Company Registration No: 05299925
UK Oil & Gas Plc
Annual Report and Accounts
For the year ended 30 September 2021
1
CONTENTS
Strategic Report For The Year Ended 30 September 2021 ......................................................................................................................... 3
Our Business ............................................................................................................................................................................................ 3
Our Strategy ............................................................................................................................................................................................. 4
Statement From The Chairman ................................................................................................................................................................. 5
Chief Executive’s Statement ..................................................................................................................................................................... 6
Principal Risks And Uncertainties ............................................................................................................................................................ 10
Operational Review ................................................................................................................................................................................. 12
Financial Review ...................................................................................................................................................................................... 15
Key Performance Indicators ..................................................................................................................................................................... 16
Reserves And Resources .......................................................................................................................................................................... 17
Health, Safety And The Environment ....................................................................................................................................................... 19
Directors’ Section 172 Statement ............................................................................................................................................................ 21
Corporate Governance ............................................................................................................................................................................ 23
Directors’ Remuneration Report .............................................................................................................................................................. 30
Report Of The Independent Auditor To The Members Of Uk Oil & Gas Plc ............................................................................................... 36
Financial Statements ............................................................................................................................................................................... 41
Consolidated Statement Of Comprehensive Income For Year Ended 30 September 2021 ........................................................................ 41
Consolidated Statement Of Financial Position As At 30 September 2021 ................................................................................................. 42
Company Statement Of Financial Position As At 30 September 2021 ....................................................................................................... 43
Consolidated Statement Of Changes In Equity For The Year Ended 30 September 2021 ........................................................................... 44
Company Statement Of Changes In Equity For The Year Ended 30 September 2021 ................................................................................. 44
Consolidated Statement Of Cash Flow For The Year Ended 30 September 2021 ....................................................................................... 46
Company Statement Of Cash Flow For The Year Ended 30 September 2021 ............................................................................................. 47
Notes To The Financial Statements .......................................................................................................................................................... 48
Company Information ............................................................................................................................................................................. 71
Forward-looking Statement
This annual report contains ‘forward-looking information’, which may include, but is not limited to, statements with respect to the future financial and operating
performance of UK Oil & Gas Plc, its subsidiaries, investment assets and affiliated companies, the estimation of oil reserves or resources, the realisation of
resource estimates, costs of production, capital and exploration expenditures, costs and timing of the development of new assets, requirements for additional
capital, governmental regulation of operations and exploration operations, timing and receipt of approvals, licenses, environmental risks, title disputes or claims.
Often, but not always, forward-looking statements can be identified by the use of words such as ‘plans’, ‘expects’, ‘is expected’, ‘budget’, ‘scheduled’, ‘estimates’,
‘forecasts’, ‘intends’, ‘anticipates’ or ‘believes’, or variations (including negative variations) of such words and phrases, or state that certain actions, events or
results ‘may’, ‘could’, ‘would’, ‘might’ or ‘will’ be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of UK Oil & Gas Plc and/or its subsidiaries, investment assets and/or its affiliated
companies to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
Such factors include, among others, general business, economic, competitive, political and social uncertainties; the actual results of current exploration activities;
conclusions of economic evaluations and studies; fluctuations in the value of UK Pounds Sterling relative to the United States Dollar, and other foreign currencies;
changes in project parameters as plans continue to be refined; future prices of products; possible variations in recovery rates; failure of plant, equipment or
processes to operate as anticipated; accidents, labour disputes and other risks of the oil & gas industry; political instability, adverse weather conditions,
insurrection or war; delays in obtaining governmental approvals or financing or in the completion of development or construction activities.
Although UK Oil & Gas Plc has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described
in forward-looking statements, there may well be other factors that cause actions, events or results to differ from those currently anticipated, estimated or
intended.
Forward-looking statements contained herein are made as of the date of this annual report, and UK Oil & Gas Plc disclaims any obligation to update any forward-
looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements due to the inherent uncertainty therein. Nothing in this annual report should be construed as a profit
forecast.
2
STRATEGIC REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2021
The Directors present their strategic report on the group for the year ended 30 September 2021.
OUR BUSINESS
UK Oil & Gas Plc (“UKOG” or the “Company”) is an energy company currently primarily focused upon oil & gas
exploration and production. We specialise in creating new geological ideas, concepts and methodologies to find
and produce oil & gas from previously unexplored or overlooked rock formations within established petroleum
producing provinces.
Our current operational focus is on the UK and Turkey onshore sectors, where we aim to build a sustainable oil
& gas production base that can act as a springboard to further worldwide opportunities. UKOG has operated
safely and environmentally responsibly in the UK since 2013.
Our current UK onshore portfolio consists of direct and indirect interests in six oil & gas exploration, appraisal,
development and production assets, all situated within the Weald and Purbeck-Wight Basins of southern
England. We are the largest acreage holder in the south of England, with assets covering 689 gross km².
We hold majority interests in four UK onshore oil & gas discoveries, the most notable being at Horse Hill and
Loxley in Surrey, together with a significant position in the Kimmeridge Limestone (KL) oil deposit or “play”. UKOG
holds the largest acreage position within the play’s most prospective area or “sweet spot”, covering 489 gross
km².
Our UK oil & gas portfolio contains a good balance of low-risk production, appraisal and development assets as
well as upside exploration assets within both the Kimmeridge Limestone and Portland conventional plays.
Our portfolio in Turkey consists of a 50% non-operated working interest in the 305 km² Resan licence in southeast
Turkey, containing the potentially significant undeveloped Basur-Resan oil discovery plus further exploration
prospects. This project is assessed to contain significantly greater discovered oil volumes than any of our UK
projects and, if successful, offers potentially transformational growth for the Company.
Our portfolio, notably Basur-Resan in Turkey, has the potential to generate significant returns for the Company
and its shareholders.
The Company is reviewing the potential acquisition of further new international producing oil and gas properties
which have the potential to deliver potentially significant short term cash flow. These assets also have the
potential to become self-funding relatively quickly.
As a further diversification, we are increasingly active in the newly emerging geothermal energy field, where we
possess the key subsurface and engineering skills necessary to make such projects work. We have teamed up
with UK geothermal technology specialist Ceraphi Energy Limited (“Ceraphi”) to evaluate the economic feasibility
of transitioning a part of our Horse Hill site into a geothermal and solar energy hub. This hub could potentially
supply heat energy to a defined significant industrial end-user in the area. We are also a founder member of the
Geothermal Energy Advancement Association.
As well as standalone geothermal projects, we are currently investigating the viability of hybrid energy sites
centred around subsurface gas and/or hydrogen storage. These projects are envisaged to test the Company’s
hydrogen battery concept to provide peak-shaver power generation and green hydrogen generation from
geothermal and other renewable sources. Two new prime coastal sites have been identified and are under active
investigation.
A review of business activities in the year and future developments is outlined within the Statement from the
Chairman (page 5), the Chief Executive’s Statement (page 6) and the Operational Review (page 12).
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OUR STRATEGY
UKOG aims to build a diverse, sustainable and self-funding international energy business which has the following
strategic objectives:
Oil & Gas:
1. Find and Develop Low-Cost and Long-life Assets
-
Continuing to invest in new and existing near-term production assets in the international sector is
a key priority. New assets added to the Company’s portfolio must demonstrate potential self-
funding capacity in the near term. Once in production, revenues from these assets will provide free
cash flow to re-invest and deliver shareholder returns.
2. Resource and Reserve Growth
-
Building our recoverable resources, reserves and future production through targeted and
disciplined high-impact exploration, appraisal projects and acquisitions, both in UK and increasingly
in the international sector.
3. Balance Risk and Reward
- Maximising value by ground floor or early entry where possible.
-
Judicious use of farmouts to provide operational funding.
- Maximising return on investment by actively considering divestment after an asset has been de-
risked, where appropriate.
Geothermal, Renewables and Hydrogen:
1. UK Energy Diversification - Reduce Carbon Footprint of Company’s Existing Petroleum Producing Sites
- Where viable, implement geothermal and/or solar energy cogeneration plus battery storage from
existing wells/sites.
- Where viable, add new standalone geothermal and battery storage for grid/heat export.
2. Find and Develop New Stand-alone Geothermal and Energy-hub Projects
- Ground floor entry, either operated or as joint venture partner.
- UK initial focus, international expansion if successful or commercially viable opportunities arise.
-
Strategic partnerships with sector technology specialists.
3. Hydrogen
-
-
Investigate potential sites for hydrogen generation, storage and hydrogen battery concept.
Focus initially on the UK, with international expansion if successful or if commercially viable
opportunities arise.
- Ground floor operated entry through planning permission stages, with possible subsequent
strategic partnerships/JV arrangements with a large infrastructure player.
Strategic partnerships with sector technology specialists.
-
Targeted Portfolio Management:
Continuously review and high-grade our portfolio to either acquire or divest further stakes in existing assets. We
also look to acquire assets at any stage in the life cycle and are not limited by geography, where we can create
significant value for shareholders.
UKOG shares this vision and strategy through internal dialogue with employees and externally with shareholders
and stakeholders via public announcements and dissemination of information through our website and the
Annual Report and Accounts.
4
STATEMENT FROM THE CHAIRMAN
Two years ago, the price of crude oil in the USA was briefly negative. As we approach the end of the first quarter
of 2022, the picture is altogether optimistic and brighter, with Brent crude surpassing 100 dollars per barrel as I
write this statement. The uncertainty of oil prices over the last 24 months has thankfully stabilised, but that
cannot be said of the geo-political picture where any number of dramas could unfold which could alter the mood
of our industry.
That is why I am excited by UKOG’s pursuit of opportunities in renewable energy, notably in respect of
geothermal energy and gas storage solutions for hydrogen development. As a country the UK needs to be more
self-reliant and less dependent on international gas pipelines. Over decades we have allowed our gas storage
capacity to fall alarmingly. UKOG, a company with multi-faceted ambitions and abilities, is looking at domestic
projects which could reverse that decline. Additionally, the management team is also considering several other
potentially exciting opportunities both domestic and international and is proactively seeking to diversify the
Company’s portfolio in recognition of the rapidly evolving industry landscape.
The Company’s gas project at Loxley is in the hands of the Secretary of State after a tortuous appeal process, but
I hope that common sense will prevail and follow the view of Energy Minister Greg Hands who said: “We will
always prefer British gas production to foreign imports”. Given today’s mammoth carbon footprint of importing
oil and gas into the UK, why should the resources directly under our feet, including Loxley, not be drilled and
developed?
I have only recently taken on the role of Chairman, but I have had close links with UKOG for many years and fully
support the efforts of Stephen Sanderson to take on new opportunities in new territories and in new sectors.
Whilst some private investors may harbour concerns regarding the recent trend in the Company’s share price,
raising funds from equity remains a necessary part of UKOG’s strategy as it continues funding the forward growth
of its high priority projects. This will remain the case until such time as the Group is generating self-sufficient
cash flows from operations. Reserve-based lending is rarely an economic option for junior oil companies primarily
engaged in exploration and, whilst I have sympathy for any frustrations regarding share dilution, I am encouraged
that the Company is building a highly desirable and carefully curated asset portfolio with long-term economic
promise.
It requires a great deal of specialist knowledge and experience for a business to spin several plates in this
industry, however geographical and sector-based diversification remains core to UKOG’s ambitions. Tireless
efforts continue to be made in the pursuit of maximising shareholder value, and as ever there is no room for
standing still.
I confidently predict a busy 2022 on all fronts, both home and abroad. There will rarely be a dull moment and, as
we approach the drilling of our first production well in Turkey, let’s hope for an enjoyable and profitable ride.
Nicholas Mardon Taylor
Non-Executive Chairman, 24 March 2022
5
CHIEF EXECUTIVE’S STATEMENT
I am delighted to be able to write this Annual Report in a more optimistic environment than a year ago, with the
Covid-19 pandemic beginning to be brought under control thanks to the creative intervention of science-based
solutions in double-quick time.
UKOG has emerged blinking into the glow of a new world of opportunity as we explore, amongst other
opportunities, fresh commercial ideas for renewable energy generation. As was made perfectly clear during the
COP26 climate change conference in Glasgow last Autumn, the world requires fossil fuels for the foreseeable
future to sustain our lifestyle and to keep our homes and businesses warm and lit, but we all acknowledge that
it is vital to move towards cleaner methods of power generation and transportation.
It is not a case of out with the old, in with the new. More a case of a sensible and logical transition. As Business
Secretary Kwasi Kwarteng put it, “transition” from oil and gas “not extinction”.
With this in mind, we have spent time and energy looking at creating an all-encompassing energy hub in the
south of England for geothermal power generation, where we have identified a prime site for geothermal energy
and a first-rate end user. Our high-level ambition is to convert part of our Horse Hill well site into a geothermal
energy hub, having signed a Heads of Terms agreement with geothermal specialists Ceraphi, who confidently
predict that we could supply more than 200,000 megawatt hours per year of continuous baseload from that site
primarily in the form of heat energy.
We are also actively evaluating two potential sites in the UK for hydrogen generation and storage, to take
advantage of the national transition from natural gas to hydrogen for industrial and domestic power and heating
demands. Part of the project would encompass a new ‘hydrogen-battery’ concept to store energy for use during
peak power demand, together with ‘green-power’ from geothermal to generate ‘green-hydrogen’.
These are early days, but they are also exciting ones for the Company as we actively embrace this new world and
its unique challenges.
A year ago, we spread our international reach into Turkey having entered an exciting joint venture with Aladdin
Middle East (“AME”), exemplifying our ongoing strategy of active portfolio management. We are continually high
grading our portfolio, both by seeking new high potential assets and divesting lower ranking assets, as and when
opportunities present themselves. In this way we can harness fast-tracked organic growth through the project
execution stage.
In this spirit of expanding our horizons we have completed the evaluation of potentially lucrative proven oil &
gas field opportunities elsewhere in the world, including in the United States, where access to such opportunities
has arisen from within the Directors’ extensive business network. Should negotiations be successful, there is the
realistic prospect of adding significantly to both our reserves and cash flow base in the coming year.
Turkey
UKOG’s December visit to Ankara for first-time face-to-face meetings with our joint venture operator AME was
hugely successful and of great benefit to all concerned. Travel restrictions in place due to Covid-19 had prevented
this trip ever since we completed our Farm-In agreement for a 50% non-operated working interest in the 305
km² Resan Licence.
The Resan Licence lies within the SE Anatolian basin, a geological continuation of the prolific Zagros "fold-
belt" petroleum system within the foothills of the Taurus-Zagros mountains in Iraq, Iran and Turkey, one of the
Middle East's major oil producing areas. Multiple producing oil fields lie to the immediate west and south-east
of the Licence, containing significant proven recoverable reserves.
The recent focus at our Basur-Resan licence has been the acquisition of a 2D seismic programme. This followed
news from AME that drilling of the Basur-3 appraisal well was halted when the directional assembly was
temporarily stuck in the 12¼" hole section. Credit must be given to AME’s drilling team who performed a
successful recovery or 'fishing' operation to return the assembly safely back to surface.
With the first phase of seismic acquisition now complete, we look forward to the drilling of a Basur-3 sidetrack
(“B-3S”) once processed seismic results have been received. B-3S is located within the north-western
6
CHIEF EXECUTIVE’S STATEMENT (CONTINUED)
structural culmination of the 60 km² Basur-Resan anticlinal structure, with a surface location approximately 1.2
km north of the 1964 Basur-1 oil discovery well.
The B-3 appraisal well was the first modern well designed to properly appraise and assess the extent and
commercial viability of the Basur-Resan oil pool discovered in the 1950s-1960s. Its primary objectives were the
naturally fractured and dolomitised limestone rocks of the Cretaceous age Garzan and Mardin formations, which
are productive at our partner AME’s East Sadak oil field, whose western edge is some 20 km to the southeast
and along the same geological anticlinal trend.
AME's and the Company's bid for three new licences in last year's Turkish mini-licence round, announced on 10
December 2020, was ultimately unsuccessful. The mini-licence round attracted several other bidders including
the Turkish national oil company, TPAO, to whom the licences were awarded. Although the result was
disappointing given the work programme offered by AME and UKOG, the bid was always ancillary to the
Company's main focus of appraising Basur-Resan.
The Company continues to look for additional projects in Turkey and has reviewed a further new opportunity to
the southeast of our Resan licence. This contains an interesting and potentially material undrilled anticlinal
feature analogous to both East Sadak and Basur-Resan.
Horse Hill
The focus at Horse Hill has been on optimising production and keeping capital expenditure under firm control.
To assist this, we completed a material purchase of surface production equipment from PW Well Test. A more
efficient and suitable gas flare has also been installed at the site.
A facilities upgrade was completed in the year, with modifications made in preparation for transitioning the
site to automated 24-hour production, together with the installation of the first tranche of permanent facility
equipment required under the Health and Safety Executive's Control of Major Accident Hazards (COMAH)
regulations.
Well intervention operations were completed efficiently towards the beginning of the year. Despite the resulting
October and November downtime, total Portland oil production during the first quarter was 7,045 bbl. Average
production uptime was 57% over that period and ranged from 37% during October's main HH-1 intervention
period, to 85% in November, post-intervention.
Notably, the Oil and Gas Authority (“OGA”) granted two-year extensions to the remaining deadlines for the
PEDL137 and PEDL246 Retention Area work programmes in the year, and at the end of 2020 over 162,000 bbl of
Brent quality crude had been produced and exported from the Kimmeridge and Portland pools.
Injunction
The High Court upheld the Company's injunction against unlawful protests at the Horse Hill site. Mrs Justice Falk
found that there was a sufficiently real and imminent risk to justify the interim injunction order and its revised
scope, which prohibits trespass to the site's land, obstruction of the main entrance and lorry surfing. The
injunction remained in force until autumn 2021.
Judicial Review
We were delighted that in February 2022 the Court of Appeal rejected the Judicial Review (“JR”) appeal of Surrey
County Council’s (“SCC”) September 2019 planning consent for long-term oil production at Horse Hill, 85.635%
owned by UKOG. The written judgement means that the planning consent for Horse Hill oil production was
granted entirely lawfully and, as such, confirms that Horse Hill can remain operational until the end of its
commercial field life.
This latest judgment in UKOG’s favour comes after more than two years in which Sarah Finch on behalf of the
Weald Action group has sought to stop the Company’s oil production at Horse Hill. Given that during this time
five judges have found against their case, one cannot help but wonder why they were permitted so many
repeated bites at the same legal cherry. That seems at very least unfair and perhaps is also somewhat unjust.
