Phoenix Global Resources plc
Annual Report and Accounts 2020
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Contents
Strategic report
Governance
Financial statements
Chairman’s Statement
p01
Corporate Governance Statement
p25
Independent Auditors’ Report
p51
Our Strategy and KPIs
p02
Remuneration Policy Report
p36
Consolidated Income Statement
p58
Operating Review
p06
Annual Remuneration Report
Financial Review
p11
Directors’ Report
Risk Management
Sustainability Review
Stakeholder Engagement
p14
p21
p23
Statement of Directors’
Responsibilities
p44
p47
p50
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Consolidated Statement of
Changes in Equity
Consolidated Statement of
Cash Flows
Notes to the consolidated
financial statements
Company Statement of
Financial Position
Company Statement of
Changes in Equity
p59
p60
p61
p62
p63
p101
p102
Company Statement of Cash Flows p103
Notes to the Company
financial statements
p104
Shareholder Information
p116
Phoenix Global Resources plc Annual Report and Accounts 2020
Phoenix Global Resources plc Annual Report and Accounts 2020
01
Chairman’s Statement 1 Phoenix Global Resources plc Annual Report and Accounts 2020 Dear Shareholders, Whilst the environment continues to be extremely challenging, the directors have taken significant steps to restructure the Company, which the directors believe will put the Company in a stronger position to focus on the continued development of its unconventional assets. The Company’s major shareholder, Mercuria Group Limited ('Mercuria'), continues to be supportive and the directors, whilst exercising a degree of caution, believes the actions taken put the Company on a stronger financial footing, whilst appreciating this position could change very quickly in these uncertain times. Overview and current operations 2020 was dominated by Covid-19 and its rapid development as a life-threatening global pandemic. Globally, respective governments’ response has been one of containment through lock-down, social distancing restrictions, quarantine and self-isolation for substantially all citizens, whilst countries strive to roll out vaccination programs. This has resulted in a significant adverse impact on industrial and commercial activity, which led to the shut-down of the Company’s production in April 2020. Consequently, the Company took significant steps to reduce its costs in all areas of the business. Annual general and administration costs were reduced by over 50% and field contracts restructured to reposition the cost base of the Company. The directors believe these cost reduction actions mean the Company is in a better position to produce oil economically at lower oil prices with a positive contribution to cash flow at normalised production levels, which will allow the Company to focus on the continued development of its unconventional assets. During the year Kevin Dennehy, David Jackson and Javier Alvarez stepped down from the board and we would like to thank them for the significant contributions they have made during their time with the Company. Our new CEO, Pablo Bizzotto, was appointed in September 2020 and has extensive oil industry experience, particularly in unconventional activities in the Vaca Muerta through his previous role with YPF. With the appointment of Pablo Bizzotto, the Company’s prime focus for 2021 and 2022 is the development of its Mata Mora licences and the exploration of its Corralera licences and a new study and execution team has been hired to facilitate these objectives. The Company has been in discussions with the Neuquen Province to secure an unconventional exploitation concession for its Mata Mora block and an extension of its Corralera licence commitment obligations. Since the year end, the Province has issued a Decree granting a 35-year unconventional exploitation concession over approximately 43,372 acres in the northern part of Mata Mora and extending for 5 years to April 2026 the exploration rights over approximately 11,918 acres in the southern part of Mata Mora. Furthermore, the Province has issued a Decree approving a one-year extension of the exploration rights for the Corralera Noreste and Corralera Sur blocks to April 2022. The Mata Mora concession involves a pilot phase, with certain works to be completed by March 2026, which includes a capex commitment of US$110 million, consisting of four pads of three horizontal wells each, with an average lateral length of 2,150 metres. The Corralera exploration commitment includes obligations to execute two horizontal wells by April 2022. The work program planned for 2021 includes the drilling of the first pad of three wells in Mata Mora and the drilling and completion of the two horizontal wells in Corralera with the second pad of three wells in Mata Mora to be drilled and completed in 2022 together with the completion of the first pad of three wells. Funding Our major shareholder, Mercuria continues to be supportive of the Company’s plans and has extended short-term debt facilities to fund operations. Mercuria has written to the Company stating its intention to continue to provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the next 12 months and also fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and interest) within the next 12 months whilst discussions with the Company to restructure these loans continue. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria’s current intention to continue to provide financial support. The directors believe they will be able to agree the renegotiation 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 discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2020 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 agreements 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 Whilst we have seen Covid-19 restrictions gradually lifting and economic and industrial activity increasing, the situation continues to be fluid and can change very quickly as we have seen with a number of countries experiencing 'second and third waves'. Argentina continues to experience high inflation and a continuous devaluation of the Peso. The country is in its third straight year of recession. Whilst it announced at the end of August 2020 that 99% of the holders of the country’s US$65 billion international bonds had agreed to restructure this debt, giving the country a better chance of recovery, discussions between the Argentine government and the IMF to reschedule US$45 billion of debt are ongoing and the outcome of the 2021 legislative elections in Argentina is uncertain. The current administration continues its intent to provide economic and regulatory support to four key sectors of the economy: agriculture; oil and gas; mining; and intellectual services. The Company is also conscious of its environmental, social governance responsibilities and is developing policies and procedures to reduce emissions and establish goals that minimise the impact on the environment and our stakeholders. Whilst these are truly unprecedented times with disruption on the demand and supply side, the directors believe they can leverage this situation and take this opportunity to continue to reduce and optimise the Company’s normalised production cost base. The Company is fundamentally focused on unconventional development and has excellent assets in this space and believes it is now better placed to progress the development of these assets, which is the Company’s core objective. The directors recognise 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. Sir Michael Rake Non-executive chairman 17 May 2021 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Strategy and Business Model
Our strategic
objectives
Control and consolidate
Phoenix holds significant licence
Explore and develop
Our exploration and development
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.
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.
How we do
this and what
we’ve done
No new unconventional acreage was acquired in 2020
and limited activity was undertaken at the start of
2021 due to the Covid-19 situation.
After the year end the Company secured an
unconventional concession for the Mata Mora area.
This new concession that was awarded in March 2021
provides the foundation for our continued
unconventional exploration work in the area.
Exploration and development work was frozen in 2020
due to the Covid-19 situation.
The Company plans to recommence activities in 2021
with the focus on the unconventional development at
Mata Mora and the exploration activity at Corralera.
Measuring
our progress
→ Total unconventional acreage
→ Absolute reserve and resources volumes
→ % of acreage operated by Phoenix
→ Year-on-year reserves growth
→ Resource progression
→ Netback per boe
→ Migration of resource and reserve categories
Link to KPIs
2, 6
1, 2, 6
Potential risks
→ Ability to fulfil licence commitments
→ Exploration and development risk
→ The timely availability of capital to 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
02
Phoenix Global Resources plc Annual Report and Accounts 2020
2
Phoenix Global Resources plc Annual Report and Accounts 2020
03
3 Phoenix Global Resources plc Annual Report and Accounts 2020 Profitable production Realise value Phoenix has existing production from conventional oil assets that provides cash flow for reinvestment. We seek to maintain existing conventional production, where profitable, as a lower cost, lower risk element of the funding mix. Protecting and realising value for shareholders is fundamental to what we do. 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. Production was lower in 2020 at 4,549 boepd compared to 7,023 boepd in 2019 (excludes 2,200 boepd of production from non-core assets sold). The lower production reflects primarily the impact of the Covid-19 outbreak that led to the shut-down of production after receiving notice from YPF temporarily suspending the purchase of oil. We continue to experience normal production decline on 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 programs in 2021 and beyond. Reserves year on year have fallen due primarily to the disappointing results from the Puesto Rojas drilling activity and an update of the reserves at La Brea where there has been no activity and no activity is planned in the near future. → Year-on-year production volumes → Opex per boe produced → Adjusted EBITDA – earnings before interest, taxes, depreciation, amortisation and non-recurring expenses → Total shareholder return → Resource conversion 1, 2, 4, 5, 6 1, 2, 3, 4, 5, 6 → Reservoir quality and ability to achieve type-curves → Commodity prices and volatility → Impact of inflation and foreign exchange risk → Availability of refining capacity for offtake → Proactively managing HSE exposure → Fiscal risk → 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 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Key Performance Indicators
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.
2
Resource and
reserve progression
37% reduction
2020 – 18,791 Mboe 2P reserves
2019 – 29,786 Mboe 2P reserves
(excluding reserves associated with
non-core assets sold)
No change in resources estimates.
3
Production
volumes
35% reduction
2020 – 4,549 boepd
2019 – 7,023 boepd (excluding production
from non-core assets sold)
Definition
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 2020 averaged 4,549 boepd
compared to 7,023 boepd in 2019
(excluding production from non-core
assets sold), a decrease of 35%.
The year-on-year growth in reserves and
resources is calculated by reference to
reserves and resources statements
estimates prepared by management with
the requisite qualifications and prepared
in accordance with generally accepted
petroleum engineering and evaluation
principles as set out in the Standards
Pertaining to the Estimating and Auditing
of Oil and Gas Reserves issued by the
Society of Petroleum Engineers.
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.
Comment
Comment
2P reserves estimated fell during 2020
primarily due to the disappointing results
from the Puesto Rojas drilling program
and a revised estimate of the 2P reserves
at La Brea due to delays in progressing
the exploration and development activity.
The fall in production in 2020 was
primarily due to the shut-down of
production during the year but also to the
natural production decline in existing well
stock not offset by new production.
December 2020 average production of
4,549 boepd compares to 7,023 boepd
in December 2019.
1
HSE metrics
LTIR 2020 – 0.0
LTIR 2019 – 0.3
Spill Index 2020 – 217
Spill Index 2019 – 14
Definition
The measures used by the Company were
revised in 2020 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 0.3 in 2019 to 0.0 in
2020 against a target of 0.3, resulting
in top quartile safety performance. The
improvement in safety performance is
notable and highlights this as a key focus
of the Group even after taking into
account the Covis-19 situation.
Spill index performance was recorded at
217 compared to 14 in 2019. The Company
experienced two major spills in the year,
which is accentuated by the lower
production volumes due to the shut-in of
production during the year. Both incidents
were contained at the well site location
and clean up remediation work carried
out to the satisfaction of the
provincial authorities.
04
Phoenix Global Resources plc Annual Report and Accounts 2020
4
Phoenix Global Resources plc Annual Report and Accounts 2020
05
5 Phoenix Global Resources plc Annual Report and Accounts 2020 4 Operating cost per boe 5 Adjusted EBITDA 6 Personal objectives 6% increase 2020 – US$18.7/boe 2019 – US$17.7/boe (excludes depreciation) -157% 2020 – loss of US$7.2 million 2019 – US$12.6 million Measured based on individual performance. Definition Operating cost per boe is an alternative performace measure and Is a measure of production efficiency and is calculated by dividing total cash production costs by the volume of boe produced (see page 11 for more detail). 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. Definition EBITDA is defined as earnings before interest, taxation, depreciation and amortisation. Adjusted EBITDA is an alternative performance measure and takes account of non-recurring costs that are often high value and primarily relate to impairment provisions and one-time costs associated with the termination of licences (see note 33 on page 100 for more detail). 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 Our target is to continually reduce production costs per boe. There will be instances however where production costs per boe can rise for legitimate reasons. These may include where costs are semi-fixed in nature or in mature areas where the per-unit costs increase as production suffers natural decline and additional workover and other intervention activity is required. In 2020, the average operating cost per boe increased by 6% from US$17.7/boe in 2019 to US$18.7/boe in 2020. However, this average increase is not representative of the actual reduction in operating cost at normal production levels due to the impact of the shut-down of production during the year. When comparing December 2020 average operating cost to December 2019 operating cost, this has fallen from US$20.6/boe to US$14.4/boe (30%), representing the impact of the cost reduction programs implemented during the year. Comment Adjusted EBITDA fell in the year with a loss of US$7.2 million in 2020 compared to US$12.6 million in 2019. The year-on-year reduction in adjusted EBITDA was caused primarily by the shut-in of production during the year and lower average commodity prices. Comment Due to the impact of Covid-19 the personal performance targets in 2020 were reassessed with a revised focus on the development and implementation of a plan to significantly reduce both operating and administration costs. The Company successfully achieved cost reductions in all areas of the business, which has put the Company in a stronger position to produce oil economically at lower prices with a positive contribution to cash flow and allow it to focus on the continued development of its unconventional assets. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Operating review
.
Covid-19
Like many other companies in Argentina, Phoenix has been heavily
impacted by the Covid-19 outbreak in the country. Quarantine
restrictions introduced in late March 2020 and the resulting drop
in the demand for oil, saw most refiners suspending the purchase
of oil. Following notice from YPF that it was temporarily
suspending the purchase of oil, the Company was faced with no
option but to shut-down production of crude oil from its operated
licences Puesto Rojas, Atamisqui and Tupungato with production
of oil from licences operated by third parties reduced significantly.
Production has restarted and is expected to continue if demand in
Argentina continues to increase, at its operated licences Puesto
Rojas, Tupungato and Atamisqui and its non-operated licence
Chachahuen, albeit initially at lower levels than before the Covid-
19 pandemic. Production has also recently restarted at the
Company’s non-operated licences Rio Cullen/Las Violetas and
Cajon de Los Caballos and the Company restarted production at
its operated licence Mata Mora in November 2020. The Company
is continuing to follow all recommended procedures regarding
Covid-19 and take all steps necessary to maintain the safety of its
employees and contractors.
COMPANY ASSETS
Licence
Puesto Rojas
Cerro Mollar Norte
Cerro Mollar Oeste
Mata Mora(*)
Basin
Type
Operator
Neuquina
Production Phoenix
Neuquina
Production Phoenix
Neuquina
Production Phoenix
Neuquina
Production Phoenix
Corralera Noreste(**)
Neuquina
Exploration Phoenix
Corralera Noroeste
Corralera Sur(**)
Chachahuen
Las Violetas
Angostura
Rio Cullen
Neuquina
Exploration Phoenix
Neuquina
Exploration Phoenix
Neuquina
Production YPF S.A.
Austral
Austral
Austral
Production Roch S.A.
Production Roch S.A.
Production Roch S.A.
Cajon de los Caballos
Neuquina
Production Roch S.A.
Cajon Oriental
La Paloma
Cerro Alquitran
Neuquina
Exploration YPF S.A.
Neuquina
Exploration Phoenix
Neuquina
Exploration Phoenix
Interest
%
100%
100%
100%
90%
90%
90%
90%
20%
17%
17%
17%
38%
15%
100%
100%
El Manzano Oeste
Neuquina
Exploration
Phoenix/
YPF S.A.
100%/40%***
La Brea
Rio Atuel
Neuquina
Production Phoenix
Neuquina
Exploration Phoenix
Loma Cortaderal – Cerro Doña Juana Neuquina
Exploration Phoenix
La Tropilla I
Santo Domingo I
Neuquina
Exploration Phoenix
Neuquina
Exploration Phoenix
Aguada de Castro Oeste I
Neuquina
Exploration Phoenix
Aguada de Castro Oeste II
Neuquina
Exploration Phoenix
Refugio Tupungato
Atamisqui
Cuyana
Cuyana
Production Phoenix
Production Phoenix
* Unconventional 35-year exploitation concession awarded in March-2021. Expire Apr-2056
** Government Decrees in April extended the first exploratory phase by twelve months (April 2022)
*** 100% Agrio formation and 40% other formations
100%
67%
100%
90%
90%
90%
90%
100%
100%
Acreage
WI
46,921
1,188
26,877
49,729
24,345
24,018
26,196
35,493
58,562
18,086
15,532
7,506
24,790
605
801
26,179
35,742
122,931
75,982
10,825
24,648
26,212
19,339
6,734
53,260
Producing
Wells
No.
16
2
0
2
0
0
0
270
39
2
0
6
0
0
0
0
1
0
0
0
0
0
0
32
12
Licence
Expiry
Mar-54
Oct-22
Jul-27
Apr-56
Apr-22
Aug-23
Apr-22
Oct-38
Aug-26
Aug-26
Aug-26
Sep-25
Sep-25
Nov-40
Nov-40
Oct-27
Oct-27
Dec-21
Aug-21
Mar-22
Mar-22
Mar-22
Mar-22
Jan-26
Sep-25
06
Phoenix Global Resources plc Annual Report and Accounts 2020
6
Phoenix Global Resources plc Annual Report and Accounts 2020 07
7 Phoenix Global Resources plc Annual Report and Accounts 2020 OPERATED ASSETS – Neuquén Province In the Neuquén Province, the Company has interests in eleven operated assets and four non-operated assets (see figure 1) in the Neuquén Basin, including Mata Mora and Corralera (11 and 15). A brief summary of the assets in the Neuquén Basin is provided below. Figure 1: Neuquén Basin regional map showing the Company’s operated and non-operated assets. Mata Mora The MMox-1002 was successfully reactivated in February 2020 after an extended shut-in designed to provide reservoir surveillance regarding reservoir pressures and future well spacing. Both Mata Mora wells were shut-in during May 2020 as there was no market for the oil being produced and remained shut in through November 2020. Both wells are now active and in December producing at a combined rate of approximately 630 barrels of oil per day. Post year-end highlights: In March 2021, Neuquén Province approved an unconventional exploitation concession for approximately 78% of original Mata Mora’s acreage (43,372 acres), for a term of 35 years. A pilot phase commitment of 12 horizontal wells consisting of four pads of three wells each with an average lateral length of 2,150m with an estimated capital expenditure of US$110 million is planned to be executed within the next five years. The first pad is being planned and permitted to be drilled in the fourth quarter of 2021. A complete suite of data acquisition is planned in order to characterise the unconventional reservoir and to start working in stimulation design and further well spacing optimisation. A full field development of 192 horizontal wells is being considered with an estimated potential of 203 MMboe with a total capital investment of US$2,440 million. The remaining 22% of the original licence is now the new Mata Mora Sur block (11,918 acres), covering a region that involves agricultural activity and San Patricio del Chañar town, and will remain in the exploration phase for a further five years with a commitment of 3D seismic acquisition covering the region. Corralera Area The Company was progressing its plans to drill its first well targeting Agrio Formation in the Corralera area until the Covid-19 restrictions resulted in the Company suspending these operations. The well pad location was substantially completed, and the Company evaluated options with GyP and the Neuquen Province regarding the most effective way to fulfil the Company’s licence commitment obligations. Post year-end highlights: The primary unconventional target has changed from the Agrio to the Vaca Muerta formation based on revised expectation of fluid type given the contrasting thermal maturity, neighbouring well results, and better understanding of landing zones alternatives for the Vaca Muerta formation. A one-year extension was agreed with GyP (and submitted for provincial approval) for the first exploration period for Corralera Noreste and Corralera Sur to execute the revised two horizontal wells in planning to evaluate Vaca Muerta unconventional oil potential. The proposed wells include the drilling of vertical pilots for data acquisition needed to define the landing zone targets and then the drilling of horizontal sidetracks with 2,000 m of lateral length. A decree approving the extension was issued by the Province on 13 April 2021. It is expected to drill the committed wells in the third quarter of 2021 and complete them by the first quarter of 2022, with a total investment of US$29 million. A new office has been inaugurated in the capital city of Neuquén Province to handle the increasing activity that is being planned for this region’s assets and increased activity related to exploration and pilot phases of Corralera, Mata Mora, and the additional commitments to delineate the Vaca Muerta play as an unconventional target. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 08
Operating review continued Phoenix Global Resources plc Annual Report and Accounts 2020 8 OPERATED ASSETS – Mendoza Province In the Mendoza Province, the Company has interest in eleven operated assets including nine in the Neuquén Basin (see figure 1 above) and two in the Cuyo Basin (see figure 2 below). A brief summary of these assets is provided below. Figure 2: Cuyo Basin regional map showing the Company’s operated assets. After a three-month period of general well shut down, in July 2020 oil sales were re-established, wells were restarted with lower production losses than previously estimated. The main contracts were revised, such as the ones related with operations and maintenance, oil transport and pulling rigs, allowing an OPEX/boe reduction of 34% (from 26.4 US$/boe to 17.4 US$/boe comparing Q1 2020 and Q4 2020). Post year-end: With the objective of identifying and assessing the risks in our facilities and implementing controls to avoid incidents, we are planning to execute a risk assessment at seven facilities in our operated assets (Tupungato oil treatment plant, Tupungato water injection plant, Atamisqui oil treatment plant, Cerro Mollar oil treatment plant, Cerro del Medio Separation unit, Cerro Pencal 1006 battery and Malargüe delivery plant). Puesto Rojas Area First quarter activity included a workover of CP-1014 and workover jobs on older wells to maintain production levels. Like other assets, Puesto Rojas was shut-in in April 2020 following notice from YPF that they were suspending oil purchases in Mendoza Province. The field was subsequently re-activated with minimal well damage apart from wells CDM-3004, CDM-3007, CP-1003, PR-53 and CP-1014, Wells CDM-3004, CP1003 and CP1014 have now been remediated but remedial work is still due to be completed on wells CDM-3007 and PR-53, which currently remain offline. Wells CP-1006 and CP-1008 remain shut-in for gas handling limits in the field. In accordance with decree N°485/2019, in July 2020 the Company advised the Mendoza Province Direction of Hydrocarbons that it would be exercising its right to extend the 'Pilot Plan' phase until 30 June 2022, in order to continue the Company’s planning of a horizontal well in the area, contingent on the results of a new study of the region currently being undertaken. During this period, 12% royalties will be maintained on the production of the unconventional wells. Post year-end highlights: Based on the variable results of the Vaca Muerta vertical wells, related with the structural complexity of the area and the variable hydrocarbon quality, an integrated post-mortem study is under execution to define the next steps in the unconventional project. To date, most of the evaluated structures show at least some amount of compartmentalisation, fault planes, low API oils, or a combination of these factors that negatively affects hydraulic fractures efficiency, well performance, and the ability to execute unconventional 'factory mode' type development. We expect to complete this initial study in the second quarter of 2021. Rio Atuel The evaluation of the MLx-1001 drilled in 2019 was completed and based on the results it has been determined not to be commercial and the costs were expensed in the second quarter. No other 2020 physical activity was planned while studies are ongoing of the well results and other subsurface data previously collected. Due to the constraints generated by the strict quarantine defined by national authorities, in July 2020 a request was made to the Mendoza Province Direction of Hydrocarbons for a one-year extension until 18 December 2021 to execute the committed activity within the third exploration period. The outstanding commitment currently consists of drilling a vertical well in the block. This request for an extension was approved in April 2021. Four different well locations are under study for the remaining commitment well with environmental impact studies recently completed and approved for all the potential locations. Planning and selection of the well location to be drilled is ongoing with drilling planned for the second half of 2021. La Paloma The LP-9 and LP-7 wells were drilled in the La Paloma/Cerro Alquitran area targeting the Grupo Neuquén formation in 2019 and were planned for completion in the first half of 2020 prior to the Covid-19 restrictions, causing us to suspend this activity. The Company is currently evaluating options as to when it is best to complete these wells. LP-7 and LP-9 completions are still pending. In September 2020, an extension to 30 July 2021 was requested to the authorities in respect of which we are still awaiting a response. Phoenix Global Resources plc Annual Report and Accounts 2020 09
