Report and Financial Statements
2017
STERLING ENERGY PLC
Report and
Financial Statements
Year ended 31 December 2017
Sterling Energy plc (‘Sterling’ or the
‘Company’), together with its subsidiary
undertakings (the ‘Group’), is an upstream oil
and gas company listed on the AIM market
of the London Stock Exchange.
The Company is an experienced operator
of international exploration and production
licences, with a primary geographic focus
on Africa and the Middle East. The Group
has a high potential exploration asset
in Somaliland and an active
strategy to deliver shareholder
value through disciplined,
material exploration and
production projects;
leveraging the Company’s
experience, with an
emphasis on securing
near term cash flow
generative opportunities.
Mauritania
2
Somaliland
Sterling Energy plc Report and Financial Statements 2017 CONTENTS
OVERVIEW
2017 Summary
Chairman’s Statement
Chief Executive’s Review
STRATEGIC REPORT
Operations Review
Schedule of Interests
Reserves Summary
Financial Review
Business Risk
CORPORATE GOVERNANCE
Board of Directors
Audit Committee Report
Nominations Committee
Remuneration Committee Report
Communications with Shareholders
Internal Controls
Conflicts of Interest
Extractive Industries Transparency Initiative (‘EITI’)
Directors’ Report
Statement of Directors’ Responsibilities
GROUP ACCOUNTS
Independent Auditors’ Report
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes In Equity
Consolidated Statement of Cash Flows
Company Statement of Financial Position
Company Statement of Changes In Equity
Company Statement of Cash Flows
Notes to the Financial Statements
Definitions and Glossary of Terms
Professional Advisers
4
5
6
10
12
14
15
19
26
29
31
32
41
42
43
44
45
47
50
54
55
56
57
58
59
60
61
88
91
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Sterling Energy plc Report and Financial Statements 2017 OVERVIEW
2017
Summary
OPERATIONS
FINANCIAL
April 2017: Odewayne block,
Somaliland; reduction in exposure to
deferred consideration payments.
September 2017: Odewayne block,
Somaliland; 1,000km 2D seismic
campaign completed.
November 2017: C-10 block, Mauritania;
exit (13.5% working interest).
Production, net to the Company from
the Chinguetti field (including royalty
barrels), averaged 199 barrels of oil per
day (‘bopd’) (2016: 279 bopd).
CORPORATE
January 2017: Refreshed Board and
non-executive Directors appointed.
June 2017: Completion of capital
restructuring.
October 2017: Relocation to new office
(forecasted ca. 60% cost savings).
December 2017: CEO resignation. Eskil
Jersing to remain in the post to effect
an orderly handover. Departure date in
Q2 2018.
Adjusted Earnings before Interest,
Tax, Depreciation, Amortisation and
Exploration Expense (‘EBITDAX’) loss
for the Group of $5.9 million (2016:
$3.1 million loss).
Cash resources net to the Group at 31
December 2017 of $81.4 million (2016:
$88.1 million).
The Group remains debt free and fully
funded for all commitments.
Ongoing focus on capital discipline,
cash G&A expenses reduced by ca. 15%
to $3.9 million and is forecast to be ca.
25% lower in 2018.
Continued merger and acquisition
(‘M&A’) mandate for transformational
growth (asset and corporate options).
POST YEAR END
January 2018: Chinguetti, Mauritania;
cessation of production (‘CoP’) and
negotiated termination of the Funding
Agreement.
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Sterling Energy plc Report and Financial Statements 2017
Chairman’s
Statement
Though 2017 was a year of partial oil price recovery,
the question remains if this is a sign of reduced
FINANCIAL
In 2017, business costs were further reduced by
volatility and that the global oil market is finally
continued
rationalisation of our structure and
finding its supply-demand balance.
overheads. The Group had cash resources of $81.4
Since 2014, a prolonged period of volatility has led to
million at the end of 2017 (prior to the Chinguetti
Funding Agreement termination settlement) and we
junior natural resource companies facing operational
remain free of debt with our work programme for 2018
challenges and restricting their access to capital
fully funded.
markets. We successfully navigated through this
period without significant losses in our core values,
and given the markets were still unsupportive, we
BOARD AND CHANGES
In December 2017, Eskil Jersing elected to accept
managed to reduce our exposure to mid-term
another appointment and resigned from the CEO
exploration. In 2017, we implemented our strategy of
role. The Board is currently reviewing options to
exiting from the Mauritanian C-10 block at low cost
further optimise the governance of the Company and
and also reduced our position in the Somaliland
will make appointments in due course. We would
Odewayne block.
like to thank Eskil for his excellent contribution and
achievements during his CEO tenure.
Oil production from the Chinguetti field ceased at
the end of the year. Following a negotiated Deed of
Termination settlement in January 2018, we are no
OUTLOOK FOR 2018 AND BEYOND
The outlook for 2018 to 2019
is positive. The
longer exposed to this asset and the potential for
Company is now in a good shape to pursue real time
escalating costs and project scope creep.
opportunities in our regions of focus and with strong
expertise. Should market conditions worsen, we will
Following a period of instability in the oil market, many
preserve our capabilities and strengths, accordingly.
large portfolios of assets have been available for
reorganisation and divestment. Numerous technically
I would like to thank all our stakeholders for their
sound and material upstream opportunities have
continuing support and all of our management and
come to the market and were pursued by our team
staff for their diligent efforts during 2017.
during 2017. No deals were concluded in the year,
although due diligence is ongoing on a number of
opportunities.
Michael Kroupeev
Chairman
21 March 2018
Sterling Energy plc Report and Financial Statements 2017
5
OVERVIEW
Chief Executive’s
Review
MARKET LANDSCAPE
The previous year has seen oil prices move within
the overarching focus for management has been
on continued cash preservation and reduction of
a relatively narrow band between $52 and $60.
outstanding asset liability exposure, in particular with
This period of price stability has allowed for better
respect to the Chinguetti oil field abandonment and
Upstream sector planning and more efficient project
execution. This is in part due to OPEC and non
decommissioning (‘A&D’) project.
OPEC members, led by Russia, agreeing to continue
Through early 2018 we have delivered on those
production cuts through into 2018.
initiatives, bar executing on a material M&A transaction.
As a result, Sterling retains a unique position in the
The Oil and Gas industry continues on its slow
AIM listed E&P sector, with a strong cash platform of
recovery which though prolonged, will likely persist
$48.8 million (post Chinguetti Deed of Termination
in constraining oil prices. This assumes ongoing
as at 31 January 2018), lower G&A cost base and no
compliance with OPEC led global production targets
liabilities, from which to leverage material growth.
and recognises uncertainty around the likelihood
of US shale oil production growth in the second
half of 2018. As a result, market conditions remain
OPERATIONS
The Group has had a Funding and Royalty Agreement
somewhat strained as Companies seek greater
based economic interest in the offshore Chinguetti oil
returns on upstream
investments amid capital
field in Mauritania. The joint venture (‘JV’) participants,
markets being highly selective in their funding
led by the Operator, Petronas, worked towards CoP
appetite for the E&P sector.
at the end of 2017, through a safe, compliant and cost
effective A&D project plan.
SHAREHOLDER ALIGNMENT AND STRATEGY
The Board, led by the major shareholder, Michael
Given
the corporate strategy and significant
Kroupeev, has continued on the 2016 strategic
exposure to potentially major A&D operational risk
mandate of repositioning the Company to execute
and cost overruns, Sterling agreed to terminate the
on M&A led material cash flow generating asset(s) or
Funding Agreement on Chinguetti in January 2018 for
Corporate solutions to the shareholders. In parallel,
$32.6 million. This was the culmination of almost
6
Sterling Energy plc Report and Financial Statements 2017
two years of negotiations and persistence. The
create distributable reserves, allow for the flexibility
crystallisation of this liability exposure has cleaned up
to make returns of capital to the shareholders and
our balance sheet and allows for significantly improved
give the Company the option to issue new capital,
optionality on the Company’s strategic mandate.
should it be desirable to do so.
On the C-10 block in Mauritania; in November 2017, we
In October 2017, we moved to a smaller and more
undertook a disciplined exit given the low likelihood
cost effective office space in Holborn and will see
of commercial hub-class risked potential. This
further G&A cost savings materialise into 2018.
was based on an extensive subsurface evaluation
undertaken over the last two years. Subsequently, a
Finally, I would like to truly thank the team at Sterling.
penalty payment of $1.1 million for not fulfilling the
They have my utmost respect and gratitude for their
minimum work obligations has been made to the
dedication and professionalism these last three years.
Government as of March 2018.
It has been an honour to serve as your CEO leading
the changed mandate. It is fitting that Sterling should
With regards the Odewayne block in Somaliland; in
embark on its next phase under new leadership,
April 2017, we reduced our overall cash exposure,
with a fresh and clean platform for growth. I wish
by amending the farm-out agreement whilst still
my successor all the very best in steering the future
maintaining a material 34% working interest in the
progress of the Company to create shareholder value.
asset. Subsequently, we successfully and safely
completed a ca. 1,000km regional 2D seismic
acquisition program in Q3 2017 and will be trial line
processing the data in house in Q1 2018.
CORPORATE
In June 2017 we completed a capital reduction
reducing the nominal share value from 40 pence to
10 pence in order to eliminate our retained deficit,
Eskil Jersing
Chief Executive Officer
21 March 2018
Sterling Energy plc Report and Financial Statements 2017
7
STERLING ENERGY PLC
Strategic Report
Year ended 31 December 2017
STRATEGIC REPORT
Operations Review
Since late 2015, the Company has continued with a strategic mandate of exiting non-core exploration
portfolio assets and reducing outstanding liabilities, to provide a simpler and rejuvenated platform for
M&A led growth. The Group’s remaining African exploration focused Odewayne block provides fully
carried exposure to a frontier basin that has the potential to deliver material hydrocarbon reserves.
SOMALILAND
Somaliland offers one of the last opportunities to
target an undrilled onshore Mesozoic rift basin in
Africa. The Odewayne block, with access to Berbera
deepwater port less than a 100km to the north,
is ideally located to explore this frontier basin.
A 2D geophysical survey acquired in 2017, along
with potential field data and legacy geological
field studies help corroborate the presence of
a sedimentary basin with further evidence for a
working hydrocarbon system.
Odewayne (W.I. 34%) Exploration block
Overview
This large and unexplored frontier acreage position
comprises an area of 22,840km2, the equivalent of
ca. 100 UK North Sea blocks. Exploration activity prior
to the 2017 regional 2D seismic acquisition program
has been limited to the acquisition of airborne gravity
and magnetic data and surface fieldwork studies,
with no wells drilled on block.
The Odewayne production sharing agreement (‘PSA’)
was awarded in 2005. It is in the Third Period, with a
minimum work obligation of 500km of 2D seismic. The
Third Period has been extended to 2 November 2019,
through the 6th deed of amendment. The minimum
work obligation during the optional Fourth Period of
the PSA (also extended by 2 years to May 2020) is for
1,000km of 2D seismic and one exploration well.
The Company’s wholly owned subsidiary, Sterling
Energy (East Africa) Limited (‘SE(EA)L’), holds a
34% working interest in the PSA. SE(EA)L originally
acquired a 10% position from Petrosoma Limited
(‘Petrosoma’) in November 2013 and an additional
30% from Jacka Resources Somaliland Limited
(‘Jacka’) in two transactions during 2014.
In April 2017, the Company agreed to revised
farm-out terms to reduce the staged contingent
consideration payments due to Petrosoma and
reduce SE(EA)L’s interest in the Odewayne asset by
6%. The farm-out agreement was amended such
that the parties cancelled the $8.0 million contingent
consideration in return for: (i) a payment by SE(EA)L
to Petrosoma of $3.5 million; and (ii) a transfer from
SE(EA)L to Petrosoma of a 6% interest in the PSA. Post
Government of Somaliland approval, SE(EA)L holds
a 34% interest in the Odewayne Block, fully carried
by Genel Energy Somaliland Limited (‘Genel Energy’)
for its share of the costs of all exploration activities
during the Third and Fourth Periods of the PSA.
In June 2017, the Somali Government (Ministry of
Energy and Minerals) contracted BGP (Geophysical
contractor) to undertake a 1,000km (full fold, 1,076km
surface) 10km by 10km, 2D seismic campaign, to both
satisfy and exceed the 500km minimum work program
for the current Third Period. This acquisition program
was undertaken over the basinal areas identified from
the potential fields (gravity and magnetic) legacy
data. The three month program was completed in
late August 2017, safely and on time, with the second
500km recorded at an average of 14.5km per day.
Outlook
As of November 2017, Sterling undertook an
integrated geological review of the basic post stack
processed 2D dataset provided by the Operator
Genel Energy. Following encouraging technical
indications, the Company will undertake a highly
focused and rigorous processing effort, independent
of the Operator. The first phase deliverables will be a
full pre stack time migrated dataset, consisting of 3
lines of ca. 235km. The primary technical objective will
be improving the deeper subsurface image. Should
this be successful, a second phase of processing
will be undertaken on the remaining 765km (13 lines)
of data. This workflow will allow for an informed
technical and commercial perspective on the block
by end Q2 2018.
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Sterling Energy plc Report and Financial Statements 2017
Mauritania
Somaliland
MAURITANIA
The Group has had an economic interest (ca. 9.5%
of cumulative production through the Funding
Agreement and a 6% Royalty Agreement derived
from Premier’s WI) in the Chinguetti oil field through
a Funding Agreement with Société Mauritanienne
Des Hydrocarbures et de Patrimoine Minier
(‘SMHPM’), Mauritania’s national oil company since
2004, and a Royalty Agreement with Premier Oil
(‘Premier’) since 2006.
Since 2016, a persistent and ultimately successful
Board mandate has focused on crystallising the
Company’s A&D liability exposure on Chinguetti.
Additionally, post extensive regional and prospect
level evaluations it was decided to exit the C-10
block in November 2017.
For Sterling, these activities comprised the final
elements of a strategic exit from Mauritania. In
particular, the settlement of A&D costs for a fixed
amount with no exposure to future operational risk
and/or cost overruns allow for certainty for the
business as it plans for 2018 and beyond.
Chinguetti
Overview
Gross production for the Chinguetti oil field during
(2016: 4,549 bopd).
2017 averaged 3,524 bopd
Average production net to the Group, from the
Group’s economic interests during 2017, was 199 bopd
(2016: 279 bopd). Production was in steady decline
throughout the year, reflecting the approaching
31 December 2017 CoP.
As of 26 January 2018, in light of the CoP from the
Chinguetti oil field, the Company, the Government
of Mauritania and SMHPM agreed to terminate the
Funding Agreement (‘Deed of Termination’). The
Deed of Termination provides for a payment (made
on 26 January 2018) by Sterling to the Government
of Mauritania and SMHPM of a fixed sum of
$32.6 million to settle any and all claims under the
Funding Agreement, including Sterling’s obligation
to pay for its share of A&D costs and outstanding
2018 operational expenditures. As a result, Sterling
has no residual exposure to the A&D costs.
A summary of 2017 Chinguetti interests and the
Group reserves summary are provided on pages 12
and 14 of the Strategic Report.
C-10 Exploration block (Relinquished November 2017)
Overview
Block C-10 covers an area of approximately 8,025km²
and lies in water depths of 50 to 2,400m within the
Nouakchott sub-basin, offshore Mauritania, and
wholly surrounds the Chinguetti field. The C-10
production sharing contract (‘PSC’) is held by the
Company’s wholly owned subsidiary Sterling Energy
Mauritania Limited (‘SEML’) (13.5% working interest),
Tullow Oil (76.5% working interest and Operator) and
SMHPM (10% working interest). SMHPM is carried
by SEML and Tullow Oil, pro-rata to their working
interests, during the exploration phases.
The Operator in 2017, on behalf of the JV, undertook
lengthy and ultimately unsuccessful negotiations
with the Government, to secure a one year extension
through committing to a new inboard 3D seismic
survey. Subsequent, SEML determined that whilst the
block was deemed technically prospective, there was
insufficient commercial justification to entering Phase
3 (3 year term), with a minimum work obligation of 2
wells. Accordingly, the PSC second phase exploration
period, with a minimum work obligation of one
exploration well expired on 30 November 2017.
Outlook
Given that the JV did not fulfill the minimum work
obligations, the gross penalty payment owing to the
Mauritanian government is $7.5 million ($1.1 million
net to SEML) and was paid in March 2018.
Sterling Energy plc Report and Financial Statements 2017
11
STRATEGIC REPORT
Schedule of Interests
Year ended 31 December 2017
Location
Africa
Size
(km²)
Licence
Name
Sterling
Working
Interest %
Sterling
Net Revenue
Interest %
Operated/
Non-operated
Mauritania: Offshore
29
PSC B -
Chinguetti Field
n/a
Sliding scale royalty
from 6% WI 1
Non-operated
Economic interest for
approximately 9.5% of
Chinguetti project 2
Somaliland: Onshore
22,840 Odewayne Block 3
34%
Non-operated
1 The Company’s royalty interest derives from Premier’s working interest of 6% in PSC B. The Company’s royalty is up to 6% of Premier’s
working interest.
2 The Company’s interest derives from the Funding Agreement with SMHPM (Based on cumulative production entitlement to cessation of
production 31 December 2017).
3 Carried for the minimum work obligation of current phase and next phase of PSA.
As of 26 January 2018 the Company, the Government of Mauritania and SMHPM agreed to terminate the
Chinguetti Funding Agreement.
The Royalty Agreement ended 31 December 2017 on CoP.
12
Sterling Energy plc Report and Financial Statements 2017
ASSET SUMMARY
Somaliland
Odewayne (WI 34%)
CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
PSA
6 October 2005
6 October 2005
22,840km2
Participants
Genel Energy Somaliland Limited (Operator) 50%
34%
Sterling Energy (East Africa) Limited
16%
Petrosoma Limited
Exploration term
Current Period 3: To 2 November 2018
Period 3 work commitment: 500km 2D seismic acquisition
Period 4 (optional): To 2 May 2020
Period 4 work commitment: 1,000km 2D seismic acquisition and one exploration well
Period 5 (optional): To 2 May 2021
Period 5 work commitment: 500km 2D seismic acquisition and one exploration well
Period 6 (optional): To 2 May 2022
Period 6 work commitment: 500km 2D seismic acquisition and one exploration well
Production term
Twenty five years, renewable for additional ten years
State participation
State may back in for up to a 20% participating interest in any development and production area.
Licence status
The block is in Period 3 of the exploration period. The Group’s costs associated with Period 3 and 4 work programmes
are fully carried by Genel Energy. Amendment in place to extend Period 3 beyond 2 November 2018, thus extending all
subsequent Periods.
