Securing your
energy with care
ANNUAL REPORT AND ACCOUNTS 2017
INTRODUCTION
WELCOME
Securing Britain’s
energy with care
WHO WE ARE
OUR VALUES
IGas is a leading British oil and gas exploration and
production company, whose businesses have been
operating safely and environmentally responsibly
onshore in the UK for decades.
Our values guide our behaviour, they shape and
direct how we go about our work. They represent
the foundations of our business and are embedded
in everything we do.
OUR STRATEGY
Reserves and
production growth
Developing shale
portfolio
Local and national
engagement
Respect
Performance
Collaboration
Commitment
Transparency
Read more about our values on page 31
FINANCIAL PERFORMANCE
Revenues
£35.8m
2017
2016
Net debt1
£6.2m
Profit/(loss) after tax
£15.5m
Cash and cash equivalents
£15.7m
£35.8m
2017
£30.5m
2016
£6.2m
2017
£99.7m
2016
£15.5m
2017
£(32.9m)
2016
£15.7m
£24.9m
1 Net debt is borrowings less cash and cash equivalents excluding capitalised fees.
2 Adjusted EBITDA is earnings before net finance costs, tax credit, depletion, depreciation and amortisation and impairments.
3 Underlying operating profit excludes gains on oil price derivatives, charges under share based payments, and impairments.
IGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
Our purpose is to provide a secure supply
of energy onshore in Britain both safely
and environmentally responsibly and in
collaboration with the communities
in which we operate.
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Corporate Governance
Introduction to Governance
Board of Directors
The Executive Committee
Corporate Governance
Directors’ Remuneration Report
Directors’ Report
38
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45
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Strategic Report
Our Investment Proposition
Sources and Uses of Gas
Chairman’s Statement
Value Creation
Operating Responsibly
Our Marketplace
– Industry wide momentum and collaboration
in shale appraisal
Chief Executive’s Statement
Operational Review
Financial Review
Key Performance Indicators
Risks and Uncertainties
Sustainable and Responsible Business
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Financial Statements
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 – Group
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
Independent Auditor’s Report
to the Members of IGas Energy plc –
Company
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
IGas Onshore UK Licence Interests
Glossary
General Information
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IBC
Net assets
£181.6m
2017
2016
Adjusted EBITDA2
£9.2m
Net cash from operating activities
£6.7m
Underlying operating profit3
£1.3m
£181.6m
2017
£70.5m
2016
£9.2m
2017
£10.2m
2016
£6.7m
2017
£12.4m
2016
£1.3m
£3.7m
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IGas Energy plc Annual report and accounts 2017
Strong platform
created for
future growth
2
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 1
Strategic
Report
WWW.IGASPLC.COM
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This section of the report addresses
our activity throughout the year, our
delivery against our strategic objectives
and our engagement with our stakeholders,
including the local communities where
we operate.
Strategic Report
Our Investment Proposition
Sources and Uses of Gas
Chairman’s Statement
Value Creation
Operating Responsibly
Our Marketplace
– Industry wide momentum and collaboration
in shale appraisal
Chief Executive’s Statement
Operational Review
Financial Review
Key Performance Indicators
Risks and Uncertainties
Sustainable and Responsible Business
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IGas Energy plc Annual report and accounts 2017
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STRATEGIC REPORT
OUR INVESTMENT PROPOSITION
SIGNIFICANT OPERATIONAL UPSIDE
Existing sites
Incremental production at low
marginal cost
C
>100%
2P conventional reserves replacement of
over 100% in 2017
C
High leverage to
oil price – existing
infrastructure with
near term upside
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Financial resilience
– cash generative
Experienced UK operator
of producing fields
which is transferable
to shale appraisal and
development
Significant value creation
opportunities across the
business
Substantial expertise
and evaluation work
undertaken, leading
to opportunities from
existing acreage
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Shale assets
Conventional assets
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Development assets (shale)
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IGas Energy plc Annual report and accounts 2017
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Dual targets
Number of existing producing fields where
shale potential underlays producing horizon
Potential for development
C
S
c.$240m
Significant carried work programme
Up to c.$240m with INEOS as at
31 December 2017
Focus on high
impact areas
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Primary
recovery only
Upside identified through water
injection and infill drilling
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Operating
capability
Stable production
28 fields
100 producing wells
Majority of fields 100% owned
and operated
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Significant
market position
Significant acreage
c.1m gross acres
across key basins in the UK
D&M shale gas net risked
perspective resources of 2.5 Tcf
(c.440 mmboe)
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Existing
infrastructure
benefits
accelerated shale
development
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IGas Energy plc Annual report and accounts 2017
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SOURCES AND USES OF GAS
AN INTEGRAL PART OF INFRASTRUCTURE
The growing importance of domestic energy supply
Where we use natural gas
Gas provides 84% of our homes with heat,
61% with the means to cook, up to 50% of
our electricity and the employment of over
half a million people in industries that turn
natural gas into everyday products such
as computers, mobile phones, cosmetics,
medicines, fertilisers for food production
and even solar panels.
50%
of our gas is currently imported
Market demand
Annual usage for gas power generation
has been increasing as we reduce coal
dependency.
40%
of UK primary energy was derived from
natural gas in 2016
While renewable sources are increasingly
producing more of a share of our electricity,
gas still provides nearly half. All forecasts have
gas in the energy mix for decades to come.
Gas supports renewables in a number
of ways. Gas provides back-up power
for days when the wind does not blow
and you can track this using Gridwatch
www.gridwatch.templar.co.uk which gives
live information on how we are generating
our electricity.
Read more on the marketplace on p14
6
Electric vehicles
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 Electricity
Manufacturing
WWW.IGASPLC.COM
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Recycling
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Transport
Heating
and cooking
Food production
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IGas Energy plc Annual report and accounts 2017
CHAIRMAN’S STATEMENT
SAFE AND RESPONSIBLE PROGRESSION
We are conscious of the significant
responsibility we have not just to our
shareholders and colleagues but
also to the communities in which
we operate and the partners that
we work with.
Introduction
This is my first Annual Report
as Chairman and I am pleased
that the Company is now both
financially stronger and at a very
exciting point in its operational
evolution. 2017 was a year of
significant change at IGas. A
major financial restructuring was
successfully completed and, as
part of that process, we attracted a
new strategic investor in Kerogen
Capital, who specialise in the
oil and gas sector. Alongside
the refinancing, we changed
the composition of the Board,
and implemented cost savings,
particularly at head office, in order
to be well positioned for the future.
The second half of the year brought a more
stable and increasing oil price and momentum
not only across the different facets of our
business but across the wider UK onshore
industry. We are generating operating cash
flow and production levels are stable at 2,300
boepd. We have a committed carried work
programme of up to c.$240 million with
our key partner INEOS, to develop our shale
assets, and have commenced work on a
number of projects within our conventional
production assets that we were able to
progress following the refinancing.
As we start another year, I find myself
questioning how is the UK going to continue
to meet the significant national demand for
gas? Gas heats 8 out of 10 homes, produces
nearly half of our electricity and is used
as a vital feedstock by British industry. In
December 2017, three separate events caused
a European gas shortage and subsequent price
spike, with Middle Eastern and Russian LNG
suppliers assigning tankers to meet demand.
There may be plenty of gas that can be
imported from around the world but that
comes at a cost, not just a high financial one
but imports have a higher carbon footprint
and we cannot control employment and
environmental policies and regulations in
other jurisdictions. If we develop our own
home-grown supply, we can maximise both
the economic and environmental
opportunities that come with it and
have more security of supply.
Our businesses have been operating onshore
in the UK for more than three decades and we
are conscious of the significant responsibility
we have not just to our shareholders and
colleagues, but to the communities in which
we operate and the partners with whom
we work. Much of our workforce live in and
around the communities where we operate
and understand what it means to be a
responsible neighbour. Our focus on health,
safety and the environment continues to be a
key priority across the business.
Our Community Fund is now in its tenth
year and we are proud of the work we have
done to support local communities across
our portfolio, investing almost £1 million in
numerous projects that are both meaningful
and sustainable to local residents. We will
continue making these important donations
whilst endeavouring to engender trust within
the communities in which we operate.
In June 2017, Francis Gugen, who had
been Chairman of the Company since it was
founded, retired from the Board. I would
like to thank Francis for his pivotal role
in establishing IGas as one of the leading
onshore oil and gas operators and we all wish
him well for the future. John Bryant, Senior
Independent Non-executive Director,
also retired from the Board in June 2017,
having served on the Board for nine years.
I would like to thank John for his significant
contribution to the Company.
Following the successful completion of the
refinancing in April 2017, two directors from
Kerogen Capital, Philip Jackson and Tushar
Kumar, joined the Board as Non-executive
Directors. In addition, John Blaymires and
Julian Tedder resigned from the plc Board but
remain directors of the operating companies
and continue to fulfil their executive roles.
In particular, I am grateful to the IGas
leadership team for their energy and
dedication in steering the business through
a complicated restructuring and successful
capital raise.
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STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
I want it to be recognised how hard our
colleagues have worked during the past year
and thank them for their commitment and
resilience through challenging times and I
would also like to thank our shareholders for
their continued support.
Outlook
The last couple of years have been challenging
both for IGas and the industry as a whole,
but with the appropriate steps having been
taken by the Company and the more stable
commodity price outlook, IGas is now well
set for the next period of its growth.
While we remain focused on maintaining
a solid operating performance, we have
also allocated some capital to deploy in
growth projects across our conventional
assets and will be focused on delivering
sanctioned projects. Maintaining the strength
of our conventional operating platform is a
fundamental part of the Company’s equity
story, underpinning the significant opportunity
our unconventional acreage presents.
Momentum is building across the business and
across the industry as we start to drill and flow
appraisal wells to assess commercial viability
of these shale resources. There is a significant
level of activity onshore UK, and over the next
year, the industry is expected to have over half
a dozen operators either drilling or flowing
wells, including a number from IGas.
We look forward to the future with excitement
not only for IGas, but for the wider UK
onshore industry, as security of energy supply
and diversification of the UK energy mix
becomes ever more important.
Mike McTighe
Non-executive Chairman
OUR VALUES
Respect
Performance
Collaboration
Commitment
Transparency
THIS YEAR'S REPORT
– KEY FEATURES
In the Strategic Report we provide
a description of the business, the
environment in which we work, our strategy
and business model for creating value for all
our stakeholders, as well as a more detailed
review of our performance, analysis of our
results and a description of the risks to the
business and the KPIs against which we
benchmark our performance.
We live in increasingly volatile times and a
key responsibility for the Board is to review
risk on a continual basis. I am pleased to say
IGas has a comprehensive risk management
and planning process in place, details of
which can be found on pages 28 to 30.
In the Corporate Governance section
we provide detail on our corporate
responsibility activities, some of the topics
and activities discussed by the Board, the
statutory Directors’ Report and Directors’
Remuneration Report together with
information on the key Board committees.
We consider the report to be fair, balanced
and comprehensible. It is a reflection of
how we operate as a business and how we
collectively serve our stakeholders.
Read our Corporate Governance Report on
pages 41 to 44
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IGas Energy plc Annual report and accounts 2017
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STRATEGIC REPORT
VALUE CREATION
BUILDING A RESPONSIBLE BUSINESS
Our strategy is to build a long-term material
onshore energy company in Britain in
collaboration with the communities in which
we operate and deliver value for all our
stakeholders.
Our strategy remains clear and focused and we intend
to deliver sustainable growth by focusing on exploiting
our existing reserves, commercialising and developing
our shale assets and converting resources into
reserves.
The adoption of cost effective technology to unlock
value in our assets remains a key part of this.
Strategy at the core
of our business
Reserves and
production growth
Developing shale
portfolio
Local and national
engagement
VALUE CREATION
CONTINUOUS
ASSESSMENT
OUR RESOURCES
AND RELATIONSHIPS
MAINTAINING
COMPETITIVE
ADVANTAGE
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IGas Energy plc Annual report and accounts 2017
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OUR RESOURCES
AND RELATIONSHIPS
CONTINUOUS
ASSESSMENT
MAINTAINING
COMPETITIVE
ADVANTAGE
Our community
We build relationships with our stakeholders
in the communities we operate in.
Read more on page 32
Our people
We constantly strive to develop our
employees and their knowledge and skills.
Read more on page 31
Risks and uncertainties
We constantly assess the risks facing our
business and develop mitigation strategies.
Read more on page 28
Key performance indicators
The success of our operations is measured
against KPIs.
Read more on page 26
Disciplined asset portfolio
management
Optimisation of assets
Integrated management tools
and financial management
Operating capability
VALUE CREATION
Turning opportunities into value
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IGas Energy plc Annual report and accounts 2017
OPERATING RESPONSIBLY
THE REGULATORY ROUTE TO DEVELOPMENT
Before any operation can
begin, we must complete
rigorous health and
safety, environmental
and planning permission
processes.
1
2
3
PEDL issued
Financial and operational
competency assessed.
Petroleum Exploration and
Development Licence (“PEDL”)
issued by the Oil & Gas Authority.
Landowner
consent
Operator secures landowner
consent for activity.
Environmental
risk assessed
Environment Agency assesses
risk to water, air quality and how
waste will be managed.
IGas
stakeholder
engagement
process
Discussions with the community.
Community presentations,
exhibitions and engagement.
Dialogue and information.
There are numerous standards
and guidelines that we have to
conform to, irrespective of the type
of well drilled, and we are subject
to regular inspections (scheduled
and unannounced) to ensure we
are always fully compliant.
We operate in many sensitive
areas and we are committed to
preserving our landscapes and
work closely with planning and
all other statutory authorities
and local people to minimise
the environmental impact of
our operations.
Environmental monitoring is a key
activity that we undertake before,
during and after operational
activity.
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IGas Energy plc Annual report and accounts 2017
WHO REGULATES THE UK
ONSHORE OIL AND GAS INDUSTRY?
Health and Safety Executive
(“HSE”)
Environment Agency
(“EA”)
Department for Business,
Energy & Industrial Strategy
(“BEIS”) and the Oil & Gas
Authority (“OGA”)
Scottish Environment
Protection Agency
(“SEPA”)
Mineral Planning Authority
(“MPA”)
STRATEGIC REPORT WWW.IGASPLC.COM
4
5
6
7
Environment
Agency grants
permits
Planning
permission
Planning permission from local
authorities who seek views from
the local community and statutory
consultees.
Final regulatory
checks and
consents
Final checks to ensure controls
are in place.
Operations begin
Once all these rigorous safety
checks have been completed
and permits secured – activity
can begin.
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Continued throughout lifecycle
Community engagement
Read more about our engagement with local communities
below and on page 32
Health and Safety
Read more about our ISO accreditation on page 35
Community benefits.
Progress updates.
COMMUNITY ENGAGEMENT
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It is imperative that we are a good
neighbour, recognising our responsibility to
work in partnership with the communities
in which we operate. It is important that
we communicate effectively with local
communities, particularly when we are
planning new developments. We have set up
various ways of communicating with local
stakeholders based on the specific needs
of each community. Some examples of our
engagement work in 2017 are as follows:
Springs Road and Tinker Lane
During the year we continued to hold
regular Community Liaison Group ("CLG")
meetings for both these sites. We regularly
facilitate “guest” presenters to cover
areas such as planning and environmental
monitoring. We also held a village meeting
for the residents of Misson to ask questions
of the project team.
As we move to the construction and drilling
phases we will keep the local community
appraised through these regular CLG
meetings, our community website
www.igas-engage.co.uk and through
newsletters.
Ellesmere Port
Pre-application consultation was undertaken
with the MPA, ahead of the submission
of the planning application. IGas visited
and/or informed in writing all local
businesses of the plans for the Ellesmere
Port Wellsite. We also consulted and
informed local councillors and the MP of
the plans for the Ellesmere Port Wellsite.
We distributed leaflets to the local
community in July 2017 and we held a
public exhibition in August 2017.
Ince Marshes
During the pre-application phase we have so
far held a consultation event, met with local
parish councils, written to 1,727 residents
within a kilometre radius of the proposed
site and undertaken a leaflet drop and
“door knock” for local residents. We have
also met with local business groups and
other existing community forums.
We will be holding further events during the
planning application process.
Further details on all our projects can be
found at www.igas-engage.co.uk
IGas Energy plc Annual report and accounts 2017
13
STRATEGIC REPORT
OUR MARKETPLACE
A CHANGING MARKET
The UK gets most of its energy today
from oil, gas and nuclear with coal
being phased out as the UK seeks
to lower greenhouse gas emissions.
2% 1%
2%
2%
6%
7%
8%
13%
38%
17%
36%
38%
UK primary energy
demand 20161
30%
UK primary energy
demand 20351
Oil
Natural
Gas
Coal
Bioenergy
& Waste
Oil
Natural
Gas
Coal
Renewables
& Waste
Nuclear
Other
Wind,
Solar &
Hydro
Nuclear
Other
76%
33%
25%
Oil & gas accounts for 76% of the UK's
energy mix1
UK industry pays 33% more than the rest of
Europe for electricity1
Global oil and gas demand is forecast to rise
between now and 20352
1 Source: University College London.
2 Source: BEIS.
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Overview
During the first part of the year the oil market
remained volatile, challenged by high stocks
and sluggish prices. In the second half of the
year, OPEC extended its production cuts and
adhered to them and rig counts in the US
remained at relatively low levels, against the
backdrop of increasing global growth and
therefore demand.
2018 has started buoyantly with oil prices
above $60/bbl, a marked shift from the lows of
the mid $20/bbl in early 2016. Whether this oil
price run can be sustained, let alone extended,
is difficult to predict but the oil economists
point to more fundamental reasons, on both
the supply and demand side, to think that oil
prices, at least around $60/bbl, are sustainable.
The gas market is becoming more global,
particularly given the increasing supply of
LNG. Underlying gas demand has continued
during 2017, with market prices dominated
by continued low-cost supply growth from a
number of regions, such as the US, causing
global pricing to remain relatively low for
the first half of the year. UK pricing does not
always follow this dynamic and as we went into
the UK winter, we saw natural gas pricing with
the UK NBP moving up to around $7-8/mcf,
more than double the price in the US.
UK Energy
The most recent statistics published from
2016 show that oil and gas provided 76%
of the UK’s primary energy with 38% alone
derived from natural gas, a 50% increase since
1990. There was a switch in the main sources
of electricity generation away from coal to
gas generation. Generation from coal fell by
60% in 2016, as a number of plants closed or
switched to burning biomass; gas rose by 46%.
Renewables’ share of electricity generation was
stable at 25% in 2016, the same as in 2015.
As a result of gas replacing coal, UK carbon
emissions fell by 7% in 2016. On a global basis
this is an area that must be addressed, with
some developing economies still utilising coal
as a key power provider.
In the UK, gas has played an important role in
reducing emissions from electricity generation.
Since 1990, emissions from power stations
have fallen by 62%, a saving of 125 million
tonnes of CO2 a year.1
Whilst indigenous oil and gas will continue
to provide an important part of the energy
mix there are finite reserves in the North Sea.
Currently c.50% of our gas is imported and
that is set to rise to nearly 80% in the next
17 years.2
In May 2017, the Conservative Government
renewed its pledge to support UK shale
development, signalling its desire to make
domestic energy security a priority. This
comes after warnings that unless we begin
developing and using our own onshore
resources, in 20 years the UK will be importing
over 75% of our gas, costing the equivalent of
over £300 per household3. It was less than two
decades ago that the UK was a net exporter of
energy. Based on research by UKOOG4, with
400 shale pads across the UK (amounting to
0.2% or less of the total land area) we could
reduce our import dependency by at least
50% by 2035.
In its Clean Growth Strategy, published in
October 2017, the Government re-affirmed
the importance of natural gas for heating.
By replacing LNG imports with natural gas
produced onshore, we can help to reduce
the UK's carbon footprint and provide a
cost-effective source of energy and feedstock
for our homes, businesses and industry.
In November 2017, the Government published
a White Paper: Industrial Strategy: building
a Britain fit for the future. It states that
the emerging shale gas industry ‘offers the
prospect of creating jobs, enhancing the
competitiveness of downstream sectors and
building up supply chains’, lending further
support to the future development of
the industry.
As we look to the future, the world is moving
to the electrification of transport with many
European countries including the UK having
announced plans to ban the sale of new
diesel and petrol cars in the future. The extra
electricity needed in the UK alone will be the
equivalent of almost 10 times the total power
output of the new Hinkley Point C nuclear
power station being built. Recent research
published5 states that without investment
nuclear capacity will be 35% below current
levels by 2040. The answer is that all areas
will need to contribute towards our energy
make up, specifically with regards to electricity
generation, and UK shale could potentially
make significant contributions.
The UK will need to ensure its energy supply
is secure, affordable and as low carbon as is
economically possible and our indigenous
onshore resources potentially have a key
contribution to make.
Climate change and energy mix
Climate change and therefore future energy
and power mix is an area of focus for many, as
demonstrated by COP21. As energy markets
become more global, this will continue to
make front page headlines in how we all
contribute to reducing emissions and moving
towards the 2-degree target.
What is self-evident is that transporting fuels is
inefficient and therefore worse for the global
environment. In addition, we absolutely need
gas as part of the energy mix and this will not
change for decades to come.
In terms of efficiencies, shipping gas across
oceans and continents in the form of LNG
requires energy in itself. The gas produced
in Qatar must be super-cooled, then loaded,
brought thousands of miles to the UK then
unloaded and regassified, a process that
uses a significant amount of energy. In turn,
importing this gas rather than producing it
here in the UK means 10% higher lifecycle
emissions for that supply, which has big
implications for our environment, particularly
as we take gas from nations with lower
regulatory standards than our own.
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https://www.gov.uk/government/statistics/provisional-uk-greenhouse-gas-emissions-national-statistics-2016.
2 Source: BEIS.
3 Source: Oil and Gas Authority, UKCS oil and gas production (and demand) projections
https://www.ogauthority.co.uk/data-centre/data-downloads-and-publications/production-projections/; 27.1 million households in the UK
(see ONS - https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/families/bulletins/familiesandhouseholds/2016).
4 Source: http://www.ukoog.org.uk/images/ukoog/pdfs/Developing_Shale_Gas_and_Maintaining_the_Beauty_of_the_British_Countryside.pdf .
5 Source: Morgan Stanley Research Note: Does Nuclear Have a Role to Play in Decarbonisation?
15
IGas Energy plc Annual report and accounts 2017
STRATEGIC REPORT
OUR MARKETPLACE CONTINUED
INDUSTRY WIDE MOMENTUM AND COLLABORATION
IN SHALE APPRAISAL
Activity
IGas operated licences
Other operators
BGS shale prospective
IGas non-operated licences
Newcastle
Leeds
Manchester
Liverpool
16
IGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
CUADRILLA – LANCASHIRE
Preston New Road
Cuadrilla has completed drilling a vertical
pilot well to a depth of over 2.7km through
both the Upper and Lower Bowland shale
rock intervals at Preston New Road,
Lancashire.
Cuadrilla is currently drilling two
horizontal wells and once completed
hydraulic fracturing of both will follow.
Cuadrilla plans to test the flow rate of
natural gas from the horizontal wells for
approximately six months after this.
The company has recovered some 375 feet
of core samples and early analysis of this
data suggests excellent rock quality for
hydraulic fracturing and a high natural gas
content in several zones within the shale.
IGAS ENERGY – NORTH
NOTTINGHAMSHIRE
Springs Road and Tinker Lane
Permission to drill three wells in total across
two sites.
Construction is almost complete at both
sites. These wells being drilled in 2018 will
form the foundation of wider development
in the East Midlands with the mid-term
focus moving to a pilot development
in the Gainsborough Trough.
INEOS SHALE – DERBYSHIRE, SOUTH
YORKSHIRE AND NOTTINGHAMSHIRE
INEOS has completed a 3D seismic survey
as part of their plans to develop the nation’s
shale gas resources across a 250km2 area
of the East Midlands.
INEOS has three applications for
appraisal wells in the planning system.
During 2017, INEOS acquired Total’s entire
40% interest in PEDLs 139 & 140, and a 30%
interest in PEDLs 273, 305 & 316 and the
entire UK onshore Petroleum Exploration
and Development Licence interests of
ENGIE E&P UK Limited.
THIRD ENERGY – YORKSHIRE
Kirby Misperton
Third Energy has planning permission to
hydraulically fracture its existing KM-8
well. The Secretary of State for Business,
Enterprise and Industrial Strategy (“BEIS”)
has confirmed that Third Energy has met
all of the 13 technical requirements set out
in section 4A of the Petroleum Act 1998.
Before granting final consent to hydraulically
fracture the KM-8 well, the Oil & Gas
Authority, working with the Infrastructure
and Projects Authority, will undertake a
financial resilience review.
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17
IGas Energy plc Annual report and accounts 2017
CHIEF EXECUTIVE’S STATEMENT
POSITIVE MOMENTUM
The expectation of ongoing free
operating cash flow provides us with
a solid platform and financial flexibility
to execute our growth plans.
We ended 2017 in a stronger
financial position having
carried out a successful capital
restructuring earlier in the year
against a backdrop of continued
commodity price volatility. Now,
with capital available to deploy,
we are taking further steps to
improve operating and production
efficiency that will underpin our
conventional production through
2018 and beyond.
The midpoint of the year saw the start of the
current oil price run. A convergence of supply
constraints and demand strength are factors
contributing to continued oil price strength
and creating foundations to sustain that
relative strength in 2018.
Over the past few years we have driven
operating costs down to approximately $28/
boe. With oil prices now above $60/bbl, we
are reviewing further various initiatives to grow
our production from our existing producing
sites across the country.
The UK is heavily reliant on gas, being the
second largest consumer of gas in the EU after
Germany. Latest data available from 2016
shows 40% of UK primary energy was derived
from natural gas, representing a 50% increase
since 1990. Currently c.50% of our gas is
imported and that is set to rise to nearly 80%
in the next 17 years.
We have the opportunity to be a potentially
important contributor to changing the future
dynamics of the UK's supply of gas, reducing
our growing reliance on imports while meeting
our national demand for gas, bringing direct
local investment, and also benefits to our
wider environment and economy.
Read more about our marketplace on page 14
Strengthening the Balance Sheet
In April 2017, shareholders approved the
terms of a fundamental capital restructuring
of the Group, concluding a long process that
commenced in early 2016. This complex
restructure involved new equity of $57
million being raised, a number of secured
and unsecured bonds exchanged for equity, a
number bought back and the remaining bond
terms amended. This resulted in net debt
being reduced from c.$120 million to under
$10 million on completion.
The transaction has significantly improved
our financial position and we are generating
operating cash for reinvestment back in
the business at the current oil price of
over $60/bbl.
We have created a more robust and stable
financial platform for the future development
of the Group with senior management now
focused on delivering operationally as well
as strategically.
Operational performance
Group production averaged 2,335 boepd for
the year as our production crews worked hard
getting wells back online that had required
maintenance.
We continue to identify and evaluate
opportunities across our conventional assets.
We see value creation in turning maturing field
decline into production growth and whilst
the past couple of years has seen little capital
investment given the challenging oil price
backdrop and focus on cash preservation,
we are now spending more time looking at
exploration and appraisal opportunities within
these existing assets.
We have approved some incremental projects
including the Albury and Gainsborough gas
projects, pump enhancement and waterflood
activity at Welton and plant and maintenance
projects. We expect to see the benefits of
these projects during the latter part of 2018.
We have also identified, and are looking to
accelerate, a number of other projects with
attractive returns. Detailed technical and
economic evaluations are progressing to
advance these opportunities which will further
underpin our conventional portfolio.
