Report and Financial Statements
2018
www.sterlingenergyplc.com
S T E R L I N G E N E R G Y P L C
Report and Financial Statements
Year ended 31 December 2018
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 emerging markets
including, Africa and the Middle East, although the
Board would consider other regions for material
opportunities. The Group has a high potential
exploration asset in Somaliland and an active
strategy to deliver shareholder value through
disciplined, exploration and production
projects; leveraging the Company’s
experience, with an emphasis on
securing near term cash flow
generative opportunities.
Somaliland
OVERVIEW
2018 Summary
Chairman’s Statement
Chief Executive’s Review
STRATEGIC REPORT
Operations Review
Asset Summary
Financial Review
Business Risk
CORPORATE GOVERNANCE
Board of Directors
Statement of Corporate Governance
Audit Committee Report
Nominations Committee
Remuneration Committee Report
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
17
24
26
29
30
31
39
40
43
46
50
51
52
53
54
55
56
57
82
85
1
S T E R L I N G E N E R G Y P L C
Overview
Year ended 31 December 2018
O V E R V I E W
2018 Summary
OPERATIONS
Throughout 2018: Odewayne block, Somaliland - Sterling continued to support the Operator in
progressing the technical understanding of the block
January 2018: Chinguetti, Mauritania - cessation of production (‘CoP’) and negotiated termination of
the Funding Agreement (‘Deed of Termination’)
CORPORATE
Continued merger and acquisition (‘M&A’) mandate for transformational growth (asset and corporate
options)
June 2018: Board and Management appointment of David Marshall as CEO
October 2018: Appointment of GMP FirstEnergy as the Company’s co-broker
FINANCIAL
Cash resources net to the Group at 31 December 2018 of $46.3 million (2017: $81.4 million)
The Group remains debt free and fully funded for all commitments
Adjusted EBITDAX1: loss for the Group of $1.5 million (2017: $5.9 million loss)
Ongoing focus on capital discipline, cash general and administrative overheads (‘G&A’) expenses
reduced by 25% to $3.0 million and is forecast to be ca. 15% lower in 2019
Proactive focus on treasury management, with interest received totaling $1.0 million (2017: $1.1 million)
POST YEAR END
Odewayne block, Somaliland; Operating Committee Meeting (‘OCM’) held early March where the
work program for 2019 was finalised by the Joint Venture (‘JV’) partners, including the reprocessing of
1,000km of 2D seismic to Pre-Stack Time Migration1 (‘PSTM’)
1defined within the definitions and glossary of terms on pages 82 – 84
4
Sterling Energy plc Report and Financial Statements 2018
Chairman’s Statement
The market conditions remained unstable
throughout 2018 with the oil price continuing
to be volatile; Brent peaking at $86/bbl in October
and sliding down to nearer $50/bbl three months
later. Uncertainty is high and material deals require
more time to evaluate and execute.
Our team is working hard screening a
number of opportunities. Expectation
is
these efforts will
materialise a value creating deal in
the near term.
from
that
The Somaliland acreage remains
very attractive, with costs carried
by our partner during the current
phase of the licence through to
drilling in the subsequent period.
The Operator
the
continues
interpretation of
processing and
the data gathered throughout the
Third Exploration Period and we are
engaging closely with the process
and the results. We see this as an
exciting and potentially material
exploration opportunity and look
forward to the possibility of drilling
over the next few years.
FINANCIAL
In 2018, business costs were further
reduced by continued overhead
initiatives and a focus on treasury
management. The Group had cash
resources of $46.3 million at the
end of 2018 and we remain free of
debt with our work programme for
2019 fully funded.
June 2018
BOARD
In
the Company
appointment
the
announced
of David Marshall as the Chief
Executive Officer and Director
of the Company. David has 35
years’ experience in oil and gas
production
development
and
specialising in technical solutions
from
for accessing production
stranded assets.
OUTLOOK FOR 2019
AND BEYOND
The outlook for 2019 is exciting. Post
Chinguetti the Company is pursuing
opportunities in our focus areas,
utilising our
technical expertise.
Should market conditions worsen,
we will preserve our capabilities,
to
strengths and cash position
weather any storm.
like
to
for
I would
thank all our
their continuing
stakeholders
support and all of our management
and staff for their diligent efforts
during 2018.
Michael Kroupeev
Chairman
22 March 2019
5
O V E R V I E W
Chief Executive’s Review
Sterling retains a strong position on
the AIM listed oil and gas sector with
a strong cash platform of $46.3 million and no
debt or other liabilities.
6
Sterling Energy plc Report and Financial Statements 2018
MARKET LANDSCAPE
Commodity prices in 2018 saw an
oil price between the $50-86 per
barrel range. Commodity prices
were very volatile, particularly in Q4
2018 when prices averaged $68 per
barrel. The beginning of 2019 has
already seen a steady rise in crude
prices, with crude prices up ca. 23%
from January 1st to mid-March.
Majors are stepping back from
large scale projects, investing more
capital into projects with shorter
payback timeframes. There is a clear
appetite in the market for buying
and selling existing production,
however we have seen early signs
that exploration projects are coming
into focus once again.
from
Markets and the news cycle have
been dominated by Britain’s
the
imminent withdrawal
European Union in March 2019.
Though the Company sees no direct
impact from BREXIT, equity markets
are
to be volatile during
the period preceding BREXIT and
possibly thereafter. More recently
Russia continues to cut production
and Venezuelan and Iranian exports
fall due to the impact of sanctions.
likely
The Company is well financed and
is positioned to take advantage of
acquisition opportunities during
these volatile market conditions.
OPERATIONS
the
During 2018 work on
Odewayne block in Somaliland
focused on undertaking
was
focused and rigorous
a highly
processing effort, with the primary
technical objective of improving
the deeper subsurface image; as
a part of this, Sterling finalised the
processing to PSTM of three test 2D
seismic lines and shared the results
with the JV. In 2019 we will continue
to support the Operator and look
forward to the results from the
reprocessing. The costs associated
with current period (Third Period)
and the Fourth Period are fully
carried by Genel Energy, hence
the minimal capital
investment
shown within the accounts.
termination of
In January 2018, Sterling completed
its Funding
the
Agreement for the Chinguetti oil
field in Mauritania, crystallising the
liability exposure. The completion
termination process was
of
the final step in the reorganisation
of the Group and now allows us
to concentrate on our corporate
strategy of securing a material
M&A transaction.
the
to
the
has
doubled
renewed
on
Activity
opportunity and asset screening
and we are gaining deal traction
focus
due
and simplicity of
the Group
as mentioned above. Many
smaller companies with viable
cash
developments but
reserves are looking for merger
opportunities, giving them access
to cash
is currently not
available from capital markets.
that
low
CORPORATE
Sterling retains a strong position on
the AIM listed oil and gas sector
with a strong cash platform of $46.3
million and no debt or other liabilities.
in
The Company has continued
to
reduce G&A and focus on robust
line
treasury management,
with the Board mandate for cash
preservation to maximise our ability
to deploy capital into existing and
new assets. In 2018 cash G&A
expenses
in
comparison to 2017. As we forecast
into 2019 the Company hopes to
further G&A savings of
achieve
ca. 15% whilst increasing interest
received by ca. 15%.
reduced by 25%
In 2018 the Company appointed
GMP FirstEnergy as joint corporate
broker, and legal M&A specialists
Pinsent Masons, as their expertise
in the Oil and Gas sector will
benefit the continued drive to a
material transaction.
We have a clear strategy and can
move quickly and decisively for
leveraging
the right opportunity,
our cash balance and technical
capabilities of the Sterling team to
good effect.
David Marshall
Chief Executive Officer
22 March 2019
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S T E R L I N G E N E R G Y P L C
Strategic Report
Year ended 31 December 2018
Operations Review
Since late 2015, the Company implemented
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
fully carried
Odewayne block provides
exposure to a frontier basin that has the potential
to deliver material hydrocarbon reserves.
Somaliland
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, through the 6th deed of amendment (as
mentioned on page 12) and its minimum work obligation
was met in 2017 when 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. The
minimum work obligation during the optional Fourth Period
of the PSA (also extended by 2 years) 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 early 2018, following encouraging results from an
integrated geoscience review in late 2017 of the basic
10
STRATEGIC REPORT post-stack processed 2D dataset provided by
the
Operator Genel Energy, Sterling undertook a highly
focused and rigorous processing effort, independent
of the Operator. The first phase deliverables were a full
PSTM dataset, consisting of 3 lines of ca. 235km and
were received in May 2018. These reprocessed lines
showed significant improvements in subsurface imaging
and were shared with the JV partners in order to assist the
decisions on forward work programs.
In parallel to Sterling’s efforts, the Operator undertook
a number of studies to support the interpretation of
the 2D seismic dataset. This included the integration of the
2D seismic data with the potentials field data in the form
of a 2D gravity modeling study, alongside an updated
review of the regional geology of the Odewayne basin.
These studies have led to the development of a number
of geological models that have been used to interpret
the seismic data and help support the likely presence
of a sedimentary basin. Following this work, the JV
partners have agreed that reprocessing of the seismic
data is needed to further improve the understanding of
the prospectivity of the Odewayne Basin.
OUTLOOK
2019 will see the reprocessing of the entire 2D seismic
dataset that was acquired in 2017. Processing will be
to PSTM (with the contingent option to include Pre-
Stack Depth Migration) and is expected to begin in
Q2 2019. Following receipt of the reprocessed data,
these will be interpreted with the objective of identifying
a number of leads for further investigation. Alongside
the seismic reprocessing, contingent activity includes a
surface seep study focused on areas highlighted by the
seismic interpretation as most likely to be situated above
migration pathways from hydrocarbon kitchens.
It is anticipated that the above work carried out in 2019
will allow the JV to develop a lead portfolio for the
licence that will form the basis for future work. This future
work could include infill 2D seismic data acquisition
over the most prospective areas with a view to maturing
a number of prospects to drill-ready status. Such infill
seismic would be acquired in 2020 or 2021 ahead of
a decision to enter the next exploration period (Fourth
Period), which includes the commitment to drill an
exploration well.
