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www.independentoilandgas.com
ANNUAL REPORT & ACCOUNTS 2015
Independent Oil and Gas plc
Report and Audited Financial Statements
Year Ended
31 December 2015
Company Number 07434350
ANNUAL REPORT & ACCOUNTS 2015
Contents
Page
Chief Executive’s Review ............................................................................................................... 2
Strategic Report .............................................................................................................................. 3
Statement of Reserves & Resources .................................................................................. 6
Operational Update .............................................................................................................. 7
Finance Review .................................................................................................................... 9
Board of Directors ......................................................................................................................... 12
Glossary of Key Technical Terms ................................................................................................ 14
Report of The Directors ................................................................................................................ 16
Risk Management .......................................................................................................................... 17
Statement of Directors' Responsibilities ..................................................................................... 18
Independent Auditor’s Report ...................................................................................................... 19
Consolidated Statement of Comprehensive Income .................................................................. 21
Consolidated Statement of Financial Position ............................................................................ 23
Company Statement of Financial Position .................................................................................. 24
Consolidated Cash Flow Statement ............................................................................................. 25
Company Cash Flow Statement ................................................................................................... 26
Notes Forming Part of the Financial Statements ........................................................................ 27
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Independent Oil & Gas plc
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Annual Report 2015
Annual Report 2015
2015 has been an important year of significant progress for Independent Oil and Gas Plc (“IOG” or the “Company”). In spite of
the exceptionally challenging ongoing market conditions, the Company has successfully positioned itself for future growth and
with the new financing arrangements has strengthened its position post period end. It is now well placed to pursue low risk, value
accretive opportunities created in the current market environment. In addition to the Chief Executive’s Review below, we provide
a Strategic Report including our plans to pursue a Hub focussed strategy to create an established development and production
focused operator delivering excellent value to shareholders over the coming years.
Chief Executive’s Review
The challenges facing the North Sea have never been so widely publicised. However, IOG remains firmly committed to the UK
Continental Shelf and continues to work hard to ensure our counter-cyclical approach creates value across the commodity cycle.
Despite the 75% drop from peak to trough in oil prices since mid-2014, upstream oil and gas still remains a net margin-oriented
business: it is possible to be as profitable with oil at current levels. That is why we remain extremely focused on cost management,
lean operations and new models of collaboration. We are taking the lead in seeking progressive arrangements with the service
sector in the UK to ensure robust project economics and overall competitiveness. The contractor community’s support and
cooperation with such initiatives has been very pleasing and bodes well for the future. Our fundamental purpose remains to
ensure IOG is resilient to low commodity prices but also ideally positioned to benefit from any eventual upturn in prices across
both the oil and gas markets.
Given the difficulty of funding and drilling North Sea wells amid this severe downturn, we are very encouraged by the UK Oil &
Gas Authority’s (“OGA”) pragmatic and cooperative approach. Licence extensions we have received are vital to enable us to play
our part in fulfilling the OGA’s objectives of Maximising Economic Recovery, as set out in the Wood report, and ultimately in
contributing to UK energy security.
In 2015 we made great strides towards drilling the planned appraisal well at Skipper which we firmly believe will prove up the
commerciality of the field. Postponing the well, post period end, in January 2016 was a difficult but necessary decision to ensure
we did not put the Company at undue risk in furthering our objectives. Despite this delay, the Skipper well preparation process in
itself created considerable value for IOG, ensuring that we qualified as an exploration operator for the first time and establishing
a number of constructive relationships with contractors for the next stage of development. With these in place, we remain ready
to re-mobilise at relatively short notice when conditions allow.
The alignment of both financial backers and regulators, in addition to contractors, is of course critical to our ongoing progress.
Securing the financial backing of London Oil & Gas Limited, part of the London Group, for an initial £3.55 million in December
2015 and in February 2016 a further £10 million financing transaction, was an important milestone in our development. London
Oil & Gas Limited (“LOG”) is a wholly owned subsidiary of London Group plc. The London Group is a private company whose
focus is on the acquisition and development of real assets in the oil and gas and the hotel and leisure sectors. This financing
covers IOG’s licence fees and G&A for a minimum of 30 months, whilst also providing access to funds for portfolio enhancement.
With this significant access to capital, I believe an exciting phase of growth for IOG has begun. In addition to delivering on existing
plans, we can now capture attractive, value enhancing opportunities created by the oil and gas cycle.
It is important to be strategically aligned with your main investors and we are very pleased to report an excellent relationship with
LOG. We are therefore excited about working with LOG to create value both organically and through acquisitions. In April 2016,
upon closing the funding, we agreed to acquire the other 50% of the Blythe gas field in the Southern North Sea, a strategic
cornerstone for our plans to create a gas hub in the area. We are also working on a range of potentially accretive asset
opportunities. LOG’s track record and wealth of experience will undoubtedly be of significant help in pursuing this new acquisitive
strategy. I am delighted that Martin Ruscoe has brought his considerable capital markets experience to the IOG board as a non-
executive director, and that Eric Bosshard has joined as a technical advisor.
In addition to developing our existing asset base, acquiring production in the North Sea is an important objective for the Company.
This is both to kick start the production side of our lower risk development and production strategy and to generate cash flows to
cover our activities in future. We will also consider compelling acquisition opportunities of production and development assets
which have the potential to be value accretive, outside of the North Sea, in stable Western geographies. We have been assessing
a number of interesting opportunities of various sizes and types and will conclude a transaction if we believe there is good value
accretion for the Company and its shareholders.
In light of market conditions, and ahead of becoming an oil and gas producer, we have continued to manage corporate costs and
cash extremely carefully. Throughout 2015, directors and management again sacrificed some or all of the salary or fees payable
to them by the Company in return for options to acquire ordinary shares in the Company. By taking this approach, IOG has
continued to benefit from a high calibre team with the wide-ranging experience required to take advantage of the opportunities in
both our existing portfolio and the wider market. We will continue to manage our cash positon and capital structure proactively to
balance short-term constraints with long-term value generation.
Post year end, Marie-Louise Clayton stepped down as a Non-Executive Director to concentrate on other activities. We thank
Marie-Louise for her important contribution dating back to before IOG was created and wish her very well for the future.
We are very excited about the future potential of IOG and are confident we have the right team, financial partners and strategy,
which is further outlined below, to create an established development and production focused operator. We look forward to
continuing to work with our investors, counterparties, regulators and other stakeholders to maximise the value of the IOG portfolio.
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Annual Report 2015
Strategic Report
Highlights of 2015:
Skipper acquisition: The Company completed the acquisition of the other 50% of the Skipper licence P1609 in block 9/21a,
giving it 100% ownership of the licence. The transaction increased IOG’s independently verified 2C resources by 13.1
MMBbls to 26.2 MMBbls. This is based on a recovery factor of 19% in the 2013 CPR. Management’s base case view of
the Skipper recovery factor is 25%, which equates to a total recovery of 34.1 MMBbls.
Skipper operatorship: The UK OGA approved IOG as exploration operator of the Skipper licence. Qualifying as an
exploration operator is an important step forward for IOG, not only with respect to drilling the Skipper appraisal well, but also
in terms of opening up other asset opportunities and progressing on to production operatorship in due course.
Funding: The Company secured loans from LOG and GE Oil & Gas UK Limited (GE) amounting to a total of £5.55 million
during 2015 (further augmented during 2016 as detailed below). This comprised two loans from LOG, £2.75 million and £0.8
million respectively, and a £2.0 million loan from GE. The loans are intended to fund the appraisal well to be drilled on the
Skipper discovery, as well as to provide funding for G&A and advancement of the Company’s Southern North Sea asset
portfolio. This backing reflects the confidence of our financial backers and corporate partners in the Company and its
operational plans. IOG has also been able to defer a significant amount of cost for the Skipper well through a contractor
finance structure designed to build long-term partnerships with service providers.
Advanced Skipper well planning: IOG reached a very advanced stage of preparation for drilling the Skipper appraisal well,
the primary objective of which is to retrieve good quality reservoir condition oil samples to optimise the field development.
The well also has a secondary purpose of drilling two mapped reservoir structures beneath Skipper in the Lower Maureen
and Dornoch formations. Although the well was postponed post period end from Q1 2016 due to difficult market conditions
and very poor weather in the North Sea at that time, it continues to be a strategic priority and IOG remains ready to remobilise
at the earliest feasible time.
Well management contract: IOG signed a contract with AGR Well Management (“AGR”) for the Skipper well, on which
AGR will be the designated Well Operator. IOG and AGR have already jointly undertaken extensive well preparation work
under this contract.
Skipper rig contract: IOG signed a rig contract with Transocean for the Skipper well. This contract remains in place pending
the re-scheduling of the well and we look forward to working with Transocean on this project. Establishing a good working
relationship with Transocean was another important piece of progress for the Company.
Extension of Cronx, Truman & Harvey licences: The OGA extended the Cronx licence P1737 by one year to 9th January
2017. IOG also agreed to extend the Sale and Purchase Agreement with Swift Exploration by nine months to 30th September
2016. IOG remains committed to completing the Cronx acquisition when circumstances allow, with a view to it forming part
of the proposed Southern North Sea gas hub, alongside Blythe and other assets in the vicinity. This includes the Truman
prospect and Harvey discovery in licence P2085 which was also extended by twelve months to 20th December 2016. These
licence extensions are important steps to ensure that we can successfully develop our gas hub concept and we continue to
look at ways to enhance and de-risk the asset base for this hub.
Award of Hambleton discovery: Block 48/22c, which contains the Elgood discovery and was previously awarded to IOG
in the 28th offshore licensing round, was increased by 48km² to the south and now contains the Hambleton discovery. IOG
believes that the reprocessing of existing 3D seismic data could increase recoverable resources from 6 BCF up to 26 BCF,
increasing the potential to tie the field into the proposed Southern North Sea gas hub.
Following year-end we have had several further significant developments in early 2016:
£10 million funding: IOG secured a £10 million convertible loan facility from LOG, providing additional working capital and
access to funding for future acquisitions. £3 million of the facility is to cover corporate G&A and licence fees up to July 2018,
whilst £7 million is dedicated to fund acquisitions to add value to the IOG portfolio. This transaction takes the total funding
from LOG up to £13.55 million.
Board changes: On 9th February 2016, Marie-Louise Clayton chose to step down as a Non-Executive Director to
concentrate on other activities and Martin Ruscoe was appointed as a Non-Executive Director. Martin Ruscoe is the
appointed representative on IOG’s Board pursuant to the loan agreements with LOG.
Skipper licence extension: The OGA extended the Skipper Licence P1609 until 31st December 2016. This enables IOG
to continue our work to re-schedule the Skipper appraisal well at the earliest economically feasible opportunity.
Blythe acquisition: IOG signed a Sale and Purchase Agreement to acquire the other 50% of the Blythe discovery and
assume operatorship. This acquisition is set to be a low-cost and strategically important addition to the portfolio, as it gives
IOG full ownership and control over the assets designated for the Company’s first development hub. It also doubles the
Company’s independently verified 2P reserves by 17.2 BCF to 34.3 BCF and enables IOG to focus on progressing the Field
Development Plan as part of a Southern North Sea gas hub.
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Health, Safety and Environmental Policy
The IOG Health, Safety and Environmental (HSE) Policy has been developed for the formal IOG Environmental Management
System (EMS) in accordance with the requirements of the ISO14001 Standard. The most recent version of the policy was
approved by the IOG board in December 2015 as part of the preparations to drill the Skipper appraisal well. This policy will guide
the development of the IOG EMS and its operating practices going forward.
Environmental Management
As referenced above, an EMS has been developed to manage the environmental aspects of IOG’s offshore operations in
conjunction with AGR Well Management Ltd. as part of the preparations to drill the Skipper well in Block 9/21a. The scope of the
EMS covers offshore exploration drilling, site and environmental surveys and office based activities carried out in support
of these offshore operations. It is the goal of IOG to achieve both external certification of the EMS to ISO14001 and
associated verification to OSPAR Recommendation 2003/5 in 2016.
A key part of the function of the EMS is to identify the significant environmental aspects of IOG’s offshore operations
and related legal and other requirements. The EMS focusses on the development of an Environmental Aspects
Register and Register of Environmental Legislation. This allows IOG to focus on managing the key environmental
aspects of its operations and help maintain legal compliance throughout. This also facilitates the setting of
appropriate objectives and targets for the control of environmentally significant aspects.
EMS requirements will be implemented and monitored on a practical basis during the planning of drilling operations
(and ongoing general office activities). IOG is aware of its position as a small operator relying on major contractors
to conduct operations offshore where its significant environmental aspects and related impacts will be found. As
such operational control procedures and bridging documents have been designed to ensure the effective
implementation of the IOG EMS and its standards throughout both the planning and execution of offshore operations.
This focusses on key areas such as contractor appraisal, competency and training, interfacing of management
systems and monitoring of operations offshore. This takes account of key ongoing communication from OGA/DECC,
regarding operator and contractor EMS interfacing, circulated since the Deepwater Horizon incident.
Business Strategy
IOG’s strategy is to target stranded assets and dormant discoveries, especially those near to existing and ideally, owned
infrastructure (the “Hub Strategy”). These are assets that are no longer targets for the Major oil companies but are potentially
profitable developments which can be beneficially developed by a smaller independent Company, focused on the North Sea. This
strategy has previously been successfully deployed in the North Sea by CH4 Energy Limited (of which Mark Routh was the
founder), among others and is fully endorsed by our main investor LOG.
The aim is to build upon the existing development assets in order to achieve a diversified, balanced, portfolio of near and long
term developments with exploration upside that complement the existing operations. This will include the acquisition of producing
fields or near-term production if the risk is positively assessed and the acquisition price results in value accretion. The Directors
believe that there is a significant opportunity for the Company to exploit this strategy, given that there are over 400 undeveloped
and underdeveloped assets in the UKCS.
The Hub Strategy targets strategic control over a number of dormant discoveries and exploration prospects that can be developed
through common existing infrastructure, thereby generating significant economies. IOG is executing this strategy in order to create
a Southern North Sea gas hub with the announced acquisition of the remainder of the Blythe licence, along with Operatorship, in
addition to the pending Cronx acquisition and successful award of the Truman & Harvey licence. The Company has been granted
exploration operator status by the OGA with respect to the Skipper licence and expects to complement this with production
operatorship at its Southern North Sea gas hub. The Company has the requisite skills and competencies for production
operatorship, which will give the Company control over field development plans and is therefore vital for executing the hub strategy.
Operatorship is also strategically important for other, related reasons. Third party consents to tie in additional discoveries are
easier to facilitate for operators of owned infrastructure. As the Majors continue to divest late-life producing assets they often
prefer to assign operatorship and redeploy their own resources and so additional opportunities arise. In the UK licensing rounds,
certain licences will only be made available to pre-qualified operators.
