The Progressive Corporation Annual Report 2019

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FY2019 Annual Report · The Progressive Corporation

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Phoenix Global Resources plc
Annual Report and Accounts 2019

Contents

Strategic report
p02

Chairman’s statement

p04

Our strategy and KPIs

p06

Our business model

p08

Engaging with our stakeholders

p10

Market drivers

p12

Key performance indicators

p14

Operating review

p20

Chief financial officer’s report

p24

Risk management

p32

Viability statement

p33

Sustainability review

Governance
p35

Chairman’s statement
on corporate governance

p37

Board of directors

p39

Corporate governance report

p43

Nominations committee report

p45

Audit and risk committee report

p48

Letter from the remuneration
committee chairman

p50

Remuneration policy report

p58

Annual report on remuneration

p62

Directors’ report

p65

Statement of directors’ responsibilities

Financial statements
p66

Independent auditors’ report

p72

Consolidated income statement

p73

Consolidated statement
of comprehensive income

p74

Consolidated statement
of financial position

p75

Consolidated statement
of changes in equity

p76

Consolidated statement of cash flows

p77

Notes to the consolidated
financial statements

p113

Company statement of financial position

p114

Company statement of changes in equity

p115

Company statement of cash flows

p116

Notes to the company
financial statements

Other information
p130

Glossary

p131

Registered offices

p132

Officers and advisers

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report02

Chairman’s statement

Dear shareholders,
The company’s strategic objective in 2019
was to create additional value in its substantial
portfolio of unconventional oil and gas assets
through continued appraisal and development
activity in key prospective areas, an objective
that was progressed in the year.

Continued appraisal and development
of our core prospective assets
We saw success at Mata Mora where the drilling
and completion of the first two horizontal wells
delivered initial production volumes in excess of
pre-drill estimates. The success at Mata Mora has
confirmed the block as a commercial unconventional
prospect in the oil and condensate window of the
Vaca Muerta.

At Puesto Rojas the company secured the first ever
unconventional licence to be issued by the Province
of Mendoza. The award of the licence recognises the
substantial evaluation work undertaken at Puesto
Rojas in the last several years and, importantly,
provides the platform for future work on the
development of the unconventional resources
on the concession.

Testing at Mata Mora was extended beyond the
initial plan as we worked though analysis of initial
production results and detailed analysis of well
performance. This extended testing has provided
us with additional subsurface information that will
be used in planning future wells and preparing for
the pilot development project at Mata Mora.

In addition, the results from the initial vertical
five-well development campaign at Puesto Rojas
were mixed. Three wells were unsuccessful, and
information obtained during drilling and completion
showed that the targeted folded Agrio formation is
significantly more complex than the seismic surveys
had indicated. The outcome of the limited campaign
and the additional information gained from it has
confirmed the development of the Vaca Muerta
formation using horizontal wells and the non-folded
Agrio horizontal development as the areas of focus
for future activity at Puesto Rojas.

Recent events
Unfortunately, notwithstanding the progress made
in the year, recent events mean the company is
currently faced with several challenges. On a macro
level it faces economic uncertainty in Argentina
following a change of government in December
2019 and as a result of the continuing negotiations
by the government to restructure the country’s debt.
This political and economic uncertainty has been
compounded by the impact of COVID-19 and the
global collapse in demand for oil that caused oil
prices to collapse in the first half of 2020.

Currency and inflation
The economic environment in Argentina continued
to be volatile in 2019 as the Peso suffered further
significant devaluation and full-year price inflation
exceeded 50%. The company benefits from a degree
of protection as the oil and gas industry operates in
a primarily Dollar-based environment and Phoenix
sources its primary funding in US Dollars outside
Argentina. Nevertheless, the company is affected by
aspects of government fiscal policy. These measures
can include short term intervention on commodity
prices to curb price inflation for fuel at the pumps
or tariffs on production such as the notional export
tariff introduced in 2019 that impact realised prices
for domestic sales.

A change in government
December 2019 saw a change in government in
Argentina following the presidential elections in
October 2019 where the Frente de Todos party
was returned to government under the leadership
of Alberto Fernandez. The initial primary vote
held in August had foreshadowed this result with
Fernandez securing an unexpectedly large margin
of victory over the incumbent Cambiemos coalition,
headed by the then President Macri.

Immediately following the result of the August primary,
the already weakened Peso suffered further significant
and immediate devaluation driven by uncertainty in
international markets over what the newly elected
government’s position would be in regard to the
US$57.0 billion standby credit agreement.

Potential new legislative support for key industries
The new administration has announced its intent
to provide explicit economic and regulatory support
to four key sectors of the economy, being agriculture,
oil and gas, mining, and intellectual services. These
are the sectors considered to have the greatest
potential to positively impact the Argentine economy.
An imperative in reversing the fortunes of the
economy is the reduction of and potential reversal in
the current significant balance of payments deficit.

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019In May 2020, the Argentine government issued a
decree establishing a fixed realised Medanito price
of US$45.00/bbl. This pricing will remain in place
in the Argentine domestic market until the Brent
crude benchmark sustains a price of US$45.00/bbl
or above for 10 consecutive days. The issuance of the
decree demonstrates the intention of the government
to support the industry where possible.

The impact of COVID-19
The start to 2020 has been dominated by the
emergence of the COVID-19 virus and its rapid
development as a life-threatening global pandemic.
Almost universally, the governmental response to
the pandemic has been one of containment through
lock-down, quarantine or self-isolation for substantially
all citizens.

This has resulted in an almost total shut-down of
non-essential industrial and commercial activity and
a cessation of substantially all discretionary travel
worldwide. The sudden and profound reduction of
activity globally has resulted in a significant reduction
in demand for energy translating to record low
prices for oil and gas and, in turn, rendering many
development projects financially unviable.

As the virus begins to reach a perceived peak in
a number of countries, the focus of policy response
is turning to when and to what extent lock-down
measures can be progressively lifted such that
economic and industrial activity can be recommenced
and economies effectively restarted.

Demand led commodity price drops typically reverse
more quickly than those driven primarily by excess
supply and whilst this is promising, the timetable
to resumption of normal levels of activity is unclear
and could be some way off.

Current operations
The company has currently shut-in production
of crude oil from its operated licences due to
demand constraints. The company has developed
and is progressively implementing a plan that
involves a significant reduction in both operating
and administrative costs. The cost reduction
actions being taken mean the company will
be in a significantly better position to produce
oil economically at lower oil prices and with
a positive contribution to cash flow when production
recommences. The company will then focus on the
continued development of its unconventional assets.

Our major shareholder, Mercuria, is supportive of
the cost reduction plan and has extended short-term
debt facilities to facilitate its implementation and
execution. Mercuria has written to the company
stating its intention to continue to provide financial
support to the company of up to $37 million in order
that the company may continue to operate and service
the company’s liabilities as they fall due in the next
12 months whilst the company assesses the timing
of work plans and capital commitments. Mercuria has
agreed to meet the company’s cash needs for this
period and not demand repayment of the existing loan
within the next 12 months whilst in discussion with the

company to restructure the existing loan agreement.
This letter, which by its nature is not legally binding,
represents a letter of comfort stating Mercuria’s
current intention to continue to provide support.

The directors believe they will be able to agree the
restructure of the existing debt with Mercuria and
formalise an agreement for new funding and that
the group and company can continue as a going
concern for the foreseeable future. The application
of the going concern basis of preparation of the
financial statements included in this annual report
is based on the letter that has been received from
Mercuria and the ongoing discussions with the
Mercuria principals and accordingly, the directors
continue to adopt the going concern basis for
accounting in preparing the 2019 financial statements.
However, the directors recognise that if financial
support over the next 12 months from Mercuria
were not to be available and the company is unable
to restructure the existing loan agreement from
Mercuria or obtain funding from alternative sources,
this gives rise to a material uncertainty that may
cast significant doubt on the group’s and company’s
ability to continue as a going concern.

Summary
These are truly unprecedented time with disruption
on the demand and supply side. The board believes it
can leverage this situation and take this opportunity
to examine the cost base in detail. The company
is fundamentally an unconventional oil and gas
exploration company and has excellent assets in this
space. The companies that will be successful in the
future will be those with a low-cost base and strong
balance sheet. The board recognises that significant
investment will be required in the coming years
to develop these assets and enhance value and
acknowledges this may include third-party partners
and local debt providers in the funding mix to support
this development.

Unprecedented times, require unprecedented painful
decisions to be made and whilst the steps we have
agreed to take will be challenging to implement, the
board believes this will result in a cost base from
which it can leverage the company’s interests in its
high quality unconventional oil and gas assets and be
in a position to create long-term value for shareholders.

It goes without saying that I take this opportunity
on behalf of your board to extend my sincere thanks
to our teams for their continued dedication and
hard work in what has been a challenging period
for us all. In particular, I would like to thank all of
the departing staff and directors who have made
significant contributions during the time they have
been with the company and I am sincerely sorry to
see them go. I wish them all the best for the future.
We all understand the challenges faced by the
Company and the difficult actions we are faced
with in this environment.

Sir Michael Rake
Non-executive chairman
26 June 2020

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report04

Our strategy and KPIs

Our strategic
objectives

How we do
this and what
we’ve done

Control and consolidate
Phoenix holds significant licence
acreage in Argentina. Our focus
is to secure operatorship and
consolidate our ownership position
of that acreage where possible.

We may seek to strategically add further acres with
exposure to unconventional resources, including the
Vaca Muerta if the right opportunities arise.

Explore and develop
Our exploration and development
activity is focused on appraising
and evaluating the group’s
unconventional acreage.

We apply the latest shale technologies and
methods from the US combined with in country
expertise with the objective of demonstrating the
commerciality of our unconventional licence areas.

No new unconventional acreage was acquired
in 2019 with the company’s licence activity mainly
related to securing a 35-year unconventional
concession for the Puesto Rojas area. This new
concession that was awarded in April 2019
provides the foundation for our continued
unconventional development work in the area.

The partner-operated Santa Cruz Sur assets
were sold in the year reflecting the strategic
focus on operated assets where we have
a greater level of influence and higher netbacks.
The sale contributed $7.0 million of cash proceeds
for reinvestment in unconventional activity.

Exploration and appraisal work in 2019 was
focused on our significant unconventional assets
at Puesto Rojas and Mata Mora.

We unconventionally completed the first pair
of long-lateral wells at Mata Mora in May 2019
with volumes of up to 1,000 bpd seen from each
well in initial testing.

The unconventional drilling and completions
campaign at Puesto Rojas yielded mixed results
though provided valuable information on the
targeted folded Agrio formation.

Profitable production

Phoenix has existing production

from conventional oil assets that

Realise value

Protecting and realising value

for shareholders is fundamental

provides cash flow for reinvestment.

to what we do.

We seek to maintain existing conventional

Demonstrating the commerciality of our

production, where profitable, as a lower cost,

assets through exploration and evaluation

lower risk element of the funding mix.

activity and then efficiently and safely developing

and producing the resources is key to our

value proposition.

Production was lower in 2019 at 9,236 boepd

Reserves were recognised at Mata Mora for

compared to 10,249 boepd in 2018.

the first time in the 2019 independent reservoir

engineers report. The booking of reserves

The lower production reflects the sale of the non-

demonstrates the potential commerciality of the

core and partner-operated Santa Cruz Sur assets.

prospect at Mata Mora and is a significant step

We continue to experience normal production

forward in terms of value creation.

decline on other conventional assets that is not

yet offset by new unconventional production.

In addition to recording reserves, there was

Unconventional production is expected to increase

Mata Mora with a greater volume of prospective

through the development phase of our key assets

resources assessed than previous.

significant progression of the resource base at

upon completion of paced and successful

appraisal programmes.

Measuring
our progress

→ Total unconventional acreage

→ Absolute reserve and resources volumes

→ Year-on-year production volumes

→ % of acreage operated by Phoenix

→ Year-on-year reserves growth

→ Opex per boe produced

→ Resource progression

→ Netback per boe

→ Migration of resource and reserve categories

→ EBITDAX – earnings before interest,

taxes, depreciation, amortisation and

exploration expenses

→ Total shareholder return

→ Resource conversion

Link to KPIs

2 6

2 4 5 6

2 3 4 5 6

Potential risks

→ Competition for acreage (especially Vaca

→ Exploration and development risk

→ Formation integrity and ability to achieve

→ Fiscal risk

Muerta and other unconventional acreage)

→ The timely availability of capital to

→ Ability to fulfill licence commitments

fund operations

→ Determining a homogeneous well completion

design for each development area

→ Availability of experienced service crews

→ Competition for services and related costs

→ HSE risk

design type-curve

→ Commodity prices and volatility

→ Impact of inflation and foreign exchange risk

→ Availability of refining capacity for offtake

→ Proactively managing HSE exposure

→ Financing risk

→ Final decommissioning costs and obligations

→ Ability to optimise asset portfolio through

acquisition or divestment, participation in

licencing rounds and farm-in or farm-out

→ HSE risk

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019Our strategic

objectives

Control and consolidate

Phoenix holds significant licence

acreage in Argentina. Our focus

is to secure operatorship and

Explore and develop

Our exploration and development

activity is focused on appraising

and evaluating the group’s

consolidate our ownership position

unconventional acreage.

of that acreage where possible.

We may seek to strategically add further acres with

exposure to unconventional resources, including the

Vaca Muerta if the right opportunities arise.

We apply the latest shale technologies and

methods from the US combined with in country

expertise with the objective of demonstrating the

commerciality of our unconventional licence areas.

Profitable production
Phoenix has existing production
from conventional oil assets that
provides cash flow for reinvestment.

Realise value
Protecting and realising value
for shareholders is fundamental
to what we do.

We seek to maintain existing conventional
production, where profitable, as a lower cost,
lower risk element of the funding mix.

Demonstrating the commerciality of our
assets through exploration and evaluation
activity and then efficiently and safely developing
and producing the resources is key to our
value proposition.

How we do

this and what

we’ve done

No new unconventional acreage was acquired

Exploration and appraisal work in 2019 was

in 2019 with the company’s licence activity mainly

focused on our significant unconventional assets

related to securing a 35-year unconventional

at Puesto Rojas and Mata Mora.

concession for the Puesto Rojas area. This new

concession that was awarded in April 2019

provides the foundation for our continued

We unconventionally completed the first pair

of long-lateral wells at Mata Mora in May 2019

unconventional development work in the area.

with volumes of up to 1,000 bpd seen from each

The partner-operated Santa Cruz Sur assets

were sold in the year reflecting the strategic

The unconventional drilling and completions

focus on operated assets where we have

campaign at Puesto Rojas yielded mixed results

a greater level of influence and higher netbacks.

though provided valuable information on the

The sale contributed $7.0 million of cash proceeds

targeted folded Agrio formation.

for reinvestment in unconventional activity.

well in initial testing.

Production was lower in 2019 at 9,236 boepd
compared to 10,249 boepd in 2018.

The lower production reflects the sale of the non-
core and partner-operated Santa Cruz Sur assets.
We continue to experience normal production
decline on other conventional assets that is not
yet offset by new unconventional production.

Unconventional production is expected to increase
through the development phase of our key assets
upon completion of paced and successful
appraisal programmes.

Reserves were recognised at Mata Mora for
the first time in the 2019 independent reservoir
engineers report. The booking of reserves
demonstrates the potential commerciality of the
prospect at Mata Mora and is a significant step
forward in terms of value creation.

In addition to recording reserves, there was
significant progression of the resource base at
Mata Mora with a greater volume of prospective
resources assessed than previous.

Operating cost
per boe

Measuring

our progress

→ Total unconventional acreage

→ Absolute reserve and resources volumes

→ Year-on-year production volumes

→ % of acreage operated by Phoenix

→ Year-on-year reserves growth

→ Opex per boe produced

→ Resource progression

→ Netback per boe

→ Migration of resource and reserve categories

→ EBITDAX – earnings before interest,

taxes, depreciation, amortisation and
exploration expenses

→ Total shareholder return

→ Resource conversion

Link to KPIs

2 6

2 4 5 6

2 3 4 5 6

Potential risks

→ Competition for acreage (especially Vaca

→ Exploration and development risk

→ Formation integrity and ability to achieve

→ Fiscal risk

Muerta and other unconventional acreage)

→ The timely availability of capital to

→ Ability to fulfill licence commitments

fund operations

→ Determining a homogeneous well completion

design for each development area

→ Availability of experienced service crews

→ Competition for services and related costs

→ HSE risk

design type-curve

→ Commodity prices and volatility

→ Impact of inflation and foreign exchange risk

→ Availability of refining capacity for offtake

→ Proactively managing HSE exposure

→ Financing risk

→ Final decommissioning costs and obligations

→ Ability to optimise asset portfolio through
acquisition or divestment, participation in
licencing rounds and farm-in or farm-out

→ HSE risk

Our KPIs
for performance
measurement/
management
remuneration.

We measure
our performance
and remunerate
management
based upon
the following
key performance
indicators (‘KPIs’).

Number of
reportable
HSE incidents

Year-on-year
growth of
reserves and
resources
by category

Production volume
increase or decrease

EBITDAX —
earnings before
interest, taxation,
depreciation,
amortisation and
exploration expense

Personal and group
project delivery and
milestone targets

Read more on pg.s 14–19

Read more on pg.s 20–23

Read more on pg.s 14–19

Read more on pg.s 20–23

Definition

Production performance is measured by

reference to the absolute and percentage

increase or decrease in production year-on-

year measured in boepd.

Production in 2019 averaged 9,236 boepd

compared to 10,249 boepd in 2018,

a decrease of9.9%.

Definition

Adjusted EBITDAX is defined as earnings

Personal and collective performance targets

are set for employees and teams by line

managers. These performance targets are

often qualitative in nature and focused on

individual and collective performance in

relation to project delivery, system and

process improvements and to operational

and production performance.

16.9

before interest, taxation, depreciation,

amortisation and exploration expense.

EBITDAX is used as a proxy for cash

generated from underlying operations

in measuring performance.

Adjusted EBITDAX is like EBITDA used in

non-oil and gas businesses but takes account

of exploration cost that is often high value

and is akin to research and development

costs. Not all future-related investment

will be successful. Removing the exploration

cost from the performance metric focuses

performance measurement on the cash

generating capability of the underlying

operations. The outcome of exploration

activity is evaluated separately. Adjusted

EBITDAX excludes non-recurring costs.

Comment

Production was lower in 2019 compared

to 2018 on both a gross volume basis and

a boepd basis.

This was largely due to natural production

decline in existing well stock not offset by

new production that had been expected

from newly drilled unconventional wells.

In addition and as part of the company’s

strategy to focus on core unconventional

areas, the Santa Cruz Sur assets were

divested in 2019. These assets contributed

approximately 2,500 boepd prior to disposal,

albeit at low operating margins.

Comment

Adjusted EBITDAX fell in the year with

US$16.9 million generated in 2019 compared

to almost US$39.2 million in 2018. The

year-on-year reduction in EBITDAX was

caused by lower average commodity prices

Key aspects of personal performance

targets in 2019 included the successful

drilling of the second horizontal well at Mata

Mora and the unconventional completion

of both wells. At Puesto Rojas objectives

and the impact of government decrees that

were mainly related to the unconventional

effectively put a cap on realised prices for

development plan targeting the folded Agrio.

certain months.

In addition, the unconventional development

to the enhancement of systems and

campaign undertaken at Puesto Rojas

yielded lower total production resulting in

lower revenue from sales than planned.

processes, improvements and redesign of

monthly management reporting and the

establishment of professional procurement

Administrative targets in the year related

and HSE groups.

The sale of the Santa Cruz Sur assets

improved EBITDAX on a per boe basis given

the comparatively higher production cost

for these assets in the portfolio mix.

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 201913

KPIs are used to measure the performance of the company.
The performance measures used to assess performance
may change over time as the company’s activities develop.

HSE metrics

Resource and reserve

progression

Operating

cost per boe

-50% -78.4% +37%Increase in 2C resources

+5.6%(excludes depreciation)

Production
volumes

-9.9%

Adjusted EBITDAX

Personal objectives

-56.9%

Measured based on individual
performance.

64.8

281.4

18.7

17.7

9,236

10,249

39.2

205.4

16.9

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

LTIR

Spill index

2C resources MMboe

OPEX US$/boe

boepd

US$ million

Definition

The year-on-year growth in reserves and

resources is calculated by reference to

reserves and resources statements issued

by independent reservoir engineers. The

company currently commissions external

reserves and resources statements annually.

There are several measures that can be

used to assess resource performance.

One measure is to monitor the migration

of resources through risked categories into

reserves. This demonstrates the physical

de-risking of properties as volumes move

progressively from technical volumetric

resource categories into reserve categories

with defined probability of economic

production.

Definition

Operating cost per boe is a measure

of production efficiency and is calculated

by dividing total cash production costs

by the volume of boe produced.

Operating costs include both fixed and

variable elements. As production increases

the fixed costs are spread over a larger

volume base resulting in a lower unit cost.

Conversely when production falls, the cost

per boe produced typically rises.

Process efficiencies, new technologies and

optimisation of production infrastructure

can also result in cost savings on a per boe

produced basis.

Comment

The measure of 2C contingent resources

Our target is to continually reduce

increased by 37% from 205.4 MMboe in 2018

production costs per boe. There will

to 281.4 MMboe in 2019 with substantially

all of the increase at Mata Mora and based

on the results from the MM.x-1001 and

be instances however where production

costs per boe can rise for legitimate

reasons. These may include where costs

MM.x-1002 wells that were unconventionally

are semi-fixed in nature or in mature

completed in the period.

First time proved reserve bookings were

made at Mata Mora in 2019 with initial

proved reserves of 376 MMboe recorded

on a working interest basis.

areas where the per-unit costs increase

as production suffers natural decline

and additional workover and other

intervention activity is required.

In 2019, the operating cost per boe increased

by 5.6% from US$17.7/boe in 2018 to US$18.7/

boe in 2019. This increase in per-boe cost

reflects production decline on conventional

assets not yet offset by gains from new

unconventional production.

Definition
Production performance is measured by
reference to the absolute and percentage
increase or decrease in production year-on-
year measured in boepd.

Production in 2019 averaged 9,236 boepd
compared to 10,249 boepd in 2018,
a decrease of9.9%.

Comment
Production was lower in 2019 compared
to 2018 on both a gross volume basis and
a boepd basis.

This was largely due to natural production
decline in existing well stock not offset by
new production that had been expected
from newly drilled unconventional wells.

In addition and as part of the company’s
strategy to focus on core unconventional
areas, the Santa Cruz Sur assets were
divested in 2019. These assets contributed
approximately 2,500 boepd prior to disposal,
albeit at low operating margins.

Definition
Adjusted EBITDAX is defined as earnings
before interest, taxation, depreciation,
amortisation and exploration expense.
EBITDAX is used as a proxy for cash
generated from underlying operations
in measuring performance.

Adjusted EBITDAX is like EBITDA used in
non-oil and gas businesses but takes account
of exploration cost that is often high value
and is akin to research and development
costs. Not all future-related investment
will be successful. Removing the exploration
cost from the performance metric focuses
performance measurement on the cash
generating capability of the underlying
operations. The outcome of exploration
activity is evaluated separately. Adjusted
EBITDAX excludes non-recurring costs.

Comment
Adjusted EBITDAX fell in the year with
US$16.9 million generated in 2019 compared
to almost US$39.2 million in 2018. The
year-on-year reduction in EBITDAX was
caused by lower average commodity prices
and the impact of government decrees that
effectively put a cap on realised prices for
certain months.

In addition, the unconventional development
campaign undertaken at Puesto Rojas
yielded lower total production resulting in
lower revenue from sales than planned.

The sale of the Santa Cruz Sur assets
improved EBITDAX on a per boe basis given
the comparatively higher production cost
for these assets in the portfolio mix.

Definition
Personal and collective performance targets
are set for employees and teams by line
managers. These performance targets are
often qualitative in nature and focused on
individual and collective performance in
relation to project delivery, system and
process improvements and to operational
and production performance.

Comment
Key aspects of personal performance
targets in 2019 included the successful
drilling of the second horizontal well at Mata
Mora and the unconventional completion
of both wells. At Puesto Rojas objectives
were mainly related to the unconventional
development plan targeting the folded Agrio.

Administrative targets in the year related
to the enhancement of systems and
processes, improvements and redesign of
monthly management reporting and the
establishment of professional procurement
and HSE groups.

Read more on pg.s 14–19

Read more on pg.s 20–23

Read more on pg.s 14–19

Read more on pg.s 20–23

0.6

0.3

Definition

The measures used by the company were

revised in 2019 to include monitoring of Spill

Index (‘SI’) performance in addition to Lost

Time Incident Rate (‘LTIR’).

These measures are calculated as follows:

SI = spill volume (bbls)/oil production on

operated fields multiplied by a million.

LTIR = (number of LTIs x 200,000)/Total

hours worked

For LTIR, the company calculates total

hours worked, including contractor hours,

on a monthly basis. Both lost time incidents

and spills are reported by line managers

or supervisors to the HSE manager and

are documented.

Comment

The LTIR fell from 0.6 in 2018 to 0.3 in

2019 against a target of 0.7, resulting

in top quartile safety performance. The

improvement in safety performance is

notable given the level of physical activity

during in 2019 including the drilling and

completions work at Mata Mora and the

unconventional development programme at

Puesto Rojas. Other drilling activity was also

undertaken at La Paloma and at Rio Atuel.

Spill index performance was recorded at

14 compared to 64.8 in 2018. The company

experienced some minor spill incidents in

the year with remediation and clean up

activity overseen by provincial authorities.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report14

Operating review

Map of core assets

Puesto Rojas area

Gross km²

440

Phoenix WI acres

108,603

2P reserves (MBOE)

17,028

2C resources (MBOE) 35,600

Avg. daily production
(BOE/D)

1,563

Corralera area

Gross km²

335

Phoenix WI acres

74,578

2C resources (MBOE) 128,250

Chachahuen area

Gross km²

717

Phoenix WI acres

35,416

2P reserves (MBOE)

Avg. daily production
(BOE/D)

5,773

2,131

Mata Mora

Gross km²

224

Phoenix WI acres

49,916

2P reserves (MBOE)

225

2C resources (MBOE) 80,890

Name: Coiron Amargo
Operator: Shell

Name: Coiron Amargo
Operator: Pan American

Name: Sierras Blancas
Operator: Shell

Mata Mora

Name:
Linderao Atravesado
Operator: Pan American

Mata Mora – operated, core
The drilling and completion of the
first two unconventional horizontal
Vaca Muerta wells at Mata Mora
is a milestone for Phoenix and
demonstrates value in the asset.

Initial unconventional horizontal wells
targeting Vaca Muerta
The first horizontal well at Mata Mora, MM.x-1001,
was spud in late 2018 and completed drilling
operations in early January 2019. On conclusion
of drilling, the well was cased and cemented with
completion to be undertaken simultaneously with
MM.x-1002, the second horizontal commitment well
at Mata Mora. MM.x-1002 was spud from the same
pad as MM.x-1001 in late January 2019 and drilling
of the horizontal section concluded at the end
of March 2019.

The vertical section of MM.x-1002 reached a total
depth of 3,170 metres with the lateral section
extending to a horizontal length of 2,058 metres.
Like MM.x-1001, the well was successfully geo-
steered with 95% of the lateral section maintained
within a seven-metre window in the La Cocina
horizon of the Vaca Muerta formation.

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 201915

“ The completion of long-lateral wells
and the first time booking of reserve
volumes at Mata Mora is a significant
step forward in the development of
Phoenix as a bona fide unconventional
oil and gas company.”

The communication issues experienced on MM.x-1001
and MM.x-1002 have caused a re-evaluation of the
optimal spacing for future unconventional lateral wells
at Mata Mora. Where the initial two wells have spacing
of 250 metres, future wells will be drilled with projected
spacing of between 300 and 400 metres between
adjacent laterals.

Optimising well spacing to maximise production
potential and total ultimate oil recovery at the same
time as minimising the risk of interference between
wells is key to determining the most economic
development plan for a field.

Confirming Mata Mora as a commercial prospect
As of 31 March 2020, total cumulative production
from the two Mata Mora wells was more than
240,000 bbls of 37 API crude generating sales
proceeds of US$8.7 million.

In early April, the Mata Mora wells were shut in under
force majeure conditions. The significant reduction
in demand for fuel because of COVID-19 had caused
YPF to shut in several of its refineries and hence there
was no route to market from the field. Production is
expected to resume in 2020 when the impact of the
pandemic on fuel demand eases and commercial
markets return.

The work performed to date and the
well results from the initial lateral
wells at Mata Mora have confirmed
that the block is a commercial
prospect for development.

The wells were unconventionally completed in May
2019 in simultaneous zipper-frac operation where
frac stages are applied in an alternate sequence
along the length of the two wells. This technique
was developed in the North American shale industry
and is designed optimise the stimulated rock volume
via stress-shadowing whilst minimising the risk of
communication of the completion fluid (or ‘frac hits’)
between fracs stages applied to adjacent wells in
high intensity drilling operations. Frac hits can have
a positive, negative or neutral impact but where
negative they can manifest in a ‘parent-child’
relationship between wells with production losses
observed in one well when production is increased
on an adjacent well.

A total of 80 frac stages were successfully
completed across the two Mata Mora wells with an
average of four stages completed per day. The rate
of deployment of frac stages is expected to increase
with future wells. On conclusion of the frac operation,
both wells were placed on flowback during which the
frac fluids used in the wells are recovered and initial
oil volumes are produced. Both the produced oil
volumes and fluid recovery increased through the
flowback period as the choke valves were
conservatively opened on the wells.

Extended well testing providing valuable
subsurface and production information
Whilst both Mata Mora wells saw production rates
of up to 1,000 bopd in initial testing it was noted
that when the choke aperture was progressively
opened on one well thereby increasing its production,
offsetting production losses were noted on the other.
This production behaviour suggests a level of ongoing
communication between the wells, separate from
expected interference that would occur during
completion operations.

In early Q3 2019, both wells were choked back
and put on extended test. As part of that testing,
a production logging tool was run along the length
of each well that confirmed the frac stages applied
to the wells are connected to the well-bore and
that fluid is flowing in each stage across both wells.
This indicates that, whilst there may be some
communication between the wells, the individual
frac stages themselves are all performing.

As of February 2020, the choke stages were being
managed on each well and are being progressively
opened in small increments in order to reduce
wellhead pressure ahead of the potential installation
of pumps on both wells, dependent on well
performance in the interim.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report16

Operating review continued

Minas del
Sosneado

Rio
Atuel

Cerro Mollar
Norte

Cerro Mollar
Oeste

Puesto Rojas

La Brea

Puesto Rojas area – operated, core
Production
Puesto Rojas, including the Cerro Mollar Oeste and
Cerro Mollar Norte concessions, is an important area
in terms of current production and future potential.
The area consistently delivered approximately 1,500
boepd of production in 2019. Most existing production
is derived from conventional well stock however the
focus of development work going forward will be on
the multiple unconventional opportunities present
at Puesto Rojas.

The Puesto Rojas area is
significant in terms of acreage
and contains several formations
and horizons with potential for
unconventional development.

Award of licence
In April 2019, Mendoza province awarded the
company the first unconventional concession
ever issued by the province. The unconventional
concession covers the Puesto Rojas block and has
a primary term of 35 years and carries a lower
royalty rate than the conventional concession.

The unconventional concession contains
a requirement for a pilot development phase
with certain works to be completed by June 2022.
On conclusion of the pilot phase the company
has the option to either move into unconventional
development at Puesto Rojas or to revert the
unconventional concession without specific penalty
and to resume conventional development activity
on the block under the conventional concession.

Completion of appraisal campaign
In Q1 2019, the final well of the 2018/2019
unconventional appraisal campaign, CDM-3012,
was completed and put on artificial lift. Concurrently,
the previously drilled CDM-3004 well was also
completed and put on flowback. The 2018/19
unconventional appraisal campaign comprised a total
of eight wells with a combination of full and limited
tests of various horizons undertaken over the course
of the campaign.

The appraisal campaign resulted in the identification
of the shallow folded ‘tight’ Agrio formation as the
primary near-term development target at Puesto
Rojas given the formation can be accessed using
comparatively lower cost unconventionally competed
vertical wells meaning it could potentially provide
robust production returns in the short to medium term.

Unconventional development campaign
Three new vertical Agrio development wells were
drilled and completed as part of the initial 2019
development campaign. CDM-3011 was the first
well in the campaign followed by CDM-3014 and
then CDM-3025 from the same pad as CDM-3011.
In addition to the newly drilled wells, the CDM-3012
and CDM-3007 wells that were drilled as part
of the appraisal campaign were recompleted as
development wells in the folded Agrio.

The results of the development campaign have been
mixed with only CDM-3007 and CDM-3012 currently
producing at economic rates, though below pre-drill
estimates. The CDM-3011, CDM-3014 and CDM-
3025 wells, although producing, have been
determined as uncommercial in the folded Agrio.

Unconventional development at Puesto Rojas
Horizontal development of the Vaca Muerta and
non-folded Agrio formations remain the primary
medium-term objective at Puesto Rojas. Prior to its
completion in the folded Agrio, several swab tests
were performed on CDM-3007 to determine the
production contributions of each of the Vaca Muerta
layers penetrated by the well. In addition, a further
workover was performed on CDM-3023 where the
Vaca Muerta layers were isolated and each layer
tested for flow rates.

The results of this work in the
Vaca Muerta formation will be
used to plan future horizontal wells
in the formation at Puesto Rojas.

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019As a responsible operator, the company has
commissioned a modular gas to power plant at
Puesto Rojas to convert associated gas to electricity
that can be sold into the electricity grid.

The conversion of gas to power using lean burn
technology results in reduced emissions of
greenhouse gases and provides a relatively clean
source of power for domestic, commercial or
industrial use and mitigates constraints on oil
production where associated gas is present.

Puesto Rojas
production

c.1,500
boepd

Puesto Rojas
primary term

35 years

expires

2052

Other Puesto Rojas area drilling activity
Two commitment wells, LP.a-09 and LP-07 were
drilled in the year and are awaiting completion. The
wells satisfy the licence commitment for the field
though the completion and testing of the wells will
likely be delayed following the recent fall in the Brent
benchmark price.

An additional commitment well, ML.x-1001 was
drilled on the Mallin Largo field contained within the
sizeable Rio Atuel licence. The well was not successful
in its target objective but provided information to
help interpret the nature of the folded Agrio at Mallin
Largo continuing into Puesto Rojas.

Gas to power project – removing
production constraints
In August 2019 the company commissioned the
construction of a gas to power plant at Puesto
Rojas. Associated gas is produced as a by-product
of oil production at Puesto Rojas and whilst modest
amounts of gas in early production can be flared,
this is not a solution in a larger scale long-term
development project.

At 31 December 2018

Production 2019

Revision to estimate

At 31 December 2019

Oil
Mbbl

Gas
MMcf

Gas
Mboe

Total
Mboe

Oil
Mbbl

Gas
MMcf

Gas
Mboe

Total
Mboe

Oil
Mbbl

Gas
MMcf

Gas
Mboe

Total
Mboe

Oil
Mbbl

Gas
MMcf

Gas
Mboe

Total
Mboe

PHOENIX OPERATED

Puesto Rojas area

Operated Core 1P

14,596

8,732

1,455 16,051

(470)

(601)

(100)

(570)

(6,356) (2,170)

(362) (6,717)

7,770

5,961

994

8,764

Operated Core 2P

23,708 18,084

3,014 26,722

(470)

(601)

(100)

(570)

(8,404) (4,321)

(720) (9,124) 14,834 13,162

2,194 17,028

Operated Core 3P

31,398 23,108

3,851 35,249

(470)

(601)

(100)

(570)

(9,428) (3,235)

(539) (9,967) 21,500 19,272

3,212 24,712

Mata Mora

Operated Core 1P

Operated Core 2P

Operated Core 3P

Total operated – prospective

–

Operated Prospective 1P

Operated Prospective 2P

Operated Prospective 3P

Total operated – other*

Operated Other 1P

Operated Other 2P

Operated Other 3P

PARTNER OPERATED
Total Chachahuen area

Non-op Core 1P

Non-op Core 2P

Non-op Core 3P

289

4,121

4,670

4,800

5,269

6,778

8,651

Total partner-operated – other**

–

(151)

289

–

4,121

4,670

4,800

(444)

–

5,269

6,778

8,651

(728)

–

(151)

376

–

(444)

(40)

122

376

(584)

153

–

(728)

(608)

(277)

2,198

–

376

(40)

122

376

225

411

665

(584)

3,094

(153)

4,074

4,395

(608)

3,933

(277)

5,773

2,198

10,121

–

225

411

665

3,094

4,074

4,395

–

3,933

5,773

– 10,121

Non-op Other 1P

Non-op Other 2P

Non-op Other 3P

4,358 25,903

4,317

8,675

(635) (5,059)

(843) (1,478)

(2,608) (16,772) (2,795) (5,404)

1,115

4,072

679

1,794

6,402 73,321 12,220 18,622

(635) (5,059)

(843) (1,478)

(4,194) (64,045) (10,674) (14,868)

1,573

4,217

703

2,276

6,577 75,464 12,577 19,154

(635) (5,059)

(843) (1,478)

(3,921) (64,826) (10,804) (14,726)

2,021

5,579

930

2,951

TOTAL RESERVES
1P

28,434 34,635

5,773 34,207

(2,428) (5,660)

(943) (3,371)

(9,819) (18,942) (3,157) (12,976) 16,187 10,033

1,672 17,859

41,847 91,405 15,234 57,081

(2,428) (5,660)

(943) (3,371)

(12,529) (68,366) (11,394) (23,924) 26,890 17,379

2,897 29,787

51,715 98,572 16,429 68,144

(2,428) (5,660)

(943) (3,371)

(10,360) (68,061) (11,344) (24,704) 38,927 24,851

4,142 43,069

* Atamisqui, Tupungato, Cerro Alquitran and La Paloma
** Cajon de Los Caballos, Santa Cruz Sur, RCLV and Chañares Herrados

Totals may not add due to rounding.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report18

Operating review continued

Chachahuen
Exploration

Chachahuen Sur

Cerro Morado
Este

Chachahuen Sur and Cerro Morado
Este – non-operated, core
Enhanced recovery, Chachahuen Sur
The focus of activity at the relatively mature
Chachahuen Sur concession remains on the
ongoing waterflood and tertiary pilot recovery
programmes aimed at arresting or slowing
natural production decline at the field. Improved
and upgraded water handling systems were
commissioned during 2019 to both improve the
quality of injected water and the rate at which
water can be injected into the oil-bearing formations.

In addition to the waterflood project at Chachahuen
Sur, a tertiary recovery project using polymer-
injection has been proposed by the operator, YPF.
The proposal is based on production results to date
and the properties of the oil being produced at
Chachahuen together with the nature of the
reservoir itself and production behaviour observed
on neighbouring fields. The objective of polymer
injection is to arrest production decline and,
potentially, increase absolute production.

The use of polymer injection typically enhances
waterflood performance by increasing the viscosity
of injected water and thereby increasing the sweep
efficiency through the reservoir. This results in
a greater volume of oil being pushed toward the
producing wells and increasing production.

The proposed tertiary injection project would
initially involve polymer injection in six wells with
the potential to expand the project if results from
the pilot are positive.

Appraisal drilling, Cerro Morado Este
YPF’s focus in the Chachahuen area has been related
to ongoing delineation drilling at Cerro Morado Este.
A total of 23 delineation wells were drilled in the year
with encouraging results for large-scale development
of the asset.

Cerro Morado Este
concession covers

45,467
acres

An additional

25,699
acres

has been requested

The evaluation work undertaken on the reservoir at
Cerro Morado Este to date has shown that the block
has high potential for enhanced production through
waterflood. This determination is supported by
analysis of waterflood performance of neighbouring
analogue fields, including at Chachahuen Sur.

A proposal for an initial waterflood pilot using three
injection wells has been made by YPF. In addition to
the continued drilling of development wells, should
the results of the initial pilot be positive, it is expected
that the operator will continue with the expansion
of waterflood across the concession.

Potential for additional acreage
The Cerro Morado Este concession currently
covers an area of 45,467 acres. Based on 3D seismic
studies on neighbouring areas, an extension to the
concession of an additional 25,699 acres has been
requested to the province.

Corralera
Noroeste

Corralera
Noreste

Name:
Filo Morado
Operator:
YPF

Corralera
Sur

Name: Chihuido
de la Sierra Negra
Operator: YPF

Name: El Trapial
Operator: Chevron

Corralera – operated, core
The Corralera licence carries an initial commitment
for two horizontal wells to be drilled before April 2021.
Corralera is situated in the gas and condensate
window for Vaca Muerta in Neuquén province. As
with at Mata Mora, the province owned oil company,
Gas y Petróleo de Neuquén, is a 10% partner in
the project.

Work undertaken in 2019 related to drilling has been
focused on determining well design and identifying
the best landing zone for the well. Work has also been
ongoing related to the design of the completions to
be deployed in the wells together with the method
of doing so.

Groundworks to prepare the drill
site are largely complete.

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019Santa Cruz Sur –
non-operated, non-core
The sale of Santa Cruz Sur reflects
the company’s focus on its core assets
and contributed modest proceeds for
reinvestment in core activity.

On 13 November 2019, the company announced
the completion of the sale to Echo Energy plc
of its 70% non-operated interest in five mature
conventional production blocks comprising the
Santa Cruz Sur assets.

The Santa Cruz Sur assets are in the Austral basin
in south Argentina and their sale is in line with the
company’s strategy to refocus Phoenix’s portfolio to
focus the company’s resources on the development
of its significant unconventional oil and gas portfolio
in its primary areas of operation in Mendoza and
Neuquén provinces.

Average daily production to the date of sale was
approximately 2,500 boepd of which approximately
1,950 boepd or 75% was derived from comparatively
lower-value gas production.

Rio Cullen, Las Violetas –
non-operated, non-core
The Rio Cullen/Las Violetas (‘RCLV’)
group of assets are in Tierra del Fuego
in the southernmost part of Argentina
with all production derived from
conventional formations.

In February 2017, the SM.x-1001 well was drilled as
an initial exploration well in the Tobifera formation in
the San Martin field and was reported as Argentina’s
most productive oil well in 2019. In Q4 2019, the well
produced at an average of rate of 2,025 bpd. In
January 2020, however, the level of water cut in the
well increased rapidly to more than 50% of total
production and the well was shut in. In March 2020,
production tests were undertaken in the middle and
upper Tobifera as part of the further evaluation of
the well with water volumes recorded in each section,
both of which were subsequently abandoned. The
SM.x-1002 well continues to produce strongly from
the Tobifera formation. A third well in the formation,
SM.x-1003, produces at lower rates with a frac job
undertaken in early 2019 being unsuccessful in
increasing production.

The test in the upper Tobifera section in the 1,871 to
1,876-metre interval showed an average production
rate of 1,576 bpd over seven days with lower water
cut. The well was subsequently shut in due to
a COVID-19 outbreak at the Chilean ENAP terminal
which is the export delivery point that production
from RCLV is currently trucked to for sale.

The main evacuation route for crude from RCLV is
normally by sea using tankers to offtake production.
This option is currently not available because the
loading buoy is shut down for maintenance and repair
work. Production and sales from the San Martin field
is expected to resume in October when the repair,
maintenance work and tests on the buoy are due
to conclude.

The company has commenced marketing of the
non-core RCLV assets which are now classified as
held for sale.

Malargüe – non-operated, non-core
In May 2019, the Province of Mendoza ratified
its decision to deny the second exploration permit
for the Malargüe area, in which the company
participates on a non-operated basis and where the
operator is YPF. During the first exploration period
one well was drilled on the block and was deemed
a dry hole. The block, though large in terms of
overall acreage, was judged to have prospects for
unconventional resources in only a relatively small
area of the overall licence.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report20

Chief financial officer’s report

2019
US$’000

2018
US$’000

129.4

(15.4)

177.0

21.3

(110.2)

(34.9)

(39.9)

16.9

39.2

(113.8)

(78.3)

222.7

96.5

(16.4)

336.2

139.1

20.2

Total revenue

US$129.4
million

Oil sales

US$114.7
million

Gas sales

US$14.8
million

Financial overview

Revenue

Gross profit

Operating loss

EBITDAX

Adjusted EBITDAX

Loss for the year

Net assets

Investment in fixed assets

Net cash from operations

Revenue and gross margin
Revenue for the period was US$129.4 million
(2018: US$177.0 million), comprising revenue from
oil sales of US$114.7 million (2018: US$154.5 million)
and revenue from gas sales of US$14.8 million
(2018: US$22.5 million).

