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6
Sustainable
value creation
Annual Report
and Accounts 2016
4747-Ophir-AR16_00_Cover_AW-KC-290317.indd 1
29/03/2017 18:44
Highlights in 2016
Contents
31%
reduction in gross G&A costs
3 new
exploration licences added to portfolio
158 MMboe
of risked prospective resource
added to prospect inventory
Kerendan gas
field on-stream
Read more p23
Agreement to form
Fortuna joint venture
Read more p8
Implemented NAV-based
remuneration scheme
Read more p58
Bualuang completion
of water debottlenecking
project
Read more p23
Strategic report
Strategy
Strategy and business model
Chairman’s statement
Chief Executive Officer’s review
Fortuna FLNG update
Key Performance Indicators
Principal risks
Market overview
Performance
Review of operations
Financial review
Corporate Responsibility
Governance report
Corporate Governance introduction
Board of Directors
Corporate Governance report
Report of the Audit Committee
Report of the Corporate Responsibility Committee
Report of the Nomination Committee
Directors’ Report
Directors’ Remuneration report
Chairman’s Annual Statement on Remuneration
Directors’ Remuneration Policy
Annual Report on Remuneration
Responsibility statement of the Directors
in respect of the Annual Report and Accounts
Statement of Directors’ responsibilities in relation
to the financial statements and Annual Report
Financial statements
Independent Auditor’s report
Consolidated income statement and
statement of other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
Company statement of financial position
Company statement of changes in equity
Company statement of cash flows
Notes to the financial statements
1
2
4
6
8
10
14
20
22
26
28
34
34
36
38
44
49
51
54
58
60
67
78
78
79
79
87
88
89
90
91
126
127
128
129
Ophir Energy is an independent upstream oil and gas
exploration and production company focused on Asia and
Africa. The Group is listed on the London Stock Exchange.
Supplementary information 147
147
Shareholder information
150
Glossary
Read more at ophir-energy.com
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Strategy and
business model
p2
Ophir’s strategy is to be a
sustainable explorer, focused
on delivering NAV per share
growth by finding resources at
low cost and then monetising
them in the way that maximises
the value created.
Ophir’s financial strength and
the discretionary nature of the
capital spend across our portfolio
provide us with optionality to
selectively invest in organic and
inorganic opportunities that
offer the best project returns
and therefore the greatest
growth in NAV per share.
Having spent two years high-
grading our exploration portfolio,
we are now preparing to return
to the considered, prudent pace
of exploration drilling from mid-
2017 taking advantage of the
significantly lower exploration
costs while continuing to focus
on monetising our previous
exploration successes.
Dr Nick Cooper
Chief Executive Officer
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28/03/2017 17:31
Strategy and business model
Ophir’s strategy is to be a sustainable explorer, focused
on delivering NAV per share growth by finding resources
at low cost and then monetising them in the way that
maximises the value created.
Sustainable
exploration
Sustainable through the cycle
Our business model is focused on finding resources
efficiently and monetising them smartly. The spread
between the two is where we create value.
Being a sustainable explorer means having enough capital
to drill two to three play opening wells per annum, regardless
of where we are in the commodity cycle. This capital will come
from one of two forms of monetisation: either cash flow from
our production assets or cash on the balance sheet from assets
that we have sold. In the last cycle our exploration programme
delivered its risked outcome. Looking forward, if we can drill
2-3 play opening wells per year and our assessment of risk is
accurate we will achieve our risked outcome, with a potentially
transformational discovery approximately every three years.
‘Finding low’ is a combination of a number of factors: our
commercial and sub-surface teams working together to access
new acreage, the sub-surface team applying consistent and
rigorous analysis of play, prospect and commercial risks, consistent
portfolio high-grading, maintaining discretion over which prospects
we drill and keeping costs under control. We will only allocate
capital to the highest-quality prospects that offer the best
potential risked returns, all whilst keeping cost under control.
‘Monetising smartly’ will maximise the value that we create
on a NAV per share basis. In terms of our production assets,
we can maximise the margin through reducing operating costs
and smartly bringing contingent resource into production where
they contribute cash. At times we will need to be commercially
innovative in order to find ways of monetising contingent
resource and we are building a track record in this area.
Chief Executive
Officer’s review
p6
2
1
Sustainable
2
Finding low
3
Monetising smartly
Production and
Balance Sheet
Cashflow to fund two to three
exploration wells per annum
Exploration
Finding commercial hydrocarbons
in the most cost-effective manner
Monetisation
Converting discovered hydrocarbons
into cash by monetising smartly
and efficiently
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29/03/2017 18:23
Ophir Energy plc 1
Sustainable
2
Finding low
3
Monetising smartly
Production and
Balance Sheet
Cashflow to fund two to three
exploration wells per annum
Exploration
Finding commercial hydrocarbons
in the most cost-effective manner
Monetisation
Converting discovered hydrocarbons
into cash by monetising smartly
and efficiently
.
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3
29/03/2017 18:23
Annual Report and Accounts 2016Strategic report StrategyGovernance reportFinancial statementsSupplementary information Chairman’s
statement
Bill Schrader
Chairman
We are seeing the
green shoots of
recovery and Ophir
is well-positioned to
create material value
for shareholders in
the coming years.
Dear Shareholder
I am delighted to be writing to you for the
first time as Chairman of your Company.
As you will all be aware, these have been
difficult times for the oil and gas industry
as a whole and the independent E&P model
has certainly been challenged. However,
I believe that I have moved into the role
of Chairman at a time when we are seeing
the green shoots of recovery and Ophir is
well-positioned to create material value for
shareholders in the coming years. Let me
share with you some of my thoughts on
why this is the case:
• The Board has continued to challenge the
management team on costs and, during
2016, a cost reduction programme was
completed that reduced the cash running
costs of the business by 31%. Such
initiatives are difficult but essential
to realign the cost base with the new
commodity price environment. While
running costs have been materially
reduced, we have been able to retain
our core competencies in geoscience
and drilling which we feel have historically
been points of competitive advantage.
• Following setbacks with the Fortuna
project in early 2016, the Board felt it was
important to make clear to management
the parameters within which it would be
prepared to move the project forward.
This was driven by the need to ensure that
the Company was not over-exposing its
shareholders to project risk. The agreed
parameters included committing no more
than $120 million of capital ahead of first
gas and making sure that there was no
recourse to the Company if there were
any issues at project level. Credit is due
to the management team for reaching
an agreement with OneLNG towards the
end of the year that met these conditions.
Successful execution of this project point
forward will unlock a considerable amount
of value for shareholders and the asset still
has further upside potential.
• The new Net Asset Value (NAV)-based
remuneration scheme was approved
by our shareholders at the 2016 Annual
General Meeting. The new scheme
aligns the interests of shareholders and
employees more closely than traditional
remuneration schemes. Furthermore, this
move symbolises the renewed focus on
value creation that is now at the heart
of decision-making and capital allocation
at Ophir, and which we believe can deliver
superior returns for shareholders in the
next cycle.
As I look at more specific areas, the whole
Board was delighted that we were able
to complete the year without a recordable
injury or illness. We continue to look for ways
to improve our health and safety processes
and during 2016 we started to monitor
leading as well as lagging indicators.
More information on this can be found
on pages 30 and 31 of this report.
4
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Ophir Energy plc Board of Directors
p36
Board of Directors and Officers (at date of publication)*
William (Bill) Schrader
Chairman
Dr Nicholas (Nick) Cooper
Executive Director and
Chief Executive Officer
Dr William (Bill) Higgs
Executive Director and
Chief Operating Officer
Anthony (Tony) Rouse
Executive Director and
Chief Financial Officer
Ronald Blakely
Senior Independent
Non-Executive Director
Dr Carol Bell
Independent
Non-Executive Director
Alan Booth
Independent
Non-Executive Director
David Davies
Independent
Non-Executive Director
Vivien Gibney
Independent
Non-Executive Director
Dr Carl Trowell
Independent
Non-Executive Director
Philip Laing
General Counsel & Company Secretary
Indicates Chairman of Committee
Nomination Committee
Audit Committee
Remuneration Committee
Corporate Responsibility
Technical Advisory Committee
Committee
*Nicholas (Nic) Smith retired in April 2016 after nine years on the Board, seven of which he served as Chairman.
Welcome to our three new Board members
During 2016, Tony Rouse, David Davies and Carl Trowell were appointed to the Board.
Tony Rouse
Executive Director and
Chief Financial Officer
David Davies
Independent Non-
Executive Director
Dr Carl Trowell
Independent Non-
Executive Director
One thing I think we can all take from
events in 2016 is that we live in increasingly
uncertain times and a key responsibility for
the Board is to review risk on a continual
basis. I am pleased to say Ophir has a
comprehensive risk management and
planning process in place, details of which
can be found on pages 14 to 19.
One risk that is increasing in prominence
is climate change. The Board spent time in
2016 debating the issue of climate change
and has agreed a position which is detailed
on page 30 of this report. Climate change
and the implications for Ophir will remain
firmly on the Board’s strategic agenda
going forward.
Finally, 2016 has seen a number of
changes at Board level. Firstly, Nic Smith,
my predecessor as Chairman, stepped down
from the Board in April. Nic was a Director
of Ophir for nine years and served as
Chairman for seven of those, overseeing
the successful transition from a private
to a public company. I would like to thank
Nic for his contribution to Ophir and look
forward to building on his work during my
tenure as Chairman.
There were three new additions to the
Board in 2016. Tony Rouse joined the Board
as Chief Financial Officer and we added two
new Non-Executive Directors in David Davies
and Carl Trowell. Tony, David and Carl all
have a wealth of experience in the oil and
gas sector and will be valuable additions
to the Board. David succeeded Ron Blakely
as Chairman of the Audit Committee
on 1 January 2017. David and Ron have
worked closely together to ensure a smooth
transition. Ron will be leaving the Board
on 31 March 2017 and I would like to
thank him for his contribution to Ophir.
Finally, I would like to thank all of our
employees and contractors for their efforts
in 2016 and look forward to exciting times
in the year ahead.
Bill Schrader
Chairman
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Annual Report and Accounts 2016Strategic report StrategyGovernance reportFinancial statementsSupplementary information
Chief Executive
Officer’s review
The monetisation model
The steps we took to put this ‘find low,
monetise smartly’ model into practice
were threefold:
Firstly, in order to improve our ability to ‘find
low’, we needed both to significantly reduce
our running costs and realign our exploration
portfolio to search for barrels that break
even at low prices. We delivered a material
reduction in our G&A cost, improving
efficiencies across the business. We also
exited five exploration blocks that failed
to meet our stricter investment criteria
and entered three new blocks that did.
Secondly, we sharpened our monetisation
focus, both through lowering opex on
producing assets, and more rapid conversion
of our substantial 2C resources into
producing 2P reserves or, better still, cash.
This focus saw us progress the Kerendan
gas field to first gas, prepare the Bualuang
oil field for the next phase of development
and drive the Fortuna FLNG project closer
to Final Investment Decision (FID). In total,
these steps offer the potential to convert
approximately 140 MMboe of 2C resources
to 2P in 2017, more than trebling our current
2P reserves.
Thirdly, we transformed corporate behaviour
by introducing our new NAV per share
remuneration scheme for all employees.
This compensation approach is, we believe,
far better aligned to shareholders’ interests
than a relative TSR metric in a cyclical
industry. We have been tremendously
encouraged by how the new approach has
clarified investment decision-making and
sharpened our allocation of people and
capital. I would like to thank our shareholders
for supporting this radical new scheme at
our 2016 AGM.
Milestones in 2016
Ophir’s progress in 2016 across these three
areas has been rapid and substantial. We are
convinced that the changes that Ophir made
in early 2016 now position the Company to
thrive in this new upstream environment and
deliver sustainable, superior total shareholder
return through the coming cycles.
In terms of finding at lowest cost, our
model is to drive NAV growth through
sustainable, prudent exploration that is
consistent through the cycle. We believe
that we can drill around two to three
material, frontier exploration wells per
annum, whilst maintaining sufficient
technical rigour. We estimate that this
drilling rate would represent 10–25% of total
global, frontier drilling by the independent
sector through the cycle.
I am pleased to say that we are now
returning to operated exploration drilling.
Preparations for the Ayame-1X well in Côte
d’Ivoire started in 2016 to be ready for
an expected spud in May 2017. This would
represent Ophir’s first deepwater operated
well in almost three years. As with our
upstream peers, the fact that our drilling
targets are now competing for scarcer, but
discretionary, risk capital allows more high
grading and should deliver better risked
outcomes from the portfolio.
In terms of monetising smartly, Ophir’s
exploration has, thus far, resulted in
the discovery, and part-monetisation,
of two, world-class assets in Tanzania
and Equatorial Guinea.
Dr Nick Cooper
Chief Executive
Officer
Last year in this report we described how
the upstream E&P sector had, in our view
mistakenly, prioritised growth over returns
through the last up-cycle. As we promised
in early 2016, Ophir has reformed its
business model. We have also adjusted
our investment strategy and compensation
structure to focus resolutely on Net Asset
Value (NAV) per share. These reforms have
been positively received by investors. As an
organisation, we are determined that a more
benign oil price environment will not distract
us from what we consider to be the best
approach to sustainable, through-cycle,
growth in shareholder value.
Ophir’s role in the value chain is to find
molecules at the lowest possible cost and
monetise them at the highest possible price,
as promptly as is feasible. Upstream, like any
other business, is about margins achieved,
rather than daily spot prices. Focusing on
assets with low breakeven prices, and then
delivering healthy product margins through
smart monetisation will sustainably create
value through the cycle.
6
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Ophir Energy plc I firmly believe, with the changes we have made
to our business model, our culture and our approach
to resource allocation, that we can begin to deliver
material returns for our shareholders.
Strategy and
business model
p2
Ophir’s six rules
to create value
1
Continue to find low-cost
resource and monetise smartly.
2
Exit plays/assets that don’t work
at low cost and enter assets/
plays that do.
3
Only invest in high-quality assets
below the shale threshold with
transformational potential,
minimal commitments,
and fiscal terms that enable
value creation.
4
Re-engineer value chains where
appropriate to improve margins.
5
Pace our exploration and high-
grade the plays. We will not
rush to drill.
6
NAV/share growth is our key
metric and we will benchmark
against this more explicitly
going forward.
In Tanzania, we have to date monetised the
majority of our interests and have delivered
a material return on our historic investment.
In 2016, we saw a renewed push from the
Tanzanian Government to deliver the LNG
project and the introduction of a new
operator in Shell. Both factors should
accelerate the project towards an FID later
this decade. In 2017, our focus in Tanzania
remains to maximise shareholder returns
from our remaining 20% stake.
In Equatorial Guinea, we have made material
progress toward completing and financing
an LNG value chain in the context of
a challenging market. After frustrations
in the first half of 2016, an innovative
approach to value chain partnering and risk
sharing unlocked the problem. A constructive
dialogue with our midstream partner Golar
LNG enabled us to find a solution that
satisfies the trends emerging in LNG pricing,
contracting, financing and risk- sharing. In
November 2016 we signed a Shareholders’
Agreement with OneLNG – a joint venture
between Golar LNG and Schlumberger –
to form a new Joint Venture (JV) that will
finance and develop the Fortuna project.
The establishment of the JV means we
can now move the Fortuna FLNG Project
towards FID in mid-2017. At FID, the project
NPV will be a healthy multiple of the
$120 million of capital we are committing
before first gas. Furthermore, the JV has
been structured so that Ophir Energy plc
will not take any additional balance sheet
exposure or liabilities.
Ophir now has line of sight on its biggest
potential monetisation step since the
Tanzania partial divestment in 2014. It has
been a long, difficult road but we are firmly
on track for a mid-2017 FID, which will monetise
approximately 345 MMboe of 2C resource.
This will be one of a handful of global FIDs
of a green-field LNG project in 2017.
Monetising resource in this challenging
environment demonstrates Ophir’s
commercial acumen; a valuable complement
to our skilled team of geo-scientists and their
ability to efficiently find hydrocarbons.
At Ophir, we also recognise that capital return to
shareholders needs to start as early as possible.
Once we reach our goal of generating sufficient
cash flow to be a sustainable explorer, we will be
in a better position to consider making returns
to our shareholders. The annuity-type cash
flows that we will receive from the Fortuna
FLNG asset mean that Ophir’s sustainability,
and therefore the predictability of capital
returns, should become increasingly visible
towards the end of the decade.
As I look ahead to trends for 2017,
breaking down barriers between industry
and value-chain players is a pre-requisite.
The exploration director of a major oil and
gas company recently put this best when
they told us “now is a time for the industry
to collaborate, as we are all in this together;
we can compete again if necessary in the
next decade”. More exploration companies
are recognising the benefits from working
together, sharing data and knowledge to try
to focus capital towards the best opportunities.
A second area that is rightly attracting
increasing attention is the role of upstream
players in the climate change challenge.
At Ophir, we recognise that we cannot put
our head in the sand. We are not about to
transform to a renewable energy company,
but we do see a need for modified thinking
and we have spent time in 2016 developing
a position on this. This will evolve, but the
topic is now on the Board’s agenda.
Ophir is now better-placed than we have
been for several years. I firmly believe, with
the changes we have made to our business
model, our culture and our approach to
resource allocation that we can begin to
deliver material returns for our shareholders.
I would like to thank Ophir’s investors for their
support and patience, and Ophir’s team for
their energy, loyalty and bright ideas despite
the tough times.
As described in the Chairman’s section,
Nic Smith stood down as Chairman in 2016
to be replaced by Bill Schrader. I thank Nic
for all his guidance and support to Ophir
since its inception.
Regardless of what may, or may not, happen
to commodity prices in 2017, the changes
that Ophir made in 2016 mean that we can
look forward with confidence and optimism.
Dr Nick Cooper
Chief Executive Officer
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28/03/2017 17:37
Annual Report and Accounts 2016Strategic report StrategyGovernance reportFinancial statementsSupplementary information Fortuna FLNG update
Commercialisation
through innovation
In 2016 we moved the Fortuna FLNG project a step closer to FID when we announced
an agreement with OneLNG to form a Joint Venture (JV) to finance, construct, develop
and operate the project. This innovative approach to value chain partnering and risk
sharing will, at FID, unlock material value for Ophir’s shareholders.
Innovative structure
• OneLNG and Ophir will have 66.2% and 33.8% ownership of the JV respectively
• The JV will facilitate the financing, construction, development and operation
of the integrated Fortuna project
Ophir
33.8%
Fortuna Co JV
GEPetrol
Ophir
Block R
EG
Fortuna
Co
Sonagas GEPetrol
20%
80%
51%
Upstream
Block R PSC
20%
29%
Midstream
Operating Co
*Sonagas has the right to earn in for up to a 30% interest.
OneLNG
66.2%
Fortuna
Co
100%*
Midstream
FLNG
Fortuna
Co
Sonagas
49%
51%
Marketing Co
• Ophir only committing up to $120 million
– 20% of the equity capital for a 33.8% equity interest
• There is an additional Net Profit Interest and a cushion against cost overruns
• No parent company guarantees – debt will sit with Fortuna Co and not on Ophir
Energy plc’s balance sheet
• Ophir to receive additional payment for resource monetised beyond 2.6 Tcf
Proven technology
and world-class partners
• Keppel Shipyard: Vessel construction
• Black & Veatch: Liquefaction process supplier
• Schlumberger: Partner in Fortuna through OneLNG JV
• Golar LNG: FLNG expertise
88
Wells
Manifold
Ophir’s capex to first gas limited
to no more than
$120m
(20% of equity funding)
Total resource monetised
2.6 Tcf
Ophir equity in Fortuna Co
33.8%
4747-Ophir-AR16_05_FortunaFLNG_AW-KC-280317.indd 8
28/03/2017 17:38
Ophir Energy plcOphir Energy plcHeading Flare
Stack
Storage
Tanks
LNG
Liquefaction
Trains x 4
Inlet
Processing
Facilities
External
Turret
Umbilical and
Risers
Mooring Lines
Total estimated project cash flow per annum
(@ FOB $6/MMbtu) gross
c.$420m
c.$140 million net to Ophir, post debt
Timeline to commercialisation
2006
Awarded block
2008
Work programme began with three exploration wells,
resulting in the Fortuna and Lykos gas discoveries
2009
Seismic
2012
Tonel-1 gas discovery and successful appraisal of Fortuna
complex. Further gas discovery with Fortuna West-1
2014
New gas discovery with Silenius East-1
2015
Awarded upstream competitive feed contracts and
signed HoA for gas offtake with six counterparties
2016
Announced the intention to form a Joint Venture
with OneLNG to develop the Fortuna project
1H 2017
Finalise debt facility/award gas sales contracts/award
Upstream EPCIC and midstream EPC contracts/Ophir
shareholder approval/EG government ratification
Mid-2017
Final Investment Decision/the JV comes into being
2017–2020
Conversion of the Gandria into an FLNG vessel/drilling and
completion of development wells and subsea infrastructure
Mid-2020
First gas
Ophir’s estimated 2P reserve additions
Forward gross capex to first gas
up to 115 MMboe
c.$2bn
Annual production
2.2-2.5 MMtpa
($500 million upstream and $1.5 billion midstream)
Estimated production (net to Ophir)
c.16,000 boepd
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28/03/2017 17:38
Annual Report and Accounts 2016Strategic report StrategyGovernance reportFinancial statementsSupplementary informationAnnual Report and Accounts 2016 2016 Key Performance Indicators (KPIs)
Management agrees a number of KPIs with the
Board on an annual basis. These are both financial
and non-financial and monitor the progress in
delivering the Group’s strategic objectives.
Measuring
strategic progress
2016 performance
Metric
Exploration:
Operations:
Description
Capture high quality
exploration acreage,
generate and high-grade
prospects and mature
top-ranked, drillable
prospects per year
Executing operations
safely and with
excellence
Financial
strength
and returns:
Optimise the use of
capital by capturing
the highest commercial
returns on assets and
exploration opportunities
Business
model:
Internal
stakeholder
engagement:
External
stakeholder
engagement:
Grow a revenue-
generating business
to fund our exploration
activities and minimise
our overall cost of capital
Empower and support our
staff to make brave and
transparent decisions that
create shareholder value
Be respected by our
stakeholders for what
we achieve and for the
way we achieve it
Summary of
achievement
• Five commercially-attractive
well proposals were presented
for investment decisions.
• Added 158 MMboe of net
risked prospective resource.
• Received Board approval for entry
into five new positions or plays,
three of which were captured.
• Completed operations safely
achieving the outstanding
TRIR rate of 0 incident per
1 million hours worked.
• Delivered all major projects
for less than the budgeted
capital expenditure.
• Achieved production availability
of over 99% uptime.
• Kerendan gas price renegotiation
and Fortuna FID have
been deferred to 2017.
• Commenced refinance of the
debt facilities at the end of 2016
with the expectation that this
will now complete in 1H 2017.
• No new production was
added during the year.
• Implemented actions in response to
• Completed Asset Development
the 2015 employee engagement survey.
Plans for each asset, which included:
• Ran a leadership programme for
29 employees aimed at developing
– comprehensive stakeholder maps; and
– plans for Creating Shared Value
the next wave of leaders of the business.
established for all assets.
• Implemented a 360 degree performance
• Enhanced CR reporting with
assessment based on Ophir Values.
filings under GRI and CDP.
10
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Ophir Energy plc Strategy and
business model
p2
2016 performance
Metric
Exploration:
Operations:
Description
Capture high quality
exploration acreage,
Executing operations
safely and with
generate and high-grade
excellence
prospects and mature
top-ranked, drillable
prospects per year
Financial
strength
and returns:
Optimise the use of
capital by capturing
the highest commercial
returns on assets and
exploration opportunities
Business
model:
Internal
stakeholder
engagement:
External
stakeholder
engagement:
Grow a revenue-
generating business
to fund our exploration
activities and minimise
our overall cost of capital
Empower and support our
staff to make brave and
transparent decisions that
create shareholder value
Be respected by our
stakeholders for what
we achieve and for the
way we achieve it
Summary of
achievement
• Five commercially-attractive
well proposals were presented
• Completed operations safely
• Kerendan gas price renegotiation
• No new production was
added during the year.
for investment decisions.
• Added 158 MMboe of net
risked prospective resource.
into five new positions or plays,
three of which were captured.
achieving the outstanding
TRIR rate of 0 incident per
1 million hours worked.
• Delivered all major projects
capital expenditure.
• Achieved production availability
of over 99% uptime.
and Fortuna FID have
been deferred to 2017.
• Commenced refinance of the
debt facilities at the end of 2016
with the expectation that this
will now complete in 1H 2017.
• Received Board approval for entry
for less than the budgeted
• Implemented actions in response to
• Completed Asset Development
the 2015 employee engagement survey.
• Ran a leadership programme for
29 employees aimed at developing
the next wave of leaders of the business.
• Implemented a 360 degree performance
assessment based on Ophir Values.
Plans for each asset, which included:
– comprehensive stakeholder maps; and
– plans for Creating Shared Value
established for all assets.
• Enhanced CR reporting with
filings under GRI and CDP.
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Our Key Performance Indicators for 2017 can be
found below. These provide detail on the activities
in 2017 that will drive the business to deliver against
the stated strategy.
2017 strategic objectives
Metric
Exploration:
Operations:
Description
Capture high quality
exploration acreage,
generate and high-grade
prospects and mature
top ranked, drillable
prospects per year
Executing operations
safely and with
excellence
Financial
strength
and returns:
Optimise the use of
capital by capturing
the highest commercial
returns on assets and
exploration opportunities
Business
model:
Internal
metric:
External
metric:
Grow a revenue-
generating business
to fund our exploration
activities and minimise
our overall cost of capital
Empower and support our
staff to make brave and
transparent decisions that
create shareholder value
Be respected by our
stakeholders for what
we achieve and for the
way we achieve it
Areas of focus
• Maturing prospects
to drillable status.
• Further development
of leading indicators.
• Entering new exploration
• Delivering capital programme
positions.
in line with capital
expenditure budget.
• Safely improving margins by
focusing on operational efficiency.
Increasing NAV/share from
1 January 2016 benchmark
through:
• Bualuang infill drilling programme.
• Delivering FID on the
Fortuna FLNG project.
• Expanding corporate debt facilities.
• Increasing organic cash generation.
• Increasing feedback from
managers to employees.
• Increasing adoption of Values
throughout the organisation.
• Establish greenhouse gas baseline
for Ophir’s operations.
• Ethical compliance programme.
12
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Ophir Energy plc
Directors’
Remuneration
report
p58
2017 strategic objectives
Metric
Exploration:
Operations:
Description
Capture high quality
exploration acreage,
Executing operations
safely and with
generate and high-grade
excellence
prospects and mature
top ranked, drillable
prospects per year
Financial
strength
and returns:
Optimise the use of
capital by capturing
the highest commercial
returns on assets and
exploration opportunities
Business
model:
Internal
metric:
External
metric:
Grow a revenue-
generating business
to fund our exploration
activities and minimise
our overall cost of capital
Empower and support our
staff to make brave and
transparent decisions that
create shareholder value
Be respected by our
stakeholders for what
we achieve and for the
way we achieve it
Areas of focus
• Maturing prospects
to drillable status.
positions.
• Entering new exploration
• Delivering capital programme
through:
• Further development
of leading indicators.
in line with capital
expenditure budget.
• Safely improving margins by
focusing on operational efficiency.
Increasing NAV/share from
1 January 2016 benchmark
• Bualuang infill drilling programme.
• Delivering FID on the
Fortuna FLNG project.
• Expanding corporate debt facilities.
• Increasing organic cash generation.
• Increasing feedback from
managers to employees.
• Increasing adoption of Values
throughout the organisation.
• Establish greenhouse gas baseline
for Ophir’s operations.
• Ethical compliance programme.
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Annual Report and Accounts 2016Strategic report StrategyGovernance reportFinancial statementsSupplementary information
Principal risks
Risk management
Ophir works in often challenging, complex
and uncertain environments that present
a potential risk to our objectives; to counter
this we maintain robust and effective risk
management as an integral part of our
decision-making. During 2016, we continued
to strengthen how the Group manages
risk that could impact our people, the
environment, our business and our reputation.
Ophir continuously strives to embed risk
management principles in its processes
and procedures.
Board
The Board has overall accountability for
determining Ophir’s risk appetite as well as
ensuring that sound risk management and
internal control systems are in place across
the Group. In deciding Ophir’s risk appetite,
the Board has conducted an assessment
of the risk process, considered the risks
that could potentially threaten the Group’s
strategic objectives and has reviewed the
associated controls.
Ophir’s risk management system runs
across the Group from the top down;
risks are reviewed through various internal
management and Board Committees,
dependent on their level of impact and
likelihood of occurrence. This reporting
process uses Ophir’s risk matrix and when
risks are considered to be appropriately
material they are examined at Board
committees, or by the Board.
Viability Statement
The Directors have assessed the viability
of the Group over a four-year period to
December 2020, taking account of the
Group’s current position and the potential
impact of the principal risks documented
in this report. Furthermore, the Directors
have considered the resilience of the
Group’s business model, future performance,
solvency and liquidity against these principal
risks in severe, but reasonable scenarios, and
the effectiveness of any mitigating actions.
The Directors have determined that the
four-year period to December 2020 is an
appropriate period over which to provide
its Viability Statement. By the end of 2020
the Group’s Fortuna asset is expected to be
onstream delivering a long-term source of
funds. Additionally, with the formation of
a Joint Venture with OneLNG, which will take
forward the development of the combined
upstream and midstream Fortuna asset,
the Group has limited its balance sheet
and capital expenditure exposure to the
project to no more than $120 million over
the period to 2020.
In addition to Fortuna, the Directors have
assessed the Group’s capital expenditure
requirements to 2020, recognising that the
Group has significant flexibility to defer its
investment programmes, as required, with
only $80 million of outstanding committed
capital expenditure at the balance sheet
date. In making their assessment, the
Directors have additionally considered
the Group’s current cash position and the
generation of funds from forecast production
over the period, against the need to service
the Group’s debt portfolio, and tested the
scenarios at different commodity prices.
The Company further anticipates that
additional funding, if appropriate, could be
met by the divestment of assets along with
access to the debt and capital markets.
Based on their assessment, the Directors
have a reasonable expectation that the
Company will be able to continue in
operation and meet its liabilities as they
fall due over the period to December 2020.
The Board has assigned risk oversight to the Audit Committee, the Corporate Responsibility Committee
and the Technical Advisory Committee. These Committees report their findings to the Board on a regular basis.
Board
Determines the Group’s risk appetite and risk management process, and
reviews the principal risks that may affect Ophir achieving its objectives
Corporate Responsibility Committee
Reviews operational and ethical behaviour
and legislative compliance risks and controls
Audit Committee
Reviews financial, regulatory and information
risks and controls
Technical Advisory Committee
Reviews subsurface risks and controls
14
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Ophir Energy plc Risk management performance in 2016
• Over 1.83 million hours were worked with
• Adopted a Net Asset Value-based
no recordable injuries or illnesses.
• Zero recordable environmental incidents.
• Signed a Shareholders’ Agreement with
OneLNG for the formation of a Joint Venture
that will develop, finance and operate
the Fortuna FLNG project, without over-
exposing our shareholders to project risk.
• Matured the best prospects on the plays we
have high-graded and added new plays, which
included two new country entries, to compete
for capital with the existing opportunities.
• Preserved a robust balance sheet with
a plan to be cash neutral in 2017.
• Since 2015, reduced the Group’s gross
administration cost by over 50% without
impacting on our competencies.
remuneration scheme to align staff and
management rewards much more closely
with shareholder value creation.
• Through a water debottlenecking
project, increased the NPV10 of the
Bualuang field by $83 million.
• Brought the Kerendan field onstream
to add a further revenue stream.
• Realised an extension of Block 1 licence in
Tanzania for a further three and a half years.
• Achieved working interest production
in line with guidance.
• Advanced stakeholder management
and support to local communities.
• Advanced our climate change strategy.
The key elements of Ophir’s risk management are to:
• establish the risk context with reference to Ophir’s strategic business objectives;
• conduct a risk assessment through:
–
–
–
understanding the causes, impacts and likelihood of risk events;
assessing if the risks can be reduced to a tolerable level and are consequently within the acceptable constraints
of the Group’s risk appetite. This process informs us of where the risk event lies on Ophir’s risk matrix; and
determining appropriate controls to deal with the risk, allocating responsibility for managing risk controls
and executing activities based on plans and procedures.
• regularly communicate and consult on the risks through established management control procedures; and
• recurrent monitoring and review of our risks.
Context
Communicate & Consult
Assessment
Monitor & Review
Control
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Annual Report and Accounts 2016Strategic report StrategyGovernance reportFinancial statementsSupplementary information Principal risks continued
The principal risks identified within the Group
are summarised in the table below.
Internally, the Group monitors and mitigates a more comprehensive list of risks through
the Group’s risk register, which continues to be a vital component of our risk management
process. However, the risks listed in the table are those that are currently considered by the
Group to be the most significant due to their impact and likelihood.
Risk
Description of Risk
Compliance breach
• The Group conducts business in jurisdictions that have been allocated low scores on Transparency
International’s ‘‘Corruption Perceptions Index’’, and where changes in the regulatory and legislative
environment are possible.
• Ethical wrongdoing and non-compliance, or failure to accurately report our data can lead to litigation
against the Group which could materially impact our strategy. Potential impacts could be:
– Reputational damage leading to withdrawal of support by shareholders, governments, lenders and/
or co-venture partners.
– Litigation and regulatory action leading to penalties and business disruption from investigation
leading to unplanned cost impact.
– Loss of assets, PSCs and projects.
– Prosecution.
Adverse market sentiment
towards the E&P sector
• The sector continued to be depressed through 2016 and there remains a limited appetite for oil
and gas investments.
• The impact can negatively affect project value and modelling.
Political
• The Group operates in jurisdictions that are subject to significant political, economic, legal, regulatory
and social uncertainties.
• The impacts can affect the safety of our people, operational continuity and lead to a loss in value
and uncertain financial outcomes.
Stakeholder sentiment
• Actual or perceived failure to address socio-economic development, environmental issues or corporate
• Pursue a shared value approach to support sustainable development goals and achieve a mutually-beneficial
responsibility matters in the regions where we operate may adversely affect the Group.
• This may impact our reputation, lead to loss of investor confidence and loss of our licence to operate.
Global economic volatility
• We are exposed to a variety of changes in the macro environment around global affairs and
international economics that are leading to greater global economic uncertainty.
• Slower global demand and weaker prices for major commodities are dampening growth prospects.
• These changes can impact the operating and regulatory situation.
Low commodity price
• There were oversupply and demand concerns through 2016 and we anticipate a ‘lower for
• Reflect the effects of ‘lower for longer’ in strategic planning.
longer’ forecast.
• This can lead to loss of value and have an adverse effect on revenue, margins, profitability and cash flow.
Climate change
• The global ambition to limit mean temperature rise to below 2⁰C above pre-industrial levels will
potentially require significant and sustained reductions in fossil fuel emissions.
• It is hard to predict what changes in laws, regulations and obligations relating to manmade climate
change will be, but they may increase costs, reduce value and constrain future opportunities.
16
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Objective/Control
• Top down leadership of the Group’s values.
• A strong Code of Conduct that all employees and contractors are expected to follow.
• A Group Anti Bribery and Corruption Policy in place.
• Compliance training conducted across the Group.
• Due diligence carried out on counterparties and in contract management.
• Anti-bribery and corruption provisions in agreements.
• Compliance controls and actions reviewed by the Board and its Committees.
Responsibility
Change
General Counsel &
Company Secretary
• Annual employee sign-off confirming observance of the Code of Conduct and relevant ethical policies
and standards.
• A ‘Letter of Assurance’ signed off annually by management.
• Primary controls to be monitored as a key leading indicator during 2017.
• All material information released to the market on a timely basis and in accordance with all applicable regulations.
• NAV/share growth is our key metric and we will benchmark against this more explicitly going forward.
• Deliver an appropriate capital structure to internally fund core exploration and appraisal activities from the
addition of production assets and monetisation of resources to generate sustainable cash flow.
• Ensure that commercial terms on new acreage reflect the changing landscape and involve minimal financial
commitments with options to exit early.
Chief
Financial Officer
• Regularly monitor and seek to understand changes taking place in political and regulatory environments.
• Work to the highest industry standards with regulators, closely monitoring compliance with the Group’s
Director – Security
and Surface Risk
licence and PSC obligations.
• Seek to reduce exposure by maintaining a diverse portfolio.
• Maintain positive relationships with governments and key stakeholders in host countries.
• Ensure appropriate legal agreements are in place to protect our interests.
• When reviewing new positions/acquisitions, evaluate and compare the potential political risks within the portfolio.
and constructive relationship with stakeholders.
• Conduct all business in an ethical, responsible, apolitical and transparent manner.
• Monitor public sentiment towards the Group and its operations.
• Regularly review how external risks impact the Group’s strategy and remain agile to change.
• Re-engineer value chains where appropriate to improve margins.
Director – Commercial
and Planning
Director – Security
and Surface Risk
Chief
Financial Officer
• Continue to review the Group’s cost structure and make sure it reflects the lower oil price environment.
• Re-work economics of development plans to reflect downside sensitivities of oil price scenarios.
• Selectively exploit low service costs resulting from the drop in the oil price.
• Pursue acquisition opportunities that seek to protect shareholder value and sustain exploration.
• Manage balance sheet strength.
• Only invest in high-quality assets below the shale threshold with transformational potential, minimal
commitments, and fiscal terms that enable value creation.
• Climate change will remain on the Board’s strategic agenda going forward.
• Understanding of the implications of a ‘2-degree world’ for the business and what actions to take across
Director – Security
and Surface Risk
• Systematically track trends to provide commercial foresight on how quickly the world is moving
a range of areas.
toward decarbonisation.
• Continue to report our emissions and climate change strategies through CDP.
Ophir Energy plc Compliance breach
• The Group conducts business in jurisdictions that have been allocated low scores on Transparency
International’s ‘‘Corruption Perceptions Index’’, and where changes in the regulatory and legislative
environment are possible.
• Ethical wrongdoing and non-compliance, or failure to accurately report our data can lead to litigation
against the Group which could materially impact our strategy. Potential impacts could be:
– Reputational damage leading to withdrawal of support by shareholders, governments, lenders and/
– Litigation and regulatory action leading to penalties and business disruption from investigation
or co-venture partners.
leading to unplanned cost impact.
– Loss of assets, PSCs and projects.
– Prosecution.
Adverse market sentiment
towards the E&P sector
and gas investments.
• The sector continued to be depressed through 2016 and there remains a limited appetite for oil
• The impact can negatively affect project value and modelling.
and social uncertainties.
and uncertain financial outcomes.
Global economic volatility
• We are exposed to a variety of changes in the macro environment around global affairs and
international economics that are leading to greater global economic uncertainty.
• Slower global demand and weaker prices for major commodities are dampening growth prospects.
• These changes can impact the operating and regulatory situation.
Low commodity price
• There were oversupply and demand concerns through 2016 and we anticipate a ‘lower for
longer’ forecast.
• This can lead to loss of value and have an adverse effect on revenue, margins, profitability and cash flow.
Climate change
• The global ambition to limit mean temperature rise to below 2⁰C above pre-industrial levels will
potentially require significant and sustained reductions in fossil fuel emissions.
• It is hard to predict what changes in laws, regulations and obligations relating to manmade climate
change will be, but they may increase costs, reduce value and constrain future opportunities.
Risk
Description of Risk
Objective/Control
• Top down leadership of the Group’s values.
• A strong Code of Conduct that all employees and contractors are expected to follow.
• A Group Anti Bribery and Corruption Policy in place.
• Compliance training conducted across the Group.
• Due diligence carried out on counterparties and in contract management.
• Anti-bribery and corruption provisions in agreements.
• Compliance controls and actions reviewed by the Board and its Committees.
• Annual employee sign-off confirming observance of the Code of Conduct and relevant ethical policies
and standards.
• A ‘Letter of Assurance’ signed off annually by management.
• Primary controls to be monitored as a key leading indicator during 2017.
• All material information released to the market on a timely basis and in accordance with all applicable regulations.
• NAV/share growth is our key metric and we will benchmark against this more explicitly going forward.
• Deliver an appropriate capital structure to internally fund core exploration and appraisal activities from the
addition of production assets and monetisation of resources to generate sustainable cash flow.
• Ensure that commercial terms on new acreage reflect the changing landscape and involve minimal financial
commitments with options to exit early.
Responsibility
Change
General Counsel &
Company Secretary
Chief
Financial Officer
Political
• The Group operates in jurisdictions that are subject to significant political, economic, legal, regulatory
• Regularly monitor and seek to understand changes taking place in political and regulatory environments.
• Work to the highest industry standards with regulators, closely monitoring compliance with the Group’s
Director – Security
and Surface Risk
• The impacts can affect the safety of our people, operational continuity and lead to a loss in value
licence and PSC obligations.
• Seek to reduce exposure by maintaining a diverse portfolio.
• Maintain positive relationships with governments and key stakeholders in host countries.
• Ensure appropriate legal agreements are in place to protect our interests.
• When reviewing new positions/acquisitions, evaluate and compare the potential political risks within the portfolio.
Stakeholder sentiment
• Actual or perceived failure to address socio-economic development, environmental issues or corporate
• Pursue a shared value approach to support sustainable development goals and achieve a mutually-beneficial
responsibility matters in the regions where we operate may adversely affect the Group.
• This may impact our reputation, lead to loss of investor confidence and loss of our licence to operate.
and constructive relationship with stakeholders.
• Conduct all business in an ethical, responsible, apolitical and transparent manner.
• Monitor public sentiment towards the Group and its operations.
Director – Security
and Surface Risk
• Regularly review how external risks impact the Group’s strategy and remain agile to change.
• Re-engineer value chains where appropriate to improve margins.
Director – Commercial
and Planning
• Reflect the effects of ‘lower for longer’ in strategic planning.
• Continue to review the Group’s cost structure and make sure it reflects the lower oil price environment.
• Re-work economics of development plans to reflect downside sensitivities of oil price scenarios.
• Selectively exploit low service costs resulting from the drop in the oil price.
• Pursue acquisition opportunities that seek to protect shareholder value and sustain exploration.
• Manage balance sheet strength.
• Only invest in high-quality assets below the shale threshold with transformational potential, minimal
commitments, and fiscal terms that enable value creation.
Chief
Financial Officer
• Climate change will remain on the Board’s strategic agenda going forward.
• Understanding of the implications of a ‘2-degree world’ for the business and what actions to take across
Director – Security
and Surface Risk
a range of areas.
• Systematically track trends to provide commercial foresight on how quickly the world is moving
toward decarbonisation.
• Continue to report our emissions and climate change strategies through CDP.
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Risk
Divestment
Description of Risk
• The divestment environment through 2016 was difficult and in the short term is likely to remain so.
• The main potential impact for Ophir is our inability to successfully divest assets at an acceptable price
and/or time.
Investment decisions
• The Group may not be able to identify appropriate expansion opportunities or be able to manage
• Investments are not dictated by production or reserves growth targets; instead each investment is assessed
such expansion effectively.
Health, Safety and
Environment (HSE)
and Security incident
• Oil and gas exploration, development and production can present challenging operational environments
and exposure to a wide range of health, safety, security and environmental risks.
• Our most significant risks are:
– The potential loss of hydrocarbon containment caused by integrity failure, human error, natural
disasters or other unforeseen events.
– The risk of harm to our workforce during transportation.
• Major Health, Safety, Security or Environmental events could lead to regulatory action and legal liability,
including penalties, increased costs and potential loss of our licence to operate.
Exploration success
• Successful exploration and/or appraisal is fundamental to the purpose of our business and value creation
for shareholders.
• Persistent lack of success would lead to a loss of investor confidence and ultimately the failure of the
embedded within the Group.
business model.
Inability to fund exploration
work programmes
• Failure to forecast and work within our financial structure could impact our liquidity and lead
to an inability to deliver the business plan.
• Ongoing strategic objective to optimise the use of our capital by capturing highest commercial returns on our
Chief
assets and exploration opportunities.
Financial Officer
• Gas discoveries may require the Group to invest in LNG development projects which require long lead
times and material investment in receipt, processing and transportation infrastructure and the
marketing of LNG.
• The Group’s business will require significant capital expenditure and the future expansion and
development of its business could require future debt and equity financing. The future availability
of such funding is not certain.
• Revenues, profitability and cash flows concentrated in a small number of producing assets.
• The Group may face the possibility of future decommissioning costs that it cannot accurately predict.
• Inability to access internal or external funding.
• Regular review of cash flow, working capital and funding options, and prudent approach to budgeting
and planning, to ensure we have sufficient capital to meet commitments.
• Effective portfolio management via farm-outs/asset sales as appropriate.
• Budgets are focused on high and medium ranked assets/projects to deliver value creation and to ensure the Group
can live within its means.
• Formalised annual budget process and ongoing monthly reviews and analysis of actuals.
• Board approval of Annual Work Programme.
• Diversify the sources of funding and apply prudent levels of debt to development and production activities.
18
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Objective/Control
• Continued focus on increasing NAV/share.
• Monitor and tailor projects to fit the macro environment.
• Maximise transparency with equity buyers.
• Contingency planning and preparedness to change the course of action as situations change.
• Capital selectively directed at those assets which offer the highest risk-weighted returns.
• Appropriate balance between growth by exploration and acquisition.
• Focus on growing a revenue-generating business to fund exploration activities and minimise the overall
on an IRR and materiality basis.
cost of capital.
• Allocate capital to the highest return opportunities following rigorous risk/reward analysis.
• Risk assessment and due diligence process undertaken on all potential new country entries and acquisitions.
• Endeavour to transact at the most appropriate time to create value for shareholders.
• Continue the momentum on the Fortuna FLNG project and achieve FID in mid-2017.
• Facilitate buyer access/relationships with host governments.
• Ongoing strategic objective to capture high-quality exploration acreage.
• Pace our exploration and high-grade the plays. We will not rush to drill.
Responsibility
Change
Director – Commercial
and Planning
Director Africa –
Global New Ventures/
Director Asia
• Continue to build a portfolio of low-cost opportunities with defined exit options for investors in order to decide
whether or not to progress to the next phase of exploration.
• Manage risk with partners in existing assets and new ventures.
• Only continue to hold and progress assets if they can demonstrably create substantial value for shareholders.
• Ongoing strategic objective to execute operations safely and with excellence.
• Commitment to maintaining robust health, safety, security and environmental management, and procedures
in place to respond to unexpected events that could have a direct impact on the Group and the communities
Director – Security
and Surface Risk
• Comprehensive HSE and operations management systems including emergency response and oil spill response
in which we work.
capability in place.
• Active security monitoring and management.
• Learn from Group and third-party incidents.
• Use of leading indicators.
Ophir’s requirements and industry best practices.
• Generate leads and mature top-ranked prospects.
• Contracting and procurement process ensures suitably-qualified contractors are employed to meet
• Board’s Technical Advisory Committee reviews subsurface risk and there is a robust peer review process
• Application of technical excellence and use of appropriate technologies in exploration methodologies.
• Review of new opportunities without impacting focus on strategic core growth areas.
Director – Subsurface
Ophir Energy plc Risk
Divestment
Description of Risk
and/or time.
• The divestment environment through 2016 was difficult and in the short term is likely to remain so.
• The main potential impact for Ophir is our inability to successfully divest assets at an acceptable price
Objective/Control
• Continued focus on increasing NAV/share.
• Monitor and tailor projects to fit the macro environment.
• Maximise transparency with equity buyers.
• Contingency planning and preparedness to change the course of action as situations change.
• Capital selectively directed at those assets which offer the highest risk-weighted returns.
• Appropriate balance between growth by exploration and acquisition.
Investment decisions
• The Group may not be able to identify appropriate expansion opportunities or be able to manage
• Investments are not dictated by production or reserves growth targets; instead each investment is assessed
such expansion effectively.
on an IRR and materiality basis.
• Focus on growing a revenue-generating business to fund exploration activities and minimise the overall
cost of capital.
• Allocate capital to the highest return opportunities following rigorous risk/reward analysis.
• Risk assessment and due diligence process undertaken on all potential new country entries and acquisitions.
• Endeavour to transact at the most appropriate time to create value for shareholders.
• Continue the momentum on the Fortuna FLNG project and achieve FID in mid-2017.
• Facilitate buyer access/relationships with host governments.
• Ongoing strategic objective to capture high-quality exploration acreage.
• Pace our exploration and high-grade the plays. We will not rush to drill.
• Continue to build a portfolio of low-cost opportunities with defined exit options for investors in order to decide
whether or not to progress to the next phase of exploration.
• Manage risk with partners in existing assets and new ventures.
• Only continue to hold and progress assets if they can demonstrably create substantial value for shareholders.
• Ongoing strategic objective to execute operations safely and with excellence.
• Commitment to maintaining robust health, safety, security and environmental management, and procedures
in place to respond to unexpected events that could have a direct impact on the Group and the communities
in which we work.
• Comprehensive HSE and operations management systems including emergency response and oil spill response
capability in place.
• Active security monitoring and management.
• Learn from Group and third-party incidents.
• Use of leading indicators.
• Contracting and procurement process ensures suitably-qualified contractors are employed to meet
Ophir’s requirements and industry best practices.
Responsibility
Change
Director – Commercial
and Planning
Director Africa –
Global New Ventures/
Director Asia
Director – Security
and Surface Risk
Exploration success
• Successful exploration and/or appraisal is fundamental to the purpose of our business and value creation
• Generate leads and mature top-ranked prospects.
• Board’s Technical Advisory Committee reviews subsurface risk and there is a robust peer review process
Director – Subsurface
• Persistent lack of success would lead to a loss of investor confidence and ultimately the failure of the
embedded within the Group.
• Application of technical excellence and use of appropriate technologies in exploration methodologies.
• Review of new opportunities without impacting focus on strategic core growth areas.
• Ongoing strategic objective to optimise the use of our capital by capturing highest commercial returns on our
assets and exploration opportunities.
• Regular review of cash flow, working capital and funding options, and prudent approach to budgeting
and planning, to ensure we have sufficient capital to meet commitments.
• Effective portfolio management via farm-outs/asset sales as appropriate.
• Budgets are focused on high and medium ranked assets/projects to deliver value creation and to ensure the Group
can live within its means.
• Formalised annual budget process and ongoing monthly reviews and analysis of actuals.
• Board approval of Annual Work Programme.
• Diversify the sources of funding and apply prudent levels of debt to development and production activities.
Chief
Financial Officer
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28/03/2017 17:41
Health, Safety and
Environment (HSE)
and Security incident
• Oil and gas exploration, development and production can present challenging operational environments
and exposure to a wide range of health, safety, security and environmental risks.
• Our most significant risks are:
– The potential loss of hydrocarbon containment caused by integrity failure, human error, natural
disasters or other unforeseen events.
– The risk of harm to our workforce during transportation.
• Major Health, Safety, Security or Environmental events could lead to regulatory action and legal liability,
including penalties, increased costs and potential loss of our licence to operate.
for shareholders.
business model.
Inability to fund exploration
• Failure to forecast and work within our financial structure could impact our liquidity and lead
work programmes
to an inability to deliver the business plan.
• Gas discoveries may require the Group to invest in LNG development projects which require long lead
times and material investment in receipt, processing and transportation infrastructure and the
marketing of LNG.
• The Group’s business will require significant capital expenditure and the future expansion and
development of its business could require future debt and equity financing. The future availability
of such funding is not certain.
• Revenues, profitability and cash flows concentrated in a small number of producing assets.
• The Group may face the possibility of future decommissioning costs that it cannot accurately predict.
• Inability to access internal or external funding.
Annual Report and Accounts 2016Strategic report StrategyGovernance reportFinancial statementsSupplementary information Market overview
Market context:
The state of
exploration
In a world awash with oil, it is
increasingly difficult to find
through conventional exploration.
2016 could prove a nadir in oil finding
rates with Richmond Energy Partners
(REP) recording only 1.9 billion barrels
of potentially commercial oil discoveries
globally in 2016, down 66% on 2014.
This decline in discovered volume was
almost exactly in line with the 65% fall in
drilling activity since the peak in 2013/14.
With fewer wells drilled commercial success
rates reached a nine-year high. However,
average drilling finding costs for offshore
wells were $4/bbl for oil and $1/boe for gas.
