Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 ANNUAL REPORT AND ACCOUNTS 2021 Registration number: 05338258 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Contents Company Information Chairman’s Report Chief Executive Officer’s Report Strategic Report Directors’ Report Directors’ Information Corporate Governance Report Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated and Company Statement of Cash Flows Notes to the Financial Statements Page 1 2 4 6 9 13 14 17 22 23 24 25 26 27 28 29 www.ntog.co.uk Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Company Information Directors Stephen Staley (Independent Non-Executive Chairman) Matt Lofgran (Chief Executive Officer) John Stafford (Independent Non-Executive Director) Paul Welch (Independent Non-Executive Director) Secretary D&A Secretarial Services Limited Registered office Salisbury House, London Wall, London EC2M 5PS Registered number 05338258 (England and Wales) Auditor Jeffreys Henry LLP Finsgate 5-7 Cranwood Street London EC1V 9EE Nominated adviser Beaumont Cornish Limited Building 3 566 Chiswick High Road London W4 5YA Broker Novum Securities Limited 2nd Floor, Lansdowne House 57 Berkeley Square London W1J 6ER Solicitors Druces LLP Salisbury House London Wall, London EC2M 5PS Bankers Barclays Bank plc 1 Churchill Place Canary Wharf London E14 5HP Registrars Share Registrars Limited 3 Millennium Centre Crosby Way Farnham Surrey GU9 7XX Website www.ntog.co.uk 1 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Chairman’s Report I am pleased to present Nostra Terra Oil & Gas Company PLC’s annual report for the year ending 31 December 2021. 2021 – a year of success and positive change 2020 closed amidst uncertainty as to how the Covid-19 pandemic would develop; only in the last few months has some degree of certainty returned. As at the time of writing it appears that, with the significant exception of China, most of the world has moved back to business as usual. This translated itself into a rising WTI oil price through the year as global economic activity took off again. The reimposition of widespread lockdowns in China in early 2022, after the end of the reporting period, might have derailed this price recovery. However, the invasion of Ukraine by Russia on 24th February 2022 and the subsequent sanctions against, and voluntary boycotts of, Russian oil & gas have served to restrict supply such that, as I write, WTI is trading above $100 per barrel. It appears destined to remain there for the foreseeable future, as the war in Ukraine shows no sign of stopping. In the context of today’s geopolitical situation, our Texan assets are advantageously located in a politically stable environment. Nostra Terra took advantage of the low oil prices in 2020 to expand its portfolio of assets in Texas with the acquisition of Caballos Creek. In 2021, because of the strengthening oil price, we adjusted our strategy to one of realising the value from our existing assets while continuing to assess new opportunities. We are now seeing the fruits of these actions. January 2021 saw the Cypress well (Fouke 1) at Pine Mills successfully completed and put into production with a low lifting cost per barrel. The same month Nostra Terra became cashflow positive at the corporate level. During 2021, workovers on existing wells and other operational improvements led to an increase in average net daily production from 84 bbl/day in H1 2021 to 100 bbl/day in September 2021. By the end of May 2022 this had increased to circa 140 bbl/day (see below). Net proven reserves attributable to Nostra Terra increased substantially during 2021, from 763,760 in 2020 to 973,180 bbl in late September and continued to rise to 1,073,960 bbl after year end. These positive developments have led to a considerable increase in our revenue stream and to the size of our borrowing base: from $1.55 million in early 2021 to $2.35 million in later September 2021. After the end of the reporting year, (as announced on 28 March 2022), this currently stands at $3.35 million. As well as working over existing wells in 2021, the Company prepared for the drilling of two new wells – Fouke 2 (32.5% Nostra Terra working interest) at Pine Mills, East Texas and the Grant East 1 well (100% Nostra Terra working interest) in the Permian Basin, West Texas. After the year end of 31st December 2021, these wells both spudded and were drilled successfully. The Fouke #2 well flowed 145 bbl/day with no water cut; this is a 77% higher flow rate than that from the Fouke #1 well. The Grant East #1 reached TD in early May 2022 and as I write the results of fracture stimulation are awaited. In early February 2022 Paul Welch was appointed as a non-executive director of the Company. Paul brings a wealth of experience to Nostra Terra and his positive contribution is already being felt. The optimism your Board felt at the start of 2021 has been vindicated: Nostra Terra has taken advantage of the strengthening oil price and its acreage position to put it in a much stronger financial position. This will allow the 2 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Chairman’s Report (continued) Company to continue to expand its operations in a carefully planned manner. I would like to thank shareholders for their continued support. Dr Stephen Staley Non-Executive Chairman 7 June 2022 3 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Chief Executive Officer’s Report 2021 marked the beginning of a turnaround for Nostra Terra. The Company fought through the tough times of 2020, but then started to return to growth in 2021. The 2021 focus for the Company was on increasing cashflow while minimising dilution and positioning the Company for larger growth ahead. At the beginning of the year, we conducted a small, oversubscribed fundraise of £500,000 from institutional and professional investors, used for potential new opportunities. We brought on a new well at the beginning of the year as a non-operated, but significant working interest, asset while working on new opportunities to expand where we would operate and have a larger working interest (“WI”). This was accomplished while maintaining low overheads (16% lower than 2020). Revenues for the year were $2,282,000 an increase of 123% from $1,025,000 in 2020, reflecting a combination of a 26% increase in production sales and an improving commodity price environment (average $61.42 per barrel sold in 2021 compared to $34.17 in 2020). Gross profit before non-cash items (depreciation, depletion, and amortization) was $574,000, significantly improved from a loss of $85,000 in 2020. The Board continues to focus on its stated aim of increasing cashflow and reserves for the year ended 2022. United States All of Nostra Terra’s operations in the US target conventional reservoirs (i.e., not shale), typically with lower lifting costs and long-life reserves than unconventional ones. Area East Texas West Texas South Texas 2021 Production (Barrels sold) 29,132 4,154 3,840 Percentage of Portfolio by Sales 78% 12% 10% East Texas (33- 100% WI) Nostra Terra’s core asset is Pine Mills (100% WI) providing secure production. Production remained stable for the year from the core producing wells, while the focus was on growing production significantly in the new farmout area. During 2020 Nostra Terra farmed out an undrilled portion of the acreage to Cypress LLC, retaining a 32.5% WI, where a 25% WI was carried in the first well. In January 2021 drilling was finished on the new Fouke 1 well and it was put into production. The well was very successful, reaching payback in 5 months and continued producing throughout the year with no decline in production. Following this success, planning was undertaken for the next well, including increasing the acreage position in the farmout area. The Fouke 2 was drilled and put on production in the first half of 2022 (post-period). The well on test flowed at a rate of 145 bopd over a 24-hour period with a 0% watercut and was subsequently placed into production. This production rate exceeds that of the offset Fouke 1 well by 77%; Fouke 1 had been limited by field rules (allowable) to 82 bopd per well. As a result of the past performance of the Fouke 1 and the test rate of the Fouke 2, the operator plans to request a substantial increase in the field allowable rate so that both wells can be produced at much higher and more efficient rates. A decision is anticipated later in the year. During the interim period the operator plans to produce each well at circa 140 bopd, which is above the current allowable cap, to obtain sufficient technical information to support the increased field allowable. Further drilling is anticipated in this acreage. West Texas (50 – 100% WI) In 2021 production from the area accounted for 11% of the Company’s sales (50-75% WI). Management targeted this prolific area as a place to grow production in 2022. In January 2022 (post-period) the Company announced growth plans, including this area. In April 2022 the company announced the new Grant East lease acquisition (100% WI) with up to 16 potential drilling locations. 