IGas is now approaching a period of increased
operational activity across its acreage.
Having received formal planning approval for
three wells in North Nottinghamshire, site
construction continues at our Tinker Lane and
Springs Road sites. We anticipate that we will
spud the first well mid-2018.
18
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 I
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People
2017 was another challenging year for the
business, balancing the restructuring process
with maintaining production and pursuing our
shale development programme.
We continue to operate in an ever-changing
and complicated industry where the challenges
are numerous and the pace and pressure to
deliver constant. What I appreciate is just
how much each of our people cares, how
dedicated they are to making this work and
the personal sacrifices made to ensure the
continued success of the business.
Outlook
The expectation of ongoing free operating
cash flow provides us with a solid platform and
financial flexibility to execute our growth plans.
Whilst we are optimistic about our plans
and the opportunities before us, we are also
cautious about the macro environment and
will continue to maintain financial discipline
across the business whilst bringing projects
forward that have attractive returns at current
oil prices.
There will be a number of wells drilled this
year, some with hydraulic fracturing. Once
we have proven to our local communities
that we can conduct this highly regulated and
proven process in a safe and accountable way
we hope that those undecided and unsure of
the process will come to accept it for what
it is, and has been for the last five decades:
a standard oilfield operation that will help
support the UK’s energy independence,
economy and environment.
Stephen Bowler
Chief Executive Officer
In the North West, in July 2017, we submitted
a planning application to test the Pentre
Chert formation at our existing site at
Ellesmere Port. The planning officer made
a recommendation for approval but the
planning committee refused consent.
It is our intention to appeal this decision.
At Ince Marshes, we continue to progress
our planning application to drill a new well
and hydraulically fracture at this existing site.
Subject to surveys and monitoring we expect
to submit the application mid-2018.
Momentum in UK onshore activity
2018 will be a defining year for the onshore
oil and gas industry. There is a significant
level of activity onshore UK, and over the
next 12 months, the industry is expected to
have a number of operators either drilling
or flowing wells. The industry has made the
first payments under its community benefits
scheme, prepared to begin drilling horizontally
into shale rock for the first time in Lancashire
and submitted a final stage application for high
volume hydraulic fracturing in North Yorkshire.
Cuadrilla has announced that early results
from its vertical wells in Lancashire were very
encouraging and they are confident that there
is a very sizeable quantity of natural gas in the
Bowland Shale. The coming months should
see important data in terms of flow rates that
will help the industry better understand the
geology in the key basins.
IGas in the community
It is hugely important to us that the local
communities where we operate benefit from
our presence both economically and socially.
This means not only via investments from our
own community fund, which has distributed
almost £1 million to communities in which
we operate, but also providing jobs, working
closely with the local supply chain and funding
apprentices.
As many of our existing production sites will
still operate for years to come and as new sites
are brought into production we want to make
sure that we make a positive difference to the
local community.
Read more about how the IGas Community
Fund has supported local projects over the
last decade on page 32.
WWW.IGASPLC.COM
ALBURY PROJECT:
MONETISING
STRANDED GAS
The Albury field in Surrey was originally
developed for power generation. It
produced for a number of years before
being shut down in 2009 to drill a
second well to appraise the gas storage
capability of the Purbeck Sandstone.
The results of an extended well-test
in 2011 together with the historical
production data and modelling gave
sufficient confidence to conclude that
commercial volumes of gas were in
place.
We have been working on a cost
effective solution to monetise the
gas and we are now in the process of
securing consent for the production
of the gas, its export by underground
pipeline to the main gas grid and the
production of electricity. The power
generation scheme is achieved through
the installation of a gas engine package
and utilisation of the existing electrical
network for electricity export.
Since 2010 the gas transmission
business has been increasingly
deregulated so as to enable the injection
of small quantities of bio-methane into
the grid in the form of CNG or low
pressure gas. In addition small scale
gas processing/conditioning equipment
has been developed to a level where
compliant systems are both reliable
and economical to operate. These
developments have allowed the “gas-
to-grid” option to be considered as a
viable, economical solution for Albury
Gas Monetisation
IGas Energy plc Annual report and accounts 2017
19
OPERATIONAL REVIEW
SECURE PRODUCTION
The adoption of cost effective technology
to unlock value in our assets remains a
key part of our overall strategy.
Production
During 2017, the production
division continued to deliver cost
and production efficiencies through
extending and embedding many
of the initiatives that had been
introduced in previous years.
Throughout the year we conducted
a significant programme of well
and facility maintenance which has
resulted in the return to production
of several shut-in wells. All of this
activity resulted in average net
production for the year of 2,335
boepd with operating costs
of c.$28/bbl.
Our operations are based largely within
mature fields with aged assets and as a
consequence we believe that realising high
production efficiency will be a fundamental
component of achieving our operating cost
goals going forward. As the fields have a long
operating history and we have significant
local operating knowledge we have been
able to take advantage of both to conduct a
systematic review of each of our wells in order
to ascertain any performance or reliability
issues. This exercise coupled with the live data
that we now have from our downhole gauges
and Rod Pump Off Controllers (part of our
Digital Oilfield initiative) has meant that we are
better able to execute predictive techniques
with our wells. For example, in order to
avoid rod breaks or to ensure that following
a rod break we have an enhanced repair
programme “on the shelf” to quickly return
the well to production. This approach has
delivered a 70% reduction in rod failures since
its introduction and has created the capacity
to allow our rodding rig to focus more on
proactive activities and opportunities.
The deployment of our Digital Oilfield concept
also continues as we see this being an enabler
for real-time, swifter and better informed
decision making, with increased employee
engagement and productivity all combining
to assist in driving down our future
operating costs.
Early in the year a focus on developing near
term projects and identifying optimisation
opportunities continued, with key activities
being progressed to ensure that we were well
positioned to take them forward following
the Company refinancing and an improved
oil price environment. Post the restructuring,
several of our optimisation projects were
sanctioned including the mobilisation of a
coiled tubing unit for work on three separate
wells, two of which have increased their
production rates by over 100% and the third
brought back online after being shut-in due to
loss of productivity. These works combined
with an intensive workover campaign that
included deployment of wax mitigation
technologies, pump optimisations and well
conversions have effectively offset the annual
decline with our production rates exiting the
year almost 5% higher than at the start.
We approved the trial of beam pump gas
compressors at two of our fields in order
to reduce back pressure on several of our
wells. These units are due for installation
in mid-2018. If successful they will improve
the individual well productivity and provide
additional gas for our power generation
schemes, as well as opening up the potential
for further roll out across several other sites
in the portfolio. Other innovations include the
installation of a micro turbine package to trial
the potential to utilise annulus gas for small
scale local power generation, whilst also taking
back pressure off the well; this is also due for
commissioning in mid-2018.
Progress also continues with our water
injection initiatives in both the Weald and the
East Midlands. We have recently approved a
new scheme at our Welton field that, following
the conversion of an existing well and the
installation of injection facilities, envisages
the return to production of two wells that are
currently shut-in with the added benefit of de-
risking the current production from the field.
Another project, at our Stockbridge field,
is also underway where we have developed
a package of works across five wells to
debottleneck the water management
constraints at the field whilst also returning
existing wells to production. The programme
includes the side-track of a previously
abandoned water injection well, the
stimulation of a well with low productivity,
two workovers and the reinstatement of a well
shut-in for water management to be returned
to production. These activities will not only
de-risk the existing production but add up to
30% of incremental production from the field.
20
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 The monetisation of our stranded gas assets
advanced throughout 2017; most notably
at our Albury site. For several years the gas
transmission business has been increasingly
deregulated as it has had to adapt to enable
the injection of small quantities of biomethane
into the network. Typically this takes the form
of CNG or low pressure gas; however, this
has also created the opportunity for direct
gas to grid solutions to be accepted for
entry and following discussions with the local
gas distribution network operator we have
unlocked this as an alternative development
solution to the originally planned CNG option.
This new choice adds significant value to this
development and has clear synergies for other
stranded gas applications within our portfolio.
Capital expenditure across these projects
amounted to c.£4.0 million during the year.
Going forward, we expect c.£5.0 million of
incremental capital expenditure per annum will
result in production levels of c.2,500 boepd in
the medium term.
IGas net reserves and resources (MMboe)
We have had over 100% reserves replacement
with 2P reserves standing at 13.64 MMboe as
at 31 December 2017.
The Group’s estimates of proved and proved
plus probable reserves are taken from year-end
internal estimates as of 31 December 2017.
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. The probable reserves
are estimated additional reserves determined
to be more likely than not to be recoverable
with some planned future capital investments.
As these are mature fields, their historical
performances have reliable declines in
producing-rate trends and the proved reserves
have been estimated by the application of
appropriate decline curves only to the limits of
economic production. Probable undeveloped
reserves were estimated for some incremental
projects by using analogy type-well data of
nearby wells completed in the same reservoirs.
These incremental projects are based mainly
on reinstatement of some offline wells to
access shut-in and/or behind-pipe reserves by
workovers, recompletions and sidetracks.
IGAS ASSETS
East Midlands
Our East Midlands acreage stretches
from the East Midlands Shelf to
the Gainsborough Trough and the
Widmerpool Gulf.
Area under licence
1,886 km2
Number of fields
16
Southern England
Located in the Weald Basin. 50% of our
current production is generated from
the Weald Basin.
Area under licence
641 km2
Number of fields
11
Scotland
Our licences in Scotland are located in
the Inner Moray Firth, Solway Basin and
West Fife.
Area under licence
62 km2
Number of fields
1
WWW.IGASPLC.COM
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IGas Energy plc Annual report and accounts 2017
21
OPERATIONAL REVIEW continued
The proposed project includes carrying out
further tests on the Pentre Chert, including a
Drill Stem Test (“DST”), to provide an initial
analysis of the hydrocarbon composition
and its flow characteristics within the
formation. The initial information obtained
during the DST will be used to determine
whether commercially viable quantities of
hydrocarbons exist and if successful we will
then carry out an Extended Well Test to better
understand the production performance and
associated volumes.
Environmental permits were issued by the
Environment Agency in November 2017 and
on 17 January 2018, the Planning Officer at
Cheshire West and Chester Council made
a recommendation for the approval of our
application. At the planning committee
meeting on 25 January 2018, the committee
voted to refuse the application. It is our
intention to appeal this decision.
Separately, a scoping report was submitted
to Cheshire West and Chester Council in
October 2017 which sought the Councils’
views on a future application to drill a new
well at our existing Ince Marshes well site. The
proposed development would be for one new
well, initially to be drilled vertically and then
horizontally. We also intend to hydraulically
fracture and flow test the target formation,
to assess the flow potential of the well.
A planning application will be made in
the first half of 2018.
Further planning applications to drill,
hydraulically fracture and flow test new wells
will be made in 2018, with a view to utilising
the 3D seismic data acquired in 2015 and
accelerating development in this basin.
John Blaymires
Chief Operations Officer
There has been 2P reserves replacement of
over 100% based on a cumulative production
of 0.89 MMboe in the year. The reserves
growth is due largely to a combination of
planned future investments in non-producing
and undeveloped reserves, and better
reservoir management. The developed
producing 2P reserves represent about 90%
of the total 2P reserves.
Net reserves
and resources
(MMboe)
As at
31 Dec 20161
As at
31 Dec 20172
1P
2P
2C
9.02
13.37
21.84
8.11
13.64
22.21
Development/Appraisal Assets
During 2017, good progress was made with
developing our East Midlands and North West
shale acreage.
East Midlands
In the East Midlands we signed Section
106 legal agreements in May 2017 for the
exploratory well sites at both Springs Road
and Tinker Lane with Nottinghamshire County
Council (“NCC”), in effect the legal agreement
for the planning consent. Construction
commenced at both sites in late 2017 and is
largely complete at Springs Road, with good
progress being made at Tinker Lane.
The wells will be drilled during 2018 and will
form the foundation of a wider development
in the East Midlands with the mid-term
focus moving to a pilot development in the
Gainsborough Trough, leveraging on our
existing, long standing operations in the
East Midlands.
North West
In the North West, we submitted a planning
application at our existing site at Ellesmere
Port in July 2017. Evaluation of wire-line
logs acquired across the various formations
encountered during the drilling of the well
in 2014 indicated hydrocarbons being
present in the Pentre Chert Formation.
The Pentre Chert Formation is a naturally
fractured reservoir rock composed of
interbedded layers of cherts and cherty
mudstones, with subordinate thin layers
of siltstones, limestones and sandstones.
1 D&M estimates as at 30 June 2016 adjusted for six month production to 31 Dec 2016.
2 IGas estimates, cumulative production during the period 0.89 MMboe.
22
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017
FINANCIAL REVIEW
MAKING SOUND FINANCIAL PROGRESS
WWW.IGASPLC.COM
Following the completion of the
capital restructuring in April 2017,
the Company is well positioned
to pursue its growth strategy.
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During the first half of the year the
Company concluded a successful
capital restructuring, significantly
reducing debt and giving the
Company an improved capital
structure which is sustainable in the
current oil price environment. The
restructuring proposal was formally
approved by all stakeholders in
April 2017 and resulted in the
issue of new equity for $57 million,
secured bonds of $40 million being
exchanged for equity at par, $49.2
million of secured bonds being
bought by the Company at par,
$27.4 million unsecured bonds
being exchanged for equity at
60 cents in the dollar and the
remaining $30 million of secured
bonds having their terms amended.
On completion, net debt was
reduced from c.$120 million
(£100 million) to under
$10 million (£7 million).
Results for the year
Oil prices remained volatile during the year
driven by concerns over high inventories and
over supply. In the second half, OPEC extended
its production cuts and rig counts in the
US remained at relatively low levels, against
the backdrop of increasing global growth,
providing support for oil prices. The price of
Brent crude averaged $54.2/bbl (2016: $44/
bbl) for the year, which had a positive impact
on our revenues. Sterling strengthened against
the US dollar and the exchange rate increased
from £1:$1.26 at the beginning of the year to
£1:$1.35 in December 2017, having a negative
impact on our US dollar revenue but a positive
impact on US dollar denominated debt.
For the year ended 31 December 2017 adjusted
EBITDA1 was £9.24 million (2016: £10.2
million) whilst a profit was recognised from
continuing activities after tax of £15.9 million
(2016: loss £31.8 million). The main factors
driving the movements between the years were
as follows:
• Revenues increased to £35.8 million (2016:
£30.5 million) principally due to higher
oil prices. This was moderated slightly by
a stronger average sterling to US dollar
exchange rate and slightly lower oil volumes
for the year;
• Other costs of sales increased to £21.4
million (2016: £20.9 million) mainly due to
additional workovers and higher inspection
and re-permitting costs;
• Administrative expenses decreased by £5.0
million to £6.4 million (2016: £11.4 million).
Legal and professional costs were £2.6
million lower in 2017 as 2016 included costs
relating to the proposed refinancing whereas
similar costs in 2017 were offset against
the gain on restructuring once completed.
Share-based payment charges were £1.5
million lower in 2017 as prior year schemes
became fully vested by the end of 2016. A
cost reduction exercise also contributed to
the reduction in administrative expenses;
• Redundancy costs were £0.2 million (2016:
£0.6 million) as the redundancy programme
was completed primarily in 2016;
• The £0.1 million exploration write-off related
to costs on relinquished licences (2016:
£4.5 million);
• Other income decreased to £0.2 million
(2016: £0.7 million); and
• A tax credit of £19.1 million was recognised
mainly due to the recognition of a deferred
tax asset relating to ring-fence tax losses
(2016: a tax credit of £13.0 million due to
the reversal of temporary timing differences
and a reduction in the supplementary
corporation tax rate from 20% to 10% from
1 January 2016).
Income statement
The Group recognised revenues of £35.8
million in the year (2016: £30.5 million).
Group production in the year averaged 2,335
boepd (2016: 2,355 boepd). Revenues for
the year included £3.0 million (31 December
2016: £3.3 million) relating to the sale of
third party oil, the bulk of which is processed
through our gathering centre at Holybourne
in the Weald Basin.
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IGas Energy plc Annual report and accounts 2017
FINANCIAL REVIEW continued
The average pre hedge realised price for the
year was $51.0/bbl (2016: $44.1/bbl) and
post hedge $51.3/bbl (2016: $58.1/bbl).
£0.2 million was realised on hedges during
the year with average Brent oil prices generally
trading within the monthly hedged collars
(2016: realised gains of £8.5 million). The
average GBP/USD exchange rate for the year
was £1: $1.29 (2016: £1: $1.37) which
negatively impacted revenue for the year.
Cost of sales for the year were £29.3 million
(2016: £27.2 million) including depreciation,
depletion and amortisation (DD&A) of
£7.8 million (2016: £6.3 million), and
operating costs of £21.4 million (2016:
£20.9 million). Operating costs include a cost
of £2.8 million (2016: £2.7 million) relating to
third party oil. The contribution received from
processing this third party oil was £0.2 million
(2016: £0.6 million).
Operating costs per barrel of oil equivalent
(boe) were £21.9 ($28.2), excluding third
party costs (2016: £21.1 ($28.8) per boe).
Operating costs per boe were higher in
2017 due to additional workovers and higher
inspection and re-permitting costs.
Adjusted EBITDA in the year was £9.2 million
(2016: £10.2 million). Gross profit for the
year was £6.5 million (2016: £3.3 million).
Administrative costs decreased by £5.0
million to £6.4 million (2016: £11.4 million)
principally due to lower legal and professional
costs, lower share-based payment charges
due to options relating to prior year schemes
becoming fully vested and a general cost
reduction exercise.
Exploration costs written off of £0.1 million
related to costs on relinquished licences
(2016: £4.5 million relating to relinquishment
of licences during the year).
Other income was £0.2 million (2016:
£0.7 million which included a £0.4 million
adjustment on the contingent deferred
consideration in relation to an amount payable
to a joint venture partner).
Net finance costs were £6.2 million for the
year (2016: £28.8 million), which primarily
related to interest on borrowings of £5.4
million (2016: £11.9 million) and, a net foreign
exchange gain of £0.2 million, principally on $
denominated debt, and bank balances (2016:
loss £14.8 million). 2016 also included a £1.5
million loss on the sale of bonds. The Group
realised a net gain on restructuring of £4.9
million (2016: nil).
The Group made a loss on oil price derivatives
of £2.1 million for the year due to the increase
in underlying prices (2016: loss £3.5 million).
Net debt at the year end, being the nominal
value of borrowings less cash, was £6.2 million
(31 December 2016: £99.7 million).
Cash flow
Net cash generated from operating activities
for the year was £6.7 million (2016: £12.4
million). The decrease was primarily due to
higher revenue and a decrease in administrative
expenses offset by lower realised hedges and
the timing of payments. The Group invested
£6.3 million across its asset base during the
year (2016: £8.8 million), of which £3.7
million was invested in the conventional assets,
where investments continue to maintain our
production at current levels, and £2.6 million in
unconventional assets in relation to our shale
development programme.
IGas carried out a capital restructuring during
the year resulting in a cash inflow of £46.8
million from the issue of shares and cash
outflows of £39.3 million and £4.3 million,
respectively, from the repayment of secured
bonds and payment of fees. IGas also repaid
£3.6 million ($4.6 million) of principal on
borrowings to bondholders during the year in
accordance with the terms of the bonds and
purchased bonds with a face value of £1.8
million ($2.2 million) (2016: repaid £4.9
million ($7.1 million) and sold bonds with a
face value of $8.0 million for $6.0 million).
Future annual interest costs have decreased to
approximately $2.3 million following the capital
restructuring.
IGas paid £5.9 million ($7.3 million) in interest
(2016: £11.6 million ($15.5 million)).
Cash and cash equivalents were £15.7 million
at the end of the year (2016: £24.9 million).
Balance sheet
Net assets were £181.6 million at 31 December
2017 (31 December 2016: £70.5 million) with
the increase of £111.1 million arising primarily
from the results of the capital restructuring and
an income tax credit.
Shareholders’ equity increased by £111.1
million to £181.6 million primarily as a result of
the gain after tax and the capital restructuring
(see note 25).
Going concern
The strength of the Group’s balance sheet
was improved significantly by the capital
restructuring which was completed in April
2017. The Group continues to closely monitor
and manage its liquidity risks. Cash forecasts
for the Group are regularly produced based
on, inter alia, the Group's production and
expenditure forecasts, management's best
estimate of future oil prices (based on current
forward curves, adjusted for the Group's
hedging programme) and the Group's
borrowings. Sensitivities are run to reflect
different scenarios including, but not limited
to, possible further reductions in commodity
prices below the current forward curve,
reductions in forecast oil and gas production
rates and changes in the $ to GB£ exchange
rates.
The Group’s working capital forecasts show
that the Group will have sufficient financial
headroom for the 12 months from the date
of approval of the financial statements. The
Directors, therefore, have a reasonable
expectation that the Group has adequate
resources to continue in existence for the
foreseeable future and they continue to adopt
the going concern basis of accounting in the
preparation of the financial statements.
Outlook
Following the completion of the capital
restructuring in April 2017, we have a stronger
balance sheet that will allow us to fully pursue
our strategy of achieving long-term value
creation for all our stakeholders.
Borrowings decreased from £124.6 million to
£21.2 million following the successful capital
restructuring during the year.
Julian Tedder
Chief Financial Officer
At 31 December 2017, the Group’s derivative
instruments had a net negative fair value
of £2.8 million due to an increase in the
underlying Brent forward curve (31 December
2016: net negative fair value of £0.9 million).
24
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 FINANCIAL DASHBOARD
Key financial statistics
Realised price per barrel
Year ended
Year ended
31 December 2017 31 December 2016
Revenues
Adjusted EBITDA1
Underlying operating profit1
Gain/(loss) after tax
Net cash from operating activities
Net debt2
Cash and cash equivalents
Net assets
£35.8m
£9.2m
£1.3m
£15.5m
£6.7m
£6.2m
£15.7m
£181.6m
Capital restructuring
Issued bonds
Secured bonds
Unsecured bonds
Bonds held by IGas
Secured bonds
Unsecured bonds
Balance Move-
ment
in 2017
at 31
Dec 2016
($m)
($m)
106.4
30.0
136.4
(10.5)
(2.6)
(13.1)
(136.1)
(30.0)
(166.1)
10.5
2.6
13.1
£30.5m
£10.2m
£3.7m
£(32.9m)
£12.4m
£99.7m
£24.9m
£70.5m
Balance
at 31
Dec 2017
($m)
(29.7)
–
(29.7)
_
_
_
Outstanding bonds
(153.0)
123.3
(29.7)
Cash and cash equivalents
31.0
(9.7)
21.3
$12.7
$10.4
$20.2
$4.4
$3.6
Adjusted EBITDA1
Loss before tax
Net finance costs
Depletion, depreciation &
amortisation
Impairments/write offs
EBITDA
Share based payment charges
Redundancy costs
Gain on capital restructuring
Unrealised loss on hedges
Net debt
(122.0)
113.6
(8.4)
Adjusted EBITDA
Net debt
31 December 2017 31 December 2016
£m
£m
Debt (nominal value excluding
capitalised expenses)
Cash and cash equivalents
Net debt
(21.9)
15.7
(6.2)
(124.6)
25.0
(99.7)
Underlying operating profit1
Operating loss
Share-based payment charge
Redundancy costs
Impairments/write-offs
Unrealised loss on hedges
Underlying operating profit
WWW.IGASPLC.COM
$51.3
Realised price
per barrel
$12.7 Net back to IGas per BOE
$10.4 G&A per BOE
$20.2 Other operating cost
$4.4 Well services
$3.6 Transportation & storage
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7.9
0.1
10.9
1.1
0.2
(4.9)
1.9
9.2
2017
£m
(2.0)
1.1
0.2
0.1
1.9
1.3
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£m
(44.8)
28.8
6.5
4.5
(5.0)
2.6
0.6
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£m
(16.0)
2.6
0.6
4.5
12.0
3.7
Adjusted EBITDA and underlying operating profit1
1 Adjusted EBITDA and Underlying Operating Profit are considered by the Company to be a useful
additional measure to help understand underlying performance.
2 Net debt is borrowings less cash and cash equivalents excluding capitalised fees.
25
IGas Energy plc Annual report and accounts 2017
KEY PERFORMANCE INDICATORS
MEASURING OUR PROGRESS
IGas tracks both financial and non-financial metrics
to help the Group manage its long term performance
and measure progress against its strategy.
FINANCIAL
Production (boepd)
2,335 boepd
20171
20161
20152
2014/153
2013/143
Operating costs ($/boe)
$28.2/boe
Operating cash flow (£m)
£6.7m
2,335 boepd
20171
2,355 boepd
20161
2,570 boepd
20152,4
2,737 boepd
2014/153
2,783 boepd
2013/143
$28.2/boe
20171
$28.8/boe
20161
$24.6/boe
20151
$34.6/boe
2014/152
$37.1/boe
2013/142
£6.7m
£12.4m
£1.0m
£26.5m
£25.2m
Reason for choice
The Group aims to maintain production levels
of c.2,500 boepd to provide operating cash
flow for funding of the Group. To ensure this
target is met an appropriate level of capital
investment is planned to mitigate against the
underlying decline in our mature fields.
How we measure
Operating costs per boe is a key focus for
the Group as keeping costs low will improve
the cash that we generate from our
producing assets.
Operating cash flow is key to providing funding
for investing in the business as we pursue our
growth strategy.
Daily and weekly production is monitored
for all producing assets and reported weekly
to senior management and monthly to the
Board. Monthly production forecasts are
prepared during the year to measure progress
against the production target.
Operating costs are monitored closely to
ensure that budget targets are being met.
Operating costs are reported on a monthly
basis to the Board and actions are taken,
as required, to control costs in line with
the budget.
Operating cash flow is reported to the Board
on a monthly basis. Regular forecasts are
undertaken to ensure operating cash flow
is in line with budget, as well as longer-term
forecasts to ensure that the strategy of the
business can be adequately funded.
Target and results for 2017
Production for 2017 was 2,335 boepd which
did not meet the target of 2,500 boepd.
The principal reasons for the shortfall, as
in previous years, was a number of material
wells requiring workovers during the year.
Throughout the year we also conducted a
significant programme of well and facility
maintenance which resulted in the return to
production of several shut-in wells, with the
benefit of this work being seen in 2018.
Link to strategy
Operating costs for 2017 were $28.2/boe
against a target of $30.0/boe. The target was
achieved due to a continuing strong focus
on costs and was further helped by a weak
sterling against the US dollar. We will continue
to review operating costs on an ongoing
basis and further savings are expected
to be achieved in 2018.
1. Year ended 31 December.
2 Nine months ended 31 December 2015.
3 Year ended 31 March.
4 2015 operating costs included a one-off rates rebate equivalent to $5.5/boe, so underlying operating costs for 2015 were £30.1/boe.
26
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
A reminder of our strategy
Reserves and production growth
Developing shale portfolio
Local and national engagement
NON-FINANCIAL
Lost Time Injuries (number)
2
20171
20162
20153
2014/153
2013/143
Progress on Five Year Shale Development plan
2
Nil
Nil
1
Nil
20171
20162
20153
2014/153
2013/143
Granted planning permission for a vertical well in PEDL 200 (Tinker Lane); planning
conditions discharged and site construction commenced for both Springs Road and Tinker
Lane; submitted planning application for flow tests at existing Ellesmere Port well; and
submitted a scoping request for drilling and hydraulically fracturing a well at Ince Marshes in
the NW
Granted planning consent for two wells (horizontal and vertical) in PEDL 140 (Springs Road);
submitted planning application for drilling in PEDL 200 (Tinker Lane); received five new shale
licences in the 14th round; and completed interpretation of 3-D seismic in the NW
Acquired 3-D seismic in the NW; submitted planning application for drilling in PEDL 140 (Springs
Road); 14th round licence applications; and secured INEOS farm-in
Drilled Ellesmere Port-1; and issued five year shale development plan
Drilled Irlam-1; and secured Total farm-in
Health and safety is of paramount importance
to us in providing the highest level of
protection to all our stakeholders.
