Company Registration No. 03896382 (England and Wales)
PROSPEX OIL & GAS PLC
DIRECTORS' REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
PROSPEX OIL & GAS PLC
COMPANY INFORMATION
Directors
Secretary
Company number
Registered office
Auditors
Business address
Bankers
Solicitors
Nominated Adviser and Joint Broker
Joint Broker
Joint Broker
Registrars
William Smith
Edward Dawson
Richard Mays
Gerry Desler FCA
03896382
Stonebridge House
Chelmsford Road
Hatfield Heath
Essex CM22 7BD
Adler Shine LLP
Chartered Accountants and Statutory Auditor
Aston House
Cornwall Avenue
London N3 1LF
Stonebridge House
Chelmsford Road
Hatfield Heath
Essex
CM22 7BD
Royal Bank of Scotland Plc
London Blackfriars Branch
36 - 37 New Bridge Street
London EC4V 6BJ
Charles Russell Speechlys LLP
Fleet Pl
London EC4M 7RD
W H Ireland Limited
24 Martin Lane
London EC4 0DR
Peterhouse Corporate Finance Limited
3rd Floor, New Liverpool House
15 Eldon Street
London EC2M 7LD
Beaufort Securities Limited
131 Finsbury Pavement
London EC2A 1NT
Capita Registrars Limited
The Registry
34 Beckenham Road
Kent BR3 4TU
PROSPEX OIL & GAS PLC
CONTENTS
Chairman's statement
Strategic report
Directors' report
Independent auditors' report
Consolidated statement of comprehensive income
Consolidated statement of financial position
Company statement of financial position
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated statement of cash flows
Company statement of cash flows
Page
1
2 - 4
5 - 7
8 - 9
10
11
12
13
14
15
16
Notes to the financial statements
17 - 42
PROSPEX OIL & GAS PLC
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 and the first part of 2016 was a transformational period for the Company. In April 2015, Prospex
became an AIM investment company. Since April 2015, the new management team has reviewed over 20
projects and over the period the Company made several investments. The most significant investment to
date is the acquisition of 49% of the shares of Hutton Poland which in turn holds the Kolo license.
Following extensive due diligence and assessment of geological data, the management team concluded that
the Kolo license provides an attractive opportunity for the Company. This is borne out with the publication of
the independent Competent Persons' Report ("CPR") on 26 May 2016 by AGR TRACS which included a
gross best estimate for the Boleslaw prospect within the Kolo license at 87 bscf and a risked current
valuation ranging from £5m to £8.4m (net to Prospex). This represents a significant premium over the
£620,000 purchase price paid by the Company for the 49% interest in Hutton Poland, which completed in
April 2016.
The CPR’s economic results were used to interpolate indicative NPVs, which ranged from $44m to $95m
(net to Prospex). The CPR modelled production scenarios at 3,333 - 6,666 boe per day from a single well.
The directors believe that the anticipated well tests could give sufficient information that further appraisal
may not be necessary and if so appraisal costs and the attendant shareholder dilution to fund them would be
avoided.
Based on a successful Boleshaw well and the assumptions set out in the announcement dated 26 May
2016, the project could generate results in the upper end of the range the team is targeting. The directors
believe the current state of the world energy market provides opportunities for the Company to make other
investments at critical stages in a project's life cycle which could provide significant and tangible results for
the Company's shareholders in a relatively short time frame.
As announced on 26 May 2016, a well on the Boleslaw prospect is planned for the 4th quarter 2016. The
Company's £1.6 million equity raise in May 2016 includes funding for this well.
The management team and Board are actively seeking such additional investment opportunities.
On behalf of the Board I would like to thank Gavin Burnell for the significant contribution he made during his
term as a director. Our thanks also go to the advisors and service providers who were and continue to be
instrumental in this transformational phase.
William Smith
Chairman
9 June 2016
- 1 -
PROSPEX OIL & GAS PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
The directors present their strategic report for the year ended 31 December 2015.
Principal activities
The principal activity of the Group up to 15 April 2015 was related to mineral exploration for gold and
precious metals. The Group operated in Kyrgyzstan in the year under review. Following that date, the
Company became an Investment Company.
Strategy
Up until 15 April 2015, Prospex Oil and Gas Plc was a gold exploration and development company quoted
on the AIM market of the London Stock Exchange. It focused on gold opportunities in Central Asia, in
particular Kyrgyzstan, where the Group’s Cholokkaindy project, on the highly prospective Tien Shan gold
belt, had numerous targets ready for drilling.
Following the general meeting held on 15 April 2015, the Company disposed of its entire interest in the
Cholokkaindy Licence by selling the entire issued share capital of Central Asia Resources Limited in
exchange for the Trivedi Capital Partners (I) LC reducing its loan from £630,000 to £nil. At the same time the
Company changed its name from Premier Gold Resources Plc to Prospex Oil and Gas Plc.
Following the sale, the Company became an Investment Company and adopted a new Investing Policy. In
summary the policy is to invest in and/or acquire companies and/or projects within the natural resources
and/or energy sector with potential for growth and/or income. The Company may also directly apply for new
exploration licences or invest in existing licences. It is anticipated that the geographical focus will primarily
be Europe. However, investments may also be considered in other regions should the directors consider
that valuable opportunities exist and returns can be achieved.
Business review
Following the early exploration success in 2012, no further exploration was possible in the Kyrgyz Republic
due to local groups holding up the work programmes illegally. Despite pressing the Kyrgyz authorities and
threatening legal action against the government to ensure safe access to the area, little progress was made
up to 15 April 2015. Additionally, the necessary and anticipated funds for the work were not available to the
Company. As a result, the Company changed its strategy as detailed above.
In addition to the changes mentioned above, the Company entered into a Corporate Voluntary Arrangement
("CVA") with its creditors. The CVA enabled the Company to eliminate its historic debts and allow it to
pursue its new strategy. The result of the CVA was to credit the income statement with £98,885 of amounts
due to creditors which were no longer payable under the terms of the CVA.
A review of the development and performance of the Group, including important events, progress during the
year and likely future developments, can be found in the Chairman's Statement.
In summary:
- administrative expenses for continuing operations for the year rose to £601,892 (2014: £452,056);
- fair value loss on the derivative financial assets £nil (2014: £168,188);
- net loss after taxation from continuing operations was £502,434 (2014: £687,701);
- profit for the year from discontinued operations £571,745 (2014: loss - £3,892,744)
- as at 31 December 2015, the Group had cash and cash equivalents of £382,216 (2014: £22,734);
Key performance indicators
The business Key Performance Indicators ('KPI') monitored by the Board are focussed on managing the
investing activities of the Company. The financial KPI is to ensure that there is adequate funding in place to
cover the Company's investing activities and holding company costs.
- 2 -
PROSPEX OIL & GAS PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
Principal risks and uncertainties
The Board regularly reviews the risks to which the Group is exposed and seeks to minimise the effects of
these risks through careful monitoring of the risks on an ongoing basis.
The principal risks and uncertainties which the Group face include:
Early stage investments in the natural resources sector carry a high level of risk and uncertainty, although
the rewards can be outstanding. At this stage there can be no certainty of outcome and, in addition, there is
often a lack of liquidity in the Company's investments that are either unquoted or quoted on AIM, such that
the Company may have difficulty in realising the full value in a forced sale. Accordingly, a commitment to
invest is only made after thorough research into both the management and the business of the target, both
of which are closely monitored thereafter.
Organisational
The Company is highly dependent on the Directors. Whilst the board will continue to ensure that the
Directors are appropriately incentivised, their services cannot be guaranteed, and the loss of their services
to the Company may have a material adverse effect on the performance of the Company. In addition, the
competition for qualified personnel in the oil and gas industry can be intense and there can be no assurance
that the Company will be able to attract and retain all personnel necessary in the required jurisdictions for
the future development and operation of its business.
Prior the 15 April 2015 when the company was a mineral exploration company the principal risks and
uncertainties also included:
Operational
In common with other businesses operating in minerals exploration, the Group's activities were speculative
and inherently subject to a high degree of risk.
The Group's operational work involved geological exploration and the implementation of geological work
programmes. Interpretation of the results of these programmes was dependent upon judgements and
assessments that by their very nature were speculative.
Work programmes involved drilling operations and other geological work that present significant engineering
challenges which are subject to unexpected operational problems. The actual cost of programmed
operations can vary significantly from planned levels as a result of such unexpected issues arising.
Political, economic, legal, regulatory and social
The Group operated in Kyrgyzstan which may be subject to political, economic and other uncertainties,
including but not limited to terrorism, war or unrest, changes in national laws and energy policies and
exposure to its legal system.
The Group assesses legal and political risks as part of its evaluation of potential projects. It actively monitors
legal and political developments in Kyrgyzstan where its operation is located. The Group actively engages in
dialogue with the local government and legal policy makers to discuss all key legal and regulatory
developments applicable to its operations.
