Annual Report
2018
Annual Report
2018
Section
Contents
Contents
Highlights
Strategic Report
Chairman’s Report
Chief Executive Officer’s Report
Strategic Report
Directors’ Report
Business Model
Strategy and KPIs
Growth Opportunities
Managing Our Risk
Our Governanace
Chairman’s Corporate Governance Statement
QCA Principles
Our Team
Accountability
Shareholder Relations
Internal Financial Control
Independent Auditors’ Report
Financial Statement
Notes to the Company Financial Statements
Company Information
05
7
11
12
14
16
17
22
22
23
24
29
30
30
32
34
36
36
37
45
56
90
Annual Report
2018
06
Who we are
Nostra Terra is an oil and gas
exploration and production
company focused on established
hydrocarbon provinces in the
USA and Egypt.
Annual Report
2018
Section
Highlights
07
Highlights
Revenue
Revenue less production costs
$2, 267,000
2017: $1,453,000
56%
$942 ,000
2017: $180,000
423%
7
1
0
2
1
8
0
2
Sales Volume
37, 38 4 BOE
2017: 30,703
22%
7
1
0
2
1
8
0
2
1
8
0
2
2017
Reserves
NET PROVEN AND PROBABLE RESERVES (2P)
2,429,660 BO E
1P
2P
18%
276%
2018
2,429,660
(2P)
764,030
(1P)
2017
646,280
(1P)
Annual Report
2018
Section
Highlights (cont.)
08
Highlights (cont.)
Nostra Terra Oil & Gas plc
Nostra Terra Oil and Gas is focused on achieving profitable,
rapid and sustainable growth within established hydrocarbon
provinces, such as the USA and Egypt. Our goal is to generate
returns for our shareholders by acquiring and managing a
growing portfolio of both new and mature oil and gas assets,
to which we can add significant additional value through
modern technology and commercial expertise.
Why Invest?
Established revenue
generating producer
at operating level
Risk/Reward metrics
are attractive
Experienced team with
significant knowledge
in growing oil and gas
portfolios globally
Increasing revenue
proposition with
ambitious targets for
2019 and beyond
Access to the latest
technology in the US to
extract further value
from existing and
potential new assets
Core strategy of
establishing long-term
revenue streams
Annual Report
2018
Section
Highlights (cont.)
09
Highlights
Revenue for the period increased 56%
to $2,267,000 (2017: $1,453,080)
Production for the period increased 22%
to 37,384 BOE (USA Only) (2017: 30,703)
2 new vertical wells drilled and put into
production in the Permian Basin
•
1st well beat expectations, reaching
100% payback in year one
• 2nd well met expectations
Successful workovers at Pine Mills to
increase production
276% increase in net 2P (Proved & Probable)
reserves to 2,429,660 barrels of oil, up from
646,280 barrels of oil (1P at Pine Mills and
Permian Basin from 2017)
• Total Proved & Probable Future
Net Income (“FNI”) estimated at
$58.65 million
• Net Present Value at 9% discount
(“NPV9”) estimated at $23.93 million
Mesquite Asset acquisition in the
Permian Basin
•
Increased Permian Basin acreage
by 308%
$5,000,000 Senior Lending Facility, with
Post Balance Sheet Highlights
Twin Well (Permian Basin) reached
100% payback in year one
Engineered Economics for Mesquite
Additional leasing expanded footprint
at Mesquite
4.75% interest rate with initial borrowing
base of $1,200,000 increased to $1,950,000
at 31 December 2018, with a variable rate of
the greater of 4.25% and WSS Rate plus 25
basis points
Net Proved reserves of 764,030 barrels
of oil (1P)
•
Increase primarily due to drilling
and development of existing
Permian Basin assets during H1 2018
• Total Proved FNI estimated at
$14.96 million
• Total Proved NPV9 estimated at
$7.54 million
Net Probable reserves of approximately
1,665,630 barrels of oil
•
Increase attributable entirely
to Mesquite
• Total Probable FNI estimated at $43.69
million
• Total Probable NPV9 estimated
at $16.39 million
Cost of Sales as a percent of revenue
decreased by 15%
Lifting costs per barrel decreased to $32.06
per barrel (2017: $38.72 per barrel)
East Ghazalat, hearing held in London, in
May, with conclusion anticipated during
the second half of 2019
Placing raised additional £1,150,000
cornerstoned by institutional investor
Initiation of Research by Shard Capital
Partners LLP
Annual Report
2018
010
Annual Report
2018
011
Strategic
Report
Annual Report
2018
Section
Highlights (cont.)
012
Chairman’s Report
During 2018, the price
of oil continued its
overall upward trend,
underpinning the recovery
of the oil industry with
an average price much
higher than 2017, and
although it dipped towards
the end of the year, it has
since recovered.
Nostra Terra was well
positioned to benefit from
this increase in the oil price.
The Company’s production
from the Pine Mill’s field in
Texas has been stable to
growing, having achieved
rates well in excess of those
on acquisition in 2017. This is
currently the core cash flow
asset for Nostra Terra and
the stability, and potential
to increase production, is
not only a testament to the
Company’s field operations
but also the original
acquisition itself.
In 2018, Nostra Terra
successfully drilled two wells
in the Permian Basin which
had the benefit of diversifying
and adding to the Company’s
production base and
revenue stream. The results
from both these wells was in
line with expectations.
It is worth reflecting on the
above achievements as it
represents the successful
execution of Nostra Terra’s
strategy through organic
growth and acquisition to
establish long-term revenue
streams which contribute
positively to the broader
activities of the Company.
This success led to
considering how greater
growth rates could be
achieved, which resulted in
a pause in drilling activity
in the latter half of 2018.
The conclusion to this was the
acquisition of the Mesquite
asset in the Permian Basin.
Following technical work
undertaken by Trey Resources
Inc., it was determined that
a successful Mesquite well
has the potential to add
initial estimated production
of 265 barrels of oil per day
and would be immediately
transformative for Nostra
Terra. In addition, the wider
Mesquite play and well
locations that are in the
Company’s inventory would
allow for potential multiples
of this to be achieved with
further follow up drilling.
In Egypt, the Company’s
interest in the East Ghazalat
field is the subject of an
arbitration process which is
expected to be concluded in
the second half of 2019.
The lifeblood of any producing
oil company is its reserves
as this represents the latent
barrels which could be
produced in the future. I am
pleased to report that in early
2019 Nostra Terra increased
its proven and probable
reserves to 2,429,660 barrels
of oil, a 276% increase, with a
net present value using a 9%
discount rate of $24 million,
which bodes well for
the future. This increase was
not solely due to the addition
of Mesquite resources but
also an overall increase
in the existing producing
Annual Report
2018
Section
Highlights (cont.)
013
assets, more than
offsetting production.
In the early part of 2018,
Nostra Terra concluded a
$5 million Senior Lending
Facility with Washington
Federal Bank, at an initial
interest rate of 4.75% and a
starting borrowing base of
$1.2 million. This then increased
to $1,950,000, with a rate of
5.75%. This facility has provided
financial flexibility allowing
the Company to achieve the
success that it has had during
2018 both through drilling
and the acquisition of the
Mesquite asset.
Nostra Terra now has
the enviable challenge,
which successful growing
companies face, of funding
and managing growth.
Having a solid foundation
of producing assets and a
proven track record provides
multiple options. A sign of
this transformation is that
funding is not now sought
to cover overheads and the
cost of the management
team but directly into growing
the Company and seeking
material step changes in
value, cash flow and profit.
The future of Nostra Terra
has never looked brighter.
We have continued to deliver
on our strategy to build
secure, long-term, profitable
production. From this solid
foundation, our intention is
to build on this further with
material organic growth from
the Mesquite asset, whilst
being ever vigilant for other
opportunities consistent with
the Company’s strategy.
I would like to thank our
shareholders for their
continued support and look
forward to reporting more
progress in future.
Ewen Ainsworth
(Non-Executive)
Chairman
28 June 2019
Annual Report
2018
Section
Chief Executive Officer’s Report
014
Chief Executive Officer’s Report
Our goal in 2018 was to build a firm
foundation based on producing assets
that generate positive cashflow to
support the plc, while adding new assets
that allowed us the ability to take much
larger, more meaningful steps in adding
production and reserves. We continue to
build the foundation and during the year
acquired a new asset, the Mesquite Asset,
which provides a significant opportunity.
Revenues for the year were $2,267,000 an
increase of 56% from 2017. Revenue less
production costs for the year were $942,000,
and with the addition of the positive
contribution of $227,000 from hedging,
operations provided a total of $1,169,000
towards investment and administrative
and finance expenses. This demonstrates
the underlying cash generation and
strength of the production led strategy
that Nostra Terra has been pursuing and
successfully implemented. The Company
didn’t undertake any placings during the
year to raise additional funds, however,
warrants were exercised, raising an additional
£635,700 early in the year. Production and
operations continued to perform strongly with
highlights being:
• 22% increase in production to 37,384 bopd
•
•
15% reduction in cost of sales per barrel
17% reduction in lifting costs to $32.06
Continued growth in production rates is
anticipated as workovers continue, which
combined with managed operated costs
provides a favourable environment for net
cashflows from operations. With recent
acquisitions and prudent operational
management, we believe we can deliver a
step change in materiality and multiples of
current production and revenues.
United States
Pine Mills – Texas (100% Working Interest)
In the Pine Mills oil field during the second
half of 2018, our operations team reactivated
previously shut-in wells and performed
workovers on several others. This intervention
led to an increase in production (briefly >150
bopd from just four wells) which in turn has
required an upgrade of facilities to handle
the additional fluid volumes. This work is
largely complete and we anticipate Pine Mills
continuing to be a significant contributor to
net cash flow in the short to medium term.
Permian Basin – Texas
(50 – 75% Working Interest)
In prior years, we made three different
acquisitions in the Permian Basin. These were
leases that had existing, albeit nominal rates
of, production. The reason for the acquisitions
was to gain upside through additional drilling
locations on the leases, in a proven oil field,
and during a lower oil price environment.
In 2018, we brought two new wells into
production. The first well paid out in under
one year, meaning production rates were
strong enough to generate a return of all
our well costs in a rapid manner. The second
well is performing to expectations. We have
numerous other potential drilling locations
that we keep in inventory to potentially drill in
the future.
Mesquite – Permian Basin Texas
(100% Working Interest)
In October 2018, we acquired the Mesquite
Asset in the Permian Basin. The field is proven
to produce from multiple stacked-pay
reservoirs with long-established producing
vertical wells that were drilled on 40 acre
spacing. In recent years operators have
successfully drilled wells with tighter spacing.
Annual Report
2018
Section
Chief Executive Officer’s Report
015
of the greater of 4.25% and WSS Rate plus 25
basis points. This flexible facility provides an
attractive opportunity to use non-dilutive
funds to grow the Company. During Q1 2019,
we raised an additional £1,150,000, without a
discount to the prevailing bid of Nostra Terra’s
share price, allowing us to bring a new
institutional investor to the Company. I’m very
pleased to welcome them as a shareholder
as we begin to drill the Mesquite Asset. Shard
Capital Partners were brought on as a new
broker to the Company and managed the
placing. In addition, Shard Capital initiated
coverage in May 2019. We believe all these
steps are very positive for a Company of
our size.
Outlook
Nostra Terra is positioned for strong growth
potential, in particular with the new Mesquite
Asset. Our focus for 2019 is to get the initial
wells drilled and producing on this asset,
while also looking for further opportunities
to expand our portfolio. We believe this
can be the catalyst to deliver multiples in
production and revenues for our shareholders.
As always, I want to thank our shareholders
for their support and look forward to updating
shareholders throughout the year.
Matt Lofgran
Chief Executive Officer
28 June 2019
On this basis, the Mesquite Prospect has
the potential to be developed with 35-70
vertical well locations dependent on spacing.
Nostra Terra believes the Mesquite Prospect
has much greater development potential
if drilled horizontally. The target formations
at the Mesquite Prospect are “tight”,
meaning the oil-bearing rock formations
are of low permeability. As such, they have
characteristics that make them ideal targets
for horizontal drilling and have delivered
substantial oil production in other nearby
areas of the Permian Basin. This combination
of multiple stacked pay targets and the
potential uplift provided by drilling horizontally
supports our view that the Company can
provide multiples in terms of production and
revenues from this acquisition.
Egypt
East Ghazalat – Western Desert
(50% Working Interest)
This is a producing asset where Nostra Terra
owns a non-operated interest in the asset.
The asset has scope for increased production
through workovers of existing wells, drilling
new exploration and development wells,
and development of the South Dabaa gas
discovery. There is a dispute regarding the
Joint Operating Agreement that is currently
going through an arbitration process held at
the London Court of International Arbitration.
A hearing was held in May, with conclusion
anticipated during the second half of 2019.
Senior Lending Facility
At the beginning of 2018, Nostra Terra secured
a new $5 million Senior Lending Facility.
The initial borrowing base was $1.2 million at
a 4.75% interest rate, later increased to $1.95
million at the end of 2018 with a variable rate
Annual Report
2018
Section
Strategic Report
016
Strategic Report
The directors now present their Strategic
Report with the financial statements of
Nostra Terra Oil and Gas Company plc
(“the company”) and its subsidiaries
(collectively “the group”) for the year
ended 31 December 2018.
Principal activity
The group’s principal activity is the exploitation
of hydrocarbon resources focusing at present
in the USA and Egypt.
Key risks and uncertainties
The key risk in exploration and production is
the technical risk of not finding hydrocarbons
when an exploration well is drilled. While the
US mid-continent is a proven hydrocarbon
region and is seeing resurgence through the
application of new drilling and well completion
technologies, there are environmental
and economic risks, as there are in any
hydrocarbon region. Further information
relating to risk can be found on note 24 of
these accounts
Review of business, future
developments, trading outlook
and future strategy
The results for the year and financial position
of the company and the group are shown in
the financial statements from page 46, and
are noted in the Chairman’s Report on page
12 and the Chief Executive Officer’s Report on
page 14.