11
Sterling Energy plc Report and Financial Statements 2018 Asset Summary
Somaliland – Odewayne
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)
Sterling Energy (East Africa) Limited
Petrosoma Limited
50%
34%
16%
Exploration term
Current Period 3: To 2 November 2018 (see licence status)
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 the Third Period of the exploration term. The Group’s costs associated with the Third and Fourth period work programmes
are fully carried by Genel Energy.
The Third Period expiry, as described in the 6th Amendment to the PSC, is currently extended by 2 years, as are all subsequent
periods. Current expiry date of the Third Period is therefore February 2021.
12
STRATEGIC REPORT Sterling Energy plc Report and Financial Statements 2018
13
Financial Review
Year ended 31 December 2018
SELECTED FINANCIAL DATA
Revenue
Adjusted EBITDAX
Loss after tax
Year end cash net to the Group
Debt
Year end share price
$million
$million
$million
$million
$million
Pence
2018
0.5
(1.5)
(2.0)
46.3
-
10.4
2017
4.4
(5.9)
(9.0)
81.4
-
13.8
INCOME STATEMENT
During 2018 there was one lift from the Chinguetti field of 9,222 bbls (net to the Company) (2017: 92,056 bbls, from three
liftings) resulting in Group turnover of $534k (2017: $4.4 million).
Cost of sales totalled $515k (2017: $7.9 million).
Group cash G&A decreased by 25% during the year to $3.0 million (2017: $3.9 million). The continued reduction in the
Group’s administrative overhead is in keeping with the Board driven KPI for cash preservation.
Group administrative overhead (page 50)
Costs capitalised/recharged
Pre-licence expenditure
Share based payment expense
Other non-cash expenditure
Group cash G&A expense
2018
$ (million)
2017
$ (million)
(1.5)
(0.0)
(1.4)
(1.4)
-
0.0
(3.0)
(2.4)
(0.1)
(1.4)
(1.5)
(0.1)
0.1
(3.9)
In 2018, a portion of the Group’s staff costs and associated overheads have been expensed as pre-licence expenditure
($1.4 million), or capitalised/recharged ($39k) where they are directly assigned to capital projects or recharged. This
totalled $1.4 million in the year (2017: $1.5 million).
Other non-cash expenditure ($10k) relates to office asset depreciation.
Interest received during the year was $1.0 million (2017: $1.1 million). Net finance income (finance income less finance
expenses) totalled $1.0 million in the year (2017: $459k).
14
STRATEGIC REPORT The loss for the year was $2.0 million (2017: loss $9.0 million):
Loss for year 2017
Decrease in revenue
Decrease in cost of sales
Decrease in G&A and pre licence
Increase in net finance income
Impairment of C-10 (2017)
Chinguetti cessation credit (2017)
Loss for year 2018
$ (million)
(9.0)
(3.9)
7.4
1.0
0.6
2.8
(0.9)
(2.0)
ADJUSTED EBITDAX AND NET LOSS
Group adjusted EBITDAX loss totalled $1.5 million (2017: $5.9 million loss):
2018
$ (million)
2017
$ (million)
Loss after tax (page 50)
Finance costs
Pre-licence costs
Impairment
Chinguetti cessation costs
Share-based payments
Total EBITDAX (Adjusted)
The basic loss per share was $0.01 per share (2017: loss $0.04 per share).
No dividend is proposed to be paid for the year ended 31 December 2018 (2017: $nil).
(2.0)
(1.0)
1.5
-
-
-
(1.5)
(9.0)
(0.5)
1.6
2.8
(0.9)
(0.1)
(5.9)
15
Sterling Energy plc Report and Financial Statements 2018 Financial Review (cont.)
Year ended 31 December 2018
STATEMENT OF FINANCIAL POSITION
At the end of 2018, net assets/total equity stood at $67.3 million (2017: $69.3 million). Non-current assets relating to the
Odewayne block totalled $21.1 million (2017: $21.0 million). Net current assets reduced to $46.2 million (2017: $48.2 million).
At the end of 2018, cash and cash equivalents totalled $46.3 million (2017: $81.4 million), this reduction primarily due to
payments of; $32.5 million relating to the termination of the Chinguetti Funding Agreement and $1.3 million covering the
minimum work obligation on the C-10 block (Mauritania).
IFRS 9 (Financial Instruments) was adopted on 1 January 2018 and required the consideration of the risk associated with
the recoverability of intercompany loans between the Company and its subsidiary companies. This has resulted in an
impairment allowance in the accounts of the company and is further described in Note 1.
CASH FLOW
Net Group cash used in operating activities was $34.7 million (2017: $4.2 million outflow), primarily due to the termination
of the Chinguetti Funding Agreement. A full reconciliation of which is provided in the Consolidated Statement of Cash
Flows on page 53.
Cash investments in oil and gas assets are summarised below:
Mauritania
Somaliland
2018
$ (million)
2017
$ (million)
1.3
0.1
1.4
0.2
3.5
3.7
Minimal cash investments on the Odewayne Block in Somaliland during the year due to the Group’s interest being fully
carried by Genel Energy, for its share of the costs during the Third and Fourth Periods of the PSA.
Total net decrease in cash and cash equivalents in the year was $35.0 million (2017: $6.8 million).
ACCOUNTING STANDARDS
The Group has reported its 2018 and 2017 full year accounts under International Financial Reporting Standards (‘IFRS’),
as adopted by the European Union.
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.
16
STRATEGIC REPORT
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. In achieving its long-term success, the Group is exposed to a
number of risks and uncertainties which could have a material impact on the Company’s performance. Key to mitigating
the risks faced by the Company is ensuring Sterling has the correct Board and senior management team in place who
regularly review the business, approve the annual work programme and budget as well as consider monthly management
reporting, financial operating procedures, Health, safety, security and environment (‘HSSE’) and other important factors.
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.
During 2018 the rating of Financial, Commercial and Economic risks reduced following the Chinguetti exit which reduced
the Company’s residual exposure to A&D costs in light of the cessation of production from the Chinguetti oil field.
Furthermore, the termination of the Chinguetti funding agreement resulted in no further exposure for the Company to future
operational risk and/or cost overruns creating certainty for the Company as it entered 2018. The Company’s strategic risk
and operational risks remained the same with no change in the Company’s portfolio.
The Directors have identified the following principal risks and mitigations in relation to the Group’s future performance.
17
Sterling Energy plc Report and Financial Statements 2018 Business Risk (cont.)
Category
Risk
Mitigation
Change
Financial,
Commercial and
Economic
• Low commodity
prices
• Continued lower oil and gas commodity
prices and market volatility.
• Difficulty in capital raising for new
acquisitions and/or to fund development
activities.
• Market volatility
• Counterparty
distress
• Licence extension uncertainty. Licences,
permits or approvals may be difficult to
obtain and sustain.
External
• Country risk
• Climate change
• Legal
compliance
• Brexit
• Fiscal stability.
• Foreign currency risk.
• The Group’s assets are located in a non-
OECD country. Governments, regulations,
and the security environment may
adversely change, including the use of tax
claims, real or not. The Group’s assets in
Somaliland 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.
• Complex Legal and Regulatory
Compliance or litigation risk.
• The Group’s headquarters are located
in the UK, with continuing uncertainty
surrounding Brexit.
• Failure to recruit and retain key personnel
and/or engage in adequate succession
planning.
• Human error or deliberate negative action.
▼
►
• Group maintains a strong balance sheet
and remains fully funded for its existing
commitments.
• Management continually assess all existing
assets and proposed new acquisitions in
light of future capital requirements from a
disciplined lifecycle investment perspective.
• The Group holds the majority of its cash in
US dollars, the predominant currency used
in oil and gas operations.
• The Board monitors political, regulatory
and HSSE changes and engages 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 operates to high 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.
The Company continues to monitor the
situation regarding Brexit and in particular
reviews foreign exchange rates and interest
rates frequently and receives updates from
relevant government bodies to prepare for
a no-deal Brexit should this be the case.
18
STRATEGIC REPORT Strategic
• Concentration
of portfolio
• Competition
• Group’s remaining asset (Somaliland) is
concentrated on early stage frontier and
basin exploration and 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.
• Concentration of shareholder base.
• Failure to negotiate optimal contract terms.
• Inadequate management processes.
• Financial control of non-operated assets.
• Fraud, Bribery and corruption/increased
third party exposure.
• In appropriate or poorly conceived
corporate strategy and failure to deliver
on such strategy including failure to access
new opportunities.
Operational
• Exploration and
production risk
• Operator and
partner risk
• Exploration activities may not result in a
commercial discovery.
• The Group is dependent on other operators
for the performance of E&P activities, due
lack of control. This may result in delay in
conducting exploration work programmes.
• HSSE incident or non-compliance under
local rules and/or laws.
▲ Increased ▼ Decreased ► Unchanged
• The Board is actively seeking to diversify the
current portfolio risk by acquiring appraisal,
development and/or producing assets,
using existing financial resources of the
Group and additional capital (as required).
• The Board is pursuing an M&A strategy
and conducts detailed due diligence
prior to engagement with any prospective
transaction.
• Ongoing engagement with shareholders
to inform investment decisions (including
representatives on the Board).
• Key documentation and contract terms are
considered by the Board to ensure the best
possible outcomes are achieved.
• Management regularly monitor and amend
cost structure, investment strategy and
treasury policy to include countercyclical
investments.
• The Board meets regularly to review the
business plan, G&A expenses, strategy and
monthly reporting.
• Management aims to diversify and manage
risk across a portfolio of assets. Applying
the Group’s experience, expertise and
appropriate technology to minimise risk,
through the asset lifecycle.
• The Group carefully considers the technical,
HSSE and financial capabilities of
operators and potential partners during any
JV farm-out or new opportunity acquisition.
►
►
INTERNAL CONTROL
The Directors are responsible for establishing and maintaining the Group and the Company’s systems of internal control
including financial 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 expenditure. All major expenditures
require either senior management or Board approval at the appropriate stages of each transaction. A system of regular
reporting of 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.
19
Sterling Energy plc Report and Financial Statements 2018
Business Risk (cont.)
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.
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
Core competency of the Group
• Every individual to be aware of his/her responsibility towards providing a safe
and secure working environment;
• Managed through staff training and procedures to reduce HSSE risks as low as
reasonably practical;
• Appropriate emergency response systems are in place to reduce and mitigate the
impact and losses of any incident; and
• Ensure compliance with all relevant laws, regulations and industry standards.