- 3 -
PROSPEX OIL & GAS PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
Corporate governance
The board is committed to maintaining high standards of corporate governance. While Prospex Oil and Gas
Plc does not formally comply with an official corporate governance code, the board has implemented
appropriate measures including the establishment of Audit and Remuneration Committees (detailed below)
to ensure that the company adheres to a standard which is practicable for a company of its size and stage.
Remuneration committee
The Remuneration Committee consists of William Smith and Richard Mays who also chairs the committee,
and is responsible for making recommendations to the Board, within agreed terms of reference, on the
Company’s framework of executive remuneration and its cost. The Committee determines the contract
terms, remuneration and other benefits for any executive directors, including performance related bonus
schemes, pension rights and compensation payments. The Board itself determines the remuneration of the
non-executive directors.
Audit committee
The Audit Committee consists of Richard Mays and William Smith, who also chairs the committee, and
provides a forum for reporting by the Company’s external auditors. The Committee is responsible for
reviewing a wide range of matters, including half-year and annual results before their submission to the
Board, and for monitoring the controls that are in force to ensure the integrity of information reported to
shareholders. The Committee advises the Board on the appointment of external auditors and on their
remuneration for both audit and non-audit work, and discusses the nature, scope and results of the audit
with the external auditors. The Committee keeps under review the cost effectiveness and the independence
and objectivity of the external auditors.
Edward Dawson
Chief Executive Officer
9 June 2016
- 4 -
PROSPEX OIL & GAS PLC
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
The directors present their report and financial statements for the year ended 31 December 2015.
On 16 April 2015, the company changed its name from Premier Gold Resources Plc to Prospex Oil and Gas Plc.
Results and dividends
The results for the year are set out on page 10.
The directors do not recommend payment of an ordinary dividend.
Financial instruments
The company's financial risk management objectives and policies are set out in note 26 to the financial statements.
Going concern
In common with many investment companies, the Company raises finance for its investments, as and when
required.
The Directors prepare annual budgets and cash flow projections that extend beyond 12 months from the date of
this report. These projections include the planned expenditure necessary to implement the Investment Policy.
Directors
The following directors were appointed during the year:
Edward Dawson
Richard Mays
William Smith
Gavin Burnell
(Appointed 14 April 2015)
(Appointed 14 April 2015)
(Appointed 14 April 2015)
(Appointed 14 April 2015 and resigned 28
April 2016)
The following directors resigned during the year:
Richard Nolan
Gerry Desler
Christian Schaffalitzky
Garth Earls
(Resigned 14 April 2015)
(Resigned 14 April 2015)
(Resigned 14 April 2015)
(Resigned 14 April 2015)
Directors' interests
Share interests
The Directors of the Company held the following beneficial interests in the ordinary shares of the Company:
Edward Dawson
Richard Mays
William Smith
Gavin Burnell (appointed 14 April 2015, resigned 28 April 2016)
Richard Nolan (Resigned 14 April 2015)
Gerry Desler (Resigned 14 April 2015)
Christian Schaffalitzky (Resigned 14 April 2015)
Garth Earls (Resigned 14 April 2014)
31 December 2015
1 January 2015
No. of shares
1,639,344
1,311,474
1,639,344
721,311
-
-
-
-
No. of shares
-
-
-
-
20,000
42,300
92,700
20,000
5,311,473
175,000
- 5 -
PROSPEX OIL & GAS PLC
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
Share options
The Directors of the Company held share options granted under the Company share option scheme, as indicated
below. No share options were exercised during the year.
Edward Dawson
Richard Mays
William Smith
Gavin Burnell (appointed 14 April 2015, resigned 28 April 2016)
Richard Nolan (Resigned 14 April 2015)
Gerry Desler (Resigned 14 April 2015)
Christian Schaffalitzky (Resigned 14 April 2015)
Garth Earls (Resigned 14 April 2014)
31 December 2015
No. of shares
680,212
541,726
541,726
541,726
-
-
-
-
1 January 2015
No. of shares
-
-
-
-
40,000
56,000
40,000
40,000
2,305,390
176,000
Directors' insurance
The Directors and officers of the Company are insured against any claims against them for any wrongful act in
their capacity as a Director, officer or employee of the Group, subject to the terms and conditions of the policy.
Substantial shareholdings
So far as the Directors are aware the parties who are directly or indirectly interested in 3% or more of the nominal
value of the Company's share capital as at 23 May 2016 are as follows:
Edward Dawson
Richard Mays
William Smith
Charles Fry
Number of ordinary
shares
1,639,344
1,311,474
1,639,344
1,639,344
% of issued share
capital
4.02%
3.21%
4.02%
4.02%
The market value of the Company's shares at 31 December 2015 was 1.75p and the high and low share prices
during the period were 4.5p and 0.05p respectively.
Charitable donations
During the year the company made the following payments:
Charitable donations
2015
£
2014
£
-
1,000
Creditor payment policy
The company's current policy concerning the payment of trade creditors is to:
- settle the terms of payment with suppliers when agreeing the terms of each transaction;
- ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and
- pay in accordance with the company's contractual and other legal obligations.
On average, trade creditors at the year end represented 36 days' purchases.
- 6 -
PROSPEX OIL & GAS PLC
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
Auditors
In accordance with section 489 of the Companies Act 2006, a resolution proposing that Adler Shine LLP be
reappointed as auditors of the company will be put to the Annual General Meeting.
Statement of disclosure to auditor
So far as each person serving as a Director of the Company at the date this report is approved is aware:
(a) there is no relevant audit information of which the Company's auditors are unaware, and
(b) each Director hereby confirms that he or she has taken all the steps that he or she ought to have taken as
Director in order to make himself or herself aware of any relevant audit information and to establish that the
Company's auditors are aware of that information.
Directors' responsibilities
The Directors are responsible for preparing the Strategic Report, the Directors' Report and the financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the
Directors have, as required by the AIM Rules of the London Stock Exchange, elected to prepare the Group and the
Company financial statements in accordance with International Financial Reporting Standards as adopted by the
European Union. Under company law, the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or
loss of the Company and the Group for that period.
In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether the group and parent company financial statements have been prepared in accordance with IFRS
as adopted by the European Union;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
company and the group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
company’s transactions and disclose with reasonable accuracy at any time the financial position of the company
and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Website publication
The Directors are responsible for the maintenance and integrity of the corporate and financial information included
on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of the
financial statements and other information included in annual reports may differ from legislation in other
jurisdictions.
This report was approved by the board of directors and signed on its behalf by:
Edward Dawson
Director
9 June 2016
- 7 -
PROSPEX OIL & GAS PLC
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF PROSPEX OIL & GAS PLC
We have audited the Group and Parent Company financial statements (the "financial statements") of Prospex
Oil & Gas Plc for the year ended 31 December 2015 which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the
Consolidated and Parent Company Cash Flow Statements, the Consolidated and Parent Company
Statements of Changes in Equity and the related notes.
The financial reporting framework that has been applied in the preparation of the Group financial statements is
applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the European Union.
The financial reporting framework that has been applied in the preparation of the Parent Company financial
statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
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 auditors' 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.
Respective responsibilities of directors and auditors
As explained more fully in the Directors' Responsibilities Statement set out on page 7, 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.
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 financial statements to identify material inconsistencies with the audited financial
statements and to identify any information that is 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.
Opinion on financial statements
In our opinion the financial statements:
-
give a true and fair view of the state of the Group's and the Parent Company's affairs as at 31 December
2015 and of the Group's profit for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
-
-
Opinion on other matter prescribed by the Companies Act 2006
In our opinion 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.
- 8 -
PROSPEX OIL & GAS PLC
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBERS OF PROSPEX OIL & GAS PLC
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
-
adequate accounting records have not been kept by the Parent Company, or returns adequate for our
audit have not been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting records and returns;
or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
-
-
-
Darsh Shah
(Senior Statutory Auditor)
for and on behalf of Adler Shine LLP
Chartered Accountants
Statutory Auditor
9 June 2016
Aston House
London
N3 1LF
- 9 -
PROSPEX OIL & GAS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
Notes
4
5
14
6
7
11
Continuing operations
Administrative expenses
Operating loss
Surplus as a result of the CVA
Finance income
Fair value loss on derivative financial
assets
Finance expense
Loss before income taxation
Income tax expense
Loss on ordinary activities after
taxation from continuing operations
Discontinued operations
Profit/(loss) for the year from
discontinued operations
Profit/(loss) for the year
2015
£
(601,892)
(601,892)
98,885
(503,007)
162
-
-
(502,845)
411
2014
£
(452,056)
(452,056)
-
(452,056)
34
(168,188)
(67,491)
(687,701)
-
(502,434)
(687,701)
571,745
69,311
(3,892,744)
(4,580,445)
Non-controlling interests
-
771,232
Profit/(loss) for the year and total
comprehensive income attributable
to owners of the parent
Earnings/(loss) per share - basic and
diluted
From continuing operations
From discontinued operations
8
69,311
(3,809,213)
(1.64)p
1.86p
(12.63)p
(57.33)p
The notes on pages 17 - 42 form an integral part of these financial statements.