Overall, the Board is confident that the Company has the management, experience and technical expertise to create and seize
new opportunities for future growth.
Licences
Independent Oil and Gas plc (“IOG”) through its wholly owned subsidiary IOG North Sea Ltd (“IOGNS”) is currently a licensee on
two Traditional Licences and two Promote Licences all in the North Sea;
P1736 covering blocks 48/22b and 48/23a in which lies the Blythe gas field;
P1609 covering block 9/21a in which lies the Skipper oil discovery;
P2085 covering blocks 48/23c and 48/24b (Truman and Harvey); and
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Annual Report 2015
P2260 covering block 48/22c (Elgood, Hambleton, Tetley and Rebellion).
At the time of writing, IOG is in the process of acquiring the remaining 50% of Licence P1736 (Blythe) not already owned by the
Company from Alpha Petroleum Resources Ltd (“Alpha”). Upon completion of the acquisition and the approval from the OGA,
IOG will become Operator and will own 100% of the licence. The licence has been extended to 31st December 2016.
During 2015, IOG acquired the remaining 50% of the Skipper licence P1609 not already owned by the Company, giving it full
100% ownership and was granted exploration operator status by the OGA. The licence has been extended to 31st December
2016.
IOG is the licence administrator on licence P2260 and has applied to operate licence P1737 covering block 48/22a (Cronx) to the
west of the proposed Blythe field development. This application is subject to completion of the acquisition of the licence from
Swift Exploration Ltd. The licence has been extended to 9th January 2017.
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Annual Report 2015
Statement of Reserves & Resources
The Group has 1P reserves of 2.1MMBoe, 2P reserves of 3.0MMBoe, 1C contingent resources of 25.6MMBoe and 2C contingent
resources of 41.4MMBoe. Upon completion of the announced Blythe acquisition, the Group will have 1P reserves of 4.3MMBoe,
2P reserves of 6.1MMBoe, 1C contingent resources of 29.6MMBoe and 2C contingent resources of 47.1MMBoe. The Group’s
Proven, Probable and Possible reserves and resources for the Blythe and Skipper Hubs as at 31 st December 2015 were as
follows: -
Blythe Hub Reserves & Resources
Net Proven Reserves
*Blythe
1P
2P
3P
(Bcf)
11.2
(Bcf)
17.2
(Bcf)
23.7
1P
(MMBoe)
2P
(MMBoe)
3P
(MMBoe)
2.1
3.0
4.5
Net Contingent Resources
1C
2C
3C
(Bcf)
(Bcf)
(Bcf)
1C
(MMBoe)
2C
(MMBoe)
3C
(MMBoe)
‡ Harvey
‡ Elgood
‡ Hambleton
*Cronx
† Blythe - Carboniferous
Total Blythe Hub
Discoveries
6
4
2
7.7
21
52
16
11
6
17.6
30
98
26
14
26
40.4
90
220
1.1
0.8
0.4
1.5
4.0
9.8
2.8
2.1
1.1
3.4
5.7
18.2
4.6
2.7
5.0
7.7
17.2
41.7
Net Prospective
Resources
1C
2C
3C
(Bcf)
(Bcf)
(Bcf)
1C
(MMBoe)
2C
(MMBoe)
3C
(MMBoe)
‡ Truman
‡ Tetley
‡ Rebellion
Total Blythe Hub
Prospects
7
5
2
14
25
14
6
45
42
36
18
96
1.2
1.0
0.4
2.6
4.4
2.7
1.1
8.2
7.4
6.9
3.4
17.7
Sources:
*ERC Equipoise CPRs September 2013 & July 2012.
†Tullow 48/23a Relinquishment Report May 2009.
‡IOG internal view May 2016.
Note that the Cronx acquisition is subject to completion.
Note. The Blythe reserves are for the 100% of the licence. This is subject to completion of the acquisition of Alpha Petroleum’s 50% of the licence which expected to complete.
Skipper Hub Resources
Contingent Resources
1C
(MMBbls)
2C
(MMBbls)
3C
(MMBbls)
Skipper
17.9
26.2
34.9
Prospective Resources
1C
(MMBbls)
2C
(MMBbls)
3C
(MMBbls)
Skipper - Maureen
Skipper - Dornoch
Total Skipper Hub
3.5
2.3
23.7
6.5
4.0
36.7
11.2
6.1
52.2
Source:
AGR Tracs CPR September 2013.
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Operational Update
Skipper
The Skipper oil discovery is in Block 9/21a in the Northern North Sea in licence P1609 which is now 100% owned by IOG. In 2015, IOG acquired
50% of the licence and operatorship in return for committing to fund and drill the commitment well. The acquisition therefore came with only a
nominal upfront consideration, although the Company will have to make a payment of US$3 million upon the approval of the Skipper Field
Development Plan (“FDP”) and a payment of US$15 million shortly after first production from the field. We consider this to be an excellent deal
for IOG and an important value driver for our portfolio, giving IOG operatorship and full control over the anticipated Skipper field development.
Skipper needs further appraisal by drilling a well to retrieve oil samples in order to design the optimum field development plan for
the field. Skipper has independently verified gross 2C resources of 26.2 MMBbls. (Source: AGR Tracs Competent Person’s
Report dated September 2013.) IOG believes the recovery factor assumed in the CPR is likely to be conservative and considers
34.1MMBbls recoverable resources to be an appropriate mid case estimate.
IOG undertook extensive preparation towards drilling the appraisal well on the Skipper licence in 2015, which was intended to be
drilled in early 2016. The timing was postponed due to difficult market conditions and the likely impact on the Company’s ability
to refinance at the end of 2016, and very poor weather at the time. Our intention is to reschedule the drilling of the well at the
earliest feasible date. In addition to retrieving the oil samples from the Skipper oil discovery, the appraisal well will also target two
exploration prospects directly beneath Skipper, which may contain oil in place of 46 MMBbls. (Source: AGR Tracs Competent
Person’s Report dated September 2013.)
The appraisal well preparation process established a number of important operational relationships for the Company. A well
management contract was signed with AGR Well Management who will be the designated Well Operator for the well under the
updated regulatory guidelines. A rig contract was signed with Transocean and was put on hold pending the rescheduling of the
well. A service contract was also signed with Baker Hughes for the provision of well services for the Skipper well. Numerous
other contracts were negotiated into final form with the other necessary service and vessel providers which are also on hold until
a new well date is confirmed.
As such, the Company remains very well positioned to re-mobilise for drilling the Skipper well in due course.
Blythe (50% Acquisition subject to completion)
The Blythe gas discovery straddles Blocks 48/22b and 48/23a in the Southern North Sea in licence P1736. In April 2016, IOG
signed a Sale and Purchase Agreement with Alpha Petroleum Resources Ltd (the current operator) to acquire its 50% stake in
the licence. The acquisition cost is £1.5 million payable at completion and US$5 million payable upon first gas. This is another
excellent enhancement of value for the Company, with a doubling of independently verified 2P reserves by 17.2 BCF to 34.3 BCF
or 6.1 MMBoe, at a cost equivalent to US$2.31/Boe. Completion of the acquisition is subject to regulatory approvals.
Upon assuming 100% of the licence and operatorship, IOG intends to move quickly towards submission of the FDP for Blythe in
Q3-4 2016. The licence has been extended by the OGA to 31st December 2016. IOG would anticipate a further licence extension
after FDP submission, although this cannot be taken for granted.
Blythe needs no further appraisal and has independently verified gross 2P reserves of 34.3 BCF or 6.1 MMBoe. (Source: ERC
Equipoise Competent Person’s Report dated September 2013.)
IOG is targeting first gas from the Blythe field in the second half of 2017 but the final development schedule has yet to be
formalised. IOG’s gas sales agreement signed with BP Gas Marketing Ltd in February 2013 remains in place.
Gas tested to surface from three separate intervals in the Carboniferous beneath the Blythe Leman gas discovery from one of the
Blythe discovery wells, 48/23-3 drilled by Arco in 1987. The maximum rate achieved was 0.9 MMcfd from an unstimulated vertical
test. (Source: End of well report 48/23-3 – November 1987.) This was deemed uncommercial at the time, before the advent of
horizontal multi-fracture stimulated wells. Further technical work including seismic reprocessing and remapping needs to be
completed to evaluate this potential resource to refine the gas-in-place estimates which are between 70 BCF and 310 BCF.
(Source: Tullow Oil 48/23a Relinquishment Report – May 2009.)
Oil has flowed to surface from the naturally fractured Zechstein Carbonates in the Hauptdolomit formation above the Blythe Leman
gas discovery from two wells. Well 48/22-1 drilled by Burmah in 1966 flowed 39° API oil at rates up to 2,000 barrels per day
(Source: Composite well log 48/22-1 – October 1966) and well 48/23-3 drilled by Arco in 1987 at flowed 38° API oil at a maximum
rate of 1,128 barrels of oil a day. (Source: End of well report 48/23-3 – November 1987.) The extent of the structure and potential
oil resources in the Hauptdolomit remains unknown. Previous estimates considered that the mapped closure was probably small.
Oil-in-place has been estimated between 2 MMBbls and 4 MMBbls. (Source: Tullow Oil 48/23a Relinquishment Report – May
2009.) Further evaluation and re-mapping is now warranted now that a development will proceed on the main Blythe gas
discovery.
Cronx (Acquisition subject to completion)
The acquisition of the Cronx licence P1737 remains ongoing. The licence has been extended by the OGA to 9th January 2017,
providing additional time for completion, which is subject to funding the commitment well on the licence. IOG submitted its
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Annual Report 2015
application to operate this licence in March 2014. Approval is contingent upon demonstration of funding and a rig contract to drill
the commitment well.
The Cronx gas discovery is 14km north-west of the Blythe field in which IOG will hold 100% once the Blythe acquisition is
completed. Cronx was discovered in 2007 by well 48/22b-6 drilled by Perenco UK Ltd. Subject to the successful development of
Blythe, the gas export of Cronx would be via the Blythe hub. IOG commissioned an independent Competent Person’s Report
(CPR) by ERC Equipoise on Cronx in July 2012 which shows a base case expected gas recovery of 17.6 BCF or 3.4 MMBoe 2C
resources.
IOG would be committed to a firm well on completion of the Cronx acquisition. This is likely to be drilled in 2017 prior to a Field
Development Plan submission and should confirm the recoverable resources. The well would be suspended as a future producer.
Further information and maps of the Cronx field may be found on IOG’s website.
Elgood, Hambleton, Tetley & Rebellion
Licence P2260, which contains the Elgood Field, was awarded to IOG at 100% working interest. Elgood lies between the Blythe
and Cronx fields and was discovered in 1991 by well 48/22-4, drilled by Enterprise Oil. IOG's estimate of the recoverable reserves
in Elgood is 2.1 MMBoe. It is a good quality Rotliegend Leman sandstone reservoir that tested gas at rates in excess of
17 MMscfd. Gas was also tested from the Hauptdolomit interval 700 feet above the Leman interval but at low rates without
stimulation. IOG was awarded the licence in the 28th UK Licensing Round with a two-year term from 1st January 2015. IOG is
considering jointly developing the Elgood field with Cronx as part of a wider gas hub development which is conditional on the
successful development of Blythe.
The Hambleton discovery, to the south of the same licence P2260, was drilled by Century Exploration in 2005 but also was not
progressed to development. IOG estimates that Hambleton has recoverable resources of 6 BCF (1 MMBoe). IOG believes that
the reprocessing of existing 3D seismic data could increase recoverable resources up to 26 BCF. There are prospective resources
on licence P2260 estimated to be 5.3 MMBoe in the Tetley and Rebellion prospects.
Both Elgood and Cronx are covered in the recently commissioned reprocessing of existing 3D seismic data over IOG’s Southern
North Sea licence areas across 48/22a and 48/22c. This reprocessing is required to determine whether Elgood connects to Cronx,
which could boost recoverable resources significantly. The new seismic interpretation will also determine the likely size of
Hambleton.
Development of these assets, if technically and economically justified, would most likely be via tie-back to Blythe under a gas hub
development. Further information and maps of Elgood, Hambleton, Tetley and Rebellion may be found on IOG’s website.
Truman & Harvey
Licence P2085 in which lie the Truman prospect and Harvey discovery, was awarded to IOG at 100% working interest in December
2013. IOG estimates the mid case contingent resources at Truman to be 25 BCF and at Harvey to be 16 BCF.
IOG has acquired and is now reprocessing 250 sq. kms. of existing 3D seismic data, of which 85 sq. kms. fulfils the commitment
on licence P2085. Further subsurface technical work will be carried out when the 3D seismic reprocessing project completes in
3Q 2016 to determine the range of gas in place and potential resources in these two structures. A drill or drop decision on this
licence needs to be made by December 2016.
Development of these assets, if technically and economically justified, would most likely be via tie-back to Blythe under a gas hub
development. Further information and maps of the Truman prospect and Harvey discovery may be found on IOG’s website.
Asset Acquisitions
IOG continues to assess the potential for acquisition of producing assets to support the wider development and growth of the
business. The Company is at the time of writing assessing a number of potential opportunities in the UK North Sea.
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Annual Report 2015
Finance Review
The Group made a profit for the year of £5.32 million during 2015 (2014 – loss of £12.14 million). The principal components were
a partial reversal of impairment provisions made against oil and gas properties of £6.17 million (2014 - £8.25 million impairment)
offset by administrative expenses of £0.51 million (2014 - £0.69 million) and share-based payments of £0.32 million (2014 - £1.34
million).
The impairment reversal relates to the Skipper field in which IOG increased its holding from 50% to 100% in December 2015.
Following completion of this transaction a review was conducted of Skipper’s carrying value and a full reversal of the 2014 £6.17
million Skipper impairment provision was determined. Administrative expenses comprised cash settled personnel costs of £0.32
million (2014 - £0.32 million) and corporate costs of £0.19 million (2014 - £0.37 million). Cash settled personnel costs have been
maintained at a low level during 2015 in favour of equity-based incentives. Share based payments of £0.32 million showed a
substantial reduction from the prior year level of £1.34 million as the awards related to the Company’s 2013 AIM listing were fully
charged in 2013 and 2014. Exploration costs written off of £0.01 million show a significant reduction from prior year costs of £0.64
million as 2014 pre-licence award costs were expensed whilst 2015 post-award costs are capitalised. A finance gain of £0.06
million (2014 - £1.14 million expense) included gains on derivative assets of £0.20 million (2014 – cost of £0.83 million) following
the close-out of the Darwin finance facility, partially offset by interest charges and other expenses of £0.14 million (2014 - £0.31
million).
