ShaMaran Petroleum Corp.
Annual Report
For the year ended December 31, 2014
SHAMARAN PETROLEUM CORP.
MANAGEMENT DISCUSSION AND ANALYSIS
For the year ended December 31, 2014
_____________________________________________________________________________________
Management’s discussion and analysis (“MD&A”) of the financial and operating results of ShaMaran Petroleum
Corp. (“ShaMaran” together with its subsidiaries the “Company”) is prepared with an effective date of March 12,
2015. The MD&A should be read in conjunction with the audited consolidated financial statements for the year
ended December 31, 2014 together with the accompanying notes.
The financial statements of the Company have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board. Unless otherwise stated herein all
currency amounts indicated as “$” in this MD&A are expressed in thousands of United States dollars (“USD”).
OVERVIEW
ShaMaran is a Canadian‐based oil and gas company with a 20.1% direct interest in the Atrush petroleum property
located in Kurdistan in Northern Iraq (“Kurdistan”). ShaMaran trades on the TSX Venture Exchange and the
NASDAQ OMX First North Exchange (Stockholm) under the symbol “SNM”.
The Company is currently in the pre‐production stage of its appraisal and development program relating to the
Atrush oil discovery on this petroleum property. Phase 1 of field development consists of installing and
commissioning production facilities with 30,000 barrels of oil per day (“bopd”) capacity and the drilling and
completion of production wells to supply the production facility. During the year 2014 the final three of four
planned Phase 1 production wells were drilled. Also in 2014, in order to further delineate the field towards the
east, the second of two eastern appraisal wells was drilled and final preparations were completed to re‐test Atrush
3 (“AT‐3”), the first eastern appraisal well which was drilled in 2013.
HIGHLIGHTS
Production Facilities
Implementation of the 30,000 bopd Phase 1 Chiya Khere production facility is in progress. The civil
construction site preparation work for the facility was completed in the final quarter of 2014 and work is
continuing on foundations for the individual units. Main production modules for the facility are being
fabricated with onsite delivery expected during the second quarter of 2015.
Front End Engineering and Design (“FEED”) on a dedicated feeder pipeline between the Chiya Khere
production facility and the main Khurmala to Fishkabur export pipeline was completed during 2014. Initial
work on the pipeline right of way in the elevated section over the Chiya Khere mountain has commenced.
Well Results
The Atrush‐3 appraisal well flowed with a maximum oil rate of 4,900 bopd of 14° API oil using an electrical
submersible pump during testing conducted in January 2015 in connection with well re‐entry operations. The
well was originally drilled in 2013.
The Chiya Khere‐6 (“CK‐6”) eastern appraisal well was drilled to a total depth (“TD”) of 2,105 meters which
was reached in November 2014. During subsequent testing the well flowed with a maximum oil rate of over
6,700 bopd of 26.6° API oil using an electrical submersible pump.
1
The Chiya Khere‐8 (“CK‐8”) development well was drilled from the same well pad used for the Atrush‐1 (“AT‐
1”) well discovery to a TD of 2,195 metres, which was reached in September 2014. The well has been
suspended as a Phase 1 producer, pending testing and completion planned in early 2015.
The Chiya Khere‐5 (“CK‐5”) development well was drilled from the same well pad used for the AT‐1 well
discovery to a TD of 2,098 metres, which was reached in June 2014. The well has been suspended as a Phase 1
producer, pending testing and completion planned in early 2015.
The Atrush‐4 (“AT‐4”) appraisal and development well was drilled to a TD of 2,916 metres which was reached
in January 2014. The well flowed with a combined rate of 9,059 bopd of 27‐28° API oil from two intervals. AT‐
4 has been suspended as a Phase 1 producer.
Corporate
The Company reports Atrush Block gross 2P reserve estimates of 61 MMbbls (2013: 58 MMbbls) as well as
Atrush Block gross contingent resource estimates of 310 MMboe 2C (2013: 404 MMboe) as of December 31,
2014.
ShaMaran raised gross funds of CAD 75.4 million through the issuance of an aggregate of 754,214,990
common shares of the Company in February 2015. The shares were issued further to an offering of rights to
existing shareholders of the Company to purchase shares of ShaMaran at an exercise price of CAD 0.10 per
share.
Mr. Chris Bruijnzeels has been appointed as the President and Chief Executive Officer of ShaMaran and both
Mr Bruijnzeels and Mr. C. Ashley Heppenstall have been appointed as members of ShaMaran’s Board of
Directors. The appointments were effective January 19, 2015.
$150 million of senior secured bonds issued by General Exploration Partners, Inc. (“GEP”), a wholly owned
subsidiary of the Company, were listed on the Oslo Børs in Norway in May 2014. The ticker for the bonds is
“GEP01”.
CHANGES TO SENIOR MANAGEMENT AND THE BOARD OF DIRECTORS
The Company announced on January 19, 2015 changes to its senior management and Board of Directors (the
“Board”). Mr. Chris Bruijnzeels was appointed as the President and Chief Executive Officer of ShaMaran and as a
member of the ShaMaran Board of Directors replacing Mr. Pradeep Kabra who resigned from these positions with
effect from January 19, 2015. Mr. C. Ashley Heppenstall was also appointed as a member of the Board while Mr.
Alex Schneiter and Mr. J. Cameron Bailey have resigned their positions as members of the Board, all with effect
from January 19, 2015. In connection with the changes in senior management and the Board the Company
approved on January 19, 2015 a grant of an aggregate of 26,000,000 incentive stock options with an exercise price
of CAD 0.115 per share to certain senior officers and directors of the Company. Refer also to the “Outstanding
Share Data” section below.
OPERATIONS
The Company holds a 20.1% direct interest in the Atrush Block petroleum property which is located in Kurdistan in
the northern extension of the Zagros Folded Belt adjacent to several major oil discoveries. The region is currently
undergoing major exploration and development by internationally recognised mid to large sized oil companies.
2
The Atrush field was discovered in 2011 and a Phase 1 development plan was approved in October 2013, which
consists of installing and commissioning production facilities with 30,000 bopd capacity and the drilling and
completion of production wells to supply the production facility. During the year 2014 the final three of four
planned Phase 1 production wells were drilled. Also, in order to further delineate the field towards the east, the
second of two eastern appraisal wells was drilled and final preparations were completed to re‐test AT‐3, the first
eastern appraisal well which was drilled in 2013.
Recent Operations in Kurdistan
Atrush‐4 Appraisal and Phase 1 Development Well: AT‐4 was drilled up‐dip towards the undrilled crest of the
structure from the AT‐1 drill pad (the “Chamanke‐A well pad”). The well was drilled to a TD of 2,916 metres which
was reached on January 23, 2014. The testing program consisted of three separate cased hole drill stem tests
conducted in the Jurassic reservoir with the highest reported rates totalling 9,059 bopd of 27‐28 API oil from two
of the tests. None of the tests produced formation water. The testing program concluded April 7, 2014 following
which AT‐4 was suspended as a future Phase 1 producer.
Chiya Khere‐51 Phase 1 Development Well: CK‐5 was drilled to a TD of 2,098 metres which was reached on June 28,
2014. The well was deviated from the Chamanke‐A well pad with the bottom hole location in the Butmah
formation approximately 870 metres west southwest of the surface location. As in previous wells, no water leg was
encountered in the reservoir section, with the well penetrating a gross vertical oil column of approximately 540
metres. CK‐5 will be tested using a workover rig in 2015 prior to final completion and tie‐in to the Phase 1
production facility.
Chiya Khere‐8 Phase 1 Development Well: CK‐8 was drilled from the Chamanke‐A well pad to a TD of 2,195 metres
which was reached on September 13, 2014. This well targeted an area situated midway between CK‐5 and Atrush‐
2 (“AT‐2”) approximately 1.4 kilometres east southeast of the well pad, and found the reservoir much higher than
expected, and no water with the reservoir section. Additionally, the main Sargelu reservoir section was found to be
highly fractured as in the same section of the highly productive AT‐2 well. CK‐8 will be tested using a workover rig
in 2015 prior to final completion and tie‐in to the Phase 1 production facility.
Chiya Khere‐6 Phase 2 Appraisal Well: CK‐6, the second eastern area appraisal well, was spudded on October 1,
2014 from the Chamanke‐C well pad. The well was drilled to a TD of 2,105 metres which was reached on
November 5, 2014, after 36 operational days, ahead of plan and budget. The well reached the Jurassic reservoir
approximately 139 metres structurally higher than the nearby AT‐3 well, approximately 600 metres SSE of the
surface location. Logs indicated that the matrix reservoir quality and degree of fracturing across the main reservoir
zone were the best in any well drilled to date in Atrush. Three well tests were conducted with results as follows:
DST#3 was conducted over a perforated 24 metre interval in the Naokelekan formation. The zone was flowed
using ESP at rates up to 6,787 bopd (constrained by surface testing facilities) of 26.6° API oil.
DST#2 was conducted over a 48‐metre interval in the Lower Sargelu formation. During the main flow period
the zone was flowed using ESP at rates up to 3,792 bfpd of emulsion. Bottom hole samples are pending
laboratory analysis to provide the gravity of the oil at reservoir conditions.
DST#1 was conducted over a perforated 12‐metre interval within the Alan formation. The zone flowed heavy
oil post‐acid with ESP and nitrogen lift at a low rate. The tested interval represents the deepest recovered oil
in the field to date (‐460m), nearly 200m deeper than the equivalent interval that successfully tested the
higher viscosity oil in the AT‐2 well.
1 Approved changes to terminology relating to the Atrush Block, effective from 2014, include well names. Following the Atrush‐4 well all future
wells on the Atrush Block will be prefixed with “Chiya Khere” (or “CK”), rather than with “Atrush”.
3
Atrush‐3 Re‐entry and Re‐test: Following CK‐6, the drilling rig was skidded over to the adjacent AT‐3 well. The well
was re‐entered in order to finish the inconclusive well testing program announced on August 26, 2013. The test
consisted of a single commingled interval through two sets of 12‐metre perforations in the Naokelekan and Lower
Sargelu formations, which flowed with a maximum oil rate of 4,900 bopd, using an electrical submersible pump. Oil
gravity was measured at 14 degrees API.
During the testing of both AT‐3 and CK‐6, pressure gauges monitoring interference in the AT‐2 well (a distance of
6.5 kilometres from both wells) demonstrated that the Phase 2 appraisal area is in pressure communication with
the Phase 1 development area. Full analysis of both CK‐6 and AT‐3 well testing results is ongoing.
Chiya Khere Phase 1 Production Facilities: Implementation of the 30,000 bopd Phase 1 production facility is in
progress. The civil construction site preparation work for the facility was completed in the final quarter of 2014 and
work is continuing on foundations for the individual facilities. Main production modules for the facility are being
fabricated with onsite delivery expected during the second quarter of 2015 with hook‐up and commissioning to
follow with first oil targeted by end of 2015. A workover rig will be mobilised in the first half of 2015 to conduct
testing and completion operations on CK‐5 and CK‐8, and to complete AT‐2 and AT‐4 as the four wells to be tied‐in
to the Chiya Khere production facility.
Atrush Feeder Pipeline: FEED was completed in the year 2014 on a dedicated feeder pipeline between the Chiya
Khere production facility and the tie‐in point on the main export pipeline at Kurdistan Crude Pipeline pumping
station #2 (“KCP2”) at kilometre 92. Initial work on the pipeline right of way in the elevated section over the Chiya
Khere mountain has commenced. Pipeline commissioning is expected to be completed in time for production start‐
up.
Refer also to discussion under “Commitments” in this MD&A.
Location and Operational History
The Atrush Block is located approximately 85 kilometres northwest of Erbil, the capital of the Kurdistan Region of
Iraq, and is 269 square kilometres in area. The Atrush Block contains the Chiya Khere structure. To the south of the
Atrush Block is the Shaikan Block which is currently being developed by Gulf Keystone Petroleum Ltd. Immediately
to the north of the Atrush Block is the Sarsang block where Hillwood International Energy in May 2014 declared
the Swara Tika to be a commercial discovery and is currently producing from one well. In addition MOL plc has
announced an oil discovery in the Bakrman well on the Akri‐Bijeel block immediately east of the Atrush Block. Also,
on trend discoveries to the west on the Sheikh Adi and Ber Behar Blocks have been announced by Genel Energy
plc. The Atrush Block contains multiple proven and potential stacked oil reservoirs in the Cretaceous, Jurassic and
Triassic sections in the Chiya Khere structure which, due to a high‐degree of fracturing, have demonstrated very
high production rates.
In addition to the proven Atrush Jurassic oil discovery the Atrush Block has potential additional upside in the Chiya
Khere hanging wall Triassic, Chiya Khere footwall reservoirs (Cretaceous, Jurassic and Triassic), and a southern
extension of the Swara Tika structure into the Atrush Block.
In August 2010 the Company acquired a 33.5% shareholding in GEP which then held an 80% working interest in the
Atrush Block Production Sharing Contract (“PSC”), with the remaining 20% third party interest (“TPI”) being held by
the Kurdistan Regional Government (“KRG”). In October 2010 Marathon Oil Corporation (“Marathon”) was
assigned the 20% TPI in the PSC. On December 31, 2012 GEP sold a 53.2% direct interest in the Atrush Block to
TAQA Atrush BV (“TAQA”), who also assumed from GEP the Operatorship of the Block, and repurchased the entire
66.5% shareholding which Aspect Energy International LLC (“Aspect”) held in GEP, leaving the Company with a
100% shareholding interest in GEP which then held a 26.8% direct interest in the PSC. The Company’s direct
interest in the PSC is 20.1% after the KRG exercised on March 12, 2013 its option to acquire a 25% Government
Interest in accordance with the provisions of the Atrush Block PSC. GEP, Marathon and TAQA together are “the
Contractors” to the PSC.
4
Under the terms of the Atrush Block PSC, on exercise of its right to acquire the 25% interest, the KRG assumes an
undivided interest in the petroleum operations and all the other rights, duties, obligations and liabilities of the
contracting parties to the PSC from the date the block has first been declared commercially viable. Discussions
have commenced amongst the Contractors and the KRG to amend the PSC to give effect to the KRG’s interest. At
the date of this MD&A the process of amending the PSC has not been completed and the Contractors are currently
advancing cash to the Operator to fund Atrush development costs relating to the KRG’s 25% interest.
Fiscal terms under the PSC include a 10% royalty, a variable profit split, based on a percentage share to the KRG
and a capacity building payment equal to 30% of profit oil (produced oil, less royalty and cost oil) to be paid to the
KRG. GEP has the right to recover costs using up to 40% of the available oil (produced oil less royalty oil) and 55%
of the produced gas.
GEP acquired 143 kilometres of 2D seismic data over the Atrush Block in 2008. The first exploration well, AT‐1, was
spudded in October 2010 reaching a TD of 3,400 metres in January 2011. A comprehensive well testing program
consisting of ten drill stem tests (“DST”s) was completed in April 2011. Following notification to the KRG of a major
Jurassic oil discovery on April 4, 2011 GEP submitted an Appraisal Work Program consisting of 3D seismic, appraisal
wells and studies and the possible installation of an extended test facility to conduct production testing in the field.
3D seismic covering the entire Atrush Block was acquired between July 2011 and August 2012. Final processing of
the 3D seismic survey was completed in 2014.
The AT‐2 appraisal well was drilled to a TD of 1,750 metres below the base of Jurassic reservoir section, which was
reached in July 2012. The Company announced on September 13, 2012 the results of the comprehensive AT‐2 well
testing program which confirmed through three separate DSTs the AT‐1 Jurassic oil discovery. Individual test rates
for the three Jurassic DSTs, constrained by surface testing equipment, were over 10,000 bopd (approximately 27
degree API) and confirmed the significant potential for production from the highly fractured Jurassic reservoir. An
additional two DSTs conducted in two deeper Jurassic formations confirmed them to be oil bearing and productive,
with test rates limited by gas lift. GEP submitted in October 2012 to the Ministry of Natural Resources (“MNR”) of
Kurdistan an AT‐2 Discovery Report giving notice of the additional discovery formations in the lower part of the
Jurassic.
On November 7, 2012 GEP and Marathon, collectively being the Contractor under the Atrush Block PSC at that
time, submitted to the Atrush Block Management Committee a Declaration of Commercial Discovery (“DCD”) with
effect from November 7, 2012 under Clause 12.6 (a) of the PSC. The DCD was submitted together with an Appraisal
Report covering the Atrush field.
The AT‐3 appraisal well was spudded on March 25, 2013 and, after a top hole sidetrack due to mechanical issues,
the well was drilled to a MD of 1,806 metres which was reached on June 23, 2013. The well encountered an
estimated oil column of 286 metres in the Jurassic reservoir (to the calculated Free Water Level) and successfully
extended the Atrush accumulation 6.5 kilometres further to the east, while proving producible oil 180 metres
deeper than previous wells thereby reducing the uncertainty on the Oil Water Contact/Free Water Level. AT‐3 was
suspended pending the planned re‐entry and successful retest in January 2015.
In June 2013 an interference test was conducted between AT‐1 and AT‐2. The wells, which are 3.1 kilometres
apart, confirmed excellent pressure communication and multi Darcy horizontal permeability through the fracture
system in the Jurassic reservoir. This reservoir connectivity was further confirmed, as announced by the Company
in February 2015, by pressure communication between the tested CK‐6 and AT‐3 wells and the AT‐2 well, over a
distance of 6.5 kilometres.
The Atrush Block Field Development Plan (“FDP”) was submitted for approval to the KRG on May 6, 2013, in
accordance with the terms of the PSC within 180 days after the DCD made on November 7, 2012. The FDP was
presented in detail to the MNR in June 2013. Phase 1 of the FDP was duly approved with an effective date October
1, 2013.
5
On October 7, 2013 the Company announced that Phase 1 of the FDP for the Atrush Block had been approved by
the KRG. The initial 20‐year Development Phase (as defined in Clause 12.9 of the PSC) commenced on the October
1, 2013. Phase 1 will consist of four initial producers (AT‐2, AT‐4, CK‐5 and CK‐8) connected to a 30,000 gross bopd
production facility.
Following submission of the FDP the AT‐1 discovery well was determined to be unsuitable for long‐term
production and was plugged and abandoned in October 2013.
6
SELECTED ANNUAL FINANCIAL INFORMATION
The following is a summary of selected annual financial information for the Company:
(In $000s, except per share data)
Continuing operations
General and administrative expense
Share based payments expense
Impairment (loss) / recovery
Depreciation and amortisation expense
Share of income of associate
Relinquishment costs
Gain on sale of asset
Gain on fair valuation of net assets of subsidiary
Finance cost
Finance income
Income tax expense
Net (loss) / income from continuing operations
Discontinued operations
Gain on release of excess site restoration provisions
Expenses
Net income / (loss) from discontinued operations
For the year ended December 31,
2013
2014
2012
(1,548)
(307)
‐
(53)
‐
‐
‐
‐
(5,304)
108
(109)
(7,213)
228
(15)
213
(2,393)
(882)
(84)
(65)
‐
‐
‐
‐
(740)
28
(87)
(4,223)
981
(46)
935
(2,852)
(8)
1,814
(183)
129,000
(25,732)
1,100
102,735
(719)
359
(89)
205,425
‐
(61)
(61)
Net (loss) / income
(7,000)
(3,288)
205,364
Basic (loss) / income in $ per share:
Continuing operations
Discontinued operations
Diluted (loss) / income in $ per share:
Continuing operations
Discontinued operations
Total assets
Exploration and evaluation assets – net book value
Working capital surplus
Borrowings
Shareholders’ equity
Common shares outstanding (x 1,000)
(0.01)
‐
(0.01)
(0.01)
‐
(0.01)
2014
488,258
429,245
42,309
147,657
322,204
810,984
(0.01)
‐
(0.01)
(0.01)
‐
(0.01)
As at December 31,
2013
487,954
344,988
132,980
147,050
328,989
810,984
0.25
‐
0.25
0.25
‐
0.25
2012
345,554
303,523
29,628
‐
331,376
810,984
7
Summary of Principal Changes in Annual Financial Information
The Company has reported in 2014 a net loss of $7.0 million which was primarily driven by routine general and
administrative expenses, share based payment expenses and finance cost, the substantial portion of which was
expensed borrowing costs on the Company’s senior secured bonds. These charges have been offset by a gain on
the release of excess site restoration provisions associated with the Company’s discontinued operations in the
United States. The changes in annual financial information are further explained in the sections below.