- 10 -
PROSPEX OIL & GAS PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
Notes
9
14
12
13
14
15
16
17
20
ASSETS
Non current assets
Tangible assets
Derivative financial assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Net current assets/(liabilities)
Net assets/(liabilities)
EQUITY
Share capital
Share premium account
Equity component - convertible loan note
Capital redemption reserve
Merger reserve
Profit and loss account
Foreign currency reserve
Non-controlling interests
Total equity/(deficit)
2015
£
1,274
-
1,274
2014
£
10,355
-
10,355
-
155,909
-
382,216
538,125
(80,875)
-
977
33,928
46,359
22,734
103,998
(365,873)
(479,784)
457,250
458,524
2,657,234
6,732,714
-
43,333
2,416,667
(11,391,424)
-
458,524
-
458,524
(741,659)
(731,304)
2,304,398
6,063,208
100,216
43,333
2,416,667
(11,531,728)
39,467
(564,439)
(166,865)
(731,304)
Approved by the Board and authorised for issue on 9 June 2016
Edward Dawson
Director
Richard Mays
Director
Company Registration No. 03896382
The notes on pages 17 - 42 form an integral part of these financial statements.
- 11 -
PROSPEX OIL & GAS PLC
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
Notes
£
ASSETS
Non current assets
Tangible assets
Investments
Derivative financial assets
Current assets
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Net current assets/(liabilities)
Net assets/(liabilities)
EQUITY
Share capital
Share premium account
Equity component - convertible loan note
Capital redemption reserve
Merger reserve
Profit and loss account
9
10
14
13
14
15
16
17
20
2015
£
1,274
100
-
1,374
£
2014
£
-
-
-
-
155,909
-
382,216
538,125
(80,975)
-
25,357
46,359
22,487
94,203
(338,233)
(479,784)
457,150
458,524
2,657,234
6,732,714
-
43,333
2,416,667
(11,391,424)
(723,814)
(723,814)
2,304,398
6,063,208
100,216
43,333
2,416,667
(11,651,636)
Total shareholders' equity/(deficit)
458,524
(723,814)
The financial statements were approved by the Board on 9 June 2016
Edward Dawson
Director
Company Registration No. 03896382
Richard Mays
Director
The notes on pages 17 - 42 form an integral part of the financial statements.
- 12 -
PROSPEX OIL & GAS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Balance at 1 January 2014
Changes in equity for 2013
Total comprehensive income for the
year
Issue of shares
Costs in respect of shares issued
Convertible loan note - equity
component
Currency translation differences on
foreign currency net investments
Balance at 31 December 2014
Changes in equity in 2014
Total comprehensive income for the
year
Issue of shares
Costs in respect of shares issued
On completion of CVA
Equity-settled share-based payments
On dispsoal of subsidiaries
17
20
17
19
Share
capital
-
Share
premium
Retained
earnings
Foreign
currency
reserve
Capital
redemption
reserve
Merger
reserve
Non
controlling
interests
Convertible
loan note
Total
£
£
£
£
£
£
£
£
£
2,288,898
6,059,750
(7,722,515)
(3,874)
43,333
2,416,667
598,512
89,283
-
3,770,054
-
15,500
-
-
7,750
(4,292)
(3,809,213)
-
-
-
-
-
-
-
-
-
-
-
-
43,341
-
-
-
-
-
-
-
-
-
-
(771,232)
-
-
-
-
-
(4,580,445)
23,250
(4,292)
-
10,933
10,933
5,855
-
49,196
2,304,398
6,063,208
(11,531,728)
39,467
43,333
2,416,667
(166,865)
100,216
(731,304)
-
352,836
-
-
723,314
(53,808)
-
-
-
-
-
-
69,311
-
-
-
70,993
-
-
-
-
-
-
(39,467)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
166,865
(100,216)
-
-
69,311
1,076,150
(53,808)
(100,216)
70,993
127,398
Balance at 31 December 2015
2,657,234
6,732,714
(11,391,424)
-
43,333
2,416,667
-
-
458,524
The merger reserve has been created as a result of the acquisition of the whole of the issued share capital of Central Asia Resources Limited ('CAR') by the Company in
exchange for shares in the Company and the nominal value. It represents the difference between the fair value of the share capital issued by the Company and the nominal
value.
- 13 -
PROSPEX OIL & GAS PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Balance at 1 January 2014
Changes in equity for 2013
Total comprehensive income for the
year
Issue of shares
Costs in respect of shares issued
Convertible loan note - equity component
Balance at 31 December 2014
Changes in equity in 2014
Total comprehensive income for the
year
Issue of shares
Costs in respect of shares issued
Equity-settled share-based payments
On completion of CVA
17
20
19
17
-
Share
capital
Share
premium
Retained
earnings
Capital
redemption
reserve
Merger
reserve
Convertible
loan note
Total
£
£
£
£
£
£
£
2,288,898
6,059,750
(6,998,504)
43,333
2,416,667
89,283
3,899,427
-
15,500
-
-
-
7,750
(4,292)
-
(4,653,132)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,933
(4,653,132)
23,250
(4,292)
10,933
2,304,398
6,063,208
(11,651,636)
43,333
2,416,667
100,216
(723,814)
-
-
189,219
352,836
-
-
-
723,314
(53,808)
-
-
-
-
70,993
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(100,216)
189,219
1,076,150
(53,808)
70,993
(100,216)
Balance at 31 December 2015
2,657,234
6,732,714
(11,391,424)
43,333
2,416,667
-
458,524
The merger reserve has been created as a result of the acquisition of the whole of the issued share capital of Central Asia Resources Limited ('CAR') by the
Company in exchange for shares in the Company. It represents the difference between the fair value of the share capital issued by the Company and nominal value.
- 14 -
PROSPEX OIL & GAS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
£
2015
£
£
2014
£
Cash flows from operating activities
Operating loss
Depreciation of property, plant and equipment
Increase in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Equity-settled share based payments
Other movement
(601,892)
425
-
(130,552)
(96,409)
70,993
33,955
Net cash used in operating activities - continuing operations
(723,480)
(615,023)
2,946
(977)
(17,483)
87,308
-
85,516
(457,713)
Investing activities
Finance income
Finance expense
Net cash generated from/(used in)
investing activities
Capital expenditure
Payments to acquire intangible assets
Payments to acquire tangible assets
Net cash outflow for capital
expenditure
Acquisitions and disposals
Cash on disposal of subsidiary
undertaking
Net cash outflow for acquisitions
and disposals
Financing activities
Issue of share capital
Proceeds received from issue of
derivative financial asset
Cost of share issue
Convertible unsecured loan notes
Net cash generated from financing
activities
Net increase/(decrease) in cash and
cash equivalents in year
Cash and cash equivalents at
beginning of the year
Cash and cash equivalents at end of the year
162
-
34
(5,883)
-
(1,699)
(247)
1,076,150
12,404
(53,808)
50,000
162
(5,849)
(12,333)
(196)
(1,699)
(12,529)
-
(247)
-
-
148,578
(4,292)
80,000
1,084,746
224,286
359,482
22,734
382,216
(251,805)
274,539
22,734
The notes on pages 17 - 42 form an integral part of these financial statements.
- 15 -
PROSPEX OIL & GAS PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
Cash flows from operating activities
Operating loss
Depreciation of property, plant and equipment
Increase in trade and other receivables
Increase in trade and other payables
Equity-settled share based payments
Other movement
Net cash used in operating activities
Investing activities
Finance income
Finance expense
Net cash generated from/(used in)
investing activities
Capital expenditure
Payments to acquire tangible assets
Net cash inflow for capital
expenditure
Financing activities
Issue of share capital
Proceeds received from issue of
derivative financial asset
Cost of share issue
Convertible unsecured loan notes
Net cash generated from financing
activities
Net increase/(decrease) in cash and
cash equivalents in the year
Cash and cash equivalents at
beginning of the year
Cash and cash equivalents at end of the year
£
2015
£
£
2014
£
(540,239)
425
(130,552)
(158,062)
70,993
33,955
(723,480)
(452,055)
-
(104,147)
90,318
-
-
(465,884)
162
-
(1,699)
1,076,150
12,404
(53,808)
50,000
34
(5,884)
162
(5,850)
-
(1,699)
-
-
148,578
(4,292)
80,000
1,084,746
224,286
359,729
22,487
382,216
(247,448)
269,935
22,487
The notes on pages 17 - 42 form an integral part of these financial statements.
