Delivering
an energy
independent &
secure future
for Britain.
IGas Energy plc
Annual Report and Accounts 2019
Our purpose is
to provide a safe,
responsible and
secure supply of
energy for Britain,
in collaboration
with all our
stakeholders.
What’s Inside
Strategic Report
Financial & Operational Performance
Looking to the Future
Our Marketplace
Chairman’s Statement
Creating Value
Our Stakeholders
Our Communities
Our Regulators
Chief Executive’s Statement
Financial Review
Key Performance Indicators
Risk Management
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 Auditors’ 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 Auditors’ 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
08
10
12
14
16
20
24
26
30
35
40
41
43
47
52
54
55
60
60
61
62
63
64
98
99
103
104
105
106
122
123
125
126
IGas Energy plc | Annual Report and Accounts 2019 Adjusted EBITDA
£13.8m
£40.9m
£42.9m
2019
2018
£13.8m
£10.8m
Operational
Production
• Net production averaged
2,325 boepd for the year
(2018: 2,258 boepd).
Reserves
Underlying operating profit
• Significant 2P reserves
Financial & Operational Performance
The production business has performed well
in 2019 and generated strong free operating
cash flow.
Financial
Revenues
£40.9m
2019
2018
Loss after tax
£(49.8)m
2019
2018
£4.6m
£(49.8)m
2019
£(21.4)m
2018
Operating cash flow before
working capital movements
£14.3m
Net debt
£6.2m
2019
2018
£14.3m
2019
£11.6m
2018
£4.6m
£4.0m
£6.2m
£6.4m
Cash and cash equivalents
Net assets
£8.2m
2019
2018
£113.1m
£8.2m
2019
£15.1m
2018
£113.1m
£161.7m
To read more on our results
see page 20
replacement ~277% (1P ~192%);
• 2P reserves of 16.05 MMboe
at 31 December 2019
(2018: 14.56 MMboe).
Incremental production
• Our waterflood projects at Welton
and Scampton remain on track
both in terms of delivery and
budget, and are expected
to be online in the summer
of 2020.
Shale exploration & appraisal
• During 2019, ahead of the
moratorium, we made significant
progress on our shale assets in
the East Midlands, confirming
our prognosis that we have a
world-class gas resource in the
Gainsborough Trough.
Health & Safety
• IGas presented with ROSPA
Presidents Award, representing
13 years of commitment to
Occupational Health and Safety.
Read more on pages 10 to 15
Engagement with our
stakeholders informs our
Company decisions.
IGas Energy plc | Annual report and accounts 2019
01
Strategic ReportCorporate GovernanceFinancial Statements LOOKING TO THE FUTURE
Britain’s energy mix
2035 projection1
36%
Oil
Our vision
for securing
energy
for Britain.
1 Source: www.gov.uk/government/publications/updated-
energy-and-emissions-projections-2018.
2 Renewables and waste includes generation from solar,
wind and hydro. It also includes road biofuel use and other
transport related biofuel uses.
3 Energy use or losses from final energy production for
imported energy is not included.
4 Source: CCC Net Zero Report.
02
Natural gas demand is forecast
to decrease by around 30% by
2050, when the Government has
committed to net zero emissions,
but import dependency is set
to rise from 50% today to 86%
in 2050.4
31%
Natural
gas
IGas Energy plc | Annual Report and Accounts 2019 16%
Renewables &
waste2
13%
Nuclear
3
s
t
r
o
p
m
i
t
e
n
y
t
i
c
i
r
t
c
e
l
E
%
2
31%
Natural
gas
Our vision for securing energy for Britain
IGas has played an important role in Britain’s
onshore energy production; safely exploring,
developing and producing oil and gas at our
sites for over three decades.
To improve the UK’s balance of payments
and to ensure that the oil and gas we are
buying is not further inflating global
GHG emissions, we believe the UK
Government must continue to encourage
the development of Britain’s oil and gas
reserves over foreign imports and promote
its support for Britain’s oil and gas industry
and its jobs.
Meeting Britain’s future energy demand
Energy security is increasingly relevant
in the world today. All major predictions,
including the most recent statistics
published in 2019, show oil and gas
continues to dominate the energy mix.
The independent Committee on Climate
Change also states that we will need oil
and gas for decades; both to meet demand
and our net zero commitment in 2050.
Gas plays a significant role in providing
energy to the UK, whether through heating
over 80% of peoples’ homes or contributing
c. 50% to electricity generation. The UK
currently imports over 50% of the natural
gas it consumes. In 2019 alone, the nation
spent £200 million a week on gas imports.
Importing our gas from outside the UK
increases the carbon footprint fourfold,
while handing the potential job and supply
chain benefits to those gas suppliers. With
our North Sea assets on the decline, the UK’s
imported gas share is expected to hit 86%
by 2050.
The UK needs energy producers that can
deliver affordable energy, with lower
emissions.
03
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements
OUR MARKETPLACE
Capitalising
on our domestic
natural resources.
>80%Without new supplies of gas it is expected that we will be importing
over 80% of our gas requirements by 2050
1,329tcf 70%
Gas lying deep beneath
northern and central England1
Of gas consumed today will still
be required in 2050
2.75tcf
As a nation we use 2.75 tcf
a year
1 Source: BGS central estimate.
87.5%
Of the 22 million homes
connected to the gas grid,
87.5% of their heat and
electricity comes from gas
The potential
of shale gas
exploration
The sheer scale of the UK’s
shale gas resource is immense.
The British Geological Survey's
mid-case scenario estimates
that we have 1,329 trillion cubic
feet’s (tcf) worth of gas lying
underneath northern and
central England.
As a nation we use 2.75 tcf a
year, meaning that if we extract
just 10% of the shale gas we
have, we could meet our UK
demand for half a century. That’s
the needs of homes, businesses
and British industry covered – all
using an indigenously produced
product that will create
significant community benefits,
local supply chain opportunities
and new skilled jobs.
Political and
Regulatory Review
2019 saw an upheaval in the UK’s political
landscape from a minority Government
under Theresa May, with Government unable
to pass anything of significance through
the Commons, to a significant Conservative
victory over Labour by Boris Johnson.
A key report for the future of oil and gas in a
decarbonised economy was published in May
2019, the UK Committee on Climate Change
(CCC) Net Zero report. This report clearly
forecast a very significant UK gas demand out
to 2050 and beyond. It is estimated that we
will still require 600 TWh per year of natural
gas in 2050 to meet the target. That amounts
to 70% of our current annual consumption.
Under the CCC’s recommended pathway to
net zero CO2 by 2050, this gas would be used
as both a feedstock for making hydrogen and
a backup supply for generating electricity,
and they have recommended that we use
domestically produced gas. Without new
supplies of gas it is expected that we will be
importing over 80% of our gas requirements
by 2050.
There is also a recognised role for oil in the
2050 net zero scenario. The assessment made
by the CCC however, did not include the use
of oil as a feedstock, as it is not combusted,
which today represents 9.5 Mtoe per year
(177,000 barrels per day). This is assumed
to at least remain constant over the next 30
years given the lack of suitable replacements.
Therefore, the UK looks set to have an oil
import dependency of 48% in 2050.
The Committee also recommended not to
further offshore our emissions by relying on
imported fuels.
Later in the year, the Government endorsed
the report by issuing a supportive statement
ahead of Cuadrilla commencing hydraulic
fracturing at Preston New Road in
August 2019.
In October 2019, the National Audit Office
Report published a report ’Fracking for Shale
Gas in England’. This report set out the facts
behind the Government’s support of shale
gas extraction. The report highlighted what
is already known: there is a very significant
regulatory structure in place, the Environment
Agency has assessed shale gas operations
as low risk and they have put in place a
significant compliance visit schedule.
”Shale gas could be
an important new
domestic energy
source, reducing the
level of gas imports
while delivering broad
economic benefits,
including through
the creation of
well-paid, quality
jobs. It could also
support our transition
to net zero emissions
by 2050.”
Source:
BEIS
04
IGas Energy plc | Annual report and accounts 2019
2019 saw one of the most stable oil
price environments in recent history,
with crude oil prices starting the year
near $60 a barrel and finishing the year
at $66 a barrel.
Commodity prices
However, in 2020 the industry has to
date witnessed a dramatic decline in the
oil price. The continued global impact of
COVID-19 on demand and OPEC’s failure
to agree to production cuts, in early
March, have seen the oil price trading
below $30/bbl.
CCC predict
we will need
c. 70% of the
gas we consume
today in 2050
and beyond
under net zero
u
t
b
m
M
/
$
4
3.5
3
2.5
2
1.5
100
Natural Gas NYMEX
Near Term ($/Mmbtu)
Crude Oil Brent Global
Spot ICE ($/bbl)
$
/
b
b
l
80
60
40
20
0
Jan
19
Feb
19
Mar
19
Apr
19
May
19
Jun
19
Jul
19
Aug
19
Sep
19
Oct
19
Nov
19
Dec
19
Jan
20
Feb
20
Mar
20
Further to this, the Health and Safety
Executive has confirmed there have been
no breaches of their regulations – including
for well integrity.
The report also commented on the need
for hydrogen and carbon capture and storage,
recommended by the CCC as essential in
meeting the net zero target.
In November 2019, the UK Government
announced an effective moratorium on the
process of hydraulic fracturing in England
based on the analysis of one well, Cuadrilla’s
PNR1 well in Lancashire, by the Oil and
Gas Authority (OGA), until new evidence
is provided. The OGA report found that
susceptibility to seismicity depends strongly
on a location's specific geology with the
mere presence of faulting or the parameters
of the injection possibly of less importance.
Each site and basin can have substantially
different geology.
”The design of the
policy framework
to reduce UK industry
emissions must ensure
it does not drive
industry overseas,
which would not
help to reduce global
emissions, and be
damaging to the
UK economy.”
Source:
CCC Net Zero Report
A Written Ministerial Statement was issued
that the Government will take a presumption
against issuing any further Hydraulic
Fracturing Consents. This position, an
effective moratorium, will be maintained until
compelling new evidence is provided which
addresses the concerns around the prediction
and management of induced seismicity. While
future applications for Hydraulic Fracturing
Consent will be considered on their own
merits by the Secretary of State, in accordance
with the law, the shale gas industry should
take the Government’s position into account
when considering new developments.
At the same time, the Government announced
it will not be taking any of the consultations
forward – NSIP, Permitted Development or
community consultation.
The industry is confident it can demonstrate
the differences between the various shale
basins and intends to undertake a body of
scientific work that will culminate in the
submission of a Hydraulic Fracture Plan for
a well in a basin that is known to be less
geologically complex.
05
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements CHAIRMAN'S STATEMENT
Responding
to a changing
environment.
Cuth McDowell
Interim Non-executive
Chairman
We continued to deliver on our strategic
priorities and generated strong operating
cash flow in 2019, alongside further reducing
our financing costs through a $40 million
Reserve Based Lending facility (RBL), which
we secured in October 2019.
Nothwithstanding the uncertain political
backdrop throughout the year and
challenging operational conditions, we have
delivered production well within guidance,
made progress in advancing incremental
production projects and made a potentially
world-class gas discovery at our Springs Road
well site.
In November 2019, the UK Government
announced an effective moratorium
on hydraulic fracturing in Britain, based
on analysis of one well in Lancashire
by the OGA, until new scientific evidence
is provided in respect of the impacts of
seismicity during the process of hydraulic
fracturing. We have been working, and
will continue to work closely, with the
relevant regulators to demonstrate that we
can operate safely and environmentally
responsibly. We have done this to date in our
shale business, and across our existing c. 100
conventional wells that have been operating
onshore UK for many decades.
As an onshore operator, we have, and must
continue to have, a deep understanding
of the potential environmental impacts
and any mitigating actions we must take.
Each site and basin can have substantially
different geology. The OGA report found that
susceptibility to seismicity depends strongly
on a location’s specific geology with the mere
presence of faulting or the parameters of the
injection possibly of less importance.
Whilst we are cognisant that the consumption
of fossil fuels has an impact on the
environment, we maintain that the oil and
gas industry is an essential component
in delivering secure, efficient and cost-
effective energy, as the world tries to
balance its energy requirements, and is a
key enabler in the transition to increased
supply of renewable energy. Delivering a
domestic source of affordable energy is key
to a nation’s security of supply, growth of
its economy, heating homes and making
a contribution to satisfying the growth of
energy demand.
We are committed to supporting the British
Government’s target of reducing greenhouse
gas emissions to net zero by 2050.
The CCC in its May 2019 report, clearly
forecast a very significant UK gas demand
out to 2050 and beyond – approximately
70% of 2019 gas demand still existing in
2050 in a net zero scenario.
06
IGas Energy plc | Annual Report and Accounts 2019 Read more on
page 10
Stakeholder engagement
IGas is committed to continuous
engagement with all its
stakeholders.
Employees
Government & Regulators
Communities
”Thanks to all the
support teams around
the business; it is you
supporting all these
activities that enable
us to achieve success.”
Trust can only be earned, and kept, if people
see that we share their concerns and hopes
for the future. They can only see that if we are
transparent about what we do and why we
do it. Transparency goes beyond publishing
financial results; it is about being as open as
we can be with all our stakeholders.
The more transparent we are about our
activities, the better equipped our investors,
communities and wider society are to decide
whether we merit their trust.
You can read more about our approach
to sustainability on pages 30 to 34
Across the Company we strive to achieve
the highest standards of health, safety
and environmental protection. All of our
production and drilling operations retained
their ISO 14001 and 9001 certifications and
we were awarded the ROSPA Presidents
Award again, representing 13 years of
commitment to Occupational Health
and Safety.
Under the CCC’s recommended pathway to
net zero CO2, this gas would be used as both
a feedstock for making hydrogen and a
backup supply for generating electricity,
and they have recommended that we use
domestically produced gas. Without new
supplies of gas, it is expected that we will be
importing over 80% of our gas requirements
by 2050.
Engaging with communities local to our
sites, and earning and maintaining our
social licence to operate is imperative to our
success as a business. We endeavour to build
respectful, long term relationships and earn
the trust of those who host our activities.
Board changes
In May 2019, Hans Årstad was appointed as a
Non-executive Director, exercising the right of
KKR to take a seat on the Board through their
14.7% investment in IGas. We welcome Hans
to the Board.
In October 2019, our Chairman, Mike McTighe
stepped down for personal reasons. We thank
Mike for his considerable contribution to the
Company and valued leadership over the last
three years.
People
All the teams around the business have
worked incredibly hard during 2019.
Production teams in keeping the volumes on
track, finance and legal teams in securing the
new RBL, our drilling and operational teams
for the Springs Road well which was drilled
significantly ahead of schedule and budget,
and our lands, planning and project teams for
securing permissions and advancing projects
through to the execution phase. Thanks to all
the support teams around the business; it is
you supporting all these activities that enable
us to achieve success.
Outlook
The Coronavirus pandemic is a deeply
concerning international public health
emergency which everyone hopes to see
contained quickly. Our primary focus is
the health and safety of our employees
and other stakeholders and we have acted
promptly in that regard.
We continue to monitor the situation closely
and act within Government guidelines and
to that end we have worked up a number of
contingency plans should our operations be
significantly affected by the Coronavirus.
In February 2020, the oil price began to be
affected by the global spread of COVID-19
and the resultant reduction in oil demand.
This situation has since been compounded
by the failure of OPEC to reach an agreement
on constraining supply and the position of
Saudi Arabia to increase output.
Whilst we have better financial flexibility
and a reduced overall cost of debt, we have
re-evaluated our priorities in the short term
to ensure we weather the current oil price
disruption. However, if oil prices remain low
for a prolonged period of time we cannot rule
out future impacts on the business given the
material uncertainty that currently exists.
In the longer term we will continue to drive
to maximise our existing assets, many of
which still have significant potential, whilst
developing new assets to deliver future
shareholder value, as we ensure IGas is an
important part of the onshore UK energy
transition.
Cuth McDowell
Interim Non-executive Chairman
07
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements CREATING VALUE
Creating value
through a
robust strategy
to capitalise
on future
energy
potential.
Our approach to
sustainability aligns
with a number
of the United
Nation’s Sustainable
Development Goals.
1
Responsible exploration
2 Responsible operations
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.
Despite the significant challenges
we are currently faced with in
respect to COVID-19 and the
low oil price environment, our
strategy remains clear and
focused. It is our intention to
deliver sustainable growth
by focusing on exploiting
our existing reserves,
commercialising and developing
our assets and converting
resources into reserves.
The adoption of best available
technologies to unlock value
in our assets remains a key
part of this.
Reserves & production growth
Established and stable conventional
production base with a proven
track record of significant reserves
replacement.
Related risk factors
6. Oil or gas production
9. Pandemic
10. Oil market price risk
1 2 3
UN
SDG
Our resources & relationships
Our communities
We seek to build
long term relationships
with our stakeholders in the
communities we operate in.
Our people
We constantly strive to develop
our employees and their
knowledge and skills.
Our regulators
In order to operate we must
pass rigorous health and safety,
environmental and planning
permission processes.
To read more
see pages
12 to 13
To read more
see page 11
To read more
see pages
14 to 15
3 Responsible production
c. £1m
Funds that have been awarded to community projects
since 2008, in the areas in which we operate
For more information visit:
sustainabledevelopment.un.org
08
IGas Energy plc | Annual Report and Accounts 2019 Developing a portfolio of
growth opportunities
In-depth technical analysis and
commercial evaluation help us
to identify and advance the next
generation of energy producing assets.
Local & national engagement
The way in which we conduct ourselves
with our host communities and other
key stakeholders and our record on
health, safety and the environment,
is crucial to our success as a business.
Related risk factors
Related risk factors
5. Planning, environmental, licensing and other
permitting risks
7. Shale gas resources
1. Exposure to political risk
5. Planning, environmental, licensing and other
permitting risks
1 2
UN
SDG
1 2 3
UN
SDG
Continuous assessment
Risks and uncertainties
We constantly assess the
risks facing our business
and develop mitigation
strategies.
Key Performance
Indicators
The success of our
business is measured
against a series of KPIs.
ESG assessment
We are in the process
of putting in place a
framework to demonstrate
our environmental and
social competencies.
To read more
see pages
26 to 29
To read more
see pages
24 to 25
To read more
see pages
30 to 34
Maintaining competitive
advantage
Disciplined asset
portfolio management
We focus on core, high
potential areas and
will relinquish licences
that do not fit with our
criteria for future value
creation.
Integrated
management tools and
financial management
Controlling costs and
managing operations
efficiently allows us to
manage the business
effectively.
Optimisation of assets
To optimise economic
production we
constantly seek
initiatives to extend
asset uptime and
optimise our processes
and costs whilst
continuously monitoring
and evaluating results.
Operating capability
We are a highly
responsible onshore
operator focused on
achieving safe and
sustainable operations
and minimising
environmental and
social impacts.
2,325 boepd 80%
2,325 average boepd in 2019 from existing operations
c. 80% of our assets have digital monitoring capabilities
09
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements
OUR STAKEHOLDERS
Engaging
in a meaningful
way with those
who matter.
IGas’s success depends on its ability to
engage effectively and work constructively
with stakeholders who have an interest in
IGas and its operations.
Listening and responding to the views of
our stakeholders helps IGas better achieve
its business objectives and deliver optimum
outcomes for its communities, regulators,
employees and shareholders.
Interacting with these various groups is
consistent with the ethos of Section 172 of
the Companies Act 2006, which sets out that
a director should have regard to stakeholder
interests whilst discharging their duty to
promote the success of the company.
IGas engages with a number of stakeholder
groups – shareholders, Government and
regulators, employees, communities and
suppliers and contractors.
Government and Regulators
IGas works constructively with the
Government and regulators in the UK.
Our approach to public and regulatory affairs
is to directly engage with policymakers
and pursue positive and constructive
relationships. We also collaborate as a
group of operators through our industry
body, UKOOG (United Kingdom Onshore Oil
and Gas) to promote better and more open
dialogue with key stakeholders.
Read more about our Regulators on
pages 14 to 15
”Listening and
responding to
the views of our
stakeholders
helps IGas better
achieve its business
objectives and deliver
optimum outcomes
for its communities,
regulators, employees
and shareholders.”
10
IGas Energy plc | Annual Report and Accounts 2019 Employees
We are committed to providing a working
experience for our staff that offers equal
opportunities, safe working conditions,
competitive terms of employment and quality
learning and development experiences. In
doing so, we seek to attract, develop and
retain the high-quality talent to drive the
success of our business over the long term.
We want to continue to be an employer of
choice, attracting and retaining the brightest
and the best talent as our business adapts to
a constantly changing business environment.
A crucial part of this is behaving fairly and
treating everyone equally because we believe
that a diverse workforce makes us stronger
and better equipped to meet the challenges
of the future.
We are committed to creating a business that
better represents society as a whole, and
want to attract more people from ethnically
diverse backgrounds at different levels of our
organisation.
Workforce diversity
17%
(26/151)
19%
(29/147)
We engage with our employees in a number
of ways:
• Workplace ‘town hall’ meetings;
• Tool box talks (for operators in the field);
• Suggestion boxes;
• Employee newsletters;
• Notice boards and electronic channels; and
• Management site visits.
During 2019, we continued our ongoing
training programmes, partnering with a
new online provider to ensure variety in
the scope and range of courses offered
to our employees. Between July 2016 and
December 2019 employees participated
in over 50 different online safety-based
courses, successfully completing over 4,000
individual training assignments.
11
Our values
Gender diversity
Board diversity
Respect
Excom diversity
2018
0%
(0/5)
25%
(2/8)
2019
0%
(0/5)
25%
(2/8)
”We are committed
to open and
transparent
communications
and listening and
reacting to
the concerns
of the public.”
Communities
The support of our local communities is
a key component of our social licence to
operate. The majority of our workforce lives
and works in the areas in which we operate,
and the strength of our relationships with
local residents is vital to us.
Whilst communities are involved in
the statutory process of planning and
environmental permitting we seek to
go beyond what is required of us from a
regulatory perspective to better understand
each community in which we operate.
We are committed to open and transparent
communication and listening and reacting to
the concerns of the public.
Read more about community engagement on
pages 12 to 13
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.
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.
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.
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements OUR STAKEHOLDERS continued
Our Communities
Why we interact
• To ensure that we act
as a good neighbour;
• To support the
sustainable socio-
economic welfare
of the regions in
which we operate;
• To address community
needs, including social
or environmental
concerns; and
• To foster open
and transparent
communications
between ourselves
and the communities
in which we operate.
UKOOG Community
Engagement Signatory
IGas is a signatory to the UKOOG
‘Shale Community Engagement
Charter’, which outlines the steps the
industry will take to address concerns
around safety, noise, dust, truck
movements and other environmental
issues.
How we create value
IGas is committed to maintaining
high standards of corporate
governance through
stakeholder engagement.
We choose to operate our business in a way
that adds both financial and non-financial
value to the communities where we work.
For example, our policy is to buy goods
and services locally, from our supply chain
partners where possible. We aim to create
jobs and opportunities nearby, thereby
giving local economies a boost.
12
IGas Energy plc | Annual Report and Accounts 2019 Focus on
IGas Community
Fund
During 2019, the IGas
Community Fund
awarded £50,000 to
community projects.
Near Glentworth in Lincolnshire we
made an award to the RAF Ingham
Heritage Centre. The project,
entirely undertaken by the Centre’s
community volunteers, was to
renovate the main visitor entrance
and plant 15 metres of box hedging
along the Memorial Pathway.
Royal Air Force Station Ingham was
a grass airfield, used mainly by No1
Group, Bomber Command, Royal
Air Force and only ever existed
during the Second World War. An
enthusiastic group of local volunteers
got together and formed the RAF
Ingham Heritage Group in 2010. Their
aim is to preserve the memories and
deeds of those who had served and
flown from the airfield during the
war years by renovating the mess
hall and cookhouse on the site. They
eventually plan to open to the public
as a memorial and museum to the
Polish aircrew and groundcrew of
Bomber Command who fought and
gave their lives for our country.
IGas was delighted to donate to this
important local piece of heritage.
In April 2019, IGas donated to
KIDS Smile Centre in Waterlooville,
Hampshire. Our support enabled
them to purchase specialised musical
equipment that allowed KIDS to
deliver music therapy sessions for
local disabled children and young
people most in need.
The music therapy sessions benefit
over 120 children and young people
with a variety of disabilities, the
majority being those coping with
autism and sensory impairments.
Music played as a group helped to
develop a sense of self and a feeling
of achievement and empowerment.
Having a sense of group identity and
togetherness is particularly important
for this group whose needs are so
often misunderstood.
13
How we interact
• Engage with individuals
and organisations in the
local communities from
an early stage;
• Implement community
liaison groups;
• Public consultation
events;
• Online and offline
materials;
• Site visits and
educational sessions; and
• We sponsor the IGas
Community Fund.
”Thank you to the
IGas Community
Fund for your
support to our
life changing work
with disabled
children and
young people
in Hampshire.”
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements OUR STAKEHOLDERS continued
Our Regulators
The UK is recognised
as a leading example
for oil and gas industry
regulation.
Onshore oil and gas
regulation is handled
by four separate bodies.
The Health and Safety Regulator
The Health and Safety Executive (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 as required
under the Health and Safety at Work
Act 1974, and regulations made under
the Act.
HSE works closely with the environment
regulator and the Department for Business,
Energy and Industrial Strategy to share
relevant information on such activities
and to ensure that there are no material
gaps between the safety, environmental
protection and planning authorisation
considerations, and that all material
concerns are addressed.
14
The Environmental Regulator
The role of environment regulation is
handled by the Environment Agency (EA).
Onshore oil and gas exploratory activities
require environmental permits issued under
the Environmental Permitting Regulations
(EPR 2010) and other permissions from the
environmental regulator, depending on the
methods used and the geology of the site.
The environmental regulator is also a
statutory consultee during the planning
application conducted by the Mineral
Planning Authority (MPA) and also in the
assessment of the Environmental Impact
Assessment if this is required.
BEIS/Oil & Gas Authority
Under the Petroleum Act of 1998,
the Crown has all ownership rights
to hydrocarbon resources in the UK.
Responsibility for administration on behalf
of the Crown falls to the Secretary of State
for the Department for Business, Energy
and Industrial Strategy (BEIS), supported
by the Oil and Gas Authority (OGA) as
an independent body.
BEIS issues a ‘Petroleum Exploration and
Development Licence’ (PEDL), which gives
a company or group of companies (a joint
venture) exclusive rights to explore for,
and develop, the resource in a particular
defined area.
