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8
Annual report
and accounts
2018
Our purpose is to
provide a secure
supply of energy
in Britain both safely
and environmentally
responsibly and
in collaboration
with the communities
in which we operate.
We talked to key industry stakeholders to better
understand why we need gas and how we can work
together to secure our future energy needs.
Read the conversations...
A Professor of Global Energy
at Warwick Business School
see page 8
The new independent
Commissioner for Shale Gas
see page 10
What’s Inside
Strategic Report
Financial & Operational Performance
Chairman’s Statement
Our Marketplace
Value Creation
Operating Responsibly
Chief Executive’s Statement
Operational Review
Financial Review
Key Performance Indicators
Risks and Uncertainties
Sustainable and Responsible Business
Corporate Governance
Introduction to Governance
Board of Directors
Executive Committee
Corporate Governance
Directors’ Remuneration Report
Directors’ Report
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
01
02
04
06
12
14
17
20
24
26
30
34
37
38
40
44
49
51
52
57
57
58
59
60
61
92
93
97
98
99
100
117
118
120
IBC
Follow us on Twitter @IGasEnergy
Strategic Report
Corporate Governance
Financial Statements
Financial & Operational Performance
A year of solid delivery from existing operations. On a sound
financial footing the business is well positioned to progress the
development of its assets and deliver on its work programmes.
Financial
Revenues
£42.9m
2018
2017
Net debt
£6.4m
2018
2017
Net assets
£161.7m
£42.9m
2018
£35.8m
2017
£161.7m
£181.6m
Adjusted EBITDA
£10.8m
£6.4m
2018
£6.2m
2017
(Loss)/profit after tax
£(21.4)m
2018
2017
Net cash from operating activities
£12.9m
£(21.4)m
2018
£15.5m
2017
£12.9m
£6.7m
Cash and cash equivalents
Underlying operating profit
£15.1m
2018
2017
£4.0m
£15.1m
2018
£15.7m
2017
Operational
2,258 boepd
• Group production averaged 2,258 boepd for
the year
Reserves
• 2P reserves replacement of over 200% in 2018
• 2P reserves of 14.56 MMboe at 31 December 2018
£10.8m
£9.2m
Albury
• Successful completion of gas-to-grid project
currently producing c.750 mscf/d (130 boe)
Shale exploration & appraisal
• Commenced appraisal programme of the
Gainsborough Trough basin in the East Midlands
• Significant shale section encountered at Springs
Road and promising initial results at Tinker
Lane that are encouraging for the potential gas
resources in the Gainsborough Trough basin
£4.0m
£1.3m
ROSPA
• Awarded Presidents Award, representing 12
years of commitment to Occupational Health
and Safety
To read more on our operations
see page 17
Our Strategy & Value Creation Cycle
Reserves and production growth
Developing portfolio
of growth opportunities
Local and national
engagement
To read more on Corporate Governance see page 34
Our
resources
and
relationships
Maintaining
competitive
advantage
Energy
Environment
Responsibility
Community
Continuous assessment
V
alue creation – Turning oppo r t u n i
s i n t o v alu e
i e
t
IGas Energy plc | Annual report and accounts 2018
1
Chairman's Statement
From strategy
to delivery
2019 will undoubtedly
see further shifts in the
energy mix. Given coal
is being phased out and
the future of nuclear
is uncertain, how can
we ensure security
of supply? A reliable
source of gas remains
key to ensuring Britain
continues to operate
at full capacity.
Corporate Governance –
adopting a new code
IGas is committed to maintaining
high standards of corporate
governance.
To read more on Corporate Governance
see page 34
Or to read more about the QCA code and
how we comply visit
www.igasplc.com
Mike McTighe
Non‑executive Chairman
We are committed to ensuring
that our teams and talent are
diverse as we know the benefits
that diverse thinking, perspectives
and experiences can bring to our
business.
2
IGas Energy plc | Annual report and accounts 2018 As far as IGas is concerned we do not
anticipate any direct post-Brexit issues for the
business but believe our business becomes
more important, if and when we are to leave
the EU. The critical questions are, how will the
UK continue to meet the national demand
for gas and will we still be able to access our
energy affordably?
Currently, gas meets 40% of the UK’s primary
energy requirements. Over 80% of British
homes are heated by gas and two thirds of
people use it for cooking. Today we import
roughly 50% of that gas requirement, and by
2035 that figure is expected to rise to 75%.
Imported gas costs us around £18 million a
day. According to one National Grid scenario,
Britain’s import bill could hit £10 billion a
year – creating no jobs and generating no
tax revenue in this country, but granting
these benefits instead to countries including
Norway, Qatar and Russia.
Dependency on imports leaves the UK
dangerously exposed to shortages and price
spikes when there are infrastructure failures
or tight international supplies. On 1 March
2018, National Grid issued its first ‘gas supply
deficit’ warning for eight years. A number of
large businesses agreed with their suppliers
to use less gas, and within-day prices rose
to as high as 350 pence per therm – over six
times the normal price. This inevitably hits
our industrial competitiveness, pushes up
costs for our gas-dependent manufacturing
industries, and creates risks for business and
increased prices for consumers.
As the Netherlands becomes a net gas
importer, Norwegian gas will be in high
demand and as competition for Norwegian
supplies increases, a rising proportion of the
UK’s gas is likely to come from countries with
environmental and human rights standards far
lower than our own. Large amounts of energy
are required to freeze gas and transport it
by ship as LNG, resulting in production and
processing emissions being as much as twice
those compared with home-grown shale gas
production.
This has been a year of solid delivery from
existing operations. We have completed
a number of capital projects, as well as
commencing our shale appraisal campaign
in North Nottinghamshire.
The business has demonstrated its resilience
and following the refinancing in 2017, is on a
sound financial footing which is important in
these volatile markets, particularly in relation
to commodity prices and foreign currency.
Whilst the challenges of operating in a
volatile commodity market and navigating the
uncertain and lengthy UK planning regime are
self-evident, there is material upside in the
producing and development assets within the
IGas portfolio and significant opportunities
lie ahead. We will reinvest capital in our
asset base to take advantage of these
opportunities.
As a business, we take pride in our
operations and strive for positive community
engagement. Our Community Fund again
distributed resources to support many local
projects across our portfolio.
We maintain a company-wide focus on health,
safety, and responsible operations. All of our
production and drilling operations retained
their ISO 14001 and 9001 certifications and
we were awarded the ROSPA Presidents
Award again, representing 12 years of
commitment to Occupational Health
and Safety.
The QCA Code
In March 2018, the AIM Rules were
changed such that all AIM companies
were obliged, from 28 September
2018, to apply a recognised corporate
governance code, providing details of
that code on its website along with details
of how the Company complies with or
departs from that code.
I believe that the QCA Code provides
the Group with the right governance
framework in view of its size, strategy,
resources and stage of development, as
it offers a flexible but rigorous outcome-
oriented framework in which we can
continue to develop our governance
model to support our business.
Did you know?
8 out of 10 British homes use gas for heating
People
We are committed to ensuring that our
teams and talent are diverse as we know the
benefits that diverse thinking, perspectives
and experiences can bring to our business.
It has been another busy year across the
business and I would like to thank all
employees for their ongoing commitment
and hard work.
On behalf of the Board, I would like to extend
my sincere thanks to John Blaymires, our
Chief Operating Officer, who will retire from
the business on conclusion of the Springs
Road vertical well. John has been an integral
part of the IGas story for the last eight years.
The Company has benefited greatly from his
dedication and commitment, wise counsel
and wealth of industry experience. We wish
him well in all his future endeavours.
Outlook
We have laid down a solid foundation for our
business and we will continue to ensure that
our cost base reflects the external economic
situation.
We are focused on balancing our investment
in our assets with maintaining a sound
financial footing in volatile market conditions.
Our ongoing work programme across our
shale acreage, principally funded by our
partners, will give us important data in
understanding further the increasingly
vital resource beneath our feet.
Mike McTighe
Non-executive Chairman
3
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Our Marketplace
From opportunity
to growth
Political and Regulatory Update
On 17 May 2018, the UK Government issued
a joint Written Ministerial Statement (WMS)
from the Energy and Local Government
Secretaries reiterating its support and
commitment to our industry by stating shale
gas development is of national importance.
The statement itself constitutes a material
consideration in local planning decisions.
As laid out in the WMS, on 19 July 2018, the
Government launched two consultations: one
that will consider allowing exploration wells
to be drilled under permitted development
(i.e. without the requirement of a planning
application); and another on the inclusion of
shale production projects into the Nationally
Significant Infrastructure Projects regime. We
responded to these consultations ahead of
the 25 October 2018 deadline.
There has been considerable
misunderstanding publicly in respect of
the consultation on permitted development.
It does not extend to hydraulic fracturing,
it is specifically for exploratory wells.
The main concern of both the industry and
local communities, is the fact that planning
applications for even the simplest of wells
now take up to 18 months to conclude and
that many of the professional planning officer
recommendations are ignored. This leaves
communities with uncertainty and local
taxpayers potentially with a huge bill to foot,
and is against the experience of the previous
ten years where most applications were
decided in less than four months and against
a statutory timescale of three months.
1 Source: https://www.gov.uk/government/statistics/energy-
chapter-1-digest-of-united-kingdom-energy-statistics-
dukes.
2 Source: https://assets.publishing.service.gov.uk/
government/uploads/system/uploads/attachment_data/
file/702640/Wave_25_Summary_Report.pdf
4
Primary energy demand 20171
Natural Gas
38% 39%
Bioenergy
& Waste
8.3%
Coal
5.3%
Net
electricity
imports
0.7%
Petroleum
35.8%
Nuclear
7.9%
Wind, Solar
PV & Hydro
3%
UK Energy
The most recent statistics
published from 2017
show that oil and gas
provided 75% of the UK’s
primary energy
72%
of the population think that the UK is
becoming too dependent on energy
from other countries according to
the latest BEIS perception study2
£
£
£
50%
c.50% of our gas is imported
currently – set to rise to 75%
in the next 17 years
17 years
68bcm
UK’s projected annual gas demand
of 68bcm in 2030
IGas Energy plc | Annual report and accounts 2018 The main fuels used by final consumers in
2017 were petroleum products (47.8%),
natural gas (28.6%) and electricity (17.5%)
48%
29%
117m 18%
Production from shale gas wells
drilled over the next 20 years
could save 117 million tonnes
of CO2e compared with a
UK economy based solely
on LNG imports
Oil & Gas prices in 2018
Oil
Gas
90
85
80
75
70
65
60
55
50
45
40
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
$62/bbl 67p/therm
Gas price in December 2018
Oil price in December 2018
Did you know?
Electricity makes up just 17.5% of energy
consumption in the UK
The planning system is just one of five
separate regulatory processes that the
industry has to satisfy. The other regulatory
regimes are operated by the Environment
Agency (EA), The Health and Safety Executive
(HSE), The Oil and Gas Authority (OGA) and
The Department for Business, Energy and
Industrial Strategy (BEIS). We also have to
seek permission from other bodies such as
the Coal Authority. None of this changes
under permitted development and so we will
still need to receive environmental permitting
consent, have our wells checked by an
independent well examiner and reviewed by
the Health and Safety Executive as well as
receiving well consent from the Oil and Gas
Authority.
A third consultation opened in October
2018 on whether or not there should be a
requirement for pre-application consultation
with local people before we formally submit
plans for any shale application. Our view is
that there is already a significant amount
of community engagement that takes place
by both the industry and regulators and
consideration of, and improvements to,
existing consultation practices through our
Industry Charter would be preferable to all
than a prescriptive ‘tick box’ exercise.
On 5 October 2018, BEIS announced
former labour MP, Natascha Engel as the
new independent Commissioner for Shale
Gas. In recognising the need to provide
communities with impartial, fact-based
information the Commissioner will act as
a direct communication link between local
communities, the shale gas industry and the
industry regulators. The commissioner will be
a contact point for residents, to listen to their
concerns, refer them to relevant and factual
research and help improve communication
with regulators and industry.
At the same time, BEIS also announced
the instigation of a Shale Environmental
Regulator Group (SERG), which will bring
the regulators (OGA, HSE and EA) together
as a virtual body. The SERG will act as one,
coherent, single face for local authorities and
industry, helping to resolve regulatory issues
on sites and sharing best practice with local
authorities considering shale gas applications.
5
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Value Creation
From potential to value
Our vision is to build a long-term material energy company in Britain in
collaboration with the communities in which we operate and deliver value
for all our stakeholders.
To read more on our operations
see page 17
Our strategy remains clear and focused and we intend to deliver sustainable growth by focusing on exploiting
our existing reserves, commercialising and developing our assets, including shale, and converting resources
into reserves.
The adoption of cost effective technologies to unlock value in our assets remains a key part of this.
Significant value creation opportunities across the business
Reserves and
production
growth
Developing
portfolio
of growth
opportunities
Local and
national
engagement
Related risk factors
4. Oil or gas production
7. Oil market price risk
3. Planning, environmental,
licensing and other
permitting risks
5. Shale gas resources
1. Exposure to political risk
3. Planning, environmental,
licensing and other
permitting risks
To read more on our risks
see pages 26 to 29
Maintaining
competitive
advantage
Our resources
and relationships
Energy
Environment
Responsibility
Community
Continuous assessment
V
alu
e creation – Turning oppo r t u n i
alu e
s i n t o v
i e
t
Our resources
& relationships
Our Community
We build relationships
with our stakeholders
in the communities we
operate in.
Our People
We constantly strive to
develop our employees
and their knowledge
and skills.
To read more
see page 30
Continuous
assessment
To read more
see page 33
Risks and uncertainties
We constantly assess the
risks facing our business
and develop mitigation
strategies.
Key performance
indicators
The success of our
operations is measured
against KPIs.
To read more
see page
26-29
To read more
see page 24
6
IGas Energy plc | Annual report and accounts 2018
Strategic Report
Corporate Governance
Financial Statements
Investment Case The value we create not only creates returns for our shareholders, but also for our other stakeholders.
S
S
S
C
Reserves
2P conventional reserves
replacement of 200% as at
31 December 2018
C
S
Dual targets
Number of existing producing
fields where shale potential
underlays producing horizon
C
S
Operating
Capability
Experienced UK operator
of producing fields which is
transferable to shale appraisal
and development
c.100 producing wells
Majority of fields 100%
owned and operated
Significant
shale resources
Shale prospective resources
of 2.5tcf (440 MMboe)
Significant
carried work
programme
Up to c.$220m with INEOS as at
31 December 2018
High leverage
to oil price
Existing infrastructure with
near term upside
Primary
recovery only
Upside identified through water
injection and infill drilling
C
C
C
Existing
infrastructure
Benefits shale development
Financially
sound
Refinanced and generating
free cash flow
Maintaining
competitive
advantage
Disciplined asset portfolio management
Optimisation of assets
Integrated management tools
and financial management
Operating capability
Key
C
S
Conventional Assets
Shale Assets
IGas Energy plc | Annual report and accounts 2018
7
Strategic ReportCorporate GovernanceFinancial Statements Value Creation
continued
The future need for
natural gas in the UK
In conversation
with Michael
Bradshaw, Professor
of Global Energy,
Warwick Business
School
In 2018 the growing challenges
surrounding the future role of
natural gas became clear.
By the end of the previous year total gas demand was
down 23 per cent since its peak in 2000, and at the same
time, domestic production was down 63 percent on the
2000 level, and it continued to decline during 2018.
Nonetheless, with domestic production falling faster than
demand, import dependency continues to rise. The latest
figures from the OGA1, using the BEIS reference scenario
for demand2, suggest that total import dependency could
rise from around 50 percent today to 54 percent by 2025
and 66 percent by 2030. Of course, this situation could
change if there was significant growth in onshore natural
gas production.
Today, the majority of the UK’s natural gas consumption is
split between three sectors: electricity generation, domestic
heating and cooking and industrial uses, where it is both a
source of heat and a raw material. Data from BEIS for 2017
show that power stations consumed 28.9% of total gas
supply, the domestic sector 30%, and industry 19.2%3.
Around 84% of households rely on natural gas for heating
and in 2017 it also provided 40.4% of the UK’s electricity.
So why the falling demand? There are at least three reasons:
first, the growth of renewable electricity power generation
(wind and solar) that have priority in the ‘merit order;’
second, improvements in energy efficiency; and third,
a declining role for energy-intensive industry in the UK.
Natural Gas in the UK
As the Climate Change Committee’s 2018 Progress Report4
makes clear, the decarbonisation of the energy system is
the primary reason why by the end of 2017 the UK’s total
greenhouse gas emissions had fallen by 43% compared
to 1990. In fact, some 75% of emission reductions since
2012 have come from the power sector. Switching from
coal to gas has played a major role in this success story,
but with coal power gone by 2025, natural gas will be the
most carbon-intensive fuel in the UK’s energy mix. With
the current goal of reducing greenhouse gas emissions
by 80% of 1990 levels by 2050, and the possibility of net-
zero emissions by 2050, there are growing uncertainties
about the future role of natural gas in the low carbon
energy mix.
There is no doubt that the so-called ‘dash for gas’ in
the 1990s created a gas industry in the UK that has
delivered secure and affordable energy for consumers.
But challenges have emerged since the turn of the century
as the underlying infrastructure has started to age. The
most obvious example being the closure of the Rough
Gas Storage facility, the UK’s only significant source of
inter-seasonal storage. Declining production from the
UK sector of the North Sea has been compensated for by
growing Norwegian imports, the development of three
LNG import terminals and two interconnector pipelines
that link to Belgium and the Netherlands. At the same
time, the National Transmission System (NTS), owned and
operated by National Grid, has had to adapt to moving gas
from different sources and directions from its original task
of simply moving gas from the north to the south.
All of this has made for an increasingly complex domestic
gas market that must be balanced on a daily basis.
Challenges in 2018
As noted at the onset, 2018 presented a number of
challenges that have highlighted growing uncertainty
over the UK’s future gas security. First, the so-called ‘Beast
from the East’, a relatively short-lived spell of very cold
weather at the end of February 2018, resulted in unusually
high levels of gas demand and the cold temperatures
themselves caused a number of technical failures. This
led National Grid to announce a ‘Gas Deficit Warning,’
a signal to the industry that more gas is needed in the
NTS to maintain the system. As a result, the price spiked
and the gas flowed, as the Government later claimed
‘the market worked.’ However, the resulting post-mortem
made clear that the situation could have been much more
serious had the ‘cold snap’ been more prolonged and that
the presence of coal-fired power and the fact that it was
windy meant that it was possible to reduce the amount of
gas being used in the electricity system.
8
IGas Energy plc | Annual report and accounts 2018
Imagine, a prolonged cold snap at the end of the winter
period after 2025, when LNG stocks would normally be
low, with no wind and no coal and the situation could
quickly become difficult. Also factor in that such weather
systems tend to cover the whole of northwest Europe
and that once we leave the EU, we may not be part of
the single gas market; then we are also left to fend for
ourselves. This line of reasoning has prompted calls for
the Government to support the construction of more
inter-seasonal storage, something it has so far refused to
do, saying that it is for the market to decide.
The summer heat wave, both in the UK and in Asia,
brought other challenges. The hot weather in the UK
brought with it a ‘wind drought’ and although solar power
thrived, more gas was used to generate electricity. At the
same time, strong demand for LNG in Asia meant that
relatively little came to the UK, which is traditionally when
we fill our tanks for the winter. This strong demand also
had the effect of pushing up the price of LNG, helped also
by the recovery in oil prices, which together meant that
with high gas prices in the autumn coal made a modest
return in the power generation mix. However, over the
year renewable generation6 accounted for a record 49.6%
of total power generation. By the end of the year, soft
demand in Asia saw LNG returning to the UK at much
higher levels then previous years.
Outlook for the future
The problem now facing the UK’s gas industry is that
new investment is needed to maintain the capacity and
resilience of the system and also increase its flexibility
in the face of growing renewable electricity; but there
is growing uncertainty over just how much gas will
be needed in the future. The Government’s Industrial
strategy6 sees two possible energy decarbonisation
pathways ahead: an electricity pathway that relies on
low carbon electricity generation and storage; and
a hydrogen pathway using natural gas and the availability
of carbon capture usage and storage (CCUS) to produce
hydrogen distributed by the existing gas distribution
network. Both pathways face uncertainty, the first
because the Government’s plans for new nuclear are
in disarray, and the second, because CCUS is not yet
commercially available. While continued gas demand
in the 2020s seems fairly secure, there is no certainty
over what will happen in the 2030s and beyond. Like the
energy industry more generally, the gas industry makes
significant investments that often take decades to pay
back. The growing ‘energy transition risk’ makes it difficult
to make long-term commitments and a clear vision is now
required about the future need for gas in the UK.
Strategic Report
Corporate Governance
Financial Statements
2018 presented a number of
challenges that have highlighted
growing uncertainty over the UK’s
future gas security.
1 Source: https://www.ogauthority.co.uk/media/5073/projections-of-
uk-oil-and-gas-production-and-expenditure-september-2018.pdf.
2 Source: https://assets.publishing.service.gov.uk/government/
uploads/system/uploads/attachment_data/file/671187/Updated_
energy_and_emissions_projections_2017.pdf.
3 Source: https://assets.publishing.service.gov.uk/government/
uploads/system/uploads/attachment_data/file/729395/Ch4.pdf.
4 Source: https://www.theccc.org.uk/publication/reducing-uk-
emissions-2018-progress-report-to-parliament/.
5 Source: https://warwick.ac.uk/fac/soc/impact/gassecurity/.
6 Source: https://www.gov.uk/government/news/uk-energy-statistics-
2018-provisional-data.
7 https://www.gov.uk/government/organisations/department-for-
business-energy-and-industrial-strategy.
IGas Energy plc | Annual report and accounts 2018
9
Strategic ReportCorporate GovernanceFinancial Statements Value Creation
continued
From residents
to regulators
In conversation
with the new
Independent
Commissioner
for Shale Gas,
Natascha Engel
The UK shale gas industry is still
in its infancy. All the same, its
potential to secure our energy
supply and regenerate some of
our most deprived communities
means that it could be a real
game‑changer.
To realise this potential, local residents who are being
asked to host shale gas operators need to be more
involved, better informed and listened to – and to do
this, the Government recently established the role of
Commissioner for Shale Gas to provide a link and liaison
point between local residents, the shale gas industry, the
Regulators and Government.
The enormous potential
benefits that the
industry could bring
have been completely
lacking from any
discussion about
shale gas.
10
IGas Energy plc | Annual report and accounts 2018
Strategic Report
Corporate Governance
Financial Statements
A new role for new opportunities
Whilst independent of Government, the role supports
shale gas exploration as long as it is done safely and
sensitively. Because of our long history of oil and gas
extraction, we are lucky in the UK to have some of the
strongest and tightest regulations in the world.
Most importantly, the role recognised that often the
voices of people who lived in the communities most
directly affected by planning applications for shale gas
were often missing from a debate dominated by highly-
organised and well-funded campaigns against fracking.
