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Annual Report 2022
IOG plc
Report and Audited Financial Statements
Year Ended
31 December 2022
Company Number 07434350
ANNUAL REPORT & ACCOUNTS 2022
Contents
Page
Chief Executive’s Review ............................................................................................................. 2
Strategic Report ............................................................................................................................ 4
2022 Highlights .................................................................................................................. 4
Business Strategy .............................................................................................................. 5
Health, Safety and Environment (HSE) ............................................................................. 6
Environmental, Social and Governance (ESG) ................................................................ 7
Licences ............................................................................................................................. 9
Statement of Reserves & Resources .............................................................................. 10
Operational Update .......................................................................................................... 11
Principal Risks and Uncertainties................................................................................... 16
S172 statement ................................................................................................................ 18
Finance Review ................................................................................................................ 21
Corporate Governance Statement .................................................................................. 25
Directors’ Remuneration Report ..................................................................................... 26
Report of the Directors ............................................................................................................... 34
Statement of Directors’ Responsibilities ................................................................................... 36
Independent Auditors Report ..................................................................................................... 37
Consolidated Statement of Comprehensive Income ................................................................ 46
Consolidated and Company Statement of Changes in Equity ................................................. 47
Consolidated Statement of Financial Position .......................................................................... 48
Company Statement of Financial Position ................................................................................ 49
Consolidated Cash Flow Statement ........................................................................................... 50
Company Cash Flow Statement ................................................................................................. 51
Notes Forming Part of the Financial Statements ...................................................................... 52
Information and Advisers ........................................................................................................... 94
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CHIEF EXECUTIVE’S REVIEW FOR THE YEAR ENDED 31 DECEMBER 2022
Chief Executive’s Review
2022 Review
2022 saw IOG become the UK’s newest gas producer, as Saturn Banks was safely brought onstream in mid-March.
The IOG team’s dedication, supported constructively by our joint venture partner CalEnergy Resources (UK) Limited
(CER), turned the company from an unfunded concept into a low-carbon gas producer in just a few years.
From First Gas in March until year end, we delivered average gross production of 27.4 mmscfe/d, generating £79.6
million of revenue (£3.6 million of which was from condensate). Whilst EBITDAX of £63.1 million demonstrates our
underlying profitability, the year was overshadowed by a number of operational and subsurface challenges which led
to production, revenue and profitability being below our expectations. The full year loss of £18.7 million reflects the
impact of £52.6 million of asset impairments following the very disappointing Southwark A2 well result.
FY 2022 Operating and Financial Summary
Operating
Unit
FY 2022
FY 2021
Annualised gross gas production
mmscf/d
21.0
Nil
Net gas sales
mmscf
3,444
Nil
Volume weighted average gas price
p/therm
201.4
N/A
Net condensate sales
MT
5,339
Nil
Average condensate price
$/MT
805
N/A
TRIR
per 200,000 hrs
3.6
3.5
Emissions intensity
kgCO₂e/boe
0.8
N/A
Financial
Revenue
£m
79.6
nil
Opex
p/therm
24.0
N/A
Loss for the year
£m
(28.4)
(2.4)
EBITDAX
£m
63.1
(3.7)
Capex spend (net to IOG)
£m
56.8
59.1
Cash (excluding restricted)
£m
26.7
31.3
Net debt
£m
65.1
56.6
Basic EPS
£p
(5.4)
(0.4)
Adjusted EPS
£p
4.3
(0.4)
At IOG, the first gas milestone was always intended to be the start of a new era. The first fields were intended to deliver
the operating cashflow to enable the company to grow and diversify its production portfolio and deliver shareholder
returns. In that context, a combination of much lower reserves in Elgood, formation water production from Blythe H1
and the failure of the Southwark A2 well to produce at commercial rates has significantly impacted our position
compared to expectations. However, together with our joint venture partner, we own a significant and strategic
infrastructure position in an area where there are multiple undeveloped gas resources and we remain a production
company with cashflow which we expect to be significantly enhanced in mid-2023 by the Blythe H2 well.
This combination of challenges culminated in a change of senior management in October 2022, with the highly
experienced Dougie Scott arriving as COO, John Arthur becoming CFO and my appointment as CEO. Our immediate
focus was to turn around near term operational performance and reduce operating costs. We are now reviewing our
future plans against a rebaselined technical assessment of our reserves and resources, with a view to balancing cash
generation and value creation. Given the operational challenges we have experienced over the past year, we are also
ensuring that the lessons are learned and applied to future operations.
The management change gave us the opportunity to reset and improve the way we work. The skills and experience of
the new leadership team are more suited to this early production phase of the business and to delivering further phases
of development through the Saturn Banks system in a safe and efficient manner to drive returns. More fundamentally,
we redefined our core IOG values: Safety, Integrity, Ownership, Performance, Ingenuity and Teamwork. This is reflected
in a new Code of Conduct that sets out our working principles and the high standards we expect of each other.
As CEO, I believe it is vital that we lead by example in our key behaviours. This includes taking personal responsibility
for all decisions and actions (not least on safety and environment); applying learnings for continued improvement;
communicating clearly, openly and effectively; tackling issues proactively and looking for creative solutions; and
listening to and supporting our teammates. All with clear objectives in mind: more efficient operations, higher production
and lower costs.
In the UK context, our low carbon intensity domestic gas production strategy retains compelling logic. In 2021, the UK
imported 62% of its gas consumption. Every molecule produced locally limits the UK’s reliance on high carbon intensity
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liquefied natural gas (LNG) imports. Gas remains the UK’s largest primary energy source, heating 85% of UK homes,
generating around 40% of UK electricity (providing vital balance to intermittent renewable generation) and fuelling key
industries. Under all forecast scenarios, gas will continue to play an indispensable role in the energy transition, at least
to 2050, and Liquefied Natural Gas (LNG) has become increasingly critical to energy security. In that context, IOG’s
industry-leading 2022 Scope 1 and 2 emissions intensity of just 0.8 kgCO₂e/boe, compared to the 2021 UK North Sea
average of 21.2 kgCO₂e/boe, gives us clear environmental differentiation, especially in comparison to imported LNG
which can exceed 100 kgCO₂e/boe. We will continue to look for ways to minimise operating costs and emissions alike.
In 2022 we also witnessed several important market, regulatory and geopolitical developments. The year was
overshadowed politically by the conflict in Ukraine. Beyond the manifest human tragedy of this war, it has had and will
continue to have profound implications for European energy markets. It was an extraordinary year for gas markets, with
UK day-ahead prices ranging from 10 p/therm (in May) to 450 p/therm (in August). We expect 2023 UK gas prices will
remain volatile and above historical norms, if lower than our 2022 realised average of 201.4 p/therm. Such volatility can
be challenging to manage, but we retain the same fundamental approach to our economic planning: to look through
short-term noise and stress-test our investment decisions against a range of prudent through-cycle assumptions.
Although the Ukraine conflict brought renewed focus on energy security, counterintuitively, the post-pandemic
commodity price spikes also fuelled fiscal changes that will likely weaken energy security. For the UK, maximising the
value of domestic UK resources, ensuring greater energy security as an import-dependent market, and delivering the
Net Zero journey requires a stable and balanced fiscal regime. The introduction, swiftly followed by the extension, of
the Energy Profits Levy (EPL) presents clear risks to upstream investment and industry competitiveness. The 75%
marginal tax rate, without price floors or allowances for smaller projects, is now effectively one of the world’s most
punitive fiscal regimes. While the ultimate amounts to be paid will depend on our production volumes, realised gas
prices and the size and nature of future investments, these accounts reflect a 2.2 p/share value impact for IOG.
Post-Year End and 2023 Outlook
Lower than expected production following the Southwark A2 setback has created uncertainty over future cash flows.
The new leadership team has been carefully assessing the Company’s projected financial performance and continues
to analyse options to best manage the capital structure in both the short and longer term. In that context, we have been
working to deliver incremental improvements such as fixed cost reductions and increased oversight and assurance. We
have also initiated a full technical review of the pre-development portfolio to ensure we allocate capital in the most
effective way in future.
In February the IOG-CER joint venture sanctioned the Blythe H2 well. This is designed to significantly enhance current
production rates, reduce water production into the Saturn Banks pipeline and minimise associated operating costs. It
has a compelling economic and operational logic and can pay back rapidly, enabling us to boost cash flow from mid-
2023.
Early in 2023, following a rigorous technical and commercial screening process, we submitted joint bids with our partner
CER, under our Area of Mutual Interest Agreement, for nine SNS blocks across five licences in the 33rd UK Offshore
Licensing Round. Licensing round acquisitions are an important, low entry-cost strategic tool with which we have had
significant previous success. All the target licences are adjacent to existing Saturn Banks licences and contain
discovered resources, with some containing redevelopment opportunities and others featuring near-field exploration
potential. If successful, these applications could add tangible value to all of our gas hubs.
In February 2023, Fiona MacAulay, who has been Chair of IOG since December 2018 having first joined the Board in
July 2018, confirmed that she will not stand for re-election as a director at the 2023 Annual General Meeting. Esa
Ikaheimonen will replace Fiona as Chair initially on an interim basis, bringing his deep understanding of the Company,
a wealth of industry expertise and extensive financial and commercial experience to the role. We have initiated a
process to bring in two further non-executive directors to further strengthen the Board.
Finally, I would like to reiterate my thanks to everyone in the IOG team, who have been working incredibly hard in
difficult circumstances. Equally, I thank our very constructive joint venture partner CER and all our Duty Holders and
contractors, as well as all our regulators at NSTA, the newly inaugurated Department for Energy Security and Net Zero,
OPRED and UK HSE, for working with us on Saturn Banks. Finally, my sincere thanks goes to all our investors for their
support through this turbulent period as we look towards the next stage of the IOG journey, building production resilience
and new growth across the portfolio.
Rupert Newall
Chief Executive Officer
15 March 2023
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STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
Strategic Report
2022 Highlights
Corporate and Operational
•
First Gas delivered from Blythe on 13 March and Elgood on 15 March 2022
•
Gross average gas sales of 27.4 mmscfe/d and condensate sales of 1067 MT from First Gas to year end, at
average Production Efficiency of 58.6%
•
Southwark A1 well drilling suspended due to fluid losses above reservoir section
•
Southwark A2 well drilled, completed and stimulated, but suspended post-year end after achieving 2.5 mmscf/d
gas flow rate on well test after remediation of water producing stimulated zones
•
2022 Scope 1 and 2 emissions intensity estimated at 0.8 kgCO₂e/boe (North Sea average: 21.2 kgCO₂e/boe¹)
•
Total Reportable Incident Rate (TRIR²) of 3.6 per 200,000 manhours for 2022
Financial
•
Total revenue before sales deductions of £79.6 million (2021: £nil), of which £76.0 million related to gas and
£3.6 million condensate
•
Weighted average realised 2022 gas price of 201.4 p/therm and $805/MT for condensate
•
Gross profit of £51.8 million, cost of sales of £23.6 million and EBITDAX³ of £63.1 million for the period
•
Net loss of £28.4 million (2021: £2.4 million), including a £43.4 million impairment of Southwark and £7.6 million
impairment of Nailsworth and Elland
•
Loss per share of 5.4p (2021: 0.4p loss); adjusted earnings per share⁴ of 4.3p after exceptional one-off items
•
Cash balance at period end of £32.4 million (2021: £34.7 million), including restricted cash of £5.7 million (2021:
£3.4 million)
•
Group net debt⁵ at year end £68.2 million (2021: £56.6 million)
•
Accrued opex of £10.1 million, equating to gross unit opex of 24.0 p/therm (2021: N/A)
•
£8.6 million (2021: £8.3 million) interest paid on €100 million September 2024 senior secured bond (“Bond”)
•
2.7 mmscf/d fixed month-ahead in certain months in 2H 2022 at prices from 263 p/therm to 444 p/therm
Board and Management
•
Rupert Newall appointed as Chief Executive Officer (CEO), Dougie Scott as Chief Operating Officer (COO) and
Executive Director, and John Arthur as Chief Financial Officer (CFO, non-board) in October 2022
Post Year End Developments
•
Southwark A2 well suspended and further in-depth review of deliverability initiated
•
Blythe H2 well spudded in March 2023, intended to increase gas production, limit water production and
maximise reserve recovery from the Blythe reservoir
•
Nine Southern North Sea blocks applied for across five licences areas in the 33rd UK Offshore Licensing Round,
as operator of the 50:50 joint venture with CER
•
Fiona MacAulay to stand down as Chair of the Company at the 2023 AGM, with Esa Ikaheimonen named as
Interim Chair and a process underway to recruit two further Non-Executive Directors
•
Cash balance of £32.6 million as at 15 March, including restricted cash of £6.2 million
•
Over January and February 2023, gross average production from the Blythe H1 well was 15.9 mmscf/d, with
Production Efficiency of 89.7%
¹ Emissions intensity is measured in kilograms of carbon dioxide equivalent per barrel of oil equivalent of production, kgCO₂e/boe, on a Scope 1 and
2 basis. North Sea average is taken from the NSTA Emissions Monitoring Report, September 2022.
² Total Reportable Incident Rate (TRIR) includes all incidents reportable by law to UK regulators, irrespective of size or consequence, whether
involving IOG personnel, duty holders or contractors, per 200,000 hours worked
³ EBITDAX is defined as profit or loss before net finance expense, income tax expense, depreciation of property, plant and equipment and right-of-
use assets, amortisation of intangible assets, impairment of property, plant and equipment, and foreign exchange gain or loss.
⁴ Adjusted earnings per share is defined as earnings per share before exceptional one-off items, i.e. in respect of 2022, the Southwark, Nailsworth
and Elland impairments
⁵ Net debt is defined as total loans, primarily the EUR denominated Bond, less restricted cash and cash equivalents.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
Business Strategy
IOG’s strategy is to be a Net Zero UK gas and infrastructure operator focused on high-return projects. The Company
deploys a focused infrastructure-led gas hub strategy intended to be a cost-effective path to value creation, leveraging
its co-ownership of the Saturn Banks Pipeline System gas export route and associated onshore reception facilities.
These midstream assets are key pieces of infrastructure providing direct access to the UK gas market via the Bacton
Gas Terminal. Along with operatorship of a gas portfolio in the UK Southern North Sea, this can provide both direct
economic benefits and competitive advantage for further business development in the area.
Incremental opportunities in the Saturn Banks catchment area can benefit from existing operated infrastructure. These
opportunities include: discoveries within IOG acreage; low-cost addition of further discovered gas assets via Licensing
Rounds; acquisitions from third-parties of nearby undeveloped assets; third-party gas tariffing opportunities; and finally
re-development of nearby shut-in or previously developed fields where commercial potential remains.
The strategy focuses on prioritising the highest return opportunities and delivering them in successive phases, whilst
maximising operating synergies. The emphasis is on optimising risk-adjusted overall returns rather than particular
reserves or production targets. This approach is designed to be able to commercialise relatively small, gas assets that
would otherwise be stranded, marginal or sub-economic on a standalone basis. In addition, the Company seeks
wherever possible to maintain operatorship of its assets, drawing on in-house technical and operational expertise and
appropriately utilising duty holders and contractors. The Company also aims to continually invest in subsurface
understanding to ensure the best technical interpretation of all opportunities across our Saturn Banks catchment area.
The Company has a strategic focus on gas, the cleanest hydrocarbon which remains fundamental to UK energy security
as it has progressively replaced coal-fired power generation in recent decades. With typically around half of UK gas
consumption being imported, stable domestic gas supply is essential for the country’s power generation, industrial and
domestic heating requirements. Given its relatively low production and transportation costs, IOG’s domestic gas
production also has economic and environmental advantages over pipeline and LNG imports. As such, the Company’s
strategy supports the UK government policy of maximising economic returns from domestic resources while
transitioning to a Net Zero economy by 2050.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
Health, Safety and Environment (HSE)
The Company continues to invest in its capacity to fulfil its obligations as a Licence Holder and Field Operator in a
responsible manner that protects people and the environment from harm. We see compliance with all applicable HSE
laws, regulations and obligations as fundamental for our long-term sustainable success. As laid out in our HSE Policy,
which can be read in full on the IOG website, the Company aims to design its facilities and plan all its activities to ensure
that HSE risks are identified and managed to be as low as reasonably practicable, taking all reasonable measures to
ensure the health and safety of our people and other personnel directly involved in its operations. It also seeks to
maintain rigorous environmental management processes and to achieve the highest standards in environmental
performance. Along with promoting a culture of speaking up internally on any HSE concerns or risks, it actively seeks
the same HSE standards from consultants, contractors, partners, Duty Holders and other personnel acting in the
Company’s name or working on IOG premises or assets. The Company also maintains and exercises suitable Crisis
Management Procedures and facilities appropriate to our responsibilities and activities.
The HSE and Technical Committee of the Board continued to meet at regular intervals throughout 2022 providing
oversight and direction for the HSE aspects of the business from advising the Board, supporting the management team
and helping to foster an open attitude throughout the company in the conduct and reporting of risk management.
Key HSE achievements in 2022 included:
-
484 Permits, Licences and Consents required for the Saturn Banks development submitted to relevant
authorities during the course of 2022, all of which were done on schedule
o
Secured the approval of the Saturn Banks Pipeline System extension Environmental Statement (ES)
and supporting environmental permits and consents to support the installation of the Southwark 24”
pipeline (tied into the Saturn Banks Pipeline), critical to the Southwark Development
o
Secured all environmental permits to support offshore construction, installation, and drilling operations
necessary for First Gas from Southwark
-
Supported the Company’s 33rd Licence Round application process, including development of key application
data including the Environmental Sensitivity Assessments for five Licence Applications
-
Joint OPRED/NSTA session held in May 2022 to discuss the overall field development strategy
-
Initiation of the Nailsworth Environmental Statement
-
External EMS Audit by Bureau Veritas verifying that IOG plc maintains an effective EMS which complies with
ISO 14001. One observation and one opportunity for improvement were noted and have been actioned.
-
Ongoing development of the Company’s Safety and Environmental Management Systems
IOG recorded and classified all HSE incidents occurring on the Saturn Banks development for 2022:
-
746,570 manhours expended in 2022 (cumulative total from January 2020 to December 2022: 2,029,969
manhours)
-
One unplanned hydrocarbon release at the Blythe Platform, which was classified as a High Potential Incident
(HIPO)
-
Zero Lost Time Incidents
IOG senior management were integrated into incident investigation teams where appropriate. In addition, IOG
maintained clear visibility of the corrective actions undertaken by key parties to ensure actions are closed out and
lessons learned. This was achieved through dedicated monthly meetings held with the relevant contractor to track HSE
performance and identify continuous improvement opportunities.
In 2023, the focus of the Company’s HSE team will primarily be to support:
-
Safe drilling of the Blythe H2 well
-
Central Hub pre-development and, subject to a Final Investment Decision, development work, including
preparation of the associated Environmental Statement, Field Development Plan, engineering and all
supporting permit, licence and consent processes
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STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
Environmental, Social and Governance (ESG)
In recognition of efforts to minimise climate change, IOG aims to make a positive contribution to the energy transition
in its role as a UK gas and infrastructure operator. While gas overall is a key transition fuel, from an emissions
perspective there are important distinctions between different sources. Liquefied natural gas (LNG) shipped on the
international market into the UK generally has a much higher emissions intensity than domestic pipeline gas supply.
Low-carbon intensity domestic gas supplies have an essential role to play in reducing the emissions intensity of the
UK’s energy supply as the country seeks to deliver on the national Net Zero 2050 emissions target. Through its strategy
of developing a broader portfolio of low-carbon intensity production hubs focused around the Saturn Banks
infrastructure, the Company aims to deliver further emissions savings compared to the alternative sources of supply
into the UK market.
IOG’s Sustainability Policy is reviewed, updated and re-approved by the Board on an annual basis, and is permanently
available on the Company’s website. The foundation of the policy is to align with fundamental values and global climate
targets, to uphold the Company’s regulatory licence to operate, to maintain its social licence to operate and to meet
with the reasonable expectations of investors and other stakeholders. Under this policy, the Company’s key
commitments are as follows:
•
Continually record and evaluate emissions from existing and planned projects
•
Maintain an annual Scope 1 and 2 Net Zero position, by minimising emissions and offsetting the remainder
•
Integrate emissions analysis into corporate planning and investment decisions
•
Collaborate with industry and regulators to help UK reach Net Zero target
•
Continue to embrace sustainability, responsibility, strong ethics and respect for people and environment
•
Communicate environmental performance to relevant stakeholders
IOG undertook an initial Emissions Assessment in 2021, establishing a detailed model of its expected Saturn Banks
emissions across all scopes. The study concluded that IOG has a particularly low Scope 1 and 2 emissions profile
relative to other North Sea operators, thanks primarily to its relatively small offshore infrastructure, which has limited
energy demands, limited venting, no routine flaring and no requirement for permanent offshore personnel. In this
context, IOG became the first London-listed exploration and production (E&P) company to commit to a Scope 1 and 2
Net Zero position from 2021 onwards.
Over the course of 2022, as Saturn Banks production commenced, IOG’s proprietary emissions model was continuously
populated with actual data in order to compare against original forecasts. Actual data is gathered across all relevant
variables on a monthly basis and fed into the central model. For example, in Q3 2022, several months after the start-
up of production, an infra-red camera survey was undertaken on the Blythe platform, confirming the absence of any
fugitive methane emissions.
Further to initial measurements, at the end of the year the Company was able to calculate total gross Scope 1 and 2
emissions at 1,144 tonnes of CO₂ equivalent (tCO₂e) (which includes both project and associated corporate emissions).
Based on gross 2022 production, this resulted in an emissions intensity of 0.75 kilograms of CO₂ equivalent per barrel
of oil equivalent (kgCO₂e/boe), versus the most recent North Sea average of 21.2 kgCO₂e/boe (source: NSTA
Emissions Monitoring Report, September 2022). Scope 1 and 2 emissions for 2021, prior to the start-up of Saturn Banks
production, were estimated at 239 tCO₂e. The total Scope 1 and 2 emissions over 2021-22 were therefore 1,383 tCO₂e.
The Company intends to have its emissions measurements reviewed and audited by an appropriate third-party.
Following the minimisation of operating emissions, the Scope 1 and 2 Net Zero position is achieved by investing in
appropriate verified emissions reduction (VERs) based on independently certified projects to offset unavoidable
emissions. To date, a total of 2,000 Verified Emissions Reductions (VERs) have been purchased and retired by the
Company, covering the offsetting of 2021-22 Scope 1 and 2 emissions, with a surplus balance. These VER purchases
were split equally between the Qianbei Afforestation project in China and the Rimba Raya Biodiversity Reserve in
Indonesia. Both projects are certified by the Verified Carbon Standard among other independent certifications. Qianbei
improves carbon sequestration and enhances biodiversity on degraded land by planting native trees with long
maturities, including firs, cypresses and pines, and addresses five of the seventeen UN Sustainable Development
Goals. Rimba Raya, which protect around 65,000 hectares of peat swamp forest in Borneo, is the world’s largest REDD+
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(Reducing Emissions from Deforestation and forest Degradation) project by avoided emissions to date (>130 million
tCO₂e) and addresses all seventeen of the UN Sustainable Development Goals.
The Emissions Assessment model and methodology is intended to be used as input both to mitigate existing operating
emission and to help further reduce future emissions through efficient design and construction of incremental
development projects. In 2022, building on the emissions forecasting and measurement work, IOG undertook its first
Emissions Reductions Action Plan (ERAP) and also initiated an Environmental Improvement Hopper (EIH).
IOG’s ERAP was submitted to the North Sea Transition Authority (NSTA) in September 2022, covering key topics from
platform power consumption to venting, drilling related emissions and onshore energy usage. The purpose of the ERAP
is to help monitor ongoing emissions and evaluate options to mitigate and prevent them. As a new producer, the
Company is in the early stages of this evaluation, and the ERAP will be updated in 2023 to reflect initial findings. Under
its EIH, the Company has prioritised several key areas of focus, including evaluation of platform electrification potential,
evaluation of the scope to power future Saturn Banks compression from renewable sources, minimisation of emissions
associated with drilling of the Blythe H2 production well (Scope 3) and minimisation of project-related vessel emissions
(Scope 3).
IOG’s Social Policy is also reviewed, updated and re-approved annually in keeping with its organisational development
and commitment to be a safe and responsible operator. The Social Policy codifies several key principles and
commitments, based around the belief that all personnel have a responsibility to act in the interests of the society in
which we operate. These include acting with the highest ethical standards at all times and holding each other to these
standards; fostering an open, inclusive and equal opportunity culture; respecting diversity; promoting constructive
collaboration, effective communication, knowledge sharing and critical thinking, listening to colleagues and supporting
their wellbeing; and looking for opportunities to positively impact external communities.
In 2022, IOG organised and participated in a multi-company charity initiative, along with its JV partner CER, its Duty
Holder ODE (part of the Doris Group) and the Bacton terminal operator Perenco, raising over £40,000 for the East
Anglia Air Ambulance (EAAA), a charity providing important support to the East Anglian community. This involved a
150-mile bicycle challenge from IOG’s London office to the terminal, which was completed by seventeen riders over
two days. There were approximately 30 corporate sponsors and 140 individual sponsors for the initiative.
EAAA is a life-saving charity delivering highly skilled doctors and critical care paramedics to seriously ill or injured
people across East Anglia. EAAA relies almost exclusively on charitable donations to fund its 24 hours-a-day and 365
days-a-year critical care service by air and road. They have undertaken well over 30,000 patient missions since launch
in 2000 and were named Best Charity to Work For in the 2021 national Best Company awards. Further details are
available at www.eaaa.org.uk.
Other social initiatives in 2022 included the donation of surplus equipment from the refurbishment of the Saturn Banks
Reception Facilities to the local community in the Bacton area. In addition, in 2022 IOG also successfully inaugurated
an internship programme to provide highly relevant work experience to candidates with suitable technical backgrounds.
IOG also joined the East of England Energy Group (EEEGR) and the Gas Sector Transition Council (GSTC), and plans
to actively participate in their Special Interest Groups (SIGs) relevant to the Company.
Governance is covered in detail in the Corporate Governance Statement and Section 172 statement in this report.
However, items worth noting from an ESG perspective include the embedding of emissions criteria into the contractor
selection process and the delivery of several governance related internal staff training courses, including on Anti-Bribery
and Corruption.
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Licences
The Company, through its wholly owned subsidiaries IOG North Sea Limited (IOGNSL) and IOG UK Ltd (IOGUKL) is
currently a licence beneficiary of five Traditional Licences and four Innovate Licences, all in the UK Southern North Sea:
Licence
Blocks
Subsidiary
Interest
Field / Discovery
Name
Licence Type
Southwark
P1915
49/21c ALL
IOG UK Ltd
50%
Southwark
Traditional
Blythe and Elgood
P1736
48/22b ALL and
48/23a ALL
IOG North Sea Limited
50%
Blythe
Traditional
P2260
48/22c ALL
IOG North Sea Limited
50%
Elgood
Traditional
Elland and Nailsworth
P039
49/21a J
IOG UK Ltd
50%
Elland
Traditional
P2342
48/25a ALL
IOG UK Ltd
50%
Nailsworth
Innovate C
P130
48/25b NW
IOG UK Ltd
50%
Nailsworth
Traditional
Goddard
P2438
48/11c and 48/12b
IOG North Sea Limited
50%
Goddard
Innovate C
Abbeydale
P2442
53/1b
IOG North Sea Limited
50%
Kelham, Abbeydale
Innovate A/C
Panther and Grafton
P2589
49/21e ALL and
49/22b ALL
IOG North Sea Limited
50%
Panther, Grafton
Innovate A/C
2022 Licence Update
Licence P1736 (Blythe), Licence P1915 (Southwark) and Licence P2260 (Elgood) are in the Third Term (Production),
further to the approval of the Phase 1 Field Development Plan (“FDP”) in April 2020. A partial surrender of acreage in
the P2260 (Elgood) licence was completed on 30 December 2022 to reduce the non-producing extent of the licence
outside the determined field area (FDA).
In Q4 2022, discussions with the UK North Sea Transition Authority (NSTA) were initiated to extend the licence terms
of Licence P130 and Licence P2342 so that the Nailsworth development could proceed in line with the development
project schedule, including FDP submission, FDP approval and First Gas from the Nailsworth field. Formal licence
extension requests were submitted post-year end (in January 2023).
On 3 May 2022, the Initial Term of Licence P2438 (Goddard) was extended by 12 months to 30 September 2023, to
allow the drilling and completion of the Goddard appraisal well within the appropriate licence term. In early 2023, in light
of unexpected delays to the Phase 1 development drilling programme, IOGNSL formally requested a six-month
extension to the Initial Term of Licence P2438 (Goddard) and Licence P2442 (Kelham) so that the drilling and
completion of the appraisal wells on both licences could be undertaken within the appropriate licence term. The outcome
of the extension requests is expected by Q2 2023.
On the P2589 licence (Panther, Grafton), Pre-Stack Depth Migration (“PSDM”) seismic data reprocessing was
completed in 2022. Interpretation of the data will determine the prospectivity of structures identified on the licence.
Phase A of the Initial Term of the licence ends on 30 November 2023, when a commitment to drill an exploration or
appraisal well, or withdraw from the licence, must be made.
After a rigorous technical and commercial screening process in Q4 2022, IOGUKL and IOGNSL, together with joint
venture partner CER applied for nine Southern North Sea blocks across five licences in the UK 33rd Offshore Oil and
Gas Licensing Round. These submissions were made in early Q1 2023. All applications are adjacent to existing
Company licences and contain discovered resources that could be added to the Company’s existing or planned gas
hubs. The NSTA is expected to start making the first licence awards from Q2 2023.
