Group trades only with recognised, creditworthy third parties. It is the Group’s policy to assess the credit risk of new customers
before entering contracts. Under this policy, each new customer is analysed individually for creditworthiness before the Group’s standard
payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and in some cases
bank and trade references.
71
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
23 Financial instruments and risk management continued
Credit risk continued
The exposure to credit risk from credit sales is not considered significant given the small number of well-established credit customers and
zero historic default rate.
At 31 March 2014, the Group had 2 customers (2013: 2) that owed the Group more than £2 million each and accounted for approximately
83% (2013: 90%) of all receivables owing. The need for impairment is analysed at each reporting date on an individual basis for major
clients.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and restricted
cash, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount
of these instruments. The Group limits its counterparty credit risk on these assets by dealing only with financial institutions with credit
ratings of at least A or equivalent other than if the UK government is a majority shareholder. £28.3 million (2013: £9.8 million)
of cash and cash equivalents were held with a single institution.
Refer to note 15 for analysis of trade receivables ageing.
Liquidity risk
The Group manages liquidity risk by maintaining adequate banking and borrowing facilities by continuously monitoring forecast and
actual cash flows and matching the maturity profiles of financial assets and liabilities and future capital and operating commitments.
The table below summarises the maturity profile of the Group’s financial liabilities at 31 March based on contractual
undiscounted payments:
On demand
£000
< 1 year
£000
1–2 years
£000
2–3 years
£000
>3 years
£000
Total
£000
At 31 March 2014
Borrowings (fixed rate)
Trade and other payables
Warrants
Derivative financial instruments
Commodity price derivatives
At 31 March 2013
Borrowings (floating rate)
Borrowings (fixed rate)
Trade and other payables
Warrants
Derivative financial instruments
Commodity price swaps
Interest rate swaps
–
–
–
–
–
–
–
–
–
–
–
–
16,181
3,989
6,804
50
27,024
89,710
11,071
2,102
8,208
9,222
779
121,092
15,708
–
–
–
15,708
–
10,769
–
–
–
–
10,769
15,178
–
–
108,271
–
–
155,338
3,989
6,804
–
15,178
–
108,271
50
166,181
–
10,491
–
–
–
–
10,491
–
100,669
–
–
–
–
100,669
89,710
133,000
2,102
8,208
9,222
779
243,021
Management considers that the Group has adequate current assets and forecast cash from operations to manage liquidity risks arising
from current liabilities and non-current liabilities.
Capital management
The Group manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder
value. The Group’s funding needs are met through a combination of debt and equity (2013: funding requirements met through
a combination of debt and equity) and adjustments are made in light of changes in economic conditions. The Group’s capital structure
changed in the period to 31 March 2012 as a result of the acquisitions it made and the related financing. The Group’s strategy is
to maintain ratios in line with covenants associated with the issued bonds.
The Group monitors capital using a gearing ratio, which is net debt divided by equity plus net debt. The Group includes within net
debt, interest bearing bank loans less cash and cash equivalents and restricted cash. Capital includes share capital, share premium,
other reserves and accumulated losses.
72
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
24 Share capital
On 31 December 2007 the Company completed a reverse takeover whereby Island Gas Limited became a wholly-owned subsidiary
of the Company but with IGL’s shareholders acquiring 94% of the Ordinary Share capital of the combined entity (the “Reverse”).
In accordance with the required accounting for a reverse, the nominal value of the Company’s share capital is not reflected in the
Group’s consolidated equity. For the purposes of the consolidated accounts share capital was recorded at the date of the Reverse
at a value equal to the deemed cost of the Reverse, being the adjusted market value of the Company as last quoted immediately
prior to the announcement of the Reverse, plus the equity of IGL; the effective acquiring Company.
Ordinary Shares
Deferred Shares Restated
Issued and fully paid
1 April 2012, Ordinary Shares of 50p each
16 August 2012 share conversion of each issued
Ordinary Shares of 50p each into:
New Ordinary Shares of 10p each*
New Deferred Shares of 40p each*
Cancellation of Deferred Shares of 40p each*
15 January 2013 shares issued at a price of 95p each
31 March 2013, Ordinary Shares of 10p each
31 March 2013, Deferred Shares of 40p each (Restated)
22 April 2013 shares issued at a price of 77p each
22 June 2013 shares issued at a price of 55.8p each
23 July 2013 shares issued at a price of 83p each
26 July 2013 shares issued at a price of 10p each
15 August 2013 shares issued at a price of 55.8p each
22 October 2013 shares issued at a price of 101p each
5 December 2013 shares issued at a price of 115p each
22 Jan 2014 shares issued at a price of 55.8p each
22 Jan 2014 shares issued at a price of 101p each
31 March 2014, Ordinary Shares of 10p each
31 March 2014, Deferred Shares of 40p each
£000
Nominal value
No.
162,204,909
81,102
No.
–
(162,204,909)
162,204,909
–
–
24,330,730
186,535,639
–
475,002
3,000,000
70,934
2,975,656
2,000,000
87,696
7,488,301
2,000,001
91,533
204,724,762
–
(81,102)
16,220
–
–
– 162,204,909
– (162,204,909)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,433
18,653
–
48
300
7
297
200
9
749
200
9
20,472
–
£000
Nominal value
–
–
–
64,882
(64,882)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
* On 16 August 2012 the Company converted each Ordinary Share of 50p each into a New Ordinary Share of 10p each and a New Deferred Share of 40p each pursuant to
an obligation to Macquarie Bank Limited under the terms of the warrants issued during the period ended 31 March 2012. The New Ordinary Shares carry the same rights
as attached to Ordinary Shares. Deferred Shares have no voting rights and shall not be entitled to any dividends or any other right or participation in the profits of the
Company. The Company had the right to purchase all the issued New Deferred Shares from all Shareholders for an aggregate consideration of one penny. On 16 August 2012,
the Company repurchased the New Deferred Shares from all Shareholders for an aggregate consideration of one penny. These shares were subsequently cancelled by the
Company.
Accordingly, the Group share capital account comprised:
Share capital account
At 1 April 2012
Shares issued during the year
Cancellation of deferred shares
At 31 March 2013 (Restated)
Shares issued during the year
At 31 March 2014
£000
As Restated
54,213
2,433
(41,239)
15,407
1,819
17,226
25 Share premium and capital redemption reserve account
Share premium
The share premium account of the Group arises from the capital that the Company raises upon issuing shares for consideration in excess
of the nominal value of the shares, net of the costs of issuing the new shares. During the year the Company issued 18,189,123 Ordinary
Shares at a nominal value of 10p each (2013: 24,330,730 shares issued). The cost of these issues was £nil million (2013: £0.9 million).
Together these events resulted in a net movement in the Share Premium reserve of £11.6 million (2013: £19.7 million).
73
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
25 Share premium and capital redemption reserve account continued
Capital redemption reserve
During the year ended 31 March 2013 the Company repurchased 100% of its outstanding deferred shares which had been issued with
a nominal value of 40p each. These deferred shares were subsequently cancelled by the Company. This resulted in a reduction in share
capital and a corresponding recognition of a Capital Redemption Reserve of £41.2 million.
26 Other reserves
Other reserves can be analysed as follows:
Balance 1 April 2012
Employee share plans – cost under IFRS 2
Capital contribution
Balance 31 March 2013
Employee share plans – cost under IFRS 2
Employee share plans – shares issued under the SIP
Balance 31 March 2014
Warrant/Share
Plan Reserves
£000
Treasury
Capital
Shares Contributions
£000
£000
112
343
–
455
577
–
1,032
(1,299)
–
–
(1,299)
–
(447)
(1,746)
47
–
–
47
–
–
47
Total
£000
(1,140)
343
–
(797)
577
(447)
(667)
Employee share plans – Equity settled
Details of the Share Options under employee share plans outstanding during the year are as follows:
Outstanding at 1 April 2012
Granted during the year
Forfeited during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 March 2013
Exercisable at 31 March 2013
Granted during the year
Forfeited during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 March 2014
Exercisable at 31 March 2014
2011 LTIP
2010 LTIP
Share Option Plan
Weighted
average
Number of exercise price
(pence)
Options
Weighted
average
Number of exercise price
(pence)
Options
Weighted
average
Number of exercise price
(pence)
Options
2,107,485
1,071,542
–
–
–
3,179,027
–
466,203
(48,730)
–
–
3,596,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50,000
–
(50,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
411,274
–
(237,773)
(173,501)
–
–
–
–
–
–
–
–
–
70
–
(70)
(70)
–
–
–
–
–
–
–
–
–
Long Term Incentive Plan 2011 (“2011 LTIP”)
In November 2011 the Company adopted a Long Term Incentive Plan scheme for certain key employees of the Group. Under the LTIP,
participants can each be granted nil cost options over up to 300% of remuneration for the Initial Award and up to 150% of remuneration
for the Annual Award (subject to an overall plan limit of 10% of the issued share capital of the Company for all participants). The LTIP has
a three year performance period and awards vest subject to share price performance exceeding the Company’s weighted average cost of
capital of 10%. On a change of control prior to the third anniversary of the grant date, a proportion of the options that vest will take into
account items such as the time the Option has been held by the participant and the performance achieved in the period from the grant
date. Other than on a change of control, 100% of vested awards can be exercised and sold on vesting.