Sterling Energy plc Report and Financial Statements 2017
13
STRATEGIC REPORT
Reserves Summary
Year ended 31 December 2017
Volumes of Proven plus
Probable Reserves
At 1 January
Revision – Chinguetti (1-3)
Production
At 31 December
2017
Oil
(000 boe)
2017
Gas
(mcf)
2017
Reserves
(000 boe)
2016
Oil
(000 boe)
2016
Gas
(mcf)
2016
Reserves
(000 boe)
73
-
(73)
-
-
-
-
-
73
-
(73)
-
173
2
(102)
73
-
-
-
-
173
2
(102)
73
1 The reserves stated are for the Company’s net interests in the Chinguetti field only and are based on the Company’s own assessment of
reserves, as at 31 December 2017. The Group’s interest in the Chinguetti field is through its Funding Agreement and Royalty Agreement; The
Company does not have a direct equity participation in the Chinguetti field. The assessment was made in accordance with the definitions as
set out on pages 88 - 90.
2 The Group has not booked contingent resources relating to other Mauritanian discoveries, on the basis that there are no approved
development plans for these discoveries.
3 In accordance with the guidelines of the AIM Market of the London Stock Exchange, Mr Anish Airi, Subsurface Manager of Sterling Energy
plc, who has been involved in the oil industry for over 20 years, is the qualified person that has reviewed the technical information set out
above.
Anish Airi
Subsurface Manager
21 March 2018
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Sterling Energy plc Report and Financial Statements 2017
Financial Review
Year ended 31 December 2017
SELECTED FINANCIAL DATA
Chinguetti production
Revenue
Adjusted EBITDAX 1
Loss after tax
Net cash investment in oil & gas assets
Year-end cash net to the Group
Average realised oil price
Total cash operating costs (produced)
Year-end share price
Share price change
Debt
bopd
$million
$million
$million
$million
$million
$/bbl
$/bbl
Pence
%
$million
2017
2016
199
4.4
(5.9)
(9.0)
3.7
81.4
48.2
87.1
13.8
(8)
-
279
4.8
(3.1)
(8.5)
1.1
88.1
39.8
64.6
15.0
3
–
1 As defined within the definitions and glossary of terms on pages 88 - 90.
REVENUE AND COST OF SALES
2017 Chinguetti production, net to the Group, averaged 199 bopd (including royalty barrels), a decrease of 29%
from the 279 bopd averaged in 2016. The reduced volumes were a result of operational difficulties, relating to
subsea valve integrity in late Q3 where production had reduced by 36% in comparison to Q2; notwithstanding the
expected decline in production for the field, until its CoP on 31 December 2017.
Gross volumes lifted and sold during the year from the Chinguetti oil field were down by 36% to 1.4 million barrels
over three cargo liftings (2016: 2.2 million barrels over four cargo liftings); whilst the reduction in gross volumes
can be partly attributed to the extra lift in 2016, on average cargo volumes were down by 17% in 2017.
The achieved direct operating lifting cost per barrel increased in 2017 by $14.4 to $68.8 (2016: $54.4) due to
reduced lifting volumes. Cost of sales for the Group in 2017 increased by $2.0 million (excluding the 2016 onerous
contract provision) due largely to the reduction in inventory entitlement. Inventories at 31 December 2017 stood
at 6k barrels (2016: 39k barrels).
Sterling Energy plc Report and Financial Statements 2017
15
STRATEGIC REPORT
Financial Review (cont.)
Year ended 31 December 2017
A summary of revenue, cost of sales and lifting volumes are provided below:
Liftings (bbls)1
Revenue ($million)
Revenue / bbl ($)
Direct lifting cost ($million)2
Direct operating lifting cost / bbl ($)2
1 Net Sterling production during the year totalled 72,697 (2016: 101,939)
2 Excluding 2016 onerous contract provision
Loss for Year
The 2017 loss totalled $9.0 million (2016: loss $8.5 million).
Loss for year 2016
Impairment of Ambilobe (2016)
Impairment of C-3 (2016)
Onerous contract provision (2016)
Decrease in revenue
Increase in cost of sales
Impairment of C-10 (2017)
Chinguetti cessation credit (2017)
Increase in net finance income
Loss for year 2017
2017
2016
92,056
121,031
4.4
48.2
(6.3)
(68.8)
4.8
39.8
(6.6)
(54.4)
$ (million)
(8.5)
3.8
3.5
(3.7)
(0.4)
(2.0)
(2.8)
0.9
0.2
(9.0)
During 2017, the Group fully impaired the C-10 block in Mauritania ($2.8 million).
Group cash general and administrative overhead decreased by 15% during the year to $3.9 million (2016:
$4.6 million).
The continued reduction in the Group’s administrative overhead is in keeping with the Board driven mandate for
cash perseveration. In 2017 the Group’s wages and salaries (excluding share-based payments) have reduced by
21% (see Note 8 on page 72). Relocation to a smaller office in October 2017 will yield further savings going into 2018.
16
Sterling Energy plc Report and Financial Statements 2017
A summary of these movements is provided below.
Group administrative overhead (page 54)
Costs capitalised
Costs recharged to JV partners
Pre-licence expenditure
Share based payment expense
Other non-cash expenditure
Group cash G&A expense
2017
$ (million)
2016
$ (million)
(2.4)
(0.1)
-
(1.4)
(1.5)
(0.1)
0.1
(3.9)
(2.0)
(0.8)
(0.1)
(1.8)
(2.7)
0.1
0.0
(4.6)
In 2017, a portion of the Group’s staff costs and associated overheads have been expensed as pre-licence
expenditure ($1.4 million), or capitalised ($66k) where they are directly assigned to capital projects. This totalled
$1.5 million in the year (2016: $2.7 million).
The basic loss per share was $0.04 per share (2016: loss $0.04 per share).
ADJUSTED EBITDAX AND NET LOSS
Group adjusted EBITDAX (as defined within the definitions and glossary of terms on pages 88 - 90) loss totalled
$5.9 million (2016: $3.1 million loss):
Loss after tax (page 54)
Finance costs
Impairment
Pre-licence costs
Chinguetti cessation costs
Share-based payments
Total EBITDAX (Adjusted)
2017
$ (million)
2016
$ (million)
(9.0)
(0.5)
2.8
1.6
(0.9)
(0.1)
(5.9)
(8.5)
(0.3)
7.4
2.0
(3.7)
0.1
(3.1)
Net finance income (interest received less finance expenses) totalled $459k in the year (2016: $290k income).
Interest received increased by ca. 61% during the year to $1.1 million (2016: $683k) as a result of improving deposit
rates and a proactive focus on treasury management.
Sterling Energy plc Report and Financial Statements 2017
17
STRATEGIC REPORT
Financial Review (cont.)
Year ended 31 December 2017
Finance expenses include; a non-cash finance expense of $707k (2016: $149k) relating to the accelerated
unwinding of the Chinguetti decommissioning provision (see Note 9 on page 73 and Note 19 on page 80),
exchange gains of $98k (2016: $231k losses) on GBP cash deposits reported in US dollars and other finance
expenses of $21k (2016: $14k).
No dividend is proposed to be paid for the year ended 31 December 2017 (2016: $nil).
CASH FLOW
Net Group cash outflow generated from operating activities was $4.2 million (2016: $9.9 million outflow), a full
reconciliation of which is provided in the Consolidated Statement of Cash Flows on page 57.
Net cash investments in oil and gas assets totalled $3.7 million (2016: $1.1 million) and are summarised below:
Mauritania
Somaliland
Madagascar
2017
$ (million)
2016
$ (million)
0.2
3.5
-
3.7
1.0
-
0.1
1.1
The investment in Somaliland relates to the April 2017 revised farm-out terms with Petrosoma, which reduced
the staged contingent consideration payments due, as discussed in the Operations review on pages 10 and 11.
STATEMENT OF FINANCIAL POSITION
At year end, cash and cash equivalents totalled $81.4 million (2016: $88.1 million).
At the end of 2017, net assets/total equity stood at $69.3 million (2016: $78.4 million), and non-current assets
totalled $21.1 million (2016: $18.9 million). Net current assets reduced to $48.2 million (2016: $74.0 million) due in
part to the movement in decommissioning provision from non-current to current liabilities.
At the end of 2017 the Group’s exposure to abandonment and decommissioning costs relating to the Chinguetti
oil field totalled $32.5 million, based on settlement discussions with SMHPM (see Note 25 on page 87) being split
between short-term provisions ($28.7 million) and trade payables ($3.8 million).
CAUTIONARY STATEMENT
This financial report contains certain forward-looking statements that are subject to the usual risk factors and
uncertainties associated with the oil and gas exploration and production business. Whilst the Directors believe the
expectation reflected herein to be reasonable in light of the information available up to the time of their approval
of this report, the actual outcome may be materially different owing to factors either beyond the Group’s control
or otherwise within the Group’s control but, for example, owing to a change of plan or strategy. Accordingly, no
reliance may be placed on the forward-looking statements.
18
Sterling Energy plc Report and Financial Statements 2017
Business Risk
PRINCIPAL BUSINESS RISKS
The long-term success of the Group depends on its ability to manage its asset portfolio and to find, acquire,
develop and/or commercially produce new oil and natural gas reserves.
The Directors regularly monitor all risks to the Company using information obtained or developed from external
and internal sources, and will take actions as appropriate to mitigate these. The Group utilises a risk management
system that identifies key business risks and measures to address these risks. The Company proactively
implements such measures considered appropriate on a case-by-case basis. Other significant elements of the
risk management approach include regular Board review of the business, a defined process for preparation,
monitoring and approval of the annual work programme and budget, monthly management reporting, financial
operating procedures, HSSE, securities and anti-bribery management systems.
The relative importance and impact of risks faced by the Group can, and are likely to change with progress in the
Group’s strategy and developments in the external business environment.
The Directors have identified the following principal risks and mitigations in relation to the Group’s future
performance.
Category
Risk
Mitigation
Change
Financial,
Commercial and
Economics
• Low commodity
prices
• Market volatility
• Counterparty
distress
• Continued lower oil & gas commodity
prices and market volatility.
• Difficulty in capital raising for new
• Group maintains a strong balance sheet
and remains fully funded for its existing
commitments.
acquisitions and/or to fund development
activities.
• Counterparty default.
• Cost escalation and budget overruns.
• Licence extension uncertainty.
• Fiscal stability.
• Foreign currency risk.
• Financial control of operated and non-
operated assets.
• Fraud and corruption / increased third
party exposure.
• Continually assess all existing assets
and proposed new acquisitions in
light of future capital requirements
from a disciplined lifecycle investment
perspective.
• Regularly monitor and amend cost
structure, investment strategy and tactics
to include countercyclical investments
and leverage low service costs for
seismic and drilling.
• Regularly review business plans, G&A
expenses, ongoing strategy reviews,
monthly reporting and regular Board
meetings.
• The Group holds the majority of its cash
in US dollars, the predominant currency
used in oil and gas operations.
• Regularly engage with partners to
influence cost-effective use of capital,
operating and decommissioning
expenditures.
• Engagement with shareholders to
inform investment decisions (including
representatives on the Board).
►
Sterling Energy plc Report and Financial Statements 2017
19
STRATEGIC REPORT
Business Risk (cont.)
External
• Country risk
• Climate change
• Legal
compliance
• Brexit
• The Group’s assets and M&A activities
are located in non-OECD countries.
Governments, regulations, and the
security environment may adversely
change, including the use of tax claims,
real or not. The Group’s assets in
Somaliland and Mauritania (to Q1 2018)
have been or are affected by country-
specific situations.
• The regulation of the energy industry to
address climate change is increasingly
international in scope and application.
The Group’s activity focuses on finding
and producing carbon based fuels often
with long investment and production
lifecycles.
• Legal compliance, regulatory or litigation
risk.
• The Group’s headquarters are located in
the UK, which continues to negotiate its
exit from the European Union.
• Regular monitoring of political, regulatory
and HSSE changes. Engaging in
constructive discussions where and
when appropriate and introducing third-
party expertise as required. The Group
has objectives to acquire additional
core assets, to assist in diversifying
jurisdictional risk.
• New investments are considered in
the light of changing environmental
regulations, fiscal volatility and
geopolitical dynamics.
• The Company accords the highest
importance to corporate governance
matters and upholding the highest ethical
standards.
►
• Activities are subject to various different
jurisdictional laws, customs, fiscal and
administrative regulations.
• The Company employs suitably
experienced and qualified staff and,
when required, external advisors to
ensure full compliance. Legal risk
assessment and due diligence (where
appropriate) is undertaken for all
counterparties the Company deals with.
• The Group’s exploration activities are
located outside of the UK and the EU and
should be relatively unaffected by Brexit.
Strategic
• Concentration
of portfolio
• Competition
Operational
• Exploration,
production and
decommission-
ing risk
• Operator and
partner risk
• Group’s remaining asset (Somaliland) is
• The Board has actively mandated
concentrated on early stage frontier and
basin exploration & production within the
African continent.
• Reduction in Industry interest to
promote/carry early stage exploration
assets – making it more difficult to farm-
out the Group’s early stage exploration
assets.
• Competitors have significantly greater
financial and technical resources.
diversifying the current portfolio risk by
acquiring appraisal, development and/or
producing assets, using existing financial
resources of the Group and additional
capital (as required).
• Highly selective in choosing where
and when to deploy its business
development, M&A resources and New
Ventures focus.
• Exploration activities may not result in a
commercial discovery. Producing wells
may lead to a financial loss.
• For some assets, the Group is dependent
on other operators for the performance
of E&P activities, due lack of control.
• Diversify and manage risk across a
portfolio of assets. Apply the Group’s
experience, expertise and appropriate
technology to minimise risk, through the
asset lifecycle.
• The Group carefully considers the
▲
▼
• Counterparty misalignment.
• Operations under-insured.
technical, HSSE and financial capabilities
of operators and potential partners during
any JV farm-out or new opportunity
acquisition.
▲ Increased ▼ Decreased ► Unchanged
20
Sterling Energy plc Report and Financial Statements 2017
OTHER BUSINESS RISKS
In addition to the principal risks above and general business risks, the Group’s business is subject to risks inherent
in oil and gas exploration, development and production activities. A number of potential risks and uncertainties
could have a material impact on the Group’s long-term performance, causing actual results to differ materially from
expected and historical results.
The Group has identified certain risks pertinent to its business including:
Category
Risk
Strategic and Economic
• Inappropriate or poorly conceived corporate strategy and plans
• Failure to deliver on strategy and plans
• Business environment (political, economic, legal, regulatory and social
Operational
Commercial
uncertainties)
• Failure to access new opportunities
• Shareholder concentration
• HSSE incident or non-compliance under local rules and/or laws
• Poor field production (revenue) performance and end of field life decisions
• Licences, permits and/or approvals may be difficult to obtain and sustain
• Delays in conducting exploration work programmes
• Failure to maximise value from existing interests
• Loss of control of key assets
• Dissatisfied stakeholders
• Failure to negotiate optimal contract terms
• Inexact reserve and production determinations
• Complex regulatory compliance
Human Resources and
Management Processes
• Failure to recruit and retain key personnel / human capital deficit and/or
engage in adequate succession planning
• Human error or deliberate negative action(s)
• Bribery and corruption
• Inadequate management processes
• Insufficient timely information available to the management and the Board
Sterling Energy plc Report and Financial Statements 2017
21
STRATEGIC REPORT
Business Risk (cont.)
COMPANY POLICIES
The Directors are mindful of the impact of the Company’s business on its employees and contractors, the
environment and on the wider community. In particular, it notes the following with respect to HSSE, corporate
responsibility, business integrity, community responsibility and employees.
HEALTH, SAFETY, SECURITY AND ENVIRONMENT (‘HSSE’)
It is a priority of the Group that every individual is aware of his/her responsibility towards providing for a safe
and secure working environment. HSSE and social responsibility leadership are considered core competencies
throughout the Group’s organisation. The Group’s HSSE risks are managed in a systematic way by utilising
procedures and appropriate training of staff, with the aim to reduce these risks to as low as is reasonably
practical. The Group ensures that appropriate emergency response systems are in place to reduce and mitigate
the impact and losses of any incident and any residual risks and that it is in compliance with all relevant laws,
regulations and industry standards.
The Group maximises its influence with JV partners to share its HSSE and social responsibility values. Contractors
are required to demonstrate and deliver a credible HSSE and social responsibility programme. In order to achieve
continual improvement, the Group is committed to reviewing its HSSE and social responsibility performance at
least each quarter.
The Group is committed to minimising its impact on the environment in both field operations and within its
offices. All staff share responsibility for monitoring and improving the performance of its environmental policies
with the objective of reducing our impact on the environment on a year-on-year basis. .
CORPORATE RESPONSIBILITY
The Group is committed to conducting its business in a responsible and sustainable way. The Group has corporate,
environmental and social responsibilities to the indigenous communities in the areas in which it operates, to
its partners, to its employees and to its shareholders. In pursuing its business objectives it undertakes not to
compromise its Corporate Social Responsibility with any of these stakeholders.
BUSINESS INTEGRITY
The highest ethical standards are a cornerstone of the Group’s business. The Group is committed to conducting
its business with integrity, honesty and fairness. All business activities are reviewed to ensure they meet these
standards. The Group also seeks to ensure that similar standards are applied by its business partners, contractors
and suppliers. All members of staff are individually accountable for their actions to ensure that they apply and
maintain these standards.
22
Sterling Energy plc Report and Financial Statements 2017
COMMUNITY RESPONSIBILITY
The Company and its subsidiary undertakings are committed to being a good partner in all communities in which
it operates. Engagement and dialogue with local stakeholders is essential in ensuring, that where possible,
projects benefit both the Group and the communities in which the project is located.
EMPLOYEES
The Group is committed to providing a workplace free of discrimination where all employees are afforded equal
opportunities and are rewarded on merit and ability. In the implementation of this policy the Group is committed to
ensuring that all employees are given contracts with clear and fair terms. Staff are offered access to relevant training
and encouraged to join professional bodies to enhance their knowledge, competencies, career development and
opportunities for progression.
The Group is committed to achieving the highest possible standards of conduct, accountability and propriety and
to a culture of openness in which employees can report legitimate concerns without fear of penalty or punishment.
The Group has a whistleblowing policy which empowers employees to be proactive, to report any failure to comply
with legal obligations or the Group’s regulations, dangers to health and safety, financial malpractice, damage to the
environment, criminal offences and actions which are likely to harm the reputation of the Group. The whistleblowing
policy allows employees to make anonymous reports directly to the Senior independent non-executive Director.