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Page 10 of 94
Annual Report 2022
Statement of Reserves & Resources
The Company’s FY2022 annual reserves and resources review involved a technical reassessment by the subsurface
team and management of all portfolio assets in order to generate updated reserves and resources estimates, which
were then approved by the HSE and Technical Committee and the Board. The review follows the Petroleum Resources
Management System (PRMS) classification framework. In the case of production assets, it is based on static and
dynamic models that have been updated and history matched over field life to date. In the case of pre-production assets,
it is based on interpretations of reprocessed seismic and well offset data where applicable.
Management Estimated Reserves (gross, IOG 50% operator)
Field
Gas Reserves (BCFE)
YE 2021
2022 Production
YE2022
1P
2P
3P
1P
2P
3P
Blythe
25.9
43.3
56.9
4.1
24.6
42.3
46.8
Elgood
5.7
14.1
7.9
4.1
0.4
2.2
2.8
Southwark
46.3
71.3
104.8
0.0
0.0
10.0
15.0
Arithmetic
Total
77.9
122.4
169.6
8.2
25.1
54.5
64.6
Management Estimated Contingent Resources (gross, IOG 50% operator)
Discovery
Contingent Gas Resources (BCFE)
1C
2C
3C
Nailsworth
48.5
84.9
140.2
Elland
39.9
55.0
72.9
Goddard
52.0
115.0
169.0
Abbeydale
19.0
23.0
25.0
Grafton
24.0
35.0
46
Panther
38.0
46.0
55.0
Arithmetic Total
221.4
358.9
508.1
Management Estimated Prospective Resources (gross, IOG 50% operator)
Prospect
Prospective Gas Resources (BCFE)
Low
Best
High
Geological Chance of Success
Goddard Flank 1
16.0
27.0
42.0
71%
Goddard Flank 2
30.0
50.0
73.0
71%
Southsea
13.0
31.0
76.0
48%
Kelham North
34.0
46.0
58.0
72%
Kelham Central
11.0
16.0
22.0
72%
Thornbridge
9.0
15.0
20.0
64%
Thornbridge Deep
24.0
46.0
76.0
18%
Orrell (part on block)
11.0
16.0
22.0
100%
Arithmetic Total
148.0
247.0
389.0
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Annual Report 2022
Operational Update
Saturn Banks Development and Production Assets
Blythe (P1736) and Elgood (P2260)
The Blythe platform is a monopile normally unmanned installation (NUI) with one well, H1, drilled and in production.
The Elgood field has one subsea well installed, tied back subsea to the Blythe platform via a 6” connection and umbilical.
The Blythe platform has a 12” pipeline tied into the 24” Saturn Banks Pipeline System (SBPS) 29km offshore via a
subsea T-piece. From here the gas is transported into the Saturn Banks Reception Facilities (SBRF) at Bacton.
Following completion of the SBRF refurbishment in the early part of the year, the Blythe and Elgood fields were brought
onstream on the 13th and 15th March 2022 respectively.
Average gas production from Blythe and Elgood from First Gas in March to the end of the year, was 27.4 mmscf/d.
Gross condensate sales from both fields amounted to 1067.9 metric tonnes over the same period.
Production Efficiency, which includes planned and unplanned losses, for Blythe and Elgood on a combined average
basis was 58.6% from First Gas to the end of 2022. Unplanned platform outages downtime in 2022 resulted from various
factors, including a mono-ethylene glycol (MEG, hydrate inhibitor) injection fault and generator trips. In response, the
Company undertook production resilience measures, including enhanced helicopter and vessel access to enable faster
offshore restarts. Onshore, modification to a recycle compressor in the Bacton terminal’s condensate stabilisation unit
also caused a one-week production outage in May 2022.
Early in Q3 2022, formation water started to arrive onshore via the SBPS. Analysis indicated that a sub-seismic
resolution natural reservoir fracture encountered during Blythe H1 development drilling was the most likely source of
this. Salinity levels of the formation water exceeded the maximum allowable for processing at Bacton and thus
necessitated an alternating regime of batch slugcatcher liquid letdowns alongside other streams entering the terminal.
This revised liquid management regime constrained production levels.
Over a four-week period in October and November 2022, Blythe and Elgood were shut in to allow the Southwark leg of
the Saturn Bank Pipeline system to be connected to the 24” pipeline to SBRF via the subsea T-piece. On production
restart, Blythe flowed as expected, however it was not possible to sustain production from Elgood. Analysis indicated
that the Elgood well would flow in the event the pipeline was dewatered.
Blythe (P1736)
Prior to production, gross 1P/2P/3P management estimated Blythe gas reserves were 25.9/43.3/56.9 billion cubic feet
equivalent (BCFE, where condensate is converted into gas equivalent at 5.8 bbl/mcf). In Q4, technical analysis of
production and reservoir pressure data from the first six months of Blythe H1 production indicated that the well is located
in a reservoir compartment which is materially baffled from the central and northwest areas of the field. It was assessed
at the time that the H1 well would ultimately recover an estimated 29 BCF of gas.
A second Blythe production well, H2, has been planned in order to enhance production levels and maximise ultimate
recovery of Blythe reserves, as well as to reduce production of formation water into the pipeline. In February 2023, the
Blythe H2 well was sanctioned with the intention to be drilled and completed over Q1-2 2023.
Blythe FY2022 1P and 2P reserve estimates shown in the reserves summary table above represent a modest increase
on FY2021 estimates, factoring in 2022 production of 4.1 BCFE.
The 1P case assumes production only from the H1 well, as H2 was not sanctioned at year end, and the 2P case
assumes production from H1 and H2, which was sanctioned in February 2023.
Elgood (P2260)
Prior to production, gross 1P/2P/3P management estimated Elgood gas reserves were 9.6/14.1/18.3 BCFE. In Q4,
technical analysis of the production and reservoir pressure data from the first six months of production indicated that
the flow rate was declining faster than anticipated given the pre-production reserve estimate. This analysis indicated
that gas is not flowing across the NW-SE oriented intra-field fault to the wellbore as expected. On that basis the most
likely ultimate recovery from the field was further revised as shown in the reserves table above.
During 2022, 4.1 BCFE was produced from Elgood. As at the date of this report, the Elgood field is shut-in, with further
production expected when a reduction in pipeline export pressure is realised, in the following scenarios:
1. The SBPS has been dewatered, after which it could be produced cyclically
2. Onshore compression has been introduced
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The 1P case assumes 0.4 BCFE production post-dewatering and the 2P case assumes 0.4 BCFE post dewatering and
a further 1.8 BCFE post-compression.
Southwark (P1915)
Following the spudding of the A1 development well at the end of 2021, in January 2022 drilling was temporarily
suspended due to damaged leg cross members caused by serious scour issues around the jack-up spud cans. The
jack up rig was demobilised and repaired while the spud can location at the platform was remediated by installing rock
pads. The rig was re-mobilised and operations on A1 recommenced in April. After drilling the initial section of A1, the
rig was skidded to drill the A2 well as planned before resuming A1.
In Q2 2022, the 6km 24” extension of the SBPS to the Southwark platform was safely and successfully installed by the
Seven Borealis S-lay vessel. This was subsequently hooked up to the in situ 24” line in Q4.
On A1 extensive drilling fluid losses were encountered in the Bunter Sandstone Formation. The 9-5/8’” casing was run
in an attempt to isolate the loss zone, however this was unsuccessful as further losses were encountered on drilling out
of the 9-5/8” casing shoe into the Bunter Shale Formation. After due consultation, the JV elected to suspend the A1
well in order to evaluate and develop an appropriate remediation plan for A1.
After an equipment rig-up period, stimulation operations on A2 commenced in November and continued through to the
year end. In total, six hydraulic fractures were deployed into the reservoir. The well was cleaned up via the temporary
well test separator. The clean-up phase saw lower than expected gas rates and high rates of associated water,
indicating a connection to the active aquifer. A production logging tool was then run which provided input data for
remediation via isolation of water producing zones. This remediation reduced water production from 1500 bbls/d to an
average rate of 380 bbl/d, however, stabilised gas rates were limited to 2.5 mmscf/d, at a flowing wellhead pressure of
1186 psi. These rates did not justify hooking up the A2 well for production and so the well was suspended in order to
conduct a full analysis to ascertain future production options.
Following the A2 result, the JV made the decision to delay the re-entry into A1 pending further analysis. A1 remained
suspended and the rig was moved to Blythe to drill the H2 well.
The A1 well is intended to penetrate the western panel of the Southwark reservoir and produce through deploying five
hydraulic fracture stimulations. This area of the field has greater well control from the Southwark discovery well (49/21-
8A). The A1 well is to be landed close to the discovery well, thus providing more accuracy in reservoir entry depth,
reservoir thickness and free water level at that location.
A multi-disciplinary task force involving external experts has commenced a full review to ascertain the causes of the
results encountered on A2 and identify how any lessons learned can be implemented on A1. This review may inform a
further revision of the estimated reserves range. Pending that review, the current estimated reserves range shown in
the reserves table above reflects the uncertainty following A2 as to the recoverability of commercial gas volumes from
both the A1 and A2 wells. The 1P case assumes no production is possible from the field and the 2P case assumes
production from the A1 well only, based on a limited stimulation scenario, with no production from the A2 well.
Pre-Development Assets (PDAs)
Central Hub: Nailsworth (P130 & P2342) and Elland (P039) discoveries
The fully-owned subsidiary IOG UK Limited (IOGUKL) has a 50% working interest and is operator of the P130 and
P2342 licences, which contain the Nailsworth gas discovery, and the P039 licence, which contains the Elland discovery.
Nailsworth is a three-way dip and fault sealed structure directly north of the Vulcan field (which produced 665 BCF
between 1988 and 2018). Four exploration and appraisal wells have been drilled on the Nailsworth structure, confirming
a gas-water contact (GWC) of -7,657ft TVDSS. The Company has reprocessed 3D seismic data to Pre-Stack Depth
Migration (PSDM) standard and completed new static and dynamic reservoir modelling of the field.
In the FY2022 reserves and resources review, the Nailsworth and Elland gas fields, which are envisaged to be part of
a Central Hub development in the area north of Southwark, have been reclassified from the Reserves category Justified
for Development to the Contingent Resources category Development Pending. This classification change is considered
currently more appropriate given the evolution in development plans and pre-Final Investment Decision (FID) status.
Following an FID, the fields would be expected to be reclassified back into reserves.
The estimated contingent resources range for Nailsworth has been revised to 1C/2C/3C 48.5/84.9/140.2 BCFE. This
follows a full subsurface uncertainty analysis which included updates to the static and dynamic models. The post-A2
detailed technical review of Southwark may also have implications for the Nailsworth estimated resource range. The
volumetric estimates on the Elland gas field have not changed.
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Annual Report 2022
Evaluation of the Nailsworth and wider Central Hub export route and host options identified the preferred option as the
Southwark platform 19km to the southeast, with onward export via Saturn Bank Pipeline System. This is considered to
have the strongest operational and commercial synergies and lowest expected emissions impact. The optimal
development of the Nailsworth reservoir is likely to be via hydraulically stimulated production wells, which could be
phased based on well performance.
Development concept engineering work, working closely with the JV partner CER, has then considered a wide range
of potential development concept options for Nailsworth and the other Central Hub fields. This evaluation took into
account the bathymetry of the area, designated export route and minimisation of environmental impact. This may justify
some pre-investment to enable future connection of the incremental subsea infrastructure for the other Central Hub
fields. The concept engineering and subsurface evaluation basis was collated into a Concept Select Report (CSR) and
submitted to the NSTA.
The key scopes within the planned Nailsworth Front-End Engineering and Design (FEED) cover:
-
engineering design of the subsea infrastructure including the export pipeline to the Southwark platform
-
design and configuration of the controls (power, hydraulics and chemical supply) for the subsea wells
-
flow assurance on the production fluids to confirm the sizing of the pipeline for Nailsworth and the
consideration through the asset life incorporating the other central hub fields and compression
The Nailsworth FEED bid submissions were under evaluation at the time of this report. In parallel, a Field Development
Plan (FDP) and Environmental Statement are being worked on in preparation for an eventual JV FID on Nailsworth, as
part of the wider Central Hub.
As previously disclosed, the Elland field has a suspended well 49/21-10A on it. On acquisition from the previous owners,
the Company took on the liability to permanently plug and abandon this well. This work is planned for the first half of
2023, at an estimated gross cost of £0.8 million (£0.4 million net to IOG).
Potential Southern Hub: Abbeydale and Orrell (part) discoveries, Kelham North, Kelham Central, Thornbridge
and Thornbridge Deep prospects (P2442)
IOG holds a 50% working interest in Licence P2442, as operator, via its fully-owned subsidiary IOG North Sea Limited
(IOGNSL). The licence contains the Abbeydale gas discovery, part of the Orrell discovery, and the Kelham North,
Kelham Central, Thornbridge and Thornbridge Deep prospects. The firm work programme commitment to reprocess
150 km² of seismic data within two years was completed in early 2021. An appraisal well is to be drilled on the licence
by the end of the Initial Term, which is currently 30 September 2023. In early 2023, in light of unexpected delays to the
Phase 1 development drilling programme, IOGNSL formally requested a six-month extension to the Initial Term of
Licence P2442 so that the appraisal well could be drilled within the appropriate licence term. The extension request is
under consideration by the NSTA at the time of this report.
Interpretation of the reprocessed dataset enhanced the Company’s view of the resource potential across the licence.
The deterministic management estimate of gross 1C/2C/3C contingent resources at Abbeydale remained at 19/23/25
BCFE. The tight resource range reflects a well-defined structure, constrained by well data from the 51/13a-13 appraisal
well.
Technical work also included a more sophisticated depth conversion and mapping work programme to better capture
the Gross Rock Volume uncertainty range of the identified structures, further evaluation of the existing adjacent well
stock and an improved understanding of rock quality. This identified several further prospects and leads on the licence.
To the immediate north of Abbeydale lies the formerly producing Camelot Complex, comprising several fields developed
and produced by Mobil (and later Perenco). The Kelham North prospect is a previously unmapped, distinct structural
closure within the Cador field, which was part of the Camelot Complex. Similarly, mapping of the Kelham Central
prospect, and reconciliation with production volumes from Camelot Central, suggest an unconnected volume from an
undrained structure.
The seismic reinterpretation combined with available production data has been used to generate the current
management estimated gross Low/Mid/High contingent gas resources of 34/46/58 BCFE in Kelham North and 11/16/22
BCFE in Kelham Central, both with a 72% Geological Chance of success (GCoS). The planned appraisal well and side-
track is intended to confirm these resource ranges in the structures.
If successfully appraised, these assets would form the basis of a new Southern Hub development that would include a
subsea tie-back of the Abbeydale discovery to gas gathering infrastructure tied directly into the Saturn Banks Pipeline
System. In the Company’s view, successful appraisal would significantly de-risk the other discoveries and prospects in
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Page 14 of 94
Annual Report 2022
the P2442 licence, enhancing the commercial potential of the area and providing add-on development opportunities for
the potential Southern Hub.
Thornbridge and Thornbridge Deep are two further prospects on the P2442 licence, lying to the northwest of Abbeydale.
Subject to successful exploration, these structures may provide further resource additions to the potential Southern
Hub, as detailed in the prospective resources table above. A further discovery, which the Company has named Orrell,
lies partly on the P2442 licence, extending over its northern limit into an unlicensed area. Management estimated
prospective resources on licence were revised marginally down in the FY2022 technical review to Low/Mid/High
11/16/22 BCFE. Subject to further technical assessment and successful appraisal of the Kelham North and Kelham
Central structures, Orrell could potentially become part of a Southern Hub development via a single well subsea tie-
back to an unmanned host platform.
Potential Northern Hub: Goddard discovery, Goddard Flank structures, Southsea prospect (P2438)
IOGNSL also has a 50% working interest and is operator of Licence P2438, which contains the Goddard field, an
undeveloped gas discovery. In light of the relative maturity of Goddard’s contingent resources, and to improve structural
imaging of the field as much as possible, further reprocessing to PSDM and reinterpretation of 3D seismic data over
the Goddard area was undertaken in 2020-21. Additional seismic mapping was then carried out that incorporated further
structural analysis of the PSDM seismic data, resulting in clearer definition of the greater Goddard area, a better
understanding of lateral velocity variation across the field allowing an enhanced depth conversion methodology. There
is now also better definition of main field bounding faults and possible intra-field faults which is key to optimal
development of the field. This work resulted in management estimated contingent resources for the main Goddard
structure of 52/115/169 BCFE. Further mapping work also resulted in management estimated prospective resources in
the Goddard flank structures to Low/Mid/High 16/27/42 BCFE and 30/50/73 BCFE, with 71% GCoS in each case. The
management estimated contingent and prospective resources range for Goddard, the Goddard Flanks and Southsea
remained the same in the FY2022 technical review.
An appraisal well is to be drilled on the licence by the end of the Initial Term, which is currently 30 September 2023.
The PSDM has also been used to optimally locate the planned appraisal well to be drilled approximately 4 kilometres
away from the Goddard discovery. The well is intended to test the full range of possible gas-water contacts resulting in
greater certainty of the Gas-Initially-in-Place (GIIP) within the Goddard structure and to de-risk the Goddard Flank
structures. The results of the appraisal well will enable the Company to determine the optimum field development
scenario, including well count, to maximise the return on investment from commercialisation.
On 3 May 2022, the Initial Term of Licence P2438 (Goddard) was extended by 12 months to 30 September 2023, to
allow the drilling and completion of the Goddard appraisal well within the appropriate licence term. In early 2023, in light
of unexpected delays to the Phase 1 development drilling programme, IOGNSL formally requested a six-month
extension to the Initial Term of Licence P2438 so that the drilling and completion of the appraisal well could be
undertaken within the appropriate licence term. The extension request is under consideration by the NSTA at the time
of this report.
Seismic reinterpretation has also identified the Southsea prospect within Licence P2438 close to the south-east of
Goddard, with gross management estimated prospective resources of Low/Mid/High 13/31/76 BCF and a 48% GCOS.
The results of the Goddard appraisal well may inform an update to these estimates.
Grafton and Panther (P2589)
The P2589 licence was awarded in the 32nd Licensing Round and formally commenced on 1 December 2020. The
licence commitment to reprocess 79km2 of seismic data within three years has been completed. Under the licence, a
decision must be taken in 2023 either to drill an appraisal well on the licence by 30 November 2025 or relinquish the
licence.
The licence contains the Grafton discovery, for which management’s initially estimated gross 1C/2C/3C contingent gas
resources of 24/35/46 BCFE has not changed to date. IOG has completed a programme of 3D seismic reprocessing to
PSDM standard, from which data is currently being interpreted. This includes a more sophisticated depth conversion
and mapping work programme than previously undertaken and should enable a clearer view of the commercial potential
across the licence.
The licence also contains the Panther discovery which lies approximately 5km northwest of Elland. Subject to
interpretation of reprocessed seismic, could potentially form part of the Central Hub development. Pending
reinterpretation of reprocessed seismic, management’s estimate of gross 1C/2C/3C contingent gas resources remains
at 38/46/55 BCFE.
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IOG plc
Page 15 of 94
Annual Report 2022
STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
Business Development
The Company takes a systematic focused approach to screening opportunities to enhance its asset portfolio and further
develop the business. All opportunities are evaluated in terms of fundamental value, potential return, materiality and
synergy with the existing portfolio, ranked alongside the Company’s existing assets. The fundamental purpose is to
generate enhanced stakeholder value over time, rather than simply to build a bigger business.
There are several different types of possible acquisition opportunities continually evaluated by management, each with
potential to generate operating and economic synergies with the existing portfolio. The first of these is licensing activity,
whether in formal licence rounds or by separation engagement with the OGA, which offers a well-established and low-
cost path to adding suitable incremental assets. The Company has an extensive track record of successful licence
round applications, including the 27th, 30th and 32nd UK Offshore Licensing Rounds. However, licensing rounds are
relatively infrequent and not guaranteed to include the most attractive licences, therefore out-of-round applications and
expressions of interest are also considered valid approaches to acquiring suitable unlicensed acreage.
In addition, there may be at any given time potential acquisitions from other licensees and operators who may be
interested in either selling or farming-out assets at various stages of maturity, including appraisal, development or also
previously developed shut-in or decommissioned assets. The Company undertakes a systematic ongoing review of all
such opportunities to ensure it can prioritise those it may wish to pursue. Furthermore, the Company also discusses
potential gas transportation tariffing opportunities and engages with parties who may be seeking access to export
infrastructure as part of their own development planning.
In January 2023, after a rigorous technical and commercial screening process, IOG and its joint venture (JV) partner
CalEnergy Resources (UK) Limited (CER) applied for nine Southern North Sea blocks across five licences in the 33rd
UK Offshore Licensing Round. All applications are adjacent to existing Saturn Banks JV licences. All on a 50:50 IOG-
CER basis with IOG as operator, as per the JV’s Area of Mutual Interest agreement. These applications exhibit strong
synergies with the Saturn Banks portfolio and infrastructure: all licences would fit clearly within IOG’s area plan. Each
licence contains discovered resources that could be added to development hubs. Some have field redevelopment
opportunities and some have near-field exploration potential. The UK North Sea Transition Authority is expected to start
making the first 33rd Round licence awards in Q2 2023.
Key Performance Indicators
The Group’s main business is the acquisition, development and production of gas reserves and resources in a safe,
efficient and environmentally responsible manner. This is undertaken by assembling and managing a carefully selected
portfolio of licence interests containing a range of prospective, contingent and proven reserves, working these up from
a technical perspective, planning, designing and executing appropriate appraisal, pre-development and development
activities and ensuring effective ongoing production operations.
The Company monitors its performance against its primary HSE and ESG KPIs, which are the Total Recordable Incident
Rate (Lost Time Incidents per 200,000 manhours worked) and Scope 1 and 2 emissions and emissions intensity. Other
HSE performance indicators include securing all relevant environmental permits, consent and approvals, and
maintaining a verified Environmental Management System.
The main operational KPIs include production rates as well as the total reserves and resources in the portfolio. Other
operational performance indicators include successfully meeting all licence commitments relating to the Company’s
asset portfolio during the year, maintaining effective relationships at all levels with JV partners in compliance with Joint
Operating Agreements (JOAs), operating within appropriate governance and HR policies, ensuring the Company has
adequate in-house capability to manage its operations and third-party providers, and ensuring all corporate legal
obligations are met.
Financial performance is tracked against established metrics and budgets which are set according to carefully assessed
cost estimates and the availability of funds, whether raised from capital providers or delivered from operations, with the
overriding objective of creating value per share. The main financial KPIs include unit operating cost i.e. opex (measured
either in the standard industry metric of US dollars per barrel of oil equivalent to ensure comparability or more relevantly
to IOG in pence per therm), operating cash flow and net debt. Financial performance indicators also include maintaining
full compliance with terms of debt facilities, maintaining constructive relationships with debt providers and equity
investors, being adequately resourced for all corporate and JV-related financial matters, maintaining appropriate fit-for-
purpose finance systems, delivering approved annual budgets and adhering to updated financial and corporate
operating policies.
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Page 16 of 94
Annual Report 2022
Insurance
The Group insures the risks it considers appropriate and proportionate for its needs and circumstances, including any
risks that it has an obligation to insure against. However, it may elect not to put insurance in place at certain times for
certain risks, for example due to high premium costs or extremely low probability risks. During 2021 the Group put in
place insurance coverage for both construction and operational energy packages, covering Operators Extra Expense
(OEE) during drilling activities, physical loss/damage, third party liability and OPOL in accordance with market
standards. This insurance coverage and associated limits were in line with its energy sector peer group.
Principal Risks and Uncertainties
The Company seeks to generate shareholder returns by developing and producing its portfolio of offshore gas assets.
This primarily entails construction and installation of production, transportation and processing infrastructure and drilling
of production wells. These activities carry a number of associated financial, operational, regulatory, legal, commercial,
human resource, HSE and sustainability related risks and uncertainties. The most pertinent corporate risks and
associated mitigations are set out below.
Risk
Mitigation
Poor strategic decisions
•
Annual review of business plan & objectives
•
Regular review of progress against objectives
•
Regular lessons learned reviews
•
Match Corporate Scorecard to business plan
•
Regular review of organic investments and assumptions
•
Regular review of M&A criteria & targets within strategic boundaries
Corporate governance deficiency
•
Regular review of legislation and gap analysis with internal
compliance policies
•
Annual training on corporate policies & procedures, covering
Financial Operations, Anti-Bribery & Corruption, Travel & Expenses,
Sustainability, and Insider Trading
•
Tender Committee meetings to ensure policy compliance on
contracting
Undervalued market capitalisation
•
Ensure company strategy and progress presented as effectively as
possible in public materials
•
Continually engage with and present to existing and prospective
investors where possible
•
Maintain defence planning with appropriate advisors
Negative cash flow
•
Develop multiple business scenarios to determine cash flow
restrictions
•
Develop cost reduction action plans
•
Develop additional funding options
Inability to repay or refinance bond
and/or comply with covenants
•
Close monitoring of liquidity position and cash flow projections to
manage exposures
•
Tight cost control and working capital management
•
Regular review of potential financing options to ensure state of
preparedness
•
Regular engagement with the Company’s debt providers and
advisors
•
Maintain access to equity markets via AIM listing
Reduction or loss of reserves
•
Implement rigorous reserve and resource range assessment
process
•
Use third-party technical verification & peer reviews
•
Use full reserves & profile range for project economics
•
Accurate history matching to understand reservoir performance &
improve forecasts
•
Ensure highly competent technical team
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•
Develop active lessons learned data base
Reduction or loss of production
•
Monthly reviews of all key topics (HSE, maintenance, integrity,
costs)
•
Production loss and improvement process
•
Robust oversight of duty holder via assurance plans for production
operations & pipeline management
•
Deliver incremental production plans (e.g. Blythe H2)
•
Add support for Production Asset Manager
•
Detailed reviews of fixed opex and G&A
Underperformance of projects
•
Ensure project has clear business objectives
•
Ensure project gate process is followed
•
Regularly review economics, subsurface, engineering and designs
•
Ensure project risks & mitigations, cost estimates & schedule are
fully understood
•
Regular peer reviews and economic stress tests
•
Maintain strong development team competencies and ensure clear
project ownership
Saturn Banks Pipeline System failure
•
Duty holder monthly reviews and surveillance on key topics (HSE,
reliability, maintenance and integrity)
•
Robust oversight of duty holder through assurance plans for
production operations and pipeline management
Inability to attract and retain personnel
with the right skills and experience
•
Maintain a clear, credible strategy to build a sustainable, profitable
and attractive business
•
Identify key individuals required to deliver the strategy effectively
•
Ensure competitive remuneration packages and professional
development plans are in place
Loss of licences and/or regulatory
licence to operate
•
Robust oversight of all areas of project delivery
•
Maintain resources, processes, competencies to deliver licence
obligations
•
Regular interaction with NSTA, BEIS/OPRED & HSE at all levels
•
Set realistic expectations with regulators
•
Follow all NSTA guidance
•
Compelling case & timely application for any license extensions or
variations
•
Timely licence fee/levy payments
•
Maintain robust licence commitments register
Government energy, licensing or fiscal
policy changes
•
Maintain a low-cost business model
•
Maintain a low-carbon intensity business and continue to offset as
necessary for Scope 1 & 2 Net Zero status
•
Engage with government and industry bodies to demonstrate
company's contribution to UK energy
Gas price volatility
•
Short term price fixing with offtaker
•
Maintain a low-cost business model
•
Continue to track gas market trends and analysis
•
Continue to take advice from gas market analysts
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STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
S172 statement
Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of stakeholders and
other matters in their decision making. The Directors continue to have regard to the interests of the Company’s
employees and other stakeholders, the impact of its activities on the community, the environment and the Company’s
reputation for good business conduct, when making decisions. The Company seeks to manage its operations and
assets in a safe and efficient way. It acknowledges that limiting climate change and transitioning to a more sustainable
economy are critical challenges of our time. In that context, it recognises the importance of the UK’s 2050 Net Zero
target as part of global efforts to meet the goals of the 2015 Paris Accord. It also took particular steps to mitigate Covid-
19 risks. In this context, acting in good faith and fairly, the Directors consider what is most likely to promote the success
of the Company for all its stakeholders in the long term. We explain in this annual report, and referenced below, how
the Board engages with key stakeholders which are typical of an offshore gas development company and which include
investors (both shareholders and bond investors), employees, regulators, contractors, suppliers and other operators in
the Southern North Sea.
Likely consequence of any decision in the long term
The CEO Review on pages 2-3, Business Strategy on page 5 and principle 1 of the Company’s QCA Statement, which
is available in full via www.iog.co.uk/investors/aim-rule-26/, collectively set out the Company’s long term rationale and
strategy, with the business decisions that these entail.
Key decisions over the past year have included the selection and/or ongoing management of contractors for the Phase
1 development project. These included contractors for platforms, drilling, well management, SURF and numerous tier
2 contracts. These decisions have been taken off the back of competitive selection processes in each case and in the
interests of achieving best value for shareholders as their primary driver. The Board will always take all relevant factors
into consideration when making such decisions, including the track record and operational and environmental
competence of each party. Other key decisions have included a number of technical and operational decisions relating
to Phase 1 which are each designed ultimately to maximise project value and minimise project risks.
Interests of Employees
Covid-19 presented some challenges in early 2022 and continues to do so. Faced with these challenges, and in the
interests of protecting employees as well as other stakeholders in the Company, we identified three fundamental
priorities at the outset of the pandemic which have remained the same throughout: protect our people, deliver the project
and ensure business continuity. We continued to ensure a safe working and operating environment and minimise virus
transmission risks, and implemented effective remote working practices with robust communication systems to ensure
the team could continue to deliver our objectives effectively.