There were no LTIPs exercised during the year. The LTIPs outstanding at 31 March 2014 had both a weighted average remaining
contractual life and maximum term remaining of 7.8 years (2013: 8.5 years).
The total charge for the year was £297 thousand (2013: £218 thousand). Of this amount, £97 thousand was capitalised (2013:
£26 thousand) and £200 thousand was charged to the Income Statement (2013: £192 thousand) in relation to the fair value
of the awards granted under the plan measured at grant date using a Monte Carlo Simulation Model.
74
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
26 Other reserves continued
Long Term Incentive Plan 2011 (“2011 LTIP”) continued
The inputs into the Monte Carlo models were as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividends
Weighted average fair value of awards granted
2011 LTIP
Granted
Nov 11
Granted
Sep 13
50.5p
Nil
35%
6.5 years
0.70%
0%
23.12p
102.0p
Nil
43%
6.5 years
0.85%
0%
50.90p
Long Term Incentive Plan 2010 (“LTIP”)
In October 2010 the Company adopted a Long Term Incentive Plan scheme for certain key employees of the Group. Under the LTIP,
participants could each be granted nil cost options over up to 1.5% of the issued share capital of the Company (subject to an overall plan
limit of 7.5% of the issued share capital of the Company for all participants). The LTIP had a three year performance period and awards
vested subject to the achievement of stretching share price targets. On a change of control prior to the third anniversary of the grant date,
a revised share price target reflecting the reduction in the performance period shall instead be used to determine the extent to which LTIP
options vest. Other than on a change of control, 50% of vested awards could be exercised and sold on vesting, with the remaining 50%
becoming exercisable on the first anniversary of vesting. There were no LTIPs outstanding at 31 March 2014 (31 March 2013: nil).
The total charge of £nil (2013: £2 thousand) for the year was charged to the Income Statement in relation to the fair value of the awards
granted under the LTIP scheme measured at grant date using a Monte Carlo Simulation Model.
The key assumptions made in arriving at the Monte Carlo valuations were: share price on date of valuation, adjusted for subsequent
consolidations where appropriate and the length of time for which the LTIPs were expected to remain exercisable. A risk free interest rate
of 1.09% and an implied volatility of 35% were used in valuing the LTIPs at the time of granting. It was also assumed that no dividends
would be paid during the life of the LTIPs.
Share Option Plan
In October 2010 the Company adopted a Share Option Plan for certain key employees of the Group. Both executives and employees
could participate in the Share Option Plan. Typically each individual participant could be granted options under the Share Option Plan
with a market value at grant of up to 100% of his base salary, although this limit could be exceeded in exceptional circumstances. Share
Options vested in three equal tranches over a three year period from the date of grant and vested options were exercisable subject to the
attainment of a Company share price target.
2010 grants under the Share Option Plan were subject to an exercise price of 70p per share.
There were no options exercised during the year. There were no unvested options outstanding at 31 March 2014.
The total charge for the year was £nil thousand (2013: £nil). Awards granted under the Share Option scheme are measured at grant date
using a Monte Carlo Simulation Model.
The key assumptions made in arriving at the Monte Carlo valuations were: share price on date of valuation, adjusted for subsequent
consolidations where appropriate and the length of time for which the options were expected to remain exercisable. A risk free interest
rate of 1.09% and an implied volatility of 35% were used in valuing the options at the time of granting. It was also assumed that no
dividends would be paid during the life of the options.
Other share based payments
During the year, certain employees agreed to settle bonuses earned in the year ended 31 March 2014 in Share Options. The number
of Share Options issued was 190,710 (31 March 2013: 216,850) with a fair value of £177 thousand (31 March 2013: £149 thousand),
measured indirectly with reference to the value of the option. Due to the fact that the options vested immediately with £nil strike price
and no conditions, the fair value of the option equals the market price of the share at the grant date. There were no options exercised
during the year. The options outstanding at 31 March 2014 had both a weighted average remaining contractual life and a maximum term
of 8.6 years (31 March 2013: 8.75 years).
75
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Consolidated Financial Statements – Notes
continued
26 Other reserves continued
Other share based payments continued
In 2013, the Group adopted an Inland Revenue approved Share Investment Plan (“SIP”) for all employees of the Group. The scheme is
a tax efficient incentive plan pursuant to which all employees are eligible to acquire up to £125 (or 10% of salary, if less) worth of IGas
Ordinary Shares per month or £1,500 per annum. Under the SIP employees are invited to make contributions to buy partnership shares.
If an employee agrees to buy partnership shares the Company currently matches the number of partnership shares bought with an award
of shares (matching shares), on a one-for-one or two-for-one basis.
The total charge for the year was £102 thousand (2013: £nil).
Treasury shares
The Treasury shares of the Group have arisen in connection with;
The shares issued to the IGas Employee Benefit Trust, of which the Company is the sponsoring entity. The value of such shares is recorded
in the share capital and share premium accounts in the ordinary way and is also shown as a deduction from equity in this separate reserve
account; there is therefore no net effect on shareholders’ funds. During the year ended to 31 March 2014 there were no shares issued to
the Employee Benefit Trust (2013: nil).
Capital contribution
The capital contribution of £47 thousand was received in cash following the acquisition of IGAS Exploration UK Limited.
27 Related party transactions
The information below sets out transactions and balances between the Group and related parties in the normal course of business for
the year ended 31 March 2014.
Transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note.
Nexen Petroleum UK Limited are no longer considered related by virtue of having less than a 20% share interest in the Group.
F Gugen currently holds US$2.80 million bonds issued by the Group. These bonds earn interest at 10% per annum. In the year ended
31 March 2014, interest paid was US$0.4 million (2013: US$nil). Accrued interest at 31 March 2014 amounted to US$7.8 thousand
(31 March 2013: US$13.9 thousand).
C McDowell currently holds US$0.29 million bonds issued in the Group. These bonds earn interest at 10% per annum. In the year ended
31 March 2014, the interest paid was US$0.03 million (2013: US$nil). Accrued interest at 31 March 2014 amounted to US$0.8 thousand
(31 March 2013: US$nil).
The Directors of the Company are considered to be the only key management personnel as defined by IAS 24 – Related Party Disclosures.
Transactions with key management personnel were as follows:
Short-term employee benefits
Share plan
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
2,039
186
2,225
1,946
162
2,108
Short-term employee benefits: These amounts comprise fees paid to the Directors in respect of salary and benefits earned during the
relevant financial year, plus bonuses awarded for the year.
Share plan: This is the cost to the Group of Directors’ participation in LTIPs and Share Option Plans, as measured by the fair value of LTIPs
and options granted, accounted for in accordance with IFRS 2.
Further details regarding the remuneration of the Directors of the Group are disclosed in note 5.
76
IGas Energy plc Annual report and accounts 2013/14FINANCIAL STATEMENTS
28 Subsequent events
Acquisitions
On 9 May 2014, the Company and Dart Energy limited (‘’Dart’’) announced that they have reached an agreement on the terms of
a recommended acquisition by IGas of Dart, which values the total share capital of Dart at approximately A$211.5 million on a fully
diluted basis (being equivalent to £117.1 million). The acquisition will be via an Australian Scheme of Arrangement on a share
exchange basis.
The combination will create a market leading onshore UK oil and gas Company with the largest area in the UK under licence of over
1 million net acres including major UK shale basins.
It is anticipated that the transaction will be completed in September 2014.
Hedging
In May 2014, the Group entered into new hedging arrangements by acquiring a series of put and call options for c.167,000 barrels
at US$90/barrel and equivalent GBP over the period January to March 2015.
Issued Shares
On 8 April 2014, Macquarie exercised warrants over 1,500,000 ordinary 10p shares. The warrants were exercised at 55.8p per share.
On 22 April 2014, the Company issued 91,239 Ordinary 10p shares in relation to the Groups SIP scheme.
29 Restatement
As previously disclosed, during the year ended 31 March 2013 the Company repurchased 100% of its outstanding deferred shares.
The deferred shares were not listed and therefore did not qualify as shares held in treasury. These shares were subsequently cancelled
by the Company. As a result the prior year comparative information has been restated to reflect the cancellation of these deferred
shares. This has resulted in a reduction in share capital of £41.2 million and a corresponding recognition of a Capital Redemption Reserve
of £41.2million. There is no net effect on Shareholders’ funds.
