Union Jack Oil
Annual Report 2019

Plain-text annual report

UNION JACK OIL plc Annual Report and Financial Statements 2019 PRODUCTION, DRILLING, DEVELOPMENT AND INVESTMENT IN THE UNITED KINGDOM ONSHORE HYDROCARBON SECTOR UNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 www.unionjackoil.com Directors, Officers and Advisers DIRECTORS David Bramhill Executive Chairman Joseph O’Farrell Executive Graham Bull Non-Executive Raymond Godson Non-Executive COMPANY OFFICE 6 Charlotte Street, Bath BA1 2NE, England Telephone: +44 (0) 1225 428139 +44 (0) 1225 428140 Fax: Email: info@unionjackoil.com Web: www.unionjackoil.com REGISTERED NUMBER 07497220 SECRETARY AND REGISTERED OFFICE Matthew Small 6 Charlotte Street, Bath BA1 2NE, England BANKERS Royal Bank of Scotland plc 8-9 Quiet Street, Bath BA1 2JN, England REGISTRARS NOMINATED ADVISER AND BROKER Computershare Investor Services PLC The Pavilions, Bridgwater Road, Bristol BS13 8AE, England SP Angel Corporate Finance LLP Prince Frederick House, 35-39 Maddox Street, London W1S 2PP, England PUBLIC RELATIONS CONSULTANTS Cassiopeia Services Ltd Second Floor, 4-5 Gough Square, London EC4A 3DE, England AUDITOR BDO LLP 55 Baker Street, London W1U 7EU, England SOLICITORS Osborne Clarke 2 Temple Back East, Temple Quay, Bristol BS1 6EG, England Union Jack Oil plc is an onshore oil and gas company with a focus on production, drilling, development and investment in the United Kingdom hydrocarbon sector. The issued share capital is traded on the AIM Market of the London Stock Exchange (Ticker: UJO). Our strategy is the appraisal and exploitation of the assets currently owned. Simultaneous with this process, the Company’s management expects to continue to use its expertise to acquire further licence interests over areas where there is a short lead time between the acquisition of the interest and either exploration drilling or initial production from any oil or gas fields that may be discovered. “Fully funded for the 2020 West Newton appraisal and testing programme” READ MORE ON PAGE 3 Contents BUSINESS AND STRATEGY Chairman’s Statement Strategic Report Licence Interests GOVERNANCE Directors’ Report Corporate Governance Report Independent Auditor’s Report on the Financial Statements FINANCIAL STATEMENTS Income Statement Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Statement of Cash Flows Principal Accounting Policies 2 10 16 18 21 34 39 40 41 42 43 44 Notes to the Financial Statements 50 ANNUAL GENERAL MEETING Notice of Annual General Meeting 67 1 Chairman’s Statement I am pleased to present to the shareholders of Union Jack Oil plc (“Union Jack” or the “Company”), the Annual Report and Financial Statements for the year ended 31 December 2019. Union Jack’s strategy remains consistent with the objective of the Board to build a successful and sustainable, UK-focused, onshore hydrocarbon production and development business. In this respect, we have delivered demonstrable growth in asset value and 2019 has seen the expansion of our portfolio with what we consider to be high quality, asset value accretive project interests with substantial upside potential in our focus areas of the East Midlands, Humber Basin and East Yorkshire. In addition, success in any one of our key assets is expected to result in a significant increase in the market valuation of the Company. The unexpected arrival of the COVID-19 pandemic has meant very few, if any, companies and individuals have not felt the unwelcome consequences that have resulted from this unprecedented event. We continue to remain vigilant in the way we operate both technically and financially and are doing our best to keep shareholders and our Joint Operating Agreement (“JOA”) partners informed of any changes being implemented to our operations in respect of the effects of COVID-19. Currently, it is business as usual, however, I would like to add that any forward-looking statements made within this report are made with good intent, as the effects of this virus are not fully known and will remain so for the foreseeable future. Thus, the potential for any changes in working and planning in respect of our project interests remain possible and we will continue to be guided by the regulatory bodies and our Operators. I would urge shareholders to read the Notice of Annual General Meeting and the subsequent notes within this report, where COVID-19 arrangements have been highlighted. Marked progress was made in the year under review and in the post balance sheet events period up to the signing of these financial statements, with the highlights being: • Successful drilling of the West Newton A-2 conventional appraisal well where initial petrophysical evaluation has identified a gross oil column of 45 metres underlying a gross gas column of 20 metres within the Kirkham Abbey formation • Permission granted by the Planning Inspectorate for the development of the Wressle hydrocarbon discovery where first oil is anticipated during H2 2020 • Economic modelling at Biscathorpe indicates a financially robust project in the current oil price environment • Environment Agency approval received for the recommencement of well testing at West Newton A-2 • Fully funded for all current drilling and testing commitments • Cash balance in excess of £5.5 million as at 1 May 2020 • Company remains debt free “Permission granted by the Planning Inspectorate for the development of the Wressle hydrocarbon discovery where first oil is anticipated during H2 2020” 2 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 OPERATIONAL HIGHLIGHTS • Successful drilling of the West Newton A-2 conventional appraisal well where initial petrophysical evaluation has identified a gross oil column of 45 metres underlying a gross gas column of 20 metres within the Kirkham Abbey formation • Permission granted by the Planning Inspectorate for the development of the Wressle hydrocarbon discovery where first oil is anticipated during H2 2020 • Economic modelling at Biscathorpe indicates a financially robust project in the current oil price environment • Environment Agency approval received for the recommencement of well testing at West Newton A-2 FINANCIAL HIGHLIGHTS • Fully funded for all current drilling and well testing commitments • Cash balance in excess of £5.5 million as at 1 May 2020 • Company remains debt free PEDL183 WEST NEWTON (16.665%) Union Jack completed a farm-in in late 2018 on licence PEDL183, covering 176,000 acres and containing the West Newton A-1 discovery, with Rathlin Energy (UK) Limited (“Rathlin”). PEDL183 is located onshore UK, north of the river Humber, also encompassing the town of Beverley, East Yorkshire. The licence area is within the western sector of the Southern Zechstein Basin. The West Newton A-1 and subsequent A-2 discoveries are on- trend with the prolific offshore Hewett gas complex. In the UK, the carbonates of the Permian Basin have been targeted and produced offshore and onshore in the Southern North Sea Gas Basin. These carbonates have been extensively explored and produced onshore in the Netherlands, Germany and Poland, which provide several direct analogues for West Newton and the overall licence area. The A-2 well was drilled as an appraisal of the A-1 discovery and reached a total depth of 2,061 metres. A full suite of logs was run and 28 metres of core were successfully cut. Evaluation of the West Newton A-2 open hole data has identified an estimated gross hydrocarbon column of approximately 65 metres in the Kirkham Abbey formation. Based on the previously described data in conjunction with cuttings analysis and mudlogging data, a cased hole pulsed-neutron tool was run across the Kirkham Abbey zone as a means to differentiate and confirm fluid saturations. Initial petrophysical evaluation identifies a gross oil column of approximately 45 metres, underlying a gross gas column of approximately 20 metres within the Kirkham Abbey interval. The West Newton A-2 well exhibits encouraging porosities on logs and in core, particularly in the identified oil zone. The core also exhibits natural fracturing which is confirmed by an imaging log run across the entire Kirkham Abbey interval. The cased hole logging and completion programmes were initiated during August 2019, followed by well test operations. Completion and testing efforts were focused on the newly identified oil column. With the indication of this potentially significant result, the Extended Well Test (“EWT”) was paused in order to review and revise the well test design and to deliver the necessary test information to validate this significant onshore resource. Rathlin has now redesigned the EWT and all the necessary equipment has been identified. Approval for the variation to the permit to recommence well testing at West Newton A-2 has been received from the Environment Agency. Additionally, the West Newton A-2 well data provides a good tie to the high quality three component 3D seismic volume that covers the entire West Newton project. The new data allow for a revised interpretation of the seismic volume incorporating the newly identified gas over oil hydrocarbon column. Following the integration and evaluation of the core, petrophysical, seismic and test data, the Operator and partners intend to commission a revised Competent Person’s Report (“CPR”) to re-assess volumetric estimates and provide a revised Net Present Value based on the information acquired from the West Newton A-2 well. 3 BUSINESS AND STRATEGYChairman’s Statement Subsequent to the drilling of the A-2 well, the Operator undertook a number of core, geochemical and other technical studies and re-evaluated the volumetrics of the West Newton Kirkham Abbey reservoir, utilising data obtained from both the A-1 discovery and A-2 appraisal wells. The result of the volumetric exercise indicated a material upgrade in the liquid hydrocarbons believed present. The in-place volume estimates were generated for a Base Case and Upside Case by the Operator. Base Case and Upside Case Volumes in Place CASE Base Case Upside Case LIQUIDS (MMBBL) 146.4 283.0 GAS (BCF) 211.5 265.9 The basis used for the re-evaluation of the Kirkham Abbey reservoir was as follows: • Differing rock volumes, porosities and saturations, based on direct measurement and analogue data, have been used in arriving at the in-place hydrocarbon estimates • Evaluation of drilling results from the West Newton A-2 well, particularly the revised petrophysical, fluid saturation, sedimentological and diagenetic analyses • Identification of the oil leg in the Kirkham Abbey reservoir in the West Newton A-2 well, based on: – geochemical analysis of the gas and fluid samples – core fluorescence and surface samples, including – results obtained from the Pulsed Neutron Raptor tool • 28 metre core sample over the Kirkham Abbey interval, which yielded important sedimentological and depositional data and core analysis. 4 The process for commencement of appraisal drilling operations is now underway for the conventional West Newton B-1 appraisal well. This well will further appraise the Kirkham Abbey formation and test the deeper Cadeby formation at its optimum location. All the results to date continue to support our belief that West Newton is a large scale, conventional onshore oil and gas development asset with potential offshore sized resources in place. “Evaluation of the West Newton A-2 open hole data has identified an estimated gross hydrocarbon column of approximately 65 metres in the Kirkham Abbey formation” www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Chairman’s Statement PEDL180/PEDL182 WRESSLE DISCOVERY (27.5%) Located in Lincolnshire on the Western margin of the Humber Basin, PEDL180 and PEDL182 contain the substantial Wressle oil discovery, with proven reserves and significant upside, from which first commercial oil is anticipated during H2 2020, where it is expected to flow at a constrained rate of 500 barrels a day gross. During January 2020, the JOA partners received the welcome news that, after several years of planning setbacks in respect of the development of the Wressle discovery, the Planning Inspectorate had upheld the appeal and granted planning consent for the development of this company changing project. The Inspector also allowed the application for an award of costs against the North Lincolnshire Council (“NLC”). Subsequently, the NLC has paid costs of £403,000. Union Jack will receive its proportion of this payment once the sum to be paid is agreed with the Operator. Translated into 2P and 2C reserves and resources, using figures quoted from the Competent Person’s report compiled by ERC Equipoise Limited, the net volumes attributable to Union Jack are as shown below. Gross and Net Volumes of Wressle Hydrocarbons Attributable to Union Jack Gross Volumes Net Volumes attributable to Union Jack OIL MMSTB GAS BCF OIL EQUIV MMBOE OIL MMSTB GAS BCF OIL EQUIV MMBOE 2P Ashover Grit and Wingfield Flags 2C Penistone Flags Broughton North Mean Unrisked Prospective Resources 0.62 1.53 0.51 0.20 2.00 0.51 0.65 1.86 0.60 0.17 0.42 0.14 0.05 0.55 0.14 0.18 0.51 0.16 The forward plan for the Wressle oilfield development comprises the following key stages: • Discharging the planning conditions, finalising detailed designs, tendering and procurement of materials, equipment and services and finalising all HSE documentation and procedures • Installation of the ground water monitoring boreholes and establishment of baseline conditions through monitoring • Reconfiguration of the site • Installation and commissioning of surface facilities • Sub-surface operations • Commencement of production Progress to date has concentrated on the enabling works highlighted in the first bullet point above. The initial work on site will be the installation of the groundwater monitoring boreholes with the main site operations occurring in the last months of the work stream. On current plans, first oil is anticipated during H2 2020. The Economic Growth Plan for North Lincolnshire champions the growth of, and diversification of, the Humber chemical and energy cluster, currently contributing some £6 billion to the economy. Industries include petrochemicals, commodity and speciality chemicals, composite materials, pigments and paints, wind turbines and pharmaceuticals, and a raft of other associated industries employing circa 15,000 people in at least 120 companies. Petroleum remains fundamental to these locally important industries, including in the manufacture of items such as wind turbines for the renewable energy sector which rely upon composite materials involving petroleum products, as do many industrial applications. The oil that Wressle will produce will contribute to these industries and benefit the region as a whole and further afield in the UK. The oil produced at Wressle would also help offset international oil imports typically shipped over long distances, as the oil produced would be refined nearby in Immingham, keeping trucking and transportation to a minimum, reducing the carbon footprint and greenhouse gas emissions. With first oil at Wressle anticipated during H2 2020, we believe this will have a positive economic impact on Union Jack and the revenues will significantly improve the Company’s cash generating capability. 5 BUSINESS AND STRATEGYChairman’s Statement PEDL253 BISCATHORPE (27.5%) PEDL253 is situated within the proven hydrocarbon fairway of the South Humber Basin and is on-trend with the Keddington oilfield, Saltfleetby gasfield and the Louth and North Somercotes Prospects. In February 2019, the Biscathorpe-2 well was drilled and logging operations were conducted. Preliminary analysis indicated that, unexpectedly, the primary objective, the Basal Westphalian Sandstone, was not encountered. However, this result has subsequently turned full circle and the determination of the respective technical teams and their research has demonstrated that PEDL253 can be considered a viable hydrocarbon play and that Biscathorpe remains one of the largest untested onshore prospects within the UK. The JOA partnership has completed extensive and detailed studies of the Biscathorpe Prospect, including the re- processing and re-mapping of 264 square kilometres of 3-D seismic. This exercise has significantly enhanced the understanding of the prospectivity over the licence area. Accessible targets have been identified where evidence for a thickened Westphalian sandstone reservoir exists. These targets can be drilled using a side-track from the existing Biscathorpe-2 well which was suspended once site operations were concluded in 2019. Any proposed side-track will also target the oil column logged in the underlying Dinantian Carbonate as described later within this commentary. The Mean Prospective Resources associated within the Westphalian target area are estimated by the Operator, in accordance with 2018 PRMS Standard, to be 3.95 mmbbls of oil, with an upside case of 6.69 mmbbls. Preliminary economic modelling demonstrates that the Westphalian target is economically robust in the current oil price environment with a full cycle economic valuation of £55.6 million gross (NPV10%) and a US$18.07 per bbl breakeven oil price. 6 While drilling the B-2 well, there were hydrocarbon shows indicated in background gas measurements and sample fluorescence, observed over the entire interval from the top of the Dinantian to the Total Depth (“TD”) of the well (an interval of over 157 metres), with a total of 57 metres interpreted as being oil bearing in the petrophysical analysis. A geochemical analysis of the gas data and hydrocarbons extracted from drill cuttings was originally commissioned by Union Jack and carried out by Applied Petroleum Technology (UK) Limited (“APT”). The results of this analysis show a hydrocarbon column of 33º-34º API gravity oil in the Dinantian Carbonate, comparable with that produced at the nearby Keddington oilfield. An assessment of the Dinantian oil volumes has also been modelled with volumetric assumptions as being filled to spill and a proven likely live oil column following the results of the APT exercise. Mean Stock Tank Oil Initially in Place (“STOIIP”) within the Dinantian has been calculated to be 24.3 mmbbls with an upside case of 36 mmbbls. Although the Dinantian is not considered to be the primary target, should there be effective permeability, or the presence of fractures within this section, there is the possibility of a further commercially viable play being present within the Biscathorpe licence area that would add considerable resource upside over and above the principal Westphalian target. During the year, one of the JOA partners, Humber Oil and Gas Limited (“Humber”), defaulted on a balance due to the Operator. The Operator, on behalf of the remaining JOA partners, has enforced the rights under the JOA default provisions and commenced proceedings to recover the sum owed. Under the terms of the JOA, the defaulting party can be removed from the licence and that party’s share of the asset redistributed amongst the remaining JOA partners. Humber remains liable for the outstanding debt, however, in the meantime the remaining JOA partners have assumed responsibility for the pro-rata payment of invoices. The payment default under the JOA by Humber has resulted in Union Jack increasing its holding from 22% to 27.5% in PEDL253. www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Chairman’s Statement DISPOSAL OF INTEREST IN PEDL143 WEALD BASIN (FORMERLY HOLMWOOD) In April 2019, Union Jack reached agreement with the Operator, UK Oil & Gas PLC (“UKOG”), to sell its 7.5% interest in PEDL143 for a consideration of £112,500 payable in ordinary shares of UKOG. This disposal allows Union Jack to concentrate on its focus areas of the East Midlands, Humber Basin and East Yorkshire, where we believe all our interests are material and potentially company-changing core assets, namely, West Newton, Wressle, Biscathorpe and Keddington. PRODUCTION ASSETS Union Jack’s portfolio includes licence interests in two production assets, PEDL005(R) (55%) and EXL294 (20%) containing the Keddington and Fiskerton Airfield oilfields respectively. Combined production of high-quality oil from these two assets is averaging 50 barrels of oil per day gross from Carboniferous age sandstone reservoirs. Keddington is located along the very prospective East Barkwith Ridge, an east-west structural high on the southern margin of the Humber Basin. A detailed, subsurface review of the Keddington field and the surrounding licence area was conducted by Egdon and Union Jack during 2019, resulting in a fully audited and consistent data set that supports updated resource estimates generated by the Operator. These geological and geophysical studies indicate that potentially significant resources remain