9 Phoenix Global Resources plc Annual Report and Accounts 2020 Cerro Doña Juana-Loma Cortaderal In the context of the commitment fulfillment date of 17 August 2021, the technical and subsurface teams continue to evaluate the characteristics that will determine the scope and the timeframe of the work to be performed in the licence. Cuyana Basin Like the Puesto Rojas area, the Company’s Cuyana Basin fields of Atamisqui and Tupungato were shut-in in April 2020 following notice from YPF that they were suspending oil purchases in the Mendoza Province. The field was subsequently re-activated with minimal well damage. NON-OPERATED ASSETS Chachahuen Area In the Chachahuen Sur area, the focus for 2020 was to improve the water flooding projects and start a Polymer Pilot Project. However, given the market conditions, most of this work was postponed. At Cerro Morado Este, the focus for 2020 was on the water flooding pilot plan, with three water injection patterns, and performing production facilities improvements. In the first quarter, three workovers were performed on injector wells (ChuS-158; ChuS293 and ChuS-294). At Cerro Morado Este, the focus for 2020 was on the water flooding pilot plan, with three water injection patterns, and performing production facilities improvements. During the first quarter of the year completion of five wells on backlog from 2019 was performed on CMoE-20; CMoE-54; CMoE-61; CMoE-66 and CMoE-67. Since April 2020, activity was reduced to a minimum in this area due to the market situation and Covid-19 restrictions and in May 2020, the Company’s share of the production was shut-in due to YPF’s notice of suspension of oil purchases. The Company’s share of oil production has restarted, with oil initially sold to a different off-taker and subsequently to YPF. Post year-end highlights: Four Polymer Injection Units will be installed between the last quarter 2021 and first quarter of 2022, to begin an Enhanced Oil Recovery project. Also, additional efforts are being made in order to increase water injection in the secondary recovery project, improve the water distribution system, and re-establish water injection in wells currently shut-in due to integrity issues. The operator continues a legal process to include 104km² of the Chachahuen Sur evaluation area in the Cerro Morado Este concession. This application is currently awaiting the authority’s response to the latest administrative appeal filed recently. Tierra del Fuego Area In the Terra del Fuego Province the Company has interests in three non-operated assets in the Austral Basin in a joint venture with Roch S.A. and others (see figure 3 below). Figure 3: Austral Basin regional map showing the Company’s non-operated assets. In January 2020, the water cut in the SM.x-1001 increased rapidly to more than 50% of total production and the well was shut-in. In March 2020, a workover job was performed on this well with production tests in the middle and upper Tobifera as part of the further evaluation of the well. A test in the upper Tobifera section, above current productive perforations, showed an average production rate of 1,576 bpd over seven days with lower water cut and production was subsequently restored in this well. However, as of January 2021 the water cut has increased again, and oil production has fallen to below 300 bpd from this well. Since the second half of 2019, the buoy at the YPF terminal has been out of service and oil production has been trucked to the Chilean ENAP terminal with an increased transportation cost. Following a Covid-19 outbreak at the ENAP terminal, cross-border sales were closed, causing most oil wells to be shut-in. Only gas production continued with a small light associated oil volume. However, the YPF buoy was subsequently repaired in August 2020 and oil production was restarted in late September 2020. Due to reservoir performance concerns and the market situation and Covid-19 restrictions, planned drilling activity and facilities improvements were postponed, leaving only HSE related activities to continue where possible. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Operating review continued
2P Reserves Summary
2019 Production
2019 Reserves Estimate
2020 Production
2020 Reserves Estimate
2020 YE Revision
Oil
Mbbls
Gas
MMcf
BOE
Mboe
Oil
Mbbls
Gas
MMcf
BOE
Mboe
Oil
Mbbls
Gas
MMcf
BOE
Mboe
Oil
Mbbls
Gas
MMcf
BOE
Mboe
Oil
Mbbls
Gas
MMcf
BOE
Mboe
74
400
–
400
(170)
–
(170)
115
–
115
644
37
28
42
191
–
–
644
191
Area
Atamisqui
Cajon de los
Caballos
Cerro Alquitran –
La Paloma
Cerro Mollar
Norte
Cerro Mollar
Oeste
Cerro Morado
Este
Chachahuen
El Manzano
La Brea
Mata Mora
Puesto Rojas
Tierra del Fuego
Tupungato
–
–
–
–
728
–
13
151
457
245
329
–
–
–
–
–
–
–
–
601
1,273
–
–
–
–
–
728
–
13
151
557
457
329
74
25
0
81
520
6
16
86
171
–
7
–
–
–
11
144
51
–
38
302
77
20
143
22
1,013
–
1,013
77
143
2,462
3,311
411
–
–
–
–
–
2,462
3,311
411
3,870
6,886
5,018
225
–
225
10,744
6,276
11,790
26
139
0
583
20
38
22
101
4,222
3,679
0
76
26
83
544
15
16
93
222
270
235
–
–
–
–
–
–
–
–
–
139
(27)
7
(26)
583
(429)
–
(429)
38
(20)
101
(20)
–
–
(20)
(20)
4,222
3,679
0
76
26
1,841
11
1,843
888
144
912
(405)
51
(396)
(3,778) (6,886) (4,925)
(113)
38
(106)
1,382
4,217
2,085
95
1,048
2,416
–
2,416
229
36
6,269
6,074
7,282
(4,303)
101
(4,287)
389
3,003
890
(898)
(165)
(925)
1,355
–
1,355
(832)
36
(826)
10
Phoenix Global Resources plc Annual Report and Accounts 2020
10
Phoenix Global Resources plc Annual Report and Accounts 2020
11
Financial review 11 Phoenix Global Resources plc Annual Report and Accounts 2020 Financial overview 2020 US$ mm 2019 US$ mm Revenue 54.0 129.4 Gross loss (27.4) (15.4) Operating loss (219.7) (110.2) Loss for the year (197.0) (113.8) Net assets 26.1 222.7 Investment in fixed assets and intangibles 8.1 96.5 Net cash from operations (6.4) (16.4) Adjusted EBITDA (7.2) 12.6 Revenue and gross margin Revenue for the year was US$54.0 million (2019: US$129.4 million), comprising revenue from oil sales of US$52.2 million (2019: US$114.7 million) and revenue from gas sales of US$1.8 million (2019: US$14.8 million). The reduction in oil revenue between years resulted from a combination of the shut-in of production due to Covid-19, a reduction in the realised price per barrel and lower sales volumes year-on-year. The average realised oil sales price in 2020 was US$37.74/bbl, a 21% decline on the average price of US$47.96/bbl in 2019. Realised prices achieved by the Company are indirectly linked to Brent. The emergence of Covid-19 as a global pandemic and the resulting fall in the demand for oil has had a significant impact on the operations of the Company. The over-supply of crude in the market resulted in YPF, the state-controlled Argentine energy company, giving notice to its customers of the suspension of the purchase of oil until further notice. This resulted in refineries stopping the acceptance of deliveries, leaving the Company with no option but to shut-down production in April 2020. Crude oil prices dropped to historic lows with the average Brent crude price falling year-on-year by 33%, from an average of US$64/bbl in 2019 to an average of US$43/bbl in 2020. In May 2020, Argentina’s Government issued a decree establishing a fixed realised Medanito price of $45/bbl ('Barril Criollo'), subject to certain conditions, demonstrating the intention of the government to support the industry where possible. This pricing support remained in place until September 2020 when the Brent crude benchmark price exceeded US$45/bbl for 10 consecutive days, which was one of the conditions that would cause the support to expire. It has not been reinstated and prices were subject to the Brent crude benchmark. Average daily oil sales in the year was 3,776 bopd compared to 6,059 bopd in 2019 (excluding sales from non-core assets sold). Gas revenues arise mostly in the non-operated segment and declined by US$12.9 million in the year compared to 2019, mainly due to the sale in 2019 of the Santa Cruz Sur asset and a reduction of 40.4% in the realised price from an average of US$3.32/MMcf in 2019 to an average of US$1.98/MMcf in 2020. In addition, the shut-in of some of the gas producing wells on the non-operated assets, Rio Cullen and Las Violetas, due to the impact of Covid-19, resulted in lower volumes produced and sold. Operating costs Average operating costs increased year-on-year from US$17.7/boe in 2019 (excluding non-core assets sold) to US$18.7/boe in 2020, primarily due to the reduced production levels resulting in the fixed element of production costs being allocated over lower volumes. However, average operating cost for December 2020 had fallen to US$14.4/boe by the end of 2020 reflecting the impact of the cost reduction programs implemented during the year. Depreciation decreased by US$24.8 million in the year from US$66.1 million (including depreciation of assets sold of US$9 million) to US$41.3 million 2020, primarily due to the fall in production volumes. Other operating costs An exploration expense of US$2.7 million has been recognised in the year, primarily relating to the write-off of the US$2.5 million cost of the Rio Atuel exploratory well. At the year-end, management’s impairment assessment considers potential triggers for impairment including, inter-alia, adverse results from drilling programs, changes in oil and gas prices and other market conditions, cost of future development and licence periods. Following this assessment, the Company has recognised an impairment loss of US$15.2 million relating to the write down of goodwill attributable to our interest in Chachahuen recognised at the time of the business combination in 2017. In addition, our assessment indicated that the carrying value of certain licences had been potentially impaired and a charge for impairment of US$149.3 million has been recognised, reflective of lower reserves, lower oil price environment and higher discount factor being applied to the DCF calculations (Chachahuen US$17.7 million, Puesto Rojas US$114.7 million, La Paloma US$5.6 million, El Manzano US$8.6 million, Atamisqui US$1.8 million and Cajon Oriental US$0.8 million, Rio Atuel and Vega Grande US$0.1 million). Furthermore, an additional US$6.6 million charge has been recognised against an asset held for sale (see note 13 on page 77 for more details). GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Financial Review continued
2020 US$’000
Oil revenue
Gas revenue
Operated
operated Corporate
Total
Non-
24,130
28,029
2
1,840
–
–
–
52,159
1,842
54,001
Gross revenue
24,132
29,869
Loss for the year
(155,759) (49,054)
7,789 (197,024)
Add: DD&A
27,569
12,149
1,628
41,346
Less: finance income
–
–
(6,905)
(6,905)
Add: finance costs
458
306
21,512
22,276
Less: taxation
EBITDA
Add: Loss on
termination of
licences and other
impairment charges
Add: Loss on sale of
non-current assets
–
–
(38,005) (38,005)
(127,732) (36,599)
(13,981) (178,312)
127,501
43,628
–
171,129
6
–
–
6
Adjusted EBITDA
(225)
7,029
(13,981)
(7,177)
2019 US$’000
Oil revenue
Gas revenue
Operated
operated Corporate
Total
Non-
49,341
65,311
14
14,751
–
–
–
114,652
14,765
129,417
Gross revenue
49,355
80,062
Loss for the year
(32,952)
(50,611) (30,247) (113,810)
Add: DD&A
32,470
31,954
1,633
66,057
Less: finance income
Add: finance costs
Less: taxation
EBITDA
Add: Loss on
termination of licences
and other impairment
charges
Add: Loss on sale of
non-current assets
–
381
–
–
(1,577)
(1,577)
465
25,401
26,247
–
(21,011)
(21,011)
(101)
(18,192)
(25,801) (44,094)
11,938
15,815
–
27,753
–
29,041
(70)
28,971
Adjusted EBITDA
11,837
26,664
(25,871)
12,630
Finance income and costs
Net finance costs decreased by US$9.3 million to US$15.4 million in
2020 compared to US$24.7 million in 2019. The decrease in cost
was primarily driven by the benefit on transfers of US$ into
Argentina under the 'contado con liquidacion' mechanism, a
reduction in the foreign exchange losses on Peso denominated
balances held by the Company and a reduction in other
finance costs.
Taxation
A US$38.0 million tax credit was recognised in 2020, compared to
a US$21.0 million tax credit in 2019. The increase in the deferred
tax credit in the year primarily resulted from the reduction in the
book value of fixed assets when compared to the tax-deductible
value following the provision for impairment together with the
deferred tax benefit of the increase in net operating losses, which
the respective companies expect to recover in future periods.
Balance Sheet
At 31 December 2020 the Group had net assets of US$26.1 million,
a decrease of US$196.6 million compared to 31 December 2019.
During the year, intangible assets and property, plant and
equipment decreased by US$200.5 million primarily due to
charges for impairment of US$149.3 million, DD&A of US$41.3
million offset by US$8.1 million of additions, the write down of
goodwill of US$15.2 million and the write-off of an unsuccessful
exploration well of US$2.8 million.
Current and non-current trade and other receivables decreased
from US$39.3 million to US$29.5 million at 31 December 2020
principally due to the lower oil volumes sold in at the end of the
year. Inventories increased from US$18.2 million to US$18.3 million
at 31 December 2020. Net deferred tax liabilities decreased from
US$69.1 million to US$33.57 million at 31 December 2020 primarily
due to an increase in the deferred tax credit in the year resulting
from the reduction in the book value of fixed assets when
compared to the tax deductible value following the write down of
goodwill and the provision for impairment and the deferred tax
credit resulting from the net operating loss for the year. Trade and
other payables decreased from US$44.8 million to US$26.2 million
at 31 December 2020 due to the reduced costs resulting from the
lower oil volumes sold.
12
Phoenix Global Resources plc Annual Report and Accounts 2020
12
Phoenix Global Resources plc Annual Report and Accounts 2020
13
13 Phoenix Global Resources plc Annual Report and Accounts 2020 Funding status and going concern Total borrowings in the year increased by US$28.6 million from US$303.6 million at 31 December 2019 to US$332.2 million at 31 December 2020. The increase resulted primarily from the drawdown of an additional US$14.3 million of funds from the revolving convertible credit facility and bridging facility with Mercuria and a total of US$15.2 million of accrued interest. Funds advanced under the credit facilities have been used to satisfy working capital needs. 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 program focused on the Group’s unconventional oil and gas assets in Argentina, including the Vaca Muerta formation. 2020 has been dominated by Covid-19 and its rapid development as a life-threatening global pandemic. Globally, respective governments’ response has been one of containment through lock-down, social distancing restrictions, quarantine and self-isolation for substantially all citizens, whilst countries strive to roll out vaccination programs. This has resulted in a significant adverse impact on industrial and commercial activity, which led to the shut-down of the Company’s production in April 2020. Consequently, the Company took significant steps to reduce its costs in all areas of the business. The directors believe these cost reduction actions mean the Company is in a better position to produce oil economically at lower oil prices with a positive contribution to cash flow at normalised production levels, which will allow the Company to focus on the continued development of its unconventional assets. This situation is compounded by the political and economic uncertainty in Argentina. The country is in its third straight year of recession and whilst it announced at the end of August 2020 that 99% of the holders of the country’s US$65 billion international bonds had agreed to restructure this debt discussions between the Argentine government and the IMF to reschedule US$45 billion of debt are ongoing and the outcome of the 2021 legislative elections in Argentina is uncertain. Notwithstanding, our major shareholder, Mercuria, continues to be supportive of the Company’s plans and continues to extend short-term debt facilities to fund operations. Mercuria has written to the Company stating its intention to continue to provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the next 12 months and also fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and interest) within the next 12 months whilst discussions with the Company to restructure these loans continue. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria’s current intention to continue to provide financial support. The directors believe they will be able to agree the renegotiation 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 discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2020 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 agreements 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. At 31 December 2020 the Group had cash and cash equivalents of US$5.4 million (2019: US$11.0 million). GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 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.
Several 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. Several
business performance measures have been established
as key performance indicators for the Group.
The five steps in dealing with risk are:
1) Identify
2) Assess
3) Mitigation Options
4) Manage and execute
5) Review
Risk management
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
programs and budgets. See Principal Risks and Uncertainties on
page 15 and the mitigation steps taken to minimise these risks.
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.
The board has two independent directors with extensive
unconventional activity experience; Tim Harrington and Martin
Bachmann. Tim Harrington joined the board in November 2018
bringing significant experience of unconventional oil and gas
operations in the United States. Martin Bachmann joined the
board as a non-executive director in September 2019. Martin
brings international experience and 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 companies continue to move into the
unconventional oil and gas, particularly in prospective basins such
as the Neuquina basin in Argentina.
14
Phoenix Global Resources plc Annual Report and Accounts 2020
14
Phoenix Global Resources plc Annual Report and Accounts 2020
15
15 Phoenix Global Resources plc Annual Report and Accounts 2020 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. There has been no significant change in the risk profile since last year. 1 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. Potential impact – High Probability – Low 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. 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. Link to strategy Control and consolidate Profitable production Explore and develop Realise value Mitigation The Group maintains a program 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. Whilst activity has primarily been limited to workovers there has been no deterioration in our HSE metrics with the Company delivering top quartile performance in 2020. Relevant KPI by priority/significance 1 2 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 – Medium 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. The Group has some tolerance for this risk and acknowledges the need to have effective controls in place in this area. Link to strategy Profitable production Explore and develop Realise value Mitigation Technology and operational experience are fundamental in developing unconventional resources. We completed the initial two horizontal wells at Mata Mora in 2019 and 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 have carried out benchmark analysis of nearby assets for well performance, linking frac design strategies and subsurface main characteristics. We include specialist expert consultants in the design and evaluation of our drilling and completions work. Relevant KPI by priority/significance 2, 4, 6 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Risk management continued
Principal Risks and Uncertainties continued
3
Reserve and resource estimation
and migration of volumes
The estimation of oil and gas reserves and resources involves a
high level of subjective judgement based on available geological,
technical and economic information.
Potential impact – Medium
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.
The Group has some tolerance of risk in relation to the key
activities required to deliver reserve growth.
Link to strategy
Profitable production
Realise value
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.
Oil and gas reserve volumes are estimated by management
together with the in-house reservoir engineer.
Relevant KPI by priority/significance
2, 3, 6
4
Portfolio
concentration
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 – High
Probability – Medium
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.
Argentina has the largest producing shale oil and gas resources
outside North America 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.
Within the assets with unconventional targets, there is a wide
range of opportunities, size and associated risk, that needs to be
ranked to prioritize the portfolio and dispose of the smaller and
riskier opportunities.
Link to strategy
Control and consolidate
Profitable production
Explore and develop
Realise value
Mitigation
The licencing 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 2020 with
inflation at more than 36% in 2020 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
6
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17 Phoenix Global Resources plc Annual Report and Accounts 2020 5 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. Potential impact – High Probability – High 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 primarily used debt 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 debt and equity financing options. Link to strategy Profitable production Explore and develop Realise value Mitigation The credit facility extended to the Company by Mercuria was increased during 2020 and stood at US$323 million at the year-end including capitalised interest. See note 22 on page 87 for more detail. As the Group moves toward the development of its core unconventional assets, the capital requirements of the Group will increase substantially. Mercuria has indicated its intention to support the next phase of this development but the Group may not in the future be able to secure suitable funding either through existing arrangements, additional debt instruments, the farm-out of assets or through the issuance of equity. See note 2 on page 63 for more detail. Relevant KPI by priority/significance 2, 3, 4, 5 6 Bribery and corruption Risk that third parties or staff could be encouraged to become involved in corrupt or questionable practices. Potential impact – Medium Probability – Medium 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 Profitable production Explore and develop Realise value 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 periodically asks all employees and third-party contractors to certify continued compliance. The Group, its board and management have a zero-tolerance policy towards bribery and corruption. Relevant KPI by priority/significance n/a GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Risk management continued
Principal Risks and Uncertainties continued
7
Realised commodity prices
8
Fluctuating demand and limited sales
routes for some production.
A material decline in oil and gas prices adversely affects the
Group’s profitability, cash flow, financial position, and ability to
invest.
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.
Link to strategy
Control and consolidate
Profitable production
Explore and develop
Realise value
Mitigation
Theoretically the Argentine domestic price is linked to the Brent
price; however, prices in Argentina are fixed monthly on a 29-day
average based on prior-month and in-month Brent prices.
Furthermore, the Argentine government has historically intervened
in the local oil price market, in both a positive and negative way.
Most recently, the government issued a decree in May 2020
establishing a fixed realised Medanito price of $45/bbl (‘Barril
Criollo’), subject to certain conditions, demonstrating the intention
of the government to support the industry where possible.
This intervention does result in an imperfect relationship to Brent
that makes designing effective hedging strategies difficult.
Relevant KPI by priority/significance
4, 5
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
Profitable production
Realise value
Mitigation
2020 saw continued devaluation of the Peso and rising inflation.
Further, the impact of the Covid-19 virus in 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
dropped, the refinery was reduced to operating at less than 60%
of capacity, causing several producing fields to be shut in due to
the lack of alternate sales routes. The group continues to look at
alternative routes to access other refineries.
Relevant KPI by priority/significance
4, 5
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19 Phoenix Global Resources plc Annual Report and Accounts 2020 9 Covid-19 virus The emergence of Covid-19 as a global pandemic has had a significant effect on economies worldwide. Potential impact – High Probability – High 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 combined with aggressive vaccination programs. Many businesses have significantly reduced activity with 'stay at home' working recommended for most employees. It is hoped that the rollout of global vaccination programs will gradually contain the spread of the virus and reduce fatalities and allow some sense of normality to return. However, this is an inherent risk that the Company must continue to address in terms of personal safety and business continuity. Link to strategy Profitable production Explore and develop Realise value Mitigation The response to the pandemic initially resulted in a significant and rapid reduction in demand for energy including oil and gas. Many industrial facilities were not operating, and substantially all non-essential travel has ceased, be that by road, rail or air. The near record low prices for oil as a result of a severe drop-off in demand resulted in the Company shutting production in April 2020 and implementing a significant cost reduction program and a deferral of all non-essential capex programs. Demand and oil prices subsequently improved with the Company restarting production in July 2020 with normal production restored by the end of the year. The Company has followed government policy and advice in respect of the safety of employees and consequential revised operational guidance. Relevant KPI by priority/significance 4, 5, 6 10 Fiscal and political 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 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 Control and consolidate 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 n/a GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Risk management continued
Principal Risks and Uncertainties continued
11
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
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.