77
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Parent Company Financial Statements –
Directors’ Statement of Responsibilities in Respect Thereof
The Directors are responsible for preparing the Annual Report and Parent Company financial statements in accordance with applicable
United Kingdom law and those International Financial Reporting Standards as adopted by the European Union (“IFRSs”).
Under Company Law the Directors must not approve the Company financial statements unless they are satisfied that they present
fairly the financial position of the Parent Company and its financial performance and cash flows for that period. In preparing the Parent
Company financial statements the Directors are required to:
• select suitable accounting policies in accordance with IAS 8: Accounting policies, Changes in Accounting Estimates and Errors and then
apply them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the Parent Company’s financial position and financial performance;
• state that the Parent Company has complied with IFRSs, subject to any material departures disclosed and explained in the financial
statements; and
• make judgments and estimates that are reasonable and prudent.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial
position of the Parent Company and to enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Parent Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors confirm that they have complied with these requirements and, having a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable future, will continue to adopt the going concern basis in
preparing the accounts.
78
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS Independent Auditor’s Report to the Members of IGas Energy plc
We have audited the parent company financial statements of IGas Energy plc for the year ended 31 March 2014 which comprise the
Parent Company Statement of Comprehensive Income, the Parent Company Balance Sheet, the Parent Company Statement of Changes
in Equity, the Parent Company Cash Flow Statement and the related notes 1 to 18. 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 applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Statement of Responsibilities, the Directors are responsible for the preparation of the parent
company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express
an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and
Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit and
to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by
us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
Opinion on financial statements
In our opinion the parent company financial statements:
• give a true and fair view of the state of the company’s affairs as at 31 March 2014;
• 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
• have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the parent company financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company financial statements and 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.
Other matter
We have reported separately on the Group financial statements of IGas Energy plc for the year ended 31 March 2014.
Daniel Trotman
(Senior Statutory Auditor)
For and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 June 2014
79
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Parent Company Statement of Comprehensive Income
For the year ended 31 March 2014
Profit/(loss) for the year
Other comprehensive income for the year
Total comprehensive profit /(loss) for the year
Year ended
31 March
2014
£000
17,889
– –
17,889
Year ended
31 March
2013
£000
(26,117)
(26,117)
80
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS
Parent Company Balance Sheet
As at 31 March 2014
Non-current assets
Investments in subsidiaries
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Other financial assets – Restricted cash
Current liabilities
Trade and other payables
Borrowings – Bond
Borrowings – Macquarie
Other liabilities
Derivative financial instruments
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Borrowings – Bond
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Merger reserve
Other reserves
Accumulated deficit
Shareholders’ funds
Notes
2
3
4
5
5
6
8
8
9
11
31 March
2013
£000
Restated
(note 18)
217,912
57
217,969
55,745
3,596
102,865
162,206
31 March
2014
£000
255,401
369
255,770
45,453
16,655
–
62,108
(55,973)
(4,948)
–
(6,804)
–
(67,725)
(5,617)
250,153
(75,694)
(5,466)
(89,710)
(8,208)
(779)
(179,857)
(17,651)
200,318
8
(103,753)
(103,753)
146,400
(94,942)
(94,942)
105,376
12
13
13
14
15
20,472
62,825
64,882
22,222
(667)
(23,334)
146,400
18,653
41,639
64,882
22,222
(797)
(41,223)
105,376
These financial statements were approved and authorised for issue by the Board on 25 June 2014 and are signed on its behalf by:
Andrew Austin
Chief Executive Officer
Stephen Bowler
Chief Financial Officer
81
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Statement of Changes in Equity
For the year ended 31 March 2014
Balance at 1 April 2012
Changes in equity for the year ended 31 March 2013
(Restated)
Total comprehensive loss for the year
Employee share plans (note 15)
Cancellation of Deferred Shares (note 13)
Issue of Shares
Balance at 31 March 2013 (Restated)
Changes in equity for the year ended 31 March 2014
Total comprehensive profit for the year
Employee share plans (note 15)
Warrants exercised (note 9)
Issue of shares
Balance at 31 March 2014
Called up
share capital
(note 12)
£000
Restated
81,102
Share
premium
account
(note 13)
£000
21,928
Capital
redemption
reserve
(note 13)
£000
Restated
Merger
reserve
(note 14)
£000
Other
reserves Accumulated
deficit
(note 15)
£000
£000
Total
£000
–
22,222
(1,140)
(15,134)
108,978
–
–
(64,882)
2,433
18,653
–
–
–
1,819
20,472
–
–
–
19,711
41,639
–
–
9,508
11,678
62,825
–
–
64,882
–
64,882
–
–
–
–
64,882
–
–
–
–
22,222
–
–
–
–
22,222
–
343
–
–
(797)
–
130
–
–
(667)
(26,117)
28
–
–
(41,223)
(26,117)
371
–
22,144
105,376
17,889
–
–
–
(23,334)
17,889
130
9,508
13,497
146,400
82
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS
Parent Company Cash Flow Statement
For the year ended 31 March 2014
Operating activities:
Profit/(loss) for the year
Depreciation, depletion and amortisation
Share based payment charge
Finance income
Finance costs
(Increase)/decrease in trade and other receivables
(Decrease) in trade and other payables
Net cash from/(used) in operating activities
Investing activities
Acquisition of property, plant and equipment
Loans granted to subsidiaries**
Interest received
Net cash used in investing activities
Financing activities
Cash proceeds from issue of Ordinary Share Capital net of issue costs
Share issue costs
Interest paid
Cash proceeds from loans and borrowings*
Loan issue costs
Repayment of loans and borrowings
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents in the year
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
Notes
17,889
87
75
(18,587)
22,320
150
(962)
20,972
(26,117)
25
54
(5,678)
28,028
122
(1,009)
(4,575)
(399)
(26,543)
44
(26,898)
(10)
(13,951)
20
(13,941)
4,451
–
(10,458)
33,724
(3,690)
(5,128)
18,899
12,973
86
3,596
16,655
23,144
(970)
(6,692)
21,410
(1,887)
(16,735)
18,240
(275)
419
3,452
3,596
13
13
5
* Cash proceeds from loans and borrowings are shown net and consists of gross proceeds from bond borrowings of £126.2 million less repayment of Macquarie
loan of £89.7 million and hedges and early cancellation fees of £2.8 million. Further details on the repayment of the Macquarie loan can be found in note 8.
** Loan repaid was not settled in cash (see note 2).
83
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Financial Statements – Notes
As at 31 March 2014
1 Accounting policies
(a) Basis of preparation of financial statements
The Parent Company financial statements of IGas Energy plc (the “Company”) have been prepared under the historical cost convention
and in accordance with International Financial Reporting Standards, adopted for use by the European Union (“IFRSs”) as they apply to the
Company for the year ended 31 March 2014, and with the Companies Act 2006. The accounts were approved by the board and authorised
for issue on 25 June 2014. IGas Energy plc is a public limited Company incorporated, registered in England and Wales and is listed on the
Alternative Investment Market (“AIM”).
The Company’s financial statements are presented in UK pound sterling and all values are rounded to the nearest thousand (£000) except
when otherwise indicated.
As a Consolidated Income Statement is published in this Annual Report, a separate Income Statement for the Company is not presented
within these financial statements as permitted by Section 408 of the Companies Act 2006.
During the year, the Company adopted the following new and amended IFRSs which were applicable to the Company’s activities as
of 1 April 2013.
Effective date
1 January 2013
1 January 2013
International Accounting Standards (IFRS/IAS):
IFRS 7 – Financial Instruments: Disclosures. The amendments to IFRS 7 on offsetting of
financial instruments are intended to clarify existing application issues relating to the offsetting
rules and reduce the level of diversity in current practice. The Company has considered the
effect of this amendment and has concluded that there has not been a material impact on
the financial statements.
IFRS 13 – Fair Value Measurement – IFRS 13 defines fair value, setting out in a single IFRS
a framework for measuring fair value and requires disclosure about fair value measurements.
IFRS 13 applies when other IFRSs require or permit fair value measurements. It does not
introduce any new requirements to measure an asset or liability at fair value, change what
is measured at fair value in IFRS or address how to present changes in fair value. The new
standard also requires new disclosures to assist users to understand the valuation techniques
and inputs used to develop fair value measurement and the effect of fair value measurement
on profit and loss. The relevant disclosures is provided in note 11. The Group has concluded
that there has not been a material impact on the measurement of assets and liabilities.
IFRS 7
IFRS 13
84
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS
1 Accounting policies continued
(a) Basis of preparation of financial statements continued
New and amended standards and interpretations
Certain new standards, interpretations and amendments to existing standards have been published and are mandatory only for the
Company’s accounting periods beginning on or after 1 April 2014 or later periods but which the Company has not adopted early.