IGas Energy plc | Annual Report and Accounts 2019 Mineral Planning Authority (MPA)
Mineral Planning Authorities (as part of local
councils) grant 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 planning system controls the
development and use of land in the public
interest. This includes ensuring that any
new development is appropriate for its
location. This takes into account the effects
(including cumulative effects) of potential
pollution on health, the natural environment
or general amenity. In doing so, the focus
of the planning system is on whether the
application is an acceptable use of the
land, and the impacts of those uses. Any
control processes, health and safety issues or
emissions themselves are then subject
to the approval of the other regulators.
How we engage
We engage with Government
departments and regulatory
bodies to ensure that we meet or
exceed the appropriate regulatory
standards.
We are subject to regular onsite
inspections both scheduled and
unannounced to ensure we are
always fully compliant.
15
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements CHIEF EXECUTIVE’S STATEMENT
Providing
a secure
supply of
energy
responsibly.
Stephen Bowler
Chief Executive Officer
16
Introduction
I am pleased to report a solid set of results
for 2019, which reflect a good operational
performance across the business and
continued progress delivering our strategy of
optimising our existing assets and seeking to
provide future energy solutions through our
world-class shale gas discovery at Springs
Road in the Gainsborough Trough.
In October 2019, we signed a $40 million
RBL with BMO Capital Markets (BMO). The
facility reduces our overall cost of debt and
provides the financial flexibility for continued
investment into our conventional portfolio to
grow our production over the coming years.
Read more detail in the Financial Review
on pages 20 to 23
Over recent weeks we have witnessed
an unprecedented global situation in
the form of COVID-19 combined with
depressed oil prices.
Currently, the Group’s operations continue
to function as normal. Of our 148 employees,
those that are able to work from home have
been doing so, in a phased way, since early
March 2020. We have approximately 65%
of staff who are in operational roles and
have been identified as key workers by the
Government.
Many of these are 'lone' workers who
had already been ‘identified, trained and
equipped’ pre-COVID-19 so the pandemic
does not represent a significant change to
existing procedures or protocols.
In respect of IGas’s operational sites, our
facilities are designed with operational
control provisions that ensure safe and
compliant operation within the normal
operational envelope and automated
shutdown functionality should there be
an unexpected excursion outside of these
routine conditions. In addition to these local
control and shutdown systems, IGas has
the ability to monitor the site operations
from remote locations utilising its digital
systems which allow efficient intervention
by operational and maintenance staff to
be coordinated alongside the standard
monitoring visits that are conducted by
our staff.
However, the inbuilt control systems are able
to make any site and well safe without the
need for human intervention and we continue
to liaise with all our regulators.
Whilst we are reliant on transporting oil to
UK refineries, we have significant capacity
for managing our production inventory.
All key contractors in terms of transport and
refineries are also classified as key workers.
IGas Energy plc | Annual Report and Accounts 2019 Operating review
Production
Production for the year was 2,325
boepd which was in the upper end
of the production target range of
2,200-2,400 boepd.
Production in our East Midlands assets
benefited from the success of waterflood
and optimisation activities conducted
in 2018, alongside 2019 projects being
brought online ahead of schedule and
wells performing in the upper range of
expectation. These efforts resulted in not
only the complete offset of the annual
decline rate but an uplift of overall
production for the year compared to that
delivered in 2018. These results were also
mirrored in our southern operations, where
following the successful completion of our
routine maintenance and integrity programs,
and the implementation of a series of
optimisation works we were also able to
finish 2019 at a higher production rate than
that delivered in 2018. Our Gas to Wire and
Gas to Grid facility at Albury continued to
improve during 2019 and by the close of the
year we were capable of achieving a peak
maximum daily production rate of c. 200
boepd from the combined export streams.
Reserves and resources
Independent reserves
and resources evaluations
In February 2020, IGas announced the
publication of the full and final results of
the Competent Persons Report (CPR) by
DeGolyer & MacNaughton (D&M), a leading
international reserves and resources auditor.
The report comprised an independent
evaluation of IGas' conventional oil and gas
interests as of 31 December 2019.
The full report can be found on the IGas
website www.igasplc/investors/publications-
and-reports
The report confirms a continuing high
reserves replacement of 2P reserves of
approximately 277% (1P ~192%) reflecting
the good performance of our production
assets and progression of projects
demonstrating the significant upside
that remains in our conventional portfolio.
IGas has a track record of significant
reserves replacement with a three-year
average of over 200%.
The Company’s estimated base-case project
economics have an IRR of over 100% and
a NPV10 of c. £7.0 million*. Positive well
integrity and injectivity tests allowed full
sanction of the project in the third quarter of
2019, with engineering activities, regulatory
approvals and long lead items all being
progressed in line with the project schedule,
with full completion planned by the summer
of 2020.
This independent report valued our
conventional assets at c. $180 million on a
2P NPV10 basis, an increase of $20 million
compared to 2018 (based on forward oil
curve of 2020 $61.78/bbl; 2021 $58.39/bbl;
2022 $56.97/bbl; 2023 $56.54/bbl; 2024
$57.67/bbl).
This is part of the wider Welton Full Field
Development and as well as increasing
production, will aid in de-risking further
injection projects into other areas of the
field and provide critical infrastructure to
assist with water disposal and support future
rationalisation work across Welton sites.
We have continued to mature other projects
across the portfolio as we seek to maximise
returns on our existing operations and
infrastructure and will flex our capital
spending plans, if and when the oil price
improves from its current depressed level.
For example, Bletchingley is a Gas
Monetisation, Gas to Wire project which
recently received planning approval. The
project involves the installation of up to
6MW of electrical generation capability
at the Bletchingley Central site fuelled by
gas from the Bletchingley 2 well, which is
currently suspended. However, in light of
the current oil price, we have reduced our
expenditure in progressing projects such
as this significantly and will not take this
project further forward until energy prices
improve.
As part of our ongoing active portfolio
management, we relinquished two non-core
PEDLs in the East Midlands, PEDL 137 and
PEDL 337.
Development – Conventional
We continue to mature our production
portfolio opportunities and achieved
final approvals for our Scampton North
Waterflood project during the first half of
2019. This c. £2.0 million project to install
water injection capability and convert a
suspended well into a water injector has
advanced significantly during the year, with
the project remaining on schedule and
budget ready to deliver initial production
in the summer of 2020. This secondary
recovery project (waterflood) is forecast to
double the current output of the field to over
200 bopd and increase the ultimate recovery
from the field. The D&M CPR estimated
180 Mbbl of incremental 2P (Proved plus
Probable Undeveloped) reserves and our
mid-case economics for the project have an
IRR of over 40% and a NPV of £2.5 million*.
Following the success of the first phase
of the Welton waterflood project the
technical team recommended an additional
opportunity in the southern section of
the Welton Field in the Tupton & Deep
Hard Rock Reservoirs. The project involves
converting a suspended production well
(WC01) to a water injector to improve
reservoir sweep and increase field recovery
by c. 660 Mbbl (2P reserves) with a peak
incremental production rate of c. 100 bopd. ”Natural gas is one
IGas group net reserves and contingent
resources as at 31 Dec 2019 (MMboe)
Reserves and resources as at 31 Dec 2018
Production during the period
Total change during the period
1P
2P
2C
9.78
14.56
19.20
(0.84)
(0.84)
–
1.61
2.33
0.40
Reserves and resources as at 31 Dec 2019
10.55
16.05
19.60
of the mainstays
of global energy.
Where it replaces
more polluting fuels,
it improves air quality
and limits emissions
of carbon dioxide.”
Dr Fatih Birol,
IEA Executive Director
* Which assumes a long-term oil price of $55/bbl.
17
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements
Moving resources to reserves
Significant exploration potential exists in our
prospective resources.
In early July 2019, we announced plans for
a proposed new site in the Weald basin on
PEDL 235, which IGas owns and operates
100%. The intention is to drill up to two
wells to explore and evaluate the resource
potential of both the Portland Sandstones
and the Kimmeridge Micrites.
The Portland Sandstone has an existing gas
discovery* and technical studies conducted
by the IGas team have concluded that
there is significant upside potential for the
Portland reservoir to be considerably larger
with five to ten MMboe of recoverable gas.
Additionally, the underlying Kimmeridge
Micrite formations, has the potential for a
large additional resource.
Work has temporarily ceased on this project,
but when energy prices improve we will
seek to submit a planning application given
the significant returns available. As part of
the planning process, IGas would undertake
community consultation to take account
of feedback from local residents before
submitting the full planning application.
CHIEF EXECUTIVE’S STATEMENT continued
Development – Shale
We mobilised a drill rig and ancillary
equipment to our Springs Road site in North
Nottinghamshire in early January 2019 and
spudded the well on 22 January 2019. In
mid-February 2019, we encountered shales
on prognosis, at c. 2,200 metres depth and
drilled through a significant hydrocarbon
bearing shale sequence, including the
Upper and Lower Gainsborough Shale.
The well sought to assess three target zones:
the Gainsborough Shale; the Millstone Grit
and the Arundian Shale. All three targets
were encountered, with c. 400 metres
of Gainsborough Shale, the primary target,
with key shale attributes such as Total
Organic Content, kerogen type and clay
content akin to world-class shale plays
observed in North America.
IGas acquired 147 metres of core within
the Gainsborough Shale, the first extensive
core sample from this basin, which has
subsequently been analysed by Stratum
Reservoir (formerly Weatherford Labs) in
their laboratories in both the UK and the
USA. The results from the core analysis
confirm that a nationally significant
hydrocarbon resource is present in the
Gainsborough Trough.
The key characteristics of the Gainsborough
Shale in the SR-01 well compare favourably
to commercial shale operations observed
in North America such as the Eagle Ford,
Barnett and the Marcellus. The core results
indicate a mature, organic rich source rock
with good porosity confirming favourable
gas resource density, and, additionally,
the low clay content in large sections of
the Gainsborough Shale is an encouraging
indication of the suitability for effective
hydraulic fracture stimulation.
The analysis we have undertaken will help
delineate the resource potential and help
refine the subsequent appraisal programme.
Working with our joint venture partners,
IGas will now consider the attributes of the
data set alongside a reprocessed 3D seismic
for the area. This will allow us to commence
planning for both a future potential appraisal
programme and a pilot development within
the Gainsborough Trough, a geologically well
understood and quiescent basin.
As well as obtaining extremely positive
geological results, the two well drilling
programme was highly successful
operationally. Both wells were drilled
significantly under budget, principally due
to faster than expected drilling and coring
rates. The Springs Road well, the deepest
penetration into the Gainsborough Trough
to date, was 25% under budget, despite
obtaining 50% more core than planned.
18
Through our local sourcing programme, our
direct East Midlands spend through the two
well drilling programme was in excess of
£10 million, supporting local, skilled jobs.
Throughout operations we were compliant
with all stringent planning permissions and
environmental permits for both sites and
have been commended on the high standard
of our operations by regulators and the local
community. Whilst protest did occur during
the drilling of the well at Springs Road, the
level of protest was negligible and generally
took the form of monitoring as opposed to
obstruction.
The well that was drilled at Tinker Lane,
which delineated the southern extent of
the Gainsborough Trough, was plugged and
abandoned earlier in the year and the site
was fully restored to farmland and handed
back to the landowner in September 2019,
ahead of schedule.
In the North West, the Ellesmere Port
appeal was recovered by the Secretary
of State (SoS) at the end of June 2019
in order to determine a decision. The
Planning Inspectorate then set a deadline
for the report and recommendation by the
inquiry inspector of 23 January 2020. The
recommendation was sent to the SoS in early
January 2020 and a decision was expected
around 8 April 2020. We have been informed
that, similar to other decisions, this has now
been delayed until further notice.
In November 2019, the UK Government
announced an effective moratorium on the
process of hydraulic fracturing in England
based on a report by the OGA which found
that it is not currently possible to accurately
predict the probability or magnitude of
earthquakes linked to fracking operations.
The report found that susceptibility to
seismicity depends strongly on a location's
specific geology with the mere presence of
faulting or the parameters of the injection
possibly of less importance. Each site and
basin can have substantially different
geology.
The Company operates multiple licences
across the East Midlands and in the North
West. In the East Midlands along with the
OGA, we are seeking to simplify and focus
the various work programmes so that more
rapid and directed appraisal and then
development of the shale resource can take
place. As such all licences are now on 2014
model clauses and have linked work plans.
The OGA has granted three-year extensions
to the initial terms on the following 14th
Round, Company operated licences: PEDL
189, PEDL 235, PEDL 257, PEDL 273, PEDL
278, PEDL 305, PEDL 316 and PEDL 326.
*
IGas 2C resources includes c. 1.4 MMBoe www.igasplc.
com/media/39949/DM-CPR-IGas-Reserves-and-Resources-
as-of-31-December-2018.pdf.
IGas Energy plc | Annual Report and Accounts 2019 I am proud of our response, as a business, to
the COVID-19 pandemic and want to thank
all our colleagues for their professionalism
and ‘can do’ attitude in such difficult times.
We continue to monitor and respond to the
situation as it develops and believe that we
will come out of this a stronger and more
cohesive Company than ever before.
Stephen Bowler
Chief Executive Officer
Focus on
Our production
in 2019
We currently operate
28 fields with some
80 sites around the
country, producing
predominantly oil.
28
We currently operate 28 fields
80
80 sites around the country,
producing predominantly oil
”Projects, particularly
on existing sites, offer
good returns with
reduced risk and
minimal incremental
operating costs and
we look forward to
bringing forward
further projects as
energy prices improve.”
Diversifying our energy portfolio
IGas has a wide land portfolio across
the East Midlands and the Weald basin
where our well sites, gathering centres
and pipelines are located. As a part of
broadening the Company’s approach to
energy production, not least in light of its
intentions to play an important role in the
UK’s energy transition, work has commenced
on assessing various sites for their suitability
for electricity generation and storage as well
as biomethane production. Given the current
energy price environment we do not see
these projects coming to fruition in the
short term.
Outlook
Given the fall in oil prices we have reviewed
our capital expenditure programme for
the year and reduced it principally to
maintenance capex, abandonment and
capital for projects already in execution.
We will continue to review our priorities to
ensure we weather any prolonged depressed
oil price scenario. There remains, however,
material uncertainty of the potential impact
of COVID-19 on the Group’s operational
activities, future commodity prices and the
outcome of the May 2020 redetermination
of the RBL.
The greater than 250% 2P reserves
replacement demonstrates the significant
upside in our conventional portfolio and we
continue to identify and progress projects
with short-term growth potential and good
returns even in this oil price environment.
The UK currently imports in excess of 50%
of its energy requirements. As we transition
to becoming independent from the EU and
focus on our climate change ambitions,
there is a growing need to develop domestic
energy sources, including oil and gas, which
have both economic and environmental
advantages, compared to imports.
Whilst there is a clear need for oil and gas in
a 2050 net zero environment, we have also
begun to look at ways of maximising returns
from our sites and high grading for potential
opportunities for electricity generation,
storage and biomethane production, as
we seek to ensure IGas positions itself as
a flexible deliverer of a variety of energy
sources to the UK.
19
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements FINANCIAL REVIEW
Investing
with the
focus of
delivering
returns.
Julian Tedder
Chief Financial Officer
”We were extremely
pleased to sign a
$40 million RBL with
BMO in October 2019.
The facility will reduce
our overall cost of
debt and provides the
financial flexibility for
continued investment
into our conventional
portfolio to grow our
production over the
coming years.”
Results for the year
During 2019, the average monthly price of
Brent crude ranged between $59/bbl and
$71/bbl. The lower average price of $64/bbl
for the year versus $71/bbl for 2018 had a
negative impact on our revenues. The average
GBP/USD exchange rate for the year was
£1: $1.28 (2018: £1: $1.34) which positively
impacted revenue for the year.
• Other costs of sales decreased to £20.5
million (2018: £21.9 million). Operating
costs were £1.4 million lower than the prior
year due to the capitalisation of operating
lease costs of £1.7 million on adoption of
IFRS 16 and a refund for rent and rates.
The decrease was partially offset by an
increase in regulatory, production and
workover costs;
For the year ended 31 December 2019
adjusted EBITDA was £13.8 million (2018:
£10.8 million) whilst a loss was recognised
from continuing activities after tax of £49.8
million (2018: loss £21.4 million). The main
factors driving the movements between the
years were as follows:
• Revenues decreased to £40.9 million
(2018: £42.9 million) principally due to
lower oil prices and a 3% decrease in
oil sales volumes. The decrease was
partially offset by a weaker average
Sterling to US Dollar exchange rate
and increased gas sales from our Albury
field which commenced production
in November 2018;
• Administrative expenses decreased by
£1.0 million to £4.5 million (2018: £5.5
million). A continued focus on costs
resulted in lower staff, external
consultants and premises costs;
• The £53.9 million exploration expense
relates primarily to our shale assets in
the North West. In November 2019, the
UK Government announced an effective
moratorium on the process of hydraulic
fracturing in England. We will now work
with industry partners and Government and
should the moratorium be lifted we would
focus on our core area of the Gainsborough
Trough in the short to medium term
(2018: £29.1 million related to PEDL 145
Doe Green, an Albury well and various
relinquished licences);
20
IGas Energy plc | Annual Report and Accounts 2019 • Goodwill of £4.8 million relating to the
acquisition of Dart shale assets has
been written-off due to the moratorium
announced by the Government in
November 2019; and
• A tax credit of £9.3 million was recognised
mainly due to the recognition of a deferred
tax asset relating to ring-fence tax losses
(2018: a tax credit of £3.7 million mainly due
to the recognition of a deferred tax asset
relating to ring-fence tax losses).
Income statement
The Group recognised revenues of £40.9
million for the year (2018: £42.9 million).
Group production for the year averaged
2,325 boepd (2018: 2,258 boepd). Revenues
included £2.4 million (2018: £2.4 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 $61.7/bbl (2018: $67.0/bbl)
and post-hedge $60.1/bbl (2018: $57.4/
bbl). A loss of £1 million was realised on
hedges during the year primarily relating
to the premium cost of puts (2018: realised
loss of £5.5 million). The average GBP/USD
exchange rate for the year was £1: $1.28
(2018: £1: $1.34) which positively impacted
revenue for the year.
Cost of sales for the year were £29.6 million
(2018: £28.8 million) including depreciation,
depletion and amortisation (DD&A) of £9.1
million (2018: £6.8 million), and operating
costs of £20.5 million (2018: £21.9 million).
Operating costs were £1.4 million lower than
the prior year due to a decrease relating
to the re-classification of operating leases
under IFRS 16 of £1.7 million and a refund for
rent and rates, partially offset by an increase
in regulatory, production and workover costs.
Operating costs include a cost of £2.2 million
(2018: £2.3 million) relating to third party oil.
The contribution received from processing
this third party oil was £0.2 million (2018:
£0.2 million).
Operating costs per barrel of oil equivalent
(boe) were £23.6 ($30.1), excluding third
party costs (2018: £23.6 ($31.9) per boe).
Focus on
New debt facility
signed
IGas signed a $40
million senior secured
RBL with BMO in
October 2019.
In addition to the committed $40
million RBL, a further $20 million
accordion facility is available on
an uncommitted basis, subject
to new bank commitments. The
RBL has a five-year term, an
interest rate of LIBOR plus 4.0%
and matures in September 2024.
The RBL is subject to a semi-
annual redetermination in May
and November when the loan
availability will be recalculated
taking into account forecast
commodity prices, remaining
field reserves (assessed by an
independent reserves auditor
annually) and the latest forecast
of operating and capital costs.
The Company also exercised
its call option and issued a
redemption notice with respect
to all outstanding bonds (Secured
Bonds) pursuant to the 10%.
IGas Energy PLC Senior Secured
Callable Bond Issue 2013/2018
– ISIN NO 001 0673791. The
Secured Bonds were redeemed
at par value (100%) plus accrued
interest on the redeemed amount
up until, but not including,
the settlement date of the call
option on 19 November 2019.
The proceeds from the new RBL
were used to repay the Secured
Bonds and will be used to fund
development opportunities in the
conventional portfolio and for
general corporate purposes.
The reduction was due to lower absolute
operating costs and higher production
volumes.
Adjusted EBITDA in the year was £13.8
million (2018: £10.8 million). Gross profit
for the year was £11.3 million (2018: £14.2
million). Administrative costs decreased
by £1.0 million to £4.5 million (2018: £5.5
million) principally due to a reduction
in staff, external consultants and
premises costs.
Exploration costs written-off of £53.9 million
relates to our shale assets in the North West
as we plan to focus on our core area of the
Gainsborough Trough in the short to medium
term (2018: £29.1 million).
Net finance costs were £3.4 million (2018:
£3.9 million) primarily related to interest
on borrowings of £1.9 million (2018: £1.9
million) and the unwinding of discount on
provisions of £1.3 million (2018: £1.1 million),
finance charges relating to right-of-use
assets of £0.7 million (2018: £nil), offset by
a net foreign exchange gain of £0.3 million,
principally on US dollar denominated debt
and bank balances (2018: loss of £0.9
million). A loss of £0.7 million was incurred
relating to the refinancing of debt including
the write-off of costs relating to the bond
which had previously been capitalised.
The Group made a loss on oil price
derivatives of £3.3 million for the year
due to the premiums on options placed in
2019 and an increase in underlying prices
impacting hedges placed in 2018 (2018:
loss £0.7 million) and a gain on foreign
exchange hedges of £0.3 million (2018:
loss £0.2 million).
A tax credit of £9.3 million was recognised
mainly due to the recognition of a deferred
tax asset relating to an increase in the
recoverability of ring-fence tax losses (2018:
a tax credit of £3.7 million mainly due to the
recognition of a deferred tax asset relating to
ring-fence tax losses).
Cash flow
Net cash generated from operating activities
for the year was £12.0 million (2018: £12.9
million). The decrease was primarily due
to lower revenue and an increase in
working capital, offset by a decrease in
administrative expenses and lower
payments to counterparties in respect
of realised hedges.
The Group invested £6.4 million across its
asset base during the year (2018: £10.6
million). £3.7 million was invested in our
conventional assets including the Scampton
North Waterflood project, the Welton water
injection project and the installation of
gas pump compressors in additional sites,
resulting in additional production during
the year.
21
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements FINANCIAL REVIEW continued
We continued to invest in new projects to
increase production across our existing sites.
We invested £2.7 million in unconventional
assets in relation to our shale development
programme including the Group’s net share
of the cost of drilling a vertical well at Tinker
Lane and costs to progress the Ellesmere
Port planning appeal.
The Group also continued its abandonment
programme and spent £1.8 million on
abandoning five wells during the year.
Following a successful refinancing, IGas
repaid £21.4 million ($27.6 million) of
principal on its Norwegian bond borrowings
to bondholders during the year (2018: repaid
£1.7 million ($2.3 million)).
The Group made a net drawdown of £14.7
million ($19.0 million) on its new RBL. IGas
paid £2.0 million ($2.6 million) in interest
(2018: £1.8 million ($2.3 million)).
To protect against the volatile oil price the
Group places commodity hedges for a period
of up to 12 months. As at 31 December 2019,
the Group had hedged a total of 420,000
bbls for 2020, using a combination of puts
(292,500 bbls at an average downside
protected price of $51.4/bbl) and fixed
price swaps (127,500 bbls at an average
fixed price of $58.7/bbl).
At 31 December 2019, the Group’s oil
derivative instruments had a net negative
fair value of £0.2 million (2018: net positive
fair value of £2.2 million).
Borrowings decreased from £21.0 million
to £13.1 million following the refinancing
carried out during the year as, under the
new financing arrangements, there is no
requirement to maintain a minimum cash
balance and repayments can be made in
the short-term using excess cash.
Net debt at the year-end, being the nominal
value of borrowings less cash and cash
equivalents, was £6.2 million (2018:
£6.4 million).
Disposal of non-core fields
As announced in July 2019, we were unable to
agree a transaction with Onshore Petroleum
Limited and consequently all non-core assets
will now remain with IGas.
Going concern
The Group continues to closely monitor and
manage its liquidity risks. Cash forecasts for
the Group are regularly produced based on,
inter alia, management's best estimate of:
• The Group's production and expenditure
forecasts;
• Future oil prices;
• The level of available facilities under the
Cash and cash equivalents were £8.2 million
at the end of the year (2018: £15.1 million).
Group’s RBL; and
• Foreign exchange rates.
Balance sheet
Net assets decreased by £48.6 million
to £113.1 million at 31 December 2019
(2018: £161.7 million), mainly related to an
impairment of intangible exploration and
evaluation assets and goodwill of £58.7
million, offset by an income tax credit of
£9.3 million.
Changes to the estimate of decommissioning
costs following an internal review increased
both assets and liabilities by £7.7 million.
The Group adopted IFRS 16 Leases
(effective 1 January 2019) resulting in the
capitalisation of leasing costs of £7.7 million
and the recognition of a lease liability of
£7.2 million as at 31 December 2019
(see note 13).
At 31 December 2019, the Group has a
combined carried gross work programme
of up to $214 million (£161 million) (2018:
$220 million (£170 million)) from its partner,
INEOS Upstream Limited. In 2019, £7.3
million (2018: £9.2 million) gross costs were
carried, principally in relation to activities at
Springs Road, which have not been included
in the additions to intangible exploration
and evaluation assets during the year.
22
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.
In the first quarter of 2020, the oil price
has been affected by the global spread of
COVID-19 and the resultant reduction in oil
demand.
This situation has since been compounded
by the failure of OPEC to reach an agreement
on constraining supply and the decision of
several countries to increase output. At the
date of this report, there remains significant
uncertainty over the impact of COVID-19 on
future global demand for oil and therefore the
price of oil.
The ability of the Group to operate as a going
concern is dependent upon future oil prices
and foreign exchange rates as they impact
the continued generation of future cash flows
and the loan facility available under its RBL
(which is redetermined semi-annually based
on various parameters including oil price and
level of reserves) and is also dependent on
the Group not breaching its RBL covenants.
To mitigate these risks, the Group benefits
from its hedging policy with 420,000 bbls
hedged at an average minimum price of
$53.6/bbl for 2020. The Group also has $12
million of foreign exchange hedges in place
at rates between $1.17-$1.20:£1 for the
period to 30 June 2021.
Furthermore, the Group’s net reserves
position has increased by 1.5 mmboe during
2019 which will partially offset any impact
of lower prices in its RBL at the next
redetermination in May 2020.
Management has considered the impact of
the COVID-19 global crisis on the Group’s
operations. We continue to monitor the
situation closely and act within Government
guidelines and have a number of contingency
plans in place should our operations be
significantly affected by COVID-19. Many of
our sites are remotely manned and at this
stage we are well equipped as a business to
ensure we maintain business continuity. Our
production comes from a large number of
wells in a variety of locations (all of which are
on land and in the UK) and we have flexibility
in our off-take arrangements, as we transport
oil via road. In this regard, we continue to
liaise and co-operate with all the relevant
regulators.