With offshore oil discoveries selling for only
$2-3/bbl, and gas for $0.8/boe, being an
‘average’ explorer was not good enough
to create value in 2016.
During the 2016 oil price rally, investors
preferred North American unconventional oil
assets to conventional oil as they are perceived
to be geologically more predictable than
conventional exploration. Whilst it is true
that the best North American light, tight oil
plays may have break even oil prices in the
$30s per barrel, the best conventional plays
can still match or better this.
The challenge for conventional exploration
has been to unearth major new oil plays
to replace those that are maturing. The last
major new multi-billion barrel oil province
to emerge was the pre-salt play in Brazil
in 2006, albeit Exxon’s success offshore
Guyana may yet change that. $22 billion
of spending on drilling frontier wells by the
industry over nine years has led to the
discovery of enough oil for only 80 days
of global consumption and the new oil plays
to emerge since are mostly a billion barrels
or less in scale. Meanwhile industry has been
finding lots of gas where it was hoping for oil.
Major new gas provinces have emerged
in East Africa, the Eastern Mediterranean
and Northwest Africa.
Where that gas is close to local markets,
like in Israel and Egypt, it has been put
into production quickly and profitably.
LNG projects in remote basins offshore
Africa have been more challenging to
commercialise. The emergence of floating
LNG technology is changing that picture.
REP has identified only 12 conventional
offshore oil plays that had delivered
a discovery larger than the minimum
economic field size at $40/bbl in the last
five years. The industry’s conventional oil
prospect inventory has been degrading
as the frontier programme has largely failed
to deliver the renewal the industry needs.
Proven plays are maturing, contributing
to finding costs for oil reaching record
levels in 2016. Exploration performance
has also been undermined by a systematic
underestimation of commercial risk in
high-risk plays by small and large companies
alike. Industry has been making too many
discoveries that are too small to be commercial.
So is exploration for conventional oil
and gas still relevant?
The answer is yes, given certain conditions.
At $60 per barrel, which is currently
REP’s long-term oil price assumption, the
conventional geology that can be explored
economically increases dramatically and
exploration becomes much more attractive.
History says that investors will be sure to put
money back to work in the E&P sector in a bull
oil market. Mid-Cap E&P equities increased
an average 36% in 2016 in line with increasing
oil prices. Some investors were prepared to
back risky exploration ventures with equity
again in 2016.
Dr Keith Myers
Managing Director
Richmond Energy
Partners
About the author
Dr Keith Myers is Managing Director
of Richmond Energy Partners. Keith
joined BP in 1987, having graduated
with a geology PhD at Imperial College.
Following a variety of technical roles,
he became Senior Commercial Advisor
leading several major business
negotiations for new business access.
He also led strategy for BP’s business in
West Africa in the Strategic Alliance with
Statoil. He went on to found Richmond
Energy Partners in 2006 to provide
independent advice to investors in smaller
oil and gas companies. REP now advise
some of the largest funds and institutions
investing in the sector and provide
exploration strategy and benchmarking
services for the global exploration
industry. Keith takes a keen interest
in the oil sector governance and serves
as a member of the Natural Resource
Governance Institute and is on the guest
teaching faculty of the Blavatnik School
of Governance at Oxford University.
The market overview provides an
independent view of the market
in which we operate.
20
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Ophir Energy plc Even if oil prices recover, explorers will need to
focus on finding low cost oil and gas profitable
to develop at $40 per barrel or less.
Even if oil prices recover, explorers will
need to focus on finding low cost oil and
gas profitable to develop at $40 per barrel
or less. Low cost oil will always find a market,
never mind the current stranded assets
mantra. Finding costs need to be kept below
$1–2/bbl, or perhaps a bit higher for near
field discoveries where development costs
are lower. Being an average explorer will not
be good enough – companies will need to
believe they have the portfolio, technology,
people and processes to deliver exceptional
performance.
This means an efficient exploration process
with larger prospect portfolios and fewer,
better wells targeting bigger prospects at
higher commercial success rates. It also
means making discoveries that will not
be stranded commercially or politically.
In mature areas like the North Sea, it
means exploring efficiently for oil and gas
near late life fields to delay abandonment.
So 2017 sees the industry emerging
from the trauma of the past few years
with a lower cost base and new strategies.
Industry is emerging leaner and fitter but
must be able to remain disciplined during
the bull oil market to come. Decreased
competition means lower access costs for
exploration acreage and more opportunity
to create value from exploration for the
accomplished explorer.
Dr Keith Myers
Managing Director
Richmond Energy Partners
Gross exploration wells and success rates
s
l
l
e
w
f
o
r
e
b
m
u
N
300
250
200
150
100
50
0
2010
2011
2012
2013
2014
2015
2016
70%
60%
50%
40%
30%
20%
10%
0%
Gross exploration wells
Technical success rate
Commercial success rate
Gross volumes and finding costs
e
o
b
m
m
;
l
b
b
m
m
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2010
2011
2012
2013
2014
2015
2016
e
o
b
/
$
;
l
b
b
/
$
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0
Oil (mmbbl)
Gas (mmboe)
Oil-only finding cost ($/bbl)
Overall finding cost ($/boe)
Source: Richmond Energy Partners, REP40 data. The REP40, which includes Ophir, is a 40 company peer-group
of active explorers.
4747-Ophir-AR16_08_MarketOverview_AW-KC-280317.indd 21
21
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Annual Report and Accounts 2016Strategic report StrategyGovernance reportFinancial statementsSupplementary information
Review of
operations
Creating growth
Bill Higgs
Chief Operating
Officer
As the organisation becomes increasingly
focused on creating growth in NAV per
share, we are applying greater discipline
when allocating capital to our operating
activities. Our first priority is in safely
maximising the value of the cash returns
from our production base. We can then
think about where else in the portfolio to
deploy that capital in the pursuit of further
value creation.
During 2016 we have invested in additional
facilities at the Bualuang field to improve the
production capacity of the infrastructure;
brought the Kerendan gas field onstream,
diversifying our production base; progressed
the Fortuna FLNG project towards FID; and
continued to build the prospect inventory
to provide drilling options for 2017/2018.
As we look ahead through 2017, we will
continue to invest in both Bualuang and
Kerendan to increase the cash generation
of the asset base. This is expected to lead
to cash flow materially higher than in 2016.
The Fortuna FLNG project should move
through FID in mid-2017, providing a clear
timeline to first production and cash flow.
We will recommence exploration drilling
in 2Q 2017 with a well on the Ayame-1X
prospect in Côte d’Ivoire.
Taken as a whole, we are confident that we
will unlock further value in our production
base during 2017 and hope that we can also
create value through opening up a new play
in Côte d’Ivoire.
Health, Safety, Security and Environment
Ophir is committed to protecting the health,
safety and security of our workforce and
environments in which we work.
We do this through the deployment of
HSSE risk management systems that include
the use of leading indicators to test the
robustness of our controls. Over 1.83 million
hours were worked during 2016 with no
recordable injuries or illnesses and no loss
of containment events. These were excellent
achievements.
Resource and reserves monetisation
Let us look at the application of our strategy at
an operational level. Reliable, diversified cash
flow from our production base is an important
part of our strategy to become a sustainable
explorer. We have invested, and will continue
to invest, in our production base where there is
an opportunity to enhance operating cash
flow per boe at attractive returns.
22
Mexico
A consortium including
Ophir was awarded the
Block 5 exploration
licence in the Mexico
Deepwater Oil auctions
in December 2016.
Key
Oil play
Gas play
Ophir will only proceed with development
projects that offer demonstrable value
creation for equity holders without
undermining the Group’s funding position
or its exploration-led strategy. As such, we
may look to partially or wholly monetise on
discovery or prior to significant investment
to deliver the highest risk-weighted returns
to shareholders.
Bualuang, Thailand
(20.9 MMbo 2P, 17.8 MMbo net 2C)
Our strategy for managing the Bualuang
field is to maximise cashflow through
safe, reliable and cost-efficient production
operations, combined with the appropriate
capital deployment to further develop
contingent resources. Bualuang is currently
the most cash-generative asset in the Ophir
production portfolio. In 2016, it generated
$58 million of cash from average daily
production of 8,700 bopd.
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Ophir Energy plc Côte d’Ivoire
Entered Côte d’Ivoire in
2016 with an operated
interest in Block CI-513.
We expect to drill the
Ayame-1X prospect
during Q2 2017.
Myanmar
Matured a prospect
inventory on Block AD-03
with a number of
prospects now drill-ready.
Thailand
The produced water
debottlenecking project
(PWDBN) was executed
offshore, increasing the water
disposal rate to 75,000 bpwd.
Malaysia
Working up prospects
in Block DW-2A with
a view to taking a drill or
drop decision in 1H 2017.
The asset team is
preparing to shoot a
400km2 3D seismic
survey in the PM-322
licence in Q2 2017.
Indonesia
In West Papua IV and
Aru PSCs, the Trepang
3D seismic survey was
completed in 2016.
The Kerendan gas field
was brought onstream
in 2H 2016.
Gabon
Interpretation of the Olumi
Rouge 3D seismic data is
ongoing with focus on seismic
attribute/AVO analysis in the
Nkawa and Nkouere blocks.
Equatorial
Guinea
Ophir has signed a shareholder
agreement with OneLNG to
form a Joint Venture that will
finance, develop and operate
the Fortuna FLNG project.
Tanzania
Shell has become Operator post
the acquisition of BG. Negotiations
are ongoing regarding the Host
Government Agreement.
Our main focus at Bualuang during the year
was to complete a water debottlenecking
project that increased water handling
capability by 50% to enable an increase
in production and, consequently, cash
generation.
The water debottlenecking project cost
a total of $21 million and is expected to
increase the NPV10 of the field by $83 million
with investment payback approximately
12-18 months after completion.
As we look forward, the key challenge at
Bualuang is how we create further value
and increase the cash generation of the
field. The ocean bottom node 3D seismic
data, acquired in 2015 to image under the
platform, was processed and interpreted
in 2016 and is key to determining how we
unlock additional value from the field.
In 2017, we will complete a small infill drilling
programme consisting of two development
wells. This will see old well stock recycled
to target new locations with the goal to
grow production by around 1,400 bopd.
The investment in this programme will
be c. $12 million and is expected to add
$23 million to the NPV of the project
and payback within 12 months.
We will also drill a further well targeting
prospective resource in the Bualuang field.
We are also in the final technical and
commercial analysis stage of the opportunity
to expand the production capacity at
Bualuang by the installation of a simple,
low-cost platform. Additional well slots will
enable the targeting of locations to convert
prospective and contingent resources to
reserves. We expect to be in a position to
make an FID on the next phase of
development in 2Q 2017.
Kerendan, Indonesia
(15.9 MMboe 2P, 60.3 MMboe net 2C)
The primary challenge at Kerendan
now that the field is producing, is to seek
innovative ways to monetise the 457 Bcf
of gross 2C contingent resource not covered
by the initial gas sales agreement (GSA).
The field produced at an average of
768 boepd over the period in 2016 that it
was producing, but is expected to ramp up to
full contract volume of closer to 20 MMscfd
in 2017, providing additional cash flows.
The offtaker contracted to take 16 MMscfd
from 11 January 2016 and, under the take
or pay provision in the GSA, a receivable
of $17 million has been accrued. This was
settled in full in February 2017.
A significant step forward in monetising
the additional 2C resource in the Kerendan
area occurred in late 2016 with SKKMigas
approving the West Kerendan-1
expansion plan.
4747-Ophir-AR16_09_OpsReview_AW-KC-290317.indd 23
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Governance reportFinancial statementsSupplementary informationStrategic report PerformanceAnnual Report and Accounts 2016 This will allow an additional 40 Bcf to be
monetised that will grow production by
7 MMscfd from 2019. Making further
progress on the monetisation of the 457 Bcf
of gross contingent resource, not covered by
the first GSA, is an area of focus for 2017.
Safe completion of the onshore 3D seismic
acquisition programme, forecast to complete
in Q4 2017, is a key step on this pathway.
These data will allow for better definition of
the Kerendan field to give greater certainty
around resource volumes, which should
ultimately lead to SKKMigas approving
the sale of additional gas volumes.
Sinphuhorm
(7 MMboe 2P, 21.3 MMboe net 2C)
Gas production from Sinphuhorm was
10% ahead of budget at 1,900 boepd.
This was principally as a result of the poor
performance from the competing hydro-
power sector.
Fortuna, Equatorial Guinea
(400.7 MMboe net 2C)
The Fortuna project was the asset most
in the spotlight during 2016 as we sought
to find a way to monetise the 400 MMboe
of net 2C resource we have discovered
in the play to date. Our focus has always
been on monetising this asset in a manner
that maximises value creation for
our shareholders.
We have continued to move this project
forward for one simple reason – the point
forward returns are excellent, as it is a
low-cost project with a world-class reservoir.
Admittedly, we have had our setbacks on
this project, no more so than in the early part
of 2016 when Schlumberger withdrew from
a planned upstream farm-in. Having worked
closely with our then midstream partner,
Golar LNG, to find a funding solution for
the midstream part of the project, we were
delighted to sign a Shareholders’ Agreement
with OneLNG in November 2016 for
the formation of a Joint Venture that
will develop and finance the Fortuna
FLNG project.
OneLNG is a joint venture owned by Golar
LNG and Schlumberger to help monetise
stranded gas assets. We now have an
integrated project with Ophir and OneLNG
aligned across the value chain. Ophir will
not invest more than $120 million of the
$2 billion of capital expenditure required
to get to first gas and we expect to generate
a return of over 5x on this investment.
Since announcing the JV in November
2016 we have made good progress against
the remaining milestones. The Umbrella
agreement between the Fortuna JV and
the Government of Equatorial Guinea is
expected to be signed during 1Q 2017.
This defines the legal and fiscal framework
for the project.
A term sheet has been signed for the provision
of the debt facility with a consortium of
Chinese banks. We have now moved to the
documentation phase and expect to close
the facility during 2Q 2017.
The discussions with offtakers remain
on-going and are expected to be closed
out imminently.
We expect to issue a shareholder Circular
during 2Q 2017 with FID remaining on
schedule for mid-2017.
Blocks 1 and 4, Tanzania
(500.2 MMboe net 2C)
In Tanzania, Shell took over the operatorship
from BG Group in March 2016 and has since
undertaken a review of the project plan,
the development scope and the cost stack
of the project.
Separately, since the elections in Tanzania
in late 2015, the new Government has taken
a more pro-active, hands-on approach
to delivering the project. An integrated
negotiating team, with representatives from
all the key ministries, has been established,
with the remit to deliver the required project
agreement for the onshore LNG plant.
Once this is agreed, there will be a clear
legal framework under which the
development can be moved forward.
After completing the final exploration
commitment wells on Blocks 1 and 4 in late
2016, the Minister of Energy awarded an
extension of Block 1 for a further three
and a half years to provide sufficient time
to complete pre-FEED and FEED ahead
of investment approval. An extension for
Block 4 is expected later in 2017. Ophir will
continue to determine the optimum way
to monetise the asset to deliver value
for shareholders.
Exploration
Ophir’s strategy is to create value for
shareholders through finding resources at low
cost and monetising them smartly in the way
that maximises the value created.
We have been actively maturing the best
prospects on the plays we have high-graded,
adding new plays to compete for capital with
the existing opportunities. We have looked at
numerous data rooms in the past three years
to rank the best opportunities. As a result,
Ophir has positions in a number of high
graded plays, all of which have prospects
that have cleared commercial and technical
thresholds and have increased the Group’s
risked prospective resources by 158 MMboe.
During 2016 we entered three new licences.
The first of these was a new country entry
in Côte d’Ivoire when we signed a PSC for
Block CI-513.
24
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Ophir Energy plc We also completed the reprocessing of
existing seismic data over the West Papua
IV and Aru licences which has enabled us
to mature a number of leads to prospects.
In Gabon, we have extended the Nkouere
and Nkawa licences and are using the
Olumi Rouge 3D seismic data to mature
a new outboard play. We believe this play
has multi-billion barrel potential and we are
currently seeking to farm-down to a partner
prior to entering into the second phase of
the exploration licence.
Dr Bill Higgs
Chief Operating Officer
The Ayame-1X prospect will spud in 2Q
2017 and we are currently carrying mean
prospective recoverable resource of 234
MMbo with a 23% geological chance of
success. The well will be drilled by the
Seadrill West Saturn rig and the gross
cost is expected to be $30 million. It is a
stratigraphic prospect testing an extension
of a proven petroleum system in the
adjacent block and the main risk is
trap effectiveness.
We also entered the DW-2A licence in
Malaysia and will take a drill or drop decision
in 1H 2017.
Our third new licence entry was in Mexico,
which followed work by our Global New
Ventures team screening opportunities
outside our Asian and African heartland.
Our interest in Mexico was a result of the
liberalisation of the energy sector, which
meant that for the first time in nearly 80
years international companies would be
able to bid for acreage in Mexican waters
of the Gulf of Mexico. Fewer than 45
deepwater exploration wells have been
drilled in Mexico compared with over 1,200
on the US side, creating a rare opportunity
to access an under-explored, but proven
world-class basin. The basin also screened
well from a commercial basis and there is
a clear path to monetisation.
Ophir is part of a Murphy-operated
consortium, also containing PC Carigali
(part of Petronas) and Sierra Oil & Gas,
that won the rights to Block 5 in the first
deepwater licence round in December 2016.
Drilling is not expected to take place until
2019 and the net cost to Ophir of the first
phase work programme is limited.
In Myanmar, we have matured the
prospect inventory to drill-ready status.
The play looks to be comprised of sands
in low relief channel systems leading us
to believe that Myanmar will likely be
developed by the aggregation of gas fields.
We are currently seeking to farm-down to
a strategic partner and we view this as
a pre-requisite to drilling.
In Equatorial Guinea, the southwest portion
of Block R contains a potential extension of
an oil play in the neighbouring block which
is operated by an IOC. The operator of the
adjoining block completed a 3D seismic
survey in 2016 that was extended into
Block R. These data have been processed
and our geoscientists, along with those of
the operator, are reviewing the prospectivity
ahead of a decision on whether to drill a well.
In Indonesia, we safely completed the
offshore Trepang 3D seismic survey on the
West Papua IV and Aru licences in 4Q 2016.
Statement of contingent resources and proved and probable reserves
(working interest basis)
Contingent
Resource (2C)
Opening balance
Additions
Revisions
Production
Closing balance
Proved and Probable
Reserves (2P)
Opening balance
Additions
Revisions
Production
Closing balance
Oil
MMstb
–
–
–
–
–
Oil
MMstb
0.0
–
–
–
0.0
Africa
Gas
bscf
5,405.0
–
–
–
5,405.0
Africa
Gas
bscf
0.0
–
–
–
0.0
Total
MMboe
900.8
–
–
–
900.8
Total
MMboe
0.0
–
–
–
0.0
Oil
MMstb
20.7
–
–
–
20.7
Oil
MMstb
21.9
–
3.9
(3.2)
22.6
Asia
Gas
bscf
417.9
–
57.8
–
475.7
Asia
Gas
bscf
186.9
–
(62.3)
(4.5)
120.1
Total
MMboe
95.2
–
9.5
–
104.7
Total
MMboe
54.4
–
(6.7)
(3.9)
43.8
Oil
MMstb
20.7
–
–
–
20.7
Oil
MMstb
21.9
–
3.9
(3.2)
22.6
Total
Gas
bscf
5,822.9
–
57.8
–
5,880.7
Total
Gas
bscf
186.9
–
(62.3)
(4.5)
120.1
Total
MMboe
996.0
–
9.5
–
1,005.5
Total
MMboe
54.4
0
(6.7)
(3.9)
43.8
All gas reserves are converted at 6.0 Bcf/MMboe, except Kerendan, Indonesia, which is converted at 5.5 Bcf/MMboe. Gas reserves include those attributable to the Sinphuhorm, Thailand asset which is
equity accounted for in the financial statements.
2C contingent resources for Southeast Asian assets are based on reports produced by the Group’s independent engineer, RPS Energy, as at 1 January 2016 and are supplemented by the Group where
necessary with additional and more recent information.
2C contingent resources for African Assets are based on reports produced by the Group’s independent engineer, ERC Equipoise, during 2015. There has been no change to this position in 2016.
2P commercial reserves are based on reports produced by the Group’s independent engineer, ERC Equipoise, as at 1 January 2017 and are supplemented by the Group where necessary with additional
and more recent information.
The Group provides for amortisation on its oil and gas properties on a new entitlements basis, which reflects the share of future production estimated to be attributable to the Group under the terms
of the PSCs related to each field.
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Governance reportFinancial statementsSupplementary informationStrategic report PerformanceAnnual Report and Accounts 2016 Financial
review
Tony Rouse
Chief Financial
Officer
Summary
As detailed in the Chief Executive Officer’s
review, our strategy is to be a sustainable
explorer, focused on delivering NAV per
share growth, by finding resources at low
cost and then monetising them smartly in
the way that maximises the value created.
This requires us to generate sufficient cash
flow over time, through a combination of
maximising cash flow from our production
assets and the monetisation of our
exploration success, to fund a sustainable
exploration programme.
Our first step to build this cash flow, was
the acquisition of Salamander Energy in
early-2015. This transaction provided Ophir
with two producing assets in Thailand,
Bualuang and Sinphuhorm, and a
development asset in Indonesia, Kerendan,
which came onstream in August 2016.
During 2016, we took a further step
towards achieving our objective of
becoming a sustainable explorer. Through
our agreement with OneLNG, we will
form a Joint Venture (JV) to facilitate the
financing, construction and development of
the integrated Fortuna project in Equatorial
Guinea. This provides a framework whereby
we can now move forward to commercialise
the asset with a 33.8% equity interest in the
26
JV. Through these arrangements, we
have limited our capital and balance sheet
exposures to a maximum of $120 million.
We expect to take FID on the project by
mid-2017 and the asset is expected to
be on-stream mid-2020 delivering net cash
flow to us of approximately $140 million
per year (at an indicative FOB gas price
of $6.00 MMbtu). The cash flow generated
from Fortuna, along with the cash flow
from our Asian production base, will see
us broadly achieve our strategic objective
of becoming a sustainable explorer.
Our principal financial goals are therefore to
ensure that we preserve our balance sheet
strength and maintain sufficient liquidity
between now and Fortuna coming on-stream.
In the meantime, funds will be invested as
a priority to the further monetisation of our
existing asset base with our exploration
efforts being scaled according to the
availability of residual capital.
Additionally, during 2016 we took further
steps to preserve our liquidity by lowering
our capital and operating cost base.
We also reduced our gross administration
cost base with a further reduction year
on year (excluding one-off restructuring
costs) of 31%.
Commodity prices strengthened during
the second half of the year with the
OPEC agreement in November, further
underpinning positive sentiment around
oil prices. Brent recovered from a low of
$27 per barrel in January to a high of
$57 per barrel in December, and averaged
$45 per barrel for the year. Brent pricing
has been more stable in early 2017 than for
some time, but the outlook remains cautious,
and we will therefore continue to scale
our future programmes according to our
capital constraints until we have secured
a sustainable cash flow.
Sources and uses of funds summary
Net sources of funds:
Revenue (including hedges)
Kerendan take-or-pay
Cost of production
(operating expenses, royalty, inventories)
Investment income
Income tax charge
Total net sources of funds from production
Net uses of funds:
Capex (less disposals)1
Net administration cost
Net finance costs
Total net uses of funds
Financing:
Closing gross cash
Closing borrowings
Closing net cash
Units
$’millions
$’millions
$’millions
$’millions
$’millions
$’millions
$’millions
$’millions
$’millions
$’millions
$’millions
$’millions
$’millions
FY 2016
107.2
16.5
FY 2015
178.2
0.0
FY 2014
–
–
(42.7)
4.4
(23.7)
61.7
155.6
13.4
14.3
183.3
360.4
200.3
160.1
(47.9)
7.2
(24.6)
112.9
205.6
31.3
15.7
252.6
614.6
259.6
355.0
–
–
(210.4)
(210.4)
(685.3)
20.7
(7.0)
(671.6)
1,172.8
–
1,172.8
1
Capex is adjusted to eliminate non-cash amounts for decommissioning for 2016 of $19.2 million (2015: $1.5 million) and
capitalised interest for 2016 of $8.7 million (2015: $1.5 million).
4747-Ophir-AR16_10_FinancialReview_AW-KC-280317.indd 26
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Ophir Energy plc Net sources of funds
2016 working interest production was
in line with guidance at 10,800 boepd.
This comprised 8,700 bopd from Bualuang
and our first contribution from Kerendan
which averaged 200 boepd for the year.
In addition, 1,900 boepd was produced
from Sinphuhorm (which is accounted for
using the equity method).
Revenue (including realisation of hedges)
from Bualuang totalled $107 million or
$38 per barrel (2015: $178 million or
$47 per barrel). With a breakeven for 2016
of $15 per barrel, Bualuang delivered positive
post-tax funds flow of $58 million or $18 per
barrel (2015: $106 million or $34 per barrel).
The Kerendan field came onstream in August,
with pre-production operating costs being
charged to the income statement in 2016,
Kerendan utilised net funds of $8 million.
However, this amount was more than offset
by recognising $17 million of deferred income
to the balance sheet for the Kerendan PLN
take-or-pay obligation for volumes not
drawn-down since the commencement
of the GSA on 11 January 2016. The
take-or-pay amount was settled in full
by PLN in February 2017.
Full-year 2016 net sources of funds from
production totalled $62 million (2015:
$113 million), a 45% reduction year-on-
year predominantly due to lower
commodity prices.
•
Monetisation of resource of $80 million
(2015: $68 million) comprising
predominantly:
–
Tanzania Blocks 1 and 4 –
drilling and pre-development
spend ($22 million).
Equatorial Guinea, Fortuna –
Front End Engineering Design
($42 million).
Thailand, Bualuang – water
debottlenecking project
($12 million).
–
–
Of the 2016 exploration expenditures,
we charged and wrote-off $6 million
(2015: $24 million) to the income statement.
In addition, we wrote-off prior year
expenditures of $94 million (2015:
$125 million) following our decision to
relinquish the G4/50 licence in Thailand
and assessing the portfolio in Indonesia.
Our cost reduction programme saw gross
administration cost reduce by a further
31% in 2016. This is reflected in our
net administration expense reducing
to $13 million (2015: $31 million), a
reduction of 35% after eliminating one-
off restructuring costs of $2 million in
2016 (2015: $14 million).
We incurred interest charges during 2016
of $14 million (2015: $16 million) against
average gross debt of $230 million, giving
rise to an average cost of debt of 7%.
With an improved commodity price outlook
in 2017 and the Kerendan asset on-stream
for the full year, post-tax funds flow from
production is forecast to increase to
$80-120 million or $18-27 per barrel.
We took steps in 2016 to lower our
borrowings thus reducing the negative
interest carrying cost.
Overall, uses of funds for 2016 totalled
$183 million (2015: $199 million).
Uses of funds
The Group’s primary investments
during 2016 were:
Looking ahead to 2017, our capital
expenditure is forecast at $125-175 million
with plans including:
• Exploration of $76 million (2015:
• Thailand, Bualuang – infill drilling
Debt and net debt
During 2016 we reduced our total debt
outstanding by repaying $59 million of our
reserve based lending facility. This gave rise
to outstanding debt at year-end 2016 of
$200 million. This comprised of our reserves
based lending facility of $93 million (2015:
$210 million) and our high yield Nordic bond
of $107 million (2015: $107 million).
In late 2016, we commenced the process
of refinancing our debt facilities. This process
is expected to complete in 2Q 2017 with an
increase to our borrowing capacity.
Our balance sheet therefore remains robust
with closing gross cash of $360 million
(2015: $615 million, including short-term
cash deposits) and net cash at year-end
2016 of $160 million (2015: $355 million).
We expect to remain approximately gross
cash neutral in 2017 with our capital
expenditure programmes covered by a
combination of funds generated from our
production assets and additional cash made
available through the refinancing of the debt
facilities. We currently forecast that gross cash
will be $375-425 million and that net cash will
be $100-125 million at year-end 2017.
The Directors have also considered the
longer-term viability of the Company to
end-2020. Based on their assessment (as
fully detailed on page 14), the Directors have
a reasonable expectation that the Company
will be able to continue in operation and
meet its liabilities as they fall due.
Tony Rouse
Chief Financial Officer
$140 million) including:
–
–
–
–
Acquisition of Côte d’Ivoire
Block CI-513 ($20 million).
Myanmar AD-03 – well planning
and Environmental Impact
Assessment ($9 million).
Acquisition of Malaysia Block 2A
($8 million).
Indonesia – seismic data
acquisition on the West Papua
IV and Aru blocks ($8 million).
•
programme ($24 million).
Côte d’Ivoire – drilling of the Ayame-1X
exploration well ($16 million).
• Equatorial Guinea – initial funding
for the Fortuna JV ($25 million).
Longer term, the Group’s future financial
commitments beyond 2017 are limited
to $33 million (2016: $48 million) against
agreed exploration work programmes.
2017 Guidance
Production
Total net funds from production
Capital Expenditure
Closing gross cash
Closing net cash
12,500–13,500 boepd
$80–120 million
$125–175 million
$375–425 million
$75–100 million
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Governance reportFinancial statementsSupplementary informationStrategic report PerformanceAnnual Report and Accounts 2016 Corporate Responsibility
Our approach to
Corporate Responsibility
Having a sound and robust approach to
Corporate Responsibility (CR) preserves our
reputation, helps to manage and mitigate
risk and builds sustainable relationships
with our stakeholders.
CR embodies the principle that we are a
responsible explorer and producer of oil
and gas, and that our operations are carried
out to the highest international standards.
With our Code of Conduct, we have a clear
set of guidelines on how we expect our
people to behave in support of CR, and
our Values form the foundation for
everything we do.
Following the Paris Agreement at the
end of 2015, we recognised that it was
important to review our approach to climate
change and we have therefore undertaken
numerous activities, including submitting
a Climate Change Questionnaire to CDP
(formerly Carbon Disclosure Project) for
the first time in 2016. We also continued
to improve our systems to gather more data
from across the Company and have begun
the process of reporting a broader set of
metrics, in line with the Global Reporting
Initiative’s (GRI) Sustainability Reporting
Guidelines.
The principle of creating shared value
throughout all of our operations is a key part
of our strategy of becoming a sustainable
exploration company. We recognise that
the success of a company and the value
it creates for stakeholders are mutually
dependent, so capitalising on the
connections between societal and
economic progress can allow Ophir to
create value for itself as well as for the
various communities in which we operate.
Our approach to CR also means that we
communicate in an open and transparent
manner. We engage with all stakeholders,
including governments, local community
28
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Ophir Energy plc 0
Reported loss of containment events
representatives, shareholders and employees
through a combination of regular meetings
and written communications.
Environment
We recognise and appreciate that protecting
the environment is a fundamental
expectation for all activities and operations
Ophir undertakes. We take a precautionary
approach to our business activities and
to the extent possible, we avoid creating
negative impacts on the environment and
biodiversity. If they cannot be avoided, we
take all reasonable steps to mitigate and/or
remedy the negative environmental impacts
associated with our activities.
Environment results
Environmental responsibility at Ophir is
governed by our HSE Policies and accomplished
through our HSE Management System, as
well as through compliance with extensive
governmental and lender requirements.
With the start-up of the Kerendan Gas
Processing Facility (KGPF) in Indonesia, we
now have two ongoing operating assets
where we closely monitor air emissions,
waste generated, discharges and
inadvertent releases. The table below
shows our performance on Group-wide
environmental Key Performance Indicators
for 2015 and 2016.
Group-wide environmental Key Performance Indicators
•
•
Notable successes are:
• we continued to operate incident-free in
2016 in terms of significant spills or other
loss of containment events.
all produced water at Bualuang continued
to be re-injected and at KGPF, it is being
stored for future re-injection.
our Group-wide energy intensity – energy
used per unit of production (calculated for
the first time this year) is in line with the
average for E&P companies worldwide.
in line with the GRI, we have greatly
expanded the suite of environmental
metrics we are tracking at the Corporate
level (see table below).
•
Metric
Energy consumption
(Gigajoules (GJ))
Energy Intensity (GJ/mboe)
GHG emissions (tonnes of CO2e):
• Direct (Scope 1)
• Energy Indirect (Scope 2)
• Other Indirect (Scope 3)2
CO2 emissions intensity
(tonnes CO2e per thousand
tonnes oil equivalent production)
Flaring (MMscf)
Venting (MMscf)
Water withdrawn for use (m3)
Waste (kg):
• Hazardous
• Non-hazardous
Oil and chemical spills
Oil and chemical spills –
released to the environment
Loss of containment events
Produced water discharged
(tonnes)
2016
628,000
1.4
64,130
63,624
506
1,751
144
214
15.9
5,915
20,539
69,343
None
None
2015
Not reported
Not reported
Comments
Includes Scope 1 and Scope 2 emissions: fuel used
in our operations as well as purchased electricity
Value for E&P companies reporting to IOGP is 1.4 (2015)
62,2921
Scopes not
reported
separately
1363
Scope 1 and 2 emissions increased due to start-up
of Kerendan Gas Processing Facility
Scope 3 is emissions from business air travel only
Average value for E&P companies reporting to IOGP
is 151 (2015)
No flaring from
Ophir assets
18.94
Not reported
Not reported
All flaring in 2016 is from the KGPF due to start-up offtaker issues.
No continuous flaring
At the Bualuang field, a small amount of gas is produced along
with the oil. This gas is continuously vented to the atmosphere
Kerendan operations only
Bualuang and Kerendan operations
None
None
None
No produced
water discharged
Not reported
No produced
water discharged
All water at the Bualuang field is re-injected into the reservoir;
produced water at KGPF is being stored for future re-injection
1 This value has been restated following final submission of data.
2 Not counted in the total GHG emissions of 69,378 tonnes.
3 Corrected value based on accurate 2015 emissions.
4 This value has been restated following final submission of data.
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Corporate Responsibility continued
Flaring at the Kerendan facility was required
due to a prolonged start-up of the adjacent
power generation facility which uses the gas
we produce. Several times during the year,
the minimum safe gas flow rates at the KGPF
exceeded the quantity which our customer
needed, so the excess gas had to be flared.
Gas supplied to our customers is displacing
the more carbon-intensive fuel previously
used for power generation.
Environmental expenditures
Our expenditures on environmental matters
in 2016 totalled $0.6 million. This includes costs
for waste disposal, environmental studies and
other environmental management services.
We had no fines or non-monetary sanctions
for non-compliance with environmental laws
and regulations, and no grievances about
environmental impacts filed through formal
grievance mechanisms.
We were pleased that our HSE efforts in
Thailand were recognised by the local
regulator. In September, Ophir Thailand
(Bualuang Field) received the 2016 Award
for Excellence in Occupational Safety, Health
and Environment Management from the
Department of Mineral Fuels of the
Ministry of Energy (DMF).
Climate change
Climate change was an area of focus and
activity during 2016. With the landmark Paris
Agreement in late 2015, we spent significant
time and effort at both the executive and
Board levels exploring and evaluating
potential climate change strategies.
The Board developed the following
statement on climate change:
• Ophir recognises the scientific consensus
that greenhouse gas emissions are driving
manmade climate change. Achieving the
internationally agreed target of limiting
global mean temperature rise to well
below 2°C above pre-industrial levels
will require significant and sustained
reductions in these emissions.
• the global changes required to achieve
this 2°C goal will impact the oil and gas
industry significantly. At Ophir, we are
deepening our understanding of the
implications of the Paris Accord for our
business, and what actions we may take
across a range of areas including our core
business strategy, our operational emissions
and our interactions with stakeholders.
Ophir’s Board will continue to oversee the
ongoing development of the Company’s
strategy in this area during 2017, including
its approach to tracking trends to provide
commercial foresight on how quickly the
world is moving toward decarbonisation.
Climate change and the implications for
Ophir will remain on the Board’s strategic
agenda going forward.
In terms of disclosure, Ophir for the first
time in 2016, submitted a Climate Change
Questionnaire to CDP. We were encouraged by
the fact that Ophir was recognised by CDP as
being one of the top three first-time responders
among UK-based companies.
We also engaged with the Wellcome Trust,
a UK-based charity and Ophir shareholder,
to help us by conducting a ‘Live Case Study’
on the topic of climate change. This process
involved a structured stakeholder engagement,
interviewing 14 different external stakeholders
including investors, governments, multi-
lateral organisations, non-governmental
organisations (NGOs), consultants and
industry experts. The study provided valuable
insights to assist us in formulating our climate
change strategies.
With respect to our greenhouse gas
emissions, we report Scope 1 and 2 and
certain Scope 3 emissions. Scope 1 emissions
are those over which Ophir has direct control;
Scope 2 emissions are indirect energy
emissions from electricity we purchase
for offices and logistics bases; the Scope 3
emissions we report are a result of passenger
air miles from business flights.
With this year’s report, we have also restated
last year’s emissions figures following final
submission of data. The Bualuang Production
Facility had very similar emissions in both
years; emissions in Indonesia were significantly
higher in 2016 due to the marine seismic
project at West Papua/Aru, as well as
start-up of the KGPF.
Health and safety
Protecting the health and safety of
everyone who works on behalf of Ophir is
of fundamental importance to the Company.
Through rigorous implementation of our HSE
Management System, we ensure that we
systematically identify all potential health
and safety hazards associated with our
operations and activities. More importantly,
once we understand the hazards, we ensure
that appropriate controls or safeguards are
in place to prevent those hazards from
causing harm to people, our assets or
the environment.
Health and safety highlights
We are extremely proud of the fact that
we worked for all of 2016 without a work-
related injury or illness across the Group.
In particular, we completed the complex
Bualuang debottlenecking project and the
start-up of the KGPF without incidents.
While these results are important lagging
indicators, we firmly believe that health
and safety can only be managed by focusing
on strengthening the controls or safeguards
that prevent unplanned incidents.
2015/2016 comparison
Significant sources of 2016 emissions (scopes 1 and 2 only)1
82.9
9.6
10.0
6.4
1.3
64.1
14.2
0.9
18.4
0.0
9.1
90
80
70
60
50
40
30
20
10
e
2
O
C
s
e
n
n
o
t
d
n
a
s
u
o
h
T
30.0
25.0
20.0
15.0
10.0
5.0
)
e
2
O
C
s
e
n
n
o
t
d
n
a
s
u
o
h
t
(
s
n
o
i
s
s
i
m
E
0
2015
E missions
Misreporting
N o Bualuang
Clerical Error
Drilling or Seismic
Venting Fro m
FPSO
N o M yan m ar
Seismic1
1 Project completed in 2015.
2 Minor changes in office electricity, vehicle use etc.
30
Kerendan Power
Kerendan Flaring
Trepang
Kerendan Process,
Other2
Venting and Fugitive
Seismic Project
Generation
E missions
2016
E missions
0.0
Bualuang Power
Generation
Bualuang O ffshore
Kerenden
Trepang Seismic
Flaring
support Vessels
Project
KGPF (Power,
Bualuang
Process, Venting
Venting
and Fugitives)
O ffice
Electricity Use
Bualuang
Helicopter
All Other2
1 Emissions of 1.75 m tonnes CO2e due to business air travel not included (Scope 3).
2 Transportation fuels for vehicles, fixed wing aircraft etc.
4747-Ophir-AR16_11_CorpResponsibility_AW-KC-280317.indd 30
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Ophir Energy plc
This involves measuring activities and
behaviours that occur before an incident
occurs. The leading indicator metrics system,
which was introduced in early 2016 and was
in place throughout the year, is designed
to do just that. The system tracks leading
metrics associated with our highest risk
activities: production operations and air
transportation of our workers. For production
operations, we gather data to help improve
the quality of our job-specific task risk
assessments – the checks of safeguards
that we make just before beginning a job.
We are also using the leading indicators to
improve our routine operating procedures.
For aviation safety, we are focusing on
inspections, routine checks and unplanned
aircraft downtime. Ophir will continue to
refine its leading indicator metrics system
and metrics as we move forward.
Another area of focus for preventing health
and safety incidents is learning from our
near miss events. In 2016, we had a total
of nine near misses in our production
operations; each of these was rigorously
investigated to improve or enhance the
safeguards and prevent similar actual
incidents. Looking at near misses and
minor incidents, during 2016 we identified
a concerning trend of electrical safety
incidents. We then put in place additional
safeguards, such as additional awareness
training, certifying portable equipment
and instituting enhanced controls over
what equipment can be brought into Ophir’s
facilities. These activities were also tracked
in our leading indicator metrics system.
Process safety continues to be a significant
area of emphasis in our production facilities.
Although we had no spills or releases during
the year – no Tier 1 or Tier 2 process safety
events – we continued to work to improve
our processes and procedures designed
to prevent these type of events. We had
a particular focus on our preventative
maintenance and asset integrity
inspection and testing programmes.
Finally, to ensure we are meeting
international best practices in Health
Safety and Environmental management,
we engaged with Mazars LLP to conduct
an internal audit of our HSE policies,
procedures and practices.
Security
Putting in place mitigations to create secure
working environments for our people is vital
to Ophir. We are familiar with working in
complex security environments; we assess
any changeable situations and subscribe
to security risk monitoring services to inform
our planning. Ophir suffered no security
incidents during 2016.
Community projects
As an international oil and gas operator, we have a
responsibility towards the communities where we operate.
These responsibilities include aiding the development of
the economic and social conditions of local communities.
This year we have focused on supporting maternal health
initiatives, environmental projects and improving the local
economic prospects of the communities near our operations
in Indonesia and in Thailand.
When selecting projects, we adopt a
collaborative approach, conducting
varied stakeholder engagement and needs
assessments in order to identify projects
that most positively contribute to the
requirements of the local communities in
the long term, as well as the Company itself.
2016 community projects
In 2016 we continued our local economic
development programme in Kerendan and
Muara Pari in Indonesia which was started in
2014. We have actively promoted community
engagement and collaborated with the local
government in the region, who have this year
donated livestock to the villages to help with
the organic fertilisation of the herbal produce.
This project has resulted in a significant
increase in income from the sales of organic
vegetables and raw herbal produce for the
participating groups from both villages.
We have commissioned the Posyandu
Revitalisation project in Maura Pari,
Kerendan and Haragandang in Indonesia
to work on a midwifery programme as
maternal health is often neglected in remote
areas of Indonesia, usually due to a lack of
relevant infrastructure, or not having proper
health staff to attend the facility. The key
part of the project is to establish ‘Health
Cadre’ (a group comprised of members
of the local community who are trained
to provide basic maternal health care)
as the main point of assistance when
not enough health staff are available.
The physical infrastructure of health care
facilities will also be improved so that they
can provide a proper service for the villagers.
The skills provided in the training will include
weighing and measuring of babies and toddlers,
women’s and senior health care, and teaching
nutrition for toddlers.
Another key project in Indonesia has been the
provision of clean water. Having learned from
our success in Kerendan, we commissioned
a similar project in Luwe Hulu, using a natural
spring to provide a source of clean water.
In Thailand we continued our successful
Ordinary National Education (O-NET) Tutor
Camp initiative which helps students in
remote areas achieve the right grades in
their O-NET, so that they can be accepted
at their desired universities.
We have worked with local communities
on mangrove restoration and reforestation
activities in Chumphon province in southern
Thailand. This initiative saw more than 1,600
mangrove and 500 teak and Shorea obtusa
hardwood saplings being planted. Over 1,600
EM balls (Effective Microorganism balls made
up of mud and organic materials) have also
been dropped into natural water courses
to aid with environmental rehabilitation.
As part of our Community Well-Being
Development Campaign to help
communities generate more income
through the exploitation of local resources,
we have finished our three-year Asian Green
Mussel Farming project in Chumphon province
which now generates around 14 tonnes of
mussels from each annual crop. This has
been a great example of a self-sustaining
project, and with the help of our seed fund,
the community now has its own plan to
expand the project to a wider area using
the funds earned in previous years.
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Corporate Responsibility continued
Throughout the Company, women represent
34%
of our workforce
2
female Directors representing
20% of the Board
Ophir expects staff to disclose all conflicts
of interest, any personal connections which
staff may have to people in government and
to notify the General Counsel & Company
Secretary of any exposure to corruption.
Where any instance of a request to make a
corrupt payment arises, staff are expected
to immediately report.
With effect from the start of 2017, a
Compliance Monitoring Plan has been put in
place to provide the Board with more clarity
in relation to key corruption prevention
activities. This is intended to elevate the
ongoing discussion about exposure to
corruption risk and to improve corruption
detection. Where corrective action is taken
to mitigate corruption risk identified through
the Compliance Monitoring Plan, it will be
done so in consultation with the Audit
Committee. The objective is to understand
where real corruption risk lies and to limit
Ophir’s exposure to it.
Our people and our values
We continue to evolve as a leading
international company, and our business
plans are ambitious and require people
with superior performance to deliver them.
We continue to build and develop an
experienced, resourceful and globally-
diverse workforce.
Integral to our Company’s success will be
the combined efforts of these people, who
are led and managed by an inspired and
courageous senior management team,
comprising technical specialists supported
by professional and functional experts.
As part of a wider corporate initiative to
further strengthen our Company (in line
with the outcomes from the 2015 Employee
Survey), we are continuing to invest in
leadership development as a critical factor
in support of our strategic objectives.
We aim to provide exciting opportunities
and challenging work assignments for our
people to gain wider experience across the
business to enhance their skills. This culture
of inclusion allows us to successfully attract
and retain the best in our industry.
Our performance review philosophy is
designed to encourage robust feedback
conversations to take place and for individual
performance to be aligned to deliver
corporate performance and value creation.
Respect for human rights
We recognise the importance of respecting
and promoting human rights, both internally
and externally. At Ophir, we are committed
to maintaining the fair and equal treatment
of all of our employees and contractors,
without discrimination. We support human
rights and encourage our joint ventures,
partners, suppliers and contractors to do the
same. We comply with all applicable human
rights laws and regulations and use the UN
Guiding Principles of Business and Human
Rights for guidance.
Diversity and inclusion
We continue to embrace a culture of
inclusivity and are committed to recognising
that all our employees have different
needs and aspirations. We are an equal
opportunities employer and have a stated
policy as part of our Code of Conduct
to deal fairly and equitably with all of our
employees in the workplace. We remain
dedicated to encouraging inclusion and
diversity at all levels of the business,
acknowledging that a more diverse
workforce, with the right mix of skills,
experience, culture, ethnicity, nationality,
gender and knowledge, can make a
valuable contribution to the Company.
We have a commitment to extend
equal employment opportunities to all,
irrespective of race, colour, gender, sexual
orientation, gender reassignment status,
religion or belief, age, nationality, ethnicity,
marital or civil partnership status, pregnancy
and maternity, or disability.
As at 31 December 2016 the Company
has two female Directors representing
20% of the Board, 17% of the senior
management team are female and
throughout the Company, women
represent 34% of our workforce.
Business ethics
In 2016, Ophir continued to carefully manage
exposure to corruption and bribery risks
across all of its operations.
All Ophir Directors, employees and
contractors are required to comply with
Ophir’s Code of Conduct, Global Anti-
Corruption Policy and ethical conduct
Standards (Compliance Processes). Ophir
introduced an electronic sign-off process for
all staff at the beginning of 2016, whereby
staff confirm that they have not breached
the Compliance Processes in the prior year.
This is to be maintained in 2017 and beyond.
Compliance registers are maintained across
all assets and business functions covering
government hostings, per diems paid to
government officials and hospitality given
to or received from third parties. Activities
above certain financial thresholds require
pre-approval before they can be performed.
Tailored due diligence is performed across
a range of business activities covering the
supply chain, CR and business development
and M&A activities to enable Ophir to make
informed decisions about who to contract
with, who to do social investment work
with, and who to partner with.
In relation to the supply chain and third-
party contracting, Ophir has implemented
an Intermediaries Standard and an Ethical
Compliance Due Diligence Standard.
Additionally, Ophir maintains an
Intermediaries register to keep a record
of and manage Intermediaries appointed
by the Company.
Further, in relation to CR, Ophir has
introduced a Social Investment Due
Diligence Standard which requires due
diligence to be performed before Ophir
allocates money to community
development projects.
In the context of business development,
global new ventures and M&A, there is a
standalone due diligence process in place
which applies before a decision is taken
to farm-in to a new licence and/or contract
with a new partner and to make a corporate
acquisition.
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Ophir Energy plc Ophir’s Values
We have six key Values which underpin our business and capture the essence of Ophir’s identity.
They form the foundation on which we all perform and conduct ourselves and the Company expects
all of its people to demonstrate these Values in their daily working lives.
Grounded
down-to-earth, never arrogant
Integrity
act in an honest and ethical way
Respect
for our people and our partners
A grounded individual conducts themselves in a
pragmatic and practical way. They are down to
earth and display no airs and graces in terms of
their approach or how they interact with others.
They welcome comments and interactions and,
though confident, do not display traits of
arrogance.
A person who has integrity demonstrates
the Values every day in their relationships with
colleagues and stakeholders. Honesty and a strong
sense of ethics are central to integrity. People
who demonstrate integrity draw others to them
because they are trustworthy and dependable.
Treating those around you with respect means
that through your behaviour you demonstrate
that you have regard for them, their thoughts
and feelings. It is imperative that this is shown,
not just within the Company but also to external
parties, as it is a core driver of our reputation
and therefore our licence to do business.
Collaborative
work in partnership
Dynamism
positive, energised and innovative
Excellence
in everything we do
A person who collaborates is open to the input
of others and welcomes alternative views to
their own. They look to partner with colleagues,
internal and external to Ophir, to deliver the
best possible outcome for the Company.
A dynamic person will help drive forward the
Company agenda by making quality decisions,
acting as a positive force in their team and wider
function. They will contribute to a dynamic
organisation where there exists energy,
enthusiasm and determination to succeed.
Striving for excellence is a key component
of a job at Ophir. We aim to continue to have
a significant presence in the industry, which
can only be attained through the efforts
of everyone internally to create and deliver
excellence in all activities we undertake.
This Strategic report was approved by the Board and signed on its behalf
Nick Cooper
Chief Executive Officer
8 March 2017
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Annual Report and Accounts 2016Governance reportFinancial statementsSupplementary informationStrategic report Performance
The careful and prudent management of the business,
which strong corporate governance underscores, are
critical elements in sustaining business performance
delivery and instilling shareholder trust and confidence.
Corporate Governance
introduction
Board and Committee composition
The composition of the Board was reviewed
following the acquisition of Salamander
Energy in 2015 and we took the decision
early in 2016 to appoint Tony Rouse as
Chief Financial Officer and Executive
Director. Managing full-cycle activities across
our exploration portfolio, Asian production
assets and the Fortuna FLNG project in
Equatorial Guinea, introduced an enhanced
level of complexity requiring multiple areas
of focus including capital preservation,
maintaining revenues and cashflow from
Asian producing assets, and management
of Ophir’s debt portfolio.
The Company continued to review Board
composition and succession planning more
widely and in 2016 appointed two new
Non-Executive Directors. I am delighted
to welcome David Davies and Carl Trowell
to the Board, whose appointments were
announced in August 2016. The new
Directors received a full induction upon
joining the Board, meeting and engaging
with other members of the Board and the
senior management team.
Accordingly, the Ophir Board now consists
of three Executive Directors and six
independent Non-Executive Directors,
plus myself. With these changes in Board
composition, I believe we have a Board
which is open, diverse and independent;
and which brings together people with
strong industry experience and a good
understanding of the Company. I am
also satisfied that the Board has the right
complement of skill and acumen to perform
their duties responsibly and effectively.
role as Chairman, and our outgoing Senior
Independent Director, Ron Blakely, who will
stand down from the Board on 31 March
2017. I am pleased to report that David
Davies has taken over from Ron as Chairman
of the Audit Committee from 1 January
2017 and that Carol Bell will take on the role
of Senior Independent Director with effect
from 31 March 2017.
I would like to place on record my thanks
to both Nic and to Ron for their contribution
to Ophir’s success and to wish them well in
the future.
Board effectiveness
Having undertaken an external Board
evaluation in 2015, the Board chose
to conduct an internal review of its
effectiveness in 2016. After careful
consideration of the findings, the Board
agreed to improve the training programme
for Non-Executive Directors and to continue
to implement measures to improve diversity
across the Company.