Those that may be applicable to the Company in future are as follows:
International Accounting Standards (IFRS/IAS)
IFRS 9
IAS 19
IAS 32
IAS 36
IFRS 9 – Financial Instruments
IAS 19 – Employee Benefits (Revised)
IAS 32 – Offsetting Financial Assets and Financial Liabilities
IAS 36 – Recoverable Amount Disclosures for Non – Financial Assets disposal
For financial period
commencing on or after
Not yet stated
1 July 2014
1 January 2014
1 January 2014
The Company does not anticipate that the adoption of these standards and interpretations will either individually or collectively have a
material impact on the Company’s financial statements in the period of initial application. The Company does not anticipate adopting
these standards and interpretations ahead of their effective date.
(b) Going concern
The Company regularly monitors forecasts to determine that breaches in covenants are not anticipated to occur in the future. On the basis
of the Company’s current forecasts, no breaches in covenants are anticipated. However these forecasts are based on certain assumptions
particularly in relation to oil prices, production rates, operating costs, capital and general expenditure. After reviewing the Company’s
budgets and cash flow projections for 2014 and 2015, and taking into consideration the current operating environment, mitigating factors
which are within the control of the Group, the risks and the Company’s liquidity risk management outlined in note 11, the Directors are
satisfied that the Company has adequate resources to continue as a going concern. It is therefore appropriate to adopt the going concern
basis in preparing the 2013-2014 Annual Report and Financial Statements.
(c) Significant accounting judgements and estimates
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below:
Carrying value of investment in subsidiaries:
The Company evaluates investments in subsidiaries that have been accounted for at fair value of consideration paid at acquisition
less provision for impairment as described in (d) below. Any impairment review, where required, involves estimates and associated
assumptions related to matters (when appropriate), such as recoverable reserves; production profiles; forward gas and electricity prices;
development, operational and offtake costs; nature of land access agreements and planning permissions; application of taxes, and other
matters. Where the final outcome or revised estimates related to such matters differ from the estimates used in any earlier impairment
reviews, the results of such differences, to the extent that they actually affected any impairment provisions, are accounted for when
such revisions are made. Details of the Company’s investments are disclosed in note 2.
Functional currency
The determination of a Company’s functional currency often requires significant judgement where the primary economic environment
in which it operates may not be clear. The Company reconsiders the functional currency of its entities if there is a change in the events
and conditions which determines the primary economic environment.
85
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Financial Statements – Notes
continued
1 Accounting policies continued
(d) Non-current assets
Investments in subsidiaries
Investments in Group Companies held as non-current assets are held at cost less provision for impairment unless the investments were
acquired in exchange for the issue or part issue of shares in the Company, when they are initially recorded in the Company’s balance sheet
at the fair value of the shares issued together with the fair value of any consideration paid, including costs of acquisition less any provision
for impairment which may subsequently be required.
The Company’s investments in Group Companies held as non-current assets are assessed for impairment whenever events or changes in
circumstances indicate that the carrying value of an investment may not be recoverable, when impairment is calculated on the basis as set
out below. Any impairment is charged to the Income Statement.
Loans to Group Companies are stated at amortised cost.
Impairment
Impairment reviews, when required as described above, are carried out on the following basis:
• By comparing any amounts carried as investments held as non-current assets with the recoverable amount.
• The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The Company generally assesses value
in use using the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset or cash-generating unit.
Where there has been a charge for impairment in an earlier period that charge will be reversed in a later period where there has been a
change in circumstances to the extent that the recoverable amount is higher than the net book value at the time. In reversing impairment
losses, the carrying amount of the investment will be increased to the lower of its original carrying value and the carrying value that would
have been determined had no impairment loss been recognised in prior periods.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is provided at rates calculated to write off the
cost of fixed assets, less their estimated residual values, over their estimated useful lives at the following rates, with any impairment being
accounted for as additional depreciation:
Buildings
Fixtures, fittings and equipment
Motor Vehicles
– over five years on a straight line basis
– between three and five years on a straight line basis
– over four years on a straight line basis
(e) 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.
Other financial assets – Restricted cash
Where cash is held in escrow, funds are only classified as cash and cash equivalents when monies are transferred to and under the control
of the Company.
Trade and other receivables
Trade receivables are initially recognised at fair value when related amounts are invoiced, less any allowances for doubtful debts or
provision made for 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 received.
Impairment of financial assets
In relation to trade receivables, 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 the receivable is reduced through use of an allowance account. Impaired debts are
derecognised when they are assessed as uncollectible.
86
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS 1 Accounting policies continued
(e) Financial Instruments continued
Warrants
When warrants do not qualify as equity instruments under IAS 39 due to the variable number of shares that would be issued in each
case they are accounted for as financial liabilities. The warrants are initialised at fair value on the date they are issued and are
subsequently remeasured to fair value at each period end. All changes in fair value are recognised in the Income Statement.
Borrowings
Borrowings are measured initially at fair value. After initial recognition, interest bearing loans and borrowings are subsequently measured
at amortised cost using the Effective Interest Rate (“EIR”) method. Gains and losses are recognised in the Income Statement when the
liabilities are derecognised as well as through the EIR amortisation process. When management’s estimates of the amounts or timings
of cashflows are revised, borrowings are re-measured using the revised cash flow estimates under the original effective interest with any
consequent adjustment being recognised in the Income Statement.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part
of the EIR. The EIR amortisation is included in finance costs in the Income Statement.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use or sale, are added to the cost of these assets, until such time as the
assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the Income Statement in the period in which they are incurred.
(f) Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date
including whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys
a right to use the asset.
Operating leases
Rentals are charged to the Income Statement in the year on a straight line basis over the period of the lease.
(g) Taxation
The tax expense represents the sum of current tax and deferred tax.
Current income tax assets and liabilities are measured at the amount expected to be recovered or paid to the tax authorities. Taxable
profit/(loss) differs from the profit/(loss) before taxation as reported in the Income Statement because it excludes items of income or
expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s
liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date except
when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Temporary differences
arise from differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax liabilities are not discounted. Deferred tax assets are recognised to the extent that it is regarded as more
likely than not that they will be recovered.
The carrying amount of deferred tax is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are
reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the assets are realised
or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised
in correlation to the underlying transaction either in other comprehensive income or directly in equity.
87
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS Parent Company Financial Statements – Notes
continued
1 Accounting policies continued
(h) Share based payments
Where Share Options or warrants are awarded to employees (including Directors), the fair value of the options or warrants at the date of
the grant is recorded in equity over the vesting period. Non-market vesting conditions, but only those related to service and performance,
are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately,
the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. All other vesting
conditions, including market vesting conditions, are factored in to the fair value of the options or warrants granted. As long as all other
vesting conditions are satisfied, the amount recorded is computed irrespective of whether the market vesting conditions are satisfied.
The cumulative amount recognised is not adjusted for the failure to achieve a market vesting condition; although equity no longer
required for options or warrants may be transferred to another equity reserve.
Where the terms and conditions of options or warrants are modified before they vest, the increase in the fair value of the options,
measured by the change from immediately before to after the modification, is also recorded in equity over the remaining vesting period.
Where equity instruments are granted to persons other than employees, the amount recognised in equity is the fair value of goods and
services received.
Charges corresponding to the amounts recognised in equity are accounted as a cost against the profit and loss which will usually be
to the Parent Company Income Statement unless the services rendered qualify for capitalisation as a non-current asset Costs may be
capitalised within non-current assets in the event of services being rendered in connection with an acquisition or intangible exploration
and evaluation assets or property, plant and equipment.
Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, the value of such shares at issue will be
recorded in share capital and share premium account in the ordinary way, but will not affect shareholders’ funds since this same value will
be shown as a deduction from shareholders’ funds by way of a separate component of equity (Treasury shares).
(i) 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, share premium accounts or merger reserve as appropriate.
(j) Foreign Currency
Transactions denominated in currencies other than the functional currency UK pound sterling 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.