Results of Continuing Operations
The Company’s continuing operations are comprised of an appraisal and development program on the Atrush
Block petroleum property located in the Kurdistan Region of Iraq which is currently in the pre‐production stage
and generates no revenue. The expenses and income items of continuing operations are explained in detail as
follows:
General and administrative expense
In $000
Salaries and benefits
Management and consulting fees
General and other office expenses
Listing costs and investor relations
Travel expenses
Legal, accounting and audit fees
General and administrative expense incurred
General and administrative expense capitalised as E&E assets
General and administrative expense
For the year ended December 31,
2014
2,903
776
484
364
198
161
4,886
(3,338)
1,548
2013
2,819
1,011
514
290
298
541
5,473
(3,080)
2,393
The Company capitalises as exploration and evaluation (“E&E”) assets general and administrative expenses
supporting E&E activities which relate to the interest held in the Atrush production sharing contract.
The general and administrative expenses incurred in 2014 have decreased relative to the amount in 2013 primarily
due to a reduction in the level of business development activity conducted in the year 2014.
Share based payments expense
In $000
Share based payments expense
For the year ended December 31,
2013
2014
307
882
The share based payments expense results from the vesting of stock options granted in the years 2011 and 2013.
No stock options were granted in the year ended December 31, 2014 (year 2011: 25,000; year 2012: nil; year 2013:
5,640,000). The Company uses the fair value method of accounting for stock options granted to directors, officers,
employees and consultants whereby the fair value of all stock options granted is recorded as a charge to
operations. The fair value of common share options granted is estimated on the date of grant using the Black‐
Scholes option pricing model.
8
Depreciation and amortisation expense
In $000
Depreciation and amortisation expense
For the year ended December 31,
2013
2014
53
65
Depreciation and amortisation expense corresponds to cost of use of the furniture and IT equipment at the
Company’s technical and administrative offices located in Switzerland and Kurdistan.
Impairment loss
In $000
Write down drilling inventory to net realizable value
Impairment loss
For the year ended December 31,
2013
2014
‐
‐
84
84
The impairment losses on drilling inventory incurred in the year 2013 related to the Pulkhana and Arbat production
sharing contract relinquishments.
Finance cost
In $000
Interest charges on bonds at coupon rate
Amortisation of bond related transaction costs
Interest expense on borrowings
Unwinding discount on decommissioning provision
Foreign exchange loss
Total finance costs before borrowing costs capitalised
Borrowing costs capitalised as E&E assets
Total finance costs
For the year ended December 31,
2013
2014
17,250
607
17,857
19
‐
17,876
(12,572)
5,304
2,252
78
2,330
1
49
2,380
(1,640)
740
General and specific borrowing costs directly attributable to the acquisition or construction of qualifying assets are
capitalised together with the qualifying assets. All other borrowing costs are recognised in profit or loss in the
period in which they are incurred. During the year 2014 the Company incurred interest expense relating to its $150
million of senior secured bonds which carry an 11.5% fixed semi‐annual coupon interest rate.
The foreign exchange loss recorded in the year 2013 resulted primarily from holding net assets denominated in
United States dollars in the Swiss subsidiary of the Group while the United States dollar weakened during the
reporting period against Swiss Franc, the functional currency of the Swiss subsidiary. In 2014 the Company
recorded a foreign exchange gain (refer to discussion under finance income).
9
Finance income
In $000
Interest Income
Foreign exchange gain
Total finance income
For the year ended December 31,
2013
2014
65
43
108
28
‐
28
Interest income represents bank interest earned on cash and investments in marketable securities. The relative
increase in interest income reported in the year ended December 31, 2014 relative to the amount reported in the
year 2013 is due to the higher average interest bearing cash balances held throughout the period.
The foreign exchange gain in 2014 resulted primarily from holding in the Company’s Swiss subsidiary net assets
denominated in United States dollars while the United States dollar strengthened during the reporting period
against the Swiss Franc, the functional currency of the Swiss subsidiary.
Income tax expense
In $000
Income tax expense
For the year ended December 31,
2013
2014
109
87
Income tax expense relates to provisions for income taxes on service income generated in Switzerland which is
determined on the basis of the incurred cost of the related services. The increase in tax expense from the
comparable reporting period is primarily due to higher taxable income in the Swiss subsidiary which has increased
slightly due to higher service costs incurred 2014.
Results of Discontinued Operations
The main components of discontinued operations are explained as follows:
Gain on release of excess site restoration provisions
In $000
For the year ended December 31,
2013
2014
Gain on release of excess site restoration provisions
228
981
In the years 2014 and 2013 the Company released excess site restoration provisions as the total cost to complete
this was less than the amount previously estimated. Works to restore the sites pertaining to the interests the
Company held in petroleum properties located in the United States were completed during the year 2014.
Expenses
In $000
Legal, accounting and audit fees
General and other office expenses
Total expenses
For the year ended December 31,
2013
2014
9
6
15
35
11
46
10
The decrease in expenses in the year 2014 relative to the amounts incurred in the same period of 2013 is due to
the reduction in activity associated with the Company’s United States based discontinued operations following the
sale in 2009 of the properties located there. The professional and general fees which the Company has incurred
are related to the decommissioning and windup of the interests it held in the United States.
Capital Expenditures on Exploration and Evaluation Assets
The net book value of the Company’s E&E assets at December 31, 2014 relate to the Atrush Block and includes
$24.5 million of advances made to fund Atrush development costs on behalf of the KRG. The movements in E&E
during the years 2014 and 2013 are explained as follows:
In $000
Movements during the year:
Opening cost and net book value, January 1
Additions
Cost and net book value, December 31
For the year ended December 31,
2013
2014
344,988
84,257
429,245
303,523
41,465
344,988
The additions to E&E assets during the year 2014 of $84.3 million were comprised of Atrush drilling and field
development activity costs totalling $68.4 million, borrowing costs capitalised of $12.6 million, and general and
administrative costs relating to Atrush Block E&E activities totalling $3.3 million.
The additions to E&E assets during the year 2013 of $41.5 million were comprised of Atrush drilling and field
development activity costs totalling $35.1 million, capacity building and other PSC related payments of $1.7
million, borrowing costs capitalised of $1.6 million, and general and administrative costs relating to Atrush Block
E&E activities totalling $3.1 million.
Borrowings
At December 31, 2014 GEP, a wholly owned indirect subsidiary of the Company, had outstanding $150 million of
senior secured bonds which were listed in May 2014 on the Oslo Børs in Norway under the symbol “GEP01”. The
bonds have a five year maturity from their issuance date of November 13, 2013, carry an 11.5% fixed semi‐annual
coupon and are being used to fund capital expenditures related to the development of the Atrush Block.
The bonds include an unconditional and irrevocable on‐demand guarantee on a joint and several basis from the
Company and certain of the Company’s direct and indirect subsidiaries and, among other arrangements,
agreements which pledge all of the ordinary shares of GEP and the Company’s Swiss service subsidiary, ShaMaran
Services SA, as security for GEP’s bond related obligations, as well as an internal credit facility agreement among
the Company and certain of its subsidiaries setting out the terms and conditions for intra‐group credit to be made
available amongst the parties.
Under the terms of the bond agreement all bond proceeds are held in accounts pledged to the bond trustee as
security and may be accessed by the Company on prior authorisation of the bond trustee provided the proceeds
are to be employed for prescribed purposes, most notably to fund the financing, development and operation of
the Atrush Block, to service the first 24 months of bond coupon interest expense and to fund technical,
management and administrative services of ShaMaran’s subsidiary companies up to $6 million per year over the
term of the bonds. Of the Company’s $57.2 million total cash and cash equivalents at December 31, 2014
$41.1 million was held in accounts pledged to the bond trustee.
11
The movements in borrowings are explained as follows:
In $000
Opening balance
Interest charges on bonds at coupon rate
Amortisation of bond related transaction costs
Net proceeds from bonds
Interest payments to bondholders
Ending balance
‐ Current portion: accrued interest expense on bonds
‐ Non‐current portion: borrowings
As at December 31,
2014
149,302
17,250
607
‐
(17,250)
149,909
2,252
147,657
2013
‐
2,252
78
146,972
‐
149,302
2,252
147,050
The remaining contractual obligation comprising repayment of principal and interest expense based on
undiscounted cash flows at payment date, assuming the bonds are not early redeemed, are as follows:
In $000
Less than one year
Between two and five years
Total
As at December 31,
2014
17,250
199,407
216,657
2013
17,250
216,050
233,300
12
SELECTED QUARTERLY FINANCIAL INFORMATION
The following is a summary of selected quarterly financial information for the Company:
(In $000s, except per share data)
For the quarter ended
Continuing operations
General and admin. expense
Share based payments expense
Depreciation and amortisation
Impairment loss
Finance cost
Finance income
Income tax expense
Net loss. from continuing ops.
Discontinued operations
Gain on release of excess provision
Income / (expense)
Net Income / (loss) from
discontinued ops.
Dec 31
2014
Sep 30
2014
Jun 30 Mar 31
2014
2014
Dec 31
2013
Sep 30
2013
Jun 30 Mar 31
2013
2013
(376)
(48)
(15)
‐
(1,326)
37
(25)
(1,753)
228
2
230
(154)
(51)
(14)
‐
(1,326)
64
(29)
(1,510)
‐
(1)
(1)
(462)
(61)
(13)
‐
(1,309)
26
(23)
(1,842)
‐
(1)
(1)
(556)
(147)
(11)
‐
(1,364)
2
(32)
(2,108)
‐
(15)
(15)
(1,016)
(157)
(11)
‐
(693)
2
(24)
(1,899)
981
(6)
975
(572)
(159)
(19)
‐
(64)
7
(13)
(820)
‐
(13)
(13)
(355)
(565)
(16)
(84)
(23)
10
(10)
(1,043)
‐
(7)
(7)
(450)
(1)
(19)
‐
‐
50
(40)
(460)
‐
(20)
(20)
Net loss
(1,523)
(1,511)
(1,843)
(2,123)
(924)
(833)
(1,050)
(480)
Basic income in $ per share:
Continuing operations
Discontinued operations
Diluted income in $ per share:
Continuing operations
Discontinued operations
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
Summary of Principal Changes in the Fourth Quarter Financial Information
In the fourth quarter of 2014 work on the Atrush Block development program continued. The net loss in this
quarter was primarily driven by routine general and administrative expenses, share based payments expense in
respect of continuing operations and finance cost, the substantial portion of which was expensed borrowing costs
on the Company’s senior secured bonds. These expenses have been offset by a gain on the release of an excess
site restoration provision associated with the Company’s discontinued operations in the United States.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 2014 was $42.3 million compared to $133.0 million at December 31, 2013.
13
The overall cash position of the Company decreased by $85.4 million during the year 2014 compared to an
increase in cash of $101.4 million during the year 2013. The main components of the movement in funds are
discussed in the following paragraphs.
The operating activities of the Company during the year 2014 resulted in an increase in the cash position by $3.6
million compared to a decrease of $0.8 million during the previous year. The increase in the cash position due to
operating activities is explained by a net loss of $7.2 million, $11.5 million net positive cash adjustments from
working capital and non‐cash expenses and $0.7 million of cash used on discontinued operations.
Net cash outflows to investing activities in the year 2014 were $71.7 million compared to cash outflows in the
amount of $44.8 million in 2013. Substantially all of the cash outflows on investing activities in the current period
relate to investment in the Atrush Block appraisal and development work program.
Net cash outflows to finance activities during the year ended December 31, 2014 were $17.3 million relating
entirely to interest payments made to bondholders.
The share based payments reserve increased by $307 in the year 2014 (2013: $882) due entirely to share based
payments expense incurred during the period. There were no stock options exercised during this period (2013: nil).
When options are granted the Black‐Scholes option value method is used to calculate a value for the stock options.
When the options are exercised the applicable amounts of share based payments are transferred from the share
based payments reserve to share capital.
The Company does not currently generate revenues and corresponding cash flows from its oil and gas appraisal
and development operations. The Company has relied upon the issuance of common shares, proceeds from asset
sales and, most recently, bonds, to finance its ongoing oil exploration, development and acquisition activities. The
Company believes, based on the forecasts and projections it has prepared, that it will have financial resources
sufficient to satisfy its contractual obligations and commitments under the agreed work program over the next 12
months. Nevertheless the possibility remains that the Company’s operations and current and future financial
resources could be significantly affected by adverse exploration and appraisal results, geopolitical events in the
region, macroeconomic conditions or other risks, including uncertainty surrounding the timing and amounts of
cash receipts commencing from first oil and the level of project development costs that the Company may be
required to fund in order to realize receipts from oil sales to its customers. The potential that the Company’s
financial resources are insufficient to fund its appraisal and development activities for the next 12 months
indicates a material uncertainty which may cast significant doubt over the Company’s ability to continue as a going
concern.
OUTSTANDING SHARE DATA
There was no change in the year 2014 in the number of common shares of the Company outstanding which was
810,983,860 at December 31, 2013 and December 31, 2014.
The Company announced on February 10, 2015 that, in connection with an offering of rights to shareholders of
record on January 12, 2015 to purchase additional common shares in the Company (“Common Shares”) at a
subscription price of CAD 0.10 per share (the “Rights Offering”), it had issued an aggregate of 713,308,912
Common Shares, including 195,710,409 Common Shares to its major shareholders, Lorito Holdings SARL, Zebra
Holdings and Investments SARL and Lundin Petroleum BV (collectively the "Standby Purchasers") on exercise of
their respective rights, resulting in gross proceeds to the Company of CAD 71.3 million. Under the terms of the
standby purchase agreement (the "Standby Purchase Agreement") between the Company and the Standby
Purchasers, the Standby Purchasers agreed to subscribe for a total of 40,906,078 additional Common Shares,
representing all Common Shares not otherwise subscribed for by rights holders, at a price of CAD 0.10 per share
(the "Standby Purchase"). The Standby Purchase was concluded on February 17, 2015 and resulted in additional
gross proceeds to the Company of CAD 4.1 million. In addition on February 17, 2015 the Company issued a further
14
aggregate of 14,569,684 Common Shares to the Standby Purchasers in respect of the guarantee fee, as defined
under the standby purchase agreement.
At December 31, 2014 there were 6,755,000 stock options outstanding under the Company’s employee incentive
stock option plan, which is a decrease from the 8,263,664 stock options outstanding at December 31, 2013 by the
1,508,334 stock options which expired in September 2014. In the 2014 year no stock options have been granted
(2013: 5,640,000), were forfeited, or were exercised. At the date of this MD&A the number of stock options
outstanding was 32,755,000 following a grant of 26,000,000 stock options with an exercise price of CAD 0.115 to
certain senior officers and directors of the Company which was approved on January 19, 2015.
The Company has no warrants outstanding.
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off‐balance sheet arrangements.
RELATED PARTY TRANSACTIONS
In $000
McCullough O’Connor Irwin LLP
Lundin Petroleum AB
Namdo Management Services Ltd.
Mile High Holdings Ltd.
Vostok Nafta Investment Ltd.
Total
Purchases of services
during the year
2014
2013
Amounts owing
at December 31,
2013
2014
276
464
214
‐
‐
954
26
518
243
113
13
913
91
56
31
35
‐
213
14
89
15
113
‐
231
McCullough O’Connor Irwin LLP is a law firm in which an officer of the Company is a partner which has provided
legal services to the Company.
The Company receives services from various subsidiary companies of Lundin Petroleum AB (“Lundin”), a
shareholder of the Company. Lundin charges during the year ended December 31, 2014 of $464 (2013: $518) were
comprised of G&G and other technical service costs of $50 (2013: $144), investor relations services of $36 (2013:
$nil), reimbursement for Company travel and related expenses of $1 (2013: $nil), office rental, administrative and
building services of $377 (2013: $374).
Namdo Management Services Ltd. is a private corporation owned by a shareholder of the Company which has
provided corporate administrative support and investor relations services to the Company.
Mile High Holdings Ltd. is a private corporation associated with a shareholder of the Company which has provided
transportation services to the Company in relation to its investor relations activities.
Vostok Nafta Investment Ltd. is a corporation traded on the Nasdaq Nordic Exchange in Stockholm (trading symbol
VNIL SDB) which was associated with a shareholder of the Company and which provided investor relations services
to the Company in Sweden.
All transactions with related parties are in the normal course of business and are made on the same terms and
conditions as with parties at arm’s length.
15
COMMITMENTS
Atrush Block Production Sharing Contract
ShaMaran holds a 20.1% direct interest in the PSC through its wholly owned subsidiary GEP. TAQA is the Operator
with a 39.9% direct interest, Marathon holds a 15% direct interest, and the remaining 25% interest was acquired
by the KRG when on March 12, 2013, it exercised its right to acquire a 25% Government Interest in accordance
with the provisions of the Atrush Block PSC. GEP, Marathon and TAQA together are “the Contractors” to the PSC.
Under the terms of the Atrush Block PSC, on exercise of its right to acquire the 25% interest, the KRG assumed an
undivided interest in the petroleum operations and all the other rights, duties, obligations and liabilities of the
contracting parties to the PSC from the date the block has first been declared commercially viable. Discussions
have commenced amongst between the Contractors and the KRG to amend the PSC to give effect to the KRG’s
interest. At the date of this MD&A the process of amending the PSC has not been completed and the Contractors
are currently advancing Atrush development costs relating to the KRG’s 25% interest.
Under the terms of the PSC the development period is for 20 years with an automatic right to a five year extension
and the possibility to extend for an additional five years. The PSC requires the Contractors to fund certain training
and environmental assistance projects over the development period. All qualifying petroleum costs incurred by the
Contractors shall be recovered from a portion of available petroleum production, defined under the terms of the
PSC. All modifications to the PSC are subject to the approval of the KRG. The Company is responsible for its pro‐
rata share of the costs incurred in executing the development work program on the Atrush Block which
commenced on October 1, 2013.
As at December 31, 2014 the outstanding commitments of the Company were as follows:
Atrush Block development and PSC
Office and other
Total commitments
For the year ended December 31,
2015
60,258
92
60,350
2016
120
‐
120
2017
Thereafter
120
‐
120
1,932
‐
1,932
Total
62,430
92
62,522
Amounts relating to the Atrush Block represent the Company’s unfunded share of the approved work program and
other obligations under the Atrush Block PSC.
PROPOSED TRANSACTIONS
The Company had no significant transactions pending at March 12, 2015.
16
CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICIES
Accounting Estimates
The consolidated financial statements of the Company have been prepared by management using IFRS. In
preparing financial statements, management makes informed judgments and estimates that affect the reported
amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of
revenues and expenses during the period. Specifically, estimates are utilised in calculating depletion, asset
retirement obligations, fair values of assets on acquisition of control, share‐based payments, amortisation and
impairment write‐downs. Actual results could differ from these estimates and differences could be material.
New Accounting Standards
The Company has adopted effective January 1, 2014 on a prospective basis the following new and revised IFRS,
along with any consequential amendments. These changes were made in accordance with the applicable
transitional provisions.