The Strategic Report was approved by the Board of Directors on 21 March 2018 and signed on its behalf by:
Eskil Jersing
Chief Executive Officer
Sterling Energy plc Report and Financial Statements 2017
23
STERLING ENERGY PLC
Corporate Governance
Year ended 31 December 2017
CORPORATE GOVERNANCE
Board of Directors
Eskil Jersing, Chief Executive Officer, aged 54
Eskil joined the Company on 23 March 2015. He holds a BSc in Geophysics from University College Cardiff and an
MSc in Petroleum Geology from Imperial College London.
He started his career in the oil and gas industry in 1985 as a Field Seismologist with SSL in Papua New Guinea.
From 1993 to 2009 he worked for Enterprise Oil on numerous Exploration projects (London, Aberdeen, Houston,
and Brazil), and following the takeover, Shell International (Houston); initially as a Senior Geophysicist, moving on
to be the Gulf of Mexico Exploration Strategy and Planning Manager and finally as the Gulf of Mexico Paleogene
Exploration Manager. In 2009, Eskil joined Marathon Oil (Houston) as their Exploration Manager (Conventional
New Ventures) Worldwide and subsequently Apache Corporation (Perth) as Director Worldwide Exploration
and New Ventures Asia Pacific.
Prior to joining Sterling he was Head of New Ventures and Co-Head of Mergers & Acquisitions at Petrobras
Oil & Gas BV (Rotterdam).
Eskil Jersing tendered his resignation on 21 December 2017 and will depart the Company in Q2 2018.
Michael Kroupeev, non-executive Chairman, aged 51
Michael joined Sterling Energy’s Board as a non-executive Director in May 2016 and was appointed as non-
executive Chairman of Sterling Energy in January 2017. He is a member of the Nominations Committee.
Michael has 21 years’ experience working within the exploration and production sector. After attending University
in Russia and the United Kingdom studying Plasma physics and gaining an MBA respectively, he began his UK
career working for Dana Petroleum plc as a Director in 1994. In 1995, Michael founded Waterford. Waterford is an
oil and gas focused vehicle, specialising in the financing of oil, gas and other energy related projects in emerging
markets. He has been directly involved in the capital raising for natural resource projects and in acquiring,
restructuring, developing and divesting such assets. Waterford has a number of substantial shareholdings in oil
and gas companies with operations in Europe, Africa and Australasia.
Leo Koot, Senior Independent non-executive Director, aged 55
Leo was appointed the Senior Independent non-executive Director of Sterling Energy in January 2017. He chairs
the Audit and Remuneration Committees and is a member of the Nominations Committee.
Leo has over 28 years’ experience in the energy sector and an MSc in Petroleum Engineering from Delft University,
the Netherlands. Following a successful start to his career with Shell International, he has been involved in
multiple successful business start-ups of scale including EDP Ltd, TAQA Bratani (UK) Ltd and TAQA Iraq BV.
He was Managing Director of Taqa in the UK from 2008 to 2013, delivering 60,000 bopd and $1.7 billion revenue
in 2013. Subsequently, Leo was President of Taqa Iraq from 2013 to 2015 primarily responsible for the Atrush field
development and Sulaymaniyah power plant in Kurdistan.
Leo is currently the Chief Executive Officer of Columbus Energy Resources PLC, a Managing Partner of MENA
Gulf Investments and a non-executive Director of Tulip Oil.
26
Sterling Energy plc Report and Financial Statements 2017
Ilya Belyaev, non-executive Director, aged 36
Ilya was appointed a non-executive Director of Sterling Energy in January 2017. He is a member of the Audit,
Nominations and Remuneration Committees.
Ilya has acted as investor in private equity and venture capital projects via Supremum Capital where he is currently
Chief Executive Officer, Managing Partner and fund co-founder, and Concentric VC where he is a Venture Partner,
having closed over a dozen transactions in Russia and UK with a focus on finance and real estate sectors.
Prior to moving into private equity and venture capital, Ilya spent over 8 years in investment banking at JPMorgan,
Barclays Capital and VEB Capital in London and Moscow. Ilya graduated from Moscow State University in 2004,
with an MSc in Mathematics.
STATEMENT OF CORPORATE GOVERNANCE
The Company adopts proper standards of corporate governance and following a recent review of Corporate
governance the Board has decided to adopt the principles of best practice as set out in the Corporate Governance
Code for Small and Mid-Sized Quoted Companies 2013 (the ‘QCA Code’), so far as it is appropriate for the size and
nature of the Group and the constitution of the Board.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Board Composition, Operation and Independence
As at March 2018, the Board currently comprises the non-executive Chairman, one executive Director, one Senior
Independent non-executive Director and a non-executive Director. The executive Director has tendered his
resignation and will be leaving the Company in Q2 2018, once a suitable replacement has been appointed. The
non-executive Chairman and non-executive Director are shareholder representatives. All of the Directors bring
independent judgement to bear on issues of strategy, performance, resources, key appointments and standards.
The Board meets regularly throughout the year and all the necessary information is supplied to the Directors on
a timely basis to enable them to discharge their duties effectively.
The Board is responsible to the shareholders for the proper management of the Company. A Statement of
Directors’ Responsibilities in respect of the financial statements is set out on page 47.
The Board has a formal schedule of matters specifically reserved for its decision. These include strategic
planning, business acquisitions or disposals, authorisation of major capital expenditure and material contractual
arrangements, changes to the Group’s capital structure, setting policies for the conduct of business, approval
of budgets, remuneration policy of Directors, senior management and staff, and taking on debt and approval
of financial statements. Other matters are delegated to the Committees of the Board and senior management,
supported by policies for reporting to the Board.
Leo Koot is the Senior Independent non-executive Director. The Senior Independent non-executive Director is
available to all shareholders and staff if they have concerns which, through the normal channels of contact with
the non-executive Chairman and CEO, have not been resolved or for which such contact is inappropriate.
The Group maintains Directors’ and Officers’ liability insurance cover and provides the Directors with indemnity,
the level of which is reviewed annually.
27
Sterling Energy plc Report and Financial Statements 2017
CORPORATE GOVERNANCE
Board of Directors (cont.)
Meetings and Attendance
The following table summarises the number of Board and committee meetings held during the year and the
attendance record of the individual Directors:
Number of meetings in year
Eskil Jersing (resigned 21 December 2017)
Michael Kroupeev
Leo Koot (appointed 20 January 2017)
Ilya Belyaev (appointed 20 January 2017)
Board
Meetings
Audit
Committee1
Remuneration
Committee
Nominations
Committee
13
13
13
13
13
2
-
-
2
2
2
-
-
2
2
0
0
0
0
0
1 In addition to the Audit Committee meeting to discuss the annual audit and full year results, the Committee also met in advance of
announcements of a financial disclosure, including the Interim Results at 30 June and the quarterly IMS.
Induction and Training
New Directors, on their appointment to the Board, are briefed by the Board and management on the activities of
the Group, its key business and financial risks, the Terms of Reference of the Board Committees, the list of Board
reserved matters, and the latest financial information about the Group. The non-executive Chairman ensures
that Directors update their skills, knowledge and familiarity with the Group to fulfil their roles on the Board
and on Board Committees. Ongoing training is available as necessary and includes updates from the Company
Secretary on changes to the AIM Rules, the QCA Code and corporate governance best practice, requirements
under the Companies Act and other regulatory matters. Directors may consult with the Company Secretary at
any time on matters related to their role on the Board. All Directors have access to independent professional
advice at the Company’s expense.
Evaluation of the Board’s Performance
Performance evaluation takes place for individual Directors, the Board and its Committees and includes
assessing the effectiveness of the Board as a whole. Aspects of performance include attendance and active
participation at Board meetings, quality of involvement in Committees, commitment and effectiveness of their
contribution to Board activities (including the AGM and shareholder communications), the adequacy of training
and non-executive Directors’ independence. The process is conducted and reviewed by the Senior Independent
non-executive Director, on behalf of the Nominations Committee; the Company Secretary is advised of its
completion. The performance of the non-executive Chairman is reviewed annually in a meeting of the non-
executive Directors, led by the Senior Independent non-executive Director. This review takes into account the
views of the executive Director.
Retirement and Re-election
The Company’s Articles of Association require that any Director who has been a Director at the preceding
two Annual General Meetings and who was not been appointed or re-appointed by the Company, retire and
stand for re-election. All new Directors appointed since the previous Annual General Meeting need to stand for
election at the following Annual General Meeting.
28
Sterling Energy plc Report and Financial Statements 2017
Audit Committee Report
An important part of the role of the Audit Committee is its responsibility for reviewing the effectiveness of the
Group’s financial reporting, internal control policies, and procedures for the identification, assessment and
reporting of risk. The latter two areas are integral to the Group’s core management processes and the Committee
devotes significant time to their review. Further information on risk management and internal control systems is
provided within the Strategic Report on pages 19 - 23 and also on page 42.
One of the key governance requirements of a group’s financial statements is for the report and accounts to be
on the whole fair, balanced and understandable. The co-ordination and review of the Group-wide input into
the Annual Report and Accounts is a sizeable exercise performed within an exacting time-frame which runs
alongside the formal audit process undertaken by the external Auditors. The process seeks to arrive at a position
where, initially, the Audit Committee and then the Board, is satisfied with the overall fairness, balance and clarity
of the document which is underpinned by the following:
• comprehensive guidance issued to contributors at operational levels;
• a verification process dealing with the factual content of the reports;
• comprehensive reviews undertaken at different levels that aim to ensure consistency and overall balance; and
• comprehensive review by the senior management team.
The Audit Committee has championed efforts to remove unnecessary items from the Report and Financial
Statements by stripping out duplication and sequencing information in a consistent and reasonable manner,
without compromising compliance with UK regulatory and accounting requirements.
An essential part of the integrity of the financial statements lies around the key assumptions and estimates or
judgments to be made. The Committee reviews key judgments prior to publication of the financial statements at
both the end of the financial year and at the end of the six month interim period, as well as considering significant
issues throughout the year. In particular, this includes reviewing any subjective material assumptions within the
Group’s activities to enable an appropriate determination of asset valuation, provisioning and the accounting
treatment thereof. The Committee reviewed and was satisfied that the judgments exercised by management on
material items contained within the Report and Financial Statements are reasonable.
Additionally, the Committee also considered the management’s assessment of going concern with respect to
the Group’s cash position and its commitments for the next 12 months and was satisfied that the Group continues
to be able to fund its liabilities from existing cash reserves which totalled $81.4 million as at 31 December 2017.
The Audit Committee has considered the Group’s internal control and risk management policies and systems,
their effectiveness and the requirements for an internal audit function in the context of the Group’s overall risk
management system. The Committee is satisfied that the Group does not currently require an internal audit
function; however, it will continue to periodically review the situation.
The Committee also considered the Group’s whistleblowing procedures to ensure that its employees are
able to raise concerns, in confidence, about possible wrongdoing in financial reporting and other matters.
Whistleblowing was a standing agenda item at all Board meetings and Audit Committee met during the year
to further consider these matters.
The external audit function plays an important part in assessing the effectiveness of financial reporting and
internal controls, and the effectiveness and quality of audit is of key importance. Our Auditors, BDO LLP, have
been in place since 2010. In line with the audit profession’s own ethical guidance, the current audit engagement
partner is due to rotate off the Company’s account in the year ending 31 December 2020, having served for a
period of five years.
29
Sterling Energy plc Report and Financial Statements 2017 CORPORATE GOVERNANCE
Audit Committee Report (cont.)
The Committee reviews the Auditors’ independence and monitors the nature and level of non-audit fees payable
to them on an annual basis. The Committee believes that certain work of a non-audit nature is best undertaken
by the external Auditors, and believes that it is not appropriate to limit the level of such work by reference to a
set percentage of the audit fee, as this does not take into account important judgments that need to be made
concerning the nature of work undertaken to help safeguard the Auditors’ independence. Details of fees payable
to the Auditors are set out in Note 5 on page 71.
The Committee notes that it is considered best practice for companies to put the external audit contract out
to tender at least every ten years. Having considered the Financial Reporting Council’s (‘FRC’s’) guidance on
aligning the timing of such re-tenders with the audit engagement partner rotation cycle, the Committee’s
current intentions are that it will initiate a re-tendering process prior to 2020. This policy will be kept under review
and the Committee will use its regular reviews of Auditor effectiveness to assess whether an earlier date for
such a re-tender would be desirable. Such regular reviews are used to assess the effectiveness of the external
audit process and the Auditors’ performance, with the Committee undertaking an internal assessment of the
audit effectiveness and performance which is mapped against audit appointment criteria. The Committee has
recommended to the Board that shareholders support the re-appointment of BDO LLP at the 2018 AGM.
Leo Koot
Chairman of the Audit Committee
21 March 2018
MEMBERS
This Committee currently comprises:
• Leo Koot (Chairman)
• Ilya Belyaev
SUMMARY OF RESPONSIBILITIES
• reviewing the effectiveness of the Group’s financial reporting, internal control policies and procedures for the
identification, assessment and reporting of risk;
• monitoring the integrity of the Group’s financial statements, including a review of the management report
issued by the executive management to the Board each month;
• monitoring the effectiveness of the internal control environment;
• making recommendations to the Board on the appointment of the Auditors;
• making a recommendation to the Board on Auditors’ fees;
• agreeing the scope of the Auditors’ annual audit programme and reviewing the output;
• ensuring the independence of the Auditors is maintained;
• assessing the effectiveness of the audit process; and
• developing and implementing policy on the engagement of the Auditors to supply non-audit services.
The Auditors have unrestricted access to the Chairman of the Audit Committee. Audit Committee meetings
are attended by the Auditor where and when appropriate and, by invitation, the other Directors and senior
management.
30
Sterling Energy plc Report and Financial Statements 2017 Nominations Committee
There were no separate Nominations Committee meetings held, as Nominations Committee matters were
handled by either the non-executive Directors prior to or by the Directors during Board Meetings. These
discussions addressed the following topics:
• appointment of non-executive Chairman;
• appointment of non-executive Directors;
• developed a suitable strategy to replace the senior executive following the resignation of Eskil Jersing on 21
December 2017; and
• review of skills/experience on the board.
The Nominations Committee considers the composition of the Board and makes recommendations on the
appointment of new Directors and those candidates presenting themselves for re-election.
The Chairman of the Nominations Committee is responsible for the annual performance evaluation of Directors.
Michael Kroupeev
Chairman of the Nominations Committee
21 March 2018
MEMBERS
This Committee currently comprises:
• Michael Kroupeev (Chairman)
• Eskil Jersing
• Leo Koot
• Ilya Belyaev
31
Sterling Energy plc Report and Financial Statements 2017 CORPORATE GOVERNANCE
Remuneration Committee Report
The Committee advised on the following matters:
• the 2017 review of achievement of corporate objectives/key performance indicators (‘KPIs’) and recommended
the employees be rewarded for the Chinguetti exit and Odewayne reduction of financial commitments;
• the 2017 non-executive Directors remuneration structure;
• the organisational structure and remuneration philosophy to ensure adequate capability requirements for the
Board approved strategic mandate;
• change of control provisions;
• a capital restructuring of the Company to allow an LTIP program to be introduced for its staff and Directors
when considered appropriate; and
• proposed basic salary uplift for 2018 to reflect general inflation and merit awards for staff and executive
management.
Going into 2018, the committee is satisfied with the management team delivering on the liability and capital
commitment reductions in both the Chinguetti and Odewayne assets. With regards the continued M&A mandate
for transformational growth origination, due diligence and subsequent delivery to the Group; this continues
to be challenging in the current market. Despite being unsuccessful in executing on any specific project, the
Committee is satisfied with the quality of the technical due diligence and economic analyses undertaken in 2017.
The Committee, when reviewing base salaries for staff and the executive Director, consider matters of retention,
motivation, the economic climate (CPI/RPI), the challenges facing the business and appropriate industry
benchmarks of remuneration in peer companies. The annual base salary levels are intended to provide the core
reward for the role at a sufficient level to help recruit and retain employees as well as reflecting the role and
experience of the individual. The annual base salary level for the executive Director was as follows:
Director
Eskil Jersing
Alastair Beardsall
2017 salary
2016 salary
% change
£277,800
£277,800
n/a
£100,000
0%
n/a
The non-executive fees are determined by the Board with no Director voting on his own remuneration. For 2017
the fees for each non-executive individual are provided on page 36.
The rules of the Company’s Staff Bonus Scheme permit the award of an annual bonus to executive Directors
where:
• the total annual bonus is capped at a maximum of 100% of the base salary; it is intended to incentivise the
execution of the business strategy. It rewards the achievement of annual financial and strategic business
targets, KPIs and delivery of personal objectives. These targets are renewed annually and relate to the Business
as a whole;
• up to 50% may be awarded for achieving certain corporate objectives, for 2017 these objectives included M&A
execution and certain asset/liability exposure targets; and
• up to 50% may be awarded for exceptional personal performance; exceptional is performance above and
beyond that expected under the individual’s job description. This element includes a subjective assessment of
performance as opposed to operating on a sliding scale.
32
Sterling Energy plc Report and Financial Statements 2017 The Committee awarded the following bonus to the executive Director during the year:
Director
Eskil Jersing
Alastair Beardsall
2017 bonus
2016 bonus
% change
£50,249
£13,890
n/a
£0
262%
n/a
Amounts in 2017 for Eskil Jersing include a Chinguetti termination bonus of £35k, awarded and accrued at year
end, which remains unpaid as at 21 March 2018.
Annual bonuses are also granted to eligible UK staff under the same rules; the maximum percentage that can
be awarded reflects the individual’s skills and experience. Bonuses are not awarded to non-executive Directors.
The Committee awarded no options under the All Staff LTIP or HMRC Approved schemes during the year.
Under the vesting criteria of the All Staff LTIP, options granted will only vest if the Company Share Price meets the
criteria set out in Note 23 on pages 85 and 86. Under these criteria, if the Company Share Price underperforms
the FTSE 350 Index (‘Index’), by more than 10% then no options will vest. For 100% of the options to vest the
Company Share Price must outperform the Index by more than 50%. No LTIPs vested in the year.
The Company also utilises an HMRC approved Company Share Option Plan (‘CSOP’) that allows both the
Company and the employee to benefit from some tax savings offered on the exercise of qualifying options. The
specific details of the scheme can again be found in Note 23. Where appropriate, Directors, senior management
and other employees have been issued options under the HMRC Sub-Plan in preference to the non-approved
All Staff LTIP; the sum of the awards to all individuals under the HMRC Sub-Plan and All Staff LTIP is equal to the
number that would have been issued under the All Staff LTIP if the HMRC Sub-Plan had not been approved and
implemented.