2 Non-current assets – investments in subsidiaries
Investments in subsidiaries comprises:
Parent Company
At beginning of year
Additions
Repayment
At end of year
Investment
in Group
Companies
£000
90,472
22,857
–
113,329
2014
Loans to
Group
Companies
£000
127,440
36,954
(22,322)
142,072
Investment
in Group
Companies
£000
90,154
318
–
90,472
Total
£000
217,912
59,811
(22,322)
255,401
2013
Loans to
Group
Companies
£000
100,000
27,440
–
127,440
Total
£000
190,154
27,758
–
217,912
88
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS
2 Non-current assets – investments in subsidiaries continued
The subsidiary undertakings of the Company at 31 March 2014 which are all 100% owned directly or indirectly by the Company and are all
incorporated in England and Wales, were:
Name
Island Gas Limited
Island Gas (Singleton) Limited
Island Gas Operations Limited
IGas Energy (Caithness) Limited
IGas Exploration UK Limited
Star Energy Group Limited
Star Energy Limited
Star Energy Weald Basin Limited
Star Energy Oil and Gas Limited
Star Energy (East Midlands) Limited
Star Energy Oil UK Limited
3 Property, plant and equipment
Cost
At 1 April 2012
Additions
Disposals
At 31 March 2013
Additions
Disposals
At 31 March 2014
Amortisation and impairment
At 1 April 2012
Charge for the year
At 31 March 2013
Charge for the year
At 31 March 2014
Net book amount
At 31 March 2013
At 31 March 2014
Principal activity
Exploration for and evaluation, production and marketing of oil and gas
Production and marketing of oil and gas
Electricity Generation
Production and marketing of oil and gas
Production and marketing of gas
Service Company
Service Company
Processing of oil and gas
Service Company
Dormant
Dormant
Fixtures,
fittings and
equipment
£000
Buildings
£000
Motor
vehicles
£000
–
3
–
3
355
–
358
–
–
–
56
56
3
302
85
7
–
92
44
–
136
22
20
42
27
69
50
67
20
–
–
20
–
–
20
11
5
16
4
20
4
–
Total
£000
105
10
–
115
399
–
514
33
25
58
87
145
57
369
89
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Financial Statements – Notes
continued
4 Trade and other receivables
Amounts falling due within one year:
VAT recoverable
Other debtors
Amounts due from subsidiary undertakings
Prepayments
31 March
2014
£000
31 March
2013
£000
226
695
44,401
131
45,453
63
35
55,436
211
55,745
The carrying value of each of the Company’s financial assets as stated above being other debtors and amounts due from subsidiary
undertakings is considered to be a reasonable approximation of its fair value.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of assets listed in the table above.
5 Cash and cash equivalents
Cash at bank and in hand
31 March
2014
£000
16,655
16,655
31 March
2013
£000
3,596
3,596
The carrying value of the Company’s cash and cash equivalents as stated above is considered to be a reasonable approximation of their
fair value.
The Company only deposits cash surpluses with major banks that have acceptable credit ratings of “A” or better, except that the Company
will make deposits with banks where the UK government is the major shareholder.
Other financial assets – Restricted cash
Restricted cash
31 March
2014
£000
–
–
31 March
2013
£000
102,865
102,865
On 22 March 2013 the Company raised bonds to a value of US$156.2 million. The cash relating to these bonds were received into, and
held in escrow, remaining restricted until all of the conditions precedent were satisfied in relation to the Bond issue.
On 10 April 2013, all conditions precedent were met by the Company and the funds in escrow were reclassified as cash and cash
equivalents. Part of these funds were used to repay the bank facility agreement with Macquarie Bank Ltd, plus outstanding interest and all
associated break fees, termination fees and costs of closing out the hedges. See note 8 for further details of the refinancing.
90
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS
6 Current liabilities
Trade and other payables:
Trade creditors
Taxation and social security
Amounts due to subsidiary undertakings
Accruals and other creditors
31 March
2014
£000
31 March
2013
£000
115
59
54,475
1,324
55,973
71
96
69,161
6,366
75,694
The carrying value of each of the Company’s financial liabilities being trade creditors is considered to be a reasonable approximation of its
fair value. All trade creditors are payable within one month and no creditor has been outstanding for longer than three months (2013: all
within one month).
7 Taxation
Tax losses, none of which are considered sufficiently certain of utilisation to recognise deferred tax assets, amount to:
Excess management expenses
Related to share based payment transactions
Year ended
31 March
2014
£000
17,995
739
Year ended
31 March
2013
£000
20,976
301
Excess management expenses may only be offset against future profits, if any, of the Company generated in its capacity as a Group
holding Company.
8 Borrowings
Borrowings are measured at amortised cost in accordance with IAS 39.
Bonds – secured*
Bonds – unsecured*
Sub total
Macquarie
Total
31 March 2014
Within
1 year
£000
4,948
–
4,948
–
4,948
Greater
than 1 year
£000
87,186
16,567
103,573
–
103,573
Total
£000
92,134
16,567
108,701
–
108,701
31 March 2013
Greater
than 1 year
£000
94,942
–
94,942
–
94,942
Within
1 year
£000
5,466
–
5,466
89,710
95,176
Total
£000
100,408
–
100,408
89,710
190,118
* Transaction costs of raising debt of £3.7 million (2013: £2.8 million) have been netted off against the liability.
91
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Financial Statements – Notes
continued
8 Borrowings continued
Bond Issuance
Secured Bonds
On 21 March 2013, the Company and Norsk Tillitsmann (“Bond Trustee”) entered into a Bond Agreement for the Company to issue
up to US$165.0 million secured bond issue, At 31 March 2013 US$156.2 million bonds had been sold and with the funds paid into escrow.
By 10 April 2013, the conditions precedent under the bond agreement were met, with the related cash then released from escrow
to the Company. Part of the net proceeds of the Bonds were used to repay the outstanding loan balance with Macquarie Bank Ltd,
plus outstanding interest and all associated break fees, termination fees and to pay costs associated with closing out hedges.
The remainder is being used for general corporate purposes of the Company.
The Bond carries a coupon of 10% per annum (where interest is payable semi-annually in arrears) and semi-annual amortisation
of 2.5% of initial loan amount Final maturity on the notes will be 22 March 2018.
The Bond Agreement contains certain representations, warranties and covenants customary for an instrument of this nature. Such
covenants include the provision of financial and reporting information, compliance with environmental law, maintenance of financial
ratios and certain restrictions on mergers, acquisitions, joint ventures, granting of security, disposals, issuances of loans, incurrence of
financial indebtedness and on payments of dividends by the Company and its operating subsidiaries. The Bond Agreement also contains
customary events of default, the occurrence of which allows The Bond Trustee (on behalf of the bond holders) to accelerate outstanding
bonds and terminate the commitments.
Unsecured Bonds
On 11 December 2013, the Company and Norsk Tillitsmann (“Bond Trustee”) entered into a Bond Agreement for the Company to issue
US$30.0 million unsecured bond issue, issued at 96% of par. The new bonds were listed on the Alternative bond market in Oslo and the
proceeds are to be used for general corporate purposes.
The Bond carries a coupon of 10% per annum (where interest is payable semi-annually in arrears) and has a borrowing limit of
US$60.0 million. Final maturity on the notes will be 11 December 2018.
The Bond Agreement contains certain representations, warranties and covenants customary for an instrument of this nature.
Such covenants include the provision of financial and reporting information, compliance with environmental law, maintenance
of financial ratios and certain restrictions on mergers, acquisitions, joint ventures, granting of security, disposals, issuances of loans,
incurrence of financial indebtedness and on payments of dividends by the Company and its operating subsidiaries. The Bond
Agreement also contains customary events of default, the occurrence of which allows The Bond Trustee (on behalf of the bond
holders) to accelerate outstanding bonds and terminate the commitments.
Macquarie financing
At 31 March 2013, the Group had outstanding borrowings with Macquarie (Macquarie facilities) but was undergoing a refinancing.
In accordance with IAS 1 the Macquarie facilities were re-classified as current liabilities as at 31 March 2013 as the Company had intended
to repay these facilities upon completion of the Bonds. The facilities were re-measured to £89.7 million at 31 March 2013 to take into
account the change in the estimated future cashflows to repay the Macquarie facilities. A £7.6 million loss on re-measurement was
recognised in finance costs in the Income Statement for the year ended 31 March 2013. On 10 April 2013, the Macquarie facilities were
repaid in full, being the re-measured amount, plus £0.3 million of accrued interest.
92
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS 9 Other liabilities
At 1 April 2012
Warrants issued during year
Revaluation loss
As at 31 March 2013
Warrants issued during year
Warrants exercised during year
Revaluation loss
As at 31 March 2014
£000
2,806
–
5,402
8,208
–
(9,508)
8,104
6,804
During the year the Group issued 9,975,657 Ordinary Shares with a nominal value of 10p each upon the exercise of £9.5 million warrants
(31 March 2013: nil shares issued).
Warrants issued can be exercised in three different ways and, although the cost to the Company would be the same under each exercise
option, these warrants do not qualify as equity instruments under IAS 39 due to the variable number of shares that would be issued in
each case. Accordingly they have been accounted for as financial liabilities.
All warrants vested on grant and accordingly the key assumptions made in arriving at the Black-Scholes valuations were: share price on
date of valuation, adjusted for subsequent consolidations where appropriate and the length of time for which the warrants were expected
to remain exercisable. A risk free interest rate of 1.09% and an implied volatility of 35% were used in valuing the warrants at the time of
granting, and an interest rate of 1.38% and an implied volatility of 43.13% at 31 March 2014. It was also assumed that no dividends would
be paid during the life of the warrants.