The Company has continued to upgrade its employee processes and personnel. The Employee Handbook covers
employment matters including maternity and paternity leave arrangements, equal opportunities and dignity at work,
anti-harassment and bullying, IT and communication systems, social media, flexible working, disciplinary procedure,
grievance procedure, code of conduct/ anti-corruption and bribery, whistleblowing, data protection and HSE. Together,
the Company’s Employee Handbook, Intranet and HR System communicate the Company’s principles and policies with
our staff and contractors. They encapsulate the Company’s Code of Conduct with which all staff and contractors are
expected to comply.
The Board believes that it is important that employees (including Executive Directors) are appropriately incentivised,
given that the Group’s success is highly dependent on their performance. Accordingly, it has in place a Company Share
Option Plan (CSOP) which allows the Company to grant options over ordinary shares to all employees as set out on
page 26.
The Company’s position with regard to the interests of its employees is also covered in the IOG Social Policy, which is
laid out in full on the Employee Intranet and website and includes the following principles and commitments which the
Company expects all its personnel to uphold:
•
Act with the highest ethical standards at all times and hold each other to these standards;
•
Foster an open, inclusive and equal opportunity culture;
•
Value our diversity as people and respect unique characteristics;
•
Promote an ethos of constructive collaboration, effective communication and knowledge sharing;
•
Promote critical thinking and a problem-solving mindset to overcome challenges and capitalise upon
opportunities;
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•
Take a dynamic and agile approach to decisions and activities, and consider their external impacts;
•
Encourage our colleagues to further their professional ambitions by contributing to our shared progress,
supported through training and development where appropriate;
•
Listen to our colleagues and support their wellbeing wherever possible; and,
•
Look for opportunities to positively impact the communities in which we operate.
Foster business relationships with suppliers, customers and others
The Company’s policies and procedures relating to suppliers and all stakeholders are set out in principle 3 of the QCA
Statement. Engaging with all our stakeholders, whether the joint venture partner, investors (both equity and bond),
regulators or contractors, strengthens our relationships and helps us make better business decisions to deliver on our
commitments. The Board is regularly updated on wider stakeholder management to stay abreast of insights into the
issues that matter most to these various stakeholders and our business, to enable the Board to understand and consider
these issues in decision-making.
Potential suppliers are considered in light of their relevant experience and commercial attractiveness, but also their
suitability to comply with the Company’s HSE and other policies. We aim to work with contractors with deep experience
in their field, a strong value proposition, and who share our ethos of safe, efficient and responsible operatorship.
Through the competitive process of selecting contractors to deliver respective parts of the Phase 1 project over the
course of 2021-22 and through the initiation and progress of work under the resulting contracts, the Company has
continued to deepen its relationships with key contractors including Petrofac, Shelf Drilling, Subsea 7 and ODE among
others.
The Covid-19 pandemic led to some changes to operating procedures among suppliers and there are risks of increased
costs as a result, and it has also entailed some changes to commercial or contractual terms with suppliers.
The relationship with the joint venture partner, CER, is a fundamentally important one for the Company given the shared
ownership of almost all the licences in its portfolio and the alignment on the Core Project in particular. The farm-out
transaction with CER in 2019 established the basis of this relationship and the Company’s funding strategy, with
development carries agreed for both Phase 1 and Phase 2. The Company maintains a very close and active relationship
with CER at all levels, from a board/principal level down through the various layers of management, administered by
Operating Committee and Technical Committee meeting, down to daily operational interactions. Given the Core Project
arrangement as well as the Area of Mutual Interest agreement in respect of joint business development efforts, such as
the 33rd licensing round, and notwithstanding that IOG is Operator of the relevant licences, there is a fundamental
conjunction of interests and activities between IOG and CER, reflected in active collaboration across technical, financial,
commercial and operational domains. The Company makes all due effort to understand the strategic and financial
objectives of its partner and take these into account as far as reasonably possible in progressing the Core Project and
wider portfolio activities.
The Company expends significant time and resources developing and maintaining its relationships with all relevant
regulatory bodies, notably the NSTA, OPRED and the UK Health and Safety Executive (HSE).
Community and Environment
IOG aims to contribute positively to the UK’s energy transition by helping to supply secure, stable and affordable
energy to UK homes and businesses as part of a lower-carbon energy supply mix. The Company’s approach to the
community and environment is set out in more detail both in principle 3 of the QCA Statement and ESG policies, both
available in full on its website. In respect of its environmental responsibilities, the HSE and Sustainability policies are
most relevant, clearly laying out the Company’s commitments in these areas. The latter policy recognises the
importance of establishing clear principles in relation to climate change and sustainability matters, the Company
declares its ambition to manage its assets in a safe and efficient way, and acknowledges that limiting climate change
and transitioning to a more sustainable economy are critical challenges of our time. In that context, it recognises the
importance of the UK’s 2050 Net Zero target as part of global efforts to meet the goals of the 2015 Paris Accord. The
Board and quarterly HSE and Technical Committee review HSE issues as a standing agenda item. Further details of
the specific commitments in the policy can be read in full on the Company website at www.iog.co.uk/esg.
Maintain high standards of business conduct
The Company operates a corporate culture that is based on ethical values and behaviours. It maintains policies and
processes that are appropriate to do this for a Company of its size. The Executive Directors communicate regularly with
staff through town hall meetings and other smaller meetings. The Board has implemented a robust governance
framework including a Code of Conduct, which includes the Company’s Compliance with Anti-bribery and Corruption
Policy that is incorporated in the Employee Handbook and is communicated to all employees. The Code provides clear
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guidance on how the members of staff are expected to behave towards other colleagues, suppliers, customers,
shareholders and on our wider responsibility to the communities within which we operate. All employees are expected
to comply with the Code and any violations of it may be reported to management or Group HR. Under its Anti-bribery
and Corruption Policy, the Company’s policy is to conduct all its business in an honest and ethical manner. The
Company and Group apply 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. These systems include both detailed financial approval procedures
and Tender Committee processes, whereby contracts recommended by the Contracts and Procurement function are
reviewed by the Tender Committee to confirm a robust selection process, value and operational appropriateness and
the rationale minuted and reported by the General Counsel and Company Secretary to the Board on both an ongoing
and annual summary report basis. The Social Policy provides guidance for employees in respect of how the Company
expects them to conduct themselves, as detailed above.
Act fairly between shareholders
The Company remains committed to listening and to communicating openly with its shareholders to ensure that its
strategy, business model and performance are clearly understood. Understanding what analysts and investors think
about the Company and in turn, helping these audiences understand our business, is a key part of driving the business
forward and Company representatives maintain active dialogue with market participants in line with expectations of a
listed company. This is done via investor roadshows and meetings, attending investor conferences, delivering
presentations, hosting capital markets days, updating our website and our regular reporting and corporate and project
update announcements.
The AGM is the main forum for dialogue with shareholders and the Board. The Notice of Meeting is sent to shareholders
at least 21 days before the meeting. The Directors routinely attend the AGM and are available to answer questions
raised by shareholders in the form of a question and answer session after an update presentation. For each vote, the
number of proxy votes received for, against and withheld is announced at the meeting. The outcome of the resolutions
proposed at the AGM are subsequently published on the Company’s corporate website.
The Company actively upholds its relationships with institutional shareholders as well as ensuring that private
shareholders are also attended to as far as reasonably possible. Shareholder relations are managed primarily by the
Head of Capital Markets & ESG supported by the Chief Executive Officer, Chief Financial Officer and others in the
Executive Team, as appropriate. The Chief Executive Officer and Chief Financial Officer make presentations to analysts
throughout each year and immediately following the release of the full-year and half-year results. The Board is kept
informed of the views and concerns of major shareholders by briefings from the Executive Team. Any significant
investment reports from analysts are also circulated to the Board. The Non-Executive Chair and Senior Independent
Director are available to meet with major shareholders if required to discuss issues of importance to them.
The Company makes regular updates to the market on its commercial, technical and operational progress at all stages
of executing on its strategy.
Besides its shareholders, the Company has a separate class of financial investors, which are the institutional holders
of the €100 million senior secured Bond, who are effectively lenders to the Company. While there is less transparency
in this market as to which institutions hold the bonds, the Company does maintain an active dialogue with those who
do identify themselves and also maintains relationships with the Nordic investment banks who are active in this market.
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STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
Finance Review
Following First Gas in March 2022, the Company moved into a revenue generation phase of its development. Total
revenue generated in the year, before sales deductions, was £79.6 million, of which £76.0 million related to gas sales
and £3.6 million related to condensate sales. Total revenue after sales deductions was £75.4 million. Cost of sales
totalled £23.6 million consisting of £10.1 million of operating running costs, depletion of £13.2 million and other operating
expenditure of £0.4 million, offset by an increase in inventories of £40,000. Gross unit operating costs (excluding one-
off and exceptional items) for the period were therefore 24.0 p/therm. This resulted in a gross profit of £51.8 million.
Despite the commencement of production and initial revenues during the year, the disappointing result from the
Southwark A2 well and consequent downward revision in reserves at Southwark, Nailsworth and Elland resulted in a
£51.0 million impairment. This, coupled with the £11.4 million deferred tax liability due to the Energy Profits Levy which
was introduced during 2022, contributed to a full-year net loss after tax of £28.4 million.
The Company ended the year with an unrestricted cash balance of £26.7 million (2021: £31.3 million) plus £5.7 million
of restricted cash (2021: £3.4 million), £2.6 million of which is the minimum holding of Bond interest in the DSRA and
£3.1 million of which is decommissioning security. Group net debt at the end of the year was £65.1 million (2021: £56.6
million) (see note 18).
The €100 million bond (see below) and £11.6 million long-term, unsecured, non-interest-bearing Loan Note Instrument,
convertible at 19p into 60,872,631 Ordinary Shares, both remained in place, with maturity dates in September 2024.
Income Statement
The Group made a loss for the year of £28.4 million (2021: £2.4 million loss) after asset impairments of £51.0 million.
Gas revenues for 2022 were £76.0 million (2021: £nil) and condensate revenues were £3.6 million (2021: £nil). Net gas
revenues are £71.8 million (2021: £nil) inclusive of £4.2 million of sales deductions (2021: £nil). Total cost of sales was
£23.6 million, consisting of operating expenditure (opex) of £10.1 million (2021: £nil), depletion of £13.2 million (2021:
£nil), £0.4 million of other operating costs offset by an increase in inventory of £40,000. Accrued opex in the period
included £8.2 million of production opex and £1.9 million of onshore tariffs and SBRF operating costs, which equated
to gross unit operating costs (excluding one-off and exceptional items) of 24.0 p/therm. Cash opex was 13.9 p/therm,
as the Group looked to manage the produced water onshore and identify lower cost disposal routes. This resulted in a
gross profit of £51.8 million.
Operating loss for the period of £6.0 million includes £1.9 million of administration expenses, £51.0 million of impairment,
£0.2 million of project, pre-licence and exploration expenses, and £4.7 million FX loss.
Reduction in 2P reserves over the Southwark development resulted in a £43.4 million impairment (2021: £0.9 million).
The Nailsworth and Elland gas fields, which are envisaged to be part of a Central Hub development north of Southwark,
have been reclassified as 2C contingent resources resulting in a write down of £7.6 million (2021: £nil). Net
administration expenses of £1.9 million (2021: £2.1 million) reflect a lean corporate operation and the allocation of a
proportion of overheads to project assets.
The foreign exchange loss of £4.7million (2020: £3.4 million gain) reflects realised and unrealised foreign exchange
movements predominantly on the EUR denominated Bond and the USD denominated rig contract recognised under
lease liabilities.
The total interest charged to the income statement was £11.1 million (2021: £3.1 million). The increase of £8.0 million
was mainly due to additional interest expensed in the year, after capitalisation to qualifying assets, on the bonds of £6.9
million (2021: £nil). The Bond interest attributable to bringing capital projects on stream was capitalised in line with
Company's accounting policy. After the start of production in March 2022, the Bond interest is being expensed. This
resulted in a loss before taxation of £17.1 million.
The Group recognised a deferred tax liability of £11.4 million in 2022 following the introduction of an Energy Profits Levy
(EPL) on the UK ring fence profits of oil and gas producers with effect from 26 May 2022 and reflects the exclusion of
investment in the UK North Sea prior to this date contained within the legislation. The Group therefore recognised a
loss after tax of £28.4 million (2021: £2.4 million).
On this basis, earning per share (EPS) were minus 5.4p. Adjusted EPS, removing the impact of the asset impairments,
were 4.3p.
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Statement of financial position
Property, Plant and Equipment (PPE) oil and gas assets increased to £149.8 million (2021: £138.8 million) during the
year, representing capital expenditure activities on the Saturn Banks Project assets as well as capitalisation of the right
of use of leased assets over their lease term under IFRS 16 and an increase in the decommissioning provision
recognised against the assets, partially offset by depletion of the producing assets and the impairment of the Southwark
field.
Total assets increased to £206.5 million (2021: £181.1 million), including cash resources of £32.4 million (2021: £34.7
million) of which £5.7 million is restricted (2021: £3.4 million).
Total liabilities have increased to £203.9 million (2021: £151.0 million), with the Bond representing £ 87.6 million (2021:
£82.4 million). Current liabilities include trade payables of £11.1 million (2021: £7.7 million), lease liabilities of £15.8
million (2021: £11.1 million), accruals and operator advance accounts of £36.9 million (2021: £23.7 million) given the
high volume of work as the Phase 1 development progressed, and deferred considerations in relation to acquisitions of
£0.8 million (2021: £0.6 million).
Under IFRS 16, IOG is responsible for capitalising 100% of the lease cost of its rig contract as well as certain vessel
contracts, to its statement of financial position. Based on the minimum contract durations and day-rates, IOG has
therefore recognised £12.2 million in Property, Plant and Equipment (PP&E). IFRS 16 also requires recognition of the
lease liability for future payment obligations and interest on lease liabilities in the income statement over the lease term.
Based on the minimum contract duration and day-rate, IOG has therefore recognised £15.8 million (net liability after
payments) in lease liabilities.
Non-current liabilities include decommissioning provisions net to IOG of £29.8 million (2021: £15.8 million), including
Saturn Banks Pipeline decommissioning provision of £4.4 million (2021: £0.1 million), Saturn Banks Reception Facilities
decommissioning provision of £2.8 million and the addition of further Phase 1 infrastructure of £22.5 million (see note
17). Non-current liabilities also include long-term lease liabilities recognised under IFRS 16 of £1.3 million (2021 £11.1
million) related to the Saturn Banks Pipeline land lease and office leases, and a deferred tax liability recognised following
the introduction of the EPL of £11.4 million (2021: £nil). This resulted in net assets of £2.6 million (2021: £30.2 million),
with the decrease predominantly driven by the impairment on Southwark during the year.
The Group ended the year with a net debt position of £65.1 million (2021: £56.6 million), primarily driven by the ongoing
expenditure on the Phase 1 assets. Net debt is defined as total loans, primarily the EUR denominated Bond, less
restricted cash and cash equivalents.
Cash Flow
Net cash inflows of £71.8 million (2021: £20.0 million inflow) from operations, net cash outflow of £49.6 million (2021:
£3.6 million inflow) used in investing activities and net cash outflow of £27.2 million (2021: £8.2 million) used in financing
resulted in a cash and equivalents position of £26.7 million at year end (2021: £31.3 million). The increase of £71.8
million for cash generated by operations reflects the transition to a production phase for the Company. At the end of the
year £5.7 million (2021: £3.4 million) of funds were also held as restricted cash in the DSRA and as decommissioning
security.
The Directors do not recommend payment of a dividend (2021: nil).
€100 million Bond
The Group’s €100 million 5-year senior secured Bond was issued in 2019 in the name of Independent Oil and Gas plc
(the former name for the Company) to a range of institutional investors across the Nordic region, Europe, UK and Asia.
The bond has a bullet repayment structure, with a maturity date of 20 September 2024, and an interest rate, payable
quarterly, of 9.5 per cent per annum over the three-month EURIBOR rate. The Bond has a senior secured position over
the Group’s licences and infrastructure assets, as well as any further licence in which the Group takes an ownership
interest during the tenure of the Bond. Permitted use of funds are Phase 1 capital expenditure, financing costs and
general corporate purposes.
The Bond has been listed since December 2019 on the Oslo Børs with the ISIN NO0010863236. It is callable from
September 2022, with an initial call premium of 50% of the coupon (i.e. repayable at a cost of €104.75 million (£88
million) if the three month EURIBOR is at zero or lower), declining by 10% every six months thereafter. The Bond
documentation includes the option, subject to conditions and investor appetite, to issue additional amounts up to a
maximum aggregate of €30 million (£25.2 million) (“Tap Issues”). Tap Issues carry identical terms to the initial €100
million issue but may be issued at different prices.
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Commodity Risk Management Policy
The fundamental principle of the Group’s commodity risk management policy is to take a prudent approach to mitigating
exposure to fluctuations in gas prices and/or currencies to best protect cash flows. The Group will enter into price fixing
transactions only to manage genuine risks to cash flows, factoring in relevant economic data and reasonable projections
of its production, costs and debt service profile, and never for the purposes of investment or speculation. Commodity
and foreign exchange (FX) exposures are overseen by a Risk Management Committee (RMC) and decisions are taken
by a quorum of this RMC, which must include the CFO (with a second Executive Director also required to approve
transactions with a nominal value over a certain threshold).
Over certain months in 2022, the Group fixed month ahead gas prices under its gas sales agreement with BPGM, the
designated gas offtaker, at a volume of 30,000 therms/day, as follows:
August 2022
310 p/therm
September 2022
444 p/therm
October 2022¹
263 p/therm
December 2022
303 p/therm
At the current time, the Company expects to continue to fix prices for an appropriate proportion of its production with
BPGM. Details of the risks arising from the Group’s use of financial instruments can be found in Note 24 to the financial
statements.
¹October 2022 price fix was closed out mid-month in light of the requirement to temporarily suspend production in order depressurise the Saturn
Banks Pipeline System at that time.
Funding & Liquidity
The financial statements of the Group are prepared on a going concern basis.
In undertaking a going concern review, the Directors have given careful consideration to the Group’s financial
projections prepared by management for the period to 31 March 2024 (the review period). The Directors have also
considered significant known events beyond 31 March 2024. The projections reflect the Company’s best estimate of
expenditures and receipts for the period. The Directors have reviewed management’s key assumptions on which these
projections are based, including a downside price and other risking scenarios. The near-term cash forecasts are
regularly updated and reviewed to enable continuous monitoring and management of the Group’s cash flow and liquidity
risk. The forecasts indicate that, including the expectation that the Company can amend capital commitments under
some of its licences and taking into account other cost saving and capital management initiatives, the Group has
sufficient capital resources for a period of 12 months from the date of approval of this annual report. The Group’s debt
matures in September 2024 and the forecasts currently show that the Group plans to refinance its debt.
As part of its analysis in making the going concern assumption, the Directors have considered the range of risks facing
the business on an ongoing basis, as set out in the risk section of this Annual Report. The principal assumptions made
in relation to the going concern assessment include the continued production from the Blythe H-1 well, the successful
delivery of the Blythe H-2 well and subsequent gas production rates, the potential evolution of gas prices and potential
future capital allocations on its operated assets in the UK Southern North Sea.
Following a disappointing result from the Southwark A2 well test and remediation programme, the Company, in
conjunction with its joint venture partner CER, sanctioned the drilling of Blythe H-2, prioritising it ahead of Southwark
A1 as a lower risk option. Gas rates from H2 are expected to initially be in the 30-40 mmscf/d range and the well is
expected to be completed and producing within a period of approximately three months from the spud date of 5 March.
The Company takes regular external advice on gas price forecasts. The base case uses the forward curve for near-
term gas prices. The average gas price used in the review period is 130p/therm. Since the end of 2022 gas prices have
fallen over 20%. This sustained fall in gas price during the review period would result in a covenant breach in the interest
cover ratio. At the year end forward curve prices, no covenant breach was forecast. The Company’s €100 million bond
is subject to covenants that are measured biannually in June and December, being minimum liquidity of €5 million, net
debt to EBITDA of a maximum of 2.5x and interest cover of a minimum of 5.0x, based on measures as defined in the
facility agreement. The ratio of net debt to EBITDA at 31 December 2022 was 1.1 times and interest cover was 7.0
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times. In the downside case, where gas prices are assumed to be 50% below the current forward curve, both the
leverage ratio and interest cover ratio are forecast to be breached. In the event that a covenant is breached, an
extension or waiver of this covenant would need to be negotiated with the Bond Trustee. The Directors, taking into
account their assessment of Bondholders’ interests and given the Group would pass the minimum liquidity test, believe
this would be likely to be achieved, however it is not guaranteed.
The forecast also indicates in the base case the Group would need to minimise capital expenditures in the review period.
This may include the requirement to agree revised work programmes or licence commitments with the UK authorities
on licences where the Group has capital commitments as well as discretionary expenditures. If the Company is
unsuccessful in agreeing revised terms this may result in the need to raise alternative funds on whatever terms are
available at the time.
The Directors have concluded that the uncertainty around the volatility of the gas price and future production levels from
the Blythe H-2 well, as well as the need to take other mitigating actions described above represent a material uncertainty
which may cast significant doubt on the Group’s ability to continue as a going concern.
As a result of their review, and despite the aforementioned material uncertainty, the Directors have confidence in the
Group’s forecasts and have a reasonable expectation that the Group will continue in operational existence for the going
concern review period and have therefore used the going concern basis in preparing these consolidated financial
statements.
John Arthur
Chief Financial Officer
15 March 2023
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CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2022
Corporate Governance Statement
Board of Directors
The Company 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 London Stock Exchange listed companies. The Board is
supported by a capable and experienced management team.
Fiona MacAulay – Non-Executive Chair
A Chartered Geologist with over 30 years’ experience in the upstream oil and gas sector including key roles in a number
of leading oil and gas firms across the large, mid and small-cap space including Mobil, British Gas, Amerada Hess and
Rockhopper. Non-Executive Director at Ferrexpo PLC, Chemring PLC, Costain Group PLC and EPI Group Ltd. She is
a past president of the American Association of Petroleum Geologists Europe. Fiona chairs the Company’s
Remuneration and Nominations Committee and is a member of the Audit Committee.
Rupert Newall – Chief Executive Officer
Rupert has over 25 years of corporate finance experience in the upstream oil and gas industry, primarily in Investment
Banking where he has provided strategic, transactional and financing advice to broad range of E&P companies and
majors. Rupert’s Investment Banking career included Deutsche Bank, Bank of America and BMO Capital Markets
where he was Co-Head of Investment & Corporate Banking EMEA. Rupert’s extensive upstream experience includes
corporate and asset transactions, strategic advisory, equity and debt capital markets and restructuring. Prior to joining
IOG, Rupert was CEO of Edimis Energy Limited, an oil & gas advisory boutique which advised IOG on its strategic
options and the farm-out transaction in 2019. Rupert has a BA in Economics from Cambridge University. Rupert was
appointed CEO on 19 October 2022.
Dougie Scott – Chief Operating Officer
Dougie has 30 years of upstream operational experience, predominantly in the Southern North Sea where he led teams
delivering safe and reliable production, drilling, offshore hydraulic stimulation, green and brown field projects. He has
worked amongst others for Shell, RWE Dea UK and most recently INEOS Oil and Gas where over seven years he held
the leadership positions of CEO, Operations Director and Well Delivery and Decommissioning Director. Dougie joined
the Company on 20 October 2022 and was appointed a director on 11 November 2022.
Esa Ikaheimonen – Senior Independent Non-Executive Director
Esa has 30 years of oil and gas industry experience and strong board level expertise. Currently, he is CFO at ADNOC
Drilling Company PJSC and Non-Executive Director of Averda International. Esa’s previous board experience includes
roles as Non-Executive Chairman of Lamor Corporation plc, a Helsinki listed leading environmental service company,
Executive Director at Genel Energy plc, LSE listed E&P company, Non-Executive Director at Ahlstrom Corporation plc,
a global supplier of fibre-based products, and at Vantage Drilling International, a major offshore drilling contractor.
Previously, in addition to these board roles, Esa was CFO of Genel Energy plc and Executive Vice President and CFO
of Transocean plc, the world’s largest offshore drilling company. Prior to Transocean, Esa enjoyed a 20-year career at
Royal Dutch Shell, culminating in the role of Vice President Finance for Shell Africa E&P. He holds a Master’s degree
in Law from the University of Turku, specialising in tax law and tax planning. Esa is Senior Independent Non-Executive
Director and chairs the Company’s Audit Committee.
Neil Hawkings – Non-Executive Director
Neil Hawkings has over 35 years' experience in the upstream oil and gas sector. At ConocoPhillips, Neil played key
roles in the successful development of both their Southern North Sea gas business, and their gas business in Indonesia.
His final role was as Managing Director at Britannia Operator Limited (BOL), where he led production, development and
commercial activities at the Britannia gas condensate field. Neil then served as Operations Director at Premier Oil Plc,
responsible for operational and development activities across their global portfolio. He holds a Master's degree in
Chemical Engineering from Cambridge University. Neil chairs the Company’s HSE and Technical Committee.
____________________________________________________________________________________________________________________
IOG plc
Page 26 of 94
Annual Report 2022
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
Directors’ Remuneration Report
Remuneration Policy
Remuneration comprises a mix of salary and performance related payments and equity incentives.
In December 2022 the Board’s Remuneration Committee commissioned FIT to carry out a benchmarking review of its
executive, senior team and Non-Executive Director remuneration arrangements. The work covered Board and
Executive Committee – Board Chair, NEDs, CEO, COO, CFO, Head of Capital Markets & ESG and the General Counsel
and Company Secretary and included a full salary, benefits and incentives review and a view of general structure of
benefits and incentives across the Company. The benchmarking review concluded that the remuneration and benefits
structure comprising salary, discretionary cash performance related pay and long-term incentive options along with
health, life assurance and death in service benefits was appropriate for the senior team and Executive and Non-
Executive Directors. The company also commissioned WRS and Hunter Adams to provide benchmarking reviews on
all its employees other than the CEO, COO and CFO. These reviews are used to calibrate salary and incentives for all
those employees.
Remuneration of Directors
The remuneration of Executive and Non-Executive Directors were as follows:
Salary/Fees
Performance
Related Pay¹
Benefits²
Share-based
charge
2022 Total
2021 Total
£000
£000
£000
£000
£000
£000
Fiona MacAulay3
140
-
-
12
152
120
Esa Ikaheimonen
65
-
-
7
72
50
Neil Hawkings
55
-
-
5
60
45
Andrew Hockey4
342
369
55
186
952
519
Rupert Newall
331
306
42
169
848
445
Dougie Scott⁵
60
-
7
4
71
-
993
675
104
383
2,155
1,179
1 2022 Performance Related Pay included amounts voluntarily deferred from prior periods.
2 Benefits includes pension contributions, healthcare and life cover.
3 Fiona MacAulay sacrifices £10,000 of her fees to a personal pension plan, paid directly into by the company.
4 Andrew Hockey resigned as a Director on 19 October 2022.
⁵ Dougie Scott was appointed to the Board as a Director on 20 October 2022.
The share-based payment amounts represent the accounting charges for share options during the year and do not
reflect any cash realisations by Directors.
For the current Directors at 31 December 2022, the service agreements provide that the full contractual amount of
salary and/or fees will be paid in cash. Amounts of salary and/or fees outstanding as at 31 December 2022 to which
these terms relate totalled £nil (31 December 2021: £nil) for Directors. The salary amounts are those cash amounts
paid to Directors during the year. Social security costs for the year for key management personnel were £252,000
(2021: £147,000).
Options and Long-Term Incentive Plan Policy
The Board believes that it is important that all employees (including Executive Directors) are appropriately incentivised,
given that the Group’s success is highly dependent on their performance. Accordingly, it has in place a Company Share
Option Plan (CSOP) which allows the Company to grant options over ordinary shares to all employees, subject to
appropriate vesting conditions. The CSOP is administered by the Remuneration Committee and the maximum
aggregate awards, 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. Under this scheme, a total of 8,926,677 long-term incentivisation options
were awarded to employees in 2022, vesting three years from the date of grant and subject to meeting various
conditions including: a compound annual Company Total Shareholder Return (“TSR”) of 12.5%, relative TSR against a
basket of competitors, first gas and subsequent production goals and FDP approval on future fields being achieved,
and certain carbon intensity goals.
Directors’ interests in options on 1p ordinary shares of the Company as at 31 December 2022 were as follows:
____________________________________________________________________________________________________________________
IOG plc
Page 27 of 94
Annual Report 2022
Salary Sacrifice options
Granted
Held
at
31
Dec 2021
Exercised
in
2022
Held
at
31
Dec 2022
Expiry date
Rupert Newall
31-Aug-19
240,966
240,966
-
-
01-Apr-20
56,214
56,214
-
-
31-Aug-20
78,218
78,218
-
-
28-Feb-21
102,604
102,604
-
-
31-Aug-21
68,869
68,869
-
-
546,871
546,871
-
-
Esa Ikaheimonen
31-Aug-19
136,606
-
136,606
31-Aug-24
29-Feb-20
114,152
-
114,152
31-Mar-25
01-Apr-20
39,974
-
39,974
01-Apr-25
31-Aug-20
234,627
-
234,627
05-Oct-25
28-Feb-21
205,208
-
205,208
28-Feb-26
31-Aug-21
137,739
-
137,739
28-Sep-26
868,306
-
868,306
Fiona MacAulay
31-Aug-20
34,416
-
34,416
05-Oct-25
28-Feb-21
45,146
-
45,146
28-Feb-26
31-Aug-21
30,303
-
30,303
28-Sep-26
109,865
-
109,865
Neil Hawkings
31-Aug-19
18,061
-
18,061
31-Aug-24
31-Oct-19
9,994
-
9,994
31-Oct-24
31-Aug-20
14,079
-
14,079
05-Oct-25
28-Feb-21
18,469
-
18,469
28-Feb-26
31-Aug-21
12,396
-
12,396
28-Sep-26
72,999
-
72,999
Salary sacrifice options relate to a prior scheme in which, to enhance alignment between IOG personnel and
shareholders and to preserve cash, cash salary or fee amounts were reduced and the difference was settled by share
options. Each salary sacrifice option granted has an exercise price of 1p and no vesting conditions. The number of
options granted was determined by the Company’s volume weighted average share price for each six-month period of
salary or fee sacrifice. Salary sacrifice options were last issued in August 2021. Dougie Scott, who joined the Company
in October 2022, does not hold any salary sacrifice options.