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.
Potential impact – Medium
Probability – Low
Where we are not operator, we have less influence on the rate of
capital expenditure for development.
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.
The Company has a low appetite for this risk.
Link to strategy
Realise value
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,
an Argentine independent oil and gas company. Roch S.A. filed for
‘concurso preventive de acreedores’ in late 2020, similar to
Chapter 11 protection.
The Company has rights of audit over its joint venture partners in
relation to joint operations and regarding both financial and
operational matters and the exploration and development teams
plan to be more proactive in these projects to better support
the investment.
Relevant KPI by priority/significance
2, 3, 4, 5
We cannot influence demand by others but can ensure we
have the right relationships with suppliers and contractors.
Link to strategy
Control and consolidate
Explore and develop
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.
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 granting of a 35-year
unconventional concession at Mata Mora and the plans to
commence the exploration activities at Corralera in Q3 2021.
Relevant KPI by priority/significance
2
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Sustainability review 21 Phoenix Global Resources plc Annual Report and Accounts 2020 ESG The Company has a stated objective in 2021 to develop a clear policy and road map to ensure the Company has in place procedures and policies to manage its environmental, social and corporate governance responsibilities and established clear goals that minimise the impact of our operations on all stakeholders and the environment. Our first step in this process is to establish the baseline against which this will be measured and report our achievement against these targets. 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. Gender diversity Male – 45 staff representing 71% of the total work force Female – 18 staff representing 29% of the total work force 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 2020, Transparency International’s Corruption Perception Index (‘CPI’) ranked Argentina 74 out of 179 participating countries worldwide with a score of 42/100, down from 66 in 2019. By comparison the UK is ranked at 11 out of 179 with a score of 77/100. The CPI index assesses corruption perception in the public sector when ranking different countries. 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 behavior. 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. Our documented policies and supporting procedures are maintained in both Spanish and English, and cover: → anti-bribery and corruption; → gifts and entertainment; → third-party representatives; → whistleblowing. 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 behavior through our external legal counsel as an alternative to reporting internally. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Health and safety
The health and safety of our employees, contractors and visitors
to our sites is paramount. 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 2020 we paid more than
US$11.3 million in cash taxes in Argentina with US$23.4 million
paid at the Federal level and the balance in the Provinces where
we work.
Sustainability review continued
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 will review and revise our tendering policies,
processes and procedures as deemed necessary.
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.
Streamlined Energy and Carbon
Reporting (‘SECR’)
As a low energy user in the United Kingdom, the Company has
taken advantage of the available exemption for low energy users
and is, therefore, not required to make the detailed disclosures of
energy and carbon information under the SECR guidelines.
Environment
We are very conscious of the natural environment that we operate
in and work hard to minimise our impact on that environment. The
Company 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.
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Stakeholder engagement 23 Phoenix Global Resources plc Annual Report and Accounts 2020 Engaging effectively with and understanding the objectives of our diverse stakeholder groups is key to the long-term success of Phoenix in Argentina. The board ensures that the interests and views of stakeholders are considered as part of its decision-making process. A director of a company must act in the way they consider, in good faith, would most likely promote the success of the company for the benefit of the members as a whole, taking into account the factors listed in section 172 of the Companies Act 2006. The board has not allocated this responsibility to a specific board member but uses its board meetings as a mechanism for discharging its duties under section 172. Engagement with our shareholders and wider stakeholder groups plays a vital role throughout the business. Our directors are conscious of their responsibilities to act in the way that they consider, in good faith, would most likely promote the near and longer term success of the company for the benefit of its members as a whole, taking into account the factors as listed in section 172 of the Companies Act 2006. The key stakeholder groups identified by the board are set out here together with a summary of why and how we seek to engage with our wider stakeholder group to obtain feedback that is used to inform our strategic decision making. Our purpose To help develop Argentina’s unconventional oil and gas resources, safely and responsibly whilst making a positive contribution to the economies, communities and creating stakeholder value. Workforce Why it is important to engage? A motivated and professional workforce is vital to deliver complex operational projects and to meet our strategic goals. Important considerations: → Sense of ownership in the business → Open collaboration → Development of skills and capabilities → Corporate culture and consistent behaviour How do we engage? Internal communication, individual performance measurement and feedback reviews. Actions: → Regular Group updates by senior management → Individual performance feedback and corporate scorecard → Board interaction with teams → Clearly defined Company objectives → Implementation of an Operational Excellence Policy → Implementation of a Stop Work Policy Our partners Why it is important to engage? We partner with other industry players on certain projects to share knowledge, opportunity and risk. Important considerations: → Sharing of knowledge → Access to diverse experience → Maintain competitive advantage → Foster trust and collaboration → Understanding of each other’s objectives and values How do we engage? Maintenance of open dialogue at all times. Actions: → Regular joint operating and technical committee meetings → Senior management pre-project and post project reviews → Participation in industry bodies and initiatives → Discussions with oil and gas companies with activities in areas with similar geological characteristics GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 24
Stakeholder engagement continued Phoenix Global Resources plc Annual Report and Accounts 2020 24 Our investors Why it is important to engage? We provide regular detailed and transparent information to aid understanding of our strategy, business model and performance. Important considerations: → Building investor base support → Assisting investors in their decision making → Enhancement of long-term shareholder value How do we engage? Maintenance of regular dialogue with the markets and shareholders. Actions: → Periodic investor meetings → Regular news announcements → Annual General Meeting open to all shareholders → Dedicated investor relations email address → Shareholder representation on Covid-19 restructuring committee Communities and Provinces Why it is important to engage? We operate in many locations providing employment and paying royalties that support the social infrastructure in the communities in which we work. Important considerations: → Maintenance of our social licence to operate → Delivery of projects that exceed the environmental and safety expectations of the Provinces → Building trust in the communities that we work in and are part of How do we engage? Working with Provincial governments and provincial departments. Actions: → Regular meetings with Provincial governments, particularly when planning new projects → Working with Provincial departments including water, HSE, fire and emergency → Participation in multi-discipline safety drills with municipal authorities → Look back review with Provincial governments and departments following completion of a project Our suppliers Why it is important to engage? We work closely with and seek to build effective relationships with suppliers of specialised drilling, completion and other services that are critical to the delivery of our complex projects. Important considerations: → Maintenance of our social licence to operate → Delivery of projects that exceed the environmental and safety expectations of the Provinces → Building trust in the communities that we work in and are part of How do we engage? Proactive and responsive dialogue with suppliers. Actions: → Contract tendering and negotiating processes → Joint working teams on complex projects → Project debrief sessions → External benchmarking → Implementation of a Stop Work Policy The Strategic Report from pages 1 to 24 was approved by the board and signed by order of the board by Nigel Duxbury, Company Secretary, on 17 May 2021. Phoenix Global Resources plc Annual Report and Accounts 2020 25
Corporate Governance Statement 25 Phoenix Global Resources plc Annual Report and Accounts 2020 Chairman’s statement on corporate governance In 2018, a change to the AIM Rules required companies to formally adopt a recognised governance framework. At that time, it felt appropriate that we continue to work within the framework of the UK Corporate Governance Code (the ‘Code’) that is widely recognised to be most comprehensive for UK listed companies, whilst recognising 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 market for oil and gas companies became very challenging in 2020 and as part of our response and to safeguard the future of the Company, we had to make changes to the size of the board and reduce headcount. Recognising this reduced capacity in the business, the board agreed to adopt and report against the provisions of the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’) as opposed to the Code, which is considered appropriate for a Company of our nature and size. 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. The QCA has ten principles of corporate governance that the Company, as far as possible and practicable, has applied within the business. These principles are listed below and the board and employees across the business work to ensure that these principles are adhered to and any departure from these principals is detailed below, together with the reasons for non-compliance, our views on mitigating factors and our plans to move to compliance where appropriate and as much as the Company is able. The board not only sets expectations for the business but also works towards ensuring that strong values are set and carried out by the directors across the business. A strong corporate culture is paramount to the success of a business and the board strives to ensure that the objectives of the business, the principles and risks are underpinned by values of good governance that are fed down throughout the organisation. Effective engagement with and understanding the objectives of our shareholder groups is key to the long-term success of the Company and the board ensures that the interests and views of all shareholders and other stakeholders are considered as part of the decision-making process. This includes regular engagement with minority shareholders as well as the major shareholder. Unfortunately, during the year, as part of the plan to significantly reduce both operating and administrative costs, we have had to restructure the board, resulting in Kevin Dennehy, David Jackson and Javier Alvarez stepping down. We are sorry to see them go and wish them all the best for the future. Sir Michael Rake Non-executive Chairman 17 May 2021 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Corporate Governance Statement continued
The principles of the QCA Code
The QCA has ten principles of corporate governance that the Company, as far as possible and practicable, has committed to apply
within the business. The table below sets out the principles and how the Company applies them. Further information can also be viewed
on our website at www.phoenxiglobalresources .com
QCA Code
Principle
1.
Disclosure
Comments
Establish a strategy and business model which promote long-
term value for shareholders
The Company’s strategic objectives are laid out in
detail on page 2 of this report.
2.
3.
4.
5.
6.
7.
8.
9.
10.
26
Seek to understand and meet shareholder needs and
expectations
Take into account wider stakeholder and social responsibilities
and their implications for long-term success
Embed effective risk management, considering both
opportunities and threats, throughout the organisation
Maintain the board as a well-functioning, balanced team led by
the chair
Ensure that between them the directors have the necessary
up-to-date experience, skills and capabilities
Evaluate board performance based on clear and relevant
objectives, seeking continuous improvement
Promote a corporate culture that is based on ethical values
and behaviours
Maintain governance structures and processes that are fit for
purpose and support good decision-making by the board
Communicate how the Company is governed and is performing
by maintaining a dialogue with shareholders and other relevant
stakeholders
The board ensures that the interests and views of
shareholders are considered as part of its decision-
making process and is laid out in more detail on
page 23 of this report.
The board ensures that the interests and views of
stakeholders are considered as part of its decision-
making process and is laid out in more detail on
page 23 of this report.
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. The Group’s approach to risk
management is laid out in detail on pages 14 to 20
of this report.
The board comprises the Non-Executive
Chairman who was independent at the time
of his appointment to the board and five non-
executive directors, three who the board
considers independent.
Each of the non-executive directors commit up
to four days per month to the Company but are
expected to devote additional time in periods
of increased activity.
The number of board and committee meetings
attended by members is detailed on pages 27 to 35
of this report.
Information about the directors and their relevant
experience and skills can be found on pages 27 to 28
of this report.
There has been no formal evaluation of board
performance to date. See page 29 for a more
detailed explanation.
The board recognises the need to develop a
corporate culture consistent with the ethical values
and behaviours that are expected and ensures its
corporate governance policies and principles reflect
this goal. The Company operates a performance
scorecard to align individual objectives with KPIs and
stakeholder interests.
Details of the Company’s governance structures are
set out in the governance report on pages 25 to 50
and are available on the Company website.
The board ensures that the interests and views of
stakeholders are considered as part of its decision-
making process and is laid out in more detail on
pages 23 to 24 of this report.
Phoenix Global Resources plc Annual Report and Accounts 2020
26
Phoenix Global Resources plc Annual Report and Accounts 2020 27
The board 27 Phoenix Global Resources plc Annual Report and Accounts 2020 Overview and experience The board consists of six 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 on 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 is the senior independent director to whom shareholders can raise any issues or concerns or provide feedback to the board. A summary of the experience of each of the directors is provided below. Sir Michael Rake (age 73) Non-executive chairman and chairman and member of the nomination committee and member of the audit and risk and remuneration committees. Appointed on 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 of Great Ormond Street Hospital → Chairman of New Day Ltd → Chairman of Wireless Logic → Chairman of Majid Al Futtaim Holdings LLC Qualifications → Chartered accountant John Bentley (age 73) Senior independent director and chairman and member of the remuneration committee and member of the audit and risk and nomination committees. Appointed on 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 senior independent director of Wentworth Resources Ltd and a non-executive director of Africa Energy Corp. John holds a degree in Metallurgy from Brunel University. External appointments → Senior independent director of Wentworth Resources Ltd → Non-executive director of Africa Energy Corp. Qualifications → B.Tech (Hons) Metallurgy, Brunel University Martin Bachmann (age 62) Independent non-executive director and chairman of the audit and risk committee and member of the remuneration and nomination committees. Appointed on 1 September 2019. 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 Group Ltd → Non-executive director of Point Resources Holding AS Qualifications → MSc (Geophysics) from the Swiss Federal Institute of Technology (ETH) GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 The board continued
Tim Harrington (age 62)
Independent non-executive director. Appointed on
14 November 2018.
Skills and experience
Tim Harrington has over 39 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. 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’). Tim 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
→ Non-executive director of DJR Energy LLC
→ Non-executive director of TRP Energy LLC
Qualifications
→ BSc, Accounting, Miami University (Ohio) MBA,
Xavier University
→ Certified Public Accountant, Texas (inactive)
Daniel Jaeggi (age 60)
Non-executive director. Appointed on 14 November 2018.
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 51)
Non-executive director. Appointed on 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.
Board independence
Excluding the chairman, who was independent on his
appointment, more than 50% of the board comprises
independent non-executive directors.
In addition to Martin Bachmann’s fee as an independent non-
executive director, a consulting agreement is in place between the
Company and Martin Bachmann pursuant to 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.
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 table below. Apart from Nicolás Mallo Huergo, the minority
shareholder representative to the board, no director, including
the chairman, has served on the board for a period of longer than
nine years.
Director
Sir Michael Rake
John Bentley
Tim Harrington
Daniel Jaeggi
Nicolás Mallo Huergo
Considered
Independent
Date of
Appointment
Length of
Service
No
Yes
Yes
Yes
No
No
19 September
2016
10 August
2017
1 September
2019
14 November
2018
14 November
2018
4 years 6
months
3 years 8
months
1 years 7
months
2 years 4
months
2 years 4
months
2 October
2007
13 years 6
months
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. During the
year, no independent professional advice was required on
significant matters.
→ Non-executive director of EnergyFlo Chemical Applications LLC
Martin Bachmann
28
Phoenix Global Resources plc Annual Report and Accounts 2020
28
Phoenix Global Resources plc Annual Report and Accounts 2020
29
29 Phoenix Global Resources plc Annual Report and Accounts 2020 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. The external commitments of the directors also assist with keeping their skills up to date along with them engaging in external training for this purpose. The directors are also members of relevant professional bodies that also assists with keeping them abreast of market and regulatory changes. Responsibilities of the board The responsibilities of the board: Role Principal responsibilities Chairman → Manages and provides leadership to the board → Acts as a direct liaison between the board and management, working with the CEO to assist the flow of information that the directors have sufficient information to enable them to make informed judgements → Sets the agendas for board meetings working with the CEO, the CFO and Company Secretary → Recommends an annual schedule of board and committee meetings → Ensures effective communication with shareholders and other stakeholders Senior independent director → 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 Non-executive directors → Provide constructive challenge to the executives → 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 Company* Secretary → Provides advice and services to the board → Ensures compliance with laws and regulations applicable to the Company → Responsible for effective governance and that board procedures are followed * The CFO and Company Secretary roles are currently combined but the capacity in which these roles are performed and advice provided are clearly communicated at all times Evaluation of board performance The board will implement a process for the evaluation of its own performance, its committees and individual directors, including the Chairman. 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 when it is considered appropriate and in the best interests of the Company. At that time, the board will also review the structure of its committees. The board considers that it has the necessary mix of experience, skills, personal qualities, and capabilities to deliver the strategy of the Company for the benefit of the shareholders over the medium to long-term. This will be assessed further at the same time performance is assessed. Board changes During 2020, Kevin Dennehy, David Jackson and Javier Alvarez stepped down from the board. Meetings The directors’ attendance at scheduled meetings during 2020 is detailed below: Board attendance Role Meetings attended Sir Michael Rake Non-executive chairman 4/4 John Bentley Independent non-executive director 4/4 Kevin Dennehy1 Chief financial officer 2/2 Martin Bachmann Independent non-executive director 4/4 David Jackson2 Independent non-executive director 2/2 Javier Alvarez2 Independent non-executive director 2/2 Tim Harrington Independent non-executive director 4/4 Daniel Jaeggi Non-executive director 1/4 Nicolás Mallo Huergo Non-executive director 4/4 1 Resigned 21 May 2020 2 Resigned 30 June 2020 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Executives
Overview and Experience
The CEO and CFO, whilst not members of the board, regularly
attend board meetings and committee meetings. The CEO, Pablo
Bizzotto, is based in Buenos Aires, Argentina and has over 20
years’ experience in the oil industry. The CFO, Nigel Duxbury,
is based in London and has extensive experience with quoted
companies in the UK and in other jurisdictions and has significant
experience in the oil industry.
A summary of the experience of each of the senior executives
is provided below.
Pablo Bizzotto, CEO
Pablo was the Upstream Executive Vice President at YPF and prior
to that the Unconventional Resource Executive Manager at YPF
leading operations on the Vaca Muerta formation in the Neuquen
basin and some of Argentina’s most significant tight gas
development such as Rincon del Mangrullo. He previously worked
for more than 12 years with Pan American Energy, where he held
various positions, gaining experience in all basins in Argentina.
Pablo graduated from Comahue University in Neuquen City with a
degree in Petroleum Engineering and holds an MBA from
Barcelona University.
Qualifications
→ Degree in Petroleum Engineering from Comahie University and
MBA from Barcelona University.
Nigel Duxbury, CFO and Company Secretary
Nigel has over 10 years of experience in the oil and gas industry
which began with the reverse takeover of the Company in 2007.
He has a background in finance and accountancy, having qualified
as a chartered accountant with Touche Ross, London. Nigel has
extensive experience both as a finance director, company
secretary and senior executive in small and large, quoted and
unquoted, companies within Europe, Asia and the Americas.
Qualifications
→ BSc Reading University and Chartered Accountant.
Pablo Bizzotto, the CEO and Nigel Duxbury, the CFO and
Company Secretary, whilst not members of the board do not hold
any external appointments.
Responsibilities of the Senior Executives
Role
Chief
Executive
Officer
→ Provides broad leadership and promote
collaboration across the organisation
Principal responsibilities
→ Provides individual and collective coaching to
the senior management team
→ Works with the senior management team to
maintain a robust HSE and operating
management system
→ Works with the senior management team on
effective performance
management processes
→ Assists the senior 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 senior management
team and board in business development
opportunities and activity
→ Interfaces with the chairman, stakeholders
and board on matters of strategy and
material events
→ 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
Chief
Financial
Officer
30
Phoenix Global Resources plc Annual Report and Accounts 2020
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Phoenix Global Resources plc Annual Report and Accounts 2020
31
Board Committees 31 Phoenix Global Resources plc Annual Report and Accounts 2020 Overview The board has established audit and risk, remuneration and nominations committees. The reports from each of these committees are provided below. 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 2020 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. Audit and risk committee report Membership and attendance at scheduled meetings: Members Date appointed Date resigned David Jackson (chair) August 2017 June 2020 Javier Alvarez August 2017 June 2020 Sir Michael Rake August 2017 Martin Bachmann (chair) September 2020 John Bentley September 2020 Audit committee attendance Role Meetings attended David Jackson Chair/member 2/2 Javier Alvarez Member 2/2 Sir Michael Rake Member 3/3 Martin Bachmann Chair/member 1/1 John Bentley Member 1/1 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 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 and risk 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 and risk committee, he or she cannot chair the committee. Sir Michael Rake is currently a member of the audit and risk committee. 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 auditors 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 auditors. The chair also meets privately with the external auditors at least once per year, though will meet more frequently as circumstances dictate. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Board Committees 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 auditors;
→ to provide oversight of the work of the external auditors 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
auditors, 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
This situation is compounded by the political and economic
uncertainty in Argentina. The country is in its third straight year of
recession and whilst it announced at the end of August 2020 that
99% of the holders of the country’s US$65 billion international
bonds had agreed to restructure this debt discussions between
the Argentine government and the IMF to reschedule US$45 billion
of debt are ongoing and the outcome of the 2021 legislative
elections in Argentina is uncertain.
Notwithstanding, our major shareholder, Mercuria continues to be
supportive of the Company’s plans and continues to extend short-
term debt facilities to fund operations. Mercuria has written to the
Company stating its intention to continue to provide financial
support to the Company in order that it may continue to operate
and service its liabilities as they fall due in the next 12 months and
also fund the planned work programs. Mercuria has also
specifically agreed to not demand repayment of the existing loans
(principal and interest) within the next 12 months whilst
discussions with the Company to restructure these loans continue.
This letter, which by its nature is not legally binding, represents a
letter of comfort stating Mercuria’s current intention to continue
to provide financial support.
Impairment assessment – The Group’s accounting policy for long-
lived assets gives examples of potential triggers for impairment
that management will consider when assessing if a particular
asset may be impaired.
→ to monitor policies and procedures related to ethics, fraud
and whistleblowing.
These include:
Meeting frequency
The committee will usually meet at least three 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.
The significant issues considered by the audit and risk committee
in 2020 in relation to the financial statements and how each of
these were addressed are detailed below:
Going concern assessment – 2020 has been dominated by Covid-
19 and its rapid development as a life-threatening global
pandemic. Globally, respective governments’ response has been
one of containment through lock-down, social distancing
restrictions, quarantine and self-isolation for substantially all
citizens, whilst countries strive to roll out vaccination programs.
This has resulted in a significant adverse impact on industrial and
commercial activity, which led to the shut-down of the Company’s
production in April 2020. Consequently, the Company took
significant steps to reduce its costs in all areas of the business. The
directors believe these cost reduction actions mean the Company
is in a better position to produce oil economically at lower oil prices
with a positive contribution to cash flow at normalised production
levels, which will allow the Company to focus on the continued
development of its unconventional assets.
→ Exploration drilling that has not resulted in the discovery of
reserves in potentially commercial quantities;
→ Changes in oil and gas prices or other market conditions that
indicate 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
an area; or
→ The exploration licence or concession period has expired or is
due to expire.