The five year shale development plan is key to delivering shareholder value and delivering against
our strategy.
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Progress against budgeted work programmes is tracked on a monthly basis and reported to the
Board. Where progress is slower than expectations actions are taken to understand the reasons
and actions taken to address the issues.
The target for the year was to drill wells in the East Midlands having received planning permissions
in 2016. Unfortunately, while progress was made it took much longer to discharge the planning
conditions than anticipated, so no shale wells were drilled in the year. During 2017 we obtained
planning consent for drilling one well at Tinker Lane. We have now discharged all planning
conditions at Springs Road and Tinker Lane and site construction commenced in late 2017. The
construction phase is almost complete and we expect to spud the first well in mid-2018. In the
North West we submitted a planning application for a well test at our existing Ellesmere Port site
and submitted a scoping request for a well and hydraulic fracture at our existing Ince Marshes site.
Whilst we were granted environmental permits for our Ellesmere Port site and received a Planning
Officer recommendation for the approval of our application, the committee voted to refuse the
application at the planning committee meeting on 25 January 2018. It is our intention to appeal
the Ellesmere Port decision.
We track nine leading and nine lagging
indicators during the year and these are
reported to the Board on a monthly basis.
We aim to have zero LTIs but when we
do have an LTI this is fully investigated
with clear remedial action as required
and communication of learnings to
the organisation.
The target was to have zero LTIs and this
was not achieved in the year. We had two
LTIs which were thoroughly investigated and
meetings were held across the organisation
to ensure the lessons were learned from the
investigations. A key HSE theme for 2018
will be ‘Time out for Safety’ to ensure all
operations are performed in a safe manner
in accordance with procedures. We
have again maintained our ISO 9001 and
14001 accreditation with no major non-
conformances identified.
1. Year ended 31 December.
2 Nine months ended 31 December 2015.
3 Year ended 31 March.
27
IGas Energy plc Annual report and accounts 2017
RISKS AND UNCERTAINTIES
IDENTIFICATION AND MANAGEMENT
Principal 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.
Key risk areas
The risks around our existing business are set out in more detail on pages
29 and 30 but the key risk areas can be identified as being associated with
the following:
Strategic
Making sure we apply the appropriate strategies in certain situations and
ensuring we deliver on strategic objectives.
Operational
Successfully developing oil and gas through our production and
development assets.
Financial
Prudent financial management seeks to mitigate the impact of
market fluctuations.
Board
The Board is responsible for setting the
Group's risk appetite and acceptable risk
tolerance and putting in place a framework
for risk management.
Audit Committee
The Audit Committee oversees the framework
for risk management and ensures it is operating
effectively.
IGas Teams & Risk Owners
The risks are separated into strategic,
operational and financial categories. Senior
management are assigned responsibility for the
identified risks within the three categories.
1. Exposure to political risk
8. Gas and electricity market price risk
2. Strategy performance
9. Exchange rate risk
3. Planning, environmental, licensing
10. Liquidity risk
and other permitting risks
11. Capital risk
4. Oil or gas production
5. Shale gas resources
6. Loss of key staff
7. Oil market price risk
Risk management framework
Board
Principal
committees
Audit
Committee
IGas Teams &
Risk Owners
Risk scale
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6
10
11
3
1
5
7
2
9
4
8
Likelihood
High
28
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
A reminder of our strategy
Reserves and production growth
Developing shale portfolio
Local and national engagement
Risk
Strategic
Executive
ownership
Mitigation
Change
Strategic
link
1. Exposure to political risk
This can include changes in Government or
the effect of a 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.
CEO –
Stephen
Bowler
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.
2. Strategy performance
Strategy fails to meet shareholder
expectations.
CEO –
Stephen
Bowler
Provide clear, transparent and consistent
communication to all stakeholders. Ensure
delivery against the five year plan.
Operational
3. Planning, environmental, licensing
and other permitting risks
Planning, environmental, licensing and other
permitting risks associated with operations
and, in particular, with drilling and production
operations.
4. Oil or gas production
Oil or gas is not produced in the anticipated
quantities from any or all of the Group’s
assets or that oil or gas cannot be delivered
economically.
5. Shale gas resources
Successful development of shale gas resources
is not achieved.
6. Loss of key staff
Loss of key staff.
COO –
John
Blaymires
COO –
John
Blaymires
COO –
John
Blaymires
CEO –
Stephen
Bowler
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 considers that such risks are
mitigated given that its producing assets are
located in established oil and gas producing
areas, there is a portfolio of producing assets
and its operating staff have extensive expertise
and experience.
Investment in further data acquisition, drill
wells to get core and log data and deliver
successful flow tests. Work with our Joint
Venture partners to identify prospective
drilling opportunities.
Provide and maintain a competitive
remuneration package to attract the correct
calibre of staff. Build a strong and unified
team and ensure we have a clearly defined
people strategy based on culture and talent.
Development plans in place for all staff.
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IGas Energy plc Annual report and accounts 2017
RISKS AND UNCERTAINTIES CONTINUED
A reminder of our strategy
Reserves and production growth
Developing shale portfolio
Local and national engagement
Risk
Financial
7. Oil market price risk
Exposure 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.
Executive
ownership
Mitigation
Change
Strategic
link
CFO –
Julian
Tedder
The Group has hedged a total of 600,000
barrels over the year to 31 December 2018,
through zero cost collars.
The Board seeks 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 12 months
forward. The Board will continue to monitor the
benefits of such hedging.
The Board monitors the benefit of entering
into contracts at the appropriate time to
protect against gas and electricity price
volatility.
The Board monitors the cash flows of
the Group to ensure currency exposure
is understood. Exchange rate hedges are
considered to ensure that cash inflows in
dollars are matched with sterling cash outflows.
The Board regularly reviews the Group’s
cash forecasts and the adequacy of
available facilities to meet the Group’s
cash requirements.
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 24 to the
consolidated financial statements.
8. Gas and electricity market price risk
Exposure to market price risk through
variations in the wholesale price of gas
and electricity in the context of its future
unconventional production volumes.
9. Exchange rate risk
Exposure to exchange rate risk through both
its major source of revenue and its major
borrowings being priced in $.
10. Liquidity risk
Exposure, through its operations,
to liquidity risk.
11. Capital risk
The Group is exposed to capital risk resulting
from its capital structure, including operating
within the covenants of its existing bond
agreements.
CFO –
Julian
Tedder
CFO –
Julian
Tedder
CFO –
Julian
Tedder
CFO –
Julian
Tedder
30
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017
SUSTAINABLE AND RESPONSIBLE BUSINESS
CARING FOR OUR PEOPLE, COMMUNITIES
AND THE ENVIRONMENT
WWW.IGASPLC.COM
At IGas we understand that
the technological innovation,
regulatory and legislative
changes and socio-economic
developments impacting our
business model mean we have to
equip our staff with the ability to
anticipate and respond to change.
OUR VALUES
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Respect
Respect is paramount, for our
people, our environment, our
partners and the safety of others.
Collaboration
We take on challenges and find
solutions through mutual trust,
knowledge sharing and teamwork.
Performance
Performing to the highest standards
internally and externally and
delivering against our targets.
Commitment
We are fully committed to preserving
the environment and providing safe
and healthy working conditions.
Transparency
We are honest about what we do,
how we do it and the challenges we
face. We are open to challenge, to
discussion and to improving how we
work to reflect our values.
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We were also able to assist a number
of undergraduates with their academic
development in 2017, through short internships
to two students from Imperial College, London
and others from Edinburgh and Portsmouth
Universities.
All new employees continue to undergo
obligatory health and safety training and
our field operators are all enrolled in further
training, including IMIST (“International
Minimum Industry Safety Training”), part of
the OPITO standard supporting global oil and
gas industry safety standards. Just under 100
staff from all functions and locations undertook
additional training via our “SafetyCare” portal
completing, on average, over ten courses each.
We encourage and support staff in their
professional training and Continued
Professional Development (“CPD”) by
meeting the cost of professional subscriptions
and other training courses on their behalf,
whether through the SPE, CIPD, CIMA or Law
Society. During 2017, we supported staff in
the achievement of a number of academic
qualifications from Technical and Advanced
Diplomas (NVQ 3) all the way up to Masters
level (NVQ 7/8).
During 2018 we will expand our offering
further as part of both our succession planning
and a modular ‘Management Development
Programme’ for managers and supervisors
from across the organisation.
We are pleased to offer all staff training
commensurate with both their experience and
functional discipline, in order to keep existing
knowledge up to date and to learn new skills.
Recognising the need to develop junior talent,
and continuing our relationship with the
Humberside Engineering Training Association
(“HETA”) and Southampton Engineering
Training Association (“SETA”), we fulfilled
our commitment to take on an Apprentice
Mechanical Engineer in both our Weald and
East Midlands operations. At the start of the
2017/18 academic year, we partnered with
Farnborough College of Technology in the
recruitment of an apprentice at our Holybourne
office, in the capacity of ‘Production Support
Apprentice’, shortly after another apprentice
completed his three year programme and left
to start a full-time course of study at university.
We are pleased to have been able to give
him a platform to obtain the necessary entry
requirements, and wish him every success
in both his studies and his future career.
31
IGas Energy plc Annual report and accounts 2017
SUSTAINABLE AND RESPONSIBLE BUSINESS CONTINUED
A DECADE OF LEGACY
Read more on the Community Fund website
at www.igascommunityfund.co.uk
£7,000
Manor Farm Environmental Education
Manor Farm Environmental Education
was set up to provide outdoor learning
and promote the benefits of outdoor play.
The grant supported ‘Around Rempstone
Countryside For All’, a programme of events
to promote family and local community
spirit and foster respect, understanding and
concern for the natural environment.
Since its launch
in 2008, the IGas
Community Fund
has awarded almost
£1 million to local
communities.
Many of the projects
have been supported
more than once over
the years.
.
2008
2009
2010
2011
£15,000
Ashing Lane Nature Reserve
Ashing Lane Nature Reserve is a 19-hectare
meadow and woodland created by the
Lincolnshire Wildlife Trust and Nettleham
Woodland Trust. The grant initiated a
competition for the design of ‘threshold
points’ by local young people. It also funded
the construction of a new access point,
gates and footbridge within the woodland.
32
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
Holybourne Theatre
The Holybourne Theatre is a 70 year old
community theatre run by volunteers.
Two separate grants enabled the
construction of a new sound and
lighting gallery and some further
construction work ahead of the
creation of a new
foyer with disabled access and toilets.
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Bletchingley Church House
A much loved ‘home’ for community groups,
Church House was in desperate need of
renovation. The grant helped towards the
restoration. It is now being used to meet
a wide range of community needs from
mother and toddler groups to a collection
point for donations to local food banks.
2012
2013
2014
2015
2016
2017
£5,000
South Lybster Residents Group
The play park in South Lybster had become
increasingly derelict and unsafe for children.
The grant helped fund modern, attractive
and adventurous equipment. It has given
the South Lybster area a real boost and
many families with young children are
using the facility.
Welton Patients’ and Doctors’ Association
The Association is a community group supporting the local Health
Centre by providing a transport scheme for the elderly and
vulnerable. Over a period of four years grants have provided a
secure database system for making appointments, wheelchairs
and a secure storage shed.
£5,830
33
IGas Energy plc Annual report and accounts 2017
SUSTAINABLE AND RESPONSIBLE BUSINESS CONTINUED
HEALTH, SAFETY, ENVIRONMENT AND QUALITY
What is an International Standard?
An International Standard is a document containing practical information and
best practice. It often describes an agreed way of doing something or a solution
to a global problem.
1
2
3
Define success
Every journey towards ISO certification
starts with a single question: “What does
success look like?”
Once success is defined, a success
criteria is developed.
Document systems and
procedures
Having defined success and key activities,
the next step towards ISO certification is to
document the systems and procedures that
deliver these success factors. The assessor
will examine your organisation’s existing
procedures and identify where they
conform to the ISO standard.
After the initial assessment, they will help
you to create a manual relevant to the ISO
standard you are working towards. This
manual sets out how your business should
operate going forward so that it can deliver
the ISO standard.
Develop training methods
Employee development reinforces the key
principles of ISO standards. The return on
investing in staff training is ongoing efficiency,
continual improvement of high quality systems
and procedures and greater profitability.
4
5
Audited externally
Certification awarded
With key processes in place and staff trained
to consistently follow these, the next step
is external audit. Audits are conducted
on a yearly basis, supplemented by six
month reviews.
Once confirmed as being ISO standard
compliant, your organisation will then
be presented with the ISO certificate.
You can then promote that you have gained
international recognition to your
target market.
34
STRATEGIC REPORTIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
As a continuation of Health and Safety, IGas
has successfully completed its first full Safety
Report Assessment for its COMAH (Control
of Major Accident Hazards Regulations) site at
Holybourne in Hampshire, at first submission.
There remains an ongoing programme of
monitoring and improvements, of which the
first visit received a positive assessment.
Environment and monitoring
We are committed to working with regulators
and within local communities to ensure that any
activity is done safely and in an environmentally
sensitive manner.
Throughout our operations and the lifecycle
of our wells, robust environmental protection
measures are in place including, where
appropriate, the monitoring of ground water,
ground gas, soil, air quality and noise before,
during and after operational activity.
During site construction, an impermeable
membrane is placed across the well pad
which provides containment for any spill.
The membrane holds all site surface water
which is also tested prior to disposal.
Protection of aquifers and ground water is
essential. IGas wells are all designed with the
minimum of three layers of steel casing – the
surface casing, the intermediate casing and the
production casing. The intermediate casing
ensures that there can be no leakage path from
the oil/gas producing layer up to the aquifer.
Read more about how our industry is regulated
on page 12
Changes in environmental legislation
We have previously been granted installation
permits to operate onshore oil and gas
production facilities for crude oil unloading,
handling or storage, or treatment under the
Pollution Prevention and Control (England and
Wales) Regulations 2000. During 2008, these
permits automatically became environmental
permits under the environmental permitting
regime. This regime was expanded in 2010 and
is now covered by the Environmental Permitting
(England and Wales) Regulations 2016 (the
2016 Regulations).
Since 1 October 2013, operators of new
onshore oil and/or gas exploration or appraisal
facilities require environmental permits where
activities include:
• the management of extractive waste,
whether or not this involves a waste facility
(as a mining waste operation);
• flaring of waste gas using a flare which has
the capacity to incinerate over 10 tonnes a
day (as an installation);
• a water discharge activity;
• a groundwater activity, such as an
indirect discharge of pollutants as part
of high pressure high volume hydraulic
fracturing; and
• waste being managed that meets the
thresholds for radioactivity set out in
the 2016 Regulations (as a radioactive
substances activity).
The changes in the above regulations required
all our existing permits to be varied to meet the
requirements of the Environmental Permitting
(England and Wales) Regulations 2016.
This comprehensive piece of work involved
the collation of a number of workstreams
and reports supporting each individual
permit application, such as Hydrological Risk
Assessments, updated site plans and location
maps, Waste Management Plans and revised
Site Condition Reports.
We continue to promote deep capability and
a safe operating culture across IGas. However,
we are not complacent and need to continue to
remain vigilant and focused on delivering safe,
reliable and compliant operations at all times.
The Strategic Report, as set out on pages 02
to 35, has been approved by order of
the Board.
Cooley (UK) LLP
Secretary
IGas Energy plc
Registered Office:
7 Down Street
London
W1J 7AJ
IGas is committed to delivering the
highest standards in occupational
Health, Safety, Environment and
Quality (“HSEQ”). We are working
to continuously improve safety and
risk management across IGas.
ISO 9001/14001 accreditation continues to be
an important part of the business as it helps
to demonstrate that we have management
systems in place that meet the requirement
of the International Standards recognised by
other businesses and regulatory authorities.
As set out in these pages gaining and retaining
certification requires significant commitment
across the business but it enables us to better
manage and control our business processes.
The Company is pleased to announce
Certificate Renewal during 2017.
Following the revision of ISO 9001/14001:2015
standards the Company is required to update its
management system to fulfil the requirements
of the new standards. The Company is on
schedule to complete that transition by the
required date of September 2018.
Reporting
The IGas Board receives regular information
on the HSEQ performance of the Company,
and specifically monitors health and safety
and environmental reporting at each
Board meeting. In 2017, IGas maintained
its commitment to the delivery of continual
improvement in HSEQ performance, with
excellent results in many areas, but with some
areas below target and requiring renewed
actions to be undertaken. During the year there
were two recorded Lost Time Injuries (LTIs).
A detailed investigation was undertaken on
both incidents and this has proved invaluable
in establishing further improvements in our
risk analysis of work tasks and assessment of
established processes and behaviours.
Overall reporting of hazardous observations
increased by 23% compared to 2016 which
demonstrates our focus on improvement
through the detection and resolution of issues.
The business continues to drive improvements
through awareness campaigns and engagement
through its committee of Representatives
for Safety. This is demonstrated through
IGas achieving the ROSPA Presidents Award
for an 11th consecutive year, showing
our commitment to Occupational
Health and Safety.
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35
IGas Energy plc Annual report and accounts 2017
CORPORATE GOVERNANCE
Strong and
experienced
leadership
36
IGas Energy plc Annual report and accounts 2017
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017 2
Corporate
Governance
WWW.IGASPLC.COM
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This section of the report addresses
how we govern the Company and the
actions and responsibilities of the Directors.
Corporate Governance
Introduction to Governance
Board of Directors
The Executive Committee
Corporate Governance
Directors’ Remuneration Report
Directors’ Report
38
39
40
41
45
50
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IGas Energy plc Annual report and accounts 2017
INTRODUCTION TO GOVERNANCE
ACCOUNTABLE GOVERNANCE
The Board ensures that high standards
of corporate governance are met and
a comprehensive risk management
and planning process is in place.
How we manage our Company
The Board
The Executive Committee
The Board is responsible for the
overall governance of the Group. Its
responsibilities include reviewing and
approving the Group’s strategy, budgets,
major items of capital expenditure and
senior personnel appointments.
The Executive Committee is responsible
for the day to day running of the
operational business with a focus
on performance management and ensuring
that the Group KPIs are being met.
Read more page 40
Audit Committee
Remuneration Committee
Nomination Committee
The Audit Committee is
responsible for monitoring
and reviewing the integrity
of the financial reporting
processes and ensuring the
financial statements give
a true and fair view of the
Company.
The Remuneration
Committee is responsible
for determining and agreeing
the remuneration policy for
the Executive Director and
senior managers.
The Nomination Committee
is responsible for reviewing
the size, structure and
composition of the Board
and ensuring the balance
and expertise of the Board
remains appropriate to meet
the needs of the Company.
Read more page 41
Read more page 42
Read more page 42
Introduction
The Board is fully committed to ensuring
that high standards of governance, values
and behaviours are consistently applied
throughout the Group, helping to ensure
the integrity of our business, the successful
delivery of our strategy and the long-term
success of the Company.
Board focus in 2017
With the potential breaches of debt
covenants, the Board spent a significant
amount of time at the beginning of the year
discussing a capital restructuring with all key
stakeholders. This was ultimately successfully
completed in April 2017 with new equity
of $57 million being raised, $40 million of
secured bonds being exchanged for equity
and $49.2 million being bought by the
Company, $27.4 million unsecured bonds
being exchanged for equity and the remaining
secured bond terms being changed.
Throughout the discussions the Board
ensured that all stakeholders’ interests
were being best served by any proposals.
Following the completion of the restructuring,
and with a stronger balance sheet, the focus
has been on delivering against our strategy of
developing our shale portfolio, maintaining
steady production and growing our reserves
with selective investments, whilst doing this
operating responsibly in partnership with local
communities and our stakeholders. The Board
approved a number of capital investments on
our producing assets and progress was made
on our development assets in the second half
of the year.
38
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017 BOARD OF DIRECTORS
EXPERIENCED AND EFFECTIVE MANAGEMENT
WWW.IGASPLC.COM
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.
Committee member key
A Audit Committee
R Remuneration Committee
N Nomination Committee
Chair of Committee
Member of Committee
Name Mike McTighe
Role Non-executive Chairman
Appointed 2016
Skills and experience
Mike has held a variety of
Non-executive director
roles in public and private
companies over the last
20 years and was on the
Board of Ofcom, the UK’s
communications regulator.
Mike is currently Chairman
of Openreach Ltd, Together
Financial Services Ltd, Arran
Isle Ltd and Gortmullan
Holdings Ltd.
During his career, Mike has
held a number of senior
executive and board level roles
in international businesses
including Cable & Wireless,
Philips, GE and Motorola.
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Name Stephen Bowler
Role Chief Executive Officer
Appointed 2015
Skills and experience
Steve became Chief Executive
Officer in May 2015 having
joined IGas as Chief Financial
Officer in 2011.
He qualified as a chartered
accountant with Touche Ross,
now Deloitte. In 1999, Steve
joined ABN Amro Hoare
Govett, now part of Jefferies,
where he acted as adviser and
broker to a wide range of UK
listed companies in the oil and
gas sector.
Steve advised Star Energy
on its IPO in 2004. The Star
Energy producing assets were
acquired by IGas in 2011,
transforming IGas at that
time to become one of the
leading UK onshore oil and
gas companies.
Name Cuth McDowell
Role Non-executive Director
Appointed 2012
Skills and experience
Cuth has 35 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 approximately £120
million in four separate
primary offerings before it
was sold to Talisman Energy
Inc. for approximately £1.2
billion in 2006. Cuth is
currently chairman at Quotall
Ltd., an unlisted software
development company.
A
R
Name Philip Jackson
Role Non-executive Director
Appointed 2017
Skills and experience
Philip serves on Kerogen’s
Investment Committee.
He has over 30 years’
experience in investments
and corporate finance in
energy and infrastructure
projects. He was the
founder and former chief
executive of J.P. Morgan
Asset Management’s
$860 million Asian
Infrastructure and Related
Resources Opportunity Fund.
Philip was with J.P. Morgan
(and heritage Jardine
Fleming) for over 20 years,
leading their power and
infrastructure advisory
businesses, advising on
restructuring, M&A and
privatisation. He started
his career with the energy
team at Ashurst LLP before
moving to its client Trafalgar
House plc, one of the UK’s
leading independent oil
and gas companies.
Philip graduated with an
MA in law from the University
of Cambridge and is a solicitor
of the Supreme Court
in England.
R
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Name Tushar Kumar
Role Non-executive Director
Appointed 2017
Skills and experience
Tushar is a member of the
Investment and Portfolio
Management Team at
Kerogen Capital. He has
15 years’ experience in
investing, investment banking
and equities, working
with a range of oil and
gas companies including
upstream, downstream,
majors and NOCs across
Europe, the Middle East
and Asia.
Prior to joining Kerogen, he
was an executive director
at Morgan Stanley’s natural
resources group in London,
having previously worked
with members of the Kerogen
team at J.P. Morgan’s energy
and natural resources group
in Hong Kong.
Tushar holds an MBA from the
Indian Institute of Management
Ahmedabad (IIMA) and a
BTech in computer science and
engineering from the Indian
Institute of Technology (IIT).
He is also a CFA charter holder.
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39
IGas Energy plc Annual report and accounts 2017
EXECUTIVE COMMITTEE
COMPANY STRATEGY AND OPERATIONAL MANAGEMENT
The principal purpose of the Executive Committee,
which meets weekly, is the implementation of
the Company’s strategy and operational work
programmes. In turn, the Committee recommends
strategic and operating plans to the Board.
The Committee also monitors the operational and
financial performance of the business as well as
being responsible for the optimisation of resources
and the identification, assessment and management
of risk within the Company.
Name Julian Tedder
Role Chief Financial
Officer
Skills and experience
Julian became Chief
Financial Officer in
September 2015.
A chartered accountant,
Julian has 15 years’
senior management
experience both
at operational and
group level within the
international oil and
gas sector, including
Centrica plc and Tullow
Oil plc.
Most recently, Julian
was General Manager,
Finance for Tullow Oil,
having worked at the
company for over 10
years, where he was
ultimately responsible
for 190 staff across the
finance function.
Name Stephen Bowler
Role Chief Executive
Officer
Skills and experience
Steve became Chief
Executive Officer in May
2015 having joined IGas
as Chief Financial Officer
in 2011.
He qualified as a
chartered accountant
with Touche Ross, now
Deloitte. In 1999, Steve
joined ABN Amro Hoare
Govett, now part of
Jefferies, where he acted
as adviser and broker to
a wide range of UK listed
companies in the oil and
gas sector.
Steve advised Star
Energy on its IPO in
2004. The Star Energy
producing assets were
acquired by IGas in
2011, transforming IGas
at that time to become
one of the leading UK
onshore oil and gas
companies.
Name John Blaymires
Role Chief Operating
Officer
Skills and experience
John has 35 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.
Name Thamala Perera
Role General Counsel
Skills and experience
General Counsel with
17 years’ post-qualified
experience, over 10
years of which gained at
the oil and gas industry.
In 2011, following
the reverse takeover
of Star Energy Group
Limited (then a wholly-
owned subsidiary of
PETRONAS) by IGas,
Thamala was appointed
to lead the legal function
of the enlarged group.
She was formerly
General Counsel of
Star Energy responsible
for the European
Infrastructure Group
of PETRONAS with a
primary focus on gas
storage.
Thamala was called
to the Bar of England
and Wales in 2000
and during her career
has held (among
others) positions at
the regulator, Ofgem.
Thamala holds a Master
of Laws (LLM) in
European Law from
King’s College London.
Name Peter Foscoe
Role Director of Human
Resources
Skills and experience
A Chartered Fellow
of the Chartered
Institute of Personnel &
Development, Peter has
over 25 years’ experience
managing human
resource functions in
the financial services,
telecoms and oil & gas
sectors. In addition to
10 years at Merrill Lynch/
Bank of America and
four years as Head of
Human Resources at an
AIM listed Hedge Fund,
Peter has specialised
in compensation &
benefits at a number of
organisations, including
six years as Head of
Reward for the Hess
Corporation global E&P
business.
Name Ann-marie
Wilkinson
Role Director of
Corporate Affairs
Skills and experience
Appointed in 2013,
Ann-marie is a media
and communications
professional with
over two decades of
experience having
worked extensively
as a consultant for a
number of financial
and corporate public
relations/investor
relations agencies.
Ann-marie has
extensive experience
in providing advice
on both external and
internal communications
strategies and has
worked with a number
of oil and gas companies
over the years.
40
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017 CORPORATE GOVERNANCE
WWW.IGASPLC.COM
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 by the Financial
Reporting Council in April 2016 (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
Following the AGM in June 2017, the Board of the Company consists of one Executive Director and four Non-executive Directors; with
Mr McTighe and Mr McDowell being considered to be independent. The Senior Independent Non-executive Director is Cuth McDowell
and biographies of all the Directors are included within the Annual Report on page 39.
The Board retains full and effective control over the Group. The Board meets regularly 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.