CSOP and NED Option Deeds (NEDOD)
Granted
Type
Total by 31
Dec 2021
Awarded
in 2022
Total by 31
Dec 2022
Vested by
31 Dec 2022
Exercise
price
Expiry
date
Rupert Newall
01-May-19
CSOP
1,200,000
-
1,200,000
1,200,000
12.75p
30-Apr-29
02-Jan-20
CSOP¹
1,709,402
-
1,709,402
-
1p
01-Jan-30
28-Jan-21
CSOP
1,753,156
-
1,753,156
-
1p
27-Jan-31
17-Mar-22
CSOP
-
907,903
907,903
-
1p
16-Mar-32
4,662,558
907,903
5,570,461
1,200,000
Dougie Scott
11-Nov-22
CSOP
-
1,690,141
1,690,141
-
1p
10-Nov-32
-
1,690,141
1,690,141
-
Esa Ikaheimonen
01-May-19
NEDOD
600,000
-
600,000
600,000
12.75p
30-Apr-29
600,000
-
600,000
600,000
Fiona MacAulay
01-May-19
NEDOD
1,000,000
-
1,000,000
1,000,000
12.75p
30-Apr-29
1,000,000
-
1,000,000
1,000,000
Neil Hawkings
24-May-19
NEDOD
600,000
-
600,000
600,000
13.5p
28-Feb-24
600,000
-
600,000
600,000
¹ The share options issued under the CSOP in 2020 all lapsed in January 2023, shortly after the end of the reporting period, having not met their
vesting conditions.
____________________________________________________________________________________________________________________
IOG plc
Page 28 of 94
Annual Report 2022
Corporate Governance Statement
The Directors recognise the importance of sound corporate governance. The Company has adopted the Quoted
Companies Alliance (QCA) Corporate Governance Code 2018 (the Code) to the extent considered appropriate for a
company of its size.
Details of how the Company complies with the ten ‘Principles of the Code’ and explanations of why if it does not can be
found in the QCA Statement, which can be accessed via www.iog.co.uk/investors/aim-rule-26/, and are also discussed
below.
Commentary relating to Principles 1-3 of the Code, which state the following, are covered in the Strategic Report and
Section 172 above, and the Company’s QCA statement on the website.
1. Establish a strategy and business model which promote long-term value for shareholders
2. Seek to understand and meet shareholder needs and expectations
3. Take into account wider stakeholder and social responsibilities and their implications for long-
term success
Principle 4 of the Code states
MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK
4. Embed effective risk management, considering both opportunities and threats, throughout the
organisation
Audit, risk and internal control
The Board of Directors are aware of their responsibility for establishing and communicating a system to manage risk
and implement internal controls.
Operational risks are identified and assessed by management and any significant risks are reported to the Board.
Financial and commercial risks are reviewed by the Board.
The Board have reviewed the work of the executive management, which synthesised the key risks from a far broader
assessment of all operational and corporate risks considered as part of the day to day operational and commercial
management of the Company.
The Board, Audit Committee and HSE and Technical Committee Chair were circulated with summaries of the risk
analysis and discussed these informally before formal review at Board meetings.
The Company’s internal control systems are designed to provide the directors with reasonable assurance that any
problems are identified on a timely basis and dealt with appropriately. The Board considers the internal controls to be
effective, but no system of internal control can provide absolute assurance against material misstatement or loss.
The Company will effectively review the risks faced by the business, considering both opportunities and threats and
identify these in its annual report.
Further disclosures on risk and internal controls are set out below.
Financial Controls
The Company has an established framework of internal financial controls, the effectiveness of which is regularly
reviewed by the Executive Management, the Audit Committee and the Board in light of an ongoing assessment of
significant risks facing the Company.
–
The Company’s Financial Operating Policy (FOP) is the framework which regulates the financial processes of
the Group, from the concept of Group financial strategy through to the payment of invoices. The key objectives
of the FOP are to:
-
provide a clear framework for internal financial control;
-
define the levels of financial authority for Staff, Contractors, Directors and the Board; and
-
set out the processes for budgeting and financial reporting.
–
The Board is responsible for reviewing and approving overall Company strategy, approving revenue and capital
budgets and plans, and for determining the financial structure of the Company including treasury and tax.
–
The Audit Committee assists the Board in discharging its duties regarding the financial statements, accounting
policies and the maintenance of proper internal business and operational and financial controls, including the
review of results of work performed by the Group controls function.
–
There are comprehensive procedures for budgeting and planning, for monitoring and reporting to the Board
business performance against those budgets and plans and for forecasting expected performance over the
remainder of the financial period. These cover profits, cash flows, capital expenditure and net asset statements.
____________________________________________________________________________________________________________________
IOG plc
Page 29 of 94
Annual Report 2022
–
The Company has a consistent system of prior appraisal for investments, overseen by the Chief Financial
Officer and Chief Executive Officer, with defined financial controls and procedures with which each business
area is required to comply in order to be granted investment funds for development.
Non-financial Controls
The Board recognises that maintaining sound controls and discipline is critical to managing the downside risks to our
plan.
The Board has ultimate responsibility for the Group’s system of internal control and for reviewing its effectiveness.
However, any such system of internal control can provide only reasonable, but not absolute, assurance against material
misstatement or loss. The Board considers that the internal controls in place are appropriate for the size, complexity
and risk profile of the Group. The principal elements of the Group’s internal control system include:
–
Close management of the day-to-day activities of the Group by the Executive Directors.
–
An organisational structure with defined levels of responsibility, which promotes entrepreneurial decision-
making and rapid implementation while minimising risks.
–
A comprehensive annual budgeting process.
–
Detailed monthly reporting of performance against budget.
–
Central control over key areas such as capital expenditure authorisation and banking facilities.
The Group continues to review its system of internal control to ensure compliance with best practice, while also having
regard to its size and the resources available. As part of the Group’s review a number of non-financial controls covering
areas such as regulatory compliance, business integrity, health and safety, risk management, business continuity and
corporate social responsibility have been assessed. The key elements of those non-financial controls are set out below.
Standards and Policies
The Board is committed to maintaining appropriate standards for all the Company’s business activities and ensuring
that these standards are set out in written policies and kept under review.
Approval Process
Contracts are required to be reviewed and signed off functionally by the CFO and General Counsel and signed by a
Director of the Company. Major contracts require the internal sign off from two or more directors according to the
Financial Operating Policy of the Company.
Re-assessment
The Company has a Business Risk Register with business continuity plans to address key risks that have an immediate
impact. Risks facing the business are re-assessed and potential mitigating actions are considered and implemented to
help protect against those risks.
Sections 5-10 of the Code state:
5. Maintaining the Board as a well-functioning, balanced team led by the Chair
The Board currently comprises the Non-Executive Chair, two Executive Directors and two further Non-Executive
Directors.
The Board considers that Fiona MacAulay (Chair), Esa Ikaheimonen (Senior Independent Director) and Neil Hawkings
its current three Non-Executive Directors, bring independent judgement to bear. Fiona MacAulay was previously the
Company’s Senior Independent Director.
Non-Executive Directors are expected to devote such time as necessary for proper performance of their duties. This
includes regular attendance at Board, AGM, shareholder and committee meetings.
The Board is satisfied that it has a suitable balance between independence on the one hand and knowledge of the
Company on the other to enable it to discharge its duties and responsibilities effectively.
All Directors are encouraged to use their independent judgement and to challenge all matters, whether strategic or
operational. During the year at least six scheduled Board meetings take place and a number of additional meetings as
may be required. These are held at IOG’s head office in London.
Key Board activities include:
–
Considering our financial and non-financial policies.
–
Discussing strategic priorities.
–
Discussing the Group’s capital structure and financial strategy, including capital investments and shareholder
returns.
–
Discussing internal governance processes.
____________________________________________________________________________________________________________________
IOG plc
Page 30 of 94
Annual Report 2022
Directors’ Conflict of Interest
The Company has effective procedures in place to monitor and deal with conflicts of interest. The Board is aware of
the other commitments and interests of its Directors and changes to these commitments interests are reported, minuted
and where appropriate, agreed with the rest of the Board.
Directors’ Attendance:
Director
Board
Audit Committee
Remuneration and
Nominations Committee
HSE and Technical
Committee3
Meetings
9
4
1
4
Fiona MacAulay
Chair 9
4
Chair 1
-
Andrew Hockey1
7
-
-
3
Rupert Newall
9
-
-
-
Dougie Scott2
2
-
-
-
Esa Ikaheimonen
8
Chair 4
1
-
Neil Hawkings
9
-
-
Chair 4
1.
Andrew Hockey announced his retirement and resigned as a Director on 19 October 2022. He attended 7 out of 7 the Board meetings he was eligible to
attend.
2.
Dougie Scott was appointed a Director on 11 November 2022 and attended the two Board Meetings he was eligible to attend.
3.
Dougie Scott attends the Committee. Mark Yates, in his capacity as HSE Manager, attends and acts as Secretary to the Committee. David Gibson, who was
COO, but not a director, attended HSE and Technical Committees until 19 October 2022.
6. Ensure that between them the Directors have the necessary up-to-date experience, skills and
capabilities
The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills and experience,
including in the areas of technical Oil and Gas subsurface, project management, drilling and facilities experience and
in the areas of banking, financial and commercial skills and experience. All Directors receive regular and timely
information on the Group’s operational and financial performance. Relevant information is circulated to the Directors
by the Company Secretary in advance of meetings. The business reports monthly on its headline performance against
its agreed budget and the Board reviews the monthly update on performance and any significant variances are reviewed
at each meeting.
Relevant updates are provided by the General Counsel, external counsel, NOMAD and Brokers as required.
Two Non-Executive Directors are active in other companies in Executive and Non-Executive capacities.
All Directors retire by rotation at regular intervals in accordance with the Company’s Articles of Association.
Appointment, removal and re-election of Directors
The Board makes decisions regarding the appointment and removal of Directors and there is a formal, rigorous and
transparent procedure for appointments. The Company’s Articles of Association require that one-third of the Directors
must stand for re-election by shareholders annually in rotation; that all Directors must stand for re-election at least once
every three years; and that any new Directors appointed during the year must stand for election at the AGM immediately
following their appointment.
The Board of Directors has a mix of experience, skills and personal qualities that help deliver the strategy of the
Company. The Company will ensure that between them the Directors have the necessary up-to-date experience, skills
and capabilities to deliver the Company strategy and targets. Each Director is listed on the website and in the annual
report along with a clear description of their role and experience.
The Board also evaluates the balance of skills, knowledge and experience on the Board and considers all new Board
appointments and re-appointments against this evaluation.
Independent Advice
All Directors are able to take independent professional advice in the furtherance of their duties, if necessary, at the
Company’s expense. In addition, the Directors have direct access to the advice and services of the General Counsel
and Company Secretary, the Chief Executive Officer and the Chief Financial Officer.
____________________________________________________________________________________________________________________
IOG plc
Page 31 of 94
Annual Report 2022
Experience, Skills and Capabilities
Biographical details of the Directors and their relevant experience can be found on the Company website at the following
link www.iog.co.uk/about-us/board-and-management/.
7. Evaluate Board performance based on clear and relevant objectives, seeking continuous
improvement.
The Chair will continue to informally assess the individual contributions of each of the members of the team to ensure
that Company strategy is effectively implemented, and that:
-
Their contribution is relevant and effective
-
That they are committed
-
Where relevant, they have maintained their independence
Each year the board team completes an internal review of individual and collective effectiveness and identifies a number
of actions to ensure that the members of the Board collectively function in an efficient and productive manner as
possible. This takes the form of an adapted standard form questionnaire that is circulated by the Company Secretary,
the results of which were summarised and discussed with the Chair. The results were collated under a traffic light
system, together with suggested actions, which were circulated to the Board and then discussed in a full Board meeting,
with agreed actions being minuted. These actions have included the introduction of strategic sessions to compliment
the usual format of board meetings, adjusting board meetings into longer and also some shorter update sessions,
updated processes to manage risk registers between the Board and Committees, improved employee communication
through town hall and virtual town hall meetings.
8. Promote a culture that is based on ethical values and behaviours
The Board aims to lead by example and do what is in the best interests of the Company.
The Company operates a corporate culture that is based on ethical values and behaviours. It maintains policies and
processes that are appropriate to do this for a Company of its size. The Executive Directors communicate regularly with
staff through town hall meetings, both in person and through digital communications where necessary.
The Board has implemented a robust governance framework including a Code of Conduct, which includes the
Company’s compliance with Anti-bribery and Corruption Policy that is incorporated in an updated Employee Handbook
and is communicated to all employees. The Code provides clear guidance on how the members of staff are expected
to behave towards other colleagues, suppliers, customers, shareholders and on our wider responsibility to the
communities within which we operate. All employees are expected to comply with the Code and any violations of it
may be reported to local management or Group HR.
Anti-bribery and Corruption Policy
Company policy is to conduct all its business in an honest and ethical manner. The Company and Group apply 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.
9. Maintain governance structures and processes that are fit for purpose and support good
decision-making by the Board
Board programme
The Board meets at least six times each year in accordance with its scheduled meeting calendar.
The Board sets direction for the Company through a formal schedule of matters reserved for its decision. Prior to the
start of each financial year, a schedule of dates for that year’s Board meetings is compiled to align as far as reasonably
practicable with the Company’s financial calendar while also ensuring an appropriate spread of meetings across the
financial year. This may be supplemented by additional meetings as and when required.
During 2022 the Board met for its six scheduled meetings and a further three ad-hoc meetings, giving a total of nine
meetings. The Board and its subcommittees receive appropriate and timely information prior to each meeting; a formal
agenda is produced for each meeting and Board and Committee papers are distributed several days before meetings
take place. Any Director may challenge Company proposals and decisions are taken democratically after discussion.
Any Director who feels that any concern remains unresolved after discussion may ask for that concern to be noted in
the minutes of the meeting, which are then circulated to all Directors by the Company Secretary. Any specific actions
arising from such meetings are agreed by the Board or relevant Committee and then followed up by the Company’s
executive management.
Roles of the Board, Chair and Chief Executive Officer.
____________________________________________________________________________________________________________________
IOG plc
Page 32 of 94
Annual Report 2022
The Board is responsible for the long-term success of the Company. There is a formal schedule of matters reserved to
the Board. It is responsible for overall Group strategy; approval of major investments (whether Capex or Opex);
approval of the annual and interim results; annual budgets and Board structure. It monitors the exposure to key
business risks and reviews the strategic direction of all trading subsidiaries, their annual budgets and their performance
in relation to those budgets. There is a clear division of responsibility at the head of the Company as the roles of Chair
and Chief Executive Officer are split. The Chair is responsible for running the business of the Board and for ensuring
appropriate strategic focus and direction. The Chair leads a Board of Non-Executive Directors with significant industry
experience, in order to provide an effective challenge to the Executive Directors and to foster high quality debate and
effective business decisions in an open and ethical culture. The Chair considers the Code principles of Company
strategy, shareholder, stakeholder, societal, environmental and risk management responsibilities. The Chair, together
with the Company Secretary ensures that all Directors are aware and updated on their duties. The Chair assesses the
Board’s effectiveness on an annual basis and identifies actions to improve the functioning of the Board. The Chief
Executive Officer is responsible for proposing the strategic focus to the Board, implementing it once it has been
approved and overseeing the management of the Company through the Executive Team.
All Directors receive regular and timely information on the Group’s operational and financial performance. Relevant
information is circulated to the Directors in advance of meetings. The business reports monthly on its headline
performance against its agreed budget and the Board reviews the monthly update on performance and any significant
variances are reviewed at each meeting. Senior executives below Board level attend Board meetings where appropriate
to present business updates. Board meetings throughout the year are held at the Company’s head office or virtually.
Executive Team
The Executive Team comprises Rupert Newall the Chief Executive Officer, Dougie Scott, the Chief Operating Officer,
John Arthur, the Chief Financial Officer, James Chance, the Head of Capital Markets & ESG and Robin Storey, General
Counsel and Company Secretary. They are responsible for formulation of the proposed strategic focus for submission
to the Board, the day-to-day management of the Group’s businesses and its overall trading, operational and financial
performance in fulfilment of that strategy, as well as plans and budgets approved by the Board of Directors. The
Executive Team also manages and oversees key risks, management development and corporate responsibility
programmes. The Chief Executive Officer reports to the Board on issues, progress and recommendations for change.
The controls applied by the Executive Team to financial and non-financial matters are set out earlier in this document
and the effectiveness of these controls is regularly reported to the Audit Committee and the Board.
Board Committees
The Board is supported by the Audit Committee, Remuneration and Nomination Committee and the HSE and Technical
Committee. Each subcommittee has access to such resources, information and advice as it deems necessary, at the
cost of the Company, to enable the committee to discharge its duties. The terms of reference of each committee are
as follows:
Audit Committee
The Audit Committee comprises Esa Ikaheimonen (Chair) and Fiona MacAulay. 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 met four times during the year. It has unrestricted access to the Company’s Auditors.
Remuneration and Nominations Committee
The Remuneration and Nominations Committee comprises Fiona MacAulay (Chair) and Esa Ikaheimonen. 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 Committee
leads the process for Board appointments and makes recommendations for maintaining an appropriate balance of skills
on the Board. The Remuneration & Nominations Committee met once during the year as planned.
Other Directors, including the Chief Executive, are invited to attend as appropriate and only if they do not have a conflict
of interest. The Committee was also assisted by executive and industry remuneration consultants during the year.
HSE and Technical Committee
The HSE and Technical Committee comprises Neil Hawkings (Chair), Rupert Newall and Dougie Scott, who was
appointed on 20 October 2022. Mark Yates, the Company’s Head of HSE, acts as Secretary to the Committee. The
HSE and Technical Committee determines the Company’s Environmental Management Policy, its Health and Safety
Management Policy and directs the overall governance of the Company’s Subsurface and Technical Management
policies. The HSE and Technical Committee met four times during the year.
____________________________________________________________________________________________________________________
IOG plc
Page 33 of 94
Annual Report 2022
BUILD TRUST
10. Communicate how the Company is governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
The Company communicates with shareholders through the appropriate channels including regulatory releases (RNS),
Annual Report and Accounts, full-year and half-year interim announcements, the Annual General Meeting (‘AGM’),
General Meetings (‘GMs’) and one-to-one meetings with large existing or potential new shareholders. Investor
Relations are managed by the Executive Team and email queries from private individual shareholders are handled with
responses limited to clarifying information that is already in the public domain.
In regard to a general meeting of the Company, once the meeting has concluded the results of the meeting are released
through a regulatory news service and a copy of the announcement is posted on the Company’s website. If it became
relevant an explanation of actions where a significant proportion of votes (e.g. 20% of votes received) is cast against a
resolution would be provided.
A range of corporate information (including all Company announcements, third party reports, summaries of key assets
and presentations) is also available to shareholders, investors and the public on the Company’s corporate website,
https://www.iog.co.uk.
The Board receives regular updates on the views of shareholders from the Executive team. The Company’s PR
consultants Vigo Consulting provides updates on public coverage of the Company and the Company’s Nominated
Advisor finnCap and Broker Peel Hunt both provide weekly reports on share price performance and comparisons with
the peer group. The Company communicates with institutional investors at appropriate intervals through briefings with
management. In addition, analysts’ notes and brokers’ briefings are reviewed to ensure they have properly understood
Company guidance. Annual reports and interim statements are available on the Company’s website at
https://www.iog.co.uk/investors/results-reports-and-presentations/.
Website AIM Rule 26 Page
The AIM Rule 26 page of the website includes this Corporate Governance Statement and information or links to the
statutory information regarding:
•
Description of the business
•
Details and biographies of the Board of Directors
•
Description of main Board committees and their responsibilities
•
Details of any restrictions on the transfer of AIM securities
•
Number of securities in issue
•
Identity and percentage holding of significant shareholders, including Directors’ shareholdings and
shareholders with more than 3% of the stock
•
Current Annual Report & Accounts
•
Current constitutional documents
•
Admission Document
The Company website is updated regularly.
On behalf of the Board
Robin Storey
General Counsel and Company Secretary
15 March 2023
IOG plc
Page 34 of 94
Annual Report 2021
REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2022
Report of the Directors
The Directors present their report and audited financial statements of IOG plc (“the Company”) and its subsidiaries ("the
Group") for the year ended 31 December 2022. All amounts are shown in Pounds Sterling, unless otherwise stated.
The Company has its headquarters in London and its portfolio lies 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 can be found in the Strategic Report / Finance Review.
Dividend
The Directors do not recommend the payment of a dividend (2021: £nil).
Political contributions
No payments to political parties have been made during the year (2021: £nil).
Future Developments
The Group is focused on optimising the performance of Saturn Banks production assets as well as delivering further
phases, further details of which are included in the Strategic Report above.
Directors and their Interests
The Directors who held office during the year, and at the date of this report, were: -
Fiona MacAulay
Rupert Newall
Dougie Scott
Esa Ikaheimonen
Neil Hawkings
Directors’ biographies and committee memberships are set out in the Corporate Governance Report from pages 25 to
33.
The Group has provided the Directors with third party indemnity insurance of £25 million for 2022 (2020: £25 million).
Directors who held office during the financial year had the following interests in shares of the Company:
Ordinary shares of 1p each
At 31 December 2022
At 31 December 2021
Rupert Newall1
4,953,921
3,807,050
Dougie Scott
192,289
0
Fiona MacAulay
269,178
220,000
Esa Ikaheimonen
500,000
500,000
Neil Hawkings
20,000
20,000
1 Also includes people related to, or persons closely associated to Rupert Newall.
Details of Directors’ emoluments and share options are set out in Note 4 to the financial statements.
Substantial Shareholdings
Except for the holdings of ordinary shares listed below, the Company has not been notified by or become aware of any
persons holding 3% or more of the 525,037,353 issued ordinary shares of 1p each of the Company as at market close
on 15 March 2022.
Shareholder
Number
%
London Oil and Gas Limited (in administration)
135,388,669
25.79
Chelverton Asset Management
25,325,000
4.82
Stonehage Fleming
21,200,000
4.04
Premier Miton Investors
21,032,354
4.01
Directors and Management
9,110,681
1.74
Remainder
312,757,834
59.57
Total
525,037,353
100%
IOG plc
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Annual Report 2021
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.
Financial Instruments
Information on financial instruments can be found in Note 24 to the financial statements.
Related Parties
Information on related party transactions can be found in Note 26 to the financial statements.
Subsequent Events
Information on subsequent events can be found in Note 28 to the financial statements.
Shareholder Communications
The Company has a website, www.iog.co.uk, to provide relevant information to shareholders.
IOG plc
Page 36 of 94
Annual Report 2021
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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 UK adopted
International Accounting Standards as applied in accordance with the provisions of the Companies Act 2006. 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 UK adopted International Accounting Standards applied
in accordance with the provisions of the Companies Act 2006, 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
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 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, 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
Rupert Newall
Chief Executive Officer
15 March 2023
IOG plc
Page 37 of 94
Annual Report 2021
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IOG PLC
INDEPENDENT AUDITOR’S REPORT
Opinion on the financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2022 and of the Group’s loss for the year then ended;
•
the Group financial statements have been properly prepared in accordance with UK adopted
international accounting standards;
•
the Parent Company financial statements have been properly prepared in accordance with UK
adopted international accounting standards 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.
We have audited the financial statements of IOG Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’)
for the year ended 31 December 2022 which comprise the consolidated statement of comprehensive income,
the consolidated and company statements of changes in equity, the consolidated statement of financial
position, the company statement of financial position, the consolidated cash flow statement, the company
cash flow statement and notes to the financial statements, including a summary of significant accounting
policies.
The financial reporting framework that has been applied in their preparation is applicable law and UK adopted
international accounting standards and, as regards the Parent Company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as
applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
Material uncertainty related to going concern
We draw attention to note 1 in the financial statements which sets out the Directors’ considerations of the
Group’s ability to continue as a going concern. This indicates the uncertainty around the volatility of the gas
price and future production levels may cause the Group to breach the terms of its loan agreement, including
bond covenants, and may require the Group to take mitigating actions such as obtaining an extension or
waiver of these covenants and minimising capital expenditures. The Group may potentially also need to raise
additional funds. These events or conditions, along with the other matters as set out in note 1, indicate that
a material uncertainty exists that may cast significant doubt on the Group’s and the Parent Company’s ability
to continue as a going concern. Our opinion is not modified in respect of this matter.
Given the material uncertainty noted above, and our risk assessment, we considered going concern to be a
key audit matter. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability
to continue to adopt the going concern basis of accounting and our response to the key audit matter included:
•
Obtaining, challenging and assessing the Group and Parent Company’s base case cash flow
forecasts and the underlying assumptions (gas prices, production levels, operating and development
costs) which have been approved by the Board focussing on the appropriateness of estimates with
IOG plc
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Annual Report 2021
reference to empirical data and external evidence and on determination of the point at which liquidity
and bond covenants are breached.
•
Challenging Management on the reasonableness of forecast price assumptions applied in the model
and benchmarked these to market and other broker consensus pricing ranges.
•
Assessing whether key inputs applied in the cash flow forecasts relating to future capital costs and
production were consistent with approved budgets and field development plans and other financial
and operational information obtained during the course of the audit.
•
Obtaining, reviewing and challenging Management’s reverse stress testing analysis which was
performed to determine the point at which the Group requires further funding. Our testing considered
whether such scenarios, including significant deductions in gas prices and delays to production were
possible.
•
Comparing the Group’s actual results for the year ended 31 December 2022 to the planned budgeted
out turn for 2022 to assess the quality of Management’s budgetary process including retrospective
analysis on the planned capital and developmental expenditure.
•
Comparing the level of capital and developmental expenditure committed by the Group and Parent
Company to the level of such expenditure included in the going concern model.
•
Assessing the sufficiency of the disclosure within the financial statements relating to the Directors’
assessment of the going concern basis of preparation checking that the disclosures reflect the key
judgements and estimates made.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in
the relevant sections of this report.
Overview
Coverage
100% (2021: 100%) of Group loss before tax
100% (2021: 100%) of Group revenue
100% (2021: 100%) of Group total assets
Key
audit
matters
2022
2021
Accounting for leases under IFRS 16
✓
✓
Going Concern
✓
✓
Accounting for decommissioning
provisions
✓
✓
Carrying value of oil and gas assets
✓
Materiality
Group financial statements as a whole
£2.4m (2021: £2.6m) based on 1.2% (2021: 1.4%) of total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment,
including the Group’s system of internal control, and assessing the risks of material misstatement
in the financial statements. We also addressed the risk of management override of internal controls,
including assessing whether there was evidence of bias by the Directors that may have represented
a risk of material misstatement.
We determined that there were three significant components: IOG UK Limited, IOG North Sea Limited, IOG
Infrastructure Limited. Together with the parent company and its Group consolidation, they were all subject
to a full scope audit.
IOG plc
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Annual Report 2021
The remaining components of the Group were considered non-significant and these components were
principally subject to analytical review procedures, together with additional substantive testing over the risk
areas detailed above where applicable to that component.
All of the audit work was conducted by the group audit team.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified, including those which had the greatest
effect on the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In
addition to the matter described in the Material uncertainty related to going concern section of our report, we
have determined the matters below to be the key audit matters to be communicated in our report.
Key audit matter
How the scope of our audit addressed the key audit
matter
Accounting
for
leases
under
IFRS 16 Leases
(Please refer to
note 1, 11 and 23
of the financial
statements
for
further
information)
During the development
of its oil and gas projects
the Group has entered
into
a
number
of
significant contracts with
suppliers
for
platform
construction,
subsea
drilling
and
offshore
support
activities.
A
number
of
these
contracts are considered
to be leases.
Given the complexities
and judgements required
to
be
applied
by
Management
in
determining
the
application of IFRS 16 to
the existing and new
arrangements,
the
materiality
of
the
balances related to the
right of use asset and
lease
liabilities
we
consider this area to be a
significant risk for the
audit and therefore a key
audit matter.
•
We obtained, reviewed and challenged Management’s
assessment of lease accounting for revised terms of existing
contact and new contracts entered into during the year,
including consideration of the impact on lease liabilities and
right of use assets recognised.
•
We reviewed a sample of the underlying supporting
agreements to check Management had identified and
reflected the appropriate accounting for all relevant clauses
impacted by the application of IFRS 16 such as renewal
option clauses.
•
We evaluated whether Management’s accounting for the
lease modifications that occurred during the current year was
in accordance with applicable standards and re-performed
our own assessment of the impact on the financial
statements.
•
We
assessed
Management’s
accounting
for
the
amendments to day rates and operation of the equipment
under contracts classified as leases, in order to check
whether the correct accounting treatment had been applied
in line with the requirements of applicable accounting
standards.
•
We recalculated Management’s determination of the right of
use asset and lease liability for new leases identified.
•
We also recalculated the depreciation and associated
finance cost for all leases recorded at the reporting date.
•
We challenged the incremental borrowing rate assumption
made by Management. Our work focussed on benchmarking
Management’s assumptions against interest rates on bonds
and other loans received by the Group in order to assess the
reasonableness of the rate applied.