4 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Chief Executive Officer’s Report (continued) South Texas (100% WI) In 2020 the Company acquired the Caballos Creek asset, comprising two leases. There are no current plans for expansion in this area. Production during 2021 accounted for 10% of Company sales. Senior Lending Facility In September 2021 the Company renewed its Senior Lending Facility, resulting in a significant increase in Facility size and available Borrowing Base. The Facility has an initial nominal amount of U$10,000,000, double the previous US$5,000,000. The Borrowing Base has been increased to US$2,350,000 based on improved production and cashflow during the first half of 2021. The size of the Facility and Borrowing Base is reassessed at least twice yearly. The Board anticipates the Borrowing Base will increase substantially in the upcoming redetermination as the Company’s production and reserves have since increased significantly. The current interest rate applied to use of the Facility is 4.40% The Facility is not restricted to geographical region. Nostra Terra can deploy funds from the Facility for operational purposes and acquisitions in its current areas of operation in the USA, or in other areas of the world, should the opportunity arise. Outlook The global events this year have put a spotlight on the energy industry and the continued need for oil and gas in the world. The outlook for the industry is strong, as can be seen through robust commodity prices. In 2021 Company revenue more than doubled over the prior year and cashflow has also increased substantially. It was a year of strong growth and 2022 is on track to be an even better year. Having free cashflow puts the Company in a very strong position and we remain focused and disciplined on growing that further. We’re grateful for the support of our shareholders throughout the year. On behalf of the entire team at Nostra Terra we thank you and look forward to continued growth going forward. Matt Lofgran Chief Executive Officer 7 June 2022 5 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Strategic Report The directors present their Strategic Report for Nostra Terra Oil and Gas Company plc (“the Company”) and its subsidiaries (collectively “the Group”) covering the year ended 31 December 2021. Principal activity The group’s principal activity is the exploitation of hydrocarbon resources, focusing at present on the USA. 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 Our business model Nostra Terra is focused on achieving profitable and sustainable growth within established hydrocarbon provinces. We see scope for sustained profitable growth, throughout many well-established hydrocarbon systems,. Our business model focused on the continual upgrading of our exploration and production portfolio by identifying, screening and investing in a diverse pipeline of upstream assets, targeting the most attractive established hydrocarbon areas. We focus on conventional reservoirs where assets tend to have lower lifting costs and long- life reserves. 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 22, and are also noted in the Chairman’s Report on page 2 and the Chief Executive Officer’s Report on page 4. Growth opportunities Nostra Terra is focused on Texas, USA, in existing proven basins with conventional reservoirs. The Company is also pursuing growth opportunities outside the USA. Key themes for 2021 • Managing the business with the significant impacts of the Covid-19 pandemic, including a large drop in demand for oil & gas along with a correlating drop in commodity prices. • OPEC+ cuts and increases to get prices back on a firmer footing with rebounding demand. • 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. • An increasing focus on ESG, with larger oil companies decreasing exploration and increasing investment in projects with a focus on the environment. 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. Cash and cash equivalents Administrative expenses Production (net) 6 2021 $’000 45 908 BOE 37,126 2020 $’000 72 896 BOE 29,583 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Strategic Report (continued) Principal risks and uncertainties 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. The Company maintains a Risk Register as a part of the Board’s fiduciary and oversight responsibilities. 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. Threats 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 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. In addressing the latter, ensuring the safety of our personnel and subcontracting staff and protecting the environment in which we work is paramount. The management takes steps to identify and mitigate all these risks wherever possible. An example of this is the establishment of a hedging facility to protect the Company from drops in oil price. Hedges secured for 2020 ranged from 1,500 to 1,800 barrels per month at $55.15 to $57.18/bbl (depending on the month) until the end of December 2020. This was a large benefit to the Company by securing revenue at those prices during a time that actual oil prices fell much lower for a sustained period of the year. The group had no hedging activity during 2021. The Board will continue to provide appropriate risk management on behalf of our shareholders. The key risks in development and production are the subsurface risk of not finding and producing sufficient hydrocarbons to be economic and operational risks of drilling and producing these fluids. While the US mid- continent is a proven hydrocarbon region and is seeing a resurgence through the application of new drilling and well completion technologies, there are also environmental and economic risks, as there are in any hydrocarbon region. Further information relating to risk can be found on note 20 of these accounts. Companies Act S.172 The Directors acknowledge their duty under s.172 of the Companies Act 2006 and consider that they have, both individually and together, acted in the way that, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. In doing so, they have had regard (amongst other matters) to: • • • • • the likely consequences of any decision in the long term. The Group’s long-term strategic objectives, including progress made during the year and principal risks to these objectives, are shown in the strategic report and the key performance indicators. the interests of the Company’s employees. Our employees are fundamental to us achieving our long-term strategic objectives. the impact of the Company’s operations on the community and the environment. The Group operates honestly and transparently. We consider the impact on the environment on our day-to-day operations and how we can minimise this. the desirability of the Company maintaining a reputation for high standards of business conduct. Our intention is to behave in a responsible manner, operating within the high standard of business conduct and good corporate governance. the need to act fairly as between members of the Company. Our intention is to behave responsibly towards our shareholders and treat them fairly and equally so that they may benefit from the successful delivery of our strategic objectives. 7 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Strategic Report (continued) This Strategic Report was approved by the board of directors on 7 June 2022 and signed on behalf of the board by: Matt Lofgran Chief Executive Officer 8 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Directors’ Report The directors present their annual report and audited financial statements for the year ended 31 December 2021. Review of business and future development The review of business and future developments has been undertaken in the strategic report for the year ended 31 December 2021. Listing The Company’s ordinary shares have been quoted on the AIM market of the London Stock Exchange since 20 July 2007. Beaumont Cornish Limited is the Company’s nominated advisor and Novum Securities Limited is the Company’s broker. The closing mid-market price at 31 December 2021 was 0.32p (2020: 0.4p). Results and dividends The loss for the year ended 31 December 2021was $1,088,000, (2020: $1,302,000). No dividends will be distributed for the year ended 31 December 2021 (2020: $nil). Directors The following directors have held office for the year ended 31 December 2021: M B Lofgran J Stafford S Staley The directors’ remuneration (excluding social security costs) for the years ended 31 December 2021 and 2020 are summarised as follows: M B Lofgran S Staley J Stafford Total M B Lofgran S Staley K E Ainsworth J Stafford Total Salary $ 219,333 - - 219,333 Salary $ 205,000 - - - 205,000 Fees $ - 68,795 41,277 110,072 Fees $ - 59,595 19,070 42,909 121,574 Share-based payments $ 3,743 6,485 5,188 15,416 Share-based payments $ 22,539 2,093 6,748 6,735 38,115 2021 Total $ 223,076 75,280 46,465 344,821 2020 Total $ 227,539 61,688 25,818 49,644 364,689 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 23. 