Board Committees
The Board Committees are charged with
carrying out those actions which the Board
has chosen to delegate. I am satisfied that
the Board Committees carry out these
responsibilities effectively. An overview of the
Board’s governance framework is set out on
page 35. Recommendations identified from
the Board effectiveness reviews have helped
to ensure that the Board Committees are
able to discharge their responsibilities on
behalf of the Board. In 2016, the Terms of
Reference for each of our Board Committees
were reviewed, updated, and approved by
the Board.
I would like to thank my predecessor,
Nic Smith, who stepped down on the
30 April 2016, for his seven years in the
Bill Schrader
Chairman
Bill Schrader
Chairman
Dear Shareholder
I am pleased to present my first Corporate
Governance Report since taking over as
Ophir Chairman in 2016, having sat on
the Company Board since February 2013.
I am committed to promoting consistently
high standards of corporate governance at
Ophir. I view complying with the Corporate
Governance Code as integral both to my role
as Chairman and the day to day running of
the Board, the Board Committees and the
wider Ophir business.
The careful and prudent management
of the business, which strong corporate
governance underscores, are critical
elements in sustaining business performance
delivery and instilling shareholder trust and
confidence.
The Ophir corporate governance framework
has evolved over the five years since the
Company listed. This report illustrates that
development and also highlights how the
Board and the Board Committees have
supported the principal business activities
performed by the Company in 2016 and
how I see their role in continuing to provide
that support in 2017.
Against a continued challenging backdrop
for E&P companies, Ophir’s key 2016
activities (most notably the focus on cost
management, establishing clear parameters
for committed capital on the Fortuna project
and the new NAV-based remuneration
scheme), have been significant in supporting
the Company’s sustainability. Key decisions
have been made by the Board and the
Board Committees in a transparent and
constructive manner, providing robust and
appropriate challenge when necessary.
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Ophir Energy plc Corporate governance
framework (at date
of publication)
The Board has a coherent
corporate governance
framework with clearly
defined responsibilities and
accountabilities designed
to safeguard and enhance
long-term shareholder
value and provide a robust
platform to realise the
Company’s strategy.
Board
Chairman, three
Executive Directors
and six Independent
Non-Executive Directors
Audit Committee – Chairman: David Davies
Four Independent Non-Executive Directors
Main responsibilities are monitoring the integrity of the financial statements of the
Company and reviewing the effectiveness of internal control and risk management systems.
Remuneration Committee – Chairman: Vivien Gibney
Five Independent Non-Executive Directors
Main responsibilities are determining and agreeing with the Board the remuneration
framework for the Chairman, the Executive Directors and the Company Secretary and
recommending and monitoring reward of the senior management team.
Nomination Committee – Chairman: Bill Schrader
Five Independent Non-Executive Directors and one Executive Director
Main responsibilities are regularly reviewing structure, size and composition of the Board
and identifying and nominating candidates to fill Board vacancies.
Executive
Committee
Technical Advisory Committee – Chairman: Alan Booth
Three Independent Non-Executive Directors and two Executive Directors
Main responsibilities are advising the Board on technical aspects of operational business
proposals and their potential risks and ensuring that they are consistent with the
Company strategy.
Corporate Responsibility Committee – Chairman: Carol Bell
Four Independent Non-Executive Directors
Main responsibilities are evaluating effectiveness of the Group’s Corporate Responsibility
policies and systems as well as social, charitable and educational community projects
across the Company’s operations.
Board skills
Board independence
Board diversity
We review Board composition regularly to ensure
that the range and breadth of skills provided
as a result of Director appointments remains
appropriate for our business.
Our Board has the following expertise and skills:
• Geology.
• Engineering.
• Finance.
• Legal.
• HR.
The Board believes that its current composition
and its size is appropriate for the Company’s
ongoing requirements.
Board appointments are made on a merit basis and
measured against objective criteria. Generally, we
strive to attract a broad mix of individuals in order
to create a diverse workgroup to support our culture.
Independent
6
Non-independent 3
Chairman
1
Female
Male
2
8
How we apply the principles of the UK Corporate Governance Code 2016
Section of the code
Leadership
Effectiveness
Accountability
Remuneration
Relations with
shareholders
A company must be led by an effective Board responsible for the success of the Company, in the near and long term.
Such a Board will have clear divisions of responsibility between Company governance and business execution.
The established Board will have the relevant level of, and the appropriate balance of, skills in order to suitably steer the
Company. This is underscored by rigorous procedures regarding the appointment of new, and the re-appointment
of existing, Directors.
Further information
Board leadership,
page 36
Evaluation, page 42
At all times, the Board must present a fair, balanced and understandable evaluation of the Company’s standing and
future prospects. Such future prospects are considered against risks that the Company is or may face moving forward;
it is the Board’s responsibility to ensure effective and appropriate risk management procedures are in place.
Strategic report,
pages 1 to 33
While it is necessary for levels of remuneration to attract, retain and motivate Directors of sufficient quality, at
no point should the Company allocate more than is necessary. Where possible, remuneration should be linked
to performance and, at all times, established through formal and transparent procedures. No one Director is
involved in his or her own remuneration.
The Board is responsible for ensuring a clear, coherent and regular dialogue with shareholders at all times.
Directors’ Remuneration
report, pages 58 to 77
Relations with
shareholders, page 43
UK Corporate Governance Code
The UK Corporate Governance Code 2016 (the ‘Code’) applies to the year under review. A copy of the Code can be found at www.frc.org.uk. This report, which incorporates
reports from the Audit, Corporate Responsibility and Nomination Committees on pages 44 to 53 together with the Remuneration report on pages 58 to 77 and the Directors’
Report on pages 54 to 57 describes how the Company has applied the relevant principles of the Code. The Board, along with its own assessment of compliance with the Code,
therefore concludes that during the year the Company has fully complied with all provisions of the Code.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information The Board provides leadership and direction for
the Company and ensures that the highest levels
of corporate governance are maintained.
Board of Directors
1 William (Bill) Schrader
Chairman of the Board
Appointed: As Non-Executive Director in 2013
and as Chairman in 2016
Committee membership: Chairman of
Nomination Committee and member of
Corporate Responsibility, Remuneration
and Technical Advisory Committees
Bill Schrader has over 30 years’ experience working
at BP plc, including as Chief Executive of several
country operations, as President of the Azerbaijan
International Operating Company and as Chief
Operating Officer of TNK-BP. In December 2014
he was appointed Non-Executive Director of CHC
Group Ltd; he is also non-executive Chairman
of Bahamas Petroleum Company plc and
Non-Executive Director of the Hess Corporation.
Bill holds a BSc in Chemical Engineering from the
University of Cincinnati and an MBA from the
University of Houston. Throughout his career
he has been commended for his strong
leadership qualities, strategic vision and
capability in managing complex operating
and government relationships.
2 Dr Nicholas (Nick) Cooper
Executive Director
& Chief Executive Officer
Appointed: 2011
Committee membership: Member of
Nomination and Technical Advisory Committees
Dr Nick Cooper was Chief Financial Officer and
co-founder of Salamander Energy plc. Nick began
his career as a geophysicist with BG and Amoco
before joining Booz-Allen & Hamilton. From 1999
to 2005 he was a member of the oil and gas team
at Goldman Sachs. In September 2014 Nick was
appointed as Non-Executive Director of Siccar
Point Energy Limited. Nick has a BSc and PhD in
Geophysical Sciences and an MBA from INSEAD.
1
3
5
7
9
36
2
4
6
8
10
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Ophir Energy plc 3 Dr William (Bill) Higgs
Executive Director &
Chief Operating Officer
Appointed: 2014
Committee membership: Member of Technical
Advisory Committee
Dr Bill Higgs has over 25 years of global
exploration, development and operations
experience, the majority with Chevron
Corporation. His roles at Chevron included Senior
Vice President of Operations for Saudi Arabia
Chevron, Reservoir Manager for Tengizchevroil
in Kazakhstan, Asset Manager for the BBLT
development in Block 14 Angola and General
Manager for Strategy for Chevron Corporation.
In his time at Chevron he was also a member
of the Corporate Reserves Audit Committee
and the Decision Review Boards for the Gorgon
and Wheatstone LNG developments in Australia.
Before joining Ophir, Bill spent two and a half
years as Chief Executive Officer of Mediterranean
Oil & Gas plc (acquired by Rockhopper Exploration
plc). Bill has a BSc in Geological Sciences from the
University of Leeds and a PhD in Structural
Geology from the University of Wales.
4 Anthony (Tony) Rouse
Executive Director &
Chief Financial Officer
Appointed: As Director of Finance in 2014
and as Executive Director in 2016
Tony Rouse has over 30 years’ experience in the
upstream oil and gas industry including 13 years
of assignments in Europe, Africa, Asia and South
America. Tony started his career with BP, before
moving to LASMO plc, Premier Oil and most
recently Salamander Energy where he was Group
Financial Controller for nine years. Tony is a Fellow
of the Chartered Certified Accountants (FCCA).
5 Ronald (Ron) Blakely
Senior Independent
Non-Executive Director
Appointed: 2011
Committee membership: Chairman of Audit
Committee (until 31 December 2016), member
of Nomination and Remuneration Committees
Ron Blakely spent over 38 years working for
Royal Dutch Shell companies. On his retirement
in October 2008, he held the role of Executive
Vice President Global Downstream Finance,
while previous roles included CFO of Shell Oil
Products in the USA and CFO of Shell Canada.
Ron was appointed Non-Executive Director of
Songa Offshore SE in April 2015 and AET Tankers
Pte Limited in November 2016. He is a member
of the Society of Management Accountants
of Alberta, Canada. Ron was Chairman of the
Audit Committee until 31 December 2016 and
a member of the Remuneration and Nomination
Committees until his retirement from the Board
on 31 March 2017.
6 Dr Carol Bell
Independent Non-Executive Director
Appointed: 2015
Committee membership: Chairman of Corporate
Responsibility Committee and member of Audit
and Nomination Committees
Dr Carol Bell has over 30 years of experience in the
energy industry having enjoyed a successful career
as a Managing Director of Chase Manhattan Bank’s
Global Oil & Gas Group, Head of European Equity
Research at JP Morgan and several years as an
equity research analyst in the oil and gas sector at
Credit Suisse First Boston and UBS Phillips & Drew.
Carol began her career in corporate planning and
business development at Charterhouse Petroleum
plc and RTZ Oil and Gas. Carol currently sits on the
Boards at Petroleum Geo-Services ASA, Bonheur
ASA and Tharisa plc and until completion of the
transaction, was a Non-Executive Director at
Salamander Energy plc. She is also a Non-Executive
Director of the BlackRock Commodities Income
Investment Trust plc and sits on the board of
Finance Wales, the venture capital arm of the
Welsh Government. Carol holds an MA in natural
sciences from the University of Cambridge and
a PhD in Archaeology from University College
London. Carol is a trustee of the Renewable
Energy Foundation (a UK think tank), the National
Museum of Wales, The Wales Millennium Centre,
The British School at Athens, the Institute for
Archaeometallurgical Studies and a member
of the Council of Cardiff University.
7 Alan Booth
Independent Non-Executive Director
Appointed: 2013
Committee membership: Chairman of Technical
Advisory Committee and member of Audit, Corporate
Responsibility and Remuneration Committees
Alan Booth has 30 years’ experience in oil and
gas exploration at Amerada Hess, Oryx Energy
and Encana. Most recently Alan was Founder and
CEO of EnCore Oil plc and is now the Founder and
Director of EnCounter Oil Ltd. Alan holds a BSc in
Geology from the University of Nottingham and
MSc. DIC. in Petroleum Geology from the Royal
School Mines, Imperial College. He is a former
president of the UK Offshore Operators Association
(UKOOA) and currently a director of the Oil and
Gas Independents Association (OGIA).
8 David Davies
Independent Non-Executive Director
Appointed: 2016
Committee membership: Chairman of Audit
Committee (from 1 January 2017) and member
of Remuneration Committee
David Davies has over 35 years of experience
as a financial professional having enjoyed a
successful career as the Chief Financial Officer
and Deputy Chairman of the Executive Board
at OMV Aktiengesellschaft as well as serving as
Group Finance Director for both Morgan Crucible
Company plc and London International Group plc.
David is a Chartered Accountant with a BA(Hons)
in Economics from the University of Liverpool and
an MBA from the Cass Business School.
9 Vivien Gibney
Independent Non-Executive Director
Appointed: 2013
Committee membership: Chairman of
Remuneration Committee and member of
Corporate Responsibility and Nomination
Committees
Vivien Gibney has 25 years’ experience as Counsel
in the upstream oil and gas industry, including
roles with Mobil Oil and Enterprise Oil plc. Whilst at
Enterprise Oil, Vivien set up the legal department
and held the positions of General Counsel,
Company Secretary and Head of HR. Vivien has
held a number of non-executive board positions
in the voluntary sector and in listed companies.
More recently, she was a member of the Board
of Directors of Encore Oil plc where she chaired
the Remuneration Committee. Vivien is a barrister
with an LL.B. and received an Honorary Fellowship
in Petroleum law from the University of Dundee.
10 Dr Carl Trowell
Independent Non-Executive Director
Appointed: 2016
Committee membership: Member of
Corporate Responsibility, Nomination and
Technical Advisory Committees
Dr Carl Trowell has been the President and Chief
Executive Officer of Ensco plc since June 2014.
Prior to joining Ensco, Carl was President of
Schlumberger Integrated Project Management
(IPM) and Schlumberger Production Management
(SPM) businesses that provide oil and gas project
solutions from rig and field management, to well
construction, and production. He was promoted to
this role after serving as President – Schlumberger
WesternGeco Ltd where he managed more than
6,500 employees with operations in 55 countries.
Carl began his professional career as a petroleum
engineer with Shell before joining Schlumberger.
Carl holds a BSc in Geology from Imperial College
London, a PhD in Earth Sciences from the
University of Cambridge and a MBA from
the Open University.
Other officers of the Company
Philip Laing
General Counsel & Company Secretary
Appointed: As Company Secretary in 2016
Philip Laing joined Ophir in March 2015. Philip
previously enjoyed an 18-year career with BG
Group in a variety of legal and management
roles. The majority of his oil and gas experience
has been gained living and working in Africa
and Asia. Philip is an English qualified lawyer
with an MA from Cambridge University.
Directors who retired during
the reporting period
Nicholas (Nic) Smith
Chairman of the Board
Appointed: As Non-Executive Director in 2007
and as Chairman in 2009
Retired: 30 April 2016
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information The Board is committed to maintaining high
standards of corporate governance and fully
recognises the benefits it brings to making the
best decisions for the Company’s future.
Corporate Governance
report
The Chairman was considered to be independent in character
and judgement on his appointment.
Nick Cooper was appointed as Chief Executive Officer in June 2011.
He is responsible for managing the day-to-day business of the
Company, proposing and developing strategy and overall commercial
objectives in consultation with the Board and, as leader of a strong
and experienced executive team, implementing the decisions of the
Board and its Committees. Underpinning this, the Chief Executive
Officer is supported by the Executive Committee consisting of the
Chief Operating Officer and the Chief Financial Officer, in addition
to other members of the senior management team.
Role of the Chairman
The Chairman is responsible for the leadership of the Board.
In particular, he:
• cultivates a boardroom culture of honesty and openness which
encourages appropriate debate and challenge amongst the Board;
• ensures that the Board and its Committees operate in a way that
conforms to the expected high standards of corporate governance;
• sets the style and tone of Board discussions, promotes constructive
•
debate and ensures an accurate, timely and clear flow of
information to the Directors;
leads the Nomination Committee in the appointment of an
effective and complementary Board, reviews succession planning
and evaluates the performance of the Board, its Committees
and individual Directors;
• fosters effective Board relationships between the Executive and
Non-Executive members, supports and advises the Chief Executive
Officer generally and in the implementation of agreed strategy; and
• ensures effective communication with the Company’s stakeholders
and that their views are understood by the Board.
Leadership
The Board is collectively responsible to shareholders for the continuing
success of the Company. To achieve this, the Board provides leadership
to the business and, either directly or through the operation of its
Committees and by delegating authority, brings an independent
judgement on all matters of strategy, performance, risk management,
resources, standards of conduct and accountability. The Board also
leads in establishing the values and the culture of the Company.
The Board has adopted a formal schedule of matters reserved
for its approval and has delegated other specific responsibilities
to its Committees. The Board undertook a review of the schedule
of matters specifically reserved for the Board in November 2016
as part of its annual review process. The Board concluded that
only minor amendments were required to those matters; principally
to note that the Board remains responsible for the termination of
any contract that is stated within Matters Reserved for the Board.
This amendment was a drafting clarification rather than a
substantive change.
Other specific responsibilities are delegated to the Committees
of the Board, each of which has clear written Terms of Reference.
The Terms of Reference for the Audit, Remuneration, Corporate
Responsibility, Nomination and Technical Advisory Committees
are available on the Company’s website at www.ophir-energy.com/
about-us/board-committees.
Roles of the Chairman and Chief Executive Officer
The roles and responsibilities of the Chairman and Chief Executive
Officer are clearly established, separate and have been set out
in writing.
Bill Schrader was appointed as Chairman of the Company on
30 April 2016. As Chairman, he is responsible for the leadership
and effective running of the Board as well as for ensuring that
it plays a full and constructive part in the development and
determination of the Company’s strategy.
Together with the Chief Executive Officer and the General Counsel
& Company Secretary, the Chairman sets the agenda for Board
meetings, ensuring that the decision-making process adopted by
the Board allows for open and constructive debate. The Chairman
works closely with the Chief Executive Officer, providing support
and advice as well as ensuring that the strategies and actions
agreed by the Board are effectively implemented.
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Ophir Energy plc Role of the Chief Executive Officer
The Chief Executive Officer is responsible for the day-to-day
management of the business within the authorities delegated
by the Board. In particular, he:
Bill Schrader
Date of appointment:
Tenure from appointment to 2017 AGM:
Considered to be independent:
Dr Carol Bell
Date of appointment:
Tenure from appointment to 2017 AGM:
Considered to be independent:
Alan Booth
Date of appointment:
Tenure from appointment to 2017 AGM:
Considered to be independent:
February 2013
Less than 5 years
Yes
March 2015
Less than 3 years
Yes
April 2013
Less than 5 years
Yes
David Davies
Date of appointment:
Tenure from appointment to 2017 AGM:
Considered to be independent:
August 2016
Less than 1 year
Yes
Vivien Gibney
Date of appointment:
Tenure from appointment to 2017 AGM:
Considered to be independent:
August 2013
Less than 4 years
Yes
Dr Carl Trowell
Date of appointment:
Tenure from appointment to 2017 AGM:
Considered to be independent:
August 2016
Less than 1 year
Yes
Ronald Blakely
Date of appointment:
Tenure from appointment to 31 March 2017: Less than 6 years
Considered to be independent:
July 2011
Yes
• proposes, develops and supervises the Company’s strategy and
overall commercial objectives and ensures that agreed strategies
are implemented by the senior management team through the
Executive Committee and its sub-committees;
• builds and develops an appropriate organisational structure
•
for the Company, establishes processes and systems and plans
resourcing to ensure that the Company has the capability
to achieve its aims;
leads the Executive and senior management team, including
undertaking appraisals, reviewing development needs and making
recommendations to the Remuneration Committee with regard
to remuneration where appropriate;
• promotes and conducts the affairs of the Company with the
highest standards of integrity, probity and corporate governance
• progresses the Company’s communication programme; and
with shareholders and ensures that financial results, business
strategies and targets are appropriately communicated
to the Company’s investors.
Non-Executive Directors
The Non-Executive Directors bring a wealth of knowledge from
the oil and gas industry together with experience from other sectors
to the Board and its Committees. Through their contributions,
they provide the Company with independent views on matters
of strategy, performance, risk and conduct.
The Board considers that all its Non-Executive Directors at year
end, namely Bill Schrader, Carol Bell, Ronald Blakely, Alan Booth,
David Davies, Vivien Gibney and Carl Trowell, were independent
in character and judgement and free from relationships or
circumstances that might affect their judgement. Throughout
2016 and up to the date of publication of this report, a majority
of the Board members, excluding the Chairman, were independent
Non-Executive Directors.
Non-Executive Directors are appointed for an initial three-year
term, although subject to annual re-election at the Annual General
Meeting (AGM) with the expectation that a further three-year term
will follow, subject to review by the Board. Following a second term,
consideration as to whether a serving Non-Executive Director should
be recommended for reappointment for a third term is subject to the
review of the Chairman in consultation with the Chief Executive Officer.
The terms and conditions of appointment of the Non-Executive
Directors are available for inspection at the registered office during
normal business hours. While the expected time commitment from
Non-Executive Directors is set out in their letter of appointment
as approximately two days per month, plus preparation time, each
is required to confirm that they are able to devote such time as
is necessary for the satisfactory performance of their duties.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Corporate Governance report
continued
Senior Independent Director
Ronald Blakely is the Senior Independent Director and was in
position throughout the year.
Ronald Blakely notified the Board of his intention not to stand
for re-election as a Non-Executive Director of Ophir at the 2017
AGM, consequently he will be stepping down from his role as
Senior Independent Director, and will retire as a Director, on
31 March 2017. He will be replaced by Carol Bell on 31 March 2017.
The Senior Independent Director is charged with maintaining
a communication channel between the Chairman and the Non-
Executive Directors and for leading the Non-Executive Directors
in the annual performance evaluation of the Chairman.
In addition, the Senior Independent Director is available to
shareholders who have concerns that have not been, or cannot
be, resolved through the normal channels of the Chairman or
the Chief Executive Officer or where such contact is inappropriate.
The specific terms of the role of the Senior Independent Director
have been set out in writing and approved by the Board.
Company Secretary Philip Laing was appointed Company Secretary
on 2 February 2016 and this role is combined with his duties as
General Counsel.
Board activity
Key areas of focus for the Board in 2016 included:
• strategy;
• financial performance and budget approval;
• assessment and evaluation of production assets;
• risk reviews and assessment;
• prospective acquisitions and new business development;
• review and monitoring project developments;
• governance and Board performance;
•
• Corporate Responsibility, including health and safety,
investor feedback and communication;
security, environmental and community related projects;
legal and regulatory compliance; and
•
• employee engagement and employee value proposition.
During 2017, the Board expects these areas of focus to remain
broadly similar.
Effectiveness
Board composition
At 31 December 2016 the Board was composed of the Chairman,
three Executive Directors and six independent Non-Executive
Directors. The following changes to the Board took place during
the year ended 31 December 2016 and up to the date of this report:
• 27 January 2016: Tony Rouse was appointed
as an Executive Director.
• 30 April 2016: Nic Smith retired as Chairman.
• 30 April 2016: Bill Schrader was appointed Chairman.
• 23 August 2016: David Davies was appointed
as a Non-Executive Director.
• 23 August 2016: Carl Trowell was appointed
as a Non-Executive Director.
The following changes to the Board will take place after the
publication of this report:
• 31 March 2017: Ron Blakely will step down as the Senior
Independent Director and retire from the Board.
• 31 March 2017: Carol Bell will be appointed as Senior
Independent Director.
The Board believes that this balance of Executive and Non-Executive
Directors provides for high-quality discussion and consideration
of the key issues concerning the Company.
The composition of the Board is regularly reviewed to ensure that the
Directors have the required skills, knowledge and experience to meet
the needs of the business.
Further information on how this is achieved and consideration of
this in the year, is contained in the Nomination Committee Report
on pages 51 to 53. Biographical details for each of the Directors who
served at the end of the year and at the date of this report are set
out on pages 36 and 37.
Board composition at date of publication
Non-Executive Chairman
Executive Directors
Independent Non-Executive
Directors
1
3
6
40
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Ophir Energy plc Meeting attendance
The Board held five formal meetings during 2016, as well as a meeting
to consider the strategic direction of the business. In addition, two
further meetings were called at short notice in order to consider
specific items of business. Details of the attendance of all Directors
who served during the year ended 31 December 2016 at the formal
and short-notice Board meetings are shown in the table below:
Bill Schrader, Chairman1
Nick Cooper, Chief Executive Officer
Bill Higgs, Chief Operating Officer
Tony Rouse, Chief Financial Officer2
Carol Bell, Non-Executive Director
Alan Booth, Non-Executive Director
David Davies, Non-Executive Director3
Vivien Gibney, Non-Executive Director
Carl Trowell, Non-Executive Director4
Ron Blakely, Non-Executive Director5
Former Directors
Nic Smith6
Scheduled
Board
meetings
5/5
5/5
5/5
5/5
5/5
5/5
1/2
5/5
2/2
5/5
Meetings
held at
short notice
2/2
2/2
2/2
1/1
2/2
2/2
1/1
2/2
0/1
2/2
1/1
1/1
1
Bill Schrader became Chairman of the Board on 30 April 2016. He attended 2 meetings as
a Non-Executive Director before his promotion.
2 Tony Rouse was appointed to the Board 27 January 2016.
3
David Davies was appointed to the Board 23 August 2016. The Board calendar was agreed
before his appointment. The Board understood upon appointment that meetings would be
missed due to conflicts.
Carl Trowell was appointed to the Board 23 August 2016. The Board calendar was agreed
before his appointment. The Board understood upon appointment that meetings would be
missed due to conflicts.
4
5 Ron Blakely will retire from the Board on 31 March 2017.
6 Nic Smith retired from the Board on 30 April 2016.
The Non-Executive Directors met with the Chairman four times
during the year, without any Executives present, to discuss the
performance of the Executive Directors.
Formal quarterly meetings also take place between the Chairman,
the Senior Independent Director and the Chief Executive Officer.
These meetings focus on governance and operating activities in
order to enhance the ability of the Senior Independent Director
to fulfil the independence mandate of that role and aid
communication.
Board process
Directors are provided with full and timely information before
meetings, including detailed financial and risk management
information where applicable. The Chairman agrees the agenda
for Board meetings in consultation with the Chief Executive Officer
and the General Counsel & Company Secretary, and formal minutes
are prepared to record all decisions made. Minutes of Board and
Committee meetings are formally approved at the subsequent
meetings and draft minutes are circulated to each Director or
Committee member as appropriate and as soon as practicable
ahead of the meeting at which they are approved.
Minutes of Committee meetings may be made available to other
Board members on request and as appropriate. If a Director objects
to a particular proposal, this will be recorded in the minutes of the
relevant meeting.
In August 2013, the Board approved the establishment of the
Technical Advisory Committee which would (amongst many other
matters) consider the technical aspects of any operational business
proposals requiring Board approval and advise the Board if there are
any significant technical risks or concerns that should be taken into
consideration when considering any such proposals. The Committee
also ensures the technical activities of the Company are consistent
with the overall strategy of the Company. The Board recognises that
while the Committee is not a requirement of the Code, nonetheless,
it enhances the Board’s ability to approve appropriate business
proposals of a technical nature pertaining to the oil and gas industry.
During the course of 2016, the Committee undertook the following:
• a review of the Company’s operating assets;
• evaluated new business developments and a review of the Group’s
reporting on reserves; and
• acted as technical advisers to the Board.
In 2017, the Committee will become the Technical and Reserves
Committee and it will make a recommendation to the Audit
Committee on any reserves reports. The Committee is comprised of
five members and meets at least four times a year and as otherwise
required. The Chairman of the Committee is Alan Booth and other
members are Nick Cooper, Bill Higgs, Bill Schrader and Carl Trowell.
The Committee’s Terms of Reference are available on the Company’s
website at www.ophir-energy.com/about-us/corporate-governance/
board-committees/technical-advisory/.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Corporate Governance report
continued
Board evaluation
The performance and effectiveness of the Board and its Committees
is fundamental to the success of the Group and there is an evaluation
each year to assess how well the Board, its Committees, the Directors
and the Chairman are performing. It is the Company’s policy that
every three years an external consultant, who has no connection
with the Company, carries out a formal review of the Board’s
performance and such an evaluation process took place in 2015,
2014 and 2012.
The evaluation process in 2016 was led by the Chairman with support
from the General Counsel & Company Secretary. The process
consisted of the completion, by all Directors, of a comprehensive
questionnaire evaluating the performance of the Board and its
Committees. The questionnaire considered Board processes and their
effectiveness, Board composition, Board objectives, Board support,
and the content of discussion and focus at Board meetings, and
invited Directors to indicate where specific improvements could be
made. The Board and Committee evaluation was compliant with the
Combined Code. Completion of the questionnaire by each Director
was followed by a report consolidating all of the individual responses
and highlighting areas for discussion by the Board and Board
Committees in November 2016.
The evaluation concluded that good progress had been achieved
in most of the areas identified for action in the last Board evaluation
and that the Board and its Committees have continued to work
effectively. Improvements have been seen in many of the areas
of focus identified in the evaluation undertaken in 2015. These
included the recruitment of two new Non-Executive Directors
following recommendations in the external 2015 Board Evaluation
Report, and increased Board focus on the importance of effective
succession planning and identifying talented individuals across the
Group who have senior management potential. The Board also
identified the need for a more formalised training programme for
the Non-Executive Directors who felt that they could benefit from
additional structured third-party briefings on external factors that
impact the business. The Chairman and the General Counsel &
Company Secretary, plan to incorporate training sessions into the
2017 Board and Committee corporate calendar. The Board also
recognises the importance of maintaining and championing
diversity at Board level and throughout the Company.
Risk management
The Board believes that effective risk management is crucial to the
Company’s strategy and long-term success. The Board has overall
responsibility for ensuring that risk is effectively managed.
The Company’s approach to risk is further detailed on pages
14 to 19. The Audit Committee reviews the effectiveness of the risk
management process on the Board’s behalf, and its approach to
this can be found in the Audit Committee Report on pages 44 to 48.
Insurance and indemnification
The Company provides its Directors and Officers with the benefit
of appropriate insurance, which is reviewed annually. The policy was
approved in November 2016. In addition, Directors and Officers have
received an indemnity from the Company against (a) any liability
incurred by or attaching to the Director or Officer in connection with
any negligence, default, breach of duty, or breach of trust by them
in relation to the Company or any associated company; and (b) any
other liability incurred by or attaching to the Director or Officer in the
actual or purported execution and/or discharge of their duties and/or
the exercise or purported exercise of their powers and/or otherwise
in relation to/or in connection with their duties, powers or office; other
than certain excluded liabilities including to the extent that such
an indemnity is not permitted by law.
Appointment, induction and training
The Chairman is responsible for ensuring that an appropriate
induction is given to new Board members. The induction programme
is specifically tailored to the needs of the incoming Director and will
include training on the business and strategy of the Company, copies
of Board policies and procedures, meetings with senior management
and site visits, where appropriate.
Ongoing development and training are provided to Directors at
Board and Committee meetings. During 2016 the Directors received
advice and training on:
• regulatory developments in the UK Listing Rules;
• regulatory developments on Corporate Governance;
• regulatory developments on inside information, including Market
Abuse Regulation (MAR) 2016;
insider trading and market abuse;
crisis management;
anti-bribery and corruption matters;
money laundering; and
•
•
•
•
• climate change and carbon markets.
The Board and Committees expect to receive regular updates
and briefings on new legislation and changes to best practice on
corporate governance including anti-bribery and corruption matters
from the General Counsel & Company Secretary, the Company’s
Auditor and, in terms of Directors’ remuneration-related matters,
from the Company’s Remuneration Consultants.
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Ophir Energy plc Independent advice
All Directors have access to the advice and services of the General
Counsel & Company Secretary and the Board has established a
procedure whereby any Director may take independent professional
advice at the Company’s expense on any matter in the furtherance
of their duties.
Re-election
In accordance with the provisions of the Code, all continuing
Directors of the Company offer themselves for annual re-election
at the AGM.
External directorships
The Company has adopted a policy which allows the Executive
Directors to accept directorship of other quoted companies provided
that they have obtained the prior permission of the Chairman. As set
out in the Code, no Executive Director would be permitted to take on
more than one Non-Executive Directorship in a FTSE 100 company
or the chairmanship of such a company.
During the year ended 31 December 2016, none of the Company’s
Executive Directors held directorships in any other quoted company.
Nick Cooper is a non-Executive Director of a non-listed Company,
Siccar Point Energy Limited.
Conflicts of interest
Every Director has a duty to avoid a conflict between their personal
interests and those of the Company. The provisions of Section 175 of
the Companies Act 2006 and the Company’s Articles of Association
permit the Board to authorise situations identified by a Director in
which he or she has, or may have, a direct or indirect interest that
conflicts, or may conflict, with the interests of the Company.
The Board continues to undertake regular reviews of the outside
positions and interests or arrangements with third parties held by
each Director and, where appropriate, to authorise those situational
conflicts following consideration. Notwithstanding the above, each
Director is aware of their duty to notify the Board should there be
any material change to their positions or interests during the year.
Directors do not participate in Board discussions or decisions
which relate to any matter in which they have or may have
a conflict of interest.
Relations with shareholders
Dialogue with shareholders
The Board recognises the importance of establishing and
maintaining good relations with all the Company’s shareholders.
Nick Cooper, the Chief Executive Officer, is primarily responsible
for investor relations, supported by Executive Directors, senior
management and the Investor Relations function. Around 230
investor meetings and calls were hosted during the year in Europe,
Asia, Africa and North America. Additionally, Nic Smith and Bill
Schrader in their capacity as the Chairman, and Ronald Blakely, the
Senior Independent Director and Audit Committee Chairman, met
with major institutional shareholders in 2016 to listen to their views
on the Company’s strategic direction, developments since listing
and the executive management team. This process, which was
well received by investors and produced positive responses on
the Company and its management team, is ongoing.
In addition, Vivien Gibney, Chairman of the Remuneration
Committee, met or spoke with principal shareholders and the
leading shareholder protection bodies to explain and seek their
support for the proposed new remuneration scheme. This scheme
was approved by shareholders at the 2016 Annual General Meeting
(AGM) held on 10 May 2016.
All financial and regulatory announcements, as well as other
important business announcements, are published on the Investors
section of the Company’s website and stakeholders can subscribe
to receive news updates by email by registering online on the website
at www.ophir-energy.com/investors/register-for-email-alerts/.
Annual General Meeting (AGM)
All shareholders are invited to attend the Company’s AGM where
they are given the opportunity to ask questions on the financial
report and accounts and on the general business of the Company.
The 2017 AGM will be held on 17 May 2017 at the offices of
Linklaters LLP, 1 Silk Street, London EC2Y 8HQ. Full details of the
business of the AGM are set out in the Notice of Meeting and
sent to those shareholders who have elected to receive hard copy
notifications, together with any related documentation, at least
20 clear business days before the date of the meeting in accordance
with the requirement of the Code. The Notice of Meeting together
with a copy of the 2016 Annual Report will also be made available at:
www.ophir-energy.com.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Report of the
Audit Committee
David Davies
Audit Committee
Chairman
Membership and attendance
The members of the Committee, all of whom are independent
Non-Executive Directors, together with details of their individual
attendance at meetings held during the year ended 31 December
2016, are set out below:
Committee members
Ronald Blakely1
(Committee Chairman to 31 December 2016)
David Davies2
(Committee Chairman from 1 January 2017)
Carol Bell
Alan Booth
Bill Schrader3
Meeting
attendance
3/3
1/2
3/3
3/3
1/1
1
2
Ron Blakely retired as Chairman of the Committee on 1 January 2017 and from the Board
on 31 March 2017.
David Davies became a member of the Committee on 23 August 2016, and became
Chairman of the Audit Committee on 1 January 2017. The Committee meeting dates
had been set in advance of David Davies’ appointment to the Board and the Committee.
The Committee understood upon appointment that meetings would be missed due
to conflicts.
3 Bill Schrader stepped down from the Audit Committee on 30 April 2016.
The Board considers all members of the Committee to
be independent and that, as Chairman, Ronald Blakely to
31 December 2016 and David Davies from 1 January 2017
have recent and relevant financial experience and competence
in accounting as required by section C.3.1 of the Code and
section 7.1.1 of the Disclosure and Transparency Rules,
respectively. The Chief Executive Officer, Chief Financial Officer,
and representatives of the external Auditor and internal Auditor
attend Committee meetings on a regular basis. The external
Auditor also met with the Committee on several occasions
throughout the year without executive management
being present.
Report of the Audit Committee Chairman
Dear Shareholder
I am delighted to be writing to you for the first time as Chairman of
the Audit Committee, having joined the Committee on 18 November
2016 and taken up the role of Chairman on 1 January 2017.
I would like first to thank Ron for chairing the Audit Committee for
the past six years and the consistent contribution he has made in
that role of overseeing the further development and enhancement
of the Company’s system of internal controls and reporting. As
residing Chairman of the Audit Committee for the full financial year
2016, I have asked Ron in my first letter to provide his observations
on the activities undertaken by the Audit Committee for the period
to 31 December 2016.
Update from Ron Blakely
“A year ago I stated that my letter to shareholders as Chairman of
the Audit Committee would be my last as I would step down from
the Board ahead of the 2017 Annual General Meeting. I’m afraid
I got ahead of myself, and having served as Chairman of the Audit
Committee throughout 2016, I now provide you with my last report
of the Audit Committee. I am delighted that David has agreed
to join the Ophir Board and chair the Audit Committee and a full
transition has occurred during late 2016 and early 2017. While I will
not be joining the shareholder meeting in May, David will be well
positioned to answer any questions from shareholders.
“My observations are rather shorter this year than in previous years.
While much was happening in the Company in the past year, the
impact on the financial statements was muted. The environment
was such that there were no merger or acquisition activities and
operational activities were constrained by the desire to conserve cash.
“The major areas of risk and accounting judgment, as in prior years,
continued to be impairment and/or write down of exploration and
evaluation assets under IFRS 6 where there has been lack of
exploration success or, following seismic/geological interpretation
and/or drilling, there has been a decision to abandon the concession
play and this resulted in write-downs being reflected in the 2016
interim statements.
“Low oil prices in early 2016 did trigger impairment reviews for oil and
gas properties for the full year 2015 and as reported last year. As prices
improved throughout 2016, there were no further impairments
required at the half year. The Audit Committee did remind itself, when
reviewing the 2016 interim statements, that further commodity price
increases could generate impairment reversals and would review
again in the context of full year financial statements.
“The Audit Committee regularly reviewed the Company’s risk matrix
as an aid to the Board and recommends areas for more in-depth
review by the Directors. This past year, considerable focus was given
to broader risks both for existing operations and significant new
investments as well as any new country entries. While the Company
has constructive relations in countries where we operate, the general
trend in political de-stabilisation both in the developed and
developing world gives rise to a need for added vigilance.
44
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Ophir Energy plc “At each meeting of the Committee there was the ongoing review of
internal controls through reports from the internal Auditor, discussion
with the external Auditor and reviews with the Chief Financial Officer.
In the past year there was nothing of significance to raise concerns
for the Committee.
“Let me finish with reference to a topic I have touched on annually
and that is non-audit fees. The Audit Committee early last year took
steps to avoid, as much as possible, non-audit work by its Auditors,
EY, reflected by a significant reduction of non-audit fees for 2016.
The new regulations on this issue have now been published and
require the Company to maintain a rolling average ratio of non-
audit fees to audit fees of no more than 70% over a three-year
period. The first applicable year of reporting therefore will be 2019
when the Company expects to fully comply.
“Finally, I would like to thank to the Committee members for their
support and contribution over the period since becoming Chairman.
With that I would now like to sign-off for the last time and hand
over to David.”
As incoming Chairman of the Audit Committee, I would first like
to endorse Ron’s observations above. My first meeting as Chairman
of the Audit Committee was 1 March 2017 where the Committee,
amongst other matters, considered the 2016 Annual Report
and Accounts.
As a continuing theme, the Committee considered the impairment
and/or write down of exploration and evaluation assets under IFRS 6.
Following on from the review of the Committee at half-year 2016,
the Committee concluded that full impairment of certain of the
Group’s assets was appropriate. As the majority of exploration work
in the Company during the year focused on seismic acquisition and
interpretation with few wells drilled, asset write downs also related
to relinquishments where management judged further work to
be unjustified.
The Committee also reviewed the full-year 2016 impairments
of oil and gas properties under IAS 36: Impairment of Assets.
The Committee noted that whereas long-term commodity prices
remained relatively unchanged, short-term prices had improved
materially. The Committee in recognising these changes concluded
that a partial reversal of the 2015 Bualuang, Thailand asset
impairment was appropriate.
A new area of judgement the Committee had to consider in
respect of the 2016 financial statements was the accounting
treatment adopted under IFRS 5: Non-current Assets Held for Sale
and Discontinued Operations to include the Fortuna asset, Equatorial
Guinea, on the balance sheet at year-end 2016 as asset held for
sale under current assets. The Committee satisfied itself that the
conditions were met under the standard that required the Company
to reclassify the asset from exploration and evaluation assets.
The Committee further noted that on FID of the asset, the asset
will be transferred to an investment accounted for using the equity
method under non-current assets.
Keeping with the previous year, the Audit Committee considered
the updated statement of reserves as presented by management.
These estimates are prepared by an independent third party and
internally, reviewed firstly by the Technical Advisory Committee.
The Audit Committee reviewed the process and controls employed
in arriving at the estimates for inclusion in the report.
Turning to the statement of going concern and the Viability
Statement, the Committee challenged the assumptions adopted in
support of these statements as reported. The Committee examined
a variety of scenarios across a range of programme expenditures,
asset dispositions and market funding options projected over the
next three to five years. The outcome of those evaluations is outlined
in the Financial review section of this report on pages 26 and 27.
I fully support the importance the Committee places on the regular
review of internal controls and risks. These reviews have continued in
2017 and will remain a significant part of the Audit Committee’s work
going forward.
Finally, I reiterate the position taken by the Committee in early-2016
to minimise non-audit fees being incurred by the Company’s
external Auditor in compliance with the regulations. I fully endorse
the approach adopted by the Committee to limit these expenditures
where possible and I confirm my ongoing support.
David Davies
Audit Committee Chairman
8 March 2017
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Report of the
Audit Committee
continued
Role and responsibilities of the Audit Committee
In November 2016, the Committee reviewed its objectives and
Terms of Reference to ensure that they remained appropriate.
The Committee’s full Terms of Reference are available on the
Company’s website at www.ophir-energy.com/about-us/corporate-
governance/board-committees/audit and are fully compliant
with section C.3.2 of the Code.
Financial reporting
The Committee has the responsibility of assessing the integrity of
the financial statements of the Company on behalf of the Board.
The Committee’s approach to achieving this includes ensuring
appropriate accounting standards are applied, reviewing in depth
any material areas where accounting judgements have been used
and/or new accounting policies or procedures have been applied.
In addition, the Committee reviews and assesses the Annual
Report to determine whether it can advise the Board that, taken
as a whole, the Annual Report is fair, balanced and understandable
and provides shareholders with the information they need to assess
the Company’s performance, business model and strategy as
required by provision C.1.1 of the Code. The Committee considers
the external Auditor’s proposed approach to their review of the
interim results and their audit of the full-year financial statements,
to ensure that the scope of the relevant review or audit was
appropriate. The Committee also reviewed and discussed the
external Auditor’s report on the full and half-year financial results
with EY LLP, prior to agreeing to recommend each set of financial
statements and associated reports to the Board for approval.
Impairment review
A significant area of accounting judgement is the carrying value
of capitalised exploration and evaluation expenditure included
in exploration and evaluation assets to ensure that expenditure
is appropriately expensed to the income statement, should
impairments arise. Impairment reviews are undertaken by
the Company in accordance with IFRS 6 and assessed by the
Committee. If necessary, the Committee may receive advice from
the Technical Advisory Committee or other experts. The external
Auditor also reports on this most prominent area of accounting risk
to the Audit Committee and the Committee has been satisfied that
exploration has been treated in the correct and consistent way in
the financial statements.
The Committee received a report from management on the status
of each asset and, along with their technical as well as commercial
knowledge and expertise on the assets, challenged management
on their proposed impairment recommendations. Accordingly, the
Committee reviewed each of the Group’s assets for impairment
in accordance with IFRS 6 and concluded that full impairment
of certain of the Group’s assets was appropriate given the Group’s
future plans for those assets.
In reviewing producing and development assets included in oil and
gas properties, the Committee also reviewed where assets had been
impaired in previous years and whether there were indicators to
suggest the conditions that had led to those impairments had
reversed. Where appropriate, the Company wrote back such prior
year impairments in the current year.
Assets held for sale
A significant area of judgement the Committee had to consider
for the 2016 financial statements, was the reporting of an asset held
for sale under current assets on the balance sheet at the year end.
The asset held for sale represented the Company’s interest in its
Equatorial Guinea, Fortuna asset.
The Company signed a Shareholders’ Agreement with OneLNG
in November 2016 to form a Joint Venture (JV) on FID of the asset
(expected mid-2017). The JV will be charged then with delivering
the full upstream and midstream value-chains for the Fortuna asset.
At the balance sheet date, the Company continued to hold its 80%
working interest in the upstream asset. On constituting the joint
venture company at FID of the asset, the Company will hold a
33.8% equity interest in the joint venture company.
The Committee satisfied itself that the conditions under IFRS 5:
Non-current Assets Held for Sale and Discontinued Operations were
met that required the asset to be classified as an asset held for sale
under current assets at the balance sheet date. The Committee also
considers that the Company’s 33.8% equity interest in the joint
venture company when constituted will be then classified as an
investment accounted for using the equity method under non-
current asset.
Going concern assessment
An important element of review by the Audit Committee is the
appropriateness of preparing the accounts on a going concern
basis. The Audit Committee receives a report from management
setting out the going concern review undertaken by management
which forms the basis of the Board’s going concern conclusions.
The going concern review includes consideration of forecast plans
and supporting assumptions, as well as the options available to
the Company for obtaining additional funding, such as portfolio
management and equity. As portfolio management is a key strategic
activity of the Company there is a regular review of the financial
impacts and flexibility available to the Company. At both full and
half-year, the Committee agreed that the Company’s financial
position was such that it continued to be appropriate for the
accounts to be prepared on a going concern basis.
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Ophir Energy plc The Company adds value through its ability to find, develop and
eventually monetise early stage oil and gas exploration assets,
which invariably are non-revenue generating. It follows from this
that the principal focus of the Audit Committee, when considering
the financial reporting of the Company, is to ensure that the
exploration expenditure commitments of the Company are
appropriately funded. This results in major focus being placed
on forward spending plans and working capital models as much
as retrospective scrutiny of financial reporting. Prior to approving
the full-year financial statements for 2016, the Audit Committee
considered the Company’s forward plans for fund raising and
drilling commitments (being the most significant forward financial
commitments that the Company makes) as part of its assessment
of the going concern basis of preparation of the 2016 Accounts
(further detail on the going concern statement is set out on page 56).
The Company operates a risk management process under which
significant risks are identified, their likelihood and impact considered
and actions taken to manage those risks. The Committee also
receives regular updates on operational risks from the Corporate
Responsibility Committee. The Committee reviews the Company’s
risks every six months prior to a Board review, from which particular
risks may be identified for further detailed presentation and
discussion at the Board meetings. In particular, during 2016 the
Committee met with the Executives Directors and the senior
management team responsible for evaluating new country risks,
and the Ethical Compliance programme. The Committee also
undertook a review of the policies relating to internal controls for
both entities and developed an action plan to amalgamate these
with the Company’s existing policies to better streamline the
Company’s risk management structure.
Viability Statement
The Committee reviews the Company’s Viability Statement and
challenges it against a number of stressed scenarios taking into
account risk factors of the Company. The Committee consequentially
considered the Viability Statement as reported against a range of
future commodity price scenarios and expenditure profiles in adverse
conditions and satisfied itself that with the mitigating factors set out
in the statement, the Company could maintain its longer-term future
viability. The Company’s full Viability Statement can be found on
page 14 of the Strategic Report.
Risk management and internal controls
The Board has delegated its responsibility for monitoring the
Company’s system of internal control and for reviewing its
effectiveness on a continual basis to the Committee.
The Company’s system of internal control is designed to safeguard
the Company’s assets and to ensure the reliability of financial
information for internal and external use. Any system of control
can provide only reasonable, not absolute, assurance that assets
are safeguarded, transactions are correctly authorised and recorded
and that any material errors and irregularities are detected within
a reasonable time frame. The Company’s internal controls are
therefore designed to manage, rather than to eliminate, risk,
recognising that not all risks can be eliminated and the cost of
control procedures should not exceed the expected benefits.
The Committee regularly reviews the effectiveness of the Company’s
system of internal controls which covers financial, operational
and risk management processes. Lines of responsibility have been
clearly defined and a delegated authority schedule approved and
implemented. The Committee considers the draft papers prepared
for the annual review of effectiveness of the risk management
procedures adopted by the Company prior to being submitted
to the Board for approval.
The principal risks identified by the Company are set out on pages
14 to 19.
The Board has reviewed the effectiveness of the internal control
systems in operation during the financial year and, where necessary
and appropriate, action has been taken to remedy any identified
failings or weaknesses. The following illustrates how the risk
management process and the system of internal control
operated during 2016:
Matter
Schedule of
delegated
authority
Treasury and
finance policies
and procedures
Year-end
compliance
Action
Management had undertaken a review of the
Group’s delegation of authority to ensure it is fit
for purpose
A review of the various treasury and finance policies
and procedures across the Group.
A formal process exists for year-end risk
management compliance reporting, requiring
the Executive Directors together with the senior
management team to confirm their responsibilities
for risk management and internal control.
Ultimate compliance reporting is required
from each Board member.
Ethical compliance
In 2016 Ophir rolled out Group-wide compliance training for
employees and contractors, tailored to each local environment
across the business. Compliance training was delivered to all Ophir
offices. As part of Ophir’s Compliance programme, Ophir has
introduced an annual employee sign-off process, a Letter of
Assurance process and Compliance Registers, including
Intermediaries Registers.
Ophir expects all staff and stakeholders to act with integrity and
in accordance with applicable international, national and local law,
as well as the Ophir Code of Conduct. Ophir provides staff with a
whistleblowing hotline, accessible to business partners as well. Ophir
has a zero tolerance policy towards corruption and will not tolerate
retaliation or victimisation against anyone who has raised a concern
in good faith.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Report of the
Audit Committee
continued
Internal audit
Mazars LLP remained appointed as the Company’s internal Auditor
during the period under review.
To ensure the continued effectiveness of the function, the
Committee reviewed and approved the 2016 Internal Audit Plan.
Key actions undertaken by the internal Auditor during 2016
included the following:
• reviewing the Group’s governance and controls around tax
accounting to ensure compliance against regulatory standards
and internal policies;
• an assessment of the Company’s processes and controls
around cyber security and the mitigating factors used to
prevent a cyber-attack;
• asset visits to Indonesia to assess the overall risk management
and reporting controls that have been deployed around key
assets in the area; and
• reviewing the effectiveness of risk management and control
across the Group.
Key actions to be undertaken as part of the internal audit plan
scheduled for 2017 include:
• reviewing the Group’s commercial assurance process
and economic evaluation of investment decisions;
assessing the HR strategy to see how effective existing
HR systems are in supporting the business;
•
• evaluating how well the Group’s planning cycle is aligned
with strategic objectives and priorities; and
• review the controls operating around Ophir’s preparedness
for major incident response.
The findings from the review will be followed up during 2017
and reported to the Audit Committee.
External Auditor
The Committee has approved the Company’s policy governing
the provision of audit and non-audit services provided by the Auditor
and their associates. The policy clearly identifies permitted and
prohibited services and sets out the procedure to be followed for
the approval of all audit and non-audit services. All engagements
with an expected fee in excess of $100,000 require the prior
approval of the Committee. The Committee reviews statements
on the independence and objectivity of the external Auditor at
least twice a year in order to satisfy itself that independence and
objectivity have been met. The Committee is satisfied that there
are no relationships between the Company and the Auditor, its
employees or its affiliates that may reasonably be thought to
impair the Auditor’s objectivity and independence.
During the year ended 31 December 2016 the Company committed
expenditure of $893,000 on audit services (2015: $1,088,650), a
decrease of 18%. In addition, the Company committed expenditure
of $29,450 on non-audit work (2015: $1,127,910). The 2015
non-audit work included corporate finance services due to the
acquisition of Salamander Energy and introducing producing
assets into the Group. The non-audit work undertaken by EY in
2016 related to audit-related assurance services and these fees were
reviewed and approved by the Committee under the terms of the
policy. Further details as to the nature of the services provided are
set out in Note 9 to the consolidated financial statements. There is
no limitation of liability in the terms of appointment of EY as Auditor
to the Company.