Board membership
Board member
Mike McTighe (Chairman)
Francis Gugen (Chairman – resigned 14 June 2017)
Stephen Bowler
John Blaymires (resigned 14 June 2017)
Julian Tedder (resigned 14 June 2017)
Cuth McDowell
Philip Jackson (appointed 26 April 2017)
Tushar Kumar (appointed 26 April 2017)
John Bryant (resigned 14 June 2017)
Meetings attended
(out of a total possible)
16/17
11/11
16/17
11/11
11/11
17/17
7/7
7/7
8/11
The Board met on a significant number of occasions during the year, principally to discuss the proposed capital restructuring of the Group at the
beginning of the year. Since the AGM, the Chief Financial Officer and Chief Operating Officer have been invited to attend each meeting of the
Board and have participated in all of the meetings during the year.
The Board has the following 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 Mike McTighe and
Tushar Kumar (appointed 26 April 2017). Meetings are aligned with the Group’s financial reporting calendar and in the year ended 31 December
2017 the Committee met on four occasions. The Chief Financial Officer and Group Financial Controller are invited to attend each meeting of the
Committee and participated in all of the meetings during the year. The external auditors are also invited to attend meetings of the Committee as
appropriate and also meet the Committee without the presence of management at least annually.
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Committee Member
Cuth McDowell (Chairman)
Mike McTighe
Tushar Kumar (appointed 26 April 2017)
John Bryant (resigned 14 June 2017)
Meetings attended
(out of a total possible)
4/4
3/4
2/2
2/2
41
IGas Energy plc Annual report and accounts 2017
CORPORATE GOVERNANCE CONTINUED
Summary of the Committee’s responsibilities
The Committee’s responsibilities include the following:
• The Committee reviews reports from management and the Group’s auditors relating to the Group’s Annual Report and Accounts and the interim
results announcements. The Committee advises the Board on whether the Annual Report and interim announcement are fair, balanced and
understandable and provide the information necessary for IGas’ stakeholders to assess performance against the Group’s strategy;
• The Committee reviews 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; and
• 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 is responsible for making recommendations to the Board of Directors on their appointment and remuneration.
Key areas of focus in the year ended 31 December 2017
The Committee’s particular areas of focus during the year were as follows:
• Review of the 2016 Annual Report and of the significant risks identified which included the going concern assessment, including covenant
compliance; impairment of oil and gas properties; recoverability of goodwill and reserves and resources disclosures;
• Review of the six months ended 30 June 2017 interim results announcement and of the significant risks which included the going concern
assessment, including covenant compliance; impairment of oil and gas properties; and reserves and resources disclosures; and
• Review of the planning for the 2017 Annual Report and approving the approach being taken by the Group’s auditors.
Remuneration Committee
• The Committee comprises only Non-executive Directors, being chaired by Philip Jackson (appointed 26 April 2017) and having as other
members Mike McTighe and Cuth McDowell. The Committee met on four occasions in the year ended 31 December 2017. The Chief Executive
Officer and Human Resources Director are invited to attend meetings. 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.
Remuneration Committee membership
Committee member
Philip Jackson (Chairman – appointed 26 April 2017)
John Bryant (resigned 14 June 2017)
Mike McTighe
Cuth McDowell
Meetings attended
(out of a total possible)
2/2
2/2
4/4
4/4
Summary of the Committee’s responsibilities
The Committee’s responsibilities include the following:
• 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);
• Determining, within agreed terms of reference, the remainder of the remuneration packages for each of them, including pension rights,
any compensation payments and the implementation of executive incentive schemes;
• Monitoring the level and structure of remuneration for senior management;
• Reviewing the design of share incentive plans for approval by the Board and determining the policy on annual awards to Executive Directors
and senior executives; and
• Reviewing progress made against performance targets and agreeing incentive awards.
Key areas of focus in the year ended 31 December 2017
The Committee’s particular areas of focus during the year were as follows:
• Review of long-term incentive plans and approving the issue of awards under the Executive Incentive Plan with revised vesting conditions
to senior management in the second half of the year following the completion of the restructuring of the Company in 2017; and
• Review of performance in the year ended 31 December 2017 and recommending to the Board that a bonus of 25% be paid to all employees
of the Group.
Nomination Committee
The Nomination Committee is chaired by the Chairman, Mike McTighe, and its other members are the Senior Independent Non-executive
Director, Cuth McDowell and Philip Jackson (appointed 26 April 2017). 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. The Committee meets as required during the year.
42
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017
Nomination Committee membership
Committee member
Mike McTighe (Chairman)
Francis Gugen (Chairman – resigned 14 June 2017)
Cuth McDowell
John Bryant (resigned 14 June 2017)
Philip Jackson (appointed 26 April 2017)
WWW.IGASPLC.COM
Meetings attended
(out of a total possible)
2/2
2/2
2/2
2/2
n/a
Summary of the Committee’s responsibilities
The Committee’s responsibilities include the following:
• 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;
• Making recommendations to the Board regarding membership of the Audit and Remuneration Committees; and
• 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.
Key areas of focus in the year ended 31 December 2017
The principal activities of the Committee during the year were as follows:
• Proposing the appointment of Philip Jackson and Tushar Kumar to the Board as Non-executive Directors following the completion of the
financial restructuring in April 2017;
• Proposing a reduction in the size of the Board following the resignation of Francis Gugen, John Bryant, John Blaymires and Julian Tedder
at the conclusion of the AGM in June 2017; and
• Ensuring that appropriate succession plans are put in place for senior management.
Strategy Committee
The Strategy Committee was chaired by Mike McTighe, and its other members were Cuth McDowell, Stephen Bowler and Julian Tedder.
The Committee was established in response to the Group’s financial situation and potential default of its bond covenants in 2016 and following
the successful financial restructuring in April 2017 the Committee was disbanded. The Committee met as required during the year.
Strategy Committee membership
Committee member
Mike McTighe (Chairman)
Cuth McDowell
Stephen Bowler
Julian Tedder
Meetings attended
(out of a total possible)
13/17
16/17
16/17
16/17
Summary of the Committee’s responsibilities
The Committee’s responsibilities included the following:
• Liaising with the Group’s financial advisors to develop a restructuring strategy;
• Developing restructuring and investment proposals to take to current and potential investors and/or bondholders and/or considering any
restructuring and investment proposals which are made to the Group;
• Monitoring cash flows and compliance with bond covenants on an ongoing basis; and
• Providing formal recommendations to the Board in relation to any restructuring proposals.
Key areas of focus in the year ended 31 December 2017
The principal activities of the Committee during the period were as follows:
• Exploring all available options for a capital restructuring and developing a strategy for approval by the Board;
• Discussing equity investment from a strategic investor and supporting of their due diligence exercise of the Group. Discussing proposals
for additional equity with institutional investors;
• Discussing the restructuring strategy with the secured and unsecured bondholders and getting their support to the proposals and the
confirmation of their vote in favour of the proposals at Bondholder meetings;
• Ensuring that the Bond Trustee was kept fully appraised of the restructuring proposals and ensuring they were supportive;
• Ensuring that the Group was fully compliant with its AIM reporting obligations in relation to its financial situation; and
• Preparing all documentation required for General Meetings of the bondholders and shareholders for approval of the proposed restructuring
in April 2017.
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IGas Energy plc Annual report and accounts 2017
CORPORATE GOVERNANCE CONTINUED
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 ongoing basis.
The Group’s internal control procedures include the following:
• 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;
• There is a comprehensive budgeting and planning system for all items of expenditure with an annual budget approved by the Board. Risk
assessment and evaluation is an integral part of the annual planning cycle;
• 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; and
• The Audit Committee reviews draft annual and interim reports before recommending their publication to the Board. The Audit Committee
discusses with the Chief Financial Officer, Group Financial Controller and external auditors the significant accounting policies, estimates and
judgements 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 and bondholders
Communications with shareholders and bondholders are considered important by the Directors. The primary contact with shareholders,
bondholders, investors and analysts is the Chief Executive Officer. Other senior management, 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 and in accordance with AIM regulations.
The Company also maintains a website (www.igasplc.com) that is regularly updated and contains a wide range of information about the Group.
44
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017 DIRECTORS’ REMUNERATION REPORT
WWW.IGASPLC.COM
This report explains our remuneration policy for Directors and sets out how decisions regarding Directors’ pay for the period under review
have been taken.
Annual Statement
The 2016 Directors’ Remuneration Report noted that the combination of continued low oil prices and ongoing financial restructuring of the
Company meant it was not considered appropriate to make pay awards, issue a cash payment under the annual short term incentive bonus
programme or make a second annual award under the long term incentive scheme known as the Executive Incentive Plan (“EIP”), the mechanics
of which were detailed in the 2016 Annual Report at that time.
Subsequent to the completion of the financial restructuring in April 2017 and the AGM in June 2017 the Board approved a 2% pay award
and a 10% cash bonus payment to staff. The CEO, Stephen Bowler, declined to accept his pay award.
In October 2017, following a benchmarking analysis performed by PwC, the Remuneration Committee proposed a number of changes to the
annual cash bonus scheme, which better align the bonuses of the CEO and senior executives to the Company’s Key Performance Indicators
(“KPIs”) and which, in the event of superior performance in any bonus period, introduce an element of staff retention through the use of stock
awards. Although the maximum bonus which the CEO might receive remains unchanged at 100% of base salary, other senior executives saw their
maximum bonus potential increase (typically to 50% or 75% of base salary) with the level of pay-out for 2017 determined by reference to their
annual performance appraisal scores. For 2018 bonuses will additionally be moderated by reference to individual targets set by reference to the
senior executive’s influence on the delivery of the KPIs. In approving the recommendations the Board agreed that 50% of any bonus in excess of
£30,000 be paid in the form of restricted stock and subject to a minimum holding period.
The Company's own review also considered the performance criteria associated with awards under the EIP, noting that ‘base’ awards made in
2016 did not require an absolute share price appreciation as a condition of vesting. It was noted that market practice in this regard was changing
and that a majority of organisations in the E&P sector now operate a long term share plan which requires some level of share price appreciation
before an award vests (either in part or in full). Approving the Remuneration Committee’s recommendations, the Board stipulated that no part
of the 2017 EIP award will vest in 2020 unless a share price hurdle of £1.13 is met or exceeded.
Directors’ remuneration policy
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 Director 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 so that the total remuneration package is structured to align a significant proportion
to the achievement of performance targets, reinforcing a clear link between pay and performance. The performance targets for staff, senior
executives and the Executive Director are each aligned to the key drivers of the business strategy, thereby creating a strong alignment of interest
between staff, Executive Directors and shareholders.
The Committee will continue to review the Company’s remuneration policy and make amendments, as and when necessary, to ensure it remains
fit for purpose and continues to drive high levels of executive performance and remains both affordable and competitive in the market.
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IGas Energy plc Annual report and accounts 2017
DIRECTORS’ REMUNERATION REPORT CONTINUED
The elements of the reward package are detailed below:
Element of reward
Operation and performance conditions
Maximum opportunity
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).
The percentage of maximum bonus
entitlement received is based on
the achievement of individually
challenging targets supporting
corporate objectives. The maximum
potential bonus entitlement for
Executive Directors under the plan
is to up to 100% of base salary.
The maximum individual limit for an
Initial Award is 300% of salary.
The maximum individual limit for an
Annual Award in any financial year
is 200% of salary (this limit was
increased from 150% during the
2014/15 financial year).
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”.
Other benefits including
pension
The Committee reviews base salaries annually to ensure that
Executive Directors pay remains competitively aligned with
external market practices.
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.
The Company provides Executive Directors with benefits in kind,
with a pension contribution up to 15% of base salary, as well as
other benefits in kind including medical and disability insurances
and death-in-service life assurance.
Annual cash bonus
Executive Directors and staff are eligible to participate
in a discretionary bonus plan.
The Committee will determine on an annual basis the level
of deferral, if any, of the bonus payment into Company
shares (currently 50% of any award in excess of £30,000).
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.
Bonuses paid in cash (and where applicable, shares) are
not pensionable. In terms of bonus targets a balanced scorecard
approach is operated which focuses on a mixture of strategic,
operational, financial and non-financial metrics.
Under the Long Term Incentive Plan, adopted by the Board in
2011, 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 at the end of a three year vesting period,
then the participant has a further seven years in which to
exercise the award.
The primary purpose of the Initial Awards is to aid the
recruitment of key executives. 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%.
The LTIP also provides for Annual Awards to be granted which
will vest at the end of a three year period provided certain
challenging corporate performance conditions have been met.
The purpose of the Annual Award is to provide a competitive
annual total remuneration package which retains and motivates
the Executive Director and other selected executives.
Long Term Incentive Plan
(“LTIP”)
46
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017 I
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Element of reward
Operation and performance conditions
Maximum opportunity
Executive Incentive Plan
(“EIP”)
Executive Director
Retention Plan (“EDRP”)
Share Investment Plan
(“SIP”)
Under the EIP adopted by the Board in March 2016, participants
are granted a share award in the form of a nil-cost option.
This option will be released at the end of a three year holding
period provided that the Executive remains in employment and
that the Remuneration Committee is satisfied that corporate
performance has been satisfactory (with reference to share
price). A multiplier will also apply to this share award to ensure
that management are focused on the execution of the business
strategy and the creation of long-term value for shareholders.
For the first share award (March 2016) the multiplier was
set as follows:
Share price target*
£10.00
£15.00
Multiplier
1.50 x shares awarded
2.00 x shares awarded
For the second share award (October 2017) the multiplier was
set as follows:
Share price target
< £1.13
£1.13 – £1.25
£1.26 – £1.39
£1.40 – £1.54
£1.55 – £1.74
£1.75 – £1.96
> £1.96
Multiplier
0.00 x shares awarded
0.25 x shares awarded
0.50 x shares awarded
0.75 x shares awarded
1.00 x shares awarded
1.50 x shares awarded
2.00 x shares awarded
Executive Directors will be required to build a shareholding over
the next five years of at least 150% of salary to further support
the alignment of their interests with those of shareholders.
Under the EDRP, participants are granted nil cost options which
vest and become exercisable on the first anniversary of grant
subject to the Directors’ continued employment and to a one
year holding period following the date of vesting.
In 2013, the Company adopted an HMRC 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 subscribe for up to £150 (or 10% of salary, if less)
worth of IGas ordinary shares per month.
Shares are acquired on a quarterly basis. The Company
automatically matches the employee contribution and acquires
matching ‘Partnership’ shares on a 1-to-1 basis. Subject to the
Company achieving pre-defined quarterly production targets,
the Company increases the matching element for that quarter
such that it will contribute Partnership shares on a 2-to-1 basis.
To receive their allocation of Company Partnership shares,
employees must ordinarily remain employed by the Company
for a period of three years from the date of grant of the
matching award.
Annual award to the current
Executive Director of no more than
75% of salary (100% in exceptional
circumstances) subject to two
times multiplier (i.e. the maximum
number of shares which could vest
is equal to 150% of salary).
The EDRP was adopted as an
exceptional share arrangement and
S Bowler was made an award of
options over 175,000* ordinary
shares and J Blaymires was made
an award of options over 150,000*
ordinary shares in July 2015.
Employees are eligible to acquire up
to £150 (or 10% of salary, if less)
worth of IGas ordinary shares per
month from gross salary.
The Company will match the shares
purchased on a 1-to-1 basis and,
subject to the Company having met
pre-defined quarterly production
targets, will increase the matching
element for that quarter to 2-to-1.
* Re-stated to account for the Share Capital Consolidation & Sub-Division 14 June 2017.
47
IGas Energy plc Annual report and accounts 2017
DIRECTORS’ REMUNERATION REPORT CONTINUED
Annual Report on remuneration
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.
Share price movements during the year
The Group’s share price as at 31 December 2017 was 85.88p per share. The highest price during the year was 230.32p per share and the lowest
share price during the year was 49.00p per share (re-stated to account for the Share Capital Consolidation & Sub-Division 14 June 2017).
Current arrangements in financial year (Audited)
Executive Directors
Executive Directors are employed under rolling contracts with notice periods of 12 months or less from the Company or executive.
Directors’ emoluments for the year were as follows:
Year ended 31 December 2017
Year ended 31 December 2016
Payment
in lieu of
pension
£’000
Salary
£’000
Bonus
(Cash)
£’000
Bonus
(Shares) Pensions
£’000
£'000
350
128
114
592
37
16
11
64
94
35
32
161
29
9
8
46
10
–
5
15
Total
£’000
520
188
170
878
Salary
£’000
350
280
250
880
Payment
in lieu of
pension
£’000
27
27
17
71
Bonus
(Cash)
£’000
Bonus
(Shares) Pensions
£’000
£'000
–
–
–
–
–
–
–
–
20
–
16
36
Total
£’000
397
307
283
987
Executive Directors
S Bowler – CEO
J Blaymires – COO1
J Tedder – CFO2
Total – Executive Directors
1 J Blaymires resigned from the Board with effect from 14 June 2017.
2 J Tedder resigned from the Board with effect from 14 June 2017.
On 16 October 2017, S Bowler was made a Base Award under the 2016 EIP scheme over 388,889 ordinary shares in the Company.
As at 31 December 2017, the outstanding long term incentives held by the Directors who served during the period are set out in the table below:
Existing long term incentive arrangements:
Executive Director Retention Plan
S Bowler
J Blaymires**
Date of
grant
At
1 January
2017
Number of options
Granted
Exercised
Lapsed
As at
31 December
2017
Earliest
vesting
date
Lapse
date
13/07/2015
13/07/2015
175,000*
150,000*
–
–
–
–
–
–
175,000
150,000
13/07/2016
13/07/2016
13/07/2023
13/07/2023
2011 Long Term Incentive Plan
J Tedder**
2016 Executive Incentive Plan
S Bowler
J Blaymires**
J Tedder**
Date of
grant
At
1 January
2017
Number of options
Granted
Exercised
As at
date of
Lapsed/
resignation
Waived from the Board
Earliest
vesting
date
Lapse
date
25/11/2015
65,790*
–
–
–
65,790
25/11/2018
25/11/2025
Date of
grant
30/03/2016
16/10/2017
30/03/2016
30/03/2016
At
1 January
2017
74,076*
–
74,076*
59,261*
52,912*
Number of shares
Granted
Exercised
Lapsed
–
388,889
388,889
–
–
–
–
–
–
–
–
–
–
–
–
As at
31 December
2017
74,076
388,889
462,965
59,261
52,912
Earliest
vesting
date
Lapse
date
30/03/2019
16/10/2020
30/03/2026
16/10/2027
30/03/2019
30/03/2019
30/03/2026
30/03/2026
* Re-stated to account for the Share Capital Consolidation & Sub-Division 14 June 2017.
** As at date of resignation from the Board.
48
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
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.
Non-executive Directors
F Gugen1
R McTighe2
J Bryant3
C McDowell
P Jackson4
T Kumar4
Total – Non-executive Directors
Year ended 31 December 2017
Year ended 31 December 2016
Emoluments
£’000
Taxable
benefits
£’000
Pensions
£’000
60
100
43
60
30
25
318
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
60
100
43
60
30
25
318
Emoluments
£’000
Taxable
benefits
£’000
Pensions
£’000
105
41
75
60
–
–
281
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
105
41
75
60
–
–
281
1 F Gugen resigned from the Board with effect from 14 June 2017.
2 R McTighe was appointed to the Board on 3 August 2016.
3 J Bryant resigned from the Board with effect from 14 June 2017.
4 P Jackson and T Kumar were both appointed to the Board with effect from 26 April 2017. Under the terms of their appointments, IGas Energy plc pays an annual fee
(invoiced quarterly in advance) to Kerogen Capital for £55,000 in respect of P Jackson and £45,000 in respect of T Kumar.
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Philip Jackson
Chairman Remuneration Committee
20 March 2018
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IGas Energy plc Annual report and accounts 2017
DIRECTORS’ REPORT
The Directors present their report together with the Group and Parent Company financial statements for the year ended 31 December 2017.
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,
the Chief Operating Officer’s operating review and the Chief Financial Officer’s financial review which are all sections within the Strategic Report.
Dividends
The Directors do not recommend the payment of a dividend for the year (year ended 31 December 2016: £nil).
Principal activity
The Group’s principal area of activity is exploring for, appraising, developing and producing oil and gas.
Share capital
Details of changes to share capital in the period are set out in note 25 to the consolidated financial statements.
Directors and their interests
The Directors who served during the year were as follows:
R McTighe
F Gugen
S Bowler
J Blaymires
J Tedder
C McDowell
P Jackson
T Kumar
J Bryant
Non-executive Chairman
Non-executive Chairman (resigned 14 June 2017)
Chief Executive Officer
Chief Operating Officer (resigned 14 June 2017)
Chief Financial Officer (resigned 14 June 2017)
Non-executive
Non-executive (appointed 26 April 2017)
Non-executive (appointed 26 April 2017)
Non-executive (resigned 14 June 2017)
The beneficial interest of each of the Directors and their immediate families in the ordinary share capital of the Company are shown below:
R McTighe
F Gugen (resigned 14 June 2017)
S Bowler
J Blaymires (resigned 14 June 2017)
J Tedder (resigned 14 June 2017)
C McDowell
P Jackson (appointed 26 April 2017)
T Kumar (appointed 26 April 2017)
J Bryant (resigned 14 June 2017)
31 December 2017
Ordinary 0.002p Shares
31 December 2016
Ordinary 10p Shares
Number
583,056
n/a
61,262
n/a
n/a
219,170
–
–
n/a
%
0.47
n/a
0.05
n/a
n/a
0.18
–
–
n/a
Number
250,000
27,615,764
131,348
81,431
161,066
–
n/a
n/a
59,045
%
0.08
9.10
0.04
0.03
0.05
–
n/a
n/a
0.02
The shareholdings as at 31 December 2016 in the table above are before approval of the share consolidation and subdivision tabled at the Annual
General Meeting on 14 June 2017. Following the passing of the share consolidation and subdivision resolution, every 200 existing ordinary
shares of 0.0001 pence each (“Existing Ordinary Shares”) that were in issue as at 6.00pm on 14 June 2017 were consolidated into one new
ordinary share of 0.02 pence each and immediately subdivided into 10 ordinary shares of 0.002 pence (the “New Ordinary Shares”). Other than
the change in nominal value, the New Ordinary Shares arising on implementation of the share consolidation had the same rights as the Existing
Ordinary Shares, including voting and other rights.
In addition to the table above, in January 2018, S Bowler subscribed to his full entitlement under the Group’s share scheme and accordingly was
allotted 1,965 shares.
Rotation and re-election of Directors
In accordance with the Articles of Association, C McDowell and S Bowler retire by rotation and, being eligible, offer themselves for re-election.
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.
50
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
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 period and remain in place at the date of this report.
Substantial shareholders
At 20 March 2018, 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:
Kerogen General Partner II Limited
KOG Investments S.A.R.L.
Royal London AM
PLLG Investments Limited
Sand Grove Capital
Number of shares
33,964,100
18,207,480
10,155,760
5,163,985
4,566,084
%
27.8
14.9
8.4
4.2
3.7
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 24 to the consolidated financial statements. The Group’s financial risk management
objectives are also set out in note 24 to the consolidated financial statements.
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 (year ended 31 December 2016: £nil).
Status
The Company is not a close 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, Strategy and Nomination Committees is included in the Corporate Governance section of the
Annual Report.
Auditors
A resolution to reappoint PricewaterhouseCoopers LLP as auditors 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 auditors in connection with preparing its report, of which the auditors are 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 are aware of that information.
By order of the Board
Cooley Services Limited
Secretary
IGas Energy plc
Registered Office:
7 Down Street
London
W1J 7AJ
Registered in the United Kingdom number: 04981279
20 March 2018
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IGas Energy plc Annual report and accounts 2017
Solid financial
progress and
growth
52
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017 3
Financial
Statements
Financial Statements
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 – Group
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
Independent Auditor’s Report
to the Members of IGas Energy plc –
Company
Parent Company Balance Sheet
Parent Company Statement
of Changes in Equity
Parent Company Cash Flow Statement
Parent Company Financial Statements
– Notes
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93
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IGas Energy plc Annual report and accounts 2017
DIRECTORS’ STATEMENT OF RESPONSIBILITIES IN RELATION
TO THE GROUP ANNUAL REPORT AND ACCOUNTS
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the
Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and
Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and Parent Company and of the profit or loss of the Group and Parent Company for that period. In preparing
the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted
by the European Union have been followed for the Company financial statements, subject to any material departures disclosed and explained in
the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent
Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and
enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Parent Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and Parent Company’s performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Directors’ Report, confirm that, to the best of their knowledge:
• the Parent Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and profit of the Company;
• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit of the Group; and
• the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Parent
Company, together with a description of the principal risks and uncertainties that it faces.
On behalf of the Board,
Stephen Bowler
Chief Executive Officer
20 March 2018
54
CORPORATE GOVERNANCEIGas Energy plc Annual report and accounts 2017 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IGAS ENERGY PLC
WWW.IGASPLC.COM
Report on the audit of the Group financial statements
Opinion
In our opinion, IGas Energy plc’s Group financial statements (the “financial statements”):
• give a true and fair view of the state of the Group’s affairs as at 31 December 2017 and of its profit and cash flows 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.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the
Consolidated Balance Sheet as at 31 December 2017; the Consolidated Income Statement and Consolidated Statement of Comprehensive
Income, the Consolidated Cash Flow Statement, and the Consolidated Statement of Changes in Equity for the year then ended; and the notes
to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
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Our audit approach
Overview
Materiality
Audit scope
Key audit matters
• Overall Group materiality: £1,200,000 (2016: £1,100,000), based on 0.5% of total assets.
• We identified six components out of the Group’s 28 separate statutory entities/combinations
thereof, which were selected due to their size and risk characteristics.
• Specific audit procedures were performed on certain balances and transactions at a further
three units.
• This enabled us to obtain coverage over 99% of Group consolidated revenue and 94%
of Group consolidated total assets.
• Carrying value of conventional oil and gas assets.
• Carrying value of unconventional assets and goodwill.
• Completeness and valuation of the decommissioning provision.
• Basis of going concern.
• Refinancing.
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IGas Energy plc Annual report and accounts 2017
INDEPENDENT AUDITOR‘S REPORT
TO THE MEMBERS OF IGAS ENERGY PLC CONTINUED
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of
bias by the Directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Carrying value of conventional
oil and gas assets
We have evaluated the discounted cash flow model prepared by management which supports
the carrying value of the CGU's (North, South and Scotland).
See page 65 to 72 Significant accounting
judgements and estimates and note 11
Property, plant and equipment.
Conventional oil and gas assets totalled
£91.1 million. These represent 98% of the
Group’s total property, plant and equipment.
We focused on this area due to the material
nature of the balance, the judgement involved
in assessing for impairment and the current
economic climate.
We agreed the forecast oil price to third party consensus forecasts. We concluded
management’s price forecast was reasonable.
Management’s production forecasts, another key assumption, were reconciled to the
independent reserves report prepared by Degolyer and Macnaughton (“D&M”) in July 2016
and updated for production during the year.
We have analysed forecast production changes from the D&M report and challenged
management on the feasibility of planned capital projects which are predicted to increase
production, and we consider these assumptions to be supportable.
In addition we independently benchmarked inputs into the weighted average cost of capital
calculation used to calculate the discount rate used in the model, and found these inputs to be
consistent with management’s.
Finally we considered the adequacy of management’s disclosure of the key judgements and
sensitivities in relation to the impairment assessment in note 11. These were deemed to be in
line with the requirements of IAS 36.
Carrying value of unconventional
assets and goodwill
We have evaluated management's valuation which supports the carrying value of the
unconventional assets and assigned goodwill.
See page 65 to 72 Significant accounting
judgements and estimates and note 10
Intangible exploration and evaluation asset.