The reduction in oil revenue between periods
resulted from a combination of a reduction in the
realised price per barrel and lower sales volumes
period-on-period.

The average realised oil sales price in 2019 was
US$47.96/bbl, a 19% decline on the average price of
US$59.26/bbl in 2018. Realised prices achieved by the
company are indirectly linked to Brent. The average
Brent crude price fell period-on-period by 10%, from
an average of US$71/bbl in 2018 to an average
of US$64/bbl in 2019, driving the reduction in the
Argentine realised prices.

The larger reduction (than Brent) in the realised
price has resulted from intervention by the Argentine
government in the oil market across the period.
The export retention tax, which was implemented
in September 2018, has resulted in a discount being
applied to domestic crude prices based on export
parity, and has equated to an approximate
downward impact of 10% on prices in 2019.

During the second half of the year the government
issued decrees fixing both the Brent reference price
for sales and the US Dollar (‘Dollar’) to Argentine
Peso (‘Peso’) exchange rate. This new legislation was
introduced after both the Merval index and Dollar
to Peso exchange rate fell dramatically following the
result of the Argentine presidential primary elections
announcement in August 2019. The legislation fixed
the crude oil and gasoline prices for 90 days at
a Brent reference price of US$59/bbl and set a Dollar
to Peso exchange rate of 45.19, rising to 46.69 then
51.2 in three dated stages. The final Dollar to Peso
exchange rate set of 51.2 is around 14% lower than
the year-end exchange rate of 59.9.

All domestic oil sales contracts, whilst Dollar based,
are settled in Peso, therefore this legislation has had
a direct impact on the company’s realised revenues,
although the decline in revenue has been partially
offset by lower Peso denominated costs.

Average daily oil sales in the period were 6,550 bopd
compared to 7,060 bopd in 2018. The majority of the
reduction has resulted from natural decline not offset
by production from new wells at Puesto Rojas and
Chachahuen. At Puesto Rojas the company’s focus
in the period was the completion of the folded Agrio
unconventional development campaign, which saw
four new wells completed and four new wells drilled
and completed during 2019. The campaign did not
yield the pre-drill production estimates and a number
of the wells were shut in pending further evaluation
at period end.

The reduction in oil sales at Puesto
Rojas has been somewhat offset by
Mata Mora coming online in Q3 2019,
contributing an additional 140,000
bbls of operated sales volume by
period end.

Gas revenues arise mostly in the non-operated
segment and declined by US$7.7 million in the year
compared to 2018. The reduction was driven by a
19% decline in the realised price from an average of
US$4.10/MMcf in 2018 to an average of US$3.32/
MMcf in 2019 and was further compounded by the
sale of Santa Cruz Sur (‘SCS’) in November. The
higher price observed in the prior period resulted
from a cold spike in the weather during Q2 2018
which increased demand. In the second half of 2018
the gas market started to become oversupplied,
predominately caused by the continued development
of the Vaca Muerta bringing new supply streams
onto the market. This change in economics has
reduced the seasonal variations in the gas curve,
and consequently the higher prices previously
obtained during the winter months have not
been realised in 2019.

Operating costs
Operating costs increased period-on-period at
US$18.69/boe in 2019 compared to US$17.66/boe
in 2018. The increase was driven by Puesto Rojas,
where conventional wells experienced natural decline
and new unconventional wells on the whole did not
perform to pre-drill estimates. The fall in sales and
production also meant that the fixed element of
production cost was spread over lower volumes,
resulting in higher operating costs on a per barrel
basis. The operating cost achieved at Mata Mora in
early production was US$22.77/boe, also contributing
to the cost increase due to the $/boe realised being
higher than both the 2018 and 2019 average. As the
Mata Mora block is further developed it is expected
that the $/boe operating cost will reduce.

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 201921

Other operating costs
Other operating costs before impairment and
one-off charges were US$38.0 million compared
to US$55.1 million in 2018. The reduction in cost was
primarily due to the hedging losses realised in 2018
of US$7.6 million (2019: US$nil) and a one-off
share-based payment expense of US$5.5 million
(2019: US$nil).

“ Total consideration received for
the sale of Santa Cruz Sur was
US$8.5 million spilt between cash
proceeds of US$7.0 million and
equity of US$1.5 million.”

A non-recurring loss of US$56.8 million was realised
in 2019 comprising US$29.0 million loss on sale of
non-current assets, US$20.2 million loss on termination
of licences and a US$7.6 million impairment charge.

The loss on sale of non-current assets resulted from
the sale of SCS to Echo Energy plc in November 2019.
SCS formed part of the group’s non-operated asset
portfolio and the sale was in furtherance of the
group’s strategy to divest of non-core conventional
operations. Total consideration received for the sale
was US$8.5 million split between cash proceeds of
US$7.0 million and equity of US$1.5 million.

The loss on termination of licences was driven by the
termination of the Chañares Herrados exploitation
concession. In May 2019, the Province of Mendoza
issued a decree terminating the concession, which
was held by the company’s joint venture partner,
Chañares Energía S.A., due to its failure to fulfil work
commitments. The company has no intention of
participating in the re-tender process for the licence
and will cease to hold any rights in the block once
a new concessionaire is appointed. The carrying value
of the Chañares Herrados asset was consequently
written off and a corresponding US$15.8 million
non-cash loss was recognised. It is noted that a new
concessionaire was not identified in 2019, therefore
the company continued to participate in the
concession during the year with the 12-month results
from Chañares Herrados included within gross
margin for the period. On 9 April 2020, the company
gave a notice of termination of the joint venture
agreement to Chañares Energía S.A., which took
immediate effect.

An additional US$2.4 million non-cash loss was
recorded in respect of the Vega Grande concession
in the operated segment. This area is not part
of the company’s core operations and is currently
not producing. Management therefore made the
decision not to request the extension of the licence.
A US$2.0 million non-cash loss was also recorded
in respect of the Malargüe concession in the non-
operated segment, where the application for the
second exploration permit made by the operator,
YPF, was denied by the Province of Mendoza.

2019 US$’000

Oil revenue

Gas revenue

Gross revenue

Operated loss

Add: DD&A

Add: exploration costs
written off

Operated

Non-
operated

49,341

65,311

14,751

49,355

80,062

Corporate

Total

–

129,417

14,765

129,417

(32,571)

(50,146)

(27,434)

(110,151)

32,470

31,954

1,633

66,057

3,665

575

–

4,240

EBITDAX

3,564

(17,617)

(25,801)

(39,854)

Non-recurring expenses

–

56,724

–

56,724

Adjusted EBITDAX

3,564

39,107

(25,801)

16,870

2018 US$’000

Oil revenue

Gas revenue

Gross revenue

Operated loss

Add: DD&A

Add: exploration costs
written off

Adjusted EBITDAX
and EBITDAX

Operated

Non-
operated

64,785

89,690

22,476

64,806

112,166

Corporate

Total

–

154,475

22,497

176,972

1,362

3,690

(39,964)

(34,912)

24,445

39,547

734

64,726

5,607

3,752

–

9,359

31,414

46,989

(39,230)

39,173

Other operating costs

Exploration expenses

Selling and distribution expenses

Administrative expenses

Other operating expenses

Non-recurring expenses

2019
US$’000

2018
US$’000

4,240

5,230

9,359

5,758

27,144

24,561

1,417

15,443

56,724

–

94,755

55,121

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report22

Chief financial officer’s report continued

Finance income and costs
Net finance costs were lower in 2019 at US$24.7 million
compared to US$26.6 million in 2018. The decline
in cost was driven by a US$6.2 million reduction
in the net FX loss realised in the period, offset by
a US$5.3 million increase in interest on borrowings.
Interest charges rose due to the increase in the loan
balance in the year. The FX losses primarily arise on
Peso denominated balances held by the company.
Significant devaluation of the Peso has been
experienced across both 2018 and 2019. The Peso
devalued by 97% across 2018 compared to 59%
across 2019, leading to lower FX losses recognised
in the current period.

Taxation
A US$21.0 million taxation credit was recognised in
2019, compared to a US$16.8 million taxation charge
in 2018. The main driver of the taxation credit in the
current period is the deferred tax benefit from loss
before tax, principally the non-recurring losses
recorded in 2019.

Balance sheet
At 31 December 2019, the group had net assets
of US$222.7 million, a decrease of US$113.5 million
compared to 31 December 2018.

Property, plant and equipment (‘PP&E’) is
US$42.0 million lower in 2019 compared to 2018.
This decline has resulted from the disposal of SCS
(US$37.1 million), the termination of the Chañares
Herrados licence (US$15.8 million), impairment charges
of US$2.5 million, the write-off of US$3.6 million
exploration expenses and depreciation, depletion and
amortisation (‘DD&A’) of US$66.1 million, offset by
US$100.7 million of additions. Additions to PP&E
predominately related to the unconventional drilling
campaign at Puesto Rojas, drilling investment in
the Chachahuen area and the acquisition of an
additional 4.4% share in the Rio Cullen and
Las Violetas concessions.

A US$43.3 million transfer from
intangible assets was made to PP&E
related to the costs of the MMx-1001
and MMx-1002 development wells at
Mata Mora following their completion
in the period and the subsequent
determination of commercial reserves.

Assets of US$17.6 million were also reclassified as
‘held for sale’. The reclassification relates to certain
non-core and non-operated assets where board
approval for sale has been obtained and the company
is engaged in an active programme for sale of the
assets within the next 12 months.

Additions to PP&E

US$100.7
million

Additions to
intangible assets

US$39.1
million

Intangible assets decreased by US$14.5 million
in the period predominately as a result of the
US$43.3 million transfer made to PP&E at Mata
Mora, a US$5.1 million impairment charge and
a US$4.3 million write-off in relation to the licence
relinquishments at Vega Grande and Malargüe,
offset by US$39.1 million of additions. Additions
to intangibles in the period predominately related
to the conclusion of drilling and completion of the
MMx-1001 well and the drilling and completion
of the MMx-1002 well at Mata Mora.

Working capital
Current assets comprise inventories, trade and
other receivables and cash. Inventories increased by
US$0.9 million to US$18.2 million at 31 December 2019,
with trade receivables increasing by US$3.8 million
to US$39.3 million at 31 December 2019. Trade and
other receivables primarily consist of receivables from
the sale of oil and gas whose value fluctuates related
to the timing of the payments received for invoices
over the year-end period.

Current liabilities mostly comprise trade and
other payables for equipment and services. Trade
and other payables declined by US$9.9 million to
US$44.8 million at 31 December 2019. At 31 December
2018, the company was part way through the FY18
unconventional completions campaign at Puesto
Rojas which concluded during H1 2019 and resulted
in higher payables over the 2018 year-end. No
substantial drilling or completion works were
ongoing at 31 December 2019.

Financing and liquidity
At 31 December 2019, the group had cash on
hand of US$11.0 million (31 December 2018:
US$21.1 million). Total borrowings in the period
increased by US$103.3 million from US$200.3 million
at 31 December 2018 to US$303.6 million at
31 December 2019. The increase mostly resulted
from the drawdown of an additional US$96.0 million
of funds from the revolving convertible credit facility
in place with Mercuria and the capitalisation of
US$15.5 million of accrued interest. Borrowings
held in Argentina of US$8.0 million were repaid
during the year.

Funds advanced under the credit facilities have
been used to invest in exploration, evaluation
and development work across the company’s
core licence areas and to satisfy an element
of general corporate costs.

At 31 December 2019, a total facility
of US$285.0 million was available
to the company, with a total of
US$278.0 million drawn down
under the facility.

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019Net working capital

US$24.3
million

Total borrowings

US$303.6
million

Outlook and COVID-19
The emergence of COVID-19 as a global pandemic
has had a significant impact on the operations of
the company. This has primarily resulted from the
significant reduction in the demand for oil, which
has seen crude oil prices drop to historic price lows.
Within Argentina, the over-supply of crude in the
market has resulted in YPF, the state-controlled
Argentine energy company, notifying its customers
that it will be suspending the purchase of oil until
further notice. This has caused the refineries to which
the company sells its oil to stop accepting deliveries
and as a result, management has made the decision
to shut-in the majority of operations until the impact
the pandemic is having on the economy is reduced
and current global restrictions begin to be lifted.

To manage this evolving situation in the short term,
the company has substantially reduced its capital
expenditure programmes for 2020. The company
has also assessed its cost base in detail, targeting
a significant reduction in operating and general and
administrative costs to be implemented through the
remainder of 2020. It is also holding discussions with
Mercuria to renegotiate the terms of the convertible
revolving credit facility.

While the short-term impacts on the company will
be significant, we believe that when the COVID-19
infection rate slows and the pandemic is brought
under control, the global economy will start to ramp
up again and the supply glut in the oil markets will
be reversed.

We are confident that with the cost
measures we are currently putting
in place, Phoenix will be positioned
to continue to operate and develop
our licences in the Vaca Muerta in
the medium and long term.

Kevin Dennehy
Chief financial officer
26 June 2020

Funding status and going concern
The company has currently shut-in production
of crude oil from its operated licences due to
a significant reduction in demand. The company
has developed and is progressively implementing
a plan that involves a significant reduction in
both operating and administrative costs. The
cost reduction actions being taken mean the
company will be in a significantly better position
to produce oil economically at lower oil prices and
with a positive contribution to cash flow when
production recommences. The company will then
focus on the continued development of its
unconventional assets.

Our major shareholder, Mercuria, is supportive
of the cost reduction plan and has extended short-
term debt facilities to facilitate its implementation
and execution. Mercuria has written to the company
stating its intention to continue to provide financial
support to the company of up to $37 million in order
that the company may continue to operate and service
the company’s liabilities as they fall due in the next
12 months whilst the company assesses the timing
of work plans and capital commitments. Mercuria has
agreed to meet the company’s cash needs for this
period and not demand repayment of the existing loan
within the next 12 months whilst in discussion with the
company to restructure the existing loan agreement.
This letter, which by its nature is not legally binding,
represents a letter of comfort stating Mercuria’s
current intention to continue to provide support.

Dividend
Given the company’s high growth objectives,
the directors do not recommend the payment
of a dividend.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report24

Risk management

The effective management of risk
and opportunity plays a key role in
the delivery of the group’s strategy.

Managing business risks
Understanding our principal risks and ensuring
that we have the appropriate controls in place to
manage those risks is critical to our growth and
success. Managing business risks and opportunities
is a key consideration in determining and then
delivering against the group’s strategy. The group’s
approach to risk management is not intended
to eliminate risk entirely, but provides the means
to identify, prioritise and manage risks and
opportunities. This, in turn, enables the group
to effectively deliver on its strategic objectives
in line with its appetite for risk.

The board’s responsibility
for risk management
The board has overall responsibility for ensuring
the group’s risk management and internal control
frameworks are appropriate and are embedded at all
levels throughout the organisation. Principal risks are
reviewed by the board and are specifically discussed
in relation to setting the group strategy, developing
the business plan to deliver that strategy and in
agreeing annual work programmes and budgets.

A focus on risk management
at the board level
The composition of the board has evolved in recent
years as the company has increased its focus on
unconventional activity in its licence areas.

Tim Harrington joined the board in November 2018
bringing significant experience of unconventional
oil and gas operations in the United States and
providing support and challenge to the executive
management team. Following the departure of the
former CEO, Tim has assumed the role of chairman
of the executive management committee, which
involves him working directly with the management
team on matters of strategy, leadership and the
development of robust management systems and
processes. Martin Bachmann joined the board as
a non-executive director in September 2019. Martin
brings additional international experience and,
importantly, recent experience of having worked
in Argentina from his time at Wintershall AG where
he was responsible for both conventional and
unconventional operations in-country.

Whilst the unconventional sector has transformed
the industry and the oil and gas market in a relatively
short period of time it remains a specialist area that,
to date, has largely been driven by innovation in the
US independent E&P sector that has focused on
technology to reduce operating costs. The sector
is being further transformed as big oil continues to
move into the unconventional oil and gas, particularly
in prospective basins such as the Neuquina basin
in Argentina.

The role of the audit and
risk committee
The audit and risk committee assists the
board in monitoring risk and in discharging
its risk management responsibilities. A number
of performance measures are set to assist in
objectively assessing business performance and
risk management. Performance measures are
specific and are defined in relation to the business
operation or activity to which they relate. Periodic
management reports provided to management
and to the board contain an assessment of these
performance measures. A number of business
performance measures have been established
as key performance indicators for the group.

Group risk management framework

Top down

Set
strategy

Define
strategic
objectives

Determine
risk
appetite

Identify
principal
risks

Risk
assessment

Deliver
strategic
objectives

Bottom up

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 201925

Principal risks and uncertainties
The principal risks facing the group together with
a description of the potential impacts, mitigation
measures and the appetite for the risk are presented
below. The analysis includes an assessment of the
potential likelihood of the risks occurring and their
potential impact. Identified risks are segregated
between those that we can influence and those which
are outside our control. Where we can influence risks,
we have more control over outcomes. Where risks are
external to the business, we focus on how we control
the consequences of those risks materialising.

Mapping our principal risks

Risks we can influence

Risk evolution in 2019

1 Health, safety and environment
Exploration, development
and production

3 Reserves and resources

4 Portfolio concentration

5 Financing

High

6 Bribery and corruption

Risks outside our control

7 Commodity prices

8 Demand/limited sales routes

Impact of C19 virus

10 Fiscal and political

Risks no longer
considered principal

11 Joint venture partners

12 Competition

Change in risk profile

2018 risk assessment

New/emerging risk

Probability

Low

Improving year-on-year

Worsening year-on-year

Low

Impact

High

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
26

Principal risks and uncertainties

Health, safety and
environment (‘HSE’)

Oil and gas exploration, development and production activities
are complex and physical in nature. HSE risks cover many
areas including major accidents, personal health and safety,
compliance with regulations and potential environmental harm.

Exploration, development
and production

The ultimate success of the group is based on its ability
to develop its assets, create value and to produce oil and
gas profitably from its unconventional asset base.

The ability to develop a consistent, repeatable and cost-
efficient method for drilling and completing horizontal wells
is core to the successful development of unconventional oil
and gas assets.

Potential impact High

Probability Low

Potential impact High

Probability Medium

Risk appetite
The group strives to ensure the safety of its employees,
contractors and visitors. We are very conscious of the natural
environment that we operate in and seek to minimise our
environmental impact and footprint.

Risk appetite
The initial development of new unconventional assets is
complex and technically challenging. This can expose the
group to higher levels of risk, particularly in the early stages
of exploration appraisal and into initial development.

We actively promote strict adherence to regulations that
govern our operations and the robust application of our
own HSE policies and procedures. There is no reason for
anyone associated with our business to take unnecessary
risks related to their personal safety, the safety of others
or the environment that we work in.

The group has a very low appetite for risks associated with
HSE and strives to achieve a zero-incident rate.

The group has some tolerance for this risk and acknowledges
the need to have effective controls in place in this area.

Link to strategy

Mitigation
The group maintains a programme of HSE, asset integrity,
upgrade and maintenance activity. This activity is supported
by a core group of specialist contractors and has hired
a dedicated HSE Manager.

The risk of physical injury or fatalities increases as physical
operations such as drilling and completion activity increases.
In 2019 we finished drilling operations at Mata Mora, completed
both wells in a complex simultaneous fracturing operation and
placed the wells on production. We also undertook a multi-well
drilling and completions campaign at Puesto Rojas.

There was no deterioration in our HSE metrics despite and
increase in activity, with an integrated Phoenix group HSE
policy delivering top quartile performance in 2019.

Mitigation
Technology and operational experience are fundamental
in developing unconventional resources.

We completed the initial two horizontal wells at Mata Mora in
the first half of the year. Since completion, we have undertaken
extended well tests on both laterals including examining the
performance of individual frac stages. This information will
be used to design the wells that will be needed in the pilot
development phase and, later, in full development.

We consult and share information with other operators in the
industry in order that, as a group, we benefit from experience
of others to broaden our collective operational knowledge.

We include specialist expert consultants in the design and
evaluation of our drilling and completions work.

Relevant KPI by priority/significance

2 4 6

Key to risk change

Key to our strategic priorities

No change

Reduced risk

Increased risk

Control and
consolidate

Profitable
production

Explore and
develop

Realise
value

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019

Reserve and resource estimation and
migration of volumes

Portfolio
concentration

The estimation of oil and gas reserves and resources involves
a high level of subjective judgement based on available
geological, technical and economic information.

The group’s assets are concentrated in Argentina. Existing
production is principally from conventional assets with
the main exploration and development opportunities in
unconventional assets. This places emphasis on the group’s
ability to successfully develop its unconventional resources
that represent the main long-term growth opportunities
for the company.

Potential impact Medium

Probability Medium

Potential impact High

Probability Medium

Risk appetite
The growth in absolute reserve volumes and the progression
of resources through the different categories is one element
of the group’s success. This is dependent on the commercial
viability of resources and the commitment of capital resources
in the future.

Risk appetite
The group’s business model is based on exploiting its early
entrant position in the Argentina unconventional sector
derived from existing conventional areas where the substantial
unconventional opportunities are also present. Additional pure-
play unconventional licences have been selectively acquired.

The group has some tolerance of risk in relation to the key
activities required to deliver reserve growth.

Argentina has the largest producing shale oil and gas resources
outside of the United States and is open to inward investment.
The strategic focus of the group means the group has a high
appetite for this risk.

We accept this risk as our strategy is Argentina focused.
We diversify by holding multiple licences, targeting varied
geological formations and in terms of the commodity
production objective.

Link to strategy

Mitigation
The group has a strong focus on subsurface analysis. We
employ industry technical specialists and qualified reservoir
engineers who work closely with our operational teams
responsible for delivering asset performance.

Reserve and resource volumes are assessed on an annual basis
using the Petroleum Reservoir Management System developed
by the Society of Petroleum Engineers.

An external assessment of reserve volumes is undertaken
by an independent and internationally recognised reservoir
engineering firm.

Mitigation
The licensing and regulation of oil and gas in Argentina is
governed at the provincial level. Whilst the group is exposed
to macro-economic and fiscal risk at the country level, its asset
and regulatory risk is distributed among a small number of
provinces. The group’s unconventional assets are principally
in the Mendoza and Neuquén provinces.

The Argentine economy continued to be volatile in 2019 with
inflation at more than 50% and significant devaluation of the
Peso in the year.

Some of the currency and inflation risk is mitigated by the
group sourcing funding internationally in US Dollars and by
key aspects of the industry being largely Dollar based.

Relevant KPI by priority/significance

2 3 6

Key to our KPIs

Number of reportable
HSE incidents

Year-on-year growth of reserves
and resources by category

Operating cost per boe

Production volume increase/
decrease

EBITDAX — earnings before interest,
taxation, depreciation, amortisation
and exploration expense

Personal/group project delivery
and milestone targets

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report

Principal risks and uncertainties continued

Financing

The inability to fund financial commitments, including
licence obligations, could significantly delay the development
of the group’s assets and consequent value creation. Financial
or operational commitments are often a pre-condition to the
grant of a licence. The group’s inability to satisfy these could
result in financial penalty and/or termination of licences.

6 Bribery and

corruption

Risk that third parties or staff could be encouraged to
become involved in corrupt or questionable practices.

Potential impact High

Probability High

Potential impact Medium

Probability Medium

Risk appetite
The development of unconventional oil and gas assets is
capital intensive and production returns from new development
activity are not immediate. The group has used both debt and
equity to fund the development of its assets and has benefited
from the support of its major shareholder in doing so.

The group continues to evaluate both debt and equity
financing options.

Risk appetite
The oil and gas industry, in common with other extractive
industries, has a higher than average perception of risk
related to bribery and corruption. Argentina has historically
been perceived as having a medium to high risk of bribery
and corruption with high-profile cases or allegations regularly
appearing in the media.

We have zero tolerance of bribery and corruption.

Link to strategy

Mitigation
The credit facility extended to the company by Mercuria
was progressively increased during 2019 and stood at
US$285.0 million at year-end.

As the group moves toward the development of its core
unconventional assets, the capital requirements of the group
will increase substantially. The group may not be able to
secure suitable funding either through existing arrangements,
additional debt instruments, the farm-out of assets or through
the issuance of equity.

Mitigation
The group has an established anti-bribery and corruption policy
that requires all new hires to confirm that they have read and
understood the contents and personal requirements of the
policy. The group ensures that our third-party contractors
and advisers follow our procedure and policy.

The group, its board and management have a zero-tolerance
policy towards bribery and corruption.

Relevant KPI by priority/significance

2 3 4 5

n/a

Key to risk change

Key to our strategic priorities

No change

Reduced risk

Increased risk

Control and
consolidate

Profitable
production

Explore and
develop

Realise
value

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019

Realised commodity
prices

A material decline in oil and gas prices adversely affects the
group’s profitability, cash flow, financial position, and ability
to invest.

8 Fluctuating demand and limited sales

routes for some production.

NEW emerging risk
Demand can be negatively affected by economic conditions
in Argentina and globally. Some assets have a single sales
route and effectively a single customer.

Potential impact High

Probability High

Potential impact High

Probability High

Risk appetite
Considerable exposure to commodity price risk is inherent in
the business and is accepted by the company.

Risk appetite
The Argentine economy has been historically volatile and
subject to periods of rapid and sustained inflation that can
affect demand for oil and oil products.

For certain assets, the primary or only sales route is
through a single refinery and single customer. In addition,
the government has historically intervened in the market
both in terms of capping domestic prices to delay the impact
of rising Brent crude benchmarks on refined products. The
government has also previously provided price support in
times of low crude prices.

The company accepts this risk as fluctuations in demand
resulting from economic uncertainty are a feature of
the industry.

Link to strategy

Mitigation
Argentina moved away from regulated pricing and toward
market-based pricing for commodities in late 2017. Contracts
for crude moved to a Brent-minus basis in early 2018 with the
discount applied relating to quality and location differential.

Theoretically this links the Argentine domestic price to Brent;
however, prices in Argentina are fixed monthly on a 29-day
average based on prior-month and in-month Brent prices.
This results in an imperfect relationship to Brent that makes
designing cost effective hedging strategies difficult.

Mitigation
2019 saw continued devaluation of the Peso and rising inflation.
Both measures were impacted negatively and in a pronounced
fashion following the August presidential primary. To slow
the impact of inflation on fuel demand at the pump, the
government introduced temporary fixed Brent reference prices
and US Dollar exchange rates for oil sales contracts that
effectively put a cap on crude prices.

Further, the impact of the COVID-19 virus in early 2020
exposed potential structural weaknesses in the market in that
a significant number of fields in the Mendoza and Neuquén
provinces ultimately share a single sales route, being the YPF-
operated refinery at Lujan de Cuyo.

When demand for fuel and oil products cratered in April 2020,
the refinery was reduced to operating at less than 60% of
capacity, causing a number of producing fields to be shut in
due to the lack of alternate sales routes.

Relevant KPI by priority/significance

4 5

Key to our KPIs

4 5

Number of reportable
HSE incidents

Year-on-year growth of reserves
and resources by category

Operating cost per boe

Production volume increase/
decrease

EBITDAX — earnings before interest,
taxation, depreciation, amortisation
and exploration expense

Personal/group project delivery
and milestone targets

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report

Principal risks and uncertainties continued

9 COVID-19 virus

10 Fiscal and

political

NEW emerging risk
The emergence of COVID-19 as a global pandemic has had
a significant effect on economies worldwide.

Argentina has a history of political instability and economic
uncertainty that has been characterised by high inflation
and significant currency devaluation.

Potential impact High

Probability High

Potential impact Medium

Probability Medium

Risk appetite
The COVID-19 virus that was first identified in China in late 2019
spread rapidly in early 2020, becoming prevalent in Europe and
Asia initially, followed by North America, South America and
Africa. Almost all countries have now been affected by the virus
that is extremely contagious and has a significant mortality
rate. The governmental response enacted almost universally
has been one of social distancing, self-isolation and quarantine.

Many businesses have significantly reduced activity with home
working enforced for most employees. Industrial activity has
all but ceased as working from home for industrial or factory
employees is impossible in many cases.

This is an inherent risk that the company must address in terms
of personal safety and business continuity.

Risk appetite
The Macri administration was voted into government in 2015
on pro-business policy agenda focused on economic reform.
His win was welcomed internationally; however, issues in the
domestic economy persisted with high levels of inflation and
devaluation resulting in increasing poverty among large parts
of the population.

In the October 2019 presidential elections, the opposition
Peronist party ousted the Macri administration, returning the
country to a centre-left policy agenda, albeit a potentially more
moderate one than under previous Peronist administrations.

Given the nature and location of its operations, this country
specific transition risk is intrinsic to the group.

Link to strategy

Mitigation
The response to the pandemic has resulted in a significant
and rapid reduction in demand for energy including oil and gas.
Many industrial facilities are not operating, and substantially
all non-essential travel has ceased, be that by road, rail or air.

The company has followed government policy and advice in
respect of the safety of employees and consequential revised
operational guidance.

In response to the near record low prices for oil as a result
of a severe drop-off in demand for fuel as the COVID-19
situation continues, the company has assessed its cost base
in detail targeting a significant reduction in operating and
general and administrative costs. In addition, capital projects
have been deferred to the extent possible whilst maintaining
licence compliance.

Mitigation
The company employs appropriately qualified and experienced
staff across all disciplines (operational, commercial and
administrative) in Argentina and works with reputable and high
quality advisers in order to anticipate and comply with changes
in the legislative or fiscal environment.

We also participate in industry groups and forums that seek
to provide feedback to governmental departments, provincial
governments, unions, and other legislative bodies.

Relevant KPI by priority/significance

4 5 6

n/a

Key to risk change

Key to our strategic priorities

No change

Reduced risk

Increased risk

Control and
consolidate

Profitable
production

Explore and
develop

Realise
value

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019

Risks no longer considered principal

Joint venture
partners

12 Competition

The inability of joint venture partners to fund their
obligations can impact the group’s operations. The
group’s dependence on others is increased where it is
not the operator.

The group operates in a competitive environment.
Competition exists in relation to the acquisition of acreage,
securing oil and gas services and attracting the right talent
and experience to the group.

Potential impact Medium

Probability Low

Potential impact Medium

Probability Low

Risk appetite
In certain of its operations, the group has joint venture partners,
as either operator or non-operator. The group requires high
quality partners. It recognises that it must accept a degree of
exposure to the creditworthiness of its partners and evaluates
this aspect carefully as part of each investment decision.

Where we are not operator, we have less influence on the rate
of capital expenditure for development.

The company has a low appetite for this risk.

Risk appetite
The unconventional oil and gas industry in Argentina emerged
rapidly with significant investment commitments made by
major international and national oil companies together with
companies from the independent sector.

The relatively early stage of the unconventional oil and gas
industry in Argentina and the opportunity to establish the
group as a leading operator translates to a high appetite
for this risk.

We cannot influence demand by others but can ensure we
have the right relationships with suppliers and contractors.

Link to strategy

Mitigation
The group’s primary joint venture partners are YPF, the Argentina
state-owned oil and gas company, Gas y Petróleo del Neuquén,
the Neuquén province-owned oil and gas company, and Roch S.A,
a well-recognised Argentine independent oil and gas company.

Mitigation
The group has a substantial acreage position with a focus
on operatorship of its core assets. Core assets are those that
are large in terms of acreage with high assessed potential for
unconventional development.

In 2019, the company sold its interest In the ROCH S.A.
operated Santa Cruz Sur assets, reducing its exposure to
partner operated assets.

A dedicated joint venture manager has been appointed with
the full-time remit to manage non-operated ventures on behalf
of the company in accordance with our rights embedded in the
UTE contracts that govern our joint ventures.

The company has rights of audit over its joint venture partners
in relation to joint operations and regarding both financial and
operational matters.

The group maintains good relations with oil and gas service
providers that have unconventional expertise and crews
based in Argentina. The group constantly keeps the market
under review.

Competition in terms of the acquisition of new acreage
is substantially reduced following the demonstration of
commercial potential at Mata Mora that gave the company
unconventional production on a second sizeable acreage area.

Securing the title to Mata Mora and Corralera in 2018
substantially reduced this risk also.

Relevant KPI by priority/significance

2 3 4 5

Key to our KPIs

Number of reportable
HSE incidents

Year-on-year growth of reserves
and resources by category

Operating cost per boe

Production volume increase/
decrease

EBITDAX — earnings before interest,
taxation, depreciation, amortisation
and exploration expense

Personal/group project delivery
and milestone targets

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
32

Viability statement

In accordance with the UK Corporate Governance
Code, the board has assessed the prospects and
viability of Phoenix over a three-year period to June
2023. This assessment has considered the group’s
financial position in June 2020, its future projections
and the principal risks and uncertainties faced.

Assessment of prospects
The company has built a significant portfolio
of licence interests in Argentina focused on the
country’s nascent unconventional oil and gas sector.
The licence areas held by the company that contain
unconventional oil and gas opportunities cover
more≈than 620,000 acres and contain multiple
unconventional oil and gas appraisal opportunities.

The assessment of contingent and prospective
resources associated with these evaluation interests
is an indicator of the ultimate production potential
of the licence areas should the company be successful
in its efforts to develop the prospects it holds. At
31 December the company has reported contingent
resources of 281 MMboe and prospective resources
of 1,556 MMboe. Importantly, and as a result of work
done in 2019, first-time reserves have been recorded
at Mata Mora and the concession confirmed
as prospective for unconventional development.
Resources are a subset of the overall volumetric
assessment of development potential. The transition
of resources to reserves is not barrel-for-barrel.
Where development is successful the reserve barrels
yielded will be substantially fewer than those that
may have been recorded as resources primarily as
a result of the application of economic assumptions
to the technical resource volumes when assessing
the viability of each individual play.

This development risk is mitigated by the diverse
opportunities present within each of the company’s
licence areas that are prospective for unconventional
oil and gas.

See strategy and business model
pg.s 4–7

Timeframe
The company has an established annual budgeting and
forecasting process related to forecasting the following
year’s planned operational and financial performance
and capex needs. The budget for a given year is updated
through the performance year as circumstances dictate.

The company also maintains a broad five-year plan
that is also updated annually and also focused on
business performance, cash generation and usage
in operations together with capex spend. Because
exploration and evaluation activities are speculative
in nature, the forecast results and planned
operational activities will be more specific in
the near-term portion of the five-year plan.

Whilst there are various factors that need to be
considered, unconventional opportunities typically
become cash positive from operations and after capex
over a three to four-year timeframe. Achieving this
timeframe is predicated on the intense and sustained
deployment of capital in a technically efficient manner
over that period. Accordingly, in a normal operating
environment, the board believes that the viability of the
business should be assessed over a period of three years.

Assessing viability
Oil and gas exploration, evaluation and development
activity is capital intensive and requires significant
investment in the early stages of the asset lifecycle
before yielding production returns and, ultimately, cash
from operations. As a result of the fall in the demand
for oil and the collapse in oil prices, the company has
shut-in production of crude oil from its operated
licences and is implementing a plan that involves
a significant reduction in operating and administrative
costs. The cost reduction actions being taken mean
the company will be in a significantly better position
to produce oil economically at lower oil prices and
with a positive contribution to cash flow when
production recommences. The company will then
focus on the continued development of its
unconventional assets.

To date, the funding required to support the activities
of the group has been provided by Mercuria Energy
Group. Mercuria has agreed to continue to provide
support and is in discussions to restructure the existing
loan agreement. If the company is unable to source
funding to meet the development capex requirements,
then it may not be able to ensure that various
unconventional opportunities it is targeting will move
through development to production and ultimately
yield net cash from operations after capex.

Impact of COVID-19
The impact of COVID-19 on economic activity
worldwide has had a profound effect on the oil and
gas industry with certain capital-intensive projects
rendered uneconomic in the current near record low
price environment. The board expects that industrial
activity and hence demand for energy will resume
when the immediate threat of COVID-19 subsides.

It is not clear yet when this may occur or if activity
levels, particularly related to discretionary travel,
will resume to pre-COVID-19 levels.

Principal risks
The board considers the key factors that could
impact the delivery of the company’s operational
and financial targets are as follows:

→ Inability to restructure the terms of the existing loan
agreement with Mercuria and secure additional
funding from Mercuria or alternative sources

→ The current COVID-19 pandemic continuing for
longer and with a greater impact than current
forecasts from medical and scientific agencies

→ Delays in or significant changes to the

unconventional oil and gas permitting processes
in the provinces that the company operates in

→ Failure to secure the services of appropriately

experienced and qualified contractors

→ Cost overruns on capital projects

→ An inability to gain access to key pipelines or other

infrastructure to evacuate production

See principal risks and uncertainties
pg.s 25–31

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019Sustainability review

Our people
Phoenix has responsibility for and owes a duty
of care to the people who work for us and the
contractors and suppliers that work alongside us
in our operations. We are responsible for the health,
wellbeing and personal safety of our people when
they are with us as we deliver our complex
operational projects.

We are responsible for the personal
and professional development of our
people in the roles that they perform
for us. Our objective is to create
a working environment that supports
our people while challenging them to
deliver their best and to develop their
own skills and experiences.

We recognise the importance of diversity to our
business. Diversity may relate to gender, nationality,
faith, personal background or any other factor.
We understand and value how diversity benefits
our business and how the individual experiences
of our people contribute to a positive environment
in our company. We are committed to promoting
an environment where our people learn and develop
in a collaborative manner regardless of who they are.

Modern slavery
Personal freedom is a fundamental human right.
The UK Modern Slavery Act was brought into law in
2015. Phoenix fully supports the principles it promotes
and the personal rights and freedoms it protects.

We have zero tolerance for any form
of slavery or any practices that could
constitute or be perceived as slavery,
whether they be in our own business
or those of our suppliers, partners
or consultants.

Anti-bribery and corruption (‘ABC’)
We have zero-tolerance for bribery,
corruption or unethical conduct in
our business. Our policies require
compliance across our businesses
with all applicable ABC laws, in
particular, the UK Bribery Act, the
US FCPA and the Argentinian Foreign
Corrupt Practices Act.

Substantially all our operations and people are based
in Argentina. For 2019, Transparency International’s
Corruption Perception Index (‘CPI’) ranked Argentina
66 out of 180 participating countries worldwide, up
from number 85 in 2018. Argentina’s CPI score has
improved in 2019 and is now marked 66 compared
to 40 in the prior year.

The CPI index assesses corruption perception in the
public sector when ranking different countries. As
with 2018, the UK and the US declined in terms of
both their ranking and their CPI scores during 2019.
The perceived potential for public sector corruption
increases where democratic institutions are
weakened, for instance, where political candidates
and campaigns focus on public disillusionment and
corruption scandals to advance their agenda.

As a business, Phoenix operates in a competitive
market and faces competition in securing and
maintaining licence interests with provinces,
attracting and retaining the best service providers,
and dealing with unions to secure and retain the
right people for our business.

We are very aware of the pressures
and challenges that we face. However,
we are committed to upholding the
highest levels of corporate and
operational behaviour.

We have a system of documented ABC policies
and procedures that provide a consistent policy
framework across the group to ensure awareness
of potential threats among our employees and help
to ensure appropriate governance of ABC matters.

Gender diversity (total group1)

Male

76%
84

Female

24%
26

Including directors

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report34

Sustainability review continued

Our documented policies and supporting procedures
are maintained in both Spanish and English, and cover:

2019 taxes paid
in Argentina

→ anti-bribery and corruption;

→ gifts and entertainment;

→ third-party representatives;

→ whistleblowing.

US$23.4m

with more than

US$2.1m

paid at Federal level

We also maintain training materials in Spanish
and English. The reporting processes, including
whistleblowing, are dual language. We provide our
staff the opportunity to report concerns or potential
non-compliant behaviour through our external legal
counsel as an alternative to reporting internally.

Tendering and supply chain
Our focus on our tendering process and supplier
management has increased as our high-value
evaluation and development activity increased in
the year. We have appointed a professional head
of procurement who has progressively centralised
and revised our tendering policies, processes
and procedures.

We place contracts with local suppliers where
possible and where we can be sure that the quality
of service and delivery meets our standards –
as with any supplier we work with.

Environment
We are very conscious of the natural environment
that we operate in and work hard to minimise our
impact on that environment.

Phoenix is committed to the
responsible stewardship of the
environment and, on the conclusion
of our operations, to return our
sites to the condition in which we
found them.

Most of our exploration and production operations
are in high-altitude desert areas. Site preparation is
mainly clearing scrub and levelling off ground to allow
safe access. We seek to operate from compact drill
sites to minimise disruption to the natural habitat and
plan multiple wells from single well-pads, thereby
reducing the number of locations that we prepare.

Water usage and conservation
Significant amounts of water are used in
unconventional oil and gas operations. Together with
our service providers, we have developed a fracture
fluid system that recycles produced water that is
a natural by-product of oil and gas production. This
produced water is separated out and stored in tanks
for use in unconventional operations. This system has
meant we can reduce the use of fresh water in our
completion operations.

We are subject to strict operating procedures
imposed on us by the provinces in which we work
and related to our in-field pipeline networks and
river crossings. We are required to maintain a system
of pressure gauges to monitor pressure across the
pipeline network because a drop in pressure is one
of the main indicators that a line may have been
breached. Automatic shut-off valves are installed
at points where our lines cross rivers to automatically
shut off the line when a drop in pressure is detected.

Health and safety
The health and safety of our employees, contractors
and visitors to our sites is paramount with a new HSE
policy implemented in2019. Anyone working at, or
visiting, a Phoenix operational site is provided with
personal protective equipment appropriate to the
location and will also be allocated to a supervisor
who is responsible for their safety while on site.
When there are active operations taking place,
such as drilling or facilities upgrade, we establish
clear boundaries to limit access to operational areas.

We have also established a system for the regular
monitoring of noxious or flammable gases at our
gathering or loading facilities and at our operational
sites and regularly check lines and transmission
networks for leaks.

Our objective is for zero lost time
injuries/incidents and zero spills
or leaks.

Taxation
Phoenix is a responsible operator and corporate citizen
and is committed to adhering to all relevant tax laws
in all our jurisdictions. This includes compliance at the
national, provincial or municipal level. Our operations
in Argentina are subject to a complex fiscal system
that includes corporate income taxes, royalties, sales
taxes, VAT, payroll taxes and certain banking taxes
amongst others. In addition, we are required to deduct
and remit withholding taxes in respect of contractor
payments direct to the Argentine tax authorities.

Compliance with tax laws and regulations is
fundamental to our licence to operate and is an
obligation that we take seriously.

In 2019 we paid more than US$23.4 million in cash
taxes in Argentina with US$ 2.1 million paid at the
Federal level and the balance in the provinces where
we work.

The strategic report, from pages 2 to 34, was
approved by the board and signed by order of
the board by Nigel Duxbury, company secretary,
on 26 June 2020.

Strategic reportPhoenix Global Resources plc Annual Report and Accounts 2019Chairman’s statement on Corporate Governance

Focus on value potential
In the medium to long term the company’s ambition
is to be a leading producer of unconventional oil and
gas in Argentina. Whilst we have current production
from conventional assets, the board believes the
greatest potential is in the unconventional portfolio.

In ranking our development prospects, the overall
asset portfolio has been categorised as either core,
prospective or non-core.

Core assets represent those with the greatest
potential value in terms of production or acreage
whether conventional or unconventional. Prospective
are those that have unconventional development
potential but that may be smaller in terms of total
acreage or geographically further from areas where
unconventional potential has been confirmed
by others.

Our core assets have been defined as the Puesto
Rojas area, Mata Mora, Corralera and Chachahuen.
Our internal and external reporting has been
redesigned and our operational activity focused
to reflect the value potential we see in each asset.

Focus-driven decision making
The decision to market the Santa Cruz Sur and Tierra
del Fuego assets for sale reflects this revised focus.
Both these assets are non-operated, conventional
gas assets located outside our primary operational
hubs in Mendoza and Neuquén provinces.

Evolving your board
During the year we have made changes to the
composition of your board to enhance stewardship.
Tim Harrington (non-executive director) has taken
the role of chair of the executive management
committee, providing leadership and guidance to
executive management until such time as a new
CEO is appointed.

