SHAPING
OUR FUTURE
Annual Report & Accounts 2020
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Nostrum Oil & Gas is an independent
exploration & production company
based in north-west Kazakhstan
owning world-class facilities capable
of processing 4.2bcm of gas per annum
DELIVERING
OPTIMISING
MAXIMISING
The Group has been stabilised
through significantly reducing
our cost base, boosting
production with a successful
well intervention campaign in
summer 2020 and engaging with
stakeholders to restructure our
debt. We will now pivot towards
growth, transition into a multi-
asset energy company and
shape our future by:
• Delivering on our strategies, a
comprehensive and cohesive
environmental, social and
governance performance
and on our promises.
• Optimising production and cost
efficiencies and our ability to
raise finance in future through
a sustainable restructuring of
our debt.
• Maximising output from
the Chinarevskoye field.
For more details
please visit
www.nog.co.uk
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Contents
Strategic report
02 About us
04 Value potential
10 Business model
12 Q&A with the Executive Chairman
14 Market review
16 Strategic review
26 Key performance indicators
28 Bond restructuring
30 Q&A with the Chief Executive Officer
32 Strategy
34 Stakeholder engagement
36 Sustainability review
50 Risk management
52 Principal risks and uncertainties
56 Viability statement
58 Financial review
64 Five-year summary
Introduction to corporate governance
Corporate governance
66
70 Board of Directors
72 Senior management team
73 Governance framework
76 Board activities and achievements
78 Audit Committee report
86
Nomination and Governance
Committee report
Health, Safety, Environment and
Communities Committee report
89 Remuneration Committee report
91 2020 annual report on remuneration
102 Directors’ Remuneration Policy
109 Directors’ report
87
Our purpose
To work as a close-knit and well-integrated team across
all disciplines to deliver excellence across the whole of
our value chain.
Our vision
To add value to the region through the utilisation of our
state-of-the-art infrastructure hub.
Our values
We are trustworthy and reliable, take our corporate, social
and ecological responsibilities extremely seriously, and
are dedicated to the health, safety and wellbeing of our
employees.
Financial report
116
Independent auditor’s report to the
members of Nostrum Oil and Gas PLC
125 Consolidated financial statements
153 Parent company financial statements
Regulatory information
167
Investor information
170 Glossary
Additional disclosures
175 Structure chart
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 01
Strategic report About us
A world-class infrastructure hub
in north-western Kazakhstan
Nostrum has developed a state-of-the-art infrastructure
hub unique to north-western Kazakhstan.
Our fully commissioned gas processing facilities, with a combined capacity of 4.2bcm
per year, is ideally located to support the production and sale of billions of cubic metres
of gas per year. We have access to multiple transportation routes as well as full control
of liquid transportation logistics with 120km of liquids pipeline and an automated rail
loading terminal owned by Nostrum.
4.2bcm
Fully commissioned 4.2bcm per
year gas processing facilities,
unique to north-western
Kazakhstan.
Access
Multiple transportation routes to
market and full control of liquid
transportation logistics, including
our own connections to the
Intergas Central Asia gas pipeline
and the KazTransOil (KTO) oil
pipeline, and our own automated
rail loading terminal.
Are a
s how n
RUSSIA
KA Z AKHSTAN
OI L EXPO RTS PI PELINE
Atyrau-Samara
Stepnoy
Leopard
fields
NO STRUM OIL
PIPELINE
Rostoshinskoye
Uralsk
K A Z A K H S T AN
6 0 K M
CONDENSATE
EXPORTS VIA RAIL
RAI L LOADING
TERMINAL
AN D CRUDE/
CONDENSATE
STORAGE
02 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Chinarevskoye
field
Rozhkovskoye
field
– Sinopec
– MOL Group
– KazMunaiGas
NOSTRUM
PROCESSING FACILITY
NOSTRUM
GAS EXPORT
PIPELINE
4 0 K M
GA S EXPORT PI PELI NE
Orenburg-Novopskov
Karachaganak
– Shell
– Eni
– Lukoil
– Chevron
– KazMunaiGas
8 0 KM
1 0 0 KM
Aksai
LPG EXPORT S VIA RAIL
4m tonnes
Annual crude oil and condensate
handling capacity of our automated
rail loading facility in Uralsk.
Stability
re-established
Pivoting toward growth
We have significantly reduced our
cost base to preserve liquidity.
The bond restructuring is well
advanced and so we are looking
now to pivot towards growth.
Safe and sustainable
operations
We are committed to health
and safety, our people, social
responsibility, the environment
and transparent governance.
OI L EXPO RTS PIPE LINE
Atyrau-Samara
Stepnoy
Leopard
fields
NOSTRUM OIL
PIPELINE
Rostoshinskoye
Chinarevskoye
field
Rozhkovskoye
field
– Sinopec
– MOL Group
– KazMunaiGas
NOSTRUM
PROCESSING FACILITY
NOSTRUM
GAS EXPORT
PIPELINE
4 0 K M
Uralsk
K A Z A K H S T AN
6 0 K M
GAS EXP ORT PI PELINE
Orenburg-Novopskov
Karachaganak
– Shell
– Eni
– Lukoil
– Chevron
– KazMunaiGas
8 0 KM
1 0 0 KM
Aksai
LP G EXPO RTS VI A RAIL
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 03
CONDENS ATE
EXP ORTS VIA RAIL
RAI L LOADING
TERMINA L
AND CRUDE/
CONDENSATE
STORA GE
Strategic report Value potential
DELIVERING
• On our strategies to commercialise the spare
capacity in our world-class gas processing facilities;
• A comprehensive and cohesive environmental,
social and governance performance; and
• On our promises so that we restore investor
confidence.
COVID-19
Regular and comprehensive testing
at the field site to ensure our
employees and contractors remain
safe and no production is lost.
665
Hazard Observation Cards issued
in 2020, an increase of nearly
308% versus 2019.
04 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
We have identified five
QHSE pillars which
define our approach to
sustainable operations
HSE leadership
Rigorous incident
investigation
Process safety-critical
elements identified
and maintained
Contractor HSE
management
Commitment to reduce
GHG emissions
89.4%
Percentage of Kazakhstan
nationals in the total headcount
at 31 December 2020.
US$73m
Spent with contractors in 2020,
of which US$53.3m was spent with
entities located in Kazakhstan.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 05
35,638 tonnes
Reduction in GHG emissions
in 2020 versus 2019.
Strategic report Value potential continued
OPTIMISING
Production and cost efficiencies to safeguard both
our base business and liquidity. We also seek to
optimise our ability to operate successfully in the
future through completing a sustainable restructuring
arrangement supported by our stakeholders that
leaves sufficient headroom for raising further capital
for our growth projects.
29.1%
Reduction in the combined total
of Opex, G&A and Marketing &
Transportation costs in 2020.1
US$82.7m
Operating cash flow generated
in 2020.
1. G&A and Marketing & Transportation costs excluding DD&A. Opex excluding D&A and inventory adjustment.
06 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 07
Strategic report Value potential continued
MAXIMISING
Output from the Chinarevskoye field and adding
Proved Developed Producing reserves by exploiting
the current low cost per barrel, high-confidence infill
opportunities through best-in-class well and reservoir
management.
482,700 boe
Added to production in 2020
through our successful well
intervention programme.
US$3.91/boe
Operating costs per boe in 2020,
reduced from $3.98 per boe in 2019.
30 well
interventions
in 24 wells during 2020.
08 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
80.8%
of all crude sales made on the
export market in 2020.
22,337
Boepd produced in 2020, exceeding
our guidance of 21,000 boepd.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 09
Strategic report Business model
Our value potential
Key strengths
What we do
Value we create
We seek to develop
energy resources in
north-western Kazakhstan
through monetising the
spare capacity of our gas
treatment facility to deliver
value to our stakeholders.
Our purpose
To work as a close-knit and well-
integrated team across all disciplines
to deliver excellence across the whole
of our value chain.
World-class infrastructure
Well located to develop regional resources. Multiple
transportation routes to market and full control of
liquid transportation logistics.
Low operating costs
Operations streamlined in 2020 and costs reduced.
Good cash generation even with low product prices.
High-quality local input
Our vision
To add value to the region through
the utilisation of our state-of-the-art
infrastructure hub.
A significant number of our contractors and suppliers are
local Kazakh entities, meaning that we support the local
economy. This also means that we are well positioned to
maintain operations if access to Kazakhstan is restricted.
Our values
We are trustworthy and reliable,
take our corporate, social and
ecological responsibilities extremely
seriously, and are dedicated to the
health, safety and wellbeing of our
employees.
Experienced management team
Nostrum’s management team is seasoned, close-knit and
well-integrated across critical disciplines, with proven skills
in project execution and production operations.
Responsible operations
Safety is a personal and shared responsibility. Everybody
working at or visiting our facilities has a right to return
home safely and to perform their duties under safe working
conditions.
10 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
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We are one of the leading
employers in north-western
Kazakhstan, delivering
sustainable benefits to
the local community.
2020 continued to be
a challenging time for
our shareholders and
bondholders. We are
working hard with both
groups to restructure the
Group’s debt and restore
confidence in our abilities
to deliver on our promises.
We are a proud community
partner and strive to foster
a culture of openness and
engagement, offering
social and financial
support to promote the
wellbeing of local residents.
Established safety
audits to ensure trusted
partnerships. Constant
communication with our
key customers and
suppliers.
We paid
US$31.5m
of tax in 2020 to
governments.
Please see our website
for more information at
www.nog.co.uk.
Key strengths
What we do
Value we create
We seek to develop
energy resources in
north-western Kazakhstan
through monetising the
spare capacity of our gas
treatment facility to deliver
value to our stakeholders.
Our purpose
To work as a close-knit and well-
integrated team across all disciplines
to deliver excellence across the whole
of our value chain.
World-class infrastructure
Well located to develop regional resources. Multiple
transportation routes to market and full control of
liquid transportation logistics.
Low operating costs
Operations streamlined in 2020 and costs reduced.
Good cash generation even with low product prices.
High-quality local input
Our vision
To add value to the region through
the utilisation of our state-of-the-art
infrastructure hub.
A significant number of our contractors and suppliers are
local Kazakh entities, meaning that we support the local
economy. This also means that we are well positioned to
maintain operations if access to Kazakhstan is restricted.
Our values
We are trustworthy and reliable,
take our corporate, social and
ecological responsibilities extremely
seriously, and are dedicated to the
health, safety and wellbeing of our
employees.
Experienced management team
Nostrum’s management team is seasoned, close-knit and
well-integrated across critical disciplines, with proven skills
in project execution and production operations.
Responsible operations
Safety is a personal and shared responsibility. Everybody
working at or visiting our facilities has a right to return
home safely and to perform their duties under safe working
conditions.
Gas
Oil
Third-party
hydrocarbons
Gas condensate wells
Crude oil wells
Power
generation
Gas treatment
facilities (GTF)
Associated
gas
Oil treatment
facility (OTF)
Liquefied
petroleum
gas (LPG)
Dry gas
Stabilised
condensate
Crude oil
Final
destination
Final
destination
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We are one of the leading
employers in north-western
Kazakhstan, delivering
sustainable benefits to
the local community.
2020 continued to be
a challenging time for
our shareholders and
bondholders. We are
working hard with both
groups to restructure the
Group’s debt and restore
confidence in our abilities
to deliver on our promises.
We are a proud community
partner and strive to foster
a culture of openness and
engagement, offering
social and financial
support to promote the
wellbeing of local residents.
Established safety
audits to ensure trusted
partnerships. Constant
communication with our
key customers and
suppliers.
We paid
US$31.5m
of tax in 2020 to
governments.
Please see our website
for more information at
www.nog.co.uk.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 11
Strategic report
Q&A with the Executive Chairman
Shaping our future
Our key objectives for 2021 are to finish
the restructuring work to stabilise the Group
and then establish credible and achievable
roadmaps to maximise the value of our assets
and any other infrastructure we have built.”
to such a turbulent year?
Q. How has the Group responded
A. I think that the Group responded
extremely well in the circumstances.
Led by Kaat van Hecke, we have significantly
reduced our cost base through targeted
headcount reductions and we have
renegotiated contract rates and work scopes
with all major suppliers. Our successful
well intervention campaign in the summer
boosted production and enabled us to
achieve an average daily production rate
for 2020 that was above our forecasts
and expectations. We reinforced our
tight financial discipline and this more
than maintained our liquidity whilst at
the same time ensuring continuous and
safe production. Thus our 2020 priorities
in relation to cost reductions, capital
preservation, reservoir management and
well productivity were all met.
We implemented strict COVID-19 testing
regimes for all employees working at the
field and reduced the number of people
attending the offices in Uralsk, not only to
comply with local legislation but also to
keep our people as safe as possible. Our
London-based staff have been working
from home since March 2020. I am pleased
that we have not lost any people nor
production this year because of COVID-19.
In respect of the restructuring, we signed a
Forbearance Agreement with an informal
ad-hoc noteholder group (AHG) in October
2020. Since then, we have been working
hard with our advisers and those of the
AHG to find a sustainable agreement that
will allow the Group to move forward and
realise the potential of its gas processing
facilities.
2020 has been the most
challenging year in our history but
the steps we have taken together
will stabilise the Group and secure
its future. Our people have shown
amazing resilience throughout the
year and I am immensely grateful
to them all for their commitment,
dedication and flexibility.
Q. How would you sum up 2020?
A. 2020 has been a year of immense
challenge. The collapse in the oil
price in February and March was followed
by a significant reduction in the prices that
we achieved for our dry gas. Overarching
all of this was the impact of COVID-19. The
overall consequence was that in March
2020 we announced that we were seeking
to restructure our 2022 and 2025 bonds
and subsequently much effort was devoted
in 2020 to stabilising the financial position
of the Group and looking to secure its
future. We also made progress on all our
2020 priorities.
12 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Finally, we appointed our new Chief
Executive Officer, Arfan Khan, effective
26 January 2021. We are confident that
Arfan has the breadth and depth of
experience and operational expertise to
lead us through the next stage as we focus
on delivering the bond restructuring for all
our stakeholders whilst also continuing to
pursue opportunities to commercialise our
world-class infrastructure.
of reserves this year. How do
you explain that?
Q. There is another write-down
A. Following major studies in 2019
we took the decision to classify
a number of reserves as contingent
resources, rather than Probable reserves,
at the end of 2019. We also took the
decision at that time to halt all drilling
until we had found ways to mitigate the
identified reservoir risks. As I noted in
my 2019 statement, there was still a risk
that the reservoir would exhibit worse
than anticipated behaviour and so there
was still a great deal of uncertainty.
During 2020, we have continued to study
production data. As a result, we have come
to the conclusion that the performance of
our undeveloped reservoirs is contingent
on economically viable reservoir
performance and, in particular, well
productivity. Therefore, and reluctantly,
we have decided that the most prudent
course of action is to reclassify a number
of reserves from Probable to contingent
resources.
Q. Have you been able to secure
contracts to monetise the
spare capacity in the gas
treatment facilities?
A. We have spent much time and
energy pursuing this goal in 2020. It
remains our primary focus to secure third-
party volumes to fill the spare capacity in
our world-class gas treatment facility. Whilst
we were not able to make as much progress
in relation to this 2020 goal as we hoped,
there are third parties who remain very
interested in utilising our infrastructure.
I remain optimistic that we will be able to
secure deals so that our gas treatment
facilities can work at capacity and provide
long-term stable cash flows for Nostrum.
Q. What is Nostrum doing to
meet investors’ expectations
in respect of environmental,
social and governance?
A. We recognise that, increasingly, a
company’s environmental, social
and governance (ESG) performance and
how that performance ranks against other
organisations is being taken into account
by investors as well as other stakeholders.
Therefore, ESG issues will continue to be a
principal focus, and central to how Nostrum
operates as a business.
The Health, Safety, Environment and
Communities Committee of the Board
has continued to focus on climate change
issues amongst its other responsibilities.
We once again completed the CDP
(formerly the Carbon Disclosure Project)
initiative in 2020 and will continue with
this in the coming years to ensure that
we are both fully accountable and also
measurable against a recognised standard.
High standards of quality, health and
safety remain paramount, and have been
even more so during COVID-19, when
we introduced extensive PCR and daily
thermometry testing and significantly
reduced the numbers of employees
attending the offices in Uralsk and London.
We continue to invest in social development
as well as education and training and will
continue to encourage diversity at all levels
in the Group.
objectives in 2021?
Q. What do you see as the key
A. Our key objectives for 2021 are
to finish the restructuring work to
stabilise the Group and then establish
credible and achievable roadmaps to
maximise the value of our assets and any
other infrastructure we have built. To this
end, we must successfully restructure our
2022 and 2025 bonds so that the Group has
the security and balance sheet strength to
move forward. At the same time, we need
to continue our discussions to secure third-
party agreements on additional volumes
for our gas treatment facilities.
These are the principal objectives.
However, we must not lose sight of the day-
to-day activities that will also be key to the
Group’s future success. Therefore we must
ensure that:
• Our workover and intervention
programme in the summer of 2021 is
successful and we can again reduce the
rate of reservoir decline;
• Good financial discipline is maintained
to minimise costs and maintain liquidity;
• We continue to reduce the impact of our
operations on the environment;
• Studies continue to identify viable
technologies to mitigate sub-surface risk;
and
• We stay alert to the continued threat of
COVID-19 and ensure that our employees
remain protected, our operations
continue uninterrupted and are delivered
to our expected high and safe levels.
messages for the staff
at Nostrum?
Q. Finally, do you have any
A. I know that 2020 has been a year of
great uncertainty and disruption,
probably the most challenging in our
history, and that this has not been easy
for any of you. Nostrum is central to the
economy in the Uralsk region, and we are
doing everything that we can to ensure
that this remains the case for many years
to come.
I am immensely grateful to you all for your
commitment, dedication and flexibility.
Thank you all for your efforts and continued
support.
Atul Gupta
Executive Chairman
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 13
Strategic report Market review
Nostrum’s markets
Solid export potential
Since its independence in
1991, Kazakhstan has
established itself as one of
the world’s most prolific
hydrocarbon centres.
The oil & gas market in Kazakhstan
The foundation of Kazakhstan’s oil & gas
industry consists of three supergiant fields,
Tengiz, Karachaganak and Kashagan,
situated in the north-west of the country.
Together, these fields hold the majority of
the country’s reserves and production and
have allowed Kazakhstan to attract more
foreign direct investment than any other
country in the Former Soviet Union (FSU)
over the past three decades, including
Russia. Together, the three fields produced
over 60% of the country’s hydrocarbon
output during 2020.
As the world’s largest landlocked country,
Kazakhstan depends on an extended
network of pipelines and railways to deliver
its products to export markets. Pipeline
exports are primarily delivered via Russia
(Atyrau-Samara and the Caspian Pipeline
Consortium pipelines); via Azerbaijan and
Turkey (the Baku-Tbilisi-Ceyhan pipeline);
and one via China (Atasu-Alashankou). Rail
exports utilise Kazakhstan’s extensive rail
network, reaching markets throughout the
FSU and beyond.
Expansion projects at the Tengiz and
Karachaganak fields, which have been
producing for over two decades, are
currently being developed to increase
liquid recovery rates as the fields mature.
What it means for us
Nostrum’s assets are located in the Pre-
Caspian Basin close to the Russian border
and in close proximity to some of the most
significant hydrocarbon resources in the
FSU. This advantageous position means
that the Company has access to multiple
export markets for its products, as well as
labour and specialist equipment providers.
In addition, Nostrum has a substantial
amount of spare processing capacity in a
region where there is a significant amount
of stranded gas and so a growing need for
gas processing.
Competitive analysis and market share – benchmarking our business against our peers
Strengths and opportunities
Multiple export routes.
100% ownership of Chinarevskoye licence, infrastructure
on the field, pipelines and rail loading terminal used for
transportation to export routes.
Extensive infrastructure allows Nostrum to process raw gas
deposits in north-west Kazakhstan, where there are no
comparable processing facilities or capacity.
Onshore field with low operating costs.
Weaknesses and threats
Nostrum is subject to fluctuations in the market prices for
its products, although we have a variety of sales products.
Increased geological risks due to deep, tight, highly
fractured reservoirs.
Production declining at around 20% per annum.
Seasonal temperature fluctuations in a harsh operating
environment.
Lack of significant population reduces the size of the skilled
workforce locally.
14 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
KAZAKHSTANCHINARUSSIA Key macroeconomic and microeconomic trends
Oil prices
In March 2020 the price of oil collapsed
following a disagreement between
OPEC+ countries on production levels.
This fall in price was compounded by the
perceived lack of future demand for oil
caused by disruptions to businesses and
economic activity as a result of COVID-19.
Whilst the OPEC+ countries, together with
a wider group of producers, subsequently
agreed to lower daily production levels,
there remained continuing uncertainty
over the future demand for oil as a result
of the continuing impact of COVID-19,
which restricted the recovery of the oil
price. Advances with vaccination against
COVID-19 restored some confidence
towards the end of 2020 and, although
prices at the year end remained below
those at the start of the year, the upward
tick has continued into 2021.
What it means for us
The recovery of the oil price brings
some stability to the Company. The
anticipated successful restructuring of
our debt will further stabilise the Group,
as will our continued focus on reducing
our cost base to ensure we can maintain
adequate liquidity whilst we pursue the
opportunities to fill the spare capacity in
our gas processing facilities. At the end
of 2020 we had cash reserves in excess of
US$78 million (31 December 2019: US$93.9
million) excluding US$12.9 million placed
into a secured cash account under the
terms of the Forbearance Agreement with
the informal ad-hoc noteholder group.
Kazakh economy
World Bank experts named 2020 as the
most challenging year for Kazakhstan’s
economy in the last two decades.
The fallout of COVID-19 resulted in a
contraction in the economy in 2020 of
approximately 2.6% compared to growth
of 3.8% in 2019. Annual average inflation
reached 7.5% in December 2020 (2019:
5.2%), with inflationary pressures being
caused by a depreciation of the currency
in 2020 from 383 Kazakhstan Tenge (KZT)
to one US$ at the start of the year to 420
KZT at the end of December 2020.
Competitive environment
Kazakhstan and Azerbaijan are the two
main oil-producing countries in the
Caspian region whilst Turkmenistan and
Uzbekistan are the predominant gas
producers. Russia plays an important role
in the region by providing a transportation
corridor between the Caspian Sea and the
Black Sea, although this part of Russia is
not a substantial source of crude oil.
What it means for us
Whilst the economy of Kazakhstan has
been badly affected by COVID-19, oil and
gas production, which dominates the
economy, has been classified as an essential
business in Kazakhstan and so operations
are continuing. It is expected that the
industry will be central to the Government’s
attempts to grow the economy as the threat
of COVID-19 recedes and so the support
that has been shown to operators to date is
expected to continue.
What it means for us
Vast distances between Central Asian
markets, long-established trading
relationships and in-place infrastructure
promote co-dependency between FSU
exporters. Kazakhstan naturally benefits from
its geo-strategic position between Russia
and China. Nostrum is situated at the heart
of the export corridor that exists between
Russia and multiple markets to the west of
the Caspian.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 15
Strategic report Strategic review
Our products
Crude oil
Stabilised condensate
LPG
Dry gas
y • Density – 0.815g/cm3
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• API – 42-43 degrees
• Average sulphur – 0.4%
• Density – 0.750-0.790 g/cm3
• API – 56 degrees
• Average sulphur – <0.2%
• Field-grade quality
• No olefins and low sulphur content
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T
• PSA requires at least 15% to be sold domestically with
• 100% exported
• <85% exported
• 100% sold to KazTransGas
remaining 85% exported
• In 2020, 19.2% was sold domestically and the remaining
volumes exported in accordance with the PSA
• Destinations are the Russian ports
• Destinations include the Russian Black Sea ports
• Urals-based pricing for pipeline exports
• Brent-based pricing, negotiated directly with the purchaser
• International Mediterranean LPG price Sonatrach for Black
• Price formula agreed until the end of 2024
• Domestic sales at approximately 50% discount
• Prices negotiated directly with the purchaser
Sea deliveries
• Brent quotation for Eastern European deliveries with prices
negotiated directly with the purchaser
• During 2020, all exported crude oil volumes were sold
• Sent through our own 120km pipeline from the field site
• Loaded onto LPG trucks from the field site to our rail
• Sent through our own 17km pipeline from the field site
through the KazTransOil (KTO) pipeline
to our own rail loading terminal in Uralsk
loading terminal in Uralsk
to the connection point with the Intergas Central Asia
• Crude exports are delivered to the KTO pipeline through
• From here it is loaded onto railcars and sent to
• From here the LPG is loaded onto railcars and sold to
an extension to our own 120km pipeline from the field site.
From here the crude is delivered to Russian ports
Russian ports
CRUDE AND STABILISED CONDENSATE PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
2020
2019
2018
2017
2016
8,476
9,798
11,490
14,937
38%
34%
37%
38%
16,105
40%
Reserves
The Chinarevskoye field (Chinarevskoye)
is the only producing field owned by the
Group. Its PSA was grandfathered from
1997 and the licence is valid until the end of
2031. Initial hydrocarbon discoveries at
Chinarevskoye were made during the
Soviet era. There have been 103 wells and
side-tracks drilled under the PSA between
2004 and 2020. The licence is owned
100% by Zhaikmunai, the Group’s Kazakh
operating company.
Chinarevskoye is a multi-layer structure
with 17 reservoirs and 53 compartments
spread over three areas. Commercial
hydrocarbons have been found in the
Lower Permian, Bashkirian, Bobrikovski,
Tournaisian, Frasnian, Mullinski, Ardatovski,
and Biyski-Afoninski reservoirs.
Management’s estimates of reserves, and
a comparison with the reserves from 2019,
are shown in Table 1.
The Chinarevskoye 2P (Proven plus
Probable) volume as at 31 December
2020 is 39 mmboe requiring 16
interventions including one appraisal
well (2019: 138.1mmboe requiring 45
interventions). An additional six appraisal
well recompletions are also planned but
will not result in any additional reserves. In
addition to production of 8.1 mmboe for
the year, the reduction in 2P volumes of
99 mmboe is due to the downgrade of the
Biyski-Afoninski West & NW reservoirs, to
“resources”, along with the removal of the
Biyski NE and Tournaisian NE development
wells, a reduction in water-flood increment
and the removal of development wells
in the Mullinski, Bashkirian and Frasnian
reservoirs.
The Total 1P (Proven) case for
Chinarevskoye is 28.9 mmboe (2019:
54.3 mmboe) comprising 27.7 mmboe
for Proven, Developed Producing (PDP)
from 45 current wells (2019: 43.4 mmboe
from 46 current wells) and 1.2 mmboe for
the Proven, Undeveloped (PUD) category
(2019: 10.9 mmboe). Overall Proven
volumes are down by 25.4 mmboe due
to 8.1 mmboe of production in 2020,
removal of 2 workovers and one-well in
the Biyski NE reservoir and lower forecast
16 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
third parties
gas pipeline
• Sold at the connection point
Crude oil
Stabilised condensate
LPG
Dry gas
y • Density – 0.815g/cm3
• API – 42-43 degrees
• Average sulphur – 0.4%
• Density – 0.750-0.790 g/cm3
• API – 56 degrees
• Average sulphur – <0.2%
• Field-grade quality
• No olefins and low sulphur content
• PSA requires at least 15% to be sold domestically with
• 100% exported
• <85% exported
• 100% sold to KazTransGas
• Destinations are the Russian ports
• Destinations include the Russian Black Sea ports
• Urals-based pricing for pipeline exports
• Brent-based pricing, negotiated directly with the purchaser
• International Mediterranean LPG price Sonatrach for Black
• Price formula agreed until the end of 2024
Sea deliveries
• Brent quotation for Eastern European deliveries with prices
negotiated directly with the purchaser
• During 2020, all exported crude oil volumes were sold
• Sent through our own 120km pipeline from the field site
• Loaded onto LPG trucks from the field site to our rail
through the KazTransOil (KTO) pipeline
to our own rail loading terminal in Uralsk
loading terminal in Uralsk
• Crude exports are delivered to the KTO pipeline through
• From here it is loaded onto railcars and sent to
• From here the LPG is loaded onto railcars and sold to
• Sent through our own 17km pipeline from the field site
to the connection point with the Intergas Central Asia
gas pipeline
third parties
• Sold at the connection point
an extension to our own 120km pipeline from the field site.
Russian ports
From here the crude is delivered to Russian ports
remaining 85% exported
• In 2020, 19.2% was sold domestically and the remaining
volumes exported in accordance with the PSA
• Domestic sales at approximately 50% discount
• Prices negotiated directly with the purchaser
t
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LPG PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
DRY GAS PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
2020
2019
2018
2017
2016
2,795
3,569
13%
2020
13%
2019
3,865
12%
2018
4,615
12%
2017
4,545
11%
2016
production from the existing wells to reflect
current performance and expected rates.
There has also been a one-well reduction
in the number of planned Tournaisian
development wells in the Proven category.
The volumes of the Rostoshinskoye
field remain classified as contingent
resources. The Darinskoye and
Yuzhno-Gremyachinskoye licences
were disposed of during 2020.
The current drilling assumptions include
the side-tracking of one existing well,
the deepening of a second, a new well in
the Ardatovski reservoir and 12 workover
recompletions, for a total drilling capital
expenditure estimated at US$75m
including an additional six appraisal well
recompletions that do not result in any
additional reserves (2019: $640m). This
programme, together with the 45 existing
producers, recover the estimated 2P
reserves as at 31 December 2020.
Management’s estimate of reserves as
at 31 December 2020 was audited by
Ryder Scott. The audit covered volumes of
reserves, production and discounted future
net income prepared by management.
Production and future net income were
derived from a drilling and well intervention
programme to extract the estimated
Proven and Probable reserves at a long-
term oil price of US$60 from 2022. This field
development is dependent on the Group
being able to both refinance its liabilities
11,065
15,173
15,900
50%
51%
51%
19,647
50%
19,812
49%
and maintain sufficient liquidity to fund
such a programme. There is no guarantee
that the Group will be able to achieve this,
which could have a material impact on the
Group’s ability to develop the remaining
Proven and Probable Reserves
at Chinarevskoye.
In addition, the information provided does
not take into account any restructuring
or repayment of the Company’s 2022
and 2025 bonds, nor does it take into
account any short-term impact on the
liquidity position of the Group as a result
of fluctuations in the oil and dry gas prices.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 17
Strategic report Strategic review continued
Table 1 – Nostrum Reserves
Total PDP
Total PUD/PDNP
Total 1P
Total Probable
Total 2P
2020
27.7
1.3
28.9
10.1
39.0
2019
43.4
10.9
54.3
83.8
138.1
The reduction in PDP reserves at 31 December 2020 includes production in 2020 of 8.1 mmboe.
Fluid
Oil/condensate
Plant products
Gas (after shrink)
Gas (after shrink)
Total
Unit
Proven
producing
Non-
producing &
undeveloped
Total Proven
Probable
Total Proven
and Probable
barrels
10,016,693
795,902
10,812,595
4,203,999
15,016,594
barrels
3,470,875
130,960
3,601,835
1,072,012
4,673,847
mmcf
75,562
1,768
77,330
25,257
102,587
boe
14,185,940
331,926
14,517,866
4,741,742
19,259,608
boe 27,673,508
1,258,788 28,932,296
10,017,753 38,950,049
Note: boe totals are management estimates using a conversion factor of 5.327 mcf/boe.
18 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Table 2 – Comparison of reserves by reservoir 2020 versus 2019
Reservoir
Biyski/Afoninski NE
Biyski/Afoninski NW
Biyski/Afoninski West
Tournaisian NE – oil
Tournaisian NE – WI
Tournaisian South
Tournaisian West
Mullinski South
Mullinski North
Mullinski NE
Bashkirian NE & W
Ardatovski NE
Ardatovski S
Frasnian N
Filippovski
31 December 2019
31 December 2020
Change
Proven,
mmboe
Probable,
mmboe
Total
mmboe
Proven,
mmboe
Probable,
mmboe
Total
mmboe
Proven,
mmboe
Probable,
mmboe
Total
mmboe
32.2
0.0
0.0
12.9
0.0
1.4
0.2
0.0
0.0
0.7
1.0
4.0
0.0
1.6
0.3
11.4
10.9
35.7
3.5
5.8
0.0
0.0
2.8
0.0
4.0
1.5
5.2
0.0
1.0
2.0
43.6
10.9
35.7
16.4
5.8
1.4
0.2
2.8
0.0
4.7
2.5
9.2
0.0
2.6
2.3
13.8
0.0
0.0
8.7
0.0
0.9
0.1
0.0
0.0
0.3
0.7
2.8
0.2
1.3
0.1
2.1
0.0
0.0
2.2
1.1
0.2
0.0
0.0
0.0
0.1
0.1
2.0
0.0
0.7
1.6
15.9
0.0
0.0
10.9
1.1
1.1
0.1
0.0
0.0
0.4
0.8
4.8
0.2
2.0
1.7
(18.4)
0.0
0.0
(4.2)
0.0
(0.5)
(0.1)
0.0
0.0
(0.4)
(0.3)
(1.2)
0.2
(0.3)
(0.2)
(9.3)
(10.9)
(35.7)
(27.7)
(10.9)
(35.7)
(1.3)
(4.7)
0.2
0.0
(2.8)
0.0
(3.9)
(1.4)
(3.2)
0.0
(0.3)
(0.4)
(5.5)
(4.7)
(0.3)
(0.1)
(2.8)
0.0
(4.3)
(1.7)
(4.4)
0.2
(0.6)
(0.6)
Chinarevskoye total
54.3
83.8
138.1
28.9
10.1
39.0
(25.4)
(73.7)
(99.1)
Rostoshinskoye
0
0
0
0
0
0
0
0
0
Total
54.3
83.8
138.1
28.9
10.1
39.0
(25.4)
(73.7)
(99.1)
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 19
Strategic report Strategic review continued
Chinarevskoye field
The breakdown reservoir by reservoir,
with comparison to the previous year, is
given in Table 2. A summary of the well
interventions programme is given in
Table 3 on page 22.
Biyski-Afoninski North-East
There has been an overall reduction in
2P reserves of 27.7 mmboe from those
disclosed in the Ryder Scott report of
reserves as at 31 December 2019 (2019
Reserves Report). Production in 2020 was
4.9 mmboe. The remaining reduction is
spread over both the Proven and Probable
categories. The reserves estimates as
at 31 December 2020 do not envisage
any new wells or recompletions (2019:
seven new wells and side-tracks and
six rigless recompletions). This reflects
a more cautious approach which takes
into account the 2020 production history
and a comparison of 2020 production
to the results of a Schlumberger study
conducted in 2019. Further drilling is no
longer planned in this area because the
production in 2020 indicates lower than
expected gas volumes, consistent with
Low Case Schlumberger models, and
the recognition that three of the last four
new wells in the Biyski-Afoninski North-
East reservoir were unsuccessful and
did not increase reserves. The Afoninski
recompletions have been removed from
the schedule, along with the reserves
attributed to this activity, because it is
considered that the entire Biyski-Afoninski
is in dynamic communication and so these
volumes will be produced from existing
completions.
The 2019 Schlumberger study concluded
that the potential of further infill drilling
is limited, which corresponds with
management’s opinion of the low
potential for further drilling.
The 2020 gas volumes were slightly
lower than estimates made in 2019 whilst
production indicates a slightly higher
condensate volume. Due to uncertainty on
condensate yields, some of this condensate
was allocated to Probable Reserves in the
2019 Reserves Report.
Probable Developed volumes are attributed
to existing producing wells, with lower
declines interpreted.
Biyski-Afoninski West and
North-West
The combined 2P volumes at 31 December
2019 of 46.6 mmboe have been entirely
re-categorised from Probable Reserves
to contingent resources as at 31 December
2020.
20 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
The 2019 Schlumberger study for the
Biyski-Afoninski West concluded that, for
a selection of well locations, there was a
high degree of uncertainty in predicting
the presence of fractures and good-quality
reservoir. Management has reviewed the
sub-surface risks and challenges in light of
the downgrade of reserves in the Biyski-
Afoninski North-East when compared
to the range of scenarios in the 2019
Schlumberger study, as well as the specific
2019 Schlumberger report on Biyski-
Afoninski West. As a result and taking into
account the very limited success to date
in developing these reservoirs, the Group
will not commit to a full development
programme until the ability to deliver a
commercial well is demonstrated.
The planned appraisal programme
recognises that successful and economic
drilling and hydraulic fracturing techniques
will need to be established to recover
the volumes. A technical appraisal well is
planned for 2023 to test the commercial
viability of the reservoirs (2019: 13 wells
across both accumulations). If this appraisal
well is successful, some or all of the
volumes from the 2019 Reserves Report
could be reinstated as Proven Reserves
to be realised through a suitable drill
programme. However, no such programme
has been included in the reserves’ appraisal
as at 31 December 2020.
Tournaisian North-East,
West and South
The Tournaisian North-East has a total 2P of
12 mmboe (2019: 22 mmboe). In the Proven
producing category, well performance
overall has been satisfactory in 2020
and, benefiting from some additions and
uplift from well interventions in 2020, is
slightly ahead of the previous prediction.
The planned workover recompletion of
one well has been delayed until 2021 and
is expected to be online from Q3 2021.
The remaining two Proven Undeveloped
production wells (one new well and one
workover recompletion) are planned
for 2024.
Probable Reserves have been reduced by
the removal from the drilling plan of two
new producer wells included in the 2019
Reserves Report. These wells have been
removed because lower reservoir quality is
now expected in the areas where they were
planned.
A reduction in the Probable waterflood
uplift to 1.2 mmboe has been derived
based on recent well performance, and
two workover recompletion candidates
are planned for conversion to injectors in
2022 and 2024 respectively. An analysis
of well performance indicates a positive
effect and aligns with the Schlumberger
Tournaisian North-East study. There is a total
of 2.1 mmboe associated with PDP from the
existing Tournaisian producers. There are no
plans currently for drilling in the Tournaisian
South and Tournaisian West reservoirs,
consistent with prior years.
Mullinski North-East
PDP reserves remain for one well whilst the
PDP volumes previously allocated to two
other wells have been removed due to well
interventions in 2020 which isolated the
Mullinski. Some of the volumes removed
might be reactivated with a suitable
intervention programme but this is not
planned in the estimation of the reserves
as at 31 December 2020.
The former Probable Reserves have been
re-categorised as contingent resources due
to the reduction in realised hydrocarbon
pricing rendering the drilling of new wells
uneconomic based on the Type Well
volumes developed in 2019.
Mullinski South
Further to a review of recent production
data, a revised Type Well volume similar to
the Mullinski North-East is now expected.
Given the resulting poorer economics, the
associated volumes of 2.8 mmboe were
re-categorised as contingent resources and
a former PUD well has been removed from
the schedule.
Mullinski North
A small volume of PDP reserves remains
attributed to one well. No further
development is planned in this area.
Bashkirian North-East & West
PDP reserves remain for two wells
produced via ESPs. The two former
Probable new vertical wells proposed
in Bashkirian North-East are no longer
considered viable due to a review of recent
performance which results in a lower Type
Well volume which is uneconomic under
the Group’s current hydrocarbon pricing
forecasts. This reflects the observed
reservoir heterogeneity in this area
and, hence, perceived risk. No suitable
side-tracks or recompletions have been
identified from the existing well stock
to provide sufficient volumes within a
timeframe before the expiry of the licence.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 21
Strategic report Strategic review continued
Ardatovski North-East and South
PDP volumes are associated with two
current producers. One PUD side-track well
remains in the schedule for the Ardatovski
North-East reservoir in 2023.
Filippovski
Eight low-cost workover recompletions
have been identified for the Filippovski
reservoir. These are planned to be carried
out in 2021-2024.
No further development is planned for
the Ardatovski South reservoir, which is
unchanged from 2019 and limited to a
minor amount of PDP from one well.
Frasnian North
Proven reserves are attributed to the
existing well, with some contingent
resources. Two PUD wells included in the
2019 Reserves Report have been removed
at 31 December 2020 based on a technical
review in late 2020 which indicates that
the existing well will effectively drain the
existing accumulation.
Trident project
The Trident project now consists solely
of Rostoshinskoye, which has contingent
resources of 31.3 mmboe as at August
2020 (2019: contingent resources of 111.0
mmboe). The appraisal period has been
prolonged for three years to 31 December
2022 and includes a commitment to drill
one new well. No fieldwork was carried out
in 2020 and no operational activities are
planned for the field in 2021.
During 2020, the Darinskoye and Yuzhno-
Gremyachinskoye licences, with combined
contingent resources of 28 mmboe, were
disposed of to a third party along with all
associated liabilities.
Table 3 – Summary of the 31 December 2020 well programme supporting the reserves estimates compared
to the previous year
Reservoir
Biyski/Afoninski NE
Biyski/Afoninski NW
Biyski/Afoninski West
Tournaisian NE – oil
Tournaisian NE – WI
Tournaisian South
Tournaisian West
Mullinski South
Mullinski North
Mullinski NE
Bashkirian NE & W
Ardatovski NE
Ardatovski S
Frasnian N
Filippovski
Appraisal (Bobrikovski and others)
CHN total
Rostoshinskoye
Grand total
31 December 2019
31 December 2020
Proven
wells
Probable
wells
Appraisal
Total
Proven
wells
Probable
wells
Appraisal
Total
3
–
–
4
–
–
–
–
–
–
–
–
–
1
–
–
8
–
8
4
3
10
2
2
–
–
1
–
5
2
2
–
1
5
–
37
–
37
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
3
10
6
2
–
–
1
–
5
2
2
–
2
5
–
45
–
45
–
–
–
3
–
–
–
–
–
–
–
–
1
–
–
–
4
–
4
–
–
–
–
2
–
–
–
–
–
–
1
–
–
8
–
11
–
11
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
5
6
–
6
–
–
1
3
2
–
–
–
–
–
–
1
1
–
8
5
21
–
21
22 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
2020 development
No drilling took place in 2020, as the
Group decided to halt drilling in an effort
to manage liquidity and to focus instead
on lower cost and risk activities such as
production maintenance and development
via workovers and rigless recompletions.
The rig workover campaign in 2020 consisted
of one intervention on a Tournaisian oil
well. Rigless recompletions, additional
perforations and acid stimulations were
carried out on a number of oil, gas-
condensate and water-injection wells.
The Group does not plan to resume drilling
in 2021. However, a programme with one
workover rig and associated equipment for
low-cost rigless recompletions is planned
in Q2 and Q3 2021 to contribute to the
development of remaining reserves and
appraise some horizons. The focus remains
on efficiently utilising the workover rig and
minimising costs where possible at the
field site.
As noted in the review of reserves,
extraction of the 2P volumes will require
further interventions. More workover
recompletions are planned in the period
2022 to 2024 with drilling planned to
take place on Chinarevskoye from 2023.
However, execution of the programme to
recover the 2P reserves is dependent on
the Group being able to both refinance its
liabilities and maintain sufficient liquidity
to fund such a programme. There is no
guarantee that the Group will be able to
achieve this, which could have a material
impact on the Group’s ability to develop
the remaining Proven and Probable
Reserves at Chinarevskoye.
As at 31 December 2020, the Company had
45 production wells in operation on the
Chinarevskoye field.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 23
Strategic report Strategic review continued
Infrastructure
Demonstrating the value of
our infrastructure
Over the last 15 years, we have built a world-
class infrastructure hub that has allowed
for the exploration and development of the
Chinarevskoye field and can continue to
support the production and sale of billions
of cubic metres of gas in north-western
Kazakhstan for years to come.
The core strategy for Nostrum to create
value for its stakeholders is now to
commercialise the investment made in its
infrastructure. The focus is to fill the spare
capacity with third-party hydrocarbons.
The first step towards achieving this was
made in 2018, when Nostrum entered into
binding agreements to process third-party
hydrocarbons starting in 2023 delivered by
Ural Oil & Gas LLP from the Rozhkovskoye
field, which is situated less than 20km from
the Chinarevskoye field. Ural Oil & Gas LLP
will fund the connection of existing wells at
the Rozhkovskoye field to Nostrum’s licence
area. Thereafter, Nostrum will process all
of the hydrocarbons coming into the field.
Ural Oil & Gas LLP is a company owned by
KazMunaiGas (KMG) (50%), Sinopec (27.5%)
and MOL Group (MOL) (22.5%).
GTUs 1, 2 and 3
In 2019, Nostrum successfully completed
and commissioned the third train (GTU 3)
of its gas treatment facility. This third train
has a capacity of 2.5 billion cubic metres
per annum. The gas treatment facility now
includes three gas treatment units which
have the capacity to treat 4.2 billion cubic
metres of raw gas per annum. The gas
treatment facility is equipped with its own
gas-driven power generation system with a
maximum output of 15 megawatts, which is
linked to the major power generation plant.
Oil treatment facility
The oil treatment facility (OTF) has a
maximum throughput capacity of 400,000
tonnes per annum. The OTF associated
infrastructure includes a gas-lift facility that
was commissioned in 2015 and a liquid
hydrocarbons pumping station transferring
crude oil and stabilised condensate via the
liquids pipeline to the rail loading terminal.
Raw gas processing infrastructure
The gas treatment facility (GTF) is designed
to treat raw gas from gas condensate
reservoirs (and the associated gas coming
from the OTF) into condensate, LPG and
dry gas. The GTF’s associated infrastructure
includes a power generation station, an
LPG storage tank farm, an LPG loading
facility at the rail terminal, LPG railcars
and a 17km dry gas pipeline.
Power generation plant
The gas-fired power generation plant is
linked to the gas treatment facility and has
an output of 26 megawatts. The generation
capacity of the plant is sufficient to meet
the existing and anticipated energy needs
of the field site and associated operations.
Gas pipeline
Nostrum has its own 17km gas pipeline
which is linked to the Orenburg-Novopskov
gas pipeline. Our own pipeline has a
capacity sufficient to transport all of our
volumes even when our gas plants are at
full capacity.
Liquids pipeline
Nostrum has its own 120km liquids pipeline
that runs from the field site to the Company’s
rail loading terminal in Uralsk. The pipeline
has a maximum annual throughput capacity
of over three million tonnes.
Rail loading terminal
Nostrum has its own automated rail
loading terminal in the city of Uralsk that
receives all domestic crude oil and export
condensate produced by Zhaikmunai, and
has a capacity of approximately four million
tonnes of crude oil and condensate per
annum.
24 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Storage facilities
Nostrum has over 35,000 cubic metres of
storage capacity for liquids at its field site
and rail loading terminal.
KTO pipeline connection
Nostrum has constructed a secondary
crude oil pipeline to enable export sales
via the Atyrau-Samara international export
pipeline operated by KazTransOil (KTO).
The KTO pipeline has enhanced the
Company’s ability to manage crude oil
netbacks through the commodity cycle.
Low-pressure system
In order to stabilise the decline of some
of the older producing wells, Nostrum
commissioned a low-pressure system
(LPS) in Q4 2018. There are now 20 wells
linked up to the low-pressure system after
an extension was completed in Q4 2020,
providing an additional 12,000 standard
cubic metres per hour of gas compression
and 48,000 standard cubic metres per
hour in total. The aim of the LPS system is
to reduce the decline rates of ageing gas
condensate reservoirs and prolong the
run-life of wells through increasing the inlet
pressure of the main manifold at the GTF
from 10 to 42 bar.
The Bobrikovski horizon (Lower Carboniferous)
also contains gas-condensate. In 2014,
an oil discovery was announced in the
Bashkirian (Upper Carboniferous). In April
2015, Ural Oil & Gas LLP signed a 25-year
production contract for the Rozhkovskoye
field, demonstrating a commitment to
developing its licence area.
Rozhkovskoye field
The pre-salt Rozhkovskoye gas condensate
field was discovered in 2008 on the
Fedorovsky exploration block by Ural Oil
& Gas LLP. The field has broadly analogous
geology to the Chinarevskoye field which
sits approximately 20km to the north.
Rozhkovskoye’s primary Tournaisian (Lower
Carboniferous) reservoir tested positive for
gas-condensate in all nine exploration and
appraisal wells drilled by Ural Oil & Gas LLP.
The Tournaisian consists of shallow marine
limestone at 4,200-4,600 metres.
Additional third-party volumes
Nostrum is focused on entering into
additional agreements which can fill
all the remaining capacity at its gas
treatment facility. Nostrum is working with
counterparties to secure a long-term stream
of raw gas from which it can generate
significant revenues. Without any additional
third-party gas coming through Nostrum’s
facilities, it will be extremely challenging to
repay or refinance these liabilities.
Oil
Gas
Crude oil wells
Oil treatment
facility (OTF)
400kt
Oil
Stabilised condensate
Dry gas
LPG
Gas treatment
facilities (GTF)
GTU 1&2
1.7bcm
H2S 2,500ppm
LPG 65%
GTU 3
2.5bcm
H2S 400ppm
LPG 95%
Gas condensate wells
Third-party
hydrocarbons
Storage
5km3
Storage
25km3
Storage
10km3
3km3/d
Water injection
400km3/d
48m3/h
Gas lift
Low-pressure system
41MHw
Power generation
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 25
Strategic report Key performance indicators
Tight financial discipline and responsible,
safe operations
Financial KPIs
Whilst Nostrum has successfully
built infrastructure and produced
over 100m boe from the
Chinarevskoye field, it has
incurred substantial debts of
over US$1bn and has faced
declining production from its
producing field. Together with
the drop in oil and gas prices
experienced in 2020, this has
led the Group to reinforce its
tight financial discipline to
maintain liquidity and safeguard
our core business.
CASH AT THE YEAR END (US$M)
OPERATING COSTS PER BOE (US$ PER BOE)
US$78.6m
US$/boe3.91
2020
2019
2018
2017
2016
78.61
93.9
121.8
2020
2019
2018
127.0
2017
3.91
3.98
4.37
3.93
101.1
2016
3.43
Operating costs per boe are calculated as cost
of sales minus DD&A plus/minus inventory
adjustment, divided by production volumes.
G&A COSTS PER BOE (US$ PER BOE)
SELLING AND TRANSPORTATION
COSTS PER BOE (US$ PER BOE)
US$/boe1.72
US$/boe3.57
2020
2019
2018
2017
2016
1.72
1.86
1.78
2.17
2.21
2020
2019
2018
2017
2016
3.57
4.25
4.64
4.82
5.37
G&A costs per boe are calculated as general
and administrative costs minus DD&A, divided
by production volumes.
Selling and transportation costs per boe
are calculated as selling and transportation
costs minus DD&A, divided by sales volumes.
1. Excludes US$12.9 million cash placed into a restricted account
under the Forbearance Agreement with bondholders.
26 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Non-financial KPIs
Performing responsibly and
safely is integral to our strategy
and to the sustainability of our
business. We believe that long-
term value comes from seeing
success as a part of a bigger
picture, encompassing people
and the environment.
We have set ourselves specific
non-financial KPIs to track our
progress, as we believe this to
be the best way to monitor
our achievements in relation
to environmental, social and
governance matters. Currently
there are no KPIs related to
corporate governance. No other
environmental KPIs were set.
SALES VOLUMES (BOEPD)
HAZARD OBSERVATION CARDS (UNITS)
21,514boepd
665units
2020
2019
2018
2017
2016
21,514
26,671
29,516
37,844
2020
2019
2018
2017
39,043
2016
216
01
01
01
665
ROAD TRAFFIC INCIDENT FREQUENCY
(INCIDENTS2)
LOST TIME INJURY FREQUENCY
(INCIDENTS3)
0.72
2020
0.72
2019
0.72
0.80
2018
2017
2016
0.84
2020
2019
2018
2017
2016
0.84
1.39
1.05
2.48
1.99
1.86
2.80
TOTAL GREENHOUSE GAS EMISSIONS
(tCO2e)
188tCO2e
2020
2019
2018
2017
2016
188
223
255
255
228
1. Hazard Observation Card initiative introduced in 2019.
2. Per million km driven.
3. Per million hours.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 27
Strategic report Bond restructuring
Bond restructuring
On 31 March 2020, following
a collapse in the global oil price,
the Group announced that it
would seek to engage with
its bondholders regarding a
possible restructuring of the
Group’s US$725 million 8.0%
Senior Notes due July 2022
and/or its US$400 million
7.0% Senior Notes due
February 2025 (Notes).
In May 2020 the Group appointed
Rothschild & Cie as financial advisers and
White & Case as legal advisers to assist in
the restructuring of the Notes. PJT Partners
(UK) Limited were appointed as financial
advisers and Akin Gump Strauss Hauer &
Feld as legal advisers to an informal ad-hoc
noteholder group (AHG).
members of the AHG. The forbearance
period initially expired at 4 p.m. GMT
on 20 December 2020 (Initial Expiration
Date), at which time the Initial Expiration
Date automatically extended to 4 p.m.
GMT on 18 February 2021, on which date
it automatically extended again to 4 p.m.
GMT on 20 March 2021.
On 24 July 2020, the Group announced that
it planned to utilise the applicable grace
periods for the interest payments due on
25 July and 16 August 2020 with respect
to the Notes. The 30-day grace period was
to allow the Company to continue active
discussions with the financial and legal
advisers of the AHG with a view to entering
into a forbearance agreement with the
holders of the Notes in relation to those
interest payments.
On 23 October 2020 the Company
announced that, together with certain
of its subsidiaries (Note Parties), it had
entered into a forbearance agreement with
On 19 March 2021, by unanimous consent
of the AHG, the forbearance period was
extended to 20 April 2021. On 20 April
2021, again by unanimous consent of
the AHG, the forbearance period was
extended to 20 May 2021. The extensions
were to provide time for a final agreement
to be reached with shareholders and
bondholders.
Pursuant to the Forbearance Agreement,
members of the AHG have agreed to
forbear from the exercise of certain rights
and remedies that they have under the
indentures governing the Notes. The
agreed forbearances include agreeing
28 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Should the Group be unable to successfully
restructure its bonds to a sustainable level
then at the end of the forbearance period
the bondholders may seek to enforce
their rights under the bond indentures.
Furthermore, if agreement is reached
with the bondholders but the Group is
unable to obtain the necessary permissions
and waivers, then the agreement with
bondholders may not be implementable.
In either of these events, there would be
significant doubt as to the Group’s ability
to continue in operation for a period of not
less than 12 months from the date of this
report and to continue in operation and
meet its liabilities due in July 2022.
not to accelerate the Notes’ obligations as
a result of the missed interest payments
(or the next missed interest periods if they
occur prior to the expiry of the Forbearance
Agreement).
Holders of an aggregate principal amount
of US$361,215,000 of the 2022 Notes and
holders of an aggregate principal amount
of US$191,258,000 of the 2025 Notes
signed the Forbearance Agreement.
The Company agreed to pay, or procure
the payment by the issuer of, certain
consent fees in cash (Consent Fee) to each
forbearing holder. The Consent Fees were
payable by reference to the total aggregate
principal amount of the Notes outstanding.
The first Consent Fee was 29.7866 basis
points, equating to US$3,350,992, paid
on 19 November 2020. The second
consent fee, for 19.8577 bps and totalling
US$2,233,991 was paid on 22 December
2020. The final consent fee, for 9.9288 bps
and equating to US$1,116,990 was paid
subsequent to the year end on
22 February 2021.
In return for the AHG agreeing to extend
the forbearance period to 20 April
2021, the Company also agreed to pay
into the secured account an amount of
US$1,116,990, equating to 9.9288 bps of
the outstanding Notes. This amount
was paid into the secured account in
March 2021.
Whilst the Group remains confident that
agreement can be reached, the results
of the discussions with bondholders to
restructure the Group’s debt have not
yet concluded and so the outcome is
uncertain and outside the Group’s control.
In addition, should agreement be reached
with bondholders, the Group may need
to obtain permission for the proposed
restructuring from its shareholders and
will need to obtain permission for the
restructuring and secure a waiver from the
Government of the Republic of Kazakhstan.
The Forbearance Agreement is subject to
certain conditions, including:
• Any representation or warranty made
by any of the Note Parties under the
Forbearance Agreement continuing to be
true and complete in all material respects
as of the date of the Forbearance
Agreement;
• The opening of a secured account into
which a portion of the missed interest
payments has been paid. Within 21 days
of the effective date of the Forbearance
Agreement an amount equal to 30% of
the missed interest payments, equating
to US$12,900,000, was transferred into
the secured account. The amount in
the secured accounts was increased
by a further transfer of 17.50% of the
missed interest payments, equating to
US$7,525,000, 180 days after the effective
date of the Forbearance Agreement. This
transfer was made subsequent to the year
end. The Company has the ability to make
certain withdrawals from the account if
its liquidity falls below an agreed level.
At the date of this Annual Report, the full
amount of US$20,425,000 required by
the Forbearance Agreement has been
transferred into the secured account
along with a further supplemental
amount of US$1,116,990 as discussed
below;
• The appointment by the AHG of an
observer who shall be entitled to attend
and speak, but not vote, at any meetings
of the Board or Committees of the
Company where certain defined matters
are to be discussed;
• The engagement of certain professional
and technical advisers on behalf of
the AHG;
• The observance by the Company and
its subsidiaries of certain operating and
other restrictions and limitations; and
• The provision of certain financial and
operating information to the advisers
of the AHG.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 29
Strategic report Q&A with the Chief Executive Officer
Pivoting towards growth
Pivoting towards growth and
transitioning into a multi-asset
energy company will require
tremendous focus and resources.”
Under great leadership Nostrum has journeyed successfully
through a difficult period over the last two years and is now
well positioned as an operator to start executing again to
realise the enormous growth opportunities afforded by
its strategic location in north-west Kazakhstan.
30 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
first months as Chief Executive
Officer?
Q. How have you found your
A. I have met incredible people at
Nostrum. Always professional,
demonstrating great integrity and resilience,
they helped navigate the Group towards
stability, operationally and financially, whilst
ensuring best-in-class safety performance.
Although the ongoing bond restructuring
requires significant attention, the excellence
in operational delivery continues without
skipping a beat. The team in Uralsk is
seasoned, close-knit and well-integrated
across critical disciplines. Everyone from the
Board down has welcomed me with open
arms and helped me to quickly assimilate
all aspects of our business. I feel so very
fortunate to be joining the team at this
pivotal moment as we chart a new course
together to shape our future.
the role?
Q. What will you bring to
A. Nostrum has done what needed
to be done to safeguard its
core business, through streamlining
operations and prioritising reducing costs.
Together with the proposed robust bond
restructuring, the Company has laid down
a solid foundation to build from. Reshaping
its future trajectory aligned with the growth
agenda now requires strengthening of the
skills and capabilities of the organisation
in areas that will be mission-critical, whilst
leveraging fully our seasoned expertise
in project execution and production
operations.
We can also be certain that delivering a
competitive return to our shareholders will
be strongly influenced by the quality of
our strategic and commercial actions that
are supported with optimal stakeholder
alignment. Although our agility as an
independent operator adds to our
competitive advantage, in this region that
is dominated by the International and
National oil companies, to succeed, we
must also have the skills to collaborate
with the larger operators. My background
fits well here, as I have spent many years
operating within major oil and gas
businesses, and over the last decade
have led similar transformational changes
in both start-up organisations and small
to medium E&P independents. I have a
track record of success predicated on the
ability to integrate across diverse cultures,
disciplines, functions and businesses,
yielding optimal results in environments
of rapid scale-up, start-up, and commercial
realignment.
challenges in the coming
few years?
Q. What do you see as the key
A. Pivoting towards growth and
transitioning into a multi-asset
energy company will require tremendous
focus and resources. Our existing
world-class infrastructure and spare
operational capacity can be monetised
further immediately with nearby material
opportunities such as processing and
handling of Ural Oil & Gas LLP’s production.
We are continuing to mature our assessment
of the Stepnoy Leopard licences for
acquisition and development and expect
to reach a decision on the way forward
soon. There are also a number of additional
area-wide opportunities under review that
will serve to strengthen our upstream and
midstream portfolio in the coming years.
Our success in the near term depends on
the following must-wins:
• Continuing to deliver on our HSE
performance and local content
development commitments;
• Stabilising Nostrum through negotiating
a sustainable restructuring arrangement
supported by our stakeholders that also
leaves sufficient headroom for raising
further capital for our growth projects,
as required;
• Safeguarding the base business and
its liquidity by continuing to optimise
production and cost efficiencies;
• Maximising output from the producing
asset and adding to PDP by exploiting
low-cost-per-barrel, high-confidence infill
opportunities with best-in-class well and
reservoir management; and
• Delivering on our promises and restoring
investor confidence.
financial position?
Q. How do you assess Nostrum’s
A. There has been a lot of good work
in 2020 to move our cost base from
that of an active E&P company to one more
aligned with a mid stream processing
operation. The job is not done yet; I think
that you can always make improvements
in efficiency and effectiveness and so
in some respects the job is never done.
However, we are in a good position in
terms of managing our pre-financing-costs
cash flow.
Q. What is your position on
ESG issues and how did
Nostrum deliver against its
commitments in 2020?
A. Our industry is rapidly graduating
from the catch-all concept of
sustainable development to a more
specific rubric of ESG with its three pillars
of environmental, social, and governance.
That can be measured more precisely
and benchmarked against international
standards or agreements such as the
Paris Agreement on climate change.
Further, access to capital markets is being
increasingly linked to ESG performance.
We have a good starting point given our
clean-energy-focused infrastructure. We
will be conducting feasibility work in “clean
tech” related to carbon capture as well as
exploring opportunities to collaborate with
the majors on their ESG initiatives across
the north-west Kazakhstan region.
The Group made its 2019 CDP climate
change submission in August 2020 and
was graded “C” for the second consecutive
year. Our 2021 programme builds on
the significant strides made in 2020 in
reducing our CO2 emissions to 40% below
the state-mandated limits. At Nostrum, we
are proud to engage a diverse workforce
and will also take further steps towards
promoting gender diversity and local
content development.
Regarding the debt, we are progressing
well with the bond restructuring. I am
optimistic that we will achieve a good and
sustainable outcome for the bondholders,
shareholders, the Group and our operating
base in north-west Kazakhstan.
Arfan Khan
Chief Executive Officer
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 31
Strategic report Strategy
A strategy for the future
Strategic pillars
2021 priorities
KPIs
Risks
Forecasts, objectives and
prospects for 2021-2023
Our purpose
To work as a close-knit and well-
integrated team across all disciplines
to deliver excellence across the whole
of our value chain.
DELIVERING
• On our strategies to commercialise
the spare capacity in our world-
class gas processing facilities;
• A comprehensive and cohesive
environmental, social and
governance performance; and
• On our promises so that we
restore investor confidence.
Our vision
To add value to the region through
the utilisation of our state-of-the-art
infrastructure hub.
Our values
We are trustworthy and reliable,
take our corporate, social and
ecological responsibilities extremely
seriously, and are dedicated to the
health, safety and wellbeing of our
employees.
OPTIMISING production and
cost efficiencies to safeguard both
our base business and liquidity.
We also seek to optimise our
ability to operate successfully in
the future through completing
a sustainable restructuring
arrangement supported by our
stakeholders that leaves sufficient
headroom for raising further
capital for our growth projects.
• Advance ongoing discussions
with third parties interested
in supplying raw gas to take
advantage of the Group’s
spare capacity.
• Ensure the safety of
employees, contractors and
the environment.
• Continue roll-out of
“Golden Rules”.
• Implement contractor
management framework.
• Compete the restructuring
of the Group’s debt to a
sustainable level that will
enable Nostrum to achieve its
full potential.
• Continue to challenge costs
whilst pivoting towards
growth and transitioning into
a multi-asset energy company.
• Conclude commercial processing
• Ongoing negotiations with various
• Execute binding commercial
contracts.
• Total recordable injury frequency.
counterparties are complex and
contracts to fill the Group’s spare gas
commercially sensitive, and there
processing capacity with third-party
can be no certainty that agreement
volumes.
• Lost time injury frequency.
will be reached.
• Improve contractor safety
• Greenhouse gas emissions.
• Legal framework for environmental
management.
protection and operational safety still
being developed in Kazakhstan.
• Impact of equipment failure.
• Improve Supervisor HSE
competence.
• G&A below US$11 million.
• Sustained higher prices can lead to
• Manage cash resources to ensure
• Operating costs below
US$32 million.
that the Company can continue to
operate at the levels required to
achieve its objectives.
cost inflation in Kazakhstan.
• Continued COVID-19 restrictions
may impact operations.
• Restructuring charges may offset
effect of some cost reductions.
• Further spend on reservoir
assessment might be needed.
MAXIMISING output from the
Chinarevskoye field and adding
Proved Developed Producing
reserves by exploiting the
current low cost per barrel, high-
confidence infill opportunities
through best-in-class well and
reservoir management.
• Utilise workover rigs and
other technologies to manage
existing production decline in
a cost-effective way.
• Continue studies to identify
viable technologies to
mitigate sub-surface risks for
future drilling planning.
• Maximise uptime of existing wells
• At low production levels, unexpected
• Reduce decline rates in existing
and production facilities.
sub-surface events could severely
producing wells.
impact the Group’s operating cash
flow forecast.
• Identify technologies to increase well
productivity and reduce sub-surface
risk for future drilling programmes at
Chinarevskoye.
32 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Strategic pillars
2021 priorities
KPIs
Risks
Forecasts, objectives and
prospects for 2021-2023
Our purpose
To work as a close-knit and well-
integrated team across all disciplines
to deliver excellence across the whole
of our value chain.
DELIVERING
• On our strategies to commercialise
the spare capacity in our world-
class gas processing facilities;
• A comprehensive and cohesive
environmental, social and
governance performance; and
• On our promises so that we
restore investor confidence.
Our vision
To add value to the region through
the utilisation of our state-of-the-art
infrastructure hub.
Our values
We are trustworthy and reliable,
take our corporate, social and
ecological responsibilities extremely
seriously, and are dedicated to the
health, safety and wellbeing of our
employees.
OPTIMISING production and
cost efficiencies to safeguard both
our base business and liquidity.
We also seek to optimise our
ability to operate successfully in
the future through completing
a sustainable restructuring
arrangement supported by our
stakeholders that leaves sufficient
headroom for raising further
capital for our growth projects.
• Advance ongoing discussions
with third parties interested
in supplying raw gas to take
advantage of the Group’s
spare capacity.
• Ensure the safety of
employees, contractors and
the environment.
• Continue roll-out of
“Golden Rules”.
• Implement contractor
management framework.
• Compete the restructuring
of the Group’s debt to a
sustainable level that will
enable Nostrum to achieve its
full potential.
• Continue to challenge costs
whilst pivoting towards
growth and transitioning into
a multi-asset energy company.
• Conclude commercial processing
contracts.
• Total recordable injury frequency.
• Lost time injury frequency.
• Ongoing negotiations with various
counterparties are complex and
commercially sensitive, and there
can be no certainty that agreement
will be reached.
• Execute binding commercial
contracts to fill the Group’s spare gas
processing capacity with third-party
volumes.
• Improve contractor safety
• Greenhouse gas emissions.
• Legal framework for environmental
management.
protection and operational safety still
being developed in Kazakhstan.
• Impact of equipment failure.
• Improve Supervisor HSE
competence.
• G&A below US$11 million.
• Sustained higher prices can lead to
• Operating costs below
US$32 million.
cost inflation in Kazakhstan.
• Continued COVID-19 restrictions
may impact operations.
• Restructuring charges may offset
effect of some cost reductions.
• Further spend on reservoir
assessment might be needed.
• Manage cash resources to ensure
that the Company can continue to
operate at the levels required to
achieve its objectives.
MAXIMISING output from the
Chinarevskoye field and adding
Proved Developed Producing
reserves by exploiting the
current low cost per barrel, high-
confidence infill opportunities
through best-in-class well and
reservoir management.
• Utilise workover rigs and
other technologies to manage
existing production decline in
a cost-effective way.
• Continue studies to identify
viable technologies to
mitigate sub-surface risks for
future drilling planning.
• Maximise uptime of existing wells
and production facilities.
• At low production levels, unexpected
sub-surface events could severely
impact the Group’s operating cash
flow forecast.
• Reduce decline rates in existing
producing wells.
• Identify technologies to increase well
productivity and reduce sub-surface
risk for future drilling programmes at
Chinarevskoye.
See KPIs section on p.26
See Risk Management section on p.50
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 33
Strategic report Stakeholder engagement
Understanding our stakeholders
Established relationships
with our stakeholders are
essential for the long-term
success of our business.
We engage by sharing
information about our
activities and discussing
with them their interests
and concerns.
Section 172(1) statement
The Directors are fully aware of
their responsibilities to promote
the success of the Company in
accordance with section 172 of the
Companies Act and to have regard
for the interests of the Company’s
employees and other stakeholders,
including the impact of the Company’s
activities on the community and the
environment, when making decisions
at Board level. The Directors, acting
fairly between members, and acting
in good faith, consider what is most
likely to promote the success of the
Company for its members in the
long term.
Read more about our governance on
pages 66 – 101.
Read more about delivering our
responsible business practices on
pages 36 – 49.
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Key stakeholders
Why we engage
How we engage
The Group had a workforce
of 546 full-time employees at
31 December 2020, the majority
based in Kazakhstan and of whom
over 93% were Kazakhstan nationals.
• The physical and mental wellbeing of our
• Regular PCR and daily thermometry testing was introduced in April 2020 for all
employees is essential to the continued safe
employees and contractors working at our field sites. Our London office introduced
operation of our Group.
remote working in March 2020 and Uralsk has been working at 50% occupancy.
• COVID-19 required that we introduce urgent
• Sir Christopher Codrington is the designated Non-Executive Director for workforce
measures to ensure that our employees
engagement and although COVID-19 has meant that face-to-face meetings have
remained safe.
not been possible, the email address to which all employees can send issues and
concerns has remained operational.
Investors and bondholders have
provided some of the financing
required for the construction of the
Group’s infrastructure.
Nostrum co-exists with diverse
communities in Kazakhstan, and
we try to strengthen community
engagement and promote long-
term development in the areas
immediately surrounding our
operations.
We are committed to building
sustainable relationships with our
suppliers, contractors and customers.
Governments and regulators set the
framework within which we operate
and changes to policies, regulations,
legislation and personnel can have
major impacts on the Group’s
business.
• Shareholders and bondholders have seen
• In early 2020, the Board started discussions with advisers, an informal ad-hoc
their investment in Nostrum reduce in
noteholder group and various shareholders with a view to restructuring our bonds.
recent years as a result of the disappointing
Those discussions are continuing into 2021.
results from successive drilling programmes.
Engagement with our stakeholders,
including minority shareholders, is crucial
for their understanding of Nostrum’s plans
to monetise the infrastructures.
• In addition, further financing will be required
if Nostrum is to be successful in those plans.
• Contact with shareholders, including minority shareholders, investors and analysts
was maintained through our web page. Our registrars, Link Assets Services, has a
team that responds to shareholders’ technical queries.
• Company news is shared via our website and the London Stock Exchange’s
Regulatory News Service. Each of our quarterly, half-yearly and annual financial
results are accompanied by a conference call with Nostrum’s senior management.
• Financial reports and extensive other shareholder information, including Russian
translations of all press releases, are available on our website.
• Our Annual General Meeting provides an opportunity for all shareholders, including
minority shareholders, to ask questions of the Board.
• To successfully co-exist with the
• Given our financial situation throughout 2020 we were restricted in the assistance
communities within which Nostrum
that we could provide. However, when we were able, Nostrum did provide support,
operates, we need to understand what is
such as snow-clearing facilities to support remote communities in winter, assistance
important to them and how we are able to
to repair community infrastructure damaged by accidents and transport for rural
contribute.
children to participate in excursions.
• Construction was started on a training facility that will be used not only to educate
Nostrum employees but also members of the local community.
• Our suppliers must meet high safety, legal
• Throughout 2020 we have held meetings with all our main suppliers to find a mutually
and ethical standards.
• The collapse of the oil price and the impact
of COVID-19 meant that we needed to
acceptable path to help stabilise the Group’s financial position whilst at the same time
ensuring that the local suppliers were able to continue to operate with an acceptable
margin, and so support local employment.
introduce urgent measures in early 2020
• The Health, Safety, Environment and Communities Committee has continued to
to manage our costs and maintain our
monitor contractor safely audits and incident reports to ensure that lessons are learnt
liquidity. We recognise our role as a leading
and preventative actions taken.
contributor to the local and national
economy and so we also recognised that our
measures would impact that contribution.
• A number of the Board’s decisions require
• Formal and informal discussions are held on a regular basis with local and national
careful consideration of governmental and/
government, regulatory and tax officials and ministers across a variety of levels within
or regulatory issues.
Nostrum. In this way we can be aware of and responsive to proposed changes in
legislation or the interpretation of existing laws and regulations.
• We pay substantial amounts of taxes and
social contributions.
34 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Established relationships
with our stakeholders are
essential for the long-term
success of our business.
We engage by sharing
information about our
activities and discussing
with them their interests
and concerns.
Section 172(1) statement
The Directors are fully aware of
their responsibilities to promote
the success of the Company in
accordance with section 172 of the
Companies Act and to have regard
for the interests of the Company’s
employees and other stakeholders,
including the impact of the Company’s
activities on the community and the
environment, when making decisions
at Board level. The Directors, acting
fairly between members, and acting
in good faith, consider what is most
likely to promote the success of the
Company for its members in the
long term.
Read more about our governance on
pages 66 – 101.
Read more about delivering our
responsible business practices on
pages 36 – 49.
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Key stakeholders
Why we engage
How we engage
The Group had a workforce
of 546 full-time employees at
31 December 2020, the majority
based in Kazakhstan and of whom
over 93% were Kazakhstan nationals.
• The physical and mental wellbeing of our
• Regular PCR and daily thermometry testing was introduced in April 2020 for all
employees is essential to the continued safe
operation of our Group.
employees and contractors working at our field sites. Our London office introduced
remote working in March 2020 and Uralsk has been working at 50% occupancy.
• COVID-19 required that we introduce urgent
measures to ensure that our employees
remained safe.
• Sir Christopher Codrington is the designated Non-Executive Director for workforce
engagement and although COVID-19 has meant that face-to-face meetings have
not been possible, the email address to which all employees can send issues and
concerns has remained operational.
Investors and bondholders have
provided some of the financing
required for the construction of the
Group’s infrastructure.
Nostrum co-exists with diverse
communities in Kazakhstan, and
we try to strengthen community
engagement and promote long-
term development in the areas
immediately surrounding our
operations.
We are committed to building
sustainable relationships with our
suppliers, contractors and customers.
Governments and regulators set the
framework within which we operate
and changes to policies, regulations,
legislation and personnel can have
major impacts on the Group’s
business.
• Shareholders and bondholders have seen
• In early 2020, the Board started discussions with advisers, an informal ad-hoc
their investment in Nostrum reduce in
recent years as a result of the disappointing
results from successive drilling programmes.
Engagement with our stakeholders,
including minority shareholders, is crucial
for their understanding of Nostrum’s plans
to monetise the infrastructures.
• In addition, further financing will be required
if Nostrum is to be successful in those plans.
noteholder group and various shareholders with a view to restructuring our bonds.
Those discussions are continuing into 2021.
• Contact with shareholders, including minority shareholders, investors and analysts
was maintained through our web page. Our registrars, Link Assets Services, has a
team that responds to shareholders’ technical queries.
• Company news is shared via our website and the London Stock Exchange’s
Regulatory News Service. Each of our quarterly, half-yearly and annual financial
results are accompanied by a conference call with Nostrum’s senior management.
• Financial reports and extensive other shareholder information, including Russian
translations of all press releases, are available on our website.
• Our Annual General Meeting provides an opportunity for all shareholders, including
minority shareholders, to ask questions of the Board.