The methodology used to determine the fair value of the unconventional assets and goodwill
was determined by reference to the price per bcf paid in recent transactions, and estimates of
resources prepared by D&M. We consider these assumptions to be supportable.
The carrying value of the Group’s
unconventional assets was £115.1 million,
in addition the Group has £4.8 million of
goodwill assigned to the unconventional
assets acquired on the acquisition of Dart
Energy Limited in October 2014. These
represent 94% of the Group’s total intangible
exploration and evaluation assets. We focused
on this area due to the material nature of the
balance, the judgement involved in assessing
for impairment and the current economic
climate.
56
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
Completeness and valuation of the
decommissioning provision
We have reviewed the completeness of the number of wells included in management’s
estimate.
We have assessed management’s cost per well estimate and have reviewed the results of actual
decommissioning’s costs over the previous three years which support managements estimate.
We have benchmarked the risk free rate used by management compared with industry practice.
Based on the procedures performed we concur with management that their assessment of the
decommissioning provision is reasonable.
We obtained management’s cash flow forecast which supports their use of the going concern
basis of accounting. We tested the integrity of this model, including mathematical accuracy,
and confirmed key assumptions such as forecast sales revenue and operating costs were
consistent with impairment models (discussed above). Any differences were investigated. We
also considered historical accuracy of management’s forecasting.
Based on the work performed we concurred with management’s assumption that Group is a
going concern for at least 12 months from the date of signing the financial statements.
We have identified two key judgements in assessing the accounting for the restructuring and
fundraising.
We firstly assessed whether there was an extinguishment or modification of the bonds.
Due to the substantially revised bond terms we concur with management’s that this was an
extinguishment.
Secondly we considered the treatment of the transaction costs and concur with management’s
treatment whereby:
• only directly attributable costs have been deducted from equity;
• directly attributable transaction costs have been allocated between the extinguished and new
bonds on a reasonable basis; and
• other transaction costs have been expensed.
See page 65 to 72 Significant accounting
judgements and estimates and note 20
Provisions.
A provision of £42.1 million has been made
for the abandonment of fields and the
gathering centres. The abandonment and
decommissionings are expected to take place
between 1 and 31 years from the year end.
Basis of going concern
See page 65 to 72 Significant accounting
judgements and estimates.
During the year, the strength of the Group’s
balance sheet was improved significantly by
the capital restructuring which was completed
in April 2017 and as a result management
concluded that the Group is a going concern
for at least 12 months from the date of
signing the financial statements.
Refinancing
See note 25 Share Capital.
At 31 December 2016, the Company had
secured and unsecured bonds, listed on Oslo
Bors, of £125 million and announced to the
market that the Company expected to be
non-compliant with its leverage covenants at
31 December 2016 and that it also expected
to breach its liquidity covenant in late
March 2017. The Group engaged with their
bondholders, a strategic investor and other
stakeholders to consider possible restructure
options to remedy the expected covenants
breach and also achieve a capital structure
that will be sustainable in the current oil
price environment. In March 2017, the Group
announced the final terms of the restructuring
and fundraising and this was subsequently
approved by the secured and unsecured
bondholders and shareholders on 3 April
2017. This resulted in the extinguishment of a
significant portion of the debt and transaction
cost, a portion of which were capitalised
against the new debt and equity.
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IGas Energy plc Annual report and accounts 2017
INDEPENDENT AUDITOR‘S REPORT
TO THE MEMBERS OF IGAS ENERGY PLC CONTINUED
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which it operates.
The Group is structured along two segments being conventional and unconventional licenses. The Group financial statements are a consolidation
of 28 separate statutory entities/combinations thereof, comprising the Group’s operating businesses and centralised functions within these
segments. All of the Group's operating business and 94% of the total assets and liabilities are located in the UK. All the Group entities have central
management and centralised processes and controls and therefore our audit work was all conducted solely in the UK.
Accordingly, of the Group’s 28 reporting units, we identified 6 which, in our view, required an audit of their complete financial information, either
due to their size or their risk characteristics. This included the main conventional oil & gas operating subsidiaries, the main unconventional license
holding subsidiaries, as well as the Parent Company. Specific audit procedures on certain balances and transactions were performed at a further 3
reporting units. Because the Group includes a number of relatively small reporting units, this gave us coverage over 99% of consolidated revenue
and 94% coverage over total assets. This, together with additional procedures performed at the Group level, gave us the evidence we needed for
our opinion on the Group financial statements as a whole.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£1,200,000 (2016: £1,100,000).
How we determined it
0.5% of total assets.
Rationale for benchmark applied
We believe that total assets are reflective of the entity's current operations and has more
relevance than earnings to shareholders.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was between £300,000 and £1,000,000. Certain components were audited to a local statutory audit
materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £60,000 (2016: £55,000)
as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:
• the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the
Group’s ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the financial
statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue
as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
58
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain
opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we did not identify any
material misstatements in the Strategic Report and Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Directors’ Statement of Responsibilities set out on page 54, the Directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors
are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• certain disclosures of Directors’ remuneration specified by law are not made.
We have no exceptions to report arising from this responsibility.
We have reported separately on the Company financial statements of IGas Energy plc for the year ended 31 December 2017.
Richard Spilsbury
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 March 2018
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Revenue
Cost of sales:
Depletion, depreciation and amortisation
Other costs of sales
Gross profit
Administrative expenses
Redundancy costs
Exploration and evaluation assets written off
Loss on oil price derivatives
Other income
Operating loss
Finance income
Finance costs
Gain on restructuring
Loss from continuing activities before tax
Income tax credit
Profit/(loss) after tax from continuing operations attributable to equity
Loss after tax from discontinued operations
Net profit/(loss) attributable to shareholders’ equity
Profit/(loss) attributable to equity shareholders:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Year
ended
31 December
2017
£000
35,793
2
Notes
Year
ended
31 December
2016
£000
30,471
(7,832)
(21,435)
(29,267)
(6,323)
(20,857)
(27,180)
6,526
(6,441)
(212)
(70)
(2,050)
214
(2,033)
277
(6,428)
4,935
(3,249)
19,105
15,856
(375)
15,481
3,291
(11,406)
(557)
(4,485)
(3,496)
660
(15,993)
277
(29,057)
–
(44,773)
13,006
(31,767)
(1,144)
(32,911)
4
10
3
5
3
6
6
28
7
16
8
8
12.76p
12.46p
(219.74p)
(219.74p)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
Profit/(loss) for the year
Other comprehensive income/(loss) for the year:
Currency translation adjustments recycled to the income statement
Other currency translation adjustments
Total comprehensive income/(loss) for the year
The notes on pages 64 to 92 form an integral part of these financial statements.
60
Year
ended
31 December
2017
£000
15,481
–
931
16,412
Year
ended
31 December
2016
£000
(32,911)
105
(1,231)
(34,037)
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2017
ASSETS
Non-current assets
Goodwill
Intangible exploration and evaluation assets
Property, plant and equipment
Restricted cash
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Restricted cash
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Other liabilities
Derivative financial instruments
Non-current liabilities
Borrowings
Other creditors
Deferred tax provision
Other provisions
Total liabilities
Net assets
EQUITY
Capital and reserves
Called up share capital
Share premium account
Foreign currency translation reserve
Other reserves
Accumulated surplus
Total equity
WWW.IGASPLC.COM
31 December
2017
£000
Notes
31 December
2016
£000
9
10
11
15
7
13
14
15
15
17
18
19
24
18
17
7
20
25
26
27
4,801
115,130
93,158
303
16,900
230,292
1,322
7,459
15,727
126
24,634
254,926
4,801
112,448
97,709
–
–
214,958
1,270
7,015
24,946
–
33,231
248,189
(6,558)
(358)
(1,687)
–
(2,749)
(11,352)
(8,170)
(1,318)
(6,084)
(11)
(876)
(16,459)
(19,553)
(303)
–
(42,117)
(61,973)
(73,325)
181,601
(118,495)
–
(1,779)
(40,924)
(161,198)
(177,657)
70,532
30,333
102,342
(7,059)
29,994
25,991
181,601
30,282
32
(7,990)
28,757
19,451
70,532
These financial statements were approved and authorised for issue by the Board on 20 March 2018 and are signed on its behalf by:
Stephen Bowler
Chief Executive Officer
Julian Tedder
Chief Financial Officer
The notes on pages 64 to 92 form an integral part of these financial statements.
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
At 1 January 2016
Loss for the year
Capital reduction
Employee share plans (note 27)
Forfeiture of LTIPs under the employee
share plan (note 27)
Issue of shares (note 25)
Currency translation adjustments
At 31 December 2016
Profit for the year
Employee share plans (note 27)
Forfeiture of LTIPs under the employee
share plan (note 27)
Lapse of LTIPs under the employee share plan
Issue of shares and conversion of debt (note 25)
Reserves transfer on equitisation
of unsecured bonds***
Currency translation adjustments
At 31 December 2017
Share
premium
account
(note 26)
£000
121,623
–
(121,776)
–
Capital
redemption
reserve
£000
64,882
–
(64,882)
–
Called up
share capital
(note 25)
£000
29,882
–
–
–
–
400
–
30,282
–
–
–
185
–
32
–
–
–
–
51
–
–
93,302
–
–
30,333
9,008
–
102,342
Foreign
currency
translation
reserve*
£000
(6,864)
–
–
–
–
–
(1,126)
(7,990)
–
–
–
–
–
Other
reserves**
(note 27)
£000
Accumulated
(deficit)/
surplus
£000
23,544
–
–
5,344
(134,296)
(32,911)
186,658
–
(131)
–
–
28,757
–
1,333
(85)
(11)
–
–
–
–
19,451
15,481
–
56
11
–
Total
equity
£000
98,771
(32,911)
–
5,344
(131)
585
(1,126)
70,532
15,481
1,333
(29)
–
93,353
–
931
(7,059)
–
–
29,994
(9,008)
–
25,991
–
931
181,601
–
–
–
–
–
–
–
–
–
–
–
–
* The foreign currency translation reserve represents exchange gains and losses arising on translation of foreign currency subsidiaries’ net assets and results and on translation of those
subsidiaries’ intercompany balances which form part of the net investment of the Group.
** Other reserves include: 1) EIP/MRP/LTIP/VCP/EDRP reserves which represent the cost of share options issued under the long term incentive plans; 2) share investment plan
reserve which represents the cost of the partnership and matching shares; 3) treasury shares reserve which represents the cost of shares in IGas Energy plc purchased in the
market and held by the IGas Employee Benefit Trust to satisfy awards held under the Group incentive plans; and 4) capital contribution reserve which arose following the acquisition
of IGas Exploration UK Limited.
*** The transfer on equitisation of unsecured bonds has arisen due to the unsecured bonds being issued at 60% of par and represents the difference between the nominal value of the
shares issued and the book value of the debt exchanged.
The notes on pages 64 to 92 form an integral part of these financial statements.
62
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Cash flows from operating activities:
Loss before tax
Write off deferred consideration
Net gain on capital restructuring
Depletion, depreciation and amortisation
Decommissioning costs incurred
Other provisions utilised
Share based payment charge
Exploration and evaluation assets written off
Unrealised loss on oil price derivatives
Finance income
Finance costs
Other non-cash adjustments
Operating cash flow before working capital movements
Decrease in trade and other receivables and other financial assets
(Decrease)/increase in trade and other payables, net of accruals related to investing activities
Increase in inventories
Cash generated from continuing operating activities
Cash generated from/(used in) discontinued operating activities
Taxation paid – continuing operating activities
Net cash generated from operating activities
Cash flows from investing activities:
Purchase of intangible exploration and evaluation assets
Purchase of property, plant and equipment
Disposal of subsidiary
Disposal of oil and gas assets
Interest received
Cash used in continuing investing activities
Cash used in discontinued investing activities
Net cash used in investing activities
Cash flows from financing activities:
Cash proceeds from issue of ordinary share capital
Cash proceeds from the issue of shares in capital restructuring
Cash paid in settlement of secured bonds
Fees paid relating to capital restructure
Repayment and repurchase of borrowings
Sale of bonds
Interest paid
Net cash used in financing activities
Net 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
The notes on pages 64 to 92 form an integral part of these financial statements.
WWW.IGASPLC.COM
Year
ended
31 December
2017
£000
Notes
Year
ended
31 December
2016
£000
5
28
11
20
20
27
10
3
6
6
(3,249)
–
(4,935)
7,968
–
(39)
1,056
70
1,872
(277)
6,428
24
8,918
40
(2,084)
(52)
6,822
422
(571)
6,673
(2,591)
(3,679)
–
14
27
(6,229)
–
(6,229)
25
28
28
28
28
15
77
46,789
(39,337)
(4,311)
(5,423)
–
(5,917)
(8,122)
(7,678)
(1,541)
24,946
15,727
(44,773)
(420)
–
6,474
(418)
–
3,499
4,485
11,969
(277)
29,057
(13)
9,583
3,366
698
(176)
13,471
(489)
(559)
12,423
(2,304)
(6,509)
(171)
22
34
(8,928)
(177)
(9,105)
136
–
–
–
(4,916)
4,914
(11,570)
(11,436)
(8,118)
4,450
28,614
24,946
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017
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 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 December 2017 and with the Companies Act 2006. The accounts were approved by the Board and authorised for
issue on 20 March 2018. IGas Energy plc is a public limited company incorporated and registered in England and Wales and 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.
New and amended standards and interpretations
During the year, the Group adopted the following new and amended IFRSs which were applicable to the Group’s activities as of 1 January 2017
but not yet endorsed by the EU.
• Amendments to IAS 7 ‘Cash flow statements’, regarding the Disclosure initiative (Not yet EU endorsed)
• Amendments to IAS 12 ‘Income taxes’, regarding recognition of deferred tax assets for unrealised losses.
(Not yet EU endorsed)
• Annual improvements 2014-2016 IFRS 12 ‘Disclosure of interest in other entities’ (Not yet EU endorsed)
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 January 2018 or later periods and which the Group has not adopted early. Those that may be
applicable to the Group in future are as follows:
IFRS 2
IFRS 15
IFRS 9
IFRS 16
Classification and measurement of share-based payment transactions – Amendment to IFRS 2
1 January 2018*
Revenue from Contracts with Customers
Financial Instruments
Leases
1 January 2018*
1 January 2018*
1 January 2019*
IFRS 10 and IAS 28
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture –
Amendments to IFRS 10 and IAS 28.
Postponed indefinitely*
* 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 has assessed the impact of IFRS 15 and IFRS 9 amendments, and considers these not to be significant. The Group is still assessing the
impact of IFRS 16 amendments on its financial position. The Group does not anticipate adopting these standards and interpretations ahead of
their effective dates.
(b) Going concern
The strength of the Group’s and Company’s balance sheet has been improved significantly by the capital restructuring as disclosed in note 28 to
the financial statements. Based on their strategic plans and working capital forecasts, the Directors have a reasonable expectation that the Group
and the Company have adequate resources to continue in existence for the foreseeable future. Thus they continue to adopt the going concern
basis in the preparation of the financial statements.
(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 December 2017, the Group comprised the Company and entities controlled by IGas Energy plc (its subsidiaries). No new subsidiaries were
acquired during the year.
64
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
1 Accounting policies continued
(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
Certain 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 (i) below.
Where the Group enters into a farm-in 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-in agreement as they are incurred.
Where the Group enters into a farm-out agreement involving a licence in the exploration and evaluation phase, the Group does not record
any expenditure made by the farmee on its account. It also does not immediately recognise any gain or loss on its exploration and evaluation
farm-out arrangements, but redesignates any costs previously capitalised in relation to the whole interest as relating to the partial interest
retained. Any cash consideration received directly from the farmee is credited against costs previously capitalised in relation to the whole
interest with any excess accounted for by the farmor as a gain on disposal.
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 a future period. Further information on each of
these and how they impact the various accounting policies are described in the relevant notes to the financial statements.
Recoverable 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 (i) 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 10 to the financial statements.
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65
IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
1 Accounting policies continued
(f) Significant accounting judgements and estimates continued
Recoverable value of property, plant and equipment
Management reviews the Group’s property, plant and equipment at least annually 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 11 to the financial statements.
Recoverable value 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 the recoverable value of goodwill. Details of the Group’s goodwill are disclosed in note 9 to the financial statements.
Proved and probable reserves and contingent resources
The volume of proved 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. Contingent resources affect the valuation of exploration and exploration assets
acquired in business combinations and the estimation of the recoverable value of those assets in impairment tests. Proved and probable reserves
and contingent resources 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.
Deferred tax asset recognition
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the
losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised,
based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Estimates of future taxable profits
are based on cash flows expected to be generated from internal estimates of projected production and costs. Details of the Group’s deferred tax
assets, including those not recognised due to uncertainty regarding the future utilisation, are disclosed in note 7 to the financial statements.
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 provisions are disclosed in note 20 to the
financial statements.
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 underlying transactions,
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.
(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 an agent for the producer.
66
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
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 at least annually and when circumstances indicate that the carrying value may be impaired. Impairment
is determined for goodwill by assessing the recoverable amount of each cash generating unit (“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 are not 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 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 costs, 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. Expenditure recognised as exploration and evaluation assets are transferred to property, plant and equipment and classified as oil and
gas assets 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, when there are no substantive
plans for continued exploration or evaluation of an area, when the Group decides to abandon an area, or where development is likely to proceed
in an area but 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 – oil and gas properties
• Oil and gas properties and other property, plant and equipment are stated at cost, less accumulated depreciation and accumulated
impairment losses.
• The cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation 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 cost of oil and gas assets also includes an amount equal to the decommissioning cost
estimate. The capitalised value of any associated finance leases are also included within property, plant and equipment.
• Oil and gas properties are depleted either on a unit of production basis, commencing at the start of commercial production, or 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.
• 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.
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
1 Accounting policies continued
(i) Non-current assets continued
Impairment of oil and gas properties
The Group’s interests in oil and gas properties are assessed for indications of impairment including events or changes in circumstances which
indicate that the carrying value of an asset may not be recoverable. Any impairment in value is charged to the income statement.
Impairment tests 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 which 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.
68
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
1 Accounting policies continued
(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
Restricted cash relates to bond guarantees issued to governments for the performance under the terms of work programmes. 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.
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 realised on 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
Warrants which do not qualify as equity instruments under IAS 39 due to the variable number of shares that would be issued in each case
are accounted for as financial liabilities. The warrants are initially recognised at fair value on the date they are issued and are subsequently
re-measured to fair value at each period end. All changes in fair value are recognised in the income statement.
Impairment of financial assets
Provision for impairment of financial assets 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. Impaired debts are derecognised when they are
assessed as uncollectible.
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69
IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
1 Accounting policies continued
(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 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 periods 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.
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, and drilling and maintenance materials, are stated at the lower of cost and net realisable value. Costs comprise
costs of purchase, costs 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 charge/credit includes current 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 as it excludes items of income or expense that are taxable or
deductible in different periods and 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
and the carrying amount is reviewed at each reporting date. 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 period when the asset is realised or the liability is settled, based
on the tax rates and laws that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside
profit or loss are recognised in correlation to the underlying transaction, either in other comprehensive income or directly in equity.
70
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
1 Accounting policies continued
(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 on the
award is recognised immediately.
Where an equity settled award is identified as a replacement it will be treated as a modification to the original plan where the incremental fair
value of the replacement award is expensed over the vesting period of the replacement award. The fair value of the original award on its grant
date continues to be recognised over its original 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 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, the functional currency of the Group. Transactions denominated in
currencies other than functional currency are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are re-translated at the rate of exchange ruling at the balance sheet date. All differences that arise are recorded
in the income statement.
For the purposes of consolidation, the income statement items of those entities for which the UK pound sterling is not the functional currency
are translated into UK pound sterling at the average rates of exchange during the period. The related balance sheets are translated at the rates
ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of such operations are reported
in other comprehensive income and accumulated in equity.
The exchange differences arising on intercompany balances that form part of an entity’s net investment in a foreign operation, are recognised in
other comprehensive income and accumulated in foreign currency translation reserve until the disposal of the foreign operation.
On disposal of entities with a different functional currency to the Company’s functional currency, the deferred cumulative exchange differences
recognised in equity relating to that particular operation would be recognised in the income statement.
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71
IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
1 Accounting policies continued
(s) Discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale
rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. Costs to dispose are the incremental costs directly attributable to the sale, excluding the finance
costs and income tax expense.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for
immediate distribution in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes
to the sale will be made or that the sale will be withdrawn. Management must be committed to the sale being expected within one year from the
date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. Assets and liabilities
classified as held for sale are presented separately as current items in the statement of financial position.
A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held
for sale, and:
• Represents a separate major line of business or geographical area of operations;
• Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
• Is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax
from discontinued operations in the income statement. All other notes to the financial statements include amounts for continuing operations,
unless otherwise mentioned.
2 Revenue
All revenue, which represents turnover, arises solely within the United Kingdom and relates to external parties.
Oil sales
Electricity sales
Year
ended
31 December
2017
£000
35,289
504
35,793
Year
ended
31 December
2016
£000
30,009
462
30,471
Revenues of approximately £19.3 million and £15.9 million were derived from the Group’s two largest customers (2016: £17.6 million and
£12.4 million).
72
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
3 Operating loss
Operating loss is stated after charging:
Staff costs
Depletion, depreciation and amortisation
Refinancing costs
Auditors’ remuneration:
Audit of the financial statements
Audit of the Company’s subsidiaries
Taxation advisory services
Other non-audit services
Operating lease charges:
Land and buildings
Other
* Other non-audit services include £0.08 million paid to the previous auditors for 2016 interim review.
Loss on oil price derivatives
Realised (loss)/gain on maturity
Unrealised loss
4 Employee information
Staff costs comprised:
Wages and salaries
Social security costs
Other pension costs
Employee share based payment cost
Average monthly number of employees including Directors in the year
Operations, including services
Administrative
WWW.IGASPLC.COM
Year
ended
31 December
2017
£000
Year
ended
31 December
2016
£000
12,781
7,957
–
300
127
102
163
2,093
229
16,050
6,474
2,969
180
60
10
179*
2,015
256
Year
ended
31 December
2017
£000
(178)
(1,872)
(2,050)
Year
ended
31 December
2016
£000
8,473
(11,969)
(3,496)
Year
ended
31 December
2017
£000
Year
ended
31 December
2016
£000
9,648
1,129
773
1,231
12,781
No.
118
42
160
9,013
1,010
802
5,225
16,050
No.
116
46
162
A proportion of the Group’s staff costs shown above is capitalised as additions to intangible exploration and evaluation assets and property,
plant and equipment in accordance with the Group’s accounting policies. In addition, a proportion is recharged to joint venture partners as part
of our timewriting rate.
Details of Directors’ remuneration, Directors’ transactions and Directors’ interests are set out in the audited section of the Directors’
Remuneration Report which forms part of these financial statements.
The Group recognised £0.2 million (2016: £0.6 million) of redundancy costs for the year.
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
5 Other income
Other income includes £0.2 million relating to rental income(2016: £0.2 million relating to the rental income and £0.4 million relating to the
release of contingent deferred consideration as described in note 21).
Year
ended
31 December
2017
£000
Year
ended
31 December
2016
£000
26
239
1
11
277
–
5,358
–
1,070
6,428
63
–
78
136
277
1,540
11,930
14,841
746
29,057
Year
ended
31 December
2017
£000
Year
ended
31 December
2016
£000
–
(426)
(426)
–
(149)
(149)
(21,180)
–
2,501
(18,679)
(19,105)
(6,009)
(6,270)
(578)
(12,857)
(13,006)
6 Finance income and costs
Finance income:
Interest on short-term deposits
Foreign exchange gains
Other interest
Gain on fair value of warrants (note 19)
Finance income
Finance expense:
Loss on sale of bonds (note 18)
Interest on borrowings
Foreign exchange loss
Unwinding of discount on provisions (note 20)
Finance expense
7 Income tax credit
i) Tax charge on loss from continuing ordinary activities
Current tax:
Charge on loss for the year
Credit in relation to prior years
Total current tax credit
Deferred tax:
Credit relating to the origination or reversal of temporary differences
Credit due to the tax rate changes
Charge/(credit) in relation to prior years
Total deferred tax credit
Tax credit on loss on ordinary activities
74
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
7 Income tax credit continued
ii) Factors affecting the tax charge
The majority of the Group’s profits are generated by “ring-fence” businesses which attract UK corporation tax and supplementary charge at a
combined average rate of 40%.
A reconciliation of the UK statutory corporation tax rate applied to the Group’s loss before tax to the Group’s total tax credit is as follows:
Loss from continuing ordinary activities before tax
Expected tax credit based on loss from continuing ordinary activities multiplied by an average
rate of corporation tax and supplementary charge in the UK of 40% (2016: 40%)
Deferred tax charge/(credit) in respect of the prior year
Current tax credit related to prior year
Tax effect of expenses not allowable for tax purposes /(income not taxable)
Tax effect of differences in amounts not allowable for supplementary charge purposes*
Impact of profits or losses taxed or relieved at different rates
Loss carried back
Net (decrease)/increase in unrecognised losses carried forward
Tax rate change
Other
Tax credit on loss on ordinary activities
Year
ended
31 December
2017
£000
(3,249)
Year
ended
31 December
2016
£000
(44,773)
(1,300)
(2,501)
(426)
616
1,467
(1,699)
–
(20,347)
–
20
(19,105)
(17,909)
(578)
(149)
2,926
945
3,093
975
3,961
(6,270)
–
(13,006)
* Amounts not allowable for supplementary charge purposes relate to net financing costs disallowed for supplementary charge offset by investment allowance which is deductible
against profits subject to supplementary charge.
iii) Deferred tax
The movement on the deferred tax liability in the year is shown below:
Liability at 1 January
Tax (charge)/credit relating to prior year
Tax credit during the year
Tax credit arising due to the changes in tax rates
Asset/(liability) at 31 December
The following is an analysis of the deferred tax asset/(liability) by category of temporary difference:
Accelerated capital allowances
Tax losses carried forward
Investment allowance unutilised
Decommissioning provision
Unrealised gains or losses on derivative contracts
Share based payments
Deferred tax asset/(liability)
Year
ended
31 December
2017
£000
(1,779)
(2,501)
21,180
–
16,900
Year
ended
31 December
2016
£000
(14,636)
578
6,009
6,270
(1,779)
31 December
2017
£000
31 December
2016
£000
(33,897)
41,553
485
4,628
2,843
1,288
16,900
(34,206)
22,522
313
6,348
2,126
1,118
(1,779)
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75
IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
7 Income tax credit continued
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 £107.5 million (2016: £67.4 million) of ring-fence corporation tax losses.
The Group has further tax losses and other similar attributes carried forward of approximately £195 million (2016: £210 million) for which no
deferred tax asset is recognised due to insufficient certainty regarding the availability of appropriate future taxable profits. The unrecognised losses
may affect future tax charges should certain subsidiaries in the Group generate taxable trading profits in future periods.
8 Earnings per share (“EPS”)
Basic EPS amounts are based on the profit for the year after taxation attributable to ordinary equity holders of the parent of £15.5 million (2016:
a loss of £32.9 million) and the weighted average number of ordinary shares outstanding during the year of 121.4 million (2016: 299.5 million).
Diluted EPS amounts are based on the profit after taxation attributable to the ordinary equity holders of the parent and 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, except where these are anti-dilutive.