On behalf of the board:
M B Lofgran
Director
28 June 2019
Key performance indicators
At this stage in the Company’s development,
the directors regularly monitor key
performance indicators associated with
managing liquid resources, namely: cash flows
and bank balances; general administrative
expenses, which are tightly controlled; and the
level of production. The directors also monitor
the change in net production which in 2018
increased to 37,384 BOE (USA only).
Annual Report
2018
Section
Directors’ Report
017
Directors’ Report
The directors present their report
with the financial statements of
Nostra Terra Oil and Gas Company plc
(“the company”) and its subsidiaries
(collectively “the group”) for the year
ended 31 December 2018.
The directors’ remuneration for the year is
summarised as follows:
Directors
The following directors have held office since 1
January 2018:
M B Lofgran
K E Ainsworth
J Stafford
M B Lofgran
K E Ainsworth
J Stafford
Salaries
$
250,000
-
-
Fees
$
Share-Based
Compensation
$
-
121,647
40,037
1,442
481
361
Total
$
251,442
122,128
40,038
250,000
161,684
2,284
413,968
The directors’ remuneration for the year ended
31 December 2017 is summarised as follows:
M B Lofgran
K E Ainsworth
J Stafford
Salaries
$
195,000
-
-
Fees
$
Share-Based
Compensation
$
-
65,642
35,420
39,149
13,420
7,928
Total
$
234,149
79,062
43,348
195,000
101,062
60,497
356,559
There were no benefit-in-kind payments
during the year.
More detail on the Share options issued
to Directors’ during the year are disclosed
within the share based payment note together
with the outstanding options and warrants at
the year end, please refer to note 22.
Annual Report
Annual Report
2018
2018
Section
Section
Directors’ Report
Directors’ Report
018
018
At 31 December 2018, the directors’ beneficial interests in the
company’s issued share capital were as follows:
No of ordinary
shares of 0.1`p
each
31.12.18
Percentage of
issued share
capital
No of ordinary
shares of
0.1p each
31.12.17
Percentage of
issued share
capital
M B Lofgran
K E Ainsworth
J Stafford
5,975,976
3,079,267
-
4.06
2.09
-
5,975,976
2,502,063
-
4.76
1.99
-
Remuneration Committee
and policy
The Remuneration Committee takes
into account both group and individual
performance, market value and sector
conditions in determining directors’
remuneration. The group’s policy is to pay
only minimum salaries compared with peer
companies in the oil and gas sector, until the
group has established a good position with
acreage, assets, income and cash at hand. All
current salaries are without pension benefits.
Substantial shareholders
As at 28 June 2019, the Company was aware of the following interests in its issued share capital:
JIM NOMINEES LIMITED
THE BANK OF NEW YORK (NOMINEES) LIMITED
INTERACTIVE INVESTOR SERVICES NOMINEES LIMITED
BARCLAYS DIRECT INVESTING NOMINEES LIMITED
HSDL NOMINEES LIMITED
INTERACTIVE INVESTOR SERVICES NOMINEES LIMITED
JIM NOMINEES LIMITED
HARGREAVES LANSDOWN (NOMINEES) LIMITED
HARGREAVES LANSDOWN (NOMINEES) LIMITED
No of ordinary
shares of
0.1p each
Percentage of
issued share
capital
53,858,070
19,791,666
15,281,941
9,999,387
9,793,738
6,844,792
6,736,468
6,214,520
5,948,828
27.32
10.04
7.75
5.07%
4.97%
3.47%
3.42%
3.15%
3.02
Annual Report
2018
Section
Directors’ Report
019
Results and dividends
The loss for the year was $930,000, which has been allocated against reserves. No dividends will
be distributed for the year ended 31 December 2018.
Political and charitable contributions
The group made no political or charitable contributions during the year.
Events after the reporting period
Refer to note 25 for details.
Publication of accounts on company website
The company publishes financial statements on its website. The directors are responsible for
the website’s maintenance and integrity, and their responsibility also extends to the financial
statements contained therein.
Indemnity of officers
The group may purchase and maintain, for any director or officer, insurance against any liability.
The group maintains appropriate insurance cover against legal action bought against its
directors and officers.
Financial instruments
The group does not have formal policies on interest rate risk or foreign currency risk. The group is
exposed to foreign
currency risk on sales and purchases that are denominated in a currency other than United
States Dollars ($). The group maintains a natural hedge that minimises its foreign exchange
exposure by matching foreign currency income
with foreign currency costs. For the time being, the group does not consider it necessary to
enter into foreign exchange contracts to manage its foreign currency risk, given the nature of its
business.
Listing
The Company’s ordinary shares have been quoted on the AIM market of the London Stock
Exchange since 20 July 2007. Strand Hanson Limited is the Company’s nominated advisor and
joint broker. Shard Capital Stockbrokers is the Company’s joint broker.
The closing mid-market price at 31 December 2018 was 2.45p (2017: 4.35p).
Going concern
The directors believe that, based on the forecasts and projections they have prepared, the
resources available will be sufficient for the Company and its subsidiaries to continue as a
going concern for the foreseeable future when taking into account proceeds generated from
production and the post year end share issue. Going concern is discussed more fully in Note 1 of
the accounts
The Directors have concluded that this combination of circumstances should they not
materialise represents uncertainty upon the Company’s ability to continue as a going concern.
Nevertheless after making enquiries, and considering the uncertainties described and disclosed
in note 1 of the accounts, above, the Directors have a reasonable expectation that the Group will
have adequate resources to continue in operational existence
for the foreseeable future. For these reasons, they continue to adopt the going concern basis in
preparing the annual report and accounts.
Annual Report
2018
Section
Directors’ Report
020
Statement of directors’
responsibilities in respect
of the Strategic Report, the
Directors’ Report and the
Financial Statements
The directors are responsible for preparing
the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to
prepare financial statements for each
financial year. Under that law, the directors
have elected to prepare the financial
statements in accordance with International
Financial Reporting
Standards (IFRSs) as adopted for use in the
European Union. The financial statements are
required by law to give a true and fair view of
the state of affairs of the company and the
group and of the profit or loss of the group for
that year.
In preparing these financial statements, the
directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgments and estimates that are
reasonable and prudent;
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business; and
•
follow IFRS as adopted by the
European Union.
The directors are responsible for keeping
proper accounting records which disclose
with reasonable accuracy at any time
the financial position of the company and
the group and to enable them to ensure
that the financial statements comply with
the Companies Act 2006. They are also
responsible for safeguarding the assets of the
company and the group and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
Statement as to disclosure of information
to auditors
So far as the directors are aware, there is no
relevant audit information (as defined by
Section 418 of the Companies Act 2006) of
which the group’s auditors are unaware, and
each director has taken all the steps that he
ought to have taken as a director in order to
make himself aware of any relevant audit
information and to establish that the group’s
auditors are aware of that information.
Auditors
In accordance with Section 485 of the
Companies Act 2006, a resolution that Jeffreys
Henry LLP be reappointed as auditors of the
company will be put to the Annual General
Meeting.
On behalf of the board:
M B Lofgran
Director
28 June 2019
Annual Report
2018
Section
Directors’ Report
021
Annual Report
2018
Section
Business Model
Strategy and KPIs
022
Business Model
Nostra Terra Oil and Gas is focused on
achieving profitable, rapid and sustainable
growth within established hydrocarbon
provinces, such as the USA and Egypt.
We see the scope for sustained profitable growth, throughout
many well-established hydrocarbon systems, as virtually
unlimited. Our business model is to continue upgrading our
exploration and production portfolio by identifying, screening
and investing in a diverse pipeline of upstream assets, targeting
the most attractive established hydrocarbon areas. Most of
them will be exploited by drilling and completing horizontal
wells in formations where these techniques have not been
widely applied, in order to achieve maximum value potential.
Identify
Screen
Apply technology
Increase production
Increase revenue
Strategy and KPIs
Our Strategy
1 Grow Production and Reserves
from Permian Basin and Pine Mills
2
Increase cashflow from
production growth
3 Acquisitions when suitable
4 Use technological advancements
to extract further value from
maturing assets
5 Further develop strategic
partnerships with potential farm-in
partners and cornerstone investors
KPIs
At this stage in the Company’s development,
the directors regularly monitor key
performance indicators associated with
managing liquid resources, namely: cash flows
and bank balances; general administrative
expenses, which are tightly controlled; and the
level of production. The directors also monitor
the change in net production which in 2018
increased by 22% to 37,384 BOE (USA only)
as noted on page 14. Increase in production
primarily reflects new wells drilled and put on
production in the Permian Basin (West Texas).
Annual Report
2018
Section
Business Model
023
Growth Opportunities
Nostra Terra is focused on the Permian Basin,
such as the Mesquite Asset, which offers the
Company much larger growth potential in
both vertical and horizontal wells. The initial
acquisition of the Mesquite Asset increased
the Company’s Permian Basin acreage
by 308%, while also being a major contributor
to the 276% increase in 2P reserves for the year.
Market Review
Energy Sector
2018 has been a clearly improving year
for international E&Ps, as companies have
strengthened their balance sheets, numerous
projects have been brought into production
and agendas have refocused on growth;
however recent weakness in oil price will
test the robustness of measures undertaken
over the last few years to strengthen
balance sheets.
Oil companies predominantly set 2018
budgets on a $50-55/bbl basis and hence
overall capex levels have remained modest
by historical standards.
The surge in the Brent price to +$80/bbl
catalysed interest in the sector but a recent
sharp correction has dissipated a degree
of enthusiasm. The final quarter in 2018 has
been problematic for global markets and
stocks in the Oil and Gas sector. On average,
IOC stocks went down nearly 12% in the
quarter while E&Ps c.25% vs 13% for the
S&P 500 and 33% for Brent.
However, during the meetings on
6-7 December 2018, OPEC decided to
adjust OPEC overall production by 0.8mb/d
(additional 0.4mb/d cuts from non-
OPEC countries). We see OPEC+ continuing
to remain focused on securing balance
(not targeting a specific price) - cuts
will also create an exacerbation of light
heavy differentials. Therefore, short-term
oil prices are likely to remain volatile.
Key Themes for 2019
• Continuing OPEC+ cuts: a more urgent
imperative to get prices back on a
firmer footing
• Doing more with less: investors are likely
to pay attention to the type of spending -
look for an increase in capital to be
committed to short cycle, infrastructure-
led opportunities
• Returning money to shareholders: a
growing number of International E&P
companies are typically paying a
dividend – dominated by stocks with
major shareholders
•
IPO market: relatively full pipeline of private
equity and other E&Ps targeting IPO
in 2019-20
Annual Report
Annual Report
2018
2018
Section
Section
Managing Our Risk
Managing Our Risk
024
024
Managing Our Risk
Risk management is at the core of achieving
our strategy and delivering long-term value to
shareholders. The Board, its Committees and
the executive team are actively engaged in
setting the risk agenda, as well as managing
both risks and opportunities to the Company.
activity and pricing to negotiate the lowest
risk acreage at the cheapest rate possible, as
evidenced by the recent Mesquite acquisition
in the Permian Basin. The Board shall continue
to address risk management on behalf of our
shareholders.
Definition of Risk
Risk is defined as a potential future event
that may influence the achievement of
business objectives. This includes both “upside”
(opportunity) and “downside” (threat) risks.
Risks and opportunities can come from a
variety of sources and can be directly related
to the Company’s operational and commercial
activities and support functions, or they can
arise externally: from third parties such as
Joint Venture partners, suppliers, regulators,
competitors; from the economic environment
or political climate.
Risk Management
The Company is acutely aware of the risks
associated with oil and gas activity. Such risks
range from global commercial risks such as
stock market volatility and commodity pricing
to geopolitical risks in terms of market access,
tariffs and contractual relationships through
to operational risks ensuring the safety of
our personnel and subcontracting staff and
protecting the environment in which we work.
The management takes steps to identify
and mitigate these risks wherever possible.
Examples of this include the establishment
of a hedging facility to protect the Company
from oil price volatility and the early
identification of leasing opportunities to hit the
‘sweet spot’ in terms of pricing versus activity
level. The hedge secures 1,500 barrels per
month at $60/bbl until the end of December
2018, providing a strong commercial basis
for forward-looking projects, and, in terms
of leasing, we continue to closely monitor
Our Risks
Operational Risk
Drilling oil wells to depths of several thousand
feet is an inherently risky activity. However,
the Company is fully aware of these risks and
takes steps to mitigate them where possible.
These include but are not limited to
the following;
• Submission and Board approval of a drilling
programme prior to any well spud. This
includes safety management in terms of
pressure control and operating practices
• All wellsite staff are issued with breathing
apparatus (a canary system) in case of
accidental release of noxious gases
• All wellsites are bunded to contain any
possible spill
Capital Risk
The Group’s objectives when managing capital
are to safeguard the ability to continue as
a going concern in order to provide returns
for shareholders and benefits to other
stakeholders, and to maintain an optimal
capital structure to reduce the cost of capital.
Market Risk
The Group also faces risks in conducting
operations in the US mid-continent. Risks
such as fluctuations in the global economy
could disrupt the Group’s ability to operate
its business in the US mid-continent and could
discourage foreign and local investment
and spending, which could adversely
affect its production.
Annual Report
2018
Section
Managing Our Risk
025
Environmental risks
The Group faces environmental risks in
conducting operations in the US mid-
continent, which include but are not limited to:
•
•
If the Group is found not to be in
compliance with applicable laws or
regulations, it could be exposed to
additional costs, which might hinder the
Group’s ability to operate its business
If during operations there was an
accidental release of hydrocarbons or
drilling fluid, this would incur additional
costs to remedy and possibly expose the
Company to legislation
Credit risk
The Group’s principal financial assets
are bank balances and cash, trade and
other receivables. The Group’s credit risk is
primarily attributable to its trade receivables.
The amounts presented in the balance
sheet are net of allowances for doubtful
receivables. An allowance for impairment is
made where there is an identified loss which,
based on previous experience, is evidence
of a reduction in the recoverability of
the cash flows.
Annual Report
2018
Section
Managing Our Risk (cont.)
026
Managing Our Risk (cont.)