JV partners
• The Group maximises its influence with JV partners to share its HSSE and social
responsibility values; and
• Contractors are required to demonstrate and deliver a credible HSSE and social
responsibility programme.
Environmental
• The Group is committed to minimising its impact on the environment in both field
operations and within its offices; and
• 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
Conducting 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; and
• In pursuing its business objectives, it undertakes not to compromise its Corporate
Social Responsibility with any of these stakeholders.
20
STRATEGIC REPORT Business Integrity
Conducting business with
honesty and fairness
integrity,
Community Responsibility
Committed to being a good partner in
the communities in which we operate
Employees
• Highest ethical standards are a cornerstone of the Group’s business;
• All business activities are reviewed to ensure they meet our standards;
• The Group also seeks to ensure that similar standards are applied by its business
partners, contractors and suppliers; and
• All members of staff are individually accountable for their actions to ensure that
they apply and maintain these standards.
• Engagement and dialogue with local stakeholders to ensure that, as far as
possible, projects benefit both the Group and the communities in which the project
is located.
Workplace free of discrimination
• All employees are afforded equal opportunities and are rewarded on merit and
ability;
• All employees are given contracts with clear and fair terms; and
• Staff offered access to relevant training and encouraged to join professional
bodies to enhance their knowledge, competencies, career development and
opportunities for progression.
Culture of openness
• High standards of conduct, accountability and propriety; and
• Employees can report legitimate concerns without fear of penalty or punishment.
Whistleblowing Policy
Empowers employees to be proactive
• Employees able to make anonymous reports directly to the Senior independent
non-executive Director; and
• Employees encouraged 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 Strategic Report was approved by the Board of Directors on 22 March 2019 and signed on its behalf by:
David Marshall
Chief Executive Officer
21
Sterling Energy plc Report and Financial Statements 2018 S T E R L I N G E N E R G Y P L C
Corporate Governance
Year ended 31 December 2018
Board of Directors
DAVID MARSHALL
CHIEF EXECUTIVE OFFICER
AGED 60
David joined Sterling Energy in June 2018. He has
35 years’ experience in oil and gas production and
for
in
development specialising
accessing production from stranded assets.
technical solutions
MICHAEL KROUPEEV
NON-EXECUTIVE CHAIRMAN
AGED 52
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 the Chairman of the Nominations Committee.
He has held managerial positions in onshore oil and
gas drilling and production operations
in Tunisia
and Turkmenistan, and offshore in the North Sea,
Gulf of Mexico, Gabon, the Middle East, Egypt and
Holland. More recently David served as CEO of DEO
Petroleum Limited, prior to its acquisition by Parkmead.
He subsequently worked for Enquest in Egypt prior to
becoming Chairman of Arenite Petroleum and Director of
Boreas Resources.
David holds a Master’s Degree in Petroleum Engineering
from Heriot Watt University and a Bachelor of Science
Honours Degree in Civil Engineering from Glasgow
University.
Michael has 25 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 at the London Business
school 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, former Soviet Union and the Middle East.
Michael also served as a Director of Sibir Energy Plc from
1998 till 2000.
24
CORPORATE GOVERNANCE LEO KOOT
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
AGED 56
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 29 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.
ILYA BELYAEV
NON-EXECUTIVE DIRECTOR
AGED 37
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.
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.
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.
Leo is currently the Chief Executive Officer of Columbus
Energy Resources PLC, a Managing Partner of MENA Gulf
Investments and a non-executive Chairman of Tulip Oil.
25
Sterling Energy plc Report and Financial Statements 2018
Statement of Corporate Governance
The Board recognises that good standards of corporate governance help the Company to achieve its strategic goals and
is vital for the success of the Company. The Company adopts proper standards of corporate governance and follows the
principles of best practice set out in the Quoted Companies Alliance Governance Code (2018) (the ‘QCA Code’), as far
as is appropriate for the size and nature of the Company and the Group.
The Company’s strategy and business model is set out in detail in the Strategic Report on pages 10 – 21 of this document.
Corporate Culture
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.
The Directors are mindful of the industry that the business operates in and of the impact of the Company’s business on its
employees, contractors, the environment and on the wider community. In particular, the importance of delivering success
in a safe environment is not undermined.
Board composition
As at 22 March 2019, the Board currently comprises Michael Kroupeev, the non-executive Chairman, David Marshall,
CEO, Leo Koot, Senior Independent non-executive Director and Ilya Belyaev, non-executive Director. The Board consider
Leo to be independent. Leo was appointed in 2017, his tenure is not concurrent with management and there are no other
factors which the Board consider may compromise his independence. As a representative of a major shareholder, the
Board do not consider Ilya to be independent.
Michael has over 25 years’ experience in the oil and gas sector having established Waterford Finance and Investment
Limited in 1995 which specialises in financing oil, gas and other energy related projects in emerging markets. Leo also
has significant experience in the energy sector as well as technical expertise. In addition to their sector experience, both
Michael and Leo have held a number of directorships of energy companies listed on AIM. As a private equity specialist
Ilya brings specific finance and transactional skills to the Board. David was appointed to the Board in June 2018 with a
mandate to use his technical understanding of the industry to identify and execute on a transformational M&A led growth
strategy for the Company.
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.
Following the resignation of Eskil Jersing on 21 December 2017 the Nominations Committee carefully considered
the balance of skills and experience remaining on the Board and which skills would be needed to replace the CEO.
The Nominations Committee identified that further M&A generation and execution skills were required to achieve the
Company’s strategy and to complement the existing transactional skills of existing Board members. A search process was
conducted which resulted in the appointment of David Marshall in June 2018, who the Board believe has the necessary
skillset to deliver the Company’s long-term strategy. In particular David has considerable experience in seeking out and
executing on M&A opportunities.
26
CORPORATE GOVERNANCE Board composition is reviewed by the Nominations Committee which met twice during the year to consider the balance of
skills, personal qualities and diversity, as well as a focus on succession planning of the CEO.
Functioning of the Board
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 43.
Each Director takes their continuing professional development seriously and undertakes training from relevant professional
and industry bodies in the form of attending seminars, conferences and continual updates of knowledge and industry
practice. Each Director and the employees of the Company are required to undertake Anti-Bribery and Corruption training
on an annual basis.
The Company’s Nomad provides regular updates to Board members in the areas of governance and AIM Regulations. The
Directors have access to the Company’s other advisers as required including the Company Secretary, legal advisers and
auditors and have the authority to obtain external advice as deemed necessary.
In January 2018 the Nominations Committee appointed Preng & Associates, an executive search agency, to advise the
Nominations Committee and the Board in respect of the replacement of Eskil Jersing.
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.
Conflicts of interest
Whilst conflicts should be avoided, the Board acknowledges that instances arise where this is not always possible. In such
circumstances, Directors are required to notify the Chairman before the conflict arises and the details are recorded in the
minutes. If a Director notifies the Board of such an interest, they may be, if requested by the Chairman, excluded from
any related discussion and will always be excluded from any formal decision. This was only required in one instance in
2018 in which a Director recused himself from any discussions pertaining to a particular M&A transaction which he had
an interest in.
Evaluation of the Board’s performance
Performance evaluation takes place informally 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. No formal Board performance evaluation took
place during 2018.
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.
27
Sterling Energy plc Report and Financial Statements 2018
Statement of Corporate Governance (cont.)
Meetings and time commitment of the Board
The Board and each of the Board Committees are provided with timely and accurate information sufficiently ahead of each
Board and Committee meeting to enable Board and Committee members to have sufficient time to review and analyse the
information provided. The Board meets monthly and the Committees meet on a less regular basis, with the Audit Committee
meeting at least twice a year, the Remuneration Committee meeting at least once a year and the Nominations Committee
meeting as required. In addition, as required, the Board holds conference calls to discuss urgent matters.
The Chief Executive is a full-time position. Non-executive Directors are expected to commit sufficient time to ensure they are
fully briefed in the Company’s affairs, have reviewed the Board papers provided ahead of meetings as well as attending
Board meetings. Non-executive Directors are also required to attend ad-hoc calls of the Board as well as other Company
business when required and liaise with the executive Director and other members of the team between Board meetings as
needed. The time commitments of each of the Directors was discussed with each Director prior to appointment and each
Director was required to confirm they had sufficient time to fulfil the role before accepting the appointment.
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
David Marshall (appointed 6 June 2018)
Eskil Jersing (notice period ended 21 June 2018)
Michael Kroupeev
Leo Koot
Ilya Belyaev
Board
Meetings
Audit
Committee1
Remuneration
Committee
Nominations
Committee
14
6
8
14
14
14
3
-
-
-
3
3
2
-
-
-
2
2
2
2
2
2
2
2
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.
Location of Corporate Governance Disclosures
The Company has elected to follow the recommendations of the QCA Code for the presentation of its Corporate
Governance disclosures. Accordingly, the Company’s Corporate Governance Statement contained on its website at
www.sterlingenergyplc.com sets out against each of the 10 Principles of the QCA Code where the disclosures relating to
each principle are located.
Michael Kroupeev
Chairman
22 March 2019
28
CORPORATE GOVERNANCE
Audit Committee Report
MEMBERS
This Committee currently comprises:
• Leo Koot (Chairman)
• Ilya Belyaev
The Audit Committee met three times during the year. 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.
SUMMARY OF RESPONSIBILITIES
• 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;
• reviewing the effectiveness of the Group’s financial reporting, internal control policies and procedures for the
identification, assessment and reporting of risk;
• 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 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.
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, as well as considering
significant issues throughout the year. The Committee reviewed and was satisfied that the judgments exercised by
management contained within the Report and Financial Statements are reasonable.
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. 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. The Committee
has recommended to the Board that shareholders support the re-appointment of BDO LLP at the 2019 AGM.
Further disclosure relating to the Auditors is set out with the Directors Report on pages 40 – 42.
Details of fees payable to the Auditors are set out in Note 5.
Leo Koot
Chairman of the Audit Committee
22 March 2019
29
Sterling Energy plc Report and Financial Statements 2018 Nominations Committee
MEMBERS
This Committee currently comprises:
• Michael Kroupeev (Chairman)
• David Marshall
• Leo Koot
• Ilya Belyaev
The Nominations Committee met twice at the beginning of the year to develop a suitable strategy to replace the CEO,
Eskil Jersing.