The intent of the LTIP scheme is to incentivise the achievement of business strategy over the longer term. The
Committee continues to assess whether or not the All Staff LTIP and HMRC approved CSOP schemes retain
the ability to motivate, incentivise and retain the calibre of staff and management required to promote future
success for the Group.
Managing leadership transition and the selective disciplined pursuit of new business opportunities, are the main
performance criteria on which the Company’s executive team and employees will be judged in 2018. When a
suitable replacement for Eskil Jersing has been secured, the Board and the executive team will further shape
the Company’s detailed growth plans. The committee will then align the bonus program with the deliverables.
I believe Sterling Energy to have a great future and I am committed to help the Company navigate the leadership
changes and the present exciting industry environment. I will continue to maintain an open and constructive
dialogue with all stakeholders in remuneration matters.
Leo Koot
Chairman of the Remuneration Committee
21 March 2018
33
Sterling Energy plc Report and Financial Statements 2017
CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
MEMBERS
This Committee currently comprises:
• Leo Koot (Chairman)
• Ilya Belyaev
SUMMARY OF RESPONSIBILITIES
• agreeing a policy for the remuneration of the Chairman, executive Directors and other senior executives;
• within the agreed policy, determining individual remuneration packages for the Chairman, executive Directors
and senior employees;
• agreeing the policy on terms and conditions to be included in service agreements for the Chairman, executive
Directors, and other senior executives, including termination payments and compensation commitments,
where applicable; and
• the approval of any employee incentive schemes and the performance conditions to be used for such schemes
including share performance targets.
OPERATION OF THE COMMITTEE
The Remuneration Committee makes recommendations to the Board, within its agreed terms of reference, on the
structure and overall remuneration package for executive Directors and reviews the remuneration for other senior
employees. The Committee consists entirely of non-executive Directors and, where appropriate, will invite other
individuals such as Chief Executive, HR Manager and external advisers to attend meetings to provide suitable
context for its discussions. Only members of the Committee participate in discussions and reach conclusions on
matters with which the Committee is responsible. No member or attendee is authorised to participate in matters
relating to their own remuneration. Non-executive Directors’ fees are considered and agreed separately by the
Board as a whole. The Chairman and non-executive Directors are not entitled to participate in the Company’s
executive remuneration programmes or pension arrangements. The Committee has not directly engaged the
services of any remuneration consultants during the year.
REMUNERATION STRATEGY
The Company remuneration strategy is under review and the intent is to provide a remuneration package that:
• helps to attract, retain and motivate;
• is aligned to shareholders’ interests;
• is competitive within the appropriate market benchmarked data;
• encourages and supports a performance culture aligned to the achievement of the Company’s strategic
objectives; and
• is fair and transparent.
REMUNERATION POLICY
The Company’s policy on Directors’ remuneration is that the overall remuneration package should be sufficiently
competitive to attract, retain and motivate high quality executives capable of achieving the Group’s objectives
and thereby enhancing shareholder value. The package consists of salary, performance related bonus, pension
provision and other benefits such as private medical cover and life assurance. Share options have not been
awarded under the All Staff LTIP since 2014. The balance between these components is targeted at base salary
levels around the middle of the range for peer companies with material additional remuneration linked to
performance and results that add materially to shareholder value.
The Company acknowledges the benefit of the executive Directors accepting appointments as non-executive
Directors of other companies; however, if they accept more than two such appointments, they are required to
deduct such fees for those appointments from their Company executive remuneration.
34
Sterling Energy plc Report and Financial Statements 2017 Details of individual components of executive remuneration are:
Elements of package
Purpose and link to strategy
How element is reviewed
Base salary and fees
To recognise market value of the
role, reflecting the individual’s
skills, experience, authorities and
responsibilities, to ensure the
business can attract and retain
the appropriate Directors, both
executive and non-executive.
Reviewed annually. The Committee uses comparator
data where possible, collected from published accounts
and industry surveys of peer companies to determine
the base salary for each of the executive Directors. No
executive remuneration consultants were used during
the year. The Board uses peer group data to determine
the level of fees for the non-executive Directors.
Performance related
bonuses
To incentivise and reward, on an
annual basis, the performance of
individuals and the Group on both
financial and non-financial metrics.
All Staff LTIP, HMRC
Approved schemes
To reward delivery of sustained
long-term total shareholder returns
(‘TSR’) performance aligned to the
interests of shareholders.
Pension provision
Other benefits
To provide competitive retirement
benefits commensurate with
schemes offered by peer
companies.
To provide competitive cost-
effective benefits through
leveraging the Group’s size and
scale.
Objectives/KPIs are set, prior to the year under
review, to align near-term goals with the longer term
sustainable future of the Group. At the end of each year
the Committee considers if the KPIs have been achieved
in addition to individual performance and contribution to
the Group. The maximum level of performance related
bonus for executive Directors is capped at 100% of
annual salary; non-executive Directors do not participate
in the bonus scheme.
The All Staff LTIP scheme options are equity settled
and have a vesting period of three years. If options
remain unexercised after a period of five years from
the date of grant, the options expire. Options are
forfeited if the employee or Director leaves the Group
before the options vest or are exercised, however,
the Committee may exercise discretionary powers in
certain circumstances. All Staff LTIPs are subject to
the performance conditions set out in Note 23. The
maximum value to which options may be granted in
any one year is capped, the cap is based upon the
individual’s role and responsibilities, for the executive
Directors the cap is 100% of annual base salary.
The Group operates a number of defined contribution
pension schemes pursuant to which it contributes 10%
of pensionable salary per eligible member. Scheme
membership and contribution is linked to the member’s
base salary (see above).
The Group subscribes to a number of benefits for
employees and Directors which include life assurance,
income protection; subsidised fitness centre
membership and private medical insurance, some of
these benefits are linked to base salary.
The Company operates no defined benefit schemes and no material changes to the benefits have been made
during the year.
35
Sterling Energy plc Report and Financial Statements 2017 CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
The principles and criteria used in the remuneration of executive personnel do not differ materially from those
listed above bar the award of LTIPs. The Committee may incentivise the engagement of new employees by way
of uplift to the LTIPs awarded in the first year of employment. No upper limit to the size of the uplift to the LTIP
award has been set as the Committee will consider sign-on awards on a case-by-case basis. No cash settled
sign-on payments are made.
No Director currently has a notice period greater than 6 months and their service contracts contain no provision
for pre-determined compensation on termination, which exceeds 6 months salary and benefits in kind.
Termination payments made to Directors on loss of office that are not provided for within their service contracts
are only made if the Committee considers them appropriate, has recommended them to the Board and the
Board has granted their approval.
Following the remuneration policy set out above the Remuneration Committee has determined the following
packages for 2018:
Eskil Jersing, Chief Executive Officer, will receive a base salary, effective 1 January 2018, of £277,800 a 10% non-
contributory pension contribution paid directly to Eskil Jersing and other benefits as set out above.
For Eskil Jersing any pro rata award under the performance related bonus scheme will be based on achievement
of certain corporate KPIs and individual performance, the principles of the bonus scheme are set out on page
35. The Company considers the specifics of the KPIs to be commercially sensitive as they reflect the Company’s
commercial strategy; in general the KPIs are focused on HSSE, M&A led growth initiatives and managing the
Group’s financial exposure to its existing assets.
Following the remuneration policy set out above the Directors have determined the 2018 fees for the non-
executive Directors to be set at £102,800 for Michael Kroupeev (non-executive Chairman from 19 January 2017),
£51,400 for Leo Koot and £37,008 for Ilya Belyaev.
Service Contracts
Directors’ service contracts are reviewed annually at the end of each calendar year with any changes taking
effect from 1 January of the following year. The 2017 salary review was implemented on 1 January 2018 and is
incorporated within the numbers below:
Director
Commencement of
appointment
Date of current
contract
Base annual
salary
Notice
period
Eskil Jersing
23 March 2015
21 September 2015
£277,800
6 months
Non-executive Directors do not have service contracts, but instead each has a letter of appointment setting out
the terms and conditions of their appointment, current details of which are as follows:
Director
Michael Kroupeev
Leo Koot
Ilya Belyaev
36
Commencement of
appointment
Date of current
contract
Base fees
per annum
09 May 2016
09 May 2016
£102,800
19 January 2017
19 January 2017
19 January 2017
19 January 2017
£51,400
£37,008
Sterling Energy plc Report and Financial Statements 2017 Save for the fees outlined above, the non-executive Directors are not entitled to any other benefits or arrangements.
Except as disclosed above, there are no service contracts or letters of appointment in force between any Director
with the Company or the Group as at the date of this document. In addition, Waterford, founded by Michael
Kroupeev, entered into to a relationship agreement with the Company in May 2016, given that Waterford and
its associates beneficially own ordinary shares in the Company, equivalent to approximately 29.5% of the entire
issued share capital of the Company. This was undertaken on terms and conditions that are customary for a
substantial shareholding of this nature (the ‘Relationship Agreement’).
Directors and their interests (audited)
The Directors, who served during the year and subsequently, together with their beneficial interests in the issued
share capital of the Company, were as follows:
Ordinary shares
of 10p each
Eskil Jersing 1 (resigned 21 December 2017)
21 March
2018
-
31 December
2017
31 December
2016
-
-
Michael Kroupeev 2
64,815,517
64,815,517
64,815,517
Leo Koot 3 (appointed 19 January 2017)
Ilya Belyaev 4 (appointed 19 January 2017)
1 Executive Director.
-
-
-
-
n/a
n/a
2 Non-executive Chairman, member of the Nominations Committees. Founder of Waterford Finance and Investment Limited (‘Waterford’).
Waterford and its Associates beneficially own 64,815,517 Ordinary Shares in the Company, equivalent to approximately 29.5% of the
entire issued share capital.
3 Non-executive Director, member of the Audit, Remuneration and Nominations Committees.
4 Non-executive Director, member of the Audit, Remuneration and Nominations Committees. Nominee of Mistyvale Limited (‘Mistyvale’).
Mistyvale beneficially own 34,467,790 Ordinary Shares in the Company, equivalent to approximately 15.7% of the entire issued share
capital.
Beneficial shareholdings include the shareholdings of a Director’s spouse and infant children.
The Company has granted an indemnity to its Directors (including subsidiary undertakings) under which the
Company will, to the maximum extent possible, indemnify them against all costs, charges, losses and liabilities
incurred by them in the performance of their duties.
The Company provides limited Directors’ and Officers’ liability insurance, at a cost of approximately $23k in 2017
(2016: $24k).
37
Sterling Energy plc Report and Financial Statements 2017
CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
Aggregate Remuneration
The single figure of total remuneration paid to Directors in 2017 and 2016 is summarised below (audited):
2017 Remuneration
Fees and
basic salary
Bonus
Defined
contribution
pension
Executive Directors:
Eskil Jersing 1/2
(resigned 21 December 2017)
Non-executive Directors:
Michael Kroupeev
Leo Koot
(appointed 19 January 2017)
Ilya Belyaev
(appointed 19 January 2017)
Aggregate remuneration 2017 (£)
Aggregate remuneration 2017 (US$)
2016 Remuneration
£
£
305,580
15,249
100,000
47,564
34,246
487,390
628,165
Fees and
basic salary
-
-
-
15,249
19,653
Bonus
Benefits
in kind
Single figure
remuneration
Total 2017
£
£
9,922
330,751
-
-
-
100,000
47,564
34,246
9,922
512,561
12,788
660,606
£
-
-
-
-
-
-
Defined
contribution
pension
Benefits
in kind
Single figure
remuneration
Total 2016
Executive Directors:
Eskil Jersing 3
Alastair Beardsall 4
(resigned 11 May 2016)
Non-executive Directors:
Michael Kroupeev
(appointed 11 May 2016)
Keith Henry
(resigned 13 October 2016)
Nicholas Clayton
(resigned 13 October 2016)
Malcolm Pattinson
(resigned 13 October 2016)
£
£
£
£
£
286,945
13,890
18,635
45,834
23,113
28,291
55,754
28,291
-
-
-
-
-
-
-
-
-
-
9,411
3,956
328,881
49,790
-
-
-
-
23,113
28,291
55,754
28,291
Aggregate remuneration 2016 (£)
Aggregate remuneration 2016 (US$)
468,228
634,054
13,890
18,809
18,635
25,234
13,367
18,101
514,120
696,198
1 Excludes bonus amount of £35k awarded and accrued at year-end, which remains unpaid as at 21 March 2018.
2 Fees and basic salary include £28k pension contributions paid as cash.
3 Fees and basic salary include £9k pension contributions paid as cash.
4 Fees and basic salary include £4k pension contributions paid as cash.
38
Sterling Energy plc Report and Financial Statements 2017
Fees and Basic Salary
Base fees and salary remain the foundation of the Directors’ remuneration packages which determine the levels
of other elements such as pension contributions and bonus payments. When setting base salaries for executive
Directors, the Remuneration Committee will take into account:
• the Director’s performance, individual responsibilities, authorities and experience; and
• comparisons with salary levels in peer group companies gathered from disclosure in various public documents
such as peer group annual reports and accounts.
The basic salary is used to determine the level of pension contributions. The level of fees for the non-executive
Directors is set by the Remuneration Committee with reference to the fees paid to non-executive Directors in
peer group companies.
Bonus
The Remuneration Committee administers the bonus scheme for the Company and considers whether executive
Directors are eligible for an annual and/or interim bonus payment; the Committee also has an oversight for bonus
awards to staff. The bonus scheme comprises two parts, (i) corporate performance as measured against pre-
determined objectives/KPIs, and (ii) individual performance; refer to page 35 for further details. If so, performance
conditions will be relevant to the award, stretched and designed to enhance shareholder value and to promote
the long term success of the Company. Upper limits are set and disclosed by the Remuneration Committee. The
Remuneration Committee reviewed the outcome of the Company’s performance with regard to its 2017 KPIs and
noted that some of the key objectives had been achieved and accordingly an executive bonus was awarded to
the executive Director in 2017. As a comparison, in 2016 the Remuneration Committee noted that it had met some
of its key objectives and accordingly awarded a limited executive bonus to the executive Director. The Company
considers the KPIs to be commercially sensitive as they reflect the Company’s commercial strategy; in general
the KPIs are focused on growth initiatives and managing the Companies financial exposure to its existing assets.
The KPIs for 2017 were similar to those adopted in 2016. Non-executive Directors are not eligible to receive
bonus payments.
Defined Contribution Pension
The defined contribution pension scheme is an employer contribution scheme calculated at 10% of base salary.
Such payments are made into individual Director personal pension plans as chosen by each individual Director.
On retirement, such contribution payments cease from the effective date of cessation of employment. Non-
executive Directors are not eligible to receive pension contributions.
Benefits in Kind
Taxable benefits in kind for executive Directors include Company paid private medical health schemes and
associated cash plans; the latter is subject to an annual limit. In addition the Company pays for life insurance,
travel insurance, Directors and Officers insurance and disability cover; such benefits are not taxable benefits for
individual Directors.
39
Sterling Energy plc Report and Financial Statements 2017
CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
The table below sets out the total remuneration for the Company’s CEO for the past six years:
Year
CEO
% change
CEO single
figure of total
remuneration
(£)
Annual bonus
pay-out against
maximum
opportunity
(%)
Long-term
incentive vesting
rates against
maximum
opportunity
(%)
2017
2016
2015
2014
2013
2012
Eskil Jersing 1
Eskil Jersing
330,751
328,881
0.6%
13.3%
Alastair Beardsall 2 / Eskil Jersing
290,184
32.0%
Alastair Beardsall 2
219,801
(51.3%)
Angus MacAskill 3 / Alastair Beardsall 2
451,417
52.4%
Angus MacAskill
296,169
(18.9%)
5%
4%
-
-
-
-
1 Excludes bonus amount of £35k awarded and accrued at year-end, which remains unpaid as at 21 March 2018.
2 Part-time.
3 Includes £75k paid as compensation for loss of office.
-
-
-
-
-
-
From August 2013 until Eskil Jersing’s appointment (March 2015), Alastair Beardsall acted as interim CEO in
addition to being executive Chairman (his remuneration as relating to his appointment in 2013 was prorated
accordingly).
The annual percentage change in CEO single figure remuneration for years 2012 to 2017 compares with that of
all employees: (21.6%), (23.9%), (20.5%), 8.5%, (19.8%) and 11.1% respectively.
The graphs below show the value of the executive Director packages for 2017 together with minimum and
maximum remuneration attainable:
Eskil Jersing (Chief Executive)
Maximum
Actual
Minimum
Basic salary
Bonus
Pension provision
Other benefits
£0
£100,000
£200,000
£300,000
£400,000
£500,000
£600,000
The table below shows the total Group remuneration compared to the total distribution to shareholders:
2017
2016
40
Total Group
remuneration (£)
Total distribution
to shareholders
1,481,600
1,890,314
-
-
Sterling Energy plc Report and Financial Statements 2017 Communications with Shareholders
The Board is directly accountable to the Company’s shareholders. As such it is important for the Board to
appreciate the aspirations of the shareholders and equally that the shareholders understand how the actions
of the Board and short-term financial performance relate to the achievement of the Group’s longer term goals.
With non-executive Chairman Michael Kroupeev and Ilya Belyaev on the Board as shareholder representatives,
this has allowed for substantive and direct alignment between the Board and the shareholder group as a whole.
The Board formally reports to the shareholders on its stewardship of the Company through the publication of
interim and final results each year. Press releases are issued throughout the year and the Company maintains
a website (www.sterlingenergyplc.com) on which press releases, corporate presentations and the Report and
Financial Statements are available to view. Additionally this Report and Financial Statement contains extensive
information about the Group’s activities.
Enquiries from individual shareholders not directly represented at the Board on matters relating to the business
of the Company are welcomed. Shareholders and other interested parties can subscribe to receive notification
of news updates and other documents from the Company via email.
The non-executive Chairman provides periodic feedback to the Board following meetings with shareholders.
The Senior Independent Director also attends some shareholder meetings to ensure the Board is appraised of
all feedback provided by such meetings.
The Annual General Meeting provides an opportunity for communication with all shareholders and the Board
encourages the shareholders to attend and welcomes their participation. The Directors attend the Annual General
Meeting and are available to answer questions. Details of resolutions to be proposed at the Annual General
Meeting, to be held on 25 April 2018, can be found in the notice of the meeting on the Company’s website.
41
Sterling Energy plc Report and Financial Statements 2017 CORPORATE GOVERNANCE
Internal Controls
The Directors acknowledge their responsibility for establishing and maintaining the Group and the Company’s
systems of internal control including financial, operational and compliance controls and risk management. These
are designed to safeguard the assets of the Group and to ensure the reliability of financial information for both
internal use and external publication.