• To successfully co-exist with the
• Given our financial situation throughout 2020 we were restricted in the assistance
communities within which Nostrum
operates, we need to understand what is
important to them and how we are able to
contribute.
that we could provide. However, when we were able, Nostrum did provide support,
such as snow-clearing facilities to support remote communities in winter, assistance
to repair community infrastructure damaged by accidents and transport for rural
children to participate in excursions.
• Construction was started on a training facility that will be used not only to educate
Nostrum employees but also members of the local community.
• Our suppliers must meet high safety, legal
and ethical standards.
• The collapse of the oil price and the impact
of COVID-19 meant that we needed to
introduce urgent measures in early 2020
to manage our costs and maintain our
liquidity. We recognise our role as a leading
contributor to the local and national
economy and so we also recognised that our
measures would impact that contribution.
• A number of the Board’s decisions require
careful consideration of governmental and/
or regulatory issues.
• We pay substantial amounts of taxes and
social contributions.
• Throughout 2020 we have held meetings with all our main suppliers to find a mutually
acceptable path to help stabilise the Group’s financial position whilst at the same time
ensuring that the local suppliers were able to continue to operate with an acceptable
margin, and so support local employment.
• The Health, Safety, Environment and Communities Committee has continued to
monitor contractor safely audits and incident reports to ensure that lessons are learnt
and preventative actions taken.
• Formal and informal discussions are held on a regular basis with local and national
government, regulatory and tax officials and ministers across a variety of levels within
Nostrum. In this way we can be aware of and responsive to proposed changes in
legislation or the interpretation of existing laws and regulations.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 35
Strategic report
Sustainability review
Operating in a sustainable and ethical manner
Nostrum recognises its
ongoing responsibility to
operate in a sustainable
and ethical manner for
the benefit of the local
community, all our
stakeholders and the
environment.
Our approach to sustainability
Corporate and social responsibility
are integral to all that we do. We are all
committed to the safety of our employees.
We strive to develop business and technical
skills to ensure excellence across our value
chain whilst keeping risks to a minimum
and ensuring that our commitment to
minimising any harmful emissions is
always at the forefront of discussions.
Throughout 2020, we continued integrating
sustainability and social responsibility
into our governance structure through
the Health, Safety, Environment and
Communities Committee of the Board.
Our focus comprises five pillars: HSE
leadership; rigorous incident investigation;
process safety and asset integrity;
contractor HSE management; and
environment and climate change, including
a commitment to reduce GHG emissions.
Each of these pillars is underpinned by
rigorous corporate governance and
sustainable and responsible operations that
always take into account the communities
and environments in which we operate.
Nostrum adheres to internationally
recognised health, safety and environmental
standards and seeks to comply with the
ISO 14001, ISO 50001 and ISO 45001
Occupational Health and Safety Standards.
Sustainability focus areas
Health and
safety
Read more on pages 38 – 40
Our people
Read more on pages 41 – 42
Social
responsibility
Read more on pages 43 – 44
Environment
Read more on pages 45 – 47
36 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
UN Sustainable
Development Goals
Nostrum’s approach to
sustainability is guided by the
17 UN Sustainable Development
Goals (SDGs) which aim to end
poverty and reduce inequality
while addressing climate change
and environmental preservation.
They are an important focus
for Nostrum as they assist
the Company in prioritising
sustainable development
matters and aligning our
business strategy with these
global challenges.
Hazard Observation Cards
In line with redrafting our “Golden
Rules” in 2019, we introduced Hazard
Observation Cards and requested
employees and contractors to
report any unsafe conditions
observed in the workplace. This
helps to ensure that our employees
and contractors are mindful of safe
working conditions at all times and
that we continuously improve the
safety of the environment in which
we operate. In the first year, 216
cards were filled out by employees
and contractors, which enabled us
to make the working environment
safer. In 2020, the total number of
cards filled out increased to 665.
Hazard Observation Cards are now
an established process to ensure
that all those working at or visiting
our facilities return home safely.
LOST TIME INJURY FREQUENCY
(INCIDENTS1)
0.84
2020
2019
2018
2017
2016
0.84
1.39
1.05
3.4 million
man-hours worked
1. Per million hours.
2.48
1.99
For more information, please see
https://sustainabledevelopment.un.org
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 37
Strategic report Sustainability review continued
Health and safety
The wellbeing of employees
and contractors is of
paramount importance to
Nostrum, and we promote
an active health and safety
culture within the Company.
QHSE training and
procedures are rigorous
and are promoted to an
international standard.
COVID-19
A significant amount of effort was spent
during 2020 on reducing the risk of
COVID-19 infection and to comply with
governmental notices. All employees were
provided with masks, gloves and antiseptic
and 50% of office staff were transferred
to remote, online work patterns. Regular
quartz treatments with UV lamps were
conducted in the main office in Uralsk
and the field offices. All staff working on a
rotational basis were given a pre-shift PCR
test with daily thermometry before the start
of work each day, and medical staff were
provided with protective сoveralls.
Further details of Nostrum’s approach
to providing a safe work environment for
employees and contractors are on page 39.
Incident rates and investigation
There were two lost time injury (LTIs) and
three road traffic incidents registered in
2020. The last LTI occurred on 25 April
2020. Incidents are investigated, the main
causes identified and corrective action
plans developed.
In 2020, the Company’s LTI rate (LTIR)
achieved was 0.8 per million man-hours
worked, against a target of 1.5.
The Group’s activities are potentially
hazardous and can lead to occupational
diseases. We are pleased to report that
in 2020 there were only two LTIs (2019:
eight) involving employees and contractors
working on site.
In line with our health and safety
procedures, all incidents are investigated,
their causes identified and corrective action
plans developed. The accident severity
rate, the fatality frequency rate, the rate of
occupational diseases, the lost day rate,
the absenteeism and rate, and the number
of on-job accidents with fatalities that
occurred in the Group were not recorded
separately to LTIs or total recordable
incidents (TRIs). The number of LTIs and
TRIs were:
2018
2019
2020
LTI cases
Nostrum
LTI cases
Contractors
TRI cases
Nostrum
TRI cases
Contractors
Totals
1
8
3
19
31
0
8
4
13
25
1
1
4
3
9
The LTIR for 2020 was 0.8 incidents per
million man-hours. In 2020, Nostrum’s
LTI occurred in Kazakhstan and involved
a male employee.
The TRI rate for 2020 was 3.8 incidents per
million man-hours. All of Nostrum’s TRIs
occurred in Kazakhstan and involved one
woman and three men.
All of our contractors’ LTIs and TRIs
occurred in Kazkhstan. The gender of
those involved was not recorded.
An updated contractor management
framework was developed and implemented
in 2020. COVID-19 restricted our audit
activity but we conducted two contractor
HSE management system and two internal
management system audits in 2020 (2019:
four contractor HSE audits and nine internal
management system audits), demonstrating
our ongoing commitment to improved
contractor management.
There were no fires in 2020. The Company
complies with all relevant fire safety
regulations, including as to the number
and type of fire extinguishers.
There are no formal agreements with trade
unions involving health and safety issues.
Progress against 2020 initiatives
Despite the amount of time spent on
COVID-19-related activities, a number
of initiatives planned for 2020 were
completed.
Contractor HSE selection and
performance management
A contractor HSE performance
management process with a periodic
tracking of contractors’ HSE performance
was implemented during 2020, including
a structured and consistent approach
to considering HSE requirements in the
selection process of potential contractors.
Contractor HSE performance is managed
by identifying and mitigating risks, setting
HSE performance criteria, monitoring
and reporting HSE performance, and
subsequently using this information for
continuous development and feedback
into the process of contractor selection.
Nostrum co-ordinates its procurement
processes with its contractors in order to
identify hazards and to assess and control
the HSE risks arising from:
a) Any contractor activities and operations
that impact the organisation;
38 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Our response to COVID-19
COVID-19 demanded a lot of attention during 2020. We registered our first
positive case within the employee base in Uralsk in June 2020; however since
then infections have remained at a comparatively low level despite western
Kazakhstan being designated a red zone at various times during 2020.
Our primary focus was, and will remain, to safeguard our employees and
contractors, reduce the risk of contagion from and distribution of the virus
and to comply with governmental legislation. In particular:
• All employees were provided with masks, gloves and antiseptic;
• Medical staff were provided with protective сoveralls;
• Regular quartz treatment with UV lamps was undertaken in main offices in
Uralsk and in the field offices;
• Pre-shift PCR testing was carried out for all staff working on a rotational basis;
• Daily temperature checks were taken before starting work; and
• Attendance of office staff in Uralsk was reduced to 50% at any one time and
staff were transferred to an online work pattern. Our London-based staff
have been working from home since March 2020 and will remain so until the
UK Government lifts restrictions on gatherings indoors.
Non-essential events were postponed, such as our Contractor Safety Forum.
Other activities, such as contractor audits, were significantly curtailed.
However, as at the date of this report, no employee or production has been
lost because of COVID-19.
A vaccination programme, primarily using the Sputnik V vaccine, has started in
Kazakhstan. However, it may be some time before a sufficient proportion of the
population has been vaccinated and the situation stabilises. Until that time,
all preventative measures will remain in place.
b) Any organisational activities and
operations that impact contractors’
workers;
c) Any contractor activities and operations
that impact other interested parties in the
workplace.
This activity is designed to:
• Determine the HSE criteria for contractor
selection at the pre-qualification stage
before tender;
• Determine how to communicate
Nostrum’s HSE requirements to
contractors;
• Minimise incidents occurring due to non-
compliance with HSE requirements; and
• Ensure continued contractors HSE
performance management by
contractors.
The strategy for the management
of contractors’ HSE performance is
designed to identify the required internal
management measures at each stage of the
contract life cycle, to ensure that contractor
HSE performance is maximised throughout
the execution of work for Nostrum.
In-house HSE training and
examination process
During 2020, Nostrum introduced an
in-house HSE training and examination
process designed to improve the HSE
competencies of both Nostrum and
contract personnel performing safety-
critical activities. To facilitate this, Nostrum
acquired an industrial safety accreditation
which allows the Group to conduct in-
house HSE training and examination in
areas such as industrial and labour safety.
HSE leadership, communication and
awareness
Communication and awareness
In addition to the 2020 initiatives outlined
above, Nostrum also introduced the
following leadership, communication
and awareness initiatives:
• A pop-up window appears on computer
screens at first log-in each day with safety
notifications from the QHSE department;
• HSE posters have been printed and
published at all locations; and
• Monthly QHSE reports are issued to
communicate HSE performance.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 39
Strategic report Sustainability review continued
Health and safety continued
Process safety
In 2020, there were no Tier 1 or Tier 2
process safety events registered at
Nostrum’s production facilities. As defined
by the American Petroleum Institute, a
Tier 1 and 2 safety incident would be an
unplanned or uncontrolled release of any
materials, including non-toxic and non-
flammable materials, from a process, that
results in one or more of the following
consequences:
• An employee, contractor or
subcontractor incurs days away from
work, injury and/or fatality;
• A hospital admission and/or fatality of
a third party;
• An officially declared community
evacuation or community shelter put
in place, including precautionary
community evacuation or community
shelter in place;
• Fire or explosion damage of at least
US$100,000.
The selection of appropriate maintenance
strategies, and the classification of
equipment as critical or non-critical, is
based on the impact that equipment
failure has on related risk. This enables
maintenance to be prioritised in the event
of a shortage of resources and allows
reporting against critical systems.
Safety Critical Elements are devices,
equipment or systems that are required to
ensure process conditions are maintained
within safe operating limits, or the purpose
of which is to prevent malfunctioning.
2021 targets and initiatives
LTIR of no more than 1.3 per million
man hours worked and Road
Traffic Accidents of no more than
0.8 incidents per million km driven.
Implement the vessel inspection
programme in 2021 and develop a
new vessel inspection programme
for 2022 and 2023.
At least 600 Hazard Observation
Cards to be issued of which at least
500 should be issued by more than
50% of Nostrum employees and
at least 100 cards by the four
largest Nostrum contractors
by contract value.
Installation of air pollutant and
GHG emission sensors and systems
to enable real-time measurement
and monitoring of GHGs in exhaust
fumes from major emission sources
in the Chinarevskoye field.
Participate in CDP questionnaire
and aim for “C” level evaluation
score.
Increase female representation
in the workforce from the current
23% at Group level.
Maximum of 200,000 tonnes
of CO2 emissions.
Verification that the incident
investigation procedure was
applied to all incident investigations
in 2020. Procedure to be updated
and re-issued if required as a result
of the review findings.
Establish contract HSE management
plan for all new services
contracts with a value in excess
of US$100,000 per annum.
2020 HAZARD OBSERVATION CARDS – AREAS OF OPERATION ADDRESSED
Fire safety
PPE
Safe systems of work
Electrical safety
Housekeeping
Process safety
15%
4%
16%
4%
9%
17%
Working at height
HSE competence
H2S
Health & hygiene
Road safety
Environment
Emergency response
1%
1%
1%
14%
10%
5%
3%
4%
16%
3%
5%
15%
10%
14%
1%
1%
1%
4%
17%
9%
40 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Our people
Nostrum is proud to
engage a diverse
workforce. The Nostrum
Code of Conduct protects
all employees and
contractors against illegal
discrimination on the basis
of race, religion, national
origin, age, gender,
disability, sexual orientation
or political opinion.
Diversity
Whilst we are encouraged by our diversity
at Board and department head levels, we
do recognise that diversity remains an
ongoing issue in the oil and gas industry,
particularly with regard to gender diversity.
We strive to be an attractive place to
work with an inclusive environment that
celebrates diversity. Nostrum is committed
to improving the gender balance at all
levels of the Company and we engage with
interest groups to better understand how
we might do this. Additionally, Nostrum
has for several years adopted a corporate
Equality and Diversity Policy to further
support these ambitions. At the end of
2020, 23% (2019: 22%) of Group employees
based in Kazakhstan were female. In the
UK, 20% of employees were female
(2019: 47%).
The Board recognises the importance
of continued improvement in this area
and is committed to giving due regard
to the benefits of diversity in our future
appointments, including ensuring Kazakh
nationals are properly represented at senior
levels of the Company. Currently 24% of
employees at department head level are
female (2019: 22%).
Our Human Resources department is
working towards a policy of promotion from
within and building a pipeline of diverse
employees at all levels of the business.
Unfortunately, in 2020 only 7% of Group
recruitment was female. There were no
recorded discrimination incidents raised
by any of the Group’s employees in 2020.
In 2020, nine employees (all female)
took maternity leave and 14 employees
(13 females and one male) returned from
maternity/paternity leave.
Employee relations and
social guarantees
Nostrum prides itself on being an integral
community partner and is one of the largest
employers in western Kazakhstan, with
97% of Group employees engaged locally.
At 31 December 2020, a total of 564 staff
from 15 countries, broken down by gender
as follows (data by age group was not
recorded):
• Uralsk: 422 males, 125 females;
• London: 8 males, 2 females;
• Brussels: 3 males, 2 females;
• Almaty: 1 male, 1 female.
We offer all staff members competitive
benefits and remuneration packages in
compliance with all regulatory bodies,
guidelines and requirements, which (to the
extent applicable) are also applied to those
hired as temporary or part-time employees.
In 2020 the average monthly salary of
locally engaged employees increased by
7.6% in KZT.
In an effort to promote gender equality,
we will now also monitor gender pay
discrepancies. In 2020, the average Group
employee salary was 63% higher for males
and the median employee salary was 8%
higher for males. Age group, category and
workplace data was not recorded.
Education and training
We believe investing in our people is key
to economic self-empowerment in the
communities in which we operate. Under
the terms of the PSA, we are required to
accrue 1% of our annual Chinarevskoye
field development costs to be spent on
education and training. We also comply
with the education and training obligations
under the subsoil use agreements for the
Rostoshinskoye field.
HSE training (including fire safety) is
carried out at least annually within the
expenditure required by the PSA and the
Rostoshinskoye subsoil use agreement.
There was no advanced training in addition
to that required under the PSA and the
other subsoil use agreements. There was
no assistance for employees who stopped
working as a result of retirement
or termination of employment.
Our employees and their children are
eligible for educational grants and financial
support to assist with university and
college expenses. Educational fellowships
and assistance may also be awarded on a
discretionary basis.
In 2020, 537 employees benefitted from
education and training programmes (2019:
722 employees). Our total Group training
costs in 2020 were US$0.9 million (2019:
US$2.1 million) and the total number of
training days in 2020 was 7,214 days (2019:
7,264 days).
Training was undertaken by operational
teams, department heads, specialist
engineers and other technicians at different
levels across the organisation. The average
number of training hours per employee by
gender and category was not recorded.
There were no official performance
assessments during 2020.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 41
Strategic report Sustainability review continued
Our people continued
Hiring and staff turnover
In 2020, more than 118 employees were
released or resigned and their positions not
filled (2019: 200 employees). This was the
main cause of staff turnover. The number of
new employees hired in 2020 was 14 (2.5%
of which one was female and 13 were male).
Age-related data was not recorded.
Workforce representation
In 2018, the Company put collective
agreements in place to provide for
workforce representation. Sir Christopher
Codrington has been designated to serve
as the Board’s liaison for engagement
with the workforce. Due to COVID-19
restrictions, no meetings between Sir
Christopher and the workforce took
place in 2020.
The Board of Directors strives to adopt
best practices in corporate governance,
including engagement with the Group’s
workforce. In particular, the Board wishes
to understand the views of the Group’s
workforce and to take such views into
consideration in Board discussions and
decision-making. Communication between
the workforce and the Board is often
referred to as the “employee voice”, and it
is hoped that a wide selection of views from
the workforce can be gathered through
a range of formal and informal channels.
Such channels are intended to help the
workforce share ideas and concerns with
senior management and the Board. This
communication provides useful feedback
about business practices from those
delivering them and can help empower
colleagues. The Board encourages
individuals to raise any concerns they may
have. Doing so acts as an early warning
system for actual or potential problems
and helps to manage risk. The Board
actively listens to workforce concerns and
subsequently provides feedback on how
the matter raised has been considered,
including any action taken. The Board
emphasised that the workforce should
feel safe to raise concerns.
There is no requirement under applicable
laws for the Company to notify its
employees of significant changes
relating to its activities.
Nostrum Code of Conduct
Nostrum is committed to maintaining
a Group-wide culture that recognises
international standards of human rights.
Human Rights Policy
Throughout 2020, the Company had
a Human Rights Policy which reflects
the desire to comply with industry best
practice. There was no training on this
policy in 2020 (2019: none).
The Human Rights Policy is in addition
to the Nostrum Code of Conduct (the
Code), which defines the principles that
guide business conduct and provides a
non-exhaustive outline of what Nostrum
considers permissible conduct by its
employees. These principles include
provisions relating to human rights and
diversity in the workplace, insider dealing
and insider information.
A copy of the Code is available on the
Group’s intranet in both Russian and
English and can be downloaded from
our website: www.nog.co.uk.
Modern Slavery Act Statement
There are no divisions of the Group (or its
vendors) believed to have significant risk
of child/forced labour/hazardous work
performance by young employees.
Under the Group’s standard supply
contracts, the Group is entitled to require
suppliers to demonstrate compliance
with the Code and to hold its suppliers
responsible for compliance by their supply
chain with equivalent terms.
A copy of our Modern Slavery and
Transparency Statement is available
on our website: www.nog.co.uk.
Whistleblowing Policy
We have a Whistleblowing Policy which
takes into account the Whistleblowing
Arrangements Code of Practice issued by
the British Standards Institute and Public
Concern at Work, and which applies to
all individuals working for the Group at
all levels and grades.
The Whistleblowing Policy sets out details
of three compliance liaison officers who
speak a variety of languages for the
purposes of reporting any concerns. The
Whistleblowing Policy is also mentioned
in the Code, and a person who reports
any matter in good faith will be protected
against any sanctions.
A copy of the Whistleblowing Policy is
available in both Russian and English and
on the Company’s website. At the time
of writing, we have received no reports
under our Whistleblowing Policy of forced/
involuntary labour or human trafficking in
relation to our business or supply chains.
For further details, please see our website:
www.nog.co.uk.
Diversity Action Plan
The Company aims to establish KPIs for HR
on improving diversity at all levels. In terms
of diversity statistics, we would like to stand
out by improving female representation
at all levels. At the end of 2020, the Group
was represented by 77% male and 23%
female employees (2019: 78% male and
22% female employees). We are targeting a
75% male and 25% female split by the end
of 2022.
The improvement initiatives are the
following:
• Establish gender diversity as a strategic
business focus;
• Consult experts to build diversity
programmes;
• Conduct a gender audit that evaluates
how gender equality is incorporated into
policies, procedures, budgets, etc;
• Identify an internal pool of female
talent. This has already started with
our succession planning identification
programme;
• Support recruitment that provides equal
opportunities for men and women; and
• Conduct gender pay gap analysis to
identify main areas for improvement.
42 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Social responsibility
2020 key initiatives
The Company did not participate in
charitable or social projects/events in 2020
or provide any sponsorship. However,
Nostrum provides support on an as-
needed basis, such as lending special
machinery in emergency situations in rural
districts on occasions of extreme snow or
infrastructure accidents, and providing
transport for rural children to participate
in excursions to historical places within
the region.
Payment to governments
Nostrum is committed to transparency
in its business activities and payments to
governments. We have a formal public
relations and government relations
procedure which regulates our relationships
with the local community and with
government, and details how and why we
engage with various stakeholder groups.
In 2020, a total of US$31.5 million was
paid to governments by Nostrum and its
subsidiary undertakings. We will report on
2021 payments to governments in the first
half of 2022. For more details, please see
the Governance page of our website.
Liquidation fund contribution
Under the terms of the Chinarevskoye
PSA and the subsoil use agreement for
Rostoshinskoye, Nostrum is building up
liquidation funds of US$12.7 million to
eliminate the consequences of operating
activities, namely the conservation of the
environment, the liquidation of drilled wells
and the elimination of other facilities. These
projects will be subject to confirmatory
approval by the Company, the local
community, and government. At the end of
2020, US$7.7 million was held on restricted
cash accounts as liquidation fund deposits
(2019: US$7.6 million, which included
deposits for the subsoil use agreements for
Yuzhno-Gremyachenskoye and Darinskoye).
Anti-Corruption and
Bribery Policy
For more information on the Group’s Anti-
Corruption and Bribery Policy, please see
pages 54 – 55 and 75.
Spend with suppliers
We are committed to partnering with local
companies and in 2020 we spent 73% of
our supplier budget with Kazakh national
suppliers.
Labour practices
There were no complaints filed against the
Group for violation of labour practices in
2020. The details of the complaints system
existing in the Group are set out on
pages 34 – 35 and 42.
Nostrum is a proud
community partner and
strives to foster a culture of
openness and engagement.
We are pleased to be able
to offer social and financial
support to promote the
wellbeing of local residents.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 43
Strategic report Sustainability review continued
Social responsibility continued
Non-financial information statement
This section of the strategic report constitutes the Company’s Non-Financial Information Statement, produced to comply with sections
414CA and 414CB of the Companies Act. The information is incorporated by cross reference.
Reporting requirements
Policies and standards which govern our approach
Environmental
matters
Annual environmental objectives
Liquidation fund contribution
Employees
Group Code of Conduct and Human Rights
Whistleblowing policy
Health and Safety policy
Respect for
human rights
Modern Slavery Statement
Equality and Diversity Policy
Information necessary to understand our business and its impact,
policy due diligence and outcomes
Environment, pages 45 – 49
Communities and social review, page 43
Our People, pages 41 – 42
Health and safety, pages 38 – 40
Total Recordable Injury Frequency, page 38
Our people, pages 41 – 42
Social matters
Sponsorship of community events
Communities and social review, pages 43
Anti-corruption
and anti-bribery
Anti-corruption and bribery policy
Anti-facilitation of tax evasion policy
Communities and social review, pages 43
Our Governance Framework, pages 73 – 75
Description of
principal risks and
impact of business
activity
Description of the
business model
Non-financial key
performance
indicators
Payments to governments
Principal risks and uncertainties, pages 52 – 55
Performance review, pages 16 – 25
Business model, pages 10 – 11
Key performance indicators, pages 26 – 27
Our strategic priorities, pages 32 – 33
44 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Environment
CDP
In 2020, our main environmental objectives
included participation in the CDP
(formerly Carbon Disclosure Project),
which is a key medium for companies to
disclose their environmental impact and
risk management, as well as continue to
focus on greenhouse gas (GHG) emission
reduction strategies.
Our CDP response was independently
assessed and Nostrum received a “C”
grade for the second consecutive year.
We are pleased with this scoring, as it
demonstrates the policies and procedures
we have developed over recent years are
positioning the Company to deal with the
issue of climate change now and into the
future. We will continue to engage with the
CDP initiative in order to maintain an open
dialogue, both internally and externally,
on this important issue.
Air emissions performance
Permitted and actual volumes of pollutant emissions in 2018-2020
Nostrum is focused on
being a responsible
operator in order to
minimise as far as possible
the Company’s impact on
the natural environment. We
abide by strict international
environmental protection
legislation and are actively
working on GHG emission
reduction initiatives.
Components
Permitted
Actual, including:
NO2
SO2
H2S
CO
CH4
Carbon
Solid particles
Other
Gross emissions of air pollutants
into atmosphere
2018
12,250
2019
10,928
367
364
2
2,054
1,317
33
28
318
185
2
1,804
312
11
29
2020
7,915
129
59
4
1,006
249
10
29
2,689
2,898
2,738
2018
2019
2020
0.0037
0.0037
0.0035
2018
2019
2020
Volumes of associated gas flared in 2018-2020
21.17 MCM 17.726 MCM 11.66 MCM
GAS UTILISATION AND FLARING IN 2018-2020 (MILLIONS OF CUBIC METRES)
m
140
120
100
80
60
40
20
0
130.5
81.3
77.6
21.2
17.7
11.7
2018
2019
2020
Gas flaring
Gas utilisation
Trend gas utilisation
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 45
Strategic report Sustainability review continued
Environment continued
Waste, water and soil
management
The impact of Nostrum’s operational activities
on the environment are monitored through
detailed waste, water and soil management
systems. The Group undertakes air, soil and
sub-surface water testing to ensure sanitary
and epidemiological compliance with Kazakh
legislation.
In 2020, 100% of production and domestic
waste was recycled by a contracted
company. Drilling waste was not generated
in 2020 due to no drilling works being
performed. Soil and water survey results
demonstrated compliance with all
applicable environmental legislation.
For more detailed information, please visit
our website at www.nog.co.uk.
GHG emissions reduction and
reporting
Nostrum seeks to minimise all GHG
emissions and continues to invest in new
technologies to improve GHG emissions
performance. Nostrum strictly adheres to
both UK and Kazakh regulatory requirements
with regard to GHG emissions and has been
monitoring and reporting GHG emissions
since 2011. In 2020, we participated for
the second time in the CDP disclosure
process to demonstrate our commitment to
improvement and transparency in this area.
As a dual-listed entity, Nostrum adheres
to both UK and Republic of Kazakhstan
reporting requirements. The Company’s
GHG reporting period is aligned with the
period in respect of which the Directors’
Report is prepared. No responsibility is
taken for any emission sources which are
not included in the consolidated financial
statements.
According to the 2018-2020 Kazakh
National Plan, 627,174 tonnes of CO2 was
granted to Nostrum. In 2019, the Republic
of Kazakhstan Ministry of Ecology, Geology
and Natural Resources issued an additional
quota of 103,650 tonnes of CO2 for the
GTU 3 commissioned facility, which was
not originally included in the National
Plan. At the end of 2020, the Group’s CO2
emissions in the period 2018 to 2020 were
approximately 622,000 tonnes versus a
quota for the same period of 730,824 tonnes.
The National Plan for 2021 has set a quota
for Nostrum of 212,998 tonnes of CO2
in 2021.
Future GHG reduction initiatives
We plan to optimise our facilities’
operation, by adjusting the operations
and maintenance schedule in function of
reduced inlet feed, and by reducing our
fuel gas consumption and flare volumes
in 2021.
Nostrum is committed to minimising flaring
activity and flares only in accordance
with the terms of Kazakhstan Ministry
of Energy gas flaring permits. Timely
maintenance work conducted at our gas
treatment facilities has been shown to
reduce the risks of accidental flaring, and
the implementation of a gas utilisation
programme has led to a decrease in
gas flaring.
In order to reduce GHG emissions, the
transportation of personnel working at
production facilities is via buses and not
the use of personal vehicles.
46 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
GHG emissions
The baseline in the GHG emissions
allocation plan was set as the mean value
of total emissions for the years 2013-2014
(in carbon dioxide emissions equivalent).
According to the established limit, GHG
emissions for 2020 should not exceed
the baseline. The following direct GHG
emissions (Scope 1) sources have been
identified: flares, heaters, incinerators,
boilers, gas turbine plants, electric
power stations, compressors and fugitive
emissions.
Total direct GHG emissions (Scope 1)
subdivided by gas types and by source
types are summarised in Tables 1 and 2.
No further ecological data is available
for publication. Consequently, additional
disclosures in relation to materials used,
products and services, waste management,
water consumption, energy consumption
and energy efficiency, emergency
and intermittent pollution episodes,
wastewater discharges, atmospheric
emissions of greenhouse gases and other
pollutants, environmental protection and
biodiversity are not possible. There were
no fines or other sanctions against the
Group as regards non-compliance with
environmental requirements in 2020.
Energy efficiency
In the period covered by this Annual
Report, Nostrum replaced oil heaters with
heaters powered by gas; installed devices
at well-sites to automatically close the
wells in the case of shutdown, preventing
blowdown by flaring; and installed
measuring devices in flowlines and other
devices allowing for future optimisation.
Following an energy efficiency audit,
Nostrum replaced 115 fluorescent lamps
with LED lamps.
Nostrum has also undertaken to plant trees
at the oil terminal on the border of the
sanitary protection zone near Beles village,
which in the long term will generate a
positive GHG reduction effect.
Climate change
Nostrum recognises that hydrocarbon
exploration and production is a major
contributor to GHG emissions and,
consequently, we have a responsibility to
work to address climate change. One of our
key corporate social responsibility goals
in 2020 was to minimise the impact of our
operations on climate change. This remains
a key goal for Nostrum.
Climate change can affect our business
through physical disruption to operations
due to changing weather conditions,
legislative and policy changes, technology
to help reduce emissions, and future
changes in energy market demand. We
plan to assess more rigorously the impact
of climate change on our business in the
near future, including through portfolio
resilience testing. Climate change remains
on our risk register for 2021.
Our governance, strategies, risk
assessment, management systems and
KPIs have, for many years, included
the assessment of climate related risks
and opportunities. These are currently
monitored on behalf of the Board by
the Health, Safety, Environment and
Communities Committee.
The Health, Safety, Environment and
Communities Committee will continue to
analyse our preparedness to ensure that
Nostrum complies fully with Listing Rule 9.8
in our 2021 annual report.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 47
Strategic report Sustainability review continued
Environment continued
Table 1: Scope 1 GHG emissions subdivided by gas type (tCO2e)
Carbon dioxide
Methane
Nitrous oxide
Hydrofluorocarbons
Total
2015
2016
2017
2018
2019
2020
208,466
195,453
242,276
244,379
213,520
180,527
13,920
126
34
10,817
1,046
345
10,723
1,305
28
8,436
1,304
37
8,429
1,034
24
6,133
917
28
222,546
207,350
254,332
254,156
223,008
187,598
A breakdown of GHG emissions by gas type is shown in Table 1. The GHG emissions predominantly consisted of carbon dioxide and
methane. Scope 1 emissions are generated directly by equipment owned and operated by the Group and as a result of our operations.
The equipment includes boilers, heaters, diesel stations, gas turbine units, compressors. Scope 1 emissions also include flaring and
hydrofluorocarbons emitted by refrigeration units and climate control systems, such as air conditioners.
Table 2: Scope 1 GHG emissions subdivided by source types (tCO2e)
Stationary combustion
Mobile combustion
Fugitive sources
Total
2015
2016
2017
2018
2019
2020
205,702
195,576
243,001
245,362
214,536
181,403
1,498
15,346
758
435
11,016
10,896
105
8,536
89
8,359
66
6,130
222,546
207,350
254,332
254,003
223,008
187,599
Stationary combustion sources formed the majority of emitted GHGs. The reduction in emissions from mobile combustion is related to
the fact that the majority of the Group’s vehicles were transferred to a third-party transport services company.
Indirect GHG emissions (Scope 2)
Nostrum does not use purchased steam, heating or cooling. Electrical power is the only purchased power related to indirect GHG
emissions and it is supplied to Nostrum facilities via the Zelenovskaya distribution network (ZapKazREK JSC), through its subsidiary
Batys Energoresursy LLC. The regional emission factor (0.27086 tCO2/MWh) was calculated using Methodological Guidelines for the
Calculation of GHG Emissions from Electrical Power Stations and Boiler Houses (Astana, 2010) and the regional net thermal efficiency
of Urals Natural Gas Fired Power Plants (73.3%).
Total direct and indirect GHG emissions (Scope 1 and Scope 2) and total GHG emissions are summarised in Table 3.
Table 3: Scope 1, Scope 2 and total GHG emissions (tCO2e)
Direct energy (Scope 1)
Indirect energy (Scope 2)
Total
2015
2016
2017
2018
2019
2020
222,546
207,350
254,332
254,156
223,008
187,599
5,482
2,263
640
559
297
68
228,029
209,613
254,972
254,715
223,305
187,667
Emissions intensity ratio
Tonnes of CO2 per tonne of output is a recommended intensity ratio for the oil and gas sector, as per Appendix F of the UK Government’s
Defra Environmental Reporting Guidelines (2013). Taking into account the variety of products of Nostrum Oil & Gas – crude oil, stabilised
condensate, LPG and dry gas – the chosen intensity ratio is expressed in metric tonnes of CO2e (mtCO2e) per tonne of oil equivalent
(mmboe).
Table 4 shows intensity ratios for total (Scope 1 and Scope 2) emissions in the period 2015-2020.
48 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Table 4: Emissions intensity ratios for total GHG emissions
Production, tonnes of oil equivalent (toe)
2,152,421
2,156,171
2,088,917
1,878,026
1,520,928 1,186,382.9
2015
2016
2017
2018
2019
2020
tCO2/toe
Production, mmboe
tCO2/mmboe
0.106
14.7
0.097
14.8
0.122
14.3
0.136
12.9
0.1
10.0
0.2
8.1
15,467
14,193
17,820
19,801.8
21,434
23,094.8
Table 5: Global GHG emissions and energy use data
Emissions from activities which the company
owns or controls, including combustion of fuel
& operation of facilities (Scope 1) tCO2e
Emissions from purchase of electricity, heat,
steam and cooling purchased for own use
(Scope 2, location-based) tCO2e
Total gross Scope 1 + Scope 2 emissions/
tCO2e
Energy consumption used to calculate
Scope 1 + Scope 2 emissions: kWh
Intensity ratio: tCO2e (gross Scope 1 + 2)/
mmboe
Current reporting year 2020
Comparison reporting year 2019
UK and offshore3
Global (excluding UK
and offshore)
UK and offshore3
Global (excluding UK
and offshore)
No data collection
187,598.6
No data collection
223,008
No data collection
68.0
No data collection
297
No data collection
187,666.6
No data collection
223,305
No data collection
377,270,641.41
No data collection
378,116,886.42
No data collection
23,094.8
No data collection
21,434
Methodology
No data collection
Kazakhstan
methodical
guidelines. KwH
calculated based on
1.36E+15 J own
generated energy
plus purchased
electricity.
No data collection
Kazakhstan
methodical
guidelines. KwH
calculated based on
1.36E+15 J own
generated energy
plus purchased
electricity.
1. 2020: 377,019,444.4+251,197=377,270,641.4 kWh.
2. 2019: 377,019,444.4+1,097,442=378,116,886.4 kWh.
3. In the UK, the Company rents serviced office space. The owner of the premises in which the Company rents space does not collect the data required to be reported.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 49
Strategic report Risk management
Risk management
The Group continuously
develops its risk
management system in
order to ensure it remains
in line with best practice
in achieving the primary
purpose of managing,
monitoring and reporting
on the risks that may impact
achievement of the Group’s
strategic objectives, whilst
maintaining compliance
with applicable regulatory
requirements.
In 2020, the processes related to risk
management and internal control systems
were consistent with the UK Corporate
Governance Code and FRC Guidance on
Risk Management, Internal Control and
Related Financial and Business Reporting
issued in September 2014.
Environmental, social and
governance (ESG) matters
ESG matters form an integral part of the
areas covered by the Group’s systems of
risk management and internal controls,
and the Board recognises their significance
and importance. Identified ESG risks
and related responses can be seen
within Operational, Climate Change and
Other risks in the “Principal risks and
uncertainties” disclosure on pages 52 – 55.
The Board receives appropriate information
for managing such risks. Management is
responsible for ensuring that systems of
risk management and internal control are
in place to effectively manage and monitor
energy risks and other ESG matters. More
detailed disclosure on the established
policies and procedures in these areas
can be found in the Sustainability review
starting on page 36.
Changes from prior-year risk
assessment
In 2020, the principal risks and uncertainties
managed and monitored by the Board and
senior management included most of the
risks for 2019 and for which the related risk
assessments did not change significantly. In
addition, the impact of COVID-19 became
a key focus for the Board and management
during 2020.
Risk management framework
Under the UK Corporate Governance
Code, the Board is responsible for
determining the nature and extent of
the significant risks it is willing to take in
achieving its strategic objectives. The
Board should maintain a sound system
of risk management and internal control
systems.
Therefore the Board, supported by the
Audit Committee and senior management,
has ultimate responsibility for risk
management and internal control, including
responsibility for the determination of the
nature and extent of the principal risks it
is willing to take to achieve its strategic
objectives, and for ensuring that an
appropriate risk-awareness culture has
been embedded throughout the Group.
The principal risks and uncertainties, which
are managed and monitored at Board
level, are supported by the risks, which
are identified, managed and reported by
senior management. Risks are inherent
in the various business functions within
the Group and have, therefore, been
categorised as business function risks.
The members of the Senior Management
Team have overall responsibility for
managing the business function risks
relevant to their functional responsibility,
but delegate such responsibilities to
various heads of business sub-functions.
The identified risks are then aggregated
and categorised into the following risk
categories: strategic, operational,
financial, compliance and other.
Based on these risk registers, related
analysis and discussions, senior
management and the Board periodically
review previously identified significant risks,
update their likelihood of occurrence and
potential impact, and identify potential new
significant risks emerging as a result of the
changing environment. These significant
risks are discussed in more detail below
in the Principal Risks and Uncertainties
section.
50 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Risk management framework
Strategic goals/KPIs
Reports
Risk universe
Roles and responsibilities (The Three Lines of Defence)
Principal risks
and uncertainties
Board (supported by Audit Committee)
Risks
Senior management team
1st line of defence
2nd line of defence
3rd line of defence
Business function
risks
Heads of
business
sub-functions
Risk management
Compliance, QHSE,
Security, Controlling
Internal audit
Risk management process
1. Risk identification
2. Risk assessment
3. Risk response (tolerate, treat, transfer, terminate)
4. Resourcing controls
5. Reaction planning
6.
Reporting
and monitoring
7.
Reviewing risk
management
framework
The Board oversees the design and
implementation of systems of risk
management and internal control
and manages and reports on
principal risks.
The senior management team
supports the Board in its oversight
and monitoring role, and perform
management and reporting on
the level of Director’s risks.
Heads of business functions, being
the 1st line of defence, own and
manage operational risks related
to their respective area of activity.
2nd line of defence has a general
oversight function to ensure that the
risk management practices followed
are effective.
Internal audit, acting as the 3rd line
of defence, provides independent
assurance over the effectiveness of
the systems of risk management
and internal control.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 51
Strategic report Principal risks and uncertainties
Principal risks and
uncertainties
Description of risk
Strategic risks
Business and market environment
Risk management
The Group is exposed to various risks related to the market and
external business environment, which are out of the Group’s control.
Such risks include:
The Group can transport its crude oil either via rail or pipeline and is selling
the majority of its dry gas under a contract referencing export prices which
are usually substantially higher than domestic prices.
• The volatility of commodity prices on the markets;
• The geopolitical and regional situation affecting the Group’s areas of
operations; and
• Changes in currency exchange rates.
Given that the Group’s sales prices of its products are based directly or
indirectly on international market prices, the Group’s future earnings are
exposed to any adverse impact of changes in the market price of crude oil.
Crude oil prices are influenced by factors such as OPEC actions, political
events and supply and demand fundamentals.
These risks have been accentuated in 2020 through the impact of COVID-19.
OPEC actions in early 2020, together with the uncertainty over the future
demand for oil as a result of COVID-19, resulted in a significant fall in the
price of oil at the beginning of the year. Although the price recovered
towards the end of 2020, continued depressed demand for oil and gas as a
result of successive measures to control the spread of COVID-19 continues
to act as a drag on the price of oil and gas.
Further volatility could be caused by the ongoing impact that COVID-19
is having on the demand for oil and gas globally. The Group could also
be compelled by governmental authorities, purportedly acting based on
Kazakh legislation, to sell its gas domestically at prices determined by the
Kazakh Government, which could be significantly lower than prices which
the Group could otherwise achieve.
The Group’s strategy and business model are not directly influenced
by any significant risk resulting from Brexit.
Strategic development initiatives
To mitigate the geopolitical, regional and customer risks, the Group continues
to strengthen customer relationships through establishing long‐term off‐take
agreements whilst also looking at possibilities to geographically diversify its
customer portfolio.
In early 2020, given the uncertainties caused by a low oil price environment,
the Group took prudent, mitigating actions to protect liquidity. These
included cancelling uncommitted capital expenditures and assessment and
identifying reductions in operating costs, general and administration and
selling and transportation costs that could be implemented without having a
negative impact on production or operations in the “going concern” period.
These actions continue and as a result the Group is now able to withstand
a period of prolonged low oil prices. Also, senior management constantly
monitors the Group’s exposure to foreign currency exchange rate changes
and makes plans for necessary measures.
The Group engaged with its bondholders in 2020 regarding a possible
restructuring of its outstanding bonds. The Group will require its level of debt
to be reduced to a sustainable level. Work continues towards this objective
with all stakeholders. However, the negotiations are not yet finalised and so
the outcome is uncertain and, to a large extent, outside the control of the
Group.
The activities in the Chinarevskoye oil and gas condensate field are
currently the Group’s sole source of revenue. In addition, the Group in 2019
commissioned additional processing facilities which were constructed
in anticipation of future production that the Group has not been able to
achieve, and so the Group now has significant excess processing capability
in its world-class facilities.
Therefore, the Group is at significant risk of not being able to meet
shareholder expectations in the event of, for instance, natural disaster,
facilities damage from accidents, crisis and other political influences as
further described below.
At the end of 2019 the Board concluded that further drilling of the
Chinarevskoye field was not cost-beneficial until the identified reservoir risks
had been mitigated. Accordingly, attention turned to sourcing feedstock from
alternative sources and repositioning the Group as a mid stream company
with some production and possible upside reserve potential.
The Group signed agreements with Ural Oil & Gas LLP in 2018 for the
purchase of gas and processing of condensate from the Rozhkovskoye field
for a period of four years commencing July 2024. In 2020, efforts continued to
advance discussions with other third parties interested in supplying raw gas to
completely fill the spare processing capacity.
Diversification of its sources of feedstock to the processing facilities is
considered by the Group to be a way to reduce this risk whilst also providing
the Group with an opportunity to gain from expanding the use of available
capacities, technological resources and human capital.
The Group’s strategic initiatives towards diversification of its sources of
feedstock are subject to the customary risks related to counter party delays
and non-completion.
In addition, the Group’s strategic initiatives, as well as certain other ordinary
activities, are subject to the risk that terms of the transactions with related
parties may deviate from market terms, as well as associated risks related to
the disclosure of such transactions.
52 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Description of risk
Operational risks
Oil and gas reserves and operations
Oil and gas reserves estimation, exploration, development and production
are accompanied by typical risks inherent to activities in this industry, which
may adversely affect the Group’s financial performance and achievement of
strategic objectives.
Estimation of oil and gas reserves requires exercise of judgement owing to
the inherent uncertainty in any oil and gas field. There are also uncertainties
and risks related to a field’s geological structure and choice of development
methods to maximise reservoir performance. Hence, there are a number of
risks that may lead to a deviation of production volumes from estimated and
projected volumes.
At the end of 2019 the Board concluded that further drilling of the
Chinarevskoye field was not cost-beneficial until the identified reservoir
risks had been mitigated. A successful well workover and intervention
programme was completed in 2020 which reduced the rate of decline
of production in the year. A similar programme is proposed for 2021. In
addition, a low-pressure system, introduced in 2019 and expanded in 2020,
continues to allow production from wells that would otherwise require to be
shut in.
Well workover activities, as well as construction, operation and maintenance
of surface facilities, are subject to various risks, including the availability of
adequate services, technologies and expertise, which may adversely affect
the fulfilment of the Group’s strategic objectives.
Health, safety and the environment
Relevant health, safety and environmental risks are considered to be one of
the key areas of focus in terms of risk management. The Group faces typical
health, safety and environmental risks in the oil and gas industry, including
risks related to gas flaring, waste management, environmental pollution,
fires and explosions at facilities, and transportation accidents.
In 2020, COVID-19 was of the utmost concern. Actions were taken to protect
the safety of all staff and contractors and mitigate any impact on operations.
No people or production were lost in 2020 as a result of COVID-19.
These risks, should they crystallise, may have a broad range of results,
including, but not limited to, injury of employees or local residents, pollution
of the local environment and consequent regulatory actions, legal liabilities
and/or business interruption and consequential impact on financial
performance.
It should also be noted that the legal framework for environmental
protection and operational safety is not yet fully developed in Kazakhstan
and, given the changing nature of environmental regulations, there is a risk
that the Group will not be in full compliance with all such regulations at
all times.
Risk management
The Group has a department of highly skilled geologists who perform periodic
assessments of the oil and gas reserves in accordance with international
standards on reserve estimations, and prepare production forecasting using
advanced exploration risk and resource assessment systems. The results of
the assessments are audited by the Group’s independent reserves consultant,
Ryder Scott.
For well workover activities, the Group engages highly skilled personnel and
leading service suppliers, as well as employing internationally accredited
operations and cost monitoring systems, based on which management
oversees the work progress.
Maintenance of the wells and surface facilities is scheduled in advance, in
accordance with technical requirements, and all necessary preparations are
performed in a timely manner ensuring a high quality of work. In addition,
the Group has emergency response and disaster recovery plans in place
and periodically conducts necessary training and testing procedures.
KPIs in place to monitor risk management in operations included completion
of the construction of a further low-pressure system to prolong the life of
ageing gas-condensate wells and production targets.
Extensive measures were put in place to protect the safety of employees and
contractors and mitigate the impact on operations arising from COVID-19.
These included:
• Testing of all personnel prior to being transferred to the field;
• Regular temperature checks whilst at the field site;
• Isolation and testing of any employees and contractors identified as being
in contact with individuals tested as positive for COVID-19;
• Strict enforcement of maximum personnel quotas in our office in Uralsk
as determined by official local and Kazakhstan national directives; and
• Remote working for all London office personnel from March 2020.
More generally, the Group’s QHSE policies are periodically revised to ensure
compliance with changes and new requirements in this area. Periodic training
on the requirements of policies and regulations are held for employees.
In addition, at the supplier selection and contracting stage, the Group
places a high degree of importance on a supplier’s resources and ability
to comply with the Group’s QHSE requirements; while, subsequently the
Group’s dedicated team in this area conducts supplier audits. Key indicators
such as GHG emissions, lost time injuries, waste management, water and
soil pollution rates, etc., as well as progress of work, are reported to senior
management on a monthly basis.
The Group is working towards full compliance with ISO 14001 Environmental
Management Systems, ISO 45001 Occupational Health & Safety Management
Systems and ISO 50001 Energy Management Systems. The Group also
regularly engages an independent auditor to conduct HSE audits, to monitor
its compliance and best practice in this area, and takes all necessary measures
arising from the audit recommendations.
The Group also operates a Health, Safety, Environment and Communities
Committee. Staff are actively encouraged to submit Hazard Observation Cards.
The Group’s efforts are aimed to be in line with its peers.
KPIs in place to monitor risk management in QHSE include lost time injury
frequency, total recordable injury frequency and numbers of Hazard
Observation Cards submitted.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 53
Strategic report Principal risks and uncertainties continued
Description of risk
Compliance risks
Subsoil use agreements
As the Group performs exploration, development and production activities
in accordance with related licences for the oil and gas fields, there are
related risks that the Group might not be able to obtain extensions when
necessary, risks of non-compliance with the licence requirements owing to
ambiguities, risks of alteration of the licence terms by the authorities and
others. These risks may result in the Group’s inability to fulfil scheduled
activities; fines, penalties, suspension or termination of licences by
authorities; and, respectively, significant and adverse impact on the Group’s
business, financial performance and prospects.
Compliance with laws and regulations
The Group carries out its activities in a number of jurisdictions and,
therefore, must comply with a range of laws and regulations, which exposes
the Group to the respective risks of non-compliance. In addition, the
Group must comply with the Listing Rules, the Disclosure Guidance and
Transparency Rules, FRC guidance and requirements, as well as KASE
and bond indenture requirements, in light of its publicly traded shares
and notes. Hence, there are non-compliance risks, including reputational,
litigation and government sanction risks, to which the Group is exposed.
The impact of these risks may vary in magnitude and include regulatory
actions, fines and penalties by authorities, diversion of management time,
and may have an overall adverse effect on the Group’s performance and
activities towards achieving its strategic objectives.
Financial risks
Liquidity risks
Forecasting to maintain an adequate liquidity position is subject to the
risk that inaccurate information or assumptions are used for the forecasts,
and to risks of counterparty delay or a counterparty’s failure to meet their
contractual obligations owing to severe market conditions. The actions
of OPEC in 2020, augmented by the impact of COVID-19, highlight these
risks, and have contributed to significant commodity price volatility in 2020.
Significant negative movement in world energy prices could result in the
Group’s liquidity position becoming more strained than the severe but
plausible downside scenario in the Going Concern assessment.
Refinancing risk
The Group has US$1.25bn of debt outstanding, US$725m of which matures
in July 2022. In March 2020, the Group announced that it was appointing
advisers to engage with bondholders and other stakeholders to restructure
the debt. On 23 October 2020, the Group announced that it has entered
into a Forbearance Agreement with an informal ad-hoc committee of
noteholders.
The ability of the Group to refinance the outstanding debt represents a
material uncertainty. There is a significant risk that the Group will not be able
to refinance the bonds which will negatively impact the Group’s ability to
continue as a going concern.
Tax risks and uncertainties
The uncertainty of application, including retroactive application, of tax laws
and the evolution of tax laws in Kazakhstan create risks related to additional
tax liabilities from assessments and risks related to the recoverability of
tax assets. Tax risks and uncertainties may adversely affect the Group’s
profitability, liquidity and planned growth.
Risk management
The Group has procedures and processes in place for the timely application
for extension of licence periods when it is considered appropriate however,
uncertainty remains in relation to timing and results of decisions of authorities.
The Group maintains an open dialogue with Kazakh governmental authorities
regarding all of its subsoil use agreements. In the event of non‐compliance
with a provision of any such agreement, the Group endeavours to have such
terms modified and pays any penalties and fines that may apply.
For the purpose of compliance with laws, regulations and rules, the Group has
adopted a number of policies including a code of conduct, inside information
and disclosure policy, related party transactions policy, code for dealing in
securities, Anti-Corruption and Bribery Policy, a Whistle-Blowing Policy and a
Human Rights Policy. The Group also performs periodic updates based on the
changes in regulatory requirements and carries out related communications
and training for employees.
Necessary communication lines are established with authorities to
ensure timely and adequate inbound and outbound flow of information.
Management and the Board monitor significant matters related to legal and
compliance matters in order to act promptly in response to any actions.
The Group continuously monitors its compliance with its policies on the level
of authorisations for transactions. In addition, the management maintains an
open dialogue with its sponsors in relation to any matter related to non-
compliance with Listing Rules and other regulatory requirements.
Management and the Board constantly monitor the Group’s liquidity position,
forecasts and key financial ratios to ensure that sufficient funds are available to
meet any commitments as they arise.
KPIs in place in 2020 to monitor risk management in Finance included managing
G&A and operational costs below $63 million in total. For 2021, the combined
total is reduced to below $43.4 million.
Successful restructuring of the Group’s outstanding debt is the premier focus
of the Board and Senior Management Team.
The Group will require the level of debt to be reduced to a sustainable level.
Work continues towards this objective with all stakeholders. However, the
negotiations are not yet finalised and so the outcome is uncertain and, to a
large extent, outside the control of the Group.
The Board has established a KPI to complete the restructuring with all
approvals by the end of 2021.
The Group has policies and procedures related to various tax assessments
and positions, as well as other control activities to ensure the timely
assessment and filing of tax returns, payment of tax obligations and recovery
of tax assets.
The Group regularly challenges, either with the Kazakh tax authorities or
through the Kazakh courts, tax assessments that it believes are inapplicable to
it, pursuant to the terms of either its subsoil use agreements or applicable law.
54 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Description of risk
Climate change risks
Climate change
Climate change risks are those stemming from, for example, more intense
extreme weather events, rising energy intensity in the oil and gas industry,
the changing regulatory landscape, the risk of fugitive emissions and
climate change policies driving down the demand.
The risk of more intense extreme weather events, for example, may lead to
the following sub-risks:
• Risks of reduced asset operation;
• Risks of higher insurance premiums;
• Risks of higher fuel prices; and
• Risks of disruptions to supply chains.
Other risks
Other significant risks
Other risks are those that are not specifically identified within any of the
principal risks and uncertainties but may be related to several such areas or
be organisation wide. These include risks related to:
• Fraudulent activities;
• Cyber security;
• The Group’s supply chains;
• Accounting and reporting management systems; or
• The availability of human resources.
They may also significantly impact the Group’s financial performance,
reputation and achievement of its strategic objectives.
Risk management
The Group actively plans and manages projects designed to mitigate certain
climate change-related risks.
In operations there is a permanent effort and commitment improve energy
efficiency and to reduce flaring, venting and leaks.
At campsite, most of the water the Group utilises now is recycled.
Climate change is on the Board’s agenda. The Senior Management Team
actively evaluates opportunities to further adapt and implement cost-effective
mitigation measures.
The Group has an Anti-Bribery and Corruption Policy, and provisions relating
to the same are included in the Group’s Code of Conduct. Related training
and updates are periodically provided for employees in relation to their
obligations in this area. No such training took place in 2020.
No risk assessment took place in 2020 in relation to risks of bribery
and corruption.
As part of the Risk Management function, a cyber security capability is being
developed drawing on the knowledge and experience of the existing ICT
team.
The Group has a wide range of internal controls over its supply chains
and accounting and reporting processes, including policies, procedures,
segregation of duties for authorisation of matters, periodic training for
employees, etc.
Senior management and the Board stay alert to emerging challenges related
to various management systems and related governance matters and, when
necessary, initiate change initiatives to ensure enhancement and integration
of certain management systems.
The risks listed above do not comprise all those associated with the Group’s business and are not set out in any order of priority.
Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an
adverse effect on the Group’s business. The risks listed above are continuously monitored by the management team and assessed when
making business decisions.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 55
Strategic report Viability statement
Viability statement
The Group’s viability assessment is built
through integration of the principal risks
and uncertainties (described on pages
52 – 55) into a financial model based on
the elements of corporate planning and
modelling process, which includes:
• Medium-term development planning
(described on pages 32 – 33) based on
three-year financial projections, using the
Proven Developed Reserves, as audited
by Ryder Scott, for forecast production.
No third-party volumes have been
included in the Viability assessment as
there is currently no certainty they will
arrive prior to the end of 2023; and
• Annual budgeting and forecasting
process incorporating preparation of
an annual budget for the following year,
which is reviewed and approved by the
Board, and followed up with quarterly
forecasts, which are monitored by senior
management and the Board.
This viability assessment also takes into
account the requirements of principle
N provision 31 of the UK Corporate
Governance Code 2018.
In preparing this viability assessment,
the Board has assumed that the Group’s
US$725 million 8.0% Senior Notes due July
2022 and its US$400 million 7.0% Senior
Notes due February 2025 (Notes) are
restructured, as described in the basis of
preparation note on page 130. The Board
highlights that the material uncertainties
referred to in respect of the Going Concern
assessment may cast significant doubt over
the future viability of the Group.
In March 2020, following the collapse in
the oil price, the Group announced that it
would seek to engage with its bondholders
regarding a possible restructuring of the
Notes.
In May 2020, the Group appointed
Rothschild & Cie as financial adviser and
White & Case as legal adviser in this
connection, and in July 2020 announced
that it planned to utilise the applicable
grace periods with respect to the Notes
for the interest payments due on 25 July
and 16 August 2020. The 30-day grace
period was to allow the Company to
continue active discussions with the
financial and legal advisers to an informal
ad-hoc committee of noteholders (AHG)
with a view to entering into a forbearance
agreement with the holders of the Notes
in relation to those interest payments.
On 23 October 2020, the Company
announced that, together with certain
of its subsidiaries (Notes Parties), it had
entered into a forbearance agreement with
members of the AHG.
Pursuant to the Forbearance Agreement,
members of the AHG have agreed to
forbear from the exercise of certain rights
and remedies that they have under the
indentures governing the Notes. The
agreed forbearances include agreeing not
to accelerate the Notes’ obligations as a
result of the missed interest payments (or
the next missed interest periods if they
occur prior to the expiry of the Forbearance
Agreement).
The Forbearance Agreement is subject to
certain conditions, including:
• Any representation or warranty made
by any of the Note Parties under the
Forbearance Agreement continuing to be
true and complete in all material respects
as of the date of the Forbearance
Agreement;
• The opening of a secured account
into which a portion of the missed
interest payments was paid. At the
date of this Annual Report, the full
amount of US$21,541,990 required by
the Forbearance Agreement has been
transferred into secured account and is
treated as restricted cash. The amount
transferred as at 31 December 2020 was
US$12,900,000;
• The appointment by the AHG of an
observer who shall be entitled to attend
and speak, but not vote, at any meetings
of the Board or Committees of the
Company where certain defined matters
are to be discussed;
• The engagement of certain professional
and technical advisors on behalf of the
AHG;
• The observance by the Company and
its subsidiaries of certain operating and
other restrictions and limitations; and
• The provision of certain financial and
operating information to the advisors of
the AHG.
The company agreed to pay, or procure
payment of, certain consent fees in cash
(Consent Fee) to each forbearing holder.
The Consent Fees were payable by
reference to the total aggregate principal
amount of the Notes outstanding. The first
Consent fee for the first 90 days of 29.7866
basis points, totalling US$3,350,992, was
paid on 19 November 2020. The second
Consent Fee for 60 days of 19.8577 bps,
totalling US$2,233,991, was paid on
22 December 2020. The final consent
fee for 30 days of 9.9288 bps, equating to
US$1,116,990, was paid subsequent to the
year end on 20 February 2021. On each
occasion, consent fees were paid to all of the
total bondholders who agreed to forbear,
equating to approximately 90% by value
of each series of Notes and evidencing
an engaged and supportive creditor
group. Further details of the forbearance
agreement are disclosed in Note 1 to the
consolidated financial statements.
On 19 March 2021, by unanimous consent
of the AHG, the forbearance period was
extended to 20 April 2021. On 20 April
2021, again by unanimous consent of the
AHG, the forbearance period was extended
to 20 May 2021.
Whilst the Group remains confident that
agreement can be reached, the results
of the discussions with bondholders,
shareholders and the Government of the
Republic of Kazakhstan to restructure
the Notes, and the applications to obtain
requisite approvals and consents have
not yet concluded and so the outcome
is uncertain and outside of the Group’s
control. The main uncertainties are:
• Agreement needs to be reached with the
AHG and then sufficient bondholders,
consistent with the preliminary
restructuring terms discussed with the
advisors to the AHG that is affordable for
the Group and reflecting the expectation
that the Group’s debt will be foregone
materially, and interest will be paid
partially in cash and partially rolled up
into the restructured debt. As part of
the agreement, it is likely that additional
equity will be issued to bondholders,
significantly diluting the interests of the
current equity holders. Should the Group
be unable to reach an agreement with
the AHG by the end of the forbearance
period, then bondholders may seek
to enforce their rights under the bond
indentures, including accelerating the
Notes’ obligations as a result of the
missed interest payments;
• If agreement is reached with the AHG and
then sufficient bondholders, the Group
may then need to obtain permission
for the proposed restructuring from its
shareholders and will need to obtain
permission for the restructuring and
secure a waiver from the Government of
the Republic of Kazakhstan. If agreement
is reached with the bondholders but the
Group is unable to obtain the necessary
approvals and waivers, then the
agreement with bondholders may
not be implementable.
56 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Considering the uncertainties inherent
to the Group’s operations as well as the
medium-term development planning
mentioned above, the Board concluded
that a viability assessment over a three-
year period provides a robust and realistic
evaluation of Group’s future performance.
Importantly, the three-year period takes
into account the significant refinancing risk
noted above and the impact of the near-
term reduction in the reserves following
the 2020 year-end audit of proved and
probable reserves. With this approach
the Board continues to believe that the
assessment:
• Improves the optimal balance between a
reasonable degree of confidence and an
appropriate longer-term outlook;
• Is aligned with medium-term
development planning mentioned above;
• Is consistent with other current and/or
recent communications (e.g. production
forecasts etc.); and
• Is appropriate for the current stage of
development of the Group and gives
an opportunity to reasonably assess
sensitivity of the Group’s performance to
principal risks during the period where
the Group looks to work on implementing
its major strategic objectives (described
on pages 52 – 55).
For the purpose of our viability assessment
a three-year financial model was used as a
base-case scenario reflecting the following:
• The assumed restructuring of the Notes
being agreed with the AHG and then
sufficient bondholders consistent with
the preliminary restructuring terms
discussed with the advisors to the AHG.
• Production forecasts that are more
conservative than those used in the
impairment testing process as the proven
developed producing reserves were used
to take into account the risks to funding
the drilling programme under the proven
and probable production profiles; and
• Price assumptions used assume a Brent
oil price of $45/bbl, $50/bbl and $60/bbl,
for 2021, 2022, and 2023 respectively.
For the purpose of sensitivity testing,
several principal risks and uncertainties
were selected (from those described on
pages 52 – 55), which were deemed to have
the highest potential financial impact on
the Group’s future performance, taking
into account prior period assessments.
The effect of those principal risks and
uncertainties or their combination on the
base-case scenario were analysed within
following scenarios:
• Strategic risks, being a deterioration in
the business and market environment.
The forward curve for Brent oil is currently
broadly in line with the base-case
scenario used in the viability assessment.
Therefore, further scenarios were aimed
at analysing the sensitivity to a 10%
reduction in the oil prices and gas prices
over the period of assessment;
• Operational risks, principally around
the development of proven developed
producing reserves under which
scenario a further 10% reduction in
forecast production and sales volumes,
respectively, over the three-year period
was assumed;
• Liquidity risks, whereby the base-case
scenario assumes that the Group meets
the budgeted expenditures throughout
the period of assessment. Therefore, a
further scenario was considered whereby
costs increased by 10%;
• Compliance risks, where a scenario
considered an additional $15m per
annum in fines and penalties per annum,
not known at 31 December 2020, were
incurred by the Group over the period of
assessment; and
• Severe but plausible scenarios where a
combination of two or three of the risks
noted above occurred together.
The scenarios took into account the
availability and likely effectiveness of any
mitigating actions that might be required if
the Group was exposed in the near term to
downwards volatility and that are in place or
could be implemented to avoid or reduce
the impact or occurrence of the underlying
risks which would realistically be available
to the Group in such circumstances. In
considering the likely effectiveness of such
actions, the conclusions of the Board’s
regular monitoring and review of risk and
internal control systems were taken into
account.
The Directors have also considered any
additional risks to liquidity posed by
COVID-19 and Brexit.
In respect of COVID-19, oil and gas
production has been classified as an
essential business in Kazakhstan and
operations are continuing. Contingency
plans have been put in place both
to protect the workforce and ensure
that there are sufficient personnel to
continue operations. There was no loss of
production as a result of COVID-19 in 2020.
Therefore, the Directors have concluded
that there is currently no material impact on
the Group’s operations and liquidity at the
time of publication of this Annual Report
as a result of COVID-19. However, it is
recognized that there is uncertainty around
future developments of COVID 19 which
may affect the Group’s ability to deliver the
forecast production in future periods. This
uncertainty was assessed in our operational
risk scenario outlined above.
In terms of Brexit, the Company has limited
operations in the United Kingdom and
Europe and so any impact of Brexit is not
likely to be significant.
Considering the above, the following
conclusions can be drawn from the viability
assessment:
• In the event that the Group is able to
successfully restructure its debt to
an affordable level, the Group is not
exposed in the near term to downside
volatility if the Group’s strategic,
operational, liquidity or compliance risks
arise in isolation;
• In the event that the Group is able to
successfully restructure its debt to an
affordable level, but a combination of
the risks occur, then the Group is not
exposed in the near term to downside
volatility in the event that a combination
of any three of the four considered
scenarios arise;
• It is not plausible that all four risks would
arise together, since, in the event of the
strategic, operational and compliance
risks manifesting, the Group would take
mitigating actions to reduce costs and
manage liquidity and so the likelihood
of an increase in costs occurring
concurrently with the other three
scenarios is considered remote; and
• In the event that the Group is not able
to restructure its debt, then under all
reasonable assumptions the Group is
unable to meet its US$725m debt liability
due in July 2022;
Based on these assessments and other
matters considered by the Board during
the year, on the assumption that the Notes
are successfully restructured, the Directors
confirm that they have a reasonable
expectation that the Group will continue
in operation and meet its restructured
liabilities as they fall due through the
three-year viability assessment period
ending 31 December 2023. Nevertheless,
as highlighted above, the material
uncertainties referred to in respect of
the Going Concern assessment may cast
significant doubt over the future viability
of the Group.
This strategic report is approved by
the Board.
Martin Cocker
Interim Chief Financial Officer
27 April 2021
Arfan Khan
Chief Executive Officer
27 April 2021
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 57
Strategic report
Financial review
Financial review
Results of operations for the years ended 31 December 2020 and 2019
The table below sets forth the line items of the Group’s consolidated statement of comprehensive income for the years ended
31 December 2020 and 2019 in US Dollars and as a percentage of revenue.
In thousands of US Dollars
2020 % of revenue
2019 % of revenue
Revenue
Cost of sales
Gross profit
General and administrative expenses
Selling and transportation expenses
Taxes other than income tax
Finance costs
Employee share options − fair value adjustment
Impairment charge
Foreign exchange (loss)/gain, net
Interest income
Other income
Other expenses
Loss before income tax
Income tax (expense)/benefit
Loss for the year
Other comprehensive (loss)/income
Total comprehensive loss for the year
175,939
100.0%
322,128
(125,392)
-71.3%
(172,002)
50,547
(14,671)
(31,037)
(14,113)
(102,067)
496
28.7%
-8.3%
-17.6%
-8.0%
-58.0%
0.3%
150,126
(21,399)
(45,875)
(22,886)
(43,047)
(584)
100.0%
-53.4%
46.6%
-6.6%
-14.2%
-7.1%
-13.4%
-0.2%
(244,923)
-139.2% (1,354,651)
-420.5%
(1,827)
253
4,757
(7,606)
-1.0%
0.1%
2.7%
-4.3%
361
86
7,210
(12,490)
(360,191)
-204.7% (1,343,149)
32,766
18.6%
353,222
(327,425)
-186.1%
(989,927)
253
0.1%
211
0.1%
0.0%
2.2%
-3.9%
-417.0%
109.7%
-307.3%
0.1%
(327,172)
-186.0%
(989,716)
-307.2%
General note
For the year ended 31 December 2020 (the reporting period) the total comprehensive loss amounted to US$327.2 million, a decrease in
loss of US$662.5 million from US$989.7 million for 2019. The decrease in total comprehensive loss is mainly driven by a lower impairment
charge on property, plant and equipment and lower cost of sales, which was offset by a corresponding lower amount of income tax
benefit, a decrease in revenue caused by a combination of a decrease in production and lower hydrocarbon prices, as well as an increase
in finance costs due to substantially lower capitalisation of the borrowing costs upon completion of GTU 3. These are explained in more
detail below.
As noted elsewhere in the Annual Report, the Group is currently in discussion with its bondholders and shareholders concerning the
possible restructuring of its US$725 million 8.0% Senior Notes due July 2022 and/or its US$400 million 7.0% Senior Notes due February
2025 (Notes). Interest on the Notes due in July and August 2020 was not paid. However, interest has been accrued in the financial
statements for the full year 2020. Interest on the Notes due in January and February 2021 was also not paid. It is possible that a successful
restructuring of the Notes may result in some or all of the unpaid interest being waived by the Noteholders.
Revenue
The Group’s revenue decreased by 45.4% to US$175.9 million for the reporting period (2019: US$322.1 million). This is mainly explained by
both the lower product prices and lower sales volumes derived from a decrease in production during 2020 as shown in the table below.
The average Brent crude oil price decreased by 32.7% from US$64.2/bbl during 2019 to US$43.2/bbl during the reporting period. The
decrease in sales volumes was driven by lower volumes of production during the year ended 31 December 2020 as compared to FY2019.
The pricing for all the Group’s crude oil, condensate and LPG is, directly or indirectly, related to the price of Brent crude oil.
Revenues from sales to the Group’s largest three customers amounted to US$118.9 million, US$29.7 million and US$7.4 million respectively
(2019: US$190.3 million, US$95.1 million and US$9.3 million).
58 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
The Group’s revenue breakdown by products and sales volumes for the reporting period and 2019 is presented below:
In thousands of US Dollars
Oil and gas condensate
Gas and LPG
Sulphur
Total revenue
Sales volumes (boe)
Average Brent crude oil price (US$/bbl)
2020
2019
Variance
Variance, %
123,861
52,078
−
196,176
125,947
5
(72,315)
(73,869)
(36.9)%
(58.7)%
(5)
(100.0)%
175,939
322,128
(146,189)
7,875,841
9,735,093
(1,859,252)
43.2
64.2
(21)
(45.4)%
(19.1)%
(32.7)%
The following table shows the Group’s revenue breakdown by export/domestic sales for the reporting period and 2019:
In thousands of US Dollars
Revenue from export sales
Revenue from domestic sales
Total
Cost of sales
In thousands of US Dollars
Depreciation, depletion and amortisation
Payroll and related taxes
Repair, maintenance and other services
Materials and supplies
Transportation services
Well workover costs
Environmental levies
Change in stock
Other
Total
2020
2019
Variance
Variance, %
140,843
35,096
175,939
218,511
103,617
322,128
(77,668)
(68,521)
(146,189)
(35.5)%
(66.1)%
(45.4)%
2020
2019
Variance
Variance, %
86,296
14,083
10,769
3,970
1,907
505
114
7,279
469
136,776
(50,480)
18,465
14,242
4,481
2,129
1,766
167
(4,382)
(3,473)
(511)
(222)
(1,261)
(53)
(36.9)%
(23.7)%
(24.4)%
(11.4)%
(10.4)%
(71.4)%
(31.7)%
(6,228)
13,507
(216.9)%
204
265
129.9%
(27.1)%
125,392
172,002
(46,610)
Cost of sales decreased by 27.1% to US$125.4 million for the reporting period (2019: US$172.0 million). On a barrel of oil equivalent (boe)
basis, cost of sales, excluding the impact of changes in stock, decreased by US$1.75 from US$17.67 in 2019 to US$15.92 for the reporting
period, while cost of sales, excluding changes in stock and depreciation, decreased by US$0.08 boe to US$3.91 in the reporting period
(2019: US$3.98).
The main components of the decrease in cost of sales are:
Depreciation, depletion and amortisation decreased by 36.9% to US$86.3 million for the reporting period (2019: US$136.8 million).
Depreciation is calculated applying the units of production method. The decrease in depreciation in 2020 in comparison with the prior
period is a consequence of the impairment charge recognised as at 31 December 2019, which substantially reduced the depreciable asset
base from 1 January 2020. This has been offset, in part, by the increase in the ratio of the production volumes to the Proven Developed
Reserves, which increases the charge per barrel of oil produced, and also by a full year’s depreciation change in 2020 on the GTU 3 which
was put into operation in Q4 2019.
Payroll and related taxes have decreased by 23.7% from US$18.5 million in 2019 to US$14.0 million for 2020. This reflects the reduction
in headcount, particularly expatriate employees based in Kazakhstan and St Petersburg, as part of the Group’s cost-rationalisation
programme.
Repair, maintenance and other services decreased by 24.4% from US$14.1 million to US$10.8 million for the reporting period. These
expenses include the costs of repair and maintenance services on the facilities, specifically the gas treatment facility, as well as related
spare parts and other materials. These costs fluctuate depending on the timing of the periodic scheduled maintenance works. However,
most of the reduction is derived from cost optimisation efforts by the Group that were initiated in Q1 2020 and ran throughout the year.
Transportation services decreased by 10.4% to US$1.9 million for the reporting period (2019: US$2.1 million), again resulting from cost
optimisation efforts by the Group.
Well workover costs decreased by 71.4% to US$0.5 million for the reporting period (2019: US$1.8 million), primarily driven by the limited
well workover campaign during 2020 along with the halting of the drilling programme.
Change in stock for the year mainly represents the movement in oil and condensate inventories. The charge for 2020 is as a result of a
build-up of oil and condensate inventories as at 31 December 2019 which were then sold during 2020. There was no comparable build-up
of inventory as at December 31 2020.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 59
Strategic report Financial review continued
General and administrative expenses
In thousands of US Dollars
Payroll and related taxes
Professional services
Insurance fees
Depreciation and amortisation
Short-term leases
Communication
Materials and supplies
Business travel
Bank charges
Other
Total
2020
7,102
4,655
633
600
567
183
139
128
95
569
14,671
2019
Variance
Variance, %
10,162
(3,060)
4,966
1,256
2,026
722
276
170
617
133
1,071
21,399
(311)
(623)
(1,426)
(155)
(93)
(31)
(489)
(43)
(502)
(6,728)
(30.1)%
(6.3)%
(49.6)%
(70.4)%
(21.5)%
(33.7)%
(18.2)%
(79.3)%
(32.3)%
(46.9)%
(31.4)%
General and administrative expenses decreased by 31.6% to US$14.7 million for the reporting period (2019: US$21.4 million). This
was mainly driven by a US$3.1 million or 30.1% decrease in payroll and related taxes from US$10.2 million for 2019 to US$7.1 million for
2020. This reflected a reduction in headcount as a result of the Group’s cost rationalisation programme. There were also decreases in
depreciation and amortisation, professional services, insurance fees and lease payments which were in part as a result of the reduction
in non-core activities, and decreases in business travel and office space as a result of the cost reduction programme and also the impacts
of COVID-19.
Selling and transportation expenses
In thousands of US Dollars
Transportation costs
Loading and storage costs
Marketing services
Depreciation
Payroll and related taxes
Other
Total
2020
2019
Variance
Variance, %
12,760
8,813
3,724
2,881
1,501
1,358
12,405
11,783
10,554
4,489
2,293
4,351
355
(2,970)
(6,830)
(1,608)
(792)
(2,993)
31,037
45,875
(14,838)
2.9%
(25.2)%
(64.7)%
(35.8)%
(34.5)%
(68.8)%
(32.3)%
Selling and transportation expenses decreased by 32.3% to US$31.0 million for the reporting period (2019: US$45.9 million), primarily
due to a decrease in loading and storage costs as a result of changes to more favourable delivery terms as well as a decrease in the
volumes sold, marketing services fees and other costs. Depreciation costs resulting from the recognition of right-of-use assets for
rented railway tank cars also decreased due to the reduction in the number of leased railway tank cars due to reduced volumes being
sent to market.