The movements in warrants during the period were as follows:
At 1 April 2012
Granted in year
Lapsed in year
Outstanding at 31 March 2013
Exercisable at 31 March 2013
Granted in year
Lapsed in year
Exercised in the year
Outstanding at 31 March 2014
Exercisable at 31 March 2014
Weighted
average
exercise price
(pence)
No
21,286,646
–
–
21,286,646
21,286,646
–
–
12,286,646
9,000,000
9,000,000
55.8
–
–
55.8
55.8
–
–
55.8
55.8
55.8
The weighted average remaining contractual life for the warrants outstanding as at 31 March 2014 is 3.75 years.
10 Commitments
At the balance sheet date the Company had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, for each of the following years.
93
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Financial Statements – Notes
continued
10 Commitments continued
Operating lease commitments:
– expiring within 1 year
– expiring within 2 to 5 years
– over 5 years
Total
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
285
1,042
–
1,327
267
1,309
378
1,954
11 Financial instruments and risk management
Fair values
The fair value of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, other than those with
carrying amounts that are a reasonable approximation of their fair values, are as follows:
Financial assets
Amortised cost
Loans to Group Companies
Financial liabilities
Amortised cost
Borrowings (floating rate)1
Borrowings (fixed rate)1
Fair value through profit and loss
Interest rate swaps2
Warrants2
Carrying amount
Fair value
31 March
2014
£000
31 March
2013
£000
31 March
2014
£000
31 March
2013
£000
142,702
127,440
142,702
127,440
–
108,701
89,710
100,408
–
112,326
89,710
103,150
–
6,804
779
8,208
–
6,804
779
8,208
1 The fair value of borrowings and other financial liabilities has been calculated by discounting the expected future cash flows at prevailing market interest rates
for instruments with substantially the same terms and characteristics.
2 The fair value of warrants is estimated using a Black-Scholes valuation model.
Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly; and
• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
For financial instruments there are no non-recurring fair value measurements nor have they been any transfers between levels of the fair
value hierarchy.
The financial assets and liabilities measured at fair value are categorised into the fair value hierarchy as at the reporting dates as follows:
At 31 March 2014
Warrants
Total
At 31 March 2013
Interest rate swaps
Warrants
Total
94
Level 1
£000
Level 2
£000
Level 3
£000
–
–
–
–
–
6,804
6,804
779
8,208
8,987
–
–
–
–
–
Total
£000
6,804
6,804
779
8,208
8,987
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS
11 Financial instruments and risk management continued
Fair value hierarchy continued
The fair values of the interest rate swaps at 31 March 2013 were valued using valuation techniques with market observable inputs.
The models incorporate various inputs including the credit quality of the counterparty and forward rate curves of the underlying
commodity.
The warrants are valued using Black-Scholes method, which incorporates the inputs as detailed in note 9.
Fair value of financial assets and financial liabilities
The carrying values of the financial assets and financial liabilities (excluding current assets, current liabilities and derivative financial
instruments), are considered to be materially equivalent to their fair values.
Financial risk management
The Company’s principal financial liabilities, other than derivatives, comprise borrowings, warrants and trade and other payables.
The main purpose of these financial liabilities is to finance the Company’s subsidiary operations and to fund acquisitions. The Company
has trade and other receivables, and cash and cash equivalents that are derived directly from its operations and restricted cash.
The Company also enters into derivative transactions.
The Company manages its exposure to key financial risks in accordance with its financial risk management policy. The objective
of the policy is to support the Company’s financial targets while protecting future financial security. The Company is exposed to
the following risks:
• Market risk including interest rate, and foreign currency risks
• Credit risk
• Liquidity risk
Management reviews and agrees policies for managing each of these risks which are summarised below. It is the Company’s policy that
all transactions involving derivatives must be directly related to the underlying business of the Company. The Company does not use
derivative financial instruments for speculative exposures.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market factors,
such as interest rate and foreign currency.
The sensitivity analyses below have been prepared on the basis that the amount of net debt, and the proportion of financial instruments
in foreign currencies are all constant and that derivatives are held to maturity. The sensitivity analysis is intended to illustrate the
sensitivity to changes in market variables on the Company’s financial instruments and show the impact on profit or loss and shareholders’
equity, where applicable.
Interest rate risk
The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s loans with related parties.
The Company currently has all of its borrowings at fixed rates of interest.
The following table summarises the impact on profit before tax for changes in interest rates on the fair value of the loans with
related parties. The analysis is based on the assumption that LIBOR moves 50 basis points, with all other variables held constant.
50 basis point increase in LIBOR
50 basis point decrease in LIBOR
Increase/(decrease) in profit before tax
for the year ended and to
equity as at
31 March
2014
£000
945
(945)
31 March
2013
£000
362
(362)
95
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Financial Statements – Notes
continued
11 Financial instruments and risk management continued
Foreign currency risk
The Company has transactional currency exposures. Such exposure arises from purchases in currencies other than the UK pounds sterling,
the functional currency of the Company.
The following table summarises the impact on profit before tax for changes in the US dollar/UK pound sterling exchange rate.
The impact on equity is the same as the impact on profit before tax.
The analysis is based on the assumption that the pound moves 10%, with all other variables held constant.
10% strengthening of the pound against the US dollar
10% weakening of the pound against the US dollar
Increase/(decrease) in profit before tax
for the year ended and to
equity as at
31 March
2014
£000
9,457
(9,457)
31 March
2013
£000
8,719
(8,719)
Credit risk
With respect to credit risk arising from the financial assets of the Company, which comprise cash and cash equivalents, restricted
cash and amounts due from subsidiary undertakings, the Company’s exposure to credit risk arises from default of the counterparty,
with a maximum exposure equal to the carrying amount of these instruments. The Company limits its counterparty credit risk on cash
and cash equivalents and restricted cash by dealing only with financial institutions with credit ratings of at least A or equivalent other
than if the UK government is a majority shareholder. £16.6 million (2013: £3.6 million) of cash and cash equivalents were held with
a single institution.
Liquidity risk
The Company manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities by continuously
monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities and future capital and
operating commitments.
The table below summarises the maturity profile of the Company’s financial liabilities at 31 March based on contractual undiscounted
payments:
At 31 March 2014
Borrowings (fixed rate)
Trade and other payables
Warrants
At 31 March 2013
Borrowings (floating rate)
Borrowings (fixed rate)
Trade and other payables
Warrants
Derivative financial instruments interest swaps
On demand
£000
<1 year
£000
1–2 years
£000
2–3 years
£000
>3 years
£000
Total
£000
–
–
–
–
–
–
–
–
–
–
16,181
115
6,804
23,100
89,710
11,071
71
8,208
779
109,839
15,708
–
–
15,708
–
10,769
–
–
–
10,769
15,178
–
–
15,178
108,271
–
–
108,271
155,338
115
6,804
162,257
–
10,491
–
–
–
10,491
–
100,669
–
–
–
100,669
89,710
133,000
71
8,208
779
231,768
Management considers that the Company has adequate current assets and forecast cash from operations to manage liquidity risks arising
from current liabilities and non-current liabilities.
96
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS
11 Financial instruments and risk management continued
Capital management
The Company manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise
shareholder value. The Company’s funding needs are met through a combination of debt and equity (2013: funding requirements
through a combination of equity and debt) and adjustments are made in light of changes in economic conditions. The Company’s
strategy is to maintain ratios in line with covenants associated with the senior debt facility.
The Company monitors capital using a gearing ratio, which is net debt divided by equity plus net debt. The Company includes within
net debt, interest bearing bank loans less cash and cash equivalents and restricted cash. Capital includes share capital, share premium,
other reserves and accumulated losses.
12 Share capital
Issued and fully paid
1 April 2012, Ordinary Shares of 50p each
16 August 2012 share conversion of each issued
Ordinary Shares of 50p each into:
New Ordinary Shares of 10p each*
New Deferred Shares of 40p each*
Cancellation of Deferred Shares of 40p each*
15 January 2013 shares issued at a price of 95p each
31 March 2013, Ordinary Shares of 10p each
31 March 2013, Deferred Shares of 40p each (Restated)
22 April 2013 shares issued at a price of 77p each
22 June 2013 shares issued at a price of 55.8p each
23 July 2013 shares issued at a price of 83p each
26 July 2013 shares issued at a price of 10p each
15 August 2013 shares issued at a price of 55.8p each
22 October 2013 shares issued at a price of 101p each
5 December 2013 shares issued at a price of 115p each
22 Jan 2014 shares issued at a price of 55.8p each
22 Jan 2014 shares issued at a price of 101p each
31 March 2014, Ordinary Shares of 10p each
31 March 2014, Deferred Shares of 40p each
Ordinary Shares
£000
Nominal value
No.