7
CHIEF EXECUTIVE’S STATEMENT (CONTINUED)
Loxley
The future of our wholly-owned gas appraisal project at Loxley is now in the hands of the Secretary of State for
Levelling Up, Housing and Communities (SoS), who has recovered the Company's appeal against Surrey County
Council's decision to refuse planning consent. The final appeal determination will now be made by the SoS
utilising the Planning Inspector's report and recommendation.
Whilst the Company had expected a decision from the Planning Inspectorate in the first quarter of 2022, the
recovery by the SoS may lengthen the timeline for an appeal decision.
The project was refused twice by SCC in June and November 2020, before a virtual public inquiry was held in
August 2021.
As questions regarding the UK's gas supply and record high gas prices have risen to the fore in recent months, I
hope that in deciding the appeal, the SoS will carefully consider how Loxley gas, as a secure domestic source,
could help address various pertinent national issues, including how the increasing import dependency exposes
UK consumers to upwards gas price volatility and decreasing security of supply. New domestic gas, such as Loxley,
could help mitigate this situation.
Similarly, higher pre-combustion carbon footprint LNG imports could also negatively impact the initial phases of
the UK's 'Hydrogen Economy' from a net zero aspect, as it is widely predicted that 'blue hydrogen' from methane
reforming will initially constitute a significant proportion of available hydrogen.
Domestic gas offers a significant “net zero advantage” in this respect. The Company has stated that, if granted
necessary permissions, it plans to supply Loxley gas as a feedstock for reforming into hydrogen, fully in keeping
with the government's net zero ambitions and plans.
Isle of Wight
The disappointing, but not unexpected, decision by the Isle of Wight’s planning committee to refuse consent for
the appraisal and testing of the Arreton discovery merely served to underscore our growing interest in the
international arena for oil and gas, and our new direction into geothermal and hydrogen-based energy in the UK.
The refusal went against the recommendation by the council's planning officers to approve the project.
We took considerable care and undertook much research to minimise the potential impacts of the site, choosing
a location 300m distant from the A3056 and adjacent to land with existing non-agricultural commercial uses,
namely the Wight Farm Anaerobic Digestion Energy Power Station and the Blackwater Quarry for aggregates. No
objections to the development were raised by statutory consultees on environmental, drinking water, landscape
or health and safety grounds.
Given the number of new opportunities available to the Company, all of which are considered to offer far greater
success case economic impact and higher probabilities of success than the proposed Isle of Wight project, the
Company has decided not to appeal against the planning refusal. The envisaged £0.5 million planning appeal
costs will therefore remain available and could be used for developing new oil & gas and geothermal/energy
storage projects (see New Ventures below).
New Ventures
The Company evaluated a number of potential producing oil & gas fields and near-term production opportunities
in the period with the greatest number being within the United States, where the career histories of the Board
give privileged access to a broad network of opportunities. A full due diligence evaluation of one international
property is now in its final stages.
As stated above, the Company is also currently evaluating the technical and commercial feasibility of two new
potentially significant geothermal-hub projects together with two hydrogen-hub storage and renewable energy
projects, one in the south of England and the other in the northeast.
The Company hopes to bring at least one new oil and gas opportunity and one or more geothermal-hub and
hydrogen-hub projects to fruition in the coming year.
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CHIEF EXECUTIVE’S STATEMENT (CONTINUED)
Financials
In tandem with most other similar companies, UKOG relies on the liquidity of its shares to be able to raise funds
from equity, which it views as the most sensible and realistic way of funding the growth of its projects and
portfolio pipeline. However, with UKOG’s wide-ranging activity and interests we firmly believe that the Company
is progressing towards being self-sufficient in its generation of cash flows.
During the reporting period, we successfully raised £2.2 million in October 2020 to fund our share of initial drilling
and seismic costs in Turkey. This was followed in July 2021 when we successfully raised approximately £5.0
million to fund our remaining share of the Basur-3 appraisal well's drilling, completion and testing costs and
planned 2D seismic acquisition costs.
At the same time, we decided to announce an Open Offer to all shareholders to give them the opportunity to
invest on the same terms as those who participated in the Placing. This resulted in the Company raising a further
£0.5 million.
Last summer we also completed the final instalment due under the sale and purchase agreement of the Horse
Hill surface production equipment from PW Well Test Ltd. UKOG acquired the equipment for a total of £1.65
million.
Director Share Purchase Programme
In May 2021 we announced that the Company was committed to put in place an annual MAR compliant Defined
Director Share Purchase Programme in which a director commits to purchase UKOG ordinary shares each month
equivalent in value to a fixed percentage of their net monthly salary. I made my first purchase in December and
am continuing to make monthly purchases in line with the programme.
Market Place
The oil and gas industry has rebounded strongly throughout 2021, with oil prices reaching their highest levels in
six years. At the time of writing, Brent prices have surpassed $100 per barrel, with concerns about the omicron
variant of Covid-19 easing. This optimism has been tempered by the worrying events in Ukraine which will have
a direct impact on our future security.
Renewables
UKOG became one of the six founder members of the newly formed Geothermal Energy Advancement
Association ("GEAA") in line with our goals, strategy and ambitions to enter this new sector at birth. We believe
our membership can help raise awareness amongst policy makers and the public of the benefits of this renewable
energy sector. The potential conversion of part of our Horse Hill well site into a geothermal energy hub
represents the Company’s first direct step into this sector.
Board Changes
We announced just before Christmas that, after a thorough external recruitment process, Matt Gormley had
joined UKOG as the Company's Chief Financial Officer, a non-board position. He was previously Group Financial
Controller of Shanta Gold Limited and an Audit Manager at Grant Thornton UK LLP. I was delighted to welcome
Matt into the UKOG team. His fresh perspective from an alternate sector will be particularly valuable as UKOG
seeks to expand internationally and diversify into green geothermal and hydrogen energy within the UK.
With effect from 1 January 2022 the board was also restructured, with Kiran Morzaria stepping down as Finance
Director to become a Non-Executive Director. Allen Howard moved from Non-Executive Chairman to become an
Executive Director of the Company on a part-time basis. Nicholas Mardon Taylor became Non-Executive
Chairman.
I would also like to take this opportunity to express my sincere thanks and gratitude to Kiran Morzaria for his
huge influence on the Company. I’m pleased with Kiran’s continuing involvement, albeit on a non-executive basis.
Stephen Sanderson
Chief Executive, 24 March 2022
9
PRINCIPAL RISKS AND UNCERTAINTIES
UKOG continuously monitors its risk exposures and reports its review to the board of directors (“The Board”).
The Board reviews these risks and focuses on ensuring effective systems of internal financial and non-financial
controls are in place and maintained.
Key Risk Areas
Key risk areas surrounding our existing business are tabulated below; categorised as being Strategic, Operational
and Financial.
Risk
Strategic risks
Exposure to political risk, we operate in
and may seek new opportunities in
countries, regions and cities where
political, economic and social transition
may take place. Political instability,
changes to the regulatory or taxation
environment, international trade
disputes and barriers to free trade,
international sanctions, expropriation or
nationalisation of property, civil strife,
strikes, insurrections, acts of terrorism,
acts of war and public health situations
(including the continued impact of the
COVID-19 pandemic or any future
epidemic or pandemic) may disrupt or
curtail our operations or development
activities and could affect the ability of
UKOG to deliver to its Strategy.
Operational risks
Permitting risk, planning, environmental,
licensing and other permitting risks
associated with our operations
particularly with exploration drilling
operations.
Mitigation
Magnitude and likelihood
Magnitude- High
Likelihood – Medium
Through industry associations and
direct contact, the Company engages
with Government and other
appropriate organisations to ensure
the Company is kept abreast of
expected potential changes and takes
an active role in making appropriate
representations.
Magnitude- High
Likelihood – High
During the period the Company
continued to face several challenges in
obtaining all the permits that it
requires to deliver on its strategy. This
is despite UKOG’s compliance with
regulations, proactive engagement
with regulators and communities, and
the expertise and experience of its
management team. We believe this is
because of changing priorities within
the United Kingdom and the Company
has sought to further diversify this risk
by seeking investments outside the
United Kingdom.
Exploration risk, the Company fails to
locate and explore hydrocarbon-bearing
prospects that have the potential to
deliver commercially, e.g. key wells are
dry or less successful than anticipated.
Oil production, oil is not produced in the
anticipated quantities from the Group’s
assets, or it cannot be produced
economically.
Analysis of available technical
information to determine the work
programme. Risk-sharing arrangements
entered to reduce downside risk.
Magnitude- High
Likelihood – High
Analysis of available technical
information to improve our
understanding of the reservoir and
continue to review cost structure to
target low production costs.
Magnitude- High
Likelihood – Medium
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PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
Operational risks (continued)
Price and markets, our financial
performance is impacted by fluctuating
prices of oil, gas and refined products.
Oil, gas and product prices are subject to
international supply and demand and
margins can be volatile. Political
developments, increased supply from
new oil and gas or alternative low carbon
energy sources, technological change,
global economic conditions, public health
situations (including the continued
impact of the COVID-19 pandemic or any
future epidemic or pandemic).
Loss of key staff
Financial risks
Liquidity risk, exposure through its
operations to liquidity risks.
Magnitude- High
Likelihood – High
During the previous reporting period
the Group entered into production at
Horse Hill. The Group determined that
given its stage of development the
costs of hedging would be prohibitive.
The Group continues to will continue to
keep this under review. At this point
the Group also continues to review
costs where appropriate.
Provide and maintain competitive
remuneration packages to attract the
right calibre of staff. Build a strong and
unified team.
Magnitude- High
Likelihood – Low
The Board regularly reviews UKOG’s
cash flow forecasts and the availability
or adequacy of its current facilities to
meet UKOG’s cash flow requirements.
Magnitude- High
Likelihood - Medium
11
OPERATIONAL REVIEW
UKOG’s operational activities were concentrated on the Horse Hill oil field, located near Gatwick Airport, and on
the Resan licence in south-east Turkey, containing the undeveloped Basur-Resan oil discovery.
Horse Hill Oil Field, PEDL137 and PEDL246 (UKOG 85.635%)
The field and surrounding licence is operated by UKOG's subsidiary company Horse Hill Developments Ltd
(“HHDL”) in which UKOG has 77.9% ownership. The Licensees are HHDL (65% interest) and UKOG (137/246) Ltd
(35% interest).
At the beginning of the reporting period, further well intervention operations on Horse Hill-1 (“HH-1”) were safely
completed, optimising oil flow by isolating the Kimmeridge perforations, by reperforating the full Portland oil
producing section, by insertion of a new simplified production tubing string and by setting the downhole pump
at a deeper level than the existing perforations to increase pumping efficiency.
The intervention was immediately followed by an ongoing series of multi-week production optimisation trials to
achieve an optimum balance between oil revenues and water handling and other operational costs. Trials include
well-cycling (i.e., shutting in the well for a set period each day to reduce water inflow) and pump optimisations.
The trials continued for several months.
These improvements set HH-1 up for long term continuous and optimised oil production from the Portland.
Conversion of the HH-2z well to water injection, subject to regulatory approval, plus further infill development
of both Portland (HH-3 well) and Kimmeridge (HH-4 well) offer significant upside for the Horse Hill field.
Pressure build-up data was also carried out confirming the HH-1 connected oil in place volumes of 7-11 mmbbl.
The removal of ancillary third-party rental equipment and the purchase of the surface production equipment
from PW Well Test Ltd was completed.
Due to the coronavirus pandemic the OGA granted two-year extensions to the remaining deadlines for the
PEDL137 and PEDL246 Retention Area work programmes.
Planned shutdowns were successfully completed to install new surface production facilities in line with
requirements under the Control of Major Accident Hazards (COMAH) Regulations. In addition, a new more
efficient gas flare was installed and commissioned successfully at Horse Hill.
As of end-December over 162,000 bbl of Brent quality crude had been produced and exported from the
Kimmeridge and Portland pools.
Significant efforts have again been made in managing and reducing operational costs. Recent Brent crude prices
of over $90/bbl have helped operational cash flow from the field.
During the period an energy efficiency study was completed for Horse Hill to reduce diesel consumption and
carbon emissions recommending the installation of 250kW solar PV and 67kWh Li-ion battery storage. Further
detailed scoping is required during the next period to confirm capital expenditure and timings for the project
within the overall field development.
Post period, the Company announced the signing of a Heads of Terms with geothermal specialists Ceraphi to
enter into a joint venture agreement to develop part of the Horse Hill site into a geothermal energy hub
(GeoHub). The GeoHub, currently at a conceptual stage, is targeted to generate and supply more than 200,000
MWh per year of continuous baseload, primarily as heat energy. The project's first phase would aim to supply
significant industrial end-users in the locality with 100% green heating and cooling plus ancillary green electricity
and/or hydrogen.
Turkey, Resan Licence (UKOG 50%)
In October 2020, UKOG completed a Participation Agreement and Joint Operating Agreement with Aladdin
Middle East Ltd (“AME”), an independent oil company with 60 years of operational experience in Turkey, to take
a 50% non-operated working interest in the 305 km² Resan Licence.
12
OPERATIONAL REVIEW (CONTINUED)
UKOG is taking an active technical role in a 4-well oil appraisal and step-out exploration drilling programme
designed primarily to assess the commercial viability of the significant Basur-Resan oil discovery. The transaction
was approved by the Turkish government and completed in January 2021.
The Resan Licence lies within the SE Anatolian basin, a geological continuation of the prolific Zagros "fold-
belt" petroleum system within the foothills of the Taurus-Zagros mountains in Iraq, Iran and Turkey, one of the
Middle East's major oil producing areas. Multiple producing oil fields lie to the immediate west and south-east
of the Licence, containing significant proven recoverable reserves.
UKOG quickly built on this exciting entry into Turkey by submitting an application for three further exploration
licences covering four blocks, again with a 50% interest and AME as operator. Disappointingly, however, the
Turkish government decided to award the licences to the Turkish national oil company, TPAO.
Construction of the drilling pad and access road for the Basur-3 (“B-3”) appraisal well began in March 2021 and
was completed in May. The Turkish Energy Ministry approved drilling of B-3 in April and well was spudded on
26th June. The directional drilling assembly became stuck in the 12¼” hole section whilst pulling out of hole. The
rig performed a successful recovery or ‘fishing’ operation to free the drilling assembly and return it safely back
to surface. The incident occurred after the well had made good progress, reaching a drilled depth immediately
above the Garzan and Mardin target objectives, which remain untested.
AME advised that, to achieve the well’s primary objective of appraising the Basur-1 oil discovery, a deviated
mechanical sidetrack, B-3S, is planned, the existing 12¼” hole section being considered unsuitable for onwards
drilling. AME further advised that, to ensure the sidetrack is optimally located, they plan to pause further drilling
until after the acquisition and processing of the new seismic data over the sidetrack’s envisaged trajectory.
The B-3 appraisal well was the first modern well designed to properly appraise and assess the extent and
commercial viability of the Basur-Resan oil pool discovered in the 1950s-1960s. Its primary objectives were the
naturally fractured and dolomitised limestone rocks of the Cretaceous age Garzan and Mardin Formations, which
are productive at our partner AME’s East Sadak oil field, whose western edge is some 20 km to the southeast
and along the same geological anticlinal trend.
Active planning of B-3S is well underway and initial discussions with prospective drilling rig contractors have
taken place, with detailed well planning and contractor selection progressing. In the interests of maximising cost
efficiencies, plans are in place for surplus UKOG-owned casing to be transferred to the B-3S site for utilisation
during drilling. It is planned that the well will commence upon receipt and interpretation of the fast-track seismic
processing,
Good progress has been made post period by Viking Geophysical Services (VGS) in acquiring the 2D seismic
programme. VGS’ acquisition programme is being overseen by an expert quality control consultant and a first
tranche of acquisition (Phase 1) has been completed. Priority has been given to process 3 lines covering the B-3S
area and trajectory plus the proposed new Resan-6 drilling location. Existing legacy data has also been recently
reprocessed and a pre-stack depth migration process has commenced aimed at sharpening the seismic imaging
of faults that may be encountered along the B-3S trajectory.
Loxley, Broadford Bridge, PEDL234 (UKOG (234) 100%)
The OGA approved an amendment to the PEDL234 Retention Area work programme, wherein Loxley-1 is to be
drilled by December 2023.
Following Surrey County Council’s (SCC) initial 29th June 2020 planning committee meeting, SCC decided that the
Loxley Gas project should be redetermined on 27th November 2020. However, again contrary to the
recommendation of its own planning team, SCC refused Loxley planning consent. In February 2021 UKOG filed
an appeal to the Planning Inspectorate, with our leading legal counsel advising that there are strong grounds to
expect a positive appeal outcome. The appeal was heard via a public inquiry commencing on 27th July 2021.
13
OPERATIONAL REVIEW (CONTINUED)
Post period, the Planning Inspectorate advised that the Secretary of State (“SoS”) had recovered the appeal. The
final appeal determination will now be made by the SoS utilising the Planning Inspector’s report and
recommendation.
The Company has submitted a further planning permission extension application to West Sussex County Council's
Planning Committee for its Broadford Bridge-1/1z Kimmeridge oil discovery.
Arreton, Isle of Wight, PEDL331 (UKOG 95%)
UKOG’s planning application to the Isle of Wight Council for the appraisal drilling and flow testing of the Arreton
oil discovery was refused post period. Having taken time to consider, the Company has decided not to appeal
this decision.
Other Assets
Stable oil production with low water cut continues from the Horndean oil field in Hampshire (UKOG 10%).
Kris Bone
Operations Director
24 March 2022
Matt Cartwright
Commercial Director
24 March 2022
14
FINANCIAL REVIEW
Income Statement
Revenues for the year from sales of oil amounted to £1.56 million (2020: £0.91 million). This increase of 71.4%
was largely driven by long term oil production having commenced partway through the 2020 financial year at
Horse Hill, via HH-1. The Group sold 36,664 bbl from Horse Hill and Horndean during the year at an average sale
price of £43/bbl.
Depletion, Depreciation and Amortisation costs amounted to £0.69 million (2020: £1.37 million), reflecting the
stabilisation of production from Horse Hill during the year and the impact of certain assets being fully depreciated
during the previous financial year. Other Cost of Sales reduced to £1.07 million (2020: £1.17 million). The Group
recorded a gross loss for the year of £0.19 million (2020: £1.63 million).