unswept at Keddington, highlighting an excellent opportunity to increase production volumes multifold by the drilling of a relatively inexpensive development well from the existing production site. The gross remaining Mean Contingent Resource at Keddington is 567,000 bbls of oil (311,000 bbls net to Union Jack). The Operator is finalising the assessment of potential in-fill drilling locations at Keddington with a view to targeting a side-track drilling location. The Keddington site lease has been extended until 2029, and planning consent expires in 2058, with approval in place for the drilling of a further two wells. In addition to the unswept resources at Keddington, a near- field exploration opportunity exists at Keddington South, which has a gross Mean Prospective Resource Volume of 635,000 bbls of oil (349,250 bbls net to Union Jack). During March 2020, Union Jack acquired a further 35% economic interest in PEDL005(R) from Terrain Energy Limited, increasing its holding to 55%. The consideration in respect of the acquisition was £200,000, financed from existing cash resources. This transaction provides an immediate uplift in oil production which will have a beneficial effect when consolidated into the production revenues generation from Fiskerton Airfield and the anticipated “first oil” from the Wressle development later in the year. Production at Fiskerton Airfield remains steady and focus will continue to be the maximising of oil output from the existing wells. “These geological and geophysical studies indicate that potentially significant resources remain unswept at Keddington” 7 BUSINESS AND STRATEGYChairman’s Statement OTHER PORTFOLIO INTERESTS COVID-19 STATEMENT Union Jack holds interests in a number of other non-core projects. PEDL241 North Kelsey (20%) located within the proven Humberside platform contains the drill-ready North Kelsey Prospect. Subject to a successful future farm out process, this prospect is expected to be drilled during 2021. An interest is also held in PEDL118 Dukes Wood (16.67%) and PEDL203 Kirklington (16.67%) discoveries. PEDL201 Widmerpool Gulf (26.25%), formerly known as Burton-on the-Wolds, contains significant non-conventional Bowland Hodder shale potential. During November 2019, the Government introduced a moratorium on non- conventional operations, therefore the Board has decided to fully impair this asset. PEDL181 Humber Basin (12.5%) is located within the Humber Basin and holds non-conventional upside. As in the case of PEDL201, the Board has decided not to continue with this licence interest and we intend to withdraw during 2020. This licence has been fully impaired. PEDL 209 Laughton (10%) has no activity planned for the foreseeable future and it is the intention of the Company to withdraw from this interest during 2020. The relinquishments planned will have a modest cost saving element to our operations going forward and will enable additional focus on our core assets. A detailed map of Union Jack’s licence interests can be viewed on pages 16 and 17. Following the outbreak of Coronavirus (COVID-19), the priority of the Company has been on the health and safety of its employees and technical staff. Like many organisations, plans have been implemented and active measures have been taken to mitigate risk, such as no one-to-one contact and numerous telephone meetings. The Board is also in frequent contact with the Company’s JOA partners and our external technical team to assess any potential impact on the assets in which the Company has invested. We continue to follow the most up-to-date Government advice and engage with the regulatory bodies and stakeholders. To date, the exploration, development and production activities of the Company’s assets have continued in line with plans and with minimal impact from COVID-19. However, the Company recognises COVID-19 and associated geo-political factors have created uncertainty around the price and demand for oil. The Company’s financial health remains strong, with a robust balance sheet, cash reserves to fund its operations through to April 2021 and we remain debt free. Accordingly, the Board does not currently plan to make changes going forward. However, the Board continues to monitor the situation closely and will, with its JOA partners, make adjustments if appropriate. I would like to bring to the attention of shareholders the Notice of Annual General Meeting (“AGM”) on page 67 of this Annual Report and associated notes. We have no statutory requirement to delay the publishing or production of the Company’s accounts and financial statements for the year ended 31 December 2019, and COVID-19 arrangements have been implemented to allow the AGM to take place as planned within the guidelines and advice of our legal team. 8 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Chairman’s Statement CORPORATE AND FINANCIAL SUMMARY A successful placing of £5 million before expenses in November 2019 has ensured the financial well-being of the Company going forward. The costs of the EWT at West Newton A-2 have already been paid and no further cash calls are expected for this process. We also have sufficient monies in place to fund our share of planned drilling and testing at the West Newton B-1 well and the development of the Wressle discovery where first oil is anticipated during H2 2020. Union Jack remains debt free and the cash balance as at 1 May 2020 is in excess of £5.5 million. We continue to identify and add value-accretive asset interests to our portfolio and execute a very strict technical and financial regime, thus protecting the Company and its shareholders. I would like to thank our shareholders for their continued support, as well as my colleagues and co-directors, who provide invaluable advice and continue to champion the development of the UK onshore hydrocarbon industry for the benefit of both Union Jack and the wider economy. I would also like to thank our wider suite of professional advisers, who have contributed to the efficient running of Union Jack, and have enabled us to engage with investors to source essential funding which enables our core projects to move forward. My confidence in respect of Union Jack’s future remains highly positive. The Company, during 2019 and to date, has advanced its key projects, and seen drilling and appraisal activity, supported by technical research input from our very competent technical team, resulting in accretion in asset value and providing clarity on the next steps towards commerciality. I have no doubt that, even in these difficult times, given our attractive projects, we will achieve our goal of increasing production materially and becoming a significant mid- tier UK onshore producer in the medium term. In the meantime, I am certain that the news stream arising from the ongoing progress of our endeavours will vindicate our optimism in respect of our licence interests. Union Jack’s wider asset portfolio is well balanced with the relevant components of production, development, appraisal and discovery and we are fully funded for all our planned commitments going forward. The future of Union Jack remains bright. David Bramhill Executive Chairman 7 May 2020 9 BUSINESS AND STRATEGYStrategic Report FOR THE YEAR ENDED 31 DECEMBER 2019 STRATEGY Our strategy is the appraisal and exploitation of the assets currently owned. Simultaneous with this process, the Company’s management expects to continue to use its expertise and cash resources to acquire further licence interests in the UK over areas where there is a short lead time between the acquisition of the interest and either exploration drilling or initial production from any oil or gas fields that may be discovered. BUSINESS REVIEW Union Jack Oil plc is a UK registered company, focused on the exploration for, and future development of, hydrocarbon projects. A review of the Company’s operations during the year ended 31 December 2019 and subsequently to the date of this report is contained in the Chairman’s Statement and this Strategic Report. The loss for the year amounted to £1,692,383 (2018: £1,098,708). The loss for the year includes impairments of which total costs are £393,697 (2018: £205,308). These impairments are in relation to PEDL201, £375,892 (2018: £nil), PEDL181, £15,042 (2018: £nil) and PEDL209, £2,763 (2018: £nil). Administrative expenses amounted to £1,343,362 (2018: £871,489). The increase in this cost was due to additional technical work in respect of West Newton, Wressle, Biscathorpe, and Keddington, undertaken by the Company’s external consultants. Cash and cash equivalents at year end amounted to £6,626,322 (2018: £3,123,287). Total assets at year end amounted to £14,234,850 (2018: £7,458,441). Non-current assets at year end amounted to £7,428,331 (2018: £4,137,100). The directors do not recommend the payment of a dividend (2018: £nil). In April 2019, 2,333,333,334 new ordinary shares were issued for cash at a price of 0.075 pence per share, raising £1,750,000 before expenses of £153,213 by way of a placing and subscription. In July 2019, 1,323,529,411 new ordinary shares were issued at a price of 0.17 pence per share, raising £2,250,000 before expenses of £140,888, by way of a placing and subscription. In November 2019, 3,333,333,326 new ordinary shares were issued at a price of 0.15 pence per share raising £5,000,000 before expenses of £346,495 by way of a placing and subscription. The enlarged issued share capital following the issue of the new shares described above is 15,440,906,325 ordinary shares of 0.025 pence each and 831,680,400 deferred shares of 0.225 pence each. FUTURE DEVELOPMENTS The directors intend to continue with the Company’s stated strategy, reviewing the licence interests held in respect of future viability, any potential impairment triggers that may arise during the year and adjusting immediately to any changes that may be required in the operation of the licence interests held. The Company holds a number of key quality project interests, namely, Wressle, West Newton and Biscathorpe, where development and appraisal plans are in place for the future benefit of stakeholders and the Company. The directors will continue to investigate further acquisition opportunities as and when they arise. KEY PERFORMANCE INDICATORS The Company has made good progress during the year ended 31 December 2019. Traditional KPIs are not appropriate to the Company. Performance is measured by monitoring exploration costs and ensuring sufficient funds are available to meet exploration commitments. The directors were successful in raising funds to ensure the Company is adequately funded to meet all of its current commitments. During February 2019, the Biscathorpe-2 appraisal well reached target depth. The Basal Westphalian Sandstone was not present, however, elevated gas readings and oil shows were calculated in the Dinantian Carbonate. The open-hole section was sealed and the well suspended to allow for a possible side-track operation once the well data have been integrated into a new subsurface model. In April 2019, the Company agreed to sell its 7.5% interest in PEDL143, containing the Holmwood Prospect to UK Oil & Gas PLC ("UKOG"). The consideration for this transaction was £112,500 payable in ordinary shares of UKOG. The transaction was completed in June 2019. In June 2019, the Company announced positive preliminary results from the West Newton A-2 appraisal well drilled on PEDL183. A gross 45 metre liquids column, overlain by a gross 20 metre gas column, was identified from core and logging data. An EWT followed and was paused due to a new test configuration and equipment being required due to the liquid content present. In July 2019, a positive update was published in respect of the Biscathorpe-2 well. An analysis of drill cutting samples taken from 20 intervals provided geo-chemical evidence of the presence of live hydrocarbons. A report compiled by APT, an independent laboratory, confirmed the presence of hydrocarbons from both the Westphalian and Dinantian cutting samples. The APT report also confirmed the data support the existence of a significant oil column of good quality oil (high API gravity) within the Dinantian, validated by the presence of a full suite of gases, ranging from methane to pentane. 10 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Strategic Report FOR THE YEAR ENDED 31 DECEMBER 2019 During November 2019, the Operator of PEDL183, Rathlin Energy (UK) Limited, released a positive update in respect of hydrocarbon volumetrics at the West Newton A-2 well. Further events which took place after the Balance Sheet date are described in the Directors’ Report and note 23. Intangible Assets totalled £6,726,743 (2018: £3,485,961). Tangible assets totalled £581,300 (2018: £611,139). The Company’s Income Statement reports revenues of £136,959 (2018: £165,270) in respect of production income from the Keddington oilfield and the Fiskerton Airfield oilfield. SECTION 172 STATEMENT For periods beginning on or after 1 January 2019, all large companies must include a separate statement within their strategic report that explains how the directors have had regard to broader stakeholder interests when performing their duty under section 172 of the Companies Act 2006 to promote the success of the company for the benefit of its members as a whole. The past few years have seen intense focus and debate on UK corporate governance. A decline in public trust in business has been caused in part by high-profile business failures, accusations of excessive executive pay, unethical tax avoidance by multinational businesses and deteriorating relationships with employees over pay and contractual terms. These factors have led to Prime Ministerial statements, select committee inquiries, public consultations, a government green paper and, ultimately, to changes in legislation, stock exchange rules and governance codes. Many of the matters noted above have resulted from decisions made in the board room and their effects have been felt by the employees, pension scheme members, customers, suppliers and other stakeholders, as well as shareholders, the interests of all of whom the directors have a statutory duty to consider when making a decision. It is in this context that the widest-ranging of the new reporting requirements has been introduced for large companies: The Section 172 Statement, which must be included in the Annual Report of all large companies (as defined in the Companies Act 2006). Under section 172, directors have a duty to promote the success of the company for the benefit of the members as a whole and, in doing so, they should have regard to (amongst other matters) six specified areas that relate, by-and-large, to wider stakeholder interests: Likely consequence of any decision in the long term Act fairly as between members of the company Interests of employees Duty to promote the success of the company for the benefit of its members as a whole, having regard to: Maintain a reputation for high standards of business conduct Foster business relationships with suppliers, customers and others Impact of operations on the community and the environment 11 BUSINESS AND STRATEGYStrategic Report FOR THE YEAR ENDED 31 DECEMBER 2019 Likely consequences of any decision in the long term The Company’s activities of investment in licences for blocks to explore and/or produce oil and/or gas are in general focused on the longer term. This is particularly the case given that the Company itself is not an operator of any of the oil or gas fields in which it has an interest, which means that the Board is able to focus on longer term strategic decisions rather than day to day operating decisions. Through its financing activities, the Board has ensured that the Company is well capitalised and has cash resources for all of its current and anticipated capital requirements, to ensure that the Company has a viable operating plan for the long term. Interests of Company’s employees Given the nature of the Company’s business, it has very few employees and the majority are themselves directors. The Board recognises that the Company’s employees are, nevertheless, critical to the success of the Company and takes steps to ensure that the interests of employees are protected. Need to foster the Company’s business relationships with suppliers, customers and others The Company recognises the importance of fostering strong relationships with its stakeholders in order to create sustainable long-term value, and the Board encourages active dialogue and transparency with all its stakeholder groups. The Company does not deal directly with customers or suppliers in relation to the oil and gas fields, save for its relationship with its JOA partners who operate the relevant fields, Egdon Resources U.K. Limited, Rathlin Energy (UK) Limited and Europa Oil & Gas Limited. The Company seeks a sustainable relationship with its JOA Operators and there is a direct relationship at Board level with the Company’s partners. The Board is careful to choose JOA and other partners with experience, resources and similar values to the Company. The Company only invests in interests in licences where it has a degree of influence over the manner in which the operations of that block are operated. In addition, the Board is mindful in its decisions of the indirect impact that the Company’s decisions may have through the activities of its operators and other partners on suppliers, customers and others. The Company acknowledges the importance of maintaining good relations with its suppliers and creditors and it adheres to a strict policy of settling all invoices in a timely manner. 12 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Strategic Report FOR THE YEAR ENDED 31 DECEMBER 2019 Impact on the environment and the community The Company is committed to the highest standards of health, safety and environmental protection. These aspects command equal prominence with other business considerations. The onshore oil and gas industry has an excellent record in relation to health, safety and the protection of the environment. The industry is regulated by a number of statutory bodies including the Environment Agency in England and is recognised as being robust. By producing oil and gas here in the UK, instead of importing from overseas, jobs, a stream of tax revenues and direct investment into our communities are achieved. The desirability of the Company maintaining a reputation for high standards of business conduct The Board believes that its reputation will follow from ensuring that appropriate governance structures are in place and from taking the right decisions, as noted in the factors above, and as set out further on pages 21 to 33 of this Annual Report. The need to act fairly as between members of the Company As an AIM quoted Company, the Company is subject to governance requirements and rules (including the AIM Rules for Companies and the Market Abuse Regulation) which are intended to ensure that shareholders are treated fairly. The Board takes its obligations to comply with these requirements seriously and has regular contact with its experienced professional advisers to ensure that these requirements are satisfied. The directors of the Company all hold shares in the Company and their interests are therefore aligned to those of the other shareholders. PRINCIPAL RISKS AND UNCERTAINTIES As with the majority of companies within the energy sector the business of oil and gas exploration and development includes varying degrees of risk. These risks broadly include operating reliance on third parties, the ability to monetise discoveries and the risk of cost overruns. There are also specific political, regulatory and licensing risks attached to various projects as well as issues of commerciality, environmental, economic, competition, reliance on key personnel, contractor and judicial factors. Commodity prices will have an impact on potential revenues and forward investment decisions by the Operator on the projects invested in, as the economics may be adversely affected. However, onshore development costs are lower than for offshore developments. The Company does not use hedging facilities. The Company holds adequate Directors’ Insurance cover and the Company is covered by the Operator’s insurance during drilling and other operational situations. The Board, in its opinion, has mitigated risks as far as reasonably practicable. The principal risks to the Company as well as the mitigation actions are set out below: Strategic: A weak or poorly executed development process fails to create shareholder value This risk is mitigated through performing a detailed technical review, both internally by management and externally by advisers before an investment decision is taken, for each investment which includes a valuation exercise on the potential return on monies spent. The amount of interest acquired in each project is dependent upon the Company’s financial capability to fulfil its obligation. The Company’s technical management team is highly skilled with many years’ industry experience. 