The increase in exploration and evaluation assets during 2015 from £7.51 million to £14.82 million largely reflects Skipper
impairment reversal described above plus additional expenditures of £1.14 million (2014 - £0.51 million) mainly on Blythe
development planning and preparations for Skipper drilling. Current assets include £1.35 million of costs on new borrowing
facilities, principally the fair value of warrants issued, which will be charged in future periods spread over the lives of those facilities.
Cash capital expenditures in the year totalled £0.49 million (2014 - £0.52 million) mainly on the Group’s Blythe and Skipper
interests. This, plus cash used on operating activities of £0.49 million (2014 - £1.25 million), was largely financed through the
issue of shares raising £0.34 million (2014 - £0.45 million) plus proceeds of £0.51 million (2014 - £0.08 million) from Darwin equity
swap share sales net of Darwin loan repayments of £0.24 million (2014 – drawings of £0.52 million) with the balance of funds
consumed during 2015 covered by a reduction in cash balances from £0.40 million at end 2014 to £0.02 million at 31st December
2015.
The Directors will not be recommending payment of a dividend.
Darwin Loan
During 2015, total repayments of £0.24 million were made against the Darwin loan and on 14th October 2015 the outstanding
balance of £0.25 million was satisfied through the issue of 6,507,399 ordinary shares in the Company. The Darwin facility is fully
repaid.
London Oil and Gas Limited and GE Oil and Gas UK Limited Loans
On the 4th December 2015 the Company secured agreement for a loan of £2.75 million from London Oil and Gas Limited (“LOG”)
in parallel with a £2 million loan from GE Oil & Gas UK Limited (“GE”). The loans are secured over IOG’s assets and are due to
be repaid at end of 2016 with deferred interest of LIBOR + 9% per annum. The loans are part of the Skipper appraisal well funding.
GE also agreed to provide wellheads to IOG for the Skipper appraisal well on a fully deferred basis, to be paid for at the same
time as repaying the loans at the end of 2016. In support of these loans IOG agreed to issue 5,777,310 warrants over IOG
ordinary shares to each of LOG and GE. A strike price of 11.9p must be paid to IOG to exercise the warrants which may be
exercised up until the end of December 2016.
On the 11th December 2015 an additional loan of £800,000 was provided by LOG. This was on similar terms, but with the issue
of 7,500,000 warrants at a strike price of 8p per share. This loan is to provide sufficient contingency for the Skipper well to be
drilled and for general corporate purposes.
Table 1: Summary Loans with London Oil and Gas Limited
Available until
Use
Interest rate
30/12/2016
Skipper
appraisal
Libor + 9%.
30/12/2016
G&A
Libor + 9%.
Warrants / Convertible
details
5,777,310 warrants
@ 11.9p
7,500,000 warrants
@ 8p
Repayment by
30/12/2016
30/12/2016
31/07/2018
Corporate,
acquisitions
Libor + 9%.
8p conversion price
3 years from drawing
Amount
(£ million)
£2.75
£0.80
£10.00
£13.55
Note on drawing conditions: All Conditions Precedent to the LOG loans have been met and can be drawn with agreement from
LOG. £100k per month is committed to cover G&A to June 2018.
Shortly after year end the Skipper well was postponed. The loans are expected to be made available for drawing once the revised
Skipper well timings are confirmed. It is anticipated that the repayment dates and warrant exercise dates will be adjusted once
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Independent Oil & Gas plc
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Annual Report 2015
the Skipper well timings are confirmed. As soon as the Skipper well timing is confirmed, it is the intention to execute GE loan
agreement.
Also after year end LOG agreed an additional £10 million convertible loan to IOG. £3 million of the loan is set aside to cover IOG’s
corporate spend over a 30-month period from February 2016. In common with the other loans, the remaining £7 million requires
LOG approval for drawdown. The aim of the loan is to support acquisitions in the low price environment but also to support organic
growth. Post year end IOG announced the proposed acquisition of 50% of the Blythe licence which will be funded from the LOG
facilities. Each loan tranche is repayable 36 months after drawing and LOG has the right to extend this by a further 12 months.
Any outstanding loans including accrued interest can be converted into new ordinary IOG shares at a price of 8p per share at
LOG’s election prior to repayment. The loan has a coupon of LIBOR + 9% which is deferred until maturity. LOG also has the
right to convert any undrawn amounts into shares after 30 months.
Despite difficult trading conditions which led to earlier potential funding solutions not being concluded, IOG is now in a well-funded
position, with a fully aligned investor, where corporate spend is covered to mid-2018 and, subject to drawdown approval, IOG is
funded for i) the Skipper appraisal well, ii) the Blythe licence acquisition and progression to Field Development Plan submission,
iii) investments to add value to the current portfolio such as seismic reprocessing in the Southern North Sea and iv) additional
acquisitions. Through the relationships with LOG, GE and others, IOG is now on a sound financial footing and is well placed to
secure the additional funding required to develop its licences.
Key Performance Indicators
The Group’s main business is the acquisition and exploitation of oil and gas acreage. Non-financial performance is tracked
through the accumulation of licence interests followed by the successful discovery and exploitation of oil and gas reserves as
indicated through prospective, contingent and proved reserves inventories. Financial performance is tracked through the raising
of finance to fund proposed programmes and the control of costs against budgets.
Principal Risks and Uncertainties
The Group operates in the oil and gas industry, an environment subject to a range of inherent risks and uncertainties. Being at
an early stage the prime risks to which the Group is subject are the access to sufficient funding to continue its operations, the
status and financing of its partners, changes in cost and reserves estimates for its assets, changes in forward commodity prices
and the successful development of its oil and gas reserves. Key risks and associated mitigation are set out below.
Investment Returns: Management seeks to raise funds and then to generate shareholder returns though investment in a
portfolio of exploration and development acreage leading to the drilling of wells, the discovery of commercial reserves
followed by their exploitation. Delivery of this business model carries a number of key risks.
Risk
Mitigation
Market support may be eroded obstructing
fundraising and lowering the share price
General market conditions may fluctuate
hindering delivery of the company’s business
plan
Management regularly communicates its strategy to shareholders
Focus is placed on building an asset portfolio capable of delivering
regular news flow and offering continuing prospectivity
Management aims to retain adequate working capital and secure
finance facilities sufficient to ride out downturns should they arise
Each asset carries its own risk profile and no
outcome can be certain
Management aims to avoid over-exposure to individual assets and
to identify the associated risks objectively
Company may not be able to raise funds to
exploit its assets or continue as a going concern
Management maintains regular dialogue with a variety of potential
funding partners.
Operations: Operations may not go according to plan leading to damage, pollution, cost overruns and poor outcomes.
Risk
Mitigation
Individual wells may not deliver recoverable oil
and gas reserves
Operations may take far longer or cost more
than expected
Resource estimates may be misleading
curtailing actual reserves recovered
Thorough pre-drill evaluations are conducted to identify the
risk/reward balance
Exposure selectively mitigated through farm-out
Management applies rigorous budget control
Adequate working capital is retained to cover reasonable
eventualities
The Group deploys qualified personnel
Regular third-party reports are commissioned
A prudent range of possible outcomes are considered within the
planning process
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Independent Oil & Gas plc
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Annual Report 2015
Personnel: The Company relies upon a pool of experienced and motivated personnel to identify and execute successful
investment strategies
Risks
Mitigation
Key personnel may be lost to other companies
The Remuneration Committee regularly evaluates incentivisation
schemes to ensure they remain competitive
Commercial environment: World and regional markets continue to be volatile with fluctuations and infrastructure access
issues that might hinder the company’s business success
Risk
Mitigation
Volatile commodity prices mean that the
company cannot be certain of the future sales
value of its products
Price mitigation strategies may be employed at the point of major
capital commitment
Gas may be sold under long-term contracts reducing exposure to
The Group may not be able to get access, at
reasonable cost, to infrastructure and product
markets when required
short term fluctuations
Oil and gas price hedging contracts may be utilised where viable.
Budget planning considers a range of commodity pricing
A range of different off-take options are pursued wherever possible
Credit to support field development programmes
may not be available at reasonable cost
The Company seeks to build and maintain strong banking
relationships and initiates funding discussions at as early a stage a
practicable
Corporate Hedging Strategy and Implementation
The primary objective of the Company’s hedging policy is to protect projected future cash flows, generated from operations,
against unforeseen changes in short and medium term market conditions.
No hedging instruments were utilised during 2015 in view of the limited exposures carried during the year. As the Company’s
capital investment programmes increase, hedging will be carried out in a simple and cost effective manner, retaining exposure to
upside but avoiding any speculative exposure to commodity prices or exchange rates. The application of the policy is within a
range to require exercise of management judgement in the light of market conditions and business variables.
Details of the Group’s financial instruments can be found in note 17 to the financial statements.
Insurance
The Group insures the risks it considers appropriate for the Group’s needs and circumstances. However, the Group may elect
not to have insurance for certain risks, due to the high premium costs associated with insuring those risks or for various other
reasons, including an assessment that the risks are remote.
Funding and Liquidity
As at 24th May 2016 the Group had cash resources of £65,000. In addition, the Company has arranged loan finance totalling
£15.55 million which is expected to be available to fund the planned Skipper appraisal well, acquisitions including that of the
remaining 50% of Blythe and general corporate and administrative expenditures. This funding is also expected to be sufficient to
take the Company’s Blythe gas field through to the submission of a field development plan, at which point the Company intends
to arrange finance for the full development project.
Since the start of 2016, the Company has demonstrated a capability to reach effective arrangements with contractors through an
agreement with GE Oil and Gas Limited to defer payment of £0.61 million of Skipper appraisal expenditures until end 2016 and
through the satisfaction of £0.64 million due to AGR Well Management Limited through the issue of shares in the Company.
Management will continue to seek mutually beneficial arrangements of this type so as to manage its cash resources efficiently.
On this basis, management considers that the Company has sufficient financial resources to meet its obligations and contracted
commitments over at least the next twelve months.
On behalf of the Board
Mark Routh
Director
26 May 2016
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Independent Oil & Gas plc
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Annual Report 2015
Board of Directors
IOG is led by a strong, disciplined Board with extensive experience in all aspects of the Company’s business supported by a
capable and experienced management team. Their experience covers both ends of the investment spectrum from private equity
backed start-up companies to FTSE-100 listed companies. The Board is supported by a capable and experienced management
team who provide their services as required on a contract basis.
Mark Routh - Chief Executive Officer and Acting Chairman
Mr Routh has over 30 years’ experience in the oil and gas industry. He is the former Chief Executive Officer and founder of oil
and gas company, CH4 Energy Limited, which was an owner and operator in the North Sea. CH4 was formed with £1 million
funding from management and 3i in 2002 and sold to Venture Production plc in 2006 for £154.4 million, providing 3i a with a record
7.3 multiple return on its investment. Prior to founding CH4, Mr Routh served for ten years with Amerada Hess, six years with BP
and five years with Schlumberger in South East Asia and the North Sea. Mr Routh is also the non-executive Chairman of Warrego
Energy Ltd a company with onshore gas assets in Western Australia.
Peter Young - Chief Financial Officer
Mr Young has over 15 years’ experience in oil and gas banking and finance with a focus on the mid-cap E&P sector. He was
previously on the board of Ebor Energy Inc. and Multi Operational Service Tankers Inc. He was a founder member of IOG in 2011
as Business Development Director and became CFO in February 2013. Prior to that he was Regional Head of Energy Derivative
Sales at Standard Chartered Bank.
Marie-Louise Clayton – Non- Executive Director (Resigned 9th February 2016)
Ms Clayton has 30 years' experience. She is the former Chief Financial Officer of oil and gas company, Venture Production plc.
Prior to joining Venture, Ms Clayton was Group Finance Director and Chief Information Officer of the Primary Food Division of
Associated British Foods plc and served at a number of major industrial companies including ExxonMobil, Alcatel, and GEC
Alstom. She is currently a non-executive director of fully listed Diploma plc, AIM quoted Zotefoams plc and Geoffrey Osborne Ltd,
a large private construction company. Previously Ms Clayton was the chair of Audit at Forth Ports plc. Ms Clayton is a member
of the Audit and Remuneration Committees.
Michael Jordan – Non-executive Director
Mr Jordan is a serial entrepreneur leading the successful development and subsequent divestment of three environmental groups
between 1995 and 2006. He formed Acura Investment group in 2007 and, as Chief Executive Officer, has investments in energy,
property, retail and the oil and gas sector. Mr Jordan is the Chair of the Remuneration Committee and a member of the Audit
Committee.
Paul Murray – Non-executive Director
Mr Murray is currently the Chair of Audit and Independent Non-Executive Director of Royal Mail plc and QinetiQ plc, and a Non-
Executive Director of Naked Energy Ltd and Ventive Ltd. Previously Group Finance Director of Carlton Communications plc and
LASMO plc a FTSE 100 listed North Sea Oil and Gas Company. Trained as a Petroleum Engineer with Mobil following a BSc in
Engineering Science from Durham University. Mr Murray is a member of the Audit and Remuneration Committees.
Martin Ruscoe – Non-executive Director
Mr Ruscoe has over 40 years' experience in the Financial Services Industry. Martin initially worked for a top 20 life office for 25
years, the last 9 years as Chief Investment Officer being involved in all forms of investment, taxation and new product development
within the company. Following a takeover he left to move to the broking side of the investment community working for Swiss
Bank, Citicorp and Smith New Court. Mr Ruscoe then spent 12 years with Charterhouse Securities who were voted number one
in the small cap market and the spent 6 years with Seymour Pierce, at the time the largest AIM Broker in London. He has vast
experience and has overseen in excess of 200 institutional fund raisings including new listings, placings and rights issues. He
currently holds the following Non-Executive Director positions: Surrey Save Credit Union, London Oil & Gas, Modular Airspace
Systems, London Group PLC and Independent Oil and Gas. Following the investments by London Oil & Gas Ltd (“LOG”) into
IOG, Mr Ruscoe is the appointed IOG Board representative pursuant to the execution of the LOG loan agreements.
Remuneration Policy
Remuneration comprises a mix of salary payments and equity incentives. During the initial investment phase, the mix is weighted
towards incentives rather than cash payments.
Options and Long Term Incentive Plan Policy
The Board believes that it is important that employees of the Group (including executive directors) are appropriately and properly
motivated and rewarded, with the success of the Group dependent to a significant degree on the future performance of the
executive management team. Accordingly, the Board has adopted the Long Term Incentive Plan (“LTIP”) allowing the Company
to grant to directors and employees options over ordinary shares. The LTIP is administered by the Remuneration Committee and
the maximum aggregate awards under the LTIP, together with any other employee share schemes, cannot exceed ten per cent
of the issued share capital of the Company at the time of grant.