Taxes other than income tax
In thousands of US Dollars
Royalties
Export customs duty
Government profit share
Other taxes
Total
2020
7,016
5,017
2,044
36
2019
Variance
Variance, %
12,802
7,281
2,802
1
(5,786)
(2,264)
(758)
(45.2)%
(31.1)%
(27.1)%
35
3,500.0%
14,113
22,886
(8,773)
(38.3)%
Royalties, which are calculated based on production and market prices for the different products, decreased by 45.0% to US$ 7.0 million
for the reporting period (2019: US$12.8 million), which corresponds to the decrease in hydrocarbon revenues.
Export customs duty on crude oil decreased by US$2.3 million or 31.1% to US$5.0 million for the reporting period (2019: US$7.3 million),
mainly owing to the corresponding decrease in oil exports to former Soviet Union countries, which are not subject to export duties.
Government profit share decreased by US$0.8 million to US$2.0 million for the reporting period (2019: US$2.8 million), which
corresponds to the related decrease in hydrocarbon revenues.
Impairment charge
As a result of the further reserves downgrade and corresponding reflection of the updated future production profiles in the Group’s
impairment model, the Group recognised further non-cash impairment charges on oil & gas assets and exploration & evaluation assets in
the amounts of US$244.7 million and US$0.2 million respectively (FY 2019: US$1,272.0 million on oil & gas assets and US$50.5 million on
exploration & evaluation assets). Further details of impairment testing and assumptions used are disclosed in Note 4 to the consolidated
financial statements of the Group on page 133.
60 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Finance costs
In thousands of US Dollars
Interest expense on borrowings
Other finance costs
Unwinding of discount on amounts due to Government of Kazakhstan
Unwinding of discount on lease liability
Unwinding of discount on abandonment and site restoration provision
2020
2019
Variance
Variance, %
92,794
40,399
52,453
130.0%
7,968
793
354
158
294
821
1,369
164
7,615
2,157.2%
(27)
(1,015)
(6)
(3.3)%
(74.1)%
(3.7)%
137.1%
Total
102,067
43,047
59,020
Finance costs increased by US$59.0 million to US$102.1 million for the reporting period (2019: US$43.0 million) mainly due to a decrease
in the levels of finance costs being capitalised as part of the GTU 3 project, which was completed in Q4 2019. Finance costs for 2020
also include US$7.7 million incurred to date in respect of the restructuring process. These increases were slightly offset by a decrease
of US$1 million in finance charges for finance leases.
The Group is currently in discussion with its bondholders and shareholders concerning the possible restructuring of its Notes. Interest on
the Notes due in July and August 2020 was not paid. However, interest has been accrued in the financial statements for the full year 2020.
It is possible that a successful restructuring of the Notes may result in some or all of the unpaid interest being waived by the Noteholders.
Other
Other expenses decreased to US$7.6 million for the reporting period (2019: US$12.5 million), as a result of various non-recurring costs
related to business development and compensations incurred in 2019.
Income tax
Income tax benefit amounted to US$32.8 million for the reporting period, a decrease of US$320.4 million as compared to the prior year
(2019: US$353.2 million). Such a significant decrease in income tax benefit for the period corresponds to the related impairment charges
recognised as of 31 December 2019 and 31 December 2020 with respective derecognition of deferred tax liabilities.
Liquidity and capital resources
During the period under review, Nostrum’s principal source of funds was cash from operations. Its liquidity requirements in the first half of
the year primarily related to meeting ongoing debt service obligations arising from the Notes. Following the decision to start negotiations
to restructure the Notes, the focus turned to preservation of cash by reducing capital expenditures and working capital requirements.
Cash flows
The following table sets forth the Group’s consolidated cash flow statement data for the reporting period and 2019:
In thousands of US Dollars
Cash and equivalents at the beginning of the period
Net cash flows from operating activities
Net cash used in investing activities
Net cash used in financing activities
Effects of exchange rate changes on cash and equivalents
Cash and equivalents at the end of the period
2020
2019
93,940
82,746
121,753
196,837
(40,101)
(120,990)
(58,431)
(103,709)
429
49
78,583
93,940
Net cash flow from operating activities
Net cash flow from operating activities was US$82.7 million for the reporting period (2019: US$196.8 million) and was primarily
attributable to:
• Loss before income tax for the reporting period of US$360.2 million (2019: US$1,343.1 million), adjusted by a non-cash charge for
depreciation, depletion and amortisation of US$89.8 million (2019: US$143.3 million), finance costs of US$102.1 million (2019: US$43.0
million), and impairment charge of US$244.9 million (2019: US$1,354.7 million);
• US$8.3 million increase in working capital (2019: US$12.6 million increase), which is primarily attributable to a decrease in trade
payables of US$9.2 million (2019: US$3.9 million increase), a decrease in inventory of US$7.0 million (2019: an increase of US$6.3 million),
an increase in trade receivables of US$17.7 million (2019: US$4.5 million increase), a decrease in other current liabilities of US$6.0
million (2019: US$ 6.0 million increase) and an increase in prepayments and other current assets of US$0.2 million (2019: US$5.5 million
increase); and
• Income tax paid of US$2.0 million (2019: US$5.5 million).
Net cash used in investing activities
Net cash used in investing activities for the reporting period was US$40.1 million (2019: US$121.0 million) due primarily to payment of
expenditures incurred in 2019 associated with drilling equipment and services of US$12.7 million for the reporting period (2019: US$56.7
million), the third gas treatment unit of US$4.4 million (2019: US$36.4 million) and the low-pressure system of US$2.8 million (2019: US$ nil),
together with a transfer to restricted cash of US$12.9 million as required by the Forbearance Agreement (2019: US$ nil).
Net cash used in financing activities
Net cash used in financing activities during the reporting period totalled US$58.4 million (2019: US$103.7 million), and was mainly
represented by the payment of US$43.0 million of the finance costs on the Group’s Notes (2019: US$86.0 million), US$5.1 million under
lease agreements (2019: US$14.9 million) and the payment of fees related to the Forbearance Agreement and restructuring negotiations
of US$10.0 million (2019: US$ nil).
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 61
Strategic report Financial review continued
Going concern
The Group monitors on an ongoing basis
its liquidity position, near-term forecasts
and key financial ratios to ensure that
sufficient funds are available to meet its
commitments as they arise and liabilities
as they fall due. In addition, since April
2020, the Group has performed monthly
sensitivity tests of its liquidity position for
changes in product prices, production
volumes and any other significant variables.
Whilst looking for new opportunities
to fill the spare capacity of the Group’s
infrastructure, the Directors are also
focused on a range of actions aimed
at improving the liquidity outlook in
the near-term. These include efforts to
restructure the Notes, as well as further
cost optimization to reduce capital
expenditures, operating costs and
general and administration cost.
The Directors have also considered any
additional risks to liquidity posed by
COVID-19. Oil and gas production has
been classified as an essential business in
Kazakhstan and operations are continuing.
Contingency plans have been put in place
both to protect the workforce and ensure
that there are sufficient personnel to
continue operations. There was no loss of
production as a result of COVID-19 in 2020.
Therefore, the Directors have concluded
that there is currently no material impact on
the Group’s operations and liquidity at the
time of publication of this Annual Report
and Accounts as a result of COVID-19.
However, it is recognized that there is
uncertainty around future developments
of COVID-19 which may affect the Group’s
ability to deliver the forecast production
over 2021 and early 2022.
In March 2020, following the collapse in
the oil price, the Group announced that it
would seek to engage with its bondholders
regarding a possible consensual
restructuring of the Notes.
In May 2020, the Group appointed a
financial adviser and a legal adviser in
connection with this, and in July 2020
announced that it planned to utilise the
applicable grace periods with respect to
the Notes for the interest payments due on
25 July and 16 August 2020. The 30-day
grace period was to allow the Company to
continue active discussions between the
financial and legal advisers and an informal
ad-hoc committee of noteholders (AHG)
with a view to entering into a forbearance
agreement with the holders of the Notes in
relation to those interest payments.
On 23 October 2020, the Company
announced that, together with certain
of its subsidiaries (Note Parties), it had
entered into a forbearance agreement
with members of the AHG.
Pursuant to the Forbearance Agreement,
members of the AHG have agreed to
forbear from the exercise of certain rights
and remedies that they have under the
indentures governing the Notes. The
agreed forbearances include agreeing not
to accelerate the Notes’ obligations as a
result of the missed interest payments (or
the next missed interest periods if they
occur prior to the expiry of the Forbearance
Agreement).
The Forbearance Agreement is subject
to certain conditions, including:
• Any representation or warranty made
by any of the Note Parties under the
Forbearance Agreement continuing to
be true and complete in all material
respects as of the date of the
Forbearance Agreement;
• The opening of a secured account
into which a portion of the missed
interest payments was paid. At the
date of this Annual Report, the full
amount of US$21,541,990 required by
the Forbearance Agreement has been
transferred into secured account and is
treated as restricted cash. The amount
transferred as at 31 December 2020 was
US$12,900,000;
• The appointment by the AHG of an
observer who shall be entitled to attend
and speak, but not vote, at any meetings
of the Board or Committees of the
Company where certain defined matters
are to be discussed;
• The engagement of certain professional
and technical advisors on behalf of
the AHG;
• The observance by the Company and
its subsidiaries of certain operating and
other restrictions and limitations; and
• The provision of certain financial and
operating information to the advisors
of the AHG.
The company agreed to pay, or procure
payment of, certain consent fees in cash
(Consent Fee) to each forbearing holder.
The Consent Fees were payable by
reference to the total aggregate principal
amount of the Notes outstanding. The first
Consent fee for the first 90 days of 29.7866
basis points, totalling US$3,350,992, was
paid on 19 November 2020. The second
Consent Fee of 19.8577 bps, totalling
US$2,233,991, was paid on 22 December
2020. The final consent fee of 9.9288
bps, equating to US$1,116,990, was paid
subsequent to the year end on 20 February
2021. On each occasion, consent fees
were paid to all of the total bondholders
who agreed to forbear, equating to
approximately 90% by value of each series
of the Notes and evidencing an engaged
and supportive creditor group. Further
details of the forbearance agreement are
disclosed in Note 1 to these consolidated
financial statements.
On 19 March 2021, by unanimous consent
of the AHG, the forbearance period was
extended to 20 April 2021. On 20 April
2021, again by unanimous consent of the
AHG, the forbearance period was extended
to 20 May 2021.
The extensions were to provide more time
for a lock-up and restructuring agreement
to be reached with bondholders and
potentially with other stakeholders. At the
time of publication of this Annual Report
and Accounts, negotiations with members
of the AHG continue. The final form of
the lock-up agreement and associated
restructuring agreement is anticipated to
be concluded by 20 May 2021. The key
terms relevant to the consideration of going
concern are that the debt will be forgone
materially and interest on the restructured
debt will partially be paid in cash and
partially rolled up into the debt. As part of
the agreement, it is likely that additional
equity will be issued to bondholders,
in which case significantly diluting the
interests of the current equity holders.
Whilst the Group remains confident that
agreement can be reached, the results
of the discussions with bondholders,
shareholders and the Government of the
Republic of Kazakhstan to restructure
the Notes, and the applications to obtain
requisite approvals and consents have
not yet concluded and so the outcome
is uncertain and outside of the Group’s
control.
The Directors’ going concern assessment
is supported by future cash flow forecasts.
The base case going concern assessment
reflects production forecasts consistent
with the Board approved plans and
published guidance and assumes a Brent
oil price of $45/bbl and $50/bbl, for 2021
and 2022, respectively. The forecast
financing cashflows assume that the Notes
are restructured in the form envisaged by
the current preliminary restructuring terms
discussed with the advisors to the AHG,
reflecting the terms outlined above.
Whilst the Group remains confident that
an agreement can be reached, the results
of the discussions with bondholders,
shareholders and the Government of the
Republic of Kazakhstan to restructure the
Notes have not yet concluded and so the
outcome is uncertain and outside of the
Group’s control. Therefore, in forming
an assessment on the Group’s ability to
continue as a going concern, the Board has
made significant assumptions about:
• A restructuring of the Notes being
agreed with the AHG and then
sufficient bondholders consistent with
the preliminary restructuring terms
discussed with the advisors to the AHG,
that is affordable for the Group through
the going concern period to 30 June
2022. Should the Group be unable to
62 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
reach an agreement with the AHG by
the end of the forbearance period,
then bondholders may seek to enforce
their rights under the bond indentures,
including accelerating the Notes’
obligations as a result of the missed
interest payments; and
• If agreement is reached with the AHG
and then sufficient bondholders, the
Group being able to obtain the necessary
permissions and waivers. Specifically, the
Group may need to obtain permission
for the proposed restructuring from its
shareholders and will need to obtain
permission for the restructuring and
secure a waiver from the Government of
the Republic of Kazakhstan. If agreement
is reached with the bondholders but the
Group is unable to obtain the necessary
approvals and waivers, then the
agreement with bondholders may not be
implementable.
These assumptions represent material
uncertainties that may cast significant
doubt on the Group’s ability to continue
as a going concern, for the going concern
period to 30 June 2022, being not less than
12 months from the date of this report.
After careful consideration of these material
uncertainties, and on the assumption that a
restructuring of the Notes to an affordable
level is completed, the Directors have a
reasonable expectation that the Group
has sufficient resources to continue in
operation for the going concern period to
30 June 2022, being a period of not less
than 12 months from the date of this report.
For these reasons, they continue to adopt
the going concern basis in preparing the
annual report and accounts. Accordingly,
the accompanying consolidated financial
statements do not include any adjustments
to the carrying amount or classification of
assets and liabilities that would result if
the Group were unable to continue as a
going concern.
Notwithstanding that the going concern
period has been defined as the period
to 30 June 2022, the Directors have
considered events and conditions beyond
the period of assessment which may cast
doubt on the Group’s ability to continue
as a going concern. The Directors draw
attention to the Viability Statement on
page 56 which highlights that the material
uncertainties referred to in respect of
the Going Concern assessment may cast
significant doubt over the future viability
of the Group. In the event that the Group
will be unable to successfully restructure
its Notes, then under all reasonable
assumptions the Group is unable to meet
its US$725m debt liability due in July 2022.
Commitments
Liquidity risk is the risk that the Group will encounter difficulty raising funds to meet commitments associated with its financial liabilities.
Liquidity requirements are monitored on a regular basis and management seeks to ensure that sufficient funds are available to meet any
commitments as they arise. The table below summarises the maturity profile of the Group’s financial liabilities as at 31 December 2020
based on contractual undiscounted payments:
As at 31 December 2020
Borrowings
Lease liabilities
Trade payables
Other current liabilities
On demand
Less than 3
months
1,203,633
43,000
–
760
7,774
16,491
–
–
Due to Government of Kazakhstan
–
258
43,000
2,279
728
–
773
1,227,898
44,018
46,780
–
40
–
–
–
–
–
–
Total
1,289,633
3,079
8,502
16,491
4,124
4,164
5,412
10,567
5,412
1,328,272
3-12 months
1-5 years
More than 5
years
As at 31 December 2019
Borrowings
Lease liabilities
Trade payables
Other current liabilities
Due to Government of Kazakhstan
On demand
Less than 3
months
3-12 months
1-5 years
More than 5
years
Total
–
43,000
43,000
953,000
414,000
1,453,000
6,735
21,685
30,286
–
641
–
–
258
–
5,953
–
773
–
–
–
–
–
–
4,124
6,443
7,376
27,638
30,286
11,598
58,706
43,899
49,726
957,124
420,443
1,529,898
Capital commitments
During the reporting period, Nostrum’s cash used in capital expenditures for purchase of property, plant and equipment (excluding VAT)
was approximately US$25.8 million (2019: US$114.8 million). This mainly reflects costs associated with the well workover/intervention
programme and other field infrastructure development projects (2019: the construction of the third gas treatment unit, drilling costs and
other field infrastructure development projects).
Gas treatment facility
Following the successful completion of the first phase of the gas treatment facility, consisting of two units, the Group achieved full
commissioning of a third unit during 2019. GTU 3 is being maintained in hot stand-by mode so that it may be quickly brought online
once there are sufficient hydrocarbons to fill its operating capacity.
Dividend policy
The Group currently pays no dividend and has not done so for the last three years, as the Board determined it was not in the Company’s
best interests to do so. This will be reviewed annually by the Board.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 63
Strategic report Five-year summary
Five-year summary
In millions of US$ (unless mentioned otherwise)
2020
2019
2018
2017
2016
EBITDA reconciliation
Profit before income tax
Add back
Finance costs
Impairment charge
Employee share options – fair value adjustment
Foreign exchange (loss)/gain, net
Gain/(loss) on derivative financial instrument
Interest income
Other expenses
Other income
Depreciation, depletion and amortisation1
(Purchase of)/proceeds from derivative financial instruments²
EBITDA
Operating costs reconciliation
Cost of sales
Less:
Depreciation, depletion and amortisation
Change in stock3
Operating costs
G&A reconciliation
(360.2)
(1,343.1)
(92.2)
26.0
(65.5)
102.1
244.9
43.0
1,354.7
(0.5)
1.8
–
(0.3)
7.6
(4.8)
89.8
–
80.4
0.6
(0.4)
–
(0.1)
12.5
(7.2)
143.3
(3.7)
199.6
49.4
150.0
(1.3)
1.0
12.4
(0.5)
8.5
(4.4)
117.1
(8.6)
231.3
59.8
–
(2.1)
0.7
6.7
(0.4)
22.0
(4.1)
123.0
–
231.6
41.7
–
(0.1)
0.4
63.2
(0.5)
(1.8)
(2.2)
131.6
27.2
194.0
125.4
172.0
165.1
177.2
182.2
(86.3)
(7.3)
31.8
(136.8)
6.2
41.4
(115.2)
(0.1)
49.8
(120.7)
(0.3)
56.3
(129.4)
(2.0)
50.7
General and administrative expenses
14.7
21.4
22.2
33.3
34.8
(0.6)
14.1
(2.0)
19.4
(1.9)
20.3
(2.3)
31.0
(2.2)
32.6
Adjusted for:
Depreciation and amortisation
G&A
Net debt reconciliation
Long-term borrowings
−
1,100.5
1,094.0
1,055.9
Current portion of long-term borrowings
1,186.3
35.6
35.6
31.6
Less:
Cash and cash equivalents
Net debt
Net cash flows from operating activities
Net cash used in investing activities
Net cash (used in)/from financing activities
78.6
93.9
121.8
1,107.7
1,042.2
1,007.8
82.7
(40.1)
(58.4)
196.8
(121.0)
(103.7)
214.0
(172.0)
(47.0)
127.0
960.5
181.5
(192.4)
34.6
942.8
15.2
101.1
856.9
206.4
(204.8)
(66.3)
EBITDA margin4
45.7%
61.9%
59.30%
57.10%
55.70%
Share price at end of period (US$)
Shares outstanding (‘000s)
Options outstanding (‘000s)
1. Depreciation as it applies to operating assets only.
0.10
0.22
1.03
4.41
4.75
188,183
188,183
188,183
188,183
188,183
3,432
3,432
3,432
3,333
2,536
2. Cash received from hedge contract represents the cash proceeds from the long-term hedging contract which in accordance with IAS 7 Statement of Cash Flows is
included within operating cash flows. While this item is not required to be presented in the Consolidated Income Statement, we have included this in our definition
of EBIT and EBITDA in order to better align these non-GAAP measures with our operating cash flows.
3. Due to materiality the change in stock was introduced in the opex reconciliation from 2019, and comparatives have been adjusted accordingly for consistency
purposes.
4. EBIDTA margin is calculated as EBITDA divided by total revenue.
64 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Alternative performance measures
In the discussion of the Group’s reported operating results, alternative performance measures (APMs) are presented to provide readers
with additional financial information that is regularly reviewed by management to assess the financial performance or financial health of
the Group, or is useful to investors and stakeholders to assess the Group’s performance and position. However, this additional information
presented is not uniformly defined by all companies including those in the Group’s industry. Accordingly, it may not be comparable
with similarly titled measures and disclosures by other companies. Certain information presented is derived from amounts calculated
in accordance with IFRS but is not itself an expressly permitted IFRS measure. Such measures should not be viewed in isolation or as an
alternative to the equivalent IFRS measure.
EBITDA
EBITDA is defined as the results of operating activities before depreciation and amortisation, share-based compensation, fair value
gains and losses on derivative instruments, foreign exchange losses, finance costs, finance income, and non-core income or expenses
and taxes, and includes any cash proceeds received or paid out from hedging activity. This metric is relevant as it allows management to
assess the operating performance of the Group in the absence of exceptional and non-cash items.
Operating costs
Operating costs are the cost of sales less depreciation, royalties and government profit share. This metric is relevant as it allows management
to see the cost base of the Company on a cash basis.
Martin Cocker
Interim Chief Financial Officer
27 April 2021
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 65
Strategic report Introduction to corporate governance
Executive Chairman’s overview
In 2020, the board and
management have primarily
focused on stabilising the
financial position of the
Group and restructuring
the Notes to secure its
future.
Dear shareholder,
As I noted in my Q&A section on pages
12 and 13 of this Annual Report, 2020 has
been a year of immense challenge for
Nostrum. Our strategic review process,
started in June 2019 with the assistance of
Goldman Sachs, did not result in any firm
proposals to acquire the business. Then
in early 2020 the oil price collapsed and
at the same time the enormity of the likely
impact of COVID‑19 started to become
apparent. Therefore in March 2020 the
board decided to end the strategic review
process and instead started a process to
engage with bondholders regarding a
possible restructuring of the Group’s Loan
Notes. As a result, much of the Board’s
and management’s effort and attention
in the remainder of 2020 was focused on
stabilising the financial position of the
Group and securing its future, whilst at the
same time ensuring that our employees
and contractors remained safe.
Therefore, our key priority tasks for 2020
became to:
• Focus on good financial discipline to
reduce costs and maintain liquidity,
which we achieved. Our cost base is
significantly reduced and our cash
balance at 31 December 2020 of US$91.5
million, including US$12.9 million
placed in a restricted account as part
of the Forbearance Agreement with
bondholders, is only slightly below that
as at the end of 2019, despite the collapse
in 2020 in the prices that we received for
our hydrocarbons;
• Reduce the rate of decline in the
Chinarevskoye field, which was achieved
by a targeted well workover and
intervention campaign conducted in
the spring and summer of 2020. As a
result, our volumes produced averaged
22,337 boepd against our guidance of
an average of 21,000 boepd;
• Ensure that our employees and
contractors remained protected against
the continued threat of COVID‑19, and
that our operations could continue
uninterrupted and to our expected high
safety levels. I am pleased to report that
we did not lose any employees or any
production due to COVID‑19;
• Continue to reduce the impact of our
operations on the environment. Our
GHG emissions fell by over 35,000 tonnes
versus 2019; and
• Continue the studies to identify viable
technologies to mitigate sub‑surface risk.
Although this has resulted in a further
reduction in our 2P reserves, we remain
hopeful that further studies and possibly
some limited drilling might result in some
of the resources classified as contingent
being reinstated within our 2P reserves.
Board changes
As I reported last year, on 16 December
2019 the Company mutually agreed with
Kai‑Uwe Kessel that he would step down
from the Board with effect from the same
date. Kai was succeeded by Kaat van Hecke
on an interim basis until September 2020
when, as planned, Kaat stepped down
and I assumed the role, as well as that of
Executive Chairman, until a new permanent
Chief Executive Officer was recruited. This
was achieved in January 2021 when Arfan
Khan joined the Group as Chief Executive
Officer and member of the Company’s
board of Directors. At this time, I resumed
my role as Executive Chairman.
Kaat rejoined the board as an independent
Non‑Executive Director in September 2020.
Effective 31 March 2020 Tom Richardson
resigned as a Director of the Company and
was succeeded by Martin Cocker on an
interim basis until a new permanent chief
financial officer is recruited. Martin had
served on the board as an independent
Non‑Executive Director since 16 November
2017. The recruitment process for a new
permanent chief financial officer was
started in March 2021.
No formal board evaluation was completed
in 2020. The board structure, membership
and skill set will be reviewed in 2021 at the
conclusion of the restructuring process.
Remuneration policy
The resolution put to shareholders at the
2020 Annual General Meeting relating to
Directors’ remuneration was a resolution
to approve the Directors’ annual report on
remuneration and, in accordance with the
UK Companies Act 2006, the resolution
was subject to an advisory vote.
At the 2021 Annual General Meeting, the
Directors’ remuneration report will be put
to shareholders for approval by way of an
advisory vote. No changes are proposed
to the Remuneration Policy and this Policy
will not be put to shareholders at the 2021
Annual General Meeting.
However, we will seek shareholder approval
for the purposes of section 226B(1)
(b) of the Companies Act 2006, for the
payment to the Company’s Chief Executive
Officer, Arfan Khan, of an annual bonus
of up to a maximum of 240% of base
compensation. In accordance with the Act,
a resolution to approve changes to the
Remuneration Policy will next be submitted
to shareholders for a binding vote at the
2022 Annual General Meeting.
For further information, please see the letter
from the Chairman of the Remuneration
Committee on pages 89 – 90.
Atul Gupta
Executive Chairman
27 April 2021
66 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Compliance with the Code
The UK Corporate Governance Code
(Code) issued by the Financial Reporting
Council in July 2018 sets out the
governance principles and provisions
that applied to the Company during
2020. A copy of the Code is available
from the Financial Reporting Council’s
website at www.frc.org.uk. The aim
of the corporate governance report
is to demonstrate how the principles
of the Code have been considered
and applied by the Company. The UK
Financial Reporting Council promotes
high‑quality corporate governance
and reporting through the 2018 UK
Corporate Governance Code with
which all companies with a premium
listing on the London Stock Exchange
are required to either comply in full, or
explain why, and to what extent, they do
not comply. This statement should be
read in conjunction with the Corporate
Governance section of this report
as a whole. The following headings
correspond to the headings in the Code.
Section 1: Board leadership and
company purpose
A successful company is led by an effective
and entrepreneurial Board, whose role
is to promote the long‑term sustainable
success of the company, generating value
for shareholders and contributing to wider
society. See pages 70 – 71.
The Board should establish the company’s
purpose, values and strategy, and satisfy
itself that these and its culture are aligned.
All directors must act with integrity, lead by
example and promote the desired culture.
See pages 41 – 42.
The Board should ensure that the
necessary resources are in place for
the company to meet its objectives and
measure performance against them. The
Board should also establish a framework
of prudent and effective controls, which
enable risk to be assessed and managed.
See page 50.
In order for the company to meet its
responsibilities to shareholders and
stakeholders, the Board should ensure
effective engagement with, and encourage
participation from, these parties. See pages
34 – 35 and 76 – 77.
The Board should ensure that workforce
policies and practices are consistent with
the company’s values and support its long‑
term sustainable success. The workforce
should be able to raise any matters of
concern. See pages 41 – 42.
Section 2: Division of
responsibilities
The chair leads the Board and is
responsible for its overall effectiveness
in directing the company. He or she
should demonstrate objective judgement
throughout their tenure and promote
a culture of openness and debate. In
addition, the chair facilitates constructive
Board relations and the effective contribution
of all non‑executive directors, and ensures
that directors receive accurate, timely and
clear information. See page 73.
The Board should include an appropriate
combination of executive and non‑
executive (and, in particular, independent
non‑executive) directors, such that no one
individual or small group of individuals
dominates the Board’s decision‑making.
There should be a clear division of
responsibilities between the leadership of
the Board and the executive leadership of
the company’s business. See pages 73 – 74.
Non‑executive directors should have
sufficient time to meet their Board
responsibilities. They should provide
constructive challenge, strategic
guidance, offer specialist advice and hold
management to account. See page 73.
The Board, supported by the company
secretary, should ensure that it has the
policies, processes, information, time and
resources it needs in order to function
effectively and efficiently. See pages
73 – 75.
Section 3: Composition,
succession and evaluation
Appointments to the Board should
be subject to a formal, rigorous and
transparent procedure, and an effective
succession plan should be maintained
for Board and senior management. Both
appointments and succession plans should
be based on merit and objective criteria
and, within this context, should promote
diversity of gender, social and ethnic
backgrounds, cognitive and personal
strengths. See pages 74 and 76.
The Board and its committees should
have a combination of skills, experience
and knowledge. Consideration should be
given to the length of service of the Board
as a whole and membership regularly
refreshed. See page 75 and committee
reports.
Annual evaluation of the Board should
consider its composition, diversity and
how effectively members work together to
achieve objectives. Individual evaluation
should demonstrate whether each director
continues to contribute effectively. See
page 76.
Section 4: Audit, risk and
internal control
The Board should establish formal and
transparent policies and procedures to
ensure the independence and effectiveness
of internal and external audit functions and
satisfy itself on the integrity of financial and
narrative statements. See pages 78 – 85.
The Board should present a fair, balanced
and understandable assessment of the
company’s position and prospects.
See page 56.
The Board should establish procedures to
manage risk, oversee the internal control
framework, and determine the nature and
extent of the principal risks the company is
willing to take in order to achieve its long‑
term objectives. See page 50.
Section 5: Remuneration
Remuneration policies and practices
should be designed to support strategy
and promote long‑term sustainable
success. Executive remuneration should be
aligned to company purpose and values,
and be clearly linked to the successful
delivery of the company’s long‑term
strategy. See pages 89 – 101.
A formal and transparent procedure
for developing policy on executive
remuneration and determining director and
senior management remuneration should
be established. No director should be
involved in deciding their own remuneration
outcome. See pages 102 – 108.
Directors should exercise independent
judgement and discretion when authorising
remuneration outcomes, taking account of
company and individual performance, and
wider circumstances. See pages 89 – 101.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 67
Corporate governance Introduction to corporate governance continued
Statement of compliance
Nostrum fully complied throughout 2020
with the provisions of the 2018 version
of the UK Corporate Governance Code
except in the following respects:
Provision 9
Contrary to Provision 9, which states that
the roles of chair and chief executive should
not be exercised by the same individual,
due to a new Chief Executive Officer not
having been identified by the time of the
planned resignation of Ms van Hecke on
31 August 2020, the responsibilities of the
Chief Executive Officer were discharged
by Mr Gupta from 1 September 2020 until
the appointment of Mr Khan on 26 January
2021.
Provision 10
Ms van Hecke joined the Board of the
Company on 31 December 2016, serving as
an independent Non‑Executive Director.
Following the departure of Mr Kessel as
Chief Executive Officer in December 2019,
Ms van Hecke was asked by the Board to
assume the executive responsibilities of the
Chief Executive Officer on an interim basis.
Ms van Hecke agreed to do so and from
16 December 2019 to 31 August 2020
she was not considered an independent
Non‑Executive Director by the Board.
Following the completion of her duties as
interim Chief Executive Officer, the Board
considered whether it was appropriate that
Ms van Hecke resume her previous role as
an independent Non‑Executive Director.
In that regard the Board took into
account Provision 10 of the Code and the
circumstances listed therein that are likely
to impair, or could appear to impair an
independent Non‑Executive Director’s
independence. It further took note of the
requirement in Provision 10 that where any
such circumstances apply and the Board
nonetheless considers the Non‑Executive
Director to be independent, a clear
explanation should be provided.
The Board recognised that while Ms van
Hecke previously served as an independent
Non‑Executive Director of the Company
for three years, for a period of just
over 8 months she assumed executive
responsibilities and was remunerated for
this and also participated in the Company’s
annual bonus scheme, and that the
following circumstances listed in Provision
10 of the Code did apply during this
interim period:
• Is or has been an employee of the
company or group within the last five
years; and
• Has received or receives additional
remuneration from the company apart
from a director’s fee, participates
in the company’s share option or a
performance‑related pay scheme,
or is a member of the company’s
pension scheme.
However, as Ms van Hecke only assumed
executive responsibilities at the request of
the Board for a short interim period, the
Board did not believe these circumstances
would be or were likely to impair her
ability to act independently as foreseen
in Provision 10 of the Code.
The Board considered that Ms van Hecke
had demonstrated throughout the
period during which she has acted as an
independent Non‑Executive Director of
the Company that she acted independently
in her role as a Director. The Board was
of the view that following the end of her
interim role Ms van Hecke remains fully
capable of scrutinising and holding to
account the performance of management
and individual executive directors against
agreed performance objectives as foreseen
in Provision 13 of the Code.
In that regard the Board also took note
of Provision 75 of the Guidance on Board
Effectiveness (the Guidance) which
supplements the Code and contains
suggestions of good practice to support
directors and their advisers in applying
the Code, which provides:
“It is important that non‑executive directors
do not operate exclusively within the
confines of the boardroom, but have a
good understanding of the business and its
relationships with significant stakeholders.
Accordingly, it is advisable for them to take
opportunities to meet shareholders, key
customers and members of the workforce
from all levels of the organisation.”
The Board believes that given her deep
knowledge of the Company and its
business and stakeholders gained as a
result of her interim role, Ms van Hecke can
make unique contributions to the Board as
contemplated by the Guidance.
Accordingly, the Board considers
Ms van Hecke to be independent and
redesignated her as an independent
Non‑Executive Director of the Company
in September 2020.
Provision 11
Following the appointment of Ms van
Hecke as Chief Executive Officer on
16 December 2019, at least half of the
board, excluding the Chair, are no longer
considered to be independent. Given
recent changes in various Directors’
roles, the Company’s announced
engagement with its bondholders and
the ongoing uncertainties caused by the
COVID‑19 pandemic, the Board has not
yet commenced a search for additional
independent Non‑Executive Directors to
join the Board but this subject is being
kept under review.
Provision 21
Contrary to Provision 21 (which requires
a formal and rigorous annual evaluation
of the performance of the Board, its
committees, the chair and individual
directors), there was (for the reasons
stated in the report of the Chairman of the
Nomination and Governance Committee)
no formal Board evaluation during 2020.
68 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Provision 24
Following the appointment of Ms van Hecke as Chief Executive Officer on 16 December 2019, she was no longer considered by the Board
as independent for the purposes of the Code and her continued membership of the Audit Committee contravened Provision 24 of the
Code until 27 January 2020, when Ms van Hecke stepped down as a member of the Audit Committee.
Following the appointment of Mr Cocker as Interim Chief Financial Officer on 31 March 2020, he was no longer considered by the Board
as independent for the purposes of the Code and as a result his continued membership of the Audit Committee contravened Provision 24
of the Code.
On 1 April 2020 Mr Cocker stepped down as Chairman of the Audit Committee and was replaced by Sir Christopher Codrington, Bt. so
that the Chairman of the Audit Committee would remain an independent Non‑Executive Director. However, the Board determined that
given that it is intended that Mr Cocker will only serve as Chief Financial Officer on an interim basis, he should remain as a member of
the Audit Committee. On 8 October 2020, following the appointment of Ms van Hecke as a member of the Audit Committee, Mr Cocker
stepped down as a member of the Audit Committee.
Contrary to Provision 24 (which requires the Audit Committee to have a minimum membership of two independent non‑executive
directors) there was only one such member of the Audit Committee from the effective date of Mr Martin’s resignation until Ms van Hecke
re‑joined the Audit Committee on 8 October 2020.
Requirement
Non-compliance
All members of the Audit Committee to
be independent non‑executive directors
Non‑compliance from 16 December 2019 until 27 January 2020 in respect of Ms van Hecke
Non‑compliance from 31 March 2020 until 8 October 2020 in respect of Mr Cocker
At least two such members
Non‑compliance from 15 July 2020 until 8 October 2020
Provision 32
Following the appointment of Ms van Hecke as Chief Executive Officer on 16 December 2019, she was no longer considered by the Board
as independent for the purposes of the Code and her continued membership of the Remuneration Committee contravened Provision 32
of the Code until she stepped down as a member of the Remuneration Committee on 27 January 2020.
Following the appointment of Mr Cocker as Interim Chief Financial Officer on 31 March 2020, he was no longer considered by the
Board as independent for the purposes of the Code and as a result his continued membership of the Remuneration Committee
contravened Provision 32 of the Code. However, the Board determined that given that it is intended that Mr Cocker will only serve as
Chief Financial Officer on an interim basis, he should remain as a member of the Remuneration Committee. On 8 October 2020 following
the appointment of Ms van Hecke as Chairwoman of the Remuneration Committee, Mr Cocker stepped down as a member of the
Remuneration Committee.
Contrary to Provision 32 (which requires the Remuneration Committee to have a minimum membership of two independent non‑
executive directors) there was only one such member of the Remuneration Committee from the effective date of Mr Martin’s resignation
until Ms van Hecke re‑joined the Remuneration Committee on 8 October 2020.
Requirement
Non-compliance
All members of the Remuneration
Committee to be independent non‑
executive directors
Non‑compliance from 16 December 2019 until 27 January 2020 in respect of Ms van Hecke
Non‑compliance from 31 March 2020 until 8 October 2020 in respect of Mr Cocker
At least two such members
Non‑compliance from 31 March 2020 until 8 October 2020
Provision 36
The Company’s LTIP has a total holding and vesting period of no more than three years and therefore does not comply with the
requirements of Code Provision 36, which requires share awards to be released for sale on a phased basis and be subject to a total vesting
and holding period of five years or more. As explained in the press release released by the Company on 28 August 2019, a copy of which
has also been published on the Public Register maintained by the Investment Association, the Board and the Remuneration Committee
believe that the current provisions of the LTIP relating to the performance period and vesting period are appropriate and aligned with the
interests of shareholders, so that modifying such provisions of the LTIP at this time would not be the right course of action. The full text of
the announcement is available to read on the Company’s website.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 69
Corporate governance Board of Directors
Board of Directors
Atul Gupta
Executive Chairman
Interim Chief Executive Officer
1 September 2020 to 25 January 2021
A
N
HR
Kaat van Hecke
Chief Executive Officer
until 31 August 2020
Redesignated as an independent Non-
Executive Director on 10 September 2020
Arfan Khan
Chief Executive Officer
from 26 January 2021
DOB: 15 December 1959
DOB: 7 December 1971
DOB: 22 April 1959
Nationality: British
Nationality: Belgian
Nationality: American
Date of appointment:
19 May 2014
Other current appointments: None
Skills and experience:
• Chief Executive Officer (2006‑2008) and
Chief Operating Officer (1999‑2006) of
Burren Energy.
• 30 years’ broad experience in
international upstream oil and gas
businesses: Charterhouse Petroleum,
Petrofina, Monument and Burren Energy.
• Graduate in Chemical Engineering
(Cambridge University) and Masters in
Petroleum Engineering (Heriot‑Watt
University, Edinburgh).
Date of appointment:
31 December 2016
Other current appointments:
• Axxela Limited – Director
Skills and experience:
• 2013‑2016 served as Managing Director
and Senior Vice President of the Austrian
Upstream business at Österreichische
Mineralölverwaltung (OMV).
Date of appointment:
26 January 2021
Other current appointments: None
Skills and experience:
• From January 2020 until joining the
Company, President of Stratum Energy
Group.
• From April 2014 to December 2019, COO
of Amni International Petroleum.
• 2010‑2013 served as E&P Group Head
• From April 2012 to March 2014,
of Business Support at OMV.
• 2002‑2010 held various positions
with Shell in Russia, Nigeria and The
Netherlands.
Petroleum Engineering Director at
Maersk Oil.
• From August 2002 to March 2012, Chief
Production Engineer at Shell.
• 1995‑2001 held various positions
• Member of the Society of Petroleum
with ExxonMobil in Belgium and The
Netherlands.
• Obtained a Master of Science degree in
Chemical Engineering from the University
of Ghent, Belgium.
• Also holds a Masters in General
Management from the Vlerick
Management School, Belgium.
Engineers.
• Holds a Bachelor of Science degree from
Texas A&M University and an MBA from
Tulane University.
Board committees
A Audit Committee
N Nomination and
Governance Committee
H Health, Safety, Environment
and Communities Committee
R Remuneration Committee
Chairman
70 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Directors resigned in 2020:
Tom Richardson,
Chief Financial Officer
Resigned effective
31 March 2020
Mark Martin,
Independent
Non-Executive Director
Resigned effective
15 July 2020
Michael Calvey,
Non-Executive Director
Resigned effective
4 September 2020
Simon Byrne,
Non-Executive Director
Resigned effective
4 January 2021
NA
R
H
Sir Christopher Codrington, Bt.
Independent Non-Executive Director
Martin Cocker
Interim Chief Financial Officer
DOB: 20 February 1960
DOB: 19 September 1959
Nationality: British
Nationality: British
Date of appointment:
19 May 2014
Date of appointment:
16 November 2017
Other current appointments:
• Navarino Services Limited – Director
• Capital Marketing Investments Ltd –
Director
• Codco Limited
• Network Point Management (Witney)
Limited
Skills and experience:
• More than 30 years’ executive board and
senior management experience in the oil
and gas sector, and the hospitality and
other industries.
• Spent eight years living in Houston, Texas,
developing prospects in various oil and
gas fields for COG, Inc., Texas General
Resources, Inc., TexBrit Corporation, Inc.
and Whitehall Energy Limited.
• Royal Agricultural University – DipAFM.
Other current appointments:
• Etalon Group PLC – Non‑Executive
Director
• Tinkoff Credit Systems Group Holdings –
Non‑Executive Director
• Headhunter Group PLC – Non Executive
Director
• JEC Property Management
• Gyassi Limited
Skills and experience:
• Chartered accountant with over 30 years’
business experience.
• Held several line management, project
leader and CEO‑level positions, and
currently is an independent Non‑Executive
Director and Chairman of the Audit
Committee at Etalon Group PLC and TCS
Group Holdings PLC.
• Previously held senior positions with
Deloitte & Touche, KPMG, Ernst & Young
and Amerada Hess.
• Obtained a BSc joint honours degree in
Mathematics and Economics from the
University of Keele.
• Member of the Institute of Chartered
Accountants of England and Wales.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 71
Corporate governance Senior management team
Senior management team
Arfan Khan
Chief Executive Officer
from 26 January 2021
Arkadi Epifanov
Chief Commercial
Officer
Thomas Hartnett
Chief Legal Officer,
Company Secretary and
Acting Head of Human
Resources since
13 January 2020
Robert Tinkhof
Chief Operating
Officer1
Daulet Tulegenov
Group QHSE Manager
DOB: 27 October 1957
DOB: 4 July 1964
DOB: 8 April 1962
DOB: 29 January 1980
Nationality: Russian
Nationality: US/Belgian
Nationality: Dutch
Nationality: Kazakh
Skills and experience:
• Appointed as Chief
Operating Officer
of the Group on
12 February 2019.
• Held several senior
management
positions, most
recently as Managing
Director at the
Scientific Research
Institute of KMG
for Production
and Technology in
Kazakhstan.
• 32 years of experience
in the oil and gas
industry, mainly with
Royal Dutch Shell with
assignments in The
Netherlands, UK, Syria,
Iran, Egypt, Dubai, Iraq
and Russia.
Skills and experience:
• Appointed as Group
QHSE Manager in
October 2018.
• 2017‑2018 HSE
Transformation team
leader at KazMunaiGas
JSC.
• 2010‑2016 HSE
manager at Lukoil.
• Over 15 years’
experience in E&P
oil and gas assets
(onshore and
offshore).
• Took part in major
international projects
at Chevron, Shell,
Lukoil, Tengizchevroil
and CNPC companies
in Kazakhstan.
• Graduate of the
Tyumen State Oil &
Gas University, Russian
Federation.
Skills and experience:
• Appointed as Chief
Skills and experience:
• Appointed as General
H
Martin Cocker
Interim Chief
Financial Officer
(See biography of
Executive Directors
Arfan Khan and Martin
Cocker on pages
70 and 71).
Commercial Officer on
13 January 2017.
• 2009‑2017 held
position as marketing
consultant for
Zhaikmunai LLP.
• Over 20 years’
experience in senior
management and
directorial positions in
Nafta, Transoil, Lukoil,
Litasco and Baltic Oil
Terminal.
• Has worked in the oil
sector across diverse
regions including
Finland, Belgium,
Romania, Russia,
Switzerland, The
Netherlands and
the UK.
• Holds qualifications
in Economics from
Leipziger University.
Counsel of the
Nostrum Group on 5
September 2008, as
Company Secretary
of Nostrum Oil & Gas
PLC on 3 October 2013
and as Acting Head of
Human Resources on
13 January 2020.
• More than 16 years’
experience with the law
firm White & Case LLP,
where he was a Partner
and specialised in
cross‑border corporate
and M&A transactions
based in the firm’s New
York, Istanbul, London,
Brussels and Bangkok
offices.
• 1996‑1998 served
as Senior Corporate
Counsel for
Intercontinental Hotels
Group (formerly Bass
Hotels & Resorts).
• Holds a Bachelor
of Arts degree in
Comparative and
Developmental Politics
from the University
of Pennsylvania and
a Juris Doctor degree
from New York
University School
of Law.
• Member of the
New York Bar.
72 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Governance framework
Our governance framework
The Board
The Board is chaired by Atul Gupta and normally meets a minimum of four times a year. In 2020, due to the financial situation of the Group, the Board
met 13 times. The Board is collectively responsible to stakeholders for the long‑term success of the Group. This is achieved by reviewing trading
performance, budgets and funding, setting and monitoring the Group’s strategic objectives, reviewing acquisition opportunities and engaging with
stakeholders. The Board is supported by a number of committees whose terms of reference (TORs) are available on our website.
Chairman
Responsible for leadership of
the Board and for ensuring its
effectiveness in all aspects of
its role.
Chief Executive Officer
Responsible for the successful
planning and execution of the
objectives and strategies agreed
by the Board.
Non-Executive Directors
Responsible for bringing an
external perspective, sound
judgement and objectivity to the
Board’s decision‑making. Scrutinise
management performance and
constructively challenge strategy.
Senior Independent Director
Provides a sounding board for
the Chairman and a trusted
intermediary for the other
Directors.
Audit Committee
Responsible for oversight
of the Group’s financial
reporting processes.
Scrutinises the work
of the external auditor and
regularly reviews the risk
management framework
and the work of internal
audit.
Nomination and
Governance Committee
Reviews the structure,
size and composition
of the Board and its
committees and makes
recommendations to the
Board accordingly, and
leads the process for new
Board appointments.
Remuneration Committee
Reviews and recommends
to the Board the executive
Remuneration Policy
and determines the
remuneration packages
of the Directors.
Health, Safety,
Environment and
Communities Committee
Assists the Board to
fulfil its responsibilities
in relation to health,
safety, environment
and communities
matters arising from the
activities of the Group,
and in overseeing and
providing stewardship of
relevant material Health,
Safety, Environment and
Communities Committee
matters for the Company.
Chairman:
Sir Christopher
Codrington, Bt.
See page 78 for
Committee Report.
Chairman:
Sir Christopher
Codrington, Bt.
See page 86 for
Committee Report.
Chairwoman:
Kaat van Hecke
See page 89 for
Committee Report.
Chairwoman:
Kaat van Hecke
See page 87 for
Committee Report.
Company Secretary
Responsible for advising
the Board, through
the Chairman, on all
governance matters
and for ensuring that
Board procedures are
complied with and
there is a good flow of
information between the
Board and its committees.
The appointment of the
Company Secretary is a
matter reserved to the
Board as a whole.
Company Secretary:
Thomas Hartnett
Senior Management Team
The Senior Management Team supports the Chief Executive Officer in making important decisions regarding the overall management of the Group
in respect of all Group matters that are not reserved for the Board and in ensuring that operational activities and performance are aligned with the
overarching strategy of the Group. Each member of the team reports directly to the Chief Executive Officer, who then directly reports to the Board.
The functional responsibilities of the senior management team members in their respective areas include but are not limited to implementing Chief
Executive Officer and Board decisions, allocating resources, managing risk, maximising efficiencies, guiding and developing employees, reviewing
performance and supporting cross‑functional integration.
Finance
Responsible for supporting the Group and the Board in matters relating
to: (i) corporate finance (ii) investor relations (iii) economic analysis
(iv) public relations (v) external communications (vi) accounting and
reporting (vii) tax (viii) budgeting and control (ix) insurance (x) treasury
and cash management (xi) liaison with internal audit (xii) risk management
(xiii) ICT (xiv) company administration (accounting and tax matters) and
(xv) capital markets analysis.
Operations
Responsible for supporting the Group and the Board in matters relating
to: (i) production engineering and reservoir management (ii) drilling and
workover management production (iii) production (iv) engineering and
construction field operations (v) relations with governmental authorities
(vi) procurement (vii) security and (viii) administration.
Head: Martin Cocker
Head: Robert Tinkhof
Legal
Responsible for supporting the
Group and the Board in matters
relating to: (i) all legal matters
(ii) compliance (iii) corporate
governance (iv) company
administration (legal and
governance matters).
Sales and marketing
Responsible for supporting the
Group and the Board in matters
relating to: (i) sales of oil and gas
products (ii) marketing and
(iii) logistics and transportation.
QHSE
Responsible for supporting the
Group and the Board in matters
relating to: (i) product quality
(ii) personnel and community
health and safety and
(iii) environmental protection.
Human resources
Responsible for supporting the
Group and the Board in matters
relating to: (i) personnel and
workforce matters generally
(ii) training and (iii) remuneration.
Head: Thomas Hartnett
Head: Arkadi Epifanov
Head: Daulet Tulegenov
Acting Head: Thomas Hartnett
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 73
Corporate governance Governance framework continued
Board policies and governance
arrangements
Nostrum recognises the important role
that good corporate governance plays in
the success of the Company. As a result,
the Board promotes high standards of
corporate governance as a key component
of its activities. Clearly defined roles
and responsibilities, non‑executive
independence, boardroom and workplace
diversity, an open and transparent
culture and the work of our committees
in implementing the Company’s values
and policies throughout the Group are all
vital ingredients to get this right for our
stakeholders.
In order to ensure that it is involved in
making important decisions for the
Group and to ensure a clear division of
responsibilities between the Board and
executive management, the Board has
identified certain “reserved matters” that
are subject to its approval. Other matters,
responsibilities and authorities have been
delegated to its committees and the
senior management team, as set out in the
governance framework on page 73. The
schedule of matters reserved for the Board
is reviewed annually and is available on our
website.
Division of responsibilities
On 27 November 2018, the Board resolved
to expand the role of the Company’s
Chairman, Atul Gupta, to give him certain
executive responsibilities, in particular
in relation to business development,
strategic initiatives and investor relations.
Notwithstanding this, in accordance with
the Code, and with the exception of the
period noted on page 68, the roles of
Chairman and Chief Executive remain
separate, with each having distinct
and clearly defined responsibilities,
as summarised in the Board structure
diagram. Mr Gupta’s role as Executive
Chairman is to guide, advise, counsel
and assist the Chief Executive Officer in
overseeing the Company’s implementation
of its strategy. The Chief Executive remains
responsible for line management of his
direct reports and implementation of the
Company’s strategy.
The Chairman’s overarching role in
leading an effective Board is supported
by the Senior Independent Director, while
the Chief Executive Officer’s strategic
capabilities are strengthened by the
Senior Management Team.
Independence
Robust oversight is crucial for strong
corporate governance and the Board is
committed to securing this through an
appropriate balance of independent
Non‑Executive Directors.
At the date of this Annual Report, the Board
considers all of its Non‑Executive Directors
to be independent within the meaning of
this term as defined in the Code.
Equality and diversity
The Board has due regard for the importance
of, and benefits from, diversity in its
membership, including gender diversity,
and strives to maintain an appropriate
balance on the Board. The Board is
composed of individuals with diverse
sectoral experience, ages, geographic
and ethnic origin, and gender.
The Company has 20% female representation
on its Board. The Nomination and
Governance Committee remains satisfied
that the Board has the right mix of skills
and experience to operate effectively.
However, the skills and experience mix
will be revisited following the successful
restructuring of the Notes. The Nomination
and Governance Committee remains
committed to monitoring diversity closely
as part of future succession planning.
In November 2017, the Board approved its
Equality and Diversity Policy, to which the
Company continued to adhere throughout
2020.
In accordance with the policy, the Group
is committed to eliminating discrimination
and encouraging equality and diversity
in all of our business activities, including
the provision of employment. The policy
applies to all who work for the Group,
including Directors, together with the
managerial, supervisory and administrative
bodies of all entities within the Group. The
policy also applies equally to the treatment
of our supply chain, applicants and visitors
by our staff and the treatment of our staff
by these third parties. The objective of the
policy is to promote equality of opportunity
and to ensure that no individual suffers
unlawful discrimination, directly or
indirectly, on the grounds of race, colour,
ethnicity, religion, sex, gender identity or
expression, gender reassignment, national
origin, age, marital status, disability or
sexual orientation.
The Group aims to ensure the objective of
the policy is met by:
• Ensuring all recruitment advertising and
publicity aims to encourage applications
from any individual who has appropriate
qualifications and/or experience;
• Not offering discriminatory conditions of
employment;
• Ensuring all promotions are made strictly
on the basis of the ability to do the
job and no such decision is made on a
discriminatory basis;
• Considering requests for part‑time work
or job‑sharing opportunities wherever
appropriate and practicable, and aiming
to ensure that part‑time employees
receive fair treatment;
• Ensuring that the demands of religion
(e.g. prayer time and religious holidays),
culture (e.g. traditional dress) and special
dietary needs are accommodated where
possible; and
• Taking reasonable steps to assist
employees with domestic responsibilities
(e.g. young children and dependent
elderly relatives).
The following are the steps that have been
taken in 2020 to implement this policy:
• Despite the challenging trading
environment and a significant reduction
in recruitment activities, where
recruitment has been required we have
continued to focus on attracting more
female candidates across all levels
throughout the Group. We are assessing
our performance in attracting female
employees at junior management levels
in Kazakhstan and reviewing our current
training, retention and promotion
schemes to encourage the promotion
of more women into senior
management positions.
• Our human resources team reported
regularly to the Health, Safety,
Environment and Communities
Committee on diversity. In conjunction
with the Health, Safety, Environment
and Communities Committee, a gender
diversity action plan has been established
which aims to increase the percentage of
female employees across all levels within
the Group to 25% by 2022.
• An analysis of any gender pay gap issues
is being conducted.
• We continue to look into cross‑Company
mentor schemes to achieve our goals in
this area.
74 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Bribery, corruption and
whistleblowing
Bribery and corruption are significant
risks in the oil and gas industry and, as
such, the Company operates a Group‑
wide Anti‑Corruption and Bribery Policy,
which applies to all Group employees and
contractor staff. The policy requires: annual
bribery and corruption risk assessments;
risk‑based due diligence on all parties
with whom the Company does business;
appropriate anti‑bribery and corruption
clauses in contracts; and the training of
personnel in anti‑bribery and corruption
measures. In addition, the Company’s Code
of Conduct requires that employees or
others working on behalf of the Company
do not engage in bribery or corruption
in any form. Corruption‑related risks are
evaluated on a Group‑wide basis (not
in respect of divisions). No confirmed
corruption cases were identified in 2020.
No employees were trained on anti‑
corruption policies in 2020.
The Company has also adopted a
Whistleblowing Policy that takes account of
the Whistleblowing Arrangements Code
of Practice issued by the British Standards
Institute and Public Concern at Work.
Further information can be found on
page 42.
No matters were raised under the
Company’s Whistleblowing Policy in 2020.
Both policies were reviewed by the Audit
Committee in 2020 and no updates
recommended to the Board.
Anti-facilitation of tax evasion
Further to the new rules under the Criminal
Finances Act 2017 (CFA) in the UK, in 2018
the Board approved a new Anti‑Facilitation
of Tax Evasion Policy applicable to the
Group and its associated persons. In
connection with the preparation of this
policy, the Company commissioned an
independent bespoke risk assessment and
incorporated findings from the assessment
into the policy.
Conflicts of interest
A Director has a duty to avoid a situation
in which they have, or may have, a direct
or indirect interest that conflicts or may
conflict with the interests of the Company.
Formal procedures are in place to ensure
that the Board’s powers of authorisation of
conflicts or potential conflicts of interest
of Directors are operated effectively. The
Board is satisfied that during 2020 these
procedures were enforced and adhered
to appropriately.
Appointment and tenure
All Executive Directors have service
agreements with the Company with the
exception that the interim Chief Financial
Officer is engaged through a consultancy
agreement that expires currently on
30 April 2021. All Non‑Executive Directors
have letters of appointment with the
Company. For all Executive Directors
engaged through service agreements,
there is no term limit on their services,
as the Company proposes all Executive
Directors for annual re‑election at each
subsequent Annual General Meeting of
the Company.
Each Non‑Executive Director appointment
is for an initial term of three years, subject
to being re‑elected at each subsequent
Annual General Meeting.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 75
Corporate governance Board activities and achievements
Board activities and achievements
Board activities and achievements during 2020
During the financial year, the Board held 13 meetings. The Board and Committee agendas were shaped to ensure that discussion was
focused on the Group’s key strategies and monitoring activities, as well as reviews of significant issues arising during the year. The Group’s
ongoing financial and strategic performance is reviewed at every meeting, and the Chief Executive Officer and the Chief Financial Officer
comment on production, share price performance, the market and shareholder feedback.
The table below gives the highlights of how the Board and its committees spent their time during the 2020 financial year but should not
be regarded as an exhaustive list. More information regarding the Group’s strategic objectives and focus during the year can be found in
the Strategic Report on pages 2 – 65 and the more detailed activities of each Board committee are located in their relevant report.
Strategy and business focus
• Engaged with the advisers to an informal ad‑hoc noteholder group to negotiate a
restructuring of the Group’s bonds.
• Discussions around the strategic options available to the Group to monetise the
infrastructure through processing third‑party volumes and acquisition of nearby,
stranded assets such as Stepnoy Leopard.
• Approved a targeted well workover and intervention programme in the spring and
summer of 2020 that reduced the rate of decline in the Chinarevskoye field.
• Considered the results of the strategic review process initiated in 2019 and as a result
ended the process.
Risk
• Review of all interim financial results announcements and the 2019 Annual Report
Governance
and Accounts.
• Consideration of the Group’s viability statement and risk appetite for the coming year.
• Review of all insurance contracts across the Group to assess risk exposure.
• Reviewed the Group’s liquidity forecast at each board meeting from April
• Approved the appointment of Kaat van Hecke as Chief Executive Officer,
Martin Cocker as Interim Chief Financial Officer and Tav Morgan as an alternate
director for Michael Calvey.
• Considered the salaries of the Executive Directors at the time of their appointment
to post.
• Received reports from Board committees.
• Consideration of the UK Corporate Governance Code and other regulatory
requirements for the Annual Report.
• Review of the Notice of AGM and matters proposed for shareholder approval.
• Reviewed and approved (where required) any updates to key Group policies.
• Consideration of Director conflicts of interest.
People and culture
• Monitored the preventative measures being taken to protect employees and
contractors from COVID‑19.
make recommendations to the Chairman
regarding topics on which they would like
to receive training. In addition to training
organised by the Company, the Directors
regularly attend training events organised
by third parties and the Company actively
encourages Directors to attend such
events.
Board evaluation
Much of the Board’s effort and attention in
2020 has been focused on stabilising the
financial position of the Group and looking
to secure its future, whilst at the same
time ensuring that our employees and
contractors remained safe. A number of
executive and non‑executive members left
the Board in 2020, and given the financial
position of the Group, the decision was
taken not to recruit new members to the
Board until such time that the restructuring
was substantially complete.
As a result, and as explained in the
Nomination and Governance Committee
report on pages 86, no formal Board
evaluation took place in 2020.
An evaluation of the Board structure,
membership and skill set will be reviewed
in 2021 at the conclusion of the restructuring
of the Notes.
Director induction and training
Each individual joining the Board receives
a full, formal induction package with
materials on the Group’s business and
operational, financial and legal matters.
They also meet with members of the Board
in order to obtain a good understanding
of the challenges and opportunities faced
by the Group. The Directors are given
the opportunity to discuss their training
and professional development needs
at every quarterly Board meeting and
on an ad‑hoc basis as required, and to
76 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Attendance at meetings of the Board and its Committees in 2020
The following table illustrates the attendance of Directors at Board and committee meetings (as relevant) throughout the year.
Board
Audit
Committee
Remuneration
Committee
Nomination
and Governance
Committee
Health, Safety,
Environment
and Communities
Committee
EXECUTIVE DIRECTORS
Atul Gupta1,2
Tom Richardson3
Kaat van Hecke – up to
31.08.20204,5,6,7
Martin Cocker – from
31.03.20208,9
NON-EXECUTIVE
DIRECTORS
Kaat van Hecke – from
31.08.20204,5,6,7
Martin Cocker – up to
31.03.20208,9
Sir Christopher Codrington
Bt.10
Mark Martin11
Simon Byrne12,13
(alternate Pankaj Jain)
Michael Calvey
(alternate Tav Morgan)14,15
Stephen Whyte – Board
observer
A
13
2
8
11
5
2
13
5
13
8
2
B
13
2
7
11
5
2
13
5
12
8
2
A = Total number of meetings the Director was eligible to attend.
B = Total number of meetings the Director did attend.
A
−
−
−
B
−
−
−
4
4
1
−
4
2
−
−
−
1
−
4
2
−
−
−
A
2
−
−
2
3
1
4
1
−
−
−
B
2
−
−
2
3
1
4
1
−
−
−
A
−
−
1
−
−
−
1
1
−
−
−
B
−
−
1
−
−
−
1
1
−
−
−
A
1
−
1
2
2
1
−
−
−
−
B
1
−
1
2
2
1
−
−
−
−
1
1
1. Mr Gupta is the Executive Chairman of the Board of Directors.
2. Mr Gupta assumed the responsibilities of the CEO from 1 September 2020 until 26 January 2021.
3. Mr Richardson resigned and stepped down as CFO and as a Director of the Company effective 31 March 2020.
4. Ms van Hecke stepped down as a member of the Remuneration Committee and Audit Committee effective 27 January 2020.
5. Ms van Hecke stepped down from her position as CEO on 31 August 2020 and resumed her role on the Board as a Non‑Executive Director.
6. Ms van Hecke is Chairwoman of the Health, Safety, Environment and Communities Committee and effective 8 October 2020 is also Chairwoman of the
Remuneration Committee.
7. Ms van Hecke was unable to participate in the Board meeting on 15 July 2020.
8. Mr Cocker was appointed as a member of the Remuneration Committee on 27 January 2020.
9. Mr Cocker was appointed as Interim Chief Financial Officer effective 31 March 2020.
10. Sir Christopher Codrington Bt is the Chairman of the Nomination and Governance Committee as well as the Chairman of the Audit Committee.
11. Mr Martin resigned from his position as a Non‑Executive Director and as Chairman of the Remuneration Committee effective 15 July 2020.
12. Mr Byrne resigned from his position as a Non‑Executive Director effective 4 January 2021. The appointment of Mr Jain also ceased effective 4 January 2021.
13. Mr Byrne was unable to participate in the Board meeting on 8 October 2020.
14. Mr Calvey was unable to participate in Board meetings in 2020 due to travel restrictions. Mr Morgan, Mr Calvey’s alternate, attended eight Board meetings
on behalf of Mr Calvey in 2020.
15. Mr Calvey resigned from his position as a Non‑Executive Director effective 4 September 2020. The appointment of Mr Morgan also ceased effective
4 September 2020.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 77
Corporate governance Audit Committee report
Letter from the Chairman
In addition, the continuing analysis of
data from the Chinarevskoye field has
led the Group to reclassify approximately
91 mmboe from Probable to contingent
reserves. In particular, the Board has
concluded that further drilling of the Biyski/
Afoninski North‑East field should not be
undertaken until the reservoir and drilling
risks have been reduced and further drilling
in the Biyski/Afoninski West and North‑
West areas will not increase the Proven
Reserves.
Together with an outlook of a low‑price
environment for some time to come, this
has meant that we have recognised a
provision for impairment in 2020 of
$244.9 million.
The impact of COVID‑19 on travel and
work practices across the globe has meant
that our internal audit processes have
been significantly disrupted in 2020. In
mitigation, an additional review committee,
the Contracts Board, was established to
consider and approve the placement of all
contracts with a potential value in excess
of $10,000. Since September 2020, our
management accounts have been reviewed
not only by our management and the
Committee but also by the Company’s
advisers and also the advisers to our
bondholders. The Committee believes
that these measures, together with the
continued simplification of our activities,
means that the risk of any significant control
failure or material misstatement in the
financial statement has been mitigated.
The Committee met four times in the
year. As in prior periods, these meetings
occurred before Board meetings, which
moved to an approximately four‑weekly
basis from April.
In the Committee meetings, in addition
to being very mindful as to whether the
Company and Group remained a going
concern, we have also:
• Monitored the progress of the continuing
analysis of data from the Chinarevskoye
field and the impact that the results of
that analysis could have on the carrying
value of our oil and gas assets; and
• Continued to ensure that there were no
working capital finance arrangements
that should be disclosed in the quarterly
financial statements or this Annual Report.
Climate change, and the impact that our
operations have on it, are considered in
the Sustainability review section on pages
36 – 49 and the relevant issues are also
summarised in the report of the Health,
Safety, Environment and Communities
Committee on pages 87 – 88. The
impact of COVID‑19 on our operations
was considered at each Board meeting
throughout 2020 and is described in the
Viability Statement on pages 56 – 57. The
Board assessed that Brexit should have
little or no impact on the Company’s
operations since our UK operation has
little or no direct interface with Europe.
Finally, a short word on the structure of
the Committee during 2020. On 31 March
2020, Martin Cocker, who started the year
as Chair of the Committee, agreed to take
up on an interim basis the role of Chief
Financial Officer which became vacant on
that date. Martin relinquished the chair of
the Committee from 1 April 2020 at which
date I assumed the chair of the Committee
but he remained a member and continued
to attend all meetings of the Committee
from that date in his capacity as Interim
Chief Financial Officer.
Dear shareholder,
This year has been unprecedented in the
history of the Group and as a result its Audit
Committee (the Committee) has been
required to be flexible and focused.
The collapse of the global oil price and
the deterioration on the gas prices being
achieved by the Group in early 2020 caused
the Group to engage with its bondholders
to consider a possible restructuring of its
US$725 million 8.0% Senior Notes due July
2022 and/or its US$400 million 7.0% Senior
Notes due February 2025. One of the
consequences of this is that the Committee
has been required to consider very carefully
the use of the going concern basis for
the preparation of year‑end and 2020
quarterly financial statements. After careful
consideration at each quarter end and at
the year end, the Committee concluded
that the going concern basis was the
appropriate basis of preparation. This
position was supported by the Company’s
advisers.
78 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Effective 15 July 2020, Mark Martin
resigned from the Board of the Company
and so also the committees of which he was
a member, including this Committee. After
careful consideration, the Board decided
that it would not seek to engage further
independent Non-Executive Directors until
such time as the restructuring has been
completed successfully.
On 8 October 2020 Kaat van Hecke,
having stepped down as Interim Chief
Executive Officer on 31 August 2020
and again considered by the Board as
an independent Non-Executive Director
rejoined the Remuneration Committee as
Chairwoman and the Audit Committee as
member. On the same date Martin Cocker
stepped down from the Audit Committee.
Together with the Board, I acknowledge
that this was not an ideal situation.
However, given the amount of scrutiny that
the financial reporting, risk management
and Board decisions became subject to in
the second half of 2020 as part of the bond
restructuring, and following legal guidance,
I believe that the Committee has been able
to adequately discharge its responsibilities
throughout 2020.
In closing, I would like to thank all my
fellow Committee members for their
contribution to the effective discharge
of the Committee’s duties throughout
the year.
Sir Christopher Codrington, Bt.
Chairman, Audit Committee
Independent Non-Executive Director
Role and responsibilities
of the Audit Committee
Throughout the year, the Committee
has remained committed to its primary
role of assisting the Board in achieving
the Group’s strategic objectives whilst
protecting stakeholder interests.
The key areas of responsibility of
the Committee during 2020 were
as follows:
• Review the Group’s annual and interim
consolidated financial statements;
• Review the formal announcement of the
financial results, investor presentations
and any other related announcements;
• Review the effectiveness of the Group’s
internal control and risk management
systems;
• Monitor compliance with applicable
regulatory and legal requirements and
the Group’s Code of Conduct;
• Monitor and review the effectiveness
of the Group’s internal audit function;
• Maintain the relationship with the
Company’s external auditor and
oversee its appointment, remuneration
and terms of engagement whilst
continually assessing its independence
and objectivity; and
• Review audit findings and assess the
standard and effectiveness of the
external audit.
More detail on these key areas can
be found in the Committee’s terms of
reference, which are available on the
Group’s website at www.nog.co.uk.
Membership
Sir Christopher
Codrington, Bt.
Member since 19 May
2014; Chairman from
8 May 2017 to 3 June
2019 and then from
1 April 2020.
Martin Cocker Member from
16 November 2017
to 8 October 2020
Chairman from 4 June
2019 to 1 April 2020.
Member from
31 December 2016
to 15 July 2020.
Mark Martin
Kaat van Hecke Member from 8 May
2017 to 27 January
2020 and then from
8 October 2020.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 79
Corporate governance Audit Committee report continued
All members of the Audit Committee
during the year were independent Non-
Executive Directors, apart from Martin
Cocker who since 1 April 2020 was the
Interim Chief Financial Officer.
The qualifications presented in the
biographies of the members of the
Committee on pages 70 – 71, and their
respective contributions to the activities
of the Committee, demonstrated that the
Committee has the necessary levels of
competence in oil & gas upstream and
downstream operations and in accounting
and auditing, as well as recent and relevant
financial experience.
Meetings
In addition to its scheduled quarterly
meetings, the Committee also meets
when it is necessary. The Interim Chief
Financial Officer, the Chief Legal Officer,
the Company Secretary and the external
auditor are invited to all meetings. The
Committee held 4 meetings during 2020
and the attendance of each Committee
member at meetings of the Committee
is shown on page 77.
Matters highlighted by the
Financial Reporting Council (FRC)
In its letter dated 12 November 2020, the
FRC highlighted a number of topics and key
matters relevant to the 2020/21 reporting
season. Those matters include:
• Reporting in respect of the impact of
COVID-19 and Brexit and how these
events might impact the future viability
of the Company. This is addressed in the
Viability Statement on pages 56 – 57. The
Committee has scrutinised the Viability
Statement to ensure that readers are
readily able to assess how COVID-19 and
Brexit have, and are likely to, impact the
Company;
• The provision of full information about
the future impact of climate change on
the business and how the Company’s
activities affect the environment.
This Committee has considered and
challenged the Sustainability review
on pages 36 – 49 to ensure that the
disclosures more transparently describe
our policies, give a balanced description
of how our climate change policies
and targets are incorporated into our
business plans, and eliminate or explain
any technical terminology used;
• Reporting cash flows and liquidity risks.
In this respect, and as noted above, the
Committee has scrutinised the Viability
Statement to ensure that the matters
considered in assessing the going
concern, viability and liquidity of the
Company and Group are fully explained;
• Further disclosures to provide
transparency on the impact of working
capital financial arrangements, IFRS 15
Revenue from Contracts with Customers
and IFRS 16 Leases. The Committee
considered these matters and concluded
that all current disclosures in respect of
IFRS 15 and IFRS 16 were appropriate;
• Improving the quality of the section
172(1) statement. Our section 172(1)
statement is summarised on page 34.
Again, the Committee has considered
to statement in light of the comments
from the FRC in its letter to ensure that
it adequately explains how the Directors
are discharging their responsibilities; and
• Cash flow and liquidity risk. In response
the Committee has reviewed the Group’s
cash flow statement to ensure that (1)
there is consistency between it and other
areas of this Annual Report and (2) the
disclosure of accounting policies and
judgements in relation to the cash flow
statement are appropriate and complete.
The Committee also paid attention to
ensure that a clear description of the
Company’s policies, any due diligence
processes implemented in pursuance
of those policies and their outcomes in
respect of environmental, social, anti-
corruption and anti-bribery matters,
employees and respect for human rights
are all either covered by this statement
or covered in other parts of the strategic
report.
The Committee continued to challenge
management to ensure there was a clear
distinction between critical judgements
and estimates used in preparing the
accounts and that appropriate disclosures
were made to provide an understanding of
their sensitivity to changing assumptions.
The Committee reviewed the definitions,
explanations, reconciliations, prominence
and consistency of alternative performance
measurements such as EBITDA, for their
compliance with ESMA’s Guidelines;
Self-assessment
The Committee undertakes an annual
evaluation of its performance and
effectiveness. Typically, this is performed
after the annual audit cycle is completed.
However, given the unusual circumstances
that prevailed in 2020, the Committee did
not formally assess its performance and
effectiveness in 2020. A formal review of the
Committee’s performance and effectiveness
will be made following the completion of the
2020 audit.
Activities during the year
In accordance with its responsibilities
outlined above, the Committee’s activities
fall into the following four main areas, each
of which is explained in more detail in the
following sections 1 to 4:
1. Financial reporting
2. Risk management and internal controls
3. Compliance with laws and regulations
4. External audit
1. Financial reporting
The key areas of the Committee’s activities
related to financial reporting can be
summarised as follows:
• Review of and discussions on quarterly
and annual financial statements, and
recommendation to the Board for
approval;
• Review of and discussions on the matters
of liquidity and going concern analysis, as
well as impairment considerations;
• Review of periodic press releases and
results presentations prior to their
publication;
• Review of annual budgets and periodic
forecasts;
• Review of monthly management updates
covering key issues, including financial
and operational performance and the
status of key initiatives; and
• Discussion of various ad-hoc matters
related to financial accounting and
reporting.
The review by the Committee of the
quarterly results and half-yearly financial
statements was done with an emphasis on
ensuring the following:
• Critical judgements and estimates
applied by management (described in
more detail below) were appropriate and
complete disclosure had been made;
• The accounting policies adopted were
consistent with those used in prior
periods and remained appropriate;
• Full disclosures were made for
compliance with financial reporting
standards and relevant corporate
governance requirements;
• Assessing whether the Annual Report,
taken as a whole, is fair, balanced
and understandable, and provides
the information necessary for the
shareholders to assess the Group’s
performance, business model and
strategy; and
• Discussing any significant matters with
management and the external auditor
and providing feedback to management
on ways to improve the effectiveness and
clarity of the Group’s corporate reporting.
80 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
• The continued engagement with the
advisers to the AHG to negotiate the
Forbearance Agreement and then the
terms of a debt restructuring;
• The improvement in oil prices, although
the Committee also notes that the
formula for deriving the prices received
for the Group’s dry gas production means
that there is a significant lag between any
improvement in the prices for dry gas and
oil products on world markets and the
price for dry gas received by the Group;
• Counsel provided by the Company’s
legal advisers;
• Management’s analysis of the Group’s
cash flows for the next 12 months.
The base-case scenario of the going
concern model used conservative price
assumptions for oil, LPG and dry gas.
at which the Group was approximately
cash-neutral during 2021; and
• Management’s monitoring on an
ongoing basis of its liquidity position,
near-term forecasts, key financial ratios,
sensitivity tests of its liquidity position for
changes in crude oil price, production
volumes and timing of completion of
various ongoing projects.
After careful consideration, the Committee
is satisfied that the Group has sufficient
resources to continue in operation for
the going concern period to 30 June
2022, being a period of not less than 12
months from the date of this report. For
these reasons, the Committee agrees with
management that the going concern basis
in preparing the financial statements is
appropriate.
The Committee reviewed this Annual
Report with the same emphasis as noted
above together with the specific areas
noted by the FRC and outlined earlier in
this report.
Significant judgements, estimates
and assumptions
Significant judgements, estimates and
assumptions applied by management
when preparing the financial statements
are closely related to the principal risks and
uncertainties faced by the Group, which
are subject to constant monitoring by the
Board and the Committee.
The main judgement facing the Company
and Group during 2020 has been its
continued viability as a going concern.