9 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Directors’ Report (continued) At 31 December 2021, the directors’ beneficial interests in the company’s issued share capital were as follows: Number of ordinary shares of 0.1 p each 50,705,463 2,500,000 8,166,667 - 31.12.21 Percentage of issued share capital 7.2% 0.4% 1.2% - Number of ordinary shares of 0.1 p each 50,705,463 2,500,000 8,166,667 31.12.20 Percentage of issued share capital 8.7 0.4 1.4 M B Lofgran J Stafford S Staley K E Ainsworth 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 competitive but affordable 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 or benefits. Substantial shareholders As at 18 May 2022, the Company was aware of the following interests in its issued share capital: Number of ordinary shares of 0.1 p each Percentage of issued share capital Premier Miton Group Plc Interactive Investor Services Nominees Limited HSDL Nominees Limited M Lofgran Hargreaves Lansdown (Nominees) Limited J Bolitho JIM Nominees Limited HSDL Nominees Limited Barclays Direct Investing Nominees Limited E Ainsworth Hargreaves Lansdown (Nominees) Limited Interactive Investor Services Nominees Limited James Capel (Nominees) Limited Events after the reporting period Refer to note 26 for details. 75,920,037 75,673,532 55,143,153 50,705,463 47,760,432 44,000,000 38,819,362 34,454,665 33,418,876 33,253,802 25,275,509 24,223,925 22,388,401 10.17% 10.14% 7.39% 6.79% 6.40% 5.89% 5.20% 4.62% 4.48% 4.45% 3.39% 3.24% 3.00% Publication of accounts on company website The company publishes the 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. 10 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Directors’ Report (continued) 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 brought against its directors and officers. Research and development The group is not engaged in any research and development in terms of IAS 38, however continues to develop its development and production assets held in terms of IFRS 6. Financial instruments The group does not have formal policies on interest rate risk or foreign currency risk. The group would be 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. The Directors closely monitor commodity prices and add hedges to production at times. 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. Going concern is discussed more fully in note 1. The Directors have concluded 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. Statement of directors’ responsibilities The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors are required to prepare the Group and Company financial statements in accordance with United Kingdom adopted International Accounting Standards. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company, and of the profit or loss of the Group and Company for that period. 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; • state whether the United Kingdom adopted International Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are responsible for keeping accounting records that are sufficient to show and explain the Group’s and Company’s transactions. These records must disclose with reasonable accuracy at any time the financial position of the Group and Company and to enable the Directors to ensure that any financial statements prepared comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud, error, non-compliance with law and regulations and other irregularities. 11 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Directors’ Report (continued) The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Statement as to disclosure of information to auditors Each of the persons who is a Director at the date of approval of this annual report confirms that: • so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and • the Director has taken all the steps that he ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Auditors Jeffreys Henry LLP have expressed their willingness to continue in office as auditor and will be proposed for reappointment at the next Annual General Meeting. This report was approved by the board of directors on 7 June 2022 and signed on behalf of the board by: Matt Lofgran Chief Executive Officer 12 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Directors’ Information Dr Stephen Staley Non-Executive Chairman Dr Stephen Staley (62) has 38 years of wide-ranging management, technical and commercial experience in the international oil, gas and power sectors. Steve was until October 2019 the CEO, director and co- founder of Upland Resources Limited, a London-listed oil & gas company currently with assets onshore and offshore UK and onshore Tunisia. Until March 2022 he was also non-executive chairman of Predator Oil & Gas Holdings PLC, an oil & gas company on the Standard List of the London Stock Exchange. He is a non-executive director of 88 Energy Ltd, which is listed on both AIM and ASX. He has also co-founded and floated two further London-listed oil & gas companies and was both a technical consultant to, and non-executive director of, Cove Energy plc – the highly successful East Africa focused explorer. Prior to this he has worked for companies including Cinergy Corp. and Conoco. He holds a BSc (Hons.) in Geophysics from Edinburgh University, a PhD in Petroleum Geology from Sheffield University and an MBA from Warwick University. He is a Fellow of the Geological Society and a member of the EAGE, the PESGB and The Arctic Club. Matt Lofgran Chief Executive Officer Matt Lofgran (46) 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 Elephant Oil Corp. John Stafford Non-Executive Technical Director John Stafford (61) has over 35 years’ experience in the oil & gas industry. As Vice President of Operations at Gulf Keystone (LSE: GKP) 2014–2017, he 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. Paul Welch Non-Executive Director Paul Welch (60) is an international energy executive with over 30 years of industry experience having worked for Shell Oil Company and several large independents including Hunt Oil Company, Pioneer Natural Resources and as CEO of AIM listed explorer Chariot Limited (previously Chariot Oil and Gas Limited) (AIM: CHAR) (2009- 2012) and CEO of Sea Dragon Energy (2013-2015) which in October of 2015 became SDX Energy plc (AIM: SDX) (2015-2019) following the merger with Madison PetroGas. He was subsequently appointed CEO of Cosimo Holdings Ltd in 2019, a private oil and gas company. He is currently Chairman and Executive Director of ACP Energy, a company formed to make acquisitions in the energy sector and recently admitted to the Main Market in London. Paul graduated from the Colorado School of Mines with both a Bachelor and Master’s degrees in Petroleum Engineering. He also holds an MBA in Finance from the Southern Methodist University (SMU) in Dallas, Texas. 13 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Corporate Governance Report 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 entrepreneurial spirit in which small to medium sized companies, such as Nostra Terra, have been created. QCA Principles The Board recognises the importance of corporate governance, and we therefore apply the QCA code. QCA Code Principle 1 2 3 4 5 6 7 8 9 10 Disclosure Nostra Terra Reference Establish a strategy and business model which promote long-term value for shareholders. See Strategic Report of this 2021 Annual Report Seek to understand and meet shareholder needs and expectations. See the Chief Executive Officer’s Statement of this 2021 Annual Report Take into account wider stakeholder and social responsibilities and their implications for long term success. Embed effective risk management, considering both opportunities and threats throughout the organisation. Detailed within AIM Rule 26, available to view via www.ntog.co.uk/aim-rule-26 See note 20 of this 2021 Annual Report Maintain the board as a well-functioning balanced team led by the Chair. See the Corporate Governance Report of this 2021 Annual Report 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. Detailed within AIM Rule 26, available to view via www.ntog.co.uk/aim-rule-26 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. Promote a corporate culture that is based on ethical values and behaviours. Detailed within AIM Rule 26, available to view via www.ntog.co.uk 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. Detailed within AIM Rule 26, available to view via www.ntog.co.uk See the Corporate Governance Report of this 2021 Annual Report 14 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Corporate Governance Report (continued) Accountability The Board of Directors The board comprises one executive director and three non-executive directors. The non-executive directors are considered independent. 