Phoenix Global
Resources plc
Annual Report and
Financial Statements 2021
Contents
Phoenix Global Resources plc Annual Report and Financial Statements 2021
1
Strategic report
Chairman’s Statement
p2
Strategy and Business Model
p4
Key Performance Indicators
p6
Operating Review
p8
Financial Review
p14
Risk Management
p16
Sustainability Review
p23
Stakeholder Engagement
p25
Governance
Corporate Governance Statement
p27
Remuneration Policy Report
p38
Annual Remuneration Report
p46
Directors’ Report
p49
Statement of Directors’
p52
Responsibilities
Financial statements
Independent Auditors’ Report
p53
Consolidated Income Statement
p60
Consolidated Statement of
p61
Comprehensive Income
Consolidated Statement of
p62
Financial Position
Consolidated Statement of
p63
Changes in Equity
Consolidated Statement of
p64
Cash Flows
Notes to the consolidated
p65
financial statements
Company Statement of
p102
Financial Position
Company Statement of
p103
Changes in Equity
Company Statement of Cash Flows p104
Notes to the Company
p105
Financial Statements
Shareholder Information
p116
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
01
Chairman’s Statement
2
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Dear Shareholders,
Whilst the environment continues to be challenging, the steps
taken by the Company to reduce its costs has put it in a stronger
position to focus on the continued development of its
unconventional assets. Our prime focus is Mata Mora, which the
board believes is the Company’s main driver to unlocking value.
The Company’s major shareholder, Mercuria Group Limited
(“Mercuria”), continues to be supportive and the directors, whilst
exercising a degree of caution, believe the Company has a cost
base from which it can leverage its interests in its unconventional
assets, 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’ responses were one of containment through
lockdown, social distancing restrictions, quarantine and self-
isolation for substantially all citizens, whilst countries rolled out
vaccination programs. In 2021 we saw restrictions gradually lifting
and economic and industrial activity increasing.
The global economic recovery has progressed more strongly than
anticipated a year ago, but it is becoming increasingly imbalanced,
as lower income economies struggle to keep up where vaccination
rates are low and the conflict in Ukraine has negatively changed
the global economy harming growth and putting upward pressure
on inflation when it is already high.
The economic situation in Argentina has deteriorated significantly
with the key economic indicators reflecting this situation and
whilst the environment continues to be extremely challenging, the
Company is in a stronger position to produce proven, developed
and producing reserves economically at lower prices with a
positive contribution to cash flow and allow it to focus on the
continued development of its unconventional assets. The action
taken by the Company to reduce its costs in all areas of the
business is reflected in the significant change in cash generated
from operations of US$49.6 million in 2021 compared to cash used
in operations of US$6.4 million in 2020 and also reflects the more
favourable pricing environment.
However, whilst the economic and political uncertainty in
Argentina continues, Argentina held discussions with the
International Monetary Fund (“IMF”) to restructure the country’s
US$45 billion of debt. At the end of January 2022 President
Fernandez’s government announced that it had reached an
“understanding” with the IMF on key policies that would allow the
country to reach a new financing agreement to restructure this
debt. In April 2022, Argentina’s senate approved the agreement
reached with the IMF, which has now been approved by the
executive board of the IMF, which should help to reduce some of
the economic uncertainty.
Furthermore, the strong international economic sanctions on
trade with Russia have resulted in a significant escalation in
energy prices, with Brent increasing from a year end price of
US$77/bbl to US$113/bbl at 6 May 2022.
Whilst Argentina uses a locally set oil price to shield local industry
from international price swings, which limits the benefit the
Company receives from international price increases, the
Company, subject to permit approval, is now able to export some
of its production to take advantage of the favourable
international prices.
During 2021, the Neuquén Province issued a decree granting the
Company a 35 year unconventional exploitation concession over
approximately 43,372 acres in the northern part of Mata Mora and
extending the exploration rights over approximately 11,918 acres in
the southern part of Mata Mora for 5 years to April 2026. The
Province also issued a decree approving a one year extension of
the Company’s exploration rights for the Corralera Noreste and
Corralera Sur blocks to April 2022. The Company is currently in
discussion with the Province to further extend the exploration
periods of these licences.
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,
which have been completed.
The unconventional work programs for 2022 include the testing
and evaluation of the well in Corralera North East, the completion,
testing and evaluation of the well in Corralera Sur, the drilling and
completion of pads 2 and 3 (each of three wells) and the drilling
and completion of three additional wells on pad 1, all in Mata Mora
North.
The year end reserves prepared by independent reservoir engineers
showed a significant increase in 2P reserves compared with prior
year. This increase is primarily due to a significant increase in the
2P reserves at Mata Mora that was partly offset by a decrease in
the 2P reserves at Puesto Rojas.
Funding
Our major shareholder, Mercuria, continues to be supportive of the
Company’s plans and has extended short-term debt facilities to fund
operations. At the year end, the Company had drawn down
US$348.0 million under these facilities and US$45.4 million of
interest had been capitalised. 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 period to 30 June 2023 and fund the
planned work programs. Mercuria has also specifically agreed to not
demand repayment of the existing loans (principal and interest)
during this period. 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.
Whilst it has taken more time than anticipated, the Company and
Mercuria are still seeking to restructure the existing facilities, but do
not expect this to be completed until later in the year. The directors
still 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 2021 financial statements.
However, the directors recognise that if financial support over the
period to 30 June 2023 was 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
02
Phoenix Global Resources plc Annual Report and Financial Statements 2021
3
Summary
Whilst we have seen Covid-19 restrictions gradually lifting and
economic and industrial activity increasing, the conflict in Ukraine
has negatively changed the global economic outlook.
Argentina continues to experience high inflation and a continuous
devaluation of the Peso. The country is in its fourth straight year
of recession. Whilst agreement has been reached between the
Argentine government and the IMF to restructure the country’s
US$45 billion of debt, the underlying economic indicators are not
encouraging. Notwithstanding, 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 developing policies and procedures
to reduce emissions and establish goals that minimise the impact
on the environment and our stakeholders.
The Company is fundamentally focused on unconventional
development and has good assets in this space but recognises
that significant investment will be required in the coming years to
develop these and enhance value and acknowledges this is subject
to being able to access funding to support these activities, which
may include third-party partners and local debt providers in the
funding mix.
Sir Michael Rake
Non-executive chairman
27 May 2022
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
03
Strategy and Business Model
4
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Control and consolidate
Explore and develop
Our strategic
objectives
Phoenix holds significant licence
acreage in Argentina. Our focus is to
secure operatorship and consolidate
our ownership position of that acreage
where possible.
We may seek to strategically add further acres with
exposure to unconventional resources, including the
Vaca Muerta if the right opportunities arise.
Our exploration and development
activity is focused on appraising and
evaluating the Group’s unconventional
acreage and in particular Mata Mora.
We apply the latest shale technologies and methods
from the USA 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 2021
but during the year the Company secured a 35 year
unconventional exploitation concession for the Mata
Mora area. This new concession, which was awarded in
March 2021, provides the foundation for our continued
unconventional development work in this area.
The Company’s focus in 2021 was the unconventional
development at Mata Mora and the exploration
activity at Corralera.
Measuring
our progress
→ Total unconventional acreage
→ % of acreage operated by Phoenix
→ Resources and reserves progression
→ Netback per boe
→ Resources and reserves volumes
→ Year-on-year reserves growth
→ 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
→ Health, safety and environment (“HSE”) risk
Phoenix Global Resources plc Annual Report and Financial Statements 2021
04
Phoenix Global Resources plc Annual Report and Financial Statements 2021
5
Profitable production
Realise value
Phoenix has existing production from
conventional oil assets that provides
free 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 in 2021 at 4,553 boepd was consistent with
production of 4,549 boepd in 2020.
We continue to experience normal production decline
on conventional assets but stabilised this decline with
workovers and interventions.
Unconventional production is expected to increase
through the development phase of our key assets
upon completion of the planned 2022 and 2023
programs.
Reserves year-on-year have increased primarily due to
new reserves recognised at Mata Mora that was
partly offset by the reduction of the reserves at
Puesto Rojas following the disappointing drilling results
from the 2018/19 unconventional appraisal campaign.
No further unconventional activity at Puesto Rojas is
planned at this time.
→ Year-on-year production volumes
→ Opex per boe produced
→ Adjusted EBITDA
→ Total shareholder return
→ Resources 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
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
05
Key Performance Indicators
6
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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. The Financial Review on page 14 also includes a review of financial performance measures.
1
HSE metrics
2
Resources and
reserves progression
3
Production volumes
LTIR 2021 – 0.0
LTIR 2020 – 0.0
Spill index 2021 – 17.2
Spill index 2020 - 217
278% increase
2021 – 71.1 MMboe 2P reserves
2020 – 18.8 MMboe 2P reserves
81% reduction
2021 – 54.8 MMboe 2C resources
2020 – 281.4 MMboe 2C resources
0.1% increase
2021 – 4,553 boepd
2020 - 4,549 boepd
Definition
The above measures are calculated
as follows:
SI = spill volume (bbls)/oil production on
operated fields multiplied by a million.
LTIR = lost time incidents (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.
Definition
The year-on-year movement in reserves
and resources is calculated by reference
to reserves and resources statements
estimates, prepared by independent
reservoir engineers and prepared in
accordance with the Petroleum
Resources Management System.
There are several measures that can be
used to assess resource performance.
One measure is to monitor the migration
of resources through risked categories
into reserves. This demonstrates the
physical de-risking of properties as
volumes move progressively from
technical volumetric resource categories
into reserve categories with defined
probability of economic production.
Definition
Production performance is measured by
reference to the absolute and percentage
increase or decrease in production year-
on-year measured in boepd.
Production in 2021 averaged 4,553 boepd
compared to 4,549 boepd in 2020, an
increase of 0.1%.
Comment
In line with 2020, zero lost time incidents
were recorded in 2021, resulting in top
quartile safety performance.
Spill index performance was recorded at
17.2 compared with 217 in 2020 a
significant improvement with one minor
spill and four environmental near misses
recorded, as a result of new policies and
procedures being implemented.
Comment
2P reserves increased significantly during
2021 primarily due to a significant
increase in 2P reserves at Mata Mora
resulting from the migration of resources
into reserves. This increase was partly
offset by a decrease in 2P reserves at
Puesto Rojas following management’s
evaluation of the unconventional
prospectivity in this area. 2C contingent
resources fell by 81% partly due to the
migration of resources into reserves and
partly due to the removal of 2C
contingent resources associated with the
negative assessment of unconventional
prospectivity at Puesto Rojas and the
reclassification of contingent resources at
Corralera from 2C to 3C. See note 13 on
page 79 for more details.
Comment
Due to the shut down of production
during 2020 the small increase in 2021
masks an actual fall in production due to
natural production decline in existing well
stock not offset by new production.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
06
Phoenix Global Resources plc Annual Report and Financial Statements 2021
7
4
Operating cost per boe
5
Adjusted EBITDA
6
Personal objectives
4% decrease
2021 – US$17.9/boe
2020 – US$18.7/boe
(excludes depreciation)
282% increase
2021 – US$13.1 million
2020 – loss of US$7.2 million
Measured based on
individual performance.
Definition
Operating cost per boe is an alternative
performance measure and is calculated by
dividing total cash production costs by the
volume of boe produced (see page 14 for
more detail). The Company believes this
KPI is a good measure of production
efficiency.
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 is measured by
adjusting EBITDA for non-recurring items.
The Company believes this measure is a
more representative performance measure
as it 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 32 to the consolidated
financial statements on page 101 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
operational and production performance.
Comment
Our target is to continually reduce
production costs per boe. There will,
however, be instances 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 2021, the average operating cost of
US$17.9/boe was lower than 2020
notwithstanding the 2021 operating costs
include the cost of more workovers and
interventions carried out during the year
than were carried out in 2020.
Comment
Adjusted EBITDA increased in the year to
US$13.1 million from a loss of US$7.2
million in 2020. The year-on-year increase
in EBITDA resulted primarily from higher
realised oil prices in the year.
Comment
The primary focus in 2021 was the
unconventional work programs and the
implementation of policies and procedures
to facilitate the timely execution of these
activities on budget and in accordance with
recognised safety and environmental
protection standards. In 2021 the work
was carried out without any significant
HSE incidents.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
07
Operating Review
8
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Overview
Phoenix Global Resources seeks to add value to its operation by
optimising the use of deployed capital, continuously looking for
new profitable opportunities and achieving levels of operative
excellence in a friendly and harmonious way taking into account
personnel, local communities and the environment.
The Company is focused on reducing the production decline of
mature fields and generating new development opportunities,
whilst delivering profitable growth combined with our expanding
unconventional exploration and development projects.
The operations team has extensive experience in conventional and
unconventional oil and gas operations with a continuing focus on
delivering safe, ethical and reliable operations.
During the first and second quarter the Company focused on the
planning for the 2021 and 2022 work programs and in the third
quarter, the Company began exploration activities in Vaca Muerta,
in the Corralera areas, in the northern part of the Neuquén basin.
Two horizontal and multi-fractured wells with a branch length of
2,000 metres and 2,130 metres respectively were drilled and
completed. The initial results from these activities are currently
under evaluation.
The drilling rig was then moved to the Mata Mora field, located in
the central part of the Neuquén basin close to the hot shale
developments, to start drilling the 12 well program pursuant to the
pilot plan commitment under the unconventional exploitation
concession awarded in 2021.
In late 2021, the Company also drilled the Picunche vertical
exploratory well in the Rio Atuel field, Malargüe, which will be
completed in Q2 2022.
In all cases, the targeted operating metrics were achieved in the
drilling and completion activities, which were completed on time
and in line with budget.
Our growth plan is based on the development of an inventory of
approximately 170 wells in Mata Mora Norte, our flagship project
in Vaca Muerta, whilst maintaining the highest efficiency and
safety standards.
The Company has also carried out work to optimise production
from our conventional fields. Production decline was reduced in
the Tupungato and Atamisqui fields, whilst maintaining operating
cost levels and high HSE standards.
During the year the Company also developed an export channel
for some of our production, allowing us to take advantage of
higher international prices.
Our HSE demonstrates our commitment to personnel and the
environment, which we consider to be an integral part of our
operations. The Company embraces the communities in which we
operate and as part of our ongoing commitment to sustainable
development, we encourage local involvement and seek to create
significant long-term benefits in the communities close to our
operations. Our main initiatives include institutional support,
education, training, welfare and emergency aid. These activities
are part of an approach that defines the way in which we interact
with our various stakeholders.
Total proven reserves as of 31 December 2021 reached 26.4
MMboe, an increase of 210% compared with 31 December 2020.
The proven reserves replacement ratio was 882%, whilst the
replacement ratio of total oil reserves was 950%. The increase
was driven primarily by the addition of new unconventional well
locations at Mata Mora and secondary recovery programs at
Chachahuen. 2C contingent resources fell by 81% partly due to the
migration of resources into reserves and partly due to the removal
of 2C contingent resources associated with the negative
assessment of unconventional prospectivity at Puesto Rojas and
the reclassification of contingent resources at Corralera from 2C
to 3C.
Production in 2021 was at a level consistent with 2020, reflecting
the benefits of the work undertaken to reduce the production
decline of mature fields, particularly given no new production
was included.
During 2021, operating costs were 4% lower than 2020, despite
the extra work carried out to maximise assets lives, which included
the review of more than 15 field service contracts leading to a
restructured and more flexible cost base.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
08
Phoenix Global Resources plc Annual Report and Financial Statements 2021
9
Company assets
Licence
Basin
Type
Operator
Interest
%
Acreage
WI
Producing
wells
No.
Licence
expiry
Puesto Rojas
Neuquina
Production
Phoenix
100%
46,921
16
Mar-54
Cerro Mollar Norte
Neuquina
Production
Phoenix
100%
1,188
2
Oct-22
Cerro Mollar Oeste
Neuquina
Production
Phoenix
100%
26,877
–
Jul-27
Mata Mora
Neuquina
Production Phoenix
90%
49,729
2
Apr-56
Corralera Noreste*
Neuquina
Exploration Phoenix
90%
24,345
–
Apr-22
Corralera Noroeste
Neuquina
Exploration Phoenix
90%
24,018
–
Aug-23
Corralera Sur*
Neuquina
Exploration Phoenix
90%
26,196
–
Apr-22
Chachahuen
Neuquina
Production
YPF S.A.
20%
35,493
270
Oct-38
Las Violetas
Austral
Production
Roch S.A.
17%
58,562
39
Aug-26
Angostura
Austral
Production
Roch S.A.
17%
18,086
2
Aug-26
Rio Cullen
Austral
Production
Roch S.A.
17%
15,532
–
Aug-26
Cajon de los Caballos
Neuquina
Production
Roch S.A.
38%
7,506
6
Sep-25
Cajon Oriental
Neuquina
Exploration YPF S.A.
15%
24,790
–
Sep-25
La Paloma
Neuquina
Exploration Phoenix
100%
605
–
Nov-40
Cerro Alquitran
Neuquina
Exploration Phoenix
100%
801
–
Nov-40
El Manzano Oeste
Neuquina
Exploration Phoenix/YPF S.A.
100%/40%**
26,179
–
Oct-27
La Brea
Neuquina
Production
Phoenix
100%
35,742
1
Oct-27
Rio Atuel*
Neuquina
Exploration Phoenix
67%
122,931
–
Dec-21
Loma Cortaderal – Cerro Doña Juana Neuquina
Exploration Phoenix
100%
75,982
–
Aug-22
La Tropilla I***
Neuquina
Exploration Phoenix
90%
10,825
–
Apr-22
Santo Domingo I***
Neuquina
Exploration Phoenix
90%
24,648
–
Apr-22
Aguada de Castro Oeste I***
Neuquina
Exploration Phoenix
90%
26,212
–
Apr-22
Aguada de Castro Oeste II***
Neuquina
Exploration Phoenix
90%
19,339
–
Apr-22
Refugio Tupungato
Cuyana
Production
Phoenix
100%
6,734
32
Jan-26
Atamisqui
Cuyana
Production
Phoenix
100%
53,260
12
Sep-25
* Extension of exploration licence currently under discussion with the corresponding Province.
** 100% Agrio formation and 40% other formations.
*** Evaluating options with the Province of Neuquen and the licence holder (G&P)
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
09
Operating Review continued
10
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Neuquén basin
In the Neuquén basin, the Company has interests in 11 operated
assets and 4 non-operated assets (see figure 1), including Mata
Mora and Corralera (11 and 15). A summary of these assets is
provided below.
Figure 1: Neuquén basin regional map showing the Company’s
operated and non-operated assets.
Operated assets
Mata Mora
During the year the Neuquén Province issued a decree granting
the Company a 35 year unconventional exploitation concession
over approximately 43,372 acres in the northern part of Mata
Mora and extending the exploration rights over approximately
11,918 acres in the southern part of Mata Mora for 5 years to
April 2026.
The Mata Mora exploitation 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 Company commenced the drilling activity for pad 2 during the
year, which consists of three wells with 2,600 metre horizontal
lateral lengths and 37 frac stages and has, after the year end,
finished drilling three vertical sections, to depths of 2,314 metres,
2,280 metres and 2,316 metres and three horizontal branches
navigating the Vaca Muerta formation. Completion activities have
commenced and are due to be finished at the end of May 2022
with flowback testing due to start soon thereafter.
The Company has now started the pad 3 drilling program.
The early production facilities are under construction and works
are being carried out on the oil and gas treatment and
measurement stations and flowline tie-ins to oil and gas
evacuation pipelines are being installed. This will enable the
Company to avoid flaring in line with the Company’s
sustainability goals.
The Mata Mora exploration concession (Mata Mora Sur) covers a
region that involves agricultural activity and the San Patricio del
Chañar town and will remain in the exploration phase for a further
five years with a 3D seismic acquisition commitment.
Corralera
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 zone alternatives for
the Vaca Muerta formation.
During the year, the Province issued a decree approving a one year
extension of the Company’s exploration rights for the Corralera
Noreste and Corralera Sur blocks to April 2022. The Company is
currently in discussions with the Province to further extend the
exploration periods of these licences.
In Corralera Noreste, the Company has finished the drilling of a
vertical exploration well to a depth of 2,970 metres and its
horizontal branch with a 2,000 metre lateral length and 29 frac
stages, navigating the Vaca Muerta formation. The initial
flowback testing has been completed, which produced high
volumes of water and low volumes of oil with a high presence of
CO₂. The well is currently shut in for well testing with pressure
build up, isotope sampling and tracer analysis currently being
carried out.