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Independent Oil & Gas plc
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Annual Report 2015
Salary Sacrifice Arrangements
The Directors may establish further share incentive arrangements for the benefit of the Group’s employees in the future. Any
options to be granted under any such share incentive arrangements will be at the discretion of the Remuneration Committee.
Options may also be granted to non-executive directors of, and consultants to, the Group. These options will not be granted
pursuant to the Long Term Incentive plan, but will be granted under individual option agreements between the Company and the
individual concerned.
During the year, as a result of cash constraints on the Company and a desire to ensure that these limited resources were focussed
on operations, the service agreements of Key Management were varied such that cash payments were reduced and the difference
settled by options granted with a strike price of 1p. The number of options granted is determined by the Company’s volume
weighted average share price for each six-month period of salary or fee sacrifice. Further details can be found in Note 4 to the
financial statements.
Corporate Governance Statement
The Directors recognise the importance of sound corporate governance commensurate with the size and nature of the Company
and the interests of its Shareholders. The Corporate Governance Code does not apply to companies quoted on AIM and there is
no formal alternative for AIM companies. The Quoted Companies Alliance has published a set of corporate governance guidelines
for AIM companies, which include a code of best practice for AIM companies, comprising principles intended as a minimum
standard, and recommendations for reporting corporate governance matters.
Set out below is a description of the Company’s corporate governance practices.
The Board
The Board meets regularly and is responsible for strategy, performance, approval of any major capital expenditure and the
framework of internal controls.
The Board is responsible for establishing and maintaining the Group’s system of internal financial controls and importance is
placed on maintaining a robust control environment. The Board has established key procedures to provide effective internal
financial control including the following:
• quarterly management reporting to enable the Board to monitor the performance of the Group;
•
•
the adoption and review of a comprehensive annual budget for the Group; and
the Board is responsible for identifying major business risks faced by the Group and for determining the appropriate courses
of action to manage those risks;
The Board includes three non-executive directors. If necessary, the non-executive directors may take independent advice. The
Board has delegated specific responsibilities to the committees referred to below. Martin Ruscoe is the Board appointed
representative from London Oi & Gas Ltd.
Audit Committee
The Audit Committee comprises, Paul Murray (Chairman), Mike Jordan and Martin Ruscoe. The Audit Committee has primary
responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Group is properly
measured and reported on. In addition, it receives and reviews reports from the Company’s management and auditors. The Audit
Committee meets at least twice a year and has unrestricted access to the Company’s auditors.
Remuneration Committee
The Remuneration Committee comprises Mike Jordan (Chairman), Paul Murray and Martin Ruscoe. The Remuneration
Committee determines the remuneration of the executive directors and grants share options and any other equity incentives
pursuant to any share option scheme or LTIP in operation from time to time. The Remuneration Committee meets at least twice
a year.
Nomination Committee
There is no nomination committee. This will be reviewed as the business progresses.
Bribery Act Policy
IOG’s policy is to conduct all of its business in an honest and ethical manner. IOG applies a zero-tolerance approach to bribery
and corruption and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships
wherever it operates by implementing and enforcing effective systems to counter bribery.
On behalf of the Board
Mark Routh
Director
26 May 2016
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Independent Oil & Gas plc
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Annual Report 2015
Glossary of Key Technical Terms
“1C”
“2C”
“3C”
‘‘3D seismic’’
“1P”
“2P”
“3P”
‘‘API’’
‘‘appraisal well’’
‘‘barrels’’ or ‘‘bbls’’ or “Bbls”
‘‘bcf’’ or “Bcf” or “Bscf”
‘‘Best Estimate’’
‘‘block’’
‘‘Boe’’ or “BOE”
‘‘Brent Crude’’
“Carboniferous”
‘‘Contingent Resources’’
‘‘Cretaceous’’
‘‘discovery’’
‘‘farm-in’’
‘‘farm-out’’
‘‘FDP’’
‘‘field’’
‘‘formation’’
‘‘ft’’
“G&A”
“GIIP”
‘‘gross resources’’
‘‘hydrocarbon’’
‘‘km’’
‘‘km2’’ or “sq, km”
‘‘licence’’
‘‘Mcf’’ or “mcf”
“Mcfd” or “mcfd”
“MMBbl”
“MMBO”
“MMBOE” or “MMBoe”
“MMcf”
the minimum estimate of Contingent Resources;
the Best Estimate of Contingent Resources;
the maximum estimate of Contingent Resources;
geophysical data that depicts the subsurface strata in three dimensions. 3D seismic
typically provides a more detailed and accurate interpretation of the subsurface strata
than 2D seismic;
the Proved Reserves;
the sum of Proved Reserves plus Probable Reserves;
the sum of Proved Reserves plus Probable plus Possible Reserves;
a standard measure of oil density, as defined by the American Petroleum Institute;
a well drilled as part of an appraisal drilling programme which is carried out to determine
the physical extent, reserves and likely production rate of a field;
a unit of volume measurement used for petroleum and its products (for a typical crude oil
7.3 barrels ≈ 1 tonne: 6.29 barrels ≈ 1 cubic metre);
billion (109) standard cubic feet; 1 bcf is approximately equal to 172,414 Boe or 23,618
tonnes of oil equivalent, using a factor of 5.8 Bcf per MMBbls;
the middle value in a range of estimates considered to be the most likely. If based on a
statistical distribution, can be the mean, median or mode depending on usage;
an areal subdivision of the UKCS of 10 minutes of latitude by 12 minutes of longitude
measuring approximately 10 by 20 kilometres, forming part of a quadrant. Each quadrant
is divided into a grid five blocks wide and six deep, and numbered 1 to 30 from NW to SE
e.g. Block 14/13 is the 13th block in Quadrant 14;
barrels of oil equivalent. One barrel of oil is approximately the energy equivalent of 5,800
cubic feet of natural gas;
an international benchmark comprising a mix of crude oil from 15 different oil fields in the
North Sea;
a geological period and system that extends from the end of the Devonian Period, about
359 million years ago, to the beginning of the Permian Period, about 299 million years
ago;
those quantities of petroleum estimated, as of a given date, to be potentially recoverable
from known accumulations by application of development projects, but which are not
currently considered to be commercially recoverable due to one or more contingencies;
geological strata formed during the period 140 million to 65 million years before the
present;
an exploration well which has encountered hydrocarbons for the first time in a structure;
when a company acquires an interest in a block by taking over all or part of the financial
commitment for drilling an exploration well;
to assign an interest in a licence to another party;
field development plan;
an area consisting of either a single reservoir or multiple reservoirs, all grouped on or
related to the same individual geological structural feature and/or stratigraphic condition;
a layer or unit of rock. A productive formation in the context of reservoir rock;
foot/feet;
general and administrative;
gas initially in place;
the total estimated petroleum that is potentially recoverable from a field or prospect;
a compound containing only the elements hydrogen and carbon. May exist as a solid, a
liquid or a gas. The term is mainly used in a catch-all sense for oil, gas and condensate;
kilometre;
square kilometres;
an exclusive right to search for or to develop and produce hydrocarbons within a specific
area. Usually granted by the State authorities and may be time limited;
thousand standard cubic feet;
thousand cubic feet per day;
millions (106) of barrels of oil;
million (106) barrels of oil;
million (106) barrels of oil equivalent;
million (106) cubic feet;
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Independent Oil & Gas plc
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Annual Report 2015
“MMcfd”
“MMscf”
“MMscfd”
‘‘oil’’
‘‘oil equivalent’’
‘‘operator’’
“P90”
“P50”
“P10”
‘‘petroleum’’
‘‘probable reserves’’
‘‘Promote Licence’’
‘‘prospect’’
‘‘prospective resources’’
‘‘proven reserves’’
‘‘quadrant’’
‘‘recovery factor’’
‘‘reserves’’
‘‘reservoir’’
‘‘resources’’
“Rotliegendes” or “Rotliegend”
“STOOIP” or “STOIIP”
‘‘scf’’
‘‘seismic survey’’
“UKCS”
million (106) cubic feet per day;
million (106) standard cubic feet;
million (106) standard cubic feet per day;
mixture of liquid hydrocarbons of different molecular weights;
international standard for comparing the thermal energy of different fuels;
the company that has legal authority to drill wells and undertake production of
hydrocarbons found. The operator is often part of a consortium and acts on behalf of
such consortium;
in the probabilistic estimation of hydrocarbon reserves, a term referring to the quantity of
recoverable hydrocarbons from a reservoir having a 90 per cent. probability of being
produced. Often also referred to as Proved or 1P;
in the probabilistic estimation of hydrocarbon reserves, a term referring to the quantity of
recoverable hydrocarbons from a reservoir having a 50 per cent. probability of being
produced. Often also referred to as “Proved plus Probable” or 2P;
in the probabilistic estimation of hydrocarbon reserves, a term referring to the quantity of
recoverable hydrocarbons from a reservoir having a 10 per cent. probability of being
produced. Often also referred to as “Proved plus Probable plus Possible” or 3P;
a generic name for hydrocarbons, including crude oil, natural gas liquids, natural gas and
their products;
those unproved reserves which analysis of geological and engineering data suggests are
more likely than not to be recoverable. In this context, when probabilistic methods are
used, there should be at least a 50% probability that the quantities actually recovered will
equal or exceed the sum of estimated Proved plus Probable reserves;
a specific type of licence awarded by DECC whereby licence holders are given two years
after an award, with low rental payments and obligations, in order to attract the technical,
environmental and financial capacity to complete an agreed work programme. The
licence will expire after two years if the licensee has not made a firm commitment to
DECC to complete the work programme;
a project associated with a potential accumulation of oil or natural gas that is sufficiently
well defined to represent a viable drilling target;
those quantities of petroleum estimated, as of a given date, to be potentially recoverable
from undiscovered accumulations by application of future development projects;
those quantities of petroleum which, by analysis of geological and engineering data, can
be estimated with reasonable certainty to be commercially recoverable, from a given date
forward, from known reservoirs and under current economic conditions, operating
methods and government regulations. Proved reserves can be categorised as developed
or undeveloped. If deterministic methods are used, the term reasonable certainty is
intended to express a high degree of confidence that the quantities will be recovered. If
probabilistic methods are used, there should be at least a 90% probability that the
quantities actually recovered will equal or exceed the estimate;
an areal subdivision of the UKCS of 1 degree of longitude by 1 degree of latitude - typically
around 6,600km2. On the UKCS each quadrant is further subdivided into 30 blocks;
the percentage of the hydrocarbon in place that can be produced;
those quantities of petroleum anticipated to be commercially recoverable by application
of development projects to known accumulations from a given date forward under defined
conditions. Reserves must further satisfy four criteria: they must be discovered,
recoverable, commercial and remaining (as of the evaluation date) based on the
development project(s) being applied;
a subsurface body of rock having sufficient porosity and permeability to store and transmit
fluids. A reservoir is a critical component of a complete petroleum system;
deposits of naturally occurring hydrocarbons which, if recoverable, include those volumes
of hydrocarbons either yet to be found (prospective) or if found the development of which
depends upon a number of factors (technical, legal and/or commercial) being resolved
(contingent);
a lithostratigraphic geological unit of early Permian age (beneath the Zechstein and above
the Carboniferous) that is found in the subsurface of large areas in western and central
Europe;
stock tank oil originally in place or stock tank oil initially in place;
standard cubic feet;
a method by which an image of the earth’s subsurface is created through the generation
of shockwaves and analysis of their reflection from rock strata. Such surveys can be
done in two or three dimensional form;
United Kingdom Continental Shelf;
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Annual Report 2015
REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2015
Report of The Directors
The directors present their report and audited financial statements of Independent Oil and Gas plc (“the Company”) and its
subsidiaries ("the Group") for the year ended 31 December 2015. All amounts are shown in Pounds Sterling, unless otherwise
stated.
The Company has its headquarters in London and its oil and gas interests are located in the UK sector of the North Sea.
Information about the principal activities of the business, statement of reserves and resources, operational and financial updates,
the principal risks and uncertainties faced by the business, the Group’s KPIs and the Directors’ going concern assessment has
been provided as part of the Strategic Report included on page 3.
Dividend
The Directors do not recommend the payment of a dividend (2014: £nil).
Future Developments
Following the arrangement of debt funding in late 2015 and early 2016, the Group plans to appraise and develop its existing
discoveries in conjunction with its partners, explore its new licence interests and seek new investment opportunities. Full details
are included in the Strategic Report on page 3.
Directors and their Interests
The directors who held office during the year, and to the date of this report, were:
Mark Routh
Peter Young
Marie-Louise Clayton (resigned 9 February 2016)
Michael Jordan
Paul Murray
Martin Ruscoe (appointed 9 February 2016)
Directors’ biographies and committee memberships are set out on page 12.
The Group has provided the directors with third party indemnity insurance of £11,000 (2014 - £13,000).
Directors who held office at the end of the financial year had the following interests in shares of the Company:
Ordinary shares of 1p each
Mark Routh
Peter Young
Marie-Louise Clayton
Michael Jordan
Paul Murray
At 31 December 2015
4,303,010
13,831,725
2,732,591
6,957,560
951,420
At 31 December 2014
4,303,010
13,726,638
2,732,591
6,957,560
951,420
The total holding of Marie-Louise Clayton includes 313,073 shares held through Clayton Consulting Partners of which she is a
majority shareholder and director. The total holding of Michael Jordan is held through Acura Oil & Gas Limited of which he is a
majority shareholder and director.
Details of directors’ emoluments and share options are set out in note 4 to the financial statements.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 16 of 50
Annual Report 2015
REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
Risk Management
Information on the financial and operational risks faced by the Group and the risk management objectives and policies is
included in the Strategic Report on page 3.
Financial Instruments
Information on financial instruments can be found in note 17 to the financial statements.
Related Parties
Information on related party transactions can be found in note 19 to the financial statements.
Subsequent Events
Information on subsequent events can be found in note 20 to the financial statements.
Shareholder Communications
The Company has a website, www.independentoilandgas.com, to provide information to shareholders.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 17 of 50
Annual Report 2015
REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
Statement of Directors' Responsibilities
The directors are responsible for preparing the Strategic Report and the Report of the Directors and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that legislation the directors
have elected to prepare the Group and 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 Company and of
the profit or loss of the Group for that period. The directors are also required to prepare financial statements in accordance with
the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market (“AIM”).
In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also
responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring the annual report and the financial statements are made available on a website.
Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing
the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company's website is the responsibility of the directors. The directors' responsibility also
extends to the ongoing integrity of the financial statements contained therein.
Directors' confirmation
Each person who is director at the time when this report is approved has confirmed that:
a. So far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
b. Each director has taken all the steps that ought to have been taken as a director, including making appropriate enquiries of
fellow directors and the Company's auditor for that purpose, in order to be aware of any information needed by the
Company's auditor in connection with preparing their report and to establish that the Company's auditor is aware of that
information.