It is these local residents and businesses that I have
been meeting with since my appointment and hearing
their frustration about the lack of rational debate and the
difficulty in accessing factual information about fracking.
This is the greatest frustration in the debate: the
enormous potential benefits that the industry could
bring have been completely lacking from any discussion
about shale gas.
How the industry can help communities
Lancashire, Cheshire, North Nottinghamshire, Derbyshire
and Yorkshire boast some of the UK’s most beautiful
countryside and tourism destinations. They are, though,
also some of our unemployment hotspots where youth
joblessness is endemic with young people moving
away in large numbers or remaining with few or no
opportunities at home.
For those people who care about meeting our
decarbonisation targets, domestically-sourced shale
gas can help here too: in the US where the shale gas
revolution has made America an energy super-power,
switching from coal to gas has seen a reduction in carbon
emissions of over 10% in the last decade.
Shale gas is the bridge
In Germany, nuclear energy is being abandoned while
everything is thrown into wind. This means relying on
lignite (coal) as a back-up. It’s no surprise that their
greenhouse gas emissions are rising. It demonstrates
again that gas is the only realistic bridge to a more
renewable energy future.
This is why a calm, rational, science-led national debate
on shale gas is essential – and post-Brexit, we simply
can’t afford not to have the debate. As our North Sea
reserves deplete, the prospect of a plentiful, reliable,
secure domestic energy supply is something too
important to ignore.
Outlook for the future
Shale gas exploration is still only at the prospecting
phase. We need this year, more than ever, to find out
what the size of the resource is that we have beneath
our feet and how easily we can get at it.
2019 is hopefully when the UK shale gas story will start
in earnest.
IGas Energy plc | Annual report and accounts 2018
11
Strategic ReportCorporate GovernanceFinancial Statements Operating Responsibly
From exploration
to restoration
BEIS/OGA
The OGA is the body responsible for
licensing and regulating the exploration
and development of the UK's oil and
gas resources.
Representatives from both bodies visited
both Springs Road and Tinker Lane sites
before and during drilling operations.
Health and Safety Executive (HSE)
The HSE monitors oil and gas operations
from a well integrity and site safety
perspective. It ensures that safe working
practices are adopted by onshore
operators.
The HSE audited the well design and
operational programme in advance of
drilling both the Tinker Lane and Springs
Road wells. They attended both sites on
a number of occasions.
Tinker Lane &
Springs Road
Before and during any
operation we are subject to
rigorous health and safety,
environmental and planning
permission processes
and regulations.
How do we ensure site
safety and regulatory
compliance?
The Company’s HSE Policy establishes
the overall principles that underpin
IGas' approach to Health Safety and
Environment. IGas’s HSE Policy is
supported by the HSE Standards.
Compliance with safety and
environmental standards starts with
in house training, for IGas personnel
and during the procurement process
for service providers. Adherence to
safety and environmental standards
is embedded within both working
and contractual relationships. Prior
to mobilisation to our development
sites, service providers undergo audits
and training to bed in IGas’s safety
and environmental standards. Before
working on site each individual visitor
completes a training course informing
them of the IGas Site Safety Rules as
well as the Regulatory and Planning
Conditions that the site works within.
Toolbox talks are held daily and at
the start of each new body of work.
These meetings focus on the methods
by which the work can be completed
safely and in an environmentally
sound manner.
Every person in the business is
empowered to report hazards.
These are logged centrally and closed
out promptly by the site manager who
takes forward learnings into improved
site wide and companywide practises.
12
IGas Energy plc | Annual report and accounts 2018 Environment Agency (EA)
The EA is the environmental regulator.
Onshore oil and gas exploratory
activities require environmental permits
which are issued by the EA.
During the drilling of the Tinker Lane
well, the Environment Agency conducted
two regulatory inspections as well as
other orientation visits. The purpose
of the inspections was to ensure
compliance with the site’s environmental
permits. The regulatory visits found
that the environmental permits were
complied with in all material aspects.
Mineral Planning Authority (MPA)
The MPA grants planning permission
for the location of any wells and well
pads, and impose conditions to ensure
that the impact on the use of the land
is acceptable.
The relevant MPA for Tinker Lane,
Nottinghamshire County Council,
conducted seven regulatory inspections
during operations on site. These
inspections were to ensure compliance
with the 52 planning conditions that
were attached to the planning consent.
An area of particular focus was IGas’
adherence to an agreed routing to and
from the site by Heavy Good Vehicles
(HGVs). Since commencing operations
in the East Midlands in November 2017
over 2,600 HGV movements to and from
the site occurred. Seven of these HGV
movements (c.0.09% of all movements)
were not in compliance with the agreed
routing. Overall during site operations,
we were in total compliance with all
other planning conditions.
Local communities
How we engage
and respond
The commencement of the
construction stage of our Tinker Lane
operation saw an increase in our local
community engagement. Over the
year, this took many forms including
Community Liaison Group (CLG)
meetings, site visits and leaflet drops.
The Tinker Lane CLG, established
in January 2016, met seven times
in 2018 with the group hosting
several guest speakers. These guests
included: representatives from IGas’
drilling team, who gave a detailed
presentation on what the local
community could expect to see and
hear over the drilling period; the
police, who explained and discussed
the police presence at the site
entrance, and; regular visits from both
Nottinghamshire County Council, the
EA and the HSE who all provided the
group with information relating to
their areas of expertise.
IGas also hosted several group visits
to site both during construction and
drilling. These groups included both
the Tinker Lane and Springs Road
CLGs, representatives from local
resident groups, the media and local
politicians and councillors.
In addition, and to coincide with
the commencement of the drilling
programme, IGas staff hand delivered
1,500 leaflets to several villages
around the site including Blyth,
Barnby Moor, Ranskill, Torworth and
Sutton cum Lound. This allowed
us to have several conversations
with locals and not only answer
any questions about the operation
but also allay many concerns that
people had.
Further details on all our projects can
be found at www.igas‑engage.co.uk
13
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Chief Executive’s Statement
From consolidation
to future foundations
2018 was a year of
delivery, completing
a number of projects
as well as taking further
steps to improve our
operating and production
efficiencies. We are
generating free cash
flow and took proactive
steps to invest into
our producing and
development assets.
Stephen Bowler
Chief Executive Officer
The increase in the oil price helped to
boost cash flows from our producing
assets, enabling us to invest in a number
of sanctioned projects and advance our
development ‘hopper’ by accelerating third
party field development studies preparing for
execution in 2019 and beyond.
Operational Performance
Group production averaged 2,258 boepd for
the year. Production for the first five months
of the year was ahead of budget but was
impacted by the shut-in of a water injection
well at our Stockbridge field in August 2018.
The injection well was brought back online
and we are considering additional options for
increasing water disposal capacity to uplift
production. We successfully completed the
Albury gas-to-grid project with full production
start-up and gas export to the grid at the end
of November 2018. We continue to progress
the Welton water injection project building
upon the success of the pilot results.
Read more about our marketplace
see page 4
In 2018, we have undertaken a systematic
review of our production portfolio, including
identifying optimisation opportunities to
enhance production and reserves. To aid
this exercise we have carried out a series
of field studies. These scoping studies have
highlighted a number of opportunities with
the most promising opportunities requiring
a more detailed engineering evaluation
and assessment before they are financial
investment decision (FID) ready. We will
continue to advance these over the next
12 months.
Following these studies, we commissioned
an independent Competent Persons Report
(CPR) by DeGolyer & MacNaughton (D&M)
of our reserves and resources. There has
been a significant 2P reserves replacement
of over 200% in 2018 based on cumulative
production of 0.82 MMboe in the year.
We began our shale appraisal campaign
of the Gainsborough Trough basin in North
Nottinghamshire, in the fourth quarter of
2018. It is an integrated exploration and
appraisal programme to better define the
basin consisting of the margin sited well
at Tinker Lane and a basin centred well at
Springs Road.
We spudded the Tinker Lane well on
27 November 2018 and reached total depth
(TD) on 17 December 2018, significantly ahead
of schedule. Whilst we did not encounter
the Bowland Shale, the preliminary tests on
shale samples from within the Millstone Grit
Group are encouraging for the potential gas
resources in the Gainsborough Trough basin.
The analysis of these samples is still subject
to further testing and validation. The results
of this well will help calibrate our geological
models of the region and importantly has
demonstrated further improvements in drilling
performance, which will be an important
component of commerciality.
14
IGas Energy plc | Annual report and accounts 2018 We believe that it is right to utilise our
domestic gas resources to the maximum
extent and exploring further the potential
for onshore gas production from shale rock
formations in the UK, where it is economically
efficient, and where environmental impacts
are robustly regulated.
The well has now been plugged and
abandoned and preparations are being made
to fully restore the site.
We mobilised the equipment to Springs
Road in early January 2019 and spudded the
well on 22 January 2019. In mid-February,
we encountered shales on prognosis, at
c.2,200 metres depth and drilled through
a hydrocarbon bearing shale sequence of
over 250 metres, including the upper and
lower Bowland Shale. TD has been reached
on 22 March 2019 at 3,500 metres after
encountering all three targets – Bowland
Shale, Millstone Grit and Arundian shales.
Significant gas indications were observed
throughout the shale section and additionally
within sands in the Millstone Grit sequence
and the Arundian shales. The cores and
wireline logs will now undergo a suite of
analysis the first results of which should be
available in the second quarter of 2019.
In the North West, we were refused planning
permission in January 2018 for a simple
drill stem test, at our existing Ellesmere Port
site, by Cheshire West and Chester Council
(CWaCC) contrary to their planning officer's
recommendations and despite receiving
no objections from any statutory or non-
statutory technical consultees.
We made an application to appeal the
decision, which was accepted, and a public
inquiry took place over a period of 12 days in
January, February and March 2019. Following
further written submissions from all parties,
the Planning Inspector will opine on the
representations of the various parties and
determine if the planning application should
be allowed or refused.
No further activity in the PEDL licences that
fall within the CWaCC Planning Committee
will be undertaken until the outcome of the
Ellesmere Port appeal is known.
Did you know?
Today we import roughly 50% of our gas,
and by 2035 that figure rises to nearly 75%
Our values
Respect
Respect is paramount, for
our people, our environment,
our partners and the safety
of others.
Performance
Performing to the highest standards
internally and externally and
delivering against our targets.
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.
Collaboration
We take on challenges and find
solutions through mutual trust,
knowledge sharing and teamwork.
Commitment
We are fully committed to preserving
the environment and providing safe
and healthy working conditions.
UK Onshore Shale Development
On 24 July 2018, Cuadrilla received final
hydraulic fracture consent from BEIS for its
first horizontal shale gas exploration well at
its Preston New Road site in Lancashire.
They commenced their hydraulic fracture
programme on 13 October 2018 and
announced first gas on 2 November 2018.
They have repeatedly seen natural gas
flowing back to surface along with the water
injected during the fracturing process and this
flow of gas was earlier than expected. Whilst
there have been undoubted challenges
and restrictions in operating within what
is acknowledged to be a very conservative
micro-seismic traffic red light threshold (set
at just 0.5 on the Richter Scale), this early
gas flow is a hugely encouraging signal of
the potential locked up in this natural gas
resource.
Following two successful appeals, INEOS
has permission for two exploration wells in
Derbyshire and South Yorkshire, as part of
their appraisal programme.
15
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Chief Executive’s Statement
continued
IGas in the Community
We have a responsibility to work in
partnership with the communities in which
we operate and we aspire to be a good
neighbour by respecting the people and
communities we impact and being sensitive
to their needs.
To be successful, we need to work with
communities and build respectful, long-
term relationships. By doing so we better
understand local concerns and how we can
work together to minimise disruption to
peoples’ lives, and where we make mistakes:
learning from these will help us to constantly
improve our engagement approach.
The IGas Community Fund is now in its
eleventh year and continues to help make
a positive difference to community and
voluntary organisations. Read more about
projects that have benefited from the IGas
Community Fund on p30-31.
People
In February 2019, we announced that John
Blaymires, Chief Operating Officer, will retire
from the Company on the completion of the
Springs Road vertical well.
John has been a core member of the senior
team at IGas for the last eight years and has
helped to build the operational capacity
we have today. We are all grateful for his
valued contribution in that time and wish
him well in his retirement. John’s day-to-
day responsibilities have been taken on
by Ross Glover, Development Director,
Chris Beard, Production Director and Ross
Pearson, Technical Director who all joined
the Executive Committee in February 2019.
They bring highly complementary skills to the
Executive as we move towards a very exciting
period for the business in 2019 and beyond.
Outlook
2018 was undeniably a significant year
for shale exploration in the UK with the
commencement of hydraulic fracturing at
Preston New Road in Lancashire alongside the
commencement of our appraisal programme
in the Gainsborough Trough. We believe
that, safely and responsibly produced, shale
gas can be an important future resource for
the UK. With over 80% of UK households
using gas for heating, c.40% of electricity
generation and industry using it to make vital
products, it is not a case of whether we need
to use gas but where we should source it
from.
We strive to employ and develop a strong
and motivated workforce, develop local
supply chains and work closely with our local
communities to ensure they share in the
benefits our industry can deliver.
We are highly encouraged by the initial
results of our exploration programme in
the Gainsborough Trough basin and look
forward to completing the interpretation of
the complete data suite from the wells at
both Tinker Lane and Springs Road. This will
help refine our work programme in the East
Midlands for the rest of the year.
Across our existing assets in the East Midlands
and the Weald Basin, we are advancing
projects and taking them through FEED
studies.
Whilst challenges in some areas of onshore
planning remain, we are confident in our
ability to progress the development of our
assets. Significant opportunity exists within
our portfolio but in order to carefully manage
our cash, we will be prudent in bringing
forward projects that have attractive returns
at current commodity prices.
Stephen Bowler
Chief Executive Officer
16
IGas Energy plc | Annual report and accounts 2018 Operational Review
From operation
to efficiency
Continued emphasis
on identifying
opportunities to
enhance production
and reduce operating
expenditure has
resulted in a pipeline
of maturing future
investment projects
and a 2P reserves
replacement of over
200% in 2018.
In addition to successfully
bringing the Albury gas
project on‑stream, the
Production business
was largely focused
on maintenance and
integrity activities on our
facilities and pipelines.
The Shale Development
group advanced the
Tinker Lane and Springs
Road well projects with
encouraging results in
terms of performance
and preliminary gas
indications.
Production
Average net production for the year was
2,258 boepd following the execution of
the conventional capital expenditure
programme; production gains were achieved
through well optimisation and increased
production efficiency across multiple fields.
These production levels were attained
despite the impact of reduced water
disposal capacity at the Stockbridge field
that prevented the reinstatement of a further
c.100 boepd. As ever, all of the teams have
worked hard across the portfolio.
The aim of the Stockbridge production
recovery programme was to debottleneck
the water management constraints at
the field to create additional production
capacity, whilst also returning existing wells
to production. On the whole, the five well
project program was executed in line with
budget and schedule, with successful results
arising from the intervention work on four
wells and the effective drilling of the STK19
side-track well. However, the sidetrack failed
to provide the additional water injection
capacity we had anticipated which meant
the full benefit of the project could not be
realised and c.100 boepd remains shut-in.
Measures are being pursued to unlock this
additional potential and alleviate the water
handling constraints.
Our advancement of the Welton water
injection scheme continued during 2018
with the completion of an additional
injection well plus enhanced injection
capacity. Early indications, such as well
performance and pressure response, are in
line with prognosis leading to the approval
of the next stage of the development early
in 2019. A number of studies have been
conducted to look at the broader issue of
water management in the East Midland fields
and how production and recovery could be
optimised whilst lowering opex costs across
the portfolio. Similar capacity constraints
regarding water disposal as to those existing
in the Weald also exist in the East Midlands
and we have embarked upon an investment
programme to address this to ensure that
oil production and ultimately recovery are
improved.
At Albury, the power generation element
of the development was accelerated
allowing electricity export to commence in
July 2018, four months ahead of schedule.
At the end of November 2018, in line
with the project schedule the ‘Gas-to-
Grid’ scheme came online following the
completion of the gas treatment, network
entry and network pipeline enabling full
capacity export to occur. The site now
has a combined export capability of over
170 boepd.
During the year we continued to invest
in our core assets which included routine
maintenance and integrity activities on our
facilities and pipelines, site facility upgrades
and further extension of the digital oilfield
programme.
Over the last 12 months, we have undertaken
a systematic review of our production
portfolio, both fields and the associated
infrastructure, in order to ascertain any
performance or capacity issues and how
these might be mitigated. We have also
focused on identifying optimisation
opportunities to enhance production and
reserves and reduce operating expenditure.
A series of field studies have highlighted a
number of opportunities the most promising
of which are being advanced through detailed
engineering evaluation and assessment
before they are fully FID ready.
We will continue to advance these over the
next 6-12 months to ensure we have a robust
suite of attractive investment opportunities
underpinning the business. The success of
the Albury development has corroborated
our views on some of the other stranded gas
opportunities within our portfolio and we
are now putting increased focus into their
advancement in 2019 and beyond.
In May 2018, we announced the potential
sale of certain non-core assets to Onshore
Petroleum Limited (OPL). We believe the OGA
will not give their consent to the proposed
transaction and are therefore in the process
of exploring alternative options with OPL and
the OGA as to the structure and form of a
transaction.
17
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Operational Review
continued
IGas Net Reserves and Resources
IGas’ reserves and resources were determined
through an independent reserve assessment
conducted by D&M as part of a CPR.
Net Reserves and Resources (MMboe)
1P
2P
2C3
As at 31 Dec 20171 8.11 13.64 22.21
As at 31 Dec 20182 9.78 14.56 19.20
Proved (1P) and probable (2P) developed
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.
As these are mature fields, their historical
performances have reliable declines in
producing-rate trends and the developed
reserves have been estimated by the
application of appropriate decline curve
analysis with a cut-off defined as the limits
of economic production. The developed,
producing 2P reserves account for over
90% of the total 2P reserves.
Probable (2P) undeveloped reserves were
estimated for a number of incremental
projects by using analogy type-well data
of nearby wells completed in the same
reservoirs. These incremental projects are
actively being matured and have been
determined to be more likely than not to
be economically recoverable with some
planned further capital investment.
There has been significant 2P reserves
replacement ratio of over 200% in 2018
based on a cumulative production of 0.82
MMboe in 2018. The reserves growth is due
largely to a continued focus on optimising
reservoir management, a combination
of planned future investments in non-
producing and undeveloped reserves and
movement of contingent resources to
reserves through actual and planned capital
investment.
The D&M independent evaluation also
included an estimate of 2C net contingent
conventional resources of 19.2 MMboe
for IGas properties, using a conversion
factor of 5.8 Mcf/boe for gas resources.
These resources include conventional oil
and gas resources within producing and
undeveloped fields that can be readily
developed once the particular contingencies
are removed, should they be commercial or
18
Digital Transformation
Back in 2014, the IGas Information
Systems team were asked how we could
use technology to better manage our
operations, improve efficiencies and
manage information thus allowing us
to improve business processes, provide
standardisation and ensure quality of
information across all areas of the business.
This was the beginning of our journey of
embracing Digital Transformation to provide
the ability to monitor, manage and optimise
the business more effectively.
The initiative commenced with the
deployment of three key enterprise wide
technologies to underpin these objectives.
We focused initially on establishing an
effective Information Management system
by developing workflows, streamlining
business processes and providing a
metadata driven information management
system.
both for our remaining producing assets
but also in anticipation of the shale
development progress.
The third element was the adoption of
a Geographic Information System (GIS)
technology across the business. This
provides location based information and
management and will be made available
across the Company through a common
network. A GIS based system combined
with the Information System provides a
powerful way of integrating and accessing
all relevant data locally and quickly.
The investment in an enterprise-wide
approach has enabled us to deliver
improvements across the business from
HR, finance, maintenance management,
production monitoring and reporting and
managing all our regulatory obligations.
Utilising existing people and resources
we have delivered these platforms at
a significantly lower cost than buying
them ‘off the shelf’ or employing external
consultants.
Key to enhanced business and asset
performance was the development of an
in-house supervisory control and data
acquisition system, Ignition. This facilitates
real time monitoring and management
of some 70% of our assets to optimise
production and to minimise downtime.
We will continue to develop this further 70%
of our assets have digital monitoring
capabilities
1 IGas reported reserve and resource estimates published in 2017 Annual report production in 2018 of 0.82 MMboe.
2 D&M estimates as of 31 December 2018 from the CPR, production in 2018 of 0.82 MMboe.
3 2C decrease due largely to successful capital projects in 2018 moving the resources into reserves.
IGas Energy plc | Annual report and accounts 2018
otherwise. The decrease in resources during
the year is largely due to relinquishment of
a non-producing asset and maturing capital
projects that were advanced in 2018 moving
the relevant resources into the reserve
category.
The prospective resource associated with
shale exploration/appraisal is not included
in this assessment.
Development/Appraisal Assets
During 2018 good progress was made in
developing our shale acreage.
In the East Midlands, we continued with
the exploration of the Gainsborough Trough
area.
Construction of the Tinker Lane site and
drilling of the stratigraphic well was
completed in 2018. The purpose of the well
was to delineate the edge of the shale in
the Gainsborough Trough basin and fulfil a
licence obligation. Whilst the target Bowland
Shale was not present in the well, the
indications of hydrocarbons encountered
within the Millstone Grit Group of shales are
encouraging for the potential gas resources
throughout the Gainsborough Trough basin.
The well has helped to better calibrate the
seismic interpretation and define the margin
of the basin. The well has now been plugged
and abandoned and plans are being drawn
up to fully restore the site to its former
condition. It is anticipated that this will be
carried out in mid-2019.
Site construction and the drilling of the well
was carried out successfully, under stringent
environmental and planning conditions.
The site hosted multiple visits by the various
industry regulators at different stages of
the operation. Throughout the operation
there were no material breaches of any of
the conditions. The site has been subject
to significant environmental monitoring
over the past two years, with data on noise,
ground water and ground gas being regularly
collected and analysed. The analysis of this
data demonstrates that the site has had no
significant environmental impact during its
existence and no environmental effects will
remain once the site has been restored.
Site construction at our Springs Road site
was completed in 2018. Drilling of the
first of two wells at the site commenced
in 2019. The purpose of the first well is to
core and log various intervals in the centre
of the Gainsborough Trough basin. As with
Tinker Lane, the site is subject to stringent
environmental and planning conditions. Site
construction was carried out with no material
breaches of any of the conditions.
As with Tinker Lane, the Springs Road drilling
performance has been very encouraging
with improved rates of penetration
leading to better than anticipated drilling
performance and lower costs. The learnings
from these initial wells will be incorporated
into subsequent activity and demonstrate
that such efficiencies will result in reduced
time and cost of future wells with all the
attendant benefits.
We reached TD at 3,500 metres after
encountering all three targets – Bowland
Shale, Millstone Grit and Arundian shales.