Foreign currency risk
The Group does not have formal policies
on interest rate risk or foreign currency risk.
A significant share of overhead costs,
such as listing and professional fees are in
Pounds Sterling.
The Group is exposed to foreign currency
risk on purchases and borrowings that
are denominated in a currency other
than Unitied States Dollars.
The foreign exchange rate affecting the Group is as follows:
Income
statement
Balance
sheet
2018
2017
2018
2017
Group ($)
Pounds Sterling (£)
1.3345
0.7493
1.2880
0.7764
1.2763
0.7835
1.3528
0.7392
The volatility of crude oil prices
A material part of the Group’s revenue will
be derived from the sale of oil that it expects
to produce. A substantial or extended
decline in prices for crude oil and refined
products could adversely affect the Group’s
revenues, cash flows, profitability and ability
to finance its planned capital expenditure.
West Texas Intermediate (“WTI”) oil prices
ranged from $42.50 to $76.86 in 2018 and
$33.97 to $60.46 in 2017.
Liquidity risk
The Group expects to fund its exploration
and development programme, as well
as its administrative and operating
expenses throughout 2018, principally using
existing working capital and expected
proceeds from the sale of future crude
oil production. The Group had a bank
balance of approximately $72,000 as of
31 December 2018.
Annual Report
2018
028
Annual Report
2018
029
Our
Governanace
Annual Report
2018
Section
Chairman’s Corporate Governance Statement
QCA Principles
030
Chairman’s Corporate
Governance Statement
As an AIM-quoted company, the
Company is required to apply a
recognised corporate governance code,
demonstrating how the Group complies
with such corporate governance code
and where it departs from it.
The directors have formally taken the
decision to apply the QCA Corporate
Governance Code (the “QCA Code”).
The Board recognises the principles
of the QCA Code, which focus on the
creation of medium to long-term value
for shareholders without stifling the
QCA Principles
entrepreneurial spirit in which small
to medium sized companies, such as
Nostra Terra, have been created.
The key governance related matter that
occurred during the financial year ended 31
December 2018 was the formal adoption of
the QCA Code.
Ewan Ainsworth
Non-Executive Chairman
28 June 2019
The Board recognises the importance of corporate governance,
and we therefore apply the QCA code.
Disclosure
QCA
Code
Principle
Nostra Terra
Reference
1
2
3
4
Establish a strategy and business model which
promote long-term value for shareholders.
See page 22 of this
2018 Annual Report
Seek to understand and meet shareholder needs
and expectations.
See page 22, page
24 and page 36 of
this 2018 Annual Report
Take into account wider stakeholder and social
responsibilities and their implications for long
term success.
Detailed within
AIM Rule 26, available to
view via www.ntog.co.uk
Embed effective risk management, considering
both opportunities and threats, throughout
the organisation.
See page 24 of this
2018 Annual Report
Annual Report
2018
Section
QCA Principles
031
5
6
7
8
9
10
Maintain the board as a well-functioning
balanced team led by the Chair.
Ensure that between them the directors have
the necessary up to date experience, skills
and capabilities.
Evaluate the Board performance based
on clear and relevant objectives, seeking
continuous improvement.
Promote a corporate culture that is based on
ethical values and behaviours.
Maintain governance structures and
processes that are fit for purpose and support
good decision making by the Board.
Communicate how the Company is
governed and is performing by maintaining
a dialogue with shareholders and other
relevant stakeholders.
See page 36, page
34 and page 24 of
this 2018 Annual Report
Detailed within
AIM Rule 26, available to
view via www.ntog.co.uk
Nostra Terra’s
board is small and
extremely focused
on implementing the
Company’s strategy.
However, given the
size and nature of
Nostra Terra, the Board
does not consider it
appropriate to have a
formal performance
evaluation procedure
in place. As described
and recommended in
Principle 7 of the QCA
Code, the board will
closely monitor the
situation as it grows.
Detailed within
AIM Rule 26, available to
view via www.ntog.co.uk
Detailed within
AIM Rule 26, available to
view via www.ntog.co.uk
See page 30 of this
2018 Annual Report
Annual Report
2018
Section
Our Team
032
Our Team
Ewen Ainsworth
Non-Executive
Chairman
Matt Lofgran
Chief Executive
Officer
Ewen Ainsworth (56) is a chartered management
accountant and a fellow of the Institute of
Petroleum who brings wide industry experience
to his new role. He has worked in the industry for
30 years at various stages of the oil and gas life
cycle from exploration to appraisal/development,
production and de-commissioning.
Starting his career in the late 1980s at Conoco,
Mr Ainsworth’s career has included Financial Controller,
Financial Director and CFO roles across various public
and private companies, including six years as Financial
Director of Gulf Keystone Petroleum Limited until 2014.
In his career he has been involved in companies with
assets and operations across the UK, Europe, Russia,
Azerbaijan, Iraq and North and West Africa.
Matt Lofgran (43) has wide experience of business
development in the energy, real estate and
communications sectors. Prior to becoming CEO
of Nostra Terra in July 2009, he was with Robson
Energy, LLC, latterly as Vice President of International
Business Development. In this capacity, he launched
the oil and gas, field services and coal divisions,
and was responsible for extending Robson Energy’s
activities into Mexico.
Mr Lofgran holds a Bachelor of Business Management
degree from the University of Phoenix and a Global
MBA from Thunderbird School of Global Management.
Mr Lofgran is also a Director of Elephant Oil Limited and
Atlas Oil & Gas Limited.
Annual Report
2018
Section
Our Team
033
John Stafford (57) has 35 years’ experience in the
oil & gas industry. Vice President of Operations
at Gulf Keystone (LSE: GKP) 2014–2017, oversaw
40,000 bopd, having joined that Company as Manager,
Geology & Geophysics in early 2009. John is a
geoscientist, with specialist expertise in oil field
development and reserve certification and reporting.
Mr Stafford has worked with well-known
companies in the oil and gas industry, such as
ECL, Schlumberger and PGS, managing projects in
integrated field management and all aspects of
reserves certification and reporting. This includes
the production of Competent Persons Reports.
John has further experience of fractured reservoir
development and risk management.
John Stafford
Non-Executive
Technical Director
Annual Report
2018
Section
Accountability
034
Accountability
The Board of Directors
The board comprises one executive director
and two non-executive directors. It meets at
least four times a year, as issues arise which
require board attention. The board has a
formal schedule of matters specially referred
to it for decision.
The directors are responsible for:
• Management structure and appointments
• Consideration of strategy and policy
• Approval of major capital investments and
transactions
• Significant financing matters
The board has Audit, Remuneration and
Nomination Committees, the roles and
responsibilities of which are discussed below.
Audit Committee
The Audit Committee comprises Ewen
Ainsworth as Chairman, and John Stafford.
Both have considerable and relevant
financial experience.
The Audit Committee has terms of reference
agreed by the board and meets at least
twice a year.
The committee provides an opportunity for
reporting by the Company’s auditors, and is
responsible for:
• Monitoring, in discussion with the auditors,
the integrity of the financial statements
and announcements of the Company
• Reviewing the Company’s internal financial
controls and risk management systems
• Reviewing and monitoring the external
auditor’s independence, and the
objectivity and effectiveness of the
audit process, taking into consideration
relevant UK and other professional and
regulatory requirements
The Audit Committee is also responsible for
making recommendations to the board to
be put to shareholders for their approval
in general meeting in relation to the
appointment, reappointment and removal
of the external auditors and to approve the
external auditors’ remuneration and terms of
engagement. Other responsibilities include
considering annually whether there is a need
for an internal audit function and making a
recommendation to the board, and reviewing
arrangements by which the Group’s staff
will be able to raise concerns about possible
improprieties in matters of financial reporting
or other matters related to the Group
Remuneration and
Nomination Committees
The Remuneration and Nomination
Committees, which meet at least twice a year,
consist of Ewen Ainsworth as Chairman and
John Stafford. Based on the terms of reference
approved by the board, the Remuneration
Committee is responsible for:
• Determining and agreeing with the
board the framework or broad policy
for the remuneration of the Chief
Executive Officer and other members it
is designated to consider
Annual Report
Annual Report
2018
2018
Section
Section
Accountability
Accountability
035
035
• Setting the remuneration for all executive
directors and the Company Secretary
• Recommending and monitoring the
level and structure of remuneration for
senior management
• Determining targets for any performance-
related pay schemes operated by
the Group
• Determining the policy and scope
of pension arrangements for each
executive director
• Ensuring that contractual terms on
termination and any payments made are
fair to the individual and the Company.
The Remuneration Committee determines the
terms and conditions of service of executive
directors. This includes agreeing the policy
for authorising claims for expenses from
the Chief Executive Officer and, within the
terms of the agreed policy, recommending
the total individual remuneration package
of any executive director including, where
appropriate, bonuses, incentive payments
and share options.
The Nomination Committee is responsible
for ensuring all director appointments are
considered by the Committee before their
formal recommendation to the board
for approval.
Annual Report
2018
Section
Shareholder Relations
Internal Financial Control
036
Shareholder Relations
Communications with shareholders are
very important and are given a priority.
The Company maintains a website,
www.ntog.co.uk, to improve information
flow to shareholders and potential investors.
It contains inter alia information about
the Company’s activities, and annual and
interim reports.
Shareholders are welcome to make enquiries
on any matters relating to the business and to
their shareholdings. The Company encourages
shareholders to attend the Annual Meeting, at
which they will be given the opportunity to put
questions to the chairman and other members
of the board.
All regulatory information is published via
a Regulatory Information Service before
anywhere else.
Internal Financial Control
The board is responsible for establishing
and maintaining the Company’s
system of internal controls and for
reviewing their effectiveness. They are
designed to safeguard the Company’s
assets and to ensure the reliability
of the financial information for both
internal use and external publication.
The controls that include financial,
operational and compliance matters
and management are reviewed on
an ongoing basis.
A system of internal control can provide only
reasonable, and not absolute, assurance
that material financial irregularities will be
detected or that risk of failure to achieve
business objectives is eliminated. The board
has considered the need for an internal audit
function but because of the size and nature of
its operations does not consider it necessary
at this time.
Annual Report
2018
Section
Independent Auditors’ Report
037
Independent Auditors’ Report
The shareholders
Nostra Terra Oil and Gas Company plc
Opinion
We have audited the financial statements
of Nostra Terra Oil & Gas Company Plc (the
‘parent company’) and its subsidiaries (the
‘group’) for the year ended 31 December 2018
which comprise the consolidated income
statement, the consolidated statement of
comprehensive income, the consolidated and
company statements of financial position,
the consolidated and company statements
of cash flows, the consolidated and company
statements of changes in equity and notes to
the financial statements, including a summary
of significant accounting policies.
The financial reporting framework that has
been applied in the preparation of the Group
financial statements is applicable law and
International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
The financial reporting framework that
has been applied in the preparation of
the parent company financial statements
is applicable law and United Kingdom
Accounting Standards.
In our opinion, except for the effects of the
matter described in Basis of qualified opinion
paragraph below:
·
·
·
·
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 2018 and of the group’s loss for
the year then ended;
the group financial statements have been
properly prepared in accordance with IFRSs
as adopted by the European Union;
the parent company financial statements
have been properly prepared in
accordance with IFRSs as adopted by
the European Union and as applied in
accordance with the provisions of the
Companies Act 2006;
the financial statements have been
prepared in accordance with the
requirements of the Companies Act 2006.
Annual Report
2018
Section
Independent Auditors’ Report
038
Basis for qualified 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 company
in accordance with the ethical requirements
that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical
Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities
in accordance with these requirements. We
believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our qualified opinion.
The scope of our work was limited as a result
of the following matter. As disclosed in the
Chairman and CEO statements, the ongoing
dispute in relation to the operation of the
group’s 50 per cent interest in East Ghazalat
production license, held indirectly through
Independent Resources (Egypt) Ltd (“IRE), in
which the company acquired full ownership
in the year. The ongoing dispute between
North Petroleum International S.A (“North”), the
operator of East Ghazalat, and IRE with regards
to cash calls raised against IRE, which have
been rebutted by IRE. This issue is currently
being arbitrated. Due to the breakdown in
relations North refuses to furnish financial
information to allow a proper determination of
license costs and an audit of license revenues
to be complete.
As a consequence of the lack of access to
primary accounting information we have been
unable to obtain sufficient appropriate audit
evidence in relation to the group and company
financial statements concerning:
·
the carrying value of £Nil of the groups
investment in the subsidiary as at 31
December 2018.
· The group’s share of profit or loss
attributable to the group’s underlying
interest in East Ghazalat licence for
the period from 1 January 2018 to
31 December 2018
The lack of primary accounting information
has led to IRE being excluded from the
consolidated financial statements.
Conclusions relating to going concern
In forming our opinion on the financial
statements, which has not been modified in
respect of this matter, we have considered the
adequacy of the disclosures made in note 1
to the financial statements concerning the
Group’s ability to continue as a going concern.
The Group incurred a net loss of $930k during
the year ended 31 December 2018 and, at
that date, had net current liabilities of $532k
with net liabilities of $295k. These conditions,
along with the other matters explained in
note 1 to the financial statements indicate the
existence of a material uncertainty which may
cast significant doubt over the Group’s ability
to continue as a going concern. The financial
statements do not include the adjustments
that would result if the Group was unable to
continue as a going concern.
Annual Report
2018
Section
Independent Auditors Report (cont.)
039
Independent Auditors Report (cont.)
How our audit addressed the key
audit matter
We have understood and assessed the
methodology used in the capitalisation
of these assets.
A review of the producing wells was
undertaken with a view of identifying any
indication of impairment. This entailed
comparing oil reserves and net present
values from the independent reserves report
produced by APN Consultants LLC to the
asset carrying values, and a detailed review
of producing wells.
Our application of materiality
The scope of our audit was influenced by
our application of materiality. We set certain
quantitative thresholds for materiality. These,
together with qualitative considerations,
helped us to determine the scope of our
audit and the nature, timing and extent of our
audit procedures on the individual financial
statement line items and disclosures and in
evaluating the effect of misstatements, both
individually and in aggregate on the financial
statements as a whole.