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 Stephen Staley 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 Stephen Staley 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 • 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. 15 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Corporate Governance Report (continued) Remuneration and Nomination Committees (continued) 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. 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 (although this will not be possible this year), 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. Dr Stephen Staley Non-Executive Chairman 16 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Independent Auditor’s Report To the members of 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 2021 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 financial statements is applicable law and United Kingdom adopted International Accounting Standards. In our opinion the financial statements, • give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2021 and of the group’s loss for the year then ended; • have been properly prepared in accordance with United Kingdom adopted International Accounting Standards; and • have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the 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 opinion. Material uncertainty related to going concern We draw attention to note 1 in the financial statements, which indicate that the incurred group loss of $1,088k during the year ended 31 December 2021 and, at that date, the net current liabilities of $1,057k and net liabilities of $886k, As stated in note 1, these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included a critical assessment on budgets, including challenging models and undertaking stress tests, and a detailed discussion with management on the key cashflow pinch points, including loan repayments and funding available to the Group. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 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. 17 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Independent Auditor’s Report (continued) To the members of Nostra Terra Oil and Gas Company plc 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. We performed audits of the complete financial information of Nostra Terra Oil & Gas Company Plc, New Horizons Energy LLC and Buccaneer Operating LLC which were individually financially significant and accounted for 100% of the Group’s revenue and 100% of the Group’s absolute loss before tax (i.e. the sum of the numerical values without regard to whether they were profits or losses for the relevant reporting units). 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. In addition to the matter mentioned below, the adoption of the going concern principle by the Group is considered a key audit matter, which is more fully discussed above in the “Material uncertainty related to going concern” paragraph. Key audit matters How our audit addressed the key audit matter Carrying value of producing oil and gas assets 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: $2,014k (2020: $2,027k) • Tangibles: $918k (2020: $780k) 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. 18 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Independent Auditor’s Report (continued) To the members of Nostra Terra Oil and Gas Company plc Our application of materiality (continued) 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 $58,000 (2020: $64,000) $51,000 (2020: $30,000) How we determined it 2.5% of revenue (2020: 5% of profit) 2.5% of Net assets Rationale for benchmark applied The Group has invested heavily in leases and equipment in the past years to drive revenue growth and profits, and undertook a cost rationalisation exercise in the period so as to maximise profits. 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 net 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 $51,000 and $5,000. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $2,550 (2020: $1,500) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Other information The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 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. 19 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Independent Auditor’s Report (continued) To the members of Nostra Terra Oil and Gas Company plc 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 financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement as set out on page 11, 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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. The extent to which the audit was considered capable of detecting irregularities including fraud Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows: • the senior statutory auditor ensured the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations; • we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the Group. • we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and 20 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Independent Auditor’s Report (continued) To the members of Nostra Terra Oil and Gas Company plc • identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit. We assessed the susceptibility of the Group’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by: • making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; • considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations. To address the risk of fraud through management bias and override of controls, we: • performed analytical procedures to identify any unusual or unexpected relationships; • tested journal entries to identify unusual transactions; • assessed whether judgements and assumptions made in determining the accounting estimates set out in Note 2 were indicative of potential bias; • investigated the rationale behind significant or unusual transactions. In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: • agreeing financial statement disclosures to underlying supporting documentation; • reading the minutes of meetings of those charged with governance; • enquiring of management as to actual and potential litigation and claims; • Obtaining confirmation of compliance from the company’s legal advisors. There are inherent limitations in our audit procedures described above. The more removed those laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion. 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. Sanjay Parmar Senior Statutory Auditor For and on behalf of Jeffreys Henry LLP, Statutory Auditor Finsgate, 5-7 Cranwood Street, London EC1V 9EE 7 June 2022 21 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Consolidated Income Statement For the year ended 31 December 2021 Notes 2021 $’000 2020 $’000 Continuing operations REVENUE COST OF SALES Production costs Exploration Well impairment Depletion, depreciation, amortisation Total cost of sales GROSS PROFIT/(LOSS) Share based payment Administrative expenses Foreign exchange gain/(loss) OPERATING LOSS Finance costs Other income/(charges) LOSS BEFORE TAX Income tax LOSS FOR THE YEAR ATTRIBUTABLE TO: Owners of the company EARNINGS PER SHARE Continued operations Basic & diluted (cents per share) 2,282 1,025 (1,708) - - (400) (2,108) 174 (68) (908) (130) (1,110) - - (310) (1,420) (395) (38) (896) (33) (932) (1,362) (175) 21 (209) 269 (1,088) (1,302) - - (1,088) (1,302) (1,088) (1,302) 7 5 6 8 10 (0.16) (0.35) The accompanying accounting policies and notes are an integral part of these financial statements 22 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Consolidated Statement of Comprehensive Income For the year ended 31 December 2021 LOSS FOR THE PERIOD OTHER COMPREHENSIVE INCOME: Currency translation differences Total comprehensive income for the year 2021 $’000 2020 $’000 (1,088) (1,302) - (1,088) - (1,302) TOTAL COMPREHENSIVE LOSS FOR THE YEAR ATTRIBUTABLE TO: Owners of the company (1,088) (1,302) The accompanying accounting policies and notes are an integral part of these financial statements 23 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Consolidated Statement of Financial Position As at 31 December 2021 Notes 2021 $’000 2020 $’000 ASSETS NON-CURRENT ASSETS Intangible assets Property, plant and equipment, Oil and