The Group’s base case going concern model
was run with average oil prices of $32/
bbl for April to December 2020 rising to
$45/bbl from January 2021 and a foreign
exchange rate of $1.20:£1 during the
period. Our forecasts show that the Group
will have sufficient financial headroom to
meet its financial covenants based on the
existing RBL, as well as an estimate, based
on management’s knowledge and past
experience, of the outcome of the next half-
yearly redetermination due in May 2020,
and the following redetermination date in
December 2020, albeit the level of the facility
available to us is dependent on the facility
provider, BMO, and is beyond our control.
Given the uncertainties described above,
the level of Group revenues and availability
of facilities under the RBL are inherently
uncertain. As such management has also
prepared a downside forecast with the
following assumptions:
• Oil prices at $20/bbl in the second quarter
of 2020 rising to $30/bbl in the fourth
quarter of 2020 and $43-$45/bbl in 2021.
As this assumption is lower than external
current forward curves, management
considers this is a reasonable downside
scenario that reflects further potential
reductions in price caused by the failure
of OPEC to reach an agreement on
constraining supply and lower demand
from reduced industrial activity caused
by COVID-19. This downside is partially
mitigated by the commodity hedges the
Group has in place. However, oil price is
outside the Company’s control and this
could be lower should there be further
market disruption either from COVID-19,
or OPEC disagreements;
• No change to the level of available RBL
loan facility during the forecast period
as this reflects longer-term oil price
assumptions that have been considered
in conjunction with recent discussions
with the RBL provider;
IGas Energy plc | Annual Report and Accounts 2019 31 December
2019
£m
31 December
2018
£m
Key financial statistics
Revenues
Adjusted EBITDA1
Underlying operating profit1
Loss after tax
Net cash from operating activities
Net debt2
Cash and cash equivalents
Net assets
Realised price per barrel
2019
£m
40.9
13.8
4.6
(49.8
)
12.0
6.2
8.2
2018
£m
42.9
10.8
4.0
(21.4
)
12.9
6.4
15.1
113.1
161.7
Net debt at year-end
Debt (nominal value excluding
capitalised expenses)
Cash and cash equivalents
Net Debt
Adjusted EBITDA
Loss before tax
Net finance costs
Loss on refinancing
$60.1
Realised price per barrel
Depletion, depreciation and amortisation
Impairments/write-offs
EBITDA
Lease rentals capitalised under IFRS 16
Share-based payment charges
$23.0 Net back to IGas per BOE
Unrealised loss/(gain) on hedges
$7.0 G&A per BOE
Adjusted EBITDA
$22.2 Other operating cost
(underlying)
$4.5 Well services
Underlying operating profit
$3.4 Transportation and storage
Operating loss
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.
Operating lease rentals capitalised under
IFRS 16
Share-based payment charge
Impairments/write-offs
Unrealised loss/(gain) on hedges
Underlying operating profit
)
(14.4
8.2
)
(6.2
2019
£m
(59.1
)
3.4
0.7
9.4
58.7
12.9
(2.0
)
0.8
2.1
13.8
2019
£m
(55.0
)
(2.0
)
0.8
58.7
2.1
4.6
(21.5
)
15.1
(6.4
)
2018
£m
(25.1
)
3.8
–
6.9
29.1
14.7
–
0.8
(4.7
)
10.8
2018
£m
(21.2
)
–
0.8
29.1
(4.7
)
4.0
• A reduction in production of 10% to
• Includes the impact of action management
reflect a disruption risk to operational
and production related activities from the
COVID-19 crisis. As the Group is providing
a government designated essential
service and due to the large number of
operational wells, the impact of COVID-19
on production has to date been very
limited and has been assumed to remain so
as management does not currently foresee
wells needing to be shut down due to the
impact of COVID-19. Management therefore
considers this assumption represents a
reasonable downside in this uncertain time
based on management’s experience of
previous unplanned shut downs;
• Exchange rates of $1.20:£1 for 2020 and
$1.25:£1 for 2021 to reflect a downside
caused by the weakening of the dollar later
in the period. This downside is partially
mitigated by the currency hedges the
Group has in place; and
could take to reduce cash outflow,
including delaying capital expenditure and
additional reductions in costs in order to
remain within the Company's debt liquidity
covenants based on the Group’s expected
RBL redeterminations in May 2020 and
December 2020. All such mitigating actions
are within management's control and could
be actioned within the required time frame.
In this downside scenario, our forecast shows
that the Group will have sufficient liquidity
and financial headroom to meet its financial
covenants for the 12 months from the date of
approval of the financial statements. However,
should oil price or demand (and therefore
revenue) fall further, the Company may not
have sufficient funds available for 12 months
from the date of approval of these financial
statements. As a result, at the date of approval
of the financial statements, there is material
uncertainty over future commodity prices, the
outcome of the May 2020 redetermination of
the RBL and the potential impact of COVID-19
on the Group’s operational activities.
These material uncertainties may cast
significant doubt upon the Group’s ability to
continue as a going concern. Notwithstanding
these material uncertainties, the Directors
have a reasonable expectation that the
Group has adequate resources to continue
in existence for the foreseeable future and
have concluded it is appropriate to adopt
the going concern basis of accounting in
the preparation of the financial statements.
The financial statements do not include the
adjustments that would result if the Group
was unable to continue as a going concern.
Julian Tedder
Chief Financial Officer
23
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements
KEY PERFORMANCE INDICATORS
Measuring
our
progress.
Non-financial
IGas tracks both financial and non-financial metrics to
help the Group manage its long term performance and
measure progress against its strategy.
Lost Time Injuries (LTI) (number)
Progress on Shale Development plan
Nil
20191
20181
20171
20161
20152
Nil
One
Two
Nil
Nil
20191
20181
20171
20161
Drilled a vertical well at Springs Road and announced a world-class shale discovery in June.
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 Chester
West and Chester council.
Granted planning permission for a vertical well in PEDL 200 (Tinker Lane); planning conditions
discharged and site construction commenced for both Springs Road and Tinker Lane; submitted
planning application for flow tests at existing Ellesmere Port well; and submitted a scoping
request for drilling and hydraulically fracturing a well at Ince Marshes in the NW.
Granted planning consent for two wells (horizontal and vertical) in PEDL 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.
Reasons for choice
Health and safety is of paramount
importance to us in providing the highest
level of protection to all our stakeholders.
20152
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.
The Shale Development plan is key to delivering shareholder value and delivering
against our strategy.
How we measure
We tracked nine leading and nine lagging
indicators during the year and these are
reported to the Board on a monthly basis.
We aim to have zero LTIs but when we
do have an LTI this is fully investigated
with clear remedial action as required
and communication of learnings to the
organisation.
Target and results for 2019
The target was to have zero LTIs and
this was achieved in the year. We have
again maintained our ISO 9001 and
14001 accreditations with no major
non-conformances identified.
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 one well in the East Midlands and to submit a planning
application for hydraulic fracturing if the well was successful. The well was drilled successfully
under budget and discovered a world-class shale resource in the Gainsborough Trough.
A planning application for hydraulic fracturing was not submitted as the UK Government
announced an effective moratorium on the process of hydraulic fracturing in England
based on a report by the OGA in November 2019. We will work closely with the relevant
regulators to demonstrate that we can operate safely and environmentally responsibly.
Remuneration & strategy link
This measure is used to determine the level
of annual cash bonus.
This measure is used to determine the level of annual cash bonus.
24
IGas Energy plc | Annual Report and Accounts 2019 A reminder of our strategy
Reserves and production growth
Developing shale portfolio
Local and national engagement
Financial
Production (boepd)
Operating costs ($/boe)
Operating cash flow before working capital
movements (£'000)
2,325 boepd
$30.1/boe
£14.3m
20191
20181
20171
20161
20152
2,325 boepd
2,258 boepd
2,335 boepd
20191
20181
20171
2,355 boepd
20161
2,570 boepd
20152,3
$30.1/boe
20191
$32.0/boe
20181
$28.5/boe
20171
$28.8/boe
20161
$24.6/boe
20152
1. Year ended 31 December.
2 Nine months ended 31 December 2015.
3 2015 operating costs included a one-off rates rebate equivalent to $5.5/boe, so underlying operating costs for 2015 were £30.1/boe.
£14.3m
£11.6m
£8.9m
£9.6m
£6.5m
Reasons for choice
The Group aims to maintain production levels
to provide operating cash flow for funding
of the Group. To ensure this target is met an
appropriate level of capital investment is
planned to mitigate against the underlying
decline in our mature fields.
How we measure
Operating costs per boe is a key focus
for the Group as keeping costs low will
improve the cash that we generate from
our producing assets.
Operating cash flow is key to providing
funding for investing in the business as
we pursue our growth strategy.
Daily and weekly production is monitored
for all producing assets and reported weekly
to senior management and monthly to the
Board. Monthly production forecasts are
prepared during the year to measure progress
against the production target.
Operating costs are monitored closely
to ensure that budget targets are being
met. Operating costs are reported on a
monthly basis to the Board and actions
are taken, as required, to control costs in
line with the budget.
Operating cash flow is reported to the Board
on a monthly basis. Regular forecasts are
undertaken to ensure operating cash flow is
in line with budget, as well as longer-term
forecasts to ensure that the strategy of the
business can be adequately funded.
Target and results for 2019
Production for 2019 was 2,325 boepd which
was towards the upper end of the production
target range of 2,200 - 2,400 boepd and
exceeded our base KPI target of 2,300 boepd.
Production performance was positively
impacted in our East Midlands assets by
the success of waterflood and optimisation
activities conducted in 2018, alongside
2019 projects being brought online ahead of
schedule and wells performing in the upper
range of expectation.
Remuneration & strategy link
Operating costs for 2019 were $30.1/boe
which achieved the stretch target set for the
year. Absolute operating costs were below
budget for the year and when combined with
the higher production rate and the continuing
weak Sterling against the US Dollar, the
stretch target per barrel rate was achieved.
Operating cash flow before working capital
movements for 2019 was £14.3 million which
achieved the stretch target set for the year.
An increase in production for the year, an
increase in realised oil price and a reduction
in operating costs contributed to the positive
performance for 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 used to determine the level
of annual cash bonus.
25
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements RISK MANAGEMENT
Understanding
the risks
associated with
our operations.
Key risk areas
The risks around our existing
business are set out in more
detail on pages 28 to 29
but the key risk areas can be
identified as being associated
with the following:
Strategic
Making sure we apply
the appropriate strategies
in certain situations and
ensuring we deliver on
strategic objectives.
Operational
Successfully developing
oil and gas through
our production and
development assets.
Financial
Prudent financial
management seeks
to mitigate the impact
of market fluctuations.
The Group constantly monitors
the Group’s risk exposures and
reports to the Audit Committee
and the Board on a regular basis.
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
-
w
o
L
e
d
u
t
i
n
g
a
M
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.
Risks
1. Exposure to political risk
2. Strategy performance
3 Climate change
4 Cyber security
5. Planning, environmental, licensing
and other permitting risks
6. Oil or gas production
7. Shale gas resources
8. Loss of key staff
9. Pandemic
10. Oil market price risk
11. Gas and electricity market price risk
12. Exchange rate risk
13. Liquidity risk
14. Capital risk
Current risk
2018 risk
26
10
9
1
5
5
12
3
12
6
6
1
10
7
7
2
13
13
2
11
11
8
8
14
14
4
Low
Low-medium
Medium
Medium-high
High
Likelihood
IGas Energy plc | Annual Report and Accounts 2019
Risk matrix
Key
Strategic
2018 risk spread
2019 risk spread
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.
Financial
Operational
Risk management framework
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.
Board
Principal
committees
Audit Committee
IGas teams & risk owners
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).
Mapping risks against strategy
Key
Change in risk
Increased risk
Stable risk / No change
Decreased risk
New risk
Reserves and
production growth
Local and national
engagement
Developing shale
portfolio
13
14
13
12
12
11
1
1
1 2
9
8
7
10
9
9
8
8
2
3
4
5
2
3
4
5
6
7
3
6
4
5
27
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements RISK MANAGEMENT continued
Direction of change
A reminder of our strategy
Increase
No change
Decrease
Risk
Strategic
Reserves and production growth
Developing shale portfolio
Local and national engagement
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.
3. Climate change
Changes in laws, regulations, policies,
obligations and social attitudes relating to
the transition to a lower carbon economy
could have a cost impact or reduced
demand for hydrocarbons for the Group
and could impact our strategy.
CEO –
Stephen
Bowler
4. Cyber security
Exposure to a serious cyber-attack which
could affect the confidentiality of data, the
availability of critical business information
and cause disruption to our operations.
CFO –
Julian Tedder
Operational
5. 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
6. 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
The Group works closely with regulators to
ensure that all required planning consents
and permits for operations are in place.
Continual dialogue with all stakeholders
to understand emerging requirements.
The Board actively reviews the Group's
strategy to ensure it remains relevant
and will provide long term returns to
shareholders.
The Group outsources its provision of IT
equipment and help desk services to a third
party and ensures that staff are trained in
security awareness. The Group has been
accredited with Cyber Essential Plus which
demonstrates commitment to cyber security.
New
New
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.
28
IGas Energy plc | Annual Report and Accounts 2019
Risk
Operational continued
Executive
ownership
Mitigation
Change
Strategic
link
7. Shale gas resources
Successful development of shale gas
resources is not achieved.
Development
Director –
Ross Glover
8. Loss of key staff
Loss of key staff.
9. Pandemic
Exposure to a global pandemic, such as
COVID-19, that leads to disruption to the
Group’s operations and delays to the
supply chain.
CEO –
Stephen
Bowler
CEO –
Stephen
Bowler
Financial
10. 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
Following successful drilling at Springs Road
and discovery of a world-class resource the
Group will work with Joint Venture Partners
and the Government to undertake a body of
scientific work to allow the submission of a
Hydraulic Fracture Plan.
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.
New
The Board has put in place business
continuity plans to manage any disruption
to operations. Ensure staff are kept healthy
and safe and the Group complies with all
guidance issued by the Government at the
time. Liaise with all regulators to ensure that
the Group remains compliant with all permits
and regulatory standards.
The Group has hedged a total of 420,000
barrels over the year to 31 December 2020,
at an average price of $53.6/bbl through a
mixture of swaps and puts.
The Board seeks to underpin the Group’s
future cash flows by entering into a
combination of put options and swaps for
baseline production to cover 12 months
forward. The Board will continue to monitor
the benefits of such hedging.
11. 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.
12. Exchange rate risk
Exposure to exchange rate risk through both
its major source of revenue and its major
borrowings being priced in US dollars.
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
US dollars are matched with Sterling cash
outflows.
13. 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.
14. Capital risk
The Group is exposed to capital risk
resulting from its capital structure,
including operating within the
covenants of its RBL.
CFO –
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 2019Strategic ReportCorporate GovernanceFinancial Statements
SUSTAINABLE AND RESPONSIBLE BUSINESS
Committed
to responsible
development.
Committed to responsible
development
A sustainable and responsible company
is one that is committed to protecting and
enhancing the wider environment and
working with communities to provide them
with lasting socio-economic benefits. This is
not only the right thing to do, it also supports
our social licence to operate and the success
of our business over the long term.
In support of its vision, purpose and
strategy, IGas is aligning itself to a number
of the United Nations’ Sustainable
Development Goals.
Environment
The protection of the environment is a core
business objective for IGas. We are committed
to working with regulators to ensure that
any activity is undertaken safely and with as
little impact to the environment as possible.
Throughout our operations
and the lifecycle of our wells, robust
safety measures are in place to protect
the environment.
IGas operates an ISO 14001 certified
Environmental Management System and
by doing so demonstrates, via external
assurance, that the systems and processes
which we apply to our business in the
management and determination of
environmental risk are robust.
We work with the EA and the MPA to ensure
that we adhere to high standards through a
series of formal and informal audits, review
and general discussion with the MPAs and
other key regulators.
30
Protected areas
Throughout the project lifecycle we
continually identify, evaluate and mitigate
risk and have publicly committed to stringent
evaluation prior to determining whether to
conduct operations in areas of natural or
cultural sensitivity.
In England & Wales, onshore oil and gas
exploratory activities require environmental
permits issued under the Environmental
Permitting Regulations (EPR 2010) and
other permissions from the environmental
regulator, depending on the methods used
and the geology of the site.
UN SDG
Amongst other things, these activities shall
not be carried out within:
(a) 10 metres of any watercourse;
(b) a groundwater source protection zone 1
or 2, or where a source protection zone
has not been defined then within 250
metres of any well, spring or borehole
used for the supply of water for human
consumption or food production
purposes. This must include private
water supplies;
(c) a specified Air Quality Management
Area (AQMA);
(d) 200 metres of a European Site or a
Site of Special Scientific Interest;
(e) 200 metres of the nearest
sensitive receptor; and
(f) a flood zone 3.
An Environmental Impact Assessment (EIA)
may also be required. An EIA is an assessment
of the possible positive and/or negative
impacts that a proposed project may have on
the environment.
IGas Energy plc | Annual Report and Accounts 2019 Responsible
exploration
All exploration is
undertaken with care.
Responsible
operations
Our operations
are gold standard.
1 2
3
Our approach
to sustainability
aligns with the
United Nation’s
Sustainable
Development Goals.
Responsible
production
We produce energy
responsibly for all.
1 Responsible exploration
2
Responsible operations
3
Responsible production
In association with the MPA we work to
determine via screening whether an EIA is
required, if it is we work collaboratively to
ensure all possible impacts are surveyed
correctly, any impact is appropriately
mitigated and the resulting assessment
is transparently communicated to all
relevant stakeholders.
Planning applications and environmental
permits go through public consultation.
Full details of the environmental permits and
permissions required for onshore oil and gas
exploration and extraction can be found here:
www.gov.uk/guidance/onshore-oil-and-gas-
sector-guidance
MPAs (as part of local councils) grant planning
permission for the location, at surface and
their well-bore trajectory beneath the ground,
of any wells and well pads, and impose
conditions to ensure that the impact on the
use of the land is acceptable.
31
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements SUSTAINABLE AND RESPONSIBLE BUSINESS continued
Environment continued
The planning system controls the
development and use of land in the public
interest. This includes ensuring that any new
development is appropriate for its location
and in accordance with national policy and
local development plans. Development
applications take into account the effects
(including cumulative effects) of potential
pollution on health, the natural environment
or general amenity. In doing so, the focus
of the planning system is on whether the
application is an acceptable use of the land,
and what the impacts of those uses are. Any
control processes, health and safety issues or
emissions are then subject to the approval of
the appropriate associated regulator.
Full details of the planning guidelines for
onshore oil and gas can be found at https://
assets.publishing.service.gov.uk/government/
uploads/system/uploads/attachment_data/
file/224238/Planning_practice_guidance_for_
onshore_oil_and_gas.pdf
During the year we continued to submit
re-permitting submissions for our existing
sites, as part of a process initiated by the
Environment Agency and ongoing since 2016,
to review the permitting of all onshore oil
and gas sites. As part of this exercise certain
activities which have always taken place
under existing EPR permits but were listed
as DAAs now require specific permits. One of
these activities is the reinjection of produced
water which now requires a GA (Groundwater
Activity) Permit and an RSR (Radioactive
Substances Activity) Permit where the
produced water separated out during the oil
production process has a NORM (Naturally
Occurring Radioactive Material) concentration
above specified ‘out of scope’ values.
Water
IGas recognises that water is a critical
natural resource, essential to life, health
and sustainable social and economic
development. Water is also a key component
of our operations and as such we accept our
role in the responsible and efficient use of
this valuable resource.
IGas is committed to identifying, monitoring
and mitigating the impact on water supplies
associated with our operations.
At our Springs Road site, we installed
silt fencing, ensuring that run off during
construction did not impact local ditches
and the wildlife within them. We installed
monitors in local drains so as to ensure that
we had not adversely affected groundwater
levels and we continue to measure
groundwater quality surrounding our site,
demonstrating that we have had no effect
on its quality.
32
UN SDG
UN SDG
UN SDG
Waste and recycling
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 and
recycle options are used.
During the year, the Tinker Lane site was
rehabilitated and the land is already
returned to growing crops. All of the stone
removed from Tinker Lane went onto other
construction projects, concrete blocks
were re-tasked and now fortify local farms
hindering access to vandals and steel gates,
and the fencing has been used to bolster our
existing infrastructure.
Biodiversity
IGas accepts its responsibility to comply with
applicable biodiversity protection laws and
regulations in areas where we operate. We
therefore endeavour not to adversely impact
biodiversity and natural habitats through our
presence and operations.
During the year we completed a number of
biodiversity projects as either part of our site
remediation and restoration commitments,
or as part of our responsible operator
programme during operations.
In North Nottinghamshire, we plugged and
abandoned our exploration well at Tinker
Lane. The full restoration was completed
by October 2019 and the field was back in
crop before the start of 2020. During the
development of the site, a planting scheme
included the filling out of surrounding
hedgerows, planting of large saplings in the
local verges and development of meadow
grasses within the site. Meadow development
was so effective that ground nesting birds
successfully fledged chicks within the site
during 2019.
At our Springs Road site, a number of
Hibernaculums were installed at multiple
locations across the site providing a suitable
habitat for both snakes and lizards. Areas of
the site not used during the operation were
developed into meadows for habitats to
support rabbits, foxes, raptors and owls
which were regularly spotted.
We undertook groundwater monitoring,
air quality monitoring, noise monitoring
and significant work on both noise and
light mitigation, water level monitoring
in local ditches and demonstrated we
had no discernible impact on the air
quality, groundwater levels or groundwater
quality in the catchment area, including
the nearby SSSI.
IGas Energy plc | Annual Report and Accounts 2019 During the year we completed the restoration
of an abandoned site at Wigginton near
York. This involved removal of the drilling
pad, replacement of soils, re-establishment
of drainage channels and finally reseeding.
We also successfully plugged and
abandoned a well at Keele, located
within the University complex.
In December 2019, we completed an ongoing
project to relocate a badger sett which we
had identified at one of our existing sites so
that we could continue to undertake routine
maintenance on the site without disturbing
the badger colony. We commissioned a report
and sought a licence from Natural England.
The works were carried out by a specialist
ecological consultant and the badgers
successfully moved and appropriate badger
proof fencing installed. We will continue to
monitor the site.
Climate change and GHG emissions
IGas recognises the risk that climate change
poses to society and to its business.
UN SDG
We support the UK’s transition to a low
carbon economy, through the responsible
development and production of domestic
onshore oil and gas in alignment with
the Committee on Climate Change
recommendations.
We recognise the need to reduce greenhouse
gas (GHG) emissions. Over the last three
years we have seen a decrease in our direct
emissions and we continue to strive to reduce
our GHG emissions through new initiatives.
Our approach to managing our GHG
emissions involves:
• The efficient operation of our existing
equipment and infrastructure, including
minimising flaring and venting; and
• The installation of best available
technology into all new projects to
minimise their carbon intensity.
Development of environmental KPIs
At a Group level we measure and report
on Lost Time Injuries see KPIs on page 24.
IGas already complies with a number of
strict requirements across its sites that are
set by the regulators. In addition, part of the
team’s remit for 2020 is to develop a set of
Group-wide environmental KPIs.
Social
Staying safe, keeping others safe, and
being responsible are core to who we
are as a Company.
As a responsible operator we are focused on
achieving safe and sustainable operations,
minimising any adverse social impacts and
achieving the highest standards of health
and safety throughout the business.
UN SDG
”The design of the policy framework
to reduce UK industry emissions
must ensure it does not drive
industry overseas, which would not
help to reduce global emissions,
and be damaging to the UK
economy.”
Committee on Climate Change
16% Nil
Over the last three years we have
seen a decrease in our direct
emissions of 16%
LTIs in 2019
33
IGas Energy plc | Annual Report and Accounts 2019Strategic ReportCorporate GovernanceFinancial Statements As part of the EA re-permitting programme
all IGas sites but one have now been issued
with a Consolidated Permit. The permit
includes a significant number of improvement
conditions set out by the EA for the industry
which the Company is on target to complete
as per its agreed schedule.
ISO 9001/14001 certification continues to
be an important part of the business; during
2019 the business successfully completed
transition from ISO 9001/14001:2008 to
ISO 9001/14001:2015 standards without
any major non-compliance.
Crisis and emergency management
A programme of training and regular exercises
and testing are in place to ensure response
plans are properly understood and will work
in the event of an emergency. Emergency
response plans, equipment and resources
are reviewed annually. As part of the
management of change process any change
to the nature of operational activity or change
in regulatory or Company requirements will
result in the evaluation of response plans. Key
lessons identified during training exercises or
responses to real events will be incorporated
into future response plans as required.
For more information on employee and
communities see Our Stakeholders section
on pages 10 to 11 in this report
Governance
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.
Further details of our approach to corporate
governance can be found on page 35 of this
report and full details are available on our
website www.igasplc.com/investors/corporate-
governance
SUSTAINABLE AND RESPONSIBLE BUSINESS continued
UN SDG
ROSPA
Health and Safety
We operate to established company and
industry standards and processes which
ensure provision of safe and responsible
working practices across all our operational
activities. These company standards
encompass all aspects of our Health, Safety
and Environmental management obligations,
and are designed to meet and exceed the
expectations of our employees, external
contractors, Government regulators, joint
venture partners and the communities with
whom we interface.
Our internal health and safety policies are
aimed at:
• Ensuring healthy working conditions within
an environment of complete security for
employees and contractors; and
• Implementing operating standards that are
legally and ethically compatible.
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. Our goal is to
work to eliminate work place injuries and we
are pleased to say there were zero LTIs during
the year. Our Hazard Reporting continues
to improve and has increased by 50% this
year compared to 2018, helping to reduce
incidents before they occur.
We are committed to ensuring our colleagues
and host communities are kept safe and well,
and to raising awareness of potential dangers
related to our operations and locations where
we operate. We ensure colleagues have
access to affordable healthcare and aim to
achieve top quartile industry performance
on our occupational safety measures. This
is demonstrated through IGas achieving the
ROSPA Presidents Award again, representing
13 years of commitment to Occupational
Health and Safety.
The business continues to drive improvements
through awareness campaigns and
engagements through its Committee
of Representatives for Safety.
COMAH (Control of Major Accident Hazards
Regulations) sites remain an ongoing
programme of continual improvement
with two more sites being notified under
the regulations.
34
IGas Energy plc | Annual Report and Accounts 2019 INTRODUCTION TO GOVERNANCE
Developing
our
governance
model to
support our
business.
”The Board continues to 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.”
Dear Shareholder,
As Interim 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 advisers. 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 continues
to 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.