•
We obtained a listing of suppliers used by the Group in the
year and obtained an understanding of the services provided
by each through review of supporting documentation in order
IOG plc
Page 40 of 94
Annual Report 2021
to determine the completeness of Management’s IFRS 16
assessment.
•
We further analysed the general ledger to assess whether
the supplier listing was complete, for example searching
entry descriptions for previously unidentified suppliers, and
also to identify any material recurring costs to determine any
unidentified leases as these could be indicative of a lease
payment in substance.
•
We reviewed a sample of current and post year end
payments to agree the completeness of Management’s IFRS
16 assessment. During the audit of other areas of the
financial statements, we considered whether any costs
incurred may indicate the existence of a lease arrangement.
•
We reviewed the adequacy of the disclosures in the financial
statements for compliance with the accounting framework.
Key observations:
Based on the work performed we did not identify any
instances which suggests that the accounting for the
leases is materially incorrect.
Accounting
for
decommissionin
g provisions
(Please refer to
note 1 and 17 of
the
financial
statements
for
further
information)
The
Group
has
a
regulatory and financial
obligation
to
decommission
their
assets at their end of their
economic lives.
There are a number of
judgements
and
estimates such as costs,
the timing of the work and
the discount rate applied
by Management in the
determination
of
the
decommissioning
provision in accordance
with
the
accounting
standard.
Given
the
material
increase in this provision
in
the
year,
we
considered this area to be
a significant risk for the
audit and therefore a key
audit matter.
•
We held discussions with Management to understand the
material changes and movements in the decommissioning
provisions which had occurred in the year.
•
We obtained Management’s calculation of the year end
decommissioning provision and assessed the key inputs. We
critically assessed the assumptions including: a) the
expected timing of decommissioning of the assets versus the
operational plans and wider Group programs, b) comparing
discount rates to market risk free bond rates and peer
analysis, c) comparing inflation rates to forecast inflation rate
data, and d) agreeing the consistency of the cost of
decommissioning cost estimates with third party external
data and internal expert reports where possible.
•
We assessed the appropriateness of values for purposes of
the valuation and completeness of the decommissioning
liabilities.
•
We reviewed correspondence with the Oil and Gas Authority
and made specific inquiries of Management to understand
and assess the appropriateness of the decommissioning
plans.
•
We assessed the mathematical accuracy of the calculation
of the provision, the discount unwinding charge, movement
in the provision and associated decommissioning assets.
•
We held meetings with Management’s external and internal
experts to assess controls and oversight relating to the
preparation of estimates applied in the decommissioning
provisions and considered the risks and uncertainties
associated with the required work for each asset.
•
We
assessed
the
competence
and
objectivity
of
Management’s external and internal experts in the
preparation of estimates of decommissioning obligations.
Key observations:
IOG plc
Page 41 of 94
Annual Report 2021
Based on the work performed, we consider the
judgements and estimates made in the calculation of the
Group’s provisions for decommissioning to be reasonable.
Carrying value of
oil & gas assets
(Please refer to
note 1, 10 and 11
of the financial
statements
for
further
information)
The Group’s oil and gas
assets are classified as
intangible assets where
the
Group
has
exploration
and
evaluation
interests
(“E&E”) and as property,
plant
and
equipment
where the Group has
development
and
producing
interests
(“D&P”). In respect of
both the Group’s E&E
and D&P assets, the
directors are required to
assess annually for any
indicators of impairment
of the assets. If an
indicator of impairment is
identified the directors
are required to perform
an assessment of the
carrying value of the
assets.
The directors identified
that
the
Southwark,
Nailsworth and Elland
assets were considered
to be impaired due to the
uncertainty in respect of
the future gas production
from the reserves. There
were
no
further
impairment
indicators
identified on any of the
other assets.
Given the significance of
the assets in the context
of
the
Group’s
consolidated statement of
financial position and the
significant
judgement
involved
in
the
assessment of potential
indicators of impairment,
we consider this to be a
key audit matter.
We held meetings with operational management in order to be
able to assess the operating activity and development of the
assets undertaken in the year.
We obtained and examined management’s impairment indicator
paper for each CGU against the criteria in the accounting
standards depending on the asset classification and assessed
the appropriateness of their conclusion that a potential indicator
of impairment was present for Southwark, Nailsworth and Elland
CGUs.
Accordingly, we obtained management’s impairment test
and performed the following:
We assessed the appropriateness of management’s
determination of each cash generating unit (CGU) in line
with
the
relevant
accounting
standard,
including
identification of the smallest identifiable group of assets
that
generates
largely
independent
cash
inflows,
appropriateness of grouping of certain assets into a single
CGU.
We obtained management’s discounted cash flow models
and performed data integrity and mechanical checks on
the models data analytics.
We critically challenged the NPV model, focussing on the
appropriateness of estimates with reference to empirical
data and external evidence with specific emphasis on the
following
assumptions:
gas
prices,
reserves
and
production levels, operating and development costs and
discount rate.
We compared forecast price assumptions applied in the model
to independently sourced broker consensus pricing ranges.
We assessed the consistency of production profiles and
capital
expenditure
forecasts
against
the
field
development
plans,
and
met
with
operational
management
to
inform
our
assessment
and
understanding of these plans and budgets.
We compared the 2P reserves included in the models to
Reserve Statements prepared by the Group’s internal
reserve engineers and performed procedures to assess
their independence and competence. We had meetings
with the internal reserve engineers as part of this process
to understand the scope and significant judgments and
estimates.
We involved our internal valuations experts to help us to
assess the appropriateness of discount rate applied.
We reviewed management’s sensitivity analysis and
performed our own sensitivity analysis on key inputs to
IOG plc
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Annual Report 2021
assess the impact of changes in assumptions on the
carrying value of the assets.
We confirmed the existence of the licenses and assessed
compliance with key terms.
We reviewed the disclosures in the financial statements to check
they were in accordance with the requirements of the relevant
accounting standard.
Key observations:
Based on the work performed, we consider the judgments
and estimates made by management in assessing the
carrying value of oil and gas assets to be appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions,
could influence the economic decisions of reasonable users that are taken on the basis of the financial
statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we
use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of
the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating
their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
Group financial statements
Parent company financial
statements
2022
£m
2021
£m
2022
£m
2021
£m
Materiality
2.4
2.6
2.1
2.3
Basis
for
determining
materiality
1.2% of total
assets
1.4% of total assets
90% of Group
materiality
90%
of
Group
materiality
Rationale for the
benchmark applied
Total Assets was determined as an
appropriate basis as the principal focus of
the
Group,
remains
fundamentally
focussed on the development of its oil and
gas assets. As such, we consider the
shareholders will look to the statement of
financial position and total assets of the
Group in order to understand the level of
investment. The change in percentage
applied is due to an increase in total assets
value and our assessment of risk around
the key audit matters described in the
section above.
The Company is a holding company
Materiality is set at 90% of Group
materiality
for
Group
reporting
purposes given the assessment of
aggregation risk.
Performance
materiality
1.8
2
1.6
1.7
Basis
for
determining
performance
materiality
In setting performance materiality at 75% of
the above materiality level we considered a
number of factors including the expected
total
value
of
known
and
likely
In setting performance materiality at
75% of the above materiality level we
considered a number of factors
including the expected total value of
IOG plc
Page 43 of 94
Annual Report 2021
misstatements (based on past experience),
and
Management’s
attitude
towards
proposed adjustments
known and likely misstatements
(based on past experience), and
Management’s
attitude
towards
proposed adjustments
Lower threshold for testing
We also determined that for items in the consolidated statement of comprehensive income, a misstatement
of less than materiality for the financial statements as a whole could influence the economic decisions of
users. As a result, we applied a lower threshold of testing for these items based on lower of Component
materiality or 65% of Group materiality (2021: 5% of loss before tax) for each component of the Group which
ranged from £410,000 to £1,600,000 (2021: ranged from £230,000 to £260,000).
Component materiality
We set materiality for each component of the Group based on 1.2% (2021: 1.4%) of the individual total assets dependent
on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged
from £410,000 to £1,880,000 (2021: ranged from £400,000 to £1,050,000). In the audit of each component, we further
applied performance materiality levels of 75% of the component materiality to our testing to ensure that the risk of errors
exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £48,000
(2021: £52,600). We also agreed to report differences below this threshold that, in our view, warranted reporting on
qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the Annual report and accounts 2022 other than the financial statements and our auditor’s report
thereon. Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this gives rise to a material misstatement in
the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are
required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described
below.
Strategic
report
and
Directors’
report
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic report and the Directors’ report for the
financial year for which the financial statements are prepared is consistent with
the financial statements; and
•
the Strategic report and the Directors’ report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent Company
and its environment obtained in the course of the audit, we have not identified
material misstatements in the strategic report or the Directors’ report.
IOG plc
Page 44 of 94
Annual Report 2021
Matters on which
we are required to
report by exception
We have nothing to report in respect of the following matters in relation to which
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.
Responsibilities of Directors
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, and for such
internal control as the Directors determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or
the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
We considered the risk of management override during the course of our work. We considered the potential
for management override to arise in respect of the areas where management are required to make
judgements and estimates in the determination of a financial statement balance.
We considered the laws and regulations of the UK to be those relating to the industry, financial reporting
framework, tax legislation, environmental regulations and the listing rules as the most relevant to the audit
given the geographical area of focus of the Group. As part of our audit work we reviewed and held meetings
with the relevant internal Management to form our own opinion on the extent of the Group wide compliance.
In addition, our testing also included, but was not limited to:
•
Testing the financial statement disclosures to supporting documentation, performing substantive
testing on account balances which were considered to be a greater risk of susceptibility to fraud;
•
Enquiring of Management and the Audit Committee of known or suspected instances of fraud,
potential litigation and claims;
•
Reading minutes of meetings of those charged with governance and regulatory authorities to identify
any instances of non-compliance with laws and regulations;
IOG plc
Page 45 of 94
Annual Report 2021
•
Communicating relevant identified laws and regulations and potential fraud risks to all engagement
team members and remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit;
•
Assessing the susceptibility of the Group’s financial statements to material misstatement, including
how fraud might occur by making enquiries of Management and the Audit Committee during the
planning and execution phases of our audit to understand where they considered there to be
susceptibility to fraud, considering the risk of management override of controls and relevant controls
established to address risks identified to prevent or detect fraud;
•
Obtained an understanding of the relevant controls surrounding the financial reporting close process
such as controls over the posting of journals and the consolidation process and obtained an
understanding of the segregation of duties in these processes;
•
Addressing the risk of fraud through management override of controls by testing the appropriateness
of a sample of journal entries where we considered there to be a higher risk of potential fraud and
other adjustments, assessing whether the judgements made in making accounting estimates
specifically those in the Key Audit Matters section of the report are indicative of a potential bias, and
evaluating the business rationale of any significant transactions that are unusual or outside the
normal course of business;
•
Testing the consolidation entries for consistency and appropriateness of application;
•
Obtaining an understanding of the Group’s IT and the wider control environment and the process for
management approval and Board sanction of cost requisitions, and
•
Applying professional scepticism in our audit procedures and performing randomised procedures to
include a level of unpredictability.
These procedures are designed to address the risk of material misstatements in respect of irregularities,
including fraud, but do not provide absolute assurance as to the non-existence of any such misstatements.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent limitations in the audit procedures performed
and the further removed non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent Company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
Jack Draycott (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
15 March 2023
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
IOG plc
Page 46 of 94
Annual Report 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022
Notes
2022
2021
£000
£000
Revenue
3
75,406
-
Cost of Sales
4
(23,641)
-
_________
_________
Gross Profit
51,765
-
Administration expenses
5
(1,879)
(2,102)
Impairment of oil and gas properties
11
(51,007)
(865)
Project, pre-licence and exploration expenses
(182)
(104)
Foreign exchange (loss) / gain
5
(4,736)
3,440
_________
_________
Operating (Loss) / Profit
5
(6,039)
369
Finance expense
7
(11,114)
(3,066)
Finance income
70
29
Fair value gain
-
260
Loss on PPE disposal
(4)
-
_________
_________
Loss for the year before taxation
(17,087)
(2,408)
Taxation
8
(11,362)
-
_________
_________
Loss and total comprehensive loss for the year attributable to
equity holders of the parent
9
(28,449)
(2,408)
_________
_________
Loss for the year per ordinary share – basic
9
(5.4p)
(0.4p)
The loss for the year of £28.4 million (2021: £2.4 million loss) arose from continuing operations.
The comparative amounts have been restated. For more details refer to note 1.
The Notes on pages 52 to 90 form part of these financial statements.
IOG plc
Page 47 of 94
Annual Report 2021
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022
Share
capital
Share
premium
Share-based
payment
reserve
Accumulated
losses
Total
equity
Group:
£000
£000
£000
£000
£000
At 1 January 2021
4,882
49,989
6,154
(38,227)
22,798
Loss for the year
-
-
-
(2,408)
(2,408)
_____
_______
_______
________
_______
Total comprehensive loss attributable to
owners of the parent
-
-
-
(2,408)
(2,408)
Issue of shares
338
8,112
8,450
Share based payment charge
-
-
1,272
-
1,272
Expiry of share options
-
-
(20)
230
210
Exercise of share options
18
48
(210)
-
(144)
_____
_______
_______
________
_______
At 31 December 2021
5,238
58,149
7,196
(40,405)
30,178
Loss for the year
-
-
-
(28,449)
(28,449)
_____
_______
_______
________
_______
Total comprehensive loss attributable to
owners of the parent
-
-
-
(28,449)
(28,449)
Share based payment charge
-
-
826
-
826
Expiry of share options
-
-
(630)
630
-
Exercise of share options
12
24
(187)
187
36
_____
______
_______
________
_______
At 31 December 2022
5,250
58,173
7,205
(68,037)
2,591
_____
______
_______
________
_______
Company:
At 1 January 2021
4,882
49,989
6,154
(16,681)
44,344
Total comprehensive loss attributable to
owners of the parent
-
-
-
(1,785)
(1,785)
Lapse of warrants
338
8,112
-
-
8,450
Share based payment charge
-
-
1,272
-
1,272
Expiry of share options
-
-
(20)
230
210
Exercise of share options
18
48
(210)
-
(144)
_____
______
______
________
_______
At 31 December 2021
5,238
58,149
7,196
(18,236)
52,347
Loss for the year
-
-
-
(17,561)
(17,561))
_____
______
______
________
_______
Total comprehensive loss attributable to
owners of the parent
-
-
-
(17,561)
(17,561)
Issue of Share Capital
-
-
-
-
-
Share based payment charge
-
-
826
-
826
Expiry of share options
-
-
(630)
630
-
Exercise of share options
12
24
(187)
187
36
_____
______
_____
_______
_______
At 31 December 2022
5,250
58,173
7,205
(34,980)
35,648
_____
_______
______
_______
_______
The comparative amounts have been restated. For more details refer to note 1.
The Notes on pages 52 to 90 form part of these financial statements.
IOG plc
Page 48 of 94
Annual Report 2021
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2022
Notes
2022
2021
£000
£000
Non-current assets
Intangible assets: exploration & evaluation
10
3,161
994
Intangible assets: other
10
8
75
Property, plant and equipment: development & production assets
11
149,830
138,805
Property, plant and equipment: other
11
12,158
4,872
Restricted Cash
21
3,116
-
_________
_________
168,273
144,746
Current assets
Inventories
63
-
Trade and other receivables
15
8,906
1,705
Restricted cash
21
2,564
3,429
Cash and cash equivalents
21
26,693
31,255
_________
_________
38,226
36,389
_________
_________
Total assets
206,499
181,135
Current liabilities
Trade and other payables
16
(64,058)
(43,468)
________
_________
(64,058)
(43,468)
_________
_________
Non-current liabilities
Loans
17
(97,437)
(91,257)
Provisions
17
(29,778)
(15,837)
Other liabilities
17
(1,273)
(395)
Deferred tax liability
8
(11,362)
-
_________
_________
(139,850)
(107,489)
_________
_________
Total liabilities
(203,908)
(150,957)
_________
_________
NET ASSETS
2,591
30,178
_________
_________
Capital and reserves
Share capital
19
5,250
5,238
Share premium
19
58,173
58,149
Share-based payment reserve
7,205
7,196
Accumulated losses
(68,037)
(40,405)
_________
_________
2,591
30,178
_________
_________
The comparative amounts have been restated. For more details refer to note 1.
The Notes on pages 52 to 90 form part of these financial statements. The financial statements were approved and
authorised for issue by the Board of Directors on 15 March 2023 and are signed on its behalf by:
Rupert Newall
Chief Executive Officer
15 March 2023
IOG plc
Page 49 of 94
Annual Report 2021
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2022
Notes
2022
2021
£000
£000
Non-current assets
Intangible assets
10
8
75
Property, plant and equipment: Other
11
12,158
4,872
Investments
13
15,486
15,486
Amounts due from subsidiaries
13
104,457
109,641
_________
_________
132,109
130,074
_________
_________
Current assets
Other receivables and prepayments
15
568
1,705
Restricted cash
21
2,564
2,066
Cash and cash equivalents
21
26,693
31,255
_________
_________
29,825
35,026
_________
_________
Total assets
161,934
165,100
Current liabilities
Trade and other payables
16
(27,576)
(21,101)
Non-current liabilities
Loans
17
(97,437)
(91,257)
Other liabilities
17,23
(1,273)
(395)
_________
_________
(98,710)
(91,652)
_________
_________
Total liabilities
(126,286)
(112,753)
_________
_________
NET ASSETS
35,648
52,347
_________
_________
Capital and reserves
Share capital
19
5,250
5,238
Share premium
19
58,173
58,149
Share-based payment reserve
7,205
7,196
Accumulated losses
(34,980)
(18,236)
_________
_________
35,648
52,347
_________
_________
The comparative amounts have been restated. For more details refer to note 1.
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 loss for the
year was £17.6 million (2021: restated £1.8 million loss).
The notes on pages 52 to 90 form part of these financial statements.
The financial statements of IOG plc (Company number: 07434350) were approved and authorised for issue by the
Board of Directors on 15 March 2023 and are signed on its behalf by:
Rupert Newall
Chief Executive Officer
15 March 2023
IOG plc
Page 50 of 94
Annual Report 2021
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2022
Notes
2022
2021
£000
£000
Loss for the year
(28,449)
(2,408)
Depreciation, depletion and amortisation
11
13,050
519
Exploration asset write off
10
-
865
Impairment of development & production assets
11
51,007
-
Share based payments
817
1,225
Fair value (gain) / loss
-
(260)
Interest received
(70)
(18)
Deferred tax charge
8
11,362
-
Finance expense
7
11,114
3,066
Effect of exchange rate changes on Bond
4,620
(5,901)
Movement in trade and other receivables
(6,993)
(732)
Movement in trade and other payables
15,393
23,641
Movement in Inventory
(63)
-
_________
_________
Net cash generated from operating activities
71,788
19,997
Investing activities
Purchase of development & production assets
(45,955)
(58,269)
Purchase of exploration & evaluation assets
(1,467)
(506)
Purchase of intangible assets: other
(39)
(295)
Transfers (to) / from restricted cash
(2,251)
61,172
Interest received
70
18
Decrease in financial assets
-
1,520
_________
_________
Net cash (used in) / generated from investing activities
(49,642)
3,640
Financing activities
Proceeds from issue of equity instruments of the Group
36
8,516
Lease liability payments
23
(18,608)
(12,307)
Interest paid
(8,590)
(4,441)
Other finance costs paid
(11)
-
_________
_________
Net cash used in financing activities
(27,173)
(8,232)
Net (decrease) / increase in cash and cash equivalents
(5,027)
15,405
Cash and cash equivalents at the beginning of the year
31,255
13,389
Effects of exchange rate changes on cash and cash equivalents
465
2,461
_________
_________
Cash and cash equivalents at end of year
21
26,693
31,255
_________
_________
The Notes on pages 52 to 90 form part of these financial statements.
IOG plc
Page 51 of 94
Annual Report 2021
COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2022
Notes
2022
2021
£000
£000
Loss for the year
(17,561)
(1,785)
Depreciation charges
178
519
Exploration asset write off
-
-
Share based payments
817
1,225
Fair value (gain) / loss
-
(260)
Interest received / (paid)
(51)
(5)
Finance expenses
10,613
3,280
Effect of exchange rate changes in Bond
4,620
(5,901)
Movement in trade and other receivables
1,137
761
Movement in trade and other payables
17,579
23,591
_________
_________
Net cash generated from operating activities
17,332
21,425
Investing activities
Purchase of property, plant and equipment
(45)
(253)
Transfers (to) / from restricted cash
(377)
61,172
Loans to subsidiary undertakings
(63,749)
(60,247)
Repayments of loans from subsidiary undertakings
68,933
-
Interest received
51
5
Decrease in financial assets
-
1,520
_________
_________
Net cash generated from investing activities
4,813
2,198
Financing activities
Proceeds from issue of equity instruments of the Company
36
8,516
Lease liability payments
23
(18,608)
(12,307)
Interest paid
(8,590)
(4,441)
Finance Other finance costs paid
7
(11)
-
_________
_________
Net cash used in financing activities
(27,173)
(8,232)
Net (decrease) / increase in cash and cash equivalents
(5,028)
15,391
Cash and cash equivalents at the beginning of the year
31,255
13,389
Effects of exchange rate changes on cash and cash
Equivalents
466
2,475
_________
_________
Cash and cash equivalents at end of year
21
26,693
31,255
_________
_________
The Notes on pages 52 to 90 form part of these financial statements
IOG plc
Page 52 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022
1
Statement of Accounting Policies
General information
IOG plc (the “Company”) is a public limited company incorporated and domiciled in England and Wales. The principal
activities of the Group are the appraisal, development and production of gas assets, reserves and resources. The Group
operates through subsidiary undertakings, details of which are set out in note 14 to the financial statements. The Group’s
area of activity is in the United Kingdom. The Group financial statements for the year ended 31 December 2022
consolidate the individual financial statements of the Company and its subsidiaries (together referred to as “the Group”).
The registered office address is 6th Floor, 60 Gracechurch Street, London EC3V 0HR.
The Group’s and Company’s financial statements for the year ended 31 December 2022 were authorised for issue by
the Board of Directors on 15 March 2023 and the balance sheets were signed on the Board’s behalf by the CEO, Rupert
Newall.
Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies
have been consistently applied to all years presented, unless otherwise stated. The consolidated financial statements
are presented in GBP Sterling, which is also the functional currency of the Group. Amounts are rounded to the nearest
thousand, unless otherwise stated.
These financial statements have been prepared in accordance with UK adopted International Accounting Standards
and as applied in accordance with the provisions of the Companies Act 2006. On 31 December 2020, IFRS as adopted
by the European Union at that date was brought into UK law and became UK-adopted international accounting
standards, with future changes being subject to endorsement by the UK Endorsement Board. The preparation of
financial statements in compliance with adopted IFRSs requires the use of certain critical accounting estimates. It also
requires 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 within
this note 1 on pages 52 and 66.
The consolidated financial statements have been prepared on a historical cost basis except for the valuation of
hydrocarbon inventories.
Going concern
The financial statements of the Group are prepared on a going concern basis.
In undertaking a going concern review, the Directors have given careful consideration to the Group’s financial
projections prepared by management for the period to 31 March 2024 (the review period). The Directors have also
considered significant known events beyond 31 March 2024. The projections reflect the Company’s best estimate of
expenditures and receipts for the period. The Directors have reviewed management’s key assumptions on which these
projections are based, including a downside price and other risking scenarios. The near-term cash forecasts are
regularly updated and reviewed to enable continuous monitoring and management of the Group’s cash flow and liquidity
risk. The forecasts indicate that, including the expectation that the Company can amend capital commitments under
some of its licences and taking into account other cost saving and capital management initiatives, the Group has
sufficient capital resources for a period of 12 months from the date of approval of this annual report. The Group’s debt
matures in September 2024 and the forecasts currently show that the Group plans to refinance its debt.
As part of its analysis in making the going concern assumption, the Directors have considered the range of risks facing
the business on an ongoing basis, as set out in the risk section of this Annual Report. The principal assumptions made
in relation to the going concern assessment include the continued production from the Blythe H-1 well, the successful
delivery of the Blythe H-2 well and subsequent gas production rates, the potential evolution of gas prices and potential
future capital allocations on its operated assets in the UK Southern North Sea.
Following a disappointing result from the Southwark A2 well test and remediation programme, the Company, in
conjunction with its joint venture partner CER, sanctioned the drilling of Blythe H-2, prioritising it ahead of Southwark
A1 as a lower risk option. Gas rates from H2 are expected to initially be in the 30-40 mmscf/d range and the well is
expected to be completed and producing within a period of three months from the spud date of 5th March.
IOG plc
Page 53 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Going concern (continued)
The Company takes regular external advice on gas price forecasts. The base case uses the forward curve for near-
term gas prices. The average gas price used in the review period is 130p/therm. Since the end of 2022 gas prices have
fallen over 20%. This sustained fall in gas price during the review period would result in a covenant breach in the interest
cover ratio. At the year end forward curve prices, no covenant breach was forecast. The Company’s €100 million bond
is subject to covenants that are measured biannually in June and December, being minimum liquidity of €5 million, net
debt to EBITDA of a maximum of 2.5x and interest cover of a minimum of 5.0x, based on measures as defined in the
facility agreement. The ratio of net debt to EBITDA at 31 December 2022 was 1.0 times and interest cover was 7.0
times. In the downside case, where gas prices are assumed to be 50% below the current forward curve, both the
leverage ratio and interest cover ratio are forecast to be breached. In the event that a covenant is breached, an
extension or waiver of this covenant would need to be negotiated with the Bond Trustee. The Directors, taking into
account their assessment of Bondholders’ interests and given the Group would pass the minimum liquidity test, believe
this would be likely to be achieved, however it is not guaranteed.
The forecast also indicates in the base case the Group would need to minimise capital expenditures in the review period.
This may include the requirement to agree revised work programmes or licence commitments with the UK authorities
on licences where the Group has capital commitments as well as discretionary expenditures. If the Company is
unsuccessful in agreeing revised terms this may result in the need to raise alternative funds on whatever terms are
available at the time.
The Directors have concluded that the uncertainty around the volatility of the gas price and future production levels from
the Blythe H-2 well, as well as the need to take other mitigating actions described above represent a material uncertainty
which may cast significant doubt on the Group’s ability to continue as a going concern.
As a result of their review, and despite the aforementioned material uncertainty, the Directors have confidence in the
Group’s forecasts and have a reasonable expectation that the Group will continue in operational existence for the going
concern review period and have therefore used the going concern basis in preparing these consolidated financial
statements.
IOG plc
Page 54 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Change in accounting policies
i) New accounting standards, interpretations and amendments effective from 1 January 2022
A number of new or amended standards became applicable for the current reporting period. The Group did not have to
change its accounting policies or make retrospective adjustments as a result of adopting these standards.
•
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);
•
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
•
Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41);
and
•
References to Conceptual Framework (Amendments to IFRS 3).
ii) New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB
that are effective in future accounting periods that the Group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January 2023:
•
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
•
Definition of Accounting Estimates (Amendments to IAS 8); and
•
Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
The following amendments are effective for the period beginning 1 January 2024:
•
IFRS 16 Leases (Amendment – Liability in a Sale and Leaseback)
•
IAS 1 Presentation of Financial Statements (Amendment – Classification of Liabilities as Current or Non-
current)
•
IAS 1 Presentation of Financial Statements (Amendment – Non-current Liabilities with Covenants)
The Group is currently assessing the impact of these new accounting standards and amendments. The Group does not
believe that the amendments to IAS 1 will have a significant impact on the classification of its liabilities, as the conversion
feature in its convertible debt instruments is classified as an equity instrument and therefore, does not affect the
classification of its convertible debt as a non-current liability.
The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on
the Group.
The principal accounting policies adopted are set out below.
Basis of consolidation
The Group Financial Statements consolidate the accounts of IOG plc and entities controlled by the Company (its
subsidiary undertakings) drawn up to the statement of financial position date. Control is achieved where the investor is
exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee. The Company reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the elements of control. The results of subsidiaries
acquired or sold are consolidated for the periods from or to the date on which control passed.
Where necessary, adjustments are made at the Group level to align the accounting policies of the subsidiaries to the
Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the
members of the Group are eliminated on consolidation.
IOG plc
Page 55 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Asset Acquisition
In the event of an asset acquisition, the cost of the acquisition is assigned to the individual assets and liabilities based
on their relative fair values. All directly attributable costs are capitalised. Contingent consideration is accrued for when
these amounts are considered probable and are discounted to present value based on the expected timing of payment.
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-Licence
Expenditure incurred prior to the acquisition and/or award of a licence interest is expensed to the Statement of
Comprehensive Income as ‘Exploration Expenses’.
2)
Exploration and evaluation (‘E&E’)
Capitalisation
Costs incurred after rights to explore have been obtained, such as geological and geophysical surveys, drilling and
commercial appraisal costs, and other directly attributable costs of exploration and evaluation including technical and
overheads (including time writing as described under D&P capitalisation), are capitalised as intangible exploration and
evaluation (‘E&E’) assets. The assessment of what constitutes an individual E&E asset is based on technical criteria
but essentially either a single licence area or contiguous licence areas with consistent geological features are
designated as individual E&E assets. Costs relating to the exploration and evaluation of gas interests are carried forward
until the existence, or otherwise, of commercial reserves have been determined.
E&E costs are not amortised prior to the conclusion of appraisal activities. Once active exploration and evaluation is
completed the asset is assessed for impairment. If commercial reserves are discovered then the carrying value of the
E&E asset is reclassified as a development and production (‘D&P’) asset, within property, plant and equipment (‘PPE’),
following development sanction by the Board, but only after the carrying value is assessed for impairment at point of
transfer and, where appropriate, its carrying value adjusted. Following development sanction by the Board, a Field
Development Plan (‘FDP’) may be submitted. If it is subsequently assessed that commercial reserves have not been
discovered, the E&E asset is written off to the Statement of Comprehensive Income. The Group’s definition of
commercial reserves for such purpose is proven and probable (‘2P’) reserves on an entitlement basis.