The Nominations Committee initially reviewed the skills and experience remaining on the Board and considered, in light of
the Company’s strategy, what particular skillset would be required from a new appointment. Having reviewed the balance of
skills on the Board the Committee liaised with the Company’s Nominated Adviser and was advised by Preng & Associates in
relation to the search for a replacement CEO. From a short list of potential candidates, interviews were conducted with Board
members present prior to a final offer being made to David Marshall on the recommendation of the Committee.
In addition to the replacement of the CEO, the Nominations Committee also considered the composition of the Board
generally, reviewing the skills and experience of the Board as a whole.
The Chairman of the Nominations Committee is responsible for the annual performance evaluation of Directors.
Michael Kroupeev
Chairman of the Nominations Committee
22 March 2019
30
CORPORATE GOVERNANCE Remuneration Committee Report
MEMBERS
This Committee currently comprises:
• Leo Koot (Chairman)
• Ilya Belyaev
The Remuneration Committee met twice during the year. The Company Secretary acted as secretary to the Committee and
the Chairman of the Board attended Committee meetings where appropriate.
SUMMARY OF RESPONSIBILITIES
• agreeing a policy for the remuneration of the Chairman, executive Director and other senior executives;
• within the agreed policy, determining individual remuneration packages for the Chairman, executive Director and
senior employees;
• agreeing the policy on terms and conditions to be included in service agreements for the Chairman, executive Director,
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.
During 2018 the Committee advised on the following matters:
• the 2018 review of achievement of corporate objectives/key performance indicators (‘KPIs’) and recommended the
Executive Directors and employees be rewarded for achieving some of the KPIs set by the Remuneration Committee
and partially achieving others;
• the 2018 non-executive Directors remuneration structure;
• the remuneration policy to ensure alignment of the executive Director and senior team with the Board approved strategic
mandate; and
• working with the Nominations Committee to formulate a remuneration package for the new CEO within the terms of
the Remuneration Policy.
Looking ahead to 2019 the Committee believes that the executive Director supported by the senior management team
have the appropriate structure to deliver the Company strategy of M&A led transformational growth initiatives. As in the
previous year, with regards the continued M&A mandate, 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 2018.
At the end of 2017 Eskil Jersing tendered his resignation as CEO. The report reflects Eskil’s remuneration until his termination
date of 21 June 2018 and David Marshall’s remuneration from the date of appointment on 6 June 2018.
The Committee appointed Preng & Associates, an executive search agency, to assist in the recruitment of David Marshall.
The Committee received external legal advice in relation to the appointment of David Marshall and the termination of Eskil
Jersing’s contract.
This report will explain how the Company’s remuneration policy was implemented in 2018 and how it will be applied for 2019.
Leo Koot
Chairman of the Remuneration Committee
22 March 2019
31
Sterling Energy plc Report and Financial Statements 2018 Remuneration Committee Report (cont.)
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
and following year end the Board resolved to terminate the existing scheme. 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 Director accepting appointments as non-executive Directors of
other companies; however, if he accepts more than two such appointments, they are required to deduct such fees for those
appointments from their Company executive remuneration.
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 the
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 Committee has not directly
engaged the services of any remuneration consultants during the year.
Details of individual components of executive and non-executive remuneration are:
Base Salary
Purpose and link to strategy
To be the foundation of the Directors remuneration packages and 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.
Operation
• Base salary is reviewed annually taking into account the Directors’ performance,
individual responsibilities and experience.
• The Committee uses comparator data where possible, collected from published
accounts and industry surveys of peer companies to determine the base salary for
the executive Director.
• The Committee also considers matters of retention, motivation and economic
climate as well as the challenges facing the business.
• 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
32
CORPORATE GOVERNANCE Performance related bonuses
Purpose and link to strategy
Operation
Pension provision
Purpose and link to strategy
Operation
Benefits
Purpose and link to strategy
Operation
To incentivise and reward, on an annual basis, the performance of individuals and
the Group on both financial and non-financial metrics.
• Objectives/KPIs are set, prior to the year under review, to align near-term goals
with the longer-term sustainable future of the Group. Individual performance is
also considered when awarding a bonus.
• KPIs are relevant to the award, stretched and designed to enhance shareholder
value and to promote the long-term success of the Company.
• 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 the executive Director is
capped at 100% of annual salary.
• Bonuses are paid in cash after the end of the financial year to which they
relate unless the element of the bonus is directly linked to a specific KPI which
is achieved during the year whereupon an interim bonus may be paid at the
discretion of Board, as advised by the Remuneration Committee.
• The bonus is non-contractual and is discretionary.
• Non-executive Directors do not participate in the bonus scheme.
To provide competitive retirement benefits commensurate with schemes offered by
peer companies.
• The Group operates a defined contribution pension scheme pursuant to which
it contributes 10% of pensionable salary per eligible member to the individual
Director’s personal pension plan as chosen by the individual Director.
• Scheme membership and contribution is linked to the member’s base salary.
• The Company operates no defined benefit schemes.
• Non-executive Directors are not eligible to receive pension contributions.
To provide competitive cost-effective benefits to assist in attracting and retaining
appropriate Directors required to deliver the Group’s strategy.
• The Group subscribes to a number of benefits for employees and Directors which
include life assurance, travel insurance, income protection, subsidised fitness
centre membership and private medical insurance (or associated cash plan which
is subject to an annual limit).
• The Group maintains Directors’ and Officers’ liability insurance cover and
provides the Directors with an indemnity, the level of which is reviewed annually.
• Where appropriate some of these benefits are linked to base salary.
33
Sterling Energy plc Report and Financial Statements 2018 Remuneration Committee Report (cont.)
LTIP AND HMRC APPROVED SHARE OPTION SCHEMES
The Committee awarded no options under the All Staff LTIP or HMRC Approved schemes during the year and all awards
under these existing Schemes lapsed in 2017. Following year end, the Board terminated these schemes. Towards the end
of 2018 the Remuneration Committee worked to establish a new HMRC approved Company Share Option Plan (‘CSOP’).
No awards have been made under this new plan to-date.
OTHER MATTERS
No Director currently has a notice period greater than 3 months and the service contract of the executive Director contains
no provision for pre-determined compensation on termination, which exceeds 3 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.
REPORT ON REMUNERATION
The table below reports single figure remuneration of the Directors:
2018 Remuneration
Executive Directors:
David Marshall
(appointed 6 June 2018) 1
Fees and
basic salary
£
113,846
Bonus
£
-
Defined
contribution
pension
£
Benefits
in kind
£
Single figure
remuneration
Total 2018
£
11,385
2,951
128,182
Eskil Jersing
(notice period ended 21 June 2018) 2
135,338
60,000
5,029
200,368
-
-
-
-
-
-
-
-
-
-
102,800
51,400
37,008
519,757
693,867
60,000
80,099
11,385
15,198
7,980
10,654
Non-executive Directors:
Michael Kroupeev
Leo Koot
Ilya Belyaev
Aggregate remuneration 2018 (£)
Aggregate remuneration 2018 (US$)
102,800
51,400
37,008
440,392
587,916
34
CORPORATE GOVERNANCE 2017 Remuneration
Executive Directors:
Eskil Jersing 3/4
Non-executive Directors:
Michael Kroupeev
Leo Koot
Ilya Belyaev
Aggregate remuneration 2017 (£)
Aggregate remuneration 2017 (US$)
Fees and
basic salary
Bonus
£
£
Defined
contribution
pension
£
Benefits
in kind
£
Single figure
remuneration
Total 2017
£
305,580
15,249
100,000
47,564
34,246
487,390
628,165
-
-
-
15,249
19,653
-
-
-
-
-
-
9,922
330,751
-
-
-
9,922
12,788
100,000
47,564
34,246
512,561
660,606
1 Excludes bonus amount of £26k awarded and accrued at year-end, which was paid on 26 February 2019.
2 Fees and basic salary include £13k pension contributions paid as cash.
3 Excludes bonus amount of £35k awarded and accrued at 2017 year-end, which was paid on 4th May 2018.
4 Fees and basic salary include £28k pension contributions paid as cash.
REMUNERATION OF THE EXECUTIVE DIRECTORS
Base Salary
David Marshall was appointed to the position of CEO on 6 June 2018 on an annual base salary of £200,000. He
received a 10% pension contribution and other benefits as set out above.
Eskil Jersing resigned in December 2017 and left the Company on 21 June 2018. He received a 10% non-contributory
pension contribution paid directly to him and other benefits as set out above.
Bonus
In respect of David Marshall, the Committee agreed that the annual bonus opportunity would be up to 100 per cent of
base salary pro-rated to the Directors length of service in the period and the Committee set new KPIs for H2 2018 relating
to his performance. The Committee considers the specifics of the KPIs to be commercially sensitive as they reflect the
Company’s ongoing commercial strategy however generally they focus on M&A led transformational growth initiatives
and preservation of the Group’s cash position. The Committee assessed that this target had been partially achieved and
accordingly awarded a bonus of £26k to the Executive Director.
35
Sterling Energy plc Report and Financial Statements 2018
Remuneration Committee Report (cont.)
In respect of Eskil Jersing, the Committee agreed that his annual bonus opportunity would be up to 100 per cent of base
salary pro-rated to the Director’s length of service in the period. The following objectives were agreed for 1H 2018:
i) To secure a commercially acceptable exit for the Company in respect of its Chinguetti asset: The Committee agreed that
this target had been achieved and £35k of the bonus paid to Eskil Jersing related to this element and was awarded and
accrued at year end 2017 but only paid following the Company’s position being finalised in January 2018;
ii) The second KPI is considered commercially sensitive but related to the Company’s M&A led growth initiatives: The
Committee agreed that this target had not been achieved in full however they noted a significant contribution from the
executive Director and accordingly a £25k bonus was allocated to this element.
Service Agreement
The Service Agreement of the executive Director is for a 12 month period, which may be extended and contains a
contractual notice period of 3 months.
The Director’s service contract (and letters of appointment for the non-executive Directors) are available to view at the
Company’s registered office and prior to each Annual General Meeting at the venue of the meeting.
Eskil Jersing received no payment for loss of office during the period.