In 2020 the primary method used in assessing impairment triggers
for producing assets, was an economic evaluation based on fair
values using the NPV15 of post-tax cash flows generated from the
2P reserves of producing assets of the associated cash generating
unit. Factors considered in this evaluation include:
→ Historic and expected production
→ EUR and type curve analysis
→ Capex
→ Opex
→ Discount factors
→ Price deck
32
Phoenix Global Resources plc Annual Report and Accounts 2020
32
Phoenix Global Resources plc Annual Report and Accounts 2020
33
33 Phoenix Global Resources plc Annual Report and Accounts 2020 For exploration assets, management considered risked fair values based on post-tax NPV15 of P3 reserves and contingent resources in conjunction with fair values assessed on a per acreage basis. Fair values attributed on a per acreage basis have been assessed by reference to values attributed to precedent transactions by comparing the following characteristics of the Company’s licences with comparable characteristics of licences the subject of precedent transactions: → °API → %TOC → Landing zones → Formation depth → DFIT (Psi) → Pressure gradient (Psi/ft) → Geohazards Where the calculated fair values are less than the carrying values an impairment test is performed. The 2020 impairment assessment review resulted in an impairment charge of US$35.9 million in respect of intangible assets and an impairment charge of US$ 128.6 million in respect of property, plant and equipment. See notes 13 and 14 on pages 77 to 81 for more details. Internal audit and partner audit activity As referenced above, the Group does not currently have an internal audit function and no internal audit reviews were undertaken in 2020. The board had not commissioned any specific internal audit reviews in 2019 either. 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 2021 will be undertaken using a specialist provider of internal audit services. External audit Pricewaterhouse Coopers LLP (‘PwC’) is the external auditors to the Group in respect of the 2020 annual report and financial statements. 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 auditors 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 2020 audit. Non-audit services The audit and risk committee has established a policy for the provision of non-audit services by the external auditors to ensure that these services do not impair the auditors' independence or objectivity. The policy identifies those services that the auditors 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 2020. Nominations Committee Report Membership and attendance at scheduled meetings: Members Date appointed Date resigned Sir Michael Rake (chair) August 2017 Javier Alvarez August 2017 June 2020 John Bentley August 2017 Martin Bachmann September 2020 Nominations Committee attendance Role Meetings attended* Sir Michael Rake Chair/member 1/1 Javier Alvarez Member 1/1 John Bentley Member 1/1 Martin Bachmann Member 0/0 * A second meeting was scheduled but cancelled due to the Covid-19 situation 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. 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; → 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 the periodic evaluation of the performance of individual directors and of the board as a whole. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Board Committees continued
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 2020
Kevin Dennehy, the CFO, stepped down from the board in May
2020 and non-executive directors, David Jackson and Javier
Alvarez stepped down from the board in June 2020 as part of the
mitigating cost saving actions taken by the Company. Together
with administrative support from the major shareholder, a search
process for a new CEO was initiated and culminated with the
appointment of Pablo Bizzotto and Nigel Duxbury, the Company
Secretary, was appointed CFO to replace Kevin Dennehy.
Priorities for the coming year
In 2021, the committee will continue to assess the skills present on
and the effectiveness of the board and will make additional
appointments as determined appropriate. Due to the board
changes during the year, the Company decided to defer a
performance evaluation of its board, committees and individual
directors including the Chairman. This will be kept under review in
the coming year.
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. 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.
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.
Remunerations Committee Report
Membership and attendance
at scheduled meetings:
Members
Date appointed
Date resigned
John Bentley (chair)
August 2017
David Jackson
Sir Michael Rake
August 2017
June 2020
August 2017
Martin Bachmann
September 2020
Remunerations
Committee attendance
John Bentley
David Jackson
Sir Michael Rake
Martin Bachmann
Role
Chair/member
Member
Member
Member
Meetings
attended*
2/2
1/1
2/2
1/1
* A third meeting was scheduled but cancelled due to the Covid-19 situation
Purpose
The primary functions of the committee are to assist the board in
relation to developing and implementing the remuneration policy
and practices of the Company for the chairman, the executive
directors and senior management. It is the committee’s
responsibility to ensure that the chairman, executive directors and
senior management are fairly and appropriately rewarded for
their individual contributions to its overall performance having due
regard to the financial and commercial position of the Group and
statutory and regulatory requirements. The committee operates
within agreed terms of reference, which are available on our
website.
The CEO. CFO and Company Secretary 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.
Overview
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 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 now applies the principles of the
Quoted Companies Alliance Corporate Governance Code (‘QCA
code’).
The Company has had to deal with the uncertainties and
challenges presented by the coronavirus (‘Covid-19’), which
together with the implementation of a cost reduction program
has seen a large number of staff leave the Company.
As a result, the committee, in these difficult times, has had
to exercise judgement in applying discretion in relation to
2020 remuneration levels, which it will continue to monitor
throughout 2021.
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35
35 Phoenix Global Resources plc Annual Report and Accounts 2020 2020 and Phoenix’s remuneration policy The aim is for executive remuneration at Phoenix to: → attract, retain and motivate individuals of a high calibre and appropriate experience; → align incentives with the Company’s strategic goals and business plans; → deliver rewards for strong and sustainable business performance whilst avoiding reward for failure; and → align the interests of the executive directors with those of shareholders. 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. Whilst target bonuses for 2020 were based on a combination of quantitative and subjective key performance indicators including corporate, operational, financial and personal performance, it was agreed, in these difficult times, that it was not appropriate to award any bonuses under the 2020 plan. In addition, it was decided not to grant any awards under its Long-Term Incentive Plan (‘LTIP’) in 2020. The remuneration policy set out on pages 36 to 43 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 2020 During the year Kevin Dennehy resigned from the board with effect from 21 May 2020 and resigned as CFO with effect from 30 November 2020. The committee applied the directors’ remuneration policy and exit payment policy when determining the appropriate termination arrangement for Kevin who was determined by the committee to be a ‘good leaver’. Additionally, as referred above: → No annual bonuses were awarded for 2020 → No awards were granted under the Company’s LTIP in 2020 Looking ahead to 2021 → The positions of CEO and CFO have been filled but the individuals have not been appointed to the board. → In the current environment any bonuses will primarily be determined on a discretionary basis. → The committee and board are reviewing the terms of the LTIP and awards are likely to be granted in 2021. → Following the reduction of non-executive fees in 2020, these will be reviewed in 2021. 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 particular 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 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 2020, the committee’s discretion was used, in line with the Company’s exit payment policy, in determining the payment to be made to Kevin Dennehy who resigned from the board. Further details on the use of committee discretion are provided on page 40. Given the high level of uncertainty created in the current environment, it is important to understand that the committee will need to apply discretion when applying and implementing a remuneration policy that is in the best interests of the Company and all its shareholders. Advisers The committee has replaced Mercer with Ellason as its independent adviser to support the Group on remuneration-related matters. Fees are determined on a time and material basis. No fees were paid to Ellason in 2020 and US$1,271 was paid to Mercer in 2020 (2019:US$55,263). GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Remuneration Policy Report
Remuneration policy report
Although the Company (being AIM quoted) is not subject to the
Directors’ Remuneration Regulations 2008 in the past the
remuneration committee prepared this report 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.
However, recent events have caused the Company to reassess its
position and whilst continuing to recognise the importance of
standards of governance, the Company now applies the principals
of the QCA code.
Notwithstanding, in recognition of the importance of
transparency and these standards of governance, the basic
principles of the remuneration policy below, that were applied in
previous years, were in general applied in 2020 and will still, in
general, be applied by the committee in 2021.
Remuneration policy for the executive directors
Purpose and link to strategy
Base salary
Operation
Opportunity
Performance measures
To attract and retain talented
executive directors to deliver
the Group’s strategy by
ensuring base salaries and the
implied 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.
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.
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Phoenix Global Resources plc Annual Report and Accounts 2020
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37 Phoenix Global Resources plc Annual Report and Accounts 2020 Purpose and link to strategy Operation Opportunity Performance measures 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. 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. n/a 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. 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. n/a GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Remuneration policy report continued
Purpose and link to strategy
Annual bonus
Operation
Opportunity
Performance measures
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 pay-out for on-target
performance is normally 50% of
maximum; threshold
performance results in zero pay-
out.
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 and clawback 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.
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Phoenix Global Resources plc Annual Report and Accounts 2020
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Phoenix Global Resources plc Annual Report and Accounts 2020
39
39 Phoenix Global Resources plc Annual Report and Accounts 2020 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. 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. 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. 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). GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Remuneration Policy Report continued
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.
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, In the committee's
opinion, 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.
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, which could, for
example, have an impact on bonus and share awards.
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 (see page 4). 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.
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.
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Phoenix Global Resources plc Annual Report and Accounts 2020
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Phoenix Global Resources plc Annual Report and Accounts 2020 41
41 Phoenix Global Resources plc Annual Report and Accounts 2020 Treatment of awards on cessation of employment Reason for cessation Calculation of vesting/payment Timing 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 cessation of employment. Following the end of the relevant financial year. All other reasons (including voluntary resignation). No bonus will be paid for the financial year. N/a 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. LTIP awards 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 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 of employment). 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. Change of control. 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. On change of control. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Remuneration Policy Report continued
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.
Consideration of shareholder views
The committee has in 2020 and will continue to 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.
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.
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43
43 Phoenix Global Resources plc Annual Report and Accounts 2020 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. 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. Fee increases will be applied taking into account the outcome of the annual review. 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. n/a 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. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Annual remuneration report
This section of the remuneration report provides details of how our remuneration policy was implemented during the year ending
31 December 2020 and how it will be implemented during the year ended 31 December 2021.
Single total figure of remuneration for executive directors
The table below sets out a single figure for the total remuneration received by the sole executive director who served during the year.
Kevin Dennehy was appointed as an executive director on 1 October 2018 and resigned from the board on 21 May 2020.
Director
Anuj Sharma4
Kevin Dennehy4
2020
2019
2020
2019
Base salary1
US$‘000
Taxable
benefits2
US$‘000
Annual
Bonus
US$‘000
LTIP
US$‘000
Pension
Benefit3
US$‘000
Total
US$‘000
–
195
156
400
–
3
111
220
–
–
–
–
–
–
–
–
–
29
26
67
–
227
293
687
1 The salaries of executive directors was 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 2020, Kevin Dennehy’s base salary figure reflects his annualised salary of US$400,000, pro-rata for the period from 1 January 2020 to 21 May 2020 (his date of
resignation).
2 Consists primarily of private medical insurance, life assurance and permanent health insurance. For 2019 Kevin Dennehy also received an annual foreign living and service allowance of
USD$100,000 and an annual housing allowance US$75,360. For 2020 Kevin Dennehy also received an annual foreign living and service allowance of USD$100,000 and an annual
housing allowance US$72,000 pro-rated for the period from 1 January 2020 to 21 May 2020 (his date of resignation) plus the reimbursement of repatriation costs.
3 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.
4 Anuj Sharma resigned as an executive director on 29 April 2019 and his annualised base salary at that time was US$620,000 and he received a pension benefit equivalent to 10% of
his salary. Kevin Dennehy resigned as an executive director on 21 May 2020 and his annualised base salary at that time was US$400,000 and he received a pension benefit
equivalent to 10% of his salary.
Single total figure of remuneration for non-executive directors
The table below sets out a single figure for the total remuneration received by each non-executive director who served during the year.
As an appointee of the Group’s substantial shareholder, Daniel Jaeggi waived his right to receive fees in connection with his
appointment.
Director
Sir Michael Rake
John Bentley1
Javier Alvarez2
David Jackson2,3
Nicolás Mallo Huergo
Daniel Jaeggi4
Tim Harrington5
Martin Bachmann6
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Basic fees
US$‘000
164
204
43
64
32
64
32
64
43
64
–
–
43
64
43
21
Additional
fees
US$‘000
–
–
30
25
–
–
7
4
–
–
–
–
230
–
132
40
Total
US$‘000
164
204
73
89
32
64
39
68
43
64
–
–
273
64
175
61
1 Additional fees paid for his appointment as the senior independent director and chairman of the remuneration committee
2 Resigned 30 June 2020
3 Additional fees paid for his appointment as the chairman of the audit and risk committee
4 Waived right to fees
5 Additional fees paid for consultancy services
6 Additional fees paid for his appointment as the chairman of the audit and risk committee on 1 October 2020 and for consulting services
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45 Phoenix Global Resources plc Annual Report and Accounts 2020 Incentive outcomes for the year ended 31 December 2020 No annual bonus payment for the executive director was awarded in 2020. LTIP award outcomes for the year ended 31 December 2020 No LTIP awards held by the executive directors vested in 2020. LTIP awards granted in 2020 No share awards were granted to the executive director under the LTIP in 2020. Statement of shareholdings and share interests of directors who served during the year Share interests as at 17 May 2021 are set out below: Director Number of beneficially owned shares1 No. DBP awards subject to vesting period only No. LTIP awards subject to performance conditions No. Warrants (see note 15.3) No. Total interests held as at 17 May 2021 No. Total interests held as at 19 June 2020 No. Sir Michael Rake 760,000 – – – 760,000 760,000 Kevin Dennehy 40,000 101,691 1,058,298 – 1,199,989 1,657,872 John Bentley 42,000 – – – 42,000 42,000 Javier Alvarez – – – – – – David Jackson 1,221,575 – – – 1,221,575 1,221,575 Nicolás Mallo Huergo 966,323 – – – 966,323 966,323 Daniel Jaeggi2 – – – – – – Tim Harrington – – – – – – Martin Bachmann – – – – – – 1 Beneficial interests include shares held directly or indirectly by connected persons 2 Daniel Jaeggi has an indirect interest in the Company through his interest in Mercuria, which holds approximately 83.6% 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 2020 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. On 21 May 2020 Kevin Dennehy stepped down from the board. His termination was in line with the provisions in his service contract, which entitled him to a payment for a six-month period following his resignation and the details are set out below: Element of remuneration US$‘000 Base salary 200 Taxable benefits 31 Pension benefits 35 Kevin was determined by the committee to be a 'good leaver' and outstanding awards under the Company’s bonus and LTIP plans shall continue to be capable of vesting subject to applicable performance conditions being met. The remuneration he received as an executive director is set out in the 2020 single figure table. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Annual remuneration report continued
Implementation of directors’ remuneration policy for 2021
Directors’ salaries and fees
There are currently no executive directors on the board.
In 2020 the non-executive directors accepted a 30% reduction in their fees.
The annual base fees for the non-executive directors at the beginning of the year are detailed below:
Director
Sir Michael Rake
John Bentley
Martin Bachmann
Tim Harrington
Nicolás Mallo Huergo
Daniel Jaeggi
Base fee
US$
143,754
64,176
48,132
32,088
32,088
–
The committee will carry out a review of the non-executive chairman’s fee early in 2021 and separately, the non-executive chairman and
the senior executives will also carry out a review of the non-executive director fees in 2021.
In the current economic environment, the committee will continue to regularly review current salary levels and recommend any
adjustments as it considers appropriate to mitigate the impact of the Covid-19 crisis.
Annual bonus and LTIP
The committee is reviewing the appropriateness of the Company’s remuneration policy, with the intention of considering recommending
a bonus program and awards under the LTIP in 2021.
Remuneration
Alignment of remuneration to values and culture
The Company has an incentive program that all members of staff participate in. The primary outcome of the program 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.
The directors’ remuneration report has been approved by the board and signed on its behalf by:
John Bentley
Chairman, remuneration committee
17 May 2021
Where applicable a rate of exchange of US$/£1.2835 has been used for 2020 and a rate of exchange of US$/£1.277 for 2019. 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.
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Directors’ report 47 Phoenix Global Resources plc Annual Report and Accounts 2020 Group directors’ report for the year ended 31 December 2020 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 2020. These will be laid before the shareholders at a general meeting to be held on 30 June 2021. 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. On 1 January 2020 there were 2,786,570,787 ordinary shares in issue, excluding 73,922 shares held as treasury shares. Substantial and significant interests in ordinary shares Based on the last TR-1 notices received, the major shareholders of the Group were as follows: Name Number of ordinary shares As a % of the issued ordinary shares Mercuria Energy Group Limited1 2,329,762,468 83.6% José Luis Manzano and family2 111,446,470 4.0% 1 Mercuria Energy Group Limited 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) Outstanding warrants to subscribe for ordinary shares At the year-end no warrants to subscribe for ordinary shares were outstanding. 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 certain Mercuria 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, more than 50% of the board of directors are independent non-executive directors. Contracts of significance At 1 January 2019, the Company had in place with Mercuria a ‘new convertible revolving credit facility’ 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, with a total of US$281 million drawn down at the year-end. The undrawn balance of US$10 million was made available through a non-convertible bridging facility, which has subsequently been increased to US$31 million, whilst the parties discussed the restructure of all credit facilities. Significant contracts with related parties are discussed in note 30 to the consolidated financial statements. Further details of the credit facilities and the amount outstanding under these facilities are discussed in note 22 to the consolidated financial statements. Dividends The directors do not recommend the payment of a dividend for the year (2019: nil). Directors The directors of the Company who were in office during the year and up to the date of signing the financial statements were: Name Board role First appointed Resigned Nicolás Mallo Huergo Non-executive 2 October 2007 n/a Javier Alvarez Non-executive (independent) 17 July 2012 30 June 2020 David Jackson Non-executive (independent) 17 July 2012 30 June 2020 Sir Michael Rake Non-executive chairman 19 September 2016 n/a John Bentley Non-executive (independent) 10 August 2017 n/a Kevin Dennehy Chief financial officer 1 October 2018 21 May 2020 Daniel Jaeggi Non-executive 14 November 2018 n/a Tim Harrington Non-executive 14 November 2018 n/a Martin Bachmann Non-executive (independent) 2 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. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Directors’ report continued
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 45.
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 also at the date of the approval of the
financial statements and continues to be so.
The Company has directors’ and officers' 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 2020 (year ended 31 December 2019: nil).
Auditors and disclosure of relevant
audit information
As far as each director is aware, there is no relevant audit
information of which the Company’s auditors are 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
auditors in the period, is aware of that information.
Following a review of both the independence and the effectiveness
of the auditors, 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.
Corporate governance
The Company’s statement on corporate governance can be found
in the corporate governance report on pages 25 to 50 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 June 2021. 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 www.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 program 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,
the Company’s ultimate majority shareholder.
2020 has been dominated by Covid-19 and its rapid development
as a life-threatening global pandemic. Globally, respective
governments’ response has been one of containment through
lock-down, social distancing restrictions, quarantine and self-
isolation for substantially all citizens, whilst countries strive to roll
out vaccination programs. This has resulted in a significant
adverse impact on industrial and commercial activity, which led to
the shut-down of the Company’s production in April 2020.
Consequently, the Company took significant steps to reduce its
costs in all areas of the business. The directors believe these cost
reduction actions mean the Company is in a better position to
produce oil economically at lower oil prices with a positive
contribution to cash flow at normalised production levels, which
will allow the Company to focus on the continued development of
its unconventional assets. This situation is compounded by the
political and economic uncertainty in Argentina. The country is in
its third straight year of recession and whilst it announced at the
end of August 2020 that 99% of the holders of the country’s
US$65 billion international bonds had agreed to restructure this
debt discussions between the Argentine government and the IMF
to reschedule US$45 billion of debt are ongoing and the outcome
of the 2021 legislative elections in Argentina is uncertain.
Notwithstanding, our major shareholder, Mercuria continues to be
supportive of the Company’s plans and continues to extend short-
term debt facilities to fund operations. Mercuria has written to the
Company stating its intention to continue to provide financial
support to the Company in order that it may continue to operate
and service its liabilities as they fall due in the next 12 months and
also fund the planned work programs. Mercuria has also
specifically agreed to not demand repayment of the existing loans
(principal and interest) within the next 12 months whilst
discussions with the Company to restructure these loans continue.
This letter, which by its nature is not legally binding, represents a
letter of comfort stating Mercuria’s current intention to continue
to provide financial support.
The directors believe they will be able to agree the renegotiation 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 discussion with the
Mercuria principals. Accordingly, the directors continue to adopt
the going concern basis for accounting in preparing the 2020
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 agreements
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.
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49 Phoenix Global Resources plc Annual Report and Accounts 2020 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 Page number Future developments Pages 2 to 3 Stakeholder engagement Pages 23 to 24 Acquisitions and disposals Pages 77 to 82 Anti-slavery disclosure Pages 21 to 22 Corporate governance statement Pages 25 to 50 Gender diversity Pages 21 to 22 Financial risk and financial instruments Pages 89 to 93 Important events subsequent to the year end Page 100 By order of the board Nigel Duxbury Company Secretary 17 May 2021 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Statement of directors’
responsibilities
The directors are responsible for preparing the annual report and
the financial statements in accordance with applicable law
and regulation.
Directors’ confirmations
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’s and Company’s auditors
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’s and
Company’s auditors are aware of that information
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 accounting standards in conformity
with the requirements of the Companies Act 2006.
Under company law, directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group for that period. In preparing the
financial statements, the directors are required to:
→ select suitable accounting policies and then apply them
consistently;
→ state whether applicable international accounting standards in
conformity with the requirements of the Companies Act 2006
have been followed, 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 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.
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Independent auditors’ report to the members of Phoenix Global Resources plc 51 Phoenix Global Resources plc Annual Report and Accounts 2020 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 2020 and of the Group’s loss and the Group’s and Company’s cash flows for the year then ended; → have been properly prepared in accordance with international accounting standards in conformity with the requirements 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 2020 (the “Annual Report”), which comprise: the Consolidated and Company Statements of Financial Position as at 31 December 2020; 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 Group financial statements and note 1 to the Company financial statements concerning the Group’s and the Company’s ability to continue as a going concern. 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 Energy Group Limited (“Mercuria”, who is also the major shareholder of the Company and its primary lender), 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. Mercuria 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 the remainder of 2021 and into 2022. This support is not legally binding. However, the Group has not completed the renegotiation of its current debt repayments to Mercuria, and the funding plan for financial years ending 31 December 2021 and 2022 has not yet been agreed. The ultimate form of this funding could be significantly different to what is currently being discussed with Mercuria. This situation could lead to a lack of future funding for capital and operating expenditures. If the Company is unable to access sufficient funding from its major shareholder, or from alternative sources, to meet the operational and development capex commitments and requirements, then it may not be able to continue to be a going concern. 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. These conditions, along with the other matters explained in those notes to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s and the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and the Company were unable to continue as a going concern. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Independent auditors’ report to the members of Phoenix Global
Resources plc continued
Our evaluation of the directors’ assessment of the Group's and the Company’s ability to continue to adopt the going concern basis of
accounting included:
→ We obtained management’s cash flow forecast for 2021 and 2022, 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 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 with their ability to support the Group.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
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 Buenos Aires. Our component audit team in Argentina, under the Group team’s
direction and supervision, performed process walkthroughs to understand and evaluate the key financial processes and controls across the
Group. Where work was performed by our component auditors in Argentina, we determined the level of involvement required to have in the
audit work for the consolidated Group 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 update and key meetings and other forms of
communication as considered necessary. 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 97% over consolidated revenue, 97% of consolidated total assets and
98% of absolute consolidated net assets. This, together with additional procedures performed at the consolidated level, gave us the evidence
we needed for our opinion on the Group financial statements as a whole.