13 BUSINESS AND STRATEGYStrategic Report FOR THE YEAR ENDED 31 DECEMBER 2019 Operational: Operational events can have an adverse effect The main risk is the potential failure to obtain planning permission in respect of the Company’s licence interests. This risk is mitigated by the appointment of specialist professional entities who work together to compile planning applications designed to achieve a positive result. A further potential risk is the reliance upon the Operators, Egdon Resources plc, Rathlin Energy (UK) Limited and Europa Oil & Gas Limited and their ability to determine timetables and priorities which are beyond the control of the Company. External Risk: Lack of growth caused by political, industry or market factors The Company operates exclusively within the United Kingdom (“UK”) and the Board considers that the UK onshore hydrocarbon arena offers excellent value under a regime with a very clearly spelt out protocol giving the opportunity to develop assets unhindered. As mentioned in this review, oil and gas price volatility can cause concern. However, onshore developments can continue as planned in most cases as development costs are lower than for offshore. The oil price environment is always being monitored, however, the Company’s key assets are cashflow positive at a breakeven oil price of approximately US$18. Lack of control over key assets is mitigated by the fact that our Operators of choice, Egdon Resources plc, Europa Oil & Gas Limited and Rathlin Energy (UK) Limited have a very transparent operating protocol and all partners are involved, both formally and informally, with offering input to the ongoing development of the projects in which they are involved. The Company’s in-house technical team capabilities are further supported by external consultants involved at all times and whom together participate in regular technical meetings. The outbreak of COVID-19 in early 2020 presents a possible risk for delay in implementing drilling and development. To date, the Company’s projects have not been subjected to material delays. The Company continues to follow the most up-to-date government advice. In respect of ongoing Brexit discussions and the potential effect on the Company going forward, it is impossible to predict the effects of Brexit at this moment in time. Financial Risk: The lack of ability to meet financial obligations The main risk is the lack of funds being available to pay for our future drilling commitments. All drilling expenditure associated with exploration assets is forecast and budgeted at least 12 months in advance. The Company raises its funds through the financial market by share issues and does not become involved in derivatives and borrowing to fund its financial obligations. Further comment in respect of Financial Risk Management Objectives and Policies, Cash Flow Risk, Credit Risk, and Liquidity Risk are also covered within this Strategic Report. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Company’s activities expose it to a number of financial risks including liquidity risk, oil price risk, credit risk, and cash flow risk. The use of financial derivatives is governed by the Company’s policies approved by the Board of Directors, which provide written principles on the use of financial derivatives to manage these risks. The Company does not use derivative financial instruments for speculative purposes. LIQUIDITY RISK In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Company uses its existing cash funds. OIL PRICE RISK The Company is exposed to oil price risk associated with sales of oil from production. The Company does not currently consider it necessary to use hedging instruments to manage its exposure to this risk. CREDIT RISK The Company’s principal financial assets are its cash balances. The credit risk on liquid funds is limited because the counterparty is a bank with high credit-rating. CASH FLOW RISK During the year, the Company’s activities did not expose it to financial risks of changes in foreign currency exchange rates. 14 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Strategic Report FOR THE YEAR ENDED 31 DECEMBER 2019 GOING CONCERN The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman’s Statement and this Strategic Report. The directors’ forecasts demonstrate that the Company will meet its day-to-day working capital and share of estimated drilling costs over the forecast period (being at least 12 months from the date the financial statements were approved) from the cash held on deposit on 31 December 2019. The principal risk to the Company’s working capital position is drilling cost overruns. The Company has sufficient funding to meet planned drilling expenditures and a level of contingency. Taking account of these risks, sensitised forecasts show that the Company is able to operate within the level of funds currently held at the date of approval of these financial statements. The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. The effect of COVID-19 is actively being assessed by management. The future impact remains unknown. The management is of the opinion that there is no reason to believe there will be any effect in respect of the Company’s going concern status for the foreseeable future. APPROVAL OF THE BOARD This Strategic Report contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. While the directors believe the expectation reflected within the Annual Report to be reasonable in light of the information available up to the time of their approval of this report, the actual outcome may be materially different owing to factors either beyond the Company’s control or otherwise within the Company’s control, for example owing to a change of plan or strategy. Accordingly, no reliance may be placed on the forward- looking statements. On behalf of the Board David Bramhill Executive Chairman 7 May 2020 15 BUSINESS AND STRATEGYUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Union Jack’s Licence Interests 1 PEDL183 West Newton 16.665% 2 PEDL180 PEDL182 Wressle Discovery Broughton North 27.5% 3 PEDL253 Biscathorpe 27.5% PEDL005(R) Keddington Oilfield 4 Louth North Somercotes PEDL339 Louth Extension 5 EXL294 Fiskerton Airfield Oilfield 6 PEDL241 North Kelsey 7 PEDL118 Dukes Wood PEDL203 Kirklington 55% 35% 20% 20% 16.67% 8 PEDL201 Widmerpool Gulf 26.25% 9 PEDL181 Humber Basin 12.5% 10 PEDL209 Laughton 10% 16 PEDL146 PEDL183 WEST NEWTON A-1 NORTH SEA EXL288 1 6 1 L D E P 8 8 2 L X E TRUMFLEET PL161 HATFIELD 9 6 1 L D E P PL162 PEDL182 PEDL173 PEDL180 PEDL043 PEDL043 PEDL209 PEDL140 ML004 ML004 BECKINGHAM CORRINGHAM ML004 HATFIELD PL162 PEDL181 PEDL241 PEDL012 PEDL200 PEDL 210 PEDL006 PEDL 210 WEST FIRSBY PEDL006 COLD HANWORTH SOUTH LEVERTON ML007 SCAMPTON NORTH SCAMPTON PEDL007 EAST GLENTWORTH PEDL253 BOTHAMSALL NEWTON-ON-TRENT NETTLEHAM PEDL210 PL179 FARLEYS WOOD ML003 PEDL130 PEDL090 EGMANTON WHISBY BECKERING STAINTON WELTON EXL294 PEDL005 PEDL005 PEDL005 SALTFLEETBY EAKRING KIRKLINGTON PEDL 118 PEDL 203 PEDL202 PEDL255 PEDL208 PEDL254 PEDL204 PL220 PEDL201 REMPSTONE PL220 PEDL021 GOODWORTH PL116 HUMBLY GROVE PL233 PL249 STOCKBRIDGE PEDL070 AVINGTON DL004 ALBURY BROCKHAM PL235 PALMERS WOOD ML021 PEDL246 BLETCHINGLEY ML018 PL182 EXL189 EXL189 PEDL137 PEDL143 PEDL246 PEDL235 PEDL243 PEDL231 PEDL234 PEDL244 PL240 HORNDEAN PL211 PEDL126 PEDL233 SINGLETON PL205 STORRINGTON PL241 LIDSEY PEDL146 PEDL183 West Newton PEDL183 WEST NEWTON A-1 NORTH SEA BUSINESS AND STRATEGY PEDL180 PEDL182 Wressle Discovery PL162 PEDL182 Broughton North PEDL182 PEDL173 PEDL180 EXL288 1 6 1 L D E P 8 8 2 L X E TRUMFLEET PL161 HATFIELD PEDL209 Laughton 9 6 1 L D E P PEDL043 PEDL043 PEDL209 PEDL140 ML004 ML004 BECKINGHAM CORRINGHAM ML004 HATFIELD PL162 PEDL181 PEDL241 PEDL241 North Kelsey PEDL181 Humber Basin PEDL012 PEDL200 PEDL 210 PEDL006 PEDL 210 WEST FIRSBY PEDL006 COLD HANWORTH EAST GLENTWORTH PEDL253 PEDL005 SALTFLEETBY BECKERING STAINTON WELTON EXL294 PEDL253 Biscathorpe EXL294 Fiskerton Airfield Oilfield SOUTH LEVERTON ML007 SCAMPTON NORTH SCAMPTON PEDL007 BOTHAMSALL NEWTON-ON-TRENT NETTLEHAM PEDL210 PL179 FARLEYS WOOD ML003 PEDL130 PEDL090 EGMANTON WHISBY EAKRING KIRKLINGTON PEDL 118 PEDL 203 PEDL202 PEDL118 Dukes Wood PEDL203 Kirklington PEDL255 PEDL208 PEDL254 PEDL204 PL220 PEDL201 REMPSTONE PL220 PEDL201 Widmerpool Gulf 10km Gas Field Oil Field/Discovery Prospect PEDL005(R) North Somercotes Prospect PEDL005 PEDL005 PEDL005(R) Louth Prospect PEDL005(R) Keddington Oilfield 17 PEDL021 GOODWORTH PL116 HUMBLY GROVE PL233 PL249 STOCKBRIDGE PEDL070 AVINGTON DL004 ALBURY BROCKHAM PL235 PALMERS WOOD ML021 PEDL246 BLETCHINGLEY ML018 PL182 EXL189 EXL189 PEDL137 PEDL143 PEDL246 PEDL235 PEDL243 PEDL231 PEDL234 PEDL244 PL240 HORNDEAN PL211 PEDL126 PEDL233 SINGLETON PL205 STORRINGTON PL241 LIDSEY Directors’ Report FOR THE YEAR ENDED 31 DECEMBER 2019 The directors present their report together with the financial statements for the year ended 31 December 2019. The directors have chosen, in accordance with section 414C(11) of the Companies Act 2006, to set out in the Company’s Strategic Report information required by Schedule 7 to the Accounting Regulations to be contained in the Directors’ Report. This information includes future developments of the Company and the risks associated with the use of financial instruments. DIRECTORS The directors in office at the end of the year, and their interests in the shares of the Company as at 1 January 2019 and 31 December 2019, were as shown in the table below. ORDINARY SHARES 31 December 2019 1 January 2019 63,929,285 63,929,285 275,732,806 212,987,709 48,411,764 42,529,411 4,000,000 4,000,000 D Bramhill J O’Farrell R Godson G Bull In July 2019, Joseph O’Farrell purchased 29,411,764 new ordinary shares. In December 2019, Joseph O’Farrell purchased a further 33,333,333 new ordinary shares following which he now holds a beneficial interest in 275,732,806 ordinary shares representing approximately 1.79% of the share capital of the Company. In July 2019, Raymond Godson purchased 5,882,353 ordinary shares following which he now holds a beneficial interest in 48,411,764 ordinary shares representing approximately 0.31% in the share capital of the Company. Directors who served during the year are as follows: David Bramhill (Executive Director); Joseph O’Farrell (Executive Director); Raymond Godson (Non-executive Director); Graham Bull (Non-executive Director); Frazer Lang (Non-executive Director)* * Frazer Lang resigned on 10 June 2019. (Details of Frazer Lang’s remuneration are disclosed in note 3). DIRECTORS’ REMUNERATION The remuneration of the directors in office at the year end 31 December 2019 was as follows: SALARIES AND FEES 2018 £ 2019 £ 160,000 70,000 30,000 30,000 110,000 55,833 25,000 25,000 OPTIONS 2019 240,000,000 140,000,000 60,000,000 110,000,000 2018 120,000,000 60,000,000 30,000,000 30,000,000 D Bramhill J O’Farrell R Godson G Bull D Bramhill J O’Farrell R Godson G Bull Directors’ remuneration is disclosed in note 3 of these financial statements. Copies of the Service Agreements in respect of D Bramhill and J O’Farrell are available for inspection at the Company’s Registered Office. Copies of the Letters of Appointment in respect of G Bull and R Godson are available for inspection at the Company’s Registered Office. In July 2019, David Bramhill was granted 120,000,000 options. In July 2019, Graham Bull was granted 80,000,000 options. In July 2019, Raymond Godson was granted 30,000,000 options. In July 2019, Matthew Small (Company Secretary) was granted 30,000,000 options. The options are exercisable at 0.265 pence per share and the earliest vesting date is 19.07.22. In August 2019, Joseph O’Farrell was granted 80,000,000 options. The options are exercisable at 0.265 pence per share and the earliest vesting date is 06.08.22. Further information in respect of these options can be found in note 13(c) within the Notes to the Financial Statements section. 18 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Directors’ Report FOR THE YEAR ENDED 31 DECEMBER 2019 DIRECTORS’ RESPONSIBILITIES STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019 The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the 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 Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for ensuring the Annual Report and Financial Statements is made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held on 18 June 2020, in accordance with the Notice of Annual General Meeting on page 67. Details of the resolutions to be passed are included in this notice. 19 GOVERNANCEDirectors’ Report FOR THE YEAR ENDED 31 DECEMBER 2019 EVENTS AFTER THE BALANCE SHEET DATE The following events have taken place after the year end: During January 2020, the Planning Inspectorate informed the Operator that the appeal in respect of obtaining planning consent for the development of the Wressle oilfield, situated on licences PEDL180 and PEDL182 located in North Lincolnshire, was successful. The Inspector also allowed the application for an award of costs against the North Lincolnshire Council (“NLC”). Subsequently, the NLC has paid costs of £403,000. Union Jack will receive its proportion of this payment once the sum to be paid is agreed with the Operator. During March 2020, the Company acquired a 35% interest in PEDL005(R) containing the producing Keddington oilfield and a 15% interest in PEDL339 containing a portion of the Louth Prospect, from Terrain Energy Limited for a consideration of £200,000. In April 2020, the Company purchased 5,000,000 new ordinary shares in Egdon Resources plc via means of a subscription at a price of 2 pence per Subscription Share for a total subscription amount of £100,000. In April 2020, approval for the variation to the permit to recommence well testing at West Newton A-2 was received from the Environment Agency. Since the outbreak of Coronavirus (COVID-19) in early 2020, the priority of the Company has been on the health and safety of its employees and technical staff. Like many organisations, plans have been implemented and active measures have been taken to mitigate risk, such as no one-to-one contact and numerous telephone meetings. The Board is also in frequent contact with the Company’s JOA partners and our external technical team to assess any potential impact on the assets in which the Company has invested. We continue to follow the most up-to-date Government advice and engage with the regulatory bodies and stakeholders. To date, the exploration, development and production activities of the Company’s assets have continued in line with plans and with minimal impact from COVID-19. However, the Company recognises COVID-19 and associated geo-political factors have created uncertainty around the price and demand for oil. The Company’s financial health remains strong, with a robust balance sheet, cash reserves to fund its operations through to April 2021 and remains debt free. Accordingly, the Board does not currently plan to make changes going forward. However, the Board continues to monitor the situation closely and will, with its JOA partners, make adjustments if appropriate. CAPITAL STRUCTURE Details of the issued share capital, together with details of the movements in the Company’s issued share capital during the year, are shown in note 13(a). DISCLOSURE OF INFORMATION TO THE AUDITOR The directors at the date of the approval of this Annual Report confirm that: • • so far as the directors are aware, there is no relevant audit information of which the Company’s auditor is unaware; and the directors 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 Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. AUDITOR A resolution to reappoint BDO LLP will be proposed at the forthcoming Annual General Meeting. COMPANY NAME AND REGISTERED NUMBER The registered number of Union Jack Oil plc is 07497220. On behalf of the Board David Bramhill Executive Chairman 7 May 2020 20 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Corporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 CORPORATE GOVERNANCE REPORT The Company’s securities are traded on the Alternative Investment Market (“AIM”) of the London Stock Exchange. Board of directors (the "Board") in accordance with the recommendations of the QCA Corporate Governance Code 2018 (the "Code"), which the Company has adopted as its code of governance. The London Stock Exchange has recently introduced changes to the AIM rules requiring all AIM listed companies to adopt and comply with a recognised corporate governance code. The Corporate Governance Report has been prepared by David Bramhill, the Executive Chairman of the Company, and has been approved by the Company’s This statement explains how the 10 principles of the Code are applied by the Company, and where the Company departs from the Code, an explanation of the reasons for doing so is provided. QCA Code Recommendation Application by the Company 1. Principle 1 Establish a strategy and business model which promotes long-term value for shareholders. The Board must be able to express a shared view of the Company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the Company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the Company from unnecessary risk and securing its long-term future. The primary objective of the Company is to build a safe, sustainable and successful conventional onshore hydrocarbon exploration, development and production business, which the Board seeks to deliver through the acquisition of, and subsequent investment in, carefully selected licence interests. The Company undertakes this in conjunction with three JOA partners, Egdon Resources plc, Rathlin Energy (UK) Limited and Europa Oil & Gas Limited. The Company’s strategy is the appraisal and exploitation of the assets currently owned. Simultaneous with this process, the Board expects to continue to use its expertise and cash resources to acquire further licence interests and production in the UK. The Board is optimistic about the prospect of delivering shareholder value in the medium to long term via the acquisition and increased interest in various high impact licence areas with proven reserves, contingent resources and drill-ready prospects. The Board is acutely aware of the risks associated with hydrocarbon exploration, development and production and seeks to mitigate the risk of exploration by having interests in a portfolio of petroleum licences thereby not being overly exposed to any single asset. The Company’s strategy is underpinned by a well-balanced and diverse onshore UK asset portfolio, ensuring the relevant components of production, development, appraisal and discovery are all in place, as is adequate and prudently sourced funding for the Company’s commitments going forward. 21 GOVERNANCECorporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 2. Principle 2 Seek to understand and meet shareholders’ needs and expectations. Directors must develop a good understanding of the needs and expectations of all elements of the Company’s shareholder base. Since the Company’s incorporation in January 2011, members of the Board have been very active in encouraging and participating in direct dialogue with shareholders in order to ensure the Company’s shareholders are kept regularly updated and are able to discuss strategy and performance directly with the Board (subject always to compliance with legal and regulatory requirements, including the Market Abuse Regulations ("MAR")). This also allows the Board to obtain a clear understanding of shareholders’ motivations and concerns. The Board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions. Direct communication with shareholders is achieved primarily through the timely release of regulatory news, via a regulatory information service, which can be accessed through various channels, including the London Stock Exchange website (https://www.londonstockexchange. com/) and the Company’s website (http://unionjackoil.com/). In addition to the dissemination of regulatory news, the Company also seeks to keep its shareholders informed of current developments and performance via interviews and speaking events at various conferences. All shareholders are encouraged to attend the Company’s Annual General Meeting, where the directors are available to answer questions. Investors also have access to current information on the Company through its website and via genuine enquiries sent to: info@unionjackoil.com. Investor communications are managed by the Executive Chairman, in conjunction with the Company’s Nominated Adviser and public relations consultants. Due to investor speculation around junior hydrocarbon companies, the Board recognises the particular importance of regular, clear and timely communications with shareholders, to ensure that they are kept abreast of major developments and potential risks in respect of the Company and the Industry without delay. Management believes that shareholders are seeking a return on their investment primarily through capital appreciation as a result of exploration and appraisal success. Management prudently manages the Company to ensure that work programmes are fully funded and uses the Board’s technical expertise to reduce or mitigate the risk of exploration. 