In Corralera Sur, the Company has completed the drilling of a
vertical exploration well to a depth of 3,639 metres and its
horizontal branch with a 2,134 metre lateral length and 30 frac
stages, navigating the Vaca Muerta formation. The initial
flowback testing has been completed, which produced high
volumes of water and low volumes of oil with a high presence of
CO₂. Water and gas samples have been taken to run laboratory
analysis to understand their origins.
Rio Atuel
The Company has executed the drilling and completion activities
of a conventional vertical exploration well. The well was drilled to a
depth of 2,131 metres penetrating the Huitrin and Chachao
formations. After stimulating the well, oil in the two formations
has been tested. Initial flow rates are in line with expectations with
a low water cut. The well is currently in production and under initial
evaluation, which is expected to be completed in Q2 2022.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
10
Phoenix Global Resources plc Annual Report and Financial Statements 2021
11
La Paloma – Cerro Alquitran
In 2019, the LP-9 and LP-7 wells were drilled in the La
Paloma/Cerro Alquitran area targeting the Grupo Neuquén
formation. The Company has decided to not complete these wells
and is currently evaluating its options.
Puesto Rojas – Cerro Mollar – La Brea
The drop in production primarily relates to a higher rate of decline
from the wells producing from the Agrio and Vaca Muerta
formations, with only 5 wells currently producing from the 12 wells
drilled in the last campaign. Based on the variable results from
these Agrio and Vaca Muerta vertical wells and following a
detailed evaluation carried out by management, it has concluded
that the unconventional prospectivity in this area has a “high
risk/low reward” and management is currently evaluating its
options.
Cerro Doña Juana-Loma Cortaderal
Due to the Covid-19 pandemic, the Company was granted an
extension to August 2022 to fulfil its commitments. The Company
is currently seeking approval from the Mendoza Province to
perform an expanded geochemical sampling to satisfy the
pending commitments. A decision from the Province is
still pending.
El Manzano
A local company, Venoil, has now been appointed the operator for
this field and it plans to restart production from several wells in
Q2 2022.
La Tropilla – Santo Domingo – Aguada de Castro
A detailed evaluation has been carried out by the sub-surface
team and it has concluded that the unconventional prospectivity in
this area has a “high risk/low reward” and management is
currently evaluating its options.
Non-Operated Assets
Chachahuen – Cerro Morado Este
In the Chachahuen Sur area, the focus in 2021 has been to improve
the water flooding projects and start a polymer pilot project. A
plan to reduce production losses has also been prepared, which will
require the building of a gas and oil pipeline from Chachahuen to
the Puesto Hernandez field. Injection water quality issues have
been identified and the operator is currently preparing a plan
that will be implemented before the tertiary recovery pilot
project begins.
At Cerro Morado Este, we have focused on the reduction of
production losses. This will require an alternative route for fluid
evacuation due to flooding of current routes when it rains. A
remediation of “Bateria 1” at the Chachahuen field is also being
carried out and a tertiary recovery pilot project is planned for 2022.
Nine vertical pilot wells have been drilled, which are planned to be
connected in Q2 2022 as part of the delineation program for this
large area.
The Chachahuen licence is operated by YPF.
Cajon de los Caballos
A detailed evaluation has been carried out by the sub-surface
team and it has concluded that the unconventional prospectivity in
this area has a “high risk/low reward” and management is
currently evaluating its options.
The licence is operated by Roch.
Cuyana Basin
In the Mendoza Province, the Company has interests in two
operated assets in the Cuyana basin (see figure 2 below). A brief
summary of these assets is provided below.
Figure 2: Cuyana basin regional map showing the Company’s
operated assets.
Operated assets
Tupungato - Atamisqui
In the first half of the year 13 pulling interventions were completed
with results exceeding expectations. The production during Q1 was
below budget but since April 2021 oil production has been above
budget. General maintenance work and some minor jobs were
also carried out at the Tupungato water injection plant.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
11
Operating Review continued
12
Phoenix Global Resources plc Annual Report and Financial Statements 2021
A well risk analysis was performed on well T-48 and management
concluded that the well should be abandoned. Due to the
condition of the wellhead a specialised team was hired to perform
remediation jobs. The well is now in a secure condition and the
abandonment is planned for later this year. A critical tanks
inspection and reparation campaign was started in May 2021 and
a well swabbing campaign was started in September 2021. Sub-
surface modelling was started in June 2021, as no comprehensive
modelling has been carried out for over 40 years. A static model
has been completed and some opportunities for implementing
secondary recovery have been identified and the possibility of
tertiary recovery is under analysis. A dynamic model is now being
developed with the support of an external consultant.
Austral Basin
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.
Non-Operated Assets
Rio Cullen – Angostura – Las Violetas
The San Martin wells continue to produce with the water cut rate
in line with expectations. The operator has proposed the drilling of
an extra well in an independent reservoir compartment.
Alternatives for production evacuation are also being analysed in
the event delivery through the YPF buoy is disrupted and Total’s
facilities have been identified as a possible option.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
12
Phoenix Global Resources plc Annual Report and Financial Statements 2021
13
2P Reserves Summary
Area
2020 Production
2020 Reserves estimates
2021 Production
2021 Reserves estimates
2021 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
Atamisqui
74
–
74
400
–
400
91
–
91
290
–
290
(19)
–
(19)
Cajon de los
Caballos
25
7
26
139
–
139
33
–
33
89
–
89
(17)
–
(17)
Cerro Alquitran
– La Paloma
–
–
–
583
–
583
–
–
–
–
–
–
(583)
–
(583)
Cerro Mollar
Norte
20
–
20
38
–
38
–
–
–
14
–
14
(24)
–
(24)
Cerro Mollar
Oeste
22
–
22
101
–
101
–
–
–
45
–
45
(56)
–
(56)
Cerro Morado
Este
81
11
83
4,222
–
4,222
–
–
–
2,297
–
2,297
(1,925)
–
(1,925)
Chachahuen
520
144
544
3,679
–
3,679
629
–
629
5,356
–
5,356
2,306
–
2,306
El Manzano
6
51
15
–
–
–
–
–
–
88
–
88
88
–
88
La Brea
16
–
16
76
–
76
13
–
13
43
–
43
(20)
–
(20)
Mata Mora
86
38
93
26
–
26
127
–
127
56,716
23,538 60,639
56,817
23,538 60,740
Puesto Rojas
171
302
222
6,269
6,074
7,282
173
–
173
257
–
257
(5,839) (6,074) (6,852)
Tierra del Fuego
95
1,048
270
389
3,003
890
126
936
282
492
2,239
865
229
172
257
Tupungato
229
36
235
1,355
–
1,355
315
–
315
1,162
–
1,162
122
–
122
2P Total
1,345
1,637
1,620
17,277
9,077
18,791
1,507
936
1,663 66,849
25,777
71,145
51,079
17,636
54,017
All figures are working interest
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
13
Financial review
14
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Financial overview
2021
US$ mm
2020
US$ mm
Revenue
78.4
54.0
Gross loss
(3.1)
(27.4)
Operating loss
(58.7)
(219.7)
Loss for the year
(25.0)
(197.0)
Adjusted EBITDA
13.1
(7.2)
Net cash from operations
49.6
(6.4)
Investment in fixed assets and intangibles
52.4
8.1
Net assets
1.1
26.1
Revenue and gross margin
Revenue for the year was US$78.4 million (2020: US$54.0 million),
comprising revenue from oil sales of US$76.0 million (2020:
US$52.2 million) and revenue from gas sales of US$2.4 million
(2020: US$1.8 million).
The increase in oil revenue year-on-year resulted primarily from
an increase in the average realised oil price per barrel and higher
sale volumes.
The average realised oil sales price in 2021 was US$51.26/bbl,
a 36% increase on the average price of US$37.74/bbl in 2020.
Realised prices achieved by the Company are indirectly linked
to Brent.
Crude oil prices increased during the year with the average Brent
crude price increasing year-on-year by 42%, from an average of
US$43/bbl in 2020 to an average of US$61/bbl in 2021. Local
Argentine oil prices do not fully track international prices as local
price controls limit the benefit of rising international prices.
However, the Company in the future expects a gradual increase
in local prices, reducing the gap between local and
international prices.
Average daily oil sales in the year were 4,062 bopd compared with
3,776 bopd in 2020.
Gas revenues arise primarily in the non-operated segment and
increased by US$0.5 million in the year compared with 2020,
mainly due to an increase of 51% in the realised price from an
average of US$1.98/Mcf in 2020 to an average of US$2.99/Mcf in
2021. This increase was partially offset by a 15% reduction in sales
volumes from 930 MMcf in 2020 to 794 MMcf in 2021.
Operating costs
Average operating costs (excluding depreciation) were 4% lower
than 2020 at US$17.9/boe.
Depreciation decreased by US$1.7 million in the year from US$41.3
million in 2020 to US$39.6 million in 2021, primarily due to the
revised year end reserves estimates and the 2021 capex program.
Other costs
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.
Potential triggers were identified, leading to an impairment
assessment, which was primarily based on the revised year end
reserves estimates resulting in an impairment charge of US$28.9
million. Impairment charges have been recognised in respect of
Puesto Rojas, La Brea, La Paloma, Cerro Alquitran and Atamisqui,
which were partially offset by the partial reversal of impairment
charges recognised in prior years at Chachahuen. Furthermore, an
additional US$3.7 million charge has been recognised in relation to
the reclassification of an asset previously held for sale. See note 13
on page 79 for more details.
2021 US$’000
Operated
Non-
operated
Corporate
Total
Oil revenue
35,362
40,634
–
75,996
Gas revenue
–
2,374
–
2,374
Gross revenue
35,362
43,008
–
78,370
(Loss)/profit for the
year
(54,643)
15,146
14,476
(25,021)
Add: Depreciation,
depletion and
amortisation
31,708
6,768
1,152
39,628
Less: Finance income
–
–
(54,816)
(54,816)
Add/(less): Finance
costs
110
(94)
25,362
25,378
Less: Taxation
–
–
(4,256)
(4,256)
EBITDA
(22,825)
21,820
(18,082)
(19,087)
Add/(less): Impairment
charges/(reversal)
33,511
(4,629)
–
28,882
Add: Loss on
reclassification of
assets held for sale
–
3,653
–
3,653
Less: Gain on sale of
non-current assets
–
–
(350)
(350)
Adjusted EBITDA
10,686
20,844
(18,432)
13,098
2020 US$’000
Operated
Non-
operated
Corporate
Total
Oil revenue
24,130
28,029
–
52,159
Gas revenue
2
1,840
–
1,842
Gross revenue
24,132
29,869
–
54,001
(Loss)/profit for the
year
(155,759) (49,054)
7,789
(113,810)
Add: Depreciation,
depletion and
amortisation
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
–
–
(38,005) (38,005)
EBITDA
(127,732)
(36,599)
(13,981) (178,312)
Add: Impairment
charges
127,501
43,628
–
171,129
Add: Loss on
reclassification of
assets held for sale
–
–
–
–
Add: Loss on sale of
non-current assets
6
–
–
6
Adjusted EBITDA
(225)
7,029
(13,981)
(7,177)
Phoenix Global Resources plc Annual Report and Financial Statements 2021
14
Phoenix Global Resources plc Annual Report and Financial Statements 2021
15
Finance income and costs
In the current year the Group recognised net finance income of
US$29.4 million compared to net finance costs of US$15.4 million
in 2020. In 2021 this was primarily driven by the benefit on
transfers of US Dollars into Argentina under the “contado con
liquidacion” mechanism.
Taxation
A US$4.3 million tax credit was recognised in 2021, compared with
a US$38.0 million tax credit in 2020. This resulted primarily from
deferred tax adjustments relating to additions and impairment
provisions and 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 2021, the Group had net assets of US$1.1 million, a
decrease of US$25.1 million compared with 31 December 2020.
During the year, intangible assets and property, plant and
equipment decreased by US$7.7 million primarily due to charges
for impairment of US$28.9 million, DD&A of US$39.6 million
offset by US$52.4 million of additions and the reclassification of
assets held for sale of US$8.6 million.
Current and non-current trade and other receivables increased
from US$29.5 million to US$41.9 million at 31 December 2021
primarily due to the increase in advance payments for capex
programs. Inventories increased from US$18.3 million to US$20.1
million at 31 December 2021. Net deferred tax liabilities decreased
from US$33.6 million to US$28.3 million at 31 December 2021
primarily due to an increase in deferred tax assets associated with
tax losses. Trade and other payables increased from US$26.2
million to US$39.2 million at 31 December 2021 due to the increase
in creditors associated with the ongoing capex programs.
Funding status and going concern
Total borrowings in the year increased by US$67.6 million, from
US$332.2 million at 31 December 2020 to US$399.8 million at 31
December 2021. The increase resulted primarily from the
drawdown of an additional US$55.7 million of funds from the
revolving convertible credit facility and bridging facility with
Mercuria and an increase in accrued interest of US$14.7 million.
Funds advanced under the credit facilities have been used to fund
the ongoing work programs. This increase in funding was partially
offset by the part repayment of local Argentine debt.
Our major shareholder, Mercuria, continues to be supportive of the
Company’s plans and has extended short-term debt facilities to
fund operations. At the year end, the Company had drawn down
US$348.0 million under these facilities and US$45.4 million of
interest had been capitalised. 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 period to 30 June
2023 and fund the planned work programs. Mercuria has also
specifically agreed to not demand repayment of the existing loans
(principal and interest) during this period. 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.
Whilst it has taken more time than anticipated, the Company and
Mercuria are still seeking to restructure the existing facilities, but
do not expect this to be completed until later in the year. The
directors still 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 2021
financial statements.
However, the directors recognise that if financial support over the
period to 30 June 2023 was not to be available and the Company
is unable to restructure the existing loan agreements with
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 2021, the Group had cash and cash equivalents of
US$66.3 million (2020: US$5.4 million).
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
15
Risk management
16
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Managing business risks
Understanding our principal risks and ensuring that we have the
appropriate controls in place to manage those risks are 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 agreeing annual work
programs and budgets. See Principal Risks and Uncertainties on
page 17 and the mitigation steps taken to minimise these risks.
A focus on risk management at the board level
The board has three independent directors, with two of the three
independent directors having 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 USA. 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.
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 KPIs for the
Group.
The five steps in dealing with risk are:
1)
Identify
2)
Assess
3)
Mitigation options
4)
Manage and execute
5)
Review
Phoenix Global Resources plc Annual Report and Financial Statements 2021
16
Phoenix Global Resources plc Annual Report and Financial Statements 2021
17
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 that 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.
Whilst there has been no significant change in the risk profile since last year, the Company is conscious of climate change as an emerging
risk, which the Company continues to evaluate..
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
Explore and develop
Profitable production
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 the Group has hired a
dedicated HSE Manager.
The risk of physical injury or fatalities increases as physical
operations such as drilling and completion activity increase.
Notwithstanding the significant increase in activity in 2021, there
has been no deterioration in our HSE metrics, with the Company
delivering improved performance when compared with 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 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
Explore and develop
Profitable production
Realise value
Mitigation
Technology and operational experience are fundamental in
developing unconventional resources.
We have completed two horizontal wells at Corralera in 2021,
which are currently under testing and evaluation. Our 2022
program includes the drilling and completion of two additional
pads of three wells each in Mata Mora as part of the Mata Mora
pilot plan.
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 sub surface
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
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
17
Risk management continued
18
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 sub surface 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
and estimates at the end of 2021 were prepared by independent
reservoir engineers and prepared in accordance with the
Petroleum Resources Management System. The reserves
estimates at the end of 2021 showed a significant increase in 2P
reserves.
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 it has a high appetite for
this risk.
We accept this risk as our strategy is focused on Argentina and
unconventional opportunities. We diversify by holding different
licences and targeting varied geological formations.
Within the assets with unconventional targets our main focus
is Mata Mora, where we have been awarded a 35 year
exploitation concession.
Link to strategy
Control and consolidate
Explore and develop
Profitable production
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
macroeconomic 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 2021 with high
inflation 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
Phoenix Global Resources plc Annual Report and Financial Statements 2021
18
Phoenix Global Resources plc Annual Report and Financial Statements 2021
19
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 has historically funded its capex programs with debt
but continues to evaluate debt and equity financing options.
Link to strategy
Explore and develop
Profitable production
Realise value
Mitigation
The credit facility extended to the Company by Mercuria was
increased during 2021 and stood at US$393 million at the year end
including capitalised interest of US$45.4 million. See note 21 on
page 88 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 65
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
Explore and develop
Profitable production
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
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
19
Risk management continued
20
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Principal Risks and Uncertainties continued
7
Realised commodity prices
A material decline in oil and gas prices adversely affects the
Group’s profitability, cash flow, financial position and ability
to invest.
Potential impact – High
Probability – High
Risk appetite
Considerable exposure to commodity price risk is inherent in the
business and is accepted by the Company.
Link to strategy
Control and consolidate
Explore and develop
Profitable production
Realise value
Mitigation
Local Argentine oil prices do not fully track international prices as
local price controls limit the benefit of rising international prices.
However, the Company expects in the future a gradual increase in
local prices in the future, reducing the gap between local and
international prices.
This imperfect relationship between local Argentine prices and
Brent makes designing effective hedging strategies difficult.
However, the Company, subject to permit approval, is now able to
export some of its production to take advantage of the favourable
international prices.
Relevant KPI by priority/significance
4, 5
8
Fluctuating demand and limited sales
routes for some production
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
Risk appetite
The Argentine economy has been historically volatile and subject to
periods of rapid and sustained inflation that can affect demand
for oil and oil products.
For certain assets, historically the primary sales route is through a
single refinery and single customer.
Link to strategy
Profitable production
Realise value
Mitigation
The Company, subject to permit approval, is now able to export
some of its production through alternative sales routes, which also
enables the Company to take advantage of more favourable
prices. The Company continues to look at alternative delivery
routes and access to more refineries.
Relevant KPI by priority/significance
4, 5
Phoenix Global Resources plc Annual Report and Financial Statements 2021
20
Phoenix Global Resources plc Annual Report and Financial Statements 2021
21
9
Global economic, political
and other risks
The emergence of Covid-19 as a global pandemic and the conflict
in Ukraine have had a significant effect on economies worldwide.
Potential impact – High
Probability – High
Risk appetite
2020 was dominated by Covid-19 and its rapid development as a
life-threatening global pandemic. Globally, respective
governments’ response were of containment through lockdown,
social distancing restrictions, quarantine and self-isolation for
substantially all citizens, whilst countries rolled out vaccination
programs. In 2021 we saw restrictions gradually lifting and
economic and industrial activity increasing, however, the conflict
in Ukraine has negatively changed the global economy, harming
growth and putting upward pressure on inflation when inflation
is already high.
Link to strategy
Explore and develop
Profitable production
Realise value
Mitigation
The global economic recovery has progressed more strongly than
anticipated a year ago but it is becoming increasingly imbalanced,
as lower income economies struggle to keep up where vaccination
rates are low.
Also, the conflict in Ukraine and the strong international economic
sanctions on trade with Russia have resulted in a significant
escalation in energy prices, with Brent increasing from a year end
price of US$77/bbl to US$116/bbl at 10 March 2022. Furthermore,
the majority of our oil is sold in the domestic market and our main
suppliers and contractors are large blue chip companies that have
taken steps to comply with the sanctions imposed.
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
In the October 2019 presidential elections, the opposition Peronist
party ousted the Macri administration, returning the country to a
centre-left policy agenda.
The economic situation in Argentina has deteriorated significantly
with the key economic indicators reflecting this situation:
→ US Dollar/Peso exchange rate devaluation with a rate of
AR$115.3 at 30 April 2022 compared to AR$93.6 at the same
date in the previous year
→ BADLAR interest rate of 36.56% (APR) forecast for the end
of 2022 (Source: REM)
→ December 2021 inflation 3.8% with 54.8% projected for 2022
(Source: REM)
→ Country risk premium 11.87% (Source: Damodaran)
→ Emerging Markets Bond Index (“EMBI”) 17.42% (Source: Rava)
However, after the year end, Argentina’s senate gave final
approval to the agreement to restructure US$45 billion debt with
the IMF, which has now been approved by the executive board of
the IMF.
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
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
21
Risk management continued
22
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Principal Risks and Uncertainties continued
11
Joint venture partners
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.
Potential impact – Medium
Probability – Low
Risk appetite
In certain of its operations, the Group has joint venture partners,
as either operator or non-operator. The Group requires high
quality partners. It recognises that it must accept a degree of
exposure to the creditworthiness of its partners and evaluates this
aspect carefully as part of each investment decision.
Where we are not the operator, we have less influence on the rate
of capital expenditure for development.
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 preventivo de acreedores” in late 2020, which is 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
12
Competition
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
The unconventional oil and gas industry in Argentina emerged
rapidly with significant investment commitments made by major
international and national oil companies together with companies
from the independent sector.