Auditor
BDO LLP have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the
annual general meeting.
On behalf of the Board
Peter Young
Director
26 May 2016
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 18 of 50
Annual Report 2015
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INDEPENDENT OIL AND GAS PLC
Independent Auditor’s Report
TO THE MEMBERS OF INDEPENDENT OIL AND GAS PLC
We have audited the financial statements of Independent Oil and Gas plc for the year ended 31 December 2015
which comprise the Consolidated Statement of Comprehensive Income, Consolidated and Company Statements
of Changes in Equity, Consolidated and Company Statements of Financial Position, Consolidated and Company
Statements of Cash Flows and the related notes. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of
the Companies Act 2006.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's
members as a body for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting
Council’s (FRC’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the FRC’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of the Group's and the Parent Company's affairs
as at 31 December 2015 and of the Group's profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 19 of 50
Annual Report 2015
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF INDEPENDENT OIL AND GAS PLC CONTINUED
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the strategic report and the directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in
our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Scott Knight (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
26 May 2016
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 20 of 50
Annual Report 2015
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER
Consolidated Statement of Comprehensive Income
Other administrative expense
Impairment reversal/(impairment) of oil and gas properties
Exploration costs written off
Share-based payments
Foreign exchange loss
Total administrative and other gains/(expenses)
Operating profit/(loss)
Finance gain/(expense)
Profit/(loss) for the year before taxation
Taxation
Total comprehensive profit/(loss) for the year attributable to
equity holders of the parent
Profit/(loss) for the year per ordinary share – basic
Profit/(loss) for the year per ordinary share – diluted
Note
2015
£000
2014
£000
3
8
3
14
3
(512)
6,169
(10)
(321)
(65)
_________
(693)
(8,254)
(641)
(1,343)
(77)
_________
5,261
_________
(11,008)
_________
5,261
(11,008)
61
_________
(1,137)
_________
5,322
(12,145)
-
_________
-
_________
5,322
(12,145)
_________
_________
7.4p
6.5p
(19.2)p
(19.2)p
3
5
6
7
7
7
The profit for the year (2014: loss for the year) arose from continuing operations.
The notes on pages 27 to 49 form part of these financial statements.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 21 of 50
Annual Report 2015
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER
Group
At 1 January 2014
Share capital issued
Share issue costs
Issue of warrants
Issue of share options
Loss for the year
At 31 December 2014
Share capital issued
Issue costs
Settlement of loan via issue of shares
Issue of warrants
Issue of share options
Profit for the year
Share
capital
£000
595
97
-
-
-
-
_____
692
30
65
-
-
-
_____
premium
Share Share-based Retained
deficit
payment
reserve
£000
401
-
-
10
1,343
-
________
1,754
£000
15,425
1,759
(11)
(10)
-
-
________
17,163
£000
(1,484)
-
-
-
-
(12,145)
________
(13,629)
315
(10)
181
-
-
-
________
-
-
-
1,272
321
-
_______
-
-
-
-
-
5,322
________
Total
equity
£000
14,937
1,856
(11)
-
1,343
(12,145)
_________
5,980
345
(10)
246
1,272
321
5,322
_________
At 31 December 2015
Company
At 1 January 2014
Share capital issued
Share issue costs
Issue of warrants
Issue of share options
Loss for the year
At 31 December 2014
Share capital issued
Issue costs
Settlement of loan via issue of shares
Issue of warrants
Issue of share options
Profit for the year
787
_____
17,649
________
3,347
_______
(8,307)
________
13,476
_________
595
97
-
-
-
-
_____
692
30
-
65
-
-
-
_____
15,425
1,759
(11)
(10)
-
-
________
17,163
315
(10)
181
-
-
-
________
401
-
-
10
1,343
-
________
1,754
-
-
-
1,272
321
-
_______
(559)
-
-
-
(13,070)
________
(13,629)
-
-
-
-
-
5,667
_______
15,862
1,856
(11)
-
1,343
(13,070)
_________
5,980
345
(10)
246
1,272
321
5,667
_________
At 31 December 2015
787
17,649
_____
________
3,347
________
(7,962)
_______
13,821
_________
Share capital - Amounts subscribed for share capital at nominal value.
Share premium - Amounts received on the issue of shares in excess of the nominal value of the shares.
Share-based payment reserve - Amounts reflecting fair value of options and warrants issued.
Retained deficit - Cumulative net losses recognised in the Statement of Comprehensive Income net of amounts
recognised directly in equity.
The notes on pages 27 to 49 form part of these financial statements.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 22 of 50
Annual Report 2015
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
Consolidated Statement of Financial Position
Company Number: 07434350
Non-current assets
Exploration and evaluation assets
Current assets
Other receivables and prepayments
Derivative financial asset
Cash and cash equivalents
Note
2015
£000
2014
£000
8
14,818
7,513
11
11
15
1,493
-
23
_________
3
307
398
_________
1,516
_________
708
_________
Total assets
16,334
8,221
Current liabilities
Loans
Trade and other payables
Non-current liabilities
Trade and other payables
Total liabilities
NET ASSETS
Capital and reserves
Called-up equity share capital
Share premium account
Share-based payment reserve
Retained deficit
12
12
-
(2,565)
(461)
(194)
_________
_________
(2,565)
(655)
13
(293)
(1,586)
_________
_________
(2,858)
(2,241)
_________
_________
13,476
_________
5,980
_________
14
14
14
787
17,649
3,347
(8,307)
692
17,163
1,754
(13,629)
_________
_________
13,476
_________
5,980
_________
The financial statements were approved and authorised for issue by the Board of Directors on 26 May 2016 and
were signed on its behalf by:
Peter Young
Director
The notes on pages 27 to 49 form part of these financial statements.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 23 of 50
Annual Report 2015
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
Company Statement of Financial Position
Company Number: 07434350
Non-current assets
Investments
Amounts due from subsidiaries
Current assets
Other receivables and prepayments
Derivative financial asset
Cash and cash equivalents
Total assets
Current liabilities
Loans
Trade and other payables
Non-current liabilities
Trade and other payables
Total liabilities
NET ASSETS
Capital and reserves
Called-up equity share capital
Share premium account
Share-based payment reserve
Retained deficit
Note
2015
£000
2014
£000
9
9
11
11
15
12
12
13
14
14
14
10,507
2,908
_________
13,415
1,493
-
23
_________
4,338
1,597
_________
5,935
3
307
398
_________
1,516
_________
708
_________
14,931
6,643
-
(1,086)
(461)
(178)
_________
_________
(1,086)
(639)
(24)
_________
(24)
_________
(1,110)
_________
(663)
_________
13,821
_________
5,980
_________
787
17,649
3,347
(7,962)
_________
692
17,163
1,754
(13,629)
_________
13,821
_________
5,980
_________
The financial statements were approved and authorised for issue by the Board of Directors on 26 May 2016 and
were signed on its behalf by:
Peter Young
Director
The notes on pages 27 to 49 form part of these financial statements.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 24 of 50
Annual Report 2015
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER
Consolidated Cash Flow Statement
Profit/(loss) for the year
5,322
(12,145)
Note
2015
£000
2014
£000
Adjustments for:
(Impairment reversal)/impairment of oil and gas properties
Finance cost of derivative asset
Interest on loans
Share-based payments
Foreign exchange loss
(Gain on)/impairment of derivative financial assets
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
(6,169)
-
123
321
65
(204)
(136)
187
_________
8,254
61
100
1,343
77
831
114
118
_________
Net cash used in operating activities
(491)
(1,247)
Cash flows from investing activities
Purchase of intangible non-current assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Costs of share issue
Loans (repaid)/received
Amounts received for derivative financial instruments
Net cash generated from financing activities
Decrease in cash and cash equivalents in the year
Cash and cash equivalents at start of year
(494)
_________
(520)
_________
(494)
(520)
345
(10)
(237)
512
_________
450
-
517
78
_________
610
(375)
1,045
(722)
398
_________
1,120
_________
Cash and cash equivalents at end of year
15
23
_________
398
_________
The notes on pages 27 to 49 form part of these financial statements.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 25 of 50
Annual Report 2015
COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015
Company Cash Flow Statement
Profit/(loss) for the year
5,667
(13,070)
Note
2015
£000
2014
£000
Adjustments for:
(Impairment reversal)/impairment of investments in and amounts due
from subsidiaries
Recharges to subsidiary for management and technical services
Finance cost of derivative asset
Interest on loans
Share-based payments
(Gain on)/impairment of derivative financial instruments
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
(6,169)
(200)
-
22
321
(204)
(136)
184
_________
10,124
(296)
61
62
1,343
831
114
110
_________
Net cash used in operating activities
(515)
(721)
Cash flows from investing activities
Amounts invested in subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Costs of share issue
Loans (repaid)/received
Amounts received for derivative financial instruments
Net cash generated from financing activities
Decrease in cash and cash equivalents in the year
Cash and cash equivalents at start of year
(470)
_________
(1,046)
_________
(470)
(1,046)
345
(10)
(237)
512
_________
450
-
517
78
_________
610
(375)
1,045
(722)
398
_________
1,120
_________
Cash and cash equivalents at end of year
15
23
_________
398
_________
The notes on pages 27 to 49 form part of these financial statements.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 26 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
Notes Forming Part of the Financial Statements
1
Accounting policies
Basis of preparation
Independent Oil and Gas plc is a public limited company incorporated and domiciled in England and Wales. The
Group’s and Company’s financial statements for the year ended 31 December 2015 were authorised for issue by
the Board of Directors on 26 May 2016 and the balance sheets were signed on the Board’s behalf by the CFO
Peter Young.
The principal accounting policies adopted in the preparation of the financial statements are set out below. The
policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated
financial statements are presented in Pounds Sterling, which is also the Group’s functional currency. Amounts are
rounded to the nearest thousand, unless otherwise stated.
These financial statements have been prepared in accordance with International Financial Reporting Standards
adopted by the European Union, International Accounting Standards and Interpretations (collectively “IFRSs”) and
with those parts of Companies Act 2006 applicable to companies preparing their accounts under IFRS.
The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical
accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting
policies. The areas where significant judgments and estimates have been made in preparing the financial
statements and their effect are disclosed in note 1 on page 33.
The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial
instruments at fair value as disclosed in note 1 on page 33.
Financial resources and liquidity
As at 24 May 2016 the Group had cash resources of £65,000. In addition, the Company has arranged loan finance
totalling £15.55 million which is available to fund the planned Skipper appraisal well, acquisitions including that of
the remaining 50% of Blythe and general corporate and administrative expenditures. This funding is also expected
to be sufficient to take the Company’s Blythe gas field through to submission of a field development plan, at which
point the Company intends to arrange finance for the full development project.
Since the start of 2016, the Company has demonstrated a capability to reach effective arrangements with
contractors though an agreement with GE Oil and Gas Limited to defer payment of £0.61 million of Skipper
appraisal expenditures until end 2016 and through the satisfaction of £0.64 million due to AGR Well Management
Limited through the issue of shares in the Company. Management will continue to seek mutually beneficial
arrangements of this type so as to manage its cash resources efficiently.
On this basis, management considers that the Company has sufficient financial resources to meet its obligations
and contractual commitments over at least the next twelve months.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 27 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
1
Accounting policies continued
New Accounting Standards
(i) New and amended standards adopted by the Group:
The accounting policies adopted are consistent with those of the previous financial year. There are no new or
amended financial standards or interpretations adopted during the year that have a significant impact upon the
financial statements.
(ii) The following standards, amendments and interpretations, which are effective for reporting periods beginning
after the date of these financial statements, have not been adopted early:
Standard
Description
IAS 9
IFRS 15
IFRS 16
Amendments to IAS 16
and 38
Amendments to IFRS
11
Financial Instruments
Revenues from Contract with Customers
Leases
Clarification of Accountable Methods of Depreciation
and Amortisation
Accounting for Acquisition of Interests in Joint
Operations
Effective date
1 January 2018
1 January 2018
1 January 2019
1 January 2016
1 January 2016
The application of the above standards in future financial statements is not expected to have a material impact on
the financial statements.
Basis of consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an
investee if all three of the following elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect those variable returns. Control is
reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of
control. De-facto control exists in situations where the Company has the practical ability to direct the relevant
activities of the investee without holding the majority of the voting rights. In determining whether de-facto control
exists the Company considers all relevant facts and circumstances, including:
- The size of the Company’s voting rights relative to both the size and dispersion of other parties who hold voting
rights
- Substantive potential voting rights held by the Company and by other parties
- Other contractual arrangements
- Historic patterns in voting attendance.
The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a
single entity. Inter-company transactions and balances between Group companies are therefore eliminated in full.
The financial statements of subsidiaries are included in the Group's financial statements from the date that control
commences until the date that control ceases.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 28 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
1
Accounting policies continued
Joint arrangements
Joint arrangements are arrangements in which the Group shares joint control with one or more parties. Joint control
is the contractually agreed sharing of control of an arrangement, and exists only when decisions about the activities
that significantly affect the arrangement’s returns require the unanimous consent of the parties sharing control.
Joint arrangements are classified as either joint operations or joint ventures based on the rights and obligations of
the parties to the arrangement. In joint operations, the parties have rights to the assets and obligations for the
liabilities relating to the arrangement, whereas in joint ventures, the parties have rights to the net assets of the
arrangement.
Joint arrangements that are not structured through a separate vehicle are always joint operations. Joint
arrangements that are structured through a separate vehicle may be either joint operations or joint ventures
depending on the substance of the arrangement. In these cases, consideration is given to the legal form of the
separate vehicle, the terms of the contractual arrangement and, when relevant, other facts and circumstances.
When the activities of an arrangement are primarily designed for the provision of output to the parties, and the
parties are substantially the only source of cash flows contributing to the continuity of the operations of the
arrangement, this indicates the parties to the arrangements have rights to the assets and obligations for the
liabilities.
The Group accounts for all its joint arrangements as joint operations by recognising the assets, liabilities, and
expenses for which it has rights or obligations, including its share of such items held or incurred jointly.
Oil and gas exploration, development and producing assets
The Group adopts the following accounting policies for oil and gas asset expenditure, based on the stage of
development of the assets:
1) Pre-licensing
Expenditure incurred prior to the acquisition of a licence interest is expensed to the statement of comprehensive
income as exploration costs written off.
2) Exploration and evaluation (“E&E”)
The Group applies the full cost method of accounting for E&E costs, having regard to the requirements of IFRS 6
‘Exploration for and Evaluation of Mineral Resources’. Under the full cost method of accounting, costs of exploring
and evaluating oil and gas properties are accumulated and capitalised by reference to appropriate cash generating
units (“CGUs”). Such CGU’s are based on geographic areas such as a licence area or a basin and are not larger
than an operating segment - as defined by IFRS 8 ‘Operating segments’. The Group has one identified CGU, being
the North Sea.