22 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Corporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 3. Principle 3 Take into account wider stakeholder and social responsibilities and their implications for long-term success. Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The Board needs to identify the Company’s stakeholders and understand their needs, interests and expectations. Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups. The Board is keenly aware of the local environment and the inhabitants in which the Company’s licence interests are situated. While the Company does not manage these relationships directly on a day to day basis, the Board works with the Company’s JOA partners to ensure that any queries or concerns any community members may have are swiftly addressed and, at the same time, all community members are treated with the respect and attention they deserve. The JOA partnerships act, via the Operators, to the highest standards and operate in a safe and conscientious manner in respect of site safety and environmental policies. Site operations are subject to scrutiny by the Oil & Gas Authority, Environment Agency and the Health and Safety Executive before commencement. The Operator adheres diligently to all requirements for a safe working environment. All site personnel are subject to all Health and Safety measures which include induction courses before admission to site and the mandatory wearing of safety equipment in order to ensure the wellbeing of site staff and visitors. As set out above, due to the specific nature of the Company’s business, the Company currently relies on three key JOA partners, Egdon Resources U.K. Limited, Rathlin Energy (UK) Limited and Europa Oil & Gas Limited, who manage and operate the Company’s licence interests on its behalf. The Company takes its relationship with its JOA partners and its third party professional advisers (both of whom it sees as its key stakeholders) very seriously and the Board continues to discuss any issues and queries the Company’s JOA partners may have in an open, direct and constructive manner. The Company also acknowledges the importance of maintaining good relations with its suppliers and creditors and it adheres to a strict policy of settling all invoices in a timely manner. 23 GOVERNANCECorporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 4. Principle 4 Embed effective risk management, considering both opportunities and threats, throughout the organisation. The Board needs to ensure that the Company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy. Setting strategy includes determining the extent of exposure to the identified risks that the Company is able to bear and willing to take (risk tolerance and risk appetite). The management of the business and the execution of the Company’s strategy are subject to a number of risks. The Board ensures risks are mitigated as far as reasonably practicable by performing a detailed review of the issues pertaining to each significant decision. Significant decisions are reviewed by the Board having consulted the Company’s professional third party advisers (be they legal, financial or technical). The Board convenes on a regular basis, either by telephone or in person on a formal basis to discuss risk management as explained in Principle 5. As with the majority of companies within the energy sector, the business of oil and gas exploration and development includes varying degrees of risk. These risks include operating reliance on third parties, the ability to monetise discoveries, the price of products and the costs of exploration and/or production. The principal risks to the Company as well as the mitigation actions by the Board are set out below: Strategic risk: a weak or poorly executed acquisition and development process fails to create shareholder value. This risk is mitigated through performing a detailed technical review, both internally by management and externally by advisers, for each investment which includes valuation exercises on the potential return on capital invested. Operational risk: operational events can have an adverse effect. The main risk is the potential failure to obtain planning permission in respect of the Company’s licence interests. This risk is mitigated by the appointment of specialist professional entities who work together to compile planning applications designed to achieve a positive result. On-site operational risks are managed by the site Operators, Egdon Resources U.K. Limited, Rathlin Energy (UK) Limited and Europa Oil & Gas Limited, who have, to date, safety records of the highest standard. External Risk: Lack of growth caused by political, industry or market factors. The Company operates exclusively within the UK and the Board considers that the UK onshore hydrocarbon arena offers political security and excellent value under a regime with a very clearly spelt out protocol giving the opportunity to develop assets unhindered. In respect of the ongoing Brexit discussions and the potential effect on the Company going forward, it is impossible to predict the effects of Brexit, at this moment in time. Financial Risk: the lack of ability to meet financial obligations. The Company has historically raised its funds through equity capital markets by share issues and has not been involved in derivative instruments and debt financing to meet its financial obligations. Product Price Risk: due to the nature of the periodic fluctuation of oil prices, any such adverse fluctuation could potentially have an impact on the Company’s resulting return to its shareholders. The Company also holds Directors’ and Officers’ Liability Insurance cover and the Company is covered by the Operators’ insurance policies during drilling and other operational situations for specific projects. 24 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Corporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 5. Principle 5 Maintain the Board as a well- functioning, balanced team led by the Chairman. The Board members have a collective responsibility and legal obligation to promote the interests of the Company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the Board. The Board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight. The Board should have an appropriate balance between executive and non-executive directors and should have at least two independent non-executive directors. Independence is a Board judgement. The Board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively. Directors must commit the time necessary to fulfil their roles. The Board consists of two executive directors, David Bramhill and Joseph O’Farrell, and two non-executive directors, Graham Bull and Raymond Godson, who are responsible for the management of the Company. Raymond Godson is classified as an independent director. Although Mr Godson holds shares and options in the Company, these are considered to be de minimis and are not deemed to affect his independent thought and judgement. No members of the Board have other commitments that would prevent them from spending as much time as required to ensure the aims and best interests of the Company are met. Any changes to directors’ commitments and interests will be reported to and, where appropriate, agreed with the rest of the Board. The Board meets formally in person and by telephone multiple times throughout the year, attendance of which has always been 100% since the Company’s incorporation. The Board also holds regular informal project appraisal and strategy discussions, and meets every quarter, on a formal basis, to review trading performance, budgets, ensure adequate funding, set and monitor strategy, examine acquisition opportunities and assess risks on an ongoing basis in respect of operational projects. The directors encourage a collaborative Board culture to ensure that each decision reached is always in the Company’s and its shareholders’ best interests and that any one individual opinion never dominates the decision making process. The Board seeks, so far as possible, to achieve decisions by consensus and all directors are encouraged to use their independent judgement and to challenge all matters whether strategic or operational. To date all decisions have been unanimous. The Company’s two non-executive directors hold shares and options in the Company. The Board is satisfied that these shareholdings and options are not "significant". Therefore, such shareholdings do not contravene the provisions of the Code. During 2019, the Board held eight meetings, either by telephone or in person. There are no mandatory hours for directors to be available for Company business. The executive directors and non-executive directors are available for any Company business when it may arise. The Board delegates certain decisions to an Audit Committee and a Remuneration Committee. The Audit Committee has joint responsibility for reviewing the year end accounts with the Auditor. The Remuneration Committee reviews the remuneration of the executive directors on an annual basis. Both committees are dedicated to establish and maintain robust internal financial control systems for the Company. 25 GOVERNANCECorporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 6. Principle 6 Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities. The Board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The Board should understand and challenge its own diversity, including gender balance, as part of its composition. The Board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board. As companies evolve, the mix of skills and experience required on the Board will change, and Board composition will need to evolve to reflect this change. The current Board composition of the Company and each director’s experience is set out in this report. The Board’s view is that the directors have a variety of complementary experiences and skillsets, including experience of industry-specific technical, financial and public capital markets sectors. An overview of the directors are as follows: David Bramhill, Executive Chairman, 69 Mr Bramhill has over 40 years’ experience in the natural resources industry. Mr Bramhill has directed and managed several energy companies and was the former managing director of OilQuest Resources plc, subsequently acquired by EnCore Oil plc. Mr Bramhill was an executive director at the time of Nighthawk Energy plc’s AIM flotation in March 2007 and a non-executive chairman of Wessex Exploration plc when that company floated on AIM in March 2011. He resigned from these companies in 2010 and 2012 respectively. Mr Bramhill had previously consulted in an engineering capacity for over 20 years on projects for Shell, ExxonMobil, Petrofina, BP and numerous other international energy companies. Joseph O’Farrell, Executive Director, 68 Mr O’Farrell has over 30 years’ corporate experience in the hydrocarbon and mining industry. He has managed several energy companies and is a former director of OilQuest Resources plc and Nighthawk Energy plc, having been a director of these two companies at the time of their respective flotations on AIM. He has assisted a number of companies working in conjunction with corporate advisers in pre-IPO fundraising and project acquisition. Graham Bull, Non-Executive Director, 74 Mr Bull is a geologist with 51 years of international oil and gas industry exploration experience. Following graduation from the University of Leicester in 1968 with a BSc Hons Geology he worked in Canada and held positions with Chevron, Dome Petroleum, Siebens Oil and Gas and Poco Petroleum and also provided exploration expertise to a Canadian drilling fund. He returned to the UK in 1982 taking the position as Chief Geologist to Sovereign Oil and Gas plc. In addition, Mr Bull has operated as a geological adviser for EnCore Oil plc (formerly OilQuest Resources plc), Premier Oil plc, Cirque Energy and DSM Energy. He is currently an exploration geological consultant working on Northwest Europe offshore and onshore United Kingdom and other international areas. Mr Bull is a member of the Petroleum Exploration Society of Great Britain, the American Association of Petroleum Geologists and a Fellow of the Geological Society of London. Mr Bull is the Chairman of the Remuneration Committee and a member of the Audit Committee. 26 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Corporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 6. Principle 6 (continued) Raymond Godson, Non-Executive Director, 76 Mr Godson is a chartered accountant with 43 years’ experience in the provision of oil and gas related services to energy companies. Mr Godson joined the Rio Tinto group in 1973 where he spent 16 years rising to become the financial and commercial director of the oil and gas subsidiary RTZ Oil & Gas Limited. In 1988 he joined Teredo Petroleum PLC (“Teredo”) where he became the managing director in 1992. Following the takeover of Teredo in 1993, he became a full time accountant in general practice, where the majority of his business has been oil and gas related. Mr Godson acted as Company Secretary for Fusion Oil & Gas plc from IPO to its takeover by Sterling Energy Plc. He was subsequently company secretary for both Ophir Energy Plc and Aurelian Oil & Gas Plc. He is currently an executive director of Montrose Industries Limited. Mr Godson is the Chairman of the Audit Committee and a member of the Remuneration Committee. The directors are mindful of the need to ensure the Company has in place a diverse Board that encompasses the right skills required to ensure the Company’s continued success, including creating an atmosphere of constructive challenge and consensus for any decision reached. As such, and given the current size of the Company, the Board is of the opinion its composition and skillset is sufficient to maintain and drive the long term success for the Company’s shareholders. Each director takes his continued professional and technical development seriously, so in order to ensure the Board keeps abreast of the current challenges faced by the industry the Company operates in, the directors attend both trade shows and technical sessions during the course of any given year. The Board ensures it is well advised and supported by utilising a range of external experts in various fields, and employs accountants, legal counsel, a Company Secretary and a Nominated Adviser, in accordance with the AIM rules. On the industry specific front, it also employs three technical consultancies: Sotwell Exploration Ltd, Calderdale Geoscience Limited and Oil & Gas Advisers Limited. Sotwell Exploration Ltd and Calderdale Geoscience Limited are responsible for supplying technical advice on specific projects. Both companies work closely with non-executive director, Graham Bull and are responsible, on a permanent basis, for updating and reviewing independently all technical information provided to the Company on its key projects. Oil & Gas Advisers Limited provides a financial overview in respect of due diligence on potential project acquisitions and ongoing economics of our key projects. Matthew Small is Company Secretary and, via an established accounting entity, Berkeley Hall Marshall Limited, represents the Company as de facto financial controller, working closely with the Executive Chairman and the Audit and Remuneration Committees. 27 GOVERNANCECorporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company While the Board is very much aware of the needs of the Company in ensuring effectiveness of Board performance and the periodic refreshment of the composition of the Board, the Board believes that due to the Company’s current size and its current corporate culture of constructive challenge and consensus on each decision reached, the procedures already in place are sufficient for monitoring Board performance and no external performance reviews are required at this time. This will be kept under review. The Board is also of the opinion that the Company has appropriate measures in place to ensure any refreshment of the Board occurs in a timely manner, and always with the best interests of the shareholders in mind. 7. Principle 7 Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement. The Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors. The Board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team. It is healthy for membership of the Board to be periodically refreshed. Succession planning is a vital task for the board. No member of the Board should become indispensable. 28 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Corporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 8. Principle 8 Promote a corporate culture that is based on ethical values and behaviours. The Board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage. The policy set by the Board should be visible in the actions and decisions of the chief executive and the rest of the management team. Corporate values should guide the objectives and strategy of the Company. The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the Company. The corporate culture should be recognisable throughout the disclosures in the Annual Report, website and any other statements issued by the Company. The directors recognise that their decisions regarding strategy and risk will impact the corporate culture of the Company as a whole and that this will impact the performance of the Company. The Board seeks to embody and promote a corporate culture that is based on sound ethical values as it believes the tone and culture set by the Board impacts all aspects of the Company, including the way that employees and other stakeholders behave. The Company has adopted a share dealing code which is appropriate for a company whose securities are traded on AIM and is in accordance with the requirements of MAR. The Board believes that, as evidenced through the disclosures made throughout this statement, its corporate governance regime and culture are at the core of its operations and are appropriate given the current size of the Company. Furthermore, through its interaction with its stakeholders and in the communities in which it operates (described above), it maintains a collaborative and constructive dialogue that embodies a dynamic, accessible, open door and vibrant corporate culture. The Company’s corporate culture is monitored/assessed regularly, taking on board immediately any changes made by AIM Rule 26 and where advisers may advise. All financial transactions are reviewed independently by Berkeley Hall Marshall Limited. An anti-bribery policy is in place. As such, and taking into account the Board interaction with each of its professional advisers described above, the Board is satisfied that its governance regime is more than adequate given the size of the Company, its shareholder base and business pipeline. 29 GOVERNANCECorporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 9. Principle 9 Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board. The Company should maintain governance structures and processes in line with its corporate culture and appropriate to its: • size and complexity; and • capacity, appetite and tolerance for risk. The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the Company. As disclosed throughout this statement, the Company maintains and employs robust corporate governance practices to support an effective and collaborative Board, always working in the best interests of its shareholders. The roles of the individual Board members are as follows: • The Executive Chairman, David Bramhill, is responsible for running the business of the Board, ensuring strategic focus and direction and for managing investor communications. • The Executive Director, Joseph O’Farrell, is responsible for assisting the Executive Chairman to execute the Board’s strategy and coordinating corporate finance activities. • The Non-Executive Director, Graham Bull, is a petroleum geologist and is responsible for identifying and evaluating potential projects and to provide technical oversight of the Company’s existing projects. • The Non-Executive Director, Raymond Godson, is a Chartered Accountant who has abundant experience in the oil & gas industry. Mr Godson chairs the Audit Committee. Two Board committees are in place to ensure control over the Company’s financial reporting processes and directors’ remuneration. Details of the two Board committees are as follows: The Audit Committee The Audit Committee comprises Raymond Godson, who acts as its Chairman, and Graham Bull. The Audit Committee is responsible for considering a wide range of financial matters which include the reviewing of Half Yearly and Annual Reports, discussions with the Auditor, share placing agreements and the oversight of internal controls and new accounting standards relevant to the Company. This Committee also provides a forum for reporting by the Company’s auditor. The executive directors may attend meetings by invitation. 