Effectiveness of external Auditor
To assess the effectiveness of the external audit process, the external
Auditor provides information on the steps they have taken to ensure
objectivity and independence, including in relation to the provision
of any non-audit services. The Committee monitors the external
Auditor’s performance, behaviour and effectiveness during the
exercise of their duties, and this informs the Committee’s decision
on whether or not they should recommend reappointment on
an annual basis. The Chairman of the Audit Committee meets with
the Company’s audit partner at EY, apart from formal scheduled
meetings, between three to four times during the year to discuss
matters of process, relationships between the country audit teams
as well as to review plans and monitor progress.
Re-appointment of external Auditor
The Committee has reviewed the independence and effectiveness
of EY and is satisfied they have remained independent throughout
the year. The Committee has recommended to the Board that the
re-appointment of EY as the Company’s Auditor is proposed to
shareholders at the AGM in May 2017.
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Ophir Energy plc Report of the
Corporate Responsibility Committee
Carol Bell
Corporate Responsibility
Committee Chairman
Membership and attendance
The members of the Committee, consisting of the Company
Chairman and independent Non-Executive Directors, together
with details of their individual attendance at meetings held
during the year ended 31 December 2016, are set out below:
Committee members
Carol Bell (Committee Chairman from 30 April 2016)
Alan Booth
Vivien Gibney
Bill Schrader
Carl Trowell2
Meeting
attendance1
2/2
2/2
2/2
2/2
0/0
1
2
The business of the meeting scheduled for February 2016 was conducted electronically
and is not included in these meeting attendance figures.
Carl Trowell joined the Committee with effect from 18 November 2016. No Committee
meetings were held following his appointment.
On 30 April 2016, Nic Smith retired from the Board and was
succeeded by Bill Schrader as Chairman of the Company.
On that date Bill Schrader resigned as the Chairman of the
Corporate Responsibility Committee but remains a member of
this Committee. Dr Carol Bell joined the Corporate Responsibility
Committee on 27 January 2016 and replaced Bill Schrader as
Chairman with effect from 30 April 2016. Dr Carl Trowell joined
the Committee as a member on 18 November 2016.
The other members of the Board have an open invitation to
attend all Committee meetings as guests. In addition, the
Company’s Director of HR, the General Counsel & Company
Secretary, Group Head of HSE and Operational Excellence and
the Director of Security and Surface Risk are invited to attend
each meeting to present their reports to the Committee. Other
senior members of staff and external advisers may be invited
to attend as necessary.
Report of the Corporate Responsibility Committee Chairman
Dear Shareholder
I am pleased to be writing to you for the first time as Chairman
of the Corporate Responsibility Committee, having joined the
Committee on 27 January 2016 and taken up the role of
Chairman on 30 April 2016.
The Corporate Responsibility Committee oversees the Company’s
progress in the areas of health and safety, security, environmental
responsibility, community development, business ethics and
management of non-financial risk. During 2016, it also assumed
responsibility for directing and overseeing strategic initiatives
and responses to climate change. Our objective in all of these
areas is to be viewed as an industry leader by our key stakeholders.
Our Corporate Responsibility activities have one intention in mind,
namely our wish to ‘do the right thing’ – for our employees, contractors,
key stakeholders, the environment and the communities in which
we live and work. With this in mind, Ophir’s efforts in Corporate
Responsibility are aligned with, and provide a visible demonstration
of the Ophir Values (which are outlined on page 33 of this report).
The oil and gas exploration and production industry operates in
challenging environments and we are pleased to report that our
staff and contractors suffered no work-related injuries during 2016
despite working over 1.83 million hours in 10 different countries.
We believe that focusing on leading indicators – measuring the
effectiveness of controls and safeguards in our highest risk activities
– was a key contributor to this incident-free performance. We track
these data continuously and this Committee regularly reviews the
leading indicator results and trends with a view to amending
procedure, if necessary.
Our process safety and environmental performance during 2016
was also excellent, with no loss of containment incidents and zero
recordable spills. We continued to focus on ensuring compliance
with all environmental regulations and requirements applicable
to our operations.
The Committee also continued to monitor external risks to all
areas of the Company’s operations. The identified principal risks
are consistent with those in prior years, but uncertainty increased
during 2016 in several areas including geopolitical instability, global
economic fragility, the potential impact of Brexit, the US Presidential
elections, slower growth in China, violent extremism, growing levels
of inequality and climate change.
Ophir’s community development efforts progressed on a number
of fronts during 2016. We continued to shift our focus towards
locally-driven initiatives by partnering with stakeholders to create
shared value both for the Company and the communities within
which it operates. Our Asset Managers are responsible for community
engagement, and our Asset Development Plans include specific
initiatives for creating shared value through partnerships.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Report of the
Corporate Responsibility Committee
continued
Given the difficult conditions in the oil and gas industry generally,
Ophir’s employees were also a key area of focus for the Company
during the year. A redundancy programme was carried out mid-
year and following this, expanded internal communications were
implemented to ensure that the workforce understands individual
contributions to delivering Group strategy. This was aligned with the
Employee Value Proposition – a multi-faceted framework to enhance
employee engagement and commitment.
As part of this, we launched a new leadership development
programme, which involved 29 employees in its initial phase,
aimed at developing the potential of our talent pool.
The Committee continued to review initiatives to enhance
business ethics and compliance, through implementation of
effective policies and standards across the Group. Two key system
enhancements put in place in 2016 were an electronic compliance
sign-off process covering all employees, and a Letter of Assurance
Process covering executives and key managers. Development
of additional compliance standards and tools is continuing
along with training programmes.
Climate change was an area of focus for the Board during 2016
which decided that the Corporate Responsibility Committee should
take the lead in directing and overseeing the Company’s strategies
and activities in this critically important area. We expect this issue
to remain on the Board’s agenda for the foreseeable future,
supported by this Committee.
Progress in many of these areas is regularly measured and reviewed
by the Committee through KPIs. To ensure the Committee remains
effective, focusing on the correct issues and providing optimal
guidance to the Board, we conduct an annual review of our
Committee Terms of Reference and make any necessary changes.
I would like to express my sincere thanks to Bill Schrader for his
Chairmanship of this Committee over the past two years and to
my fellow Committee members for their continued support and
commitment. Last, but not least, I should like to thank Ophir’s
executive team and staff for their constructive engagement
on these important issues.
Role and responsibilities of the Corporate Responsibility
Committee
The Committee is responsible for evaluating the effectiveness of
the Group’s policies and systems for managing health and safety,
the environment, climate change, security, community projects
and business ethics, including human rights and matters relating
to equality and diversity and non-financial risks across the Group’s
operations. The Committee’s revised full Terms of Reference are
available on the Company’s website at www.ophir-energy.com/
about-us/corporate-governance/board-committees/corporate-
responsibility.
Corporate Responsibility Committee activities
During 2016, significant progress was made by the Corporate
Responsibility Committee covering many areas. The Committee’s
key focus and outcomes are set out below:
Corporate
Responsibility
function
Health and Safety
Environment
Security
Community
projects
Ethics
Employee
engagement
Climate change
2016
Corporate Responsibility
Committee highlights
No work-related injuries or illnesses
1.83 million hours worked during the year
No process safety incidents; no loss of
containment events
Implemented leading indicator metrics
system – focused on effectiveness of controls
to prevent incidents
No recordable spills.
No security incidents – continued to closely
monitor external risks in all areas of operations
Focused on partnerships to create shared value
New electronic compliance sign off
implemented for all employees
Letter of Assurance Process put in place
Continued follow-up on 2015 Employee Survey
Submitted CDP Climate Change Questionnaire
– recognised by CDP as one of top three first
time UK responders
Dr Carol Bell
Corporate Responsibility Committee Chairman
8 March 2017
Further information on the Company’s approach to Corporate
Responsibility and HSSE matters can be found in the Corporate
Responsibility report on pages 28 to 33.
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Ophir Energy plc Report of the
Nomination Committee
Bill Schrader
Nomination Committee
Chairman
Membership and attendance
The members of the Committee, together with details of their
individual attendance at meetings held during the year ended
31 December 2016, are set out below:
Committee members
Bill Schrader1
(Committee Chairman from 30 April 2016)
Nic Smith2 (Committee Chairman until April 2016)
Nick Cooper
Carol Bell
Ronald Blakely
Vivien Gibney
Carl Trowell 3
Meeting
attendance
3/3
1/1
4/4
4/4
4/4
4/4
0/0
1
Bill Schrader became Chairman of the Board and the Chairman of the Committee
on 30 April 2016.
2 Nic Smith retired from the Board and as Chairman of the Committee on 30 April 2016.
Carl Trowell was appointed to the Committee on 18 November 2016. This is after the
3
final Committee meeting of the calendar year.
The Board considers a majority of the members of the
Committee who served during the year to be independent.
Report of the Nomination Committee Chairman
Dear Shareholder
In 2016 the main focus of the Nomination Committee was Board
restructuring and succession planning. A detailed overview of the
Board changes and the process followed is contained on page 52.
As stated in my introductory letter to this Annual Report on page 4,
Nic Smith retired during 2016 after nine years on the Board, the past
seven of which he served as Chairman. I am honoured that after
a rigorous selection process I was appointed to the role of Chairman
of both the Board of Directors and the Nomination Committee.
On appointment as Chairman, I stepped down from the Audit
Committee and resigned as Chairman of the Corporate Responsibility
Committee with Carol Bell succeeding me as Chairman. I am sure
Carol will prove to be an excellent Chairman of this Committee and
look forward to supporting her in my ongoing role as a member of
the Committee.
I would also like to extend a warm welcome to Tony Rouse, David
Davies and Carl Trowell, who were all appointed to the Board during
2016. They are three experienced individuals who have already
proven that they have a lot to offer having made strong contributions
to the Board since their respective appointments.
The other key issue for the Committee in 2016 was succession
planning. The focus here was on the senior leadership positions
and the Committee was satisfied that there is a sufficient depth
of talented individuals in the Company who could step up to
perform a leadership role. Furthermore, a series of internal leadership
development initiatives commenced in 2016 as the Company seeks
to actively invest in developing the next generation of leaders.
Bill Schrader
Nomination Committee Chairman
8 March 2017
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Report of the
Nomination Committee
continued
Role and responsibilities of the Nomination Committee
• To plan Board member succession and oversee plans for senior
management succession, taking into account skills, knowledge,
diversity and experience.
• To regularly review the structure, size and composition of the Board
and Committees.
• To identify and recommend for Board approval suitable candidates
to be appointed to the Board.
In November 2016, the Committee reviewed its Terms of Reference
to ensure they remained appropriate. The Terms of Reference
of the Committee are available on the Company’s website at
www.ophir-energy.com/about-us/corporate-governance/
boardcommittees/nomination and are fully compliant with
section B.2.1 of the Code.
Chairman and Senior Independent Director succession
As reported last year, the Nomination Committee, led by Ron Blakely
in his capacity as the Senior Independent Director, worked with
a global executive search agency to identify suitable candidates
to succeed Nic Smith as Chairman of the Board. The search firm
utilised has no other connection with the Company.
The Committee undertook a comprehensive search against
objective criteria and with due regard for the benefits of gender
diversity. The firm prepared a detailed role specification which was
agreed with the Committee and the Senior Independent Director
and the following desirable candidate attributes were agreed:
• considerable experience working in the oil and gas sector including
experience working in Africa and Asia;
• understanding of capital markets, and established relationships
with the banking community and shareholders;
• comprehensive knowledge of UK corporate governance
•
practices; and
the capacity to discharge their responsibilities effectively,
acknowledging the role to be their primary commitment.
The search firm produced detailed profiles of prospective candidates,
which were later reduced to a short-list with briefing reports reviewed
by the Committee. The candidates identified from the search were
interviewed by members of the Board.
The Committee consulted with the Company’s advisers and received
feedback from its major shareholders concerning the prospective
successor and took detailed references. Following this rigorous
selection process, the Committee recommended that Bill Schrader
be appointed as successor to Nic Smith. The Board accepted the
recommendation and it was announced on 27 January 2016 that
Bill Schrader would become Chairman of the Board, with effect
from 30 April 2016.
Bill Schrader met the independence test set out in section B.1.1
of the Code on appointment, and continues to be able to dedicate
the requisite time to the role.
Ron Blakely will step down as the Senior Independent Director on
31 March 2017, and will be replaced by Carol Bell on the same date.
Board composition
The Committee considers that the Board consists of individuals
with the right balance of skills, experience, and knowledge to provide
strong and effective oversight of the Company. The majority of the
Board, excluding the Chairman, are independent Non-Executive
Directors, and the Board’s collective experience covers a range of
relevant sectors, as illustrated on pages 36 and 37. In addition to
possessing a breadth of relevant experience in the oil and gas sector,
the Board members have personal experience of working in both
complex organisations and countries in which the Company operates.
Early in 2016 the Committee determined that due to a combination
of factors, including the Company becoming a revenue generating
business with a corporate debt portfolio to manage, the financial
complexity of the business had increased sufficiently for the role
of Chief Financial Officer to be elevated to Executive Director level.
Consequently Tony Rouse joined the Board on 27 January 2016.
In November 2015 the Committee agreed to commence a process
to recruit two new Non-Executive Directors to replace the outgoing
Nic Smith and Ron Blakely. This process was concluded in August
2016 with the appointments of David Davies and Carl Trowell.
David Davies joined the Audit Committee as a member upon
appointment to the Board on 23 August 2016, and became
Chairman of the Audit Committee with effect from 1 January 2017,
anticipating the retirement of Ron Blakely on 31 March 2017.
David has the necessary financial experience and competence in
accounting as required by section C.3.1 of the Code and section
7.1.1 of the Disclosure and Transparency Rules.
David was also appointed as a member of the Remuneration
Committee on 10 February 2017.
Carl Trowell became a member of the Nomination Committee,
Corporate Responsibility Committee, and Technical Advisory
Committee on 18 November 2016.
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Ophir Energy plc Succession planning
The Committee assessed the health of the succession plans
for the Executive Directors and the senior management team.
The Committee concluded that the talent pipeline was of sufficient
strength to provide successors to senior roles as the Company
continues to grow. This process will remain an area of focus for
the Committee.
Diversity and equality
The Board and Nomination Committee are committed to equal
opportunity in all aspects of management.
The Company remains dedicated to encouraging diversity at
all levels of the business, acknowledging that a more diverse
workforce, with the right mix of skills, experience, culture, ethnicity,
nationality, gender and knowledge, can make a valuable
contribution to the Company.
A statement of the Company’s policy on diversity is set out in the
Strategic Report on page 32.
The Committee recognises and supports all aspects of diversity to
achieve the optimum Board composition, including gender balance.
When filling Board positions, the Committee only works with
organisations that have signed up to the Voluntary Code of Conduct
for Executive Search Firms, a recommendation of the Davies’ Report.
The Committee stresses that Board appointments are based on
many factors including the personal capabilities and contribution
that each member brings to the Board. However, the overriding
criterion is always based on merit and not merely to satisfy
prescribed quota requirements. The Committee is following the
progress from the new Hampton-Alexander review (July 2016), which
is driving change in women’s representation across British business.
As at the date of this report, women constitute 20% of the Board.
The Committee is also mindful of the conclusions of the Parker
Review (November 2016) which has drawn attention to the benefits
of ethnic minority representation on boards.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Directors’ Report
The report complies with the provisions of the Companies Act 2006
and Schedule 8 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013.
The report has been prepared in line with the recommendations
of the UK Corporate Governance Code 2016 and the requirements
of the UKLA Listing Rules. Details of the Company’s financial
instruments and hedging activities and its exposures to credit risk
and liquidity risk are set out in full in Note 25 on pages 115 to 118
of the financial statements.
Results for the year ended 31 December 2016
The Company’s results for the financial year are shown in the
consolidated financial statements on pages 79 to 146.
Directors
Biographical details for the Directors of the Company who held
office during the year ended 31 December 2016 and at the date
of this report are set out on pages 36 and 37. Details of Directors’
service contracts or letters of appointment, their interests in the
ordinary shares of the Company and in any of the Company’s
long-term incentive and other share schemes are set out in the
Directors’ Remuneration report which can be found on pages 58
to 77. The Directors’ insurance and indemnity provisions are set
out on page 42.
Substantial shareholders
As at 31 December 2016 and 28 February 2017, being the date
of the most recent analysis of the Company’s share register,
the Company discloses that the following organisations hold
a substantial number of voting rights. The information has been
compiled by Equiniti Limited, the Company’s Registrars.
Name
Hotchkis & Wiley Capital Management
SailingStone Capital Partners
Capital Research Global Investors
M&G Investment Management
Standard Life Investments
Majedie Asset Management
Name
Hotchkis & Wiley Capital Management
SailingStone Capital Partners
Capital Research Global Investors
M&G Investment Management
Majedie Asset Management
Standard Life Investments
Norges Bank Investment Management
Number
of shares
held as at
31 December
2016
84,975,671
78,223,142
72,993,069
72,369,076
43,425,997
38,885,263
Number
of shares
held as at
28 February
2017
84,583,447
76,982,357
72,993,069
66,009,539
38,455,824
27,633,797
21,191,343
% holding
as at
31 December
2016
12.03
11.08
10.34
10.25
6.15
5.51
% holding
as at
28 February
2017
11.98
10.90
10.34
9.35
5.45
3.91
3.00
Share capital
The called-up share capital of the Company, together with details
of shares allotted during the year, is shown in Note 26 to the Group
financial statements.
54
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Ophir Energy plc Shareholders’ rights
The rights and obligations in the Company’s Articles of Association
relating to the ordinary shares of the Company are set out in the
Shareholder information on pages 147 to 149. The Articles can
be found on the Company’s website www.ophir-energy.com.
Dividend policy
The Directors have not recommended a final dividend for the year
ended 31 December 2016 and did not declare any interim dividends
during the year. The Directors do not anticipate that the Company
will pay dividends in the near future. The Directors envisage that,
as the Company advances the development of its operations, a
dividend policy will be determined based on, and dependent on,
the results of the Company’s operations, financial condition, cash
requirements, prospects, profits available for distribution and other
factors deemed to be relevant at the time.
Report on greenhouse gas emissions
The Group’s energy consumption and associated greenhouse gas
emissions during 2016 are set out in the Strategic Report on pages
29 and 30. These figures have been calculated in accordance with
the guidance provided by the Department for Environment, Food
and Rural Affairs (Defra) and the Department for Business Energy
and Industrial Strategy and have been classified under the ‘scopes’
set out in the World Resources Institute/World Business Council
for Sustainable Development’s Greenhouse Gas Protocol. We report
on all sources of emissions over which we have operational control.
Diversity
A statement of the Company’s policy on diversity is set out in the
Strategic Report on page 32, and the Board’s policy on diversity
is summarised on page 53 of the Nomination Committee Report.
Human rights
A statement of the Company’s position on human rights is set out
in the Strategic Report on page 32.
Employees
The Company is committed to actively communicating with
employees in many ways, including town hall meetings, video
briefings, team meetings, print and email communications, as well
as regular training on health and safety, and regulatory matters. The
Company is an equal opportunities employer and continues to have
a diverse workforce comprising local employees, contractors and
expatriates at most sites. The Company provides all its employees
with the opportunity to identify and engage in training to aid and
accelerate career development opportunities. As at 31 December
2016, the Company employed 2881 people (2015: 302 people).
Corporate Responsibility, business conduct and ethics
and political donations
The Company is committed to sound business conduct in
its relationships with its stakeholders, including shareholders,
employees, customers, business partners and suppliers, governments
and regulators, communities and the environment. The Company
seeks to conduct its operations with honesty, integrity and openness,
and with respect for the human rights and interests of our employees
and, as such, ensures that its Anti-Bribery Policy is fully understood
and implemented by all employees and other key stakeholders.
The Board is also fully committed to ensuring that high standards
of health, safety and environmental practices are implemented
and maintained by the Company. Further details are set out
in the Corporate Responsibility review on pages 28 to 33.
The Company has not made any political donations during the year.
The Company’s policy is not to make political donations; however
certain socially responsible activities, which may include actions
undertaken through the Company’s social and community related
programmes, attendance at conferences and receptions where
communicating the Company’s views might be vital to its business
interests may be inferred by some as making political donations as
defined in the Companies Act 2006. The Company does not consider
such activities as being political donations but, nevertheless, ensures
that all such activities described in this report have been conducted
in compliance with the Company’s Code of Conduct and Anti-
Corruption Policy.
1 This number includes; direct hires, Executives, expatriates, fixed term, and permanent employees.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Directors’ Report
continued
Directors’ responsibility statement
The Directors’ responsibility statement is set out on page 78 and the
Company’s financial statements are included on pages 79 to 146.
Change of control
The Company has entered into a number of commercial contracts
which might take effect, alter or terminate on a change of control of
the Company. However, none of these is considered to be significant
in terms of their likely impact on the business of the Company as a
whole. Details of change of control clauses contained in the Service
Agreements of the Executive Directors are set out on pages 65 and
66 of the Directors’ Remuneration report.
All the Company’s share incentive plans contain provisions relating
to a change of control and details of these plans are provided
in the Directors’ Remuneration Report on pages 58 to 77.
Corporate governance statement
The corporate governance statement on pages 34 to 43, in
accordance with Rule 7.2 of the Disclosure and Transparency Rules
and Rule 9.8.6 (5) and (6) of the Listing Rules, forms part of this
Directors’ Report.
Directors’ statement as to disclosure of information to the
Auditor
The Directors who were members of the Board at the time of
approving the Directors’ Report are listed on pages 36 and 37.
Having made enquiries of fellow Directors and of the Company’s
Auditor, each of these Directors confirms that:
• To the best of each Director’s knowledge and belief, there
is no information (that is information that is needed by the
Company’s Auditor in connection with preparing their report)
of which the Company’s Auditor is unaware.
• Each Director has taken all the steps a Director might reasonably
be expected to have taken to be aware of relevant audit
information and to establish that the Company’s Auditor
is aware of that information.
Auditor
Details of the Company’s policy on external Auditor rotation are
set out on page 48 of the Corporate Governance report. Further
to provision C.3.7 of the Code, listed companies are expected to put
their external audit contract out to tender at least every 10 years.
In 2013, the Audit Committee undertook a review of audit services
including a tender by suppliers in advance of the 2014 audit, which
concluded that EY LLP should continue as the Company’s Auditor
for 2016.
The Audit Committee has also proposed that resolutions to
re-appoint EY as the Company’s Auditor and to authorise the
Directors to set the Auditor’s remuneration be proposed at the
2017 AGM.
Going concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position, are set out
in the Strategic Report on pages 1 to 33. The financial position of the
Group, consisting of cash resources of $360.4 million, its cash flows
and its liquidity position, is described in the financial statements on
pages 79 to 146. In addition, Note 25 to the financial statements
includes the Group’s objectives, policies and processes for managing
its capital; its financial risk management objectives; details of its
financial instruments and hedging activities; and its exposures
to credit risk and liquidity risk.
In making their going concern assessment, the Directors have
considered Group budgets and cash flow forecasts. As a result of this
review, the Directors have a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern
basis of accounting in preparing the annual financial statements.
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Ophir Energy plc Viability Statement
The Financial Reporting Council (FRC) has revised the ‘Code’ to
include a Viability Statement and the Company has included its
Viability Statement for the 2016 year end. The full statement can
be found on page 14. The Viability Statement provides investors
with an improved and broader assessment of long-term solvency
and liquidity of the Company. The Directors have agreed that the
Company can sign the Viability Statement as it has developed a
robust strategy over the medium term, which includes sufficient
forecasting that takes account of industry and macro-economic
factors, such as a low commodity price for oil and gas in addition
to an improved control over capital expenditure.
Post balance sheet events
A summary of the key post balance sheet events is set out in Note 38
to the Group Financial statements.
By order of the Board
Nick Cooper
Chief Executive Officer
8 March 2017
Registered office:
Level 4, 123 Victoria Street, London SW1E 6DE
Company registered in England and Wales No. 05047425
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Chairman’s Annual Statement
on Remuneration
Vivien Gibney
Remuneration
Committee Chairman
Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’
Remuneration report for the financial year ended 31 December
2016. This report summarises our Remuneration Policy, how it
has been operated during the year under review and how it will
be implemented in 2017, together with an overview of the key
activities of the Committee.
Remuneration Policy and alignment to business strategy
Ophir’s strategy is to be a sustainable explorer focused on delivering
NAV per share growth by finding resources at low cost and then
monetising them in a way that maximises the value created. How
successful we are in achieving this strategy is captured through our
success in growing our NAV per share. Our Remuneration Policy
reflects this strategy: salary, benefits and pension are sufficiently
competitive, but no more. All employees participate in an annual
bonus scheme, capped at 50% of base salary for Executive Directors,
which can be earned based on performance against key performance
indicators relating to the operational success of the Group. Finally,
all employees also participate in the Ophir Energy Long-Term Value
Creation Plan 2016 (the ‘2016 Plan’). Under this incentive scheme,
employees may be rewarded when value (measured as NAV per
share) is created through the long-term development of our assets
and crystallised through a ‘NAV event’. For Executive Directors
75% of any award is paid in long-term deferred shares and
stringent minimum shareholding requirements must be achieved.
All incentive plans have clawback provisions to recover any
erroneous overpayments. Share-based deferral, executive
shareholding requirements and clawback features encourage
value to be sustained from the point of measurement. Full details
of this plan and the rest of the Policy are set out in this report.
Performance in 2016 and payments to Directors
Ophir is a resource exploration and monetisation business. Progress was
made during the year to progress the monetisation of our Fortuna
gas discovery offshore Equatorial Guinea. In November Ophir signed a
Shareholders’ Agreement with OneLNG to form a new Joint Venture
to finance, develop and operate the project. Other highlights include
reduction in G&A costs, adding 158 MMboe of drillable prospective
resource, commencing first gas at Kerendan and completing a
successful water debottlenecking project at Bualuang.
Cash bonus awards, based on performance criteria described in this
report, were made to the Chief Executive Officer (33.56% ), the Chief
Operating Officer (34.90%) and the Chief Financial Officer (33.56%)
out of a maximum of 50% of salary in each case.
For the award granted under the 2011 Long Term Incentive Plan (LTIP)
to the Chief Executive in 2012, the second tranche was measured
by reference to absolute TSR performance to 19 June 2016. As the
minimum threshold for performance was not achieved no awards
vested. No other LTIP awards to any executive were capable of
vesting by reference to performance periods ending during the year.
In relation to the 2016 Plan, performance has been in line with the
business plan, but there has been no NAV event in 2016 that could
have triggered a payment.
Shareholder approvals at the 2016 AGM
We were delighted that shareholders approved the new
Remuneration Policy, including the 2016 Plan, at the AGM held
on 10 May 2016. Once again, I would like to take the opportunity
to thank our major shareholders and the leading shareholder
representative bodies, for taking the time to enter into constructive
dialogue with us around the Remuneration Policy and the 2016
Plan. It was pleasing that we received such strong support from
the investor community, given that the 2016 Plan is a significant
departure from the standard UK remuneration model. The Board
and the Committee will continue the dialogue with our shareholders
as we operate the 2016 Plan and our Policy.
The resolution to approve the Remuneration report was passed
with a vote of 65.73%. We had anticipated some opposition as
shareholders had raised concerns in respect of the overlap between
the final award made in 2016 under the terms of the previous
Long-Term Incentive Plan (the 2011 LTIP) and the introduction of
the new 2016 Plan, as well as a concern that there was insufficient
detail in relation to some of the performance metrics that formed
the basis for the payment of the annual bonus to Executive Directors
for performance in 2015.
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Ophir Energy plc In relation to the first issue, the Company position was that it had
a long-standing policy of varying grant levels under the 2011 LTIP
in relation to individual performance over the prior year and so the
2016 LTIP grant related, in part, to individual performance in 2015.
In contrast, under the 2016 Plan, individual entitlements are fixed at
the outset and based on ‘forward looking’ performance from 2016
onwards (and as it turns out, as there has been no NAV event,
there has been no award made under this plan in 2016). As the
‘backward looking’ approach under the 2011 LTIP was unusual,
we can understand and accept that investors took a different
position to us. As there will be no further awards under the 2011
LTIP this will not be an issue in future.
In relation to the second issue, we have committed to include
fuller disclosure in this report of the targets applying to the 2015
bonus and to maintain a similar level of disclosure for the 2016
bonus. In addition, the annual bonus opportunity under the new
policy has been reduced by two thirds from a maximum of 150%
to 50% of base salary.
Application of Remuneration Policy for 2017
Following the significant review and changes to our Remuneration
Policy with effect from 2016, the Committee has determined that
the Policy, as approved by shareholders at the 2016 AGM, remains
appropriate for 2017. In relation to its implementation, the
Committee has determined the following:
• Base salary for Executive Directors remains unchanged. There
will be no changes to the type and level of benefits and pension.
• Annual bonus for Executive Directors will remain capped at 50%
of salary and will be subject to performance conditions based
on business and personal KPIs.
• If a NAV event triggers a payment under the 2016 Plan, the
Committee will determine the level of payment to employees.
Key activities of the Committee
As described in last year’s report, up to the 2016 AGM the Committee
was involved extensively in the design and implementation of
the new Remuneration Policy including detailed consideration
of investor feedback.
During the second part of the year, the Committee continued to
consider practical matters relating to the Policy implementation
including the basis for employee award levels under the 2016 Plan,
prior year LTIP vesting and annual bonus performance conditions
for 2017. In addition, the Committee considered broader topical
matters including gender pay, equality and the level of remuneration
for the Chief Executive Officer in relation to the broader workforce.
I would also like to thank the members of the Committee during
the year, including our past Chairman Nic Smith, for their
constructive and forthright contributions.
Shareholder feedback
The Board and the Committee are committed to maintaining
an open and constructive dialogue with our shareholders on
remuneration matters. We continue to engage in appropriate
dialogue with our major investors on any significant changes
to the Remuneration Policy and we, and I, welcome any feedback
you may have.
Vivien Gibney
Remuneration Committee Chairman
8 March 2017
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information
Directors’ Remuneration Policy
In this section we set out our Remuneration Policy, how it supports our strategy, how the Committee intends to operate it, the selection of
performance metrics and why we believe they support our strategy and are appropriately stretching and other relevant information about
the Directors’ Service Agreements.
The effective date of the Policy is 10 May 2016, which was the date of shareholder approval for this Policy.
Remuneration is structured with two elements: fixed remuneration consisting of base salary and benefits (including non-contributory health
insurance and life assurance and pension contributions) and variable remuneration (annual bonus scheme and a long-term incentive scheme).
Remuneration Policy and link to business strategy
As detailed in the Chief Executive Officer’s review, unlike full cycle E&P
companies, Ophir’s focus is on becoming a sustainable explorer using
cash from production and asset disposals to fund exploration. As we
move to achieve this objective, shareholder returns are generated
through the monetisation of our exploration assets at the appropriate
time rather than looking to continually increase production.
How successful we are in implementing this sustainable exploration
strategy is captured through our success in growing our NAV per share.
Under the 2016 Plan, opportunity for reward only takes place when
value is created (measured based on NAV per share growth) through
the long-term development of our assets. Once value is created,
reward is payable in a combination of cash (25%) and shares (75%)
which vest over five years and all shares (net of tax) must be retained
for a minimum of five years from grant. The scheme’s long-term
focus is considered entirely appropriate for an industry where
decisions taken have multi-year time horizons. The scheme will
ensure clear alignment between Executive Directors and
shareholders. Summary details of the operation of the plan are
included below:
• Remuneration will only be earned if we deliver long-term growth
in NAV per share, which is measured based on well-defined
NAV events. When an event does take place, 12.5% of the increase
in NAV above the prior Benchmark NAV is used to
create a reward pool.
• NAV will be calculated using Net Present Value (NPV) as defined
in the scheme at a 10% discount rate.
• Every $1 spent on development reduces Benchmark NAV, so
payouts under the scheme only take place, in principle, when there
is a return on our investment decisions through value creation.
There are only certain well-defined events that count towards
testing the prevailing Benchmark NAV, with these events
potentially triggering a reward if the reduced NAV due to
development spend has been more than offset by the value
attributable to the NAV event.
• NAV events will be monetisation events, which have defined values,
or the risked value of development assets once a Final Investment
Decision (FID) is taken. The list of NAV events is
as follows:
–
Farm-outs.
– Asset sales.
FID events.
–
–
First production.
– A gas sales agreement renegotiation
(since this effectively re-values the asset).
• If one of the above events takes place, then a calculation of current
Group NAV per share will be undertaken to ascertain whether the
previous Benchmark NAV has been exceeded.
• When testing whether or not a NAV event has resulted in the
opening Benchmark NAV per share being exceeded and thereby
creating a reward pool, the historic benchmark will be rebased, as
appropriate for (i) current forward strip commodity prices to ensure
that the reward pool is not artificially inflated or deflated by the
commodity cycle and (ii) any cash distributions to shareholders or
funds raised from shareholders and/or the issue or cancellation of
shares so that these events are neutral to the operation of the scheme.
• If a NAV event has triggered a reward, the pool would be
distributed to all employees, with the following features applying
to Executive Directors:
–
The maximum variable pay (annual cash bonus plus NAV
scheme) that an Executive Director may receive in any
calendar year has been limited to 500% of base salary (i.e.
50% annual cash bonus and 450% NAV scheme). NAV events
are unlikely to occur regularly in each financial year; two (or
more) events may occur in any given year, or conversely none
may occur in any given year. Since there are likely to be
periods where NAV events do not take place in multiple
years, but the value when they do has the potential to be
substantial, if a NAV event occurs in a year where there has
not been a NAV event in the prior year that triggers a reward
pool, the maximum variable pay (annual cash bonus plus
NAV scheme) will be increased to 750% of salary in that year.
–
– 75% of NAV scheme rewards are delivered as deferred
shares that vest after three, four and five years for
Executive Directors. However, the total number of after-tax
shares must be retained for a minimum of five years.
Recovery and withholding provisions apply to ensure that
only true value creation is the basis of rewards. Trigger
events for recovery of value overpaid include (i) when an
FID is taken but the development is subsequently cancelled
prior to production or (ii) the Company is the subject of a
lawsuit that is successfully pursued by a third party in relation
to a NAV event under which a reward pool was generated.
Since the above scheme will apply to all employees in the Group
(albeit tailored by employee level), a single 10% in 10 years’ dilution
limit operates in relation to the award of shares through the scheme.
In addition to the deferral requirements under the 2016 Plan, tough
share ownership guidelines apply. These require the Chief Operating
Officer and Chief Financial Officer to build and maintain a
shareholding worth 200% of salary with the Chief Executive Officer
required to maintain a shareholding worth at least 300% of salary.
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Ophir Energy plc Policy table
The table below sets out the key elements of Executive Director pay:
Element
Base
Salary
Purpose and
link to strategy
To provide the
core reward
for the role.
Sufficient level
to help recruit
and retain
employees.
Reflects role
and experience
of individual.
Benefits
To recruit
and retain
employees.
Pension
Annual
Bonus
To provide
long-term
savings via
pension
provision.
To incentivise
the execution
of business
strategy.
Rewards the
achievement
of annual
financial and
strategic
business
targets and
delivery of
personal
objectives.
Operation
Maximum opportunity
Framework used to assess performance
Reviewed annually and effective
from 1 January.
Decision influenced by:
• role, experience and personal
performance
• average change in total
workforce salary in the location
where they are based
• total organisational salary
budgets
• Company performance and
other economic conditions.
Salaries are benchmarked
periodically and are set by
reference to companies of
a similar size and complexity.
Directors are entitled to health
insurance, life assurance, medical
evacuation insurance, travel
insurance, holiday pay, sick leave
and other Group-wide benefits
offered by the Company.
Other ancillary benefits including
relocation expenses may be
offered, as required.
The Company operates a defined
contribution pension scheme
or may contribute directly into
an Executive Director’s personal
pension, or pay a salary
supplement in lieu of pension.
Targets are renewed annually and
relate to the business as a whole.
Bonus level, payable in cash, is
determined by the Committee
following the end of the financial
year and is based on performance
against targets set at the start of
the year.
Recovery and withholding
provisions apply that enable
the Committee to recover value
overpaid in the event of a material
misstatement of the Company’s
results within a two-year period
(this can be through the
withholding of variable pay
awards or requiring a repayment).
The Committee considers individual salaries
at the appropriate Committee meeting each
year after having due regard to the factors
noted in operating the salary policy.
Executive Directors will be eligible for
increases during the three-year period that
the Remuneration Policy operates from the
Effective Date (AGM date).
During this time, salaries may be increased
each year (in percentage of salary terms)
in line with average increases granted to the
wider workforce where they are based.
Increases beyond those granted to the wider
workforce (in percentage of salary terms) may
be awarded in certain circumstances such
as where there is a change in responsibility,
experience or a significant increase in the
scale of the role and/or size, value and/or
complexity of the Group.
Where new joiners or recent promotions have
been placed on a below market rate of pay
initially, a series of increases above those
granted to the wider workforce (in percentage
of salary terms) may be given over the
following few years subject to individual
performance and development in the role.
The value of benefits may vary from year to
year depending on the cost to the Company
from third-party providers.
n/a
The Executive Directors receive a Company
contribution into the Group (or their personal)
pension plan (or a salary supplement in lieu
of pension) to the greater of the statutory
minimum and 11% of salary.
n/a
The maximum award under the annual
bonus scheme is 50% of salary.
Details of the performance measures used
for the current year and targets set for the
year under review and performance against
them is provided in the Annual Report
on Remuneration. The Company’s bonus
scheme is based on the achievement
against a range of business objectives
and key performance indicators.
Given the nature of an exploration-led
business, measures and their weightings
may change each year reflecting the
changing business priorities. The key
performance measures may include
(and are not limited to) the following:
• exploration
• operations
• financial strength and returns
• business model
• stakeholder engagement
• leadership.
The Committee retains discretion to reduce
the bonus payment in the event of a serious
HSE incident or series of incidents. For the
bonus measures, which operate using
a sliding scale of targets, the proportion
of maximum bonus earned for achieving
threshold performance is set from 0% of
that part of the bonus with 100% of the
maximum opportunity payable for superior
performance. Bonuses for performance
between threshold and maximum are
determined on a pro-rata basis.
Some elements of the bonus structure
include a subjective assessment of
performance as opposed to operating on
a sliding scale (e.g. bonus earned in relation
to HSE/CR performance and some personal
objectives).
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continued
Element
Purpose and
link to strategy
Operation
Maximum opportunity
Framework used to assess performance
500% in any calendar year or 750% of salary
if there was no NAV event in the prior year.
The limits are inclusive of any bonus
payments relating to the calendar year
(e.g. should a bonus be earned to the
maximum of 50% of salary then the
maximum pay-out under the scheme
in relation to the same year is limited
to 450% of salary).
A high watermark Benchmark NAV is set
(either at the outset of the scheme or
following a NAV event where the previous
Benchmark NAV is exceeded) and a
payment can only become payable once
the previous high watermark Benchmark
NAV is exceeded.
n/a
n/a
n/a
The fee levels are reviewed on a periodic
basis, with reference to the time commitment
of the role and market levels in companies
of comparable size and complexity.
Fee levels will be eligible for increases during
the three-year period that the Remuneration
Policy operates from the Effective Date to
ensure they appropriately recognise the time
commitment of the role, increases to fee
levels for Non-Executive Directors in general
and fee levels in companies of a similar size
and complexity.
Flexibility is retained to go above the fee
levels set at the start of the year if it is
necessary to do so to appoint a new
Chairman or Non-Executive Director of
an appropriate calibre. No benefits or other
remuneration are provided to Non-Executive
Directors although the Company may make
payments to Non-Executive Directors to
compensate them on a pre-tax basis for any
reasonable expenses incurred undertaking
Company business.
A reward pool comprising 12.5%
of the growth in NAV is available
for distribution to all employees
following a NAV event which takes
the NAV per share of the Company
above the previous high watermark
Benchmark NAV per share.
For Executive Directors, following
a NAV event 25% of an individual
share of the pool is paid in cash
with 75% payable in deferred
shares. Deferred shares vest
equally after years three, four, and
five. A holding period applies to
vested shares requiring a minimum
of the after-tax number of shares
to be retained for a minimum
period of five years from grant.
To the extent that dividends were
to be paid, a provision would
operate which would enable
dividends to accrue on shares
at the time of vesting (or to the
conclusion of any holding period).
Recovery and withholding
provisions apply in the event
that value is overpaid as a result
of (i) an FID is taken but the
development is subsequently
cancelled prior to production or
(ii) the Company is the subject
of a lawsuit that is successfully
pursued by a third party in relation
to a NAV event under which a
reward pool was generated.
The Chief Executive Officer
has a 300% of salary holding
requirement and other Executive
Directors are required to build up
a holding of 200% of salary
through the retention of 50% of
the after-tax number of shares
vesting under the Company’s
long-term incentive plans.
The fees for the Company’s
Chairman and Independent
Non-Executive Directors are
determined by the Board as
a whole (with the relevant
individuals absenting themselves
from discussions relating directly
to their own remuneration).
The Board’s policy in relation to
the fee payable to the Chairman
of the Board is that it should be set
having had regard to the median
fee payable for Non-Executive
Chairmen of companies of a
comparable size and complexity.
Remuneration levels are agreed
based on external advice and
give consideration to the time
commitment and responsibilities
of the role.
The Chairman and Non-Executive
Directors are not entitled to
participate in the Company’s
executive remuneration
programmes or pension
arrangements.
Long Term
Value
Creation
Plan 2016
To reward for
the creation of
sustained NAV
per share.
Share
ownership
guidelines
Non-
Executive
Directors’
fees
To align the
interests of
Executive
Directors with
those of the
Company’s
shareholders.
To provide a
competitive
fee which
will attract
high-calibre
individuals
with the
relevant skills
and experience
to enhance the
Board.
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Ophir Energy plc Operation of incentive plans
The Committee will operate the annual bonus scheme and long-
term incentive plans, including the 2016 Plan, according to their
respective rules and in accordance with the Listing Rules, and HMRC
rules where relevant. The Committee, consistent with market
practice, retains discretion over a number of areas relating to the
operation and administration of these plans. These include the
following (albeit with quantum and the operation of those plans
restricted to the descriptions detailed in the policy table above
for Executive Directors):
• who participates in the plans;
• the timing of grant of award and/or payment;
• the size of an award and/or a payment;
• the determination of vesting;
• discretion required when dealing with a change of control
(e.g. the timing of testing performance targets) or restructuring
of the Group;
• determination of a good leaver for incentive plan purposes based
on the rules of each plan and the appropriate treatment chosen;
• adjustments required in certain circumstances (e.g. rights issues,
corporate restructuring, events and special dividends); and
• the annual review of performance measures, weighting and
targets for the incentive plans from year to year.
The Committee also retains the ability to adjust the targets and/or
set different measures and alter weightings for the annual bonus
plan and to adjust targets for long-term incentives if events occur
(e.g. material divestment of a Group business) which cause it to
determine that the conditions are no longer appropriate and the
amendment is required so that the conditions achieve their original
purpose and are not materially less difficult to satisfy.
All historic awards that were granted under any current or previous
share schemes operated by the Company prior to the 2016 AGM but
remain outstanding remain eligible to vest based on their original
award terms.
Choice of performance measures and approach to target setting
The performance metrics that are used for the annual bonus
scheme are based on the Company’s Key Performance Indicators
(KPIs) shown on pages 10 to 13. A balanced scorecard together
with health and safety metrics are used. As an upstream oil and
gas exploration company, commercialisation through portfolio
management is important in crystallising value at the right time;
Executive Directors’ strategic choices and delivery are appraised
and a good health and safety record underpins the activities
we undertake.
These metrics, which form part of the Company’s KPIs, are
aligned with the Company’s underlying objective of creating value
by becoming a sustainable explorer using cash from production and
asset disposals to fund exploration. The precise metrics chosen and
weighting ascribed to each may vary, as detailed in the Policy above,
in line with the Company’s strategy.
Long-term performance is assessed based on our performance
in growing NAV per share, which is our key long-term
performance metric.
The Committee believes the above measures each achieve
alignment between shareholders and Executive Directors and
that they are only rewarded for creating NAV per share.
Other than in the case of NAV per share where a high watermark
is established that must be exceeded for a pay-out to take place,
targets are set based on sliding scales that take account of internal
planning and external market expectations for the Company. Only
modest rewards are available for delivering threshold performance
levels with maximum rewards requiring achievement of stretching
performance targets approved at the start of each year.
Consideration of employment conditions elsewhere
in the Group
The Company, in line with current market practice, does not
actively consult with employees on executive remuneration.
The Group has a diverse workforce operating in several different
countries, with various local pay practices, which would make any
cost-effective consultation impractical. However, when setting
the Remuneration Policy for Executive Directors, the Committee
takes into account the pay and employment conditions for other
employees within the Group, including examining whether there
is any gender pay difference and the pay of the median paid
employee in relation to the pay of the Chief Executive Officer.
This process ensures that the Committee is considering broader
Company issues in determining executive pay and any increase
to the basic pay of Executive Directors is not out of proportion
with that proposed for other employees.
Differences in Remuneration Policy for Executive Directors
compared to other employees
Overall, the Remuneration Policy for the Executive Directors is more
heavily weighted towards variable pay than for other employees.
This ensures that there is a clear link between the value created
for shareholders and the remuneration received by the Executive
Directors as it is the Executive Directors who are considered to
have the greatest potential to influence Group value creation.
The level of variable pay varies within the Group by level of employee
and is informed by the specific responsibilities of each role and local
market practice as appropriate.
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continued
Recruitment and promotion policy
For Executive Director recruitment and/or promotion situations, the Committee will follow the guidelines outlined below:
Element
Policy
Base Salary
Base salary levels will be set in accordance with
the Company’s Remuneration Policy, taking into account the
experience and calibre of the individual (e.g. typically around
market rates prevalent in companies of comparable size and
complexity) or salary levels may be set below this level (e.g.
if the individual was a promotion to the Board). Where it
is appropriate to offer a below-market rate of pay initially,
a series of increases to the desired salary positioning may
be given over the next few years subject to individual
performance and development in the role.
Element
Benefits
Policy
Directors are entitled to health insurance, life assurance, medical
evacuation insurance, travel insurance, holiday pay, sick leave
and other Group-wide benefits offered by the Company.
Where necessary, the Committee may approve the payment
of relocation expenses to facilitate recruitment.
Pension
A defined contribution or cash supplement at the
level provided to current Executive Directors as set
in the policy table.
Annual
Bonus
Long-term
incentives
New joiners will normally be eligible to participate
in Long-Term Value Creation Plan 2016 after completion
of a probationary period.
Buy-out
awards
The Annual Bonus would operate as outlined for current
Executive Directors (i.e. to a maximum of 50% of base salary),
albeit pro-rated for the period of employment during the
financial year. Depending on the timing and responsibilities
of the appointment it may be necessary to set different
performance measures and targets initially.
In the case of an external hire, if it is necessary to buy out
incentive pay or benefit arrangements (which would be forfeited
on leaving the previous employer), this would be provided
for taking into account the form (cash or shares) and timing
and expected value (i.e. likelihood of meeting any existing
performance criteria) of the remuneration being forfeited.
Replacement share awards, if used, will be granted as permitted
under the Listing Rules.
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Ophir Energy plc The amount an Executive Director could earn under the
Remuneration Policy
A significant proportion of remuneration is linked to performance,
particularly at maximum performance levels. The charts below show
how much the Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer could earn under Ophir’s Remuneration Policy
(as detailed above) under different performance scenarios (based
on their salaries as at 1 January 2017). The following assumptions
have been made:
Minimum (performance below threshold)
• Fixed pay only with no vesting under any of Ophir’s
incentive plans.
In line with expectations
• Fixed pay plus a bonus at the mid-point of the ranges typically
set (giving 50% of the maximum opportunity of 50% of salary)
and a NAV event in 2017 triggering an aggregate payment
(in cash and shares) at 225% of salary.
Maximum (performance meets or exceeds maximum)
• Fixed pay plus maximum bonus at 50% of salary and a NAV
event in 2017 triggering an aggregate payment (in cash and
shares) at 450% of salary.
Fixed pay comprises:
• salaries – salary effective as at 1 January 2017;
• benefits – amount received by each Executive Director in the
2016 financial year; and
• pension – employer contributions or cash-equivalent payments
at 11% of base salary.
NAV event every year
Nick
Cooper
Bill
Higgs
Tony
Rouse
Minimum
In line with
expectations
Maximum
Minimum
In line with
expectations
Maximum
Minimum
In line with
expectations
Maximum
100%
£614,000
31%
18%
7%
8%
62%
£1,989,000
75%
£3,364,000
100%
£428,000
31%
7%
62%
£1,385,500
18%
8%
74%
£2,343,000
100%
£361,000
31%
7%
62%
£1,173,500
17%
8%
75%
£2,130,000
Fixed Pay
Annual Bonus
Long Term Incentives
The analysis above shows what could be earned by the Executive
Directors based on a NAV event in the year. If there is no NAV event,
then the following year there is the potential for remuneration to be
higher allowing for the fact that NAV events may be infrequent.
The charts below include an illustration of the potential
remuneration that could be earned in this circumstance based
on the same assumptions as noted above but with the NAV event
payments being at 350% of salary where performance is in line with
expectations and 700% of salary at maximum performance levels.
NAV event after a gap year
Nick
Cooper
Bill
Higgs
Tony
Rouse
Minimum
In line with
expectations
Maximum
Minimum
In line with
expectations
Maximum
Minimum
In line with
expectations
Maximum
100%
£614,000
23%
5%
13%
6%
72%
£2,676,500
81%
£4,739,000
100%
£428,000
23%
5%
72%
£1,864,250
13%
6%
81%
£3,300,500
100%
£361,000
23%
5%
13%
6%
72%
£1,579,750
81%
£2,798,500
Fixed Pay
Annual Bonus
Long Term Incentives
The scenarios do not include any share price growth or dividend
assumptions.
Service Agreements and loss of office payments
The Executive Directors have rolling-term Service Agreements with
the Company. The notice period for current Executive Directors is
12 months if notice is given by either the individual or the Company.
For new hires, the Company’s policy is to set notice periods of up
to 12 months.
The Executive Directors’ Service Agreements each include the
ability for the Company, at its discretion, to pay basic salary only
in lieu of any unexpired period of notice.
Payments may be made as either a lump sum or in equal monthly
instalments until the end of the notice period at the discretion of
the Remuneration Committee. In the case of the Executive Directors,
the Executive will be required to seek alternative income during
the period in which monthly instalments are paid and notify the
Company after securing alternative income. Should alternative
employment be found, the instalment payments shall then be
reduced by the amount of alternative income, or cease if the
alternative income exceeds the monthly instalment payment.
The Service Agreements contain a provision enabling the Company
to put the Executive Director on garden leave for up to six months
at any time after notice to terminate the Service Agreement has
been given by the Executive Director or the Company, or the
Executive Director has resigned without giving due notice and the
Company has not accepted the resignation. During the garden leave
period, the Executive Director will be entitled to receive salary and
contractual benefits (excluding bonuses). At the end of the garden
leave period, the Company may, at its sole discretion, pay the
Executive Director basic salary alone in respect of the balance of
any period of notice given by the Company or Executive Director.
These payments will be reduced to the extent alternative income
is received. For new hires, the same broad policy would apply.
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continued
The Service Agreement of Nick Cooper only provides that if there
is a change of control, and within three months following the
change of control, the Company or the Executive Director serve
notice to terminate employment, Nick Cooper’s employment will
be terminated with immediate effect and the Company shall pay
12 months’ salary. Nick Cooper will not be entitled to any other
payment or notice or payment in lieu of notice in addition
to this payment.
The inclusion of the change of control provisions in Nick Cooper’s
Service Agreement is now considered a legacy issue by the
Committee with Executive Directors in post prior to the IPO having
consistent provisions in this regard. Such provisions did not form part
of Bill Higgs’ Service Agreement, or Tony Rouse’s Service Agreement,
and will not form part of any future Service Agreements for Executive
Directors.
A summary of the terms of the Service Agreements is set out below.