The relatively early stage of the unconventional oil and gas
industry in Argentina and the opportunity to establish the Group
as a leading operator translates to a high appetite for this risk.
We cannot influence demand by others but can ensure we have
the right relationships with suppliers and contractors.
Link to strategy
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 in 2021.
Relevant KPI by priority/significance
2
Phoenix Global Resources plc Annual Report and Financial Statements 2021
22
Sustainability review
Phoenix Global Resources plc Annual Report and Financial Statements 2021
23
ESG
The Company has developed 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.
The Company has three main sustainability goals, focused on
environmental, social and governance (“ESG”) risks/opportunities
and their potential impact on and contribution to society:
→ Decarbonisation: Integrate into our business and operational
strategies the challenges associated with climate change and
climate resilience by running safe and responsible operations
that seek to minimise our greenhouse gas emissions to the
extent commercially practical
→ Responsible operations: Conduct our business with integrity
and high ethical standards and foster a working environment
of respect for all employees. The Company manages its
activities with the highest regard for the safety and wellbeing
of the people, the environment and our assets
→ Creating shared social values: The Company is more than a
business; we are part of society. We recognise and respect the
dignity of all human beings and seek to improve the life of the
communities in which we function
The Company is currently defining objectives and targets for the
next two years and is developing a scorecard to measure
performance.
The Company is evaluating the recommendations of the Task
Force on Climate-related Financial Disclosures (“TCFD”) and will
be putting in place policies and procedures to facilitate reporting
against the four core elements of the TCFD framework in line with
the TCFD requirements for AIM companies of our size.
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
Senior management – Male – 4 staff representing 100% of senior
management
Board – Male – 6 members representing 100% of the board
Group – Male – 53 staff representing 78% of the total workforce
Group - Female – 15 staff representing 22% of the total workforce
Appointments are based on merit and objective criteria and within
this context also promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths.
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 2010, the US Foreign Corrupt Practices Act (“FCPA”)
and the Argentinian Foreign Corrupt Practices Act.
Substantially all our operations and people are based in Argentina.
Transparency International’s Corruption Perception Index (“CPI”)
currently ranks Argentina 96 out of 180 participating countries
worldwide with a score of 38/100, down from 42/100 in 2020. By
comparison the UK is ranked at 11 out of 180 with a score of
78/100.
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 behaviour.
We have a system of documented ABC policies and procedures
that provide a consistent policy framework across the Group to
ensure awareness of potential threats among our employees and
help to ensure appropriate governance of ABC matters.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
23
Sustainability review continued
24
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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; and
→ 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 behaviour through our external legal
counsel as an alternative to reporting internally.
Tendering and supply chain
Our focus on our tendering process and supplier management has
increased as our high value evaluation and development activity
increased in the year. We have a professional head of
procurement and in 2021 documented new rules and procedures
to be followed in serving any supply needs, including the purchase
of goods and contracts for works or services.
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 UK, 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.
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 a
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 levels. 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 2021 we paid more than
US$13.1 million in cash taxes in Argentina with US$0.7 million paid
at the federal level and the balance in the Provinces where
we work.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
24
Stakeholder engagement
Phoenix Global Resources plc Annual Report and Financial Statements 2021
25
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 and
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
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
25
Stakeholder engagement continued
26
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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:
→ Regular news announcements
→ Annual General Meeting open
to all shareholders
→ Dedicated investor relations email
address and proactive and reactive
engagement
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:
→ Building relationships based on mutual
trust that builds value
→ Bringing specialist expertise to bear in
developing our portfolio
→ Learning from shared experiences
→ Sharing value outcomes equitably
How do we engage?
Proactive and responsive dialogue
with suppliers.
Actions:
→ Implementation of rules and procedures
for purchases and contracts
→ Joint working teams on
complex projects
→ Project debrief sessions
→ External benchmarking
→ Implementation of a Stop Work Policy
The Strategic report from pages 2 to 26 was approved by the
board and signed by order of the board by Nigel Duxbury,
Company Secretary, on 27 May 2022.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
26
Corporate Governance Statement
Phoenix Global Resources plc Annual Report and Financial Statements 2021
27
Chairman’s statement on
corporate governance
In 2020, the board agreed to adopt and report against the
provisions of the Quoted Companies Alliance Corporate
Governance Code (the “QCA Code”), which is considered
appropriate for a company of its 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 10 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 principles
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.
Sir Michael Rake
Non-executive chairman
27 May 2022
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
27
Corporate Governance Statement continued
28
Phoenix Global Resources plc Annual Report and Financial Statements 2021
The principles of the QCA Code
The QCA has 10 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
Disclosure
Comments
1.
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 4 of this report.
2.
Seek to understand and meet shareholder needs
and expectations
The board ensures that the interests and views of
shareholders are considered as part of its decision
making process and this is laid out in more detail on
page 25 of this report.
3.
Take into account wider stakeholder and social responsibilities
and their implications for long-term success
The board ensures that the interests and views of
stakeholders are considered as part of its decision
making process and this is laid out in more detail on
page 25 of this report.
4.
Embed effective risk management, considering both
opportunities and threats, throughout the organisation
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 16 to 22 of this report.
5.
Maintain the board as a well-functioning, balanced team led
by the chairman
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 whom the board considers
independent.
Each of the non-executive directors commit up to
four days per month to the Company but they 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 29 to 37
of this report.
6.
Ensure that between them the directors have the necessary
up-to-date experience, skills and capabilities
Information about the directors and their relevant
experience and skills can be found on pages 29 to 30
of this report.
7.
Evaluate board performance based on clear and relevant
objectives, seeking continuous improvement
There has been no formal evaluation of board
performance to date. See page 31 for a more
detailed explanation.
8.
Promote a corporate culture that is based on ethical values
and behaviours
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.
9.
Maintain governance structures and processes that are fit for
purpose and support good decision making by the board
Details of the Company’s governance structures are
set out in the governance report on pages 25 to 51
and are available on the Company website.
10.
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
stakeholders are considered as part of its decision
making process and this is laid out in more detail on
pages 25 to 26 of this report.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
28
The board
Phoenix Global Resources plc Annual Report and Financial Statements 2021
29
Overview and experience
The board consists of six members with diverse backgrounds, with
each director bringing different experiences 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 on 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 74)
Non-executive chairman and chairman and member of the
Nominations Committee and member of the Audit and Risk and
Remuneration Committees. Appointed on 19 September 2016.
Skills and experience
Sir Michael 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
BritishAmerican 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 74)
Senior independent director and chairman and member of the
Remuneration Committee and member of the Audit and Risk and
Nominations 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 Gencor’s Brazilian mining company, Sao 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. He has served
on the boards of several listed companies, most recently as
chairman of Faroe Petroleum plc and non-executive director of
Wentworth Resources plc and 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 63)
Independent non-executive director and chairman of the Audit and
Risk Committee and member of the Remuneration and
Nominations 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 Former
Soviet Union (“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 NEO Energy Holdings Ltd
→ Non-executive director of Point Resources Holding AS
Qualifications
→ MSc (Geophysics) from the Swiss Federal Institute of
Technology (ETH)
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
29
The board continued
30
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Tim Harrington (age 63)
Independent non-executive director. Appointed on 14 November
2018.
Skills and experience
Tim has over 41 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 USA
and currently serves as a senior energy adviser to Greenbelt
Capital Partners. Additionally, Tim sits on the board of directors
for DJR Energy LLC and TRP Energy LLC, two privately funded oil
and gas industry related start-ups operating in the onshore USA.
He is also a member of the National Association of Corporate
Directors (“NACD”) in the USA and was a past director and
executive committee member for the Texas Oil and Gas
Association (“TXOGA”). Tim 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
→ B.S., Accounting, Miami University (Ohio) and MBA,
Xavier University
→ Certified Public Accountant, Texas (inactive)
Magid Shenouda (age 52)
Non-executive director. Appointed on 17 March 2022.
Skills and experience
Magid is deputy CEO and Group Head of Trading at Mercuria
Energy Group Limited. Magid is the nominated majority
shareholder representative to the board.
Nicolás Mallo Huergo (age 52)
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 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 Annual General Meeting. 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
Considered
independent
Date of
appointment
Length of
service
Sir Michael Rake
No
19 September
2016
5 years 8
months
John Bentley
Yes
10 August
2017
4 years 9
months
Martin Bachmann
Yes
1 September
2019
2 years 8
months
Tim Harrington
Yes
14 November
2018
3 years 6
months
Magid Shenouda
No
17 March
2022
2 months
Nicolás Mallo Huergo
No
2 October
2007
14 years 7
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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
30
Phoenix Global Resources plc Annual Report and Financial Statements 2021
31
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 the Company 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, which 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
After the year end Daniel Jaeggi resigned from the board as the
nominated majority shareholder representative and was replaced
by Magid Shenouda who was appointed to the board on
17 March 2022.
Meetings
The directors’ attendance at scheduled meetings during 2021
is detailed below:
Board attendance
Role
Meetings
attended
Sir Michael Rake
Non-executive chairman
5/5
John Bentley
Independent non-
executive director
4/5
Martin Bachmann
Independent non-
executive director
5/5
Tim Harrington
Independent non-
executive director
5/5
Daniel Jaeggi1
Non-executive director
0/5
Nicolás Mallo Huergo
Non-executive director
5/5
1 Resigned 17 March 2022
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
31
Executives
32
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 Neuquén
basin and some of Argentina’s most significant tight gas
developments 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 Neuquén City with a
degree in Petroleum Engineering and holds an MBA from
Barcelona University.
Qualifications
Degree in Petroleum Engineering, Comahue University and MBA
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
Principal responsibilities
Chief
executive
officer
→ Provides broad leadership and promotes
collaboration across the organisation
→ 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
Chief
financial
officer
→ Overall management of the financial risks of
the Group
→ Is responsible for financial planning and record
keeping as well as financial reporting to the
board and shareholders
→ Ensures effective financial compliance and
control, while responding to regulatory
developments, including financial reporting,
capital requirements and corporate
responsibility
Phoenix Global Resources plc Annual Report and Financial Statements 2021
32
Board Committees
Phoenix Global Resources plc Annual Report and Financial Statements 2021
33
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 2021 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
Scheduled
meetings
attended
Martin Bachmann (chairman) September 2020
4/4
John Bentley
September 2020
3/4
Sir Michael Rake
August 2017
4/4
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 chairman. The chairman of the board may be
a member of the committee, though only where he or she is
considered independent on appointment as chairman of the
board. Where the chairman 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, particularly those
related to the external reporting cycle. The committee chairman
maintains an ongoing dialogue with key individuals involved in
the Company’s governance, including the external auditors.
The chairman also meets privately with the external auditors
at least once per year, though will meet more frequently
as circumstances dictate.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
33
Board Committees continued
34
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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
→ to monitor policies and procedures related to ethics, fraud
and whistleblowing.
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 2021 in relation to the financial statements and how each of
these were addressed are detailed below:
Going concern assessment – 2020 was dominated by Covid-19
and its rapid development as a life-threatening global pandemic.
Globally, respective governments’ responses were of containment
through lockdown, social distancing restrictions, quarantine and
self-isolation for substantially all citizens, whilst countries rolled
out vaccination programs. In 2021 we saw restrictions gradually
lifting and economic and industrial activity increasing.
The global economic recovery has progressed more strongly than
anticipated a year ago but it is becoming increasingly imbalanced,
as lower income economies struggle to keep up where vaccination
rates are low and the conflict in Ukraine has negatively changed
the global economy, harming growth and putting upward pressure
on inflation when it is already high.
The economic situation in Argentina has deteriorated significantly
with the key economic indicators reflecting this situation and
whilst the environment continues to be extremely challenging, the
Company is in a stronger position to produce proven, developed
and producing reserves economically at lower prices with a
positive contribution to cash flow and allow it to focus on the
continued development of its unconventional assets.
However, whilst the economic and political uncertainty in
Argentina continues, Argentina held discussions with the IMF to
restructure the country’s US$45 billion of debt. At the end of
January 2022 President Fernandez’s government announced that
it had reached an “understanding” with the IMF on key policies
that would allow the country to reach a new financing agreement
to restructure this debt. In April 2022, Argentina’s senate approved
the agreement reached with the IMF, which has now been
approved by the executive board of the IMF, which should help to
reduce some of the economic uncertainty.
Our major shareholder, Mercuria, continues to be supportive of the
Company’s plans and has extended short-term debt facilities to
fund operations. At the year end, the Company had drawn down
US$348.0 million under these facilities and US$45.4 million
of interest had been capitalised. 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 period to 30 June
2023 and fund the planned work programs. Mercuria has also
specifically agreed not to demand repayment of the existing loans
(principal and interest) during this period. 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.
Whilst it has taken more time than anticipated, the Company and
Mercuria are still seeking to restructure the existing facilities, but
do not expect this to be completed until later in the year. The
directors still 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 2021
financial statements.
However, the directors recognise that if financial support over the
period to 30 June 2023 was 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.
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.
These include:
→ changes in estimated reserves and contingent resources;
→ 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
34
Phoenix Global Resources plc Annual Report and Financial Statements 2021
35
Where potential triggers for impairment in respect of a particular
licence are identified detailed evaluations are then carried out.
These evaluations include for producing assets an assessment of
fair values using the net present value (“NPV”) of post-tax cash
flows generated from the 2P reserves of the associated cash
generating unit for producing assets and for exploration assets
fair values assessed on a per acreage basis using comparable
precedent transactions data.
Where management believes a reversal of the conditions that
gave rise to an impairment has arisen, a potential reversal of the
impairment charge recognised in prior periods is recorded.
The 2021 impairment assessment review resulted in an
impairment charge of US$1.6 million in respect of intangible
assets, an impairment charge of US$31.9 million in respect of
property, plant and equipment and a reversal of impairment
charges recognised in prior periods of US$4.6 million in respect
of property, plant and equipment. See notes 13 and 14 on
pages 79 to 83 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 2021. The board had not commissioned any specific
internal audit reviews in 2020 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 2022 will
be undertaken using a specialist provider of internal audit services.
External audit
PricewaterhouseCoopers LLP (“PwC”) is the external auditors to
the Group in respect of the 2021 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 2021 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 2021.
Nominations Committee Report
Membership and attendance at scheduled meetings:
Members
Date appointed
Scheduled
meetings
attended
Sir Michael Rake (chairman)
August 2017
2/2
John Bentley
August 2017
2/2
Martin Bachmann
September 2020
2/2
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 with 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 chairman; and
→ assist the board with the periodic evaluation of the
performance of individual directors and of the board
as a whole.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
35
Board Committees continued
36
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 2021
Whilst the committee continues to evaluate board and senior
executive performance no significant activity was undertaken
in 2021.
Priorities for the coming year
In 2022, the committee will continue to assess the skills present on
and the effectiveness of the board and a performance evaluation
of the board, committees and individual directors including the
chairman will be considered if determined appropriate.
Over-boarding
We are aware of, and have considered, recent guidance from
proxy organisations recommending that shareholders vote against
the re-election of directors where they consider that a director is
attempting to undertake too many roles in addition to the
responsibilities that come with being a member of the Company’s
board. Whilst 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 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.
Remuneration Committee Report
Membership and attendance at scheduled meetings:
Members
Date appointed
Scheduled
meetings
attended
John Bentley (chairman)
August 2017
3/3
Sir Michael Rake
August 2017
3/3
Martin Bachmann
September 2020
3/3
Purpose
The primary functions of the Remuneration 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 the Group’s 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
In 2020, the board agreed to adopt and report against the
provisions of the QCA Code, which is considered appropriate for
a company of its 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.
2021 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
36
Phoenix Global Resources plc Annual Report and Financial Statements 2021
37
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.
The remuneration policy set out on pages 38 to 45 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 2021
The target bonuses for 2021 were based on a combination of
quantitative and subjective KPIs including corporate, operational,
financial and personal performance, but given the stage of the
Company’s development the committee believed it was
appropriate to apply a certain amount of discretion in determining
the amount of the final bonus awards.
In 2021 no awards were granted under the Long-Term Incentive
Plan (“LTIP”) to directors but awards were granted to eligible
employees in accordance with the LTIP rules.
Looking ahead to 2022
→ Given the stage of the Company’s development, the
committee will continue to apply a certain amount of discretion
in determining bonus awards
→ The committee and board will review the terms of the LTIP and
performance conditions and awards may be granted to eligible
employees selected by the board
→ Non-executive director fees will be reviewed in 2022
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.
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 2021,
in order to apply and implement the Company’s remuneration
policy that is in the best interests of the Company and all its
shareholders, the committee did apply a certain amount of
discretion in determining final bonus awards.
Adviser
The committee has retained Ellason as its independent adviser to
support the Group on remuneration related matters. Fees are
determined on a time and material basis. Ellason was paid
US$4,300 in 2021 (2020: US$nil).
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
37
Remuneration Policy Report
38
Phoenix Global Resources plc Annual Report and Financial Statements 2021
In 2020, the board agreed to adopt and report against the
provisions of the QCA Code, which is considered appropriate for a
Company of its nature and size. The QCA Code provisions cover
many of the same areas as the UK Corporate Governance Code
but provide additional flexibility in the manner of reporting and the
application of certain provisions.
Notwithstanding, in recognition of the importance of
transparency and these standards of governance, the basic
principles of the remuneration policy below, which were applied in
previous years, were in general applied in 2021 and will still, in
general, be applied by the committee in 2022.
Remuneration policy for the executive directors
Purpose and link to strategy
Operation
Opportunity
Performance measures
Base salary
To attract and retain talented
executive directors to deliver
the Group’s strategy by
ensuring base salaries and 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 E&P 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.
Base salary increases for the
executive directors will not
normally exceed the average
increase awarded to the wider
workforce, other than in
exceptional circumstances such
as a material change in
responsibilities, size or
complexity of the role, or if
a director was intentionally
appointed on a below-
market salary.
Base salaries are disclosed in the
annual report on remuneration.
n/a
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 USA.
Details of the pension
contributions made to executive
directors during the year are
disclosed in the annual report on
remuneration.
n/a
Phoenix Global Resources plc Annual Report and Financial Statements 2021
38
Phoenix Global Resources plc Annual Report and Financial Statements 2021
39
Purpose and link to strategy
Operation
Opportunity
Performance measures
Other benefits
To provide non-cash benefits
which are competitive in the
market in which the executive
director is employed.
The Group may provide benefits
in kind including, but not limited
to, a Company car or car
allowance, private medical
insurance (or allowance in lieu)
for the executive directors and
their family, permanent health
insurance and life insurance.
Executive directors may also be
provided certain other benefits
to take account of individual
circumstances such as, but not
limited to, payment of tax,
financial and/or legal adviser
fees, expatriate allowance,
relocation expenses, housing
allowance and tax equalisation
(including associated interest,
penalties or fees plus, in certain
circumstances or where the
committee considers it
appropriate, any tax incurred on
such benefits). Executive
directors may also be offered
any other future benefits made
available either to all senior
employees globally or in the
region in which the executive
director is employed.
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
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
39
Remuneration Policy Report continued
40
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Purpose and link to strategy
Operation
Opportunity
Performance measures
Annual bonus
To incentivise executive
directors to deliver strong
financial and operational
performance on an annual
basis and reward the delivery of
the Group’s strategic aims that
will underpin the longer-term
health and growth of
the business.
Deferral into shares enhances
alignment with shareholders.
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.
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 (“DBP”). 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).
The maximum annual bonus
opportunity is 100% of
base salary.
The payout for on-target
performance is normally 50%
of maximum; threshold
performance results in
zero payout.
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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
40
Phoenix Global Resources plc Annual Report and Financial Statements 2021
41
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).
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
41
Remuneration Policy Report continued
42
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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. not to 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.
Approach to target setting and performance measure
selection
The committee carefully considers 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 6). 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
42
Phoenix Global Resources plc Annual Report and Financial Statements 2021
43
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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
43
Remuneration Policy Report continued
44
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 ‘buy out’
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 “buy out”
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 “buy out” awards, will be disclosed
in the annual report on remuneration for the year in which
recruitment occurred.
External appointments held by executive directors
Executive directors may not accept any external appointment
without the consent of the board, there being no conflicts of
interest and the appointment not leading to deterioration in the
individual’s performance. Executive directors may retain the fees
paid for such roles. Details of external appointments will be
included in the annual report on remuneration.