- 16 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
1
Accounting policies and basis of preparation
1.1 General information
Prospex Oil and Gas Plc (formerly Premier Gold Resources Plc) is incorporated in England and Wales and
is quoted on the AIM Market of the London Stock Exchange Plc. The address of its registered office is
Stonebridge House, Chelmsford Road, Hatfield Heath, Essex CM22 7BD. The registered number of the
company is 03896382.
These financial statements are presented in pounds sterling because that is the currency of the primary
economic environment in which the company operates.
1.2 Going concern
During the year ended 31 December 2015, the Directors proposal for a Company Voluntary Arrangement
("CVA") was approved by creditors and members. The Company also completed a settlement deed with
Tridevi Capital Partner (I) LP ("Tridevi"), disposing of the entire issued share capital of Central Asia
Resource Limited ("CAR"), the Company's wholly owned subsidiary, to Tridevi in full and final settlement of
the outstanding loan of approximately £580,000 under the Convertible Loan Agreement. The Company
also raised £1,076,150 (before expenses) through the issue of 35,283,591 New Ordinary Shares to
advance the Company's Investing Policy, of which £50,000 was transferred to the Company in order to
enable it to make an improved offer of settlement to the unsecured Creditors of the Company under the
CVA. As a result of the above, the directors are of the opinion that the financial statements should be
prepared on a going concern basis.
1.3 Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting
Standards as adopted by
International Financial Reporting
Interpretations Committee ('IFRIC') interpretations issued by the International Accounting Standards Board
(IASB) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
the European Union, (IFRSs) and
The Group financial statements have been prepared under the historical cost convention or fair value
where appropriate.
1.4 Parent company profit and loss account
A separate profit and loss account for the parent company, Prospex Oil and Gas Plc, has been omitted
under the provisions of Section 408 of the Companies Act 2006. The profit dealt with in the financial
statements of the parent company was £189,219 (2014: loss - £4,653,132).
1.5 Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and all its
subsidiaries ('the Group'). Subsidiaries include all entities over which the Group has the power to govern
financial and operating policies. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are consolidated from the date on which control commences until the date that control
ceases. Intra-group balances and any unrealised gains and losses on income or expenses arising from
intra-group transactions, are eliminated in preparing the consolidated financial statements.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the
Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the
original business combination and their share of changes in equity since the date of the combination.
- 17 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
1
Accounting policies
1.6 Business combination
(continued)
The Group adopts the acquisition method in accounting for the acquisition of subsidiaries. On acquisition
the cost is measured at the fair value of the assets given, plus equity instruments issued and liabilities
incurred or assumed at the date of exchange. The assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured at their fair value at the date of acquisition. Any excess
of the fair value of the consideration over the fair value of the identifiable net assets acquired is recorded
as goodwill.
Any deficiency of the fair value of the consideration below the fair value of identifiable net assets acquired
is credited to the income statement in the period of the acquisition.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group.
1.7 Goodwill
Goodwill on acquisition of subsidiaries represents the excess of the cost of acquisition over the fair value
of the Group's share of the net identifiable net assets and contingent liabilities acquired. Identifiable assets
are those which can be sold separately or which arise from legal rights regardless of whether those rights
are separable. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not
amortised but tested annually, or when trigger events occur, for impairment and is carried at cost less
accumulated impairment losses.
Goodwill is initially recognised at fair value. Any negative goodwill is credited to the income statement in
the year of acquisition. If an undertaking is subsequently sold, the amount of goodwill carried on the
balance sheet at the date of disposal is charged to the income statement in the period of disposal as part
of the gain or loss on disposal.
1.8 Property plant and equipment
Property, plant and equipment are stated at cost less depreciation. Depreciation is provided at rates
calculated to write off the cost less estimated residual value of each asset over its expected useful life, as
follows:
Land and buildings - Leasehold
Fixtures, fittings & equipment
Motor vehicles
over the length of the lease
1 - 5 years, straight line
3 - 9 years, straight line
1.9 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises all costs of purchase
and other costs incurred in bringing the inventories to their present location and condition.
1.10 Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are
tested annually for impairment. Assets that are subject to amortisation are tested for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (Cash Generating Units). Non-financial assets other than goodwill that
have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
1.11 Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
- 18 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
1
Accounting policies
1.13 Loans and receivables
(continued)
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. The principal financial assets of the company are loans and receivables, which arise
principally through the provision of goods and services to customers (e.g. trade receivables) but also
incorporate other types of contractual monetary asset. They are included in current assets, except for
maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.
The Group's loans and receivables are recognised and carried at the lower of their original amount less an
allowance for any doubtful amounts. An allowance is made when collection of the full amount is no longer
considered possible.
The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in
the consolidated statement of financial position.
Cash and cash equivalents include cash at bank and in hand and short-term deposits with an original
maturity of three months or less.
1.14 Derivative financial instruments
Derivative financial instruments are initially recognised at fair value on the date a derivative contract is
entered into and are subsequently carried at fair value with the changes in fair value recognised in the
income statement.
1.15 Trade and other payables
Trade and other payables are initially measured at fair value and subsequently measured at amortised cost
using the effective interest rate method.
1.16 Convertible debt
The component of convertible debt that exhibits characteristics of debt is recognised as a liability in the
Statement of Financial Position, net of transaction costs. On issue of convertible debt, the fair value of the
liability component is determined using a market rate for an equivalent non-convertible bond and this
amount is carried as a liability on the amortised cost basis until extinguished on conversion or redemption.
The increase in the liability due to the passage of time is recognised as a finance cost. The remainder of
the proceeds is allocated to the equity component and is recognised in shareholders’ equity. The carrying
amount of the equity component is not re-measured in subsequent years. Borrowings are classified as
current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the balance sheet date.
- 19 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
1
Accounting policies
(continued)
1.17 Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
assets of the entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a
similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities
are presented as such in the balance sheet. Finance costs and gains or losses relating to financial
liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a
constant rate of return on the outstanding liability.
Where the contractual terms of share capital do not have any terms meeting the definition of a financial
liability then this is classed as an equity instrument. Dividends and distributions relating to equity
instruments are debited direct to equity.
Equity comprises the following:
- Share capital represents the nominal value of equity shares;
- Share premium represents the excess over nominal value of the fair value of consideration received for
equity shares, net of expenses of the share issue;
- Profit and loss reserve represents retained deficit;
- Other reserve represents the capital redemption reserve arising on redemption of shares in previous
years and own share reserve.
1.18 Equity-settled share-based payment
The Company makes equity-settled share-based payments. The fair value of options and warrants granted
is recognised as an expense, with a corresponding increase in equity. The fair value is measured at grant
date and spread over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied. The fair value of the options granted is measured based on the Black-
Scholes framework, taking into account the terms and conditions upon which the instruments were
granted. At each balance sheet date, the Company revises its estimate of the number of options that are
expected to become exercisable. It recognises the impact of the revision to original estimates, if any, in the
income statement, with a corresponding adjustment to equity.
1.19 Foreign currency translation
Transactions in currencies other than Sterling, the presentational and functional currency of the Company,
are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the
rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are
denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was
determined. Gains and losses arising on retranslation are included in the income statement for the period,
except for exchange differences on non-monetary assets and liabilities, which are recognised directly in
equity, where the changes in fair value are recognised directly in equity
On consolidation, the assets and liabilities of the Group's overseas entities (none of which has the
currency of a hyper-inflationary economy) are translated at exchange rates prevailing on the balance sheet
date. Income and expense items are translated at the average exchange rates for the period. Exchange
differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such
translation differences are recognised as income or as expenses in the period in which the operation is
disposed of.
- 20 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
1
Accounting policies
1.20 Taxation
(continued)
The income tax expense or taxation recoverable represents the sum of tax currently payable or
recoverable and deferred tax.
The tax currently payable is based on the taxable profit for the period using the tax rates that have been
enacted or substantially enacted by the balance sheet date. Taxable profit differs from the net profit as
reported in the income statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is
determined using tax rates that have been enacted or substantially enacted at the balance sheet date and
are expected to apply when the related deferred income tax asset is realised or the deferred tax liability is
settled. Deferred tax is charged or credited in the income statement, except when it relates to items
charged or credited to equity, in which case the deferred tax is also dealt with in equity. Deferred tax
assets are only recognised to the extent that it is probable that future taxable profit will be available against
which the asset can be utilised.
1.21 Leasing
Rentals payable under operating leases are charged against income on a straight line basis over the lease
term.
1.22 Pensions
The company operates a defined contribution scheme for the benefit of its employees. Contributions
payable are charged to the profit and loss account in the year they are payable.
- 21 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
1
Accounting policies
(continued)
1.23 Accounting Standards issued but not yet effective and/or adopted
As at the date of approval of these financial statements, the following standards were in issue but not yet
effective. These standards have not been adopted early by the company as they are not expected to have
a material impact on the company's financial statements.