Partly in response to the over-boarding provisions
of the Code, Garrett Soden stepped down from
the board during the year to focus on his other
commitments. Concurrently, Martin Bachmann
joined the board, bringing extensive experience
in oil and gas operations, including in Argentina.

I believe we have the right people, procedures and
processes in place to navigate what is currently
a very difficult operating environment.

Sir Michael Rake
26 June 2020

A governance framework that reflects
our ambition
We have consistently maintained a strong focus on
governance, choosing to measure our governance
arrangements against the requirements of the UK
Corporate Governance Code (the ’Code’). In 2018,
a change to the AIM Rules required companies to
formally adopt a recognised governance framework.
Given our focus on and previous commitment to the
highest standards of governance, it felt appropriate
that we continue to work with the framework that is
widely recognised to be most comprehensive for UK
listed companies. In addition, the Code was updated in
2018 and, among other changes, now includes specific
provision around wider stakeholder engagement
and the empowerment of employees.

The company’s objective in 2019 continued to be
full compliance with the provisions of the Code.
Nevertheless, the directors recognise that there may
be areas where full compliance is not yet possible or
practical when considering the size of the company
and the relatively early stage of its unconventional
operations in Argentina.

The areas where we depart from the provisions
of the Code are discussed in more detail in the
corporate governance report together with the
reasons for non-compliance, our views on mitigating
factors and our plans to move to compliance
where appropriate.

Corporate governance report on
pg.s 39–42

The market for oil and gas companies has become very
challenging in 2020. As part of our response and to
safeguard the future of the company, we have made
changes to the size of the board and have had to reduce
headcount or furlough employees. Recognising this
reduced capacity in the business, the board expects to
adopt and report against the provisions of the Quoted
Companies Alliance corporate governance code going
forward. The QCA code provisions cover many of the
same areas as the UK Corporate Governance Code but
provides additional flexibility in the manner of reporting
and the application of certain provisions.

How we manage our business
and measure performance
Our segmental reporting has changed in 2019 reflecting
changes in the way we manage assets operationally,
prioritise resources and report performance internally.
These changes bring a clearer distinction between
operated and non-operated assets, development
potential and long-term value expectation.

A dedicated non-operated asset manager was
appointed in 2019 with responsibility over the
whole non-operated portfolio and for our working
relationships with partners. This appointment has
been made recognising the potentially reduced level
of influence the company has over non-operated
activity and the manner in which we exert influence
through joint management committees.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report36

Chairman’s statement on Corporate Governance continued

Requirement

Board response

Compliance with the UK
Corporate Governance code

In accordance with the revised AIM Rules, the company has
elected to comply with the requirements of the UK Corporate
Governance Code in 2019

Read more on pg.s 42, 43, 45

Board structure

The Phoenix
board

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Nominations
committee

Remuneration
committee

Audit and risk
committee

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management

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GovernancePhoenix Global Resources plc Annual Report and Accounts 2019

Board of directors

Tim Harrington (age 61)
Non-executive director and chair of the
executive committee A R

First appointed 14 November 2018

Skills and experience
Tim Harrington has over 38 years of oil and
gas experience and spent 31 years with BP
plc in various commercial, financial and
operating leadership positions around
the globe including postings in Houston,
Anchorage, London and Bogota. In his final
two roles with BP, he served as CFO and
then later as president of BP America
Production Company, BP’s onshore L48
E&P business focused on unconventional
resources. Since leaving BP, he has been
working with private equity and various
start-ups in the United States and currently
serves as a senior energy advisor to Trilantic
Capital Partners, Mercuria Energy Trading
and Bayswater Exploration & Production.

Additionally, Tim sits on the board of
directors for DJR Energy LLC, TRP Energy
LLC and EnergyFlo Chemical Applications
LLC, three privately funded oil and gas
industry related start-ups operating in
the onshore United States.

He is also a member of the National
Association of Corporate Directors (‘NACD’)
in the United States and was a past director
and executive committee member for the
Texas Oil and Gas Association (‘TXOGA’).
Mr. Harrington holds a B.S. in Accounting
from Miami University (Ohio), an MBA from
Xavier University, and previously earned his
CPA in Texas.

External appointments
Director, DJR Energy LLC
Director, TRP Energy LLC
Director, EnergyFlo Chemical Applications LLC

Qualifications
BSc, Accounting, Miami University (Ohio)
MBA, Xavier University
Certified Public Accountant, Texas (inactive)

Sir Michael Rake (age 72)
Non-executive chairman A N R

Kevin Dennehy (age 61)
Chief financial officer

First appointed 1 October 2018
Resigned 21 May 2020

Skills and experience
Kevin is based in Buenos Aires and has
over 38 years’ experience in the oil and gas
industry, and was appointed as the CFO
and to the board on 1 October 2018.

Kevin has had a 35-year career in the oil
industry with BP. Between 2016 and 2018,
Kevin was CFO of Pan American Energy,
BP’s Argentine joint venture and between
2013 and 2015 he was country manager
of BP Iraq. In addition, he has held senior
finance roles at BP in Iraq, Colombia, Russia,
Angola, Kuwait, the UK and the United
Stated. Prior to BP, Kevin worked for El Paso
Natural Gas Company.

His experience includes exposure to the full
life cycle of upstream operations from new
business access and exploration success to
project development and mature operations.

Kevin holds a B.S. Accounting with Honours
degree from Thomas College, Maine, and an
MBA from Houston Baptist University, Texas,
and holds a CPA certification in Texas.

External appointments
None

Qualifications
B.S. Accounting (Hons) Thomas College
MBA Houston Baptist University
Certified Public Accountant, Texas

First appointed 19 September 2016

Skills and experience
Sir Michael Rake is the former chairman
of BT Group plc, EasyJet plc, Worldpay
Group plc and a director of S&P Global.

Sir Michael was president of the CBI from
2013 to 2015; a member of the Prime
Minister’s Business Advisory Group from
2010 to 2015; non-executive director of
Barclays plc from 2008, becoming deputy
chairman from 2012 to 2015; chairman of
the private equity oversight group, the
Guidelines Monitoring Committee, from
2008 to 2013; and the first chairman of the
UK Commission for Employment and Skills
from 2007 to 2010. He was a director of
the Financial Reporting Council from 2004
to 2007.

From May 2002 to September 2007,
Sir Michael was international chairman
of KPMG. Prior to his appointment as
international chairman, he was chairman
of KPMG in Europe and senior partner
of KPMG in the UK.

Sir Michael was knighted in 2007. In 2011 he
received the British American Business UK
Transatlantic Business Award in recognition
of outstanding business leadership. In
2013, he received the Channing Award for
Corporate Citizenship, was voted the FTSE
100 non-executive director of the year and
received the ICAEW outstanding
achievement award.

External appointments
Chairman, Great Ormond Street Hospital
Chairman, New Day Ltd
Chairman, Wireless Logic
Chairman, Majid Al Futtaim Holdings LLC

Qualifications
Chartered accountant

Committee membership

A Audit and risk committee
N Nominations committee
R Remuneration committee

Chair
Observer

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report38

Board of directors continued

John Bentley (age 72)
Non-executive director (independent)
N R

First appointed 10 August 2017

Skills and experience
John has over 40 years’ experience in
the natural resources sector. He is an
experienced board member, being a past
managing director of Gencore’s Brazilian
mining company, Sea Bento Mineracao
and chief executive of Engen’s exploration
and production division.

In 1996, John was instrumental in floating
Energy Africa Ltd on the Johannesburg
stock exchange and became chief executive
for the following five years. More recently
he was executive chairman of First Africa Oil
plc and served on the boards of Rift Oil plc,
Adastra Minerals Ltd, Caracal Energy Inc
and Scotgold Resources Limited. He is
currently on the board of a number of
E&P companies including deputy chairman
of Wentworth Resources Ltd and non-
executive director of Africa Energy Corp.
John holds a degree in Metallurgy from
Brunel University.

External appointments
Senior independent director, Wentworth
Resources Ltd
Non-executive director, Africa Energy Corp.

Qualifications
B.Tech (Hons) Metallurgy, Brunel University

Martin Bachmann (age 61)
Non-executive director (independent)

Daniel Jaeggi (age 59)
Non-executive director

First appointed 1 September 2019

First appointed 14 November 2018

Skills and experience
Martin, a trained geophysicist, has more
than 35 years’ executive experience across
the global oil and gas business. Most recently
he was a member of Wintershall’s board
of executive directors for 10 years.

At Wintershall his responsibilities included
managing its 70,000 boepd production
company in Argentina where he gained
experience in the unconventional space.

Previously he had a 25-year career with
Shell, managing various businesses in the
FSU, Spain, the Netherlands, the North Sea
and the Middle East. Martin is Swiss and
speaks German, English, Dutch, French
and Spanish.

External appointments
Non-executive chairman of NEO Energy
Holding Ltd
Non-executive director of Point Resources
Holding AS

Qualifications
MSc (Geophysics) from the Swiss Federal
Institute of Technology (ETH)

Skills and experience
Daniel is co-founder and president
of Mercuria Energy Group Limited.

Daniel is the nominated majority
shareholder representative to the board.

Nicolás Mallo Huergo
(age 50)
Non-executive director
N R

First appointed 2 October 2007

Skills and experience
Nicolás was chairman of Andes Energia plc
until August 2017 and is a director of both
Integra Investment S.A. and Integra
Capital S.A.

Nicolás is the nominated minority
shareholder representative to the board.

David Jackson (age 71)
Non-executive director (independent)
A R

Javier Alvarez (age 48)
Non-executive director (independent)
A N

First appointed 17 July 2012

Skills and experience
David Jackson has more than 30 years’
experience in international banking and
finance having held senior positions in
investment banking and investment
management in Standard Chartered Bank
(1990–2008), where he was a managing
director in London and Hong Kong,
Scandinavian Bank (1977–1990) in London,
Bahrain, Singapore and Hong Kong,
where he was an executive director
and a member of the Bank’s General
Management Committee, and Finance
for Industry, now 3i, where he was
a senior legal adviser (1973–1977).

David was non-executive chairman
of Emergex Vaccines Holding Ltd
(2016-2019). He holds a degree in Law
(LL.B) from the University of Leeds and
was called to the Bar in 1972.

External appointments
Director, Burges Grove Management
Company Limited

Qualifications
LL.B (Hons), University of Leeds Barrister

Skills and experience
Javier is an Agricultural Engineer and has
a master’s in environmental politics and
globalisation from King’s College, University
of London. Javier’s career, which is based
on his skills on building projects with diverse
stakeholders and on his experience in
fundraising, was developed in the private
sector in London. He was executive director
of the British Argentine Chamber of
Commerce (‘BACC’) from 2007 to 2011
(he is currently overseas director and
member of the board of the BACC) and
he was business development director
at a family office in Cambridge dealing
with investments in the primary sector.

In 2012, he joined the board of Andes
Energia as a non-executive director.

External appointments
Overseas director, British Argentine
Chamber of Commerce
Member of the board, British Argentine
Chamber of Commerce

Qualifications
Master’s, Environmental Politics and
Globalisation, King’s College

GovernancePhoenix Global Resources plc Annual Report and Accounts 2019Corporate governance report

Corporate governance
and the Code
In 2018, the governance arrangements
expected of AIM companies and the AIM
Rules for Companies were amended to
require the application of a recognised
corporate governance code. Following the
rule change, AIM companies are required
to explain how they comply with the code
adopted and to discuss any departures
from the selected code and the reasons
for doing so.

Reflecting its commitment
to the highest standards of
governance and considering
that Phoenix had measured
its governance arrangements
against the Code, the
company elected to formally
apply the UK Corporate
Governance Code for 2019.

The Corporate Governance
Code 2018
In July 2018 the UK Financial Reporting
Council issued an updated Code that is
to be applied in respect of financial years
beginning on or after 1 January 2019.
While the new Code applies specifically
to companies with a premium listing on
the main market of the London Stock
Exchange, Phoenix has elected to continue
to apply the Code in 2019 when assessing
and updating its governance arrangements.

The new Code is based around five key
areas of governance with an enhanced
focus on culture, purpose and aligning
a company’s strategy and values
with culture. The Code also focuses
on stakeholder engagement and the
requirements of section 172 of the
Companies Act for the board to have
a mechanism for workforce engagement.
The new Code also brings a renewed
focus on diversity and succession planning.
The full text of the new Code can be
found at www.frc.org.uk.

Board leadership and
company purpose
The board is responsible for establishing
the company’s purpose, values and strategy
and for satisfying itself that these and its
culture are aligned.

The 2018 Code is arranged around five areas of governance, each of which
contains a number of principles that are supported by specific provisions.
The five areas addressed by the Code are:

1. Board leadership and company purpose
2. Division of responsibilities
3. Composition, succession and evaluation
4. Audit, risk and internal control
5. Remuneration
Compliance with the Code
The directors consider that the company has followed the Code throughout the
period other than in respect of the following:

→ Code provision 5: There is no workforce representative appointed to the board
and no director has been specifically designated as liaison between the board
and the workforce. John Bentley is the senior independent director and is
available to employees should they have concerns.

→ Code provision 21: The performance of the board and of individual directors has
not been formally assessed during the year. Changes to the board composition
have been made with the involvement of the nominations committee to enhance
the experience of unconventional oil and gas among the non-executive directors
and to bring additional experience of oil and gas operations in Argentina.

→ Code provision 24: The chair of the board of directors is currently also a member

of the audit committee.

Location of board meetings and site visits
The company organises a number of
board meetings throughout the year and
endeavours to rotate the primary physical
location of meetings between its Mendoza,
Buenos Aires and London offices.

Being physically present in our key
locations gives the board members
the opportunity to meet formally and
informally with staff of all grades.
Social activities, including management
dinners, are arranged to coincide with
board meetings where possible and give
the directors the opportunity to spend
time with team members. This informal
interaction provides the opportunity for
our team to give feedback on the board’s
position on the purpose, culture and
values of the organisation and allows
board members to take the temperature
of the business directly.

Periodic site visits are
organised when key
operational projects are
underway, providing the
board the opportunity
to spend time with and
learn from operational
teams and contractors.

Interaction with major shareholders
and conflicts of interest
A representative of the company’s major
shareholder sits on the board and attends
board meetings. In addition, the chairman
and certain executive directors (primarily
the CFO) and members of executive
management (COO, head of subsurface
and others as appropriate) meet
periodically with representatives
of the major shareholder.

These meetings typically take place in
relation to major operational projects, on
conclusion of the budget setting process
and in advance of funding related and
other strategic financing discussions. The
meetings may also include representatives
of the minority shareholders.

To mitigate against potential conflicts
of interest that could arise from having
a significant shareholder, one of the
directors has been specifically designated
as the minority shareholder representative
to the board. The minority shareholder
representative is available to minority
shareholders to voice concerns or to
provide feedback to the board.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report40

Corporate governance report continued

Executive management committee
An executive management committee
is in place and meets weekly. The meeting
is currently chaired by Tim Harrington
inhis interim role and is attended by
Kevin Dennehy, the chief financial officer
and Javier Vallesi, the chief operating
officer, together with a designated
senior representative from each of
human resources, operations and finance
management. The meeting provides
an open forum with business and
departmental updates given by
participants and provides for two-way
feedback between the executive
directors and the management team.

Lunch and learn
Regular lunch and learn sessions are
organised in our Mendoza and Buenos Aries
offices and are based around a key business
theme or topic. The sessions are presented
by employees on a rotational basis and give
the opportunity for knowledge sharing and
questions. The sessions are held over the
course of a lunch provided by the company
and give an informal opportunity for both
social and business-related interaction
between and amongst our team.

ABC and whistleblowing policy
In addition to the formal and informal
mechanisms to raise issues and provide
feedback on the business, a formal
whistleblowing policy is in place as
part of the wider anti-bribery and
corruption policies and procedures.
The whistleblowing process provides
achannel for employees to raise concerns
or issues that may relate to suspicion
or evidence of wrongdoing. An external
legal contact is also provided should
employees feel uncomfortable raising
matters directly with management,
the chairmen or the board.

Business model on pg.s 6–7
Principal risks and uncertainties
on pg.s 25–31
Stakeholder engagement
disclosures on pg.s 8–9

Division of responsibilities
Composition of the board
The board consists of nine members
with diverse backgrounds, with each
director bringing different experience
to bear for the benefit of the company,
its shareholders and other stakeholders.
The primary collective experience
of the board is focused around oil
and gas industry experience and of
operating in Argentina. However, the
board also includes individuals with
significant financial, legal and public
company experience.

Sir Michael Rake serves as the chairman
of the board and was independent of
Phoenix on his appointment in September
2016. John Bentley has been appointed
as the senior independent director to
whom shareholders can raise any issues
or concerns or provide feedback to
the board.

Board independence and
building experience
Excluding the chairman, 50% of the
board comprises independent non-executive
directors. Martin Bachmann was appointed
to the board in September 2019 and is
considered by the board to be independent.
Martin was appointed to the board to bring
additional and extensive oil and gas
experience together with experience of
operating in the Argentine oil and gas sector.

In addition to his remuneration as an
independent non-executive director,
a consulting agreement is in place
between the company and Martin under
which he receives an additional fixed
monthly retainer for providing industry
expertise, support and advice to the
company. The consulting agreement has
no variable or incentive compensation
element in its terms. The board is of the
opinion that the consulting agreement
does not impair Martin’s independence.

What the board spent its time focusing on in 2019
In 2019 the board considered, assessed and debated a wide range
of matters including:

Operations

18%Management reporting
18%Budget
14%Financing
11%Portfolio review
11%Strategy
11%HSE
4%Audit
7%Financial reporting
7%

GovernancePhoenix Global Resources plc Annual Report and Accounts 201941

Induction of new directors
On joining the group and similar to Tim
Harrington in 2018, Martin Bachmann
went through an induction process. This
took place over two days in Buenos Aries
where Martin met with Kevin Dennehy
and key finance team members to discuss
matters related to financial performance,
funding and both internal and external
relationships. These relationships include
those with corporate advisers and joint
venture partners.

Martin also met with Javier Vallesi,
together with the head of subsurface
to discuss technical matters related to
unconventional exploration and evaluation
activity, current operational performance,
and the licences we hold. Key prospects,
risks and mitigating factors were also
discussed as part of the onboarding.

The induction did not include a site visit
as no significant drilling or completion
activities were ongoing at the time.

Access to advice
All directors have access to the advice and
services of the company secretary who
is responsible to the board for ensuring
compliance with laws and regulations
applicable to the company. The company
secretary is also responsible for ensuring
that board procedures are followed.

The directors, collectively or
individually, are able to take
independent professional
advice if they believe such
advice is required in the
furtherance of their duties.
Where such advice is taken,
it is at the company’s expense.

Directors’ other commitments
The chairman and non-executive directors
have other external commitments,
including directorships of other companies
as disclosed in the individual director
biographies. The company is satisfied
that these associated commitments have
no measurable impact on the ability of
directors to discharge their responsibilities
to Phoenix effectively. Additional external
commitments held by directors provide
a benefit in terms of diverse experience
that can be brought to bear for the
benefit of the company.

Kevin Dennehy, the group CFO, is the
only current executive director and holds
no external appointments. Whilst not
being a director of the company, Javier
Vallesi, similarly does not hold any
external appointments.

Board of directors on
pg.s 37–38

Composition, succession
and evaluation
Tenure of directors and nominations
All directors are proposed for
reappointment annually at the company’s
AGM. The date of original appointment
is shown in the respective director
biographies. No director, including the
chairman, has served on the board for
a period of longer than nine years.

The responsibilities of the board

Role

Principal responsibilities

Chairman

→ Manages and provides leadership to the board

Chair of the
executive
committee

→ Acts as a direct liaison between the board and management,

working with the CEO to assist the flow of information

→ Ensures that the directors have sufficient information to enable

them to make informed judgements

→ Sets the agendas for board meetings working with the CEO and the

company secretary

→ Recommends an annual schedule of board and committee meetings

→ Ensures effective communication with shareholders and

other stakeholders

→ Provides broad leadership and promote collaboration across

theorganisation

→ Provides individual and collective coaching to the executive team

→ Works with the executive team to maintain a robust HSE and

operating management system

→ Works with the executive team on effective performance

management processes

→ Assists the management team in development and implementation

of strategy

→ Provides enhanced insights, learnings and challenges regarding
successfully appraising and developing unconventional resources

→ Advises and assists the executive team and board in business

development opportunities and activity

→ Interfaces with the chairman, stakeholders and board on matters

of strategy and material events

Chief
financial
officer

→ Overall management of the financial risks of the group

→ Is responsible for financial planning and record keeping as well

as financial reporting to the board and shareholders

→ Ensures effective financial compliance and control, while responding
to regulatory developments, including financial reporting, capital
requirements and corporate responsibility

Senior
independent
director

Non-
executive
directors

→ An independent non-executive director

→ Provides a sounding board for the chairman and the CEO

→ Serves as an intermediary for the other directors as necessary

→ Is available to shareholders should they have concerns

→ Provide constructive challenge to the executive directors

→ Help develop proposals on strategy

→ Scrutinise management’s performance in meeting agreed goals

and objectives

→ Monitor performance reports

→ Satisfy themselves on the integrity of financial information and that
controls and risk management systems are robust and defensible

→ Determine appropriate levels of remuneration for executive directors

→ Appoint and remove executive directors as required and review

succession planning

Nominations committee report on
pg.s 43–44

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report42

Corporate governance report continued

Evaluation of board performance
There has been no formal evaluation
of board performance to date. The board
has considered it appropriate, given the
size and early stage of development
of the company, that the evaluation
of performance is undertaken on an
informal basis and changes to board
composition made when considered
appropriate and in the best interests
of the company.

During 2019, Garrett Soden stepped
down from the board to focus on his
other directorships. Concurrently, Martin
Bachmann joined the board, bringing
additional experience of unconventional
oil and gas and of operating in the
Argentina oil and gas sector.

Audit, risk and internal control
Responsibility for the annual report
The board has charged the audit and risk
committee with the responsibility for
reviewing the contents of the 2019 annual
report to assess, when taken as a whole,
if it is fair, balanced and understandable.
The audit and risk committee considers
if the annual report provides all the
necessary information for shareholders
and other stakeholders to assess the
financial position of the group and
its performance in the context of the
business model and strategy that is
articulated in the annual report.

Internal control
The board has responsibility for the
overall system of internal control and for
reviewing its effectiveness. In making its
determination of effectiveness, the board
has carried out a robust review of the
principal risks facing the group, including
those that would threaten its business
model, future performance, solvency
or liquidity.

Internal audit
The group does not currently have
a dedicated internal audit function.
Because of the relatively small size of the
group and the single focus of operations
in terms of industry and location, the
directors consider it appropriate to
consult with competent, recognised
consultants and specialists in relation to
subjective or complex areas of operations,
accounting or specific transactions.

Risk assessment and risk management
The directors have undertaken a robust
assessment of the company’s emerging
and principal risks. The assessment
includes a quantification of the likelihood,
impact and potential financial exposure
related to each identified risk together
with mitigation factors or actions that
can be taken to reduce the company’s
HSE, operational or financial exposure.

The company’s risk management
procedures are assessed annually, primarily
as part of the annual report process. Risk
assessments are also updated periodically
during the year, for instance in advance
of major field operations such as drilling
and completion operations, construction,
or seismic acquisition.

Safety drills including building evacuation,
fire drills and spill containment simulations
are performed periodically to ensure
that employees remain up to date with
response and safety protocols in the event
of an actual incident arising. Safety drills
may also include external parties such as
provincial response units, other nearby
operators and observers. Learnings from
such drills are used to update company
operating protocols and procedures.

Audit committee report on
pg.s 45–47

Principal risks and uncertainties on
pg.s 26–31

Viability statement on pg. 32

Remuneration
The remuneration committee is chaired
by John Bentley, who is an experienced
company director and who sits on the
remuneration committee of at least
one other company where he serves
as non-executive director.

Alignment of remuneration to values
and culture
The company has an incentive programme
that all members of staff participate in.
The primary outcome of the programme
is to provide performance feedback
against individual and corporate
objectives and determine the level
of bonus awarded to each employee
for a given year.

An element of individual bonus is set
by reference to company performance
against a balanced scorecard that
includes corporate goals and targets
related to safety, operational and
financial performance, as well
as qualitative factors aimed at
promoting company values and culture.

Individual’s performance objectives are
set and assessed annually and include
a mixture of specific goals or target
milestones as well as personal and
professional development objectives
consistent with the company’s purpose,
culture and working practices.

The individual’s objectives are set to align
with those of the head of their respective
department (operations, finance, HR, etc.)
which in turn are set to reflect the overall
corporate objectives.

Board attendance

Role

Sir Michael Rake

Non-executive chairman

Tim Harrington

Non-executive director

Kevin Dennehy

Chief financial officer

John Bentley

Independent non-executive director

David Jackson

Independent non-executive director

Javier Alvarez

Independent non-executive director

Martin Bachmann^

Non-executive director

Daniel Jaeggi

Non-executive director

Nico Mallo Huergo

Non-executive director

Matthieu Milandri*

Non-executive director

Anuj Sharma**

Chief executive officer

Garrett Soden***

Independent non-executive director

* Resigned 31 January 2019
** Resigned 23 April 2019
*** Resigned 12 September 2019
^ Appointed 1 September 2019

Meetings
attended

5/5

2/2

2/5

4/5

0/1

2/2

2/3

GovernancePhoenix Global Resources plc Annual Report and Accounts 2019Nominations committee report

Membership

Members

Sir Michael Rake (chair)
Javier Alvarez
John Bentley

Nicolás Mallo Huergo

Nominations committee attendance

Sir Michael Rake

John Bentley

Javier Alvarez

* Resigned 12 September 2019

Diversity

Gender

Board

Male
Female
0
9
Senior management team

Date appointed

Aug 2017
Aug 2017
Aug 2017

Aug 2017

Role

Chair

Member

Quorum

2 members

(observer)

Meetings
attended

2/2

1/2

Nationality

United States
Board
2

United Kingdom
Board
3

Male
8
Group

Male
84

Female
2

Female
26

Argentina
Board
2

Switzerland
Board
2

Independent
4

Non-independent
4

Executive
1

Total
9

Phoenix recognises that the role of
its nominations committee, working
together with the board as a whole, is key
to promoting effective board succession
and the alignment of board composition
with the company’s culture, values and
strategy. The nominations committee
meets at least twice per year, and more
frequently as necessary, and will report
on its activities to the full board.

Purpose
The nominations committee is formed
with the purpose of monitoring the
balance of skills, knowledge, experience,
independence and diversity of the board
and its committees. Consideration of
diversity includes gender diversity as well
as diversity of nationality, background,
skills and experience. The committee
is charged with ensuring that there
is a formal, rigorous and transparent
procedure for the nomination and
appointment of new directors and that
appropriate procedures are in place for
the nomination, selection and training
of directors.

Membership
The nominations committee comprises
three non-executive directors, two of
whom are required to be independent.
The committee is chaired by Sir Michael
Rake, who is also chairman of the board
of directors. The terms of reference
of the committee state that it can be
chaired by either the group chair or by
an independent non-executive director.
Where the chair of the committee is also
the chair of the board, he or she is required
to absent themselves from the discussion
or selection of potential successors to the
chair of the board to avoid any potential
conflict of interest. Similarly, individual
members are excused from discussion
related to their own appointment as
chair of board committees.

Responsibilities
The principal responsibilities of the
nominations committee are to:

→ review the structure, size and

composition of the board, taking
account of the group’s strategic
objectives, and make recommendations
in regard to any changes required;

→ plan for the succession of directors

and other senior executives;

→ identify, and nominate for board
approval, candidates to fill board
vacancies as they arise;

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report44

Nominations committee report continued

→ annually review the time commitment
required of non-executive directors
together with the number and type
of external appointments held by
those directors;

→ make recommendations to the board
in regard to the membership of both
the audit and risk committee and
the remuneration committee in
consultation with the relevant
committee chair; and

→ assist the board with its periodic
evaluation of the performance
of individual directors and of the
board as a whole.

Diversity
When considering board composition, the
group policy continues to be to recruit the
best candidate available for any position
based on merit and against objective
criteria in order to achieve the most
effective board. The application of this
policy is delegated to the nominations
committee and applied throughout the
group. The experience of the board is very
diverse and covers not only a wealth of oil
and gas operational experience, but also
extensive technical, operational, financial,
governance, legal and commercial expertise.

The board recognises the strength that
comes with diversity and the different
viewpoints and innovative thinking that
can come from a combination of diverse
life experiences. We are committed to
continue to work hard to ensure that
we recruit the very best candidates
throughout our business regardless
of gender, nationality or background.

Activity in 2019
The committee continued the ongoing
evaluation of board performance and
of its competencies. The evaluation was
informal though highlighted the need
to further enhance technical oil and gas
capability and experience of operating
in the Argentina oil and gas industry.

Together with administrative support
form the major shareholder, a search
process was initiated and culminated
with the appointment of Martin
Bachmann to the board of directors.
Martin has gained extensive oil and gas
experience throughout his career and
latterly was responsible for Wintershall
Dea GmbH’s operations in Argentina
where he gained direct and significant
experience of unconventional oil and
gas operations.

The appointment of Martin increases the
board’s ability to effectively challenge and
also support operational management
in the development of the company’s
asset portfolio. Martin is also a fluent
Spanish speaker.

Priorities for the coming year
In 2020, the committee will continue
to assess the skills present on and the
effectiveness of the Board and will
make additional appointments as
determined appropriate.

Over-boarding
We are aware of, and have considered,
recent guidance from proxy organisations
recommending that shareholders vote
against the re-election of directors where
they consider that a director is attempting
to undertake too many roles in addition to
the responsibilities that come with being
a member of the company’s board.

In 2019 and following a review of his other
commitments, Garrett Soden stepped
down from the board to focus his time
on his other external commitments. The
company would like to thank Garrett for
his contributions in the two years that
he was a Phoenix board member.

While we are satisfied that the current
members of the board do have sufficient
time to fulfil their duties, we recognise
that some directors hold a number of
external appointments. We will continue
to monitor the workload and external
commitments of our board members as
the group’s activities and the level of its
operations grow and develop in order
to make sure that each member of our
board is able to commit sufficient time
to fulfil their responsibilities to the
shareholders and to their fellow
directors in an effective manner.

Conflicts of interest
The board operates a policy to identify
and, where appropriate, manage conflicts
or potential conflicts with the group’s
interests. In accordance with the
directors’ interest provisions in the
Companies Act 2006, all of the directors
are required to submit to the company
secretary details of any situations that
might give rise to an actual or potential
conflict of interest. The board monitors
and reviews potential conflicts of interest
on a regular basis.

Sir Michael Rake
Chairman, nominations committee
26 June 2020

Skills represented on the Phoenix board

Leadership

Argentina

Oil and gas

9
5
5
4
4
2
2

Strategy

Finance

Legal

Unconventionals

GovernancePhoenix Global Resources plc Annual Report and Accounts 2019Audit and risk committee report

Membership

Members

David Jackson (chair)
Javier Alvarez
Sir Michael Rake

Date appointed

Quorum

Aug 2017
Aug 2017
Aug 2017

Audit committee attendance

Role

David Jackson**

Sir Michael Rake

Javier Alvarez

Garrett Soden*

* Resigned 12 September 2019
** Appointed chair 12 September 2019

Chair/member

Member

Chair

2 members

Meetings
attended

4/4

3/4

4/4

3/3

Purpose
The main function of the audit and risk
committee is to assist the board in fulfilling
its financial oversight responsibilities by
reviewing and monitoring the integrity
of the financial information provided to
shareholders and the group’s system
of internal control and risk management.

These systems have been established
for the purpose of providing relevant,
accurate and timely information for
both external reporting and internal
management purposes. As part of this
role, the committee is also responsible
for the internal and external audit
processes and the group’s compliance
with laws, regulations and other ethical
codes of practice.

Membership
As required by the UK Corporate
Governance Code, only non-executive
directors can serve on the audit and risk
committee. The terms of reference for
the committee require that it has at
least three members, the majority of
whom are independent. The members
are all appointed by the board on the
recommendation of the nominations
committee and in consultation with
the audit committee chair. The chair
of the board may be a member of the
committee, though only where he or she
is considered independent on appointment
as chair of the board. Where the chair
of the board sits on the audit committee,
he or she cannot chair the committee.
Sir Michael Rake currently sits on the
audit and risk committee.

In accordance with Code
provision 24, at least one
member of the committee
is required to have recent and
relevant financial experience.
The board is satisfied that
David Jackson fulfils this
requirement.

Meetings are normally attended by the
chief financial officer and key members
of the finance team as appropriate
and at the invitation of the committee.
In addition, representatives of the
external auditor are invited to attend
meetings and particularly those related
to the external reporting cycle. The
committee chair maintains an ongoing
dialogue with key individuals involved
in the company’s governance, including
the external auditor. The chair also meets
privately with the external auditor at
least once per year, though will meet
more frequently as circumstances dictate.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
46

Audit and risk committee report continued

Responsibilities
The principal responsibilities of the audit
and risk committee are:

→ to monitor the integrity of the financial
statements, including the annual and
interim financial statement reporting
required by both the London and
Buenos Aires stock exchanges;

→ to review any other formal or

informal reporting regarding the
company’s financial position or
communications, such as analyst
and investor presentations, annual
results presentations and financial
information contained in press
releases and other communications;

→ to report to the board on financial

reporting issues and significant areas
of judgement, including matters
discussed with the external auditor;

→ to provide oversight of the work
of the external auditor and make
recommendations to the board
in relation to their appointment
or reappointment. Such oversight
includes that related to any
re-tendering or termination
of the external audit contract;

→ to provide oversight of the relationship
with the external auditor, including
agreeing terms of reference, scope
and remuneration (including both
audit and non-audit fees);

→ the maintenance of internal controls

and risk management systems
together with arrangements for
internal audit; and

→ to monitor policies and procedures

related to ethics, fraud and
whistleblowing.

Meeting frequency
The committee will meet at least four
times per year with the calendar of
meetings designed around the key phases
of the external financial reporting cycle,
including audit planning, interim results,
preliminary announcement and the
conclusion of the annual financial
statement audit.

In relation to the 2019 reporting cycle,
the committee has met four times.
A summary of the items discussed
at each meeting is set out on pg. 47.

Internal audit and partner
audit activity
The group does not currently have an
internal audit function and no internal
audit reviews were undertaken in 2019.
The board had not commissioned any
specific internal audit reviews in 2018 either.

The main operational activity in 2019
related to the drilling of the second
horizontal well at Mata Mora and the
unconventional completion of both
wells. External technical advisers were
included specifically related to the design
and completion operations to provide
guidance and challenge to management
both in planning and executing the
completion operation and through the
management and evaluation of the initial
production period on each of the wells.

In October 2019, the group appointed
a dedicated joint venture manager to
oversee our non-operated activities that
are primarily with YPF at Chachahuen
and with ROCH S.A. in relation to the
Rio Cullen and Las Violetas properties
with ROCH S.A. The appointment was
made internally and the joint venture
manager has significant prior experience
of working with our partners.

The UTE (Unión Transitoria de Empresas)
agreement that will govern the Chachahuen
joint venture activity is due to be formed.
This agreement includes detailed provisions
for partner audit rights over the venture
and exercisable by Phoenix. Until the UTE
is in place the he main fora for exercising
partner rights are the technical committee
meetings that take place regularly and are
attended by Phoenix representatives.

Given the current size of the group
and its level of activity, it is likely that
any operational or financial reviews
that either management or the board
consider appropriate during 2020
will be undertaken using a specialist
provider of internal audit services.

External audit
PwC is the external auditor to the group
in respect of the 2019 annual report and
financial statements. The group has
elected to comply with the provisions of
the UK Corporate Governance Code that
require FTSE 350 companies to put the
external audit contract out to tender at
least every ten years. The committee’s
terms of reference require the group to
consider whether to put the audit out
to tender after five years and annually
thereafter. PwC was first appointed
as external auditor for the year ended
31 December 2012 and its appointment
was reconsidered in light of the tendering

requirements after each audit since and
including 2016 and will be considered
again on conclusion of the 2019 audit.

Non-audit services
The audit and risk committee has
established a policy for the provision of
non-audit services by the external auditor
to ensure that these services do not
impair the auditor’s independence or
objectivity. The policy identifies those
services that the auditor may provide,
services that are precluded in normal
circumstances and sets guidance around
the level of non-audit fees that the
committee considers to be acceptable.
Fees for specific pieces of work are
dependent on the type of service being
proposed, the seniority of the consultants
considered appropriate to deliver work
and the circumstances related to the
provision of the service.

No significant non-audit work was
undertaken by PwC in 2019. One director
used PwC to prepare his personal US tax
filings for which the fees were settled by
the director directly.

In considering which services the
external auditor can and cannot provide,
the governing principles applied by the
audit and risk committee are that the
auditor cannot:

→ audit its own work;

→ perform management functions; or

→ act as an advocate for the group.

Nevertheless, each piece of work that
it is proposed that the external auditor
could provide is formally assessed in
line with the revised Ethical Standard
issued by the FRC prior to its
commencement. In addition, the scope
of individual projects is monitored
throughout their delivery to identify any
potential conflicts as work progresses.

David Jackson
Chairman, audit and risk committee
26 June 2020

GovernancePhoenix Global Resources plc Annual Report and Accounts 201947

2019 year-end significant accounting issues
The significant issues considered by the audit and risk committee in 2019 in relation to the financial statements and how each
of these were addressed are shown in the table below:

Significant
accounting issue

Viability
statement and
going concern
assessment

Impairment
considerations

Consideration and conclusion

The company is currently faced with several challenges. On a macro level it faces economic uncertainty
in Argentina following a change of government in December 2019 and as a result of the continuing
negotiations by the government to restructure the country’s debt. This political and economic uncertainty
has been compounded by the impact COVID-19 and the consequent governmental response that has led
to a significant reduction in demand for fuel resulting in a collapse of oil prices in the first half of 2020.

As a result of the fall in the demand for oil and the collapse in oil prices, the company has shut-in production
of crude oil from its operated licences and is implementing a plan that involves a significant reduction in
operating and administrative costs. The cost reduction actions being taken mean the company will be in
a significantly better position to produce oil economically at lower oil prices and with a positive contribution
to cash flow when production recommences. The company will then focus on the continued development
of its unconventional assets.

Our major shareholder, Mercuria, is supportive of the cost reduction plan and has extended short-term
debt facilities to facilitate its implementation and execution. Mercuria has written to the company stating
its intention to continue to provide financial support to the company of up to $37 million in order that the
company may continue to operate and service the company’s liabilities as they fall due in the next 12 months
whilst the company assesses the timing of work plans and capital commitments. Mercuria has agreed to meet
the company’s cash needs for this period and not demand repayment of the existing loan within the next
12 months whilst in discussion with the company to restructure the existing loan agreement. This letter,
which by its nature is not legally binding, represents a letter of comfort stating Mercuria’s current intention
to continue to provide support.

The company defines the key indicators of impairment in relation to its oil and gas assets within its accounting
policies. When a specific impairment trigger is identified during a period, the company will complete an impairment
review of the associated CGU. The company also assessed its licence interests for potential impairment on an
annual basis by comparing the book value of each asset to its respective NPV10 value that is independently
assessed by the external reservoir engineers using the Petroleum Resources Management System guidance.
The NPV10 value is calculated based on a discounted cash flow model using a discount rate of 10%.

The calculation includes several key assumptions, including oil and gas prices and reserve estimates, which the
company defines as key impairment indicators within its accounting policy. Where the NPV10 value is lower than
the carrying value of an asset an impairment test is performed.

Assets are tested for impairment by calculating their value-in-use using a discounted cash flow model or their fair
value less costs of disposal, whichever is determined to be the higher. The impairment test uses several assumptions
but is most sensitive to assumptions related to oil and gas prices, discount rate and production volumes.

The NPV10 impairment trigger assessment showed that the Atamisqui concession was potentially impaired.
An impairment test was performed using a discounted cash flow model and an impairment charge of
US$2.5 million was determined to be required at 31 December 2019. The impairment charge is reflective
of the mature nature of the asset and the lower oil price environment observed towards the end of 2019.

What the audit committee spent its time focusing on in 2019

Audit status

10%

Annual report

10%

Asset carrying values

10%

Accounting judgements

30%

Audit plan

20%

Interim reporting

20%

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report48

Letter from the remuneration committee chairman

Dear shareholders
As chairman of the remuneration committee,
I present the directors’ remuneration report for
Phoenix for the year ended 31 December 2019.

This is presented at a time when we are having to
deal with the uncertainties and challenges presented
by the coronavirus (‘COVID-19’) and I can confirm
that the committee will continually monitor business
conditions and exercise judgement in applying
discretion in relation to 2020 remuneration levels.

Although Phoenix is currently quoted on the
London Stock Exchange’s Alternative Investment
Market (AIM), the board recognises the importance
of shareholder transparency and standards of
governance. In 2017, the board decided to follow the
principal provisions of the UK Corporate Governance
Code (the ’Code’) on a comply or explain basis,
commensurate with the standards expected by
stakeholders of companies listed on the Premium
Segment of the London Stock Exchange’s Main
Market. However, recent events have caused
the Company to reassess its position and whilst
continuing to recognise the importance of standards
of governance, the Company is considering, in
the future, to apply the principals of the Quoted
Companies Alliance Corporate Governance Code.

Our report for 2019 covers the following matters:

→ how the company’s executive remuneration

policy has been implemented in the year ended
31 December 2019; and

→ the company’s intended policy for 2020

and beyond.

2019 and Phoenix’s
remuneration policy
Our aim is for executive remuneration at Phoenix to:

The committee continues to regularly review
its approach to remuneration and its continued
appropriateness considering market practice,
regulatory requirements and corporate governance
best practice as may be applicable to the company
over time. Given the stage of the company’s
development, whilst target bonuses for 2019
were based on a combination of quantitative and
subjective key performance indicators including
corporate, operational, financial and personal
performance, it was agreed that it would be
appropriate to apply a certain amount of discretion
in determining the amount of bonus awards. In
addition, it was decided not to grant any awards
under its Long-Term Incentive Plan (‘LTIP’).

Furthermore, given the inherent high level of uncertainty
in the current challenging environment, the committee
agreed that it would not be appropriate to award any
bonuses for 2019, consistent with the treatment of
all employees within the company.

The directors’ remuneration policy set out on pages
50 to 57 was developed to reinforce the above
objectives, but in light of recent events and the stage
of the company’s development, its appropriateness
is currently under review.

Key decisions and pay outcomes
in 2019
→ During the year Anuj Sharma served notice

on the company, which the company treated
as a notice terminating his employment in
accordance with the terms of his service
agreement and resignation from his position
as chief executive officer and a director of the
company with effect from 23 April 2019. The
committee applied the directors’ remuneration
policy and exit payment policy when determining
the appropriate separation remuneration
arrangement for Anuj Sharma.

→ attract, retain and motivate individuals of a high

calibre and appropriate experience;

→ No annual bonuses were awarded for 2019.

→ No awards were granted under the company’s

→ align incentives with the company’s strategic goals

LTIP in 2019.

and business plans;

→ deliver rewards for strong and sustainable

business performance whilst avoiding rewarding
for failure; and

→ align the interests of the executive directors with

those of shareholders.

GovernancePhoenix Global Resources plc Annual Report and Accounts 201949

Looking ahead to 2020
Base salary
The CEO was not replaced in 2020 and no increase in the base salary is recommended for the CFO in 2020.

Executive director

CEO
CFO

Annual bonus
In the current environment any bonuses will primarily be determined on a discretionary basis.

LTIP awards
In the current environment it is unlikely any awards will be granted under the LTIP.

Non-executive director fees
No increases in annual fees are recommended in 2020.

Non-executive chairman fee
Non-executive director base fee
Additional fees:
Senior independent director
Chairman of the audit and risk committee
Chairman of the remuneration committee

Annual 2020
base salary
(US$)

Annual 2019
base salary
(US$)

N/A
400,000

620,000
400,000

%
increase

0%
0%

Annual 2020
fees (US$)

Annual 2019
fees (US$)

Increase

204,347
63,859

12,772
12,772
12,772

0%
0%

0%
0%
0%

Workforce remuneration
The committee’s main focus is to ensure that the company’s remuneration policy is implemented and applied in such a way as to
attract, retain and motivate the company’s leadership to promote the long-term success of the company. However, when making
decisions the committee takes into consideration the impact on the wider workforce. In 2020 the committee will be looking at ways
of increasing and improving the committee’s interaction with the wider workforce to facilitate this objective. However, in the current
economic environment, the committee recognises the need to continually consider and take, as appropriate, actions to mitigate the
impact of the COVID-19 crisis.