The Group’s internal control procedures include Board approval for all significant projects. All major expenditures
require either senior management or Board approval at the appropriate stages of each transaction. A system
of regular reporting covering both technical progress of projects and the state of the Group’s financial affairs
provides appropriate information to management to facilitate control. The Board reviews, identifies, evaluates
and manages the significant risks that face the Group.
Any systems of internal control can only provide reasonable, and not absolute, assurance that material financial
irregularities will be detected or that the risk of failure to achieve business objectives is eliminated. The Directors,
having reviewed the effectiveness of the system of internal financial, operational and compliance controls and
risk management, consider that the system of internal control operated effectively throughout the financial year
and up to the date the financial statements were signed.
The Audit Committee, on an annual basis, reviews the need for an internal audit function. Given the nature of the
Company’s business and assets, the current internal control procedures in place and the size of the Company,
the Board are satisfied that an internal audit function is unnecessary at this time.
42
Sterling Energy plc Report and Financial Statements 2017 Conflicts of Interest
The Group and the Company has in place procedures for the disclosure and review of any conflicts, or potential
conflicts of interest, which the Directors may have and for the clearance or otherwise of such conflicts by the
Board. In deciding on a conflict, or a potential conflict, the Directors must have regard to their general duties
under the Companies Act 2006.
43
Sterling Energy plc Report and Financial Statements 2017 CORPORATE GOVERNANCE
Extractive Industries Transparency Initiative (‘EITI’)
In accordance with the Transparency Criteria as set out by the EITI, the following payments to Government
bodies have been made during the year ended 31 December 2017:
Madagascar: Ambilobe 1
Mauritania: Chinguetti 2
Mauritania: C-3 3
Mauritania: C-10 3
Somaliland: Odewayne 4
2017
$000
-
1,158
-
224
75
1,457
2016
$000
156
1,158
370
248
75
2,007
1 Payments made by Pura Vida (Sterling Energy (UK) Limited pays its pro rata share of cost).
2 Payments above made by Petronas (Sterling Energy plc pays its share of cost). Excluded from the above are payments made to SMHPM
under the terms of the Chinguetti Funding Agreement, relating to Chinguetti field operating costs and decommissioning, totalling $5.9
million in 2017 (2016: $7.5 million).
3 Gross payments made by Tullow (SEML pays its share of cost).
4 Payments made by Genel Energy (SE(EA)L fully carried for its share of cost).
44
Sterling Energy plc Report and Financial Statements 2017 Directors’ Report
The Directors present their Annual Report and Financial Statements on the affairs of the Company and its
subsidiaries, together with the independent Auditors’ Report for the year ended 31 December 2017.
PRINCIPLE ACTIVITY AND BUSINESS REVIEW
The principal activity of the Group and Company throughout the year remained the exploration for and production
of oil and gas with a primary focus on Africa and the Middle East. The significant developments during 2017 and
the other activities of the Group, as well as the future strategy and prospects for the Group, are reviewed in detail
in the Chairman’s Statement and the Strategic Report section of this report.
The Group operates through overseas branches and subsidiary undertakings as appropriate to the fiscal
environment. Subsidiary undertakings of the Group are set out in Note 14 to the financial statements.
The Group uses a number of KPIs to assess the business performance against strategy, in 2017 these included;
M&A led growth initiatives and managing the Group’s financial exposure to its existing assets.
RESULTS AND DIVIDENDS
The Group loss for the financial year was $9.0 million (2016: loss $8.5 million). This leaves an accumulated
Group retained earnings of $41.3 million (2016: deficit $449.3 million) to be carried forward. The Directors do not
recommend the payment of a dividend (2016: $nil).
GOING CONCERN
The Group business activities, together with the factors likely to affect its future development, performance
and position are set out in the Operations Review on pages 10 and 11. The financial position of the Group and
Company, its cash flows and liquidity position are described in the Financial Review on pages 15 - 18. In addition,
Note 22 to the financial statements includes the Group’s objectives, policies and processes for managing its
capital financial risk: details of its financial instruments and its exposures to credit risk and liquidity risk.
The Group has sufficient cash resources for its working capital needs and its committed capital expenditure
programme at least for the next 12 months. As a consequence, the Directors believe that both the Group and
Company are well placed to manage their business risks successfully despite the uncertain economic outlook.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
CAPITAL STRUCTURE
Details of the issued share capital, together with details of the movements in the Company’s issued share
capital during the year, are shown in Note 17 to the financial statements. The Company has one class of ordinary
share which carries no right to fixed income. Each share carries the right to one vote at general meetings of the
Company.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed
by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware
of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of
securities or on voting rights. Details of the employee share schemes are set out in Note 23. No person has any
special rights of control over the Company’s share capital and all issued shares are fully paid.
45
Sterling Energy plc Report and Financial Statements 2017
CORPORATE GOVERNANCE
Directors’ Report (cont.)
DIRECTORS
The Directors who served during the year were as follows:
Mr. Eskil Jersing (resigned 21 December 2017)
Mr. Michael Kroupeev
Mr. Leo Koot (appointed 19 January 2017)
Mr. Ilya Belyaev (appointed 19 January 2017)
Biographical details of serving Directors can be found in the Board of Directors section of this report on pages 26 and 27.
DIRECTORS AND ELECTION ROTATION
With regard to the appointment and re-election of the Directors, the Company is governed by its Articles of
Association, the Companies Acts and related legislation. The powers of Directors are described within this report.
SIGNIFICANT SHAREHOLDINGS
Except for the holdings of ordinary shares listed below, the Company has not been notified by or become aware
of any persons holding 3% or more of the 220,053,520 issued ordinary shares of 10 pence each of the Company
at 21 March 2018:
Waterford Finance & Investment Ltd
Zion SPC - Access Fund SP
Mistyvale Limited
Denis O'Brien
Banque Heritage
Number
64,815,517
36,611,361
34,467,790
15,750,000
14,930,358
%
29.45
16.64
15.66
7.16
6.78
BUSINESS RISK
A summary of the principle and general business risks can be found within the Strategic Report on pages 19 - 23.
FINANCIAL INSTRUMENTS
Information about the use of financial instruments, the Group’s policy and objectives for financial risk management
is given in Note 22 to the financial statements.
AUDITORS
Each of the persons who are a Director at the date of approval of this Report and Financial Statements confirms that:
• so far as the Director is aware, there is no relevant audit information of which the Company’s Auditors are
unaware; and
• the Directors have taken all the steps that they ought to have taken as a director in order to make themselves
aware of any relevant audit information and to establish that the Company’s Auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the
Companies Act 2006.
BDO LLP has expressed its willingness to continue in office as Auditors and a resolution to appoint BDO will be
proposed at the forthcoming Annual General Meeting to be held on 25 April 2018.
Eskil Jersing
Chief Executive Officer
21 March 2018
46
Sterling Energy plc Report and Financial Statements 2017
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the
Directors have elected to prepare the Group and Company financial statements in accordance with International
Financial Reporting Standards (‘IFRS’) as adopted by the European Union. Under company law the Directors
must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are
also required to prepare financial statements in accordance with the rules of the London Stock Exchange for
companies trading securities on AIM.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject
to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group
and Company and enable them to ensure that the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the annual report and the financial statements are made available
on a website. Financial statements are published on the Company’s website in accordance with legislation in
the United Kingdom governing the preparation and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility
of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements
contained therein.
DISCLOSURE OF AUDIT INFORMATION
In the case of each person who are Directors of the Company at the date when this report is approved:
• So far as they are individually aware, there is no relevant audit information of which the Company’s auditor is
unaware; and
• Each of the Directors has taken all the steps that they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that the Company’s auditor is aware of the information.
For and on behalf of the Board.
Eskil Jersing
Chief Executive Officer
21 March 2018
47
Sterling Energy plc Report and Financial Statements 2017 STERLING ENERGY PLC
Group Accounts
Year ended 31 December 2017
Independent Auditors’ Report
to the members of Sterling Energy plc
OPINION
We have audited the financial statements of
Sterling Energy Plc (the ‘parent company’) and
its subsidiaries (the ‘group’) for the year ended 31
December 2017 which comprise the consolidated
and parent company statements of financial position,
the consolidated statement of profit or loss and
other comprehensive income, the consolidated and
the parent company’s statements of changes in
equity, the consolidated and the parent company’s
statements of cash flows and notes to the financial
including a summary of significant
statements,
accounting policies.
law and
The financial reporting framework that has been
applied in the preparation of the financial statements
is applicable
International Financial
Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the parent company
financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
In our opinion:
• the financial statements give a true and fair view of
the state of the group’s and of the parent company’s
affairs as at 31 December 2017 and of the group’s
loss for the year then ended;
• the group financial statements have been properly
prepared in accordance with IFRSs as adopted by
the European Union;
• the parent company financial statements have
been properly prepared in accordance with IFRSs
as adopted by the European Union and as applied
in accordance with the provisions of the Companies
Act 2006; and
• the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
BASIS FOR OPINION
We conducted our audit
in accordance with
International Standards on Auditing (UK) (ISAs (UK))
law. Our responsibilities under
and applicable
in the
those standards are further described
Auditor’s
the
financial statements section of our report. We are
independent of the group in accordance with the
ethical requirements that are relevant to our audit
of the financial statements in the UK, including the
responsibilities
the audit of
for
FRC’s Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
USE OF OUR REPORT
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s
members those matters we are required to state to
them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other
than the company and the company’s members as
a body, for our audit work, for this report, or for the
opinions we have formed.
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following
matters in relation to which the ISAs (UK) require us
to report to you where:
• the directors’ use of the going concern basis of
accounting in the preparation of the financial
statements is not appropriate; or
• the directors have not disclosed in the financial
statements any identified material uncertainties
that may cast significant doubt about the group’s
or the parent company’s ability to continue to adopt
the going concern basis of accounting for a period
of at least twelve months from the date when the
financial statements are authorised for issue.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our
professional judgment, were of most significance in
our audit of the financial statements of the current
period and include the most significant assessed
risks of material misstatement (whether or not due
to fraud) we identified, including those which had
the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were
addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion
on these matters.
50
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTS MATTER
Chinguetti’s Decommissioning Provision Settlement
As of 31 December 2017, Management was in ongoing discussions with Société Mauritanienne des Hydrocarbures et de
Patrimoine Minier (“SMHPM”), Mauritania’s National Oil Company, and the Mauritanian Government to negotiate a funding
settlement for the decommissioning costs of Chinguetti, an offshore oil field in Mauritania in which the group has an
interest of circa 9.5% of cumulative production via a Funding Agreement (Note 19).
Chinguetti is the only offshore oil field in Mauritania therefore there is no precedent for the abandonment and
decommissioning process. By reaching an agreement the group would reduce its exposure to uncertain future costs.
An agreement was reached on 26 January 2018 with the Mauritanian Government and SMHPM via a Deed of Termination,
which provides for a payment by the group to the Government of Mauritania and SMHPM of a fixed sum to settle any
and all claims under the Funding Agreement, including the Group’s obligation to pay for its share of A&D costs and
outstanding 2018 operational expenditures (Note 25).
Given the uncertainty regarding the abandonment and decommissioning costs there was an audit risk over the completeness
and presentation of liabilities on the balance sheet. Given the timing of reaching a settlement, Management consider the final
settlement to be their best estimate of all remaining liabilities in relation to the Chinguetti asset at 31 December 2017.
Our Response
We have verified documentation to support that the negotiation regarding a settlement was at an advanced stage as
at 31 December 2017 and it is reasonable to use the agreement settlement as a proxy for all liabilities in relation to the
Chinguetti asset.
The termination agreement was inspected to identify any clauses which could indicate that the total amount due does
not include all costs related to the Chinguetti operations and decommissioning. We verified that:
• The Deed of Termination provides for a payment by Sterling Energy Plc to the Government of Mauritania and SMHPM
of a fixed amount of $32.6 million to settle any and all claims under the Funding Agreement, Sterling’s obligation to
pay for its share of A&D costs and outstanding 2018 operational expenditures.
• As per our review of the terms included in the Deed of Termination, the Group has no residual exposure to the A&D costs.
We verified the $32.6 million final settlement paid through to bank statements on 26 January 2018.
We considered the appropriateness of the disclosure of the liability as a current liability in light of the termination
agreement and relevant accounting standards.
Key Observations
The amount recorded as a liability in the financial statements is in line with the termination agreement and the
disclosures relating to this are consistent with the information we obtained during the course of our audit.
OUR APPLICATION OF MATERIALITY
Group materiality FY2017
Group materiality FY2016
Bases for materiality
$1.42 million
$2.23 million
2% of total assets
Company materiality FY2017
Company materiality FY2016
Bases for materiality
$1.34 million
$2.12 million
2% of total assets capped at
95% of Group materiality
51
Sterling Energy plc Report and Financial Statements 2017 Independent Auditors’ Report (cont.)
to the members of Sterling Energy plc
We apply the concept of materiality both in planning
and performing our audit, and in evaluating the
effect of misstatements. We consider materiality to
be the magnitude by which misstatements, including
omissions, could influence the economic decisions
of reasonable users that are taken on the basis of
the financial statements. Importantly, misstatements
below these levels will not necessarily be evaluated
as immaterial as we also take into account of the
nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating
their effect on the financial statements as a whole.
Our determination of materiality has remained
unchanged and the significant movement is due
to exclusion of the Chinguetti’s decommissioning
provision cash settlement, reducing gross assets
by $32.6 million. We consider total assets to be the
most significant determinant of the group’s financial
performance on the basis that the group’s principal
activity is the development of oil and gas exploration
assets and it is the value of assets that is of greatest
interest to the user of the financial statements.
Whilst materiality for the financial statements as a
whole was $1.42 million, each significant component
of the group was audited to a lower level of materiality,
which is used to determine the financial statement
areas that are included within the scope of our audit
and the extent of sample sizes used during the audit.
is
Performance materiality
the application of
materiality at the individual account or balance level
set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected
and undetected misstatements exceeds materiality
for the financial statements as a whole. Performance
materiality was set at 75% (2016: 75%) of the above
materiality levels.
We agreed with the audit committee that we
would report to the committee all individual audit
differences identified during the course of our audit
in excess of $71k (2016: $111k). We also agreed to
report differences below these thresholds that, in our
view, warranted reporting on qualitative grounds.
There were no misstatements identified during
the course of our audit that were individually, or in
52
aggregate, considered to be material in terms of their
absolute monetary value or on qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our group audit scope focused on the group’s
principal operating entities, Sterling Energy Plc and
Sterling Northwest Africa Holdings Limited. We have
identified both entities as significant components
for the purposes of our financial statement audit,
based on their relative share of total assets. We have
performed a full scope audit for these components,
having performed substantive procedures over 99%
of total assets.
The remaining components of the group were
considered non-significant and these components
were principally subject
review
procedures, together with additional substantive
testing over the risk areas detailed above where
applicable to that component.
to analytical
All audit work (full scope audit or review work) was
conducted by BDO LLP.
OTHER INFORMATION
The directors are responsible for the other information.
The other information comprises the information
included in the annual report, other than the financial
statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
information
is materially
In connection with our audit of the financial
statements, our responsibility is to read the other
information and, in doing so, consider whether
the other
inconsistent
with the financial statements or our knowledge
obtained in the audit or otherwise appears to be
materially misstated. If we identify such material
inconsistencies or apparent material misstatements,
we are required to determine whether there is a
material misstatement in the financial statements or
a material misstatement of the other information. If,
based on the work we have performed, we conclude
that there is a material misstatement of this other
information, we are required to report that fact. We
have nothing to report in this regard.
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTS OPINIONS ON OTHER MATTERS PRESCRIBED BY
THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the
course of the audit:
• the information given in the strategic report and
the directors’ report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
• the strategic report and the directors’ report have
been prepared in accordance with applicable legal
requirements.
OPINION ON DIRECTORS REMUNERATION REPORT
WHICH WE HAVE AGREED TO REPORT
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the provisions of the Companies Act
2006 had the company been fully listed.
MATTER ON WHICH WE ARE REQUIRED TO REPORT
BY EXCEPTION
In the light of the knowledge and understanding
of the group and the parent company and its
environment obtained in the course of the audit, we
have not identified material misstatements in the
strategic report or the directors’ report.
We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been kept
by the parent company, or returns adequate for our
audit have not been received from branches not
visited by us; or
• the parent company financial statements are not
in agreement with the accounting records and
returns; or
• certain disclosures of directors’ remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
RESPONSIBILITIES OF DIRECTORS
the directors’
in
As explained more
responsibilities statement set out on page 47, the
directors are responsible for the preparation of the
financial statements and for being satisfied that they
give a true and fair view, and for such internal control
fully
as the directors determine is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors
are responsible for assessing the group’s and the
parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related
to going concern and using the going concern basis
of accounting unless the directors either intend
to liquidate the group or the parent company or to
cease operations, or have no realistic alternative
but to do so. The directors have voluntarily agreed
to prepare a remuneration report in accordance with
the provisions of the Companies Act that would have
applied if the company had been fully listed, and
have asked us to report on this..
AUDITOR’S RESPONSIBILITY FOR THE AUDIT OF
THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and
are considered material if, individually or in the
aggregate, they could reasonably be expected to
influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the
audit of the financial statements is located on the
Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities
This description forms part of our auditor’s report.
Scott McNaughton (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
21 March 2018
BDO LLP is a limited liability partnership registered
in England and Wales (with registered number
OC305127).
53
Sterling Energy plc Report and Financial Statements 2017 Consolidated Statement of Comprehensive Income
Year ended 31 December 2017
Note
31 December 2017
$000
31 December 2016
$000
Revenue
Cost of sales
Gross (loss)/profit
Other administrative expenses
Impairment of oil and gas exploration assets
Pre-licence costs
Chinguetti cessation credit
Total administrative expenses
Loss from operations
Finance income
Finance expense
Loss before tax
Tax
Loss for the year attributable to the owners of the parent
Other comprehensive (expense)/income - items to be
reclassified to the income statement in subsequent
periods
Currency translation adjustments
Total other comprehensive (expense)/income for the year
Total comprehensive expense for the year attributable to
the owners of the parent
Basic loss per share (US cents)
Diluted loss per share (US cents)
4
6
5
7
5
9
9
10
11
11
4,433
(7,917)
(3,484)
(2,379)
(2,834)
(1,628)
866
(5,975)
(9,459)
1,089
(630)
(9,000)
-
(9,000)
(20)
(20)
(9,020)
(4.09)
(4.09)
4,815
(2,262)
2,553
(2,045)
(7,375)
(1,951)
-
(11,371)
(8,818)
683
(394)
(8,529)
-
(8,529)
50
50
(8,479)
(3.88)
(3.88)
54
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTS Consolidated Statement of Financial Position
Year ended 31 December 2017
Note
31 December 2017
$000
31 December 2016
$000
Non-current assets
Intangible exploration and evaluation assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Currency translation reserve
Retained earnings/(deficit)
Total equity
Non-current liabilities
Long-term provisions
Current liabilities
Short-term provisions
Trade and other payables
Total liabilities
Total equity and liabilities
12
13
15
16
17/18
18
18
19
19
20
21,041
14
21,055
363
868
81,365
82,596
103,651
28,143
-
(189)
41,343
69,297
-
-
28,659
5,695
34,354
34,354
103,651
18,846
17
18,863
1,948
6,540
88,058
96,546
115,409
149,014
378,863
(169)
(449,318)
78,390
14,472
14,472
21,184
1,363
22,547
37,019
115,409
The financial statements of Sterling Energy plc, registered number 1757721, were approved by the Board of
Directors and authorised for issue on 21 March 2018.