Consideration of conditions elsewhere in the Group
The committee seeks to promote and maintain good relations
with employees as part of its broader employee engagement
strategy, considers pay practices across the Group and is mindful
of the salary increases applying across the rest of the business in
relevant markets when considering any increases to salaries for
executive directors. However, whilst the committee does not
currently consult with employees on its executive remuneration
policy, in 2022 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 taken in 2021 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
44
Phoenix Global Resources plc Annual Report and Financial Statements 2021
45
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, incentive 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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
45
Annual remuneration report
46
Phoenix Global Resources plc Annual Report and Financial Statements 2021
This section of the Remuneration Report provides details of how our remuneration policy was implemented during the year ended 31
December 2021 and how it will be implemented during the year ending 31 December 2022.
Single total figure of remuneration for executive directors (Audited)
The senior executives, the CEO and CFO and Company Secretary are not members of the board.
The table below sets out a single figure for the total remuneration received by the sole executive director, the CFO, who served in 2020.
Kevin Dennehy was appointed as an executive director on 1 October 2018 and resigned from the board on 21 May 2020.
Director
Base salary1
US$‘000
Taxable
benefits2
US$‘000
Annual
bonus
US$‘000
LTIP
US$‘000
Pension
benefit3
US$‘000
Total
US$‘000
Kevin Dennehy4
2021
–
–
–
–
–
–
2020
156
111
–
–
26
293
1 The salaries of executive directors were set in the context of salaries for comparable roles at other international E&P companies and FTSE-listed companies of comparable size
to Phoenix. For 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 2020 Kevin Dennehy also received an annual foreign living and service allowance
of US$100,000 and an annual housing allowance of 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 Kevin Dennehy resigned as an executive director on 21 May 2020 and his annualised base salary at that time was US$400,000 and he received a pension benefit equivalent to 10%
of his salary
Single total figure of remuneration for non-executive directors (Audited)
The table below sets out a single figure for the total remuneration received by each non-executive director who served during the
year. As an appointee of the Group’s substantial shareholder, Daniel Jaeggi waived his right to receive fees in connection with
his appointment.
Director
Basic fees
US$‘000
Additional
fees
US$‘000
Total
US$‘000
Sir Michael Rake
2021
154
–
154
2020
164
–
164
John Bentley1
2021
34
34
68
2020
43
30
73
Tim Harrington2
2021
34
10
44
2020
43
230
273
Martin Bachmann3
2021
34
149
183
2020
43
132
175
Nicolás Mallo Huergo
2021
34
–
34
2020
43
–
43
Daniel Jaeggi4
2021
–
–
–
2020
–
–
–
1 Additional fees paid for his appointment as the senior independent director and chairman of the Remuneration Committee
2 Additional fee for his technical advisory role
3 Additional fees paid for his appointment as the chairman of the Audit and Risk Committee and for consultancy services
4 Waived right to fees
Phoenix Global Resources plc Annual Report and Financial Statements 2021
46
Phoenix Global Resources plc Annual Report and Financial Statements 2021
47
Incentive outcomes for the year ended 31 December 2021
There were no executive directors in 2021.
LTIP award outcomes for the year ended 31 December 2021
There were no executive directors in 2021.
LTIP awards granted in 2021
There were no executive directors in 2021.
Statement of shareholdings and share interests of directors who served during the year
Share interests as at 26 May 2022 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
No.
Total interests
held as at
26 May 2022
No.
Total interests
held as at
17 May 2021
No.
Sir Michael Rake
760,000
–
–
–
760,000
760,000
John Bentley
42,000
–
–
–
42,000
42,000
Tim Harrington
–
–
–
–
–
–
Martin Bachmann
–
–
–
–
–
–
Nicolás Mallo Huergo
966,323
–
–
–
966,323
966,323
Daniel Jaeggi2
–
–
–
–
–
–
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 2021 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.
There were no payments to past directors and no payments for loss of office in 2021.
In 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 details are set out below:
Element of remuneration
US$‘000
Base salary
200
Taxable benefits
31
Pension benefits
35
Kevin was determined by the committee to be a “good leaver” and outstanding awards under the Company’s bonus and LTIP plans shall
continue to be capable of vesting subject to applicable performance conditions being met.
The remuneration he received as an executive director is set out in the 2020 single figure table.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
47
Annual remuneration report continued
48
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Implementation of director remuneration policy for 2021
Directors’ salaries and fees
There are currently no executive directors on the board.
In 2020 the non-executive directors accepted a 30% reduction in their fees.
The annual base fees for the non-executive directors at the beginning of the year are detailed below:
Director
Base fee US$
Sir Michael Rake
153,914
John Bentley
68,712
Tim Harrington
51,534
Martin Bachmann
51,534
Nicolás Mallo Huergo
34,356
Daniel Jaeggi
–
The committee will carry out a review of the non-executive chairman’s fee early in 2022 and separately, the non-executive chairman and
the senior executives will also carry out a review of the non-executive director fees in 2022.
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 2022.
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.
Individuals’ 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
27 May 2022
Where applicable a rate of exchange of US$/£1.3742 has been used for 2021 and a rate of exchange of US$/£1.2835 for 2020. 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
48
Directors’ report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
49
Group Directors’ Report for the year ended 31
December 2021
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 2021. These will be laid
before the shareholders at a general meeting to be held on 30
June 2022.
General information
The Company is a public limited company incorporated in England
and Wales under the Companies Act 2006 (Registered no.
05083946). The Company has offices in Buenos Aires, Mendoza
and Neuquén in 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 2021 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 (340,939,181 shares) and Mercuria Energy Asset
Management B.V. (64,188,305 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 chairman,
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 an aggregate value
of US$185.0 million. The facility was used to fund the exploration,
evaluation and development activities of the Group and for
general corporate and working capital purposes. In 2019 and 2020,
the amount available under the new convertible rolling credit
facility was increased by way of three additional tranches to
US$291.0 million, with a total of US$281.0 million drawn down
under the facility and in Q1 of 2020, the undrawn balance of
US$10.0 million was made available through a non-convertible
bridging facility. This bridging facility has subsequently been
increased to US$97.5 million, whilst the parties continue to discuss
the restructure of all credit facilities.
Significant contracts with related parties are discussed in note 29
on page 99. Further details of the credit facilities and the amount
outstanding under these facilities are discussed in note 21 on page
88.
Dividends
The directors do not recommend the payment of a dividend for
the year ended 31 December 2021 (2020: 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
Sir Michael Rake
Non-executive
chairman
19 September
2016
n/a
John Bentley
Non-executive
(independent)
10 August
2017
n/a
Daniel Jaeggi
Non-executive
14 November
2018
17 March 2022
Tim Harrington
Non-executive
14 November
2018
n/a
Martin Bachmann Non-executive
(independent)
1 September
2019
n/a
Magid Shenouda
Non-executive
17 March
2022
n/a
The directors of the Company are reappointed annually.
Accordingly, resolutions to reappoint each of the directors will be
proposed at the upcoming Annual General Meeting.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
49
Directors’ report continued
50
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 46.
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 2021 (year ended 31 December 2020: 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, are aware of that information.
Following a review of both the independence and the effectiveness
of the auditors, and the indication from PwC 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 27 to 52 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 Annual General Meeting will be held at the offices
of the Company at 1st Floor, 62 Buckingham Gate, London SW1E
6AJ on 30 June 2022. Formal notice of the Annual General
Meeting, including details of special business, is set out in the
notice of Annual General Meeting 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 was dominated by Covid-19 and its rapid development as a
life-threatening global pandemic. Globally, respective
governments’ responses were of containment through lockdown,
social distancing restrictions, quarantine and self-isolation for
substantially all citizens, whilst countries rolled out vaccination
programs. In 2021 we saw restrictions gradually lifting and
economic and industrial activity increasing.
The global economic recovery has progressed more strongly than
anticipated a year ago but it is becoming increasingly imbalanced,
as lower income economies struggle to keep up where vaccination
rates are low and the conflict in Ukraine has negatively changed
the global economy, harming growth and putting upward pressure
on inflation when it is already high.
The economic situation in Argentina has deteriorated significantly
with the key economic indicators reflecting this situation and
whilst the environment continues to be extremely challenging, the
Company is in a stronger position to produce proven, developed
and producing reserves economically at lower prices with a
positive contribution to cash flow and allow it to focus on the
continued development of its unconventional assets.
However, whilst the economic and political uncertainty in
Argentina continues, Argentina held discussions with the IMF to
restructure the country’s US$45 billion of debt. At the end of
January 2022 President Fernandez’s government announced that
it had reached an “understanding” with the IMF on key policies
that would allow the country to reach a new financing agreement
to restructure this debt. In April 2022, Argentina’s senate approved
the agreement reached with the IMF, which has now been
approved by the executive board of the IMF.
Our major shareholder, Mercuria, continues to be supportive of
the Company’s plans and has extended short-term debt facilities
to fund operations. At the year end, the Company had drawn
down US$348.0 million under these facilities and US$45.4 million
of interest had been capitalised. 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 period to 30 June
2023 and fund the planned work programs. Mercuria has also
specifically agreed not to demand repayment of the existing loans
(principal and interest) during this period. 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.
Whilst it has taken more time than anticipated, the Company and
Mercuria are still seeking to restructure the existing facilities, but
do not expect this to be completed until later in the year. The
directors still 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 2021
financial statements.
However, the directors recognise that if financial support over the
period to 30 June 2023 was 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
Phoenix Global Resources plc Annual Report and Financial Statements 2021
50
Phoenix Global Resources plc Annual Report and Financial Statements 2021
51
to a material uncertainty that may cast significant doubt on the
Group’s and Company’s ability to continue as a going concern.
Further disclosures
Further disclosure requirements as required by the Companies Act
2006, Schedule 7 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 and the
Financial Conduct Authority (“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 4 to 5
Stakeholder engagement
Pages 25 to 26
Acquisitions and disposals
Pages 79 to 83
Anti-slavery disclosure
Pages 23 to 24
Corporate Governance Statement
Pages 27 to 52
Gender diversity
Pages 23 to 24
Financial risk and financial instruments
Pages 90 to 94
Important events subsequent to the year end Page 101
By order of the board
Nigel Duxbury
Company Secretary
27 May 2022
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
51
Statement of directors’
responsibilities
52
Phoenix Global Resources plc Annual Report and Financial Statements 2021
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared
the Group and the Company financial statements in accordance with UK adopted international accounting standards.
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 and Company for that period. In preparing the
financial statements, the directors are required to:
→ select suitable accounting policies and then apply them consistently;
→ state whether applicable UK adopted international accounting standards 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’s 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 are responsible for the maintenance and integrity 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
52
Independent auditors’ report to the
members of Phoenix Global Resources plc
Phoenix Global Resources plc Annual Report and Financial Statements 2021
53
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 2021 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 UK-adopted international accounting standards; 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 Financial Statements 2021 (the “Annual Report”),
which comprise: the Consolidated and Company Statements of Financial Position as at 31 December 2021; 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 other listed entities of public interest, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided.
We have provided no non-audit services to the Company or its controlled undertakings in the period under audit.
Material uncertainty related to going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in
note 2 to the financial statements concerning the Group’s and 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 steps to manage the
Group’s capital structure to ensure the Group continues in the foreseeable future. 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 the period from the date of these financial statements to 30 June 2023 to support the business plan for
the remainder of 2022 and into 2023. This support is not legally binding. The Group continues to negotiate the timing of its current debt
repayments to Mercuria, and the funding plan for financial years ending 31 December 2022 and 2023 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 development capital expenditure commitments and requirements, then it may not
be able to continue to be a going concern. The Directors still 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 note 2 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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
53
Independent auditors’ report to the members of Phoenix Global
Resources plc continued
54
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 2022 and 2023, 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, including benchmarking external prices 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 the period from
the date of approval of the financial statements to 30 June 2023. 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
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. We also performed specified procedures over impairment charges in one entity
in Argentina.
→ Our scope enabled us to obtain 99% coverage of consolidated revenue, 99% of consolidated total assets and 91% 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)
Materiality
→ Overall Group materiality: US$2.58 million (2020: US$2.30 million) based on 0.5% of total assets.
→ Overall Company materiality: US$1.00 million (2020: US$2.20 million) based on 0.5% of total assets but capped at allocated
component materiality.
→ Performance materiality: US$1.94 million (2020: US$1.70 million) (Group) and US$0.75 million (2020: US$1.60 million) (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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
54
Phoenix Global Resources plc Annual Report and Financial Statements 2021
55
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
In addition to going concern, described in the Material uncertainty related to going concern section above, we determined the matters described
below to be the key audit matters to be communicated in our report. This is not a complete list of all risks identified by our audit.
Impact of Covid-19 (Group and Company), which was a key audit matter last year, is no longer included because of the reduced impact of Covid-
19 in relation to the risk of material misstatement of the financial statements. Otherwise, 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$181.5 million, exploration and evaluation
assets of US$189.4 million and goodwill of $20.6 million at 31
December 2021 allocated to 12 CGUs. The goodwill was allocated
between the 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,
Chachahuen and Atamisqui CGUs as these were 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 Atamisqui, Puesto Rojas, La Paloma, La Brea and
other smaller CGUs was lower than the carrying value. As a result,
a pre-tax impairment charge of US$33.5 million (2020: US$164.5
million) was recognised in the Consolidated Income Statement.
The test also determined that the recoverable amount of the
Chachahuen CGU was higher than the carrying value and as a
result a pre-tax impairment reversal of US$4.6 million (2020:
US$nil) 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 assessed the competency, independence and objectivity of the
external experts in relation to the estimation of commercial
reserves. We discussed the key judgements and assumptions used
in the report directly with the experts.
We concur with management’s view that there were impairment
triggers and that the impairments recorded in the Puesto Rojas
and Atamisqui CGUs and the reversal of impairment in the
Chachahuen CGUs recorded were supportable.
We evaluated management’s sensitivities disclosed within the
accounts in note 14 and have confirmed these are appropriate
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
55
Independent auditors’ report to the members of Phoenix Global
Resources plc continued
56
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Key audit matter
How our audit addressed the key audit matter
Impairment of investments (Company)
Refer to note 2 (Critical Accounting Estimates and Judgements),
note 3 (Significant accounting policies) and note 4 (Investments
in subsidiaries) 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 2021 is
US$481 million after current year impairment charges of
US$nil (2020: US$477 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 no impairment charge (2020: US$477 million) as
the fair value of the underlying assets supported the carrying value
of the investments.
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;
→ Compared the carrying value of the investment to the
recoverable amount and confirmed that there was no shortfall.
Based on our analysis of management’s assessment of the
recoverable amount of each investment, we concur that the
investments are recoverable. We consider management’s
conclusions and the associated disclosures to be appropriate.
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. We travelled to Argentina to perform site visits and conducted
further oversight of our component team through regular dialogue via conference calls, video conferencing and other forms of
communication as considered necessary. 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
56
Phoenix Global Resources plc Annual Report and Financial Statements 2021
57
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$ 2.58 million (2020: US$2.30 million).
US$1.00 million (2020: US$2.20 million).
How we determined it
0.5% of total assets
0.5% of total assets but capped at allocated
component 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 allocated component 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 $1.59 million and $2.03 million. 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% (2020: 75%) of overall materiality, amounting to US$1.94 million (2020: US$1.70
million) for the Group financial statements and US$0.75 million (2020: US$1.60 million) 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 $129k
(Group audit) (2020: $115k) and $50k (Company audit) (2020: $109k) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
57
Independent auditors’ report to the members of Phoenix Global
Resources plc continued
58
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 2021 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.
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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
58
Phoenix Global Resources plc Annual Report and Financial Statements 2021
59
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
27 May 2022
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
59
Consolidated Income Statement
For the year ended 31 December 2021
60
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Note
2021
US$’000
2020
US$’000
Revenue
7
78,370
54,001
Cost of sales
8
(81,472)
(81,401)
Gross loss
(3,102)
(27,400)
Selling and distribution expenses
(3,840)
(1,958)
Exploration expenses
13,14
(704)
(2,746)
Impairment charges
13,14
(28,882)
(171,129)
Gain/(loss) on sale of non-current assets
350
(6)
Administrative expenses
9
(16,967)
(14,892)
Loss on the reclassification of assets held for sale
13
(3,653)
–
Other operating expenses
10
(1,917)
(1,527)
Operating loss
(58,715)
(219,658)
Finance income
15
54,816
6,905
Finance costs
15
(25,378)
(22,276)
Loss before taxation
(29,277)
(235,029)
Taxation
16
4,256
38,005
Loss for the year
(25,021)
(197,024)
Loss per ordinary share
Basic and diluted loss per share
30
(0.01)
(0.07)
The above consolidated income statement should be read in conjunction with the accompanying notes on pages 65 to 101.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
60
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
Phoenix Global Resources plc Annual Report and Financial Statements 2021
61
2021
US$’000
2020
US$’000
Loss for the year
(25,021)
(197,024)
Translation differences
–
–
Total comprehensive loss for the year
(25,021)
(197,024)
There are no impairment losses on revalued assets recognised directly in equity.
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes on pages 65 to
101.
.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
61
Consolidated Statement of Financial Position
At 31 December 2021
62
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Note
2021
US$’000
2020
US$’000
Non-current assets
Property, plant and equipment
13
154,227
158,357
Intangible assets and goodwill
14
208,438
211,974
Other receivables
18
6,698
4,124
Deferred tax assets
25
25,777
20,116
Total non-current assets
395,140
394,571
Current assets
Assets held for sale
13
–
11,965
Inventories
26
20,112
18,349
Trade and other receivables
18
35,245
25,399
Cash and cash equivalents
19
66,265
5,386
Total current assets
121,622
61,099
Total assets
516,762
455,670
Non-current liabilities
Trade and other payables
20
381
299
Borrowings
21
–
6,641
Deferred tax liabilities
25
54,117
53,682
Provisions
27
19,286
15,965
Total non-current liabilities
73,784
76,587
Current liabilities
Liabilities held for sale
13
–
447
Trade and other payables
20
38,817
25,909
Income tax liability
2,217
920
Borrowings
21
399,759
325,592
Provisions
27
1,138
121
Total current liabilities
441,931
352,989
Total liabilities
515,715
429,576
Net assets
1,047
26,094
Equity
Share capital and share premium
457,194
457,183
Other reserves
(112,150)
(112,150)
Retained deficit
(343,997)
(318,939)
Total equity
1,047
26,094
The above consolidated statement of financial position should be read in conjunction with the accompanying notes. The financial
statements on pages 60 to 101 were approved by the board of directors and authorised for issue on 27 May 2022 and were signed on its
behalf by:
Sir Michael Rake
Director
Company registration number 05083946
Phoenix Global Resources plc Annual Report and Financial Statements 2021
62
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Phoenix Global Resources plc Annual Report and Financial Statements 2021
63
Capital and reserves
Called up
share capital
US$’000
Share
premium
US$’000
Treasury
shares
US$’000
Retained
(deficit)/
earnings
US$’000
Other
reserves
US$’000
Total equity
US$’000
At 1 January 2020
364,175
93,023
(464)
(121,867)
(112,150)
222,717
Loss for the year
–
–
–
(197,024)
–
(197,024)
Total comprehensive loss for the year
–
–
–
(197,024)
–
(197,024)
Issue of employee vested shares
–
–
449
(449)
–
–
Fair value of share-based payments
–
–
–
401
–
401
At 31 December 2020
364,175
93,023
(15)
(318,939)
(112,150)
26,094
Loss for the year
–
–
–
(25,021)
–
(25,021)
Total comprehensive loss for the year
–
–
–
(25,021)
–
(25,021)
Cash settlement of vested share awards
–
–
–
(165)
–
(165)
Fair value adjustment
–
–
11
–
–
11
Fair value of share-based payments
–
–
–
128
–
128
At 31 December 2021
364,175
93,023
(4)
(343,997)
(112,150)
1,047
Other reserves
Merger¹
reserve
US$’000
Warrant²
reserve
US$’000
Translation³
reserve
US$’000
Total other
reserves
US$’000
At 1 January 2020
(112,000)
2,105
(2,255)
(112,150)
At 31 December 2020
(112,000)
2,105
(2,255)
(112,150)
At 31 December 2021
(112,000)
2,105
(2,255)
(112,150)
1 The merger reserve is a non-distributable capital reserve arising from the issue and allotment of shares at a price higher than the nominal value of the shares and issued to satisfy
purchase considerations
2 The warrant reserve results from the valuation attributed to warrants granted
3 The translation reserve results from exchange differences arising from the translation of the assets and liabilities of the Group’s operations into the presentation currency at
exchange rates prevailing on the balance sheet date and income and expense items at the average exchange rates for the year
The above statement of consolidated changes in equity should be read in conjunction with the accompanying notes on pages 65 to 101.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
63
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
64
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Note
2021
US$’000
2020
US$’000
Cash flows from operating activities
Cash generated from/(used in) operations
31
49,637
(6,318)
Income taxes paid
(84)
(73)
Net cash inflow/(outflow) from operating activities
49,553
(6,391)
Cash flows from investing activities
Payments for property, plant and equipment
(15,297)
(4,099)
Payments for intangibles
(21,827)
(998)
Payments for held for sale assets
(887)
(371)
Proceeds from sale of non-current assets
401
–
Net cash outflow from investing activities
(37,610)
(5,468)
Cash flows from financing activities
Proceeds from borrowings
22
55,740
14,260
Repayment of borrowings
22
(2,433)
(801)
Interest paid
22
(1,595)
(709)
Principal lease payments
24
(198)
(5,327)
Net cash inflow from financing activities
51,514
7,423
Net increase/(decrease) in cash and cash equivalents
63,457
(4,436)
Cash and cash equivalents at the beginning of the year
5,386
11,002
Effects of exchange rates on cash and cash equivalents
(2,578)
(1,180)
Cash and cash equivalents at end of year
19
66,265
5,386
Non-cash financing activities
22
15,814
15,867
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes on pages 65 to 101.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
64
Notes to the consolidated financial statements
Phoenix Global Resources plc Annual Report and Financial Statements 2021
65
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 1st Floor, 62 Buckingham Gate, London SW1E 6AJ. 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
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The
Company transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January
2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or
disclosure in the period reported as a result of the change in framework. These consolidated financial statements have been prepared
in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards.