IFRS 2
IFRS 3
IFRS 3
IFRS 5
IFRS 7
IFRS 8
IFRS 9
IFRS 10
IFRS 12
IFRS 13
IAS 1
IAS 7
IAS 12
IAS 16
IAS 16
IAS 16
IAS 19
IAS 19
IAS 24
from
from
from
from
resulting
resulting
resulting
resulting
the annual
the annual
the annual
- Amendments
for sale and discontinued operations
Share based payments – Amendments
improvements cycle 2010-2012 (definition of “vesting conditions”)
Business combinations – Amendments
improvements cycle 2010-2012 (scope exception for joint ventures”)
Business combinations – Amendments
improvements cycle 2011-2013 (scope exception for joint ventures”)
Non-current assets held
-
Amendments resulting from September 2014 annual improvements to
IFRSs
Financial instruments disclosure - Amendments resulting from September
2014 annual improvements to IFRSs
Operating segments
the annual
improvements cycle 2010-2012 (aggregation of segments, reconciliation of
segment assets)
Financial instruments – incorporating requirements for classification and
measurement, impairment, general hedge accounting and de-recognition
Consolidated financial statements – Amendments regarding the the
application of consolidation exception
Disclosure of interests in other entities - Amendments regarding the the
application of consolidation exception
Fair value measurement - Amendments resulting
improvements cycle 2011-2013 (scope of the portfolio exception)
Presentation of financial Statements – Amendments resulting from the
disclosure initiative
Statement of cash flows – Amendments resulting from the disclosure
initiative
Income taxes – Amendments regrading recognition of deferred tax assets
for unrealised losses
Property, plant and equipment – Amendments resulting from the annual
improvements cycle 2010-2012 (proportionate restatement of accumulated
depreciation on revaluation)
Property, plant and equipment – clarification of acceptable methods of
depreciation and amortisation and amendments bringing bearer plants into
the scope of IAS 16
Property, plant and equipment – Amendments bringing bearer plants into
scope of IAS 16
Employee benefits – Amendment to clarify the requirements that relate to
how contributions from employees or third parties that are linked to service
should be attributed to periods of service
Employee benefits – Amendment resulting from September 2014 Annual
Improvements to IFRSs
Related party disclosures –Amendments
improvements 2010-2012 cycle (management entities)
from annual
the annual
resulting
from
- 22 -
Effective
date (period
beginning on
or after)
01/02/2015
01/02/2015
01/01/2015
01/01/2016
01/01/2016
01/02/2015
01/01/2018
01/01/2016
01/01/2016
01/01/2015
01/01/2016
01/01/2017
01/01/2017
01/02/2015
01/01/2016
01/01/2016
01/02/2015
01/01/2016
01/02/2015
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
1
Accounting policies
IAS 27
IAS 28
IAS 36
IAS 38
IAS 39
Separate financial statements – Amendments reinstating the equity method
as an accounting option for investments in subsidiaries, joint ventures and
associates in an entity’s separate financial statements
Investments in associates and joint ventures – Amendments regarding the
application of the consolidation exception
Impairment of assets – clarification of acceptable methods of depreciation
and amortisation
Intangible assets – Amendments resulting from annual improvements 2010-
2012 cycle (proportionate restatement of accumulated depreciation and
revaluation)
Intangible assets – Amendments regarding the clarification of acceptable
methods of depreciation and amortisation
(continued)
01/01/2016
01/01/2016
01/01/2016
01/02/2015
01/02/2015
The International Financial Reporting Interpretations Committee has also issued interpretations which the
company does not consider will have a significant impact on the financial statements.
2
Critical accounting estimates and judgements
The preparation of the financial information in conformity with IFRS requires the use of certain critical
accounting estimates that affect the reported amounts of assets and liabilities at the date of the financial
information and the reported amounts of revenue and expenses during the reporting period. Although
these estimates are based on management's best knowledge of the amounts, events or actions, actual
results ultimately may differ from these estimates. The estimates and underlying assumptions are as
follows:
Impairment of assets
The Group is required to test, on an annual basis, whether its non-current assets have suffered any
impairment. Determining whether these assets are impaired requires an estimation of the value in use of
the cash-generating units to which the assets have been allocated. The value in use calculation requires
the Directors to estimate the future cash flows expected to arise from the cash-generating unit and a
suitable discount rate in order to calculate the present value. Subsequent changes to the cash
generating unit allocation or to the timing of cash flows could impact on the carrying value of the
respective assets.
Recoverability of other financial assets
The majority of the Company's financial assets represent loans provided to its subsidiary, which are
associated with funding of mineral exploration and development projects. The recoverability of such
loans is dependent upon the discovery of economically recoverable reserves, the ability of the Company
to maintain necessary financing to complete the development of the reserves and future profitable
production or proceeds from the disposition thereof.
Share based payments
The estimates of share based payments requires that management selects an appropriate valuation
model and make decisions on various inputs into the model including the volatility of its own share price,
the probable life of the options before exercise, and behavioural consideration of employees.
- 23 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
(continued)
Deferred tax assets
Deferred taxation is provided for using the liability method. Deferred tax assets are recognised in respect
of tax losses where the Directors believe that it is probable that future profits will be relieved by the
benefit of tax losses brought forward. The Board considers the likely utilisation of such losses by
reviewing budgets and medium term plans for each taxable entity within the Group. The Directors have
decided that no deferred tax asset should be recognised at 31 December 2014. If the actual profits
earned by the Group differs from the budgets and forecasts used then the value of such deferred tax
assets may differ from that shown in these financial statements.
Valuation of derivative financial asset
The Company placed 250 million shares with Lanstead Capital L.P. ('Lanstead') for a consideration of £1
million and a second tranche of 150 million shares for a consideration of £260,000. At the same time, the
Company and Lanstead entered into equity swap and interest rate swap agreements in respect of the
placings for which consideration will be received on a monthly basis over a 24 month period (note 16).
The amount receivable each month is dependent on the Company's share price at the settlement date.
The Directors have made assumptions in the financial statements about the funds receivable at the year
end. However, there is significant uncertainty underlying these assumptions due to the unpredictable
nature of the share price.
3
Segmental information
In April 2015, the Company disposed of its one primary business segment, gold and precious mineral
exploration and in one principal geographical area, Kyrgyzstan. Details of the profit and loss in respect of
this disposal are disclosed in note 11 to the accounts under dispsoal of subsidiaries.
Following the disposal, the Company became an Investing Company. The results for this continuing
operation, all of which were carried out in the UK, are disclosed in the Income Statement. The net assets
as at 31 December 2015 as shown on the Statement of Financial Position all relate to the Investment
activity.
4
Operating loss
Operating loss is stated after charging:
Depreciation of tangible assets
Loss on foreign exchange transactions
Auditors' remuneration
- Fees payable to the company's auditor for
the audit of the company's financial
statements
- Fees payable to the company's auditors for
non-audit services
5
Finance income
Bank interest received
2015
£
425
250
2014
£
2,946
81,850
17,545
19,500
2,000
-
2015
£
162
2014
£
34
- 24 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
6
Finance costs
Other interest
7
Income tax expense
Domestic current year tax
Adjustment for prior years
Total tax expenses
2015
£
2014
£
-
67,491
2015
£
(411)
(411)
2014
£
-
-
Factors affecting the tax charge for the year
Profit/(loss) before income taxation
68,900
(4,580,445)
Profit/(loss) on ordinary activities before taxation multiplied by standard
rate of UK corporation tax of 20.00% (2014 - 20.00%)
13,780
(916,089)
Effects of:
Non deductible expenses
Depreciation add back
Capital allowances
Tax losses not utilised
Prior year
Other tax adjustments
Total tax expense
20,207
85
(340)
(80,650)
(411)
46,918
803,977
-
-
112,112
-
-
(14,191)
916,089
(411)
-
There is no provision for UK Corporation Tax due to adjusted losses for tax purposes, subject to
agreement with HM Revenue and Customs. The deferred asset arising from the accumulated tax losses
of approximately £3.4m (2014: £3.2m) carried forward has not been recognised but may become
recoverable against future trading profits.
- 25 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
8
Earnings/loss per share
The loss and number of shares used in the calculation of earnings per ordinary share are set out below:
Basic:
Continuing operations
Discontinued operations
Loss for the financial period
2015
£
2014
£
(502,434)
571,745
(687,701)
(3,121,512)
69,311
(3,809,213)
Weighted average of ordinary shares
30,677,884
5,444,473
There was no dilutive effect from the options outstanding during the period (note 19).
The number of shares included in the comparative figure for 2014 has been updated to give effect to the
restructuring of the share capital which took place during the current year (note 20).
9
Tangible fixed assets
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Depreciation
At 1 January 2015
On disposals
Charge for the year
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
- 26 -
Plant and
machinery
£
13,872
1,699
(13,872)
1,699
3,517
(3,517)
425
425
1,274
10,355
£
2,503,270
100
(2,503,270)
100
2,503,270
(2,503,270)
-
100
-
%
100
80
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
10
Investments in subsidiary undertakings
The Company
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Provisions for diminution in value
At 1 January 2015
On disposals
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
Subsidiary undertakings:
During the year, the Company disposed of its entire shareholding of the following companies.