In early March 2020, OPEC and non-OPEC
allies (OPEC+) met to discuss the need to
cut oil supply to balance oil markets in the
wake of the COVID-19 outbreak which was
having a material impact on oil demand.
The parties failed to reach agreement
and Saudi Aramco aggressively cut its
Official Selling Prices (OSP) in an attempt
to prioritise market share rather than price
stability. As a result, there was a sharp and
significant drop in Brent crude oil prices.
This was compounded by a perceived
lack of future demand for oil caused by
disruptions to businesses and economic
activity as a result of COVID-19.
Whilst the OPEC+ countries, together
with a wider Group of producers, have
subsequently agreed to lower daily
production levels, the continuing uncertainty
over the future demand for oil as a result
of the continuing impact of COVID-19 has
restricted the recovery of the oil price.
These events continue to have an impact on
oil price volatility with spot prices for Brent
reaching a low of $20/bbl in March 2020.
The low demand for energy across the
world also led to a deterioration of the
prices that we received for our dry gas.
As a result of the low oil and dry gas
prices at the start of the year, the Group
announced on 31 March 2020 that it would
seek to engage with its bondholders
regarding a possible restructuring of the
Group’s outstanding bonds. In May 2020
the Group appointed a financial adviser
and a legal adviser in connection with a
possible restructuring of its Notes. On
24 July 2020, the Group announced that
it planned to utilise the applicable grace
periods for the interest payments due on
25 July and 16 August 2020 with respect
to the Notes. The 30-day grace period was
to allow the Company to continue active
discussions with the financial and legal
advisers to an informal ad-hoc committee
of noteholders (AHG) with a view to
entering into a forbearance agreement with
the holders of the Notes in relation to those
interest payments.
On 23 October 2020 the Company
announced that, together with certain
of its subsidiaries (Note Parties), it had
entered into a forbearance agreement (the
Forbearance Agreement) with members of
the AHG. The forbearance period currently
expires on 20 May 2021 and will enable
the Company, together with its advisers, to
engage with bondholders, shareholders
and other stakeholders, together with their
advisers, to restructure the Group’s debt.
However, the results of the discussions
with bondholders and shareholders to
restructure the Group’s debt are uncertain.
Therefore, since early 2020, the Committee
has continued to challenge management’s
assessment that the Company and Group
remain a going concern. In forming its
conclusions, the Committee has taken
note of the following:
• The Group has taken, and continues
to take, prudent mitigating actions
that can be executed in the necessary
timeframe and which will protect liquidity.
These include cancelling uncommitted
capital expenditures over the period
without having an impact on forecast
production in the going concern period
of assessment, and identifying significant
reductions in operating costs and general
and administration costs;
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 81
Corporate governance Audit Committee report continued
The other significant judgements, estimates and assumptions applied by management when preparing the financial statements, and the
Committee’s responses, are noted in the following table:
Significant judgements
Significant estimates
Significant assumptions
Impact on financial statement accounts
COVID-19
COVID‑19 continues to impact
the world’s economy and there is
significant uncertainty in relation to
the extent and period over which
these developments will continue.
The direct impact of the virus on
the Group’s activities has not been
significant but its indirect impact
through reduced demand, and
hence depressed prices, for oil, oil
products and dry gas continues to
affect the Group. Continued future
disruption to the world’s economy
could have a significant impact on
the Group’s financial position, future
cash flows and results of operations.
Committee actions
The Committee constantly
monitored, through regular
interaction with management, the
impact of the COVID‑19 pandemic
on the operations of the Group.
Estimations of the future prices
for oil, oil products and dry gas as
well as continued production from
the Chinarevskoye field impact the
calculation of future cash flows. In
turn, these impact the assessment
of the continued viability of the
Company and Group as well as the
level of impairment provision to
be made.
Assumptions used in estimating
recoverable amounts included
future commodity prices, oil and
gas reserves, future production
profiles, operating expenses and
capital expenditure estimates, fiscal
regimes, and discount rates.
Contingency plans have been put in
place both to protect the workforce
and ensure that there are sufficient
personnel to continue operations.
To date there has been no material
impact on the Group’s operations or
liquidity as a result of COVID‑19.
Changes in the significant estimates
and key assumptions may affect
the ability of the Group to continue
as a going concern, or the level of
impairment required against the
CGU.
As part of the monthly Board
meetings, the Committee reviewed
the monthly liquidity position
prepared by management and
agreed the estimations of product
prices, costs and production profiles
were appropriate.
As part of the monthly Board
meetings, members of the
Committee considered and
challenged the assumption that
COVID‑19 was not affecting
production or operations.
The Committee considered the
impact of COVID‑19 on the financial
statements at the same time as
it scrutinised the application of
the going concern basis for the
preparation of the quarterly,
half ‑yearly and annual financial
statements.
NON-CURRENT ASSETS’ CARRYING VALUES
For impairment analysis,
management used judgement and
determined a single cash‑generating
unit (CGU) within the Group’s non‑
current assets, which includes all
assets related to Chinarevskoye, and
exploration fields and gas treatment
facilities.
Committee actions
The Committee concurred
with management’s position in
determining a single CGU for the
majority of the Group’s non‑current
assets.
OIL AND GAS RESERVES
Management applied significant
judgement when selecting the
volume of future production used
in the unit‑of‑production method of
depletion of assets based on the oil
and gas reserves.
Committee actions
Estimations of the recoverable
amount of the CGU were prepared
by management based on the
discounted cash flow model using
significant assumptions as well
as considering the value of the
enterprise.
Assumptions used in estimating
recoverable amounts included
future commodity prices, oil and
gas reserves, future production
profiles, operating expenses and
capital expenditure estimates, fiscal
regimes, and discount rates.
Changes in the key assumptions and
market valuations may significantly
affect the estimation of the
recoverable amount of non‑current
assets, and consequently may result
in impairment of non‑current assets
in the future periods.
Enterprise valuation considered the
market value of the Group’s bonds
and the Company’s shares together
with the restructuring proposals
under discussion.
The Committee reviewed the
detailed reports on impairment
testing prepared by management.
The Committee agreed with
management’s approach in using
a combination of a discounted
cash flow model and enterprise
value to determine the range of the
impairment required.
Areas of focus were the assumed
product prices, discount rates,
production profiles and associated
sales volumes, and forecast capital
and operating expenditures,
particularly in light of continued
depressed product prices and
related volatility risk.
The Committee also gave special
consideration to the sensitivity
analysis in relation to the assumptions
used. The Committee also
scrutinised the disclosure of the
impairment charge in the accounts
and this report.
Management uses internal estimates
to perform an annual assessment
of the oil and gas reserves. The
reserves estimates are made in
accordance with the methodology of
the Society of Petroleum Engineers
(SPE) and were audited by Ryder
Scott.
While making such estimates,
management uses various
assumptions related to future
commodity prices, capital
and operating expenditures
necessary for the development of
a field, geological and technical
assumptions, future production
volumes, drilling programme, etc.
Changes in the key assumptions may
significantly affect the estimation
of oil and gas reserves, and
consequently result in substantial
changes in depletion expense and
carrying value of working oil and gas
properties in future periods.
The Committee concurred with
the continued application of the
unit‑of‑production method of assets
depletion, as this method reflects the
expected pattern of consumption
of future economic benefits by the
Group.
The Committee gained comfort
on the outcomes of the oil and gas
reserves’ estimations based on
its review of the key assumptions
together with the confirmation by
Ryder Scott following their audit
of the reserves.
Considering the most recent
available information, the Committee
reviewed various key assumptions
used by management in estimating
the oil and gas reserves and was
satisfied with the reasonableness
of such assumptions.
The estimated reserves are a
central element in the calculation
of depreciation, depletion and
impairment.
82 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Significant judgements
Significant estimates
Significant assumptions
Impact on financial statement accounts
TAXATION
The uncertainties associated with
Kazakhstan’s tax system means
that the ultimate amount of taxes,
penalties and interest, if any, is
subject to significant judgement.
Committee actions
The Committee discussed with
management any uncertainties
surrounding the Group’s tax
position.
The Group is subject to routine tax
audits and also a process whereby
tax computations are discussed
and agreed with the tax authorities.
Whilst the ultimate outcome of such
tax audits and discussions cannot
be determined with certainty,
management estimates the level of
liabilities required for taxes for which
it is considered probably will be
payable.
Assumptions used in estimating the
amount of taxation that is payable
are based on professional advice and
consideration of the nature of current
discussions with the tax authority.
Because of the uncertainties
associated with Kazakhstan’s tax
systems, the ultimate amount of
taxes, penalties and interest, if any,
may be in excess of the amount
expensed to date and accrued at
31 December 2020.
The Committee reviews the detail
of any significant matter under
discussion with the tax authorities
and considers the likelihood of taxes
being payable.
Areas of focus were the nature of
current discussions with the tax
authorities, the outcomes of previous
similar discussions and the views of
taxation specialists.
The Committee also gave special
consideration to the disclosure of
any significant uncertainty in the
estimation of the tax due.
Other significant judgements
and estimates
The decommissioning of oil and gas
assets at the end of their economic lives,
the provisioning for contingent and other
liabilities, current and deferred income tax,
and fair value of financial instruments are
all areas that require management to use
judgement and estimates. The Committee
examined each of these issues and sought
clarifications, as and when necessary,
including discussions with the Company’s
auditor.
Significant matters communicated
by the external auditor
In addition to the significant judgements,
estimates and assumptions identified
above, the external auditor also
highlighted revenue risk, where there is
always an assumed risk of fraud through
management override of controls. The
Committee believes that the Group’s
policies and internal controls sufficiently
minimise the risks related to management’s
ability to manipulate accounting records or
to misappropriate assets.
Related party transactions and disclosures
were no longer considered by the external
auditor as being an area of significant risk
following the completion of the GTU 3
processing facility.
2. Risk management and internal controls
The Committee continuously monitored the Group’s risk management systems, further
information on which can be found in the Risk Management section on pages 50 – 55.
In accordance with requirements of the 2018 Code relating to the viability statement, the
Committee reviewed the impact and sensitivity analysis of such risks on the Group’s long‑
term viability. The principal areas of risk management assessed by the Committee
are described in the table below.
Key areas of the Committee’s focus in relation to principal risks
Liquidity
and financial
reporting
Oil and gas
production
rates
Throughout the year, and as explained in more detail elsewhere
in this report, the Committee has been focused on reviews of the
ongoing viability of the Group and the application of the going
concern principle to the financial statements.
Oil and gas production volumes, being one of the strategic
indicators of the Group’s performance, are subject to risks and
uncertainties of a geological and technological nature. The
Committee members have been constantly monitoring forecast
production rates against actual rates. Any material variances were
discussed, and explanations sought during Committee meetings,
Board meetings or dedicated presentations given by management.
Health,
safety and
environment
As part of the monthly management reports, the Committee
reviewed the Group’s activities to ensure an appropriate level
of protection for health, safety and the environment. This area
will be within the scope of responsibilities of the Health, Safety,
Environment and Communities Committee of the Board.
Cyber security
The Committee continued to review the Company and Group’s
exposure to cyber‑attack and discussed with management any
actions directed at addressing those exposures.
Financial
reporting
The Committee seeks to ensure the accurate maintenance of
accounting records and related transactions. Considering the
volatility of oil prices and the uncertainty over the Group’s continued
viability as a going concern, the Committee focused on the review of
going concern, the viability statement and impairment.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 83
Corporate governance Audit Committee report continued
Internal control system
The Group’s internal control system is
aimed at mitigating risks and improving
efficiency. These include:
• Segregation of authorities and duties at
various levels;
• Policies and procedures covering
Directors’ remuneration, compliance,
accounting and reporting and health,
safety and environment as described
in the relevant sections of the Annual
Report;
• Training and internal communications;
and
• Continuous monitoring by senior
management and the Board of short‑
term, medium‑term and long‑term
planning and decision‑making processes.
In the Committee’s view, the Group
maintained robust and defensible
systems of risk management and internal
control, and the Committee made
recommendations to senior management
on further improvements as and when
considered necessary.
Details of the procedures related to
compliance control are set out below
(including compliance liaison equivalent to
a hotline). No instructions for any conflict of
interest settlement or compliance control
forms were in use in 2020. No sanctions or
disciplinary actions were applied in respect
of internal control in 2020.
Internal audit
The primary role of the internal audit
function is to assist the Board and senior
management to protect the assets,
reputation and sustainability of the
organisation. This is achieved through:
• Building strong and effective risk
awareness within the Group;
• Continuously improving risk management
and control processes so that they
operate effectively and efficiently, and
reflect leading practice; and
• Sharing best practice regarding risk
management and assurance across the
Group.
The Group does not have a dedicated
internal audit function. Instead, the Group
outsources the work to specialists in
relevant areas on a case‑by‑case basis.
However, the travel and other restrictions
imposed in 2020 in response to COVID‑19
mean that the Group has not performed
any internal audit reviews in the year.
To mitigate the exposure caused, the
Group has introduced a Contracts Board
comprising the Chief Executive Officer,
the Interim Chief Financial Officer and the
Chief Operating Officer.
The Contracts Board meets weekly and
its purpose is to review and approve all
expenditure commitments in excess of
$10,000.
Also, in the Committee’s view, the Group
has sufficient internal processes providing
assurance to the management, Audit
Committee and the Board about the
effectiveness of systems of internal control
and risk management: for instance monthly
reports to the Board on operations,
liquidity and legal issues and assurance
provided by QHSE and security personnel.
3. Compliance with laws and
regulations
The Chief Legal Officer and Company
Secretary attends the Committee’s
meetings, which allows the Committee
to raise any concerns related to legal,
compliance or whistleblowing matters and
the status of any ongoing litigation.
UK Corporate Governance Code
Following the appointment of Kaat van
Hecke as Chief Executive Officer on 16
December 2019, the Audit Committee
was no longer comprised entirely of
independent Non‑Executive Directors,
which contravened Provision 24 of the 2018
version of the UK Corporate Governance
Code. Therefore, on 27 January 2020
Ms van Hecke stepped down as a member
of the Audit Committee, to ensure that
the composition of the Committee’s
membership is in full compliance with
the Code.
Following the appointment of Martin
Cocker as Interim Chief Financial Officer
on 31 March 2020 the Audit Committee
again no longer comprised only
independent Non‑Executive Directors,
which contravened Provision 24 of the 2018
version of the UK Corporate Governance
Code. Mr Cocker remained a member of
the Committee until 8 October 2020.
From 31 March 2020 the Committee
comprised two independent Non‑
Executive Directors and the Interim
Chief Financial Officer (who would have
attended by invitation) until the resignation
of Mr Mark Martin effective 15 July 2020.
Thereafter, the Committee comprised one
independent Non‑Executive Director and
the Interim Chief Financial Officer until 8
October 2020 when Ms van Hecke, who
had been redesignated as an independent
Non‑Executive Director on 10 September
2020 following her resignation as Chief
Executive Officer, was reappointed to the
Committee.
management and Board decisions became
subject to in the second half of 2020 as
part of the bond restructuring and the fact
that the Board met every four weeks from
the end of the first quarter of 2020, and
following legal guidance, the Committee
and Board believe that this non‑compliance
with Provision 24 of the 2018 version of
the UK Corporate Governance Code has
not led to any material shortfalls in the
Committee adequately discharging its
responsibilities throughout 2020.
Whistleblowing arrangements
Nostrum has a Group Whistleblowing
Policy and, to ensure that all Group
employees have access to someone
who can provide them with support
and guidance, the Group has two
compliance liaison officers: one Russian‑
speaking officer based in Kazakhstan and
another Dutch‑ and English‑speaking
officer based in Brussels. The Audit
Committee maintained close contact
with the compliance liaison officers. No
whistleblowing activity was reported
in 2020.
4. External audit
Appointment of external auditor
Since 2007, Ernst & Young LLP
(Kazakhstan) has been the auditor of the
predecessor Group of companies. On the
recommendation of the Committee and
subsequent approval by the Company’s
shareholders, Ernst & Young LLP (UK) was
first appointed as auditor of the Group on
19 May 2014.
The Committee carried out a tender for
the external audit arrangements in 2015
to ensure that the Group was receiving the
highest possible quality of audit services
commensurate with the best available
price. Based on the results of the tender, it
was concluded that it would be in the best
interests of the stakeholders to continue
engaging Ernst & Young LLP (UK) as the
Group’s external auditor.
Following a recommendation to that effect
from the Board, the shareholders approved
the reappointment of Ernst & Young
LLP (UK) at the Annual General Meeting
held on 9 June 2020. Mr William Binns
succeeded Mr Richard Addison as lead
audit engagement partner in 2019.
Compliance with other legal
requirements
There were no material fines or other
sanctions against the Group in 2020. There
was no antitrust litigation against the Group
in 2020.
The Board and the Committee
acknowledges that this was not an ideal
situation. However, given the amount of
scrutiny to which the financial reporting, risk
Product liability
There were no cases relating to product
liability in 2020.
84 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
2020 audit
During Q4 2020, the Audit Committee
reviewed and discussed the detailed
audit plan prepared by Ernst & Young
LLP (UK) which identified the audit scope
and its assessment of significant risks. The
key risks monitored by the Committee
corresponded with those identified and
assessed by management and the external
auditor. All members of the Committee
supported the application of professional
scepticism by the Group’s external auditor.
During 2020, the members of the
Committee held private meetings with
the external auditor, which provided a
mutual opportunity for open dialogue
and feedback without management being
present. Topics covered at such meetings
included:
• The status of the Group’s bond
restructuring exercise and the impact on
the future viability of the Group;
• The external auditor’s assessment of
significant risks and related management
actions;
• Confirmation that there had been no
restriction in the scope placed on it by
management;
• The adequacy of the audit fees; and
• The independence of its audit and how
the auditor had exercised professional
scepticism.
The Committee reviewed the auditor’s
annual report for 2020, giving consideration
to the audit procedures and findings in
the areas of significant judgements and
estimates. The Committee also reviewed
the letter of management representations
in respect of the annual audit, which were
subsequently signed by management.
The Committee evaluated the effectiveness
of the external audit process for the year
ended 31 December 2020, by completing
a questionnaire which addressed areas
such as processes, audit team, audit scope,
communications, technical expertise,
audit governance and independence
and audit fees. Based on such evaluation,
the Committee concluded that the
performance of the external auditor
remains at an appropriately high level
and recommends its reappointment.
Non-audit services
The main principle of the Group’s policy
on the provision of non‑audit services
by the external auditor is that non‑audit
services may only be provided by the
external auditor where the external
auditor maintains the necessary degree
of independence and objectivity, and that
standard supplier selection procedures
are carried out.
Committee pre‑approval is required
before the external auditor is engaged to
provide any permitted non‑audit services
(as defined in the policy) in addition to any
other approvals required by the Board
and management pursuant to powers
delegated by the Board or Nostrum’s
internal approvals policies.
The Committee monitors the external
auditor to ensure that it does not provide
non‑audit services that are prohibited by
the FRC and limits such services to due
diligence services and other assurance
services. The revised policy is available on
the Group’s website at www.nog.co.uk and
will be reviewed and amended as and when
required.
Audit fees for 2020 totalled US$1,076,000
(2019: US$491,000). There were no audit‑
related assurance services provided in
2020 (2019: US$171,000) nor any services
relating to corporate finance transactions
(2019: US$578,000). A detailed breakdown
of audit and non‑audit fees for 2020 can
be found in Note 31 to the consolidated
financial statements of the Group on page
150. The ratio of audit fees to non‑audit
fees in 2020 is not relevant since there were
no non‑audit fees paid (2019: 0.66)
By operating in accordance with the above
policy and other practices established
within the Group, the Committee was
satisfied that adequate safeguards were
in place to ensure the objectivity and
independence of the external auditor.
Sir Christopher Codrington, Bt.
Chairman, Audit Committee
Independent Non-Executive Director
27 April 2021
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 85
Corporate governance Nomination and Governance Committee report
Letter from the Chairman
Finally, effective 4 January 2021, Mr Simon
Byrne resigned as a Director. The
appointment of Mr Pankaj Jain as alternate
director for him ceased at the same time as
Mr Byrne’s resignation.
This means that the Board now comprises
five members: myself, Atul Gupta, Kaat
van Hecke, Martin Cocker and Arfan Khan.
Accordingly, the commitment that is
being asked of each Director is significant,
especially bearing in mind the restructuring
exercise that the Group is currently
engaged in. However, the Nomination and
Governance Committee believed, and the
Board agreed, that it was not appropriate to
recruit non‑executive resource to the Board
at this time of significant uncertainty and
transition.
Therefore, the Company will proceed with
the restructuring exercise until there is
clarity on the likely outcome. At that point
the Committee will consider the structure,
size and composition requirements of
the Board for the future management
of the Group and make appropriate
recommendations to the Board.
In the meantime, the Committee and the
Board are satisfied that there is sufficient
resource, experience and knowledge on
the Board.
COVID‑19, the engagement with the
bondholders and the re‑assignment or
resignation of Board members has meant
that the formal Board self‑evaluation in
2020 was postponed until 2021. However,
the members of the Board were in frequent
discussion in 2020 such that any ad‑hoc
challenge or initiative could be identified
and actioned.
Committee meetings
The Nomination and Governance
Committee met formally once during 2020.
A number of other matters that might
otherwise have been discussed by the
Committee were discussed directly by the
Board. The attendance of each Committee
member at Committee meetings held
during 2020 is shown on page 77. As a
separate agenda item, the Committee
reports to the Board at each monthly Board
meeting on any activities of the Committee
since the last Board meeting.
Only members of the Committee have
the right to attend Committee meetings.
However, other individuals may be invited
to attend all or part of any meeting, as and
when appropriate.
Key responsibilities
of the Nomination and
Governance Committee
The key responsibilities of the Committee
are to:
• Lead the process for Board appointments
and make recommendations to the Board
regarding candidates for appointment or
reappointment as Directors;
• Monitor and make recommendations
to the Board on Board governance and
corporate governance issues, to enable
the Board to operate effectively and
efficiently;
• Regularly review the structure, size and
composition (including skills, knowledge
and experience) of the Board;
• Keep under review the leadership
needs of the Company, both executive
and non‑executive, with a view to
ensuring the continued ability of the
Company to compete effectively in the
marketplace; and
• Review annually the time required from
Non‑Executive Directors.
Membership
Sir Christopher
Codrington, Bt.
Kaat van Hecke
Chairman
Mark Martin
to 15 July 2020
The Chairman does not have any other
significant commitments to report.
Diversity
More information on the Group’s actions
and policies in relation to diversity and
inclusion can be found on pages 41 –42.
All Directors will stand for re‑election at the
2021 Annual General Meeting with the full
support of the Board.
Sir Christopher Codrington, Bt.
Chairman, Nomination and Governance
Committee
27 April 2021
2020 has been a busy year for the
Nomination and Governance Committee.
Following the resignation of Kai‑Uwe Kessel
as Chief Executive Officer on 16 December
2019, a committee comprising myself, Atul
Gupta and Martin Cocker was established
to lead the search for Mr Kessel’s successor.
An extensive search was launched and
whilst several candidates were identified,
the Group’s engagement with bondholders
in quarter 2 and quarter 3 2020 resulted in
the search being relaunched in October
2020 with bondholder representatives as
part of the interview committee.
I am delighted that the relaunched search
eventually proved fruitful and Arfan Khan
was appointed as Chief Executive Officer
on 26 January 2021. Arfan has many
qualities that will benefit the Group in these
challenging times. On behalf of the entire
Board, I welcome Arfan and wish him the
very best in this vital role.
In March 2020, I was invited by the
Chairman to re‑assume the role of
Chairman of the Audit Committee with
effect from 1 April 2020. This was as a
result of the then current chairman, Martin
Cocker, being asked to assume the role
of Interim Chief Financial Officer from
31 March 2020. The Committee considered
this proposal carefully and approved
recommending this proposal to the
Board, which the Board approved.
Effective 15 July 2020, Mr Mark Martin
resigned from the Board and effective
4 September 2020 Mr Michael Calvey also
resigned from the Board. The appointment
of Mr Tav Morgan as alternate director for
Mr Calvey ceased at the same time as
Mr Calvey’s resignation.
86 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Key responsibilities
of the Health, Safety,
Environment and
Communities Committee
The key responsibilities of the committee
are to:
• Attention to climate change issues;
• Working with the Group’s operational
teams on site to compile and evaluate
the relevant information for the
Company to self‑report environmental
data using the CDP submission process;
• Assessing the requirements for
TCFD disclosures and analysing our
preparedness to meet these; and
• Working with the Audit Committee
and Board to include climate change in
the principal risks faced by the Group
and to endeavour to quantify climate
change related risks.
Membership
Kaat van Hecke Committee Chairwoman
Martin Cocker
Atul Gupta1
Health, Safety, Environment and Communities Committee report
Letter from the Chairwoman
Despite the attention to prevention
measures against COVID‑19 infection
demanded during the year, the Committee
also remained focused on the QHSE pillars
established in 2019 which define our
approach to sustainable operations.
Those pillars are:
• HSE leadership;
• Rigorous incident investigation;
• Process safety‑critical elements identified
and maintained;
• Contractor HSE management; and
• Commitment to reduce GHG emissions.
In line with these pillars, other notable
achievements in 2020 were:
• We had only two LTIs in 2020 and the
LTIR dropped to 0.8 in 2020 (per million
man‑hours, compared to an LTIR of
1.39 in 2019). Proactive reporting of
all hazardous situations continues to
be encouraged, as can be seen by
an increase of the TRIR to 3.8 in 2020
(compared to a TRIR of 2.96 in 2019).
• A target of 600 submitted Hazard
Observation Cards was set for 2020. I am
delighted to report that this target was
met in November, well before the year
end. A KPI for a similar number of Hazard
Observation Cards has been agreed for
2021 but this time with a focus on a larger
population of employees and as well as
on contractors submitting the cards.
• Environment and climate change
remained a focus. The Group again
made its annual CDP climate change
submission in August 2020 according to
the stated deadlines and was graded “C”.
We will again complete the submission
for 2020 in 2021. In line with the UK
Companies Act 2006 (Strategic Report
and Directors’ Reports) Regulations 2013,
the Company reports on its greenhouse
gas emissions and this information
can be found on pages 48 and 49. The
Committee will continue to work with
the Audit Committee and the Board
to include climate change among the
principal risks and uncertainties faced by
Nostrum and to endeavour to quantify
climate‑change‑related risks.
As might be expected, COVID‑19
demanded a lot of attention during the
year. The situation in west Kazakhstan was
quite severe during July, after which the
number of cases dropped significantly from
August to October, before a further rise in
the last quarter saw a return to restrictions
on the number of people allowed to attend
work in the office.
Within our Company, the primary focus
was to ensure the safety of our employees
and contractors. In accordance with our
own and local guidelines, we implemented
stringent precautionary measures. All field
personnel, both employees and contractor
staff, were required to test negative before
being allowed to return to the field. Regular
temperature checks were conducted
whilst they remained at the production
facilities. At various times during the year,
employees were restricted from attending
the office in Uralsk in order to comply with
local and national directives. Our London
office adopted remote working practices
from March which were kept in operation
throughout the rest of 2020.
As a result, the number of positive cases
within our employee base remained at
relatively low levels throughout the year, at
less than 0.5% of our workforce per month.
Thankfully, all affected staff recovered and
were able to return to work.
We saw no material impact from COVID‑19
on our operations in 2020 although
there were some small logistical supply
disruptions and equally small restrictions
on personnel travelling into, out of and
within Kazakhstan.
1. Atul Gupta was a member of the Health, Safety, Environment and Communities Committee for the period
1 September 2020 to 25 January 2021 during which he was the Interim Chief Financial Officer.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 87
Corporate governance Health, Safety, Environment and Communities Committee report continued
• We continued with our contractor
HSE management. We ensured that
matters identified in 2019 were closed
out. Although COVID‑19 limited the
number of audits that we could conduct
in 2020, we managed to perform two
contractor HSE management and two
internal management system audits
in accordance with our Golden Rules.
A number of findings were raised.
Our senior operations management
discussed these with senior contractor
representatives to stress the importance
of good Health, Safety, Environment and
Communities Committee management.
Review audits will be conducted in 2021
to ensure remediation measures have
been implemented.
• The Committee continued to emphasise
that process safety must not be confused
with industrial safety. A total of 13
safety declarations were developed
and registered with the Process Safety
Authority Industrial Development and
Process Safety Committee in Nur‑Sultan.
• In terms of diversity, at 31 December
2020 the Group reported 23% female
representation across all levels of our
active work population, which is a slight
increase from the level of 22% reported at
the end of 2019. Our result is comparable
to our industry peers’ diversity statistics,
but low in comparison to other industry
sectors. This is because despite having
fair recruitment policies in place, more
job applicants are male due to the
nature of the Group’s activities. I was
pleased to note that a number of women
were promoted to senior positions
during the year and we will continue
to implement incentives to encourage
female applicants and promotions, such
as flexi‑working arrangements, childcare
voucher schemes, childcare provisions
and identification of “high‑potential“
employees. Further information on the
Group’s approach to diversity is set out
on page 41.
The Committee met three times during
2020. The attendance of each Committee
member at Committee meetings held
during 2020 is shown on page 77. Only
members of the Committee have the right
to attend Committee meetings. However,
the Group QHSE Manager, Chief Operating
Officer, Chief HR Officer and Chief Legal
Officer all have standing invitations to all
meetings of the Committee and are tasked
with reporting to the Committee on key
areas linked to the work of the Committee
that fall within their responsibilities.
The meetings of the Committee were
supplemented by monthly meetings in
2020 between myself, the QSHE group,
the Chief Operating Officer and the Head
of Field Operations during the time that
I was in Uralsk as acting Chief Executive
Officer. This enabled the safety messages
to be brought down into the field directly
from the Chief Executive Officer, which
further underlined their importance to our
employees and contractors.
I reported to the Board, as a separate
agenda item, on the activities of the QSHE
group and the Committee at each Board
meeting.
The Committee reviews its terms of
reference annually, which can be viewed
on our website.
Kaat van Hecke
Chairwoman, Health, Safety, Environment
and Communities Committee
27 April 2021
88 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Remuneration Committee report
Letter from the Chairwoman
In accordance with the pre‑determined
plan, I stepped down as Chief Executive
Officer on 31 August 2020 and was
replaced from 1 September 2020 by
Atul Gupta, who was, and remained, the
Company’s Executive Chairman.
Mr Gupta, Mr Cocker and I did not join the
LTIP or receive any financial inducements
to take on the executive roles. Accordingly,
the main aspects of our Remuneration
Policy that caused challenges to our
shareholders previously have not been
in play in any way in 2020.
As noted elsewhere in this Annual Report,
the Group is in discussions with an informal
ad‑hoc noteholder group regarding a
possible restructuring of the Group’s debt.
The Board has determined not to review
our Remuneration Policy, including the LTIP,
until such time as those discussions have
been completed and the financial stability
of the Group has been re‑established.
However, we will seek shareholder approval
for the purposes of section 226B(1)(b) for
the Companies Act 2006, for the payment
to the Chief Executive Officer, Arfan Khan,
of an annual bonus of up to a maximum of
240% of base compensation. A modified
Remuneration Policy will not be put to
vote at the 2021 Annual General Meeting.
However, the full Remuneration Policy is
included in the remuneration report in
full for ease of reference. As required by
section 439A of the Companies Act 2006,
the Remuneration Policy is to be submitted
to shareholders for a binding vote every
three years or where there is a change in
the Remuneration Policy. In accordance
with the Act, a resolution to approve the
Remuneration Policy will next be submitted
to shareholders for a binding vote at the
2022 Annual General Meeting.
The 2020 Report on Remuneration will be
subject to an advisory vote at our 2021
Annual General Meeting.
Remuneration for 2020
Further details of Executive Director
performance against the 2020 KPIs can be
found on page 95. In setting these targets,
the Committee focused on areas critical for
the Company, which were:
• Stabilising annual average sales volumes;
• Reducing operational and G&A cash
costs;
• Pursuing strategic objectives to monetise
the spare capacity within our world‑class
processing facilities;
• Ensuring all of our operations are carried
out as safely as possible; and
• Actively managing our greenhouse gas
emissions.
Our strategic targets all remain
commercially sensitive and, therefore,
have not been disclosed.
I am the only person who served as an
Executive Director during 2020 who
has been assessed for a bonus against
achievement of these KPIs. The assessment
was completed by Sir Christopher
Codrington in September 2020 in his
role as Chair of the Committee and it was
determined that 67.3% of the KPIs had been
achieved by the end of August 2020.
The 2021 key performance indicators
for the Executive Directors and senior
managers were agreed by the Board in
January 2021 (in contrast to previous
years where KPIs for the year were only
developed in March of that year) and are
set out on page 101. Senior management,
including the Chief Executive Officer but
excluding, currently, the Interim Chief
Financial Officer, are assessed for bonuses
based on these KPIs. Certain strategic
objective KPIs have been carried forward
from 2019 but are still considered to be
commercially sensitive and so have not
been disclosed. It is our intention to publish
these, together with the bonus outcome, as
required in the first Remuneration Report
following their achievement.
Dear shareholder,
I am pleased to introduce the Directors’
Remuneration Report, which has been
approved by both the Remuneration
Committee and the Board for the year
ended 31 December 2020.
Remuneration Policy
The aim of our Remuneration Policy,
amongst other things, is to align the
remuneration of executives and senior
management with the interests of the
Company’s shareholders and to ensure
that rewards are justified by performance.
As reported last year, a significant number
of shareholders expressed concerns at the
AGM in 2019 on our Remuneration Policy,
in particular around the long‑term incentive
plan (LTIP) and the potential use of “Golden
Hellos” in connection with the recruitment
of new Directors.
Following consultation with shareholders
in 2019 and after careful consideration, the
Board and the Remuneration Committee
concluded that modifying the provisions
of the LTIP would not be the right course of
action. Therefore, our Remuneration Policy
remained unchanged throughout 2019
and 2020.
Only two Directors were part of the LTIP.
The Chief Executive Officer, Kai‑Uwe
Kessel, left the Group on 16 December
2019 and was replaced at the same time by
myself. Tom Richardson resigned as Chief
Financial Officer on 31 March 2020 and
was replaced on the same date by Martin
Cocker, who until that time was serving
on the Board as an independent Non‑
Executive Director.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 89
Corporate governance Remuneration Committee report continued
The Committee exercised discretion in
deciding not to make any awards under the
LTIP in 2020 to anyone who qualified for
such an award.
The Committee, with Mark Martin as
Chair, recommended to the Board that
the remuneration payable to myself under
the short‑term Interim Chief Executive
contract be substantially on the same
terms as applied under the previous Chief
Executive Officer’s service agreement.
The Committee, under the same Chair,
also recommended to the Board that
the remuneration payable to Martin
Cocker as Interim Chief Financial Officer
be the equivalent to the base salary of
Mr Richardson. On the recommendation
of the Committee under the chairmanship
of Sir Christopher Codrington, Mr Gupta’s
remuneration changed only marginally
when he assumed the role of Chief
Executive Officer.
In December 2020 a limited pay rise of 6.1%
on average was awarded to two of our UK
employees below senior manager level,
and in October 2020, a 5.4% pay increase,
backdated to 1 April 2020, was granted to
our Kazakh employee population who are
paid in Kazakh Tenge.
However, it was agreed that, given the
continued volatility in the market, the
Executive Directors and other members
of senior management would not receive
any salary increases in 2020.
Fees payable to the two independent
Non‑Executive Directors were reduced to
US$50,000 per Director per annum from
1 April 2020 but increased to $120,000
per annum for the two remaining Non‑
Executive Directors from the date of
signing the Forbearance Agreement on
23 October 2020. The increased levels
of fees for the Non‑Executive Directors
will remain in force until the end of the
forbearance period.
The fees payable to Mr Byrne and
Mr Calvey during 2020 were waived by
those Directors from 1 April 2020.
UK Corporate Governance Code
In light of my appointment as Chief
Executive Officer on 16 December 2019,
I stepped down as a member of the
Remuneration Committee on 27 January
2020 and Martin Cocker was appointed as
a member of the Remuneration Committee
to ensure that the Committee was
comprised solely of independent Non‑
Executive Directors.
Following the appointment of Martin
Cocker as Interim Chief Financial Officer
on 31 March 2020, he was no longer
considered by the Board as independent
for the purposes of the Code and as a
result his continued membership of the
Remuneration Committee until 8 October
2020 contravenes Provision 32 of the Code.
Mark Martin resigned from the Committee
effective 15 July 2020 when he also
resigned as a Director of the Company.
Sir Christopher Codrington became the
Chairman of the Committee and its only
independent Non‑Executive member until I
rejoined the Committee on 8 October 2020
as its Chairwoman.
The Committee recognises that for parts
of the year it was not in strict compliance
with the Code. However, given the amount
of scrutiny that decisions of the Committee
and Board became subject to in the
second half of 2020 as part of the bond
restructuring, I believe that the Committee
has been able to adequately discharge its
responsibilities throughout 2020.
Further information on compliance with the
Code can be found on page 68 – 69
Compliance statement
This report has been prepared in
accordance with the UK’s regulations on
remuneration reporting. The Companies
Act 2006 requires the auditor to report
to shareholders on certain parts of the
Directors’ Remuneration Report and to
state whether, in the auditor’s opinion,
those parts of the report have been
properly prepared in accordance with the
above regulations. This Annual Statement
and the Policy Report are not subject to
audit. The sections of the remuneration
report that are subject to audit are
indicated accordingly.
On behalf of the Committee, I would like
to thank shareholders for their continuing
support.
Kaat van Hecke
Chairwoman, Remuneration Committee
27 April 2021
90 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
2020 annual report on remuneration
2020 annual report on remuneration
Kaat van Hecke was appointed as Chief
Executive Officer on 16 December
2019 and, therefore, from this date until
27 January 2020, when Ms van Hecke
stepped down from the Committee, she
had day‑to‑day involvement with the
business. Ms van Hecke was redesignated
as an independent Non‑Executive
Director on 10 September 2020 and
was reappointed to the Committee
as its Chairwoman on 8 October 2020.
The primary responsibilities of the
Committee are set out in its terms of
reference which are reviewed and updated
annually, and which are available to
download from the Company’s website.
Alternatively, copies can be obtained on
request from the Company Secretary.
When making recommendations to the
Board regarding Executive Directors’
remuneration the Committee is able
to consider corporate performance on
environmental, social and governance
issues and ensures that any incentive
structures do not raise any environmental,
social or governance risks by inadvertently
motivating irresponsible behaviour.
The Committee held four meetings in 2020
and the attendance of each committee
member at such meetings is shown on
page 77.
Remuneration Committee
The remuneration of the Chairman, the
Chief Executive, the Chief Financial Officer,
the Company Secretary and all other
senior members of executive management
is determined by the Committee under
delegated powers from the Board and in
accordance with the Committee’s terms
of reference. The Chairman and the
executive members of the Board determine
the remuneration of all Non‑Executive
Directors, including members of the
Committees.
In accordance with the terms of
reference, members of the Committee
shall be appointed by the Board on the
recommendation of the Nomination and
Governance Committee in consultation
with the Chair of the Committee. The
Committee must always include at
least three independent Non‑Executive
Directors who comprise a majority of the
Committee.
During 2020, the Committee was
comprised solely of independent Non‑
Executive Directors, except for Martin
Cocker (serving as Interim CFO) during the
period from 31 March 2020 to 8 October
2020. However, only two independent
Non‑Executive Directors served on the
Committee for the period 27 January
to 16 July and only one independent
Non‑Executive Director served on the
Committee for the period 16 July to
8 October. This was because of Non‑
Executives stepping into executive
positions on an interim basis and resigned
independent Non‑Executive Directors not
being replaced.
Key responsibilities of the
Remuneration Committee
In summary, the Committee’s key
responsibilities include:
• Making recommendations to the Board
on the Company’s overall framework
for remuneration and its cost and,
in consultation with the Executive
Chairman and Chief Executive Officer,
determining the remuneration
packages of each of the Executive
Directors;
• Reviewing the scale and structure of
Executive Directors’ remuneration
and the terms of their service or
employment contracts, including
share‑based schemes, other employee
incentive schemes adopted by the
Company from time to time and
pension contributions;
• Demonstrating to the shareholders of
the Company that the remuneration of
the executive directors of the Company
and other senior members of executive
management of the Company and its
subsidiaries is set by a committee of
the Board whose members have no
personal interest in the outcomes of the
decisions of the committee and who will
have due regard to the interests of the
shareholders; and
• Ensuring payments made on termination
comply with the relevant provisions of
the Company’s Remuneration Policy.
The members of the Committee during
2020 were:
Membership
start date
Membership
end date
19 May 2014 15 July 2020
19 May 2014
31 December
2016
27 January
2020
8 October
2020
Name
Mark Martin
(Chairman to
16 July 2020)
Sir Christopher
Codrington,
Bt. (Chairman
from 16 July
to 8 October
2020)
Kaat van
Hecke
(Chairwoman
from
8 October
2020)
Martin Cocker 27 January
2020
8 October
2020
Their biographies are given on pages
70 – 71. The Company Secretary acts
as secretary to the Committee.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 91
Corporate governance 2020 annual report on remuneration continued
The principal agenda items at the formal meetings were as follows:
Meeting
March 2020
Agenda item
• Review and approval of key performance indicators.
• Approval of Executive Director and senior management compensation and bonuses.
• Review and approval of the 2019 remuneration report.
May 2020
• Review of pension arrangements across the Group.
August 2020
• Discussion of proposal for bonus award to Ms van Hecke.
• Review of Kazakh staff bonus and salary arrangements.
Sept 2020
• Further discussion and recommendation to the Board of the bonus award to Ms van Hecke.
• Extension of the contract for the Interim Chief Financial Officer.
• Discussion and approval of the Executive Chairman’s remuneration for assuming the position of
Chief Executive Officer on an interim basis.
November 2020
• Development and recommendation to the Board of the 2021 key performance indicators.
• Alignment and approval of the remuneration package for the new Chief Executive Officer.
With the exception of the Chairman of the Board and the Interim Chief Financial Officer, no other Directors participated in meetings of the
Committee during 2020.
During the year, the Committee received
advice internally from Kaat van Hecke (from
1 January to 31 August 2020 during her
appointment as Interim Chief Executive
Officer), Atul Gupta (from 1 September
2020 as Interim Chief Executive Officer)
and Martin Cocker (from 1 April 2020 as
Interim Chief Financial Officer) and
Thomas Hartnett (Company Secretary).
Mr Gupta and Ms van Hecke were
consulted on the remuneration of the
other executive directors and senior
members of executive management and
on matters relating to the performance of
the Company. The Company Secretary was
consulted on regulatory requirements.
None of the Executive Chairman of the
Board, the Interim Chief Executive Officers,
the Interim Chief Financial Officer nor
the Company Secretary participated in
decisions on their own remuneration.
Members of the Group’s human resources
team may attend relevant portions
of Committee meetings to ensure
appropriate input on matters related to
the remuneration of senior members
of the executive management team
below Board level.
Voting on remuneration matters
Section 439A of the Companies Act 2006 (the Act) requires the Remuneration Policy to be
submitted to shareholders for a binding vote every three years or where there is a change
in the Remuneration Policy. The Remuneration Policy was last approved by shareholders at
the 2019 Annual General Meeting. There were no proposed changes to the Remuneration
Policy for 2020.
The resolution put to shareholders at the 2020 Annual General Meeting relating to
Directors’ remuneration was a resolution to approve the Directors’ annual report on
remuneration and, in accordance with the Act, the resolution was subject to an advisory
vote. The votes received are set out in the table below.
Resolution
Approval of Directors’ annual
report on remuneration
Votes FOR
% of
votes cast
Votes
AGAINST
% of
votes cast
Votes
WITHHELD
122,697,311
99.87%
165,214
0.13%
0
At the 2021 Annual General Meeting, the Directors’ remuneration report will be put
to shareholders for approval by way of an advisory vote. No changes are proposed
to the Remuneration Policy and this Policy will not be put to shareholders at the 2021
Annual General Meeting. However, we will seek shareholder approval, for the purposes
of section 226B(1)(b) of the Companies Act 2006, for the payment to the Company’s
Chief Executive Officer, Arfan Khan, of an annual bonus of up to a maximum of 240% of
base compensation. In accordance with the Act, a resolution to approve changes to the
Remuneration Policy will next be submitted to shareholders for a binding vote at the
2022 Annual General Meeting.
92 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Single total figure of remuneration for Executive Directors
The table below shows the single total figure of remuneration for the year ended 31 December 2020 for each Executive Director that
served as an Executive Director at any time during the year. The information contained in the table is as prescribed by the Large and
Medium‑sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and contains a single total figure of
remuneration for each Executive Director.
The Executive Directors are remunerated in either EUR, GBP, US$ or KZT and, to avoid any anomalies in the figures reported owing to
fluctuations in the EUR/US$, GBP/US$ and KZT/US$ exchange rate, the Company has decided not to convert amounts paid to Executive
Directors into US$, the Group’s functional currency, but instead to report all figures in relation to Executive Director remuneration in EUR
throughout this report.
Director2
Amounts in EUR5
Period
Salary and
fees
Benefits
in kind
Annual
bonus4
Phantom
Share Option
Plan
LTIP8
Pension7
Total
(audited)
Total fixed
remuneration
Total variable
remuneration
Atul Gupta
(Executive
Chairman)
Kai-Uwe Kessel1
(Chief Executive
Officer)
Tom Richardson
(Chief Financial
Officer)
Kaat van Hecke
(Chief Executive
Officer)
Martin Cocker
(Chief Financial
Officer)
2020
2019
453,383
455,203
462
179
2020
–
–
2019
1,275,23913 34,6023
2020
2019
212,18011
3,121
580,899
33,6176
–
–
–
–
–
–
2020
2019
550,41210 11,481 116,405
48,4009
961
2020
2019
374,47112
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,927
466,771
455,382
466,771
455,382
–
–
–
7,530 1,317,371
1,317,371
4,23311 219,535
31,815
646,331
219,535
646,331
–
–
–
–
–
–
21,532
699,830
583,425
116,405
3,075
52,436
52,436
–
–
374,471
374,471
–
–
–
–
–
1. Mr Kessel stepped down as Chief Executive Officer on 16 December 2019.
2. Mr Kessel and Ms van Hecke (from December 2019 to August 2020 when she was in role as Chief Executive Officer) received part of their remuneration under a
contract for services as a director and part under separate service agreements for their role as a Group executive. Mr Richardson and Mr Gupta (from November
2018 when he was appointed as Executive Chairman) receive their remuneration under Group executive service contracts. Prior to November 2018, Mr Gupta was
not an Executive Director. For clarity, this table presents their total remuneration from the Group whether received under a contract for services as a Director or a
Group executive services contract.
3. Mr Kessel was provided with a Company car and payments in lieu of the provision of life insurance under his employment contract for his role as Chief Executive
Officer and not under his service contract as an Executive Director but, for completeness, the amount received has been included in this table.
4. No bonuses for 2019 performance were paid to Executive Directors. Ms van Hecke received a bonus in 2020 for her contribution to the operating, commercial,
strategic and environmental objectives of the Group. None of the bonus awarded to Ms van Hecke was in relation to the appreciation or depreciation of the
Company’s share price.
5. Mr Gupta is remunerated in US$, Mr Richardson and Mr Cocker in GBP, Mr Kessel in EUR, US$ and KZT and Ms van Hecke in EUR and KZT. For the purposes of this
table the following exchange rates have been used:
2020: GBP:EUR 1.129; EUR:US$ 1.131; EUR:KZT 431
2019: GBP:EUR 1.134225; EUR:US$ 1.125; EUR:KZT 420
6. This amount was paid to Tom Richardson in lieu of the provision of medical insurance under his employment contract for his role as Chief Financial Officer and not
under his service contract as an Executive Director but, for completeness, the amount received has been included in this table.
7.
The Company did not operate a pension scheme for Executive Directors in 2019 or 2020 but may make a pension contribution or a payment in lieu of pension
contributions to Executive Directors under their employment contracts as executives of the Group as opposed to under their service agreements as Directors of
the Company. The total amount paid to Executive Directors in 2020 in lieu of pension contributions was EUR 38,692 (2019: EUR 38,655). Executive Directors are not
entitled to any additional benefit if they retire early.
8. Awards made under the LTIP in 2017 have not vested yet and so no amounts have been received/are receivable by the Executive Directors in respect of such awards.
No awards made under the LTIP in 2018 are capable of vesting as the performance conditions were not met in 2018. No awards were made under the LTIP in 2019
or 2020.
9.
Mr Kessel stepped down as Chief Executive Officer effective 16 December 2019. Ms van Hecke was paid her Chief Executive Officer salary for the period
1‑31 December 2019, which included a two‑week handover period.
10. Ms van Hecke was paid as Chief Executive Officer for the period 1 January to 31 August 2020.
11. Mr Richardson resigned as Chief Financial Officer and as a Director of the Company on 31 March 2020. The payment to Mr Richardson in 2020 includes GBP 37,500
in salary and fees and GBP 1,875 in pension being one month’s pay in lieu of notice.
12. Mr Cocker was appointed Interim Chief Financial Officer from 31 March 2020.
13. Mr Kessel was remunerated on a net guarantee basis and his gross remuneration was adjusted to achieve the relevant agreed level of net remuneration. The salary
and fees figure shown in the table represents the total cost to the Company in connection with his employment.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 93
Corporate governance
2020 annual report on remuneration continued
Single total figure of remuneration for Non-Executive Directors
The table below shows the single total figure of remuneration for each of the Non‑Executive Directors. Non‑Executive Directors are
remunerated in US dollars.
Director1,2
Amounts in US$
Sir Christopher Codrington, Bt.3
Mark Martin5
Kaat van Hecke3,6
Martin Cocker7
Simon Byrne8
Michael Calvey8
Period
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Fees
94,098
Total
(audited)
94,098
127,500
127,5004
51,023
51,023
130,000
130,000
29,968
99,167
27,500
29,968
99,167
27,500
105,781
105,781
25,000
25,000
100,000
100,000
25,000
25,000
100,000
100,000
1. Between 1 January and 31 March 2020, Non‑Executive Directors were paid a fee of $100,000 per annum. Additional amounts were awarded for being Chair of one
of the Board’s committees and also for being the Senior Independent Non‑Executive Director.
2. From 1 April to 22 October 2020, the independent Non‑Executive Directors were paid a fee of $50,000 per annum with no additional amounts payable for being
Chair of any of the Board’s committees nor the Senior Independent Non‑Executive Director.
3. From 22 October 2020, Sir Christopher Codrington and Kaat van Hecke were paid fees of $120,000 per annum. No additional amounts were payable for being
Chair of any of the Board’s committees nor the Senior Independent Non‑Executive Director.
4. Sir Christopher Codrington received an additional fee for being the Chairman of the Nomination and Governance Committee and for being the Non‑Executive
Director responsible for workforce engagement. Sir Christopher also received an additional fee for being Chairman of the Audit Committee until 4 June 2019.
5. Mr Martin received an additional fee for being Senior Independent Non‑Executive Director and the Chairman of the Remuneration Committee.
6. Ms van Hecke became Chief Executive Officer on 16 December 2019 and her salary increased to EUR 480,000 to reflect her additional responsibilities. Amounts
paid to Ms van Hecke from 1‑31 December 2019 and from 1 January 2020 to 31 August 2020 for her role as Chief Executive officer are reported in the table on
page 93. Ms van Hecke resigned as Chief Executive Officer on 31 August 2020 and was redesignated as an independent Non‑Executive Director effective 10
September 2020.
7.
Mr Cocker received an additional fee for being Chairman of the Audit Committee from 4 June 2019. Mr Cocker stepped down as Chairman of the Audit Committee
on 1 April 2020 following his appointment as Interim Chief Financial Officer on 31 March 2020. His salary was increased to GBP 450,000 from 1 April 2020 to reflect
his additional responsibilities. Amounts paid to Mr Cocker from 1 April 2020 are reported in the table on page 93.
8. Michael Calvey and Simon Byrne waived all of their fees from 1 April 2020 until their resignation from the Board effective 4 September 2020 and effective 4 January
2021, respectively.
94 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes on the single total figure of remuneration table
Base salaries
Executive Directors’ salaries were considered by the Committee at the time of appointment to post in 2020.
When reviewing salaries, the Committee considered the provisions of the Remuneration Policy and the situation of the Company.
Annual bonus
In 2020, Ms van Hecke was the only Executive Director eligible for a bonus.
In accordance with the Company’s Remuneration Policy, the maximum annual bonus opportunity in 2020 was 40% of base compensation
and is assessed against financial and operational objectives.
All bonuses are discretionary and can be reduced from the maximum annual bonus opportunity level for reasons such as poor
performance by the employee or due to disappointing financial performance of the Group as a whole.
Ms van Hecke resigned as Chief Executive Officer on 31 August 2020 and so her bonus was assessed on her total remuneration for the
period 1 January to 31 August 2020.
The key performance indicators for annual cash bonuses for Executive Directors were as follows:
2020 bonus performance measures
Operational and financial
Achieve annual average sales (boepd) from 19,000 boepd (0%) to 21,000 boepd (100%)
(sliding scale)
Reduce operational and G&A cash costs from US$63m (0%) to US$50m (100%) (sliding scale)
Re‑start GTU 3 with stable (one month uninterrupted) sales volumes (in Q3 (100%), in Q4 (50%))
LPS 4th compressor start‑up before year end
Strategic objectives
A commercially sensitive strategic target, therefore not disclosed
A commercially sensitive strategic target, therefore not disclosed
HSE, social and governance
Demonstrate active GHG emissions management
Weight
50%
15%
20%
10%
5%
40%
20%
20%
10%
5%
Actual
36.3%
15%
16.3%
0%
5%
23%
13%
10%
8%
4%
% of base
salary
14.52%
6%
6.52%
0%
2%
9.2%
5.2%
4.0%
3.2%
1.6%
Assessment by the Health, Safety, Environment and Communities Committee of achievement
of the HSE Plan for 2019 (provided that there have been no fatalities)
Total
5%
100%
4%
1.6%
67.3%
26.92%
The Committee considered the performance of the Interim Chief Executive Officer in the period 1 January to 31 August 2020. Against a
backdrop of extreme uncertainty in the financial stability of the Group as a result of the collapse of the oil price in early 2020 compounded
by the impact of COVID‑19, the Chief Executive Officer had, in a comparatively short period of time:
• Successfully stabilised the financial position of the Group through targeted cost‑cutting initiatives;
• Reduced the rate of decline in production through a successful well workover and intervention programme;
• Established strong commercial relationships that had moved the Group significantly towards achieving the two commercially sensitive
strategic targets;
• Continued to pay attention to HSE, social and governance concerns.
Therefore, despite financial results continuing to be disappointing, the Committee recommended to the Board that the bonus be
awarded in full.
The Company does not provide for any clawback provisions regarding annual bonuses, as annual bonuses are awarded on a lump sum
basis based on past performance and payable in the following year, and so the rationale behind a clawback mechanism is less relevant.
This also applies to LTIP awards for which performance conditions have been satisfied.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 95
Corporate governance 2020 annual report on remuneration continued
Long-term incentive awards
In 2017, the Company implemented its new performance‑based long‑term incentive plan (LTIP) and granted additional awards on
28 November 2018.
The LTIP awards granted are based on performance over one calendar year, which is followed by an additional two‑year holding period
such that no awards may vest before the third anniversary of the date of grant.
The Committee decided not to make any awards in 2020, and so there is no information to be provided in relation to performance
conditions for the reporting year.
Pension entitlements
The Company did not operate a pension scheme for Executive Directors in 2020 but may make a contribution to a private pension fund
or a payment in lieu of pension contributions to Executive Directors, under their employment contracts as executives of the Group as
opposed to under their service agreements as Directors of the Company.
Payments to past Directors
No payments were made to past directors of the Company during the year ended 31 December 2020.
Payments for loss of office
Mr Richardson received a payment equivalent to one month’s basic salary (i.e. excluding any benefits in kind or bonus but including
payment in lieu of pension contribution). This was calculated by reference to his contractual notice period under his contract for services
as a director of the Company. The total amounts paid were GBP 37,500 being one month’s salary for his role as Chief Financial Officer and
GBP 1,875 being one month’s payment in lieu of pension contribution.
All amounts mentioned above have been audited.
Non-executive Director fees
The Committee reviewed and proposed to the Board that Non‑Executive Director fees be reduced from $100,000 per annum to $50,000
per annum from 1 April 2020. This was to reflect the financial uncertainty surrounding the Group.
The Committee reviewed and proposed to the Board that Non‑Executive Director fees be increased to $10,000 per month from
23 October 2020 following the signing of the Forbearance Agreement. This was to reflect the additional work required from each
Non‑Executive Director as a result of the bond restructuring as well as a reduction in the number of Non‑Executive Directors following
resignations during the year.
Directors’ shareholdings
The beneficial interests of the Directors in the share capital of the Company as at 31 December 2020 were as follows:
Director
Atul Gupta
Sir Christopher Codrington, Bt.
Kaat van Hecke
Simon Byrne
Martin Cocker
Total
(audited)
178,357
3,312
–
25,000
–
The Company has not been notified of any change in Directors’ shareholdings since the year end.
Please refer to the text in the Remuneration Policy table on page 105 in relation to shareholding guidelines applicable to Directors.
No shares have been granted to Directors so there was no requirement on any Director to hold them in accordance with the guidelines.
With the exception of Mr Gupta, none of the Executive Directors held shares in 2020 as encouraged by the guidelines.
96 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Phantom share option plan
The Company operates one non‑performance‑related phantom share option plan (the Plan). The Executive Directors eligible to
participate in the Plan were Kai‑Uwe Kessel and Tom Richardson. Each held options over Ordinary Shares of the Company, generally
vesting over a five‑year period, exercisable at either US$4.00 or US$10.00 per Ordinary Share and expiring 10 years from the date of grant,
pursuant to the Plan.
Mr Kessel left the Company by mutual consent on 16 December 2019 and, in accordance with the terms of the Plan, all outstanding
options lapsed as at the same date.
Mr Richardson resigned as Chief Financial Officer and as a Director of the Company on 31 March 2020 and, in accordance with the terms
of the Plan, his options remained exercisable for one year from the date of his departure. At the date of this Annual Report, those options
have lapsed. The details of those options are:
(audited)
Director
Tom Richardson
Date
of grant
26 March
2013
Options
held at
31 December
2020
Face
value at
date of
grant
(in US$)
Options
exercised
during the
financial year
2020
Options
lapsed
during the
financial year
2020
Options
held
at 31
December
2020
Option
exercise price
(US$ per
option)
110,000
9,900
–
–
110,000
10.0
Expiry date
30 March
2021
No awards were made under the Plan in 2020 (2019: nil). It is intended that once the Group has re‑established financial stability through
restructuring its long‑term debt then a new long‑term incentive plan will be introduced which will replace the Plan going forward.
Therefore, it is not currently envisaged to make any further awards under the Plan.
The Plan rules do not contain any malus or clawback mechanisms. However, should further awards be considered under the Plan, then
management will require any recommendations by the Company to the option trustee of an option award to be made subject to an
express right for the Company to suspend further vesting and to claw back unvested options previously awarded where there have been
exceptional circumstances of misstatement or misconduct, misbehaviour, significant risk failures or material downturns in the Group’s
financial performance prior to vesting.
Long-term incentive plan
On 24 August 2017, the Board approved the making of certain initial grants under the Company’s new long‑term incentive plan (LTIP).
Awards under the LTIP were made in 2017 and 2018 but no further awards were made in 2019 or 2020.
The table below provides details of the LTIP awards made to Directors in 2017 and 2018. However, Mr Kessel left the Company on
16 December 2019 and Mr Richardson left the Company on 31 March 2020. In accordance with the LTIP rules, all of their outstanding
options lapsed as of these respective dates.
Director
Kai‑Uwe Kessel
Kai‑Uwe Kessel
Tom Richardson
Tom Richardson
Date
of grant
28 November 2018
10 October 2017
28 November 2018
10 October 2017
Options
at date of
grant
332,706
332,706
174,900
174,900
Options
capable
of vesting as at
31 December
2020
0
0
0
Face value
(in GBP)2
0
0
0
71,195
218,458
Options
capable of
being
exercised
during the
financial year
20201
0
0
0
0
Expiry date
N/A
N/A
N/A
N/A
1. None of the options granted were exercisable as at 31 December 2020.
2. The face value has been calculated by multiplying the number of options capable of vesting by the fair value of the options at grant date (£2.76 for the 2017 options),
and as performance conditions for 2018 were not met the 2018 options have no face value. A nominal amount of 0.01p per option will be payable by all Directors
upon exercise. The Company has the option to waive the nominal cost.
All Non‑Executive Directors who had been granted awards under the LTIP (including the Chairman) have formally renounced such awards
and the Company has amended the terms of its LTIP to make Non‑Executive Directors ineligible to participate in the LTIP.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 97
Corporate governance 2020 annual report on remuneration continued
Remuneration statistics and comparisons
The following performance graph shows the growth in value of a notional £100 invested in the Company since the premium listing of
the Company compared with the growth in the FTSE 350 Oil & Gas Index over the same period. The Committee selected the FTSE 350
Oil & Gas Index as the most appropriate comparator as it feels that it is a broad‑based index which includes many of the Company’s
competitors.
TOTAL SHARE RETURN
120
100
80
60
40
20
0
9
1
n
a
J
9
1
b
e
F
9
1
r
a
M
9
1
r
p
A
9
1
y
a
M
9
1
n
u
J
9
1
l
u
J
9
1
g
u
A
9
1
p
e
S
9
1
t
c
O
9
1
v
o
N
9
1
c
e
D
0
2
n
a
J
0
2
b
e
F
0
2
r
a
M
0
2
r
p
A
0
2
y
a
M
0
2
n
u
J
0
2
l
u
J
0
2
g
u
A
0
2
p
e
S
0
2
t
c
O
0
2
v
o
N
0
2
c
e
D
Nostrum O&G (dividends received)
Nostrum O&G (dividends re-invested)
FTSE 350 Oil & Gas
History of Chief Executive Officer remuneration
The total remuneration figures compared with a respective maximum opportunity for the Chief Executive Officer during each of the last
five financial years are shown in the table below. Kai‑Uwe Kessel was in the position for the period 1 January 2015 to 16 December 2019,
Kaat van Hecke was the Chief Executive Officer from 16 December 2019 to 31 August 2020 and Atul Gupta from 1 September to
31 December 2020.
The total Chief Executive Officer remuneration figure for 2020 therefore includes all amounts paid to Kaat van Hecke for the period
1 January 2020 to 31 August 2020 and Atul Gupta for the period 1 September 2020 to 31 December 2020 for Chief Executive Officer
services provided to the Group. Mr Gupta remained as Executive Chairman throughout the period 1 September to 31 December, 2020.
Therefore, the amount attributed to his role as Chief Executive Officer is the incremental value in his remuneration only, which was the
pension contribution.
Please refer to the single total figure of remuneration table on page 93 for more information.
Year
2016
2017
2018
2019
2020
Total CEO
remuneration
(EUR)
Annual bonus
as % of
maximum
opportunity
915,900
888,451
617,765
1,369,807
712,757
75%
31.25%
0%
0%
61%
98 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Annual percentage change in Director and average employee remuneration
The table below shows the percentage changes in the 2020 salary, benefits and annual bonus of the Directors compared to the
percentage increases of the workforce as a whole.
Executive Directors (EUR)
Executive Chairman1
2020
2019
% change
Chief Executive Officer
2020
2019
% change
Chief Financial Officer
2020
2019
% change
Non-Executive Directors (US$)
Sir Christopher Codrington Bt
2020
2019
% change
Kaat van Hecke
2020
2019
% change
Mark Martin
2020
2019
% change
Martin Cocker
2020
2019
% change
Michael Calvey
2020
2019
% change
Simon Byrne
2020
2019
% change
Salaries
Benefits Annual Bonus
453,383
455,203
462
179
(0.4)%
158.1%
–
–
–
550,412
11,481
116,405
1,323,639
(58.4)%
35,563
(67.7)%
586,651
580,899
1.0%
3,121
33,617
(90.7)%
–
N/A
–
–
0.0%
Salaries
Benefits Annual Bonus
94,098
127,500
(26.2)%
29,968
99,167
(69.8)%
51,023
130,000
(60.8)%
27,500
105,781
(74.0)%
25,000
100,000
(75.0)%
25,000
100,000
(75.0)%
–
–
–
–
0.0%
0.0%
–
–
–
–
0.0%
0.0%
–
–
–
–
0.0%
0.0%
–
–
–
–
0.0%
0.0%
–
–
–
–
0.0%
0.0%
–
–
–
–
0.0%
0.0%
Employees of the Group on an FTE basis
% change
(13.0)%
(11.4)%
(0.5)%
1. Mr Gupta is remunerated in US$. He did not receive any increase in salary during 2020 in respect of is role as Executive Chairman and so any movement against 2019
is as a result of changes in exchange rates.
2. Ms van Hecke was Chief Executive Officer from 1 January to 31 August 2020. Mr Gupta assumed the role of Chief Executive Officer from 1 September 2020 but
received no increment in salary, benefits or annual bonus as a result of assuming this role as well as that of Executive Chairman. Therefore, the figures for the
remuneration of the Chief Executive Officer in 2020 reflects only the amounts paid to Ms van Hecke.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 99
Corporate governance
2020 annual report on remuneration continued
Relative importance of spend on pay
The table below shows the Group’s actual spend on pay (for all employees) relative to dividends.
Key expenditure areas
In thousands of US$
Remuneration paid to all employees1
Dividends to shareholders (total)
Dividends
Share buy‑back
2020
22,693
2019
% change
38,755
(41.5)%
0
0
0
0
0
0
0%
0%
0%
1. Total remuneration reflects overall payroll and related taxes. Refer to the consolidated financial statements for further information.
For further information on dividends and expenditure on remuneration for all employees, please see the notes to the consolidated
financial statements.
Service contracts
Details of the Executive Directors’ service agreements’ and the Non‑Executive Directors’ letters of appointment can be found in
the Company’s Remuneration Policy on pages 107 and 108 respectively of this Annual Report. All Directors are subject to annual
reappointment and accordingly all executive and Non‑Executive Directors will stand for election or re‑election (as appropriate) at
the Annual General Meeting.
Statement of 2020 Remuneration Policy implementation
The Company’s Remuneration Policy was put to a shareholder vote at the 2019 Annual General Meeting and was approved by 74.65% of
shareholders.
There is no requirement for a vote on the Policy until the 2022 Annual General Meeting unless any changes to the Policy are proposed.
The Committee feels that the Policy continues to remain appropriate and aligned with the Company’s strategy and business needs and
no changes are proposed for the coming year. However, we will seek shareholder approval for the purposes of section 226B(1)(b) of the
Companies Act 2006 for the payment to the Company’s Chief Executive Officer, Arfan Khan, of an annual bonus of up to a maximum of
240% of base compensation.
Salaries and bonuses of the Executive Directors are reviewed and determined annually to ensure they remain appropriate. The Company’s
bonus year runs from 1 January to 31 December each year, with bonus amounts being determined between December and March and
becoming payable between April and August of each year.
Remuneration in 2021 will be consistent with the Policy described on pages 102 – 108 subject to the payment to the Company’s Chief
Executive Officer, Arfan Khan, of an annual bonus of up to a maximum of 240% of base compensation if shareholder approval is obtained.
Salaries and service fees
The Group appointed a new Chief Executive Officer on 26 January 2021. As part of that process, the level of remuneration to be paid was
agreed by the Committee and approved by the Board.
Annual bonus
In accordance with the Remuneration Policy applicable in 2020, the Executive Director annual bonus opportunity was up to 40% of base
compensation. Annual performance will be assessed against a performance scorecard of which a portion is based on operational and
financial measures, a portion on strategic objectives and a portion on HSE, social and governance objectives.
The Committee has compiled a list of suitable key performance indicators against which the performance of the Executive Directors will
be measured at the end of 2021 to determine the annual bonus amounts payable to Executive Directors in 2022. Details of any non‑
commercially sensitive KPIs are set out below. 2021 performance will be measured against these key performance indicators and the
Committee will consider such performance together with the Company’s financial position, in deciding whether and at what level
to award.
100 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
2021 bonus performance measures
Operational and financial
Achieve annual average sales from 16,000 boepd (0%) to 20,000 boepd (100%), excluding inventory movement.
(Sliding scale.)
Reduce the total of opex and G&A from US$43.4m (0%) to US$34.7m (100%). Accruals basis. (Sliding scale.)
Reduce Chinarevskoye capex, excluding well workover costs, from US$7.9m (0%) to US$6.4m (100%).
Excludes new projects. Applies to agreed workscope.
Reduce well workover/well intervention costs for programme approved as at 31 December 2020 from US$7.3m (0%)
to US$5.8m (100%). (Sliding scale.)
Strategic objectives
Complete the restructuring of the Company’s capital structure, including receipt of all required governmental approvals
A commercially sensitive strategic target, therefore not disclosed
A commercially sensitive strategic target, therefore not disclosed
A commercially sensitive strategic target, therefore not disclosed
A commercially sensitive strategic target, therefore not disclosed
Environmental, social and governance
Reduce GHG emissions to below 200,000 tonnes CO2 equivalent and implement GHG action plan.
Assessment by the Health, Safety, Environment and Communities Committee of achievement of the HSE Plan for 2021
(provided that there have been no fatalities).
Total
Weight
%
30%
15%
10%
5%
200%
20%
120%
45%
10%
5%
10%
5%
5%
240%
These bonus performance measures apply to the Chief Executive Officer only. Currently, no other director is eligible for any bonus
payment relating to 2021 performance based on these performance measures.
Phantom share option plan
The Committee does not envisage the award of any additional phantom share options to Executive Directors in 2021.
Long-term incentive plan
As noted, the Committee expects that the Company’s long‑term incentive plan will be revised following the successful restructuring of the
Group’s debt. Therefore, the Committee does not envisage any awards under the Company’s existing long‑term incentive plan in 2021.
Therefore, no performance conditions have been set for 2021.
Non-Executive Directors
As noted, Non‑Executive Director fees were reviewed in March 2020 and again in September 2020 and certain adjustments made. The next
review of Non‑Executive Director fees will be conducted in 2021.
Approval of the Directors’ remuneration report
The Directors’ remuneration report was approved by the Board on 27 April 2021.
On behalf of the Board
Martin Cocker
Interim Chief Financial Officer
Arfan Khan
Chief Executive Officer
27 April 2021
27 April 2021
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 101
Corporate governance
The Committee has access to the
Audit Committee and senior executive
management as and when required to
discuss any matters of risk assessment.
Nostrum operates in an industry that is
inherently subject to operational risks.
Particular emphasis is therefore placed
on ensuring that health and safety best
practice is reinforced by this Policy. The
Committee consults regularly to ensure
that this is the case.
Ongoing review of Policy
The Committee will periodically
review whether this Policy is operating
appropriately. Any actions arising from this
review will be assigned to an appropriate
person with a deadline to report back to
the Committee. The level and structure
of the compensation system will also be
reviewed annually by the Committee.
Remuneration Policy table
The table on the following pages sets out
the key components of the reward package
for Executive Directors.
Directors’ Remuneration Policy
Directors’ Remuneration Policy
Future Directors’
Remuneration Policy
This part of the Directors’ remuneration
report sets out the Remuneration Policy
for the Company and has been prepared
in accordance with the Companies Act
2006, the Large and Medium‑sized
Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013,
the UK Corporate Governance Code
and the Listing Rules of the UK Listing
Authority. This Policy was last approved by
shareholders at the 2019 Annual General
Meeting held on 4 June 2019 and took
effect from that point. Whilst we do not
envisage making any changes to our
Policy prior to the Company’s 2022 Annual
General Meeting, we will seek shareholder
approval, for the purposes of section
226B(1)(b) of the Companies Act 2006,
for the payment to the Company’s Chief
Executive Officer, Arfan Khan, of an annual
bonus of up to a maximum of 240% of base
compensation.
The Policy in full is as detailed below.
Policy coverage
This Policy applies to all payments to
Directors of the Company from the date
of the Company’s 2019 AGM.
Policy objectives
This policy is designed to:
• Provide that the Company may not make
any LTIP awards to its Non‑Executive
Directors or Chairman;
• Provide a structure and level of pay that
attracts and retains high‑calibre directors
capable of delivering the Company’s
strategic objectives;
• Provide clear and transparent
performance incentives in a manner
that is consistent with best practice
and aligned with the interests of the
Company’s shareholders;
• Align the remuneration of executives
with the interests of the Company’s
shareholders, and ensure that rewards
are justified by performance;
• Ensure that the pay of the Executive
Directors takes into account: (i) pay and
conditions throughout the Company;
and (ii) corporate governance best
practice, including health and safety,
environmental, social and governance
risks;
• Allow for future bonuses to be paid in
whole or part in deferred shares; and
• Allow for pension contributions to
Executive Directors for their services
under service contracts up to a 10%
maximum opportunity, or higher if
required by applicable law.
Peer group
For the purposes of benchmarking
appropriate compensation, the Committee
currently regards the following companies
as the most relevant peer group for
Nostrum:
• FTSE 350 companies of a similar size to
Nostrum;
• Oil and gas E&P companies globally
which compete for scarce skills within the
industry; and
• Companies operating predominantly in
the FSU which compete for expatriate
and local staff.
Risk management
The Committee will review incentive
arrangements regularly to ensure that they
comply with the Group’s risk management
systems, and that controls are operating
effectively. The Committee also ensures
that inappropriate operational or financial
risk‑taking is neither encouraged nor
rewarded through the Company’s
remuneration policies. Instead, a sensible
balance will be struck between fixed
and variable pay, short‑ and long‑term
incentives and cash and equity.
102 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Executive Directors’ Remuneration Policy table
Element of pay
Purpose and link to strategy
Maximum opportunity
Operation
Performance criteria
BASE PAY
To provide market‑competitive
base salaries.
BENEFITS
To reflect market practice and
provided in line with peer
companies.
There is no prescribed
maximum annual increase. The
Committee takes into account
remuneration levels at peer
group companies together
with the performance of the
Company and each individual’s
personal contribution.
The aggregate value of such
benefits should not constitute
a significant proportion of any
employee’s compensation.
ANNUAL
BONUS
Executive Directors may be
eligible for an annual bonus in
cash and/or deferred shares
for good performance (as
determined at the Board’s
discretion).
In general, maximum
opportunity of 40% of
base salary.
Base salary is reviewed
annually and fixed for
12 months.
None
Benefits include:
None
• Medical insurance;
• Life insurance;
• Permanent health insurance
(long‑term disability
or income protection
insurance); and
• A Company car may be
provided for the Chief
Executive Officer.
The Company may make
payments to Directors in
lieu of benefits and may
also make separate benefit
arrangements for Executive
Directors in connection with
their service as Executives of
Group.
The annual bonus is
determined by reference
to performance in the prior
calendar year.
Annual bonuses are generally
paid sometime between April
and August of each year.
Malus and clawback
provisions apply to the
award of annual bonuses
such that Executive Directors
may be liable to repay
some or all of their annual
bonus if there is a material
misstatement of results, or
error in calculation of any
KPI, or serious misconduct.
The discovery period is one
year commencing on the
date on which the bonus is
determined.
Key performance indicators
against which the performance
of the Executive Directors will
be measured in the following
year are determined at the
end of each year and all non‑
commercially‑sensitive key
performance indicators are
disclosed in the Directors’
Remuneration Report. Any
commercially sensitive
performance measures will
be disclosed retrospectively
following completion of the
relevant financial year.