E&E costs may include costs of licence acquisition, technical services and studies, geological and geophysical
data acquisition, exploration drilling and testing. These costs are initially capitalised within ‘Intangible assets’.
Intangible E&E assets are not depreciated and are carried forward until the existence (or otherwise) of commercial
reserves has been determined. The Group’s definition of commercial reserves for such purpose is proven and
probable reserves on an entitlement basis.
If commercial reserves are discovered, the related E&E assets are assessed for impairment, and any impairment
loss is recognised in the statement of comprehensive income. The carrying value, after any impairment loss, of
the relevant E&E assets is then reclassified to development and production assets within property, plant and
equipment and is amortised on a unit of production basis over the life of the commercial reserves of the CGU to
which they relate.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 29 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
1
Accounting policies continued
Oil and gas exploration, development and producing assets continued
Intangible E&E assets that relate to E&E activities that are not yet determined to have resulted in the discovery of
commercial reserves remain capitalised as intangible E&E assets at cost, subject to impairment assessments as
set out below.
E&E assets are assessed for impairment when facts and circumstances suggest that the carrying value of the E&E
CGU to which they relate may exceed its future recoverable amount. Where the E&E assets concerned fall within
the scope of an established CGU, the E&E assets are tested for impairment together with all development and
production assets associated with that CGU, as a single cash generating unit. The aggregate carrying value is
compared against the expected recoverable amount of the CGU. The recoverable amount is the higher of value
in use and the fair value less costs to sell. Where the E&E assets to be tested fall outside the scope of any
established CGU, there will generally be no commercial reserves and the E&E assets concerned will generally be
written off in full. Any impairment loss is recognised in the statement of comprehensive income.
3) Development
All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons have been
demonstrated are capitalised as oil and gas development costs on a field-by-field basis. Subsequent expenditure
is capitalised only where it either enhances the economic benefits of the development/producing asset or replaces
part of the existing development/producing asset. Such costs are charged to the statement of comprehensive
income on a unit of production basis.
4) Production
All costs of producing, transporting and processing oil and gas reserves are expensed in the statement of
comprehensive income in the period in which the oil and gas is sold.
Disposals
Net proceeds from any disposal of an oil or gas asset are initially credited against the previously capitalised costs
of that asset and any surplus proceeds are credited to the statement of comprehensive income. Net proceeds from
any disposal of development/producing assets are credited against the previously capitalised cost of that asset and
any surplus proceeds are credited to the statement of comprehensive income.
Investments and loans
Shares in subsidiary undertakings are shown at cost. Loans to subsidiary undertakings are stated at amortised
cost. Provisions are made for any impairment in value.
Financial instruments
(i) Financial assets
Cash and cash equivalents
Cash includes cash on hand and demand deposits with any bank or other financial institution. Cash equivalents
are short-term, highly liquid investments that are readily convertible to known amounts of cash which are subject
to an insignificant risk of changes in value.
Derivative financial instruments
Derivative financial instruments are held at fair value with any changes in fair value arising charged to profit or loss.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 30 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
1 Accounting policies continued
Financial instruments continued
(ii) Financial liabilities
Trade payables
Trade payables and other short-term monetary liabilities are held at amortised cost which, in view of their short
term nature, is not materially different from their undiscounted cost.
Loans and borrowings
Loans and borrowings are initially recognised at fair value; less any issue costs. They are subsequently held at
amortised cost using the effective interest method.
Convertible loan notes
Upon issue of a convertible loan note, the proceeds are split between the liability component and the equity
component at the date of issue. The fair value of the equity component is included in equity and it not re-measured
whilst the liability component is included in liabilities, which is increased by the effective rate of interest charged in
each period. Upon conversion the face value of the loan notes is transferred to the share capital and share premium
accounts.
Equity
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs,
allocated between share capital and share premium.
Share issue expenses and Share premium account
The costs of issuing new share capital are written off against the share premium account arising out of the proceeds
of the new issue.
Share-based payments
Share options are offered to personnel to incentivise and reward successful corporate performance. The fair value
of share options issued to Company personnel is charged to the statement of comprehensive income, together
with an increase in equity reserves, over the relevant vesting period. Fair values are calculated using the Black
Scholes model and adjusted to reflect expected levels of vesting and performance conditions. No expense is
recognised for options that do not ultimately vest except where vesting is only conditional upon a market condition.
Where share options are used to settle deferred salary amounts, the liability is extinguished by the share options
and the difference between the fair value of the options issued and the liability is debited or credited to the statement
of comprehensive income.
The fair value of warrants issued to third parties is calculated by reference to the service provided or if this not
considered possible, calculated in the same way as for share options as detailed above. Typically, these amounts
have related to equity issues where the amount deducted from share premium or other finance facilities where the
charge treated as an arrangement fee and included in the effective interest rate calculation of borrowings.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 31 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
1
Accounting policies continued
Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the profit or loss
except to the extent that it relates to items recognised in other comprehensive income, in which case it is recognised
in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement
of financial position differs to its tax base, except for differences arising on the initial recognition of an asset or
liability in a transaction which is not a business combination and at the time of the transaction affects neither
accounting or taxable profit; and investments in subsidiaries and jointly controlled entities where the Group is able
to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the
foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted
by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax
assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on
either:
the same taxable Group entity; or
-
- different Group entities which intend either to settle current tax assets and liabilities on a net basis, or
-
to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts
of deferred tax assets or liabilities are expected to be settled or recovered.
Earnings/loss per share
Earnings/loss per share is calculated as profit/loss attributable to shareholders divided by the weighted average
number of ordinary shares in issue for the relevant period. Diluted earnings per share is calculated using the
weighted average number of ordinary shares in issue plus the weighted average number of ordinary shares that
would be in issue on the conversion of all relevant potentially dilutive shares to ordinary shares adjusted for any
proceeds obtained on the exercise of any options and warrants. Where the impact of converted shares would be
anti-dilutive they are excluded from the calculation.
Foreign currencies
The functional and presentation currency of the Group and the Company is Pounds Sterling.
The Group translates foreign currency transactions into the functional currency at the rate of exchange prevailing
at the transaction date. Monetary assets and liabilities denominated in foreign currency are translated into the
functional currency at the rate of exchange prevailing at the reporting date. Exchange differences arising are taken
to the consolidated statement of comprehensive income except for those incurred on borrowings specifically
allocable to development projects, which are capitalised as part of the cost of the asset.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 32 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
1.
Accounting policies continued
Critical Accounting Estimates, Uncertainties and Judgements
The preparation of financial statements in conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on historical experience and factors
that are believed to be reasonable under the circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
Key areas for the application of management judgement currently include:
Recoverability of capitalised oil and gas assets
Management is required to assess oil and gas assets for indicators of impairment and have considered the
economic value of these assets. Management has estimated the future recoverable amounts of these assets
based upon the fair values attached to the significant exploration assets and have also considered the present
value calculation of future cash flows expected to be derived from the production of commercial reserves.
Judgment has been used in estimating the fair values and also within the present value calculations including the
geological and commercial change of success, production volumes, commodity prices, foreign exchange rates,
operating costs, capital expenditure and discount rates.
Specifically, discount rates reflect the current market assessment of the risks specific to the oil and gas sector and
are based on the weighted average cost of capital for the Group. Where appropriate, the rates are adjusted to
reflect the market assessment of any specific risks. The Group has applied a discount rate of 10% for the current
year.
Fair value of share options and warrants
The fair value of options and warrants is calculated using appropriate estimates of expected volatility, risk free rates
of return, expected life of the options/warrants, the dividend growth rate, the number of options expected to vest
and the impact of any attached conditions of exercise. See note 14 for further details of these assumptions.
Valuation of derivatives associated with the Darwin Facility
As the ultimate value of these notes was dependent upon the value of the Company’s ordinary shares, during 2014
management determined the fair value of derivatives (at inception and at 31 December 2014) based on the market
share price of the Company of 25p and 6.75p respectively.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision only affects that period or in the period
of revision and future periods if the revision affects both current and future periods.
2 Segmental information
The Group complies with IFRS 8, Operating Segments, which requires operating segments to be identified on the
basis of internal reports about components of the Group that are regularly reviewed by the directors to allocate
resources to the segments and to assess their performance. In the opinion of the directors, the operations of the
Group comprise one class of business, being the exploration and development of oil and gas opportunities in the
UK North Sea.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 33 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
3 Operating profit/(loss)
The Group operating profit/(loss) is stated after charging/(crediting) the following:
-
Fees payable to the Company's auditor:
for the audit of the Company's and Group's financial statements
Exploration costs written off
(Impairment reversal)/impairment of oil and gas properties
Staff costs – fees and salaries
Staff costs - share-based incentives
Foreign exchange loss
4 Staff costs and directors' remuneration
During the year, the average number of personnel was:
Management/operational
Directors
Personnel costs
Wages, salaries and fees
Social security costs
Share-based incentives
2015
£000
2014
£000
28
10
(6,169)
247
321
65
_________
22
641
8,254
275
1,343
77
_________
2015
Number
2014
Number
_______10
______11
_______5
______6
£000
£000
301
21
321
________
643
________
306
23
1,343
________
1,672
________
An amount of £54,000 (2014: £54,000) was capitalised into exploration and evaluation assets.
No pension plans are provided for directors or staff. Key management personnel are deemed to be directors.
Directors’ remuneration
Mark Routh
Peter Young
Mehdi Varzi1
Marie-Louise Clayton
Michael Jordan
Paul Murray
Salary
£000
106
124
-
9
20
10
_______
269
_______
Share-based
incentives
£000
156
63
-
19
10
17
________
265
________
2015
Total
£000
262
187
-
28
30
27
________
534
________
2014
Total
£000
667
443
21
108
68
-
________
1,307
________
1 Mehdi Varzi resigned on 5 November 2014.
The share-based incentive amounts represent the fair value of options issued in lieu of cash salary.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 34 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
4 Staff costs and directors' remuneration continued
Social security costs for the year for key management personnel were £21,000 (2014 - £23,000).
The service agreements for Mark Routh, Peter Young, Marie-Louise Clayton, Michael Jordan and Paul Murray
provide that only a proportion of the full contractual amount will be paid until the sooner of either the date on which
the Company receives not less than gross funds of £10 million pursuant to a fundraising, or 31 December 2016
with the balance to be settled in share options granted.
The proportions paid in 2015 were 30% for Mark Routh, 75% for Peter Young, 50% for Michael Jordan and 0% for
each of Marie-Louise Clayton and Paul Murray. For each six-month interval, ending on 28 February and 28 August
respectively, the Company settles the difference between the reduced rate and the full rate through the granting of
options over ordinary shares of the Company at the volume-weighted average share price over the period to which
they relate. Amounts of salary outstanding at the 31 December 2015 to which these terms relate totalled £83,000
(31 December 2014 – £93,000) for directors and £81,000 (2014 - nil) for other personnel and were subsequently
settled in share options on 1 March 2016.
Directors’ interests in options on 1p ordinary shares of the Company at 31 December 2015 were as follows:
Granted
Mark Routh
Peter Young
23 Sept 2013
23 Sept 2013
23 Sept 2013
19 Nov 2014
19 Nov 2014
1 Mar 2015
31 Aug 2015
23 Sept 2013
23 Sept 2013
23 Sept 2013
19 Nov 2014
19 Nov 2014
1 Mar 2015
31 Aug 2015
23 Sept 2013
19 Nov 2014
19 Nov 2014
1 Mar 2015
31 Aug 2015
Michael Jordan2 23 Sept 2013
19 Nov 2014
19 Nov 2014
1 Mar 2015
31 Aug 2015
19 Nov 2014
1 Mar 2015
31 Aug 2015
Marie-Louise
Clayton1
Paul Murray
Total
31 Dec 2014
2,933,946
1,500,000
1,500,000
162,114
218,672
-
-
1,700,000
750,000
750,000
122,814
71,405
-
-
570,000
24,563
45,699
-
-
290,000
24,563
24,754
-
-
51,878
-
-
Awarded
in 2015
-
-
-
-
-
638,361
611,601
-
-
-
-
-
172,717
165,476
-
-
138,173
132,381
-
-
69,087
66,191
-
138,173
132,381
Total
31 Dec 2015
2,933,946
1,500,000
1,500,000
162,114
218,672
638,361
611,601
1,700,000
750,000
750,000
122,814
71,405
172,717
165,476
570,000
24,563
45,699
138,173
132,381
290,000
24,563
24,754
69,087
66,191
51,878
138,173
132,381
Exercise
price
1p
29.74p
41.63p
1p
1p
1p
1p
1p
29.74p
41.63p
1p
1p
1p
1p
1p
1p
1p
1p
1p
1p
1p
1p
1p
1p
1p
1p
1p
Expiry date
30 Sep 2018
23 Sept 2023
23 Sept 2023
28 Feb 2019
31 Aug 2019
28 Feb 2020
31 Aug 2020
30 Sep 2018
23 Sept 2023
23 Sept 2023
28 Feb 2019
31 Aug 2019
28 Feb 2020
31 Aug 2020
30 Sept 2018
28 Feb 2019
31 Aug 2019
28 Feb 2020
31 Aug 2020
30 Sept 2018
28 Feb 2019
31 Aug 2019
28 Feb 2020
31 Aug 2020
31 Aug 2019
28 Feb 2020
31 Aug 2020
1. Options granted to Clayton Consulting Partners Ltd, a company in which Marie-Louise Clayton is a majority shareholder and a director.
2. Options granted to Acura Oil & Gas Ltd, a company in which Mike Jordan is the majority shareholder and a director.
Mark Routh as CEO and Peter Young as CFO were entitled to participate under the Group’s Long Term Incentive
Plan (“LTIP”). No gains have been made upon the exercise of share options to date. Exercising of LTIP options
are conditional upon conditions set out in the Remuneration Policy and continued employment within the Company.
The Company paid £11,000 for Directors and Officers Liability insurance during the year (2014: £13,000).