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)
we identified, including those which had the
greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and
directing the efforts of the engagement team.
These matters were addressed in the context
of our audit of the financial statements as a
whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these
matters. This is not a complete list of all risks
identified by our audit.
Please note, the key audit matters do not
include reference to the exclusion if IRE from
the consolidated accounts as discussed in the
basis for qualified opinion paragraphs.
Key audit matter
Carrying value of producing oil and
gas assets –
The Group holds multiple leases over
producing oil and gas assets (wells)
which are recorded as both tangible
and intangible assets. Carrying values
at the year end are:
Intangibles: $1,873k (2017: $1,411k)
Tangibles: $536k (2017: $358k)
Annual Report
2018
Section
Independent Auditors Report (cont.)
040
Based on our professional judgment, we determined materiality
for the financial statements as a whole as follows:
Group financial
statements
Company financial
statements
Overall materiality
$70,000 (2017: $135,000).
$40,000 (2017: $75,000).
How we determined it
3% of turnover.
2% of gross assets.
Rationale for
benchmark applied
The Group has invested
heavily in leases and
equipment in the past years
to drive revenue growth.
As such we believe that
revenue is the primary
measure used by the
shareholders in assessing the
performance of the Group,
and is a generally accepted
auditing benchmark.
As the company is a
holding company, we
believe gross assets is the
primary measure used
by the shareholders in
assessing the performance
of the Company and is
a generally accepted
auditing benchmark.
For each component in the scope of our
Group audit, we allocated a materiality
that is less than our overall Group materiality.
The range of materiality allocated across
components was between $60,000
and $4,000.
We agreed with the Audit Committee that we
would report to them misstatements identified
during our audit above $3,500 (2017: $2,900) as
well as misstatements below those amounts
that, in our view, warranted reporting for
qualitative reasons.
An overview of the scope of our audit
As part of designing our audit, we determined
materiality and assessed the risks of material
misstatement in the financial statements.
In particular, we looked at where the
directors made subjective judgments, for
example in respect of significant accounting
estimates that involved making assumptions
and considering future events that are
inherently uncertain. As in all of our audits
we also addressed the risk of management
override of internal controls, including
evaluating whether there was evidence of
bias by the directors that represented a risk of
material misstatement due to fraud.
How we tailored the audit scope
We tailored the scope of our audit to ensure
that we performed enough work to be able to
give an opinion on the financial statements as
a whole, taking into account the structure of
the Group and the Company, the accounting
processes and controls, and the industry in
which they operate.
The Group financial statements are
a consolidation of 3 reporting units,
comprising the Group’s operating
businesses and holding companies.
Annual Report
2018
Section
Independent Auditors Report (cont.)
041
Independent Auditors Report (cont.)
We performed audits of the complete
financial information of Nostra Terra Oil &
Gas Company Plc, New Horizons Energy Llc,
Bucaneer Operating Llc, and Independent
Resources (Egypt) Ltd, which were individually
financially significant and accounted for 100%
of the Group’s revenue and 100% of the Group’s
absolute profit before tax (i.e. the sum of the
numerical values without regard to whether
they were profits or losses for the relevant
reporting units). Please note that as discussed
previously, we have not had access to the
primary statements for Independent Resource
(Egypt) Ltd. As such is was not possible to
audit the financial information. The company
was not included in the consolidation and so a
qualified opinion has been given.
Other information
The directors are responsible for the other
information. The other information comprises
the information included in the annual report,
other than the financial statements and our
auditor’s report thereon. Our opinion on the
financial statements does not cover the other
information and, except to the extent otherwise
explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements
or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we
are required to determine whether there
is a material misstatement in the financial
statements or a material misstatement of
the other information. If, based on the work
we have performed, we conclude that there
is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, based on the work undertaken in
the course of the audit:
·
·
the information given in the strategic report
and the directors’ report for the financial
year for which the financial statements are
prepared is consistent with the financial
statements; and
the strategic report and the directors’
report have been prepared in accordance
with applicable legal requirements.
Matters on which we are required to report
by exception
In the light of the knowledge and
understanding of the group and parent
company and its environment obtained in
the course of the audit, we have not identified
material misstatements in the strategic report
or the directors’ report.
We have nothing to report in respect of the
following matters in relation to which the
Companies Act 2006 requires us to report to
you if, in our opinion:
· adequate accounting records have not
been kept by the parent company, or
returns adequate for our audit have not
been received from branches not visited
by us; or
·
the parent company financial statements
are not in agreement with the accounting
records and returns; or
· certain disclosures of directors’
remuneration specified by law are not
made; or
· we have not received all the information
and explanations we require for our audit.
Annual Report
2018
Section
Independent Auditors Report (cont.)
042
Responsibilities of directors
As explained more fully in the directors’
responsibilities statement as set out on page
20, the directors are responsible for the
preparation of the financial statements and
for being satisfied that they give a true and
fair view, and for such internal control as the
directors determine is necessary to enable
the preparation of financial statements that
are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
group’s and 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.
A further description of our responsibilities for
the audit of the financial statements is located
on the Financial Reporting Council’s website
at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
auditor’s report.
Use of this 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.
Other matters which we are required
to address
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 our audit.
Jeffreys Henry LLP prepares tax
computations for the parent company based
on the financial statements. A separate team
is responsible for this work.
Our audit opinion is consistent with the
additional report to the audit committee.
Sanjay Parmar
Senior Statutory Auditor
For and on behalf of Jeffreys Henry LLP,
Statutory Auditor
Finsgate, 5-7 Cranwood Street,
London EC1V 9EE
28 June 2019
Annual Report
2018
Section
Independent Auditors Report (cont.)
043
Annual Report
2018
044
Annual Report
2018
045
Financial
Statement
Annual Report
2018
Section
Consolidated Statement of Income
046
Consolidated Statement of Income
Consolidated Income Statement for the year
ended 31 December 2018
REVENUE
COST OF SALES
Production costs
Exploration
Well impairment
Depletion, depreciation, amortisation
Total cost of sales
GROSS PROFIT
Share based payment
Administrative expenses
Gain (loss) on sale
Foreign exchange gain (loss)
OPERATING LOSS
Finance expense
Other income
LOSS BEFORE TAX
Tax (expense) recovery
LOSS FOR THE YEAR
ATTRIBUTABLE TO:
Owners of the company
Notes
2018
$000
2017
$000
2,267
1,453
(1,325)
(1,273)
(298)
(32)
(238)
(5)
-
(146)
(1,893)
(1,424)
374
29
(42)
(1,324)
38
17
(60)
(1,213)
67
(50)
(937)
(1,227)
(207)
214
(258)
-
(930)
(1,485)
–
–
(930)
(1,485)
(930)
(1,485)
5
4
6
7
EARNINGS PER SHARE EXPRESSED IN PENCE PER SHARE:
Continued operations
Basic and diluted (USD)
9
(0.0065)
(0.0130)
Annual Report
2018
Section
Consolidated Statement of Comprehensive Income
047
Consolidated Statement of Comprehensive Income
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2018
LOSS FOR THE YEAR
OTHER COMPREHENSIVE INCOME:
Currency translation differences
Total comprehensive income for the year
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the company
2018
$000
2017
$000
(930)
(1,485)
-
(930)
(930)
-
(1,485)
(1,485)
Annual Report
2018
Section
Consolidated Statement of Comprehensive Income
048
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity
for the year ended 31 December 2018
Share
capital
$000
Deferred
shares
$000
Share
premium
$000
Share
options
reserve
$000
Translation
reserves
$000
Retained
losses
$000
Total
$000
AS AT 1
JANUARY 2017
Shares issued
Loss after tax for
the year
Share based
payments
AS AT 31
DECEMBER 2017
Shares issued
Loss after tax for
the year
Share based
payments
AS AT 31
DECEMBER 2018
156
36
–
–
192
29
–
–
6,549
18,409
-
-
-
696
–
–
6,549
19,105
-
-
-
873
–
–
18
–
–
60
78
–
–
42
(676)
(24,072)
384
732
–
(1,485)
(1,485)
–
60
–
–
–
(676)
(25,557)
(309)
–
–
–
–
902
(930)
(930)
–
42
221
6,549
19,978
120
(676)
(26,487)
(295)
Share capital is the amount subscribed
for shares at nominal value.
the issue of new shares on the London Stock
Exchange’s AIM market.
Retained loss represents the cumulative
losses of the group attributable to owners of
the company.
Share premium represents the excess of the
amount subscribed for share capital over the
nominal value of those shares net of share
issue expenses. Share issue expenses in the
year comprise costs incurred in respect of
Translation reserves arose due to the adoption
of US dollars as the presentational currency
at the start of the accounting period. Further
information on the adjustment can be found in
Note 1.
Share option reserve is a reserve used to
recognise the cost and equity associated with
the fair value of issues of options and warrants.
Annual Report
2018
Section
Company Statement of Changes in Equity
049
Company Statement of Changes in Equity
Company Statement of Changes in Equity for
the year ended 31 December 2018
Share
capital
$000
Deferred
shares
$000
Share
premium
$000
Share
options
reserve
$000
Translation
reserves
$000
Retained
losses
$000
Total
$000
AS AT 1 JANUARY
2017
Shares issued
Loss after tax for
the year
Share based
payments
AS AT 31
DECEMBER 2017
Shares issued
Loss after tax for
the year
Share based
payments
AS AT 31
DECEMBER 2018
156
36
–
–
192
29
–
–
6,549
18,409
-
-
-
696
–
–
6,549
19,105
-
-
-
873
–
–
18
-
–
60
78
–
–
42
(676)
(24,933)
(875)
–
–
–
-
732
(1,167)
(1,167)
–
60
(676)
(26,100)
(852)
–
–
–
–
902
(1,125)
(1,125)
–
42
221
6,549
19,978
120
(676)
(27,225)
(1033)
Share capital is the amount subscribed for
shares at nominal value.
Retained loss represents the cumulative
losses of the company attributable to
owners of the company.
Share premium represents the excess of the
amount subscribed for share capital over the
nominal value of those shares net of share
issue expenses. Share issue expenses in the
year comprise costs incurred in respect of the
issue of new shares.
Translation reserves arose due to the adoption
of US dollars as the presentational currency
at the start of the accounting period. Further
information on the adjustment can be found in
Note 1.
Annual Report
2018
Section
Consolidated Statement of Financial Position
050
Consolidated Statement of Financial Position
Consolidated Statement of Financial Position
for the year ended 31 December 2018
ASSETS
NON-CURRENT ASSETS
Other Intangibles
Property, Plant, and Equipment, Oil and Gas Assets
CURRENT ASSETS
Trade and other receivables
Deposits and prepayments
Other assets
Cash and cash equivalents
LIABILITIES
CURRENT LIABILITES
Trade and other payables
Borrowings
NET CURRENT ASSETS
NON-CURRENT LIABILITIES
Decommissioning liabilities
Other loans
NET ASSETS
Notes
2018
$000
2017
$000
10
11
13
14
15
16
16
1,873
536
1,411
358
2,409
1,769
402
96
263
72
833
642
723
1,365
190
330
-
138
658
827
1,740
2,567
(532)
(1,909)
217
1,955
169
-
(295)
(309)
Annual Report
2018
Section
Consolidated Statement of Financial Position
051
Notes
2018
$000
2017
$000
17
18
18
18
18
6,770
19,978
(676)
120
6,741
19,105
(676)
78
(26,487)
(25,557)
(295)
(309)
EQUITY AND RESERVES
Share capital
Share premium
Translation reserves
Share option reserve
Retained losses
The financial statements were approved and
authorised for issue by the Board of Directors
on 28 June 2019 and were signed on its
behalf by:
M B Lofgran
Director
28 June 2019
Company registered
number: 05338258
Annual Report
2018
Section
Company Statement of Financial Position
052
Company Statement of Financial Position
Company Statement of Financial Position for
the year ended 31 December 2018
Notes
2018
$000
2017
$000
The financial statements
were approved and
authorised for issue by the
Board of Directors on 28
June 2019 and were signed
on its behalf by:
ASSETS
NON-CURRENT ASSETS
Fixed asset investments
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Borrowings
12
13
14
15
16
-
26
30
56
-
M B Lofgran
Director
Company registered
number: 05338258
23
78
101
367
722
332
621
1,089
953
NET CURRENT ASSETS
(1,033)
(852)
NON-CURRENT LIABILITIES
Borrowings
EQUITY AND RESERVES
Share capital
Share premium
Translation reserves
Share option reserve
Retained losses
16
-
-
(1,033)
(852)
17
18
18
18
18
-
6,770
19,978
(676)
120
6,741
19,105
(676)
78
(27,225)
(26,100)
(1,033)
(852)
Annual Report
2018
Section
Consolidated Statement of Cash Flows
053
Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows for the
year ended 31 December 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated/(consumed) by operations
Interest paid
CASH GENERATED/(CONSUMED) BY OPERATIONS
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intangibles - new oil properties
Sale/(purchases) of plant and equipment
Purchase of investment
NET CASH FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on issue of shares
Net borrowing
NET CASH FROM FINANCING ACTIVITIES
Increase/(decrease) 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
Represented by:
Cash at bank
Notes
2018
$000
2017
$000
(996)
(1,187)
(41)
-
(1,037)
(1,187)
(639)
(210)
-
-
(271)
(176)
(910)
(386)
902
979
1,881
(66)
138
72
72
732
767
1,499
(74)
212
138
138
14
14
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
Company Statement of Cash Flows
054
Note to the Consolidated Statement of Cash Flow
Note to the Consolidated Statement of Cash
Flow for the year ended 31 December 2018
LOSS FOR THE YEAR
ADJUSTMENTS FOR:
Depreciation of property, plant, and equipment
Amortisation of intangibles
Well impairment
Share based payments
Share of results from joint venture
2018
$000
2017
$000
(930)
(1,485)
93
145
32
42
67
78
-
60
Operating cash flows before movements in working capital
(618)
(1,280)
(Increase)/decrease in receivables
(Increase)/decrease in other assets
(Decrease)/increase in payables and other liabilities
(Increase)/decrease in deposits and prepayments
(212)
(263)
(137)
234
147
1
20
(75)
CASH GENERATED/(CONSUMED) BY OPERATIONS
(996)
(1,187)
Company Statement of Cash Flows
Company Statement of Cash Flows for the
year ended 31 December 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated/(consumed) by operations
Interest paid
Cash generated/(consumed) by operations
Notes
2018
$000
2017
$000
(1,051)
(1,042)
-
-
(1,051)
(1,042)
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
Note to the Company Statement of Cash Flows
055
Notes
2018
$000
2017
$000
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on issue of shares
New borrowing
Net cash from financing activities
Increase/(decrease) 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
14
REPRESENTED BY:
Cash at bank
902
101
1,003
(48)
78
30
30
337
732
1,069
27
51
78
78
Note to the Company Statement of Cash Flows
Note to the Company Statement of Cash
Flows for the year ended 31 December 2018
Reconciliation of operating loss to net cash
generated from operations
LOSS FOR THE YEAR
ADJUSTMENTS FOR:
Share based payment
Operating cash flows before movements in working capital
(Increase)/decrease in receivables
(Decrease)/increase in payables
2018
$000
2017
$000
(1,125)
(1,167)
42
(1,083)
(3)
35
60
(1,107)
37
28
CASH GENERATED (CONSUMED) BY OPERATIONS
(1,051)
(1,042)
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
056
Notes to the Company Financial Statements
General Information
Nostra Terra Oil and Gas Company plc
(Nostra Terra) is a company incorporated
in England and Wales and quoted on the
AIM market of the London Stock Exchange.