Administration expenses during the year amounted to £2.10 million (2020: £1.76 million). Following an
impairment review carried out as at 30 September 2021, the net present value of the HH-1 well at Horse Hill was
determined to be lower than its recorded book value, and it was therefore determined that the value of
associated oil & gas properties should be impaired by £1.46 million. This lower net present value assessment
was primarily due to lower-than-expected flow rates at HH-1 where production rates have now stabilised
following commencement of long-term oil production during the previous financial year.
An Operating loss for the year of £3.81 million was recorded (2020: £14.1 million). Finance costs amounted to
£0.89 million (2020: £0.29 million), relating primarily to unwinding of discounts on decommissioning provisions.
An exploration write-off of £0.95 million was recognised following the Company’s decision not to appeal the
October 2021 decision by the Isle of Wight Council's Planning Committee to refuse consent for the appraisal and
testing of the Arreton oil and gas discovery.
The net effect of the above was a retained loss for the year of £4.89 million (2020: £20.94 million).
Balance Sheet
During the financial year to 30 September 2021, non-current assets decreased to £37.68 million (2020: £37.78
million). This included the effects of an impairment of oil & gas assets at Horse Hill, an exploration write-off at
the Arreton oil and gas discovery, and £2.11 million of capital expenditure on oil exploration & evaluation assets,
primarily at the Basur-Resan oil discovery in Turkey.
Cash and cash equivalents totalled £4.73 million at the year-end (2020: £1.63 million) which contributed
significantly to an increase in current assets from £2.38 million at 30 September 2020 to £5.36 million at 30
September 2021. Current liabilities decreased to £4.15 million (2020: £5.07 million) following a reduction in trade
and other creditors.
At the end of the year, the Group’s net assets amounted to £37.50 million (2020: £34.01 million).
Cash Flow and Financing
The net cash outflow from operating activities during the reporting period was £1.41 million (2020: cash outflow
of £2.77 million). The reduced outflow is primarily attributable to working capital movements and twelve months
of operating cash flows from Horse Hill in the year to 30 September 2021.
UKOG raised £7.12 million during the reporting period via the issue of equity (net of share issue costs), which
was used primarily to fund investing activities (£2.72 million). A portion of the amount raised remained unspent
at the end of the year.
As a result of the above, the Group recorded a £3.09 million net increase in cash and cash equivalents during the
year and had £4.73 million in cash and cash equivalents at the end of the year.
Matt Gormley
Chief Financial Officer
24 March 2022
15
KEY PERFORMANCE INDICATORS
UKOG has adopted both financial and non-financial key performance indicators (KPI’s) to measure progress
against our strategy. These KPI’s will develop and new ones will be added as we progress our strategy.
KPI’s
Production (bopd)
Operating costs (£/bbl)*
Operating Cashflow £m
Year
(bopd) 140
2021
2020
128
Year
(£/bbl) 29
2021
2020
28
Year
£m
2021
(1.41)
2020
(2.77)
HH-1 entered into
production during March
2020. These rates are
reported on a gross basis
and as such represent all
production and relevant
costs irrespective of
amounts attributable to
non-controlling interest
shareholders of operating
subsidiaries.
Group production will
provide operating cashflow
to fund our investments and
deliver shareholder value.
At this point in time we
receive production from our
ownership in the Horndean
oil field which is not under
our control and the Horse
Hill oil field of which we
own 85.635%.
Daily and weekly production
is monitored for all
producing assets and
reported to senior
management. Production
forecasts are prepared
during the year to measure
progress against the
production target.
HH-1 entered into production
during March 2020. Operating
costs have remained largely
consistent since production
from HH1 stabilised.
Operating cash outflows
reduced during the reporting
period as a result of higher
revenues and working capital
movements.
Operating costs per bbl are a
key focus at our operations
and the focus for the
Company is to keep these
costs low, so as to improve
cash generation from our
producing assets. Currently,
operating costs are in relation
to our ownership of the
Horndean oil field (10%
ownership), which is not
under our control, and the
Horse Hill oil field of which
we own 85.635%.
Operating costs are
monitored closely, to ensure
that budget targets are being
met.
Cashflow is key to providing
funding for investing in the
business and pursuing our
strategy. This has to date
been funded predominantly
via equity and debt.
Cashflow forecasts are
reported to the Board on a
regular basis, to ensure our
progress is within our budget.
Long-term forecasts are also
provided to ensure that the
strategy of the business can
be adequately funded.
Reason for choice
How we measure
* Operating costs exclude depreciation of the oil asset and indirect management charges from UKOG
Other non-Financial KPI’s
Reason for choice
How we measure
Lost time injuries (LTI & LTI Frequency)
2021 – 0, LTI Frequency 0; 2020 – 0, LTI Frequency 0
Health & safety is our highest priority and we look to provide the highest level of protection
to all our stakeholders
We track HSE lagging indicators during the year, which are reported to the Board. We aim
to have zero LTI’s. If we have an LTI it is investigated, and a clear remedial action is
identified and implemented.
16
RESERVES AND RESOURCES
Total aggregate net discovered 2C (mid case) contingent resources and 2P (mid case) reserves now stand at 37.48
mmboe.
HH-1 production remains in contingent resource category, while the company waits on the Environment Agency
Production Permit. Upon the receipt of this permit, the company intends to review the HH-1 production decline
and attribute reserves to HH-1, thus transferring them from Contingent Resources to Reserves category.
Discovered prospective resources (i.e., undiscovered but drill ready within identified exploration prospects)
remain the same as last year, while we seek to resume drilling on the Turkey Basur-Resan licence.
Table 1: Recoverable Reserves mmbbl: Producing Fields, Gross and Net (as of 31 December 2021)
Asset
UKOG %
Interest
1P
2P
3P
Gross mmbbl
Net Attributable mmbbl
Horndean 1
10
1.02
1.20
1.37
TOTAL (mmbbl)² ³
1P
0.10
0.10
2P
0.12
0.12
3P
0.14
0.14
Operator
IGas
Notes:
1. DeGolyer and MacNaughton (“D&M”) for IGas Feb 2022, 2. Horse Hill reserve volumes await external CP verification
following 12 months of stable production history, see text above, 3. Avington is temporarily shut-in, consequently no reserves
are attributable, recoverable resources shown in Table 3 below.
Table 2: Contingent Resources mmbbl/mmboe (i.e., discovered and drill ready recoverable volumes)
Asset
Licence
UKOG
%
Gross
mmbbl/mmboe
1C
2C
3C
mean
M47
b1, b2
50
14.9
30.5
67.0
37.2
Net Attributable
mmbbl/mmboe
2C
3C
mean
Operator
15.3
33.5
18.6
AME
1C
7.5
PEDL137
85.64
0.6
1.5
3.6
1.9
0.5
1.3
3.1
1.6
HHDL
PEDL137
85.64
PEDL234
100
PEDL331
PEDL331
PEDL070
PL211
95
95
5
10
0.4
3.1
1.4
6.2
0.5
0.3
1.6
5.5
3.7
6.1
9.3
10.3
2.7
5.9
5.1
0.3
3.1
1.3
1.4
5.5
3.5
5.2
9.3
9.8
2.3
5.9
4.9
HHDL
UKOG
UKOG
10.8
17.6
11.5
5.9
10.3
16.7
11.0
UKOG
0.7
0.8
1.0
1.3
0.7
0.8
0.03
0.03
0.04
0.08
0.05
0.13
0.04
0.08
IGas
IGas
18.6
37.3
77.8
44.4
Turkey,
Basur-Resan 4
Horse-Hill
Portland 1
Horse-Hill
Kimmeridge 6
Loxley Gas 3 ,5
Arreton
Portland 1
Arreton
Oolite 1
Avington 2
Horndean 2
TOTAL
mmboe
Notes:
1. Xodus June 2018, estimates for Horse Hill are deterministic based upon per well recoveries, 2. D&M for IGas Feb 2022,
estimates for Horndean and Avington are deterministic, not probabilistic, 3. Xodus September 2020, probabilistic based upon
range of recovery factors, 4. Xodus June 2020, probabilistic based upon range of recovery factors, 5. 1 million bbl oil
equivalent (mmboe) = 5.8 bcf, 6. RPS Jun 2019.
17
RESERVES AND RESOURCES (CONTINUED)
Table 3: Prospective Resources (i.e., exploration, drill ready but as yet undiscovered recoverable volumes)
Asset
Licence
UKOG %
Gross mmbbl
Net Attributable mmbbl
Low
Best
High Mean
Low
Best
High Mean
Turkey, Prospect A 2 M47 b1,b2
Godshill Portland 1
PEDL331
Arreton North 1
PEDL331
50
95
95
4.0
1.7
0.5
8.7
6.8
2.7
17.0
17.4
7.6
9.9
8.6
3.6
TOTAL
2.0
1.6
0.5
4.1
4.4
6.5
2.6
13.4
8.5
16.5
7.2
32.3
5.0
8.2
3.4
16.6
Notes:
1. Xodus June 2018, Godshill possesses the same underlying Lower Oolite potential as Arreton but this target was not
reviewed by Xodus in 2018, to be included in any subsequent external CP review, 2. Xodus June 2020
18
HEALTH, SAFETY AND THE ENVIRONMENT
UKOG is committed to providing, so far as is reasonably practicable, a quality working environment that is safe
and one that poses no risks to the health and safety of our employees, contractors, the local community and
stakeholders.
The health & safety of employees and the public, and the protection of the environment, are core business
objectives of UKOG. They rank equally with the company’s other business objectives.
Health, safety and environmental (HSE) risks associated with the business practices of UKOG are addressed
through the effective implementation of our HSE Policy, which is designed to ensure that every person who works
for UKOG is responsible for ensuring that health and safety is managed in all aspects of our business.
The Company’s HSE aspirations are: “get it right, first time, every time with no accidents, no harm to people, the
ecology and the environment”.
To achieve the identified objectives, we will ensure that all necessary and reasonable resources are made
available. We will confirm that objectives are being met by reviewing and reporting on performance and auditing
the implementation and operation of UKOG’s HSE Management System.
Our full HSE framework is available on our website: http://www.ukogplc.com/page.php?pID=101
Health & Safety Review
UKOG, under our operating subsidiary HHDL, has continued production activities at Horse Hill, including safe
completion of well intervention operations. A new, more efficient, enclosed gas flare with lower carbon
emissions was installed on the site during the period. An energy efficiency study was also completed for Horse
Hill to reduce diesel consumption and carbon emissions, recommending the installation of 250kW solar PV and
67kWh of Li-ion battery storage. In addition, HHDL has continued the process of obtaining the full environmental
production permit, including water injection and additional development drilling, from the Environment Agency
(EA). The permitting process has taken longer than anticipated with the regulator but award of the permit is
expected in Q2 2022.
Well site construction, together with the associated access road, and drilling activities were completed without
incident by our operating partner AME in Turkey. AME carried out 11 HSE audits of Oceanmec during their drilling
operations.
There were no lost time injuries or environmental incidents on any of UKOG’s sites during the reporting period
or post period. The lost time injury frequency was also zero.
The EA and Health and Safety Executive made a number of site visits, linked to Horse Hill well operations and
production equipment.
A workscope for Horse Hill site modifications and upgrades was agreed with the Competent Authority (CA) under
Regulation 6 of the Control of Major Accident Hazards Regulations (2015) (COMAH). The first phase of these
COMAH upgrades was safely completed in the period.
UKOG continues to keep good housekeeping standards on its sites. The Company continuously monitors all its
live operations for noise, ensuring noise from its sites is kept to a minimum, and is compliant with the levels set
by the relevant site planning approval. UKOG only utilises service companies that can demonstrate commitment
to our HSE standards.
Community engagement
Any complaints received are reviewed and responded to. Communication links are in place with residents close
to our sites, who can call UKOG at any time.
Because of our strict Covid-19 policy to ensure the safety of our staff and visitors, we kept visits to Horse Hill to
a minimum.
The Company meets and communicates regularly with local police to give operational updates.
19
HEALTH, SAFETY AND THE ENVIRONMENT (CONTINUED)
Route to development
UKOG operates within a highly regulated industry, led by the OGA, a Government agency reporting to the
Department for Business, Energy & Industrial Strategy, who among other things are responsible for checking a
company’s financial and operational competency before issuing a Petroleum Exploration and Development
Licence (“PEDL”) and other regulatory approvals.
Once a potential site has been identified, UKOG must secure landowner consent and a land lease to operate on
the land, before the EA assess any risk to groundwater and air quality, as well as the arrangements for waste
management.
In parallel with seeking EA permits, discussions with local planning authorities begin. They in turn seek the
views of the local community and statutory consultees. The Health and Safety Executive also regulates and
monitors all onshore oil & gas exploration and production activities.
20
DIRECTORS’ SECTION 172 STATEMENT
The following disclosure describes how the Directors have had regard to the matters set out in section 172(1)(a)
to (f) and forms the Directors’ statement required under section 414CZA of The Companies Act 2006.
The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good
faith, would be most likely to promote the success of the Company for the benefit of its members as a whole,
and in doing so have regard (amongst other matters) to:
• the likely consequences of any decisions in the long term;
• the interests of the company’s employees;
• the need to foster the company’s business relationships with suppliers/customers and others;
• the impact of the company’s operations on the community and environment;
• the company’s reputation for high standards of business conduct; and
• the need to act fairly between members of the company.
As set out above in the Strategic Report the Board remains focused on providing value for shareholders through
the long term success of the Company. The means by which this is achieved is set out further below.
Likely Consequences of any Decisions in the Long Term
The Statement From the Chairman, the Chief Executive’s Statement and the Strategic Review set out the
Company’s strategy. In applying this strategy, particularly in seeking new projects and developing current ones
to deliver reserves and resource growth, the Board assesses the long term future of our projects and investments
with a view to shareholder return. The approach to general strategy and risk management strategy of the group
is set out in the Statement of Compliance with the QCA Code of Practice (Principles 1 and 4) on pages 23 to 29.
Interest of Employees
The Group has a very limited number of employees and all have direct access to the Executive Directors on a
daily basis and to the Chairman, if necessary. The Group has a formal Employees’ Policy manual which includes
processes for confidential report and whistleblowing.
Need to Foster the Company’s Business Relationships with Suppliers/Customers and Others
The Group continuously interacts with a variety of suppliers and customers important to its success. The Group
strives to strike the right balance between engagement and communication. Furthermore, the Company works
within the limitations of what can be disclosed to the various stakeholders with regards to maintaining
confidentiality of market and/or commercially sensitive information. Our suppliers are fundamental to ensuring
that the Group can execute its development and production strategy on time and on budget. Using quality
suppliers ensures that as a business we meet the high standards of performance that we expect of ourselves and
vendor partners. Our management team work closely with our suppliers, via one on one meetings and where
possible supplier site visits and facility reviews to ensure our suppliers are able to meet our requirements.
Impact of the Company’s Operations on the Community and Environment
The Group takes its responsibility within the community and wider environment seriously. Its approach to its
social responsibilities is set out in the Statement of Compliance with the QCA Code of Practice (Principle 3) on
page 23.
The Desirability of the Company Maintaining a Reputation for High Standards of Business Conduct
The Directors are committed to high standards of business conduct and governance and have adopted the QCA
Code of Practice which is set out on pages 23 to 29. Where there is a need to seek advice on particular issues,
the Board will consult with its lawyers and nominated advisers to ensure that its reputation for good business
conduct is maintained.
The Need to Act Fairly Between Members of the Company
The Board’s approach to shareholder communication is set out in the Statement of Compliance with the QCA
Code of Practice (Principle 2) on page 23. The Company aims to keep shareholders fully informed of significant
developments in the Group’s progress. Information is disseminated through Stock Exchange announcements,
website updates and, where appropriate, video-casts.
21
DIRECTORS’ SECTION 172 STATEMENT (CONTINUED)
During 2021 the Company issued numerous stock exchange announcements on operational issues. All
information is made available to all shareholders at the same time and no individual shareholder, or group of
shareholders, is given preferential treatment.
22
CORPORATE GOVERNANCE
Introduction to Governance
The Directors recognise that good corporate governance is a key foundation for the long-term success of the
Company. As the Company is listed on the AIM market of the London Stock Exchange it also is subject to the
continuing requirements of the AIM Rules. The Board has therefore adopted the principles set out in the
Corporate Governance Code for small and midsized companies published by the Quoted Companies Alliance
(“QCA Code”). The principles are listed below with an explanation of how the Company applies each principle,
and the reasons for any aspect of non-compliance.
1. Establish a strategy and business model which promote long- term value for shareholders
UK Oil & Gas Plc provides shareholders with a full discussion of corporate strategy within our Annual Report. A
dedicated section explains how we will establish long term shareholder value, as set out on page 3.
The Company is focused around 3 key strategic goals: Maximise production and recovery from its existing asset
portfolio, grow the asset portfolio through select onshore development and appraisal projects, actively manage
costs and risks through operational and management control of the entire process of exploring, appraising and
developing its assets.
The Management team actively evaluates projects that simultaneously de-risk the current portfolio and create
long-term shareholder value. Projects are evaluated based on many characteristics to mitigate risk to our current
activities, including but not limited to, alignment with the Company’s core competencies, geography, time
horizon and value creation. Further, a core component of the Company’s activities includes an active dialogue
with our legal and legislative advisors to ensure the Company remains up to date on current legislation, policy
and compliance issues.
Key business challenges and how they may be mitigated are detailed on pages 10 to 11.
2. Seek to understand and meet shareholder needs and expectations
UKOG encourages two-way communication with institutional and private investors. The Chief Executive talks
regularly with the Company’s major shareholders and ensures that their views are communicated fully to the
Board. Where voting decisions are not in line with the company’s expectations the Board will engage with those
shareholders to understand and address any issues. The Company Secretary is the main point of contact for such
matters.
The Company seeks out appropriate platforms to communicate to a broad audience its current activities,
strategic goals and broad view of the sector and other related issues. This includes but is not limited to media
interviews, website videos, in-person investor presentations and written content.
Communication to all stakeholders is the direct responsibility of the Senior Management team. Managers work
directly with professionals to ensure all inquiries (through established channels for this specific purpose such as
email or phone) are addressed in a timely matter and that the Company communicates with clarity on its
proprietary internet platforms. Senior management routinely provides interviews to local media and business
reporters in support of the company’s activities. The Board routinely reviews the Company communication policy
and programmes to ensure quality communication with all stakeholders.
3. Take into account wider stakeholder and social responsibilities and their implications for long-term success
In all endeavours, the Company gives due consideration to the impact on its neighbours. The Company seeks out
methodologies, processes and expertise in order to address the concerns of the non-investment community. As
such, it actively identifies the bespoke needs of local communities and their respective planners. For example,
the company provides for local hotlines and establishes community liaison groups to address local questions and
concerns.