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 35 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
5
Finance (gain)/expense
Interest on loans
Finance cost of derivative asset
(Gain)/ loss on derivative financial asset (note 11)
Other finance expense
2015
£000
123
-
(204)
20
________
2014
£000
100
61
831
145
________
(61)
1,137
________
_________
6
Taxation
a) Current taxation
There was no tax charge during the year since the Group profit for the year arose due to the reversal of impairment
provisions. Applicable expenditures to-date will be accumulated for offset against future tax charges
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax
in the United Kingdom applied to profits for the year are as follows:
Profit/(loss) for the year
Income tax expense
Profit/(loss) before income taxes
Expected tax charge/(credit) based on the standard rate of United
Kingdom corporation tax at the domestic rate of 20.25% (2014: 21.5%)
Expenses not deductible for tax purposes
(Income)/expense not taxable/allowable
Unrecognised taxable losses carried forward
Total tax expense
2015
£000
2014
£000
5,322
-
_________
5,322
(12,145)
-
_________
(12,145)
1,078
(2,611)
50
(1,249)
121
_________
-
_________
483
1,775
353
_________
-
_________
b) Deferred taxation
Due to the nature of the Group's exploration activities there is a long lead time in either developing or otherwise
realising exploration assets. The amount of deductible temporary differences, unused tax losses and unused tax
credits for which no deferred tax asset is recognised in the statement of financial position is £693,000 (2014:
£572,000). A deferred tax asset will only be created if there is reasonable certainty that profits will be earned in
the foreseeable future.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 36 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
7 Profit/(loss) per share
Profit/(loss) for the year attributable to shareholders
Weighted average number of ordinary shares
Weighted average number of ordinary shares – diluted basis
Profit/(loss) per share in pence - undiluted
Profit/(loss) per share in pence – diluted
2015
£000
2014
£000
5,322
_________
(12,145)
_________
71,510,947
81,608,317
_________
63,303,336
76,437,935
_________
7.4p
6.5p
_________
(19.2)p
(19.2)p
________
Diluted profit per share is calculated based upon the weighted average number of ordinary shares plus the weighted
average number of ordinary shares that would be issued upon conversion of potentially dilutive share options and
warrants into ordinary shares. As the result for 2014 was a loss, the calculation of the diluted EPS was anti-dilutive
and therefore the potential ordinary shares were ignored for the purposes of calculating diluted EPS. The impact
of options and warrants issued during 2016 to-date has been to increase the weighted average number of ordinary
shares on a diluted basis to 84,227,844 and reduce diluted earnings per share to 6.3 pence.
8 Non-current assets
Exploration and Evaluation assets - Group
At cost
At beginning of the year
Additions
At end of the year
Impairments and write-downs
At beginning of the year
Impairment reversal/(impairment)
At end of the year
Net book value
At 31 December
At 1 January
2015
£000
2014
£000
15,767
1,136
_________
16,903
_________
15,259
508
_________
15,767
_________
(8,254)
6,169
_________
(2,085)
_________
-
(8,254)
_________
(8,254)
_________
14,818
_________
7,513
_________
7,513
_________
15,259
_________
These costs principally comprise expenditures on the Group’s Blythe and Skipper field interests. On 28 August
2015 (Blythe) and on 28 January 2016 (Skipper) each licence was extended to 31 December 2016. Financial
commitments on these licences are covered in note 18.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 37 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
8 Non-current assets continued
Following the significant fall in oil prices in late 2014, an impairment test was carried out on the carrying value of
the Group’s exploration and evaluation assets and a charge of £8,254,000 was recognised in the statement of
comprehensive income. This comprised £6,169,000 for Skipper and £2,085,000 for Blythe.
On 22 December 2015, the Company announced the completion of the acquisition of an additional 50% interest in
licence P1609 containing the Skipper field. The Company now owns 100% of the licence and field and has
assumed operatorship. Under the terms of the agreement the Company will pay US$3 million upon approval of a
Skipper field development plan and a further US$15 million shortly after field production has commenced.
In 2015, following a revised valuation of both assets, the Skipper impairment of £6,169,000 was reversed and the
gain was taken to the statement of comprehensive income.
9
Investments
Company
At cost
At 1 January 2014
Additions
At 31 December 2014
Additions
At 31 December 2015
Impairment
At 1 January 2014
Impairment
At 31 December 2014
Impairment reversal
At 31 December 2015
Net book value
At 1 January 2015
At 31 December 2015
Shares
in Group
companies
£000
12,592
-
_________
12,592
-
_________
12,592
Loans
to Group
companies
£000
2,125
1,342
_________
3,467
1,311
_________
4,778
Total
£000
14,717
1,342
_________
16,059
1,311
_________
17,370
-
(8,254)
_________
(8,254)
-
(1,870)
_________
(1,870)
-
(10,124)
_________
(10,124)
6,169
_________
(2,085)
-
_________
(1,870)
6,169
_________
(3,955)
4,338
1,597
5,935
10,507
_________
2,908
_________
13,415
_________
The Company has undertaken not to seek repayment of loans to other Group companies until each borrower has
sufficient funds to make such payments.
In recognition of the 2014 impairment charge against the carrying value of the Group’s exploration and evaluation
assets in 2014 described in note 8 above, an equivalent impairment of £10,124,000 against the carrying value of
the Company’s investment in its subsidiaries was charged to the Company’s statement of comprehensive income.
Of this £6,169,000 was reversed in 2015, reflecting the equivalent reversal of Skipper carrying costs described in
note 8, and taken as a gain to the statement of comprehensive income.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 38 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
9
Investments continued
The Company's subsidiaries are as follows:
Directly held
IOG Skipper Limited
IOG North Sea Limited
Country of
incorporation
United Kingdom
United Kingdom
Area of
operation
United Kingdom
United Kingdom
%
100
100
Both subsidiaries were incorporated in the United Kingdom on 13 May 2011 and are engaged in the business of
oil and gas exploration in the North Sea. The financial reporting periods for each end on 31 December.
10
Interests in jointly controlled operations
Licences United Kingdom
Blythe gas field Blocks 48/22b and 48/23a*
Beneficial
interest
50%*
Operator
Alpha Petroleum Resources
*IOG has signed an agreement to acquire the 50% balance of licence interest.
11 Receivables and prepayments
Group and Company
VAT recoverable
Warrants and prepaid costs associated with new loan facilities (note 14)
Derivative financial asset
2015
£000
2014
£000
139
1,354
_______-
3
-
_______307
The derivative financial asset represents the carrying value of notes held in Darwin Strategic Limited which were
provided as consideration for an equity issue on 4 June 2014. All of the voting rights were transferred on the date
of the transaction. The actual consideration received will vary to the extent that the actual share price is greater or
lower than the reference point. As the consideration is variable depending upon the Company’s share price, the
agreement is treated as a derivative financial asset and re-valued through the statement of comprehensive income
with reference to the Company’s share price.
In 2014 a loss was recognised on revaluation to the year-end of £831,000 charged in Group’s statement of
comprehensive income based upon the market value of the Company’s ordinary shares of £0.675 at 31 December
2014 compared to £0.25 at the point of issue in June 2014. The notes were fully settled in 2015 with the Company
receiving £512,000 giving rise to a gain of £204,000 as noted in note 5.
12 Current liabilities
Group
Loans
Trade payables
Amounts due to joint operation partners
Accruals
Company
Loans
Trade payables
Amounts due to joint operation partners
Accruals
2015
£000
2014
£000
-
2,307
63
195
_________
2,565
_________
-
847
63
176
_________
1,086
_________
461
21
8
165
_________
655
_________
461
21
8
149
_________
639
_________
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 39 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
12 Current liabilities continued
Of the Group’s total trade payables, £1,460,000 was due to Weatherford Technical Services Limited no later than
20 September 2016. Subsequently, during 2016 this date was extended by fifteen months to 20 December 2017
in return for increasing the interest rate from 9% to 12% effective from 31 December 2016 and lowering of the
exercise price for 500,000 warrants to be issued to 8 pence each from the previously agreed price of 32 pence. In
addition, if during 2016 the Brent crude price closes above US$40 per barrel for 30 consecutive days, 50% of the
outstanding principal plus accrued interest will become payable by 31 December 2016. Similarly, if Brent closes
above US$50 per barrel over the same period then the balance of the amount will become payable by 31 December
2016. As the first condition has now been met, 50% of the outstanding principal will become payable on 31
December 2016.
On 4 June 2014, the Company received £517,500 under a loan arrangement with Darwin Strategic Limited
Repayment of the loan was to be £575,000 if paid within six months with further increases thereafter taking the
final total due to £601,000. Of this £118,500 was repaid in July 2014 and further amounts totalling £236,500 were
paid during 2015 before the balance of £246,000 was converted into ordinary shares on 13 October 2015.
Amounts of £57,500 in respect of the first six months and £4,000 in respect of part of the second six months were
included in the amount outstanding at 31 December 2014.
13 Non-current liabilities
Group
Trade creditors
Company
Trade creditors
2015
£000
2014
£000
293
_________
1,586
_________
24
_________
24
_________
During 2015 Group trade creditors denominated in US$ were increased by £65,000 (2014 – £77,000) through
changes to the £/US$ exchange rate.
Creditors’ book value equates to fair value.
The balance of the Group’s creditors and also the Company’s creditors are not due until after sustained production
is achieved from the Skipper field.
On 7 December 2015 new loan facilities were announced for £2.75 million and £2.0 million arranged with London
Oil and Gas Limited and GEC Oil and Gas Limited respectively. On 11 December 2015 a further loan was
announced for £0.8 million arranged with London Oil and Gas Limited. Each facility remained undrawn as 31
December 2015. There were warrants issued to London Oil and Gas Limited and GEC Oil and Gas Limited in
respect of the above facilities. The valuation of these warrants is detailed in note 14 and as the facilities were
undrawn at the year end the warrants are treated as a prepayment at the year end. On draw down the amounts
will be debited against the loan facility and will be amortised over the life of the facility through the effective interest
rate calculation.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 40 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
14 Equity share capital
Allotted, issued and fully paid
At 1 January 2014
- Ordinary shares of 1 pence each
Equity issued
Equity issued
Equity issue costs
Warrants issued
At 31 December 2014
- Ordinary shares of 1 pence each
2015
Equity issued
Equity issued
Settlement of loan via issue of shares
Equity issued
Placing fees
At 31 December 2015
- Ordinary shares of 1 pence each
Number
59,531,854
5,625,000
4,090,910
-
-
_________
Share
capital
£000
Share
premium
£000
Total
£000
595
56
41
-
-
_________
15,425
1,350
409
(11)
(10)
_________
16,020
1,406
450
(11)
(10)
_________
69,247,764
692
17,163
17,855
609,500
210,174
6,507,399
2,142,858
-
_________
6
2
65
22
-
_________
139
48
181
128
(10)
_________
145
50
246
150
(10)
_________
78,717,695
_________
787
_________
17,649
_________
18,436
_________
On 4 June 2014, the Company entered into an agreement with Darwin Strategic Limited (“Darwin”) pursuant to
which Darwin subscribed for 5,625,000 ordinary shares in the Company satisfied through the issue of 1,800,000
redeemable subscription notes by Darwin to the Company. These were recorded at the market price for ordinary
shares on the date of issue of 25 pence applied to the total number of shares issued giving a total of £1,406,000.
The Company also agreed to issue 326,087 warrants to Darwin with an exercise price of 46 pence each expiring
on 12 June 2017 to which a fair value of 3.09 pence each has been attributed using the Black Scholes model with
a risk-free interest rate of 0.43%, a weighted life expectancy of three years and a 50% volatility factor resulting in
a total charge of £10,000 to the share premium account.
On 5 November 2014, the Company issued 4,090,910 ordinary shares at a subscription price of 11 pence each to
raise total proceeds of £450,000.
On 25 June 2015, the Company issued 609,500 ordinary shares and on 2 July 2015, the Company issued a further
210,174 ordinary shares at a subscription prices of 23.79 pence each to raise total proceeds of £145,000 and
£50,000 respectively.
On 13 October 2015, the Company issued 6,507,399 ordinary shares at a subscription price of 3.777 pence each
in satisfaction of the total debt of £246,000. The conversion price reflected 85% of the average quoted market
price for IOG’s ordinary shares over the three lowest average prices over the preceding 10-day trading period.
On 21 October 2015, the Company issued 2,142,858 ordinary shares at a subscription price of 7 pence each to
raise total proceeds of £150,000.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 41 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
14 Equity share capital continued
Share options and warrants
During the year the Company granted share options under its share option plan as follows:
1 January 2014
Staff options
Staff options
Number
11,373,946
334,054
470,512
31 December 2014
12,178,512
Price
14.72p
1p
1p
13.82p
Grant
23 Sep 2013
19 Nov 2014
19 Nov 2014
Expiry
various
28 Feb 2017
31 Aug 2017
Staff options
Staff options
Staff options
Staff options
Staff options
230,029
41,757
131,856
1,352,071
1,531,778
1p
1p
1p
1p
1p
1 Mar 2015
1 Mar 2015
1 Mar 2015
1 Mar 2015
31 Aug 2015
30 Sep 2018
28 Feb 2019
31 Aug 2019
28 Feb 2020
31 Aug 2020
31 December 2015
15,466,003
11.09p
Options outstanding at 1 January 2014 include options granted under the Group’s Long-Term Incentive Plan
(“LTIP”). These may not be exercised for a minimum of three years after their grant dates and then only vest when
the market price of the Company’s ordinary shares exceeds 47.58 pence in respect of the 29.74 pence options and
59.48 pence in respect of the 41.63 pence options for 20 consecutive days and provided conditions set by the
Remuneration Committee at the time of the grant are satisfied. Mark Routh as CEO and Peter Young as CFO
were entitled to participate under the LTIP and at 31 December 2015 held 3 million and 1.5 million such options
respectively. No LTIP options have vested or have been exercised to-date. Exercising of LTIP options are
conditional upon continued employment within the Company.
The remaining staff options have been issued to directors and other personnel under (i) an AIM bonus scheme
upon listing of the Company’s shares in September 2013 (7,103,975 options) and (ii) as salary sacrifice options
issued periodically in lieu of salary (3,862,028 options). Further details are provided in note 4. All of these options
were issued at an exercise price of 1p per share and carry no additional performance conditions.
The remaining average contractual life of the 15,466,003 share options outstanding at 31 December 2015 (2014 –
12,178,512) was 4.56 years at that date (2014 – 3.68). All of the AIM bonus and salary sacrifice options, a total of
10,966,003, were exercisable at 31 December 2015.
The weighted average exercise price of the options was 11.09 pence at 31 December 2015 (2014 – 13.82 pence)
and no options had been exercised, had expired or had been forfeited at that date.
The Company calculates the value of share-based compensation using the Black-Scholes option pricing model to
estimate the fair value of share options and warrants at the date of grant. The fair value of options granted in 2015
is calculated as £166,000 (2014 - £73,000) and this has been fully charged to the statement of comprehensive
income. The exercise price was determined as 1p (2014 – 1p).