The address of the registered office is
disclosed on the company information page
of this annual report. The principal activity of
the group is described in the directors’ report.
1 | Accounting Policies
Going concern
The financial statements have been prepared
on the assumption that the group is a going
concern. When assessing the foreseeable
future, the directors have looked at a period
of 12 months from the date of approval of
this report.
The group’s business activities, together
with the factors likely to affect its future
development, performance and position
are set out in the Chief Executive Officer’s
report and Directors report. In addition, note
19 to the financial statements includes the
group’s objectives, policies and processes
for managing its capital; its financial risk
management objectives; and its exposures
to credit risk and liquidity risk.
The group’s forecasts and projections, taking
account of reasonable possible changes in
trading performance, show that the group
should be able to operate within the level
of its current cash resources. This takes into
account the post year end share issue for
£1.15m but does assume that the facility
with Washington Federal bank is renewed in
January 2020. The directors have no reason
to believe this is not the case. One of the
loan covenants is that a intercompany loan
between the company and New Horizon
Energy LLC is capitalised. This has yet to occur.
The directors are aware of this and are taking
steps to resolve this issue.
After making enquiries, the directors have a
reasonable expectation that the company
and group have adequate resources to
continue in operational existence for the
foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing
the annual report and financial statements.
Basis of preparation
These financial statements have been
prepared in accordance with International
Financial Reporting Standards and IFRIC
interpretations issued by the International
Accounting Standards Board (IASB) as
adopted by the European Union and with
those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
The financial statements have been prepared
under the historical cost convention.
New and amended standards adopted
by the company
There are no IFRS or IFRIC interpretations that
are effective for the first time in this financial
period that would be expected to have a
material impact on the group.
Standards, interpretations and
amendments to published standards
that are not yet effective
The following new and amended IFRSs have
been adopted during the year.
•
•
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with
Customers including amendments and
clarifications
The following new standards, amendments
to standards and interpretations have been
issued, but are not effective for the financial
period beginning 1 January 2018 and have not
been early adopted.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
057
The new standards include:
IFRS 3 Business Combinations2
IFRS 16 Leases1
IFRS 17
Insurance Contracts3
IAS 1
IAS 8
Presentation of Financial Statements2
Accounting Policies, Changes in
Accounting Estimates and Errors2
IAS 19
Employee Benefits (amendment)1
IAS 28
Investment in associates and joint
ventures (amendment) 1
IFRIC 23 Uncertainty over Income Tax
Treatments1
Improvements to IFRSs
Annual Improvements 2015-2017
Cycle1: Amendments to 2 IFRSs and
2 IASs
1 Effective for annual periods beginning on or
after 1 January 2019
2 Effective for annual periods beginning on or
after 1 January 2020
3 Effective for annual periods beginning on or
after 1 January 2021
The directors anticipate that the adoption of
these standards and interpretations in future
periods will have no material effect on the
financial statements of the group.
Basis of consolidation
Where the company has the power, either
directly or indirectly, to govern the financial
and operating policies of another entity or
business so as to obtain benefits from its
activities, it is classified as a subsidiary. The
consolidated financial statements present the
results of the company and its subsidiaries
(“the group”) as if they formed a single entity.
Intercompany transactions and balances
between group companies are therefore
eliminated in full.
The consolidated financial statements
incorporate the results of business
combinations using the purchase method.
In the statement of financial position, the
acquiree’s identifiable assets, liabilities and
contingent liabilities are initially recognised
at their fair values at the acquisition date. The
results of acquired operations are included in
the consolidated statement of comprehensive
income from the date on which control
is obtained. They are deconsolidated from the
date control ceases.
Subsidiaries
The purchase method of accounting is used
to account for the acquisition of subsidiaries
by the group. The cost of an acquisition is
measured as the fair value of the assets
given, equity instruments issued and
liabilities incurred or assumed at the date of
exchange, plus costs directly attributable to
the acquisition. Identifiable assets acquired
and liabilities and contingent liabilities
assumed in a business combination are
measured initially at their fair values at the
acquisition date, irrespective of the extent of
any minority interest. The excess of the cost of
acquisition over the fair value of the group’s
share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition
is less than the fair value of the net assets
of the subsidiary acquired, the difference is
recognised directly in the income statement.
Inter-company transactions, balances and
unrealised gains on transactions between
group companies are eliminated. Unrealised
losses are also eliminated but considered an
impairment indicator of the asset transferred.
Accounting policies of subsidiaries have
been changed where necessary to ensure
consistency with the policies adopted by
the group.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
058
Associates
An associate undertaking (“associate”)
is an enterprise over whose financial and
operating policies the group has the power
to exercise significant influence and which
is neither a subsidiary nor a joint venture of
the group. The equity method of accounting
for associates is adopted in the group
financial statements, such that they include
the group’s share of operating profit or loss,
exceptional items, interest, taxation and net
assets of associates (“the equity method”).
In applying the equity method, account is
taken of the group’s share of accumulated
retained earnings and movements in
reserves from the effective date on which an
enterprise becomes an associate and up to
the effective date of disposal. The share of
associated retained earnings and reserves
is generally determined from the associate’s
latest interim or final financial statements.
Where the group’s share of losses of an
associate exceeds the carrying amount of
the associate, the associate is carried at nil.
Additional losses are only recognised to the
extent that the group has incurred obligations
or made payments outside the course of
ordinary business on behalf of the associate.
Joint Venture
Investment in entities which constitute a joint
venture in accordance with the definition
in International Accounting Standard no.
28 Investments in Associates are accounted
for using the equity method, with the group’s
share of profits or losses being adjusted
against the original cost of the investment
on an annual basis.
Intangible assets
Goodwill
Goodwill represents the excess of the cost
of an acquisition over the fair value of the
group’s share of the net identifiable assets
of the acquired subsidiary or associate at the
date of acquisition. Goodwill on acquisitions of
subsidiaries is included in ‘intangible assets’.
Separately recognised goodwill is tested
annually for impairment and carried at
cost less accumulated impairment losses.
Impairment losses on goodwill are not
reversed. Gains and losses on the disposal
of an entity include the carrying amount of
goodwill relating to the entity sold.
Goodwill is allocated to cash-generating
units for the purpose of impairment
testing. The allocation is made to those
cash-generating units or groups of
cash-generating units that are expected to
benefit from the business combination in
which the goodwill arose. The group allocates
goodwill to each business segment in each
country in which it operates.
Impairment of non-financial assets
Assets that have an indefinite useful life,
for example goodwill, are not subject to
amortisation and are tested annually
for impairment. Assets that are subject
to amortisation are reviewed for
impairment whenever events or changes
in circumstances indicate that the carrying
amount may not be recoverable. An
impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable
amount is the higher of an asset’s fair value
less costs to sell and value in use. For the
purposes of assessing impairment, assets
are grouped at the lowest levels for which
there are separately identifiable cash flows
(cash-generating units). Non-financial assets
other than goodwill that suffered impairment
are reviewed for possible reversal of the
impairment at each reporting date.
Where an impairment loss subsequently
reverses, the carrying amount of the asset
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
059
(cash-generating unit) is increased to the
revised estimated of its recoverable amount,
but so that the increased carrying amount
does not exceed the carrying amount
that would have been determined had no
impairment loss been recognised for the
asset (cash-generating unit) in prior years.
A reversal of an impairment loss is recognised
as income immediately, unless the relevant
asset is carried art a revalued amount in
which case the reversal of impairment loss is
treated a revaluation increase.
Property, plant and equipment
Tangible non-current assets are stated at
historical cost less depreciation. Historical
cost includes expenditure that is 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. The carrying amount of the replaced
part is derecognised. All other repairs and
maintenance are charged
to the income statement during the financial
year in which they are incurred. Depreciation
is provided at the following annual rates in
order to write off each asset over its estimated
useful life:
Plant and machinery – over 7 years
The assets’ residual values and useful
economic lives are reviewed, and adjusted if
appropriate, at each statement of financial
position date. An asset’s carrying amount is
written down immediately to its recoverable
amount if the asset’s carrying amount is
greater than its estimated recoverable value.
Gains and losses on disposals are determined
by comparing the proceeds with the carrying
amount and are recognised within other
(losses) or gains in the income statement.
When revalued assets are sold, the amounts
included in other reserves are transferred to
retained earnings.
Investments
Investments are stated at cost less provision
for any impairment value.
Revenue recognition
Revenue comprises the fair value of the
consideration received or receivable in
relation to the proceeds by the prospects
which the company has a working interest
in. Revenue is shown net of value-added tax,
returns, rebates and discounts and after
eliminating sales within the group. Revenue is
recognised when the oil and gas produced is
despatched and received by the customers.
The directors consider this the point when
the Company’s performance obligation
is satisfied.
Nostra has elected to apply the ‘modified
retrospective’ approach to transition
permitted by IFRS 15 under which comparative
financial information is not restated. Given the
nature of Nostra’s oil sales arrangements, with
control passing to the customer upon transfer
of physical possession, Nostra principally
satisfies its performance obligations at a point
in time as opposed to over a period of time.
Therefore, the accounting of revenue under
IFRS 15 did not have a material effect on the
Group’s financial statements as at 1 January
2018 and so no transition adjustment has been
made. The Standard has not had a material
impact on the Group’s accounting policy in
respect to revenue as previously disclosed in
the 2017 financial statements.
The directors consider that revenue
generation is exclusively for oil production
in the US and so no further segmentation
is required.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
060
Functional currency translation
(i) Functional and presentation currency
Items included in the financial statements of
the group are measured using the currency of
the primary economic environment in which
the entity operates (the functional currency),
which is mainly United States Dollars (US$). The
financial statements are presented in United
States Dollars (US$), which is the group’s
presentation currency. All consolidated
entities are presented in US$ and so no
translation is required on consolidation.
The directors elected to alter the
presentational currency of both the Group
and Company from Pound Sterling (£) to
US$ at the start of the year to better reflect
the functional currency of the Group and
so provide more relevant information to the
users of the accounts. This is classed as a
change in accounting policy as per IAS 8 and
so was implemented retrospectively. This
required translation of historic balances as
at the year ended 31 December 2016 which
created a Translation Reserve, as well as
translations of the balances for the year
ended 31 December 2017.
(ii) Transactions and balances
Foreign currency transactions are translated
into the presentational currency using
exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and
losses resulting from the settlement of such
transactions and from the translation at year-
end exchange rates of monetary assets and
liabilities denominated in foreign currencies
are recognised in the income statement.
(iii) Group Companies
All consolidated entities are presented
in US$ and so no translation is required
on consolidation.
Taxation
The tax expense represents the sum of the
tax currently payable and deferred tax. The
tax currently payable is based on the taxable
profit for the year. Taxable profit differed from
net profit as reported in the income statement
because it excludes items of income or
expense that are taxable or deductible in
other years and it further excludes items that
are never taxable or deductible. The entity’s
liability for current tax is calculated using tax
rates that have been enacted or substantively
enacted by the statement of financial
position date.
Deferred tax
Deferred tax is recognised on differences
between the carrying amounts of assets
and liabilities in the financial statements
and the corresponding tax bases used
in the computation of taxable profit, and
is accounted for using the statement of
financial position liability method. Deferred
tax liabilities are generally recognised for
all taxable temporary differences and
deferred tax assets are recognised to the
extent that it is probable that taxable profits
will be available against which deductible
temporary differences can be utilised. Such
assets and liabilities are not recognised if the
temporary arises from goodwill or from the
initial recognition) other than in a business
combination) of other assets and liabilities in
a transaction that affects neither the taxable
profit nor the accounting profit.
The carrying amount of deferred tax is
reviewed at each statement of financial
position date and reduced to the extent that
it is no longer probable that sufficient taxable
profits will be available to allow all or part of
the asset to be recovered.
Deferred tax is calculated at the tax rates
that are expected to apply in the period when
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
061
the liability is settled or the asset realised.
Deferred tax is charged or credited directly
to equity, in which case the deferred tax is
also dealt with in equity.
Deferred tax assets and liabilities are offset
when there is a legally enforceable right to
set off current tax assets against current tax
liabilities and when they relate to income
taxes levied by the same taxation authority
and the Company intends to settle its current
tax assets and liabilities on a net basis.
Operating leases
Rental leases in which a significant portion
of the risks and rewards of ownership are
retained by the lessor are classified as
operating leases. Payments made under
operating leases (net of any incentives
received from the lessor) are charged to the
income statement.