IAS 32 ‐ Financial Instruments Presentation, updates the application guidance in IAS 32, to clarify some of the
requirements for offsetting financial assets and financial liabilities on the balance sheet. The amendment becomes
effective for annual periods beginning on or after January 1, 2014. This amendment does not have a material effect
on the Company’s consolidated financial statements.
IAS 36 ‐ Impairment of Assets, addresses the disclosure of information about the recoverable amount of impaired
assets if that amount is based on fair value less costs of disposal. The amendment becomes effective for annual
periods beginning on or after January 1, 2014. This amendment affects presentation only and has been
incorporated into the Company’s financial reporting.
IFRIC 21 ‐ Levies, addresses the accounting for an obligation to pay a levy that is not an income tax. The guidance
addresses the accounting for a liability to pay a levy recognised in accordance with IAS 37 Provisions and the
liability to pay a levy whose timing and amount is certain. The amendment becomes effective for annual periods
beginning on or after January 1, 2014. This guidance does not have a material effect on the Company’s
consolidated financial statements.
Accounting Standards Issued But Not Yet Applied
Standards and interpretations issued but not yet effective up to the date of issuance of the financial statements
are listed below. This listing of standards and interpretations issued are those that the Company reasonably
expects to have an impact on disclosures, financial position or performance when applied at a future date.
IFRS 9: Financial Instruments ‐ Classification and Measurement, addresses the classification, measurement and
recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and amended in
October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial
instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at
fair value and those measured at amortised cost. The determination is made at initial recognition. The
classification depends on the entity’s business model for managing its financial instruments and the contractual
cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39
requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part
of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than in
net earnings, unless this creates an accounting mismatch. The new standard will be effective for annual periods
beginning on or after January 1, 2018.
IFRS 15: Revenue from contracts with customers is the new standard which replaces IAS 18 Revenue and IAS 11
Construction Contracts and provides a five step framework for application to customer contracts; identification of
customer contract, identification of the contract performance obligations, determination of the contract price,
17
allocation of the contract price to the contract performance obligations, and revenue recognition as performance
obligations are satisfied. A new requirement where revenue is variable stipulates that revenue may only be
recognised to the extent that it is highly probable that significant reversal of revenue will not occur. The new
standard will be effective for annual periods beginning on or after January 1, 2017.
IFRS 11: Joint Arrangements. An amendment to IFRS 11 was issued in May 2014 addressing guidance on how to
account for the acquisition of an interest in a joint operation that constitutes a business. The standard now
specifies the appropriate accounting treatment for such acquisitions and requires an investor to apply the
principles of business combination accounting, as defined in IFRS 3 ‐ Business combinations, when acquiring an
interest in a joint operation that constitutes a business. The amendment requires an investor to measure
identifiable assets and liabilities at fair value; expense acquisition related costs; recognise deferred tax, and;
recognise the residual as goodwill. The amendment is applicable to both the acquisition of the initial interest in a
joint operation and the acquisition of additional interest in the same joint operation. However, a previously held
interest is not to be re‐measured when the acquisition of an additional interest in the same joint operation results
in retaining joint control. The amendment to IFRS 11 will be applied prospectively for annual periods beginning on
or after January 1, 2016.
Accounting for Oil and Gas Operations
The Company follows the successful efforts method of accounting for its oil and gas operations. Under this method
acquisition costs of oil and gas properties, costs to drill and equip exploratory and appraisal wells that are likely to
result in proved reserves and costs of drilling and equipping development wells are capitalised and subject to
annual impairment testing.
Exploration well costs are initially capitalised and, if subsequently determined to have not found sufficient reserves
to justify commercial production, are charged to exploration expense. Exploration well costs that have found
sufficient reserves to justify commercial production, but whose reserves cannot be classified as proved, continue
to be capitalised as long as sufficient progress is being made to assess the reserves and economic viability of the
well and or related project.
Capitalised costs of proved oil and gas properties are depleted using the unit of production method based on
estimated gross proved reserves of petroleum and natural gas as determined by independent engineers.
Successful exploratory wells and development costs and acquired resource properties are depleted over proved
developed reserves. Acquisition costs of unproved reserves are not depleted or amortised while under active
evaluation for commercial reserves. Costs associated with significant development projects are depleted once
commercial production commences. A revision to the estimate of proved reserves can have a significant impact on
earnings as they are a key component in the calculation of depreciation, depletion and accretion.
Producing properties and significant unproved properties are assessed annually, or more frequently as economic
events dictate, for potential indicators of impairment. Economic events which would indicate impairment include:
The period for which the Company has the right to explore in the specific area has expired during the period or
will expire in the near future and is not expected to be renewed.
Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is
neither budgeted nor planned.
Exploration for and evaluation of resources in the specific area have not led to the discovery of commercially
viable quantities of mineral resources and the Company has decided to discontinue such activities in the
specific area.
Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the
carrying amount of the E&E asset is unlikely to be recovered in full from successful development or by sale.
Extended decreases in prices or margins for oil and gas commodities or products.
18
A significant downwards revision in estimated volumes or an upward revision in future development costs.
The impairment test is initially based on undiscounted future cash flows from proved and risk adjusted probable
reserves. If an impairment indicator is identified, fair value is calculated as the present value of estimated expected
discounted cash flows from proved and risk‐adjusted probable reserves. Any impairment loss is the difference
between the carrying value of the petroleum property and its fair value. Therefore, if it is determined that the
estimated fair value is less than the net carrying amount, a write‐down to the oil and gas property’s fair value is
recognised during the period, with a charge to earnings.
Estimates of future cash flows used in the evaluation of impairment of assets are performed based on risk
assessments on field and reservoir performance and include assumptions regarding commodity prices, discount
rates and future costs.
A substantial portion of the Company’s exploration and development activities are conducted jointly with others.
RESERVES AND RESOURCE ESTIMATES
The Company engaged McDaniel and Associates Consultants Ltd (“McDaniel”) to evaluate 100% of the Company’s
reserves and resource data at December 31, 2014. The conclusions of this evaluation have been presented in a
Detailed Property Report which has been prepared in accordance with standards set out in the Canadian National
Instrument NI 51‐101 and Canadian Oil and Gas Evaluation Handbook (“COGEH”).
McDaniel estimates for reserves and resources have taken into account the results of recent drilling and well test
results, as well as the final remapping based on 3D seismic and the commitment to the Phase 1 of development as
defined by the KRG approved field development plan.
The Company’s crude oil and natural gas reserves and contingent resources for the Company’s Atrush asset as of
December 31, 2014 were estimated to be as follows:
Reserves Summary – Atrush Phase 1 Development
As of December 31, 2014
Mbbl(1)(2)(3)(4)(5)
Reserves Category:
Light/Medium Oil (Mbbl)(2)
Total Proved Reserves (1P)
Probable Reserves
Proved and Probable Reserves (2P)
Possible Reserves
Proved + Probable and Possible Reserves (3P)
Property
Gross
31,216
30,235
61,451
59,520
120,972
Company
Gross(3)
Company
Net(4)
6,274
6,077
12,352
11,964
24,315
4,500
3,361
7,861
4,479
12,340
Notes:
(1)
8).
(2)
(3)
(4)
(5)
Reserves are based on the KRG approved Phase 1 Atrush development comprising a 30,000 bpd facility and 4 producers (AT‐2, AT‐4, CK‐5 and CK‐
The Atrush Field contains crude oil of variable density even within a single reservoir unit. Oil density measurements on the PVT samples analyzed
to date, and from the reservoirs assigned reserves, have been less than 920 kg/m3 and as such are categorized as medium oil. However wellhead
oil density measurements suggest that some of the Atrush oil, which as yet has not been the subject of PVT study, will likely have a density of
greater than 920 kg/m3 and as such would be categorized as heavy oil.
Company gross reserves are based on Company 20.1% working interest share of the property gross reserves.
Company net reserves are based on Company share of total cost and profit revenues and the income tax paid on behalf of Company.
The Company has no Condensate or Natural Gas Reserves.
The updated estimates of contingent resources for the Atrush block are as follows:
19
Contingent Resources Summary – Atrush Jurassic Oil Discovery
As of December 31, 2014
(1)(2)(3)(4)(5)
Property Gross
Light/Medium Oil (Mbbl)(4)
Natural Gas (MMcf)
Total (Mboe)(5)
Company Gross
Light/Medium Oil (Mbbl)(4)
Natural Gas (MMcf)
Total (Mboe)(5)
Low Estimate
(1C)
Best Estimate
(2C)
High Estimate
(3C)
179,891
38,930
186,379
36,158
7,825
37,462
298,760
66,368
309,821
60,051
13,340
62,274
434,948
101,590
451,880
87,425
20,420
90,828
Notes:
(1)
(2)
(3)
(4)
(5)
There is no certainty that it will be commercially viable or technically feasible to produce any portion of the resources.
These are unrisked contingent resources that do not take into account the chance of development. The contingent resources are sub‐
classified as “development unclarified” with an “undetermined” economic status.
Company gross resources are based on Company 20.1% working interest share of the property gross resources.
The Atrush Field contains crude oil of variable density even within a single reservoir unit. Oil density measurements on the PVT samples analyzed
to date, and from the reservoirs assigned contingent resources, have been between 900 and 925 kg/m3 and as such should be categorized as
either medium or heavy oil. At this stage it is difficult to split the contingent resources between these product types and, as the majority of the oil
density measurements on the PVT samples have been less than 920 kg/m3, the oil has been categorized as medium oil.
6 Mcf is equivalent to 1 BOE.
Crude oil and natural gas contingent resources were assigned to the Chia Gara Transition Beds, Barsarin,
Naokelekan, Upper Sargelu, Lower Sargelu, Alan, Mus, and Butmah formations as part of this evaluation. The
contingent resources represent the likely recoverable volumes associated with further phases of development
after Phase 1. These are considered to be contingent resources rather than reserves due to the uncertainty over
the future development plan which will depend in part on further field appraisal and Phase 1 production
performance.
The Company believes that the reserve base, which has increased slightly from the 11.7MMbbls of company gross
2P reserves reported at December 31, 2013, supports the 30,000 bpd Atrush Phase 1 development program
scheduled for startup before the end of 2015. A reduction in company gross 2C contingent resources from the
104.2MMboe reported at December 31, 2013 reflects a more complex geological structure (interpreted from the
3D seismic data processed in 2014 and 2014 well results) and a reduced estimate of recovery factor from the rock
matrix. The recoverable estimates are related to a water drive mechanism as per the current field development
plan and therefore exclude any upside associated with any future improved oil recovery efforts.
In the absence of new data prospective resources for the Atrush block were not re‐evaluated and therefore remain
unchanged:
20
Prospective Resources Summary – Atrush Block*
As of December 31, 2013
(1)(2)(3)(4)(5)(6)
*Comprising remaining potential in the Atrush Hanging Wall (Triassic), Atrush Footwall (Cretaceous, Jurassic and Triassic) and extension of the
Swara Tika structure into the Atrush block (Jurassic and Triassic).
Unrisked Low
Estimate
Unrisked Best
Estimate
Unrisked Mean
Estimate
Unrisked High
Estimate
Risked (2)
Mean Estimate
Property Gross
Light/Medium Oil
(Mbbl)(5)
Condensate (Mbbl)
Natural Gas (MMcf)
Total (Mboe)(6)
Company Gross (4)
Light/Medium Oil
(Mbbl)(5)
Condensate (Mbbl)
Natural Gas (MMcf)
Total (Mboe)(6)
121,425
8,741
141,366
153,727
24,406
1,757
28,415
30,899
173,194
28,327
258,352
244,580
34,812
5,694
51,929
49,161
180,165
36,173
289,988
264,670
36,213
7,271
58,288
53,199
247,211
72,890
481,107
400,285
49,689
14,651
96,702
80,457
60,479
6,766
61,445
77,485
12,156
1,360
12,350
15,575
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
There is no certainty that any portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be
commercially viable or technically feasible to produce any portion of the resources.
These are partially risked prospective resources that have been risked for chance of discovery, but have not been risked for chance of
development.
Total based on the probabilistic aggregation of undiscovered pools within the field/prospect.
Company gross resources are based on Company working interest share of the property gross resources.
The prospective resources are categorized as “light & medium oil” however based on oil samples obtained from the Atrush Field it may be that a
portion should be categorized as “heavy oil”; it is not possible at this stage to split the resources between the categories and for simplicity they
are all included as “light & medium oil”.
6 Mcf is equivalent to 1 BOE.
Risks in estimating resources: There are a number of uncertainties inherent in estimating the quantities of
reserves and resources including factors which are beyond the control of the Company. Estimating reserves
and resources is a subjective process and the results of drilling, testing, production and other new data
subsequent to the date of an estimate may result in revisions to original estimates.
Reservoir parameters may vary within reservoir sections. The degree of uncertainty in reservoir parameters used
to estimate the volume of hydrocarbons, such as porosity, net pay and water saturation, may vary. The type of
formation within a reservoir section, including rock type and proportion of matrix and or fracture porosity, may
vary laterally and the degree of reliability of these parameters as representative of the whole reservoir may be
proportional to the overall number of data points (wells) and the quality of the data collected. Reservoir
parameters such as permeability and effectiveness of pressure support may affect the recovery process. Recovery
of reserves and resources may also be affected by the availability and quality of water, fuel gas, technical services
and support, local operating conditions, security, performance of the operating company and the continued
operation of well and plant equipment.
21
Additional risks associated with estimates of reserves and resources include risks associated with the oil and gas
industry in general which include normal operational risks during drilling activity, development and production;
delays or changes in plans for development projects or capital expenditures; the uncertainty of estimates and
projections related to production, costs and expenses; health, safety, security and environmental risks; drilling
equipment availability and efficiency; the ability to attract and retain key personnel; the risk of commodity price
and foreign exchange rate fluctuations; the uncertainty associated with dealing with governments and obtaining
regulatory approvals; performance and conduct of the Operator; and risks associated with international
operations.
The Company’s project is in the appraisal and development stages and, as such, additional information must
be obtained by further appraisal drilling and testing to ultimately determine the economic viability of
developing any of the contingent or prospective resources. There is no certainty that the Company will be able
to commercially produce any portion of its contingent or prospective resources. Any significant change, in
particular, if the volumetric resource estimates were to be materially revised downwards in the future, could
negatively impact investor confidence and ultimately impact the Company’s performance, share price and
total market capitalisation.
The Company has engaged professional geologists and engineers to evaluate reservoir and development plans;
however, process implementation risk remains. The Company’s reserves and resource estimations are based on
data obtained by the Company which has been independently evaluated by McDaniel & Associates Consultants
Ltd.
BOEs: BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf : 1 Bbl is
based on an energy equivalency conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
FINANCIAL INSTRUMENTS
The Company’s financial instruments currently consist of cash, cash equivalents, advances to joint venture
Operator, other receivables, borrowings, accounts payable and accrued expenses, accrued interest on bonds,
provisions for decommissioning costs, and current tax liabilities. The Company classifies its financial assets and
liabilities at initial recognition in the following categories:
Financial assets and liabilities at fair value through profit or loss are those assets and liabilities acquired
principally for the purpose of selling or repurchasing in the short‐term and are recognised at fair value.
Transaction costs are expensed in the statement of comprehensive income and gains or losses arising from
changes in fair value are also presented in the statement of comprehensive income within other gains and
losses in the period in which they arise. Financial assets and liabilities at fair value through profit or loss are
classified as current except for the portion expected to be realised or paid beyond twelve months of the
balance sheet date, which is classified as non‐current.
Loans and receivables comprise of other receivables and cash and cash equivalents and are financial assets
with fixed or determinable payments that are not quoted on an active market and are generally included
within current assets due to their short‐term nature. Loans and receivables are initially recognised at fair value
and are subsequently measured at amortised cost using the effective interest method less any provision for
impairment.
Financial liabilities at amortised cost comprise of trade and other payables and are initially recognised at the
fair value of the amount expected to be paid and are subsequently measured at amortised cost using the
effective interest rate method. Financial liabilities are classified as current liabilities unless the Company has
an unconditional right to defer settlement for at least 12 months after the balance sheet date.
22
With the exception of borrowings, accrued interest on bonds and provisions for decommissioning costs, which
have fair value measurements based on valuation models and techniques where the significant inputs are derived
from quoted prices or indices, the fair values of the Company’s other financial instruments did not require
valuation techniques to establish fair values as the instrument was either cash and cash equivalents or, due to the
short term nature, readily convertible to or settled with cash and cash equivalents.
The Company is exposed in varying degrees to a variety of financial instrument related risks which are discussed in
the following sections:
Financial Risk Management Objectives
The Company’s management monitors and manages the Company’s exposure to financial risks facing the
operations. These financial risks include market risk (including commodity price, foreign currency and interest rate
risks), credit risk and liquidity risk.
The Company does not presently hedge against these risks as the benefits of entering into such agreements is not
considered to be significant enough as to outweigh the significant cost and administrative burden associated with
such hedging contracts.
Commodity price risk: The prices that the Company receives for its oil and gas production may have a significant
impact on the Company’s revenues and cash flows provided by operations. World prices for oil and gas are
characterised by significant fluctuations that are determined by the global balance of supply and demand and
worldwide political developments and in particular the price received for the Company’s oil and gas production in
Kurdistan is dependent upon the Kurdistan government and its ability to export production outside of Iraq. The
spot price of Brent Crude Oil, a reference in determining the price at which the Company can sell future oil
production, has declined by 49% over the year 2014. A further decline in the price at which the Company can sell
future oil and gas production could adversely affect the amount of funds available for capital reinvestment
purposes as well as the Company’s value in use calculations for impairment test purposes.
The Company does not hedge against commodity price risk, however given that the Company is in the exploration
and development stage, it is not currently exposed to significant commodity price risk.
Foreign currency risk: The substantial portion of the Company’s operations require purchases denominated in
USD, which is the functional and reporting currency of the Company and also the currency in which the Company
maintains the substantial portion of its cash and cash equivalents. Certain of its operations require the Company to
make purchases denominated in foreign currencies, which are currencies other than USD and correspond to the
various countries in which the Company conducts its business, most notably, Swiss Francs and Canadian dollars. As
a result, the Company holds some cash and cash equivalents in foreign currencies and is therefore exposed to
foreign currency risk due to exchange rate fluctuations between the foreign currencies and the USD. The Company
considers its foreign currency risk is limited because it holds relatively insignificant amounts of foreign currencies
at any point in time and since its volume of transactions in foreign currencies is currently relatively low. The
Company has elected not to hedge its exposure to the risk of changes in foreign currency exchange rates.
Interest rate risk: The Company earns interest income on its cash and cash equivalents at both fixed and variable
rates and is therefore exposed to interest rate risk due to a fluctuation in short‐term interest rates.
The Company’s policy on interest rate management is to maintain a certain amount of funds in the form of cash
and cash equivalents for short‐term liabilities and to have the remainder held on relatively short‐term deposits.
The Group is highly leveraged though financing at the project level, for the continuation of Atrush project, and at
the corporate level due to the $150 million of senior secured bonds which were issued in November 2013.
However, the Company is not exposed to interest rate risks associated with the bonds as the interest rate is fixed.
23
Credit risk: Credit risk is the risk that a counterparty will default on its contractual obligations resulting in financial
loss to the Company. The Company is primarily exposed to credit risk on its cash and cash equivalents and other
receivables.
The Company manages credit risk by monitoring counterparty ratings and credit limits and by maintaining excess
cash and cash equivalents on account in instruments having a minimum credit rating of R‐1 (mid) or better (as
measured by Dominion Bond Rate Services) or the equivalent thereof according to a recognised bond rating
service.
The carrying amounts of the Company’s financial assets recorded in the consolidated financial statements
represent the Company’s maximum exposure to credit risk.