This disclosure has been updated from last year to reflect the
current Board:
Notice by
Company
Name
Nick Cooper 1 June 2011 26 May 2011 12 months
Continuous
employment
Service
Agreement
date
Bill Higgs
Tony Rouse
10 September
2014
1 October
2014
10 September
2014
27 January
2016
12 months
12 months
Notice by
Executive
12 months
12 months
12 months
Copies of the Service Agreements for current Executive Directors,
together with the Letters of Appointment for the Non-Executive
Directors, are available for inspection during normal business
hours at the Company’s registered office.
Treatment of incentives
If an individual is (i) under notice at the bonus payment date or
(ii) not in employment, the default position is that no bonus will
be payable. However, in certain good leaver circumstances (death,
retirement, ill-health, injury or disability, redundancy, employment
ceasing as a result of a sale of a Group company, or for any other
reason at the Committee’s discretion after taking into account the
circumstances prevailing at the time), a pro-rata bonus will become
payable for the period of employment. The Committee, acting fairly
and reasonably, may decide not to reduce the bonus pro-rata if, in
the circumstances, it considers it appropriate to do so (for example
in the case of, but not limited to, death).
The treatment for share-based incentives previously granted to
an Executive Director will be determined based on the relevant
plan rules. The default treatment will be for outstanding awards
to lapse on cessation of employment.
In relation to awards granted under the LTIP, awards will lapse on
the date of cessation of employment unless an Executive Director
leaves under certain good leaver circumstances, as described above.
If treated as a good leaver, the default is for the award to vest at
the normal vesting date. However, the Committee may decide
that awards will vest instead on the date of cessation. In making
a vesting determination, the Committee will assess the extent to
which performance conditions have been achieved and the number
of awards that would vest will be reduced pro-rata to reflect the
proportion of the performance period actually served unless the
Committee determined otherwise. If treated as a good leaver as a
result of death, then the award will vest in full on the date of death.
In relation to the 2016 Plan, awards will lapse on the date of cessation
of employment unless an Executive Director leaves in good leaver
circumstances. If treated as a good leaver, then deferred shares,
having been earned as a result of creating NAV growth per share,
would ordinarily vest on the dates that they would have vested had
the individual not ceased such employment. For Executive Directors,
they will continue to be required to retain the after-tax number of
vested shares for a minimum period of five years from award.
External appointments
With the prior permission of the Board, Executive Directors are
permitted to accept external directorships and to retain any fees
payable in respect of those roles.
Non-Executive Directors’ Letters of Appointment and fees
Each Non-Executive Director has a Letter of Appointment from
the Company. The Letters of Appointment do not specifically
provide for terms of appointment, termination notification periods
or entitlement to payment on termination, however there is an
expectation that all Non-Executive Directors will serve for an initial
three-year term. The Company may terminate the appointment
under each Letter of Appointment if the Non-Executive Director
has committed a serious or repeated breach or non-observance
of their obligations to the Company.
Consideration of shareholder views
The Committee remains committed to shareholder dialogue
and takes an active interest in voting outcomes. The Committee
consults extensively with our major shareholders when setting
the Remuneration Policy. If there are any particular shareholders
opposed to our Policy, members of the Committee would endeavour
to meet with them, as appropriate, to understand any issues they
may have and during the year the Chairman of the Committee
spoke with a number of institutional shareholders in relation to
the voting outturn.
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Ophir Energy plc Annual Report on
Remuneration
This part of the report has been prepared in accordance with
Schedule 8 of the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013 and
the Listing Rules. The Annual Statement and Annual Report on
Remuneration (combined) will be put to an advisory shareholder
vote at the 2017 AGM. The information on pages 69 to 76 (inclusive)
has been audited.
Consideration of remuneration matters
Membership and attendance
The members of the Committee during the year ended
31 December 2016, together with details of their individual
attendance at Committee meetings held during the year,
are set out below:
Committee members
Vivien Gibney, Committee Chairman
Ronald Blakely
Alan Booth
Bill Schrader
Nic Smith1
Meeting
attendance
4/4
4/4
4/4
4/4
2/2
1 Nic Smith stepped down from the Committee on 30 April 2016.
Members of the Committee are appointed by the Board and all
of its members are considered to be independent. The Chairman
of the Company, Bill Schrader, was independent on appointment.
The Chief Executive Officer and advisers to the Committee may
also be invited to attend meetings as necessary. During the year,
the Chief Executive Officer, the Chief Operating Officer, the General
Counsel & Company Secretary, the Director of Human Resources
and representatives from New Bridge Street (NBS, part of Aon plc)
and Korn Ferry (from their appointment in October 2016) attended
meetings and provided guidance and advice as necessary.
Executive Directors and other attendees are not entitled to vote
on any matter put before the Committee and do not participate
in any discussion relating to their own remuneration or remit.
Role and responsibilities of the Committee
The role of the Committee is to determine the Remuneration Policy
of the Company in order to facilitate the recruitment, retention and
motivation of the Executive Directors and key senior management.
The Policy, and its implementation, is reviewed at least annually
in order to ensure that it is consistent with business strategy.
The Committee also monitors the overall remuneration structure
across the Group to ensure that a balanced approach is adopted
in relation to all employees. The Committee’s full Terms of Reference,
which are reviewed annually, are available on the Company’s website
at www.ophir-energy.com/about-us/corporate-governance/
board-committees/remuneration.
Advisers to the Committee
NBS advised the Committee until October 2016. Korn Ferry was
appointed as the independent adviser to the Committee in October
2016 and provides services to the Company on a ‘called on’ rather
than a retained basis. Korn Ferry is a member of the Remuneration
Consultants Group and complies with its code of conduct. Details
of the terms of engagement for Korn Ferry are available on request
from the General Counsel & Company Secretary. Korn Ferry provides
no other services to the Company. The Committee regularly reviews
the external adviser relationship and is comfortable that Korn Ferry’s
advice is objective and independent. For the year under review NBS’s
total fees charged were £168,517 and Korn Ferry’s fees charged were
£18,450 (excluding VAT).
Implementation of Remuneration
Policy for 2017
Base salaries
The Committee reviews the Executive Directors’ base salaries prior
to each financial year taking into account individual performance
and experience, Company performance and economic conditions.
The Committee assessed the above factors and determined that
again there should be no base salary increases, which was in line
with the treatment of UK employees generally. The base salaries,
effective 1 January 2017, are included in the table below.
Role
Chief Executive
Officer
Chief Operating
Officer
Chief Financial Officer
Salary as at
1 January
2017
Salary as at
1 January
2016
Increase
£550,000
£550,000
£382,500
£325,0001
£382,500
N/A
0%
0%
N/A
1
Tony Rouse was appointed to the Board from his previous position as the Director of Finance
on 27 January 2016. His salary from that date was £325,000.
Pension and benefits
The Executive Directors receive Company contributions towards
personal pension plans or salary in lieu of pension at a rate of 11%
of base salary.
In addition to pension benefits, the Executive Directors also receive
health insurance, life assurance, medical evacuation insurance, travel
insurance, holiday pay and sick leave cover.
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continued
Annual bonus
The annual bonus scheme has been designed to provide reward
for above-average performance. The performance targets, which
are a distillation of the corporate Key Performance Indicators (KPIs)
and certain personal KPI, are reviewed by the Committee annually.
The bonus opportunity under that scheme for the year ending
31 December 2017 will be limited to 50% of base salary, payable
in cash.
No bonus is payable for below certain defined performance levels
with bonuses earned on a sliding scale (where appropriate) based
on the Committee’s assessment of achievement against the
targets set.
For 2017, the Committee is to operate the following Bonus Metric
targets for all Executive Directors.
Recovery and withholding provisions will enable the Committee
to correct the bonus in the event of a material misstatement of the
Company’s results so that it reflects the value that should have been
paid had it not been for the misstatement. These provisions, in line
with the 2016 UK Corporate Governance Code recommendations,
enable the withholding of future incentive payments or through
the recovery of the value overpaid (on a net of tax basis) from
the individual.
2016 Plan
Shareholders approved the Long Term Value Creation Plan 2016 at
the 2016 AGM and the Committee will include full details of any NAV
events taking place in 2017 in the Annual Report on Remuneration
for the following year with the value of any reward pool subject to
review by the Company’s Auditor by undertaking agreed procedures
to determine whether the NAV model materially meets its objectives.
Recovery and withholding provisions will apply that will enable
the Committee to recover value overpaid in the event of a material
misstatement of the Company’s results within a two-year period
in relation to the award vesting. Recovery can be achieved through
withholding of future incentive payments or through seeking
repayment of the value overpaid (on a net of tax basis) from the
individual in line with the recommendations of the UK Corporate
Governance Code.
Non-Executive Directors’ remuneration
Non-Executive Directors are not eligible to participate in short or
long-term incentive plans or to receive any pension from the Group.
The fees payable to the Chairman and Non-Executive Directors are
as follows:
Chairman
Non-Executive Director basic fee
Committee Chairmanship fee
Senior Independent Director fee
2017
£140,000
£70,000
£5,000
£5,000
2016
£140,000
£70,000
£5,000
N/A
Measure
Corporate KPIs
Exploration: capture high-quality exploration acreage,
generate and high-grade prospects and mature six to
eight top ranked, drillable prospects per year
Operations: execute safely with excellence
Financial strength and returns: optimise the use of
Ophir’s capital by capturing highest commercial returns
on our assets and exploration opportunities
Business model: grow a revenue-generating business
to fund our exploration activities and minimise our
overall cost of capital
Internal metric: empower and support our staff to
make brave and transparent decisions that create
shareholder value
External metric: be respected by our stakeholders for
what we achieve and for the way we achieve it
Personal KPIs
A range of personal KPIs based on how the individual
Executive Director performed against the metrics above
Percentage of
total bonus
opportunity
13.33%
13.33%
10%
16.67%
10%
3.33%
33.33%
The Committee retains discretion to reduce the total bonus payment
to Executive Directors, for example in the event of a serious HSE
incident or series of incidents.
The Committee considers that the targets themselves are
commercially sensitive and therefore plans to disclose them only
on a retrospective basis. Details of the targets and actual outturn
will be disclosed in next year’s Annual Report on Remuneration.
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Ophir Energy plc Audited information
Remuneration payable to Directors for the year under review
The detailed emoluments for the Executive and Non-Executive Directors for the year ended 31 December 2016 are detailed below:
All figures to nearest £000
Base Salary/
Fees
Benefits7
Pension
Bonus
Long-term
incentives
Total
2016
Executive Directors
Nick Cooper
Bill Higgs
Tony Rouse1
Chairman and Non-Executive Directors
Nic Smith2
Bill Schrader3
Carol Bell4
Ronald Blakely
Alan Booth
Vivien Gibney
David Davies5
Carl Trowell6
550
383
322
35
118
73
75
75
75
25
25
15
24
11
–
–
–
–
–
–
–
–
61
42
35
–
–
–
–
–
–
–
–
185
133
106
–
–
–
–
–
–
–
–
0
0
0
–
–
–
–
–
–
–
–
1 Tony Rouse was appointed to the Board on the 27 January 2016. His emoluments have been pro-rated.
2 Nic Smith retired from the Board on 30 April 2016.
3 Bill Schrader was appointed Chairman on 30 April 2016.
4 Carol Bell was appointed as Chairman of the Corporate Responsibility Committee on 30 April 2016.
5 David Davies was appointed to the Board on 23 August 2016.
6 Carl Trowell was appointed to the Board on 23 August 2016.
7 Increases represent premium loading on the annual rates for insurances due to medical reasons.
The detailed emoluments for the Executive and Non-Executive Directors for the year ended 31 December 2015 are detailed below:
All figures in £000
Base Salary/
Fees
Benefits
Pension
Bonus
Long-term
incentives
Executive Directors
Nick Cooper1
Bill Higgs
Chairman and Non-Executive Directors
Nic Smith
Ronald Blakely
Alan Booth
Carol Bell2
Vivien Gibney
Lyndon Powell4
Bill Schrader5
550
383
140
75
75
58
75
29
73
12
226
–
–
–
–
–
–
–
61
42
–
–
–
–
–
–
–
592
412
355
03
–
–
–
–
–
–
–
–
–
–
–
–
–
–
811
582
474
35
118
73
75
75
75
25
25
Total
2015
1,570
859
140
75
75
58
75
29
73
1
2
95% of Nick Cooper’s Long-Term Incentive Plan award granted on 13 April 2012 vested on 13 April 2015. Nick Cooper exercised this award on 8 April 2016. 166,630 shares were relinquished in order
to cover tax and NI. Nick Cooper retained the balance of 187,900 shares.
Carol Bell was appointed on 2 March 2015. Carol Bell received £7,730.77 as part of her Independent Non-Executive Director fee from 1 January 2015 to 2 March 2015 from Salamander Energy plc.
She also received £5,000 as redundancy pay from Salamander Energy plc.
3 No long-term incentives vested with performance periods ending in the year under review.
4 Lyndon Powell stepped down from the Board following the 2015 AGM.
5 Bill Schrader was appointed Chairman of the Corporate Responsibility Committee on 20 May 2015.
6 Misreported in last year’s statement, as £9,000 when it should have been £22,000; reflects premium loading due to medical reasons.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Annual Report on Remuneration
continued
Additional information in respect of the Directors’ remuneration table
Annual bonus plan outturn for 2016 and 2015
For 2016, the Committee set KPI targets for the Executive Directors in respect of: exploration; operations; financial strength and returns;
business model; stakeholder engagement; and leadership.
The extent of achievement for each Executive Director against their performance objectives is detailed below:
Metric
Extent of achievement
Targets applicable to all Executive Directors
Percentage of individual target met
Exploration: capture high-quality exploration acreage, generate and high-grade prospects and mature six-eight top ranked, drillable
prospects per year
Generate and high-grade
prospects
Additional prospects added and were all peer-reviewed, ranked and the
exploration portfolio was high-graded to support all Asset Development Plans
4/4 (2.67% of total bonus)
Commercially attractive
well proposals approved
Enter new exploration
positions
The target range was for 2 to 8 commercially attractive well proposals to be
presented for investment decisions. Over the year 5 proposals were made.
The target range of net risked reserves to be added to the portfolio was
100-200 MMboe. Actual additions were 158 MMboe.
The Committee considered both the process of presenting the proposals
and the addition of net risked reserves added. This resulted in 58.3% the
target being met.
Received Board approval for entries into 2-6 new positions in existing or new
plays. Achieved 5.
Operations : execute safely with excellence
Health, Safety, Security
& Environment
Deliver good performance against deployed leading indicators.
Fully achieved.
Achieved the outstanding TRIR rate of 0 against a target of 1 incident
per 1 million man-hours worked, which is an industry leading level of
safety performance.
7/12 (5.1% of total bonus)
5.5/6 (3.5% of total bonus)
4/4 (2.67% of total bonus)
Operational performance Delivered all major projects as planned against our capital budget and
6/6 (4% of total bonus)
spent only 73% of budgeted expenditure, against a range of 100% – 90%
Delivered against our gross G&A budget, spending only 80% of forecast
expenditure, against a range of 100% – 82%.
Achieved 91.5% of the annualised OPEX/bbl stretch target for operated
production, while safely delivering expected outcome on production
objectives.
Achieved production availability of over 99% uptime against an objective
of 97%.
Introduce five new Leading Indicators from the risk register. This was fully
achieved through the introduction and monitoring of Counter Party,
Compliance, Land Seismic, Preparedness and Electrical risks.
4/4 (2.67% of total bonus)
0.11/2 (0.07% of total bonus)
2/2 (1.33% of total bonus)
6/6 (4% of total bonus)
Operated production
reliability
Leading Indicators
Financial strength and returns : optimise the use of Ophir’s capital by capturing highest commercial returns on our assets and exploration
opportunities
Increase NAV/share from
1 January 2016 opening
2/22 (1.11% of total bonus)
The target set in relation to increasing NAV/share of the Company from NAV
$1.31 was not met.
The targets underpinning the growth in NAV/share related to a renegotiation
of gas price at the Kerendan field and FID of the Fortuna project. Neither were
met notwithstanding great progress in both areas.
The target set against net G&A budget was met with 83% of budgeted
expenditure achieved while delivering the major projects as planned against
a maximum target of 83%.
Since the Board decided not to put in place new debt, or equivalent debt-like
structures, in 2016 because of market conditions, the target is not met.
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Ophir Energy plc Metric
Extent of achievement
Targets applicable to all Executive Directors
Percentage of individual target met
Business model : grow a revenue-generating business to fund our exploration activities and minimise our overall cost of capital
New production revenue
0/10 (0% of total bonus)
No new production which was NAV/share accretive was added during
the year.
Internal stakeholder engagement: empower and support our staff to make brave and transparent decisions that create shareholder value
Employee engagement
2/2 (1.33% of total)
Develop internal
capability
Leadership, diversity and
mentoring programmes
Implement action plans from the 2015 employee engagement survey.
The key themes raised in the employee engagement survey related to
building the ‘One Ophir’ culture and reinforcing the corporate Values.
The Committee concluded that the target had been achieved in full.
Run a leadership programme tailored for Ophir Asset Management with
a focus on value creation and delivery of superior Asset Management.
Implement 360 degree performance assessment based on Ophir values.
Both of these were fully achieved.
Train leadership team to be mentors, to nurture and embed cross-cultural
competence.
Implement rotational and developmental assignments for future leaders
to encourage diversity and global mindset.
Both of these were fully achieved.
4/4 (2.67% of total)
4/4 (2.67% of total)
Complete Asset Development Plans for each asset, including capital
efficiency and NAV assessments.
This was fully achieved.
External stakeholder engagement: Be respected by our stakeholders for what we achieve and for the way we achieve it
4/4 (2.67% of total)
Demonstrate Ophir’s
commitment to
creating a sustainable
energy business
Map all existing asset
stakeholders
Improve corporate shared
value programmes
Complete comprehensive stakeholder maps for all existing assets.
This was fully achieved across the portfolio.
Asset Development Plans include approved programmes that improve
Company operations, the local environment and increase asset value
(shared value) with support of host governments and communities.
Ensure full compliance with relevant GRI and Carbon Emissions reporting
requirements in 2016. This was achieved.
4/4 (2.67% of total)
2/2 (1.33% of total)
2/2 (1.33% of total)
41.79% out of 66.67%
Compliant with Global
Reporting Initiative
and Carbon Emissions
reporting requirements
Total percentage of
maximum payable for
Corporate KPI element
(out of 66.67%)
Personal KPIs
Individual performance was assessed against the six KPIs, tailored to each individual role.
A summary of the Committee’s assessment is set out below:
Nick Cooper
Achievements during the year included the excellent integration of the Salamander business in terms of culture and operations, the sustainable
reduction in G&A expenditure in difficult market conditions and outstanding stakeholder management with Governments, industry and
investors. In addition, the Committee recognised that he had successfully created an Asset Management culture within the organisation.
Bill Higgs
Achievements during the year included the capturing of high-quality acreage and generation of high-graded drillable prospects. In addition
the Company enjoyed strong operational performance during 2016 covering production, reliability and safety. The Committee also
recognised his success in delivering the right tone from the top through his functional reporting lines.
Tony Rouse
Achievements during the year included the strengthening of the Finance function and his external relations and his delivery of improved
financial reporting capability. The Committee also recognised his delivery on agreed finance, funding and key risk mitigations for 2016.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Annual Report on Remuneration
continued
Total percentage of maximum payable under
Personal KPI element
Total percentage of maximum payable under
Corporate Scorecard element (out of 66.67%)
Total overall percentage of maximum
bonus payable (out of 100%)
Total Bonus payable
(out of 50% of salary maximum)
Total Bonus payable (£)
Nick Cooper
Bill Higgs
Tony Rouse
76% achieved
(25.33% out of 33.33%)
84% achieved
(28.00% out of 33.33%)
76% achieved
(25.33% out of 33.33%)
67.12%
33.56%
£184,580
41.79%
69.79%
34.90%
£133,485
67.12%
33.56%
£106,0801
1 Tony Rouse bonus payment pro-rated to reflect his appointment to the Board on 27 January 2016.
Additional disclosure of the performance conditions in relation to the 2015 annual bonus
At our 2016 AGM we made a statement that in this year’s report there would be additional information on some of the targets that were set
for the 2015 annual bonus. This additional information is shown in bold (against the original disclosure last year).
Metric
Extent of achievement
Percentage of overall target met
Targets applicable to all Executive Directors (pro-rata for the relevant proportion of the financial year served)
Exploration
Complete first
interpretation on
all acquired seismic
within six months
7/7
Commercially attractive
well proposals approved
Add risked additions
to the portfolio
0/9
0/7
Operations
Introduce a leading
indicator system to
improve safety across
the Group
4/4
Partially achieved
7% out of a maximum of 23% of salary
The focus of the exploration KPIs was on the timely interpretation of newly acquired seismic data,
the development of commercially attractive wells and the addition of risked prospective resources
to the portfolio, which are the key elements of successful exploration. The seismic interpretation was
completed ahead of a tight schedule.
We undertook to state the names of the acquired seismic data on which we completed our first
inspection. First pass interpretation was completed on the Seychelles Junon 3D, Gabon Olumi Rouge
3D, Thailand Bualuang OBN 3D and Myanmar Mrauk 3D seismic data sets.
Approved G4/50 drilling programme and matured additional prospectivity in Gabon and Indonesia, but did
not meet the target range of six to eight well proposals.
Did not meet metrics for additions of prospective resources to the portfolio.
We undertook to set out the actual risked prospective resource additions target versus the additions
we made. The target range was for the following drillable risked resource additions to portfolio
>200 MMboe (100%), 150 MMboe (50%), <100 MMboe (0%). We achieved 26 MMboe which
represented 13% of the objective.
Fully achieved
19% out of a maximum of 19% of salary
The focus of the Operations KPIs was on safely delivering the approved work programme at a lower
cost while testing the integrity of our support systems.
Leading indicator system introduced and TRIR target achieved.
We undertook to set out the TRIR target and our actual performance against it.
The target was for TRIR of one incident per 1 million hours worked, which is an industry leading level
of safety performance. We incurred 0.83 incidents, outperforming the target.
13/13 Delivered against capital budget and achieved G&A target.
We undertook to state the actual spend against the budgeted targets for cashflow, working capital
and G&A.
We delivered against our capital budget, spending only 71% of budgeted expenditure. In respect
of the gross G&A budget, the Company spent only 86% of forecasted expenditure. This was achieved
whilst delivering all major projects as planned. In relation to each metric, the maximum reward target
was set at 85% of budget, with payment commencing (0%) for 100% achievement of budget.
Independent security penetration test exercises completed and security assessments completed for any major
new technologies.
Compliance within
approved budget spend,
cash flow and working
capital and G&A (gross)
Complete two
independent security
penetration test exercises
2/2
72
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Ophir Energy plc Financial strength and returns
Divest target MMboe
0/15
of LNG
Increase corporate
valuation by 10%
Deliver net G&A excluding
integration costs
0/4
3/4
Partially achieved
3% out of a maximum of 23% of salary
The focus of the Financial strength and returns KPIs was on strengthening the balance sheet
and long-run value of the Company while reducing the cost of running the Company.
We undertook to state the actual divestment targets for MMboe.
The target was 650 MMboe of discovered resources with a sliding scale to a minimum of 50 MMboe.
The commercial operating environment created challenges to achieving valuation and asset sales goals and
achievement was zero.
Did not achieve.
Partially delivered net G&A targets.
We undertook to state the actual net G&A target.
Partially delivered against net G&A budget, achieving 96% of budgeted expenditure, while delivering
major projects as planned against a maximum reward target of 90% of budget on a sliding scale to
100% of budget.
Business model
Acquire revenue-
generating production-
led business or assets that
deliver operating cash
flow at a targeted level
and at an appropriate cost
Internal stakeholder
engagement
Conduct an employee
engagement survey
to measure the climate
within the organisation
Succession plans for
mission critical roles
Diversity strategy
and standards
Fully achieved
16% out of a maximum of 16% of salary
16/16 The Company completed the Salamander acquisition and integration, exceeding planning expectations.
Fully achieved
9% out of a maximum of 9% of salary
3/3
Survey completed and action plan in place based on results.
Rebalancing of the Group ensuring the staff team has the skills required.
3/3
Detailed, formal succession plans in place for all key roles.
3/3
Diversity standard deployed and strategy defined.
External stakeholder
engagement
Asset strategies in place
including exit strategies
Achieve CR engagement
beyond contractual
expectations
6/6
4/4
Fully achieved
10% out of a maximum of 10% of salary
Exit strategies were prepared for all assets and reviewed by the Operations Committee.
Undertook CR programmes in Gabon and Seychelles beyond contractual commitments to demonstrate the
value of the work.
43.75% out of a maximum 50% of salary
Majority achieved
Leadership
Deliver on agreed Group strategy Clear definition and articulation of Group strategy.
Deliver ‘tone from the top’
and ensure highest professional
and corporate standards across
the Group Reorganisation of the
operations and staff to ensure
Company is able to deliver on
its strategic objectives. Ensure
best practice in exploration,
portfolio management and
deal execution
Rebalancing of the Group ensuring the staff team has the skills required to achieve against strategy and that the
Company has fit for purpose decision-making processes.
Asset Managers have been given increased responsibility to deliver value.
Successful integration of Salamander both culturally and operationally; and
Roll out of ‘One Ophir’ principles of Asset Management, capital allocation and empowerment of staff completed
to better align value creation to objectives of shareholders.
The extent of achievement detailed in the table above resulted in bonuses becoming payable at 72% of the maximum in the case of both
Nick Cooper and Bill Higgs.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Annual Report on Remuneration
continued
Long-Term Incentive Plan awards vesting by reference to performance in 2016
The second tranche of the Chief Executive Officer’s Exceptional Long-Term Incentive Award was eligible to vest on 19 June 2016. Vesting was
dependent on the Company delivering a minimum compound TSR growth of 20% per annum over the performance period from a base share
price of £4.28 (adjusted to take account of the Rights Issue that became effective in March 2013). Actual TSR growth was below the
minimum requirement and so this tranche of the award has lapsed.
Nick Cooper
LTIP
Date of grant
Vesting date
Lapse date
Number of
awards
granted
Number of
awards
vested
Value of
vested
awards
19/06/2012
19/06/2016
19/06/2017
370,025
0
£0
Long-Term Incentive Awards granted in the year
The LTIP award levels granted to the other Executive Directors in the year under review in respect of performance in 2015 (calculated based
on the three-month average share price for the period from 24 November 2015 to 23 February 2016 (as per the Company’s policy)) of 87p
(£0.8706), were:
• Chief Executive Officer (Nick Cooper): 200% of salary.
• Chief Operating Officer (Bill Higgs): 200% of salary.
• Chief Financial Officer (Tony Rouse): 150% of salary.
Nick Cooper
Type of award
LTIP – Nominal cost option
Basis of award granted
200% of salary
Exercise
price
£0.0025
Number of
shares
awarded
1,263,496
Face value
of award
£’0002
1100
% of award
that vests at
the threshold
performance
level
25%
Bill Higgs
LTIP – Nominal cost option
200% of salary
£0.0025
878,704
Tony Rouse1
LTIP – Nominal cost option
150% of salary
£0.0025
559,958
1 Tony Rouse was appointed to the Board on 27 January 2016. The 2016 LTIP grant was based on his position at 31 December 2015 before joining the Board.
2 The face value of the award has been calculated using the three-month average share price as stated above.
765
487
25%
25%
Awards vest on a straight-line basis relative to the Company’s total shareholder return (TSR) performance over a three-year period
compared to a comparator group set on grant. No vesting occurs for below-median performance. At median, 25% of the award vests,
with full vesting at the upper quartile. In addition, the Committee may reduce the number of shares in respect of which an award would
otherwise vest based upon TSR performance if it considers that the TSR achieved over the three-year period does not reflect the underlying
financial performance of the Company or that key operational metrics have not been met.
The LTIP comparator group applicable to the 2016 LTIP award is:
• Africa Oil Corp.
• Amerisur Resources.
• Bowleven plc.
• Cairn Energy plc.
• Chariot Oil & Gas Limited.
• Circle Oil plc.
• Cobalt International
Energy, Inc.
• EnQuest plc.
• Faroe Petroleum plc.
• Genel Energy plc.
• Gulf Keystone Petroleum
Limited.
• JKX Oil & Gas plc.
• Kosmos Energy Ltd.
• Maurel & Prom.
• Noble Energy Inc.
• Oryx Petroleum.
• Petroceltic International plc.
• Premier Oil plc.
• Rockhopper Exploration plc.
• SOCO International plc
• Tullow Oil plc
Provisions, enabling the recovery and withholding of variable pay, will apply in the event of a material misstatement of the Company’s results
within a two-year period in relation to the award.
Payments for loss of office
There were no payments for loss of office made in 2016.
74
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Ophir Energy plc Directors’ interests in shares
Directors’ options and share-based awards as at 31 December 2016:
Date of
grant
Director and Scheme
Nick Cooper
ESOP1
01/06/2011
Long-Term Incentive Plan 13/04/2012
Long-Term Incentive Plan 19/06/2012
Long-Term Incentive Plan 19/06/2012
Long-Term Incentive Plan 26/03/2015
Long-Term Incentive Plan 14/03/2016
Bill Higgs
Long-Term Incentive Plan 26/03/2015
Long-Term Incentive Plan 14/03/2016
Tony Rouse
Long-Term Incentive Plan 26/03/2015
Long-Term Incentive Plan 14/03/2016
Exercise
price
(pence)
Market
price at
exercise
(pence)
Vesting
date
Shares
under
award at
1
January
2016
Shares
awarded
Shares
vested
in year
Shares
exercised
Shares
lapsed/
cancelled
or
forfeited
Shares
under
award at
31
December
2016 Lapse date
216.20
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
– 01/06/2013 578,164
78.00 13/04/2015 354,530
– 19/06/2016 370,025
– 19/06/2017 370,025
– 26/03/2018
787,108
– 14/03/2019
0 1,263,496
–
–
–
–
–
–
– 354,5302
–
–
–
–
–
–
–
–
578,164 31/05/2021
–
0 12/04/2016
–
0 19/06/2017
370,025
370,025 18/06/2018
–
–
787,108 25/03/2019
– 1,263,496 13/03/2020
– 26/03/2018 547,398
0
– 14/03/2019
–
878,704
– 26/03/2018 306,543
0
– 14/03/2019
–
559,958
–
–
–
–
–
–
–
–
–
–
–
–
547,398 25/03/2019
878,704 13/03/2020
306,543 25/03/2019
559,958 13/03/2020
1 Nick Cooper was granted market value options under the 2006 Share Option Scheme and an award under the Long-Term Incentive Plan as part of the terms of his recruitment.
2 95% of these options vested based on the performance criteria.
Share ownership and minimum share ownership requirements
To align the interests of the Executive Directors with shareholders, Executive Directors are required to build and maintain significant
shareholdings in the Company.
Nick Cooper has a minimum share ownership requirement equivalent to 300% of salary, to be achieved through retaining 100% of his vested
or exercised awards (net of taxes) under the long-term incentive share plans until the guideline is met. Other Executive Directors are required
to build up shareholdings of at least 200% of salary and are required to retain at least 50% of their vested or exercised awards (net of taxes)
under share incentive schemes until the guideline is met. Once the guideline level is achieved the value is translated into a minimum number
of shares that must continue to be held. Nick Cooper met his share ownership requirement on 27 June 2014 with the number of shares
required to be held against the guideline fixed at 653,066 shares. Bill Higgs, who joined in September 2014, and Tony Rouse, who was
appointed to the Board on 27 January 2016, have not yet met the minimum share ownership requirement, but are making good progress
towards doing so. Both Bill Higgs and Tony Rouse made significant share purchases during the year.
The Chairman and Non-Executive Directors are encouraged to hold shares in the Company but are not subject to a formal minimum
shareholding requirement.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Annual Report on Remuneration
continued
Details of the Directors’ interests in shares are shown in the table below.
Bill Schrader
Nick Cooper1–7
Bill Higgs
Tony Rouse6
Carol Bell
Ronald Blakely2
Alan Booth3
Vivien Gibney
David Davies4
Carl Trowell5
Minimum
share
ownership
requirement
–
300%
200%
200%
–
–
–
–
–
–
Beneficially
owned as at
31 December
2016
17,700
1,534,431
168,693
337,775
6,870
47,000
125,000
15,000
0
0
Beneficially
owned as at
1 January
2016
17,700
1,336,531
44,258
202,775
6,870
47,000
125,000
15,000
0
0
Proportion
of minimum
share
ownership
requirement
–
100%
21%
50%
–
–
–
–
–
–
Outstanding
share based
incentive
awards
–
2,998,793
1,426,102
866,501
–
–
–
–
–
–
1
The legal interest is held by Goldman Sachs International. 1,715 shares held by Nick Cooper’s spouse, Alison Nightingale. The legal interest of these shares is held in the name of James Capel
(Nominees) Limited.
2 Ronald Blakely and members of his family hold a beneficial interest in 47,000 shares. The legal interest is held by RBC Dominion Securities.
3 Alan Booth holds a beneficial interest in 125,000 shares. The legal interest is held by TD Direct Investing Nominees (Europe) Ltd.
4 David Davies was appointed to the Board on 23 August 2016.
5 Carl Trowell was appointed to the Board on 23 August 2016.
6 The legal interest of 6,155 shares is held by his wife.
7 Nick Cooper had met the 300% of salary share ownership guideline at 27 June 2014 with the number of shares required to be held against the guideline fixed at 653,066 shares.
Performance graph (not subject to audit)
This graph shows the value, by 31 December 2016, of £100 invested
in Ophir Energy plc on 13 July 2011 (the date the Company’s shares
began trading on the London Stock Exchange) against the FTSE All
Share Oil and Gas Producers Index and against the FTSE 250 Index.
Ophir has been a constituent of the index for much of the period and
therefore the Committee considers this broad equity index to be
appropriate as a comparator.
Chief Executive Officer’s remuneration table
(not subject to audit)
The table below details the single total remuneration figure earned
by the Chief Executive Officer since the Company moved to the
Official List. Total remuneration has been calculated to be consistent
with the figures disclosed on page 69 and the table also details the
proportion of annual bonus and LTIP awards payable and/or vesting
in the relevant year.
Total shareholder returns (TSR)
250
200
)
£
(
e
u
a
V
l
150
100
50
0
13 Jul 11
13 Dec 11
13 Dec 12
31 Dec 13
31 Dec 14
31 Dec 15
31 Dec 16
Ophir
FTSE 250
FTSE All Share Oil and Gas Producers Index
Source: Thomson Reuters
Year ending Executive
31/12/2016 Nick Cooper
31/12/2015 Nick Cooper
31/12/2014 Nick Cooper
31/12/2013 Nick Cooper
31/12/2012 Nick Cooper
31/12/2011 Nick Cooper
Total
remuneration
(£000)
811
1,570
2,970
1,027
970
9102
Annual
LTIP Vesting
Bonus (%
(% of max)
of max)
68%3
0%
72%
0%
58% 95 & 100%1
n/a
92%
n/a
89%
n/a
83%
1
2
In the year ending 31 December 2014 performance was established for the LTIPs awarded in
2011, which vested at 100% on 1 June 2014 and for the award made on 13 April 2012, which
vested at 95% on 13 April 2015.
Reflects the fact that Nick Cooper was appointed as Chief Executive Officer part way through
the year on 1 June 2011.
3 Annual maximum bonus potential for 2016 is now 50% of annual salary.
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Ophir Energy plc
Percentage change in the remuneration
of the Chief Executive Officer
(not subject to audit)
The table below shows the percentage change in remuneration
(salary, benefits and annual bonus) from 2015 to 2016 for the
Chief Executive Officer compared with the average UK Head
Office employee.
Salary
Benefits
Annual Bonus
Chief
Executive
Officer
Average UK
employee1
0%
21%2
(69%)
3.1%
4.4%
(49.1)%
1
2
The comparator group chosen comprises 58 employees who are the Company’s UK
based employees, excluding the Executive Directors, who were employed continuously
from 31 December 2015 to 31 December 2016. The Committee believes that this group
is the most appropriate comparator group as these employees are based in the same
geographical location as the Chief Executive Officer and allows for a like-for-like comparison.
The comparator group has increased from 17 to 58 employees.
The benefits available to the Chief Executive Officer include private healthcare, income
protection insurance and life assurance. The 21% increase represents c.£2,500 of premium
increases largely due to age and medical inflation across the policies.
Relative importance of the spend on pay
(not subject to audit)
Staff costs (£m)
Distributions to
shareholders (£m)
2016
37
0
2015
43.6
38.4
% change
(15.1%)
(100%)
Statement of shareholder voting
(not subject to audit)
At the 2016 AGM, the resolutions to approve the Directors’
Remuneration Policy and the Annual Report on Remuneration
received the following votes from shareholders:
Votes
in favour
87.99%
(501,283,276)
Votes
against
12.01%
(64,411,336)
Votes
withheld
n/a
(13,778)
65.73%
(372,083,609)
34.27%
(193,969,389)
n/a
(3,655,391)
Remuneration Policy
Annual Statement
and Annual Report
on Remuneration
There were a significant number of votes opposing the resolution
to approve the Remuneration report. We have engaged with a
number of shareholders to discuss their concerns which centred
around the disclosure of targets in respect of the bonus scheme
and the perceived overlap between the LTIP award in 2016 and
the introduction of the new 2016 Plan (which was approved with a
94.47% vote). There has been no award in 2016 under the 2016 Plan.
We committed to include fuller disclosure this year, both of the
2015 bonus targets and the performance against those targets
and the 2016 targets, and this is set out on pages 70 to 73.
The 2016 Plan relates to performance from 2016 onwards.
There will be no further LTIP awards. We will continue to engage
with our shareholders.
By Order of the Board
Vivien Gibney
Chairman of the Remuneration Committee
8 March 2017
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Responsibility statement of
the Directors in respect of the
Annual Report and Accounts
Statement of Directors’
responsibilities in relation
to the financial statements
and Annual Report
I confirm on behalf of the Board that to the best of their knowledge:
• the financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position
and profit and loss of the Company and the undertakings included
in the consolidation taken as a whole; and
• the Strategic Report and Directors’ Report include a fair review
of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
Directors’ statement under the UK Corporate Governance Code
The Board considers that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and that it provides
the information necessary for shareholders to assess the Company’s
performance, business model and strategy.
Approved by the Board on 8 March 2017.
Nick Cooper
Chief Executive Officer
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable United Kingdom
law and regulations. Company law requires the Directors to prepare
financial statements of the Group and the parent Company for each
financial year. Under that law, the Directors are required to prepare
financial statements under International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
Under Company Law the Directors must not approve the Group
and parent Company financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group
and parent Company and of the profit or loss of the Group and
parent Company for that period. In preparing the financial
statements the Directors are required to:
• present fairly the financial position, financial performance and
cash flows of the Group and parent Company;
• select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors
and then apply them consistently;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
• make judgements that are reasonable;
• provide additional disclosures when compliance with the specific
requirements in IFRSs as adopted by the European Union is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group and parent
Company’s financial position and financial performance; and
• state whether the Group and parent Company financial statements
have been prepared in accordance with IFRSs as adopted by the
European Union, subject to any material departures disclosed
and explained in the financial statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and parent
Company transactions and disclose with reasonable accuracy at any
time the financial position of the Group and parent Company and
enable them to ensure that the Group and parent Company financial
statements comply with the Companies Act 2006 and Article 4 of
the IAS Regulation. They are also responsible for safeguarding the
assets of the Group and parent Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are also responsible for preparing the Strategic Report,
the Directors’ Report, the Directors’ Remuneration report and the
Corporate Governance Statement in accordance with the Companies
Act 2006 and applicable regulations, including the requirements
of the Listing Rules and the Disclosure and Transparency Rules.
Approved by the Board on 8 March 2017
Nick Cooper
Chief Executive Officer
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Ophir Energy plc Independent Auditor’s report to the members of Ophir Energy plc
Our opinion on the financial statements
In our opinion:
• Ophir Energy plc’s Group financial statements and Parent company financial statements (the ‘financial statements’) give a true and fair
view of the state of the Group’s and of the Parent company’s affairs as at 31 December 2016 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRS’)
as adopted by the European Union;
• the Parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
What we have audited
Ophir Energy plc’s financial statements comprise:
Group
Consolidated statement of financial position as at 31 December 2016
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the year then ended
Consolidated statement of changes in equity for the year then ended
Consolidated statement of cash flows for the year then ended
Related notes 1 to 38 including Appendix A to the financial statements
Parent company
Statement of financial position as at 31 December 2016
Statement of changes in equity for the year then ended
Statement of cash flows for the year then ended
Related notes 1 to 20 to the financial statements
The financial reporting framework that has been applied in their preparation is applicable law and IFRS as adopted by the European Union
and, as regards the Parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
Overview of our audit approach
Risks of material
misstatement
Audit scope
• Impairment of exploration and evaluation (‘E&E’) assets and tangible (oil and gas) assets.
• Estimate of oil and gas reserves.
• We selected 17 out of a total of 92 components within the Group for our audit. We performed an audit of the complete
financial information of five components across London and Thailand and audit procedures on specific balances for a further
12 components across London and Indonesia.
• The components where we performed full or specific audit procedures accounted for 100% of revenue, 95% of total Group
equity and 94% of total Group assets.
Materiality
• Overall Group materiality of $32 million (2015: $37 million) represents 2% of total equity. We agreed with the Audit
Committee that we would report to the Audit Committee all unadjusted audit differences in excess of $1.6 million
(2015: $1.9 million).
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the
allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the
procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not express any
opinion on these individual areas.
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continued
Risk
Impairment of exploration
and evaluation (‘E&E’)
assets and tangible (oil and
gas) assets – while the front
end of the forward oil price
curve has increased since
year-end 2015, which could
be a trigger for an impairment
reversal, there are other
judgemental areas which
could lead to triggers for
an impairment including
changes to reserves,
production profiles, cost
forecasts, exploration
and drilling commitments.
Refer to Note 13 – Exploration
and Evaluation and Note 14
– Oil and Gas Properties in
the notes to the financial
statements for the $310.2
million and $699.0 million of
carrying values, respectively,
held in the balance sheet
by the Group as at
31 December 2016.
Our response to the risk
We challenged the impairment analysis and assumptions prepared and used
by management through a combination of audit testing and bench-marking
to external data sources and other companies in the sector. In addition, we
performed journal entry testing to confirm that management had not overriden
the outcome of the impairment tests which we have audited.
For E&E assets:
• We verified that Ophir had the right to explore in the relevant exploration
licence by obtaining and reviewing supporting documentation such as
licence agreements and or correspondence with relevant government
agencies.
• We confirmed that management had the intention to carry out exploration
and evaluation activity in the relevant exploration area by performing
procedures which included the review of management’s cashflow forecast
models, discussions with senior management and discussions with
executive management.
• We considered whether recent exploration activity in a given exploration
licence provides impairment indicators as to the recoverability of other
intangible costs.
• We considered whether Ophir has the ability to finance planned future
exploration and evaluation activity.
• We have also assessed the competency of management’s experts, and
(where applicable), the competency and objectivity of third-party experts
engaged for the purposes of assessing the reserves and resources
associated with those exploration and evaluation assets.
• We considered the commercial viability of the exploration block based on
the results of exploration and evaluation activities carried out in the relevant
licence area.
For Tangible (oil and gas) assets:
• We inquired of both operational and finance personnel regarding assets’
performance, specifically with regard to production and reserves data, and
future plans to assess whether there were any other performance-related
indicators of impairment.
• For assets where an impairment indicator was identified, we obtained the
relevant models supporting the recoverable amounts for the asset from
management and compared these to the carrying value of the asset as
of the balance sheet date to identify if there were any impairments or
reversal of impairments.
• In assessing the appropriateness of management’s assumptions and
inputs included in the models we worked with our valuation specialists
to assist us in performing industry benchmarking and analysis over oil and
gas prices (short, medium and long term), discount rates, foreign exchange
rates and inflation rates. In respect of oil and gas reserve estimates
including production profiles, we made inquiries of Ophir’s third-party
reserve engineers, assessing both their competence and objectivity in
respect of their reserves reporting.
Key observations
communicated to
the Audit Committee
On the basis of our audit
procedures, we agree with
management’s conclusions
on the E&E assets where
future expenditure is not
budgeted or planned,
therefore the assets have
been fully written off.
In addition, we have
concluded that the
assumptions used by
management in estimating
the recoverable amount
of the E&E assets fall within
a reasonable range.
We are satisfied the EG
asset has been correctly
reclassified as an asset
held for sale.
With respect to the tangible
(oil and gas) assets, in view
of our audit procedures,
which included sensitivity
analysis, we concluded
that the oil and gas prices,
discount rates, production
volumes and the other
assumptions used by
management were within
an acceptable range in
light of the current market
conditions; we did not
identify any material issues
with the valuation of assets.
We therefore concluded that
the impairment charges and
reversals and the disclosures
in respect of the E&E and
tangible (oil and gas) assets
included in the consolidated
financial statements for the
year ended 31 December
2016 were appropriate.
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Ophir Energy plc Risk
Estimate of oil and gas
reserves – significant
judgements and assumptions
are applied in determining
the reserves and there is a risk
that these be manipulated
to achieve desired results.
These estimates have a
material impact on the
financial statements,
particularly: impairment
testing; depreciation,
depletion and amortisation
(DD&A); decommissioning
provisions; and assessment
of going concern.
Our response to the risk
Our audit procedures have focused on management’s estimation process,
including whether bias exists in the determination of reserves.
We carried out procedures to walkthrough and understand Ophir’s
internal process and key controls associated with the oil and gas reserves
estimation process.
We assessed the competence of both internal and external specialists and
objectivity of external specialists. We also analysed the report of the external
specialists on their audit of the reserves for the tangible (oil and gas) assets
in Thailand and Indonesia as at 31 December 2016.
We have checked the consistency of the application of estimated reserves
across the significant areas of the audit such as impairment testing; DD&A;
decommissioning provisions; and assessment of going concern.
Key observations
communicated to
the Audit Committee
Based on our procedures
we consider that the reserves
estimations are a reasonable
basis for estimating reserves
for impairment testing,
calculating DD&A,
determination of
decommissioning provisions
and assessment of going
concern, amongst others.
In the prior year, our auditor’s report included a risk of material misstatement in relation to impairment of equity accounted investment
(‘APICO’), special remuneratory benefit (‘SRB’) tax and acquisitions/business combinations. In the current year, we have considered these
potential risks and concluded that:
• Given the knowledge obtained from the prior year audit, we consider that there is a reduced risk of a material misstatement from impairment
testing of the underlying oil and gas and E&E assets of APICO. However, this remained an area of audit focus and we performed audit
procedures on management’s impairment test on the carrying value of APICO consistent with those performed on the tangible (oil and gas)
assets noted above, concurring with management that no impairment charge was considered necessary. This valuation remains sensitive
to the assumption that a unitisation of APICO’s producing asset with an adjacent gas field will occur in the future.
• Through our understanding of the SRB tax gained from our 2015 audit, as well as the fall in oil prices, we have assessed there is a reduced risk
of material misstatement.
• The risk related to business combinations is not applicable as there have been no transactions during the year.
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continued
The scope of our audit
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account
size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other
factors such as recent Internal audit results when assessing the level of work to be performed at each entity.
Tailoring the scope
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the total 92 components of the Group, we selected 17 (18%) components across London,
Thailand and Indonesia.
Of the 92 components selected for our audit, we designated a component as either full scope, specific scope or review scope.
Full scope components were selected on the basis of their size and or risk characteristics and as such we performed an audit of the complete
financial information.
Specific scope components were selected on the size of their accounts and or risk profile and as such we performed audit procedures
on specific accounts within that entity that we considered had the potential for the greatest impact on the significant accounts in the
consolidated financial statements either because of the size of these accounts or their risk profile.
A summary of the location and split of the designated scope of those reporting components in our scope has been summarised in the table
below:
Full
Specific
Review Scope
Total
UK
3
5
51
59
Thailand
2
1
6
9
Indonesia
–
6
18
24
Total
5
12
75
92
For the current year, the full scope components contributed 77% (2015: 91%) of the Group’s total equity, 99% (2015: 100%) of the Group’s
revenue and 63% (2015: 94%) of the Group’s total assets. The specific scope components contributed a further 18% (2015: 8%) of the Group’s
total equity, 1% (2015: nil) of the Group’s revenue and 31% coverage (2015: 5%) of the Group’s total assets, bringing the total coverage of the
Group’s equity to 95% (2015: 99%), 100% (2015: 100%) of the Group’s Revenue and 94% of the Group’s total assets (2015: 99%). The audit
scope of these specific scope components may not have included testing of all financial statement accounts of that component but will
have contributed to the coverage of overall financial statements accounts tested for the Group as a whole.
Of the remaining 75 components (referred to as review scope above) within the Group, these together represent 5% of the Group’s equity and
5% Group’s total assets and none are individually greater than 1% of the Group’s total equity and Group’s total assets. For these components,
we performed other procedures, including analytical review, testing of consolidation journals and intercompany eliminations to respond to
any potential risks of material misstatement to the Group financial statements.
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Ophir Energy plc
Changes from the prior year
In view of our greater understanding of the expanded Group following the 2015 acquisition of Salamander Energy plc, we have reassessed
our scope and focused our procedures on areas that present a higher risk of material misstatement. Thus, we have altered our split of entities
covered by full, specific and review scope for 2016. We believe that the 2016 audit scopes we set for each reporting unit, when taken together,
enable us to form an opinion on the Group consolidated financial statements.
Total assets 2016
Total equity 2016
Total revenue 2016
63% Full scope components
31% Specific scope components
6% Other procedures
77% Full scope components
18% Specific scope components
5% Other procedures
99% Full scope components
1% Specific scope components
Total assets 2015
Total equity 2015
Total revenue 2015
94% Full scope components
5% Specific scope components
1% Other procedures
91% Full scope components
8% Specific scope components
1% Other procedures
100% Full scope components
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken in Thailand and
Indonesia and by us, as the primary audit engagement team located in London. For full scope and specific scope component work performed
by our teams in Thailand and Indonesia respectively, we determined the appropriate level of involvement to enable us to determine that
sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole.
During the current year’s audit cycle, the senior statutory auditor visited both Indonesia and Thailand. Two additional visits to Indonesia
and Thailand were undertaken by other members of the audit team. These visits involved meeting with local management (including
heads of country and personnel outside of the finance function) and component teams for planning purposes which included obtaining
an understanding of the businesses and their operations including current year performance to enable risk identification, discussions around
audit timetables, and the scope for the audit. The primary team interacted regularly with the component teams where appropriate during
various stages of the audit, reviewed key working papers and were responsible for the scope and direction of the audit process. This, together
with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Independent Auditor’s report to the members of Ophir Energy plc
continued
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We have used total equity of the Group as the basis for our materiality calculation as we concluded that total equity is the most closely
monitored financial measure for the stakeholders of Ophir Energy plc. Typically we would expect to focus on an income statement based
measure such as profit before tax when calculating materiality. The Salamander Energy plc acquisition in 2015 bought with it income
generating/producing assets, however the Group’s stated strategy is that the cash-generated by the assets will primarily be used to fund
future exploration. Therefore, we concluded that income statement-based measures are less relevant where stakeholder value is primarily
generated through discovering commercial hydrocarbons. Hence we have concluded that total equity provides the most appropriate financial
measure that is responsive to the main value driver for the shareholders of Ophir Energy plc. This is also consistent with the prior year audit.
Having identified a relevant basis for materiality, we calculated the planning materiality for the Group to be $32 million (2015: $37 million),
which represents 2% (2015: 2%) of total equity. This provided a basis for determining the nature, timing and extent of risk assessment
procedures, identifying and assessing the risk of material misstatement and determining the nature, timing and extent of further audit
procedures.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement is that
performance materiality is 50% (2015: 50%) of our planning materiality, specifically $16 million (2015: $18.5 million). Our objective in
adopting this approach is to ensure that total uncorrected and undetected audit differences in all accounts did not exceed our materiality
level.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken
based on a percentage of performance materiality. The performance materiality set for each component is based on the relative scale and
risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the
range of performance materiality allocated to components was $4.0 million to $13.6 million.
Reporting threshold
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $1.6 million (2015:
$1.9 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the Group’s and the Parent company’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the
financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify
material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based
on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
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Ophir Energy plc Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 78, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion
on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
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.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• 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
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements
Matters on which we are required to report by exception
ISAs (UK and Ireland)
reporting
We are required to report to you if, in our opinion, financial and non-financial information in the
Annual Report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge
We have no
exceptions
to report.
of the Group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to report whether we have identified any inconsistencies between our
knowledge acquired in the course of performing the audit and the Directors’ statement that they consider
the Annual Report and Accounts taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the entity’s performance, business model and strategy;
and whether the Annual Report appropriately addresses those matters that we communicated to the
Audit Committee that we consider should have been disclosed.