The significant accounting policies applied in preparing these consolidated financial statements are set out below. These policies have
been consistently applied throughout the year 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.
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, which
will allow the Company to focus on the continued development of its unconventional assets.
Our major shareholder, Mercuria, continues to be supportive of the Company’s plans and continues to extend short-term debt facilities
to fund operations. At the year end, the Company had drawn down US$348.0 million under these facilities and US$45.4 million of
interest had been capitalised. 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 period to 30 June 2023 and fund the
planned work programs. Mercuria has also specifically agreed not to demand repayment of the existing loans (principal and interest)
during this period. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria’s intention to
continue to provide financial support.
Whilst it has taken more time than anticipated, the Company and Mercuria are still seeking to restructure the existing facilities, but do
not expect this to be completed until later in the year.
The directors still 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 2021 financial statements.
However, the directors recognise that if financial support from Mercuria over the period to 30 June 2023 was 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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
65
Notes to the consolidated financial statements continued
66
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 and joint arrangements made up to 31 December each year. A list of the Group’s subsidiaries is included on page 108.
Non-controlling interests
There is no non-controlling interest at either 31 December 2020 or 2021.
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-licencee 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 8 to 13
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 2021
There are no new standards, amendments or interpretations effective and adopted by the Group in 2021.
3.2 New accounting standards issued but not yet effective or adopted by the Group in 2021
There are no new and amended accounting standards and interpretations published that are not mandatory for the year ended 31
December 2021.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
66
Phoenix Global Resources plc Annual Report and Financial Statements 2021
67
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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
67
Notes to the consolidated financial statements continued
68
Phoenix Global Resources plc Annual Report and Financial Statements 2021
4. Critical accounting estimates and judgements (continued)
4.1 Critical judgements (continued)
Determination of joint control continued
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 operation results in a line-by-line inclusion of the Group’s proportionate interest in the
assets, liabilities, revenues and costs of the arrangement. Conversely, where joint control is determined not to exist, the Group’s interest
in the net income and net assets of the arrangement are presented in a single line in each of the consolidated income statement and
statement of financial position.
4.2 Critical estimates
Future oil and gas prices
The estimation of future oil and gas prices has a significant impact throughout the financial statements. Future prices for oil and gas
have a direct impact on the estimation of the recoverable value of property, plant and equipment and intangible assets associated with
oil and gas assets.
Details of the oil and gas prices achieved in the years ended 31 December 2021 and 2020 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. Sub surface conditions and other engineering factors can also affect estimated reserve volumes.
Oil and gas reserve volumes are estimated by management together with the in-house reservoir engineer and are subject to periodic
independent estimation by external reservoir engineering experts as events or circumstances dictate.
The prospective value of oil and gas reserves is not recorded in the statement of financial position. Intangible oil and gas assets and
associated property, plant and equipment included in the statement of financial position relate to the cost of acquisition of those
properties together with cumulative exploration or development expenditure.
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 27.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
68
Phoenix Global Resources plc Annual Report and Financial Statements 2021
69
4. Critical accounting estimates and judgements (continued)
4.2 Critical estimates continued
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 25.
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 79 and 82.
Merger
The Group is planning to merge in 2022 its local operating entities and the impact of this merger has been considered when assessing
the recoverability of VAT and brought forward tax losses and the assessment of the potential impairment of the Company’s
investments in subsidiaries.
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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
69
Notes to the consolidated financial statements continued
70
Phoenix Global Resources plc Annual Report and Financial Statements 2021
5. Accounting policies (continued)
5.3 Employee benefits (continued)
Share-based payments
The Group operates a number of equity settled share-based compensation plans, under which the entity receives services from
employees as consideration for equity instruments, deferred share awards or options to subscribe for ordinary shares of the Company.
The fair value of the employee services received in exchange for the grant of the equity instruments, shares or options is recognised as an
expense. The total amount to be expensed is determined by reference to the fair value of the options granted:
→ including any market performance conditions (for example, an entity’s share price);
→ excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets
and remaining an employee of the entity over a specified time period); and
→ including the impact of any non-vesting conditions (for example, the requirement for employees to save).
Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to
be satisfied.
In some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated
for the purposes of recognising the expense during the period between service commencement and the grant date.
At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the
non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a
corresponding adjustment to equity.
The grant by the Company of equity instruments to the employees of subsidiary undertakings in the Group is treated as an
intercompany transaction. The fair value of employee services received, measured by reference to the grant date fair value, is recognised
over the vesting period as an intercompany loan, with a corresponding credit to equity in the parent entity financial statements.
Any social security contributions payable in connection with the grant of the share options is considered an integral part of the grant
itself, and the charge will be treated as a cash-settled transaction.
5.4 Taxes
The total tax charge or credit recognised in the statement of comprehensive income is made up of both current and deferred taxes.
The current tax charge or credit is based on the taxable profit or loss for the year. Taxable profit or loss is different to the profit or loss
reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
70
Phoenix Global Resources plc Annual Report and Financial Statements 2021
71
5. Accounting policies (continued)
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 or earlier if there are indicators. Goodwill is
written off or impaired where circumstances indicate that the recoverable amount of the underlying CGU including the asset may no
longer support the carrying value of the goodwill. Any such impairment is recognised in the income statement for the period. Impairment
losses related to goodwill are permanent and cannot be reversed in future periods.
5.6 Exploration and appraisal assets
Capitalisation
The Group follows an accounting policy for exploration and appraisal assets that is based on the successful-efforts accounting method.
Costs incurred prior to obtaining the legal right to explore an area are expensed as incurred in the income statement. This includes all
costs that pre-date the award of a licence.
Expenditure incurred on the acquisition of a licence interest is initially capitalised on a licence-by-licence basis. Costs are held within
intangible assets and are not depreciated until the exploration phase on the licence area is complete or commercial reserves have been
discovered. Exploration and evaluation costs may include the costs of initial licence acquisition; geological and geophysical studies (such
as seismic studies); and direct labour, equipment and service costs associated with drilling exploratory wells. Costs incurred are
capitalised by well, field or exploration area based on the nature of the cost. Where the results of exploration drilling do not indicate that
hydrocarbon reserves exist or indicate the presence of hydrocarbons which are ultimately not considered commercially viable, all related
costs are written off to the income statement as exploration cost.
On conclusion of a successful evaluation phase where commercial reserves have been established, the associated exploration and
evaluation costs are tested for impairment and their carrying value adjusted if necessary. The exploration and evaluation costs are
then transferred to the property, plant and equipment category “development and production assets” and are held within a single
field cost centre.
Impairment
Capitalised exploration and evaluation costs are reviewed regularly for indicators of impairment and are tested for impairment where
these indicators exist. Indicators of impairment for exploration and appraisal assets may include:
→ exploration drilling has not resulted in the discovery of commercial volumes of hydrocarbons;
→ changes in oil and gas prices or other market conditions that indicate the discoveries may not be commercial;
→ the anticipated cost of development indicates that it is unlikely the carrying value of the exploration and evaluation asset will be
recovered in full;
→ there are no plans to conduct further exploration activities in the area; or
→ the exploration licence period has expired or is due to expire.
Where an indicator of impairment has been identified, the intangible exploration and evaluation asset is allocated to its CGU and the
recoverable amount of the CGU is determined. The recoverable amount of the CGU is based on the higher of its fair value less costs of
disposal or value in use. Value in use is calculated by reference to the expected future cash flows from the CGU after discounting to take
account of the time value of money. Fair value less costs to sell can be based on a similar cash flow measure adjusted for disposal costs
or can be estimated by reference to similar comparable reference transactions.
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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
71
Notes to the consolidated financial statements continued
72
Phoenix Global Resources plc Annual Report and Financial Statements 2021
5. Accounting policies (continued)
5.7 Property, plant and equipment – development and production assets
Depreciation
Capitalised oil and gas assets are not subject to depreciation until commercial production starts. Depreciation is calculated on a unit-of-
production basis in order to write off the cost of an asset as the reserves that it represents are produced and sold. Any periodic
reassessment of reserves will affect the depreciation rate on a prospective basis.
The unit-of-production depreciation rate is calculated on a field-by-field basis using proved, developed reserves as the denominator and
capitalised costs as the numerator. The numerator includes an estimate of the costs expected to be incurred to bring proved, developed,
not-producing reserves into production.
Infrastructure that is common to a number of fields, such as gathering systems, treatment plants and pipelines, is depreciated on a unit-
of-production basis using an aggregate measure of reserves or on a straight-line basis depending on the expected pattern of use of the
underlying asset.
Impairment
The Group assesses development and production assets for impairment where there is an indication that an impairment may exist.
Indicators of impairment may include:
→ a significant fall in realised prices for oil and gas;
→ a significant downward movement in the forward curve for quoted oil price benchmarks such as Brent or WTI;
→ an increase in cash operating costs;
→ a significant downward revision to the estimated reserve volumes or values;
→ an increase in rates calculated for depreciation, depletion and amortisation (“DD&A”); or
→ unforeseen engineering sub surface 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 with 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
72
Phoenix Global Resources plc Annual Report and Financial Statements 2021
73
5. Accounting policies (continued)
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 annual rates that reflect the expected useful life of each asset category:
→ Property
2% to 50%
→ Fixtures and fittings
20% to 33%
→ Vehicles
20%
→ Other equipment
20% to 33%
5.10 Non-current assets held for sale
Non-current assets or disposal groups classified as held for sale are measured at the lower of their net book value and fair value less
costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a
sale transaction rather than through continuing use.
This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in
its present condition. Management views the trigger for recognition either as signature of a sales and purchase agreement or board
approval. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within
one year from the date of classification. Assets classified as held for sale and the corresponding liabilities are classified in current assets
and liabilities on a separate line in the balance sheet.
5.11 Business combinations and goodwill
Acquired businesses are included in the financial statements from the transaction date which is defined as the date at which the
Company achieves control over the assets being acquired and liabilities assumed.
The cost of an acquisition is calculated as the fair value of the consideration given including equity instruments given, contingent or
deferred elements of consideration and any liabilities assumed in connection with the transfer of control.
The cost of an acquisition is allocated to the identifiable assets acquired and liabilities assumed on the basis of their relative fair values
at the acquisition date. The fair value assessment will include certain assumptions, such as assessment of discount rates, taxation rules,
and both the amount and the timing of expected future cash flows from assets and liabilities. In addition, the selection of specific
valuation methods for individual assets and liabilities requires judgement. The specific valuation methods applied will be driven by the
nature of the asset or liability being assessed.
If the acquisition cost at the time of the acquisition exceeds the fair value of the net assets acquired, goodwill is recognised. Conversely,
if the fair value of the net assets acquired exceeds the consideration given, the difference is recognised as a 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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
73
Notes to the consolidated financial statements continued
74
Phoenix Global Resources plc Annual Report and Financial Statements 2021
5. Accounting policies (continued)
5.13 Investments and other financial assets
Classification
Financial assets are initially recognised at fair value, usually being the transaction price. In the case of financial assets not at fair value
through profit or loss, directly attributable transaction costs are also included. The subsequent measurement of financial assets depends
on their classification. The Group classifies its financial assets in the following categories:
→ financial assets measured at amortised cost;
→ financial assets measured at fair value through other comprehensive income (“OCI”); and
→ financial assets measured at fair value through profit or loss (“FV-P&L”).
The classification depends on the purpose for which the investments were acquired. Management determines the classification of its
investments at initial recognition and, in the case of assets classified as held to maturity, re-evaluates this designation at the end of each
reporting period.
Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on the trade date, being the date on which the Group commits to
purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired
or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Measurement
Financial assets measured at amortised cost
Financial assets are classified and measured at amortised cost when the objective of the asset is to collect contractual cash flows and
the contractual cash flows represent solely payments of principal and interest. Such assets are carried at amortised cost using the
effective interest method if the time value of money is significant. Gains and losses are recognised in profit or loss when the assets are
derecognised or impaired and when interest is recognised using the effective interest method. This category of financial assets includes
trade and other receivables.
Financial assets measured at fair value through other comprehensive income
Financial assets are classified and measured at fair value through OCI when the objective of holding the asset is both to collect
contractual cash flows and sell the financial assets, and the contractual cash flows represent solely payments of principal and interest.
The Group does not have any financial assets classified in this category.
Financial assets measured at fair value through profit or loss
Financial assets are classified and measured at fair value FV-P&L when the asset does not meet the criteria to be measured at
amortised cost or fair value through OCI. 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 FV-P&L is included in finance income. 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 costs.
Impairment – general
Credit risk arises from the Group’s financial assets which are carried at amortised cost, at fair value through OCI and at FV-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 “Financial Instruments” (“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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
74
Phoenix Global Resources plc Annual Report and Financial Statements 2021
75
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 FV-P&L.
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 2021 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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
75
Notes to the consolidated financial statements continued
76
Phoenix Global Resources plc Annual Report and Financial Statements 2021
6. Segment information
The Group’s executive management team comprising the chief executive officer, the chief financial officer, the chief operating officer
and the business development manager, has been determined collectively as the chief operating decision makers 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, taxation incurred in running the business, and other activities which are not directly attributable to one of the identified segments.
The Group’s executive management team 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.
2021
Operated
US$’000
Non-operated
US$’000
Corporate
US$’000
Total
US$’000
Revenue
35,362
43,008
–
78,370
(Loss)/profit for the year
(54,643)
15,146
14,476
(25,021)
Add: Depreciation, depletion and amortisation
31,708
6,768
1,152
39,628
Less: Finance income
–
–
(54,816)
(54,816)
Add/(less): finance costs
110
(94)
25,362
25,378
Less: taxation
–
–
(4,256)
(4,256)
EBITDA
(22,825)
21,820
(18,082)
(19,087)
Non-recurring expenses
Add/(less): Impairment charge/(reversal)
33,511
(4,629)
–
28,882
Less: Loss on the reclassification of assets held for sale
–
3,653
–
3,653
Less: Gain on sale of non-current assets
–
–
(350)
(350)
Adjusted EBITDA
10,686
20,844
(18,432)
13,098
Oil revenues
35,362
40,634
–
75,996
bbls sold
713,110
769,563
–
1,482,673
Realised price (US$/bbl)
49.59
52.80
–
51.26
Gas revenues
–
2,374
–
2,374
MMcf sold
–
794
–
794
Realised price (US$/Mcf)
–
2.99
–
2.99
Capital expenditure
Property, plant and equipment
12,748
6,653
1,175
20,576
Intangible exploration and evaluation assets
31,773
51
–
31,824
Total capital expenditure
44,521
6,704
1,175
52,400
Total assets
300,161
66,718
149,883
516,762
Total liabilities
(7,208)
(16,218)
(492,289)
(515,715)
Phoenix Global Resources plc Annual Report and Financial Statements 2021
76
Phoenix Global Resources plc Annual Report and Financial Statements 2021
77
6. Segment information (continued)
2020
Operated
US$’000
Non-operated
US$’000
Corporate
US$’000
Total
US$’000
Revenue
24,132
29,869
–
54,001
(Loss)/profit for the year
(155,759)
(49,054)
7,789
(197,024)
Add: Depreciation, depletion and amortisation
27,569
12,149
1,628
41,346
Less: Finance income
–
–
(6,905)
(6,905)
Add: Finance costs
458
306
21,512
22,276
Less: Taxation
–
–
(38,005)
(38,005)
EBITDA
(127,732)
(36,599)
(13,981)
(178,312)
Non-recurring expenses:
Add: Loss on termination of licences and other impairment charge
127,501
43,628
–
171,129
Add: Loss on sale of non-current assets
6
–
–
6
Adjusted EBITDA*
(225)
7,029
(13,981)
(7,177)
Oil revenues
24,130
28,029
–
52,159
bbls sold
605,476
776,435
–
1,381,911
Realised price (US$/bbl)
39.85
36,10
–
37.74
Gas revenues
2
1,840
–
1,842
MMcf sold
0.90
928.63
–
929.53
Realised price (US$/Mcf)
2.22
1.98
–
1.98
Capital expenditure
Property, plant and equipment
2,627
1,475
98
4,200
Intangible exploration and evaluation assets
2,934
1,015
–
3,949
Total capital expenditure
5,561
2,490
98
8,149
Total assets
315,784
60,281
79,605
455,670
Total liabilities
(7,010)
(10,885)
(411,681)
(429,576)
* Reclassified on basis consistent with 2021 disclosure
There are no intersegment revenues in either year presented. The majority of oil and gas sales are made to the Argentina state-owned
oil company, YPF.
7. Revenue
2021
US$’000
2020
US$’000
Crude oil revenue
75,996
52,159
Gas revenue
2,374
1,842
Total revenue
78,370
54,001
In 2021 83% of the Group’s production was sold to customers located in Argentina and 17% through the export market. The Group’s
main domestic customer is the Argentina state-owned oil company, YPF S.A.. Approximately 32% of total gas production (2020: 49%)
was sold to three external customers in the year.
8. Cost of sales
2021
US$’000
2020
US$’000
Production costs
42,180
39,404
Depreciation of oil and gas assets
39,628
41,346
Movements in crude inventory
(336)
651
Total cost of sales
81,472
81,401
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
77
Notes to the consolidated financial statements continued
78
Phoenix Global Resources plc Annual Report and Financial Statements 2021
9. Administrative expenses
2021
US$’000
2020
US$’000
Staff costs
10,620
8,321
Professional fees
2,232
2,713
Other general and administrative expenses
4,115
3,858
Total administrative expenses
16,967
14,892
10. Other operating income and expenses
2021
US$’000
2020
US$’000
Income
Staff seconded to joint operations
163
371
Reversed provisions
200
–
Other income
1,071
17
Expense
Fair value of investments
(110)
(823)
Provisions
(1,651)
–
Argentine bank transaction taxes
(1,470)
(992)
Other expenses
(120)
(100)
Total other operating income or expense
(1,917)
(1,527)
11. Auditors’ remuneration
2021
US$’000
2020
US$’000
Fees payable to the Company’s auditors and its associates for the audit
of the parent company and consolidated financial statements
226
214
Fees payable to the Company’s auditors and its associates for other services:
The audit of the Company’s subsidiaries
240
220
Total auditors’ remuneration
466
434
The Group has a policy in place for the award of non-audit work to the auditors which requires Audit Committee approval (refer to the
Audit Committee Report on pages 33 to 35. No non-audit services were provided in 2021 (2020: none).
12. Staff costs and headcount
Staff costs
2021
US$’000
2020
US$’000
Wages and salaries
10,434
9,484
Social security costs
1,521
1,341
Other benefits
888
875
Share-based payments
128
401
Total staff costs
12,971
12,101
Average headcount
2021
No.
2020
No.
Argentina
65
73
United Kingdom
2
4
USA
–
3
67
80
Phoenix Global Resources plc Annual Report and Financial Statements 2021
78
Phoenix Global Resources plc Annual Report and Financial Statements 2021
79
12. Staff costs and headcount (continued)
Key management compensation¹
2021
US$’000
2020
US$’000
Short-term employee benefits
1,292
988
Post-employment benefits
–
61
Termination benefits
–
737
Total key management compensation
1,292
1,786
1 Includes the chief executive officer, chief financial officer, chief operating officer and business development manager
Detailed remuneration disclosures are provided in the Remuneration Report on pages 46 to 48.
Share-based payment disclosures are in included in note 15.2 on page 113.