Liquidity risk: Liquidity risk is the risk that the Company will have difficulties meeting its financial obligations as
they become due. In common with many oil and gas exploration companies, the Company raises financing for its
exploration and development activities in discrete tranches in order to finance its activities for limited periods. The
Company seeks to raise additional funding as and when required. The Company anticipates making substantial
capital expenditures in the future for the acquisition, exploration, development and production of oil and gas
reserves and as the Company’s project moves further into the development stage, specific financing, including the
possibility of additional debt, may be required to enable future development to take place. The financial results of
the Company will impact its access to the capital markets necessary to undertake or complete future drilling and
development programs. There can be no assurance that debt or equity financing, or future cash generated by
operations, would be available or sufficient to meet these requirements or, if debt or equity financing is available,
that it will be on terms acceptable to the Company.
The Company manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring
forecast and actual cash flows. Annual capital expenditure budgets are prepared, which are regularly monitored
and updated as considered necessary. In addition, the Company requires authorisations for expenditure on both
operating and non‐operating projects to further manage capital expenditures.
RISKS AND UNCERTAINTIES
ShaMaran Petroleum Corp. is engaged in the exploration, development and production of crude oil and natural gas
and its operations are subject to various risks and uncertainties which include but are not limited to those listed
below. If any of the risks described below materialise the effect on the Company’s business, financial condition or
operating results could be materially adverse.
The following sections describe material risks identified by the Company; however, risks and uncertainties of which
the Company is not currently aware or currently believes to be immaterial could develop and may adversely affect
the Company’s business, financial condition or operating results. For more information on risk factors which may
affect the Company’s business refer also to the discussion of risks under the “Reserves and Resources” and
“Financial Instruments” sections of this MD&A above, as well as to the “Risk Factors” section of its Annual
Information
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24
Political and Regional Risks
International operations: Oil and gas exploration, development and production activities in emerging countries
are subject to significant political, social and economic uncertainties which are beyond ShaMaran’s control.
Uncertainties include, but are not limited to, the risk of war, terrorism, criminal activity, expropriation,
nationalisation, renegotiation or nullification of existing or future contracts, the imposition of international
sanctions, a change in crude oil or natural gas pricing policies, a change in taxation policies, a limitation on the
Company’s ability to export, and the imposition of currency controls. The materialisation of these uncertainties
could adversely affect the Company’s business including, but not limited to, increased costs associated with
planned projects, impairment or termination of future revenue generating activities, impairment of the value of
the Company’s assets and or its ability to meet its contractual commitments as they become due.
Political uncertainty and potential impact of actions of the Islamic State in Iraq and Syria (“ISIS”): ShaMaran’s
assets and operations are located in Kurdistan, a federally recognised semi‐autonomous political region in Iraq,
and may be influenced by political developments between Kurdistan and the Iraq federal government, as well as
political developments of neighbouring states within MENA region, Turkey, and surrounding areas. Kurdistan and
Iraq have a history of political and social instability. As a result, the Corporation is subject to political, economic
and other uncertainties that are not within its control. These uncertainties include, but are not limited to, changes
in government policies and legislation, adverse legislation or determinations or rulings by governmental authorities
and disputes between the Iraq federal government and Kurdistan.
During recent months there has been a growing threat from the actions of ISIS which has resulted in an increased
security threat in Iraq and the Kurdistan Region of Iraq. Operations were suspended temporarily by a number of
international companies including TAQA, the Operator of the Atrush Block, who suspended operations for 21 days
in the month of August 2014. The security situation in the region has improved recently, however if ISIS were to
engage in attacks or were to occupy areas within the Kurdistan Region of Iraq, it could result in the Corporation
and its joint venture partners having to stop operations in the Atrush Block. This could result in delays in
operations, additional costs for increased security and difficulty in attracting/retaining qualified service companies
and related personnel, which could materially adversely impact the operations and future prospects of the
Corporation and could have a material adverse effect on the Corporation's business and financial condition.
International boundary disputes: Although the Kurdistan Region of Iraq is recognised by the Iraq constitution as a
semi‐autonomous region, its geographical extent is neither defined in the Iraq constitution nor agreed in practice
between the Federal Government and the Kurdistan Regional Government. There are ongoing differences
between the KRG and the Federal Government regarding certain areas which are commonly known as “disputed
territories”. The Company believes that its current area of operation is not within the “disputed territories”.
Industry and Market Risks
Exploration, development and production risks: ShaMaran’s business is subject to all of the risks and hazards
inherent in businesses involved in the exploration, development, production and marketing of oil and natural gas,
many of which cannot be overcome even with a combination of experience, knowledge and careful evaluation. The
risks and hazards typically associated with oil and gas operations include drilling of unsuccessful wells, fire,
explosion, blowouts, sour gas releases, pipeline ruptures and oil spills, each of which could result in substantial
damage to oil and natural gas wells, production facilities, other property or the environment, or in personal injury.
The Company is not fully insured against all of these risks, nor are all such risks are insurable and, as a result, these
risks could still result in adverse effects to the Company’s business not fully mitigated by insurance coverage
including, but not limited to, increased costs or losses due to events arising from accidents or other unforeseen
outcomes including cleanup, repair, containment and or evacuation activities, settlement of claims associated with
injury to personnel or property, and or loss of revenue as a result of downtime due to accident.
25
General market conditions: ShaMaran’s business and operations depend upon conditions prevailing in the oil and
gas industry including the current and anticipated prices of oil and gas and the global economic activity. A
reduction of the oil price, a general economic downturn, or a recession could result in adverse effects to the
Company’s business including, but not limited to, reduced cash flows associated with the Company’s future oil
and gas sales.
Competition: The petroleum industry is intensely competitive in all aspects including the acquisition of oil and gas
interests, the marketing of oil and natural gas, and acquiring or gaining access to necessary drilling and other
equipment and supplies. ShaMaran competes with numerous other companies in the search for and acquisition of
such prospects and in attracting skilled personnel. ShaMaran’s competitors include oil companies which have
greater financial resources, staff and facilities than those of the Company. ShaMaran’s ability to increase reserves
in the future will depend on its ability to develop its present property, to select and acquire suitable producing
properties or prospects on which to conduct future exploration and to respond in a cost‐effective manner to
economic and competitive factors that affect the distribution and marketing of oil and natural gas.
Reliance on key personnel: ShaMaran’s success depends in large measure on certain key personnel and directors.
The loss of the services of such key personnel could negatively affect ShaMaran’s ability to deliver projects
according to plan and result in increased costs and delays. ShaMaran has not obtained key person insurance in
respect of the lives of any key personnel. In addition, competition for qualified personnel in the oil and gas industry
is intense and there can be no assurance that ShaMaran will be able to attract and retain the skilled personnel
necessary for the operation and development of its business.
Business Risks
Risks associated with petroleum contracts in Iraq: The Iraq oil ministry has historically disputed the validity of
the KRG’s production sharing contracts and, as a result indirectly, the Company’s right and title to its oil and gas
assets. The KRG is disputing the claims and has stated that the contracts are compliant with the Iraq constitution.
At the present time there is no assurance that the PSCs agreed with the KRG are enforceable or binding in
accordance with ShaMaran’s interpretation of their terms or that, if breached, the Company would have remedies.
The Company believes that it has valid title to its oil and gas assets and the right to explore for and produce oil and
gas from such assets under the Atrush Block PSC. However, should the Iraq federal government pursue and be
successful in a claim that the production sharing contracts agreed with the KRG are invalid, or should any
unfavourable changes develop which impact on the economic and operating terms of the Atrush Block PSC, it
could result in adverse effects to the Company’s business including, but not limited to, impairing the Company’s
claim and title to assets held, and or increasing the obligations required, under the Atrush Block PSC.
Government regulations, licenses and permits: The Company is affected by changes in taxes, regulations and
other laws or policies affecting the oil and gas industry generally as well as changes in taxes, regulations and other
laws or policies applicable to oil and gas exploration and development in Kurdistan specifically. The Company’s
ability to execute its projects may be hindered if it cannot secure the necessary approvals or the discretion is
exercised in a manner adverse to the Company. The taxation system applicable to the operating activities of the
Company in Kurdistan is pursuant to the Oil and Gas Law governed by general Kurdistan tax law and the terms of
its PSCs. However, it is possible that the arrangements under the PSCs may be overridden or negatively affected by
the enactment of any future oil and gas or tax law in Iraq or Kurdistan which could result in adverse effects to the
Company’s business including, but not limited to, increasing the Company’s expected future tax obligations
associated with its activities in Kurdistan.
26
Marketing, markets and transportation: The export of oil and gas and payments relating to such exports from
Kurdistan remains subject to uncertainties which could negatively impact on ShaMaran’s ability to export oil and
gas and receive payments relating to such exports. Further, ShaMaran’s ability to export and market oil and gas
may also depend upon its ability to secure transportation and delivery, in view of related issues such as the
proximity of its potential production to pipelines and processing facilities. Potential government regulation relating
to price, quotas and other aspects of the oil and gas business could result in adverse effects to the Company’s
business including, but not limited to, impairing the Company’s ability to export and sell oil and gas and receive full
payment for all sales of oil and gas.
Default under the Atrush Block PSC and Atrush JOA: Should the Company fail to meet its obligations under the
Atrush Block PSC and or Atrush Block joint operating agreement (“Atrush JOA”) it could result in adverse effects
to the Company’s business including, but not limited to, a default under one or both of these contracts, the
termination of future revenue generating activities of the Company and impairment of the Company’s ability to
meet its contractual commitments as they become due.
Kurdistan legal system: The Kurdistan Region of Iraq has a less developed legal system than that of many more
established regions. This could result in risks associated with predicting how existing laws, regulations and
contractual obligations will be interpreted, applied or enforced. In addition it could make it more difficult for the
Company to obtain effective legal redress in courts in case of breach of law, regulation or contract and to secure
the implementation of arbitration awards and may give rise to inconsistencies or conflicts among various laws,
regulations, decrees or judgments. The Company’s recourse may be limited in the event of a breach by a
government authority of an agreement governing the PSC in which ShaMaran acquires or holds an interest.
Enforcement of judgments in foreign jurisdictions: The Company is party to contracts with counterparties located
in a number of countries, most notably Kurdistan. Certain of its contracts are subject to English law with legal
proceedings in England. However, the enforcement of any judgments thereunder against a counterparty will be a
matter of the laws of the jurisdictions where counterparties are domiciled.
Change of control in respect of PSC: The Atrush Block PSC definition of “change of control” in a Contractor
includes a change of voting majority in the Contractor, or in a parent company, provided the value of the interest
in the Atrush field represents more than 50% of the market value of assets in the Company. Due to the limited
amount of other assets held by the Company this will apply to a change of control in GEP or any of its parent
companies. Change of control requires the consent of KRG or it will trigger a default under the PSC.
Project and Operational Risks
Shared ownership and dependency on partners: ShaMaran’s operations are to a significant degree conducted
together with one or more partners through contractual arrangements with the execution of the operations being
undertaken by the Operator in accordance with the terms of the Atrush JOA. As a result, ShaMaran has limited
ability to exercise influence over the deployment of those assets or their associated costs and this could
adversely affect ShaMaran’s financial performance. If the operator or other partners fail to perform, ShaMaran
may, among other things, risk losing rights or revenues or incur additional obligations or costs in order to itself
perform in place of its partners. If a dispute would arise with one or more partners such dispute may have
significant negative effects on the Company’s operations relating to its projects.
Security risks: Kurdistan and other regions in Iraq have a history of political and social instability which have
culminated in security problems which may put at risk the safety of the Company’s personnel, interfere with the
efficient and effective execution of the Company’s operations and ultimately result in significant losses to the
Company. There have been no significant security incidents in the Company’s area of operation.
27
Risks relating to infrastructure: The Company is dependent on access to available and functioning infrastructure
(including third party services in Kurdistan) relating to the properties on which it operates, such as roads, power
and water supplies, pipelines and gathering systems. If any infrastructure or systems failures occur or access is not
possible or does not meet the requirements of the Company, the Company’s operations may be significantly
hampered which could result in lower production and sales and or higher costs.
Environmental regulation and liabilities: Drilling for and producing, handling, transporting and disposing of oil
and gas and petroleum by‐products are activities that are subject to extensive regulation under national and local
environmental laws, including in those countries in which ShaMaran currently operates. The Company has
implemented health, safety and environment policies since its incorporation, complies with industry
environmental practices and guidelines for its operations in Kurdistan and is currently in compliance with
these obligations in all material aspects. Environmental protection requirements have not, to date, had a
significant effect on the capital expenditures and competitive position of ShaMaran. Future changes in
environmental or health and safety laws, regulations or community expectations governing the Company’s
operations could result in adverse effects to the Company’s business including, but not limited to, increased
monitoring, compliance and remediation costs and or costs associated with penalties or other sanctions
imposed on the Company for non‐compliance or breach of environmental regulations.
Risk relating to community relations / labour disruptions: The Company’s operations may be located in or near
communities that may regard operations as detrimental to their environmental, economic or social circumstances.
Negative community reactions and any related labour disruptions or disputes could increase operational costs and
result in delays in the execution of projects.
Petroleum costs and cost recovery: Under the terms of the Atrush Block PSC the KRG is entitled to conduct an
audit to verify the validity of incurred petroleum costs which the Operator has reported to the KRG and is
therefore entitled under the terms of the Atrush Block PSC to recover through cash payments from future
petroleum production. No such audit has to date taken place. Should any future audits result in negative findings
concerning the validity of reported incurred petroleum costs the Company’s petroleum cost recovery entitlement
could ultimately be reduced.
Legal claims and disputes: The Company may suffer unexpected costs or other losses if a counterparty to any
contractual arrangement entered into by the Company does not meet its obligations under such agreements. In
particular, the Company cannot control the actions or omissions of its partners in the Atrush Block PSC. If such
parties were to breach the terms of the Atrush Block PSC or any other documents relating to the Company’s
interest in the Atrush Block PSC, it could cause the KRG to revoke, terminate or adversely amend the Atrush Block
PSC.
Paying interest: Under the terms of the Atrush Block PSC, on exercise of its back‐in right, the KRG is required to
pay its share of project development costs. The Contractors are currently paying the KRG costs and there is a risk
that the Contractors may be exposed to fund the KRG share of project development costs.
Uninsured losses and liabilities: Although the Company maintains insurance in accordance with industry standards
to address risks relating to its operations, the insurance coverage may under certain circumstances not protect it
from all potential losses and liabilities that could result from its operations.
Availability of equipment and services: ShaMaran’s oil and natural gas exploration and development activities
are dependent on the availability of third party services, drilling and related equipment and qualified staff in the
particular areas where such activities are or will be conducted. Shortages of such equipment or staff may affect the
availability of such equipment to ShaMaran and may delay and or increase the cost of ShaMaran’s exploration and
development activities.
28
Early stage of development: ShaMaran has conducted oil and gas exploration and development activities in
Kurdistan for approximately five years. The current operations are in an appraisal and development stage and
there can be no assurance that ShaMaran’s operations will be profitable in the future or will generate
sufficient cash flow to satisfy its future commitments.
Financial and Other Risks
Financial statements prepared on a going concern basis: The Company’s financial statements have been prepared
on a going concern basis under which an entity is considered to be able to realise its assets and satisfy its liabilities
in the ordinary course of business. ShaMaran’s operations to date have been primarily financed by debt and equity
financing. The Company’s future operations are dependent upon the identification and successful completion of
additional equity or debt financing or the achievement of profitable operations. There can be no assurances that
the Company will be successful in completing additional financing or achieving profitability. The consolidated
financial statements do not give effect to any adjustments relating to the carrying values and classification of
assets and liabilities that would be necessary should ShaMaran be unable to continue as a going concern.
Substantial capital requirements: ShaMaran anticipates making substantial capital expenditures in the future for
the acquisition, exploration, development and production of oil and gas. ShaMaran’s results could impact its access
to the capital necessary to undertake or complete future drilling and development programs. To meet its operating
costs and planned capital expenditures, ShaMaran may require financing from external sources, including from the
sale of equity and debt securities. There can be no assurance that such financing will be available to the Company
or, if available, that it will be offered on terms acceptable to ShaMaran. If ShaMaran or any of its partners in the oil
asset are unable to complete minimum work obligations on the Atrush Block PSC, this PSC could be relinquished
under applicable contract terms.
Dilution: The Company may make future acquisitions or enter into financings or other transactions involving the
issuance of securities of the Company. If additional financing is raised through the issuance of equity or convertible
debt securities, control of the Company may change and the interests of shareholders in the net assets of
ShaMaran may be diluted.
Tax legislation: The Company has entities incorporated and resident for tax purposes in Canada, the Cayman
Islands, the Kurdistan Region of Iraq, the Netherlands, Switzerland and the United States of America. Changes in
the tax legislation or tax practices in these jurisdictions may increase the Company’s expected future tax
obligations associated with its activities in such jurisdictions.
Capital and lending markets: As a result of general economic uncertainties and, in particular, the lack of risk
capital available to the junior resource sector, the Company, along with other junior resource entities, may have
reduced access to bank debt and to equity. As future capital expenditures will be financed out of funds generated
from operations, bank borrowings if available, and possible issuances of debt or equity securities, the Company’s
ability to do so is dependent on, among other factors, the overall state of lending and capital markets and investor
and lender appetite for investments in the energy industry generally, and the Company’s securities in particular. To
the extent that external sources of capital become limited or unavailable or available only on onerous terms, the
Company’s ability to invest and to maintain existing assets may be impaired, and its assets, liabilities, business,
financial condition and results of operations may be materially and adversely affected as a result.
Recent distress in financial markets: In the future the Company is expected to require financing to grow its
business. The recent distress affecting the financial markets and the possibility that financial institutions may
consolidate or go bankrupt has reduced levels of activity in the credit markets which could diminish the amount of
financing available to companies. The Company’s liquidity and its ability to access the credit or capital markets may
also be adversely affected by changes in the financial markets and the global economy.
29
Conflict of interests: Certain directors of ShaMaran are also directors or officers of other companies, including oil
and gas companies, the interests of which may, in certain circumstances, come into conflict with those of
ShaMaran. If and when a conflict arises with respect to a particular transaction, the affected directors must
disclose the conflict and abstain from voting with respect to matters relating to the transaction.
Risks Related to the GEP’s Senior Secured Bonds
Possible termination of PSC / Bond Agreement in event of default scenario: Should GEP default its obligations
under the Bond Agreement GEP may also not be able to fulfil its obligations under the Atrush Block PSC and or
Atrush JOA, with the effect that these contracts may be terminated or limited. In addition, should GEP default its
obligations under the Atrush Block PSC and or Atrush JOA, with the effect that these contracts may be terminated
or limited, GEP may also default in respect of its obligations under the Bond Agreement. Either default scenario
could result in the termination of the Company’s future revenue generating activities and impair the Company’s
ability to meet its contractual commitments as they become due.
Ability to service indebtedness: GEP’s ability to make scheduled payments on or to refinance its obligations under
the bonds will depend on GEP’s financial and operating performance which, in turn, will be subject to prevailing
economic and competitive conditions beyond GEP’s control. It is possible that GEP’s activities will not generate
sufficient funds to make the required interest payments which could, among other things, result in an event of
default under the Bond Agreement.
Significant operating and financial restrictions: The terms and conditions of the Bond Agreement contain
restrictions on GEP’s and the Guarantors’ activities which restrictions may prevent GEP and the Guarantors from
taking actions that it believes would be in the best interest of GEP’s business, and may make it difficult for GEP to
execute its business strategy successfully or compete effectively with companies that are not similarly restricted.
No assurance can be given that it will be granted the necessary waivers or amendments if for any reason GEP is
unable to comply with the terms of the Bond Agreement. A breach of any of the covenants and restrictions could
result in an event of default under the Bond Agreement.