Signed on behalf of the Board of Directors.
Eskil Jersing
Chief Executive Officer
21 March 2018
55
Sterling Energy plc Report and Financial Statements 2017 Consolidated Statement of Changes in Equity
Year ended 31 December 2017
Note
Share capital
Share
premium
Currency
translation
reserve
Retained
earnings 1
Total
$000
$000
$000
$000
$000
149,014
378,863
(219)
(440,862)
86,796
-
-
-
-
-
-
-
-
-
50
50
(8,529)
(8,529)
-
50
(8,529)
(8,479)
-
73
73
At 1 January 2016
Loss for the year
Currency translation adjustments
Total comprehensive expense
for the year attributable to the
owners of the parent
Share option charge for the year
At 31 December 2016
149,014
378,863
(169)
(449,318)
78,390
Loss for the year
Currency translation adjustments
Total comprehensive expense
for the year attributable to the
owners of the parent
-
-
-
-
-
-
Capital reduction
18
(120,871)
(378,863)
Share option credit for the year
At 31 December 2017
-
28,143
-
-
-
(20)
(20)
-
-
(9,000)
(9,000)
-
(20)
(9,000)
(9,020)
499,734
(73)
-
(73)
(189)
41,343
69,297
1 The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.
56
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTS Consolidated Statement of Cash Flows
Year ended 31 December 2017
Note
13
5
7
19
13
12
Operating activities
Loss before tax
Depreciation, depletion & amortisation
Impairment expense
Chinguetti cessation credit
Onerous provision
Finance income and gains
Finance expense and losses
Share-based payment charge
Decommissioning costs
Operating cash flow prior to working capital movements
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
(Decrease)/increase in provisions
Cash outflow from continuing operations
Cash outflow from discontinued operations
Net cash flow used in operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Exploration and evaluation costs
Net cash used in investing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
16
2017
$000
(9,000)
10
2,834
(866)
-
(1,089)
609
(73)
(125)
(7,700)
1,585
5,672
4,332
(8,041)
(4,152)
(4,152)
-
(4,152)
1,089
(7)
(3,690)
(2,608)
(6,760)
88,058
67
81,365
2016
$000
(8,529)
32
7,375
-
(3,700)
(683)
380
75
(1,088)
(6,138)
(628)
(5,990)
(1,377)
4,200
(9,933)
(9,923)
(10)
(9,933)
683
(15)
(1,147)
(479)
(10,412)
98,653
(183)
88,058
57
Sterling Energy plc Report and Financial Statements 2017 Company Statement of Financial Position
Year ended 31 December 2017
Note
31 December 2017
$000
31 December 2016
$000
Non-current assets
Property, plant and equipment
Investments
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Retained earnings/(deficit)
Total equity
Non-current liabilities
Long-term provisions
Current liabilities
Short-term provisions
Trade and other payables
Total liabilities
Total equity and liabilities
13
14
15
16
17/18
18
18
19
19
20
-
20,140
20,140
363
26,421
81,362
108,146
128,286
28,143
-
33,444
61,587
-
-
28,659
38,040
66,699
66,699
128,286
-
29,148
29,148
1,948
24,686
88,054
114,688
143,836
149,014
378,863
(449,921)
77,956
14,472
14,472
16,984
34,424
51,408
65,880
143,836
The loss for the financial year within the Company accounts of Sterling Energy plc was $16.3 million (2016: $1.9
million profit). As provided by s408 of the Companies Act 2006, no individual statement of comprehensive income
and expense is provided in respect of the Company.
The financial statements of Sterling Energy plc, registered number 1757721, were approved by the Board of
Directors and authorised for issue on 21 March 2018.
Signed on behalf of the Board of Directors
Eskil Jersing
Chief Executive Officer
21 March 2018
58
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTS
Company Statement of Changes in Equity
Year ended 31 December 2017
Note
Share capital
Share
premium
Retained
earnings 1
$000
$000
$000
Total
$000
At 1 January 2016
149,014
378,863
(451,885)
75,992
Total comprehensive expense for the year
Share option charge for the year
-
-
-
-
1,891
1,891
73
73
At 31 December 2016
149,014
378,863
(449,921)
77,956
Total comprehensive income for the year
-
-
(16,296)
(16,296)
Capital reduction
18
(120,871)
(378,863)
499,734
Share option credit for the year
(73)
-
(73)
At 31 December 2017
28,143
-
33,444
61,587
1 The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.
59
Sterling Energy plc Report and Financial Statements 2017 Company Statement of Cash Flows
Year ended 31 December 2017
Operating activities
(Loss)/profit before tax
Chinguetti cessation credit
Onerous provision
Impairment of investment
Finance income and gains
Finance expense and losses
Decommissioning costs
Note
7
14
19
Operating cash flow prior to working capital movements
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Decrease in provisions
Net cash flow used in operating activities
Investing activities
Interest received
Net cash generated from/(used in) investing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
16
2017
$000
(16,296)
(866)
-
9,008
(1,089)
707
(125)
(8,661)
1,585
(1,735)
3,792
(2,797)
(7,816)
1,089
1,089
(6,727)
88,054
35
81,362
2016
$000
1,891
-
(3,700)
-
(683)
406
(1,088)
(3,174)
(628)
(4,208)
(1,883)
-
(9,893)
683
683
(9,210)
97,483
(219)
88,054
60
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTS Notes to the Financial Statements
Year ended 31 December 2017
1.
ACCOUNTING POLICIES
a) General Information
Sterling Energy plc is a public company incorporated in the United Kingdom under the UK Companies Act
2006. The address of the registered office is High Holborn House, 52-54 High Holborn, London WC1V 6RL.
The Company and the Group are engaged in the exploration, development and production of commercial
oil and gas.
These financial statements are presented in US dollars as this is the currency in which the majority of the
Group’s revenues and expenditure are transacted and the functional currency of the Company.
b) Basis of Accounting and Adoption of New and Revised Standards
The Group and Company financial statements have been prepared in accordance with IFRSs as adopted
by the EU.
(i) New and amended standards adopted by the Group:
No standards adopted this year had a material effect.
(ii) Standards, amendments and interpretations, which are effective for reporting periods beginning after
the date of these financial statements which have not been adopted early:
Standard
Description
Effective date
EU Endorsement status
IFRS 9
Financial Instruments
1 January 2018
IFRS 15
Revenue from Contracts with Customers
1 January 2018
IFRS 16
Leases
1 January 2019
Endorsed
Endorsed
Endorsed
IFRS 9 replaces IAS 39 (Financial instruments: Recognition and Measurement). The Directors have looked
into the following areas of the standard:
• how an entity should classify and measure financial assets, financial liabilities, and some contracts to
buy or sell non-financial items; and
• a new model for recognising provisions based on expected credit losses.
Given the CoP in Chinguetti, no potential credit losses have been identified.
IFRS 9 Expected Credit Losses impairment approach will be assessed to intercompany balances, no
significant additional provision has been identified.
Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects
to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide
a more structured approach to measuring and recognising revenue. In 2018 the Group will have immaterial
revenue-generating activities given the CoP in Chinguetti. The Directors have considered the impact of
application of the new standard and do not consider that implementation will have a significant impact.
61
Sterling Energy plc Report and Financial Statements 2017 Under IFRS 16 the revised standard requires lessees to account for all leases under a single balance sheet
model recognising both the rights to the asset and the liability arising under the lease. The Directors have
considered the impact of application of the new standard on the Group’s lease commitments (see Note 21)
and do not consider that implementation will have a significant impact.
c) Going Concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the
Group has adequate resources to continue in operational existence for the foreseeable future. Thus they
continue to adopt the going concern basis of accounting in preparation of the financial statements. Further
detail is contained in the Directors’ Report.
d) Basis of Consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company (its subsidiaries) made up to 31 December each year. Control is recognised
where an investor is exposed, or has rights, to variable returns from its investment with the investee and
has the ability to affect these returns through its power over the investee.
The results of subsidiaries acquired, or disposed of, during the year are included in the Statement of
Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as
appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group.
(ii) Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-
group transactions, are eliminated in preparing the consolidated financial statements.
A separate Statement of Comprehensive Income and expense for the parent Company has not been
published in accordance with section 408 of the Companies Act 2006.
e) Joint Arrangements
The Group is a party to a joint arrangement when there is a contractual arrangement that confers joint
control over the relevant activities of the arrangement to the Group and at least one other party. Joint
control is assessed under the same principles as control over subsidiaries. The Group classifies its interest
in joint arrangements as joint operations as the Group has both the rights to assets and obligations for the
liabilities of the joint arrangement.
In assessing the classification of interests in joint arrangements, the Group considers:
• the structure of the joint arrangement;
• the contractual terms of the joint arrangement; and
• any other facts and circumstances.
The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues
and expenses in accordance with its contractually conferred rights and obligations.
The Groups interests in joint arrangements are detailed in Note 12.
62
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements f) Revenue
Sales of oil and gas are recognised, net of any sales taxes, when risks and rewards of ownership have
passed to the customer; typically this is at the point of physical lifting. See also section r) below. Royalties
and tariff income are recognised as earned on an entitlement basis.
g) Oil and Gas Interests
Exploration and evaluation (‘E&E’) assets
Capitalisation
Pre-acquisition costs on oil and gas assets are recognised in the profit or loss when incurred. Costs
incurred after rights to explore have been obtained, such as geological and geophysical surveys, drilling
and commercial appraisal costs, and other directly attributable costs of exploration and appraisal including
technical and administrative costs, are capitalised as intangible E&E assets. The assessment of what
constitutes an individual E&E asset is based on technical criteria but essentially either a single licence
area or contiguous licence areas with consistent geological features are designated as individual E&E
assets. Costs relating to the exploration and evaluation of oil and gas interests are carried forward until the
existence, or otherwise, of commercial reserves have been determined.
E&E costs are not amortised prior to the conclusion of appraisal activities. Once active exploration is
completed the asset is assessed for impairment. If commercial reserves are discovered then the carrying
value of the E&E asset is reclassified as a development and production (‘D&P’) asset, following development
sanction, but only after the carrying value is assessed for impairment and where appropriate its carrying
value adjusted. If it subsequently assessed that commercial reserves have not been discovered, the E&E
asset is written off to the profit or loss.
Impairment
In accordance with IFRS 6 E&E assets are reviewed for impairment when circumstances arise which
indicate that the carrying value of an E&E asset exceeds the recoverable amount. The recoverable
amount of the individual asset is determined as the higher of its fair value less costs to sell and value in
use. Impairment losses resulting from an impairment review are recognised in the profit or loss within the
Statement of Comprehensive Income. Any impairment loss is separately recognised within the Statement of
Comprehensive Income.
Impaired assets are reviewed annually to determine whether any substantial change to their fair value
amounts previously impaired would require reversal.
As previously recognised, impairment loss is reversed if the recoverable amount increases as a result of a
change in the estimates used to determine the recoverable amount, but not to an amount higher than the
carrying amount that would have been determined (net of depletion or amortisation) had no impairment
loss been recognised in prior periods. Reversal of impairments and impairment charges are credited/
(charged) under total administration expenses within the Statement of Comprehensive Income.
Refer to Notes 2 and 3 for detailed disclosure of the results of impairments and impairment reviews performed.
Development and Production Assets
Capitalisation
Costs of bringing a field into production, including the cost of facilities, wells and sub-sea equipment
together with E&E assets reclassified in accordance with the above policy, are capitalised as a D&P asset
within property, plant and equipment. Normally each individual field development will form an individual
D&P asset but there may be cases, such as phased developments, or multiple fields around a single
production facility when fields are grouped together to form a single D&P asset.
63
Sterling Energy plc Report and Financial Statements 2017 Depreciation
All costs relating to a development are accumulated and not depreciated until the commencement of
production. Depreciation is calculated on a unit of production basis based on the proven and probable
reserves of the asset. Any re-assessment of reserves affects the depreciation rate prospectively. Significant
items of plant and equipment will normally be fully depreciated over the life of the field. However these
items are assessed to consider if their useful lives differ from the expected life of the D&P asset and
should this occur a different depreciation rate would be charged. The key areas of estimation regarding
depreciation and the associated unit of production calculation for oil and gas assets are recoverable
reserves and future capital expenditures.
Impairment
A review is carried out for any indication that the carrying value of the Group’s D&P assets may be impaired.
The impairment review of D&P assets is carried out on an annual, asset by asset basis and involves comparing
the carrying value with the recoverable value of an asset. The recoverable amount of an asset is determined
as the higher of its fair value less costs to sell and value in use. The value in use is determined from estimated
future net cash flows, being the present value of the future cash flows expected to be derived from production
of commercial reserves. Impairment resulting from the impairment testing is charged to a separate line item
under total administration expenses within the Statement of Comprehensive Income.
The pre-tax future cash flows are adjusted for risks specific to the cash-generating unit and are discounted
using a pre-tax discount rate. The discount rate is derived from the Group’s post-tax weighted average cost
of capital and is adjusted where applicable to take into account any specific risks relating to the country
where the cash-generating unit is located, although other rates may be used if appropriate to the specific
circumstances. The discount rates applied in assessments of impairment are reassessed each year.
The cash-generating unit basis is generally the field, however, oil and gas assets, including infrastructure
assets, may be accounted for on an aggregated basis where such assets are economically inter-dependent.
h) Decommissioning
Provisions for decommissioning costs are recognised in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. Provisions are recorded at the present value of the expenditures expected
to be required to settle the Group’s future obligations.
Provisions are reviewed at each reporting date to reflect the current best estimate of the cost at present
value. Any change in the date on which provisions fall due will change the present value of the provision.
These changes are treated as an administrative expense.
The unwinding of the discount is reflected as a finance expense. A decommissioning asset is also
established, since the future cost of decommissioning is regarded as part of the total investment to gain
access to future economic benefits, and included as part of the cost of the relevant development and
production asset. Depletion on this asset is calculated under the unit of production method based on
commercial reserves.
i) Property, Plant and Equipment Assets other than Oil and Gas Assets
Property, plant and equipment other than oil and gas assets are stated at cost, less accumulated
depreciation, and any provision for impairment. Depreciation is provided at rates estimated to write off the
cost, less estimated residual value, of each asset over its expected useful life as follows:
Computer and office equipment depreciation – 33% straight line.
64
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements j) Foreign Currencies
The US dollar is the functional and reporting currency of the Company and the reporting currency of the
Group. Transactions denominated in other currencies are translated into US dollars at the rate of exchange
ruling at the date of the transaction. Assets and liabilities in other currencies are translated into US dollars
at the rate of exchange ruling at the reporting date. All exchange differences arising from such translations
are dealt with in current year comprehensive income.
The results of entities with a functional currency other than the US dollar are translated at the average
rates of exchange during the period and their statement of financial position at the rates ruling at the
reporting date. Exchange differences arising on translation of the opening net assets and on translation of
the results of such entities are dealt with through the currency translation reserve.
k) Taxation
Current Tax
Tax is payable based upon taxable profit for the year. Taxable profit differs from net profit as reported in
the Statement of Comprehensive Income because it excludes items of income or expense that are taxable
or deductible on other years and it further excludes items that are never taxable or deductible. Any Group
liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the
reporting date.
Deferred Tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will
be available against which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries
and associates, and interests in JV’s, except where the Group is able to control the reversal of the temporary
differences 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 reporting date and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset
to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled or the asset 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 dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
l) Investments (Company)
Investments in subsidiaries are carried at cost less accumulated impairment losses in the Company’s
balance sheet. Investments in subsidiaries are assessed for impairment in line with the requirements of
IAS 36 and where evidence of non-recoverability is identified an appropriate impairment is accounted for
in the profit or loss.
65
Sterling Energy plc Report and Financial Statements 2017 m) Operating Leases
Rentals under operating leases are charged on a straight-line basis over the lease term.
n) Financial Instruments
The Group’s Financial Instruments comprise of cash and cash equivalents, loans and receivables. There
are no other categories of financial instrument.
Trade Receivables
Trade receivables are measured at amortised cost, unless the effect of the time value of money is
immaterial. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss
when there is objective evidence that the asset is impaired.
Cash and Cash Equivalents
Cash and cash equivalents comprise demand deposits, and other short-term investments, with an original
maturity of between 2 and 12 months, and are readily convertible to a known amount of cash and are
subject to an insignificant risk of change in value.
The Group has the following financial liabilities; all are classified as held at amortised cost. The Group
holds no other categories of financial liability.
Trade Payables
Trade payables are stated at their amortised cost.
Financial Liabilities and Equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in
the asset of the Group after deducting all of its liabilities. Equity instruments issued by the Company are
recorded at the proceeds received net of direct issue costs.
o) Pension Costs
The Group operates a number of defined contribution pension schemes. The amount charged to the
Statement of Comprehensive Income for these schemes is the contributions payable in the year. Differences
between contributions payable in the year and contributions actually paid are shown as either accruals or
prepayments in the Statement of Financial Position.
p) Share-Based Payments
The Company and Group have applied the requirements of IFRS 2 Share-based payments. The Company
issues equity share-based payments to certain employees. The fair value of these awards has been
determined at the date of the grant of the award allowing for the effect of any market-based performance
conditions. This fair value, adjusted by the estimate of the number of awards that will eventually vest as a
result of non-market conditions, is expensed uniformly over the vesting period.
The fair values are calculated using an option pricing model with suitable modifications to allow for
employee turnover before vesting and early exercise. The inputs to the model include: the share price
at the date of grant; exercise price; expected volatility; expected dividends; risk-free rate of interest; and
patterns of exercise of the plan participants.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of
the options, measured immediately before and after the modification, is also charged to the Consolidated
Statement of Comprehensive Income over the remaining vesting period.