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 42 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
14 Equity share capital continued
During the year the Company granted warrants as follows:
1 January 2014
Issued
Number
630,000
326,087
Exercise
price
23.79p
46p
Grant
Expiry
24 Sep 2013
30 May 2014
30 Sep 2016
4 Jun 2017
31 December 2014
956,087
31.36p
Issued to GE Oil and Gas
Issued to GE Oil and Gas
Issued to London Oil and Gas
Issued to London Oil and Gas
4,989,122
788,188
5,777,310
7,500,000
11.9p
11.9p
11.9p
8p
7 Dec 2015
29,Dec 2015
29 Dec 2015
29 Dec 2015
30 Dec 2016
30 Dec 2016
30 Dec 2016
31 Dec 2016
31 December 2015
20,010,707
11.37p
The fair value of warrants granted in 2015 is calculated as £1,272,000 (2014 - £10,000) all of which has been
recognised as deferred financing costs and taken to the share-based payment reserve (2014 - £10,000). The
average exercise price was determined as 10.36 pence (2014 – 46 pence).
The following assumptions were applied in the above calculations
Risk free interest rate
Dividend yield
Weighted average life expectancy
Volatility factor
2015 options
4.3%
nil
4.3 years
100%
2015 warrants
4.3%
nil
1 year
100%
An estimated volatility of 100% has been applied based upon the approximate volatility of the Company’s share
price over the period from the Company’s listing on AIM in September 2013 until December 31 2015.
15 Cash and cash equivalents
Group and Company
Cash at bank
2015
£000
2014
£000
23
_________
398
_________
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 43 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
16 Company profit for the year
The Company has taken advantage of the exemption allowed under Section 408 of the Companies Act 2006 and
has not presented its own Statement of Comprehensive Income in these financial statements.
The Company profit for the year was £5,667,000 (2014: loss of £13,070,000).
17 Financial instruments
Significant accounting policies
Details of the significant accounting policies in respect of financial instruments are disclosed in Note 1 of the
financial statements.
Financial risk management
The Board seeks to minimise its exposure to financial risk by reviewing and agreeing policies for managing each
financial risk and monitoring them on a regular basis. At this stage, no formal policies have been put in place in
order to hedge the Group and Company's activities to the exposure to currency risk or interest risk and no
derivatives or hedges were entered into during the year.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group and Company's risk management objectives
and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and
operating processes that ensure the effective implementation of the objectives and policies to the Group's finance
function. The Board receives regular reports from the Chief Financial Officer through which it reviews the
effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
The Group is exposed through its operations to the following financial risks:
• Liquidity risk;
• Credit risk;
• Cash flow interest rate risk; and
• Foreign exchange risk
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly
affecting the Group and Company's competitiveness and flexibility. Further details regarding these policies are set
out below:
Principal financial instruments
The principal financial instruments used by the Group and Company, from which financial instrument risk may arise
are as follows:
• Cash and cash equivalents
• Derivative assets
• Trade and other payables
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 44 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
17 Financial instruments continued
Liquidity risk
The Group's and Company's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities
when they become due. To achieve this aim, it seeks to maintain readily available cash balances supplemented
by borrowing facilities sufficient to meet expected requirements for a period of at least twelve months for overheads
and as commitments dictate for capital spend.
Rolling cash forecasts identifying the liquidity requirements of the Group and Company are produced frequently.
These are reviewed regularly by management and the Board to ensure that sufficient financial resources are made
available. All Group activities are funded through the Company.
2015 Group
Current financial assets
Cash and cash equivalents
Current financial liabilities
Loans
Trade and other payables
Non-current financial liabilities
Trade and other payables
2014 Group
Current assets
Derivative instrument
Cash and cash equivalents
Current financial liabilities
Loans
Trade and other payables
Non-current financial liabilities
Trade and other payables
6 months
or less
£000
23
________
23
________
Greater than
6 months, less
than 12 months
£000
Greater
than
12 months
£000
Total
undiscounted
£000
Carrying
amount
£000
-
_________
-
________
23
_________
23
________
-
_________
-
________
23
_________
23
________
1,232
1,430
-
2,662
2,662
-
________
1,232
________
-
398
________
398
________
461
194
-
-
_________
293
________
293
_________
293
________
1,430
_________
293
________
2,955
_________
2,955
________
307
-
_________
-
-
________
307
398
_________
307
398
________
307
_________
-
________
705
_________
705
________
-
-
-
461
194
461
194
1,772
1,772
1,772
________
_________
________
_________
________
655
________
-
_________
1,772
________
2,427
_________
2,247
________
Trade and other payables include projected interest for the remaining term of loans where relevant.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 45 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
17 Financial instruments continued
2015 Company
Current assets
Cash and cash equivalents
Current financial liabilities
Trade and other payables
Non-current financial liabilities
Trade and other payables
2014 Company
Current financial assets
Derivative instrument
Cash and cash equivalents
Current financial liabilities
Loans
Trade and other payables
Non-current financial liabilities
Trade and other payables
6 months
or less
£000
23
________
23
________
Greater than
6 months, less
than 12 months
£000
Greater
than
12 months
£000
Total
undiscounted
£000
Carrying
amount
£000
-
_________
-
________
23
23
_________
________
-
_________
-
________
23
23
_________
________
1,086
-
-
1,086
1,086
-
________
1,086
________
-
_________
24
________
24
_________
24
________
-
_________
24
1,110
1,110
________
_________
________
£000
£000
£000
£000
£000
-
398
________
398
________
461
178
-
307
-
_________
-
-
________
307
398
_________
307
398
________
307
_________
-
________
705
_________
705
________
-
-
-
-
-
24
461
178
461
178
24
24
________
_________
________
_________
________
639
________
-
_________
24
________
663
663
_________
________
Trade and other payables include projected interest for the remaining term of loans where relevant.
Credit risk
The credit risk on liquid funds is limited because the counterparties are banks with credit ratings assigned by
international credit rating agencies. The Group places funds only with selected organisations with ratings of 'A' or
above as ranked by Standard & Poor's for both long and short term debt. All funds are currently placed with
NatWest bank.
Group and Company:
Cash and cash equivalents
Cash and cash equivalents
Carrying
value
£000
23
_________
23
________
Maximum
exposure
£000
23
_________
23
________
The Group made investments and advances into subsidiary companies during the year, recovery of which is
dependent on future income generation of those subsidiaries.
The Group's and Company’s external trade and other receivables comprise UK VAT and have not been impaired
and which are non-interest bearing. The Group and Company do not hold any collateral as security and do not
hold any significant provision in the impairment account for trade and other receivables as they relate to third parties
with no default history
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 46 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
17 Financial instruments continued
Cash flow interest rate risk
As cash is non-interest bearing, and loans and creditors are subject to only fixed interest rates, variations in
commercial interest rates would have had have no impact upon the Group’s and Company’s result for the year
ended 31 December 2015.
Foreign exchange risk
All of the Group’s and Company’s monetary assets and liabilities are denominated in Pounds Sterling, the functional
currency of the Group and each of its subsidiaries, other than US$2,169,000 (£1,463,000) of non-current liabilities
held by the Group in one of its subsidiaries. These exposures give rise to the net currency gains and losses
recognised in profit or loss. A 10% fluctuation in the Pound sterling rate compared to the US dollar would give rise
to a £139,000 gain or loss in the statement of comprehensive income.
The Group carried limited exposure to foreign exchange risk during the period to 31 December 2015. Its costs are
incurred almost entirely in Pounds Sterling and it has no current revenues. The Group and the Company's cash
balances are maintained in Pounds Sterling which is the functional and reporting currency of each Group company.
Consequently, no formal policies have been put in place in order to hedge the Group and Company's activities to
the exposure to currency risk. It is the Group's policy to ensure that individual Group entities enter into transactions
in their functional currency wherever possible. The Group considers this minimises any foreign exchange
exposure.
Management regularly monitor the currency profile and obtain informal advice to ensure that the cash balances are
held in currencies which minimise the impact on the results and position of the Group and the Company from
foreign exchange movements.
Capital
The objective of the directors is to maximise shareholder returns and minimise risks by keeping a reasonable
balance between debt and equity. To date the Group has been principally equity financed, reflecting the early
stage and consequent relatively high risk of its activities. During 2015, the Group raised £345,000 through the
issue of ordinary shares at an average £0.116 (2014 - £450,000 at an average £0.11) and issued a further
6,507,399 ordinary shares in satisfaction of £246,000 of debt owed to Darwin Securities (2014 issued 5,625,000
ordinary shares at £0.25 in return for notes issued by Darwin Securities).
In managing its capital, comprising equity, as described in the Statement of Changes in Equity, and loan notes, as
disclosed in Note 12, the Group and Company's primary objective is to ensure its ability to provide a sufficient
return for its equity shareholders, principally though capital growth. In order to achieve and seek to maximise this
return objective the Group and Company will in the future seek to maintain a gearing ratio that balances risks and
returns at an acceptable level while also maintaining a sufficient funding base to enable the Group and Company
to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to
achieve these aims, either through new share issues, increases or reductions in debt, or altering a dividend or
share buyback policies, the Group considers not only its short term position but also its medium and longer term
operational and strategic objectives.
Borrowing facilities
The Group and Company had no borrowings outstanding at 31 December 2015 (2014 - £461,000). However, it
had in place debt facilities for a total £5,550,000 which remained undrawn at that date.
Hedges
The Group did not hold any hedge instruments at the reporting date.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 47 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
18 Financial commitments and contingent liabilities
The Group has authorised and committed to capital expenditure in the current period as part of the exploration and
development work programme for the licences in which it participates:
Authorised but not contracted
Contracted
2015
£000
7,180
734
_________
2014
£000
7,500
682
_________
7,914
_________
8,182
_________
All capital commitments derive from the Group's participation in its joint venture operations and entities.
Following completion of the acquisition of the remaining 50% of licence P1609, under the terms of the agreement,
the Company will pay US$3 million upon approval of a Skipper field development plan and a further US$15 million
shortly after field production has commenced.
19 Related party transactions
Details of directors’ remuneration are provided in note 4.
Acura Oil & Gas Limited, (“Acura”) of which Michael Jordan is a director, acquired no additional shares during the
year (2014 – acquired 181,818 shares for £20,000). Acura held 6,957,560 shares at 31 December 2015 (2014 –
6,957,560) shares being 8.84% of the total issued share capital.
Mark Routh acquired no additional shares during the year (2014 – acquired 181,821 shares for £20,000). He held
to 4,303,010 shares at 31 December 2015 (2014 – 4,303,010) shares being 5.47% of the total issued share capital.
Peter Young subscribed for 105,087 shares for £25,000 (2014 – acquired 181,818 for £20,000) bringing his total
holding to 13,831,725 (2014 – 13,726,638) being 17.57% of the total issued share capital.
Marie Louise Clayton acquired no additional shares during the year (2014 – acquired 181,818 for £20,000).
Including shares held directly by her, she held 2,732,591 shares at 31 December 2015 (2014 – 2,732,591) being
3.47% of the total issued share capital.
Paul Murray acquired no additional shares during the year (2014 – acquired 181,818 shares for £20,000). He held
951,420 shares at 31 December 2015 (2014 – 951,420 shares) being 1.21% of the total issued share capital.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 48 of 50
Annual Report 2015
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
20. Subsequent events
The key events subsequent to the year are as follows. Details of these events are provided in the Chief Executive’s
Report on page 2.
On 28 January 2016, the Company announced that the Skipper Licence P1609 Block 9/21a had been formally
extended until 31 December 2016.
On 28 January 2016, the Company also announced that it had issued 444,989 ordinary shares to VSA Capital and
an independent third party consultant as payment for advisory services received at 8.73p and 8.38p per share
respectively being the Volume Weighted Average Price per ordinary share for the periods over which the services
were provided.
On 5 February 2016, the Company announced that it had entered into a conditional agreement with London Oil
and Gas Limited (“LOG”) (part of London Group Limited) for the provision of a secured convertible loan facility for
up to £10 million. The further loan funding was in addition to the existing £2.75 million and £0.8 million loans from
LOG, as announced on 7 December 2015 and 11 December 2015 respectively, both of which remained undrawn
as certain conditions precedent to their drawdown had yet to be satisfied. Details were as follows:
•
loan secured against IOG’s assets and fully convertible at LOG’s election into IOG ordinary shares at a
conversion price of 8p
loan to be drawn in full within three years of completion
• £3 million of the new facility to be used to fund corporate costs and licence fees up to July 2018
• £7 million of the new facility to be dedicated to fund acquisitions
• coupon of LIBOR + 9%, with accrued interest capitalised monthly and convertible with the principal loan.
•
• each drawing to be converted into ordinary shares in IOG three years after drawing
• appointment of Martin Ruscoe as director
• resignation of Marie-Louise Clayton as director.
On 30 March 2016, the Company announced that all conditions in relation to the loan facilities had been satisfied.
On 5 February 2016, the Company announced that it had issued to AGR Well Management, to settle invoices
relating to the work on the Skipper well planning, a total of 9,945,953 Ordinary Shares, at a price of 6.45p per
Ordinary Share, being the weighted average share price over the period that the work was done.
On 7 March 2016, the Company issued a total of 1,042,395 ordinary shares in the capital of the Company:
• 31,579 ordinary shares were issued to an independent consultant for services provided to the Company during
the month of January 2016. These shares were issued at 7.60p each being the volume weighted average price
per share for the period over which the services were provided.
• 910,816 ordinary shares were issued to Clayton Consulting Partners Limited following the submission of notices
to exercise all of the 1p options awarded to CCP, pursuant to two option agreements:
On 19 April 2016, the Company signed an agreement to acquire the other 50% of the licence covering Blocks
48/22b and 48/23a in the Southern North Sea, containing the Blythe gas discovery, from Alpha Petroleum Limited
for an initial consideration of £1.5 million payable at completion with deferred consideration of a further US$5 million
to be paid at first gas.
On 19 April 2016, a total of 2,937,192 new options were issued, with an exercise price of 1p each, to certain
Directors, members of IOG’s technical team and contractors in lieu of all or part of their salaries due between 1
September 2015 and 29 February 2016.
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 49 of 50
Annual Report 2015
INFORMATION AND ADVISERS
Country of incorporation of parent company
United Kingdom
Legal form
Public limited company with share capital
Directors
Mark Routh
Peter Young
Michael Jordan
Paul Murray
Martin Ruscoe
Registered office
One America Square
Crosswall
London
EC3N 2SG
Company registered number
07434350
Auditors
BDO LLP
55 Baker Street,
London
W1U 7EU
__________________________________________________________________________________________________________________
Independent Oil & Gas plc
Page 50 of 50
Annual Report 2015
■ Registered Address
One America Square
Crosswall
London EC3N 2SG
■ Office
Longcroft House, 2-8 Victoria Avenue
Bishopsgate
London EC2M 4NS
■ Contact
+44 (0)20 3206 1565
www.independentoilandgas.com
ANNUAL REPORT & ACCOUNTS 2015