UKOG seeks to maintain positive relationships within the communities in which it operates. As such, UKOG is
dedicated to ensuring:
23
CORPORATE GOVERNANCE (CONTINUED)
• Open and honest dialogue;
• Engagement with stakeholders at all stages of development;
• Proactive addressing of local concerns;
• Active minimisation of impact on our neighbours; and
• Adherence to a strict health and safety code of conduct.
As a responsible OGA approved and EA permitted UK operator, UKOG is committed to utilising industry best
practices and achieving the highest standards of environmental management and safety.
Our operations:
• Continuously assess and monitor environmental impact;
• Promote internally and across our industry best practices for environmental management and safety; and
• Constant attention to maintaining our exemplary track record of safe oil & gas production.
For more information please refer to page 19 of the Annual Report as well as the Community section within the
Company’s corporate website.
4. Embed effective risk management, considering both opportunities and threats, throughout the organization
Risk Management on pages 10 to 11 of the Annual Report details risks to the business, how these are mitigated
and the change in the identified risk over the last reporting period.
The Board considers risks to the business at every Board meeting (at least 4 meetings are held each year) and
the risk register is updated at each meeting. The Company formally reviews and documents the principal risks to
the business at least annually.
Both the Board and senior managers are responsible for reviewing and evaluating risk and the Executive Directors
meet at least monthly to review ongoing trading performance, discuss budgets and forecasts and new risks
associated with ongoing trading.
5. Maintain the Board as a well-functioning, balanced team led by the chair
Oversight of UKOG is performed by the Company’s Board of Directors. Nicholas Mardon Taylor, the Non-
Executive Chairman, is responsible for the running of the Board and Stephen Sanderson, the Chief Executive, has
executive responsibility for running the Company’s business and implementing Company strategy. All Directors
receive regular and timely information regarding the Company’s operational and financial performance.
Relevant information is circulated to the Directors in advance of meetings. In addition, minutes of the meetings
of the Directors of the UK subsidiaries are circulated to the Board. All Directors have direct access to the advice
and services of the Company Secretary and are able to take independent professional advice in the furtherance
of the duties, if necessary, at the company’s expense.
The Board comprises two Executive Directors and two Non-Executive Directors with a mix of significant industry
and business experience within public companies. The Board considers that all Non-Executive Directors bring an
independent judgement to bear. All Directors must commit the required time and attention to thoroughly fulfil
their duties.
The Board has a formal schedule of matters reserved to it and is supported by the Audit, Remuneration,
Nomination and AIM Rules compliance committee. The Schedule of Matters Reserved and Committee Terms of
Reference are available on the Company’s website and can be accessed on the Corporate Governance page of
the website.
24
CORPORATE GOVERNANCE (CONTINUED)
6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities
The Nomination Committee will determine the composition of the Board of the Company and appointment of
senior employees. It will develop succession plans as necessary and report to the Directors. Where new Board
appointments are considered the search for candidates is conducted, and appointments are made, on merit,
against objective criteria and with due regard for the benefits of diversity on the Board, including gender.
The Company Secretary supports the Chairman in addressing the training and development needs of Directors.
As a small company, all members of the Board share responsibility for all Board functions. As such the Board will
from time to time engage outside consultants to provide an independent assessment.
7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
The Board intends to carry out an internal evaluation on individual Directors on an ad-hoc basis in the form of
peer reviews and appraisals. The individual reviews and appraisals are used to identify group and individual
targets which are reviewed and assessed at the end of the financial year.
8. Promote a corporate culture that is based on ethical values and behaviours
The Company is committed to maintaining and promoting high standards of business integrity. Company values,
which incorporate the principles of corporate social responsibilities (CSR) and sustainability, guide the Company's
relationships with clients, employees and the communities and environment in which we operate. The
Company's approach to sustainability addresses both our environmental and social impacts, supporting the
Company's vision to remain an employer of choice, while meeting client demands for socially responsible
partners.
Company policy strictly adheres to local laws and customs while complying with international laws and
regulations. These policies have been integral in the way group companies have done business in the past and
will continue to play a central role in influencing the Group's practice in the future.
The ethical values of UKOG including health, safety, environmental, social and community and relationships, are
set out on page 19 of the Annual Report.
9. Maintain governance structures and processes that are fit for purpose and support good decision-making
by the Board
The Company has adopted a model code for directors' dealings and persons discharging managerial
responsibilities appropriate for an AIM company, considering the requirements of the Market Abuse Regulations
"MAR"), and takes reasonable steps to ensure compliance is also observed by the Company's employees (AIM
Rule 21 in relation to directors' dealings).
The Corporate Governance Statement details the company’s governance structures, the role and responsibilities
of each director. Details and members of the Audit Committee and Remuneration Committee can be found on
page 28.
10. Communicate how the company is governed and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
The Company encourages two- way communication with both its institutional and private investors and responds
quickly to all queries received. The Chief Executive talks regularly with the Company’s major shareholders and
ensures that their views are communicated fully to the Board.
The Board recognises the AGM as an important opportunity to meet private shareholders. The Directors are
available to listen to the views of shareholders informally immediately following the AGM.
To the extent that voting decisions are not in line with expectations, the Board will engage with shareholders to
understand and address any issues.
25
CORPORATE GOVERNANCE (CONTINUED)
In addition to the investor relations activities carried out by the Company as set out above, and other relevant
disclosures included within the Investor Relations section of the Company’s website, reports on the activities of
each of the Committees during the year are set out in the Annual Report.
While building a strong governance framework the Company also tries to ensure that it takes a proportionate
approach and that its processes remain fit for purpose as well as embedded within the culture of the
organisation. We continue to evolve our approach and make ongoing improvements as part of building a
successful and sustainable company.
Board of Directors
The Board consists of a team of experienced multidisciplinary members who are committed to delivering
shareholder value.
Nicholas Mardon Taylor, Non-Executive Chairman
Nicholas Mardon Taylor served as the Chief Financial Officer of Hurricane Energy PLC from May 2012 until
January 2016. He has worked in the oil industry for over 35 years, his first involvement in the North Sea being in
the early licensing rounds. He was with Hurricane from 2005 to January 2016 when he was the Company’s first
CFO and was subsequently responsible for the Company’s Environmental Management System.
Stephen Sanderson, Chief Executive
Stephen Sanderson joined UK Oil & Gas Plc in September 2014. He was appointed Executive Chairman and Chief
Executive in July 2015 and in August 2018 ceded his role as Executive Chairmen as part of improvements in
corporate governance. A highly experienced petroleum geologist, oil industry veteran and upstream energy
business leader, with over 30 years operating experience, Stephen is a proven oil finder and has been
instrumental in the discovery of more than 12 commercial conventional fields, including the Norwegian
Smorbuk-Midgaard field complex.
Stephen held a variety of senior management roles for ARCO (which was acquired by BP in 2000), Wintershall
AG (a subsidiary of German chemical giant BASF) and three junior start-ups. He created and ran successful new
exploration businesses in Africa, Europe and South America. He has significant technical and commercial
expertise in the petroleum systems of Africa, the North Sea, Norway, onshore UK & Europe, South America, the
South Atlantic, Middle East, Asia, India, Australia and the USA. He is a graduate and Associate of the Royal School
of Mines, Imperial College, London, a Fellow of the Geological Society of London and a member of the American
Association of Petroleum Geologists.
Allen D Howard, Executive Director
Allen Howard was Senior Vice President of Houston-based Premier Oilfield Laboratories, having been Chief
Operating Officer of well analysis experts Nutech. Allen also held senior positions with Schlumberger. He holds a
degree in Chemical Engineering from Texas Tech University and an MBA from Mays Business School in Texas.
Allen was appointed as Non-Executive Chairman for UKOG in August 2018, before taking up his current Executive
role at the beginning of 2022.
Kiran Morzaria, Non-Executive Director
Kiran Morzaria holds a Bachelor of Engineering (Industrial Geology) from the Camborne School of Mines and an
MBA (Finance) from CASS Business School. He has extensive experience in the mineral resource industry working
in both operational and management roles. Mr Morzaria spent the first four years of his career in exploration,
mining and civil engineering. He then obtained his MBA and became the Finance Director of Vatukoula Gold
Mines Plc for seven years. He has served as a director of a number of public companies in both an executive and
non-executive capacity; he is a non-executive director of European Metals Holdings Ltd and the Chief Executive
Officer for Cadence Minerals Plc. Mr Morzaria previously served in an Executive capacity as the Finance Director
of UKOG, transitioning to his current Non-Executive position at the beginning of 2022.
26
CORPORATE GOVERNANCE (CONTINUED)
Board and Committee Membership
Member
Stephen Sanderson
Allen D Howard
Nicholas Mardon Taylor
Kiran Morzaria
Board Title
Chief Executive
Executive Director
Non-Executive Chairman
Non-Executive Director
The Board and its Committees
Audit Committee Title
Remuneration Committee Title
Member
Chairman
Member
Chairman
The Board of the Company consists of two Executive Directors and two Non-Executive Directors. The Non-
Executive Directors are not considered independent under the FRC Code as they hold options and/or shares in
the Company. However, the Board considers that the Non-Executive Directors are independent of management
under all other measures and are able to exercise independence of judgement.
With effect from 1 January 2022 the board was restructured. Kiran Morzaria stepped down as Finance Director
and became a Non-Executive Director. Allen Howard moved from Non-Executive Chairman to become an
Executive Director of the Company on a part-time basis. Nicholas Mardon Taylor became the Non-Executive
Chairman.
The Board is responsible for formulating, reviewing and approving the Company’s strategy, financial activities
and operating performance. Day-to-day management is devolved to the executive directors, who are charged
with consulting the Board on all significant financial and operational matters. The Board retains ultimate
accountability for governance and is responsible for monitoring the activities of the executive team.
The roles of Chairman and Chief Executive are split in accordance with best practice. The Chairman has the
responsibility of ensuring that the Board discharges its responsibilities. The Chairman is also responsible for the
leadership and effective working of the Board, for setting the Board agenda, and ensuring that Directors receive
accurate, timely and clear information. No one individual has unfettered powers of decision.
The Chief Executive has the overall responsibility for creating, planning, implementing, and integrating the
strategic direction of the Company. This includes responsibility for all components and departments of the
business. The Chief Executive ensures that the organisation's leadership maintains constant awareness of both
the external and internal competitive landscape, opportunities for expansion, customer base, markets, new
industry developments and standards.
The Board met regularly during the year. Tabulated below is the attendance of Board Members during the
reporting period. Several of the meetings held during the year were in relation to the allotment of equity and,
given that these meetings were largely procedural in nature, it was not deemed necessary for the non-executive
board members to attend.
Board Member
Nicholas Mardon Taylor
Stephen Sanderson
Allen D Howard
Kiran Morzaria
Meetings
attended (out of
a total possible)
3/11
11/11
3/11
11/11
27
CORPORATE GOVERNANCE (CONTINUED)
Audit Committee
The audit committee consists of Kiran Morzaria (Chairman) and Nicholas Mardon Taylor. Prior to 1 January 2022
the audit committee consisted of Nicholas Mardon Taylor (Chairman) and Allen D Howard. The Audit Committee
met once during the year.
Board member
Nicholas Mardon Taylor
Allen D Howard
Meetings attended (out of a total possible)
1/1
1/1
The principal duties and responsibilities of the Audit Committee include:
• Overseeing the Company’s financial reporting disclosure process; this includes the choice of
appropriate accounting policies
• Monitoring the Company’s internal financial controls and assess their adequacy
• Reviewing key estimates, judgements and assumptions applied by management in preparing
published financial statements
• Annually assessing the auditor’s independence and objectivity
• Making recommendations in relation to the appointment, re-appointment and removal of the
company’s external auditor
Remuneration Committee
The Remuneration Committee consists of Kiran Morzaria (Chairman) and Nicholas Mardon Taylor. Prior to 1
January 2022 the Remuneration Committee consisted of Nicholas Mardon Taylor (Chairman) and Allen D
Howard. The Remuneration Committee met once during the year.
Board member
Nicholas Mardon Taylor
Allen D Howard
Meetings attended (out of a total possible)
1/1
1/1
The principal duties and responsibilities of the Remuneration Committee include:
Setting the remuneration policy for all Executive Directors
•
• Recommending and monitoring the level and structure of remuneration for senior management
• Approving the design of, and determining targets for, performance related pay schemes operated by
the company and approve the total annual payments made under such schemes
• Reviewing the design of all share incentive plans for approval by the board and shareholders
None of the Committee members have any personal financial interest (other than as shareholders and option
holders), conflicts of interest arising from cross-directorships or day-to-day involvement in the running of the
business. No director plays a part in any financial decision about his or her own remuneration.
Internal Controls
The Board is responsible for establishing and maintaining the Company’s system of internal controls and
reviewing its effectiveness. The procedures that include financial, operational, health and safety, compliance
matters and risk management are reviewed on an ongoing basis.
28
CORPORATE GOVERNANCE (CONTINUED)
The Company’s internal control procedures include the following:
• Board approval for all significant projects, including corporate transactions and major capital projects;
• The Board receives and reviews regular reports covering both the technical progress of projects and the
Company’s financial affairs to facilitate its control;
• There is a comprehensive budgeting and planning system for all items of expenditure with an annual
budget approved by the Board;
• The Company has in place internal control and risk management systems in relation to the Company's
financial reporting process and the Company's process for preparing consolidated accounts. These
systems include policies and procedures to ensure that adequate accounting records are maintained,
and transactions are recorded accurately and fairly to permit the preparation of consolidated financial
statements in accordance with IFRS; and
• The Audit Committee reviews draft annual and interim reports before recommending their publication
to the Board. The Audit Committee discusses with the Chief Financial Officer and external auditors the
significant accounting policies, estimates and judgements applied in preparing these reports.
The internal control system can only provide reasonable and not absolute assurance against material
misstatement or loss. The Board has considered the need for a separate internal audit function but, bearing in
mind the present size and composition of the Company, does not consider it necessary at the current time.
UK Bribery Act
UKOG has reviewed the appropriate policies and procedures to ensure compliance with the UK Bribery Act. The
Company continues actively to promote good practice throughout the Company and has initiated a rolling
programme of anti-bribery and corruption training for all relevant employees.
Relations with Shareholders
Communications with shareholders are considered important by the Directors. The primary contact with
shareholders, investors and analysts is the Chief Executive. Other senior management, however, regularly speak
to investors and analysts during the year.
Company circulars and press releases have also been issued throughout the year for the purpose of keeping
investors informed about the Company’s progress and in accordance with AIM regulations.
The Company also maintains a website (www.ukogplc.com) which is regularly updated and contains a wide range
of information about the Company.
29
DIRECTORS’ REMUNERATION REPORT
This report explains our remuneration policy for Directors and sets out how decisions regarding Directors’ pay
for the period under review have been taken.
Directors’ Remuneration Policy
The Company’s policy is to maintain levels of remuneration sufficient to attract, motivate and retain senior
executives.
Executive Director remuneration currently consists of basic salary, pensions, annual bonus (based on annually
set targets) and long-term incentives (to reward long term performance).
The Company seeks to strike an appropriate balance between fixed and performance-related reward so that the
total remuneration package is structured to align a significant proportion to the achievement of performance
targets, reinforcing a clear link between pay and performance. The performance targets for staff, senior
executives and the Executive Directors are each aligned to the key drivers of the business strategy, thereby
creating a strong alignment of interest between staff, Executive Directors and shareholders.
The Remuneration Committee will continue to review the Company’s remuneration policy and make
amendments, as and when necessary, to ensure it remains fit for purpose and continues to drive high levels of
executive performance and remains both affordable and competitive in the market.
Annual Statement
During the year no annual cash bonus scheme was adopted, as the current remuneration was viewed as sufficient
to attract, motivate and retain senior executives. At the end of July 2020 the Directors agreed to an interim salary
cut of between 20% and 50% of their monthly salary; this was agreed due to the impact COVID-19 had on the
Group’s revenues due to a significant reduction in the price of oil. These interim salary cuts remained in place
until March 2021 at which point previous salaries were reinstated.
During the year and as required under the Pensions Act of 2008 the Company implemented an automatic
enrolment pension scheme and contributed up to 3% of Executive Directors qualifying earnings.
Remit of the Remuneration Committee
The remit of the Remuneration Committee is provided in the Corporate Governance section.
Share Price Movements During the Year
The Company’s share price as at 30 September 2021 was £0.0014 per share. The share price range during the
year was £0.0035 to £0.0012 (2020 - £0.0016 to £0.0115).
Current Arrangement in Financial Year (Audited)
Executive Directors are employed under rolling contracts with notice periods of 12 months or less from the
Company. Non-Executive Directors are employed under rolling contracts with notice period of three months,
under which they are not entitled to any pension, benefits or bonuses.
30
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
During the years ended 30 September 2020 and 2021 the Directors occupied the following Board positions: Allen
D Howard (Non-Executive Chairman), Stephen Sanderson (Chief Executive Officer), Kiran Morzaria (Finance
Director), Nicholas Mardon Taylor (Non-Executive Director). The Directors’ emoluments for the year were as
follows:
Board Position*
Director
Nicholas Mardon Taylor Non-Executive Director
Stephen Sanderson
Allen D Howard
Kiran Morzaria
Total Directors
Chief Executive
Non-Executive Chairman
Executive Director
Board Position*
Director
Nicholas Mardon Taylor Non-Executive Director
Stephen Sanderson
Allen D Howard
Kiran Morzaria
Total Directors
Chief Executive
Non-Executive Chairman
Executive Director
Year ended 30 September 2021
Salary
Bonus
Pension
£’000
44
284
48
92
468
£’000
-
-
-
-
-
£’000
-
1
1
2
Share Based
Payments
£’000
-
-
-
-
-
Benefits
in Kind
£’000
-
1
-
-
1
Year ended 30 September 2020
Salary
Bonus
Pension
£’000
49
297
54
115
515
£’000
-
-
-
-
-
£’000
-
1
-
-
1
Share Based
Payments
£’000
-
-
-
-
-
Benefits
in Kind
£’000
-
3
-
-
3
Total
£’000
44
287
48
93
471
Total
£’000
49
301
54
115
519
*Board positions listed are the positions which were occupied during the financial year being reported. The Board
was subsequently restructured with effect from 1 January 2022, as detailed within the Corporate Governance
section.