Performance against key
performance indicators for the
previous year is also disclosed
in the Directors’ Remuneration
Report to show how the Board
has determined Executive
Director performance against
the relevant key performance
indicators for that year, and
consequently the levels of annual
bonus payable to the Executive
Directors.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 103
Corporate governance Directors’ Remuneration Policy continued
Element of pay
Purpose and link to strategy
Maximum opportunity
Operation
Performance criteria
200% of base salary in any
financial year.
NOSTRUM OIL
& GAS PLC
2017 LONG-
TERM
INCENTIVE
PLAN (LTIP)
To incentivise Executive
Directors and employees over
a longer timeframe, and to
increase their interest in the
Company’s long‑term business
goals and performance
through share ownership.
To help retain executives
and other key employees,
and align their interests with
shareholders through building
a shareholding in the Company.
Performance measures are
generally measured over one
year though the Committee has
the discretion to apply a longer
performance period to awards.
The Committee has the
discretion to set any performance
condition attaching to awards
granted under the LTIP.
Vesting of awards would
ordinarily be based:
• In part on average accrued
sales volumes measured in
barrels of oil equivalent per
day; and
• In part on reserves
measurement on the basis
of 2P barrels of oil per share.
Awards of nominal‑cost options
are made at the sole discretion
of the Committee.
It was anticipated that awards
would be granted annually
in the period 2017 to 2019
subject to annual performance
conditions. Generally, awards
have a one‑year performance
period attached to them and
will not vest for an additional
two years following the date
on which the Committee
determines whether or not a
performance condition has
been wholly or partly satisfied,
such that no award may vest
before the third anniversary of
the date of grant.
The Committee has the
discretion to decide, on or
before the grant of an award,
that a participant shall be
entitled to receive dividend
equivalents arising over the
period between the grant date
and the vesting date, with such
amounts being payable in cash
or shares in respect of shares
which vest.
Malus and clawback provisions
apply to the LTIP such that
participants are liable to repay/
forfeit some or all of their
shares if there is a material
misstatement of results, or
error in calculation, or if there
is serious misconduct. The
discovery period is three years
commencing on the date
on which the award vests,
which can be extended by the
Committee for an additional two
years if an event occurs which
the Committee determines
could result in the operation
of recovery or withholding
provisions.
104 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Element of pay
Purpose and link to strategy
Maximum opportunity
Operation
Performance criteria
PHANTOM
SHARE
OPTION PLAN
(THE PLAN)
The Board places great
importance on minimising
dilution of existing
shareholders’ equity. Share
awards will therefore only be
made to senior management
who are able to make a material
contribution to shareholder
value that substantially exceeds
the value of any share awards
made.
The Plan has effectively been
replaced by the LTIP and no
awards were made under the
Plan in 2019.
Share awards will only be
made on the basis of achieving
concrete long‑term objectives
defined in advance by the
Committee. Share awards will
vest over several years.
In accordance with the Plan
rules, the total number of
shares that may be granted
pursuant to the Plan is five
million.
PENSIONS
To remain competitive in the
marketplace and provide
income in retirement.
10% or, if higher, any minimum
pension contribution which
may be required under
applicable law.
SHAREHOLDING
GUIDELINE
Aligns interests of executive
directors with those of
shareholders.
Executive Directors are
encouraged to maintain a
holding in the Company
to align their interests with
shareholders.
Attract and retain high‑
performing individuals.
No prescribed maximum
annual increase in fees.
FEES FOR
NON-
EXECUTIVE
DIRECTORS
AND CHAIRMAN
None
None
None
None
Intertrust Employee Benefit
Trustee Limited administers
the Plan and is responsible for
granting rights under the Plan.
Each right entitles holders to
receive, on exercise, a cash
amount equal to the excess
of the market value on the
exercise date of the Ordinary
Shares of the Company to
which it relates over a base
value set at the date of grant.
All Executive Directors of
the Company are eligible to
participate in the Plan at the
discretion of the Board.
Awards vest on the basis
described in the notes on the
following page.
Long‑term objectives are to be
reviewed at every Committee
meeting to ensure that they
are appropriate, relevant and
rigorous.
Share awards made in future
may be reduced at any
time prior to vesting, at the
discretion of the Committee,
following events such as (but
not restricted to) a material
misstatement of results, failure
of risk management, breach of
health and safety regulations or
serious reputational damage to
the Company.
There are ordinarily no pension
contributions or provisions
for Directors, although there
may be pension arrangements
made for Executive Directors
in connection with their
service as executives of Group
companies.
If the Company grants shares
to Directors outside the LTIP by
way of bonus or otherwise, they
will be required to hold 50%
of such shares for a three‑year
period.
The Committee monitors the
holdings of all Directors.
Any fee increases are usually
considered at the end of
each year and the Board
and, where applicable, the
Committee considers pay data
at comparable companies of a
similar scale.
The Senior Independent Non‑
Executive Director and the
Chairmen of the Committees
receive additional fees.
No eligibility for participation
in bonuses but limited benefits
may be delivered (e.g. provision
of iPad and travel‑related
expenses).
Non‑Executive Directors and
the Chairman are not eligible
to participate in the LTIP.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 105
Corporate governance Directors’ Remuneration Policy continued
Phantom share option plan
The Company operates the Plan in
accordance with the Plan rules, the Listing
Rules, the Disclosure and Transparency
rules and other applicable rules. In order
to retain talent, options are generally
granted in tranches exercisable at the
following times:
• As to 20% of the Ordinary Shares in
respect of which an option is granted,
from the first anniversary of the date of
grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the second anniversary of
the date of grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the third anniversary of the
date of grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the fourth anniversary of
the date of grant; and
• As to the remaining 20% of the Ordinary
Shares in respect of which an option is
granted, from the fifth anniversary of the
date of grant.
The Board retains discretion over a number
of areas relating to the operation and
administration of the Plan, which include,
but are not limited to: (i) who participates;
(ii) the timing of the grant of an award; and
(iii) the size of the award.
Treatment of existing
arrangements
For the avoidance of doubt, authority
is given to the Company to honour any
commitments entered into with current
or former Directors notwithstanding the
approval of the Policy. This will last until
the existing incentives vest (or lapse) or the
benefits of any contractual arrangements
no longer apply.
The “maximum” columns illustrate total
remuneration levels in circumstances where
the variable elements pay out in full, namely
an annual bonus payment of 40% for
Ms van Hecke.
Atul Gupta and Martin Cocker did not
participate in the bonus scheme in 2020.
Tom Richardson participated from 1 March
2020 to 31 March 2020 but did not receive
any bonus in respect of 2020. Kaat van
Hecke participated in the bonus scheme
for the period 1 January to 31 August 2020
when she acted as Interim Chief Executive
Officer. Her bonus for 2020 of EUR 116,405
was awarded in September 2020 and the
calculation is detailed on page 95. The
maximum bonus award was 40% of base
remuneration. Accordingly, the maximum
bonus that could have been awarded was
EUR 173,872.
No Executive Director participated in
the LTIP and the Board will not award any
shares under the Phantom Share Scheme
for 2021.
Remuneration scenarios for
Executive Directors
The bar charts below provide estimates of
the potential remuneration of the executive
directors for 2020. Three scenarios are
presented for each executive director which
are based on the following assumptions:
The “minimum” columns are intended to
show the fixed level of remuneration to
which executive directors are entitled in
2020 irrespective of performance levels,
namely base salary, benefits using the
details set out in the single‑figure table
provided on page 93 (which includes any
payments made in lieu of benefits made
under the executive directors employment
contracts for their roles as executives of
the Group and not under their service
contracts as executive directors) and any
payments made in lieu of the provision of a
pension scheme (which are paid under the
executive directors employment contracts
for their roles as executives of the Group
and not under their service contracts as
executive directors). No bonus payments
are assumed for minimum performance.
The “on target” scenario seeks to illustrate
the remuneration the executive directors
would receive if performance was in line
with expectation.
ATUL GUPTA – EXECUTIVE CHAIRMAN
(amounts in EUR thousand)
Minimum
On target
Maximum
100%
100%
100%
KAAT VAN HECKE – INTERIM CHIEF EXECUTIVE OFFICER
(amounts in EUR thousand)
Minimum
On target
Maximum
100%
83%
77%
000
MARTIN COCKER – INTERIM CHIEF FINANCIAL OFFICER
(amounts in EUR thousand)
Minimum
On target
Maximum
Fixed salary
Bonus
100%
100%
100%
467
467
467
559
700
769
374
374
374
17%
24%
17%
23%
17%
24%
106 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Recruitment
The Committee expects any new Executive Directors to be engaged on terms that are consistent with this Policy, but the Committee
acknowledges that it cannot always predict the circumstances under which any new Executive Director may be recruited and so,
accordingly, in each case, the Committee will consider:
• The objective of attracting, motivating and retaining the highest calibre directors in a manner that is consistent with best practice and
aligned with the interests of the Company’s shareholders;
• Salary, benefits, annual bonus and long‑term incentives will be determined within the framework of the Remuneration Policy table on
pages 102 – 105;
• Where an individual would be forfeiting valuable remuneration in order to join the Company, the need to retain flexibility should be
considered in order for the Committee to be able to set base salaries at a level necessary to facilitate the hiring of the highest calibre
candidates, including awards or payments to compensate for remuneration arrangements forfeited on leaving a previous employer.
The Committee would require reasonable evidence of the nature and value of any forfeited compensation and would, to the extent
practicable, ensure any compensation awarded was no more valuable than the forfeited award;
• Judgement will be exercised to determine the appropriate measure of compensation for any forfeited award by taking account of relevant
factors such as the value of any lost award, performance conditions and the time over which they would have vested or been paid;
• Where an existing employee of the Company is promoted to the Board, the Company will honour any commitment to remuneration
made in respect of a prior role, including any outstanding awards of options under the Plan;
• The need, in order to recruit the best candidates, for the Company to offer sign‑on remuneration, the necessity and level of which will
depend on circumstances; and
• Where an individual is relocating in order to take up a role, the Company may provide certain one‑off benefits including, but not limited
to, reasonable relocation expenses, accommodation, housing allowance and assistance with visa applications.
In making any decisions on remuneration for new joiners, the Committee will endeavour to balance the expectations of shareholders with
current market and corporate governance best practice and the requirements of any new joiner, and would strive to pay no more than is
necessary to attract the right talent to the role.
Service agreements
Summary details of each Director’s service agreement are as follows:
Atul Gupta
Arfan Khan
Martin Cocker
Director’s service
agreement date
As currently effective (GBP)1,2
Dated 28 November 2018
26 January 2021
Originally dated 27 April 2020 and most recently amended
on 19 September 2020 (effective 1 October 2020)
352,388
450,000
150,0003
1. Mr Gupta’s remuneration is denominated in US$. The remuneration of Mr Khan and Mr Cocker is denominated in GBP.
2020: GBP:US$:1.277
2. Annual salary and fees represents the total salary and fees (excluding benefits/pension, and discretionary remuneration) from the Group for both the Director’s
executive and director service roles.
3. Mr Cocker’s consultancy agreement currently expires on 30 April 2021.
The appointment of each of the Executive Directors continues until the Company’s Annual General Meeting and their ongoing
appointment is subject to being re‑elected as a director at each subsequent Annual General Meeting. Each Executive Director may
be required to resign at any time in accordance with the Company’s Articles or for any regulatory reason such as the revocation of
any approvals required from the Financial Conduct Authority (FCA). The Company may lawfully terminate the Executive Directors’
employment in the following ways:
• At any time upon 12 months’ written notice (Mr Gupta and Mr Khan) or upon four weeks’ written notice (Mr Cocker); and
• Without notice in circumstances where the Company is entitled to terminate for cause.
The lawful termination mechanisms described above are without prejudice to the employer’s ability in appropriate circumstances to
terminate in breach of the notice period referred to above, and thereby to be liable for damages to the Executive Director.
The Executive Directors are not permitted to take up any office or employment with, or have any direct or indirect interest in, any firm or
company which is in direct or indirect competition with the company or any other member of the Group, or any company in which any
member of the Group has an interest, without the consent of the Board.
In addition, the Chief Executive Officer is subject to non‑solicitation covenants in relation to Group companies for 12 months from the
date of termination of his service contract.
Copies of the Executive Directors’ service agreements and the Non‑Executive Directors’ letters of appointment are available for
inspection at the Company’s registered office during normal business hours and at the Annual General Meeting.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 107
Corporate governance Directors’ Remuneration Policy continued
Payments for departing Executive Directors
Provision
Policy
Notice period and
compensation for loss of
office in service contracts
12 months’ notice from the Company to Mr Gupta and Mr Richardson; four weeks’ notice to Mr Cocker.
Base salary is paid in line with the notice period. Notice period payments will either be made as normal (if the Executive
Director continues to work during the notice period or is on gardening leave) or they will be made as monthly payments in
lieu of notice (subject to mitigation if alternative employment is found).
Treatment of annual bonus
on termination
No entitlement.
Treatment of unvested share
option awards under the Plan
An Executive Director’s awards will generally lapse to the extent they have not vested on the date of voluntary cessation
of employment and any portion that remains outstanding but unexercised after 12 months following such cessation will
lapse. Ms van Hecke, Mr Gupta and Mr Cocker did not participate in the Plan.
Treatment of unvested
awards under the LTIP
For a Director considered to be a “good leaver” before the original vesting date (including leaving the Company on
retirement, redundancy, ill health, as a result of death in service or in other circumstances determined by the Committee),
outstanding awards will be pro‑rated for time and vest subject to performance on the original vesting date. For a director
who is considered a “good leaver” after the original vesting date, any awards will remain exercisable for a period of 12 months
commencing on the date of cessation. For a Director whose employment is terminated for any other reason, the award will
lapse in full. Ms van Hecke, Mr Gupta and Mr Cocker did not participate in the LTIP.
In particular circumstances, an arrangement may be agreed to facilitate the exit of a particular individual. Any such arrangement would be
made bearing in mind the desire to minimise costs for the Group and only in circumstances where it is considered in the best interests of
shareholders.
Change of control
In accordance with the LTIP rules and the terms of the awards granted in 2017 and 2018 under the LTIP, if there is a sale of all or substantially
all of the Company or the Company’s business in circumstances where such sale has been approved by a majority of shareholders and
is at a price of $10 per share or more, then all awards granted will vest in full regardless of the achievement or otherwise of applicable
performance conditions on the date of such event if they have not already vested, and all awards will remain exercisable for one month
from such date. To the extent that any option is not exercised in such period, it shall lapse at the end of that period.
Non-Executive Directors
The Chairman and Executive Directors set the remuneration package for Non‑Executive Directors in line with the Non‑Executive
Directors’ Remuneration Policy table and subject to the Company’s Articles of Association (the Articles).
Non-Executive Director appointment letters
The following table provides details of Non‑Executive Director appointment letters:
Name
Position
Date of letter of
appointment
Expiry of
current term
Sir Christopher Codrington, Bt.
Independent Non‑Executive Director
19 May 2020
19 May 2023
Kaat van Hecke
Independent Non‑Executive Director
2 September 2020 2 September 2023
The Company intends to comply with Provision 18 of the UK Corporate Governance Code and accordingly all Directors will stand for
re‑election by shareholders at future Annual General Meetings until the Board determines otherwise.
Each appointment is for an initial term of three years, subject to being re‑elected at each Annual General Meeting, save that a Non‑
Executive Director or the Company may terminate the appointment at any time upon one month’s written notice, or that a Non‑Executive
Director may be required to resign at any time in accordance with the Articles of the Company, the UK Corporate Governance Code or for
any regulatory reason such as the revocation of approvals required from the FCA.
Each of the Non‑Executive Directors is entitled to an annual fee paid quarterly and to reimbursement of reasonable expenses. There is no
entitlement for Non‑Executive Directors to participate in the Plan or the LTIP.
The Non‑Executive Directors are not permitted to take up any office or employment with, or have any direct or indirect interest in, any
firm or company that is in direct or indirect competition with the Company without the consent of the Board. Upon termination of the
appointment and where such termination is for any reason other than due to the Non‑Executive Director’s gross misconduct, material
breach of the terms of the appointment, act of fraud or dishonesty or wilful neglect of the Non‑Executive Director’s duties, the Non‑
Executive Director will be paid a pro‑rated amount of their fees in respect of the period between the beginning of the quarter in which
termination took place and the termination date. Otherwise, none of the Non‑Executive Directors are entitled to any damages for loss of
office and no fee shall be payable in respect of any unexpired portion of the term of the appointment.
Statement of consideration of employment conditions elsewhere in the Company
We have not consulted with employees on the executive Remuneration Policy. However, when determining the Policy for Executive
Directors we have been mindful of the pay and employment conditions of employees across the Group as a whole.
Statement of consideration of shareholder views
Senior executive management of the Company regularly meet with shareholders and solicit their views on the Company’s policies
in relation to Director and Executive remuneration, and take such views into account when formulating remuneration policies and
remuneration levels in specific cases.
108 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Directors’ report
Directors’ report
The Directors submit their report and the
consolidated audited financial statements
of the Group and the audited parent
financial statements of the Company for
the year ended 31 December 2020.
This report has been prepared in
accordance with the Large and Medium‑
sized Companies and Groups (Accounts
and Reports) Regulations 2008.
The following are incorporated by
reference and shall be deemed to form
part of this Directors’ Report:
• The Strategic Report on pages 2 – 65;
• The Board and Governance report
(which includes the Board, the Corporate
Governance Report and the Directors’
Remuneration Report) on pages 66 – 77
and 89 – 101 respectively; and
• The energy and global greenhouse gas
emissions disclosure on pages 48 – 49.
In addition, the following information is
also incorporated into this Directors’
Report by reference:
Likely future developments
within the Group
Related party transactions
Going concern statement
Financial position and
performance of the Group
Greenhouse gas emissions
Directors’ share interests
Corporate governance
statement
Diversity
56
149
130
58 – 65
48 – 49
96
67 – 69
41 – 42
Directors
Full biographical details of all current
Directors of the Company (all of whom held
office at some point during the reported
year) and the Board Committees of which
they are members are set out on pages
70 and 71 of this Annual Report.
Dividends
No dividends were paid during the year
ended 31 December 2020.
No dividend is proposed to be paid in
2021 in respect of the year ended
31 December 2020.
Auditor
In accordance with section 418(2) of the
Companies Act 2006, each Director in
office at the date of this Directors’ Report
confirms that (a) so far as the Director is
aware, there is no relevant audit information
of which the Company’s auditor is unaware
and (b) the Director has taken all the
steps that he/she ought to have taken as a
Director to make him/herself aware of any
relevant audit information and to establish
that the Company’s auditor is aware of that
information.
Ernst & Young LLP has confirmed its
willingness to continue in office as auditor
and a resolution to reappoint them will be
proposed at the forthcoming AGM.
Directors’ liabilities and
indemnities
The Company maintains liability insurance
for its Directors. All Directors are also
in receipt of an indemnity from the
Company under the Company’s Articles
of Association (the Articles) in respect
of (a) liability incurred by any Director
due to negligence, default, breach of
duty or breach of trust in relation to the
affairs of the Company, or any subsidiary
undertaking or (b) any liability incurred
by any Director in connection with the
activities of the Company, or any subsidiary
undertaking, in its capacity as a trustee of
an occupational pension scheme; in both
instances to the extent permitted under
the Companies Act 2006. Copies of the
Company’s Articles are available on the
Company’s website or at the Company’s
registered office during normal business
hours and will be available for inspection
at the Annual General Meeting.
In May 2015, the Board approved a policy
for the indemnification of Directors,
officers and other designated beneficiaries
and the entry by the Company into an
accompanying deed of indemnity.
The policy clarifies that the Company
will seek to provide the maximum
indemnification and protection to Group
Directors and officers permissible under
applicable law, except in cases of fraud
or wilful default, including but not limited
to: (i) providing compensation for losses
suffered in the course of acting as a Director
or officer in the interests of the Group,
(ii) providing Directors and officers with
quality external legal representation and
external professional advisers, (iii) assisting
Directors or officers with repatriation
following a third‑party claim, (iv) continuing
to make payment of a Director’s or officer’s
remuneration and benefits while such
Director or officer is under suspension,
investigation or detention by order of a
third party, (v) taking reasonable steps
to place any such Director or officer in a
similar position working in another location
or elsewhere in the Group which would
allow his/her employment to continue and
to compensate for any adverse financial
consequences they incur as a result of their
loss of office, or (vi) maintaining customary
Directors’ and officers’ liability insurance
policies.
The deed of indemnity is intended to
cover any insufficiency in the protection
granted to Directors and officers under the
Articles which could expose such persons
to substantial liability to third parties,
including governmental authorities, in
particular in jurisdictions where significant
uncertainty exists in relation to the
interpretation and application of the law.
The deed of indemnity allows Directors,
officers and other designated beneficiaries
to enforce the protection provided for
under the Articles without any further
action by the Company being required.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 109
Corporate governance Directors’ report continued
Political donations
The Group made no political donations
during the year 2020.
Contributions to non-EU
political parties
No contributions to non‑EU political parties
were made during the year 2020.
Research and development
The Group is not involved in any activities in
the field of research and development.
Branches
The Company is registered in England
and Wales and during 2018 moved its
place of effective management and tax
residence from the Netherlands to the
United Kingdom. As the Group is a global
business, our interests and activities are
held or operated through subsidiaries
and branches and subject to the laws and
regulations of many different jurisdictions.
Share capital
As of 31 December 2020, the Company’s
issued share capital was £1,881,829.58
divided into 188,182,958 Ordinary Shares
each having a nominal value of £0.01, all
of which are in free circulation. All of the
Company’s issued Ordinary Shares are fully
paid up and rank equally in all respects.
The rights attached to them, in addition to
those conferred on their holders by law,
are set out in the Articles.
Subject to applicable law and the
Company’s Articles the Directors may
exercise all powers of the Company,
including the power to authorise the issue
and/or market purchase of the Company’s
shares, subject to an appropriate authority
being given to Directors by shareholders
in a General Meeting and any conditions
attaching to such authority. The current
authority, approved at the 2020 Annual
General Meeting, for the allotment of
relevant securities is for a nominal amount
of up to: (i) £1,240,000 less the nominal
amount of any securities allotted under part
(ii) of the authority and (ii) equity securities
up to a nominal amount of £620,000 less
the nominal amount of any securities
allotted under part (i) of the authority in
excess of £620,000. No shares were allotted
during the year.
Furthermore, at the 2020 Annual General
Meeting, shareholders authorised the
Directors to make market purchases up to
a maximum of approximately 10% of the
Company’s issued share capital (being
18,600,000 Ordinary Shares) excluding
treasury shares. Any shares purchased
under this authority may either be
cancelled or may be held as treasury shares
provided that the number of shares held
does not exceed 10% of the issued share
capital. No shares were bought back during
the year.
Resolutions to renew these authorities will
be proposed at the 2021 AGM.
Intertrust Employee Benefit Trustee Limited
(the Trust) holds shares in the Company in
trust for the purposes of the Company’s
phantom share option plan, and the rights
attaching to these shares are exercised by
independent trustees. As at 31 December
2020, the Trust held 2,948,879 Ordinary
Shares in the Company.
Share rights
Without prejudice to any rights attached
to any existing shares, the Company may
issue shares with rights or restrictions as
determined by either the shareholders
by ordinary resolution or, if the Company
passes a resolution, the Directors.
Voting rights
There are no restrictions on voting rights or
transfers of shares in the Articles and at a
general meeting every shareholder present
in person or by proxy has one vote for every
share held by him or her. No shareholder
shall be entitled to vote either personally
or by proxy or to exercise any other right in
relation to general meetings if any sum due
from him or her to the Company in respect
of that share remains unpaid.
Transfer of shares
The Articles provide that transfers of
certificated shares must be effected in
writing duly signed by or on behalf of
the transferor and, except in the case of
fully paid shares, by or on behalf of the
transferee. The transferor shall remain the
holder of the shares concerned until the
name of the transferee is entered on the
Register of Members in respect of those
shares. Transfers of uncertificated shares
may be effected by means of the relevant
electronic system unless the Uncertificated
Securities Regulations 2001 provide
otherwise.
The Directors may refuse to register a
transfer of shares in favour of more than
four persons jointly.
Directors, Articles and purchase
of shares
The Articles were adopted on 19 May
2014 and may only be amended by special
resolution at a general meeting of the
shareholders.
The Directors’ powers are conferred
on them by UK legislation and by the
Articles. In accordance with the Articles,
the Board has the power at any time to
elect any person to be a Director. Any
person so appointed by the Directors will
retire at the next Annual General Meeting
in accordance with the UK Corporate
Governance Code; retiring Directors may
be eligible for annual re‑election.
The Company did not repurchase any
shares during 2020. The Board has the
power conferred on it by shareholders to
purchase its own shares and will seek a
renewal of that power at the forthcoming
Annual General Meeting within the limits
set out in the notice of the meeting.
110 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Shareholders holding 3% or more of the Company’s issued share capital
As of 31 December 2020, the following significant shareholdings of voting rights in the share capital of the Company had been disclosed
to the Company under Disclosure Guidance and Transparency Rule (DTR) 5 or otherwise.
Name
ICU Investment Mgt
Mayfair Investments BV
Dehus Dolmen Nominees Limited1
AT Investments
Trafigura Ventures
FPP Asset Mgt
Veles Capital
Number of
Ordinary
Shares
% of issued
Ordinary
Shares
44,837,071
32,222,200
30,588,054
21,648,100
8,352,557
6,438,421
5,827,330
23.83
17.12
16.25
11.50
4.44
3.42
3.10
Nature of
Holding
Direct
Direct
Direct
Direct
Direct
Indirect
Direct
1. Dehus Dolmen Nominees Limited holds on trust for entities with which Baring Vostok Investments PCC Limited (which holds 3,119,990 shares being 1.66%) is
affiliated.
Details of all information provided to the
Company pursuant to Financial Conduct
Authority’s (FCA) DTRs is publicly available
to view via the regulatory information
service on the Company’s website. No
such disclosures have been made to the
Company under DTRs or otherwise since
31 December 2020.
This publicly available information also
covers the requirements of the Kazakh
Stock Exchange to provide information
about all major transactions (including
those with the listed company’s shares
in the reporting period and any changes
in the structure of shareholders holding
five and more per cent of the outstanding
shares) over the reporting period.
Financial risk management
The Company’s financial risk management
objectives and policies, including its use of
financial instruments, can be found in Note
33 to the financial statements.
Significant contractual
arrangements
On 19 May 2014, the Company entered
into a relationship agreement with
KazStroyService Global B.V. (KSS Global)
(the Relationship Agreement) to regulate,
in part, the degree of influence that KSS
Global and its affiliates may exercise over
the management of the Company. The
principal purpose of the Relationship
Agreement was to ensure that the
Company is capable at all times of carrying
on its business independently of KSS
Global and its affiliates and that all of the
Company’s transactions and relationships
with KSS Global and its affiliates are at arm’s
length and on normal commercial terms.
Under the Relationship Agreement,
KSS Global agreed that it will:
• And will procure its affiliates will, allow
the Company and its affiliates at all times
to carry on its business independently of
KSS Global and its affiliates;
• Not, and will procure its affiliates will not,
act in any way which shall prejudice the
ability of the Company and its affiliates
to carry on its business independently
of KSS Global or its affiliates;
• Comply with, and will procure its
affiliates comply with, the Disclosure
and Transparency Rules in respect of its
interests in the Ordinary Shares;
• Not, and will procure its affiliates will
not, take any action (or omit to take any
action) that will prejudice the Company’s
status as a listed company or its suitability
for listing under the Listing Rules
after Admission has occurred or the
Company’s ongoing compliance with
the Listing Rules and the Disclosure and
Transparency Rules, or have the effect of
preventing the Company from complying
with its obligations under the Listing
Rules, provided that this shall not prevent
KSS Global (or any other person) from:
(i) Accepting a Takeover Offer for the
Company in relation to their respective
interests in the Company or, where
such Takeover Offer is made by way
of a CA2006 Scheme, voting in favour
of such CA2006 Scheme at the court
and related shareholder meetings
or otherwise agreeing to sell their
Ordinary Shares in connection with
a Takeover Offer; or
(ii) Making a Takeover Offer by way of a
general offer for all the outstanding
Ordinary Shares or by way of a
CA2006 Scheme and de‑listing the
Company after such Takeover Offer
has become wholly unconditional or,
in the case of a CA2006 Scheme, after
it has become effective;
• Not, and will procure that its affiliates will
not, influence the day‑to‑day running of
the Company at an operational level or
hold or acquire a material shareholding in
one or more significant subsidiaries of the
Company; and
• Exercise its voting rights in such a manner
as to procure (to the extent possible) that:
(i) At least half of the Board comprises
independent Directors (excluding the
Chairman of the Board);
(ii) The Audit Committee shall comprise
entirely independent Directors
and the Remuneration Committee
shall comprise not less than three
independent Directors; and
(iii) The Nomination and Governance
Committee and any other committee
of the Board to which significant
powers, authorities or discretions are
delegated shall at all times consist of
a majority of independent Directors.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 111
Corporate governance Corporate governance statement
Pursuant to Disclosure Guidance and
Transparency Rule 7, certain parts of the
Corporate Governance statement are
required to be outlined in the Directors’
Report. This information is laid out in the
corporate governance section of this
Annual Report. Information regarding
the main features of the Company’s
internal control and risk management
arrangements in relation to the financial
reporting process can be found in the
Strategic Report and the report of the
Audit Committee.
Directors’ report continued
Deed of adherence with
Mayfair Investments B.V.
On 30 January 2015, KSS Global transferred
its holding of 50 million Ordinary Shares
in the company as follows: (a) 48,333,300
shares to Mayfair Investments B.V. (Mayfair),
a company indirectly owned by KSS
Global’s three principal shareholders on
the date of the transfer, and (b) 1,666,700
shares to KSS Global’s other shareholder
on such date.
In connection with such transfer, Mayfair
entered into a Deed of Adherence with
Nostrum pursuant to which Mayfair has
undertaken to Nostrum to be bound by the
Relationship Agreement in all respects and
to observe and perform all of the provisions
and obligations of such Relationship
Agreement previously applicable to or
binding on KSS Global in so far as they fall
to be observed or performed on or after
the date of the transfer.
Termination
Effective 4 January 2021, Mayfair’s
nominated Board member resigned as a
Non‑Executive Director of the Company
and confirmed on behalf of Mayfair
that Mayfair did not wish to nominate a
replacement director and requested that
the Relationship Agreement be terminated.
At the Board meeting of 21 January 2021,
the Board approved that the Company
enter into a Deed of Termination of the
Relationship Agreement with Mayfair. The
Deed of Termination became effective on
4 February 2021.
Change of control
The following are significant agreements
the Company has entered into which would
be affected on a change of control of the
Company following a takeover:
• In the event of a takeover of the
Company, all options under the
Company’s phantom share option plan
shall be deemed to have vested and the
Board shall direct Intertrust Employee
Benefit Trustee Limited to allow each
option‑holder to exercise his or her
options at any time from the date of
the change of control up to the 10th
anniversary of the date of grant (the
Period). Any options that have not
been exercised will lapse at the end
of the Period; and
• In the event of a takeover of the
Company, all options under the
Company’s employee long‑term
incentive plan shall be deemed to
have vested and the Board shall direct
Intertrust Employee Benefit Trustee
Limited to allow each option‑holder to
exercise his or her options during the
one‑month period following the change
of control event. Any options that have
not been exercised will lapse at the end
of this period.
The 2012 Bonds, 2014 Bonds, 2017 Bonds
and 2018 Bonds contain change of control
provisions. If a change of control occurs,
the Company will be required to offer to
repurchase the 2012 Bonds, 2014 Bonds,
2017 Bonds and 2018 Bonds at 101% of
their principal amount, plus accrued and
unpaid interest to the date of the purchase.
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of
office or employment or otherwise that
occurs specifically because of a takeover.
112 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Requirements of the Listing Rules
The following table provides references to where the information required by Listing Rule 9.8.4R is disclosed.
Information required
Capitalised interest
Publication of unaudited financial information
Details of any long‑term incentive schemes
established to specifically recruit or retain a director
Waiver of emoluments by a director
Allotment of equity securities for cash
Participation in a placing of equity securities
Contracts of significance
Contracts for the provisions of services by a
controlling shareholder
Sub-section of
Listing Rule 9.8.4R Reference
(1)
(2)
(4)
(5) (6)
(7) (8)
(9)
(10)
(11)
Please refer to Notes 4 and 6 to the financial statements
Not applicable
Not applicable
Please refer to the report of the Chairwoman of the Remuneration
Committee
No such share allotments
Not applicable
Please refer to the Directors’ Report
Not applicable
Dividend waiver
(12) (13)
Agreements with controlling shareholder
(14)
From 1 April 2020 two Non‑Executive Directors
waived their fees. See page 94.
Under the trust deed relating to the phantom share option plan
and the LTIP, the trustee has agreed to waive any dividends on
shares held under both plans
Not applicable as the Company does not have a “controlling
shareholder” within the definition under Listing Rule 6.1.2A
R; however, please see the Directors’ Report for details of
Relationship Agreements the Company has entered into with
certain shareholders
Important events since the end of the financial year
Major events after 31 December 2020 are disclosed in Note 34 to the consolidated audited financial statements.
This report was approved by the Board on 27 April 2021.
On behalf of the Board
Martin Cocker
Interim Chief Financial Officer
Arfan Khan
Chief Executive Officer
27 April 2021
27 April 2021
Nostrum Oil & Gas PLC, registered number 8717287
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 113
Corporate governance
Having taken all the matters considered
by the Board and brought to the attention
of the Board during the year into account,
and having reviewed the Annual Report
(including the Strategic Report), the
Directors consider the Annual Report
and Accounts, taken as a whole, to be fair,
balanced and understandable, providing
the information necessary for shareholders
to assess the Company’s position and
performance, business model and strategy.
The Directors have responsibility for:
• Ensuring that the Company and the
Group keep accounting records which
disclose with reasonable accuracy the
financial position of the Company and
the Group and which enable them to
ensure that the accounts comply with the
Companies Act 2006;
• Taking such steps as are reasonably open
to them to safeguard the assets of the
Group and to prevent and detect fraud
and other irregularities; and
• The maintenance and integrity of the
corporate and financial information
on the Company’s website.
Each of the Directors whose names
and functions are listed on pages
70 – 71 confirms, that to the best of
their knowledge:
• The Company and Group financial
statements, which have been prepared
in accordance with IFRS as adopted
by the EU, give a true and fair view of
the assets, liabilities, financial position
and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole;
• The Strategic Report contained in the
Annual Report includes a fair review
of the development and performance
of the business and the position of
the Company and the undertakings
included in the consolidation taken as a
whole, together with a description of the
principal risks and uncertainties that they
face; and
• The Annual Report and financial
statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary for
shareholders to assess the Company’s
position and performance, business
model and strategy.
By order of the Board
Arfan Khan
Chief Executive Officer
27 April 2021
Martin Cocker
Interim Chief Financial Officer
27 April 2021
Directors’ report continued
Responsibility statement
The Directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
The Directors are required by the
Companies Act 2006 to prepare accounts
for each financial year and, with regard to
Group accounts, in accordance with Article
4 of the IAS Regulation. The Directors have
prepared individual accounts in accordance
with international accounting standards in
conformity with the requirements of the
Companies Act 2006 and in accordance with
IFRS as adopted persuant to Regulation (EC)
No 1606/2002 as it applies to the European
Union. The accounts are required by law
and IFRS to present fairly the financial
position of the Company and the Group
and the performance for that period. The
Directors must not approve such accounts
unless they are satisfied that they give a
true and fair view of the state of affairs of
the Company and the consolidated Group.
In preparing these financial statements, the
Directors are required to:
• Select suitable accounting policies
in accordance with IAS 8 Accounting
Policies, Changes and Accounting
Estimates and Errors and then apply
them consistently;
• Make judgements and accounting
estimates that are reasonable and
prudent;
• Present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
• State that the Group and the Company
have complied with IFRS as adopted by
the EU, subject to any material departures
disclosed and explained in the financial
statements;
• Provide additional disclosures when
compliance with specific requirements
of IFRS is insufficient to enable users
to understand the impact of particular
transactions, other events and conditions
on the Group’s and Company’s financial
position and performance; and
• Prepare the Group’s and Company’s
financial statements on a going concern
basis, unless it is inappropriate to do so.
114 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Financial report
Contents
Independent auditor’s report to the
members of Nostrum Oil and Gas PLC �������������������������������������������������� 116
Consolidated statement of financial position �������������������������������������� 125
Consolidated statement of comprehensive income ��������������������������� 126
Consolidated statement of cash flows ��������������������������������������������������� 127
Consolidated statement of changes in equity ������������������������������������� 128
Notes to the consolidated financial statements ����������������������������������� 129
1. General������������������������������������������������������������������������������������������������ 129
2. Basis of preparation and consolidation ��������������������������������������� 130
Changes in accounting policies and disclosures ����������������������� 132
3.
Summary of significant accounting policies ������������������������������� 133
4.
5. Exploration and evaluation assets ������������������������������������������������ 140
6. Property, plant and equipment ����������������������������������������������������� 141
7.
Right-of-use assets ��������������������������������������������������������������������������� 142
8. Advances for non-current assets ��������������������������������������������������� 142
Inventories ������������������������������������������������������������������������������������������ 142
9.
10.
Prepayments and other current assets ���������������������������������������� 142
11. Trade receivables ������������������������������������������������������������������������������ 142
12. Cash and cash equivalents ������������������������������������������������������������� 142
13. Share capital and reserves ��������������������������������������������������������������143
14. Earnings per share ����������������������������������������������������������������������������143
15. Borrowings ����������������������������������������������������������������������������������������143
16. Lease liabilities ����������������������������������������������������������������������������������145
17.
Abandonment and site restoration provision ����������������������������145
18. Due to government of Kazakhstan ������������������������������������������������145
19. Trade payables ����������������������������������������������������������������������������������145
20. Other current liabilities ��������������������������������������������������������������������145
21. Revenue ����������������������������������������������������������������������������������������������146
22. Cost of sales ���������������������������������������������������������������������������������������146
23. General and administrative expenses ������������������������������������������146
24.
Selling and transportation expenses ��������������������������������������������146
25. Taxes other than income tax �����������������������������������������������������������146
26. Finance costs �������������������������������������������������������������������������������������146
27. Employees’ remuneration ��������������������������������������������������������������� 147
28. Other income and expenses ���������������������������������������������������������� 148
29.
Income tax ������������������������������������������������������������������������������������������ 149
30. Related party transactions �������������������������������������������������������������� 149
31. Audit and non-audit fees ����������������������������������������������������������������� 150
32. Contingent liabilities and commitments ������������������������������������� 150
33. Financial risk management objectives and policies ������������������ 150
34. Events after the reporting period ������������������������������������������������� 152
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 115
Financial report Independent auditor’s report
Independent auditor’s report to the
members of Nostrum Oil and Gas PLC
Opinion
In our opinion:
• Nostrum Oil & Gas PLC’s group financial statements and Parent Company financial statements (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 2020 and of the Group’s loss for the year then
ended;
• the Group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with
the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC)
No.1606/2002 as it applies in the European Union;
• the Parent Company financial statements have been properly prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006 as applied in accordance with section 408 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 Nostrum Oil & Gas PLC (the Parent Company) and its subsidiaries (the Group) for the year
ended 31 December 2020 which comprise:
Group
Parent Company
Consolidated statement of financial position
Parent Company statement of financial position
Consolidated statement of comprehensive income
Consolidated statement of cash flows
Parent Company statement of cash flows
Consolidated statement of changes in equity
Parent Company statement of changes in equity
Related notes 1 to 34 to the financial statements,
including a summary of significant accounting policies
Related notes 1 to 16 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 International
Accounting Standards in conformity
with the requirements of the Companies
Act 2006 and, as regards to the group
financial statements, International Financial
Reporting Standards adopted pursuant to
Regulation (EC) No. 1606/2002 as it applies
in the European Union and as regards the
Parent Company financial statements, as
applied in accordance with section 408 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 are
independent of the Group 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 public
interest entities, and we have fulfilled our
other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Material uncertainties related to
going concern
We draw attention to note 2 in the financial
statements, which highlights the following
events or conditions in connection with
the restructuring of the Group’s Notes and
which may cast significant doubt on the
Group and Parent Company’s ability to
continue as going concerns:
• A restructuring of the Group’s Notes
being agreed with the informal ad-hoc
committee of noteholders (AHG) and
subsequently with sufficient bondholders,
consistent with the preliminary
restructuring terms discussed with the
advisors to the AHG, that is affordable
for the Group through the going concern
period to 30 June 2022. Should the Group
be unable to reach an agreement with
the AHG by the end of the forbearance
period, then bondholders may seek
to enforce their rights under the bond
indentures, including accelerating the
Notes’ obligations as a result of the
missed interest payments; and
• If agreement is reached with the AHG
and then sufficient bondholders, the
Group being able to obtain the necessary
permissions and waivers. Specifically, the
Group may need to obtain permission
for the proposed restructuring from its
shareholders and will need to obtain
permission for the restructuring and
secure a waiver from the Government of
the Republic of Kazakhstan. If agreement
is reached with the bondholders but the
Group is unable to obtain the necessary
permissions and waiver, then the
agreement with bondholders may
not be implementable.
As stated in note 2, these events or
conditions, along with the other matters
as set forth in note 2, indicate that material
uncertainties exist that may cast significant
doubt on the Group and Parent Company’s
ability to continue as a going concern.
Our opinion is not modified in respect
of this matter.
In auditing the financial statements,
notwithstanding the material uncertainties
described above, we have concluded that
the directors’ use of the going concern
basis of accounting in the preparation of
the financial statements is appropriate. Our
evaluation of the directors’ assessment of
the Group and Parent Company’s ability to
continue to adopt the going concern basis
of accounting included:
116 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
• Reviewed the Forbearance Agreement
to understand the terms under which
the Noteholders agreed to forbear
certain rights and remedies under the
bond indentures and verified that the
Group were in compliance with these
conditions; and
• Read correspondence between
the Group and the advisors to the
informal ad hoc group of holders of
the Notes, which provided evidence
of the restructuring terms proposed
by the advisors. We considered the
affordability of these terms and the
likelihood that a restructuring would
be executed in this form and that the
necessary approvals and waivers could
be obtained in order to implement the
restructuring.
• Performing a reverse stress test in order
to identify what factors would lead to the
Group utilising all liquidity during the
going concern period. We assessed the
likelihood of these factors in the context
of the outlook for commodity prices and
against historic market lows as well as our
own industry experience;
• Challenging whether the ongoing
COVID-19 pandemic threatens the
Group’s ability to achieve the forecast
cash flows, noting limited operational
disruption as a result of the pandemic;
and
• Considering whether management’s
disclosures, in the Annual Report and
Accounts, sufficiently and appropriately
captured the material uncertainties
in respect of on the going concern
conclusion through consideration of the
relevant disclosure standards and our
understanding of the bond restructuring
process.
Based on the results of our audit
procedures, we consider management’s
going concern assessment process to
be appropriate. We observed that the
directors’ going concern assessment,
including the cash flow forecast, assumes
a successful restructuring of the Group’s
Notes that reflects the current preliminary
restructuring terms discussed with the
advisors to the AHG. While progress has
been made by the directors in their efforts
to restructure the Group’s Notes to an
affordable level, material uncertainties
exist in the eventual outcome of the
restructuring process as described in note
2 to the financial statements. On the basis
of insights we gained from the market
consensus outlook for commodity prices
and historic market lows, the likelihood of
the factors identified in the reverse stress
test materialising are remote. However, it is
important to recognise that the stress tested
cash flow forecasts reflect financing cash
flows consistent with the current preliminary
restructuring terms discussed with the
advisers to the AHG, which is a significant
assumption made by the directors and the
source of a material uncertainty.
In relation to the Group and Parent
Company’s reporting on how they have
applied the UK Corporate Governance
Code, we have nothing material to add or
draw attention to in respect of the directors’
identification in the financial statements of
any material uncertainties to the Group and
Parent Company’s ability to continue as a
going concern for the period to 30 June
2022.
Our responsibilities and the responsibilities
of the directors with respect to going
concern are described in the relevant
sections of this report. However, because
not all future events or conditions can be
predicted, this statement is not a guarantee
as to the Group and Parent Company’s
ability to continue as a going concern.
We draw attention to the Viability Statement
on page 56, which indicates that an
assumption to the statement of viability is
management’s ability to restructure the
Group’s Notes. The directors consider
that the material uncertainties referred
to in respect of going concern may cast
significant doubt over the future viability
of the Group and Parent Company should
these events not complete. Our opinion is
not modified in respect of this matter.
• Confirming our understanding of the
directors’ going concern assessment
process and the key factors and
assumptions that were considered
in their assessment;
• Obtaining the director’s going concern
assessment, including the cash flow
forecast and covenant calculations
for the going concern period which
covers 18 months from the year ended
31 December 2020 to 30 June 2022. The
directors have modelled a number of
adverse scenarios in order to incorporate
unexpected changes to the forecast
liquidity of the Group. We evaluated the
sufficiency of those adverse scenarios
as stress tests of the Group’s forecast
liquidity;
• Assessing the key factors and
assumptions adopted in the assessment
of going concern and the cash flow
model. We considered whether there was
any evidence to suggest management
had exercised any bias in selecting their
assumptions;
• Assessing the appropriateness of the
method used to calculate the cash flow
forecast and covenant calculations and
testing the mathematical accuracy of the
calculations;
• Checking the consistency of the factors
and assumptions adopted in the going
concern assessment with other areas of
our audit, including the oil and gas asset
impairment test;
• Assessing the director’s ability to
restructure the Group’s Notes to an
affordable level through the going
concern period. We engaged our
Restructuring Specialists to support
us in this evaluation. We:
• Understood the status and expected
outcome of the directors’ efforts to
restructure the Group’s Notes and
critically examined the implication on
the Group’s ability to continue as a
going concern;
• Performed direct inquiries of the
Group’s financial and legal advisor to
corroborate management’s assertions
around the restructuring plan; to
understand the approvals that will
be required; and to understand
the key risks to the execution of the
restructuring. We challenged the
likelihood that a restructuring could
be achieved;
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 117
Financial report Independent auditor’s report continued
Overview of our audit approach
Materiality
Audit scope
Overall Group and Parent Company materiality of $1.6m which represents 2% of the Group’s adjusted earnings before
interest, tax, depreciation and amortisation, excluding non-recurring items (Adjusted EBITDA).
We performed an audit of the complete financial information of three components across the United Kingdom
and Kazakhstan and audit procedures on specific balances for a further two components across Belgium and the
Netherlands.
The components where we performed full or specific audit procedures accounted for 101% of Adjusted EBITDA, 100%
of Revenue and 98% of Total assets.
Key audit matters We identified the following key audit matters that, in our professional judgement, had the greatest effect on our overall
audit strategy, the allocation of resources in the audit and in directing the audit team’s efforts:
• Estimation of oil and gas reserves and its impact on impairment testing, depreciation, depletion and amortisation
(DD&A) and the decommissioning provision
• Impairment of oil & gas assets
• Revenue recognition
Although going concern was considered to represent a key audit matter, detail on our audit procedures and key
observations are summarised in the ‘Material uncertainties related to going concern’ section of our report as opposed
to the key audit matters table below.
An overview of the scope of the Parent Company and Group Audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
component within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into
account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls and changes in the business environment
when assessing the level of work to be performed at each component.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 10 reporting components of the Group, we selected 5 components covering entities
within the United Kingdom, Kazakhstan, Belgium and the Netherlands, which represent the principal business units within the Group.
Of the five components selected (2019: four), we performed an audit of the complete financial information of three (2019: three) components
(full scope components) which were selected based on their size or risk characteristics. For the remaining two (2019: one) components
(specific scope component), we performed audit procedures on specific accounts within those components that we considered had the
potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their
risk profile. The principal change in audit scope relative to the prior year was the inclusion of one additional specific scope component,
which was driven by the reduction in materiality and the relative size of the specific account balances in that component.
The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed
to the coverage of significant accounts tested for the Group. We also instructed the United Kingdom, Kazakhstan, and Netherlands
locations to perform specified procedures on the existence and valuation of cash balances and the completeness of payables. The audit
scope for specified procedures are those where we perform procedures that address only specific account assertions rather than the
account balance as a whole.
Of the remaining 5 (2019: 6) components that together represent -1% (2019: -3%) of the Group’s Adjusted EBITDA, we performed other
procedures, including analytical review, inquiries and testing of consolidation journals and intercompany eliminations to respond to any
potential risks of material misstatement to the Group financial statements.
118 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Our audit coverage by full scope components, specific scope components and other procedures is illustrated below:
REVENUE
ADJUSTED EBITDA
TOTAL ASSETS
-1%
2%
100%
101%
98%
100% Full scope components
0% Specific scope components
0% Other procedures
101% Full scope components
0% Specific scope components
-1% Other procedures
98% Full scope components
2% Specific scope components
0% Other procedures
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of
the components by us, as the primary audit team, or by component auditors from other EY global network firms operating under our
instruction. Of the three full scope components, audit procedures were performed on two of these directly by the primary audit team and
one by the component audit teams. One of the specific scope components and one full scope component, where the work was performed
by component auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had
been obtained as a basis for our opinion on the Group as a whole. The remainder of the components were audited directly by the primary
audit team.
The Group audit team adopted their approach to interact with and oversee local EY teams in response to the COVID-19 pandemic. Due
to COVID-19 travel restrictions imposed by governments, we did not complete our planned visits to the locations. In lieu of site visits, the
primary team designed alternative procedures in our audit strategy to provide sufficient oversight and involvement with the work of the
component teams to fulfil its responsibilities under auditing standards to evaluate, review and oversee the work of component teams on a
remote basis.
Our remote oversight procedures included:
• An increased frequency of dialogue with our local EY component teams. This included additional meetings with our component teams
and local management via videoconference;
• Performing remote reviews of the key workpapers associated with the component team’s audit procedures, particularly in areas of
significant risk, such as oil and gas reserves estimates, impairment and revenue recognition, through the interactive capability of EY
Canvas, our global audit workflow tool; and
• Attending the closing meeting between our full scope local EY component team and local management by videoconference, to ensure
that we were fully aware of the audit status and results of their audit procedures.
These procedures, together with the additional procedures performed at a Group level, gave us appropriate evidence for our opinion on
the Group financial statements.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 119
Financial report Independent auditor’s report continued
Key audit matters
Key audit matters are those matters that, in our professional judgment, 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.
These matters included 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 our opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matters described in the ‘Material uncertainties related to going concern’ section of our report, we identified the
following key audit matters:
Key observations communicated to the
Audit Committee
Based on the audit procedures
performed we concluded that the
reserves and resource estimations
are reasonable for use in impairment
testing, management’s going
concern assessment, the calculation
of DD&A and the determination of
decommissioning dates.
We did not identify any indication of
management bias in the estimation
process and we are satisfied that the
reduction in reserves recorded in
2020 has been recorded in the correct
period.
Risk
Our response to the risk
Estimation of oil and gas reserves and its impact on
impairment testing, depreciation, depletion and
amortisation (DD&A) and the decommissioning
provision
Refer to the Audit Committee Report page 82; the
estimates, assumptions and judgements on page 134;
and the disclosures in Note 6 of the Consolidated
Financial Statements (page 141).
As at 31 December 2020, Nostrum reported 39 million
barrels of oil equivalent (mmboe) of proved and
probable (2P) reserves (2019:138 mmboe) and 146
mmboe of contingent (2C) resources (2019:185 mmboe).
This was a significant risk due to the subjective nature
of reserves estimates and the pervasive impact on
the financial statements through impairment testing,
DD&A calculations and the decommissioning provision
estimate. Reserves are also considered a fundamental
indicator of the future potential of the Group’s
performance and its ability to continue as a going
concern.
The estimation of oil and gas reserves is a significant
area of estimation due to the technical uncertainty
in assessing reserves quantities. The estimation is
potentially susceptible to management bias, including
by recording revisions to estimates in the incorrect
period. Management’s reserves and resource estimates
are prepared by internal specialists and are audited by
Ryder Scott, an independent reserves consultant.
The scope of our procedures in respect to reserve
estimation included contingent resources that impact
the financial statements, primarily being those included
in management’s oil and gas asset impairment test.
There is also a risk that management may influence
the significant judgements and estimates in respect of
commercial assumptions in order to portray favourable
reserves disclosure to the market and understate the
impact of impairment charges and the calculation of
DD&A.
The risk has increased compared with the prior year.
Our audit procedures have focused on management’s
estimation process, including whether bias exists in the
determination of reserves. We assessed management’s
assumptions, including commercial assumptions, to
ensure that they are based on supportable evidence.
We have:
• carried out procedures to walkthrough and
understand the Group’s internal process and
key controls associated with oil and gas reserves
estimation;
• assessed the competence of internal management’s
specialists, to satisfy ourselves that they are
appropriately qualified to carry out the volumes
estimation;
• met with management’s external specialist during
the planning and execution of the audit and
assessed their competence and objectivity by
enquiry of their qualifications, practical experience
and independence. We checked the completeness
and accuracy of the data transferred to the external
specialist for audit;
• reviewed the oil and gas reserves audit report
prepared by management’s external specialist to
understand the conclusion of their audit and any
related audit findings. We performed direct inquiries
of Ryder Scott;
• corroborated management’s commercial assumptions
by checking that they lie within an acceptable range
compared to publicly available benchmarks where
available. We compared management’s internal
assumptions to the latest plans and budgets for
consistency. We also challenged management’s
capabilities to execute on such plans by comparison to
prior performance;
• assessed the appropriateness of the downward
revision in 2P reserves to be recorded in the current
year, and tested bias towards overstating reserves
estimates in the previous year, through understanding
the factors that led to the change in the estimate;
• validated that the updated reserves estimates were
appropriately included in the Group’s consideration
of oil and gas asset impairment testing, in accounting
for DD&A and the determination of decommissioning
dates; and
• reviewed the accuracy of the reserves and resource
estimates disclosure in the Annual Report.
We performed full scope audit procedures over this risk area in one location (Kazakhstan).
120 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Key observations communicated to the
Audit Committee
In our view the Group’s reserves and
resources estimates, forecast costs
and discount rate are appropriate and
within reasonable ranges. The Group’s
oil and gas price assumptions are
within reasonable ranges.
In estimating the recoverable amount,
the inclusion of risked value associated
with contingent resources and the
opportunity for utilising the spare GTU
processing capacity, is appropriate
and consistent with the requirements
of a FVLCD valuation approach.
We concluded that the estimated
recoverable amount of the CGU
fell within the range of acceptable
valuations, including implied
valuations based on the market value
of the Group’s equity and debt.
Based on the results of the audit
procedures performed, we concluded
that the impairment charge was
reasonable, there is no evidence of
management bias in the determination
of significant judgements and
estimates, and that the related
disclosures provided in the Group’s
financial statements are appropriate.
Risk
Our response to the risk
The risk of impairment of oil & gas assets
Refer to the Audit Committee Report on page 82; the
estimates, assumptions and judgements on page 135
and the disclosures in notes 6 to 7 of the Consolidated
Financial Statements page 141).
In addressing the risk of impairment of oil & gas assets
we utilised our valuation specialists and evaluated
management’s impairment assessment by testing the
key assumptions.
We have:
Impairment charge in 2020 of $245 million was recorded
(2019: $1,355 million).
• evaluated management’s assessment of indicators of
impairment or impairment reversal;
At 31 December 2020, the carrying value of oil & gas
assets $339 million (2019: $650 million).
Owing to the reduction in the Group’s reserves
estimates and oil price volatility in 2020, there was a
significant risk of further impairment to that recorded
in 2019. We focused on this area due to the significance
of the carrying value of the Cash Generating Unit
(CGU), the current economic environment and the
judgements involved in the key assumptions of the
future prices of oil, natural gas and related products,
the discount rate applied to future cash flow forecasts
and the assumptions relevant to production volumes.
The recoverable amount of the CGU is sensitive to
changes in key inputs and assumptions. As a result of
the impairment recorded in 2019, there is no headroom
in the carrying value of the CGU compared to its
recoverable amount.
There is also a risk that management may influence
the significant judgements and estimates in respect of
management’s key assumptions in order to understate
the impairment charge to achieve targeted result.
The risk has increased compared with the prior year.
• walked through the controls designed by the Group
relating to the assessment of the recoverable amount
of oil & gas assets for impairment;
• assessed whether the value in use (VIU) or the fair
value less costs of disposal (FVLCD) is the higher
recoverable amount;
• tested the integrity of the discounted cash flow model
with the assistance of our own specialists;
• evaluated the oil & gas prices and discount rate
assumptions by comparing forecast price assumptions
to the latest market evidence available, including
forward curves, broker’s estimates and other long-
term price forecasts; and benchmarking the discount
rate to the risks faced by the Group;
• considered the existence of any contradictory
evidence to challenge the recoverable amount
determined on the basis of the discounted cash flow
model, including the Group’s enterprise value;
• assessed the appropriateness of the oil and gas
reserves and resources estimates, as described in the
key audit matter above in this report, and evaluated
the risking factors applied in estimating the value
associated with the contingent resources;
• challenged the valuation methodology for estimating
the recoverable amount; specifically the value
attributed to the contingent resources and the
opportunity for utilising the spare GTU processing
capacity, including the related judgements around
risking;
• tested forecast cash flows by comparing the
assumptions used within the impairment models
to the approved budgets, business plans and other
evidence of future intentions;
• assessed the historical accuracy of management’s
budgets and forecasts by comparing them to actual
performance;
• compared the exchange rate assumptions to external
market data;
• evaluated management’s sensitivity analysis in
order to assess the potential impact of a range of
reasonably possible outcomes. These sensitivities
included adjustments to the discount rate, oil & gas
prices, future production volumes, opex and capex
assumptions; and
• evaluated the appropriateness of the financial
statement disclosures.
In addressing this risk, audit procedures were performed by the component team in Kazakhstan and the Group engagement team.
By performing these procedures, we obtained full coverage of the related balances.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 121
Financial report Independent auditor’s report continued
Risk
Revenue recognition
Refer to the Audit Committee Report on page 83; The
Summary of significant accounting policies on page
140 and the disclosures in note 21 of the Consolidated
Financial Statements (page 146).
Revenue for the year ended 31 December 2020 amounts
to $176 million (2019: $322 million). Revenue includes
sales of crude oil, gas condensate, dry gas and liquefied
petroleum gas (LPG).
There is the risk of management manipulation to
overstate revenue. This could be achieved by potentially
recording sales in an incorrect period.
The risk has remained consistent with the prior year.
Key observations communicated to the
Audit Committee
We concluded that revenue is
recognised consistently with the
terms of sales agreements. We
also concluded that the financial
statements disclosures with respect to
revenue fulfilled the requirements of
the accounting standards.
Our response to the risk
Our component team in Kazakhstan performed
procedures to walkthrough and understand the process
and key controls associated with the revenue recognition
and accounts receivable process.
We performed enquiries of management and analysed
contracts to evaluate whether revenue was recognised
in accordance with the contractual terms. We also
performed procedures that are designed to address the
risk of manipulation of accounting records and the ability
of management to override controls. We have:
• tested a sample of third-party evidence to verify
revenue transactions are recorded appropriately, this
included inspection of sales contracts with customers
and delivery documents. We performed substantive
audit procedures on cash accounts to verify cash
collection from customers;
• analysed the entire population of revenue transactions
and identified revenue journals for which the
corresponding entry was not posted against
trade receivables and where trade receivables
were not cleared through cash. We assessed the
appropriateness of these journals. Of the outstanding
trade receivables due at the year-end, we confirmed
the material balances with the relevant counterparties
as well as tested that trade receivables were collected
subsequent to year-end;
• performed cut-off procedures at the period-end date
to determine that transactions are recorded in the
proper period;
• tested the appropriateness of journal entries
impacting revenue, using data extracted from the
accounting system, as well as other adjustments made
in the preparation of the financial statements;
• carried out analytical review procedures on each
revenue stream using disaggregated data, by volume,
by product, by customer and by month to assess the
respective products’ underlying performance and
corroborate the appropriateness of the timing of
revenue recognition; and
• evaluated the appropriateness of the financial
statement disclosures.
We performed full scope audit procedures over this risk area in one location (Kazakhstan). By performing these procedures,
we obtained full coverage of the risk amount.
In the prior year, our auditor’s report included a key audit matter in relation to risk of management override. In the current year, we
determined that the risk of management override does not represent a separate key audit matter, on the basis that it is our assessment that
this risk principally manifests itself through the estimation of oil and gas reserves, the risk of impairment of oil & gas assets and revenue
recognition, where there are a number of significant judgements and estimates involved that are susceptible to management bias.
Our application of materiality
We apply the concept of materiality
in planning and performing the audit,
in evaluating the effect of identified
misstatements on the audit and in forming
our audit opinion.
Materiality
The magnitude of an omission or
misstatement that, individually or in the
aggregate, could reasonably be expected
to influence the economic decisions of the
users of the financial statements. Materiality
provides a basis for determining the nature
and extent of our audit procedures.
We determined materiality for the
Group to be $1.6 million, which is 2% of
Adjusted EBITDA. Adjusted EBITDA is a
key performance indicator for the Group
and is also a key metric used by the Group
in the assessment of the performance
of management. We also noted that
market and analyst commentary on the
performance of the Group uses EBITDA
as a key metric. We, therefore, considered
EBITDA to be the most appropriate
performance metric on which to base our
materiality calculation as we considered
that to be the most relevant performance
measure to the stakeholders of the Group.
In adjusting EBITDA we have excluded non-
recurring items, which in 2020 related to the
impairment charge of $245 million.
We determined materiality for the Parent
Company to be $1.6 million, which is based
on 0.5% of the Parent Company’s operating
expenses.
Performance materiality
The application of materiality at the
individual account or balance level. It is set
at an amount to reduce to an appropriately
low level the probability that the
aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments,
together with our assessment of the Group’s
overall control environment, our judgement
was that performance materiality was
50% of our planning materiality, namely
$800 thousand. We have set performance
materiality at this percentage due to our
past experience of the audit that indicates
a higher risk of misstatements.
122 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Audit work at component locations for the
purpose of obtaining audit coverage over
significant financial statement accounts is
undertaken based on a percentage of total
performance materiality. The performance
materiality set for each component is
based on the relative scale and risk of the
component to the Group as a whole and
our assessment of the risk of misstatement
at that component. In the current year, the
range of performance materiality allocated
to components was $0.4 million to
$0.7 million.
Reporting threshold
An amount below which identified
misstatements are considered as being
clearly trivial.
We agreed with the Audit Committee that
we would report to them all uncorrected
audit differences in excess of $80 thousand,
which is set at 5% of planning materiality,
as well as differences below that threshold
that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements
against both the quantitative measures of
materiality discussed above and in light of
other relevant qualitative considerations in
forming our opinion.
Other information
The other information comprises the
information included in the annual report
including the Strategic Report (set out
on pages 2 – 65), Corporate Governance
(set out on pages 66 – 114), Regulatory
Information and Additional Disclosures
sections (set out on pages 167 – 175),
other than the financial statements and
our auditor’s report thereon. The directors
are responsible for the other information
contained within the annual report.
Our opinion on the financial statements
does not cover the other information and,
except to the extent otherwise explicitly
stated in this 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 there is 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 the other
information, we are required to report
that fact.
We have nothing to report in this regard.
Opinions on other matters
prescribed by the Companies Act
2006
In our opinion, the part of the directors’
remuneration report to be audited has been
properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
• Directors’ statement with regards to the
appropriateness of adopting the going
concern basis of accounting and any
material uncertainties identified set out
on pages 130 and 131;
• Directors’ explanation as to its assessment
of the company’s prospects, the period
this assessment covers and why the
period is appropriate set out on page 56;
• Directors’ statement on fair, balanced and
• the information given in the strategic
understandable set out on page 114;
• Board’s confirmation that it has carried out
a robust assessment of the emerging and
principal risks set out on page 52;
• The section of the annual report that
describes the review of effectiveness of
risk management and internal control
systems set out on page 50; and;
• The section describing the work of the
audit committee set out on page 78.
Responsibilities of directors
As explained more fully in the directors’
responsibilities statement set out on page
114, 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 and 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.
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.
Matters on which we are required
to report by exception
In the light of the knowledge and
understanding of the group and the 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.
We have nothing to report in respect of
the following matters in relation to which
the Companies Act 2006 (set out on pages
2 – 65) 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 and the part of the Directors’
Remuneration Report to be audited 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
Corporate Governance Statement
The Listing Rules require us to review the
directors’ statement in relation to going
concern, longer-term viability and that part
of the Corporate Governance Statement
relating to the Group and company’s
compliance with the provisions of the UK
Corporate Governance Code specified for
our review.
Aside from the impact of the matters
disclosed in the ‘Material uncertainties
related to going concern section’ of our
report, based on the work undertaken
as part of our audit, we have concluded
that each of the following elements of
the Corporate Governance Statement
is materially consistent with the financial
statements or our knowledge obtained
during the audit:
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 123
Financial report Independent auditor’s report continued
Explanation as to what extent the audit
was considered 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 irregularities, including
fraud. 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
or intentional misrepresentations, or
through collusion. The extent to which
our procedures are capable of detecting
irregularities, including fraud, is detailed
below and in the key audit matters
section above, where those risk areas are
susceptible to management bias.
However, the primary responsibility for the
prevention and detection of fraud rests with
both those charged with governance of the
company and management.
• We obtained an understanding of the
legal and regulatory frameworks that are
applicable to the Group and determined
that the most significant frameworks
which are directly relevant to specific
assertions in the financial statements
are those that relate to the reporting
framework (IFRS, the Companies Act 2006
and UK Corporate Governance Code) and
the relevant tax compliance regulations
in the jurisdictions in which the Group
operates. In addition, we concluded that
there are certain significant laws and
regulations which may have an effect on
the determination of the amounts and
disclosures in the financial statements
being the Listing Rules of the UK Listing
Authority, and those laws and regulations
relating to health and safety, employee
matters, data protection, environmental
and anti-bribery and corruption practices;
• We understood how the Group is
complying with those frameworks by
making inquiries of management, those
charged with governance and those
responsible for legal and compliance
procedures. We corroborated our
inquiries through our review of Board
minutes, papers provided to the Audit
Committee and correspondence received
from regulatory bodies and noted that
there was no contradictory evidence;
• We assessed the susceptibility of the
Group’s financial statements to material
misstatement, including how fraud might
occur, by meeting with management to
understand where it considered there
was susceptibility to fraud. We considered
performance targets and their propensity
to influence efforts made by management
to manage earnings. We considered the
programs and controls that the Group has
established to address risks identified, or
that otherwise prevent, deter and detect
fraud, and how senior management
monitors those programs and controls.
Where the risk was considered to be
higher, we performed audit procedures to
address each identified fraud risk. These
procedures included testing manual
journals and were designed to provide
reasonable assurance that the financial
statements were free from fraud or error;
• Based on this understanding we
designed our audit procedures to
identify non-compliance with such laws
and regulations identified above. Our
procedures involved: journal entry testing,
with a focus on manual consolidation
journals and journals indicating large
or unusual transactions based on our
understanding of the business, inquiries
of those charged with governance,
inquiries of both Group and local
management, and focused testing,
as referred to in the key audit matters
section above; and
• Based on the results of our audit
procedures, there were no significant
instances of non-compliance with laws
and regulations identified at the Group
or component level.
A further description of our responsibilities
for the audit of the financial statements is
located on the Financial Reporting Council’s
website at https://www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditor’s report.
Other matters we are required
to address
Following the recommendation from the
Audit Committee, we were re-appointed
by the Company on 9 June 2020 to audit
the financial statements for the year ending
31 December 2020 and subsequent
financial periods. The period of total
uninterrupted engagement including
previous renewals and reappointments is
seven years, covering the period from our
initial appointment through to the year
31 December 2020.
The non-audit services prohibited by the
FRC’s Ethical Standard were not provided to
the Group or the Parent Company and we
remain independent of the Group and the
Parent Company in conducting the audit.
The audit opinion is consistent with the
additional report to the audit committee.
Use of our report
This report is made solely to the Company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the Company’s
members those matters we are required
to state to them in an auditor’s report and
for no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
William Binns (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
27 April 2021
124 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Consolidated financial statements
Consolidated financial statements
Consolidated financial statements
Consolidated financial statements
Consolidated financial statements
Consolidated financial statements
Consolidated statement of
Consolidated statement of financial position
financial position
Consolidated statement of financial position
Consolidated statement of financial position
Consolidated statement of financial position
Consolidated statement of financial position
In thousands of US Dollars
In thousands of US Dollars
In thousands of US Dollars
Notes
Notes
Notes
31 December
2020
31 December
2020
31 December
2020
13
9
10
11
12
13
13
6
7
8
12
Notes
Notes
6
7
6
8
7
12
6
8
6
7
12
7
8
8
12
12
9
10
9
10
11
9
9
12
10
11
10
12
11
11
12
12
Assets
In thousands of US Dollars
Non-current assets
Assets
In thousands of US Dollars
Assets
Property, plant and equipment
Non-current assets
Non-current assets
Right-of-use assets
Assets
Property, plant and equipment
Property, plant and equipment
Assets
Advances for non-current assets
Non-current assets
Right-of-use assets
Right-of-use assets
Non-current assets
Restricted cash
Property, plant and equipment
Advances for non-current assets
Advances for non-current assets
Property, plant and equipment
Right-of-use assets
Restricted cash
Restricted cash
Right-of-use assets
Advances for non-current assets
Advances for non-current assets
Restricted cash
Current assets
Restricted cash
Inventories
Current assets
Current assets
Prepayments and other current assets
Inventories
Inventories
Income tax prepayment
Current assets
Prepayments and other current assets
Prepayments and other current assets
Current assets
Trade receivables
Inventories
Income tax prepayment
Income tax prepayment
Inventories
Cash and cash equivalents
Prepayments and other current assets
Trade receivables
Trade receivables
Prepayments and other current assets
Income tax prepayment
Cash and cash equivalents
Cash and cash equivalents
Income tax prepayment
Trade receivables
TOTAL ASSETS
Trade receivables
Cash and cash equivalents
TOTAL ASSETS
Cash and cash equivalents
TOTAL ASSETS
Equity and liabilities
TOTAL ASSETS
Share capital and reserves
Equity and liabilities
TOTAL ASSETS
Equity and liabilities
Share capital
Share capital and reserves
Share capital and reserves
Treasury capital
Equity and liabilities
Share capital
Share capital
Equity and liabilities
Retained deficit and reserves
Share capital and reserves
Treasury capital
Treasury capital
Share capital and reserves
Share capital
Retained deficit and reserves
Retained deficit and reserves
Share capital
Treasury capital
Treasury capital
Retained deficit and reserves
Non-current liabilities
Retained deficit and reserves
Long-term borrowings
Non-current liabilities
Non-current liabilities
Long-term lease liabilities
Long-term borrowings
Long-term borrowings
Abandonment and site restoration provision
Non-current liabilities
Long-term lease liabilities
Long-term lease liabilities
Non-current liabilities
Due to Government of Kazakhstan
Long-term borrowings
Abandonment and site restoration provision
Abandonment and site restoration provision
Long-term borrowings
Deferred tax liability
Long-term lease liabilities
Due to Government of Kazakhstan
Due to Government of Kazakhstan
Long-term lease liabilities
Abandonment and site restoration provision
Deferred tax liability
Deferred tax liability
Abandonment and site restoration provision
Due to Government of Kazakhstan
Due to Government of Kazakhstan
Deferred tax liability
Current liabilities
Deferred tax liability
Current portion of long-term borrowings
Current liabilities
Current liabilities
Current portion of lease liabilities
Current portion of long-term borrowings
Current portion of long-term borrowings
Employee share option plan liability
Current liabilities
Current portion of lease liabilities
Current portion of lease liabilities
Current liabilities
Trade payables
Current portion of long-term borrowings
Employee share option plan liability
Employee share option plan liability
Current portion of long-term borrowings
Advances received
Current portion of lease liabilities
Trade payables
Trade payables
Current portion of lease liabilities
Current portion of due to Government of Kazakhstan
Employee share option plan liability
Advances received
Advances received
Employee share option plan liability
Other current liabilities
Trade payables
Current portion of due to Government of Kazakhstan
Current portion of due to Government of Kazakhstan
Trade payables
Advances received
Other current liabilities
Other current liabilities
Advances received
Current portion of due to Government of Kazakhstan
TOTAL EQUITY AND LIABILITIES
Current portion of due to Government of Kazakhstan
Other current liabilities
TOTAL EQUITY AND LIABILITIES
Other current liabilities
31 December
31 December
2020
2020
339,406
2,755
339,406
339,406
9,034
2,755
2,755
20,613
339,406
9,034
9,034
339,406
2,755
371,808
20,613
20,613
2,755
9,034
371,808
371,808
9,034
20,613
20,613
371,808
28,805
371,808
12,303
28,805
28,805
379
12,303
12,303
13,540
28,805
379
379
28,805
78,583
12,303
13,540
13,540
12,303
379
133,610
78,583
78,583
379
13,540
505,418
133,610
133,610
13,540
78,583
505,418
78,583
505,418
133,610
133,610
505,418
505,418
3,203
(1,660)
3,203
3,203
(761,294)
(1,660)
(1,660)
3,203
(759,751)
(761,294)
(761,294)
3,203
(1,660)
(759,751)
(759,751)
(1,660)
(761,294)
(761,294)
(759,751)
–
(759,751)
35
–
–
28,936
35
35
4,832
–
28,936
28,936
–
8,505
35
4,832
4,832
35
28,936
42,308
8,505
8,505
28,936
4,832
42,308
42,308
4,832
8,505
8,505
42,308
1,186,269
42,308
2,790
1,186,269
1,186,269
3
2,790
2,790
8,502
1,186,269
3
3
1,186,269
186
2,790
8,502
8,502
2,790
1,031
3
186
186
3
24,080
8,502
1,031
1,031
8,502
186
1,222,861
24,080
24,080
186
1,031
505,418
1,222,861
1,222,861
1,031
24,080
505,418
24,080
505,418
1,222,861
1,222,861
505,418
505,418
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors.
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors.
TOTAL EQUITY AND LIABILITIES
TOTAL EQUITY AND LIABILITIES
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors.
Signed on behalf of the Board:
Signed on behalf of the Board:
Arfan Khan
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors.
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors.