Use of discretion
The committee may apply its discretion (as set out in the report below) when agreeing remuneration outcomes, to help ensure that
the implementation of our remuneration policy is consistent with the guiding principles for Phoenix remuneration. For the year ended
31 December 2019, the committee’s discretion was used, in line with the company’s exit payment policy, in determining the payment
to be made to Anuj Sharma who resigned from the board. Further details on the use of committee discretion are provided on page 60.

Given the high level of uncertainty created in the current environment, we trust that you understand the discretion we need
in applying and implementing a remuneration policy that is in the best interests of the company and all its shareholders.

John Bentley
Chairman, remuneration committee
26 June 2020

Where applicable a rate of exchange of US$/£1.277 has been used for 2019 and 2020 and a rate of exchange of US$/£1.335 for 2018. Where salaries and fees are denominated
in £, changes in annual fees reported in US$ may partly be due to changes in the rate of exchange.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report50

Remuneration policy report

Although the company (being AIM quoted) is not subject to the Directors’ Remuneration Regulations 2008 the committee recognises
the importance of transparency and standards of governance. This report has therefore been prepared largely in accordance with
the provisions of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2013, as though the company were listed on the London Stock Exchange Main Market.

This section of the report sets out the remuneration policy for the directors that was developed to reflect our remuneration
principles, but in light of recent events and the stage of the company’s development, its appropriateness is currently under review.
The basic principals were applied in 2017 and 2018, but in 2019 no bonuses were awarded, and no share awards granted under
the LTIP.

Remuneration policy for the executive directors
Purpose and link to strategy

Operation

Opportunity

Performance measures

Base salary

To attract and retain talented
executive directors to deliver
the group’s strategy by
ensuring base salaries and
theimplied total package are
competitive in relevant talent
markets, while not overpaying.

Base salaries will be reviewed
by the committee annually
and benchmarked periodically
against comparable roles at
international Exploration &
Production peers, as well as
UK-listed companies of similar
size and complexity.

In deciding base salary levels,
the committee considers
personal performance including
the individual’s contribution to
the achievement of the group’s
strategic objectives. The
committee will also consider
employment conditions and
salary levels across the group
and prevailing market conditions.

Pension

To provide an appropriate
structure and level of
post-retirement benefit
for executive directors in
a cost-efficient manner that
reflects local market norms
in the relevant jurisdiction.

Executive directors may
receive a contribution to
a personal pension plan,
a cash allowance in lieu,
or a combination thereof.

Salary is the only element
of remuneration that
is pensionable.

Salaries are set on a case-
by-case basis to reflect the
role and the experience and
qualifications of the individual.

n/a

Base salary increases for
the executive directors will not
normally exceed the average
increase awarded to the wider
workforce, other than in
exceptional circumstances
such as a material change
in responsibilities, size or
complexity of the role, or
if a director was intentionally
appointed on a below-
market salary.

Base salaries are disclosed
in the annual report
on remuneration.

n/a

Executive directors are eligible
for a company contribution
from the group of up to
10% of base salary and to
participate in the 401k plan
offered to employees based
in the United States.

Details of the pension
contributions made to
executive directors during the
year are disclosed in the annual
report on remuneration.

GovernancePhoenix Global Resources plc Annual Report and Accounts 201951

Purpose and link to strategy

Operation

Opportunity

Performance measures

Other benefits

To provide non-cash benefits
which are competitive in the
market in which the executive
director is employed.

The group may provide benefits
in kind including, but not limited
to, a company car or car
allowance, private medical
insurance (or allowance in lieu)
for the executive directors and
their family, permanent health
insurance and life insurance.
Executive directors may also be
provided certain other benefits
to take account of individual
circumstances such as, but not
limited to, payment of tax,
financial and/or legal adviser
fees, expatriate allowance,
relocation expenses, housing
allowance and tax equalisation
(including associated interest,
penalties or fees plus, in certain
circumstances or where the
committee considers it
appropriate, any tax incurred
on such benefits). Executive
directors may also be offered
any other future benefits made
available either to all senior
employees globally or in the
region in which the executive
director is employed.

n/a

Benefits for executive
directors are set at a level
which the committee considers
appropriate compared to wider
employee benefits, as well
as competitive practices in
relevant markets.

It is not anticipated that the
costs of benefits provided will
increase significantly in the
financial years over which this
policy will apply, although the
committee retains discretion to
approve non-material increases
in cost. In addition, the
committee retains discretion
to approve a higher cost in
exceptional circumstances
(e.g. to facilitate recruitment,
relocation, expatriation, etc.) or
in circumstances where factors
outside the group’s control have
changed (e.g. market increases
in insurance costs).

Benefits in respect of the year
under review are disclosed in the
annual report on remuneration.

Annual bonus

To incentivise executive
directors to deliver strong
financial and operational
performance on an annual
basis and reward the delivery
of the group’s strategic aims
that will underpin the longer-
term health and growth of
the business.

Performance measures,
targets and weightings are set
by the committee at the start
of the year. After the end of the
financial year, the committee
determines the level of bonus
to be paid, taking into account
the extent to which these
targets have been achieved.

The maximum annual bonus
opportunity is 100% of
base salary.

The payout for on-target
performance is normally
50% of maximum; threshold
performance results in
zero payout.

Deferral into shares enhances
alignment with shareholders.

To the extent that the
performance criteria have been
met, one-third of the annual
bonus earned will normally be
compulsorily deferred into
shares under the Deferred
Bonus Plan. Deferred shares
vest pro-rata annually over
three years. The remainder of
the bonus will be paid in cash.

Dividends may accrue on
deferred bonus shares over
the deferral period and, if
so, will be paid (in cash or
additional shares) on deferred
shares that vest at the time
these are released to the
executive director.

Malus provisions apply to
the deferred bonus in certain
circumstances (as set out in
the notes to the policy table).

Bonuses will be based primarily
on a combination of stretching
annual business and individual
objectives. Business objectives
(whether financial, operational
or non-financial/strategic) will
be selected to reflect the group’s
short-term KPIs, financial goals
and strategic drivers. The
weighting of measures will be
determined by the committee
but will always include a strong
focus on business performance.

The committee may adjust
the formulaic annual bonus
outcomes (including to zero)
to avoid unintended outcomes,
align pay outcomes with
underlying group performance
and ensure fairness to
shareholders and participants.

Further details will be disclosed
in the relevant annual report on
remuneration. Performance
targets set for each year will be
disclosed retrospectively (to the
extent they are considered not
to be commercially sensitive),
usually in the annual report on
remuneration in respect of the
year to which such performance
targets relate.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report52

Remuneration policy report continued

Purpose and link to strategy

Operation

Opportunity

Performance measures

Long-Term Incentive Plan

To align the interests of
executive directors and
shareholders in growing
the value of the group over
the long-term.

The maximum annual LTIP
opportunity is 200% of
base salary.

In exceptional circumstances,
the remuneration committee
has discretion to make awards
of up to 300% of base salary.

25% of an award will vest
if performance against each
performance condition is at
threshold and 100% if it is at
maximum, with straight-line
vesting in between.

Further details of the LTIP
awards granted to each of
the executive directors will be
disclosed in the relevant annual
report on remuneration.

Executive directors are eligible
to receive annual awards over
Phoenix shares under the LTIP
either in the form of conditional
share awards or nil cost options.

Awards granted under the
LTIP to executive directors
will have a performance period
of at least three years. If no
entitlement has been earned
at the end of the relevant
performance period, awards
will not vest. Shares received
as a result of an award vesting
(net of those sold to cover tax
liabilities arising on vesting)
will normally be subject to
an additional two-year
holding period.

Dividends may accrue on LTIP
awards over the vesting period
and, if so, will be paid (in
additional shares or in cash) on
shares that vest at the end of
the vesting period.

LTIP awards granted to
executive directors will be
subject to malus and clawback
provisions, as set out in the
notes to the policy table.

Vesting of the LTIP is subject to
continued employment during
the performance period and the
achievement of performance
conditions aligned with the
group’s strategic plan and
shareholder value creation.
The performance conditions may
include market-based measures,
such as total shareholder return
and internal measures of financial
or operational performance.
Performance measures will be
selected by the remuneration
committee at the start of
each cycle.

The committee may adjust
the formulaic LTIP outcome
to ensure it takes account
of any major changes to
the group (e.g. as a result
of merger and acquisitions
activity) and is a fair reflection
of the underlying financial
performance of the group
over the performance period.

Further details, including the
performance targets attached
to the LTIP in respect of each
year, will be disclosed in the
relevant annual report on
remuneration (subject to
these being considered not
to be commercially sensitive).

Notes to the policy table
Malus and clawback policy
Malus and clawback may be applied to the deferred bonus share element of the annual bonus and LTIP awards in cases of gross
misconduct by the executive director or material financial misstatement in the audited financial results of the group. Deferred bonus
shares will be subject to malus over the deferral period and LTIP awards will be subject to malus over the vesting period and clawback
from the vesting date to the second anniversary of the relevant vesting date.

Share ownership guidelines
The committee recognises the importance of aligning executive directors’ and shareholders’ interests through significant
shareholdings in the group. The group’s policy (as published in the admission document) is to require the CEO to build up a
shareholding of 200% of base salary (150% of salary for other executive directors) and to retain these shares until retirement
from the board of directors. 50% of any net vested share awards (i.e. after sales to meet tax liabilities) must be retained until
the minimum shareholding requirements are met.

GovernancePhoenix Global Resources plc Annual Report and Accounts 201953

Use of discretion
The committee may apply its discretion (as set out below) when agreeing remuneration outcomes, to help ensure that the
implementation of our remuneration policy is consistent with the guiding principles for Phoenix remuneration.

Payments from outstanding awards
The committee reserves the right in certain circumstances to make any remuneration payments and payments for loss of office
(including exercising any discretions available to it in connection with such payments) where the terms of the payment were agreed
before the policy came into effect; or at a time when the relevant individual was not a director of the group provided that, in the
opinion of the committee, the payment was not agreed in consideration of the individual becoming a director of the group. For these
purposes, payments include the satisfaction of variable remuneration awards previously granted, but not vested, to an individual.

Minor changes to policy
The committee retains discretion to make minor, non-significant changes to the policy set out above (for reasons including, but
not limited to, regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without
reverting to shareholders for approval for that amendment, where seeking such shareholder approval would be disproportionate
to the discretion being exercised.

LTIP awards
The committee may exercise its discretion as provided for in the LTIP rules. The committee may also adjust the number of shares
comprising an LTIP award (or the exercise price if the award comprises options) in the event of a variation of share capital, demerger,
special dividend, distribution or any other corporate event which may affect the current or future value of an award. It is intended
that any adjustment will be made on a neutral basis, i.e. to not be to the benefit or detriment of participants.

Remuneration policy for the wider workforce
The remuneration policy for other employees is based on principles that are broadly consistent with those applied to executive
director remuneration, with a common objective of driving financial performance and the achievement of strategic objectives and
contributing to the long-term success of the group. Remuneration supports our ability to attract, motivate and retain skilled and
dedicated individuals, whose contribution continues to be a key factor in the group’s success.

Annual salary reviews take into account group performance, local pay and market conditions and salary levels for similar roles in
comparable companies. Pension entitlements and other benefits vary according to jurisdiction, to ensure these remain appropriately
competitive for the local market. Some employees below executive level are eligible to participate in annual bonus schemes;
opportunities and performance measures vary by organisational level, geographical region and an individual’s role.

Employee ownership of Phoenix shares is promoted across the group. Senior executives are eligible for LTIP awards on similar terms
as the executive directors, although award opportunities are lower and vary by organisational level. Other executives are eligible
for restricted share awards on a discretionary basis. Phoenix is considering offering all employees the opportunity to participate
in a share purchase plan, to be reviewed in 2020.

In the current economic environment, the committee also recognises the need to continually consider and take actions to mitigate
the impact of the COVID-19 crisis.

Approach to target setting and performance measure selection
The committee considers carefully the selection of performance measures at the start of each performance cycle, taking into
consideration the group’s strategic objectives and the macroeconomic environment.

Annual bonus measures are selected to align with the group’s short-term KPIs. LTIP performance measures are selected to ensure
they align with the group’s strategy and long-term shareholder value creation. Measures may change from cycle to cycle (subject to
the remuneration policy) and details of the bonus and LTIP measures selected will therefore be disclosed in the relevant annual report
on remuneration.

Targets are set to be stretching but achievable over the performance period, taking account of multiple relevant reference points,
including typical performance ranges for those measures at other industry peers and FTSE-listed companies of comparable size
and complexity.

Pay-for-performance: scenario analysis
As no bonuses were paid in respect of 2019 and no share awards granted under the LTIP and the policy to be applied in 2020 is under
review, the committee believes any pay-for-performance scenario analysis would be misleading.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report54

Remuneration policy report continued

Executive Director service contracts
In accordance with general market practice, each of the executive directors has a rolling service contract. The resigning CEO’s
service contract was terminable on 12 months’ notice from the group and 12 months’ notice from the executive director. The CEO
has not at this time been replaced. The CFO’s service contract is terminable on six months’ notice from the group and six months’
notice from the executive director. These contracts are subject to the company serving an immediate termination notice, in specified
circumstances for constructive dismissal. Copies of the service contracts are available to view at the group’s registered office.
The following table shows the date of the service contract for each executive director that served during the year:

Executive director

Anuj Sharma¹

Kevin Dennehy²

Position

CEO

CFO

Date of appointment

Date of service agreement

10 August 2017

1 October 2018

24 July 2017

8 August 2018

1 Resigned 23 April 2019
2 Start date 15 August 2018 but date of appointment to the board 1 October 2018

Exit payments policy
The group’s policy on termination payments is to consider the circumstances on a case-by-case basis, taking into account the
relevant contractual terms in the executive’s service contract and the circumstances of termination. Executive directors’ contracts
provide for the payment of a pre-determined sum in the event of termination of employment in certain circumstances (but excluding
circumstances where the group is entitled to dismiss without compensation), comprising base salary in respect of the unexpired
portion of the notice period. Termination payments may take the form of payments in lieu of notice. Payments would normally
be made on a phased basis and subject to mitigation.

In addition to contractual provisions, the table below summarises how awards under each discretionary incentive plan are typically
treated in specific circumstances, with the final treatment remaining subject to the committee’s discretion as provided under the
rules of the plan. In the event of termination, any outstanding shares or option granted under all-employee schemes will be treated
in accordance with the rules of the scheme, which typically do not include discretion.

Treatment of awards on cessation of employment
Reason for cessation

Calculation of vesting/payment

Annual bonus

Injury, disability, ill-health, death,
redundancy, retirement, or other such
event as the committee determines.

The committee may determine that
a bonus is payable on cessation of
employment (normally pro-rated for
the proportion of the performance year
worked) and the committee retains
discretion to determine that the bonus
should be paid wholly in cash. The bonus
payable will be determined based on the
performance of the group and of the
individual over the relevant period and
the circumstances of the director’s loss
of office.

Timing of vesting/payment

Following the end of the relevant
financial year.

All other reasons (including voluntary
resignation).

No bonus will be paid for the
financial year.

Deferred bonus shares

Resignation or dismissal for cause.

Awards normally lapse.

N/a

All other reasons (e.g. injury, disability,
ill-health, death, redundancy, retirement,
or other such event as the committee
determines).

Awards will normally vest in full (i.e. not
pro-rated for time) unless the committee
determines that time pro-rating
should apply.

At the normal vesting date, unless the
committee decides that awards should
vest earlier (e.g. in the event of death).

Change of control.

Awards will normally be pro-rated for time
(unless the committee exercises discretion
to disapply time pro-rating). Awards may
alternatively be exchanged for equivalent
replacement awards, where appropriate.

On change of control.

GovernancePhoenix Global Resources plc Annual Report and Accounts 201955

Reason for cessation

LTIP awards

Calculation of vesting/payment

Timing of vesting/payment

Resignation or dismissal for cause.

Awards normally lapse.

N/a

All other reasons (e.g. injury,
disability, ill-health, death, redundancy,
retirement, or other such event as
the committee determines).

Change of control.

At the normal vesting date, unless the
committee decides that awards should
vest earlier (e.g. in the event of death).
Awards subject to a holding period remain
subject to this holding period after leaving.

On change of control.

Awards will normally be pro-rated for
time (unless the committee exercises
discretion to disapply time pro-rating)
and will vest based on performance over
the original performance period (unless
the committee decides to measure
performance to the date of cessation).

LTIP awards will normally be pro-rated
for time (unless the committee exercises
discretion to disapply time pro-rating) and
will vest subject to performance over the
period to the change of control.

LTIP awards may alternatively be
exchanged for equivalent replacement
awards, where appropriate.

Approach to remuneration on recruitment
External appointments
In cases of hiring or appointing a new executive director from outside the group, the committee may make use of all existing
components of remuneration set out in the policy table, up to the disclosed maximum opportunities (where applicable).

When determining the remuneration package for a new executive director, the committee will take into account all relevant factors
based on the circumstances at that time to ensure that arrangements are in the best interests of the group and its shareholders.
This may include factors such as the experience and skills of the individual, internal comparisons and relevant market data.

The committee may also make an award in respect of a new appointment to ‘buy out’ incentive arrangements forfeited on leaving
a previous employer, i.e. over and above the maximum limits on incentive opportunities set out in the policy table. In doing so, the
committee will consider relevant factors, including any performance conditions attached to these awards, the likelihood of those
conditions being met and the time over which they would have vested. The intention is that the expected value of any buy-out award
would be no higher than the expected value of the forfeited arrangements and that the structure will replicate (as far as reasonably
possible) that of the awards being forfeited. The committee may consider it appropriate to structure ‘buyout’ awards differently
from the structure described in the policy table, exercising its discretion under the LTIP rules to structure awards in other forms
(including market value options, restricted shares, forfeitable shares or phantom awards) as the remuneration committee may
determine in this context.

Internal promotion
Where a new executive director is appointed by way of internal promotion, the policy will be consistent with that for external
appointees, as detailed above (other than in relation to ‘buyout’ awards). Any commitments made prior to an individual’s promotion
will continue to be honoured even if they would not otherwise be consistent with the policy prevailing when the commitment is
fulfilled, although the group may, where appropriate, seek to revise an individual’s existing service contract on promotion to ensure
it aligns with other executive directors and good practice.

Disclosure on the remuneration structure of any new executive director, including details of any ‘buyout’ awards, will be disclosed
in the annual report on remuneration for the year in which recruitment occurred.

External appointments held by executive directors
Executive directors may not accept any external appointment without the consent of the board, there being no conflicts of interest
and the appointment not leading to deterioration in the individual’s performance. Executive directors may retain the fees paid for
such roles. Details of external appointments will be included in the annual report on remuneration.

Consideration of conditions elsewhere in the group
The committee seeks to promote and maintain good relations with employees as part of its broader employee engagement strategy,
considers pay practices across the group and is mindful of the salary increases applying across the rest of the business in relevant
markets when considering any increases to salaries for executive directors. However, whilst the committee does not currently consult
with employees on its executive remuneration policy, in 2020 the committee will be looking at ways of increasing and improving the
committee’s interaction with the wider workforce, in relation to the company’s remuneration policy.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report56

Remuneration policy report continued

Consideration of shareholder views
The committee will take into consideration all shareholder views received during the year and at the annual general meeting each
year, as well as guidance from shareholder representative bodies more broadly, in shaping the group’s implementation of its
remuneration policy, as well as any future changes to policy.

Remuneration policy for the non-executive directors
Details of the policy on fees paid to our non-executive directors are set out in the table below:

Purpose and link to strategy

Operation

Opportunity

Performance measures

Non-executive director fees

To attract and retain
non-executive directors
of the highest calibre
with broad commercial
and other experience
relevant to the group.

Fee increases will be
applied taking into account
the outcome of the annual
review.

n/a

The maximum aggregate
annual fee for all non-
executive directors
(including the non-executive
chairman) as provided in
the group’s articles of
association is £750,000.

The fees of the non-executive chairman
are determined by the committee. The
fees paid to non-executive directors are
determined by the non-executive chairman
and executive directors. Additional fees
may be payable for acting as senior
independent director and for chairing
or being a member of the audit and risk
committee, the remuneration committee
and any other board committees.

Fee levels are reviewed annually taking
into account external advice on best
practice and competitive levels, in
particular at FTSE companies of
comparable size and complexity. Time
commitment and responsibility are also
taken into account when reviewing fees.

The non-executive chairman and non-
executive director fees are paid in cash.

The committee reimburses the non-
executive chairman and non-executive
directors for reasonable expenses in
performing their duties and may settle any
tax incurred in relation to these expenses.
Non-executive directors will be reimbursed
by the group for expenses (including travel
and accommodation) as required to fulfil
their non-executive duties.

The fees paid to the non-executive
chairman and non-executive directors
are disclosed in the annual report
on remuneration.

Non-executive directors are not eligible to join the group’s pension, incentives or share schemes or to participate in any of the group’s
other benefit arrangements.

In recruiting a new non-executive director, the committee will use the policy set out above.

GovernancePhoenix Global Resources plc Annual Report and Accounts 201957

Non-executive director letters of appointment
None of the non-executive directors has a service contract with the group. They do have letters of appointment and will be submitted
for re-election annually. The dates relating to the appointments of the non-executive chairman and non-executive directors who
served during the year are as follows:

Director

Role

Date of appointment

Date of letter of appointment

Sir Michael Rake

Non-executive chairman

19 September 2016

John Bentley

Independent non-executive director

10 August 2017

Garrett Soden¹

Independent non-executive director

10 August 2017

Javier Alvarez

David Jackson

Independent non-executive director

16 July 2012

Independent non-executive director

16 July 2012

Nicolás Mallo Huergo

Non-executive director

Daniel Jaeggi

Non-executive director

Tim Harrington

Non-executive director

2 October 2007

14 November 2018

Matthieu Milandri²

Non-executive director

21 August 2013

Martin Bachmann³

Non-executive director

1 September 2019

24 July 2017

14 November 2018

24 July 2017

30 August 2019

1 Resigned 12 September 2019
2 Resigned 31 January 2019
3 Appointed 1 September 2019

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report58

Annual report on remuneration

This section of the remuneration report provides details of how our remuneration policy was implemented during the year ending
31 December 2019 and how it will be implemented during the year ended 31 December 2020.

Committee membership in 2019
Members of the committee who served during the year include:

John Bentley
Sir Michael Rake
Garrett Soden
David Jackson

– Committee chairman (independent)
– Non-executive chairman
– Non-executive director (independent) (resigned 12 September 2019)
– Non-executive director (independent)

The company secretary acts as secretary to the committee.

The committee met formally on four occasions during the year ended 31 December 2019. The attendance of members of the
committee during the year is set out below.

Member

John Bentley (chair)

Sir Michael Rake

Garrett Soden

David Jackson

Meetings attended

4/4

2/4

1/2

4/4

The committee operates within agreed terms of reference, which are available on our website at phoenixglobalresources.com.
The committee is responsible for determining the remuneration policy and packages for the executive directors and other selected
senior executives. The committee is also responsible for agreeing the fees for the non-executive chairman.

The CEO and CFO attend meetings of the committee by invitation. The members of the committee and any persons attending
its meetings do not participate in any discussion or decision on their own remuneration.

Advisers
The committee formally appointed Mercer as its independent adviser to support the group on remuneration-related matters. Mercer
reports to the committee chairman. Mercer is a member of the Remuneration Consultants’ Group and, as such, voluntarily operates
under the Code of Conduct in relation to executive remuneration consulting in the UK (www.remunerationconsultantsgroup.com).
Mercer does not have any other connection with the group and is considered to be independent by the committee. Fees paid to
Mercer are determined on a time and materials basis and totalled US$55,263 (excluding expenses and VAT) for the year ended
31 December 2019, in their capacity as advisers to the committee.

Single total figure of remuneration for executive directors
The table below sets out a single figure for the total remuneration received by each executive director who served during the year.
Anuj Sharma was appointed as an executive director of Phoenix on 10 August 2017. Kevin Dennehy was appointed as an executive
director on 1 October 2018. Anuj Sharma resigned as an executive director on 23 April 2019. The values of each element of
remuneration are based on the actual value delivered, where known.

Director

Anuj Sharma5

Kevin Dennehy

2019

2018

2019

2018

Base salary1
US$‘000

Taxable
benefits2
US$‘000

Annual
Bonus3

US$‘000

LTIP
US$‘000

Pension
benefit4

US$‘000

Total
US$‘000

195

620

400

100

220

–

100

–

227

727

687

250

1 The salaries of our executive directors were set in the context of salaries for comparable roles at other international E&P companies and FTSE-listed companies of

comparable size to Phoenix. For 2019, Anuj Sharma’s base salary figure reflects his annualised salary of US$620,000, pro-rata for the period from the beginning of the year
to 23 April 2019 (his date of resignation. For 2018, Kevin Dennehy’s base salary figure reflects his annualised salary of US$400,000, pro-rata for the period from 1 October
2018 (his date of appointment) to the year-end

2 Consists primarily of private medical insurance, life assurance and permanent health insurance. For 2018 Kevin Dennehy also received an annual foreign living and service

allowance of USD$70,000 pro-rata for the period from 1 October 2018 (his date of appointment) to the year-end and US$100,000 in 2019 and in 2019 a housing allowance
of US$75,360

3 Payment for performance during the year, pro-rated for the period where applicable. Two-thirds paid in cash and one-third deferred as an award under the terms of the

company’s Deferred Bonus Plan

4 Pension benefits in the year, equivalent to 10% of base salary paid in that year and the company’s matching contribution to the company’s 401k plan where applicable.
5 Anuj Sharma resigned as CEO on 23 April 2019. His annualised base salary at the time of his resignation as CEO was US$620,000 and he received a pension benefit

equivalent to 10% of his salary

GovernancePhoenix Global Resources plc Annual Report and Accounts 2019
59

Single total figure of remuneration for non-executive directors
The table below sets out a single figure for the total remuneration received by each non-executive director who served during the
year. As appointees of the group’s substantial shareholder, Matthieu Milandri, Guillaume Vermersch and Daniel Jaeggi waived their
right to receive fees in connection with their appointments.

Basic fees
US$‘000

Additional
fees
US$‘000

204

214

–

Total
US$‘000

204

214

–

Director

Sir Michael Rake

John Bentley1

Garrett Soden2, 3

Javier Alvarez

David Jackson4

Nicolás Mallo Huergo

Matthieu Milandri5. 9

Daniel Jaeggi7, 9

Tim Harrington7

Martin Bachmann⁸

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

1 Additional fees paid for his appointment as the senior independent director and chairman of the remuneration committee
2 Additional fees paid for his appointment as the chairman of the audit committee
3 Resigned 12 September 2019
4 Additional fees paid for his appointment as the chairman of the audit committee
5 Resigned 31 January 2019
6 Appointed 14 November 2018
7 Appointed 14 November 2018
8 Appointed 1 September 2019. Additional fees paid for consulting services.
9 Waived right to fees

Incentive outcomes for the year ended 31 December 2019
Annual bonus in respect of performance in the 2019 financial year
No annual bonus payments for the executive directors were awarded in 2019.

LTIP awards granted in 2019
No share awards were granted under the LTIP in 2019.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
60

Annual report on remuneration continued

Statement of shareholdings and share interests of directors who served during the year
Share interests as at 19 June 2020 are set out below:

Director

Sir Michael Rake

Anuj Sharma

Kevin Dennehy

John Bentley

Garrett Soden

Javier Alvarez

David Jackson

Nicolás Mallo Huergo

Matthieu Milandri

Daniel Jaeggi²

Tim Harrington

Martin Bachmann

Number of
beneficially
owned shares1
No.

DBP awards
subject to
vesting
No.

LTIP awards
subject to
conditions
No.

Warrants
(see note 15.3)
No.

Total interests
held as at
19 June 2020
No.

Total interests
held as at
30 April 2019
No.

760,000

42,000

40,000

42,000

–

1,221,575

966,323

–

152,537

1,465,335

–

760,000

330,000

42,000

8,340,104

1,657,872

1,505,335

42,000

–

1,221,575

966,323

1,572,323

–

1 Beneficial interests include shares held directly or indirectly by connected persons
2 Daniel Jaeggi has an indirect interest in the company via Mercuria Energy Group Holding Limited, which holds approximately 84.4% of the company’s share capital

Relative importance of spend on pay
There were no dividends paid or share buy backs implemented or other significant distributions, payments or other uses of profit
or cash flow in the 2019 financial year which the directors consider relevant in assisting an understanding of the relative importance
of spend on pay.

Payments to past directors and payments for loss of office
The committee’s approach when exercising its discretion under the company’s remuneration policy is to be mindful of the particular
circumstances of the departure and the contribution the individual made to the group.

Anuj Sharma
On 23 April 2019, Anuj Sharma served a notice on the company, which the company is treated as a notice terminating his employment
in accordance with his service agreement and resigning from his position as chief executive officer and a director of the company
with immediate effect. His remuneration arrangements were in line with the provisions in his service contract, which entitled him to
a payment on garden leave for a six-month period and a payment in lieu of notice for a further six-month period. The remuneration
he received as an executive director is set out in the 2019 single figure table. Anuj Sharma was paid a cash bonus of £375,000 in
respect of outstanding entitlements under the company’s senior executive bonus schemes and all outstanding awards granted
under the LTIP, DBP and 2018 Deed of Grant lapsed.

External appointments
The executive director does not currently hold any external appointments.

Review of past performance and CEO remuneration and percentage change
in CEO remuneration
As no full year comparisons are available, any review of past performance and percentage change in CEO remuneration would not
be meaningful.

GovernancePhoenix Global Resources plc Annual Report and Accounts 2019
61

Implementation of director remuneration policy for 2020
Executive directors’ base salaries
Following a review of executive directors’ salary levels, the committee does not recommend an increase in executive directors’ salaries
in 2020. The current 2020 salaries are as follows:

Director

CEO¹

CFO

1 Open position. To be determined.

Base salary
US$’000

n/a

400

In the current economic environment, the committee will continue to review current salary levels and recommend any adjustments
as it considers appropriate to mitigate the impact of the COVID-19 crisis.

Executive directors’ pensions
The CFO will continue to receive a cash allowance of 10% of base salary in lieu of a contribution to a 401k scheme (US pension
scheme) and an allowance, whilst ‘out of country’, to compensate for lost 401k plan benefits offered to all United States employees.

Non-executive directors’ fees
Following a review of non-executive directors’ fees, the committee does not recommend an increase in the non-executive chairman’s
fee in 2020. Separately, the non-executive chairman and executive directors similarly do not recommend an increase in the non-
executive director fees. The fees for 2020 are as follows:

Director

Sir Michael Rake

John Bentley

Javier Alvarez

David Jackson

Nicolás Mallo Huergo

Daniel Jaeggi

Tim Harrington

Martin Bachmann

Base fee
US$’000

204

–

Annual bonus and LTIP
Given the inherent high level of uncertainty in the current challenging economic environment, the committee is reviewing the
appropriateness of the company’s remuneration policy.

In 2020, it is unlikely any awards will be granted under the LTIP and any bonuses will primarily be determined on a discretionary basis.

The directors’ remuneration report has been approved by the board and signed on its behalf by:

John Bentley
Chairman, remuneration committee
26 June 2020

Where applicable a rate of exchange of US$/£1.277 has been used for 2019 and 2020 and a rate of exchange of US$/£1.335 for 2018. Where salaries and fees are denominated
in £ changes in annual fees reported in US$, may partly be due to changes in the rate of exchange.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report62

Directors’ report

Group directors’ report for the year ended 31 December 2019
The directors of Phoenix Global Resources plc present their annual report and audited financial statements of the company
and the group for the year ended 31 December 2019. These will be laid before the shareholders at a general meeting to be
held on 30 July 2020.

General information
The company is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registered no.
05083946). The company operates one overseas branch in Mendoza (Argentina).

Mercuria Energy Group Limited is the ultimate majority shareholder of the company.

Share capital
The company’s share capital during the year consisted of ordinary shares of £0.10 each (‘ordinary shares’). Each ordinary share
carries one vote. At 1 January 2019 there were 2,786,644,709 ordinary shares in issue.

Purchase of own shares
On 26 June 2019, the company acquired 2,000,000 of its own ordinary shares at a price of £0.225 per share. The purchase was
made in accordance with the authority to make an off-market purchase of shares that was granted to it by the shareholders of
the company at the annual general meeting held on 25 June 2019. The shares acquired by the company were transferred to treasury
with the company’s intention being to use these shares to satisfy its obligations under the employee share schemes rather than
issuing new equity for this purpose.

Transfer of treasury shares
On 18 July 2019, 355,999 ordinary shares were transferred from treasury to the Phoenix Global Resources Employee Benefit Trust
and a further 22,929 shares were transferred directly to certain participants of the company’s deferred bonus plan in satisfaction
of awards made under the plan that vested on 27 June 2019. Following these transfers, 1,621,072 shares are held in treasury.

At 15 June 2020, the company’s issued share capital comprises 2,785,023,637 shares (excluding the 1,621,072 shares held as treasury
shares). Consequently, the total number of outstanding shares with active voting rights is 2,785,023,637.

Substantial and significant interests in shares and warrants to subscribe for ordinary shares
Shares
At 18 June 20193, the major shareholders of the group were as follows:

Name

Mercuria Energy Group Limited1

José Luis Manzano and family2

Number of
ordinary shares³

2,329,762,468

111,446,470

As a % of the
issued ordinary
shares

83.6%

4.0%

1 Mercuria Energy Group holds the above shares in the company through its subsidiaries Upstream Capital Partners VI Limited (1,924,634,982 shares), Mercuria Asset Holdings

(Hong Kong) Limited (340,939,131 shares) and Mercuria Energy Asset Management B.V. (64,188,301 shares)

2 These shares in the company are held through Vetalir International S.A. (established as a trust, the beneficiaries of which are the family of José Luis Manzano) (79,328,285

shares), Integra Capital USA LLC (12,162,250 shares), Integra Capital S.A.(7,156,625 shares) and directly by José Luis Manzano (12,799,010 shares)

3 At 18 June 2019, being the date of the most recent TR-1 form received by the company

Outstanding warrants to subscribe for ordinary shares
In furtherance of the 2017 combination transaction that formed the group, Upstream Capital Partners VI Limited received
179,838,924 warrants to subscribe for ordinary shares of the company. The number of warrants issued to Upstream Capital Partners
VI Limited was calculated by reference to the original exchange ratio in order to allow it the option to maintain its post-combination
shareholding percentage in Phoenix in the event that holders of warrants that existed prior to the combination elected to exercise
their warrants. The warrants held by Upstream Capital Partners VI Limited following the combination transaction are exercisable
pro-rata and conditional on the exercise of a previously existing warrant and have exercise prices reflecting the exercise price of
those warrants.

To date, Upstream Capital Partners VI Limited has exercised 10,228,089 of the warrants received by it as part of the combination
transaction. No warrants were exercised by Upstream Capital Partners VI Limited during 2019 and no warrants have been exercised
by Upstream Capital Partners VI Limited in the period to 19 June 2020.

Majority shareholder
Mercuria Energy Group Limited is the ultimate majority shareholder of the group. A relationship agreement is in place between
and amongst the company and the Mercuria Energy Group companies. This relationship agreement restricts shareholder rights
with respect to board composition, voting in relation to the appointment or removal of directors and the day to day running of the
business by the executive directors. Excluding the chair, 50% of the board of directors are independent non-executive directors.

Matters related to governance are discussed further in the corporate governance report on pg.s 39–42.

GovernancePhoenix Global Resources plc Annual Report and Accounts 201963

Contracts of significance
At 1 January 2019, the company was participant to the ‘new convertible revolving credit facility’ advanced by Mercuria Energy Group
with aggregate value of US$185.0 million. The facility is used to fund the exploration, evaluation and development activities of the
group and for general corporate and working capital purposes. As work progressed during 2019, the amount available under the new
convertible rolling credit facility was increased by way of three additional tranches to US$285.0 million. In January 2020, the new
convertible rolling credit facility was further extended by an amount of US$6.0 million to an aggregate value of US$291.0 million.

Significant contracts with related parties are discussed in note 30 to the consolidated financial statements. Further details of
the new convertible rolling credit facility and the amount outstanding under the facility are discussed in note 18 and 22 to the
consolidated financial statements.

Dividends
The directors do not recommend the payment of a dividend for the year (2018: nil).

Directors
Details of the directors who have served the company during the year including the dates of their appointment and, where relevant,
their resignation are as follows:

Non-executive

21 August 2013

31 January 2019

Non-executive chairman

19 September 2016

Name

Board role

Nicolás Mallo Huergo

Non-executive

Javier Alvarez

David Jackson

Matthieu Milandri

Sir Michael Rake

John Bentley

Anuj Sharma

Garrett Soden

Non-executive (independent)

Chief executive officer

Non-executive (independent)

Guillaume Vermersch

Non-executive

Kevin Dennehy

Daniel Jaeggi

Tim Harrington

Chief financial officer

Non-executive

Martin Bachmann

Non-executive (independent)

First appointed

2 October 2007

17 July 2012

Resigned

n/a

10 August 2017

1 October 2018

14 November 2018

2 September 2019

n/a

23 April 2019

12 September 2019

n/a

The directors of the company are re-appointed annually. Accordingly, resolutions to reappoint each of the directors will be proposed
at the upcoming AGM.

Directors’ interests in share capital
The directors’ interests in the share capital of the company are shown in the annual report on remuneration on page 60.

Directors’ indemnities
As permitted by the articles of association of the company, the directors have been given the benefit of an indemnity, which
is a qualifying third-party indemnity provision as defined in section 234 of the Companies Act 2006. The indemnity was in place
throughout the year and continues to be so.

The company has directors’ and officer’s liability insurance in place that provides insurance cover to the directors in the event
of a claim or legal action. This insurance was also in place throughout the year and remains in place.

Political and charitable donations
No political or charitable donations were made, nor was any political expenditure incurred by any group company in the year ended
31 December 2019 (year ended 31 December 2018: nil).

Auditor and disclosure of relevant audit information
As far as each director is aware, there is no relevant audit information of which the company’s auditor is unaware. In addition, each
director has taken all the steps that ought to have been taken in order to make themselves aware of any relevant audit information
and to establish that PwC, the company’s auditor in the period, is aware of that information.

Following a review of both the independence and the effectiveness of the auditor, and the indication from PricewaterhouseCoopers
LLP of its willingness to continue in office, a resolution that PwC be reappointed will be proposed at the annual general meeting.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report64

Directors’ report continued

Corporate governance
The company’s statement on corporate governance can be found in the corporate governance report on pg.s 39–42 of this annual
report. The corporate governance report forms part of this directors’ report and is incorporated by reference here.

Annual general meeting
The company’s AGM will be held at the offices of the company at 6th Floor, King’s House, 10 Haymarket, London SW1Y 4BP on
30 July 2020. Formal notice of the AGM, including details of special business, is set out in the notice of AGM which accompanies
this annual report and is available on the company’s website at phoenixglobalresources.com.

Going concern
The group principally generates cash from its existing conventional oil and gas production operations. Nevertheless, it was formed
with the stated intention of undertaking a significant exploration, evaluation and development programme focused on the group’s
unconventional oil and gas assets in Argentina, including the Vaca Muerta formation. To date, the funding required to support the
activities of the group has been provided by Mercuria Energy Group.

The company is currently faced with several challenges. On a macro level it faces economic uncertainty in Argentina following a change
of government in December 2019 and as a result of the continuing negotiations by the government to restructure the country’s debt.
This political and economic uncertainty has been compounded by the impact of COVID-19 and the global collapse in demand for oil
that caused oil prices to collapse in the first half of 2020.

The company has currently shut-in production of crude oil from its operated licences due to demand constraints. The company has
developed and is progressively implementing a plan that involves a significant reduction in both operating and administrative costs.
The cost reduction actions being taken mean the company will be in a significantly better position to produce oil economically at
lower oil prices and with a positive contribution to cash flow when production recommences. The company will then focus on the
continued development of its unconventional assets.

Our major shareholder, Mercuria, is supportive of the cost reduction plan and has extended short-term debt facilities to facilitate
its implementation and execution. Mercuria has written to the company stating its intention to continue to provide financial support
to the company of up to $37 million in order that the company may continue to operate and service the company’s liabilities as they
fall due in the next 12 months whilst the company assesses the timing of work plans and capital commitments. Mercuria has agreed
to meet the company’s cash needs for this period and not demand repayment of the existing loan within the next 12 months whilst
in discussion with the company to restructure the existing loan agreement. This letter, which by its nature is not legally binding,
represents a letter of comfort stating Mercuria’s current intention to continue to provide support.

The directors believe they will be able to agree the restructure of the existing debt with Mercuria and formalise an agreement for
new funding and that the group and company can continue as a going concern for the foreseeable future. The application of the
going concern basis of preparation of the financial statements included in this annual report is based on the letter that has been
received from Mercuria and the ongoing discussions with the Mercuria principals and accordingly, the directors continue to adopt
the going concern basis for accounting in preparing the 2019 financial statements. However, the directors recognise that if financial
support over the next 12 months from Mercuria were not to be available and the company is unable to restructure the existing loan
agreement from Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may cast
significant doubt on the group’s and company’s ability to continue as a going concern.

The financial statements do not include any adjustments that would be required if the group and company were unable to continue
as a going concern.

Further disclosures
Further disclosure requirements as required by the Companies Act 2006, Schedule 7 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 and the FCA’s Listing Rules and Disclosure and Transparency Rules are found on
the following pages of the company’s annual report and are incorporated into the directors’ report by reference:

Disclosure

Future developments

Stakeholder engagement

Acquisitions and disposals

Anti-slavery disclosure

Corporate governance statement

Gender diversity

Financial risk and financial instruments

Important events subsequent to the year end

By order of the board

Nigel Duxbury
Company secretary
26 June 2020

Pg. number

pg.s 6–7

pg.s 8–9

pg.s 91–97

pg. 33

pg.s 39–42

pg. 33

pg.s 103–106

pg. 112

GovernancePhoenix Global Resources plc Annual Report and Accounts 2019Statement of directors’ responsibilities in respect of the financial statements

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law
and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have
prepared the group and company financial statements in accordance with International Financial Reporting Standards (‘IFRS’s)
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
and company for that period. In preparing the financial statements, the directors are required to:

→ select suitable accounting policies and then apply them consistently;

→ state whether applicable IFRSs as adopted by the European Union have been followed in respect of each of the group and
company financial statements, subject to any material departures disclosed and explained in the financial statements;

→ make judgements and accounting estimates that are reasonable and prudent; and

→ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company

will continue in business.

The directors are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and
company’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 Companies Act 2006.

The directors of Phoenix Global Resources plc are responsible for the maintenance and integrity of the of the company’s website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.

Directors’ confirmations
The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group and company’s position and performance, business model and strategy.

In the case of each director in office at the date the directors’ report is approved:

→ so far as the director is aware, there is no relevant audit information of which the group and company’s auditor are unaware; and

→ they 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 group and company’s auditor are aware of that information.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report66

Independent auditors’ report to the members
of Phoenix Global Resources plc

Report on the audit of the financial statements
Opinion
In our opinion, Phoenix Global Resources plc’s group financial statements and company financial statements (the “financial statements”):

→ give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2019 and of the group’s

loss and the group’s and the company’s cash flows for the year then ended;

→ have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the company’s financial statements, as applied in accordance with the provisions of the
Companies Act 2006; and

→ have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the annual report and accounts 2019 (the “annual report”), which
comprise: the consolidated and company statements of financial position as at 31 December 2019; the consolidated income
statement and consolidated statement of comprehensive income, the consolidated and company statements of cash flows,
and the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial
statements, which include a description of the significant accounting policies.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.

Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.

Material uncertainty related to going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made
in note 2 to the financial statements concerning the group’s and company’s ability to continue as a going concern. The group has not
completed the renegotiation of its current debt repayments with its primary lender, Mercuria Energy Group Limited (“Mercuria”),
who is also the major shareholder of the group and the funding plan for FY2021 has not yet been agreed. The ultimate form of
this funding could be significantly different to what is currently being discussed with the lender, which in turn could lead to a lack
of future funding for capital and operating expenditures which would ensure the continued development of the assets.