We encountered a hydrocarbon bearing
shale sequence of over 250 metres,
including the upper and lower Bowland
Shale. Significant gas indications were
observed throughout the shale section and
additionally within sands in the Millstone
Grit sequence. A video showing some
recovered core from the well effervescing
gas when immersed in water can be viewed
here: https://youtu.be/dnZDrTLWiyQ .
We have now completed this phase of data
acquisition which included the recovery of
approximately 150m of shale core and an
extensive wireline logging program across
the Millstone Grit, and Upper and Lower
Bowland Shale. Petrophysical and core
analysis is currently being conducted,
which will give us further insight into
the resource potential and shale
characterisation that will be utilised
for future appraisal and development
of the wider East Midlands area.
Having encountered both primary and
secondary targets on prognosis we continue
to drill into the tertiary target, to prove
up the potential for multiple hydrocarbon
bearing horizons within the Gainsborough
Trough. The rate of drilling at both Tinker
Lane and Springs Road (down to the primary
target) were quicker than anticipated, with
corresponding cost savings. This is highly
encouraging for future cost efficiencies.
The Tinker Lane and Springs Road results will
form the foundation of a pilot development
in the East Midlands which looks to leverage
the advantage our existing infrastructure and
unique UK onshore operational capability
offers. The first phase of our development
indicates significant potential within the
Did you know?
The food and beverages sector was the
second biggest industrial consumer of
natural gas in 2017
region to expand our existing operations
around a pilot shale development that could
see sustained production over the long-term.
Based on average gas consumption rates,
this would supply the needs of hundreds of
thousands of UK homes for many years. The
development would yield significant benefit
for the local economy in the way of highly
skilled, highly paid jobs.
Our commitment to the local area would
ensure the associated environmental
impacts are minimised to the lowest possible
level by way of investment in supporting
infrastructure with innovative solutions.
The UK’s long established, world class
regulatory framework and our commitment
to sustainable development ensures this
exciting opportunity will bring a renewed
focus and prosperity to many areas in
the UK.
In the North West, we appealed against the
decision by CWaCC to refuse our planning
application to carry out tests on the Pentre
Chert Formation in our existing well at
Ellesmere Port. The appeal was heard by way
of a planning inquiry which began in January
2019. The Planning Inspector’s decision to
allow or to refuse the appeal is expected in
the second quarter of 2019.
The shale operations have the benefit of an
extensive injunction that protects three sites,
Springs Road, Tinker Lane and Ellesmere Port
and access along the public highway to both
Springs Road and Tinker Lane. The injunction
was obtained in the second half of 2018
and has resulted in significantly fewer
obstructive actions.
Following the refinancing in 2017, 2018 has
been a year in which the foundations for
future growth, in both the production and
shale business, has been established. All the
teams are clearly committed to advancing
our activities safely, environmentally
responsibly and cost effectively.
19
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Financial Review
From investment
to cashflow
We are generating
free cash flow at
current oil prices
and will look to
selectively reinvest
capital into our
portfolio of assets
to deliver returns
to all stakeholders.
Julian Tedder
Chief Financial Officer
Oil prices remained
volatile in 2018 with
the price of Brent crude
increasing from c.$66/bbl
at the beginning of the
year to a high of $86/bbl
in October 2018 before
falling to a low of $50/
bbl in December 2018.
Average oil price for 2018
was $71/bbl (2017: $54/
bbl) which had a positive
impact on our revenues.
20
The average GBP/USD exchange rate for the
year was £1: $1.34 (2017: £1: $1.29) which
negatively impacted revenue for the year.
For the year ended 31 December 2018
adjusted EBITDA was £10.8 million
(2017: £9.2 million) whilst a loss was
recognised from continuing activities
after tax of £21.4 million (2017: profit
£15.9 million). The main factors driving
the movements between the years were
as follows:
• Revenues increased to £42.9 million
(2017: £35.8 million) principally due to
higher oil prices, partially offset by a
4% decrease in volumes and a stronger
average sterling to US dollar exchange rate;
• Other costs of sales increased to
£21.9 million (2017: £21.4 million)
mainly due to higher production and
transportation costs partially offset by
lower water handling costs and third
party purchases. The higher costs also
include operating costs for the Albury
gas field which commenced production
in November 2018;
• Administrative expenses decreased
by £0.9 million to £5.5 million (2017:
£6.4 million). Costs were lower in 2018
than in 2017 principally due to a higher
capitalisation of costs from increased
capital activity and a greater recovery
of costs from our joint venture partners;
IGas Energy plc | Annual report and accounts 2018 Adjusted EBITDA in the year was
£10.8 million (2017: £9.2 million).
Gross profit for the year was £14.2 million
(2017: £6.5 million). Administrative costs
decreased by £0.9 million to £5.5 million
(2017: £6.4 million) principally due
to a higher capitalisation of costs
from increased capital activity and a
greater recovery of costs from our joint
venture partners.
Exploration costs written-off of £29.1
million exploration expense includes the
write-off of costs relating to PEDL 145 (Doe
Green) where a long-term test relating has
concluded that there is not the potential for
a commercial development, an Albury well
not being used in the current development
and various licence relinquishments (2017:
£0.1 million);
Other costs/income were £nil
(2017: £0.2 million income).
Net finance costs were £3.9 million (2017:
£6.2 million) primarily related to interest
on borrowings of £1.9 million (2017:
£5.4 million) which was lower following
the capital restructure in April 2017, and
a net foreign exchange loss of £0.8 million,
principally on US$ denominated debt and
bank balances (2017: gain £0.2 million).
The Group realised a net gain on
restructuring of £4.9 million in 2017.
The Group made a loss on oil price
derivatives of £0.7 million for the year
due to the increase in underlying prices
(2017: loss £2.1 million) and a loss on foreign
exchange hedges of £0.2 million (2017: £nil).
Cash flow
Net cash generated from operating activities
for the year was £12.9 million (2017:
£6.7 million). The increase was primarily
due to higher revenue and a decrease in
administrative expenses offset by higher
counter party payments in respect of
realised hedges.
• The £29.1 million exploration expense
includes the write-off of costs relating to
PEDL 145 (Doe Green) where a long-term
test has concluded that there is not the
potential for a commercial development,
an Albury well not being used in the
current development and various licence
relinquishments (2017: £0.1 million related
to relinquished licences); and
• A tax credit of £3.7 million was recognised
mainly due to the recognition of a deferred
tax asset relating to ring-fence tax losses
(2017: a tax credit of £19.1 million mainly
due to the recognition of a deferred tax
asset relating to ring-fence tax losses).
Income statement
The Group recognised revenues of
£42.9 million for the year (2017:
£35.8 million). Group production for the year
averaged 2,258 boepd (2017: 2,335 boepd).
Revenues included £2.4 million (2017:
£3.0 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.
The average pre-hedge realised price for
the year was $67.0/bbl (2017: $51.0/bbl)
and post-hedge $57.4/bbl (2017: $51.3/
bbl). A £5.5 million loss was realised on
hedges during the year (2017: realised
loss of £0.2 million). The average GBP/USD
exchange rate for the year was £1: $1.34
(2017: £1: $1.29) which negatively impacted
revenue for the year.
Cost of sales for the year were £28.8
million (2017: £29.3 million) including
depreciation, depletion and amortisation
(DD&A) of £6.8 million (2017: £7.8 million),
and operating costs of £21.9 million (2017:
£21.4 million). Operating costs include a cost
of £2.3 million (2017: £2.8 million) relating
to third party oil. The contribution received
from processing this third party oil was £0.2
million (2017: £0.2 million).
Operating costs per barrel of oil equivalent
(boe) were £23.6 ($31.9), excluding third
party costs (2017: £21.9 ($28.2) per boe).
Operating costs per boe were higher in 2018
due to higher production and transportation
costs and lower volumes.
The Group invested £10.6 million
across its asset base during the year
(2017: £6.3 million). £8.1 million was
invested in our conventional assets including
the successful completion of the Albury gas-
to-grid project, the Welton water injection
project including the completion of an
additional water injection well, a sidetrack
at our Stockbridge site and investments
at other sites in order to upgrade our
site facilities, extend our digital oilfield
programme and maintain our production
at current levels. We invested £2.5 million
in unconventional assets in relation to our
shale development programme including the
Ellesmere Port appeal. Expenditure on our
Tinker Lane well was funded by a carry from
our joint venture partner and did not result
in a net cash outflow by IGas in 2018.
IGas repaid £1.7 million ($2.3 million) of
principal on borrowings to bondholders
during the year in accordance with
the terms of the bonds. (2017: repaid
£3.6 million ($4.6 million) and purchased
bonds with a face value of £1.8 million
($2.2 million). In 2017, IGas also carried out
a capital restructuring 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 paid £1.8 million ($2.3 million)
in interest (2017: £5.9 million ($7.3 million)).
To protect against the volatile oil price the
Group places commodity hedges for a period
of up to twelve months. The Group currently
has 525,000 barrels hedged for 2019 with
an average put price of $58.5/bbl with an
average premium cost of $2.50/bbl.
Cash and cash equivalents were £15.1 million
at the end of the year (2017: £15.7 million).
Balance sheet
Net assets were £161.7 million at
31 December 2018 (2017: £181.6 million)
with the decrease of £19.9 million arising
primarily from the loss for the year.
Intangible exploration and evaluation
assets decreased by £25.8 million primarily
as a result of amounts written-off of £29.1
million, offset by additions during the year
of £3.6 million.
21
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Financial Review
continued
capital expenditure in order to remain
within the Company's banking facilities.
All such mitigating actions are within
management's control.
Therefore, after making appropriate enquiries
and considering the risks described above,
the Directors have a reasonable expectation
that the Group has adequate resources to
continue in existence for the foreseeable
future. Thus they continue to adopt the
going concern basis of accounting in the
preparation of the financial statements.
Julian Tedder
Chief Financial Officer
At 31 December 2018, the Group has a
combined carried gross work programme
of up to $220 million (£170 million) ) (2017:
$240 million (£179 million)) from its partner,
INEOS Upstream Limited. In 2018 £9.2
million (2017: £3.0 million) gross costs were
carried, principally in relation to activities
at Tinker Lane and Springs Road, which
have not been included in the additions to
intangible exploration and evaluation assets
during the year.
Borrowings decreased from £21.2 million
to £21.0 million with repayments being
offset by an increase due to the impact of
a higher USD/GBP foreign exchange rate.
At 31 December 2018, the Group’s derivative
instruments had a net positive fair value
of £2.2 million due to a decrease in the
underlying Brent forward curve (2017: net
negative fair value of £2.8 million).
Other provisions decreased by £4.2 million
to £37.9 million. The overall decrease
of £4.2 million in the decommissioning
provision was principally due to a transfer
to liabilities held for sale of £9.9 million
offset by an increase of £4.7 million due to
a reassessment of future decommissioning
liabilities following an independent study.
Net debt at the year end, being the
nominal value of borrowings less cash
and cash equivalents, was £6.4 million
(2017: £6.2 million).
22
Disposal of Non-core Fields
In May 2018, we announced the potential
sale of certain non-core assets to Onshore
Petroleum Limited (OPL). We believe the
OGA will not give their consent to the
proposed transaction and are therefore in
the process of exploring alternative options
with OPL and the OGA as to the structure
and form of a transaction.
Going Concern
The Group continues to closely monitor
and manage its liquidity risks including the
continued use of both oil and interest rate
derivatives. 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, management’s best
estimate of foreign exchange rates and the
Group's borrowings. Sensitivities are run
to reflect different scenarios including, but
not limited to, possible further reductions
in commodity prices, strengthening of
sterling and reductions in forecast oil and
gas production rates. The Group’s base
case 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.
To manage the impact of the most extreme
downside scenarios modelled, management
would have to take action, including delaying
IGas Energy plc | Annual report and accounts 2018 Realised price per barrel
$57.4
Realised price per barrel
$16.4 Net back to IGas per BOE
$9.1 G&A per BOE
$23.6 Other operating cost
$4.4 Well services
$3.9 Transportation & storage
Key financial statistics
Adjusted EBITDA and underlying operating profit1
Year ended
31 December 2018
(£m)
Year ended
31 December 2017
(£m)
Revenues
Adjusted EBITDA1
Underlying operating profit1
Gain/(loss) after tax
42.9
10.8
4.0
(21.4)
Net cash from operating activities
12.9
Net debt2
Cash and cash equivalents
Net assets
6.4
15.1
161.7
35.8
9.2
1.3
15.5
6.7
6.2
15.7
181.6
Net debt
31 December 2018
£m
31 December 2017
£m
Debt (nominal value excluding
capitalised expenses)
Cash and cash equivalents
Net debt
(21.5)
15.1
(6.4)
(21.9)
15.7
(6.2)
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
2018
£m
(25.1)
3.8
6.9
29.1
14.7
0.8
–
–
Unrealised (gain)/loss on hedges
(4.7)
Adjusted EBITDA
10.8
Underlying operating profit1
Operating loss
Share-based payment charge
Redundancy costs
Impairments/write-offs
Unrealised loss on hedges
Underlying operating profit
2018
£m
(21.2)
0.8
–
29.1
(4.7)
4.0
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.
2017
£m
(3.3)
6.2
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
23
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Key Performance Indicators
From performance
to monitoring
Non-Financial
Lost Time Injuries (number)
Progress on Five Year Shale Development plan
1
20181
20171
20161
20152
2014/153
1
2
0
0
1
Reason for choice
Health and safety is of paramount
importance to us in providing the highest
level of protection to all our stakeholders.
20181
20171
20161
20152
Completed site construction at both Tinker Lane and Springs Road; drilled a vertical well
at Tinker Lane and plugged and abandoned the well following completion of drilling; and
appealed the decision for flow tests at Ellesmere Port following rejection of the application
by CWaCC
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 2 wells (horizontal and vertical) in PEDL 139/140 (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 139/140
(Springs Road); 14th Round licence applications; and secured INEOS farm-in
2014/153
Drilled Ellesmere Port-1; and issued five year shale development plan
The Shale Development plan is key to delivering shareholder value and delivering against our
strategy.
How we calculate
How we measure
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 two wells in the East Midlands having received planning
permissions and commenced site constructions in 2017. Unfortunately discharging planning
conditions took longer than anticipated and we were only able to drill the Tinker Lane well in
2018, with the Springs Road well commencing drilling in January 2019. The planning application
for a well test at Ellesmere Port was refused at the planning committee meeting on 25 January
2018. We appealed this decision and the Planning Inspector is hearing the appeal in early 2019.
This measure is used to determine the level of annual cash bonus.
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 LTI’s but when we do have an
LTI this is fully investigated with clear remedial
action as required and communication of
learnings to the organisation.
Target and results for 2018
The target was to have zero LTI’s and this
was not achieved in the year. We had one
LTI which was thoroughly investigated and
meetings were held across the organisation
to ensure the lessons were learned from the
investigations. We have again maintained
our ISO 9001 and 14001 accreditation with
no major non-conformances identified
and successfully transitioned to the new
standards in September 2018.
Remuneration link
This measure is used to determine the level
of annual cash bonus.
Link to strategy
24
IGas Energy plc | Annual report and accounts 2018 A reminder of our strategy
Reserves and production
growth
Developing shale
portfolio
Local and national
engagement
Financial
Production (boepd)
2,258 boe/d
20181
20171
20161
20152
2014/153
Operating costs ($/boe)
$31.9/boe
Operating cash flow (£'000)
£12.9m
2,258 boe/d
20181
2,335 boe/d
20171
2,355 boe/d
20161
2,570 boe/d
20152,4
2,737 boe/d
2014/153
$31.9/boe
20181
$28.5/boe
20171
$28.8/boe
20161
$24.6/boe
20151
$34.6/boe
2014/152
£12.9m
£6.7m
£12.4m
£1.0m
£26.5m
Reason for choice
The Group aims to maintain production levels
to provide operating cashflow 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 2018
Production for 2018 was 2,258 boe/d which
was marginally below the target of 2,300
boe/d. Production gains were achieved
through well optimisation and increased
production efficiency across multiple fields
but the principal reason for the shortfall
was the impact of reduced water disposal
capacity at the Stockbridge field that
prevented the reinstatement of a further
c.100 boepd.
Remuneration link
Operating costs for 2018 were $31.9/boe
which achieved the target set for the year.
Absolute operating costs were below budget
for the year but when combined with the
lower production rate and the continuing
weak sterling against the US dollar, the target
per barrel rate was achieved.
Operating cash flow for 2018 was £12.9m
which achieved the target set for the year.
An increase in oil price during the year
improved operating cash flow but this was
offset by below budget production in the
second half of the year.
This measure is used to determine the level
of annual cash bonus.
This measure is used to determine the level
of annual cash bonus.
This measure is not used to determine the
level of annual cash bonus.
Link to strategy
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.
25
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Risk and Uncertainties
From identification
to management
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 on an annual basis.
Risk management framework
Board
Principal
committees
Audit Committee
IGas teams & risk owners
Key Risk Areas
The risks around our existing business are set out in more detail on pages 28 and 29 but the key
risk areas can be identified as being associated with the following:
Strategic
Operational
Financial
Making sure we apply
the appropriate strategies
in certain situations and
ensuring we deliver on
strategic objectives.
Successfully developing
oil and gas through
our production and
development assets.
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
(see risk management process below).
Risk matrix
Key
Strategic
Risk spread
Financial
Operational
26
Risk management process
The risk management process utilises
risk registers held within the production
and development business and these are
consolidated at a corporate level. Key risks
in these registers have assigned owners
and are renewed as part of the quarterly
business performance reviews. The risk
owners believe that the risks are monitored,
mitigated and appropriate controls are
implemented. The Audit Committee has
delegated authority to the Excom to manage
the risks.
IGas Energy plc | Annual report and accounts 2018 Risk Scale
h
g
i
H
h
g
i
h
-
m
u
d
e
M
i
i
m
u
d
e
M
i
m
u
d
e
m
w
o
L
-
Risks
1. Exposure to political risk
2. Strategy performance
3. Planning, environmental, licensing
and other permitting risks
4. Oil or gas production
5. Shale gas resources
6. Loss of key staff
7. Oil market price risk
8. Gas and electricity market price risk
9. Exchange rate risk
10. Liquidity risk
11. Capital risk
1
7
3
9
4
10
5
2
2
6
11
8
w
o
L
e
d
u
t
i
n
g
a
M
Low
Low-medium
Medium
Medium-high
High
Likelihood
Mapping risks against strategy
Key
Change in risk
Reserves and
production growth
Local and national
engagement
Developing shale
portfolio
Increased risk
Stable risk / No change
Decreased risk
8
6
6
7
6
1
1
5
5
10
2
2
11
3
4
10
2
4
3
9
9
3
27
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Risk and Uncertainties
continued
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. Regular
meetings with shareholders and potential
shareholders.
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.
CEO –
Stephen
Bowler
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.
Production
Director –
Chris Beard
5. Shale gas resources
Successful development of shale gas
resources is not achieved.
Development
Director –
Ross Glover
6. Loss of key staff
Loss of key staff.
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. Continual
dialogue with local authorities to understand
requirements.
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.
Direction of change
A reminder of our strategy
Increase
No change
Decrease
28
Reserves and production growth
Developing shale portfolio
Local and national engagement
IGas Energy plc | Annual report and accounts 2018
Risk
Financial
Executive
ownership
Mitigation
Change
Strategic
link
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.
CFO –
Julian Tedder
The Group has hedged a total of 525,000
barrels over the year to 31 December 2019,
through a mixture of puts and zero cost
collars.
The Board seeks to underpin the Group’s
future cash flows by entering into a
combination of put and call options for
baseline production to cover 12 months
forward. The Board will continue to monitor
the benefits of such hedging.
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.
CFO –
Julian Tedder
The Board monitors the benefit of entering
into contracts at the appropriate time to
protect against gas and electricity price
volatility.
9. Exchange rate risk
Exposure to exchange rate risk through both
its major source of revenue and its major
borrowings being priced in $.
CFO –
Julian Tedder
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.
10. Liquidity risk
Exposure, through its operations,
to liquidity risk.
CFO –
Julian Tedder
The Board regularly reviews the Group’s
cash forecasts and the adequacy of
available facilities to meet the Group’s
cash requirements.
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.
CEO –
Julian Tedder
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.
29
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Sustainable and Responsible Business
From regulation
to communication
Community Engagement
Engaging with communities local to our
sites, both new and old, is a central ethos
of IGas. Whether these are new sites
being planned, sites at an early stage
of development or sites being further
developed after years of operations, this
work takes a number of forms including
leaflet deliveries, public exhibitions, site
visits, town hall meetings, presentations
and door‑knocking. These activities are
particularly important in localities who
have not benefited from the experience
of having an oil and gas site nearby
in the past as it allows us to work in
partnership with communities to ensure
our local knowledge allows us to avoid
any unnecessary impacts. As well as this,
it provides the opportunity to explain our
operations in more detail and allay any
concerns people might have.
As a result of ‘gas‑to‑grid’ Albury project,
over the last year we were also required
to work in conjunction with a third party –
Southern Gas Networks (SGN) – to engage
with a local community. Whilst we held
our own public exhibition in relation to
this project our expert staff also attended
SGN’s public exhibition. While this
operation had an unavoidable impact on
the local community in the form of some
road closures, our work with SGN, and the
work that we have undertaken over several
preceding years, meant that the local
community remained well informed and
accommodating of our work and the long‑
term benefits it would deliver.
Community Fund
Since its launch in 2008, the IGas Community
Fund has awarded almost £1 million to local
communities.
Another key method of community
engagement that IGas undertakes are
Community Liaison Group (CLG) meetings.
We currently run two, one associated with
our Tinker Lane site and one associated with
our Springs Road site. Over the course of
2018, IGas Energy facilitated seven Tinker
Lane CLG meetings and six Springs Road
CLG meetings. These meetings provide an
opportunity for IGas to answer questions
brought to meetings by local County, District
and Parish Councillors, and community
representatives that they have been asked
by the local community.
At IGas we also recognise the importance
of engaging with communities around our
existing sites. Though these sites are mostly
well established, we still recognise the
responsibility we have to being continually
accessible. As such, over the last year we
have responded to countless inquires
relating to our conventional assets and
have conducted three visits to established
sites. These visits were for members of the
local community, Parish Councils and local
academia groups and successfully ensured
that local people understand our operations
and can scrutinise us on both what we’re
doing and how we do it.
The Dunholme Trust
was recently the lucky
recipient of IGas
funding, what a huge
difference the input
of such funds can
make to a small local
charitable body.
The playground is absolutely amazing
and has transformed our Primary School
students play and learning time – it is
only thanks to generous funders like
IGas Community Fund that were able
to turn this project into a reality for our
students who all have complex physical
disabilities.
30
IGas Energy plc | Annual report and accounts 2018
Strategic Report
Corporate Governance
Financial Statements
I love being at the
forest school,
it's the best bit of
my week.