Arfan Khan
Chief Executive Officer
Signed on behalf of the Board:
Signed on behalf of the Board:
Chief Executive Officer
Arfan Khan
27 April 2021
Arfan Khan
Chief Executive Officer
27 April 2021
Chief Executive Officer
Martin Cocker
Martin Cocker
Interim Chief Financial Officer
Interim Chief Financial Officer
Martin Cocker
27 April 2021
Martin Cocker
Interim Chief Financial Officer
27 April 2021
Interim Chief Financial Officer
15
16
15
17
16
18
15
17
15
29
16
18
16
17
29
17
18
18
29
29
15
16
15
16
19
15
15
16
19
16
18
20
19
18
19
20
18
18
20
20
TOTAL EQUITY AND LIABILITIES
Signed on behalf of the Board:
Interim Chief Financial Officer
15
16
17
18
29
Chief Executive Officer
Martin Cocker
Arfan Khan
18
20
15
16
27 April 2021
27 April 2021
13
13
19
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
27 April 2021
27 April 2021
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
27 April 2021
27 April 2021
31 December
2019
31 December
2019
31 December
2019
31 December
31 December
2019
2019
650,229
6,875
650,229
650,229
8,412
6,875
6,875
7,620
650,229
8,412
8,412
650,229
6,875
673,136
7,620
7,620
6,875
8,412
673,136
673,136
8,412
7,620
7,620
673,136
35,849
673,136
12,040
35,849
35,849
90
12,040
12,040
31,239
35,849
90
90
35,849
93,940
12,040
31,239
31,239
12,040
90
173,158
93,940
93,940
90
31,239
846,294
173,158
173,158
31,239
93,940
846,294
93,940
846,294
173,158
173,158
846,294
846,294
3,203
(1,660)
3,203
3,203
(433,627)
(1,660)
(1,660)
3,203
(432,084)
(433,627)
(433,627)
3,203
(1,660)
(432,084)
(432,084)
(1,660)
(433,627)
(433,627)
(432,084)
1,100,453
(432,084)
641
1,100,453
1,100,453
27,502
641
641
5,070
1,100,453
27,502
27,502
1,100,453
42,787
641
5,070
5,070
641
27,502
1,176,453
42,787
42,787
27,502
5,070
1,176,453
1,176,453
5,070
42,787
42,787
1,176,453
35,633
1,176,453
6,735
35,633
35,633
4
6,735
6,735
27,638
35,633
4
4
35,633
335
6,735
27,638
27,638
6,735
1,031
4
335
335
4
30,549
27,638
1,031
1,031
27,638
335
101,925
30,549
30,549
335
1,031
846,294
101,925
101,925
1,031
30,549
846,294
30,549
846,294
101,925
101,925
846,294
846,294
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 125
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
125
125
125
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
125
125
Financial report
Consolidated financial statements continued
Consolidated financial statements
Consolidated financial statements
Consolidated statement of
comprehensive income
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
For the year ended 31 December
In thousands of US Dollars
In thousands of US Dollars
Revenue
Revenue from export sales
Revenue from domestic sales
Revenue
Revenue from export sales
Revenue from domestic sales
Cost of sales
Gross profit
Cost of sales
Gross profit
General and administrative expenses
General and administrative expenses
Selling and transportation expenses
Selling and transportation expenses
Taxes other than income tax
Taxes other than income tax
Finance costs
Finance costs
Employee share options - fair value adjustment
Employee share options - fair value adjustment
Impairment charge
Impairment charge
Foreign exchange (loss) / gain, net
Foreign exchange (loss) / gain, net
Interest income
Interest income
Other income
Other income
Other expenses
Other expenses
Loss before income tax
Loss before income tax
Current income tax expense
Deferred income tax benefit
Income tax benefit
Current income tax expense
Deferred income tax benefit
Income tax benefit
Loss for the year
Loss for the year
Notes
Notes
21
21
22
22
23
24
25
26
27
4
23
24
25
26
27
4
28
28
28
28
29
29
Other comprehensive income that could be reclassified to the income statement in subsequent periods
Currency translation difference
Other comprehensive income
Other comprehensive income that could be reclassified to the income statement in subsequent periods
Currency translation difference
Other comprehensive income
Total comprehensive loss for the year
Total comprehensive loss for the year
Loss for the period attributable to the shareholders (in thousands of US dollars)
Weighted average number of shares
Basic and diluted earnings per share (in US dollars)
Loss for the period attributable to the shareholders (in thousands of US dollars)
Weighted average number of shares
Basic and diluted earnings per share (in US dollars)
14
14
All items in the above statement are derived from continuous operations.
All items in the above statement are derived from continuous operations.
For the year ended 31 December
2020
2019
2020
2019
140,843
35,096
175,939
140,843
35,096
175,939
(125,392)
50,547
(125,392)
50,547
(14,671)
(14,671)
(31,037)
(31,037)
(14,113)
(14,113)
(102,067)
(102,067)
496
496
(244,923)
(244,923)
(1,827)
(1,827)
253
253
4,757
4,757
(7,606)
(7,606)
(360,191)
(360,191)
(1,516)
34,282
32,766
(1,516)
34,282
32,766
218,511
103,617
322,128
218,511
103,617
322,128
(172,002)
150,126
(172,002)
150,126
(21,399)
(21,399)
(45,875)
(45,875)
(22,886)
(22,886)
(43,047)
(43,047)
(584)
(584)
(1,354,651)
(1,354,651)
361
361
86
86
7,210
7,210
(12,490)
(12,490)
(1,343,149)
(1,343,149)
(4,972)
358,194
353,222
(4,972)
358,194
353,222
(327,425)
(327,425)
(989,927)
(989,927)
253
253
253
253
211
211
211
211
(327,172)
(327,172)
(989,716)
(989,716)
(327,425)
(327,425)
185,234,079
185,234,079
(1.77)
(1.77)
(989,927)
(989,927)
185,234,079
185,234,079
(5.34)
(5.34)
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
126 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
126 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
126 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Consolidated financial statements
Consolidated financial statements
Consolidated statement of
cash flows
Consolidated statement of cash flows
Consolidated statement of cash flows
Notes
Notes
22,23,24
4
26
22,23,24
4
26
In thousands of US Dollars
In thousands of US Dollars
Cash flow from operating activities:
Loss before income tax
Cash flow from operating activities:
Loss before income tax
Adjustments for:
Adjustments for:
Depreciation, depletion and amortisation
Depreciation, depletion and amortisation
Impairment charge
Impairment charge
Finance costs
Finance costs
Employee share option plan fair value adjustment
Employee share option plan fair value adjustment
Interest income
Interest income
Foreign exchange (gain)/loss on investing and financing activities
Foreign exchange (gain)/loss on investing and financing activities
Loss on disposal of property, plant and equipment
Loss on disposal of property, plant and equipment
Payments under derivative financial instruments
Payments under derivative financial instruments
Accrued expenses
Accrued expenses
Operating profit before working capital changes
Operating profit before working capital changes
Changes in working capital:
Changes in working capital:
Change in inventories
Change in inventories
Change in trade receivables
Change in trade receivables
Change in prepayments and other current assets
Change in prepayments and other current assets
Change in trade payables
Change in trade payables
Change in advances received
Change in advances received
Change in due to Government of Kazakhstan
Change in due to Government of Kazakhstan
Change in other current liabilities
Change in other current liabilities
Cash generated from operations
Income tax paid
Net cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash flows from operating activities
Cash flow from investing activities:
Cash flow from investing activities:
Interest received
Interest received
Purchase of property, plant and equipment
Purchase of property, plant and equipment
Exploration and evaluation works
Exploration and evaluation works
Advances for non-current assets
Advances for non-current assets
Transfer to restricted cash
Transfer to restricted cash
Net cash used in investing activities
Net cash used in investing activities
Cash flow from financing activities:
Cash flow from financing activities:
Finance costs paid
Finance costs paid
Other finance costs
Other finance costs
Payment of principal portion of lease liabilities
Payment of principal portion of lease liabilities
Finance charges on lease liabilities
Finance charges on lease liabilities
Net cash used in financing activities
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Effects of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Net decrease in cash and cash equivalents
For the year ended 31 December
For the year ended 31 December
2020
2020
2019*
2019*
(360,191)
(360,191)
(1,343,149)
(1,343,149)
89,777
89,777
244,923
244,923
102,067
102,067
(496)
(496)
(253)
(253)
(129)
(129)
737
737
–
–
–
–
76,435
76,435
7,043
7,043
17,699
17,699
(132)
(132)
(9,171)
(9,171)
(150)
(150)
(1,031)
(1,031)
(5,951)
(5,951)
84,742
84,742
(1,996)
(1,996)
82,746
82,746
143,291
143,291
1,354,651
1,354,651
43,047
43,047
584
584
(86)
(86)
160
160
96
96
(3,741)
(3,741)
(5,096)
(5,096)
189,757
189,757
(6,266)
(6,266)
4,493
4,493
5,494
5,494
3,949
3,949
(59)
(59)
(1,031)
(1,031)
5,977
5,977
202,314
202,314
(5,477)
(5,477)
196,837
196,837
253
253
(25,797)
(25,797)
(483)
(483)
(622)
(622)
(13,452)
(13,452)
(40,101)
(40,101)
86
86
(114,762)
(114,762)
(984)
(984)
(4,731)
(4,731)
(599)
(599)
(120,990)
(120,990)
(43,000)
(43,000)
(10,013)
(10,013)
(5,064)
(5,064)
(354)
(354)
(58,431)
(58,431)
(86,000)
(86,000)
–
–
(14,856)
(14,856)
(2,853)
(2,853)
(103,709)
(103,709)
429
429
49
49
(15,357)
(15,357)
(27,813)
(27,813)
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents at the end of the year
12
12
12
12
93,940
78,583
93,940
78,583
121,753
121,753
93,940
93,940
* In the consolidated financial statements for the year ended 31 December 2019 transfer to restricted cash of US$599 thousand was presented within financing cashflows. The 2019
* In the consolidated financial statements for the year ended 31 December 2019 transfer to restricted cash of US$599 thousand was presented within financing cashflows. The 2019
comparative above has been restated to be consistent with the classification in the current year.
comparative above has been restated to be consistent with the classification in the current year.
“Other finance costs” primarily represent bondholder consent fees in the amount of US$5,585 thousand and advisor fees of US$4,428 thousand paid by the
Group in relation to the forbearance agreement and ongoing discussions with its bondholders regarding a possible restructuring of the Group’s outstanding
bonds. For more details on forbearance agreement and the consent fees see Note 1.
“Other finance costs” primarily represent bondholder consent fees in the amount of US$5,585 thousand and advisor fees of US$4,428 thousand paid by the
Group in relation to the forbearance agreement and ongoing discussions with its bondholders regarding a possible restructuring of the Group’s outstanding
bonds. For more details on forbearance agreement and the consent fees see Note 1.
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 127
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
127
127
Financial report
Consolidated financial statements continued
Consolidated financial statements
Consolidated financial statements
Consolidated statement of
changes in equity
Consolidated statement of changes in equity
Consolidated statement of changes in equity
In thousands of US Dollars
In thousands of US Dollars
As at 1 January 2019
As at 1 January 2019
Loss for the year
Loss for the year
Other comprehensive income
Other comprehensive income
Total comprehensive loss for the year
Total comprehensive loss for the year
Share based payments under LTIP*
Share based payments under LTIP*
As at 31 December 2019
As at 31 December 2019
Loss for the year
Loss for the year
Other comprehensive income
Other comprehensive income
Total comprehensive loss for the year
Total comprehensive loss for the year
Share based payments under LTIP*
Share based payments under LTIP*
As at 31 December 2020
As at 31 December 2020
* Long-Term Incentive Plan (“LTIP”)
* Long-Term Incentive Plan (“LTIP”)
Notes
Notes
Share
capital
Share
capital
3,203
3,203
–
–
–
–
–
–
Treasury
Treasury
capital
capital
Other
reserves
Other
reserves
(1,660)
(1,660)
262,233
262,233
–
–
–
–
–
–
–
–
211
211
211
211
–
–
3,203
3,203
–
–
(1,660)
(1,660)
633
633
263,077
263,077
–
–
–
–
–
–
–
–
–
–
–
–
–
–
253
253
253
253
Retained
Retained
earnings /
earnings /
(deficit)
(deficit)
293,223
293,223
(989,927)
(989,927)
–
–
(989,927)
(989,927)
–
–
(696,704)
(696,704)
(327,425)
(327,425)
–
–
(327,425)
(327,425)
–
–
3,203
3,203
–
–
(1,660)
(1,660)
(495)
(495)
262,835
262,835
–
–
(1,024,129)
(1,024,129)
Total
Total
556,999
556,999
(989,927)
(989,927)
211
211
(989,716)
(989,716)
633
633
(432,084)
(432,084)
(327,425)
(327,425)
253
253
(327,172)
(327,172)
(495)
(495)
(759,751)
(759,751)
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
128 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
128 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
128 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated
financial statements
Notes to the consolidated financial statements
Consolidated financial statements
1. General
OOvveerrvviieeww
Nostrum Oil & Gas PLC (“the Company” or “the
Parent”) is a public limited company incorporated
on 3 October 2013 under the Companies Act 2006
and registered in England and Wales with
registered number 8717287. The registered
address of Nostrum Oil & Gas PLC is: 9th Floor, 20
Eastbourne Terrace, London, W2 6LG, UK.
These consolidated financial statements include
the financial position and the results of the
operations of Nostrum Oil & Gas PLC and its
following wholly owned subsidiaries:
Company
Registered office
Nostrum
Associated
Investments
LLP
Nostrum
E&P Services
LLC
Nostrum Oil
& Gas
Coöperatief
U.A.
Nostrum Oil
& Gas B.V.
Nostrum Oil
& Gas
Finance B.V.
Nostrum Oil
& Gas UK
Ltd.
Nostrum
Services
Central Asia
LLP
Nostrum
Services N.V.
Zhaikmunai
LLP
43B Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Liteyniy Prospekt 26
A, 191028 St.
Petersburg, Russian
Federation
Bloemendaalseweg
139, Hofstede
Sparrenheuvel, 2061
CH Bloemendaal, The
Netherlands
Bloemendaalseweg
139, Hofstede
Sparrenheuvel, 2061
CH Bloemendaal, The
Netherlands
Bloemendaalseweg
139, Hofstede
Sparrenheuvel, 2061
CH Bloemendaal, The
Netherlands
20 Eastbourne
Terrace, London W2
6LA, United Kingdom
Aksai 3a, 75/38,
050031 Almaty,
Republic of
Kazakhstan
Chaussee de Wavre
20, 1360 Perwez,
Belgium
43/1 Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Owner-
ship, %
100
100
100
Form of
capital
Participa
tory
interests
Participa
tory
interests
Member
s'
interests
Ordinary
shares
100
Ordinary
shares
100
100
100
100
100
Ordinary
shares
Participa
tory
interests
Ordinary
shares
Participa
tory
interests
Nostrum Oil & Gas PLC and its wholly owned
subsidiaries are hereinafter referred to as “the
Group”. The Group’s operations comprise of a
single operating segment including all Group’s
assets related to its Chinarevskoye field,
Rostoshinskoye exploration field as well as surface
facilities, and are primarily conducted through its
oil and gas producing entity Zhaikmunai LLP
located in Kazakhstan.
As at 31 December 2020, the Group employed 564
employees (2019: 636).
SSuubbssooiill uussee rriigghhttss tteerrmmss
RRooyyaallttyy ppaayymmeennttss
Zhaikmunai LLP carries out its activities in
accordance with the Contract for Additional
Exploration, Production and Production-Sharing of
Crude Hydrocarbons in the Chinarevskoye oil and
gas condensate field (the “Contract”) dated 31
October 1997 between the State Committee of
Investments of the Republic of Kazakhstan and
Zhaikmunai LLP in accordance with the license MG
No. 253D for the exploration and production of
hydrocarbons in Chinarevskoye oil and gas
condensate field.
On 17 August 2012 Zhaikmunai LLP signed Asset
Purchase Agreements to acquire 100% of the
subsoil use rights related to three oil and gas fields
– Rostoshinskoye, Darjinskoye and Yuzhno-
Gremyachinskoye – all located in the Western
Kazakhstan region. On 1 March 2013 Zhaikmunai
LLP has acquired the subsoil use rights related to
these three oil and gas fields in Kazakhstan
following the signing of the respective
supplementary agreements related thereto by the
authority now known as the Ministry of Energy
(the “MOE”) of the Republic of Kazakhstan.
The term of the Chinarevskoye subsoil use rights
originally included a 5-year exploration period and
a 25-year production period. Subsequently the
exploration period for the Bobrishovskiy reservoir
was extended to 26 August 2018, which was
followed by production period.
The contract for exploration and production of
hydrocarbons from the Rostoshinskoye field dated
8 February 2008 originally included a 3-year
exploration period and a 12-year production
period. On 16 August 2019, the contract was
amended so as to adopt the terms of the current
model contract and the exploration period was
extended until 16 August 2022.
The contract for exploration and production of
hydrocarbons from the Darjinskoye field dated 28
July 2006 originally included a 6-year exploration
period and a 19-year production period.
Subsequently, the exploration period was
extended until 31 December 2021. In October
2020, the rights and obligations related to the
Darjinskoye field were disposed to a third party.
The contract for exploration and production of
hydrocarbons from the Yuzhno-Gremyachinskoye
field dated 28 July 2006 originally included a 5-year
exploration period and a 20-year production
period. Subsequently, the exploration period was
extended until 31 December 2021. In October
2020, the rights and obligations related to the
Yuzhno-Gremyachinskoye field were disposed to a
third party.
Zhaikmunai LLP is required to make monthly
royalty payments throughout the entire
production period, at the rates specified in the
Contract.
Royalty rates depend on hydrocarbons recovery
levels and the phase of production and can vary
from 3% to 7% of produced crude oil and from 4%
to 9% of produced natural gas. Royalty is
accounted on a gross basis.
GGoovveerrnnmmeenntt ““pprrooffiitt sshhaarree””
Zhaikmunai LLP makes payments to the
Government of its “profit share” as determined in
the Contract. The “profit share” depends on
hydrocarbon production levels and varies from
10% to 40% of production after deducting royalties
and reimbursable expenditures. Reimbursable
expenditures include operating expenses, costs of
additional exploration and development costs.
Government “profit share” is expensed as incurred
and paid in cash. Government profit share is
accounted on a gross basis.
FFoorrbbeeaarraannccee aaggrreeeemmeenntt
On 31 March 2020, following the collapse in the oil
price, the Group announced that it would seek to
engage with its bondholders regarding a possible
restructuring of the Group’s US$725 million 8.0%
Senior Notes due July 2022 and/or its US$400
million 7.0% Senior Notes due February 2025
(Notes).
In May 2020, the Group appointed Rothschild &
Cie as financial advisers and White & Case as legal
advisers to assist in the restructuring of the Notes.
PJT Partners (UK) Limited were appointed as
financial advisers and Akin Gump Strauss Hauer &
Feld as legal advisers to an informal ad hoc
committee of noteholders (AHG). In July 2020, the
Group announced that it planned to utilise the
applicable grace periods for the interest payments
due on 25 July 2020 and 16 August 2020 with
respect to the Notes. The 30-day grace period was
to allow the Company to continue active
discussions with the financial and legal advisers to
the AHG with a view to entering into a forbearance
agreement with the holders of the Notes in
relation to those interest payments.
On 23 October 2020 the Company announced that
the Company and certain of its subsidiaries (Note
Parties) has entered into a forbearance agreement
(Forbearance Agreement) with members of the
AHG. The forbearance period initially expired at 4
p.m. GMT on 20 December 2020 (Initial Expiration
Date), at which time the Initial Expiration Date
automatically extended to 4 p.m. GMT on 18
February 2021, on which date it automatically
extended again to 4 p.m. GMT on 20 March 2021.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 129
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
129
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
Pursuant to the agreement, members of the AHG
have agreed to forbear from the exercise of certain
rights and remedies that they have under the
indentures governing the Notes. The agreed
forbearances include agreeing not to accelerate
the Notes' obligations as a result of the missed
interest payments (or the next missed interest
periods if they occur prior to the expiry of the
forbearance agreement).
The Forbearance Agreement is subject to certain
conditions, including:
• Any representation or warranty made by any of
the Note Parties under the Forbearance
Agreement continuing to be true and complete
in all material respects as of the date of the
Forbearance Agreement;
• The opening of a secured account into which a
portion of the missed interest payments was
paid. Within 21 days of the effective date of the
Forbearance Agreement an amount equal to
30% of the missed interest payments, equating
to US$12,900 thousand, was transferred into
the secured account (Note 12). The amount in
the secured accounts was increased by a further
transfer of 17.50% of the missed interest
payments, equating to US$7,525 thousand 180
days after the effective date of the Forbearance
Agreement. This transfer was made subsequent
to the year end. The Company has the ability to
make certain withdrawals from the account if its
liquidity falls below an agreed level. At the date
of this Annual report, the full amount of
US$20,425 thousand required by the
Forbearance Agreement has been transferred
into secured account along with a further
supplemental amount of US$1,117 thousand as
discussed below;
• The appointment by the AHG of an observer
who shall be entitled to attend and speak, but
not vote, at any meetings of the Board or
Committees of the Company where certain
defined matters are to be discussed;
• The engagement of certain professional and
technical advisors on behalf of the AHG;
• The observance by the Company and its
subsidiaries of certain operating and other
restrictions and limitations; and
• The provision of certain financial and operating
information to the advisors of the AHG.
Holders in an aggregate principal amount of
$361,215 thousand of the 2022 Notes and holders
in an aggregate principal amount of $191,258
thousand of the 2025 Notes signed the
Forbearance Agreement.
The Company agreed to pay, or procure payment
of, certain consent fees in cash (Consent Fee) to
each forbearing holder. At the date of this Annual
Report, all Consent Fees have been paid. The first
Consent Fee for the first 90 days of 29.7866 basis
points, totalling US$3,350,992, was paid on 19
November 2020. The second consent fee of
19.8577 bps, totalling US$2,233,991, was paid on
22 December 2020. The final consent fee of 9.9288
bps, equating to US$1,116,990, was paid
subsequent to the year end on 20 February 2021.
The consent fees were recorded in the income
statement (for more details please see Note 26).
On 19 March 2021, by unanimous consent of the
AHG, the forbearance period was extended to 20
April 2021. On 20 April 2021, again by unanimous
consent of the AHG, the forbearance period was
extended to 20 May 2021. The extensions were to
provide time for a final agreement to be reached
with shareholders and bondholders.
In return for the AHG agreeing to extend the
forbearance period to 20 April 2021, the Company
also agreed to pay in the secured account an
amount of US$1,116,990, equating to 9.9288 bps
of the outstanding Notes. This amount was paid
into the secured account in March 2021.
2. Basis of preparation and consolidation
BBaassiiss ooff pprreeppaarraattiioonn
These consolidated financial statements for the
year ended 31 December 2020 have been
prepared in accordance with international
accounting standards in conformity with the
requirements of the Companies Act 2006 and in
accordance with International Financial Reporting
Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
The consolidated financial statements have been
prepared based on a historical cost basis (Note 4).
The consolidated financial statements are
presented in US dollars and all values are rounded
to the nearest thousand, except when otherwise
indicated.
The preparation of consolidated financial
statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also
requires from management to exercise its
judgment in the process of applying the Group's
accounting policies. The areas involving a higher
degree of judgment or complexity, or areas where
assumptions and estimates are significant to the
consolidated financial statements are disclosed in
Note 4.
BBaassiiss ooff ccoonnssoolliiddaattiioonn
The consolidated financial statements comprise
the financial statements of the Parent and its
subsidiaries as at 31 December 2020. Control is
achieved when the Group 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. Specifically,
the Group controls an investee if, and only if, the
Group has:
• power over the investee (i.e., existing rights that
give it the current ability to direct the relevant
activities of the investee);
• exposure, or rights, to variable returns from its
involvement with the investee;
• the ability to use its power over the investee to
affect its returns.
Generally, there is a presumption that a majority of
voting rights results in control. To support this
presumption and when the Group has less than a
majority of the voting or similar rights of an
investee, the Group considers all relevant facts and
circumstances in assessing whether it has power
over an investee, including:
• the contractual arrangement with the other
vote holders of the investee;
• rights arising from other contractual
arrangements;
• the Group’s voting rights and potential voting
rights.
The Group re-assesses whether or not it controls
an investee if facts and circumstances indicate that
there are changes to one or more of the three
elements of control. Consolidation of a subsidiary
begins when the Group obtains control over the
subsidiary and ceases when the Group loses
control of the subsidiary. Assets, liabilities, income
and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated
financial statements from the date the Group gains
control until the date the Group ceases to control
the subsidiary.
SSuubbssiiddiiaarriieess
Nostrum Oil & Gas UK Ltd. registered and
incorporated in the United Kingdom under
Companies Number 08071559 is exempt from the
requirements of the UK Companies Act 2006
relating to the audit of the individual accounts by
virtue of the section 479A of the Act.
GGooiinngg ccoonncceerrnn
The Group monitors on an ongoing basis its
liquidity position, near-term forecasts and key
financial ratios to ensure that sufficient funds are
available to meet its commitments as they arise
and liabilities as they fall due. In addition, since
April 2020, the Group has performed monthly
sensitivity tests of its liquidity position for changes
in product prices, production volumes and any
other significant variables. Whilst looking for new
opportunities to fill the spare capacity of the
Group’s infrastructure, the Directors are also
focused on a range of actions aimed at improving
the liquidity outlook in the near-term. These
include efforts to restructure the Notes, as well as
further cost optimization to reduce capital
expenditures, operating costs and general and
administration cost.
The Directors have also considered any additional
risks to liquidity posed by COVID-19. Oil and gas
production has been classified as an essential
business in Kazakhstan and operations are
continuing. Contingency plans have been put in
place both to protect the workforce and ensure
that there are sufficient personnel to continue
operations. There was no loss of production as a
130 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
130 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
result of COVID-19 in 2020. Therefore, the
Directors have concluded that there is currently no
material impact on the Group’s operations and
liquidity at the time of publication of this Annual
Report and Accounts as a result of COVID-19.
However, it is recognized that there is uncertainty
around future developments of COVID-19 which
may affect the Group’s ability to deliver the
forecast production over 2021 and early 2022.
In March 2020, following the collapse in the oil
price, the Group announced that it would seek to
engage with its bondholders regarding a possible
consensual restructuring of the Notes.
In May 2020, the Group appointed a financial
adviser and a legal adviser in connection with this,
and in July 2020 announced that it planned to
utilise the applicable grace periods with respect to
the Notes for the interest payments due on 25 July
and 16 August 2020. The 30-day grace period was
to allow the Company to continue active
discussions between the financial and legal
advisers and an informal ad-hoc committee of
noteholders (AHG) with a view to entering into a
forbearance agreement with the holders of the
Notes in relation to those interest payments.
On 23 October 2020, the Company announced
that, together with certain of its subsidiaries (Note
Parties), it had entered into a forbearance
agreement with members of the AHG.
Pursuant to the Forbearance Agreement,
members of the AHG have agreed to forbear from
the exercise of certain rights and remedies that
they have under the indentures governing the
Notes. The agreed forbearances include agreeing
not to accelerate the Notes’ obligations as a result
of the missed interest payments (or the next
missed interest periods if they occur prior to the
expiry of the Forbearance Agreement).
The Forbearance Agreement is subject to certain
conditions, including:
• Any representation or warranty made by any of
the Note Parties under the Forbearance
Agreement continuing to be true and complete
in all material respects as of the date of the
Forbearance Agreement;
• The opening of a secured account into which a
portion of the missed interest payments was
paid. At the date of this Annual Report, the full
amount of US$21,541,990 required by the
Forbearance Agreement has been transferred
into secured account and is treated as restricted
cash. The amount transferred as at 31
December 2020 was US$12,900,000;
• The appointment by the AHG of an observer
who shall be entitled to attend and speak, but
not vote, at any meetings of the Board or
Committees of the Company where certain
defined matters are to be discussed;
• The engagement of certain professional and
technical advisors on behalf of the AHG;
• The observance by the Company and its
subsidiaries of certain operating and other
restrictions and limitations; and
• The provision of certain financial and operating
information to the advisors of the AHG.
The company agreed to pay, or procure payment
of, certain consent fees in cash (Consent Fee) to
each forbearing holder. The Consent Fees were
payable by reference to the total aggregate
principal amount of the Notes outstanding. The
first Consent fee for the first 90 days of 29.7866
basis points, totalling US$3,350,992, was paid on
19 November 2020. The second Consent Fee of
19.8577 bps, totalling US$2,233,991, was paid on
22 December 2020. The final consent fee of 9.9288
bps, equating to US$1,116,990, was paid
subsequent to the year end on 20 February 2021.
On each occasion, consent fees were paid to all of
the total bondholders who agreed to forbear,
equating to approximately 90% by value of each
series of the Notes and evidencing an engaged and
supportive creditor group. Further details of the
forbearance agreement are disclosed in Note 1 to
these consolidated financial statements.
On 19 March 2021, by unanimous consent of the
AHG, the forbearance period was extended to 20
April 2021. On 20 April 2021, again by unanimous
consent of the AHG, the forbearance period was
extended to 20 May 2021.
The extensions were to provide more time for a
lock-up and restructuring agreement to be reached
with bondholders and potentially with other
stakeholders. At the time of publication of this
Annual Report and Accounts, negotiations with
members of the AHG continue. The final form of
the lock-up agreement and associated
restructuring agreement is anticipated to be
concluded by 20 May 2021. The key terms relevant
to the consideration of going concern are that the
debt will be foregone materially and interest on
the restructured debt will partially be paid in cash
and partially rolled up into the debt. As part of the
agreement, it is likely that additional equity will be
issued to bondholders, in which case significantly
diluting the interests of the current equity holders.
Whilst the Group remains confident that
agreement can be reached, discussions with
bondholders, shareholders and the Government of
the Republic of Kazakhstan to restructure the
Notes, and the applications to obtain requisite
approvals and consents have not yet concluded
and so the outcome is uncertain and outside of the
Group's control.
The Directors’ going concern assessment is
supported by future cash flow forecasts. The base
case going concern assessment reflects production
forecasts consistent with the Board approved
plans and published guidance and assumes a Brent
oil price of $45/bbl and $50/bbl, for 2021 and
2022, respectively. The forecast financing
cashflows assume that the Notes are restructured
in the form envisaged by the current preliminary
restructuring terms discussed with the advisors to
the AHG, reflecting the terms outlined above.
Therefore, in forming an assessment on the
Group’s ability to continue as a going concern, the
Board has made significant assumptions about:
• A restructuring of the Notes being agreed with
the AHG and subsequently with sufficient
bondholders consistent with the preliminary
restructuring terms discussed with the advisors
to the AHG, that is affordable for the Group
through the going concern period to 30 June
2022. Should the Group be unable to reach an
agreement with the AHG by the end of the
forbearance period, then bondholders may seek
to enforce their rights under the bond
indentures, including accelerating the Notes'
obligations as a result of the missed interest
payments; and
• If agreement is reached with the AHG and
subsequently with sufficient bondholders, the
Group being able to obtain the necessary
permissions and waivers. Specifically, the Group
may need to obtain permission for the
proposed restructuring from its shareholders
and will need to obtain permission for the
restructuring and secure a waiver from the
Government of the Republic of Kazakhstan. If
agreement is reached with the bondholders but
the Group is unable to obtain the necessary
approvals and waivers, then the agreement
with bondholders may not be implementable.
These assumptions represent material
uncertainties that may cast significant doubt on
the Group’s ability to continue as a going concern
for the going concern period to 30 June 2022,
being not less than 12 months from the date of
this report.
After careful consideration of these material
uncertainties, and on the assumption that a
restructuring of the Notes to an affordable level is
completed, the Directors have a reasonable
expectation that the Group has sufficient resources
to continue in operation for the going concern
period to 30 June 2022, being a period of not less
than 12 months from the date of this report. For
these reasons, they continue to adopt the going
concern basis in preparing the annual report and
accounts. Accordingly, the accompanying
consolidated financial statements do not include
any adjustments to the carrying amount or
classification of assets and liabilities that would
result if the Group were unable to continue as a
going concern.
Notwithstanding that the going concern period has
been defined as the period to 30 June 2022, the
Directors have considered events and conditions
beyond the period of assessment which may cast
doubt on the Group’s ability to continue as a going
concern. The Directors draw attention to the
Viability Statement on page 56 which highlights
that the material uncertainties referred to in
respect of the Going Concern assessment may cast
significant doubt over the future viability of the
Group. In the event that the Group is unable
successfully to restructure its Notes, then under all
reasonable assumptions the Group will be unable
to meet its US$725m debt liability due in July 2022.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 131
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
131
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
3. Changes in accounting policies and disclosures
NNeeww ssttaannddaarrddss,, iinntteerrpprreettaattiioonnss aanndd
aammeennddmmeennttss aaddoopptteedd bbyy tthhee GGrroouupp
The Group applied for the first-time certain
standards and amendments, which are effective
for annual periods beginning on or after 1 January
2020. The Group has not early adopted any other
standard, interpretation or amendment that has
been issued but is not yet effective.
Amendments to IFRS 3: Definition of a Business
The amendment to IFRS 3 Business Combinations
clarifies that to be considered a business, an
integrated set of activities and assets must include,
at a minimum, an input and a substantive process
that, together, significantly contribute to the ability
to create output. Furthermore, it clarifies that a
business can exist without including all of the
inputs and processes needed to create outputs.
These amendments had no impact on the
consolidated financial statements of the Group,
but may impact future periods should the Group
enter into any business combinations.
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest
Rate Benchmark Reform
The amendments to IFRS 9 and IAS 39 Financial
Instruments: Recognition and Measurement
provide a number of reliefs, which apply to all
hedging relationships that are directly affected by
interest rate benchmark reform. A hedging
relationship is affected if the reform gives rise to
uncertainty about the timing and/or amount of
benchmark-based cash flows of the hedged item
or the hedging instrument. These amendments
have no impact on the consolidated financial
statements of the Group as it does not have any
interest rate hedge relationships.
Amendments to IAS 1 and IAS 8 Definition of
Material
The amendments provide a new definition of
material that states, “information is material if
omitting, misstating or obscuring it could
reasonably be expected to influence decisions that
the primary users of general purpose financial
statements make on the basis of those financial
statements, which provide financial information
about a specific reporting entity.” The
amendments clarify that materiality will depend on
the nature or magnitude of information, either
individually or in combination with other
information, in the context of the financial
statements. A misstatement of information is
material if it could reasonably be expected to
influence decisions made by the primary users.
These amendments had no impact on the
consolidated financial statements of the Group.
Conceptual Framework for Financial Reporting
issued on 29 March 2018
The Conceptual Framework is not a standard, and
none of the concepts contained therein override
the concepts or requirements in any standard. The
purpose of the Conceptual Framework is to assist
the IASB in developing standards, to help preparers
develop consistent accounting policies where
there is no applicable standard in place and to
assist all parties to understand and interpret the
standards. This will affect those entities which
developed their accounting policies based on the
Conceptual Framework. The revised Conceptual
Framework includes some new concepts, updated
definitions and recognition criteria for assets and
liabilities and clarifies some important concepts.
These amendments had no impact on the
consolidated financial statements of the Group.
Amendments to IFRS 16 Covid-19 Related Rent
Concessions
On 28 May 2020, the IASB issued Covid-19-Related
Rent Concessions - amendment to IFRS 16 Leases.
The amendments provide relief to lessees from
applying IFRS 16 guidance on lease modification
accounting for rent concessions arising as a direct
consequence of the Covid-19 pandemic. As a
practical expedient, a lessee may elect not to
assess whether a Covid-19 related rent concession
from a lessor is a lease modification. A lessee that
makes this election accounts for any change in
lease payments resulting from the Covid-19 related
rent concession the same way it would account for
the change under IFRS 16, if the change were not a
lease modification. The amendment applies to
annual reporting periods beginning on or after 1
June 2020. Earlier application is permitted. This
amendment had no impact on the consolidated
financial statements of the Group.
SSttaannddaarrddss iissssuueedd bbuutt nnoott yyeett eeffffeeccttiivvee
The new and amended standards and
interpretations that are issued, but not yet
effective, up to the date of issuance of the Group’s
consolidated financial statements are disclosed
below. The Group intends to adopt these new and
amended standards and interpretations, if
applicable, when they become effective.
Amendments to IAS 1: Classification of Liabilities
as Current or Non-current
In January 2020, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the
requirements for classifying liabilities as current or
non-current. The amendments clarify:
• What is meant by a right to defer settlement;
• That a right to defer must exist at the end of the
reporting period;
• That classification is unaffected by the likelihood
that an entity will exercise its deferral right;
• That only if an embedded derivative in a
convertible liability is itself an equity instrument
would the terms of a liability not impact its
classification
The amendments are effective for annual
reporting periods beginning on or after 1 January
2023 and must be applied retrospectively. The
Group is currently assessing the impact the
amendments will have on current practice and
whether existing borrowing agreements will be
renegotiated.
Reference to the Conceptual Framework –
Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS
3 Business Combinations - Reference to the
Conceptual Framework. The amendments are
intended to replace a reference to the Framework
for the Preparation and Presentation of Financial
Statements, issued in 1989, with a reference to the
Conceptual Framework for Financial Reporting
issued in March 2018 without significantly
changing its requirements.
The Board also added an exception to the
recognition principle of IFRS 3 to avoid the issue of
potential ‘day 2’ gains or losses arising for liabilities
and contingent liabilities that would be within the
scope of IAS 37 or IFRIC 21 Levies, if incurred
separately. At the same time, the Board decided to
clarify existing guidance in IFRS 3 for contingent
assets that would not be affected by replacing the
reference to the Framework for the Preparation
and Presentation of Financial Statements. The
amendments are effective for annual reporting
periods beginning on or after 1 January 2022 and
apply prospectively. These amendments had no
impact on the consolidated financial statements of
the Group.
Property, Plant and Equipment: Proceeds before
Intended Use – Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and
Equipment — Proceeds before Intended Use,
which prohibits entities deducting from the cost of
an item of property, plant and equipment, any
proceeds from selling items produced while
bringing that asset to the location and condition
necessary for it to be capable of operating in the
manner intended by management. Instead, an
entity recognises the proceeds from selling such
items, and the costs of producing those items, in
profit or loss. The amendment is effective for
annual reporting periods beginning on or after 1
January 2022 and must be applied retrospectively
to items of property, plant and equipment made
available for use on or after the beginning of the
earliest period presented when the entity first
applies the amendment. The amendments are not
expected to have a material impact on the Group.
Onerous Contracts – Costs of Fulfilling a Contract
– Amendments to IAS 37
In May 2020, the IASB issued amendments to IAS
37 to specify which costs an entity needs to include
when assessing whether a contract is onerous or
loss-making.
The amendments apply a “directly related cost
approach”. The costs that relate directly to a
contract to provide goods or services include both
incremental costs and an allocation of costs
directly related to contract activities. General and
administrative costs do not relate directly to a
contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
132 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
132 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
The amendments are effective for annual
reporting periods beginning on or after 1 January
2022. The Group will apply these amendments to
contracts for which it has not yet fulfilled all its
obligations at the beginning of the annual
reporting period in which it first applies the
amendments.
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2
Making Materiality Judgements
In February 2021 the IASB issued amendments to
IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality
Judgements. The amendments to IAS 1 require
companies to disclose their material accounting
policy information rather than their significant
accounting policies. The amendments to IFRS
Practice Statement 2 provide guidance on how to
apply the concept of materiality to accounting
policy disclosures. The amendments will be
effective for annual reporting periods beginning on
or after 1 January 2023, with early application
permitted. The Group does not expect early
application of these amendments.
Amendments to IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors
In February 2021 the IASB issued amendments to
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors. The amendments clarify how
companies should distinguish changes in
accounting policies from changes in accounting
estimates. That distinction is important because
changes in accounting estimates are applied
prospectively only to future transactions and other
future events, but changes in accounting policies
are generally also applied retrospectively to past
transactions and other past events. The
amendments will be effective for annual reporting
periods beginning on or after 1 January 2023, with
early application permitted. The Group does not
expect early application of these amendments.
IFRS 9 Financial Instruments – Fees in the ’10 per
cent’ test for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to
IFRS standards process the IASB issued
amendment to IFRS 9. The amendment clarifies
the fees that an entity includes when assessing
4. Summary of significant accounting policies
whether the terms of a new or modified financial
liability are substantially different from the terms
of the original financial liability. These fees include
only those paid or received between the borrower
and the lender, including fees paid or received by
either the borrower or lender on the other’s
behalf. An entity applies the amendment to
financial liabilities that are modified or exchanged
on or after the beginning of the annual reporting
period in which the entity first applies the
amendment.
The amendment is effective for annual reporting
periods beginning on or after 1 January 2022 with
earlier adoption permitted. The Group will apply
the amendments to financial liabilities that are
modified or exchanged on or after the beginning of
the annual reporting period in which the entity first
applies the amendment. The amendments are not
expected to have a material impact on the Group.
EExxpplloorraattiioonn eexxppeennddiittuurree
Costs directly associated with exploration wells are
capitalised within exploration and evaluation
assets until the drilling of the well is complete and
the results have been evaluated. These costs
include employee remuneration, materials, fuel
used, rig costs, payments made to contractors and
asset retirement obligation fees.
Significant estimates and assumptions:
Exploration expenditure
If hydrocarbons are found and, subject to further
appraisal activity (e.g., the drilling of additional
wells), it is probable that they can be commercially
developed, the costs continue to be carried as an
asset while sufficient/continued progress is made
PPrrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt
Oil and gas properties
Expenditure on the construction, installation or
completion of infrastructure facilities such as
treatment facilities, pipelines and the drilling of
development wells, is capitalised within property,
plant and equipment as oil and gas properties. The
initial cost of an asset comprises of its purchase
price or construction cost, any costs directly
attributable to bringing the asset into operation
and the initial estimate of decommissioning
obligations, if any.
in assessing the commerciality of the
hydrocarbons.
All such carried costs are subject to technical,
commercial and management review at least once
a year to confirm the continued intent to develop
or otherwise extract value from the discovery,
which is subject to estimation uncertainties.
When this is no longer the case, the costs are
written off.
Subsoil use rights acquisition costs are initially
capitalised in exploration and evaluation assets.
Subsoil use rights acquisition costs are reviewed at
each reporting date to confirm that there is no
indication that the carrying amount exceeds the
recoverable amount. This review includes
confirming that exploration drilling is still under
way or firmly planned, or that it has been
determined, or work is under way to determine
that the discovery is economically viable based on
a range of technical and commercial
considerations and sufficient progress is being
made on establishing development plans and
timing. If no future activity is planned or the subsoil
use rights have been relinquished or has expired,
the carrying value of the subsoil use rights
acquisition costs is written off through profit or
loss.
The Group owns licence for the Rostoshinskoye
field where the exploration period will expire on 16
August 2022. More detailed information on the
subsoil use rights terms is disclosed in Note 1.
The purchase price or construction cost is the
aggregate amount paid and the fair value of any
other consideration given to acquire the asset.
When a development project moves into the
production stage, the capitalisation of certain
construction/development costs ceases, and costs
are either regarded as part of the cost of inventory
or expensed, except for costs which qualify for
capitalisation relating to oil and gas property asset
additions, improvements or new developments.
All capitalised costs of oil and gas properties are
depleted using the unit-of-production method
based on estimated proved developed reserves of
the field, except the Group depreciates its oil
pipeline and oil loading terminal on a straight-line
basis over the life of the relevant subsoil use rights.
In the case of assets that have a useful life shorter
than the lifetime of the field the straight-line
method is applied.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 133
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
133
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
Other properties
All other property, plant and equipment are stated
at historical cost less accumulated depreciation
and impairment. Historical cost includes
expenditures that are directly attributable to the
acquisition of the items. Subsequent costs are
included in the asset's carrying amount or
recognised as a separate asset, as appropriate,
only when it is probable that future economic
benefits associated with the item will flow to the
Group and the cost of the item can be measured
reliably. All other repairs and maintenance are
charged to the profit or loss during the year in
which they are incurred.
Depreciation is calculated on a straight-line basis
over the estimated useful lives of the assets as
follows:
Buildings and constructions
Vehicles
Machinery and equipment
Other
Years
7-15
8
3-13
3-10
For more detailed information in relation to
property plant and equipment, please refer to
Note 6.
Significant accounting judgment: oil and gas
reserves
Oil and gas reserves are a material factor in the
Group’s computation of depreciation, depletion
and amortisation (the “DD&A”). Management
used significant accounting judgement in selecting
proved developed hydrocarbon reserves for
calculating the unit-of-production depletion rate,
as it reflects the expected pattern of consumption
of future economic benefits by the Group.
Significant estimates and assumptions: oil and gas
reserves
The Group uses internal estimates to assess the oil
and gas reserves of its fields. The reserves
estimates are made in accordance with the
methodology of the Society of Petroleum
Engineers (the “SPE”) and are confirmed or
audited by independent reserve engineers. All
reserve estimates involve some degree of
uncertainty, which depends mainly on the amount
of reliable geological and engineering data
available at the time of the estimate and the
interpretation of this data, as well as long-term
hydrocarbon pricing, which may affect
classification of reserves.
The relative degree of uncertainty can be
conveyed by placing reserves into one of two
principal classifications, either proved or unproved.
Proved reserves are more certain to be recovered
than unproved reserves and may be further sub
classified as developed and undeveloped to
denote progressively increasing uncertainty in their
recoverability.
Reserves estimates are reviewed and revised
annually. Revisions occur due to the evaluation or
re-evaluation of already available geological,
reservoir or production data; availability of new
data; or changes to underlying price assumptions.
Reserve estimates may also be revised due to
improved recovery projects, changes in production
capacity or changes in development strategy.
Management’s estimates of the Chinarevskoye 2P
(Proven plus Probable) volume as at 31 December
2020 was 39 mmboe requiring
interventions
(2019: 138.1mmboe requiring 45 interventions).
The reduction of 99.2 mmboe was due to generally
lower Type Well volumes, reduced hydrocarbon
16
IImmppaaiirrmmeenntt ooff pprrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt,, eexxpplloorraattiioonn aanndd eevvaalluuaattiioonn aasssseettss
The Group assesses assets or groups of assets,
called cash-generating units (CGUs), for
impairment whenever events or changes in
circumstances indicate that the carrying amount of
an asset or CGU may not be recoverable; for
example, changes in the Group’s business plans,
significant decreases in the market commodity
prices, low plant utilisation, evidence of physical
damage or, for oil and gas assets, significant
downward revisions of estimated reserves or
increases in estimated future development
expenditure or decommissioning costs. If any such
indication of impairment exists, the Group makes
an estimate of the asset’s recoverable amount.
Individual assets are grouped into CGU for
impairment assessment purposes at the lowest
level at which there are identifiable cash flows that
are largely independent of the cash flows of other
groups of assets. A CGU’s recoverable amount is
the higher of its fair value less costs of disposal and
its value in use. Where the carrying amount of a
CGU exceeds its recoverable amount, the CGU is
considered impaired and an impairment loss is
recognised for the excess of carrying amount over
recoverable amount.
The business cash flow internal model, which is
approved on an annual basis by senior
management, is the primary source of information
for the determination of the recoverable amount.
pricing rendering some previously planned wells
uneconomic, as well as production of 8.1 mmboe
in 2020.
The field development plan assumed in the
estimations did not take into account any
restructuring or repayment of the Company’s 2022
and 2025 bonds and the ability to maintain
sufficient liquidity to fund such a plan. There is no
guarantee that the Group will be able to achieve
this, which can have a material impact on the
Group’s ability to develop the remaining proven
and probable reserves at Chinarevskoye.
Further downward revision of the proved
developed reserves estimates by 5% would lead to
additional DD&A expense of $1,211 thousand in
Q4 2020.
Estimates of economically recoverable oil and gas
reserves and related future net cash flows also
impact the impairment assessment of the Group
(see Impairment related significant judgements,
estimates and assumptions for further details).
Details on carrying values of oil and gas properties
and related depreciation, depletion and
amortization are shown in Note 6.
In addition, provisions for decommissioning may
require revision — where changes to reserves
estimates affect expectations about when such
activities will occur and the associated cost of
these activities (see Decommissioning related
significant judgements, estimates and assumptions
for further details).
It contains forecasts for oil and gas production,
sales volumes for various types of products,
revenues, costs and capital expenditure. As an
initial step in the preparation of this model, various
assumptions are set by senior management. These
assumptions take account of commodity prices,
global supply-demand equilibrium for oil and
natural gas, other macroeconomic factors and
historical trends and variability. In assessing the
recoverable amount, the estimated future cash
flows are adjusted for the risks specific to the asset
group and are discounted to their present value
using a discount rate.
134 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
134 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
Significant accounting judgment: identification of cash-generating unit
• GTU spare capacity utilization – risk-weighted option value from processing
Judgement is required to identify cash-generating units for the purpose of
testing the assets for impairment. Management has determined a single cash-
generating unit within the Group’s non-current assets consisting of all Group’s
assets related to its Chinarevskoye and exploration fields as well as facilities.
This is mainly based on the fact that hydrocarbons extracted from the
Chinarevskoye field are processed and passed through a combination of various
facilities.
Significant estimates and assumptions: impairment of property, plant and
equipment, exploration and evaluation assets
Determination as to whether, and by how much, the CGU is impaired involves
management’s best estimates on highly uncertain matters such as future
commodity prices, operating expenses and capital expenditures estimates,
discount rate, fiscal regimes, proved and probable reserves, contingent
resources and respective future production profiles.
Based on the management assessment the recoverable amount was
determined by the fair value less costs of disposal (FVLCD) of the CGU, which
was higher than its value-in-use. FVLCD was based on the discounted cash flow
model as no recent third-party transactions existed on which a reliable market-
based fair value could be established.
The discounted cash flow model takes into consideration cashflows, which are
expected to arise until 2032, i.e. during the licence term of the Chinarevskoye
field, and is considered a level 3 valuation under the fair value hierarchy. The
period exceeding five years is believed to be appropriate based on the proved
and probable reserves audited by independent engineers. The model also takes
into account risked-value cashflows from contingent resources on the basis a
market participant would place value on these resources.
The key assumptions used in the Group’s discounted cash flow model reflecting
past experience and taking into account external factors are subject to periodic
review. These assumptions are:
• Oil prices (in real terms): US$50/bbl for 2021, and US$55/bbl throughout
2021-2032 (2019: US$45/bbl for 2020, US$50/bbl for 2021, US$55/bbl for
2022, and US$60/bbl for 2023-2032);
• Proved and probable hydrocarbon reserves confirmed by independent
reserve engineers;
• Contingent resources as confirmed by independent reserve engineers split
into risk categories for valuation purposes;
• Production profiles based on Group’s internal estimates confirmed by
independent reserve engineers;
• All cash flows are projected on the basis of stable prices, i.e. inflation/growth
rates are ignored;
• Cost profiles for the development of the fields and subsequent operating
costs consistent with reserves estimates and production profiles; and
under UOG contract;
• Post-tax discount rate of 8.0% (2019: 10.5%).
The Group identified indicators of impairment resulting from the further
significant reduction of the 2P reserves as disclosed above in the significant
estimates and assumptions related to oil and gas reserves.
The CGUs recoverable amount was estimated, and compared to its carrying
amount, and a further impairment charge on oil and gas assets in the amount of
US$244,744 thousand was recorded as at 31 December 2020, in addition to the
US$1,301,640 thousand and US$150,000 thousand impairment charge
recognized in 2019 and 2018, respectively, resulting in the carrying amount of
property, plant and equipment of US$339,406 thousand (2019: US$650,229
thousand), equalling its recoverable amount.
The impairment charge has been allocated as follows:
For the year ended 31 December
In thousands of US Dollars
Working oil and gas assets
Construction in progress
Other property, plant and equipment
Exploration and evaluation assets
Exploration and evaluation related VAT assets
2020
212,203
27,031
5,510
244,744
179
–
244,923
2019
1,169,828
106,825
24,987
1,301,640
50,533
2,478
1,354,651
More detailed information related to carrying values of oil and gas properties
and related depreciation, depletion, amortisation and impairment are shown in
Note 7.
The following table summarizes sensitivity of the recoverable amount and
respective additional impairment charges that would result from changes in the
key assumptions:
Key assumption
Oil price assumption
Reserves downgrade by
Contingent resources downgrade by
Post-tax discount rate increase by
Operating costs increase by
Change
$10/bbl
10.0%
10.0%
3.5%
10.0%
Impairment
sensitivity
103,892
125,278
19,133
62,417
50,963
On the other hand, certain positive development like successful mitigation of
reservoir risks in the future and respective changes in the drilling plans and
results, with the relevant increase in 2P reserves, or increase in utilisation of the
Group’s processing facilities, could have the effect of reversing the impairment.
Any reversal would be limited so that the carrying amount of the CGU does not
exceed the lower of its recoverable amount, or the carrying amount that would
have been determined, net of depreciation, had no impairment charge been
recognised for the CGU in prior years.
LLeeaasseess
The Group applies a single recognition and
measurement approach for all leases, except for
short-term leases and leases of low-value assets.
The Group recognises lease liabilities to make lease
payments and right-of-use assets representing the
right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost
of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred,
and lease payments made at or before the
commencement date less any lease incentives
received. Unless the Group is reasonably certain to
obtain ownership of the leased asset at the end of
the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the
shorter of its estimated useful life and the lease
term. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group
recognises lease liabilities measured at the present
value of lease payments to be made over the lease
term. The lease payments include fixed payments
(including in substance fixed payments) less any
lease incentives receivable, variable lease payments
that depend on an index or a rate, and amounts
expected to be paid under residual value
guarantees. The lease payments also include the
exercise price of a purchase option reasonably
certain to be exercised by the Group and payments
of penalties for terminating a lease, if the lease term
reflects the Group exercising the option to
terminate.
Variable lease payments that do not depend on an
index or a rate are recognised as expense in the
period on which the event or condition that triggers
the payment occurs.
In calculating the present value of lease payments,
the Group uses the incremental borrowing rate at
the lease commencement date if the interest rate
implicit in the lease is not readily determinable.
After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made.
In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in
the lease term, a change in the in-substance fixed
lease payments or a change in the assessment to
purchase the underlying asset.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 135
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
135
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
Separation of lease and non-lease
components
When contracts for lease (like lease of drilling rigs
and rail-tank cars) include various additional services
like personnel cost, maintenance, drilling related
activities, and other items, the Group splits such
non-lease components and recognises them
separately. Where the additional services are not
separately priced, the consideration paid is allocated
based on the relative stand-alone prices of the lease
and non-lease components.
Distinguishing fixed and variable lease
payment elements
Certain lease contracts include fixed rates for when
the asset is in operation, and various alternative
rates (like “cold-stack rates” for leases of drilling
rigs) for periods where the asset is engaged in
specified activities or idle, but still under contract. In
general, variability in lease payments under these
contracts has its basis in different use and activity
levels, and the variable elements have been
determined to relate to non-lease components only.
Consequently, the lease components of these
contractual payments are considered fixed for the
purposes of IFRS 16.
Short-term leases and leases of low-value
assets
The Group applies the short-term lease recognition
exemption to its short-term leases of machinery and
equipment (i.e., those leases that have a lease term
of 12 months or less from the commencement date
and do not contain a purchase option). It also
applies the lease of low-value assets recognition
exemption to leases of office equipment that are
considered of low value (i.e., below US$ 5,000).
Lease payments on short-term leases and leases of
low-value assets are recognised as expense on a
straight-line basis over the lease term.
BBuussiinneessss ccoommbbiinnaattiioonnss aanndd ggooooddwwiillll
Business combinations are accounted for using the
acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration
transferred, measured at acquisition date fair value
and the amount of any non-controlling interest
(“NCI”) in the acquiree. For each business
combination, the Group elects whether to measure
NCI in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable
net assets. Acquisition related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the
assets and liabilities assumed for appropriate
classification and designation in accordance with the
contractual terms, economic circumstances and
pertinent conditions as at the acquisition date. This
includes the separation of embedded derivatives in
host contracts by the acquiree. Those acquired
petroleum reserves and resources that can be
reliably measured are recognised separately in the
assessment of fair values on acquisition. Other
potential reserves, resources and rights, for which
fair values cannot be reliably measured, are not
recognised separately, but instead are subsumed in
goodwill.
Goodwill is initially measured at cost, being the
excess of the aggregate of the consideration
transferred and the amount recognised for NCI over
the fair value of the identifiable net assets acquired
and liabilities assumed. If the fair value of the
identifiable net assets acquired is in excess of the
aggregate consideration transferred (bargain
purchase), before recognising a gain, the Group
reassesses whether it has correctly identified all of
the assets acquired and all of the liabilities assumed
and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair
value of net assets acquired over the aggregate
consideration transferred, then the gain is
recognised in the statement of profit or loss and
other comprehensive income.
After initial recognition, goodwill is measured at cost
less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date,
allocated to each of the Group’s CGUs that are
expected to benefit from the combination,
irrespective of whether other assets or liabilities of
the acquiree are assigned to those units.
Where goodwill forms part of a Cash Generating
Unit (“CGU”) and part of the operation in that unit is
disposed of, the goodwill associated with the
disposed operation is included in the carrying
amount of the operation when determining the gain
or loss on disposal. Goodwill disposed of in these
circumstances is measured based on the relative
values of the disposed operation and the portion of
the CGU retained.
TTaaxxaattiioonn
Uncertainties exist with respect to the
interpretation of complex tax regulations, changes
in tax laws, and the amount and timing of future
taxable income. Given the wide range of
international business relationships and the long-
term nature and complexity of existing contractual
agreements, differences arising between the actual
results and the assumptions made, or future
changes to such assumptions, could necessitate
future adjustments to tax bases of income and
expense already recorded. The Group establishes
provisions, based on reasonable estimates, for
possible consequences of audits by the tax
authorities of the respective counties in which it
operates. The amount of such provisions is based on
various factors, such as experience of previous tax
audits and differing interpretations of tax
regulations by the Group and the responsible tax
authority. Such differences in interpretation may
arise for a wide variety of issues depending on the
conditions prevailing in the respective domicile of
the Group companies.
Current income tax
Current income tax assets and liabilities are
measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amount are
those that apply to the relevant taxable income.
Current income tax relating to items recognised
directly in equity is recognised in equity and not in
the statement of profit or loss. Management
periodically evaluates positions taken in the tax
returns with respect to situations in which
applicable tax regulations are subject to
interpretation and establishes provisions where
appropriate.
Deferred income tax
Deferred tax assets and liabilities are calculated in
respect of temporary differences using the liability
method. Deferred income taxes are provided for all
temporary differences arising between the tax
bases of assets and liabilities and their carrying
values for financial reporting purposes, except
where the deferred income tax arises from the
initial recognition of goodwill or of an asset or
liability in a transaction that is not a business
combination and, at the time of the transaction,
affects neither the accounting profit nor taxable
profit or loss.
A deferred tax asset is recorded only to the extent
that it is probable that taxable profit will be
available against which the deductible temporary
differences can be utilised. Deferred tax assets and
liabilities are measured at tax rates that are
expected to apply to the period when the asset is
realised or the liability is settled, based on tax rates
that have been enacted or substantively enacted at
the reporting date.
Deferred income tax is provided on temporary
differences arising on investments in subsidiaries
and associates, except where the timing of the
reversal of the temporary difference can be
controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax assets and deferred tax liabilities are
offset if a legally enforceable right exists to set off
current tax assets against current tax liabilities and
the deferred taxes relate to the same taxable entity
and the same taxation authority.
For more detailed information in current and
deferred income tax disclosure as at 31 December
2020 and 2019, please see Note 29.
136 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
136 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
The Group is subject to routine tax audits and also a
process whereby tax computations are discussed
and agreed with the tax authorities. Whilst the
ultimate outcome of such tax audits and discussions
cannot be determined with certainty, management
estimates the level of provisions required for taxes
for which it is considered probable will be payable,
based on professional advice and consideration of
the nature of current discussions with the tax
authority.
As at 31 December 2020 management believes that
its interpretation of the relevant legislation is
appropriate and that it is probable that the Group’s
tax position will be sustained. To the extent that
actual outcomes differ from management’s
estimates, income tax charges or credits, and
changes in current and deferred tax assets or
liabilities, may arise in future periods. For more
information, see Note 29.
Significant accounting judgment: taxation
Kazakhstan’s tax legislation and regulations are
subject to ongoing changes and varying
interpretations. Instances of inconsistent opinions
between local, regional and national tax authorities
are not unusual. Because of the uncertainties
associated with Kazakhstan’s tax system, the
ultimate amount of taxes, penalties and interest, if
any, may be in excess of the amount expensed to
date and accrued at 31 December 2020.
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn
The functional currency is the currency of the
primary economic environment in which an entity
operates and is normally the currency in which the
entity primarily generates and expends cash.
Transactions in foreign currencies are initially
recorded by the Group’s subsidiaries at their
respective functional currency spot rates at the date
the transaction first qualifies for recognition.
The functional currency of the Company is the
United States dollar (the “US dollar” or “US$”). The
functional currencies of the Group’s subsidiaries are
as follows:
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. All differences are taken to the profit or loss.
Functional
currency
Company
Nostrum Associated Investments LLP Tenge
Nostrum E&P Services LLC
Nostrum Oil & Gas Coöperatief U.A.
Nostrum Oil & Gas BV
Nostrum Oil & Gas Finance BV
Nostrum Oil & Gas UK Ltd.
Nostrum Services Central Asia LLP
Nostrum Services N.V.
Zhaikmunai LLP
Russian rouble
US dollar
US dollar
US dollar
British Pound
Tenge
Euro
US dollar
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the
exchange rates at the date when the fair value is
determined.
BBoorrrroowwiinngg ccoossttss
AAddvvaanncceess ffoorr nnoonn--ccuurrrreenntt aasssseettss
The Group capitalises borrowing costs on qualifying
assets. Assets qualifying for borrowing costs
capitalisation include all assets under construction
that are not being depreciated, depleted, or
amortised, provided that work is in progress at that
time. Qualifying assets mostly include wells and
other operations field infrastructure under
construction. Capitalised borrowing costs are
calculated by applying the capitalisation rate to the
expenditures on qualifying assets. The capitalisation
rate is the weighted average of the borrowing costs
applicable to the Group’s borrowings that are
outstanding during the period. All other borrowing
costs are recognised in the consolidated statement
of comprehensive income in the period in which
they are incurred.
For more detailed information in relation to
capitalisation of borrowing costs, please refer to
Note 6.
PPrroovviissiioonnss aanndd ccoonnttiinnggeenncciieess
Provisions are recognised when the Group has a
present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of
resources embodying economic benefits will be
required to settle the obligation and a reliable
estimate of the amount of the obligation can be
made. Provisions are reviewed by the Group at each
balance sheet date and adjusted to reflect the
current best estimate. If it is no longer probable that
an outflow of resources embodying economic
benefits will be required to settle the obligation, the
provision is reversed.
Advances paid for capital investments/acquisition of
non-current assets are qualified as advances for
non-current assets regardless of the period of
supplies of relevant assets or the supply of work or
services to close advances. Advances paid for the
purchase of non-current assets are recognised by
the Group as non-current assets and are not
discounted.
For more detailed information in relation to
advances for non-current assets, please refer to
Note 8.
IInnvveennttoorriieess
Inventories are stated at the lower of cost or net
realisable value (“NRV”). Cost of oil, gas condensate
and liquefied petroleum gas (“LPG”) is determined
on the weighted-average method based on the
production cost including the relevant expenses on
depreciation, depletion and impairment and
The Group classifies as contingent liabilities those
possible obligations that arise from past events and
whose existence will be confirmed only by the
occurrence or non-occurrence of one or more
uncertain future events not wholly within the
control of the enterprise and the present obligations
that arise from past events but are not recognised
because it is not probable that an outflow of
resources embodying economic benefits will be
required to settle the obligation or the amount of
the obligation cannot be measured with sufficient
reliability.
In the consolidated financial statements, the assets
and liabilities of non-US dollar functional currency
subsidiaries are translated into US dollars at the spot
exchange rate on the balance sheet date. The
results and cash flows of non-US dollar functional
currency subsidiaries are translated into US dollars
using average rates of exchange. In the consolidated
financial statements, exchange adjustments arising
when the opening net assets and the profits for the
year retained by non-US dollar functional currency
subsidiaries are translated into US dollars are
reported in the statement of comprehensive
income.
overhead costs based on production volume. Net
realisable value is the estimated selling price in the
ordinary course of business, less selling expenses.
For more information in relation to the breakdown
of inventories as at 31 December 2020 and 2019,
please see Note 9.
OOtthheerr ccuurrrreenntt lliiaabbiilliittiieess
The Group makes accruals for liabilities related to
the underperformance and/or adjustments of work
programs under subsoil use agreements (SUA) on a
regular basis. When evaluating the adequacy of an
accrual, management bases its estimates on the
latest work program included in the SUA, and
relevant signed supplements and potential future
changes in payment terms (including the currency in
which these liabilities are to be settled).
Future changes in the work programs may require
adjustments to the accrual recorded in the
consolidated financial statements.
The Group does not recognise contingent liabilities
but discloses contingent liabilities in Note 32, unless
the possibility of an outflow of resources embodying
economic benefits is remote.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 137
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
137
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
Significant accounting judgment: provisions and
contingencies
Provisions and liabilities are recognized in the period
when it becomes probable that there will be a
future outflow of funds resulting from past
operations or events and the amount of cash
outflow can be reliably estimated. The timing of
recognition and quantification of the liability require
the application of judgment to existing facts and
circumstances, which can be subject to change. The
carrying amounts of provisions and liabilities are
reviewed regularly and adjusted to take account of
changing facts and circumstances.
Significant management judgment is required to
evaluate any claims and actions to determine
whether a provision relating to a specific litigation
should be recognized or revised, or a contingent
liability is required to be disclosed, since the
outcome of litigation is difficult to predict.
DDeeccoommmmiissssiioonniinngg
Provision for decommissioning is recognised in full,
when the Group has an obligation to dismantle and
remove a facility or an item of plant and to restore
the site on which it is located, and when a
reasonable estimate of that provision can be made.
The Group estimates future dismantlement and site
restoration costs for oil and gas properties with
reference to the estimates provided from either
internal or external engineers after taking into
consideration the anticipated method of
dismantlement and the extent of site restoration
required in accordance with current legislation and
industry practice. The amount of the provision is the
present value of the estimated expenditures
expected to be required to settle the obligation at
current year prices discounted at applicable real
rate.
The unwinding of the discount related to the
obligation is recorded in finance costs. A
corresponding amount equivalent to the provision is
also recognised as part of the cost of the related oil
and gas properties. This asset is subsequently
depreciated as part of the capital costs of the oil and
gas properties on a unit-of-production basis.
The Group reviews site restoration provisions at
each financial reporting date and adjusts them to
reflect current best estimates in accordance with
IFRIC 1 Changes in Existing Decommissioning,
Restoration and Similar Liabilities.
FFiinnaanncciiaall aasssseettss
Initial recognition and measurement
Financial assets are classified, at initial recognition,
as subsequently measured at amortised cost, fair
value through other comprehensive income (OCI),
and fair value through profit or loss. The Group
determines the classification of its financial assets at
initial recognition.
The classification of financial assets at initial
recognition depends on the financial asset’s
contractual cash flow characteristics and the
Group’s business model for managing them. With
the exception of trade receivables that do not
contain a significant financing component or for
which the Group has applied the practical
expedient, the Group initially measures a financial
asset at its fair value plus, in the case of a financial
asset not at fair value through profit or loss,
transaction costs. Trade receivables that do not
contain a significant financing component or for
which the Group has applied the practical expedient
are measured at the transaction price determined
under IFRS 15.
Changes in the measurement of an existing
decommissioning liability that result from changes
in the estimated timing or amount of the outflow of
resources embodying economic benefits required to
settle the obligation, or changes to the discount
rate:
• are added to, or deducted from, the cost of the
related asset in the current period. If deducted
from the cost of the asset the amount deducted
shall not exceed its carrying amount. If a
decrease in the provision exceeds the carrying
amount of the asset, the excess is recognised
immediately in the profit or loss; and
• if the adjustment results in an addition to the
cost of an asset, the Group considers whether
this is an indication that the new carrying amount
of the asset may not be fully recoverable. If it is
such an indication, the Group tests the asset for
impairment by estimating its recoverable
amount, and accounts for any impairment loss in
accordance with IAS 36.
Movements in the abandonment and site
restoration provision are disclosed in Note 17.
Significant estimates and assumptions: provisions
and contingencies
The Group holds provision for the future
decommissioning of oil and gas properties and site
restoration. The estimation of the future
dismantlement and site restoration costs involves
use of significant estimates and assumptions by
management, specifically for determining the timing
of the future cash outflows and discount rate.
Management made its estimates based on the
assumption that cash flow will take place at the
expected end of the subsoil use rights. Therefore,
the most decommissioning events are many years in
the future and the precise date of wells
abandonment and site restoration may change with
the relative impact on the cash outflows.
Management of the Group believes that the long-
term US Treasury real yield curve rates adjusted for
country risk premium of Kazakhstan provides the
best estimates of applicable real discount rate.
Any changes in the expected future costs are
reflected in both the provision and the asset.
Moreover, actual decommissioning costs can differ
from estimates because of constantly changing
decommissioning technologies as well as changes in
environmental laws and regulations and public
expectations.
As a result, there could be significant adjustments to
the provisions established which would affect future
financial results. For more details on abandonment
and site restoration provision please refer to
Note 17.
Subsequent measurement
For purposes of subsequent measurement, financial
assets are classified in four categories:
• Financial assets at amortised cost (debt
instruments);
• Financial assets at fair value through OCI with
recycling of cumulative gains and losses (debt
instruments);
• Financial assets designated at fair value through
OCI with no recycling of cumulative gains and
losses upon derecognition (equity instruments);
• Financial assets at fair value through profit or loss
In order for a financial asset to be classified and
measured at amortised cost or fair value through
OCI, it needs to give rise to cash flows that are
‘solely payments of principal and interest (SPPI)’ on
the principal amount outstanding. This assessment
is referred to as the SPPI test and is performed at an
instrument level.
The Group’s business model for managing financial
assets refers to how it manages its financial assets in
order to generate cash flows. The business model
determines whether cash flows will result from
collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require
delivery of assets within a time frame established by
regulation or convention in the market place
(regular way trades) are recognised on the trade
date, i.e., the date that the Group commits to
purchase or sell the asset.
138 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
138 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
Financial assets at amortised cost (debt
instruments)
This category is the most relevant to the Group. The
Group measures financial assets at amortised cost if
both of the following conditions are met:
• The financial asset is held within a business
model with the objective to hold financial assets
in order to collect contractual cash flows, and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are subsequently
measured using the effective interest (EIR) method
and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is
derecognised, modified or impaired.
The Group’s financial assets at amortised cost
include cash, long-term and short-term deposits,
trade and other receivables.
Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily derecognised (i.e., removed from
the Group’s consolidated statement of financial
position) when:
• The rights to receive cash flows from the asset
have expired; or
• The Group has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the
Group has transferred substantially all the risks
and rewards of the asset, or (b) the Group has
neither transferred nor retained substantially all
the risks and rewards of the asset, but has
transferred control of the asset.
When the Group has transferred its rights to receive
cash flows from an asset or has entered into a pass-
through arrangement, it evaluates if, and to what
extent, it has retained the risks and rewards of
ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Group continues to recognise the transferred asset
to the extent of its continuing involvement. In that
case, the Group also recognises an associated
liability. The transferred asset and the associated
liability are measured on a basis that reflects the
rights and obligations that the Group has retained.
Impairment of financial assets
The Group recognises an allowance for expected
credit losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on
the difference between the contractual cash flows
due in accordance with the contract and all the cash
flows that the Group expects to receive, discounted
at an approximation of the original effective interest
rate. The expected cash flows will include cash flows
from the sale of collateral held or other credit
enhancements that are integral to the contractual
terms.
ECLs are recognised in two stages. For credit
exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from
default events that are possible within the next 12-
months (a 12-month ECL). For those credit
exposures for which there has been a significant
increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over
the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group
applies a simplified approach in calculating ECLs.
Therefore, the Group does not track changes in
credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date.
FFiinnaanncciiaall lliiaabbiilliittiieess
Initial recognition, measurement and
derecognition
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, long-term borrowings,
payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair
value and, in the case of long-term borrowings and
payables, net of directly attributable transaction
costs.
The Group’s financial liabilities include trade and
other payables, long-term borrowings, and
derivative financial instruments.
Subsequent measurement
For purposes of subsequent measurement, financial
liabilities are classified in two categories:
• Financial liabilities at fair value through profit or
loss
• Financial liabilities at amortised cost (loans and
borrowings)
Financial liabilities at fair value through profit or
loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and
financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if
they are incurred for the purpose of repurchasing in
the near term. This category also includes derivative
financial instruments entered into by the Group that
are not designated as hedging instruments in hedge
relationships as defined by IFRS 9. Separated
embedded derivatives are also classified as held for
trading unless they are designated as effective
hedging instruments.
Gains or losses on liabilities held for trading are
recognised in the statement of profit or loss.
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated at the initial date of recognition, and
only if the criteria in IFRS 9 are satisfied. The Group
has not designated any financial liability as at fair
value through profit or loss.
Financial liabilities at amortised cost (loans and
borrowings)
This is the category most relevant to the Group.
After initial recognition, interest-bearing borrowings
are subsequently measured at amortised cost using
the EIR method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised as
well as through the EIR amortisation process.
Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or
costs that are an integral part of the EIR. The EIR
amortisation is included as finance costs in the
statement of profit or loss.
This category generally applies to interest-bearing
borrowings. For more information, refer to Note 15.
Derecognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same lender
on substantially different terms, or the terms of an
existing liability are substantially modified, such an
exchange or modification is treated as the
derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and
the net amount reported in the statement of
financial position if, and only if, there is a currently
enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net
basis, or to realise the assets and settle the liabilities
simultaneously.
Derivative financial instruments and hedging
The Group from time to time uses hedging contracts
for oil export sales to cover part of its risks
associated with oil price fluctuations. Such
derivative financial instruments are initially
recognised at fair value on the date on which a
derivative contract is entered into and are
subsequently remeasured at fair value.
Derivatives are carried as assets when the fair value
is positive and as liabilities when the fair value is
negative.
Any gains or losses arising from changes in fair value
of derivatives during the year that do not qualify for
hedge accounting are taken directly to profit or loss.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 139
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
139
Financial report
Consolidated financial statements
Consolidated financial statements continued
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
CCaasshh aanndd sshhoorrtt--tteerrmm ddeeppoossiittss
Cash and cash equivalents in the statement of
financial position comprise cash at banks and at
hand and short-term deposits with an original
maturity of three months or less, but exclude any
restricted cash which is not available for use by the
Group and therefore is not considered highly liquid
– for example, cash set aside to cover
decommissioning obligations or as required by the
forbearance agreement.
For the purpose of the consolidated statement of
cash flows, cash and cash equivalents consist of cash
and cash equivalents, as defined above, net of
outstanding bank overdrafts.
For more detailed information in relation to cash
and cash equivalents as at 31 December 2020 and
2019, please see Note 12.
RReevveennuuee rreeccooggnniittiioonn
The Group sells crude oil, gas condensate and LPG
under agreements priced by reference to Platt’s
and/or Argus’ index quotations and adjusted for
freight, insurance and quality differentials where
applicable. The Group sells gas under agreements at
fixed prices.
Revenue from contracts with customers is
recognised when control of the goods is transferred
to the customer. For sales of crude oil, gas
condensate and LPG, this generally occurs when the
product is physically transferred into a vessel, pipe,
railcar, trucks or other delivery mechanism; for sales
of gas, it is when the product is physically
transferred into a pipe.
The Group has generally concluded that it is the
principal in its revenue arrangements, because it
typically controls the goods before transferring
them to the customer.
TTrreeaassuurryy sshhaarreess
Own equity instruments that are reacquired
(treasury shares) are recognised at cost and
deducted from equity. No gain or loss is recognised
in profit or loss on the purchase, sale, issue or
cancellation of the Group’s own equity instruments.
Any difference between the carrying amount and
the consideration, if reissued, is recognised in other
reserves. Voting rights related to treasury shares are
nullified for the Group and no distributions are
accepted in relation to them. Share options
exercised during the reporting period can be
satisfied with treasury shares.
SShhaarree--bbaasseedd ppaayymmeennttss
The cost of cash-settled equity-based employee
compensation is measured initially at fair value at
the grant date. This fair value is expensed over the
period until vesting with the recognition of a
corresponding liability. The liability is remeasured at
each reporting date up to and including the
settlement date with changes in fair value
recognised in the statement of comprehensive
income.
The cost of equity-settled transactions is measured
at fair value at the grant date. This fair value is
expensed over the period until vesting with the
recognition of a corresponding equity element,
which is not remeasured subsequently until the
settlement date.
Estimating fair value for share-based payment
transactions requires determination of the most
appropriate valuation model, which is dependent
on the terms and conditions of the grant. This
estimate also requires determination of the most
appropriate inputs to the valuation model including
the expected life of the share option, volatility and
distribution yield and making assumptions about
them.