Mandatory prepayment events: Under the terms of the Bond Agreement the bonds are subject to mandatory
prepayment by GEP on the occurrence of certain specified events, including if (i) the ownership in the Atrush Block
is reduced to below 20.10% (ii) ShaMaran Petroleum Corp. ceases to indirectly own, or ShaMaran Ventures B.V.
ceases to directly own, 100% of the shares in GEP (iii) GEP invests in any assets or enters into any other activities
unrelated to the Atrush Block PSC or (iv) an event of default occurs under the Bond Agreement. Following an early
redemption after the occurrence of a mandatory prepayment event, it is possible that GEP will not have sufficient
funds to make the required redemption of bonds which could, among other things, result in an event of default
under the Bond Agreement.
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OUTLOOK
The outlook for 2015 is as follows:
Atrush Block
Production Facilities
Work is continuing with foundation work ready to receive the various production modules and equipment during
2015 for the Chiya Khere 30,000 bopd production facility. Onsite delivery is expected to commence from the
second quarter with hook‐up and commissioning to follow with first oil targeted by end of 2015.
The KRG is to continue installation of the feeder pipeline between the Chiya Khere production facility and the tie‐in
point on the main export pipeline at KCP2 at kilometre 92. Pipeline commissioning is expected to be completed in
time for target production start‐up.
Wells
The Operator plans to mobilise a workover rig in April 2015 to conduct well tests on the previously untested CK‐5
and CK‐8 wells and to complete them for production and connection to the Chiya Khere Phase 1 facilities. In
addition 2015 plans are to use the workover rig to complete AT‐2 and AT‐4, the other two Phase 1 production wells
which have been tested, also to be connected to the Chiya Khere Phase 1 facilities as future producers.
New Ventures
As part of its normal business the Company continues to evaluate new opportunities in the MENA region.
General
Kurdistan continues to see a rapid development in infrastructure and a significant increase in the availability of oil
and gas services in the country. A number of major international oil companies, including ExxonMobil, Chevron,
Marathon, Repsol, Total and Gazprom, have acquired properties in Kurdistan over the last two years. A number of
significant discoveries in this region continue to be reported and many are now undergoing appraisal and
development.
FORWARD LOOKING INFOMATION
This report contains forward‐looking information and forward‐looking statements. Forward‐looking information
concerns possible events or financial performance that is based on management’s assumptions concerning
anticipated developments in the Company’s operations; the adequacy of the Company’s financial resources;
financial projections, including, but not limited to, estimates of capital and operating costs, production rates,
commodity prices, exchange rates, net present values; and other events and conditions that may occur in the
future. Information concerning the interpretation of drill results and reserve estimates also may be deemed to be
forward‐looking information, as it constitutes a prediction of what might be found to be present if and when a
project is actually developed.
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Forward‐looking statements are statements that are not historical and are frequently, but not always, identified by
the words such as “expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,” “possible,” “budget”
and similar expressions, or statements that events, conditions or results “will,” “may,” “could,” or “should” occur
or be achieved. Forward‐looking statements are statements about the future and are inherently uncertain, and
actual achievements of the Company or other future events or conditions may differ materially from those
reflected in the forward‐looking statements due to a variety of risks, uncertainties and other factors, including,
without limitation, those described in this MD&A.
The Company’s forward‐looking
information and forward‐looking statements are based on the beliefs,
expectations and opinions of management on the date the statements are made. Management is regularly
considering and evaluating assumptions that will impact on future performance. Those assumptions are exposed
to generic risks and uncertainties as well as risks and uncertainties that are specifically related to the Company’s
operations.
The Company cautions readers regarding the reliance placed by them on forward‐looking information as by its
nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent
risks and uncertainties, which could cause actual results to differ materially from those anticipated by the
Corporation.
The Company assumes no obligation to update its forward‐looking information and forward‐looking statements in
the future. For the reasons set forth above, investors should not place undue reliance on forward‐looking
information and forward‐looking statements.
ADDITIONAL INFORMATION
Additional information related to the Company, including its Annual Information Form, is available on SEDAR at
www.sedar.com and on the Company’s web‐site at www.shamaranpetroleum.com.
32
Auditor’s Report
Auditor’s Report
Auditor’s Report
Auditor’s Report
March 2015
12 March 2015
12
Independent Auditor’s Report
Independent Auditor’s Report
Independent Auditor’s Report
Independent Auditor’s Report
To the Shareholders of ShaMaran Petroleum Corp
To the Shareholders of ShaMaran Petroleum Corp
To the Shareholders of ShaMaran Petroleum Corp
To the Shareholders of ShaMaran Petroleum Corp
To the Shareholders of ShaMaran Petroleum Corp
To the Shareholders of ShaMaran Petroleum Corp
Corp., which
Corp., which
ShaMaran Petroleum
We have audited the accompanying consolidated financial statements of ShaMaran Petroleum
We have audited the accompanying consolidated financial statements of
We have audited the accompanying consolidated financial statements of
We have audited the accompanying consolidated financial statements of
We have audited the accompanying consolidated financial statements of
We have audited the accompanying consolidated financial statements of
We have audited the accompanying consolidated financial statements of
We have audited the accompanying consolidated financial statements of
comprise the consolidated
and the Consolidated
and 31 December 2013 and the Consolidated
and the Consolidated
and 31 December 201
nce sheet as at 31 December 2014 and 31 December 201
nce sheet as at 31 December 2014
nce sheet as at 31 December 2014
comprise the consolidated balance sheet as at 31 December 2014
comprise the consolidated
comprise the consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated
, and the related notes
, and the related notes
Statement of Cash Flows
the years ended 31 December 2014 and 31 December 2013, and the related notes
the years ended 31 December 2014 and 31 December 2013
Statement of Cash Flows for the years ended 31 December 2014 and 31 December 2013
the years ended 31 December 2014 and 31 December 2013
the years ended 31 December 2014 and 31 December 2013
the years ended 31 December 2014 and 31 December 2013
Statement of Cash Flows
Statement of Cash Flows
including a summary of significant accounting policies and other explanatory information.
including a summary of significant accounting policies and other explanatory information.
including a summary of significant accounting policies and other explanatory information.
including a summary of significant accounting policies and other explanatory information.
including a summary of significant accounting policies and other explanatory information.
including a summary of significant accounting policies and other explanatory information.
including a summary of significant accounting policies and other explanatory information.
including a summary of significant accounting policies and other explanatory information.
including a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management’s responsibility for the consolidated financial statements
Management’s responsibility for the consolidated financial statements
Management’s responsibility for the consolidated financial statements
Management’s responsibility for the consolidated financial statements
Management’s responsibility for the consolidated financial statements
Management’s responsibility for the consolidated financial statements
Management’s responsibility for the consolidated financial statements
responsible for the preparation and fair presentation of these consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
responsible for the preparation and fair presentation of these consolidated financial statements
responsible for the preparation and fair presentation of these consolidated financial statements
responsible for the preparation and fair presentation of these consolidated financial statements
responsible for the preparation and fair presentation of these consolidated financial statements
responsible for the preparation and fair presentation of these consolidated financial statements
responsible for the preparation and fair presentation of these consolidated financial statements
responsible for the preparation and fair presentation of these consolidated financial statements
Management is
Management is
and for such internal control as management
and for such internal control as management
and for such internal control as management
and for such internal control as management
in accordance with International Financial Reporting Standards , and for such internal control as management
in accordance with International Financial Reporting Standards
in accordance with International Financial Reporting Standards
in accordance with International Financial Reporting Standards
in accordance with International Financial Reporting Standards
in accordance with International Financial Reporting Standards
in accordance with International Financial Reporting Standards
f consolidated financial statements that are free from
determines is necessary to enable the preparation of consolidated financial statements that are free from
f consolidated financial statements that are free from
f consolidated financial statements that are free from
f consolidated financial statements that are free from
f consolidated financial statements that are free from
determines is necessary to enable the preparation o
determines is necessary to enable the preparation o
determines is necessary to enable the preparation o
determines is necessary to enable the preparation o
determines is necessary to enable the preparation o
material misstatement, whether due to fraud or error.
material misstatement, whether due to fraud or error.
material misstatement, whether due to fraud or error.
material misstatement, whether due to fraud or error.
material misstatement, whether due to fraud or error.
material misstatement, whether due to fraud or error.
Auditor’s responsibility
Auditor’s responsibility
Auditor’s responsibility
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
ur audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
conducted our audits in accordance with Canadian Generally Accepted Auditing Standards. Those standards
conducted o
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements
are free from material misstatement.
assurance about whether the consolidated financial statements are free from material misstatement.
are free from material misstatement.
are free from material misstatement.
assurance about whether the consolidated financial statements
assurance about whether the consolidated financial statements
assurance about whether the consolidated financial statements
assurance about whether the consolidated financial statements
assurance about whether the consolidated financial statements
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
asse
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
ssment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the
consolidated financial statements in order to design audit procedures
consolidated financial statements in order to design audit procedures
consolidated financial statements in order to design audit procedures
consolidated financial statements in order to design audit procedures
consolidated financial statements in order to design audit procedures
consolidated financial statements in order to design audit procedures
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
preparation and fair presentation of the
preparation and fair presentation of the
preparation and fair presentation of the
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control.
appropriateness of accounting policies used
appropriateness of accounting policies used
appropriateness of accounting policies used
appropriateness of accounting policies used
An audit also includes evaluating the appropriateness of accounting policies used
An audit also includes evaluating the
of the entity’s internal control. An audit also includes evaluating the
An audit also includes evaluating the
of the entity’s internal control.
of the entity’s internal control.
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
presentation of the consolidated financial statements.
presentation of the consolidated financial statements.
presentation of the consolidated financial statements.
presentation of the consolidated financial statements.
presentation of the consolidated financial statements.
ur audits is sufficient and appropriate to provide a
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
ur audits is sufficient and appropriate to provide a
ur audits is sufficient and appropriate to provide a
ur audits is sufficient and appropriate to provide a
ur audits is sufficient and appropriate to provide a
We believe that the audit evidence we have obtained in o
We believe that the audit evidence we have obtained in o
We believe that the audit evidence we have obtained in o
We believe that the audit evidence we have obtained in o
We believe that the audit evidence we have obtained in o
basis for our audit opinion.
basis for our audit opinion.
basis for our audit opinion.
basis for our audit opinion.
Opinion
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
and 31 December 2013 and its financial
and its financial
and its financial
and 31 December 201
cember 2014 and 31 December 201
balance sheet of ShaMaran Petroleum Corp. as at 31 De
balance sheet of ShaMaran Petroleum Corp. as at 31 December 201
balance sheet of ShaMaran Petroleum Corp. as at 31 De
balance sheet of ShaMaran Petroleum Corp. as at 31 De
balance sheet of ShaMaran Petroleum Corp. as at 31 De
balance sheet of ShaMaran Petroleum Corp. as at 31 De
in accordance
in accordance
and 31 December 2013 in accordance
and 31 December 201
performance and its cash flows for the years ended 31 December 201 4 and 31 December 201
performance and its cash flows for the years ended 31 December 201
performance and its cash flows for the years ended 31 December 201
performance and its cash flows for the years ended 31 December 201
performance and its cash flows for the years ended 31 December 201
performance and its cash flows for the years ended 31 December 201
performance and its cash flows for the years ended 31 December 201
with International Financial Reporting Standards.
with International Financial Reporting Standards.
with International Financial Reporting Standards.
with International Financial Reporting Standards.
with International Financial Reporting Standards.
with International Financial Reporting Standards.
4002 Basel, Switzerland
Strasse 25, Postfach, CH-4002 Basel, Switzerland
4002 Basel, Switzerland
Strasse 25, Postfach, CH
P
ricewaterhouseCoopers AG, St. Jakobs-Strasse 25, Postfach, CH
ricewaterhouseCoopers AG, St. Jakobs
PricewaterhouseCoopers AG, St. Jakobs
www.pwc.ch
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10, www.pwc.ch
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10,
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10,
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10,
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10,
eCoopers network of firms, each of which is a separate and
PricewaterhouseCoopers AG is a member of the global Pricewaterhous eCoopers network of firms, each of which is a separate and
eCoopers network of firms, each of which is a separate and
eCoopers network of firms, each of which is a separate and
eCoopers network of firms, each of which is a separate and
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
independent legal entity.
independent legal entity.
independent legal entity.
33 Emphasis of matter –
Emphasis of matter
Emphasis of matter
going concern
– going concern
In forming our
opinion on the financial statements, which is not modified, we have considered the adequacy of
opinion on the financial statements, which is not modified, we have considered the adequacy of
opinion on the financial statements, which is not modified, we have considered the adequacy of
opinion on the financial statements, which is not modified, we have considered the adequacy of
opinion on the financial statements, which is not modified, we have considered the adequacy of
opinion on the financial statements, which is not modified, we have considered the adequacy of
opinion on the financial statements, which is not modified, we have considered the adequacy of
opinion on the financial statements, which is not modified, we have considered the adequacy of
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of
In forming our
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
the disclosures made in Note 2 to the financial statements concerning the Company’s ability to continue as a
going concern. Although the Company is confident tha
t it has sufficient funds available, there is uncertainty
t it has sufficient funds available, there is uncertainty
t it has sufficient funds available, there is uncertainty
t it has sufficient funds available, there is uncertainty
t it has sufficient funds available, there is uncertainty
going concern. Although the Company is confident that it has sufficient funds available, there is uncertainty
going concern. Although the Company is confident tha
going concern. Although the Company is confident tha
going concern. Although the Company is confident tha
going concern. Although the Company is confident tha
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
surrounding the timing and amounts of cash receipts commencing from first oil and the level of project
development costs that the Company may be required to fund in order to realise receipts from oi
l sales to its
development costs that the Company may be required to fund in order to realise receipts from oi l sales to its
development costs that the Company may be required to fund in order to realise receipts from oi
development costs that the Company may be required to fund in order to realise receipts from oi
development costs that the Company may be required to fund in order to realise receipts from oi
development costs that the Company may be required to fund in order to realise receipts from oi
development costs that the Company may be required to fund in order to realise receipts from oi
development costs that the Company may be required to fund in order to realise receipts from oi
development costs that the Company may be required to fund in order to realise receipts from oi
development costs that the Company may be required to fund in order to realise receipts from oi
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
customers. The uncertainty with regard to the timing and extent of these cash receipts and cash payments at the
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
date of approval of the financial statements indicates the existence of a material uncertainty which may cast
bout the Company’s ability to continue as a going concern. The financial statements do not
significant doubt a
bout the Company’s ability to continue as a going concern. The financial statements do not
bout the Company’s ability to continue as a going concern. The financial statements do not
bout the Company’s ability to continue as a going concern. The financial statements do not
bout the Company’s ability to continue as a going concern. The financial statements do not
bout the Company’s ability to continue as a going concern. The financial statements do not
bout the Company’s ability to continue as a going concern. The financial statements do not
bout the Company’s ability to continue as a going concern. The financial statements do not
significant doubt about the Company’s ability to continue as a going concern. The financial statements do not
significant doubt a
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
include the adjustments that would result if the Company was unable to continue as a going concern.
PricewaterhouseCoopers AG
PricewaterhouseCoopers AG
PricewaterhouseCoopers AG
PricewaterhouseCoopers AG
Chartered Accountants
Chartered Accountants
Chartered Accountants
Chartered Accountants
Basel
Basel
4002 Basel, Switzerland
Strasse 25, Postfach, CH-4002 Basel, Switzerland
4002 Basel, Switzerland
Strasse 25, Postfach, CH
P
ricewaterhouseCoopers AG, St. Jakobs-Strasse 25, Postfach, CH
ricewaterhouseCoopers AG, St. Jakobs
PricewaterhouseCoopers AG, St. Jakobs
www.pwc.ch
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10, www.pwc.ch
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10,
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10,
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10,
Telephone: +41 58 792 51 00, Facsimile: +41 58 792 51 10,
eCoopers network of firms, each of which is a separate and
PricewaterhouseCoopers AG is a member of the global Pricewaterhous eCoopers network of firms, each of which is a separate and
eCoopers network of firms, each of which is a separate and
eCoopers network of firms, each of which is a separate and
eCoopers network of firms, each of which is a separate and
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
PricewaterhouseCoopers AG is a member of the global Pricewaterhous
independent legal entity.
independent legal entity.
independent legal entity.
34 SHAMARAN PETROLEUM CORP.
Consolidated Statement of Comprehensive Income
(Expressed in thousands of United States dollars, except for per share data)
______________________________________________________________________________
Note
For the year ended December 31,
2013
2014
Expenses from continuing operations
General and administrative expense
Share based payments expense
Depreciation and amortisation expense
Impairment loss
Loss before finance items and income tax expense
Finance income
Finance cost
Net finance cost
Loss before income tax expense
Income tax expense
Loss from continuing operations
Discontinued operations
Net income from discontinued operations
Loss for the year
Other comprehensive (loss) / income :
Currency translation differences
Total other comprehensive (loss) / income
Total comprehensive loss for the year
Loss in dollars per share:
Continuing operations
Basic and diluted
Discontinued operations
Basic and diluted
Continuing and discontinued operations
Basic and diluted
6
19
7
8
9
10
11
18
18
(1,548)
(307)
(53)
‐
(1,908)
108
(5,304)
(5,196)
(7,104)
(109)
(7,213)
213
(7,000)
(92)
(92)
(7,092)
(0.01)
‐
(0.01)
(2,393)
(882)
(65)
(84)
(3,424)
28
(740)
(712)
(4,136)
(87)
(4,223)
935
(3,288)
19
19
(3,269)
(0.01)
‐
(0.01)
The accompanying notes are an integral part of these consolidated financial statements.
35
SHAMARAN PETROLEUM CORP.
Consolidated Balance Sheet
(Expressed in thousands of United States dollars)
______________________________________________________________________________
As at December 31,
Note
2014
2013
Assets
Non‐current assets
Intangible assets
Property, plant and equipment
Current assets
Cash and cash equivalents
Other current assets
Assets associated with discontinued operations
Total assets
Liabilities and equity
Current liabilities
Accounts payable and accrued expenses
Accrued interest expense on bonds
Current tax liabilities
Non‐current liabilities
Borrowings
Provisions
Liabilities associated with discontinued operations
Total liabilities
Equity
Share capital
Share based payments reserve
Cumulative translation adjustment
Accumulated deficit
Total equity
Total liabilities and equity
12
13
14
11
15
16
16
17
11
18
429,277
172
429,449
57,204
1,605
58,809
‐
488,258
14,207
2,252
41
16,500
147,657
1,846
149,503
51
166,054
534,068
5,025
(65)
(216,824)
322,204
488,258
344,990
179
345,169
142,588
194
142,782
3
487,954
7,458
2,252
92
9,802
147,050
1,185
148,235
928
158,965
534,068
4,718
27
(209,824)
328,989
487,954
The accompanying notes are an integral part of these consolidated financial statements.
Signed on behalf of the Board of Directors:
/s/Ashley Heppenstall
C. Ashley Heppenstall, Director
/s/Keith Hill
Keith C. Hill, Director
36
SHAMARAN PETROLEUM CORP.
Consolidated Statement of Changes in Equity
(Expressed in thousands of United States dollars)
______________________________________________________________________________
Share based
payments
reserve
Cumulative
translation
adjustment
Accumulated
deficit
Balance at January 1, 2013
Total comprehensive income / (loss) for the year
Transactions with owners in their capacity as owners:
Share based payments expense
Share
capital
534,068
‐
‐
‐
Balance at December 31, 2013
534,068
3,836
‐
882
882
4,718
8
19
‐
‐
(206,536)
(3,288)
‐
‐
Total
331,376
(3,269)
882
882
27
(209,824)
328,989
Total comprehensive loss for the year
Transactions with owners in their capacity as owners:
Share based payments expense
‐
‐
‐
Balance at December 31, 2014
534,068
‐
(92)
(7,000)
(7,092)
307
307
5,025
‐
‐
‐
‐
307
307
(65)
(216,824)
322,204
The accompanying notes are an integral part of these consolidated financial statements.