Companies Act
2006 reporting
In light of the knowledge and understanding of the Company and its environment obtained
in the course of the audit, we have identified no material misstatements in the Strategic Report
or Directors’ Report.
We have no
exceptions
to report.
We are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate
for our audit have not been received from branches not visited by us; or
• the parent Company financial statements and the part of the Directors’ Remuneration Report
to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Listing Rules review
requirements
We are required to review:
• the Directors’ statement in relation to going concern, set out on page 56, and longer-term viability,
set out on page 57; and
• the part of the Corporate Governance Statement relating to the Company’s compliance with
the provisions of the UK Corporate Governance Code specified for our review.
We have no
exceptions
to report.
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continued
Statement on the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity
ISAs (UK and Ireland)
reporting
We are required to give a statement as to whether we have anything material to add or to draw
attention to in relation to:
• the Directors’ confirmation in the Annual Report that they have carried out a robust assessment
of the principal risks facing the entity, including those that would threaten its business model,
future performance, solvency or liquidity;
• the disclosures in the Annual Report that describe those risks and explain how they are being
managed or mitigated;
• the Directors’ statement in the financial statements about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing them, and their identification of any
material uncertainties to the entity’s ability to continue to do so over a period of at least 12 months
from the date of approval of the financial statements; and
• the Directors’ explanation in the Annual Report as to how they have assessed the prospects of the
entity, over what period they have done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable expectation that the entity will be able
to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have
nothing
material to
add or to draw
attention to.
Paul Wallek (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
8 March 2017
Notes:
1
The maintenance and integrity of the Ophir Energy plc website is the responsibility of the Directors; the work carried out by the Auditors does not involve consideration of these matters and,
accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Ophir Energy plc Consolidated income statement and statement of other comprehensive income
For the year ended 31 December 2016
Consolidated income statement
Continuing operations
Revenue
Cost of sales
Gross profit
Gain on farm-out
Share of profit of investments accounted for using the equity method
Impairment reversal/(expense) of oil and gas properties
Impairment of investments accounted for using the equity method
Exploration expenses
Other operating income/(expenses)
General and administration expenses
Operating loss
Net finance expense
Other financial gains
Loss from continuing operations before taxation
Taxation (expense)/benefit
Loss from continuing operations for the year
Attributable to:
Equity holders of the Company
Earnings per ordinary share
Basic – (Loss)/profit for the period attributable to equity holders of the Company
Diluted – (Loss)/profit for the period attributable to equity holders of the Company
Consolidated statement of other comprehensive income
Loss from continuing operations for the year
Other comprehensive income/(loss)
Other comprehensive income/(loss) to be classified to profit or loss in subsequent periods:
Exchange differences on retranslation of foreign operations net of tax
Other comprehensive (loss)/ income for the year, net of tax
Total comprehensive loss for the year, net of tax:
Attributable to:
Equity holders of the Company
Notes
5
6a
6b
27
14
6c
6d
6e
7
8
11
2016
$’000
107,178
(95,443)
11,735
–
4,417
84,100
–
(135,252)
19,945
(13,428)
(28,483)
(21,595)
–
(50,078)
(27,368)
(77,446)
2015
$’000
161,090
(128,816)
32,274
245
7,219
(126,732)
(42,117)
(183,137)
(25,258)
(31,252)
(368,758)
(10,662)
3,372
(376,048)
53,596
(322,452)
(77,446)
(77,446)
(322,452)
(322,452)
12
12
(11.0) cents
(11.0) cents
(47.1) cents
(47.1) cents
(77,446)
(322,452)
31
31
(702)
(702)
(77,415)
(323,154)
(77,415)
(77,415)
(323,154)
(323,154)
The notes on pages 91 to 125 and pages 143 to 146 form part of these consolidated financial statements.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Consolidated statement of financial position
As at 31 December 2016
Non-current assets
Exploration and evaluation assets
Oil and gas properties
Other property, plant and equipment
Investments accounted for using the equity method
Financial assets
Current assets
Assets classified as held for sale
Inventory
Taxation receivable
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Interest-bearing bank borrowings due within one year
Taxation payable
Provisions
Non-current liabilities
Other Payables
Interest-bearing bank borrowings
Bonds payable
Provisions
Deferred tax liability
Total liabilities
Net assets
Capital and reserves
Called up share capital
Reserves
Equity attributable to equity shareholders of the Company
Non-controlling interest
Total equity
Notes
2016
$’000
2015
$’000
13
14
15
27
16
3
17
18
19
20
21
24
20
21
22
24
11
26
29
310,229
699,000
3,706
130,736
21,103
1,164,774
588,770
46,738
15,178
32,319
360,424
1,043,429
2,208,203
(93,398)
(9,741)
(13,226)
(15,833)
(132,198)
(10,285)
(83,915)
(106,651)
(50,550)
(249,527)
(500,928)
(633,126)
1,575,077
3,061
1,572,296
1,575,357
(280)
1,575,077
879,914
662,177
5,140
130,200
27,253
1,704,684
–
50,216
22,322
32,071
614,569
719,178
2,423,862
(115,971)
(37,059)
(38,056)
(47,737)
(238,823)
–
(115,949)
(106,651)
(67,190)
(245,745)
(535,535)
(774,358)
1,649,504
3,061
1,646,723
1,649,784
(280)
1,649,504
The notes on pages 91 to 125 and pages 143 to 146 form part of these consolidated financial statements.
The consolidated financial statements of Ophir Energy plc (registered number 05047425) on pages 87 to 125 and pages 143 to 146 were
approved by the Board of Directors on 8 March 2017.
On behalf of the Board:
Nick Cooper
Chief Executive Officer
Tony Rouse
Chief Financial Officer
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Ophir Energy plc
Consolidated statement of changes in equity
For the year ended 31 December 2016
Called up
share capital
$’000
Treasury
shares
$’000
As at 1 January 2015
Loss for the period, net of tax
Other comprehensive loss, net of tax
Total comprehensive loss, net of tax
New ordinary shares issued to third parties
Purchase of own shares
Exercise of options
Share-based payment
As at 31 December 2015
Loss for the period, net of tax
Other comprehensive income, net of tax
Total comprehensive loss, net of tax
Exercise of options
Share-based payment
As at 31 December 2016
1 Refer to Note 30 of these consolidated financial statements.
2,474
–
–
–
587
–
–
–
3,061
–
–
–
–
–
3,061
Other1
reserves
$’000
1,695,904
(322,452)
(702)
(323,154)
325,545
(56,011)
–
4,594
1,646,878
(77,446)
31
(77,415)
Non-
controlling
interest
$’000
(280)
–
–
–
–
–
–
–
(280)
–
–
–
Total equity
$’000
1,698,039
(322,452)
(702)
(323,154)
326,132
(56,110)
3
4,594
1,649,504
(77,446)
31
(77,415)
(59)
–
–
–
–
(99)
3
–
(155)
–
–
–
2
–
(153)
–
2,986
1,572,449
–
–
(280)
2
2,986
1,575,077
The notes on pages 91 to 125 and pages 143 to 146 form part of these consolidated financial statements.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Consolidated statement of cash flows
For the year ended 31 December 2016
Operating activities
Loss before taxation
Adjustments to reconcile loss before taxation to net cash provided by operating activities
Exploration expenses
Depreciation and amortisation
Impairment (reversal)/charge on oil and gas properties
Share of profits from joint ventures
Net finance expenses and other financial gains
Net foreign currency loss/(gain)
Share based payment expense
(Decrease)/increase in provisions
Cash flow from operations before working capital adjustments
Increase in inventories
Decrease in other current and non-current payables
Decrease in other current and non-current assets
Cash generated from operations
Interest received
Income taxes paid
Net cash flows generated from operating activities
Investing activities
Proceeds from farm-out
Purchase of exploration licences, net of cash acquired
Additions to Exploration and Evaluation assets
Additions to property, plant and equipment
Dividends received from joint ventures
Funding provided to joint ventures
Decrease in other financial assets
Net cash flows used in investing activities
Financing activities
Interest paid
Repayment of debt
Net issue/(repurchase) of shares
Cash acquired on acquisition of subsidiary
Net cash outflows from financing activities
Effect of exchange rates on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes
2016
$’000
2015
$’000
(50,078)
(376,048)
6c
6
7
7
6e
19
19
135,252
55,238
(84,100)
(4,417)
8,172
13,424
2,986
(19,322)
57,155
(9,584)
(2,212)
5,502
50,861
1,959
(41,360)
11,460
–
–
(175,453)
(18,585)
5,164
(1,283)
–
(190,157)
(16,275)
(59,352)
2
–
(75,625)
177
(254,145)
614,569
360,424
183,137
85,127
169,307
(7,219)
30,394
(6,014)
4,594
20,687
103,965
(7,172)
(52)
25,343
122,084
2,051
(83,042)
41,093
2,100
(18,965)
(311,120)
(44,788)
5,843
(3,941)
331,484
(39,387)
(22,521)
(240,521)
(56,106)
48,827
(270,321)
5,312
(263,303)
877,872
614,569
The notes on pages 91 to 125 and pages 143 to 146 form part of these consolidated financial statements.
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Ophir Energy plc Notes to the financial statements
1 Corporate information
Ophir Energy plc (the ‘Company’ and ultimate parent of the Group) is a public limited company domiciled and incorporated in England
and Wales with company number 05047425. The Company’s registered offices are located at 123 Victoria Street, London SW1E 6DE.
The principal activity of the Group is the development of offshore and deepwater oil and gas exploration assets. The Company has an
extensive and diverse portfolio of exploration interests across Africa and Southeast Asia.
The Group’s consolidated financial statements for the year ended 31 December 2016 were authorised for issue by the Board of Directors
on 8 March 2017 and the consolidated statement of financial position was signed on the Board’s behalf by Nick Cooper and Tony Rouse.
2 Basis of preparation and significant accounting policies
2.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with IFRS as issued by the International Accounting
Standards Board and adopted by the European Union (EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies
reporting under IFRS.
The consolidated financial statements are prepared on a going concern basis.
The consolidated financial statements have been prepared under the historical cost convention, modified by the revaluation of certain
derivative instruments measured at fair value. The consolidated financial statements are presented in US Dollars rounded to the nearest
thousand dollars ($’000) except as otherwise indicated.
Comparative figures for the period to 31 December 2015 are for the year ended on that date.
New and amended accounting standards and interpretations
The Group has adopted the following relevant new and amended IFRS and IFRIC interpretations as of 1 January 2016:
• Amendments to IFRS 10, IFRS 12 and IAS 28 ‘Investment Entities – Applying the Consolidation Exception’.
• Amendments to IAS 1 ‘Disclosure Initiative’.
• Annual Improvements to IFRS’s 2012–2014 Cycle.
• Amendments to IAS 27: ‘Equity Method in Separate Financial Statements’.
• Amendments to IAS 16 and IAS 38: ‘Clarification of Acceptable Methods of Depreciation and Amortisation’.
• IFRS 11 Amendment: Accounting for acquisitions of interests in Joint Ventures.
These new and amended standards and interpretations have not materially affected amounts reported or disclosed in the Group’s
consolidated financial statements for the year ended 31 December 2016.
Standards and interpretations issued but not yet effective
The following standards and interpretations, relevant to the Group, have been issued by the IASB, but are not effective for the financial year
beginning 1 January 2016 and have not been early adopted by the Group:
IFRS 16 ‘Leases’1
IFRS 9 ‘Financial Instruments’
IFRS 15 ‘Revenue from Contracts’
IFRIC 22 ‘Foreign currency transactions and advanced consideration’1
Clarifications to IFRS 15: ‘Revenue from contracts with customers’1
Amendment to IFRS 2: ‘Classification and measurement of share based payment transactions’1
Amendment to IAS 7: ‘Disclosure Initiative’1
Annual improvements to IFRS 2014-2016 cycle1
Amendment to IAS 12: ‘Recognition of Deferred Tax Assets for Unrealised Losses’1
1 These standards, amendments and improvements have not yet been endorsed by the European Union.
Effective date for periods
beginning on or after
1 January 2019
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2017
1 January 2017
1 January 2017
For new standards with an effective date of 1 January 2018, the Group has performed a preliminary assessment of the impact of these
standards as outlined below.
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2 Basis of preparation and significant accounting policies continued
IFRS 9 ‘Financial Instruments’
The IASB issued the final version of IFRS 9 in July 2014, which reflects all phases of the financial instruments project. IFRS 9 introduces new
requirements for the classification, measurement and impairment of financial instruments and hedge accounting, and will be adopted by
the Group when it becomes mandatory in the European Union. During 2016, the Group has performed a high-level impact assessment of all
three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from
further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. Overall, the
Group expects no significant impact on its balance sheet and equity.
(a) Classification and measurement
The Group does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements
of IFRS 9. Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing
solely payments of principal and interest. Thus, the Group expects that these will continue to be measured at amortised cost under IFRS 9.
However, the Group will analyse the contractual cash flow characteristics of those instruments in more detail before concluding whether all
those instruments meet the criteria for amortised cost measurement under IFRS 9.
(b) Impairment
IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or
lifetime basis. The Group expects to apply the simplified approach and record lifetime expected losses on all trade receivables. The Group
does not expect a significant impact on its equity due to the short-term nature and high quality of the financial assets.
(c) Hedge accounting
The Group does not apply hedge accounting and therefore there will be no impact as a result of applying IFRS 9.
IFRS 15 ‘Revenue from Contracts’
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS
15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring
goods or services to a customer.
The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application
or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted.
The Group plans to adopt the new standard on the required effective date using the full retrospective method. During 2016, the Group
performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Furthermore,
the Group is considering the clarifications issued by the IASB in April 2016 and will monitor any further developments.
The Group generates revenue through the sale of oil and petroleum products. Contracts with customers in which the sale of oil and
petroleum products is generally expected to be the only performance obligation are not expected to have any impact on the Group’s profit
or loss. The Group expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer,
generally on delivery of the products.
In preparing to adopt IFRS 15, the Group is considering the following:
(a) Presentation and disclosure requirements
IFRS 15 provides presentation and disclosure requirements, which are more detailed than under current IFRS. The presentation requirements
represent a significant change from current practice and significantly increase the volume of disclosures required in Group’s financial
statements. Many of the disclosure requirements in IFRS 15 are completely new. In 2017 the Group plans to develop and start testing
appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information.
2.2 Basis of consolidation
These financial statements comprise a consolidation of the accounts of the Company and its subsidiary undertakings and incorporates
the results of its joint ventures and associates using the equity method of accounting, drawn up to 31 December each year.
(a) Subsidiaries
Control is achieved when the Group is exposed, or has rights to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has all
of the following:
• power over the investee (i.e. existing voting rights that give it the current ability to direct the relevant activities of the investee);
• exposure, or rights to variable returns from its involvement with the investee; and
• the ability to use its power over the investee to affect its returns.
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Ophir Energy plc The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of
the three elements of control. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains
control, and continue to be consolidated until the date that such control ceases.
The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting
policies. All intercompany balances and transactions, including unrealised profits arising therefrom, are eliminated.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control over
a subsidiary, it (i) derecognises the assets (including goodwill) and liabilities of the subsidiary; (ii) derecognises the carrying amount of any non-
controlling interest; (iii) derecognises the cumulative translation differences, recorded in equity; (iv) recognises the fair value of the consideration
received; (v) recognises the fair value of any investment retained; (vi) recognises any surplus or deficit in profit and loss; and (vii) reclassifies the
parent’s share of components previously recognised in other comprehensive income to profit and loss or retained earnings, as appropriate.
(b) Non-controlling interests
Non-controlling interests represent the equity in a subsidiary not attributable, directly and indirectly, to the parent company and is presented
separately within the consolidated statement of financial position, separately from equity attributable to owners of the parent. Losses within
a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.
2.3 Summary of significant accounting policies
(a) Commercial reserves
Commercial reserves are proved 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 viable. Proved and probable reserve estimates are
based on a number of underlying assumptions including oil and gas prices, future costs, oil and gas in place and reservoir performance, which
are inherently uncertain. There should be a 50% statistical probability that the actual quantity of recoverable reserves will be more than the
amount estimated as proven and probable reserves and a 50% statistical probability that it will be less. However, the amount of reserves
that will be ultimately recovered from any field cannot be known with certainty until the end of the field’s life.
(b) Intangible exploration and evaluation expenditure
Exploration and evaluation (E&E) expenditure relates to costs incurred on the exploration for and evaluation of potential mineral reserves
and resources. The Group applies the successful efforts method of accounting for E&E costs as permitted by IFRS 6 ‘Exploration for and
Evaluation of Mineral Resources’.
Under the successful efforts method of accounting, all licence acquisition, exploration and appraisal costs (such as geological, geochemical
and geophysical costs, exploratory drilling and other direct costs associated with finding mineral resources) are initially capitalised in well,
field or specific exploration cost centres as appropriate, pending determination. Costs (other than payments for the acquisition of rights
to explore) incurred prior to acquiring legal rights to explore an area and general exploration costs not specific to any particular licence
or prospect are charged directly to the consolidated income statement and statement of other comprehensive income.
E&E assets are not amortised prior to the determination of the results of exploration activity.
Treatment of E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each exploration licence/block are carried forward, until the existence (or otherwise) of commercial reserves
has been determined, subject to certain limitations including review for indicators of impairment. If, at completion of evaluation activities,
technical and commercial feasibility is demonstrated, then, following recognition of commercial reserves, the carrying value of the relevant
E&E asset is then reclassified as a development and production asset (subject to an impairment assessment before reclassification).
If, on completion of evaluation activities, it is not possible to determine technical feasibility and commercial viability or if the legal right
to explore expires or if the Group decides not to continue E&E activity, then the costs of such unsuccessful E&E are written off to the
consolidated income statement and statement of other comprehensive income in the period of that determination.
Impairment
E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an E&E asset may exceed
its recoverable amount. The cash generating unit (CGU) applied for impairment test purposes is generally the block, except that a number
of block interests may be grouped as a single cash generating unit where the cash flows of each block are interdependent.
Where an indicator of impairment exists, management will assess the recoverability of the carrying value of the asset or CGU. This review
includes a status report confirming that E&E drilling is still under way or firmly planned, or that it has been determined, or work is under way
to determine that the discovery is economically viable. This assessment is based on a range of technical and commercial considerations and
confirming that sufficient progress is being made to establish development plans and timing. If no future activity is planned, or the value of
the asset cannot be recovered via successful development or sale, the balance of the E&E costs are written off in the consolidated income
statement and statement of other comprehensive income.
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2 Basis of preparation and significant accounting policies continued
Farm-in/farm-out arrangements
The Group may enter into farm-in or farm-out arrangements, where it may introduce partners to share in the development of an asset.
For transactions involving assets at the exploration and evaluation phase, the Group adopts an accounting policy as permitted by IFRS 6
such that the Group does not record any expenditure made on its behalf under a ‘carried interest’ by a farm-in partner (the ‘farmee’).
Where applicable past costs are reimbursed, any cash consideration received directly from the farmee is credited against costs previously
capitalised in relation to the whole interest with any excess accounted for by the farmor as a gain on disposal. Farmed-out oil and gas
properties are accounted for in accordance with IAS 16 ‘Property, Plant and Equipment’.
(c) Business combinations
On an acquisition that qualifies as a business combination in accordance with IFRS 3 – ‘Business Combinations’, the assets and liabilities
of a subsidiary are measured at their fair value as at the date of acquisition. Any excess of the cost of acquisition over the fair values of the
identifiable net assets acquired is recognised as goodwill which is treated as an intangible asset. Any deficiency of the cost of acquisition
below the fair values of the identifiable net assets acquired is credited to the consolidated statement of other comprehensive income in
the period of acquisition.
A business combination is a transaction in which an acquirer obtains control of a business. A business is defined as an integrated set of
activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends or lower
costs or other economic benefits directly to investors or other owners or participants. A business consists of inputs and processes applied
to those inputs that have the ability to create outputs.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest (NCI) in the acquiree.
For each business combination, the Group elects whether to measure NCI in the acquiree at fair value or at the proportionate share of the
acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in general and administration expenses.
When the Group acquires a business, it assesses the assets and liabilities assumed for appropriate classification and designation in
accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts by the acquiree. Those oil and gas reserves that are able to be reliably measured are
recognised in the assessment of fair values on acquisition. Other potential reserves, resources and rights, for which fair values cannot be
reliably measured, are not recognised separately, but instead are subsumed in goodwill.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree
is remeasured to fair value as at the acquisition date (being the date the acquirer gains control) in profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes
to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 either
in profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured
in accordance with the appropriate IFRS. If the contingent consideration is classified as equity, it is not remeasured and subsequent
settlement is accounted for within equity.
(d) Property, plant and equipment
Oil and gas properties and other property, plant and equipment are stated at cost, less accumulated depreciation and accumulated
impairment losses.
Oil and gas properties – cost
Development and production assets are generally accumulated on a block-by-block basis and represent the cost of developing the
commercial reserves discovered and bringing them into production. The initial cost of a development and production asset comprises
its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the
decommissioning obligation and, for qualifying assets (where relevant), borrowing costs. When a development project moves into the
production stage, the capitalisation of certain construction/development costs ceases, and costs are either regarded as part of the cost
of inventory or expensed, except for costs which qualify for capitalisation relating to oil and gas property asset additions, improvements
or new developments. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration
given to acquire the asset. The capitalised value of a finance lease is also included within property, plant and equipment.
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Ophir Energy plc Oil and gas properties – depreciation
Oil and gas properties are depreciated/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 carrying amount of capitalised costs
plus the estimated future field development costs. The production and reserve estimates used in the calculation are on an entitlements basis.
Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively.
Producing assets are generally grouped with other assets that are dedicated to serving the same reserves for depreciation purposes, but are
depreciated separately from producing assets that serve other reserves.
Other fixed assets
Property, plant and equipment other than oil and gas properties, is depreciated at rates calculated to write off the cost less estimated residual
value of each asset on a straight-line basis over its expected useful economic life of between three and 10 years.
Impairment
The Group assesses at each reporting date whether there is an indication that an asset (or CGU) may be impaired. Management has
assessed its CGUs as being an individual block, which is the lowest level for which cash flows are largely independent of those of other assets.
If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s (or CGU’s) recoverable
amount. The recoverable amount is the higher of an asset’s (or CGU’s) fair value less costs of disposal (FVLCD) and value in use (VIU). The
recoverable amount is then determined for an individual asset, unless the asset does not generate cash flows that are largely independent
of those from other assets or groups of assets, in which case the asset is tested as part of a larger CGU to which it belongs. Where the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset (or CGU) is considered impaired and written down to its recoverable
amount. Impairment losses of continuing operations are recognised in the consolidated income statement and statement of other
comprehensive income.
Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the
consolidated statement of other comprehensive income, net of any depreciation that would have been charged since the impairment.
(e) Financial instruments
Financial assets and financial liabilities are recognised in the Group’s consolidated statement of financial position when the Group becomes
a party to the contractual provisions of the instrument.
i. Financial assets
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition
or issue of financial assets and liabilities (other than financial assets and financial liabilities through profit or loss) are added to or deducted
from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
All financial assets are recognised and derecognised on a trade date where the purchase or sale of an investment is under a contract
whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured
at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit and loss, which are initially
measured at fair value.
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit and loss’ (FVTPL), ‘held-to-
maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and
purpose of the financial assets and is determined at the time of initial recognition.
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified
as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.
Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would
be immaterial.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the
financial asset.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.
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2 Basis of preparation and significant accounting policies continued
Financial assets at FVTPL
Financial assets are classified as financial assets at FVTPL where the Group acquires the financial asset principally for the purpose of selling
in the near term, is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern
of short-term profit taking as well as all derivatives that are not designated and effective as hedging instruments. Financial assets at fair value
through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit
or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘other financial gains’ in the consolidated
income statement and statement of other comprehensive income.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are
impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial
asset, the estimated future cash flows of the investment have been impacted. All impairment losses are taken to the consolidated income
statement and statement of other comprehensive income.
Trade receivables are assessed for impairment based on the number of days outstanding on individual invoices. Any trade receivable that is
deemed uncollectible is immediately written off to the consolidated income statement and statement of other comprehensive income, any
subsequent recoveries are also taken directly to the consolidated income statement and statement of other comprehensive income upon
receipt of cash collected.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to another entity.
ii. Financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.
Financial liabilities at FVTPL
Financial liabilities are classified at FVTPL where the financial liability is either held for trading or it is designated at FVTPL. Financial liabilities
at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss
incorporates any interest paid on the financial liability and is included in the ‘other financial gains’ in the consolidated income statement
and statement of other comprehensive income.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of
the financial liability, or, where appropriate, a shorter period.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
iii. Cash and short-term deposits
Cash and cash equivalents in the statement of financial position comprise cash at banks and in hand and short-term deposits with a maturity
of three months or less, but exclude any restricted cash. Restricted cash is not available for use by the Group and therefore is not considered
highly liquid – for example cash set aside to cover rehabilitation obligations.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.
iv. Short-term investments
Short-term investments in the statement of financial position comprise cash deposits that are made for varying periods of between three
months and twelve months depending on the immediate cash requirements of the Group and earn interest at the respective short-term
investment rate.
v. Derivative financial instruments
The Group uses derivative financial instruments to manage its exposure to movements in oil and gas prices, interest rates and foreign
exchange. The Group does not use derivatives for speculative purposes.
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Ophir Energy plc Derivative financial instruments – at fair value
Gains or losses on derivatives are taken directly to the consolidated income statement and statement of other comprehensive income in
the period. The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted
cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option
pricing models for optional derivatives. Foreign currency forward contracts are measured using quoted forward exchange rates and yield
curves derived from quoted interest rates matching maturities of the contracts. Interest rate swaps are measured at the present value
of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.
The estimated fair value of these derivatives is disclosed in trade and other receivables or trade and other payables in the consolidated
statement of financial position and the related changes in the fair value are included in other financial gains in the consolidated income
statement and statement of other comprehensive income.
(f) Inventories
Inventories of oil and gas, materials and drilling consumables are stated at the lower of cost and net realisable value. Cost is determined
by using the weighted average cost method and comprises direct purchase costs, cost of transportation and other related expenses.
(g) Provisions
General
A provision is recognised when the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow
of economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation. If the effect of the time
value of money is material, expected future cash flows are discounted using a current pre-tax rate that reflects, where appropriate, the risks
specific to the liability. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost.
Decommissioning liability
The Group recognises a decommissioning liability where it has a present legal or constructive obligation as a result of past events, and it is
probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation.
The obligation generally arises when the asset is installed or the ground/environment is disturbed at the field location. When the liability is
initially recognised, the present value of the estimated costs is capitalised by increasing the carrying amount of the related oil and gas assets
to the extent that it was incurred by the development/construction of the field.
Changes in the estimated timing or cost of decommissioning are dealt with prospectively by recording an adjustment to the provision and
a corresponding adjustment to oil and gas assets. Any reduction in the decommissioning liability and, therefore, any deduction from the
asset to which it relates, may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately
to the consolidated income statement and statement of other comprehensive income.
If the change in estimate results in an increase in the decommissioning liability and, therefore, an addition to the carrying value of the asset,
the Group considers whether this is an indication of impairment of the asset as a whole, and if so, tests for impairment. If, for mature fields,
the estimate for the revised value of oil and gas assets net of decommissioning provisions exceeds the recoverable value, that portion of the
increase is charged directly to expense. Over time, the discounted liability is increased for the change in present value based on the discount
rate that reflects current market assessments and risks specific to the liability. The periodic unwinding of the discount is recognised in the
consolidated income statement and statement of other comprehensive income as a finance cost. The Group recognises neither the deferred
tax asset in respect of the temporary difference on the decommissioning liability nor the corresponding deferred tax liability in respect of
the temporary difference on a decommissioning asset.
(h) Pensions and other post-retirement benefits
Up to 31 October 2016, the Company did not operate its own pension plan but made pension or superannuation contributions to private
funds of its employees which are defined contribution plans. On 1 November 2016 the Group launched its own defined contribution scheme.
Contributions to defined contribution plans are recognised in the income statement in the period in which they become payable.
(i) Employee benefits
Salaries, wages, annual leave and sick leave
Liabilities for salaries and wages, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within
12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts
expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are
measured at the rates paid or payable.
(j) Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
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(k) Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an
assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys
a right to use the asset, even if that right is not explicitly specified in an arrangement.
The Group has leases where the lessor retains substantially all the risks and benefits of ownership of the asset. Such leases are classified
as operating leases and rentals payable are charged to the consolidated income statement and statement of other comprehensive income
on a straight line basis over the lease term.
(l) Interests in joint arrangements
A joint arrangement is an arrangement over which two or more parties have joint control. Joint control is the contractually agreed sharing
of control of an arrangement, which exists only when decisions about the relevant activities (being those that significantly affect the returns
of the arrangement) require unanimous consent of the parties sharing control.
Joint operations
i.
A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets
and obligations for the liabilities, relating to the arrangement. In relation to its interests in joint operations, the Group recognises its:
• Assets, including its share of any assets held jointly.
• Liabilities, including its share of any liabilities incurred jointly.
• Revenue from the sale of its share of the output arising from the joint operation.
• Share of the revenue from the sale of the output by the joint operation.
• Expenses, including its share of any expenses incurred jointly.
ii. Joint ventures
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets
of the joint arrangement. The Group’s investment in its joint venture is accounted for using the equity method.
Under the equity method, the investment in the joint venture is initially recognised at cost. The carrying amount of the investment is adjusted
to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture
is included in the carrying amount of the investment and is not individually tested for impairment.
The consolidated income statement and statement of other comprehensive income reflects the Group’s share of the results of operations
of the joint venture. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the
extent of the interest in the joint venture.
The aggregate of the Group’s share of profit or loss of the joint venture is shown on the face of the consolidated income statement and
statement of other comprehensive income as part of operating profit and represents profit or loss after tax and NCI in the subsidiaries of joint
venture. The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments
are made to bring the accounting policies in line with those of the Group.
At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired.
If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint
venture and its carrying value, and then recognises the loss as ‘share of profit of investments accounted for using the equity method’ in the
consolidated income statement and statement of other comprehensive income.
On loss of joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference
between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from
disposal is recognised in the consolidated income statement and statement of other comprehensive income.
(m) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration received and receivable, excluding discounts, sales taxes, excise duties
and similar levies.
Revenue from the sale of oil and petroleum products is recognised on an entitlement basis when the significant risks and rewards of
ownership have been transferred, which is considered to occur when title passes to the customer. This generally occurs when the product
is physically transferred into a vessel, pipe or other delivery mechanism.
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Ophir Energy plc Revenue from the production of oil, in which the Group has an interest with other producers, is recognised based on the Group’s working
interest and the terms of the relevant production sharing contracts.
Gains and losses on derivative contracts and the revenue and costs associated with other contracts that are classified as held for trading
purposes are reported on a net basis in the consolidated income statement and statement of other comprehensive income.
(n) Cost of sales
Underlift and overlift
Lifting or offtake arrangements for oil and gas produced in certain of the Group’s jointly owned operations are such that each participant
may not receive and sell its precise share of the overall production in each period. The resulting imbalance between cumulative entitlement
and cumulative production is ‘underlift’ or ‘overlift’. Underlift and overlift are valued at market value and included within receivables and
payables respectively.
Movements during an accounting period are adjusted through cost of sales such that gross profit is recognised on an entitlements basis.
(o) Interest income
Interest income is recognised as it accrues using the effective interest rate method, that is, the rate that exactly discounts estimated future
cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset. Interest income is
included in net finance costs in the consolidated income statement and statement of other comprehensive income.
(p) Finance costs and borrowings
Finance costs of borrowings are allocated to periods over the term of the related debt at a constant rate on the carrying amount. Debt
is shown on the consolidated statement of financial position net of arrangement fees and issue costs, and amortised through to the
consolidated income statement and statement of other comprehensive income as finance costs over the term of the debt.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit and loss in the period in which they are incurred.
(q) Share-based payments
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted
and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled
to the award. Fair value is determined with reference to the market value of the underlying shares using a pricing model appropriate to the
circumstances which requires judgements as to the selection of both the valuation model and inputs. In valuing equity-settled transactions,
no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition or
a non-vesting condition, which are treated as vesting irrespective of whether or not the market condition or non-vesting condition is satisfied,
provided that all other vesting conditions are satisfied.
At each consolidated statement of financial position date before vesting, the cumulative expense is calculated on the basis of the extent
to which the vesting period has expired and management’s best estimate of the number of equity instruments that will ultimately vest.
The movement in cumulative expense since the previous consolidated statement of financial position date is recognised in the consolidated
income statement and statement of other comprehensive income, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost
based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the
remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the
original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if
this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation and any cost not yet recognised in the
income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or
settlement date is deducted from equity, with any excess over fair value being treated as an expense in the consolidated income statement.
For equity-settled share-based payment transactions with third parties, the goods or services received are measured at the date of receipt by
reference to their fair value with a corresponding entry in equity. If the Group cannot reliably estimate the fair value of the goods or services
received, their value is measured by reference to the fair value of the equity instruments granted.
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2 Basis of preparation and significant accounting policies continued
(r) Foreign currency translation
The Group’s consolidated financial statements are presented in US Dollars, which is also the parent company’s functional currency.
The functional currency for each entity in the Group is determined on an individual basis according to the primary economic environment
in which it operates.
Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the statement
of financial position date. All exchange differences are taken to the consolidated income statement and statement of other comprehensive
income. Non-monetary items that are measured at historical cost in a foreign currency are translated using the spot exchange rate ruling as
at the date of the initial transaction. Non-monetary items measured at a revalued amount in a foreign currency are translated using the spot
exchange rate ruling at the date when the fair value was determined.
The assets and liabilities of foreign operations whose functional currency is other than that of the presentation currency of the Group are
translated into the presentation currency, at the rate of exchange ruling at the consolidated statement of financial position date. Income
and expenses are translated at the weighted average exchange rates for the period. The resulting exchange differences are taken directly
to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that
particular foreign operation is recognised in the consolidated income statement and statement of other comprehensive income.
(s) Income taxes
Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax
rates and laws that are enacted or substantively enacted by the consolidated statement of financial position date.
Current income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income tax
is recognised in the consolidated income statement and statement of other comprehensive income.
Deferred tax
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, with the following exceptions:
• where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction affects neither accounting nor taxable profit or loss;
•
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable
future; and
• deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred tax is provided on temporary differences arising on acquisitions that are categorised as business combinations. Deferred tax is
recognised at acquisition as part of the assessment of the fair value of assets and liabilities acquired. Any deferred tax is charged and credited
in the consolidated income statement and statement of other comprehensive income as the underlying temporary difference is reversed.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that
future taxable profit will be available to allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the
related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the consolidated statement
of financial position date.
Deferred income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise deferred
income tax is recognised in the consolidated income statement and statement of other comprehensive income.
In order to account for uncertain tax positions, management has formed an accounting policy, in accordance with IAS 8, whereby the
ultimate outcome of legal proceedings is viewed as a single unit of account. The results of separate hearings in relation to the same matter,
such as local tribunals and international arbitration, are not viewed separately and only the final outcome is assessed by management to
determine the best estimate of any potential outcome. If management viewed the results of individual hearings separately an income
statement charge could arise due to the differing recognition criteria of assets and liabilities.
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Ophir Energy plc (t) Royalties, resource rent tax and revenue-based taxes
In addition to corporate taxes, the Group’s consolidated financial statements also include and recognise as taxes on income, other types
of taxes on net income such as certain royalties, resource rent taxes and revenue-based taxes.
Royalties, resource rent taxes and revenue-based taxes are accounted for under IAS 12 when they have the characteristics of an income
tax. This is considered to be the case when they are imposed under government tax authority and the amount payable is based on taxable
income — rather than physical quantities produced or as a percentage of revenue — after adjustment for temporary differences. For such
arrangements, current and deferred tax is provided on the same basis as described above for other forms of taxation. Obligations arising
from royalty arrangements and other types of taxes that do not satisfy these criteria are accrued and included in cost of sales.
(u) Impairment
The accounting policies for the impairment of intangible exploration and evaluation assets and oil and gas properties are described in more
detail in 2.3(b), 2.3(d) and 2.4.
The Group assesses at each reporting date whether there is an indication that an intangible asset or item of property, plant and equipment
may be impaired. If any indication exists, the Group estimates the asset’s recoverable amount. The recoverable amount is the higher of an
asset’s or (CGU’s) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount
of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market
transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used.
These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value
indicators.
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the
Group’s CGU’s to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years.
Impairment losses of continuing operations (including impairment on inventories) are recognised in the consolidated income statement
and statement of other comprehensive income in expense categories consistent with the function of the impaired asset. In this case, the
impairment is also recognised in other comprehensive income up to the amount of any previous revaluation. Where conditions giving rise
to the impairment subsequently reverse, the effect of the impairment charge is also reversed, net of any depreciation that would have been
charged since the impairment.
(v) Non-current assets held for sale
Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to
sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction
rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is
available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets. Management
must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of
classification as held for sale, and actions required to complete the plan of sale should indicate that it is unlikely that significant changes
to the plan will be made or that the plan will be withdrawn. Property, plant and equipment and intangible assets are not depreciated or
amortised once classified as held for sale.
2.4 Significant accounting judgements, estimates and assumptions
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of
contingent liabilities at the date of the consolidated financial statements. Estimates and assumptions are continuously evaluated and are
based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future periods.
The Group has identified the following areas where significant judgements, estimates and assumptions are required. Further information
on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the
consolidated financial statements.
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2 Basis of preparation and significant accounting policies continued
(a) Judgements
Exploration and evaluation expenditure – accounting judgements
The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgement to determine whether future
economic benefits are likely, from either future exploration, development or asset sale, or whether activities have not reached a stage which
permits a reasonable assessment of the existence of reserves.
Management is also required to assess impairment in respect of exploration and evaluation assets. Note 13 discloses the carrying value
of such assets. All such carried costs are subject to regular technical, commercial and management review on at least an annual basis
to confirm the continued intent to develop, or otherwise extract value from, the asset. Where this is no longer the case, the costs are
immediately expensed. The triggering events for impairment are defined in IFRS 6. In making the assessment, management is required
to make judgements on the status of each project and assumptions about future events and circumstances, in particular, whether an
economically viable extraction operation can be established.
Income taxes – judgement of income taxes
The computation of the Group’s income tax expense and liability involves the interpretation of applicable tax laws and regulations in many
jurisdictions throughout the world. The resolution of tax positions taken by the Group, through negotiations with relevant tax authorities
or through litigation, can take several years to complete and in some cases it is difficult to predict the ultimate outcome. Therefore, judgement
is required to determine provisions for income taxes. In addition, the Group has carry forward tax losses and tax credits in certain taxing
jurisdictions that are available to offset against future taxable profit. However, deferred tax assets are recognised only to the extent that it
is probable that taxable profit will be available against which the unused tax losses or tax credits can be utilised. Management judgement
is exercised in assessing whether this is the case. To the extent that actual outcomes differ from management’s estimates, income tax
charges or credits, and changes in current and deferred tax assets or liabilities, may arise in future periods. For more information see Note 11.
Judgement is also required when determining whether a particular tax is an income tax or another type of tax (for example a production tax).
Balance Sheet classification – non-current assets held for sale
IFRS 5 requires an entity to classify a single non-current asset as held for sale if its carrying amount will be recovered principally through a
sale transaction rather than through continuing use. To qualify as held for sale, the asset must be available for immediate sale in its present
condition and its sale must be highly probable. Asset sales are often complex transactions and negotiations can be a lengthy. Management
judgement is required to determine whether the above held for sale conditions have been met when planning to sell an asset.
(b) Estimates
Oil and gas properties – estimation of oil and gas reserves
The determination of the Group’s estimated oil and natural gas reserves requires significant judgements and estimates to be applied and
these are regularly reviewed and updated. Factors such as the availability of geological and engineering data, reservoir performance data,
acquisition and divestment activity, drilling of new wells, and commodity prices all impact on the determination of the Group’s estimates
of its oil and natural gas reserves. The Group employs independent reserves specialists who periodically report on the Group’s level of
commercial reserves by evaluating the estimates of the Group’s in-house reserves specialists and where necessary referencing geological,
geophysical and engineering data together with reports, presentation and financial information pertaining to the contractual and fiscal terms
applicable to the Group’s assets. In addition, the Group undertakes its own assessment of commercial reserves, using standard evaluation
techniques and related future capital expenditure by reference to the same datasets using its own internal expertise. The estimates adopted
by the Group may differ from the independent reserves specialists’ estimates where management considers that adjustments are appropriate
in the circumstances. The last assessment by its independent reserves specialist was as at 1 January 2017.
Estimates of oil and natural gas reserves are used to calculate depreciation, depletion and amortisation charges for the Group’s oil and
gas properties. The impact of changes in reserves is dealt with prospectively by amortising the remaining carrying value of the asset over
the expected future production. Oil and natural gas reserves also have a direct impact on the assessment of the recoverability of asset
carrying values reported in the financial statements. If reserves estimates are revised downwards, earnings could be affected by changes
in depreciation expense or an immediate write-down of the property’s carrying value. The 2016 movements in contingent resources and
proved and probable reserves are reflected in the tables on page 25. Information on the carrying amounts of the Group’s oil and natural
gas properties, together with the amounts recognised in the income statement as depreciation, depletion and amortisation is contained
in Note 14 and Note 6a respectively.
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Ophir Energy plc Impairment of oil and gas properties – estimation of the recoverability of asset carrying values
Determination as to whether, and by how much, an asset is impaired involves management estimates on highly uncertain matters such
as future commodity prices, the effects of inflation on operating expenses, discount rates, production profiles and the outlook for regional
market supply-and-demand conditions for crude oil and natural gas. For oil and natural gas properties, the expected future cash flows are
estimated using management’s best estimate of future oil and natural gas prices and production and reserves volumes. The estimated future
level of production in all impairment tests is based on assumptions about future commodity prices, production and development costs, field
decline rates, current fiscal regimes and other factors.
For value-in-use calculations, future cash flows are adjusted for risks specific to the cash-generating unit and are discounted using a pre-tax
discount rate. The pre-tax discount rate is derived from the cost of funding the Group calculated using an established model. In 2016 the
discount rate used to determine recoverable amounts based on value in use was 15% (2015: 15%). The discount rates applied in assessments
of impairment are reassessed each year. Reserves assumptions for value-in-use tests are restricted to proved and probable reserves.
The recoverability of exploration and evaluation assets is covered under exploration and evaluation expenditure – accounting judgements
above.
Details of impairment charges and reversals recognised in the income statement and details on the carrying amounts of assets are shown
in Note 13 and Note 14.
Decommissioning – estimation of provisions
Decommissioning costs are uncertain and cost estimates can vary in response to many factors, including changes to relevant legal
requirements, the emergence of new technology or experience at other production sites. The expected timing, extent and amount of
expenditure may also change. Therefore significant estimates and assumptions are made in determining the provision for decommissioning.
As a result, there could be significant adjustments to the provisions established which would affect future financial results.
The estimated decommissioning costs are reviewed annually by management and the results of this review are then used for the purposes
of the Group’s consolidated financial statements.
Provision for environmental clean-up and remediation costs is based on current legal and contractual requirements, technology and price
levels.
The timing and amount of future expenditures are reviewed annually, together with the interest rate used in discounting the cash flows.
The interest rates used to determine the balance sheet obligations at the end of 2016 were real rates in the range 3.1% – 5.2% (2015: 4%)
Provisions and contingent liabilities are discussed in Note 24.
Special remuneratory benefit tax – estimation of tax rate
The Group is subject to a special remuneratory benefit tax in Thailand, the rate for which depends on the annual revenue per cumulative
metre drilled. Accordingly the tax rate to be applied in calculating the Group’s deferred special remuneratory benefit tax depends on
management’s forecast of future revenues and drilling activities.
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continued
3 Non-current assets held for sale
On 10 November 2016 Ophir and OneLNG, a joint venture between subsidiaries of Golar LNG Limited and Schlumberger, announced that
they had signed a binding Shareholders’ Agreement to establish a Joint Venture (“JV”) to develop the Fortuna project, in Block R, offshore
Equatorial Guinea utilising Golar’s FLNG technology. OneLNG and Ophir will have 66.2% and 33.8% ownership of the JV respectively. The JV
will facilitate the financing, construction, development and operation of the integrated Fortuna project and, from FID, will own Ophir’s share
of the Block R licence. Management has classified the Fortuna asset as held for sale as the asset is available for immediate sale in its present
condition and the sale is highly probable. The appropriate levels of management have approved the plan, a buyer has been found and the
sale is expected within 12 months of this classification.
Ophir’s share of the Block R licence classified as held for sale at 31 December 2016 was:
Assets
Exploration and evaluation assets
Assets classified as held for sale
There were no assets classified as held for sale in 2015.
$’000
2016
588,770
588,770
4 Segmental analysis
The Group’s reportable and geographical segments are Africa, Asia and Other. The other segment includes the corporate centres in the UK,
Australia and Singapore.
Segment revenues and results
The following is an analysis of the Group’s revenue and assets by reportable segment:
Revenue sales of crude oil and gas
Depreciation and amortisation
Impairment of exploration costs
Reversal of Impairment of oil and gas properties
Impairment of investments accounted for using the equity method
Share of profit of equity-accounted joint venture
Operating profit/(loss)
Finance income
Finance expense
Other financial gains
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Total assets and total liabilities
Total assets
Total liabilities
Investments accounted for using the equity method
Additions to non-current assets
Year ended 31 December 2016
Africa
$’000
–
(12)
(3,749)
–
–
–
12,404
–
(462)
–
11,942
(9,944)
1,998
Asia
$’000
107,178
(53,197)
(96,391)
84,100
–
4,417
(5,864)
97
(22,057)
–
(27,824)
(17,384)
(45,208)
Other
$’000
–
(2,093)
–
–
–
–
(35,023)
1,862
(1,035)
–
(34,196)
(40)
(34,236)
Total
$’000
107,178
(55,302)
(100,140)
84,100
–
4,417
(28,483)
1,959
(23,554)
–
(50,078)
(27,368)
(77,446)
As at 31 December 2016
778,065
(111,207)
–
1,148,674
(517,504)
130,736
281,464
(4,415)
–
2,208,203
(633,126)
130,736
Year ended 31 December 2016
819
24,342
100,654
125,815
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Ophir Energy plc Revenue sales of crude oil
Depreciation and amortisation
Impairment of exploration costs
Impairment of oil and gas properties
Impairment of investments accounted for using the equity method
Share of profit of equity-accounted joint venture
Operating (loss)/profit
Finance income
Finance expense
Other financial gains
Loss before tax
Taxation
Loss after tax
Total assets and total liabilities
Total assets
Total liabilities
Investments accounted for using the equity method
Additions to non-current assets
Year ended 31 December 2015
Africa
$’000
–
–
(134,640)
–
–
–
(154,270)
405
(383)
–
Asia
$’000
161,090
(80,943)
(14,340)
(126,732)
(42,117)
7,219
(169,029)
9,170
(18,641)
3,372
Other
$’000
–
–
–
–
–
–
(45,459)
964
(2,177)
–
(154,248)
(175,128)
(46,672)
Total
$’000
161,090
(80,943)
(148,980)
(126,732)
(42,117)
7,219
(368,758)
10,539
(21,201)
3,372
(376,048)
53,596
(322,452)
As at 31 December 2015
705,430
(138,529)
–
1,164,134
(628,340)
130,200
554,298
(7,489)
–
2,423,862
(774,358)
130,200
Year ended 31 December 2015
–
137,666
37,016
174,682
Non-current operating assets
The non-current operating assets for the UK are $2.7m. (2015: $4.0 million). The non-UK, non-current operating assets are $1,010.2 million
(2015: $1,507.6 million). Included in the non-UK, non-current operating assets is Thailand which makes up $421.3 million (2015: $455.7 million).
Revenue from major customers
All sales of crude oil are to a single customer PTT Public Company Limited (PTT). PTT is a Thai state-owned oil and gas company that is listed
on the Stock Exchange of Thailand.
All sales of gas are to a single customer Perusahaan Listrik Negara (PLN). PLN is an Indonesian state owned electricity company.
5 Revenue
Sales of crude oil
Sales of gas
Year ended
31 Dec 2016
$’000
105,731
1,447
107,178
Year ended
31 Dec 2015
$’000
161,090
–
161,090
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
6 Operating (loss)/profit before taxation
The Group’s operating (loss)/profit before taxation included the following items:
(a) Cost of sales:
– Operating costs
– Royalty payable
– Depreciation and amortisation of oil and gas properties
– Movement in inventories of oil
(b) Gain on farm-out:
– Gain on farm-out
(c) Exploration expenses:
– Pre-licence exploration costs
– Exploration expenditure written off (Note 13)
– Exploration inventory written off
(d) Other operating expense:
– Loss/(profit) on disposal of assets
– Depreciation of other property, plant & equipment
– Release of provision/Provision for exiting contract (Note 24)
– Release of litigation provisions
– Other
(e) General & administration expenses include:
– Operating lease payments
– Corporate transaction expense
– Share-based payment expense
7 Net finance expense
Interest income on short-term bank deposits
Interest expense on long term borrowings1
Unwinding of discount (Note 24)
Net foreign currency exchange losses
1 Includes interest capitalised using a rate of 6.7% for 6 months (2015: 6.7% for 12 months).
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
43,188
9,135
52,703
(9,583)
95,443
31,797
14,548
80,943
1,528
128,816
–
(245)
20,476
100,140
14,636
135,252
–
434
(10,000)
(10,516)
137
(19,945)
3,069
–
2,986
6,055
34,157
148,980
–
183,137
703
4,184
20,000
–
371
25,258
7,400
8,000
4,594
19,994
Year ended
31 Dec 2016
$’000
1,959
(7,564)
(2,568)
(13,422)
(21,595)
Year ended
31 Dec 2015
$’000
1,673
(17,099)
(1,250)
6,014
(10,662)
106
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Ophir Energy plc 8 Other financial gains
Realisation settlement gains on hedging
Loss relating to oil derivatives
Gain on bond redemption (Note 22)
Year ended
31 Dec 2016
$’000
–
–
–
–
Year ended
31 Dec 2015
$’000
17,091
(14,001)
282
3,372
9 Auditors’ remuneration
The Group paid the following amounts to its Auditors in respect of the audit of the financial statements and for other services provided
to the Group.
(a) Paid/payable to Ernst & Young LLP
Audit of the financial statements
Local statutory audits of subsidiaries
Total audit services
Audit related assurance services
Corporate finance services
(b) Paid/payable to Auditor if not Ernst & Young LLP
Local statutory audits of subsidiaries
10 Staff costs and Directors’ emoluments
(a) Staff costs
Employee costs (including payments to Directors) during the year comprised:
Salaries and wages
Social security costs
Contributions to pension plans/superannuation funds
Share-based payment expense (Note 31)
(b) Key management
The table below sets out the details of the emoluments of the Group’s key management including Directors:
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
638
255
893
29
–
922
–
–
922
726
362
1,088
334
794
2,216
254
254
2,470
Year ended
31 Dec 2016
$’000
37,207
5,539
2,031
2,984
47,761
Year ended
31 Dec 2015
$’000
51,095
5,109
3,033
4,594
63,831
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
Aggregate compensation:
Salaries and wages
Social security costs
Contributions to pensions/superannuation funds
Share-based payment (credit)/expense (Note 31)
7,182
887
295
(924)
7,440
Key management emoluments above exclude aggregate gains made by Directors on the exercise of share options of $206,680 (2015: Nil).
6,324
778
346
1,478
8,926
107
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
10 Staff costs and Directors’ emoluments continued
(c) Directors’ emoluments
(i) Aggregate compensation:
Salaries and wages
Bonuses
Social security costs
Contributions to pensions/superannuation funds
Other benefits
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
2,343
1,737
537
139
18
4,774
2,223
781
392
151
18
3,565
Directors’ emoluments above exclude aggregate gains made by Directors on the exercise of share options of $389,964 (2015 Nil).