It was the funding
support from IGas that
resulted in a catalyst
of events that has had
an amazing impact on
the lives of the pupils.
The funding paid for
the materials and the
school contributed the
time and expertise of
the site team to build
an outdoor classroom.
IGas Energy plc | Annual report and accounts 2018
31
Sustainable and Responsible Business
continued
Local communities
Benjamin Adlard
Primary School
Health, safety, environment
and quality (HSEQ)
The health and safety of people, the
protection of the environment and compliance
with all applicable legal and internal
requirements, as well as industry best practice,
are critical to the overall success of IGas.
The Company seeks to ensure all waste
streams are recycled and not disposed
of in order to minimise the impact on the
environment. We regularly audit our waste
streams and work closely with our contractors
to ensure the appropriate recovery/recycle
options are used.
COMAH (Control of Major Accident Hazards
Regulations) sites remain an ongoing
programme for monitoring and improvements.
Following a number of Competent Authority
assessment visits no major non-compliances
have been identified.
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.
The Company was pleased to announce a
successful transition to ISO 9001/14001:2015
Standards in September 2018.
The Strategic Report, as set out on
pages 02 to 33, has been approved
by order of the Board.
Providing a safe working environment for all
of our staff is a business priority. Safe and
sustainable performance is monitored and
reported regularly. All required monitoring
and measuring activities associated with HSE
performance, including scheduled HSE audits,
took place as planned in 2018.
The Company has achieved all of its’ HSEQ
Leading Indicator KPIs and its’ incident
rate is substantially below published (HSE
Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations 2013 RIDDOR)
industry statistic rates, based on number of
employees and hours worked. The business
continues to drive improvements through
awareness campaigns and engagements
through its committee of Representatives for
Safety. This is demonstrated through IGas
achieving the ROSPA Presidents Award again,
representing 12 years of commitment to
Occupational Health and Safety.
We are committed to working with regulators
and within local communities to ensure that
all our activities are undertaken safely and
environmentally responsibly.
Operationally we were busy across the
business and we have highlighted some of
the numerous standards and guidelines that
we have to conform to as part of a drilling
operation on pages 12 and 13.
Whilst our activities are based on stringent
regulation and risk evaluations there was
a RIDDOR incident during the year which
resulted in an Improvement Notice being
issued by the HSE, which has been fully
addressed and closed out. The follow up
investigations have proved invaluable in
helping to identify areas for continuous,
ongoing improvement.
As an active member of UKOOG, we
participate in all Health and Safety Leadership
as well as Environmental Leadership working
Groups. The Health and Safety Leadership
Group seeks to drive safety improvements and
consistency of approach across the onshore
industry.
Benjamin Adlard Primary School is situated
in one of the most deprived areas in the
country. The school has had a number of
challenges over the years and whilst it
continues to have those challenges the
inception of a new Head Teacher’s vision
has resulted in an exceptionally safe and
supportive school for the children and
community it serves. One idea the staff
wanted to pursue was the use of the land
at the back of the school, whilst set on
a hillside there was a myriad of experiences
waiting for the pupils to explore which
would offer enrichment of language and
skills. However a lack of funding meant
the area continued to be unused and
overgrown. It was the funding support from
IGas Energy that resulted in a catalyst of
events that has had an amazing impact
on the lives of the pupils. The funding
paid for the materials and the school
contributed the time and expertise of the
site team to build an outdoor classroom.
Once completed a Teacher dedicated to
completing his Forest School Training was
brought into the fold and as they say the
rest is history… although the school had
already made a huge difference to the
lives of the pupils the inception of the
Forest School was the icing on the cake.
The school went on to win the Pearson
Teaching Award School of the Year for
Making a Difference.
32
IGas Energy plc | Annual report and accounts 2018 Strategic Report
Corporate Governance
Financial Statements
Our People
Organisation culture is one of the most
important attributes of any company.
A common understanding of clearly defined
goals, objectives and standards can motivate
employees to perform and engage with
their work, align behaviours to common
values, increase knowledge sharing, build
trust and increase productivity. Managers
and supervisors across all levels of an
organisation must understand the people
aspects of corporate culture and be equipped
with the tools to lead for success.
During 2018 IGas took the opportunity
to expand its well-established HSEQ
and governance training programmes to
introduce a company-wide Management
Development Programme for all leaders,
from first line supervisors, to team managers
and functional heads. Covering over 50 staff
(approximately one third of the workforce) the
Programme comprises an initial assessment
utilising a 360° feedback tool to establish
how each managers’ colleagues perceive
their performance against core behaviours
including communication, team leading,
people development, personal effectiveness
and decision making.
The training, conducted over three separate
days, provides an opportunity to practice and
embed the learned skills before moving on to
subsequent, and more challenging, modules.
Broadly themed under ‘Leading for Success’,
’Supervisory Skills‘ and ‘Managing Employees’
each module explores a range of strategies to
deal with ‘real’ work situations, and provides
a range of techniques to effectively lead
and manage teams in the delivery of well
communicated and common goals.
Feedback from the training has scored
highly against the ‘helpful’ and ‘relevant’
categories and identified a range of further
‘wants and needs’ ranging from advanced
communication and conflict management
training to further studies in Emotional
Intelligence and NLP techniques.
As noted above, we have continued to deliver
our well established corporate training
programmes, whether regulatory (GDPR and
Anti-Bribery), office health & safety or as
part of on-going professional development
captured during annual performance and
development appraisals.
IGas Energy plc | Annual report and accounts 2018
33
Introduction to Governance
From transparency
to expertise
The Board ensures that high
standards of corporate governance
are met and a comprehensive
risk management and planning
process is in place.
Mike McTighe
Non‑executive Chairman
The Board believes that
the QCA Code provides
the Group with the right
governance framework in
view of its size, strategy,
resources and stage of
development, as it offers
a flexible but rigorous
outcome-oriented
framework in which we
can continue to develop
our governance model
to support our business.
34
Dear Shareholder,
As Chair of the Company, I have overall
responsibility for ensuring that good
corporate governance is embraced by
IGas and the Group as a whole. In doing so,
I work with, and consider, the views of all
Board members, the Executive Committee
(Excom) and the Company’s advisors. 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 Group as a whole.
As an AIM-listed company, IGas must comply
with the AIM Rules. In March 2018, the AIM
Rules were changed such that all AIM-listed
companies were obliged, from 28 September
2018, to apply a recognised corporate
governance code, providing details of that
code on its website along with details of
how the Company complies with or departs
from that code. On 10 September 2018
the Board resolved to adopt the Quoted
Companies Alliance Corporate Governance
Code, 2018 edition (the QCA Code). The Board
believes that the QCA Code provides the
Group with the right governance framework
in view of its size, strategy, resources and
stage of development, as it offers a flexible
but rigorous outcome-oriented framework
in which we can continue to develop our
governance model to support our business.
Our primary means of communicating the
Group’s corporate governance structure
is through the Annual Report and various
disclosures made on our website.
Nevertheless, where specific questions are
raised by private individual shareholders
and institutional investors, we engage
directly with those shareholders, principally
through the Chief Executive Officer or, where
appropriate, certain members of our Excom,
namely the Chief Financial Officer and
Director of Corporate Affairs.
Finally, a word about our corporate culture.
We seek to communicate our corporate
culture through staff presentations and
inductions. We rely on our management
structure, and our internal reporting structures
to assess whether these core values have
been respected, and our Director of Human
Resources is tasked with monitoring internal
compliance on an ongoing basis. We seek
to promote our core values of: (i) respect
for our people, environment, partners and
the safety of others; (ii) performing to the
highest standards internally and externally to
deliver against our targets; (iii) collaboration
through mutual trust, knowledge sharing
and teamwork; (iv) commitment to the
preservation of the environment whilst
providing safe and healthy working
conditions; and (v) transparency by being
honest about what we do, how we do it, and
the challenges we face.
Fundamentally, IGas is committed to gender
diversity and we have a number of women in
senior management roles. When recruiting
for Board vacancies we fully recognise our
responsibility for gender diversity as we seek
to ensure that we have an appropriate mix
of skills on the Board.
IGas Energy plc | Annual report and accounts 2018 Application of the QCA Code
and required disclosures
The QCA Code requires us to apply
the principles set out above and to
publish certain related disclosures in
our Annual Report, on our website,
or a combination of the two. We
have followed the QCA Code’s
recommendations and have therefore
provided disclosure relating to
Principles 2, 3, 9 and 10 in a corporate
governance statement on our website
and will cover the remaining principles
in this Annual Report. An index setting
out where each required disclosure can
be found is at the end of the corporate
governance statement on our website.
Strategy and Business Model –
QCA Principle One
The Group’s strategy and Business
model is described in our Strategic
Report on pages 6 and 7.
Effective risk management –
QCA Principle Four
The Group embeds risk management
throughout the organisation and this
is described on pages 26 to 29.
Board Balance and Skills –
QCA Principle Five and Six
The Board, led by the Chair, has the
necessary skills and knowledge
to discharge their duties and
responsibilities effectively, setting clear
expectations and ensuring stringent
measures for corporate governance
standards are met, particularly in
relation to executive remuneration,
accountability and audit.
The Executive and Non-executive
Directors’ skill sets are complementary,
and together provide a blend of broad
commercial, operational, legal, and
financial expertise. The skill set is
suitably broad and sufficiently high
calibre such that all decision making
at Board level is robust and mindful of
the fiduciary responsibilities that need
to be discharged to all shareholders. In
addition, the Directors are aware of the
importance of keeping abreast of the
industry’s current activities and attend
oil & gas conferences and events
globally throughout the year to keep
their skills, contacts and knowledge
current and simultaneously engage
with governments, global operators
and service providers in the oil and
gas industry.
Board Effectiveness –
QCA Principle Seven
The Board intends to undertake a
self-evaluation in the first half of 2019
and annually thereafter. The criteria
against which the Board collectively
and individually will be assessed,
includes Board composition, roles
and responsibilities, meetings and
administration, Board committees,
Board discussions, Board relationships
and stewardships, monitoring and
evaluation, strategy and internal
control.
The aim of the Board evaluation is to
review the effectiveness of the Board’s
performance and assess its strengths
as well as areas for development.
As part of our Board evaluation process,
the Board is currently considering the
Company’s approach to succession
planning and the procedures by which
the Executive Committee determines
senior management appointments.
The Board will work with the
Nomination Committee of the Board
on the Board evaluation process. The
Executive Committee and, at a more
junior level, senior departmental
managers address progression of
employees through annual appraisals
and competency reviews. The launch
of a structured Management Training
Programme in September 2018 will
further assist key managers with
training and learning opportunities.
Corporate governance
principles applicable to IGas
The ten QCA Code corporate governance principles,
which apply to IGas, are:
1. Establish a strategy and business model which
promote long-term value for shareholders
2. Seek to understand and meet shareholder needs
and expectations
3. Take into account wider stakeholder and social
responsibilities and their implications for long-
term success
4. Embed effective risk management, considering
both opportunities and threats, throughout the
organisation
5. Maintain the Board as a well-functioning,
balanced team led by the chair
6. Ensure that between them the Directors have
the necessary up-to-date experience, skills and
capabilities
7. Evaluate Board performance based on clear
and relevant objectives, seeking continuous
improvement
8. Promote a corporate culture that is based on
ethical values and behaviours
9. Maintain governance structures and processes
that are fit for purpose and support good
decision-making by the Board
10. Communicate how the Company is governed
and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
35
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Introduction to Governance
continued
How we manage our Company
The Board
Executive
Committee
Audit Committee
Remuneration
Committee
Nomination
Committee
The Board
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.
Executive Committee
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.
Audit Committee
The Audit Committee is responsible for monitoring and reviewing
the integrity of the financial reporting processes, ensuring the
financial statements give a true and fair view of the Company
and overseeing the framework for risk management and ensuring
it is operating effectively.
Remuneration Committee
The Remuneration Committee is responsible for determining
and agreeing the remuneration policy for the Executive Director
and senior managers.
Nomination Committee
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.
36
To read more
see page 34
To read more
see page 38
To read more
see page 40
To read more
see page 41
To read more
see page 42
IGas Energy plc | Annual report and accounts 2018 Board of Directors
From management
to leadership
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
for over 8 years.
He is currently chairman of
Openreach Ltd, Together
Financial Services Ltd, and
Arran Isle Ltd.
During his career, Mike has
held a number of senior
executive and board level
roles in global businesses
including Cable & Wireless,
Philips, Motorola and GE.
A
R
N
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.
Since Steve joined the
Company, it has been
through significant
transformation, including
the acquisition of the
bulk of IGas’ conventional
producing assets from
Petronas in 2011,
acquisitions and farm-outs
of IGas’ unconventional
acreage, including the key
farm-outs to Total in 2014
and Ineos in 2015, and the
refinancing of the Group
in 2017.
Committee member key
Audit Committee
A
Remuneration Committee
R
N
Nomination Committee
Chair of Committee
Member of Committee
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 companies.
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
£120million in four
separate primary offerings
before it was sold to
Talisman Energy Inc. for
approximately £1.2billion
in 2006. Cuth is currently
chairman at Quotall Ltd.,
an unlisted software
development company.
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.
A
R
N
R
N
Name Tushar Kumar
Role Non-executive
Director
Appointed 2017
Skills and experience
Tushar is a Partner in the
Investment and Portfolio
Management Team at
Kerogen Capital. He has
16 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.
He has experience
in strategic advisory,
particularly focused on
M&A, IPOs, debt and
equity financing as
well as balance sheet
restructuring. 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.
A
37
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Executive Committee
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.
Since Steve joined the
Company, it has been
through significant
transformation,
including the acquisition
of the bulk of IGas’
conventional producing
assets from Petronas
in 2011, acquisitions
and farm-outs of IGas’
unconventional acreage,
including the key farm-
outs to Total in 2014 and
Ineos in 2015, and the
refinancing of the Group
in 2017.
38
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 Ross Glover
Role Development Director
Skills and experience
Ross has over 20 years
of experience in project
development and mining
exploration and operations.
Ross started his career in
Southern Africa managing
capital projects in the
mining sector, culminating
in being responsible for
the operations of two
diamond mines and a
diamond exploration
programme. Prior to joining
IGas in 2017, he ran a UK
based renewable energy
project development
company with a focus on
UK onshore wind.
Ross holds a BSc in
Mechanical Engineering
from the University of Cape
Town and an MBA from
Warwick Business School.
Name Chris Beard
Role Production Director
Skills and experience
Chris (MEng BSc (Hons)
CEng MIET) has 31 years’
experience working in
the oil and gas industry
in both the upstream and
downstream business.
Chris started his career
working in a Maintenance
and Integrity role for BP at
the Llandarcy Oil Refinery
in South Wales. Over the
next 25 years Chris worked
in a number of roles and
locations for BP the last
of which was at BP Wytch
Farm Oilfield in Dorset,
where he held a variety of
technical, operational and
managerial roles before
finishing in the role of
Onshore Site Manager.
Chris joined Providence
Resources Plc as
Managing Director of the
UK operations before
its acquisition by IGas
in 2011. Chris currently
has responsibility for the
delivery of the Production
Division Corporate
strategy, goals and targets
for production, operating
costs in accordance with
the IGas Management
Systems.
Name Ross Pearson
Role Technical Director
Skills and experience
Ross Pearson, a Petroleum
Engineer by trade, has
extensive onshore, oil
and gas experience
gained over the past 18
years working in various
technical roles across
the E & P value chain.
Ross’s career started in
the Western Canadian
Sedimentary Basin
working for Schlumberger
before taking a role with
Devon Energy where he
held various Petroleum
Engineering positions
both in the Production
and Development Teams.
In 2010 he moved to
Australia where he
initially worked for Origin
Energy as a Sr. Petroleum
Engineer prior to joining
Senex Energy as the
Development Manager
where he managed a
team of Geoscientists,
Petrophysicists and
Engineers focused
on the Appraisal and
Development of their
conventional and
unconventional oil and
gas assets.
Ross has a Bachelor of
Applied Science Degree
in Mining Engineering
from Queen’s University
in Canada and is a
member of the Society
of Petroleum Engineers.
IGas Energy plc | Annual report and accounts 2018
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.
Name Thamala Perera Schuetze
Role General Counsel
Skills and experience
General Counsel with 18 years’
post-qualified experience,
over 12 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.
39
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Corporate Governance
The Directors are committed to meeting high standards of corporate governance. As an AIM listed company, IGas has a requirement to apply
a recognised corporate governance code and to further demonstrate the application of its principles which underpin best practice in corporate
governance. The Company has chosen to apply the Quoted Companies Alliance (QCA) Code and the Directors intend to comply with the
underlying principles of the QCA Code, to the extent they consider it appropriate and having regard to the size, current stage of development
and resources of the Company.
Details of how IGas addresses the key governance principles of the QCA Code which provide the Company with a governance framework which
we continue to develop in respect to our business, and of the disclosures required by the Code’s principles are contained in this section and on
our Company website.
The Board and its Committees
Following the AGM in May 2018, 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 37.
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)
Stephen Bowler
Cuth McDowell
Philip Jackson
Tushar Kumar
Meetings attended
(out of a total possible)
13/13
13/13
13/13
13/13
12/13
In addition to the Directors, the Chief Financial Officer, Chief Operating Officer and General Counsel 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. Meetings are aligned with the Group’s financial reporting calendar and in the year ended 31 December 2018 the committee met on three
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.
Audit Committee membership
Committee member
Cuth McDowell (Chairman)
Mike McTighe
Tushar Kumar
Meetings attended
(out of a total possible)
3/3
3/3
3/3
40
IGas Energy plc | Annual report and accounts 2018
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 2018
The committee’s particular areas of focus during the year were as follows:
• Review of the 2018 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, the decommissioning provision and reserves and resources
disclosures;
• Review of the six months ended 30 June 2018 interim results announcement and of the significant risks which included the going concern
assessment, including covenant compliance and impairment of oil and gas properties; and
• Review of the planning for the 2018 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 and having as other members Mike McTighe and Cuth
McDowell. The committee met on two occasions in the year ended 31 December 2018. 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)
Mike McTighe
Cuth McDowell
Summary of the Committee’s responsibilities
The committee’s responsibilities include the following:
Meetings attended
(out of a total possible)
2/2
2/2
2/2
• 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.
41
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Corporate Governance
continued
Key areas of focus in the year ended 31 December 2018
The committee’s particular areas of focus during the year were as follows:
• Review of bonus structure for the Executive Director and senior employees and agreement of the level of deferral of the bonus payment into
Company shares;
• Review of long-term incentive plans and approving the issue of awards under the Executive Incentive Plan; 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. The bonus was paid to staff in February 2018.
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. 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.
Nomination Committee Membership
Committee member
Mike McTighe (Chairman)
Cuth McDowell
Philip Jackson
Summary of the Committee’s responsibilities
The committee’s responsibilities include the following:
Meetings attended
(out of a total possible)
2/2
2/2
2/2
• 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 2018
The principal activities of the committee during the year were as follows:
• Approval of a new Executive Committee structure following the announcement of the retirement of the Chief Operating Officer as proposed
by the Chief Executive Officer; and
• Ensuring that appropriate succession plans are put in place for senior management.
42
IGas Energy plc | Annual report and accounts 2018
Internal control
The Board acknowledges that it is responsible for establishing and maintaining the Group’s system of internal controls and reviewing its
effectiveness. The procedures that include, inter alia, financial, operational, health & safety, compliance matters and risk management (as
detailed in the Strategic Report) are reviewed on an on-going basis.
The Group’s internal control procedures include 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
judgments applied in preparing these reports.
The internal control system can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has
considered the need for a separate internal audit function but, bearing in mind the present size and composition of the Group, does not consider
it necessary at the current time.
UK Bribery Act
IGas has reviewed the appropriate policies and procedures to ensure compliance with the UK Bribery Act. The Company continues actively
to promote good practice throughout the Group and has initiated a rolling programme of anti-bribery and corruption training for all relevant
employees.
Relations with shareholders 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.
Engaging with stakeholders
The way in which IGas solicits information from our stakeholder groups include, inter alia, public relations activities, regular formal contact
via written communications, meetings, and conference calls. Informal contact is promoted through the use of social media where appropriate.
The Board seeks to understand the Company’s stakeholders’ needs, interests and expectations by ensuring open channels of communication
at all times and permitting all parties to openly discuss any issues or concerns they may have with the Company.
The Company considers and acts on the information and feedback received by way of bilateral discussions or investor conference calls
or RNS announcements when required.
43
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Report
This report explains our remuneration policy for Directors and sets out how decisions regarding Directors’ pay for the period under review have
been taken.
Annual Statement
The 2017 Directors Remuneration Report noted that following a detailed review with the ‘Reward and Employment’ team at PwC, the Remuneration
Committee proposed a number of changes to the annual cash bonus scheme, which better aligned 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 with the Board agreeing 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. Consequently, the Executive Director received his 2017 bonus in cash and restricted
stock.
Subsequent to the 2017 review with the ‘Reward and Employment’ team at PwC, the Board again agreed the Remuneration Committee Proposal
that awards of restricted stock under the Executive Incentive Plan (EIP), the mechanics of which were detailed in the 2016 Annual Report, would
again require an absolute share price appreciation as a condition of vesting (either in part or in full). In approving the Remuneration Committee’s
recommendations, the Board again stipulated that no part of the 2018 EIP award (whether to the Executive Director or any other Senior
Executive) will vest in 2021 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, senior executive, the Executive Director 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.
44
IGas Energy plc | Annual report and accounts 2018 The elements of the reward package are detailed below:
Element of reward
Operation and performance conditions
Maximum opportunity
Base salary
The purpose of the base
salary is to:
• help recruit and retain
key individuals;
• reflect the individual’s
skills, knowledge and
abilities; and
• ensure fair reward for
‘doing the job’.
Other benefits
including pension
The Committee reviews base salaries annually to ensure that Executive
Director 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 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
industry sector).
The Company provides Executive Directors with a pension contribution
up to 15% of base salary, as well as other benefits in kind including
medical insurances and income protection / lump sum payments in the
event of extended sickness absence / disability and/or death in service.
Annual Cash Bonus
Executive Directors and staff are eligible to participate in a discretionary
bonus plan.
Long Term Incentive Plan
(LTIP)
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 targeted 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 LTIP, 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 Directors and other
selected executives.
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 the Executive
Director 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).
No awards have been made
under this Plan since
November 2015.
45
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Report
continued
Element of reward
Operation and performance conditions
Maximum opportunity
Executive Incentive Plan
(EIP)
Under the EIP adopted by the Board in March 2016, participants were
granted a share award in the form of a nil-cost option, released at the
end of a three year holding period provided that the Executive remain
in employment and that the Remuneration Committee are 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:
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).
Share price target*
£10.00
£15.00
Multiplier
1.50 x shares awarded
2.00 x shares awarded
* Re-stated to account for the Share Capital Consolidation & Sub-Division 14 June 2017.