66
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements q) Over/(Under) Lift of Inventories
Lifting or off take arrangements for oil and gas produced in certain of the Group’s operations are such
that each participant may not receive and sell its precise share of the overall production in each period.
The resulting imbalance between cumulative entitlement and cumulative liftings is ‘underlift’ or ‘overlift’.
Underlifts and overlifts are valued at the lower of cost and net realisable value. Adjustments are made to
cost of sales and balances included within receivables and payables as appropriate.
r) Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it
is probable that the Group would be required to settle that obligation. Provisions are measured at the
management’s best estimate of the expenditure required to settle the obligation at the reporting date, and
are discounted to present value where the effect is material.
s) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision makers. The chief operating decision makers have been identified as the Board of
Directors.
The operating results of each geographical segment are regularly reviewed by the Group’s chief operating
decision makers in order to make decisions about the allocation of resources and to assess their performance.
Africa has exploration activities and the United Kingdom office is an administrative cost centre.
2.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in Note 1, the Directors are
required to make judgements, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and associated assumptions are
based on historical experience and other factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period,
or in the period of the revision and future periods if the revision affects both current and future periods.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year, are discussed below.
Company – Investment
If circumstances indicate that impairment may exist, investments in subsidiary undertakings of the
Company are evaluated using market values, where available, or the discounted expected future cash
flows of the investment. If these cash flows are lower than the Company’s carrying value of the investment,
an impairment charge is recorded in the Company. Where impairments have been booked against the
underlying exploration assets, the investments in subsidiaries have been written down to reflect their
recoverable value. Evaluation of impairments on such investments involves significant management
judgement and may differ from actual results.
67
Sterling Energy plc Report and Financial Statements 2017 During the year the Company recognised impairments on investments in subsidiaries totalling $9.0 million
(see Note 14). The impairment related to the exit from the Ambilobe and C-10 blocks, with the remaining
investment disclosed at 31 December 2017, being underpinned by the Odewayne exploration block in
Somaliland.
Commercial Reserves
Commercial reserves are proven and probable oil and gas reserves, calculated on an entitlement basis.
Estimates of commercial reserves underpin the calculation of depletion and amortisation on a unit of
production basis. Estimates of commercial reserves include estimates of the amount of oil and gas in place,
assumptions about reservoir performance over the life of the field and assumptions about commercial
factors, which in turn, will be affected by the future oil and gas price. See page 14.
Impairment of Assets
Management is required to assess oil and gas assets for indicators of impairment and has considered the
economic value of individual E&E assets. The carrying value of oil and gas assets is disclosed in Note 12.
The carrying value of related investments in the Company Statement of Financial Position is disclosed in
Note 14.
E&E assets are subject to a separate review for indicators of impairment, by reference to the impairment
indicators set out in IFRS 6, which is inherently judgmental.
During the year the Group recognised impairments totalling $2.8 million in accordance with IAS 36
“Impairment of Assets”. This related to the full impairment of the C-10 block, the decision being based
on a risked assessment of the block. Whilst the block was deemed technically prospective, there was
insufficient commercial justification to entering Phase 3 (3 year term), with a minimum work obligation of 2
wells, therefore providing strong commercial rational to exit the block.
During 2016 the Group recognised impairments totalling $7.4 million in accordance with IAS 36 “Impairment
of Assets”. This related to the full impairment of the Ambilobe and C-3 blocks, the decisions were based on
a combination of above ground risks and a risked assessment of the prospectivity on the blocks.
Decommissioning
The Company has obligations in respect of decommissioning in Mauritania. The extent to which a provision
is recognised, depends on the legal requirements at the date of decommissioning, the estimated costs,
schedule and the discount rate applied. Decommissioning obligations for the Chinguetti field at 31
December 2017 are based on settlement discussions with the Government of Mauritania and SMHPM
relating to termination of the Funding Agreement. Details of these can be found in Note 19 on page 80 and
Note 25 on page 87.
68
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements 3.
OPERATING SEGMENTS
Africa is the Groups sole operating segment. The UK corporate office is a technical and administrative cost
centre. The operating results of each segment are regularly reviewed by the Board of Directors in order to
make decisions about the allocation of resources and to assess their performance.
The accounting policies of these segments are in line with those set out in Note 1.
The following table’s present revenue, profit and certain asset and liability information regarding the
Group’s operating segments for the year ended 31 December 2017 and for the year ended 31 December
2016.
Statement of comprehensive income
Revenue 1
Cost of sales
Gross (loss)/profit
Impairment of E&E assets
Pre-licence costs
Chinguetti cessation costs
Segment result
Unallocated corporate expenses
Loss from operations
Finance income
Finance expense
Loss before tax
Tax
Loss attributable to owners of the parent
Africa
Total
Note
2017
$000
2016
$000
2017
$000
2016
$000
4
6
12
7
4,433
4,815
4,433
4,815
(7,917)
(2,262)
(7,917)
(2,262)
(3,484)
2,553
(3,484)
2,553
(2,834)
(7,375)
(2,834)
(7,375)
(1,628)
(1,951)
(1,628)
(1,951)
866
-
866
-
(7,080)
(6,773)
(7,080)
(6,773)
(2,379)
(2,045)
(9,459)
(8,818)
1,089
(630)
683
(394)
(9,000)
(8,529)
-
-
(9,000)
(8,529)
1 Revenue from continuing operations (Mauritania, Africa) includes amounts of $4.1 million (100% external) from one single customer
(2016: $4.6 million).
Unallocated corporate expenses (general and administrative overheads) include amounts of a corporate
nature and not specifically attributable to a reportable segment.
69
Sterling Energy plc Report and Financial Statements 2017
Corporate
Africa
Total
2017
$000
2016
$000
2017
$000
2016
$000
2017
$000
2016
$000
15
-
(10)
-
15
-
(32)
-
-
15
15
5,029
1,147
5,029
1,147
-
-
(10)
(32)
-
(2,834)
(7,375)
(2,834)
(7,375)
Other segment information
Capital additions:
Property, plant and equipment
Exploration and evaluation
Depreciation, depletion & amortisation
Impairment expense
Segment assets and liabilities
Non-current assets 1
Segment assets 2
Segment liabilities 3
14
17
21,041
18,846
21,055
18,863
81,772
88,570
824
7,976
82,596
96,546
(484)
(560)
(33,870)
(36,459)
(34,354)
(37,019)
1 Segment non-current assets include $nil million in Mauritania (2016: $1.4 million) and $21.0 million in Somaliland (2016: $17.5
million).
2 Corporate segment assets include $81.4 million cash and cash equivalents (2016: $88.1 million) and $406k other receivables
(2016: $511k). Carrying amounts of segment assets exclude investments in subsidiaries.
3 Africa segment liabilities includes short and long-term provision of $28.7 million (2016: $35.7 million) and $5.2 million other
payables (2016: $803k). Carrying amounts of segment liabilities exclude intra-group financing.
4.
REVENUE
Revenue from the sale of oil and gas
Royalty income
Total operating revenue
2017
$000
4,143
290
4,433
2016
$000
4,555
260
4,815
70
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements 5.
LOSS FROM OPERATIONS
Loss from operations is stated after charging:
Staff costs
Share-based payments
Impairment of E&E assets
Depreciation of other non-current assets
An analysis of auditor’s remuneration is as follows:
Fees payable to the Group's auditors for the audit
of the Group's annual accounts
Audit of the Company's subsidiaries pursuant to legislation
Audit related assurance services
Total audit fees
See Note 2 for details on the above impairment.
Note
8
8
12
13
6.
COST OF SALES
Operating costs
Over/(under) lift of product entitlement
Onerous contract provision
7.
CHINGUETTI CESSATION CREDIT
Reassessment of decommissioning and closure costs
2017
$000
2,351
(73)
2,834
10
34
50
-
84
2017
$000
6,332
1,585
-
7,917
2017
$000
866
866
2016
$000
2,980
73
7,375
32
43
50
-
93
2016
$000
6,590
(628)
(3,700)
2,262
2016
$000
-
-
The Deed of Termination includes settlement of all claims under the Funding Agreement (see Note 25 on
page 87) giving rise to the reassessment of accrued costs.
71
Sterling Energy plc Report and Financial Statements 2017 8.
EMPLOYEE INFORMATION
The average monthly number of employees of the Group and Company was as follows:
Group
Company
2017
2016
2017
2016
Africa
Corporate support staff
Non-executive
4
5
3
12
5
9
3
17
-
-
3
3
Group and Company employee costs during the year amounted to:
Wages and salaries
Social security costs
Other pension costs
Compensation payments
Share-based payments
Group
Company
2017
$000
1,943
246
104
58
(73)
2016
$000
2,314
298
182
186
73
2017
$000
237
29
-
-
-
-
-
3
3
2016
$000
183
21
-
-
-
2,278
3,053
266
204
Key management personnel include Directors who have been paid $661k (2016: $696k). See Remuneration
Committee Report (pages 32 - 40) and Note 24 (page 87) for additional detail.
A portion of the Group’s staff costs and associated overheads are expensed as pre-licence expenditure or
capitalised where they are directly attributable to ongoing capital projects. In 2017 the amount expensed
as pre-licence or capitalised amounted to $1.5 million (2016: $2.7 million).
72
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements 9.
FINANCE INCOME AND FINANCE EXPENSE
Finance income:
Interest revenue on short-term deposits
Finance expense:
Bank charges
Unwinding of discount on decommissioning provision
Exchange differences
2017
$000
1,089
1,089
21
707
(98)
630
2016
$000
683
683
14
149
231
394
10.
TAXATION
The tax charge for the year is calculated by applying the applicable standard rate of tax as follows:
Loss before tax
Tax on loss on ordinary activities at standard
UK corporation tax rate of 19.25% (2016: 20.00%)
Effects of:
Expenses not deductible for tax purposes
Capital allowances in excess of depreciation
Adjustment for tax losses
Tax charge for the year
2017
$000
(9,000)
(1,733)
487
(449)
1,695
-
2016
$000
(8,529)
(1,706)
618
(600)
1,688
-
Deferred Tax
At the reporting date the Group had an unrecognised deferred tax asset of $19.1 million (2016: $17.8 million)
relating primarily to unused tax losses and unutilised capital allowances. No deferred tax asset has been
recognised due to the uncertainty of future profit streams against which these losses could be utilised.
At the reporting date the Company had an unrecognised deferred tax asset of $15.0 million (2016: $14.1
million) relating primarily to unused losses and unutilised capital allowances.
73
Sterling Energy plc Report and Financial Statements 2017 11.
EARNINGS PER SHARE
Loss for the year
(9,000)
(8,529)
(9,000)
Basic
Diluted
2017
$000
2016
$000
2017
$000
2016
$000
(8,529)
Weighted average number of ordinary shares
in issue during the year
220,053,520
220,053,520
220,053,520
220,053,520
Dilutive effect of share options outstanding
-
-
-
-
Fully diluted average number of ordinary
shares during the year
220,053,520
220,053,520
220,053,520
220,053,520
EPS (US cents)
(4.09)
(3.88)
(4.09)
(3.88)
The number of potentially dilutive ordinary shares in respect of All staff and NED LTIPs outstanding is nil as
at the year end (2016: 2,287,800) (see Note 23 on pages 85 and 86).
12.
INTANGIBLE EXPLORATION AND EVALUATION ASSETS
Net book value at 1 January 2016
Additions during the year
Impairment for the year
Net book value at 31 December 2016
Additions during the year
Impairment for the year
Net book value at 31 December 2017
Group
$000
25,074
1,147
(7,375)
18,846
5,029
(2,834)
21,041
Included within additions are accruals of $1.3 million relating to C-10.
Impairment for 2017 refers to the full impairment of the C-10 asset (2016: Ambilobe and C-3). See Note 2
(Impairment of assets) for details.
Group intangible assets at the year end 2017:
Odewayne PSA , Somaliland: SE(EA)L 34%, Genel Energy 50%, Petrosoma 16%
Classified as a joint arrangement in accordance with IFRS 11.
74
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements 13.
PROPERTY, PLANT AND EQUIPMENT
Group
Cost
At 1 January 2016
Additions during the year
At 31 December 2016
Additions during the year
Disposals during the year
At 31 December 2017
Accumulated depreciation and impairment
At 1 January 2016
Charge for the year
At 31 December 2016
Charge for the year
Disposals during the year
At 31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
Net book value at 31 December 2015
Oil and Gas
assets
Computer
and office
equipment
Total
$000
$000
$000
185,802
-
185,802
-
(185,802)
-
(185,802)
-
(185,802)
-
185,802
-
-
-
-
191
15
206
7
(59)
154
(157)
(32)
(189)
(10)
59
(140)
14
17
34
185,993
15
186,008
7
(185,861)
154
(185,959)
(32)
(185,991)
(10)
185,861
(140)
14
17
34
75
Sterling Energy plc Report and Financial Statements 2017 Company
Cost
At 1 January 2016
At 31 December 2016
Disposals during the year
At 31 December 2017
Accumulated depreciation and impairment
At 1 January 2016
At 31 December 2016
Disposals during the year
At 31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
Net book value at 31 December 2015
14.
INVESTMENT IN SUBSIDIARIES
Cost
At 1 January 2016
Additions during the year
At 31 December 2016
Impairment of investment in subsidiary
At 31 December 2017
Oil and Gas
assets
Computer
and office
equipment
Total
$000
$000
$000
185,802
185,802
(185,802)
-
(185,802)
(185,802)
185,802
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
185,802
185,802
(185,802)
-
(185,802)
(185,802)
185,802
-
-
-
-
Company
$000
29,113
35
29,148
(9,008)
20,140
See Note 2 (Company – Investment) for details on the above impairment assessment methodology.
76
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements The subsidiary undertakings at 31 December 2017 are as follows (these undertakings are included on
consolidation):
Country of
incorporation
Class of
shares
held
Type of
ownership
Proportion of
voting rights
held 2016
Proportion of
voting rights
held 2015
Nature of
business
Sterling Energy (UK)
Limited
United
Kingdom 5
Sterling Energy
(International)
Limited 1
United
Kingdom 5
Sterling Energy
Overseas Limited
United
Kingdom 5
Ordinary
Direct
100%
100%
Ordinary
Indirect
100%
100%
Ordinary
Direct
100%
100%
Sterling Energy
Mauritania Limited 2
United
Kingdom 5
Ordinary
Indirect
100%
100%
Sterling Northwest
Africa Holdings
Limited
Sterling Energy
Holdings Limited 3
Sterling Cameroon
Limited 4
Sterling Energy (East
Africa) Limited 4
Jersey, CI 6
Ordinary
Direct
100%
100%
Jersey, CI 6
Ordinary
Indirect
100%
100%
Jersey, CI 6
Ordinary
Indirect
100%
100%
Jersey, CI 6
Ordinary
Indirect
100%
100%
Exploration for
oil and gas
Exploration for
oil and gas
Investment
holding
company
Exploration for
oil and gas
Exploration for
oil and gas
Investment
holding
company
Exploration for
oil and gas
Exploration for
oil and gas
1 Held directly by Sterling Energy (UK) Limited
2 Held directly by Sterling Energy Overseas Limited
3 Held directly by Sterling Northwest Africa Holdings Limited
4 Held directly by Sterling Energy Holdings Limited
5 Registered address - 52-54 High Holborn, London, WC1V 6RL
6 Registered address - 12 Castle Street, St Helier, Jersey, JE2 3RT
77
Sterling Energy plc Report and Financial Statements 2017 15. TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts owed from subsidiary undertakings
Other receivables
Prepayments and accrued income
Group
Company
2017
$000
661
-
52
155
868
2016
$000
2,249
2017
$000
466
2016
$000
2,146
-
25,909
22,475
4,089
202
6,540
13
33
17
48
26,421
24,686
Trade and other receivables, neither past due nor impaired, consist of current receivables that the Group
views as recoverable in the short term.
The Directors consider that the carrying amount of trade and other receivables is a reliable estimate of their
fair value.
Transactions between subsidiaries are non-interest bearing and repayable on demand.
16. CASH IN BANK AND SHORT-TERM DEPOSITS
Cash at bank available on demand
Short-term deposits
Cash on hand
Group/Company
Julius Baer
Royal Bank of Scotland (RBS)
Group
Company
2017
$000
10,234
71,128
3
2016
$000
1,554
86,500
4
2017
$000
10,234
71,128
-
2016
$000
1,554
86,500
-
81,365
88,058
81,362
88,054
Term
6 months
3 months
2017
$000
20,000
10,000
2016
$000
-
-
6,500
40,000
40,000
86,500
Development Bank of Singapore (DBS)
2 and 3 months
40,000
HSBC
Overnight and 90 Day notice
Standard Chartered (Jersey)
12 months
1,128
-
71,128
At 31 December 2017, all short-term deposits mature within 90 days.
78
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements
17.
SHARE CAPITAL
Authorised, called up, allotted and fully paid
220,053,520 ordinary shares of 10p (2016: 220,053,520 ordinary shares of 40p)
28,143
149,014
2017
$000
2016
$000
18. RESERVES
On 14 June 2017 the Company completed the capital reduction as described in the circular published on
30 March 2017. The nominal value of each of the ordinary shares in the capital of Sterling (the ‘Ordinary
Shares’) was reduced from 40p to 10p resulting in a reduction to the share capital of $120.9 million. The
share premium account balance of $378.9 million has been cancelled.
Reserves within equity are as follows:
Share Capital
Amounts subscribed for share capital at nominal value.
Currency Translation Reserve
The foreign currency translation reserve includes movements that relate to the retranslation of the
subsidiaries whose functional currencies are not designated in US dollars.
Retained Earnings/Deficit
Cumulative net gains and losses recognised in the Statement of Comprehensive Income less any amounts
reflected directly in other reserves. The share option reserve has been included within the retained deficit
and is a non-distributable reserve.
79
Sterling Energy plc Report and Financial Statements 2017 19.
SHORT AND LONG-TERM PROVISIONS
Short-term provisions are detailed in the table below:
Group
Company
2017
$000
2016
$000
2017
$000
2016
$000
Decommissioning provision (a)
28,659
16,984
28,659
16,984
Odewayne consideration
Other provisions
-
-
4,000
200
-
-
-
-
28,659
21,184
28,659
16,984
At 31 December 2016 the Odewayne consideration provision was recognised due to the possibility of
certain operational milestones being met in 2017. In April 2017, the Company agreed to revised farm-out
terms, to reduce the staged contingent consideration payments due Petrosoma and reduce SE(EA)L
interest in the Odewayne asset by 6%.