As at 30 September 2021, the outstanding long-term incentives, in the form of options, held by the Directors
who served during the period are set out in the table below.
At 1
October
2020
Issued
during
the year
Share options
Stephen Sanderson
Stephen Sanderson
Total
No.
million
25
25
50
No.
million
-
-
-
At 1
October
2020
Issued
during
the year
No.
Million
20.0
6.5
26.5
No.
million
-
-
-
Share options
Kiran Morzaria
Kiran Morzaria
Total
lapsed /
exercised
during the
year
No.
million
-
-
-
lapsed /
exercised
during the
year
No.
million
-
-
-
At 30
September
2021
Exercise
price
Date from
which
exercisable
Expiry date
No.
million
25
25
50
£
0.0115
0.0130
25/05/2017
27/09/2020
24/05/2022
25/09/2024
At 30
September
2021
Exercise
price
Date from
which
exercisable
Expiry date
No.
million
20.0
6.5
26.5
£
0.0115
0.0130
25/05/2017
24/05/2022
27/09/2020
25/09/2024
31
DIRECTORS’ REMUNERATION REPORT (CONTINUED)
Share options
Allen Howard
Allen Howard
Total
Share options
Nicholas Mardon
Taylor
Total
No.
At 1
October
2020
Issued
during
the
year
No.
Million million
-
-
-
10
5
15
At 1
October
2020
Issued
during
the
year
No.
million million
-
No.
4
lapsed /
exercised
during the
year
No.
million
-
-
-
lapsed /
exercised
during the
year
No.
million
-
At 30
September
2021
Exercise
price
Date from
which
exercisable
Expiry date
No.
million
10
5
15
£
0.0115
0.0130
25/05/2017
24/05/2022
27/09/2020
25/09/2024
At 30
September
2021
Exercise
price
Date from
which
exercisable
Expiry date
No.
million
4
£
0.0130
27/09/2020
25/09/2024
4
-
-
4
32
REPORT OF THE DIRECTORS
The Directors present their annual report together with the audited consolidated financial statements of the
Group for the Year Ended 30 September 2021.
Business Review and Future Developments
A review of business activities in the year and future developments is outlined in the Statement From The
Chairman (page 5), the Chief Executive’s Statement (page 6) and the Operational Review (page 12).
Principal Activity and Business Review
The principal activity of the Group is exploring for, appraising and developing oil & gas assets.
Results and Dividends
Loss on ordinary activities of the Group after taxation amounted to £4,833,000 (2020: loss of £20,937,000). The
Directors do not recommend the payment of a dividend (2020: £nil). The Company has no plans to adopt a
dividend policy in the immediate future.
Principal Risks and Uncertainties
Information of the principal risks and uncertainties facing the Group is included in the Principal Risks and
Uncertainties section of the Strategic Report.
Financial Risk Management Objectives and Policies
The Group’s principal financial instruments are trade receivables, trade payables, cash at bank, and borrowings.
The main purpose of these financial instruments is to fund the Group's operations.
It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments
shall be undertaken. The main risk arising from the Group’s financial instruments is liquidity risk. The Board
reviews and agrees policies for managing this risk and this is summarised below.
Liquidity Risk
The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of
equity and its cash resources. Further details of this are provided in the principal accounting policies, headed
'going concern'.
Key Performance Indicators (“KPI’s")
KPI’s adopted by the Group are detailed in the KPI’s section of the Strategic Report.
Going Concern
The Directors note the losses and cash outflows that the Group has made for the year ended 30 September 2021.
The Directors have prepared cash flow forecasts for the period to 31 March 2023, which take into account
anticipated production and costs, the forward curve of Brent crude oil and external funding.
The Group closely monitors and manages its liquidity risks. Cash flow forecasts for the Group are regularly
produced based on, inter alia, management’s best estimate of the Group’s production and expenditure forecasts
and future oil prices. The cost structure of the Group comprises a high proportion of discretionary spend and
therefore in the event that cash flows become constrained, costs can be quickly reduced to enable the Group to
operate within its available funding.
Notwithstanding the Company’s current cash balance and minimal contractual expenditure commitments, the
Board are cognisant of the potential impacts of COVID-19 or other possible unforeseen events outside of its
control on the Group. Whilst the potential future impacts are unknown, the Board has considered the operational
disruption that could be caused by factors such as national restrictions enforced in response to the COVID-19
pandemic, factoring in these potential impacts and reasonable mitigating actions to forecasts and sensitivity
scenarios.
Taking into account anticipated production and costs, the forward curve of Brent crude oil and external funding,
forecasts prepared demonstrate that the Group will have sufficient cash funds available to allow it to continue
in business for a period of at least twelve months from the date of approval of these financial statements. The
33
REPORT OF THE DIRECTORS (CONTINUED)
Company has minimal contractual expenditure commitments and the Board considers that in conjunction with
equity or debt financing, the present funds are sufficient to maintain the working capital of the Company for a
period of at least 12 months from the date of signing the Annual Report and Financial Statements. For these
reasons the Directors adopt the going concern basis in the preparation of the Financial Statements.
Events After the Reporting Period
Events after the Reporting Period are outlined in Note 24 to the Financial Statements.
Corporate Governance
Information in relation to the Corporate Governance of the Group is contained within the Corporate Governance
Section of the Strategic Report.
Suppliers’ Payment Policy
The Group’s policy is to agree terms and conditions with suppliers in advance; payment is then made in
accordance with the agreement provided the supplier has met the terms and conditions. Suppliers are typically
paid within 30 days of issue of invoice.
Charitable Contributions
During the year the Group made charitable donations amounting to £Nil (2020 - £Nil).
Substantial Shareholdings
As at 06 January 2022, the Company had been notified of the following substantial shareholdings in its ordinary
share capital:
Number of Ordinary
Shares
2,148,165,647
1,731,921,508
1,451,439,204
1,228,568,726
1,117,483,614
1,060,037,130
1,039,533,166
750,162,712
550,403,443
524,815,517
Holding %
13.23%
10.67%
8.94%
7.57%
6.88%
6.53%
6.40%
4.62%
3.39%
3.23%
Shareholder
Hargreaves Lansdown (Nominees) Limited
Interactive Investor Services Nominees Limited
Hargreaves Lansdown (Nominees) Limited
Barclays Direct Investing Nominees Limited
Interactive Investor Services Nominees Limited
Hargreaves Lansdown (Nominees) Limited
HSDL Nominees Limited
HSDL Nominees Limited
HSBC Client Holdings Nominee (Uk) Limited
Jim Nominees Limited
Current Board & Directors Interests
Nicholas Mardon Taylor
Stephen Sanderson
Allen D Howard
Kiran Morzaria
Non-Executive Chairman
Chief Executive
Executive Director
Non-Executive Director
The directors hold options to purchase new ordinary shares in the Company, details of which are specified in the
Renumeration Report on page 30 to 32. In addition, Stephen Sanderson holds 3,470,387 ordinary shares in the
Company and Kiran Morzaria holds 4,508,178 ordinary shares in the Company.
Auditor
PKF Littlejohn LLP has expressed their willingness to continue in office as auditor and a resolution to reappoint
PKF Littlejohn LLP as auditor will be proposed at the forthcoming Annual General Meeting (“AGM”).
Annual General Meeting
Notice of the forthcoming Annual General Meeting has been enclosed separately.
34
REPORT OF THE DIRECTORS (CONTINUED)
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the annual report and financial statements in accordance with
applicable law and regulations.
Under that law the Directors have elected to prepare the Group and Parent Company financial statements in
accordance with international accounting standards in conformity with the requirements of the Companies Act
2006. Under Company law the Directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the
Group for that period. In preparing these financial statements, the Directors are required to:
Select suitable accounting policies and then apply them consistently;
•
• Make judgements and estimates that are reasonable and prudent;
•
State whether applicable IFRS’s have been followed, subject to any material departures disclosed and
explained in the financial statements; and
Prepare the financial statements on the going concern basis unless it is inappropriate to presume that
the Group will continue in business.
•
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the 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.
They 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 the maintenance and integrity of the corporate and financial information
included on the Company’s website. Legislation in the United Kingdom governing the preparation and
dissemination of the financial statements may differ from legislation in other jurisdictions. The Company’s
website is maintained in accordance with AIM Rule 26.
Statement as to Disclosure of Information to the Auditor
As at the date of this report the serving directors confirm that:
•
•
So far as each Director is aware, there is no relevant audit information of which the Group’s auditors are
unaware, and
They have taken all the steps that they ought to have taken as Directors in order to make themselves aware
of any relevant audit information and to establish that the Group’s auditor are aware of that information.
ON BEHALF OF THE BOARD
Stephen Sanderson
Director
24 March 2022
35
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF UK OIL & GAS PLC
Opinion
We have audited the financial statements of UK Oil & Gas plc (the ‘parent company’) and its subsidiaries (the
‘group’) for the year ended 30 September 2021 which comprise the Consolidated Statement of Comprehensive
Income, the Consolidated and Parent Company Statement of Financial Position, the Consolidated and Parent
Company Statements of Changes in Equity, the Consolidated and Parent Company Statements of Cash Flow and
notes to the financial statements, including significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and international accounting standards in conformity
with the requirements of the Companies Act 2006 and as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s
affairs as at 30 September 2021 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006;
the parent company financial statements have been properly prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006 and as applied in
accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the financial statements section of our report. We are independent of the group and parent company in
accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
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. Our evaluation of the directors’
assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of
accounting included a review of the group cash flow forecasts, and challenging the areas of management
judgement and estimation uncertainty. Discussions with management surrounding the groups committed costs
and assessment of those against current cash balances in a disaster scenario, to ensure the group have sufficient
funds to continue to operate as a going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the group's or parent company’s ability
to continue as a going concern for a period of at least twelve months from when the financial statements are
authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the
relevant sections of this report.
Our application of materiality
For the purposes of determining whether the financial statements are free from material misstatement, we
define materiality as a magnitude of misstatement that makes it probably that the economic decisions of a
reasonable knowledgeable person, relying on the financial statements, would be changed or influenced. We also
determine a level of performance materiality which we use to assess the extent of testing needed to reduce an
36
appropriately low level in the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole.
Materiality for the group financial statements was set at £600,000 (2020: £788,000). This was calculated based
in 1.5% of net assets for the year. Net assets was used as the benchmark for the basis of materiality being the
key area of relevance to stakeholders in assessing the financial performance of the group in its early years of
production. The same basis for the calculation of materiality for the parent company financial statements was
used, however restricted to £599,999 (2020: £787,999), to ensure a level below that of group materiality as
required by ISA (UK) 600.
We also determine a level of performance materiality which we use to assess the extent of testing needed to
reduce to an appropriately low level probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a whole. Performance materiality for the group
and part company was set at £390,000 (2020: £472,800) and £389,999 (2020: £472,799) respectively, being 65%
of materiality for the financial statements as a whole.
We agreed to report to those charged with governance all corrected and uncorrected misstatements we
identified through our audit with a value in excess of £30,000 for both the group and parent company. We also
agreed to report any other audit misstatements below that threshold that we believe warranted reporting on
qualitative grounds.
Our approach to the audit
The scope of our audit was influenced by our application of materiality. The quantitative and qualitative
thresholds for materiality determine the scope of our audit and the nature, timing and extent of our audit
procedures.
As part of our planning, we assessed all components of the group for their significance under ISA (UK) 600 in
order to determine the scope of the work to be performed. Those entities of the group which were considered
to be significant components, being UK Oil & Gas plc and Horse Hill Developments Limited, were subject to full
scope audit procedures, and those considered to be material, being UKOG (137/246) Holdings Limited, UKOG
(234) Limited and UKOG (37/246) Limited were subject to audit procedures on significant and identified risk areas
only, in accordance with ISA (UK) 600 for group reporting purposes. Procedures were then performed to address
the risks identified and for the most significant assessed risks of material misstatement, the procedures are
outlined below in the key audit matters section of this report. The remaining components were subject to
analytical review procedures.
We did not rely on the work of any component auditors.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
How our scope addressed this matter
Carrying value and correct classification of
exploration and evaluation assets (Note 11)
There is a risk that the assets are incorrectly valued
or need to be impaired. As Horse Hill entered the
production stage last year, there is a risk that the
assets are incorrectly included as intangibles when
they should be reclassified to Tangibles.
Our work in this area included:
• Reviewing impairment workings prepared
by management against the criteria per IFRS
6, and challenging the assumptions made
thereto;
• Vouching a sample of additions in the period
to supporting documentation and ensure
37
they meet the capitalisation criteria per IFRS
6;
• Reviewing the effect of COVID-19 on the
group and the potential profitability of said
assets; and
• Vouched a sample of exploration and
evaluation assets at the year end to
supporting licences and ensuring they are
valid
There are no key observations outside of the work
performed above.
Our work in this area included:
• A review of management’s net present
value workings, and challenging key
assumptions made including the discount
rate, forecasted oil price and reserves
estimates;
• Reviewing the effect of COVID-19 on the
group and the potential profitability of said
assets;
• Reviewing the unit of production method of
depletion and performing a recalculation of
the charge thereto;
Carrying value of producing assets (Note 12)
There is a risk of material misstatement around the
carrying value of PPE, whether any impairment is
required and if the correct assets have been included
within PPE compared to Exploration and Evaluation
of Assets.
•
• Verifying the mathematical accuracy of
calculations prepared by management; and
Physically verifying a sample of assets to
support existence and correct classification.
Impairment charges were process in respect
of the carrying value of HHDL following the
receipt of the Exodus reserves estimate
report.
•
Key Observations:
impairment assessment of the Horse Hill
The
Developments Oil & Gas Properties took
into
consideration an oil price of $91/barrel, being the
spot rate at assessment. Forward curves provide
significant differing estimates, and thus management
have determined this to be the most appropriate for
this assessment within these financial statements. If
the oil price were to change, this will affect the value
in use assessment of the assets and either increase or
decrease the impairment charge processed.
Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information contained
within the annual report. Our opinion on the group and parent company financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our report, we do not express any form
of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider
38
whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and their environment
obtained in the course of the audit, we have not identified material misstatements in the strategic report or the
directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
•
•
adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns;
or
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the
preparation of the group and parent company financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the group and parent company financial statements, the directors are responsible for assessing the
group and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless the directors either intend to liquidate
the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
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:
39
• We obtained an understanding of the group and parent company and the sector in which they operate
to identify laws and regulations that could reasonably be expected to have a direct effect on the financial
statements. We obtained our understanding in this regard through discussions with management,
industry research, application of cumulative audit knowledge and experience of the sector.
• We determined the principal laws and regulations relevant to the group and parent company in this
regard to be those arising from:
-
Companies Act 2006
-
IFRS
-
Employment Law
-
Bribery Act
-
Tax legislation
- Health and Safety legislation
-
Environmental law
• We designed our audit procedures to ensure the audit team considered whether there were any
indications of non-compliance by the group and parent company with those laws and regulations. These
procedures included, but were not limited to:
-
-
-
enquiries of management
review of RNS announcements
review of board and other committee minutes
• We also identified the risks of material misstatement of the financial statements due to fraud. We
considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management
override of controls, and the information disclosed in the Key Audit Matters section of this report, we
did not identify any significant fraud risks.
• As in all of our audits, we addressed the risk of fraud arising from management override of controls by
performing audit procedures which included, but were not limited to: the testing of journals; reviewing
accounting estimates for evidence of bias; and evaluating the business rationale of any significant
transactions that are unusual or outside the normal course of business.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including
those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk
increases the more that compliance with a law or regulation is removed from the events and transactions
reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance.
The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves
intentional concealment, forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the
company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Alistair Roberts (Senior Statutory Auditor)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
24 March 2022
15 Westferry Circus
Canary Wharf
London E14 4HD
40
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR YEAR ENDED 30 SEPTEMBER 2021
Revenue
Cost of sales
Depletion, Depreciation and Amortisation
Other Cost of Sales
Gross loss
Operating expenses
Administrative expenses
Impairment expense
Foreign exchange losses
Operating loss
Finance Cost
Exploration Write-off
Loss before taxation
Taxation
Retained loss for the year
Retained loss attributable to;
Equity holders of the Parent
Non-Controlling Interests
Notes
30 Sep 2021
£’000
30 Sep 2020
£’000
6
1,562
908
(684)
(1,067)
(1,367)
(1,171)
(189)
(1,630)
(2,098)
(1,456)
(62)
(1,755)
(10,652)
(16)
(3,805)
(14,053)
(89)
(946)
(286)
(6,598)
(4,840)
(20,937)
12
6
8
11
9
(43)
-
(4,883)
(20,937)
(4,492)
(391)
(4,883)
(20,937)
-
(20,937)
There are no other comprehensive income or expenses during the two reported periods to disclose.
All operations are continuing.
Earnings per share
Basic and diluted
Pence
Pence
10
(0.03)
(0.24)
The accompanying accounting policies and notes form an integral part of these financial statements.
41
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2021
Assets
Non-current assets
Exploration & evaluation assets
Decommissioning Asset
Oil & Gas properties
Property, Plant & Equipment
Total non-current assets
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Total Assets
Current liabilities
Trade and other payables
Borrowings
Total current liabilities
Non-current Liabilities
Provisions
Total non-current liabilities
Total liabilities
Net Assets
Equity
Share capital
Share premium account
Share based payment reserve
Accumulated losses
Non-controlling interest
Total shareholders' equity
Notes
2021
£’000
2020
£’000
11
11
12
12
14
15
16
30,420
95
5,472
1,690
29,259
285
6,380
1,852
37,677
37,776
2
627
4,727
5,356
1
742
1,634
2,378
43,033
40,154
17
18
(1,067)
(3,087)
(1,981)
(3,084)
(4,154)
(5,065)
19
(1,376)
(1,031)
(1,376)
(1,031)
(5,530)
(6,096)
37,503
34,058
20
21
13,208
107,097
2,056
(84,580)
37,781
(278)
12,694
99,528
1,811
(80,088)
33,945
113
37,503
34,058
These financial statements were approved by the Board of Directors on 24 March 2022 and are signed on
its behalf by:
Stephen Sanderson
Director
Allen Howard
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
42
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2021
Assets
Non-current assets
Exploration & evaluation assets
Investment in subsidiary companies
Property, Plant and Equipment
Total non-current assets
Current assets
Trade and other receivables
Intercompany balances
Cash and cash equivalents
Total current assets
Total Assets
Current liabilities
Trade and other payables
Total Current Liabilities
Total liabilities
Net Assets
Shareholders’ Equity
Share capital
Share premium account
Share based payment reserve
Accumulated losses
Total shareholders' equity
Notes
2021
£’000
2020
£’000
11
13
12
15
16
17
20
21
823
26,242
1,632
1,644
21,406
1,773
28,697
24,823
308
21,727
4,146
546
26,690
1,346
26,181
28,583
54,878
53,406
(330)
(330)
(330)
(1,419)
(1,419)
(1,419)
54,548
51,986
13,208
107,097
2,056
(67,813)
12,694
99,528
1,811
(62,046)
54,548
51,986
As permitted by section 408 of the Companies Act 2006, the profit and loss account of the parent company has
not been separately presented in these accounts. The parent company loss for the year was £5,766,000 (2020:
loss £15,378,000).