30 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Corporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 9. Principle 9 (continued) The Remuneration Committee The Remuneration Committee comprises Graham Bull, who acts as its Chairman, and Raymond Godson. The current executive director remuneration package comprises basic salary and share options. Directors’ remuneration for the year is noted in the Directors’ Report in the Company’s annual report. The remuneration of non-executive directors is determined by the Board. Due to the size of the Company, it is not considered necessary to have a separate Nominations Committee at this time. Instead this role is fulfilled by the Board as a whole. The Board also reserves to itself the process by which a new director is appointed. Each committee has access to such resources, information and advice as it deems necessary, at the cost of the Company, to enable the committee to discharge its duties. The Board intends that the Company’s governance structures will evolve over time in parallel with its objectives, strategy and business model to reflect the development of the Company. 31 GOVERNANCECorporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 QCA Code Recommendation Application by the Company 10. Principle 10 As set out above, the Company ensures: Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. A healthy dialogue should exist between the Board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the Company. In particular, appropriate communication and reporting structures should exist between the Board and all constituent parts of its shareholder base. This will assist: • • the communication of shareholders’ views to the Board; and the shareholders’ understanding of the unique circumstances and constraints faced by the Company. It should be clear where these communication practices are described (Annual Report or website). • a printed Annual and Half Year Report is delivered to each shareholder, and also made available on the Company’s website. • all RNS announcements are released in a timely manner, while also ensuring all announcements are drafted in a clear and concise fashion. In addition, all shareholders are encouraged to attend the Company’s Annual General Meeting. The outcome of all shareholder votes are disclosed in a clear and transparent manner via a RNS. The Company includes historical Annual Reports, Notices of General Meetings and RNS announcements over the last five years on its website. The Company also lists contact details on its website, should shareholders wish to communicate with the Board. The Company intends to include, where relevant, in its Annual Report, any matters of note arising from the Audit or Remuneration Committees. A Remuneration or Audit Committee report is not included separately within these financial statements. All relevant information has been included where required. Shareholders are actively encouraged to both attend the Company’s Annual General Meeting and throughout the year to contact the Chairman to discuss any queries or concerns they may have. Given the size of the Company, the Board is of the opinion that no formal communication structures are required at this time. The Company does however: • ensure continued disclosure of all items in conjunction with AIM Rule 26 on its website; • disclose the results of all shareholder votes once held, in conjunction with the Company’s Annual General Meeting; and • keep in constant communication and dialogue with its key stakeholders and JOA partners through an accessible and open- door policy, with the Executive Chairman acting as the key conduit. For avoidance of doubt, it is important to note that any conversations shareholders and the Executive Chairman may have are always conducted in accordance of what is permissible under MAR. The Company’s communication practices are set out on its website at: http://unionjackoil.com/company-information/aim-rule-26/ 32 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Corporate Governance Report FOR THE YEAR ENDED 31 DECEMBER 2019 THE BOARD AUDIT COMMITTEE During the year the Board of Directors of Union Jack Oil plc consisted mainly of two executive directors and two non-executive directors as disclosed within the Directors, Officers and Advisers section of this report, who were responsible for the proper management of the Company. The Board met in person or by telephone, as permitted by the current Articles of Association, eight times during the year. In addition, the Board held numerous project appraisal and strategy discussions during the year. The Board will meet at least four times in the coming year to review trading performance and budgets, ensure adequate funding, set and monitor strategy, examine acquisition opportunities and report to shareholders. The Board has a formal schedule of matters specifically reserved to it for decisions. REMUNERATION COMMITTEE The Remuneration Committee comprises Graham Bull, who acts as its Chairman, and Raymond Godson. The current executive director remuneration package comprises basic salary and share options. Directors’ remuneration for the year is noted in the Directors’ Report and shown in note 3 on page 52. Those disclosures form part of this report and are disclosed within the Directors’ Report, and note 3 within the Notes to the Financial Statements section of this Annual Report. The remuneration of non-executive directors is determined by the Board. The Audit Committee comprises Raymond Godson, who acts as its Chairman, and Graham Bull. The Audit Committee is responsible for considering a wide range of financial matters, which include the reviewing of Half Yearly and Annual Reports, discussions with the Auditor, share placing agreements and the oversight of internal controls and new accounting standards relevant to the Company. This Committee also provides a forum for reporting by the Company’s auditor. The executive directors may attend meetings by invitation. INTERNAL FINANCIAL CONTROL The directors are responsible for establishing and maintaining the Company’s internal financial control systems. These are designed to meet the particular needs of the Company and the risks to which it is exposed, and by their nature can provide reasonable but not absolute assurance against material misstatement or loss. The key procedures that the directors have established to provide effective internal financial controls are: • Identification of Business Risks The Board is responsible for identifying the major business risks faced by the Company and for determining the appropriate course of action to manage these risks. • Investment Appraisal Capital expenditure is regulated by authorisation limits. For expenditure beyond the specified limits including investments in exploration projects, detailed proposals are submitted to the Board for review and sign-off. • Financial Reporting The Company has a comprehensive system for reporting financial results to the Board. • Audit Committee The Audit Committee considers and determines relevant action in respect of any control issues raised by the external auditor. 33 GOVERNANCE Independent Auditor’s Report on the Financial Statements TO THE MEMBERS OF UNION JACK OIL PLC CONCLUSIONS RELATING TO GOING CONCERN We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, 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. OPINION We have audited the financial statements of Union Jack Oil plc (the ‘Company’) for the year ended 31 December 2019, which comprise the Income Statement, the Statement of Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity, the Statement of Cash Flows, the Principal Accounting Policies and the Notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion the financial statements: • give a true and fair view of the state of the Company’s affairs as at 31 December 2019 and of its loss for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; • 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 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. 34 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Independent Auditor’s Report on the Financial Statements TO THE MEMBERS OF UNION JACK OIL PLC CARRYING VALUE OF THE OIL AND GAS ASSETS Matter identified How we addressed the matter The Company’s oil and gas assets are classified as intangible assets where the Company has exploration and evaluation interests (‘E&E’) and as property, plant and equipment where the Company has development and producing interests (‘D&P’). See notes 1, 7 and 8. In respect of both the Company’s E&E assets and D&P assets, management and the directors are required to assess annually for any indicators of impairment of the assets. If an indicator of impairment is identified management are required to perform an assessment of the carrying value of the assets. In respect of both the E&E assets and the D&P assets we evaluated management’s and the Board’s impairment review for each of the assets held. We critically challenged the considerations made of whether or not there were any indicators of impairment identified in accordance with the requirements of the relevant accounting standards. Our specific audit testing for the E&E Assets included: • reviewing the impairment assessment performed by management and independently assessing whether there were any further triggers for impairment not identified by management • checking the proposed impairment write off against the underlying nominal ledger transactions to ensure the correct impairment provision was made Management identified that the Widmerpool Gulf, Laughton and Humber Basin E&E assets were considered to be impaired in the year due to the government moratorium on development of non-conventional assets. • confirming the disclosure of the impairment in the period was presented in the financial statements in accordance with the requirements of the accounting standard • verification of licence status in order to confirm legal title and validity of each of the licences Given the significance of the assets on the Company’s Balance Sheet and the significant management judgement involved in the assessment of the carrying values of the assets there is an increased risk of material misstatement and we therefore consider this to be a key audit matter. • • • reviewing activity to assess whether there was evidence from technical work undertaken to date by management and third parties which may indicate a potential impairment trigger reviewing approved budget forecasts and minutes of management and Board meetings to confirm the Company’s intention to continue exploration work on the licences, and in order to obtain and understanding of management’s expectation of commercial viability, we reviewed available technical documentation and discussed results and operations with management Our specific audit testing for the D&P assets included: • the verification of licence status in order to confirm legal title and validity of each of the licences; • assessing available market data on oil prices and the impact on the Company’s assets • assessing the external and internal sources of information, such as third party reports and reports provided by operators in order to assess whether any impairment triggers were identified • evaluating third party reports and management estimates relating to the assessment of the potential recoverable value of the assets • considering the classification of assets and disclosures in the financial statements Key Observations: Other than the impairment of the exploration and evaluation assets identified by management, based on our work we found no evidence that the carrying value of the Company’s Oil and Gas assets were impaired. 35 GOVERNANCEIndependent Auditor’s Report on the Financial Statements TO THE MEMBERS OF UNION JACK OIL PLC OUR APPLICATION OF MATERIALITY Company materiality as at 31 December 2019 Basis for materiality £100,000 (2018: £74,000) 0.7% of total assets (2018: 1% of total assets) We apply the concept of materiality both in planning and performing our audit and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. The materiality for the company was set after taking into account the high level of cash held by the company along with the impairment indicators anticipated relating to the exploration and evaluation assets. We consider total assets of the Company to be the relevant benchmark for materiality as the total assets are likely to be the primary focus of the users of the financial statements. In performing the audit we applied a lower level of performance materiality in order to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds financial statement materiality. Performance materiality for the financial statements was set at £75,000 (2018: £55,500), being 75% of financial statement materiality. We agreed with the Audit Committee that we would report to them all individual audit differences identified during the course of our audit in excess of £2,000 (2018: £1,500). We also agreed to report differences below these thresholds that, in our view, warranted reporting on qualitative grounds. OVERVIEW OF THE SCOPE OF OUR AUDIT We performed a full scope audit on the financial statements of the Company. All audit work was undertaken by BDO LLP. OTHER INFORMATION The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Financial Statements, other than the financial statements and our Auditor’s Report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 36 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019RESPONSIBILITIES OF DIRECTORS As explained more fully in the directors’ responsibilities statement for the year ended 31 December 2019, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the 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 Company or to cease operations, or have no realistic alternative but to do so. Independent Auditor’s Report on the Financial Statements TO THE MEMBERS OF UNION JACK OIL PLC 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 Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. 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 Company, or returns adequate for our audit have not been received from branches not visited by us; or • the 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. 37 GOVERNANCEIndependent Auditor’s Report on the Financial Statements TO THE MEMBERS OF UNION JACK OIL PLC AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website 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. Anne Sayers, Senior Statutory Auditor For and on behalf of BDO LLP, Statutory Auditor London, United Kingdom 7 May 2020 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 38 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Income Statement FOR THE YEAR ENDED 31 DECEMBER 2019 Revenue Cost of sales - operating costs Cost of sales - depreciation Gross loss Administrative expenses (excluding impairment charge) Impairment Exploration write-back Total administrative expenses Operating loss Finance income Loss before taxation Taxation Loss for the financial year Attributable to: Equity shareholders of the Company Loss per share Basic and diluted loss per share (pence) Notes 31.12.19 £ 31.12.18 £ 136,959 (185,169) (32,429) 165,270 (159,046) (32,186) (80,639) (25,962) (1,343,362) (393,697) 112,500 (871,489) (205,308) – (1,624,559) (1,076,797) (1,705,198) (1,102,759) 12,815 4,051 (1,692,383) (1,098,708) – – (1,692,383) (1,098,708) (1,692,383) (1,098,708) (0.02) (0.01) 2 2 2 4 5 6 The accompanying accounting policies and notes form an integral part of these financial statements. 39 FINANCIAL STATEMENTS Statement of Comprehensive Income FOR THE YEAR ENDED 31 DECEMBER 2019 Notes 31.12.19 £ 31.12.18 £ Loss for the financial year (1,692,383) (1,098,708) Items which will not be reclassified subsequently to profit or loss account Other comprehensive loss 10 (32,212) – Total comprehensive loss for the financial year (1,724,595) (1,098,708) The accompanying accounting policies and notes form an integral part of these financial statements. 40 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Balance Sheet AS AT 31 DECEMBER 2019 Assets Non-current assets Exploration and evaluation assets Property, plant and equipment Investments Current assets Trade and other receivables Cash and cash equivalents Total assets Liabilities Current liabilities Trade and other payables Non-current liabilities Provisions Total liabilities Net assets Notes 31.12.19 £ 31.12.18 £ 7 8 10 11 12 19 20 6,726,743 581,300 120,288 3,485,961 611,139 40,000 7,428,331 4,137,100 180,197 6,626,322 198,054 3,123,287 6,806,519 3,321,341 14,234,850 7,458,441 231,284 396,688 620,686 453,165 851,970 849,853 13,382,880 6,608,588 5,731,508 14,205,000 167,466 (6,721,094) 3,983,958 7,593,146 78,319 (5,046,835) 13,382,880 6,608,588 Capital and reserves attributable to the Company’s equity shareholders Share capital Share premium Share-based payments reserve Accumulated deficit 13(a) 14 14 14 Total equity The financial statements of Union Jack Oil plc, registered number 07497220, were approved and authorised for issue by the Board of Directors on 7 May 2020 and were signed on its behalf by: David Bramhill Director The accompanying accounting policies and notes form an integral part of these financial statements. 41 FINANCIAL STATEMENTS Statement of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2019 Share Accumulated deficit capital £ £ Share premium £ Share-based payment reserve £ Total £ Balance at 1 January 2019 3,983,958 (5,046,835) 7,593,146 78,319 6,608,588 Loss for the financial year Other comprehensive loss Total comprehensive loss Contributions by and distributions to owners Issue of share capital Share issue costs Share-based payments Expired warrants Total contributions by and distributions to owners – – – (1,692,383) (32,212) (1,724,595) – – – – – (1,692,383) (32,212) – (1,724,595) 1,747,550 – – – – – – 50,336 7,252,450 (640,596) – – – – 139,483 (50,336) 9,000,000 (640,596) 139,483 – 1,747,550 (1,674,259) 6,611,854 89,147 6,774,292 Balance at 31 December 2019 5,731,508 (6,721,094) 14,205,000 167,466 13,382,880 Balance at 1 January 2018 2,954,547 (3,948,129) 5,379,670 61,438 4,447,526 Loss for the financial year Total comprehensive loss Contributions by and distributions to owners Issue of share capital Share issue costs Share-based payments Total contributions by and distributions to owners – – (1,098,708) (1,098,708) – – – (1,098,708) – (1,098,708) 1,029,411 – – – – – 2,470,589 (257,113) – – – 16,881 3,500,000 (257,113) 16,881 1,029,411 (1,098,708) 2,213,476 16,881 2,161,162 Balance at 31 December 2018 3,983,958 (5,046,835) 7,593,146 78,319 6,608,588 The accompanying accounting policies and notes form an integral part of these financial statements. 42 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Statement of Cash Flows FOR THE YEAR ENDED 31 DECEMBER 2019 Cash flow from operating activities Cash flow from investing activities Purchase of intangible assets Purchase of property, plant and equipment Sale of licence interest Investments Interest received Notes 31.12.19 £ 31.12.18 £ 15 7 8 2 10 4 (1,473,164) (893,956) (3,319,108) (5,947) 112,500 (112,500) 6,850 (755,919) (52,291) – – 4,051 Net cash used in investing activities (3,318,205) (804,159) Cash flow from financing activities Proceeds on issue of new shares Cost of issuing new shares 13(a) 13(a) 8,935,000 (640,596) 3,500,000 (257,113) Net cash generated from financing activities 8,294,404 3,242,887 Net increase in cash and cash equivalents 3,503,035 1,544,773 Cash and cash equivalents at beginning of financial year 3,123,287 1,578,514 Cash and cash equivalents at end of financial year 12 6,626,322 3,123,287 The accompanying accounting policies and notes form an integral part of these financial statements. 