Overview
Audit scope
→ 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 97% coverage of consolidated revenue, 97% of
consolidated total assets and 98% of absolute consolidated net assets for the Group.
Key audit matters
→ Material uncertainty related to going concern
→ Impairment of long-term assets and goodwill (Group)
→ Impairment of investments (Company)
→ Impact of COVID-19 (Group and Company)
Materiality
→ Overall Group materiality: US$2.3m (2019: US$3.3m) based on 0.5% of Total Assets.
→ Overall Company materiality: US$2.2m (2019: US$2.3m) based on 0.5% of Total Assets but capped at 95% of overall Group
materiality.
→ Performance materiality: US$1.7m (Group) and US$1.6m (Company).
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.
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.
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Phoenix Global Resources plc Annual Report and Accounts 2020 53
53 Phoenix Global Resources plc Annual Report and Accounts 2020 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. The key audit matters below are consistent with last year. Key audit matter How our audit addressed the key audit matter Impairment of long-term assets and goodwill (Group) Refer to Note 4 (Critical Accounting Estimates and Judgements), Note 5 (Accounting policies) and Notes 13 and 14 of the Group financial statements. 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. The Group had pre impairment carrying values of property, plant and equipment of US$287 million, exploration and evaluation assets of US$212.1 million and goodwill of US$35.8 million at 31 December 2020 allocated to 15 CGUs. The 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. We focused on these CGUs as well as the Puesto Rojas CGU as this was the most affected by drilling results, changes in reserves estimates and the long-term oil prices. The recoverable amount of the Group’s assets is calculated using fair value less costs of disposal calculations, which are based on future cash flow forecasts for producing CGUs and acreage values for unconventional non-producing CGUs. New reserve estimates have been obtained for all CGUs and have been used by management as part of their impairment assessment. Management’s impairment test determined that the recoverable amount of the Chachahuen, Puesto Rojas, La Paloma, El Manzano and other smaller CGUs, including the goodwill, was lower than the carrying value. As a result, a pre-tax impairment charge of US$164.5 million (2019: US$2.5 million) was recognised in the Consolidated Income Statement. We compared the forecasts used in the impairment model to the latest Board approved budget and management forecasts and compared prior year budget to actual results in order to assess historical estimation uncertainty and factor this into our challenge of current year projections. For the operating 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. For 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 be reasonable. In assessing the valuation of all CGUs, we challenged the key assumptions used by management such as commodity prices, reserves and discount rates. We obtained management’s internal reserve reports and assessed the competence and objectivity of the internal experts who estimated the reserves 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 there were impairment triggers and that the impairments recorded were supportable. We evaluated management’s sensitivities disclosed within the accounts in note 14 and have confirmed these are appropriate. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Independent auditors’ report to the members of Phoenix Global
Resources plc continued
Impairment of investments (Company)
Refer to Note 2 (Critical Accounting Estimates and Judgements),
Note 3 (Significant accounting policies) and Note 4 (Investments)
of the Company financial statements.
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.
The total carrying value of investments presented within the
Company financial statements as at 31 December 2020 is
US$428 million after current year impairment charges of
US$477 million at 31 December 2020 (2019: US$169.4 million).
In line with IAS 36, at the reporting date, management assessed
whether there was any indication that the investments in
subsidiaries may be impaired. Where an impairment trigger was
identified, management performed an exercise to determine the
recoverable amount of the underlying investments. The
recoverable amount of each investment was determined using
the assumptions consistent with the Group impairment analysis.
This resulted in an impairment charge of US$477 million across a
number of different investments as the fair value of the underlying
assets did not support the carrying value of the investment.
Impact of COVID-19 (Group and Company)
Disclosure of the risk to the Group of COVID-19 has been included
within the Strategic Report and Note 2 (Basis of Preparation).
The COVID-19 pandemic has had a significant impact on the
global economy and the operations of the Group. We considered
this an area of focus, with respect to future cash flow projections
in the context of impairment assessments, the appropriateness of
the going concern basis of preparation and consideration of other
key items such as recoverability of accounts receivable and long-
term assets. Given the spread of COVID-19, the range of the
potential outcomes are both uncertain and difficult to predict.
The directors have considered the impact of the pandemic on the
Group’s cash flows, day to day operations, and the carrying
amount of long-term assets and goodwill, and receivables, as well
as a need to recognise additional liabilities. As part of its going
concern assessment, management has performed an assessment
of the potential impact on the business. Furthermore, the
Directors implemented capital and operational expenditure saving
programmes.
Having taken into account these scenarios and a robust
assessment of planned and possible mitigating actions, the
directors have concluded that the Group remains a going concern,
however a material uncertainty exists in relation to the support
provided by Mercuria Energy Group Limited and the ability to
renegotiate the debt held.
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 obtained management’s impairment of investment in
subsidiaries assessment with supporting computations and:
→ Verified that the inputs to the assessment were
mathematically accurate and, where appropriate, consistent
with the goodwill impairment test set out in the key audit
matter above;
→ Recalculated the charge based on consistent assumptions used
within the Group’s impairment assessment; and
→ Compared the carrying value of the investment to the
recoverable amount and confirmed that the shortfall agrees to
the impairment recognised.
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.
We obtained the assessment of the impact of COVID-19 on the
Group’s operations, the recoverability of its long-term assets and
goodwill, liabilities and its ability to continue as a going concern.
We undertook the following procedures:
→ We considered the potential impact on the balance sheet,
specifically around the valuation of long-term assets and
goodwill as well as the recoverability of trade receivables;
→ Indicators of impairment were identified and as a result a
significant impairment has being recognised as discussed in the
key audit matter ‘Impairment of long-term assets and goodwill’
above;
→ No provisions or additional liabilities were deemed necessary in
respect of COVID-19 and as such none have been recorded; and
→ We reviewed the disclosures relating to the impact in the year
and the potential impact of COVID-19 and found them to be
consistent with the analysis performed.
The procedures that we performed to evaluate management’s going
concern assessment and our conclusions are included in the
“Conclusions relating to going concern” section below.
Overall, we consider the assessment by management in relation to
COVID-19 to be appropriate.
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55
55 Phoenix Global Resources plc Annual Report and Accounts 2020 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. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the Group audit team, or by our PwC network component team in Argentina. The Group’s assets and operations are all based in Argentina and all financial reporting is undertaken in Buenos Aires. Where the work was performed by the Argentina component team, we determined the level of involvement we needed to ensure sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial information as a whole. As COVID-19 prevented travel to Argentina, we were unable to make site visits as planned; we instead conducted our oversight of our component team through regular dialogue via conference calls, video conferencing and other forms of communication as considered necessary as well as remote working paper reviews to satisfy ourselves as to the appropriateness of audit work performed by our component team. We also attended key meetings virtually with local management and our component team. We reviewed the audit work of our component team, which included file reviews, participation in key audit discussions with local management and participation in the audit clearance meeting. Further specific audit procedures over the Group consolidation and review procedures over the Annual Report were directly performed by the Group audit team. 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: Financial statements - Group Financial statements - Company Overall materiality US$2.3m (2019: US$3.3m) US$2.2m (2019: US$2.3m) How we determined it 0.5% of Total Assets 0.5% of Total Assets but capped at 95% of overall Group materiality Rationale for benchmark applied 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 EBIT, 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. Materiality has been capped at 95% of overall Group materiality. 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$1.0m and US$2.3m. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to US$1.7m for the Group financial statements and US$1.6m for the Company financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above US$115k (Group audit) (2019: US$165k) and US$109k (Company audit) (2019: US$113k) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Independent auditors’ report to the members of Phoenix Global
Resources plc continued
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 and directors' report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
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 2020 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
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.
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, 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to compliance with UK and Argentine tax legislation, employment law and environmental legislation, and we
considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws
and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to posting inappropriate journal entries and management bias in accounting estimates.
The Group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit
procedures in response to such risks in their work. Audit procedures performed by the Group engagement team and/or component
auditors included:
→ Enquiries of Directors, management and the Group's legal counsel, including consideration of known or suspected instances of non-
compliance with laws and regulations and fraud.
→ Challenging assumptions and judgements made by management in relation to the Group’s accounting judgements and estimates
including the valuation of exploration and evaluation, development and production assets and reserve estimates.
→ Review of significant and/or unusual transactions during the year.
→ Identifying and testing journal entries based on our risk assessment.
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Phoenix Global Resources plc Annual Report and Accounts 2020 57
57 Phoenix Global Resources plc Annual Report and Accounts 2020 There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. 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 obtained 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 17 May 2021 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Consolidated Income Statement
For the year ended 31 December 2020
Revenue
Cost of sales
Gross loss
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 income/(expenses)
Operating loss
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
16
16
2020
US$’000
54,001
2019
US$’000
129,417
(81,401)
(144,813)
(27,400)
(15,396)
(1,958)
(2,746)
(171,129)
(6)
(14,892)
(1,527)
(5,230)
(4,240)
(27,753)
(28,971)
(27,144)
(1,417)
(219,658)
(110,151)
6,905
1,577
(22,276)
(26,247)
(235,029)
(134,821)
17
38,005
21,011
(197,024)
(113,810)
31
(0.07)
(0.04)
The above Consolidated Income Statement should be read in conjunction with the accompanying notes on pages 63 to 100.
58
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59
Consolidated Statement of Comprehensive Income For the year ended 31 December 2020 Phoenix Global Resources plc Annual Report and Accounts 2020 59 2020 US$’000 2019 US$’000 Loss for the year (197,024) (113,810) Translation differences – – Total comprehensive loss for the year (197,024) (113,810) The above items will not be subsequently reclassified to profit and loss. There are no impairment losses on revalued assets recognised directly in equity. The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes on pages 63 to 100. .GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Consolidated Statement of Financial Position
At 31 December 2020
Non-current assets
Property, plant and equipment
Intangible assets and goodwill
Other receivables
Deferred tax assets
Total non-current assets
Current assets
Assets held for sale
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Non-current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Current liabilities
Liabilities held for sale
Trade and other payables
Income tax liability
Borrowings
Provisions
Total current liabilities
Total liabilities
Net assets
Equity
Share capital and share premium
Other reserves
Retained deficit
Total equity
Note
2020
US$’000
2019
US$’000
13
14
19
26
13
27
19
20
21
22
26
28
13
21
22
28
158,357
324,249
211,974
246,540
4,124
20,116
4,744
18,534
394,571
594,067
11,965
18,208
18,349
25,399
5,386
61,099
18,202
34,527
11,002
81,939
455,670
676,006
299
5,370
6,641
146,751
53,682
15,965
87,636
15,784
76,587
255,541
447
447
25,909
39,446
920
870
325,592
156,865
121
120
352,989
197,748
429,576
453,289
26,094
222,717
457,183
456,734
(112,150)
(112,150)
(318,939)
(121,867)
26,094
222,717
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. The financial
statements on pages 58 to 100 were approved by the board of directors and authorised for issue on 17 May 2021 and were signed
on its behalf by:
Sir Michael Rake
Director
Company registration number 05083946
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Consolidated Statement of Changes in Equity For the year ended 31 December 2020 Phoenix Global Resources plc Annual Report and Accounts 2020 61 Capital and reserves Called up share capital US$’000 Share premium US$’000 Treasury shares US$’000 Retained (deficit)/ earnings US$’000 Other reserves US$’000 Total equity US$’000 At 1 January 2019 364,175 93,023 – (8,878) (112,150) 336,170 Loss for the year – – – (113,810) – (113,810) Total comprehensive loss for the year – – – (113,810) – (113,810) Purchase of own shares – – (572) – – (572) Issue of employee share options – – 108 (126) – (18) Cash settlement of employee share options – – – (154) – (154) Fair value of share based payments – – – 971 – 971 Fair value of warrants – – – 130 – 130 At 31 December 2019 364,175 93,023 (464) (121,867) (112,150) 222,717 Loss for the year – – – (197,024) – (197,024) Total comprehensive loss for the year – – – (197,024) – (197,024) Issue of employee vested shares – – 449 (449) – – Fair value of share based payments – – – 401 – 401 At 31 December 2020 364,175 93,023 (15) (318,939) (112,150) 26,094 Other reserves Merger reserve US$’000 Warrant reserve US$’000 Translation reserve US$’000 Total other reserves US$’000 At 1 January 2019 (112,000) 2,105 (2,255) (112,150) At 31 December 2019 (112,000) 2,105 (2,255) (112,150) At 31 December 2020 (112,000) 2,105 (2,255) (112,150) The above statement of Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes on pages 63 to 100. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Consolidated Statement of Cash Flows
For the year ended 31 December 2020
Cash flows from operating activities
Cash used in operations
Income taxes paid
Net cash outflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangibles
Payments for held for sale assets
Proceeds from sale of non-current assets
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Interest paid
Principle lease payments
Net cash inflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rates on cash and cash equivalents
Cash and cash equivalents at end of year
Note
2020
US$’000
2019
US$’000
32
(6,318)
(16,280)
(73)
(144)
(6,391)
(16,424)
(4,099)
(46,375)
(998)
(38,852)
(371)
–
15
–
7,563
(5,468)
(77,664)
23
23
23
25
14,260
96,000
(801)
(8,000)
(709)
(1,548)
(5,327)
(1,419)
7,423
85,033
(4,436)
(9,055)
11,002
21,085
(1,180)
(1,028)
20
5,386
11,002
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes on pages 63 to 100.
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63
Notes to the consolidated financial statements Phoenix Global Resources plc Annual Report and Accounts 2020 63 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 accounting standards in conformity with the requirements of 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 generates cash from its existing conventional oil and gas production operations. However, it was formed with the stated intention of undertaking a significant exploration, evaluation and development program focused on the Group’s unconventional oil and gas assets in Argentina, including the Vaca Muerta formation, which requires significant investment. To date, the funding required to support these activities has been provided by Mercuria. 2020 has been dominated by Covid-19 and its rapid development as a life-threatening global pandemic. Globally, respective governments’ response has been one of containment through lock-down, social distancing restrictions, quarantine and self-isolation for substantially all citizens, whilst countries strive to roll out vaccination programs. This has resulted in a significant adverse impact on industrial and commercial activity, which led to the shut-down of the Company’s production in April 2020. Consequently, the Company took significant steps to reduce its costs in all areas of the business. The directors believe these cost reduction actions mean the Company is in a better position to produce oil economically at lower oil prices with a positive contribution to cash flow at normalised production levels, which will allow the Company to focus on the continued development of its unconventional assets. This situation is compounded by the political and economic uncertainty in Argentina. The country is in its third straight year of recession and whilst it announced at the end of August 2020 that 99% of the holders of the country’s US$65 billion international bonds had agreed to restructure this debt discussions between the Argentine government and the IMF to reschedule US$45 billion of debt are ongoing and the outcome of the 2021 legislative elections in Argentina is uncertain. Notwithstanding, our major shareholder, Mercuria continues to be supportive of the Company’s plans and continues to extend short-term debt facilities to fund operations. Mercuria has written to the Company stating its intention to continue to provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the next 12 months and also fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and interest) within the next 12 months whilst discussions with the Company to restructure these loans continue. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria’s current intention to continue to provide financial support. The directors believe they will be able to agree the renegotiation 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 discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2020 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 agreements 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. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
2. Basis of preparation (continued)
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).
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. A list of the Group’s subsidiaries is included on page 107.
Non-controlling interests
There is no non-controlling interest at either 31 December 2019 or 2020.
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 6 to 10
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 2020
There are no new standards, amendments or interpretations effective and adopted by the Group in 2020.
3.2 New accounting standards issued but not yet effective or adopted by the Group in 2020
There are no new and amended accounting standards and interpretations published that are not mandatory for the year ended 31
December 2020.
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65
Phoenix Global Resources plc Annual Report and Accounts 2020 65 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. 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 program 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 Consolidated Statement of Financial Position. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
4. Critical accounting estimates and judgements (continued)
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 2020 and 2019 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.
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.
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.
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.
A 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.
Impairment
The Group assesses capitalised exploration, appraisal, development and production assets and goodwill for impairment where there is
an indication that an impairment may exist. This process includes management’s estimates of the key assumptions used in the
assessment review as detailed in notes 13 and 14 on pages 77 to 81.
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Phoenix Global Resources plc Annual Report and Accounts 2020 67 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. 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. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
5. Accounting policies (continued)
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 neither 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.
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.
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Phoenix Global Resources plc Annual Report and Accounts 2020 69 5. Accounting policies (continued) 5.6 Exploration and appraisal assets (continued) 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 that 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. The key assumptions in assessing cash flows are the sensitivity to market fluctuations, such as commodity prices, and the success of future exploration drilling programs. 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. 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. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
5. Accounting policies (continued)
5.7 Property, plant and equipment – development and production assets (continued)
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 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.
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%
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Phoenix Global Resources plc Annual Report and Accounts 2020 71 5. Accounting policies (continued) 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. 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. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
5. Accounting policies (continued)
5.13 Investments and other financial assets (continued)
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.
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Phoenix Global Resources plc Annual Report and Accounts 2020 73 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 2020 and leases of low-value assets with an annual cost of US$5,000 or less. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
6. Segment information
The Group’s executive management team comprising the chief executive officer and the chief financial officer has been determined
collectively as the chief operating decision maker for the Group. The information reported to the Group’s executive management team
for the purposes of resource allocation and assessment of segment performance is split between those assets which are operated by
the Group and those which are not.
The strategy of the Group is focused on the development of its unconventional operated assets in the Vaca Muerta and other
unconventional opportunities in Argentina, while optimising its operated conventional production assets. The Group also participates in
joint arrangements as a non-operated partner. Operated and non-operated assets of the Group have therefore been determined to
represent the reportable segments of the business. The third segment ‘corporate’, primarily relates to administrative costs, financing
costs and taxation incurred in running the business which are not directly attributable to one of the identified segments.
The Group’s executive management primarily uses a measure of earnings before interest, tax, depreciation, loss on termination of
licences and other impairment charge and loss on sale of non-current assets (‘EBITDA’) to assess the performance of the operating
segments. However, the executive management team also receives information about segment revenue and capital expenditure on a
monthly basis.
2020
Revenue
(Loss)/profit for the year
Add: Depreciation, depletion and amortisation
Less: Finance income
Add: Finance costs
Less: Taxation
EBITDA
Non-recurring expenses:
Operated
US$’000
Non-operated
US$’000
Corporate
US$’000
Total
US$’000
24,132
29,869
–
54,001
(155,759)
(49,054)
7,789
(197,024)
27,569
12,149
1,628
41,346
–
458
–
–
(6,905)
(6,905)
306
21,512
22,276
–
(38,005)
(38,005)
(127,732)
(36,599)
(13,981)
(178,312)
Add: Loss on termination of licences and other impairment charge
Add: Loss on sale of non-current assets
Adjusted EBITDA
127,501
43,628
6
–
–
–
171,129
6
(225)
7,029
(13,981)
(7,177)
Oil revenues
bbls sold
Realised price (US$/bbl)
Gas revenues
MMcf sold
Realised price (US$/MMcf)
Capital expenditure
Property, plant and equipment
Intangible exploration and evaluation assets
Total capital expenditure
Total assets
Total liabilities
24,130
28,029
605,476
776,435
39.85
36,10
2
0.90
2.22
1,840
928.63
1.98
–
–
–
–
–
–
52,159
1,381,911
37.74
1,842
929.53
1.98
2,627
2,934
5,561
315,784
1,475
1,015
2,490
60,281
98
–
98
4,200
3,949
8,149
79,605
455,670
(7,010)
(10,885)
(411,681)
(429,576)
74
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75
Phoenix Global Resources plc Annual Report and Accounts 2020 75 6. Segment information (continued) 2019 Operated US$’000 Non-operated US$’000 Corporate US$’000 Total US$’000 Revenue 49,355 80,062 – 129,417 Loss for the year (32,952) (50,611) (30,247) (113,810) Add: Depreciation, depletion and amortisation 32,470 31,954 1,633 66,057 Less: Finance income – – (1,577) (1,577) Add: Finance costs 381 465 25,401 26,247 Add: Taxation – – (21,011) (21,011) EBITDA (101) (18,192) (25,801) (44,094) Non-recurring expenses: Add: Loss on termination of licences and other impairment charge 11,938 15,815 – 27,753 Add: Loss on sale of non-current assets – 29,041 (70) 28,971 Adjusted EBITDA* 11,837 26,664 (25,871) 12,630 Oil revenues 49,341 65,311 – 114,652 bbls sold 1,050,157 1,340,561 – 2,390,718 Realised price (US$/bbl) 46.98 48.72 – 47.96 Gas revenues 14 14,751 – 14,765 MMcf sold 5.43 4,448.47 – 4,453.90 Realised price (US$/MMcf) 2.58 3.32 – 3.32 Capital expenditure Property, plant and equipment 34,630 19,015 3,774 57,419 Intangible exploration and evaluation assets 36,915 2,139 – 39,054 Total capital expenditure 71,545 21,154 3,774 96,473 Total assets 482,453 115,547 78,006 676,006 Total liabilities (6,774) (7,786) (438,729) (453,289) * Reclassified on basis consistent with 2020 disclosure There are no intersegment revenues in either year presented. The significant majority of oil and gas sales are made to the Argentina state-owned oil company, YPF. 7. Revenue 2020 US$’000 2019 US$’000 Crude oil revenue 52,159 114,652 Gas revenue 1,842 14,765 Total revenue 54,001 129,417 The Group makes all sales to external customers located mainly within Argentina. Substantially all of its oil production is sold to the Argentina state-owned oil company, YPF. Approximately 49% of gas production (2019: 70%) was sold to three separate external customers in the year. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
8. Cost of sales
Production costs
Depreciation of oil and gas assets
Movements in crude inventory
Total cost of sales
9. Administrative expenses
Staff costs
Professional fees
Other general and administrative expenses
Total administrative expenses
10. Other operating income and expenses
Income
Staff seconded to joint operations
Reversed provisions
Other income
Expense
Fair value of investments
Argentine bank transaction taxes
Other expenses
Total other operating income or expense
11. Auditors’ remuneration
Fees payable to the Company’s auditors and its associates for the audit
of the parent company and consolidated financial statements
Fees payable to the Company’s auditors and its associates for other services:
The audit of the Company’s subsidiaries
Review of the interim financial statements
Total auditors' remuneration
2020
US$’000
2019
US$’000
39,404
78,960
41,346
66,057
651
(204)
81,401
144,813
2020
US$’000
2019
US$’000
8,321
2,713
3,858
14,892
14,722
5,265
7,157
27,144
2020
US$’000
2019
US$’000
371
–
17
(823)
(992)
(100)
(1,527)
780
572
–
–
(2,285)
(484)
(1,417)
2020
US$’000
2019
US$’000
214
220
–
434
239
235
62
536
The Group has a policy in place for the award of non-audit work to the auditors which requires audit committee approval (refer to the
audit committee report on pages 31 to 33). No non-audit services were provided in 2020 (2019: none).