These financial statements were approved by the Board of Directors on 24 March 2022 and are signed on its
behalf by:
Stephen Sanderson
Director
Registered number: 05299925
Allen Howard
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
43
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2021
Balance at 1 October 2019
Loss for the year
Total comprehensive income
Issue of shares
Cost of share issue
Total transactions with owners
Balance at 30 September 2020
Loss for the year
Total comprehensive income
Issue of shares
Cost of share issue
Warrants exercised
Total transactions with owners
Balance at 30 September 2021
Share capital
Share premium
Share based
payment reserve
Accumulated
losses
£’000
12,250
-
-
444
-
444
12,694
-
-
507
-
7
514
£’000
85,773
-
-
14,240
(485)
13,755
99,528
-
-
8,231
(765)
103
7,569
13,208
107,097
£’000
1,811
-
-
-
-
-
1,811
-
-
-
245
-
245
2,056
£’000
(59,153)
(20,937)
(20,937)
-
-
-
(80,088)
(4,492)
(4,492)
-
-
-
-
(84,580)
Total
£’000
40,681
(20,937)
(20,937)
14,684
(485)
14,199
33,945
(4,492)
(4,492)
8,738
(520)
110
8,328
37,781
Non Controlling
Interests
£’000
113
-
-
-
-
113
(391)
(391)
-
-
-
-
(278)
Total
£’000
40,794
(20,937)
(20,937)
14,684
(485)
14,199
34,058
(4,883)
(4,883)
8,738
(520)
110
8,328
37,503
44
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2021
Balance at 1 October 2019
Loss for the year
Total comprehensive income
Issue of shares
Cost of share issue
Total transactions with owners
Balance at 30 September 2020
Loss for the year
Total comprehensive income
Issue of shares
Cost of share issue
Warrants exercised
Total transactions with owners
Balance at 30 September 2021
Share capital
£’000
Share premium
£’000
Share based
payment reserve
£’000
Accumulated
losses
£’000
12,250
-
-
444
-
444
12,694
507
-
7
514
85,773
-
-
14,240
(485)
13,755
99,528
8,231
(765)
103
7,569
1,811
-
-
-
-
-
1,811
-
245
-
245
(46,669)
(15,378)
(15,378)
-
-
-
(62,047)
(5,766)
(5,766)
-
-
-
-
13,208
107,097
2,056
(67,813)
Total
£’000
53,165
(15,378)
(15,378)
14,684
(485)
14,199
51,986
(5,766)
(5,766)
8,738
(520)
110
8,328
54,548
45
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 30 SEPTEMBER 2021
Cash flows from operating activities
Loss before tax
Depletion & impairment
Exploration write-off
Cash movement on provisions
Increase in inventories
Decrease in trade & other receivables
Increase / (decrease) in trade & other payables
Finance cost
Taxation paid
Net cash outflow from operating activities
Cash flows from investing activities
Expenditures on exploration & evaluation assets
Expenditures on oil & gas properties
Expenditures on plant, property & equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Share issue costs
Warrants exercised
Loan transaction fees
Repayments of convertible loan note
Convertible loan financing fees
Net cash inflow from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
2021
£’000
(4,840)
2,140
946
-
(1)
115
187
89
(43)
(1,407)
(2,107)
(594)
(17)
(2,718)
7,638
(520)
110
(10)
-
-
7,218
3,093
1,634
4,727
2020
£’000
(20,937)
11,995
6,598
(8)
(1)
437
(1,142)
286
-
(2,773)
(7,360)
(4)
(371)
(7,735)
7,734
(485)
-
-
(1,825)
(175)
5,249
(5,258)
6,892
1,634
46
COMPANY STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 30 SEPTEMBER 2021
Cash flows from operating activities
Loss before tax
Depletion & impairment
Decrease / (increase) in trade & other receivables
Increase / (decrease) in trade & other payables
Interest income
Finance cost
Net cash (outflow) from operating activities
Cash flows from investing activities
Expenditures on exploration & evaluation assets
Expenditures on property, plant & equipment
Loan advanced to subsidiary
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Share issue costs
Warrants exercised
Loan transaction fees
Repayments of convertible loan note
Convertible loan financing fees
Net cash inflow from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
2021
£’000
(5,766)
4,163
239
10
(16)
10
(1,360)
-
(4)
(3,054)
(3,058)
7,638
(520)
110
(10)
-
-
7,218
2,800
1,346
4,146
2020
£’000
(15,378)
14,226
(236)
(111)
(473)
175
(1,797)
(645)
(324)
(7,332)
(8,302)
7,734
(485)
-
-
(1,825)
(175)
5,294
(4,850)
6,196
1,346
47
NOTES TO THE FINANCIAL STATEMENTS
1. Corporate Information
The consolidated financial statements of UK Oil & Gas Plc (the Company) and its subsidiaries (collectively, the
Group), for the year ended 30 September 2021 were authorised for issue by the directors on 24 March 2022. UK
Oil & Gas Plc (the Company & parent) is a public limited company incorporated and registered in the United
Kingdom and listed on the Alternative Investment Market (AIM). The registered office is located at The Broadgate
Towers, 20 Primrose Street, London EC2A 2EW.
The Group is principally engaged in oil production and oil & gas exploration and evaluation (see Note 4).
Information on the Group’s structure is provided in Note 13 and information on other related parties is provided
in Note 25.
2. Principal Accounting Policies
a) Basis of preparation
The consolidated financial statements of the UK Oil & Gas Plc (the Company) and subsidiaries (the Group) have
been prepared in accordance with International Accounting Standards in conformity with the requirements of
the Companies Act 2006 ("IFRSs") as they apply to the Group for the year ended 30 September 2021 and with
the Companies Act 2006.
The accounting policies have been applied consistently throughout the preparation of these financial statements,
the financial report is presented in Pound Sterling (£) and all values are rounded to the nearest thousand pounds
(£‘000) unless otherwise stated. The consolidated financial statements provide comparative information in
respect of the previous period.
Subsidiary Undertakings Exempt from Audit
UK Oil & Gas Plc has guaranteed the liabilities of the subsidiaries listed below under section 479A of the
Companies Act 2006 in respect of the year ended 30 September 2021.
UKOG (234) Ltd - 07055133
UKOG (GB) Limited - 04050227
UKOG Solent Limited - 0500092
UKOG Weald Limited - 04881234
UKOG (137/246) Holdings Ltd - 09010542
UKOG (137/246) Ltd - 06807023
UK Oil & Gas Investments Ltd - 11252712
UKOG Turkey Ltd – 10212262
UK Geothermal Ltd - 13386906
New and Amended Standards and Interpretations
During the year, the Group adopted the following new and amended IFRSs for the first time for the reporting
period commencing 1 October 2020:
• Amendments to IAS 1 and IAS 8: Definition of material
• Amendments to References to the Conceptual Framework in IFRS Standards
There is no material impact on the financial statements following the adoption of these new standards and
interpretations.
New Standards and interpretations Not Yet Adopted
Certain new standards, interpretations and amendments to existing standards have been published that are
effective for reporting periods starting 1 October 2021. These have not been early adopted by the Group and
are not expected to have a material impact on the entity in the current or future reporting periods:
• Amendments to IFRS 3: Business Combinations – Reference to the Conceptual Framework
• Amendments to IAS 16: Property Plant and Equipment
• Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets
• Annual Improvements to IFRS Standards 2018-2020 Cycle
48
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. Principal Accounting Policies (continued)
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – Phase 2
• Amendment to IFRS 16 Leases – Covid 19 Related Rent Concessions
b) Going Concern
The Directors note the losses and cash outflows that the Group has made for the year ended 30 September 2021.
The Directors have prepared cash flow forecasts for the period to 31 March 2023, which take into account
anticipated production and costs, the forward curve of Brent crude oil and external funding.
The Group closely monitors and manages its liquidity risks. Cash flow forecasts for the Group are regularly
produced based on, inter alia, management’s best estimate of the Group’s production and expenditure forecasts
and future oil prices. The cost structure of the Group comprises a high proportion of discretionary spend and
therefore in the event that cash flows become constrained, costs can be quickly reduced to enable the Group to
operate within its available funding.
Notwithstanding the Company’s current cash balance and minimal contractual expenditure commitments, the
Board are cognisant of the potential impacts of COVID-19 or other possible unforeseen events outside of its
control on the Group. Whilst the potential future impacts are unknown, the Board has considered the operational
disruption that could be caused by factors such as national restrictions enforced in response to the COVID-19
pandemic, factoring in these potential impacts and reasonable mitigating actions to forecasts and sensitivity
scenarios.
The Group’s base case going concern model was run with average oil prices of $82/bbl to March 2023. There is
a high degree of uncertainty around these forward rates. Taking into account anticipated production and costs,
the forward curve of Brent crude oil and external funding, these forecasts demonstrate that the Group will have
sufficient cash funds available to allow it to continue in business for a period of at least twelve months from the
date of approval of these financial statements. Accordingly, the financial statements have been prepared on a
going concern basis.
It is the prime responsibility of the Board to ensure the Group remains a going concern. At 31 September 2021
the Company had cash and cash equivalents of £4,727,000 and borrowings of £3,087,000. These borrowings are
due by the Company’s subsidiary, Horse Hill Developments Ltd, to its shareholders. There is no repayment
schedule associated with this loan and repayment is determined by the directors of Horse Hill Developments Ltd.
The intent is to repay this loan from the free cash flow generated from the HH-1 well or any other further
developments on the licence areas of Horse Hill Developments Ltd. The Company has minimal contractual
expenditure commitments and the Board considers that in conjunction with equity or debt financing, the present
funds are sufficient to maintain the working capital of the Company for a period of at least 12 months from the
date of signing the Annual Report and Financial Statements. For these reasons the Directors adopt the going
concern basis in the preparation of the Financial Statements.
c) Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls
an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They are deconsolidated from the date that control
ceases. All intercompany transactions and balances between Group companies, including unrealised profits
arising from them, are eliminated in full.
At 30 September 2021, the Group comprised the Company and entities controlled by UK Oil & Gas Plc (its
subsidiaries) (note 13). No new subsidiaries were acquired during the year, and none were dissolved / struck off
or liquidated.
49
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Business combinations
d)
The acquisition method of accounting is used to account for all business combinations, regardless of whether
equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary
comprises the:
•
•
•
•
•
fair values of the assets transferred
liabilities incurred to the former owners of the acquired business
equity interests issued by the group
fair value of any asset or liability resulting from a contingent consideration arrangement, and
fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values at the acquisition date. The group recognises any non-
controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-
controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related
costs are expensed as incurred.
Where settlement of any part of the consideration is deferred or contingent, the amounts payable in the future
are recognised at their fair value at the acquisition date. The discount rate used is the entity’s incremental
borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial
liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for
within equity.
Goodwill is initially measured at cost (being the excess of the consideration transferred and the amount
recognised for non-controlling interests and any previous interest held of the net identifiable assets acquires and
liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration
transferred, the difference is recognised in profit or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously
held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising
from such remeasurement are recognised in profit or loss.
Joint arrangements
e)
Certain of the Group’s licence interests are held jointly with others under arrangements whereby unincorporated
and jointly controlled ventures are used to explore, evaluate and ultimately develop and produce from its oil &
gas interests. The Group’s share of assets, liabilities, income and expenditure of these joint operations, have
been classified in the appropriate balance sheet and income statement headings, except where its share of such
amounts remain the responsibility of another party in accordance with the terms of carried interests.
When the Group, acting as an operator or manager of a joint arrangement, receives reimbursement of direct
costs recharged to the joint arrangement, such recharges represent reimbursements of costs that the operator
incurred as an agent for the joint arrangement and therefore have no effect on profit or loss.
f) Revenue
Revenue comprises the invoiced value of goods and services supplied by the Group, excluding value added tax
and trade discounts. Revenue is recognised when control passes to the customer and there is no unfulfilled
obligation that could affect the customer’s acceptance of the goods. In the case of oil and petroleum products,
this generally occurs when the product is physically transferred into a vessel, pipe or other delivery mechanism.
Revenue from the production of oil, from fields in which the Group has an interest with other producers, is
recognised based on the Group’s working interest and the terms of the relevant production sharing contracts.
Differences between oil lifted and sold and the Group’s share of production are not significant. Revenues from
the sale of oil produced as a by-product of the evaluation or “testing” phase of a well are offset against the cost
of the intangible asset that is being created. This can be seen by reference to Note 11.
50
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
g) Non-current assets
Intangible Exploration & Evaluation Assets
The Group accounts for exploration and evaluation costs in accordance with the requirements of IFRS 6
Exploration for and Evaluation of Mineral Resources as follows:
•
•
•
Pre-licence costs (costs incurred prior to obtaining the legal rights to explore an area) are expensed
immediately to the Income Statement.
Exploration licence and leasehold land and property acquisition costs are capitalised in intangible assets.
Licence costs paid in connection with a right to explore in an existing exploration area are capitalised
and amortised over the term of the permit.
• Costs directly associated with an exploration well are capitalised as exploration and evaluation
intangible assets until the drilling of the well is complete and the results have been evaluated. These
costs include directly attributable employee remuneration, materials and consumables, drilling
(including coring and sampling), evaluation of technical feasibility and commercial viability (including
appraisal drilling and production testing).
• Revenues generated from the sale of hydrocarbons during this phase are offset against the cost of the
intangible asset.
Exploration and evaluation assets are assessed for impairment at each reporting date, before reclassification and
whenever facts and circumstances suggest that they may be impaired. If no future activity is planned, the licence
has been relinquished or has expired, or where development is likely to proceed but there are indications that
the exploration and evaluation asset costs are unlikely to be recovered in full either by development or through
sale, the carrying value of the asset is written off to the Income Statement.
Property, Plant and Equipment - Oil & Gas Properties
Oil & gas properties and other property, plant and equipment are stated at cost, less accumulated depreciation
and accumulated impairment losses.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to
bringing the asset into operation, the initial estimate of the decommissioning obligation and, for qualifying assets
(where relevant), borrowing costs. The purchase price or construction cost is the aggregate amount paid and the
fair value of any other consideration given to acquire the asset. The capitalised value of any associated finance
lease is also included within property, plant and equipment.
Oil & gas properties are depreciated/amortised on a unit-of-production basis over the total proved developed
and undeveloped reserves of the field concerned. The unit-of-production rate calculation for the
depreciation/amortisation of field development costs takes into account expenditures incurred to date, together
with sanctioned future development expenditure.
The Group’s interests in oil & gas properties are assessed for indication so impairment including events or
changes in circumstances which indicate that the carrying value of an asset may not be recoverable. Any
impairment in value is charged to the Income Statement.
Other Property, Plant and Equipment
Other property, plant and equipment is stated at cost to the Group less accumulated depreciation. These assets
are generally depreciated on a straight-line basis over their estimated useful lives, which is between 2 and 10
years depending on the type of asset.
Decommissioning Assets
A decommissioning asset is recognised in the appropriate category of the Group’s non-current assets (intangible
exploration and evaluation assets and property, plant and equipment) depending on the underlying accounting
treatment for the operations or asset leading to the associated decommissioning provision. The asset is assessed
for impairment as necessary and otherwise depleted on a straight-line basis over the estimated period to future
removal of production facilities or site restoration.
51
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
h) Decommissioning Provisions
A provision for decommissioning is recognised where a liability for the removal of production facilities or site
restoration exists.
Segmental information
i)
An operating segment is a distinguishable component of the Group that is involved in oil production, oil
exploration or related activities, within a particular economic environment, which is subject to risks and rewards
that are different from those of other segments.
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of Directors of the Company.
j) Financial Instruments
Financial Assets
Financial assets are divided into the following categories: loans and receivables and available-for-sale financial
assets. Financial assets are assigned to the different categories by management on initial recognition, depending
on the purpose for which they were acquired, and are recognised when the Group becomes party to contractual
arrangements. Both loans and receivables and available for sale financial assets are initially recorded at fair value.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. Trade receivables, most other receivables and cash and cash equivalents fall into this
category of financial assets. Loans and receivables are measured subsequent to initial recognition at amortised
cost using the effective interest method, less provision for impairment. Any change in their value through
impairment or reversal of impairment is recognised in the income statement.
Cash and cash equivalents comprise cash on hand and short term deposits. Any interest earned is classified as
interest income within finance income.
A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the
financial asset is transferred, and that transfer qualifies for derecognition. A financial asset is transferred if the
contractual rights to receive the cash flows of the asset have been transferred or the Group retains the
contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash
flows to one or more recipients.
A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and
rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and
rewards of ownership but does transfer control of that asset.
Financial Liabilities
Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group
becomes a party to the contractual provisions of the instrument.
All financial liabilities initially recognised at fair value less transaction costs and thereafter carried at amortised
cost using the effective interest method, with interest-related charges recognised as an expense in finance cost
in the income statement. A financial liability is derecognised only when the obligation is extinguished, that is,
when the obligation is discharged or cancelled or expires.
Impairment of Financial Assets
At the end of each reporting period, a provision is made if there is sufficient evidence that a financial asset or
group of financial assets has been impaired. Provision against trade receivables is made when there is objective
evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of
those receivables. The amount of the write-down is determined as the difference between the asset's carrying
amount and the present value of estimated future cash flows.
52
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Inventories
k)
Inventories are stated at the lower of cost and net realisable value. The cost of materials is the purchase cost,
determined on first-in, first-out basis. The cost of crude oil and refined products is the purchase cost, the cost of
refining, including the appropriate proportion of depreciation, depletion and amortisation and overheads based
on normal operating capacity, determined on a weighted average basis. The net realisable value of crude oil and
refined products is based on the estimated selling price in the ordinary course of business, less the estimated
costs of completion and the estimated costs necessary to make the sale.
l) Taxation
The tax charge includes both current and deferred tax.