Company
Central Asia Resources Limited
Premier Asia Resources LLC
Country of registration or
incorporation
England & Wales
Kyrgyz Republic
Shares held
Class
Ordinary
Ordinary
During the year, the Company acquired the entire shareholding of the following company.
PXOG County Limited
England & Wales
Ordinary
100
- 27 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
11 Disposal of subsidiaries
On 14 April 2015, the Company disposed of Central Asia Resources Limited, being the holding company
of Premer Asia Resources LLC and the company that holds the Group's 80% interest in the Exploration
Licence in the Kyrgyz Republic.
Consideration received
Settlement of Convertible Loan Note
Additional consideration
Interest accrued on the Convertible Loan Note
Assets and liabilities over which control was lost
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Non-current assets
Property, plant and equipment
Current liabilities
Trade and other payables
Net liabilities disposed of
Gain on dispsoal of subsidiary
Consideration received
Net liabilities disposed of
Cumulative exchange gain in respect of the net assets of the subsidiaries
reclassified from equity to profit or loss on loss of control of subsidiaries
Minority interest's share of net assets of subsidiaries
The gain on disposal is included in the profit for the year from discontinued operations.
Net cash inflow on disposal of subsidiaries
Additional consideration in cash and cash equivalents
Less: cash and cash equivalent balances disposed of
- 28 -
£
580,000
50,000
61,653
691,653
£
977
8,571
247
10,355
(27,640)
(7,490)
£
691,653
7,490
39,467
(166,865)
571,745
£
50,000
(247)
49,753
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
11 Disposal of subsidiaries
(continued)
Analysis of profit/(loss) for the year from discontinued operations
The results of the discontinued operations included in the profit/loss for the year are set out below. The
comparative loss and cash flows from discontinued operations have been re-presented to include those
operations classified as discontinued in the current year.
Administrative expenses
Impairment charges
Gain on disposal of operation
2015
£
2014
£
-
-
(162,967)
(3,729,777)
-
571,745
(3,892,744)
-
Profit/(loss) for the year from discontinued operations
571,745
(3,892,744)
Cash flows from discontinued operations
Net cash outflows from operating activities
Net cash inflows from financing activities
Net cash inflows/(outflows)
12
Inventories
The Group
Finished goods and goods for resale
13 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2015
£
-
50,000
2014
£
(4,357)
-
50,000
(4,357)
2015
£
-
The Group
2015
£
-
138,779
17,130
The Company
2014
£
7,451
14,434
12,043
2015
£
-
138,779
17,130
2014
£
977
2014
£
-
13,314
12,043
155,909
33,928
155,909
25,357
The Directors consider that the carrying amount of trade and other receivables approximates to their fair
value.
- 29 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
14 Derivative financial assets
Due within one year
2015
£
2014
£
-
46,359
Lanstead 1 Agreement
In December 2012, the Company issued 250 million new shares of 0.1p per share at a price of 0.4p per
share to Lanstead Capital L.P. ('Lanstead') with a notional value of £1 million. The Company entered into
an equity swap price mechanism with Lanstead for a notional 75% of these shares with a notional
reference price of 0.5333p per share. Lanstead have hedged the consideration they pay for shares in the
Company against the performance of the Company's share price over a 24 month period. All 250 million
shares were allotted with full rights on the date of the transaction.
To the extent that the share price is greater or lower than the reference price at each swap settlement,
the Company will receive greater or lower consideration calculated on pro-rata basis i.e. share price /
reference price multiplied by the monthly transfer amount. The valuation for each settlement is
determined to be the average share price for the preceding 5 trading days up to settlement date.
As the amount of the consideration receivable by the Company from Lanstead will vary subject to the
change in the Company's share price and will be settled in the future, the receivable is treated as a
derivative financial asset and has been designated at fair value through profit or loss.
The Company also issued 25 million shares to Lanstead as a value payment in connection with the
equity swap agreement.
The fair value of the derivative financial assets has been determined by reference to the Company's
share price and has been estimated as follows:
Share price
Notional
number of
shares
outstanding
Fair value
£
Value of derivative financial assets at 1 January 2014
0.14p 109,375,000
153,125
Consideration received
Loss on revaluation of derivative financial asset
(93,750,000)
(96,988)
(47,278)
Value of derivative financial assets at 31 December 2014
0.05p
15,625,000
8,859
Consideration received
Loss on revaluation of derivative financial asset
(15,625,000)
(8,859)
-
Value of derivative financial assets at 31 December 2015
-
-
- 30 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
14 Derivative financial assets
(continued)
Lanstead 2 Agreement
In December 2013, the Company issued 200 million new shares of 0.1p per share at a price of 0.13p per
share to Lanstead Capital L.P. ('Lanstead') with a notional value of £260,000. The Company entered into
an equity swap price mechanism with Lanstead for a notional 75% of these shares with a notional
reference price of 0.17333p per share. Lanstead have hedged the consideration they pay for shares in
the Company against the performance of the Company's share price over a 24 month period. All 150
million shares were allotted with full rights on the date of the transaction.
The Company also issued 20 million shares to Lanstead as a value payment in connection with the
equity swap agreement.
As with the Lanstead 1 Agreement, the consideration receivable from Lanstead has been treated as a
derivative financial asset and has been designated at fair value through profit or loss. The fair value of
the derivative financial asset has been determined by reference to the Company's share price and has
been estimated as follows:
Share price
Notional
number of
shares
outstanding
Fair value
£
Value of derivative financial assets at 1 January 2014
0.14p 150,000,000
210,000
Consideration received
Gain on revaluation of derivative financial asset
(75,000,000)
(51,590)
(120,910)
Value of derivative financial assets at 31 December 2014
0.05p
75,000,000
37,500
Consideration received
Other movement
(75,000,000)
(3,545)
(33,955)
Value of derivative financial assets at 31 December 2015
-
-
15 Cash and cash equivalents
The Group
2015
£
2014
£
The Company
2015
£
2014
£
Cash at bank and in hand
382,216
22,734
382,216
22,487
The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
All of the Company's cash and cash equivalents are at floating rates of interest.
- 31 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
16 Trade and other payables
Trade payables
Corporation tax
Other taxes and social security costs
Other payables
Accruals and deferred income
The Group
2015
£
1,349
-
9,829
26,751
42,946
2014
£
138,096
411
1,580
138,321
87,465
The Company
2015
£
1,349
-
9,829
26,851
42,946
2014
£
137,989
411
771
111,597
87,465
80,875
365,873
80,975
338,233
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
17 Borrowings
Convertible loan note
2015
£
2014
£
-
479,784
In 2013, the Company entered into a convertible loan note agreement for £1 million of which £500,000
was drawn down by 31 December 2013, with further draw downs totalling £80,000 during 2014. The
interest rate on the loan is 10% per annum. The loan matures five years from the issue date at their
nominal value. The Loan Note Holder can convert their loan, and accrued interest, into shares at the
holder's option commencing six months after the issue date of the loan and up to the maturity date at the
rate of 500 shares per £1. The Company has the right to repay the loan at any time up to the maturity
date. The values of the liability component and the equity conversion component were determined at
issuance of the loan.
The convertible loan recognised in the balance sheet is calculated as follows:
Nominal value of convertible loan issued
Equity component
Liability component on initial recognition and at 31 December 2015
2015
£
-
-
-
2014
£
580,000
(100,216)
479,784
Interest of £nil (2014: £61,608) has been charged in respect of the convertible loan note to the statement
of comprehensive income and included in trade and other payables under accruals and deferred income.
- 32 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
18 Pension and other post-retirement benefit commitments
Defined contribution
Contributions payable by the company for the year
19 Share-based payments
2015
£
7,125
2014
£
-
Share options
At 31 December 2014 and 31 December 2015 outstanding awards to subscribe for ordinary shares of 1p each in
the Company, granted in accordance with the rules of the share option scheme, were as follows:
31 December 2014
Brought forward
Granted
Lapsed
Carried forward
31 December 2015
Brought forward
Granted
Lapsed
Carried forward
Shares under
option
273,400
-
(5,000)
Weighted
average
remaining
contractual
life (years)
7.6
-
-
Weighted
average exercise
price (pence)
157.5
-
(562.5)
268,400
6.3
150
Shares under
option
Weighted
average exercise
price (pence)
Weighted
average
remaining
contractual
life (years)
268,400
3,659,116
(24,000)
3,903,516
6.3
-
-
9.1
150
3.05
(2.08)
0.9
All options were exercisable at the year end. No options were exercised during the year.
The number of share options included in the comparative figures for 2014, and the weighted average exercise
price, have been updated to give effect to the restructuring of the share capital which took place during the year
(note 20).