162,204,909
81,102
Deferred Shares
Restated
No.
–
(162,204,909)
162,204,909
–
–
24,330,730
186,535,639
–
475,002
3,000,000
70,934
2,975,656
2,000,000
87,696
7,488,301
2,000,001
91,533
204,724,762
–
(81,102)
16,220
–
–
– 162,204,909
– (162,204,909)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,433
18,653
–
48
300
7
297
200
9
749
200
9
20,472
–
£000
Nominal value
–
–
–
64,882
(64,882)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The costs of all share issues have all been charged to the share premium account and are as disclosed in the parent company statement
of changes in equity.
* On 16 August 2012 the Company converted each Ordinary Share of 50p each into a New Ordinary Share of 10p each and a New Deferred Share of 40p each pursuant to an
obligation to Macquarie Bank Limited under the terms of the warrants issued during the period ended 31 March 2012. The New Ordinary Shares carry the same rights as
attached to Ordinary Shares. Deferred shares have no voting rights and shall not be entitled to any dividends or any other right or participation in the profits of the Company.
The Company had the right to purchase all the issued New Deferred Shares from all Shareholders for an aggregate consideration of one penny and exercised this right
immediately upon conversion. On 16 August 2012, the Company repurchased the New Deferred Shares from all Shareholders for an aggregate consideration of one penny.
These shares were subsequently cancelled by the Company.
97
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Financial Statements – Notes
continued
13 Share premium and capital redemption reserve account
Share premium account
The share premium account of the Company arises from the capital that the Company raises upon issuing shares for consideration in
excess of the nominal value of the shares net of the costs of issuing the new shares. During the year the Company issued 18,189,123
Ordinary Shares at a price of 10p each (2013: 24,330,730 shares issued) The cost of the issue was £nil million (2013: £0.9 million).
Together these events resulted in a net movement in the Share premium reserve of £11.6 million (2013: £19.7 million).
Capital redemption reserve
During the period ended 31 March 2014 the Company repurchased 100% of its outstanding deferred shares which had been issued with
a nominal value of 40p each. These deferred shares were subsequently cancelled by the Company. This resulted in a reduction in share
capital and a corresponding recognition of a Capital Redemption Reserve of £64.9 million.
14 Merger reserve
Merger reserve – The merger reserve arose as a result of a reverse acquisition on 31 December 2007 whereby IGL became a wholly
owned subsidiary of the Company but with IGL’s shareholders acquiring 94% of the Ordinary Share Capital of the Company. The reserve
represents the difference in the fair value and the nominal value of the shares issued. The reserve is not distributable.
15 Other reserves
Other reserves can be analysed as follows:
Balance 1 April 2012
Employee share plans – cost under IFRS 2
Balance 31 March 2013
Employee share plans – cost under IFRS 2
Employee share plans – shares issued under the SIP
Balance 31 March 2014
Share Plan/
Warrant/
LTIP Reserves
£000
112
343
455
577
–
1,032
Employee share plans – Equity settled
Details of the Share Options under employee share plans outstanding during the year are as follows:
Treasury
Capital
Shares Contributions
£000
£000
(1,299)
–
(1,299)
–
(447)
(1,746)
47
–
47
–
–
47
Total
£000
(1,140)
343
(797)
577
(447)
(667)
2011 LTIP
2010 LTIP
Share Option Plan
Weighted
average
Number of exercise price
(pence)
Options
Weighted
average
Number of exercise price
(pence)
Options
Weighted
average
Number of exercise price
(pence)
Options
2,107,485
1,071,542
–
–
–
3,179,027
–
466,203
(48,730)
–
–
3,596,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50,000
–
(50,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
411,274
–
(237,773)
(173,501)
–
–
–
–
–
–
–
–
–
70
–
(70)
(70)
–
–
–
–
–
–
–
–
–
Outstanding at 1 April 2012
Granted during the year
Forfeited during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 March 2013
Exercisable at 31 March 2013
Granted during the year
Forfeited during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 March 2014
Exercisable at 31 March 2014
98
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS
15 Other reserves continued
Long Term Incentive Plan 2011 (“2011 LTIP”)
In November 2011 the Company adopted a Long Term Incentive Plan scheme for certain key employees of the Group. Under the LTIP,
participants can each be granted nil cost options over up to 300% of remuneration for the Initial Award and up to 150% of remuneration
for the Annual Award (subject to an overall plan limit of 10% of the issued share capital of the Company for all participants). The LTIP has
a three year performance period and awards vest subject to share price performance exceeding the Company’s weighted average cost of
capital of 10%. On a change of control prior to the third anniversary of the grant date, a proportion of the options that vest will take into
account items such as the time the Option has been held by the participant and the performance achieved in the period from the grant
date. Other than on a change of control, 100% of vested awards can be exercised and sold on vesting.
There were no LTIPs exercised during the year. The LTIPs outstanding at 31 March 2014 had both a weighted average remaining
contractual life and maximum term remaining of 7.8 years.
The total charge for the year was £297 thousand (2013: £218 thousand). Of this amount, £97 thousand (2013: £161 thousand) was
capitalised and £200 thousand (2013: £57 thousand) was charged to the Income Statement in relation to the fair value of the awards
granted under the Share Option scheme measured at grant date using a Monte Carlo Simulation Model.
The inputs into the Monte Carlo model were as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividends
Weighted average fair value of awards granted
2011 LTIP
Granted
Nov 11
Granted
Sep 13
50.5p
Nil
35%
6.5 years
0.70%
0%
23.12p
102.0p
Nil
43%
6.5 years
0.85%
0%
50.90p
Long Term Incentive Plan 2010 (“LTIP”)
In October 2010 the Company adopted a Long Term Incentive Plan scheme for certain key employees of the Group. Under the LTIP,
participants can each be granted nil cost options over up to 1.5% of the issued share capital of the Company (subject to an overall plan
limit of 7.5% of the issued share capital of the Company for all participants). The LTIP has a three year performance period and awards
vest subject to the achievement of stretching share price targets. On a change of control prior to the third anniversary of the grant date,
a revised share price target reflecting the reduction in the performance period shall instead be used to determine the extent to which
LTIP options vest. Other than on a change of control, 50% of vested awards can be exercised and sold on vesting, with the remaining 50%
becoming exercisable on the first anniversary of vesting. There were no LTIPs in this scheme exercised during the year. There were no LTIPs
outstanding at 31 March 2014.
The total charge for the year was £nil thousand (2013: £2 thousand). Of this amount, £nil thousand (2013: £2 thousand) was charged
to the subsidiary and £nil thousand (2013: £nil) was charged to the Income Statement in relation to the fair value of the awards granted
under the LTIP scheme measured at grant date using a Monte Carlo Simulation Model.
The key assumptions made in arriving at the Monte Carlo valuations were: share price on date of valuation, adjusted for subsequent
consolidations where appropriate and the length of time for which the LTIPs were expected to remain exercisable. A risk free interest rate
of 1.09% and an implied volatility of 35% were used in valuing the LTIPs at the time of granting. It was also assumed that no dividends
would be paid during the life of the LTIPs.
99
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Parent Company Financial Statements – Notes
continued
15 Other reserves continued
Share Option Plan
In October 2010 the Company adopted a Share Option Plan for certain key employees of the Group. Both executives and employees may
participate in the Share Option Plan. Typically each individual participant could be granted options under the Share Option Plan with a
market value at grant of up to 100% of his base salary, although this limit can be exceeded in exceptional circumstances. Share options
vest in three equal tranches over a three year period from the date of grant and vested options are exercisable subject to the attainment
of a Company share price target.
2010 grants under the Share Option Plan are subject to an exercise price of 70p per share.
There were no Options exercised during the year. There were no Options outstanding at 31 March 2014.
The total charge for the year was £nil thousand (2013: £nil). Awards granted under the Share Option Scheme are measured at grant
date using a Monte Carlo Simulation Model.
The key assumptions made in arriving at the Monte Carlo valuations were: share price on date of valuation, adjusted for subsequent
consolidations where appropriate and the length of time for which the Options were expected to remain exercisable. A risk free interest
rate of 1.09% and an implied volatility of 35% were used in valuing the Options at the time of granting. It was also assumed that no
dividends would be paid during the life of the Options.
Other share based payments
During the year, certain employees agreed to settle bonuses earned in the year ended 31 March 2014 in Share Options. The number
of Share Options issued was 190,710 (31 March 2013: 216,850) with a fair value of £177 thousand (31 March 2013: £149 thousand),
measured indirectly with reference to the value of the option. This amount was charged to the subsidiary. Due to the fact that the options
vested immediately with £nil strike price and no conditions, the fair value of the option equals the market price of the share at the grant
date. There were no options exercised during the year. The options outstanding at 31 March 2014 had both a weighted average remaining
contractual life and a maximum term of 8.6 years (31 March 2013: 8.75 years).