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 and
Chief Financial Officer or, where appropriate,
certain other members of our Excom, namely
the Technical Director 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 diversity,
including gender diversity and we have a
number of women in senior management
roles. However, we fully recognise that
the Board could be more gender diverse
in its composition and will seek to further
address gender diversity when recruiting for
Board vacancies. I also note that since the
resignation of Mr McTighe as Chair in October
2019, the Board includes one independent
Non-executive Director. Whilst this does not
follow the best practice recommended by the
QCA Code, which envisages that the Board
has at least two independent Non-executive
Directors, it is noted that the composition
of the Board is a matter for review by the
Nomination Committee in 2020 and that
the culture of good corporate governance
of the Company subsists under the current
composition of the Board.
Cuth McDowell
Interim Non-executive Chairman
35
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 INTRODUCTION TO GOVERNANCE continued
Key Board statements
Requirement
Compliance Statement
1. Directors’ responsibilities in respect
of financial statements
2. Compliance with the Quoted
Companies Alliance Corporate
Governance Code
3. Going concern
The Directors are responsible for preparing the Annual Report and
financial statements in accordance with applicable law and regulation.
The Directors are also 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.
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 QCA Code and further information on the Company’s
compliance with that code is set out in this Annual Report.
The Group continues to closely monitor and manage its liquidity
risks including the continued use of both oil and foreign exchange
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.
4. Robust assessment of the principal
risks facing the Group
The Directors’ Report includes a fair review of the development
and performance of the business and the position of the Group and
the Company, together with a description of the principal risks and
uncertainties that it faces.
5. Annual review of the systems of risk
management and internal control
6. Remuneration Report
The Audit Committee 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.
The 2019 Directors' Remuneration Report notes a detailed review
with the ‘Reward and Employment’ team at PwC in 2017. The Board
agreed 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, introduced 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. The Board believes that their structure is still appropriate
and aligns the remuneration of the CEO and senior executives with
shareholders’ interests.
Where to find
further information
Page 54
Page 37
Page 22
Page 52
Page 26
Page 47
36
IGas Energy plc | Annual Report and Accounts 2019 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;
and
10. Communicate how the Company
is governed and is performing
by maintaining a dialogue with
shareholders and other relevant
stakeholders.
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,
and 9, as well as those aspects of Principles 8
and 10 recommended to be disclosed on our
website, in a corporate governance statement
on our website and will cover the remaining
principles in this Annual Report. We depart
from the strict recommendation of the QCA
Code in respect of Principle 7 as we cover all
aspects recommended to be disclosed by
the QCA Code in respect of that principle,
including those aspects which the QCA Code
recommends be covered on our website,
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 8 and 9.
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 – QCA Principle Five
See page 43 for information on those
Directors who are considered to be
independent, the time commitment required
for Directors to conduct their role and
the number of meetings of the Board, its
committees and the relevant Directors’
attendance record.
Board skills – QCA Principle Six
Information on each of the Directors is
provided on page 40.
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 and 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.
During 2019 the Company used a number
of external professional advisers in relation
to the RBL placed with BMO and subsequent
repayment of the Secured Bonds, including
external legal advisers and the Company’s
Nomad in relation to the refinancing. Details
of the Company’s advisers can be found
on the Company’s website at
http://igasplc.com/investors/shareholder-
information/registrars-and-advisors
See the corporate governance statement
on our website for further details of the
internal advisory responsibilities performed
by certain individuals in advising and
supporting the Board.
37
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 INTRODUCTION TO GOVERNANCE continued
The Excom and, at a more junior level, senior
departmental managers address progression
of employees through annual appraisals and
competency reviews. Following the successful
launch of a structured Management Training
Programme in 2018, offering key managers
training and learning opportunities, this was
supplemented through a series of workshops
aimed at all employees with a supervising
role, in order to further train those individuals
in the process for giving effective appraisals.
Governance and shareholder dialogue –
QCA Principle Ten
See below for an overview of the work of the
committees of the Board undertaken in 2019.
See pages 47 to 51 of this Annual Report for
the Remuneration Committee Report.
This Annual Report does not include a
separate Audit Committee report. However,
pages 43 to 44 of this Annual Report outlines
the key areas of focus of the Audit Committee
in the year ended 31 December 2019. The
Group will further assess internally as to
whether it is necessary and appropriate to
make further disclosures under the QCA
Code, either through a report of the Audit
Committee or more likely in sections of the
next Annual Report.
Board effectiveness – QCA Principle Seven
In 2019 the Board formalised its procedures
for self-evaluation and undertook a self-
evaluation in respect of its effectiveness.
The aim of the Board evaluation was to review
the effectiveness of the Board’s performance
and assess its strengths as well as areas for
development with an agreed set of actions
and agreed deadlines. The self-evaluation
was carried out on behalf of the Board by the
Chief Financial Officer using a self-evaluation
questionnaire completed by each member
of the Board (excluding Hans Årstad who
was appointed to the Board at a later date),
against which the Board was assessed under
the following categories: Board composition,
roles and responsibilities, meetings and
administration, Board committees, Board
discussions, Board relationships and
stewardships, monitoring and evaluation,
strategy and internal control.
The Chief Financial Officer, the then Chief
Operating Officer and the General Counsel,
as those members of the Excom invited to
attend Board meetings on the most regular
basis, also completed the self-evaluation
questionnaire.
The overall result was that the Board
concluded that it was operating effectively.
The Board considered its strengths to be the
effectiveness of the Board Committees, the
open and honest discussions of the Board
and the effectiveness of decision making by
the Board.
The Board concluded that areas for
development were: (1) the composition of
the Board in relation to oil and gas technical
ability and diversity through the continued
review of expansion of the Board as part
of continued succession planning; (2)
engagement with the wider IGas workforce
including ensuring that all staff were invited
to join regular Town Hall meetings and the
dissemination of Group messages to all
staff; and (3) the timeliness of circulation of
Board papers. In respect of each identified
area for development: (1) the Board has
continued to review its composition in
relation to oil and gas technical ability and
diversity and continues to be mindful of the
recommendations of the 2019 self-evaluation
in respect of any future appointment; (2) the
Board has agreed that two Board meetings
will be held at operating sites during the year
in support of its engagement with the wider
workforce, all staff now have access to the
means to receive Group messages and are
invited to regular and structured Town Hall
meetings which provide updates to staff on
the progress of the Group’s business, as well
as an open forum for staff questions to be
addressed; and (3) the third recommendation
was fully addressed in 2019. The effectiveness
of the Board will be assessed in 2020 through
a further self-evaluation of performance.
The Board is committed to ensuring effective
succession planning. The Nomination
Committee is responsible for reviewing
Board and senior management succession
planning to ensure that the Company has
the appropriate level of skills and diversity.
Where appropriate the Nomination
Committee uses external advisers to
assist with candidate identification and
benchmarking. The Nomination Committee
continues to ensure that there is a robust
succession plan for senior management
positions. The Board (in conjunction with the
Nomination Committee) reviewed succession
planning for the Excom and senior manager
positions in 2019 and concluded that plans
were in place for all key positions; this will be
reviewed again in 2020.
38
IGas Energy plc | Annual Report and Accounts 2019 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 (Excom)
The Excom 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 and ensuring the financial statements give a true and fair view. Whilst the
Board is ultimately responsible for risk management and internal controls in the Company, the
Audit Committee is responsible for ensuring that executive management takes responsibility
for internal controls being appropriately designed and are both efficient and effective in
practice. In 2020, the work of the Audit Committee will, in addition to its natural focus on the
preparation of the Company’s Annual Report and Accounts, strengthen its role in monitoring the
integrity of the Company’s broader corporate reporting, risk management systems (including
the identification of future opportunities) and internal control environment, as well as its
continued role in determining the Company’s approach to risk and the extent to which the
Company is willing to take risks.
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.
To read more
see page 43
To read more
see pages
41 to 42
To read more
see page 43
To read more
see page 44
To read more
see page 45
39
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 BOARD OF DIRECTORS
Leading
the Company
the right way.
Name Hans Årstad
Role Non-executive
Director
Appointed 2019
Skills and experience
Hans is a Director in KKR's
European Private Equity
Team where he has been
involved in a number of
investments in a broad
range of industries. Hans
joined KKR in 2014. Prior
to joining KKR, he was
an Engagement Manager
at McKinsey & Company
focusing on upstream oil
and gas. Hans holds a M.Sc.
in Finance and a BSc. in
Business Administration
from the Norwegian School
of Economics.
A
R
N
R
N
A
Name Cuth McDowell
Role Interim Non-
executive Chairman
Appointed 2012
Skills and experience
Cuth has 36 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 £120 million
in four separate primary
offerings before it was sold
to Talisman Energy Inc. for
approximately £1.2 billion
in 2006. Cuth is currently
chairman at Quotall Ltd.,
an unlisted software
development company.
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 has recently been
elected a Fellow of the
Energy Institute. He
graduated with an MA in
law from the University
of Cambridge and is a
solicitor of the Supreme
Court in England.
Name Tushar Kumar
Role Non-executive
Director
Appointed 2017
Skills and experience
Tushar is a member of the
Investment and Portfolio
Management Team at
Kerogen Capital. He has
over 17 years’ experience
in investing, investment
banking and equities,
working with a range of
oil and gas companies
including upstream,
downstream, majors and
NOCs across Europe, the
Middle East and Asia.
Prior to joining Kerogen,
he was an executive
director at Morgan
Stanley’s natural resources
group in London, having
previously worked with
members of the Kerogen
team at J.P. Morgan’s
energy and natural
resources group in
Hong Kong.
Tushar holds an MBA from
the Indian Institute of
Management Ahmedabad
(IIMA) and a BTech
in computer science
and engineering from
the Indian Institute of
Technology (IIT). He is also
a CFA charter holder.
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 following the
acquisition of Star Energy’s
producing assets, which
transformed IGas into one
of the leading UK onshore
oil and gas companies.
He qualified as a chartered
accountant with Touche
Ross, now Deloitte. In
1999, Steve joined ABN
Amro Hoare Govett, now
part of Jefferies, where
he acted as adviser and
broker to a wide range of
UK listed companies in the
oil and gas sector.
Steve led the Company
through its refinancing
in 2017, as well as the
significant farm-out to
INEOS in 2015.
Committee member key
Audit
Committee
Remuneration
Committee
Nomination
Committee
Chair
Member
A
R
N
40
IGas Energy plc | Annual Report and Accounts 2019
EXECUTIVE COMMITTEE
Name Julian Tedder
Role Chief Financial Officer
Skills and experience
A chartered accountant, Julian
has over 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 ten years, where he was
ultimately responsible for 190
staff across the finance function.
Name Stephen Bowler
Role Chief Executive Officer
Skills and experience
Steve became Chief Executive
Officer in May 2015 having joined
IGas as Chief Financial Officer in
2011 following the acquisition of
Star Energy’s producing assets,
which transformed IGas into one
of the leading UK onshore oil and
gas companies.
He qualified as a chartered
accountant with Touche Ross,
now Deloitte. In 1999, Steve
joined ABN Amro Hoare Govett,
now part of Jefferies, where
he acted as adviser and broker
to a wide range of UK listed
companies in the oil and gas
sector.
Steve led the Company through
its refinancing in 2017, as well as
the significant farm-out to INEOS
in 2015.
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 19 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 the
Subsurface Team 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 and a
Fellow of the Energy Institute.
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.
41
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
EXECUTIVE COMMITTEE continued
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. He then
undertook a variety of operational
roles culminating in running
two diamond mines and an
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 Peter Foscoe
Role Director of Human
Resources
Skills and experience
A Chartered Fellow of the
Chartered Institute of Personnel
and Development, Peter has over
25 years’ experience managing
human resource functions in the
financial services, telecoms and
oil and gas sectors. In addition to
ten 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 and 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 sector companies over
the years.
Name Thamala Perera Schuetze
Role General Counsel and
Company Secretary
Skills and experience
General Counsel with 19 years’
experience, over 12 years of
which gained in the oil and gas
industry. Prior to the reverse
takeover of Star Energy Group
Limited (then a wholly-owned
subsidiary of PETRONAS) by IGas
in 2011, Thamala was a member
of the Management Team and the
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, where she advised on
electricity, gas and LNG projects
and at Freshfields Bruckhaus
Deringer LLP in the telecoms
sector.
Thamala holds a Master of Laws
(LLM) in European Law from
King’s College London.
42
IGas Energy plc | Annual Report and Accounts 2019 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 as its governance framework 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 and our continued work in developing their application 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
During 2019, the Board welcomed Hans Årstad as a Non-executive Director in May 2019 and noted the resignation of Mike McTighe in October
2019. Following these Board changes, the Board of the Company consists of one Executive Director and four Non-executive Directors. Following
Cuth McDowell’s appointment as Interim Chair of the Board, Mr McDowell is no longer fulfilling the role of Senior Independent Director, but is
still considered to be an independent Non-executive Director. Biographies of all the Directors are included within the Annual Report on page 40.
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) (resigned 10 October 2019)
Cuth McDowell (Interim Chairman)
Stephen Bowler
Philip Jackson
Tushar Kumar
Hans Årstad (appointed 20 May 2019)
Meetings attended
(out of a total possible)
8/9
12/13
13/13
13/13
13/13
8/9
In addition to the Directors, the Chief Financial Officer and General Counsel have been invited to attend each meeting of the Board; the General
Counsel has participated in all of the meetings and the Chief Financial Officer has participated in all but one meeting during the year. The Board
invites other members of the Excom to attend its meetings as necessary and appropriate to the agenda to be discussed at the relevant Board
meeting. The Board intends to meet at least ten times during 2020.
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 its other member, Tushar Kumar.
Meetings are aligned with the Group’s financial reporting calendar and in the year ended 31 December 2019 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. The committee intends to meet at least three times during 2020.
Audit Committee membership
Committee member
Cuth McDowell (Chairman)
Mike McTighe (resigned 10 October 2019)
Tushar Kumar
Meetings attended
(out of a total possible)
3/3
2/2
3/3
43
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CORPORATE GOVERNANCE continued
Summary of the committee’s responsibilities
The committee’s responsibilities include the following:
• The committee reviews reports from management and the Group’s auditors relating to the Group’s Annual Report and Accounts and the interim
results announcements. The committee advises the Board on whether the Annual Report and interim announcements 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 auditors’
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 2019
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 2019 interim results announcement and of the significant risks which included the going concern
assessment, including covenant compliance, recoverability of goodwill, accounting for lease agreements and impairment of oil and gas
properties; and
• Review of the planning for the 2019 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 its other member Cuth McDowell.
The committee met on three occasions in the year ended 31 December 2019. 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 (resigned 10 October 2019)
Cuth McDowell
Summary of the committee’s responsibilities
The committee’s responsibilities include the following:
Meetings attended
(out of a total possible)
3/3
2/2
3/3
• 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.
44
IGas Energy plc | Annual Report and Accounts 2019
Key areas of focus in the year ended 31 December 2019
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 against the Group’s key performance indicators in the year ended 31 December 2018 and recommending to the Board
that a pay-out factor of 32.5% be applied to all employees of the Group. Staff bonuses were paid to staff in February 2019.
Nomination Committee
The Nomination Committee is chaired by the Interim Chairman, Cuth McDowell, and its other member is Non-executive Director, 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
Cuth McDowell (Chairman from 10 October 2019)
Mike McTighe (resigned 10 October 2019)
Philip Jackson
Summary of the committee’s responsibilities
The committee’s responsibilities include the following:
Meetings attended
(out of a total possible)
3/3
1/1
3/3
• 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 2019
The principal activities of the committee during the year were as follows:
• Following the resignation of Mike McTighe in October 2019, the committee considered the make-up of the Board and as a result
Cuth McDowell was appointed as Interim Chairman. The Board will monitor the composition of the Board and place it under review
during 2020; and
• Continuing to ensure that appropriate succession plans are in place for Excom and senior management.
45
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CORPORATE GOVERNANCE continued
Internal control
The Board acknowledges that it is responsible for establishing and maintaining the Group’s system of internal controls and reviewing
its effectiveness. The procedures that include, inter alia, financial, operational, health & safety, compliance matters and risk management
(as detailed in the Strategic Report) are reviewed on an ongoing basis.
The Group’s internal control procedures include the following:
• Board approval for all significant projects, including corporate transactions and major capital projects;
• The Board receives and reviews regular reports covering both the technical progress of projects and the Group’s financial affairs to facilitate
its control;
• There is a comprehensive budgeting and planning system for all items of expenditure with an annual budget approved by the Board.
Risk assessment and evaluation is an integral part of the annual planning cycle;
• The Group has in place internal control and risk management systems in relation to the Group’s financial reporting process and the Group’s
process for preparing consolidated accounts. These systems include policies and procedures to ensure that adequate accounting records are
maintained and transactions are recorded accurately and fairly to permit the preparation of consolidated financial statements in accordance
with IFRS; and
• The Audit Committee reviews draft annual and interim reports before recommending their publication to the Board. The Audit Committee
discusses with the Chief Financial Officer, Group Financial Controller and external auditors the significant accounting policies, estimates
and judgements applied in preparing these reports.
The internal control system can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has
considered the need for a separate internal audit function but, bearing in mind the present size and composition of the Group, does not consider
it necessary at the current time.
Anti-bribery and corruption/ethical conduct
IGas has reviewed the appropriate policies and procedures to ensure compliance with the UK Bribery Act, Modern Slavery Act and Criminal
Finances Act. The Company continues actively to promote good practice throughout the Group and has continued its roll-out of a programme
of anti-bribery and corruption and anti-facilitation of tax evasion, as well as anti-slavery and human trafficking training for all relevant employees.
The Group’s Modern Slavery Statement can be accessed here: http://igasplc.com/media/40884/modern-slavery-statement.pdf
Relations with shareholders
Communications with shareholders are considered important by the Directors. The primary contact with shareholders, investors and analysts
is the Chief Executive Officer. 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.
See also the Company’s disclosure in relation to Principle 10 in the corporate governance statement on the Company website.
Engaging with stakeholders
The ways 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.
46
IGas Energy plc | Annual Report and Accounts 2019 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
A detailed review with the ‘Reward and Employment’ team at PwC was undertaken in 2017, after which the Remuneration Committee proposed
a number of changes to the annual cash bonus scheme, which it believes 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, 2018 and 2019 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 or 2019 EIP awards (whether to the Executive Director or any other senior
executive) will vest unless a share price hurdle of £1.13 is met or exceeded.
The Remuneration Committee believes that the current rules regarding bonus and EIP awards, based on the 2017 review, still remain appropriate.
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 executives, 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.
47
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 DIRECTORS’ REMUNERATION REPORT continued
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.
The percentage of maximum
bonus entitlement received
is based on the achievement of
individually challenging targets
supporting corporate objectives.
The maximum potential bonus
entitlement for Executive
Directors under the plan is
to up to 100% of base salary.
The maximum individual limit
for an Initial Award is 300%
of salary.
The maximum individual limit
for an Annual Award in any
financial year is 200% of salary
(this limit was increased from
150% during the 2014/15
financial year).
No awards have been made
under this Plan since
November 2015.
Annual cash bonus
Executive Directors and staff are eligible to participate in a discretionary
bonus plan.
The Committee will determine on an annual basis the level of deferral,
if any, of the bonus payment into Company shares (currently 50% of any
award in excess of £30,000). Maximum bonus levels and the proportion
payable for target performance are considered in the light of market bonus
levels for similar roles among the industry sector.
Bonuses paid in cash (and where applicable, shares) are not pensionable.
In terms of bonus targets a balanced scorecard approach is operated which
focuses on a mixture of strategic, operational, financial and non-financial
metrics.
Under the Long Term Incentive Plan, adopted by the Board in 2011
participants can each be granted two types of award: an Initial Award and
an Annual Award. Both types of award are in the form of a nil cost option.
If the relevant conditions attaching to the awards are met at the end of a
three-year vesting period, then the participant has a further seven years in
which to exercise the award.
The primary purpose of the Initial Awards is to aid the recruitment of key
executives. These awards vest at the end of a three-year performance
period provided the Company’s share price performance exceeds the
Company’s weighted average cost of capital of 10%.
The LTIP also provides for Annual Awards to be granted which will
vest at the end of a three-year period provided certain challenging
corporate performance conditions have been met. The purpose of the
Annual Award is to provide a competitive annual total remuneration
package which retains and motivates the Executive Directors and other
selected executives.
Long Term Incentive Plan
(LTIP)
48
IGas Energy plc | Annual Report and Accounts 2019 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 remains
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 100% of salary subject
to two times multiplier (i.e. the
maximum number of shares
which could vest is equal to
200% of salary).
Share price target
£10.00
£15.00
Multiplier
1.50 x shares awarded
2.00 x shares awarded
For the subsequent awards (October 2017, March 2018 and March 2019)
the multiplier was set as follows:
Share price target
< £1.13
£1.13 - £1.25
£1.26 - £1.39
£1.40 - £1.54
£1.55 - £1.74
£1.75 - £1.96
> £1.96
Multiplier
0.00 x shares awarded
0.25 x shares awarded
0.50 x shares awarded
0.75 x shares awarded
1.00 x shares awarded
1.50 x shares awarded
2.00 x shares awarded
Executive Directors are required to build a shareholding over a five-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.
Share Investment
Plan (SIP)
In 2013, the Company adopted an HMRC approved Share Investment
Plan for all employees of the Group. The scheme is a tax efficient incentive
plan pursuant to which all employees are eligible to subscribe for up to
£150 (or 10% of salary, if less) worth of IGas ordinary shares per month.
Shares are acquired on a quarterly basis 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 three years from the
date of grant of the matching award.
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.
Employees are eligible to acquire
up to £150 (or 10% of salary,
if less) worth of IGas ordinary
shares per month from gross
salary.
The Company will match the
shares purchased on a 1-to-
1 basis and, subject to the
Company having met pre-defined
quarterly production targets, will
increase the matching element
for that quarter to 2-to-1.
49
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 DIRECTORS’ REMUNERATION REPORT continued
Annual Report on Remuneration
Remit of the Remuneration Committee
The remit of the Remuneration Committee (the Committee) is provided in the Corporate Governance section.
The Committee has engaged the services of PricewaterhouseCoopers LLP (PwC) to provide wholly independent advice on executive
compensation and to assist the Committee in the implementation and evaluation of its long-term incentive arrangements.
Share price movements during the year
The Group’s share price as at 31 December 2019 was 48.5p per share. The highest price during the year was 90.2p per share and the lowest share
price during the year was 21.5p per share.
Current arrangements in financial year (Audited)
Executive Director
Executive Directors are employed under rolling contracts with notice periods of 12 months from the Company or executive.
Directors’ emoluments for the year were as follows:
Executive Director
S Bowler – CEO
Total – Executive Directors
Year ended 31 December 2019
Year ended 31 December 2018
Payment
in lieu of
pension
£’000
Salary
£’000
364
364
38
38
Bonus
(Cash)
£’000
106
106
Bonus
(Shares) Pensions
£’000
£’000
Total
£’000
Payment
in lieu of
pension
£’000
Salary
£’000
76
76
10
10
594
594
357
357
37
37
Bonus
(Cash)
£’000
73
73
Bonus
(Shares) Pensions
£’000
£’000
43
43
10
10
Total
£’000
520
520
On 28 March 2019 S Bowler was made a Base Award under the 2016 EIP scheme over 469,435 ordinary shares in the Company.
As at 31 December 2019, the outstanding long-term incentives held by the Executive Director who served during the year are set out in the
table below:
Executive Director Retention Plan
Date of
grant
At
1 January
2019
S Bowler
13/07/2015
175,000
2016 Executive Incentive Plan
S Bowler
Date of
grant
30/03/2016
16/10/2017
21/03/2018
28/03/2019
At
1 January
2019
74,076
388,889
396,667
–
Share
options
granted
–
Share
options
granted
–
–
–
469,435
2016 Management Retention Plan
(Bonus Scheme Shares)
S Bowler
Date of
grant
21/03/2018
28/03/2019
859,632
469,435
At
1 January
2019
33,431
–
33,431
Share
options
granted
–
56,036
56,036
Share
options
exercised
Share
As at
options 31 December
2019
lapsed
Earliest
vesting
date
Lapse
date
–
–
175,000 13/07/2016 13/07/2023
Share
options
exercised
Share
As at
options 31 December
2019
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
469,435 25/02/2022 25/02/2029
1,329,067
Share
options
exercised
Share
As at
options 31 December
2019
lapsed
Earliest
vesting
date
Lapse
date
–
–
–
–
–
–
33,431 17/01/2019 21/03/2026
56,036 25/02/2020 28/03/2027
89,467
50
IGas Energy plc | Annual Report and Accounts 2019
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
R McTighe (resigned 10 October 2019)
C McDowell 3
P Jackson1
T Kumar1
H Årstad2 (appointed 20 May 2019)
Total – Non-executive Directors
Year ended 31 December 2019
Year ended 31 December 2018
Emoluments
£’000
Taxable
benefits
£’000
Pensions
£’000
Total
£’000
Emoluments
£’000
Taxable
benefits
£’000
Pensions
£’000
78
69
55
45
–
247
–
–
–
–
–
–
–
–
–
–
–
–
78
69
55
45
–
247
100
60
55
45
–
260
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
100
60
55
45
–
260
1 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 Under the terms of his appointment no fee is paid to H Årstad.
3 Appointed Interim Chairman with effect from 11 October 2019.
Philip Jackson
Chairman Remuneration Committee
8 April 2020
51
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
DIRECTORS’ REPORT
The Directors present their report together with the Group and Parent Company financial statements for the year ended 31 December 2019.
Business review and future developments
A review of the business and the future developments of the Group are presented in the Chairman’s statement, the Chief Executive’s statement,
and the Chief Financial Officer’s 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 2018: £nil).
Principal activity
The Group’s principal area of activity is exploring for, appraising, developing and producing oil and gas.
Share capital
Details of changes to share capital in the period are set out in note 24 to the consolidated financial statements.
Directors and their interests
The Directors who served during the year were as follows:
R McTighe (resigned 10 October 2019)
C McDowell (appointed Interim Chairman 10 October 2019)
S Bowler
P Jackson
T Kumar
H Årstad (appointed 20 May 2019)
Non-executive Chairman
Interim 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:
R McTighe (resigned 10 October 2019)
C McDowell
S Bowler
P Jackson
T Kumar
H Årstad (appointed 20 May 2019)
31 December 2019
31 December 2018
Ordinary 0.002p Shares
Ordinary 0.002p Shares
Number
n/a
219,170
74,772
–
–
–
%
Number
n/a
0.18
0.06
–
–
–
583,056
219,170
66,845
–
–
–
%
0.47
0.18
0.06
–
–
–
In addition to the table above, in January 2020, S Bowler subscribed to his full entitlement under the Group’s share scheme and accordingly was
allotted 1,916 shares.