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Phoenix Global Resources plc Annual Report and Accounts 2020 77 12. Staff costs and headcount Staff costs 2020 US$’000 2019 US$’000 Wages and salaries 9,484 16,563 Social security costs 1,341 2,428 Other benefits 875 1,592 Share-based payments 401 893 Total staff costs 12,101 21,476 Average headcount 2020 No. 2019 No. Argentina 73 104 United Kingdom 4 4 United States of America 3 6 80 114 Key management compensation¹ 2020 US$’000 2019 US$’000 Short-term employee benefits 988 1,713 Post-employment benefits 61 36 Termination benefits 737 850 Total key management compensation 1,786 2,599 1 Includes PDMRs (CEO, CFO and COO) Detailed remuneration disclosures are provided in the remuneration report on pages 44 to 46. Share based payment disclosures are included in note 15.2 on page 112. 13. Property, plant and equipment Property, plant and equipment Other assets US$’000 Development and production assets US$’000 Assets under construction US$’000 Total US$’000 At 1 January 2020 Cost 13,072 539,100 7,290 559,462 Accumulated depreciation and impairment (7,159) (228,054) – (235,213) Net book amount 5,913 311,046 7,290 324,249 Year ended 31 December 2020 Opening net book amount 5,913 311,046 7,290 324,249 Additions 19 2,398 1,783 4,200 Transfers – 107 (107) – Exploration costs written off – (116) – (116) Depreciation charge (1,637) (39,709) – (41,346) Impairment charge – (128,630) – (128,630) Closing net book amount 4,295 145,096 8,966 158,357 Cost 13,091 541,489 8,966 563,546 Accumulated depreciation and impairment (8,796) (396,393) – (405,189) Net book amount 4,295 145,096 8,966 158,357 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
13. Property, plant and equipment (continued)
Additions
Additions to property, plant and equipment in the year ended 31 December 2020 do not include any interest capitalised in respect of
qualifying assets (2019: US$0.3 million). The total amount of interest capitalised within property, plant and equipment at 31 December
2020 is US$3.1 million (2019: US$3.1 million).
Exploration costs
Exploration costs written off in 2020 include US$0.1 million related to Laguna El Loro and Chachahuen.
Assets held for sale
Assets held for sale relates to certain non-core development and production assets in the non-operated segment with a net book value
of US$12.0 million. An amount of US$0.5 million is also recognised as held for sale in current liabilities in relation to the ARO provision
associated with these assets. In 2020 management engaged in an active program for the sale of these assets and expected to conclude
discussions with interested parties before the end of the year. However, the Covid-19 pandemic meant these discussions had to be
deferred as the Company focused on other priorities. It is still the intention of management to sell these non-core assets and
management has now re-engaged with interested parties and is actively pursuing the sale of these assets, which it looking to complete
in 2021. For this reason, the Company continues to recognise these assets as assets held for sale but has recognised an impairment of
US$6.6 million in 2020 in recognition of management’s estimate of the fall in the net realisable value of these assets. The asset is
included with non-operated assets in the segment analysis in note 6 on page 74.
Property, plant and equipment
At 1 January 2019
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 31 December 2019
Opening net book amount
Additions
Transfers
Transfers from intangible assets
Transfers to assets held for sale – cost
Disposal of assets – cost
Termination of licences – cost
Exploration costs written off
Depreciation charge
Impairment charge
Transfers to assets held for sale – accumulated DD&A
Disposal of assets – accumulated DD&A
Termination of licences – accumulated DD&A
Closing net book amount
Cost
Accumulated depreciation and impairment
Net book amount
Development
and
production
assets
US$’000
Other
assets
US$’000
Assets under
construction
US$’000
Total
US$’000
9,431
694,747
6,070
710,248
(5,680)
(338,377)
–
(344,057)
3,751
356,370
6,070
366,191
3,751
3,990
–
–
356,370
18,078
34,131
43,287
(349)
(67,233)
–
–
–
(126,950)
(53,334)
(3,626)
(1,788)
(64,269)
–
309
–
–
(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
5,913
311,046
7,290
324,249
13,072
539,100
7,290
559,462
(7,159)
(228,054)
–
(235,213)
5,913
311,046
7,290
324,249
Exploration costs
Exploration costs written off in 2019 include US$3.4 million related to the unsuccessful exploration well in the operated segment that
was previously being held as suspended.
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Phoenix Global Resources plc Annual Report and Accounts 2020 79 13. Property, plant and equipment (continued) 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 was 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 on page 82. 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. There has been no change in the CGU asset classification year-on-year. The Group’s accounting policy for long-lived assets gives examples of potential triggers for impairment that management will consider when assessing if a particular asset may be impaired. Climate change is another factor to be considered and this is reflected in the assumptions used to calculate the discount factor, in particular the beta factor and the country risk. These include: → Exploration drilling that has not resulted in the discovery of reserves in potentially commercial quantities; → Changes in oil and gas prices or other market conditions that indicate 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 an area; or → The exploration licence or concession period has expired or is due to expire. In 2020, the primary method used in assessing impairment triggers for producing assets, was an economic evaluation based on fair values (level 3) less costs of disposal using the NPV15 (2019: NPV10) of post-tax cash flows generated from the 2P reserves of producing assets of the associated cash generating unit over the life of the concession. Factors considered in this evaluation include: → Historic and expected production → EUR and type curve analysis → Capex → Opex → Discount factors → Price deck For exploration assets, management considered risked fair values based on post-tax NPV15 of P3 reserves and contingent resources in conjunction with fair values assessed on a per acreage basis (in 2019 impairment was assessed by comparing book value to its respective NPV12 value). Fair values attributed on a per acreage basis have been assessed by reference to values attributed to precedent transactions by comparing the following characteristics of the Company’s licences with comparable characteristics of licences the subject of precedent transactions: → °API → %TOC → Landing zones → Formation depth → DFIT (Psi) → Pressure gradient (Psi/ft) → Geohazards Where the calculated fair values are less than the carrying values an impairment test is performed. Prices used in the assessment were based on an average of prices sourced from various banks and analysts at the year-end increasing from a forecast Brent price of US$50.16/bbl in 2021 to US$66.38/bbl in 2030 and thereafter (2019: US$65/bbl with a 1.5% per annum increase over time). The impairment assessment review resulted in a pre-tax impairment charge of US$128.6 million (2019: US$2.5 million) in respect of property, plant and equipment, primarily resulting from a revision in reserves associated with one CGU following poor results from a drilling program and changes to the price deck assumptions. Management also carried out sensitivity analysis to determine the impact of changes in the price and discount factor assumptions. A summary of this sensitivity analysis is included at the end of note 14 below. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
14. Intangible assets and goodwill
Exploration and evaluation assets are primarily the Group’s licence interests in exploration and evaluation assets located in Argentina.
The exploration and evaluation assets consist of both conventional and unconventional oil and gas properties.
Intangible assets
At 1 January 2020
Cost
Accumulated amortisation and impairment charges
Net book amount
Year ended 31 December 2020
Opening net book amount
Additions
Exploration cost written off
Impairment charge
Closing net book amount
At 31 December 2020
Cost
Accumulated amortisation and impairment charges
Net book amount
Exploration
and evaluation
assets
US$’000
Goodwill
US$’000
Total
US$’000
260,007
215,759
475,766
(224,169)
(5,057)
(229,226)
35,838
210,702
246,540
35,838
210,702
246,540
–
–
3,949
3,949
(2,630)
(2,630)
(15,223)
(20,662)
(35,885)
20,615
191,359
211,974
260,007
217,078
477,085
(239,392)
(25,719)
(265,111)
20,615
191,359
211,974
Additions
Additions to intangible assets during the year predominately relate mainly to work programs carried out on the Mata Mora, Corralera
and El Manzano concessions.
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$’000
260,007
225,172
485,179
(224,169)
–
(224,169)
35,838
225,172
261,010
35,838
–
–
–
–
–
–
225,172
39,054
261,010
39,054
(43,287)
(43,287)
(616)
(230)
(5,057)
(4,334)
(616)
(230)
(5,057)
(4,334)
35,838
210,702
246,540
260,007
215,759
475,766
(224,169)
(5,057)
(229,226)
35,838
210,702
246,540
80
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81
Phoenix Global Resources plc Annual Report and Accounts 2020 81 14. Intangible assets and goodwill (continued) Additions Additions to intangible assets during 2019 related to the conclusion of the drilling of the MMx-1001 well, the drilling of the MMx-1002 well and subsequent flowback and other testing and completion works completed at Mata Mora. Additions also included costs associated with securing the Group’s interest in the Corralera Noroeste concession. The costs associated with the MMx-1001 and MMx-1002 wells were transferred to development and production assets within property, plant and equipment on completion of flowback and determination of commercial reserves. The remaining exploration and evaluation costs associated with the Mata Mora licence will be held as intangibles until the licence area is commercially developed. Impairment tests for exploration and evaluation assets Exploration and evaluation assets are subject to impairment testing prior to reclassification as tangible fixed assets where commercially viable reserves are confirmed. Where commercially viable reserves are not encountered at the end of the exploration phase for an area the accumulated exploration costs are written off in the income statement. Impairment tests for goodwill Goodwill is monitored by management at the level of the operating segments identified in note 6. A segment level summary of goodwill allocation is presented below. At acquisition Operated US$’000 Non-operated US$’000 Corporate US$’000 Total US$’000 Chachahuen & Cerro Morado Este – 15,223 – 15,223 Corralera 16,780 – – 16,780 Mata Mora 3,835 – – 3,835 Total goodwill 20,615 15,223 – 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. Impairment The carrying value of goodwill has been assessed for impairment at the year-end on basis detailed in note 13 on page 77. Where the calculated fair values are less than the carrying values an impairment test is performed. The impairment assessment review resulted in an impairment charge of US$15.2 million (2019: US$0 million) in respect of goodwill and US$20.7 million (2019: US$5.1 million) in respect of exploration and evaluation assets. Sensitivity – property, plant, equipment and intangible assets Management carried out sensitivity analysis to determine the impact of changes in the price and discount factor assumptions in the impairment charge recognised on property, plant and equipment (see note 13 above) and intangible assets. A +US$5/bbl/-US$5/bbl per annum price change reduced/increased the total impairment charge by approximately US$16.8 million and US$18.2 million respectively and -5%/+5% per annum change in the discount rate reduced/increased the total impairment charge by approximately US$21 million and US$22.9 million respectively. At year end the goodwill is presented below: At December 2020 Operated US$’000 Non-operated US$’000 Corporate US$’000 Total US$’000 Corralera 16,780 – – 16,780 Mata Mora 3,835 – – 3,835 Total goodwill 20,615 – – 20,615 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
15. Disposal of non-current assets
Loss on sale of non-current assets in the year was US$0.01 million (2019: US$29.0 million) and is broken down in the table below.
Gain/(loss) on sale of non-current assets
Disposal of Santa Cruz Sur
Disposal of Sur Rio Desde licence
Disposal of vehicles
Other disposals
Loss on sale of non-current assets
2020
USD $’000
2019
USD $’000
–
–
–
(6)
(6)
(29,609)
550
88
–
(28,971)
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. Works had begun on the commitment and at
December 2020 there are a total of US$0.2 million pending to be completed.
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Phoenix Global Resources plc Annual Report and Accounts 2020 83 16. Finance income and costs 2020 US$’000 2019 US$’000 Finance income Interest income 186 370 Income from short-term investments 461 753 Net exchange gains on foreign currency borrowings 37 12 Other finance gains 6,221 442 Total finance income 6,905 1,577 Finance costs Interest on borrowings (15,904) (16,627) Accretion of discount on asset retirement obligation (764) (846) Loan arrangement fees (90) (1,500) Other finance costs (2,036) (2,117) Exchange differences (3,482) (5,157) Total finance cost (22,276) (26,247) Net finance cost (15,371) (24,670) The net decrease in cost was primarily driven by the benefit on transfers of US$ into Argentina under the 'contado con liquidacion' mechanism (recognised in other finance gains above), a reduction in the foreign exchange losses on Peso denominated balances held by the Company and a reduction in other finance costs. 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 there are nil for 2020 and for 2019 a total of 6.9% for US Dollar denominated secured bank loans. In the year to 31 December 2020, no interest expense in respect of qualifying assets was capitalised as part of additions to property, plant and equipment (2019: US$0.3 million). GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
17. Taxation
Current tax
Current tax credit/(expense) on loss for the year
Total current tax credit /(expense)
Deferred income tax
Movement in deferred tax
Total deferred tax credit
Income tax benefit
Reconciliation of income tax expense to notional tax credit calculated using corporate tax rate:
Loss from continuing operations before income tax expense
Tax at the Argentina tax rate of 30% (2019: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Effect of currency translation on tax values
Effect of change in tax rate
Disposal of assets
Expenses not deductible for taxation
Deferred tax assets not recognised
Inflation adjustment
Other
Total income tax benefit
2020
US$’000
2019
US$’000
2,469
2,469
(260)
(260)
35,536
35,536
38,005
21,271
21,271
21,011
2020
US$’000
2019
US$’000
(235,029)
(134,821)
70,509
40,446
(6,071)
(10,649)
(7,875)
(7,989)
(1,315)
12,028
(1,960)
(523)
(6,784)
(6,308)
(4,883)
(842)
38,005
(7,481)
(1,287)
21,011
The corporate income tax rate in Argentina in 2020 was 30% (2019: 30%) and applies to profits earned and losses suffered in the year
to 31 December 2020.
Under the December 2017 tax reform plan implemented by the Argentina tax authorities, (the Administración Federal de Ingresos
Públicos or ‘AFIP’), the corporate income tax rate was to be further reduced to 25% for years ending 31 December 2020 and forward. In
December 2019 however, new tax reforms were implemented by the incoming government under Law 27,541. Under the new legislation,
it was established that the reduced corporate rate of 25% would not be applicable until the year ending 31 December 2021 and forward.
An additional tax rate of 7% is applied to dividends when the corporate income tax rate is 30%. This additional dividend tax will
be increased to 13% when the corporate tax rate is reduced to 25% in 2021.
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85
Phoenix Global Resources plc Annual Report and Accounts 2020 85 18. Financial assets and liabilities Financial assets 2020 Assets at FV-P&L US$’000 Assets at amortised cost US$’000 Total US$’000 Trade and other receivables 1,812 15,597 17,409 Cash and cash equivalents – 5,386 5,386 Total financial assets 1,812 20,983 22,795 Financial assets 2019 Assets at FV-P&L US$’000 Assets at amortised cost US$’000 Total US$’000 Trade and other receivables 2,648 19,950 22,598 Cash and cash equivalents – 11,002 11,002 Total financial assets 2,648 30,952 33,600 The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above. Financial liabilities 2020 Derivatives: hedging US$’000 Liabilities at amortised cost US$’000 Total US$’000 Trade and other payables – 23,135 23,135 Borrowings – 332,233 332,233 Total financial liabilities – 355,368 355,368 Financial liabilities 2019 Derivatives: hedging US$’000 Liabilities at amortised cost US$’000 Total US$’000 Trade and other payables – 44,616 44,616 Borrowings – 303,616 303,616 Total financial liabilities – 348,232 348,232 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 2020, the Group held US$0.5 million of financial assets related to equity instruments whose fair value is assessed by reference to Level 1 inputs in the fair value hierarchy. There are no transfers to Level 2 or Level 3. All other financial instruments held by the Group at 31 December 2020 were assessed by reference to Level 3 inputs. At 31 December 2019, the Group held US$ 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 31 December 2019 were assessed by reference to Level 3 inputs. The Group’s maximum exposure to various risks associated with the financial instruments is discussed in note 24. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
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
2020
2019
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
467
1,345
1,812
9,578
(101)
9,477
5,132
14,609
1,478
7,500
25,399
–
–
–
–
–
–
988
988
–
3,136
4,124
467
1,345
1,812
9,578
(101)
9,477
6,120
15,597
1,478
10,636
29,523
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
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.
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 2020 and 1 January 2020 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
2020 was determined to be 0% of total sales (2019: 0.4% of total sales), which is immaterial to the Group financial statements. No loss
allowance has therefore been recognised in either period presented.
Other receivables include primarily amounts due for the surrender of Company tax losses (see note 30 on page 98) and non-operated
joint venture balances and are determined to be low credit risk and no loss allowance has been recorded against this balance in the
period.
Contingent consideration was recognised on the sale of AEA S.A. in November 2018 and represents the fair value attributed to restricted
cash held in escrow in respect of licence guarantees in Colombia and held in favour of the ANH, the Colombian regulator, in respect of
which the Company has a right of recovery.
20. Cash and cash equivalents
Cash at bank and in hand
Short-term investments
Total cash and cash equivalents
2020
US$’000
2019
US$’000
773
4,613
5,386
8,832
2,170
11,002
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.
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Phoenix Global Resources plc Annual Report and Accounts 2020 87 21. Trade and other payables 2020 2019 Current US$’000 Non-current US$’000 Total US$’000 Current US$’000 Non-current US$’000 Total US$’000 Trade payables 7,166 – 7,166 16,869 – 16,869 Accrued staff costs 1,035 – 1,035 3,271 – 3,271 Social security and other taxes 2,774 299 3,073 2,922 1,278 4,200 Royalties 973 – 973 1,172 – 1,172 Lease obligations 195 – 195 1,281 4,092 5,373 Accrued expenses 8,732 – 8,732 9,901 – 9,901 Other payables 5,034 – 5,034 4,030 – 4,030 Total trade and other payables 25,909 299 26,208 39,446 5,370 44,816 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. Lease obligations have decreased in 2020 as a result of the Company reaching agreement with the supplier of power generators to buy-out the lease, which was subsequently cancelled (see note 25 on page 93). 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 2020, with the remaining obligations presented as non-current. 22. Borrowings 2020 2019 Current US$’000 Non-current US$’000 Total US$’000 Current US$’000 Non-current US$’000 Total US$’000 Secured Bank loans 2,598 6,641 9,239 10,055 – 10,055 Total secured borrowings 2,598 6,641 9,239 10,055 – 10,055 Unsecured Bank loans – – – – – – Loans from related parties 322,973 – 322,973 146,782 146,751 293,533 Other loans 21 – 21 28 – 28 Total unsecured borrowings 322,994 – 322,994 146,810 146,751 293,561 Total borrowings 325,592 6,641 332,233 156,865 146,751 303,616 Secured liabilities and assets pledged as security Secured liabilities relate to US Dollar denominated loans at an interest rate of Libor + 700 points for Dollar loans and Badlar + 700 points for Peso loans (2019: interest fixed rate of 8.0%). At 31 December 2020 the Group held US$ 2.7 million loans in Argentine Peso (2019: US$nil). Loans from related parties The related party loan at 31 December 2020 relates to a convertible rolling credit facility (‘RCF’) and non-convertible bridging facility ('BF') 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 advanced a bridging and working capital facility to the Group for the amount of US$160.0 million. In February 2018, US$100.0 million of the 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. In December 2018, Mercuria advanced an additional US$25.0 million as a Facility B element to the RCF. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
22. Borrowings (continued)
In February 2019, a further US$50.0 million was made available under this Facility B element. The original loan of US$160.0 million
became Facility A.
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$10.0 million and in March 2020 by an additional US$ 6 million.
At 31 December 2020, a total facility of US$291.0 million was available to the Company, with a total of US$281.0 million drawn down
under the facility, with the undrawn balance of US$ 10 million made available through the BF, which was subsequently increased to US$
11.5 million, with US$ 11.26 million drawn down at the year end.
All funds drawn down under the RCF and BF bear interest at three-month LIBOR+4%. The RCF provides for a grace period for
repayments (interest and principal) from 1 January 2019 to 30 June 2021 with a maturity date of 31 December 2021 amortised in equal
quarterly repayment instalments from and including 30 June 2021 until maturity. The BF, principal and interest, is repayable by 30 June
2021. At the year-end US$30.7 million of interest had been capitalised.
Mercuria has the right to convert all or part of the outstanding principal of Facility A into additional new ordinary shares of the Company
at a price of £0.45 per share. This conversion right can be exercised at any time from 30 June 2018 until 10 business days prior to the
maturity of Facility A. A similar conversion feature exists in relation to Facility B at a price of £0.28 per share exercisable from 30 June
2019 until 10 business days prior to the maturity date and in relation to Facility C at a price of £0.23 per share exercisable from 30 June
2020 until 10 business days prior to the maturity date.
Fair value
Differences identified between the fair values and carrying amounts of borrowings are as follows:
Bank loans
Other loans
Loans from related parties
Total
2020
Carrying
amount
US$’000
Fair value
US$’000
2019
Carrying
amount
US$’000
Fair value
US$’000
9,239
8,981
10,055
10,018
21
21
28
28
322,973
301,844
293,533
288,668
332,233
310,846
303,616
298,714
The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as Level
3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.