These conditions, along with the other matters explained in note 2 to the group financial statements and note 1 to the company
financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the group and
company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result
if the group and company were unable to continue as a going concern.

Explanation of material uncertainty
Oil and gas exploration, evaluation and development activity is capital intensive and requires significant investment in the early
stages of the asset lifecycle before yielding production returns and, ultimately, cash from operations. The directors have already taken
significant steps to reduce the cost base of the business and manage its capital structure to ensure the group will be viable at lower
long term oil prices. A combination of the above risks may require additional measures to be taken such as further cost reductions.

The group is dependent on the willingness of Mercuria, who is the major shareholder of the group, to continue their support of the
group by providing access to additional financing in future periods to enable the group to realise its business plan and exploration
programme and satisfy the capital expenditure requirements which underpin this.

Due to the level of funding requirements in the next 12 months for operational expenses and to appraise the contingent and prospective
resources, the major shareholder, Mercuria Energy Group Limited, has expressed its current intention to provide financial support,
for a period of not less than twelve months from the date of these financial statements to support the business plan for 2020
and into 2021. This support is not legally binding. If the company is unable to access funding from its major shareholder, or from
alternative sources, to meet the operational and development capex requirements, then it may not be able to ensure that the
various unconventional opportunities it is targeting will move through development and into production.

The directors believe that they will be able to complete the renegotiation of the current debt and agree on further funding such
that the group and company can continue as a going concern for the foreseeable future. Accordingly, the directors continue to
adopt the going concern basis of accounting in preparing these financial statements. However, given the risks associated with
the matters outlined above, the directors have drawn attention to this in disclosing a material uncertainty relating to going
concern in the basis of preparation to the financial statements.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 201967

What audit procedures we performed:
In concluding there is a material uncertainty, our audit procedures assessed the ability and intention of the major shareholder
to continue to finance the ongoing exploration commitments, whilst management assesses the timing of work plans and capital
commitments. In assessing the impact of the above scenarios, which are referred to in note 2 to the group financial statements
and note 1 to the company financial statements, we performed the following procedures on the directors’ assessment that the
group and company will continue as a going concern:

→ We obtained management’s cash flow forecast for 2020 and 2021, which supports their use of the going concern basis
of accounting for the financial statements. We tested the integrity of the forecast, including mathematical accuracy.
The model includes several key assumptions such as sales revenues, operating costs and capital expenditure as well as
successful exploration results transforming into production.

→ We held extensive discussions with management and reviewed the key assumptions and have also considered the historical

accuracy of management’s forecasting and performed sensitivity testing for reasonable possible changes in the key assumptions.

→ The company has been provided with a letter of support from Mercuria to provide additional funding as required for a period
not less than the 12 months from the date of approval of the financial statements. We read this letter and considered the
ability of Mercuria to support the group from discussions with them and reviewed their financial position. Based on the results
of the procedures performed, we are satisfied about their ability to support the group.

Our audit approach
Context
In establishing the overall approach to the group audit, we determined the type of work required to be performed at the statutory
reporting unit level by us, as the group audit team, or through involvement of our component auditors in Argentina. The group’s
assets and operations are located in Argentina. Financial reporting is undertaken in offices in London, Buenos Aires, Mendoza
and Houston.

Where work was performed by our component auditors in Argentina, we determined the level of involvement required to have in
the audit work for each reporting unit to be able to conclude whether sufficient appropriate audit evidence had been obtained as
a basis for our opinion on the group financial statements as a whole. As part of our year end audit, the group team’s involvement
included conference calls, review of component auditor work papers, attendance at component audit clearance meetings and
other forms of communication as considered necessary.

The group audit team directly performed the work over the company, the intermediate holding companies as well as the consolidation.

We identified four entities which, in our view, required an audit of their complete financial information, either due to their size or
risk characteristics. These included the three main operating subsidiaries in Argentina, as well as the parent company in the United
Kingdom. The above gave us coverage of 95% over consolidated revenue, 88% of consolidated total assets and 91% of absolute
consolidated net assets. This, together with additional procedures performed at the group level, gave us the evidence we needed
for our opinion on the group financial statements as a whole.

Overview

→ Overall group materiality: US$3.3million (2018: US$3.4million), based on 0.5% of total assets.

→ Overall company materiality: US$2.3million (2018: US$1.1million), based on 0.5% of total assets.

→ We conducted a full scope audit at four significant components based on their size and risk characteristics; three operating

entities in Argentina and the parent company in London. Our scope enabled us to obtain 95% coverage of consolidated revenue,
88% of consolidated total assets and 91% of absolute consolidated net assets for the group.

→ Impairment of long-term assets and goodwill (group)

→ Impairment of investments (company)

→ Impact of COVID-19 (group and company)

→ Ability to continue as a going concern (group and company)

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report68

Independent Auditors’ Report continued

The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all
of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the directors that represented a risk of material misstatement due to fraud.

Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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) identified by the auditors, 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, and any comments we
make on the results of our procedures thereon, 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. In addition to going concern,
described in the material uncertainty related to going concern section above, we determined the matters described below to
be the key audit matters to be communicated in our report. This is not a complete list of all risks identified by our audit.

Key audit matter

How our audit addressed the key audit matter

Impairment of long term assets and goodwill (group)
Impairment assessments require significant judgement and
there is the risk that the valuation of the assets may be
incorrect and any potential impairment charge or reversal
miscalculated. As such, this was a key focus for our audit
due to the material nature of the asset balances.

As disclosed in note 13 and note 14, the group has property,
plant and equipment of US$324.2 million and exploration and
evaluation assets of US$210.7 million at 31 December 2019.

The group also has goodwill of US$35.8 million which arose
as part of the reverse takeover in 2017. This goodwill was
allocated between the Chachahuen, Mata Mora and Corralera
cash generating units (“CGUs”) and is required to be tested for
impairment on an annual basis. Management has determined
that the recoverable amount of the goodwill balance exceeded
the carrying value and no impairment has been recognised.

In addition, management has performed an impairment trigger
assessment for the other CGUs and intangible assets. The
carrying values of the group’s assets are supported by value in
use calculations, which are based on future cash flow forecasts.
New reserve estimates have been obtained for all CGUs and
have been used by management as part of their impairment
assessment providing further support for the carrying values.

Management identified impairment triggers for Atamisqui
and Chachahuen CGUs and as such performed a discounted
cash flow model for each asset, considering factors such as
long-term prices, interest rates, reserves and production.
When comparing to these cashflows, an impairment charge
of US$2.5million was booked against the value of Atamisqui.
No impairment was required in relation to Chachahuen.

For the Chachahuen and Atamisqui CGUs, we assessed the
reasonableness of management’s future forecasts of capital
and operating expenses, included in the cash flow forecasts,
in light of the historical accuracy of such forecasts and the
current operational results.

We confirmed the goodwill balance allocated to Chachahuen
and confirmed this was recoverable based on underlying
reasonable cash flows.

As Mata Mora and Corralera are non-producing CGUs, we have
assessed the expected well economics in the business plan based
on drilling results to date as well as comparable transactions on
a per acre basis and consider these to support the recoverable
amount of the CGUs.

In assessing the valuation of the other CGUs, we challenged
management’s impairment trigger analysis and considered
changes in key assumptions such as commodity prices, reserves
and discount rates.

We obtained management’s third-party reserve reports to confirm
there have been no significant downgrades in reserve volumes
and therefore confirmed the carrying values were recoverable.

We assessed the competence and objectivity of the experts
by considering factors including professional qualifications and
experience. We held discussions with the experts regarding the
key judgements and estimates taken during the preparation
of the reserve estimates.

We concur with management’s view that, with the exception
of Atamisqui and Chachahuen, there were no other triggers
identified during the year to 31 December 2019 and based on
the results of our procedures performed, we concluded that
the impairments recorded were appropriate.

We have tested management’s sensitivities disclosed within the
accounts in note 13 and have confirmed these are appropriate.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 201969

Key audit matter

How our audit addressed the key audit matter

Impairment of investments (company)
Impairment assessments require significant judgement
and there is the risk that the valuation of the assets may be
incorrect, and any potential impairment charge or reversal
miscalculated. As such, this was a key focus for our audit
due to the material nature of the balance.

As disclosed in note 4 to the company financial statements, the
company has investments of US895 million after current year
impairment charges of US$169 million at 31 December 2019.

Management has considered the recoverability of the
investments in subsidiaries held in the company financial
statements through determining the recoverable amount
of each investment using the assumptions consistent with
the group impairment analysis.

An impairment charge of US$157.2 million has been recognised
in respect of Trefoil Holdings B.V and US$12.2 million in respect
of CHPPC Andes S.R.L. as the underlying assets do not support
the carrying value of the investment.

Impact of COVID-19 (group and company)
Refer to Note 2 to the group financial statements and note
2 to the company financial statements for the directors’
disclosures of going concern.

Management has considered the potential impact of the
non-adjusting post balance sheet events that have been
caused by the pandemic, COVID-19, on the current and
future operations of the group and the company. The virus
may result in a sustained low oil price and short term decline
in oil demand from customers which may negatively impact
future cash flows and the Group’s ability to continue as a
going concern. Refer to the material uncertainty section above.

We challenged management’s assessment of the carrying
value of the investments in the company and compared each
investment to its fair value. We considered this assessment
to be consistent with the approach taken for the group
impairment assessment and therefore reasonable.

We concur with management’s treatment of the impairment in the
investment in Trefoil Holdings B.V. and CHPPC Andes S.R.L. which
are discussed further in note 4 to the company financial statements.

Based on our analysis of management’s assessment of the
recoverable amount of each investment, we concur that
the remaining investments are recoverable. We consider
management’s impairment conclusions, the impairment charges
recognised and the associated disclosures to be appropriate.

In assessing the directors’ consideration of the potential impact
of COVID-19, our audit procedures included:

→ Testing management’s going concern assessment and

related disclosures in the financial statements, as explained
in the material uncertainties related to going concern section
above; and

→ Evaluated the completeness and appropriateness of

management’s disclosures in the financial statements
related to the impact of the COVID-19 virus.

Based on the results of the procedures performed, and on the
information available at the date of the directors’ approval of
the financial statements and of our audit report, we concluded
that a material uncertainty exists which may cast significant
doubt over the ability of the group and the company to continue
as a going concern, as described in the material uncertainty
related to going concern section above.

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls,
and the industry in which they operate.

Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of
our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements,
both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality

How we determined it

Rationale for benchmark applied

Group financial statements

Company financial statements

US$3.3million (2018: US$3.4million).

US$2.3million (2018: US$1.1million).

0.5% of Total Assets.

We have concluded that total assets
is the most appropriate benchmark,
given the size and nature of the current
operations and the fact that the group
is largely in an investment stage. In these
circumstances a profit based measure,
such as EBITDA, would not be an
appropriate benchmark to use.

We have assessed that the most
appropriate benchmark for the company,
which is primarily a holding company,
is total assets.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report70

Independent Auditors’ Report continued

For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was between US$1.4million and US$2.8million. Certain components
were audited to a local statutory audit materiality that was also less than our overall group materiality.

We agreed with the audit committee that we would report to them misstatements identified during our audit above US$165k
(group audit) (2018: US$168k) and US$113k (Company audit) (2018: US$53k) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.

Going concern
In accordance with ISAs (UK) we report as follows:

Reporting obligation

Outcome

We are required to report if we have anything material to add or
draw attention to in respect of the directors’ statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting in
preparing the financial statements and the directors’ identification
of any material uncertainties to the group’s and the company’s
ability to continue as a going concern over a period of at least twelve
months from the date of approval of the financial statements.

We have nothing material to add or to draw attention to
other than the material uncertainty we have described in the
material uncertainty related to going concern section above.

However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the group’s
and company’s ability to continue as a going concern.

Reporting on other information
The other information comprises all of the information in the annual report other than the financial statements and our auditors’
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report,
any form of assurance 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 an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of 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 based on these responsibilities.

With respect to the strategic report, directors’ report and corporate governance statement, we also considered whether the disclosures
required by the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06) and
ISAs (UK) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated).

Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the strategic report and directors’
report for the year ended 31 December 2019 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)

In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the strategic report and directors’ report. (CA06)

The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity
of the group
As a result of the directors’ reporting on how they have applied the UK Corporate Governance Code (the “Code”), we are required
to report to you if we have anything material to add or draw attention to regarding:

→ The directors’ confirmation on page 25 of the annual report that they have carried out a robust assessment of the principal risks

facing the group, including those that would threaten its business model, future performance, solvency or liquidity.

→ The disclosures in the annual report that describe those risks and explain how they are being managed or mitigated.

→ The directors’ explanation on page 32 of the annual report as to how they have assessed the prospects of the group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have
a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing to report in respect of this responsibility.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 201971

Other Code Provisions
As a result of the directors’ reporting on how they have applied the Code, we are required to report to you if, in our opinion:

→ The statement given by the directors, on page 65, that they consider the annual report taken as a whole to be fair, balanced
and understandable, and provides the information necessary for the members to assess the group’s and company’s position
and performance, business model and strategy is materially inconsistent with our knowledge of the group and company obtained
in the course of performing our audit.

→ The section of the annual report on page 45 to 47 describing the work of the audit committee does not appropriately address

matters communicated by us to the Audit Committee.

We have nothing to report in respect of this responsibility.

Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the statement of directors’ responsibilities set out on page 65, the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal control as they 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 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 company or to cease operations, or have no realistic
alternative but to do so.

Auditors’ 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 auditors’ 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 FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.

Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:

→ we have not received all the information and explanations we require for our audit; or

→ adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received

from branches not visited by us; or

→ certain disclosures of directors’ remuneration specified by law are not made; or

→ the company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Richard Spilsbury (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
26 June 2020

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report72

Consolidated income statement
For the year ended 31 December 2019

Revenue
Cost of sales

Gross (loss)/profit

Selling and distribution expenses
Exploration expenses
Loss on termination of licences and other impairment charges
Loss on sale of non-current assets
Administrative expenses
Other operating expenses

Operating loss

Presented as:
Operating loss
Add back:
Depreciation, depletion and amortisation
Exploration cost written off

EBITDAX

Non-recurring expenses

Adjusted EBITDAX

Finance income
Finance costs

Loss before taxation

Taxation

Loss for the year

Loss per ordinary share

Basic and diluted loss per share

Note

7
8

13, 14
13, 14
15
9
10

2019
US$’000

2018
US$’000

129,417
(144,813)

176,972
(155,638)

(15,396)

21,334

(5,230)
(4,240)
(27,753)
(28,971)
(27,144)
(1,417)

(5,758)
(9,359)
–
(1,125)
(24,561)
(15,443)

(110,151)

(34,912)

(110,151)

(34,912)

66,057
4,240

64,726
9,359

(39,854)

39,173

13, 14, 15

56,724

–

16,870

39,173

16
16

1,577
(26,247)

4,098
(30,702)

(134,821)

(61,516)

21,011

(16,797)

(113,810)

(78,313)

US$

(0.04)

US$

(0.03)

The above consolidated income statement should be read in conjunction with the accompanying notes.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019
Consolidated statement of comprehensive income
For the year ended 31 December 2019

Loss for the year
Translation differences

Total comprehensive loss for the year

2019
US$’000

(113,810)
–

2018
US$’000

(78,313)
(361)

(113,810)

(78,674)

The above items will not be subsequently reclassified to profit and loss. There are no impairment losses on revalued assets
recognised directly in equity.

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
74

Consolidated statement of financial position
At 31 December 2019

Non-current assets
Property, plant and equipment
Intangible assets and goodwill
Other receivables
Deferred tax assets

Total non-current assets

Current assets
Assets held for sale
Inventories
Trade and other receivables
Cash and cash equivalents

Total current assets

Total assets

Non-current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Provisions

Total non-current liabilities

Current liabilities
Liabilities held for sale
Trade and other payables
Income tax liability
Borrowings
Provisions

Total current liabilities

Total liabilities

Net assets

Equity
Share capital and share premium
Other reserves
Retained deficit

Total equity

Note

2019
US$’000

2018
US$’000

13
14
19
26

13
27
19
20

21
22
26
28

22
28

324,249
246,540
4,744
18,534

366,191
261,010
5,085
9,001

594,067

641,287

18,208
18,202
34,527
11,002

81,939

–
17,279
30,407
21,085

68,771

676,006

710,058

5,370
146,751
87,636
15,784

3,256
135,919
99,374
16,236

255,541

254,785

447
39,446
870
156,865
120

–
51,410
1,595
64,365
1,733

197,748

119,103

453,289

373,888

222,717

336,170

456,734
(112,150)
(121,867)

457,198
(112,150)
(8,878)

222,717

336,170

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

The financial statements on pages 72-112 were approved by the board of directors and authorised for issue on 26 June 2020 and
were signed on its behalf by:

Sir Michael Rake
Director

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019

Consolidated statement of changes in equity
For the year ended 31 December 2019

Capital and reserves

At 1 January 2018

Loss for the year
Other comprehensive loss

Total comprehensive loss for the year

Fair value of share based payments
Issue of ordinary shares
Fair value of warrants
Debt to equity conversion

At 31 December 2018

Loss for the year
Other comprehensive income

Total comprehensive loss for the year

Purchase of own shares
Issue of employee share options
Cash settlement of employee share options
Fair value of share based payments
Fair value of warrants

Called up
share capital
US$’000

329,877

–
–

–

–
7,271
–
27,027

364,175

–
–

–

–
–
–
–
–

Share
premium
US$’000

Treasury
shares
US$’000

Retained
(deficit)/
earnings
US$’000

Other
reserves
US$’000

Total equity
US$’000

–

–
–

–

–
20,050
–
72,973

93,023

–
–

–

–
–
–
–
–

–

–
–

–

–
–
–
–

–

–
–

–

(572)
108
–
–
–

68,896

(116,299)

282,474

(78,313)
–

(78,313)

305
–
234
–

–
(361)

(361)

–
4,510
–
–

(78,313)
(361)

(78,674)

305
31,831
234
100,000

(8,878)

(112,150)

336,170

(113,810)
–

(113,810)

–
(126)
(154)
971
130

–
–

–

–
–
–
–
–

(113,810)
–

(113,810)

(572)
(18)
(154)
971
130

At 31 December 2019

364,175

93,023

(464)

(121,867)

(112,150)

222,717

Other reserves

At 1 January 2018

Translation differences
Issue of ordinary shares

At 31 December 2018

At 31 December 2019

Merger
reserve
US$’000

Warrant
reserve
US$’000

Translation
reserve
US$’000

Total other
reserves
US$’000

(116,510)

2,105

(1,894)

(116,299)

–
4,510

(112,000)

–
–

2,105

(361)
–

(361)
4,510

(2,255)

(112,150)

(2,255)

(112,150)

The above statement of consolidated changes in equity should be read in conjunction with the accompanying notes.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report76

Consolidated statement of cash flows
For the period ended 31 December 2019

Cash flows from operating activities
Cash (used in)/generated from operations
Income taxes paid

Net cash (outflow)/inflow from operating activities

Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangibles
Proceeds from sale of non-current assets
Recovery of restricted cash

Net cash outflow from investing activities

Cash flows from financing activities
Proceeds from issues of shares and other equity instruments
Proceeds from borrowings
Repayment of borrowings
Interest paid
Principle lease payments

Net cash inflow from financing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rates on cash and cash equivalents

Cash and cash equivalents at end of year

Note

2019
US$’000

2018
US$’000

(16,280)
(144)

21,014
(842)

(16,424)

20,172

(46,375)
(38,852)
7,563
–

(80,531)
(43,188)
39
377

(77,664)

(123,303)

–
96,000
(8,000)
(1,548)
(1,419)

4,925
116,210
(7,556)
(8,852)
–

85,033

104,727

(9,055)
21,085
(1,028)

11,002

1,596
23,696
(4,207)

21,085

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019

Notes to the consolidated financial statements

1. General information
The company is a Public Limited Company (‘plc’) incorporated in England and Wales and is domiciled in the United Kingdom.
The Registered Office address is 6th Floor, King’s House, 10 Haymarket, London SW1Y 4BP. The company is listed on the AIM
market of the London Stock Exchange and maintains a secondary listing on the Buenos Aires Stock Exchange.

The principal activities of the company and its subsidiaries (together ‘the group’) are the exploration for and the development
and production of oil and gas in Argentina.

2. Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union, the associated interpretations issued by the IFRS Interpretations Committee (together ‘IFRS’)
and the Companies Act 2006.

The significant accounting policies applied in preparing these consolidated financial statements are set out below. These policies
have been consistently applied throughout the period and to each subsidiary of the group.

The financial statements have been prepared under the historical cost convention except as where stated.

Going concern
The group principally generates cash from its existing conventional oil and gas production operations. Nevertheless, it was formed with the
stated intention of undertaking a significant exploration, evaluation and development programme focused on the group’s unconventional
oil and gas assets in Argentina, including the Vaca Muerta formation. To date, the funding required to support the activities of the group
has been provided by Mercuria Energy Group.

The company is currently faced with several challenges. On a macro level it faces economic uncertainty in Argentina following a change
of government in December 2019 and as a result of the continuing negotiations by the government to restructure the country’s debt.
This political and economic uncertainty has been compounded by the impact of COVID-19 and the global collapse in demand for oil
that caused oil prices to collapse in the first half of 2020.

As a result of the fall in the demand for oil and the collapse in oil prices, the company has shut-in production of crude oil from its operated
licences. The company has developed and is progressively implementing a plan that involves a significant reduction in both operating
and administrative costs. The cost reduction actions being taken mean the company will be in a significantly better position
to produce oil economically at lower oil prices and with a positive contribution to cash flow when production recommences.
The company will then focus on the continued development of its unconventional assets.

Our major shareholder, Mercuria, is supportive of the cost reduction plan and has extended short-term debt facilities to facilitate
its implementation and execution. Mercuria has written to the company stating its intention to continue to provide financial
support to the company of up to $37 million in order that the company may continue to operate and service its liabilities as they fall
due in the next 12 months whilst it assesses the timing of work plans and capital commitments and has agreed to meet the company’s
cash needs for this period and not demand repayment of the existing loan within the next 12 months whilst in discussion with the company
to restructure the existing loan agreement. This letter, which by its nature is not legally binding, represents a letter of comfort stating
Mercuria’s current intention to continue to provide support.

The directors believe they will be able to agree the restructure of the existing debt with Mercuria and formalise an agreement for
new funding and that the group and company can continue as a going concern for the foreseeable future. The application of the
going concern basis of preparation of the financial statements included in this annual report is based on the letter that has been
received from Mercuria and the ongoing discussions with the Mercuria principals and accordingly, the directors continue to adopt
the going concern basis for accounting in preparing the 2019 financial statements. However, the directors recognise that if financial
support over the next 12 months from Mercuria were not to be available and the company is unable to restructure the existing
loan agreement from Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may cast
significant doubt on the group’s and company’s ability to continue as a going concern.

The financial statements do not include any adjustments that would be required if the group and company were unable to continue
as a going concern.

Foreign currency
Presentation currency – the consolidated financial statements are presented in US Dollars rounded to the nearest thousand
(US$’000), except where otherwise indicated.

Functional currency – items included in the financial information of the individual companies that comprise the group are
measured using the currency of the primary economic environment in which the entity operates (its functional currency). The
primary economic environment is often related to the country of operation or, in some circumstances, it can be determined by other
key factors, such as when significant contracts (sales, services, funding, etc.) are denominated in or by reference to a currency. For
instance, in the oil and gas industry many sales and service contracts are denominated in or priced by reference to the US Dollar
given that the benchmark prices for crude oil (Brent, WTI, etc.) are quoted in US Dollars. There is no concept of a group functional
currency and therefore individual entities within a group may have functional currencies that are different to each other.

Foreign currency transactions – transactions in currencies other than an entity’s functional currency (foreign currencies) are translated
using the exchange rate on the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at the balance sheet date of monetary assets and liabilities denominated in foreign currencies
are recognised in the consolidated statement of comprehensive income within either finance income (gains) or finance costs (losses).

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report78

2. Basis of preparation continued
Consolidation
The consolidated financial statements include the financial information of Phoenix Global Resources plc as well as its subsidiary
undertakings made up to 31 December each year.

Non-controlling interests
There is no non-controlling interest at either 31 December 2018 or 2019.

Subsidiaries
Subsidiaries are all entities over which the company has control. The company controls an entity when it is exposed to, or has rights
over, variable returns from its involvement with the entity and has the ability to affect those returns through its ability to exercise
control over the entity. Subsidiaries are consolidated in the group financial statements from the date at which control is transferred
to the company. They are deconsolidated from the date that control ceases.

Joint arrangements
Oil and gas operations are often conducted by the group as co-licencees in unincorporated joint operations with other companies.
The group’s financial statements reflect the relevant proportion of production, assets, liabilities, income and expenses of the joint
operation applicable to the group’s interests. The group’s current interests in joint operations are detailed in the operating review
on pages 14-19 and typically represent a percentage-based working interest in the joint operation.

3. Significant accounting policies
3.1 New standards, amendments and interpretations effective and adopted by the group in 2019
The company has applied the following new accounting standards, amendments and interpretations for the first time for the
annual reporting period commencing 1 January 2019:

→ IFRS 16: Leases;

→ Prepayment Features with Negative Compensation (Amendments to IFRS 9);

→ Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28);

→ Annual Improvements to IFRS 2015-2017 Cycle;

→ Plan Amendment, Curtailment or Settlement (Amendments to IAS 19); and

→ IFRIC 23 ‘Uncertainty over Income Tax Treatments’.

The adoption of IFRS 16 has required the group to change its accounting policies and has been detailed below. The other
amendments listed above have not had any material impact on the disclosures or on the amounts reported in the financial
statements, nor are they expected to significantly affect future periods.

IFRS 16: Leases (‘IFRS 16’)
Overview
IFRS 16 became effective for accounting periods that started on or after 1 January 2019 and the group adopted the standard
from this date.

The standard seeks to clarify the accounting treatment for leased assets that are accounted for under IAS 17 ‘Leases’ as either
finance leases or operating leases. Under IAS 17 accounting rules for finance leases, leased assets and corresponding lease
obligations were capitalised in the statement of financial position and amortised over the life of the lease contract. Operating
leases were accounted for based on an income statement model with the monthly rental cost for using an asset charged to the
income statement, typically on a straight-line basis.

The criteria for classifying a lease as either a finance lease or an operating lease were very specific and involved the application
of a number of ‘bright line’ rules that determine the final treatment. This specificity resulted in the opportunity to specifically
design contracts for rental which, while substantially similar, could result in different classification of the underlying asset.

IFRS 16 seeks to examine the commercial substance of arrangements and, on application, it is anticipated that many more lease
contracts or similar arrangements will result in balance sheet treatment under the new standard. This will result in more leased
assets and lease obligations being capitalised in companies’ statements of financial position.

How the standard applies to Phoenix Global Resources plc
The group has assessed its lease and rental arrangements, and arrangements where regular payments of consistent amounts
are paid to a supplier of goods or services, in line with the rules of the new standard. This assessment concluded that the group
does not lease significant assets in either quantum or value. The principal lease agreements that the group is party to relate to
office space in London, Houston and Buenos Aires and to minor items of office equipment such as photocopiers and map plotters.
The group also rents certain low value operational items, but such items are typically not covered by contracts and their use is
committed to on a monthly basis through purchase orders.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued79

3. Significant accounting policies continued
3.1 New standards, amendments and interpretations adopted in 2019 continued
Conclusion
On adoption of IFRS 16 the group was required to recognise lease liabilities on the balance sheet in relation to leases which had
previously been classified as operating leases under the principles of IAS 17 ‘Leases’. These leases all relate to office space. The
liabilities were measured at the present value of the remaining lease payments, discounted using the group’s incremental borrowing
rate as of 1 January 2019. The borrowing rate applied to the lease liabilities was 6.33%. The impact on the balance sheet at
1 January 2019 was immaterial and is disclosed in the table below. The group has adopted the modified retrospective approach
permitted under the standard and as such has not restated the comparative figures for the 2018 reporting period.

Operating lease commitments held at 31 December 2018:
Impact of discounting using the incremental borrowing rate on transition
Adjustments resulting from different treatment of certain lease clauses

Lease liability recognised at 1 January 2019

Of which:
Current lease liabilities
Non-current lease liabilities

USD $’000

800
(76)
145

869

391
478

The corresponding US$0.9 million right-of-use asset was included within other fixed assets in property, plant and equipment at the
transition date. The asset will be depreciated on a straight-line basis over the life of the underlying lease contracts.

3.2 New accounting standards issued but not yet effective or adopted by the group in 2019
Certain new and amended accounting standards and interpretations have been published that are not mandatory for the period
ended 31 December 2019, nor have they been early adopted by the group. These standards and interpretations are not expected
to have a material impact on the group’s consolidated financial statements in the current or future reporting periods.

4. Critical accounting estimates and judgements
The preparation of the financial statements in conformity with generally accepted accounting practice requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent
assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period.
Actual outcomes could differ from those estimates.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.

4.1 Critical judgements
Determination of functional currency
The determination of a company’s functional currency can require significant judgement. There is no concept of a group-wide
functional currency but rather functional currency is assessed on an entity-by-entity basis by examining the specific circumstances
of each entity. A company’s functional currency is defined as the currency of the primary economic environment in which the entity
operates. In this regard the default assumption is that a company’s functional currency will be that in which it is registered or that
where the majority of its operations are located.

This assumption can be challenged or rebutted where it can be demonstrated that a currency other than that of the country of
registration or operations can be shown to have a greater influence over the revenue, costs, assets and liabilities of a company. For
instance, in the oil and gas industry contracts for the sale of production and for the provision of operational services are often priced
in or by reference to the US Dollar. This is because the main international benchmark prices used for pricing crude cargoes, such as
Brent and WTI, are quoted in US Dollars. With industry-wide revenues being heavily influenced by the US Dollar, service contracts,
particularly those for services provided by international service companies, are often also priced by reference to the US Dollar.

Care must be taken when examining holding companies and intermediate holding companies to determine if their activity is an
extension of that of their holding company or subsidiary or if the company operates independently in its own right.

The assessment of functional currency can be complex and requires the application of a number of criteria and indicators proscribed
by IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’. In certain circumstances the evaluation of the criteria in IAS 21 does
not result in a clear answer one way or another and hence judgement is applied in determining the functional currency of an entity.
The assessment of functional currency can have a significant effect on both the income statement and the statement of financial
position of a company and of the group of which it is a member.

The impact of foreign exchange gains and losses on net income, as calculated by reference to the functional currency of each
company within the group, is presented in the statement of comprehensive income as part of finance income and finance costs.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report80

4. Critical accounting estimates and judgements continued
4.1 Critical judgements continued
Determination of functional currency continued
The functional currency of the company and its subsidiaries in Argentina was determined to be the US Dollar. The functional
currency of the company’s subsidiaries domiciled outside of Argentina is the US Dollar, Euro or Swiss Franc and is assessed based
on the main operating cash flows to which the subsidiary is exposed. The group presents its financial statements in US Dollars.

Determination of joint control
Judgement is required to determine when joint control exists over an arrangement or business activity. Such judgement requires the
assessment of the relevant activities of the arrangement or of the business activity and when decisions in relation to those activities
require unanimous consent. The requirement for unanimous consent means that each participant has an equal say in relation to the
activities of the arrangement and, hence, joint control exists.

The group has determined that the relevant activities for its joint arrangements are those related to the operating and capital
decisions of the arrangement. These will include the approval of the annual capital and operating expenditure work programme and
budget for the joint arrangement. This will also relate to matters such as the approval of chosen service providers for major capital
activity as required by the joint operating agreements that govern the joint arrangement. These considerations are similar to those
necessary to determine control over subsidiaries.

Classifying an arrangement or business activity requires assessment of the rights and obligations arising from the arrangement
and may include:

→ the structure of the joint arrangement, including whether or not a legal entity exists and the terms of a contractual

arrangement;

→ the rights and obligations arising from ownership;

→ contractual rights and obligations; and

→ other facts and circumstances on a case-by-case basis.

This assessment often requires significant judgement. A different conclusion about both joint control and whether an arrangement
represents a joint venture or a joint operation may materially affect the accounting for a joint arrangement. For instance, the
determination of an arrangement as a joint venture or joint operation results in a line-by-line inclusion of the group’s proportionate
interest in the assets, liabilities, revenues and costs of the arrangement. Conversely, where joint control is determined not to exist,
the group’s interest in the net income and net assets of the arrangement are presented in a single line in each of the consolidated
income statement and statement of financial position.

4.2 Critical estimates
Future oil and gas prices
The estimation of future oil and gas prices has a significant impact throughout the financial statements. Future prices for oil
and gas have a direct impact on the estimation of the recoverable value of property, plant and equipment and intangible assets
associated with oil and gas assets.

Details of the oil and gas prices achieved in the years ended 31 December 2019 and 2018 are included in the segment information
in note 6.

Estimation of oil and gas reserve volumes
Oil and gas reserves are the quantities of oil and gas that management considers are commercially recoverable in the future from
known accumulations within the group’s licence areas and under defined economic and operating conditions.

Commercial viability is assessed by reference to the point at which the cash cost to produce a barrel of oil (or equivalent) is greater
than the sales price that can be achieved for that barrel. This point is generally referred to as the ‘economic limit’. No reserves are
recorded in respect of the period after which the economic limit is estimated to occur.

Estimation of oil and gas reserve volumes continued
The estimation of reserve volumes is inherently imprecise, requires the application of judgement and is subject to future revision.
Variations in future sales prices, cost estimates or actual production volumes can cause actual results to differ from the estimates
and affect the absolute quantity of estimated commercial reserve volumes from one period to the next. Variations can be positive
or negative. Subsurface conditions and other engineering factors can also affect estimated reserve volumes.

Oil and gas reserve volumes are estimated by management together with the in-house reservoir engineer and are subject to
periodic independent estimation by external reservoir engineering experts as events or circumstances dictate.

The prospective value of oil and gas reserves is not recorded in the statement of financial position. Intangible oil and gas assets and
associated property, plant and equipment included in the statement of financial position relate to the cost of acquisition of those
properties together with cumulative exploration or development expenditure.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued81

4. Critical accounting estimates and judgements continued
4.2 Critical estimates continued
The estimation of reserve volumes primarily influences the depreciation, depletion and amortisation charge for the year. This is
included in the analysis of property, plant and equipment in note 13. Reserve volumes are also used to assess fair value in business
combinations and in calculating whether an impairment charge should be recorded where an impairment indicator exists.

Provision for asset retirement and decommissioning obligations
The group has an obligation to plug and abandon wells at the end of their productive life. In addition, the group is required to
remove any surface field infrastructure and equipment, and to remediate or re-cultivate land that has been affected by the group’s
activities and return it to its natural state.

Provision is made for such obligations at the time at which the obligation is incurred. This is normally as wells are drilled or infrastructure
is put in place. Provisions are based on cost estimates of the remediation activity that will be needed. These estimates require judgement.
Inflation is applied to cost estimates and these estimates are then discounted at a rate that reflects the time value of money.
The application of both inflation and discount rates represent significant estimates.

Where licence terms do not require the group to remediate wells on rescission of a licence then no provision is made. This can occur
when the relevant province that issued the licence considers that wells could be remediated or that they may be of geological
interest to future licence holders.

Details of provisions held for asset retirement obligations together with movements recognised in the year are included in the
analysis of provisions in note 28.

Recognition of deferred tax assets
Assumptions about the generation of future taxable profits depend on management’s estimates of cash flows and taxable
income. These estimates are primarily based on forecast cash flows from operations (which are impacted by production and sales
volumes, oil and gas prices, oil and gas reserves and operating costs), as well as decommissioning estimates, forecast future capital
expenditure and the expected capital structure of the group. The critical estimates applied to management’s cash flow and taxable
income estimates are discussed in the section below.

Should future cash flows and/or taxable income differ significantly from these estimates, the ability of the group to realise the
deferred tax assets recorded at the reporting date could be impacted. Management is therefore required to apply significant
judgement in assessing the extent to which future taxable profits are included in the assessment of recoverability.

Details of the deferred tax asset together with movements recognised in the year are included in the analysis of deferred tax in note 26.

5. Accounting policies
5.1 Revenue
Revenue represents the proceeds, excluding VAT and sales taxes, earned from the sale of oil and gas. Revenue from oil and gas sales
is calculated by multiplying actual delivery volume by the contracted price of the specific commodity on the day of delivery.

Revenue from contracts with customers is recognised when or as the group satisfies its performance obligation by transferring
control of a promised good or service to a customer. The transfer of control of oil and gas usually coincides with title passing to
the customer and the customer taking physical possession. Sales contracts usually define a specific delivery point where physical
custody is transferred and title passes. This is typically at the point at which the product passes into the customer’s pipeline, truck
or refinery. There is therefore a single performance obligation being physical delivery at a specified point.

Revenue is recognised to the extent that it is probable that sales proceeds will be received and the revenue can be reliably measured.
Contracts for the sale of oil and gas are typically priced by reference to quoted benchmark prices.

5.2 Finance costs and income
Finance income comprises interest income on cash invested, foreign currency gains and the unwind of discount on any assets held
at amortised cost. Interest income is recognised as it accrues using the effective interest rate method.

Finance cost comprises interest expense on borrowings, foreign currency losses and the unwind of discount on any liabilities held
at amortised cost, which is principally the unwind of the discount related to the asset retirement obligation.

Borrowing costs
Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalised as a part
of that asset. This reduces the finance charge in the income statement and results in a corresponding increase to the asset cost.
Capitalisation of borrowing costs stops when the asset is substantially ready for its intended use. The time at which an asset
is substantially ready for its intended use may be earlier than the time at which it is actually put into use.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report82

5. Accounting policies continued
5.3 Employee benefits
Short-term benefits
Benefits given to employees that are short-term in nature are recognised as expenses in the statement of comprehensive income
as the related service is provided. The principal short-term benefits are salaries, associated holiday pay and other periodic benefits
such as healthcare and pension contributions made by the company for the benefit of the employee. A liability is recognised for the
amount expected to be paid under short-term cash bonus plans if there is either a present legal or constructive obligation to pay
the amount and the amount can be reliably estimated.

Share-based payments
The group operates a number of equity-settled share-based compensation plans, under which the entity receives services from
employees as consideration for equity instruments, deferred share awards or options to subscribe for ordinary shares of the
company. The fair value of the employee services received in exchange for the grant of the equity instruments, shares or options
is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

→ including any market performance conditions (for example, an entity’s share price);

→ excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth

targets and remaining an employee of the entity over a specified time period); and

→ including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market performance and service conditions are included in assumptions about the number of options that are expected to
vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions
are to be satisfied.

In some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is
estimated for the purposes of recognising the expense during the period between service commencement and the grant date.

At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based
on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity.

The grant by the company of equity instruments to the employees of subsidiary undertakings in the group is treated as an
intercompany transaction. The fair value of employee services received, measured by reference to the grant date fair value, is
recognised over the vesting period as an intercompany loan, with a corresponding credit to equity in the parent entity financial
statements.

Any social security contributions payable in connection with the grant of the share options is considered an integral part of the
grant itself, and the charge will be treated as a cash-settled transaction.

5.4 Taxes
The total tax charge or credit recognised in the statement of comprehensive income is made up of both current and deferred taxes.

The current tax charge or credit is based on the taxable profit or loss for the year. Taxable profit or loss is different to the profit
or loss reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable nor deductible.

Deferred tax is the tax that is expected to be payable or recoverable on differences between the carrying value of assets and liabilities
in the financial statements and the corresponding tax amounts for those assets and liabilities used to calculate taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences that exist only where it is probable that taxable profits will
be generated against which the carrying value of the deferred tax asset can be recovered. Deductible temporary differences exist
where there is a difference in the timing of the recognition of an item of income or expense between the income statement and the
calculation of taxable profit or loss.

Deferred tax assets and liabilities are recognised using the liability method, for all taxable temporary differences except in respect
of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint operations. Deferred
tax liabilities are not recorded for these items where the timing of the reversal of the temporary difference can be controlled and
it is probable that the temporary difference will not reverse in the foreseeable future.

A deferred tax asset or liability is not recognised if a temporary difference arises on initial recognition of an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss.

Current and deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued83

5. Accounting policies continued
5.4 Taxes continued
Minimum notional income tax – Argentina
Argentine tax law applicable in 2018 required companies to calculate tax on ‘notional presumed income’ at a rate equal to 1%
of a company’s assets at the balance sheet date. The company’s tax obligation for each year will be the higher of the notional
presumed income tax and the actual calculated tax charge for the period. Where the notional amount is greater than the
calculated amount the excess of taxes paid can be used to offset future income tax in any of the next ten years.

The minimum notional income tax legislation was repealed during the period, with effect from 1 January 2019.

5.5 Intangible assets – goodwill
The group allocates the fair value of the purchase consideration on the acquisition of a subsidiary to the assets acquired and
liabilities assumed based on an assessment of fair value at the acquisition date. Any excess of the purchase consideration (the
‘cost’ of the acquisition) over the fair value of those assets and liabilities is recognised as goodwill. Where goodwill is recognised,
it is allocated to cash generating units (‘CGU’) in a systematic manner reflective of how the group expects to recover the value
of the goodwill and how it will be monitored. The group’s policy is to monitor goodwill at an operating segment level before
combining segments for reporting.

Any goodwill arising is recognised as an asset and is subject to annual review for impairment. Goodwill is written off or impaired
where circumstances indicate that the recoverable amount of the underlying CGU including the asset may no longer support the
carrying value of the goodwill. Any such impairment is recognised in the income statement for the period. Impairment losses related
to goodwill are permanent and cannot be reversed in future periods.

5.6 Exploration and appraisal assets
Capitalisation
The group follows an accounting policy for exploration and appraisal assets that is based on the successful-efforts accounting method.

Costs incurred prior to obtaining the legal right to explore an area are expensed as incurred in the income statement. This includes
all costs that pre-date the award of a licence.

Expenditure incurred on the acquisition of a licence interest is initially capitalised on a licence-by-licence basis. Costs are held within
intangible assets and are not depreciated until the exploration phase on the licence area is complete or commercial reserves have
been discovered. Exploration and evaluation costs may include the costs of initial licence acquisition; geological and geophysical
studies (such as seismic studies); and direct labour, equipment and service costs associated with drilling exploratory wells. Costs
incurred are capitalised by well, field or exploration area based on the nature of the cost. Where the results of exploration drilling
do not indicate that hydrocarbon reserves exist or indicate the presence of hydrocarbons which are ultimately not considered
commercially viable, all related costs are written off to the income statement as exploration cost.

On conclusion of a successful evaluation phase where commercial reserves have been established, the associated exploration and
evaluation costs are tested for impairment and their carrying value adjusted if necessary. The exploration and evaluation costs are
then transferred to the property, plant and equipment category ‘development and production assets’ and are held within a single
field cost centre.

Impairment
Capitalised exploration and evaluation costs are reviewed regularly for indicators of impairment and are tested for impairment
where these indicators exist. Indicators of impairment for exploration and appraisal assets may include:

→ exploration drilling has not resulted in the discovery of commercial volumes of hydrocarbons;

→ changes in oil and gas prices or other market conditions that indicate the discoveries may not be commercial;

→ the anticipated cost of development indicates that it is unlikely the carrying value of the exploration and evaluation asset

will be recovered in full;

→ there are no plans to conduct further exploration activities in the area; or

→ the exploration licence period has expired or is due to expire.

Where an indicator of impairment has been identified, the intangible exploration and evaluation asset is allocated to its CGU and
the recoverable amount of the CGU is determined. The recoverable amount of the CGU is based on the higher of its fair value
less costs of disposal or value in use. Value in use is calculated by reference to the expected future cash flows from the CGU after
discounting to take account of the time value of money. Fair value less costs to sell can be based on a similar cash flow measure
adjusted for disposal costs or can be estimated by reference to similar comparable reference transactions. Where cash flows are
used they are risk weighted in order to reflect an assessment of future exploration success.

The key assumptions in assessing cash flows are the sensitivity to market fluctuations, such as commodity prices, and the success
of future exploration drilling programmes. The most likely factor that will result in a material change to the recoverable amount
of the CGU is the result of future exploration drilling, which will ultimately determine the licence area’s future economic potential.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report84

5. Accounting policies continued
5.7 Property, plant and equipment – development and production assets
Capitalisation
The costs associated with determining the existence of commercial reserves are capitalised in accordance with the preceding policy
and transferred to property, plant and equipment as development assets following impairment testing.