For the second and third share award (October 2017 and March 2018)
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
The Executive Director is required to build a shareholding over a 5 year
period of at least 150% of salary to further support the alignment of their
interests with those of shareholders.
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.
The EDRP was adopted as an
exceptional share arrangement
and S Bowler was made an award
of options over 175,000* ordinary
shares in July 2015.
No subsequent awards have been
made under this Plan.
* Re-stated to account for the Share
Capital Consolidation & Sub-Division
14 June 2017
Share Investment Plan
(SIP)
In 2013, the Company adopted an HMRC approved SIP 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.
Employees are eligible to acquire
up to £150 (or 10% of salary, if
less) worth of IGas ordinary shares
per month from gross salary.
Shares are acquired on a quarterly basis and the Company automatically
matches the employee contribution, acquiring matching ‘Partnership’
shares on a 1-to-1 basis. Subject to the Company achieving pre-defined
quarterly production targets, the Company increases the Partnership
share matching element for that quarter to 2-to-1. In order to receive their
allocation of Company Partnership shares, employees must ordinarily
remain employed by the Company for a period of 3 years from the date of
grant of the matching award.
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.
46
IGas Energy plc | Annual report and accounts 2018 Annual Report on Remuneration
Remit of the Remuneration Committee
The remit of the Remuneration Committee (the Committee) is provided in the Corporate Governance section.
Share price movements during the year
The Group’s share price as at 31 December 2018 was 96.00p per share. The highest price during the year was 126.50p per share and the lowest
share price during the year was 73.00p per share.
Current arrangements in financial year (Audited)
Executive Director
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:
Executive Director
S Bowler – CEO
J Blaymires – COO1
J Tedder – CFO1
Total – Executive Directors
Year ended 31 December 2018
Year ended 31 December 2017
Payment
in lieu of
pension
£’000
Salary
£’000
357
–
–
357
37
–
–
37
Bonus
(Cash)
£’000
73
–
–
73
Bonus
(Shares) Pensions
£’000
£’000
Total
£’000
Payment
in lieu of
pension
£’000
Salary
£’000
43
–
–
43
10
–
–
10
520
–
–
520
350
128
114
592
37
16
11
64
Bonus
(Cash)
£’000
94
35
32
161
Bonus
(Shares) Pensions
£’000
£’000
Total
£’000
29
9
8
46
10
–
5
15
520
188
170
878
1 J Blaymires and J Tedder resigned from the Board with effect from 14 June 2017.
On 21 March 2018 S Bowler was made a Base Award under the 2016 EIP scheme over 396,667 ordinary shares in the Company
As at 31 December 2018, the outstanding long term incentives held by the Directors who served during the period are set out in the table below:
Existing share incentive arrangements:
Executive Director Retention Plan
Date of
grant
At
1 January
2018
S Bowler
13/07/2015
175,0001
2016 Executive Incentive Plan
S Bowler
Date of
grant
30/03/2016
16/10/2017
21/03/2018
At
1 January
2018
74,0761
388,889
–
462,965
2016 Management Retention Plan
(Bonus Scheme Shares)
Date of
grant
At
1 January
2018
S Bowler
21/03/2018
–
Share
Options
Granted
–
Share
Options
Granted
–
–
396,667
396,667
Share
Options
Granted
33,431
Share
Options
Exercised
Share
As at
Options 31 December
2018
Lapsed
Earliest
vesting
date
Lapse
date
–
–
175,000 13/07/2016 13/07/2023
Share
Options
Exercised
Share
As at
Options 31 December
2018
Lapsed
Earliest
vesting
date
Lapse
date
–
–
–
–
–
–
–
–
74,076 30/03/2019 30/03/2026
388,889 16/10/2020 16/10/2027
396,667 21/03/2021 21/03/2028
859,632
Share
Options
Exercised
Share
As at
Options 31 December
2018
Lapsed
Earliest
vesting
date
Lapse
date
–
–
33,431 17/01/2019 21/03/2026
1 Re-stated to account for the Share Capital Consolidation & Sub-Division 14 June 2017.
47
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Directors’ Remuneration Report
continued
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
M McTighe
C McDowell
P Jackson1
T Kumar1
F Gugen2
J Bryant2
Total – Non-executive Directors
Year ended 31 December 2018
Year ended 31 December 2017
Emoluments
£’000
Taxable
benefits
£’000
Pensions
£’000
Total
£’000
Emoluments
£’000
Taxable
benefits
£’000
Pensions
£’000
Total
£’000
100
60
55
45
–
–
260
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
60
55
45
–
–
260
100
60
30
25
60
43
318
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
60
30
25
60
43
318
1 P Jackson and T Kumar were both appointed to the Board with effect from 14 June 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.
2 F Gugen and J Bryant resigned from the Board with effect from 14 June 2017.
Philip Jackson
Chairman Remuneration Committee
27 March 2019
48
IGas Energy plc | Annual report and accounts 2018
Directors’ Report
The Directors present their report together with the Group and Parent Company financial statements for the year ended 31 December 2018.
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 Operations 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 2017: £nil).
Principal activity
The Group’s principal area of activity is exploring for, appraising, developing and producing oil and gas.
Directors and their interests
The Directors who served during the year were as follows:
Element of reward
Operation and performance conditions
M McTighe
S Bowler
P Jackson
T Kumar
C McDowell
Non-executive Chairman
Chief Executive Officer
Non-executive
Non-executive
Non-executive
The beneficial interest of each of the Directors’ and their immediate families in the ordinary share capital of the Company are shown below:
M McTighe
S Bowler
C McDowell
P Jackson
T Kumar
31 December 2018
31 December 2017
Ordinary 0.002p Shares
Ordinary 10p Shares
Number
583,056
66,845
219,170
–
–
%
Number
0.47
0.06
0.18
–
–
583,056
61,262
219,170
–
–
%
0.47
0.05
0.18
–
–
In addition to the table above, in January 2019, S Bowler subscribed to his full entitlement under the Group’s share scheme and accordingly was
allotted 1,126 shares.
Annual General Meeting 2019
The Annual General Meeting (AGM) of the Company will be held at the offices of Cooley (UK) LLP, Dashwood, 69 Old Broad Street, London
EC2M 1QS on Tuesday 14 May 2019, commencing at 10:30 a.m. The resolutions to be proposed at the AGM are set out and fully explained
in the notice of AGM available on the Company’s website at: https://www.igasplc.com/investors/publications-and-reports.
Rotation and re-election of Directors
In accordance with the Articles of Association, C McDowell and S Bowler retire by rotation and offer themselves for re-election at the AGM on
14 May 2019.
Directors’ insurance and indemnity provisions
Subject to the conditions set out in the Companies Act 2006, the Company has arranged appropriate Directors and officers insurance to
indemnify the Directors and officers against liability in respect of proceedings brought by third parties. Such provision remains in force at the
date of this report.
The Company indemnifies the Directors against actions they undertake or fail to undertake as Directors or officers of any Group company,
to the extent permissible for such indemnities to meet the test of a qualifying third party indemnity provision as provided for by the Companies
Act 2006. The nature and extent of the indemnities is as described in Section 60 of the Company’s Articles of Association as adopted on 20 June
2010. These provisions remained in force throughout the period and remain in place at the date of this report.
49
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Directors’ Report
continued
Substantial shareholders
As at 27 March 2019, the Company had been notified in accordance with the requirements of provision 5.1.2 of the Financial Conduct Authority’s
Disclosure Guidance and Transparency Rules of the following significant holdings in the Company’s ordinary share capital:
Kerogen General Partner II Limited
KOG Investments S.A.R.L.
HSBC Bank Plc
Royal London AM
Number of Shares
%
33,964,100
27.8
17,923,583 14.7
14,987,438 12.3
8.3
10,155,760
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 22 to the consolidated financial statements. The Group’s financial risk management
objectives are also set out in note 22 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 2017: £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, and Nomination committees is included in the Corporate Governance section of the Annual Report.
Auditors
A resolution to reappoint PricewatehouseCoopers LLP as auditors will be proposed at the AGM on 14 May 2019 and a fee will 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
27 March 2019
50
IGas Energy plc | Annual report and accounts 2018
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
27 March 2019
51
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Independent auditors’ report
to the members of IGas Energy plc
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 2018 and of its loss and cash flows for the year then ended;
• Have been properly prepared in accordance with International Financial Reporting Standards (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 2018; 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.
Our audit approach
Overview
Materiality
Audit scope
Key audit matters
• Overall Group materiality: £1.2 million (2017: £1.2 million), based on 0.5% of total assets.
• We identified 4 components out of the Group’s 25 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 3 units.
• This enabled us to obtain coverage over 99% of Group consolidated revenue and 99%
of Group consolidated total assets.
• Carrying value of conventional oil & gas assets.
• Carrying value of unconventional assets and goodwill.
• Completeness and valuation of the decommissioning provision.
• Basis of going concern.
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.
52
IGas Energy plc | Annual report and accounts 2018 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 matters
Carrying value of conventional oil & gas assets
See page 63 to 64 Significant accounting judgements and estimates
and note 11 Property, plant and equipment. Conventional oil and gas
assets totalled £89 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 estimates
required to calculate the value in the current economic climate.
We have evaluated the discounted cash flow model prepared by
management which supports the carrying value of the CGU’s (North,
South and Scotland).
We have verified that the exchange rate used is comparable with the
actual exchange rates as at 31 December 2018 and the long-term
average of the past 3 years.
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 D&M in
January 2019.
Another key element of the forecast is the discount rate. We have
performed our own independent calculation and consider it to be
reasonable.
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
See page 63 to 64 Significant accounting judgements and estimates
and note 10 Intangible exploration and evaluation asset. The carrying
value of the Group’s unconventional assets was £89.3 million after
an impairment of £29.1 million in the year, 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 95% 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 estimates
required to calculate the value in the current economic climate.
As at 31 December 2018, in accordance with IFRS 6, management
assessed the assets for impairment indicators.
We have evaluated management’s valuation which supports the
carrying value of the unconventional assets and assigned goodwill.
This included confirming that for each licence that there was an
on-going exploration and evaluation work programme and that the
carrying amount of the licence was likely to be recovered in full from
successful development or by sale. We concur with management that
assets with a carrying value of £29.1 million did not met this criteria
and in line with IFRS 6 were written-off in the year; and that the
remaining carrying value is supportable.
53
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Independent auditors’ report
to the members of IGas Energy plc
continued
Key audit matter
How our audit addressed the key audit matters
Completeness and valuation of the decommissioning provision
See page 63 to 64 Significant accounting judgements and estimates
and note 19 Provisions.
A provision of £38 million has been made for the abandonment
of fields and the gathering centres. The abandonment and
decommissioning are expected to take place between 1 and 26 years
from the year end.
Basis of going concern
Refer to page 40 Audit Committee Report, and page 62 note 1 (b)
Accounting Policies.
We focused on this area given the recent volatility in oil price and
foreign exchange, and the need to ensure compliance with the terms
of the secured bonds, including financial covenants. The ability of the
Group and Company to continue as a going concern is dependent on
Management’s ability to maintain liquidity in order to repay its existing
creditors and outstanding debt.
Management’s assessment of going concern is based on cash flow
projections and business plans, each of which is dependent on
management’s judgement and can be influenced by management bias.
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.
We have reviewed the work performed by management’s expert
on estimating the cost estimate for decommissioning the gathering
centres and challenged them on the estimates used.
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.
In assessing the appropriateness of the going concern assumption
used in preparing the financial statements, we:
• Checked the mathematical accuracy of Management’s cash flow
forecast and validated the opening cash position;
• Validated Management’s underlying cash flow projections for the
Company and Group to other external and internal sources where
appropriate, including recent production, oil price forecasts and
comparing cost assumptions to historic actuals and underlying
budgets;
• Performed sensitivity analysis to assess the impact of the key
assumptions underlying the forecast such as a reduction in oil
price, weaker operational performance and a strengthening of
the British Pound against the US Dollar, and the Company and the
Group’s ability to take mitigating actions, if required; and
• Reviewed the completeness and appropriateness of management’s
going concern disclosures as disclosed in the financial statements.
Our conclusions on going concern are set out later in this report.
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 25 separate statutory entities, 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 25 reporting units, we identified 4 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 99% 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.
54
IGas Energy plc | Annual report and accounts 2018
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
£1.2 million (2017: £1.2 million).
How we determined it
Based on 0.5% of total assets
Rationale for benchmark applied
We believe that total assets are reflective of the of the Group’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 £200,000 and £1,100,000. 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 £62,500 (2017: £60,000)
as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
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 twelve months from the date when
the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
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. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult
to evaluate all of the potential implications on the Group’s trade, customers, suppliers and the wider economy.
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.
55
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Independent auditors’ report
to the members of IGas Energy plc
continued
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 2018 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 in Relation to the Group Financial Statements and Annual Report set out
on page 51, 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 parent 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.
Other matter
We have reported separately on the parent company financial statements of IGas Energy plc for the year ended 31 December 2018.
Richard Spilsbury
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 March 2019
56
IGas Energy plc | Annual report and accounts 2018 Consolidated Income Statement
For the year ended 31 December 2018
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
Note
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
Loss on foreign exchange hedges
Other (costs)/income
Operating loss
Finance income
Finance costs
Gain on restructuring
Loss from continuing activities before tax
Income tax credit
(Loss)/profit after tax from continuing operations attributable to shareholder’s equity
15,856
Profit/(loss) after taxation from discontinued operations
Net (loss)/profit for the year attributable to shareholder’s equity
(Loss)/profit attributable to equity shareholders:
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2
42,928
35,793
(6,824)
(21,932)
(7,832)
(21,435)
(28,756)
(29,267)
14,172
(5,467)
–
(29,067)
(638)
(180) –
(60)
6,526
(6,441)
(212)
(70)
(2,050)
214
(21,240)
(2,033)
69
(3,948)
–
(25,119)
277
(6,428)
4,935
(3,249)
4
10
3
3
5
3
6
6
25
7
3,745
19,105
(21,374)
16
41
(375)
(21,333)
15,481
8
8
(17.56p)
(17.56p)
12.76p
12.46p
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
(Loss)/profit for the year
Other comprehensive (loss)/income for the year:
Currency translation adjustments
Total comprehensive (loss)/income for the year
The notes on pages 61 to 91 form an integral part of these financial statements.
(21,333)
15,481
(235)
931
(21,568)
16,412
57
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Balance Sheet
As at 31 December 2018
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
Derivative financial instruments
Assets held for sale
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Liabilities held for sale
Non-current liabilities
Borrowings
Other creditors
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
31 December 31 December
2017
£000
2018
£000
Note
9
10
11
15
7
13
14
15
15
22
16
17
18
22
16
18
17
19
23
23
24
4,801
89,282
91,403
410
20,656
4,801
115,130
93,158
303
16,900
206,552
230,292
1,322
7,459
15,727
126
1,149
9,589
15,112
193
2,158 –
10,100 –
38,301
24,634
244,853
254,926
(11,878)
–
(2,389)
(180)
(10,272) –
(6,558)
(358)
(1,687)
(2,749)
(24,719)
(11,352)
(18,591)
(1,916)
(37,946)
(58,453)
(83,172)
(19,553)
(303)
(42,117)
(61,973)
(73,325)
161,681
181,601
30,333
102,501
(7,294)
31,310
4,831
30,333
102,342
(7,059)
29,994
25,991
161,681
181,601
These financial statements were approved and authorised for issue by the Board on 27 March 2019 and are signed on its behalf by:
Stephen Bowler
Chief Executive Officer
Julian Tedder
Chief Financial Officer
The notes on pages 61 to 91 form an integral part of these financial statements.
58
IGas Energy plc | Annual report and accounts 2018
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
At 1 January 2017
Profit for the year
Share options issued under the employee share plan (note 24)
Forfeiture of options under the employee share plan
Lapse of options under the employee share plan
Issue of shares and conversion of debt (note 23)
Reserves transfer on equitisation of unsecured bonds***
Currency translation adjustments
At 31 December 2017
Loss for the year
Share options issued under the employee share plan (note 24)
Issue of shares (note 23)
Lapse of options under the employee share plan
Currency translation adjustments
Called up
share capital
(note 23)
£000
Share
premium
account
(note 23)
£000
Foreign
currency
translation
reserve*
£000
Other Accumulated
(deficit)/
surplus
£000
reserves**
(note 24)
£000
30,282
–
–
–
–
51
–
–
30,333
–
–
–
–
–
32
–
–
–
–
93,302
9,008
–
102,342
–
–
159
–
–
(7,990)
–
–
–
–
–
–
931
(7,059)
–
–
–
–
(235)
28,757
–
1,333
(85)
(11)
–
–
–
29,994
–
1,489
(173)
–
19,451
15,481
–
56
11
–
(9,008)
–
25,991
(21,333)
–
–
173
–
Total
equity
£000
70,532
15,481
1,333
(29)
–
93,353
–
931
181,601
(21,333)
1,489
159
–
(235)
At 31 December 2018
30,333
102,501
(7,294)
31,310
4,831
161,681
*
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 61 to 91 form an integral part of these financial statements.
59
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Cash Flow Statement
For the year ended 31 December 2018
Cash flows from operating activities:
Loss before tax
Net gain on capital restructuring
Depletion, depreciation and amortisation
Abandonment costs/other provisions utilised
Share based payment charge
Exploration and evaluation assets written-off
Unrealised (gain)/loss on oil price derivatives
Unrealised loss on foreign exchange hedges
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
Increase/(decrease) in trade and other payables, net of accruals related to investing activities
Decrease/(increase) in inventories
Cash generated from continuing operating activities
Cash (used in)/generated from 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
Proceeds from disposal of assets
Other income received
Interest received
Cash used in continuing 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
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 61 to 91 form an integral part of these financial statements.
60
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
Notes
(25,119)
–
6,923
(91)
1,606
29,067
(4,906)
180 –
(69)
3,948
43
11,582
993
536
173
13,284
(335)
(9)
(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)
12,940
6,673
(2,496)
(8,152)
18
38 –
69
(10,523)
(10,523)
70
–
–
–
(1,722)
(1,751)
(3,403)
(986)
371
15,727
15,112
(2,591)
(3,679)
14
27
(6,229)
(6,229)
77
46,789
(39,337)
(4,311)
(5,423)
(5,917)
(8,122)
(7,678)
(1,541)
24,946
15,727
25
11
19
4
10
3
3
6
6
23
25
25
25
15
15
15
IGas Energy plc | Annual report and accounts 2018
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
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 2018 and with the Companies Act 2006. The accounts were approved by the Board and authorised for issue on 27 March 2019. 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 for the first time for their reporting period commencing 1 January 2018:
IFRS 2
IFRS 9
IFRS 15
Classification and measurement of share-based payment transactions – Amendment to IFRS 2
Financial Instruments
Revenue from Contracts with Customers
The Group has adopted IFRS 15 from 1 January 2018, which resulted in changes in accounting policies; however no adjustments were required
to the amounts recognised in the financial statements.
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 from 1 January 2018 resulted
in changes in accounting policies; however no adjustments were required to the amounts recognised in the financial statements.
New standards and interpretations not yet adopted
Certain new standards, interpretations and amendments to existing standards have been published that are mandatory only for the Group’s
accounting periods beginning on or after 1 January 2019 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 16
IFRIC Interpretation 23
Amendments to IAS 28
Leases
Uncertainty over Income Tax Treatments
Long-term interest in Associates and Joint Ventures
1 January 2019*
1 January 2019*
1 January 2019*
* 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
IFRSs 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.
Other than IFRS 16, there are no other standards that are not yet effective and that would be expected to have a material impact on the entity
in the current or future reporting periods. The Group’s assessment of the impact of IFRS 16 is set out below:
Nature of change
IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between
operating and finance leases is removed. Under the new standard, an asset being the right to use the leased asset, and a financial liability to pay
rentals are recognised. The only exceptions are short-term and low-value leases.
Impact
The Group has reviewed the existing population of leases and any new leases in light of the new lease accounting rules in IFRS 16. The standard
will affect primarily the accounting for the Group’s operating leases.
As at the reporting date, the Group has non-cancellable operating lease commitments of £9.6 million, see note 21. Of these commitments,
approximately £0.017 million relate to low value leases which will be recognised on a straight line basis as an expense in the income statement.
For the remaining lease commitments the Group expects to recognise right-of-use assets of approximately £6.0 million on 1 January 2019, lease
liabilities of £5.6 million (after adjustments for prepayments and accrued lease payments recognised as at 31 December 2018). Overall net assets
will be approximately £0.4 million higher, and net current assets will be £1.4 million lower due to the presentation of a portion of the liability as
a current liability.
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Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
1 Accounting policies continued
Impact continued
The Group expects that net profit after tax will increase by approximately £0.3 million for 2019 as a result of adopting the new rules. Adjusted
EBITDA is expected to increase by approximately £1.3 million, as the operating lease payments were included in EBITDA, but the amortisation
of the right-of-use assets and interest on the lease liability are excluded from this measure.
Operating cash flows will increase and financing cash flows decrease by approximately £1.4 million as repayment of the principal portion
of the lease liabilities will be classified as cash flows from financing activities.
The discount rates to be used on transition will be the incremental borrowing rates as appropriate for each lease based on factors such as the
lessee legal entity and lease term. The incremental borrowing rate applicable for all of the leases for the Group is between 10.88% to 11.64%.
Mandatory application
The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group intends to apply the simplified transition
approach and will not restate comparative amounts for the year prior to first adoption. All right-of-use assets will be measured at the amount
of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses).
(b) Going concern
The Group continues to closely monitor and manage its liquidity risks including the continued use of both oil and interest rate derivatives.
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, management’s best estimate of foreign exchange rates and the Group’s borrowings. Sensitivities are run to reflect
different scenarios including, but not limited to, possible further reductions in commodity prices, strengthening of sterling and reductions
in forecast oil and gas production rates. The Group’s base case 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. To manage the impact of the most extreme downside
scenarios modelled, management would have to take action, including delaying capital expenditure in order to remain within the Company’s
banking facilities. All such mitigating actions are within management’s control.
Therefore, after making appropriate enquiries and considering the risks described above, the Directors have a reasonable expectation that
the Group has adequate resources to continue in existence for the foreseeable future. Thus they continue to adopt the going concern basis of
accounting 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 2018, the Group comprised the Company and entities controlled by IGas Energy plc (its subsidiaries). No new subsidiaries were
acquired during the year.
(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.
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(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 (j) 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 license 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 IFRSs 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. Significant judgement is required in
considering whether it is appropriate to continue to carry these costs on the balance sheet and whether the assets have been impaired.
The key areas in which management has applied judgement and estimation include the Group’s intention to proceed with a future work
programme for a prospect or licence, the likelihood of licence renewal or plans for relinquishment, the assessment of results from wells
or geological or geophysical studies, the likely impact of political factors including planning permissions and the assessment of whether
the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.
Details of the Group’s intangible exploration and evaluation assets are disclosed in note 10 to the financial statements.
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.