Annual General Meeting 2020
The Annual General Meeting (the AGM) of the Company will be held at the offices of Pinsent Masons LLP, 30 Crown Place, London EC2A 4ES on
5 June 2020, 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 Company’s Articles of Association, P Jackson and T Kumar retire by rotation and H Årstad, having been appointed after the
date of the Company’s 2019 Annual General Meeting, retires and they each offer themselves for re-election at the AGM on 5 June 2020.
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.
52
IGas Energy plc | Annual Report and Accounts 2019
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 article 58 of the Company’s Articles of Association as adopted on 8 August
2013. These provisions remained in force throughout the period and remain in place at the date of this report.
Substantial shareholders
As at 8 April 2020, 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:
Number of Shares
%
Kerogen General Partner II Limited
KOG Investments S.A.R.L.
Royal London AM
Bank of America
J.O. Hambro
33,964,100
28.0
17,923,583 14.7
8.3
7.1
6.5
10,155,760
8,770,663
7,950,000
Financial instruments
The Group’s principal financial instruments comprise cash balances, borrowings, derivative instruments and other debtors and creditors that arise
through the normal course of business as set out in note 23 to the consolidated financial statements. The Group’s financial risk management
objectives are also set out in note 23 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 2018: £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 PricewaterhouseCoopers LLP as auditors will be proposed at the AGM on 5 June 2020 at a fee to be agreed in due
course by the Audit Committee and the Board.
Directors’ statement as to disclosure of information to the auditor
So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being information
needed by the auditors in connection with preparing its report, of which the auditors are unaware. Having made enquiries of fellow Directors,
each Director has taken all the steps that a Director might reasonably be expected to have taken as a Director in order to make himself aware
of any relevant audit information and to establish that the Company’s auditor is aware of that information.
By order of the Board
Thamala Perera Schuetze
Secretary
IGas Energy plc
Registered Office: 7 Down Street, London, W1J 7AJ,
Registered in the United Kingdom number: 04981279
8 April 2020
53
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
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 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 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.
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.
Directors’ responsibility statement
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 position and performance, business model and strategy.
By order of the Board,
Stephen Bowler
Chief Executive Officer
8 April 2020
54
IGas Energy plc | Annual Report and Accounts 2019
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 2019 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 2019; the Consolidated Income Statement, the 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.
Material uncertainty related to going concern
In forming our opinion on the Group financial statements, which is not modified, we have considered the adequacy of the disclosure made in
note 1b to the financial statements concerning the Group’s ability to continue as a going concern. The ability of the Group to operate as a going
concern is dependent upon the Group generating cash flows and the availability of the monies drawn under its RBL. The RBL is redetermined
on a semi-annual basis and is based on the estimate of reserves and future oil prices, which have recently declined. The Group’s operational
activities and cash flows could also be impacted by the uncertainty over the impact of COVID-19. These conditions, along with the other matters
explained in note 1b to the financial statements, indicate the existence of material uncertainties which may cast significant doubt upon the
Group’s ability to continue as a going concern. The Group financial statements do not include the adjustments that would result if the Group
was unable to continue as a going concern.
What audit procedures we performed
In concluding there is a material uncertainty, our audit procedures included:
• checking the mathematical accuracy of Management’s cash flow forecast and confirming the opening cash position;
• challenging and evaluating management’s underlying cash flow projections including comparing forecast sales volumes, operating costs,
capital expenditure and abandonment expenditure to recent actuals and internal forecasts and comparing forecast future oil prices and
foreign exchange rates to external data;
• assessing the reasonableness of management’s downside case, including assessing management’s ability to take mitigating actions, including
delaying capital expenditure and reducing costs; and
• reviewing the completeness and appropriateness of management’s going concern disclosures as disclosed in the financial statements.
Our audit approach
Overview
Materiality
Audit scope
Key audit matters
• Overall Group materiality: £1.2 million (2018: £1.2 million), based on 0.59% of total assets.
• We scoped in all components for the purpose of the Group audit.
• This enabled us to obtain coverage over 98% of Group consolidated revenue and 100% of Group
consolidated total assets.
• Consideration of the impact of COVID-19.
• Carrying value of conventional oil & gas assets.
• Carrying value of unconventional assets.
• Completeness and valuation of the decommissioning provision.
55
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF IGAS ENERGY PLC continued
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed
the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that
represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters. In addition to going concern, described in the ‘material uncertainty related to going concern’ section above, we determined
the matters described below to be the key audit matters to be communicated in our report. This is not a complete list of all risks identified by
our audit.
Key audit matter
How our audit addressed the key audit matter
Consideration of the impact of COVID-19
Refer to Strategic Report.
The international outbreak of COVID-19 in early 2020 has affected
business and economic activity around the world, including the
United Kingdom where the Group operates. Given the spread of
COVID-19, the range of the potential outcomes are difficult to
predict, but include a prolonged global recession and long term
decrease in commodity prices, including oil.
The Group is monitoring the COVID-19 outbreak developments
closely and is following the guidance of the World Health
Organization and abiding by the requirements of the United
Kingdom government, however the virus has the potential to
cause disruption to the Group’s operational activities and impact
earnings, cash flows and financial conditions.
The Group has made an assessment of the impact of COVID-19 on
its operations and ability to continue as a going concern, for the
details please refer to note 1 to the financial statements.
Carrying value of conventional oil & gas assets
Refer to significant accounting judgements and estimates and note
11 Property, plant and equipment. Conventional oil and gas assets
totalled £103 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.
Management concluded that the COVID-19 outbreak and
geopolitical factors which together have led to a decrease in oil
price is a result of conditions that arose after the balance sheet
date and as a result are non-adjusting post balance events.
We concur with management that these factors are non-adjusting
post balance events and as a result that the future assumptions
used in the Group’s impairment assessments performed as at
31 December 2019 are not to be adjusted for changes subsequent
to that date.
We have reviewed the disclosures included in the Annual Report in
respect of this risk, including principal risk and uncertainties, going
concern, impairment sensitivities and post balance sheet events
and consider them reasonable.
The impact of COVID-19 on the Group’s ability to continue as a
going concern is considered in the ‘material uncertainty related
to going concern’ section above.
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 2019.
We agreed the forecast oil price to third party consensus forecasts.
We concluded management’s price forecast was reasonable.
Management’s production forecasts were reconciled to the
independent reserves report prepared by DeGolyer and
MacNaughton (D&M) in January 2020.
Another key element of the forecast is the discount rate. We
have involved valuations specialists to perform an 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.
56
IGas Energy plc | Annual Report and Accounts 2019 Key audit matter
How our audit addressed the key audit matter
Carrying value of unconventional assets
Refer to significant accounting judgements and estimates and note
10 Intangible exploration and evaluation assets. The carrying value
of the Group’s unconventional assets was £41.5 million after an
impairment of £53.9 million in the year.
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.
Completeness and valuation of the decommissioning provision
Refer to significant accounting judgements and estimates and note
20 Provisions.
A provision of £55.1 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 35
years from the year end.
As at 31 December 2019, 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 licences with a carrying value of £53.9
million did not meet this criteria and in line with IFRS 6 were
written off in the year; and that the remaining carrying value is
supportable.
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.
57
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF IGAS ENERGY PLC continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which it operates.
The Group is structured along two segments being conventional and unconventional licenses. The Group financial statements are a consolidation
of 24 separate reporting entities, comprising the Group’s operating businesses and centralised functions within these segments. All of the
Group’s operating business and 100% of the total assets and 99% of the total 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.
We scoped in all reporting components for the purpose of the Group audit. This gave us coverage over 98% of consolidated revenue and 100%
coverage over total assets and together with additional procedures performed at the Group level, gave us the evidence we needed for our
opinion on the Group financial statements as a whole.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£1.2 million (2018: £1.2 million).
How we determined it
0.59% of total assets.
Rationale for benchmark applied
We believe that total assets are reflective of the Group’s current operations and has more relevance
than earnings to shareholders.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £60,000 (2018: £62,500) as
well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
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.
58
IGas Energy plc | Annual Report and Accounts 2019 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 2019 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, 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 2019.
That report includes a ‘material uncertainty related to going concern’ section.
Richard Spilsbury
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
9 April 2020
59
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Revenue
Cost of sales:
Depletion, depreciation and amortisation
Other costs of sales
Gross profit
Administrative expenses
Exploration and evaluation assets written-off
Goodwill impairment
Loss on oil price derivatives
Gain/(loss) on foreign exchange contracts
Operating loss
Finance income
Finance costs
Loss on extinguishment of debt re-financing
Loss from continuing activities before tax
Income tax credit
Loss after tax from continuing operations attributable to shareholders’ equity
(Loss)/profit after taxation from discontinued operations
Net loss for the year attributable to shareholders’ equity
Loss attributable to equity shareholders from continuing operations:
Basic loss per share
Diluted loss per share
Loss attributable to equity shareholders including discontinued operations:
Basic loss per share
Diluted loss per share
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
Note
2
40,901
42,928
(9,058)
(20,542)
(6,824)
(21,932)
(29,600)
(28,756)
11,301
(4,533)
(53,928)
(4,801)
(3,348)
265
14,172
(5,527)
(29,067)
–
(638)
(180)
(55,044)
(21,240)
460
(3,861)
(692)
69
(3,948)
–
(59,137)
(25,119)
10
9
4
4
6
6
19
7
9,307
3,745
(49,830)
(21,374)
17
(396)
41
(50,226)
(21,333)
8
8
8
8
(40.93p)
(40.93p)
(17.59p)
(17.59p)
(41.26p)
(41.26p)
(17.56p)
(17.56p)
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
Loss for the year
Other comprehensive loss for the year:
Currency translation adjustments recycled to the income statement
Currency translation adjustments
Total comprehensive loss for the year
The notes on pages 64 to 97 form an integral part of these financial statements.
60
(50,226)
(21,333)
(63)
68
–
(235)
(50,221)
(21,568)
IGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2019
ASSETS
Non-current assets
Goodwill
Intangible exploration and evaluation assets
Property, plant and equipment
Right-of-use assets
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
Borrowings
Derivative financial instruments
Lease liabilities
Liabilities held for sale
Non-current liabilities
Borrowings
Other creditors
Lease liabilities
Provisions
Total liabilities
Net assets
EQUITY
Capital and reserves
Called up share capital
Share premium account
Foreign currency translation reserve
Other reserves
Accumulated (deficit)/surplus
Total equity
31 December 31 December
2018
£000
2019
£000
Note
9
10
11
13
16
7
14
15
16
16
23
17
18
19
23
13
17
19
18
13
20
24
24
25
–
41,455
104,532
7,668
410
29,961
4,801
89,282
91,403
–
410
20,656
184,026
206,552
1,193
5,986
8,194
–
127
–
15,500
1,149
9,589
15,112
193
2,158
10,100
38,301
199,526
244,853
(9,288)
–
(266)
(988)
–
(10,542)
(13,071)
(1,529)
(6,173)
(55,101)
(11,878)
(2,389)
(180)
–
(10,272)
(24,719)
(18,591)
(1,916)
–
(37,946)
(75,874)
(58,453)
(86,416)
(83,172)
113,110
161,681
30,333
102,680
(7,289)
32,781
(45,395)
30,333
102,501
(7,294)
31,310
4,831
113,110
161,681
These financial statements were approved and authorised for issue by the Board on 8 April 2020 and are signed on its behalf by:
Stephen Bowler
Chief Executive Officer
Julian Tedder
Chief Financial Officer
The notes on pages 64 to 97 form an integral part of these financial statements.
61
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
At 1 January 2018
Loss for the year
Share options issued under the employee share plan (note 25)
Issue of shares (note 24)
Lapse of options under the employee share plan
Currency translation adjustments
At 31 December 2018
Loss for the year
Share options issued under the employee share plan (note 25)
Issue of shares (note 24)
Forfeiture of options under the employee share plan
Currency translation adjustments
Called up
share capital
(note 24)
£000
30,333
–
–
–
–
–
30,333
–
–
–
–
–
Share
premium
account
(note 24)
£000
102,342
–
–
159
–
–
102,501
–
–
179
–
–
Foreign
currency
translation
reserve*
£000
Other Accumulated
(deficit)/
surplus
£000
reserves**
(note 25)
£000
(7,059)
–
–
–
–
(235)
(7,294)
–
–
–
–
5
29,994
–
1,489
(173)
–
31,310
–
1,599
–
(128)
–
25,991
(21,333)
–
–
173
–
4,831
(50,226)
–
–
–
–
Total
equity
£000
181,601
(21,333)
1,489
159
–
(235)
161,681
(50,226)
1,599
179
(128)
53
At 31 December 2019
30,333
102,680
(7,289)
32,781
(45,395)
113,110
* 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 (see note 25) 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 notes on pages 64 to 97 form an integral part of these financial statements.
62
IGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities:
Loss before tax for the year
Net loss on extinguishment of debt re-financing
Depletion, depreciation and amortisation*
Abandonment costs/other provisions utilised
Share-based payment charge
Exploration and evaluation assets written-off
Goodwill impairment
Unrealised loss/(gain) on oil price derivatives
Unrealised (gain)/loss on foreign exchange contracts
Finance income
Finance costs
Other non-cash adjustments
Operating cash flow before working capital movements
(Increase)/decrease in trade and other receivables and other financial assets
(Decrease)/increase in trade and other payables
(Increase)/decrease in inventories
Cash generated from continuing operating activities
Decrease/(increase) in discontinued operating activities
Taxation paid – continuing operating activities
Net cash 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
Drawdown on reserves-based loan facility
Repayment on reserves-based loan facility
Fees paid related to debt re-financing
Repayment of bonds
Repayment of principal portion of lease liability
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
* Depletion, depreciation and amortisation includes £1.5 million relating to right-of-use assets (note 13).
The notes on pages 64 to 97 form an integral part of these financial statements.
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
Notes
19
11
20
5
10
9
4
4
6
6
24
16
16
16
16
16
16
(59,137)
692
9,449
(1,760)
801
53,928
4,801
2,380
(265)
(460)
3,861
(14)
14,276
(602)
(1,733)
(44)
11,897
105
–
(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)
12,002
12,940
(2,716)
(3,668)
1
14
129
(2,496)
(8,152)
18
38
69
(6,240)
(10,523)
(6,240)
(10,523)
69
19,319
(4,639)
(1,059)
(21,355)
(2,687)
(2,021)
70
–
–
–
(1,722)
–
(1,751)
(12,373)
(3,403)
(6,611)
(307)
15,112
8,194
(986)
371
15,727
15,112
63
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019
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 2019 and with the Companies Act 2006. The financial statements were approved by the Board and authorised for issue on 8 April
2020. 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.
Subsidiary undertakings exemption from audit
IGas Energy plc has guaranteed the liabilities of the subsidiaries listed below under section 479A of the Companies Act 2006 in respect
of the year ended 31 December 2019.
Star Energy Group Limited – 05054503
Star Energy Limited – 03806814
Star Energy Weald Basin Limited – 06293763
IGas Energy Enterprise Limited – 05457589
Island Gas Limited – 04962079
Island Gas (Singleton) Limited – 01021095
Dart Energy (Europe) Limited – SC259898
Dart Energy (East England) Limited – 06760546
IGas Energy Production Limited – SC298739
Dart Energy (West England) Limited – 06760557
IGas Energy Development Limited – 07240286
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 2019:
IFRS 16
•
•
IFRIC Interpretation 23
• Amendments to IAS 28
Leases;
Uncertainty over Income Tax Treatments; and
Long-term Interest in Associates and Joint Ventures.
The Group changed its accounting policies as a result of adopting IFRS 16. The Group elected to adopt the new rules under the modified
retrospective approach but recognised the cumulative effect of initially applying the new standard on 1 January 2019. This is disclosed in
note 13. The other amendments and interpretations listed above did not have any impact on the amounts recognised in prior periods and
are not expected to significantly affect the current or future periods.
New standards and interpretations not yet adopted
Certain new standards, interpretations and amendments to existing standards have been published that are not mandatory for 31 December
2019 reporting periods. These standards are effective from 1 January 2020, are not expected to have a material impact on the entity in the
current or future reporting periods and have not been early adopted by the Group:
IAS 1 and IAS 8 Definition of Material;
IFRS 3 Definition of a Business – Amendments to IFRS 3; and
•
•
• The Conceptual Framework for Financial Reporting.
(b) Going concern
The Group continues to closely monitor and manage its liquidity risks. Cash forecasts for the Group are regularly produced based on, inter alia,
management’s best estimate of:
• The Group’s production and expenditure forecasts;
• Future oil prices;
• The level of available facilities under the Group’s RBL; and
• Foreign exchange rates.
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.
64
IGas Energy plc | Annual Report and Accounts 2019 1 Accounting policies continued
(b) Going concern continued
In the first quarter of 2020, the oil price has been affected by the global spread of COVID-19 and the resultant reduction in oil demand.
This situation has since been compounded by the failure of OPEC to reach an agreement on constraining supply and the decision of several
countries to increase output. At the date of this report, there remains significant uncertainty over the impact of COVID-19 on future global demand
for oil and therefore the price of oil.
The ability of the Group to operate as a going concern is dependent upon future oil prices and foreign exchange rates as they impact the
continued generation of future cash flows and the loan facility available under its RBL (which is redetermined semi-annually based on various
parameters including oil price and level of reserves) and is also dependent on the Group not breaching its RBL covenants. To mitigate these risks,
the Group benefits from its hedging policy with 420,000 bbls hedged at an average minimum price of $53.6/bbl for 2020. The Group also has
$12 million of foreign exchange hedges in place at rates between $1.17-$1.20:£1 for the period to 30 June 2021. Furthermore, the Group’s
net reserves position has increased by 1.5 mmboe during 2019 which will partially offset any impact of lower prices in its RBL at the next
redetermination in May 2020.
Management has considered the impact of the COVID-19 global crisis on the Group’s operations. We continue to monitor the situation closely
and act within Government guidelines and have a number of contingency plans in place should our operations be significantly affected by
COVID-19. Many of our sites are remotely manned and at this stage we are well equipped as a business to ensure we maintain business
continuity. Our production comes from a large number of wells in a variety of locations (all of which are on land and in the UK) and we have
flexibility in our off-take arrangements, as we transport oil via road. In this regard, we continue to liaise and co-operate with all the relevant
regulators.
The Group’s base case going concern model was run with average oil prices of $32/bbl for April to December 2020 rising to $45/bbl from January
2021 and a foreign exchange rate of $1.20:£1 during the period. Our forecasts show that the Group will have sufficient financial headroom to meet
its financial covenants based on the existing RBL facility, as well as an estimate, based on management’s knowledge and past experience, of the
outcome of the next half-yearly redetermination due in May 2020, and the following redetermination date in December 2020, albeit the level of
the facility available to us is dependent on the facility provider, BMO, and is beyond our control.
Given the uncertainties described above, the level of Group revenues and availability of facilities under the RBL are inherently uncertain. As such
management has also prepared a downside forecast with the following assumptions:
• Oil prices at $20/bbl in the second quarter of 2020 rising to $30/bbl in the fourth quarter of 2020 and $43-$45/bbl in 2021. As this assumption
is lower than external current forward curves, management considers this is a reasonable downside scenario that reflects further potential
reductions in price caused by the failure of OPEC to reach an agreement on constraining supply and lower demand from reduced industrial
activity caused by COVID-19. This downside is partially mitigated by the commodity hedges the Group has in place. However, oil price is outside
the Company’s control and this could be lower should there be further market disruption either from COVID-19, or OPEC disagreements;
• No change to the level of available RBL loan facility during the forecast period as this reflects longer-term oil price assumptions that have been
considered in conjunction with recent discussions with the RBL provider;
• A reduction in production of 10% to reflect a disruption risk to operational and production related activities from the COVID-19 crisis. As the
Group is providing a government designated essential service and due to the large number of operational wells, the impact of COVID-19 on
production has to date been very limited and has been assumed to remain so as management does not currently foresee wells needing to be
shut down due to the impact of COVID-19. Management therefore considers this assumption represents a reasonable downside in this uncertain
time based on management’s experience of previous unplanned shut downs;
• Exchange rates of $1.20:£1 for 2020 and $1.25:£1 for 2021 to reflect a downside caused by the weakening of the dollar later in the period. This
downside is partially mitigated by the currency hedges the Group has in place; and
• Includes the impact of action management could take to reduce cash outflow, including delaying capital expenditure and additional reductions
in costs in order to remain within the Company’s debt liquidity covenants based on the Group’s expected RBL redeterminations in May 2020
and December 2020. All such mitigating actions are within management’s control and could be actioned within the required time frame.
In this downside scenario, our forecast shows that the Group will have sufficient liquidity and financial headroom to meet its financial covenants
for the 12 months from the date of approval of the financial statements. However, should oil price or demand (and therefore revenue) fall further,
the Company may not have sufficient funds available for 12 months from the date of approval of these financial statements. As a result, at the date
of approval of the financial statements, there is material uncertainty over future commodity prices, the outcome of the May 2020 redetermination
of the RBL and the potential impact of COVID-19 on the Group’s operational activities. These material uncertainties may cast significant doubt
upon the Group’s ability to continue as a going concern. Notwithstanding these material uncertainties, the Directors have a reasonable expectation
that the Group has adequate resources to continue in existence for the foreseeable future and have concluded it is appropriate to adopt the going
concern basis of accounting in the preparation of the financial statements. The financial statements do not include the adjustments that would
result if the Group was unable to continue as a going concern.
65
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
1 Accounting policies continued
(c) Basis of consolidation
The consolidated financial statements present the results of IGas Energy plc and its subsidiaries as if they formed a single entity. The financial
statements of subsidiaries used in the preparation of consolidated financial statements are based on consistent accounting policies to the
parent. All intercompany transactions and balances between Group companies, including unrealised profits arising from them, are eliminated
in full. Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, it is treated as an extension of the entity.
At 31 December 2019, the Group comprised the Company and entities controlled by IGas Energy plc (its subsidiaries). No new subsidiaries were
acquired during the year but a number of subsidiaries were dissolved/struck off or liquidated, as disclosed in note 2 of the Parent Company
financial statements.
(d) Business combinations
Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for
control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under
IFRS 3 are recognised at their fair value at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable
assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income
statement. Acquisition costs are expensed and shown as a separate line in the income statement.
(e) Joint arrangements
Certain of the Group’s licence interests are held jointly with others under arrangements whereby unincorporated and jointly controlled ventures
are used to explore, evaluate and ultimately develop and produce from its oil and gas interests. Accordingly, the Group financial statements for
its share of assets, liabilities, income and expenditure of these joint operations, classified in the appropriate balance sheet and income statement
headings, except where its share of such amounts remain the responsibility of another party in accordance with the terms of carried interests as
described at (i) below.
Where the Group enters into a farm-in agreement involving a licence in the exploration and evaluation phase, the Group records all costs that
it incurs under the terms of the joint operating agreement as amended by the farm-in agreement as they are incurred.
Where the Group enters into a farm-out agreement involving a 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.
66
IGas Energy plc | Annual Report and Accounts 2019 1 Accounting policies continued
(f) Significant accounting judgements and estimates continued
Estimates:
Recoverable value of intangible exploration and evaluation assets and goodwill
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.
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.
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 GBP to US dollar foreign exchange rates and 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.
Proved and probable reserves and contingent resources
The volume of proved and probable oil and gas reserves is an estimate that affects the unit of production depreciation of producing oil and
gas property, plant and equipment as well as being a significant estimate affecting decommissioning provisions, impairment calculations and
the valuation of oil and gas properties in business combinations. Contingent resources affect the valuation of exploration and exploration
assets acquired in business combinations and the estimation of the recoverable value of those assets in impairment tests. Proved and probable
reserves and contingent resources are estimated using standard recognised evaluation techniques. Estimates are reviewed at least annually
and are regularly estimated by independent consultants. Future development costs are estimated taking into account the level of development
required to produce the reserves by reference to operators, where applicable, and internal engineers.
Deferred tax asset recognition
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the
losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised,
based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Estimates of future taxable profits
are based on cash flows expected to be generated from internal estimates of projected production and costs. Details of the Group’s deferred tax
assets, including those not recognised due to uncertainty regarding the future utilisation, are disclosed in note 7 to the financial statements.
Decommissioning costs
The estimated cost of decommissioning at the end of the producing lives of fields is reviewed periodically and is based on forecast price
levels and technology at the balance sheet date. Provision is made for the estimated cost at the balance sheet date, using a discounted
cash flow methodology and a risk free rate of return. Details of the Group’s decommissioning provisions are disclosed in note 20 to the
financial statements.
Judgements:
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.
Interest rate implicit in the lease
Since the interest rate implicit in the lease cannot be readily determined, the lessee’s incremental borrowing rate is used. The incremental
borrowing rate (IBR) applicable for all of the leases for the Group is between 7.5% and 8.5%. While there is no definitive guidance in IFRS 16
on how to determine an IBR we are typically observing rates built up from three components as follows:
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Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
1 Accounting policies continued
(f) Significant accounting judgements and estimates continued
Interest rate implicit in the lease continued
Judgements continued:
a) Risk free rate – a treasury bond rate or an interest swap rate in the local currency for the country of the lease, which reflects
the duration of the lease;
b) Credit spread specific to the lessee; and
c) Asset/lease specific adjustments to reflect the nature of the collateral.
The determination of whether there is an interest rate implicit in the lease, the calculation of the Group’s incremental borrowing rate, and
whether any adjustments to this rate are required, involves some judgement and is subject to change over time. At the commencement date of
leases management consider whether the lease term will be the full term of the lease or whether any option to break or extend the lease is likely
to be exercised. Leases are regularly reviewed and will be revalued if the term is likely to change.
(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 has 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.
(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.
68
IGas Energy plc | Annual Report and Accounts 2019
1 Accounting policies continued
(i) Non-current assets continued
Non-current assets (or disposal groups) held for sale and discontinued operations continued
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.
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 is 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.
69
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
1 Accounting policies continued
(i) Non-current assets continued
Impairment of oil and gas properties
The Group’s interests in oil and gas properties are assessed for indications of impairment including events or changes in circumstances which
indicate that the carrying value of an asset may not be recoverable. Any impairment in value is charged to the Income Statement.
Impairment tests are carried out on the following basis:
• By comparing the sum of any amounts carried in the books as compared to the recoverable amount;
• The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The Group generally assesses the fair value
less costs to sell 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.
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.
70
IGas Energy plc | Annual Report and Accounts 2019 1 Accounting policies continued
(j) Financial instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and cash held on current account or on short-term deposits at variable interest rates with
original maturity periods of up to three months. Any interest earned is accrued monthly and classified as interest income within finance income.
Other financial assets – restricted cash
Restricted cash relates to bond guarantees issued to governments for the performance under the terms of work programmes. Funds are only
classified as cash and cash equivalents when monies are transferred to and under the control of the Group.