For the year ended 31 December 2016, there were 1.6 million (restated based on the subdivision) potentially dilutive employee share options,
LTIPs and warrants, which are not included in the calculation of diluted earnings per share because they were anti-dilutive as their conversion to
ordinary shares would decrease the loss per share.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Basic EPS – ordinary shares of 0.002 pence each
Diluted EPS – ordinary shares of 0.002 pence each
Profit/(loss) for the year attributable to equity holders of the parent – £000
Weighted average number of ordinary shares in the year – basic EPS
Weighted average number of ordinary shares in the year – diluted EPS
9 Goodwill
At 1 January and 31 December
Year
ended
31 December
2017
12.76p
12.46p
15,481
121,357,572
124,298,195
Year
ended
31 December
2016
(219.74p)
(219.74p)
(32,911)
14,977,131
14,977,131
31 December
2017
£000
4,801
31 December
2016
£000
4,801
The carrying value of goodwill relates to unconventional assets acquired as part of the Dart acquisition in 2014.
The Group tests goodwill for impairment annually or more frequently if there are indications that goodwill might be impaired. The Group reviewed
the valuation of goodwill as at 31 December 2017 and assessed it for impairment by estimating the fair value of risked contingent resources using
an estimated market valuation of resources. The fair value is a level 3 fair value measurement, as defined in note 24. No impairment was required
for the year (2016: £nil).
76
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
10 Intangible exploration and evaluation assets
At 1 January
Additions
Changes in decommissioning
Amounts written off*
At 31 December
WWW.IGASPLC.COM
31 December
2017
£000
112,448
2,752
–
(70)
115,130
31 December
2016
£000
113,394
3,616
(77)
(4,485)
112,448
* Write off of unconventional exploration and evaluation assets due to relinquishment of licences considered to be uncommercial.
Under the terms of the secured bond agreement, the secured bondholders have a fixed and floating charge over these assets.
The Group’s exploration and evaluation assets were reviewed for indicators of impairment as at 31 December 2017 and at 31 December 2016.
No indicators of impairment were identified at either year end.
11 Property, plant and equipment
Cost
At 1 January/April
Additions
Disposals
Changes in decommissioning**
Transfers
Write off
At 31 December
Depreciation and Impairment
At 1 January/April
Charge for the year
Disposals
Transfers
At 31 December
31 December 2017
31 December 2016
Oil and gas
assets
£000
Other fixed
assets
£000
Total
£000
Oil and gas
assets
£000
Other fixed
assets
£000
168,329
3,380
(14)
–
193
–
171,888
72,894
7,669
–
193
80,756
3,767
58
(23)
–
(193)
(6)
3,603
1,494
299
(23)
(193)
1,577
172,096
3,438
(37)
–
–
(6)
175,491
147,434
5,622
(77)
15,350
–
–
168,329
74,388
7,968
(23)
–
82,333
66,815
6,156
(77)
–
72,894
3,731
342
(306)
–
–
–
3,767
1,439
338
(284)
–
1,493
Total
£000
151,165
5,964
(383)
15,350
–
–
172,096
68,254
6,494*
(361)
–
74,387
NBV at 31 December
91,132
2,026
93,158
95,435
2,274
97,709
* Charge for the year includes £125 thousand charge categorised as administration expenses in the profit and loss (2016: £151 thousand) and £11 thousand (2016: £20 thousand)
relating to capitalised equipment used for exploration and evaluation.
** The decommissioning asset increased in line with the decommissioning liability following a review of the estimate and assumptions at 31 December 2016 (note 20).
Under the terms of the secured bond agreement, the secured bondholders have a fixed and floating charge over these assets.
Impairment of oil and gas properties
Due to the continuing volatility in oil and gas prices and foreign exchange rates, the Group’s oil and gas properties were reviewed for impairment
as at 31 December 2017. CGUs for impairment purposes are the group of fields whereby technical, economic and/or contractual features
create underlying interdependence in cash flows. The Group has identified the three main producing CGUs as: North, South and Scotland. The
impairment assessment for the North and South was prepared on a value-in-use basis and using discounted future cash flows based on 2P reserve
profiles. The impairment assessment for Scotland was prepared on a fair value less costs of disposal basis. The future cash flows were estimated
using price assumption for Brent of $67/bbl for 2018, $64/bbl for 2019, $61/bbl for 2020, $60/bbl for 2021 and $75/bbl thereafter, and a USD/
GBP foreign exchange rate of $1.43/£1.00. Cash flows were discounted using a pre-tax discount rate of 11%. No impairment was required in the
year (2016: £nil).
Sensitivity of changes in assumptions
As discussed above, the principal assumptions are recoverable future production and resources, estimated Brent prices and the USD/GBP foreign
exchange rate. Neither a 10% reduction in production, a 10% reduction in Brent prices nor a 10% decline in the value of sterling against the US
dollar would result in an impairment in the South or Scotland CGUs. For the North CGU, a 10% reduction in either production or price would
result in an impairment of £11.7 million and a 10% reduction in the USD/GBP exchange rate would result in an impairment of £4.0 million.
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
12 Interest in joint arrangements
As at 31 December 2017, the Group has a combined carried gross work programme of up to c. $240 million from its farm-in partners – INEOS
Upstream Limited (“INEOS”).
The Group's material joint operations as at 31 December 2017 are set out below:
Licences
East Midlands
PEDL169
EXL288
PEDL146
PEDL210
PEDL 012
PEDL200
PEDL278
PEDL273
PEDL305
PEDL316
PEDL139
PEDL140
North West
PEDL190
PEDL145
PEDL147
PEDL184
PEDL188
PEDL189
PEDL190
PEDL193
PEDL293
PEDL295
EXL 273
Weald
PL211
PEDL070
13 Inventories
Oil stock
Drilling and maintenance materials
14 Trade and other receivables
VAT recoverable
Trade debtors
Other debtors
Prepayments
78
Partner
IGas’ interest
Operator
Egdon
INEOS
INEOS
INEOS
INEOS
INEOS
Egdon
INEOS, Total, Egdon
INEOS, Total, Egdon
INEOS, Total, Egdon
INEOS, Edgon, eCorp
INEOS, Edgon, eCorp
INEOS
INEOS
INEOS
INEOS
INEOS
INEOS
INEOS
INEOS
INEOS
INEOS
INEOS
UKOG
UKOG, Egdon, Aurora, Brigantes, Corfe
80%
75%
75%
75%
55%
55%
50%
35%
35%
35%
32%
32%
50%
40%
25%
50%
75%
25%
50%
40%
30%
30%
15%
90%
50%
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
INEOS
IGas
IGas
IGas
IGas
IGas
INEOS
INEOS
INEOS
INEOS
IGas
IGas
31 December
2017
£000
596
726
1,322
31 December
2016
£000
491
779
1,270
31 December
2017
£000
245
3,464
1,692
2,058
7,459
31 December
2016
£000
725
3,573
522
2,195
7,015
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
Trade debtors 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:
Not more than three months
More than three months but not more than six months
15 Cash and cash equivalents and other financial assets
Cash at bank and in hand
31 December
2017
£000
4,594
5
–
4,599
31 December
2016
£000
3,879
36
12–
3,927
31 December
2017
£000
15,727
31 December
2016
£000
24,946
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.
Cash and cash equivalents included £9.1 million at 31 December 2016 which was held in the Debt Service Retention Account (“DSRA”).
This was designated, at the Company’s discretion, for the buy-back or repayment of bonds. In April 2017, the Company restructured its debt
which resulted in the removal of the requirement for a DSRA. See note 18 for further details.
Restricted cash
Current
Non-current
31 December
2017
£000
126
303
31 December
2016
£000
–
–
The current restricted cash balance relates to margin payments in respect of oil hedges contracts. The non-current restricted cash represents
restoration deposits paid to Nottinghamshire County Council which serve as collateral for the restoration of the sites at the end of their life.
Net debt reconciliation
Cash and cash equivalents
Borrowings
Net debt
Borrowings – capitalised fees
Net debt excluding capitalised fees
At 1 January 2017
Capital restructuring
Repayment and repurchase of borrowings
Interest paid
Foreign exchange adjustments
Other cash flows
Other non-cash movements
At 31 December 2017
31 December
2017
£000
15,727
(21,240)
(5,513)
(686)
(6,199)
Cash and cash
equivalents
Borrowings –
repayable
after one year
Borrowings –
repayable
Total
24,946
3,140
(5,423)
(5,917)
(1,541)
522
–
15,727
(124,579)
90,025
5,423
5,917
2,369
–
(395)
(21,240)
(99,633)
93,165
–
–
828
522
(395)
(5,513)
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
16 Discontinued operations
Discontinued operations is made up of Australian and Singaporean registered operations acquired as part of the Dart acquisition. The Group’s
intention was to divest all business and activities in those countries and it disposed of most of these assets in late 2015. During the year ended 31
December 2016, the Group sold its remaining Indonesian asset, a 49.9% holding in Sangatta West CBM Inc, to its joint venture partner, Ephindo
International CBM Holdings Inc. Under the terms of the sale, IGas paid a consideration of £0.5 million; £0.2 million in cash and £0.3 million in IGas
shares. The Indonesian assets were valued at £nil at the acquisition date and the Group recognised a loss on disposal of £0.5 million.
The Group still has presence in a number of countries and continues its plans to exit all legal jurisdictions in the near future.
The loss for the year before tax in respect of discontinued operations was £0.4 million (2016: £1.14 million).
17 Trade and other payables
Current
Trade creditors
Employment taxes
Other creditors and accruals
Non-current
Other creditors
31 December
2017
£000
31 December
2016
£000
1,366
285
4,907
6,558
303
303
2,773
425
4,972
8,170
–
–
The carrying values of each of the Group’s financial liabilities included within trade and other payables are considered to be a reasonable
approximation of their fair value. All creditors are payable within one month and have been outstanding for less than three months
(2016: less than three months).
18 Borrowings
Bonds – secured
Bonds – unsecured
Total
31 December 2017
Current Non-current
£000
£000
1,687
–
1,687
19,553
–
19,553
Total
£000
21,240
–
21,240
Current
£000
6,084
–
6,084
31 December 2016
Total
£000
Non-current
£000
96,700
21,795
118,495
102,784
21,795
124,579
In 2013, the Company and Norsk Tillitsmann (“Bond Trustee”) entered into a Bond Agreement for the Company to issue up to $165.0 million
secured bonds and up to $30.0 million unsecured bonds (issued at 96% of par). These bonds were subsequently listed on Oslo Bors and the
Alternative bond market in Oslo. Both secured and unsecured bonds carried a coupon of 10% per annum (where interest was payable semi-
annually in arrears). The secured bonds were amortised semi-annually at 2.5% of the initial loan amount. Final maturity on the secured notes was
on 22 March 2018 and on the unsecured notes was 11 December 2018.
In April 2017, the Company restructured its debt resulting in the equitisation of the unsecured bonds and a repayment/equitisation of a portion
of the secured bonds. The restructuring reduced the total aggregate face value of the secured bonds to $30.4 million. The interest rate was
reduced to 8%, the repayment term was extended to 30 June 2021, and the amortisation rate was increased to 5% of the initial loan amount
from 23 March 2018. The restructuring also resulted in changes to the covenants and the removal of the need for a DSRA. The secured bonds
now have two covenants: a liquidity requirement of $7.5 million and a leverage ratio, tested every six months, that requires net debt versus
adjusted EBITDA to be less than 3.5 times.
Further details of the restructuring transaction are provided in note 28.
80
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
19 Other liabilities
Other liabilities related to warrants issued pursuant to a warrant instrument dated 14 December 2011. No warrants were exercised during the
current or prior year. The warrants expired on 14 December 2017.
Weighted
At 1 January
Subdivision and consolidation
Expiry of warrants
Revaluation gain
At 31 December
20 Other provisions
exercise price
(pence)
average 31 December
2017
£000
11
–
(11)
–
–
55.8
–
–
–
–
31 December
2016
£000
147
–
–
(136)
11
No.
7,500,000
375,000
(375,000)
–
–
At 1 January
Utilisation of provision
Unwinding of discount (note 6)
Reassessment of decommissioning provision/liabilities
At 31 December
Decommissioning
£000
40,885
–
1,070
162
42,117
31 December 2017
Other
£000
39
(39)
–
–
–
Total Decommissioning
£000
£000
40,924
(39)
1,070
162
42,117
25,284
(418)
746
15,273
40,885
31 December 2016
Total
£000
Other
£000
39
–
–
–
39
25,323
(418)
746
15,273
40,924
Decommissioning provision
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 31 years from the year end (2016: 2 to 29 years). These
provisions are based on the Group’s internal estimate as at 31 December 2017. Assumptions based on the current economic environment have
been made, which management believes are a reasonable basis upon which to estimate the future liability. The estimates are reviewed regularly
to take into account any material changes to the assumptions. Actual decommissioning costs will ultimately depend upon future costs for
decommissioning which will reflect market conditions and regulations at that time. Furthermore, the timing of decommissioning is uncertain and
is likely to depend on when the fields cease to produce at economically viable rates. This, in turn, will depend on factors such as future oil and gas
prices, which are inherently uncertain.
The risk free rate range of 0.98% to 3.05% is used in the calculation of the provision as at 31 December 2017 (2016: Risk free rate range of
0.58% to 3.80%).
21 Contingent deferred consideration
At 1 January
Fair value adjustment
At 31 December
31 December
2017
£000
–
–
–
31 December
2016
£000
420
(420)
–
The deferred consideration related to an amount payable by a wholly owned subsidiary of the Group acquired as part of the Dart acquisition, to
its earlier joint venture partner in certain licences, contingent upon various exploration and development success outcomes. In assessing the fair
value of the obligation, the Company considered the likelihood of reaching certain geological and commercial milestones on licences named in
the agreement. In December 2016, the Group assessed the likelihood of reaching the milestones as remote and released the remaining provision
of £0.4 million. At 31 December 2017, the Group assessed that no provision was required.
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O
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A
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
22 Pension scheme
The Group operates a defined contribution pension scheme. Contributions payable by the Group for the year ended 31 December 2017 were
£0.77 million (2016: £0.80 million).
Contributions amounting to £0.06 million were accrued at 31 December 2017 (2016: £0.06 million) and are included in trade and other
payables.
23 Commitments
The Group’s capital commitments comprised:
Capital commitments:
Conventional capex
Unconventional capex
Total capital commitments
Capital commitments relate to spend committed but not spent on conventional and unconventional licences.
Operating lease commitments:
Minimum lease payments under operating leases recognised in operating loss for the year
The Group had future minimum lease payments under non-cancellable operating leases as follows:
– within 1 year
– after 1 year but not more than 5 years
– after 5 years
Total
31 December
2017
£000
878
5,604
6,482
31 December
2016
£000
353
2,650
3,003
31 December
2017
£000
2,323
31 December
2016
£000
2,271
1,714
2,731
945
5,390
1,828
2,598
1,254
5,680
24 Financial instruments and risk management
Fair values
The fair value of financial assets and liabilities and their carrying amounts, other than those with carrying amounts that are a reasonable
approximation of their fair values, are as follows.
Amortised cost
Borrowings1
Carrying amount
31 December
2017
£000
31 December 31 December
2017
£000
2016
£000
Fair value
31 December
2016
£000
21,240
124,579
21,452
81,459
1 The fair value of borrowings (hierarchy level 1) has been calculated by reference to quoted market prices for these liabilities.
Fair value hierarchy
Assets and liabilities, for which fair value is measured or disclosed in the financial statements, are categorised within the fair value hierarchy 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.
There are no non-recurring fair value measurements nor have there been any transfers of financial instruments between levels of the
fair value hierarchy.
82
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
24 Financial instruments and risk management continued
Financial assets and liabilities measured at fair value
Financial liabilities: Level 2
Derivative financial instruments
Warrants
WWW.IGASPLC.COM
31 December
2017
£000
31 December
2016
£000
2,749
–
2,749
876
11
887
Fair value of derivative financial instruments
The fair values of the commodity price options 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.
Derivative financial instruments
In the current year the Group has entered into certain put/call options and swaps in order to manage its exposure to commodity price risk
associated with sales of oil in US dollars.
The outstanding contracts as at 31 December 2017 were as follows:
Term
Contract amount
Contract price/rate
Contract price/rate
Contract price/rate
Fair value at
31 December 2017
£000
US dollar Asian 3-way collar
US dollar Asian 3-way collar
US dollar Asian 3-way collar
Oct 2018-Dec 2018
Apr 2018-Sep 2018
Jan 2018-Mar 2018
150k bbls oil
300k bbls oil
150k bbls oil
Buy Put
$55.00/bbl
$46.00/bbl
$41.00/bbl
Sell Call
$65.00/bbl
$60.00/bbl
$54.00/bbl
Buy Call
$80.00/bbl
$75.00/bbl
$69.00/bbl
137
1,332
1,280
The above derivatives mature over the period from 1 January 2018 until 31 December 2018. During the year to 31 December 2017, oil hedges
for 165 thousand barrels matured in January and a loss of £0.2 million was realised.
No gains were realised on oil hedges during the year to 31 December 2017 as the underlying price traded within the collar.
The outstanding contracts as at 31 December 2016 were as follows:
Term
Contract amount
Contract price/rate
Contract price/rate
Fair value at
31 December 2016
£000
Contract price/rate
US dollar Asian 3-way collar
US dollar Asian 3-way collar
Jan 2017-Sep 2017
Jan 2017-Jun 2017
225k bbls oil
210k bbls oil
Sell Swap
$40.00/bbl
$46.00/bbl
$56.90/bbl
$60.00/bbl
Buy Call
$71.90/bbl
$74.00/bbl
672
207
The derivatives matured over the period from 1 January 2017 to 30 September 2017. During the year to 31 December 2016 oil hedges for 600
thousand barrels matured generating a net gain of £4.0 million (note 3). In addition, a number of hedges were terminated generating a gain of
£4.5 million (note 3).
Fair value of financial assets and financial liabilities
The carrying values of the financial assets and financial liabilities, other than bonds, are considered to be materially equivalent to their fair values.
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
24 Financial instruments and risk management continued
Financial risk management
The Group’s principal financial liabilities comprise borrowings 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. The Group has trade and other receivables, cash and cash
equivalents and restricted cash that are derived directly from its operations and restricted cash. The Group also enters into derivative transactions
to manage its commodity price exposure.
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 risk;
• Credit risk; and
• Liquidity risk.
The Group is not exposed to interest rate risk as all the Group’s borrowings are at a fixed rate.
Management reviews and agrees policies for managing each of these risks which are summarised below. The Group’s policy is that all transactions
involving derivatives must be directly related to the underlying business of the Group and it does not use derivative financial instruments for
speculative purposes.
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 exchange rates.
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 preparing the sensitivity analyses:
• The sensitivity of the relevant profit before tax item is the effect of the assumed changes in market risks. This is based on the financial assets and
financial liabilities held at 31 December 2017 and 31 December 2016; 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 oil and gas 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 derivative contracts existing at the balance sheet date, with the assumption that crude oil price moves 15% over all future
periods, with all other variables held constant. Management believe that 15% is a reasonable sensitivity based on forward forecasts of estimated
oil price volatility.
Increase/(decrease) in profit
before tax and equity
31 December
2016
£000
31 December
2017
£000
4,396
(4,396)
3,001
(3,001)
15% increase in the price of oil
15% decrease in the price of oil
84
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
24 Financial instruments and risk management continued
Foreign currency risk
The Group has transactional currency exposures. Such exposure arises from sales, purchases or financing 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 approximately 5% of costs are
denominated in currencies other than the functional currency of the Group, primarily US dollars. The Group borrowings are also denominated in
US dollars. The Group’s exposure to other currencies is not considered to be material.
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 year end, principally relating to the Group’s borrowings which are denominated in US dollars. 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 December
2016
£000
31 December
2017
£000
720
(720)
10,033
(10,033)
Credit risk
The Group has a credit policy to assess and manage the credit risk of counterparties before entering contracts, including credit checks through
external credit agencies, the establishment of credit limits, a requirement for security, payment terms and specific transaction approvals. The
primary credit exposures of the Group are its receivables from crude oil and electricity sales, amounts due from Joint Venture partners and
exposure with respect to derivative contracts. These exposures are managed at the corporate level. The Group has two main customers and only
trades with established counterparties who have been approved in accordance with the Group’s credit policy.
At 31 December 2017, two customers (2016: two) accounted for approximately 97% (2016: 97%) of trade receivables of £3.7 million.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash, cash equivalents and derivative contracts,
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. At 31 December 2017, the maximum exposure was £15.7 million
(2016: £24.9 million).
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N
A
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
24 Financial instruments and risk management continued
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 based on contractual undiscounted payments:
At 31 December 2017
Borrowings
Trade and other payables
At 31 December 2016
Borrowings
Trade and other payables
Warrants
On demand
£000
< 1 year
£000
1–2 years
£000
2–3 years
£000
>3 years
£000
Total
£000
–
–
–
–
–
–
–
3,418
1,366
4,784
3,823
–
3,823
3,643
–
3,643
16,663
–
16,663
27,547
1,366
28,913
18,582
2,773
11
21,366
122,314
–
–
122,314
–
–
–
–
–
–
–
–
140,896
2,773
11
143,680
Management considers that the Group has adequate current assets and forecast cash from operations to manage liquidity risks arising from
current 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 requirements are met through a combination of debt and equity and adjustments are made in light of changes in economic
conditions. The Group’s strategy is to maintain ratios in line with covenants associated with its secured bonds.
The Group monitors capital using a gearing ratio, which is net debt divided by equity plus net debt. The Group includes interest bearing loans
less cash, cash equivalents and restricted cash in net debt. Capital includes share capital, share premium, other reserves and accumulated profits/
losses.
The Company completed a restructuring and fundraising package on 4 April 2017 (see note 28). Management believe that the new capital
structure will be sustainable in the current oil price environment and, together with a carried work programme of up to $240 million, means that
the Company is well positioned to pursue its strategy.
.
86
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
25 Share capital
On 3 April 2017, the shareholders approved the subdivision of each of the 303,305,534 ordinary shares of 10p each of the Company into
one new ordinary share of 0.0001p each and one deferred share of 9.9999p each. At the Annual General Meeting of the Company on
14 June 2017, the shareholders approved a consolidation and subdivision of the Company’s share capital in order to reduce the number
of shares in issue to that more appropriate for the size of the Company. Following the consolidation, every 200 ordinary shares of 0.0001 pence
each were consolidated into one new ordinary share of 0.02 pence each and immediately subdivided into 10 ordinary shares of 0.002 pence.
The consolidation and subdivision reduced the number of shares in issue from 2.4 billion to 121 million.
Ordinary shares
Nominal value
£000
No.
Deferred shares* Share capital Share premium
Value
Nominal value Nominal value
£000
£000
£000
No.
Issued and fully paid
At 1 January 2017, ordinary shares of 10p each
January 2017 SIP share issue
Balance prior to the restructuring
Subdivision of 10p ordinary shares into 0.0001p ordinary shares
and 9.999p deferred shares
Issued through Kerogen Subscription Agreement
Issued through the Placing and Open and Ancillary Offers
Equitisation of secured and unsecured bonds
Transaction costs
Reserves transfer on equitisation of unsecured bonds
May 2017 SIP share issue
Total ordinary shares before subdivision and consolidation
Subdivision and consolidation
After subdivision and consolidation
July 2017 SIP share issue
October 2017 SIP share issue
December 2017 EBT issue
At 31 December 2017
302,820,578
484,956
303,305,534
30,282
49
30,331
–
–
–
–
–
–
30,282
49
30,331
–
679,282,165
400,069,644
1,043,350,391
–
–
956,464
2,426,964,198
(2,305,615,988)
121,348,210
59,352
73,557
400,000
121,881,119
(30,331) 303,305,534
–
–
–
–
–
–
1
–
1
–
–
–
2 303,305,534
–
–
–
–
–
–
2 303,305,534
30,331
–
–
–
–
–
–
30,331
–
–
–
30,331
* Deferred shares were created on capital restructuring which completed in April 2017 as disclosed in note 28.
Accordingly, the Group share capital account comprised:
Share capital account
At 1 January 2016
Shares issued during the year
At 31 December 2016
Shares issued during the year
At 31 December 2017
32
2
34
–
28,766
18,003
46,949
(554)
9,008
44
–
1
–
1
–
–
–
30,333
–
–
–
30,333
102,250
42
50
–
102,342
£000
29,882
400
30,282
51
30,333
26 Share premium
The share premium account arises from the Company issuing shares for consideration in excess of their nominal value less the cost of such
issues. During the year, the Company issued 106,740,090 ordinary shares at a nominal value of 0.002p each (on a post subdivision and
consolidation basis), (2016: 3,996,914 shares issued on a pre-subdivision and consolidation basis) resulting in an increase in the share premium
account of £102.3 million (2016: £0.2 million) – see note 25. Issuing costs of £554 thousand were incurred during the year (2016: £nil).
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
27 Other reserves
Other reserves are as follows:
Balance at 1 January 2016
Employee share plans – cost under IFRS 2
Employee share plans – shares issued under the SIP
Forfeiture of LTIPs under the employee share plan
Shares released from the Trust due to exercise of options
Transfers
Balance at 31 December 2016
Employee share plans – cost under IFRS 2*
Employee share plans – shares issued under the SIP
Forfeiture of LTIPs under the employee share plan
Lapse of LTIPs under the employee share plan
Transfers
Balance at 31 December 2017
Warrant/Share
plan reserves
£000
Treasury
shares
£000
Capital
contributions
£000
3,260
5,225
–
(131)
(14)
(202)
8,138
1,231
–
(85)
(11)
(175)
9,098
(1,985)
–
119
–
14
202
(1,650)
–
102
–
–
175
(1,373)
47
–
–
–
–
–
47
–
–
–
–
–
47
Merger
reserve
£000
22,222
–
–
–
–
–
22,222
–
–
–
–
–
22,222
Total
£000
23,544
5,225
119
(131)
–
–
28,757
1,231
100
(85)
(11)
2
29,994
* Employee share plan costs under IFRS 2 include £1,056 thousand of charges that were expensed during the year (2016: £3,499 thousand).
Employee share plans – Equity settled
Details of the share options under employee share plans outstanding are as follows:
Outstanding at 1 January 2016
Granted during the year
Forfeited during the year
Outstanding at 31 December 2016
Exercisable at 31 December 2016
Exercisable after subdivision and conversion (including roundings)
Awarded during the year
Exercised during the year
Lapsed during the year
Forfeited during the year
Outstanding at 31 December 2017
Exercisable at 31 December 2017
Note – all options are nil cost and therefore the weighted average exercise price is nil.
EIP
Number
of units
MRP
Number
of units
EDRP
Number
of units
LTIP
Number
of units
7,143,610 6,500,000
–
–
7,548,701
2,865,290
(452,358) (538,086)
–
9,470,814 6,500,000
7,096,343
9,470,814 6,500,000
–
325,000
473,566
354,826
–
–
1,756,923
–
(9,533) (206,314)
–
–
–
–
325,000
267,252
325,000
267,252
–
(15,512)
2,086,704
2,086,704
1,843,300
–
(1,416)
1,841,884
–
92,096
–
–
(1,029)
(3,975)
87,092
87,092
Executive Incentive Plan (“EIP”)
In March 2016, the Group issued 7,548,701 options under a long term incentive plan to the Executive Directors of the Company and certain
other key employees of the Group which will vest, subject to meeting certain criteria, three years from grant.
The options granted under the Plan take the form of a base award. The number of ordinary shares over which the options vest may be
increased by a multiple of up to two times the number of ordinary shares subject to the base award, if a specified ordinary share price is met
at the vesting date.