5. Exploration and evaluation assets
As at 31 December 2020 and 31 December 2019 exploration and evaluation
assets comprised the following:
In thousands of US Dollars
Balance at 1 January 2019, net*
Additions
Impairment
Balance at 31 December 2019, net*
Additions
Disposals
Disposals impairment reversal
Impairment (Note 4)
Balance at 31 December 2020, net*
Cost
Impairment
Balance at 31 December 2019, net*
Cost
Impairment
Balance at 31 December 2020, net*
* Balances, net of impairment
Geological
and
geophysical
studies
34,406
292
(34,698)
–
179
(26,226)
26,226
(179)
–
34,698
(34,698)
–
8,651
(8,651)
–
Subsoil use
rights
15,835
–
(15,835)
–
–
(12,422)
12,422
–
–
15,835
(15,835)
–
3,413
(3,413)
–
Total
50,241
292
(50,533)
–
179
(38,648)
38,648
(179)
–
50,533
(50,533)
–
12,064
(12,064)
–
During the year ended 31 December 2020 the Group had additions to
exploration and evaluation assets of US$179 thousand which mainly includes
capitalised social and training commitment expenditures (2019: additions of
US$920 thousand offset with derecognition of the capitalised social
expenditures US$628 thousand in the view of the amendments to the subsoil
agreement for Rostoshinskoye field). Interest was not capitalised on
exploration and evaluation assets.
During the year ended 31 December 2020, the Group has written-off
accumulated costs in the amount of US$11,283 thousand against respective
impairment in relation to certain exploration and evaluation works on
Rostoshinskoye field.
In October 2020, the rights and obligations under the Darjinskoye and Yuzhno-
Gremyachinskoye contracts for exploration and production of hydrocarbons
were disposed to the third party. The exploration and evaluation costs related
to these fields in the amount of US$16,622 thousand and US$10,564 thousand,
respectively, and corresponding impairment balances have been derecognized
at the date of disposal with no effect on the profit and loss for the period.
140 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
140 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
6. Property, plant and equipment
As at 31 December 2020 and 31 December 2019 property, plant and
equipment comprised the following:
In thousands of US Dollars
Oil and gas properties
Other property, plant and equipment
31 December
2020
332,145
7,261
339,406
31 December
2019
637,048
13,181
650,229
OOiill aanndd ggaass pprrooppeerrttiieess
The category “Oil and gas properties” represents mainly wells, oil and gas
treatment facilities, oil transportation and other related assets. The movement
of oil and gas properties for the years ended 31 December 2020 and 2019 was
as follows:
In thousands of US Dollars
Working
assets
Construc-
tion in
progress
Total
Balance at 1 January 2019, net*
1,083,132
796,833
1,879,965
Additions
Transfers
Disposals
Disposals depreciation
Depreciation and depletion charge
Accumulated impairment transfers
Impairment charge
15,044
839,331
(90)
41
(130,344)
(43,234)
(1,169,828)
151,837
(842,083)
–
–
–
43,234
166,881
(2,752)
(90)
41
(130,344)
–
(106,825) (1,276,653)
Balance at 31 December 2019, net*
594,052
42,996
637,048
Additions
Transfers
Disposals
Disposals depreciation
Depreciation and depletion charge
Accumulated impairment transfers
Impairment charge
1,824
57,479
(144)
127
(83,761)
(61,038)
(212,203)
16,285
(57,479)
–
–
–
61,038
(27,031)
18,109
–
(144)
127
(83,761)
–
(239,234)
Balance at 31 December 2020, net*
296,336
35,809
332,145
As at 31 December 2018
Cost
Accumulated depreciation**
Balance*
As at 31 December 2019
Cost
Accumulated depreciation**
Balance*
As at 31 December 2020
Cost
Accumulated depreciation**
Balance*
2,029,203
(946,071)
846,668
(49,835)
2,875,871
(995,906)
1,083,132
796,833
1,879,965
2,883,488
(2,289,436)
156,422
3,039,910
(113,426) (2,402,862)
594,052
42,996
637,048
2,942,647
(2,646,311)
115,228
3,057,875
(79,419) (2,725,730)
296,336
35,809
332,145
* Balances, net of accumulated depreciation, depletion and impairment
** Accumulated depreciation, depletion and impairment
The category “Construction in progress” is represented by employee
remuneration, materials and fuel used, rig costs, payments made to
contractors, and asset retirement obligation fees directly associated with
development of wells until the drilling of the well is complete and results have
been evaluated.
The depletion rate for oil and gas working assets was 15.39% and 12.02% in
2020 and 2019, respectively. The Group engaged independent petroleum
engineers to perform a reserves audit as at 31 December 2020. Depletion has
been calculated using the unit of production method based on these reserves
estimates.
The change in the long-term inflation rate and discount rate used to determine
the abandonment and site restoration provision (Note 17) in the year ended
31 December 2020 resulted in the increase of the oil and gas properties by
US$4,297 thousand (31 December 2019: an increase of US$4,354 thousand).
The Group incurred borrowing costs including amortisation of arrangement
fees. Capitalisation rate and capitalised borrowing costs were as follows as at
31 December 2020 and 31 December 2019:
In thousands of US Dollars
Borrowing costs including amortisation of
arrangement fee
Capitalisation rate
Capitalised borrowing costs
31 December
2020
93,183
31 December
2019
92,543
8.44%
388
8.62%
52,144
OOtthheerr pprrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt
In thousands
of US Dollars
Buildings
Machi-
nery &
equip-
ment Vehicles
Constru-
ction in
progress
Others
Total
Balance at
1 January 2019*
Additions
Transfers
Disposals
Disposals
depreciation
Depreciation
Impairment charge
Translation
difference
Balance at
31 December 2019*
Additions
Transfers
Disposals
Disposals
depreciation
Depreciation
Impairment charge
Translation
difference
Balance at
31 December 2020*
As at
31 December 2018
Cost
Accumulated
depreciation**
Balance
As at
31 December 2019
Cost
Accumulated
depreciation**
Balance
As at
31 December 2020
Cost
Accumulated
depreciation**
Balance
27,967
3,867
664
7,154
45
39,697
–
135
(33)
33
564
25
(68)
26
–
–
(16)
7
1,592
2,592
(482)
463
(3,867)
(16,147)
–
(1,087)
(2,291)
–
(147)
(326)
–
(1,303)
(6,223)
37
–
–
–
–
–
–
–
2,156
2,752
(599)
529
(6,404)
(24,987)
37
8,088
1,036
182
3,830
45
13,181
8
28
(385)
376
(781)
(3,164)
–
1,035
(47)
(249)
242
(188)
(789)
–
–
–
–
–
438
19
(1,317)
746
–
–
–
–
1,481
–
(1,951)
1,364
(24)
(68)
–
(302)
(1,470)
(9)
–
(19)
–
(1,295)
(5,510)
(9)
4,170
1,040
90
1,935
26
7,261
50,487
(22,520)
20,283
(16,416)
1,676
(1,012)
16,513
(9,359)
45
–
89,004
(49,307)
27,967
3,867
664
7,154
45
39,697
50,589
(42,501)
20,804
(19,768)
1,660
(1,478)
20,252
(16,422)
45
–
93,350
(80,169)
8,088
1,036
182
3,830
45
13,181
50,240
(46,070)
21,543
(20,503)
1,660
(1,570)
19,383
(17,448)
45
(19)
92,871
(85,610)
4,170
1,040
90
1,935
26
7,261
* Balances, net of accumulated depreciation, amortisation and impairment
** Accumulated depreciation, amortisation and impairment
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 141
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
141
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
7. Right-of-use assets
10. Prepayments and other current assets
The movement of right-of-use assets for the years ended 31 December
2020 and 2019 was as follows:
As at 31 December 2020 and 31 December 2019 prepayments and other
current assets comprised the following:
In thousands of US Dollars
Balance at 1 January 2019, net*
Modification of lease agreements
Termination of lease agreements
Depreciation
Balance at 31 December 2019, net*
Modification of lease agreements
Depreciation
Balance at 31 December 2020, net*
As at 31 December 2019
Cost
Accumulated depreciation
Balance*
As at 31 December 2020
Cost
Accumulated depreciation
Balance*
Machinery &
equipment
26,825
(1,467)
(10,086)
(12,089)
3,183
2,371
(2,884)
2,670
7,643
(4,460)
3,183
2,670
–
2,670
Vehicles
7,359
(16)
–
(3,651)
3,692
(1,858)
(1,749)
85
Total
34,184
(1,483)
(10,086)
(15,740)
6,875
513
(4,633)
2,755
7,339
(3,647)
3,692
14,982
(8,107)
6,875
698
(613)
85
3,368
(613)
2,755
* Balances, net of accumulated depreciation, depletion and impairment
8. Advances for non-current assets
As at 31 December 2020 and 31 December 2019 advances for non-current
assets comprised the following:
In thousands of US Dollars
Advances for other non-current assets
Advances for construction services
Advances for construction materials
31 December
2020
8,444
369
221
9,034
31 December
2019
8,038
100
274
8,412
In thousands of US Dollars
Advances paid
VAT receivable
Other taxes receivable
Other
31 December
2020
5,269
4,741
1,502
791
12,303
31 December
2019
6,035
3,186
1,716
1,103
12,040
Advances paid consist primarily of prepayments made to service providers. As
at 31 December 2020, there were no impaired advances paid (31 December
2019: US$1,751 thousand). In 2020 the advances paid in amount of US$1,751
thousand were fully written off against the impairment provision made in
2018.
There were no other movements in the provision for impairment of advances
paid during the years ended 31 December 2020 and 2019.
11. Trade receivables
As at 31 December 2020 and 31 December 2019 trade receivables were not
interest-bearing and were mainly denominated in US dollars and Tenge. Their
average collection period is 30 days.
As at 31 December 2020 and 31 December 2019 there were neither past due
nor impaired trade receivables. Based on the assessments made, the Group
concluded that no provision for expected credit losses should be recognized as
at 31 December 2020 and 31 December 2019.
12. Cash and cash equivalents
As at 31 December 2020 and 31 December 2019, advances for other non-
current assets mainly comprised prepayments made to suppliers of services as
part of the development of new opportunities. Such costs include technical,
legal, advisory and other professional fees and have been capitalized in the
course of potential acquisition of assets. In the event that new opportunities
do not materialise as currently intended then the amounts will be written off.
In thousands of US Dollars
Current accounts in US Dollars
Current accounts in Tenge
Current accounts in Euro
Current accounts in other currencies
Petty cash
31 December
2020
73,412
2,791
1,862
514
4
78,583
31 December
2019
88,420
791
3,997
721
11
93,940
For the purpose of these consolidated financial statements the Group presents
“Current accounts in Euro” as a separate line within Cash and cash equivalents.
Previously, the “Current accounts in Euro” were included in Current accounts
in other currencies”.
In addition to the cash and cash equivalents in the table above, the Group has
restricted cash accounts as a liquidation fund deposit for the amount of
US$446 thousand with Sberbank in Kazakhstan and US$7,267 thousand with
Halyk bank (31 December 2019: US$805 thousand and US$6,815 thousand,
respectively), which is kept as required by the subsoil use rights for
abandonment and site restoration liabilities of the Group.
In 2020, the Group transferred US$12,900 thousand to a secured cash account
opened for the benefit of the holders of the Group’s Notes under the terms of
the Forbearance Agreement (Note 1). The Company has the ability to make
certain withdrawals from the account if its liquidity falls below an agreed level.
9. Inventories
As at 31 December 2020 and 31 December 2019 inventories comprised the
following:
In thousands of US Dollars
Spare parts and other inventories
Gas condensate
Crude oil
LPG
Dry Gas
Sulphur
31 December
2020
23,735
2,907
2,018
69
63
13
28,805
31 December
2019
23,500
8,446
3,650
112
67
74
35,849
As at 31 December 2020 and 31 December 2019 inventories are carried at
cost.
For the purpose of these consolidated financial statements the Group presents
“Sulphur” as a separate line within Inventories. Previously, the “Sulphur”
balances were included in “Spare parts and other inventories”.
142 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
142 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
13. Share capital and reserves
14. Earnings per share
As at 31 December 2020 the ownership interests in the Parent consists of
188,182,958 issued and fully paid ordinary shares, which are listed on the
London Stock Exchange. The ordinary shares have a nominal value of GB£ 0.01.
Number of shares
As at 1 January 2019
Share options exercised
As at 31 December 2019
Share options exercised
As at 31 December 2020
In
circulation
Treasury
capital
Total
185,234,079
–
185,234,079
–
185,234,079
2,948,879
–
2,948,879
–
2,948,879
188,182,958
–
188,182,958
–
188,182,958
Treasury shares were issued to support the Group’s obligations to employees
under the Employee Share Option Plan (“ESOP”) and the Long-Term Incentive
Plan (“LTIP”) and are held by Intertrust Employee Benefit Trustee Limited as
trustee for the Nostrum Oil & Gas Benefit Trust. In the case of the ESOP, upon
request from employees to exercise options, the trustee would sell shares on
the market and settle respective obligations under the ESOP. In the case of
share-settled LTIP awards, the trustee would transfer shares to the relevant
LTIP award holder (although no LTIP awards are currently exercisable). The
Nostrum Oil & Gas Benefit Trust constitutes a special purpose entity under IFRS
and therefore, the shares held in the trust are recorded as treasury capital of
the Company.
The movements in the Group’s other reserves is presented as follows:
In thousands of US Dollars
As at 1 January 2019
Currency translation difference
Share based payments under LTIP
As at 31 December 2019
Currency translation difference
Share based payments under LTIP
As at 31 December 2020
Group
reorgani-
sation
reserve
255,459
–
–
255,459
–
–
255,459
Foreign
currency
translation
reserves
2,841
211
–
3,052
253
–
3,305
Share-
option
reserves
3,933
–
633
4,566
–
(495)
4,071
Total
262,233
211
633
263,077
253
(495)
262,835
Group reorganisation reserve in the amount of US$255,459 thousand
represents the difference between the partnership capital, treasury capital and
additional paid-in capital of Nostrum Oil & Gas LP and the share capital of
Nostrum Oil & Gas PLC, that arose during the reorganisation of the Group in
2014. Share-option reserves include amounts related to sale of treasury shares
under ESOP as well as share-based payments under LTIP (for more details
please see Note 27).
DDiissttrriibbuuttiioonnss
There were no distributions made during the years ended 31 December 2020
and 2019.
KKaazzaakkhhssttaann ssttoocckk eexxcchhaannggee ddiisscclloossuurree rreeqquuiirreemmeenntt
The Kazakhstan Stock Exchange enacted on 11 October 2010 (as amended on
18 April 2014) a requirement for disclosure of “the book value per share” (total
assets less intangible assets, total liabilities and preferred stock divided by the
number of outstanding shares as at the reporting date). As at 31 December
2020 the book value per share amounted to US$4.12 negative (31 December
2019: US$2.30 negative).
Basic EPS amounts are calculated by dividing the profit for the period by the
weighted average number of shares outstanding during the period. The basic
and diluted EPS are the same as there are no instruments that have a dilutive
effect on earnings. There have been no transactions involving ordinary shares
or potential ordinary shares between the reporting date and the date of
authorisation of these consolidated financial statements.
Loss for the period attributable to the
shareholders (in thousands of US dollars)
Weighted average number of shares
Basic and diluted earnings per share (in US
dollars)
For the year ended 31 December
2020
(327,425)
2019
(989,927)
185,234,079
(1.77)
185,234,079
(5.34)
15. Borrowings
Borrowings are comprised of the following as at 31 December 2020 and
31 December 2019:
In thousands of US Dollars
Notes issued in 2017 and maturing in 2022
Notes issued in 2018 and maturing in 2025
Less amounts due within 12 months
31 December
2020
767,956
418,313
1,186,269
(1,186,269)
–
31 December
2019
732,886
403,200
1,136,086
(35,633)
1,100,453
22002222 NNootteess
On 25 July 2017, a newly incorporated entity, Nostrum Oil & Gas Finance B.V.
(the "2022 Issuer") issued US$725,000 thousand notes (the "2022 Notes"). The
2022 Notes bear interest at a rate of 8.00% per year, payable on 25 January
and 25 July of each year.
On and after 25 July 2019, the 2022 Issuer shall be entitled at its option to
redeem all or a portion of the 2022 Notes upon not less than 30 nor more than
60 days’ notice, at the redemption prices (expressed in percentages of principal
amount of the 2022 Note), plus accrued and unpaid interest on the 2022
Notes, if any, to the applicable redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the twelve-month period
commencing on 25 July of the years set forth below:
Period
2020
2021 and thereafter
Redemption Price
104.0%
100.0%
The 2022 Notes are jointly and severally guaranteed (the "2022 Guarantees")
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the "2022 Guarantors"). The
2022 Notes are the 2022 Issuer's and the 2022 Guarantors’ senior obligations
and rank equally with all of the 2022 Issuer's and the 2022 Guarantors’ other
senior indebtedness.
The issue of the 2022 Notes was used primarily to fund the refinancing of part
of the Group’s Notes issued in 2012 and 2014.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 143
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
143
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
22002255 NNootteess
On 16 February 2018, Nostrum Oil & Gas Finance B.V. (the "2025 Issuer") issued
US$400,000 thousand notes (the "2025 Notes"). The 2025 Notes bear interest
at a rate of 7.00% per year, payable on 16 August and 16 February of each year.
On and after 16 February 2021, the 2025 Issuer shall be entitled at its option to
redeem all or a portion of the 2025 Notes upon not less than 10 nor more than
60 days’ notice, at the redemption prices (expressed in percentages of principal
amount of the 2025 Notes), plus accrued and unpaid interest on the 2025
Notes, if any, to the applicable redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the twelve-month period
commencing on 16 February of the years set forth below:
Period
2021
2022
2023
2024 and thereafter
Redemption Price
105.25%
103.50%
101.75%
100.00%
The 2025 Notes are jointly and severally guaranteed (the "2025 Guarantees")
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the "2025 Guarantors"). The
2025 Notes are the 2025 Issuer's and the 2025 Guarantors’ senior obligations
and rank equally with all of the 2025 Issuer's and the 2025 Guarantors’ other
senior indebtedness.
The issue of the 2025 Notes was used primarily to fund the refinancing of the
remaining Group’s Notes issued in 2012 and 2014.
RReeccllaassssiiffiiccaattiioonn ttoo ccuurrrreenntt lliiaabbiilliittiieess
On 26 August 2020 the Group announced that an event of default has occurred
under the terms of the indenture governing 2022 Notes resulting from the
Issuer's non-payment of interest due and payable on 25 July 2020 to the holders
of the 2022 Notes and the expiration of the 30-day grace period which
CChhaannggeess iinn lliiaabbiilliittiieess aarriissiinngg ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
commenced on the same date. Following this, the Issuer also did not pay
interest on 2025 Notes when due and upon the expiration of the 30-day grace
period in respect of such payment. On 23 October 2020 the Company
announced that the Company and certain of its subsidiaries (the "Note Parties")
has entered into a forbearance agreement (the "Forbearance Agreement") with
members of AHG. More detailed information related to forbearance agreement
and discussions with bondholders is disclosed in the Note 1.
Considering these facts and circumstances, as at 31 December 2020 the Group
has reclassified the carrying amounts of the 2022 Notes and 2025 Notes into
current liabilities and presented them as the current portion of long-term
borrowings.
CCoovveennaannttss ccoonnttaaiinneedd iinn tthhee 22002222 NNootteess aanndd 22002255 NNootteess
The 2022 and the 2025 Notes contain consistent covenants that, among other
things, restrict, subject to certain exceptions and qualifications, the ability of the
2022 Issuer, the 2025 Issuer, the 2022 Guarantors, the 2025 Guarantors and
certain other members of the Group to:
• incur or guarantee additional indebtedness and issue certain preferred stock;
• create or incur certain liens;
• make certain payments, including dividends or other distributions;
• prepay or redeem subordinated debt or equity;
• make certain investments;
• create encumbrances or restrictions on the payment of dividends or other
distributions, loans or advances to and on the transfer of assets to the Parent
or any of its restricted subsidiaries;
• sell, lease or transfer certain assets including shares of restricted subsidiaries;
• engage in certain transactions with affiliates;
• enter into unrelated businesses; and
• consolidate or merge with other entities.
In addition, the indentures impose certain requirements as to future subsidiary
guarantors, and certain customary information covenants and events of default.
In thousands of US Dollars
1 January
Cash
outflows
Borrowing
costs including
amortisation
of
arrangement
fees
Finance
charges
under leases
Modification
and
termination
of leases
Reclassificatio
n from non-
current to
current
Other 31 December
2020
Long-term borrowings
Current portion of long-term borrowings
Long-term lease liabilities
Current portion of lease liability
2019
Long-term borrowings
Current portion of long-term borrowings
Long-term lease liabilities
Current portion of lease liability
1,100,453
35,633
641
6,735
1,093,967
35,633
16,011
18,173
–
(43,000)
–
(5,418)
–
(86,000)
–
(17,709)
–
93,183
–
–
6,486
86,000
–
–
–
–
–
354
–
–
–
513
(1,100,453)
1,100,453
(606)
606
–
–
–
–
–
1,186,269
35
2,790
–
–
1,351
1,502
–
–
(11,952)
–
–
–
–
–
–
–
(4,769)
4,769
1,100,453
35,633
641
6,735
144 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
144 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
16. Lease liabilities
18. Due to government of Kazakhstan
In thousands of US Dollars
Lease liability as at 1 January
Modification of lease agreements
Termination of lease agreements
Finance charges
Paid during the period
Less amounts due within 12 months
31 December
2020
7,376
513
–
354
(5,418)
2,825
(2,790)
35
31 December
2019
34,184
(1,483)
(10,469)
2,853
(17,709)
7,376
(6,735)
641
The lease liabilities are recognized for leases of vehicles, drilling rigs, and railway
cars. The lease was recognized based on the future rentals as determined under
IFRS 16. See Note 6 for right-of-use-assets. Short-term lease expenses are
disclosed in the Note 23.
In 2019, as a result of the early termination of the drilling rigs lease agreements
the relevant right-of-use assets and respective lease liabilities were
derecognized with net result reflected within profit and loss. In 2020, extension
of the lease of railway cars has been recognized as additional right-of-use assets
in the amount of US$2,371 thousand and respective lease liabilities, which was
offset by derecognition of right-of-use assets in the amount of US$1,858
thousand (Note 7) and respective lease liabilities relating to reduction in the
scope of vehicles leases during 2020.
The total cash outflows in respect of the Group’s lease arrangements was
US$5,985 thousand for the year ended 31 December 2020 (2019: US$18,431
thousand).
17. Abandonment and site restoration provision
The summary of changes in abandonment and site restoration provision during
years ended 31 December 2020 and 2019 is as follows:
In thousands of US Dollars
Provision as at 1 January
Unwinding of discount
Additional provision
Provision used
Provision disposed
Change in estimates
Provision as at 31 December
2020
27,502
158
115
–
(376)
1,537
28,936
2019
21,894
164
1,100
(10)
–
4,354
27,502
Management made its estimate based on the assumption that cash flow will
take place at the expected end of the subsoil use rights in 2033. There are
uncertainties in estimation of future costs as Kazakh laws and regulations
concerning site restoration evolve.
The real discount rate used to determine the abandonment and site restoration
provision at 31 December 2020 was 0.98% (31 December 2019: long-term
inflation and discount rates of 1.90% and 2.49%, respectively).
The change in the long-term inflation rate and discount rate during the year
ended 31 December 2020 resulted in the increase of the abandonment and site
restoration provision by US$ 4,297 thousand (31 December 2019: the increase
by US$4,354 thousand).
other accruals
Due to employees
Other current liabilities
The amount due to Government of the Republic of Kazakhstan has been
recorded to reflect the present value of a liability in relation to the expenditures
made by the Government in the time period prior to signing the Contract that
were related to exploration of the Contract territory and the construction of
surface facilities in fields discovered therein and that are reimbursable by the
Group to the Government during the production period. The total amount of
liability due to Government as stipulated by the Contract is US$ 25,000
thousand.
Repayment of this liability commenced in 2008 with the first payment of
US$1,030 thousand in March 2008 and with further payments by equal
quarterly instalments of US$258 thousand until 26 May 2031. The liability was
discounted at 13%.
The summary of the changes in the amounts due to Government of Kazakhstan
during the years ended 31 December 2020 and 31 December 2019 is as follows:
In thousands of US Dollars
Balance as at 1 January
Unwinding of discount
Paid during the year
Balance as at 31 December
Less: current portion
Non-current portion
19. Trade payables
31 December
2020
6,101
793
(1,031)
5,863
(1,031)
4,832
31 December
2019
6,311
821
(1,031)
6,101
(1,031)
5,070
Trade payables comprise the following as at 31 December 2020 and
31 December 2019:
In thousands of US Dollars
Tenge denominated trade payables
US Dollar denominated trade payables
Euro denominated trade payables
Russian Rouble denominated trade payables
Trade payables denominated in other
currencies
31 December
2020
4,028
2,114
2,101
7
252
31 December
2019
12,852
9,864
4,617
170
135
8,502
27,638
20. Other current liabilities
Other current liabilities comprise the following as at 31 December 2020 and
31 December 2019:
In thousands of US Dollars
Training obligations accrual
Taxes payable, including corporate income tax
Accruals under the subsoil use agreements and
31 December
2020
10,088
7,397
4,216
31 December
2019
11,325
9,005
5,689
1,852
527
24,080
3,010
1,520
30,549
Accruals under subsoil use agreements mainly include amounts estimated in
respect of the contractual obligations for exploration and production of
hydrocarbons from the Rostoshinskoye field (31 December 2019:
Rostoshinskoye, Darjinskoye and Yuzhno-Gremyachinskoye fields).
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 145
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
145
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
21. Revenue
24. Selling and transportation expenses
For the year ended 31 December
For the year ended 31 December
In thousands of US Dollars
Revenue from oil and gas condensate sales
Revenue from gas and LPG sales
Revenue from sulphur sales
2020
123,861
52,078
–
175,939
2019
196,176
125,947
5
322,128
The pricing for all of the Group’s crude oil, condensate and LPG is, directly or
indirectly, related to the price of Brent crude oil. The average Brent crude oil
price the year ended 31 December 2020 was US$43.2/bbl (2019: US$64.2/bbl).
The operations of the Group are located in only one geographic location,
Kazakhstan.
During the year ended 31 December 2020 the revenue from sales to three
major customers amounted to US$118,861 thousand, US$29,748 thousand and
US$7,386 thousand respectively (2019: US$190,343 thousand, US$95,064
thousand and US$9,252 thousand respectively). The Group’s exports are mainly
represented by deliveries to Belarus and the Baltic ports of Russia.
22. Cost of sales
In thousands of US Dollars
Depreciation, depletion and amortisation
Payroll and related taxes
Repair, maintenance and other services
Materials and supplies
Transportation services
Well workover costs
Environmental levies
Change in stock
Other
For the year ended 31 December
2020
86,296
14,083
10,769
3,970
1,907
505
114
7,279
469
125,392
2019
136,776
18,465
14,242
4,481
2,129
1,766
167
(6,228)
204
172,002
23. General and administrative expenses
In thousands of US Dollars
Payroll and related taxes
Professional services
Insurance fees
Depreciation and amortisation
Short-term leases
Communication
Materials and supplies
Business travel
Bank charges
Other
For the year ended 31 December
2020
7,102
4,655
633
600
567
183
139
128
95
569
14,671
2019
10,162
4,966
1,256
2,026
722
276
170
617
133
1,071
21,399
In thousands of US Dollars
Transportation costs
Loading and storage costs
Marketing services
Depreciation of right-of-use assets
Payroll and related taxes
Other
2020
12,760
8,813
3,724
2,881
1,501
1,358
31,037
2019
12,405
11,783
10,554
4,489
2,293
4,351
45,875
25. Taxes other than income tax
In thousands of US Dollars
Royalties
Export customs duty
Government profit share
Other taxes
For the year ended 31 December
2020
7,016
5,017
2,044
36
14,113
2019
12,802
7,281
2,802
1
22,886
Export customs duty is comprised of customs duties for export of crude oil and
customs fees for services such as processing of declarations, temporary
warehousing etc.
26. Finance costs
For the year ended 31 December
In thousands of US Dollars
Interest expense on borrowings
Other finance costs
Unwinding of discount on amounts due to
Government of Kazakhstan
2020
92,794
7,968
793
Unwinding of discount on lease liability
Unwinding of discount on abandonment and
354
158
site restoration provision
2019
40,399
294
821
1,369
164
102,067
43,047
Other finance costs primarily represent bondholder consent fees in the amount
of US$3,761 thousands and advisor fees of US$4,088 thousand incurred by the
Group in relation to the forbearance agreement and ongoing discussions with
its bondholders regarding a possible restructuring of the Group’s outstanding
bonds. For more details on forbearance agreement and the consent fees see
Note 1.
146 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
146 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
27. Employees’ remuneration
The average monthly number of employees (including Executive Directors)
employed was as follows:
In thousands of US Dollars
Management and administrative
Technical and operational
Their aggregate remuneration comprised:
In thousands of US Dollars
Wages and salaries
Social security costs
Share-based payments
For the year ended 31 December
2020
2019
162
439
601
177
601
778
For the year ended 31 December
2020
20,937
2,252
(496)
22,693
2019
33,655
3,692
584
37,931
Part of the Group’s staff costs shown above is capitalised into the cost of
intangible and tangible oil and gas assets under the Group’s accounting policy
for exploration, evaluation and oil and gas assets.
The amount ultimately remaining in the income statement was US$22,106
thousand (2019: US$31,784 thousand).
KKeeyy mmaannaaggeemmeenntt ppeerrssoonnnneell rreemmuunneerraattiioonn
In thousands of US Dollars
Short-term employee benefits
Share-based payments
DDiirreeccttoorrss’’ rreemmuunneerraattiioonn
In thousands of US Dollars
Short-term employees benefits
Share-based payments
For the year ended 31 December
2020
2019
4,124
(131)
3,993
5,210
155
5,365
For the year ended 31 December
2020
2019
2,258
(228)
2,030
3,471
121
3,592
EEmmppllooyyeeee sshhaarree ooppttiioonn ppllaann ((EESSOOPP))
The Group’s Phantom Option Plan was adopted by the board of directors of the
Company on 20 June 2014 to allow for the continuation of the option plan
previously maintained by Nostrum Oil & Gas LP. The rights and obligations in
relation to this option plan were transferred to Nostrum Oil & Gas PLC from
Nostrum Oil & Gas LP following the reorganisation.
Employees (including senior executives and executive directors) of members of
the Group or their associates received remuneration in the form of equity-
based payment transactions, whereby employees render services as
consideration for share appreciation rights, which can only be settled in cash
(“cash-settled transactions”).
The cost of cash-settled equity-based employee compensation is measured
initially at fair value at the grant date using a trinomial lattice valuation model.
This fair value is expensed over the period until vesting with the recognition of a
corresponding liability. The liability is remeasured at each reporting date up to
and including the settlement date with changes in fair value recognised in the
statement of comprehensive income.
During 2008-2015, 4,337,958 equity appreciation rights (SARs) which can only
be settled in cash were granted to senior employees and executive directors of
members of the Group or their associates. These generally vest over a five-year
period from the date of grant, so that one fifth of granted SARs vests on each of
the five anniversaries from the date of grant. The contractual life of the SARs is
ten years. The fair value of the SARs is measured at the grant date using a
trinomial lattice valuation option pricing model taking into account the terms
and conditions upon which the instruments were granted. SARs are exercisable
at any time after vesting till the end of the contractual life and give its holder a
right to a difference between the market value of the Group’s ordinary shares
at the date of exercise and a stated base value. The services received and a
liability to pay for those services are recognised over the expected vesting
period.
Until the liability is settled it is remeasured at each reporting date with changes
in fair value recognised in profit or loss as part of the employee benefit
expenses arising from cash-settled share-based payment transactions.
The carrying value of the liability relating to 1,125,000 of SARs at 31 December
2020 is nil (31 December 2019: 1,225,000 of SARs with carrying value of nil).
During the year ended 31 December 2020 8,000 SARs were fully vested (2019:
8,000). Based on the estimations of the carrying value of the liability, during the
year ended 31 December 2020 the Group has not recognized any income or
expense from employee share options fair value adjustment (2019: income of
US$40 thousand).
The following table illustrates the number (“No.”) and exercise prices (“EP”) of,
and movements in, SARs during the year:
Total outstanding at 1 January
Total outstanding at 1 January
Total outstanding at 1 January
Share options lapsed
Share options lapsed
Total outstanding at 31 December
Total exercisable at 31 December
2020
No.
100,000
1,125,000
1,225,000
(100,000)
–
1,125,000
1,209,000
EP,US$
4
10
4
10
2019
No.
800,974
1,125,000
1,925,974
(700,974)
–
1,225,000
1,201,000
EP,US$
4
10
4
10
There were no SARs granted during the years ended 31 December 2020 and
2019. As at 31 December 2020 the weighted average remaining contractual life
of the outstanding options was 3.92 years (2019: 4.92 years).
The Hull-White trinomial lattice valuation model was used to value the share
options. The following table lists the inputs to the model used for the plan for
the years ended 31 December 2020 and 2019:
Price at the reporting date (US$)
Distribution yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life (years)
Option turnover (%)
Price trigger
2020
0.12
0%
64.6%
0.16%
10
10%
2.0
2019
0.20
0%
53.5%
0.3%
10
10%
2.0
The expected life of the options is based on historical data and is not necessarily
indicative of exercise patterns that may occur. The expected volatility reflects
the assumption that the historical volatility is indicative of future trends, which
may also not necessarily be the actual outcome. Option turnover rate
represents the rate of employees expected to leave the Company during the
vesting period, which is based on historical data and is may not necessarily be
the actual outcome. The model considers that when share price reaches the
level of exercise price multiplied by the price trigger the employees are
expected to exercise their options.
22001177 LLoonngg--tteerrmm iinncceennttiivvee ppllaann
In 2017 the Group started operating a Long-term incentive plan (“the LTIP”),
that was approved by the shareholders of the Company on 26 June 2017 and
adopted by the board of directors of the Company on 24 August 2017. The LTIP
is a discretionary benefit offered by the Company for the benefit of selected
employees. Its main purpose is to increase the interest of the employees in the
Company's long-term business goals and performance through share
ownership. The LTIP is an incentive for the employees' future performance and
commitment to the goals of the Company. The remuneration committee of the
board of the Company has the right to decide, in its sole discretion, whether or
not further awards will be granted in the future and to which employees those
awards will be granted.
Employees (including senior executives and executive directors) of members of
the Group or their associates may receive an award, which is a "nominal cost
option" over a specified number of ordinary shares in the capital of the
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 147
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
147
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
Company. The option has an exercise price of 1p per share (but the Company
has the discretion to waive this prior to exercise). In addition, under the Rules of
the LTIP the Company has discretion to settle awards other than by transfer of
shares such as by way of cash settlement. Generally, the awards are classified as
equity-settled transactions. The share options are treated as equity-settled
since there are no legal limitations expected on issue of shares for these upon
vesting, the Group has a choice of settlement and the intention is to settle them
in equity. However, in certain jurisdictions due to regulatory requirements the
Company may not be able to settle the awards other than by transfer of cash, in
which case the awards are classified as cash-settled transactions, and accounted
for similar to SARs.
The award ordinarily vests and becomes exercisable as from later of the third
anniversary of grant or two years after the date on which the Company
determines whether the performance condition has been satisfied, subject to
employee’s continued service and to the extent to which the performance
condition is satisfied, till the end of the contractual life. The contractual life of
the share options is ten years.
The cost of cash-settled equity-based employee compensation is measured
initially at fair value at the grant date using a trinomial lattice valuation model.
This fair value is expensed over the period until vesting with the recognition of a
corresponding liability. The liability is remeasured at each reporting date up to
and including the settlement date with changes in fair value recognised in the
statement of comprehensive income.
The cost of equity-settled transactions is measured at fair value at the grant
date using a trinomial lattice valuation model. This fair value is expensed over
the period until vesting with the recognition of a corresponding equity element
of “shares to be issued under LTIP”, which is not remeasured subsequently until
the settlement date.
The following table summarizes the movement in the number of share options
during the year ended 31 December 2020:
these estimations, during the year ended 31 December 2020 the Group
recognized income from reversal of employee share option expense in the
amount of US$495 thousand (2019: an expense of US$633 thousand).
The Hull-White trinomial lattice valuation model was used to value the share
options. The following table lists the inputs to the model used for valuation of
the share options at the grant date:
Price at the reporting date (US$)
Distribution yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life (years)
Option turnover (%)
Price trigger
10 October 2017 11 December 2017
1.25
2.76
0%
43.4%
1.38%
10
10%
2.0
0%
40.4%
1.45%
10
10%
2.0
The expected life of the options is based on historical data and is not necessarily
indicative of exercise patterns that may occur. The expected volatility reflects
the assumption that the historical volatility is indicative of future trends, which
may also not necessarily be the actual outcome. Option turnover rate
represents the rate of employees expected to leave the Company during the
vesting period, which is based on historical data and may not necessarily be the
actual outcome. The model considers that when share price reaches the level of
exercise price multiplied by the price trigger the employees are expected to
exercise their options.
28. Other income and expenses
For the years ended 31 December 2020 and 2019 other income comprised the
following:
Equity-settled
awards
Cash-settled
awards
Total
awards
1,544,253
98,906
1,643,159
(1,058,073)
(19,070)
(67,349)
–
(1,125,422)
(19,070)
467,110
(248,217)
31,557
(4,938)
498,667
(253,155)
In thousands of US Dollars
Reversals of other accruals
Reversals of training accruals
Refunds of taxes paid in previous periods
Goods received free of charge
Reversals of accruals under subsoil use
agreements
Currency conversion
Compensation for damages
Other
218,893
26,619
245,512
Other expenses comprised the following:
Total outstanding as
at 31 December 2018
Share options
performance adjusted
Share options forfeited
Total outstanding as
at 31 December 2019
Share options forfeited
Total outstanding as
at 31 December 2020
For the year ended 31 December
2020
2019
1,473
950
433
426
784
169
12
510
4,757
5,017
–
6
45
12
126
1,266
738
7,210
For the year ended 31 December
2020
2019
3,820
114
890
812
392
337
223
140
70
–
808
7,60
–
3,054
2,808
–
–
313
211
3,576
1,495
77
956
12,490
In thousands of US Dollars
Other taxes and penalties
Accruals under subsoil use agreements
Training
Loss on disposal of property, plant and
equipment
Loss on disposal of inventories
Social program
Currency conversion
Compensation
Business development
Sponsorship
Other
Other taxes and penalties mainly include additional taxes and penalties
assessed in relation to prior periods considering new information, which was
not available at the time of preparation of respective financial information, and
relevant interpretations by the management.
In 2017 the Company granted 1,208,843 share options, of which 542,243 share
options remained outstanding as at 31 December 2020 (2019: 1,101,342 share
options). On 23 March 2018 the remuneration committee of the board of the
Company determined the level of performance conditions that were met for
the performance conditions set upon issue of the share options granted in
2017. After adjusting for the nonachievement of performance conditions,
245,512 share options are capable of vesting as of 31 December 2020 (2019:
498,667 share options) and all of these share options were vested as of
31 December 2020, in accordance with the management’s best estimate.
On 28 November 2018 the Company granted a further 1,163,040 share options,
however due to the performance conditions not being met none of these share
options are capable of vesting.
The carrying value of the liability relating to 26,619 cash-settled share-options at
31 December 2020 is US$4 thousand (31 December 2019: 31,557 share options
with carrying value of US$4 thousand). Based on the estimations of the carrying
value of the liability, during the year ended 31 December 2020 the Group
recognized a gain of US$1 thousand from employee share options fair value
adjustment (2019: loss of US$11 thousand).
In accordance with the management’s best estimate 245,512 share options
were vested as at 31 December 2020. The fair value of the equity-settled share
options at the valuation dates of 28 November 2018 and 23 March 2018
amounted to US$ 1.25 and US$ 2.76 per share option, respectively. Based on
148 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
148 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
Deferred tax liability is calculated by applying the Kazakhstani statutory tax rate
applicable to the Chinarevskoye subsoil use rights to the temporary differences
between the tax amounts and the amounts reported in the consolidated
financial statements and are comprised of the following:
In thousands of US Dollars
Deferred tax asset
Accounts payable and provisions
Deferred tax liability
Property, plant and equipment
Inventories
Long-term borrowings
Net deferred tax liability
31 December
2020
31 December
2019
3,778
8,835
(5,479)
(3,011)
(3,793)
(8,505)
(42,761)
(3,648)
(5,213)
(42,787)
The movements in the deferred tax liability were as follows:
In thousands of US Dollars
Balance as at 1 January
Current period charge to statement of
comprehensive income
Balance as at 31 December
2020
42,787
(34,282)
2019
400,981
(358,194)
8,505
42,787
30. Related party transactions
For the purpose of these consolidated financial statements transactions with
related parties mainly comprise transactions between subsidiaries of the
Company and the shareholders and/or their subsidiaries or associated
companies.
Accounts payable to related parties represented by entities controlled by
shareholders with significant influence over the Group as at 31 December 2020
and 31 December 2019 consisted of the following:
In thousands of US Dollars
Trade payables
JSC OGCC KazStroyService
31 December
2020
31 December
2019
230
430
During the years ended 31 December 2020 and 2019 the Group had the
following transactions with related parties represented by entities controlled by
shareholders with significant influence over the Group:
In thousands of US Dollars
Purchases
JSC OGCC KazStroyService
For the year ended 31 December
2020
2019
–
11,322
On 28 July 2014 the Group entered into a contract with JSC “OGCC
KazStroyService” (the “Contractor”) for the construction of the third unit of the
Group’s gas treatment facility (as amended by fourteen supplemental
agreements since 28 July 2014). The Contractor is an affiliate of Mayfair
Investments B.V., which as at 31 December 2020 owned approximately 17.1%
of the ordinary shares of Nostrum Oil & Gas PLC.
Remuneration (represented by short-term employee benefits) of key
management personnel amounted to US$3,908 thousand for the year ended
31 December 2020 (2019: US$5,210 thousand).
29. Income tax
The income tax expense comprised the following:
In thousands of US Dollars
Deferred income tax expense
Adjustment in respect of the deferred
income tax for the prior periods
For the year ended 31 December
2020
(62,711)
28,429
2019
(358,194)
–
Corporate income tax expense
Withholding tax
Adjustment in respect of the current income
755
1,146
(385)
4,146
898
(72)
tax for the prior periods
(32,766)
(353,222)
The Group’s profits are assessed for income taxes mainly in the Republic of
Kazakhstan. A reconciliation between tax expense and the product of
accounting profit multiplied by the Kazakhstani tax rate applicable to the
Chinarevskoye subsoil use rights is as follows:
For the year ended 31 December
In thousands of US Dollars
Loss before income tax
Tax rate applicable to the subsoil use rights
Expected tax provision
Effect of exchange rate on the tax base
Adjustments in respect of current income
2020
(360,191)
30%
(108,057)
15,653
(384)
2019
(1,343,149)
30%
(402,945)
13,302
(72)
tax of previous years
Effect of loss / (income) taxed at different
(128)
(121)
rate¹
Non-deductible interest expense on
27,798
26,210
borrowings
Non-deductible exploration assets
–
9,012
impairment
Deferred tax asset not recognised
Non-deductible taxes and penalties
Adjustments to tax base balances brought
forward
Net foreign exchange gain
Non-deductible social expenditures
Non-deductible cost of technological loss
Non-deductible loss on disposal of PPE
Other non-deductible expenses
Income tax benefit reported in the
consolidated financial statements
1,557
932
28,429
491
–
133
167
643
(32,766)
228
484
–
(109)
81
209
–
499
(353,222)
1 Jurisdictions which contribute significantly to this item are Republic of Kazakhstan with an applicable
statutory tax rate of 20% (for activities not related to the Contract), and the Netherlands with an applicable
statutory tax rate of 25%.
Certain revisions to previous period tax assessments were made considering
new information, which was not available at the time of preparation of
respective financial information, and relevant interpretations by the
management. While there were not adjustments to income taxes of previous
periods resulting from such revisions, the tax base of property, plant and
equipment has been adjusted to reflect the changes, which are reflected above
as adjustments to tax base balances brought forward.
The Group’s effective tax rate for the year ended 31 December 2020 is 9.1%
(2019: 26.2%). The Group’s effective tax rate, excluding effect of movements in
exchange rates and non-deductible interest expense on borrowings, for the
year ended 31 December 2020 is 21.2% (2019: 29.2%).
As at 31 December 2020 the Group has tax losses of US$105,432 thousand
(2019: US$103,624 thousand) that are available to offset against future taxable
profits in the companies in which the losses arose within 9 years after
generation and will expire in the period 2023-2029. Deferred tax assets have
not been recognised in respect of these losses as they may not be used to offset
taxable profits elsewhere in the Group.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 149
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
149
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Notes to the consolidated financial statements continued
31. Audit and non-audit fees
During the years ended 31 December 2020 and 2019 audit and non-audit fees
comprise the following:
In thousands of US Dollars
Audit of the financial statements
Total audit services
Audit-related assurance services
Services relating to corporate finance
transactions
Other non-audit services
Total non-audit services
For the year ended 31 December
2020
2019
1,076
1,076
–
–
–
–
491
491
171
578
4
753
1,076
1,244
However, depending on any unfavourable court decisions with respect to any
claims or penalties assessed by the Kazakh regulatory agencies, it is possible
that the Group’s future results of operations or cash flow could be materially
affected in a particular period.
CCaappiittaall ccoommmmiittmmeennttss
As at 31 December 2020, the Group had contractual capital commitments in the
amount of 6,167 thousand (31 December 2019: US$27,552 thousand), mainly in
respect to the Group’s oil field development activities.
SSoocciiaall aanndd eedduuccaattiioonn ccoommmmiittmmeennttss
As required by the Contract (after its amendment on 2 September 2019), the
Group is obliged to:
• spend US$ 300 thousand per annum to finance social infrastructure;
• make an accrual of one percent per annum of the actual investments for the
Chinarevskoye field for the purposes of educating Kazakh citizens; and
• adhere to a spending schedule on education which lasts until (and including)
2020.
The audit fees in the table above include the audit fees of US$10 thousand in
relation to the Parent.
The contracts for exploration and production of hydrocarbons from the
Rostoshinskoye field requires fulfilment of several social and other obligations.
The audit fees for the year ended 31 December 2020 include fees related to the
audit of the 2019 financial statements in the amount of US$221 thousand.
32. Contingent liabilities and commitments
TTaaxxaattiioonn
Kazakhstan’s tax legislation and regulations are subject to ongoing changes and
varying interpretations. Instances of inconsistent opinions between local,
regional and national tax authorities are not unusual. The current regime of
penalties and interest related to reported and discovered violations of
Kazakhstan’s tax laws are severe and where the tax authorities disagree with
the positions taken by the Group the financial outcomes could be material.
Administrative fines are generally 80% of the taxes additionally assessed and
interest penalty is assessed at the refinancing rate established by the National
Bank of Kazakhstan multiplied by 1.25. As a result, penalties and interest can
amount to multiples of any assessed taxes. Fiscal periods remain open to review
by tax authorities for five calendar years preceding the year of review. Under
certain circumstances reviews may cover longer periods. Because of the
uncertainties associated with Kazakhstan’s tax system, the ultimate amount of
taxes, penalties and interest, if any, may be in excess of the amount expensed
to date and accrued at 31 December 2020. As at 31 December 2020
management believes that its interpretation of the relevant legislation is
appropriate and that it is probable that the Group’s tax position will be
sustained.
AAbbaannddoonnmmeenntt aanndd ssiittee rreessttoorraattiioonn ((ddeeccoommmmiissssiioonniinngg))
As Kazakh laws and regulations concerning site restoration and clean-up evolve,
the Group may incur future costs, the amount of which is currently
indeterminable. Such costs, when known, will be provided for as new
information, legislation and estimates evolve.
The outstanding obligations under the contract for exploration and production
of hydrocarbons from Rostoshinskoye field (as amended on 16 August 2019)
require the subsurface user to:
• invest at least US$ 10,409 thousand for exploration of the field during the
exploration period;
• create a liquidation fund to cover the Group’s asset retirement obligations.
The Darjinskoye and Yuzhno-Gremyachinskoye fields were disposed of in
October 2020 (see Note 1). All outstanding obligations under these licences
were transferred to the purchaser.
DDoommeessttiicc ooiill ssaalleess
In accordance with Supplement # 7 to the Contract, Zhaikmunai LLP is required
to deliver at least 15% of produced oil to the domestic market on a monthly
basis for which prices are materially lower than export prices.
33. Financial risk management objectives and policies
The Group’s principal financial liabilities comprise borrowings, payables to
Government of Kazakhstan, trade payables and other current liabilities. The
main purpose of these financial liabilities is to finance the Group’s operations.
The Group's financial assets consist of trade and other receivables and cash and
cash equivalents that derive directly from its operations.
The Group is exposed to commodity price risk, foreign currency risk, liquidity
risk and credit risk. The Group’s senior management oversees the management
of these risks. The Group’s senior management ensures that the Group’s
financial risk activities are governed by appropriate policies and procedures and
that financial risks are identified, measured and managed in accordance with
the Group’s policies and risk objectives. The Board of Directors reviews and
agrees policies for managing each of these risks, which are summarised below.
EEnnvviirroonnmmeennttaall oobblliiggaattiioonnss
CCoommmmooddiittyy pprriiccee rriisskk
The Group may also be subject to loss contingencies relating to regional
environmental claims that may arise from the past operations of the related
fields in which it operates. Kazakhstan’s environmental legislation and
regulations are subject to ongoing changes and varying interpretations. As
Kazakh laws and regulations evolve concerning environmental assessments and
site restoration, the Group may incur future costs, the amount of which is
currently indeterminable due to such factors as the ultimate determination of
responsible parties associated with these costs and the Government’s
assessment of respective parties’ ability to pay for the costs related to
environmental reclamation.
The Group is exposed to the effect of fluctuations in price of crude oil, which is
quoted in US dollar on the international markets. The Group prepares annual
budgets and periodic forecasts including sensitivity analyses in respect of
various levels of crude oil prices in the future.
IInntteerreesstt rraattee rriisskk
The Group is not exposed to interest rate risk in 2020 and 2019 as the Group
had no financial instruments with floating rates as at years ended 31 December
2020 and 2019.
150 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
150 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Notes to the consolidated financial statements (continued)
Consolidated financial statements
FFoorreeiiggnn ccuurrrreennccyy rriisskk
As a significant portion of the Group’s operation is Tenge denominated, the
Group’s statement of financial position can be affected by movements in the
US dollar / Tenge exchange rates. The Group mitigates the effect of its structural
currency exposure by borrowing in US dollars and denominating sales in US
dollars.
The following table demonstrates the sensitivity to a reasonably possible
change in the US dollar exchange rate, with all other variables held constant. A
devaluation of Tenge against US dollar by 14% would lead to decrease in the net
Tenge liability position by US$1,633 as of 31 December 2020 and respective
reduction of the loss before income tax for the year ended 31 December 2020.
The impact on equity is the same as the impact on profit before tax.
2020
2019
Change in Tenge to US
dollar exchange rate
Effect on profit before tax (In
thousands of US Dollars)
14%
-11%
60%
-20%
1,633
(1,644)
1,253
(835)
The Group’s foreign currency denominated monetary assets and liabilities were
as follows:
The table below summarizes the maturity profile of the Group's financial
liabilities at 31 December 2020 and 31 December 2019 based on contractual
undiscounted payments:
In thousands of US
Dollars
As at 31 December 2020
Borrowings
Lease liabilities
Trade payables
Other current liabilities
Due to Government of
Kazakhstan
As at 31 December 2019
Borrowings
Lease liabilities
Trade payables
Other current liabilities
Due to Government of
Kazakhstan
On
demand
Less
than 3
months
3-12
months
1-5
years
More
than 5
years
Total
1,203,633
43,000
43,000
–
760
2,279
7,774
16,491
–
–
728
–
–
40
–
–
– 1,289,633
–
–
–
3,079
8,502
16,491
–
258
773
4,124
5,412
10,567
1,227,898
44,018
46,780
4,164
5,412 1,328,272
–
43,000
43,000 953,000 414,000 1,453,000
6,735
641
–
21,685
30,286
–
–
5,953
–
–
–
–
–
–
–
7,376
27,638
30,286
–
258
773
4,124
6,443
11,598
58,706
43,899
49,726 957,124 420,443 1,529,898
Tenge
Russian
Roubles
Euro
Other
Total
CCrreeddiitt rriisskk
95
–
(7)
–
88
1,862
–
(2,101)
(299)
423
–
(207)
(105)
5,171
877
(6,343)
(13,344)
(538)
111 (13,639)
Credit risk is the risk that a counterparty will not meet its obligations under a
financial instrument or customer contract, leading to a financial loss. The Group
is exposed to credit risk from its operating activities (primarily trade receivables)
and from its financing activities, including deposits with banks and financial
institutions and foreign exchange transactions.
In thousands of US Dollars
As at 31 December 2020
Cash and cash equivalents
Trade receivables
Trade payables
Other current liabilities
As at 31 December 2019
Cash and cash equivalents
Trade receivables
Trade payables
Other current liabilities
LLiiqquuiiddiittyy rriisskk
2,791
877
(4,028)
(12,940)
(13,300)
797
24,276
(12,852)
(15,561)
107
–
(170)
(53)
4,003
–
(4,617)
(1,131)
613
–
(135)
(828)
5,520
24,276
(17,774)
(17,573)
(3,340)
(116)
(1,745)
(350)
(5,551)
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to
meet commitments associated with its financial liabilities. The Group monitors
its risk to a shortage of funds using a liquidity planning tool. The tool allows
selecting severe stress test scenarios. To ensure an adequate level of liquidity a
minimum cash balance has been defined as a cushion of liquid assets. The
Group’s objective is to maintain a balance between continuity of funding and
flexibility through the use of notes, export financing and leases.
The Group’s total outstanding debt consists of two notes: US$725 million issued
in 2017 and maturing in 2022 and US$400 million issued in 2018 and maturing
in 2025. Based on the assessments and other matters considered by the Board
during the year, on the assumption that the Notes are successfully restructured,
the Directors confirm that they have a reasonable expectation that the Group
will continue in operation and meet its restructured liabilities as they fall due
through the three-year viability assessment period ending 31 December 2023.
Nevertheless, as highlighted in the Viability assessment, the material
uncertainties referred to in respect of the Going Concern assessment may cast
significant doubt over the future viability of the Group. For more information on
analysis of the Group’s ability to meet its liabilities on repayment of the Notes
please see “Viability statement” section on the Annual report on pages 56-57.
The Group places its cash and deposits primarily with Citibank, N.A., ING Bank
N.V., SB Sberbank JSC, and Halyk bank JSC with most recent credit ratings from
Moody's rating agency of Aa3 (Stable), Aa3 (Stable), Ba1 (Stable), and Ba1
(Stable), respectively.
The Group sells its products and makes advance payments only to recognised,
creditworthy third parties. In addition, receivable balances are monitored on an
ongoing basis with the result that the Group’s exposure to bad debts and
recoverability of prepayments made is not significant and thus risk of credit
default is low. Also, the Group’s policy is to mitigate the payment risk on its off-
takers by requiring all purchases to be prepaid or secured by a letter of credit
from an international bank.
An impairment analysis is performed at each reporting date on an individual
basis for major clients. The maximum exposure to credit risk at the reporting
date is the carrying value of each class of financial assets. The Group does not
hold collateral as security. The Group evaluates the concentration of risk with
respect to trade receivables as low, as its customers are located in several
jurisdictions and industries and operate in largely independent markets.
FFaaiirr vvaalluueess ooff ffiinnaanncciiaall iinnssttrruummeennttss
Set out below, is a comparison by class of the carrying amounts and fair value of
the Group’s financial instruments, other than those with carrying amounts
reasonably approximating their fair values:
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 151
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
151
Financial report
Consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Management assessed that cash and cash equivalents, trade receivables, trade
payables and other current liabilities approximate their carrying amounts largely
due to the short-term maturities of these instruments.
The table below presents carrying amounts and fair values of financial liabilities
measured at amortised cost:
Carrying amount
31 December
2020
31 December
2019
Fair value
31 December
2020
31 December
2019
1,186,269
1,136,086
270,000
526,156
In thousands of US
Dollars
Interest bearing
borrowings
Total
1,186,269
1,136,086
270,000
526,156
The fair value of the financial assets and liabilities represents the amount at
which the instruments could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Fair value of the quoted
notes is based on price quotations at the reporting date and respectively
categorised as Level 1 within the fair value hierarchy.
During the years ended 31 December 2020 and 2019 there were no transfers
between the levels of fair value hierarchy of the Group’s financial instruments.
CCaappiittaall mmaannaaggeemmeenntt
34. Events after the reporting period
RReellaattiioonnsshhiipp aaggrreeeemmeenntt
On 4 February 2021 the Company announced that the Company and Mayfair
Investments BV ("Mayfair"), a shareholder in the Company, have by mutual
agreement terminated the relationship agreement between them dated 19
May 2014 (as adhered to by Mayfair on 30 January 2015) (the "Relationship
Agreement").
In the Relationship Agreement Nostrum had granted Mayfair the right to
nominate a director to the Company's Board of Directors and Mayfair had made
various undertakings to the Company designed to ensure that the Company is
managed independently of Mayfair. Nostrum and Mayfair mutually agreed to
terminate the Relationship Agreement given that Mayfair's shareholding in the
Company reduced significantly in May 2020 and in January 2021 Mayfair
decided to cease to nominate a director to the Company's Board of Directors.
FFoorrbbeeaarraannccee aaggrreeeemmeenntt
On 20 February 2021 pursuant to the requirements of the Forbearance
Agreement the Company made the payment of the final consent fee for 9.9288
bps equating to US$1,116,990.
For the purpose of the Group’s capital management, capital includes issued
capital, additional paid-in capital and all other equity reserves attributable to
the equity holders of the parent. The primary objective of the Group’s capital
management is to maximise the shareholder value.
On 19 March 2021 the Company transferred into the secured account an
amount of US$7,525 thousand, equating to 17.50% of the missed interest
payments, and an additional amount of US$1,116,990, equating to 9.9288 bps
of the outstanding Notes.
On 19 March 2021, by unanimous consent of the AHG, the forbearance period
was extended to 20 April 2021. On 20 April 2021, again by unanimous consent
of the AHG, the forbearance period was extended to 20 May 2021. The
extensions were to provide time for a final agreement to be reached with
shareholders and bondholders. More detailed information related to
forbearance agreement and discussions with bondholders is disclosed in the
Note 1.
In order to achieve this overall objective, the Group’s capital management,
amongst other things, aims to ensure that it meets financial covenants attached
to the notes that define capital structure requirements. Breaches in meeting the
financial covenants would permit the lenders to immediately call borrowings.
There have been no breaches in the financial covenants of the notes in the
current period nor the prior period.
The Group manages its capital structure and makes adjustments in light of
changes in economic conditions and the requirements of the financial
covenants. To maintain or adjust the capital structure, the Group may adjust the
dividend payment to shareholders, return capital to shareholders or increase
share capital. The Group monitors capital using a gearing ratio, which is net debt
divided by total capital plus net debt. The Group includes within net debt,
interest bearing loans and borrowings, less cash, short-term deposits and long-
term deposits.
In thousands of US Dollars
Borrowings
Less: cash and cash equivalents
Net debt
Equity
Total capital
Capital and net debt
Gearing ratio
31 December
2020
1,186,269
(78,583)
31 December
2019
1,136,086
(93,940)
1,107,686
1,042,146
(759,751)
(432,084)
(759,751)
(432,084)
347,935
318%
610,062
171%
No changes were made in the objectives, policies or processes for managing
capital during the years ended 31 December 2020 and 31 December 2019.
End of Document
152 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
152 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Parent Company financial statements
Contents
Parent company statement of financial position ���������������������� 154
Parent company statement of cash flows ���������������������������������� 155
Parent company statement of changes in equity ��������������������� 156
Notes to the parent company financial statements ����������������� 157
1. General������������������������������������������������������������������������������������ 157
2. Basis of preparation and consolidation ��������������������������� 158
3. Changes in accounting policies and disclosures ����������� 159
Summary of significant accounting policies ������������������� 160
4.
Investments in subsidiaries ������������������������������������������������� 163
5.
6. Receivables from related parties ��������������������������������������� 163
7� Cash and Cash Equivalents ������������������������������������������������ 163
Shareholders’ equity ������������������������������������������������������������ 163
8.
Financial guarantees ������������������������������������������������������������ 163
9.
10. Payables to related parties ������������������������������������������������� 164
11. Auditors’ remuneration ������������������������������������������������������� 164
12. Employees’ remuneration ��������������������������������������������������� 164
13. Long-term incentive plan ���������������������������������������������������� 165
14. Related party transactions �������������������������������������������������� 165
15. Financial risk management objectives and policies ������ 166
16. Events after the reporting period ������������������������������������� 166
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 153
Financial report Parent Company financial statements continued
Consolidated financial statements
Consolidated financial statements
Parent company financial statements
Parent company financial statements
Parent company statement of
Consolidated statement of financial position
Consolidated statement of financial position
financial position
Parent company statement of financial position
Parent company statement of financial position
In thousands of US Dollars
In thousands of US Dollars
In thousands of US Dollars
In thousands of US Dollars
Assets
Assets
Non-current assets
Non-current assets
Assets
Assets
Property, plant and equipment
Property, plant and equipment
Non-current assets
Non-current assets
Right-of-use assets
Right-of-use assets
Property, plant and equipment
Property, plant and equipment
Advances for non-current assets
Advances for non-current assets
Restricted cash
Restricted cash
Current assets
Current assets
Prepayments and other current assets
Prepayments and other current assets
Current assets
Current assets
Receivables from related parties
Receivables from related parties
Inventories
Inventories
Cash and cash equivalents
Cash and cash equivalents
Prepayments and other current assets
Prepayments and other current assets
Income tax prepayment
Income tax prepayment
TOTAL ASSETS
TOTAL ASSETS
Trade receivables
Trade receivables
Cash and cash equivalents
Cash and cash equivalents
Equity and liabilities
Equity and liabilities
Share capital and reserves
Share capital and reserves
TOTAL ASSETS
TOTAL ASSETS
Share capital
Share capital
Retained deficit and reserves
Retained deficit and reserves
Equity and liabilities
Equity and liabilities
Share capital and reserves
Share capital and reserves
Share capital
Share capital
Non-current liabilities
Treasury capital
Treasury capital
Financial guarantees, long-term
Retained deficit and reserves
Retained deficit and reserves
Non-current liabilities
Financial guarantees, long-term
Notes
Notes
Notes
Notes
31 December
31 December
2020
2020
31 December
2020
31 December
2020
31 December
31 December
2019
2019
31 December
2019
31 December
2019
6
6
7
7
8
8
12
12
6
7
6
9
9
7
10
10
11
11
12
12
8
8
13
13
9
9
339,406
339,406
2,755
2,755
20
9,034
9,034
20
20,613
20,613
371,808
371,808
20
20
287
287
1,109
1,109
28,805
28,805
615
615
12,303
12,303
2,011
2,011
379
379
2,031
2,031
13,540
13,540
78,583
78,583
133,610
133,610
505,418
505,418
3,203
3,203
(792,553)
(792,553)
(789,350)
(789,350)
3,203
3,203
(1,660)
(1,660)
–
(761,294)
(761,294)
–
(759,751)
(759,751)
–
–
650,229
650,229
6,875
6,875
42
8,412
8,412
42
7,620
7,620
673,136
673,136
42
42
285
285
665
665
35,849
35,849
1,522
1,522
12,040
12,040
2,472
2,472
90
90
2,514
2,514
31,239
31,239
93,940
93,940
173,158
173,158
846,294
846,294
3,203
3,203
(436,960)
(436,960)
(433,757)
(433,757)
3,203
3,203
(1,660)
(1,660)
434,117
434,117
(433,627)
(433,627)
434,117
434,117
(432,084)
(432,084)
9
14
10
9
15
15
16
16
14
17
17
10
18
18
29
29
Current liabilities
Current liabilities
Non-current liabilities
Non-current liabilities
Current portion of financial guarantees
Current portion of financial guarantees
Long-term borrowings
Long-term borrowings
Employee share option plan liability
Employee share option plan liability
Long-term lease liabilities
Long-term lease liabilities
Advances received from related parties
Advances received from related parties
Abandonment and site restoration provision
Abandonment and site restoration provision
Payables to related parties
Payables to related parties
Due to Government of Kazakhstan
Due to Government of Kazakhstan
Trade payables
Trade payables
Deferred tax liability
Deferred tax liability
Income tax payable
Income tax payable
Other current liabilities
Other current liabilities
–
–
1,100,453
1,100,453
4
4
641
641
304
304
27,502
27,502
859
859
5,070
5,070
158
158
42,787
42,787
–
–
1,176,453
1,176,453
829
829
2,154
2,154
Current liabilities
Current liabilities
2,514
2,514
TOTAL EQUITY AND LIABILITIES
35,633
Current portion of long-term borrowings
35,633
Current portion of long-term borrowings
6,735
Current portion of lease liabilities
6,735
Current portion of lease liabilities
4
Employee share option plan liability
4
Employee share option plan liability
27,638
Trade payables
As permitted by section 408(3) of the Companies Act 2006, the profit and loss account of the Company is not presented in the Company’s financial statements.
27,638
Trade payables
335
Advances received
335
Advances received
The Company reported a loss of US$355,098 thousand for the financial year ended 31 December 2020 (2019: loss of US$544,405 thousand). During the
1,031
Current portion of due to Government of Kazakhstan
reporting periods there were no transactions impacting the statement of other comprehensive income.
1,031
Current portion of due to Government of Kazakhstan
30,549
Other current liabilities
30,549
Other current liabilities
The financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors. Signed on behalf of the Board:
101,925
101,925
846,294
846,294
790,121
790,121
–
–
3
3
35
35
–
–
28,936
28,936
568
568
4,832
4,832
444
444
8,505
8,505
135
135
42,308
42,308
110
110
791,381
791,381
2,031
2,031
1,186,269
1,186,269
2,790
2,790
3
3
8,502
8,502
186
186
1,031
1,031
24,080
24,080
1,222,861
1,222,861
505,418
505,418
The Company reported a loss of US$355,098 thousand for the financial year ended 31 December 2020 (2019: loss of US$544,405 thousand). During the
reporting periods there were no transactions impacting the statement of other comprehensive income.
The financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors. Signed on behalf of the Board:
As permitted by section 408(3) of the Companies Act 2006, the profit and loss account of the Company is not presented in the Company’s financial statements.
TOTAL EQUITY AND LIABILITIES
Signed on behalf of the Board:
Signed on behalf of the Board:
TOTAL EQUITY AND LIABILITIES
TOTAL EQUITY AND LIABILITIES
18
18
20
20
15
15
16
16
19
19
Arfan Khan
27 April 2021
Chief Executive Officer
Arfan Khan
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors.
Chief Executive Officer
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors.
Signed on behalf of the Board:
27 April 2021
Signed on behalf of the Board:
Arfan Khan
Arfan Khan
Chief Executive Officer
Chief Executive Officer
Martin Cocker
Martin Cocker
Interim Chief Financial Officer
Interim Chief Financial Officer
Interim Chief Financial Officer
Interim Chief Financial Officer
Martin Cocker
27 April 2021
27 April 2021
Martin Cocker
27 April 2021
27 April 2021
27 April 2021
27 April 2021
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 129 through 152 are an integral part of these consolidated financial statements
The accounting policies and explanatory notes on pages 157 through 166 are an integral part of these financial statements
The accounting policies and explanatory notes on pages 157 through 166 are an integral part of these financial statements
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
125
125
154 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
153
153
Parent company financial statements
Parent company financial statements
Parent company statement of
Parent company statement of cash flows
cash flows
Parent company statement of cash flows
In thousands of US Dollars
In thousands of US Dollars
Cash flow from operating activities:
Loss before income tax
Cash flow from operating activities:
Loss before income tax
Adjustments for:
Depreciation
Adjustments for:
Finance costs
Depreciation
Employee share option plan fair value adjustment
Finance costs
Income from share premium distribution
Employee share option plan fair value adjustment
Foreign exchange gain on investing and financing activities
Income from share premium distribution
Financial guarantee loss
Foreign exchange gain on investing and financing activities
Impairment (reversal) / charge
Financial guarantee loss
Operating profit before working capital changes
Impairment (reversal) / charge
Changes in working capital:
Operating profit before working capital changes
Change in other current assets
Changes in working capital:
Change in receivables from related parties
Change in other current assets
Change in trade payables
Change in receivables from related parties
Change in payables to related parties
Change in trade payables
Change in accrued liabilities
Change in payables to related parties
Change in other current liabilities
Change in accrued liabilities
Cash generated from operations
Change in other current liabilities
Income tax paid
Cash generated from operations
Net cash flows from operating activities
Income tax paid
Net cash flows from operating activities
Cash flow from investing activities:
Purchase of property, plant and equipment
Subsidiary share premium received
Net cash (used in) / from investing activities
Cash flow from investing activities:
Purchase of property, plant and equipment
Subsidiary share premium received
Net cash (used in) / from investing activities
Cash flow from financing activities:
Funds borrowed
Cash flow from financing activities:
Net cash from financing activities
Funds borrowed
Net cash from financing activities
Effects of exchange rate changes on cash and cash equivalents
For the year ended 31 December
Notes
2020
For the year ended 31 December
2019
Notes
2020
2019
(354,897)
(544,405)
(354,897)
(544,405)
9
5
9
5
28
–
28
(27)
–
–
(27)
–
–
356,004
–
(469)
356,004
639
(469)
639
(2)
(444)
(2)
286
(444)
(595)
286
–
(595)
(719)
–
(835)
(719)
(66)
(835)
(901)
(66)
(901)
25
44
25
41
44
(1,000)
41
(2)
(1,000)
428,436
(2)
117,361
428,436
500
117,361
500
(107)
564
(107)
(336)
564
(592)
(336)
(39)
(592)
–
(39)
(10)
–
–
(10)
(10)
–
(10)
(7)
–
(7)
(7)
–
(7)
(7)
1,000
(7)
993
1,000
993
–
–
1
–
–
500
500
500
500
1
Effects of exchange rate changes on cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
1
(907)
(907)
1,522
615
1,522
615
1
1,484
1,484
38
1,522
38
1,522
7
7
7
7
During 2019 the Company entered into Intra-Group Payment Set-Off Agreement according to which the Company performed non-cash settlement of its loan
payable to its indirect subsidiary Nostrum Oil & Gas Finance B.V. in the amount of US$3,000 thousand (Note 10) against its receivables from its subsidiary
During 2019 the Company entered into Intra-Group Payment Set-Off Agreement according to which the Company performed non-cash settlement of its loan
Nostrum Oil & Gas Coöperatief U.A. in the amount of US$3,000 thousand (Note 6). These transactions had impact on “change in receivables from related
payable to its indirect subsidiary Nostrum Oil & Gas Finance B.V. in the amount of US$3,000 thousand (Note 10) against its receivables from its subsidiary
parties” and “change in payables to related parties” above.
Nostrum Oil & Gas Coöperatief U.A. in the amount of US$3,000 thousand (Note 6). These transactions had impact on “change in receivables from related
parties” and “change in payables to related parties” above.
As at 31 December 2020 the Company recognized bad debt allowance in the amount of US$291 thousand (2019: US$8,073 thousand) against the loan
receivable from Nostrum employee benefit trust and a similar but opposite amount against its loan payable to its subsidiary Nostrum Oil & Gas Coöperatief U.A.
As at 31 December 2020 the Company recognized bad debt allowance in the amount of US$291 thousand (2019: US$8,073 thousand) against the loan
(Notes 6 and 10). These transactions had impact on “change in receivables from related parties” and “change in payables to related parties” above.
receivable from Nostrum employee benefit trust and a similar but opposite amount against its loan payable to its subsidiary Nostrum Oil & Gas Coöperatief U.A.
(Notes 6 and 10). These transactions had impact on “change in receivables from related parties” and “change in payables to related parties” above.
The accounting policies and explanatory notes on pages 157 through 166 are an integral part of these financial statements
The accounting policies and explanatory notes on pages 157 through 166 are an integral part of these financial statements
154 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
154 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 155
Financial report
Parent Company financial statements continued
Parent company financial statements
Parent company financial statements
Parent company statement of
Parent company statement of changes in equity
changes in equity
Parent company statement of changes in equity
In thousands of US Dollars
In thousands of US Dollars
As at 1 January 2019
As at 1 January 2019
Loss for the year
Total comprehensive loss for the year
Loss for the year
Total comprehensive loss for the year
Notes
Notes
Share
capital
Share
capital
Other
reserves
3,203
3,203
711
–
–
–
–
–
–
Share based payments under LTIP
Share based payments under LTIP
As at 31 December 2019
As at 31 December 2019
13
13
–
3,203
–
3,203
633
1,344
Loss for the year
Total comprehensive loss for the year
Loss for the year
Total comprehensive loss for the year
–
–
–
–
–
–
Share based payments under LTIP
Share based payments under LTIP
As at 31 December 2020
As at 31 December 2020
13
13
–
3,203
–
3,203
(495)
849
Other
reserves
Retained
earnings /
(deficit)
Retained
earnings /
(deficit)
Total
Total
711
106,101
106,101
110,015
110,015
–
(544,405)
–
(544,405)
(544,405)
(544,405)
(544,405)
(544,405)
(544,405)
(544,405)
633
1,344
–
(438,304)
–
(438,304)
633
(433,757)
633
(433,757)
–
(355,098)
–
(355,098)
(355,098)
(355,098)
(355,098)
(355,098)
(355,098)
(355,098)
(495)
849
–
(793,402)
–
(793,402)
(495)
(789,350)
(495)
(789,350)
The accounting policies and explanatory notes on pages 157 through 166 are an integral part of these financial statements
The accounting policies and explanatory notes on pages 157 through 166 are an integral part of these financial statements
156 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
155
155
Parent company financial statements
Notes to the parent company
financial statements
Notes to the parent company financial statements
1. General
OOvveerrvviieeww
Nostrum Oil & Gas PLC (“the Company”) is a public
limited company incorporated on 3 October 2013
under the Companies Act 2006 and registered in
England and Wales with registered number
8717287. The registered address of Nostrum Oil &
Gas PLC is: 20 Eastbourne Terrace, London
W2 6LA, United Kingdom.
The subsidiary undertakings of the Company as at
31 December 2020 and the percentage holding of
their capital are set out below:
Company
Registered office Form of
capital
Owner-
ship, %
Direct subsidiary undertakings:
Members'
interests
100
Ordinary
shares
100
Nostrum Oil &
Gas
Coöperatief
U.A.
Bloemendaalsew
eg 139, Hofstede
Sparrenheuvel,
2061 CH
Bloemendaal,
The Netherlands
Bloemendaalsew
eg 139, Hofstede
Sparrenheuvel,
2061 CH
Bloemendaal,
The Netherlands
Indirect subsidiary undertakings:
Nostrum Oil &
Gas B.V.
Nostrum
Associated
Investments
LLP
43B Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Participator
y interests
100
Nostrum E&P
Services LLC
Nostrum Oil &
Gas Finance
B.V.
Nostrum Oil &
Gas UK Ltd.