Trade and other receivables
Trade receivables are 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.
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
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.
71
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
1 Accounting policies continued
(k) Borrowings
Borrowings are measured initially at fair value. After initial recognition, interest bearing loans and borrowings are subsequently measured at
amortised cost using the Effective Interest Rate (EIR) method. Gains and losses are recognised in the income statement when the liabilities are
derecognised as well as through the EIR amortisation process. When management estimates of the amounts or timings of cash flows are revised,
borrowings are re-measured using the revised cash flow estimates under the original effective interest rate with any consequent adjustment
being recognised in the income statement.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.
The EIR amortisation is included in finance costs in the income statement.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of these assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the income statement in the periods in which
they are incurred.
Derecognition
The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised
in profit or loss.
(l) Leases
As explained in note 1 (a) above, the Group has changed its accounting policy for leases where the Group is the lessee. Leases in which a
significant portion of the risks and rewards of ownership were not transferred to the Group were classified as operating leases. Payments made
under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of
the lease. The impact of the change is described note 13 and the new policy is as follows:
Amounts recognised in cash flow statement
Lease payments are now split between financing cash flows and operating cash flows in the cash flow statement. Financing cash flows represent
repayment of principal and interest. In prior periods operating lease payments were all presented as operating cash flows under IAS 17.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less accumulated
depreciation and impairment losses and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount
of lease liabilities recognised, adjusted for any lease payments made at or before the commencement date, less any lease incentives received.
Right-of-use assets are depreciated over the shorter of the asset’s useful life or the lease term on a straight-line basis. Right-of-use assets are
subject to and reviewed regularly for impairment. Depreciation on right-of-use assets is included in depletion, depreciation and amortisation
within cost of sales or in administrative expense in the consolidated income statement based on the nature of the asset.
Lease liabilities
The Group recognises lease liabilities measured at the present value of the lease payments to be made over the lease term. Lease payments
include fixed payments less any lease incentives receivable and variable lease payments that depend on an index. The Group is exposed to
potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect.
When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use
asset. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
Extension renewal and termination options
Extension, renewal and termination options are included in a number of property, land, cars and other equipment leases across the Group.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an option
to extend or renew, or not exercise a termination option. Extension and renewal options (or periods after termination options) are only included
in the lease term if the lease is reasonably certain to be extended (or not terminated).
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it.
The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this
assessment, and that is within the control of the lessee.
72
IGas Energy plc | Annual Report and Accounts 2019 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 are awarded to employees including Directors, the fair value of the options 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 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 may be transferred to another equity reserve.
Where the terms and conditions of options 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 (Treasury shares).
73
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 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 paid/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 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.
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.
74
IGas Energy plc | Annual Report and Accounts 2019 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
2018
£000
2019
£000
Oil sales
Electricity sales
Gas sales
39,248
966
687
40,901
41,978
888
62
42,928
Revenues of approximately £18.8 million and £20.5 million were derived from the Group’s two largest customers (2018: £21.6 million
and £20.4 million) and are attributed to the oil sales.
As at 31 December 2019, 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 (note 22):
Land and buildings
Other
* Reconciliation of depletion, depreciation and amortisation is as follows:
Cost of sales
Administrative expenses
Total in operating loss
Capitalised equipment used for exploration and evaluation
Other
Total depreciation
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
(12,727)
(9,399)
(12,960)
(6,923)
(225)
(40)
–
(40)
(225)
(72)
(33)
(53)
–
–
(1,794)
(271)
Property,
plant and
equipment
(note 11)
(7,848)
(48)
(7,896)
(41)
(9)
(7,946)
Right-of-
use assets
Total
(note 13) depreciation
(1,210)
(293)
(1,503)
–
–
(1,503)
(9,058)
(341)
(9,399)
(41)
(9)
(9,449)
75
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
4 Derivative financial instruments
Loss on oil price derivatives
Realised loss on oil price derivatives
Unrealised (loss)/ gain on oil price derivatives
Gain/(loss) on foreign exchange contracts
Unrealised gain/(loss)
5 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
2018
£000
2019
£000
(968)
(2,380)
(3,348)
(5,544)
4,906
(638)
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
265
(180)
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
9,544
1,110
745
1,328
9,488
1,139
727
1,606
12,727
12,960
No.
115
37
152
No.
116
37
153
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.
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 time writing rate.
76
IGas Energy plc | Annual Report and Accounts 2019
6 Finance income/(costs)
Finance income:
Interest on short-term deposits
Foreign exchange gains
Other interest and finance charges
Finance income
Finance expense:
Interest on borrowings
Foreign exchange loss
Unwinding of discount on provisions (note 20)
Finance charge on lease liability for assets in use
Finance expense
7 Income tax credit
(i) Tax credit on loss from continuing ordinary activities
Current tax:
Charge on loss for the year
Charge in relation to prior years
Total current tax charge
Deferred tax:
Credit relating to the origination or reversal of temporary differences
Charge due to tax rate changes
Credit in relation to prior years
Total deferred tax credit
Tax credit on loss on ordinary activities
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
127
333
– 6
460
63
–
69
(1,874)
–
(1,310)
(677)
(3,861)
(1,948)
(895)
(1,105)
–
(3,948)
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
–
– 9
– 9
(3,461)
–
(5,846)
(9,307)
(9,307)
–
(782)
84
(3,056)
(3,754)
(3,745)
77
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
7 Income tax credit continued
(ii) Factors affecting the tax charge
The majority of the Group’s profits are generated by ‘ring-fence’ businesses which attract UK corporation tax and supplementary charge
at a combined average rate of 40%.
A reconciliation of the UK statutory corporation tax rate applied to the Group’s loss before tax to the Group’s total tax credit is as follows:
Year ended
Year ended
31 December 31 December
2018
£000
2019
£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% (2018: 40%)
Deferred tax credit in respect of the prior year
Current tax charge 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 in unrecognised losses carried forward
Intra-group transfer of assets
Tax rate change
Other
Tax credit on loss on ordinary activities
(59,137)
(25,119)
(23,655)
(5,846)
– 9
9,850
(121)
292
–
10,197
–
–
(24)
(9,307)
(10,047)
(3,056)
1,190
999
603
(827)
7,138
11
84
151
(3,745)
* Amounts not allowable for supplementary charge purposes relate to net financing costs disallowed for supplementary charge offset by investment allowance which is
deductible against profits subject to supplementary charge.
(iii) Deferred tax
The movement on the deferred tax asset in the year is shown below:
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
Asset at 1 January
Tax credit 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 by category of temporary difference:
Accelerated capital allowances
Tax losses carried forward
Investment allowance unutilised
Decommissioning provision
Unrealised gains or losses on derivative contracts
Share-based payments
Right-of-use asset and liability
Other
Deferred tax asset
78
20,656
5,846
3,461
–
(2) 2
16,900
3,056
782
(84)
29,961
20,656
31 December 31 December
2018
£000
2019
£000
(13,993)
29,735
1,297
9,628
1,799
1,675
(180)
– 2
(26,409)
35,721
840
8,095
924
1,483
–
29,961
20,656
IGas Energy plc | Annual Report and Accounts 2019
7 Income tax credit continued
(iv) Tax losses
Deferred tax assets have been recognised in respect of tax losses and other temporary differences where the Directors believe it is probable that
these assets will be recovered. Such tax losses include £94.4 million (2018: £114.3 million) of ring-fence corporation tax losses.
The Group has further tax losses and other similar attributes carried forward of approximately £234.8 million (2018: £203.0 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)
Continuing
Basic EPS amounts are based on the loss for the year after taxation attributable to ordinary equity holders of the parent of £49.8 million (2018: a loss
of £21.4 million) and the weighted average number of ordinary shares outstanding during the year of 121.7 million (2018: 121.5 million).
Diluted EPS amounts are based on the loss 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.
As at 31 December 2019, there are 6.3 million potentially dilutive employee share options (31 December 2018: 4.6 million potentially dilutive
share options) which are not included in the calculation of diluted earnings per share as their conversion to ordinary shares would have
decreased the loss per share.
The following reflects the income and share data used in the basic and diluted earnings per share from continuing operations:
Basic loss per share – ordinary shares of 0.002 pence each
Diluted loss per share – ordinary shares of 0.002 pence each
Loss for the year attributable to equity holders of the parent from continuing operations – £000
Weighted average number of ordinary shares in the year – basic EPS
Weighted average number of ordinary shares in the year – diluted EPS
Year ended
31 December
2019
Year ended
31 December
2018
(40.93p)
(40.93p)
(49,830)
(17.59p)
(17.59p)
(21,374)
121,729,407 121,483,931
128,047,666 126,104,420
Discontinued
The following reflects the income and share data used in the basic and diluted earnings per share including discontinued operations:
Basic loss per share – ordinary shares of 0.002 pence each
Diluted loss per share – ordinary shares of 0.002 pence each
Loss for the year attributable to equity holders of the parent from continuing operations – £000
Weighted average number of ordinary shares in the year – basic EPS
Weighted average number of ordinary shares in the year – diluted EPS
Year ended
31 December
2019
Year ended
31 December
2018
(41.26p)
(41.26p)
(50,226)
(17.56p)
(17.56p)
(21,333)
121,729,407 121,483,931
128,047,666 126,104,420
79
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
9 Goodwill
At 1 January
Impairment
At 31 December
2019
£000
4,801
(4,801)
–
2018
£000
4,801
–
4,801
The carrying value of goodwill related 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 2019 and assessed it for impairment. Following a moratorium on fracking announced by the UK Government in late 2019,
management assessed that the carrying value of goodwill was not recoverable and impaired the brought forward balance of £4.8 million in full
for the year (2018: £nil).
10 Intangible exploration and evaluation assets
At 1 January
Additions
Transfers from/(to) held for sale
Changes in decommissioning*
Amounts written-off
At 31 December
2019
£000
89,282
3,984
342
1,775
(53,928)
2018
£000
115,130
3,561
(342)
–
(29,067)
41,455
89,282
* The decommissioning asset increased in line with the decommissioning liability following a review of the estimate at 31 December 2019 (note 20).
In November 2019, the UK Government announced an effective moratorium on fracking in Britain, based on analysis of one well in the North
West by the OGA, until new scientific evidence is provided in respect of the impacts of seismicity during the process of hydraulic fracturing.
Management have been working and will continue to work closely with the relevant regulators to demonstrate that the Group can operate safely
and environmentally responsibly. However, following an impairment review, the Group impaired in full those assets outside our core area where
the Group does not have plans in the near-term to continue exploration or development activities. Exploration costs written off were £53.9
million (31 December 2018: £29.1 million), of which £51.8 million related to licences in the North West, primarily PEDL 145 (Doe Green), PEDL
193, PEDL 147 and PEDL 189 where the previously capitalised assets have been written off in full; and £0.8 million related to PEDL 146, EXL 288
and 56-1 in the East Midlands where relinquishment of the licences are planned in 2020. The balance relates to exploration costs on a number of
other licences outside our core area. (2018 impairment comprised: £20.7 million related to the Doe Green production facility in the North West
(PEDL 145) where a long-term test determined that there was no potential for a commercial development; £3.2 million related to a well not being
used in the Albury development and £5.2 million related to relinquished 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.
An analysis by location of the remaining exploration and evaluation assets is as follows:
North West: The Group has £5.9 million (2018: £48.7 million) of capitalised exploration expenditure relating to Ellesmere Port where IGas has
lodged an appeal against the decision made by Cheshire West and Chester Council’s Planning and Licensing Committee to refuse planning
consent for routine tests on a rock formation encountered in the Ellesmere Port-1 well. The appeal has been recovered by the Secretary of State
and the decision is expected in mid-2020. As the outcome is still undetermined it is appropriate to keep the carrying value of the asset capitalised.
East Midlands: The Group has £31.6 million (2018: £36.9 million) of capitalised exploration expenditure relating to our core area in the
Gainsborough Trough which includes PEDLs 12, 139, 140, 169, 200 and 210. The Gainsborough Trough is an area with significant shale potential
and we have a work programme in place. Following the moratorium on fracking, we will work with the UK Government to demonstrate that we
can develop shale in this area in a safe manner.
Weald: The Group has £4.0 million (2018: £3.5 million) of capitalised exploration expenditure which includes PEDL 235.
At 31 December 2019, the Group has a combined carried gross work programme of up to $214 million (£161 million) (2018: $220 million
(£170 million)) from its partner, INEOS Upstream Limited. In 2019, £7.3m (2018: £9.2 million) gross costs were carried, principally in relation to
activities at Springs Road, which have not been included in the additions to intangible exploration and evaluation assets during the year.
80
IGas Energy plc | Annual Report and Accounts 2019
11 Property, plant and equipment
Cost
At 1 January
Additions
Disposals
Changes in decommissioning**
Transfers from/(to) assets held for sale (note 17)
31 December 2019
31 December 2018
Other
property,
plant and
equipment
£’000
Total
£’000
Oil and gas
assets
£’000
Other
property,
plant and
equipment
£’000
2,871
10
–
–
779
157,520
5,501
(118)
5,908
32,724
171,888
10,135
(25)
4,596
(31,945)
3,603
104
(57)
–
(779)
Oil and gas
assets
£’000
154,649
5,491
(118)
5,908
31,945
Total
£’000
175,491
10,239
(82)
4,596
(32,724)
At 31 December
197,875
3,660
201,535
154,649
2,871
157,520
Depreciation and impairment
At 1 January
Charge for the year*
Disposals
Transfers from/(to) assets held for sale (note 17)
At 31 December
NBV at 31 December
65,002
7,688
(117)
22,367
94,940
1,115
258
–
690
2,063
66,117
7,946
(117)
23,057
80,756
6,638
(25)
(22,367)
97,003
65,002
1,577
285
(57)
(690)
1,115
82,333
6,923
(82)
(23,057)
66,117
102,935
1,597
104,532
89,647
1,756
91,403
* Charge for the year includes £48 thousand categorised as administration expenses in the profit and loss (2018: £99 thousand).
** The decommissioning asset increased in line with the decommissioning liability following a review of the estimate at 31 December 2019 (note 20).
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 2019. 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, South and Scotland was prepared on a fair value less costs of disposal basis using discounted future cash
flows based on 2P reserve profiles. The future cash flows were estimated using price assumption for Brent of $60/bbl for the years 2020-2024
and $70/bbl (2018: $75/bbl) thereafter, and a USD/GBP foreign exchange rate of $1.35:£1.00 (2018: $1.30/£1.00). Cash flows were discounted
using a pre-tax discount rate of 8.5% (2018: 11%). No impairment was required in the year (2018: £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. Impairments which would result from changes to the key assumptions are shown below:
CGU
Discount rate
Prices
USD/GBP foreign
exchange rate
Combined sensitivity
(discount rate, price,
foreign exchange)
North
South
Scotland
9.5%
£’million
1.2
N/A
0.2
$35/bbl in 2020, rising
by $5 each year to 2024
and $60/bbl thereafter
$1.20:£1.00 to 2024 and
$1.35:£1.00 thereafter
£’million
£’million
£’million
31.4
2.4
0.7
£
N/A
N/A
27.9
16.4
0.6
The sensitivity analysis above does not take into account any mitigating actions available to management should these changes occur.
In addition, management considered the impact of climate change on the value of the Group’s conventional assets. Assessing the impact is
difficult and very subjective. However, management have assumed that this might result in lower oil prices or increased costs in the medium term
and have therefore calculated a sensitivity based on a reduced price of £50/bbl from 2030 onwards and a cessation of production after 2050.
This would result in an impairment of £7.9 million for the North CGU, £1.3 million for the South CGU and £0.1 million for the Scotland CGU.
81
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
12 Interest in joint arrangements
As at 31 December 2019, the Group has a combined carried gross work programme of up to $214 million (£161 million) from its farm-in partners –
INEOS Upstream Limited (INEOS), (see note 10).The Group’s material joint operations as at 31 December 2019 are set out below:
Licenses
East Midlands
PEDL 169
EXL 288
PEDL 146
PEDL 210
PEDL 012
PEDL 200
PEDL 278
PEDL 273
PEDL 305
PEDL 316
PEDL 139
PEDL 140
North West
PEDL 190
PEDL 145
PEDL 147
PEDL 184
PEDL 189
PEDL 190
PEDL 193
PEDL 293
PEDL 295
EXL 273
Weald
PL211
PEDL070
Partner
IGas’ interest
Operator
Egdon
INEOS
INEOS
INEOS
INEOS
INEOS
Egdon
INEOS, Total, Egdon
INEOS, Total, Egdon
INEOS, Total, Egdon
INEOS, Egdon, eCorp
INEOS, Egdon, 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
13 Right-of-use assets and lease liabilities
The Group adopted IFRS 16 Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases,
for periods commencing after 1 January 2019. On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which were
previously classified as operating leases under the provisions of IAS 17 Leases.
The Group’s leasing activities and how these are accounted for
The Group leases property, land, cars and other equipment. Rental contracts are typically made for fixed periods of between 3 and 30 years
but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of terms and conditions. Leased
assets may not be used as security for borrowing purposes.
Until 31 December 2018, leases of property, land, cars and other equipment were classified as operating leases. See note 1 (l) for details.
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available
for use by the Group.
82
IGas Energy plc | Annual Report and Accounts 2019
13 Right-of-use assets and lease liabilities continued
The Group’s leasing activities and how these are accounted for continued
(a) Adjustments recognised on adoption of IFRS 16
In accordance with the transition provisions in IFRS 16, the modified retrospective approach has been adopted with the cumulative effect of
initially applying the new standard recognised on 1 January 2019. Comparatives for the 2018 financial year have not been restated. The financial
impact of transition to IFRS 16 for the year ended 31 December 2019 has been summarised within this note. In applying IFRS 16 for the first
time, the Group has used the practical expedient permitted by the standard, relying on previous assessments on whether leases are onerous
as an alternative to performing an impairment review – there were no onerous contracts as at 1 January 2019. The Group has elected to use
the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a
purchase option, and lease contracts for which the underlying asset is of low value (‘low-value assets’). The Group recognises lease expenses
for these contracts on a straight-line basis as permitted by IFRS 16. Lease liabilities related to operated Joint Ventures are disclosed gross.
Operating lease commitments disclosed as at 31 December 2018
Operating leases relating to assets transferred from ’held for sale’ assets
Impact of discounting using the incremental borrowing rate (IBR) on transition
Less: low-value leases recognised on a straight-line basis as expense
Add: adjustments as a result of a different treatment of extension and termination options
Lease liability recognised as at 1 January 2019
Lease liabilities
Current
Non-current
(b) Amounts recognised in the balance sheet
The Group has identified lease portfolios for property, land, cars and other equipment as follows:
Right-of-use assets
Land
Motor vehicles and other equipment
Property
1 January 2019
£000
9,605
958
(4,237)
(17)
1,421
7,730
31 December
2019
£000
1 January
2019
£000
988
6,173
7,161
1,533
6,197
7,730
31 December
2019
£000
1 January
2019
£000
7,182
156
330
7,668
6,548
350
832
7,730
Additions to the right-of-use assets during the 2019 financial year were £1.4 million and depreciation £1.5 million.
Sensitivity
Management performed sensitivity analysis to assess the impact of changes to the incremental borrowing rate on the Group’s lease liability
and right-of-use asset balances. A 3% increase in the IBR would result in an increase in right-of-use asset of £1.1 million and lease liability
of £1.1 million.
83
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
13 Right-of-use assets and lease liabilities continued
The Group’s leasing activities and how these are accounted for continued
(c) Amounts recognised in the income statement
The income statement includes the following amounts relating to leases:
Depreciation charge of right-of-use assets
Land
Property
Motor vehicles and other equipment
Interest expense (included in finance cost)
Expense relating to leases of low-value and short-term leases (included in cost of sales administrative expense)
During the year ended 31 December 2019, the Group had a total cash outflow of £2.7 million on qualifying leases.
31 December 31 December
2018
£000
2019
£000
1,025
268
210
1,503
677
77
–
–
–
–
–
–
The financial effect of revising lease terms to reflect the effect of exercising extension and termination options was an increase in recognised
lease liabilities and right-of-use assets of £1.4 million.
14 Inventories
Oil stock
Drilling and maintenance materials
15 Trade and other receivables
Trade debtors
Prepayments
Other debtors
VAT recoverable
31 December 31 December
2018
£000
2019
£000
536
657
1,193
502
647
1,149
31 December 31 December
2018
£000
2019
£000
3,184
1,383
800
619
5,986
2,837
1,711
4 ,888
153
9,589
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 therefore 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 23.
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.
84
IGas Energy plc | Annual Report and Accounts 2019
16 Cash and cash equivalents
Cash at bank and in hand
The cash and cash equivalents does not include restricted cash.
Restricted cash
Current
Non-current
31 December 31 December
2018
£000
2019
£000
8,194
15,112
31 December 31 December
2018
£000
2019
£000
–
410
193
410
The restricted cash represents restoration deposits paid to Nottinghamshire County Council which serve as collateral for the restoration of
drilling sites at the end of their life. 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.
Net debt reconciliation
Cash and cash equivalents
Borrowings – including capitalised fees
Net debt
Capitalised fees
Net debt excluding capitalised fees
At 1 January
Repayment of bond
Interest paid on borrowings
Drawdown of RBL (note 19)
Capitalised fees
Repayment of RBL (note 19)
Foreign exchange adjustments
Other cash flows
Other non-cash movements
At 31 December
31 December 31 December
2018
£000
2019
£000
8,194
(13,071)
(4,877)
(1,272)
(6,149)
15,112
(20,980)
(5,868)
(518)
(6,386)
31 December 2019
31 December 2018
Cash and cash
equivalents
£000
Borrowings
£000
Cash and cash
equivalents
£000
Total
£000
Borrowings
£000
15,112
(21,355)
(2,021)
19,319
(1,059)
(4,639)
(307)
3,144
–
(20,980)
21,355
–
(19,319)
1,308
4,639
645
–
(719)
8,194
(13,071)
(5,868)
–
(2,021)
–
249
–
338
3,144
(719)
(4,877)
15,727
(1,722)
(1,751)
–
–
–
371
2,487
–
(21,240)
1,722
–
–
–
–
(1,238)
–
(224)
Total
£000
(5,513)
–
(1,751)
–
–
–
(867)
2,487
(224)
15,112
(20,980)
(5,868)
85
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
17 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. During the year ended 31 December 2019, 14 of the subsidiaries have been dissolved/struck off and a further six are in the process of
being liquidated or struck off. The total loss after tax in respect of discontinued operations was £0.4 million primarily relating to administration
costs (year ended 31 December 2018: profit after tax of £0.04 million, primarily relating to administration costs and over-accruals in prior year).
Tax on discontinued operations during the year was £nil (2018: a credit of £0.3 million).
Disposal group classified as held for sale
In May 2018, the Group announced the potential sale of certain non-core assets to Onshore Petroleum Limited (OPL) subject to OGA consent.
The OGA did not give their consent to the proposed transaction and the Group has not agreed an alternative transaction with OPL. Assets and
liabilities which were recognised as held for sale in the prior year have therefore been re-classified back to their respective balance sheet
categories during the current year, as follows:
Intangible exploration and evaluation assets
Property, plant and equipment
Oil stock
Total assets
Trade and other payables
Provisions
Total liabilities
Net liabilities
18 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
2019
£000
342
9,667
91
10,100
(350)
(9,922)
(10,272)
(172)
31 December 31 December
2018
£000
2019
£000
(2,154)
(292)
(6,842)
(4,573)
(316)
(6,989)
(9,288)
(11,878)
(371)
(1,158)
(1,529)
(371)
(1,545)
(1,916)
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.
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IGas Energy plc | Annual Report and Accounts 2019
19 Borrowings
Bonds – secured
Reserve Based Lending facility – secured
31 December 2019
31 December 2018
Current Non-current
£000
£000
Total
£000
Current Non-current
£000
£000
Total
£000
–
–
–
(13,071)
–
(13,071)
(2,389)
–
(18,591)
–
(20,980)
–
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.
On 19 November 2019, the Group repaid its secured bonds at par value (100%) plus accrued interest through the drawdown of $25 million from
the RBL with BMO.
Reserve Based Lending facility (RBL)
On 3 October 2019, the Company announced that it had signed a $40.0 million RBL with BMO. In addition to the committed $40.0 million RBL,
a further $20.0 million is available on an uncommitted basis, and can be used for any future acquisitions or new conventional developments.
The RBL has a five-year term, an interest rate of LIBOR plus 4.0%, matures in September 2024 and is secured on the Company’s assets. The RBL
is subject to a semi-annual redetermination in May and November when the loan availability will be recalculated taking into account forecast
commodity prices, remaining field reserves (assessed by an independent reserves auditor annually) and the latest forecast of operating and
capital costs.
Under the terms of the RBL, the Group is subject to a financial covenant whereby, as at 30 June and 31 December each year, the ratio of Net Debt
at the period end to EBITDAX for the previous 12 months shall be less than or equal to 3.5:1.
A loss of £0.7 million arising from debt re-financing was recognised for the year ended 31 December 2019.
Collateral against borrowing
A Security Agreement was executed between BMO and IGas Energy plc and some of its subsidiaries, namely; Island Gas Limited, Island Gas
Operations Limited, Star Energy Weald Basin Limited, Star Energy Group Limited, Star Energy Limited, Island Gas (Singleton) Limited, Dart Energy
(East England) Limited, Dart Energy (West England) Limited, IGas Energy Development Limited, IGas Energy Enterprise Limited, Dart Energy
(Europe) Limited and IGas Energy Production Limited.
Under the terms of this Agreement, BMO have a floating charge over all of the assets of these legal entities, other than property, assets, rights and
revenue detailed in a fixed charge. The fixed charge encompasses the Real Property (freehold and/or leasehold property), the specific petroleum
licences, all pipelines, plant, machinery, vehicles, fixtures, fittings, computers, office and other equipment, all related property rights, all bank
accounts, shares and assigned agreements and rights including related property rights (hedging agreements, all assigned intergroup receivables
and each required insurance and the insurance proceeds).
87
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
20 Provisions
Decommissioning provision
At 1 January
Utilisation of provision
Unwinding of discount (note 6)
Reassessment of decommissioning provision (note 10 and note 11)
Transfer (from)/to liabilities held for sale (note 17)
At 31 December
The Group spent £1.8 million on decommissioning during the year.
31 December 31 December
2018
£000
2019
£000
(37,946)
1,760
(1,310)
(7,683)
(9,922)
(42,117)
91
(1,105)
(4,737)
9,922
(55,101)
(37,946)
Provision has been made for the discounted future cost of abandoning wells and restoring sites to a condition acceptable to the relevant
authorities. This is expected to take place between 1 to 35 years from year-end (2018: 1 to 26 years). The provisions are based on the Groups’
internal estimate as at 31 December 2019. Assumptions are based on the current experience from decommissioning wells which management
believes is a reasonable basis upon which to estimate the future liability. The estimates are reviewed regularly to take account of 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 1.27% to 3.03% is used in the calculation of the provision as at 31 December 2019 (2018: Risk free rate range of 0.98%
to 3.04%).