All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons have been demonstrated are
capitalised within development assets on a field-by-field basis. Subsequent expenditure is only capitalised where it either enhances
the economic benefits of the development asset or replaces part of the existing development asset (where the remaining cost
of the original part is expensed through the income statement).

Costs of borrowing related to the ongoing construction of development and production assets and facilities are capitalised during
the construction phase. Capitalisation of interest ceases once an asset is ready for production.

Depreciation
Capitalised oil and gas assets are not subject to depreciation until commercial production starts. Depreciation is calculated
on a unit-of-production basis in order to write off the cost of an asset as the reserves that it represents are produced and sold.
Any periodic reassessment of reserves will affect the depreciation rate on a prospective basis.

The unit-of-production depreciation rate is calculated on a field-by-field basis using proved, developed reserves as the denominator
and capitalised costs as the numerator. The numerator includes an estimate of the costs expected to be incurred to bring proved,
developed, not-producing reserves into production.

Infrastructure that is common to a number of fields, such as gathering systems, treatment plants and pipelines, is depreciated on
a unit-of-production basis using an aggregate measure of reserves or on a straight-line basis depending on the expected pattern
of use of the underlying asset.

Impairment
The group assesses development and production assets for impairment where there is an indication that an impairment may exist.
Indicators of impairment may include:

→ a significant fall in realised prices for oil and gas;

→ a significant downward movement in the forward curve for quoted oil price benchmarks such as Brent or WTI;

→ an increase in cash operating costs;

→ a significant downward revision to the estimated reserve volumes or values;

→ an increase in rates calculated for depreciation, depletion and amortisation (‘DD&A’); or

→ unforeseen engineering subsurface problems that cannot be overcome satisfactorily.

An impairment review of development and production assets is undertaken on a CGU basis and involves comparing the carrying
value of an asset with its recoverable amount. The CGU is typically applied at the field or licence level, unless a number of field
interests are determined to be interdependent. The recoverable amount of an asset is determined as the higher of its fair value
less costs to sell and its value in use. Value in use is determined by reference to expected future net cash flows. Any impairment
loss identified is recorded in the income statement.

The future cash flows are adjusted for risks specific to the cash generating unit and are discounted using a pre-tax discount rate.
The discount rate is derived from the group’s post-tax weighted average cost of capital.

The calculation of value in use is most sensitive to the following assumptions:

→ production volumes and estimates of recoverable reserves;

→ quoted commodity benchmark prices and realised sales prices;

→ the level of fixed and/or variable operating costs;

→ estimates of capital expenditure required to develop assets; and

→ discount and inflation rates applied.

5.8 Decommissioning
The discounted cost of expected decommissioning activity is recorded when an obligation to rectify the environmental impact
of the group’s oil and gas activity exists. The obligation can arise from contractual licence arrangements, the laws and regulations
of the country or province of operation or be constructive based on established practice.

The amount that is recognised as a provision for decommissioning activities is the present value of the estimated future
remediation expenditure that is determined by reference to the nature of the asset, the group’s operational policy in regard to
decommissioning, local conditions and associated regulatory requirements. A corresponding decommissioning asset is recorded
within property, plant and equipment at the same discounted value as the provision.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued85

5. Accounting policies continued
5.8 Decommissioning continued
The costs recognised in the income statement in each period comprise two elements:

→ depreciation of the decommissioning asset calculated on a unit-of-production basis consistent with the underlying asset to

which it relates, recorded in operating expenses; and

→ the unwind of the discount on the decommissioning provision that is recorded as a finance cost as time passes.

Any change in the present value of the estimated future decommissioning expenditure is reflected as an adjustment to the
decommissioning provision and related decommissioning asset.

5.9 Other assets
Other assets are capitalised on the basis of purchase price or construction cost. Depreciation on other elements of property, plant
and equipment is charged on a straight-line basis at the following rates that reflect the expected useful life of each asset category:

→ Property

→ Fixtures and fittings

→ Vehicles

→ Other equipment

10% to 20%

20% to 33%

20%

20% to 33%

5.10 Non-current assets held for sale
Non-current assets or disposal groups classified as held for sale are measured at the lower of their net book value and fair value less
costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through
a sale transaction rather than through continuing use.

This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate
sale in its present condition. Management views the trigger for recognition either as signature of a sales and purchase agreement
or board approval. Management must be committed to the sale which should be expected to qualify for recognition as a completed
sale within one year from the date of classification. Assets classified as held for sale and the corresponding liabilities are classified
in current assets and liabilities on a separate line in the balance sheet.

5.11 Business combinations and goodwill
Acquired businesses are included in the financial statements from the transaction date which is defined as the date at which the
company achieves control over the assets being acquired and liabilities assumed.

The cost of an acquisition is calculated as the fair value of the consideration given including equity instruments given, contingent
or deferred elements of consideration and any liabilities assumed in connection with the transfer of control.

The cost of an acquisition is allocated to the identifiable assets acquired and liabilities assumed on the basis of their relative fair
values at the acquisition date. The fair value assessment will include certain assumptions, such as assessment of discount rates,
taxation rules, and both the amount and the timing of expected future cash flows from assets and liabilities. In addition, the
selection of specific valuation methods for individual assets and liabilities requires judgement. The specific valuation methods
applied will be driven by the nature of the asset or liability being assessed.

If the acquisition cost at the time of the acquisition exceeds the fair value of the net assets acquired, goodwill is recognised.
Conversely, if the fair value of the net assets acquired exceeds the consideration given, the difference is recognised as gain in
the income statement on the acquisition date.

Goodwill may also be recognised as a result of the application of deferred tax accounting to the fair values of assets acquired.
The fair value allocation process often results in an increase to the carrying value of depreciable assets. Given that the tax
deductible value of such assets does not change, the difference between the book value and the tax value of the asset increases,
which results in an additional deferred tax liability. The increased deferred tax liability is recorded in purchase accounting with
a corresponding entry to goodwill.

Goodwill is allocated to the CGUs or groups of CGUs that are expected to benefit from the business combination and is subject
to annual impairment testing.

5.12 Inventories
The group’s stocks of crude oil on hand that result from its production operations are carried at the lower of cost and net realisable
value. Cost is calculated as the per-unit production cost for each barrel of oil held in inventory. Net realisable value is measured by
reference to the market price for crude oil prevailing in Argentina plus or minus applicable quality and location premium or discount.

Operational inventory and spare parts are carried at the lower of cost or net realisable value where cost represents the weighted
average unit cost for inventory items on a line-by-line basis.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report

5. Accounting policies continued
5.13 Investments and other financial assets
Classification
Financial assets are initially recognised at fair value, usually being the transaction price. In the case of financial assets not at fair
value through profit or loss, directly attributable transaction costs are also included. The subsequent measurement of financial
assets depends on their classification. The group classifies its financial assets in the following categories:

→ financial assets measured at amortised cost;

→ financial assets measured at fair value through other comprehensive income (‘OCI’); and

→ financial assets measured at fair value through profit or loss (‘FV-P&L’).

The classification depends on the purpose for which the investments were acquired. Management determines the classification
of its investments at initial recognition and, in the case of assets classified as held to maturity, re-evaluates this designation at the
end of each reporting period.

Recognition and derecognition
Regular-way purchases and sales of financial assets are recognised on the trade date, being the date on which the group commits
to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have
expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership.

Measurement
Financial assets measured at amortised cost
Financial assets are classified and measured at amortised cost when the objective of the asset is to collect contractual cash flows
and the contractual cash flows represent solely payments of principal and interest. Such assets are carried at amortised cost using
the effective interest method if the time value of money is significant. Gains and losses are recognised in profit or loss when the
assets are derecognised or impaired and when interest is recognised using the effective interest method. This category of financial
assets includes trade and other receivables.

Financial assets measured at fair value through other comprehensive income
Financial assets are classified and measured at fair value through OCI when the objective of holding the asset is both to collect
contractual cash flows and sell the financial assets, and the contractual cash flows represent solely payments of principal and
interest. The group does not have any financial assets classified in this category.

Financial assets measured at fair value through profit or loss
Financial assets are classified and measured at fair value through P&L when the asset does not meet the criteria to be measured
at amortised cost or fair value through other comprehensive income. Such assets are carried on the balance sheet at fair value with
gains or losses recognised in the income statement. Derivatives, other than those designated as effective hedging instruments,
and equity instruments are included in this category.

Interest income from financial assets held at fair value through profit or loss is included in net operating gains/(losses). Interest on
assets held at amortised cost is calculated using the effective interest method and is recognised in the statement of profit or loss
in finance gains/(losses).

Impairment – general
Credit risk arises from the group’s financial assets which are carried at amortised cost, at fair value through OCI and at fair value
through P&L, including cash and cash equivalents and outstanding receivables with oil and gas customers. The group assesses at
the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired
based on the credit loss model set out in IFRS 9.

Impairment – assets carried at amortised cost
For loans and receivables, the group applies the IFRS 9 simplified approach to measuring expected credit losses that uses a lifetime
expected loss allowance. The expected loss rates are based on the payment profiles of sales over a period of 36-months prior to
the reporting date. These historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic
factors affecting the ability of customers to settle the receivables as they fall due.

Loans and receivables are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and a failure to
make contractual payments for a period of greater than 120 days past due. Impairment losses are presented as net impairment losses
within operating profit/(loss). Subsequent recoveries of amounts previously written off are credited against the same line item.

Impairment – other short-term investments
All of the group’s other short-term investments are considered to have low credit risk, and the loss allowance recognised during the
period is therefore limited to 12 months’ expected losses. Any loss allowance determined for the period is recognised in profit or loss
and reduces the fair value loss otherwise recognised in OCI.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued87

5. Accounting policies continued
5.14 Trade and other receivables
Trade receivables and other receivables are initially recognised at fair value and subsequently measured at amortised cost using
the effective interest rate method less provision for impairment. The group applies the IFRS 9 simplified approach to measuring
expected credit losses to calculate impairment, which uses a lifetime expected loss allowance based on a 36-month assessment
period. Any resulting impairment loss is recognised immediately in the income statement.

Trade and other receivables are classified as current assets if receipt is due within one year or less. If not, they are presented
as non-current assets.

5.15 Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with financial institutions that can be called on demand together
with other short-term, highly liquid investments with original maturities of three months or less that are readily convertible into
known amounts of cash. Cash equivalents also include restricted amounts pledged as securities for work commitments. Cash
equivalents are classified as financial assets measured at amortised cost or fair value through profit or loss.

5.16 Trade and other payables
Trade and other payables are initially recognised at fair value and are subsequently measured at amortised cost using the effective
interest rate method. Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary
course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not,
they are presented as non-current liabilities.

Accruals are recognised in respect of goods or services delivered but not yet invoiced.

5.17 Provisions
Provision is made for asset retirement obligations and legal claims when the group has a present legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can
be reliably estimated.

Provisions are measured at the present value of the expenditures expected to be incurred in settling the obligation using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase
in the provision as the discount unwinds due to the passage of time is recognised in the income statement as interest expense.

5.18 Leases
On inception of a contract the group assesses whether it contains a lease. The contract is, or contains, a lease if it conveys the
right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an
identified asset is determined based on whether the group has the right to obtain all of the economic benefits from the use of the
asset throughout the period of use, and if the group has the right to direct the use of the asset.

Lease obligations are recognised as a liability with a corresponding right-of-use asset at the commencement date.

The lease liability is initially measured at the present value of the lease payments that are not paid at the lease commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the group’s incremental
borrowing rate.

The corresponding right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability plus any
lease payments made at or before the commencement date, any initial direct costs incurred and an estimate of costs required to
remove or restore the underlying asset, less any lease incentives received. The right-of-use asset is depreciated over the shorter
of the asset’s useful life and the lease term on a straight-line basis.

The lease liability is subsequently measured at amortised cost using the effective interest method. It is remeasured when there
is a change in future lease payments arising from a change in an index or rate, if there is a change in the group’s estimate of the
amount expected to be payable under a residual value guarantee or if the group changes its assessment of whether it will exercise
a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made
to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has
been reduced to zero.

The group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term
of 12 months or less, those leases with a remaining lease term of less than 12 months as at 1 January 2019 and leases of low-value
assets with an annual cost of US$5,000 or less. The group recognises the lease payments associated with these leases as an
expense on a straight-line basis over the lease term.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report88

6. Segment information
The group’s executive management team comprising the interim chair of the executive committee, the chief financial officer and
the chief operating officer has been determined collectively as the chief operating decision maker for the group. The information
reported to the group’s executive management team for the purposes of resource allocation and assessment of segment
performance is split between those assets which are operated by the group and those which are not.

The strategy of the group is focused on the development of its unconventional operated assets in the Vaca Muerta and other
unconventional opportunities in Argentina, while optimising its operated conventional production assets. The group also participates
in joint arrangements as a non-operated partner. The group identifies its non-operated assets which are focused on the exploitation
and development of the Vaca Muerta as core to its operations, with those focused on exploiting conventional oil and gas resources
as non-core. Operated and non-operated assets of the group have therefore been determined to represent the reportable
segments of the business. The third segment ‘corporate’, primarily relates to administrative costs, financing costs and taxation
incurred in running the business which are not directly attributable to one of the identified segments.

In 2019, the group redefined its segments to better reflect how the executive management team receives and reviews information
on the business. As such, the 2018 comparatives have been restated in the period to match the updated definition.

The group’s executive management primarily uses a measure of earnings before interest, tax, depreciation and exploration expenses
(‘EBITDAX’) to assess the performance of the operating segments. However, the executive management team also receives
information about segment revenue and capital expenditure on a monthly basis.

2019

Revenue

Loss for the year

Add: depreciation, depletion and amortisation
Add: exploration costs written off
Less: finance income
Add: finance costs
Less: taxation

EBITDAX

Oil revenues
bbls sold
Realised price (US$/bbl)

Gas revenues
MMcf sold
Realised price (US$/MMcf)

Capital expenditure
Property, plant and equipment
Intangible exploration and evaluation assets

Total capital expenditure

Operated
US$’000

Non-operated
US$’000

Corporate
US$’000

Total
US$’000

49,355

80,062

–

129,417

(32,952)

(50,611)

(30,247)

(113,810)

32,470
3,665
–
381
–

31,954
575
–
465
–

1,633
–
(1,577)
25,401
(21,011)

66,057
4,240
(1,577)
26,247
(21,011)

3,564

(17,617)

(25,801)

(39,854)

49,341
1,050,157
46.98

65,311
1,340,561
48.72

14
5.43
2.58

14,751
4,448.47
3.32

–
–
–

114,652
2,390,718
47.96

14,765
4,453.90
3.32

34,630
36,915

71,545

19,015
2,139

21,154

3,774
–

3,774

57,419
39,054

96,473

Exploration costs incurred in the operated segment include US$3.4 million related to the write-off of an unsuccessful exploration
well at the Atamisqui concession which was previously being held as suspended. Exploration costs in the non-operated segment
include US$0.4 million related to geological or geophysical work at the Chachahuen concession that is not related to a specific
prospect and is general in nature.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued

6. Segment information continued

2018

Revenue

Profit/(loss) for the year

Add: depreciation, depletion and amortisation
Add: exploration costs written off
Less: finance income
Add: finance costs
Add: taxation

EBITDAX

Oil revenues
bbls sold
Realised price (US$/bbl)

Gas revenues
MMcf sold
Realised price (US$/MMcf)

Capital expenditure
Property, plant and equipment
Intangible exploration and evaluation assets

Total capital expenditure

Operated
(restated)
US$’000

Non-operated
(restated)
US$’000

Corporate
(restated)
US$’000

Total
(restated)
US$’000

64,806

112,166

–

176,972

910

3,282

(82,505)

(78,313)

24,445
5,607
–
452
–

31,414

39,547
3,752
–
408
–

46,989

734
–
(4,098)
29,842
16,797

64,726
9,359
(4,098)
30,702
16,797

(39,230)

39,173

64,785
1,099,618
58.92

89,690
1,507,137
59.51

21
5.36
3.92

22,476
5,488.19
4.10

–
–
–

154,475
2,606,755
59.26

22,497
5,494
4.10

54,288
57,224

111,512

26,286
344

26,630

918
–

918

81,492
57,568

139,060

Exploration costs incurred in the operated segment included US$4.8 million related to the write-off of an unsuccessful exploration well
at the Laguna el Loro concession. The well satisfied the commitments associated with the licence which has now been relinquished.
The remaining US$0.8 million exploration costs in the operated segment related to geological or geophysical work that was not
related to a specific prospect or area and was general in nature.

Exploration costs incurred in the non-operated segment of US$3.4 million related to the company’s share of costs related to the
unsuccessful Orkeke well drilled by the company’s partner, ROCH S.A.

There are no intersegment revenues in either period presented. The significant majority of oil and gas sales are made to the
Argentina state-owned oil company, YPF.

7. Revenue

Crude oil revenue
Gas revenue

Total revenue

2019
US$’000

114,652
14,765

2018
US$’000

154,475
22,497

129,417

176,972

The group makes all sales to external customers located within Argentina. Substantially all of its oil production is sold to the
Argentina state-owned oil company, YPF. Approximately 70% of gas production was sold to three separate external customers
in the period.

8. Cost of sales

Production costs
Depreciation of oil and gas assets
Movements in crude inventory

Total cost of sales

2019
US$’000

2018
US$’000

78,960
66,057
(204)

89,892
64,726
1,020

144,813

155,638

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report

9. Administrative expenses

Staff costs
Professional fees
Other general and administrative expenses

Total administrative expenses

10. Other operating income and expenses

Income
Staff seconded to joint operations
Reversed provisions
Other income
Expense
Hedging loss
Share based payment
Argentine bank transaction taxes
Other expenses

Total other operating income or expense

2019
US$’000

2018
US$’000

14,722
5,265
7,157

27,144

13,413
5,181
5,967

24,561

2019
US$’000

2018
US$’000

780
572
–

–
–
(2,285)
(484)

423
890
364

(7,632)
(5,451)
(2,487)
(1,550)

(1,417)

(15,443)

Hedging loss
On 22 January 2018, the company entered a swap agreement with Mercuria Energy Trading S.A. (‘Mercuria’) in order to fix the price
received for a fixed amount of 2018 production at US$65.97/bbl. The swap agreement was entered to support the 2018 capital
expenditure investment programme and was put in place over a defined amount of 2018 production.

Through much of 2017 Brent pricing had been soft and fluctuated between US$40.00/bbl and US$60.00/bbl. In January 2018,
as the Brent benchmark breached the US$65.00/bbl level, the directors considered it appropriate to fix the price received for a portion
of the company’s production. The total volume under the contract was 1,215,954 barrels, representing 47% of total 2018 production.
The effective term of the agreement commenced on 15 January and expired on 14 December 2018. The total volume under the
contract was subdivided into monthly delivery volumes.

A loss was recognised in relation to the hedge agreement in 2018 as the Brent benchmark price exceeded the US$65.97/bbl contract
price for much of the year. In addition, in May 2018 the Argentine government imposed temporary caps on domestic crude prices in
Argentina thereby breaking the relationship between domestic crude prices and the Brent benchmark. This had the effect that cash
losses incurred on the swap agreement as Brent rose above the contracted swap price of US$65.97/bbl were not compensated by
increased realisations in Argentina.

Share-based payments
In June 2018, the company exercised its right to settle the second fee instalment due under the Transaction Fee Services Agreement
(‘TFSA’) between the company and Integra Capital S.A. (‘Integra’) in ordinary shares. The TFSA was entered as part of the 2017
combination transaction and also provided that Mercuria was entitled to receive 3.06147 ordinary shares for each ordinary share
issued to Integra under the agreement. Notwithstanding, Mercuria agreed for this transaction, for no consideration, to limit its
entitlement to one ordinary share for each ordinary share issued to Integra.

This resulted in 7,156,625 new ordinary shares being issued to Mercuria, with a corresponding charge of US$5.5 million recognised
in the income statement in 2018.

11. Auditor’s remuneration

Fees payable to the company’s auditor and its associates for the audit
of the parent company and consolidated financial statements
Fees payable to the company’s auditor and its associates for other services:
The audit of the company’s subsidiaries
Review of the interim financial statements
Tax compliance services
Other taxation services
Other services

Total auditor’s remuneration

2019
US$’000

2018
US$’000

239

230

235
62
–
–
–

536

276
61
4
8
15

594

The group has a policy in place for the award of non-audit work to the auditor which requires audit committee approval
(refer to the audit committee report on pg.s 45-47).

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued
12. Staff costs and headcount

Staff costs

Wages and salaries
Social security costs
Other benefits
Share-based payments

Total staff costs

Average headcount

Argentina
United Kingdom
United States of America

Key management compensation

Short-term employee benefits
Post-employment benefits
Termination benefits1

Total key management compensation

1 2018 termination benefits restated.

2019
US$’000

2018
US$’000

16,563
2,428
1,592
893

21,476

2019
No.

104
4
6

114

16,555
2,495
810
305

20,165

2018
No.

100
4
5

109

2019
US$’000

2018
US$’000

1,713
36
850

2,599

2,258
98
421

2,777

Detailed remuneration disclosures are provided in the remuneration report on pg.s 48-61.

13. Property, plant and equipment

Property, plant and equipment

At 1 January 2019
Cost
Accumulated depreciation and impairment

Net book amount

Year ended 31 December 2019
Opening net book amount
Additions
Transfers
Transfers from intangible assets
Transfers to assets held for sale – cost
Disposal of assets – cost
Termination of licences – cost
Exploration costs written off
Depreciation charge
Impairment charge
Transfers to assets held for sale – accumulated DD&A
Disposal of assets – accumulated DD&A
Termination of licences – accumulated DD&A

Development
and
production
assets
US$’000

Other fixed
assets
US$’000

Assets under
construction
US$’000

Total
US$’000

9,431
(5,680)

694,747
(338,377)

3,751

356,370

6,070
–

6,070

710,248
(344,057)

366,191

3,751
3,990
–
–
(349)
–
–
–
(1,788)
–
309
–
–

356,370
18,078
34,131
43,287
(67,233)
(126,950)
(53,334)
(3,626)
(64,269)
(2,500)
49,682
89,922
37,488

6,070
35,351
(34,131)
–
–
–
–
–
–
–
–
–
–

366,191
57,419
–
43,287
(67,582)
(126,950)
(53,334)
(3,626)
(66,057)
(2,500)
49,991
89,922
37,488

Closing net book amount

5,913

311,046

7,290

324,249

At 31 December 2019
Cost
Accumulated depreciation and impairment

Net book amount

13,072
(7,159)

539,100
(228,054)

5,913

311,046

7,290
–

7,290

559,462
(235,213)

324,249

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
92

13. Property, plant and equipment continued
Additions
An amount of US$0.9 million has been capitalised to other fixed assets in the period in relation to the right-of-use asset calculated on
the adoption of IFRS 16 in the period. The asset will be depreciated on a straight-line basis over the life of the underlying lease contracts.

In August 2019, the company entered a new finance lease contract for the provision of power generators at the Puesto Rojas
concession. An amount of US$5.9 million was capitalised as a right-of-use asset to assets under construction on commencement
of the lease. The right-of-use asset will be transferred to development and production assets and depreciated following completion
of the asset in 2020. Refer to note 25 for additional details on the company’s leased assets.

Additions to property, plant and equipment in the year ended 31 December 2019 include US$0.3 million of interest capitalised in
respect of qualifying assets (2018: US$0.7 million). The total amount of interest capitalised within property, plant and equipment
at 31 December 2019 is US$3.1 million (2018: US$2.8 million).

Exploration costs
Exploration costs written off in 2019 include US$3.4 million related to the write-off of an unsuccessful exploration well in the
operated segment that was previously being held as suspended.

Termination of licences
In May 2019, the Province of Mendoza issued a decree terminating the concession for the Chañares Herrados block held by the
company’s joint venture partner, Chañares Energía S.A., as a result of its failure to fulfil work commitments. The decree took
immediate effect and the company has no intention of participating in the re-tender process. The carrying value of the asset has
consequently been written off at 31 December 2019, causing a US$15.8 million loss to be realised in the non-operated segment.

Disposals
In November 2019, the company sold its 70% working interest in the Santa Cruz Sur (‘SCS’) licences to Echo Energy plc (‘Echo’).
SCS forms part of the group’s non-operated asset portfolio, being conventional oil production operated by ROCH S.A. On sale,
the net non-current assets related to SCS of US$34.2 million were written off to the gain/loss on sale calculation. Details of the
sale transaction are described in note 15.

Assets held for sale
Assets held for sale relate to certain non-core development and production assets in the non-operated segment with a net book
value of US$17.6 million and exploration and evaluation assets held within intangible assets with a net book value of US$0.6 million
(see note 14). An additional amount of US$0.4 million has been disclosed as held for sale in current liabilities in relation to the ARO
provision associated with these assets. Board approval for the sale of these assets has been given and the company has engaged
in an active programme for the sale of the assets within 12 months of the reporting date.

Property, plant and equipment

At 1 January 2018
Cost
Accumulated depreciation and impairment

Net book amount

Year ended 31 December 2018
Opening net book amount
Additions
Transfers
Transfers to intangible assets
Exploration costs written off
Depreciation charge

Closing net book amount

At 31 December 2018
Cost
Accumulated depreciation and impairment

Net book amount

Development
and
production
assets
US$’000

Other fixed
assets
US$’000

Assets under
construction
US$’000

Total
US$’000

7,320
(4,608)

608,015
(274,723)

2,712

333,292

18,241
–

18,241

633,576
(279,331)

354,245

2,712
2,111
–
–
–
(1,072)

333,292
–
91,552
(1,413)
(3,407)
(63,654)

18,241
79,381
(91,552)
–
–
–

354,245
81,492
–
(1,413)
(3,407)
(64,726)

3,751

356,370

6,070

366,191

9,431
(5,680)

694,747
(338,377)

3,751

356,370

6,070
–

6,070

710,248
(344,057)

366,191

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued93

13. Property, plant and equipment continued
Exploration costs
Exploration costs written off in 2018 of US$3.4 million include the company’s share of costs related to the unsuccessful Orkeke
well drilled by the company’s partner, ROCH S.A., in the non-operated segment in 2018.

Impairment
The company defines the key indicators of impairment in relation to its oil and gas assets within its accounting policies. When a
specific impairment trigger is identified during a period, the company will complete an impairment review of the associated CGU.

The company also assessed its licence interests for potential impairment on an annual basis by comparing the book value of
each asset to its respective NPV10 value that is independently assessed by the external reservoir engineers using the Petroleum
Resources Management System guidance. The NPV10 value is calculated based on a discounted cash flow model using a discount
rate of 10%.

The calculation includes several key assumptions, including oil and gas prices and reserve estimates, which the company defines
as key impairment indicators within its accounting policy. Where the NPV10 value is lower than the carrying value of an asset
an impairment test is performed.

Assets are tested for impairment by calculating their value-in-use using a discounted cash flow model or their fair value less costs
of disposal, whichever is determined to be the higher. The impairment test uses several assumptions but is most sensitive to
assumptions related to oil and gas prices, discount rate and production volumes.

The NPV10 impairment trigger assessment showed that the Atamisqui concession was potentially impaired. An impairment test
was performed using a discounted cash flow model and an impairment charge of US$2.5 million was determined to be required
at 31 December 2019. The impairment charge is reflective of the mature nature of the asset and the lower oil price environment
observed towards the end of 2019.

In the prior year, a potential impairment was identified at the La Brea concession, however following completion of an impairment
review, no impairment charge was considered necessary. During 2019, it was identified that the La Brea concession will share
a single offtake point for production with Puesto Rojas and therefore it has been included in the same CGU as Puesto Rojas in 2019.
The NPV10 impairment trigger assessment completed for this CGU during 2019 did not indicate any potential impairment.

Post year-end considerations
During 2020, the Brent crude benchmark price has fallen dramatically, primarily due to a significant reduction in demand for
fuel caused by the COVID-19 pandemic and consequent travel and economic restrictions introduced. The Brent price recovered
somewhat during May and June 2020, though current pricing remains significantly lower than the 2019 full year average Brent price
of US$64.30/bbl.

In assessing for potential impairment conditions at 31 December 2019, we considered, amongst other factors, Gaffney, Cline and
Associates’ 2019 2P NPV10 calculations provided as part of their independent assessment of reserves and resources at 31 December
2019. The 2P NPV10 values were taken as a proxy for fair value and compared to the carrying value of the company’s oil and
gas assets on a CGU-by-CGU basis. A deficit of NPV10 compared to carrying value could be an indicator of impairment. These
calculations were based on a US$65.00/bbl Brent reference price with a 1.5% accretion over time.

Because of the current lower oil price environment brought about by the COVID-19 situation, the company has carried additional
2019 2P NPV10 calculations and has performed sensitivity analysis based on a change in oil price, whilst maintaining the consistency
of other inputs into the model. There are many other variables to consider in these calculations when undertaking a formal
impairment review and hence the outcome of the sensitivity analysis performed is not necessarily indicative of potential impairment
in the same amount.

In May 2020, the Argentine government issued a decree establishing a fixed realised Medanito price of US$45.00/bbl. This
pricing will remain in place in the Argentine domestic market until the Brent crude benchmark sustains a price of US$45.00/bbl
or above for 10 consecutive days. The company has, therefore, performed a sensitivity to evaluate the potential impact on asset
carrying values if a flat long term US$45.00/bbl price was applied in the 2019 NPV10 calculations. Applying the revised flat pricing
assumption gives a 2P NPV10 value that is approximately US$300 million lower than the comparable measure included in the
independent assessment of reserves and resources at 31 December 2019.

Notwithstanding, it should be noted that the sensitivity analysis performed is a mathematical exercise and focuses only on a change
in price and, for instance, does not take into account potential cost reductions, efficiencies or deferrals that could be achieved. In
addition, the medium to long-term forward curve for Brent pricing currently shows future prices significantly above the US$45/bbl
used in the sensitivity analysis. Therefore, the results of this analysis should not be taken as indicating actual potential impairment
of an equivalent amount.

The company will be carrying out a full impairment assessment at 30 June 2020 as part of its preparation of its half year results.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report94

14. Intangible assets
Exploration and evaluation assets are primarily the group’s licence interests in exploration and evaluation assets located
in Argentina. The exploration and evaluation assets consist of both conventional and unconventional oil and gas properties.

Intangible assets

At 1 January 2019
Cost
Accumulated amortisation and impairment charges

Net book amount

Year ended 31 December 2019
Opening net book amount
Additions
Transfers from property, plant and equipment
Transfers to assets held for sale
Exploration cost written off
Impairment charge
Disposal of assets – cost

Closing net book amount

At 31 December 2019
Cost
Accumulated amortisation and impairment charges

Net book amount

Exploration
and evaluation
assets
US$’000

Goodwill
US$’000

Total
US$’000

260,007
(224,169)

225,172
–

485,179
(224,169)

35,838

225,172

261,010

35,838
–
–
–
–
–
–

225,172
39,054
(43,287)
(616)
(230)
(5,057)
(4,334)

261,010
39,054
(43,287)
(616)
(230)
(5,057)
(4,334)

35,838

210,702

246,540

260,007
(224,169)

215,759
(5,057)

475,766
(229,226)

35,838

210,702

246,540

Additions
Additions to intangible assets during the period predominately relate to the conclusion of the drilling of the MMx-1001 well, the
drilling of the MMx-1002 well and subsequent flowback and other testing and completion works completed at Mata Mora. Additions
also included costs associated with securing the group’s interest in the Corralera Noroeste concession.

The costs associated with the MMx-1001 and MMx-1002 wells were transferred to development and production assets within property,
plant and equipment on completion of flowback and determination of commercial reserves. The remaining exploration and evaluation
costs associated with the Mata Mora licence will be held as intangibles until the license area is commercially developed.

Disposals
A US$2.3 million loss on relinquishment has been recognised in respect to the Vega Grande concession in the operated segment.
The licence area is not part of the company’s core operations and is currently not producing. Management therefore made the
decision not to request the extension of the concession when it became due for renewal during the period.

An additional US$2.0 million loss on relinquishment has been recognised in respect to the Malagüe concession in the non-operated
segment. In May 2019, the Province of Mendoza ratified its decision to deny the application for the second exploration permit for
the area with the current operator, YPF. The company subsequently appealed the decision and made a separate application for the
exploration permit, in which the company would assume operatorship on the licence. In Q4 2019, this application was also denied,
following which management elected to write off the asset.

Impairment
The impairment charge of US$5.1 million recorded in the period related to certain licences held on the balance sheet at the business
combination date in 2017 which have subsequently been relinquished.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued14. Intangible assets continued

Intangible assets

At 1 January 2018
Cost
Accumulated amortisation and impairment charges

Net book amount

Year ended 31 December 2018
Opening net book amount
Additions
Transfers from property, plant and equipment
Exploration cost written off

Closing net book amount

At 31 December 2018
Cost
Accumulated amortisation and impairment charges

Net book amount

Exploration
and evaluation
assets
US$’000

Goodwill
US$’000

Total
US$’000

260,007
(224,169)

171,393
–

431,400
(224,169)

35,838

171,393

207,231

35,838
–
–
–

171,393
57,568
1,413
(5,202)

207,231
57,568
1,413
(5,202)

35,838

225,172

261,010

260,007
(224,169)

225,172
–

485,179
(224,169)

35,838

225,172

261,010

Additions
Additions to intangible assets during 2018 related to amounts paid to secure additional acreage with unconventional exposure as part
of open bid rounds held in both the Neuquén and Mendoza provinces. Additions in 2018 also included costs associated with securing
the group’s interests in the Mata Mora and Corralera blocks and increasing its working interest participation from 27% to 90%.

Exploration costs
Exploration costs written off in 2018 included US$4.8 million related to the write-off of an unsuccessful exploration well at the
Laguna el Loro concession. The well satisfied the commitments associated with the licence which has now been relinquished.

Impairment tests for exploration and evaluation assets
Exploration and evaluation assets are subject to impairment testing prior to reclassification as tangible fixed assets where
commercially viable reserves are confirmed. Where commercially viable reserves are not encountered at the end of the exploration
phase for an area the accumulated exploration costs are written off in the income statement.

Impairment tests for goodwill
Goodwill is monitored by management at the level of the operating segments identified in note 6. A segment level summary
of goodwill allocation is presented below.

At acquisition

Chachahuen & Cerro Morado Este
Corralera
Mata Mora

Total goodwill

Operated
US$’000

Non-operated
US$’000

Corporate
US$’000

Total
US$’000

–
16,780
3,835

20,615

15,223
–
–

15,223

–
–
–

–

15,223
16,780
3,835

35,838

No goodwill was recognised prior to 2017. All goodwill presented relates to the allocation of technical goodwill arising as a result
of accounting for deferred tax on the business combination on 10 August 2017. Goodwill of US$224.2 million that was related to the
excess of the purchase consideration given over the fair value of assets acquired and liabilities assumed at the acquisition date was
impaired in full on completion of the business combination in 2017.

The carrying value of goodwill has been assessed for impairment at the period end. The discount rate used in the carrying value
assessment was the group’s calculated weighted average cost of capital of 12.0% (2018: 14.0%). Prices used in the assessment
were the Energy Information Administration’s forecast of Brent crude prices based on a US$65.00/bbl price with a 1.5% accretion
over time and consistent with those used in completing the impairment assessment for the development and production assets.

The assessment determined that the fair value of the assets to which goodwill has been allocated was in excess of their carrying
values as at 31 December 2019 and consequently no impairment charge has been recorded in 2019.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report96

15. Disposal of non-current assets
Loss on sale of non-current assets in the year was US$29.0 million (2018: US$1.1 million) and is broken down in the table below.
Refer to section 15.1 for further details on the disposal of the Santa Cruz Sur licences. The details of the disposal of Andes Energia
Argentina S.A. made in 2018 have been disclosed in section 15.2.

Gain/(loss) on sale of non-current assets

Disposal of Santa Cruz Sur
Disposal of Sur Rio Desde licence
Disposal of vehicles

Loss on sale of non-current assets

2019
USD $’000

(29,609)

550
88

(28,971)

15.1. Disposal of Santa Cruz Sur
In November 2019, the company sold its 70% working interest in the Santa Cruz Sur (‘SCS’) licences to Echo Energy plc (‘Echo’).
SCS forms part of the group’s non-operated asset portfolio, being conventional oil production operated by ROCH S.A.

Consideration received from Echo for the SCS assets was US$8.5 million, spilt between cash receipts of US$7.0 million plus an
additional US$1.5 million settled through the issue of 39,958,443 new ordinary shares in Echo at a price of 2.9 pence per share. The
realised loss on sale recognised in the consolidated income statement is US$29.6 million, which is broken down per the table below:

Loss on sale

Consideration
Costs to sell

Fair value less costs to sell of total consideration
Net assets of SCS at sale date
Working capital outstanding at the sale date
Other adjustments

Loss on sale of Santa Cruz Sur

2019
USD $’000

8,500
(1,410)

7,090
(34,248)
(2,658)
207

(29,609)

Costs to sell included US$1.2 million in relation to the expected future cost to the company of the Campo Limite work commitment.
This commitment relates to the drilling of the Campo Limite well which forms part of the work commitment pursuant to the licence
clauses for the SCS area held with the Province of Santa Cruz. Under the terms of the sales and purchase agreement (‘SPA’), it was
agreed that the company would be liable to pay, pro-rated to its 70% WI, for the costs of drilling the commitment well. Echo will
then reimburse the company for 60% of the total incurred cost, up to a maximum value of US$1.1 million. The US$1.2 million cost
included in the loss on sale calculation represents the total cost which the company estimates that it will be liable to pay in relation
to the work commitment after the US$1.1 million cost reimbursement has been recovered from Echo. At 31 December 2019, works
had begun on the commitment and it is expected that the commitment will be completed in H1 2020.

15.2. Disposal of Andes Energia Argentina S.A.
On 8 November 2018 the company sold its 100% shareholding in Andes Energia Argentina S.A. (‘AEA S.A.’) to Ocean Energy
Services LLC (‘OES’) for consideration of US$2.6 million.

AEA S.A. was an intermediate holding company of the group incorporated in Argentina. The entity held a 70% interest in eight oil and
gas licences in Colombia that had been determined by management to be non-core to the group, in addition to shareholdings in various
group subsidiaries. The SPA was concluded for the sale of the AEA S.A. entity which held the title to the Colombian licences. Therefore in
order to facilitate the sale, in advance of the completion date, AEA S.A. sold all the investments it held in group subsidiaries to PGR plc
for consideration of US$6.6 million. Refer to note 4 of the company only financial statements for further discussion.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued97

15. Disposal of non-current assets continued
15.2. Disposal of Andes Energia Argentina S.A. continued
The sale of AEA S.A. completed on 8 November 2018. The realised loss on sale recognised in the consolidated income statement was
US$1.1 million, which is broken down per the table below.

Loss on sale

Consideration
Contingent consideration
Costs to sell

Fair value less costs to sell of total consideration
Net assets of AEA S.A.

Loss on sale of AEA S.A.

2018
USD $’000

900
1,742
(1,124)

1,518
(2,643)

(1,125)

At 31 December 2018, US$0.4 million of the cash consideration had been received by the company with the balance of
US$0.5 million held within other receivables at the balance sheet date.

The contingent consideration represents the fair value attributed to restricted cash held in escrow in respect of commitments
under the Colombian licences. The escrow accounts were put in place by the company at the time that the licences were originally
awarded and are in favour of the Agencia Nacional de Hidrocarburos (‘ANH’) in Colombia. Release of the restricted cash amounts
is dependent on the fulfilment of exploration commitments related to the licences that have now been sold to OES. The SPA
in place between the company and OES provided that, as OES satisfies the licence commitments on the Colombian licences,
25% of any amounts released from escrow by the ANH will be to the benefit of the company.

At the date of sale, the total restricted cash balance held in respect of the Colombia licenses was US$11.9 million, of which
US$6.1 million was held in an account maintained by the company (see note 20) and $5.8 million was held in an account maintained
by AEA S.A. The fair value of the portion of the restricted cash due to the group at the sale date of US$1.7 million was assessed
by reference to OES’ stated plans for work to be performed on the licences. The fair value assessment was reconsidered at
31 December 2018 with no change made to the carrying value.

The contingent consideration recognised at 31 December 2018 is split between other receivables (US$0.8 million) for the element
of contingent consideration related to the account maintained by AEA S.A. and cash and cash equivalents (US$0.9 million) for the
element related to the account maintained by the company.

16. Finance income and costs

Finance income
Interest income
Income from short-term investments
Net exchange gains on foreign currency borrowings
Other finance gains

Total finance income

Finance costs
Interest on borrowings
Accretion of discount on asset retirement obligation
Loan arrangement fees
Other finance costs
Exchange differences

Total finance cost

Net finance cost

2019
US$’000

2018
US$’000

370
753
12
442

1,577

321
390
2,743
644

4,098

(16,627)
(846)
(1,500)
(2,117)
(5,157)

(11,335)
(860)
(1,875)
(5,227)
(11,405)

(26,247)

(30,702)

(24,670)

(26,604)

Capitalised borrowing costs
The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate
applicable to the entity’s general borrowings during the year, in this case 6.9% for US Dollar denominated secured bank loans
(2018: 6.41%).

In the year to 31 December 2019, US$0.3 million (2018: US$0.7 million) of interest expense in respect of qualifying assets was
capitalised as part of additions to property, plant and equipment.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report98

17. Income tax expense

Current tax
Current tax (expense)/credit on profits for the year

Total current tax expense

Deferred income tax
Movement in deferred tax

Total deferred tax benefit/(expense)

Income tax benefit/(expense)

Reconciliation of income tax expense to notional tax credit/(charge) calculated using corporate tax rate

Loss from continuing operations before income tax expense
Tax at the Argentina tax rate of 30% (2018: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Effect of currency translation on tax values
Effect of change in tax rate
Disposal of assets
Expenses not deductible for taxation
Deferred tax assets not recognised
Inflation adjustment
Other

2019
US$’000

2018
US$’000

(260)

201

21,271

21,011

2019
US$’000

(134,821)
40,446

(7,875)
(7,989)
12,028
(523)
(6,308)
(7,481)
(1,287)

(16,998)

(16,797)

2018
US$’000

(61,516)
18,455

(26,556)
3,400
–
343
(10,904)
–
(1,535)

Total income tax benefit/(expense)

21,011

(16,797)

The corporate income tax rate in Argentina in 2019 was 30% (2018: 30%) and applies to profits earned and losses suffered in the
year to 31 December 2019.

Under the December 2017 tax reform plan implemented by the Argentina tax authorities, (the Administratión Federal de Ingresos
Públicos or ‘AFIP’), the corporate income tax rate was to be further reduced to 25% for years ending 31 December 2020 and
forward. In December 2019 however, new tax reforms were implemented by the incoming government under Law 27,541. Under
the new legislation, it was established that the reduced corporate rate of 25% would not be applicable until the year ending
31 December 2022 and forward.

An additional tax rate of 7% is applied to dividends when the corporate income tax rate is 30%. This additional dividend tax will
be increased to 13% when the corporate tax rate is reduced to 25% in 2022.

18. Financial assets and liabilities

Financial assets 2019

Trade and other receivables

Cash and cash equivalents

Total financial assets

Financial assets 2018

Trade and other receivables
Cash and cash equivalents

Total financial assets

Assets at
FV-OCI
US$’000

Assets at
FV-P&L
US$’000

–

2,648

–

2,648

Assets at
FV-OCI
US$’000

Assets at
FV-P&L
US$’000

–
–

–

794
–

794

Assets at
amortised
cost
US$’000

19,950

11,002

30,952

Assets at
amortised
cost
US$’000

20,660
21,085

41,745

Total
US$’000

22,598

11,002

33,600

Total
US$’000

21,454
21,085

42,539

The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets
mentioned above.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued
18. Financial assets and liabilities continued

Financial liabilities 2019

Trade and other payables
Borrowings

Total financial liabilities

Financial liabilities 2018

Trade and other payables
Borrowings

Total financial liabilities

Derivatives:
FV-P&L
US$’000

Derivatives:
hedging
US$’000

–
–

–

–
–

–

Derivatives:
FV-P&L
US$’000

Derivatives:
hedging
US$’000

–
–

–

–
–

–

Liabilities at
amortised
cost
US$’000

44,816
303,616

Total
US$’000

44,816
303,616

348,432

Liabilities at
amortised
cost
US$’000

54,666
200,284

Total
US$’000

54,666
200,284

254,950

In 2018, the group entered a swap agreement with Mercuria Energy Trading S.A. in order to fix the price received over a fixed
amount of 2018 production at a price of US$65.97/bbl. The effective term of the agreement commenced on 15 January and expired
on 14 December 2018. The company was not party to any derivative instruments at 31 December 2018 or at 31 December 2019.