Current tax assets and liabilities are measured at the amount expected to be paid to or received from the tax
authorities, calculated using tax rates that have been enacted or substantively enacted by the balance sheet
date. Taxable profits or losses differ from the reported profit or loss before taxation in the Income Statement as
it excludes items that are taxable or deductible in different periods, as well as items that are never deductible or
taxable.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is
generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases.
However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an
asset or liability unless the related transaction is a business combination or affects tax or accounting profit.
Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided
if reversal of these temporary differences can be controlled by the Company and it is probable that reversal will
not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income
tax credits to the Company are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent
that it is probable that the underlying deductible temporary differences will be able to be offset against future
taxable income. Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their
respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income
statement, except where they relate to items that are charged or credited directly to equity in which case the
related deferred tax is also charged or credited directly to equity.
m) 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 (options) of the Company. The fair
value of the employee services received in exchange for the grant of the 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;
Excluding the impact of any service and non-market performance vesting conditions (for example,
profitability or sales growth targets, or 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 vesting 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 addition, 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 period and grant date.
53
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
m) Share-Based Payments (continued)
At the end of each reporting period, the entity 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 profit or loss, with a corresponding adjustment to equity.
When the options are exercised, the Company issues new shares. The proceeds received, net of any directly
attributable transaction costs, are credited to share capital (nominal value) and share premium.
n) Equity
Equity comprises the following:
•
•
•
•
"Share capital" representing the nominal value of equity shares.
"Share premium" representing the excess over nominal value of the fair value of consideration received
for equity shares, net of expenses of the share issue.
“Share based payment reserve” represents the value of equity benefits provided to employees and
directors as part of their remuneration and provided to consultants and advisors hired by the Group
from time to time as part of the consideration paid.
"Retained earnings" represents retained profits and (losses).
m) Foreign currencies
The consolidated financial statements are presented in UK pound sterling, the functional currency of the Group.
Transactions in other currencies are translated at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the
exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair value was determined.
Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates
different from those at which they were initially recorded are recognised in the profit or loss in the period in
which they arise. Exchange differences on non-monetary items are recognised in other comprehensive income
to the extent that they relate to a gain or loss on that non-monetary item taken to other comprehensive income,
otherwise such gains and losses are recognised in the income statement. The Group and Company's functional
currency and presentational currency is Sterling.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Group’s consolidated financial statements requires management to make judgements,
estimates and assumptions that affect the reported amounts of revenues, expenses during the reporting period,
and reported amounts of assets and liabilities, and the disclosure of contingent liabilities at the date of the
consolidated financial statements. Estimates and assumptions are continuously evaluated and are based on
management’s experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. However, actual outcomes can differ from these estimates.
In particular, the Group has identified the following areas where significant judgements, estimates and
assumptions are required, and where if actual results were to differ, this could materially affect the financial
position of financial results reported in a future period. Further information on each of these areas and how they
impact the various accounting policies are described below and also in the relevant notes to the financial
statements.
Judgements
(i) Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Group based its assumptions and estimates on parameters
available when the consolidated financial statements were prepared. Existing circumstances and assumptions
about future developments, however, may change due to market change or circumstances arising beyond the
control of the Group. Such changes are reflected in the assumptions when they occur.
54
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. Significant accounting judgements, estimates and assumptions (continued)
(ii) Hydrocarbon reserve and resource estimates
The Group estimates and reports hydrocarbon reserves in line with the principles contained in the SPE Petroleum
Resources Management Reporting System (PRMS) framework. As the economic assumptions used may change
and as additional geological information is obtained during the operation of a field, estimates of recoverable
reserves may change.
The volume of proved and probable oil & gas reserves is an estimate that affects the unit of production
depreciation of producing oil & gas property, plant and equipment as well as being a significant estimate affecting
decommissioning provisions, impairment calculations and the valuation of oil & gas properties in business
combinations. Contingent resources affect the valuation of exploration and exploration assets acquired in
business combinations and the estimation of the recoverable value of those assets in impairment tests. Proved
and probable reserves and contingent resources are estimated using standard recognised evaluation techniques.
Estimates are reviewed at least annually and are regularly estimated by independent consultants. Future
development costs are estimated taking into account the level of development required to produce the reserves
by reference to operators, where applicable, and internal engineers.
The current long-term Brent oil price assumption used in the estimation of reserves is US$64/bbl. The carrying
amount of oil & gas development and production assets at 30 September 2021 is shown in Note 12.
(iii) Recoverable value of intangible exploration and evaluation assets and goodwill
The Group has capitalised intangible exploration and evaluation assets in accordance with IFRS 6. Significant
judgement is required to determine whether it continues to be appropriate to carry these costs on the balance
sheet and whether the assets have been impaired.
The key areas in which management have applied judgement include the Group’s intention to proceed with a
future work programme for a prospect or licence, the likelihood of licence and planning permission renewal,
plans for relinquishment, assessment of results from wells or geological or geophysical studies, and the
assessment of whether the carrying value of the exploration and evaluation assets is unlikely to be recovered in
full from successful development or by sale.
Goodwill is assessed in each reporting period to determine whether there is any impairment.
In both the above areas, the assessments include estimates and assumptions such as long-term oil prices, foreign
exchange rates, discount rates, reserves, production profiles and capital expenditure, all of which are subject to
risk and uncertainty. It is possible therefore that changes in these estimates may impact the recoverable values
of goodwill and exploration and evaluation assets.
Details of the Group’s intangible exploration and evaluation assets and goodwill are disclosed in Note 11 to the
financial statements.
(iv) Recoverable value of property, plant and equipment
Management reviews the Group’s reported property, plant and equipment each reporting period to determine
whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the
recoverable amount is made, which requires the use of key assumptions and judgements such as long-term oil
prices, foreign exchange rates, discount rates, reserves, production profiles and capital expenditure, all of which
are subject to risk and uncertainty.
Details of the Group’s property, plant and equipment are disclosed in Note 12 to the financial statements.
(v) Decommissioning costs
The estimated cost of decommissioning at the end of the producing lives of fields is periodically reviewed and is
based on forecast prices and technology at the balance sheet date. Provision is made for the estimated cost using
a discounted cash flow method and a risk free rate of return. Details of the Group’s decommissioning provisions
are disclosed in Note 19 to the financial statements.
55
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. Segmental Reporting
All of the Group’s assets and operations are located in the United Kingdom and Turkey. For management
purposes, the Group is organised into business units based on the main types of activities and has three
reportable segments, as follows:
• Oil exploration and production: includes producing business activities
• Oil exploration and evaluation: includes non-producing activities.
• Head Office, corporate and administrative, including parent company activities.
The Board of Directors monitors the operating results of its business units separately for the purpose of making
decisions about resource allocation and performance assessment. Segment performance is evaluated based on
operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial
statements. However, the Group’s financing (including finance costs and finance income) and income taxes are
managed on a group basis and are not allocated to operating segments.
The accounting policies used by the Group in reporting segments internally are the same as those used in the
financial statements.
Subject to further acquisitions and/or disposals, the Group expects to further review its segmental information
during the forthcoming financial year, as it begins to see the full impact of its acquisitions and/or disposals.
Group
Year ended 30 September 2021
Revenue
External Customers
Total revenue
Results
Depreciation, Depletion &
Amortisation
Exploration and Production
Write offs & Impairment
Finance costs
Loss before taxation
Taxation
Loss after taxation
Oil production
£’000
Oil exploration
& evaluation
£’000
Corporate &
Administrative
£’000
Consolidated
£’000
1,562
1,562
(348)
(1,456)
2
(1,716)
-
(1,716)
-
-
(190)
(946)
(81)
(1,375)
(43)
(1,418)
-
-
(146)
-
(10)
(1,749)
-
(1,749)
1,562
1,562
(684)
(2,402)
(89)
(4,840)
(43)
(4,883)
Segment assets
5,200
5,331
32,502
43,033
Segment liabilities
(3,340)
(1,955)
(235)
(5,530)
Other disclosures:
Capital expenditure (1)
594
2,107
17
2,718
(1) Capital expenditure consists of capitalised exploration expenditure, development expenditure,
additions to oil & gas properties and to other intangible assets including expenditure on assets from the
acquisition of subsidiaries.
56
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. Segment Reporting (continued)
Group
Year ended 30 September 2020
Revenue
External Customers
Total revenue
Results
Depreciation, Depletion &
Amortisation
Exploration and Production
Write offs & Impairment
Finance costs
Profit/(loss) before & after
taxation
Segment assets
Segment liabilities
Other disclosures:
Goodwill on acquisition
Capital expenditure (1)
Oil production
£’000
Oil exploration
& evaluation
£’000
Corporate &
Administrative
£’000
Consolidated
£’000
908
908
(756)
(10,652)
(111)
(17,870)
10,011
(3,788)
-
1,770
-
-
(573)
(6,598)
-
(689)
4,641
(890)
-
7,360
-
-
(38)
-
(175)
908
908
(1,367)
(17,250)
(286)
(2,378)
(20,937)
25,502
40,154
(1,418)
(6,096)
-
-
-
9,130
(1) Capital expenditure consists of capitalised exploration expenditure, development expenditure, additions to
oil & gas properties and to other intangible assets including expenditure on assets from the acquisition of
subsidiaries.
5. Operating Loss
Group
Operating (loss) is stated after charging:
– Directors’ remuneration – fees & salaries
– Employee Benefit Trust charge
– Auditors’ remuneration
Audit-related assurance services
Other compliance services
– Depletion of oil & gas properties
6. Revenue
2021
£'000
471
7
62
-
314
The Group has recognised the following amounts relating to revenue in the statement of comprehensive
income:
Group
Revenue from contracts with customers
2021
£'000
1,562
1,562
All revenue is derived from sales of oil from one geographic location and is recognised at a point in time.
2020
£'000
515
7
56
-
743
2020
£'000
908
908
57
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7. Directors and Employees
The Company employed the services of an average of 14 employees in the year (2020: 13), of which an average
of 4 (2020: 4) were Executive and Non-Executive Directors. Remuneration in respect of these employees was:
Group
Employment costs, including Directors, during the year:
Wages and salaries
Social security costs
Employee pension costs
Benefits in kind
2021
£'000
1,369
174
13
9
1,565
Employee pension costs payable at the end of the year amounted to £2,000 (2020: £2,000).
Average number of persons, including Executive Directors employed
Administration
Operations
Directors’ remuneration
Emoluments
Stephen Sanderson
Kiran Morzaria
Allen Howard
Nicholas Mardon Taylor
Total Directors Emoluments
No.
8
6
14
£'000
471
2021
£'000
287
93
48
44
471
2021
S Sanderson
K Morzaria
A Howard
N Mardon Taylor
2020
S Sanderson
K Morzaria
A Howard
N Mardon Taylor
Fees and
salaries
£’000
284
92
48
44
468
Fees and
salaries
£’000
297
115
54
49
515
Bonuses
Pension
£’000
-
-
-
-
-
£’000
1
1
-
-
2
Bonuses
Pension
£’000
-
-
-
-
-
£’000
1
-
-
-
1
Benefits in
Kind
£’000
1
-
-
-
1
Benefits in
Kind
£’000
3
-
-
-
3
Share based
payments (*)
£’000
-
-
-
-
-
Share based
payments (*)
£’000
-
-
-
-
-
2020
£'000
1,423
179
11
6
1,619
No.
7
6
13
£'000
519
2020
£'000
301
115
54
49
519
Total
£’000
287
93
48
44
471
Total
£’000
301
115
54
49
519
* Share based payments are non-cash remuneration by way of the issue of share options in the company.
58
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. Finance Costs
Loan interest due to non-controlling interests
Unwind discount on decommissioning provision (note 19)
Change in estimate of decommissioning liability
Loan transaction fees
Convertible loan note fees
Finance Costs
9. Income Tax
2021
£'000
3
98
(22)
10
-
89
2020
£'000
111
-
23
-
175
309
There is no tax credit on the loss for the current or prior year. The tax assessed for the year differs from the
standard rate of corporation tax in the UK as follows:
Loss for the year before tax
Tax rate 40% (30% for ring-fenced activities plus
10% ring fence supplement)
Expected tax credit
Tax adjustment for non-deductible expenditure
Tax impact of capital allowances
Adjustment in respect of prior periods
Impact of losses taxed at different rates
Tax impact of losses carried forward
Future income tax benefit not brought to account
Actual tax expense
2021
£'000
2020
£'000
(4,840)
(19,041)
40%
(1,936)
207
(8)
43
636
1,101
-
43
40%
(7,616)
388
(10)
-
576
6,584
78
-
The Group estimated carried forward tax losses are £10,799,000 (2020: £6,529,000), none of which are
recognised as a deferred tax asset.
10. Earnings per Share
The calculation of the basic loss per share is calculated by dividing the consolidated loss attributable to the equity
holders of the Company by the weighted average number of ordinary shares in issue during the year.
Group
Loss attributable to ordinary shareholders
2021
£’000
(4,492)
2020
£’000
(20,937)
Number
Number
Weighted average number of ordinary shares for calculating
basic loss per share
13,481,093,231
8,577,532,755
Basic and diluted loss per share
Pence
(0.03)
Pence
(0.24)
59
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. Earnings per Share (continued)
As inclusion of the potential ordinary shares would result in a decrease in the earnings per share they are
considered to be anti-dilutive, as such, a diluted earnings per share is not included. The potential amount of
dilutive shares is 435,125,816, which represents outstanding options and warrants.
11. Intangible assets
Exploration &
evaluation
costs
£’000
Group
Decommissioning
Asset
Goodwill
Total
£’000
£’000
£’000
Company
Exploration &
evaluation
costs
£’000
Cost & Net Book Value
As at 1 October 2019
Reclassification
Additions
Revenues from sale of by-
product
Transfers
Exploration Write offs &
Amortisation
As at 30 September 2020
Additions
Exploration Write offs &
Amortisation
As at 30 September 2021
27,224
17,443
9,116
(1,755)
(14,869)
(7,899)
29,259
2,107
(946)
30,420
355
-
596
-
(173)
(494)
285
-
(190)
95
17,443
(17,443)
-
-
-
-
-
-
-
-
45,021
-
9,712
(1,755)
(15,042)
(8,392)
29,544
2,107
(1,136)
2,344
-
601
-
-
(1,302)
1,643
119
(939)
30,515
823
Revenues from the sale of hydrocarbons produced as a by-product of testing and evaluation activities are offset
against the costs of the intangible asset. These totalled £nil in the year (2020: £1,755,000).
In March 2020 the first Horse Hill well was put into production and as a result the carrying value of this well of
£14.86 million was transferred from exploration & evaluation assets to oil & gas properties during the previous
financial year.
The Directors have assessed the fair value of the exploration & evaluation assets as at 30 September 2021. An
impairment review was carried out on the exploration & evaluation assets. Having taken time to consider, the
Company has decided not to appeal the October 2021 decision by the Isle of Wight Council's Planning Committee
to refuse consent for the appraisal and testing of the Arreton oil and gas discovery, and as such has written off
the value of associated exploration & evaluation assets. No further impairment of exploration & evaluation assets
was identified during this review.
Exploration and evaluation activity involves the search for hydrocarbon resources, the determination of technical
feasibility and the assessment of commercial viability of an identified resource. Additions during the year reflect
the associated exploration and evaluation activities.
At this point the Company is still assessing the potential of the remaining assets and will continue to develop and
evaluate these assets in the coming year. Since their acquisition dates there has been no further material changes
to the Licence areas. The directors therefore consider that no further impairment is required at 30 September
2021.
Joint Operations
UKOG's wholly owned subsidiary UKOG Turkey Ltd signed a participation agreement and joint operating
agreement with AME during the year, to take a 50% non-operated working interest in the 305 km² Resan M47-
60
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
b1, b2 licence in Turkey. Together with AME, the business is working towards finalising the design and delivery
of a successful first appraisal well aimed at establishing the commerciality of the aerially extensive and as yet
undeveloped Basur-Resan oil discovery contained within the licence.
12. Oil & Gas Properties
Group
Cost
As at 1 October
Transfers
Additions
Change in estimate
As at 30 September
Depletion & impairment
As at 1 October
Depletion charge
Impairment
As at 30 September
Carrying value
As at 30 September
Impairment Review
Oil & gas
properties
2021
£’000
Decommissioning
Asset
2021
£’000
16,568
-
594
-
17,162
(10,358)
(314)
(1,456)
(12,128)
193
-
-
267
460
(23)
-
-
(23)
Property,
plant &
equipment
2021
£’000
2,180
-
17
-
2,197
Total
2021
£’000
18,941
-
611
267
19,819
Total
2020
£’000
2,134
15,042
1,766
-
18,941
(327)
(179)
-
(506)
(10,708)
(493)
(1,456)
(12,657)
(508)
(850)
(9,350)
(10,709)
5,034
437
1,691
7,162
8,232
The Directors have carried out an impairment review as at 30 September 2021. The Directors determined that
the net present value of the HH-1 well was £3.63 million and therefore determined that HH-1 should be impaired
by £1.46 million. The net present value utilised an internally generated depletion curve that was independently
reviewed. Costs were based on current costs less any anticipated savings. A long-term Brent oil price of
US$91/bbl was used being the spot rate at the time of assessment, with a discount rate of 6.3% used being the
weighted average costs of capital of Horse Hill Developments Ltd, the holding company of HH-1. Based on current
production at Horndean no impairment was deemed necessary.
Company
Cost
As at 1 October
Additions
As at 30 September
Depletion & impairment
As at 1 October
Depletion charge
As at 30 September
Carrying value
As at 30 September
Property, plant &
equipment
2021
£’000
1,815
4
1,819
(42)
(145)
(187)
2020
£’000
116
1,699
1,815
(8)
(26)
(34)
1,632
1,773
61
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. Investment in Subsidiaries
Company
Cost and net book amount
At 1 October
Capital reorganisation of subsidiaries
Impairment
At 30 September
2021
£’000
21,406
7,915
(3,079)
26,242
2020
£’000
26,206
-
(4,800)
21,406
The Directors carried out an impairment review of the Company’s Investment in its subsidiaries as at 30
September 2021. As a result the Directors determined to impair its investments in Horse Hill Developments Ltd,
UKOG Solent Ltd and UKOG Weald Ltd by £2.65 million, £0.30 million and £0.13 million respectively. Further
details in respect of the assumptions used for the impairment review of oil & gas properties within Horse Hill
Developments Ltd have been outlined within Note 12.