43 FINANCIAL STATEMENTS Principal Accounting Policies Union Jack Oil plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is 6 Charlotte Street, Bath BA1 2NE, England. The nature of the Company’s operations and its principal activities are set out in the Chairman’s Statement, Strategic Report and the Directors’ Report. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Company operates. BASIS OF PREPARATION The annual financial statements of Union Jack Oil plc (“the Company”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) applied in accordance with the provisions of the Companies Act 2006. IFRS is subject to amendment and interpretation by the International Accounting Standards Board (“IASB”) and the IFRS Interpretations Committee, and there is an ongoing process of review and endorsement by the European Commission. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 31 December 2019. The financial statements have been prepared under the historical cost convention except for the valuation of investments that have been measured at fair value through other comprehensive income. The principal accounting policies set out below have been consistently applied to all periods presented. GOING CONCERN The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman’s Statement and the Strategic Report. The directors’ forecasts demonstrate that the Company will meet its day-to-day working capital and share of estimated drilling costs over the forecast period (being at least 12 months from the date the financial statements were approved) from the cash held on deposit on 31 December 2019. The principal risk to the Company’s working capital position is drilling cost overruns. The Company has sufficient funding to meet planned drilling expenditures and a level of contingency. Taking account of these risks, sensitised forecasts show that the Company should be able to operate within the level of funds currently held. The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. The effect of COVID-19 is actively being assessed by management. The future impact remains unknown. The management is of the opinion that there is no reason to believe there will be any effect in respect of the Company’s going concern status for the foreseeable future. REVENUES Revenues represent amounts receivable for the sale of crude oil, net of taxes, and are recognised when control of the product passes to the customer. This is on delivery to a third party storage facility on behalf of a customer. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and deposits held at call with banks. FINANCIAL INSTRUMENTS Recognition and Derecognition Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and Initial Measurement of Financial Assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 9, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial assets are classified into the following categories: • amortised cost • • fair value through profit or loss (“FVTPL”) fair value through other comprehensive income (“FVOCI”). In the periods presented the Company does not have any financial assets categorised as FVTPL. The classification is determined by both: • • the entity’s business model for managing the financial asset the contractual cash flow characteristics of the financial asset. Subsequent Measurement of Financial Assets Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions: • • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding 44 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Principal Accounting Policies After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Company’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Financial assets at Fair Value through Other Comprehensive Income (“FVOCI”) The Company accounts for financial assets at FVOCI if the assets meet the following conditions: • they are held under a business model whose objective it is “hold to collect” the associated cash flows and sell; and • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company’s investments in unlisted shares are classified as financial assets at FVOCI. Classification and Measurement of Financial Liabilities The Company’s financial liabilities include trade and other payables. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs. Subsequently, financial liabilities are measured at amortised cost using the effective interest method. All interest-related charges are included within finance costs or finance income. Impairment of Financial Assets In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model to be applied. The expected credit loss model requires the Company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. IFRS 9 requires the Company to recognise a loss allowance for expected credit losses on trade receivables. In particular, IFRS 9 requires the Company to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (“ECL”) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset. However, if the credit risk on a financial instrument has not increased significantly since initial recognition, the Company is required to measure the loss allowance for that financial instrument at an amount equal to 12 months ECL. INTANGIBLE ASSETS – EXPLORATION AND EVALUATION ASSETS Costs (including research costs) incurred prior to obtaining the legal rights to explore an area will be expensed immediately to the Income Statement, as these are classified as pre-licence costs. Expenditure incurred on the acquisition of a licence interest will initially be capitalised on a licence-by-licence basis. Costs will be held within exploration and evaluation costs until such a time as the exploration phase on the licence area is complete or commercial reserves have been discovered. Exploration expenditure incurred in the process of determining exploration targets will be capitalised initially within intangible assets as exploration and evaluation costs. Exploration costs will initially be capitalised whilst exploration and evaluation activities are continuing, and until the success or otherwise has been established. The success or failure of each exploration/evaluation effort will be judged generally on a licence-by-licence basis. Capitalised costs will be written off on completion of exploration and evaluation activities unless the results indicate that hydrocarbon reserves exist and that these reserves are commercially viable. All such costs will be subject to regular technical, commercial and management review for indicators of impairment which includes confirming the continued intent to develop or otherwise extract value from the licence, prospect or discovery. Where this is no longer the case, the costs will be immediately expensed. Following evaluation of successful exploration wells, if commercial reserves are established and the technical feasibility of extraction is demonstrated, and once a project is sanctioned for commercial development, then the related capitalised exploration/evaluation costs will be transferred into a single field cash generating unit within development/ producing assets after testing for impairment, within Property, Plant and Equipment. Where results of exploration drilling indicate the presence of hydrocarbons which are ultimately not considered commercially viable, all related costs will be written off to the Income Statement. PROPERTY, PLANT AND EQUIPMENT – DEVELOPMENT AND PRODUCTION ASSETS Development and Production (“D&P”) assets are accumulated into cash generating units ("CGU") and represent the cost of developing the commercial reserves and bringing them into production together with the Exploration and Evaluation (“E&E”) expenditures previously transferred from E&E assets as outlined in the policy above. All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons have been demonstrated will be capitalised within development/producing assets on a field-by-field basis. Subsequent expenditure will be capitalised only where it either enhances the economic benefits of the development/producing asset or replaces part of the existing development/producing asset. On acquisition of a D&P asset from a third party, the asset will be recognised in the financial statements on signature of the sale and purchase agreement, subject to satisfaction of any substantive conditions within the agreement. Costs relating to each CGU are depleted on a unit of production method based on the commercial Proven and Probable Reserves for that CGU. Development assets are not depreciated until production commences. The depreciation calculation takes account of the residual value of site equipment and the estimated future costs of development of recognised Proven and Probable Reserves, based on current price levels. Changes in reserve quantities and cost estimates are recognised prospectively. 45 FINANCIAL STATEMENTSPrincipal Accounting Policies DECOMMISSIONING AND SITE RESTORATION PROVISIONS Licensees have an obligation to restore fields to a condition acceptable to the relevant authorities at the end of their commercial lives. Provision for decommissioning and reinstatement is recognised in full as a liability and an asset when the obligation arises. The asset is included within exploration and evaluation assets or property, plant and equipment as is appropriate. The liability is included within provisions. The amount recognised is the estimated cost of decommissioning and reinstatement, discounted where appropriate to its net present value, and is reassessed each year in accordance with local conditions and requirements. Revisions to the estimated costs of decommissioning and reinstatement which alter the level of the provisions required are also reflected in adjustments to the decommissioning and reinstatement asset. CONTINGENT LIABILITIES Contingent consideration payable in respect of the Company’s interest in certain licences is considered to be a contingent liability, which is not recognised due to the lack of estimation certainty of both the timing and amount payable. These will be recognised as a provision when it is possible to accurately estimate costs and the timing is known. IMPAIRMENT The carrying amounts of non-current assets are reviewed for impairment, under IAS 36 for Production and Development assets and IFRS 6 for Exploration and Evaluation assets, if events or changes in circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment, such as a well not encountering commercial quantities of oil or a site being shut-in, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cash generating unit level on a field-by-field basis. For intangible exploration and evaluation assets potential impairment triggers may include the short term expiry of a licence, lack of budgeted spend, or the lack of potential for commercial development of the asset. The potential recoverable value of such assets is assessed by the directors based on their knowledge of the assets and available information. The Company’s cash- generating units are the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment. This reversal is recognised in the Income Statement and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in the prior years. The recoverable amount of assets is the higher of their value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairments are recognised in the Income Statement to the extent that the carrying amount exceeds the assets’ recoverable amount. The revised recoverable amounts are amortised in line with the Company’s accounting policies. JOINT ARRANGEMENTS, FARM-IN AND PROFIT SHARING AGREEMENTS The Company is party to a joint arrangement when there is a contractual agreement that sets out the terms of the relationship over the relevant activities of the Company and at least one other party. The management has a legal degree of control over these joint operating arrangements through Joint Operating Agreements. The Company classifies its interests in joint arrangements as joint operations: where the Company has both the rights to assets and obligations for the liabilities of the joint arrangement. The Company accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations. The Company accounts for its own assets, liabilities and cash flows measured in accordance with the terms of the production sharing agreement and the accounting treatment reflects the agreement’s commercial effect. The Company’s revenue and cost of sales include revenues and operating costs associated with the Company’s interest. CURRENT TAX Current tax is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date. 46 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Principal Accounting Policies DEFERRED TAX Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the Balance Sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the Balance Sheet date. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. EQUITY INSTRUMENTS An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs. The equity instrument in respect of the Company is in relation to the issue of ordinary shares. SHARE-BASED PAYMENTS AND WARRANTS Equity-settled share-based payments in respect of warrants and options issued by the Company are measured at the fair value of the equity instruments at the grant date, on the basis that this is immaterially different from the fair value of the services provided. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 13(b) and 13(c). The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on the Company’s estimate of the number of equity instruments that will eventually vest. At each Balance Sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the Income Statement such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. When a share-based payment or warrant expires, the cumulative expense recognised in the share based payment reserve is reclassified to the relevant component of equity in line with the original recognition of the expense. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS The Company has adopted the following standards, amendments to standards and interpretations which are effective for the first time this year. The impact is shown below: New and revised International Financial Reporting Standards Effective Date: Annual periods beginning on or after: EU adopted IFRS 16 Leases 1 January 2019 Yes IFRS 16 ‘Leases’ provides a new model for lessee accounting in which all leases, other than short-term and small-ticket-item leases, will be accounted for by the recognition on the Balance Sheet of a right-to-use asset and a lease liability, and the subsequent amortisation of the right-to-use asset over the lease term. The Company adopted IFRS 16 on 1 January 2019. The adoption of the standard has no impact on the Company’s financial statements as the Company does not hold any leases either at the date of sign off of these financial statements or during any of the periods presented. At the date of authorisation of the consolidated financial statements, the IASB and IFRS Interpretations Committee have issued standards, interpretations and amendments which are applicable to the Company. 47 FINANCIAL STATEMENTS Principal Accounting Policies ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED) Whilst these standards and interpretations are not effective for, and have not been applied in the preparation of, these consolidated financial statements, the following could potentially have a material impact on the Company’s financial statements going forward: New and revised International Financial Reporting Standards Effective Date: Annual periods beginning on or after: EU adopted IAS 1 Amendments to IAS 1 and IAS 8: Definition of Material 1 January 2020 IAS 1 Amendments to IAS 1: Classification of Liabilities as Current or Non-current 1 January 2021 IFRS 3 Amendment to IFRS 3 Business Combinations IFRS 9 Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform 1 January 2020 1 January 2020 Yes No No Yes New and revised International Financial Reporting Standards which are not considered to potentially have a material impact on the Company’s financial statements going forwards have been excluded from the above. Management anticipates that all relevant pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the effective date of the pronouncement. There are no other standards and interpretations in issue but not yet adopted that the directors anticipate will have a material effect on the reported income or net assets of the Company. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Company’s accounting policies, which are described in this note, the directors are required to make judgements regarding the choice and application of accounting policies, as well as estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgements and estimates that the directors have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements: 48 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Judgements in Applying Accounting Policies and Key Sources of Estimation Uncertainty – Impairment Management is required to assess the Exploration and Evaluation assets and the Development and Production assets for indicators of impairment. Note 7 discloses the carrying value of the Exploration and Evaluation assets. Note 8 discloses the carrying value of the Development and Production assets. Impairment is considered on a licence-by-licence basis. In assessing the need to impair Exploration and Evaluation assets and Development and Production assets the Board makes assumptions about the future progress and likely successful outcome of exploration and drilling activities. Due diligence is performed at the outset of the investment before an investment is made. At an early stage of exploration of each investment the need for impairment is determined through monitoring market and industry conditions, competent person reports on each prospect and any available information from each licence’s main Operator. In the case of those licences where drilling has commenced and management is committed to further exploration and evaluation with sufficient financial resources available to do so, impairment is not recognised unless technical analysis confirms that commercially viable hydrocarbons are insufficient to recover costs incurred. Judgements in Applying Accounting Policies and Key Sources of Estimation Uncertainty – Investments The Company’s investments in equity instruments are not held for trading. Instead they are for medium to long-term strategic purposes and as such these investments are held at Fair Value Through Other Comprehensive Income (“FVTOCI”). Management assesses these assets for any indication of change in their fair value by reviewing the market value of the relevant companies and therefore the value of the underlying asset. Principal Accounting Policies CRITICAL ESTIMATES Share-based Payments and Warrants In determining the fair value of warrants and options and the related charges to the Income Statement, the Company makes assumptions about future events and market conditions. The fair value is determined using a valuation model which is dependent on estimates, including the future volatility of the Company’s share price and the expected life of the share-based payments. This is determined by using historic data from similar companies and historic trends on exercising share-based payments by holders. See note 13(b) and 13(c). Exploration and Evaluation Costs The Company’s accounting policy leads to the development of tangible and intangible fixed assets, where it is considered likely that the amount will be recoverable by future exploitation or sale, or alternatively where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. This requires management to make assumptions as to the future events and circumstances, especially in relation to whether an economically viable extraction operation can be established. Such estimates are subject to change and following initial capitalisation, should it become apparent that recovery of the expenditure is unlikely, the relevant capitalised amount will be written off to the Income Statement. Decommissioning and Reinstatement Provisions Management uses estimates for future decommissioning expenditure, discount rates (1.63%) and inflation rates (1%) provided by the Operator to determine appropriate decommissioning provisions. These may change as a result of revisions to the estimated timing and future cost of decommissioning. Carrying Value of Property, Plant and Equipment The Company assesses at each reporting period whether there is any indication that these assets may be impaired as indicated in note 8. If such indication exists, the Company estimates the recoverable amount of the asset. The recoverable amount is assessed by reference to the higher of ‘value in use’ (being the net present value of expected future cash flows of the relevant cash generating unit) and ‘fair value less cost to sell’. The Company considers the quantities of the Proven and Probable Reserves, future production levels and future oil prices as well as other IAS 36 criteria in their assessment of indicators of impairment. The directors do not believe there are any indicators of impairment in respect of the assets. 