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.
Impairment
The Group’s gas assets are analysed into cash generating units (‘CGU’) for impairment reporting purposes, with E&E
asset impairment testing being performed at an individual asset level. E&E assets are reviewed for impairment when
facts and circumstances arise that suggest that the carrying value of an E&E asset exceeds its recoverable amount.
Such indicators would include but are not limited to: (i) adequate and sufficient data exists that render the resource
uneconomic and unlikely to be developed; (ii) title to the asset is compromised; (iii) budgeted or planned expenditure is
not expected in the foreseeable future; (iv) insufficient discovery of commercially viable resources leading to the
discontinuation of activities; and (v) Rights to explore in an area have expired or will expire in the near future without
renewal.
The recoverable amount of the individual asset is determined as the higher of its fair value less costs to sell and value
in use. Impairment losses resulting from an impairment review are separately recognised and written off to the
Statement of Comprehensive Income. Impaired assets are reviewed annually to determine whether any substantial
change to their fair value amounts previously impaired would require reversal.
A previously recognised impairment loss is reversed if the recoverable amount increases because of a change in the
estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would
have been determined had no impairment loss been recognised in prior periods. Recognition and reversal of
impairments and impairment charges are credited/(charged) to a separate line item within the Statement of
Comprehensive Income. Reversal of impairments and impairment charges are credited/(charged) to a separate line
item within the Statement of Comprehensive Income.
IOG plc
Page 56 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Oil and gas exploration, development and producing assets (continued)
3)
Development and production (‘D&P’)
Capitalisation
Gas properties are stated at cost, less any accumulated depreciation and accumulated impairment losses. Expenditures
associated with gas properties include the cost of facilities, pipelines, wells and sub-sea equipment together with E&E
expenditures incurred in finding commercial reserves previously transferred from E&E assets as outlined in the policy
above. An individual field development can form a single D&P asset but there may be cases, such as shared
infrastructure, phased developments, or multiple fields around a single production facility when fields are grouped
together to form a single D&P asset. The cost of development and production assets include the cost of acquisitions
and purchases of such assets, directly attributable overheads, applicable borrowing costs for qualifying assets and the
cost of recognising provisions for future consideration payments (see Note 17). The discounted cost for future
decommissioning is also capitalised to the D&P asset. Rig day rate costs attributable to changes or adjustments to the
drilling program due to rescheduling are considered as normal and inherent to the activity of drilling wells that form part
of the infrastructure and therefore these costs are capitalised to the asset.
Depreciation and depletion
All costs relating to a development are accumulated and not depreciated/depleted until the commencement of
production. Gas assets are depleted on a unit-of-production basis over the total proved and probable reserves of the
field concerned, except in the case of assets whose useful life is shorter than the lifetime of the field, in which case the
straight-line method is applied. This method takes into account expenditures incurred to date, together with estimated
future capital expenditure expected to be incurred. Changes in the estimates of commercial reserves or future field
development costs are accounted for prospectively. Significant items of shared gas infrastructure including facilities,
platforms and pipelines will normally be depreciated on a straight-line basis over their expected useful life. The expected
useful life of current gas infrastructure is 17 years, which corresponds to the assets design life.
Impairment
At each Statement of Financial Position date, the Group reviews the carrying amounts of its property, plant and
equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment
loss (if any).
The recoverable amount is the higher of fair value less costs to sell and value-in-use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are cash inflows that are largely independent of the
cash inflows from other assets or group of assets; cash generating units (CGU). In assessing value-in-use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the cash generating unit for which the estimates
of future cash flows have not been adjusted. The discount rate is derived from the Group’s weighted average cost of
capital and is adjusted where applicable to consider any specific risks relating to the country where the CGU is located.
The discount rates applied in assessments of impairment are reassessed each year. The Company uses a risk adjusted
discount rate of 9.38%, unless otherwise stated. The estimated future net cash flows represent the present value of the
future cash flows expected to be derived from production of commercial reserves. If the recoverable amount of a cash
generating unit is estimated to be less than the carrying amount, the carrying amount of the cash-generating unit is
reduced to its recoverable amount. An impairment loss is recognised immediately in the Statement of Comprehensive
Income. The CGU basis is generally the field, however, gas assets, including shared infrastructure assets may be
accounted for on an aggregated basis where such assets are economically inter-dependent.
Pipeline fill
Natural gas which is used to fill pipelines and is necessary to bring a pipeline into working order is treated as a part of
the cost of the related pipeline on the basis that it is not held for sale or consumed in a production process but is
necessary for the operation of a facility during more than one operating cycle. Also, its cost cannot be recouped through
sale (or is significantly impaired). This applies even if the part of inventory that is deemed to be an item of property,
plant and equipment cannot be separated physically from the rest of inventory. It is valued at cost and is depreciated
over the useful life of related asset.
IOG plc
Page 57 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Oil and gas exploration, development and producing assets (continued)
4)
Borrowing costs
Borrowing costs directly attributable to the construction of qualifying assets, which are assets that necessarily take a
substantial period of time to prepare for their intended use, are added to the cost of those assets, until such time as the
assets are substantially ready for their intended use. All other borrowing costs are recognised as interest payable in the
statement of comprehensive income in accordance with the effective interest method.
Assets other than oil and gas interests
Assets other than oil and gas interests are stated at cost, less accumulated depreciation and any provision for
impairment. Depreciation is provided at rates estimated to write off the cost, less estimated residual value, of each
asset over its expected useful life as follows: -
• Computer and office equipment: 33% straight line, with one full year’s depreciation in year of acquisition; and
• Tenants improvements: 20% straight line, with one full year’s depreciation in year of acquisition.
• Right of use assets: Straight line over the term of the lease
Provisions
Provisions are recognised when:
• the Group has a present legal or constructive obligation resulting from past events;
• it is more likely than not that an outflow of resources will be required to settle the obligation; and
• the amount can be reliably estimated.
Decommissioning
Provisions for decommissioning costs are recognised in accordance with IAS 37 Provisions, Contingent Liabilities and
Contingent Assets. Provisions are recorded at the present value of the expenditures expected to be required to settle
the Group’s future obligations.
Provisions are reviewed at each reporting date to reflect the current best estimate of the cost at present value. Any
change in the date on which provisions fall due will change the present value of the provision. These changes are
treated as an administration expense. The unwinding of the discount is reflected as a finance expense.
In the case of a D&P and/or pipeline asset, since the future cost of decommissioning is regarded as part of the total
investment to gain access to future economic benefits, this is included as part of the cost of the relevant D&P and/or
pipeline asset.
Revenue
During the period, the Group recognised the commencement of revenues from the sale of gas and condensate and
consequently adopted IFRS 15 Revenue from Contracts with Customers. The Group is principally engaged in the
exploration, development and production of natural gas. The Group has concluded that it is the principal in its contract
with customer arrangements, because it controls the goods before transferring them to the customer.
Revenue from contracts with customers is recognised when or as the Group satisfies a performance obligation by
transferring control of a promised good or service to a customer. The transfer of control of natural gas and natural gas
liquids coincides with title passing to the customer and the customer taking physical possession, generally on delivery
of the natural gas or condensate to the agreed delivery point specified in the contract. In respect of gas sales, the
delivery point is when the gas is delivered into the National Transmission System downstream of the Bacton gas
terminal. Condensate is sold on an FCA basis when it is delivered onto the buyer's rail tank car loading manifold. The
Group satisfies its performance obligations at a point in time.
When, or as, a performance obligation is satisfied, the Group recognises as revenue the amount of the transaction price
that is allocated to that performance obligation. The Group's contracts with customers are deemed to contain one
performance, the provision of natural gas or condensate. The transaction price is the amount of consideration to which
the Group expects to be entitled. The transaction price is allocated to the performance obligations in the contract based
on standalone selling prices of the goods promised. Contracts for the sale of natural gas and condensate are priced by
reference to quoted prices. All revenue from these contracts is disclosed as revenue from contracts with customers.
Consideration payable to a customer for certain costs, claims, demands, liabilities and/or expenses suffered or incurred
by the buyer under the sales contract are recognised as a reduction of the transaction price and, therefore, a reduction
in revenue since the payment to the customer is not in exchange for distinct goods that the customers transfer to the
Company. The credit terms range between 20-40 days after the month-end, depending on the customer.
IOG plc
Page 58 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Cost of sales
Production expenditure, gas properties depletion and movements in inventory, a result of under-lift of condensate
production, are included in cost of sales. The Group recognises an under-lift asset as inventory for condensate
production at the lower of cost and net realisable value, consistent with IAS 2, to represent a right to additional physical
inventory. An under-lift of production from a field is included in current receivables.
Disposals
Net proceeds from any disposal of an E&E, D&P or pipeline asset are initially credited against the previously capitalised
costs of that asset and any surplus or shortfall proceeds are credited or debited to the Statement of Comprehensive
Income.
For the Farm down of an E&E, D&P or pipeline asset, proceeds from the farm-down are credited against the previously
capitalised costs of the asset and any surplus or shortfall proceeds above or below the representative percentage of
the carrying value of the asset or assets being farmed down are credited or debited to the Statement of Comprehensive
Income accordingly.
Foreign currencies
The Group’s presentational currency is GBP Sterling and has been selected based on the currency of the primary
economic environment in which the Group operates. The Group’s primary product is generally traded by reference to
its pricing in GBP Sterling. The functional currency of all companies in the Group is also considered to be GBP Sterling.
Transactions in currencies other than the functional currency of a company are recorded at a rate of exchange
approximating to that prevailing at the date of the transaction. At each balance sheet date, monetary assets and
liabilities that are denominated in currencies other than the functional currency are translated at the amounts prevailing
at the balance sheet date and any gains or losses arising are recognised in the Consolidated Statement of
Comprehensive Income.
Taxation
Current Tax
Tax is payable based upon taxable profit for the year. Taxable profit differs from net profit as reported in the Statement
of Comprehensive Income because it excludes items of income or expense that are taxable or deductible on other years
and it further excludes items that are never taxable or deductible. Any Group liability for current tax is calculated using
tax rates that have been enacted or substantively enacted by the reporting date.
Deferred Tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except
where the Group can control the reversal of the temporary differences and it is probable that the temporary difference
will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the
asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates
to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax
assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
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.
IOG plc
Page 59 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Investments & Loans (Company)
Non-current investments in subsidiary undertakings are shown in the Company’s Statement of Financial Position at
cost less any provision for permanent diminution of value.
Loans to subsidiary undertakings are stated at amortised cost and recognised in accordance with IFRS 9. The loans
have no maturity date and are not repayable until the respective subsidiary entity has sufficient cash to repay the loan,
however they are technically due on demand.
Leases
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires
lessees to account for all leases, with limited exceptions, under a single on-balance sheet model similar to the
accounting for finance leases under IAS 17. Under IFRS 16, at the commencement date of a lease, a lessee is required
to recognise a liability to make lease payments (‘lease liability’) and an asset representing the right to use the underlying
asset during the lease term (‘right-of-use asset’, ‘ROU’). Lease liabilities are measured at the present value of future
lease payments over the reasonably certain lease term. Variable lease payments that do not depend on an index or a
rate are not included in the lease liability. Such payments are expensed as incurred throughout the lease term.
Lessees are required to separately recognise the interest expense associated with the unwinding of the lease liability
and the depreciation expense on the right-of-use asset. As the leases relate to D&P work scopes the depreciation
expense is capitalised and treated as the cost of the underlying D&P asset. These costs replace amounts previously
recognised as operating expenditure in respect of operating leases in accordance with IAS 17. After completion of
Development phase, once the assets come into operation the depreciation of the right of use asset will be charged to
the income statement on straight line basis over the course of the lease term.
The Group adopted IFRS 16 on 1 January 2019 using the modified retrospective approach. The modified retrospective
approach does not require restatement of prior period financial information, instead recognising the cumulative effect
as an adjustment to opening retained earnings and the Group applied the standard prospectively.
The Group has elected to apply the following optional practical expedients under the standard:
•
Short-term leases – those with terms of 12 months or less at date of adoption
•
Low-value leases – those with a value less than £5,000
During 2022, the ROU assets and lease obligations classified in accordance with IFRS 16, relate to office leases, the
Saturn Banks Pipeline permission to cross the foreshore, the Noble Hans Deul drilling rig contract, Charter of PSV “VOS
Paradise” and Charter of ERRV “Esvagt Champion”. The incremental borrowing rate of 10.9% (2021: 9.3%) was applied
to the drilling rig and support vessel ROU assets, and 9.3% (2021: 9.3%) for the office leases, in arriving at net present
value of future lease payments, recognising they belong to similar asset classes with similar lease terms. The internal
borrowing rate for Saturn Banks Pipeline was retained at 11.5% as it belongs to a different asset class and has longer
lease term. The ROU for Noble Hans Deul was increased in line with the extension option.
The Group has elected to utilise the practical expedient when accounting for the Noble Rig, PSV and ERVV contract to
not separate non-lease components from lease components, and instead account for each lease component and any
non-lease component as a single component. The leases are for the benefit of the joint operation operated by the
Group. For leases related to joint operations where the Group is the only party with the legal obligation to make lease
payments to the lessor, the full lease liability and ROU asset will be recognised on the Group Statement of Financial
Position. This is the case for the drilling rig contract and associated support vessels described above, as the Group, as
operator of the joint operation, is the sole signatory to the lease. As the underlying asset is used for the performance of
the joint operation agreement, the Group will recharge the associated costs in line with the joint operating agreement.
IOG plc
Page 60 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Leases (continued)
The Company depreciates the ROU assets on a straight-line basis over the length of the lease unless management
determines this is not representative of the useful life, in which case, management will estimate the useful life of the
asset to be used.
The liability is remeasured when there is a change in future lease payments arising from a change in an index or rate
or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When
the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-
use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability adjusted for any
lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of
costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located,
less any lease incentives received. Right-of-use assets are depreciated over the shorter period of lease term and useful
life of the underlying asset.
Financial Instruments
Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument
and are subsequently measured at amortised cost.
Classification and measurement of financial assets
The initial classification of a financial asset depends upon the Group’s business model for managing its financial assets
and the contractual terms of the cash flows. The Group’s financial assets are measured at amortised cost and are held
within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms
give rise on specified dates to cash flows that represent solely payments of principal and interest.
The Group’s cash and cash equivalents and other receivables are measured at amortised cost. Other receivables are
initially measured at fair value. The Group holds other receivables with the objective to collect the contractual cash flows
and therefore measures them subsequently at amortised cost.
The Group has financial assets measured at FVOCI (Fair Value Through Other Comprehensive Income) or FVTPL (Fair
Value Through the Statement of Profit or Loss).
Fair value measurement
A number of assets and liabilities included in the Group’s financial statements require measurement at, and/or
disclosure of, fair value.
The fair value measurement of the Group’s financial and non-financial assets and liabilities utilises market observable
inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different
levels based on how observable the inputs used in the valuation technique utilised are (the ‘fair value hierarchy’):
- Level 1: Quoted prices in active markets for identical items (unadjusted)
- Level 2: Observable direct or indirect inputs other than Level 1 inputs
- Level 3: Unobservable inputs (i.e. not derived from market data).
The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant
effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they
occur.
Investment in and disposal of Norwegian bond
The company carried an investment in its Norwegian bond until September 2021. These bonds were denominated in
Euro’s and were adjusted to mark-to-market and revalued at period end rates. These holdings were sold in the open
market at spot price and a profit / loss on sale was recognised in the statement of comprehensive income on disposal.
Restricted cash
Restricted cash includes cash balances that are subject to access restrictions or have conditions attached to their
drawdown. Included in this are monies raised from its Norwegian bond placing held in Debt Servicing Retention account
and subject to defined conditions. Also included are balances held as collateralised security in the Group’s name for
future expenditures such as Decommissioning.
IOG plc
Page 61 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Financial instruments (continued)
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.
Impairment of financial assets
The Group recognises loss allowances for expected credit losses (‘ECL’s) on its financial assets measured at amortised
cost. Due to the nature of its financial assets, the Group measures loss allowances at an amount equal to the lifetime
ECLs. Lifetime ECLs are the anticipated ECLs that result from all possible default events over the expected life of a
financial asset. ECLs are a probability-weighted estimate of credit losses. The Company has carried out an analysis of
the balances outstanding at the end of the period and assessed the likelihood of repayment from its subsidiaries. It
believes that there is no significant increase in credit risk from the prior year and, if anything, the position is strengthened
with the sanction of the phase 1 project resulting in future cashflows for its subsidiaries.
Classification and measurement of financial liabilities
A financial liability is initially classified as measured at amortised cost or FVTPL. A financial liability is classified as
measured at FVTPL if it is held-for-trading, a derivative or designated as FVTPL on initial recognition.
The Group’s accounts payable, accrued liabilities, operators balances and long-term debt are measured at amortised
cost.
Accounts payable, accrued liabilities and operators balances are initially measured at fair value and subsequently
measured at amortised cost. Accounts payable and accrued liabilities are presented as current liabilities unless payment
is not due within 12 months after the reporting period.
Long-term debt is initially measured at fair value, net of transaction costs incurred. The contractual cash flows of the
long-term debt are made up of solely principal and interest, therefore long-term debt is subsequently measured at
amortised cost. Long-term debt is classified as current when payment is due within 12 months after the reporting period.
Where warrants are issued in lieu of arrangement fees on debt facilities, the fair value of the warrants are measured at
the date of grant as determined through the use of the Black-Scholes technique. The fair value determined at the grant
date of the warrants is recognised in the Group’s warrant reserve and is amortised as a finance cost over the life of the
facility.
The outstanding LOG loans are unsecured against any assets or Company of the Group.
Convertible loan notes
Upon issue, convertible notes are assessed as to whether it is necessary to separate the loan into an equity and liability
component at the date of issue. If the bifurcation is considered material the liability component is recognised initially at
its fair value. Subsequent to initial recognition, it is carried at amortised carrying value using the effective interest
method until the liability is extinguished on conversion or redemption of the notes. The equity component is the residual
amount of the convertible note after deducting the fair value of the liability component. This is recognised and included
in equity and is not subsequently re-measured.
Contingent consideration payable
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent
consideration arrangement, measured at its acquisition date fair value. Subsequent changes in the fair values are
adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other
subsequent changes in the fair value of contingent considerations classified either as an asset or liability are accounted
for in accordance with relevant IFRSs with any gains or losses recorded in the income statement unless it is classified
as equity.
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. The costs of issuing new share capital are written off against the share
premium account arising out of the proceeds of the new issue.
IOG plc
Page 62 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Share-based payments
The Company have applied the requirements of IFRS 2 Share-based payments. The Company issues equity share
options, to certain employees and contractors, as direct compensation for both salary and fees sacrificed in lieu of such
share options. Other Long-Term Incentive Plan (‘LTIP’) and Company Share Ownership Plan (‘CSOP’) share options
may be awarded to incentivise and reward successful corporate and individual performance. The fair value of these
awards has been determined at the date of the grant of the award allowing for the effect of any market-based
performance conditions.
The fair value of share options awarded, in lieu of salary sacrifice, is expensed on the effective date of grant, with no
vesting conditions applied. The fair value is deemed to be the actual salary sacrificed.
For LTIP and CSOP share option awards, based upon incentive and performance, the fair value, adjusted by the
estimate of the number of awards that will eventually vest because of non-market conditions, is expensed uniformly
over the vesting period and is charged to the Statement of Comprehensive Income, together with an increase in equity
reserves, over a similar period. The fair values are calculated using an option pricing model with suitable modifications
to allow for early exercise. The inputs to the model include: the share price at the date of grant; exercise price; expected
volatility; expected dividends; risk-free rate of interest; and patterns of exercise of the plan participants. Where the
terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to the Statement of Comprehensive Income over the
remaining vesting period. Share options issued by the Company that are subject to market-based vesting conditions,
as defined in IFRS 2, are ignored for the purposes of estimating the number of equity shares that will vest; these
conditions have already been taken into account when fair valuing the share options.
Non-market vesting conditions are not taken into account when estimating the fair value of share options at the grant
date; such conditions are taken into account through adjusting the number of equity instruments included in the
measurement of the amount charged to the Statement of Comprehensive Income over the vesting period so that,
ultimately, the amount recognised equates to the number of equity instruments that actually vest. The expense in the
Statement of Comprehensive Income in relation to share options represents the product of the total number of options
anticipated to vest and the fair value of these options at the date of grant.
Share options where the performance conditions are service-related and non-market in nature, the cumulative charge
to the income statement is reversed only where an employee in receipt of share options leaves the Group prior to
completion of the service period and forfeits the options granted and/or performance conditions are not expected to be
satisfied. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and
any expense not yet recognised for the award is recognised immediately.
The proceeds received by the Company on the exercise of share entitlements are credited to share capital and share
premium. When share options which have not been exercised reach the end of the original contractual life, the value of
the share options is transferred from the share option reserve to retained earnings.
The fair value of warrants issued to third parties is calculated by reference to the service provided, or if this is not
considered possible, calculated in the same way as for LTIP share options as detailed above. Typically, these amounts
are related to debt issues and are included in the effective interest rate calculation of borrowings.
Earnings or Loss per share
Earnings or 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.
Critical accounting judgements and key sources of estimation uncertainty
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 clear from other sources. Actual results may differ from these estimates.
The following are the critical judgements that management has made in the process of applying the entity’s accounting
policies and that have the most significant effect on the amounts recognised in financial statements.
IOG plc
Page 63 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Critical accounting judgements and key sources of estimation uncertainty (continued)
Critical accounting judgements
Where judgements have been applied, these can affect the outcome and results within the Financial Statements.
Determination of cash-generating units (“CGUs”) (note 10 & 11)
The determination of the appropriate grouping of assets into a CGU for impairment purposes require significant
management judgement when defining an asset, or group of assets that generate cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. For example, individual gas properties may form
separate CGUs whilst certain gas properties with shared infrastructure may be grouped together to form a single CGU.
Alternative groupings of assets or CGUs may result in a different outcome from impairment testing. CGUs are
determined by consideration to similar geological structure, shared infrastructure, geographical proximity, commodity
type, similar exposure to market risks and materiality. The Group’s cash generating units are normally, but not always,
single development or production areas. With respect to the Group’s Southern North Sea gas production and
development assets, the CGU is considered by field or Groups of proximate fields which supports the value of shared
infrastructure assets. In the prior year, the D&P Phase 1 assets were treated as one CGU, however, following production
from the Blythe and Elgood CGU, and the results on the Southwark CGU during the year, these fields are now
considered to generate independent cashflows that support the share gas infrastructure network. E&E assets are
considered to form a single CGU on a “hub” basis that corresponds to geographical proximity for the purposes of an
impairment assessment under IFRS 6.
Carrying value of intangible exploration and evaluation assets (note 10)
The amounts for intangible exploration and evaluation assets represent active evaluation projects. These amounts will
be written off to the income statement as exploration costs unless commercial reserves are established, or the
determination process is not completed and there are no indications of impairment in accordance with the Group’s
accounting policy. The process of determining whether there is an indicator for impairment or impairment reversal and
the subsequent calculation requires critical judgement. The key areas in which management has applied judgement are
as follows: the Group’s intention to proceed with a future work programme for a licence; the likelihood of licence renewal
or extension; the review of new legislation or regulations that may impact the economic terms of the Group’s licence
interests: the assessment of whether sufficient data exists to indicate that, although a development in the specific area
is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from
successful development or by sale and the success of a well result or geological or geophysical survey.
Impairment of property plant and equipment assets (note 11)
Management is required to assess its gas assets for indicators of impairment. D&P assets are reviewed for impairment
by reference to indicators set out in IAS 36, which is inherently judgemental. Indicators of D&P assets include, but are
not limited to:
•
Significant downward trend changes long term gas price
•
Any information available that would lead to a reduction in the reservoir estimates, either performance or via
an updated reserves assessment by a competent person
•
Significant cost overruns that would impact the economics of the CGU / asset
•
Any commercial changes that would impact the economics of the CGU / asset
•
Any regulatory, governance or environmental changes that would impact the asset’s ability to function as
previously envisaged.
During the year, the Elgood and Southwark reserves were downgraded following the results of production from the
Elgood field and the Southwark A-2 well which the Group determined was an indicator of impairment (see note 11). The
results of future developments of the Group’s assets may be different to current management expectations and may
result in further impairment or an impairment reversal dependent on the outcome of those developments, which would
have an impact on the Group’s financial statements. The carrying value of D&P gas assets is disclosed in note 11. The
carrying value of related investments in the Company Statement of Financial Position is disclosed on page 49.
Recognition of finance leases (note 23)
An area that carries significant judgement is around the accounting for the finance lease assumptions for the Shelf
Perseverance rig contract, charter of support vessels, the PSV supply vessel & charter of ERRV (emergency rapid
response vessel). These contracts have been assessed to fall within the scope of IFRS 16 and judgements around the
initial contract length, subsequent extension (in case of rig contract) and the incremental borrowing rate have been
made by Management.
IOG plc
Page 64 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Critical accounting judgements and key sources of estimation uncertainty (continued)
Critical accounting judgements (continued)
Going concern
Refer to pages 52 and 53.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below.
Decommissioning estimates (note 17)
Provisions for decommissioning obligations are made on the best estimate of the likely committed cash outflow. The
Company engages specialist input from third party consultancy experts to estimate the cost to perform the necessary
remediation work at the reporting date. The third-party expert has experience in the industry and location where the
Group operates and has assisted the Group’s operations in the past. This enables a degree of knowledge of conditions
specifically relevant to the Group. The third-party conducted a detailed review, provided a range of cost estimates for
decommissioning of wells and infrastructure and site remediation. Management review and challenge the method and
cost ranges where appropriate, using its own external sources through current contractors and market. The third-party
expert estimates are on an undiscounted basis. Provision for environmental clean-up and remediation costs is based
on current legal and contractual requirements, technology and management’s estimate of costs with reference to current
price levels.
Changes to the type of remediation method, legislation, including in relation to climate change, well condition,
technology and equipment available in the Group’s country of operation can all have a significant impact on the cost
estimate that may result in the cost being higher than the current upper-range of the estimate provided.
The estimation of the timing of well abandonment, inflation and discount rates is also considered to be judgemental and
can have a significant impact on the net present value of the obligation. Abandonment timing is forecast to occur at the
expiration, or if planned renewal, expected expiration of the licence term. In respect of inflation, management references
UK long-term inflation targets published by the OBR, and the risk-free discount rate estimate references the UK and
Europe central banks when making such estimates (see note 22).
Impairment of property plant and equipment – development & production assets (note 11)
At each Statement of Financial Position date, the Group reviews the carrying amounts of its CGUs to determine whether
there is any indication that those assets have suffered an impairment. The Group generally assesses the recoverable
amount of a CGU through the value-in-use method, using the estimated future cash flows which are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset or CGU. The following are key estimates used in that assessment when calculating
development & production assets recoverable amount:
Commercial Reserves
Commercial reserves are proven and probable (‘2P’) oil and gas reserves, calculated on an entitlement basis. Estimates
of commercial reserves underpin the calculation of depletion and amortisation on a UOP basis, gas asset impairments,
as well as the value-in-use calculation. Estimates of commercial reserves include estimates of the amount of gas in
place, assumptions about reservoir performance over the life of the field and assumptions about commercial factors
which, in turn, will be affected by the future gas price. The Group prepares Proved and Probable reserves estimates in
accordance with the reserve definitions guidelines defined in SPE Petroleum Resources Management System 2018
(PRMS 2018). Reserves estimates are reported annually by the Board. The self-certified estimated future production
profiles are used in the life of the fields which in turn are used as a basis in the value-in-use calculation.
Commodity prices
A seasonally adjusted long-term assumption for natural UK NBP gas prices are used for future cash flows in accordance
with the Group’s corporate assumptions. Field specific premiums and discounts are used where applicable.
Capital expenditure
Field development is capital intensive and future capital expenditure has a significant bearing on the value of a gas
development asset. In addition, capital expenditure may be required for producing fields to increase production and/or
extend the life of the field. Cost assumptions are based on operator and/or service contractor cost estimates or specific
contracts where available.
IOG plc
Page 65 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Critical accounting judgements and key sources of estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
Impairment of property plant and equipment – development & production assets (note 11)
Discount rates
Discount rates reflect the current market assessment of the risks specific to the upstream 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 risk specific to the field for which future estimated cash flows have not been adjusted. The Group
has applied a risk adjusted discount rate of 9.38% for the current year (2021: 9.25%). A one per cent increase in the
discount rate does not result in an additional impairment.
Sensitivity to changes in assumptions
A potential change in any of the above assumptions may cause the estimated recoverable value to be lower than the
carrying value, resulting in an impairment loss. The assumptions which would have the greatest impact on the
recoverable amounts of the fields are commercial reserves volumes (linked to recoverable reserves) and commodity
prices. In respect of the D&P Phase 1 assets, sensitivity analysis indicates that if gas prices were to fall by 10% below
forecast there an additional post-tax impairment of £24.4 million would have occurred, and an increase of 10% would
result in an £18.6 million increase in recoverable amount.
Investments in subsidiaries
If circumstances indicate that impairment may exist, investments in and the value of any loans to subsidiary
undertakings of the Company are evaluated using market values, where available, or the discounted expected future
cash flows of the investment. If these cash flows are lower than the Company’s carrying value of the investment or
loan amount due, an impairment charge is recorded in the Company. Evaluation of impairments on such investments
involves significant management judgement and may differ from actual results.