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For the year ended 31 December 2018
continued
1 Accounting policies continued
(f) Significant accounting judgements and estimates continued
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 19 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 at a point in time when the control of the goods have passed onto the customers and there is no unfulfilled obligation that could
affect the customer’s acceptance of the goods. In the case of oil, gas and electricity sales, these are recognised 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.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases
in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known
by management. In the case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule. If the invoiced value
of goods or services rendered exceed the payment, a contract asset will be recognised. If the payments exceed the invoiced value of goods or
services rendered, a contract liability will be recognised.
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IGas Energy plc | Annual report and accounts 2018 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.
Non-current assets (or disposal groups) held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying
amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets
and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this
requirement.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain
is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative
impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal
group) is recognised at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale.
Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the
other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in
the balance sheet.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate
major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of
operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the
statement of profit or loss.
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; and
• Exploration and evaluation assets are assessed for impairment (on the basis described below), and any impairment loss recognised,
before reclassification.
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For the year ended 31 December 2018
continued
1 Accounting policies continued
(i) Non-current assets continued
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; and
• Net proceeds from any disposal of development/producing assets are compared to the previously capitalised costs for the relevant asset or
group of assets. A gain or loss on disposal of a development/producing asset is recognised in the Income Statement to the extent that the net
proceeds exceed or are less than the appropriate portion of the net capitalised costs of the asset or group of assets.
Impairment 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; and
• 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.
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(i) Non-current assets continued
Other property plant and equipment
Other property plant and equipment is stated at cost to the Group less accumulated depreciation. Depreciation is provided on such assets,
with the exception of freehold land, at rates calculated to write-off the cost of fixed assets, less their estimated residual values, over their
estimated useful lives at the following rates, with any impairment being accounted for as additional depreciation:
Equipment used for exploration and evaluation
Freehold land
Buildings/leasehold property improvements
Fixtures, fittings and equipment
Motor vehicles
– between six and twelve years on a straight line basis
– indefinite useful life
– over five to ten years on a straight line basis/over the period of the lease
– between three and twenty years on a straight line basis
– over four years on a straight line basis
The Group does not capitalise amounts considered to be immaterial.
(j) Financial instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and cash held on current account or on short-term deposits at variable interest rates with
original maturity periods of up to three months. Any interest earned is accrued monthly and classified as interest income within finance income.
Other financial assets – Restricted cash
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 amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally
due for settlement within 30 days and are therefore all classified as current. Trade receivables are initially recognised at the amount of
consideration that is unconditional, unless they contain significant financing components, in which case they are recognised at fair value.
Details about the Group’s impairment policy and the calculation of loss allowance is provided in the Impairment accounting policy below.
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 derivative financial instruments to manage its exposure to fluctuations in foreign exchange rates and 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.
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For the year ended 31 December 2018
continued
1 Accounting policies continued
(j) Financial instruments continued
Warrants
Warrants which do not qualify as equity instruments under IFRS 9 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
At the end of each reporting period, a provision is made if there is objective evidence that a financial asset or group of financial assets was
impaired. A financial asset or a group of financial assets was impaired and impairment loss is incurred only if there is objective evidence of
impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’), and that loss event (or events)
had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated.
Assets carried at amortised cost
For loans and receivables, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future credit losses that had not been incurred), discounted at the financial asset’s original effective
interest rate. The carrying amount of the asset is reduced and the amount of loss is recognised in the income statement.
If in the subsequent period, the amount of loss decreased and the decrease is related objectively to an event occurring after the impairment was
recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the
income statement.
Expected credit loss
From 1 January 2018, the Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried
at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade
receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial
recognition of receivables.
(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.
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IGas Energy plc | Annual report and accounts 2018 1 Accounting policies continued
(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.
(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.
69
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
1 Accounting policies continued
(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.
(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.
70
IGas Energy plc | Annual report and accounts 2018 2 Revenue
The Group derives revenue solely within the United Kingdom from the transfer of goods and services to external customers which is recognised
at a point in time. The Group’s major product lines are:
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
Oil sales
Electricity sales
Gas sales
41,978
888
62 –
35,289
504
42,928
35,793
Revenues of approximately £21.6 million and £20.4 million were derived from the Group’s two largest customers (2017: £19.3 million and
£15.9 million) and are attributed to the oil sales.
As at 31 December 2018, there are no contract assets or contract liabilities outstanding.
3 Operating loss
Operating loss is stated after charging:
Staff costs
Depletion, depreciation and amortisation
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
Loss on oil price derivatives
Realised loss on maturity of oil price derivatives
Unrealised gain/(loss) on oil price derivatives
Loss on foreign exchange derivatives
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
12,960
6,923
12,781
7,957
225
72
33
53
300
127
102
163
1,794
271
2,093
229
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
(5,544)
4,906
(638)
(178)
(1,872)
(2,050)
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
Unrealised loss
(180) –
71
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
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
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
9,488
1,139
727
1,606
9,648
1,129
773
1,231
12,960
12,781
No.
No.
116
39
155
118
42
160
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 £nil (2017: £0.2 million) of redundancy costs for the year.
5 Other (costs)/income
Other (costs)/income comprises costs of £0.06 million (2017: income of £0.2 million).
6 Finance income and costs
Finance income:
Interest on short-term deposits
Foreign exchange gains
Other interest
Gain on fair value of warrants
Finance income
Finance expense:
Interest on borrowings
Foreign exchange loss
Unwinding of discount on provisions (note 19)
Finance expense
72
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
63
–
6 1
–
69
26
239
11
277
1,948
895 –
1,105
3,948
5,358
1,070
6,428
IGas Energy plc | Annual report and accounts 2018
7 Income tax credit
(i) Tax charge on loss from continuing ordinary activities
Current tax:
Charge on loss for the year
Charge/(credit) in relation to prior years
Total current tax charge/(credit)
Deferred tax:
Credit relating to the origination or reversal of temporary differences
Charge due to tax rate changes
(Credit)/charge in relation to prior years
Total deferred tax credit
Tax credit on loss on ordinary activities
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
– –
9
9
(426)
(426)
(782)
84 –
(3,056)
(21,180)
2,501
(3,754)
(18,679)
(3,745)
(19,105)
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:
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
Loss from continuing ordinary activities before tax
Expected tax credit based on loss from continuing ordinary activities multiplied by an average
combined rate of corporation tax and supplementary charge in the UK of 40% (2017: 40%)
Deferred tax (credit)/charge in respect of the prior year
Current tax charge/(credit) related to prior year
Tax effect of expenses not allowable for tax purposes
Tax effect of differences in amounts not allowable for supplementary charge purposes*
Impact of profits or losses taxed or relieved at different rates
Use of losses under the loss restriction rules
Net increase/(decrease) in unrecognised losses carried forward
Intra-group transfer of assets
Tax rate change
Other
Tax credit on loss on ordinary activities
(25,119)
(3,249)
(10,047)
(3,056)
9
1,190
999
603
(827) –
7,138
11 –
84 –
151
(1,300)
2,501
(426)
679
1,467
(1,699)
(20,347)
20
(3,745)
(19,105)
* 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.
73
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
7 Income tax credit continued
iii) Deferred tax
The movement on the deferred tax liability in the year is shown below:
Asset/(liability) at 1 January
Tax credit/(charge) relating to prior year
Tax credit during the year
Tax charge arising due to the changes in tax rates
Other
Asset 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
Share based payments
Other
Deferred tax asset
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
(1,779)
(2,501)
21,180
16,900
3,056
782
(84) –
2 –
20,656
16,900
31 December 31 December
2017
£000
2018
£000
(26,409)
35,721
840
8,095
1,483
926
(33,897)
41,553
485
4,628
1,288
2,843
20,656
16,900
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 £114.0 million (2017: £107.5 million) of ring-fence corporation tax losses.
The Group has further tax losses and other similar attributes carried forward of approximately £203 million (2017: £195 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 loss for the year after taxation attributable to ordinary equity holders of the parent of £21.3 million
(2017: a profit of £15.5 million) and the weighted average number of ordinary shares outstanding during the year of 121.5 million
(2017: 121.4 million).
Diluted EPS amounts are based on the profit for the year 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.
There were 4.6 million potentially dilutive employee share options which are not included in the calculation of diluted earnings per share
because they are anti-dilutive as their conversion to ordinary shares would decrease the loss per share. In the prior year, there were no
potentially dilutive employee share options.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Basic (loss)/earnings per share – ordinary shares of 0.002 pence each
Diluted (loss)/earnings per share – ordinary shares of 0.002 pence each
(Loss)/profit 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
(17.56p)
(17.56p)
(21,333)
12.76p
12.46p
15,481
121,483,931 121,357,572
126,104,420 124,298,195
74
Year ended
Year ended
31 December 31 December
2017
2018
IGas Energy plc | Annual report and accounts 2018
9 Goodwill
At 1 January and 31 December
31 December 31 December
2017
£000
2018
£000
4,801
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 2018 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 22.
No impairment was required for the year (2017: £nil).
10 Intangible exploration and evaluation assets
At 1 January
Additions
Transfers to held for sale
Amounts written-off
At 31 December
31 December 31 December
2017
£000
2018
£000
115,130
3,561
(342) –
(29,067)
112,448
2,752
(70)
89,282
115,130
Under the terms of the secured bond agreement, the secured bondholders have a fixed and floating charge over these assets.
Exploration costs written-off were £29.1 million (31 December 2017: £0.1 million). An impairment of £20.7 million in 2018 relates to the
Doe Green production facility in the North West (PEDL 145) where a long-term test determined that there is no potential for a commercial
development; £3.2 million relating to a well that is not being used in the current Albury development and £5.2 million relating to the
relinquishment of licences during the year. The impairment in 2017 relates entirely to the relinquishment of licences. As part of our ongoing
active portfolio management, we are continually reviewing our acreage positions and will continue to seek to relinquish non-core licences or
impair licences where the carrying value cannot be supported. Further analysis by location of asset is as follows:
North West: The Group has £48.7 million of capitalised exploration expenditure which includes PEDL’s 145, 147, 184, 189 and 190. Work is
still ongoing to assess the viability for shale exploration and development across the North West licences though we await the outcome of the
ongoing Ellesmere Port planning appeal before commencing further operations.
East Midlands: The Group has £36.9 million of capitalised exploration expenditure which includes PEDL’s 12, 139, 140 and 200. The Tinker Lane
well (PEDL 200) was completed in fourth quarter of 2018. We are currently drilling a well at our Springs Road site (PEDL 140). Further details are
included in the operational review section of the Annual Report.
South: The Group has £3.7 million of capitalised exploration expenditure in relation to Singleton.
As at 31 December 2018, the Group has a combined carried gross work programme of up to $220 million (£170 million) (2017: $240 million
(£178 million)) from its partner, INEOS Upstream Limited (INEOS). In 2018 £9.2 million (2017: £3.0 million) gross costs were carried principally
in relation to activities at Tinker Lane and Springs Road, which have not been reflected in the additions to intangible exploration and
evaluation assets.
75
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
11 Property, plant and equipment
Cost
At 1 January
Additions
Disposals
Changes in decommissioning**
Transfers
Transfers to assets held for sale
Write-off
At 31 December
Depreciation and Impairment
At 1 January
Charge for the year*
Disposals
Transfers
Transfers to assets held for sale
At 31 December
31 December 2018
31 December 2017
Oil and gas
assets
£’000
Other fixed
assets
£’000
Total
£’000
Oil and gas
assets
£’000
Other fixed
assets
£’000
171,888
10,135
(25)
4,596
–
(31,945)
–
3,603
104
(57)
–
–
(779)
–
175,491
10,239
(82)
4,596
–
(32,724)
–
168,329
3,380
(14)
–
193
–
–
3,767
58
(23)
–
(193)
–
(6)
Total
£’000
172,096
3,438
(37)
–
–
–
(6)
154,649
2,871
157,520
171,888
3,603
175,491
80,756
6,638
(25)
–
(22,367)
65,002
1,577
285
(57)
–
(690)
1,115
82,333
6,923
(82)
–
(23,057)
66,117
72,894
7,669
–
193
–
80,756
1,494
299
(23)
(193)
–
1,577
74,388
7,968
(23)
–
–
82,333
NBV at 31 December
89,647
1,756
91,403
91,132
2,026
93,158
* Charge for the year includes £99 thousand charge categorised as administration expenses in the profit and loss (2017: £125 thousand) and £nil thousand (2017: £11 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 2018 (note 19).
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 2018. 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 $60/bbl for the years 2019-2022 and $75/bbl thereafter, and a USD/GBP foreign
exchange rate of $1.30: £1.00. Cash flows were discounted using a pre-tax discount rate of 11%. No impairment was required in the year
(2017: £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. A 10% reduction in production would result in an impairment of £9.0 million for the North CGU and £1.9 million for the South
CGU. A decline in the value of sterling against the US dollar from $1.30: £1.00 to $1.50: £1.00 would result in an impairment of £14.5 million
for the North CGU, £7.9 million for the South CGU and £0.3 million for Scotland CGU. None of the CGUs would be impacted by a 10% change in
discount rates.
76
IGas Energy plc | Annual report and accounts 2018
12 Interest in joint arrangements
As at 31 December 2018, the Group has a combined carried gross work programme of up to $220 million (£170 million) from its farm-in partners
– INEOS Upstream Limited (INEOS), (see note 10).
The Group’s material joint operations as at 31 December 2018 are set out below:
Licenses
East Midlands
PEDL169
EXL288
PEDL146
PEDL210
PEDL 012
PEDL200
PEDL278
PEDL273
PEDL305
PEDL316
PEDL139
PEDL140
North West
PEDL190
PEDL145
PEDL147
PEDL184
PEDL189
PEDL190
PEDL193
PEDL293
PEDL295
EXL 273
Weald
PL211
PEDL070
13 Inventories
Oil stock
Drilling and maintenance materials
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
80%
75%
75%
75%
55%
55%
50%
35%
35%
35%
32%
32%
50%
40%
25%
50%
25%
50%
40%
30%
30%
15%
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
INEOS
IGas
IGas
IGas
IGas
INEOS
INEOS
INEOS
INEOS
UKOOG
UKOOG, Egdon, Aurora, Corfe,
90%
54%
IGas
IGas
31 December 31 December
2017
£000
2018
£000
502
647
1,149
596
726
1,322
77
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
14 Trade and other receivables
VAT recoverable
Trade debtors
Other debtors
Prepayments
31 December 31 December
2017
£000
2018
£000
153
2,837
4,888
1,711
9,589
245
3,464
1,692
2,058
7,459
Trade debtors are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally
non-interest bearing and due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at
the amount of consideration that is unconditional, unless they contain significant financing components, in which case they are recognised at fair
value. The Group holds the trade receivables with the objective of collecting the contractual cash flows, and so it measures them subsequently
at amortised cost using the effective interest method. Details about the Group’s impairment policies and the calculation of the loss allowance are
provided in note 22.
Due to the short-term natures of the current receivables, their carrying amount is considered to be the same as their fair value.
15 Cash and cash equivalents
Cash at bank and in hand
Restricted cash
Current
Non-current
31 December 31 December
2017
£000
2018
£000
15,112
15,727
31 December 31 December
2017
£000
2018
£000
193
410
126
303
The cash and cash equivalents does not include restricted cash.
The current and non-current restricted cash for 2018 and the non-current restricted cash for 2017 represent restoration deposits paid to
Nottinghamshire County Council which serve as collateral for the restoration of the sites at the end of their life. The current restricted cash
balance for 2017 relates to margin payments in respect of oil hedge contracts.
The restoration deposits are subject to regulatory and other restrictions and are therefore not available for general use by the other entities
within the Group.
78
IGas Energy plc | Annual report and accounts 2018
15 Cash and cash equivalents and other financial assets continued
Net debt reconciliation
Cash and cash equivalents
Borrowings – including capitalised fees
Net debt
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 31 December
2017
£000
2018
£000
15,112
(20,980)
15,727
(21,240)
(5,868)
(518)
(6,386)
(5,513)
(686)
(6,199)
31 December 2018
31 December 2017
Cash and cash
equivalents
£000
Borrowings
£000
Cash and cash
equivalents
£000
Total
£000
15,727
–
(1,722)
(1,751)
371
2,487
–
(21,240)
–
1,722
–
(1,238)
–
(224)
(5,513)
–
–
(1,751)
(867)
2,487
(224)
24,946
3,140
(5,423)
(5,917)
(1,541)
522
–
Borrowings
£000
(124,579)
90,025
5,423
5,917
2,369
–
(395)
Total
£000
(99,633)
93,165
–
–
828
522
(395)
15,112
(20,980)
(5,868)
15,727
(21,240)
(5,513)
16 Disposal group classified as held for sale and discontinued operations
Discontinued operations
The divestment of assets acquired as part of the Dart Acquisition, namely the Rest of the World segment, was completed in 2016. The Group still
has a presence in a number of Australian and Singaporean registered operations and continues its plans to exit all legal jurisdictions in the near
future. The total profit after tax in respect of discontinued operations was £0.04 million primarily relating to administration costs and over-
accruals in prior year (year ended 31 December 2017: loss after tax of £0.4 million, primarily relating to administration costs).
Disposal group classified as held for sale
In May 2018, we announced the potential sale of certain non-core assets to Onshore Petroleum Limited (OPL). We believe the OGA will not
give their consent to the proposed transaction and are therefore in the process of exploring alternative options with OPL and the OGA as to the
structure and form of a transaction. The major classes of assets and liabilities included in the assets classified as held for sale and the associated
liabilities at the balance sheet date, are as follows:
Intangible exploration and evaluation assets
Property, plant and equipment
Oil stock
Total assets
Trade and other payables
Provisions
Total liabilities
Net liabilities
31 December
2018
£000
342
9,667
91
10,100
(350)
(9,922)
(10,272)
(172)
79
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
17 Trade and other payables
Current
Trade creditors
Employment taxes
Other creditors and accruals
Non-current
Amounts due to a related party
Other creditors and accruals
31 December 31 December
2017
£000
2018
£000
4,573
316
6,989
11,878
371
1,545 –
1,916
1,366
285
4,907
6,558
303
303
Trade creditors are unsecured and are usually paid within 30 days of recognition.
The carrying amounts 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.
18 Borrowings
Bonds – secured
31 December 2018
31 December 2017
Current Non-current
£000
£000
Total
£000
Current Non-current
£000
£000
Total
£000
2,389
18,591
20,980
1,687
19,553
21,240
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 Debt Service Requirement
Account (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 25.
80
IGas Energy plc | Annual report and accounts 2018
19 Other provisions
At 1 January
Utilisation of provision
Unwinding of discount (note 6)
Reassessment of decommissioning provision/liabilities*
Transfer to liabilities held for sale
At 31 December
31 December 2018
31 December 2017
Decommissioning
£000
Other
£000
Total Decommissioning
£000
£000
Other
£000
42,117
(91)
1,105
4,737
(9,922)
37,946
–
–
–
–
–
–
42,117
(91)
1,105
4,737
(9,922)
37,946
40,885
–
1,070
162
–
42,117
39
(39)
–
–
–
–
Total
£000
40,924
(39)
1,070
162
–
42,117
* £4,596,000 per note 11, the remainder being in long term creditors (note 17).
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 26 years from the year end (2017: 1 to 31 years). These provisions are based
on the Groups’ internal estimate as at 31 December 2018. 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.
A risk free rate range of 0.98% to 3.04% is used in the calculation of the provision as at 31 December 2018 (2017: Risk free rate range of 0.98%
to 3.05%).
20 Pension scheme
The Group operates a defined contribution pension scheme. Contributions payable by the Group for the year ended 31 December 2018 were
£0.73 million (2017: £0.77 million).
Contributions amounting to £0.07 million were accrued at 31 December 2018 (2017: £0.06 million) and are included in trade and other payables.
21 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 licenses.
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 31 December
2017
£000
2018
£000
137
2,573
2,710
878
5,604
6,482
31 December 31 December
2017
£000
2018
£000
2,065
2,323
1,656
4,125
3,824
9,605
1,714
2,731
945
5,390
81
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
22 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.
Carrying amount
Fair value
31 December 31 December 31 December 31 December
2017
£000
2018
£000
2017
£000
2018
£000
Amortised cost
Borrowings1
20,980
21,240
20,875
21,452
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.
Financial assets and liabilities measured at fair value
Financial assets: Level 2
Derivative financial instruments – oil hedges
Financial liabilities: Level 2
Derivative financial instruments – oil hedges
Derivative financial instruments – foreign exchange hedges
31 December 31 December
2017
£000
2018
£000
2,158 –
31 December 31 December
2017
£000
2018
£000
–
180 –
180
2,749
2,749
Fair value of derivative financial instruments
The fair values of the commodity price options and foreign exchange hedges were provided by counterparties with whom the trades have
been entered into. These consist of Asian style put and call options and swaps 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.
82
IGas Energy plc | Annual report and accounts 2018
22 Financial instruments and risk management continued
Derivative financial instruments
During the year, the Group entered into spot and forward foreign currency hedges to manage its exposure to exchange rate risk as its major
source of revenue is denominated in USD whereas costs, with the exception of those relating to the secured bond, are primarily denominated
in GBP. The market value of the currency hedges was £180,000 at 31 December 2018 (2017: nil).
In the current year the Group has also 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 oil hedge contracts as at 31 December 2018 were as follows:
Contract amount Contract price/rate Contract price/rate Contract price/rate
Fair value at
31 December 2018
£000
Term
Buy Put
Sell Call
Buy Call
US dollar Asian 3-way collar
US dollar Asian
US dollar Asian 3-way collar
US dollar Asian
US dollar Asian
US dollar Asian
Jan 2019-Mar 2019
Jan 2019-Mar 2019
Apr 2019-Jun 2019
Apr 2019-Jun 2019
Apr 2019-Jun 2019
Jul 2019-Sep 2019
105k bbls oil
45k bbls oil
37.5k bbls oil
37.5k bbls oil
75k bbls oil
75k bbls oil
$55.00/bbl
$55.00/bbl
$55.00/bbl
$56.70/bbl
$64.00/bbl
$60.25/bbl
$70.00/bbl
$85.00/bbl
$78.55/bbl
$93.55/bbl
354
155
168
202
707
572
2,158
The above derivatives mature over the period from 1 January 2019 until 30 September 2019. A loss of £5.5 million was realised on hedges during
the year to 31 December 2018.
The outstanding contracts as at 31 December 2017 were as follows:
Term
Contract amount Contract price/rate Contract price/rate Contract price/rate
Buy Put
Sell Call
Buy Call
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
$55.00/bbl
$46.00/bbl
$41.00/bbl
$65.00/bbl
$60.00/bbl
$54.00/bbl
$80.00/bbl
$75.00/bbl
$69.00/bbl
Fair value at
31 December 2017
£000
137
1,332
1,280
2,749
The above derivatives matured 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 (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.