The farm-out agreement was amended such that the parties cancelled the $8.0 million contingent
consideration in return for: (i) a payment by SE(EA)L to Petrosoma of $3.5 million; and (ii) a transfer from
SE(EA)L to Petrosoma of a 6% interest in the PSA.
a) Decommissioning provisions Group/Company
At 1 January
Transferred from long term provision
Transferred to payables
Used
Long-term provisions are detailed in the table below:
Decommissioning provisions Group/Company
At 1 January
Increase in decommissioning provision
Unwinding of discount
Transferred to short term provision
2017
$000
2016
$000
16,984
15,641
(3,841)
(125)
28,659
-
18,072
-
(1,088)
16,984
2017
$000
2016
$000
14,472
32,395
462
707
(15,641)
-
-
149
(18,072)
14,472
The amounts shown above represent the estimated costs for decommissioning the Group’s producing
interests in respect of its economic interest in the Chinguetti field in Mauritania (see Note 25 on page 87).
80
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements
20. TRADE AND OTHER PAYABLES
Trade payables
Amounts owed to subsidiary undertakings
Accruals
Group
Company
2017
$000
4,052
-
1,643
5,695
2016
$000
118
-
1,245
1,363
2017
$000
3,899
2016
$000
3
34,053
33,470
88
951
38,040
34,424
The Directors consider that the carrying amount of trade and other payables is a reliable estimate of their
fair value.
Transactions between subsidiaries are non-interest bearing and repayable on demand.
21. OPERATING LEASES AND CAPITAL COMMITMENTS
Group
Company
2017
$000
2016
$000
2017
$000
2016
$000
Minimum lease payments under operating
leases recognised as an expense in the year
5,226
4,737
4,794
4,308
At the reporting date outstanding commitments for minimum operating leases payments fall due as
follows:
Within one year
In the second to fifth year inclusive
Group
Company
2017
$000
233
223
456
2016
$000
1,745
-
1,745
2017
$000
-
-
-
2016
$000
1,387
-
1,387
The outstanding Group commitments in 2017 relate to the lease of the office premises.
In 2016 operating lease payments represent the Group’s share of rentals for the Berge Helene in Mauritania,
a BWO operated FPSO vessel and rentals payable for its office properties.
81
Sterling Energy plc Report and Financial Statements 2017 22. FINANCIAL INSTRUMENTS
Capital Risk Management and Liquidity Risk
The Group and Company is not subject to externally imposed capital requirements. The capital structure
of the Group and Company consists of cash and cash equivalents held for working capital purposes and
equity attributable to the equity holders of the parent, comprising issued capital, reserves and retained
earnings as disclosed in the Statement of Changes in Equity. The Group and Company uses cash flow
models and budgets, which are regularly updated, to monitor liquidity risk.
Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition,
the basis of measurement and the basis on which income and expenses are recognised, in respect of
each material class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the
financial statements. Due to the short-term nature of these assets and liabilities such values approximate
their fair values at 31 December 2017 and 31 December 2016.
Group
Financial assets (classified as loans and receivables)
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
Total
Company
Financial assets (classified as loans and receivables)
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
Total
82
Carrying amount/Fair value
2017
$000
2016
$000
81,365
88,058
713
6,338
82,078
94,396
5,695
5,695
1,363
1,363
Carrying amount/Fair value
2017
$000
2016
$000
81,362
88,054
26,388
24,638
107,750
112,692
38,040
38,040
34,424
34,424
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements Financial Risk Management Objectives
The Group’s and Company’s objective and policy is to use financial instruments to manage the risk profile
of its underlying operations. The Group continually monitors financial risk including oil and gas price
risk, interest rate risk, equity price risk, currency translation risk and liquidity risk and takes appropriate
measures to ensure such risks are managed in a controlled manner including, where appropriate, through
the use of financial derivatives. The Group and Company does not enter into or trade financial instruments,
including derivative financial instruments, for speculative purposes.
Interest Rate Risk Management
The Group and Company does not have any outstanding borrowings and thus, the Group and Company is
only exposed to interest rate risk on its short-term cash deposits.
Interest Rate Sensitivity Analysis
The sensitivity analysis below has been determined based on the exposure to interest rates at the reporting
date and assumes the amount of the balances at the reporting date were outstanding for the whole year.
A 100 basis point change represents management’s estimate of a possible change in interest rates at the
reporting date. If interest rates had been 100 basis points higher and all other variables were held constant
the Group’s profits and equity would be impacted as follows:
Cash and cash equivalents
Group Increase
Company Increase
2017
$000
814
2016
$000
881
2017
$000
814
2016
$000
881
Foreign Currency Risk
The Company’s functional currency is the US dollar, being the currency in which the majority of the
Group’s revenue and expenditure is transacted. Small elements of its management, services and
treasury functions are held and transacted in pounds sterling. Such elements transacted in pounds
sterling have been exchanged at; the average rate of $1.288/£1.00 (2016: $1.354/£1.00) or the year end
spot rate of $1.351/£1.00 (2016: $ 1.230/£1.00), depending on its nature and timing. The Group does not
enter into derivative transactions to manage its foreign currency. Foreign currency risk is immaterial to
the Group and Company – see the following table:
Financial Assets
Cash and cash equivalents
Cash and cash equivalents held in US$
Cash and cash equivalents held in GBP
Group
Company
2017
$000
80,365
1,000
81,365
2016
$000
2017
$000
2016
$000
87,646
80,364
87,641
412
998
413
88,058
81,362
88,054
83
Sterling Energy plc Report and Financial Statements 2017 Trade and other receivables
Trade and other receivables held in US$
Trade and other receivables held in GBP
Financial Liabilities
Trade and other payables
Trade and other payables held in US$
Trade and other payables held in GBP
Group
Company
2017
$000
544
169
713
2016
$000
6,241
97
6,338
2017
$000
21,113
5,275
26,388
2016
$000
23,005
1,633
24,638
Group
Company
2017
$000
5,182
513
5,695
2016
$000
1,011
352
1,363
2017
$000
31,378
6,662
38,040
2016
$000
28,058
6,366
34,424
Credit Risk Management
The Group has to manage its currency exposures and the credit risk associated with the credit quality of
the financial institutions in which the Group maintains its cash resources. At the year end the Group held
approximately 98.7% (2016: 99.5%) of its cash in US dollars. At the year end the Group held the majority of
its balances with AA- Standard & Poor’s or equivalent rated institutions. The Group continues to proactively
monitor its treasury management to ensure an appropriate balance of the safety of funds and maximisation
of yield.
Trade and other receivables are non-interest bearing. The Group does not hold any collateral as security
and the Group does not hold any significant provision in the impairment account for trade and other
receivables as they relate to customers with no default history. There are no financial instruments held at
fair value under the level 1, 2 and 3 hierarchy.
Liquidity and Interest Rate Tables
The following tables detail the remaining contractual maturity for the non-derivative financial assets and
liabilities of the Group and Company. The tables have been drawn up based on the undiscounted cash
flows of financial liabilities based on the earliest date on which the Group can be required to pay. The
table includes both interest and principal cash flows including rates for loan liabilities and cash deposits
on actual contractual arrangements. The weighted average interest rate used in 2017 is nil % (2016: nil %).
84
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements Less than
six months
Six months
to one year
$000
$000
One to
six years
$000
Total
$000
Interest
Principal
$000
$000
5,325
65
-
-
3,889
34,053
2
33,470
-
-
-
-
5,325
65
37,942
33,472
-
-
-
-
-
-
-
-
Group
Trade and other
payables (2017)
Trade and other
payables (2016)
Company
Trade and other
payables (2017)
Trade and other
payables (2016)
23.
SHARE-BASED PAYMENTS
The Group recognised a total income, within administration costs, in respect of share-based payments
under equity-settled share option plans of $73k (2016: $73k expense). The Company recognised a total
income, within administration costs, in respect of share-based payments under equity-settled share
option plans of $nil (2016: $nil).
All Staff LTIP
In accordance with the approved All Staff LTIP, the Group had granted options to its staff and executive
Directors to acquire shares in the Company.
The movement during the year, on the share options, was as follows:
2017
Number of
share options
2017
Exercise price
(pence)
2016
Number of
share options
2016
Exercise price
(pence)
Outstanding at the beginning of the year
2,153,800
Lapsed/forfeited during the period
(2,153,800)
Outstanding at the end of the year
Exercisable at the end of the year
-
-
40
40
40
-
6,116,500
(3,962,700)
2,153,800
-
40
40
40
-
There have been no options granted under the plan since 2014.
Fair values were measured by use of a modified binomial model.
85
Sterling Energy plc Report and Financial Statements 2017
All Staff LTIP Sub-Plan
In 2013 the Company introduced a HMRC approved sub-plan to the All Staff LTIP (‘HMRC Sub-Plan’).
The movement during the year, on the share options, was as follows:
2017
Number of
share options
2017
Exercise price
(pence)
2016
Number of
share options
2016
Exercise price
(pence)
Outstanding at the beginning of the year
Lapsed/forfeited during the period
Outstanding at the end of the year
Exercisable at the end of the year
134,000
(134,000)
-
-
40
40
40
-
1,069,500
(935,500)
134,000
-
42
42
40
-
There have been no options granted under the plan since 2014.
Fair values were measured by use of a modified binomial model.
NED LTIP
In accordance with the approved NED LTIP, the Group had granted options to its non-executive Directors
to acquire shares in the Company.
The movement during the year, on the share options, was as follows:
2017
Number of
share options
2017
Exercise price
(pence)
2016
Number of
share options
2016
Exercise price
(pence)
Outstanding at the beginning of the year
Lapsed/forfeited during the period
Outstanding at the end of the year
Exercisable at the end of the year
-
-
-
-
40
40
40
40
309,450
(309,450)
-
-
40
40
40
40
All options were forfeited by the non-executive Directors on leaving the Group in 2016.
There have been no options granted under the plan since 2012.
86
Sterling Energy plc Report and Financial Statements 2017GROUP ACCOUNTSYear ended 31 December 2017Notes to the Financial Statements 24. RELATED PARTY TRANSACTIONS
Details of Directors’ remuneration, which comprise key management personnel, are provided below:
Short-term employee benefits
Defined contribution pension
Share-based payments
Group
Company
2017
$000
708
-
-
708
2016
$000
671
25
(47)
649
2017
$000
237
-
-
237
2016
$000
183
-
-
183
Further information on Directors’ remuneration is detailed in the Remuneration Committee Report, on pages
32 – 40.
The Company’s subsidiaries are listed in Note 14. The following table provides the balances which are
outstanding with subsidiary undertakings at the balance sheet date:
Amounts owed from subsidiary undertakings
Amounts owed to subsidiary undertakings
2017
$000
25,909
(34,053)
(8,144)
2016
$000
22,475
(33,470)
(10,995)
25.
SUBSEQUENT EVENTS
Mauritania - termination of the Chinguetti Funding Agreement.
On the 26 January 2018 it was announced that the Company, the Government of Mauritania and SMHPM
agreed to terminate the Funding Agreement (‘Deed of Termination’).
The Deed of Termination provided for a payment (made on 26 January 2018) by Sterling to the Government
of Mauritania and SMHPM of $32.6 million to settle any and all claims under the Funding Agreement,
including Sterling’s obligation to pay for its share of A&D costs and outstanding 2018 operational
expenditures.
As at 31 December 2017 short-term provisions amounted to $28.7 million with trade payables of $3.8
million, being the amount due to SMHPM. The residual amount relating to operational expenditures will
be expensed in 2018.
87
Sterling Energy plc Report and Financial Statements 2017 Definitions and Glossary of Terms
$
Companies Act or
Companies Act 2006
US dollars
the Companies Act 2006, as amended
1P
2D
2P
3D
3P
A&D
AIM
proven reserves (both proved developed reserves + proved undeveloped
reserves).
two dimensional
1P (proven reserves) + probable reserves, hence “proved AND probable.”
three dimensional
the sum of 2P (proven reserves + probable reserves) + possible reserves, all 3Ps
“proven AND probable AND possible”
abandonment and decommissioning
AIM, a SME Growth market of the London Stock Exchange
All Staff LTIP
the All Staff Long-Term Incentive Plan adopted in 2009
AGM
Articles
bbl
bopd
boe
Board
City Code
Company
CoP
CSOP
Directors
D&P
E&E
E&P
Annual General Meeting
the Articles of Association of the Company
barrel, equivalent to 42 US gallons of fluid
barrel of oil per day
barrel of oil equivalent, a measure of the gas component converted into its
equivalence in barrels of oil
the Board of Directors of the Company
The City Code on Takeovers and Mergers
Sterling Energy plc
cessation of production
Company Share Option Plan (HMRC approved share option scheme)
the Directors of the Company
development and production assets
exploration and evaluation assets
exploration and production
EBITDAX (Adjusted)
earnings before interest, taxation, depreciation, depletion and amortisation,
impairment, share-based payments, provisions, and pre-licence expenditure
EITI
EUR
farm-in & farm-out
FA
FCA
FPSO
G&A
Extractive Industries Transparency Initiative
the total amount of hydrocarbons expected to be produced from the
hydrocarbon accumulation over the life of the project. Estimated ultimate
recovery is synonymous with recoverable resource and the terms are used
interchangeably.
a transaction under which one party (farm-out party) transfers part of its interest to
a contract to another party (farm-in party) in exchange for a consideration which
may comprise the obligation to pay for some of the farm-out party costs relating
to the contract and a cash sum for past costs incurred by the farm-out party
Funding Agreement
Financial Conduct Authority of the United Kingdom
Floating, Production, Storage and Offloading vessel
general and administrative
88
88
Sterling Energy plc Report and Financial Statements 2017
G&G
GBP
geological and geophysical
pounds sterling
Genel Energy
Genel Energy Somaliland Limited
Group
HMRC
HMRC Approved Sub-Plan
or HMRC Sub-Plan
HSSE
hydrocarbons
IAS
IFRS
Index
Jacka
JV
k
km
km2
KPIs
lead
the Company and its subsidiary undertakings
Her Majesty’s Revenue and Customs
The HMRC approved sub-plan of the All Staff LTIP
Health, Safety, Security and Environment
organic compounds of carbon and hydrogen
International Accounting Standards
International Financial Reporting Standards
FTSE 350 Index
Jacka Resources Somaliland Limited
joint venture
thousands
kilometre(s)
square kilometre(s)
key performance indicators
indication of a potential exploration prospect
London Stock Exchange or LSE
London Stock Exchange Plc
LTIP
M&A
m
mcf
NED LTIP
OECD
OPEC
OPU
long-term incentive plan
merger and acquisition
metre(s)
thousand cubic feet
Non-executive Director Long Term Incentive Plan adopted in 2009
Organisation for Economic Cooperation and Development
Organisation of the Petroleum Exporting Countries
Oil Protection Unit
Ordinary Shares
ordinary shares of 10 pence each
P90
P50
P10
Pmean
the value on a probabilistic distribution which is exceeded by 90% of the
outcomes.
the value on a probabilistic distribution which is exceeded by 50% of the
outcomes. The P50 is also the median value of the distribution.
the value on a probabilistic distribution which is exceeded by 10% of the
outcomes.
the average of the values in the probabilistic distribution between defined
‘boundary conditions’. Universally regarded as the best single value to quote or
communicate for any uncertain distribution of outcomes involved in repeated
trial investigations.
Panel or Takeover Panel
the Panel on Takeovers and Mergers
Petroleum
oil, gas, condensate and natural gas liquids
Sterling Energy plc Report and Financial Statements 2017
89
Definitions and Glossary of Terms (cont.)
Petroleum system
Petronas
Petrosoma
Premier
Pre Stack Depth Migration
Prospect
PSA
PSC
Pura Vida
QCA Code
RA
Reserves
Reservoir
Seismic
SESP
Shares
Shareholders
SMHPM
Subsidiary
Tcf
TSR
Tullow Oil
geologic components and processes necessary to generate and store
hydrocarbons, including a mature source rock, migration pathway, reservoir rock,
trap and seal.
PC Mauritania 1 PTY LTD
Petrosoma Limited (JV partner in Somaliland)
Premier Oil PLC
process by which seismic events are geometrically re-located in space and
depth to the location the event occurred in the subsurface
an area of exploration in which hydrocarbons have been predicted to exist in
economic quantity. A group of prospects of a similar nature constitutes a play.
production sharing agreement
production sharing contract
Pura Vida Mauritius
Corporate Governance Code for Small and Mid-Size Quoted Companies 2012
Royalty Agreement
reserves are those quantities of petroleum anticipated to be commercially
recoverable by application of development projects to known accumulations
from a given date forward under defined conditions. Reserves must satisfy
four criteria; they must be discovered, recoverable, commercial and
remaining based on the development projects applied. Reserves are further
categorised in accordance with the level of certainty associated with the
estimates and may be sub-classified based on project maturity and/or
characterised by development and production status
a porous and permeable rock capable of containing fluids
data, obtained using a sound source and receiver, that is processed to provide a
representation of a vertical cross-section through the subsurface layers
Sterling Energy plc share price
10p ordinary shares
ordinary shareholders of 10p each in the Company
Société Mauritanienne Des Hydrocarbures et de Patrimoine Minier
(Mauritania’s national oil company)
a subsidiary undertaking as defined in the 2006 Act
Trillion cubic feet
total shareholder return (End Share Price – Opening Share Price/Opening Share
Price) plus (Sum of Dividends per Share/Opening Share Price)
Tullow Mauritania Limited
United Kingdom or UK
the United Kingdom of Great Britain and Northern Ireland
Waterford Finance and Investment Waterford Limited
Working Interest or WI
a Company’s equity interest in a project before reduction for royalties or
production share owed to others under the applicable fiscal terms
90
Sterling Energy plc Report and Financial Statements 2017
Professional Advisers
Nominated Adviser and Corporate Broker
Peel Hunt
Moor House
120 London Wall
London
EC2Y 5ET
Corporate Bankers
The Royal Bank of Scotland Plc
1 Albyn Place
Aberdeen
AB10 1BR
Julius Baer & Co. Ltd
Freie Strasse 107
4001 Basle
Switzerland
HSBC
165 Fleet Street
London
EC4A 2DY
Legal
Memery Crystal LLP
165 Fleet Street
London
EC4A 2DY
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Registrars
Link Asset Services
6th Floor, 65 Gresham Street
London
EC2V 7NQ
Registered Office
High Holborn House
52-54 High Holborn
London
WC1V 6RL
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Tel: 01883 340341 www.blueasterisk.co.uk
Sterling Energy plc Report and Financial Statements 2017
91
Sterling Energy plc
High Holborn House
52-54 High Holborn
London
WC1V 6RL
Tel: +44 (0)20 7405 4133
Fax: +44 (0)20 7440 9059
info@sterlingenergyuk.com
www.sterlingenergyplc.com