21 Pension scheme
The Group operates a defined contribution pension scheme. Contributions payable by the Group for the year ended 31 December 2019 were
£0.75 million (2018: £0.73 million). Contributions amounting to £nil were accrued at 31 December 2019 (2018: £0.07 million) and are included
in trade and other payables.
22 Commitments
(a) Capital commitments
The Group’s capital commitments relate to expenditure committed but not spent on conventional and unconventional licenses as follow:
Conventional capex
Unconventional capex
Total capital commitments
31 December 31 December
2018
£000
2019
£000
(702)
(163)
(865)
(137)
(2,573)
(2,710)
(b) Non-cancellable operating leases
The Group leases property, land, cars and other equipment under non-cancellable operating leases. From 1 January 2019, the Group has
recognised right-of-use assets for these leases, except for short-term and low-value leases. See note 13 for further information.
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
88
31 December 31 December
2018
£000
2019
£000
–
–
–
–
–
(2,065)
(1,656)
(4,125)
(3,824)
(9,605)
IGas Energy plc | Annual Report and Accounts 2019
23 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
2018
£000
2019
£000
2018
£000
2019
£000
Amortised cost
Bonds – secured1
Reserve Based Lending facility – secured
–
(13,071)
(20,980)
–
–
(13,071)
(20,875)
–
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
Derivative financial instruments – foreign exchange contracts
Financial liabilities: Level 2
Derivative financial instruments – oil hedges
Derivative financial instruments – foreign exchange contracts
31 December 31 December
2018
£000
2019
£000
43
84
127
2,158
–
2,158
31 December 31 December
2018
£000
2019
£000
(266)
–
(266)
–
(180)
(180)
89
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
23 Financial instruments and risk management continued
Fair value of derivative financial instruments
Commodity price options
The fair values of the commodity price options were provided by counterparties with whom the trades have been entered into. These consist
of Asian style put and call options 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.
Foreign exchange contracts
The fair value of foreign exchange contracts was provided by counterparties with whom the trades have been entered into.
In the current year the Group has entered into certain put/call options and swaps in order to manage its exposure to commodity price risk
associated with sales of oil in US dollars.
The outstanding oil hedge contracts as at 31 December 2019 were as follows:
2020 Q3
2020 Q4
Fair value at
31 December
2019
Total
Type
US dollar Asian Put
US dollar Asian Put
US dollar Asian Put
US dollar Asian Put
US dollar fixed and floating price Swap
US dollar fixed and floating price Swap
US dollar fixed and floating price Swap
Strike Price/
Fixed and
Floating Price
52.25
49.05
52.94
50.37
59.45
58.60
58.00
2020 Q1
Contract
Amount
bbls oil
–
–
120,000
–
–
–
–
2020 Q2
Contract
Amount
bbls oil
37,500
–
–
75,000
37,500
–
–
Contract
Amount
bbls oil
–
60,000
–
–
–
60,000
–
Contract
Amount
bbls oil
–
–
–
–
–
–
30,000
Contract
Amount
bbls oil
37,500
60,000
120,000
75,000
37,500
60,000
30,000
120,000
150,000
120,000
30,000
420,000
Derivative Asset
Derivative Liability
£000
21
42
9
33
(112)
(153)
(63)
(223)
43
(266)
The above derivatives mature over the period from 1 January 2020 until 31 December 2020. A loss of £1.0 million was realised on hedges
during the year to 31 December 2019 (see note 4).
The outstanding oil hedge contracts as at 31 December 2018 were as follows:
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 (see note 4).
Type
US dollar Asian 3-way collar
US dollar Asian Put
US dollar Asian 3-way collar
US dollar Asian Put
US dollar Asian Put
US dollar Asian Put
Contract
price –
Buy Put
55.00
55.00
55.00
56.70
64.00
60.25
Contract
price –
Sell Call
Contract
Price –
Buy Call
70.00
85.00
78.55
93.55
2019 Q1
Contract
Amount
bbls oil
105,000
45,000
–
–
–
–
2019 Q2
Contract
Amount
bbls oil
–
–
37,500
37,500
75,000
–
150,000
150,000
2019 Q3
Contract
Amount
bbls oil
–
–
–
–
–
75,000
75,000
2019 Q4
Contract
Amount
bbls oil
–
–
–
–
–
–
–
Fair Value at
31 December
2018
Total
Contract
Amount
bbls oil
105,000
45,000
37,500
37,500
75,000
75,000
375,000
£000
354
155
168
202
707
572
2,158
90
IGas Energy plc | Annual Report and Accounts 2019
23 Financial instruments and risk management continued
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.
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; and
• Liquidity risk.
The Group is not exposed to interest rate risk as all the Group’s borrowings are at a fixed rate.
Management reviews and agrees policies for managing each of these risks which are summarised below. The Group’s policy is that all
transactions involving derivatives must be directly related to the underlying business of the Group and 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 loss 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 2019 and 31 December 2018; and
• The impact on equity is the same as the impact on loss before tax and ignores the effects of deferred tax, if any.
91
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
23 Financial instruments and risk management continued
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 loss 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 10% over all future
periods, with all other variables held constant. Management believe that 10% is a reasonable sensitivity based on forward forecasts of estimated
oil price volatility.
10% increase in the price of oil
10% decrease in the price of oil
Increase/(decrease) in profit
before tax and equity
31 December 31 December
2018
£000
2019
£000
1,803
(1,803)
2,759
(2,759)
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 loss 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 loss 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
2018
£000
2019
£000
841
(841)
1,141
(1,141)
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, electricity and gas 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 2019, two customers (2018: two) accounted for approximately 96% (2018: 99%) of total trade receivables outstanding
of £3.2 million (2018: £2.7 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 2019, the maximum exposure was £8.3 million
(2018: £17.3 million).
92
IGas Energy plc | Annual Report and Accounts 2019
23 Financial instruments and risk management continued
Liquidity risk
The Group manages liquidity risk by maintaining adequate banking and borrowing facilities by continuously monitoring forecast and actual cash
flows and matching the maturity profiles of financial assets and liabilities and future capital and operating commitments.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:
At 31 December 2019
Borrowings
Lease liabilities
Trade creditors
At 31 December 2018
Borrowings
Lease liabilities
Trade creditors
On demand
£000
< 1 year
£000
1–2 years
£000
2–3 years
£000
>3 years
£000
Total
£000
–
–
–
–
–
–
–
–
–
(1,662)
(2,154)
(3,816)
(4,070)
–
(4,573)
(8,643)
–
(1,349)
–
(1,349)
–
(1,241)
–
(13,071)
(8,661)
–
(13,071)
(12,913)
(2,154)
(1,241)
(21,732)
(28,138)
(3,878)
–
–
(3,878)
(17,698)
–
–
(17,698)
–
–
–
–
(25,646)
–
(4,573)
(30,219)
Management considers that the Group has adequate current assets and forecast cash from operations to manage liquidity risks arising from
current and non-current liabilities.
Capital management
The Group manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder value.
The Group’s funding requirements are met through a combination of debt and equity and adjustments are made in light of changes in economic
conditions. The Group’s strategy is to maintain ratios in line with covenants associated with its new secured RBL (see note 19).
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 Group signed a new $40.0 million RBL with BMO on 3 October 2019. In addition to the committed $40.0 million RBL, a further $20.0 million
is available on an uncommitted basis, and can be used for any future acquisitions or new conventional developments (see note 19). Management
believe that the new financing structure will be sustainable in the current oil price environment and, together with a carried work programme of
up to $214 million, means that the Group is well positioned to pursue its strategy.
93
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
24 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 0.0001p
each were consolidated into one new ordinary share of 0.02p each and immediately sub-divided into 10 ordinary shares of 0.002p.
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.
Nominal value Nominal value
£000
£000
No.
Share
premium
Value
£000
Issued and fully paid
At 1 January 2018
2018 SIP share issue – partnership
2018 SIP share issue – matching
At 31 December 2018
2019 SIP share issue – partnership
2019 SIP share issue – matching
At 31 December 2019
121,881,119
83,996
112,154
122,077,269
107,135
175,771
122,360,175
2
–
–
2
–
–
2
303,305,534
30,331
30,333
102,342
–
–
–
–
–
–
70
89
303,305,534
30,331
30,333
102,501
–
–
–
–
–
–
69
110
303,305,534
30,331
30,333
102,680
* The number of ordinary shares as at 31 December 2019 includes 190,651 Treasury shares (2018: 201,451).
** Deferred shares were created on capital restructuring which completed in April 2017.
Accordingly, the Group share capital account comprised:
Share capital account
At 1 January 2018
Shares issued during the year
At 31 December 2018
Shares issued during the year
At 31 December 2019
£000
30,333
–
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 282,906 ordinary shares at a nominal value of 0.002p each (2018: 196,150 ordinary shares of 0.002p
each), resulting in an increase in share premium of £0.2 million (2018: £0.2 million). No issuing costs were incurred during the year (2018: none).
25 Other reserves
Other reserves are as follows:
Balance at 1 January 2018
Share options issued under the employee share plan
Shares issued under the SIP
Transfers
Lapse of options under the employee share plan
Transfers
Balance at 31 December 2018
Share options issued under the employee share plan
Shares issued under the SIP
Forfeiture of options under the employee share plan
Balance at 31 December 2019
94
Share plan
reserves
£000
9,098
1,430
–
(173)
99
Treasury
Capital
shares contributions
£000
£000
(1,373)
47
Merger
reserve
£000
22,222
–
59
–
(99)
–
–
–
–
–
–
–
–
Total
£000
29,994
1,430
59
(173)
–
10,454
(1,413)
47
22,222
31,310
1,607
–
(128)
–
(8)
–
–
–
–
–
–
–
1,607
(8)
(128)
11,933
(1,421)
47
22,222
32,781
IGas Energy plc | Annual Report and Accounts 2019
25 Other reserves continued
Employee share plans – Equity settled
Details of the share options under employee share plans outstanding are as follows:
Outstanding at 1 January 2018
Exercisable at 1 January 2018
Awarded during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December 2018
Exercisable at 31 December 2018
Awarded during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December 2019
Exercisable at 31 December 2019
EIP
Number
of units
2,086,704
2,086,704
1,911,057
–
–
3,997,761
3,997,761
2,033,093
(33,808)
(450,256)
MRP
Number
of units
267,252
267,252
76,310
(52,371)
–
291,191
291,191
157,624
(8,883)
–
EDRP
Number
of units
325,000
325,000
–
–
–
325,000
325,000
–
–
–
5,546,790
439,932
325,000
5,546,790
439,932
325,000
Note – all options are nil cost and therefore the weighted average exercise price is nil. In addition to the share plans above, included in other reserves are also historic costs
relating to Long Term Incentive Plan 2011 (2011 LTIP) and Value Creation Plan (2014 VCP).
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 of 68.8% (based on historical volatility). It was also assumed that no
options would be forfeited and no dividends would be paid during the life of the options. This resulted in a fair value of EIP awards of £1.4 million.
On 14 June 2017 these awards were subdivided in line with the subdivision and consideration of the Group’s share capital (see note 24).
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.
In March 2019, the Group awarded 2,033,093 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 £0.78, a risk free interest rate of 0.74% and an implied share price volatility 80.9%. 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 £1.8 million.
The EIPs outstanding at 31 December 2019 had both a weighted average remaining contractual life and maximum term remaining of 7.9 years
(2018: 8.4 years).
The total charge for the year was £1.28 million (2018: £1.07 million). Of this amount, £0.30 million (2018: £0.24 million) was capitalised and
£0.97 million (2018: £0.83 million) was charged to the Income Statement.
95
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
CONSOLIDATED FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
25 Other reserves continued
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 exercises during the year relating to other
employees of the Company.
In March 2019, the Group awarded 157,624 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 exercises during the year relating to other
employees of the Company.
The MRPs outstanding at 31 December 2019 had both a weighted average remaining contractual life and maximum term remaining of 4.5 years
(2018: 5.5 years).
The total charge for the year was £0.14 million (2018: £0.07 million). Of this amount, £0.05 million (2018: £0.03 million) was capitalised or
recharged to joint venture partners and £0.09 million (2018: £0.04 million) was charged to the Income Statement.
Executive Director Retention Plan (EDRP)
In July 2015, the Group adopted a new share-based payment scheme, the 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 2019 had both a weighted average remaining contractual life and maximum term remaining of 3.5 years
(2018: 4.5 years).
The total charge for the year was £nil (2018: £nil). Of this amount, £nil (2018: £nil) was capitalised and £nil (2018: £nil) 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.
96
IGas Energy plc | Annual Report and Accounts 2019 25 Other reserves continued
Other share-based payments continued
Share Incentive Plan (SIP) continued
The total charge for the year was £0.10 million (2018: £0.15 million). Of this amount, £nil (2018: £nil) was capitalised and £0.10 million (2018:
£0.15 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 2019 and year ended 31 December 2018, no shares were issued to the Trust. In addition, 10,800 ordinary
shares of £0.00002 each (2018: 52,373 ordinary shares of £0.00002 each) were released from the Trust on exercise of share options by current
and former employees.
Capital contribution
The capital contribution relates to cash received following the acquisition of IGas Exploration UK Limited.
Merger reserve
The merger reserve arose as a result of a reverse acquisition on 31 December 2007 whereby Island Gas Limited (IGL) became a wholly owned
subsidiary of the Company but with IGL’s shareholders acquiring 94% of the ordinary share capital of the Company. The reserve represents the
difference in the fair value and the nominal value of the shares issued. The reserve is not distributable.
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 2019.
The Directors, Chief Financial Officer and the Chief Operating Officer of the Company are considered to be the only key management personnel
as defined by IAS 24 – Related Party Disclosures.
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
Short-term employee benefits
Share plan
Social security costs
Fees
1,145
637
133
100
2,015
1,384
717
197
100
2,398
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, MRP and EIP plans, as measured by the fair value
of SIP, MRPs and EIPs granted, accounted for in accordance with IFRS 2.
27 Subsequent events
On 24 January 2020, the Group issued 66,076 Ordinary £0.00002 shares in relation to the Group’s SIP scheme. The shares were issued at £0.47
resulting in share premium of £31,054.
The global pandemic of COVID-19 in early 2020 has caused worldwide economic disruption. The Group considers this to be a non-adjusting post
balance sheet event as of 31 December 2019. As described in our going concern assessment, there is material uncertainty of the potential impact
of COVID-19 on the Group’s operational activities, future commodity prices and the outcome of the May 2020 redetermination of the RBL.
97
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
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 judgements and estimates that are reasonable and prudent;
• Provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand
the impact of particular transactions, other events and conditions on the Parent Company’s financial position and financial performance;
• State that the Parent Company has complied with IFRSs, subject to any material departures disclosed and explained in the financial
statements; and
• Prepare the financial statements 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 financial statements.
98
IGas Energy plc | Annual Report and Accounts 2019 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 2019 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 2019; 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 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.
Material uncertainty related to going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 1b to
the financial statements concerning the Parent Company’s ability to continue as a going concern. The ability of the Group, and that of the Parent
Company, to operate as a going concern is dependent upon the Group generating cash flows and the availability of the monies drawn under its
RBL. The RBL is redetermined on a semi-annual basis and is based on the estimate of reserves and future oil prices, which have recently declined.
The Group’s operational activities and cash flows could also be impacted by the uncertainty over the impact of COVID-19. These conditions,
along with the other matters explained in note 1b to the financial statements, indicate the existence of material uncertainties which may cast
significant doubt upon the Parent Company’s ability to continue as a going concern. The financial statements do not include the adjustments that
would result if the Parent Company was unable to continue as a going concern.
What audit procedures we performed
In concluding there is a material uncertainty, our audit procedures included:
• checking the mathematical accuracy of management’s cash flow forecast and confirming the opening cash position;
• challenging and evaluating management’s underlying cash flow projections including comparing forecast sales volumes, operating costs,
capital expenditure and abandonment expenditure to recent actuals and internal forecasts and comparing forecast future oil prices and
foreign exchange rates to external data;
• assessing the reasonableness of management’s downside case, including assessing management’s ability to take mitigating actions, including
delaying capital expenditure and reducing costs; and
• reviewing the completeness and appropriateness of management’s going concern disclosures as disclosed in the financial statements.
Our audit approach
Overview
Materiality
Audit scope
Overall materiality: £1.1 million (2018: £1.1 million), based on 1.3% of net assets.
• We obtained coverage over 100% of Company’s total assets and 100% of Company’s
total liabilities.
• Consideration of the impact of COVID-19.
Key audit matters
• Carrying value of investment in subsidiaries.
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.
99
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 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. In addition to going concern, described in the ‘material uncertainty related to going concern’ section above,
we determined the matters described below to be the key audit matters to be communicated in our report. This is not a complete list of all risks
identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Consideration of the impact of COVID-19
Refer to Strategic Report.
The international outbreak of COVID-19 in early 2020 has affected
business and economic activity around the world, including the
United Kingdom where the Company operates. Given the spread
of COVID-19, the range of the potential outcomes are difficult to
predict, but include a prolonged global recession and long term
decrease in commodity prices, including oil.
The Company is monitoring the COVID-19 outbreak developments
closely and is following the guidance of the World Health
Organization and abiding by the requirements of the United
Kingdom government, however the virus has the potential to
cause disruption to the Group’s operational activities and impact
earnings, cash flows and financial conditions. The Company has
made an assessment of the impact of COVID-19 on its operations
and ability to continue as a going concern, for the details please
refer note 1 of the financial statements.
Management concluded that the COVID-19 outbreak and
geopolitical factors which together have led to a decrease in oil
price is a result of conditions that arose after the balance sheet
date and as a result are non-adjusting post balance events.
We concur with management that these factors are non-adjusting
post balance events and as a result that the future assumptions
used in the Company’s impairment of investments assessments
performed as at 31 December 2019 are not to be adjusted for
changes subsequent to that date.
We have reviewed the disclosures included in the Annual Report in
respect of this risk, including principal risk and uncertainties, going
concern, impairment sensitivities and post balance sheet events
and consider them reasonable.
The impact of COVID-19 on the Company’s ability to continue as a
going concern is considered in the ‘material uncertainty related to
going concern’ section above.
Carrying value of investment in subsidiaries
Refer to note 2 Investment in subsidiaries.
The carrying value of the Company’s investments in
subsidiaries were £217.5 million at 31 December 2019,
comprising of £74 million of investment in subsidiaries
and £143.5 million of loans to Group companies. These
represents 90.7% 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 £63.7 million,
the carrying value is supportable.
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.
100
IGas Energy plc | Annual Report and Accounts 2019 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 (2018: £1.1 million).
How we determined it
1.3% 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 (2018: £55,000) as
well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We
have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain
opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
for the year ended 31 December 2019 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.
101
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF IGAS ENERGY PLC continued
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, 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 2019.
That report includes a ‘material uncertainty related to going concern’ section.
Richard Spilsbury
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
9 April 2020
102
IGas Energy plc | Annual Report and Accounts 2019 PARENT COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2019
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 (deficit)/surplus
Total equity
31 December 31 December
2018
£000
2019
£000
Note
2
3
4
5
217,475
57
362,707
83
217,532
362,790
18,004
4,232
35,502
6,806
22,236
42,308
239,768
405,098
6
8
10
(141,772)
–
–
(133,187)
(2,389)
(71)
(141,772)
(135,647)
8
(13,071)
(18,591)
(154,843)
(154,238)
84,925
250,860
11
11
12
30,333
102,680
32,781
(80,869)
30,333
102,501
31,310
86,716
84,952
250,860
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 £167.6 million
(2018: a loss of £0.5 million).
These financial statements were approved and authorised for issue by the Board on 8 April 2020 and are signed on its behalf by:
Stephen Bowler
Chief Executive Officer
Julian Tedder
Chief Financial Officer
The notes on pages 106 to 121 form an integral part of these financial statements.
103
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
Capital
redemption
reserve
£000
Other Accumulated
surplus/
(deficit)
£000
reserves
(note 12)
£000
Total
equity
£000
249,575
(478)
1,763
–
–
250,860
(167,585)
1,599
(128)
179
29,994
–
1,489
(173)
–
31,310
–
1,599
(128)
–
86,906
(478)
115
173
–
86,716
(167,585)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32,781
(80,869)
84,925
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Balance at 1 January 2018
Loss for the year
Employee share plans (note 12)
Lapse of LTIPs under the employee share plan (note 12)
Issue of shares (note 11)
Balance at 31 December 2018
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
30,333
–
–
–
–
30,333
–
–
–
–
Share
premium
account
(note 11)
£000
102,342
–
159
–
–
102,501
–
–
–
179
Balance at 31 December 2019
30,333
102,680
The notes on pages 106 to 121 form an integral part of these financial statements.
104
IGas Energy plc | Annual Report and Accounts 2019
PARENT COMPANY CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities:
Loss before tax
Net loss on extinguishment of re-financing
Depletion, depreciation and amortisation
Share-based payment charge
Impairment of investments
Credit loss allowance
Income from subsidiary undertakings
Unrealised (loss)/gain on foreign exchange contracts
Finance income
Finance costs
Other non-cash adjustments
Operating cash flow before working capital movements
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Cash from/(used in) operating activities
Tax refunded
Net cash from/(used in) operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Interest received
Net cash used in investing activities
Cash flows from financing activities:
Cash proceeds from issue of ordinary share capital
Drawdown on reserves-based loan facility
Repayment on reserves-based loan facility
Fees paid related to debt re-financing
Repayment of bonds
Dividend received from subsidiary undertakings
Interest paid
Net cash (used in)/from financing activities
Net increase in cash and cash equivalents in the year
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 106 to 121 form an integral part of these financial statements.
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
Note
(167,585)
692
26
194
63,730
113,362
–
(71)
(13,857)
1,873
(9)
(1,645)
(4,697)
13,429
(478)
–
53
236
36,060
–
(37,076)
71
(11,384)
10,452
(1)
(2,067)
(4,555)
(20,888)
7,087
(27,510)
–
–
7,087
(27,510)
–
– 5
–
(89)
(84)
11
5
5
5
5
5
5
69
19,319
(4,639)
(1,059)
(21,355)
–
(2,021)
70
–
–
–
(1,722)
37,076
(1,751)
(9,686)
33,673
(2,599)
25
6,806
4,232
6,079
(131)
858
6,806
105
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019
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 8 April 2020. 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 £167.6 million
(2018: a loss of £0.5 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 2019:
• IFRS 16
• IFRIC Interpretation 23
• Amendments to IAS 28
Leases;
Uncertainty over Income Tax Treatments; and
Long-term Interest in Associates and Joint Ventures.
The Parent Company adopted IFRS 16 from 1 January 2019, which resulted in changes in accounting policies; however no adjustments were
required to the amounts recognised in the financial statements. The other amendments and interpretations listed above did not have any impact
on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
New standards and interpretations not yet adopted
Certain new standards, interpretations and amendments to existing standards have been published that are not mandatory for 31 December
2019 reporting periods and these have not been adopted early by the Company. These standards are not expected to have a material impact on
the entity in the current or future reporting periods.
(b) Going concern
The Group continues to closely monitor and manage its liquidity risks. Cash forecasts for the Group are regularly produced based on, inter alia,
management’s best estimate of:
• The Group’s production and expenditure forecasts;
• Future oil prices;
• The level of available facilities under the Group’s RBL; and
• Foreign exchange rates.
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.
In the first quarter of 2020, the oil price has been affected by the global spread of COVID-19 and the resultant reduction in oil demand.
This situation has since been compounded by the failure of OPEC to reach an agreement on constraining supply and the decision of several
countries to increase output. At the date of this report, there remains significant uncertainty over the impact of COVID-19 on future global demand
for oil and therefore the price of oil.
The ability of the Group to operate as a going concern is dependent upon the future oil prices and foreign exchange rates as they impact the
continued generation of future cash flows and the loan facility available under its RBL (which is redetermined semi-annually based on various
parameters including oil price and level of reserves) and is also dependent on the Group not breaching its RBL covenants. To mitigate these risks,
the Group benefits from its hedging policy with 420,000 bbls hedged at an average minimum price of $53.6/bbl for 2020. The Group also has $12
million of foreign exchange hedges in place at rates between $1.17-$1.20:£1 for the period to 30 June 2021. Furthermore, the Group’s net reserves
position has increased by 1.5 mmboe during 2019 which will partially offset any impact of lower prices in its RBL at the next redetermination in
May 2020.
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IGas Energy plc | Annual Report and Accounts 2019 1 Accounting policies continued
(b) Going concern continued
Management has considered the impact of the COVID-19 global crisis on the Group’s operations. We continue to monitor the situation closely and
act within Government guidelines and have a number of contingency plans in place should our operations be significantly affected by COVID-19.
Many of our sites are remotely manned and at this stage we are well equipped as a business to ensure we maintain business continuity. Our
production comes from a large number of wells in a variety of locations (all of which are on land and in the UK) and we have flexibility in our off-
take arrangements, as we transport oil via road. In this regard, we continue to liaise and co-operate with all the relevant regulators.
The Group’s base case going concern model was run with average oil prices of $32/bbl for April to December 2020 rising to $45/bbl from January
2021 and a foreign exchange rate of $1.20:£1 during the period. Our forecasts show that the Group will have sufficient financial headroom to meet
its financial covenants based on the existing RBL facility, as well as an estimate, based on management’s knowledge and past experience, of the
outcome of the next half-yearly redetermination due in May 2020, and the following redetermination date in December 2020, albeit the level of
the facility available to us is dependent on the facility provider, BMO, and is beyond our control.
Given the uncertainties described above, the level of Group revenues and availability of facilities under the RBL are inherently uncertain. As such
management has also prepared a downside forecast with the following assumptions:
• Oil prices at $20/bbl in the second quarter of 2020 rising to $30/bbl in the fourth quarter of 2020 and $43-$45/bbl in 2021. As this assumption
is lower than external current forward curves, management considers this is a reasonable downside scenario that reflects further potential
reductions in price caused by the failure of OPEC to reach an agreement on constraining supply and lower demand from reduced industrial
activity caused by COVID-19. This downside is partially mitigated by the commodity hedges the Group has in place. However, oil price is outside
the Company’s control and this could be lower should there be further market disruption either from COVID-19, or OPEC disagreements;
• No change to the level of available RBL loan facility during the forecast period as this reflects longer-term oil price assumptions that have been
considered in conjunction with recent discussions with the RBL provider;
• A reduction in production of 10% to reflect a disruption risk to operational and production related activities from the COVID-19 crisis. As the
Group is providing a government designated essential service and due to the large number of operational wells, the impact of COVID-19 on
production has to date been very limited and has been assumed to remain so as management does not currently foresee wells needing to be
shut down due to the impact of COVID-19. Management therefore considers this assumption represents a reasonable downside in this uncertain
time based on management’s experience of previous unplanned shut downs;
• Exchange rates of $1.20:£1 for 2020 and $1.25:£1 for 2021 to reflect a downside caused by the weakening of the dollar later in the period.