In 2013, the Company adopted an Inland Revenue approved Share Investment Plan (“SIP”) for all employees of the Group. The scheme
is a tax efficient incentive plan pursuant to which all employees are eligible to acquire up to £125 (or 10% of salary, if less) worth of
the Company’s Ordinary Shares per month or £1,500 per annum. Under the SIP employees are invited to make contributions to buy
partnership shares. If an employee agrees to buy partnership shares the Company currently matches the number of partnership shares
bought with an award of shares (matching shares), on a one-for-one or two-for-one basis.
Treasury shares
The Treasury shares reserve of the Company has arisen in connection with:
The shares issued to the IGas Employee Benefit Trust, of which the Company is the sponsoring entity. The value of such shares is recorded
in share capital and share premium account in the ordinary way and is also shown as a deduction from equity in this separate other
reserve account; and so there is no net effect on shareholders’ funds. During the year ended to 31 March 2014 there were no shares were
issued to the Employee Benefit Trust (2013: nil).
Capital contribution
The capital contribution of £47 thousand was received in cash following the acquisition of IGas Exploration UK Limited.
100
IGas Energy plc Annual report and accounts 2013/14PARENT FINANCIAL STATEMENTS 16 Related party transactions
(a) With Group Companies
A summary of the transactions in the year is as follows:
Amounts due from/(to) subsidiaries:
Balance at beginning of year
Services performed by subsidiary
Net cash advances
Group loan interest
Group loan repayment
Acquisitions
Balance at end of year
Year ended
31 March
2014
£000
Year ended
31 March
2013
£000
113,714
5,209
18,781
8,667
(22,322) –
7,949
131,998
94,525
2,286
11,666
5,237
–
113,714
Payment terms are as mutually agreed between the Group’s Companies.
(b) With Directors
Key management as defined by IAS 24 – Related Party Disclosures are those persons having authority and responsibility for planning,
controlling and directing the activities of the Company. In the opinion of the Board, the Company’s key management are the Directors
of the Company. Information regarding their compensation is given in notes 5 and 27 to the consolidated accounts.
F Gugen currently holds US$2.80 million bonds issued by the Group. These bonds earn interest at 10% per annum. In the year ended
31 March 2014, interest paid was US$0.4 million (2013: US$nil). Accrued interest at 31 March 2014 amounted to US$7.8 thousand
(31 March 2013: US$13.9 thousand).
C McDowell currently holds US$0.29 million bonds issued in the Group. These bonds earn interest at 10% per annum. In the year ended
31 March 2014, the interest paid was US$0.03 million (2013:US$nil). Accrued interest at 31 March 2014 amounted to US$0.8 thousand
(31 March 2013: US$nil).
17 Subsequent events
Acquisitions
On 9 May 2014, the Company and Dart Energy limited (‘’Dart’’) announced that they have reached an agreement on the terms of
a recommended acquisition by the Company of Dart, which values the total share capital of Dart at approximately A$211.5 million on
a fully diluted basis (being equivalent to £117.1 million). The acquisition will be via an Australian Scheme of Arrangement on a share
exchange basis.
The combination will create a market leading onshore UK oil and gas company with the largest area in the UK under licence of over
1 million net acres including major UK shale basins.
It is anticipated that the transaction will be completed in September 2014.
Issued Shares
On 8 April 2014, Macquarie exercised warrants over 1,500,000 ordinary 10p shares. The warrants were exercised at 55.8p per share.
On 22 April 2014, the Company issued 91,239 Ordinary 10p shares in relation to the Groups SIP scheme.
18 Restatement
As previously disclosed, during the year ended 31 March 2013, the Company repurchased 100% of its outstanding deferred shares.
The deferred shares were not listed and therefore did not qualify as shares held in treasury. These deferred shares were subsequently
cancelled by the Company. As a result the prior year comparative information has been restated to reflect the cancellation of these
deferred shares. This has resulted in a reduction in share capital of £64.9 million and a corresponding recognition of a Capital Redemption
Reserve of £64.9 million. There is no net effect on Shareholders’ funds.
101
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Oil and Gas Reserves
As at 31 March 2014
The Group’s estimates of proved plus probable reserves are taken from the Group’s Competent Person’s evaluation reports for the Group’s
oil fields as of 31 December 2013 together with adjustments for production data thereafter. The report was provided by Senergy. Proved
reserves are estimated reserves that geological and engineering data demonstrate with reasonable certainty to be recoverable in future
years under existing economic and operating conditions, while probable reserves are estimated reserves determined to be more likely
than not to be recoverable in future years under existing economic and operating conditions.
All of the Group’s oil and gas assets are located in the United Kingdom.
Group proved plus probable reserves
At 1 April 2013
Acquired during the year
Revision of previous estimates
Production
Total change during the year
At 31 March 2014
Oil mmbbls
Gas Bcf
14.97
0.30
(2.06)
(0.98)
(2.74)
12.23
7.95
–
(2.02)
(0.02)
(2.04)
5.91
Total
mmboe
16.36
0.30
(2.42)
(0.99)
(3.11)
13.25
The Group’s estimates of proved plus probable reserves are made in accordance with the 2007 Petroleum Resources Management System
prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers (“SPE”) and reviewed and jointly sponsored by the
World Petroleum Council (“WPC”), the American Association of Petroleum Geologists (“AAPG”) and the Society of Petroleum Evaluation
Engineers (“SPEE”).
102
IGas Energy plc Annual report and accounts 2013/14
Glossary
The lawful currency of the United Kingdom
Low estimate of commercially recoverable reserves
Best estimate of commercially recoverable reserves
High estimate of commercially recoverable reserves
Low estimate or low case of Contingent Recoverable Resource quantity
Best estimate or mid case of Contingent Recoverable Resource quantity
High estimate or high case of Contingent Recoverable Resource quantity
AIM market of the London Stock Exchange
Billions of standard cubic feet
Barrels of oil equivalent per day
Barrels of oil per day
Coal bed methane
£
1P
2P
3P
1C
2C
3C
AIM
Bcf
boepd
bopd
CBM
Recoverable As defined in the Oil and Gas Reserves table above
reserves
Contingent Contingent Recoverable Resource estimates are prepared in accordance with the Petroleum Resources Management
Recoverable System (PRMS), an industry recognised standard. A Contingent Recoverable Resource is defined as discovered potentially
recoverable quantities of hydrocarbons where there is no current certainty that it will be commercially viable to produce
Resources
any portion of the contingent resources evaluated. Contingent Recoverable Resources are further divided into three status
groups: marginal, sub-marginal, and undetermined. IGas’ Contingent Recoverable Resources all fall into the undetermined
group. Undetermined is the status group where it is considered premature to clearly define the ultimate chance
of commerciality.
All amounts shown in this annual report have been compiled by statistical aggregation
Department of Energy and Climate Change
Gas initially in place
The Company’s subsidiary holding all its licences
Millions of barrels of oil equivalent
Millions of standard cubic feet per day
United Kingdom petroleum exploration and development licence
Production licence
Standard cubic feet
Trillions of standard cubic feet of gas
United Kingdom
DECC
GIIP
IGL
MMboe
MMscfd
PEDL
PL
Scf
Tcf
UK
103
IGas Energy plc Annual report and accounts 2013/14STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSPARENT FINANCIAL STATEMENTS
Banker
Barclays Bank Plc
1 Churchill Place
London E14 5HP
Registered Office
7 Down Street
London W1J 7AJ
Copies of Reports and Accounts
Further copies of this Annual report and accounts can
be obtained from the Registered Office of IGas Energy plc
(IGas Energy).
General Information
Directors
F Gugen – Non-Executive Chairman
A Austin – Chief Executive Officer
J Blaymires – Chief Operating Officer
S Bowler – Chief Financial Officer
J Bryant – Non-Executive
R Pinchbeck – Non-Executive
C McDowell – Non-Executive
Company Secretary
MoFo Secretaries Limited
Citypoint
One Ropemaker Street
London EC2Y 9AW
Nominated Adviser and Broker
NOMAD and Joint Broker
Jefferies Hoare Govett
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Joint Broker
Canaccord Genuity
88 Wood Street
London EC2V 7QR
Registrar
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol BS13 8AE
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
104
IGas Energy plc Annual report and accounts 2013/14 Design & Production
www.carrkamasa.co.uk
IGas Energy plc Annual report and accounts 2013/14 IGas Energy plc
Registered Office
7 Down Street
London
W1J 7AJ
+44 (0)20 7993 9899
www.igasplc.com