gas assets Total non-current assets CURRENT ASSETS Trade and other receivables Deposits and prepayments Other assets Cash and cash equivalents Total current assets LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Lease liabilities Total current liabilities NET CURRENT LIABILITIES NON-CURRENT LIABILITIES Decommissioning liabilities Borrowings Lease liabilities Total non-current liabilities NET LIABILITIES EQUITY Share capital Share premium Share based payment reserve Translation reserve Retained losses Total equity 11 12 15 16 17 18 13 18 13 19 2,014 918 2,932 348 16 - 45 409 945 518 - 1,466 (1,057) 302 2,459 - 2,761 (886) 8,087 21,976 306 (676) (30,579) (886) 2,027 780 2,807 341 42 - 72 455 573 847 16 1,436 (981) 266 2,159 - 2,425 (599) 7,918 21,508 142 (676) (29,491) (599) The financial statements were approved and authorised for issue by the Board of Directors on 7 June 2022 and were signed on its behalf by: M B Lofgran Director Company registration number: 05338258 The accompanying accounting policies and notes are an integral part of these financial statements 24 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Company Statement of Financial Position As at 31 December 2021 Notes 2021 $’000 2020 $’000 ASSETS NON-CURRENT ASSETS Fixed asset investments Intangible assets Property, plant and equipment, Oil and gas assets Total non-current assets CURRENT ASSETS Trade and other receivables Cash and cash equivalents Total current assets LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Total current liabilities NET CURRENT LIABILITIES NON-CURRENT LIABILITIES Decommissioning liabilities Borrowings Total non-current liabilities NET LIABILITIES EQUITY Share capital Share premium Share based payment reserve Translation reserve Retained losses Total equity 14 11 12 15 16 17 18 18 19 - 345 112 457 9 16 25 - 385 76 461 107 14 121 1,262 518 1,780 410 847 1,257 (1,755) (1,136) 13 396 409 4 519 523 (1,707) (1,198) 8,087 21,976 306 (676) (31,400) (1,707) 7,918 21,508 142 (676) (30,090) (1,198) The parent company’s loss for the financial year was $1,307,447 (2020: $1,082,706). The financial statements were approved and authorised for issue by the Board of Directors on 7 June 2022 and were signed on its behalf by: M B Lofgran Director Company registration number: 05338258 The accompanying accounting policies and notes are an integral part of these financial statements 25 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Consolidated Statement of Changes in Equity For the year ended 31 December 2021 Share capital Deferred shares Share premium $’000 $’000 $’000 Share option reserve $’000 Translation reserve Retained losses Total $’000 $’000 $’000 886 6,549 20,842 92 (676) (28,226) (533) - - 483 - - - - - - - - - - - 757 (91) - - - - - 26 (14) 38 - - - - - - (1,302) (1,302) (1,302) (1,302) - 23 14 - 1,240 (42) - 38 1,369 6,549 21,508 142 (676) (29,491) (599) - - 169 - - - - - - - - - - - 529 (61) - - - - - - - 164 - - - - - - (1,088) (1,088) (1,088) (1,088) - - - - 698 (61) - 164 1,538 6,549 21,976 306 (676) (30,579) (886) As at 1 January 2020 Loss for the year Total comprehensive loss for the year Shares issued Cost of shares issued Exercise of warrants Share based payments As at 31 December 2020 Loss for the year Total comprehensive loss for the year Shares issued Cost of shares issued Exercise of warrants Share based payments As at 31 December 2021 The accompanying accounting policies and notes are an integral part of these financial statements Share capital is the amount subscribed for shares at nominal value. 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. Share based payment reserve is a reserve used to recognize the cost and equity associated with the fair value of issues of share options and warrants. Translation reserves arose due to the adoption of US dollars as the presentational currency at the start of the prior accounting period. Further information on the adjustment can be found in note 1. Retained loss represents the cumulative losses of the company attributable to owners of the company. 26 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Company Statement of Changes in Equity For the year ended 31 December 2021 Share capital Deferred shares Share premium $’000 $’000 $’000 Share option reserve $’000 Translation reserve Retained losses Total $’000 $’000 $’000 886 6,549 20,842 92 (676) (29,021) (1,328) - - 483 - - - - - - - - - - - 757 (91) - - - - - 26 (14) 38 - - - - - - (1,083) (1,083) (1,083) (1,083) - - 14 - 1,240 (65) - 38 1,369 6,549 21,508 142 (676) (30,090) (1,198) - - 169 - - - - - - - - - - - 529 (61) - - - - - - - 164 - - - - - (1,310) (1,310) (1,310) (1,310) - - - - 698 (61) - 164 1,538 6,549 21,976 306 (676) (31,400) (1,707) As at 1 January 2020 Loss for the year Total comprehensive loss for the year Shares issued Cost of shares issued Exercise of warrants Share based payments As at 31 December 2020 Loss for the year Total comprehensive loss for the year Shares issued Cost of shares issued Exercise of warrants Share based payments As at 31 December 2021 The accompanying accounting policies and notes are an integral part of these financial statements Share capital is the amount subscribed for shares at nominal value. 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. Share based payment reserve is a reserve used to recognize the cost and equity associated with the fair value of issues of share options and warrants. Translation reserves arose due to the adoption of US dollars as the presentational currency at the start of the prior accounting period. Further information on the adjustment can be found in note 1. Retained loss represents the cumulative losses of the company attributable to owners of the company. 27 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Consolidated and Company Statement of Cash Flows For the year ended 31 December 2021 LOSS FOR THE YEAR ADJUSTMENTS FOR: Depreciation Amortisation Depletion Foreign exchange Share based payments Other income Operating cash flows Decrease/(increase) in receivables (Increase)/decrease in other assets (Decrease)/increase in payables (increase)/decrease in deposits & prepayments Interest paid GROUP 2021 $’000 2020 $’000 COMPANY 2021 $’000 2020 $’000 (1,088) (1,302) (1,310) (1,083) 208 173 38 - 68 (21) (622) 66 - 285 26 175 164 146 - 30 38 (49) (973) 11 108 (190) (24) 209 13 40 - - 68 - (1,189) 98 - 852 - 110 7 13 - 22 38 - (1,003) (101) - (136) - 123 Net cash used in operating activities (70) (859) (129) (1,117) Cash flows from investing activities: Purchase of plant and equipment Purchase of intangibles Disposals Increase in decommissioning liabilities (346) (160) - 36 (242) (400) 70 27 (49) - - 9 (79) (398) - 4 Net cash from investing activities (470) (545) (40) (473) Cash flows from financing activities Shares issued Costs of shares issued Net borrowing Finance costs Lease payments 794 (61) (29) (175) (16) 1,240 (91) 312 (209) (16) 794 (61) (452) (110) - 1,240 (91) 426 (123) - Net cash from financing activities 513 1,236 171 1,452 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year (27) (168) 72 45 240 72 2 14 16 (138) 152 14 The accompanying accounting policies and notes are an integral part of these financial statements. 28 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements For the year ended 31 December 2021 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. Summary of significant accounting policies The financial statements are presented in United States Dollars, rounded to the nearest $’000, as that is the currency of the primary environment in which the Group operates. The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation These are the first financial statements prepared under UK adopted international accounting standards. On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. Nostra Terra transitioned to UK-adopted International Accounting Standards in its consolidated and parent company financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no change on recognition, measurement or disclosure in the financial year reported as a result of the change in framework. The financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with UK adopted international accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. 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 20 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, however a material uncertainty exists in relation to the Group’s ability to repay its liabilities as they become due. We note that as at the balance sheet date, the Group has net current liabilities of $1,057k and net liabilities of $886k. 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. They continue to adopt the going concern basis in preparing the annual report and financial statements, however as noted above a material uncertainty exists which may cast significant doubt on the Group’s ability to continue operating as a going concern. 