This downside is partially mitigated by the currency hedges the Group has in place; and
• Includes the impact of action management could take to reduce cash outflow, including delaying capital expenditure and additional reductions
in costs in order to remain within the Company’s debt liquidity covenants based on the Group’s expected RBL redeterminations in May 2020
and December 2020. All such mitigating actions are within management’s control and could be actioned within the required time frame.
In this downside scenario, our forecast shows that the Group will have sufficient liquidity and financial headroom to meet its financial covenants
for the 12 months from the date of approval of the financial statements. However, should oil price or demand (and therefore revenue) fall further,
the Company may not have sufficient funds available for 12 months from the date of approval of these financial statements. As a result, at the date
of approval of the financial statements, there is material uncertainty over future commodity prices, the outcome of the May 2020 redetermination
of the RBL and the potential impact of COVID-19 on the Group’s operational activities. These material uncertainties may cast significant doubt
upon the Group’s ability to continue as a going concern. Notwithstanding these material uncertainties, the Directors have a reasonable expectation
that the Group has adequate resources to continue in existence for the foreseeable future and have concluded it is appropriate to adopt the going
concern basis of accounting in the preparation of the financial statements. The financial statements do not include the adjustments that would
result if the Group was unable to continue as a going concern.
(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.
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Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
1 Accounting policies continued
(c) Significant accounting judgements and estimates continued
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; and
• 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
(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.
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IGas Energy plc | Annual Report and Accounts 2019
1 Accounting policies continued
(e) Financial instruments continued
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 Company’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.
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.
Borrowings
Borrowings are measured initially at fair value. After initial recognition, interest bearing loans and borrowings are subsequently measured at
amortised cost using the Effective Interest Rate (EIR) method. Gains and losses are recognised in the income statement when the liabilities
are derecognised as well as through the EIR amortisation process. When management’s estimates of the amounts or timings of cash flows are
revised, borrowings are re-measured using the revised cash flow estimates under the original effective interest with any consequent adjustment
being recognised in the income statement.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.
The EIR amortisation is included in finance costs in the income statement.
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Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
1 Accounting policies continued
(e) Financial instruments continued
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
As explained in note 1 (a) above, the Group has changed its accounting policy for leases where the Group is the lessee, however no adjustments
were required to the amounts recognised in the financial statements.
Leases in which a significant portion of the risks and rewards of ownership were not transferred to the Company were classified as operating
leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line
basis over the period of the lease.
(g) Taxation
The tax expense represents the sum of current tax and deferred tax.
Current income tax assets and liabilities are measured at the amount expected to be recovered or paid to the tax authorities. Taxable
profit/(loss) differs from the profit/(loss) before taxation as reported in the income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current
tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date except when
the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Temporary differences arise from differences
at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred
tax liabilities are not discounted. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be
recovered.
The carrying amount of deferred tax is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed
at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset
to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the assets are realised or the liability
is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in
correlation to the underlying transaction either in other comprehensive income or directly in equity.
(h) Share-based payments
Where share options are awarded to employees (including Directors), the fair value of the options 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 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 may be transferred to another equity reserve.
Where the terms and conditions of options 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.
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IGas Energy plc | Annual Report and Accounts 2019
1 Accounting policies continued
(h) Share-based payments continued
When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised or the
award is recognised immediately.
Where an equity-settled award is identified as a replacement it will be treated as a modification to the original plan where the incremental fair
value of the replacement award is expensed over the vesting period of the replacement award. The fair value of the original award on its grant
date is continued to be recognised over its original vesting period.
Where equity instruments are granted to persons other than employees, the amount recognised in equity is the fair value of goods and
services received.
Charges corresponding to the amounts recognised in equity are accounted as a cost against the profit and loss which will usually be to the
income statement unless the services rendered qualify for capitalisation as a non-current asset. Costs may be capitalised within non-current
assets in the event of services being rendered in connection with an acquisition or intangible exploration and evaluation assets or property, plant
and equipment.
Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, the value of such shares at issue will be
recorded in share capital and share premium account in the ordinary way, but will not affect shareholders’ funds since this same value will be
shown as a deduction from shareholders’ funds by way of a separate component of equity (Treasury shares).
(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
date of transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange rate ruling at the
balance sheet date. All differences that arise are recorded in the income statement.
2 Investments in subsidiaries
Investments in subsidiaries comprises:
Parent Company
At 1 January
Additions
Impairments
Credit loss allowance
At 31 December
* Refer note 10 for credit risk.
31 December 2019
31 December 2018
Investment
in Group
companies
£000
Loans to
Group
companies *
£000
136,349
1,407
(63,730)
–
226,358
8,258
–
(91,167)
Investment
in Group
companies
£000
Loans to
Group
companies
£000
170,894
1,515
(36,060)
–
221,381
11,379
–
(6,402)*
Total
£000
362,707
9,665
(63,730)
(91,167)
Total
£000
392,275
12,894
(36,060)
(6,402)
74,026
143,449
217,475
136,349
226,358
362,707
Loans to Group companies are repayable on demand and bear interest at either 1.2% above LIBOR or at a fixed rate of 6% and 12%.
Additions represent investment of £1.4 million relating to employee share-based payment costs under IFRS 2 and £8.3 million interest accrued
on existing loans to Group companies.
The Company’s investments in subsidiaries were reviewed for indicators of impairment as at 31 December 2019. Impairments of £63.7 million
(2018: £36.1 million) are recorded against the investments which are not supported by the subsidiaries’ underlying net asset values.
111
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
2 Investments in subsidiaries continued
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
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**
Dart Energy (Lothian) Limited**
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*
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
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 Limited***
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, Australia
Oil and gas exploration, development and production, England
Dormant, England
Oil and gas exploration, development and production, England
Dormant prior to dissolution, England
Service company, England
Service company, England
Oil and gas processing, England
Dormant prior to dissolution, 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
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
Dormant prior to dissolution, Scotland
No operations but not dormant, England
Investment holding, Scotland
Dormant prior to dissolution, 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 prior to dissolution, Scotland
7 Down Street, London, W1J 7AJ
C/O Womble Bond Dickinson (UK) LLP,
2 Semple Street, Edinburgh, EH3 8BL
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,
2 Semple Street, Edinburgh, EH3 8BL
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
Dormant, England
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
Dormant, Australia
Dormant prior to deregistration, Australia C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
Investment holding, Australia
C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
Dormant prior to deregistration, Australia C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
Dormant prior to deregistration, Australia C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
Dormant prior to deregistration, Australia C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
Dormant prior to deregistration, Australia C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
Dormant prior to deregistration, Australia C/O Pwc Level 23, 480 Queen Street, Brisbane QLD 4000
804-805, 8th Floor, Tower B, Global Business Park,
Service company, India
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
Investment holding, Singapore
Dormant, Singapore
Investment holding – dormant prior to strike off,
Singapore
Investment holding – dormant, Singapore
Investment holding – dormant, Singapore
Investment holding, Singapore
Investment holding – dormant, Singapore
Dormant prior to strike off, Singapore
Investment holding – dormant prior to strike off,
Singapore
Dormant, Singapore
Dormant prior to strike off, Singapore
Dormant prior to strike off, Singapore
Dormant prior to strike off, Singapore
Dormant prior to strike off, Singapore
Dormant prior to strike off, Singapore
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
These entities have been deregistered with the Australian Securities and Investments Commission (ASIC) effective 5 September 2019.
*
** These entities have been either dissolved/struck-off or liquidated during the period.
*** The liquidator for this entity has been appointed.
**** This entity is in creditors’ voluntary liquidation since 28 June 2019 but as of the date of this report not yet finalised.
112
IGas Energy plc | Annual Report and Accounts 2019
3 Property, plant and equipment
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
4 Trade and other receivables
Amounts falling due within one year:
VAT recoverable
Other debtors
Amounts due from subsidiary undertakings
Prepayments
31 December 2019
31 December 2018
Fixtures,
fittings and
equipment
£000
Buildings
£000
Motor
vehicles
£000
Total
£000
Buildings
£000
Fixtures,
fittings and
equipment
£000
Motor
vehicles
£000
464
–
–
464
384
25
–
409
55
96
–
–
96
93
1
–
94
2
20
–
–
20
20
–
–
20
–
580
–
–
580
497
26
–
523
375
89
–
464
331
53
–
384
139
–
(43)
96
136
–
(43)
93
57
80
3
20
–
–
20
20
–
–
20
–
Total
£000
534
89
(43)
580
487
53
(43)
497
83
31 December 31 December
2018
£000
2019
£000
53 2
20 8
17,750
181
18,004
35,429
63
35,502
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. Amounts due from subsidiary undertakings are stated after the expected credit loss allowance of £22.2
million (31 December 2018: £nil). Due to the short-term nature 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
2018
£000
2019
£000
4,232
6,806
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.
Net debt reconciliation
Cash and cash equivalents
Borrowings
Net debt
Borrowings – capitalised fees
Net debt excluding capitalised fees
31 December 31 December
2018
£000
2019
£000
4,232
(13,071)
(8,839)
(1,272)
6,806
(20,980)
(14,174)
(518)
(10,111)
(14,692)
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Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
5 Cash and cash equivalents continued
At 1 January
Repayment of borrowings
Interest paid
Drawdown of RBL (note 8)
Capitalised fees
Repayment of RBL (note 8)
Foreign exchange adjustments
Other cash flows
Other non-cash movements
At 31 December
6 Trade and other payables
Trade creditors
Taxation and social security
Amounts due to subsidiary undertakings
Accruals and other creditors
31 December 2019
31 December 2018
Cash and cash
equivalents
£000
Borrowings
£000
Cash and cash
equivalents
£000
Total
£000
Borrowings
£000
6,806
(21,355)
(2,021)
19,319
(1,059)
(4,639)
25
7,156
–
(20,980)
21,355
–
(19,319)
1,308
4,639
645
–
(719)
(14,174)
–
(2,021)
–
249
–
670
7,156
(719)
858
(1,722)
(1,751)
–
–
–
(131)
9,552
–
(21,240)
1,722
–
–
–
–
(1,238)
–
(224)
Total
£000
(20,382)
–
(1,751)
–
–
–
(1,369)
9,552
(224)
4,232
(13,071)
(8,839)
6,806
(20,980)
(14,174)
31 December 31 December
2018
£000
2019
£000
(39)
(36)
(141,040)
(657)
(155)
(54)
(132,081)
(897)
(141,772)
(133,187)
Trade creditors are unsecured and usually paid within 30 days of recognition.
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 included within trade and other payables are considered to be a reasonable
approximation of their fair value.
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
2018
£000
2019
£000
Excess management expenses
Non-trade loan relationship debits
8 Borrowings
Bonds – secured
Reserve Based Lending facility – secured
20,799
47,905
19,134
47,905
31 December 2019
31 December 2018
Within
1 year
£000
Greater
than 1 year
£000
Total
£000
–
–
–
(13,071)
–
(13,071)
Within
1 year
£000
(2,389)
–
Greater
than 1 year
£000
Total
£000
(18,591)
–
(20,980)
–
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.
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IGas Energy plc | Annual Report and Accounts 2019
8 Borrowings continued
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.
On 19 November 2019, the Company repaid its secured bonds at par value (100%) plus accrued interest through the drawdown of $25 million
from the RBL with BMO.
Reserve Based Lending facility (RBL)
On 3 October 2019, the Company announced that it had signed a $40.0 million RBL with BMO. In addition to the committed $40.0 million RBL,
a further $20.0 million is available on an uncommitted basis, and can be used for any future acquisitions or new conventional developments.
The RBL has a five-year term, an interest rate of LIBOR plus 4.0%, matures in September 2024 and is secured on the Company’s assets. The RBL
is subject to a semi-annual redetermination in May and November when the loan availability will be recalculated taking into account forecast
commodity prices, remaining field reserves (assessed by an independent reserves auditor annually) and the latest forecast of operating and
capital costs.
Under the terms of the RBL, the Company is subject to a financial covenant whereby, as at 30 June and 31 December each year, the ratio of Net
Debt at the period end to EBITDAX for the previous 12 months shall be less than or equal to 3.5:1.
A loss of £0.7 million arising from debt re-financing was recognised for the year ended 31 December 2019.
Collateral against borrowing
A Security Agreement was executed between BMO and IGas Energy plc and some of its subsidiaries, namely; Island Gas Limited, Island Gas
Operations Limited, Star Energy Weald Basin Limited, Star Energy Group Limited, Star Energy Limited, Island Gas (Singleton) Limited, Dart Energy
(East England) Limited, Dart Energy (West England) Limited, IGas Energy Development Limited, IGas Energy Enterprise Limited, Dart Energy
(Europe) Limited and IGas Energy Production Limited.
Under the terms of this Agreement, BMO have a floating charge over all of the assets of these legal entities, other than property, assets, rights and
revenue detailed in a fixed charge. The fixed charge encompasses the Real Property (freehold and/or leasehold property), the specific petroleum
licences, all pipelines, plant, machinery, vehicles, fixtures, fittings, computers, office and other equipment, all related property rights, all bank
accounts, shares and assigned agreements and rights including related property rights (hedging agreements, all assigned intergroup receivables
and each required insurance and the insurance proceeds).
9 Commitments
The Company leases property under non-cancellable operating leases. From 1 January 2019, the Group has recognised a right-of-use asset for
this lease.
Operating lease commitments:
– expiring within 1 year
– expiring within 2 to 5 years
– expiring after 5 years
Total
31 December 31 December
2018
£000
2019
£000
–
–
–
–
(390)
(873)
–
(1,263)
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
2018
£000
2019
£000
2018
£000
2019
£000
Financial liabilities
Amortised cost
Bonds – secured1
Reserve Based Lending facility – secured
–
(13,071)
(20,980)
–
–
(13,071)
(20,875)
–
1 The fair value of borrowings (hierarchy level 1) have been calculated by reference to quoted market prices for these specific liabilities.
115
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
10 Financial instruments and risk management continued
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 contract
31 December 31 December
2018
£000
2019
£000
–
(71)
Financial risk management
The Company’s principal financial liabilities comprise borrowings, foreign exchange contracts 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.
116
IGas Energy plc | Annual Report and Accounts 2019
10 Financial instruments and risk management continued
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
2018
£000
2019
£000
388
(388)
388
(388)
Foreign currency risk
The Company has transactional currency exposures. Such exposure arises from purchases in currencies other than the UK pounds sterling,
the functional currency of the Company. The Company’s borrowings are also denominated in US dollars.
The following table summarises the impact on profit before tax for changes in the US dollar/UK pound sterling exchange rate on financial assets
and liabilities as at the year end, principally relating to the Group’s borrowings which are denominated in US dollars. The impact on equity is the
same as the impact on profit before tax.
The analysis is based on the assumption that the pound moves 10%, with all other variables held constant.
10% strengthening of the pound against the US dollar
10% weakening of the pound against the US dollar
Increase/(decrease) in profit
before tax for the year ended
and to equity as at
31 December 31 December
2018
£000
2019
£000
1,307
(1,307)
2,004
(2,004)
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 expected credit loss allowance against amounts due from subsidiary undertakings
amounts to £22.2 million (31 December 2018: £nil). 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.
£4.2 million (2018: £6.8 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 apart from one loan which was provided for in full. The expected credit loss allowance against loans to subsidiaries
amounts to £91.2 million. 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 reconciles to the opening loss allowance as follows:
Opening loss allowance at 1 January
Amounts restated through opening retained earnings
Increase in lifetime expected credit loss allowance recognised in income statement during the year
Increase in 12 month expected loss allowance recognised in income statement during the year
Closing loss allowance at 31 December
Loan to subsidiary
31 December 31 December
2018
£000
2019
£000
6,402
–
195
113,168
119,765
–
6,402
–
–
6,402
117
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
10 Financial instruments and risk management continued
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 2019
Borrowings
Trade and other payables
At 31 December 2018
Borrowings
Trade and other payables
On demand
£000
<1 year
£000
1–2 years
£000
2–3 years
£000
>3 years
£000
Total
£000
–
–
–
–
–
–
–
(39)
(39)
–
–
–
–
–
–
(13,071)
–
(13,071)
(39)
(13,071)
(13,110)
(4,070)
(155)
(4,225)
(3,878)
–
(3,878)
(17,698)
–
(17,698)
–
–
–
(25,646)
(155)
(25,801)
Management considers that the Company has adequate current assets and forecast cash from operations to manage liquidity risks arising from
current and non-current liabilities.
Capital management
The Company manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder
value. The Company’s funding requirements are met through a combination of debt and equity and are adjustments made in light of changes
in economic conditions. The Company’s strategy is to maintain ratios in line with covenants associated with its new secured RBL (see note 8).
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 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 signed a new $40.0 million RBL with BMO on 3 October 2019. In addition to the committed $40.0 million RBL, a further
$20.0 million is available on an uncommitted basis, and can be used for any future acquisitions or new conventional developments
(see note 8). Management believe that the new financing structure will be sustainable in the current oil price environment and,
together with a carried work programme of up to $214 million, means that the Company is well positioned to pursue its strategy.
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IGas Energy plc | Annual Report and Accounts 2019
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 0.0001p each were consolidated
into one new ordinary share of 0.02p each and immediately sub-divided into 10 ordinary shares of 0.002p. The consolidation and subdivision
reduced the number of shares in issue from 2.4 billion to 121 million.
Ordinary shares
*
Nominal value
£000
No.
**
Deferred shares
Share
capital
Nominal value Nominal value
£000
£000
No.
Share
premium
Value
£000
Issued and fully paid
At 1 January 2018
2018 SIP share issue – partnership
2018 SIP share issue – matching
At 31 December 2018
2019 SIP share issue – partnership
2019 SIP share issue – matching
At 31 December 2019
121,881,119
83,996
112,154
122,077,269
107,135
175,771
122,360,175
2
–
–
2
–
–
2
303,305,534
30,331
30,333
102,342
–
–
–
–
–
–
70
89
303,305,534
30,331
30,333
102,501
–
–
–
–
–
–
69
110
303,305,534
30,331
30,333
102,680
* The number of ordinary shares as at 31 December 2019 includes 190,651 Treasury shares (2018: 201,451).
** Deferred shares were created on capital restructuring which completed in April 2017.
Accordingly, the Company share capital account comprised:
Share capital account
At 1 January 2018
Shares issued during the year
At 31 December 2018
Shares issued during the year
At 31 December 2019
£000
30,333
–
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 282,906 ordinary shares at a nominal value of 0.002p each (2018: 196,150 ordinary shares of 0.002p
each), resulting in an increase in share premium of £0.2 million (2018: £0.2 million). No issuing costs were incurred during the year (2018: none).
12 Other reserves
Other reserves are as follows:
Balance at 1 January 2018
Share options issued under the employee share plan
Shares issued under the SIP
Lapse of options under the employee share plan
Transfers
Lapse of options under the employee share plan
Transfers
Balance at 31 December 2018
Share options issued under the employee share plan
Shares issued under the SIP
Forfeiture of options under the employee share plan
Balance at 31 December 2019
Share plan
reserves
£000
9,098
1,430
–
(173)
99
Treasury
Capital
shares contributions
£000
£000
(1,373)
–
59
–
(99)
47
–
–
–
–
Merger
reserve
£000
22,222
–
Total
£000
29,994
1,430
–
–
–
59
(173)
–
10,454
(1,413)
47
22,222
31,310
1,607
–
(128)
–
(8)
–
–
–
–
–
–
–
1,607
(8)
(128)
11,933
(1,421)
47
22,222
32,781
119
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
PARENT COMPANY FINANCIAL STATEMENTS – NOTES
FOR THE YEAR ENDED 31 DECEMBER 2019 continued
12 Other reserves continued
Employee share plans – Equity settled
Details of the share options under employee share plans outstanding are as follows:
Outstanding at 1 January 2018
Exercisable at 1 January 2018
Awarded during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December 2018
Exercisable at 31 December 2018
Awarded during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December 2019
Exercisable at 31 December 2019
EIP
Number
of units
2,086,704
2,086,704
1,911,057
–
–
3,997,761
3,997,761
2,033,093
(33,808)
(450,256)
MRP
Number
of units
267,252
267,252
76,310
(52,371)
–
291,191
291,191
157,624
(8,883)
–
EDRP
Number
of units
325,000
325,000
–
–
–
325,000
325,000
–
–
–
5,546,790
439,932
325,000
5,546,790
439,932
325,000
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 financial statements note 25.
Executive Incentive Plan (EIP)
The total charge for the year was £0.15 million (2018: £0.12 million). Of this amount, £nil (2018: £nil) was capitalised and £0.15 million
(2018: £0.12 million) was charged to the Income Statement.
Management Retention Plan (MRP)
The total charge for the year was £0.02 million (2018: £0.01 million). Of this amount, £nil (2018: £nil) was capitalised or recharged to joint
venture partners and £0.02 million (2018: £0.01) was charged to the Income Statement.
Executive Director Retention Plan (EDRP)
The total charge for the year was £nil (2018: £nil). Of this amount, £nil (2018: £nil) was capitalised and £nil (2018: £nil) was charged to the
Income Statement.
12 Other reserves continued
Other share-based payments
Detail disclosure of other share-based payments is in the Group consolidated financial statements note 25.
Share Incentive Plan (SIP)
The total charge for the year was £nil (2018: £nil). Of this amount, £nil (2018: £nil) was capitalised and £nil (2018: £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.
120
IGas Energy plc | Annual Report and Accounts 2019
13 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
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
129,706
52
(9,431)
8,258
(113,362)
–
4,936
106,349
719
(12,309)
11,379
(6,402)
37,076
(7,106)
20,159
129,706
Year ended
Year ended
31 December 31 December
2018
£000
2019
£000
Amounts due from subsidiary undertakings (note 4)
Amounts due to subsidiary undertakings (note 6)
Loans to Group companies (note 2)
Total
17,750
(141,040)
143,449
35,429
(132,081)
226,358
20,159
129,706
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 Directors’ Remuneration Report.
14 Subsequent events
On 24 January 2020 the Company issued 66,076 Ordinary £0.00002 shares in relation to the Company’s SIP scheme. The shares were issued
at £0.47 resulting in share premium of £31,054.
The global pandemic of COVID-19 in early 2020 has caused worldwide economic disruption. The Group considers this to be a non-adjusting post
balance sheet event as of 31 December 2019. As described in our going concern assessment, there is material uncertainty of the potential impact
of COVID-19 on the Group’s operational activities, future commodity prices and the outcome of the May 2020 redetermination of the RBL.
121
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019
OIL AND GAS RESERVES
AS AT 31 DECEMBER 2019
The Group’s estimate of proved plus probable reserves at 31 December 2019 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 2019
Additions during the year
Revision of previous estimates
Production
Total change during the year
At 31 December 2019
Oil
mmbbls
12.59
0.66
1.94
(0.78)
1.82
14.41
Gas
Bcf
11.41
–
(1.58)
(0.35)
(1.93)
9.48
Total
mmboe
14.56
0.66
1.67
(0.84)
1.49
16.05
122
IGas Energy plc | Annual Report and Accounts 2019
IGAS ONSHORE UK LICENCE INTERESTS
Corporate Governance
Financial Statements
Licence
Fields
East Midlands
AL 009
EXL 288
ML 3
ML 4
ML 6
ML 7
Dunholme1
Trumfleet2
Egmanton
Gainsborough, Beckingham, Corringham,
Glentworth
Bothamsall
South Leverton
PEDL 006
Cold Hanworth
PEDL 012
PEDL 139
PEDL 140
PEDL 146
PEDL 1693
PEDL 200
PEDL 210
PEDL 2734
PEDL 278
PEDL 305
PEDL 316
PL 178
PL 179
PL 1996
PL 220
Hemswell1
West Beckingham
Welton, Stainton, Nettleham, Scampton
South, Scampton North, East Glentworth
Nettleham
Long Clawson, Rempstone
Weald Basin
DL 002
DL 004
ML 18
ML 21
Stockbridge
Albury
Bletchingley
Bletchingley
PEDL 021
Goodworth
PEDL 070
Avington
PEDL 235
PEDL 257
PEDL 326
PL 182
PL 205
PL 211
PL 233
PL 240
PL 249
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
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%
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
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
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.
123
Strategic ReportIGas Energy plc | Annual Report and Accounts 2019 IGAS ONSHORE UK LICENCE INTERESTS continued
Licence
Fields
North West
EXL 273
PEDL 145
PEDL 147
PEDL 184
PEDL 189
PEDL 190
PEDL 193
PEDL 293
PEDL 295
Scotland
P 1270
PEDL 158
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.
124
IGas Energy plc | Annual Report and Accounts 2019 Strategic Report
Corporate Governance
Financial Statements
GLOSSARY
£
$
1P
2P
3P
1C
2C
3C
AIM
boepd
bopd
Contingent
Recoverable
Resources
GIIP
m
Mbbl
MMboe
MMscfd
NBP
OGA
OIIP
PEDL
PL
RBL
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.
Gas initially in place
Million
Thousands of barrels
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.
Oil and Gas Authority
Oil initially in place
United Kingdom petroleum exploration and development licence
Production licence
Reserve Based Lending facility
ROSPA
Royal Society for the Prevention of Accidents
SoS
Tcf
UK
Secretary of State
Trillions of standard cubic feet of gas
United Kingdom
125
IGas Energy plc | Annual Report and Accounts 2019 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
C McDowell – Interim Non-executive Chairman
S Bowler – Chief Executive Officer
P Jackson – Non-executive
T Kumar – Non-executive
H Årstad - Non-executive
Company Secretary
Thamala Perera Schuetze
Nominated Adviser and Joint Broker
Investec Bank plc
30 Gresham Street
London
EC2V 7QP
Joint Broker
BMO Capital Markets
95 Queen Victoria Street
London
EC4V 4HG
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
126
IGas Energy plc | Annual Report and Accounts 2019 NOTES
127
Strategic ReportCorporate GovernanceFinancial StatementsIGas Energy plc | Annual Report and Accounts 2019 NOTES continued
128
IGas Energy plc | Annual Report and Accounts 2019 Design and Production
www.carrkamasa.co.uk
IGas Energy plc
Registered Office
7 Down Street
London
W1J 7AJ
+44 (0)20 7993 9899
www.igasplc.com