Recognised fair value measurements
The group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading securities)
is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the
group is the current bid price. These instruments are included in Level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives)
is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-
specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. This is
the case for unlisted equity securities.

At 31 December 2019, the group held US$1.3 million of financial assets related to equity instruments whose fair value is assessed by
reference to Level 1 inputs in the fair value hierarchy. All other financial instruments held by the group at period end were assessed
by reference to Level 3 inputs. In 2018, the group did not hold any financial instruments whose fair value was assessed by reference
to Level 1 or Level 2 inputs.

The group’s maximum exposure to various risks associated with the financial instruments is discussed in note 24.

19. Trade and other receivables

Equity investments
Contingent consideration

Financial assets at fair value through profit and loss

Trade receivables
Less: provision for impairment

Other receivables

Financial assets at amortised cost

Prepayments and other receivables
Tax credits

Total trade and other receivables

2019

2018

Current
US$’000

Non-current
US$’000

Total
US$’000

Current
US$’000

Non-current
US$’000

Total
US$’000

1,303
1,345

2,648

17,255
(447)

16,808
1,962

18,770

1,587
11,522

34,527

–
–

–

–
–

–
1,180

1,180

68
3,496

4,744

1,303
1,345

2,648

17,255
(447)

16,808
3,142

19,950

1,655
15,018

39,271

–
794

794

21,152
(3,651)

17,501
1,403

18,904

1,404
9,305

30,407

–
–

–

–
–

–
1,756

1,756

–
3,329

5,085

–
794

794

21,152
(3,651)

17,501
3,159

20,660

1,404
12,634

35,492

Trade receivables are amounts due from customers for sales of crude oil and natural gas in the ordinary course of business. Trade
receivables are non-interest bearing and generally have 30-day terms and are therefore all classified as current. Due to their short
maturities, the book value of trade receivables approximates fair value. Taxation, prepayments and other receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. If collection of amounts is expected in one
year or less they are classified as current assets.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
100

19. Trade and other receivables continued
The lifetime expected credit loss rate of the group’s trade receivables was assessed based on the payment profiles of sales over
a period of 36 months before 31 December 2019 and 1 January 2019 respectively and the corresponding historical credit losses
experienced within this period. No material adjusting macroeconomic factors were identified for either assessment period. The
actual credit loss over 2019 was determined to be 0.4% of total sales (2018: 0.3% of total sales), which is immaterial to the group
financial statements. No loss allowance has therefore been recognised in either period presented.

Other receivables are determined to be low credit risk and no loss allowance has been recorded against this balance in the period.

Contingent consideration
Contingent consideration was recognised on the sale of AEA S.A. in November 2018. Contingent consideration represents the fair
value attributed to restricted cash held in escrow in respect of the licence guarantees in Colombia and held in favour of the ANH.
The fair value of the restricted cash assumed at the sale date was US$1.7 million.

At 31 December 2018, the funds held in escrow in respect of the Colombian licences were held in two bank accounts, one maintained
by AEA S.A. and one by the company. The element of contingent consideration related to the account maintained by AEA S.A. was
recognised in other receivables at 31 December 2018, with the element related to the account maintained by the company held in
restricted cash.

During the period, the funds in escrow held in the bank account maintained by the company were transferred to the bank account
maintained by AEA S.A., allowing the company to pass full title of the escrow funds to AEA S.A. and ultimately OES. As a result, the
full contingent consideration balance is now presented in other receivables at the balance sheet date. Refer to note 15.2 for further
details on the sale transaction.

20. Cash and cash equivalents

Cash at bank and in hand
Short-term investments
Restricted cash

Total cash and cash equivalents

2019
US$’000

2018
US$’000

8,832
2,170
–

11,002

16,497
796
3,792

21,085

Short-term investments
Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and
are repayable with 24 hours’ notice with no loss of interest.

Restricted cash
Restricted cash held in 2018 comprised the fair value of the cash held in escrow in respect of the licence guarantees in Colombia
held in favour of the ANH. Release of the restricted cash is subject to OES fulfilling work commitments under the licences.
The company is entitled to receive 25% of any amounts released from restricted cash as OES fulfils these commitments.

At the sale date, the company completed a fair value assessment and recognised its share of expected receipts based on details
received from OES regarding work to be performed. A payable was also recorded related to the element owed to OES should the
commitments be fulfilled. Any restricted funds released from this account would initially be received by the company and then
be allocated 75% to OES with the remaining 25% retained by the company.

During the period, the funds in escrow held in the bank account maintained by the company were transferred to a bank account
maintained by AEA S.A., allowing the company to pass full title of the escrow funds to AEA S.A. and ultimately OES. As a result,
no restricted funds were held by the company at the balance sheet date. The fair value of the expected future receipts of these
restricted funds has been reclassified as contingent consideration at 31 December 2019. Refer to note 15.2 for further details on
the sale transaction.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued
101

21. Trade and other payables

Trade payables
Accrued staff costs
Social security and other taxes
Royalties
Lease obligations
Accrued expenses
Other payables

Total trade and other payables

2019

2018

Current
US$’000

Non-current
US$’000

Total
US$’000

Current
US$’000

Non-current
US$’000

Total
US$’000

16,869
3,271
2,922
1,172
1,281
9,901
4,030

39,446

–
–
1,278
–
4,092
–
–

5,370

16,869
3,271
4,200
1,172
5,373
9,901
4,030

44,816

20,720
4,356
3,579
1,390
–
15,257
6,108

51,410

–
–
3,256
–
–
–
–

3,256

20,720
4,356
6,835
1,390
–
15,257
6,108

54,666

Trade payables are unsecured and are usually paid within 30 days of recognition.

The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature.

Social security and other taxes include amounts related to tax plans agreed with the AFIP, the Argentine federal tax authority.

Under tax plan arrangements, taxes due are paid in instalments with interest charged on the outstanding principal. The group
historically participated in tax plans on a selective basis and where the level of currency depreciation and the interest rate on
outstanding amounts resulted in an acceptable finance cost. Obligations falling due from tax plans within the next 12 months
have been presented within current liabilities at 31 December 2019, with the remaining obligations presented as non-current.

22. Borrowings

Secured
Bank loans

Total secured borrowings

Unsecured
Bank loans
Loans from related parties
Other loans

Total unsecured borrowings

Total borrowings

2019

2018

Current
US$’000

Non-current
US$’000

Total
US$’000

Current
US$’000

Non-current
US$’000

Total
US$’000

10,055

–

10,055

17,523

–

17,523

–
146,782
28

–
146,751
–

–
293,533
28

146,810

146,751

293,561

156,865

146,751

303,616

709
46,090
43

46,842

64,365

–
135,919
–

709
182,009
43

135,919

182,761

135,919

200,284

Secured liabilities and assets pledged as security
Secured liabilities relate to US Dollar denominated loans at a fixed interest rate of 8.0% (2018: interest rate range from 6.2%
to 8.25%). At 31 December 2019 the group held no material Argentine Peso denominated loans (2018: US$nil).

Loans from related parties
The related party loan at 31 December 2019 relates to a convertible rolling credit facility (‘RCF’) provided to the group by Mercuria
Energy Netherlands B.V., a subsidiary of the Mercuria Energy Group Limited (‘Mercuria’).

In February 2018, US$100.0 million of the original Mercuria facility was converted to equity of the company at a price of £0.37
per share. At the same time the facility was restructured as a new convertible RCF in the amount of US$160.0 million with an
additional US$100.0 million of new funds made available to the company.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report

102

22. Borrowings continued
Loans from related parties continued
In May 2019, the amended convertible RCF was further extended to add a Facility C commitment of US$40 million. Facility C was
extended in November 2019 by an additional US$10.0 million.

At 31 December 2019, a total facility of US$285.0 million was available to the company, with a total of US$278.0 million drawn
down under the facility. All funds drawn down under the amended convertible RCF facility bear interest at three-month LIBOR+4%
and are repayable by 31 December 2021.

Mercuria Group has the right to convert all or part of the outstanding principal of Facility A into additional new ordinary shares
of the company at a price of £0.45 per share. This conversion right can be exercised at any time from 30 June 2018 until 10 business
days prior to the maturity of Facility A. A similar conversion feature exists in relation to Facility B at a price of £0.28 per share
exercisable from 30 June 2019 until 10 business days prior to the maturity date and in relation to Facility C at a price of £0.23 per
share exercisable from 30 June 2020 until 10 business days prior to the maturity date.

The amended convertible RCF provides for a grace period (interest and principal) from 1 January 2019 to 29 February 2020 and the
loan will be amortised in equal quarterly repayment instalments from 31 March 2020 until maturity. The rights to convert Facility
B and Facility C are subject to appropriate shareholder resolutions, in relation to the authority to allot and disapplication of pre-
emption rights in relation to such shares, having been approved.

Refer to note 33 for changes since the year end.

Fair value
The fair values of the majority of the borrowings held by the group are not materially different to their carrying amounts, since
the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature.
Differences identified between the fair values and carrying amounts of borrowings are as follows:

Bank loans
Other loans
Loans from related parties

2019

2018

Carrying
amount
US$’000

10,055
28
293,533

Fair value
US$’000

10,018
28
288,668

Carrying
amount
US$’000

18,232
43
182,009

Fair value
US$’000

17,924
43
182,009

303,616

298,714

200,284

199,976

The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified
as Level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.

23. Changes in liabilities arising from financing activities

31 December
2018
US$’000

Cash flows
US$’000

Interest
paid
US$’000

Movements
from
non-current
to current
US$’000

Interest
charge
US$’000

Capitalised
interest
US$’000

Foreign
exchange
US$’000

31 December
2019
US$’000

Non-cash changes

64,365

(8,000)

(1,299)

100,692

854

265

(12)

156,865

135,919

96,000

(249)

(100,692)

15,773

–

– 146,751

200,284

88,000

(1,548)

–

16,627

265

(12)

303,616

Current liabilities
Borrowings
Non-current liabilities
Borrowings

Total borrowings

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued

103

24. Financial risk management
The group’s exposure to financial risks and how those risks could affect the group’s future financial performance is
summarised below.

Risk

Exposure arising from

Measurement

Management

Market risk –
foreign exchange

Future commercial
transactions

Cash flow forecasting
and budgeting

Financial assets and liabilities
recognised in the balance sheet
that are not denominated in US
Dollars

Sensitivity analysis

Market risk –
commodity prices

Future revenue transactions

Cash flow forecasting
and budgeting

Market risk –
interest rate

Long-term borrowings held
at variable rates

Sensitivity analysis

Credit risk

Cash and cash equivalents
and trade receivables

Aging analysis

Credit checks
and credit ratings

Liquidity risk

Borrowings and other liabilities Rolling cash flow forecasts

The majority of the group’s cash is
held in US Dollars. The group draws
progressively on available facilities as
cash is needed to fund development.

Due to the influence of the US Dollar
on the companies within the group, the
US Dollar has been determined to be
thefunctional currency of the operating
subsidiaries and the parent. This
determination also reduces the exposure
to foreign exchange gains and losses.

The group considers the use of hedging
instruments and enters into hedge
arrangements where appropriate in
order to protect downside price exposure
and, particularly, to support budgeted
capex requirements.

The group has an active treasury
management function and places excess
cash on hand on overnight or term deposit.

The group actively monitors outstanding
receivables. Where a customer shows risk
of default then no credit is extended and
all sales are made on a prepaid basis.

The group maintains an active treasury
management function.

Market risk – foreign exchange risk and commodity price risk
The group’s operations are solely focused on Argentina and wholly relate to the exploration for and the development and production
of oil and gas reserves. The foreign currency that has the most influence on the financial performance of the group is the Argentine
Peso (or ‘Peso’). The group is exposed to quoted prices for oil and gas which are both traded commodities, the prices of which can
also significantly influence financial performance.

Argentina has historically been subject to exchange and commodity controls that have prevented effective currency and commodity
price management.

Historic exchange controls were lifted in December 2015; however, following significant devaluation of the Peso during 2019 the
government re-introduced some exchange controls in H2 2019. The main impact on the group has been the 30% transaction tax
that was levied on foreign currency transactions, including payments made overseas. The group has been able to manage this risk
through accounts payable management, ensuring that payments made against US Dollar denominated contracts are transacted
by the UK listed entity.

Overall, although the group is exposed to the Peso the foreign exchange risk is determined to be low. Despite being priced by
reference to the US Dollar, oil sales invoices are physically settled in Pesos. Therefore, the company typically generates enough Pesos
from oil sales contracts to enable it to settle all its operating costs in Argentina and to contribute toward the cost of capex activity.

The group did not use derivative financial instruments to manage currency risk in the year ended 31 December 2019 or in the prior year.

Commodity price controls were progressively reduced in 2017 until the domestic price for crude floated in line with international Brent
prices from October 2017. In May 2018 however, the government imposed capped prices for domestic crude for May, June and July
2018 deliveries. The re-introduction of price caps was in response to the increase in the Brent crude benchmark and the consequential
pressure on Argentine refined product pricing that is linked to Brent. Capped pricing was removed in August 2018, following which an
export retention tax was implemented in September 2018, which has equated to an approximate downward impact of 10% on crude
prices throughout 2019.

During 2019 Brent crude prices continued to rise, averaging US$66.1/bbl in H1 2019 and US$62.6/bbl in H2 2019. The continued
upward pressure on prices combined with the devaluation of the Peso resulted in the Argentinian government further intervening in
H2 2019, issuing a number of decrees that fixed the Brent reference price for sales at US$59.0/bbl and the Dollar to Peso exchange
rate at 45.2 rising to 51.2 in three dated stages. The existence of these commodity price controls in Argentina reduces the group’s
ability to manage commodity price risk effectively.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report104

24. Financial risk management continued
Market risk – foreign exchange risk and commodity price risk continued
In January 2018, the company entered into a swap agreement over a fixed amount of 2018 production to support planned
capital expenditure which expired in December 2018. The increase in the Brent price from March 2018 combined with the price
cap introduced in Argentina in May 2018 however caused the swap to become less effective, as it meant that cash losses on the
swap agreement were not compensated by increased realisations in Argentina as Brent rose above the US$65.97/bbl swap price.
As a result, the company recognised a net cash loss in respect of barrels subject to the agreement in 2018 of US$7.6 million.

The continued existence of government intervention in crude pricing in 2019 has meant that the relationship between realised prices
and the Brent crude benchmark has remained imperfect, and as such the design of effective hedge protection against commodity
risk is difficult. The group therefore did not take out any derivative commodity contracts during the period.

The group is primarily exposed to foreign exchange risk related to bank deposits, debtors or creditors that are denominated in
Argentine Pesos or Pounds Sterling. The group’s exposure to foreign exchange risk at the end of the reporting period, expressed
in US Dollars, was as follows:

US$’000

Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings

Denominated in:

£GBP

1,535
17
(1,294)
–

AR$

32,774
5,044
(22,714)
(28)

258

15,076

Sensitivity – exchange rates
As shown in the table above, the group is primarily exposed to changes in the US$/AR$ exchange rate. The sensitivity of profit
and loss to changes in the exchange rates arises mainly from AR$ denominated financial instruments. There is no impact on other
components of equity as the group is not party to any derivative financial instruments, such as hedging instruments, where currency
gains and losses would be recognised in other comprehensive income (2018: none).

US$/AR$ exchange rate increase by 10%1
US$/AR$ exchange rate decrease by 10%1

1 Assumes all other variables held constant

Impact on post-tax
profit and loss

Impact on other
components of equity

2019
US$’000

2018
US$’000

2019
US$’000

2018
US$’000

1,508
(1,508)

(547)
547

–
–

Sensitivity – commodity prices
The impact of an increase or decrease in commodity prices on the group’s oil and gas revenues is as follows:

Increase by 10%1
Decrease by 10%1

1 Assumes all other variables held constant

Impact on revenue
– crude oil prices

Impact on revenue
– natural gas prices

2019
US$’000

11,465
(11,465)

2018
US$’000

15,448
(15,448)

2019
US$’000

2018
US$’000

1,477
(1,477)

2,250
(2,250)

Market risk – interest rate risk
The group’s main interest rate risk arises from long-term borrowings with fixed or semi fixed interest rates that expose the group
to fair value risk on the underlying borrowing instrument. The material portion of the group’s borrowings are in US Dollar.

Argentina has historically been subject to high levels of currency devaluation as well as high inflation. The group therefore maintains
the majority of its borrowings in US Dollar and only translates borrowings into Argentine Peso when the group has an operating
cash need for this currency. This allows the group to manage its exposure to the combination of inflation, currency devaluation and
interest rate risk.

The group does not currently use swap instruments or other derivatives to manage its interest rate or fair value risk exposure.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued105

24. Financial risk management continued
Market risk – cash flow and fair value interest rate risk continued
The exposure of the group’s borrowings to interest rate changes is as follows:

Variable rate borrowings

2019
US$’000

293,502

% of
total loans
US$’000

2018
US$’000

% of
total loans
US$’000

182,000

Sensitivity – interest rate risk
Profit or loss is sensitive to higher/lower interest income from cash and cash equivalents or higher/lower interest expense on
borrowings resulting from movements in the interest rate. The following table demonstrates the sensitivity of the group’s financial
instruments to reasonably possible movements in interest rates:

Interest rate increase by 100 basis points1
Interest rate decrease by 100 basis points1

1 Assumes all other variables held constant

Impact on post-tax
profit and loss

Impact on other
components of equity

2019
US$’000

2018
US$’000

2019
US$’000

2018
US$’000

1,689
(1,689)

2,003
(2,003)

–
–

Credit risk
Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions. The group is also exposed to credit
risk related to its customers and outstanding receivables with them.

Credit risk on cash and cash equivalents is managed by only maintaining bank accounts or placing funds on deposit with recognised,
reputable financial institutions. The group aims to only place funds on deposit with institutions with a minimum credit rating of
B2 (Moody’s). At 31 December 2019, US$5.0 million was held on deposit with institutions with a credit rating of Caa1 or Caa2.
These deposits relate solely to amounts held on deposit with financial institutions in Argentina. During 2019 the Argentine economy
experienced high volatility, with significant devaluation of the Peso and full-year price inflation exceeding 50%. Due to continued
market uncertainty in H2 2019 the Moody’s Argentine bond credit rating was downgraded to Caa2. This impacted many of the
domestic financial institutions whose credit ratings were reduced concurrently.

The group continues to monitor this situation and aims to only hold cash deposits in Argentina which are needed to cover operating
costs for a specific month. Monthly cash calls are completed whereby the Argentine entities request US Dollars from the parent
company based on an assessment of expected cash inflows and outflows for that month. This helps the group to manage credit risk.

The group sells substantially all of its oil production to the Argentina state-owned oil company, YPF. At 31 December 2019 YPF had
a credit rating of Caa2 (Moody’s), a downgrade from the credit rating held in 2018 of B2. This downgrade also resulted from the
market volatility in Argentina during 2019 and mirrored the downgrade of the Argentine bond rating. The credit rating of Caa2
would indicate that a credit risk loss should be recorded in respect of sales made to YPF; however, there is no recent history of credit
loss, non-payment or default by YPF in relation to oil and gas sales. The calculated amount of the potential 12-month credit risk loss
is therefore not material and no credit loss was recorded at 31 December 2019.

The group undertakes credit and other checks before accepting new customers. Where there are concerns about creditworthiness
of a counterparty, the group requires that the full amount/substantially all of any sale be paid in full before delivery.

The credit quality of financial assets that are neither past due or impaired can be assessed by reference to external credit ratings
(where available) or to historical information about default rates.

Trade receivables – counterparty without external credit rating1

Group 1
Group 2
Group 3

1 Group 1 – new customers (less than six months)
Group 2 – existing customers (more than six months) with no past default
Group 3 – existing customers with past default. All defaults were fully recovered

2019
US$’000

2018
US$’000

33
3,047
–

3,080

–
2,885
–

2,885

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report106

24. Financial risk management continued
Credit risk continued

Cash at bank and short-term deposits (Moody’s)

Aaa
Aa2
Aa3
A1
Baa1
Baa3
Ba3
B2
Caa1
Caa2
Other

Total cash and cash equivalents

2019
US$’000

2018
US$’000

–
3,540
1,991
369
8
88
–
–
115
4,888
3

11,002

186
–
16,602
43
9
210
1,366
2,666
–
–
3

21,085

Past due but not impaired
At 31 December 2019, trade receivables of US$3.6 million were past due but not impaired (2018: US$1.0 million). The aging analysis
of these trade receivables is as follows:

Up to 3 months
3 to 6 months
Over 6 months

2019
US$’000

2018
US$’000

2,499
411
674

3,584

568
453
17

1,038

Liquidity risk
Liquidity risk relates to the group’s ability to meet its obligations as they fall due. The group generates cash from its operations.
Management monitors investment plans, and in particular, those in relation to exploration expenditure that may not be cash
generative in the short term, against available cash and cash equivalents, forecast cash from operations and maturity dates
of financial liabilities before final sanction and deployment of cash to a project. Undrawn borrowing capacity, where available,
is also taken into account.

The following table shows the group’s financial liabilities by relevant maturity groupings based on contractual maturities.
The amounts included in the analysis are the contractual undiscounted cash flows.

31 December 2019

Trade and other payables
Lease obligations
Borrowings

31 December 2018

Trade and other payables
Borrowings

Less than
1 year
US$’000

Between
1 and 2 years
US$’000

Between
2 and 5 years
US$’000

Over 5 years
US$’000

38,165
1,679
169,017

1,054
1,926
149,867

208,861

152,847

1,318
2,790
–

4,108

–
–
–

–

Less than
1 year
US$’000

Between
1 and 2 years
US$’000

Between
2 and 5 years
US$’000

Over 5 years
US$’000

52,510
75,428

127,938

1,712
75,096

76,808

2,197
70,727

72,924

262
–

262

Total
contracted
cash flows
US$’000

40,537
6,395
318,884

Carrying
amount
US$’000

39,443
5,373
303,616

365,816

348,432

Total
contracted
cash flows
US$’000

56,681
221,251

Carrying
amount
US$’000

54,666
200,284

277,932

254,950

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued

107

25. Leases
The balance sheet includes the following amounts related to leases:

A) Right-of-use asset

US$’000

At 1 January 2019
Additions
Depreciation

At 31 December 2019

Note

Other fixed
assets
US$’000

Assets under
construction
US$’000

869
–
(415)

454

–
5,861
–

5,861

Total
US$’000

869
5,861
(415)

6,315

B) Lease liability

US$’000

At 1 January 2019
New leases
Cash payments of principle and interest
Interest charged

At 31 December 2019

Of which:
Current
Non current

Note

Other fixed
assets
US$’000

Assets under
construction
US$’000

869
–
(449)
62

482

292
190

482

–
5,861
(970)
–

4,891

988
3,903

4,891

Total
US$’000

869
5,861
(1,419)
62

5,373

1,280
4,093

5,373

A corresponding lease liability of US$5.9 million was recognised on commencement of the power generation lease at Puesto Rojas.
Under the lease contract, the company will be liable to make monthly fixed payments over the duration of the lease term. These
payments will commence once the construction of the power generators has been completed, which is expected in Q2 2020.

26. Deferred tax balances
Argentina tax law does not contain the concept of tax groups and therefore deferred tax assets and liabilities cannot be offset
between and among companies registered in Argentina and falling under the control of the same shareholder. Outside of Argentina,
the group does not have sufficient concentration of subsidiaries in a single tax jurisdiction to warrant seeking tax group status to
allow the offset of assets and liabilities.

The corporate income tax rate in Argentina in 2019 was 30% (2018: 30%). In December 2019, tax reforms were implemented by the
incoming Argentine government. Under the new legislation, it was established that the reduced corporate tax rate of 25% would
not be applicable until the year ended 31 December 2022 and forward. An additional tax rate of 7% will be applied to dividends
when the corporate income tax rate is 30%. This additional dividend tax will be increased to 13% when the corporate tax rate is
reduced to 25% in 2022.

Deferred tax assets and liabilities are calculated at the rate of 25% or 30% taking into consideration the expected time of recovery.

Deferred tax assets

Tax losses
Provisions
Others

Total deferred tax assets

2019
US$’000

2018
US$’000

14,468
1,723
7,064

23,255

2,525
3,055
7,151

12,731

Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. The company did not recognise deferred income tax assets of US$6.3 million (2018: US$10.9 million) in
respect of tax losses amounting to US$14.1 million (2018: US$36.3 million) as there is insufficient evidence that the potential assets
will be recovered.

Assessed tax losses amounting to US$14.5 million (2018: US$2.5 million) will expire between 2020 to 2024 (2018: 2020 to 2023).

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
108

26. Deferred tax balances continued
Deferred tax assets continued

Movements

At 1 January 2018
Loss on disposal of assets
Credited/(charged) to profit and loss

At 31 December 2018

Movements

At 1 January 2019
Credited/(charged) to profit and loss

At 31 December 2019

Tax losses
US$’000

Provisions
US$’000

Other
US$’000

Total
US$’000

2,837
(251)
(61)

2,525

8,051
(2,127)
(2,869)

3,055

8,118
(8)
(959)

7,151

19,006
(2,386)
(3,889)

12,731

Tax losses
US$’000

Provisions
US$’000

Other
US$’000

Total
US$’000

2,525
11,943

14,468

3,055
(1,332)

1,723

7,151
(87)

7,064

12,731
10,524

23,255

The timeframe for expected recovery or settlement of deferred tax assets is as follows:

No more than 12 months after the reporting period
More than 12 months after the reporting period

Deferred tax liabilities
The balance comprises temporary differences attributable to:

Property, plant and equipment and intangible assets
Inventories
Inflation adjustments
Others

Total deferred tax liabilities

2019
US$’000

2018
US$’000

8,802
14,453

23,255

7,150
5,581

12,731

2019
US$’000

(84,461)
(1,861)
(6,033)
–

2018
US$’000

(101,310)
(42)
–
(1,751)

(92,355)

(103,103)

Argentine tax law has introduced provisions for inflationary adjustments to be made for tax purposes in the event that the increases
in the 36-month cumulative CPI index for the preceding closing year exceed 100%, considering for the first three periods assessed
a increase in excess of 55% in 2018, 30% in 2019 or 15% in 2020. Where an inflationary adjustment for tax is triggered, the law
requires an adjustment to taxes in the period with one sixth of the calculated value booked to current income taxes in the year and
the remaining five sixths included within deferred tax and recognised through current tax in equal parts in the following five years.

During the period an amount of US$1.5 million (FY18: US$nil) has been included in current taxes, with an additional US$6.0 million
(FY18: US$nil) included within deferred tax liabilities in relation to this adjustment.

Movements

At 1 January 2018
(Charged)/credited to profit and loss
Disposal of assets

At 31 December 2018

Movements

At 1 January 2019
(Charged)/credited to profit and loss
Disposal of assets

At 31 December 2019

Property,
plant and
equipment
and intangible
assets
US$’000

(85,802)
(14,605)
(903)

(101,310)

Property,
plant and
equipment
and intangible
assets
US$’000

(101,310)
4,821
12,028

(84,461)

Inventories
US$’000

Inflation
adjustments
US$’000

(1,108)
1,066
–

(42)

–
–
–

–

Other
US$’000

(2,181)
430
–

Total
US$’000

(89,091)
(13,109)
(903)

(1,751)

(103,103)

Inventories
US$’000

Inflation
adjustments
US$’000

(42)
(1,819)
–

(1,861)

–
(6,033)
–

(6,033)

Other
US$’000

Total
US$’000

(1,751)
1,751
–

(103,103)
(1,280)
12,028

–

(92,355)

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued

109

26. Deferred tax balances continued
Deferred tax liabilities continued
The above presentation of deferred tax assets and liabilities is prepared showing the aggregate of the gross asset and liability
position on a company by company basis.

Deferred tax assets and liabilities presented in the balance sheet reflect the offset of deferred tax assets and liabilities where
permissible. The deferred tax assets and liabilities, after legal offset, are shown in the table below.

Deferred tax assets
Deferred tax liabilities

Net deferred income tax liability

27. Inventories

Current assets

Crude oil
Spare parts and equipment

Total

2019
US$’000

18,534
(87,636)

2018
US$’000

9,001
(99,374)

(69,102)

(90,373)

2019
US$’000

2018
US$’000

1,798
16,404

18,202

1,594
15,685

17,279

The costs of individual items of inventory are determined using weighted average costs. Crude oil inventory is recorded using the
per-barrel weighted average cost of production for the period. Weighted average cost is determined by dividing the total production
costs for the period by the volume of barrels produced in the period.

Inventories recognised as an expense in the period relate to the change in crude inventory period-on-period reflecting the timing
of the actual sale of the crude as opposed to being expensed based on production volumes in the period. For certain fields, inventory
is accumulated in storage pending tanker collection. Depending on the timing of collection, crude produced in one period can be sold
in the following period resulting in inventory at the period end.

28. Provisions and contingent liabilities

Decommissioning and site restoration
Legal claims
Other

Total

2019

2018

Current
US$’000

Non-current
US$’000

Total
US$’000

Current
US$’000

Non-current
US$’000

Total
US$’000

–
120
–

120

11,385
4,199
200

15,784

11,385
4,319
200

15,904

–
1,733
–

1,733

13,382
2,854
–

16,236

13,382
4,587
–

17,969

Decommissioning and site restoration
The group has an obligation to remove its oil and gas production equipment from a field at the end of its useful life. The group
is required to securely plug wells that will no longer be used in order to make them environmentally and physically safe. In addition,
all land must be returned to its natural state at the cessation of production operations. A provision is established representing the
present value of the estimated future cost of this obligation with a corresponding depreciable ‘decommissioning’ asset recorded
in property, plant and equipment.

The key assumptions applied in calculating the decommissioning provision relate to the extent of the physical decommissioning
activity required on a licence-by-licence area, the cost of performing that activity and the timing of when that activity is due to take
place. The estimate of the quantum of the provision is most sensitive to the extent of the activity required, which may change over
time due to legislation. In addition, the estimate of the provision is sensitive to the timing of the decommissioning activity which
is determined by the economically productive life of the related asset.

Provinces may not require remediation of wells prior to the relinquishment of licences. This can occur where the province considers
wells may be of geologic interest to future licence holders or could be remediated in the future. In these circumstances no provision
is made.

Provision for legal claims
Legal claims mainly relate to disputes arising related to payments for services rendered and the nature of the service rendered.
Provisions are recorded for such claims where the company has determined it to be probable that an outflow of resources will be
required to settle to claim, or where it is uncertain whether any action by a third party would be successful. Provisions are assessed
on a case-by-case basis.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report110

28. Provisions and contingent liabilities continued
Movements in provisions
Movements in each class of provisions during the financial year are set out below:

At 1 January 2019
Additional provisions recognised
Unwinding of discount
Amounts used during the year
Disposal of assets
Classified as held for sale at period end

At 31 December 2019

29. Commitments
At 31 December, the group had the following licence commitments:

Operated
Non-operated

Total

Decommissioning
and site
restoration
US$’000

Legal claims
US$’000

Other
US$’000

Total
US$’000

13,382
115
846
–
(2,511)
(447)

11,385

4,587
1,519
–
(1,787)
–
–

4,319

–
200
–
–
–
–

200

17,969
1,834
846
(1,787)
(2,511)
(447)

15,904

2019
US$’000

124,081
7,940

2018
US$’000

96,786
27,283

132,021

124,069

Most licence commitments relate to exploration commitments that are typically required to be satisfied within the exploration
period, which is normally 2–3 years from the date of grant of the licence. The group does not have any significant contingencies.

Classification

Not later than one year
Later than one year and not later than five years

Total

2019
US$’000

2018
US$’000

51,919
80,102

35,392
88,677

132,021

124,069

30. Related party transactions
Significant shareholder
Mercuria Energy Group Limited (‘Mercuria’) is the ultimate majority shareholder of the group. A relationship agreement is in place
between the company and Mercuria Energy Group companies. The relationship agreement has been put in place to protect the rights
of minority shareholders and limits the control that Mercuria Energy Group can exercise over the group, primarily through restricting
the number of Mercuria appointed directors on the board. Mercuria is also prevented from removing directors from the board.
By maintaining a minority of Mercuria appointed directors on the board, those directors cannot carry a majority vote individually
or in concert. The relationship agreement also requires directors nominated by Mercuria to excuse themselves from certain
board decisions.

Transactions with owners
On 22 January 2018, the company entered a swap agreement with Mercuria Energy Trading S.A. in order to fix the price received for
a fixed amount of 2018 production at a price of US$65.97/bbl. The effective term of the agreement commenced on 15 January and
expired on 14 December 2018. The realised hedging loss expensed in 2018 was US$7.6 million. The company was not party to any
derivative instruments at 31 December 2018. No derivative instruments were entered into during 2019.

On 27 June 2018, the group issued 7,156,625 new ordinary shares to Mercuria in the form of a share-based payment. The payment
was triggered by a clause in the SPA held between the group and Upstream Capital Partners VI Limited dated 24 July 2017, which
entitled Mercuria to receive 3.06147 ordinary shares for each ordinary share issued to Integra Capital S.A. under the Transaction Fee
Services Agreement (‘TFSA’) dated 24 July 2017. It was agreed, however, for this transaction, for no consideration, that Mercuria
would reduce its entitlement to one ordinary share for each ordinary share issued to Integra. This resulted in a share-based payment
charge of US$5.5 million being recognised in the income statement in 2018. Refer to note 10 for further details.

Subsidiaries
Interests in subsidiaries are set out in note 4 to the company financial statements.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continued111

30. Related party transactions continued
Loan from Mercuria Group
The loan from Mercuria Group at 31 December 2019 relates to a convertible rolling credit facility (‘RCF’) provided to the group
by Mercuria Energy Netherlands B.V., a subsidiary of the Mercuria Group.

As part of the business combination in 2017, Mercuria Energy Trading S.A. advanced a bridging and working capital facility
to the group for the amount of US$160.0 million. Mercuria Energy Trading S.A. is a 100% owned subsidiary of Mercuria.

In February 2018, US$100.0 million of the original Mercuria facility was converted to equity in the company at a price of £0.37
per share. At the same time, the facility was restructured as a new convertible RCF in the amount of US$160.0 million with an
additional US$100.0 million of new funds made available to the company to support the 2018 capital expenditure programme.

In December 2018, Mercuria advanced an additional US$25.0 million as a Facility B element to the RCF. In February 2019,
a further US$50.0 million was made available under this Facility B element to support the 2019 capital expenditure programme
and Mata Mora development. In May 2019, the amended convertible RCF was further extended to add a Facility C commitment
of US$40.0 million. Facility C was extended in November 2019 by an additional US$10.0 million.

All funds drawn down under the amended convertible RCF facility bear interest at three-month LIBOR+4% and are repayable
by 31 December 2021. Refer to note 22 for further details.

Analysis of amounts advanced and interest paid are shown in the table below:

Loan from Mercuria Group

Beginning of the year
Loans advanced
Debt conversion
Interest charged
Interest paid

At 31 December

31. Loss per share

Basic and diluted loss per share

From continuing operations attributable to the ordinary equity holders of the company

Total basic loss per share attributable to the ordinary equity holders of the company

Basic and diluted loss per share

Loss attributable to the ordinary equity holders of the company used in calculating basic earnings
per share:
From continuing operations

Weighted average number of shares used as the denominator
Number of shares

Adjustments for calculation of diluted earnings per share:
At 1 January
At 31 December
Potential dilutive ordinary shares

2019
US$’000

182,009
96,000
–
15,773
(249)

2018
US$’000

162,561
116,210
(100,000)
10,261
(7,023)

293,533

182,009

2019
US$

(0.04)

2018
US$

(0.03)

2019
US$’000

2018
US$’000

(113,810)

(78,313)

(113,810)

(78,313)

2019

2018

2,786,645
2,785,024
3,989

2,537,178
2,786,645
3,325

Weighted average number of shares used as the denominator in calculating diluted earnings per share

2,785,791

2,730,364

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report112

32. Cash (used in)/generated from operations

Loss for the year before taxation

Finance costs
Finance income
Accretion of discount on asset retirement obligation
Accretion of discount on lease obligation
Net unrealised exchange gains
Exploration cost written off
Impairment charge
Loss of disposal of non-current assets
Loss on termination of licences
Share-based payments
Depreciation and amortisation

Change in operating assets and liabilities:
(Increase) in inventories
(Increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease) in provisions

Cash (used in)/generated from operations

2019
US$’000

2018
US$’000

(134,821)

(61,516)

19,361
(824)
846
62
3,862
3,856
7,557
28,971
20,196
893
66,057

12,055
(711)
860
–
8,662
8,609
–
1,125
–
5,990
64,726

(1,233)
(22,745)
(8,165)
(153)

(2,904)
(15,418)
9
(473)

(16,280)

21,014

33. Post balance sheet events
Convertible revolving credit facility extension
On 9 March 2020, Facility C of the existing convertible revolving credit facility (‘RCF’) held with Mercuria was increased by
US$6.0 million to US$291.0 million. The terms of this additional facility will be consistent with those of Facility C, bearing interest
at a rate of LIBOR+4% and repayable on 31 December 2021. Refer to note 22 for additional details on the company’s borrowings.

On 31 March 2020, the company announced that due to the unprecedented market conditions being caused by the current
COVID-19 crisis it has reduced its capital expenditure programs for 2020 and is also exploring other cost saving initiatives. As part
of these initiatives the company has entered discussions with Mercuria to restructure the existing convertible RCF facility. Whilst
these discussions are ongoing, Mercuria has agreed to amend certain terms of the RCF agreement, including extending the interest
grace period and first repayment date.

On 15 May 2020, the company announced that it had reached agreement with Mercuria to extend the interest grace period and
delay the first repayment date under the RCF agreement to 15 July 2020.

Capex programs and cost saving initiatives
The company is currently faced with several challenges. On a macro level it faces economic uncertainty in Argentina following
a change of government in December 2019 and the recent technical default on Argentina’s sovereign debt. This political and
economic uncertainty has been compounded by the impact of COVID-19 and the consequent governmental response that has
led to a significant reduction in demand for fuel resulting in a collapse of oil prices in the first half of 2020.

Given this, the board has taken steps to develop operating plans that conserve or minimise the use of cash by reducing capital
expenditure programs and other operating and administrative costs.

Due to significant reduction in demand for oil, the company has shut-in production of crude oil from its operated licences at Puesto
Rojas, Atamisqui and Tupungato. In addition, the company has developed a plan that involves a significant reduction in operating
and administrative costs. The company has completed the restructure of its US$10.0 million local Argentine debt, restructured its
London and Houston offices, reduced the size of the board of directors. In addition, substantially all open capex programmes have
been closed and salary reductions of between 30% to 40% have been implemented for all staff.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the consolidated financial statements continuedCompany statement of financial position
At 31 December 2019

Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Other receivables

Total non-current assets

Current assets
Cash and cash equivalents
Equity investments
Trade and other receivables

Total current assets

Total assets

Non-current liabilities
Trade and other payables
Borrowings

Total non-current liabilities

Current liabilities
Trade and other payables
Income tax liability
Borrowings
Provisions

Total current liabilities

Total liabilities

Net assets

Equity
Share capital and share premium
Other reserves
Retained (deficit)/earnings

Total equity

113

Note

2019
US$’000

2018
US$’000

5
6
4
8

9
7
8

204
21,380
894,759
132,772

194
21,380
1,063,900
1,546

1,049,115

1,087,020

3,539
1,303
31,056

35,898

16,601
108
55,798

72,507

1,085,013

1,159,527

10
11

17,854
146,751

17,965
135,919

164,605

153,884

11
17

5,533
600
146,782
1,060

153,975

7,328
600
46,090
1,060

55,078

318,580

208,962

766,433

950,565

456,734
329,155
(19,456)

457,198
329,155
164,212

766,433

950,565

The company made a loss for the year of US$184.5 million (2018: US$74.7 million).

The above company statement of financial position should be read in conjunction with the accompanying notes.

The financial statements on pages 113-129 were approved by the board of directors and authorised for issue on 26 June 2020 and
were signed on its behalf by:

Sir Michael Rake
Director

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report

114

Company statement of changes in equity
For the year ended 31 December 2019

Capital and reserves

At 1 January 2018

IFRS 9 transition adjustment
Loss for the year
Translation differences

Total comprehensive loss for the year

Issue of ordinary shares
Distribution of IOX shares
Debt to equity conversion
Fair value of share-based payments
Fair value of warrants
Consolidation of the Colombia branch

At 31 December 2018

Loss for the year

Total comprehensive loss for the year

Purchase of own shares
Issue of employee share options
Cash settlement of employee share
options
Fair value of share-based payments
Fair value of warrants

Called up
share capital
US$’000

329,877

–
–
–

–

7,271
–
27,027
–
–
–

364,175

–

–
–
–

–
–

Share
premium
US$’000

Treasury
shares
US$’000

Retained
earnings
US$’000

Other
reserves
US$’000

Total equity
US$’000

–

–
–
–

–

20,050
–
72,973
–
–
–

93,023

–

–
–
–

–
–

–

–
–
–

–

–
–
–
–
–
–

–

(572)
108
–

–
–

239,013

325,566

894,456

(3,270)
(71,464)
–

(74,734)

–
(606)
–
305
234
–

–
–
(18)

(18)

4,510
–
–
–
–
(903)

(3,270)
(71,464)
(18)

(74,752)

31,831
(606)
100,000
305
234
(903)

164,212

329,155

950,565

(184,489)

–
(126)
(154)

971
130

–

–
–
–

–
–

(184,489)

(572)
(18)
(154)

971
130

At 31 December 2019

364,175

93,023

(464)

(19,456)

329,155

766,433

Other reserves

At 1 January 2018

Translation differences
Issue of ordinary shares
Consolidation of the Colombia branch

At 31 December 2018

At 31 December 2019

Merger
reserve
US$’000

323,435

–
4,510
(903)

327,042

Warrant
reserve
US$’000

2,105

–
–
–

2,105

Translation
reserve
US$’000

Deferred
consideration
US$’000

(18)
–
–

–

–
–
–

–

Total other
reserves
US$’000

325,566

(18)
4,510
(903)

329,155

The above statement of changes in the company’s equity should be read in conjunction with the accompanying notes.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Company statement of cash flows
For the year ended 31 December 2019

Cash flows from operating activities
Cash used in operations

Net cash used in operating activities

Cash flows from investing activities
Payments for intangible assets
Payments for property, plant and equipment
Sale of fixed assets

Net cash outflow from investing activities

Cash flows from financing activities
Proceeds from issues of shares and other equity instruments
Proceeds from borrowings
Interest paid
Interest received
Principle lease payments

Net cash inflow from financing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rates on cash and cash equivalents

Cash and cash equivalents at end of year

115

Note

2019
US$’000

2018
US$’000

(108,595)

(103,438)

(108,595)

(103,438)

–
–
–

–

(7,000)
(45)
180

(6,865)

–
96,000
(368)
67
(127)

4,925
116,210
(7,023)
224
–

95,572

114,336

(13,023)
16,601
(39)

3,539

4,033
12,570
(2)

16,601

The above statement of cash flows for the company should be read in conjunction with the accompanying notes.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report

116

Notes to the company financial statements

1. Basis of preparation
The financial statements have been prepared in accordance with IFRS as adopted by the European Union.

The company applies consistent accounting policies to those applied by the group. To the extent that an accounting policy is relevant
to both group and company financial statements, refer to the group financial statements for disclosure of the accounting policy.
Material policies that apply to the company only are included in these financial statements as appropriate.

The company has used the exemption granted under section 408 of the Companies Act 2006 and accordingly has not presented its income
statement. The loss attributable to the company for the year ended 31 December 2019 was US$184.5 million (2018: US$74.7 million loss).

Going concern
The group principally generates cash from its existing conventional oil and gas production operations. Nevertheless, it was formed with the
stated intention of undertaking a significant exploration, evaluation and development programme focused on the group’s unconventional
oil and gas assets in Argentina, including the Vaca Muerta formation. To date, the funding required to support the activities of the group
has been provided by Mercuria Energy Group.