Finance leases
− The determination of lease term for some lease contracts in which the Group is a lessee, including whether the
Company is reasonably certain to exercise lessee options (see note 23).
− The determination of the incremental borrowing rate used to measure lease liabilities (see note 1).
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 above for further details of these assumptions.
IOG plc
Page 66 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
1
Statement of Accounting Policies (continued)
Prior period adjustment
An error was identified in the accounting for prior period prior period personnel costs recognised in 2021 financial
statements. An over accrual of personnel costs of £1.9 million was recognised in previously reported 2021
administration expenses of £4.0 million, which formed part of operating loss of £1.5 million, and total comprehensive
loss for the year of £4.3 million. Due to performance measures not being met during 2021, total personnel costs incurred
in the period was £1.4 million lower. As these personnel costs predominantly related to the development of the Group’s
E&E and D&P assets, the costs were subsequently charged to Intangible and PPE assets and adjusted through the
restated prior year accounts, as presented in the table below.
The restated 2021 personnel costs has an impact on all primary statements and certain notes to the accounts on both
a consolidated and Company basis.
The 2021 comparatives have been restated in these financial statements to include the effect of the adjustments noted
above. A third consolidated statement of financial position as at 1 January 2021 is not required under paragraph 10(f)
of IAS 1 Presentation of financial statements, as the restatement has had no effect on the statement of financial position
as at that date.
The adjustment has been corrected as at 31 December 2021 as per tables below:
31 December 2021
Adjustment
Restated
31 December 2021
Consolidated Statement of Financial Position
£000
£000
£000
Intangible assets
950
44
994
Property, plant, and equipment: D&P assets
138,403
402
138,805
Trade and other payables
(44,880)
1,412
(43,468)
Accumulated losses
42,263
(1,858)
40,405
Consolidated Statement of Comprehensive Income
Administrative expenses
(3,960)
1,858
(2,102)
Total comprehensive loss for the year
(4,266)
1,858
(2,408)
Operating (loss)/ profit
(1,489)
1,858
369
Consolidated Cash Flow Statement
Loss for the year
(4,266)
1,858
(2,408)
Movement in trade and other payables
25,499
(1,858)
23,641
31 December 2021
Adjustment
Restated
31 December 2021
Company Statement of Financial Position
£000
£000
£000
Amounts due from subsidiaries
109,195
446
109,641
Trade and other payables
(22,513)
1,412
(21,101)
Accumulated losses
20,094
(1,858)
18,236
Company Cash Flow Statement
Loss for the year
(3,643)
1,858
(1,785)
Movement in trade and other payables
25,499
(1,858)
23,641
IOG plc
Page 67 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
2
Segmental information
The Group complies with IFRS 8, Operating Segments, which requires operating segments to be identified based upon
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 development, production and exploration of oil and gas opportunities in the UK Southern
North Sea.
3
Revenue
The Group’s total revenue is stated from its contracts with customers relating to the following sales:
2022
2021
£000
£000
Gas sales
71,840
-
Condensate sales
3,566
-
_________
_________
Total Revenue
75,406
-
_________
_________
Included in revenues arising from gas sales are revenues of £71.8 million (2021: £nil) which arose from sales to BP
Gas Marketing Limited, the Group’s largest customer. No other single customers contributed 10 per cent or more to the
Group’s revenue in either 2022 or 2021.
4
Cost of sales
2022
2021
£000
£000
Operating Costs
(10,078)
-
Increase in Inventory
40
-
Depletion
(13,188)
-
Other Operating Expenditure
(415)
-
_________
_________
(23,641)
-
_________
_________
Cost of sales for 2022 is £23.6 million (2021: £nil), representing operating costs of £10.1 million (2021: £nil), an increase
in condensate inventory of £40,000 (2021: £nil), depletion of £13.2 million (2021: £nil) and other operating expenditure
of £0.4 million (2021: £nil).
IOG plc
Page 68 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
5
Operating loss
The Group’s operating loss (2021: loss) is stated after charging / (crediting) the following:
2022
2021
£000
£000
Fees payable to the Company’s auditor:
for the audit of the Group’s financial statements
150
128
Non-audit services
41
7
Of which
for the audit of the Company’s financial statements
77
62
Depreciation, depletion and amortisation
13,686
519
Project, pre-licence and exploration expenses
Impairment of oil and gas properties
182
51,007
104
865
Effect of exchange rate changes on Bond
4,620
(5,901)
Effects of exchange rate changes on cash and cash equivalents
465
2,461
Effects of exchange rate changes on Leases
(341)
-
Foreign exchange loss of £4.7 million (2021: gain of £3.4 million) relates mostly to EUR strengthening affecting the
€100 million Norwegian Bonds.
6
Personnel costs
During the year, the average number of personnel, including contract personnel, for both the Company and Group was:
2022
2021
Number
Number
Management / technical / operations
51
52
of which: Directors
5
5
Personnel costs Group and Company
£000
£000
Wages, salaries, fees and other direct costs
6,904
4,655
Social security costs
1,028
613
Pension costs
343
298
Share-based payments
844
1,284
________
________
9,119
6,850
________
________
Note that project contract personnel, capitalised directly to project cost centres, are excluded from the above personnel
cost figures.
Of the total personnel costs of £9.1 million (2021: £6.8 million) plus the other admin pool costs of £2.5 million (2021:
£2.3 million), £6.0 million was capitalised to the balance sheet under PP&E (2021: £6.3 millions), £972,000 to
Intangibles (2021: £655,000), and £2.2 million expensed to operating costs (2021: £nil).
Key management personnel are deemed to be the Directors, the Chief Financial Officer, the General Counsel &
Company Secretary and the Head of Capital Markets & ESG.
IOG plc
Page 69 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
6
Personnel costs (continued)
Total key management personnel remuneration is:
2022
2021
Group and Company
£000
£000
Wages, salaries, fees and other direct costs
1,442
1,646
Social security costs
347
237
Pension costs and other benefits
343
148
Share-based payments
505
776
________
________
2,637
2,807
________
________
Directors’ emoluments (which are included in administration expenses) and interests are shown in the Directors’
Remuneration Report on pages 26 to 27. Short term benefits are deemed to be salary/fees, salary/fees sacrificed,
bonus and benefits. No post-employment, long term or termination payments were made during the year.
The salary amounts are those cash amounts paid to Directors and key management personnel during the year. Social
security costs for the year for key management personnel were £347,000 (2021: £237,000). Amounts of salary and/or
fees outstanding at 31 December 2022 to which these terms relate totalled £nil (31 December 2021: £nil) for Directors
and key management personnel and £nil (2021: £nil) for other personnel.
The share-based payment amounts represent the charges for share options during the year. For the current Directors
at 31 December 2022, the service agreements provide that the full contractual amount will be paid in cash.
Personnel costs in 2021 have been restated; see note 1 for details.
7
Finance expense
2022
2021
£000
£000
Interest on loans
206
-
Other finance charges
23
-
Current year loan finance charges
560
560
Unwinding of discount on decommissioning provision
449
(14)
Unwinding of discount on convertible loan
1,000
1,001
Unwinding of deferred consideration provisions
91
(118)
Unwinding of discount on lease liability
1,882
1,637
Interest on bonds
8,756
8,253
Capitalisation of interest on bonds1
(1,853)
(8,253)
________
________
11,114
3,066
________
_________
1 During the Phase 1 development, 1st quarter 2022 interest paid in the Norwegian bonds was capitalised to the Phase 1 assets proportionately
based on capital expenditure during the quarter. The capitalisation of the bond interest has cessed on the commencement of Blythe and Elgood
production in 2022.
As at 31 December 2022, there were no interest-bearing loans outstanding other than the Norwegian Bonds (see note
22). During the year, the interest associated with the Bond was capitalised to D&P project costs as the bond drawdowns
are purposefully used to finance the development of the project assets, until the assets became substantially available
for their intended use. Interest on the Bond is no longer capitalised to D&P project costs but expensed to the Statement
of Comprehensive Income as incurred.
IOG plc
Page 70 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
8
Taxation
a) Current taxation
There was no tax charge during the year as the Group loss was not chargeable to corporation tax. 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:
2022
2021
£000
£000
(Loss)/profit before income taxes
(17,087)
(2,408)
_________
_________
Expected tax expense/(credit) based on the standard rate of United Kingdom
corporation tax at the domestic rate of 40%1 (2021: 40%)
(6,834)
(1,706)
Difference in tax rates
3,476
1,168
Expenses not deductible for tax purposes
1,289
(77)
Excess allowances
(17,117)
-
Deferred Energy Profits Levy
11,362
-
Income not taxable
-
(7,618)
Group relief claimed
-
(2)
Unrecognised taxable losses carried forward
19,186
8,235
_________
_________
Total tax expense
11,362
-
_________
_________
1 The standard rate of corporation tax of 40% (2021: 40%), including the supplemental corporation tax charge of 10% (2021:10%) is levied in respect of UK ring fence
profit. Non-ring fenced profits are taxed at the standard rate of corporation tax of 19% (changing to 25% from 1 April 2023). Given that the Group’s activities are primarily
focused on activities which will generate income within the UK ring fence the 40% has been regarded as the appropriate rate for the reconciliation above. On 26 May 2022
the government announced a new Energy Profits Levy (EPL), 25% surcharge, will apply to ring fence oil and gas profits generated from that day until 31 December 2025.
It was then announced that the EPL the rate will increase to 35% for ring fence oil and gas profits generated from 1 January 2023 to 31 March 2028. These laws have
now been enacted by balance sheet date.
b) Deferred taxation
Due to the nature of the Group’s exploration and appraisal 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 £258.6 million (2021:
£220.6 million). There are also accelerated capital allowances of £116.4 million (2021: £111.0 million).
The Group has not recognised a deferred tax asset at 31 December 2022 (2021: £nil) on the basis that the Group would
expect the point of recognition to be when the Group has some level of certainty of production showing that the Group
is making profits in line with the underlying economic model which would support the recognition. A deferred tax asset
has only been recognised on deductible temporary differences up to the amount of taxable temporary differences.
Energy Profit Levy
The Energy (Oil and Gas) Profits Levy was announced on 26 May 2022 and legislated for in July 2022. This was a new,
temporary 35% levy on ring fence profits of oil and gas companies. This was in addition to Ring Fence Corporation Tax
which is charged at 30% and the Supplementary Charge which is charged at 10%. The levy included a new 80%
investment allowance and was due to expire by 31 December 2025. This measure increases the rate of the levy to 35%
and extends the time that the levy applies to 31 March 2028. In respect of Energy Profits Levy (EPL) a net deferred tax
liability of £11.4 million has been recognised.
The Group has carried forward ring fence tax losses of £239.3m (2021: £196.4 million), EPL losses of £21.0 million
(2021: £nil) and non-ring fence tax losses of £24.2 million (2021: £16.6 million).
2022
2021
Deferred tax
£000
£000
Net book value in excess of capital allowances
79,852
55,718
Decommissioning provision
(8,869)
-
Investment allowance
(394)
-
Tax losses
(59,227)
(55,718)
_________
_________
Net deferred tax loss
11,362
-
IOG plc
Page 71 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
9
Loss per share
2022
2021
£000
£000
Loss for the year attributable to shareholders (Numerator)
(28,449)
(2,408)
___________
___________
Weighted average number of Ordinary Shares: basic (Denominator)
525,037,353
513,584,870
Add potentially dilutive shares:
Convertible loan notes
60,872,631
60,872,631
Salary/Fee sacrifice options
3,198,288
4,325,027
LTIP/CSOP
30,206,628
26,369,136
Warrants
20,000,000
20,000,000
Diluted
639,314,900
625,151,664
___________
___________
Loss per share in pence:
basic
(5.4p)
(0.4p)
Diluted earnings 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,
convertible loan notes and warrants into Ordinary Shares.
There is no difference between the basic loss per Ordinary Share and the diluted loss per Ordinary Share for the years
ended 31 December 2022 and 2021 as all potential Ordinary Shares outstanding are anti-dilutive. In 2022, there were
no anti-dilutive instruments that were not included in the calculations that would have had a material impact on the basic
earnings per share.
There are no significant Ordinary Share issues post the reporting date, save for those disclosed in note 28 that would
materially affect this calculation.
IOG plc
Page 72 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
10
Intangible assets
Group
Exploration
&
evaluation
assets
Company
& IT
software
assets
Total
Exploration &
evaluation
assets
(Restated)
Company &
IT software
assets
Total
(Restated)
2022
2022
2022
2021
2021
2021
£000
£000
£000
£000
£000
£000
At cost
At beginning of the year
(restated)1
994
336
1,330
13,875
321
14,196
Additions
2,167
5
2,172
549
15
564
Disposals
-
(29)
(29)
-
-
-
Disposals prior periods2
-
(13,430)
-
(13,430)
_________
_________
________
_________
_________
________
At end of the year
3,161
312
3,473
994
336
1,330
_________
_________
________
_________
_________
________
Amortisation
At beginning of the year
(restated)1
-
(261)
(261)
(12,565)
(151)
(12,716)
Amortisation
-
(43)
(43)
-
(110)
(110)
Impairment
-
-
-
(865)
-
(865)
Disposals prior periods2
-
-
-
13,430
-
13,430
________
________
________
________
________
________
At end of the year
-
(304)
(304)
-
(261)
(261)
_________
_________
________
________
________
________
Net book value
At 31 December 2022
3,161
8
3,169
At 1 January 2022
994
75
1,069
At 1 January 2021
1,309
170
1,479
1 Skipper licence was relinquished and impaired in 2019 Both Skipper related costs and accumulated impairments of £22.3M have been derecognised
from the 2021 opening balance. There is £nil impact on Group Statement of Financial Position in 2022.
2 After completing the technical analysis of Harvey, the Group fully determined the Harvey licence in December 2021. Harvey licence cost of £13.4
million were fully impaired in 2021. Both the costs and accumulated impairments of the Harvey licence of £13.4 million have been derecognised in
the comparative period in the above table. There is £nil impact on Group Statement of Financial Position in 2022.
The Group does not hold any property, plant and equipment within exploration and evaluation assets.
The additions to E&E assets during the year relate predominantly to geological and geophysical surveys, well planning
and contracting activities in respect to the Goddard and Kelham North/Central appraisal wells.
The amount for Exploration and evaluation assets represents active exploration and appraisal projects. These will
ultimately be written off to the Income Statement as exploration costs if commercial reserves are not established but
are carried forward in the Statement of Financial Position whilst the determination process is not yet completed and
there are no indications of impairment having regard to the indicators under IFRS 6.
In accordance with its accounting policies each CGU is evaluated annually for impairment, with an impairment test
required when a change in facts and circumstances, in particular with regard to the remaining licence terms, likelihood
of renewal, likelihood of further expenditures and ongoing acquired data for each area, result in an indication of
impairment. Exploration and evaluation assets at 31 December 2022 comprise the Group’s interest in the Abbeydale
appraisal, the Goddard pre-development prospects and Panther and Grafton.
IOG plc
Page 73 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
11
Property, plant and equipment
Group
D&P assets
Phase 1
£000
D&P assets
Phase 2
£000
Pipeline
assets
£000
Right of
use assets
£000
Admin
Assets
£000
Total
£000
Cost
At 1 January 2021
33,675
7,150
12,597
18,550
637
72,609
Additions in the year1
57,959
289
17,487
2,753
17
78,505
Decommissioning asset revisions
(note 17) restated
11,613
(17)
(1,948)
-
-
9,648
______
______
______
_____
______
______
At 31 December 20211
103,247
7,422
28,136
21,303
654
160,762
______
______
______
_____
______
______
Additions in the year
54,757
960
5,603
22,383
60
83,763
Decommissioning asset revisions
(note 17)
10,559
(806)
4,148
-
-
13,901
Asset Impairment and write
downs
(43,432)
(7,576)
-
-
(52)
(51,060)
______
______
______
_____
______
______
At 31 December 2022
125,131
-
37,887
43,686
662
207,366
______
______
______
_____
______
______
Depreciation
At 1 January 2021
-
-
-
(2,376)
(270)
(2,646)
Charge for the year
-
-
-
(14,276)
(163)
(14,439)
______
______
______
_____
______
______
At 31 December 2021
-
-
-
(16,652)
(433)
(17,085)
Charge for the year
(11,694)
-
(1,494)
(15,006)
(99)
(28,293)
______
______
______
_____
______
______
At 31 December 2022
(11,694)
-
(1,494)
(31,658)
(532)
(45,378)
______
______
______
_____
______
______
Net book value
At 31 December 2022
113,437
-
36,393
12,028
130
161,988
At 31 December 2021
103,247
7,422
28,136
4,651
221
143,677
1 See Note 1 of the notes forming part of the financial statements for more details on the prior year restatement.
Following completion of the Saturn Banks Reception Facilities (SBRF) at the Bacton terminal in early 2022, the Blythe
and Elgood fields commenced production, resulting in depletion and depreciation charge during the year. Depletion
charges on gas assets are classified within Cost of Sales (see note 4). Decommissioning asset revisions reflect updated
cost estimates for the year (see note 17).
Following the operational delays and disappointing results of the Southwark drilling campaign, which resulted in a
downgrade of 2P reserves associated with the field, and the downgrade in Elgood reserves, the Group has tested D&P
Phase 1 assets for impairment. For each CGU, the recoverable amount has been determined using the value in use
method which constitutes a level 3 valuation within the fair value hierarchy. The recoverable amount is supported by
the fair value derived from a discounted cash flow valuation of the 2P production profile. As disclosed in note 1, under
‘critical judgements’, key estimates include 2P commercial reserves, production profiles, gas price, capital expenditure
estimates and discount rate. The 2P reserves downgrade on the Southwark gas field CGU, which represents investment
to date in the A-1 and A-2 wells on Southwark, to 10.0 BCF (2021: 71.2 BCF) resulted in a £43.4 million (2021: £nil)
impairment to D&P Phase 1 assets. The Directors were satisfied that no further provision for impairment against the
remaining carrying value of the D&P Phase 1 assets.
Phase 2 development and production assets (which include Nailsworth and Elland) reserves were reclassified to 2C
resources. This resulted in a full impairment of £7.6 million (2021: £nil) for the Phase 2 assets during the year of due to
the value in use calculation supported by 2P reserves under the Groups accounting policy (see note 1).
IOG plc
Page 74 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
11
Property, plant and equipment (continued)
Right of use assets predominantly relate to the Shelf Perseverance drilling rig contract and support vessels. The Group’s
net share of £7.4 million (2021: £8.0 million) of depreciation of these right of use assets is capitalised to the development
& production assets of the Group. Thames pipeline and office right of use assets depreciation is expensed. All leases
are accounted for by recognising a right-of-use asset and a lease liability except for:
•
Leases of low value assets; and
•
Leases with a duration of 12 months or less.
See Note 23 for disclosures around the Group’s lease liabilities.
Company
D&P
assets
Phase 1
Right of
use
assets
Admin
assets
Total
D&P
assets
Phase 1
Right of
use
assets
Admin
assets
Total
2022
2022
2022
2022
2021
2021
2021
2021
£000
£000
£000
£000
£000
£000
£000
£000
Cost
At beginning of the year
-
21,303
654
21,957
1,959
18,550
637
21,146
Additions
-
22,383
8
22,391
-
2,753
17
2,770
______
______
______
_____
______
______
______
_____
At end of the year
-
43,686
662
44,348
1,959
21,303
654
23,916
______
______
______
_____
______
______
______
_____
Depreciation
At beginning of the year
-
(16,652)
(433)
(17,085)
-
(2,376)
(270)
(2,646)
Charge for the year
-
(15,006)
(99)
(15,105)
(1,959)
(14,276)
(163)
(16,398)
______
______
______
_____
______
______
______
_____
At end of the year
-
(31,658)
(532)
(32,190)
(1,959)
(16,652)
(433)
(19,044)
______
______
______
_____
______
______
_____
_____
Net book value
At 31 December 2022
-
12,028
130
12,158
At 1 January 2022
-
4,651
221
4,872
Right of use assets predominantly relate to the Shelf Perseverance drilling rig contract and support vessels. The
depreciation of these right of use assets is capitalised to the development & production assets of the Group.
Other minor right of use assets include land and property leases of the Company. All leases are accounted for by
recognising a right-of-use asset and a lease liability except for:
•
Leases of low value assets; and
•
Leases with a duration of 12 months or less.
See Note 23 for disclosures around the Company’s lease liabilities.
All Company assets were assessed for impairment, but no impairment indicators were identified.
IOG plc
Page 75 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
12
Convertible Loans
The table below sets out the opening, movement and closing position of the LOG loan.
2022
2021
£000
£000
Balance at the beginning of the year
8,822
8,037
Unwinding of the discount
1,000
1,001
Gain on loan modification
-
(216)
_______
_______
9,822
8,822
_______
_______
The £11.6 million long-term, unsecured, subordinated to other debt the Group holds, non-interest-bearing Loan Note
Instrument allows for conversion of the loan into 60,872,631 Ordinary Shares at a strike price of 19 pence per share
until maturity. The maturity date of the loan is 23 September 2023 and remained in place during the year.
13
Investments
Shares
Loans
in Group
to Group
Company
companies
companies
Total
£000
£000
£000
At cost
At 1 January 2021
15,486
44,906
60,392
Additions1
-
64,735
64,735
_________
_________
_________
At 31 December 20211
15,486
109,641
125,127
Additions
-
63,749
63,749
Repayments
-
(68,933)
(68,933)
_________
_________
_________
At 31 December 2022
15,486
104,457
119,943
_________
_________
_________
1 See Note 1 of the notes forming part of the financial statements for more details on the prior year restatement.
Loans to Group subsidiaries are interest free and repayable on demand. During the year, repayments of £68.9 million
were made to the Company from revenues generated by the Group’s gas asset and the balance of the Loans are
expected to be recovered from future revenues generated by the Group’s UK gas assets. At the year end, the Company
reviewed the loan balances for impairment. In line with the requirements of IFRS 9, the Company calculated an expected
credit loss equivalent to the lifetime expected credit losses using the value in use methodology. The Company reviewed
the recoverability scenarios of each loan to subsidiaries. The Company applies no discounting to the expected credit
loss calculation as the effective interest rate is considered to be nil as the loans are interest free and payable on demand.
For exploration and evaluation assets, estimated discounted cash flows are risk-weighted for costs and future
exploration success. After taking into account these scenarios, the Directors believe the carrying value of these loans
to be fully recoverable.
IOG plc
Page 76 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
13
Investments (continued)
The Company's subsidiaries, all registered at 60 Gracechurch Street, London EC3V 0HR, are as follows:
Country of
Area of
Directly held
incorporation
operation
%
IOG Infrastructure Limited
United Kingdom
United Kingdom
100
IOG North Sea Limited
United Kingdom
United Kingdom
100
IOG UK Ltd
United Kingdom
United Kingdom
100
Avalonia Energy Limited (dormant)
United Kingdom
United Kingdom
100
Held by Avalonia Energy Limited
Avalonia Goddard Limited (dormant)
United Kingdom
United Kingdom
100
Avalonia Abbeydale Limited (dormant)
United Kingdom
United Kingdom
100
Avalonia Energy Appraisal Limited (dormant)
United Kingdom
United Kingdom
100
All three active subsidiaries are engaged in the business of oil and gas appraisal, development and/or operations in the
UK North Sea.
The four dormant companies were incorporated in 2018 and 2019 and have been made available to support any
potential Group restructure following refinancing of the Group.
The financial reporting periods for each subsidiary entity are consistent with the Company and end on 31 December.
14
Interests in production licences
As at 31 December 2022, all nine Group UK Offshore Production Licences, were owned 50% by either IOG North Sea
Limited or IOG UK Ltd. The Saturn Banks Pipeline PL370 and Bacton Gas Terminal assets are owned 50% by IOG
Infrastructure Limited.
15
Trade and other receivables
2022
2021
£000
£000
Group
Trade receivables
6,515
-
VAT recoverable
297
1,455
Prepayments
1,920
245
Other receivables
174
5
______
______
8,906
1,705
______
______
Company
VAT recoverable
296
1,455
Prepayments
263
245
Other receivables
9
5
______
______
568
1,705
______
______
Trade debtors represent receivable balances for December 2022 gas sales from BP Gas Marketing Limited of £6.5
million (2021: £nil) and for condensate sales from Haltermann Carless UK Limited of £60,000 (2021: £nil). Both amounts
were received in January 2023. Prepayments of £1.9 million relate to advance payments made to ODE Asset
Management who act as Duty Holder for IOG’s operated assets and minor prepayments for other general administrative
services.
The Company has considered the carrying value of its trade debtors in the context of IFRS 9 and has assessed the
debtors ability to repay the amount due. In assessing the expected credit loss (‘ECL’) of the receivables, the Company
considered expected future cash flows from the counterparties, their creditworthiness, any increase in credit risk, past
payment performance and concluded there is no material ECL provision required.
IOG plc
Page 77 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
16
Trade and other payables
2022
2021
£000
£000
Group
Accruals
21,080
11,933
Operator advance accounts
15,843
11,728
Lease liabilities
14,609
11,068
Trade payables
11,099
7,713
Contingent consideration payable
750
659
Tax payable
268
367
Decommissioning liability
409
-
_______
_______
64,058
43,468
_______
_______
Company
Lease liabilities
14,609
11,068
Trade payables
11,099
7,713
Accruals
850
1,294
Contingent consideration payable
750
659
Tax payable
268
367
_______
______
27,576
21,101
_______
___ ___
Current liabilities represent £21.1 million (2021: £11.9 million) of accruals for the value of work carried out under
engineering, construction, procurement and commissioning activities and contracts, £15.8 million (2021: £11.7 million)
operators advance accounts representing the balance due to JV partners, being the difference between cash calls
received and billing statements, £14.6 million (2021: £11.1 million) lease liabilities under IFRS 16 relate to the future
payment obligations within the year, £11.1 million (2021: £7.7 million) trade payables of unpaid invoices to various
suppliers and service providers, £750,000 (2021: £659,000) contingent consideration for an additional consideration
payable 3 months after first gas as part of the acquisition of the Southwark asset, £268,000 (2021: £367,000) Employer
tax payable is due to HMRC at end of the year. Elland suspended well decommissioning of £409,000 (2021: £nil) is
scheduled to take place in 2023.
Trade and other payables in 2021 have been restated; see note 1 for details.
IOG plc
Page 78 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
17
Non-current liabilities
2022
2021
£000
£000
Group
Long-term loans
97,437
91,257
Lease liability
1,273
395
Deferred tax liability
11,362
-
Decommissioning provision
29,778
15,837
_______
_______
139,850
107,489
_______
_______
Company
Long-term loans
97,437
91,257
Lease liability
1,273
395
_______
_______
98,710
91,652
_______
_______
Long-term loans:
The Nordic bond issued on 20 September 2019 represents £87.6 million (2021: £82.4 million) of the long-term loans
balance with the LOG loan of £9.8 million being the balance of the total of £97.4 million. See note 22 for further details
of the Nordic bond.
The amounts drawn on LOG loans at 31 December 2022 and 31 December 2021 were as follows:
Loan Facility
Entity
Effective Date
Maturity Date
Principal
Interest
£11.6 million convertible
loan, 5 year facility
IOG plc
28 September 2019
23 September 2024
£11.6 million
Nil
See note 12 for information relating to the outstanding LOG loan.
Decommissioning provision:
2022
2021
£000
£000
At 1 January
15,837
6,226
New provisions and changes in estimates
13,901
9,601
Unwinding of decommissioning provision discount
449
10
Reclassification to short term liability
(409)
-
_______
_______
At 31 December
29,778
15,837
_______
_______
The Group provides for the present value of estimated future decommissioning costs for its gas properties in the UK
Southern North Sea. These costs are updated annually based upon a review of both estimated cost, inflation and
discount rates. Periodically, the Group will undertake a more detailed technical assessment by both internal and external
specialists as appropriate. The amounts shown are expected to crystallise in 2038. The inflation rate used in the
calculation of the decommissioning provision at 31 December 2022 was 2.0% (2021: 2.0%). The discount rate used in
the calculation of the decommissioning provision at 31 December 2022 was 4.03% (2021: 2.75%).
IOG plc
Page 79 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
17
Non-current liabilities (continued)
The reclassification to short term liability relates to the decommissioning for a suspended well on the Elland Licence
P039. During 2022, the Elland abandonment scope was reviewed and it was been established that abandonment can
be completed using a vessel instead of a rig, which has significantly reduced the costs. The abandonment expenditure
was revised to £0.8 million gross (2021: £2.4 million), which is £0.4 million net to the Company (2021: £1.2 million).
18
Net Debt
IOG uses the following definition of net debt – restricted cash and cash equivalents plus the financial asset, less total
loans.