(ii) Share-based payment (credit)/expense (Note 31)
Number of Directors to whom superannuation or pension benefits accrued during the year
(d) Average number of persons employed (full time equivalents):
CEO
Exploration and technical
Commercial and support
11 Taxation
(a) Taxation (credit)/charge
Foreign tax:
Special remuneratory benefit
Other foreign tax
Special remuneratory benefit – adjustments in respect of prior periods
Other foreign tax – adjustments in respect of prior periods
Total current income tax charge
Deferred tax:
Origination and reversal of temporary differences
Special remuneratory benefit
Other foreign tax
Total deferred income tax (credit)/charge
Tax (credit)/charge in the consolidated income statement and statement of other comprehensive income
Year ended
31 Dec 2016
$’000
(2,628)
3
Year ended
31 Dec 2015
$’000
449
2
Year ended
31 Dec 2016
$’000
1
131
177
309
Year ended
31 Dec 2015
$’000
1
144
188
333
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
1,861
8,952
1,180
11,681
23,674
9,693
(5,999)
3,694
27,368
19,610
4,719
–
297
24,626
(43,603)
(34,619)
(78,222)
(53,596)
Special remuneratory benefit (SRB) is a tax that arises on one of the Group’s assets, Bualuang in Thailand at rates that vary from zero to 75%
of annual petroleum profit depending on the level of annual revenue per cumulative metre drilled. The current rate for SRB for 2016 was 4%
(2015: 28%). Petroleum profit for the purpose of SRB is calculated as revenue less a number of deductions including operating costs, royalty,
capital expenditures, special reduction (an uplift of certain capital expenditures) and losses brought forward.
108
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Ophir Energy plc (b) Reconciliation of the total tax (credit)/charge
The tax benefit not recognised in the consolidated income statement and statement of other comprehensive income is reconciled to the
Group’s weighted average tax rate of 25% (2015: 36%) The differences are reconciled below:
(Loss)/profit on operations before taxation
(Loss)/profit on operations before taxation multiplied by the applicable rate of 25%, being the average weighted
corporate tax rate for the Group (2015: 36%)
Non-deductible expenditure
Share-based payments
Tax effect of SRB
Tax effect of equity accounted investments
Movement in unrecognised deferred tax assets
Other adjustments
Adjustment in respect of prior periods
Total tax (credit)/charge in the consolidated income statement and statement of other comprehensive income
(c) Reconciliation of SRB charge to loss from operations before taxation
The taxation charge for SRB for the year can be reconciled to the loss from operations before tax per the consolidated income statement and
statement of other comprehensive income as follows:
Loss from operations before taxation
Add back losses from operations before taxation for activities outside of Thailand
Profit/(loss) from operations before taxation for activities in Thailand
Deduct share of profit of investments accounted for using the equity method
Profit/(loss) before taxation for activities in Thailand
Applicable rate of SRB
Tax at the applicable rate of SRB
Change in average SRB deferred tax rate
Effect of average SRB deferred tax rate compared to current SRB tax rate
Other non-deductible costs
Adjustment in respect of prior periods
Total SRB charge/(credit)
(d) Deferred income tax
Deferred tax balances relate to the following:
Corporate tax on fixed asset timing differences
SRB on fixed asset timing differences
Year ended
31 Dec 2016
$’000
(50,078)
Year ended
31 Dec 2015
$’000
(376,048)
(138,125)
88,168
929
(11,997)
(3,610)
10,742
–
297
(53,596)
(12,502)
25,662
1,493
6,367
(2,208)
(3,115)
(1,189)
12,860
27,368
Year ended
31 Dec 2016
$’000
(50,078)
91,687
41,607
(4,417)
37,190
4%
1,488
15,397
(3,207)
(2,124)
1,179
12,733
Year ended
31 Dec 2015
$’000
(376,048)
296,547
(79,501)
(7,219)
(86,720)
28%
(24,282)
(37,450)
28,791
8,948
–
(23,993)
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
(235,183)
(14,344)
(249,527)
(236,247)
(9,498)
(245,745)
(e) Unrecognised tax losses
The Group has gross tax losses arising in the UK of $224,781,762 (2015: $192,101,762) and Australia nil (2015: $5,884,000) that are available
to carry forward indefinitely to offset against future taxable profits of the companies in which the losses arose. Deferred tax assets have
not been recognised in respect of these losses as there is not sufficient certainty that taxable income will be realised in the future due to the
nature of the Group’s international exploration activities and the long lead times in either developing or otherwise realising exploration assets.
(f) Other unrecognised temporary differences
The Group has other net unrecognised temporary differences in the various African countries where the Group are active totalling $164,441,000
(2015: $164,441,000) in respect of provisions and exploration expenditure for which deferred tax assets have not been recognised.
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109
Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
12 Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year.
The following reflects the income and share data used in the basic earnings per share computations:
Earnings
Earnings for the purposes of basic and diluted earnings per share
(Loss)/profit for the year
(Loss)/profit attributable to equity holders of the parent
Basic (loss)/earnings per ordinary share
Diluted (loss)/earnings per ordinary share
Number of shares (millions)
Basic weighted average number of shares
Potentially dilutive share options and warrants
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
(77,446)
(77,446)
(322,452)
(322,452)
Cents
(11.0)
(11.0)
Cents
(47.1)
(47.1)
As at
31 Dec 2016
As at
31 Dec 2015
706
19
725
685
12
697
No ordinary shares of 0.25p each have been issued on exercise of options and warrants between the year ended 31 December 2016 and the
date of approval of these consolidated financial statements.
13 Exploration and evaluation assets
Cost
Balance at the beginning of the year
Additions1
Acquisition of subsidiary
Reclassified as assets held for sale
Expenditure written off2
Balance at the end of the year
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
879,914
119,225
–
(588,770)
(100,140)
310,229
764,933
131,961
132,000
–
(148,980)
879,914
1
2
Additions for the year ended 31 December 2016 include exploration activities in: Equatorial Guinea – Block R ($41.5 million), Côte d’Ivoire – 513 ($19.6 million), Tanzania – Blocks 1 & 4
($22.7 million), Myanmar – Block AD03 ($8.7 million) and Malaysia –Block 2A ($7.7 million). Additions for the year ended 2015 included exploration activities in: Myanmar – Block AD03
($28.3 million), Thailand – G4/50 ($19.7 million) and Equatorial Guinea – Block R ($18.3 million) and five Indonesian PSC licences from Niko Resources Limited ($25.3million). The licences
acquired from Niko Resources were accounted for as an asset purchase as they did not meet the definition of a business combination in accordance with IFRS 3.
Expenditure written off in the year was $100 million. The most significant write off was in respect of Thailand – G4/50: loss of $57.6m and Indonesia: loss of $37m. The CGU applied for the purpose
of the impairment assessment is the Blocks. The recoverable amount of each Block was nil. This was based on management’s estimate of value in use. The trigger for expenditure write off was
management’s assessment that no further expenditure on exploration and evaluation of hydrocarbons in the Block was budgeted or planned within the current licence terms.
Expenditure written off for the year ended 31 December 2015 was $149.0 million. The significant write offs included within the $149.0 million are listed below:
Expenditure write off in respect of Kenya: loss of $62.6 million – Block L9, in respect of Gabon: loss of $12.5 million – Ntsina Block, loss of $17.8 million – Mbeli Block and in respect of three
Blocks in the Seychelles a loss of $24.4 million. The CGU applied for the purpose of the impairment assessment is the Blocks. The recoverable amount for each Block was nil. This was based on
management’s estimate of value in use. The trigger for expenditure write off was management’s assessment that no further expenditure on exploration and evaluation of hydrocarbons in the
Blocks was budgeted or planned within the current licences terms.
The Group generally estimates value in use using a discounted cash flow model. Future cash flows are discounted to their present values using a pre-tax discount rate of 15% (2015: 15%). Adjustments
to cash flows are made to reflect the risks specific to the CGU.
110
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Ophir Energy plc
14 Oil and gas properties
Cost
Balance at the beginning of the year
Acquisition of subsidiary
Additions1
Balance at the end of the year
Depreciation and amortisation
Balance at the beginning of the year
Charge for the year
Impairment reversal/(charge)2
Balance at the end of the year
Net book value
Balance at the beginning of the year
Balance at the end of the year
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
869,852
–
5,426
875,278
(207,675)
(52,703)
84,100
(176,278)
–
827,131
42,721
869,852
–
(80,943)
(126,732)
(207,675)
662,177
699,000
–
662,177
1 Additions in 2016 are stated net of a $19.2 million decommissioning remeasurement.
2
The 2016 Impairment reversal was due to increased reserves related to the Bualuang oil field in Thailand which has a recoverable amount of $410.7m based on management’s estimate of value
in use. The discount rate used was 15% (pre-tax).
The 2015 impairment charge of $126.7 million related to the Bualuang oil field in Thailand which had a recoverable amount of $387.2 million based on management’s estimate of value in use.
The discount rate used was 15% (pre-tax).
15 Other property, plant and equipment
Office furniture and equipment
Cost
Balance at the beginning of the year
Foreign currency translation
Acquisition of subsidiary
Additions
Disposals
Balance at the end of the year
Depreciation
Balance at the beginning of the year
Foreign currency translation
Depreciation charge for the year
Disposals
Balance at the end of the year
Net book value
Balance at the beginning of the year
Balance at the end of the year
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
10,826
–
–
1,165
–
11,991
(5,686)
–
(2,599)
–
(8,285)
11,278
(575)
1,869
2,066
(3,812)
10,826
(4,971)
361
(4,184)
3,108
(5,686)
5,140
3,706
6,307
5,140
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information
Notes to the financial statements
continued
16 Financial assets
Security deposits – Rental properties
Security deposits – Exploration commitments1
Other long term receivables
1 Floating interest deposits pledged to third parties or banks as security in relation to the Group’s exploration commitments.
17 Inventory
Oil and condensate
Materials and consumables
The inventory valuation is stated net of a provision of $14.6 million (2015: nil) to write inventories down to their net realisable value.
18 Trade and other receivables
Trade and other debtors
Prepayments
As at
31 Dec 2016
$’000
2,166
–
18,937
21,103
As at
31 Dec 2015
$’000
6,374
2,530
18,349
27,253
As at
31 Dec 2016
$’000
11,111
35,627
46,738
As at
31 Dec 2015
$’000
1,527
48,689
50,216
As at
31 Dec 2016
$’000
24,342
7,977
32,319
As at
31 Dec 2015
$’000
27,471
4,600
32,071
All debtors are current. There are no receivables that are past due or impaired. Trade and other debtors primarily relate to receivables from
joint operation partners.
Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value.
19 Cash and cash equivalents
Cash
Cash equivalents
As at
31 Dec 2016
$’000
130,677
229,747
360,424
As at
31 Dec 2015
$’000
116,060
498,509
614,569
Cash and cash equivalents comprise cash in hand, deposits and other short-term money market deposit accounts that are readily convertible
into known amounts of cash. The fair value of cash and cash equivalents is $360.4 million (2015: $614.6 million).
20 Trade and other payables
Trade payables
Accruals and deferred income
Payables in relation to joint operation partners
As at
31 Dec 2016
$’000
Within 1 year
7,658
71,196
14,544
93,398
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
As at
31 Dec 2015
$’000
After 1 year Within 1 year
22,310
91,350
2,311
115,971
–
10,285
–
10,285
After 1 year
–
–
–
–
Trade payables are unsecured and are usually paid within 30 days of recognition.
112
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Ophir Energy plc 21 Interest bearing bank loans
Long-term balance at the beginning of the year
Short-term balance at the beginning of the year
Acquisition of subsidiary
Less: amounts repaid during the year
Less: amounts due within one year
Total borrowings due after one year
Year ended
31 Dec 2016
$’000
115,949
37,059
–
(59,352)
(9,741)
83,915
Year ended
31 Dec 2015
$’000
–
–
253,918
(100,910)
(37,059)
115,949
Interest-bearing bank borrowings comprise a $350 million senior reserves based lending facility. The facility has been arranged for a period
of seven years commencing in December 2012.
The senior reserves based lending facility is secured against certain of the Group’s Thailand and Indonesia development and producing
assets. There has been no breach of terms on the borrowing facility. The key terms of the facility are:
• Initial facility amount of up to $350 million. The current facility as at 31 December 2016 is $223m.
• Financial covenants relating to the ratio of the loan balance outstanding to the net present value of cash flows of the secured assets and
relating to the ratio of the loan balance outstanding to the net present value of cash flows during the life of the loan of the secured assets.
• Financial covenants relating to the maximum amount of borrowings of the Salamander Energy plc Group (SEPLC).
• The Group may draw an amount up to the lower of the facility amount being $223 million as at 31 December 2016 or the borrowing base
amount as determined by the forecast cash flows arising from the borrowing base assets of $104 million.
• As at 31 December 2016 the facility available is $104 million (2015: $153m) of which $94m has been drawn down.
• Interest accrues at a rate of between 3.70% and 4.20% plus LIBOR depending on the maturity of the assets. The borrowing base amount
is re-determined on a semi-annual basis; with the Group further having the option to undertake two mid-period redeterminations in each
year should it elect to do so.
• No early repayment penalties.
• Change of control provisions.
The acquisition of Salamander Energy plc by Ophir on 3 March 2015 constituted a change of control under the terms of the facility. Prior
to this transaction completing, a waiver was obtained from the lending banks such that the terms of the borrowing facility were not impacted
at the date of completion.
22 Bonds payable
Balance at the beginning of the year
Acquisition of subsidiary:
9.75% unsecured, callable bonds at $150 million par value
Redemption – 9.75% unsecured, callable bonds at $45.2 million par value
Gain on redemption
Coupon interest charged
Interest paid
Balance at the end of the year
Year ended
31 Dec 2016
$’000
106,651
Year ended
31 Dec 2015
$’000
–
–
–
–
10,218
(10,218)
106,651
154,835
(45,652)
(282)
9,510
(11,760)
106,651
The unsecured callable bonds were issued by Salamander Energy plc in December 2013 at an issue price of $150 million. The bonds
have a term of six years and one month and will be repaid in full at maturity. The bonds carry a coupon of 9.75% and were issued at par.
On 5 May 2015, bond holders exercised put options at 101% for the redemption of bonds with a par value of $45.2 million.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
23 Net debt
Amounts due on maturity:
Interest bearing bank loans (see Note 21)
Bonds payable (see Note 22)
Total gross debt
Less cash and cash equivalents (see Note 19)
Total net cash
At the balance sheet date, the bank borrowings are calculated to be repayable as follows:
On demand or due within one year
In the second year
In the third to fifth year inclusive
After five years
Total principal payable on maturity
24 Provisions
At 31 December 2015
Arising during the period
Utilised/paid
Unwinding of discount (Note 7)
Foreign exchange revaluation
Amounts released
Remeasurement
At 31 December 2016
Balance at the end of the year
Current
Non-current
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
93,656
106,651
200,307
(360,424)
(160,117)
153,008
106,651
259,659
(614,569)
(354,910)
As at
31 Dec 2016
$’000
9,741
43,831
146,735
–
200,307
As at
31 Dec 2015
$’000
37,059
43,701
178,899
–
259,659
Decommissioning
and restoration
of oil and gas
$’000
Litigation
and other
claims
$’000
67,190
–
–
2,568
–
–
(19,208)
50,550
–
50,550
50,550
26,350
–
–
–
–
(10,517)
–
15,833
15,833
–
15,833
Other
provision
$’000
21,387
–
(10,000)
–
(14)
(11,373)
–
–
–
–
–
Total
$’000
114,927
–
(10,000)
2,568
(14)
(21,890)
(19,208)
66,383
15,833
50,550
66,383
Decommissioning and restoration of oil and gas assets
The decommissioning of oil and gas properties is expected to fall due from 2035 onwards.
Litigation and Other Claims
Litigation and other claims consist of separate legal matters, including claims arising from trading activities, in various Group companies and
at various stages of negotiation. The majority of any cash outflow from these matters is expected to occur within the next 12 months,
although this is dependent on the development of the various legal claims. In the Directors’ opinion, after taking appropriate legal advice,
the amounts provided at 31 December 2016 represent the best estimate of the expected loss.
Other provisions
During 2016, $10 million of a $20 million provision, representing the unavoidable net cost of exiting a contract, was released and the
remaining $10 million of the provision was paid.
114
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Ophir Energy plc
25 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group are able to continue as going concerns while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the
interest bearing bank loans and bonds payable as disclosed in Notes 21 and 22 of these consolidated financial statements, cash and cash
equivalents as disclosed in Note 19 of these consolidated financial statements, and equity attributable to equity holders of the Company,
comprising issued capital, reserves and retained earnings as disclosed in Notes 26, 29 and 30 of these consolidated financial statements
and in the consolidated statement of changes in equity. This is further discussed in the Principal risks section of these Annual Report and
Accounts.
To maintain or adjust the capital structure, the Group may issue new shares for cash, engage in active portfolio management, or other such
restructuring activities as appropriate.
Gearing Ratio
Management reviews the capital structure on a continuing basis. The gearing ratio is defined as net debt divided by equity attributable
to equity holders of the Company plus net debt. At the year-end it was calculated as follows:
Net cash (see Note 23)
Equity plus net debt
Gearing ratio
As at
31 Dec 2016
$’000
(160,117)
1,414,960
(11.3)%
As at
31 Dec 2015
$’000
(354,910)
1,294,594
(27.4)%
Significant Accounting Policies
Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis
on which the income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are
disclosed in the statement of accounting policies.
Financial assets and liabilities
Current assets and liabilities
Management consider that due to the short-term nature of current assets and liabilities, the carrying values equates to their fair value.
Non-current assets and liabilities
The carrying value and fair values of non-current financial assets and liabilities are shown in the following tables:
Financial assets:
Security deposits
Financial liabilities:
Interest bearing bank loans
Bonds payable
As at
31 Dec 2016
$’000
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
As at
31 Dec 2015
$’000
Carrying
value
Estimated
fair value
Carrying
value
Estimated
fair value
2,166
2,166
8,904
8,797
(93,656)
(106,651)
(92,760)
(108,337)
(153,008)
(106,651)
(144,539)
(108,400)
Financial risk management
The Group’s principal financial assets and liabilities comprise of trade and other receivables, cash and cash equivalents, short-term
investments and trade and other payables, interest bearing bank loans and bonds payable, which arise directly from its operations. Details
are disclosed in Notes 18 to 22 of these consolidated financial statements. The main purpose of these financial instruments is to manage
short-term cash flow and provide finance for the Group’s operations.
The Group’s senior management oversees the management of financial risk and the Board of Directors has established an Audit Committee
to assist in the identification and evaluation of significant financial risks. Where appropriate, consultation is sought with an external adviser
to determine the appropriate response to identified risks. The Group does not trade in derivatives for speculative purposes.
The main risks that could adversely affect the Group’s financial assets, liabilities or future cash flows are commodity, credit, interest rate,
foreign currency and liquidity risks.
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continued
25 Financial instruments continued
(a) Commodity price risk
The Group’s policy is to consider oil and gas price hedging when and where it is economically attractive to lock-in prices at levels that protect
the cash flow of the Group, its business plan and debt related coverage ratios. All hedging transactions to date have been related directly
to expected cash flows and no speculative transactions have been undertaken. There were no hedging transactions in 2016.
For 2016, the Group’s oil production was predominantly sold at prices relative to the spot market. No production in 2016 was hedged.
There were no open positions at the end of 2016. Therefore, the Group had no exposure to commodity price risk at 31 December 2016.
(b) Credit risk
Credit risk refers to the risk that a third party will default on its contractual obligations resulting in financial loss to the Group. The Group’s
maximum exposure to credit risk of third parties is the aggregate of the carrying value of its security deposits, cash and cash equivalents,
short-term investments and trade and other receivables.
In respect of the Group’s trade sales, the Group manages credit risk through dealing with, whenever possible, either international energy
companies or state owned companies based in Thailand and Indonesia and obtaining sufficient collateral where appropriate. The Group
consistently monitors counterparty credit risk. The carrying value of financial assets recorded in these financial statements represents the
Group’s maximum exposure to credit risk at the year-end without taking account of any collateral obtained. In addition, the Group’s
operations are typically structured via contractual joint venture arrangements. As such the Group is reliant on joint venture partners to
fund their capital or other funding obligations in relation to assets and operations which are not yet cash generative. The Group closely
monitors the risks and maintains a close dialogue with those counterparties considered to be highest risk in this regard.
The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to
securitise its trade and other receivables.
In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s experience of bad debts has not been significant.
Credit quality of financial assets
Year ended 31 December 2016
Current financial assets
Cash and cash equivalents
Trade and other receivables
Non-current financial assets
Security deposits
Year ended 31 December 2015
Current financial assets
Cash and cash equivalents
Trade and other receivables
Non-current financial assets
Security deposits
Equivalent S&P rating1
Internally rated
A-1
and above
$’000
A-2
and above
$’000
A-3
and below
$’000
Not rated
$’000
Total
$’000
136,305
–
136,305
218,720
–
218,720
5,310
–
5,310
89
19,973
20,062
360,424
19,973
380,397
–
–
Equivalent S&P rating1
–
–
–
–
2,166
2,166
Internally rated
A-1
and above
$’000
A-2
and above
$’000
A-3
and below
$’000
No default
customers
$’000
2,166
2,166
Total
$’000
371,616
–
371,616
2,530
2,530
239,801
–
239,801
–
–
3,111
–
3,111
6,374
6,374
41
13,003
13,044
614,569
13,003
627,572
–
–
8,904
8,904
1 The equivalent S&P rating of the financial assets represents that rating of the counterparty with which the financial asset is held rather than the rating of the financial asset itself.
Credit risk on cash and cash equivalents and short-term investments is managed by limiting the term of deposits to periods of less than twelve
months and selecting counterparty financial institutions with reference to long and short-term credit ratings published by Standard & Poor’s.
116
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Ophir Energy plc (c) Interest rate risk
The Group is exposed to interest rate movements through its interest bearing bank loans, bonds payable, cash and cash equivalent deposits
and short-term investments, which are at rates fixed to LIBOR.
The sensitivity analysis below has been determined based on the Group’s exposure to an interest rate movement and is prepared assuming
the amount of the net debt outstanding at the balance sheet date was outstanding for the whole year.
For net debt, if interest rates had been 0.5% higher or lower and all other variables were held constant, the Group’s loss after tax for the
year ended 31 December 2016 would have decreased by $0.8 million (2015: loss decrease $1.8 million) or increased by $0.8 million
(2015: loss increase $1.8 million) respectively.
The sensitivity in 2016 was maintained at 0.5% as interest rate volatilities remain similar to those in the prior period.
(d) Foreign currency risk
The Group has currency exposures arising from assets and liabilities denominated in foreign currencies and transactions executed
in currencies other than the respective functional currencies.
The Group, with the exception of Ophir Services Pty Ltd, have adopted US Dollars as their functional and reporting currencies as this
represents the currency of their primary economic environment as the majority of the Group’s funding and expenditure is US Dollars.
Ophir Services Pty Ltd has adopted the Australian Dollar as its functional currency.
The Group’s exposure to foreign currency risk is managed by holding the majority of its funds in US Dollars, as a natural hedge, with
remaining funds being held mainly in Pounds Sterling (GBP), Australian Dollars (AUD), Euros (EUR) and Thailand Baht (THB) to meet
commitments in those currencies.
As at 31 December 2016, the Group’s predominant exposure to foreign exchange rates related to cash and cash equivalents held in GBP
by companies with US Dollar functional currencies.
At the statement of financial position date, the Group’s net debt had the following exposure to GBP, THB and AUD foreign currency that
is not designated in cash flow hedges:
Financial assets
Cash and cash equivalents
AUD
GBP
THB
Other
Net Exposure
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
522
9,540
7,359
557
17,978
1,303
4,228
15,572
641
21,744
17,978
21,744
The following table demonstrates the sensitivity to reasonable possible changes in GBP, AUD and THB against the US Dollar exchange rates
with all other variables held constant, of the Group’s (loss)/profit before tax and equity (due to the foreign exchange translation of monetary
assets and liabilities).
US Dollar to GBP +5% (2015: +5%)
US Dollar to GBP -5% (2015: -5%)
US Dollar to AUD +5% (2015: +5%)
US Dollar to AUD -5% (2015: -5%)
US Dollar to THB +5% (2015: +5%)
US Dollar to THB -5% (2015: -5%)
Loss before tax
Higher/(lower)
Equity
Higher/(lower)
2016
$’000
405
(405)
(21)
21
296
(296)
2015
$’000
1,448
(1,448)
(72)
72
901
(901)
2016
$’000
405
(405)
(21)
21
296
(296)
2015
$’000
1,448
(1,448)
(72)
72
901
(901)
117
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
25 Financial instruments continued
Significant assumptions used in the foreign currency exposure sensitivity analysis include:
• Reasonably possible movements in foreign exchange rates were determined based on a review of the last two years’ historical movements
and economic forecaster’s expectations.
• The reasonably possible movement was calculated by taking the US Dollar spot rate as at balance date, moving this spot rate by the
reasonably possible movements and then re-converting the US Dollar into the respective foreign currency with the new spot rate.
This methodology reflects the translation methodology undertaken by the Group.
(e) Liquidity risk
The Group manages its liquidity risk by maintaining adequate cash and cash equivalents, and borrowing facilities to meet its forecast short,
medium and long-term commitments. The Group continually monitors its actual and forecast cash flows to ensure that there are adequate
reserves and banking facilities to meet the maturing profiles of its financial assets and liabilities.
The following tables detail the Group’s remaining contractual maturities for its non-derivative financial liabilities. The tables have been drawn
up based on the undiscounted cash flows of financial liabilities based on the earliest date the Group was required to pay at the balance sheet
date. The table includes both interest and principal cash flows.
As at 31 December 2016
Within 1 year
$’000
(65,039)
(9,741)
1-2 years
$’000
–
(43,831)
2-3 years
$’000
–
(40,084)
3-4 years
$’000
–
–
4-5 years
$’000
–
–
Greater than
5 years
$’000
–
–
Total
$’000
(65,039)
(93,656)
–
(74,780)
–
(43,831)
–
(40,084)
(106,651)
(106,651)
–
–
–
–
(106,651)
(265,346)
Non-interest bearing
Variable interest rate instruments
Fixed interest rate instruments:
– Bond payable
Total
Non-interest bearing
Variable interest rate
Fixed interest rate
– Bond payable
Total
Within 1 year
$’000
(93,420)
(38,727)
–
(132,147)
As at 31 December 2016
1-2 years
$’000
–
(47,634)
2-3 years
$’000
–
(47,273)
3-4 years
$’000
–
(36,106)
4-5 years
$’000
Greater than
5 years
$’000
–
–
–
(47,634)
–
(47,273)
–
(36,106)
(149,111)
(149,111)
Total
$’000
(93,420)
(169,740)
(149,111)
(412,271)
–
–
–
–
Additionally, Notes 32 and 33 of these consolidated financial statements set out the Group’s outstanding financial commitments at the year end.
(f) Disclosure of fair values
The carrying value of security deposits and borrowings are disclosed in the financial statements as at 31 December 2016. The fair value of
these assets and liabilities are disclosed in the table of financial assets and liabilities on page 115 of these consolidated financial statements.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
quoted (unadjusted) prices in active markets for identical assets or liabilities;
other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
Year ended
31 Dec 2016
$’000
(108,337)
-
(90,594)
(198,931)
Year ended
31 Dec 2015
$’000
(108,400)
–
(135,742)
(244,142)
There were no transfers between fair value levels during the year.
118
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Ophir Energy plc
26 Share capital
(a) Authorised
2,000,000,000 ordinary shares of 0.25p each
(b) Called up, allotted and fully paid ordinary shares of 0.25p each
In issue at the beginning of the year 746,019,407 (2015: 593,810,795)
Issued on exercise of share options during the year: nil (2015: nil)
Issued during the year: nil (2015: 152,208,6121)
In issue at the end of the year 746,019,407 (2015: 746,019,407)
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
7,963
7,963
3,061
–
–
3,061
2,474
–
587
3,061
1 152,208,612 ordinary shares issued in consideration for the Salamander Energy plc acquisition on 3 March 2015. The market value of the Company’s shares on this date was: £1.39 ($2.14).
The balances classified as called up; allotted and fully paid share capital represents the nominal value of the total number of issued shares
of the Company of 0.25p each. Fully paid shares carry one vote per share and carry the right to dividends.
27 Investments accounted for using the equity method
Company
APICO LLC
APICO (Khorat) Holdings LLC
APICO (Khorat) Limited
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
27.18%
27.18%
27.18%
27.18%
27.18%
27.18%
The investments in the jointly controlled entities have been classified as joint ventures under IFRS 11 and therefore the equity method
of accounting has been used in the consolidated financial statements.
APICO is a limited liability company formed in the State of Delaware, USA. APICO LLC wholly owns APICO (Khorat) Holdings LLS a limited
liability company formed in the State of Delaware, USA. APICO (Khorat) Holding LLC wholly owns APICO (Khorat) Limited which is a Thai
limited company that was incorporated and has its principal place of business in the Kingdom of Thailand.
The Group’s primary business purpose is the acquisition, exploration, development and production of petroleum interests in the Kingdom
of Thailand.
The Group’s share of the results of its joint venture and the Group share of its assets and liabilities as at 31 December 2016 are shown
in the tables below:
Results for the period
Sales and other operating revenues
Profit before interest and taxation
Net finance costs
Profit before taxation
Taxation
Profit for the period
Summarised financial information of APICO LLC
Results for the year ended
Sales and other operating revenues
Profit before interest and taxation
Net finance costs
Profit before taxation
Taxation
Profit for the period
1 Jan to
31 Dec 2016
$’000
14,617
7,623
(219)
7,404
(2,987)
4,417
Year ended
31 Dec 2016
$’000
53,778
28,046
(806)
27,240
(10,990)
16,250
3 Mar to
31 Dec 2015
$’000
16,658
11,979
(160)
11,819
(4,600)
7,219
Year ended
31 Dec 2015
$’000
61,288
44,073
(589)
43,484
(16,924)
26,560
119
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
27 Investments accounted for using the equity method continued
Group share of assets and liabilities
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
The following table shows the movement in investments in the jointly controlled entities:
Balance at the beginning of the year
Acquisition of subsidiary
Additions
Impairment
Share of profit of investments
Dividends received
Balance at the end of the year
28 Treasury shares
Ordinary shares of 0.25p each held by the Group as treasury shares
Balance at the beginning of the year 40,227,138 (2015: 14,910,114)
Acquired during the year: Nil (2015: 26,114,403)
Disposed of on exercise of share options during the year: 308,753 (2015: 797,379)
Balance at the end of the year 39,918,385 (2015: 40,227,138)
Year ended
31 Dec 2016
$’000
46,878
6,207
53,085
(5,240)
(2,414)
(7,654)
45,431
Year ended
31 Dec 2016
$’000
130,200
–
1,283
–
4,417
(5,164)
130,736
Year ended
31 Dec 2016
$’000
155
–
(2)
153
Year ended
31 Dec 2015
$’000
48,267
5,888
54,155
(6,562)
(2,529)
(9,091)
45,064
Year ended
31 Dec 2015
$’000
–
167,000
3,941
(42,117)
7,219
(5,843)
130,200
Year ended
31 Dec 2015
$’000
59
99
(3)
155
Treasury shares represent the cost of shares in the Company purchased in the market and held by the Company to satisfy options under
the Group’s employee incentive share option plans (refer to Note 31 of these consolidated financial statements). On 14 August 2014, the
Company announced that the Board had approved a share buyback programme of up to $100 million of ordinary shares (the ‘Programme’).
In 2016, the Company did not purchase any shares under the Programme. In 2015, the Company purchased shares under the Programme
for a total consideration of $56.1 million, including costs of $0.3 million. The remaining facility as at 31 December 2016 was nil (2015: nil).
29 Reserves
Treasury shares (Note 28)
Other reserves (Note 30)
Non-controlling interest1
1 The non-controlling interest relates to Dominion Uganda Ltd, where the Group acquired a 95% shareholding during 2012.
As at
31 Dec 2016
$’000
(153)
1,572,449
1,572,296
(280)
1,572,016
As at
31 Dec 2015
$’000
(155)
1,646,878
1,646,723
(280)
1,646,443
120
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Ophir Energy plc 30 Other reserves
As at 1 January 2015
Loss for the period, net of tax
Other comprehensive income,
net of tax
Total comprehensive loss, net of tax
New ordinary shares issued
to third parties
Purchase of own shares8
Exercise of options
Share-based payment
As at 31 January 2015
Profit for the period, net of tax
Other comprehensive income,
net of tax
Total comprehensive income,
net of tax
New ordinary shares issued
to third parties
Purchase of own shares8
Exercise of options
Share-based payment
As at 31 December 2016
Share
premium 1
$’000
807,427
–
–
–
–
–
–
807,427
–
–
–
–
–
–
–
807,427
Capital
redemption 2
reserve
$’000
Option
premium 3
reserve
$’000
Consolid-
ation 4
reserve
$’000
Merger 5
reserve
$’000
Equity
component
on
convertible
bond 6
$’000
Foreign
currency
translation 7
reserve
$’000
Accum-
ulated
losses
$’000
Total other
reserves
$’000
62
50,214
(500)
341,792
669
6,240
490,000 1,695,904
–
–
–
–
98
–
–
160
–
–
–
–
–
–
–
160
–
–
–
–
–
–
4,594
54,808
–
–
–
–
–
–
2,986
57,794
–
–
–
–
–
–
–
–
–
–
(500)
325,545
–
–
–
667,337
–
–
–
–
–
–
–
–
–
–
(500)
–
–
–
–
667,337
–
–
–
–
–
–
–
(322,452)
(322,452)
(702)
(702)
–
(322,452)
(702)
(323,154)
–
–
–
–
(56,109)
–
–
325,545
(56,011)
–
4,594
111,439 1,646,878
669
5,538
–
–
–
–
–
–
–
669
–
(77,446)
(77,446)
31
31
–
–
–
–
5,569
–
31
(77,446)
(77,415)
–
–
–
–
–
–
–
2,986
33,993 1,572,449
1 The share premium account represents the total net proceeds on issue of the Company’s shares in excess of their nominal value of 0.25p per share less amounts transferred to any other reserves.
2 The capital redemption reserve represents the nominal value of shares transferred following the Company’s purchase of them.
3 The option premium reserve represents the cost of share-based payments to Directors, employees and third parties.
4 The consolidation reserve represents a premium on acquisition of a minority interest in a controlled entity.
5
In 2015 the provisions of the Companies Act 2006 relating to Merger Relief (s612 and s613) were applied to the Salamander Energy plc acquisition. The non-statutory premium arising on shares
issued by Ophir as consideration has been recognised in the Merger reserve, by virtue of Ophir acquiring in excess of 90% of all classes of the acquiree’s issued share capital.
This balance represents the equity component of the convertible bond, net of costs and tax as a result of the separation of the instrument into its debt and equity components. The bond was
converted into 21,661,476 ordinary shares of 0.25p each on 21 May 2008.
The foreign currency translation reserve is used to record unrealised exchange differences arising from the translation of the financial statements of entities within the Group that have a functional
currency other than US Dollars.
During the year, the Group purchased nil shares (31 December 2015: 26,114,403) under the share buyback Programme for a total consideration of nil million (31 December 2015: $56.1 million),
including costs of nil million (31 December 2015: $0.3 million). The remaining facility as at 31 December 2016 was nil (31 December 2015: nil).
6
7
8
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continued
31 Share-based compensation
(a) Employee incentive share option plans
Ophir Energy Company 2006 Share Option Plan
On 5 April 2006 the Board resolved to establish the Ophir Energy Company Limited 2006 Share Option Plan. Any employee of the Company
or any subsidiary or any Director of the Company or any subsidiary who is required to devote substantially the all of his/her working time to
his duties is eligible to participate under the plan. At the grant date the Board of Directors determine the vesting terms, if any, subject to the
proviso that no more than one half of the options become exercisable on the first and second anniversaries of the date of grant and any
performance conditions are satisfied. Options have an exercise period of 10 years from the date of grant.
Ophir Energy Long Term Incentive Share Option Plan
On 26 May 2011, the Board resolved to establish the Ophir Energy Long Term Incentive Share Option Plan. This was introduced to give awards
to Directors and senior management subject to outperforming a comparator group of similarly focused oil and gas exploration companies
in terms of shareholder return over a three year period. The plan awards a number of shares to Directors and senior management based on
a multiple of salary. However, these shares only vest after a three year period and the full award is made only if Ophir has performed in the
top quartile when compared against a selected peer group of upstream oil and gas companies.
Ophir Energy plc 2012 Deferred Share Plan
On 19 June 2012 the Board resolved to establish the Ophir Energy plc Deferred Share Plan 2012 (DSP). The DSP was introduced to provide
executive management with a means of retaining and incentivising employees. The structure of the DSP will enable a portion of participants’
annual bonuses to be deferred into options to acquire ordinary shares in the capital of the Company. All options issued to date vest after
a three year period. Options have an exercise period of 10 years from the date of grant.
The DSP operates in conjunction with the Ophir Energy plc Employee Benefit Trust (the trust). The Trust will hold ordinary shares in the
Company for the benefit of its employees and former employees, which may then be used on a discretionary basis to settle the DSP Awards
as and when they are exercised. No shares have been acquired by the Trust.
Ophir Energy plc Net Asset Value (NAV) Scheme
On 10 May 2016 the Board resolved to establish the Ophir Energy Long-Term value creation plan 2016, effective 1 January 2016 to all Ophir
employees participating in the plan. The plan only rewards if the Group delivers long-term growth in Net Asset Value (NAV) per share which is
measured based on well-defined NAV events. When an event does take place, 12.5% of the increase in NAV above the prior Benchmark NAV
will be used to create a reward pool. NAV events will generally be monetisation events such as farm-outs and asset sales, which have defined
values, and the risked value of development assets once a Final Investment Decision (FID) is taken or first production takes place to ensure
NAV events are tangible and demonstrably value creating. The impact of commodity prices is factored out of the scheme so that these
events are neutral to ensure that the reward pool is not artificially inflated or deflated by the commodity cycle. Similarly, cash distributions,
fundraising or capital changes are also factored out of the scheme. When a reward pool is created, it will be distributed with the following
features to apply to Executive Directors:
•
individual rewards are capped;
• 75% of NAV scheme rewards are delivered as deferred shares that vest after three, four and five years with a requirement for the total number
of after tax shares to be retained for a minimum of five years;
• 25% of rewards are delivered in cash; and
• recovery and withholding provisions apply to ensure that only true value creation is the basis of rewards.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the
period for the above schemes. These are denominated in GBP and have been translated to US Dollars using the closing exchange rate for
presentation purposes.
2016
Number
12,735,270
9,542,214
(308,753)
(2,683,432)
19,285,299
3,043,906
2016
WAEP
$0.97/£0.65
0.33c/0.25p
0.33c/0.25p
$0.75/£0.56
$0.48/£0.36
$2.60/£2.11
2015
Number
8,201,313
6,362,409
(797,419)
(1,031,033)
12,735,270
4,035,068
2015
WAEP
$1.39/£0.90
0.37c/0.25p
0.37c/0.25p
$0.16/£0.11
$0.97/£0.65
$2.90/£1.96
Outstanding options at the beginning of year
Granted during the year
Exercised during the year
Expired during the year
Outstanding options at the end of year
Exercisable at end of year
122
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Ophir Energy plc
The weighted average exercise price of options granted during the year was $0.0033 (2015: $0.0037). The range of exercise prices for
options outstanding at the end of the year was $0.0037 to $7.44 (2015: $0.0037 to $8.14) with a remaining exercise period in the range
of one to eight years.
The fair value of equity-settled share options granted is estimated as at the date of grant using a Monte-Carlo simulation for the Long
Term Incentive Plan and a binomial model for the DSP, taking into account the terms and conditions upon which the options were granted.
The following table lists the inputs to the model used for the year ended 31 December 2016.
Dividend yield (%)
Exercise Price
Share Volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Weighted average share price
Long Term Incentive Plan
2012 Deferred Share Plan
2016
–
0.33c/0.25p
49%
0.64%
0-3
$0.91/£0.63
2015
–
0.37c/0.25p
50%
0.5%
0–4
$1.05/£0.71
2016
–
0.33c/0.25p
49%
0.64%
0-3
$1.24/£0.86
2015
–
0.37c/0.25p
50%
0.5%
0–43
$2.10/£1.42
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected
volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not be the actual outcome.
(b) Share-based payments to Directors
During the year a total of 2,702,158 (2015: 1,334,506) nil cost options to acquire ordinary shares were granted to Directors under the Ophir Energy
Long-Term Incentive Plan.
During the year no options were granted to Directors under the Ophir Energy Company 2006 Share Option Plan. (2015: nil).
32 Operating lease commitments
At 31 December 2016 the Group was committed to making the following future minimum lease payments in respect of operating leases
over land and buildings with the following lease termination dates:
Due within one year
Due later than one year but within five years
Due later than five years
As at
2016
$’000
17,358
66,305
40,912
124,575
As at
2015
$’000
18,909
67,088
58,269
144,266
33 Capital commitments – exploration
In acquiring its oil and gas interests the Group has pledged that various work programmes will be undertaken on each permit/interest.
The exploration commitments in the following table are an estimate of the net cost to the Group of performing these work programmes:
Due within one year
Due later than one year but within two years
Due later than two years but within five years
As at
2016
$’000
46,870
31,805
1,240
79,915
As at
2015
$’000
39,010
30,350
17,680
87,040
34 Contingent liabilities
An individual has commenced claims against the Group relating to the evaluation and subsequent disposal of an interest that was held in
exploration blocks within the portfolio. Preliminary court hearings for applications relating to the claims have been held, and, to date, no
material rulings have been made. The Group is awaiting the schedule for the full trials and it is not practicable to state whether any payment
obligation may arise. The Group has taken the view that the actions are without merit and accordingly has estimated that no liability will arise
as a result of proceedings and therefore no provision for any liability has been made in these financial statements.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information
Notes to the financial statements
continued
35 Subsidiary undertakings, joint ventures, associates and material joint operations
Subsidiary undertakings
A complete list of Ophir Energy plc Group companies at 31 December 2016, and Group’s percentage of share capital (to the nearest whole
number) are set out in Appendix A to these consolidated financial statements on pages 143 to 146. All of these subsidiaries have been
included in these consolidated financial statements on pages 87 to 125.
Material joint operations
The following joint operations are considered individually material to the Group as at 31 December 2016.
Asset
Block R1
Block 12
Block 43
Bangkanai (Kerendan)4
Principal place of business
Equatorial Guinea
Tanzania
Tanzania
Indonesia
Activity
Exploration
Exploration
Exploration
Exploration and production
1 This concession is operated by the Group and it has an 80% interest.
2 This concession is operated by Shell in which the Group has a 20% interest.
3 This concession is operated by Shell in which the Group has a 20% interest.
4 This concession is operated by the Group and it has a 70% interest.
Capital commitments relating to these projects are included in Note 33 of these consolidated financial statements. There are no contingent
liabilities associated with these projects. Refer to Note 2.3(l) of these consolidated financial statements for the Group’s accounting policy
for jointly controlled assets and liabilities.
36 Related party disclosures
(a) Identity of related parties
The Group has related party relationships with its subsidiaries (refer to Note 6 of the Company financial statements), joint ventures (refer
to Note 20 and Note 35 of these consolidated financial statements) and its Directors.
Recharges from the Company to subsidiaries in the year were $16,536,220 (2015: $13,228,862). Transactions between the Company
and its subsidiaries have been eliminated on consolidation.
(b) Other transactions with key management personnel
Compensation of key management personnel (including Directors) is disclosed in Note 10(b) of these consolidated financial statements.
37 Business combinations
Acquisitions in 2016
There were no business acquisitions in 2016.
Acquisitions in 2015
On 3 March 2015 (the acquisition date), the Group acquired 100% of the share capital of Salamander Energy Plc (‘Salamander’), a Southeast
Asian focused independent exploration and production company quoted on the London Stock Exchange. The enlarged Group enhances
Ophir’s operating capabilities in both Africa and Southeast Asia and deepwater expertise across key technical and commercial functions.
The combined Group provides shareholders with a diversified exposure to 21 production, development and exploration blocks in Africa and
Southeast Asia.
The Group announced that the scheme of arrangement was approved by Salamander’s shareholders on 6 February 2015 and was
sanctioned by the Supreme Court in London effective on 2 March 2015. The consideration of $326.1 million was satisfied in full by equity
by which Salamander shareholders received 0.5719 Ophir ordinary shares for each Salamander ordinary share held.
The acquisition was accounted for as a single business combination. The fair value assessment of the Salamander identifiable assets and
liabilities acquired as at the date of acquisition have been reviewed in accordance with the provisions of IFRS 3 – ‘Business Combinations’.
Details of the Group accounting policies in relation to business combinations are contained in Note 2 of these consolidated financial
statements.
The fair values of the assets acquired have been calculated using valuation techniques based on discounted cash flows using forward curve
commodity prices, a discount rate based on market observable data and cost and production profiles.
124
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Ophir Energy plc The fair values of the identifiable assets and liabilities of Salamander as at the date of acquisition were:
Assets
Exploration and evaluation assets
Oil & gas properties
Other property, plant and equipment
Financial assets
Investments accounted for using the equity method
Inventory
Trade and other receivables1
Cash and cash equivalents
Liabilities
Trade and other payables
Current tax liability
Interest-bearing bank borrowings
Convertible bonds2
Bonds payable
Provisions
Deferred tax liability
Total identifiable net assets at fair value
Goodwill arising on acquisition
Consideration satisfied by the issue of:
Equity instruments (152,208,612 ordinary shares of parent company3
Total consideration transferred
Fair Value
as at
3 Mar 2015
$’000
132,000
827,131
1,869
46,749
167,000
19,142
68,680
48,827
1,311,398
Fair Value
as at
3 Mar 2015
$’000
(42,216)
(97,375)
(253,918)
(93,959)
(154,835)
(64,127)
(278,837)
(985,267)
326,131
–
326,131
326,131
1 The fair value of the trade and other receivables amounts to $68.7 million. None of the trade receivables have been impaired and it is expected that the full contractual amount can be collected.
2 The convertible bonds were redeemed at par value $94.0 million on 30 March 2015. Accrued interest up to the date of redemption $2.35 million was also paid on this date.
3
The Group issued 152,208,612 new shares in consideration for the entire share capital of Salamander. The fair value of the shares is the published price of the shares of the Group at the acquisition
date. Therefore, the fair value of the share consideration given is $326.1 million.
From the date of acquisition, 3 March 2015 to 31 December 2015, Salamander contributed $161.1 million to Group revenue and a loss
of $132.2 million to Group loss after taxation. If the acquisition of Salamander had taken place at the beginning of the year, Salamander
contribution to Group revenue and loss after taxation for the year ended 31 December 2015 would be $211.1 million and $147.7 million
respectively.
The corporate costs associated with the transaction amounted to $8.0 million and have been expensed in general and administration
expenses in the consolidated income statement and statement of other comprehensive income.
38 Events after the reporting period
There have been no events after the reporting period that require disclosure in the Group accounts.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Company statement of financial position
As at 31 December 2016
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Financial assets
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Taxation payable
Total liabilities
Net assets
Capital and reserves
Called up share capital
Treasury shares
Other reserves
Total equity
Notes
2016
$’000
2015
$’000
6
7
8
9
10
11
12
14
15
16
2,752
1,159,571
1,887
1,164,210
6,215
2,337
265,514
274,066
1,438,276
4,026
1,139,524
2,202
1,145,752
6,655
3,363
533,630
543,648
1,689,400
(2,733)
(25)
(2,758)
–
(2,758)
1,435,518
(6,468)
(25)
(6,493)
–
(6,493)
1,682,907
3,061
(153)
1,432,610
1,435,518
3,061
(155)
1,680,001
1,682,907
The Company’s loss for the year was $250,377,000 (2015: $206,353,000)
The notes on pages 129 to 146 form part of these Company financial statements.
The Company financial statements of Ophir Energy plc (registered number 05047425) on pages 126 to 146 were approved by the Board
of Directors on 8 March 2017.
On behalf of the Board:
Nick Cooper
Chief Executive Officer
Tony Rouse
Chief Financial Officer
126
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Ophir Energy plc
Company statement of changes in equity
For the year ended 31 December 2016
As at 1 January 2015
Loss for the period, net of tax
Other comprehensive income, net of tax
Total comprehensive income, net of tax
New ordinary shares issued to third parties
Purchase of own shares
Exercise of options
Share-based payment
As at 31 December 2015
Loss for the period, net of tax
Other comprehensive income, net of tax
Total comprehensive income, net of tax
Exercise of options
Share-based payment
As at 31 December 2016
Called up
share capital
$’000
Treasury
shares
$’000
2,474
–
–
–
587
–
–
–
3,061
–
–
–
–
–
3,061
(59)
–
–
–
–
(99)
3
–
(155)
–
–
–
2
–
(153)
Other1
reserves
$’000
1,612,226
(206,353)
–
(206,353)
325,545
(56,011)
–
4,594
1,680,001
(250,377)
–
(250,377)
–
2,986
1,432,610
Total equity
$’000
1,614,641
(206,353)
–
(206,353)
326,132
(56,110)
3
4,594
1,682,907
(250,377)
–
(250,377)
2
2,986
1,435,518
1 Refer to Note 16 of these Company financial statements.
The notes on pages 129 to 146 form part of these Company financial statements.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Company statement of cash flows
For the year ended 31 December 2016
Operating activities
Loss before taxation
Adjustments to reconcile loss before tax to net cash flows:
Interest income
Foreign exchange losses/(gains)
Depreciation of property, plant and equipment
Share-based payment expense
Allowance for impairment of investment in subsidiaries
Working capital adjustments
(Decrease)/increase in trade and other payables
Decrease/(increase) in trade and other receivables
Cash flows used in operating activities
Interest income
Net cash flows used in operating activities
Investing activities
Purchases of property, plant and equipment
Investment in subsidiaries
Decrease/(increase) in inventory
(Loans to)/repaid by subsidiaries
Cash returned/(placed) on deposit
Security deposits returned/(placed)
Net cash flows (used in)/from investing activities
Financing activities
Proceeds from of exercise of share options
Purchase of own shares
Net cash flows (used in)/from financing activities
Notes
2016
$’000
2015
$’000
(250,376)
(206,353)
6
7
6
(1,862)
1,088
2,093
2,986
492,364
(1,581)
2,025
246,737
1,862
248,599
(5,058)
(425)
440
(511,982)
–
–
(517,025)
2
–
2
(1,624)
3,776
2,714
4,594
158,204
(8,029)
966
(45,752)
1,624
(44,128)
(2,202)
(246,877)
(588)
(182,276)
294,904
4,740
(132,299)
3
(56,109)
(56,106)
(232,533)
(3,776)
769,939
533,630
(Decrease)/increase in cash and cash equivalents for the year
Net effect of foreign exchange rates on cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 129 to 146 form part of these Company financial statements.
(268,424)
308
533,630
265,514
11
128
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Ophir Energy plc Notes to the financial statements
1 Corporate information
Ophir Energy plc (the Company) is a public limited company domiciled and incorporated in England and Wales. The Company’s registered
offices are located at 123 Victoria Street, London SW1E 6DE.
The Company’s business is the development of offshore and deepwater oil and gas exploration assets. The Company has an extensive
and diverse portfolio of exploration interests across Africa and Southeast Asia.
The Company’s financial statements for the year ended 31 December 2016 were authorised for issue by the Board of Directors on 8 March
2016 and the Statement of Financial Position was signed on the Board’s behalf by Nick Cooper and Tony Rouse.
2 Basis of preparation and significant accounting policies
2.1 Basis of preparation and statement of compliance
The Company’s financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board
and adopted by the European Union (EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements are prepared on a going concern basis.
The financial statements have been prepared on a historical cost basis except for revaluation of certain derivative instruments measured
at fair value. The financial statements are presented in US Dollars rounded to the nearest thousand dollars ($’000) except as otherwise
indicated.
The Company is the ultimate parent entity of the Group. The Company’s financial statements are included in the Ophir Energy plc
consolidated financial statements for the year ended 31 December 2016. As permitted by the section s408 of the Companies Act 2006
the Company has not presented its own income statement and statement of other comprehensive income and related notes.