29 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) New standards, amendments and interpretations adopted by the Group and Company The following IFRS or IFRIC interpretations were effective for the first time for the financial year beginning 1 January 2021. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements: Standards /interpretations IAS 1 & IAS 8 amendments Application Definition of Material IFRS 3 amendments Business Combinations Amendments to IFRS 9, IAS 39 & IFRS 17 Amendments Interest Rate Benchmark Reform Amendments to References to the Conceptual Framework in IFRS Standards New standards, amendments and interpretations not yet adopted Standards /interpretations IAS 1 amendments IFRS 3 amendments IAS 16 amendments IAS 37 amendments Amendments IFRS 17 Application Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current and Classification of Liabilities as Current or Non-current – Deferral of Effective Date: Effective 1 January 2023 Business Combinations – Reference to the Conceptual Framework: Effective 1 January 2022* Property, Plant and Equipment: Effective 1 January 2022* Provisions, Contingent Liabilities and Contingent Assets: Effective 1 January 2022* Annual Improvements to IFRS Standards 2018-2020 Cycle: Effective 1 January 2022* Insurance Contracts: Effective 01 January 2023 There are no IFRS’s or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company or 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. 30 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) 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. 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 (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. 31 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) 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 in subsidiaries Investments in subsidiaries are stated at cost less provision for any impairment value. Cash and cash equivalents Included in the statement of financial position comprise cash at bank and in hand and other short-term highly liquid investments with original maturities of three months or less. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. 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. 32 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) 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$), which is the group’s presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the presentational currency using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. (iii) Group Companies All consolidated entities are presented in US$ and so no translation is required on consolidation. 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. 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 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. 33 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) 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 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 At times 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’). 34 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) Financial assets at fair value through profit and loss (continued) 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. 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 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. 35 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) 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. Decommissioning 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 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. 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. 36 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) 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. 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). 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. 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. The directors consider that revenue generation is exclusively for oil production in the US and so no further segmentation is required. 37 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 1. Summary of significant accounting policies (continued) Leased assets The Group as a lessee A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether: • • • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. Measurement and recognition of leases as a lessee At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero. The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease liabilities have been included in trade and other payables. 38 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 2. Critical accounting estimates and judgements 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: 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. 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 including decommissioning costs. 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. 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 23. The fair value amounts used by the group have been derived by external consultants using standard recognised valuation techniques. 39 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 3. 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 location of the head office. US Mid-Continent properties at year end included the following: • East Texas: 100% working interest in the Pine Mills oilfield • East Texas: 32.5% working interest in the Cypress farmout area of Pine Mills • West Texas: 50-100% working interest leases located in the Permian Basin • South Texas: 100% working interest in the Caballos Creek oilfield The chief operating decision maker’s internal report for the year ended 31 December 2021 is based on the location of the oil properties as disclosed in the below table: SEGMENTAL RESULTS Revenue Operating profit (loss) before depreciation, well impairment, share- based payment charges, restructuring costs and gain (loss) on sale of assets and foreign exchange: Depreciation of tangibles Amortisation of intangibles Exploration Well impairment Share based payments Realised exchange loss Operating profit/ (loss) Finance expense Other income (expense) Profit/ (loss) before taxation SEGMENTAL ASSETS Property, plant and equipment Intangible assets Cash and cash equivalents Trade and other receivables US mid-continent 2021 $’000 2,282 Head office 2021 $’000 - Total 2021 $’000 2,282 (970) (354) - - - - (68) (128) (1,166) (110) 21 (209) (173) - - (68) (130) (934) (175 21 (1,255) (1,088) - - 36 9 45 2,014 918 45 348 3,325 616 (209) (173) - - - (2) 232 (65) - 167 2,014 918 9 339 3,280 40 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 3. Segmental analysis (continued) The chief operating decision maker’s internal report for the year ended 31 December 2020 is based on the location of the oil properties as disclosed in the below table: SEGMENTAL RESULTS Revenue Operating profit (loss) before depreciation, well impairment, share- based payment charges, restructuring costs and gain (loss) on sale of assets and foreign exchange: Depreciation of tangibles Amortisation of intangibles Exploration Well impairment Share based payments Realised exchange loss Operating profit/ (loss) Finance expense Other income (expense) Profit/ (loss) before taxation SEGMENTAL ASSETS Property, plant and equipment Intangible assets Cash and cash equivalents Trade and other receivables Other assets US mid-continent 2020 $’000 1,025 120 (157) (133) - - - (12) (182) (86) 49 (219) 704 1,642 72 234 28 2,680 Head office 2020 $’000 - Total 2020 $’000 1,025 (881) (761) (7) (13) - - (38) (21) (164) (146) - - (38) (33) (960) (1,142) (123) - (209) 49 (1,083) (1,302) 76 385 14 107 - 582 780 2,027 86 341 28 3,262 41 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 4. 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 Employees 2021 $’000 110 219 19 348 2020 $’000 122 205 9 327 2021 Number 2020 Number 3 3 3 3 Directors’ remuneration Total remuneration paid to directors during the year was as listed above. The director’s emoluments and other benefits for the year ended 31 December 2021 is as follows: M B Lofgran 5. Finance expense Finance expense 2021 $’000 219 2021 $’000 175 2020 $’000 205 2020 $’000 209 Finance expense relates to interest charged on borrowings. Further details for which can be found in note 18. 