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FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
27 Other reserves continued
Executive Incentive Plan (“EIP”) continued
The fair value of the awards is based on the Monte Carlo valuation model. The key inputs into the model were: share price as of date of grant
of £0.145, a risk free interest rate of 0.52% and an implied share price volatility 68.8%. It was also assumed that no options would be forfeited
and no dividends would be paid during the life of the options. This resulted in a fair value of EIP awards of £1.4 million.
On 14 June 2017 these awards were subdivided in line with the subdivision and consideration of the Group’s share capital (see note 25).
In October 2017, the Group awarded 1,756,923 Ordinary shares under a long term incentive plan to the Executive Directors of the Company
and other key employees of the Group.
The fair value of the awards is based on the Monte Carlo valuation model. The key inputs into the model were: share price as of date of grant
of £0.68, a risk free interest rate of 0.54% and an implied share price volatility 63.95%. It was also assumed that no options would be forfeited
and no dividends would be paid during the life of the options. This resulted in a fair value of EIP awards of £0.978 million.
The EIPs outstanding at 31 December 2017 had both a weighted average remaining contractual life and maximum term remaining of 9.8 years.
The total charge for the year was £0.48 million. Of this amount, £0.10 million was capitalised and £0.38 million was charged to the
income statement.
Management Retention Plan (“MRP”)
In December 2015, the Group adopted a new share-based payment scheme, the Management Retention Plan (“MRP”). Under the MRP,
participants are granted nil cost options which vest and become exercisable on the first anniversary of grant subject to the Directors’ continued
employment and to a one year holding period following the date of vesting.
Employees were granted 7,143,610 options in the MRP in lieu of waived options granted under the 2011 Long Term Incentive Plan ("LTIP")
and 2016 cash bonuses. The options designated by the Group as replacement awards were accounted for as a modification of the original
scheme and were valued at grant date and the options awarded in lieu of cash bonuses were measured with reference to the fair value of the
services received.
The fair value of the cancelled awards was re-measured at the replacement date based on the Monte Carlo valuation model. The key inputs into
the model were: replacement date share price of between £0.14 and £0.24, threshold price of between £1.351 and £1.664, a risk free interest
rate of between 0.37% and 0.42% and an implied share price volatility of between 73% and 86%. It was also assumed that no dividends would
be paid during the life of the options. This resulted in an incremental fair value of £0.17 million.
The MRPs outstanding at 31 December 2017 had both a weighted average remaining contractual life and maximum term remaining of 5.9 years
(2016: 6.9 years). The fair value of the replacement awards granted under the MRP was the grant date share price.
The total charge for the year was £nil (2016: £1.8 million). Of this amount, £nil (2016: £0.6 million) was capitalised or recharged to Joint
Venture partners and £nil (2016: £1.2 million) was charged to the income statement.
Executive Director Retention Plan (“EDRP”)
In July 2015, the Group adopted a new share-based payment scheme, the Executive Director Retention Plan (“EDRP”). Under the EDRP,
participants are granted nil cost options which vest and become exercisable on the first anniversary of grant subject to the Directors’ continued
employment and to a one year holding period following the date of vesting.
Executives were granted 6,500,000 options in the EDRP in lieu of waived options granted under the 2011 Long Term Incentive Plan ("LTIP")
and the Value Creation Plan ("VCP"). The options have been designated by the Group as replacement awards at grant date and were accounted
for as a modification of the original scheme.
The fair value of the cancelled awards was re-measured at the replacement date based on the Monte Carlo valuation model. The fair value
of waived options was based on the share price at grant date of £0.23. The fair value of replacement awards was based on the Monte Carlo
valuation model. The key inputs into the model were: replacement date share price of £0.23, threshold price of between £0.945 and £1.664,
a risk free interest rate of between 0.49% and 0.60% and an implied share price volatility of between 70% and 78%. It was also assumed that no
dividends would be paid during the life of the options. This resulted in an incremental fair value of £1.5 million.
The EDRPs outstanding at 31 December 2017 had both a weighted average remaining contractual life and maximum term remaining of 5.5 years
(2016: 6.5 years). The fair value of the replacement awards granted under the EDRP was the grant date share price.
The total charge for the year was £nil (2016: £0.8 million). Of this amount, £nil was capitalised (2016: £0.47 million) and £nil was charged to
the income statement (2016: £0.33 million).
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
27 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 December 2017 had both a weighted average remaining contractual
life and maximum term remaining of 7.9 years (2016: 8.9 years). The fair value of the awards granted under the plan are measured at grant date
using a Monte Carlo Simulation Model.
The total charge for the year was £0.12 million (2016: £0.40 million). Of this amount, £0.02 million was capitalised (2016: £0.23 million) and
£0.10 million was charged to the income statement (2016: £0.17 million).
Value Creation Plan (“2014 VCP”)
In July 2014, the Company adopted the IGas 2014 Value Creation Plan (“VCP”). Under the VCP, performance units will be granted which convert
into a certain number of shares at the end of a three year performance period. The VCP requires creation of shareholder value in excess of a
threshold hurdle of 10% annualised share price growth from 1 April 2014. If this hurdle is met at the end of the 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 the
end of the performance period and 25% at the end of each of the following two years. The awards granted under the VCP scheme are measured
at grant date using a Monte Carlo Simulation Model.
For the VCP, when significant additional capital is raised (more than 10% of the Company’s issued share capital) following the grant date, a
separate tranche of the VCP award is created with its own threshold price and share capital. Therefore any additional shares issued will have to be
considered separately in determining the VCP accounting expense for periods following this capital event.
The total charge for the year was £0.59 million (2016: £1.76 million). Of this amount, £0.21 million was capitalised (2016: £1.10 million) and
£0.38 million was charged to the income statement (2016: £0.66 million).During the year ended 31 December 2015, the VCP was replaced by
the EDRP in its entirety, but the fair value of the original award continues to be recognised over the remainder of the original vesting period as per
the provisions of IFRS 2.
The inputs into the Monte Carlo models were as follows:
2011 LTIP
Share price on grant
Exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividends
Weighted average fair value of awards/units granted
Granted
Nov 11
50.5p
Nil
35%
6.5 years
0.70%
0%
23.12p
Granted
Jun 12
66.5p
Nil
31%
6.5 years
0.35%
0%
26.72p
Granted
Sep 13
102.0p
Nil
43%
6.5 years
0.85%
0%
50.90p
Granted
Jul 14
112.0p
Nil
47%
2.7 years
1.28%
0%
51.55p
VCP
Granted
Jul 14
(capital issue
relating
to Dart
acquisition –
Oct 14)
75.0p
Nil
47%
2.5 years
0.80%
0%
£22,447
Granted
Jul 14
(pre capital
issue)
112.0p
Nil
47%
2.7 years
1.28%
0%
£64,989
90
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
27 Other reserves continued
Other share based payments
Share Incentive Plan (“SIP”)
In 2013, the Group adopted an HMRC 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 £150 (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 £0.2 million (2016: £0.27 million). Of this amount, £0.005 million was capitalised (2016: £0.05 million) and
£0.195 million was charged to the income statement (2016: £0.22 million).
Treasury shares
The Treasury shares of the Group have arisen in connection with the shares issued to the IGas Energy Employee Benefit Trust (“the 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 31 December 2017 400,000 ordinary shares of £0.00002 were issued to the Trust(2016: nil). In addition 225,226
ordinary shares of £0.00002 each (2016: 246,720 ordinary shares of 10p each – pre-consolidation) were released from the Trust on exercise of
share options by current and former employees.
Capital contribution
The capital contribution relates to cash received following the acquisition of IGAS Exploration UK Limited.
Merger reserve
The merger reserve arose as a result of a reverse acquisition on 31 December 2007 whereby Island Gas Limited (“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.
28 Capital restructure
During the year ended 31 December 2016, the Company disclosed that it expected to be non-compliant with its leverage covenants under its
secured bond agreement and that it also expected to breach its daily liquidity covenant in late March 2017. The Company therefore engaged
in discussions with its bondholders, a strategic investor and other potential investors and stakeholders with regard to possible restructuring
options in order to provide a remedy to the expected breach and achieve a capital structure that would be sustainable in the current oil price
environment. In March 2017, the Company announced final terms of the restructuring and fundraising package which were subsequently
approved at the meetings of the Company's secured and unsecured bondholders and at the general meeting of shareholders on 3 April 2017.
In addition, the shareholders approved the subdivision of each of the 303,305,534 ordinary shares of 10p each of the Company into one new
ordinary share of 0.0001p each and one deferred share of 9.9999p each.
On 4 April 2017, the Company announced that all new ordinary shares issued in accordance with the terms of the fundraising were admitted to
trading and, as a result, the restructuring of the Company’s secured bonds and unsecured bonds and the fundraising had become effective in
accordance with their respective terms. The principal terms are set out below:
• 679,282,165 new ordinary shares were issued to Unconventional Energy Limited, an affiliate of Kerogen Capital, pursuant to a subscription
agreement (including 40,030,273 new ordinary shares at nominal value pursuant to a top-up mechanism) raising £28.77 million and giving
Unconventional Energy Limited an interest of 28% in the Company.
• 400,069,644 new ordinary shares were issued pursuant to a placing, open offer and ancillary subscription raising £18.04 million.
• 528,175,031 new ordinary shares were issued to holders of secured bonds who accepted voluntary equity exchange of secured bonds
extinguishing $28.92 million (£23.78 million) in face value of the secured bonds.
• 202,398,542 new ordinary shares were issued to holders of secured bonds pursuant to a conditional secured debt for equity swap extinguishing
a further $11.08 million (£9.11 million) in face value of the secured bonds.
• c.$49.2 million (£40.4 million) in face value of secured bonds were cancelled in consideration for c.$49.2 million (£40.4 million) cash pursuant
to a voluntary cash offer.
• 312,776,818 new ordinary shares were issued to holders of unsecured bonds on the conversion of all unsecured bonds into equity extinguishing
$27.4 million (£22.5 million) in face value, being all of the unsecured bonds not held by the Company.
• The Company cancelled $13.09 million (£10.7 million) in face value of the secured bonds and unsecured bonds held by the Company, being all
of the unsecured bonds and secured bonds held by the Company.
• The renegotiated terms and conditions and covenants for the remaining secured bonds (total aggregate face value of c.$30.08 million) came
into effect upon admission.
• The new ordinary shares were issued at a price of 4.5p per share.
A gain of £4.9 million (net of fees of £2.5 million) arising from the restructure has been recognised for the year.
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IGas Energy plc Annual report and accounts 2017
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
29 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 December 2017.
The Directors, Chief Financial Officer and the Chief Operating Officer 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 (including related social security costs)
Share plan
Fees
Year
ended
31 December
2017
£000
1,642
546
198
2,386
Year
ended
31 December
2016
£000
1,301
1,108
166
2,575
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, VCP, EDRP and EIP plans, as measured by the fair value of LTIPs,
VCPs, EDRPs and EIPs granted, accounted for in accordance with IFRS 2.
Further details regarding the remuneration of the Directors of the Group are disclosed in the Directors’ Remuneration Report.
Prior to the restructuring, C McDowell held $0.24 million (2016: $0.25 million) of bonds issued by the Group. Mr McDowell elected to
participate fully in the voluntary debt for equity swap on his secured bond holding resulting in an allotment of 4,383,441 shares. Following the
consolidation and subdivision of shares, the holding equalled 219,170 shares. In 2016, he received interest of $0.03 million. Accrued interest at
31 December 2016 was $6.9 thousand.
30 Subsequent events
On 24 January 2018 the Group issued 69,195 Ordinary £0.00002 shares in relation to the Company’s SIP scheme. The shares were issued at
£0.69 resulting in share premium of £47,570.
92
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS –
DIRECTORS’ STATEMENT OF RESPONSIBILITIES
WWW.IGASPLC.COM
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 Parent 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:
• Present fairly the financial position, financial performance and cash flows of the Parent Company;
• 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 and estimates that are reasonable and prudent;
• 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
• Prepare the accounts on a going concern basis unless, having assessed the ability of the Parent Company to continue as a going concern,
management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
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 Parent 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.
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IGas Energy plc Annual report and accounts 2017
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IGAS ENERGY PLC
Report on the audit of the Company financial statements
Opinion
In our opinion, IGas Energy plc’s Company financial statements (the “financial statements”):
• give a true and fair view of the state of the Company’s affairs as at 31 December 2017 and of its cash flows for the year then ended;
• 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.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the Parent
Company Balance Sheet as at 31 December 2017; the Parent Company Cash Flow Statement, the Parent Company Statement of Changes in
Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Our audit approach
Overview
Overall materiality
• Overall materiality: £1,000,000 (2016: £650,000), based on a proportion of net assets.
How we determined it
• We obtained coverage over 99% of Company’s total assets and 100% of Company’s
Rationale for benchmark applied
consolidated total liabilities.
• Carrying value of investments in subsidiaries.
• Basis of going concern.
• Refinancing.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of
bias by the Directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. This is not a complete list of all risks identified by our audit.
94
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
Key audit matter
How our audit addressed the key audit matter
We have obtained management’s assessment over whether the carrying value of the
investments in subsidiaries is supportable. This included comparing the fair value of each entity
with the carrying value of the Parent Company investments. Fair values were derived from a
combination of the subsidiary net assets and the fair value of subsidiaries oil and gas properties
based on the Group impairment model. Based on the procedures performed we concur with
management that, after impairment of £17.9 million, the carrying value is supportable.
We obtained management’s cash flow forecast which supports their use of the going concern
basis of accounting. We tested the integrity of this model, including mathematical accuracy,
and confirmed key assumptions such as forecast sales revenue and operating costs were
consistent with impairment models. Any differences were investigated. We also considered
historical accuracy of management’s forecasting.
Based on the work performed we concurred with management’s assumption that Group is a
going concern for at least 12 months from the date of signing the financial statements.
We have identified two key judgements in assessing the accounting for the restructuring and
fundraising.
We firstly assessed whether there was an extinguishment or modification of the bonds.
Due to the substantially revised bond terms we concur with management’s that this was an
extinguishment.
Secondly we considered the treatment of the transaction costs and concur with management’s
treatment whereby:
• only directly attributable costs have been deducted from equity;
• directly attributable transaction costs have been allocated between the extinguished and new
bonds on a reasonable basis; and other transaction costs have been expensed.
Carrying value of investment in subsidiaries
See note 2 Investments in subsidiaries.
The carrying value of the Company’s
investments in subsidiaries were £392.3
million at 31 December 2017, comprising of
£170.9 million of investment in subsidiaries
and £221.4 million of loans to group
companies. These represents 93% of the
Company’s total assets. We focused on this
area due to the material nature of the balance.
Basis of going concern
See page 101 Basis of preparation of financial
statements
The strength of the Company’s balance sheet
was improved significantly by the capital
restructuring which was completed in April
2017 and as a result management concluded
that the Group is a going concern for at
least 12 months from the date of signing the
financial statements.
Refinancing
See note 12 Called up share capital.
At 31 December 2016, the Company had
secured and unsecured bonds, listed on Oslo
Bors, of £125 million and announced to the
market that the Company expected to be
non-compliant with its leverage covenants at
31 December 2016 and that it also expected
to breach its liquidity covenant in late March
2017. The Company engaged with their
bondholders, a strategic investor and other
stakeholders to consider possible restructure
options to remedy the expected covenants
breach and also achieve a capital structure
that will be sustainable in the current oil price
environment. In March 2017, the Company
announced the final terms of the restructuring
and fundraising and this was subsequently
approved by the secured and unsecured
bondholders and shareholders on 3 April
2017. This resulted in the extinguishment of a
significant portion of the debt and transaction
cost, a portion of which were capitalised
against the new debt and equity.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which it operates.
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IGas Energy plc Annual report and accounts 2017
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF IGAS ENERGY PLC CONTINUED
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£1,000,000 (2016: £650,000).
How we determined it
A proportion of net assets.
Rationale for benchmark applied
We consider net assets to be one of the principal considerations of the members of the Parent
Company. The overall materiality has been limited to 90% of the Group's overall materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £50,000 (2016: £32,500)
as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:
• the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the
Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the
financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company’s ability to continue
as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain
opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we did not identify any
material misstatements in the Strategic Report and Directors’ Report.
96
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Directors’ Statement of Responsibilities set out on page 93, the Directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent
in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not
visited by us; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• the financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Other voluntary reporting
Directors’ remuneration
The Company voluntarily prepares a Directors’ Remuneration Report in accordance with the provisions of the Companies Act 2006. The
Directors requested that we audit the part of the Directors’ Remuneration Report specified by the Companies Act 2006 to be audited as if the
Company were a quoted company.
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Other matter
We have reported separately on the Group financial statements of IGas Energy plc for the year ended 31 December 2017.
Richard Spilsbury
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 March 2018
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IGas Energy plc Annual report and accounts 2017
PARENT COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2017
ASSETS
Non-current assets
Investments in subsidiaries
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Other liabilities
Non-current liabilities
Borrowings
Total liabilities
Net assets
EQUITY
Capital and reserves
Called up share capital
Share premium account
Merger reserve
Other reserves
Accumulated surplus
Total equity
31 December
2017
£000
Notes
31 December
2016
£000
2
3
4
5
6
8
9
8
392,275
47
392,322
397,774
124
397,898
30,947
858
31,805
424,127
39,366
21,205
60,571
458,469
(146,910)
(1,687)
–
(148,597)
(174,839)
(6,084)
(11)
(180,934)
(19,553)
(118,495)
(118,495)
(19,553)
(168,150) (299,429)
159,040
255,977
12
13
14
15
30,333
102,342
22,222
7,657
93,423
255,977
30,282
32
22,222
6,535
99,969
159,040
These financial statements were approved and authorised for issue by the Board on 20 March 2018 and are signed on its behalf by:
Stephen Bowler
Chief Executive Officer
Julian Tedder
Chief Financial Officer
The notes on pages 101 to 116 form an integral part of these financial statements.
98
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
WWW.IGASPLC.COM
Balance at 1 January 2016
Loss and total comprehensive loss for the year
Capital reduction
Employee share plans (note 15)
Forfeiture of LTIPs under the employee share plan (note 15)
Issue of shares (note 12)
Balance at 31 December 2016 and 1 January 2017
Profit and total comprehensive income for the year
Employee share plans (note 15)
Forfeiture of LTIPs under the employee share plan (note 15)
Lapse of LTIPs under the employee share plan (note 15)
Issue of shares and conversion of debt (note 12)
Reserves transfer on equitisation of unsecured bond
Balance at 31 December 2017
Called up
share
capital
(note 12)
£000
29,882
–
–
–
–
400
30,282
–
–
–
–
51
–
30,333
Share
premium
account
(note 13)
£000
121,623
–
(121,776)
–
–
185
32
–
–
–
–
93,302
9,008
102,342
Capital
redemption
reserve
£000
64,882
–
(64,882)
–
–
–
–
–
–
–
–
–
–
–
Merger
reserve
(note 14)
£000
22,222
–
–
–
–
–
22,222
–
–
–
–
–
–
22,222
Other
reserves
Accumulated
(note 15) (deficit)/surplus
£000
£000
1,322
–
–
5,344
(131)
–
6,535
–
1,218
(85)
(11)
–
–
7,657
(36,893)
(49,796)
186,658
–
–
–
99,969
2,462
–
–
–
–
(9,008)
93,423
Total equity
£000
203,038
(49,796)
–
5,344
(131)
585
159,040
2,462
1,218
(85)
(11)
93,353
–
255,977
The notes on pages 101 to 116 form an integral part of these financial statements.
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IGas Energy plc Annual report and accounts 2017
PARENT COMPANY CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
ended
31 December
2017
£000
Year Nine months
ended
31 December
2016
£000
Notes
Cash flows from operating activities:
Profit/(loss) for before tax
Depletion, depreciation and amortisation
Share based payment charge
Adjustment for loss on disposal of a subsidiary
Impairment of intercompany receivable
Impairment of investments
Finance income
Finance costs
Other non-cash items
Operating cash flow before working capital movements
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Cash (used in)/from operating activities
Tax refunded
Net cash (used in)/from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Interest received
Net cash from investing activities
Cash flows from financing activities:
Cash proceeds from issue of ordinary share capital
Cash proceeds from the issue of shares in capital restructuring
Cash paid in settlement of secured bonds
Fees related to capital restructure
Repayment and repurchase of borrowings
Sale of bonds
Interest paid
Net cash used in financing activities
Net 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
The notes on pages 101 to 116 form an integral part of these financial statements.
2,429
77
159
–
–
17,939
(27,452)
6,389
(124)
(583)
8,419
(19,071)
(11,235)
31
(11,204)
–
10
10
77
46,789
(39,337)
(4,311)
(5,423)
–
(5,917)
(8,122)
(19,316)
(1,031)
21,205
858
(49,796)
90
1,110
277
9,137
–
(10,781)
29,856
19
(20,088)
(2,523)
30,619
8,008
–
8,008
(20)
130
110
136
–
–
–
(4,916)
4,914
(11,570)
(11,436)
(3,318)
3,418
21,105
21,205
25
16
16
16
16
5
100
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017
WWW.IGASPLC.COM
1 Accounting policies
(a) Basis of preparation of financial statements
The Parent Company financial statements of IGas Energy plc (the “Company”) have been prepared 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 December 2017,
and with the Companies Act 2006.
The financial statements were approved by the Board and authorised for issue on 20 March 2018. 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. The Company reported a profit for the year of £6.7 million
(2016: a loss of £49.8 million).
New and amended standards and interpretations
During the year, the Company adopted the following new and amended IFRSs which were applicable to the Group’s activities
as of 1 January 2017 but not yet endorsed by the EU.
Amendments to IAS 7 ‘Cash flow statements’, regarding the Disclosure initiative (Not yet EU endorsed as of 1 May 2017).
Amendments to IAS 12 ‘Income taxes’, regarding recognition of deferred tax assets for unrealised losses (Not yet EU endorsed
as of 1 May 2017).
Annual improvements 2014-2016 IFRS 12 ‘Disclosure of interest in other entities’ (Not yet EU endorsed as of 1 May 2017).
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 January 2017 or later periods and which the Group has not adopted early. Those that may be
applicable to the Group in future are as follows:
IFRS 2
IFRS 15
IFRS 9
IFRS 16
Classification and measurement of share-based payment transactions – Amendment to IFRS 2
1 January 2018*
Revenue from Contracts with Customers
Financial Instruments
Leases
1 January 2018*
1 January 2018*
1 January 2019*
IFRS 10 and IAS 28
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture –
Amendments to IFRS 10 and IAS 28.
Postponed indefinitely*
* The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Company 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 Company‘s discretion to early adopt standards.
The Company has assessed the impact of IFRS 15 and IFRS 9 amendments, and considers these not to be significant. The Company is still
assessing the impact of IFRS 16 amendments on its financial position. The Company does not anticipate adopting these standards and
interpretations ahead of their effective dates.
(b) Going concern
The strength of the Company’s balance sheet has been improved significantly by the capital restructuring as disclosed in note 16 to the financial
statements. Based on their strategic plans and working capital forecasts, the Directors have a reasonable expectation that the Company has
adequate resources to continue in existence for the foreseeable future. The Company is in a net current liability position, driven by intercompany
balances with subsidiary companies. The financial stability of the Company can be supported by the subsidiaries not enforcing payment for these
loans. Thus they continue to adopt the going concern basis in the preparation of the financial statements.
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101
IGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
1 Accounting policies continued
(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.
Recoverable value of investment in subsidiaries
The Company evaluates investments in subsidiaries for indicators of impairment as described in (d) below. Any impairment test, 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’s financial statements are presented in UK pound sterling, the primary economic environment of the
Company.
(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.
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 tests, when required, 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 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
102
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
1 Accounting policies continued
(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.
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.
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 initially recognised 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 cash flows 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.
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103
IGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
1 Accounting policies continued
(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.
(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.
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 an equity settled award is identified as a replacement it will be treated as a modification to the original plan where the incremental fair
value of the replacement award is expensed over the vesting period of the replacement award. The fair value of the original award on its grant
date is continued to be recognised over its original 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
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).
104
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
1 Accounting policies continued
(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 Investments in subsidiaries
Investments in subsidiaries comprises:
Parent Company
At beginning of year
Additions
Impairments
At end of year
31 December
2017
Loans to
Group
companies
£000
Investment
in Group
Companies
£000
187,772
1,061
(17,939)
170,894
210,002
11,379
–
221,381
31 December
2016
Loans to
Group
companies
£000
199,488
10,514
–
210,002
Investment
in Group
Companies
£000
183,517
4,255
–
187,772
Total
£000
397,774
12,440
(17,939)
392,275
Total
£000
383,005
14,769
–
397,774
Loans to Group companies have repayment terms of between five and seven years. Of the £221.4 million loans to Group companies,
£79.9 million bear interest at 1.2% above LIBOR at the initiation of the loan, while the remainder bear interest at a fixed rate of 12%.
At 31 December 2017, the Company had investments in the following 100% owned subsidiaries:
Name of company
Principal activity and country of incorporation
Registered office address
Subsidiaries held by Company:
Dart Energy Pty Ltd
Island Gas Limited
Island Gas Operations Limited
IGas Energy Enterprise Limited
(formerly IGas Energy (Caitness) Limited
IGas Exploration UK Limited
Star Energy Group Limited
Star Energy Limited
Star Energy Weald Basin Limited
Star Energy Oil and Gas Limited
Subsidiaries held through subsidiaries:
Island Gas (Singleton) Limited
Dart Energy (Europe) Limited
Gas exploration, Australia
Oil exploration, evaluation, production and marketing, England
Electricity generation, England
Oil and gas exploration, development
and production, England
Dormant, England
Service company, England
Service company, England
Oil and gas processing, England
Dormant, England
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
Interpark House, 7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
Oil and gas production and marketing, England
Investment holding, Scotland
7 Down Street, London, W1J 7AJ
C/O Womble Bond Dickinson(UK)
Star Energy (East Midlands) Limited
Dart Energy (East England) Limited
Dart Energy (West England) Limited
IGas Energy Development Limited
(formerly GP Energy Ltd)
IGas Energy Production Limited
(formerly Dart Energy (Forth Valley) Limited and production, Scotland
Dormant, England
Shale gas exploration, England
Shale gas exploration, England
Oil and gas exploration, development
and production, England
Oil and gas exploration, development
Dart Energy (Carbon Storage) Limited
Dormant, Scotland
Dart Energy (Lothian) Limited
Dormant, Scotland
Greenpark Energy Transportation Limited
Apollo Gas Pty Limited
Dart Energy (Bruxner) Pty Limited
Dart Energy (India) Pty Limited
Dormant, England
Dormant, Australia
Investment holding, Australia
Investment holding, Australia
Llp, Level 6, 124 -125 Princess Street, Edinburgh, EH2 4AD
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
Llp, Level 6, 124 -125 Princess Street, Edinburgh, EH2 4AD
C/O Womble Bond Dickinson(UK)
C/O Womble Bond Dickinson(UK)
Llp, Level 6, 124 -125 Princess Street, Edinburgh, EH2 4AD
C/O Womble Bond Dickinson(UK)
Llp, Level 6, 124 -125 Princess Street, Edinburgh, EH2 4AD
7 Down Street, London, W1J 7AJ
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
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105
IGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
2 Investments in subsidiaries continued
Name of company
Principal activity and country of incorporation
Registered office address
Dormant, Australia
Dart Energy SPV No.1 Pty Limited
Dormant, Australia
Dart Energy SPV No.2 Pty Limited
Dormant, Australia
Dart Energy (China) Pty Limited
Dormant, Australia
Dart Energy (Overseas) Pty Limited
Dormant, Australia
Dart Energy Global CBM Pty Limited
Service company, India
Dart Energy India Services Pvt Limited
Investment holding, Singapore
Dart Energy International Limited
Investment holding, Singapore
Dart Energy (Europe) Pte Limited
Investment holding – dormant, Singapore
Dart Energy (China) Holdings Pte Limited
Investment holding – dormant, Singapore
Dart Energy (India) Pte Limited
Investment holding, Singapore
Dart Energy (ST) Pte Limited
Investment holding, Singapore
Dart Energy (AS) Pte Limited
Investment holding, Singapore
Dart Energy (Sangatta West) Pte Limited
Investment holding – dormant, Singapore
Dart Energy (Dajing) Pte Limited
Investment holding – dormant, Singapore
Dart Energy (Vietnam) Holdings Pte Limited
Dormant, Singapore
Dart Energy (India) Holdings Pte Limited
Dart Energy Asia Holdings Pte Limited
Dormant, Singapore
Dart Energy (Hanoi Basin CBM) Pte Limited Dormant, Singapore
Dormant, Singapore
Dart Energy India (CMM) Pte Limited
Dormant, Singapore
Dart Energy (CIL) Pte Limited
Dormant, Singapore
Dart Energy (MG) Pte Limited
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4001
804-805, 8th Floor, Tower B, Global Business Park, M.G Road, Gurugram, Harvana
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
80 Robinson Road, #02-00, Singapore 068898
The Company’s investments in subsidiaries were reviewed for indicators of impairment as at 31 December 2017.