23. Changes in liabilities arising from financing activities
1 January
2020
US$’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
2020
US$’000
Non-cash changes
Current liabilities
Borrowings
Non-current liabilities
Borrowings
156,865
13,459
(709)
140,110
15,904
146,751
–
–
(140,110)
–
Total borrowings 2020
303,616
13,459
(709)
Total borrowings 2019
200,284
88,000
(1,548)
–
–
15,904
16,627
–
–
–
(37)
325,592
–
6,641
(37)
332,233
265
(12)
303,616
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89
Phoenix Global Resources plc Annual Report and Accounts 2020 89 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 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. 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 companies within the Group, the US Dollar has been determined to be the functional currency of the operating subsidiaries and the parent. This determination also reduces the exposure to foreign exchange gains and losses. Market risk – commodity prices Future revenue transactions Cash flow forecasting and budgeting 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. Market risk – interest rate Long-term borrowings held at variable rates Sensitivity analysis The Group has an active treasury management function and places excess cash on hand on overnight or term deposit. Credit risk Cash and cash equivalents and trade receivables Aging analysis Credit checks and credit ratings 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. Liquidity risk Borrowings and other liabilities Rolling cash flow forecasts 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 2020 the government has re-introduced some exchange controls restricting the repayment of financial debt outside Argentina, the sale of securities with foreign currency settlement by non-residents and the settlement of securities transactions entered into or acquired outside Argentina. These new regulations do not have a direct impact on the Group’s operations. 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 2020 or in the prior year. Capped commodity pricing was removed in August 2018, following which an export retention tax was implemented, which resulted in a downward impact of approximately 10% on crude prices throughout 2019, with the well-head realisable price linked to Brent. 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. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
24. Financial risk management (continued)
The emergence of Covid-19 as a global pandemic in 2020 resulted in the average Brent crude price falling year-on-year by 33%, from an
average of US$64/bbl in 2019 to an average of US$43/bbl In 2020. In May 2020, Argentina’s Government issued a decree establishing a
fixed realised Medanito price of $45/bbl (‘Barril Criollo’), subject to certain conditions, demonstrating the intention of the government to
support the industry where possible. This pricing support remained in place until September when the Brent crude benchmark price
exceeded US$45/bbl for 10 consecutive days, which was one of the conditions that would cause the support to expire.
The continued government intervention in crude pricing has meant that the relationship between realised prices and the Brent crude
benchmark has remained imperfect, and as such the design of effective hedge protection against commodity risk is difficult. The Group
therefore did not take out any derivative commodity contracts during the year.
The Group is primarily exposed to foreign exchange risk related to bank deposits, debtors or creditors that are denominated in Argentine
Pesos or Pounds Sterling. The Group’s exposure to foreign exchange risk at the end of the reporting period, expressed in US Dollars, was
as follows:
US$’000
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Denominated in:
£GBP
222
11
AR$
23,140
5,200
(1,171)
(17,288)
–
(21)
(938)
11,031
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 (2019: 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
2020
US$’000
1,009
2019
US$’000
1,508
(1,009)
(1,508)
2020
US$’000
2019
US$’000
–
–
–
–
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
2020
US$’000
2019
US$’000
2020
US$’000
2019
US$’000
5,216
11,465
(5,216)
(11,465)
184
(184)
1,477
(1,477)
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.
90
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Phoenix Global Resources plc Annual Report and Accounts 2020 91 24. Financial risk management (continued) Market risk – interest rate risk (continued) The exposure of the Group’s borrowings to interest rate changes is as follows: 2020 US$’000 % of total loans US$’000 2019 US$’000 % of total loans US$’000 Variable rate borrowings 332,213 100 293,502 97 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: Impact on post-tax profit and loss Impact on other components of equity 2020 US$’000 2019 US$’000 2020 US$’000 2019 US$’000 Interest rate increase by 100 basis points1 1,618 1,689 – – Interest rate decrease by 100 basis points1 (1,618) (1,689) – – 1 Assumes all other variables held constant 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 2020, US$4.6 million was held on deposit with institutions in Argentina. During 2020 the Argentine economy experienced high volatility, with significant devaluation of the Peso and full-year price inflation exceeding 36%. Moody’s Latin America assigned a new domestic rating for Argentina´s entities as there are not globally comparable with the full universe of Moody's rated entities. The new rating ends with AR and these deposits relate solely to amounts held on deposit with financial institutions in Argentina. 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 2020 YPF had a credit rating of A+.ar (Moody’s Latin America, a new domestic rating from the credit rating from Argentina´s entities), in 2019 was Caa2 in the global rating. The credit rating of A+.ar would indicate that the Company has a low credit risk in respect of sales made to YPF; also, 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 were recorded at 31 December 2020. 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. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
24. Financial risk management (continued)
Credit risk (continued)
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
1 Group 1 – new customers (less than six months)
Group 2 – existing customers (more than six months) with no past default
Cash at bank and short-term deposits (Moody’s)
Aa2
Aa3
A1
Baa1
Baa3
Baa2
Caa1
Caa2
AA+.ar
AA.ar
A+.ar
B1.ar
Other
2020
US$’000
2019
US$’000
2
3,059
3,061
33
3,047
3,080
2020
US$’000
2019
US$’000
–
510
–
–
–
4
–
–
4,758
1
1
99
13
3,540
1,991
369
8
88
–
115
4,888
–
–
–
–
3
Total cash and cash equivalents
5,386
11,002
At 31 December 2020, trade receivables of US$0.6 million were past due but not impaired (2019: US$3.6 million). The aging analysis of
these trade receivables is as follows:
Up to 3 months
3 to 6 months
Over 6 months
2020
US$’000
2019
US$’000
112
42
406
560
2,499
411
674
3,584
Liquidity risk
Liquidity risk relates to the Group’s ability to meet its obligations as they fall due. The Group generates cash from its operations.
Management monitors investment plans, and in particular, those in relation to exploration expenditure that may not be cash generative
in the short term, against available cash and cash equivalents, forecast cash from operations and maturity dates of financial liabilities
before final sanction and deployment of cash to a project. Undrawn borrowing capacity, where available, is also taken into account.
The following table shows the Group’s financial liabilities by relevant maturity groupings based on contractual maturities. The amounts
included in the analysis are the contractual undiscounted cash flows.
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Phoenix Global Resources plc Annual Report and Accounts 2020 93 24. Financial risk management (continued) Liquidity risk (continued) 31 December 2020 Less than 1 year US$’000 Between 1 and 2 years US$’000 Between 2 and 5 years US$’000 Over 5 years US$’000 Total contracted cash flows US$’000 Carrying amount US$’000 Trade and other payables 22,940 – – – 22,940 22,940 Lease obligations 195 – – – 195 195 Borrowings 340,709 7,376 – – 348,085 332,233 363,844 7,376 – – 371,220 355,368 31 December 2019 Less than 1 year US$’000 Between 1 and 2 years US$’000 Between 2 and 5 years US$’000 Over 5 years US$’000 Total contracted cash flows US$’000 Carrying amount US$’000 Trade and other payables 38,165 1,054 1,318 – 40,537 35,243 Lease obligations 1,679 1,926 2,790 – 6,395 5,373 Borrowings 169,017 149,867 – – 318,884 303,616 208,861 152,847 4,108 – 365,816 344,232 Capital Management The Group manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder value. The Group’s funding is primarily met though short-terms credit facilities provided by its major shareholder, Mercuria. Mercuria has indicated its intention to continue to provide financial support and fund planned work programs, but your attention should be drawn to the going concern note 2 on page 63. 25. Leases The balance sheet includes the following amounts related to leases: A) Right-of-use asset Other fixed assets US$’000 Assets under construction US$’000 Total US$’000 At 1 January 2019 869 – 869 Additions – 5,861 5,861 Depreciation (415) – (415) At 31 December 2019 454 5,861 6,315 Transfer to property, plant and equipment – (5,861) (5,861) Depreciation (279) – (279) At 31 December 2020 175 – 175 In August 2019, the Company entered into a new finance lease contract for the provision of power generators at the Puesto Rojas concession. An amount of US$5.9 million was capitalised as a right-of-use asset to assets under construction on commencement of the lease. During 2020, the lease was terminated and the equipment was acquired and transferred to development and production assets. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
25. Leases (continued)
B) Lease liability
At 1 January 2019
New leases
Cash payments of principal and interest
Interest charged
At 31 December 2019
Cash payments of principal
Interest charged
At 31 December 2020
Of which:
Current
Non-current
Other fixed
assets
US$’000
Assets under
construction
US$’000
Total
US$’000
869
5,861
(1,419)
62
–
5,861
(970)
–
4,891
5,373
(4,891)
(5,327)
–
–
–
–
–
149
195
195
–
195
869
–
(449)
62
482
(436)
149
195
195
–
195
In 2019 a lease liability of US$5.9 million was recognised on commencement of the power generation lease at Puesto Rojas. In 2020 the
Company reached agreement with the supplier to buy-out the lease, which was subsequently cancelled.
26. Deferred tax balances
Argentina tax law does not contain the concept of tax groups and therefore deferred tax assets and liabilities cannot be offset between
and among companies registered in Argentina and falling under the control of the same shareholder. Outside of Argentina, the Group
does not have sufficient concentration of subsidiaries in a single tax jurisdiction to warrant seeking tax group status to allow the offset
of assets and liabilities.
The corporate income tax rate in Argentina in 2020 was 30% (2019: 30%). In December 2019, tax reforms were implemented by the
incoming Argentine government. Under the new legislation, it was established that the reduced corporate tax rate of 25% would not be
applicable until the year ended 31 December 2021 and forward. An additional tax rate of 7% will be applied to dividends when the
corporate income tax rate is 30%. This additional dividend tax will be increased to 13% when the corporate tax rate is reduced to 25%
in 2021.
Deferred tax assets and liabilities are calculated at the rate of 25% or 30% taking into consideration the expected time of recovery.
Deferred tax assets
Tax losses
Provisions
Others - Foreign exchange and interest
Total deferred tax assets
2020
US$’000
19,757
1,898
3,900
25,555
2019
US$’000
14,468
1,723
7,064
23,255
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$6.8 million (2019: US$6.3 million) in respect of
tax losses amounting to US$22.6 million (2019: US$14.1 million) as there is insufficient evidence that the potential assets will be
recovered and wrote off a US$4.0 million deferred tax asset recognised at the time of the reverse takeover and not considered
recoverable.
Assessed tax losses amounting to US$20.4 million (2019: US$14.5 million) will expire between 2023 to 2025 (2019: 2020 to 2024).
94
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95
Phoenix Global Resources plc Annual Report and Accounts 2020 95 26. Deferred tax balances (continued) Deferred tax assets (continued) Movements Tax losses US$’000 Provisions US$’000 Other US$’000 Total US$’000 At 1 January 2019 2,525 3,055 7,151 12,731 Credited/(charged) to profit and loss 11,943 (1,332) (87) 10,524 At 31 December 2019 14,468 1,723 7,064 23,255 Movements Tax losses US$’000 Provisions US$’000 Other US$’000 Total US$’000 At 1 January 2020 14,468 1,723 7,064 23,255 Credited/(charged) to profit and loss 5,289 175 (3,164) 2,300 At 31 December 2020 19,757 1,898 3,900 25,555 The timeframe for expected recovery or settlement of deferred tax assets is as follows: 2020 US$’000 2019 US$’000 No more than 12 months after the reporting year 5,798 8,802 More than 12 months after the reporting year 19,757 14,453 25,555 23,255 Deferred tax liabilities The balance comprises temporary differences attributable to: 2020 US$’000 2019 US$’000 Property, plant and equipment and intangible assets (48,402) (84,463) Inventories (1,322) (1,861) Inflation adjustments (9,397) (6,033) Total deferred tax liabilities (59,121) (92,357) 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 an 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 year an amount of US$1.5 million (FY19: US$ 1.5 million) has been included in current taxes, with an additional US$9.4 million (FY19: US$ 6.0 million) included within deferred tax liabilities in relation to this adjustment. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
26. Deferred tax balances (continued)
Deferred tax liabilities (continued)
Movements
At 1 January 2019
(Charged)/credited to profit and loss
Disposal of assets
At 31 December 2019
Movements
At 1 January 2020
(Charged)/credited to profit and loss
At 31 December 2020
Property,
plant and
equipment
and intangible
assets
US$’000
Inventories
US$’000
Inflation
adjustments
US$’000
Other
US$’000
Total
US$’000
(101,310)
(42)
–
(1,751)
(103,103)
4,819
12,028
(1,819)
(6,033)
1,751
–
–
(84,463)
(1,861)
(6,033)
–
–
Property,
plant and
equipment
and intangible
assets
US$’000
Inventories
US$’000
Inflation
adjustments
US$’000
Other
US$’000
(84,463)
36,061
(1,861)
(6,033)
539
(3,364)
(48,402)
(1,322)
(9,397)
–
–
–
(1,282)
12,028
(92,357)
Total
US$’000
(92,357)
33,236
(59,121)
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
Deferred tax liabilities
Net deferred income tax liability
2020
US$’000
2019
US$’000
25,555
23,255
(59,121)
(92,357)
(33,566)
(69,102)
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
Crude oil
Spare parts and equipment
Total
2020
US$’000
2019
US$’000
20,116
18,534
(53,682)
(87,636)
(33,566)
(69,102)
2020
US$’000
1,147
17,202
18,349
2019
US$’000
1,798
16,404
18,202
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 year. Weighted average cost is determined by dividing the total production costs for
the year by the volume of barrels produced in the year.
Inventories recognised as an expense in the year relate to the change in crude inventory year-on-year reflecting the timing of the actual
sale of the crude as opposed to being expensed based on production volumes in the year. For certain fields, inventory is accumulated in
storage pending tanker collection. Depending on the timing of collection, crude produced in one year can be sold in the following year
resulting in inventory at the year end.
96
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Phoenix Global Resources plc Annual Report and Accounts 2020 97 28. Provisions and contingent liabilities 2020 2019 Current US$’000 Non-current US$’000 Total US$’000 Current US$’000 Non-current US$’000 Total US$’000 Decommissioning and site restoration – 11,555 11,555 – 11,385 11,385 Legal claims 121 4,030 4,151 120 4,199 4,319 Other – 380 380 – 200 200 Total 121 15,965 16,086 120 15,784 15,904 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 using a discount rate of 7% and inflation of 2%. 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 a 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. Other provision These are contractual obligations contingent on certain events occurring. Movements in provisions Movements in each class of provisions during the financial year are set out below: Decommissioning and site restoration US$’000 Legal claims US$’000 Other US$’000 Total US$’000 At 1 January 2019 13,382 4,587 – 17,969 Additional provisions recognised 115 1,519 200 1,834 Unwinding of discount 846 – – 846 Amounts used during the year – (1,787) – (1,787) Disposal of assets (2,511) – – (2,511) Classified as held for sale at year end (447) – – (447) At 1 January 2020 11,385 4,319 200 15,904 Additional provisions recognised – 488 180 668 Unwinding of discount 764 – – 764 Amounts used during the year (100) (146) – (246) Exchange differences – (385) – (385) Revision of abandonment cost provision (494) (125) – (619) At 31 December 2020 11,555 4,151 380 16,086 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
29. Commitments
At 31 December, the Group had the following licence commitments:
Operated
Non-operated
Total
2020
US$’000
2019
US$’000
120,335
124,081
4,340
7,940
124,675
132,021
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. In the case
commitments are not met, authorities could execute the performance bonds provided as surety that do not in total exceed US$6.0
million and could also apply contractual fines up to a total of US$10.0 million.
Classification
Not later than one year
Later than one year and not later than five years
Total
2020
US$’000
12,401
112,274
2019
US$’000
51,919
80,102
124,675
132,021
30. Related party transactions
Significant shareholder
Mercuria Energy Group Limited is the ultimate majority shareholder of the group. A relationship agreement is in place between the
Company and certain Mercuria group companies. The relationship agreement has been put in place to protect the rights of minority
shareholders and limits the control that Mercuria can exercise over the Group, primarily through restricting the number of Mercuria
appointed directors on the board. Mercuria is also prevented from removing directors from the board. By maintaining a minority of
Mercuria appointed directors on the board, those directors cannot carry a majority vote individually or in concert. The relationship
agreement also requires directors nominated by Mercuria to excuse themselves from certain board decisions.
Transactions with owners
On 22 October 2020 entered into an agreement with Mercuria Energy Limited, a subsidiary of the Mercuria group, pursuant to which the
Company could surrender Company tax losses to Mercuria Energy Limited by way of group relief and receive as consideration 50% of
the product of losses surrendered and the effective rate of tax. During 2020, the Company received US$ 2.8 million as consideration for
losses surrendered under this agreement.
Subsidiaries
Interests in subsidiaries are set out in note 4 to the Company financial statements.
Loan from Mercuria Group
The loan from Mercuria at 31 December 2020 relates to a convertible rolling credit facility (‘RCF’) and non-convertible bridging facility
('BF') 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 advanced a bridging and working capital facility to the Group for the amount of
US$160.0 million. 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. 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.
The original loan of US$160.0 million became Facility A.
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$10.0 million and in March 2020 by an additional US$ 6 million.
At 31 December 2020, a total facility of US$291.0 million was available to the Company, with a total of US$281.0 million drawn down
under the facility, with the undrawn balance of US$ 10 million made available through the BF, which was subsequently increased to US$
11.5 million, with US$ 11.26 million drawn down at the year end.
All funds drawn down under the RCF and BF bear interest at three-month LIBOR+4%. The RCF provides for a grace period for
repayments (interest and principal) from 1 January 2019 to 30 June 2021 with a maturity date of 31 December 2021 amortised in equal
quarterly repayment instalments from and including 30 June 2021 until maturity. The BF, principal and interest, is repayable by
30 June 2021.
98
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99
Phoenix Global Resources plc Annual Report and Accounts 2020 99 30. Related party transactions (continued) Loan from Mercuria Group (continued) Refer to note 22 for further details. Analysis of amounts advanced and interest paid are shown in the table below: Loan from Mercuria 2020 US$’000 2019 US$’000 Beginning of the year 293,533 182,009 Loans advanced 14,260 96,000 Interest charged 15,242 15,773 Interest paid (62) (249) At 31 December 322,973 293,533 31. Loss per share Basic and diluted loss per share 2020 US$ 2019 US$ From continuing operations attributable to the ordinary equity holders of the Company (0.07) (0.04) Total basic loss per share attributable to the ordinary equity holders of the Company (0.07) (0.04) Basic and diluted loss per share 2020 US$’000 2019 US$’000 Loss attributable to the ordinary equity holders of the Company used in calculating basic earnings per share: From continuing operations (197,024) (113,810) (197,024) (113,810) Weighted average number of shares used as the denominator Number of shares 2020 ‘000 2019 ‘000 Adjustments for calculation of diluted earnings per share: At 1 January 2,785,024 2,786,645 At 31 December 2,786,571 2,785,024 Potential dilutive ordinary shares 3,386 3,989 Weighted average number of shares used as the denominator in calculating diluted earnings per share 2,788,956 2,785,791 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the consolidated financial statements continued
32. Cash used in 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
Interest received on short term investments
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
Decrease/(increase) in trade and other receivables
(Decrease) in trade and other payables
Increase/(decrease) in provisions
Cash used in operations
33. Adjusted EBITDA
The adjusted EBITDA is calculated as follows:
Loss for the year from continuing operations
Add: Depreciation, depletion and amortisation
Add: Finance costs
Add: Finance income
Add: Taxation
EBITDA
Non-recurring expenses:
Add: Loss on termination of licences and other impairment charge
Add: Loss on sale of non-current assets
Adjusted EBITDA
2020
US$’000
2019
US$’000
(235,029)
(134,821)
16,916
(5,796)
764
152
1,386
(462)
2,746
171,129
–
–
401
19,361
(824)
846
62
3,862
–
3,856
7,557
28,971
20,196
893
41,346
66,057
(147)
(1,233)
12,341
(22,745)
(12,120)
(8,165)
55
(153)
(6,318)
(16,280)
2020
US$’000
2019
US$’000
(197,024)
(113,810)
41,346
66,057
(6,905)
(1,577)
22,276
26,247
(38,005)
(21,011)
(178,312)
(44,094)
171,129
6
(7,177)
27,753
28,971
12,630
34. Post balance sheet events
Credit facilities
On 31 January 2021, the non-convertible bridging facility provided by Mercuria was increased to US$20 million and subsequently further
increased to US$21 million on 30 March 2021, to US$26 million on 12 April 2021, to US$31 million on 19 April 2021 and to US$41 million on
7 May 2021. The convertible facility grace period for repayments (interest and principal) was extended to 30 June 2021 with a loan
maturity date of 31 December 2021 with the non-convertible bridging facility, principal and interest, repayable by 30 June 2021.
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101
Company Statement of Financial Position At 31 December 2020 Phoenix Global Resources plc Annual Report and Accounts 2020 101 Note 2020 US$’000 2019 US$’000 Non-current assets Property, plant and equipment 5 63 204 Intangible assets 6 21,380 21,380 Investments in subsidiaries 4 427,980 894,759 Other receivables 8 141,305 132,772 Total non-current assets 590,728 1,049,115 Current assets Cash and cash equivalents 9 21 3,539 Equity investments 7 467 1,303 Trade and other receivables 8 36,874 31,056 Total current assets 37,362 35,898 Total assets 628,090 1,085,013 Non-current liabilities Trade and other payables 10 18,263 17,854 Borrowings 11 – 146,751 Provisions 17 1,060 – Total non-current liabilities 19,323 164,605 Current liabilities Trade and other payables 10 5,200 5,533 Income tax liability 524 600 Borrowings 11 322,973 146,782 Provisions 17 180 1,060 Total current liabilities 328,877 153,975 Total liabilities 348,200 318,580 Net assets 279,890 766,433 Equity Share capital and share premium 14 457,183 456,734 Other reserves 329,155 329,155 Retained deficit (506,448) (19,456) Total equity 279,890 766,433 The Company made a loss for the year of US$486.9 million (2019: US$ 184.5 million). The above Company Statement of Financial Position should be read in conjunction with the accompanying notes. The financial statements on pages 101 to 115 were approved by the board of directors and authorised for issue on 17 May 2021 and were signed on its behalf by: Sir Michael Rake Director Company registration number 05083946 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Company Statement of Changes in Equity
For the year ended 31 December 2020
Capital and reserves
At 1 January 2019
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
At 31 December 2019
Loss for the year
Total comprehensive loss for the year
Issue of employee vested shares
Fair value of share-based payments
Called up
share capital
US$’000
364,175
Share
premium
US$’000
93,023
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Treasury
shares
US$’000
Retained
earnings
US$’000
Other
reserves
US$’000
Total equity
US$’000
–
–
–
(572)
108
–
–
–
164,212
329,155
950,565
(184,489)
(184,489)
–
(126)
(154)
971
130
–
–
–
–
–
–
–
(184,489)
(184,489)
(572)
(18)
(154)
971
130
364,175
93,023
(464)
(19,456)
329,155
766,433
–
–
–
–
–
–
–
–
–
–
449
–
(486,944)
(486,944)
(449)
401
–
–
–
–
(486,944)
(486,944)
–
401
At 31 December 2020
364,175
93,023
(15)
(506,448)
329,155
279,890
Other reserves
At 1 January 2019
At 31 December 2019
At 31 December 2020
Merger
reserve
US$’000
327,042
327,042
327,042
Warrant
reserve
US$’000
Translation
reserve
US$’000
Deferred
consideration
US$’000
Total other
reserves
US$’000
2,105
2,105
2,105
8
8
8
–
–
–
329,155
329,155
329,155
The above Company Statement of Changes in Equity should be read in conjunction with the accompanying notes.