- 33 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
19 Share-based payments
(continued)
The following share-based payment arrangements were in existence during the current and prior years.
Options
Number
Expiry dateExercise price
Fair value at
grant date
1. Granted 18 November 2005
2. Granted 31 July 2007
3. Granted 30 April 2012
4. Granted 1 September 2012
5. Granted 16 April 2015
6. Granted 16 April 2015
16,000
36,400
208,000
8,000
2,847,116
812,000
18/11/2015
31/07/2017
30/04/2022
01/09/2022
15/04/2025
15/04/2018
250.0p
250.0p
125.0p
125.0p
3.0p
3.0p
10.0p
82.5p
47.5p
5.0p
1.94p
1.94p
The fair value of remaining share options has been calculated using the Black Scholes model. The assumptions
used in the calculation of the fair value of the share options outstanding during the year are as follows:
Options
Grant date share
price
Exercise
price
Expected
volatility
Expected
option life
Risk-free
interest rate
1. Granted 18 November 2005
2. Granted 31 July 2007
3. Granted 30 April 2012
4. Granted 1 September 2012
5. Granted 16 April 2015
6. Granted 16 April 2015
37.5p
212.5p
175.0p
75p
4.0p
4.0p
250.0p
250.0p
125.0p
125.0p
3.0p
3.0p
100%
100%
32%
32%
71.5%
71.5%
5 years
5 years
3.5 years
3.5 years
3 years
3 years
4.4%
4.4%
0.24% - 0.43%
0.24% - 0.43%
0.71%
0.71%
The fair value has been calculated assuming that there will be no dividend yield.
Volatility was determined by reference to the standard deviation of expected share price returns based on a
statistical analysis of daily share prices over a 3 year period to grant date. All of the above options are equity
settled and the charge for the year is £70,993 (2014: £nil).
- 34 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
20 Share capital
2015
Number
2014
Number
2015
£
2014
£
Allotted, called up and fully paid
Ordinary shares of 1p each
Ordinary shares of 0.1p each
Deferred shares of 0.1p each
Deferred shares of £24 each
40,731,291
-
942,462,000
54,477
1,361,935,975
942,462,000
-
407,313
-
942,462
1,307,459
-
1,361,936
942,462
-
2,657,234
2,304,398
In April 2015, the Company carried out a capital reorganisation whereby the existing ordinary share capital
was consolidated by the issue of 1 Consolidation Share of £25 each for every 25,000 existing ordinary
shares of 0.1p each. The Consolidation Shares were then subdivided into 100 New Ordinary Shares of 1p
each and 1 Deferred Share of £24 each
At the same time, the Company raised £1,076,150 through the issue of 35,283,591 New Ordinary Shares of
1p each to provide capital for the Company's Investing Policy. £50,000 of the funds raised were utilised in
settlement of the unsecured Creditors in the Corporate Voluntary Arrangement that the Company entered
into.
The deferred shares have no rights to vote, attend or speak at general meetings of the Company or to
receive any dividend or other distribution and have limited rights to participate in any return of capital on a
winding-up or liquidation of the Company.
- 35 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
21 Directors' emoluments
Key management personnel are those persons having authority and responsibility for planning,
directing and controlling activities of the Group, including all directors of the Company.
Directors
Emoluments for qualifying services
Benefit in kind
Equity-settled share based payment (note 19)
Pension contributions
Directors and key management personnel
Salaries and
fees
Benefit in
kind
£
£
Equity-
settled
share based
payment
£
Directors' emoluments
Edward Dawson
William Smith
Richard Mays
Gavin Burnell
Gerry Desler
Christian Schaffalitzky
Garth Earls
Richard Nolan
Colonel Robert Stewart
Dr Reza Tabrizi
72,250
8,500
9,000
8,576
10,000
3,333
5,000
10,000
-
-
2,975
-
-
-
-
-
-
-
-
-
13,197
10,509
10,509
10,509
-
-
-
-
-
-
2015
£
2014
£
126,659
2,975
44,724
7,125
215,083
-
-
181,483
215,083
2015
2014
Pension
£
Total
£
7,125
-
-
-
-
-
-
-
-
-
95,547
19,009
19,509
19,085
10,000
3,333
5,000
10,000
-
-
£
-
-
-
-
35,500
21,667
52,500
60,000
20,416
25,000
126,659
2,975
44,724
7,125
181,483
215,083
The number of directors for whom retirement benefits are accruing under money purchase pension
schemes amounted to 1 (2014 - 0).
- 36 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
22 Employees
Number of employees
There were 5 employees during the year including the directors (2014: 14).
Employment costs
Wages and salaries
Social security costs
Other pension costs
Equity settled share-based payments
2015
£
2014
£
211,659
20,186
7,125
70,993
264,158
14,070
-
-
309,963
278,228
23 Control
In the opinion of the directors, there is no ultimate controlling party.
24 Related party transactions
During the year there were consultancy fees and property related expenses of £nil (2014: £39,521)
charged by Eurasia Mining Plc and included in trade payables at the year end is £nil (2014: £38,081)
owing to Eurasia Mining Plc. Christian Schaffalitzky is a director of Eurasia Mining Plc.
During the year, there were consultancy fees of £17,200 (2014: £nil) charged by Sallork Legal and
Commercial Consulting Limited ("Sallork") and included in trade payables at the year end is £1,200
(2014: £nil) owing to Sallork. Richard Mays is a director and shareholder of Sallork.
Included in trade and other payables are the following balances due to Directors as at 31 December 2015.
Christian Schaffalitzky
Garth Earls
Gerry Desler
Richard Nolan
2015
£
-
-
-
-
2014
£
13,333
36,119
25,423
36,722
In the Company's own accounts, full provision has been made against balances due from Central Asia
Resources Limited and Premier Asia Resources LLC amounting to £nil (2014: £772,715) and £nil (2014:
£689,546) respectively.
- 37 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
25 Subsequent events
Investment in Hutton Poland
in April 2016, PXOG County Limited ("PXOG"), the Company's wholly owned subsidiary, completed its
acquisition of 210,700 ordinary shares and 588,000 £1 loan notes of Hutton Poland Limited ("Hutton
Poland") for a total consideration of £620,000, being 49% of the issued share capital of Hutton Poland
and its loan notes outstanding at completion, from Hutton Energy Limited ("Hutton"). the remaining 51%
of the ordinary shares and loan notes are owned by Hutton.
Hutton has been active in Poland since 2009, holding various stakes in exploration licenses, and in the
process has gathered a geologic and geophysical data set. Hutton Poland presently has seven license
applications in process. The most advanced is the Kolo License application which was recently offered to
Hutton Poland by the regulatory authorities.
The Kolo license was formally awarded in late April 2016.
The Kolo License area is located in the Lodz Trough within the Polish Central Lowlands, c120 km west of
Warsaw. The directors of Prospex believe the region is well serviced by oil and gas surface facilities and
sits on major European transport arteries. The Kolo License area is 1,150 square kilometres and is
elongated in a NW-SE direction along the strike of the Lodz Trough, a well-known Mesozoic sedimentary
basin. This basin is known in Poland by its salt mines (Klodava) but also by important manifestations of
gas and oil in shallow water wells.
Hutton has 1400km of vintage 2D seismic data over the license area and gathered a further 250km of 2D
seismic data in 2014. Recent geological studies and interpretation of geophysical data by Prospex have
indicated that the Lodz Trough has the potential to contain commercial oil and gas accumulations at
deeper and shallow levels in early and late Cretaceous sedimentary reservoir rocks, similarly to
hydrocarbon provinces like the North Sea and the Baltic region.
Prospex believes the prospectivity of the license is in conventional targets as opposed to unconventional
regional plays. In particular Prospex, from the data, has identified a number of conventional oil and gas
exploration targets, between 1,000 and 4,000 metres below surface.
The Company has been advised by the directors of Hutton Poland that the Boleshaw prospect on the
Kolo Licence is ready for drilling, with a drill location determined and a target spud date in the fourth
quarter of 2016. The Boleshaw prospect has been worked up using 1650km of 2D seismic already
owned by Hutton. Although timing is subject to a number of factors including environmental permitting
and confirmation of a suitable rig.
In May 2016, Prospex received a Competent Persons Report which reviews the Kolo Licence from both a
geological and economic perspective. A copy of the report is located on the Company's website:
www.prospexoilandgas.com.
The Competent Persons Report's Key Points:
- Gross Best Estimate Technical Unrisked Prospective Resources for the Boleslaw prospect (within the
Kolo Licence) are estimated at 87.1 Bscf. The indicative NPV ranges from $44m to $95m (net to
Prospex).
- Economic assessments clearly indicated that in the case of a gas discovery with N2 content less than
50mol% a Gas-to-Power (combined heat and power, "CHP") development concept would be
economically robust above a minimum threshold of around 25Bscf GIIP of gas.