13. Property, plant and equipment
Property, plant and equipment
Other
assets
US$’000
Development
and
production
assets
US$’000
Assets under
construction
US$’000
Total
US$’000
At 1 January 2021
Cost
13,091
541,489
8,966
563,546
Accumulated depreciation and impairment
(8,796)
(396,393)
–
(405,189)
Net book amount
4,295
145,096
8,966
158,357
Year ended 31 December 2021
Opening net book amount
4,295
145,096
8,966
158,357
Additions
1,185
11,686
7,705
20,576
Transfers from intangible assets
6,456
32,682
(5,416)
33,722
Transfer from held for sale – cost
–
31,073
–
31,073
Disposal of assets – cost
(878)
–
–
(878)
Impairment reversal
–
4,629
–
4,629
Impairment charge
–
(31,928)
–
(31,928)
Exploration costs written off
–
(30)
–
(30)
Depreciation charge
(1,148)
(38,480)
–
(39,628)
Transfer for held for sale – accumulated DD&A
–
(22,493)
–
(22,493)
Disposal of assets – accumulated DD&A
827
–
–
827
Closing net book amount
10,737
132,235
11,255
154,227
At 31 December 2021
Cost
19,877
624,354
11,255
655,486
Accumulated depreciation and impairment
(9,140)
(492,119)
–
(501,259)
Net book amount
10,737
132,235
11,255
154,227
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
79
Notes to the consolidated financial statements continued
80
Phoenix Global Resources plc Annual Report and Financial Statements 2021
13. Property, plant and equipment (continued)
Additions
Additions to property, plant and equipment in the year ended 31 December 2021 did not include any interest capitalised in respect of
qualifying assets (2020: US$nil). The total amount of interest capitalised within property, plant and equipment at 31 December 2021 is
US$3.1 million (2020: US$3.1 million).
Assets held for sale
Assets held for sale were related to certain non-core development and production assets in the non-operated segment with a net book
value of US$11.5 million.
In 2021, management suspended the process for the active sale of this asset and as a consequence the criteria for classification as an
asset held for sale are no longer met. At the year end, this asset is recognised in development and production assets at its carrying
amount adjusted for any depreciation that would have been recognised if the asset had not been classified as a held for sale asset. The
Group has recognised in the income statement a loss of US3.7 million on the reclassification of the asset held for sale.
Property, plant and equipment
Other
assets
US$’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
At 31 December 2020
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
Phoenix Global Resources plc Annual Report and Financial Statements 2021
80
Phoenix Global Resources plc Annual Report and Financial Statements 2021
81
13. Property, plant and equipment (continued)
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 2021, 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 NPV15.5 (2020: NPV15) of post-tax cash flows generated from the 2P reserves of
producing assets of the associated CGU over the life of the concession. Factors considered in this evaluation include:
→ historical 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 NPV15.5 of P3 reserves and contingent resources in
conjunction with fair values assessed on a per acreage basis (in 2020 impairment was assessed by comparing book value to its
respective post-tax NPV15 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$72.23/bbl in 2022 to US$80.00/bbl in 2034 and thereafter (2020: US$50.16/bbl in 2021 to
US$66.38/bbl in 2030 and thereafter).
In addition, where management believes a reversal of the conditions that gave rise to the impairment has arisen, an evaluation will
be carried out on the same basis described above to assess whether a potential reversal of the impairment charge recognised in prior
periods should be recorded.
This assessment identified impairment triggers primarily due to the revised year end reserves estimates resulting in an impairment
charge of US$28.9 million in respect of property, plant and equipment and intangible assets (see note 14 below) (2020: US$164.5
million). Impairment charges have been recognised in respect of Puesto Rojas, La Brea, La Paloma, Cerro Alquitran and Atamisqui,
which were partially offset by the partial reversal of impairment charges recognised in prior years at Chachahuen.
Management also carried out sensitivity analysis to determine the impact of changes in the price and discount factor assumptions. A
summary of this sensitivity analysis is included at the end of note 14 below.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
81
Notes to the consolidated financial statements continued
82
Phoenix Global Resources plc Annual Report and Financial Statements 2021
14. Intangible assets and goodwill
Exploration and evaluation assets are primarily the Group’s licence interests in exploration and evaluation assets located in Argentina.
The exploration and evaluation assets consist of both conventional and unconventional oil and gas properties.
Intangible assets
Goodwill
US$’000
Exploration
and evaluation
assets
US$’000
Total
US$’000
At 1 January 2021
Cost
260,007
217,078
477,085
Accumulated amortisation and impairment charges
(239,392)
(25,719)
(265,111)
Net book amount
20,615
191,359
211,974
Year ended 31 December 2021
Opening net book amount
20,615
191,359
211,974
Additions
–
31,824
31,824
Transfer to property, plant and equipment
–
(33,722)
(33,722)
Exploration cost written off
–
(55)
(55)
Impairment charge
–
(1,583)
(1,583)
Closing net book amount
20,615
187,823
208,438
At 31 December 2021
Cost
260,007
215,125
475,132
Accumulated amortisation and impairment charges
(239,392)
(27,302)
(266,694)
Net book amount
20,615
187,823
208,438
Additions
Additions to intangible assets during the year relate primarily to work programs carried out on the Corralera concessions.
Intangible assets
Goodwill
US$’000
Exploration
and evaluation
assets
US$’000
Total
US$’000
At 1 January 2020
Cost
260,007
215,759
475,766
Accumulated amortisation and impairment charges
(224,169)
(5,057)
(229,226)
Net book amount
35,838
210,702
246,540
Year ended 31 December 2020
Opening net book amount
35,838
210,702
246,540
Additions
–
3,949
3,949
Exploration cost written off
–
(2,630)
(2,630)
Impairment charge
(15,223)
(20,662)
(35,885)
Closing net book amount
20,615
191,359
211,974
At 31 December 2020
Cost
260,007
217,078
477,085
Accumulated amortisation and impairment charges
(239,392)
(25,719)
(265,111)
Net book amount
20,615
191,359
211,974
Phoenix Global Resources plc Annual Report and Financial Statements 2021
82
Phoenix Global Resources plc Annual Report and Financial Statements 2021
83
14. Intangible assets and goodwill (continued)
Impairment tests for exploration and evaluation assets
Exploration and evaluation assets are subject to impairment testing prior to reclassification as tangible fixed assets where commercially
viable reserves are confirmed. Where commercially viable reserves are not encountered at the end of the exploration phase for an area
the accumulated exploration costs are written off in the income statement. See note 13 above.
Impairment tests for goodwill
Goodwill is monitored by management at the level of the operating segments identified in note 6. A segment level summary of goodwill
allocation is presented below.
At December 2021
Operated
US$’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
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 the basis detailed in note 13 on page 79. Where the
calculated fair values are less than the carrying values an impairment test is performed.
The impairment assessment review resulted in no impairment charge (2020: US$15.2 million) in respect of goodwill.
Management carried out a sensitivity analysis to determine the impact of changes in the price and discount factor assumptions on 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$4.2 million and US$4.2 million respectively
and -5%/+5% per annum change in the discount rate reduced/increased the total impairment charge by approximately US$15.5 million
and US$11.2 million respectively.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
83
Notes to the consolidated financial statements continued
84
Phoenix Global Resources plc Annual Report and Financial Statements 2021
15. Finance income and costs
2021
US$’000
2020
US$’000
Finance income
Interest income
172
186
Income from short-term investments
10,093
461
Net exchange gains on foreign currency borrowings
482
37
Other finance gains
44,069
6,221
Total finance income
54,816
6,905
Finance costs
Interest on borrowings
(16,318)
(15,904)
Accretion of discount on asset retirement obligation
(16)
(764)
Loan arrangement fees
(77)
(90)
Other finance costs
(2,406)
(2,036)
Exchange differences
(6,561)
(3,482)
Total finance cost
(25,378)
(22,276)
Net finance income/(cost)
29,438
(15,371)
The net finance income in 2021 of US$29.4 million in contrast with the net finance cost of US$15.4 million in 2020, was primarily driven by
the benefit on transfers of US Dollars into Argentina under the “contado con liquidacion” mechanism (recognised in other finance gains
above), offset by an increase in the foreign exchange losses on Peso denominated balances held by the Company and an increase in
other finance costs.
Capitalised borrowing costs
The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate
applicable to the entity’s general borrowings during the year.
In the year to 31 December 2021, no interest expense in respect of qualifying assets was capitalised as part of additions to property,
plant and equipment (2020: US$nil).
Phoenix Global Resources plc Annual Report and Financial Statements 2021
84
Phoenix Global Resources plc Annual Report and Financial Statements 2021
85
16. Taxation
2021
US$’000
2020
US$’000
Current tax
Current tax (expense)/credit on loss for the year
(970)
2,469
Total current tax (expense)/credit
(970)
2,469
Deferred income tax
Movement in deferred tax
5,226
35,536
Total deferred tax credit
5,226
35,536
Income tax benefit
4,256
38,005
Reconciliation of income tax benefit to notional tax credit calculated using corporate tax rate:
2021
US$’000
2020
US$’000
Loss from continuing operations before income tax expense
(29,277)
(235,029)
Tax at the Argentina tax rate of 35% (2020: 30%)
10,247
70,509
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Effect of currency translation on tax values
4,734
(6,071)
Effect of change in tax rate
(13,438)
(10,649)
Disposal of assets
–
(1,315)
Expenses not deductible for taxation
(954)
(1,960)
Deferred tax assets not recognised
(1,022)
(6,784)
Inflation adjustment
1,056
(4,883)
Other
3,633
(842)
Total income tax benefit
4,256
38,005
The corporate income tax rate in Argentina in 2021 was 35% (2020: 30%) and applies to profits earned and losses suffered in the year to
31 December 2021.
In June 2021, Law 27.630 made some amendments to income tax rates applicable to fiscal year 2021 and subsequent years. The main
change was the introduction of progressive tax rates based on the accumulated net profits, as follows: i) on accumulated net profits up
to AR$5 million, a rate of 25%; (ii) on accumulated net profits between AR$5 million and AR$50 million, a fixed amount of AR$1.2 million
plus a rate of 30% on the excess over AR$5 million; and (iii) on net profits in excess of AR$50 million, a fixed amount of AR$14 million
plus a rate of 35% on the excess over AR$50 million. These amounts will be adjusted annually, with effect from 1 January 2022, by
reference to the annual movement in the Consumer Price Index. Dividends will be taxed in all cases at 7%.
Deferred tax balance estimations have been calculated based on these amended tax rates.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
85
Notes to the consolidated financial statements continued
86
Phoenix Global Resources plc Annual Report and Financial Statements 2021
17. Financial assets and liabilities
Financial assets 2021
Assets at
FV-P&L
US$’000
Assets at
amortised cost
US$’000
Total
US$’000
Trade and other receivables
1,719
18,910
20,629
Cash and cash equivalents
65,057
1,208
66,265
Total financial assets
66,776
20,118
86,894
Financial assets 2020
Assets at
FV-P&L
US$’000
Assets at
amortised cost
US$’000
Total
US$’000
Trade and other receivables
1,812
15,597
17,409
Cash and cash equivalents
–
5,386
5,386
Total financial assets
1,812
20,983
22,795
The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets
mentioned above.
Financial liabilities 2021
Liabilities at
amortised
cost
US$’000
Total
US$’000
Trade and other payables
34,200
34,200
Borrowings
399,759
399,759
Total financial liabilities
433,959
433,959
Financial liabilities 2020
Liabilities at
amortised
cost
US$’000
Total
US$’000
Trade and other payables
23,135
23,135
Borrowings
332,233
332,233
Total financial liabilities
355,368
355,368
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 2021, the Group held US$65 million of financial assets related to short-term investments and US$0.4 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 2021 were assessed by reference to Level
3 inputs. At 31 December 2020, the Group held US$0.5 million of financial assets related to equity instruments whose fair value is
assessed by reference to Level 1 inputs in the fair value hierarchy. All other financial instruments held by the Group at 31 December 2020
were assessed by reference to Level 3 inputs.
The Group’s maximum exposure to various risks associated with the financial instruments is discussed in note 23.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
86
Phoenix Global Resources plc Annual Report and Financial Statements 2021
87
18. Trade and other receivables
2021
2020
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
Equity investments
374
–
374
467
–
467
Contingent consideration
1,345
–
1,345
1,345
–
1,345
Financial assets at fair value through profit or loss
1,719
–
1,719
1,812
–
1,812
Trade receivables
10,404
–
10,404
9,578
–
9,578
Less: provision for impairment
(82)
(82)
(101)
–
(101)
10,322
–
10,322
9,477
–
9,477
Other receivables
7,630
958
8,588
5,132
988
6,120
Financial assets at amortised cost
17,952
958
18,910
14,609
988
15,597
Prepayments and other receivables
9,361
–
9,361
1,478
–
1,478
Tax credits
6,213
5,740
11,953
7,500
3,136
10,636
Total trade and other receivables
35,245
6,698
41,943
25,399
4,124
29,523
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 2021 and 1 January 2021 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 2021
was determined to be 0% of total sales (2020: 0% 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 29 on page 99 and non-operated
joint venture balances and are determined to be low credit risk and no loss allowance has been recorded against these balances in
the year.
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.
19. Cash and cash equivalents
2021
US$’000
2020
US$’000
Cash at bank and in hand
1,208
773
Short-term investments
65,057
4,613
Total cash and cash equivalents
66,265
5,386
Short-term investments
Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are
repayable with 24 hours notice with no loss of interest.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
87
Notes to the consolidated financial statements continued
88
Phoenix Global Resources plc Annual Report and Financial Statements 2021
20. Trade and other payables
2021
2020
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
Trade payables
16,659
–
16,659
7,166
–
7,166
Accrued staff costs
2,090
–
2,090
1,035
–
1,035
Social security and other taxes
3,836
107
3,943
2,774
299
3,073
Royalties
1,065
–
1,065
973
–
973
Lease obligations
341
274
615
195
–
195
Accrued expenses
9,974
–
9,974
8,732
–
8,732
Other payables
4,852
–
4,852
5,034
–
5,034
Total trade and other payables
38,817
381
39,198
25,909
299
26,208
Trade payables are unsecured and are usually paid within 30 days of recognition.
The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature.
Social security and other taxes include amounts related to tax plans agreed with the AFIP, the Argentine federal tax authority.
Under tax plan arrangements, taxes due are paid in instalments with interest charged on the outstanding principal. The Group
historically participated in tax plans on a selective basis and where the level of currency depreciation and the interest rate on
outstanding amounts resulted in an acceptable finance cost. Obligations falling due from tax plans within the next 12 months
have been presented within current liabilities at 31 December 2021, with the remaining obligations presented as non-current.
21. Borrowings
2021
2020
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
Secured
Bank loans
6,289
–
6,289
2,598
6,641
9,239
Total secured borrowings
6,289
–
6,289
2,598
6,641
9,239
Unsecured
Loans from related parties
393,452
–
393,452
322,973
–
322,973
Other loans
18
–
18
21
–
21
Total unsecured borrowings
393,470
–
393,470
322,994
–
322,994
Total borrowings
399,759
–
399,759
325,592
6,641
332,233
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, subject to a minimum
rate of 8% per annum and BADLAR + 700 points for Peso loans (2020: interest rate of LIBOR + 700 points for Dollar loans with no
minimum and BADLAR + 700 points for Peso loans). At 31 December 2021 the Group held US$1.7 million loans in Argentine Peso (2020:
US$2.7 million).
Loans from related parties
The related party loan at 31 December 2021 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
88
Phoenix Global Resources plc Annual Report and Financial Statements 2021
89
21. Borrowings (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 (Facility A) with an
additional US$100.0 million of new funds made available to the Company. In December 2018, Mercuria made available an additional
US$25.0 million under Facility B, which in February 2019 was increased to US$75.0 million. In May 2019, Mercuria made available
an additional US$40.0 million under Facility C, which in November 2019 was increased to US$50.0 million and in March 2020
to US$56.0 million.
At 31 December 2021, a total facility of US$291.0 million was available to the Company under the RCF, with a total of US$281.0 million
drawn down under the facility, with the undrawn balance of US$10.0 million made available through the BF, which was subsequently
increased to US$67.5 million, with US$67.0 million drawn down at the year end.
All funds drawn down under the RCF and BF bear interest at US$ LIBOR + 4%. The RCF provides for an interest payment grace period
from 1 January 2019 to 30 September 2022 with a first repayment and maturity date of 31 December 2022. The BF provides for a
repayment date (principal and interest) and maturity date of 31 December 2022. At the year end US$45.4 million of interest had been
capitalised.
Mercuria has the right to convert all or part of the outstanding principal of Facility A, Facility B and Facility C into additional new
ordinary shares of the Company at a price of £0.45, £0.28 and £0.23 per share respectively. These conversion rights can be exercised at
any time up to 10 business days prior to the maturity date.
Fair value
Differences identified between the fair values and carrying amounts of borrowings are as follows:
2021
2020
Carrying
amount
US$’000
Fair value
US$’000
Carrying
amount
US$’000
Fair value
US$’000
Bank loans
6,289
6,199
9,239
8,981
Other loans
18
18
21
21
Loans from related parties
393,452
382,528
322,973
301,844
Total
399,759
388,745
332,233
310,846
The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as Level
3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.
22. Changes in liabilities arising from financing activities
Non-cash changes
1 January
2021
US$’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
2021
US$’000
Current liabilities
Borrowings
325,592
53,307
(1,595)
6,641
16,318
–
(504)
399,759
Non-current liabilities
Borrowings
6,641
–
–
(6,641)
–
–
–
–
Total borrowings 2021
332,233
53,307
(1,595)
–
16,318
–
(504)
399,759
Total borrowings 2020
303,616
13,459
(709)
–
15,904
–
(37)
332,233
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
89
Notes to the consolidated financial statements continued
90
Phoenix Global Resources plc Annual Report and Financial Statements 2021
23. 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
Ageing 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.
Historical exchange controls were lifted in December 2015; however, following significant devaluation of the Peso the Argentine
government has re-introduced some exchange controls restricting the repayment of financial debt outside Argentina, the sale of
securities with foreign currency settlements 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 2021 or in the prior year.
During 2021 Brent crude prices continued to rise, increasing year-on-year by 42%, from an average of US$43/bbl in 2020 to an average
of US$61/bbl in 2021. The continued upward pressure on prices combined with the devaluation of the Peso, resulted in the issue of a
number of decrees that fixed the Brent reference price for sales. Local Argentine oil prices do not fully track international prices as local
price controls limit the benefit of rising international prices. However, the Company expects a gradual increase in local prices in the
future, reducing the gap between local and international prices.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
90
Phoenix Global Resources plc Annual Report and Financial Statements 2021
91
23. Financial risk management (continued)
Market risk – foreign exchange risk and commodity price risk (continued)
The continued government intervention in crude pricing has meant that the relationship between realised prices and the Brent crude
benchmark has remained imperfect, and as such the design of effective hedge protection against commodity risk is difficult. The Group
therefore did not take out any derivative commodity contracts during the year.
The Group is primarily exposed to foreign exchange risk related to bank deposits, debtors or creditors that are denominated in Argentine
Pesos or Pounds Sterling. The Group’s exposure to foreign exchange risk at the end of the year, expressed in US Dollars, was as follows:
Denominated in:
US$’000
£GBP
AR$
Trade and other receivables
145
18,626
Cash and cash equivalents
31
66,061
Trade and other payables
(131)
(27,727)
Borrowings
(1,752)
45
55,208
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 (2020: none).
Impact on post-tax
profit and loss
Impact on other
components of equity
2021
US$’000
2020
US$’000
2021
US$’000
2020
US$’000
US$/AR$ exchange rate increase by 10%1
5,525
1,009
–
–
US$/AR$ exchange rate decrease by 10%1
(5,525)
(1,009)
–
–
1 Assumes all other variables held constant
Sensitivity – commodity prices
The impact of an increase or decrease in commodity prices on the Group’s oil and gas revenues is as follows:
Impact on revenue
– crude oil prices
Impact on revenue
– natural gas prices
2021
US$’000
2020
US$’000
2021
US$’000
2020
US$’000
Increase by 10%1
7,600
5,216
237
184
Decrease by 10%1
(7,600)
(5,216)
(237)
(184)
1 Assumes all other variables held constant
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 Dollars.