REMUNERATION OF THE NON-EXECUTIVE DIRECTORS
No individual Directors were involved in the determination of their own remuneration. The Chairman and non-executive
Directors are not entitled to participate in the Company’s executive remuneration programmes or pension arrangements.
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
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
Non-executive Director fees were last increased in January 2018 and no further increase will be made for 2019.
Save for the fees outlined above, the non-executive Directors are not entitled to a bonus or any other benefits or
arrangements.
No fees were paid to the non-executive Directors for membership of any Board committee or for attending Board
committee meetings.
36
CORPORATE GOVERNANCE
RELATIONSHIP AGREEMENT
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’).
IMPLEMENTATION OF EXECUTIVE DIRECTOR (DAVID MARSHALL) REMUNERATION POLICY FOR 2019
Base Salary
Annual Bonus
£200,000
Opportunity
• 100%
KPI’s
• Linked to preservation of Group’s cash position
• M&A growth led initiatives
CSOP share options
Up to £30,000 (to be awarded)
Pension
Benefits
10% paid into a defined contribution scheme of the Directors choice
Full range of Company benefits as detailed in Remuneration Policy above
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 $19k in 2018 (2017: $23k).
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
(%)
2018
2017
2016
2015
2014
2013
David Marshall 1 / Eskil Jersing 2
328,550
(0.7%)
Eskil Jersing 2
Eskil Jersing
Alastair Beardsall 3 / Eskil Jersing
330,751
328,881
290,184
0.6%
13.3%
32.0%
Alastair Beardsall 3
219,801
(51.3%)
Angus MacAskill 4 / Alastair Beardsall 3
451,417
52.4%
24%
5%
4%
-
-
-
1 Excludes bonus amount of £26k awarded and accrued at year-end, which was paid on 26 February 2019.
2 Excludes bonus amount of £35k awarded and accrued in 2017, paid on 4 May 2018 and included with the 2018 remuneration figure.
3 Part-time.
4 Includes £74,745 paid as compensation for loss of office.
-
-
-
-
-
-
37
Sterling Energy plc Report and Financial Statements 2018
Remuneration Committee Report (cont.)
The annual percentage change in CEO single figure remuneration for years 2013 to 2018 compares with that of all
employees: 8.5%, (19.8%), 11.1%, (6.0%), (21.6%) and (21.8%) respectively.
The table below shows the total Group remuneration compared to the total distribution to shareholders:
2018
2017
Total Group
remuneration (£)
1,349,059
1,658,901
Total distribution
to shareholders
-
-
DIRECTORS AND THEIR INTERESTS (AUDITED)
The Directors, who served during the year, together with their beneficial interests in the issued share capital of the Company,
were as follows:
Ordinary shares
of 10p each
David Marshall (appointed 6 June 2018) 1
Eskil Jersing (notice period ended 21 June 2018) 1
Michael Kroupeev 2
Leo Koot 3
Ilya Belyaev 4
22 March
2019
31 December
2018
31 December
2017
-
-
-
-
-
-
64,815,517
64,815,517
64,815,517
-
-
-
-
-
-
1 Executive Director.
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.
38
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 2018:
Mauritania - Chinguetti 1
Mauritania - C-10 2
Somaliland - Odewayne 3
2018
$000
-
-
75
75
2017
$000
1,158
224
75
1,457
1 Payments above made by Petronas (Sterling Energy plc pays its share of cost). Excluded from the table above are payments made to
SMHPM under the terms of the deed of termination relating to the Chinguetti Funding Agreement, totalling $32.6 million in 2018
(2017: $5.9 million).
2 Gross payments made by Tullow (SEML pays its share of cost).
3 Payments made by Genel Energy (SE(EA)L fully carried for its share of cost).
39
Sterling Energy plc Report and Financial Statements 2018 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 2018.
PRINCIPLE ACTIVITY AND BUSINESS REVIEW
The principal activity of the Group and Company throughout the year was the exploration of oil and gas with a primary
geographic focus on Africa and the Middle East, with an extension of the area for material opportunities. The significant
developments during 2018 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 13 to the financial statements.
The Group uses a number of KPIs to assess the business performance against strategy, in 2018 these included; M&A
led growth initiatives, managing the Group’s financial exposure to its existing assets and the continued reduction in the
Group’s administrative overhead.
RESULTS AND DIVIDENDS
The Group loss for the financial year was $2.0 million (2017: loss $9.0 million). This leaves an accumulated Group
retained earnings of $39.4 million (2017: retained earnings of $41.3 million) to be carried forward. The Directors do not
recommend the payment of a dividend (2017: $nil).
DIRECTORS LIABILITIES
Qualifying third-party indemnity provisions for the benefit of all of the Directors were in force throughout the financial year
and they remained in force as at the date of approval of the Annual Report as described in the Remuneration Committee
report pages 31 – 38.
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 14 – 16. In addition, Note 21 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.
40
CORPORATE GOVERNANCE 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 16 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. No
person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
DIRECTORS
The Directors who served during the year were as follows:
Mr. David Marshall (appointed 6 June 2018)
Mr. Eskil Jersing (notice period ended 21 June 2018)
Mr. Michael Kroupeev
Mr. Leo Koot
Mr. Ilya Belyaev
Biographical details of serving Directors can be found in the Board of Directors section of this report on pages 24 and 25.
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
22 March 2019:
Waterford Finance & Investment Ltd
Zion SPC - Access Fund SP
Mistyvale Limited
Denis O'Brien
Credit Suisse
Number
64,815,517
36,611,361
34,467,790
15,750,000
14,994,104
%
29.45
16.64
15.66
7.16
6.81
41
Sterling Energy plc Report and Financial Statements 2018 Directors’ Report (cont.)
BUSINESS RISK
A summary of the principle and general business risks can be found within the Strategic Report on pages 17 – 21.
FINANCIAL INSTRUMENTS
Information about the use of financial instruments, the Group’s policy and objectives for financial risk management is given
in Note 21 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 2019.
David Marshall
Chief Executive Officer
22 March 2019
42
CORPORATE GOVERNANCE 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 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 judgements 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
David Marshall
Chief Executive Officer
22 March 2019
43
Sterling Energy plc Report and Financial Statements 2018 S T E R L I N G E N E R G Y P L C
Group Accounts
Year ended 31 December 2018
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 2018
which comprise the consolidated and parent company
the consolidated
statements of
statement of comprehensive income, the consolidated
and the parent company statement of changes in equity,
the consolidated and the parent company statement of
cash flows and notes to the financial statements, including
a summary of significant accounting policies.
financial position,
further described in the Auditor’s responsibilities for the
audit of the financial statements section of our report.
We are independent of the Group and the Parent
Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as
applied to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide
a basis for our opinion.
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
the financial
the preparation of
accounting
statements is not appropriate; or
in
• 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.
that,
those matters
KEY AUDIT MATTERS
Key audit matters are
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.
framework
financial reporting
that has been
The
applied in the preparation of the financial statements is
applicable law and 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 2018 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)) and applicable
law. Our responsibilities under those standards are
46
GROUP ACCOUNTS MATTER
Carrying Value of Exploration Assets
As at 31 December 2018, the carrying value of Odewayne was $21.1 million (2017: $21.0 million), as disclosed in Note 11 to the
financial statements. The Company holds a 34% interest in the Odewayne Block, fully carried by Genel Energy Somaliland Limited
(‘Genel’) for its shares of the costs of all exploration activities during the Third and Fourth Periods of the production sharing agreement.
The Third Period has been extended to 2 November 2019 and has a minimum work obligation of 500km of 2D seismic. The Fourth
Period has also been extended to May 2020 and has a minimum work obligation of 1,000km of 2D seismic and one exploration well.
Management performed an impairment indicator review in accordance with accounting standards to assess whether there were
any indicators of impairment for the exploration assets and whether impairment was appropriate. Following this assessment, the
Board concluded that no impairment was required.
Given the inherent judgement involved in the assessment of the carrying value of the exploration assets, we considered the carrying
value of exploration assets to be a significant risk for our audit.
Our Response
• We considered Management’s assessment of the indicators of impairment and we confirmed there is an ongoing expectation
that exploration in the licence areas will continue. We have also reviewed the licence agreement and the Participation.
• We made enquires at appropriate management levels of possible commitments and contingent liabilities and none were noted.
• Contracts were reviewed to ensure that the group is being carried until the Fourth Period by Genel, and that Genel are
contractually committed to develop the prospect until then. Odewayne licence extension to 2020 was also verified. There is no
evidence to suggest that either party is planning to abandon the asset.
• We have reviewed management reports, OCM, TCM minutes and public announcements to understand the future prospects of
the asset and the desire to further develop the asset. The latest information is inconclusive with regards to future commerciality,
however, due to the early stages of the venture and the need to carry out future interpretation of the seismic data, this is not
seen as an indicator of impairment.
• We reviewed the FY19 budgets and work programmes to confirm the group’s intention to continue to fund exploration activity
on this licence.
• We considered the adequacy of the disclosures made in the financial statements to ensure that this was consistent with both the
conclusions from our audit testing and accounting standards.
Our Findings
We found management’s assessment that there were no indicators of impairment at the reporting date to be appropriate. We found
the disclosures in the financial statements to be relevant and informative.
OUR APPLICATION OF MATERIALITY
Group Materiality
Company materiality
2018
$1.36m
$1.02m
2017
$1.42m
$1.34m
Bases for materiality
2% of total assets
2% of total assets capped at 75% of Group materiality
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.
47
Sterling Energy plc Report and Financial Statements 2018 Independent Auditors’ Report (cont.)
to the members of Sterling Energy plc
total assets
Our basis for determination of materiality has remained
the
unchanged. We consider
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.
to be
Whilst materiality for the financial statements as a whole
was $1.36 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.
Performance materiality is 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
financial
misstatements exceeds materiality
statements as a whole. Performance materiality was set at
75% (2017: 75%) of the above materiality levels.
the
for
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 $27k (2017: $71k).
We also agreed to report differences below these thresholds
that, in our view, warranted reporting 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.
The remaining components of the group were considered
non-significant and these components were principally
subject to analytical review procedures, together with
additional substantive testing over the risk areas detailed
above where applicable to that component.
All audit work (full scope audit or review work) was
conducted by BDO LLP.