The Company holds more than 50 per cent of the share capital of the following companies as at 30 September
2021:
Company
UKOG (GB) Limited
UKOG Solent Limited
UKOG Weald Limited
UKOG (234) Limited
Horse Hill Developments Ltd
UKOG (137/246) Holdings Ltd
UKOG (137/246) Ltd
UKOG (Turkey) Ltd
UK Oil & Gas Investments Limited
UK Geothermal Limited
Country of
Registration
Proportion
held
Functional
Currency
Nature of
business
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100%
100%
100%
100%
77.9%
100%
100%
100%
100%
100%
GB£
GB£
GB£
GB£
GB£
GB£
GB£
GB£
GB£
GB£
Oil production
Oil exploration
Oil exploration
Oil exploration
Oil production
Holding Company
Oil exploration
Oil exploration
Dormant
Dormant
The registered address of each of these subsidiaries can be found on the website of Companies House.
All subsidiary undertakings are included in the consolidated financial statements. The proportion of the voting
rights in the subsidiary undertaking held directly by the parent company do not differ from the proportion of the
ordinary shares held. The following companies are taking an exception from the audit of the financial statements
as per S479A of the Companies Act; UKOG (GB) Limited (04050227), UKOG Solent Limited (05000092), UKOG
Weald Limited (04991234), UKOG (234) Ltd (07055133), UKOG (137/246) Holdings Ltd (09010542), UKOG
(Turkey) Ltd (10212262), UK Oil & Gas Investments Limited (11252712), UK Geothermal Limited (13386906).
14. Inventory
Group
Inventories - Crude Oil
Total
2021
£’000
2020
£’000
2
2
1
1
62
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
15. Trade and Other Receivables
Trade debtors
Other debtors
Loans to subsidiary companies
Prepayments and accrued income
Total
Group
Company
2021
£’000
44
268
-
315
627
2020
£’000
19
442
-
281
742
2021
£’000
22
47
21,727
239
22,035
2020
£’000
9
356
26,690
182
27,236
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
16. Cash and Cash Equivalents
Cash at bank and in hand
Total
17. Trade and Other Payables
Current trade and other payables
Trade creditors
Other creditors
Accruals and deferred income
Total
Group
Company
2021
£’000
4,727
4,727
2020
£’000
1,634
1,634
2021
£’000
4,146
4,146
2020
£’000
1,346
1,346
Group
Company
2021
£’000
745
48
273
1,067
2020
£’000
1,362
483
136
1,981
2021
£’000
84
49
197
330
2020
£’000
1,199
49
171
1,419
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
18. Borrowings
Borrowings
Loans payable to Non-Controlling Interests
Total
Group
Company
2021
£’000
3,087
3,087
2020
£’000
3,084
3,084
2021
£’000
-
-
2020
£’000
-
-
At 30 September 2021, the outstanding loan balances owed to HHDL’s shareholders were; Alba Mineral
Resources PLC (Alba) £2.52 million (2020: £2.52m), Doriemus PLC (Doremius) £0.57 million (2020: £0.57) and UK
Oil & Gas Plc £16.59 million (2020: £16.03m). The loans are payable on determination by the Board of HHDL. The
loans currently attract an interest rate equivalent to the Bank of England base rate, which was 0.1% during the
year.
63
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
19. Provisions - Decommissioning
Group
As at 1 October
Change of estimate
Release
Unwind discount
As at 30 September
2021
£’000
1,031
247
-
98
1,376
2020
£’000
427
615
(11)
-
1,031
The amount provided for at 30 September 2021 represents the Group’s share of decommissioning liabilities in
respect of the producing Horndean and Avington fields, the producing site at Horse Hill and the Broadford Bridge
drilling site.
The Company makes full provision for the future cost of decommissioning oil production facilities and pipelines
on a discounted basis upon the installation of those facilities. The decommissioning provision represents the
present value of decommissioning costs relating to oil & gas properties.
These provisions have been created based on the Company’s internal estimates. Assumptions used include an
average group-wide discount rate of 10.0% and an annual inflation rate of 2.0% applied to future
decommissioning costs. Assumptions based on the current economic environment have been made, which
management believes are a reasonable basis upon which to estimate the future liability. These estimates are
reviewed regularly to take into account any material changes to the assumptions.
However, actual decommissioning costs will ultimately depend upon future market prices for the necessary
decommissioning works required which will reflect market conditions at the relevant time. Furthermore, the
timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates.
This, in turn, will depend upon future oil & gas prices, which are inherently uncertain.
20. Share Capital
Ordinary Shares
Issued at 30 September 2019
On 2 December 2019, placing for cash at 0.85p per share
On 02 January 2020, for acquisition at 0.91p per share
On 01 April 2020, for acquisition at 0.39p per share
On 30 April 2020, placing for cash at 0.20p per share
On 3 June 2020, placing for cash at 0.20p per share
On 24 June, warrant exercise at 0.20p per share
On 08 July 2020, for acquisition at 0.20p per share
For conversion of loan notes (at prices from 0.19p to 0.98p)
Issued at 30 September 2020
On 02 October 2020, placing for cash at 0.16p per share
On 04 December 2020, warrant exercise at 0.16p per share
On 11 February 2021, for acquisition at 0.20p per share
On 25 May 2021, for acquisition at 0.13p per share
On 05 July 2021, placing for cash at 0.18p per share
On 27 July 2021, placing for cash at 0.18p per share
Issued at 30 September 2021
Number of
ordinary shares
Nominal
Value
6,658,567,170
235,294,117
331,125,828
255,102,041
637,500,000
2,100,000,000
129,375,000
131,014,768
621,406,132
11,099,385,057
1,374,999,993
68,750,000
412,475,262
262,759,440
2,763,888,878
256,974,621
16,239,233,251
£
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
0.0001
Total
Value
£’000
666
24
33
25
64
210
13
13
62
1,110
137
7
41
26
276
26
1,624
64
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. Share Capital (continued)
Deferred shares
The Company has in existence at 30 September 2021 and at 30 September 2020, 1,158,385,352,229 deferred
shares of 0.001p. These deferred shares do not carry voting rights.
Total Ordinary and Deferred Shares
The issued share capital as at 30 September 2021 is as follows:
Number
of shares
Nominal Value
£
Total Value
£’000
Ordinary shares
Deferred shares
16,239,233,251
1,158,385,352,229
0.0001
0.00001
1,624
11,584
13,208
21. Share Based Payments
Share Options
No options were granted during the year (2020: nil).
As at 30 September 2021 the options in issue were:
Exercise price
1.15p
1.6p
1.13p
Expiry date
Options in issue
30 September 2021
24 May 2022
12 April 2023
25 September 2024
117,000,000
17,500,000
121,500,000
256,000,000
No options were exercised, and no options were cancelled during the year (2020: none exercised, none
cancelled). No options lapsed during the year (2020: 45,000,000).
Warrants
As of 30 September 2021, 179,125,816 warrants were in issue (2020: 40,931,372).
206,944,444 warrants were issued during the year (2020: 153,638,706). No warrants lapsed during the year
(2020: nil). 68,750,000 warrants were exercised during the year (2020: 129,375,000 exercised).
Employee Benefit Trust
The Company established an employee benefit trust called the UK Oil & Gas Employee Benefit Trust (EBT) on 29
September 2014, to implement the use of the Company's existing share incentive plan over 10% of the
Company's issued share capital from time to time in as efficient a manner as possible for the beneficiaries of that
plan. The EBT is a discretionary trust for the benefit of directors, employees and consultants of the Company.
The shares held in the EBT are intended to be used to satisfy future awards made by the Company's
Remuneration Committee under the share incentive scheme.
The EBT did not subscribe to shares during the year to 30 September 2021 (2020: nil). The balance of ordinary
shares held by the EBT on 30 September 2021 was 250,000,000 (2020: 250,000,000). Awards of Ordinary Shares
to beneficiaries by the EBT will be subject to appropriate vesting and other performance conditions, in line with
normal market practice, which will be set by the Remuneration Committee.
65
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
21. Share Based Payments (continued)
Details of share options granted during the year to Directors, consultants & employees over the ordinary shares
are as follows:
At 1
October
2020
No.
Issued
during
the
year
No.
Lapsed /
exercised
during the
year
No.
Million Million
-
-
-
-
-
-
10
5
20
6.5
25
25
Million
-
-
-
-
-
-
4
95.5
62
17.5
81
256
-
-
-
-
-
-
-
-
-
-
-
-
At 30
September
2021
No.
Exercise
price
£
Date from
which
exercisable
Expiry date
Million
10
5
20
6.5
25
25
4
95.5
62
0.0115
0.0113
0.0115
0.0113
0.0115
0.0113
25/05/2017
27/09/2019
25/05/2017
27/09/2019
25/05/2017
27/09/2019
24/05/2022
25/09/2024
24/05/2022
25/09/2024
24/05/2022
25/09/2024
0.0113
27/09/2019
25/09/2024
0.0115
25/05/2017
24/05/2022
17.5
0.0160
13/04/2018
12/04/2023
0.0113
27/09/2019
25/09/2024
81
256
Share
options
A Howard
A Howard
K Morzaria
K Morzaria
S Sanderson
S Sanderson
N Mardon
Taylor
Consultants
Consultants
&
employees
Consultants
&
employees
The share price range during the year was £0.0035 to £0.0012 (2020 - £0.0016 to £0.0115).
The disclosure of Weighted Average Exercise Prices and a Weighted Average Contractual Life analysis is not
viewed as informative because of the minimal variation of options currently in issue, and therefore has
accordingly not been disclosed.
For those options granted where IFRS 2 "Share-Based Payment" is applicable, the fair values were calculated
using the Black-Scholes model. The inputs into the model were as follows:
13 April 2018 (0.4p)
13 April 2018 (1.6p)
27 September 2019 (1.13p)
Risk free
rate
Share price
volatility
Expected life
Share price at
date of grant
0.8%
0.9%
0.4%
128.9%
128.9%
63.13%
1.72 years
5 years
5 years
£0.015
£0.015
£0.011
Expected volatility was determined by calculating the historical volatility of the Company's share price for 12
months prior to the date of grant. The expected life used in the model has been adjusted, based on
management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural
considerations. The Company recognised total expenses of £nil (2020: £nil) relating to equity-settled share-based
payment transactions during the year, and £nil (2020: £nil) was transferred via equity to retained earnings on
the exercising or lapse of options during the year.
Details of warrants granted during the year to consultants over the ordinary shares are as follows:
66
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
21. Share Based Payments (continued)
At 1
October
2020
No.
Issued
during
the
year
No.
Million Million
-
-
-
-
69
138
207
17
5
12
8
-
-
41
Lapsed /
exercised
during the
year
No.
Million
-
-
-
-
(69)
-
(69)
At 30
September
2021
No.
Million
17
5
12
8
-
138
179
Date from
which
exercisable
Expiry date
Exercise
price
£
0.0105
0.0115
0.0085
0.0020
0.0016
0.0016
02/04/2019
04/11/2019
29/11/2019
24/05/2020
06/10/2020
02/07/2021
02/04/2022
04/11/2022
29/11/2022
24/05/2023
06/10/2023
01/07/2024
Warrants
Consultants
Consultants
Consultants
Consultants
Consultants
Consultants
22. Financial Instruments and Risk Analysis
Financial Assets by Category
The categories of financial asset, all included initially measured at fair value and subsequently carried at
amortised cost in the balance sheet and the headings in which they are included are as follows:
Current assets – Group
Inventory
Trade and other receivables
Cash and cash equivalents
Current assets – Company
Trade and other receivables
Intercompany balances
Cash and cash equivalents
2021
£’000
2
627
4,727
5,356
2021
£’000
308
21,727
4,146
26,181
2020
£’000
1
742
1,634
2,377
2020
£’000
546
26,690
1,346
28,583
Financial Liabilities by Category
The categories of financial liability all included at fair value and subsequently carried at amortised cost in the
balance sheet and the headings in which they are included are as follows:
Current liabilities – Group
Trade and other payables
Borrowings
Current liabilities – Company
Trade and other payables
2021
£’000
1,067
3,087
4,154
2021
£’000
(330)
(330)
2020
£’000
1,981
3,084
5,065
2020
£’000
(1,419)
(1,419)
67
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. Financial Instruments and Risk Analysis (continued)
The group is exposed to market risk through its use of financial instruments and specifically to credit risk, and
liquidity risk which result from both its operating and investing activities. The group's risk management is
coordinated at its head office, in close co-operation with the board of Directors, and focuses on actively securing
the group's short to medium term cash flows by minimising the exposure to financial markets.
Long term financial investments are managed to generate lasting returns. The group does not actively engage in
the trading of financial assets for speculative purposes, nor does it write options. The most significant financial
risks to which the group is exposed to are described below.
Interest Rate Sensitivity
The group is not substantially exposed to interest rate sensitivity, other than in relation to interest bearing bank
accounts.
Credit Risk Analysis
The group's exposure to credit risk is limited to the carrying amount of trade receivables and cash at bank. The
group continuously monitors defaults of customers and other counterparties, identified either individually or by
Company, and incorporates this information into its credit risk controls. Where available at reasonable cost,
external credit ratings and/or reports on customers and other counterparties are obtained and used.
The group's policy is to deal only with creditworthy counterparties. Group management considers that trade
receivables that are not impaired for each of the reporting dates under review are of good credit quality,
including those that are past due. None of the group's financial assets are secured by collateral or other credit
enhancements. The credit risk for liquid funds and other short-term financial assets is considered negligible since
the counterparties are reputable banks with high quality external credit ratings.
Liquidity Risk Analysis
The majority of the Group’s liabilities are contractually due within one year. The loan due from HHDL to Alba and
Doriemus is payable on determination by the Board of HHDL.
The group’s continued future operations depend on the ability to raise sufficient working capital through the
issue of equity share capital or debt financing. The Directors are confident that adequate funding will be
forthcoming with which to finance operations. Controls over expenditure are carefully managed.
Capital Management Policies
The group's capital management objectives are to:
-
-
-
Ensure the group's ability to continue as a going concern; and
Provide a return to shareholders
To provide capital for the purpose of strengthening the Group's risk management capability.
The Group actively and regularly reviews and manages its capital structure, to ensure an optimal capital
structure, and equity holder returns, taking into consideration the future capital requirements of the Group and
capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital
expenditures and projected strategic investment opportunities. Management regards total equity as capital and
reserves, for capital management purposes.
Commodity Price Risk
The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the mix of oil & gas
products it produces. The Group’s policy is to manage these risks through the use of contract-based prices with
customers.
Commodity Price Sensitivity
The table below summarises the impact on profit before tax for changes in commodity prices. The analysis is
based on the assumption that the crude oil price moves 10% resulting in a change of US$ 9.30/bbl (2020: US$
68
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. Financial Instruments and Risk Analysis (continued)
6.84/bbl), with all other variables held constant. Reasonably possible movements in commodity prices were
determined based on a review of the last two years’ historical prices and economic forecasters’ expectations.
Increase/decrease in crude oil prices
Increase US$ 9.30 /bbl (2020: US$ 6.84/bbl)
Decrease US$ 9.30 /bbl (2020: US$ 6.84/bbl)
Effect on profit before
tax for the year ended
30 September 2021
Increase/(Decrease)
Effect on profit before
tax for the year ended
30 September 2020
Increase/(Decrease)
£’000
253
(253)
£’000
98
(98)
Currency Risk
The Group has no significant monetary assets or liabilities that are denominated in a foreign currency. The
Group’s exposed to currency risk, with the price of Brent Crude Oil being denominated in US$. The current
exposure is not seen as material, with the current level of revenue being generated therefrom. The Board will
continue to monitor this risk as the operations and/or revenues increase.
23. Commitments & Contingent Liabilities
Ongoing exploration expenditure is required to maintain title to the Group’s exploration permits. No provision
has been made in the financial statements for these amounts as the expenditure is expected to be fulfilled in the
normal course of the operations of the Group. As at 30 September 2021, the Group had no further material
commitments (2020: none).
24. Events after the Reporting Date
Apart from the those disclosed in the Strategic Report which forms part of these Annual Report and Accounts,
there are no events to report after the reporting date.
25. Related Party Transactions
Transactions with Related Parties
In February 2019 UK Oil & Gas Plc engaged Apex Completions, LLC (Apex) as a consultant to the Company. Allen
Howard, UKOG's Executive Director, is a Director of and a shareholder in Apex and, as a result, the Agreement is
considered a related party transaction. Apex was engaged to help the Company further develop its understanding
of the Portland and Kimmeridge reservoirs. The Agreement provides for Apex to periodically invoice the
Company for work carried out based upon the time spent by its personnel. During the year Apex charged
consultancy fees of £nil (2020 – £82,000). The amounts due to Apex at the end of the year amounted to £nil
(2020: £nil).
UK Oil & Gas Plc paid a subscription fee for membership with United Kingdom Onshore Oil & Gas (UKOOG) during
the year. UKOOG represent the onshore oil and gas industry and wider supply chain and provides the Company
with general industry advice and representation. Stephen Sanderson, UKOG's Chief Executive, is a Director of
UKOOG and, as a result, the subscription fee for membership is considered a related party transaction. During
the year the Company paid £30,000 for its membership with UKOOG (2020: £30,000). The amounts due to
UKOOG at the end of the year amounted to £nil (2020: £nil).
69
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
25. Related Party Transactions (continued)
Remuneration of Key Management Personnel
The remuneration of the directors, and other key management personnel of the Company, is set out below in
aggregate for each of the categories specified in IAS24 Related Party Disclosures. Further details in respect of
the remuneration of the directors can be found within the Directors Remuneration Report on page 30.
Short-term employee benefits
26. Ultimate Controlling Party
In the opinion of the Directors there is no controlling party.
2021
£’000
959
959
2020
£’000
1,046
1,046
70
COMPANY INFORMATION
Company registration number
05299925
Registered office
Directors
Secretary
Auditors
Nominated Adviser
Solicitors
Registrars
The Broadgate Tower 8th Floor
20 Primrose Street
London
EC2A 2EW
Nicholas Mardon Taylor
Stephen Sanderson
Allen Howard
Kiran Morzaria
Kiran Morzaria
PKF Littlejohn LLP
Chartered Accountants
Registered Auditor
15 Westferry Circus, Canary Wharf
London, E14 4HD
WH Ireland Limited
24 Martin Lane
London, EC4R 0DR
Hill Dickinson
The Broadgate Tower 8th Floor
20 Primrose Street
London, EC2A 2EW
Share Registrars Limited
The Courtyard,
17 West Street
Farnham,
Surrey, GU9 7DR
71