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 Dollars and only translates borrowings into Argentine Pesos 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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
91
Notes to the consolidated financial statements continued
92
Phoenix Global Resources plc Annual Report and Financial Statements 2021
23. Financial risk management (continued)
Market risk – interest rate risk (continued)
The exposure of the Group’s borrowings to interest rate changes is as follows:
2021
US$’000
% of
total loans
2020
US$’000
% of
total loans
Variable rate borrowings
399,741
100
332,212
100
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
2021
US$’000
2020
US$’000
2021
US$’000
2020
US$’000
Interest rate increase by 10%1
1,638
1,618
–
–
Interest rate decrease by 10%1
(1,638)
(1,618)
–
–
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 or FIX SCR). At 31 December 2021, US$66.2 million was held on deposit with institutions in Argentina. During 2020 and 2021
the Argentine economy experienced high volatility, with significant devaluation of the Peso and full year price inflation exceeding 51%.
There is a domestic rating for Argentina’s entities as they are not globally comparable with the full universe of rated entities. These
ratings end with “ar” and the Group’s 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 and
capital costs in the short-term. Periodic 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 period. This helps the Group to manage credit risk.
Domestically the Group sells the majority of its oil production to the Argentina state-owned oil company, YPF. At 31 December 2021 YPF
had a credit rating of AA-.ar (Moody’s Latin America, a domestic rating from the credit rating from Argentina’s entities). The credit
rating of AA-.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 losses were recorded at 31 December 2021.
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 the amount of any sale be paid before delivery.
The credit quality of financial assets that are neither past due or impaired can be assessed by reference to external credit ratings (where
available) or to historical information about default rates.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
92
Phoenix Global Resources plc Annual Report and Financial Statements 2021
93
23. Financial risk management (continued)
Credit risk (continued)
Trade receivables – counterparty without external credit rating1
2021
US$’000
2020
US$’000
Group 1
74
2
Group 2
2,424
3,059
2,498
3,061
1 Group 1 – new customers (less than six months)
Group 2 – existing customers (more than six months) with no past default
Cash at bank and short-term deposits (Moody’s/Fix Scr)
2021
US$’000
2020
US$’000
Aa2
–
Aa3
71
510
Baa2
23
4
AAA.ar
248
–
AA+.ar
–
4,758
AA-.ar
1
–
AA+f.ar
5,573
–
AA-f.ar
53,222
–
Aaf.ar
6,262
–
AA.ar
47
1
A+.ar
–
1
B1.ar
–
99
Other
818
13
Total cash and cash equivalents
66,265
5,386
At 31 December 2021, trade receivables of US$0.5 million were past due but not impaired (2020: US$0.6 million). The ageing analysis
of these trade receivables is as follows:
2021
US$’000
2020
US$’000
Up to 3 months
145
112
3 to 6 months
–
42
Over 6 months
398
406
543
560
Liquidity risk
Liquidity risk relates to the Group’s ability to meet its obligations as they fall due. The Group generates cash from its operations.
Management monitors investment plans and in particular those in relation to exploration expenditure that may not be cash generative
in the short-term, against available cash and cash equivalents, forecast cash from operations and maturity dates of financial liabilities
before final sanction and deployment of cash to a project. Undrawn borrowing capacity, where available, is also taken into account.
The following table shows the Group’s financial liabilities by relevant maturity groupings based on contractual maturities. The amounts
included in the analysis are the contractual undiscounted cash flows.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
93
Notes to the consolidated financial statements continued
94
Phoenix Global Resources plc Annual Report and Financial Statements 2021
23. Financial risk management (continued)
Liquidity risk (continued)
31 December 2021
Less than
1 year
US$’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$’000
Trade and other payables
34,640
–
–
34,640
34,640
Lease obligations
373
250
21
644
615
Borrowings
416,221
–
–
416,221
399,759
451,234
250
21
–
451,505
435,014
31 December 2020
Less than
1 year
US$’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$’000
Trade and other payables
22,940
–
–
–
22,940
22,940
Lease obligations
195
–
–
–
195
195
Borrowings
340,709
7,376
–
–
348,085
332,233
363,844
7,376
–
–
371,220
355,368
Capital Management
The Group manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder
value. The Group’s funding is primarily met through short-term credit facilities provided by its major shareholder, Mercuria. Mercuria has
indicated its intention to continue to provide financial support and fund planned work programs, but your attention should be drawn to
the going concern note 2 on page 65.
24. Leases
The balance sheet includes the following amounts related to leases:
24.1 Right-of-use asset
US$’000
Other fixed
assets
US$’000
Assets under
construction
US$’000
Total
US$’000
At 1 January 2020
454
5,861
6,315
Transfers to property, plant and equipment
–
(5,861)
(5,861)
Depreciation
(279)
–
(279)
At 31 December 2020
175
–
175
Acquisitions
572
–
572
Disposals
(21)
–
(21)
Depreciation
(173)
–
(173)
At 31 December 2021
553
–
553
Phoenix Global Resources plc Annual Report and Financial Statements 2021
94
Phoenix Global Resources plc Annual Report and Financial Statements 2021
95
24. Leases (continued)
24.2 Lease liability
US$’000
Other fixed
assets
US$’000
Assets under
construction
US$’000
Total
US$’000
At 1 January 2020
482
4,891
5,373
Cash payments of principal and interest
(436)
(4,891)
(5,327)
Interest charged
149
–
149
At 31 December 2020
195
–
195
Acquisition of asset
572
–
572
Cash payments of principal and interest
(198)
–
(198)
Interest charged
42
–
42
Exchange rate
4
–
4
At 31 December 2021
615
–
615
Of which:
Current
341
–
341
Non-current
274
–
274
615
–
615
25. Deferred tax balances
Argentine 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.
In June 2021, Law 27.630 made some amendments to income tax rates applicable to fiscal year 2021 and subsequent years. The main
change was the introduction of progressive tax rates based on accumulated net profits, as follows: i) on accumulated net profits up to
AR$5 million, a rate of 25%; (ii) on accumulated net profits between AR$5 million and AR$50 million, a fixed amount of AR$1.2 million
plus a rate of 30% on the excess over AR$5 million; and (iii) on net profits in excess of AR$50 million, a fixed amount of AR$14 million
plus a rate of 35% on the excess over AR$50 million. These amounts will be adjusted annually with effect from 1 January 2022, by
reference to the annual movement in the Consumer Price Index (“CPI”). Dividends will be taxed in all cases at 7%.
Deferred tax assets and liabilities are calculated at the rate of 35% taking into consideration the expected time of recovery.
Deferred tax assets
2021
US$’000
2020
US$’000
Tax losses
25,451
19,757
Provisions
3,913
1,898
Others – Foreign exchange and interest
8,966
3,900
Total deferred tax assets
38,330
25,555
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$1.0 million (2020: US$6.8 million) in respect
of tax losses amounting to US$2.9 million (2020: US$22.6 million) as there is insufficient evidence that the potential assets will be
recovered and wrote off a US$2.0 million (2020: 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$25.4 million (2020: US$20.4 million) will expire between 2023 to 2026 (2020: 2023 to 2025).
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
95
Notes to the consolidated financial statements continued
96
Phoenix Global Resources plc Annual Report and Financial Statements 2021
25. Deferred tax balances (continued)
Deferred tax assets (continued)
Movements
Tax losses
US$’000
Provisions
US$’000
Other
US$’000
Total
US$’000
At 1 January 2020
14,468
1,723
7,064
23,255
Credited/(charged) to profit and loss
5,289
175
(3,164)
2,300
At 31 December 2020
19,757
1,898
3,900
25,555
Movements
Tax losses
US$’000
Provisions
US$’000
Other
US$’000
Total
US$’000
At 1 January 2021
19,757
1,898
3,900
25,555
Credited to profit and loss
5,694
2,015
5,066
12,775
At 31 December 2021
25,451
3,913
8,966
38,330
The timeframe for expected recovery or settlement of deferred tax assets is as follows:
2021
US$’000
2020
US$’000
No more than 12 months after the reporting year
12,879
5,798
More than 12 months after the reporting year
25,451
19,757
38,330
25,555
Deferred tax liabilities
The balance comprises temporary differences attributable to:
2021
US$’000
2020
US$’000
Property, plant and equipment and intangible assets
(55,672)
(48,402)
Inventories
(2,607)
(1,322)
Inflation adjustments
(8,391)
(9,397)
Total deferred tax liabilities
(66,670)
(59,121)
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 for the preceding closing year exceed 100%. For fiscal year 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. For fiscal year 2021, the inflationary adjustment is recognised in the current year.
During the year an amount of US$1.0 million (2020: US$1.5 million) has been included in current taxes, with an additional US$8.4 million
(2020: US$9.4 million) included within deferred tax liabilities in relation to this adjustment corresponding to fiscal periods 2019 and 2020.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
96
Phoenix Global Resources plc Annual Report and Financial Statements 2021
97
25. Deferred tax balances (continued)
Deferred tax liabilities (continued)
Movements
Property,
plant and
equipment
and intangible
assets
US$’000
Inventories
US$’000
Inflation
adjustments
US$’000
Total
US$’000
At 1 January 2020
(84,463)
(1,861)
(6,033)
(92,357)
(Charged)/credited to profit and loss
36,061
539
(3,364)
33,236
At 31 December 2020
(48,402)
(1,322)
(9,397)
(59,121)
Movements
Property,
plant and
equipment
and intangible
assets
US$’000
Inventories
US$’000
Inflation
adjustments
US$’000
Total
US$’000
At 1 January 2021
(48,402)
(1,322)
(9,397)
(59,121)
(Charged)/credited to profit and loss
(7,270)
(1,285)
1,006
(7,549)
At 31 December 2021
(55,672)
(2,607)
(8,391)
(66,670)
The above presentation of deferred tax assets and liabilities is prepared showing the aggregate of the gross asset and liability position
on a company-by-company basis.
2021
US$’000
2020
US$’000
Deferred tax assets
38,330
25,555
Deferred tax liabilities
(66,670)
(59,121)
Net deferred income tax liability
(28,340)
(33,566)
Deferred tax assets and liabilities presented in the balance sheet reflect the offset of deferred tax assets and liabilities where
permissible. The deferred tax assets and liabilities, after legal offset, are shown in the table below.
2021
US$’000
2020
US$’000
Deferred tax assets
25,777
20,116
Deferred tax liabilities
(54,117)
(53,682)
Net deferred income tax liability
(28,340)
(33,566)
26. Inventories
2021
US$’000
2020
US$’000
Crude oil
1,483
1,147
Spare parts and equipment
18,629
17,202
Total
20,112
18,349
The costs of individual items of inventory are determined using weighted average costs. Crude oil inventory is recorded using the per
barrel weighted average cost of production for the year. Weighted average cost is determined by dividing the total production costs for
the year by the volume of barrels produced in the year.
Inventories recognised as an expense in the year relate to the change in crude inventory year-on-year reflecting the timing of the actual
sale of the crude as opposed to being expensed based on production volumes in the year. For certain fields, inventory is accumulated in
storage pending tanker collection. Depending on the timing of collection, crude produced in one year can be sold in the following year,
resulting in inventory at the year end.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
97
Notes to the consolidated financial statements continued
98
Phoenix Global Resources plc Annual Report and Financial Statements 2021
27. Provisions and contingent liabilities
2021
2020
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
Decommissioning and site restoration
–
14,322
14,322
–
11,555
11,555
Legal claims
1,138
4,784
5,922
121
4,030
4,151
Other
–
180
180
–
380
380
Total
1,138
19,286
20,424
121
15,965
16,086
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 geological 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 the 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$’000
At 1 January 2020
11,385
4,319
200
15,904
Additional provisions recognised
–
488
180
668
Unwinding of discount
764
–
–
764
Amounts used during the year
(100)
(146)
–
(246)
Exchange differences
–
(385)
–
(385)
Revision of abandonment cost provision
(494)
(125)
–
(619)
At 1 January 2021
11,555
4,151
380
16,086
Additional provisions recognised
2,696
2,357
–
5,053
Revision of abandonment provision
(391)
–
–
(391)
Unwinding of discount
16
–
–
16
Amounts used during the year
–
(218)
–
(218)
Exchange differences
–
(368)
–
(368)
Classified from held for sale at year end
446
–
–
446
Reverse of provision
–
–
(200)
(200)
At 31 December 2021
14,322
5,922
180
20,424
Phoenix Global Resources plc Annual Report and Financial Statements 2021
98
Phoenix Global Resources plc Annual Report and Financial Statements 2021
99
28. Commitments
At 31 December, the Group had the following licence commitments:
2021
US$’000
2020
US$’000
Operated
84,935
120,335
Non-operated
3,100
4,340
Total
88,035
124,675
Most licence commitments relate to exploration commitments that are typically required to be satisfied within the exploration period,
which is normally two to three 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$6 million.
Classification
2021
US$’000
2020
US$’000
Not later than one year
48,455
12,401
Later than one year and not later than five years
39,580
112,274
Total
88,035
124,675
29. 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 Mercuira
On 22 October 2020 the Company entered into an agreement with Mercuria Energy Limited, a subsidiary of the Mercuria group,
pursuant to which the Company could surrender its 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 2021, the Company received US$0.6 million
as consideration for losses surrendered under this agreement (2020: US$2.8 million).
Subsidiaries
Interests in subsidiaries are set out in note 4 to the Company financial statements.
Loan from Mercuria
The loan from Mercuria at 31 December 2021 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 (Facility
A) with an additional US$100.0 million of new funds made available to the Company. In December 2018, Mercuria made available an
additional US$25.0 million under Facility B, which in February 2019 was increased to US$75.0 million. In May 2019, Mercuria made
available an additional US$40.0 million under Facility C, which in November 2019 was increased to US$50.0 million and in March 2020
to US$56.0 million.
At 31 December 2021, a total facility of US$291.0 million was available to the Company under the RCF, with a total of US$281.0 million
drawn down under the facility, with the undrawn balance of US$10.0 million made available through the BF, which was subsequently
increased to US$67.5 million, with US$67.0 million drawn down at the year end.
All funds drawn down under the RCF and BF bear interest at US$ LIBOR + 4%. The RCF provides for an interest grace period from 1
January 2019 to 30 September 2022 with a first repayment date and maturity date of 31 December 2022. The BF provides for a
repayment date (principal and interest) and maturity date of 31 December 2022.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
99
Notes to the consolidated financial statements continued
100
Phoenix Global Resources plc Annual Report and Financial Statements 2021
29. Related party transactions (continued)
Loan from Mercuria Group (continued)
Refer to note 21 for further details.
Analysis of amounts advanced and interest paid are shown in the table below:
Loan from Mercuria
2021
US$’000
2020
US$’000
Beginning of the year
322,973
293,533
Loans advanced
55,740
14,260
Interest charged
14,816
15,242
Interest paid
(77)
(62)
At 31 December
393,452
322,973
Key management compensation
See note 12 on page 78.
30. Loss per share
Basic and diluted loss per share
2021
US$
2020
US$
From continuing operations attributable to the ordinary equity holders of the Company
(0.01)
(0.07)
Total basic loss per share attributable to the ordinary equity holders of the Company
(0.01)
(0.07)
Basic and diluted loss per share
2021
US$’000
2020
US$’000
Loss attributable to the ordinary equity holders of the Company used in calculating basic earnings per share:
From continuing operations
(25,021)
(197,024)
(25,021)
(197,024)
Weighted average number of shares used as the denominator
Number of shares
2021
‘000
2020
‘000
Adjustments for calculation of diluted earnings per share:
At 1 January
2,786,571
2,785,024
At 31 December
2,786,571
2,786,571
Potential dilutive ordinary shares
7,435
3,386
Weighted average number of shares used as the denominator in calculating diluted earnings per share
2,794,006
2,788,956
Phoenix Global Resources plc Annual Report and Financial Statements 2021
100
Phoenix Global Resources plc Annual Report and Financial Statements 2021
101
31. Cash generated from/(used in) operations
2021
US$’000
2020
US$’000
Loss for the year before taxation
(29,277)
(235,029)
Finance costs
16,295
16,916
Finance income
(46,321)
(5,796)
Accretion of discount on asset retirement obligation
16
764
Accretion of discount on lease obligation
42
152
Net unrealised exchange gains
1,693
1,386
Interest paid/(received) on short-term investments
4,233
(462)
Exploration cost written off
704
2,746
Impairment charge
28,882
171,129
Increase of provisions
2,157
–
Loss on the reclassification of assets held for sale
3,653
–
Share-based payments
128
401
Depreciation, depletion and amortisation
39,628
41,346
Change in operating assets and liabilities:
Increase in inventories
(1,763)
(147)
Decrease in trade and other receivables
29,259
12,341
Increase/(decrease) in trade and other payables
526
(12,120)
(Decrease)/increase in provisions
(218)
55
Cash generated from/(used in) operations
49,637
(6,318)
32. Adjusted EBITDA
The adjusted EBITDA is calculated as follows:
2021
US$’000
2020
US$’000
Loss for the year from continuing operations
(25,021)
(197,024)
Add: Depreciation, depletion and amortisation
39,628
41,346
Add: Finance income
(54,816)
(6,905)
Add: Finance costs
25,378
22,276
Add: Taxation
(4,256)
(38,005)
EBITDA
(19,087)
(178,312)
Non-recurring expenses
Add: Impairment charge
28,882
171,129
Add: Loss on the reclassification of assets held for sale
3,653
–
(Less)/add: Gain/(loss) on sale of non-current assets
(350)
6
Adjusted EBITDA
13,098
(7,177)
33. Post balance sheet events
Credit facilities
On 9 March 2022, the non-convertible bridging facility provided by Mercuria was increased to US$97.5 million. The convertible facility
grace period was extended to 30 September 2022 and the first repayment date and maturity date extended to 31 December 2022.
The non-convertible bridging facility (principal and interest) maturity date was extended to 31 December 2022.
Licences
On 9 April 2022, the Company, received from Gas y Petróleo del Neuquén S.A. (“GyP”) a notice of GyP’s willingness to relinquish the
licences over the areas La Tropilla, Aguada de Castro I & II and Santo Domingo in which it is the Company’s joint venture partner.
Management considers that the unconventional prospectivity of these areas has a “high risk/low reward and has agreed to the
relinquishment.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
101
Company Statement of Financial Position
At 31 December 2021
102
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Note
2021
US$’000
2020
US$’000
Non-current assets
Property, plant and equipment
5
10,265
63
Intangible assets
6
11,139
21,380
Investments in subsidiaries
4
480,990
427,980
Other receivables
8
958
141,305
Total non-current assets
503,352
590,728
Current assets
Cash and cash equivalents
9
70
21
Equity investments
7
374
467
Trade and other receivables
8
188,083
36,874
Total current assets
188,527
37,362
Total assets
691,879
628,090
Non-current liabilities
Trade and other payables
10
17,929
18,263
Provisions
17
1,060
1,060
Total non-current liabilities
18,989
19,323
Current liabilities
Trade and other payables
10
5,208
5,200
Income tax liability
386
524
Borrowings
11
393,452
322,973
Provisions
17
180
180
Total current liabilities
399,226
328,877
Total liabilities
418,215
348,200
Net assets
273,664
279,890
Equity
Share capital and share premium
14
457,194
457,183
Other reserves
329,155
329,155
Retained deficit
(512,685)
(506,448)
Total equity
273,664
279,890
The Company made a loss for the year of US$6.2 million (2020: US$486.9 million loss).