48
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.
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 information is
materially 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.
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.
MATTERS 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.
GROUP ACCOUNTS 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
As explained more fully in the Directors’ responsibilities
statement set out on page 43, the Directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view,
and for such internal control as the Directors determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and 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.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF
THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement
when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website:
www.frc.org.uk/auditorsresponsibilities
This description forms part of our auditor’s report.
USE OF OUR REPORT
This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent Company’s
members as a body, for our audit work, for this report, or for
the opinions we have formed.
Scott McNaughton
Senior Statutory Auditor
For and on behalf of BDO LLP, Statutory Auditor
22 March 2019
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
49
Sterling Energy plc Report and Financial Statements 2018 Consolidated Statement of Comprehensive Income
Year ended 31 December 2018
Note
31 December 2018
$000
31 December 2017
$000
Revenue
Cost of sales
Gross profit/(loss)
Other administrative expenses
Pre-licence costs
Impairment of oil and gas exploration assets
Chinguetti cessation credit
Total administrative expenses
Loss from operations
Finance income
Finance expense
Loss before tax
Tax
4
6
5
8
8
9
Loss for the year attributable to the owners of the parent
Other comprehensive expense - items to be reclassified to
the income statement in subsequent periods
Currency translation adjustments
Total other comprehensive expense for the year
Total comprehensive expense for the year attributable to
the owners of the parent
Basic and diluted loss per share (US cents)
10
534
(515)
19
(1,546)
(1,453)
-
-
(2,999)
(2,980)
1,044
(20)
(1,956)
-
(1,956)
(12)
(12)
(1,968)
(0.9)
4,433
(7,917)
(3,484)
(2,379)
(1,628)
(2,834)
866
(5,975)
(9,459)
1,089
(630)
(9,000)
-
(9,000)
(20)
(20)
(9,020)
(4.09)
50
GROUP ACCOUNTS Consolidated Statement of Financial Position
Year ended 31 December 2018
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
Currency translation reserve
Retained earnings
Total equity
Current liabilities
Short-term provisions
Trade and other payables
Total liabilities
Total equity and liabilities
Note
31 December 2018
$000
31 December 2017
$000
11
12
14
15
16/17
17
18
19
21,093
8
21,101
-
390
46,312
46,702
67,803
28,143
(201)
39,387
67,329
-
474
474
474
67,803
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
The financial statements of Sterling Energy plc, registered number 1757721, were approved by the Board of Directors and
authorised for issue on 22 March 2019.
Signed on behalf of the Board of Directors.
David Marshall
Chief Executive Officer
22 March 2019
51
Sterling Energy plc Report and Financial Statements 2018 Consolidated Statement of Changes in Equity
Year ended 31 December 2018
Note
Share capital
Share
premium
$000
$000
Currency
translation
reserve
$000
Retained
earnings 1
Total
$000
$000
149,014
378,863
(169)
(449,318)
78,390
At 1 January 2017
Loss for the year
Currency translation adjustments
Total comprehensive expense for
the year attributable to the owners
of the parent
-
-
-
-
-
-
Capital reduction
17
(120,871)
(378,863)
Share option credit for the year
At 31 December 2017
Loss for the year
Currency translation adjustments
Total comprehensive expense for
the year attributable to the owners
of the parent
-
28,143
-
-
-
At 31 December 2018
28,143
-
-
-
-
-
-
-
(20)
(20)
-
-
(189)
-
(12)
(12)
(9,000)
(9,000)
-
(20)
(9,000)
(9,020)
499,734
(73)
41,343
(1,956)
-
-
(73)
69,297
(1,956)
(12)
(1,956)
(1,968)
(201)
39,387
67,329
1 The share option reserve has been included within the retained earnings reserve and is a non-distributable reserve.
52
GROUP ACCOUNTS Consolidated Statement of Cash Flows
Year ended 31 December 2018
Note
Operating activities
Loss before tax
Depreciation, depletion & amortisation
12
Impairment expense
Chinguetti cessation credit
Finance income and gains
Finance expense and losses
Share-based payment charge
Decommissioning costs paid
Operating cash flow prior to working capital movements
Decrease in inventories
Decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Decrease in provisions
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
18/19
18
8
12
11
Cash and cash equivalents at end of year
15
2018
$000
(1,956)
10
-
-
(1,044)
12
-
(32,500)
(35,478)
363
478
(41)
-
(34,678)
1,044
(4)
(1,391)
(351)
(35,029)
81,365
(24)
46,312
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)
1,089
(7)
(3,690)
(2,608)
(6,760)
88,058
67
81,365
53
Sterling Energy plc Report and Financial Statements 2018 Company Statement of Financial Position
Year ended 31 December 2018
Non-current assets
Investments
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Retained earnings
Total equity
Current liabilities
Short-term provisions
Trade and other payables
Total liabilities
Total equity and liabilities
Note
31 December 2018
$000
31 December 2017
$000
13
14
15
16/17
17
18
19
20,140
20,140
-
19,414
46,310
65,724
85,864
28,143
24,780
52,923
-
32,941
32,941
32,941
85,864
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
The profit for the financial year within the Company accounts of Sterling Energy plc was $336k (2017: $16.3 million
loss). 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 22 March 2019.
Signed on behalf of the Board of Directors
David Marshall
Chief Executive Officer
22 March 2019
54
GROUP ACCOUNTS
Company Statement of Changes in Equity
Year ended 31 December 2018
Note
Share capital
$000
Share
premium
$000
Retained
earnings 1
$000
Total
$000
At 1 January 2017
149,014
378,863
(449,921)
77,956
Total comprehensive expense for the year
-
-
(16,296)
(16,296)
Capital reduction
17
(120,871)
(378,863)
499,734
Share option credit for the year
At 31 December 2017 previously stated
Changes in accounting policy - IFRS 9
-
28,143
-
At 1 January 2018 as restated
21
28,143
Total comprehensive income for the year
At 31 December 2018
-
28,143
-
-
-
-
-
-
1 The share option reserve has been included within the retained earnings reserve and is a non-distributable reserve.
(73)
33,444
(9,000)
-
(73)
61,587
(9,000)
24,444
52,587
336
336
24,780
52,923
55
Sterling Energy plc Report and Financial Statements 2018 Company Statement of Cash Flows
Year ended 31 December 2018
Note
18/19
18
8
Operating activities
Profit/(loss) before tax
Chinguetti cessation credit
Impairment of investment
Finance income and gains
Finance expense and losses
Decommissioning costs paid
Operating cash flow prior to working capital movements
Decrease in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Decrease in provisions
Net cash flow used in operating activities
Investing activities
Interest received
Net cash generated from 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
15
2018
$000
336
-
-
(1,044)
10
(32,500)
(33,198)
363
(1,992)
(1,258)
-
(36,085)
1,044
1,044
(35,041)
81,362
(11)
46,310
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
56
GROUP ACCOUNTS Notes to the Financial Statements
Year ended 31 December 2018
1.
ACCOUNTING POLICIES
a) General Information
Sterling Energy plc is a public company limited by shares, 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 Cash
and cash equivalents, revenues and expenditure are transacted. The functional currency of the Company is US dollars.
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
except that the Company financial statements do not include a Statement of Comprehensive Income as permitted by
s408 of the Companies Act 2006. They have also been prepared in accordance with those parts of the Companies
Act 2006 applicable to companies reporting under IFRS.
(i) New and amended standards adopted by the Group:
IFRS 15 replaced IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’ for accounting periods commencing on or
after 1 January 2018. 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. Sales under IAS 18,
were recognised when risk and rewards of ownership were passed to the customer, which was typically at the point
of physical lifting. Under the control model explained above, there has been no change to the timing of revenue
recognition. Therefore, no transition adjustments were required and comparatives have not been restated.
Sterling Energy plc adopted IFRS 9 Financial Instruments on 1 January 2018. IFRS 9 sets out requirements for
recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial
items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement (‘IAS 39’).
On 1 January 2018, the Group:
• Identified the business model used to manage its financial assets and classified its financial instruments into the
appropriate IFRS 9 category;
• Applied the ‘expected credit loss’ (‘ECL’) model to financial assets classified as measured at amortised cost.
Management’s assessment of the impact of IFRS 9 has focused on the change in IFRS 9 around expected credit
losses on intercompany balances.
The adoption of IFRS 9 has impacted the Company as a result of the existing incurred loss approach under IAS 39
being replaced by the forward looking expected credit loss model approach of IFRS 9. The expected credit loss model
is required to be applied to the intercompany loan receivable (Note 14), which are classified as held at amortised cost.
The transition method requires a retrospective application for the first time adoption of IFRS 9, however the standard
has allowed an exemption to not restate the comparative information with differences being recorded in opening
retained earnings. These changes have been processed at the date of initial application (1 January 2018), and
presented in the statement of changes in equity for the year ended 31 December 2018.
57
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
The increase in credit loss allowance resulted in a reduction to opening reserves, at 1 January 2018, as follows:
Accounts affected - As at 1 January 2018
Amounts due from subsidiaries
Trade and other receivables
Retained earnings
As previously
reported
$million
Adoption
of IFRS 9
$million
As
restated
$million
25.9
26.4
33.4
(9.0)
(9.0)
(9.0)
16.9
17.4
24.4
The increase in the credit loss allowance is a result of the application of the expected credit loss model. This is a result
of the existing incurred loss approach under IAS 39 being replaced by the forward-looking expected credit loss
model approach of IFRS 9 which requires the parent to make an allowance for lifetime expected credit losses. No
loss allowance had previously been recognised, as no loss event had previously occurred.
The loan to the subsidiary companies, Sterling Energy (UK) Limited and Sterling Energy (East Africa) Limited, is
classified as repayable on demand. IFRS 9 requires consideration of the expected credit risk associated with the
loan. As the subsidiary companies does not have any liquid assets to sell to repay the loan, should it be recalled,
the conclusion reached was that the loan should be categorised as credit impaired.
As part of the assessment of expected credit losses of the intercompany loan receivable, the Directors have assessed
the cash flows associated with a number of different recovery scenarios. This included consideration of include the
exploration project risk, country risk, the expected future oil prices, the value of the potential reserves, the ability to
sell the project, and the ability to find a new farm-out partner.