Cash and cash equivalents
Cash and cash equivalents include cash in
hand, deposits held on call with banks, other
short-term highly liquid investments with
original maturities of three months or less,
and bank overdrafts.
Trade receivables
Trade receivables are recognised initially at
fair value and subsequently measured at
amortised cost using the effective interest
method, less provision for impairment. A
provision for impairment is established
when there is objective evidence that the
group will not be able to collect all amounts
due according to the original terms of the
receivables. Significant
financial difficulties of the debtor,
probability that the debtor will enter
bankruptcy or financial reorganisation,
and default or delinquency in payments
are considered indicators that the trade
receivable is impaired.
Trade payables
Trade payables are recognised initially
at fair value and subsequently measured
at amortised cost using the effective
interest method.
Borrowings
Borrowings are recognised initially at fair
value, net of transaction costs incurred.
Borrowings are subsequently stated at
amortised cost; any difference between
the proceeds (net of transaction costs)
and the redemption value is recognised
in the income statement over the year
of the borrowings using the effective
interest method.
Borrowings are classified as current liabilities
unless the group has an unconditional right to
defer settlement of the liability for at least 12
months after the balance sheet date.
Financial instruments
Financial assets and financial liabilities are
initially classified as measured at amortised
cost, fair value through other comprehensive
income, or fair value through profit and loss
when the group becomes a party to the
contractual provisions of the instrument.
Financial assets are derecognised when the
contractual rights to the cash flows expire,
or the group no longer retains the significant
risks or rewards of ownership of the financial
asset. Financial liabilities are derecognised
when the obligation is discharged, cancelled
or expires.
Financial assets are classified dependent on
the group’s business model for managing the
financial and the cash flow characteristics
of the asset. Financial liabilities are classified
and measured at amortised cost except
for trading liabilities, or where designated
at original recognition to achieve more
relevant presentation. The group classifies
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
062
its financial assets and liabilities into the
following categories:
Financial assets at amortised cost
The group’s financial assets at amortised
cost comprise trade and other receivables.
These represent debt instruments with fixed
or determinable payments that represent
principal or interest and where the intention is
to hold to collect these contractual cash flows.
They are initially recognised at fair value,
included in current and non-current assets,
depending on the nature of the transaction,
and are subsequently measured at amortised
cost using the effective interest method less
any provision for impairment.
Impairment of trade and other receivables
In accordance with IFRS 9 an expected loss
provisioning model is used to calculate an
impairment provision. We have implemented
the IFRS 9 simplified approach to measuring
expected credit losses arising from trade and
other receivables, being a lifetime expected
credit loss. This is calculated based on an
evaluation of our historic experience plus
an adjustment based on our judgement
of whether this historic experience is likely
reflective of our view of the future at the
balance sheet date. In the previous year the
incurred loss model is used to calculate the
impairment provision.
Financial liabilities at amortised cost
Financial liabilities at amortised cost comprise
finance lease obligations and trade and
other payables. They are classified as current
and non-current liabilities depending on the
nature of the transaction, are subsequently
measured at amortised cost using the
effective interest method.
Financial assets at fair value through
profit and loss
The group holds a derivative against the price
of oil held for operation purposes. These are
recognised and measured at fair value using
the most recent available market price with
gains and losses recognised immediately in
the profit and loss.
The fair value measurement of the group’s
financial and non- financial assets and
liabilities utilises market observable inputs
and data as far as possible. Inputs used
in determining fair value measurements
are categorised into different levels based
on how observable the inputs used in the
valuation technique utilised are (the ‘fair
value hierarchy’).
Level 1 Quoted prices in active markets
Level 2 Observable direct or indirect inputs
other than Level 1 inputs
Level 3
Inputs that are not based on
observable market data
The group measures financial instruments
relating to platform holdings at fair value
using Level 1.
The company provides financial guarantees
to licensed banks for credit facilities extended
to a subsidiary company. The fair value of
such financial guarantees is not expected to
be significantly different as the probability
of the subsidiary company defaulting on the
credit lines is remote.
Share-based compensation
The fair value of the employee and suppliers
services received in exchange for the grant of
the options is recognised as an expense. The
total amount to be expensed over the vesting
year is determined by reference to the fair value
of the options granted, excluding the impact
of any non-market vesting conditions (for
example, profitability and sales growth targets).
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
063
Non-market vesting conditions are included
in assumptions about the number of options
that are expected to vest. At each statement
of financial position date, the entity revises its
estimates of the number of options that are
expected to vest. It recognises the impact
of the revision to original estimates, if any, in
the income statement, with a corresponding
adjustment to equity.
The proceeds received net of any directly
attributable transaction costs are credited
to share capital (nominal value) and share
premium when the options are exercised.
The fair value of share-based payments
recognised in the statement of
comprehensive income is measured by use
of the Black Scholes model, which takes into
account conditions attached to the vesting
and exercise of the equity instruments. The
expected life used in the model is adjusted;
based on management’s best estimate, for
the effects of non-transferability, exercise
restrictions and behavioural considerations.
The share price volatility percentage
factor used in the calculation is based on
management’s best estimate of future share
price behaviour and is selected based on
past experience, future expectations and
benchmarks against peer companies in
the industry.
The Group does not operate any cash-settled
share-based payments and as such are
not affected by the amendments to IFRS 2 –
Share-based payments.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the
issue of new shares or options are shown
in equity as a deduction, net of tax, from
the proceeds.
Oil and gas assets
The group applies the successful efforts
method of accounting for oil and gas assets
and has adopted IFRS 6 Exploration for and
evaluation of mineral resources.
Exploration and evaluation (“E&E”) assets
Under the successful efforts method of
accounting, all licence acquisition, exploration
and appraisal costs are initially capitalised in
well, field or specific exploration cost centres
as appropriate, pending determination.
Expenditure incurred during the various
exploration and appraisal phases is then
written off unless commercial reserves
have been established or the determination
process has not been completed.
Pre-licence costs
Costs incurred prior to having obtained the
legal rights to explore an area are expensed
directly to the income statement as they
are incurred.
Exploration and evaluation (“E&E”) costs
Costs of E&E are initially capitalised as E&E
assets. Payments to acquire the legal right
to explore, together with the directly related
costs of technical services and studies,
seismic acquisition, exploratory drilling
and testing are capitalised as intangible
E&E assets.
Tangible assets used in E&E activities (such
as the group’s drilling rigs, seismic equipment
and other property, plant and equipment used
by the company’s exploration function) are
classified as property, plant and equipment.
However, to the extent that such a tangible
asset is consumed in developing an
intangible E&E asset, the amount reflecting
that consumption is recorded as part of the
cost of the intangible asset. Such intangible
costs include directly attributable overheads,
including the depreciation of property, plant
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
064
and equipment utilised in E&E activities,
together with the cost of other materials
consumed during the exploration and
evaluation phases.
E&E costs are not amortised prior to the
conclusion of appraisal activities.
Treatment of E&E assets at
conclusion of appraisal activities
Intangible E&E assets relating to each
exploration licence/prospect are carried
forward until the existence (or otherwise) of
commercial reserves has been determined,
subject to certain limitations including
review for indications of impairment. If
commercial reserves are discovered the
carrying value, after any impairment loss of
the relevant E&E assets, is then reclassified
as development and production assets. If,
however, commercial reserves are not found,
the capitalised costs are charged to expense
after conclusion of appraisal activities.
Development and production assets
Development and production assets are
accumulated generally on a field-by-field
basis and represent the cost of developing the
commercial reserves discovered and bringing
them into production, together with the E&E
expenditures incurred in finding commercial
reserves transferred from intangible E&E
assets as outlined above.
The cost of development and production
assets also includes the cost of acquisitions
and purchases of such assets, directly
attributable overheads and the cost of
recognising provisions for future restoration
and decommissioning.
Depletion, amortisation and
impairment of oil and gas assets
All expenditure carried within each field is
amortised from the commencement of
production on a unit of production basis,
which is the ratio of oil and gas production
in the period to the estimated quantities
of commercial reserves at the end of the
period plus the production in the period, on a
field-by-field basis. Costs used in the unit of
production calculation comprise
the net book value of capitalised costs plus
the estimated future field development costs
to access the related commercial reserves.
Changes in the estimates of commercial
reserves or future field development costs are
dealt with prospectively.
Where there has been a change in economic
conditions that indicates a possible
impairment in an oil and gas asset, the
recoverability of the net book value relating
to that field is assessed by comparison with
the estimated discounted future cash flows
based on management’s expectations of
future oil and gas prices and future costs.
Any impairment identified is charged to the
income statement as additional depletion and
amortisation. Where conditions giving rise to
impairment subsequently reverse, the effect
of the impairment charge is also reversed as
a credit to the income statement, net of any
depreciation that would have been charged
since the impairment.
Decommission liability
Where a material liability for the removal of
production facilities and site restoration at
the end of the productive life of the assets
exist, a provision for decommissioning liability
is recognised. The amount recognised is the
present value of estimated future expenditure
determined in accordance with local
conditions and requirements. An intangible
asset of an amount equivalent to the provision
is recognised and depreciated on a unit
production basis. Changes in estimates are
recognised prospectively, with corresponding
adjustments to the provision and the
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
065
associated intangible asset. Period changes
in the present value arising from discounting
are included in depletion, depreciation and
amortisation cost in cost of sales.
Commercial reserves
Commercial reserves are proven and
probable oil and gas reserves, which are
defined as the estimated quantities of crude
oil, natural gas and natural gas liquids which
geological, geophysical and engineering
data demonstrate with a specified degree
of certainty to be recoverable in future
years from known reservoirs and which are
considered commercially producible.
Critical accounting estimates and judgments
The preparation of consolidated financial
statements requires the group to make
estimates and assumptions that affect
the application of policies and reported
amounts. Estimates and judgments are
continually evaluated and are based on
historical experience and other factors
including expectations of future events that
are believed to be reasonable under the
circumstances. Actual results may differ
from these estimates. The estimates and
assumptions which have a significant risk
of causing a material adjustment to the
carrying amount of assets and liabilities are
discussed below:
a Impairment of investments
Costs of investments are reviewed for
impairment if events or changes in
circumstances indicate that the carrying
amount may not be recoverable. When a
review for impairment is conducted,
the recoverable amount is determined
based on value in use calculations
prepared on the basis of management’s
assumptions and estimates for each cash
generating unit.
b Impairment of property, plant
and equipment
Property, plant and equipment are
reviewed for impairment if events or
changes in circumstances indicate
that the carrying amount may not
be recoverable. When a review
for impairment is conducted, the
recoverable amount is determined based
on value in use calculations prepared on
the basis of management’s assumptions
and estimates.
c Recoverability of exploration and
evaluation costs
E&E assets are assessed for impairment
when circumstances suggest that
the carrying amount may exceed its
recoverable value. This assessment
involves judgment as to (i) the likely future
commerciality of the asset and when such
commerciality should be determined, and
(ii) future revenues and costs pertaining
to the asset in question, and the discount
rate to be applied to such revenues
and costs for the purpose of deriving a
recoverable value.
d Share-based payments
Note 1 sets out the group’s accounting
policy on share-based payments,
specifically in relation to the share options
and warrants that the company has
granted. The key assumptions underlying
the fair value of such share-based
payments are discussed in note 22. The fair
value amounts used by the group have
been derived by external consultants using
standard recognised valuation techniques.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
066
2 | Segmental Analysis
In the opinion of the directors, the group has
one class of business, being the exploitation
of hydrocarbon resources.
The group’s primary reporting format is
determined by geographical segment
according to the location of the hydrocarbon
assets. The group’s reportable segments
under IFRS 8 in the year are as follows:
United Kingdom being the head office.
US Mid-Continent properties at year end
included the following:
1 Texas: 100% working interest in the Pine Mills
Project Unit
2 Texas: 50-75% working interest in the
Permian Basin
3 Texas: 100% working interest in the Mesquite
assets in the Permian Basin
Egypt properties at year end included
the following:
1 Egypt: 50% interest in the East Ghazalat
concession
The chief operating decision maker’s internal
report for the year ended 31 December 2018 is
based on the location of the oil properties as
disclosed in the below table:
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
067
SEGMENT RESULTS – 2018
Revenue
Operating profit (loss) before depreciation,
amortisation, well impairment, share-
based
payment charges, restructuring costs and
gain (loss) on sale of assets and foreign
exchange:
US mid-continent 2018
$000
Head office 2018
$000
Total 2018
$000
2,267
-
2,267
812
(1287)
(475)
Depreciation of tangibles
Amortisation of intangibles
Exploration
Well impairment
Share based payment
Realised exchange (loss)/gain
Gain from sale of assets
Operating loss
Finance expense
Other income (expense)
Gain (loss) before taxation
SEGMENT ASSETS
Property, plant and equipment
Intangible assets
Cash and cash equivalents
Trade and other receivables
Other assets
(93)
(145)
(289)
(32)
-
-
38
291
(47)
226
195
536
1,873
42
376
359
3,186
-
-
-
-
42
17
-
(1228)
(160)
(12)
(93)
(145)
(289)
(32)
42
17
38
(937)
(207)
214
(1,125)
(930)
-
-
30
26
-
56
536
1,873
72
402
359
3,242
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
068
SEGMENT RESULTS – 2017
Revenue
Operating profit (loss) before depreciation,
amortisation, well impairment share-based
payment charges and restructuring costs:
Depreciation of tangibles
Amortisation of intangibles
Well impairment
Exploration
Share of results of joint venture
Share based payment
Realised exchange (loss)/gain
Gain from sale of assets
Operating loss
Gain from extinguishment of debt
Finance expense
Tax
Gain (loss) before taxation
SEGMENT ASSETS
Property, plant and equipment
Intangible assets
Cash and cash equivalents
Trade and other receivables
Investment in joint venture
Other assets
US mid-
continent 2017
$000
Head
office 2017
$000
Total
2017
$000
1,453
46
(68)
(78)
-
(5)
-
-
-
13
(92)
-
(226)
-
(318)
358
1,411
60
167
-
330
2,326
-
1,453
(1,079)
(1,033)
-
-
-
-
-
(60)
(50)
54
(1,135)
-
(32)
-
(68)
(78)
-
(5)
-
(60)
(50)
67
(1,227)
-
(258)
-
(1,167)
(1,485)
-
-
78
23
-
-
101
358
1,411
138
190
-
330
2,472
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
069
3 | Employees and Directors
Directors’ fees
Directors’ remuneration
Social security costs
The average monthly number of employees
(including directors) during the year was
as follows:
Directors
2018
$000
2017
$000
171
250
-
421
51
195
14
260
2018
Number
2017
Number
3
3
3
3
Directors’ remuneration
Other than the directors, the group had no
other employees. Total remuneration paid to
directors during the year was as listed above.