49 FINANCIAL STATEMENTSNotes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 1 BUSINESS AND OPERATING SEGMENTS The Company is considered to have two operating segments, being the exploration and evaluation of, and the development and production of hydrocarbon discoveries onshore United Kingdom. For the year ending 31 December 2019 Exploration Development and Evaluation and Production Corporate Total Revenue Operating expenses Depreciation Impairment Other administrative expenses Exploration write-back Loss from continuing operations before tax Finance income Loss for the year For the year ending 31 December 2018 Revenue Operating expenses Depreciation Impairment Other administrative expenses Loss from continuing operations before tax Finance income Loss for the year For the year ending 31 December 2019 – – – (393,697) – 112,500 (281,197) – (281,197) – – – (205,308) – (205,308) – (205,308) 136,959 (185,169) (32,429) – – – (80,639) – (80,639) 165,270 (159,046) (32,186) – – (25,962) – (25,962) – – – – (1,343,362) – (1,343,362) 12,815 (1,330,547) – – – – (871,489) (871,489) 4,051 (867,438) 136,959 (185,169) (32,429) (393,697) (1,343,362) 112,500 (1,705,198) 12,815 (1,692,383) 165,270 (159,046) (32,186) (205,308) (871,489) (1,102,759) 4,051 (1,098,708) Exploration Development and Evaluation and Production Corporate Total Non-current assets Current assets Non-current liabilities Current liabilities 6,726,743 – (457,815) (144,493) 581,300 84,716 (162,871) (28,216) 120,288 6,721,803 – (58,575) 7,428,331 6,806,519 (620,686) (231,284) Net assets 6,124,435 474,929 6,783,516 13,382,880 For the year ending 31 December 2018 Non-current assets Current assets Non-current liabilities Current liabilities 3,485,961 – (286,937) (275,179) 611,139 173,906 (166,228) (50,497) 40,000 3,147,435 – (71,012) 4,137,100 3,321,341 (453,165) (396,688) Net assets 2,923,845 568,320 3,116,423 6,608,588 50 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 2 OPERATING LOSS Operating loss is stated after charging: Impairment charge on intangible assets Exploration write-back Depletion of producing assets Staff costs (see note 3) Fees payable to the Company’s auditor for: – The audit of these financial statements – Tax compliance services 31.12.19 £ 31.12.18 £ 393,697 (112,500) 32,429 456,482 29,600 6,600 205,308 – 32,186 255,856 28,000 6,500 The impairment charges of £393,697 (2018: £205,308) are in respect of Intangible Assets, PEDL201, PEDL181 and PEDL209. The impairment shown for 2018 in last year’s Annual Report and Financial Statements was in respect of PEDL143 Weald Basin. During May 2019 the Company sold its interest in PEDL143 Weald Basin to UK Oil & Gas Plc ("UKOG") for 9,731,834 shares in UKOG at an agreed price of 1.156p per share. This transaction is for accounting purposes considered to be an exploration write-back. 3 EMPLOYEE INFORMATION AND REMUNERATION OF DIRECTORS The aggregate payroll cost in the year of the employees, all of whom are directors, was as follows: Salaries Share-based payment expense Social security costs 31.12.19 £ 31.12.18 £ 302,500 121,727 32,255 217,916 15,805 22,135 456,482 255,856 The number of persons employed by the Company was 5 (2018: 5). Details of each director’s emoluments are included in the Director’s Report and within this note. The salaries and fees of individual directors were as follows: D Bramhill J O’Farrell R Godson G Bull F Lang 2019 £ 160,000 70,000 30,000 30,000 12,500 2018 £ 110,000 55,833 25,000 25,000 2,083 302,500 217,916 51 FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 3 EMPLOYEE INFORMATION AND REMUNERATION OF DIRECTORS (CONTINUED) The emoluments of the highest paid director were £160,000 (2018: £110,000). Directors’ share-based payments D Bramhill J O’Farrell R Godson G Bull F Lang 2019 2018 49,750 28,077 14,125 26,909 2,866 8,741 4,371 1,076 1,076 541 121,727 15,805 The above represents the accounting charge in respect of share options. F Lang resigned as director on 10 June 2019. Directors’ share options outstanding as at 31 December 2019 and at 31 December 2018: D Bramhill J O’Farrell R Godson G Bull Directors’ share options granted 2019: D Bramhill J O’Farrell R Godson G Bull Directors’ share options granted 2018: D Bramhill J O’Farrell R Godson G Bull 2019 2018 240,000,000 140,000,000 60,000,000 110,000,000 120,000,000 60,000,000 30,000,000 30,000,000 Number Grant date Exercise price Vesting date 120,000,000 80,000,000 30,000,000 80,000,000 19.07.19 06.08.19 19.07.19 19.07.19 0.265p 0.265p 0.265p 0.265p 19.07.22 06.08.22 19.07.22 19.07.22 Number Grant date Exercise price Vesting date 120,000,000 60,000,000 30,000,000 30,000,000 18.07.18 18.07.18 07.11.18 07.11.18 0.09p 0.09p 0.11p 0.11p 18.07.21 18.07.21 07.11.21 07.11.21 F Lang resigned as a non-executive director, on 10 June 2019. During 2018, F Lang was awarded 30,000,000 options at an exercise price of 0.11 pence, with a vesting date of 04.12.21. F Lang has been allowed to retain his options which are exercisable under the same terms as outlined in the option agreement and as disclosed within note 13(c). 52 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 4 FINANCE INCOME HMRC interest Bank interest 5 TAXATION 31.12.19 £ 31.12.18 £ 5,965 6,850 12,815 4,051 4,051 31.12.19 £ 31.12.18 £ Current tax UK Corporation Tax Adjustment in respect of prior periods Total UK Corporation Tax charge – – – The differences between the current tax shown above and the amount calculated by applying the standard rate of UK Corporation Tax for oil and gas companies of 40% (2018: 40%) to the loss before tax is as follows: £ – – – £ Loss on ordinary activities before tax Tax on Company loss on ordinary activities at standard UK corporation tax rate of 40% (2018: 40%) Effects of: Expenses not deductible for tax purposes Impairment of intangible assets not deductible for tax purposes Losses carried forward Current tax charge for year (1,692,383) (1,098,708) (676,953) (439,483) 3,663 157,479 (515,811) – 82,123 (357,360) – – A deferred tax asset of £2,684,837 (2018: £2,169,026) relating to the carry forward of losses from trading and pre- trading expenditure has not been recognised in the year as at present it is not envisaged that any tax will become payable in the foreseeable future against which those losses could be utilised as deductions. The Company has total carried forward losses of £6,721,094 (2018: £5,046,835). 53 FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 6 LOSS PER SHARE The Company has issued warrants and options over ordinary shares which could potentially dilute the basic loss per share in the future. Further details are given in note 13(b) and 13(c). Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. During the current and prior year, the Company had warrants and options in issue as detailed in note 13(b) and 13(c). At 31 December 2019 the Company had 6,074,510 (2018: 51,407,842) warrants in issue and 640,000,000 (2018: 300,000,000) options in issue. These warrants and options have not been taken into account when calculating the diluted loss per share as their impact was anti-dilutive. Therefore, the basic and diluted loss per share are the same. Loss per share 2019 Pence 2018 Pence Loss per share from continuing operations (0.02) (0.01) The loss and weighted average number of ordinary shares used in the calculation of loss per share are as follows: 2019 £ 2018 £ Loss used in the calculation of total basic and diluted loss per share (1,692,383) (1,098,708) Number of shares 2019 2018 Weighted average number of ordinary shares for the purposes of basic and diluted loss per share 11,118,881,083 7,532,096,235 As detailed in note 13, the Company has 831,680,400 (2018: 831,680,400) deferred shares. These have not been included within the calculations of basic shares above on the basis that IAS 33 defines an ordinary share as an equity instrument that is subordinate to all other classes of equity instruments. Any residual interest in the assets of the Company would not currently, on liquidation, go to the deferred shareholders, hence they are not currently considered subordinate. These deferred shares have not been taken into account when calculating the diluted loss per share as their impact was anti-dilutive. The Company issued 6,990,196,071 new ordinary shares during the year (2018: 4,117,647,049). 54 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 7 INTANGIBLE ASSETS At 1 January Costs incurred during the year Transfer to development and production assets Costs impaired At 31 December 31.12.19 £ 31.12.18 £ 3,485,961 3,634,479 – (393,697) 2,806,278 991,172 (106,181) (205,308) 6,726,743 3,485,961 Additions to exploration and evaluation costs represent exploration and appraisal costs incurred in the year in respect of unproven properties and provisions recognised for decommissioning and restoration liabilities. Total costs of £393,697 (2018: £205,308) have been impaired with regard to PEDL201, £375,892 (2018: £nil), PEDL181, £15,042 (2018: £nil) and PEDL209, £2,763 (2018: £nil). These impairment costs are disclosed within the Strategic Report on page 10. The total impairment charge for 2018 was in respect of PEDL143 (Weald Basin). This licence interest was sold during 2019 and is described elsewhere in this Annual Report. The directors have reviewed whether there were any potential triggers for impairment evidence for each of the assets. If a trigger was identified the directors considered the potential value of the projects and licences. The directors have also considered the likely opportunities for realising the value of licences and have concluded that the likely value of each exploration area is individually in excess of its carrying amount with the exception of those noted above. Included in the above intangible asset additions during the year are amounts arising in relation to changes in decommissioning and restoration provisions (note 20). Intangible assets (less any impairment) comprise amounts capitalised as follows: Wressle Widmerpool Gulf West Newton Biscathorpe North Kelsey Louth Extension Broughton North Humber Basin Laughton PEDL180 PEDL201 PEDL183 PEDL253 PEDL241 PEDL339 PEDL182 PEDL181 PEDL209 31.12.19 £ 31.12.18 £ 2,429,830 – 2,346,915 1,821,371 104,168 16,426 8,033 – – 2,280,866 367,730 329,784 387,137 83,851 16,003 6,236 12,881 1,473 55 FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 8 PROPERTY, PLANT AND EQUIPMENT Cost At 1 January Transfer from exploration and evaluation assets Additions At 31 December Depreciation At 1 January Charge for the year At 31 December Net book value At 31 December At 1 January Development and Production assets comprise amounts capitalised as follows: Fiskerton Airfield Keddington Dukes Wood Kirklington EXL294 PEDL005(R) PEDL118 PEDL203 31.12.19 £ 31.12.18 £ 660,647 – 2,587 663,234 49,508 32,426 81,934 514,181 106,181 40,285 660,647 17,322 32,186 49,508 581,300 611,139 611,139 496,859 31.12.19 £ 208,742 266,418 59,542 46,598 31.12.18 £ 222,048 282,910 59,566 46,615 581,300 611,139 The Board has assessed the development and production assets as at 31 December 2019 and has not identified any indicators of impairment as set out in IAS36 Impairment of assets. 56 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 JOINT OPERATIONS 9 The Company is party to ten joint arrangements which carry out exploration and development of hydrocarbons in the United Kingdom. The joint operations in which the Company held an interest as at 31 December 2019 are as below: Licence Name Proportion of ownership interest Principal place of business PEDL180 PEDL183 PEDL201 PEDL005(R) PEDL253 PEDL241 PEDL339 PEDL182 PEDL118 PEDL203 EXL294 PEDL181 PEDL209 Wressle West Newton Widmerpool Gulf Keddington Biscathorpe North Kelsey Louth Extension Broughton North Dukes Wood Kirklington Fiskerton Airfield Humber Basin Laughton 27.5% 16.665% 26.25% 20% 27.5% 20% 20% 27.5% 16.67% 16.67% 20% 12.5% 10% England England England England England England England England England England England England England 57 FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 10 INVESTMENTS Investments in equity instruments designated as at FVTOCI Shares 2019 £ 2018 £ 120,288 40,000 These investments in equity instruments are not held for trading. Instead, they are held for medium to long-term strategic purposes. Accordingly, the directors of the Company have elected to designate these investments in equity instruments as at FVTOCI as they believe that recognising short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Company’s strategy of holding these investments for long-term purposes and realising their performance potential in the future. Measurement criteria for investments are given in note 16. At 1 January Additions Changes in fair value of investments At 31 December 31 December 2019 £ 31 December 2018 £ 40,000 112,500 (32,212) 120,288 40,000 – – 40,000 The Company is the beneficial owner of 169,959 (2018: 169,959) ordinary shares in Elephant Oil Limited, a company registered in England and Wales, which represents a 0.73% (2018: 0.73%) interest in that company. The principal activity of Elephant Oil Limited is the exploration and evaluation of hydrocarbon assets. The Company is the beneficial owner of 9,731,834 (2018: nil) ordinary shares in UK Oil & Gas plc (“UKOG”), a company registered in England and Wales, which represents a 0.133% (2018: nil) interest in that company at year end. The principal activity of UKOG is the exploration and evaluation of hydrocarbon assets. The shares in UKOG were received as consideration from the sale of the Company’s 7.5% interest in PEDL143 Weald Basin to the value of £112,500. At the time of the sale the UKOG shares were valued at 1.156p each. The investment in UKOG was revalued at the year end to the value of £80,288 (0.825p per share) with the loss being recorded in the Statement of Comprehensive Income on page 40. 11 TRADE AND OTHER RECEIVABLES The average credit period on sales of goods is 30 days. No interest is charged on outstanding trade receivables. The Company measures the loss allowance for trade receivables at an amount equal to 12 months ECL. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. The Company has recognised no loss allowance as the receivables are not past due nor has there been historical experience to indicate that these receivables are generally not recoverable. There has been no change in the estimation techniques or significant assumptions made during the current reporting period. Trade receivables Other debtors VAT Prepayments 58 31.12.19 £ 31.12.18 £ 6,408 65,000 78,308 30,481 77,678 – 75,538 44,838 180,197 198,054 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 12 CASH AND CASH EQUIVALENTS Cash at bank 31.12.19 £ 31.12.18 £ 6,626,322 3,123,287 Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets is equal to their fair value. 13(a) SHARE CAPITAL Allotted and issued: Number Class Nominal value 31.12.19 £ 31.12.18 £ 15,440,906,325 (31 December 2018: 8,450,710,254) 831,680,400 (31 December 2018: 831,680,400) Total Ordinary 0.025p 3,860,227 2,112,677 Deferred 0.225p 1,871,281 1,871,281 5,731,508 3,983,958 Ordinary shares hold voting rights and are entitled to any distributions made on winding up. Deferred shares do not hold voting rights and are not entitled to distributions made on winding up. Allotments during the year In April 2019, 2,333,333,334 new ordinary shares were issued for cash at 0.075 pence per share, raising approximately £1,750,000 before expenses of £153,213 by way of a placing and subscription. In July 2019, 1,323,529,411 new ordinary shares were issued for cash at 0.17 pence per share, raising approximately £2.25 million before expenses of £140,888 by way of a placing and subscription. In November 2019, 3,333,333,326 new ordinary shares were issued for cash at 0.15 pence per share, raising approximately £5 million before expenses of £346,495 by way of a placing and subscription. 59 FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 13(b) SHARE-BASED PAYMENTS – WARRANTS Details of the number of warrants and the weighted average exercise price (WAEP) outstanding during the year are as follows: Year ended December 2019 Number of warrants Outstanding and exercisable at the beginning of the year Outstanding and exercisable at the end of the year 51,407,842 6,074,510 Year ended December 2018 Number of warrants Outstanding and exercisable at the beginning of the year Outstanding and exercisable at the end of the year 51,407,842 51,407,842 WAEP £ 0.003 0.003 WAEP £ 0.003 0.003 The fair values of warrants in issue are calculated using the Black-Scholes model. The inputs into the model are as follows: Date of grant Number in issue at 31 December 2019 Share price at date of grant Exercise price Expected volatility Expected life (years) Risk-free rate Expected dividend yield Fair value at date of grant Earliest vesting date Expiry date During the year 45,333,332 warrants, with a fair value of £50,336, expired (2018: nil). 04.12.12 6,074,510 0.3p 0.25p 69% 5.0 0.8464% 0% £11,099 20.12.12 20.12.22 60 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 13(c) SHARE-BASED PAYMENTS – OPTIONS During the year, options were granted to directors of the Company. Options are Issued with an exercise price equating to the mid-market closing price on the date of Issue. Options have a vesting period of 3 years and are subject to a further condition that the options can only be exercised if the share price is at a 30% premium to the exercise price. Details of the number of options and the weighted average exercise price (WAEP) outstanding during the year are as follows: Year ended December 2019 Number of options Outstanding at the beginning of the year Granted during 2019 Outstanding at the end of the year Exercisable at the end of the year 300,000,000 340,000,000 640,000,000 – Year ended December 2018 Number of options Outstanding at the beginning of the year Granted during 2018 Outstanding at the end of the year Exercisable at the end of the year – 300,000,000 300,000,000 – WAEP £ 0.00098 0.00265 0.00187 – WAEP £ – 0.00098 0.00098 – The fair values of options in issue are calculated using the Black-Scholes model. The inputs into the model are as follows: Date of grant 06.08.19 19.07.19 04.12.18 07.11.18 18.07.18 Number in issue at 31 December 2019 Share price at date of grant Exercise price Expected volatility Expected life (years) Risk-free rate Expected dividend yield Fair value at date of grant Earliest vesting date Expiry date 80,000,000 260,000,000 0.265p 0.265p 70% 6.5 0.5187% 0% £435,086 19.07.22 19.07.29 0.265p 0.265p 70% 6.5 0.3161% 0% £133,497 06.08.22 06.08.29 30,000,000 0.11p 0.11p 63% 6.5 0.8840% 0% £19,491 04.12.21 04.12.28 90,000,000 180,000,000 0.09p 0.09p 55% 6.5 0.9427% 0% £85,822 18.07.21 18.07.28 0.11p 0.11p 62% 6.5 1.1035% 0% £58,106 07.11.21 07.11.28 The Company recognised total expenses in the Income Statement of £139,483 in relation to share options accounted for as equity-settled share-based payment transactions during the year (2018: £16,881). Expected volatility was determined based on a historic 5-year volatility of the Company. 61 FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 14 RESERVES The nature and purpose of each reserve within equity is as follows: Share capital – represents the nominal value of shares issued. Share premium – represents the amount subscribed for share capital in excess of nominal value, less related share issue costs. Share-based payment reserve – represents the cumulative cost of warrants and options issued in return for professional services. Accumulated deficit – represents cumulative profits or losses, and all other net gains and losses and transactions with owners not recognised elsewhere. 15 RECONCILIATION OF LOSS TO CASH GENERATED FROM OPERATIONS Loss before taxation Depletion of producing assets Impairment of intangibles Exploration write-back Share-based payments Finance income Decrease / (increase) in trade and other receivables (Decrease) / increase in trade and other payables 31.12.19 £ 31.12.18 £ (1,692,383) 32,429 393,697 (112,500) 139,483 (6,850) (1,098,708) 32,186 205,308 – 16,881 (4,051) (1,246,124) (848,384) 82,857 (309,897) (132,182) 86,609 Cash used in operations (1,473,164) (893,956) 16 FINANCIAL INSTRUMENTS Classification of measurement of financial instruments The fair value hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement. The Company holds investments at fair value through other comprehensive income. Investments in unlisted shares are a level 3 valuation as the quoted price is not available. 