Comparative figures for the period to 31 December 2015 are for the year ended on that date.
New and amended accounting standards and interpretations
The Company has adopted relevant new and amended IFRS and IFRIC interpretations as of 1 January 2015. These are detailed in Note 2
of the Group financial statements.
2.2 Significant accounting policies
(a) Investment in subsidiaries
The Company holds monetary balances with its subsidiaries of which settlement is neither planned nor likely to occur in the foreseeable
future. Such balances are considered to be part of the Company’s net investment in its subsidiaries.
The carrying values of investments in subsidiaries are reviewed for impairment when events or changes in circumstances indicate the carrying
value may not be recoverable.
(b) Financial instruments
i. Cash and short-term deposits
Cash and cash equivalents in the statement of financial position comprise cash at banks and in hand and short-term deposits with a maturity
of three months or less, but excludes any restricted cash. Restricted cash is not available for use by the Company and therefore is not considered
highly liquid, (for example, cash set aside to cover rehabilitation obligations). For the purpose of the statement of cash flows, cash and cash
equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
ii. Trade and other receivables
Trade receivables, which generally have 30 to 90 day terms, are recognised and carried at the lower of their original invoiced value and
recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. Allowance is made when there
is objective evidence that the Company will not be able to recover balances in full. Evidence on non-recoverability may include indications
that the debtor or group of debtors is experiencing significant financial difficulty, the probability that they will enter bankruptcy or default
or delinquency in repayments. Balances are written off when the probability of recovery is assessed as being remote. The amount of the
impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original
effective interest rate.
iii. Trade and other payables
Trade and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Company prior
to the end of the financial year that are unpaid and arise when the Company becomes obligated to make future payments in respect
of the purchase of those goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
2 Basis of preparation and significant accounting policies continued
iv. Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest
rate method.
Gains and losses are recognised in the income statement when liabilities are derecognised as well as through the amortisation process.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
(c) Inventories
Inventories which comprise drilling consumables are stated at the lower of cost and net realisable value. Cost is determined by using weighted
average cost method and comprises direct purchase costs, cost of transportation and other related expenses.
(d) Property, plant and equipment
Cost
Property, plant and equipment, which comprises furniture and fittings and computer equipment, is stated at cost less accumulated
depreciation and accumulated impairment losses. Such cost includes costs directly attributable to making the asset capable of operating
as intended.
Depreciation
Depreciation is provided on property, plant and equipment calculated using the straight line method at rates to write off the cost, less
estimated residual value based on prices prevailing at the statement of financial position date, of each asset over expected useful lives
ranging from three to 10 years.
(e) Provisions
A provision is recognised when the Company has a legal or constructive obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation. If the effect of
the time value of money is material, expected future cash flows are discounted using a current pre-tax rate that reflects, where appropriate,
the risks specific to the liability. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a
finance cost.
(f) Pensions and other post-retirement benefits
Up to 31 October 2016, the Company did not operate its own pension plan but made pension or superannuation contributions to private
funds of its employees which are defined contribution plans. On 1 November 2016 the Group launched its own defined contribution scheme
for its executive directors. Contributions to defined contribution plans are recognised in the income statement in the period in which they
become payable.
(g) Employee benefits
Salaries, wages, annual leave and sick leave
Liabilities for salaries and wages, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within
12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts
expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are
measured at the rates paid or payable.
(h) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
(i) Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an
assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys
a right to use the asset.
The Company has leases where the Lessor retains substantially all the risks and benefits of ownership of the asset. Such leases are classified
as operating leases and rentals payable are charged to the income statement on a straight line basis over the lease term.
(j) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration received and receivable, excluding discounts, rebates, VAT and other
sales taxes or duty.
130
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Ophir Energy plc (k) Interest income
Interest income is recognised as it accrues using the effective interest rate method, that is, the rate that exactly discounts estimated future
cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.
(l) Share-based payments
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted
and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled
to the award. Fair value is determined with reference to the market value of the underlying shares using a pricing model appropriate to the
circumstances which requires judgements as to the selection of both the valuation model and inputs. In valuing equity-settled transactions,
no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition or
a non-vesting condition, which are treated as vesting irrespective of whether or not the market condition or non-vesting condition is satisfied,
provided that all other vesting conditions are satisfied.
At each statement of financial position date before vesting, the cumulative expense is calculated on the basis of the extent to which the
vesting period has expired and management’s best estimate of the number of equity instruments that will ultimately vest. The movement
in cumulative expense since the previous statement of financial position date is recognised in the income statement, with a corresponding
entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost
based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over
the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value
of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised
if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation and any cost not yet recognised in
the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation
or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement.
For equity-settled share-based payment transactions with third parties, the goods or services received are measured at the date of receipt
by reference to their fair value with a corresponding entry in equity. If the Company cannot reliably estimate the fair value of the goods
or services received, their value is measured by reference to the fair value of the equity instruments granted.
(m) Foreign currency translation
The functional currency of the Company is determined on an individual basis according to the primary economic environment in which
it operates.
Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the statement
of financial position date. All exchange differences are taken to the income statement. Non-monetary items that are measured at historical
cost in a foreign currency are translated using the spot exchange rate ruling as at the date of the initial transaction. Non- monetary items
measured at a revalued amount in a foreign currency are translated using the spot exchange rate ruling at the date when the fair value
was determined.
(n) Income taxes
Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax
rates and laws that are enacted or substantively enacted by the statement of financial position date.
Current income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income tax
is recognised in the income statement.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
2 Basis of preparation and significant accounting policies continued
Deferred tax
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, with the following exceptions:
• where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction affects neither accounting nor taxable profit or loss;
•
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing
of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future; and
• deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences, carried forward tax credits or tax losses can be utilised.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it
is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become
probable that future taxable profit will be available to allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the
related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the statement of financial
position date.
Deferred income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise deferred
income tax is recognised in the income statement.
(o) Impairment
The Company assesses at each reporting date whether there is an indication that an intangible asset or item of property plant and
equipment may be impaired. If any indication exists, or when annual impairment testing for is required, the Company estimates the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use and is
determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets
or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is
written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining
fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an
appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded
subsidiaries or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the
Company’s CGU’s to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years.
For longer periods, a long-term growth rate is calculated and applied to projected future cash flows after the fifth year.
Impairment losses of continuing operations, including impairment on inventories, are recognised in the income statement in expense
categories consistent with the function of the impaired asset, except for a property previously revalued and the revaluation was taken to other
comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous
revaluation.
2.3 Significant accounting judgements, estimates and assumptions
The preparation of the Company financial statements requires management to make judgements, estimates and assumptions that
affect the reported amounts of assets, liabilities and contingent liabilities at the date of the Company financial statements and reported
amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based
on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. However, actual outcomes can differ from these estimates.
The Company has used estimates and assumptions in deriving certain figures within the financial statements. Such accounting estimates
may not equate with the actual results which will only be known in time. The key areas of estimation are detailed in Note 2.4 of the Group
financial statements.
132
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Ophir Energy plc 3 Loss attributable to members of the parent company
The loss attributable to the members of the parent company for the year ended 31 December 2016 is $250.4 million (2015: $206.4 million).
4 Staff numbers and costs
(a) Staff costs
Employee costs (including payments to Directors) during the year comprised:
Salaries and wages
Social security costs
Contributions to pension plans/superannuation funds
Share-based payment expense (Note 31)
(b) Key management
The table below sets out the details of the emoluments of the Group’s key management including Directors:
Aggregate compensation:
Salaries and wages
Social security costs
Contributions to pensions/superannuation funds
Share-based payment (credit)/expense (Note 31)
Year ended
31 Dec 2016
$’000
20,051
2,581
771
2,984
26,387
Year ended
31 Dec 2015
$’000
19,778
2,675
1,336
4,594
28,383
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
6,728
834
272
(924)
6,910
6,324
778
346
1,478
8,926
Key management emoluments above excludes aggregate gains made by Directors on the exercise of share options of $206,680 (2015: nil).
(c) Directors’ emoluments
(i) Aggregate compensation:
Salaries and wages
Bonuses
Social security costs
Contributions to pensions/superannuation funds
Other benefits
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
2,186
1,737
516
139
18
4,596
2,223
781
392
151
18
3,565
Directors’ emoluments above excludes aggregate gains made by Directors on the exercise of share options of $206,680 (2015: nil).
(ii) Share-based payment (credit)/expense (Note 31)
Number of Directors to whom superannuation or pension benefits accrued during the year
(d) Average number of persons employed (full time equivalents):
CEO
Exploration and technical
Commercial and support
Year ended
31 Dec 2016
$’000
(2,628)
3
Year ended
31 Dec 2015
$’000
449
2
Year ended
31 Dec 2016
$’000
1
34
51
86
Year ended
31 Dec 2015
$’000
1
144
188
333
133
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
5 Share-based compensation
(a) Employee incentive share option plans
Ophir Energy Company 2006 Share Option Plan
On 5 April 2006 the Board resolved to establish the Ophir Energy Company Limited 2006 Share Option Plan. Any employee of the Company
or any subsidiary or any Director of the Company or any subsidiary who is required to devote substantially the all of his/her working time to
his duties is eligible to participate under the plan. At the grant date the Board of Directors determine the vesting terms, if any, subject to the
proviso that no more than one half of the options become exercisable on the first and second anniversaries of the date of grant and any
performance conditions are satisfied. Options have an exercise period of 10 years from the date of grant.
Ophir Energy Long Term Incentive Share Option Plan
On 26 May 2011, the Board resolved to establish the Ophir Energy Long Term Incentive Share Option Plan. This was introduced to give awards
to Directors and senior management subject to outperforming a comparator group of similarly focused oil and gas exploration companies
in terms of shareholder return over a three year period. The plan awards a number of shares to Directors and senior management based
on a multiple of salary. However, these shares only vest after a three year period and the full award is made only if Ophir has performed
in the top quartile when compared against a selected peer group of upstream oil and gas companies.
Ophir Energy plc 2012 Deferred Share Plan
On 19 June 2012 the Board resolved to establish the Ophir Energy plc Deferred Share Plan 2012 (DSP). The DSP was introduced to provide
executive management with a means of retaining and incentivising employees. The structure of the DSP will enable a portion of participants’
annual bonuses to be deferred into options to acquire ordinary shares in the capital of the Company. All options issued to date vest after
a three year period. Options have an exercise period of 10 years from the date of grant.
The DSP operates in conjunction with the Ophir Energy plc Employee Benefit Trust (the trust). The Trust will hold ordinary shares in the
Company for the benefit of its employees and former employees, which may then be used on a discretionary basis to settle the DSP
Awards as and when they are exercised. No shares have been acquired by the Trust.
Ophir Energy plc Net Asset Value (NAV) Scheme
On 10 May 2016 the Board resolved to establish the Ophir Energy Long-Term value creation plan 2016, effective 1 January 2016 to all Ophir
employees participating in the plan. The plan only rewards if the Group delivers long-term growth in Net Asset Value (NAV) per share which is
measured based on well-defined NAV events. When an event does take place, 12.5% of the increase in NAV above the prior Benchmark NAV
will be used to create a reward pool. NAV events will generally be monetisation events such as farm-outs and asset sales, which have defined
values, and the risked value of development assets once a Final Investment Decision (FID) is taken or first production takes place to ensure
NAV events are tangible and demonstrably value creating. The impact of commodity prices is factored out of the scheme so that these
events are neutral to ensure that the reward pool is not artificially inflated or deflated by the commodity cycle. Similarly, cash distributions,
fundraising or capital changes are also factored out of the scheme. When a reward pool is created, it will be distributed with the following
features to apply to Executive Directors:
•
individual rewards are capped;
• 75% of NAV scheme rewards are delivered as deferred shares that vest after three, four and five years with a requirement for the total number
of after tax shares to be retained for a minimum of five years;
• 25% of rewards are delivered in cash; and
• recovery and withholding provisions apply to ensure that only true value creation is the basis of rewards.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the
period for the above schemes. These are denominated in GBP and have been translated to US Dollars using the closing exchange rate
for presentation purposes.
2016
Number
12,735,270
9,542,214
(308,753)
(2,683,432)
19,285,299
3,043,906
2016
WAEP
$0.97/£0.65
0.33c/0.25p
0.33c/0.25p
$0.75/£0.56
$0.48/£0.36
$2.60/£2.11
2015
Number
8,201,313
6,362,409
(797,419)
(1,031,033)
12,735,270
4,035,068
2015
WAEP
$1.39/£0.90
0.37c/0.25p
0.37c/0.25p
$0.16/£0.11
$0.97/£0.65
$2.90/£1.96
Outstanding options at the beginning of the year
Granted during the year
Exercised during the year
Expired during the year
Outstanding options at the end of the year
Exercisable at end of year
134
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Ophir Energy plc
The weighted average exercise price of options granted during the year was $0.0033 (2015: $0.0037). The range of exercise prices for
options outstanding at the end of the year was $0.0037 to $7.44 (2015: $0.0037 to $8.14) with a remaining exercise period in the range
of one to eight years.
The fair value of equity-settled share options granted is estimated as at the date of grant using a Monte-Carlo simulation for the Long
Term Incentive Plan and a binomial model for the DSP, taking into account the terms and conditions upon which the options were granted.
The table below lists the inputs to the model used for the year ended 31 December 2016.
Dividend yield (%)
Exercise Price
Share Volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Weighted average share price
Long Term Incentive Plan
2013 Deferred Share Plan
2016
–
0.33c/0.25p
49%
0.64%
0–3
$0.91/£0.63
2015
–
0.37c/0.25p
50%
0.5%
0–4
$1.05/£0.71
2016
–
0.33c/0.25p
49%
0.64%
0–3
$1.24/£0.86
2015
–
0.37c/0.25p
50%
0.5%
0–3
$2.10/£1.42
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not be the
actual outcome.
(c) Share-based payments to Directors
During the year 2,702,158 (2015: 1,334,506) nil cost options to acquire ordinary shares were granted to Directors under the Ophir Energy
Long Term Incentive Plan.
During the year no options were granted to Directors under the Ophir Energy Company 2006 Share Option Plan (2015: nil).
6 Property, plant and equipment
Office furniture and equipment
Cost
Balance at the beginning of the year
Additions
Disposals
Balance at the end of the year
Depreciation
Balance at the beginning of the year
Disposals
Depreciation charge for the year
Balance at the end of the year
Net book value
Balance at the beginning of the year
Balance at the end of the year
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
8,616
814
–
9,430
4,590
–
2,088
6,678
4,026
2,752
6,414
2,202
–
8,616
1,876
–
2,714
4,590
4,538
4,026
135
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information
Notes to the financial statements
continued
7 Investments in subsidiaries
The following table shows the movement in the investment in subsidiaries during the year
Balance at the beginning of the year
Additions during the year
Salamander Energy plc
Ophir Holdings & Services (UK) Limited
Ophir Asia Limited
Dominion Petroleum Limited
Ophir Asia Services Limited
Ophir Holdings Limited
Ophir Ventures (Jersey) No. 2 Limited
Other
Repayments during the year
Ophir Holdings Limited
Dominion Petroleum Limited
Ophir Services Pty Limited
Other
Balance at the end of the year
Foreign exchange translation gains and losses
Allowance for impairment
Balance at the beginning of the year
Additional allowance
Balance at the end of the year
Net book value
At the beginning of the year
At the end of the year
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
1,760,283
978,375
121,195
62,862
17,574
–
591
–
–
1,016,305
593,011
–
62,126
6,645
–
128,238
2
9,013
(653,392)
(43,258)
(4,148)
(5,318)
2,272,694
–
–
(20,781)
(22,971)
1,733,658
–
26,625
(620,759)
(492,364)
(1,113,123)
(462,555)
(158,204)
(620,759)
1,139,524
1,159,571
542,445
1,139,524
Loans to subsidiaries are unsecured, interest free and form part of the Company’s investments in subsidiaries. The loans are denominated
in US Dollars and have no particular repayment terms. The Company has indicated that it does not intend to demand repayment in the
foreseeable future. The allowance for impairment charge primarily relates to unrecoverable intra-group funding.
A complete list of Ophir Energy plc Group companies at 31 December 2016, and Group’s percentage of share capital (to the nearest whole
number) are set out in Appendix A to these financial statements on page 143 to 146. All of these subsidiaries have been consolidated in
the Group financial statements on pages 79 to 125.
8 Financial assets
Non-current
Security deposits – Rental properties
136
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
1,887
1,887
2,202
2,202
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Ophir Energy plc 9 Inventory
Drilling consumables
As at
31 Dec 2016
$’000
6,215
As at
31 Dec 2015
$’000
6,655
The inventory valuation is stated net of a provision of $0.4 million (2015: nil) to write inventories down to their net realisable value.
10 Trade and other receivables
Other debtors
Prepayments
All debtors are current. There are no receivables that are past due or impaired.
Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value.
11 Cash and cash equivalents
Cash
Cash equivalents
As at
31 Dec 2016
$’000
711
1,626
2,337
As at
31 Dec 2015
$’000
2,110
1,253
3,363
As at
31 Dec 2016
$’000
35,767
229,747
265,514
As at
31 Dec 2015
$’000
35,121
498,509
533,630
Cash and cash equivalents comprise cash in hand, deposits and other short-term money market deposit accounts that are readily convertible
into known amounts of cash. The fair value of cash and cash equivalents is $265.5 million (2015: $533.6 million).
12 Trade and other payables
Trade creditors
Accruals
As at
31 Dec 2016
$’000
590
2,143
2,733
As at
31 Dec 2015
$’000
922
5,546
6,468
Trade payables are unsecured and are usually paid within 30 days of recognition.
13 Financial instruments
The Company utilises the same financial risk and capital management as the Group. Refer to Note 25 of the Group financial statements
for further details.
(a) Credit quality of financial assets
Year ended 31 December 2016
Current financial assets
Cash and cash equivalents
Trade and other receivables
Non-current financial assets
Security deposits
Equivalent S&P rating1
Internally rated
A-1
and above
$’000
A-2
and above
$’000
A-2
and below
$’000
Not rated
$’000
Total
$’000
46,799
–
46,799
218,709
–
218,709
–
–
–
–
–
–
–
–
–
6
23
29
1,887
1,887
265,514
23
265,537
1,887
1,887
137
1 The equivalent S&P rating of the financial assets represents that rating of the counterparty with whom the financial asset is held rather than the rating of the financial asset itself.
4747-Ophir-AR16_22_CompanyFinancials_AW-KC-280317.indd 137
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
13 Financial instruments continued
Year ended 31 December 2015
Current financial assets
Cash and cash equivalents
Trade and other receivables
Non-current financial assets
Security deposits
Equivalent S&P rating1
Internally rated
A-1
and above
$’000
A-2
and above
$’000
A-2
and below
$’000
Not rated
$’000
Total
$’000
533,623
–
533,623
–
–
–
–
–
2,202
2,202
–
–
–
–
–
7
3,363
3,370
–
–
533,630
3,363
536,993
2,202
2,202
1 The equivalent S&P rating of the financial assets represents that rating of the counterparty with whom the financial asset is held rather than the rating of the financial asset itself.
Credit risk on cash and cash equivalents and short-term investments is managed by limiting the term of deposits to periods of less than
twelve months and selecting counterparty financial institutions with reference to long and short-term credit ratings published by Standard
& Poor’s.
Fair values
The maximum exposure to credit risk is the fair value of security deposits and receivables. Collateral is not held as security.
The carrying amounts of non-current receivables approximate their fair value.
(b) Interest rate risk
As of 31 December 2016, the Company has no external borrowings (2015: nil) so interest rate risk is limited to interest receivable on deposits
and bank balances.
The Company’s exposure to the risk of changes in market interest rate relates primarily to the Company’s cash assets held in short-term
cash deposits.
The Board monitors its cash balance on an ongoing basis and liaises with its financiers regularly to mitigate the risk of a fluctuating interest
rate. The benchmark rate used for short-term deposits is US LIBOR.
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
1,887
265,514
–
267,401
–
267,401
2,202
533,630
–
535,832
–
535,832
Financial assets
Security deposits
Cash and cash equivalents
Investments
Financial liabilities
Loans from subsidiary undertakings
Net exposure
138
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Ophir Energy plc The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant,
of the Company’s loss before tax (through the impact on floating rate deposits and cash equivalent).
Increase/decrease in interest rate
+0.5%
-0.5%
Effect on loss
31 Dec 2016
$’000
1,328
(1,328)
Effect on loss
31 Dec 2015
$’000
2,679
(2,679)
The sensitivity in 2016 was maintained at 0.5% as interest rate volatilities remained similar to those in the prior period.
(c) Foreign currency risk
The Company adopts the same policies to manage foreign currency risk as the Group. Refer to Note 25(d) of the Group financial statements
for further details.
As at 31 December 2016, the Company’s predominant exposure to foreign exchange rates related to cash and cash equivalents held
in Pounds Sterling.
At the statement of financial position date, the Company had the following exposure to GBP, THB, MYR and EUR foreign currency that
is not designated in cash flow hedges:
Financial assets
Cash and cash equivalents
EUR
GBP
Security deposits
GBP
Financial liabilities
Trade and other payables
AUD
THB
MYR
EUR
GBP
Net exposure
As at
31 Dec 2016
$’000
As at
31 Dec 2015
$’000
1
7,049
7,050
1,887
8,937
–
–
–
(12)
(2,051)
(2,063)
6,874
1
29,088
29,089
2,202
31,291
(200)
(151)
(23)
(85)
(3,851)
(4,310)
26,981
The table below demonstrates the sensitivity to reasonable possible changes in currencies against the US Dollar exchange rates with all
other variables held constant, of the Company’s loss before tax and equity (due to the foreign exchange translation of monetary assets
and liabilities).
US Dollar to GBP Sterling +5% (2015: +5%)
US Dollar to GBP Sterling -5% (2015: -5%)
Loss before tax higher/(lower)
2016
$’000
344
(344)
2015
$’000
1,372
(1,372)
139
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
13 Financial instruments continued
Significant assumptions used in the foreign currency exposure sensitivity analysis include:
• Reasonably possible movements in foreign exchange rates were determined based on a review of the last two years’ historical movements
and economic forecaster’s expectations.
• The reasonably possible movement was calculated by taking the US Dollar spot rate as at balance date, moving this spot rate by the
reasonably possible movements and then re-converting the US Dollar into the respective foreign currency with the new spot rate.
This methodology reflects the translation methodology undertaken by the Company.
(d) Liquidity risk
The Company has a liquidity risk arising from its ability to fund its liabilities. The Company utilises the same policies to mitigate liquidity risk
as the rest of the Group. Refer to Note 25(e) of the Group financial statements for further details.
All of the Company’s trade creditors and other payables (refer to Note 12 of these Company financial statements) are payable in less than
six months.
The Company did not make use of derivative instruments during the year or during the prior year.
(e) Disclosure of fair values
The carrying value of security deposits and financial liabilities disclosed in the financial statements as at 31 December 2016 approximate
their fair value.
Fair value hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
quoted (unadjusted) prices in active markets for identical assets or liabilities;
other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
There were no transfers between fair value levels during the year.
14 Share capital
(a) Authorised
2,000,000,000 ordinary shares of 0.25p each
(b) Called up, allotted and fully paid ordinary shares of 0.25p each
In issue at the beginning of the year 746,019,407 ; (2015: 593,810,795)
Additions
Issued on exercise of share options during the year; nil (2015: nil)
Issued during the period; Nil (2015: 152,208,61211)
In issue at the end of the year; 746,019,407 (2015: 746,019,407)
Year ended
31 Dec 2016
$’000
–
–
1,887
1,887
Year ended
31 Dec 2015
$’000
–
–
2,202
2,202
Year ended
31 Dec 2016
$’000
Year ended
31 Dec 2015
$’000
7,963
7,963
3,061
–
–
3,061
2,474
–
587
3,061
1 152,208,612 ordinary shares were issued in consideration for the acquisition of Salamander Energy plc on 3 March 2015. The market value of the Company’s shares on this date was £1.39 ($2.14).
The balances classified as called up; allotted and fully paid share capital represents the nominal value of the total number of issued shares
of the Company of 0.25p each. Fully paid shares carry one vote per share and carry the right to dividends.
140
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Ophir Energy plc
15 Treasury shares
Ordinary shares of 0.25p each held by the Group as treasury shares
Balance at the beginning of the year: 40,227,138 (2015: 14,910,114)
Acquired during the year: nil (2015: 26,114,403)
Disposed of on exercise of share options during the year: 308,753 (2015: 797,379)
Balance at the end of the year; 39,918,385 (2015: 40,227,138)
Year ended
31 Dec 2016
$’000
155
-
(2)
153
Year ended
31 Dec 2015
$’000
59
99
(3)
155
Treasury shares represents the cost of shares in the Company purchased in the market and held by the Company partly to satisfy options
under the Group’s employee incentive share option plans (refer to Note 5 of these Company financial statements). During 2016 nil shares
were purchased (2015: $56.1 million).
16 Other reserves
As at 1 January 2015
Loss for the period, net of tax
Other comprehensive income,
net of tax
Total comprehensive loss, net of tax
New ordinary shares issued
to third parties4
Purchase of own shares
Exercise of options
Share-based payment
Transfers within reserves4
As at 1 January 2016
Profit for the period, net of tax
Other comprehensive income,
net of tax
Total comprehensive income,
net of tax
Share-based payment
As at 31 December 2016
Share 1
premium
$’000
807,427
–
–
–
–
–
–
–
–
807,427
–
–
–
–
807,427
Capital2
redemption
reserve
$’000
Option3
premium
reserve
$’000
Merger 4
reserve
$’000
341,792
–
–
–
325,545
–
–
–
–
667,337
–
–
Equity5
component
on
convertible
bond
$’000
Foreign6
currency
translation
reserve
$’000
Accum-
ulated
profits/
(losses)
$’000
Total other
reserves
$’000
669
–
–
–
–
–
–
–
–
669
–
–
–
–
669
11,839
–
400,223 1,612,226
(206,353)
(206,353)
–
–
–
(206,353)
–
(206,353)
–
–
–
–
–
11,839
–
(56,109)
–
–
–
325,545
(56,011)
–
4,594
–
137,761 1,680,001
–
(250,377)
(250,377)
–
–
–
–
–
11,839
(250,377)
–
(250,377)
2,986
(112,616) 1,432,610
50,214
–
–
–
–
–
–
4,594
–
54,808
–
–
62
–
–
–
–
98
–
–
–
160
–
–
–
–
160
–
2,986
57,794
–
–
667,337
1 The share premium account represents the total net proceeds on issue of the Company’s shares in excess of their nominal value of 0.25p per share less amounts transferred to any other reserves.
2 The share capital redemption reserve represents the nominal value of shares transferred following the Company’s purchase of them.
3 The option premium reserve represents the cost of share-based payments to Directors, employees and third parties.
4
In 2015 the provisions of the Companies Act 2006 relating to Merger Relief (s612 and s613) were applied to the Salamander Energy plc acquisition. The non-statutory premium arising on shares
issued by Ophir as consideration has been recognised in the Merger reserve, by virtue of Ophir acquiring in excess of 90% of all classes of the acquiree’s issued share capital.
This balance represents the equity component of the convertible bond, net of costs and tax as a result of the separation of the instrument into its debt and equity components. The bond was
converted into 21,661,476 ordinary shares of 0.25p each on 21 May 2008.
The foreign currency translation reserve is used to record unrealised exchange differences arising from the translation of the financial statements of entities within the Group that have a functional
currency other than US Dollars.
5
6
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes to the financial statements
continued
17 Operating lease commitments
At 31 December 2016 the Company was committed to making the following future minimum lease payments in respect of operating leases
over land and buildings with the following lease termination dates:
Due within one year
Due later than one year but within five years
Due later than five years
As at
31 Dec 2016
$’000
1,083
4,335
2,130
7,548
As at
31 Dec 2015
$’000
1,307
5,216
3,867
10,390
18 Related party transactions
(a) Identity of related parties
The Company has related party relationships with its subsidiaries and its Directors (refer to Note 4 of these Company financial statements).
A complete list of Ophir Energy plc Group companies at 31 December 2016, and the Group’s percentage of share capital (to the nearest whole
number) are set out in Appendix A to these financial statements.
(b) Other transactions with key management personnel
Compensation of key management personnel (including Directors) is disclosed in Note 10(b) of the Group financial statements.
19 Contingent Liabilities
An individual has commenced action against the Group relating to an evaluation of an interest that was held in exploration blocks within
the portfolio. Interim hearings in relation to costs of the claim were held on 12 February and 23 February 2015. A trial date has not been set
and therefore it is not practicable to state the timing of any payment. The Group has taken the view that the action is without merit and
accordingly has estimated that no liability will arise as a result of proceedings and no provision for any liability has been made in these
financial statements.
20 Events after reporting period
There are no events after the reporting period that require disclosure by the Company.
142
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Ophir Energy plc Appendix A – Subsidiary companies
Subsidiary companies
This is a complete list of Ophir Energy plc Group companies at 31 December 2016, and Group’s percentage of share capital to the nearest
whole number. All of these subsidiaries have been included in the consolidated financial statements on pages 87 to 125.
Ophir Services Pty Limited *
Ophir Holdings & Services
(UK) Limited *
Ophir Holdings Limited *
Country of
incorporation
Australia
Location of
operation
Australia
England
& Wales
Jersey C.I.
England
& Wales
Jersey C.I.
Ophir Asia Limited *
Jersey C.I.
Jersey C.I.
Ophir Asia Services Limited*
Thailand
Thailand
Dominion Petroleum Limited *
Bermuda
Bermuda
Salamander Energy plc *
Ophir Mexico Limited
Ophir Holdings & Ventures Limited
Ophir Espana Holdings SL
England
& Wales
England
& Wales
England
& Wales
Spain
England
& Wales
England
& Wales
England
& Wales
Spain
Ophir Gabon (Gnondo) Limited
Jersey C.I.
Gabon
Ophir Gabon (Manga) Limited
Jersey C.I.
Gabon
Ophir Gabon (Mbeli) Limited
Jersey C.I.
Gabon
Ophir Gabon (Ntsina) Limited
Jersey C.I.
Gabon
Ophir Gabon (Nkouere) Limited
Jersey C.I.
Gabon
Ophir Gabon (Nkawa) Limited
Jersey C.I.
Gabon
Ophir Equatorial Guinea
(Block R) Limited
Ophir Equatorial Guinea
(Holdings) Limited
Ophir JDZ Limited
Jersey C.I.
Jersey C.I.
Jersey C.I.
Equatorial
Guinea
Equatorial
Guinea
Jersey C.I.
Ophir Mexico Holdings Limited
Jersey C.I.
Jersey C.I.
Ophir Seychelles
(Area 1,2 and 3) Limited
Ophir Myanmar (Block AD-3) Limited
Jersey C.I.
Seychelles
Jersey C.I.
Myanmar
Ophir East Africa Holdings Limited
Jersey C.I.
Jersey C.I.
Ophir Tanzania (Block 1) Limited
Jersey C.I.
Tanzania
Ophir Tanzania (Block 3) Limited
Jersey C.I.
Tanzania
Registered
Office
Level 3, 38 Station Street Subiaco
WA 6008 Australia
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
28th Floor, Unit 2802 Q House Lumpini
Building 1 South Sathorn Road
Tungmahamek Sathorn District
Bangkok 10120 Thailand
Clarendon House, 2 Church Street
Hamilton HM 11 Bermuda
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Calle Príncipe de Vergara 131
1st floor 28002 Madrid Spain
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey J
E2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
Principal
Activity
Group Services
Holding
31 Dec 2016
100%
Services
100%
Holding
100%
Holding
100%
Services
100%
Holding
100%
Holding
100%
Holding
100%
Holding
100%
Holding
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Holding
100%
Exploration
100%
Exploration
100%
Holding
100%
Exploration
100%
Exploration
100%
143
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Appendix A – Subsidiary companies
continued
Ophir Tanzania (Block 4) Limited
Country of
incorporation
Jersey C.I.
Location of
operation
Tanzania
Ophir East Africa Ventures Limited
Jersey C.I.
Tanzania
Ophir Pipeline Limited
Jersey C.I.
Tanzania
Ophir Gas Marketing Limited
Jersey C.I.
Tanzania
Ophir LNG Limited
Jersey C.I.
Tanzania
Ophir Energy Company Nigeria
(JDZ) Limited
Ophir Energy Indonesia
(Aru) Limited
Ophir Energy Indonesia
(Halmahera-Kofiau) 1 Limited
Ophir Energy Indonesia
(Kofiau) 1 Limited
Ophir Energy Indonesia
(West Papua IV) 1 Limited
Ophir Energy Indonesia
(North Ganal) Limited
Ophir Indonesia
(Halmahera-Kofiau) 2 LLC
Nigeria
Nigeria
Cyprus
Indonesia
Cyprus
Indonesia
Cyprus
Indonesia
Cyprus
Indonesia
Cyprus
Indonesia
Delaware
Indonesia
Ophir Indonesia (Kofiau) 2 LLC
Delaware
Indonesia
Ophir Indonesia
(West Papua IV) 2 LLC
Delaware
Indonesia
Ophir Indonesia
(Bontang II) Limited
Dominion Investments Limited
England
& Wales
Tanzania
Indonesia
Tanzania
Dominion Acquisitions Limited
Dominion Uganda Limited
Dominion Somaliland Limited
Dominion Oil & Gas Limited
Dominion Oil & Gas Limited
(Tanzania)
Dominion Petroleum
Acquisitions Limited
DOMPET Limited
Dominion Petroleum Administrative
Services Limited
Dominion Tanzania Limited
Dominion Kenya Holdings Limited
British Virgin
Islands
British Virgin
Islands
British Virgin
Islands
British Virgin
Islands
Tanzania
British Virgin
Islands
Uganda
British Virgin
Island
British Virgin
Islands
Tanzania
Bermuda
Bermuda
Bermuda
Bermuda
England
& Wales
Tanzania
England
& Wales
England
& Wales
Tanzania
England
& Wales
Registered
Office
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
12 Castle Street, St Helier Jersey
JE2 3RT Channel Islands
9th Floor, St Nicholas House Catholic
Mission Street Lagos Nigeria
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County,
Delaware 19801 United States of America
Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County,
Delaware 19801 United States of America
Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County,
Delaware 19801 United States of America
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Plot 1676, Hamza Aziz Road Msasani
Penninsula Dar es Salaam Tanzania
Commerce House, Wickhams Cay I Road
Town, Tortola British Virgin Islands VG1110
Commerce House, Wickhams Cay I Road
Town, Tortola British Virgin Islands VG1110
Commerce House, Wickhams Cay I Road
Town, Tortola British Virgin Islands VG1110
Commerce House, Wickhams Cay I Road
Town, Tortola British Virgin Islands VG1110
Plot 1676, Hamza Aziz Road Msasani
Penninsula Dar es Salaam Tanzania
Clarendon House, 2 Church Street
Hamilton HM 11 Bermuda
Clarendon House, 2 Church Street
Hamilton HM 11 Bermuda
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Plot 1676, Hamza Aziz Road Msasani
Penninsula Dar es Salaam Tanzania
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Principal
Activity
Exploration
Holding
31 Dec 2016
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Holding
100%
Exploration
Exploration
95%
95%
Holding
100%
Exploration
100%
Holding
100%
Holding
100%
Holding
100%
Exploration
100%
Holding
100%
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Ophir Energy plc Dominion Petroleum Kenya Limited
Country of
incorporation
Kenya
Location of
operation
Kenya
Dominion Petroleum L15
(Kenya) Limited
Kenya
Kenya
PHT Partners LP
Ophir Indonesia
(Bangkanai) Limited
Salamander Energy
(Bengara) limited
Salamander Energy
(Bontang) Pte Ltd
Salamander Energy
(Bualuang Holdings) Limited
Salamander Energy
(Canada) Limited
Ophir Indonesia
(Central Kalimantan) Limited
Salamander Energy (E&P) Limited
Salamander Energy (Glagah
Kambuna Holdings) Limited
Salamander Energy
(Glagah Kambuna) Limited
Ophir Indonesia (Kerendan) Limited
Ophir Indonesia (Kutai) Limited
Salamander Energy
(Lao) Company Limited
United States
of America
Thailand
British Virgin
Islands
England
& Wales
Singapore
England
& Wales
Canada
Indonesia
England
& Wales
Indonesia
Thailand
Canada
Belize
Indonesia
England
& Wales
England
& Wales
British Virgin
Islands
Mauritius
England
& Wales
Lao PDR
England
& Wales
England
& Wales
Thailand
Indonesia
Indonesia
Lao
Salamander Energy
(Malaysia) Limited
Ophir Indonesia
(North East Bangkanai) Limited
Salamander Energy
(North Sumatra) Limited
Salamander Energy (Nurul) Pte Ltd
British Virgin
Islands
British Virgin
Islands
British Virgin
Islands
Singapore
Salamander Energy
(Philippines) Limited
Salamander Energy
(S.E. Asia) Limited
Ophir Indonesia
(S.E. Sangatta) Limited
Salamander Energy
(Simenggaris) Limited
England
& Wales
England & Wales
England
& Wales
England
& Wales
Malaysia
Indonesia
Indonesia
Singapore
Philippines
Indonesia
Indonesia
Registered
Office
Empress Plaza, 1st Floor
Corner of Ring Road
Parklands & Jalaram Road, Westlands
P.O. Box 41968-00100 Nairobi Kenya
Empress Plaza, 1st Floor
Corner of Ring Road
Parklands & Jalaram Road, Westlands
P.O. Box 41968-00100 Nairobi Kenya
Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County,
Delaware 19801 United States of America
Jayla Place, Wickhams Cay 1 Road Town,
Tortola VG1110 British Virgin Islands
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
80 Robinson Road, #02-00 Singapore
068898 Singapore
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
4500 Bankers Hall East 855 – 2nd Street
SW Calgary AB T2P 4K7 Canada
Suite 102, Ground Floor Blake Building
Corner Eyre & Hutson Streets
Belize City Belize
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Jayla Place, Wickhams Cay 1 Road Town,
Tortola VG1110 British Virgin Islands
Ebene Esplanade, 24 Cybercity Ebene
Mauritius
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
LS Horizon (Lao) Limited Unit 4/1.1,
4th Floor Simuong Commercial Center
Fa Ngum Road, Phia Vat Village
Sisatanak District Vientiane
Lao People’s Democratic Republic
Jayla Place, Wickhams Cay 1 Road Town,
Tortola VG1110 British Virgin Islands
Jayla Place, Wickhams Cay 1 Road Town,
Tortola VG1110 British Virgin Islands
Jayla Place, Wickhams Cay 1 Road Town,
Tortola VG1110 British Virgin Islands
80 Raffles Place, #34-02 UOB Plaza
Singapore 048624 Singapore
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Principal
Activity
Exploration
Holding
31 Dec 2016
100%
Exploration
100%
Holding
100%
Exploration
and Production
100%
Exploration
100%
Exploration
100%
Exploration
100%
Holding
100%
Exploration
and Production
100%
Holding
100%
Holding
100%
Exploration
100%
Exploration
and Production
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
Exploration
100%
145
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Appendix A – Subsidiary companies
continued
Country of
incorporation
England
& Wales
Thailand
Location of
operation
Indonesia
Thailand
England
& Wales
British Virgin
Islands
England
& Wales
British Virgin
Islands
British Virgin
Islands
British Virgin
Islands
Singapore
England
& Wales
England
& Wales
England
& Wales
Vietnam
Indonesia
England
& Wales
Malaysia
Cote d’Ivoire
Thailand
Singapore
England
& Wales
Indonesia
Indonesia
Registered
Office
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
28th Floor, Unit 2802 Q House Lumpini
Building 1 South Sathorn Road
Tungmahamek Sathorn District
Bangkok 10120 Thailand
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Jayla Place, Wickhams Cay 1 Road Town,
Tortola VG1110 British Virgin Islands
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Jayla Place, Wickhams Cay 1
PO Box 3190 Road Town, Tortola VG1110
British Virgin Islands
Jayla Place, Wickhams Cay 1 Road Town,
Tortola VG1110 British Virgin Islands
Jayla Place, Wickhams Cay 1 Road Town,
Tortola VG1110 British Virgin Islands
80 Raffles Place, #34-02 UOB Plaza
Singapore 048624 Singapore
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Level 4, 123 Victoria Street London
SW1E 6DE United Kingdom
Principal
Activity
Exploration
Holding
31 Dec 2016
100%
Exploration
100%
Exploration
100%
Exploration
100%
Holding
100%
Exploration
100%
Exploration
100%
Exploration
and Production
100%
Holding
100%
Holding
100%
Holding
100%
Exploration
100%
Ophir Indonesia
(South Sokang) Limited
Salamander Energy
(Thailand) Co., Ltd
Salamander Energy
(Vietnam) Limited
Ophir Indonesia
(West Bangkanai) Limited
Salamander Energy Group Limited
Ophir Malaysia (Block 2A) Limited
Ophir Cote d’Ivoire (CI-513) Limited
Ophir Thailand (Bualuang) Limited
Salamander Energy
Singapore Pte Ltd
Salamander Energy
(Holdco) Limited
Ophir Energy Indonesia Limited
Ophir Indonesia (JS) Limited
* Shares held directly by Ophir Energy plc.
All shares are ordinary shares.
146
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Ophir Energy plc Shareholder information
Registered and other offices
The Company’s registered office and head office is:
Level 4
123 Victoria Street
London SW1E 6DE
Telephone: +44 (0)20 7811 2400
Fax: +44 (0)20 7811 2421
Website: www.ophir-energy.com
Other offices are located in:
Jakarta
15th floor, Indonesian Stock Exchange Building
#15-02 Tower II
Jl Jenderal Sudirman Kav 52-53
Jakarta 12190
Indonesia
Telephone: +62 21 5291 2900
Fax: +62 21 3000 4020
Bangkok
Q House Lumpini Building
1 South Sathorn Road
Tungmahamek
Sathorn District
Bangkok 10120
Thailand
Telephone: +66 2620 0800
Fax: +66 2620 0820
We also have smaller offices in Cote d’Ivoire, Equatorial Guinea,
Gabon, Kenya, Malaysia, Myanmar and Tanzania.
Registrars
The Company has appointed Equiniti Limited to maintain its register
of members. Shareholders should contact Equiniti using the details
below in relation to all general enquiries concerning their
shareholding:
Equiniti Limited*
Aspect House
Spencer Road
Lancing, West Sussex BN99 6DA
Telephone: 0371 384 2030**
International callers: +44 121 415 7047
*
Equiniti Limited and Equiniti Financial Services Limited are part of the Equiniti group of
companies. Company share registration, employee scheme and pension administration
services are provided through Equiniti Limited, which is registered in England & Wales with
No. 6226088. Investment and general insurance services are provided through Equiniti
Financial Services Limited, which is registered in England & Wales with No. 6208699
and is authorised and regulated by the UK Financial Conduct Authority.
** Lines are open Monday – Friday from 8.30am – 5.30pm (UK time), excluding UK public
holidays.
2017 Financial calendar
Annual General Meeting
Half-year results announcement
Full-year results announcement
17 May 2017
14 September 2017
8 March 2018
Trading market and shareholder profiles
Ophir Energy plc’s shares are traded on the London Stock Exchange
with ticker OPHR. The Company’s SEDOL number is B24CT19 and
ISIN number is GB00B24CT194.
Unsolicited mail
The Company is required by law to make its share register available
on request to unconnected organisations. As a consequence,
shareholders may receive unsolicited mail, including mail from
unauthorised investment firms. If you wish to limit the amount
of unsolicited mail received, please contact the Mailing Preference
Service, an independent organisation whose services are free
for consumers.
Further details can be obtained from:
Mailing Preference Service
MPS Freepost LON 20771
London W1E 0ZT
Website: www.mpsonline.org.uk
Investment fraud warning
Shareholders are increasingly receiving unsolicited phone calls
regarding different investment matters which have implied a
connection with Ophir. These calls are typically from people claiming
to be brokers, offering shares in US or UK investment schemes.
As part of their ongoing campaign to raise awareness, the Financial
Conduct Authority (FCA) has recently launched “Be ScamSmart”
(http://scamsmart.fca.org.uk/)which is specifically targeted at
the tell-tale signs of a scam.
Further information on share fraud and unauthorised investment
firms targeting UK investors (‘boiler room scams’) may be
obtained from the website of the Financial Conduct Authority:
www.fca.org.uk/scams.
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information
Shareholder information
continued
Shareholder profile by size of holding as at 31 December 2016
Range
1 – 1,000
1,001 – 10,000
10,001 – 100,000
100,001 – 1,000,000
1,000,001 – 10,000,000
10,000,000+
Shareholder profile by category as at 31 December 2016
Category
Private shareholders
Nominees and other institutional investors
No.
of holders
510
380
172
133
66
17
1,278
No. of
holders
586
692
1,278
% of
total
39.91%
29.73%
13.46%
10.41%
5.16%
1.33%
100.00%
% of
total
45.86%
54.14%
100.00%
Shares held
31.12.2016
219,623
1,243,638
6,333,858
47,639,278
196,089,433
494,493,577
746,019,407
Shares held
31.12.2016
1,704,654
744,314,753
746,019,407
% of
total
0.03%
0.17%
0.85%
6.39%
26.28%
66.28%
100.00%
% of
total
0.23%
99.77%
100.00%
It should be noted that many private investors hold their shares through nominee companies and therefore the percentage of shares held by
private shareholders may be higher than that shown.
Shareholders’ rights
The following section summarises the rights and obligations in the Company’s Articles of Association (the Articles) relating to the ordinary
shares of the Company. The Articles can be found on the Company’s website.
Voting: At a general meeting, subject to any special rights or restrictions attached to any class of shares: (a) on a show of hands, every
member present in person and every duly appointed proxy present shall have one vote; (b) on a show of hands, a proxy has one vote for
and one vote against the resolution if the proxy has been duly appointed by more than one member entitled to vote on the resolution
and the proxy has been so instructed; and (c) on a poll, every member present in person or by proxy has one vote for every share held by him.
Unless the Directors resolve otherwise, no member shall be entitled to vote either personally or by proxy or to exercise any other right
in relation to general meetings if any call or other sum due from him to the Company in respect of that share remains unpaid.
Transfer of shares: Transfers of certificated shares must be effected in writing, and signed by or on behalf of the transferor and, except in
the case of fully paid shares, by or on behalf of the transferee. The transferor shall remain the holder of the shares concerned until the name
of the transferee is entered in the register of members in respect of those shares. The Directors may decline to register any transfer of a
certificated share, unless (a) the instrument of transfer is in respect of only one class of share, (b) the instrument of transfer is lodged at
the transfer office, duly stamped if required, accompanied by the relevant share certificate(s) or other evidence reasonably required by
the Directors to show the transferor’s right to make the transfer or, if the instrument of transfer is executed by some other person on the
transferor’s behalf, the authority of that person to do so, and (c) the certificated share is fully paid up. The Directors may refuse to register
an allotment or transfer of shares in favour of more than four persons jointly.
Directors’ powers: The Directors shall manage the business and affairs of the Company and may exercise all powers of the Company
other than those that are required by the Companies Act 2006 (the 2006 Act) or by the Articles to be exercised by the Company at the
general meeting. The Directors may delegate any of their powers or discretions, including those involving the payment of remuneration or the
conferring of any other benefit to the Directors, to such person or committee and in such manner as they think fit. Any such
person or committee shall, unless the Directors otherwise resolve, have the power to sub-delegate any of the powers or discretions delegated
to them.
Dividends: The Company may, by ordinary resolution, declare final dividends to be paid to its shareholders. However, no dividend shall be
declared unless it has been recommended by the Directors and does not exceed the amount recommended by the Directors. If the Directors
believe that the profits of the Company justify such payment, they may pay dividends on any class of share where the dividend is payable on
fixed dates.
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Ophir Energy plc They may also pay interim dividends on shares of any class in amounts and on dates and periods as they think fit. Unless the share rights
otherwise provide, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid, and
apportioned and paid pro-rata according to the amounts paid on the shares during any portion or portions of the period in respect
of which the dividend is paid. Any unclaimed dividends may be invested or otherwise applied for the benefit of the Company until they
are claimed. Any dividend unclaimed for 12 years from the date on which it was declared or became due for payment shall be forfeited
and shall revert to the Company. The Directors may, if authorised by ordinary resolution, offer to ordinary shareholders the right to elect
to receive, in lieu of a dividend, an allotment of new ordinary shares credited as fully paid.
Borrowing powers: The Board may exercise all the powers of the Company to borrow money, to guarantee, to indemnify, to mortgage
or charge its undertaking, property, assets (present and future) and uncalled capital, and to issue debentures and other securities whether
outright or as collateral security for any debt, liability or obligation of the Company or of any third party.
Advisers
Auditors:
Ernst & Young LLP
One More London Place
London SE1 2AF
United Kingdom
Solicitors:
Linklaters
One Silk Street
London EC2Y 8HQ
United Kingdom
Bankers:
HSBC Bank plc
70 Pall Mall
London SW1 5EY
United Kingdom
Financial PR advisers:
Brunswick Group LLP
16 Lincoln’s Inn Fields
London WC2A 3ED
United Kingdom
Corporate brokers:
Morgan Stanley
20 Bank Street
Canary Wharf
London E14 4AD
United Kingdom
Bank of America Merrill Lynch
2 King Edward Street
London EC1A 1HQ
United Kingdom
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Glossary
$
Throughout the report figures are stated in
US Dollars
Farm-in
To acquire an interest in a licence from
another party
2C
Best estimate of contingent resources
2P
Proven and probable reserves
Appraisal well
A well drilled to follow up a discovery and
evaluate its commercial potential
bbl
Barrels of oil or condensate
Bcf
Billion cubic feet
bcm
Billion cubic metres
boe
Barrel of oil equivalent
Farm-out
To assign an interest in a licence to
another party
FEED
Front end engineering and design
FID
Final Investment Decision
FLNG
Floating LNG technology
GSA
Gas Sales Agreement
LNG
Liquefied Natural Gas
LTIP
Long-Term Investment Plan
MMbtu
Million British thermal units
MMbbl
Million barrels
MMboe
Million barrels of oil equivalent
MMtpa
Million metric tonnes per annum
MMscfd
Million standard cubic feet of gas per day
G&A
General & Administration expenses
Group
The Company together with its subsidiaries
MMstb
Million stock tank barrels
NAV
Net Asset Value
bpwd
Barrels of produced water per day
GRI
Global Reporting Initiative
bscf
Billion standard cubic feet
Capex
Capital expenditure
CDP
Carbon Disclosure Project
Company
Ophir Energy plc
C&P
Contracts and Procurement
HoA
Heads of Agreement
HSE
Health, safety and environment
HSSE
Health, safety, security and environment
IAS regulation
International Accounting Standards
IFRS
International Financial Reporting Standards
NGO
Non-Governmental Organisation
OneLNG
Joint Venture between Golar LNG and
Schlumberger
PSC
Production Sharing Contract
Spud
To commence drilling a well
Tcf
Trillion cubic feet
Contingent resource
Quantities of resources estimated, at a given
date, to be potentially recoverable from
known accumulations by the application
of development projects, but not currently
considered to be commercially recoverable
due to one or more contingencies
IFRIC
International Financial Reporting
Interpretations Committee
IOGP
International Association of Oil & Gas
Producers
CR
Corporate Responsibility
E&P
Exploration and Production
EG
Equatorial Guinea
IPO
Initial Public Offering
IRR
Internal Rate of Return
JV
Joint Venture
Exploration well
A well drilled to explore a potential discovery
KGPF
Kerendan Gas Processing Facility
150
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Ophir Energy plc Notes
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Annual Report and Accounts 2016Strategic report Governance reportFinancial statementsSupplementary information Notes
152
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Ophir Energy plc Printed by Park Communications on FSC® certified paper.
Park is an EMAS certified company and its Environmental Management System is certified to ISO 14001.
100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average
99% of any waste associated with this production will be recycled.
This document is printed on Galerie Satin, a paper containing 15% recycled fibre and 85% virgin fibre sourced from
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Ophir Energy plc
Registered office:
Level 4
123 Victoria Street
London
SW1E 6DE
United Kingdom
T +44(0)20 7811 2400
F +44(0)20 7811 2421
www.ophir-energy.com
Company registered in England and Wales No. 05047425
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