- The notional CHP development scenarios were based on a single well assuming production rates of
20MMscf to 40MMscf per day (3333 to 6666 boe/d).
- The economic assessment based on the AGR TRACS N2 risk profile indicated a risked EMV of £5.0mln
(net to Prospex), while corresponding evaluations assuming Prospex's N2 risk profile suggested a risked
EMV of £8.4mln (net to Prospex), where both estimates were derived assuming current electricity prices.
- 38 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
25 Subsequent events
(continued)
Loan
On completion of the purchase of Hutton Poland PXOG entered into a loan agreement with Hutton to
borrow £490,000. The loan is interest bearing from the date of the Kolo License award at LIBOR plus
2%. The loan and interest accrued are repayable on the latter of 31 August 2016 or 90 days after the
unconditional award of the Kolo License. The loan is secured against PXOG’s shares and loan notes in
Hutton Poland. Hutton’s recourse in default is limited to PXOG’s shares and loans note in Hutton Poland.
Further investments
In addition to the Hutton Poland investment detailed above, the company made 3 additional investments:
Elephant Oil Limited, MOL Hungarian Oil and Gas Public Limited Company and OMV Aktiengesellschaft.
The directors believe these additional investments give the portfolio some further diversity providing
exposure to a wider range of market capitalisations, up and downstream activities, and geopolitical risks.
In April 2016, the Company acquired 587,120 new Ordinary Shares in Elephant Oil Limited
("Elephant") for a consideration of £100,000. It now holds a 2.54% interest in Elephant..
In April 2016, the Company acquired 1,100 ordinary shares in MOL Hungarian Oil and Gas Public Limited
Company ("MOL") for a consideration of $67,714 through the market. MOL is the parent company of the
MOL group an integrated group of Oil and Gas companies headquartered in Hungary.
The Company has acquired 2,300 Ordinary Shares in OMV Aktiengesellschaft ("OMV") for a
consideration of €55,418,
through the market. OMV is the parent company of the OMV group, an
integrated group of Oil and Gas companies headquartered in Austria.
Placing
In May 2016, the Company completed a placing to raise approximately £1.64 million from the issue of
164,600,000 new ordinary shares of 1p each ("New Ordinary Shares") at a price of 1p per share (the
"Placing"), through WH Ireland Limited, Beaufort Securities Limited and Peterhouse Corporate Finance
Limited. Dealings are expected to commence on 10 June 2016. The funds raised will be used to:
- Support the 2016 activities of Hutton Poland Limited;
- Repay the loan from Hutton Energy Limited (see above); and
- For general working capital purposes.
Investing Policy
On 13 April 2016 announced that it had implemented its original Investment Policy adopted on 14 April
2015.
On 11 May 2016 the shareholders, at a general meeting, gave approval to the existing investing policy
with an amendment. The full investing policy is set out below, with the approved amendment shown in
the final paragraph.
The Company's Investing Policy is to invest in and/or acquire companies and/or projects within the
natural resources and/or energy sector with potential for growth and/or income. The Company may also
directly apply for new exploration licences or invest in existing licences. It is anticipated that the
geographical focus will primarily be Europe, however, investments may also be considered in other
regions to the extent that the Directors consider that valuable opportunities exist and returns can be
achieved.
In selecting investment opportunities, the Directors will focus on businesses, assets and/or projects that
are available at attractive valuations and hold opportunities to unlock embedded value. Where
appropriate, the Directors may seek to invest in businesses where it may influence the business at a
board level, add their expertise to the management of the business, and utilise their significant industry
relationships and access to finance; as such investments are likely to be actively managed.
- 39 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
25 Subsequent events
(continued)
The Company's interests in a proposed investment and/or acquisition may range from a minority position
to full ownership and may comprise one investment or multiple investments.The proposed investments
may be in either quoted or unquoted companies; be made by direct applications, acquisitions or farm-ins;
and may be in companies, partnerships, earn-in joint ventures, debt or other loan structures or direct or
indirect interests in assets, projects or licences. The Directors may focus on investments where intrinsic
value can be achieved from the restructuring of investments or merger of complementary businesses.
The Directors expect that investments will typically be held for the medium to long term, although short
term disposal of assets cannot be ruled out if there is an opportunity to generate an attractive return for
Shareholders. The Directors will place no minimum or maximum limit on the length of time that any
investment may be held.
There is no limit on the number of projects into which the Company may invest, and the Company's
financial resources may be invested in a number of propositions or in just one investment, which may be
deemed to be a reverse takeover under the AIM Rules. The Directors intend to mitigate risk by
appropriate due diligence and transaction analysis. Any transaction constituting a reverse takeover under
the AIM Rules will also require Shareholders’ approval. The Directors consider that as investments are
made, and new promising investment opportunities arise, further funding of the Company may also be
required.
Where the Company builds a portfolio of related assets it is possible that there may be cross holdings
between such assets. The Company does not currently intend to fund any investments with debt or other
borrowings but may do so if appropriate. Investments in early stage assets are expected to be mainly in
the form of equity, with debt potentially being raised later to fund the development of such assets.
Investments in later stage assets are more likely to include an element of debt to equity gearing. The
Directors may also offer new Ordinary Shares by way of consideration as well as cash, thereby helping to
preserve the Company's cash for working capital and as a reserve against unforeseen contingencies
including, for example, delays in collecting accounts receivable, unexpected changes in the economic
environment and operational problems.
The Directors will conduct initial due diligence appraisals of potential business or projects and, where
they believe further investigation is warranted, intend to appoint appropriately qualified persons to assist.
The Directors believe they have a broad range of contacts through which they are aware of various
opportunities which may prove suitable, although at this point only preliminary due diligence has been
undertaken. The Directors believe their expertise will enable them to determine quickly which
opportunities could be viable and so progress quickly to formal due diligence. The Company will not have
a separate investment manager. The Company proposes to carry out a comprehensive and thorough
project review process in which all material aspects of a potential project or business will be subject to
rigorous due diligence, as appropriate. Due to the nature of the sector in which the Company is focused it
is unlikely that cash returns will be made in the short to medium term; rather the Company expects a
focus on capital returns over the medium to long term.
Amendment
The Company will undertake an acquisition or acquisitions within the natural resources and/or energy
sector, which constitutes a reverse takeover under AIM Rule 14 of the AIM Rules for Companies within
12 months of the date of the general meeting.
- 40 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
26 Financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises are as
follows
- Derivative financial assets
- Trade and other receivables
- Cash and cash equivalents
- Trade and other payables
A summary of the financial instruments held by category is provided below:
Financial assets
Loans and receivables
Trade and other receivables
Cash and cash equivalents
Derivative financial assets
Total financial assets
Financial liabilities
Trade and other payables
Derivative financial assets
At 31 December 2015
At 31 December 2014
2015
£
155,909
382,216
-
2014
£
33,928
22,734
46,359
538,125
103,021
2015
£
2014
£
80,875
845,657
Fair value measurement
Level 1
£
Level 2
£
Level 3
£
-
-
-
46,359
-
-
The Directors consider that the carrying amount of trade and other receivables and trade and other
payables approximate their fair value.
Financial risk management
The Group's activities expose it to a variety of risks including market risk (foreign currency risk and
interest rate risk), credit risk and liquidity risk. The Group manages these risks through an effective risk
management programme and through this programme, the Board seeks to minimise potential adverse
effects on the Group's financial performance.
The Board provides written objectives, policies and procedures with regards to managing currency and
interest risk exposures, liquidity and credit risk including guidance on the use of certain derivative and
non derivative financial instruments
- 41 -
PROSPEX OIL & GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2015
26 Financial instruments
(continued)
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. The Group's credit risk is primarily attributable to its receivables
and its cash deposits. It is Group policy to assess the credit risk of new customers before entering
contracts. The credit risk on liquid funds is limited because the counterparties are banks with high credit-
ratings assigned by international credit-rating agencies.
Liquidity risk and interest rate risk
Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due. The Board regularly receives cash
flow projections for a minimum period of 12 months, together with information regarding cash balances
monthly.
The Group is principally funded by equity and invests in short-term deposits, having access to these
funds at short notice. The Group's policy throughout the period has been to minimise interest rate risk by
placing funds in risk free cash deposits but also to maximise the return on funds placed on deposit.
All cash deposits attract a floating rate of interest. The benchmark rate for determining interest receivable
and floating rate assets is linked to the UK base rate.
Foreign currency exposure
The Group had entities which operated in Kyrgyzstan and were therefore exposed to foreign exchange
risk arising from currency exposure to the Kyrgyzstan Som, the functional currency of those subsidiaries.
The overseas subsidiaries operated separate bank accounts which were used solely for those
subsidiaries, thus managing the currency in that country. The Group's net assets arising from the
overseas subsidiaries were exposed to currency risk resulting in gains or losses on retranslation into
sterling. In April 2015, the Company disposed of these subsidiaries and since then, it is no longer
exposed to this risk.
- 42 -