Liteyniy Prospekt
26 A, 191028 St.
Petersburg,
Russian
Federation
Bloemendaalsew
eg 139, Hofstede
Sparrenheuvel,
2061 CH
Bloemendaal,
The Netherlands
20 Eastbourne
Terrace, London
W2 6LA, United
Kingdom
Nostrum
Services
Central Asia
LLP
Aksai 3a, 75/38,
050031 Almaty,
Republic of
Kazakhstan
Nostrum
Services N.V.
Zhaikmunai
LLP
Chaussee de
Wavre 20, 1360
Perwez, Belgium
43/1 Karev
street, 090000
Uralsk, Republic
of Kazakhstan
Participator
y interests
100
Ordinary
shares
100
Ordinary
shares
100
Participator
y interests
100
Ordinary
shares
Participator
y interests
100
100
FFoorrbbeeaarraannccee aaggrreeeemmeenntt
On 31 March 2020, following the collapse in the oil
price, the Company announced that it would seek
to engage with its bondholders regarding a
possible restructuring of the Group’s US$725
million 8.0% Senior Notes due July 2022 and/or its
US$400 million 7.0% Senior Notes due February
2025 (the ‘Notes’).
In May 2020, the Company appointed Rothschild &
Cie as financial advisers and White & Case as legal
advisers to assist in the restructuring of the Notes.
PJT Partners (UK) Limited were appointed as
financial advisers and Akin Gump Strauss Hauer &
Feld as legal advisers to an informal ad hoc group
of holders of the Notes (“AHG”). In July 2020, the
Company announced that it planned to utilise the
applicable grace periods for the interest payments
due on 25 July 2020 and 16 August 2020 with
respect to the Notes. The 30-day grace period was
to allow the Company to continue active
discussions with the financial and legal advisers to
the AHG with a view to entering into a forbearance
agreement with the holders of the Notes in
relation to those interest payments.
On 23 October 2020 the Company announced that
the Company and certain of its subsidiaries (the
"Note Parties") has entered into a forbearance
agreement (the "Forbearance Agreement") with
members of AHG. The forbearance period initially
expired at 4 p.m. GMT on 20 December 2020 (the
“Initial Expiration Date”), at which time the Initial
Expiration Date automatically extended to 4 p.m.
GMT on 18 February 2021, on which date it
automatically extended again to 4 p.m. GMT on 20
March 2021.
Pursuant to the agreement, members of the AHG
have agreed to forbear from the exercise of certain
rights and remedies that they have under the
indentures governing the Notes. The agreed
forbearances include agreeing not to accelerate
the Notes' obligations as a result of the missed
interest payments (or the next missed interest
periods if they occur prior to the expiry of the
forbearance agreement).
The Forbearance Agreement is subject to certain
conditions, including:
• Any representation or warranty made by any of
the Note Parties under the Forbearance
Agreement continuing to be true and complete
in all material respects as of the date of the
Forbearance Agreement;
• The opening of a secured account into which a
portion of the missed interest payments was
paid. Within 21 days of the effective date of the
Forbearance Agreement an amount equal to
30% of the missed interest payments, equating
to US$12,900 thousand, was transferred into
the secured account. The amount in the secured
accounts was increased by a further transfer of
17.50% of the missed interest payments,
equating to US$7,525 thousand 180 days after
the effective date of the Forbearance
Agreement. This transfer was made subsequent
to the year end. The Company has the ability to
make certain withdrawals from the account if its
liquidity falls below an agreed level. At the date
of this Annual report, the full amount of
US$20,425 thousand required by the
Forbearance Agreement has been transferred
into secured account;
• The appointment by the AHG of an observer
who shall be entitled to attend and speak, but
not vote, at any meetings of the Board or
Committees of the Company where certain
defined matters are to be discussed;
• The engagement of certain professional and
technical advisors on behalf of the AHG;
• The observance by the Company and its
subsidiaries of certain operating and other
restrictions and limitations; and
• The provision of certain financial and operating
information to the advisors of the AHG.
Holders in an aggregate principal amount of
$361,215 thousand of the 2022 Notes and holders
in an aggregate principal amount of $191,258
thousand of the 2025 Notes signed the
Forbearance Agreement.
The Company agreed to pay, or procure payment
of, certain consent fees in cash ("Consent Fee") to
each forbearing holder. At the date of this Annual
Report, all Consent Fees have been paid. The first
Consent Fee for the first 90 days of 29.7866 basis
points, totalling US$3,350,992, was paid on 19
November 2020. The second consent fee of
19.8577 bps, totalling US$2,233,991, was paid on
22 December 2020. The final consent fee of 9.9288
bps, equating to US$1,116,990, was paid
subsequent to the year end on 20 February 2021.
The consent fees were recorded in the income
statement (for more details please see Note 26).
On 19 March 2021, by unanimous consent of the
AHG, the forbearance period was extended to 20
April 2021. On 20 April 2021, again by unanimous
consent of the AHG, the forbearance period was
extended to 20 May 2021. The extensions were to
provide time for a final agreement to be reached
with shareholders and bondholders.
In return for the AHG agreeing to extend the
forbearance period to 20 April 2021, the Company
also agreed to pay in the secured account an
amount of US$1,116,990, equating to 9.9288 bps
of the outstanding Notes. This amount was paid
into the secured account on 19 March 2021.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 157
156 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Financial report
Parent Company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
2. Basis of preparation and consolidation
BBaassiiss ooff pprreeppaarraattiioonn
The Company financial statements for the year
ended 31 December 2020 have been prepared on
a going concern basis and in accordance with
international accounting standards in conformity
with the requirements of the Companies Act 2006.
The Company financial statements have been
prepared based on a historical cost basis. The
Company financial statements are presented in US
dollars and all values are rounded to the nearest
thousands, except when otherwise indicated.
GGooiinngg ccoonncceerrnn
These Company financial statements have been
prepared on a going concern basis.
The Company is dependent on liquidity generated
by its subsidiaries to continue in operation and its
ability to meet its liabilities as they become due for
the foreseeable future, a period of not less than 12
months from the date of this report. Respectively,
the following Group-level going concern matters
and analysis are considered directly relevant for
the Company.
The Group monitors on an ongoing basis its
liquidity position, near-term forecasts and key
financial ratios to ensure that sufficient funds are
available to meet its commitments as they arise
and liabilities as they fall due. In addition, since
April 2020, the Group has performed monthly
sensitivity tests of its liquidity position for changes
in product prices, production volumes and any
other significant variables. Whilst looking for new
opportunities to fill the spare capacity of the
Group’s infrastructure, the Directors are also
focused on a range of actions aimed at improving
the liquidity outlook in the near-term. These
include efforts to restructure the Notes, as well as
further cost optimization to reduce capital
expenditures, operating costs and general and
administration cost.
The Directors have also considered any additional
risks to liquidity posed by COVID-19. Oil and gas
production has been classified as an essential
business in Kazakhstan and operations are
continuing. Contingency plans have been put in
place both to protect the workforce and ensure
that there are sufficient personnel to continue
operations. There was no loss of production as a
result of COVID-19 in 2020. Therefore, the
Directors have concluded that there is currently no
material impact on the Group’s operations and
liquidity at the time of publication of this Annual
Report and Accounts as a result of COVID-19.
However, it is recognized that there is uncertainty
around future developments of COVID-19 which
may affect the Group’s ability to deliver the
forecast production over 2021 and early 2022.
In March 2020, following the collapse in the oil
price, the Group announced that it would seek to
engage with its bondholders regarding a possible
consensual restructuring of the Notes.
In May 2020, the Group appointed a financial
adviser and a legal adviser in connection with this,
and in July 2020 announced that it planned to
utilise the applicable grace periods with respect to
the Notes for the interest payments due on 25 July
and 16 August 2020. The 30-day grace period was
to allow the Company to continue active
discussions between the financial and legal
advisers and an informal ad-hoc committee of
noteholders (AHG) with a view to entering into a
forbearance agreement with the holders of the
Notes in relation to those interest payments.
On 23 October 2020, the Company announced
that, together with certain of its subsidiaries (Note
Parties), it had entered into a forbearance
agreement with members of the AHG.
Pursuant to the Forbearance Agreement,
members of the AHG have agreed to forbear from
the exercise of certain rights and remedies that
they have under the indentures governing the
Notes. The agreed forbearances include agreeing
not to accelerate the Notes’ obligations as a result
of the missed interest payments (or the next
missed interest periods if they occur prior to the
expiry of the Forbearance Agreement).
The Forbearance Agreement is subject to certain
conditions, including:
• Any representation or warranty made by any of
the Note Parties under the Forbearance
Agreement continuing to be true and complete
in all material respects as of the date of the
Forbearance Agreement;
• The opening of a secured account into which a
portion of the missed interest payments was
paid. At the date of this Annual Report, the full
amount of US$21,541,990 required by the
Forbearance Agreement has been transferred
into secured account and is treated as restricted
cash. The amount transferred as at 31
December 2020 was US$12,900,000;
• The appointment by the AHG of an observer
who shall be entitled to attend and speak, but
not vote, at any meetings of the Board or
Committees of the Company where certain
defined matters are to be discussed;
• The engagement of certain professional and
technical advisors on behalf of the AHG;
• The observance by the Company and its
subsidiaries of certain operating and other
restrictions and limitations; and
• The provision of certain financial and operating
information to the advisors of the AHG.
The company agreed to pay, or procure payment
of, certain consent fees in cash (Consent Fee) to
each forbearing holder. The Consent Fees were
payable by reference to the total aggregate
principal amount of the Notes outstanding. The
first Consent fee for the first 90 days of 29.7866
basis points, totalling US$3,350,992, was paid on
19 November 2020. The second Consent Fee of
19.8577 bps, totalling US$2,233,991, was paid on
22 December 2020. The final consent fee of 9.9288
bps, equating to US$1,116,990, was paid
subsequent to the year end on 20 February 2021.
On each occasion, consent fees were paid to all of
the total bondholders who agreed to forbear,
equating to approximately 90% by value of each
series of the Notes and evidencing an engaged and
supportive creditor group. Further details of the
forbearance agreement are disclosed in Note 1 to
these consolidated financial statements.
On 19 March 2021, by unanimous consent of the
AHG, the forbearance period was extended to 20
April 2021. On 20 April 2021, again by unanimous
consent of the AHG, the forbearance period was
extended to 20 May 2021.
The extensions were to provide more time for a
lock-up and restructuring agreement to be reached
with bondholders and potentially with other
stakeholders. At the time of publication of this
Annual Report and Accounts, negotiations with
members of the AHG continue. The final form of
the lock-up agreement and associated
restructuring agreement is anticipated to be
concluded by 20 May 2021. The key terms relevant
to the consideration of going concern are that the
debt will be foregone materially and interest on
the restructured debt will partially be paid in cash
and partially rolled up into the debt. As part of the
agreement, it is likely that additional equity will be
issued to bondholders, in which case significantly
diluting the interests of the current equity holders.
Whilst the Group remains confident that
agreement can be reached, discussions with
bondholders, shareholders and the Government of
the Republic of Kazakhstan to restructure the
Notes, and the applications to obtain requisite
approvals and consents have not yet concluded
and so the outcome is uncertain and outside of the
Group's control.
The Directors’ going concern assessment is
supported by future cash flow forecasts. The base
case going concern assessment reflects production
forecasts consistent with the Board approved
plans and published guidance and assumes a Brent
oil price of $45/bbl and $50/bbl, for 2021 and
2022, respectively. The forecast financing
cashflows assume that the Notes are restructured
in the form envisaged by the current preliminary
restructuring terms discussed with the advisors to
the AHG, reflecting the terms outlined above.
Therefore, in forming an assessment on the
Group’s ability to continue as a going concern, the
Board has made significant assumptions about:
• A restructuring of the Notes being agreed with
the AHG and subsequently with sufficient
bondholders consistent with the preliminary
restructuring terms discussed with the advisors
to the AHG, that is affordable for the Group
through the going concern period to 30 June
2022. Should the Group be unable to reach an
agreement with the AHG by the end of the
forbearance period, then bondholders may seek
to enforce their rights under the bond
indentures, including accelerating the Notes'
obligations as a result of the missed interest
payments; and
158 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
157
Parent company financial statements
Notes to the parent company financial statements (continued)
Notwithstanding that the going concern period has
been defined as the period to 30 June 2022, the
Directors have considered events and conditions
beyond the period of assessment which may cast
doubt on the Group’s ability to continue as a going
concern. The Directors draw attention to the
Viability Statement on page 56 which highlights
that the material uncertainties referred to in
respect of the Going Concern assessment may cast
significant doubt over the future viability of the
Group. In the event that the Group will be unable
successfully to restructure its Notes, then under all
reasonable assumptions the Group will be unable
to meet its US$725m debt liability due in July 2022.
June 2020. Earlier application is permitted. This
amendment had no impact on the financial
statements of the Company.
SSttaannddaarrddss iissssuueedd bbuutt nnoott yyeett eeffffeeccttiivvee
The new and amended standards and
interpretations that are issued, but not yet
effective, up to the date of issuance of the
Company’s financial statements are disclosed
below. The Company intends to adopt these new
and amended standards and interpretations, if
applicable, when they become effective.
Amendments to IAS 1: Classification of Liabilities
as Current or Non-current
In January 2020, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the
requirements for classifying liabilities as current or
non-current. The amendments clarify:
• What is meant by a right to defer settlement;
• That a right to defer must exist at the end of the
reporting period;
• That classification is unaffected by the likelihood
that an entity will exercise its deferral right;
• That only if an embedded derivative in a
convertible liability is itself an equity instrument
would the terms of a liability not impact its
classification
The amendments are effective for annual
reporting periods beginning on or after 1 January
2023 and must be applied retrospectively. The
Company is currently assessing the impact the
amendments will have on current practice and
whether existing borrowing agreements will be
renegotiated.
• If agreement is reached with the AHG and
subsequently with sufficient bondholders, the
Group being able to obtain the necessary
permissions and waivers. Specifically, the Group
may need to obtain permission for the
proposed restructuring from its shareholders
and will need to obtain permission for the
restructuring and secure a waiver from the
Government of the Republic of Kazakhstan. If
agreement is reached with the bondholders but
the Group is unable to obtain the necessary
approvals and waivers, then the agreement
with bondholders may not be implementable.
These assumptions represent material
uncertainties that may cast significant doubt on
the Group’s ability to continue as a going concern
for the going concern period to 30 June 2022,
being not less than 12 months from the date of
this report.
After careful consideration of these material
uncertainties, and on the assumption that a
restructuring of the Notes to an affordable level is
completed, the Directors have a reasonable
expectation that the Group has sufficient resources
to continue in operation for the going concern
period to 30 June 2022, being a period of not less
than 12 months from the date of this report. For
these reasons, they continue to adopt the going
concern basis in preparing the annual report and
accounts. Accordingly, the accompanying
consolidated financial statements do not include
any adjustments to the carrying amount or
classification of assets and liabilities that would
result if the Group were unable to continue as a
going concern.
3. Changes in accounting policies and disclosures
NNeeww ssttaannddaarrddss,, iinntteerrpprreettaattiioonnss aanndd
aammeennddmmeennttss aaddoopptteedd bbyy tthhee CCoommppaannyy
The Company applied for the first-time certain
standards and amendments, which are effective
for annual periods beginning on or after 1 January
2020. The Company has not early adopted any
other standard, interpretation or amendment that
has been issued but is not yet effective.
Amendments to IFRS 3: Definition of a Business
The amendment to IFRS 3 Business Combinations
clarifies that to be considered a business, an
integrated set of activities and assets must include,
at a minimum, an input and a substantive process
that, together, significantly contribute to the ability
to create output. Furthermore, it clarifies that a
business can exist without including all of the
inputs and processes needed to create outputs.
These amendments had no impact on the financial
statements of the Company, but may impact
future periods should the Company enter into any
business combinations.
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest
Rate Benchmark Reform
The amendments to IFRS 9 and IAS 39 Financial
Instruments: Recognition and Measurement
provide a number of reliefs, which apply to all
hedging relationships that are directly affected by
interest rate benchmark reform. A hedging
relationship is affected if the reform gives rise to
uncertainty about the timing and/or amount of
benchmark-based cash flows of the hedged item
or the hedging instrument. These amendments
have no impact on the financial statements of the
Company as it does not have any interest rate
hedge relationships.
Amendments to IAS 1 and IAS 8 Definition of
Material
The amendments provide a new definition of
material that states, “information is material if
omitting, misstating or obscuring it could
reasonably be expected to influence decisions that
the primary users of general purpose financial
statements make on the basis of those financial
statements, which provide financial information
about a specific reporting entity.” The
amendments clarify that materiality will depend on
the nature or magnitude of information, either
individually or in combination with other
information, in the context of the financial
statements. A misstatement of information is
material if it could reasonably be expected to
influence decisions made by the primary users.
These amendments had no impact on the financial
statements of the Company.
Conceptual Framework for Financial Reporting
issued on 29 March 2018
The Conceptual Framework is not a standard, and
none of the concepts contained therein override
the concepts or requirements in any standard. The
purpose of the Conceptual Framework is to assist
the IASB in developing standards, to help preparers
develop consistent accounting policies where
there is no applicable standard in place and to
assist all parties to understand and interpret the
standards. This will affect those entities which
developed their accounting policies based on the
Conceptual Framework. The revised Conceptual
Framework includes some new concepts, updated
definitions and recognition criteria for assets and
liabilities and clarifies some important concepts.
These amendments had no impact on the financial
statements of the Company.
Amendments to IFRS 16 Covid-19 Related Rent
Concessions
On 28 May 2020, the IASB issued Covid-19-Related
Rent Concessions - amendment to IFRS 16 Leases.
The amendments provide relief to lessees from
applying IFRS 16 guidance on lease modification
accounting for rent concessions arising as a direct
consequence of the Covid-19 pandemic. As a
practical expedient, a lessee may elect not to
assess whether a Covid-19 related rent concession
from a lessor is a lease modification. A lessee that
makes this election accounts for any change in
lease payments resulting from the Covid-19 related
rent concession the same way it would account for
the change under IFRS 16, if the change were not a
lease modification. The amendment applies to
annual reporting periods beginning on or after 1
158 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 159
Financial report
Parent Company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
Reference to the Conceptual Framework –
Amendments to IFRS 3
Onerous Contracts – Costs of Fulfilling a Contract
– Amendments to IAS 37
Amendments to IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors
In May 2020, the IASB issued Amendments to IFRS
3 Business Combinations - Reference to the
Conceptual Framework. The amendments are
intended to replace a reference to the Framework
for the Preparation and Presentation of Financial
Statements, issued in 1989, with a reference to the
Conceptual Framework for Financial Reporting
issued in March 2018 without significantly
changing its requirements.
The Board also added an exception to the
recognition principle of IFRS 3 to avoid the issue of
potential ‘day 2’ gains or losses arising for liabilities
and contingent liabilities that would be within the
scope of IAS 37 or IFRIC 21 Levies, if incurred
separately. At the same time, the Board decided to
clarify existing guidance in IFRS 3 for contingent
assets that would not be affected by replacing the
reference to the Framework for the Preparation
and Presentation of Financial Statements. The
amendments are effective for annual reporting
periods beginning on or after 1 January 2022 and
apply prospectively. These amendments had no
impact on the financial statements of the
Company.
Property, Plant and Equipment: Proceeds before
Intended Use – Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and
Equipment — Proceeds before Intended Use,
which prohibits entities deducting from the cost of
an item of property, plant and equipment, any
proceeds from selling items produced while
bringing that asset to the location and condition
necessary for it to be capable of operating in the
manner intended by management. Instead, an
entity recognises the proceeds from selling such
items, and the costs of producing those items, in
profit or loss. The amendment is effective for
annual reporting periods beginning on or after 1
January 2022 and must be applied retrospectively
to items of property, plant and equipment made
available for use on or after the beginning of the
earliest period presented when the entity first
applies the amendment. The amendments are not
expected to have a material impact on the
Company.
In May 2020, the IASB issued amendments to IAS
37 to specify which costs an entity needs to include
when assessing whether a contract is onerous or
loss-making.
The amendments apply a “directly related cost
approach”. The costs that relate directly to a
contract to provide goods or services include both
incremental costs and an allocation of costs
directly related to contract activities. General and
administrative costs do not relate directly to a
contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
The amendments are effective for annual
reporting periods beginning on or after 1 January
2022. The Company will apply these amendments
to contracts for which it has not yet fulfilled all its
obligations at the beginning of the annual
reporting period in which it first applies the
amendments.
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2
Making Materiality Judgements
In February 2021 the IASB issued amendments to
IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality
Judgements. The amendments to IAS 1 require
companies to disclose their material accounting
policy information rather than their significant
accounting policies. The amendments to IFRS
Practice Statement 2 provide guidance on how to
apply the concept of materiality to accounting
policy disclosures. The amendments will be
effective for annual reporting periods beginning on
or after 1 January 2023, with early application
permitted. The Company does not expect early
application of these amendments.
In February 2021 the IASB issued amendments to
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors. The amendments clarify how
companies should distinguish changes in
accounting policies from changes in accounting
estimates. That distinction is important because
changes in accounting estimates are applied
prospectively only to future transactions and other
future events, but changes in accounting policies
are generally also applied retrospectively to past
transactions and other past events. The
amendments will be effective for annual reporting
periods beginning on or after 1 January 2023, with
early application permitted. The Company does
not expect early application of these amendments.
IFRS 9 Financial Instruments – Fees in the ’10 per
cent’ test for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to
IFRS standards process the IASB issued
amendment to IFRS 9. The amendment clarifies
the fees that an entity includes when assessing
whether the terms of a new or modified financial
liability are substantially different from the terms
of the original financial liability. These fees include
only those paid or received between the borrower
and the lender, including fees paid or received by
either the borrower or lender on the other’s
behalf. An entity applies the amendment to
financial liabilities that are modified or exchanged
on or after the beginning of the annual reporting
period in which the entity first applies the
amendment.
The amendment is effective for annual reporting
periods beginning on or after 1 January 2022 with
earlier adoption permitted. The Company will
apply the amendments to financial liabilities that
are modified or exchanged on or after the
beginning of the annual reporting period in which
the entity first applies the amendment. The
amendments are not expected to have a material
impact on the Company.
4. Summary of significant accounting policies
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn
The functional currency is the currency of the
primary economic environment in which an entity
operates and is normally the currency in which the
entity primarily generates and expends cash.
The functional currency of the Company is the
United States dollar (the “US dollar” or “US$”).
spot rates at the date the transaction first qualifies
for recognition.
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. All differences are taken to the profit or loss.
Transactions in foreign currencies are initially
recorded at their respective functional currency
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the
exchange rates at the date when the fair value is
determined.
160 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
159
Parent company financial statements
Notes to the parent company financial statements (continued)
IInnvveessttmmeennttss
Investments in subsidiaries are recorded at cost.
Subsequently, the Company determines whether it
is necessary to recognise an impairment loss on its
investment in a subsidiary. At each reporting date,
the Company determines whether there is objective
evidence that the investment in the subsidiary is
impaired. If there is such evidence, the Company
calculates the amount of impairment as the
difference between the recoverable amount of the
subsidiary and its carrying value, and then
recognises the impairment loss in the statement of
profit or loss.
FFiinnaanncciiaall aasssseettss
Initial recognition and measurement
Financial assets are classified, at initial recognition,
as subsequently measured at amortised cost, fair
value through other comprehensive income (OCI),
and fair value through profit or loss. The Company
determines the classification of its financial assets at
initial recognition.
The classification of financial assets at initial
recognition depends on the financial asset’s
contractual cash flow characteristics and the
Company’s business model for managing them.
With the exception of trade receivables that do not
contain a significant financing component or for
which the Company has applied the practical
expedient, the Company initially measures a
financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs.
In order for a financial asset to be classified and
measured at amortised cost or fair value through
OCI, it needs to give rise to cash flows that are
‘solely payments of principal and interest (SPPI)’ on
the principal amount outstanding. This assessment
is referred to as the SPPI test and is performed at an
instrument level.
The Company’s business model for managing
financial assets refers to how it manages its financial
assets in order to generate cash flows. The business
model determines whether cash flows will result
from collecting contractual cash flows, selling the
financial assets, or both.
Purchases or sales of financial assets that require
delivery of assets within a time frame established by
regulation or convention in the market place
(regular way trades) are recognised on the trade
date, i.e., the date that the Company commits to
purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial
assets are classified in four categories:
• Financial assets at amortised cost (debt
instruments);
Significant estimates and assumptions: impairment
of investments in subsidiaries
Determination as to whether, and by how much,
the investment in a subsidiary is impaired involves
management’s best estimates on highly uncertain
matters such as future revenues of the subsidiary,
operating expenses, discount rate, as well as fiscal
regimes.
As at 31 December 2019, the Company had
recorded impairment for the full amount of the
investments in Nostrum Oil & Gas Coöperatief U.A.
and Nostrum Oil & Gas B.V. in the amount of
US$117,139 thousand and US$222 thousand,
respectively. Such impairment has been recognized
in view of the decrease in the net assets of these
subsidiaries, and the reduction of the 2P reserves
expected to be recovered from the main operating
• Financial assets at fair value through OCI with
recycling of cumulative gains and losses (debt
instruments);
• Financial assets designated at fair value through
OCI with no recycling of cumulative gains and
losses upon derecognition (equity instruments);
• Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt
instruments)
This category is the most relevant to the Company.
The Company measures financial assets at
amortised cost if both of the following conditions
are met:
• The financial asset is held within a business
model with the objective to hold financial assets
in order to collect contractual cash flows, and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are subsequently
measured using the effective interest (EIR) method
and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is
derecognised, modified or impaired.
The Company’s financial assets at amortised cost
include cash and receivables from related parties.
Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily derecognised (i.e., removed from
the Company’s statement of financial position)
when:
• The rights to receive cash flows from the asset
have expired; or
• The Company has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the
Company has transferred substantially all the
risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
subsidiary of the Company over the period of 2020-
2032, with the relevant decrease in the expected
future net cash proceeds of Nostrum Oil & Gas
Coöperatief U.A.
As at 31 December 2020, impairment for the full
amount of investments in Nostrum Oil & Gas
Coöperatief U.A. and Nostrum Oil & Gas B.V.
remained appropriate considering further significant
reduction in the 2P reserves to be recovered from
the main operating subsidiary of the Company.
However, a reversal of impairment in the amount of
US$469 thousand has been recognized (Note 5)
corresponding to the decrease in the amount of
investment in Nostrum Oil & Gas Coöperatief U.A.
resulting from the adjustment under the Long-term
Incentive Plan (Note 13).
substantially all the risks and rewards of the
asset, but has transferred control of the asset.
When the Company has transferred its rights to
receive cash flows from an asset or has entered into
a pass-through arrangement, it evaluates if, and to
what extent, it has retained the risks and rewards of
ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Company continues to recognise the transferred
asset to the extent of its continuing involvement. In
that case, the Company also recognises an
associated liability. The transferred asset and the
associated liability are measured on a basis that
reflects the rights and obligations that the Company
has retained.
Impairment of financial assets
The Company recognises an allowance for expected
credit losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on
the difference between the contractual cash flows
due in accordance with the contract and all the cash
flows that the Company expects to receive,
discounted at an approximation of the original
effective interest rate. The expected cash flows will
include cash flows from the sale of collateral held or
other credit enhancements that are integral to the
contractual terms.
ECLs are recognised in two stages. For credit
exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from
default events that are possible within the next 12-
months (a 12-month ECL). For those credit
exposures for which there has been a significant
increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over
the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the
Company applies a simplified approach in
calculating ECLs. Therefore, the Company does not
track changes in credit risk, but instead recognises a
loss allowance based on lifetime ECLs at each
reporting date.
160 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 161
Financial report
Parent Company financial statements continued
Parent company financial statements
Notes to the parent company financial statements (continued)
FFiinnaanncciiaall lliiaabbiilliittiieess
Initial recognition, measurement and
derecognition
• Financial liabilities at amortised cost (loans and
borrowings)
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, long-term borrowings,
payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair
value and, in the case of long-term borrowings and
payables, net of directly attributable transaction
costs.
The Company’s financial liabilities include trade
payables, payables related parties and financial
guarantee liabilities.
Subsequent measurement
For purposes of subsequent measurement, financial
liabilities are classified in two categories:
• Financial liabilities at fair value through profit or
Financial liabilities at fair value through profit or
loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and
financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if
they are incurred for the purpose of repurchasing in
the near term. This category also includes derivative
financial instruments entered into by the Company
that are not designated as hedging instruments in
hedge relationships as defined by IFRS 9. Separated
embedded derivatives are also classified as held for
trading unless they are designated as effective
hedging instruments.
Gains or losses on liabilities held for trading are
recognised in the statement of profit or loss.
loss
FFiinnaanncciiaall gguuaarraanntteeeess
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated at the initial date of recognition, and
only if the criteria in IFRS 9 are satisfied. The
Company has not designated any financial liability as
at fair value through profit or loss.
Derecognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same lender
on substantially different terms, or the terms of an
existing liability are substantially modified, such an
exchange or modification is treated as the
derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit or loss.
Financial guarantee is initially recognised in the
financial statements at fair value at the time the
guarantee is issued. The Company estimates the fair
value of the financial guarantee contract as the
difference between the net present value of the
contractual cashflows required under a debt
instrument, and the net present value of the net
contractual cashflows that would have been
required without the guarantee. The present value
is calculated using a risk-free interest rate.
Subsequent to initial recognition, the Company’s
liability under each guarantee is measured at the
higher of the amount initially recognised less
cumulative amortisation recognised in profit and
loss, and the amount of expected credit losses (ECL).
Financial guarantee ECL reflect the cash shortfalls
adjusted by the risks that are specific to the
cashflows. If the ECL exceeds the initially recognised
guarantee amount less cumulative amortisation the
difference is taken to profit and loss.
A financial guarantee liability is derecognised when
the liability underlying the guarantee is discharged
or cancelled or expires, or if the guarantee is
withdrawn or cancelled. The carrying amount of the
financial guarantee is taken to the statement of
profit or loss.
SShhaarree--bbaasseedd ppaayymmeennttss
The cost of cash-settled equity-based employee
compensation is measured initially at fair value at
the grant date. This fair value is expensed over the
period until vesting with the recognition of a
corresponding liability. The liability is remeasured at
each reporting date up to and including the
settlement date with changes in fair value
recognised in the statement of comprehensive
income.
The cost of equity-settled transactions is measured
at fair value at the grant date. This fair value is
expensed over the period until vesting with the
recognition of a corresponding equity element,
which is not remeasured subsequently until the
settlement date.
distribution yield and making assumptions about
them. The assumptions and models used for
estimating fair value for share-based payment
transactions are disclosed in Note 13.
Estimating fair value for share-based payment
transactions requires determination of the most
appropriate valuation model, which is dependent
on the terms and conditions of the grant. This
estimate also requires determination of the most
appropriate inputs to the valuation model including
the expected life of the share option, volatility and
162 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
161
Parent company financial statements
Notes to the parent company financial statements (continued)
5. Investments in subsidiaries
7. Cash and Cash Equivalents
As at 31 December 2020 and 31 December 2019 Investments of the Company
comprised the following:
As at 31 December 2020 and 31 December 2019 cash and cash equivalents
comprised the following:
In thousands of US Dollars
Nostrum Oil & Gas Coöperatief U.A.
Nostrum Oil & Gas BV
Impairment of investments
31 December
2020
116,669,664
222,271
31 December
2019
117,139,106
222,271
(116,891,935) (117,361,377)
–
–
The investments in Nostrum & Gas Cooperatief U.A. include the guarantees
initial cost in the amount of US$9,881 thousand as described in the Note 9
(2019: US$9,881 thousand) as well as US$789 thousand capitalized costs under
the Long-term Incentive Plan 2017 (2019: US$1,258 thousand).
As a result of the impairment testing performed at 31 December 2019 the
Company recognized impairment charge of US$117,361 thousand for its
investments in subsidiaries. For more details please refer to Note 4.
As at 31 December 2020 the Company has partially reversed previously
recognized impairment of investments in subsidiaries in the amount of US$469
thousand, corresponding to the adjustment under the Long-term Incentive Plan
2017.
6. Receivables from related parties
Receivables from related parties are comprised of the following as at 31
December 2020 and 31 December 2019:
In thousands of US Dollars
Receivables from Nostrum Oil & Gas Benefit Trust
Receivables from Nostrum Oil & Gas Coöperatief U.A.
Receivables from Nostrum Oil & Gas UK Ltd.
Less: bad debt allowance
31 December
2020
23,812
745
–
31 December
2019
23,812
–
10
24,557
23,822
(23,448)
(23,157)
1,109
665
Receivables from the Nostrum Oil & Gas Benefit Trust (“the Trust”) represent
the loan provided to support the Company’s obligations to employees under
the Employee Share Option Plan (“ESOP”) and the Long-Term Incentive Plan
(“LTIP”) (Note 13). The loan is interest free and unsecured. The loan is repayable
in the case of an advance used to acquire securities to satisfy the exercise of
options granted pursuant to the rules of ESOP, and unless otherwise agreed in
writing between the parties, the earlier of 1) ten years from the Date of Grant,
or 2) 30 days after the exercise date, and in all other cases any other date
agreed in writing between the parties.
Considering the fact that the loan is repayable to the extent of the assets of the
Trust, which are reflected in treasury shares held by the Trust, the Company has
recognized a bad debt allowance as at 31 December 2020 in the amount of
US$23,448 thousand (2019: US$23,157 thousand), representing the difference
between the book value of the loan and the recoverable value of the treasury
shares as of 31 December 2020.
During 2019 the Company entered into Intra-Group Payment Set-Off
Agreement according to which the Company performed non-cash settlement of
receivables from its subsidiary Nostrum Oil & Gas Coöperatief U.A. in the
amount of US$3,000 thousand against the loan payable to its indirect subsidiary
Nostrum Oil & Gas Finance B.V. in the amount of US$3,000 thousand (Note 10).
In thousands of US Dollars
Current accounts in Pounds Sterling
Current accounts in US Dollars
Current accounts in Euro
31 December
2020
340
207
68
615
31 December
2019
588
877
57
1,522
8. Shareholders’ equity
Nostrum Oil & Gas PLC became the new holding company for the business of
Nostrum Oil & Gas LP based on the resolution passed by its limited partners on
17 June 2014 followed by the Company reorganisation referred to in that
resolution.
SShhaarree ccaappiittaall ooff NNoossttrruumm OOiill && GGaass PPLLCC
As at 31 December 2020 the ownership interests in the Company consist of
ordinary shares, which are listed on the London Stock Exchange, these shares
have been issued and fully paid. As at 1 January 2014 the Company had
subscriber shares and redeemable preference shares, all of which were
cancelled on 7 August 2014.
The subscriber and redeemable preference shares had a nominal value of GBP 1
and the ordinary shares have a nominal value of GBP 0.01.
9. Financial guarantees
Financial guarantees are comprised of the following as at 31 December 2020
and 31 December 2019:
In thousands of US Dollars
Financial guarantee as at 1 January
Charge for expected credit losses
Financial guarantee as at 31 December
31 December
2020
434,117
356,004
790,121
31 December
2019
5,681
428,436
434,117
The Company acts as a guarantor under the Group’s US$725 million 8.0% Senior
Notes due July 2022 and/or its US$400 million 7.0% Senior Notes due February
2025 (the ‘Notes’). Since the guarantees are issued in favour of the Company’s
indirect subsidiaries, related costs at initial recognition are capitalized into the
investments in subsidiaries (Note 5).
In 2019 and 2020, the Company performed an assessment of the value of the
guarantees issued under the 2022 and 2025 Notes, taking into account the
Group’s financial position as at 31 December in both years and the fact that the
Company is the parent entity in the Group and so would ultimately assume the
guarantee obligations of its subsidiaries in the event of their inability to meet
such obligations. As a result, the Company has recognized the guarantee
liabilities for the total amount of US$790,121 thousand as at 31 December 2020
(31 December 2019: US$ 434,117 thousand), representing the amount of
expected credit losses as of the reporting date. Further details on the Notes are
provided below.
During 2020 the Company engaged with its bondholders regarding a possible
restructuring of the Group’s Notes. On 23 October 2020 the Company
announced that, together with certain of its subsidiaries (the “Note Parties”), it
had entered into a forbearance agreement with members of the AHG. More
detailed information related to forbearance agreement and discussions with
bondholders is disclosed in the Note 1.
162 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 163
Financial report
Parent Company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
22002222 NNootteess
On 25 July 2017, a newly incorporated entity, Nostrum Oil & Gas Finance B.V.
(the “2022 Issuer”) issued US$ 725,000 thousand notes
(the “2022 Notes”). The 2022 Notes bear interest at a rate of 8.00% per year,
payable on 25 January and 25 July of each year, maturing in 2022.
The 2022 Notes are jointly and severally guaranteed (the “2022 Guarantees”)
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the “2022 Guarantors”). The
2022 Notes are the 2022 Issuer’s and the 2022 Guarantors’ senior obligations
and rank equally with all of the 2022 Issuer’s and the 2022 Guarantors’ other
senior indebtedness.
22002255 NNootteess
On 16 February 2018, Nostrum Oil & Gas Finance B.V. (the “2025 Issuer”) issued
US$ 400,000 thousand notes (the “2025 Notes”). The 2025 Notes bear interest
at a rate of 7.00% per year, payable on 16 February and 16 August of each year,
maturing in 2025.
The 2025 Notes are jointly and severally guaranteed (the “2025 Guarantees”)
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the “2025 Guarantors”). The
2025 Notes are the 2025 Issuer’s and the 2025 Guarantors’ senior obligations
and rank equally with all of the 2025 Issuer’s and the 2025 Guarantors’ other
senior indebtedness.
RReeccllaassssiiffiiccaattiioonn ttoo ccuurrrreenntt lliiaabbiilliittiieess
On 26 August 2020 the Company announced that an event of default has
occurred under the terms of the indenture governing 2022 Notes resulting from
the Issuer's non-payment of interest due and payable on 25 July 2020 to the
holders of the 2022 Notes and the expiration of the 30-day grace period which
commenced on the same date. Following this, the Issuer also did not pay
interest on 2025 Notes when due and upon the expiration of the 30-day grace
period in respect of such payment. As mentioned above, the Company
engaged with its bondholders regarding a possible restructuring of the Group’s
Notes and entered into Forbearance Agreement. More detailed information
related to forbearance agreement and discussions with bondholders is
disclosed in the Note 1.
Considering these facts and circumstances, as at 31 December 2020 the
Company has reclassified the balance of the financial guarantees into current
liabilities and presented them as the current portion of financial guarantees.
10. Payables to related parties
Payables to related parties are comprised of the following as at 31 December
2020 and 31 December 2019:
In thousands of US Dollars
Payables to Nostrum Oil & Gas Coöperatief U.A.
Interest payable Nostrum Oil & Gas Finance B.V.
31 December
2020
364
204
568
31 December
2019
655
204
859
As at 31 December 2020 amounts payable to Nostrum Oil & Gas Coöperatief
U.A. represent the arrangements in respect of the Nostrum employee benefit
trust. For more details please refer to Note 6. Based on the service agreement,
the amounts payable to Nostrum Oil & Gas Coöperatief U.A. in respect to the
employee benefit trust, are only repayable to the extent of amounts received
(or recovered) from the Trust. Considering the fact that the loan is repayable to
the extent of the assets of the Trust, which are reflected in treasury shares held
by the Trust, the Company has remeasured and reduced the loan payable as at
31 December 2020 by US$23,448 thousand (31 December 2019: US$23,157
thousand), representing the difference between the book value of the loan and
the recoverable value of the treasury shares as of 31 December 2020.
As at 31 December 2020 amounts payable to Nostrum Oil & Gas Finance B.V.
represent interest accrued in the amount US$204 thousand (31 December
2019: US$204 thousand). In 2018 the Company received a loan from its indirect
subsidiary Nostrum Oil & Gas Finance B.V. in the amount of US$ 2,500
thousand, at the interest rate of 7%, which is repayable on demand. During
2019 the Company received further proceeds on the loan agreement in the
amount of US$500 thousand. Further during 2019 the Company entered into
Intra-Group Payment Set-Off Agreement according to which the Company
performed non-cash settlement of its loan payable to its indirect subsidiary
Nostrum Oil & Gas Finance B.V. in the amount of US$3,000 thousand against its
receivables from its subsidiary Nostrum Oil & Gas Coöperatief U.A. in the
amount of $3,000 thousand.
11. Auditors’ remuneration
For the year ended 31 December 2020 the fees for the audit of the Company
amount to US$10 thousand (2019: US$10 thousand).
12. Employee’s remuneration
The average monthly number of employees employed was as follows:
In thousands of US Dollars
Executive Directors
Administrative personnel
Their aggregate remuneration comprised:
In thousands of US Dollars
Wages and salaries
Social security costs
Share-based payments
Pension contributions
Other benefits
For the year ended 31 December
2020
2019
1
7
8
2
12
14
For the year ended 31 December
2020
2019
1,490
204
(28)
46
30
1,742
2,739
426
41
59
42
3,307
The directors of the Company are also directors of the Group. The aggregate
amount of remuneration paid to or receivable by executive directors in respect
of qualifying services for the financial year ended 31 December 2020 was
US$1,998 thousand (2019: US$2,777 thousand) and also includes remuneration
paid by other companies of the Group. In addition, US$260 thousand (2019:
US$662 thousand) was paid by the Company to the non-executive directors.
The directors do not believe that it is practicable to apportion these amounts
between their services as directors of the Company and their services as
directors of the Group.
For the year ended 31 December 2020 the Company employed an average of 2
non-executive directors (2019: 6 non-executive directors).
Full details of individual directors’ remuneration are given in the directors’
remuneration report on pages 91-100 of the annual report.
164 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
163
Parent company financial statements
Notes to the parent company financial statements (continued)
13. Long-term incentive plan
22001177 LLoonngg--tteerrmm iinncceennttiivvee ppllaann
In 2017 the Company started operating a Long-term incentive plan (“the LTIP”),
that was approved by the shareholders of the Company on 26 June 2017 and
adopted by the board of directors of the Company on 24 August 2017. The LTIP
is a discretionary benefit offered by the Company for the benefit of selected
employees. Its main purpose is to increase the interest of the employees in the
Company's long-term business goals and performance through share
ownership. The LTIP is an incentive for the employees' future performance and
commitment to the goals of the Company. The remuneration committee of the
board of the Company has the right to decide, in its sole discretion, whether or
not further awards will be granted in the future and to which employees those
awards will be granted.
Employees (including senior executives and executive directors) of members of
the Group or their associates may receive an award, which is a "nominal cost
option" over a specified number of ordinary shares in the capital of the
Company. The option has an exercise price of 1p per share (but the Company
has the discretion to waive this prior to exercise). In addition, under the Rules of
the LTIP the Company has discretion to settle awards other than by transfer of
shares such as by way of cash settlement. Generally, the awards are classified as
equity-settled transactions. The share options are treated as equity-settled
since there are no legal limitations expected on issue of shares for these upon
vesting, the Company has a choice of settlement and the intention is to settle
them in equity. However, in certain jurisdictions due to regulatory requirements
the Company may not be able to settle the awards other than by transfer of
cash, in which case the awards are classified as cash-settled transactions, and
accounted for similar to SARs.
The award ordinarily vests and becomes exercisable as from later of the third
anniversary of grant or two years after the date on which the Company
determines whether the performance condition has been satisfied, subject to
employee’s continued service and to the extent to which the performance
condition is satisfied, till the end of the contractual life. The contractual life of
the share options is ten years.
The cost of cash-settled equity-based employee compensation is measured
initially at fair value at the grant date using a trinomial lattice valuation model.
This fair value is expensed over the period until vesting with the recognition of a
corresponding liability. The liability is remeasured at each reporting date up to
and including the settlement date with changes in fair value recognised in the
statement of comprehensive income.
The cost of equity-settled transactions is measured at fair value at the grant
date using a trinomial lattice valuation model. This fair value is expensed over
the period until vesting with the recognition of a corresponding equity element
of “shares to be issued under LTIP”, which is not remeasured subsequently until
the settlement date.
The following table summarizes the movement in the number of share options
during the year ended 31 December 2020:
Equity-settled
awards
Cash-settled
awards
TOTAL
awards
1,544,253
98,906
1,643,159
(1,058,073)
(19,070)
(67,349)
–
(1,125,422)
(19,070)
467,110
(248,217)
31,557
(4,938)
498,667
(253,155)
Total outstanding as
at 31 December 2018
Share options
performance adjusted
Share options forfeited
Total outstanding as
at 31 December 2019
Share options forfeited
Total outstanding as
at 31 December 2020
the performance conditions set upon issue of the share options granted in
2017. After adjusting for the nonachievement of performance conditions,
245,512 share options are capable of vesting as of 31 December 2020 (2019:
498,667 share options) and all of these share options were vested as of
31 December 2020, in accordance with the management’s best estimate.
On 28 November 2018 the Company granted a further 1,163,040 share options,
however due to the performance conditions not being met none of these share
options are capable of vesting.
The carrying value of the liability relating to 26,619 cash-settled share-options at
31 December 2020 is US$3 thousand (31 December 2019: 31,557 share options
with carrying value of US$4 thousand). Based on the estimations of the carrying
value of the liability, during the year ended 31 December 2020 the Company
has recognized gain of US$ 1 thousand from employee share options fair value
adjustment (2019: loss of US$11 thousand).
The fair value of the equity-settled share options at the valuation dates of 28
November 2018 and 23 March 2018 amounted to US$ 1.25 and US$ 2.76 per
share option, respectively. Based on these estimations, during the year ended
31 December 2020 the Company recognized income from reversal of employee
share option expense in the amount of US$27 thousand and a reduction in the
investments in subsidiaries in the amounts of US$469 thousand (2019: an
expense of US$41 thousand and increase in investments in subsidiaries of
US$582 thousand).
The Hull-White trinomial lattice valuation model was used to value the share
options. The following table lists the inputs to the model used for valuation of
the share options at the grant date:
Price at the reporting date (US$)
Distribution yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life (years)
Option turnover (%)
Price trigger
10 October 2017
1.25
0%
43.4%
1.38%
10
10%
2.0
11 December 2017
2.76
0%
40.4%
1.45%
10
10%
2.0
The expected life of the options is based on historical data and is not necessarily
indicative of exercise patterns that may occur. The expected volatility reflects
the assumption that the historical volatility is indicative of future trends, which
may also not necessarily be the actual outcome. Option turnover rate
represents the rate of employees expected to leave the Company during the
vesting period, which is based on historical data and may not necessarily be the
actual outcome. The model considers that when share price reaches the level of
exercise price multiplied by the price trigger the employees are expected to
exercise their options.
14. Related party transactions
Related parties of the Company include its direct and indirect subsidiaries, key
management personnel and other entities that are under the control or
significant influence of the key management personnel.
Accounts receivable from related parties represented by Company’s
subsidiaries as at 31 December 2020 and 31 December 2019 consisted of the
following:
In thousands of US Dollars
Receivables from Nostrum Oil & Gas Benefit Trust
Receivables from Nostrum Oil & Gas Coöperatief U.A.
Receivables from Nostrum Oil & Gas UK Ltd.
31 December
2020
23,812
745
–
31 December
2019
23,812
–
10
24,557
23,822
(23,448)
(23,157)
1,109
665
218,893
26,619
245,512
Less: bad debt allowance
In 2017 the Company granted 1,208,843 share options, of which 542,243 share
options remained outstanding as at 31 December 2020 (2019: 1,101,342 share
options). On 23 March 2018 the remuneration committee of the board of the
Company determined the level of performance conditions that were met for
164 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 165
Financial report
Parent Company financial statements continued
Notes to the parent company financial statements (continued)
Parent company financial statements
Accounts payable to related parties represented by Company’s subsidiaries as
at 31 December 2020 and 31 December 2019 consisted of the following:
In thousands of US Dollars
Payables to Nostrum Oil & Gas Coöperatief U.A.
Interest payable Nostrum Oil & Gas Finance B.V.
31 December
2020
364
204
568
31 December
2019
655
204
859
Financial guarantees are comprised of the following as at 31 December 2020
and 31 December 2019:
In thousands of US Dollars
Financial guarantee as at 1 January
Charge for expected credit losses
Financial guarantee as at 31 December
31 December
2020
434,117
356,004
790,121
31 December
2019
5,681
428,436
434,117
There were no advances received from related parties as at 31 December 2020
(31 December 2019: advances received from Nostrum Oil & Gas Coöperatief
U.A. in the amount of US$304 thousand).
Receivables are amounts receivable from Group companies, thus risk of credit
default is low, except for the loan receivable from the Trust for which loss
allowance has been recognized.
FFaaiirr vvaalluueess ooff ffiinnaanncciiaall iinnssttrruummeennttss
The fair value of the financial assets represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.
The management assessed that its assets and liabilities approximate their
carrying amounts largely due to their nature or the short-term maturities of
these instruments.
CCaappiittaall mmaannaaggeemmeenntt
For the purpose of the Company’s capital management, capital includes issued
capital and all other equity reserves attributable to the equity holders of the
Company. The primary objective of the Company’s capital management is to
maximise the shareholder value.
During the years ended 31 December 2020 and 2019 the Company had the
following transactions with related parties represented by Company’s
subsidiaries:
In thousands of US Dollars
Income from provision of services
Nostrum Oil & Gas Coöperatief U.A.
For the year ended 31 December
2020
2019
6,956
7,590
Loss from financial guarantee
Nostrum Oil & Gas Finance B.V. (Note 9)
(356,004)
(428,436)
15. Financial risk management objectives and policies
The Company’s financial assets consist of receivables from shareholders and
cash and cash equivalents. The Company’s financial liabilities consist of payables
to related parties, trade and other payables and accrued liabilities.
The main risks arising from the Company’s financial instruments are foreign
exchange risk and credit risk. The Company’s management reviews and agrees
policies for managing each of these risks, which are summarized below.
FFoorreeiiggnn ccuurrrreennccyy rriisskk
Most of the Company’s operation is denominated in USD, therefore the
Company’s statement of financial position is not significantly affected by
exchange rate movements.
CCrreeddiitt rriisskk
Financial instruments, which potentially subject the Company to credit risk,
consist primarily of receivables and cash in banks. The maximum exposure to
credit risk is represented by the carrying amount of each financial asset. The
Company considers that its maximum exposure is reflected by the amount of
receivables from shareholders and cash and cash equivalents.
The Company places its US Dollar, British Pound and Euro denominated cash
with ING which has a credit rating of P-1 (upper medium grade) from Moody’s
rating agency at 31 December 2019.
End of Document
16. Events after the reporting period
RReellaattiioonnsshhiipp aaggrreeeemmeenntt
On 4 February 2021 the Company announced that the Company and Mayfair
Investments BV ("Mayfair"), a shareholder in the Company, have by mutual
agreement terminated the relationship agreement between them dated 19
May 2014 (as adhered to by Mayfair on 30 January 2015) (the "Relationship
Agreement").
In the Relationship Agreement Nostrum had granted Mayfair the right to
nominate a director to the Company's Board of Directors and Mayfair had made
various undertakings to the Company designed to ensure that the Company is
managed independently of Mayfair. Nostrum and Mayfair mutually agreed to
terminate the Relationship Agreement given that Mayfair's shareholding in the
Company reduced significantly in May 2020 and in January 2021 Mayfair
decided to cease to nominate a director to the Company's Board of Directors.
FFoorrbbeeaarraannccee aaggrreeeemmeenntt
On 20 February 2021 pursuant to the requirements of the Forbearance
Agreement the Company made the payment of the final consent fee for 9.9288
bps equating to US$1,116,990.
On 19 March 2021 the Company transferred into the secured account an
amount of US$7,525 thousand, equating to 17.50% of the missed interest
payments, and an additional amount of US$1,116,990, equating to 9.9288 bps
of the outstanding Notes.
On 19 March 2021, by unanimous consent of the AHG, the forbearance period
was extended to 20 April 2021. On 20 April 2021, again by unanimous consent
of the AHG, the forbearance period was extended to 20 May 2021. The
extensions were to provide time for a final agreement to be reached with
shareholders and bondholders. More detailed information related to
forbearance agreement and discussions with bondholders is disclosed in the
Note 1.
166 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Nostrum Oil & Gas PLC Annual Report & Accounts 2020
165
Investor information
Investor information
Contact information
Investor contacts
Investor Relations
ir@nog.co.uk
Tel: +44 20 3740 7430
Registered office
Nostrum Oil & Gas PLC
9th Floor
20 Eastbourne Terrace
London W2 6LG
United Kingdom
Tel: +44 20 3740 7430
Registered number: 8717287
Place of registration: England and Wales
VAT GB302 9250 35
Zhaikmunai LLP registered office
Zhaikmunai LLP
43/1 Alexander Karev str.
Uralsk, 090000
Kazakhstan
Tel: +7 7112 933900
Fax: +7 7112 933901
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
United Kingdom
Registrar
Link Group
10th Floor, Central Square,
29 Wellington Street
Leeds LS1 4DL
United Kingdom
Tel: +44 371 664 0391
Nostrum Associated Investments LLP
Activity: Dormant
Registered office and principal place
of business:
43B Karev Street
090000 Uralsk
Republic of Kazakhstan
General Director:
Dinara Urazova
Nostrum Oil & Gas UK Limited
Activity: Dormant
Registered office and principal place
of business:
9th Floor
20 Eastbourne Terrace
London W2 6LG
United Kingdom
Directors:
Martin Cocker
Thomas Hartnett
Nostrum Services Central Asia LLP
Activity: Dormant
Registered office and principal place
of business:
Building 75/38
Microrayon Aksay 3a
050031 Almaty
Republic of Kazakhstan
General Director:
Kalamkas Shakenova
Nostrum E&P Services LLC
Activity: Dormant
Registered office and principal place
of business:
Prospekt Liteniy 26A
191028 St Petersburg
Russian Federation
General Director:
Tatiana Kichina
Nostrum Oil & Gas BV
Activity: Holding Company
Registered office and principal place
of business:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Jan-Ru Muller
Thomas Hartnett
Nostrum Oil & Gas Coöperatief UA
Activity: Holding Company
Registered office and principal place
of business:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Jan-Ru Muller
Thomas Hartnett
Nostrum Oil & Gas Finance BV
Activity: Finance Company
Registered office and principal
place of business:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Jan-Ru Muller
Thomas Hartnett BVBA
Nostrum Services NV
Activity: Holding Company
Registered office and principal place
of business:
Chaussée de Wavre 20
1360 Perwez
Belgium
Directors:
Jan-Ru Muller
Thomas Hartnett BVBA
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 167
Regulatory information Investor information continued
Website and electronic communications details
Nostrum’s website provides information on the activities of the Company, both regulatory and other, as well as the opportunity to sign
up to our mailing list to ensure stakeholders are kept up to date with the most recent information. Please see www.nog.co.uk for more
information.
In addition, to reduce our impact on the environment, we encourage all shareholders to opt for electronic shareholder communications,
including annual reports and notices of meetings.
Share price information
Exchange
Ticker
Reuters code
ISIN code
Capitalisation-weighted index of FTSE 350 E&P
Earnings per share (as at 31 December 2020): US$(1.77)/share
Book value per share (as at 31 December 2020): US$4.12 negative per share
Financial calendar 2021
Q1 2021 Operational update
Q1 2021 Financial results
H1 2021 Operational update
H1 2021
Financial results
Q3 2021 Operational update
Q3 2021 Financial results
Share price performance
Equity financing
Equity raising
IPO
Timing
March 2008
Secondary equity issue
September 2009
Amount
US$100m
US$300m
NOSTRUM OIL & GAS PLC
London Stock Exchange
NOG.LN
NOGN.L
GB00BGP6Q951
30 April 2021
18 May 2021
30 July 2021
17 August 2021
29 October 2021
16 November 2021
Lead manager
ING Bank NB
ING Bank NV
Mirabaud Securities
Renaissance Securities
0.25
0.15
0.10
0.05
0
0
2
n
a
J
0
2
b
e
F
0
2
r
a
M
0
2
r
p
A
0
2
y
a
M
0
2
n
u
J
0
2
l
u
J
0
2
g
u
A
0
2
p
e
S
0
2
t
c
O
0
2
v
o
N
0
2
c
e
D
Price (GBP)
168 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Debt financing
Current outstanding bond issues for Nostrum Oil & Gas PLC are detailed in the following table:
Settlement
Maturity
Currency
Amount (m)
Coupon
Listing
RegS
Rule 144A
Jul 2017
Jul 2022
US$
725
8.000%
Dublin
Feb 2018
Feb 2025
US$
400
7.000%
Dublin
CUSIP
ISIN
N64884AB0
66978CAB8
USN64884AB02
US66978CAB81
Common Code
16453439
164534073
CUSIP
ISIN
N64884AD6
66978CAC6
USN64884AD67
US66978CAC64
Common Code
176959886
176959878
For a summary of certain covenants relating to the 2017 and 2018 Notes, please see the consolidated financial statements.
Internally held bond financing of the Nostrum Group
Bond issues wholly owned by Nostrum Oil & Gas Finance BV are provided in the following table:
Settlement
Maturity
Currency
Amount (m)
Coupon
Listing
RegS
Rule 144A
Feb 2014
Jan 2033
US$
400
9.5%
Nov 2012
Jun 2033
US$
560
9.5%
Dublin/
Almaty
CUSIP
ISIN
N64884AA2
66978CAA0
USN64884AA29
US66978CAA09
Common Code
103302323
103302307
Dublin/
Almaty
CUSIP
ISIN
N97716AA7
98953VAA0
USN97716AA72
US98953VAA08
Common Code
085313177
085259776
Credit ratings
Nostrum Oil & Gas PLC is currently being
rated by two credit rating agencies:
Standard and Poor’s and Moody’s Investor
Services:
Agency
Rating
Outlook
Standard
and Poor’s
Moody’s
SD
Ca
NM
Negative
Zhaikmunai LLP is a wholly-owned indirect
subsidiary of Nostrum and its equity is not
listed, while Nostrum’s equity is listed on
the premium segment of the London Stock
Exchange and on the Kazakhstan Stock
Exchange.
The Group’s investor relations programme
aims to develop open and transparent
communication between the Group
(including Zhaikmunai LLP) and its
shareholders, providing information about
the financial and operational performance
of the Company. The Investor Relations
department of the Group seeks to ensure
all questions received from any of the
Group’s stakeholders are dealt with in a
timely manner based on the underlying
principle that the Group is approachable
and responsive to any potential queries.
NOSTRUM OIL & GAS FINANCE BV 8.0% 25 JULY 2022
140
120
100
80
60
40
20
0
7
1
l
u
J
0
2
8
1
l
u
J
0
2
9
1
l
u
J
0
2
0
2
l
u
J
0
2
Price
Yield to worst1
NOSTRUM OIL & GAS FINANCE BV 7.0% 16 FEBRUARY 2025
120
100
80
60
40
20
0
7
1
l
u
J
0
2
8
1
l
u
J
0
2
9
1
l
u
J
0
2
0
2
l
u
J
0
2
1. Yield to worst was not calculated following
the default in payment of interest.
Price
Yield to worst1
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 169
Regulatory information
Glossary
Glossary
2010 Notes
2012 Notes
2014 Notes
2017 Notes
2018 Notes
A
API
API gravity
appraisal well
associated gas
B
barrel/bbl
basin
bcm
Boe
Boepd
Bopd
C
C1
C2
C3
C4
C5
C6
C7
CAC
Cash
Casing
10.500% notes issued in 2010.
7.125% notes issued in 2012.
6.375% notes issued in 2014.
8.000% notes issued in 2017.
7.000% notes issued in 2018.
American Petroleum Institute.
The industry standard method of expressing specific density of crude oil or other liquid hydrocarbons
as recommended by the American Petroleum Institute. Higher API gravities mean lower specific
gravity and lighter oils. When the API gravity is greater than 10, the product is lighter and floats on
water; when it is less than 10, it is heavier than water and sinks. Generally speaking, oil with an API
gravity between 40 and 45 commands the highest prices.
A well or wells drilled to follow up a discovery and evaluate its commercial potential.
Gas which occurs in crude oil reservoirs in a gaseous state.
The standard unit of volume: 1 barrel = 159 litres or 42 US gallons.
A large area holding a thick accumulation of sedimentary rock.
Billion cubic metres.
Barrels of (crude) oil equivalent, i.e. the factor used by Nostrum to convert volumes of different
hydrocarbon production to barrels of oil equivalent.
Barrels of (crude) oil equivalent per day.
Barrels of crude oil per day.
Methane.
Ethane.
Propane.
Butane.
Pentane.
Hexane.
Heptane.
A pipeline with two branches originating in Turkmenistan and meeting in Kazakhstan before crossing
into Russia and connecting to the Russian pipeline system, with an annual throughput capacity of
60.2 billion cubic metres.
Cash and cash equivalents, including current and non-current investments.
Relatively thin-walled, large diameter steel rods that are screwed together to form a casing string,
which is run into a core hole or well and cemented in place.
Caspian region
Parts of countries adjacent to the Caspian Sea.
CDP
Chinarevskoye field
CO2
commissioning
Competent Authority
condensate
CDP is an organisation based in the United Kingdom which supports companies in disclosing their
environmental impact (formerly known as the Carbon Disclosure Project).
The Chinarevskoye oil and gas condensate field.
Carbon dioxide.
Process to assure a facility or plant, such as Nostrum’s GTU 3, is tested to verify it functions according
to technical objectives and specifications before use.
The State’s central executive agency, designated by the Government to act on behalf of the State to
exercise rights relating to the execution and performance of subsoil use contracts, except for contracts
for exploration and production of commonly occurring minerals. This is the Ministry of Energy of the
Republic of Kazakhstan (“MOE”) with respect to the oil and gas industry.
Hydrocarbons which are gaseous in a reservoir, but which condense to form a liquid as they rise to the
surface where the pressure is much less.
170 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
contingent resources
cost oil
crude oil
D
development
downstream
Development Plans
Directors or Board
dry gas
E
E&P
EBITDA
Deposits that are estimated, on a given date, to be potentially recoverable from known accumulations
but that are not currently considered commercially recoverable.
Cost oil denotes an amount of crude oil produced in respect of which the market value is equal to
Nostrum’s monthly expenses that may be deducted pursuant to the PSA (q.v.) (including all operating
costs, exploration costs and development costs up to an annual maximum of 90% of the annual gross
realised value of hydrocarbon production).
A mixture of liquid hydrocarbons of different molecular weights.
During development, engineering teams design the most efficient development options to build wells
and associated infrastructure to produce hydrocarbons from a gas field within a proven productive
reservoir (as defined by exploration and appraisal activities). The three phases of development are
exploration and appraisal, development and production.
Downstream refers to all petroleum operations occurring after delivery of crude oil or gas to a refinery
or fractionation plant.
The development plans approved by the SCFD in March 2009.
The Directors of the Company.
Dry gas is natural gas (methane and ethane) with no significant content of heavier hydrocarbons. It is
gaseous at both sub-surface and surface conditions.
Exploration and production.
Profit before tax non-recurring expenses + finance costs + foreign exchange loss/(gain) + ESOP +
depreciation – interest income + other expenses/(income).
Environmental Code
The Kazakhstan Environment Code (No. 212, dated 9 January 2007, as amended).
Exploration Permit
exploration phase
The geological allotment (Annex to the Licence) issued by the Competent Authority to Zhaikmunai LLP.
The phase of operations which covers the search for oil or gas by carrying out detailed geological and
geophysical surveys, followed up where appropriate by exploratory drilling.
exploration well
Well drilled purely for exploratory (information-gathering) purposes in a particular area.
F
farm-in
farm-out
FCA
FCA Uralsk
field
FOB
FSU
G
G&A
gas
Transfer of a percentage of an oil or gas permit held by the farmor in return for (partial or complete)
delivery of the work programme by the farmee(s). Note that this work would normally have had to have
been delivered and paid for by the farmor.
A contractual agreement with the holder of an oil and gas permit to assign all (or a percentage of) that
interest to another party in exchange for delivering the work programme required by the permit, or
fulfilling other contractually specified conditions.
Financial Conduct Authority of the United Kingdom.
Sales made under free carrier terms according to which Nostrum delivers to the terminal in Uralsk and
transportation risk and risk of loss are transferred to the buyer after delivery to the carrier.
An area consisting of a single reservoir or multiple reservoirs all grouped in or related to the same
individual geological structure feature and/or stratigraphic condition.
Sales made under “free on board” terms.
Former Soviet Union.
General and administrative expenses.
Petroleum that consists principally of light hydrocarbons. It can be divided into lean gas, primarily
methane, but often containing some ethane and smaller quantities of heavier hydrocarbons (also
called sales gas), and wet gas, primarily ethane, propane and butane, as well as smaller amounts of
heavier hydrocarbons; partially liquid under atmospheric pressure.
gas condensate
The mixture of liquid hydrocarbons that results from condensation of petroleum hydrocarbons
existing initially in a gaseous phase in an underground reservoir.
Gas Treatment Facility (GTF)
Facility for the treatment of associated gas and gas condensate resulting in different products
(stabilised condensate, LPG and dry gas) for commercial sales.
GTU 1 means the first unit of Nostrum’s Gas Treatment Facility.
GTU 2 means the second unit of Nostrum’s Gas Treatment Facility.
GTU 3 means the third unit of Nostrum’s Gas Treatment Facility.
GDRs
The global depository receipts of Nostrum Oil & Gas LP.
greenhouse gas
A gas that contributes to the greenhouse effect by absorbing infrared radiation, e.g. carbon dioxide.
Group
Nostrum Oil & Gas PLC and, as the context requires, its direct and indirect consolidated subsidiaries.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 171
Regulatory information Glossary continued
H
HSE
hydrocarbons
Health, safety and environment.
Compounds formed from the elements hydrogen (H) and carbon (C), which may be in solid, liquid or
gaseous form.
hydrocarbon reserves
Hydrocarbon reserves that have been proved, and are referred to as 3P, 2P and 1P depending on the
likelihood of commercial production from a given field.
I
IAS
IFRS
INED
J
joint venture
International Accounting Standards.
International Financial Reporting Standards.
Independent Non-Executive Director.
A joint venture is a set of trading entities who have agreed to act in concert to share the cost and
rewards of exploring for and producing oil or gas from a permit.
joule
Unit of energy used for measuring gas volumes.
megajoules = 106
gigajoules = 109
terrajoules = 1012
petajoules = 1015
Kazakhstan Stock Exchange.
The Republic of Kazakhstan.
State-owned oil and gas company of Kazakhstan.
Onshore oil and gas exploration production subsidiary of KazMunaiGas.
A tie-in to the KTO pipeline enables crude oil export sales via the Atyrau-Samara international export
pipeline.
Licence series MG No. 253-D (Oil) issued to Zhaikmunai LLP by the Government on 26 May 1997,
including amendments.
The Kazakhstan Law “On Licensing” (No. 214, dated 11 January 2007, as amended, which came into
effect on 9 August 2007).
A sales product in liquid form produced as a result of further processing by the onshore plant; for
example, condensate and LPG.
Liquefied natural gas. Comprises mainly methane.
K
KASE
Kazakhstan
KazMunaiGas
KazMunaiGas Exploration
Production (“KMG EP”)
KazTransOil (KTO) pipeline
L
Licence
Licensing Law
liquids
LNG
Listing Rules
The listing rules made by the Financial Services Authority (FSA) under section 73A of the FSMA.
LSE
LPG
LTIP
M
m
m3
m3/d
Man–hour
Mboe
London Stock Exchange.
Liquefied petroleum gas, the name given to the mix of propane and butane in its liquid state.
Long-term incentive plan.
Metre(s).
Cubic metres.
Cubic metres per day.
An hour regarded in terms of the amount of work that can be done by one person within this period.
Thousands of barrels of oil equivalent.
Mechanical completion
Final construction or installation phase, after which a facility can undergo commissioning activities.
Mmbbls
Mmboe
N
NBK
NED
Nostrum
Nostrum Oil & Gas PLC
Millions of barrels of oil.
Millions of barrels of oil equivalent.
National Bank of Kazakhstan.
Non-Executive Director.
Nostrum Oil & Gas PLC, the listed company of the Group.
Registered Office:
9th Floor
20 Eastbourne Terrace
London
W2 6LG
United Kingdom
172 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
O
OPEC
operator
P
Partnership
PCR testing
petroleum
Possible Reserves (3P)
Probable Reserves (2P)
processing
Production Permit
production well
Profit oil
Prospective resources
Proven Reserves (1P)
PRMS
Production Sharing
Agreement (PSA)
PSA Law
Q
QHSE
R
recovery
Reservoir
RoK
Royalty
Ryder Scott
The Organization of the Petroleum Exporting Countries.
The individual or company responsible for conducting oil and gas exploration, development and
production activities on an oil and gas lease or concession on its own behalf and/or if applicable,
for other working interest owners, generally pursuant to the terms of a joint operating agreement
or comparable agreement.
Nostrum Oil & Gas LP, which was the holding company of the Group before the reorganisation.
Polymerase chain reaction testing, a test for COVID-19.
Hydrocarbons, whether solid, liquid or gaseous. The proportion of different compounds in a petroleum
find varies from discovery to discovery. If a reservoir primarily contains light hydrocarbons, it is
described as a gas field. If heavier hydrocarbons predominate, it is called an oil field. An oil field may
feature free gas above the oil and contain a quantity of light hydrocarbons, also called associated gas.
Possible Reserves are those reserves that, to a low degree of certainty (10% confidence), are
recoverable. There is relatively high risk associated with these reserves. Proven, Probable and Possible
Reserves are referred to as 3P.
Probable Reserves are those reserves that analysis of geological and engineering data suggests are
more likely than not to be recoverable. There is at least a 50% probability that reserves recovered will
exceed Probable Reserves. Proven plus Probable Reserves are referred to as 2P.
Processing of saleable product from hydrocarbons sourced from oil wells and gas wells.
The mining allotment (Annex to the Licence), issued by the Competent Authority to Zhaikmunai LLP.
A well that has been drilled for producing oil or gas, or one that is capable of production once the
producing structure and characteristics are determined.
Profit oil is the difference between cost oil and the total amount of crude oil produced each month,
which is shared between the State and Zhaikmunai LLP.
Quantities of petroleum which are estimated, on a given date, to be potentially recoverable from
undiscovered accumulations.
Proven or Proved Reserves (1P) are those reserves that, to a high degree of certainty (90% confidence),
are recoverable. There is relatively little risk associated with these reserves. Proven Developed
Reserves are reserves that can be recovered from existing wells with existing infrastructure and
operating methods. Proven Undeveloped Reserves require development.
2007 Petroleum Resources Management System, which is a set of definitions and guidelines designed
to provide a common reference for the international petroleum industry, sponsored by the Society
for Petroleum Engineers, the American Association of Petroleum Geologists, the World Petroleum
Council and the Society for Petroleum Evaluation Engineers.
The contract for additional exploration, production and production sharing of crude oil hydrocarbons
in the Chinarevskoye oil and gas condensate field in the West-Kazakhstan oblast No. 81, dated
October 31 1997, as amended, between Zhaikmunai LLP and the Competent Authority (currently
MOE), representing the State.
Kazakhstan Law No. 68-III “On Production Sharing Agreements for Constructing Offshore Petroleum
Operations”, dated 8 July 2005.
Quality, Health, Safety and the Environment.
The second stage of hydrocarbon production during which an external fluid such as water or gas
is injected into the reservoir to maintain reservoir pressure and displace hydrocarbons towards the
wellbore.
A porous and permeable underground formation containing a natural accumulation of producible oil
and/or gas that is confined by impermeable rock or water barriers, and is individual and separate from
other reservoirs.
Republic of Kazakhstan.
An interest in an oil and gas property entitling the owner to a share of oil or gas production free of
costs of production.
Independent petroleum consultants Ryder Scott Company LP, headquartered at 621 Seventeenth
Street, Suite 1550, Denver, Colorado, 80293, USA.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 173
Regulatory information Glossary continued
S
sales gas
seismic
shut in
Natural gas that has been processed by gas plant facilities and meets the required specifications
under gas sales agreements.
The use of shock waves generated by controlled explosions of dynamite or other means to ascertain
the nature and contours of underground geological structures.
Cease production from a well.
side-track well
A well or borehole that runs partly to one side of the original line of drilling.
social infrastructure
Assets that accommodate social services, e.g. hospitals, schools, community housing etc.
spud
stakeholder
State
State share
Suspended well
T
TCFD
The commencement of drilling operations.
A person or entity who may affect, be affected by or perceive themselves to be affected by an entity’s
decisions or activities.
Republic of Kazakhstan.
The share of hydrocarbon production due (in cash or kind) to the Republic of Kazakhstan under the
PSA (q.v.).
A suspended well is not currently used for assessment or production and has been shut in. It will either
be returned to assessment or production, or will be plugged and abandoned.
Task Force on Climate-related Financial Disclosures.
tenge or KZT
The lawful currency of the Republic of Kazakhstan.
tonne
trillion
U
UNGG
Metric tonne.
10 to the power of 12.
Refers to the Uralsk Oil and Gas Explorations Expedition. The Government of the Kazakh Soviet
Socialist Republic decided in March 1960 to create a consortium “Uralskneftegazrazvedka” for
conducting oil and gas exploration in the Uralsk region. In the 1960s, the consortium was involved in
more than 59 exploration projects. In 1970, the consortium was renamed “Uralsk Enlarged Oil-Gas
Exploration Expedition”.
UOG
Ural Oil & Gas LLP.
UK Corporate Governance Code Set of principles of good corporate governance for listed companies promulgated by the UK Financial
Reporting Council.
W
well
wellhead
work programme
workover
A hole drilled to test an unknown reservoir or to produce from a known reservoir.
The wellhead includes the forged or cast steel fitting on top of a well (welded or bolted to the top of the
surface casing), as well as casingheads, tubingheads, Christmas tree, stuffing box and pressure gauges.
A schedule of works agreed between parties (permit holders, farmees and government) contracted to
be delivered in a defined timeframe.
Routine maintenance or remedial operations on a producing well in order to maintain, restore or
increase production.
WUP or Water Use Permit
The permit granted by the relevant government authority with respect to water use pursuant to the
Water Code.
Z
Zhaikmunai LLP
Principal operating entity of the Group
Corporate office:
43/1 Karev str.
Uralsk, 090000
Republic of Kazakhstan
174 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
Structure chart
Nostrum Group structure chart
as at 31 December 2020
Nostrum Oil & Gas PLC
Incorporated in the UK
Principal place of business in the UK
100%
>99.9%
Nostrum Oil & Gas BV
Incorporated and principal place of
business in the Netherlands
Nostrum Oil & Gas Coöperatief UA
Incorporated and principal place of
business in the Netherlands
<0.1%
100%
Nostrum Oil & Gas
Finance B.V.
Incorporated and
principal place of
business in the
Netherlands
100%
(save for one share
held by Nostrum
Oil & Gas BV)
100%
100%
100%
Nostrum Services
N.V.
Incorporated and
principal place of
business in Belgium
Zhaikmunai LLP
Incorporated and
principal place of
business in Kazakhstan
Nostrum Associated
Investments LLP
Incorporated and
principal place of
business in Kazakhstan
Nostrum Services
Central Asia LLP
Incorporated and
principal place of
business in Kazakhstan
100%
100%
Nostrum Oil & Gas
UK Limited
Incorporated and
principal place of
business in the UK
Nostrum E&P
Services LLC
Incorporated and
principal place of
business in Russia
Apart from the external debt held by Nostrum Oil & Gas Finance B.V, the contribution and results of Nostrum Oil & Gas PLC and all of its subsidiaries (other than
Zhaikmunai LLP) to the KPIs and results of the Group were insignificant. Except as stated above, there are no minority shareholdings.
Nostrum Oil & Gas PLC Annual Report & Accounts 2020 175
Regulatory information
176 Nostrum Oil & Gas PLC Annual Report & Accounts 2020
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