The above Company statement of financial position should be read in conjunction with the accompanying notes. The financial
statements on pages 102 to 115 were approved by the board of directors and authorised for issue on 27 May 2022 and were signed on its
behalf by:
Sir Michael Rake
Director
Company registration number 05083946
Phoenix Global Resources plc Annual Report and Financial Statements 2021
102
Company Statement of Changes in Equity
For the year ended 31 December 2021
Phoenix Global Resources plc Annual Report and Financial Statements 2021
103
Capital and reserves
Called up
share capital
US$’000
Share
premium
US$’000
Treasury
shares
US$’000
Retained
earnings
US$’000
Other
reserves
US$’000
Total equity
US$’000
At 1 January 2020
364,175
93,023
(464)
(19,456)
329,155
766,433
Loss for the year
–
–
–
(486,944)
–
(486,944)
Total comprehensive loss for the year
–
–
–
(486,944)
–
(486,944)
Issue of employee vested shares
–
–
449
(449)
–
–
Fair value of share-based payments
–
–
–
401
–
401
At 31 December 2020
364,175
93,023
(15)
(506,448)
329,155
279,890
Loss for the year
–
–
–
(6,200)
–
(6,200)
Total comprehensive loss for the year
–
–
–
(6,200)
–
(6,200)
Cash settlement of employee vested share awards
–
–
–
(165)
–
(165)
Fair value adjustment
–
–
11
–
–
11
Fair value of share-based payments
–
–
–
128
–
128
At 31 December 2021
364,175
93,023
(4)
(512,685)
329,155
273,664
Other reserves
Merger¹
reserve
US$’000
Warrant²
reserve
US$’000
Translation³
reserve
US$’000
Deferred
consideration
US$’000
Total other
reserves
US$’000
At 1 January 2020
327,042
2,105
8
–
329,155
At 31 December 2020
327,042
2,105
8
–
329,155
At 31 December 2021
327,042
2,105
8
–
329,155
1 The merger reserve is a non-distributable capital reserve arising from the issue and allotment of shares at a price higher than the nominal value of the shares and issued to satisfy
purchase considerations
2 The warrant reserve results from the valuation attributed to warrants granted
3 The translation reserve results from exchange differences arising from the translation of the assets and liabilities of the Group’s operations into the presentation currency at
exchange rates prevailing on the balance sheet date and income and expense items at the average exchange rates for the year
The above statement of changes in the Company’s equity should be read in conjunction with the accompanying notes.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
103
Company Statement of Cash Flows
For the year ended 31 December 2021
104
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Note
2021
US$’000
2020
US$’000
Cash flows from operating activities
Cash used in operations
13
(2,575)
(6,965)
Net cash used in operating activities
(2,575)
(6,965)
Cash flows from investing activities
Investment in subsidiaries
(53,010)
(10,660)
Net cash outflow from investing activities
(53,010)
(10,660)
Cash flows from financing activities
Proceeds from borrowings
55,740
14,260
Interest paid
(77)
(62)
Interest received
8
Principal lease payments
(13)
(90)
Net cash inflow from financing activities
55,650
14,116
Net decrease in cash and cash equivalents
65
(3,509)
Cash and cash equivalents at the beginning of the financial year
21
3,539
Effects of exchange rates on cash and cash equivalents
(16)
(9)
Cash and cash equivalents at end of year
9
7 0
21
The above statement of cash flows for the Company should be read in conjunction with the accompanying notes.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
104
Notes to the Company financial statements
Phoenix Global Resources plc Annual Report and Financial Statements 2021
105
1. Basis of preparation
These Company financial statements have been prepared in accordance with UK-adopted 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 2021 was US$6.2 million (2020: US$486.9
million loss).
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 the activities of the Group has been provided by Mercuria.
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, which
will allow the Company to focus on the continued development of its unconventional assets.
Our major shareholder, Mercuria, continues to be supportive of the Company’s plans and continues to extend short-term debt facilities
to fund operations. At the year end, the Company had drawn down US$348.0 million under these facilities and US$45.4 million of
interest had been capitalised. 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 period to 30 June 2023 and fund the
planned work programs. Mercuria has also specifically agreed not to demand repayment of the existing loans (principal and interest)
during this period. 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.
Whilst it has taken more time than anticipated, the Company and Mercuria are still seeking to restructure the existing facilities, but do
not expect this to be completed until later in the year.
The directors still 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 2021 financial statements.
However, the directors recognise that if financial support from Mercuria over the period to 30 June 2023 was 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.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
105
Notes to the Company financial statements continued
106
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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 RCF and BF.
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 (Facility
A) with an additional US$100.0 million of new funds made available to the Company. In December 2018, Mercuria made available an
additional US$25.0 million under Facility B, which in February 2019, was increased to US$75.0 million. In May 2019, Mercuria made
available an additional US$40.0 million under Facility C, which in November 2019 was increased to US$50.0 million and in March 2020
to US$56.0 million.
At 31 December 2021, a total facility of US$291.0 million was available to the Company under the RCF, with a total of US$281.0 million
drawn down under the facility, with the undrawn balance of US$10.0 million made available through the BF, which was subsequently
increased to US$67.5 million, with US$67.0 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.
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 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 79 to 83.
At 31 December 2021, 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 107 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.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
106
Phoenix Global Resources plc Annual Report and Financial Statements 2021
107
3. Significant accounting policies
New accounting standards
There are no new standards, amendments or interpretations effective and adopted by the Group in 2021.
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 and 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
2021
US$’000
2020
US$’000
At 1 January
427,980
894,759
Investment in subsidiaries
53,010
10,660
Impairment of investment
–
(477,439)
At 31 December
480,990
427,980
Investment in subsidiaries
During the year the Company made capital contributions to certain of its subsidiaries. The total investment made was US$53.0 million
(2020: US$10.7 million).
Impairment assessment
The Company completed an assessment of the carrying value of its subsidiary investments at 31 December 2021. 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 NPV15.5 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 79 to 83.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
107
Notes to the Company financial statements continued
108
Phoenix Global Resources plc Annual Report and Financial Statements 2021
4. Investments in subsidiaries (continued)
Impairment assessment (continued)
Further to note 4 on page 67, the assessment completed by the Company identified that the carrying value of its investment in its
subsidiaries was less than the determined FVLCTS of those subsidiaries at 31 December 2021. This resulted in no impairment
adjustments during the year (2020: US$477.4 million impairment).
At 31 December 2021, the Company had investments in the following subsidiaries, which have not changed since 31 December 2020. 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 Islands
100%
AEN Energy Cayman Islands Ltd
Dormant
Cayman Islands
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$10.3 million (2020: US$0.1 million) includes: i) US$0.1 million (2020: US$0.1 million) of
property leases, leasehold improvements, fixtures and fittings and office equipment with depreciation charged on a straight-line basis at
rates that reflect the expected useful life of each asset category with rates applied ranging between 20% and 35% per annum; and ii)
US$ 10.2 million of development and production assets transferred from intangible assets with depreciation calculated on a unit-of-
production basis as detailed in note 5.7 on page 71.
An amount of US$0.1 million was capitalised to property, plant and equipment on 1 August 2021 in relation to the right-of-use asset
calculated on the adoption of IFRS 16 “Leases” (“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
(2020: US$0.1 million).
Phoenix Global Resources plc Annual Report and Financial Statements 2021
108
Phoenix Global Resources plc Annual Report and Financial Statements 2021
109
6. Intangible assets
The intangible assets balance of US$11.1million (2020: US$21.4 million) relates to licence payments for Corralera exploration concessions.
7. Equity investments
2021
US$’000
2020
US$’000
Equity investments
374
467
Equity investments are designated at fair value through profit or loss. Any fair value movements in the year are recorded in other income
and expenses within the income statement. The investments are classified as Level 1 in the fair value hierarchy.
8. Trade and other receivables
2021
2020
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
Contingent consideration
1,345
–
1,345
1,345
–
1,345
Financial assets held at FV-P&L
1,345
–
1,345
1,345
–
1,345
Trade and other receivables
21
958
979
35
988
1,023
Other receivables
3,367
–
3,367
2,787
–
2,787
Loans to subsidiaries
182,809
–
182,809
31,993
140,317
172,310
Financial assets at amortised cost
186,197
958
187,155
34,815
141,305
176,120
Prepayments to suppliers
541
–
541
714
–
714
Total trade and other receivables
188,083
958
189,041
36,874
141,305
178,179
The amounts due from subsidiary undertakings include US$148.9 million (2020: US$140.3 million) that incurs interest at a fixed rate of
7.0% per annum (2020: 7.0%) and is repayable in 2022. An amount of US$27.2 million (2020: US$25.9 million) incurs interest at a fixed
rate of 5.0% per annum (2020: 5.0%). The remaining amounts due from subsidiaries accrue no interest and are repayable on demand.
On 22 October 2020 the Company 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 2021, the Company recognised
US$0.6 million as consideration for losses surrendered under this agreement, which is recognised in other receivables above
(2020: US$2.8 million).
At 31 December 2021, a provision of US$2.3 million (2020: US$2.3 million) was held in respect of the recoverability of amounts due from
subsidiary undertakings assessed in accordance with IFRS 9.
9. Cash and cash equivalents
2021
US$’000
2020
US$’000
Cash at bank and in hand
70
21
Total cash and cash equivalents
70
21
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
109
Notes to the Company financial statements continued
110
Phoenix Global Resources plc Annual Report and Financial Statements 2021
10. Trade and other payables
2021
2020
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
Trade payables
1,492
–
1,492
1,459
–
1,459
Employee costs, social security and other taxes
246
–
246
314
–
314
Operating lease obligation
46
77
123
5
–
5
Loans from subsidiaries
–
17,852
17,852
–
18,263
18,263
Other payables
3,424
–
3,424
3,422
–
3,422
Total trade and other payables
5,208
17,929
23,137
5,200
18,263
23,463
All balances held within trade and other payables are held at amortised cost.
11. Borrowings
2021
2020
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
Loans from related parties
393,452
–
393,452
322,973
–
322,973
Total borrowings
393,452
–
393,452
322,973
–
322,973
The loan balance at 31 December 2021 relates to amounts drawn down under the RCF and BF provided by Mercuria. The RCF and BF
bear interest at a rate of 4% over US$ LIBOR (2020: 4% over US$ LIBOR) with maturity dates of 31 December 2022. See note 21 on
page 88 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:
2021
US$’000
2020
US$’000
Related party loans receivable
Amounts advanced to subsidiaries
182,809
172,310
Total related party receivables
182,809
172,310
Related party loans payable
Shareholder loan
367,944
292,260
Interest accrued on shareholder loan
25,508
30,713
Amounts payable to subsidiaries and interest accrued
17,852
14,096
Total related party payables
411,304
337,069
The related party loan at 31 December 2021 relates to a convertible RCF and BF provided to the Group by Mercuria Energy Netherlands
B.V., a subsidiary of the Mercuria group.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
110
Phoenix Global Resources plc Annual Report and Financial Statements 2021
111
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 (Facility A) with an
additional US$100.0 million of new funds made available to the Company. In December 2018, Mercuria made available an additional
US$25.0 million under Facility B, which in February 2019 was increased to US$75.0 million. In May 2019, Mercuria made available
an additional US$40.0 million under Facility C, which in November 2019 was increased to US$50.0 million and in March 2020
to US$56.0 million.
At 31 December 2021, 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$10.0 million made available through the BF, which was subsequently increased
to US$67.5 million, with US$67.0 million drawn down at the year end.
All funds drawn down under the RCF and BF bear interest at US$ LIBOR + 4%. The RCF provides for an interest payment grace period
from 1 January 2019 to 30 September 2022 with a first repayment and maturity date of 31 December 2022. The BF provides for
a repayment date (principal and interest) and maturity date of 31 December 2022. At the year end US$45.4 million of interest
had been capitalised.
Mercuria has the right to convert all or part of the outstanding principal of Facility A, Facility B and Facility C into additional new
ordinary shares of the Company at a price of £0.45, £0.28 and £0.23 per share respectively. These conversion rights can be exercised at
any time up to 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$148.9 million (2020: US$140.3 million) facility advanced to Petrolera el Trebol and Kilwer 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 the Company 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 2021, the Company recognised US$0.6
million as consideration for losses surrendered under this agreement (2020: US$2.8 million).
Key management compensation
See note 12 on page 78.
13. Cash used in operations
2021
US$’000
2020
US$’000
Loss for the year before taxation
(5,621)
(484,156)
Depreciation
169
141
Impairment of investments and other non-current assets
–
479,723
Finance costs
14,909
16,096
Finance income
(187)
(283)
Share-based payments
128
401
Accretion of discount on lease obligation
4
–
Increase in trade and other receivable
(11,114)
(20,297)
Increase in provisions
–
180
(Decrease)/increase in trade and other payables
(606)
216
Net unrealised exchange (loss)/gains
(257)
1,014
Cash used in operations
(2,575)
(6,965)
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
111
Notes to the Company financial statements continued
112
Phoenix Global Resources plc Annual Report and Financial Statements 2021
14. Called up share capital
The Company’s share capital consists of one class of ordinary share. Each ordinary share carries an equal voting right and right
to a dividend.
2021
2020
Ordinary shares of 10 pence
No. ’000
US$’000
No. ’000
US$’000
Allotted, called up and fully paid
2,786,645
364,175
2,786,645
364,175
Held in treasury
(74)
(4)
(74)
(15)
Total ordinary shares of 10 pence excluding shares held in treasury
2,786,571
364,171
2,786,571
364,160
Movements in ordinary shares:
2021
2020
No. ’000
US$’000
No. ’000
US$’000
At 1 January
2,786,645
364,175
2,786,645
364,175
At 31 December
2,786,645
364,175
2,786,645
364,175
Treasury shares
At 31 December 2021, the total ordinary shares held in treasury was 73,922 shares.
15. Employee benefits
15.1 Staff costs
As permitted by section 408 of the Companies Act 2006, no separate profit and loss account or statement of comprehensive income is
presented in respect of the Company. The loss attributable to the Company is disclosed in the footnote to the Company’s balance sheet.
The auditors’ remuneration for audit and other services is disclosed in note 11 on page 78.
The average monthly number of employees (including executive directors) during the year was two (2020: three).
Staff costs
2021
US$’000
2020
US$’000
Wages and salaries
688
1,134
Social security costs
87
82
Other benefits
39
37
Share-based payments
45
244
859
1,497
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 46 to 48.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
112
Phoenix Global Resources plc Annual Report and Financial Statements 2021
113
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 2021, the total cost recognised by the Company for equity-settled share-based payment transactions
is US$0.1 million (2020: US$0.4 million). A charge of US$0.2 million (2020: US$0.5 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 46 to 48.
The following table details the 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 2021 was 3.0 years (2020: 0.6 years). The number of share
awards expected to vest was reduced by 2.6 million shares in 2021 (2020: 4.2 million) following the resignation of certain directors
and performance conditions not being met.
LTIP
2021
LTIP
2018
Share awards outstanding at 1 January 2021
–
2,929,432
Cash settlement of vested share awards
–
(366,179)
Shares that lapsed in the period
–
(2,563,253)
Share awards granted in the period
13,688,113
–
Share awards outstanding at 31 December 2021
13,688,113
–
Key assumptions:
Grant date
2021
2018
Vesting
3 years
3 years
Risk free rate of interest
0.48%
0.93%
PGR TSR volatility
(11.2%)
49.0%
Comparator TSR volatility
103.6%
28.0%
Weighted average share price at date of grant
4.50 pence 23.50 pence
Weighted average fair value price at date of grant
3.24 pence
14.95 pence
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 2021 (2020: nil shares). The details of awards outstanding at 31 December 2021 are
presented in the table below.
DBP
2018
DBP
2017
Share awards outstanding at 1 January 2021
1,181,577
1,108,450
Cash settlement of vested share awards
(590,791)
(1,108,450)
Share awards outstanding at 31 December 2021
590,786
–
Price at grant date
16.67
18.05
Weighted average remaining contractual life
1 year
n/a
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
113
Notes to the Company financial statements continued
114
Phoenix Global Resources plc Annual Report and Financial Statements 2021
15. Employee benefits (continued)
15.3 Warrants
Warrants – non-share-based payments
Movements during the year, together with their associated weighted average exercise price, are as follows:
2021
2020
No. (‘000)
WAEP (p)
No. (‘000)
WAEP (p)
At 1 January
–
–
10,454,545
40.0
Granted
–
–
–
–
Exercised
–
–
–
–
Lapsed
–
–
(10,454,545)
40.0
Outstanding at 31 December
–
–
Exercisable at 31 December
–
–
Warrants – share-based payments
Movements during the year, together with their associated weighted average exercise price, are as follows:
2021
2020
No. ‘000
WAEP (p)
No. ‘000
WAEP (p)
At 1 January
–
–
9,090,909
40.0
Granted
–
–
–
–
Exercised
–
–
–
–
Lapsed
–
–
(9,090,909)
40.0
Outstanding at 31 December
–
–
Exercisable at 31 December
–
–
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.
Financial assets and
liabilities recognised in the
balance sheet that are not
denominated in US
Dollars
Sensitivity analysis
Due to the influence of the US Dollar on the Company and the
level of funding obtained in US Dollars, the US Dollar has been
determined to be the functional currency of the Company.
This determination also reduces the exposure to foreign
exchange gains and losses.
Market risk –
interest rate
Long-term borrowings
held at variable rates
Sensitivity analysis
The Company has a treasury management function and monitors
interest rate movements.
Liquidity risk
Borrowings and other
liabilities
Rolling cash
flow forecasts
The Company maintains an active treasury management
function.
Market risk – cash flow and fair value interest rate risk
The Company’s main interest rate risk arises from long-term borrowings with floating interest rates that expose the Group to interest
rate risk. The Company’s functional currency is the US Dollar and it only holds US Dollar denominated debt, therefore it is not exposed
to exchange rate risk.
The Group does not currently use swap instruments or other derivatives to manage its interest rate risk exposure.
Phoenix Global Resources plc Annual Report and Financial Statements 2021
114
Phoenix Global Resources plc Annual Report and Financial Statements 2021
115
16. Financial risk management (continued)
The exposure of the Group’s borrowings to interest rate changes at the end of the year is as follows:
2021
US$’000
% of
total loans
US$’000
2020
US$’000
% of
total loans
US$’000
Variable rate borrowings
393,452
100
322,973
100
Impact on post-tax
profit and loss
Impact on other
components of equity
2021
US$’000
2020
US$’000
2021
US$’000
2020
US$’000
Interest rate increase by 100 basis points
3,679
3,122
–
–
Interest rate decrease by 100 basis points
(3,679)
(3,122)
–
–
17. Provisions
2021
2020
Current
US$’000
Non-current
US$’000
Total
US$’000
Current
US$’000
Non-current
US$’000
Total
US$’000
Legal claims
–
1,060
1,060
–
1,060
1,060
Other provisions
180
–
180
180
–
180
Total
180
1,060
1,240
180
1,060
1,240
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 9 March 2022, the non-convertible bridging facility provided by Mercuria was increased to US$97.5 million. The convertible
facility interest payment grace period was extended to 30 September 2022 and the first repayment date and maturity date to
31 December 2022. The non-convertible bridging facility repayment date (principal and interest) and maturity date was extended
to 31 December 2022.
Licences
On 9 April 2022, the Company, received from Gas y Petróleo del Neuquén S.A. (“GyP”) a notice of GyP’s willingness to relinquish the
licences over the areas La Tropilla, Aguada de Castro I & II and Santo Domingo in which it is the Company’s joint venture partner.
Management considers that the unconventional prospectivity of these areas has a “high risk/low reward and has agreed to the
relinquishment.
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
115
Shareholder information
116
Phoenix Global Resources plc Annual Report and Financial Statements 2021
Glossary
Mm3
Thousand cubic metres
MMbtu
Million British thermal units
Mcf
Thousand standard cubic feet
MMcf
Million standard cubic feet
Tcf
Trillion cubic feet
bbl
Barrel
boe
Barrel of oil equivalent
boepd
Barrel of oil equivalent per day
Bn
Billion
MM
Million
LNG
Liquefied natural gas
WTI
West Texas Intermediate crude
WI
Working interest
Opex
Operating expenses
Capex
Capital expenditure
1P
Proved reserves
2P
Proved plus probable reserves
3P
Proved plus probable plus possible reserves
HSE
Health, safety and environment
KPI
Key performance indicator
Adjusted EBITDA
Earnings before interest, taxation, depreciation, amortisation and non-recurring expenses
CGU
Cash generating unit
bopd
Barrels of oil per day
mscfpd
Thousand standard cubic feet per day
Phoenix Global Resources plc Annual Report and Financial Statements 2021
116
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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, Argentina
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, Argentina
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
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
117
Shareholder information
118
Phoenix Global Resources plc Annual Report and Financial Statements 2021
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
Magid Shenouda
Non-executive director
Nicolás Mallo Huergo
Non-executive director
Nigel Duxbury
Company Secretary
Registered address and corporate office
1st Floor
62 Buckingham Gate
London
SW1E 6AJ
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
Phoenix Global Resources plc Annual Report and Financial Statements 2021
118
Phoenix Global Resources plc Annual Report and Accounts 2021
119
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
Independent auditor
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Solicitor
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2EG
Registrars
Share Registrars
The Courtyard
17 West Street
Farnham
Surrey GU9 7DR
Phoenix Global Resources plc
1st Floor
62 Buckingham Gate
London SW1E 6AJ
United Kingdom
Tel: +44 (0) 20 3912 2800
info@phoenixglobalresources.com
Governance
Financial statements
Strategic report
Phoenix Global Resources plc Annual Report and Financial Statements 2021
119
Phoenix Global Resources plc Annual Report and Financial Statements 2021
120
This report is printed on 100% recycled paper, which is
certified carbon balanced by World Land Trust Ltd.
Blackdog Digital is a carbon neutral company and
is committed to all round excellence and improved
environmental performance is an important part of
our ‘Go Green’ strategy.
Luminous are certified in using Carbon Balanced paper
for the Phoenix Global Resources plc Annual Report.
This project has balanced through World Land Trust
the equivalent of 129kg of Carbon Dioxide. This support
will enable World Land Trust to protect 25m2 of
critically threatened tropical forest.
Consultancy, design and production
www.luminous.co.uk
CBP012795
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