37
SHAMARAN PETROLEUM CORP.
Consolidated Statement of Cash Flows
(Expressed in thousands of United States dollars)
______________________________________________________________________________
Note
19
7
8,9
Operating activities
Net loss from continuing operations
Adjustments for:
Interest expense on senior secured bonds ‐ net
Share based payments expense
Depreciation and amortisation expense
Impairment loss
Foreign exchange (gain) / loss
Interest income
Changes in accounts payable and accrued expenses
Changes in provisions
Changes in inventories
Changes in current tax liabilities
Changes in other current assets
Cash used in discontinued operations
Net cash inflows from / (outflows to) operating activities
Investing activities
Interest received on cash deposits
Repayment of deferred liability
Purchase of property, plant and equipment
Purchases of intangible assets
Net cash outflows to investing activities
Financing activities
Proceeds on bond issue
Bond related transaction costs
Interest payments to bondholders
Net cash outflows to financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
For the year ended December 31,
2013
2014
(7,213)
5,286
307
53
‐
(43)
(65)
6,749
661
‐
(51)
(1,411)
(661)
3,612
65
‐
(81)
(71,682)
(71,698)
‐
‐
(17,250)
(17,250)
(48)
(85,384)
142,588
57,204
(4,223)
689
882
65
84
49
(28)
431
1,065
114
2
137
(78)
(811)
28
(5,000)
‐
(39,788)
(44,760)
150,000
(3,028)
‐
146,972
(29)
101,372
41,216
142,588
The accompanying notes are an integral part of these consolidated financial statements.
38
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
1. General information
ShaMaran Petroleum Corp. (“ShaMaran” and together with its subsidiaries the “Company”) is incorporated under
the Business Corporations Act, British Columbia, Canada. The address of the registered office is Suite 2600 Oceanic
Plaza, 1066 West Hastings Street, Vancouver, British Columbia V6E 3X1. The Company’s shares trade on the TSX
Venture Exchange and NASDAQ OMX First North Exchange (Stockholm) under the symbol “SNM”.
The Company is engaged in the business of oil and gas exploration and development and is currently in the pre‐
production stages of an exploration and development campaign in respect of a petroleum property located in the
Kurdistan Region of Iraq (“Kurdistan”).
2. Basis of preparation and summary of significant accounting policies
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and the IFRS Interpretations
Committee, under the historical cost convention. The significant accounting policies of the Company have been
applied consistently throughout the year. The preparation of financial statements in conformity with IFRS requires
the use of certain critical accounting estimates. It also requires management to exercise its judgment in the
process of applying the Company’s accounting policies.
The accounting policies applied in these consolidated financial statements are based on IFRS issued, effective and
outstanding as of March 12, 2015, the date these financial statements were approved for issuance by the Board of
Directors.
These consolidated financial statements have been prepared on the going concern basis which assumes that the
Company will be able to realise into the foreseeable future its assets and liabilities in the normal course of business
as they come due. The ability of the Company to continue as a going concern and to successfully carry out its
business plan is primarily dependent upon the continued support of its shareholders, the resolution of remaining
political disputes in Iraq and the ability of the Company to obtain additional financing for its activities to develop,
produce and sell economically recoverable reserves.
In the absence of production revenues, the Company is currently dependent upon its existing financial resources,
which include $57.2 million of cash and cash equivalents as at December 31, 2014 and the CAD 75.4 million of
gross proceeds ($60.7 million) raised on issuance of additional common shares of the Company in February 2015,
to satisfy its obligations and finance its exploration and development program in Kurdistan. Failure to meet
exploration and development commitments could put the related license interests at risk of forfeiture. Refer also
to note 24.
The Company believes that based on the forecasts and projections they have prepared the resources available will
be sufficient for the Company and its subsidiaries to satisfy its contractual obligations and commitments under the
agreed work program over the next 12 months and to continue as a going concern for the foreseeable future.
Nevertheless the possibility remains that the Company’s operations and current and future financial resources
could be significantly affected by adverse exploration and appraisal results, geopolitical events in the region,
macroeconomic conditions or other risks, including uncertainty surrounding the timing and amounts of cash
receipts commencing from first oil and the level of project development costs that the Company may be required
to fund in order to realize receipts from oil sales to its customers. The potential that the Company’s financial
resources are insufficient to fund its appraisal and development activities for the next 12 months indicates a
material uncertainty which may cast significant doubt over the Company’s ability to continue as a going concern.
These condensed interim consolidated financial statements do not include the adjustments that would result if the
Company is unable to continue as a going concern. Refer also to notes 12 and 24.
39
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
3.
Significant accounting policies
(a) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries,
entities controlled by the Company which apply accounting policies consistent with those of the Company. Control
is achieved where the Company has the power to govern the financial and operating policies of an investee entity
so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control is
obtained by the Company and are de‐consolidated from the date that control ceases.
Intercompany balances and unrealised gains and losses on intercompany transactions are eliminated upon
consolidation.
(b)
Investments in associates
Associates are entities over which the Company is in a position to exert significant influence but not control or joint
control. Significant influence is the power to participate in the financial and operating policy decisions of the
investee but not control or jointly control those policies.
Investments in associates are accounted for using the equity method whereby investments are initially recognised
at cost and subsequently adjusted by the Company’s share of the associate’s post acquisition profits or losses and
movements in other comprehensive income. Losses of an associate in excess of the Company’s interest in that
associate are recognised only to the extent that the Company has incurred legal or constructive obligations to
make payments on behalf of the associate.
Any excess of the cost of the acquisition over the Company’s share of the fair value of the identifiable assets and
liabilities of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the
carrying amount of the investment and is assessed for impairment as part of that investment. If the carrying value
of the investment is greater than its recoverable amount the impairment loss is recognised directly in the
statement of comprehensive income.
Where a group company transacts with an associate of the Company unrealised gains are eliminated to the extent
of the Company’s interest in the relevant associate. Unrealised losses are also eliminated unless the transaction
provides evidence of impairment of the asset transferred in which case appropriate provision for impairment is
made.
The Company assesses at each year‐end whether there is any objective evidence indicating that the carrying value
of its interests in associates may exceed its recoverable amount. If impaired the carrying value of the Company’s
investment in associates is written down to its estimated recoverable amount, the higher of the fair value less cost
to sell and value in use with a provision for impairment recorded in the statement of comprehensive income
during the period of impairment.
(c)
Interest in joint ventures
A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic
activity that is subject to joint control.
Where the Company undertakes its activities under joint venture arrangements directly, the Company’s share of
jointly controlled assets and any liabilities incurred jointly with other joint ventures are recognised in the financial
statements of the relevant company and classified according to their nature.
Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an
accrual basis. Income from the sale or use of the Company’s share of the output of jointly controlled assets and its
share of the joint venture expenses are recognised when it is probable that the economic benefit associated with
the transactions will flow to/from the Company and the amount can be reliably measured.
40
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
(d) Business combinations
The acquisition method of accounting is used to account for business combinations. The consideration transferred
is measured at the aggregate of the fair values at the date of acquisition of assets given, liabilities incurred or
assumed and equity instruments issued by the Company in exchange for control of the acquiree. Acquisition
related costs are expensed as incurred. The identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition
date.
If the Company acquires control of an entity in more than one transaction the related investment held by the
Company immediately before the last transaction when control is acquired is considered sold and immediately
repurchased at the fair value of the investment on the date of acquisition. Any difference between the fair value
and the carrying amount of the investment results in income or loss recognised in the statement of comprehensive
income.
(e) Non‐current assets held for sale and discontinued operations
Non‐current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be
recovered principally through a sale transaction and a sale is considered highly probable. They are measured at the
lower of carrying amount and fair value less costs to sell.
The results of a component of the Company that represent a major line of business or geographical area of
operations that has either been disposed of (by sale, abandonment or spin‐off) or is classified as held for sale is
reported as discontinued operations. The financial statements of the Company include amounts and disclosures
pertaining to discontinued operations in accordance with IFRS 5 Non‐current Assets Held for Sale and Discontinued
Operations.
(f) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency
of the primary economic environment in which the subsidiary operates (the “functional currency”). The functional
and presentation currency of the Company is the United States dollar (“USD”).
The results and financial position of subsidiaries that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
Assets and liabilities are translated at the closing exchange rate at the date of that balance sheet.
Income and expenses are translated at the average exchange rate for the period in which they were incurred as
a reasonable approximation of the cumulative effect of rates prevailing on transaction dates.
All resulting exchange differences are recognised in other comprehensive income as part of the cumulative
translation reserve.
Transactions and balances
Transactions in currencies other than the functional currency are recorded in the functional currency at the
exchange rates prevailing on the dates of the transactions or valuation where items are re‐measured. At each
balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at the
rates prevailing at the balance sheet date. Exchange differences are recognised in the statement of comprehensive
income during the period in which they arise.
41
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
(g) Exploration and evaluation costs and other intangible assets
Exploration and evaluation assets
The Company applies the full cost method of accounting for exploration and evaluation (“E&E”) costs in
accordance with the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources. All costs of
exploring and evaluating oil and gas properties are accumulated and capitalised to the relevant property contract
area and are tested on a cost pool basis as described below.
Pre‐license costs:
Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the statement
of comprehensive income.
Exploration and evaluation costs:
All E&E costs are initially capitalised as E&E assets and include payments to acquire the legal right to explore, costs
of technical services and studies, seismic acquisition, exploratory drilling and testing.
Tangible assets used in E&E activities such as the Company’s vehicles, drilling rigs, seismic equipment and other
property, plant and equipment (“PP&E”) used by the Company’s exploration function are classified as PP&E. To the
extent that such tangible assets are consumed in exploring and evaluating a property the amount reflecting that
consumption is recorded as part of the cost of the intangible asset. Such intangible costs include directly
attributable overhead including the depreciation of PP&E utilised in E&E activities together with the cost of other
materials consumed during the E&E phases such as tubulars and wellheads.
E&E costs are not depreciated prior to the commencement of commercial production.
Treatment of E&E assets at conclusion of appraisal activities:
E&E assets are carried forward until commercial viability has been established for a contractual area which
normally coincides with the commencement of commercial production. The E&E assets are then assessed for
impairment and the carrying value after any impairment loss is then reclassified as oil and gas assets within PP&E.
Until commercial viability has been established E&E assets remain capitalised at cost less accumulated
amortisation and are subject to the impairment test set out below. Such E&E assets are depreciated on a unit of
production basis over the life of the commercial reserves attributed to the cost pool to which they relate.
Other intangible assets
Other intangible assets are carried at measured cost less accumulated amortisation and any recognised
impairment loss and are amortised on a straight‐line basis over their expected useful economic lives as follows:
Computer software and associated costs
3 years
(h) Property, plant and equipment
Oil and gas assets
Oil and gas assets comprise of development and production costs for areas where technical feasibility and
commercial viability have been established and include any E&E assets transferred after conclusion of appraisal
activities as well as costs of development drilling, completion, gathering and production infrastructure, directly
attributable overheads, borrowing costs capitalised and the cost of recognising provisions for future restoration
and decommissioning. Oil and gas costs are accumulated separately for each contract area.
Depreciation of oil and gas assets:
Oil and gas assets are depreciated using the unit of production method based on proved and probable reserves
using estimated future prices and costs and taking into account future development expenditures necessary to
bring those reserves into production.
42
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
Other property, plant and equipment
Other property, plant and equipment include expenditures that are directly attributable to the acquisition of an
asset. Subsequent costs are included in the assets’ carrying value or recognised as a separate asset as appropriate
only when it is probable that future economic benefits associated with the item will flow to the Company and the
cost can be measured reliably.
Repairs and maintenance costs are charged to the statement of comprehensive income during the period in which
they are incurred.
The carrying amount of an item of PP&E is derecognised on disposal or when no future economic benefits are
expected from its use or disposal. The gain or loss arising on the disposal or retirement of an asset is determined as
the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement
of comprehensive income during the period.
Other property, plant and equipment assets are carried at cost less accumulated depreciation and any recognised
impairment loss and are depreciated on a straight‐line basis over their expected useful economic lives as follows:
Furniture and office equipment
Computer equipment
5 years
3 years
(i)
Impairment of non‐financial assets
E&E assets and oil and gas assets are assessed for impairment when facts and circumstances suggest that the
carrying amount may exceed its recoverable amount. Such indicators include:
The period for which the Company has the right to explore in the specific area has expired during the period or
will expire in the near future and is not expected to be renewed.
Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is
neither budgeted nor planned.
Exploration for and evaluation of resources in the specific area have not led to the discovery of commercially
viable quantities of mineral resources and the Company has decided to discontinue such activities in the
specific area.
Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the
carrying amount of the E&E asset is unlikely to be recovered in full from successful development or by sale.
Extended decreases in prices or margins for oil and gas commodities or products.
A significant downwards revision in estimated volumes or an upward revision in future development costs.
For the purpose of impairment testing the assets are aggregated into cash generating unit (“CGU”) cost pools
based on their ability to generate largely independent cash flows. The recoverable amount of a CGU is the greater
of its fair value less costs to sell and its value in use. Fair value is determined to be the amount for which the asset
could be sold in an arm’s length transaction.
Fair value less costs to sell may be determined using discounted future net cash flows of proved and probable
reserves using forecast prices and costs. Value in use is determined by estimating the present value of the future
net cash flows expected to be derived from the continued use of the asset or CGU.
Where conditions giving rise to the impairment subsequently reverse the effect of the impairment charge is also
reversed as a credit to the statement of comprehensive income net of any depreciation that would have been
charged since the impairment.
43
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
(j) Revenue recognition
Revenues from the sale of hydrocarbons are recognised when title passes to an external party and collection is
reasonably assured which is normally upon delivery of products and customer acceptance.
Interest income is accrued on a time proportion basis by reference to the principal outstanding and at the effective
interest rate applicable.
(k) Borrowings
Borrowings are recognised initially at fair value, net of any transaction costs incurred. Borrowings are subsequently
carried at amortised cost using the effective interest rate method. Transaction costs incurred in acquiring
borrowings are amortised using the straight‐line amortisation method.
General and specific borrowing costs directly attributable to the acquisition or construction of qualifying assets are
capitalised together with the qualifying assets. All other borrowing costs are recognised in profit or loss in the
period in which they are incurred.
(l) Taxation
The income tax expense comprises current income tax and deferred income tax.
The current income tax is the expected tax payable on the taxable income for the period. It is calculated on the
basis of the tax laws enacted or substantively enacted at the balance sheet date and includes any adjustment to
tax payable in respect of previous years.
Deferred income tax is the tax recognised in respect of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax bases and is accounted for using the
balance sheet liability method. Deferred income tax liabilities are generally recognised for all taxable temporary
differences and deferred income tax assets are recognised to the extent that it is probable that taxable profits will
be available against which deductible temporary differences can be utilised. Deferred income tax is not recorded if
it arises from the initial recognition of an asset or liability in a transaction other than a business combination that,
at the time of the transaction, affects neither the accounting profit nor loss.
Deferred income tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries and associates and interests in joint ventures except where the Company is able to control the reversal
of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred income tax is calculated at the tax rates that are expected to apply in the year when the deferred tax
liability is settled or the asset is realised. Deferred tax is charged or credited in the statement of comprehensive
income except when it relates to items charged or credited directly to equity in which case the deferred tax is also
recognised directly in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right
to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same
taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
44
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
(m) Financial instruments
Financial assets and liabilities are recognised in the Company’s balance sheet when the Company becomes a party
to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to
cash flows from the assets expire or the Company transfers the financial asset and substantially all the risks and
rewards of ownership. The Company derecognises financial liabilities when the Company’s obligations are
discharged, cancelled or expire.
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the
asset and settle the liability simultaneously.
Classification and measurement
The Company classifies its financial assets and liabilities at initial recognition in the following categories:
Financial assets and liabilities at fair value through profit or loss are those assets and liabilities acquired
principally for the purpose of selling or repurchasing in the short‐term and are recognised at fair value.
Transaction costs are expensed in the statement of comprehensive income and gains or losses arising from
changes in fair value are also presented in the statement of comprehensive income within other gains and
losses in the period in which they arise. Financial assets and liabilities at fair value through profit or loss are
classified as current except for the portion expected to be realised or paid beyond twelve months of the
balance sheet date, which is classified as non‐current.
Loans and receivables comprise of other receivables and cash and cash equivalents and are financial assets
with fixed or determinable payments that are not quoted on an active market and are generally included within
current assets due to their short‐term nature. Loans and receivables are initially recognised at fair value and
are subsequently measured at amortised cost using the effective interest method less any provision for
impairment.
Financial liabilities at amortised cost comprise of trade and other payables and are initially recognised at the
fair value of the amount expected to be paid and are subsequently measured at amortised cost using the
effective interest rate method. Financial liabilities are classified as current liabilities unless the Company has an
unconditional right to defer settlement for at least 12 months after the balance sheet date.
Impairment of financial assets
At each reporting date the Company assesses whether there is objective evidence indicating that a financial asset
is impaired including:
Significant financial difficulty of the issuer
A breach of contract such as delinquency in interest or principal payments
Active market for that financial asset disappears because of financial difficulties
Observable data indicating that there is a measureable decrease in the estimated future cash flows from a
portfolio of financial assets since the initial recognition of those assets
If evidence of impairment exists the Company recognises an impairment loss in the statement of comprehensive
income as follows:
Financial assets carried at amortised cost – the impairment loss is the difference between the amortised cost of
the loan or receivable and the present value of the estimated future cash flows discounted using the
instrument’s effective interest rate.
Available for sale financial assets – the impairment loss is the difference between the original cost of the asset
and its fair value at the measurement date less any impairment losses previously recognised in the statement
of comprehensive income.
45
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
Impairment losses on financial assets carried at amortised cost are reversed in subsequent periods if the amount
of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was
recognised. Impairment losses on available‐for‐sale equity investments are not reversed.
(n) Cash and cash equivalents
Cash and cash equivalents are comprised of cash on hand and demand deposits and other short‐term liquid
investments that are readily convertible to a known amount of cash with three months or less maturity.
(o) Provisions
Provisions are recognised when the Company has a present obligation, legal or constructive, as a result of a past
event when it is probable that the Company will be required to settle the obligation and a reliable estimate can be
made of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present
obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation.
When a provision is measured using the cash flow estimates to settle the present obligation its carrying amount is
the present value of those cash flows.
Decommissioning and site restoration
Provisions for decommissioning and site restoration are recognised when the Company has a present legal or
constructive obligation to dismantle and remove production, storage and transportation facilities and to carry out
site restoration work. The provision is calculated as the net present value of the Company’s share of the
expenditure expected to be incurred at the end of the producing life of each field using a discount rate that reflects
the market assessment of the time value of money at that date. Unwinding of the discount on the provision is
charged to the statement of comprehensive income within finance costs during the period. The amount recognised
as the provision is included as part of the cost of the relevant asset and is charged to the statement of
comprehensive income in accordance with the Company’s policy for depreciation and amortisation.
Changes in the estimated timing of decommissioning and site restoration cost estimates are dealt with
prospectively by recording an adjustment to the provision and a corresponding adjustment to the relevant asset.
(p) Share‐based payments
The Company issues equity‐settled share‐based payments to certain directors, employees and third parties. The
fair value of the equity settled share‐based payments is measured at the date of grant and is expensed using the
graded method of amortisation over the period in which the recipients become fully entitled to the equity
instrument (the “vesting period”). The cumulative expense recognised for equity‐settled share‐based payments at
each balance sheet date represents the Company’s best estimate of the number of equity instruments that will
ultimately vest. The charge or credit for the period and the corresponding adjustment to contributed surplus
during the period represents the movement in the cumulative expense recognised for all equity instruments
expected to vest. The fair value of equity‐settled share‐based payments is determined using the Black‐Scholes
option pricing model.