2022
2021
Notes
£000
£000
Restricted cash
2,564
3,429
Non-current restricted cash
21
3,116
-
Cash and cash equivalents
26,693
31,255
Loans
(97,437)
(91,257)
_______
_______
Net debt
(65,064)
(56,573)
_______
_______
19
Share capital
Share
Share
capital
premium
Total
Number
£000
£000
£000
Authorised, allotted, issued and fully paid
At 1 January 2021
- Ordinary Shares of 1p each
488,211,155
4,882
49,989
54,871
Equity issued:
- September 2021, Ordinary Shares of 1p,1
33,800,000
338
8,112
8,450
- Other LTIP and Salary sacrifice share exercises
1,753,057
18
48
66
523,764,212
5,238
58,149
63,387
At 31 December 2021
- Ordinary shares of 1p each
523,764,212
5,238
58,149
63,387
Equity issued:
- Other LTIP and Salary sacrifice share exercises
1,273,141
12
24
36
_________
_________
_________
_________
At 31 December 2022
- Ordinary Shares of 1p each
525,037,353
5,250
58,173
63,423
_________
_________
_________
_________
1 During 2021, the Company carried out a share placement of 33,800,00 at 25 pence per share.
IOG plc
Page 80 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (CONT’D)
20
Share based payments
IOG plc operates a Company Share Option Plan (CSOP) under which all its share options are granted. The Company
has outstanding share options issued which are not exercised under previously established plans that are no longer
used by the Company. The following expenses have been recognised for share option grants under the Company’s
CSOP in the Statement of Comprehensive Income arising on share-based payments and included within administrative
expenses:
2022
2021
£000
£000
Share based payment charge
844
1,284
The Company granted the following share options under its share option plans as follows:
Number
Price
Date of Grant
Expiry
1 January 2021
25,290,322
7.70p
Salary/fee sacrifice options
972,685
1p
28 Feb 2021
28 Feb 26
CSOP cancelled/expired
(3,175,284)
1p
CSOP options
9,199,640
1p
Various dates in
2021
Various dates in 2031
Salary/fee sacrifice options
479,052
1p
31 Aug 2021
28 Sept 26
Options exercised
(2,072,252)
31 December 2021
30,694,163
6.53p
CSOP cancelled/expired
(1,596,434)
1p
CSOP options
5,580,328
1p
Various dates in
2022
Various dates in 2032
Options exercised
(1,273,141)
31 December 2022
33,404,916
4.98 p
Of the remaining staff options, 33,404,916 outstanding at 31 December 2022, 1,273,141 were exercised during the
year, 5,580,328 issued and 1,596,434 have been cancelled. Of the remaining staff options, 30,694,163 outstanding at
31 December 2021, 2,072,252 were exercised during the year and 3,175,284 have been cancelled. The fair value of
these options exercised was transferred from the Share-based Payment Reserve to Accumulated Loss.
All salary/fee sacrifice options outstanding at 31 December 2022 were issued at an exercise price of 1p per share and
carry no additional performance conditions. These shares were issued at a volume calculated by taking the amount
owing and dividing by the volume weighted average price for the period to which the salary/fee sacrifice pertains.
IOG plc
Page 81 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
20
Share based payments (continued)
CSOP Valuation
The 2022 CSOP valuation is based on a Log-normal Monte-Carlo stochastic model. The valuation model assumes:
11 November
2022
17 March
2022
2021
£000
£000
£000
Share price at date of grant
12.40p
37.70p
22.50p
Exercise price
1.00p
1.00p
1.00p
Option life
10 years
10 years
10 years
Risk-free rate
3.23%
1.31%
0.17%
Share price volatility
76.35%
55.71%
64.56%
Iterations
10,000
10,000
10,000
All share options outstanding at 31 December 2022 were issued to option holders with, other than the target price,
several non-market based performance criteria. Non-market based performance criteria included the delivery,
measurement, control and management of an appropriate HSE statement and policy together with a Group-wide HSE
focussed culture.
The remaining average contractual life of the 33,404,916 options outstanding at 31 December 2022 (2021: 30,694,163)
was 3.2 years at that date (2021: 4.2 years) of which 5,798,288 were exercisable at 31 December 2022 (2021:
4,480,836).
The weighted average exercise price of the options remaining was 4.98p at 31 December 2022 (2021: 6.53p).
Further details for Directors are provided on pages 26 and 27.
The Company did not grant any warrants in the current year (2021: nil). No warrants were exercised during the year
(2021: nil) and no warrants lapsed during the year (2021: nil) and are shown as follows:
Number
Price
Date of Grant
Expiry
1 January 2022
20,000,000
32.18p
13/09/2018
31/08/2023
31 December 2022
20,000,000
32.18p
13/09/2018
31/08/2023
The fair value of 20,000,000 warrants granted to London Oil & Gas Limited on 13 September 2018 was calculated using
the Black-Scholes option pricing model, as £4.2 million, all of which was recognised as an issue cost of the £15 million
LOG loan facility, held at amortised cost using the effective interest method. The exercise price of these warrants was
determined as 32.18p.
The following assumptions were applied in the LOG warrant award calculation:
Risk free interest rate
1.50%
Dividend yield
nil
Weighted average life expectancy
4 years
Volatility factor
96.45%
A volatility of 96.45% has been applied based upon the Company’s share price over the period from the Company’s
listing on AIM on 30 September 2013 until 13 September 2019.
The remaining average contractual life of the 20,000,000 warrants outstanding at 31 December 2022 (2021:
20,000,000) was 0.66 years at that date (2021: 1.66 years). All such warrants were exercisable at 31 December 2022.
The weighted average exercise price of the warrants remaining was 32.18p at 31 December 2022 (2021: 32.18p). No
further warrants have been issued or exercised as at 16 March 2023.
IOG plc
Page 82 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
21
Restricted cash, Cash and cash equivalents
2022
2021
Group
£000
£000
Restricted cash – Long term
3,116
-
Restricted cash – Short term
2,564
3,429
Cash at bank
26,693
31,255
Company
Restricted cash
2,564
2,066
Cash at bank
26,693
31,255
Restricted cash at 31 December 2022 includes £2.6 million (2021: £3.4 million) of restricted deposits in a Euro-
denominated Debt Service Reserve Account following the Norwegian Bond issue and a £3.1 million (2021: £1.4 million)
deposit secured against decommissioning provisions of its infrastructure assets. Restricted cash balances of £2.6
million for the Group and £2.6 million for the Company are available within 1 year.
Cash and cash equivalents comprise cash in hand, deposits and other short-term money market deposit accounts that
are readily convertible into known amounts of cash. The fair value of cash and cash equivalents is £26.7 million (2021:
£31.3 million).
22
Bonds payable
On 20 September 2019, the Company issued €100 million Norwegian Bonds on the Oslo Børs to fund the Phase 1
development program.
2022
2021
£000
£000
Balance at the beginning of the year
82,436
87,777
Amortisation of transaction fees
560
560
Interest charged
8,452
8,253
Interest Paid
(8,452)
(8,253)
Currency revaluation
4,620
(5,901)
_______
_______
87,616
82,436
_______
_______
The secured callable bonds were issued on 20 September 2019 by IOG plc at an issue price of par. The bonds have a
term of five years and will be repaid in full at maturity. The bonds carry a coupon of 9.5% plus 3 month EURIBOR with
a EURIBOR floor of 0% and were issued at par. The Bond is callable 3 years after issuance with an initial call premium
of 50% of the coupon (i.e. repayable at a cost of €104.75 million if 3 month EURIBOR is at zero or lower), declining by
10% every six months thereafter.
Bond covenants
•
Minimum liquidity of €2 million up to, and including, six months from the first gas date and €5 million thereafter
at all times.
•
Minimum leverage ratio of 2.5:1 from the first reporting date following six months after the first gas date.
•
Minimum interest cover ratio of five times cover of interest to EBITDA from the first reporting date following six
months after the first gas date.
As at 31 December 2022, the ratio of net debt to EBITDA at 31 December 2022 was 1.1 times and interest cover was
7.0 times. Full terms and conditions of the Bonds can be seen in ‘Bond Terms’ document which is publicly available at:
https://www.iog.co.uk/media/1237/bond-terms-execution-version-190919.pdf
IOG plc
Page 83 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
23
Lease liabilities
2022
2021
£000
£000
Current
At 1 January
11,068
13,781
Interest expenses
1,882
1,754
Lease payments
(18,608)
(12,307)
Additions
20,267
7,840
At 31 December
_______
14,609
_______
11,068
_______
_______
Long term
At 1 January
395
4,968
Additions
941
395
Move to current
(63)
(4,968)
At 31 December
_______
1,273
_______
395
_______
_______
Lease payments represent the Group and Company’s share of Drilling Rig rental, PSV marine supply vessel rental,
ERV marine emergency rapid response vessel rental, office lease rental payments at the London and Norwich offices,
together with the Crown Estate lease for the rights for the Saturn Banks Pipeline to cross the foreshore at Bacton.
During 2022, the Company continued with drilling rig contract with Shelf Drilling (UK) Ltd (contract transferred from
Noble Corporation during the year) for the Noble Hans Deul jack-up drilling rig (to be renamed the Shelf Perseverance)
for which payments commenced in 2021 and therefore subsequently continued with both the marine supply vessel and
marine emergency rapid response vessel. Additionally, in 2022 the Company entered a lease for the Norwich office.
24
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 to hedge
the Group and Company's activities to the exposure to currency risk or interest risk and no derivatives or hedges were
entered 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 its 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;
• Commodity price risk;
• Cash flow interest rate risk; and
• Foreign exchange risk
IOG plc
Page 84 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
24
Financial instruments (continued)
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
• Restricted cash
• Loans
• Other financial assets
• Trade and other receivables
• Trade and other payables
• Bonds
Liquidity risk
The Group 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 to eighteen months for
personnel costs, overheads, working capital and as commitments dictate for capital spend.
Rolling cash forecasts, which are essentially the current budgeting and reforecasting process, identifying the liquidity
requirements of the Group and Company, are produced frequently. These are reviewed and approved regularly by
management and the Board to ensure that sufficient financial resources are made available. The Group’s oil and gas
exploration and development activities are currently funded through the Company with existing cash balances,
operating cash flow generated in the period and joint venture partner cash call receipts from CER.
Greater than
Greater
Total
6 months
6 months, less
than
undiscounted
Carrying
or less
than 12 months
12 months
amount
2022 Group
£000
£000
£000
£000
£000
Current financial liabilities
Trade and other payables
11,098
-
-
11,098
11,098
Lease liability
-
14,609
-
14,609
14,609
Accruals
21,077
-
-
21,077
21,077
Deferred consideration
750
-
-
750
750
Non-current financial liabilities
Loans
-
-
11,566
11,566
9,822
Lease liability
-
-
1,273
1,273
1,273
Deferred tax liability
-
-
11,362
11,362
11,362
Bonds
5,171
5,200
96,398
106,769
87,615
________
_________
________
_________
________
38,096
19,809
120,599
178,504
157,606
________
_________
________
_________
________
2021 Group
Current financial liabilities
Trade and other payables
7,708
-
-
7,708
7,708
Lease liability
10,372
1,083
-
11,455
11,068
Accruals
13,345
-
-
13,345
13,345
Non-current financial liabilities
Deferred Consideration
-
750
-
750
659
Loans
-
-
11,566
11,566
8,821
Lease liability
-
-
414
414
395
Bonds
4,034
4,034
97,485
105,554
82,435
________
_________
________
_________
________
35,459
5,867
109,465
150,792
124,431
________
_________
________
_________
________
IOG plc
Page 85 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
24
Financial instruments (continued)
Greater than
Greater
Total
6 months
6 months, less
than
undiscounted
Carrying
or less
than 12 months
12 months
amount
2022 Company
£000
£000
£000
£000
£000
Current financial liabilities
Trade and other payables
11,098
-
-
11,098
11,098
Lease liability
-
14,609
-
14,609
14,609
Accruals
828
-
-
828
828
Deferred consideration
750
-
-
750
750
Non-current financial liabilities
Loans
-
-
11,566
11,566
9,822
Lease liability
-
-
1,273
1,273
1,273
Bonds
5,171
5,200
96,398
106,769
87,615
________
_________
________
_________
________
17,847
19,809
109,237
146,893
125,995
________
_________
________
_________
________
2021 Company
Current financial liabilities
Trade and other payables
7,708
-
-
7,708
7,708
Deferred Consideration
10,372
1,083
-
11,455
11,068
Accruals
2,723
-
-
2,723
2,723
Non-current financial liabilities
Deferred Consideration
-
750
-
750
659
Loans
-
-
11,566
11,566
8,821
Lease liability
-
414
414
395
Bonds
4,034
4,034
97,485
105,554
82,435
________
_________
________
_________
________
24,837
5,867
109,465
140,170
113,809
________
_________
________
_________
________
Credit risk
Credit risk arises principally from the Group’s and Company’s trade and other receivables, restricted cash, cash and
cash equivalents, and loans to subsidiaries (Company). It is the risk that the counterparty fails to discharge its obligation
in respect of the instrument. 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. Funds are currently placed
with the National Westminster Bank plc and DNB Bank ASA for the DSRA. Under IFRS 9 there is no material impact
for both the Group and Company when assessing expected credit losses of its receivables.
The Group made investments and advances into subsidiary undertakings during the year and these mostly relate to the
funding of the SNS Hub Development Projects, and the Company commenced recovery of these loans in the period
from production from the Blythe and Elgood gas fields held by IOG North Sea Limited. The Company expects to recover
the outstanding loans through future gas sales under the licences held by its subsidiaries from current and future
developments. Loans to subsidiary undertakings are recognised at amortised cost in accordance with IFRS 9. The loans
have no maturity date and are not repayable until the respective subsidiary entity has sufficient cash to repay the loan.
The Board has accordingly assessed the expected repayment dates based on the strategic forecasts approved by the
Board.
As at the reporting date, the Group had £9.0 million external receivables (2021: £nil).
IOG plc
Page 86 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
24
Financial instruments (continued)
Credit risk (continued)
IFRS 9 introduced a new impairment model that requires the recognition of ECLs on financial assets at amortised cost.
The ECL computation considers forward looking information to recognise impairment allowances earlier. In accordance
with IFRS 9, the Group calculated its ECL based on its exposure to credit risk on its trade receivables at the end of the
year and did not recognise an ECL (see note 15). Intercompany exposures, where appropriate, are also in scope under
IFRS 9. The Company assesses the loans made to subsidiary undertakings on the basis of the relevant subsidiaries’
long-term strategic forecasts and alongside the Board’s commercial rationale for providing the specific loan. The loans
are not repayable on demand and are expected to be repaid once the underlying assets progress into the production
phase when cash inflows are generated. Based on the methodology set out by the standard, the Board has for each
intercompany loan, assessed the probability of the default, the loss given default and the expected exposure to compute
the ECLs. The Board has incorporated relevant medium and long-term macroeconomic forecasts in their assessment
which is included as a principle consideration in the entity’s strategic forecasts. Such factors include gas price
sensitivities, funding requirements, reserve and resource estimates. The Board has concluded that any ECLs to be
recognised are not material to these financial statements. Accordingly, the Company has not recognised any expected
credit loss for the balances owed by subsidiary undertakings recognised on the Balance Sheet at amortised cost. The
Group and Company do not hold any collateral as security for any external financial instruments, or otherwise.
The maximum exposure to credit risk is the same as the carrying value of these items in the financial statements as
shown below.
Group
Company
2022
2021
2022
2021
£000
£000
£000
£000
Trade receivable
6,515
-
-
-
Other receivables
2,454
1,445
568
1,705
Loans to subsidiaries
-
-
104,457
109,641
Restricted cash
5,680
3,429
2,564
2,066
Cash and cash equivalents
26,693
31,255
26,693
31,255
Commodity price risk
The Group currently has not entered into any commodity price hedging instruments. The Group does occasionally fix
month ahead gas prices under its Gas Sales Agreement over a portion of its production for which it is not required to
post collateral. As at 31 December 2022, the Group had fixed the gas price for January at 319 pence per therm for
30,000 therms of its daily production.
The Group commenced gas production during the year. The Group’s asset valuations and cash flow modelling make
assumptions on the anticipated gas price for the period of expected production. The Group uses a seasonally adjusted
flat pricing structure that is not inflated over the expected production life of the asset.
Cash flow interest rate risk
The Group’s exposure to interest rate risk arises from its Bond (see note 22) and restricted cash, cash and cash
equivalents. The Group has a €100 million Bond that carries a coupon of 9.5% plus 3 month EURIBOR with a EURIBOR
floor of 0%. An increase of 100 basis points or a decrease of 25 basis points in interest rates at the reporting date would
have had the following effect on the income statement for the Group and Company. This analysis assumes all other
variables, in particular foreign currency, remain constant.
100 bps
increase
2022
25 bps
decrease
2022
100 bps
increase
2021
25 bps
decrease
2021
£000
£000
£000
£000
Restricted cash
57
(14)
34
(9)
Cash and cash equivalents
267
(67)
313
(78)
Long-term loans
(886)
221
(840)
210
IOG plc
Page 87 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
24
Financial instruments (continued)
Cash flow interest rate risk (continued)
The other financial instruments of the Group that are not included in the above tables are non-interest bearing and are
therefore not subject to interest rate risk.
Foreign exchange risk
The Group is exposed to foreign currency risk arising from movements in currency exchange rates. Such exposures
arise predominantly from purchases in currencies other than the Group’s functional currency and the Bond which is
denominated in Euros. In relation to the euro denominated Bond and cash held in DSRA, a 5% strengthening or
weakening in the value of euro against sterling would result in an decrease by £4.5 million or an increase by £4.1 million.
The Company cash balances, included restricted cash, are held in GBP £23.8 million, EUR €8.6 million and USD $1.2
million. This exposure gives rise to net currency gains and losses recognised in the Statement of Comprehensive
Income. A 5% fluctuation in the GBP sterling rate compared to EUR would give rise to a £0.4 million gain or £0.4 million
loss in the Group and Company’s Statement of Comprehensive Income.
The Group has two current revenue streams. Gas sales are contracted to BP Gas Marketing Limited and denominated
in GBP. Condensate sales are contracted to Haltermann & Carless UK Limited and are denominated in USD.
Condensate sales represent 5% of total sales of £75.4 million (2021: £nil). The Group and the Company's cash balances
are maintained primarily in GBP Sterling (which is the functional and reporting currency of each Group company) and
EUR for the Bond DSRA with small balances held in USD to settle any USD liabilities. No formal contracts have been
put in place 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 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 management
The primary objective of the Group’s capital management is to maintain appropriate levels of funding to meet the
commitments of its forward programme of appraisal and development expenditure, and to safeguard the entity’s ability
to continue as a going concern and create shareholder value. The Director’s consider capital to include equity as
described in the Statement of Changes in Equity, and loan notes, as disclosed in Notes 12 and 22.
The Group manages compliance of the Bond and the covenants by reviewing on a monthly basis its cash flow modelling
which incorporates the bond terms and covenants. Norwegian advisors are also engaged to ensure that any regulatory
requirements are met. At each reporting date the Directors provide representation that the terms of the bond are
satisfied.
IOG plc
Page 88 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
25
Financial commitments and contingent liabilities
The Group had outstanding commitments of £5.7 million gross to the joint operations (the Group’s net share is £2.8
million) as at 31 December 2022. All 2022 committed amounts relate to contracted service awards to suppliers procured
for the development and operation of the Group’s phase 1 project assets (Blythe, Southwark, Elgood, Saturn Banks
Facilities and Saturn Banks Pipeline).
Under the terms of the licences to explore for gas, the Company has certain commitments that are generally defined
by activity rather than expenditure requirements. The Goddard and Kelham appraisal wells have been approved by the
joint operating committee operated by the Group in a 50%/50% joint arrangement, and these appraisal wells are
committed to be drilled by 30 September 2023 under the current licence terms.
Saturn Banks Pipeline System:
Security in the sum of £0.5 million, the Initial Saturn Banks Pipeline Decommissioning Security Amount (DSA), was
provided on completion of the Saturn Banks Pipeline SPA in April 2018. In October 2019, following the completion of
the farm-out to CER, this amount was reduced to £0.25 million.
Further security in the sum of £1.8 million was transferred during 2022 to the Saturn Banks Pipeline Decommissioning
Security Amount. The total security held is £3.1 million (2021: £1.4 million)
Saturn Banks Reception Facilities (“SBRF”):
Security in the sum of £2.0 million, the Initial SBRF Decommissioning Security Amount, was provided on completion of
the SBRF SPA in October 2019. Following the completion of the farm-out to CER, this amount was reduced to £1.0
million.
Further security in the sum of £4.0 million, the SBRF Decommissioning Security Amount, is to be provided 2.5 years
following the announcement of ‘first gas’. This additional amount is payable in 8 quarterly instalments of £0.5 million
with the first instalment payable 6 months after the declaration of ‘first gas’. During the year, £1.8 million was transferred
into security deposit account to meet the requirement of SBRF Decommissioning Security Agreement.
Cross-Guarantees:
The Company acts as guarantor to its subsidiary IOG North Sea Limited and its facilities with LOG. These cross
guarantees are considered insurance contracts in accordance with IFRS 4.
IOG plc
Page 89 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
26
Related party transactions
Details of Directors’ and key management personnel remuneration are provided in Note 4.
Rupert Newall, CEO, and persons closely associated, at 31 December 2022 held 4,953,921 ordinary shares of 1p each
in the capital of the Company. Rupert was also the current holder of 5,570,461 share options at 31 December 2022.
Dougie Scott, COO, at 31 December 2022 held 192,289 ordinary shares of 1p each in the capital of the Company.
Dougie was also the current holder of 1,690,141 share options at 31 December 2022.
Fiona MacAulay, Chair, at 31 December 2022 held 269,178 ordinary shares of 1p each in the capital of the Company.
Fiona is also the current holder of 1,000,000 share options at 31 December 2021. Fiona is also entitled to 109,865
share options through salary sacrifice at 31 December 2022.
Esa Ikaheimonen, Non-Executive Director, at 31 December 2022 held 500,000 ordinary shares of 1p each in the capital
of the Company. Esa is also the current holder of 600,000 share options at 31 December 2022. Esa is also entitled to
868,306 share options through salary sacrifice at 31 December 2022.
Neil Hawkings, Non-Executive Director, at 31 December 2022 held 20,000 ordinary shares of 1p each in the capital of
the Company. Neil is also the current holder of 600,000 share options at 31 December 2022. Neil is also entitled to
72,999 share options through salary sacrifice at 31 December 2022.
Details of loans and interest charged (only relevant to 2019) by LOG are detailed in Note 12. The relevant loans
outstanding at the end of the year related to the Company.
27
Notes supporting statements of cash flows
Details of significant non-cash transactions
2022
2021
£000
£000
Equity consideration for settlement of liabilities
-
-
Group – Loans and borrowings
Current
loans and
borrowings
£000
Non-current
loans and
borrowings
£000
Total
loans and
borrowings
£000
At 1 January 2021
13,781
13,005
26,786
Lease Liability additions
7,840
395
8,235
Repayments
(12,307)
-
(12,307)
Unwinding of discount
1,754
785
2,539
Move to current loans & borrowings
-
(4,968)
(4,968)
________
________
________
At 31 December 2021
11,068
9,217
20,285
Lease Liability additions
20,267
877
21,157
Repayments
(18,608)
-
(18,608)
Unwinding of discount
1,882
1,001
2,871
Move to current loans & borrowings
-
-
-
________
________
________
At 31 December 2022
14,609
11,095
25,705
________
________
________
IOG plc
Page 90 of 94
Annual Report 2021
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 (CONT’D)
27 Notes supporting statements of cash flows (continued)
Company – Loans and borrowings
Current
loans and
borrowings
£000
Non-current
loans and
borrowings
£000
Total
loans and
borrowings
£000
At 1 January 2021
13,781
13,005
26,786
Lease Liability additions
7,840
395
8,235
Repayments
(12,307)
-
(12,307)
Unwinding of discount
1,754
785
2,539
Move to current loans & borrowings
-
(4,968)
(4,968)
________
________
________
At 31 December 2021
11,068
9,217
20,285
Lease Liability additions
20,279
877
21,157
Repayments
(18,608)
-
(18,608)
Unwinding of discount
1,870
1,001
2,871
Move to current loans & borrowings
-
-
-
________
________
________
At 31 December 2022
14,609
11,095
25,705
________
________
________
28
Subsequent events
On 5 March 2023, the Blythe H2 well spudded, intended to increase gas production, limit water production and maximise
reserve recovery from the Blythe reservoir
On 24 February 2023, the Company announced, Fiona MacAulay, who has been Chair of IOG since December 2018
having first joined the Board in July 2018, has chosen not to stand for re-election as a director of the Company at the
2023 Annual General Meeting (AGM), which is expected in May. She will therefore be retiring as Chair and resigning
as a Director following the AGM. It is the Board's intention that, following the AGM, Esa Ikaheimonen will become Chair
of IOG initially on an interim basis. Esa has been the Senior Independent Non-Executive Director at IOG since March
2019 and is the current Chair of the Audit Committee.
On 6 February 2023, the Company announced the decision to suspend the Southwark A2 well following the remediation
programme that although successfully reduced water production from 1,500 bbls/d to an average rate of 380 bbl/d,
stabilised gas rates were limited to 2.5 mmscf/d, at a flowing wellhead pressure of 1186 psi. and evaluate the feasibility
of cycled production and alternative longer-term remediation strategies.
On 12 January 2023, the Group submitted for nine Southern North Sea blocks across five licences areas in the 33rd
UK Offshore Licensing Round, as operator of the 50:50 joint venture with CER.
IOG plc
Page 91 of 94
Annual Report 2021
GLOSSARY of KEY TERMS
“1C”
the minimum estimate of Contingent Resources;
“2C”
the best estimate of Contingent Resources;
“3C”
the maximum estimate of Contingent Resources;
‘‘3D-seismic’’
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;
“1P”
the Proved Reserves;
“2P”
the sum of Proved Reserves + Probable Reserves;
“3P”
the sum of Proved Reserves + Probable plus Possible Reserves;
‘‘appraisal well’’
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;
‘‘barrels’’ or ‘‘bbls’’ or “Bbls”
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);
‘‘BCF’’ or “Bcfe” or “Bscf”
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;
“BEIS”
Department of Business, Energy & Industrial Strategy of the UK Government
‘‘best estimate’’
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;
‘‘block’’
an area 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 blocks
deep, and numbered 1 to 30 from NW to SE e.g. Block 14/13 is the 13th block
in Quadrant 14;
‘‘Boe’’ or “BOE”
barrels of oil equivalent. One barrel of oil is approximately the energy equivalent
of 5,800 cubic feet of natural gas;
‘‘Brent Crude’’
an international benchmark comprising a mix of crude oil from 15 different oil
fields in the North Sea;
“carbon footprint”
amount of carbon dioxide (CO2) emissions associated with all the activities of a
person or other entity (e.g., building, corporation, country, etc.). It includes direct
emissions, as well as emissions required to produce goods and services
consumed;
‘‘contingent resources’’
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;
“Covid-19”
coronavirus disease 2020, is an infectious disease caused by severe acute
respiratory syndrome coronavirus 2 (SARS-CoV-2), the disease has spread
globally, causing the 2020-20 global coronavirus pandemic;
“development carry”
involves the farmer-in agreeing to bear some or all of the development costs
relating to the farmer out's retained interest in a development project;
‘‘discovery’’
an exploration well which has encountered hydrocarbons for the first time in a
structure;
‘‘Farm-out’’
to assign an interest in a licence to another party;
“FEED studies”
Front End Engineering Design studies
‘‘FDP’’
field development plan;
‘‘field’’
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;
‘‘formation’’
a layer or unit of rock. A productive formation in the context of reservoir rock;
‘‘ft’’
foot/feet;
“G&A”
general and administrative;
“GIIP”
gas initially in place;
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GLOSSARY of KEY TERMS (CONT’D)
‘‘gross resources’’
the total estimated petroleum that is potentially recoverable from a field or
prospect;
‘‘hydrocarbon’’
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;
‘‘km’’
kilometre;
‘‘km2’’ or “sq. km”
square kilometres;
‘‘licence’’
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;
‘‘Mcf’’ or “mcf”
thousand standard cubic feet;
“Mcfd” or “mcfd”
thousand cubic feet per day;
“MMbbl” or “MMBbls”
millions (106) of barrels of oil;
“MMBO”
million (106) barrels of oil;
“MMBOE”
million (106) barrels of oil equivalent;
“mmscf”
million (106) standard cubic feet;
“mmscf/d”
million (106) standard cubic feet per day;
“mmscfe/d”
million (106) standard cubic feet per day equivalent;
“net debt”
total loans, less restricted cash and cash equivalents, adding back the financial
asset being the IOG Norwegian bonds which are held by the Company.
“NUI”
Normally Unmanned Installation;
“OGA”
UK Oil and Gas Authority
‘‘oil’’
mixture of liquid hydrocarbons of different molecular weights;
‘‘oil equivalent’’
international standard for comparing the thermal energy of different fuels;
‘‘operator’’ or “operatorship”
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;
“OPRED”
Offshore Petroleum Regulator for Environment and Decommissioning, part of
the UK government Department for Business, Enterprise and Industrial Strategy
(BEIS)
“Oslo Børs”
Oslo Stock Exchange
‘‘petroleum’’
a generic name for hydrocarbons, including crude oil, natural gas liquids, natural
gas and their products;
‘‘probable reserves’’
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 + Probable reserves;
‘‘promote licence’’
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;
‘‘prospect’’
a project associated with a potential accumulation of oil or natural gas that is
sufficiently well defined to represent a viable drilling target;
‘‘prospective resources’’
those quantities of petroleum estimated, as of a given date, to be potentially
recoverable from undiscovered accumulations by application of future
development projects;
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GLOSSARY of KEY TERMS (CONT’D)
‘‘proven reserves’’
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;
‘‘quadrant’’
an area 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;
‘‘reserves’’
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;
‘‘reservoir’’
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;
‘‘resources’’
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);
“Rotliegendes” or
“Rotliegend”
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;
‘‘scf’’
standard cubic feet;
‘‘seismic survey’’
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;
“UKCS”
United Kingdom Continental Shelf.
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INFORMATION & ADVISERS
INFORMATION AND ADVISERS
Country of incorporation of parent company
England and Wales
Legal form
Public limited company with share capital
Directors
Fiona MacAulay
Rupert Newall
Dougie Scott
Esa Ikaheimonen
Neil Hawkings
General Counsel and Company Secretary
Robin Storey
Registered office
60 Gracechurch Street
London
EC3V 0HR
Company registered number
07434350
Auditors
BDO LLP
55 Baker Street,
London W1U 7EU
Legal advisors
Fieldfisher LLP
Riverbank House
2 Swan Lane
London EC4R 3TT
Nominated advisor
finnCap Ltd
1 Bartholomew Close
London EC1A 7BL