6. Other income Other income Gain on Hedging Activity 2021 $’000 21 - 21 2020 $’000 49 220 269 Other income relates to the aggregate recognised and unrecognised gain on a commodity swap. 42 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 7. Operating loss The operating loss the year ended 31 December is stated after after charging/ (crediting) 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 Depreciation on ROU asset Social security costs Directors’ fees Travelling and entertainment Accountancy fees Legal and professional fees Auditors’ remuneration Bad debt costs Other expenses 8. Income tax The income tax charge for the year was as follows: Current tax Corporation tax Overseas corporation tax TOTAL Loss before tax Loss on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 19% (2020:19%) Effects of: Non-deductible expenses Other tax adjustments Foreign tax CURRENT TAX CHARGE 2021 $’000 2020 $’000 209 173 - - 219 16 19 110 35 44 183 6 - 64 908 164 146 - - 205 16 9 122 39 46 179 20 23 237 896 2021 $’000 2020 $’000 - - - - - - - - (1,088) (1,302) (207) (247) - 207 - - - 247 - - At 31 December 2021, the Company had an estimated excess management expenses to carry forward of $5,552,821 (2020: $5,371,591). The deferred tax asset at 19% (2020: 19%) on these tax losses of $1,020,603 (2020: $1,020,603) has not been recognised due to the uncertainty of recovery. The current US corporate tax rate is 21%. 43 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 9. 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 $1,307,447(2020: $1,082,706). 10. Earnings per share The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in issue during the year. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The group had two classes of dilutive potential ordinary shares, being those share options granted to employees and suppliers where the exercise price is less than the average market price of the group’s ordinary shares during the year, and warrants granted to directors and one former adviser. Details of the adjusted earnings per share are set out below: 2021 2020 GROUP Loss attributable to ordinary shareholders ($’000) (1,088) (1,302) Weighted average number of shares 692,287,657 376,299,206 CONTINUED OPERATIONS: BASIC AND DILUTED EPS – LOSS (cents) (0.16) (0.35) 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/(loss) before depreciation, depletion, amortisation and impairment EPS on gross profit before depreciation, depletion, amortisation and impairment (cents) RECONCILIATION FROM GROSS LOSS TO GROSS PROFIT BEFORE DEPLETION, DEPRECIATION, AMORTISATION AND IMPAIRMENT Gross profit/(loss) ADD BACK: Exploration Well impairment Depletion, depreciation and amortisation Gross profit before depletion, depreciation, amortisation and impairment 2021 $’000 743 0.11 174 - - 400 574 2020 $’000 (85) 0.30 (395) - - 310 (85) 44 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 11. Intangible assets GROUP COST At 1 January 2020 Additions Disposals At 31 December 2020 Additions Disposals At 31 December 2021 PROVISON At 1 January 2020 Charge for the year Impairment Disposals At 31 December 2020 Charge for the year Impairment Disposals At 31 December 2021 CARRYING VALUE At 31 December 2021 At 31 December 2020 Exploration & evaluation assets $’000 Development & production assets $’000 Licences $’000 524 - - 524 - - 524 524 - - - 524 - - - 524 - - 1,951 - (12) 1,939 10 - 1,949 1,951 - - (12) 1,939 - - - 1,939 10 - 2,493 400 (70) 2,823 150 - 2,973 706 160 - (70) 796 173 - - 969 2,004 2,027 Total $’000 4,968 400 (82) 5,286 160 - 5,446 3,181 160 - (82) 3,259 173 - - 3,432 2,014 2,027 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, $nil (2020: $nil) was provided. 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. 45 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 11. Intangible assets (continued) COMPANY COST At 1 January 2020 Additions Disposals At 31 December 2020 Additions Disposals At 31 December 2021 PROVISON At 1 January 2020 Charge for the year Impairment Disposals At 31 December 2020 Charge for the year Impairment Disposals At 31 December 2021 CARRYING VALUE At 31 December 2021 At 31 December 2020 Development & production assets $’000 - 398 - 398 - - 398 13 - - - 13 40 - - 53 345 385 Total $’000 - 398 - 398 - - 398 13 - - - 13 40 - - 53 345 385 The Company 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, $nil (2020: $nil) was provided. 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. 46 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 12. Property, plant and equipment GROUP COST At 1 January 2020 Additions Adjustment on translation to IFRS 16 Disposals At 31 December 2020 Additions Disposals At 31 December 2021 DEPRECIATION At 1 January 2020 Charge for the year Disposals At 31 December 2020 Charge for the year Disposals At 31 December 2021 CARRYING VALUE At 31 December 2021 At 31 December 2020 Office space – right of use $’000 Plant & equipment – oil and gas assets $’000 48 - - - 48 - - 48 16 16 - 32 16 - 48 - 16 980 242 - - 1,222 346 - 1,568 322 136 - 458 192 - 650 918 764 Total $’000 1,028 242 - - 1,270 346 - 1,616 338 152 - 490 208 - 698 918 780 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. 47 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 12. Property, plant and equipment (continued) COMPANY COST At 1 January 2020 Additions Adjustment on translation to IFRS 16 Disposals At 31 December 2020 Additions Disposals At 31 December 2021 DEPRECIATION At 1 January 2020 Charge for the year Disposals At 31 December 2020 Charge for the year Disposals At 31 December 2021 CARRYING VALUE At 31 December 2021 At 31 December 2020 Plant & equipment – oil and gas assets $’000 - 79 - - 79 49 - Total $’000 - 79 - - 79 49 - 128 128 - 3 - 3 13 - 16 112 76 - 3 - 3 13 - 16 112 76 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. 48 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 13. Leases Lease liabilities are presented in the statement of financial position as follows: Current – within 1 year Non-current – within 1 – 2 years 2021 $’000 - - - 2020 $’000 16 - 16 The Group has a lease for the office space in Dallas, Texas, USA. The lease is reflected on the balance sheet as a right-of-use asset and a lease liability. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment (see Note 12). The lease term ended on 31 December 2021. The company has entered into a new lease effective from 1 January 2022. Included within the interest expense is $1k (2020: $1k) which relates to the unwinding on the lease liability. The Group does not hold any other office leases. 14. Fixed Asset Investments Investment in subsidiaries $’000 Loans to subsidiaries $’000 COMPANY COST At 1 January 2020 Additions Reductions At 31 December 2020 Additions Disposals At 31 December 2021 PROVISON At 1 January 2020 Charge for the year Reductions At 31 December 2020 Charge for the year At 31 December 2021 CARRYING VALUE At 31 December 2021 At 31 December 2020 Total $’000 15,435 - - 15,435 - - 15,435 (15,435) - - (15,435) - 15,434 - - 15,434 - - 15,434 (15,434) - - (15,434) - (15,434) (15,435) - - - - 1 - - 1 - - 1 1 - - 1 - 1 - - 49 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 14. Fixed Asset Investments (continued) 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 the 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 subsidiaries. The details of the subsidiaries held at 31 December 2021 are as set out below: New Horizon Energy 1 LLC (NHE) Buccaneer Operating, LLC (Buccaneer) 15. Trade and other receivables CURRENT Trade and other receivables Other taxes and receivables Shareholding Country of incorporation 100% 100% USA USA Nature of business Oil & gas exploration Oil & gas exploration GROUP 2021 $’000 271 77 348 2020 $’000 111 230 341 COMPANY 2021 $’000 2020 $’000 - 9 9 - 107 107 The directors consider the carrying value of the receivables to approximate their fair value. 16. Cash and cash equivalents GROUP 2021 $’000 2020 $’000 COMPANY 2021 $’000 2020 $’000 Bank current accounts 45 72 16 14 17. Trade and other payables CURRENT Trade payables Accruals and deferred income Other taxes payables Decommissioning liability GROUP 2021 $’000 2020 $’000 COMPANY 2021 $’000 2020 $’000 780 146 19 945 302 447 126 - 573 266 1,243 - 19 1,262 13 370 39 1 410 4 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. 50 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 17. Trade and other payables (continued) 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. Included in trade payables is the decommissioning liability, this has been calculated at a discount rate of 10% and an inflation factor of 3%. This is comparable to the Group’s options at the time of the well in-service dates. 18. Financial liabilities - borrowing Maturity of the borrowings is as follows: Repayable within one year Bank loan Other loans Repayable after one year Bank loan GROUP 2021 $’000 202 316 2,459 2,977 2020 $’000 425 422 2,159 3,006 COMPANY 2021 $’000 2020 $’000 202 316 396 914 425 422 519 1,366 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 $2,977k (2020: $3,006k). Interest is charged for any day per annum at a variable rate equal to the higher of (i) the WSJ Rate plus 25 basis points or (ii) 4.40%. In September 2021 the facility was extended by three years to 29 January 2025 and the facility size was increased to $10 million. Borrowings also include an unsecured loan with a balance at year-end of $202k (2020: $425k). Interest is charged at 12% per annum and loan is fully repayable within the year. The group also has a loan agreement in place with related parties, with a total outstanding balance as at the year- end of $316k (2020: $422k). Further details can be found in Note 22. 