83
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
22 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 risks
• Credit risk
• 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 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 prices 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 2018 and 31 December 2017; 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, 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.
15% increase in the price of oil
15% decrease in the price of oil
84
Increase/(decrease) in profit
before tax and equity
31 December 31 December
2017
£000
2018
£000
2,759
(2,759)
4,396
(4,396)
IGas Energy plc | Annual report and accounts 2018
22 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 31 December
2017
£000
2018
£000
1,141
(1,141)
720
(720)
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 2018, two customers (2017: two) accounted for approximately 99% (2017: 97%) of trade receivables of £2.7 million
(2017: £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 2018, the maximum exposure was £17.3 million
(2017: £15.7 million).
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 2018
Borrowings
Trade and other payables
At 31 December 2017
Borrowings
Trade and other payables
On demand
£000
< 1 year
£000
1–2 years
£000
2–3 years
£000
>3 years
£000
Total
£000
–
–
–
–
–
–
4,070
4,573
8,643
3,418
1,366
4,784
3,878
–
3,878
3,823
–
3,823
17,698
–
17,698
–
–
–
25,646
4,573
30,219
3,643
–
3,643
16,663
–
16,663
27,547
1,366
28,913
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.
85
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
22 Financial instruments and risk management continued
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 25). Management believe that the new capital
structure is sustainable in the current oil price environment and, together with a carried work programme of up to $220 million, means that the
Company is well positioned to pursue its strategy.
23 Share capital and share premium
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 sub-divided 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
Deferred shares*
Share
capital
Nominal value
£000
No.
302,820,578
30,282
484,956
49
303,305,534
30,331
Nominal value Nominal value
£000
£000
No.
–
–
–
–
–
–
30,282
49
30,331
Share
premium
Value
£000
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
–
–
–
–
48
45
31
35
303,305,534
30,331
–
–
–
–
–
303,305,534
–
–
–
303,305,534
–
–
–
–
–
–
–
–
–
30,331
–
–
–
30,331
–
–
–
–
303,305,534
30,331
30,333
102,501
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
–
679,282,165
400,069,644
1,043,350,391
–
–
956,464
Total ordinary shares before subdivision and consolidation
2,426,964,198
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
January 2018 SIP share issue
April 2018 SIP share issue
July 2018 SIP share issue
October 2018 SIP share issue
At 31 December 2018
(2,305,615,988)
121,348,210
59,352
73,557
400,000
121,881,119
69,195
55,279
37,782
33,894
122,077,269
(30,331)
1
–
1
–
–
–
2
–
–
–
2
–
–
–
–
2
* Deferred shares were created on capital restructuring which completed in April 2017 as disclosed in note 25.
86
IGas Energy plc | Annual report and accounts 2018
23 Share capital and share premium continued
Accordingly, the Group share capital account comprised:
Share capital account
At 1 January 2017
Shares issued during the year
At 31 December 2017
Shares issued during the year
At 31 December 2018
£000
30,282
51
30,333
–
30,333
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 196,150 ordinary shares at a nominal value of 0.002p each (2017: 106,740,090 ordinary shares
of 0.002p each), resulting in an increase in share premium of £0.2 million (2017: £102.3 million). No issuing costs were incurred during the year
(2017: £554 thousand).
24 Other reserves
Other reserves are as follows:
Balance at 1 January 2017
Share options issued under the employee share plan
Shares issued under the SIP
Forfeiture of options under the employee share plan
Lapse of options under the employee share plan
Transfers
Balance at 31 December 2017
Share options issued under the employee share plan
Shares issued under the SIP
Lapse of options under the employee share plan
Transfers
Balance at 31 December 2018
Employee share plans – Equity settled
Details of the share options under employee share plans outstanding are as follows:
Outstanding at 1 January 2017
Exercisable at 1 January 2017
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
Awarded during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December 2018
Exercisable at 31 December 2018
Note – all options are nil cost and therefore the weighted average exercise price is nil.
Total
£000
28,757
1,231
102
(85)
(11)
–
Share plan
reserves
£000
Treasury
Capital
shares contributions
£000
£000
8,138
(1,650)
47
Merger
reserve
£000
22,222
1,231
–
(85)
(11)
(175)
9,098
1,430
–
(173)
99
–
102
–
–
175
–
–
–
–
–
–
–
–
–
–
(1,373)
47
22,222
29,994
–
59
–
(99)
–
–
–
–
–
–
–
–
1,430
59
(173)
–
10,454
(1,413)
47
22,222
31,310
EIP
Number
of units
MRP
Number
of units
EDRP
Number
of units
LTIP
Number
of units
7,096,343
–
9,470,814 6,500,000
9,470,814 6,500,000
1,841,884
–
354,826
473,566
325,000
92,096
1,756,923
(9,533)
–
(15,512)
2,086,704
2,086,704
1,911,057
–
–
–
(206,314)
–
–
267,252
267,252
76,310
(52,371)
–
–
–
–
–
325,000
325,000
–
–
–
3,997,761
291,191
325,000
3,997,761
291,191
325,000
–
–
(1,029)
(3,975)
87,092
87,092
–
–
(87,092)
–
–
87
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
24 Other reserves continued
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.
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 the 14 June 2017 these awards were subdivided in line with the subdivision and consideration of the Group’s share capital (see note 23).
In October 2017, the Group awarded 1,756,923 Ordinary shares under a long term incentive plan to the Executive Director 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.
In March 2018, the Group awarded 1,911,057 Ordinary shares under a long term incentive plan to the Executive Director 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 £0.76, a risk free interest rate of 0.98 % and an implied share price volatility 58.3 %. 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
£1.3 million.
The EIPs outstanding at 31 December 2018 had both a weighted average remaining contractual life and maximum term remaining of 8.4 years
(2017: 9.0 years).
The total charge for the year was £1.07 million (2017: £0.48 million). Of this amount, £0.24 million (2017: £0.10 million) was capitalised and
£0.83 million (2017: £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 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.
In March 2018, the Group awarded 76,310 Ordinary shares to the Executive Director and other key employees of the Group. The fair value
of the awards is based on the fair value of the services rendered. There were also a number of share exercise during the year relating to other
employees of the Company. The MRPs outstanding at 31 December 2018 had both a weighted average remaining contractual life and maximum
term remaining of 5.5 years (2017: 5.9 years).
The total charge for the year was £0.07 million (2017: £nil). Of this amount, £0.03 million (2017: £nil) was capitalised or recharged to joint
venture partners and £0.04 million (2017: £nil) was charged to the Income Statement.
88
IGas Energy plc | Annual report and accounts 2018
24 Other reserves continued
Executive Director Retention Plan (EDRP)
In July 2015, the Group adopted a new share-based payment scheme, the 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 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 2018 had both a weighted average remaining contractual life and maximum term remaining of 4.5 years
(2017: 5.5 years).
The total charge for the year was £nil (2017: £nil). Of this amount, £nil (2017: £nil) was capitalised and £nil (2017: £nil) was charged to the
Income Statement.
Long Term Incentive Plan 2011 (2011 LTIP)
In November 2011 the Company adopted a LTIP 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. The fair value of the awards granted under the plan are measured at grant date using a Monte Carlo
Simulation Model.
There were no LTIPs awarded or exercised during the year. There were no LTIPs outstanding at 31 December 2018.
The total charge for the year was £0.05 million (2017: £0.12 million). Of this amount, £0.02 million (2017: £0.02 million) was capitalised and
£0.3 million (2017: £0.10 million) was charged to the Income Statement.
Other share based payments
Share Incentive Plan (SIP)
In 2013, the Group adopted an Inland Revenue approved 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 £1,800 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 subject to the pre-defined quarterly production targets being met.
The total charge for the year was £0.15 million (2017: £0.2 million). Of this amount, £nil (2017: £0.005 million) was capitalised and £0.15 million
(2017: £0.195 million) was charged to the income statement.
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 to 31 December 2018, no shares (2017: 400,000 ordinary shares of £0.00002) were issued to the Trust. In addition 52,373
ordinary shares of £0.00002 each (2017: 225,226 ordinary shares of £0.00002 each) were released from the Trust on exercise of share options
by current and former employees.
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IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Consolidated Financial Statements – Notes
For the year ended 31 December 2018
continued
24 Other reserves continued
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.
25 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 (£40.4million) 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 was recognised for the year ended 31 December 2017.
90
IGas Energy plc | Annual report and accounts 2018 26 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 2018.
The Director, 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:
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
Short-term employee benefits
Share plan
Social security costs
Fees
1,384
717
197
100
2,398
1,574
546
198
68
2,386
Short-term employee benefits: These amounts comprise fees paid to the key management personnel 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 key management personnel’s participation in SIP, LTIPs, EDRP and EIP plans, as measured by the fair
value of SIP, LTIPs, EDRPs and EIPs granted, accounted for in accordance with IFRS 2.
27 Subsequent events
On 24 January 2019 the Group issued 45,598 Ordinary £0.00002 shares in relation to the Company’s SIP scheme. The shares were issued at
£0.80 resulting in share premium of £36,477.
On 11 March 2019, the Company announced a significant advancement in UK share prospectively with over 250 metres of hydrocarbon bearing
shales encountered, including the upper and lower Bowland Shale, in the Springs Road 1 well.
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IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Parent Company Financial Statements –
Directors’ Statement of Responsibilities
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 judgments 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.
92
IGas Energy plc | Annual report and accounts 2018
Independent auditors’ report
to the members of IGas Energy plc
Report on the audit of the parent company financial statements
Opinion
In our opinion, IGas Energy plc’s parent company financial statements (the financial statements):
• Give a true and fair view of the state of the parent company’s affairs as at 31 December 2018 and of its cash flows for the year then ended;
• Have been properly prepared in accordance with International Financial Reporting Standards (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 2018; the Parent Company Cash Flow Statement, and 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 Company 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
Materiality
Audit scope
Key audit matters
• Overall materiality: £1.1 million (2017: £1.0 million), based on a proportion of net assets.
• We obtained coverage over 99% of Company’s total assets and 100% of Company’s
consolidated total liabilities.
• Carrying value of investment in subsidiaries.
• Basis of going concern.
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.
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IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Independent auditors’ report
to the members of IGas Energy plc
continued
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 matters
Carrying value of investment in subsidiaries
Refer to page 40 Audit Committee Report note 2 Investment in
subsidiaries.
The carrying value of the Company’s investments in subsidiaries
were £362.7m at 31 December 2018, comprising of £136.3m of
investment in subsidiaries and £226.4m of loans to group companies.
These represent 89.5% of the Company’s total assets. We focused on
this area due to the material nature of the balance.
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 £36.1m, the carrying
value is supportable.
Basis of going concern
Refer to page 40 Audit Committee Report, and page 101 note 1 (b)
Accounting Policies.
In assessing the appropriateness of the going concern assumption
used in preparing the financial statements, we:
We focused on this area given the recent volatility in oil price and
foreign exchange, and the need to ensure compliance with the terms
of the secured bonds, including financial covenants. The ability of the
Company and Group to continue as a going concern is dependent
on Management’s ability to maintain liquidity in order to repay its
existing creditors and outstanding debt.
Management’s assessment of going concern is based on cash flow
projections and business plans, each of which is dependent on
management’s judgement and can be influenced by management
bias.
• Checked the mathematical accuracy of Management’s cash flow
forecast and validated the opening cash position;
• Validated Management’s underlying cash flow projections for the
Company and Group to other external and internal sources where
appropriate, including recent production, oil price forecasts and
comparing cost assumptions to historic actuals and underlying
budgets;
• Performed sensitivity analysis to assess the impact of the key
assumptions underlying the forecast such as a reduction in oil
price, weaker operational performance and a strengthening of the
British Pound against the US Dollar, and the Company and Group’s
ability to take mitigating actions, if required; and
• Reviewed the completeness and appropriateness of management’s
going concern disclosures as disclosed in the financial statements.
Our conclusions on going concern are set out later in this report.
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 parent company, the accounting processes and controls, and the industry in which it operates.
94
IGas Energy plc | Annual report and accounts 2018 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
£1.1 million (2017: £1.0 million).
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 £55,000 (2017: £50,000)
as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
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
parent 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.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the parent company’s ability
to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear,
and it is difficult to evaluate all of the potential implications on the company’s trade, customers, suppliers and the wider economy.
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.
95
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Independent auditors’ report
to the members of IGas Energy plc
continued
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 2018 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 parent 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.
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 in Relation to the Parent Company Financial Statements set out on
page 92, 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 parent company’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend
to liquidate the parent 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 parent 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 parent 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 matter
We have reported separately on the Group financial statements of IGas Energy plc for the year ended 31 December 2018.
Richard Spilsbury
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 March 2019
96
IGas Energy plc | Annual report and accounts 2018
Parent Company Balance Sheet
As at 31 December 2018
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
Derivative financial instruments
Non-current liabilities
Borrowings
Total liabilities
Net assets
EQUITY
Capital and reserves
Called up share capital
Share premium account
Other reserves
Accumulated surplus
Total equity
31 December 31 December
2017
£000
2018
£000
Notes
2
3
362,707
83
392,275
47
362,790
392,322
4
5
35,502
6,806
42,308
30,947
858
31,805
405,098
424,127
6
8
10
(133,187)
(2,389)
(146,910)
(1,687)
(71) –
(135,647)
(148,597)
8
(18,591)
(19,553)
(154,238)
(168,150)
250,860
255,977
11
11
12
30,333
102,501
31,310
86,716
30,333
102,342
29,994
93,308
250,860
255,977
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 loss for the year of £0.5 million
(2017: a profit of £2.5 million).
These financial statements were approved and authorised for issue by the Board on 27 March 2019 and are signed on its behalf by:
Stephen Bowler
Chief Executive Officer
Julian Tedder
Chief Financial Officer
The notes on pages 100 to 116 form an integral part of these financial statements.
97
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Parent Company Statement of Changes in Equity
For the year ended 31 December 2018
Balance at 1 January 2017
Profit for the year
Employee share plans (note 12)
Forfeiture of LTIPs under the employee share plan (note 12)
Lapse of LTIPs under the employee share plan (note 12)
Issue of shares and conversion of debt (note 11)
Reserves transfer on equitisation of unsecured bond
Balance at 31 December 2017
Change in accounting policy (note 1)
Restated balance at 31 December 2017
Loss for the year
Employee share plans (note 12)
Lapse of LTIPs under the employee share plan (note 12)
Issue of shares (note 11)
Called up
share
capital
(note 11)
£000
30,282
–
–
–
–
51
–
30,333
–
30,333
–
–
–
–
Share
premium
account
(note 11)
£000
32
–
–
–
–
93,302
9,008
102,342
–
102,342
–
159
–
–
Balance at 31 December 2018
30,333
102,501
The notes on pages 100 to 116 form an integral part of these financial statements.
Capital
redemption
reserve
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Other Accumulated
reserves
(note 12)
£000
28,757
–
1,333
(85)
(11)
–
–
29,994
–
29,994
–
1,489
(173)
–
(deficit)/
surplus
£000
99,969
2,462
(115)
–
–
–
(9,008)
93,308
(6,402)
86,906
(478)
115
173
–
Total
equity
£000
159,040
2,462
1,218
(85)
(11)
93,353
–
256,092
(6,402)
249,575
(478)
1,763
–
–
31,310
86,716
250,860
98
IGas Energy plc | Annual report and accounts 2018
Parent Company Cash Flow Statement
For the year ended 31 December 2018
Cash flows from operating activities:
(Loss)/profit before tax
Depletion, depreciation and amortisation
Share based payment charge
Impairment of investments
Income from subsidiary undertakings
Unrealised loss on foreign exchange hedges
Finance income
Finance costs
Other non-cash items
Operating cash flow before working capital movements
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Cash used in operating activities
Tax refunded
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Interest received
Net cash (used in)/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
Dividend received from subsidiary undertakings
Interest paid
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents in the year
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 100 to 116 form an integral part of these financial statements.
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
Note
(478)
53
236
36,060
(37,076) –
71 –
(11,384)
10,452
(1)
(2,067)
(4,555)
(20,888)
(27,510)
–
2,429
77
159
17,939
(27,452)
6,389
(124)
(583)
8,419
(19,071)
(11,235)
31
(27,510)
(11,204)
(89) –
5
(84)
10
10
70
–
–
–
(1,722)
37,076 –
(1,751)
33,673
6,079
(131)
858
6,806
77
46,789
(39,337)
(4,311)
(5,423)
(5,917)
(8,122)
(19,316)
(1,031)
21,205
858
11
13
13
13
5
5
5
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IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Parent Company Financial Statements – Notes
For the year ended 31 December 2018
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 2018, and
with the Companies Act 2006. The financial statements were approved by the Board and authorised for issue on 27 March 2019. 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 loss for the year of £0.5 million
(2017: a profit of £2.5 million).
New and amended standards and interpretations
During the year, the Company adopted the following new and amended IFRSs for the first time for their reporting period commencing 1 January
2018:
IFRS 2
IFRS 15
IFRS 9
Classification and measurement of share-based payment transactions – Amendment to IFRS 2
Revenue from Contracts with Customers
Financial Instruments
The Parent Company has adopted IFRS 15 from 1 January 2018, which resulted in changes in accounting policies; however no adjustments were
required to the amounts recognised in the financial statements.
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 from 1 January 2018 resulted
in changes in accounting policies and certain retrospective adjustments as disclosed below in note 10.
Accounting policies applied until 31 December 2017
The Parent Company has applied IFRS 9 retrospectively, but has elected not to restate the comparative information. As a result, the comparative
information provided continues to be accounted for in accordance with the Parent Company’s previous accounting policy.
Changes in accounting policies
As a result of the changes in the Company’s accounting policies, prior year financial statements had to be restated. As explained below, IFRS
9 was adopted without restating comparative information. The reclassifications and adjustments arising from the new impairment rules are
therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognized in the opening balance sheet on 1 January
2018.
The following table shows the adjustments recognized for each individual line item. Line items that were not affected by the changes have not
been included. As a result, the subtotals and totals disclosed cannot be recalculated from the numbers provided. The adjustments are explained
in more detail by standard below.
Balance Sheet (extract)
Non-current assets
Loans to Group companies (note 2)
Total assets
Reserves
Retained earnings
Total equity
31 December
2017
£000
IFRS 9
£000
1 January
2018
£000
221,381
424,127
(6,402)
214,979
(6,402)
417,725
93,308
255,977
(6,402)
86,906
(6,402)
249,575
IFRS 9 replaces provisions of IAS 39 that relate to the recognition , classification and measurement of financial assets and financial liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting.
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IGas Energy plc | Annual report and accounts 2018
1 Accounting policies continued
(a) Basis of preparation of financial statements continued
The total impact on the Parent Company’s retained earnings as at 1 January 2018 is as follows:
Closing retained earnings 31 December 2017 – IAS 39
Increase in provision for expected credit losses
Adjustment to retained earnings from adoption of IFRS 9 on 1 January
Opening retained earnings 1 January 2018 – IFRS 9
£000
93,308
(6,402)
(6,402)
86,906
New standards and interpretations not yet adopted
Certain new standards, interpretations and amendments to existing standards have been published that are mandatory only for the Company’s
accounting periods beginning on or after 1 January 2019 or later periods and which the Company has not adopted early. Those that may be
applicable to the Company in future are as follows:
IFRS 16
IFRIC Interpretation 23
Amendments to IAS 28
Leases
Uncertainty over Income Tax Treatments
Long-term interest in Associates and Joint Ventures
1 January 2019*
1 January 2019*
1 January 2019*
* 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.
Other than IFRS 16, there are no other standards that are not yet effective and that would be expected to have a material impact on the entity
in the current or future reporting periods. The Company’s assessment of the impact of IFRS 16 is set out below:
Nature of change, impact and mandatory application
IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between
operating and finance leases is removed. Under the new standard, an asset being the right to use the leased asset, and a financial liability to pay
rentals are recognised. The only exceptions are short-term and low-value leases. The Company has reviewed the existing population of leases
and any new leases in light of the new lease accounting rules in IFRS 16. There is no significant impact on the Company. See impact on the Group
in the Group accounting policies.
(b) Going concern
The Group and Company continue to closely monitor and manage its liquidity risks including the continued use of both oil and interest rate
derivatives. Cash forecasts for the Group and Company are regularly produced based on, inter alia, the Group and Company production
and expenditure forecasts, management’s best estimate of future oil prices, management’s best estimate of foreign exchange rates and the
Group and Company’s borrowings. Sensitivities are run to reflect different scenarios including, but not limited to, possible further reductions
in commodity prices, strengthening of sterling and reductions in forecast oil and gas production rates. The Group and Company’s base case
working capital forecasts show that the Group and Company will have sufficient financial headroom for the 12 months from the date of approval
of the financial statements. To manage the impact of the most extreme downside scenarios modelled, management would have to take
action, including delaying capital expenditure in order to remain within the Company’s banking facilities. All such mitigating actions are within
management’s control.
Therefore, after making appropriate enquiries and considering the risks described above, the Directors have a reasonable expectation that the
Group and Company have adequate resources to continue in existence for the foreseeable future. Thus they continue to adopt the going concern
basis of accounting in the preparation of the financial statements.
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IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Parent Company Financial Statements – Notes
For the year ended 31 December 2018
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
IGas Energy plc | Annual report and accounts 2018
1 Accounting policies continued
(e) Financial Instruments
Classification
From 1 January 2018, the Parent Company classifies its financial assets in the following measurement categories:
• Those to be measured subsequently at fair value (either through OCI or through profit or loss); and
• Those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For
assets measured at fair value, gains and losses will be recorded either in profit or loss or in OCI. For investments in equity instruments that are
not held for trading, this will depend on whether the Parent Company has made an irrevocable election at the time of initial recognition to
account for the equity investment at fair value through other comprehensive income (FVOCI).
The Parent Company reclassifies debt investments when and only when its business model for managing those assets changes.
Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade date (that is, the date on which the Parent Company commits to
purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have
been transferred and the Parent Company has transferred substantially all the risks and rewards of ownership.
Measurement
At initial recognition, the Parent Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through
profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets
carried at FVPL are expensed in profit or loss.
The Parent Company holds financial assets at amortised costs being trade and other receivables, cash and cash equivalents and restricted cash
and derivative financial instruments used for hedging.
The Parent Company also hold financial liabilities at amortised cost being trade and other payables, borrowings, other creditors and derivative
financial instruments used for hedging.
The Parent Company classifies its financial assets at amortised cost only if both of the following criteria are met:
• The asset is held within a business model whose objective is to collect the contractual cash flows; and
• The contractual terms give rise to cash flows that are solely payments of principal and interest.
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 amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally
due for settlement within 30 days and are therefore all classified as current. Trade receivables are initially recognised at the amount of
consideration that is unconditional, unless they contain significant financing components, in which case they are recognised at fair value.
Details about the Group’s impairment policy and the calculation of loss allowance is provided in the Impairment accounting policy below.