The credit loss allowance was assessed at the date of initial application of IFRS 9, being 1 January 2018, and again
at 31 December 2018. There was no change in the expected credit loss allowance at the year end.
(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
IFRS 16
Leases
Effective date
1 January 2019
IFRIC 23
Uncertainty over Income Tax Treatments
1 January 2019
EU status
Endorsed
Endorsed
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. This introduces a single lessee
accounting model and eliminates the previous distinction between an operating lease and a finance lease. The
Directors have considered the impact of application of the new standard on the Group’s lease commitments (see
Note 20) and do not consider that implementation will have a significant impact. The Group has identified its lease
arrangements as at 31 December 2018 and there is no impact of this new Standard as a result of the short-term
nature of its current leases. Certain leases that are less than 12 months and leases of low-value assets are exempt
58
GROUP ACCOUNTS
from the requirements and may continue to be treated as an operating lease. The Group plans to adopt IFRS 16
effective 1 January 2019, using the modified retrospective approach, and apply several of the practical expedients
available such as low-value and short-term exemptions. Management will continue to assess the impact of this
Standard if new leases are executed during 2019.
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 Odewayne PSA is classified as a joint arrangement within the Group (see Note 11).
59
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
f) Revenue
Sales of oil and gas are recognised, net of any sales taxes, upon transfer of title to the customer; typically, this is at
the point of physical lifting. 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 Note 2 for detailed disclosure of the results of impairments and impairment reviews performed.
h) 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.
60
GROUP ACCOUNTS i) 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.
j) 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.
k) 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.
61
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
l) Operating Leases
Rentals under operating leases are charged on a straight-line basis over the lease term.
m) Financial Instruments
There are no other categories of financial instrument other than those listed below:
Trade receivables and amounts due from subsidiaries
Trade receivables are recognised and carried at the original invoice amount less any provision for impairment.
Other receivables and amounts due from subsidiaries are recognised and measured at nominal value less any
provision for impairment.
The Group and Company applies the expected credit loss model in respect of trade receivables and amounts due
from subsidiaries. The Group and Company track changes in credit risk, and recognise a loss allowance based on
lifetime ECLs at each reporting date.
Cash and Cash Equivalents
Cash and cash equivalents comprise demand deposits, and other short-term investments, with an original maturity
of between 3 and 6 months, 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.
n) 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.
o) 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.
62
GROUP ACCOUNTS
2.
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
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.
Judgements
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.
A full impairment review has not been performed in 2018 and thus no impairments were recognised during the year,
by the Company.
As at 31 December 2018, Company investments in subsidiaries totalled $20.1 million (see Note 13), being
underpinned by the Odewayne exploration block in Somaliland. After reviewing the feasibility of the asset detailed
in the Operations review on pages 10 and 11, management did not note any impairment indicators that would result
in a full impairment review to be undertaken.
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.
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.
The Directors judgement was that a full impairment review wasn’t required and thus no impairments were recognised
during the year, by the Group.
During 2017 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.
63
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
Discontinued Operations
During the year the Group ceased production activities in Mauritania. The results of these operations are included in
the consolidated statement of comprehensive up to the date of disposal as part of the Group’s continuing operations
of investing in exploration and production activities within Africa. The production activities in Mauritania are not
considered to meet any of the criteria to be classified as discontinued operations. A discontinued operation is
a component of the Group’s business that represents a separate major line of business or geographical area of
operations or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been
abandoned or that meets the criteria to be classified as held for sale.
Estimates
Company – Application of the expected credit loss model prescribed by IFRS 9
The new standard IFRS 9, requires the Parent company to make assumptions when implementing the forward-
looking expected credit loss model. This model is required to be used to assess the intercompany loan receivables
from Sterling Energy (UK) Limited and Sterling Energy (East Africa) Limited for impairment.
Arriving at the expected credit loss allowance involved considering different scenarios for the recovery of the
intercompany loan receivables, the possible credit losses that could arise and the probabilities for these scenarios.
The following was considered; the exploration project risk, country risk, the expected future oil prices, the value of
the potential reserves, the ability to sell the project, and the ability to find a new farm-out partner.
64
GROUP ACCOUNTS 3. OPERATING SEGMENTS
Africa operations in 2018 focused on exploration and appraisal activities in Somaliland and production activities
in Mauritania. The UK corporate office is a technical and administrative cost centre focused on new ventures. 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 2018 and for the year ended 31 December 2017.
Corporate
2018
$000
2017
$000
Africa
2018
$000
2017
$000
Total
2018
$000
2017
$000
Note
Statement of comprehensive income
Revenue 1
Cost of sales
Gross profit/(loss)
Other administrative expenses
Pre-licence costs
Impairment of E&E assets
Chinguetti cessation costs
4
6
11
-
-
-
-
-
-
534
4,433
534
4,433
(515)
(7,917)
(515)
(7,917)
19
(3,484)
19
(3,484)
(1,546)
(2,379)
(1,453)
(1,628)
-
-
-
-
-
-
-
-
-
-
(1,546)
(2,379)
(1,453)
(1,628)
(2,834)
866
-
-
(2,834)
866
(Loss)/profit from operations
(2,999)
(4,007)
19
(5,452)
(2,980)
(9,459)
Finance income
Finance expense
1,044
1,089
(20)
(630)
-
-
-
-
1,044
1,089
(20)
(630)
Segment (loss)/profit before tax
(1,975)
(3,548)
19
(5,452)
(1,956)
(9,000)
Segment assets and liabilities
Non-current assets 2
Segment assets 3
Segment liabilities 4
8
14
21,093
21,041
21,101
21,055
46,702
81,772
-
824
46,702
82,596
(460)
(484)
(14)
(33,870)
(474)
(34,354)
1 Revenue from continuing operations (Mauritania, Africa) includes amounts of $537k (100% external) from one single customer (2017:
$4.1 million).
2 Segment non-current assets of $21.1 million in Somaliland (2017: $21.0 million).
3 Corporate segment assets include $46.3 million cash and cash equivalents (2017: $81.4 million). Carrying amounts of segment assets
exclude investments in subsidiaries.
4 Carrying amounts of segment liabilities exclude intra-group financing.
65
Sterling Energy plc Report and Financial Statements 2018
Notes to the Financial Statements
Year ended 31 December 2018
4.
REVENUE
Revenue from the sale of oil and gas
Royalty (expense)/income
Total operating revenue
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
Total audit fees
6.
COST OF SALES
Operating costs
Over lift of product entitlement
Note
7
7
12
2018
$000
537
(3)
534
2018
$000
1,976
-
-
10
49
7
56
2018
$000
152
363
515
2017
$000
4,143
290
4,433
2017
$000
2,351
(73)
2,834
10
34
50
84
2017
$000
6,332
1,585
7,917
66
GROUP ACCOUNTS 7.
EMPLOYEE INFORMATION
The average monthly number of employees of the Group and Company was as follows:
Group
Company
2018
2017
2018
2017
Africa
Corporate
Non-executive
1
7
3
11
4
5
3
12
-
-
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
2018
$000
1,667
211
98
-
-
2017
$000
1,943
246
104
58
(73)
2018
$000
255
29
-
-
-
-
-
3
3
2017
$000
237
29
-
-
-
1,976
2,278
284
266
Key management personnel include Directors who have been paid $694k (2017: $661k). See Remuneration
Committee Report (pages 31 – 38) and Note 22 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 2018 the amount expensed as pre-
licence or capitalised amounted to $1.4 million (2017: $1.5 million).
67
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
8.
FINANCE INCOME AND FINANCE EXPENSE
Finance income:
Interest revenue on short-term deposits
Finance expense:
Bank charges
Unwinding of discount on decommissioning provision
Exchange loss/(gain)
2018
$000
1,044
1,044
8
-
12
20
9.
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% (2017: 19.25%)
Effects of:
Expenses not deductible for tax purposes
Deferred tax movement on provisions not provided
Capital allowances in excess of depreciation
Adjustment for tax losses
Tax charge for the year
2018
$000
(1,956)
(372)
-
5
(347)
714
-
2017
$000
1,089
1,089
21
707
(98)
630
2017
$000
(9,000)
(1,733)
487
-
(449)
1,695
-
Deferred Tax
At the reporting date the Group had an unrecognised deferred tax asset of $19.2 million (2017: $19.1 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 $14.8 million (2017: $15.0 million) relating primarily to
unused losses and unutilised capital allowances.
68
GROUP ACCOUNTS 10.
LOSS PER SHARE (BASIC AND DILUTED)
Loss for the year
2018
$000
2017
$000
(1,956)
(9,000)
Weighted average number of ordinary shares in issue during the year
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
EPS (US cents)
(0.9)
(4.09)
11.
INTANGIBLE EXPLORATION AND EVALUATION ASSETS
Net book value at 1 January 2017
Additions during the year
Impairment for the year
Net book value at 31 December 2017
Additions during the year
Net book value at 31 December 2018
Group
$000
18,846
5,029
(2,834)
21,041
52
21,093
Included within 2017 additions were accruals of $1.3 million relating to C-10. This amount was settled in 2018.
Group intangible assets at the year end 2018:
Odewayne PSA, Somaliland: SE(EA)L 34%, Genel Energy 50%, Petrosoma 16%
Classified as a joint arrangement in accordance with IFRS 11.
69
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
12.
PROPERTY, PLANT AND EQUIPMENT
Group
Cost
At 1 January 2017
Additions during the year
Disposals during the year
At 31 December 2017
Additions during the year
Disposals during the year
At 31 December 2018
Accumulated depreciation and impairment
At 1 January 2017
Additions during the year
Disposals during the year
At 31 December 2017
Charge for the year
Disposals during the year
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
Net book value at 31 December 2016
70
Computer and
office equipment
$000
206
7
(59)
154
4
(18)
140
(189)
(10)
59
(140)
(10)
18
(132)
8
14
17
GROUP ACCOUNTS 13.
INVESTMENT IN SUBSIDIARIES
Cost
At 1 January 2017
Impairment of investment in subsidiary
At 31 December 2017
At 31 December 2018
Company
$000
29,148
(9,008)
20,140
20,140
See Note 2 (Company – Investment) for details on the impairment assessment methodology.