The director’s emoluments and other benefits
for the years ended 31 December 2018 is as
listed below:
M B LOFGRAN
2018
$000
2017
$000
250
195
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
070
4 | Finance Income/Expense
For the year ended 31 December 2018
On other receivables
Finance Expense
5 | Operating Loss for the Year
The operating loss for the year ended
31 December is stated after charging/(crediting):
(Company 2018: $30,000 – 2017: $29,000)
Depreciation of property, plant and equipment
Amortisation of intangibles
Exploration
Well impairment
The analysis of administrative expenses in the consolidated
income statement by nature of expense:
Directors’ remuneration
Social security costs
Directors’ fees
Travelling and entertaining
Accountancy fees
Legal and professional fees
2018
$000
-
(207)
2017
$000
(6)
(252)
(207)
(258)
2018
$000
2017
$000
30
93
145
298
32
29
68
78
5
-
2018
$000
2017
$000
250
-
129
101
61
487
195
14
41
73
44
541
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
071
Auditors’ remuneration
Bad debt costs
Foreign exchange difference
Other expenses
6 | Other Income
Other income is made up of the following:
Gain on disposal of assets
Other income
Other income relates to the aggregate recognised and
unrecognised gain on a commodity swap.
7 | Income Tax Expense
The tax charge on the loss for the year was as follows:
Current Tax:
Corporation Tax
Overseas corporation tax/(recovery)
TOTAL
30
18
-
248
29
92
-
184
1,324
1,213
2018
$000
2017
$000
38
214
252
67
-
67
2018
$000
2017
$000
-
-
-
-
-
-
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
072
Loss before tax
Loss on ordinary activities before taxation multiplied by
standard rate of UK corporation tax of 19% (2017: 19%)
Effects of:
Non-deductible expenses
Other tax adjustments
Foreign tax
CURRENT TAX CHARGE
2018
$000
2017
$000
(930)
(1,485)
177
–
177
–
177
–
(297)
–
297
–
297
–
At 31 December 2018 the Company had an
estimated excess management expenses to
carry forward of $2,339,450 (2017: $1,149,010).
The deferred tax asset at 19% (2017: 19%) on
these tax losses of $444,496 (2017: $218,312) has
not been recognised due to the uncertainty
of recovery.
8 | Loss of Parent Company
As permitted by Section 408 of the Companies
Act 2006, the income statement of the parent
company is not presented as part of these
financial statements. The parent company’s
loss for the financial year was $1,125,281 (2017:
$1,166,670).
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
073
9 | Earnings per Share
The calculation of earnings per ordinary
share is based on earnings after tax and the
weighted average number of ordinary shares
in issue during the year. For diluted earnings
per share, the weighted average number
of ordinary shares in issue is adjusted to
assume conversion of all dilutive potential
ordinary shares. The group had two classes
of dilutive potential ordinary shares, being
those share options granted to employees
and suppliers where the exercise price is less
than the average market price of the group’s
ordinary shares during the year, and warrants
granted to directors and one former adviser.
Details of the adjusted earnings per share are
set out below:
EPS — LOSS
Loss attributable to ordinary shareholders ($000)
Weighted average number of shares
CONTINUED OPERATIONS:
BASIC AND DILUTED EPS – LOSS (USD)
The diluted loss per share is the same as the
basic loss per share as the loss for the year
has an antidilutive effect.
Gross profit before depreciation, depletion, amortisation and
impairment
EPS on gross profit before depreciation, depletion, amortisation
and impairment (USD)
2018
2017
(930)
(1,485)
143,112,345
113,850,132
(0.0065)
(0.0130)
2018
$000
2017
$000
942
180
0.0066
0.0015
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
074
RECONCILIATION FROM GROSS LOSS TO GROSS PROFIT BEFORE
DEPLETION, DEPRECIATION, AMORTISATION AND IMPAIRMENT
Gross (loss)/profit
ADD BACK:
Exploration
Well impairment
Depletion, depreciation and amortisation
Gross profit before depreciation, depletion, amortisation and
impairment
2018
$000
2017
$000
374
289
32
238
942
29
5
-
146
180
10 | Other Intangibles
Group
COST
At 1 January 2017
Additions
Disposals
At 31 December 2017
Additions
Disposals
At 31 December 2018
Licence
$000
Exploration and
evaluation assets
$000
Development and
production assets
$000
Total
$000
524
-
–
524
–
–
524
1,951
1,983
4,458
-
-
119
-
119
-
1,951
2,102
4,577
-
-
639
(363)
639
(363)
1,951
2,378
4,853
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
075
PROVISION
At 1 January 2017
Charge for the year
At 31 December 2017
Charge for the year
Impairment
Disposals
At 31 December 2018
CARRYING VALUE
At 31 December 2018
At 31 December 2017
492
–
492
–
32
–
524
-
32
1,951
–
1,951
–
-
–
645
3,088
78
723
145
–
(363)
78
3,166
145
32
(363)
1,951
505
2,980
-
-
1,873
1,379
1,873
1,411
The group assesses at each reporting
date whether there is an indication that
the intangible assets may be impaired,
by considering the net present value of
discounted cash flows forecasts. If an
indication exists an impairment review
is carried out by reference to available
engineering information. At the year end,
the directors are of the opinion that an
impairment of $32,000 (2017: $Nil) should be
provided. Please note that there were no
other intangible assets held at Company level.
Amortisation, impairment charges and any
profit or loss on disposal of the capitalised
intangible costs is included within cost of sales
in the consolidated income statement.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
076
11 | Property, Plant and Equipment
Group
COST
At 1 January 2017
Additions
Disposals
At 31 December 2017
Additions
Disposals
At 31 December 2018
PROVISION
At 1 January 2017
Charge for the year
At 31 December 2017
Charge for the year
Disposals
At 31 December 2018
CARRYING VALUE
At 31 December 2018
At 31 December 2017
Plant & equipment - oil and gas assets
$000
429
131
-
560
271
(95)
736
135
67
202
93
(95)
200
536
358
Depreciation charges are included
within cost of sales in the Consolidated
Income Statement.
In addition, the directors are of the opinion
that no impairment should be provided.
Please note that there were no property plany
and equipment assets held at Company level.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
077
12 | Fixed Asset Investments
Company
Investment
in subsidiary
$000
Loan to
subsidiaries
$000
Loans to
participating
interests
$000
Total
$000
COST
At 1 January 2017
Additions
Reduction
Transfers
At 31 December 2017
Additions
Reduction
Transfers
At 31 December 2018
PROVISION
At 1 January 2017
Charge for the year
Reduction
Transfer
At 31 December 2017
Charge for the year
Reduction
Transfer
At 31 December 2018
CARRYING VALUE
At 31 December 2018
At 31 December 2017
1
–
-
-
1
-
-
-
1
-
-
-
-
-
-
-
-
-
1
1
15,147
517
-
157
15,821
-
(387)
-
15,434
157
-
-
(157)
-
-
-
-
-
15,305
517
-
-
15,822
-
(387)
-
15,535
(15,147)
(157)
(15,304)
(517)
-
(157)
(15,821)
-
387
-
(15,434)
-
-
-
-
157
-
-
-
-
-
-
-
(517)
-
-
(15,821)
-
387
-
(15,434)
1
1
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
078
In the opinion of the directors, the aggregate
value of the company’s investment in
subsidiary undertakings is not less than
the amount included in the statement of
financial position.
Historically, loans to participating interests
are reported as in increase in the Company’s
investment in joint venture, but have been
provided for. As the Group acquired 100%
shareholding in the joint venture in 2017 this
balance had been transferred to loan to subs.
Loan to participating interests are reported
as in increase in the company’s investment in
joint venture, but have been provided for.
The details of the subsidiaries are as set
out below:
Shareholding
Country of
Incorporation
Nature of Business
NEW HORIZON ENERGY 1 LLC
(“NHE”)
BUCANNEER OPERATING, LLC
(“BUCANNEER”)
INDEPENDENT RESOURCES
(EGYPT) (“IRE”)
100%
100%
100%
USA
USA
UK
Oil and gas exploration
in USA
Oil and gas exploration
in USA
Oil and gas exploration
in Egypt
Due to a lack of primary financial information,
the subsidiary has not been included in
the consolidation. Full ownership was
established in 2017, leading to the investments
and loans in the joint venture to be reclassed
to investments and loans to subsidiaries.
At both Group and Company levels, these
balances had been fully impaired.
The Group has acquired the remaining 50%
interest in Independent Resources (Egypt)
Limited (IRE), a company incorporated in
England & Wales, whose purpose is
to invest in the oil and gas exploration and
production activities in the Arab Republic of
Egypt, from Echo Energy Plc. As the company
was fully owned at the year end the balance
of the investment in the joint venture was
transferred to investment in subsidiaries.
The consideration for the remaining 50%
interest is $100,000 with 2 tranches of
contingent payments of $200,000 made if
the East Ghazalat concession produces 800
and 1,000 BOPD for a fixed timeframe. Each
payment can be satisfied in cash or in new
ordinary shares in the Company of 0.1p at the
Company’s discretion. No provision has been
included for contingent consideration as,
based on the information available at the time
of the purchase, the Company did not expect
the milestones to be met.
In October 2015 the Company acquired
a 50 per cent working interest in the East
Ghazalat production licence located in the
Western Desert, Egypt from TransGlobe Energy
Corporation through the acquisition of the
entire share capital of Trans Globe (GOS) Inc. a
wholly-owned subsidiary of TransGlobe Energy
Corporation (“TransGlobe”). In December
2015, the name of the acquired company was
changed to Sahara Resources (GOS) Inc.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
079
In January 2016 the Joint Venture was served
with notice of default in relation to cash
calls raised by North Petroleum International
S.A. (“North Petroleum”) the operator of
East Ghazalat.
The Joint Venture has rebutted the claims
from North Petroleum but the current
breakdown in relations has meant that
operator North Petroleum has been unwilling
to furnish financial information to allow a
proper determination of licence costs and an
audit of licence revenues to be completed.
In light of this lack of access to primary
accounting records the results of the
Company for the year ended 31 December
2017 and 31 December 2018 reflect the
investment in Sahara Resources GOS Inc. at
historical cost and the loan note consideration
payable to Trans Globe and the accrued
costs of completing the related acquisition
but do not consolidate any share of profits
or losses attributable to Sahara Resources
GOS Inc. underlying interests in the East
Ghazalat licence for the period since 1 July
2015, the effective date of the transaction.
The investment is reported at estimated
recoverable amount at the Company level.
The total consideration for the transaction
was $3.5 million of which $2.5 million has
been deferred as a vendor loan repayable
by the Joint Venture on 30 September 2017.
The loan note accrues interest at 10 per cent
annum payable semi-annually. Nostra Terra
and Independent Resources plc were joint
and severally liable for the repayment of the
loan note.
The final loan note principal and semi-
annual interest payable to Trans Globe there
on remain subject to final determination
in accordance with completion of working
capital adjustment provisions in the sale and
purchase agreement.
At 31 December 2015 the loan note principal
was recorded based on Trans Globe’s
initial assessment of working capital at
completion and interest on this estimated
loan note principal had been accrued up to
31 December 2015.
The US dollar denominated loan liability all
to TransGlobe was retranslated at the then
prevailing year-end exchange rates.
As a non-monetary long-term asset, the
consideration for acquiring the share capital
of Trans Globe GOS Inc. has been recorded
at the prevailing exchange rate at the time
of completion of the acquisition but has not
been retranslated at the prevailing year-end
exchange rate.
TransGlobe accepted an early settlement
of the loan note with a final settlement of
$200,000, which has released TransGlobe of
any potential warrant or indemnity claims,
in exchange for forgoing the outstanding
loan balance of $2,300,000 and any accrued
interest since acquisition of the company.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
080
13 | Trade and Other Receivables
CURRENT:
Prepayments and other receivables
Other taxes and receivables
GROUP
COMPANY
2017
$000
2018
$000
2017
$000
190
–
190
–
26
26
–
23
23
2018
$000
376
26
402
The directors consider the carrying value of
the receivables to approximate their fair value
14 | Cash and Cash Equivalents
Bank current accounts
GROUP
COMPANY
2018
$000
72
2017
$000
138
2018
$000
30
2017
$000
78
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
081
15 | Trade and Other Payables
CURRENT:
Trade payables
Accruals and deferred income
Other taxes payables
GROUP
COMPANY
2018
$000
447
189
6
642
2017
$000
634
177
16
827
2018
$000
2017
$000
231
130
6
367
171
161
-
332
Trade payables and accruals principally
comprise amounts outstanding for trade
purchases and on-going expenses.
The directors consider that the carrying
amount of trade and other payables
approximates their fair value.
16 | Financial Liabilities - Borrowing
Maturity of the borrowings is as follows:
Current:
Repayable within one year:
Loan notes
Repayable after one year:
Loan notes
GROUP
COMPANY
2018
$000
2017
$000
2018
$000
2017
$000
723
1,740
1,955
-
2,678
1,740
722
-
722
621
-
621
Borrowings include a facility where the loans
are secured against the group’s interest in
its assets. At the year end the outstanding
balance was $1,955k (2017: $Nil). Interest is
charges for any day per annum at a variable
rate equal to the higher of (i) the WSJ Rate plus
25 basis points or (ii) 4.25%. The facility expires
in 2020.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
082
Borrowings also include an unsecured loan
with a balance at yearend of $235k (2017:
$1,119k). Interest is charged at 12% per annum
and loan is fully repayable within the year.