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103
Company Statement of Cash Flows For the year ended 31 December 2020 Phoenix Global Resources plc Annual Report and Accounts 2020 103 Note 2020 US$’000 2019 US$’000 Cash flows from operating activities Cash used in operations 13 (6,965) (108,595) Net cash used in operating activities (6,965) (108,595) Cash flows from investing activities Investment in subsidiaries (10,660) – Net cash outflow from investing activities (10,660) – Cash flows from financing activities Proceeds from borrowings 14,260 96,000 Interest paid (62) (368) Interest received 8 67 Principle lease payments (90) (127) Net cash inflow from financing activities 14,116 95,572 Net decrease in cash and cash equivalents (3,509) (13,023) Cash and cash equivalents at the beginning of the financial year 3,539 16,601 Effects of exchange rates on cash and cash equivalents (9) (39) Cash and cash equivalents at end of year 9 21 3,539 The above Company Statement of Cash Flows should be read in conjunction with the accompanying notes. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the company financial statements
1. Basis of preparation
These Company financial statements have been prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006.
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 2020 was US$486.9 million (2019: US$184.5
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 program 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.
2020 has been dominated by Covid-19 and its rapid development as a life-threatening global pandemic. Globally, respective
governments’ response has been one of containment through lock-down, social distancing restrictions, quarantine and self-isolation for
substantially all citizens, whilst countries strive to roll out vaccination programs. This has resulted in a significant adverse impact on
industrial and commercial activity, which led to the shut-down of the Company’s production in April 2020. Consequently, the Company
took significant steps to reduce its costs in all areas of the business. The directors believe these cost reduction actions mean the
Company is in a better position to produce oil economically at lower oil prices with a positive contribution to cash flow at normalised
production levels, which will allow the Company to focus on the continued development of its unconventional assets. This situation is
compounded by the political and economic uncertainty in Argentina. The country is in its third straight year of recession and whilst it
announced at the end of August 2020 that 99% of the holders of the country’s US$65 billion international bonds had agreed to
restructure this debt discussions between the Argentine government and the IMF to reschedule US$45 billion of debt are ongoing and
the outcome of the 2021 legislative elections in Argentina is uncertain.
Notwithstanding, our major shareholder, Mercuria continues to be supportive of the Company’s plans and continues to extend short-
term debt facilities to fund operations. Mercuria has written to the Company stating its intention to continue to provide financial
support to the Company in order that it may continue to operate and service its liabilities as they fall due in the next 12 months and also
fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and
interest) within the next 12 months whilst discussions with the Company to restructure these loans continue. This letter, which by its
nature is not legally binding, represents a letter of comfort stating Mercuria’s current intention to continue to provide financial support.
The directors believe they will be able to agree the renegotiation 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 discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis
for accounting in preparing the 2020 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 agreements 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.
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105
Phoenix Global Resources plc Annual Report and Accounts 2020 105 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. 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. The Company receives the majority of its funding from Mercuria Energy Netherlands B.V., a subsidiary of the Mercuria group through a US Dollar denominated convertible rolling credit facility (‘RCF’). As part of the business combination in 2017, Mercuria advanced a bridging and working capital facility to the Group for the amount of US$160.0 million. 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. 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. The original loan of US$160.0 million became Facility A. 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$10.0 million and in March 2020 by an additional US$ 6 million. At 31 December 2020, a total facility of US$291.0 million was available to the Company, with a total of US$281.0 million drawn down under the facility, with the undrawn balance of US$ 10 million made available through the BF, which was subsequently increased to US$ 11.5 million, with US$ 11.26 million drawn down at the year end. 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. Critical estimates 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 method used in this assessment review is based on management’s estimates and is consistent with that used to assess the potential impairment of the Group’s property, plant and equipment and intangible assets as detailed in notes 13 and 14 on pages 77 to 81. At 31 December 2020, the Company performed an assessment of its investments to identify if any impairment indicators existed at the balance sheet date. Refer to note 4 on page 106 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 statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the company financial statements continued
3. Significant accounting policies
New accounting standards
There are no new standards, amendments or interpretations effective and adopted by the Group in 2020.
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.
4. Investments in subsidiaries
Investments
At 1 January
Investment in subsidiaries
Impairment of investment
At 31 December
2020
US$’000
2019
US$’000
894,759
1,063,900
10,660
248
(477,439)
(169,389)
427,980
894,759
Investment in subsidiaries
On 31 December 2020, the Company made a capital contribution in certain of its subsidiary holdings. The total investment made was
US$10.7 million (2019: US$ 0.2 million).
Impairment assessment
The Company completed an assessment of the carrying value of its subsidiary investments at 31 December 2020. As part of this
assessment the Company compared the carrying value of its investments to their determined recoverable value at year 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 NPV15 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. The method used
is consistent with the method used to assess the FVLCTS of the underlying assets as detailed in notes 13 and 14 on pages 77 to 81.
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Phoenix Global Resources plc Annual Report and Accounts 2020
107
Phoenix Global Resources plc Annual Report and Accounts 2020 107 4. Investments in subsidiaries (continued) The assessment completed by the Company identified that the carrying value of its investment in its subsidiaries was in excess of the determined FVLCTS of those subsidiaries at 31 December 2020. 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 2020. This resulted in a US$477.4 million impairment loss being recorded as a loss of the year (2019: US$ 169.4 million). Management carried out a sensitivity analysis to determine the impact of changes in the price and discount factor assumptions on this impairment charge. A +US$5/bbl/-US$5/bbl per annum price change reduced/increased the total impairment charge by approximately US$10.8 million and US$11.2 million respectively and -5%/+5% per annum change in the discount rate reduced/increased the total impairment charge by approximately US$14.8 million and US$10.9 million respectively. At 31 December 2020, the Company had investments in the following subsidiaries, which have not changed since 31 December 2019. 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 Service company USA 100% AEN Energy Holdings S.P.C. Dormant Cayman Is. 100% AEN Energy Cayman Islands Ltd Dormant Cayman Is. 100% Andes Energy LLC Dormant USA 100% AEN Netherlands Cooperatief U.A. Intermediate holding company Netherlands 100% Trefoil Holdings B.V. Intermediate holding company Netherlands 100% San Enrique Petrolera B.V. Intermediate holding company Netherlands 100% AEN Energy Latina, S.L. Dormant Spain 100% Upstream Latino America S.A. Intermediate holding company Spain 99.96% Trefoil (Switzerland) S.A. Intermediate holding company Switzerland 100% Trefoil Limited Intermediate holding company Bermuda 100% Trefoil GmbH Intermediate holding company Austria 100% Petrolera El Trebol S.A. Oil and gas operations Argentina 100% MSO Andes Energia S.A.U. Intermediate holding company/services Argentina 100% Andes Oil S.A.U. Intermediate holding company Argentina 100% Andes Oil and Gas S.A.U. Intermediate holding company Argentina 100% Grecoil y Cia. S.A.U. Oil and gas operations Argentina 100% AEN Energy Mendoza S.A. Intermediate holding company Argentina 100% AEN Energy Argentina S.A. Intermediate holding company Argentina 100% Patagonia Oil & Gas S.A. Intermediate holding company Argentina 100% Andes Hidrocarburos S.A. Intermediate holding company Argentina 100% Kilwer S.A. Oil and gas operations Argentina 100% Ketsal S.A. Oil and gas operations Argentina 100% CHPPC Andes S.R.L Oil and gas operations Argentina 100% Integra Investment S.A. Intermediate holding company Argentina 100% Andes Interoil Limited Intermediate holding company UK 100% Andes Energia Limited Dormant UK 100% Patagonia Oil & Gas Limited Dormant UK 100% Patagonia Energy Limited Dormant UK 100% 5. Property, plant and equipment The property, plant and equipment balance of US$0.1 million (2019: US$0.2 million) 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 year. 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 year was US$0.1 million (2019: US$0.1 million). GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the company financial statements continued
6. Intangible assets
The intangible assets balance of US$21.4 million (2019: US$21.4 million) relates to licence payments for the Mata Mora and Corralera
exploration concessions.
7. Equity investments
Equity investments
2020
US$’000
2019
US$’000
467
1,303
Equity investments are designated at fair value through profit and loss. Any fair value movements in the year 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$1.5 million settled through the issue of 39,958,443 new ordinary shares in Echo at a price of 2.9
pence per share. PETSA nominated the Company to receive the share issue on its behalf, with a corresponding subsidiary payable being
recorded between the two entities at the sale date.
The fair value of the equity investment held by the Company in Echo at 31 December 2020 was US$ 0.3 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
Other receivables
Loans to subsidiaries
Financial assets at amortised cost
Prepayments to suppliers
2020
2019
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
1,345
1,345
35
2,787
–
–
988
–
1,345
1,345
1,023
2,787
31,993
140,317
172,310
34,815
141,305
176,120
714
–
714
1,345
1,345
53
–
28,905
28,958
753
–
–
1,180
–
131,592
132,772
–
1,345
1,345
1,233
–
160,497
161,730
753
Total trade and other receivables
36,874
141,305
178,179
31,056
132,772
163,828
The amounts due from subsidiary undertakings include US$140.3 million (2019: US$131.6 million) that incurs interest at a fixed rate of
7.0% per annum (2019: 7.0%) and is repayable in 2022. An amount of US$ 25.9 million (2019: US$24.4 million) incurs interest at a fixed
rate of 5.0% per annum (2019: 5.0%). The remaining amounts due from subsidiaries accrue no interest and are repayable on demand.
On 22 October 2020 entered into an agreement with Mercuria Energy Limited, a subsidiary of the Mercuria group, pursuant to which the
Company could surrender Company tax losses to Mercuria Energy Limited by way of group relief and receive as consideration 50% of
the product of losses surrendered and the effective rate of tax. During 2020, the Company recognised US$2.8 million as consideration
for losses surrendered under this agreement, which is recognised in other receivables above.
At 31 December 2020, a provision of US$2.3 million (2019: US$10.7 million) was held in respect of the recoverability of amounts due from
subsidiary undertakings assessed in accordance with IFRS 9.
9. Cash and cash equivalents
Cash at bank and in hand
Total cash and cash equivalents
2020
US$’000
2019
US$’000
21
21
3,539
3,539
108
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109
Phoenix Global Resources plc Annual Report and Accounts 2020 109 10. Trade and other payables 2020 2019 Current US$’000 Non-current US$’000 Total US$’000 Current US$’000 Non-current US$’000 Total US$’000 Trade payables 1,459 – 1,459 1,634 – 1,634 Employee costs, social security and other taxes 314 – 314 386 – 386 Operating lease obligation 5 – 5 86 – 86 Loans from subsidiaries – 18,263 18,263 – 17,854 17,854 Other payables 3,422 – 3,422 3,427 – 3,427 Total trade and other payables 5,200 18,263 23,463 5,533 17,854 23,387 All balances held within trade and other payables are held at amortised cost. 11. Borrowings 2020 2019 Current US$’000 Non-current US$’000 Total US$’000 Current US$’000 Non-current US$’000 Total US$’000 Loans from related parties 322,973 – 322,973 146,782 146,751 293,533 Total borrowings 322,973 – 322,973 146,782 146,751 293,533 The loan balance at 31 December 2020 relates to amounts drawn down under the convertible RCF and non-convertible BF provided by Mercuria. The RCF and BF bears interest at a rate of 4% over three-month LIBOR (2019: 4% over three-month LIBOR) with maturity dates of 31 December 2021 and 30 June 2021, respectively. See note 22 for full details. 12. Related party balances Related party balances relate to loans received from the major shareholder and loans advanced to and receivable from subsidiaries. Amounts outstanding at 31 December include: 2020 US$’000 2019* US$’000 Related party loans receivable Amounts advanced to subsidiaries 172,310 160,497 Total related party receivables 172,310 160,497 Related party loans payable Shareholder loan 292,260 278,000 Interest accrued on shareholder loan 30,713 15.533 Amounts payable to subsidiaries and interest accrued 14,096 17,854 Total related party payables 337,069 311,387 * Re-classified shareholder loan (2019: US$293.50 million) and interest accrued on shareholder loan (2019: US$0.03 million) consistent with 2020 disclosure for loan principal and capitalised interest The related party loan at 31 December 2020 relates to a convertible RCF and a non-convertible BF provided to the Group by Mercuria Energy Netherlands B.V., a subsidiary of the Mercuria group. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the company financial statements continued
12. Related party balances (continued)
As part of the business combination in 2017, Mercuria advanced a bridging and working capital facility to the Group for the amount of
US$160.0 million. In February 2018, US$100.0 million of the 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. 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. The
original loan of US$160.0 million became Facility A.
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$10.0 million and in March 2020 by an additional US$ 6 million.
At 31 December 2020, a total facility of US$291.0 million was available to the Company, with a total of US$281.0 million drawn down
under the facility, with the undrawn balance of US$ 10 million made available through the BF, which was subsequently increased to US$
11.5 million, with US$ 11.26 million drawn down at the year end.
All funds drawn down under the RCF and BF bear interest at three-month LIBOR+4%. The RCF provides for a grace period for
repayments (interest and principal) from 1 January 2019 to 30 June 2021 with a maturity date of 31 December 2021 amortised in equal
quarterly repayment instalments from and including 30 June 2021 until maturity. The BF, principal and interest, is repayable by 30 June
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 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$90.9 million (2019: US$ 85.2 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 year
Group Relief Agreement
On 22 October 2020 entered into an agreement with Mercuria Energy Limited, a subsidiary of the Mercuria group, pursuant to which the
Company could surrender Company tax losses to Mercuria Energy Limited by way of group relief and receive as consideration 50% of
the product of losses surrendered and the effective rate of tax. During 2020, the Company recognised US$ 2.8 million as consideration
for losses surrendered under this agreement.
Key management compensation
See note 12 on page 77.
13. Cash used in operations
Loss for the year before taxation
Depreciation
Impairment of investments and other non-current assets
Finance costs
Finance income
Share-based payments
Increase in trade and other receivable
Increase in provisions
Increase/(decrease) in trade and other payables
Net unrealised exchange gains
Cash used in operations
2020
US$’000
2019
US$’000
(484,156)
(184,489)
141
190
479,723
169,389
16,096
(283)
401
17,728
(7,569)
434
(20,297)
(101,522)
180
216
1,014
19
(3,543)
768
(6,965)
(108,595)
110
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Phoenix Global Resources plc Annual Report and Accounts 2020
Phoenix Global Resources plc Annual Report and Accounts 2020
111
Phoenix Global Resources plc Annual Report and Accounts 2020 111 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. 2020 2019 Ordinary shares of 10 pence No. ’000 US$’000 No. ‘000 US$’000 Allotted, called up and fully paid 2,786,571 364,160 2,785,024 363,711 Held in treasury 74 15 1,621 464 Total ordinary shares of 10 pence 2,786,645 364,175 2,786,645 364,175 Movements in ordinary shares: 2020 2019 No. ’000 US$’000 No. ’000 US$’000 At 1 January 2,786,645 364,175 2,786,645 364,175 At 31 December 2,786,645 364,175 2,786,645 364,175 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. On 24 August 2020, the Company transferred from treasury 1,350,570 of the ordinary shares held in treasury to certain participants in the Company’s deferred bonus plan and 196,580 of the ordinary shares directly to certain participants in the Company’s deferred bonus plan. At 31 December 2020, the total ordinary shares held in treasury was 73,922 shares. 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 auditors' 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 three (2019: four). Staff costs 2020 US$’000 2019 US$’000 Wages and salaries 1,134 1,742 Social security costs 82 135 Other benefits 37 62 Share-based payments 244 434 1,497 2,373 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 pages 44 to 46. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the company financial statements continued
15. Employee benefits (continued)
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 2020, the total cost recognised by the Company for equity-settled share-based payment transactions
is US$0.4 million (2019: US$1.1 million). A charge of US$0.5 million (2019: US$0.1 million) has been recorded in retained earnings for all
equity-settled payments of the Company in the year.
Details of the various share incentive plans currently in operation are set out below:
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 pages 44 to 46.
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 2020 was 0.6 years
(2019: 1.6 years). The number of share awards expected to vest was reduced by 4.2 million shares in 2020 (2019: 10.0 million) following
the resignation of certain directors and performance conditions not being met.
Share awards outstanding at 1 January 2020
Shares that lapsed in 2020
Share awards outstanding at 31 December 2020
Key assumptions:
Grant date
Vesting
Risk free rate of interest
PGR TSR Volatility
Comparator TSR Volatility
WA share
price
at grant
(pence)
22.82
WA FV of
awards
granted
(pence)
8.93
23.5
14.95
LTIP
7,083,684
(4,154,252)
2,929,432
2018
3 years
0.93%
49%
28%
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.
No awards were granted under the DBP in 2020 (2019: none). The details of the plans in issue at 31 December 2020 are presented in the
table below.
Share awards outstanding at 1 January 2020
Shares vested during the year
Share awards outstanding at 31 December 2020
At 31 December
Price at grant date
Weighted average remaining contractual life (years)
2020
FY18 DBP
FY17 DBP
1,772,358
2,216,928
(590,781)
(1,108,478)
1,181,577
1,108,450
16.67
0.9
18.05
0.5
112
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113
Phoenix Global Resources plc Annual Report and Accounts 2020 113 15. Employee benefits (continued) 15.3 Warrants Warrants – non-share-based payments Details of warrants granted that are not accounted for as share=-based payments are as follows: 1 January 2020 No. Grant No. Lapsed No. 31 December 2020 No. Exercise price pence August 2013 – August 2020 10,454,545 – (10,454,545) – 40.0 Movements during the year, together with their associated weighted average exercise price, are as follows: 2020 2019 No. (‘000) WAEP (p) No. (‘000) WAEP (p) At 1 January 10,454,545 40.0 24,414,915 32.0 Granted – – – – Exercised – – – – Lapsed (10,454,545) 40.0 (13,960,370) 26.0 Outstanding at 31 December – 10,454,545 Exercisable at 31 December – 10,454,545 Warrants – share-based payments Details of warrants that are accounted for as share-based payments are as follows: 1 January 2020 No. Grant No. Lapsed No. 31 December 2020 No. Exercise price pence November 2013 – November 2020 9,090,909 – (9,090,909) – 40.0 Movements during the year, together with their associated weighted average exercise price, are as follows: 2020 2019 No. ‘000 WAEP (p) No. ‘000 WAEP (p) At 1 January 9,090,909 40.0 29,372,182 49.7 Granted – – – – Exercised – – – – Lapsed (9,090,909) 40.0 (20,281,273) 54.0 Outstanding at 31 December – 9,090,909 Exercisable at 31 December – 9,090,909 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 Number Estimated fair value pence Share price at date of agreement pence Exercise price pence Expected volatility % Expected life Years Risk free rate % Expected dividends % November 2013 2,000,000 10 22.50 40 53 5.83 1.80 – 1 January Grant Lapsed 31 December Exercise price pence Exercise date Others 2,000,000 – (2,000,000) – 40.0 2020 GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Notes to the company financial statements continued
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 financial statements.
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.
Sensitivity analysis
Financial assets and
liabilities recognised in the
balance sheet that are not
denominated in US
Dollars
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.
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 –
interest rate
Liquidity risk
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
2020
US$’000
322,973
% of
total loans
US$’000
2019
US$’000
% of
total loans
US$’000
100
293,533
100
Impact on post-tax
profit and loss
Impact on other
components of equity
2020
US$’000
2019
US$’000
2020
US$’000
2019
US$’000
3,122
3,122
2,935
(2,935)
–
–
–
–
114
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115
Phoenix Global Resources plc Annual Report and Accounts 2020 115 17. Provisions 2020 2019 Current US$’000 Non-current US$’000 Total US$’000 Current US$’000 Total US$’000 Legal claims – 1,060 1,060 1,060 1,060 Other provisions 180 – 180 – – Total 180 1,060 1,240 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 financial statements. The Company does not have any significant commitments or contingencies. 18. Post balance sheet events Credit facilities On 31 January 2021, the non-convertible bridging facility provided by Mercuria was increased to US$20 million and subsequently further increased to US$21 million on 30 March 2021, to US$26 million on 12 April 2021, to US$31 million on 19 April 2021 and to US$41 million on 7 May 2021. The convertible facility grace period for repayments (interest and principal) was extended to 30 June 2021 with a loan maturity date of 31 December 2021 with the non-convertible bridging facility, principal and interest, repayable by 30 June 2021. GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Shareholder information
Glossary
Mm3
Thousand cubic metres
MMbtu
Million British thermal units
MMcf
Million standard cubic feet
Tcf
bbl
boe
Trillion cubic feet
Barrel
Barrel of oil equivalent
boepd
Barrel of oil equivalent per day
Bn
MM
LNG
WTI
WI
Billion
Million
Liquefied natural gas
West Texas Intermediate crude
Working interest
Opex
Operating expenses
Capex
Capital expenditure
1P
2P
3P
HSE
KPI
Adjusted
EBITDA
Proved reserves
Proved plus probable reserves
Proved plus probable plus possible reserves
Health, safety and the environment
Key performance indicator
Earnings before interest, taxes, depreciation, amortization and non-recurring expenses
CGU
Cash generating unit
bopd
Barrels of oil per day
mscfpd
thousand standard cubic feet per day
116
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117
Phoenix Global Resources plc Annual Report and Accounts 2020 117 Registered offices 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 Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda Trefoil GmbH 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. Suipacha 1111, 18th Floor, Ciudad Autonoma de Buenos Aires, Argentina Ketsal S.A. 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 6th Floor, King’s House, 10 Haymarket, London SW1Y 4BP 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 statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 Shareholder information
Officers and advisers
Directors
Sir Michael Rake
Non-executive chairman
John Bentley
Non-executive director (independent)
Martin Bachmann
Non-executive director (independent)
Tim Harrington
Non-executive director
Daniel Jaeggi
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
05083946
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
118
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Phoenix Global Resources plc Annual Report and Accounts 2020
119
119 Phoenix Global Resources plc Annual Report and Accounts 2020 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 auditors 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 6th Floor, King’s House 10 Haymarket London SW1Y 4BP United Kingdom Tel: +44 (0) 20 3912 2800 info@phoenixglobalresources.com GovernanceFinancial statementsStrategic reportPhoenix Global Resources plc Annual Report and Accounts 2020 120
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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