The subsidiary undertakings at 31 December 2018 are as follows (these undertakings are included on consolidation):
Country of
incorporation
Class of
shares
held
Type of
ownership
Proportion of
voting rights
held 2018
Proportion of
voting rights
held 2017
Nature of
business
Sterling Energy (UK)
Limited
Sterling Energy
(International) Limited 1
Sterling Energy
Overseas Limited
Sterling Energy
Mauritania Limited 2
Sterling Northwest
Africa Holdings Limited
Sterling Energy
Holdings Limited 3
Sterling Energy (East
Africa) Limited 4
United
Kingdom 5
United
Kingdom 5
United
Kingdom 5
United
Kingdom 5
Ordinary
Direct
100%
100%
Ordinary
Indirect
100%
100%
Ordinary
Direct
100%
100%
Ordinary
Indirect
100%
100%
Jersey, CI 6
Ordinary
Direct
100%
Jersey, CI 6
Ordinary
Indirect
100%
Jersey, CI 6
Ordinary
Indirect
100%
100%
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
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
71
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
14. TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts owed from subsidiary undertakings
Other receivables
Prepayments and accrued income
Group
Company
2018
$000
264
-
37
89
390
2017
$000
661
-
52
155
868
2018
$000
155
2017
$000
466
19,233
25,909
12
14
13
33
19,414
26,421
Trade and other receivables, not credit impaired, consist of current receivables that the Group views as
recoverable in the short term.
Credit loss allowances for amounts owed from subsidiary undertakings amount to $9.0 million.
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.
See Note 1 for details (Financial instruments - Trade receivables).
72
GROUP ACCOUNTS 15. CASH IN BANK AND SHORT-TERM DEPOSITS
Cash at bank available on demand
Short-term deposits
Cash on hand
Group
Company
2018
$000
1,810
44,500
2
2017
$000
10,234
71,128
3
2018
$000
1,810
44,500
-
2017
$000
10,234
71,128
-
46,312
81,365
46,310
81,362
Group and Company
Term
Interest
rate %
Development Bank of Singapore (DBS)
3-6 months
2.45 - 2.83
Julius Baer
Royal Bank of Scotland (RBS)
HSBC
3 months
2.35 - 2.77
3 months
Overnight and
90 Day notice
-
-
2018
$000
24,500
20,000
-
-
2017
$000
40,000
20,000
10,000
1,128
44,500
71,128
At 31 December 2018, all short-term deposits mature within 90 days and can be withdrawn without restriction.
73
Sterling Energy plc Report and Financial Statements 2018
Notes to the Financial Statements
Year ended 31 December 2018
16. SHARE CAPITAL
Authorised, called up, allotted and fully paid
220,053,520 ordinary shares of 10p (2017: 220,053,520 ordinary shares of 10p)
28,143
28,143
2018
$000
2017
$000
17. 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
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.
74
GROUP ACCOUNTS 18. SHORT AND LONG-TERM PROVISIONS
Short-term - Decommissioning provisions
Group/Company
At 1 January
Transferred from long term provision
Transferred to payables
Used
At 31 December
Long-term - Decommissioning provisions
Group/Company
At 1 January
Increase in decommissioning provision
Unwinding of discount
Transferred to short term provision
At 31 December
2018
$000
2017
$000
28,659
-
-
(28,659)
-
16,984
15,641
(3,841)
(125)
28,659
2018
$000
2017
$000
-
-
-
-
-
14,472
462
707
(15,641)
-
Provisions used within the Group and Company amount to $28.7 million (Chinguetti decommissioning costs) and
were settled during 2018.
75
Sterling Energy plc Report and Financial Statements 2018
Notes to the Financial Statements
Year ended 31 December 2018
19.
TRADE AND OTHER PAYABLES
Trade payables
Amounts owed to subsidiary undertakings
Accruals
Group
2018
$000
142
-
332
474
Company
2017
$000
4,052
2018
$000
47
-
32,823
71
1,643
5,695
2017
$000
3,899
34,053
88
32,941
38,040
Included within the 2017 trade payables for the Group and Company is the amount of $3.8 million (Chinguetti
decommissioning costs) which were settled during 2018.
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.
20. OPERATING LEASES AND CAPITAL COMMITMENTS
Group
2018
$000
2017
$000
Company
2018
$000
2017
$000
Minimum lease payments under operating leases
recognised as an expense in the year
230
5,226
-
4,794
The Group expense in 2018 relate to the lease of the office premises.
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
2018
$000
213
-
213
2017
$000
233
223
456
Company
2018
$000
-
-
-
2017
$000
-
-
-
The outstanding Group commitments in 2018 relate to the lease of the office premises.
76
GROUP ACCOUNTS 21. 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 2018
and 31 December 2017.
Group
Financial assets at amortised cost
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
Total
Company
Financial assets at amortised cost
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
Total
Carrying amount/Fair value
2017
$000
2018
$000
46,312
81,365
301
713
46,613
82,078
474
474
5,695
5,695
Carrying amount/Fair value
2017
$000
2018
$000
46,310
19,400
65,710
32,941
32,941
81,362
26,388
107,750
38,040
38,040
77
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
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/lower and all other variables were held constant the
Group’s profits and equity would be impacted as follows:
Cash and cash equivalents
Increase
Decrease
2018
$000
463
2017
$000
814
2018
$000
(463)
2017
$000
(814)
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 $1.335/£1.00 (2017: $1.288/£1.00) or the year end spot rate of $1.277/£1.00 (2017: 1.351/£1.00),
depending on its nature and timing. The Group does not enter into derivative transactions to manage its foreign
currency. Foreign currency risk is immaterial to the Group and Company – see the following table:
78
GROUP ACCOUNTS Financial Assets
Cash and cash equivalents
Cash and cash equivalents held in US$
Cash and cash equivalents held in GBP
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
2018
$000
45,618
694
46,312
2017
$000
80,365
1,000
81,365
Company
2018
$000
45,617
693
46,310
2017
$000
80,364
998
81,362
Group
2018
$000
154
147
301
Group
2018
$000
27
447
474
2017
$000
544
169
713
2017
$000
5,182
513
5,695
Company
2018
$000
11,824
7,576
19,400
2017
$000
21,113
5,275
26,388
Company
2018
$000
27,597
5,344
32,941
2017
$000
31,378
6,662
38,040
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 98.5%
(2017: 98.8%) 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.
79
Sterling Energy plc Report and Financial Statements 2018 Notes to the Financial Statements
Year ended 31 December 2018
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 allowance 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.
The Company is exposed to credit risk through amounts due from its subsidiary undertakings. Refer to Note 1 for
details on the credit loss allowance made.
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 2018 is nil % (2017: nil %).
Less than
six months
$000
Six months
to one year
$000
One to
six years
$000
Total
$000
Interest
$000
Principal
$000
Group
Trade and other
payables (2018)
Trade and other
payables (2017)
Company
Trade and other
payables (2018)
Trade and other
payables (2017)
97
5,325
-
-
37
32,823
3,889
34,053
-
-
-
-
97
5,325
32,860
37,942
-
-
-
-
-
-
-
-
80
GROUP ACCOUNTS
22. RELATED PARTY TRANSACTIONS
Details of Directors’ remuneration, which comprise key management personnel, are provided below:
Short-term employee benefits
Defined contribution pension
Group
Company
2018
$000
631
15
646
2017
$000
708
-
708
2018
$000
255
-
255
2017
$000
237
-
237
Further information on Directors’ remuneration is detailed in the Remuneration Committee Report, on pages 31 – 38.
The Company’s subsidiaries are listed in Note 13. The following table provides the balances which are outstanding
with subsidiary undertakings at the balance sheet date:
2018
$000
19,233
(32,823)
(13,590)
2017
$000
25,909
(34,053)
(8,144)
Amounts owed from subsidiary undertakings
Amounts owed to subsidiary undertakings
The Group and Company has no other disclosed related party transactions.
23. SUBSEQUENT EVENTS
No significant subsequent events requiring disclosure or adjustment have occurred.
81
Sterling Energy plc Report and Financial Statements 2018 Definitions and Glossary of Terms
$
US dollars
Companies Act or Companies Act 2006 the Companies Act 2006, as amended
1P
2D
2P
3D
3P
A&D
AIM
AGM
Articles
bbl
bopd
boe
Board
City Code
Company
CoP
CSOP
Directors
D&P
E&E
E&P
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
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
82
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
Sterling Energy plc Report and Financial Statements 2018
G&A
G&G
GBP
general and administrative
geological and geophysical
pounds sterling
Genel Energy
Genel Energy Somaliland Limited
Group
HMRC
HSSE
the Company and its subsidiary undertakings
Her Majesty’s Revenue and Customs
Health, Safety, Security and Environment
hydrocarbons
organic compounds of carbon and hydrogen
IAS
IFRS
Index
Jacka
JV
k
km
km2
KPIs
lead
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
M&A
m
mcf
OECD
OPEC
merger and acquisition
metre(s)
thousand cubic feet
Organisation for Economic Cooperation and Development
Organisation of the Petroleum Exporting Countries
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
Petroleum system
oil, gas, condensate and natural gas liquids
geologic components and processes necessary to generate and store hydrocarbons,
including a mature source rock, migration pathway, reservoir rock, trap and seal.
Petrosoma
Petrosoma Limited (JV partner in Somaliland)
83
Definitions and Glossary of Terms (cont.)
Pre Stack Depth Migration
Pre Stack Time Migration
Prospect
PSA
PSC
QCA Code
RA
Reserves
Reservoir
Seismic
SESP
Shares
Shareholders
SMHPM
Subsidiary
Tcf
process by which seismic events are geometrically re-located in space and depth to
the location the event occurred in the subsurface
process by which seismic events are geometrically re-located in seismic travel time 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
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
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
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Sterling Energy plc Report and Financial Statements 2018
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
Professional Advisers
Professional Advisers
Nominated Adviser and Corporate Broker
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
Corporate Broker
GMP FirstEnergy
85 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
Legal
Pinsent Masons LLP
30 Crown Place
Earl Street
London
EC2A 4ES
Memery Crystal LLP
165 Fleet Street
London
EC4A 2DY
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85
Sterling Energy plc
High Holborn House
52-54 High Holborn
London WC1V 6RL
+44 (0)20 7405 4133
info@sterlingenergyplc.com
www.sterlingenergyplc.com