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
At the end of each reporting period, a provision is made if there is objective evidence that a financial asset or group of financial assets was
impaired. A financial asset or a group of financial assets was impaired and impairment loss is incurred only if there is objective evidence of
impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event), and that loss event (or events)
had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated.
103
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Parent Company Financial Statements – Notes
For the year ended 31 December 2018
continued
1 Accounting policies continued
(e) Financial Instruments continued
Assets carried at amortised cost
For loans and receivables, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future credit losses that had not been incurred), discounted at the financial asset’s original effective
interest rate. The carrying amount of the asset is reduced and the amount of loss is recognised in the income statement.
If in the subsequent period, the amount of loss decreased and the decrease is related objectively to an event occurring after the impairment
was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised
in the income statement.
Warrants
When warrants do not qualify as equity instruments under IAS 39 due to the variable number of shares that would be issued in each case they
are accounted for as financial liabilities. The warrants are 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 cashflows are revised,
borrowings are re-measured using the revised cash flow estimates under the original effective interest with any consequent adjustment being
recognised in the income statement.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.
The EIR amortisation is included in finance costs in the income statement.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of these assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from
the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the income statement in the period in which they are incurred.
(f) Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date including
whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the
asset.
Operating leases
Rentals are charged to the income statement in the year on a straight line basis over the period of the lease.
(g) Taxation
The tax expense represents the sum of current tax and deferred tax.
Current income tax assets and liabilities are measured at the amount expected to be recovered or paid to the tax authorities. Taxable profit/
(loss) differs from the profit/(loss) before taxation as reported in the income statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date except when
the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Temporary differences arise from differences at
the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax
liabilities are not discounted. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.
104
IGas Energy plc | Annual report and accounts 2018 1 Accounting policies continued
(g) Taxation continued
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. The comparative other reserves and accumulated (deficit)/surplus were corrected by increasing/decreasing them respectively by
£115,000 in relation to share based payments.
Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, the value of such shares at issue will be
recorded in share capital and share premium account in the ordinary way, but will not affect shareholders’ funds since this same value will be
shown as a deduction from shareholders’ funds by way of a separate component of equity (Treasury shares).
(i) Equity
Equity instruments issued by the Company are usually recorded at the proceeds received, net of direct issue costs, and allocated between called
up share capital, share premium accounts or merger reserve as appropriate.
(j) Foreign currency
Transactions denominated in currencies other than the functional currency UK pound sterling are translated at the exchange rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the
balance sheet date. All differences that arise are recorded in the income statement.
105
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Parent Company Financial Statements – Notes
For the year ended 31 December 2018
continued
2 Investments in subsidiaries
Investments in subsidiaries comprises:
Parent Company
At 1 January
Additions
Impairments
Credit loss allowance
At 31 December
* Refer note 10 for credit risk.
31 December
2018
31 December
2017
Investment
in Group
Companies
£000
Loans to
Group
companies *
£000
Total
£000
170,894
1,515
(36,060)
–
221,381
11,379
–
(6,402)*
392,275
12,894
(36,060)
(6,402)
Investment
in Group
Companies
£000
187,772
1,061
(17,939)
–
Loans to
Group
companies
£000
210,002
11,379
–
–
Total
£000
397,774
12,440
(17,939)
–
136,349
226,358
362,707
170,894
221,381
392,275
Loans to Group companies are repayable on demand and bear interest at either 1.2% above LIBOR or at a fixed rate of 12%.
Additions represent investment of £1.5 million relating to employee share-based payment costs under IFRS 2 and £11.4 million interest accrued
on existing loans to group companies.
At 31 December 2018, the Company had investments in the following 100 per cent 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
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
Edinburgh, EH2 4AD
Star Energy (East Midlands) Limited
Dart Energy (East England) Limited
Dart Energy (West England) Limited
IGas Energy Development Limited
IGas Energy Production Limited
Dart Energy (Carbon Storage) 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 4000
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
7 Down Street, London, W1J 7AJ
Investment holding, Scotland C/O Womble Bond Dickinson (UK) Llp, Level 6, 124-125 Princess Street,
Dormant, England
Shale gas exploration, England
Shale gas exploration, England
Oil and gas exploration, development and production, England
Oil and gas exploration, development
and production, Scotland
Dormant, Scotland
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
7 Down Street, London, W1J 7AJ
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
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 4000
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
Dart Energy (Lothian) Limited
Dormant, Scotland
Greenpark Energy Transportation Limited
Apollo Gas Pty Limited
Dart Energy (Bruxner) Pty Limited
Dart Energy (India) Pty Limited
Dart Energy SPV No.1 Pty Limited
Dormant, England
Dormant, Australia
Investment holding, Australia
Investment holding, Australia
Dormant, Australia
The Company’s investments in subsidiaries were reviewed for indicators of impairments as at 31 December 2018. Impairments of £36.1 million
are recorded against the investments which are not supported by the subsidiaries underlying net asset values.
106
IGas Energy plc | Annual report and accounts 2018
2 Investments in subsidiaries continued
Name of company
Principal activity and Country of incorporation
Registered office address
Dart Energy SPV No.2 Pty Limited
Dart Energy (China) Pty Limited
Dart Energy (Overseas) Pty Limited
Dart Energy Global CBM Pty Limited
Dart Energy India Services Pvt Limited
Dormant, Australia
Dormant, Australia
Dormant, Australia
Dormant, Australia
Service company, India
Dart Energy International Limited
Dart Energy (Europe) Pte Limited
Dart Energy (China) Holdings Pte Limited
Dart Energy (India) Pte Limited
Dart Energy (ST) Pte Limited
Dart Energy (AS) Pte Limited
Dart Energy (Sangatta West) Pte
Dart Energy (Dajing) Pte Limited
Dart Energy (Vietnam) Holdings Pte Limited
Dart Energy (India) Holdings Pte Limited
Dart Energy Asia Holdings Pte Limited
Dart Energy (Hanoi Basin CBM) Pte Limited
Dart Energy India (CMM) Pte Limited
Dart Energy (CIL) Pte Limited
Dart Energy (MG) Pte Limited
Investment holding, Singapore
Investment holding, Singapore
Investment holding – dormant, Singapore
Investment holding – dormant, Singapore
Investment holding, Singapore
Investment holding, Singapore
Investment holding, Singapore
Investment holding – dormant, Singapore
Investment holding – dormant, Singapore
Dormant, Singapore
Dormant, Singapore
Dormant, Singapore
Dormant, Singapore
Dormant, Singapore
Dormant, Singapore
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
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 2018.
3 Property, plant and equipment
31 December 2018
31 December 2017
Fixtures,
fittings and
equipment
£000
Buildings
£000
Motor
vehicles
£000
Total
£000
Buildings
£000
Fixtures,
fittings and
equipment
£000
Motor
vehicles
£000
Cost
At 1 January
Additions
Disposals
At 31 December
Accumulated depreciation and Impairment
At 1 January
Charge for the year
Disposals
At 31 December
NBV at 31 December
375
89
–
464
331
53
–
384
80
139
–
(43)
96
136
–
(43)
93
3
20
–
–
20
20
–
–
20
–
534
89
(43)
580
487
53
(43)
497
83
375
–
–
375
256
75
331
44
139
–
–
139
134
2
136
3
20
–
–
20
20
–
20
–
Total
£000
534
–
–
534
410
77
487
47
107
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Parent Company Financial Statements – Notes
For the year ended 31 December 2018
continued
4 Trade and other receivables
Amounts falling due within one year:
VAT recoverable
Other debtors
Amounts due from subsidiary undertakings
Prepayments
31 December 31 December
2017
£000
2018
£000
2
8
35,429
63
35,502
39
36
30,718
154
30,947
Amounts due from subsidiary undertakings are unsecured, interest free and payment terms are as mutually agreed between the Group’s
companies with no expected credit loss.
Due to the short-term natures of the current receivables, their carrying amount is considered to be the same as their fair value.
5 Cash and cash equivalents
Cash at bank and in hand
31 December 31 December
2017
£000
2018
£000
6,806
858
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.
31 December 31 December
2017
£000
2018
£000
6,806
(20,980)
(14,174)
(518)
858
(21,240)
(20,382)
(686)
(14,692)
(21,068)
31 December 2018
31 December 2017
Cash and cash
equivalents
£000
858
–
(1,722)
(1,751)
(131)
9,552
–
Borrowings
£000
(21,240)
–
1,722
(1,238)
–
(224)
Cash and cash
equivalents
£000
Total
£000
(20,382)
–
–
(1,751)
(1,369)
9,552
(224)
21,205
3,140
(5,423)
(5,917)
(1,031)
(11,116)
–
Borrowings
£000
(124,579)
90,025
5,423
5,917
2,369
–
(395)
Total
£000
(103,374)
93,165
–
–
1,338
(11,116)
(395)
6,806
(20,980)
(14,174)
858
(21,240)
(20,382)
Net debt reconciliation
Cash and cash equivalents
Borrowings
Net debt
Borrowings – capitalised fees
Net debt excluding capitalised fees
At 1 January
Capital restructuring
Repayment and repurchase of borrowings
Interest paid
Foreign exchange adjustments
Other cash flows
Other non-cash movements
At 31 December
108
IGas Energy plc | Annual report and accounts 2018
6 Trade and other payables
Trade creditors
Taxation and social security
Amounts due to subsidiary undertakings
Accruals and other creditors
31 December 31 December
2017
£000
2018
£000
155
54
132,081
897
274
51
145,751
834
133,187
146,910
Amounts due to subsidiary undertakings are unsecured, interest free and payment terms 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
(2017: 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:
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
Excess management expenses
Non-trade loan relationship debits
8 Borrowings
Borrowings are measured at amortised cost in accordance with IAS 39.
19,134
47,905
17,615
47,968
Bonds – secured
31 December 2018
31 December 2017
Within
1 year
£000
2,389
Greater
than 1 year
£000
Total
£000
18,591
20,980
Within
1 year
£000
1,687
Greater
than 1 year
£000
Total
£000
19,553
21,240
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 Debt Service Requirement
Account (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.
109
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Parent Company Financial Statements – Notes
For the year ended 31 December 2018
continued
9 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 31 December
2017
£000
2018
£000
390
873
–
1,263
1,273
1,468
867
3,608
10 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:
Carrying amount
Fair value
31 December 31 December 31 December 31 December
2017
£000
2018
£000
2017
£000
2018
£000
Financial liabilities
Amortised cost
Borrowings1
20,980
21,240
20,875
21,452
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
Derivative financial instruments – foreign exchange hedge
31 December 31 December
2017
£000
2018
£000
71 –
110
IGas Energy plc | Annual report and accounts 2018
10 Financial instruments and risk management continued
Financial risk management
The Company’s principal financial liabilities comprise borrowings, foreign exchange hedges 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 31 December
2017
£000
2018
£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 Groups borrowings which are denominated in US dollars. The impact on equity is the
same as the impact on profit before tax.
111
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Parent Company Financial Statements – Notes
For the year ended 31 December 2018
continued
10 Financial instruments and risk management continued
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 31 December
2017
£000
2018
£000
2,004
(2,004)
2,170
(2,170)
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 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. £6.8 million (2017: £0.1
million) of cash and cash equivalents were held with two institutions.
The loans to subsidiaries are considered to have low credit risk, and the loss allowance recognised during the period was therefore limited
to 12 months expected losses. Management consider ‘low credit risk’ to be when they have a low risk of default and the issuer has a strong
capacity to meet its contractual cash flow obligations in the near term.
The loss allowance for the loan to subsidiary as at 31 December 2017 reconciles to the opening loss allowance on 1 January 2018 and to the
closing loss allowance as at 31 December 2018 as follows:
Closing loss allowance as at 31 December 2017 (calculated under IAS 39)
Amounts restated through opening retained earnings
Loss allowance as at 1 January 2018 and 31 December 2018 (calculated under IFRS 9)
Loan
to subsidiary
£000
–
6,402
6,402
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 2018
Borrowings
Trade and other payables
At 31 December 2017
Borrowings
Trade and other payables
On demand
£000
<1 year
£000
1–2 years
£000
2–3 years
£000
>3 years
£000
Total
£000
–
–
–
–
–
–
4,070
155
4,225
3,418
274
3,692
3,878
–
3,878
3,823
–
3,823
17,698
–
17,698
–
–
–
25,646
155
25,801
3,643
–
3,643
16,663
–
16,663
27,547
274
27,821
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.
112
IGas Energy plc | Annual report and accounts 2018
10 Financial instruments and risk management continued
Capital management
The Company manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder value.
The Company’s funding needs are met through a combination of debt and 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 13). 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 $220 million, means
that the Company is well positioned to pursue its strategy.
11 Share capital and share premium
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 sub-divided 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.
Issued and fully paid
At 1 January 2017, ordinary shares of 10p each
302,820,578
30,282
Ordinary shares
Nominal value
£000
No.
January 2017 SIP share issue
484,956
303,305,534
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
–
679,282,165
400,069,644
1,043,350,391
–
–
956,464
Total ordinary shares before subdivision and consolidation
2,426,964,198
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
January 2018 SIP share issue
April 2018 SIP share issue
July 2018 SIP share issue
October 2018 SIP share issue
At 31 December 2018
(2,305,615,988)
121,348,210
59,352
73,557
400,000
121,881,119
69,195
55,279
37,782
33,894
122,077,269
49
30,331
(30,331)
1
–
1
–
–
–
2
–
–
–
2
–
–
–
–
2
* Deferred shares were created on capital restructuring which completed in April 2017 as disclosed in note 16.
Deferred shares*
Share
capital
Nominal value Nominal value
£000
£000
No.
–
–
–
–
–
–
30,282
49
30,331
303,305,534
30,331
–
–
–
–
–
303,305,534
–
–
–
303,305,534
–
–
–
–
–
–
–
–
–
30,331
–
–
–
30,331
–
–
–
–
Share
premium
Value
£000
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
–
–
–
–
48
45
31
35
303,305,534
30,331
30,333
102,501
113
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
Parent Company Financial Statements – Notes
For the year ended 31 December 2018
continued
11 Share capital and share premium continued
Accordingly, the Group share capital account comprised:
Share capital account
At 1 January 2017
Shares issued during the year
At 31 December 2017
Shares issued during the year
At 31 December 2018
£000
30,282
51
30,333
–
30,333
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 196,150 ordinary shares at a nominal value of 0.002p each (2017: 106,740,090 ordinary shares of
0.002p each). No issuing costs were incurred during the year (2017: £554 thousand).
12 Other reserves
Other reserves are as follows:
At 1 January 2017
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
Employee share plans – cost under IFRS 2
Employee share plans – shares issued under the SIP
Lapse of LTIPs under the employee share plan
Transfers
At 31 December 2018
Employee share plans – Equity settled
Details of the share options under employee share plans outstanding are as follows:
Outstanding at 1 January 2017
Exercisable at 1 January 2017
Total
£000
28,757
1,231
102
(85)
(11)
–
Share plan
reserves
£000
Treasury
Capital
shares contributions
£000
£000
8,138
(1,650)
47
Merger
reserve
£000
22,222
1,231
–
(85)
(11)
(175)
9,098
1,430
–
(173)
99
–
102
–
–
175
–
–
–
–
–
–
–
–
–
–
(1,373)
47
22,222
29,994
–
59
–
(99)
–
–
–
–
–
–
–
–
1,430
59
(173)
–
10,454
(1,413)
47
22,222
31,310
EIP
Number
of units
MRP
Number
of units
EDRP
Number
of units
LTIP
Number
of units
7,096,343
9,470,814 6,500,000
1,841,884
–
9,470,814 6,500,000
–
Exercisable after subdivision and conversion (including roundings)
354,826
473,566
325,000
92,096
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
Awarded during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December 2018
Exercisable at 31 December 2018
1,756,923
(9,533)
–
(15,512)
2,086,704
2,086,704
1,911,057
–
–
–
(206,314)
–
–
267,252
267,252
76,310
(52,371)
–
–
–
–
–
325,000
325,000
–
–
–
3,997,761
291,191
325,000
3,997,761
291,191
325,000
–
–
(1,029)
(3,971)
87,096
87,096
–
–
(87,092)
–
–
Note – all options are nil cost and therefore the weighted average exercise price is nil.
Detail disclosure of each employee share plan scheme is in the Group consolidated accounts note 24.
114
IGas Energy plc | Annual report and accounts 2018
12 Other reserves continued
Executive Incentive Plan (EIP)
The total charge for the year was £0.12 million (2017: £0.05 million). Of this amount, £nil (2017: £nil) was capitalised and £0.12 million
(2017: £0.05 million) was charged to the Income Statement.
Management Retention Plan (MRP)
The total charge for the year was £0.01 million (2017: £nil). Of this amount, £nil (2017: £nil) was capitalised or recharged to joint venture partners
and £0.01 million (2017: £nil) was charged to the Income Statement.
Executive Director Retention Plan (EDRP)
The total charge for the year was £nil (2017: £nil). Of this amount, £nil (2017: £nil) was capitalised and £nil (2017: £nil) was charged to the
Income Statement.
Long Term Incentive Plan 2011 (2011 LTIP)
The total charge for the year was £0.01 million (2017: £0.01 million). Of this amount, £nil (2017: £nil) was capitalised and £0.01 million
(2017: £0.01 million) was charged to the Income Statement.
Other share based payments
Detail disclosure of other share based payments is in the Group consolidated accounts note 24.
Share Incentive Plan (SIP)
The total charge for the year was £nil (2017: £nil). Of this amount, £nil (2017: £nil) was capitalised and £nil (2017: £nil) was charged to the
Income Statement.
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.
13 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 (£40.4million) 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 was recognised in the year ended 31 December 2017.
115
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements Parent Company Financial Statements – Notes
For the year ended 31 December 2018
continued
14 Related party transactions
(a) with Group companies
A summary of the transactions in the year is as follows:
Amounts due from/(to) subsidiaries:
At 1 January
Services performed (for)/by subsidiary
Net cash advances
Group loan interest
Allowance for credit loss
Dividend receivable
Revaluations
At 31 December
Amounts due from subsidiary undertakings
Amounts due to subsidiary undertakings
Loans to Group companies
Total
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
106,349
719
(12,309)
11,379
(6,402) –
37,076 –
(7,106)
75,861
2,676
7,092
11,379
9,341
129,706
106,349
Year ended
Year ended
31 December 31 December
2017
£000
2018
£000
35,429
(132,081)
226,358
30,718
(145,751)
221,382
129,706
106,349
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.
15 Subsequent events
On 24 January 2019 the Group issued 45,598 Ordinary £0.00002 shares in relation to the Company’s SIP scheme. The shares were issued
at £0.80 resulting in share premium of £36,477.
On 11 March 2019, the Company announced a significant advancement in UK share prospectively with over 250 metres of hydrocarbon bearing
shales encountered, including the upper and lower Bowland Shale, in the Springs Road 1 well.
116
IGas Energy plc | Annual report and accounts 2018
Oil and Gas Reserves
As at 31 December 2018
The Group’s estimate of proved plus probable reserves at 31 December 2018 are based on an independent evaluation of IGas conventional
oil and gas interests prepared by D&M, the leading international reserves and resources auditors. 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 2018
Additions during the year
Revision of previous estimates
Production
Total change during the year
At 31 December 2018
Oil
mmbbls
13.25
0.90
(0.77)
(0.79)
(0.66)
12.59
Gas
Bcf
2.25
8.90
0.44
(0.18)
9.16
11.41
Total
mmboe
13.64
2.43
(0.69)
(0.82)
0.92
14.56
117
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements
IGas Onshore UK Licence Interests
Licence
Fields
East Midlands
AL009
EXL288
ML3
ML4
ML6
ML7
Dunholme1
Trumfleet2
Egmanton
Gainsborough, Beckingham, Corringham,
Glentworth
Bothamsall
South Leverton
PEDL006
Cold Hanworth
PEDL012
PEDL139
PEDL140
PEDL146
PEDL1693
PEDL200
PEDL210
PEDL2734
PEDL 278
PEDL305
PEDL316
PEDL317
PEDL337
PL178
PL179
PL1996
PL220
Weald Basin
DL002
DL004
ML18
ML21
PEDL021
PEDL070
PEDL235
PEDL257
PEDL326
PL182
PL205
PL211
PL233
PL240
PL249
118
Hemswell1
Hemswell1
Beckering1
West Beckingham
Welton, Stainton, Nettleham, Scampton
South, Scampton North, East Glentworth
Nettleham
Long Clawson, Rempstone
Stockbridge
Albury
Bletchingley
Bletchingley
Goodworth
Avington
Godley Bridge1
Lingfield1
Palmers Wood
Storrington
Horndean
Stockbridge
Singleton
Stockbridge
Area
km2
IGas
interest
Operator Other partners
9
75
26
72
11
11
136
33
100
142
276
62
114
116
194
38
143
111
39
10
2
107
4
13
10
14
8
9
50
18
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%
54%
100%
100%
100%
100%
100%
90%
100%
100%
100%
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
IGas
INEOS
INEOS
INEOS, Egdon, Ecorp
INEOS, Egdon, Ecorp
INEOS
Egdon
INEOS
INEOS
Total, Egdon, INEOS
Egdon
Total, Egdon, INEOS
Total, Egdon, INEOS
Egdon, Aurora, UKOG, Corfe
UKOG
IGas Energy plc | Annual report and accounts 2018 Licence
Fields
North West
EXL273
PEDL145
PEDL147
PEDL184
PEDL189
PEDL190
PEDL193
PEDL293
PEDL295
Scotland
P1270
PEDL158
Lybster
Lybster
Area
km2
IGas
interest
Operator Other partners
INEOS
INEOS
INEOS
INEOS
48
74
89
286
100
94
296
200
200
16
46
15%
40%
25%
50%
25%
50%
40%
30%
30%
100%
100%
INEOS
INEOS
IGas
IGas
IGas
IGas
INEOS
INEOS
INEOS
IGas
IGas
Notes:
1. Dunholme, Hemswell, Beckering, Godley Bridge and Lingfield are undeveloped fields.
2. Trumfleet Field was abandoned in 2009 prior to IGas acquiring an interest in licence EXL288.
119
IGas Energy plc | Annual report and accounts 2018Strategic ReportCorporate GovernanceFinancial Statements 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.
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
Liquefied Natural Gas
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
Firm well
GIIP
LNG
MMboe
MMscfd
NBP
PEDL
PL
Tcf
UK
120
IGas Energy plc | Annual report and accounts 2018 Banker
Barclays Bank Plc
1 Churchill Place
London E14 5HP
Registered Office
7 Down Street
London W1J 7AJ
Copies of Reports and Accounts
Further copies of this Annual report and accounts can
be obtained from the Registered Office of IGas Energy plc
(IGas Energy).
General Information
Directors
M 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
30 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
Design and Production
www.carrkamasa.co.uk
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1
8
IGas Energy plc
Registered Office
7 Down Street
London
W1J 7AJ
+44 (0)20 7993 9899
www.igasplc.com