19. Share capital Number Class Nominal value 688 million (2020: 197 million) Ordinary 0.1p 4,110 million (2020: 4,110 million) Deferred 0.098p During the year there were a number of share issues: 2021 $’000 1,538 6,549 2020 $’000 1,369 6,549 • 8 January 2021 – 100,000,00 ordinary shares issued at 0.5p per in respect of a placing and subscription. • 17 January 2021 – 4,000,000 ordinary shares issued at 0.35p per share in pursuant of warrants. • 1 March 2021 – 4,000,000 ordinary shares issued at 0.35p per share in pursuant of warrants. • 5 March 2021 – 8,000,000 ordinary shares issued at 0.35p per share in pursuant of warrants. • 6 October 2021 – 8,000,000 ordinary shares issued at 0.35p per share in pursuant of warrants. Post year end: • 9 March 2022 – 20,000,000 new ordinary shares issued at 0.35p per share in pursuant of warrants. • 10 March 2022 – 4,000,000 new ordinary shares issued at 0.35p per share in pursuant of warrants. • 3 May 2022 – 4,000,000 new ordinary shares issued at 0.35p per share in pursuant of warrants. • 12 May 2022 – 15,000,000 new ordinary shares issued at 0.35p per share in pursuant of warrants. • 1 June 2022 – 19,000,000 new ordinary shares issued at 0.35p per share in pursuant of warrants. 51 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 20. 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 risk 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. 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 $47.20 to $85.39 in 2021 and $0 to $65.62 in 2020. The group had no hedging activity during 2021. Interest rate risk The group does not hedge this risk. At 31 December 2021, the group had borrowings of $2,977k (2020: $3,006), with total interest for the year of $172k (2020: $209k). A 100-basis point change in the rates will increase finance costs by $22k. 52 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 20. Risk and sensitivity analysis (continued) Liquidity risk The group expects to fund its exploration and development programme, as well as its administrative and operating expenses throughout 2021, principally using existing working capital and expected proceeds from the sale of future crude oil production. The group had a bank balance of approximately $25,000 at 31 December 2021 (2020: $72,000). Cash flow risk The group expects to have sufficient working capital to continue operations and to remain cash flow positive through 2022. This will be continuously monitored and reviewed by the directors through the inclusion of regular cash flow forecasts in management reports. 21. Financial commitments Capital commitments The group had no material capital commitments at the year-end. 22. 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: New Horizon Energy 1 LLC Balance at 1 January Impairment Balance at 31 December 2021 2020 Balance $’000 (926) (926) - Loan advance/ repayment $’000 (926) (926) - Balance $’000 (102) 102 - Loan advance/ repayment $’000 (102) 102 - The intercompany loans are unsecured and interest-free. Intercompany loan had been fully impaired at year end. The Company has one loan outstanding with related parties: Discovery Energy Ltd Discovery Energy Ltd had a common director with the Company during the year ended 2020, E Ainsworth. At year end, the balance outstanding owed to Discovery Energy Limited was $316k. Interest charged in the year was $27k. The loan is unsecured, bears interest at the rate of 7.50% per annum. 53 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 23. 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 $68,287 (2020: $38,115) for share options was expensed during the year. At 31.12.21 Exercis e price pence Exercise/ vesting date From To 750,000 2.55 06/02/17 06/02/22 3,000,000 0.60 02/09/20 02/09/22 73,611,000 0.35 25/09/20 25/09/22 108,000,000 0.85 08/01/21 08/01/23 675,000 0.4 29/10/14 28/10/24 2,666,666 3 21/07/17 21/07/22 2,666,667 4.5 21/07/17 21/07/22 2,666,667 9,500,000 6 5 21/07/17 21/07/22 04/06/18 03/06/25 5,000,000 0.5 29/09/20 29/09/27 5,000,000 0.75 29/09/20 29/09/27 5,000,000 1 29/09/20 29/09/27 733,333 0.5 29/09/20 29/09/27 733,333 0.75 29/09/20 29/09/27 733,334 1 29/09/20 29/09/27 1,666,666 0.5 29/09/20 29/09/27 1,666,667 0.75 29/09/20 29/09/27 1,666,667 1 29/09/20 29/09/27 1,333,333 0.5 29/09/20 29/09/27 1,333,333 0.75 29/09/20 29/09/27 1,333,334 1 29/09/20 29/09/27 - - - - - - - - - - - - - - - - - - - - Date of grant At 31.12.20 Granted Exercised Expired Warrants 07/02/17 750,000 02/09/20 3,000,000 25/09/20 73,611,000 08/01/21 Options 29/10/14 675,000 21/07/17 2,666,666 21/07/17 2,666,667 21/07/17 2,666,667 04/06/18 9,500,000 29/09/20 5,000,000 29/09/20 5,000,000 29/09/20 5,000,000 29/09/20 733,333 29/09/20 733,333 29/09/20 733,334 29/09/20 1,666,666 29/09/20 1,666,667 29/09/20 1,666,667 29/09/20 1,333,333 29/09/20 1,333,333 29/09/20 1,333,334 - - - 108,000,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 54 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 23. Share-based payments (continued) The total number of options and warrants outstanding at 31 December 2021 and 31 December 2020 are as follows: Total at 31 December 2021: 440,910,998 Total at 31 December 2020: 333,660,998 The number of options and warrants outstanding to the directors at the year-end were as follows: Director M Lofgran S Staley J Stafford Total Warrants Options 2021 2020 2021 2020 Total Warrants & Options 2020 2021 16,000,000 2,000,000 - 18,000,000 16,000,000 2,000,000 - 1,800,000 27,600,000 5,000,000 5,500,000 38,100,000 27,600,000 5,000,000 5,500,000 38,100,000 43,600,000 7,000,000 5,500,000 43,600,000 7,000,000 5,500,000 56,100,000 56,100,000 The estimated fair value of the warrants issued during the year was calculated by applying the Black-Scholes option pricing model. Volatility is based on historic share prices of the Company. Expected volatility was originally stated at 30%. This has been revised in the prior years to 50% because the volatility over the past year has been used rather than the past 5 years. The assumptions used in the calculation were as follows: Warrants 23 June 2015 7 Feb 2017 02 Sep 2020 25 Sep 2020 8 Jan 2021 Share price at grant date Exercise price Option life in years Risk free rate Expected volatility Expected dividend yield Fair value of option/warrant Weighted average remaining life (years) 1.60p 2.53p 0.23p 8.77p 2.55p 0.6p 0.3p 0.35p 5 years 5 years 2 years 2 years 1% 50% 1% 50% 1% 50% 0% 0% 0% 1% 50% 0% 0.24p 1.08p 0.01p 0.07p - 1.10 1.67 1.73 0.53p 0.85p 2 years 0.5% 50% 0% 0.07p - 55 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 23. Share-based payments (continued) Options 28 Oct 2014 21 July 2017 21 July 2017 21 July 2017 4 June 2018 – Service providers Share price at grant date Exercise price Option life in years Risk free rate Expected volatility Expected dividend yield Fair value of option/warrant Weighted average remaining life (years) Options Share price at grant date Exercise price Option life in years Risk free rate Expected volatility Expected dividend yield Fair value of option/warrant Weighted average remaining life (years) 2.65p 1.55p 1.55p 1.55p 2.50p 0.4p 3p 4.5p 6p 5.p 10 years 5 years 5 years 5 years 2 years 1% 50% 0% 1% 50% 0% 1% 50% 0% 1% 50% 0% 1% 50% 0% 0.13p 0.52p 0.35p 0.25p 0.87p 3.83 1.55 1.55 1.55 - 4 June 2018 - Directors 2.50p 5.p 29 Sep 2020 29 Sep 2020 29 Sep 2020 0.38p 0.5p 0.38p 0.75p 0.38p 1p 7 years 7 years 7 years 7 years 1% 50% 0% 1% 50% 0% 1% 50% 0% 1% 50% 0% 1.85p 0.16p 0.50p 0.26p 4.43 6.75 6.75 6.75 56 Nostra Terra Oil and Gas Company Annual Report and Accounts 2021 Notes to the Financial Statements (continued) For the year ended 31 December 2021 24. 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. 25. 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. 26. Events after the reporting period In March 2022 the Company announced the expansion of its Senior Lending Facility. The Facility has an initial nominal amount of U$10,000,000. The Borrowing Base has been increased to US$3,350,000 based on improved production and cashflow during first half of 2021. The size of the Facility and Borrowing Base will be reassessed at least twice yearly. The Board anticipates the Facility and Borrowing Base will increase as the Company's production and reserves increase. The current interest rate applied to use of the Facility is 4.40%. 57 Perivan 263670