3 Property, plant and equipment
Cost
At 1 January
Additions
At 31 December
Accumulated depreciation
At 1 January
Charge for the year
At 31 December
NBV at 31 December
4 Trade and other receivables
Amounts falling due within one year:
VAT recoverable
Other debtors
Amounts due from subsidiary undertakings
Prepayments
31 December 2017
31 December 2016
Fixtures,
fittings and
equipment
£000
Buildings
£000
Motor
vehicles
£000
Total
£000
Buildings
£000
Fixtures,
fittings and
equipment
£000
Motor
vehicles
£000
375
–
375
256
75
331
44
139
–
139
134
2
136
3
20
–
20
20
–
20
–
534
–
534
410
77
487
47
358
17
375
182
74
256
119
136
3
139
118
16
134
5
20
–
20
20
–
20
–
Total
£000
514
20
534
320
90
410
124
31 December
2017
£000
31 December
2016
£000
39
36
30,718
154
30,947
192
39
38,987
148
39,366
Payment terms for balances due from subsidiary undertakings are as mutually agreed between the Group’s companies.
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.
106
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
5 Cash and cash equivalents
Cash at bank and in hand
WWW.IGASPLC.COM
31 December
2017
£000
858
31 December
2016
£000
21,205
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.
Cash and cash equivalents included £9.2 million at 31 December 2016 which was held in the DSRA. This was designated, at the Company’s
discretion, for the buy-back or repayment of bonds.
Net debt reconciliation
Cash and cash equivalents
Borrowings
Net debt
Borrowings – capitalised fees
Net debt excluding capitalised fees
At 1 January 2017
Capital restructuring
Repayments and repurchase of borrowings
Interest paid
Foreign exchange adjustments
Other cash flows
Other non-cash movements
At 31 December 2017
6 Trade and other payables
Trade creditors
Taxation and social security
Amounts due to subsidiary undertakings
Accruals and other creditors
31 December
2017
£000
858
(21,240)
(20,382)
(686)
(21,068)
Cash and cash
equivalents
£000
21,205
3,140
(5,423)
(5,917)
(1,031)
(11,116)
–
858
Borrowings
£000
Total
£000
(124,579) (103,374)
93,165
–
–
1,338
(11,116)
(395)
(20,382)
90,025
5,423
5,917
2,369
–
(395)
(21,240)
31 December
2017
£000
274
51
145,751
834
146,910
31 December
2016
£000
661
60
173,129
989
174,839
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Payment terms for balances due to subsidiary undertakings are as mutually agreed between the Group’s companies.
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 to two months and no creditor has been outstanding for longer than three months
(2016: no longer than three months).
7 Taxation
Tax losses, none of which are considered sufficiently certain of utilisation to recognise deferred tax assets, amount to:
Excess management expenses
Non-trade loan relationship debits
Year
ended
31 December
2017
£000
17,615
47,968
Year
ended
31 December
2016
£000
16,533
37,551
107
IGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
The tax law has changed with effect from 1 April 2017 so that there is more flexibility regarding the usage of the losses brought forward including
excess management expenses and non-trade loan relationship debits.
Non-trade loan relationship debits may be offset against future income from similar sources.
8 Borrowings
Borrowings are measured at amortised cost in accordance with IAS 39.
Bonds – secured
Bonds – unsecured
Total
31 December 2017
31 December 2016
Within
1 year
£000
1,687
–
1,687
Greater
than 1 year
£000
19,553
–
19,553
Total
£000
21,240
–
21,240
Within
1 year
£000
6,084
–
6,084
Greater
than 1 year
£000
96,700
21,795
118,495
Total
£000
102,784
21,795
124,579
In 2013, the Company and Norsk Tillitsmann (“Bond Trustee”) entered into a Bond Agreement for the Company to issue up to $165.0 million
secured bonds and up to $30.0 million unsecured bonds (issued at 96% of par). These bonds were subsequently listed on Oslo Bors and the
Alternative bond market in Oslo. Both secured and unsecured bonds carried a coupon of 10% per annum (where interest was payable semi-
annually in arrears). The secured bonds were amortised semi-annually at 2.5% of the initial loan amount. Final maturity on the secured notes was
on 22 March 2018 and on the unsecured notes was 11 December 2018.
In April 2017, the Company restructured its debt resulting in the equitisation of the unsecured bonds and a repayment/equitisation of a portion
of the secured bonds. The restructuring reduced the total aggregate face value of the secured bonds to $30.0 million. The interest rate was
reduced to 8%, the repayment term was extended to 30 June 2021, and the amortisation rate was increased to 5% of the initial loan amount
from 23 March 2018. The restructuring also resulted in changes to the covenants and the removal of the need for a DSRA. The secured bonds
now have two covenants: a liquidity requirement of $7.5 million and a leverage ratio, tested every six months, that requires net debt versus
adjusted EBITDA to be less than 3.5 times.
9 Other liabilities
Other liabilities related to warrants issued pursuant to a warrant instrument dated 14 December 2011. No warrants were exercised during the
current or prior year. The warrants expired on 14 December 2017.
Weighted
average
exercise price
(pence)
No.
7,500,000
375,000
(375,000)
–
–
55.8
–
–
–
–
2017
£000
11
–
(11)
–
–
2016
£000
147
–
–
(136)
11
At 1 January
Subdivision and conversion
Expiry of warrants
Revaluation gain
At 31 December
108
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
10 Commitments
At the balance sheet date the Company had outstanding commitments for future minimum lease payments under non-cancellable operating
leases as follows:
Operating lease commitments:
– expiring within 1 year
– expiring within 2 to 5 years
– expiring after 5 years
Total
31 December
2017
£000
1,273
1,468
867
3,608
31 December
2016
£000
614
1,320
389
2,323
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 liabilities
Amortised cost
Borrowings1
Carrying amount
31 December
2017
£000
31 December 31 December
2017
£000
2016
£000
Fair value
31 December
2016
£000
21,240
124,579
21,452
81,459
1 The fair value of borrowings (hierarchy level 1) have been calculated by reference to quoted market prices for these specific liabilities.
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 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:
Financial liabilities: Level 2
Warrants
31 December
2017
£000
31 December
2016
£000
–
11
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109
IGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
11 Financial instruments and risk management continued
Financial risk management
The Company’s principal financial liabilities comprise borrowings, warrants and trade and other payables, including amounts due to subsidiary
undertakings. 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 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; and
• 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 external 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 to 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 December
2016
£000
31 December
2017
£000
388
(388)
388
(388)
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 Company’s borrowings are also denominated in US dollars.
The following table summarises the impact on profit before tax for changes in the US dollar/UK pound sterling exchange rate on financial assets
and liabilities as at the year end, principally relating to the Group’s borrowings which are denominated in US dollars. 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
110
Increase/(decrease) in profit before tax
for the year ended and to
equity as at
31 December
2016
£000
31 December
2017
£000
2,170
(2,170)
10,033
(10,033)
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
11 Financial instruments and risk management continued
Credit risk
With respect to credit risk arising from the financial assets of the Company, which comprise cash and cash equivalents 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 credit risk on amounts due from subsidiary undertakings is limited as these are assessed
for impairment whenever events or changes in circumstances indicate that they may not be recoverable. The Company limits its counterparty
credit risk on cash and cash equivalents 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. £0.1 million (2016: £20.1 million) of cash and cash equivalents were held with
two institutions.
Liquidity risk
The Company 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 Company’s financial liabilities based on contractual undiscounted payments:
At 31 December 2017
Borrowings
Trade and other payables
At 31 December 2016
Borrowings
Trade and other payables
Warrants
On demand
£000
<1 year
£000
1–2 years
£000
2–3 years
£000
>3 years
£000
Total
£000
–
–
–
–
–
–
–
3,418
274
3,692
3,823
–
3,823
3,643
–
3,643
16,663
–
16,663
27,547
274
27,821
18,582
661
11
19,254
122,314
–
–
122,314
–
–
–
–
–
–
–
–
140,896
661
11
141,568
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.
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 adjustments made in light of changes in economic conditions.
The Company’s strategy is to maintain ratios in line with covenants associated with the issued bonds.
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.
The Company completed a restructuring and fundraising package on 4 April 2017 (see note 12). Management believe that the new capital
structure will be sustainable in the current oil price environment and, together with a carried work programme of up to $240 million, means
that the Company is well positioned to pursue its strategy.
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IGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
12 Called up share capital
On 3 April 2017, the shareholders approved the subdivision of each of the 303,305,534 ordinary shares of 10p each of the Company into one
new ordinary share of 0.0001p each and one deferred share of 9.9999p each. At the Annual General Meeting of the Company on 14 June
2017, the shareholders approved a consolidation and subdivision of the Company’s share capital in order to reduce the number of shares in
issue to that more appropriate for the size of the Company. Following the consolidation, every 200 ordinary shares of 0.0001 pence each
were consolidated into one new ordinary share of 0.02 pence each and immediately subdivided into 10 ordinary shares of 0.002 pence. The
consolidation and subdivision reduced the number of shares in issue from 2.4 billion to 121 million.
Ordinary shares
Nominal value
£000
No.
Deferred shares* Share capital Share premium
Value
Nominal value Nominal value
£000
£000
£000
No.
Issued and fully paid
At 1 January 2017, ordinary shares of 10p each
January 2017 SIP share issue
Balance prior to the restructuring
Subdivision of 10p ordinary shares into 0.0001p ordinary shares
and 9.999p deferred shares
Issued through Kerogen Subscription Agreement
Issued through the Placing and Open and Ancillary Offers
Equitisation of secured and unsecured bonds
Transaction costs
Reserves transfer on equitisation of unsecured bonds
May 2017 SIP share issue
Total ordinary shares before subdivision and consolidation
Subdivision and consolidation
After subdivision and consolidation
July 2017 SIP share issue
October 2017 SIP share issue
December 2017 EBT issue
At 31 December 2017
–
679,282,165
400,069,644
1,043,350,391
–
–
956,464
2,426,964,198
(2,305,615,988)
121,348,210
59,352
73,557
400,000
121,881,119
302,820,578
484,956
303,305,534
30,282
49
30,331
–
–
–
–
–
–
30,282
49
30,331
(30,331) 303,305,534
30,331
1
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
1
–
–
32
2
34
–
28,766
18,003
46,949
(554)
9,008
44
2 303,305,534
–
–
–
–
–
–
2 303,305,534
30,331
–
–
–
30,331
30,333
–
–
–
30,333
102,250
42
50
–
102,342
* Deferred shares were created on capital restructuring which completed in April 2017 as disclosed in note 16.
Accordingly, the Group share capital account comprised:
Share capital account
At 1 January 2016
Shares issued during the year
At 31 December 2016
Shares issued during the year
At 31 December 2017
£000
29,882
400
30,282
51
30,333
13 Share premium and capital redemption reserve account
Share premium account
The share premium account arises from the Company issuing shares for consideration in excess of their nominal value less the costs of such
issues. During the year, the Company issued 106,740,090 ordinary shares at a nominal value of 0.002p each (on a post subdivision and
consolidation basis), (2016: 3,996,914 shares issued on a pre-subdivision and consolidation basis) resulting in an increase in the share premium
reserve of £102.3 million (2016: £0.18 million) – see note 12. The issuing costs incurred during the year were £554 thousand(31 December
2016: £nil).
112
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017
WWW.IGASPLC.COM
14 Merger reserve
The merger reserve arose as a result of a reverse acquisition on 31 December 2007 whereby Island Gas Limited (“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 are as follows:
At 1 January 2016
Employee share plans – cost under IFRS 2
Employee share plans – shares issued under the SIP
Forfeiture of LTIPs under the employee share plan
Shares released from the Trust due to exercise of options
Transfers
At 31 December 2016
Employee share plans – cost under IFRS 2*
Employee share plans – shares issued under the SIP
Forfeiture of LTIPs under the employee share plan
Lapse of LTIPs under the employee share plan
Transfers
At 31 December 2017
Warrant/Share
plan reserves
£000
Treasury
shares
£000
Capital
contributions
£000
3,260
5,225
–
(131)
(14)
(202)
8,138
1,116
–
(85)
(11)
(175)
8,983
(1,985)
–
119
–
14
202
(1,650)
–
102
–
–
175
(1,373)
47
–
–
–
–
–
47
–
–
–
–
–
47
Merger
reserve
£000
22,222
–
–
–
–
–
22,222
–
–
–
–
–
22,222
Total
£000
23,544
5,225
119
(131)
–
–
28,757
1,116
102
(85)
(11)
–
29,879
*Employee share plan costs under IFRS 2 include £159 thousand of charges that were expensed during the year.
Employee share plans – Equity settled
Details of the share options under employee share plans outstanding are as follows:
EIP
Number
of units
MRP
Number
of units
EDRP
Number
of units
LTIP
Number
of units
Outstanding at 1 January 2016
Exercisable at 1 January 2016
Granted during the year
Forfeited during the year
Outstanding at 31 December 2016
Exercisable at 31 December 2016
Exercisable after subdivision and conversion (including roundings)
Awarded during the year
Exercised during the year
Lapsed during the year
Forfeited during the year
Outstanding at 31 December 2017
Exercisable at 31 December 2017
Note – all options are nil cost and therefore the weighted average exercise price is nil.
–
–
–
7,548,701
2,865,290
(452,358) (538,086)
7,096,343
–
354,826
1,756,923
7,143,610 6,500,000
–
–
–
9,470,814 6,500,000
9,470,814 6,500,000
325,000
473,566
–
–
–
(9,533) (206,314)
–
–
–
–
325,000
267,252
325,000
267,252
–
(15,512)
2,086,704
2,086,704
1,843,300
–
–
(1,416)
1,841,884
–
92,096
–
–
(1,029)
(3,971)
87,096
87,096
Detail disclosure of each employee share plan scheme is in the Group consolidated accounts note 27.
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IGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
15 Other reserves continued
Executive Incentive Plan (“EIP”)
The total charge for the year was £0.39 million. Of this amount, £0.34 million was capitalised and £0.05 million was charged to the
income statement.
Management Retention Plan (“MRP”)
The total charge for the year was £nil (2016: £1.8 million). Of this amount, £nil (2016: £0.6 million) was capitalised or recharged to joint
venture partners and £nil (2016: £1.2 million) was charged to the income statement.
Executive Director Retention Plan (“EDRP”)
The total charge for the year was £nil (2016: £0.8 million). Of this amount, £nil was capitalised (2016: £0.47 million) and £nil was charged
to the income statement (2016: £0.33 million).
Long Term Incentive Plan 2011 (“2011 LTIP”)
The total charge for the year was £0.11 million (2016: £0.40 million). Of this amount, £0.09 million was capitalised (2016: £0.38 million)
and £0.02 million was charged to the income statement (2016: £0.02 million credited to the income statement).
Value Creation Plan (“2014 VCP”)
The total charge for the year was £0.52 million (2016: £1.76 million). Of this amount, £0.43 million was capitalised (2016: £1.10 million)
and £0.09 million was charged to the income statement (2016: £0.66 million).
Other share based payments
Detailed disclosure of other share based payments is in the Group consolidated accounts note 27.
Share Incentive Plan (“SIP”)
The total charge for the year was £0.2 million (2016: £0.27 million). Of this amount, £0.19 million was capitalised (2016: £0.263 million)
and £0.01 million was charged to the income statement (2016: £0.007 million).
114
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 WWW.IGASPLC.COM
16 Capital restructure
During the year ended 31 December 2016, the Company disclosed that it expected to be non-compliant with its leverage covenants under its
secured bond agreement and that it also expected to breach its daily liquidity covenant in late March 2017. The Company therefore engaged
in discussions with its bondholders, a strategic investor and other potential investors and stakeholders with regard to possible restructuring
options in order to provide a remedy to the expected breach and achieve a capital structure that would be sustainable in the current oil price
environment. In March 2017, the Company announced final terms of the restructuring and fundraising package which were subsequently
approved at the meetings of the Company's secured and unsecured bondholders and at the general meeting of shareholders on 3 April 2017.
In addition, the shareholders approved the subdivision of each of the 303,305,534 ordinary shares of 10p each of the Company into one new
ordinary share of 0.0001p each and one deferred share of 9.9999p each.
On 4 April 2017, the Company announced that all new ordinary shares issued in accordance with the terms of the fundraising were admitted
to trading and, as a result, the restructuring of the Company’s secured bonds and unsecured bonds and the fundraising had become effective
in accordance with their respective terms. The principal terms are set out below:
• 679,282,165 new ordinary shares were issued to Unconventional Energy Limited, an affiliate of Kerogen Capital, pursuant to a subscription
agreement (including 40,030,273 new ordinary shares at nominal value pursuant to a top-up mechanism) raising £28.77 million and giving
Unconventional Energy Limited an interest of 28% in the Company.
• 400,069,644 new ordinary shares were issued pursuant to a placing, open offer and ancillary subscription raising £18.04 million.
• 528,175,031 new ordinary shares were issued to holders of secured bonds who accepted voluntary equity exchange of secured bonds
extinguishing $28.92 million (£23.78 million) in face value of the secured bonds.
• 202,398,542 new ordinary shares were issued to holders of secured bonds pursuant to a conditional secured debt for equity swap
extinguishing a further $11.08 million (£9.11 million) in face value of the secured bonds.
• c.$49.2 million (£40.4 million) in face value of secured bonds were cancelled in consideration for c.$49.2 million (£40.4 million) cash
pursuant to a voluntary cash offer.
• 312,776,818 new ordinary shares were issued to holders of unsecured bonds on the conversion of all unsecured bonds into equity
extinguishing $27.4 million (£22.5 million) in face value, being all of, the unsecured bonds not held by the Company.
• The Company cancelled $13.09 million (£10.7 million) in face value of the secured bonds and unsecured bonds held by the Company,
being all of the unsecured bonds and secured bonds held by the Company.
• The renegotiated terms and conditions and covenants for the remaining secured bonds (total aggregate face value of c.$30.08 million)
came into effect upon admission.
• The new ordinary shares were issued at a price of 4.5p per share.
A gain of £4.9 million (net of fees of £2.5 million) arising from the restructure has been recognised for the year.
17 Related party transactions
(a) With Group companies
A summary of the transactions in the year is as follows:
Amounts due from/(to) subsidiaries:
At January 2017
Services performed (for)/by subsidiary
Net cash advances
Group loan interest
Impairment
Revaluations
At 31 December 2017
Amounts due from subsidiary undertakings
Amounts due to subsidiary undertakings
Loans to Group companies
Total
Year
ended
31 December
2017
£000
Year
ended
31 December
2016
£000
75,861
2,676
7,092
11,379
–
9,341
106,349
102,043
437
(14,808)
13,358
(9,122)
(16,048)
75,860
Year
ended
31 December
2017
£000
30,718
(145,751)
221,382
106,349
Year
ended
31 December
2016
£000
38,987
(173,129)
210,002
75,860
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IGas Energy plc Annual report and accounts 2017
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2017 CONTINUED
Payment terms for balances due to or from subsidiaries are as mutually agreed between the Group’s companies. The payment terms in respect
of loans are detailed in note 2.
(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 the Director’ Remuneration Report.
Prior to the restructuring, C McDowell held $0.24 million (2016: $0.25 million) of bonds issued by the Group. Mr McDowell elected to
participate fully in the voluntary debt for equity swap on his secured bond holding resulting in an allotment of 4,383,441 shares. Following the
consolidation and subdivision of shares, the holding equalled 219,170 shares. In 2016, he received interest of $0.03 million. Accrued interest at
31 December 2016 was $6.9 thousand.
18 Subsequent events
On 24 January 2018 the Group issued 69,195 Ordinary £0.00002 shares in relation to the Company’s SIP scheme. The shares were issued at
£0.69 resulting in share premium of £47,570.
116
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 OIL AND GAS RESERVES
AS AT 31 DECEMBER 2017
WWW.IGASPLC.COM
The Group’s estimate of proved plus probable reserves at 31 December 2017 are taken from the Group’s internal estimates for the Group’s oil
and gas fields as of 31 December 2017 together with adjustments for production. 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 January 2017
Additions during the year
Revision of previous estimates
Production
Total change during the year
At 31 December 2017
Oil mmbbls
Gas Bcf
12.69
–
1.40
(0.84)
0.56
13.25
3.95
–
(1.41)
(0.29)
(1.70)
2.25
Total
mmboe
13.37
–
1.16
(0.89)
0.27
13.64
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IGas Energy plc Annual report and accounts 2017
IGAS ONSHORE UK LICENCE INTERESTS
Licence
Fields
East Midlands
Area
km2
IGas
interest
Operator Other partners
AL009
EXL288
ML3
ML4
ML6
ML7
PEDL006
PEDL012
PEDL139
PEDL140
PEDL146
PEDL1693
PEDL200
PEDL210
PEDL2734
PEDL 278
PEDL305
PEDL316
PEDL317
PEDL337
PL1625
PL178
PL179
PL1996
PL220
Dunholme1
Trumfleet2
Egmanton
Gainsborough, Beckingham, Corringham,
Glentworth
Bothamsall
South Leverton
Cold Hanworth
Hemswell1
Hemswell1
Beckering1
West Beckingham
Welton, Stainton, Nettleham, Scampton
South, Scampton North, East Glentworth
Nettleham
Long Clawson, Rempstone
Weald Basin
DL002
DL004
ML18
ML21
PEDL021
PEDL070
PEDL233
PEDL235
PEDL257
PEDL326
PL182
PL205
PL211
PL233
PL240
PL249
Stockbridge
Albury1
Bletchingley
Bletchingley
Goodworth
Avington
Baxters Copse1
Godley Bridge1
Lingfield1
Palmers Wood
Storrington
Horndean
Stockbridge
Singleton
Stockbridge
118
9
75
26
72
11
11
136
33
100
142
276
62
114
116
194
38
143
111
39
10
42
2
107
4
13
10
14
8
9
50
18
89
100
28
95
55
18
27
58
46
16
100%
75%
100%
100%
100%
100%
100%
55%
32%
32%
75%
80%
55%
75%
35%
50%
35%
35%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
50%
100%
100%
100%
100%
100%
90%
100%
100%
100%
IGas
IGas INEOS
IGas
IGas
IGas
IGas
IGas
IGas INEOS
IGas INEOS, Egdon, Ecorp
IGas INEOS, Egdon, Ecorp
IGas INEOS
IGas Egdon
IGas INEOS
IGas INEOS
IGas Total, Egdon, INEOS
IGas Egdon
IGas Total, Egdon, INEOS
IGas Total, Egdon, INEOS
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas Egdon, Aurora, UKOG, Brigantes, Corfe
IGas UKOG
IGas
IGas
IGas
IGas
IGas
IGas UKOG
IGas
IGas
IGas
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 Licence
Fields
North West
EXL273
PEDL056
PEDL145
PEDL147
PEDL184
PEDL188
PEDL189
PEDL190
PEDL193
PEDL293
PEDL295
Scotland
P1270
PEDL158
The Potteries
Doe Green
Lybster
Lybster
Area
km2
IGas
interest
Operator Other partners
48
2
74
89
286
100
100
94
296
200
200
16
46
15%
100%
40%
25%
50%
75%
25%
50%
40%
30%
30%
100%
100%
INEOS INEOS
IGas
INEOS
IGas INEOS
IGas INEOS
IGas INEOS
IGas INEOS
IGas INEOS
INEOS
INEOS INEOS
INEOS INEOS
IGas
IGas
Notes:
1. Dunholme, Hemswell, Beckering, Albury, Baxters Copse, Godley Bridge and Lingfield are undeveloped fields.
2. Trumfleet Field was abandoned in 2009 prior to IGas acquiring an interest in licence EXL288.
3. PEDL169 licence area also has CMM operations operated by Alkane with no IGas interest.
4. PEDL273 licence area has six CMM vents operated by Alkane under PEDL274 and PEDL037 with no IGas interest.
5. PL162 licence area includes the Hatfield Moor Gas Storage Facility operated by Scottish Power with no IGas interest.
6. PL199 also includes Whisby field operated by Blackland Park with no IGas interest.
WWW.IGASPLC.COM
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119
IGas Energy plc Annual report and accounts 2017
GLOSSARY
£
$
1P
2P
3P
1C
2C
3C
AIM
boepd
bopd
Contingent
Recoverable
Resources
The lawful currency of the United Kingdom
The lawful currency of the United States of America
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
Barrels of oil equivalent per day
Barrels of oil per day
Contingent Recoverable Resources estimates are prepared in accordance with the Petroleum Resources Management 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 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.
Firm well
Drill or drop A drill or drop well carries no commitment to drill. The decision whether or not to drill the well rests entirely with the licensee
being driven by the results of geotechnical analysis. The licence will, however, still expire at the end of the initial term if the well
has not been drilled.
A firm well is classified as a firm commitment to drill a well. It is not contingent on any further geotechnical evaluation
(i.e. it is a fully evaluated prospect).
Gas initially in place
Millions of barrels of oil equivalent
Millions of standard cubic feet per day
National balancing point – a virtual trading location for the sale and purchase and exchange of UK natural gas.
United Kingdom petroleum exploration and development licence
Production licence
Trillions of standard cubic feet of gas
United Kingdom
GIIP
MMboe
MMscfd
NBP
PEDL
PL
Tcf
UK
120
FINANCIAL STATEMENTSIGas Energy plc Annual report and accounts 2017 GENERAL INFORMATION
WWW.IGASPLC.COM
Directors
R McTighe – Non-executive Chairman
S Bowler – Chief Executive Officer
C McDowell – Non-executive
P Jackson – Non-executive
T Kumar – Non-executive
Company Secretary
Cooley Services Limited
Dashwood
69 Old Broad Street
London EC2M 1QS
Nominated Adviser and Joint Broker
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
Joint Broker
Canaccord Genuity
88 Wood Street
London
EC2V 7QR
Registrar
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol BS13 8AE
Auditor
PricewaterhouseCoopers LLP
1 Embankment Place
London
WC2N 6RH
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).
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IBC
IGas Energy plc Annual report and accounts 2017
IGas Energy plc
Registered Office
7 Down Street
London
W1J 7AJ
+44 (0)20 7993 9899
www.igasplc.com