The group also has an loan agreement in place
with related parties, with a total outstanding
balance as at the year end of $487k (2017: $620k).
Further details can be found in note 22.
17 | Called Up Share Capital
Number:
Class
Nominal
value:
2018
$000
2017
$000
147 million (2017 – 126 million)
Ordinary
0.1p
221
192
4,110 million (2017 – 4,110 million)
Deferred
0.098p
6,549
6,549
During the year there were a number of issues:
• 9 January 2018 – 4,843,333 shares issued in
respect of warrants issued in 2017. Please
note that 3,410,000 shares had been
called upon as at the end of the previous
accounting period, but had not formally
been issued.
• 31 January 2018 – 5,569,150 shares issued in
respect of warrants issued in 2017.
•
1 March 2018 – 2,559,651 shares issued in
respect of warrants issued in 2017.
•
18 April 2018 – 577,204 shares issued to
E Ainsworth in respect of his annual
director’s and consultancy fee. Of these
shares 384,794 had been issued to
Discovery Energy Limited (a company
controlled by E Ainsworth) and 192,411 to
E Ainsworth directly.
•
18 April 2018 – 11,627,866 shares issued in
respect of warrants issued in 2017.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
083
18 | Reserves
Group
Share
translation
reserve
$000
Retained
losses
$000
Share
premium
$000
Share option
reserves
$000
Total
At 1 January 2017
(676)
(24,072)
18,409
18
Shares issued in the year
Loss for the year
–
–
–
(1,485)
696
–
(6,321)
696
(1,485)
At 31 December 2017
(676)
(25,557)
19,105
78
(7,050)
Shares issued in the year
Loss for the year
–
–
–
(930)
873
–
873
(930)
At 31 December 2018
(676)
(26,487)
19,978
120
(7,065)
Company
At 1 January 2017
Shares issued in
the year
Share issue cost
Loss for the year
Share
translation
reserves
$000
Retained
losses
$000
Share
premium
$000
Share option
reserves
$000
Total
(676)
(24,933)
18,409
18
(7,182)
–
–
(1,167)
696
–
–
696
–
(1,167)
At 31 December 2017
(676)
(26,100)
19,105
78
(7,593)
Shares issued in
the year
Share issue cost
Loss for the year
–
–
(1,125)
873
–
–
873
–
(1,125)
At 31 December 2018
(676)
(27,225)
19,978
118
(7,805)
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
084
19 | Risk and Sensitivity Analysis
The group’s activities expose it to a variety
of financial risks: interest rate risk, liquidity
risk, foreign currency risk, capital risk and
credit risk. The group’s activities also expose
it to non-financial risks: market, legal and
environment risk. The group’s overall risk
management programme focuses on
unpredictability and seeks to minimise the
potential adverse effects on the group’s
financial performance. The board, on a
regular basis, reviews key risks and, where
appropriate, actions are taken to mitigate
the key risks identified.
Capital risk
The group’s objectives when managing
capital are to safeguard the ability to continue
as a going concern in order to provide
returns for shareholders and benefits to other
stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
Market risk
The group also faces risks in conducting
operations in US mid-continent, which include
but are not limited to:
• Fluctuations in the global economy could
disrupt the group’s ability to operate its
business in the US Mid-Continent and could
discourage foreign and local investment
and spending, which could adversely affect
its production.
Environmental risks
The group faces environmental risks in
conducting operations in the US Mid-
Continent which include but are not limited to:
•
If the group is found not to be in
compliance with applicable laws or
regulations, it could be exposed to
additional costs, which might hinder the
group’s ability to operate its business.
Credit risk
The group’s principal financial assets
are bank balances and cash, trade and
other receivables. The group’s credit risk is
primarily attributable to its trade receivables.
The amounts presented in the balance sheet
are net of allowances for doubtful receivables.
An allowance for impairment is made where
there is an identified loss which, based on
previous experience, is evidence of a reduction
in the recoverability of the cash flows.
Foreign currency risk
The group does not have formal policies on
interest rate risk or foreign currency risk.
The group reports its results in United States
Dollars ($). Certain loan balances and cash
accounts are denominated in Pounds Sterling.
Any change in the relative exchange rates
between Pounds Sterling and United States
Dollars could positively or negatively affect
the group’s results.
The group does not consider it necessary
to enter into foreign exchange contracts
in managing its foreign exchange risk
resulting from cash flows from transactions
denominated in foreign currency, given the
nature of the business for the time being.
Volatility of crude oil prices
A material part of the group’s revenue will be
derived from the sale of oil that it expects to
produce. A substantial or extended decline
in prices for crude oil and refined products
could adversely affect the group’s revenues,
cash flows, profitability and ability to finance
its planned capital expenditure. West Texas
Intermediate (“WTI”) oil prices ranged from
$42.53 to $76.41 in 2018 and $33.97 to $60.46
in 2017. The group has entered into two
commodity swap contracts securing the price
of 1500 barrels of oil per month for a total of 21
months, 12 of which are post year end.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
085
Liquidity risk
The group expects to fund its exploration
and development programme, as well as
its administrative and operating expenses
throughout 2019, principally using existing
working capital and expected proceeds
from the sale of future crude oil production.
The group had a bank balance of
approximately $78,000 at 31 December 2018.
20 | Financial Commitments
Operating lease commitments
There are no significant operating lease
obligations at the year end.
Capital commitments
The group had no material capital
commitments at the year end.
21 | Related Party Transactions
Group
No related party transactions other than
those highlighted below.
Company
During the year, the company advanced
loans to its subsidiaries. The details of the
transactions and the amount owed by the
subsidiaries at the year-end were:
2018
2017
Balance
$000
Loan advance/
repayment
$000
Balance
$000
Loan advance/
repayment
$000
New Horizon Energy 1 LLC
Independent Resources (Egypt) Ltd
Totals
(666)
(45)
(711)
-
-
-
10,192
(9)
(10,201)
The intercompany loans are unsecured
and interest-free. The Company has fully
impaired all intercompany balances.
As at the year end the Company owed
E Ainsworth (a director) $19,854 and Discover
Energy Ltd (a company controlled by
E Ainsworth) $33,312. These balances are
interest free and due within one year.
In addition, the Company has three loans
outstanding with related parties:
Discovery Energy Ltd
Principal loan amount of $294k. Net repayment
of principal made in the year of $Nil. Interest
charged in the year of $22k. Net loan balance
as at the year end is $303k.The loan is
unsecured, bears interest at the rate of 7.50% per
annum and is fully repayable within one year.
Discovery Energy Ltd
Principal loan amount of $166k. Funds
advanced in 2018 $28k. Net repayment of
principal made in the year of $69k. Interest
charged in the year of $14k. Net loan balance
as at the year end is $97k.The loan is unsecured,
bears interest at the rate of 7.50% per annum
and is fully repayable within one year.
John Stafford
Principal loan amount of $108k. Funds
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
086
advanced in 2018 $64k. Net repayment of
principal made in the year of $22k. Interest
charged in the year of $12k. Net loan
balance as at the year end is $88k. The loan
is unsecured, bears interest at the rate of
7.50% per annum and is fully repayable within
one year.
22 | Share-Based Payments
The group has a share-ownership
compensation scheme for senior executives
of the group whereby senior executives may
be granted options to purchase ordinary
shares in company. The group has previously
issued warrants to senior executives as a
welcome incentive and additionally during
the year issued warrants as detailed below to
third parties as consideration for their services.
A share based payment charge of $42,000
(2017: $60,000) was expensed during the year.
The details of options and warrants are as follows:
Date
of Grant
At
31.12.17
Granted
Exercised
Forfeits
At
31.12.18
Exercise
price
Exercise/vesting date
From
To
WARRANTS
24/06/2015
1,000,000
07/02/2017
750,000
–
–
–
–
–
–
1,000,000
8.77 24/06/2015 24/06/2020
750,000
2.55 06/02/2017 06/02/2022
19/04/2017
21,590,000
– 21,190,000 400,000
–
2.55 19/04/2017
19/04/2018
OPTIONS
29/10/2014
675,000
21/07/2017
2,666,666
21/07/2017
2,666,666
21/07/2017
2,666,666
–
–
–
–
04/06/2018
04/06/2018
- 2,000,000
- 9,500,000
–
–
–
–
–
–
–
675,000
20 29/10/2014 28/10/2024
– 2,666,666
3
21/07/2017
13/12/2022
– 2,666,666
4.50
21/07/2017
13/12/2022
– 2,666,666
6
21/07/2017
13/12/2022
– 2,000,000
.05 04/06/2018 03/06/2020
– 9,500,000
.05 04/06/2018 03/06/2025
The total options and warrants outstanding at
31 December 2018 and 31 December 2017 are as follows:
Total at 31.12.18 21,924,998
Total at 31.12.17 32,014,998
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
087
The numbers of options and warrants outstanding
to the directors at the year end were as follows:
Director
Warrants
Options
Total
2018
2017
2018
2017
2018
2017
M B LOFGRAN
K E AINSWORTH
DISCOVERY
ENERGY LTD
J STAFFORD
–
333,333
666,667
–
12,600,000
6,600,000
12,600,000
6,600,000
333,333
3,999,998
1,999,998
4,333,331
2,333,331
666,667
-
-
-
666,667
666,667
2,250,000
750,000
750,000
750,000
1,500,000
TOTALS
1,750,000
1,750,000
18,099,998
8,599,998
19,849,998
10,349,998
Options and warrants issued during the year:
On 4 June, 2018, 2,000,000 options were
issued to service providers. The options are
exercisable at 5p. The options vest one year
from the date of the grant and expire two
years from the date of the grant.
On 4 June 2018, 9,500,000 options were issued
to the Group’s directors, which vest if the share
price exceeds 8p for 10 consecutive days
The options expire five years from the date
of the grant and are exercisable at 5p.
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
088
The estimated fair value of the warrants
issued during the year was calculated by
applying the Black-Scholes option pricing
model. Expected volatility was originally
stated at 30%. This has been revised to 50%
because the volatility over the past year
has been used rather than the past 5 years.
The directors consider this is a more
appropriate time scale due to a significant
share price drop in 2008 which is attributable to
a one-off event where work stopped during the
opening of a well in Ukraine. The assumptions
used in the calculation were as follows::
4 June 2018
– Service
provider
4 June 2018 -
directors
7 Feb 2017
21 July 2017
21 July
2017
Share price at grant date
Exercise price
Option life in years
Risk free rate
Expected volatility
Expected dividend yield
Fair value of option/warrant
2.50p
5.00p
2 years
1.30%
50.00%
0%
0.26p
2.50p
5.00p
2.55p
2.55p
1.55p
3.00p
1.55p
4.50p
7 years
5 years
5.4 years
5.4 years
1.30%
50.00%
0%
1.01p
1.30%
73.10%
0%
1.22p
1.30%
73.10%
0%
0.60p
1.30%
73.10%
0%
0.50p
Share price at grant date
Exercise price
Option life in years
Risk free rate
Expected volatility
Expected dividend yield
Fair value of option/warrant
21 July 2017
23 June 2015
23 June 2015
28 October
2014
1.55p
6.00p
1.60p
0.80p
1.60p
1.80p
2.65p
4.00p
5.4 years
5 years
5 years
3.5 years
1.30%
73.10%
0%
0.42p
1%
50%
0%
1%
50%
0%
1.50%
50%
0%
0.24p
0.24p
0.43p
Annual Report
2018
Section
Note to the Consolidated Statement of Cash Flow
089
23 | Contingent Liabilities and Guarantees
The group has no contingent liabilities in
respect of legal claims arising from the
ordinary course of business and it is not
anticipated that any material liabilities will arise
from contingent liabilities other than those
provided for.
24 | Ultimate Controlling Party
The company is quoted on the AIM market
of the London Stock Exchange. At the date
of the annual report there was no one
controlling party.
25 | Events after the reporting period
The Group expended a significant amount of
effort in the yearend to expand it’s footprint
in the Permian Basin. This has continued post
year end with the securing of an option over
a working interest of 75% on a 800 acre site,
as well as ongoing discussions to acquire a
further 180 acre lease.
On 13 March 2019 Nostra Terra raised £1,150,000
by way of a placement of 47,916,665 new
ordinary shares of 0.1 pence each at a price
of 2.4 pence per share.
On 10 April 2019 the Company issued 704,389
ordinary shares to E Ainsworth in respect of
his annual director’s and consultancy fee.
Of these shares 469,581 had been issued
to Discovery Energy Limited and 234,808 to
E Ainsworth directly. A further 1,304,628 shares
were issued to Trey Resources Inc in resect of
equity settled fees.
The ongoing legal dispute between Nostra
Terra’s ultimate subsidiary, Sahara Resources
(GOS) Inc and North Petroleum International
Company SA, relating to the Company’s Joint
Venture at the East Ghazalat Concession
Egypt, have been successfully been referred
for arbitration. The arbitration process is
underway, with a hearing having taken
place in June 2019 at the London Courts of
International Arbitration. The results of this
arbitration have yet to be announced.
Annual Report
2018
Section
Company Information
090
Company Information
Directors
Broker
Ewen Ainsworth (Non-Executive Chairman)
Shard Capital Stockbrokers
Matt Lofgran (Chief Executive Officer)
John Stafford (Non-Executive Technical
Director)
Secretary
International Registrars Limited
Registered office
Finsgate
5-7 Cranwood Street
London EC1V 9EE
Registered number
05338258 (England and Wales)
Auditor
Jeffreys Henry LLP
Finsgate
5-7 Cranwood Street
London EC1V 9EE
Nominated adviser and broker
Strand Hanson Limited
26 Mount Row
London W1K 3SQ
8-10 Hill Street
London W1J 5NQ
Solicitors
Druces LLP
Salisbury House
London Wall
London EC2M 5PS
Bankers
National Westminster Bank plc
PO Box 712
94 Moorgate
London EC2M 6XT
Registrars
Share Registrars Ltd
The Courtyard
17 West Street
Farnham
Surrey GU9 7DR
Website
www.ntog.co.uk
Annual Report
2018
Section
Company Information
091