62 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 16 FINANCIAL INSTRUMENTS (CONTINUED) The tables below set out the Company’s accounting classification of each class of its financial assets and liabilities. Financial assets measured at fair value At 31 December 2019 Investments: FVOCI At 31 December 2018 Investments: FVOCI Financial assets measured at amortised cost At 31 December 2019 Trade receivables Cash and cash equivalents Total carrying value At 31 December 2018 Trade receivables Cash and cash equivalents Total carrying value All of the above financial assets’ carrying values approximate to their fair values at 31 December 2019 and 31 December 2018 given their nature and short times to maturity. Financial liabilities measured at amortised cost At 31 December 2019 Trade payables Accruals Total carrying value At 31 December 2018 Trade payables Accruals Total carrying value All of the above financial liabilities’ carrying values approximate to their fair values at 31 December 2019 and 31 December 2018 given their nature and short times to maturity. £ 120,288 40,000 £ 6,408 6,626,322 6,632,730 77,678 3,123,287 3,200,965 £ 144,394 86,890 231,284 351,454 45,234 396,688 63 FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 17 FINANCIAL INSTRUMENT RISK EXPOSURE AND MANAGEMENT The principal financial risks to which the Company is exposed are: liquidity risk, oil price risk and credit risk. This note describes the Company’s objectives, policies and processes for managing those risks and the methods used to measure them. Credit risk The Company’s credit risk is primarily attributable to its cash balances and such risk is limited because the third party is an international bank of which the latest Standard & Poors rating is BBB. The Company’s total credit risk amounts to the total of the sum of the receivables, cash and cash equivalents. At the year end this amounted to £6,632,730 (2018: £3,200,965). Liquidity risk In managing liquidity risk, the main objective of the Company is to ensure that it has the ability to pay all of its liabilities as they fall due. The Company monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due. The table below shows the undiscounted cash flows on the Company’s financial liabilities as at 31 December 2019 and 31 December 2018 on the basis of their earliest possible contractual maturity. At 31 December 2019 Trade payables Accruals At 31 December 2018 Trade payables Accruals Oil price risk Total £ Within 2 months £ Within Greater than 6 months £ 2-6 months £ 144,394 86,890 144,394 50,690 – 36,200 231,284 195,084 36,200 351,454 45,234 351,454 10,734 – 34,500 396,688 362,188 34,500 – – – – – – The Company is exposed to oil price risk associated with sales of oil from production. The Company does not currently consider it necessary to use hedging instruments to manage its exposure to this risk. Capital management The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, add shareholder value and to maintain an optimal capital structure to reduce the cost of capital. The Company defines capital as being share capital plus reserves as disclosed in the Balance Sheet. The Board of Directors monitors the level of capital as compared to the Company’s commitments, and adjusts the level of capital as is determined to be necessary, by issuing shares. The Company is not subject to any externally imposed capital requirements. 64 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 18 FINANCIAL COMMITMENTS The Company had no financial commitments as at 31 December 2019 or 31 December 2018, other than those recognised in the Balance Sheet and where Authority for Expenditure has been agreed with the Operator. 19 TRADE AND OTHER PAYABLES Trade payables Accruals 20 PROVISIONS As at 1 January 2018 Adjustment to provision estimates New provisions arising on licences Accretion of provision At 31 December 2018 Adjustment to provision estimates Accretion of provision At 31 December 2019 31.12.19 £ 31.12.18 £ 144,394 86,890 351,454 45,234 231,284 396,688 Decommissioning and reinstatement provision £ 229,918 6,604 213,071 3,571 453,165 160,134 7,387 620,686 Provision has been made for decommissioning costs on productive fields. Provision has also been made for reinstatement costs relating to exploration and evaluation assets where work performed to date gives rise to an obligation, principally for site restoration. Assumptions, based on the current economic environment, have been made which the directors believe are a reasonable basis upon which to estimate the future liability. This estimate will be reviewed regularly to take into account any material changes to assumptions. Actual costs will depend on a number of factors, including future market prices and any variation in the extent of decommissioning and reinstatement to be performed. Decommissioning and reinstatement costs are currently expected to be utilised between 2020 and 2040. Provisions created during the year, based on information provided by the Operators, relate to obligations in respect of Keddington, Fiskerton Airfield oilfield, Dukes Wood, Kirklington, Wressle and West Newton assets. No provisions have been utilised during the year. 65 FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2019 21 RELATED PARTY TRANSACTIONS Details of key management personnel remuneration are disclosed in note 3. Key management comprises only the directors. Charnia Resources (UK), an entity owned by Graham Bull, non-executive director, was paid £92,800 (2018: £55,200) in respect of consulting fees. No amounts were outstanding at the year end (2018:nil). Jayne Bramhill, spouse of David Bramhill, received the sum of £9,000 (2018: £6,000) from the Company in respect of IT maintenance and administration costs. No amounts were outstanding at the year end. (2018:nil). 22 CONTINGENT LIABILITIES In respect of PEDL180 and PEDL182 a sum of £1,040,000 is to be paid to the entity Calmar LP on first oil production from the Wressle discovery. 23 EVENTS AFTER THE BALANCE SHEET DATE The following events have taken place after the year end: During January 2020, the Planning Inspectorate informed the Operator that the appeal in respect of obtaining planning consent for the development of the Wressle oilfield, situated on licences PEDL180 and PEDL182 located in North Lincolnshire, was successful. The Inspector also allowed the application for an award of costs against the North Lincolnshire Council (“NLC”). Subsequently, the NLC has paid costs of £403,000. Union Jack will receive its proportion of this payment once the sum to be paid is agreed with the Operator. During March 2020, the Company acquired a 35% interest in PEDL005(R) containing the producing Keddington oilfield and a 15% interest in PEDL339 containing a portion of the Louth Prospect, from Terrain Energy Limited for a consideration of £200,000. In April 2020, the Company purchased 5,000,000 new ordinary shares in Egdon Resources plc via means of a subscription at a price of 2 pence per Subscription Share for a total subscription amount of £100,000. In April 2020, approval for the variation to the permit to recommence well testing at West Newton A-2 was received from the Environment Agency. Since the outbreak of Coronavirus (COVID-19) in early 2020, the priority of the Company has been on the health and safety of its employees and technical staff. Like many organisations, plans have been implemented and active measures have been taken to mitigate risk, such as no one-to-one contact and numerous telephone meetings. The Board is also in frequent contact with the Company’s JOA partners and our external technical team to assess any potential impact on the assets in which the Company has invested. We continue to follow the most up-to-date Government advice and engage with the regulatory bodies and stakeholders. To date, the exploration, development and production activities of the Company's assets have continued in line with plans and with minimal impact from COVID-19. However, the Company recognises COVID-19 and associated geo-political factors have created uncertainty around the price and demand for oil. The Company's financial health remains strong, with a robust balance sheet, cash reserves to fund its operations through to April 2021 and remains debt free. Accordingly, the Board does not currently plan to make changes going forward. However, the Board continues to monitor the situation closely and will, with its JOA partners, make adjustments if appropriate. 66 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019Notice of Annual General Meeting COVID-19 AGM ARRANGEMENTS 1 The Company’s AGM is currently scheduled to be held on Thursday 18 June 2020 at the Company’s registered office 6 Charlotte Street, Bath, BA1 2NE at 11.00am. 2 The Company is closely monitoring the COVID-19 situation, including UK Government guidance and will continue to do so in the lead up to the AGM. The health of our shareholders, employees and stakeholders remains extremely important to us and accordingly, the Board has taken into consideration the compulsory ‘Stay at Home’ measures that have been published by the UK Government. 3 These measures provide that public gatherings of more than two people are currently not permitted. Should these directives from the government remain in place up to and in the build up to the AGM, shareholders will not be allowed to attend the Company’s AGM in person and anyone seeking to attend the meeting will be refused entry. As such, shareholders should note they are not entitled to attend the Company’s AGM in person unless notified otherwise via the Company’s website www.unionjackoil.com 4 Shareholders are requested to therefore submit their votes, in respect of the business to be discussed, via proxy (electronically or by post in advance, as set out in this Notice of Annual General Meeting) as early as possible. Shareholders should appoint the Chair of the meeting as their proxy. If a shareholder appoints someone else as their proxy, that proxy will not be able to attend the meeting in person or cast the shareholder’s vote. 5 The business at the Company’s AGM will be curtailed to the formal business section only, with no wider presentations on business performance or Q and A. No advisers or other guests will be permitted to attend. If any shareholder has a question they would like to pose to the Board, this should be submitted to the Chairman via info@unionjackoil.com 6 In the event that further disruption to the AGM becomes unavoidable, we will announce any changes to the meeting (such as timing or venue) as soon as practicably possible through the Company’s website. Notice is hereby given that the Annual General Meeting (the “AGM”) of Union Jack Oil plc (the “Company”) will be held at the offices of Berkeley Hall Marshall Limited, 6 Charlotte Street, Bath BA1 2NE on 18 June 2020 at 11.00 a.m. to consider and, if thought fit, pass the following resolutions, of which resolutions numbered 1 to 5 will be proposed as ordinary resolutions and resolution number 6 will be proposed as a special resolution: authority shall expire on the conclusion of the next AGM of the Company, except that the Company may at any time before such expiry make an offer or agreement which would or might require Relevant Securities to be allotted after such expiry and the directors may allot Relevant Securities in pursuance of such an offer or agreement as if this authority had not expired. ORDINARY RESOLUTIONS 1 Report and accounts To receive the audited annual accounts of the Company for the year ended 31 December 2019, together with the Directors’ Report and the Auditor’s Report on those annual accounts. 2 Re-election of director retiring by rotation To re-elect Raymond Godson as a director, who retires by rotation in accordance with the Company’s Articles of Association. 3 Re-appointment of auditor To re-appoint BDO LLP as auditor of the Company to hold office from the conclusion of this AGM until the conclusion of the next general meeting at which accounts are laid before the Company. 4 Auditor’s remuneration To authorise the directors to determine the remuneration of the auditor. 5 Directors’ authority to allot shares That, in substitution for any equivalent authorities and powers granted to the directors prior to the passing of this resolution, the directors be and they are generally and unconditionally authorised pursuant to Section 551 of the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot shares in the Company, and to grant rights to subscribe for or to convert any security into shares in the Company (“Relevant Securities”) up to an aggregate nominal amount of £2,865,753.50 (representing approximately 50% of the issued share capital of the Company at the date of this notice) provided that, unless previously revoked, varied or extended, this SPECIAL RESOLUTION 6 Directors’ power to issue shares for cash That, conditional upon the passing of resolution number 5, the directors be and they are empowered pursuant to Section 570(1) of the Act to allot equity securities (as defined in Section 560(1) of the Act) of the Company wholly for cash pursuant to the authority of the directors under Section 551 of the Act conferred by resolution 5 above as if Section 561(1) of the Act did not apply to such allotment provided that the power conferred by this resolution shall be limited to the allotment of equity securities up to an aggregate nominal value equal to £2,865,753.50 (representing approximately 50% of the issued share capital of the Company at the date of this notice) and, unless previously revoked, varied or extended, this power shall expire on the conclusion of the next AGM of the Company, except that the Company may before the expiry of this power make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if this power had not expired. By order of the Board Matthew Small Company Secretary Dated: 7 May 2020 Registered Office: 6 Charlotte Street, Bath BA1 2NE 67 ANNUAL GENERAL MEETING Notice of Annual General Meeting COVID-19 AGM ARRANGEMENTS 1 The Company’s AGM is currently scheduled to be held 4 Shareholders are requested to therefore submit their votes, in on Thursday 18 June 2020 at the Company’s registered office 6 Charlotte Street, Bath, BA1 2NE at 11.00am. 2 The Company is closely monitoring the COVID-19 situation, including UK Government guidance and will continue to do so in the lead up to the AGM. The health of our shareholders, employees and stakeholders remains extremely important to us and accordingly, the Board has taken into consideration the compulsory ‘Stay at Home’ measures that have been published by the UK Government. 3 These measures provide that public gatherings of more than two people are currently not permitted. Should these directives from the government remain in place up to and in the build up to the AGM, shareholders will not be allowed to attend the Company’s AGM in person and anyone seeking to attend the meeting will be refused entry. As such, shareholders should note they are not entitled to attend the Company’s AGM in person unless notified otherwise via the Company’s website www.unionjackoil.com respect of the business to be discussed, via proxy (electronically or by post in advance, as set out in this Notice of Annual General Meeting) as early as possible. Shareholders should appoint the Chair of the meeting as their proxy. If a shareholder appoints someone else as their proxy, that proxy will not be able to attend the meeting in person or cast the shareholder’s vote. 5 The business at the Company’s AGM will be curtailed to the formal business section only, with no wider presentations on business performance or Q and A. No advisers or other guests will be permitted to attend. If any shareholder has a question they would like to pose to the Board, this should be submitted to the Chairman via info@unionjackoil.com 6 In the event that further disruption to the AGM becomes unavoidable, we will announce any changes to the meeting (such as timing or venue) as soon as practicably possible through the Company’s website. Notes: 1 Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), only those members registered in the register of members of the Company at 6.00 p.m. on 16 June 2020 (or if the AGM is adjourned, 48 hours before the time fixed for the adjourned AGM) shall be entitled to attend and vote at the AGM in respect of the number of shares registered in their name at that time. In each case, changes to the register of members after such time shall be disregarded in determining the rights of any person to attend or vote at the AGM. 2 If you wish to attend the AGM in person, you should arrive at the offices of Berkeley Hall Marshall, 6 Charlotte Street, Bath BA1 2NE at 11.00am. In order to gain admittance to the AGM, members may be required to prove their identity, however the Company would like to draw attention to the COVID-19 AGM arrangements shown above and on page 67. 3 A member who is entitled to attend, speak and vote at the AGM may appoint a proxy to attend, speak and vote instead of him. A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares (so a member must have more than one share to be able to appoint more than one proxy). A proxy need not be a member of the Company but must attend the AGM in order to represent you. A proxy must vote in accordance with any instructions given by the member by whom the proxy is appointed. Appointing a proxy will not prevent a member from attending in person and voting at the AGM (although voting in person at the AGM will terminate the proxy appointment). A proxy form is enclosed. The notes to the proxy form include instructions on how to appoint the Chairman of the AGM or another person as a proxy. You can only appoint a proxy using the procedures set out in these notes and in the notes to the proxy form. 4 To be valid, a Proxy Form, and the original or duly certified copy of the power of attorney or other authority (if any) under which it is signed or authenticated, should reach the Company’s registrar, Computershare Investor Services PLC of The Pavilions, Bridgwater Road, Bristol BS99 6ZY, by no later than 11.00 a.m. on 16 June 2020. 5 CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the AGM and any adjournment by using the procedures described in the CREST manual (euroclear.com/crest). CREST personal members or other CREST-sponsored members and those CREST members who have appointed a voting service provider should refer to their CREST sponsor or voting service provider, who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a CREST proxy instruction) must be properly authenticated in accordance with Euroclear’s specifications and must contain the information required for such instructions, as described in the CREST manual. All messages relating to the appointment of a proxy or an instruction to a previously appointed proxy must be transmitted so as to be received by Computershare (ID: 3RA50) by 11.00 a.m. on Tuesday 16 June 2020. It is the responsibility of the CREST member concerned to take such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers, are referred, in particular, to those sections of the CREST manual concerning practical limitations of the CREST system and timings. The Company may treat a CREST proxy instruction as invalid in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 6 In the case of joint holders of shares, the vote of the first named in the register of members who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of other joint holders. 7 A member that is a company or other organisation not having a physical presence cannot attend in person but can appoint someone to represent it. This can be done in one of two ways: either by the appointment of a proxy (described in notes 3 to 5 above) or of a corporate representative. Members considering the appointment of a corporate representative should check their own legal position, the Company’s Articles of Association and the relevant provision of the Companies Act 2006. 8 Copies of the executive directors’ service contracts with the Company and letters of appointment of the non-executive directors are available for inspection at the registered office of the Company during the usual business hours on any weekday (Saturday, Sunday or public holidays excluded) from the date of this notice until the conclusion of the AGM. 68 www.unionjackoil.comUNION JACK OIL PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Union Jack Oil plc 6 Charlotte Street, Bath BA1 2NE, England Telephone: +44 (0) 1225 428139 Fax: +44 (0) 1225 428140 Email: info@unionjackoil.com Web: www.unionjackoil.com 

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