The company is currently faced with several challenges. On a macro level it faces economic uncertainty in Argentina following a change
of government in December 2019 and as a result of the continuing negotiations by the government to restructure the country’s debt.
This political and economic uncertainty has been compounded by the impact of COVID-19 and the global collapse in demand for oil
that caused oil prices to collapse in the first half of 2020.

As a result of the fall in the demand for oil and the collapse in oil prices, the company has shut-in production of crude oil from its operated
licences. The company has developed and is progressively implementing a plan that involves a significant reduction in both operating
and administrative costs. The cost reduction actions being taken mean the company will be in a significantly better position to produce
oil economically at lower oil prices and with a positive contribution to cash flow when production recommences. The company will then
focus on the continued development of its unconventional assets.

Our major shareholder, Mercuria, is supportive of the cost reduction plan and has extended short-term debt facilities to facilitate
its implementation and execution. Mercuria has written to the company stating its intention to continue to provide financial
support to the company of up to $37 million in order that the company may continue to operate and service the company’s liabilities
as they fall due in the next 12 months whilst the company assesses the timing of work plans and capital commitments. Mercuria has
agreed to meet the company’s cash needs for this period and not demand repayment of the existing loan within the next 12 months
whilst in discussion with the company to restructure the existing loan agreement. This letter, which by its nature is not legally binding,
represents a letter of comfort stating Mercuria’s current intention to continue to provide support.

The directors believe they will be able to agree the restructure of the existing debt with Mercuria and formalise an agreement for
new funding and that the group and company can continue as a going concern for the foreseeable future. The application of the
going concern basis of preparation of the financial statements included in this annual report is based on the letter that has been
received from Mercuria and the ongoing discussions with the Mercuria principals and accordingly, the directors continue to adopt
the going concern basis for accounting in preparing the 2019 financial statements. However, the directors recognise that if financial
support over the next 12 months from Mercuria were not to be available and the company is unable to restructure the existing
loan agreement from Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may
cast significant doubt on the group’s and company’s ability to continue as a going concern.

The financial statements do not include any adjustments that would be required if the group and company were unable to continue
as a going concern.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019117

2. Critical accounting estimates and judgements
Critical judgements
Determination of functional currency
The determination of a company’s functional currency can require significant judgement. Functional currency is defined as the
currency of the primary economic environment in which the company operates, assessed on an entity-by-entity basis. In this regard
the default assumption is that a company’s functional currency will be that in which it is registered or that where the majority
of its operations are located.

The company receives the majority of its funding from Mercuria Energy Netherlands B.V., a subsidiary of Mercuria Energy Group
Limited (‘Mercuria’) through a US Dollar denominated convertible rolling credit facility (‘RCF’).

As part of the combination transaction in 2017, the company entered a US$160.0 million bridging and working capital facility
agreement with Mercuria. In February 2018, this facility was extended by an amount of US$100.0 million following the conversion
of US$100.0 million of the initial principal into equity. At 31 December 2018, an additional US$25.0 million had been advanced to
the company as a Facility B element to the RCF.

During 2019, the RCF was further extended to increase Facility B to a total of US$75.0 million and add a Facility C element
of US$50.0 million. At 31 December 2019, a total facility of US$285.0 million was available to the company, with a total of
US$278.0 million drawn down under the RCF.

The RCF predominately provides capex funding for the group’s exploitation and development activities in Argentina. The company
transfers cash for operations to its subsidiaries in US Dollars.

As a result of the predominance of the US Dollar denominated funding, the functional currency of the company is determined
to be the US Dollar.

Carrying value of investments in subsidiaries
The company assesses its investments in subsidiaries for impairment where an indicator that the investment may be impaired
exists. Indicators may include poorer operating performance than budgeted, a decrease in the volume of oil and gas reserves
booked by operating subsidiaries or a decrease in the company’s market capitalisation at period end.

Impairment evaluation is performed by comparing the carrying value of each investment to its recoverable amount, where the
recoverable amount of an investment is determined as the higher of its fair value less costs to sell and its value in use. Assessment
of the fair value of a subsidiary investment is often based on the expected future net cash flows of the development and production
assets and the exploration and appraisal assets and licences which that subsidiary holds (its CGUs), or on the expected future net
cash flows of the CGUs of the entities in which that subsidiary holds an investment.

The assessment of the expected future net cash flows of the group’s CGUs involve significant judgement and are most sensitive
to the following assumptions:

→ production volumes and estimates of recoverable reserves;

→ quoted commodity benchmark prices and realised sales prices;

→ the level of fixed and/or variable operating costs;

→ estimates of capital expenditure required to develop assets; and

→ discount and inflation rates applied.

At 31 December 2019, the company performed an assessment of its investments to identify if any impairment indicators existed
at the balance sheet date. Refer to note 4 for full details.

Amounts due from subsidiary undertakings
IFRS 9 ‘Financial Instruments’ (‘IFRS 9’) requires the company to assess the carrying value of each of the amounts due from
subsidiary undertakings in accordance with the expected credit losses impairment model.

Under the IFRS 9 model, the company is required to assess both the repayment profile of the subsidiary loan and the credit risk
of the associated subsidiary for each subsidiary loan held at the balance sheet date. Where the loan is determined to be repayable
on demand, or the associated subsidiary is determined to have a high level of credit risk, then the expected credit losses of the
subsidiary loan should be determined. In completing this assessment, if the subsidiary has sufficiently liquid assets to repay the
loan, if demanded at the reporting date, the expected credit loss is determined to be immaterial. However, if the subsidiary cannot
demonstrate the ability to repay the loan, if demanded at the reporting date, the company has calculated an expected credit loss.

This credit loss calculation considers the loss given default of the amount due from subsidiary undertakings, which involves judgement
around how loan amounts would likely be recovered, and over what timeframe they would be recovered. Despite this requirement,
the company does not intend to demand repayment of any amounts due from subsidiary undertakings in the near future.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report118

3. Significant accounting policies
New accounting standards
IFRS 16 became effective for accounting periods that started on or after 1 January 2019 and the company adopted the modified
retrospective approach permitted under the standard from this date. The principal lease agreement that the company participants
in is related to rental of office space in London under a three-year lease agreement. The impact of adopting the new standard was not
material and resulted in a US$0.2 million right-of-use asset being recorded in property, plant and equipment at 1 January 2019, with
a corresponding lease liability recorded in trade and other payables.

Investments in subsidiaries
Investments in unquoted subsidiaries are carried at cost unless an indicator of impairment exists, in which case the recoverable
value of the investment is assessed by reference to the cash flows it is expected to generate or the fair value of the assets it holds
and an impairment loss is recorded as appropriate. Impairment losses are reversed to the extent that the condition giving rise to
the impairment reverses in a subsequent period.

The company has no investments in subsidiaries that are quoted on an active market.

Exploration and appraisal assets
The company follows an accounting policy for exploration and appraisal assets that is based on the successful efforts accounting
method. Expenditure incurred on the acquisition of a licence interest is initially capitalised on a licence-by-licence basis. Costs are
held within intangible assets and are not depreciated until the exploration phase on the licence area is complete or commercial
reserves have been discovered.

Capitalised intangible exploration and evaluation costs are reviewed regularly for indicators of impairment and are tested for
impairment where these indicators exist.

Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective
interest rate method less provision for impairment. The group applies the IFRS 9 simplified approach to measuring expected
credit losses to calculate impairment, which uses a lifetime expected loss allowance based on a 36-month assessment period.
Any resulting impairment loss is recognised immediately in the income statement.

Trade and other receivables are classified as current assets if receipt is due within one year or less. If not, they are presented as
non-current assets.

Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with financial institutions that can be called on demand, together
with other short-term, highly liquid investments with original maturities of three months or less that are readily convertible into
known amounts of cash. Cash equivalents also include restricted amounts pledged as securities for licence commitments. Cash
equivalents are classified as financial assets measured at amortised cost or fair value through profit or loss.

Trade and other payables
Trade and other payables are initially recognised at fair value and are subsequently measured at amortised cost using the effective
interest rate method. Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary
course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less.
If not, they are presented as non-current liabilities.

Accruals are recognised in respect of goods or services delivered but not yet invoiced.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the company financial statements continued4. Investments

Investments

At 1 January
Investment in subsidiaries
Acquisition of subsidiaries
Disposal of subsidiaries
Impairment of investment

At 31 December

119

2019
US$’000

1,063,900
248
–
–
(169,389)

2018
US$’000

973,368
117,147
7,177
(1,518)
(32,274)

894,759

1,063,900

Investment in subsidiaries
On 31 December 2019, the company made a capital contribution in certain of its subsidiary holdings in exchange for forgiveness
of intercompany debt. The total investment made was US$0.2 million (2018: $117.1 million).

Impairment assessment
The company completed an assessment of the carrying value of its subsidiary investments at 31 December 2019. As part of this
assessment the company compared the carrying value of its investments to their determined recoverable value at period end.
Recoverable value was assessed as the fair value less cost to sell (‘FVLCTS’) of the investments. FVLCTS was determined to be
the total value of the 2P NPV10 valuations of the underlying CGUs in which the investment holds an interest, plus the fair value
assigned to the licences held by the investment with prospective unconventional potential, based on their determined acreage
values. 2P NPV10 and acreage value are determined by management to be the minimum value that would be realised for the
associated assets in an open market transaction.

The assessment completed by the company identified that the carrying value of its investment in Trefoil Holdings B.V. and of its
investment in CHPPC Andes S.R.L were in excess of the determined FVLCTS of those subsidiaries at 31 December 2019. The carrying
value of the company’s investment in these subsidiaries was therefore written down to the assessed fair value of the respective
subsidiary at 31 December 2019. This resulted in a US$157.2 million impairment loss being recorded against Trefoil Holdings B.V.
and a US$12.2 million impairment loss being recorded against CHPPC Andes S.R.L at period end.

In 2018, a US$10.8 million impairment loss was recorded against Grecoil y Cia. S.A.U. (‘Grecoil’) as a result of the carrying value
of the company’s investment in Grecoil being written down to its net asset value at period end.

Sale of Andes Energia Argentina S.A.
On 8 November 2018, the company sold its 100% shareholding in Andes Energia Argentina S.A. (‘AEA S.A.’) to Ocean Energy
Services LLC (‘OES’). The purpose of the sale was to allow the company to divest of its 70% interest in eight licences in Colombia.

Acquisition of subsidiaries
In order to facilitate the transaction, prior to the sale date the company acquired from AEN Netherlands Cooperatief U.A. its 7.31%
shareholding in AEA S.A. for consideration of US$0.6 million. This acquisition increased the company’s shareholding in AEA S.A.
to 100%. Immediately following this acquisition, AEA S.A. sold all the investments it held in group subsidiaries to the company
for consideration of US$6.6 million. Subsequent to the sale the net assets of AEA S.A. related entirely to the Colombia licences
and operations.

Fair value assessment
The change in the net assets held by AEA S.A. resulting from the sale of its subsidiary investments to the company triggered an
impairment assessment to be carried out in relation to the carrying value of the company’s investment in AEA S.A. The impairment
assessment resulted in the investment value being written down to its fair value less costs to sell of US$1.5 million causing
an impairment loss of US$21.5 million to be recognised in the 2018 company financial statements.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report120

4. Investments continued
Gain/loss of sale
The sale of AEA S.A. completed on 8 November 2018. The realised gain on sale recognised in the company financial statements was
US$nil. Further details on the sale can be found in note 15.2 in the notes to the group financial statements.

At 31 December 2019, the company had investments in the following subsidiaries. The principal activity of all companies relates to oil
and gas exploration, development and production.

Principal activity

Country of
incorporation

Proportion of
issued shares
controlled by
the Group

PGR Operating LLC
AEN Energy Holdings S.P.C.
AEN Energy Cayman Islands Ltd
Andes Energy LLC
AEN Netherlands Cooperatief U.A.
Trefoil Holdings B.V.
San Enrique Petrolera B.V.
AEN Energy Latina, S.L.
Upstream Latino America S.A.
Trefoil (Switzerland) S.A.
Trefoil Limited
Trefoil GmbH
Petrolera El Trebol S.A.
MSO Andes Energia S.A.U.
Andes Oil S.A.U.
Andes Oil and Gas S.A.U.
Grecoil y Cia. S.A.U.
AEN Energy Mendoza S.A.
AEN Energy Argentina S.A.
Patagonia Oil & Gas S.A.
Andes Hidrocarburos S.A.
Kilwer S.A.
Ketsal S.A.
CHPPC Andes S.R.L
Integra Investment S.A.
Andes Interoil Limited
Andes Energia Limited
Patagonia Oil & Gas Limited
Patagonia Energy Limited

Service company
Dormant
Dormant
Dormant

USA
Cayman Is.
Cayman Is.
USA
Intermediate holding company Netherlands
Intermediate holding company Netherlands
Intermediate holding company Netherlands
Spain
Spain
Switzerland
Bermuda
Austria
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
UK
UK
UK
UK

Dormant
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Oil and gas operations
Intermediate holding company/services
Intermediate holding company
Intermediate holding company
Oil and gas operations
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Oil and gas operations
Oil and gas operations
Oil and gas operations
Intermediate holding company
Intermediate holding company
Dormant
Dormant
Dormant

100%
100%
100%
100%
100%
100%
100%
100%
99.96%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

5. Property, plant and equipment
The property, plant and equipment balance of US$0.2 million (2018: US$0.2million) relates to property leases, leasehold
improvements, fixtures and fittings and office equipment. Depreciation is charged on a straight-line basis at rates that reflect
the expected useful life of each asset category. Rates applied range between 20% and 35% per annum.

An amount of US$0.2 million was capitalised to property, plant and equipment on 1 January 2019 in relation to the right-of-use
asset calculated on the adoption of IFRS 16 in the period. The asset will be depreciated on a straight-line basis over the life of the
underlying lease contracts. Depreciation charged against the right-of-use asset in the period was US$0.1 million.

6. Intangible assets
The intangible assets balance of US$21.4 million (2018: $21.4 million) relates to licence payments for the Mata Mora and Corralera
exploration concessions.

In April 2018, the company renegotiated the joint venture contracts previously held under a memorandum of understanding with
Gas y Petróleo del Neuquén (‘GyP’), the Neuquén province oil and gas company that governed the company’s interest in the Mata
Mora and Corralera exploration concessions. Following the renegotiation, the company’s working interest in the two concessions
increased from 27% to 90% and the company assumed operatorship. As part of the renegotiation Integra Oil & Gas S.A. agreed
to waive any rights to participate in these concessions in return for consideration of US$21.4 million. The consideration was settled
through a cash payment of US$7.0 million and the issue of 25,000,000 new ordinary shares at an issue price of £0.45 per share.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the company financial statements continued7. Equity investments

Current assets

Equity investments

121

2019
US$’000

2018
US$’000

1,303

108

Equity investments are designated at fair value through profit and loss. Any fair value movements in the period are recorded in
other income and expenses within the income statement.

In November 2019, Petrolera El Trebol S.A. (‘PETSA’), a 100% subsidiary of the company, sold its 70% working interest in the Santa
Cruz Sur (‘SCS’) licences to Echo Energy plc (‘Echo’). Consideration received from Echo for the SCS assets was US$8.5 million,
split between cash receipts of US$7.0 million and US$1.5 million settled through the issue of 39,958,443 new ordinary shares in
Echo at a price of 2.9 pence per share. PETSA nominated the company to receive the share issue on its behalf, with a corresponding
subsidiary payable being recorded between the two entities at the sale date.

The fair value of the equity investment held by the company in Echo at 31 December 2019 was US$1.2 million. The investment is
classified as Level 1 in the fair value hierarchy.

8. Trade and other receivables

Contingent consideration

Financial assets held at fair value through P&L

Trade and other receivables
Less provision for impairment:

Loans to subsidiaries

Financial assets at amortised cost
Prepayments to suppliers

Total trade and other receivables

2019

2018

Current
US$’000

Non-current
US$’000

Total
US$’000

Current
US$’000

Non-current
US$’000

Total
US$’000

1,345

53
–

53
28,905

28,958
753

31,056

–

1,180
–

1,180
131,592

132,772
–

1,345

1,233
–

1,233
160,497

161,730
753

132,772

163,828

794

3,925
(2,942)

983
53,695

54,678
326

55,798

–

1,546
–

1,546

794

5,471
(2,942)

2,529
53,695

56,224
326

57,344

Contingent consideration was recognised on the sale of AEA S.A. to OES in November 2018. The contingent proceeds represent
the fair value attributed to restricted cash held in escrow in respect of the licence guarantees in Colombia, put in place in favour
of the Colombian national oil company, the ANH. The fair value of the restricted cash assumed at the sale date was US$1.7 million.

At 31 December 2018, the funds held in escrow in respect of the Colombian licences were held in two bank accounts, one maintained by
AEA S.A. and one by the company. The element of contingent consideration related to the account maintained by AEA S.A. was recognised
in other receivables at 31 December 2018, with the element related to the account maintained by the company held in restricted cash.

During the period, the funds in escrow held in the bank account maintained by the company were transferred to the bank account
maintained by AEA S.A., allowing the company to pass full title of the escrow funds to AEA S.A. and ultimately OES. As a result,
the full contingent consideration balance is presented in other receivables at the balance sheet date. Refer to note 15.2 in the
consolidated financial statements for further details on the sale transaction.

The amounts due from subsidiary undertakings include US$131.5 million (2018: US$34.5 million) that incurs interest at a fixed rate of
7.0% per annum (2018: 7.0%) and is repayable in 2022. An amount of US$24.4 million (2018: US$23.6 million) incurs interest at a fixed
rate of 5.0% per annum (2018: 5.0%). The remaining amounts due from subsidiaries accrue no interest and are repayable on demand.

At 31 December 2019, a provision of US$10.7 million (2018: US$10.7 million) was held in respect of the recoverability of amounts due
from subsidiary undertakings assessed in accordance with IFRS 9.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report

122

9. Cash and cash equivalents

Cash at bank and in hand
Restricted cash

Total cash and cash equivalents

2019
US$’000

2018
US$’000

3,539
–

3,539

12,809
3,792

16,601

Restricted cash held in 2018 comprised the cash held in escrow in relation to the Colombia licence obligations which were sold to
OES. Release of the restricted cash is subject to OES fulfilling work commitments under the licences. The company is entitled to
receive 25% of any amounts released from restricted cash as OES fulfils these commitments.

At the sale date, the company completed a fair value assessment and recognised its share of expected receipts based on details
received from OES regarding work to be performed. A payable was also recorded related to the element owed to OES should the
commitments be fulfilled. Any restricted funds released from this account would initially be received by the company and then be
allocated 75% to OES with the remaining 25% retained by the company.

During the period the funds in escrow held in the bank account maintained by the company were transferred to a bank account maintained
by AEA S.A., allowing the company to pass full title of the escrow funds to AEA S.A. and ultimately OES. As a result, no restricted funds
were held by the company at 31 December 2019. The fair value of the expected receipts of these funds has been reclassified as contingent
consideration in the period. Refer to note 15.2 in the consolidated financial statements for further details on the sale transaction.

10. Trade and other payables

Trade payables
Employee costs, social security and other taxes
Operating lease obligation
Loans from subsidiaries
Other payables

Total trade and other payables

2019

2018

Current
US$’000

Non-current
US$’000

Total
US$’000

Current
US$’000

Non-current
US$’000

Total
US$’000

1,634
386
86
–
3,427

5,533

–
–
–
17,854
–

17,854

1,634
386
86
17,854
3,427

23,387

1,237
899
–
–
5,192

7,328

–
–
–
17,965
–

17,965

1,237
899
–
17,965
5,192

25,293

All balances held within trade and other payables are held at amortised cost.

11. Borrowings

2019

2018

Current
US$’000

Non-current
US$’000

Total
US$’000

Current
US$’000

Non-current
US$’000

Total
US$’000

Loans from related parties

146,782

146,751

293,533

46,090

135,919

182,009

Total borrowings

146,782

146,751

293,533

46,090

135,919

182,009

The loan balance at 31 December 2019 relates to amounts drawn down under the new convertible RCF provided by Mercuria. The
RCF bears interest at a rate of 4% over three-month LIBOR with a maturity date of 31 December 2021. See note 12 for full details.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the company financial statements continued

123

12. Related party balances
Related party balances relate to loans received from the major shareholder and loans advanced to and receivable from subsidiaries.
Amounts outstanding at 31 December include:

Related party loans receivable
Amounts advanced to subsidiaries

Total related party receivables

Related party loans payable
Shareholder loan
Interest accrued on shareholder loan
Amounts payable to subsidiaries

Total related party payables

2019
US$’000

2018
US$’000

160,497

53,695

293,502
31
17,854

182,000
9
17,965

311,387

199,974

The related party loan at 31 December 2019 relates to a convertible RCF provided to the group by Mercuria Energy Netherlands B.V.,
a subsidiary of the Mercuria Energy Group Limited (‘Mercuria’).

In February 2018, US$100.0 million of the original Mercuria facility was converted to equity in the company at a price of £0.37
per share. At the same time the facility was restructured as a new convertible RCF in the amount of US$160.0 million with an
additional US$100.0 million of new funds made available to the company.

In December 2018, Mercuria advanced an additional US$25.0 million as a Facility B element to the RCF. In February 2019, a further
US$50.0 million was made available under this Facility B element of the RCF. In May 2019, the amended convertible RCF was
further extended to add a Facility C commitment of US$40.0 million. Facility C was extended in November 2019 by an additional
US$10.0 million.

At 31 December 2019, a total facility of US$285.0 million was available to the company, with a total of US$278.0 million drawn
down under the facility. All funds drawn down under the amended convertible RCF bear interest at three-month LIBOR+4% and
are repayable by 31 December 2021.

Mercuria Group has the right to convert all or part of the outstanding principal of Facility A into additional new ordinary shares
of the company at a price of £0.45 per share. This conversion right can be exercised at any time from 30 June 2018 until 10 business
days prior to the maturity of Facility A. A similar conversion feature exists in relation to Facility B at a price of £0.28 per share
exercisable from 30 June 2019 until 10 business days prior to the maturity date and in relation to Facility C at a price of £0.23 per
share at any time from 30 June 2020 until 10 business days prior to the maturity date.

The amended convertible RCF provides for a grace period (interest and principal) from 1 January 2019 to 29 February 2020
and the loan will be amortised in equal quarterly repayment instalments from 31 March 2020 until maturity. The rights to convert
Facility B and Facility C are subject to appropriate shareholder resolutions, in relation to the authority to allot and disapplication
of pre-emption rights in relation to such shares, having been approved.

During the year, the company made interest payments to Mercuria in relation to the convertible RCF of US$0.2 million (2018: US$7.0 million).

The amounts advanced to subsidiaries consist of amounts advanced for working capital purposes that have no fixed repayment
dates and no interest burden. The balance also includes three interest bearing loans to subsidiaries. The primary interest bearing
loan relates to a US$85.2 million (2018: US$72.3 million) facility advanced to Petrolera el Trebol that carries an interest rate
of 7.0% and is repayable in 2022.

Transactions with related parties during the period
Hedging contracts
On 22 January 2018, the company entered a swap agreement with Mercuria Energy Trading S.A. in order to fix the price received
for a portion of 2018 production at a price of US$65.97/bbl. The total volume under the contract was 1,215,954 barrels, representing
47% of total 2018 production. The effective term of the agreement commenced on 15 January 2018 and expired on 14 December
2018. The realised hedging loss expensed in 2018 was US$7.6 million. The company was not party to any derivative instruments
at 31 December 2018 or at 31 December 2019. Refer to note 10 in the group financial statements for further details.

Share-based payments
During 2018, the company issued 7,156,625 new ordinary shares to Mercuria in the form of a share-based payment. Refer to note 10
in the group financial statements for further detail.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report124

13. Cash generated from operations

Loss for the year before taxation

Depreciation
Impairment of investments and other non-current assets
Provision for credit losses on intercompany loans
Finance costs
Finance income
Share-based payments
Other non-cash items
(Increase) in trade and other receivable
Decrease in restricted cash
(Decrease)/increase in trade and other payables
Net unrealised exchange gains/(losses)

Cash used in operations

2019
US$’000

2018
US$’000

(184,489)

(74,734)

190
169,389
19
17,728
(7,569)
434
–
(101,522)
–
(3,543)
768

69
32,563
10,680
12,636
(2,585)
5,990
385
(92,889)
4,198
700
(451)

(108,595)

(103,438)

14. Called up share capital
The company’s share capital consists of one class of ordinary share. Each ordinary share carries an equal voting right and right
to a dividend.

Ordinary shares of 10 pence

Allotted, called up and fully paid
Held in treasury

Total ordinary shares of 10 pence

Movements in ordinary shares:

At 1 January
Issue of ordinary shares
Debt to equity conversion

At 31 December

2019

2018

No. ’000

US$’000

No. ‘000

US$’000

2,785,024
1,621

363,711
464

2,786,645
–

364,175
–

2,786,645

364,175

2,786,645

364,175

2019

2018

No. ’000

US$’000

No. ’000

US$’000

2,786,645
–
–

364,175
–
–

2,537,178
55,080
194,387

329,877
7,271
27,027

2,786,645

364,175

2,786,645

364,175

On 16 February 2018, the company issued 194,387,299 ordinary shares with nominal value of £0.10 per share to Mercuria upon
conversion of US$100.0 million of the bridging and working capital facility into equity.

On 6 March 2018, the company received notice from Mercuria to exercise warrants and subscribe for 15,143,833 ordinary shares with
nominal value of £0.10 per share.

On 27 June 2018, the company exercised the option to settle the second instalment of the payment due under the Transaction Fee
Services Agreement (‘TFSA’) dated 24 July 2017, by allotting and issuing 7,156,625 new ordinary shares of nominal value of £0.10 each to
Integra Capital SA (‘Integra’) at a price of £0.58 per share in lieu of cash. The exercise of this option by the company triggered a clause in
the share purchase agreement held between the company and Upstream Capital Partners VI Limited (part of the Mercuria Group) dated
24 July 2017, which entitles Mercuria to receive 3.06147 ordinary shares for each ordinary share issued to Integra under the TFSA. It was
agreed however, for this transaction, that for no consideration Mercuria would reduce its entitlement to one ordinary share for each
ordinary share issued to Integra, with the company, therefore, allotting and issuing 7,156,625 new ordinary shares to Mercuria.

Also on 27 June 2018, the company allotted and issued 86,337 ordinary shares of nominal value of £0.10 each to one of the
company’s directors, in respect of fees accrued pursuant to the terms of his appointment as a non-executive director for the period
up to the completion of the business combination with Trefoil Holdings B.V. A further 535,714 ordinary shares were allotted and
issued to senior management on this date in lieu of bonus payments due on the completion of the business combination with Trefoil.

On 19 September 2018, the company reached an agreement with Integra Oil & Gas S.A. to settle the remaining amount due in
respect of the Mata Mora and Corralera exploration concessions through the issue of 25,000,000 new ordinary shares of nominal
value of £0.10 each. Refer to note 6 for further detail.

Treasury shares
On 26 June 2019, the company purchased 2,000,000 of its own ordinary shares with a nominal value of £0.10 per share in
accordance with the authority to make an off-market purchase of shares granted to it by shareholders of the company at the
annual general meeting held on 25 June 2019. These acquired shares were held in treasury from acquisition.

On 18 July 2019, the company transferred 378,928 of the ordinary shares held in treasury to certain participants in the company’s
deferred bonus plan. At 31 December 2019, the total ordinary shares held in treasury was 1,621,072.

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the company financial statements continued

125

15. Employee benefits
15.1 Staff costs
As permitted by section 408 of the Companies Act 2006, no separate profit and loss account or statement of comprehensive income
is presented in respect of the company. The loss attributable to the company is disclosed in the footnote to the company’s balance sheet.

The auditor’s remuneration for audit and other services is disclosed in note 11 to the consolidated financial statements.

The average monthly number of employees (including executive directors) during the year was four (2018: four).

Staff costs

Wages and salaries
Social security costs
Other benefits
Share-based payments

2019
US$’000

2018
US$’000

1,742
135
62
434

2,373

2,168
296
31
305

2,800

Staff costs incurred include fees paid to seven of the non-executive directors for services provided to the company. Detailed
remuneration disclosures are provided in the annual report on remuneration on pg.s 58-61.

15.2 Share-based payments
The group has a Long Term Incentive Plan (‘LTIP’) for directors and a Deferred Bonus Plan (‘DBP’) for management.

For the year ended 31 December 2019, the total cost recognised by the company for equity-settled share-based payment
transactions is US$0.5 million (2018: US$0.3 million). A credit of US$0.8 million (2018: US$0.3 million) has been recorded
in retained earnings for all equity-settled payments of the company in the period.

Details of the various share incentive plans currently in operation are set out below:

2018 Long Term Incentive Plan
Under the LTIP, directors can be granted nil cost share awards that vest over three years following grant provided the individual
remains in employment. Share awards must be held for two years after vesting. The size of awards under the plan depends on
the calculation of Total Shareholder Return (‘TSR’) over the three-year period from the grant date, which is measured 50% on an
absolute basis and 50% relative to a group of listed industry comparators. There are no other post-grant performance conditions.
No dividends are paid over the vesting period. Refer to the annual report on remuneration on pg.s 58-61.

The following table details the weighted average fair value (‘WA FV’) of awards granted and the assumptions used in the fair value
expense calculations. The weighted average remaining contractual life for LTIP awards outstanding at 31 December 2019 was
1.6 years (2018: 2.6 years). The number of share awards expected to vest was reduced by 10.0 million shares in 2019 following the
resignation of certain directors.

Share awards outstanding at 1 January 2019
Shares forfeited in 2019

Share awards outstanding at 31 December 2019

Key assumptions:
Grant date
Vesting
Risk free rate of interest
PGR TSR Volatility
Comparator TSR Volatility

WA share
price at grant
(pence)

22.69

2018 LTIP

17,124,212
(10,040,528)

7,083,684

22.82

WA FV of
awards
granted
(pence)

7.82

8.93

2018
3 years
0.81%
46.73%
29% – 72%

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report
126

15. Employee benefits continued
15.2 Share-based payments continued
Deferred Bonus Plan
The company has a DBP through which management is eligible to be granted nil exercise price options as part of their annual bonus.
These are exercisable three years following grant. An individual must normally remain in employment for three years from grant for
the shares to vest. Awards are not subject to post-grant performance conditions and no dividends are paid over the vesting period.

During 2019, the company granted 1,772,358 shares under a new DBP. The details of the plans in issue at 31 December 2019 are
presented in the table below.

Share awards outstanding at 1 January 2019
Shares granted during the period
Shares issued during the period
Cash settlement of vested shares awards

Share awards outstanding at 31 December 2019

At 31 December
Price at grant date
Weighted average remaining contractual life

15.3 Warrants
Details of warrants granted are as follows:

August 2013 – August 2020

August 2015 – August 2019

Total

2019

FY18 DBP

FY17 DBP

–
1,772,358
–
–

3,325,406
–

(378,929)
(729,549)

1,772,358

2,216,928

16.67
1.35

18.05
1.00

1 January 2019
No.

10,454,545

13,960,370

24,414,915

Grant
No.

–

Lapsed
No.

31 December
2019
No.

– 10,454,545

– (13,960,370)

–

– (13,960,370) 10,454,545

Exercise
price
pence

40.0

26.0

The weighted average remaining contractual life of the warrants is 0.6 years. None of the warrants described above are accounted
for as share-based payments. The number of warrants that are not treated as share-based payments that were outstanding
during the year, together with their associated weighted average exercise price, are as follows:

At 1 January
Granted
Exercised
Lapsed

Outstanding at 31 December

Exercisable at 31 December

2019

2018

No. (‘000)

WAEP (p)

No. (‘000)

WAEP (p)

24,414,915
–
–

(13,960,370)

10,454,545

32.0 121,241,141
–
–
26.0 (96,826,226)

–
–

24,414,915

45.0
–
–
50.3

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the company financial statements continued
127

15. Employee benefits continued
15.3 Warrants continued
Warrants – share-based payments
Details of warrants that are accounted for as share-based payments are as follows:

June 2012 – June 2019
November 2013 – November 2020

Total

1 January 2019
No.

Grant
No.

Lapsed
No.

31 December
2019
No.

20,281,273
9,090,909

29,372,182

– (20,281,273)
–
–

–
9,090,909

– (20,281,273)

9,090,909

Exercise
price
pence

54.0
40.0

The weighted average remaining contractual life of the warrants that are treated as share-based payments is 0.9 years.
The number of warrants that are treated as share-based payments that were outstanding during the year, together with their
associated WAEP, are as follows:

At 1 January
Granted
Exercised
Lapsed

Outstanding at 31 December

Exercisable at 31 December

2019

2018

No. ‘000

WAEP (p)

No. ‘000

WAEP (p)

29,372,182
–
–

(20,281,273)

9,090,909

49.7 29,372,182
–
–
–

–
–
54.0

29,372,182

49.7
–
–
–

The fair value of the warrants accounted for as share-based payments was calculated using the Black-Scholes model. The estimated
fair value of options accounted for as share-based payments and the model inputs used to calculate those fair values are as follows:

Date of grant

November 2013

Number

2,000,000

Estimated
fair value
pence

Share price
at date of
agreement
pence

Exercise
price
pence

Expected
volatility
%

Expected
life
Years

Risk
free rate
%

Expected
dividends
%

22.50

5.83

1.80

–

Nicolás Mallo Huergo
Senior management
Others
Others

1 January

Grant

Lapsed

31 December

pence Exercise date

606,600
822,280
1,415,400
2,000,000

–
–
–
–

(606,600)
(822,280)
(1,415,400)
–

–
–
–
2,000,000

54.0
54.0
54.0
40.0

2019
2019
2019
2020

Exercise price

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report128

16. Financial risk management
Where equivalent disclosures for the requirements of IFRS 7 ‘Financial Instruments: Disclosures’ and IFRS 13 ‘Fair Value
Measurements’ have been included in the consolidated financial statements of the group, the company has adopted
the disclosure exemptions available to the company’s accounts.

The company’s exposure to financial risks and how those risks could affect the group’s future financial performance is
summarised below.

Risk

Exposure arising from

Measurement

Management

Market risk –
foreign exchange

Future commercial
transactions

Cash flow
forecasting
and budgeting

The majority of the company’s cash is held in US Dollars.
The company draws progressively on available facilities
as cash is needed to fund operating subsidiaries.

Financial assets and
liabilities recognised in
the balance sheet that
are not denominated
in US Dollars

Sensitivity analysis Due to the influence of the US Dollar on the company and the
level of funding obtained in US Dollars, the US Dollar has been
determined to be the functional currency of the company. This
determination also reduces the exposure to foreign exchange
gains and losses.

Market risk –
interest rate

Liquidity risk

Long-term
borrowings held at
variable rates

Sensitivity analysis

The company has a treasury management function and
monitors interest rate movements.

Borrowings and other
liabilities

Rolling cash flow
forecasts

The company maintains an active treasury management
function.

Market risk – cash flow and fair value interest rate risk
The company’s main interest rate risk arises from long-term borrowings with floating interest rates that expose the group to
interest rate risk. The company’s functional currency is the US Dollar and it only holds US Dollar denominated debt, therefore
it is not exposed to exchange rate risk.

The group does not currently use swap instruments or other derivatives to manage its interest rate risk exposure.

The exposure of the group’s borrowings to interest rate changes at the end of the reporting period were as follows:

Variable rate borrowings

Interest rate increase by 100 basis points
Interest rate decrease by 100 basis points

2019
US$’000

293,502

% of
total loans
US$’000

2018
US$’000

% of
total loans
US$’000

100

182,000

100

Impact on post-tax
profit and loss

Impact on other
components of equity

2019
US$’000

2018
US$’000

2019
US$’000

2018
US$’000

2,935
(2,935)

1,820
(1,820)

–
–

Financial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Notes to the company financial statements continued129

17. Provisions

Legal claims
Other provisions

Total

2019

2018

Current
US$’000

Non-current
US$’000

Total
US$’000

Current
US$’000

Non-current
US$’000

1,060
–

1,060

–
–

–

1,060
–

1,060

1,060
–

1,060

–
–

–

As part of the accounting for the business combination in 2017, provisions were established for certain legal contingencies. An amount
of US$1.1 million was provided for in the entity AEA S.A. When AEA S.A. was sold to OES in 2018 by the company, the terms of the SPA
stated that the potential claim would remain the responsibility of PGR plc and consequently, the prior provision held was brought into
the company accounts.

The company does not have any significant commitments or contingencies.

18. Post balance sheet events
Convertible revolving credit facility extension
On 9 March 2020, Facility C of the existing convertible RCF held with Mercuria was increased by US$6.0 million to US$291.0 million.
The terms of this additional facility will be consistent with those of Facility C, bearing interest at a rate of LIBOR+4% and repayable
on 31 December 2021. Refer to note 12 for additional details on the company’s borrowings.

On 31 March 2020, the company announced that due to the unprecedented market conditions being caused by the current COVID-19 crisis
it has reduced its capital expenditure programs for 2020 and is also exploring other cost saving initiatives. As part of these initiatives the
company has entered discussions with Mercuria to restructure the existing convertible RCF facility. Whilst these discussions are ongoing,
Mercuria has agreed to amend certain terms of the RCF agreement, including extending the interest grace period and first repayment date.

On 15 May 2020, the company announced that it had reached agreement with Mercuria to extend the interest grace period and
delay the first repayment date under the RCF agreement to 15 July 2020.

Capex programs and cost saving initiatives
The company is currently faced with several challenges. On a macro level it faces economic uncertainty in Argentina following a change
of government in December 2019 and as a result of the continuing negotiations by the government to restructure the country’s debt.
This political and economic uncertainty has been compounded by the impact of COVID-19 and the global collapse in demand for oil
that caused oil prices to collapse in the first half of 2020.

Given this, the board has taken steps to develop operating plans that conserve or minimise the use of cash by reducing capital
expenditure programs and other operating and administrative costs.

Due to significant reduction in demand for oil, the company has shut-in production of crude oil from its operated licences at Puesto
Rojas, Atamisqui and Tupungato. The company has developed and is progressively implementing a plan that involves a significant
reduction in both operating and administrative costs. The company has completed the restructure of its US$10.0 million local
Argentine debt, restructured its London and Houston offices, reduced the size of the board of directors. In addition, substantially
all open capex programmes have been closed and salary reductions of between 30% to 40% have been implemented for all staff.

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report130

Glossary

Mm3

Thousand cubic metres

Capex

Capital expenditure

MMbtu Million British thermal units

MMcf

Million standard cubic feet

Tcf

bbl

Trillion cubic feet

Barrel

Proved reserves

Proved plus probable reserves

Proved plus probable plus possible reserves

HSE

Health, safety and the environment

boe

Barrel of oil equivalent

KPI

Key performance indicator

boepd

Barrel of oil equivalent per day

EBITDAX Earnings before interest, taxation, depreciation,
amortisation and exploration expense

Billion

Million

LNG

Liquefied natural gas

WTI

West Texas Intermediate crude

Working interest

Opex

Operating expenses

CGU

Cash generating unit

bopd

Barrels of oil per day

mscfpd

thousand standard cubic feet per day

Phoenix Global Resources plc Annual Report and Accounts 2019Other informationRegistered offices

131

The registered offices of the group’s subsidiaries are as follows:

Company

Registered address

PGR Operating LLC

20 Greenway Plaza, Suite 1075, Houston, Texas 77046-2011, USA

AEN Energy Holdings S.P.C.

PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands

AEN Energy Cayman Islands Ltd

PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands

AEN Netherlands Cooperatief U.A.

Prins Bernhardplein 200, 1097JB Amsterdam, Netherlands

Trefoil Holdings B.V.

Euclideslaan 131, 3584 BR Utrecht, Netherlands

San Enrique Petrolera B.V.

Euclideslaan 131, 3584 BR Utrecht, Netherlands

AEN Energy Latina, S.L.

Calle Hermosilla 11, 4th Piso, Madrid, Spain

Upstream Latino America S.L.

Calle Velazquez 61, Madrid 28001, Spain

Trefoil (Switzerland) S.A.

Rue Du Rhône 50, 1204 Geneva, Switzerland

Trefoil Limited

Trefoil GmbH

Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda

Schubertring 6, 1010 Vienna, Austria

Petrolera El Trebol S.A.

Suipacha 1111, 18th Floor, Ciudad Autonoma de Buenos Aires, Argentina

AEN Energy Argentina S.A.

Tiburcio Benegas 843, Mendoza, Argentina

MSO Andes Energia Argentina S.A.U.

Suipacha 1111, 18th Floor, Ciudad Autonoma de Buenos Aires, Argentina

Andes Oil S.A.U.

Suipacha 1111, 18th Floor, Ciudad Autonoma de Buenos Aires, Argentina

Andes Oil and Gas S.A.U.

Suipacha 1111, 18th Floor, Ciudad Autonoma de Buenos Aires, Argentina

Grecoil y Cia. S.A.U.

Ceibo Building , 8th Floor, Provincial Route N° 82, Km 54, Luján de Cuyo, Mendoza

AEN Energy Mendoza S.A.

Tiburcio Benegas 843, Ciudad de Mendoza, Mendoza, Argentina

Patagonia Oil & Gas S.A.

Maipu 1252, Piso 6, Ciudad Autonoma de Buenos Aires, Argentina

Andes Hidrocarburos Investments S.A.

Suipacha 1111, 18th Floor, Ciudad Autonoma de Buenos Aires, Argentina

Kilwer S.A.

Ketsal S.A.

Suipacha 1111, 18th Floor, Ciudad Autonoma de Buenos Aires, Argentina

Ceibo Building , 8th Floor, Provincial Route N° 82, Km 54, Luján de Cuyo, Mendoza

CHPPC Andes S.R.L

Suipacha 1111, 18th Floor, Ciudad Autonoma de Buenos Aires, Argentina

Integra Investment S.A.

Maipu 1252, Piso 6 Ciudad Autonoma de Buenos Aires, Argentina

Andes Interoil Limited

Andes Energia Limited

6th Floor, King’s House, 10 Haymarket, London SW1Y 4BP

Patagonia Oil & Gas Limited

6th Floor, King’s House, 10 Haymarket, London SW1Y 4BP

Patagonia Energy Limited

6th Floor, King’s House, 10 Haymarket, London SW1Y 4BP

GovernanceFinancial statementsPhoenix Global Resources plc Annual Report and Accounts 2019Other informationStrategic report132

Officers and advisers

Directors

Sir Michael Rake

Kevin Dennehy

John Bentley

Non-executive chairman

Chief financial officer

Non-executive director (independent)

Martin Bachmann

Non-executive director (independent)

Javier Alvarez

David Jackson

Tim Harrington

Daniel Jaeggi

Non-executive director (independent)

Non-executive director

Nicolás Mallo Huergo

Non-executive director

Nigel Duxbury

Company secretary

Registered address
and corporate office
6th Floor
King’s House
10 Haymarket
London SW1Y 4BP

Company number
5083946

Offices
Buenos Aires
Torre Alem Plaza
3rd Floor
Av. Leandro N. Alem 855
Buenos Aires 6023
Argentina

Mendoza
Ceibo Building, 8th Floor
Chacras Park
Ruta Porvincial No. 82, Km 54
Luján de Cuyo
Mendoza (5505)
Argentina

Houston
20 Greenway Plaza
Suite 1075
Houston
Texas 77046-2011
USA

Nominated adviser
and joint broker
Shore Capital and Corporate Limited
Cassini House, 57-58 St James Street
London SW1A 1LD

Joint broker
Panmure Gordon
One New Change
London EC4M 9AF

Financial PR
Camarco
107 Cheapside
London EC2V 6DN

Independent auditor
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH

Solicitor
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2EG

Registrars
Share Registrars
The Courtyard
17 West Street
Farnham
Surrey GU9 7DR

Phoenix Global Resources plc Annual Report and Accounts 2019Other informationBoth the paper manufacturer
and printer are Forest
Stewardship Council® (FSC)
chain-of-custody certified.

Consultancy, design and production
www.luminous.co.uk

Design and production

www.luminous.co.uk

Phoenix Global Resources plc
6th Floor, King’s House
10 Haymarket
London SW1Y 4BP
United Kingdom

Tel: +44 (0) 20 3912 2800
info@phoenixglobalresources.com