(q) Pension obligations
Pensions are the most common long‐term employee benefit. The pension schemes are funded through payments
to insurance companies. The Company’s pension obligations consist of defined contribution plans. A defined
contribution plan is a pension plan under which the Company pays fixed contributions. The Company has no
further payment obligations once the contributions have been paid. The contributions are recognised as an
expense when they are due.
(r) Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of new shares or share
options are shown in equity as a deduction, net of tax, from the proceeds.
46
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
(s) Changes in accounting policies
The Company has adopted effective January 1, 2014 on a prospective basis the following new and revised IFRS,
along with any consequential amendments. These changes were made in accordance with the applicable
transitional provisions.
IAS 32 ‐ Financial Instruments Presentation, updates the application guidance in IAS 32, to clarify some of the
requirements for offsetting financial assets and financial liabilities on the balance sheet. The amendment becomes
effective for annual periods beginning on or after January 1, 2014. This amendment does not have a material effect
on the Company’s consolidated financial statements.
IAS 36 ‐ Impairment of Assets, addresses the disclosure of information about the recoverable amount of impaired
assets if that amount is based on fair value less costs of disposal. The amendment becomes effective for annual
periods beginning on or after January 1, 2014. This amendment affects presentation only and has been
incorporated into the Company’s financial reporting.
IFRIC 21 ‐ Levies, addresses the accounting for an obligation to pay a levy that is not an income tax. The guidance
addresses the accounting for a liability to pay a levy recognised in accordance with IAS 37 Provisions and the
liability to pay a levy whose timing and amount is certain. The amendment becomes effective for annual periods
beginning on or after January 1, 2014. This guidance does not have a material effect on the Company’s
consolidated financial statements.
(t) Accounting standards issued but not yet applied
Standards and interpretations issued but not yet effective up to the date of issuance of the financial statements
are listed below. This listing of standards and interpretations issued are those that the Company reasonably
expects to have an impact on disclosures, financial position or performance when applied at a future date.
IFRS 9: Financial Instruments ‐ Classification and Measurement, addresses the classification, measurement and
recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and amended in
October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial
instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at
fair value and those measured at amortised cost. The determination is made at initial recognition. The
classification depends on the entity’s business model for managing its financial instruments and the contractual
cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39
requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part
of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than in
net earnings, unless this creates an accounting mismatch. The new standard will be effective for annual periods
beginning on or after January 1, 2018.
IFRS 15: Revenue from contracts with customers is the new standard which replaces IAS 18 Revenue and IAS 11
Construction Contracts and provides a five step framework for application to customer contracts; identification of
customer contract, identification of the contract performance obligations, determination of the contract price,
allocation of the contract price to the contract performance obligations, and revenue recognition as performance
obligations are satisfied. A new requirement where revenue is variable stipulates that revenue may only be
recognised to the extent that it is highly probable that significant reversal of revenue will not occur. The new
standard will be effective for annual periods beginning on or after January 1, 2017.
47
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
IFRS 11: Joint Arrangements. An amendment to IFRS 11 was issued in May 2014 addressing guidance on how to
account for the acquisition of an interest in a joint operation that constitutes a business. The standard now
specifies the appropriate accounting treatment for such acquisitions and requires an investor to apply the
principles of business combination accounting, as defined in IFRS 3 ‐ Business combinations, when acquiring an
interest in a joint operation that constitutes a business. The amendment requires an investor to measure
identifiable assets and liabilities at fair value; expense acquisition related costs; recognise deferred tax, and;
recognise the residual as goodwill. The amendment is applicable to both the acquisition of the initial interest in a
joint operation and the acquisition of additional interest in the same joint operation. However, a previously held
interest is not to be re‐measured when the acquisition of an additional interest in the same joint operation results
in retaining joint control. The amendment to IFRS 11 will be applied prospectively for annual periods beginning on
or after January 1, 2016.
4.
Critical accounting judgments and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 3, management has made
judgments, estimates and assumptions about the carrying amounts of the assets, liabilities, revenues, expenses
and related disclosures. These estimates and associated assumptions are based on historical experience, current
trends and other factors that management believes to be relevant at the time these consolidated financial
statements were prepared. Actual results may differ as future events and their effects cannot be determined with
certainty and such differences could be material. Management reviews the accounting policies, underlying
assumptions, estimates and judgments on an on‐going basis to ensure that the financial statements are presented
fairly in accordance with IFRS.
The following are the critical judgments and estimates that management has made in the process of applying the
Company’s accounting policies in these consolidated financial statements:
(a) Oil and gas reserves
The business of the Company is the exploration and development of oil and gas reserves in Kurdistan. Estimates of
commercial oil and gas reserves are used in the calculations for impairment, depreciation and amortisation and
decommissioning provisions. Changes in estimates of oil and gas reserves resulting in different future production
profiles will affect the discounted cash flows used for impairment purposes, the anticipated date of site
decommissioning and restoration and the depreciation charges based on the unit of production method.
In February 2015 the Company commissioned an independent reserves and resources report from McDaniel &
Associates Consultants Ltd. to estimate the Company’s reserves and resources at December 31, 2014. The reserves
and resources estimates provided in the report were considered in determining amounts of impairment,
depreciation and amortisation and decommissioning provisions
in these consolidated financial
statements.
included
(b)
Impairment of E&E and PP&E assets
IAS 36 Impairment of Assets and IFRS 6 Exploration of and Evaluation of Mineral Resources require that a review
for impairment be carried out if events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The recoverable amounts are determined with reference to value in use calculations. The
key assumptions for the value in use calculations are those regarding production flow rates, discount rates and
fiscal terms under the Production Sharing Contracts governing the Company’s assets and expected changes to
selling prices and direct costs during the period. These assumptions reflect management’s best estimates based on
historical experiences, past practices and expectations of future changes in the oil and gas industry.
48
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
(c) Decommissioning and site restoration provisions
The Company recognises a provision for decommissioning and site restoration costs expected to be incurred in
order to remove and dismantle production, storage and transportation facilities and to carry out site restoration
work. The provisions are estimated taking into consideration existing technology and current prices after adjusting
for expected inflation and discounted using rates reflecting current market assessments of the time value of
money and where appropriate, the risks specific to the liability. The Company makes an estimate based on its
experience and historical data. Refer also to notes 11 and 17.
(d) Share‐based payments
The Company issues equity‐settled share‐based payments to certain directors, employees and third parties. In
accordance with IFRS 2 Share‐based payments, in determining the fair value of options granted, the Company has
applied the Black‐Scholes model and as a result makes assumptions for the expected volatility, expected life, risk‐
free rate, behavioural considerations and expected dividend yield. The fair value of options granted at
December 31, 2014 is shown in note 19.
(e) Fair valuation of net assets of subsidiary acquired
IFRS 3 Business Combinations required the Company to record the fair value of the net assets and liabilities of
General Exploration Partners, Inc. (“GEP”) on December 31, 2012, which is the date the Company acquired control
of GEP. In determining the fair value the Company considered a number of bases including the consideration
exchanged on December 31, 2012, available prices of comparable assets, the net present value of estimated cash
flows associated with the net assets and the asset value imputed by the public markets valuation, and relied on a
number of assumptions and estimates including future oil prices, productive capacity of the oil and gas asset, costs
to develop the oil and gas asset, relevant discount rates, and the probability of future taxes associated with the
asset.
49
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
5. Business and geographical segments
The Company operates in one business segment, the exploration and development of oil and gas assets, in one
geographical segment, Kurdistan. As a result, in accordance with IFRS 8 Operating Segments, the Company has
presented its financial information collectively for one operating segment. Refer to note 11 for disclosure of the
Company’s discontinued operations.
6. General and administrative expense
General and administrative expenses incurred
General and administrative expenses capitalised as E&E assets
General and administrative expense
For the year ended December 31,
2013
2014
4,886
(3,338)
1,548
5,473
(3,080)
2,393
The Company capitalises as E&E assets general and administrative expense supporting E&E activities which relate
to direct interests held in production sharing contracts. Refer also to note 12.
7.
Impairment loss
Write down drilling inventory to net realizable value
Impairment loss
For the year ended December 31,
2013
2014
‐
‐
84
84
The impairment loss in the year ended December 31, 2013 related to the Pulkhana and Arbat production sharing
contract relinquishments.
8.
Finance income
Interest Income
Foreign exchange gain
Total finance income
For the year ended December 31,
2013
2014
65
43
108
28
‐
28
Interest income represents bank interest earned on cash and investments in marketable securities.
For the year ended December 31, 2014 the foreign exchange gain of $43 resulted primarily from holding in the
Company’s Swiss subsidiary net assets denominated in United States dollars while the United States dollar
strengthened during the reporting period against the Swiss Franc, the functional currency of the Swiss subsidiary.
50
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
9.
Finance cost
Interest charges on bonds at coupon rate
Amortisation of bond related transaction costs
Interest expense on borrowings
Unwinding discount on decommissioning provision
Foreign exchange loss
Total finance costs before borrowing costs capitalised
Borrowing costs capitalised as E&E assets
Total finance costs
For the year ended December 31,
2013
2014
17,250
607
17,857
19
‐
17,876
(12,572)
5,304
2,252
78
2,330
1
49
2,380
(1,640)
740
During the year ended December 31, 2014 the Company incurred interest expense relating to senior secured
bonds which carry an 11.5% fixed semi‐annual coupon interest rate. Refer also to notes 12 and 16.
The foreign exchange loss recorded in the year ended December 31, 2013 resulted primarily from holding net assets
denominated in United States dollars in the Swiss subsidiary of the Group while the United States dollar weakened
during the reporting period against Swiss Franc, the functional currency of the Swiss subsidiary.
10. Taxation
(a)
Income tax expense
The income tax expense reflects an effective tax rate which differs from Federal and Provincial statutory tax rates.
The main differences are as follows:
Loss from continuing operations before income tax
Corporate income tax rate
Computed income tax expense
Increase / (decrease) resulting from:
Change in valuation allowance
Effect of changes in foreign exchange rates
Foreign tax rate differences
Non‐deductible compensation expense
Effect of change in tax rates
Non‐taxable foreign exchange (gain) / (loss)
Other
Income tax expense from continuing operations
For the year ended December 31,
2013
2014
(7,104)
26.0%
(1,847)
1,198
489
365
80
‐
(11)
(165)
109
(4,136)
26.0%
(1,075)
548
379
104
229
(260)
12
150
87
The Company’s income tax expense relates to a provision for income tax on service income generated in
Switzerland and is calculated at the effective tax rate of 25% prevailing in this jurisdiction.
51
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
The components of the future income tax assets are as follows:
As at December 31,
Non‐capital losses
Properties‐tax basis over carrying value
Exploration expenses
Share issue costs carried forward
Future income tax assets before allowance
Valuation allowance
Future income tax assets
(b)
Tax losses carried forward
2014
85,777
1,279
727
164
87,947
(87,947)
‐
2013
84,656
1,279
787
354
87,076
(87,076)
‐
The Company has tax losses and costs which are available to apply to future taxable income as follows:
Canadian losses from operations
Canadian exploration expenses
Canadian unamortised share issue costs
Dutch losses from operations
U.S. Federal losses from operations
U.S. Federal tax basis in excess of carrying values of properties
Total tax losses carried forward
As at December 31,
2014
2013
20,899
2,796
632
110,867
166,200
3,654
305,048
19,936
3,025
1,363
104,878
167,135
3,654
299,991
The Canadian losses from operations may be used to offset future Canadian taxable income and will expire over
the period from 2027 to 2034. The Canadian exploration expenses may be carried forward indefinitely to offset
future taxable Canadian income. Canadian unamortised share issue costs may offset future taxable Canadian
income of years 2015 to 2016. The U.S. Federal losses are available to offset future taxable income in the United
States through 2032.
11. Discontinued operations
During May of 2009 the Company sold to a third party its oil and gas properties located in the United States in the
Gulf of Mexico. The results of the discontinued operations included in the consolidated statement of
comprehensive income are as follows:
Gain on release of excess site restoration provisions
General and administrative and professional expenses
Net income from discontinued operations
For the year ended December 31,
2013
2014
228
(15)
213
981
(46)
935
In the years 2014 and 2013 the Company released excess site restoration provisions as the total cost to complete
this work was less than the amount previously estimated. The net income from discontinued operations in 2014
and 2013 did not result in income tax expense as gains on release of excess site restoration provisions are not
taxable amounts.
52
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
The major classes of assets and liabilities included in the consolidated balance sheet are as follows:
As at December 31,
2014
2013
Assets
Prepaid expenses
Liabilities
Trade payables and accrued expenses
Site restoration provision
Net liabilities
‐
‐
51
‐
51
51
3
3
145
783
928
925
The 2013 provision related to site restoration costs pertaining to the interests the Company held in petroleum
properties located in the United States. Site restoration works were completed during the year 2014 and the
remaining excess provision has been released.
12.
Intangible assets
At January 1, 2013
Cost
Accumulated amortisation
Net book value
For the year ended December 31, 2013
Opening net book value
Additions
Amortisation expense
Net book value
At December 31, 2013
Cost
Accumulated amortisation
Net book value
For the year ended December 31, 2014
Opening net book value
Additions
Amortisation expense
Net book value
At December 31, 2014
Cost
Accumulated amortisation
Net book value
Exploration and
evaluation assets
Other intangible
assets
303,523
‐
303,523
303,523
41,465
‐
344,988
344,988
‐
344,988
344,988
84,257
‐
429,245
429,245
‐
429,245
280
(254)
26
26
‐
(24)
2
288
(286)
2
2
34
(4)
32
292
(260)
32
Total
303,803
(254)
303,549
303,549
41,465
(24)
344,990
345,276
(286)
344,990
344,990
84,291
(4)
429,277
429,537
(260)
429,277
The net book value of E&E assets at December 31, 2014 relates to the Atrush Block and includes $24.5 million of
advances made to fund Atrush development costs on behalf of the Kurdistan Regional Government (“KRG”).
During the year ended December 31, 2014 the Company capitalised to E&E borrowing costs totalling $12,572
(2013: $ 1,640) and general and administrative expenses of $3,338 (2013: $3,080). Refer also to notes 6, 9, 16 and
22.
53
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
13. Property, plant and equipment
At January 1, 2013
Cost
Accumulated depreciation
Net book value
For the year ended December 31, 2013
Opening net book value
Exchange difference
Depreciation expense
Net book value
At December 31, 2013
Cost
Accumulated depreciation
Net book value
For the year ended December 31, 2014
Opening net book value
Additions
Exchange difference
Depreciation expense
Net book value
At December 31, 2014
Cost
Accumulated depreciation
Net book value
14. Other current assets
Prepaid expenses
Other receivables
Total other current assets
Oil and gas
assets
Computer
equipment
Furniture
and office
equipment
194
(29)
165
165
‐
(40)
125
194
(69)
125
125
‐
‐
(36)
89
194
(105)
89
199
(190)
9
9
‐
(6)
3
194
(191)
3
3
81
‐
(16)
68
256
(188)
68
165
(82)
83
83
1
(33)
51
169
(118)
51
51
‐
(3)
(33)
15
154
(139)
15
As at December 31,
2014
1,522
83
1,605
Total
558
(301)
257
257
1
(79)
179
557
(378)
179
179
81
(3)
(85)
172
604
(432)
172
2013
140
54
194
Costs in the amount of $1,354 relating to the rights offering to shareholders of the Company were included in
prepaid expenses at December 31, 2014. Refer also to note 24.
15. Accounts payable and accrued expenses
Net payables to joint venture partners
Accrued expenses
Trade payables
Total accounts payable and accrued expenses
As at December 31,
2014
10,391
3,362
454
14,207
2013
3,769
3,062
627
7,458
54
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
16. Borrowings
At December 31, 2014 General Exploration Partners Inc. (“GEP”), a wholly owned indirect subsidiary of the
Company, had outstanding $150 million of senior secured bonds which are listed on the Oslo Børs in Norway under
the symbol “GEP01”. The bonds have a five year maturity from their issuance date of November 13, 2013, carry an
11.5% fixed semi‐annual coupon and are being used to fund capital expenditures related to the development of
the Atrush Block.
Opening balance
Interest charges on bonds at coupon rate
Amortisation of bond related transaction costs
Net proceeds from bonds
Interest payments to bondholders
Ending balance
‐ Current portion: accrued interest expense on bonds
‐ Non‐current portion: borrowings
As at December 31,
2014
149,302
17,250
607
‐
(17,250)
149,909
2,252
147,657
2013
‐
2,252
78
146,972
‐
149,302
2,252
147,050
The bonds include an unconditional and irrevocable on‐demand guarantee on a joint and several basis from the
Company and certain of the Company’s direct and indirect subsidiaries and, among other arrangements,
agreements which pledge all of the ordinary shares of GEP and the Company’s Swiss service subsidiary, ShaMaran
Services SA, as security for GEP’s bond related obligations, as well as an internal credit facility agreement among
the Company and certain of its subsidiaries setting out the terms and conditions for intra‐group credit to be made
available amongst the parties.
Under the terms of the bond agreement all bond proceeds are held in accounts pledged to the bond trustee as
security and may be accessed by the Company on prior authorisation of the bond trustee provided the proceeds
are to be employed for prescribed purposes, most notably to fund the financing, development and operation of
the Atrush Block, to service the first 24 months of bond coupon interest expense and to fund technical,
management and administrative services of ShaMaran’s subsidiary companies up to $6 million per year over the
term of the bonds. Of the Company’s $57.2 million total cash and cash equivalents at December 31, 2014
$41.1 million was held in accounts pledged to the bond trustee.
The remaining contractual obligation comprising repayment of principal and interest expense based on
undiscounted cash flows at payment date, assuming the bonds are not redeemed early, are as follows:
Less than one year
Between two and five years
Total
Refer also to notes 9, 12 and 20.
As at December 31,
2014
17,250
199,407
216,657
2013
17,250
216,050
233,300
55
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
17. Provisions
The Company has provided for decommissioning and site restoration costs in relation to activities undertaken to
date on the Atrush Block in Kurdistan.
Opening balance
Changes in estimates and obligations incurred
Changes in discount and inflation rates
Unwinding discount on decommissioning provision
Total decommissioning and site restoration provisions
As at December 31,
2014
1,185
601
41
19
1,846
2013
120
1,110
(46)
1
1,185
The above provisions assume decommissioning and site restoration work is to be undertaken in the year 2032 and
estimated costs have been discounted to net present value using a Bank of Canada long term bond yield rate of
2.33% and an inflation rate of 0.8%.
18. Share capital
The Company is authorised to issue an unlimited number of common shares with no par value. The Company’s
issued share capital is as follows:
At January 1, 2013
At December 31, 2013
At December 31, 2014
Refer also to note 24.
Earnings per share
Number of shares
Share capital
810,983,860
810,983,860
810,983,860
534,068
534,068
534,068
The earnings per share amounts were as follows:
Continuing operations:
Net loss from continuing operations, in dollars
Weighted average common shares outstanding during the year
Basic and diluted loss per share from continuing operations, in dollars
Discontinued operations:
Net income from discontinued operations, in dollars
Weighted average common shares outstanding during the year
Basic and diluted income per share from discontinued operations, in dollars
Continuing and discontinued operations:
Net loss from continuing and discontinued operations, in dollars
Weighted average common shares outstanding during the year
Basic and diluted loss per share from continuing and discontinued
operations, in dollars
For the year ended December 31,
2013
2014
(7,213,000)
810,983,860
(0.01)
213,000
810,983,860
‐
(7,000,000)
810,983,860
(4,223,000)
810,983,860
(0.01)
935,000
810,983,860
‐
(3,288,000)
810,983,860
(0.01)
(0.01)
56
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
19. Share based payments expense
The Company has an established share purchase option plan whereby a committee of the Company’s board of
directors may, from time to time, grant up to a total of 10% of the issued share capital to directors, officers,
employees or consultants. The number of shares under option at any specific time to any one option holder shall
not exceed 5% of the issued and outstanding common shares of the Company. The term of any options granted
under the plan will be fixed by the Board of Directors and may not exceed five years from the date of grant. A four
month hold period may be imposed by the stock exchange from the date of grant. Vesting terms are at the
discretion of the Board of Directors. All issued share options have terms of five years and vest over two years from
grant date. The exercise prices reflect trading values of the Company’s shares at grant date.
Movements in the Company’s share options outstanding are explained as follows:
At January 1, 2013
Granted in 2013
At December 31, 2013
Expired in 2014
At December 31, 2014
Share options exercisable:
At December 31, 2013
At December 31, 2014
Refer also to note 24.
Number of
share options outstanding
Weighted average
exercise price
CAD
2,623,334
5,640,000
8,263,334
(1,508,334)
6,755,000
4,503,333
4,875,001
0.59
0.36
0.43
0.66
0.38
0.50
0.39
The Company recognises compensation expense on share options granted to both employees and non‐employees
using the fair value method at the date of grant, which the Company records as an expense. The share based
payments expense is calculated using the Black‐Scholes option pricing model.
The weighted average fair value of options granted and the assumptions used in their determination are as
follows:
Expected dividend yield
Risk‐free interest rate (weighted average)
Expected share price volatility (weighted average)
Expected option life in years (weighted average)
Grant date fair value (weighted average)
For the year ended December 31,
2013
2014
0%
2.50%
84.74%
4.42
CAD 0.43
0%
2.50%
84.74%
4.42
CAD 0.43
Share based payments expense for the year ended December 31, 2014 was $307 (2013: $882).
Option pricing models require the input of highly subjective assumptions including the expected price volatility.
Changes in the subjective input assumptions can materially affect the fair value estimate and therefore the existing
models do not necessarily provide a reliable single measure of the fair value of the Company’s share options.
57
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
20. Financial instruments
Financial assets
The financial assets of the Company on the balance sheet dates were as follows:
Cash and cash equivalents ²
Other receivables ²
Total financial assets
Carrying and fair values ¹
At December 31, 2014
At December 31, 2013
57,204
83
57,287
142,588
54
142,642
Financial assets classified as other receivables are initially recognised at fair value and are subsequently measured
at amortised cost using the effective interest method less any provision for impairment.
Financial liabilities
The financial liabilities of the Company on the balance sheet dates were as follows:
Borrowings
Accounts payable and accrued expenses ²
Accrued interest on bonds
Provisions for decommissioning costs
Financial liabilities of discontinued operations ²
Current tax liabilities ²
Total financial liabilities
Fair value
hierarchy ³
Level 2
Level 2
Level 3
Carrying and fair values ¹
At December 31, 2014
At December 31, 2013
147,657
14,207
2,252
1,846
51
41
166,054
147,050
7,458
2,252
1,185
928
92
158,965
Financial liabilities are initially recognised at the fair value of the amount expected to be paid and are subsequently
measured at amortised cost using the effective interest rate method.
¹ The carrying amount of the Company’s financial assets and liabilities approximate their fair values at the balance
sheet dates, none of which are past due.
² No valuation techniques have been applied to establish the fair value of these financial instruments as they are
either cash and cash equivalents or, due to the short term nature, readily convertible to or settled with cash and
cash equivalents.
³ Fair value measurements
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date and established a fair value hierarchy of
three levels to classify the inputs to valuation techniques used to measure fair value:
Level 1: fair value measurements are based on unadjusted quoted market prices;
Level 2: fair value measurements are based on valuation models and techniques where the significant inputs
are derived from quoted prices or indices;
Level 3: fair value measurements are based on unobservable information.
Capital risk management
The Company manages its capital to ensure that entities within the Company will be able to continue as a going
concern, while maximising return to shareholders. The capital structure of the Company consists of cash and cash
equivalents and equity, comprising issued share capital, reserves and retained earnings as disclosed in the
consolidated statement of changes in equity. The Company had debt relating to borrowings and accrued interest
of $149.9 million as at December 31, 2014 (2013: $149.3).
58
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
Book equity ratio
In accordance with the terms of the Company’s senior secured bond agreement it is required to maintain a Book
Equity ratio, defined as shareholders’ equity divided by total assets, of no less than 40%. Refer also to note 16. The
Company’s book equity ratio is as follows:
Shareholders’ equity
Total assets
Book equity ratio
Financial risk management objectives
As at December 31,
2014
2013
322,204
488,258
66%
328,989
487,954
67%
The Company’s management monitors and manages the Company’s exposure to financial risks facing the
operations. These financial risks include market risk (including commodity price, foreign currency and interest rate
risks), credit risk and liquidity risk.
The Company does not presently hedge against these risks as the benefits of entering into such agreements is not
considered to be significant enough as to outweigh the significant cost and administrative burden associated with
such hedging contracts.
Commodity price risk
The prices that the Company receives for its oil and gas production may have a significant impact on the
Company’s revenues and cash flows provided by operations. World prices for oil and gas are characterised by
significant fluctuations that are determined by the global balance of supply and demand and worldwide political
developments and in particular the price received for the Company’s oil and gas production in Kurdistan is
dependent upon the Kurdistan government and its ability to export production outside of Iraq. The spot price of
Brent Crude Oil, a reference in determining the price at which the Company can sell future oil production, has
declined by 49% over the year 2014. A further decline in the price at which the Company can sell future oil and gas
production could adversely affect the amount of funds available for capital reinvestment purposes as well as the
Company’s value in use calculations for impairment test purposes.
The Company does not hedge against commodity price risk, however given that the Company is in the
pre‐production stage of development, it is not directly exposed to significant commodity price risk.
Foreign currency risk
The substantial portion of the Company’s operations require purchases denominated in USD, which is the
functional and reporting currency of the Company and also the currency in which the Company maintains the
substantial portion of its cash and cash equivalents. Certain of its operations require the Company to make
purchases denominated in foreign currencies, which are currencies other than USD and correspond to the various
countries in which the Company conducts its business, most notably, Swiss Francs (“CHF”) and Canadian dollars
(“CAD”). As a result, the Company holds some cash and cash equivalents in foreign currencies and is therefore
exposed to foreign currency risk due to exchange rate fluctuations between the foreign currencies and the USD.
The Company considers its foreign currency risk is limited because it holds relatively insignificant amounts of
foreign currencies at any point in time and since its volume of transactions in foreign currencies is currently
relatively low. The Company has elected not to hedge its exposure to the risk of changes in foreign currency
exchange rates.
59
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
The carrying amounts of the Company’s principal monetary assets and liabilities denominated in foreign currency
at the reporting date are as follows:
Canadian dollars in thousands (“CAD 000”)
Swiss francs in thousands (“CHF 000”)
Refer also to note 24.
Foreign currency sensitivity analysis
Assets
December 31,
2014
2013
177
435
48
248
Liabilities
December 31,
2013
2014
151
262
163
287
The Company is exposed to movements in CHF and CAD against the USD, the presentational currency of the
Company. Sensitivity analyses have been performed to indicate how the profit or loss would have been affected by
changes in the exchange rates between the USD and CHF and CAD. The analysis below is based on a strengthening
of the CHF and CAD by 1% against the USD in which the Company has assets and liabilities at the end of respective
period. A movement of 1% reflects a reasonably possible sensitivity when compared to historical movements over
a three to five year timeframe. The sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjust their translation at the period end for a 1% change in foreign currency rates.
A positive number in the table below indicates an increase in profit where USD weakens 1% against the CHF or
CAD on the basis of the CHF and CAD assets and liabilities held by the Company at the balance sheet dates. For a
1% strengthening of the USD against the CHF or CAD there would be an equal and opposite impact on the profit or
loss.
Statement of comprehensive income ‐ CAD
Statement of comprehensive income ‐ CHF
Interest rate risk
Assets
Liabilities
2014
2013
2014
2013
1
4
‐
3
(1)
(3)
(1)
(4)
The Company earns interest income at variable rates on its cash and cash equivalents and is therefore exposed to
interest rate risk due to a fluctuation in short‐term interest rates.
The Company’s policy on interest rate management is to maintain a certain amount of funds in the form of cash
and cash equivalents for short‐term liabilities and to have the remainder held on relatively short‐term deposits.
The Group is highly leveraged though financing at the project level, for the continuation of Atrush project, and at
the corporate level due to the $150 million of senior secured bonds which were issued in November 2013.
However, the Company is not exposed to interest rate risks associated with the bonds as the interest rate is fixed.
Interest rate sensitivity analysis:
Based on exposure to the interest rates for cash and cash equivalents at the balance sheet date a 0.5% increase or
decrease would not have a material impact on the Company’s profit or loss for the year. A rate of 0.5% is used as it
represents management’s assessment of the reasonably possible changes in interest rates.
Credit risk
Credit risk is the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Company. The Company is primarily exposed to credit risk on its cash and cash equivalents and other receivables.
The Company manages credit risk by monitoring counterparty ratings and credit limits and by maintaining excess
cash and cash equivalents on account in instruments having a minimum credit rating of R‐1 (mid) or better (as
measured by Dominion Bond Rate Services) or the equivalent thereof according to a recognised bond rating
service.
60
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
The carrying amounts of the Company’s financial assets recorded in the consolidated financial statements
represent the Company’s maximum exposure to credit risk.
Liquidity risk
Liquidity risk is the risk that the Company will have difficulties meeting its financial obligations as they become
due. In common with many oil and gas exploration companies, the Company raises financing for its exploration
and development activities in discrete tranches in order to finance its activities for limited periods. The Company
seeks to raise additional funding as and when required. The Company anticipates making substantial capital
expenditures in the future for the acquisition, exploration, development and production of oil and gas reserves
and as the Company’s project moves further into the development stage, specific financing, including the
possibility of additional debt, may be required to enable future development to take place. The financial results of
the Company will impact its access to the capital markets necessary to undertake or complete future drilling and
development programs. There can be no assurance that debt or equity financing, or future cash generated by
operations, would be available or sufficient to meet these requirements or, if debt or equity financing is available,
that it will be on terms acceptable to the Company. Refer also to note 24.
The Company manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring
forecast and actual cash flows. Annual capital expenditure budgets are prepared, which are regularly monitored
and updated as considered necessary. In addition, the Company requires authorisations for expenditure on both
operating and non‐operating projects to further manage capital expenditures.
The maturity profile of the Company’s financial liabilities are indicated by their classification in the consolidated
balance sheet as “current” or “non‐current” and further information relevant to the Company’s liquidity position is
disclosed in the Company’s going concern assessment in note 2.
21. Commitments
As at December 31, 2014 the outstanding commitments of the Company were as follows:
Atrush Block development and PSC
Office and other
Total commitments
For the year ended December 31,
2015
60,258
92
60,350
2016
120
‐
120
2017
Thereafter
120
‐
120
1,932
‐
1,932
Total
62,430
92
62,522
Amounts relating to the Atrush Block represent the Company’s unfunded share of the approved work program and
other obligations under the Atrush Block production sharing contract (“PSC”). Refer also to notes 16 and 22.
22.
Interests in joint operations and other entities
Interests in joint operations ‐ Atrush Block Production Sharing Contract
ShaMaran holds a 20.1% direct interest in the PSC through GEP. TAQA Atrush B.V. (“TAQA”), a subsidiary of
Abu Dhabi National Energy Company PJSC, is the Operator of the Atrush Block with a 39.9% direct interest,
Marathon Oil KDV B.V. holds a 15% direct interest and the remaining 25% interest was acquired by the KRG on
March 12, 2013. GEP, Marathon and TAQA together are “the Contractors” to the PSC. Refer also to note 21.
61
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
Under the terms of the Atrush Block PSC, on exercise of its right to acquire the 25% interest, the KRG assumed an
undivided interest in the petroleum operations and all the other rights, duties, obligations and liabilities of the
Contractors from the date the block has first been declared commercially viable. Discussions have commenced
amongst the Contractors and the KRG to amend the PSC to give effect to the KRG’s interest. At the date these
consolidated financial statements were approved the process of amending the PSC has not been completed and
the Contractors are currently advancing cash to the Operator to fund Atrush development costs relating to the
KRG’s 25% interest. Refer also to note 12.
Under the terms of the PSC the development period is for 20 years with an automatic right to a five year extension
and the possibility to extend for an additional five years. All qualifying petroleum costs incurred by the Contractors
shall be recovered from a portion of available petroleum production, defined under the terms of the PSC. All
modifications to the PSC are subject to the approval of the KRG. The Company is responsible for its pro‐rata share
of the costs incurred in executing the development work program on the Atrush Block which commenced on
October 1, 2013.
Information about subsidiaries
The consolidated financial statements of the Company include:
Subsidiary
Principal activities
Country of
Incorporation
% equity interest
As at December 31,
2013
2014
ShaMaran Petroleum Holdings Coöperatief U.A.
ShaMaran Ventures B.V.
General Exploration Partners, Inc.
ShaMaran Petroleum B.V.
ShaMaran Services S.A.
Bayou Bend Petroleum U.S.A. Ltd
Summit Energy Company LLC.
Oil exploration and production
Oil exploration and production
Oil exploration and production
Oil exploration and production
Technical and admin. services
Discontinued operations
Discontinued operations
The Netherlands
The Netherlands
Cayman Islands
The Netherlands
Switzerland
United States of America
United States of America
100
100
100
100
100
100
100
100
100
100
100
100
100
100
23. Related party transactions
Transactions with corporate entities
McCullough O’Connor Irwin LLP
Lundin Petroleum AB
Namdo Management Services Ltd.
Mile High Holdings Ltd.
Vostok Nafta Investment Ltd.
Total
Purchases of services
during the year
2014
2013
Amounts owing at
December 31,
2013
2014
276
464
214
‐
‐
954
26
518
243
113
13
913
91
56
31
35
‐
213
14
89
15
113
‐
231
McCullough O’Connor Irwin LLP is a law firm in which an officer of the Company is a partner which has provided
legal services to the Company.
The Company receives services from various subsidiary companies of Lundin Petroleum AB (“Lundin”), a
shareholder of the Company. Lundin charges during the year ended December 31, 2014 of $464 (2013: $518) were
comprised of G&G and other technical service costs of $50 (2013: $144), investor relations services of $36 (2013:
$nil), reimbursement for Company travel and related expenses of $1 (2013: $nil), office rental, administrative and
building services of $377 (2013: $374).
Namdo Management Services Ltd. is a private corporation owned by a shareholder of the Company which has
provided corporate administrative support and investor relations services to the Company.
Mile High Holdings Ltd. is a private corporation associated with a shareholder of the Company which has provided
transportation services to the Company in relation to its investor relations activities.
62
SHAMARAN PETROLEUM CORP.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014
(Expressed in thousands of United States dollars unless otherwise stated)
______________________________________________________________________________
Vostok Nafta Investment Ltd. is a corporation traded on the Nasdaq Nordic Exchange in Stockholm (trading symbol
VNIL SDB) which was associated with a shareholder of the Company and which provided investor relations services
to the Company in Sweden.
All transactions with related parties are in the normal course of business and are made on the same terms and
conditions as with parties at arm’s length.
Refer also to note 24.
Key management compensation
The Company’s key management was comprised of its five directors and two executive officers consisting of seven
individuals who have been remunerated as follows:
Management’s salaries
Management’s short‐term benefits
Management’s share based payments
Directors’ share based payments
Directors’ fees
Total
For the year ended December 31,
2013
2014
815
466
161
118
95
1,655
788
402
461
273
126
2,050
Short‐term employee benefits include non‐equity incentive plan compensation and other short‐term benefits.
Share‐based payments compensation represents the portion of the Company’s share based payments expense
incurred during the year attributable to the key management, accounted for in accordance with IFRS 2 ‘Share Based
Payments’. Refer also to note 24.
24. Events after the reporting period
On January 19, 2015 the Company announced changes to its senior management and Board of Directors (the
“Board”). Mr. Chris Bruijnzeels was appointed as the President and Chief Executive Officer of ShaMaran and as a
member of the ShaMaran Board of Directors replacing Mr. Pradeep Kabra who resigned from these positions with
effect from January 19, 2015. Mr. C. Ashley Heppenstall was also appointed as a member of the Board while Mr Alex
Schneiter and Mr. J. Cameron Bailey have resigned their positions as members of the Board, all with effect from
January 19, 2015. In connection with the changes in senior management and the Board the Company approved on
January 19, 2015 a grant of an aggregate of 26,000,000 incentive stock options, consistent with the terms described
in note 19 and with an exercise price of CAD 0.115, to certain senior officers and directors of the Company.
On February 10, 2015 ShaMaran announced that, in connection with an offering of rights to shareholders of record
on January 12, 2015 to purchase additional common shares in the Company (“Common Shares”) at a subscription
price of CAD 0.10 per share (the “Rights Offering”), it had issued an aggregate of 713,308,912 Common Shares,
including 195,710,409 Common Shares to its major shareholders, Lorito Holdings SARL, Zebra Holdings and
Investments SARL and Lundin Petroleum BV (collectively the "Standby Purchasers") on exercise of their respective
rights, resulting in gross proceeds to the Company of CAD 71.3 million ($57.4 million). Under the terms of the
standby purchase agreement (the "Standby Purchase Agreement") between the Company and the Standby
Purchasers, the Standby Purchasers agreed to subscribe for a total of 40,906,078 additional Common Shares,
representing all Common Shares not otherwise subscribed for by rights holders, at a price of CAD 0.10 per share
(the "Standby Purchase"). The Standby Purchase was concluded on February 17, 2015 and resulted in additional
gross proceeds to the Company of CAD 4.1 million ($3.3 million). In addition on February 17, 2015 the Company
issued a further aggregate of 14,569,684 Common Shares to the Standby Purchasers in respect of the guarantee fee,
as defined under the standby purchase agreement. The proceeds from the Rights Offering will be used to fund
costs related to the financing, development and operations of the Atrush Block in Kurdistan and for general and
administrative purposes.
63
SHAMARAN PETROLEUM CORP.
DIRECTORS
CORPORATE INFORMATION
Keith C. Hill
Director, Chairman
Ontario, Canada
Chris Bruijnzeels
Director, President & Chief Executive Officer
Geneva, Switzerland
CORPORATE OFFICE
885 West Georgia Street
Suite 2000
Vancouver, British Columbia V6C 3E8
Telephone: +1‐604‐689‐7842
Facsimile: +1‐604‐689‐4250
Website: www.shamaranpetroleum.com
Brian D. Edgar
Director
Vancouver, British Columbia
Gary S. Guidry
Director
Calgary, Alberta
C. Ashley Heppenstall
Director
Cologny, Switzerland
OPERATIONS OFFICE
5 Chemin de la Pallanterie
1222 Vésenaz
Switzerland
Telephone: +41‐22‐560‐8600
Facsimile: +41‐22‐560‐8601
BANKER
HSBC Bank Canada
Vancouver, British Columbia
INDEPENDENT AUDITORS
PricewaterhouseCoopers AG
Basel, Switzerland
TRANSFER AGENT
OFFICERS
Computershare Trust Company of Canada
Brenden Johnstone
Chief Financial Officer
Geneva, Switzerland
Kevin E. Hisko
Corporate Secretary
Vancouver, British Columbia
Vancouver, British Columbia
STOCK EXCHANGE LISTINGS
TSX Venture Exchange and
NASDAQ OMX First North Exchange
Trading Symbol: SNM
INVESTOR RELATIONS
Sophia Shane
Vancouver, British Columbia
64