Poised for
Growth...
2020 Annual Report and Financial Statements
Asset backed, full-cycle
AIM-listed oil and gas
company with a track
record of delivery.
www.uogplc.com
CONTENTS
CompAny oveRview
Our Highlights
Our Assets
StRAtegiC RepoRt
Our Strategy
Chairman’s Statement
Chief Executive Officer’s Review
Review of Operations
Financial Review
Principal Risks and Uncertainties
S172 Statement
goveRnAnCe RepoRt
Corporate Governance Statement
Board of Director’s
Director’s Report
Remuneration Committee Report
Audit and Risk Committee Report
ESG Committee Report
FinAnCiAl RepoRt
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash flows
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Parent Company Financial Statements
AppenDiCeS
Company Information
Glossary
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1
2020 Annual Report and Financial Statements Company Overview
OUR HIGHLIGHTS
Revenue
$9.1
million
Gross Profit
$2.5
million
Profit after Tax
$0.85
million
Exceptional performance from
Egyptian acquisition, with 2020
production averaging 2,195 boepd
with an exit rate of 2,389 boepd.
Measured deployment of capital
through the period, focusing on
developments and acquisitions at
bottom of the cycle.
Dominant position in the Jamaican
offshore, with over 2bn barrel
potential owned at 100% interest.
2
United Oil & Gas plc 2P Net Reserves
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
4.1
mmboe
Italy ......0.4 mmboe
Egypt ....3.7 mmboe
Supplemented experienced management and board
during the period, welcoming industry leaders.
Planned 2021 work programme funded from
operating cashflow, with a focus on operating to the
highest environmental and regulatory standards.
First revenues and profit delivered in a challenging
oil price environment.
3
2020 Annual Report and Financial Statements Governance ReportFinancial ReportAppendices
Walton Morant Licence
Offshore Jamaica
The Walton Morant Licence covers
an extensive area (c. 22,400 km2)
and contains numerous follow-up
structures which could be significantly
de-risked by an initial drilling success
at Colibri.
Company Overview
OUR ASSETS
Licences
6
4 countries
2P Net Reserves
4.1
mmboe
2C Net Contingent Resources
7.0
mmboe
Net production
>2,500
boepd
Production, development
and low-risk appraisal/
exploration in Egypt and
Europe; super-wildcat
exploration in Jamaica.
Production
Development
Appraisal
Exploration
4
United Oil & Gas plc P2480 Licence
(Zeta)
Offshore UK
In August 2019, United Oil
& Gas were awarded 100%
interest in Licence P2480 as
part of the UK 31st Licencing
Round. The licence covers an
area of approx. 500km2 in the
Outer Moray Firth Basin.
P2519 Licence
(Maria)
Offshore UK
In September 2020, United
Oil & Gas was provisionally
awarded 100% interest in
Licence P2519 containing the
Maria discovery. The award of
the licence was confirmed in
January 2021.
PL090 Licence
(Waddock Cross)
Onshore UK
In August 2016, United Oil
& Gas acquired First Oil’s
stake in the PL090 licences,
onshore UK. These include
an existing onshore field
and access to significant
exploration opportunities.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Podere Gallina Licence
Onshore Italy
Abu Sennan Concession
Onshore Egypt
In July 2017, United Oil & Gas (UOG)
completed a farm-in agreement with
Po Valley Energy to acquire a 20%
economic interest in the Podere Gallina
Licence in the Po Valley region of Italy.
The licence contains the Selva gas
development project as well as exciting
exploration opportunities.
In early 2020, United Oil & Gas completed
the acquisition of Rockhopper Egypt
Pty, which included a 22% non-operating
interest in the Abu Sennan Concession.
Located in the prolific hydrocarbon-
producing Western Desert region of
onshore Egypt, it comprises seven
Development Concessions.
5
2020 Annual Report and Financial Statements Governance ReportFinancial ReportAppendices
OUR STRATEGY
United is a full cycle oil and gas company
focused on delivering shareholder value
through the implementation of a strategy
based on sustainable practices that
adhere to the highest environmental and
regulatory standards.
United intends to grow
its portfolio through a
combination of low-risk
production, development
and exploration assets,
augmented by selected
higher impact, higher risk
exploration opportunities
which have the potential to
deliver exceptional returns.
6
United Oil & Gas plcStrategic Report United’s growth strategy is based on a number of key pillars:
Focus on Shareholder Value
• Expertise in identifying new opportunities
• Focus on value triggers – unlocking the value of each asset and the business
• Excellence in operations and portfolio management
• Commitment to communicating our story to markets
Strength of Assets
• Low-cost production that delivers positive cashflow at low oil prices
• Production & Reserves– Egypt Production up 40% since completion of acquisition; reserve
replacement ratio of 198%
• Exploration – Jamaican assets with 2bn barrel potential
• Development – Geotechnical input in UK licences unlocking early value
Commitment to growing a Sustainable Business
• Committed to partnering with our host communities and nations
• Operating to highest environmental and regulatory standards
• Investing in sustainable production practices to reduce our environmental impact
• Ethical conduct of the Group’s business including its corporate governance framework
Management and Board Experience
• Board comprised of proven industry leaders with excellent industry relationships
• Track record of executing deals across three continents with industry majors
• Demonstrated ability to financing major corporate growth
• Proven expertise in identifying world class geological potential
Financial and Risk Management
• Work programmes and drilling campaigns funded through cashflow from existing assets
• Ability to access finance future growth opportunities
• Active commodity price risk management
• Constant focus on cost management
7
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices CHAIRMAN’S STATEMENT
Dear Shareholders,
Introduction
I am very pleased to report that 2020 was one of the most
important and transformational years for the Group . United is now
a full cycle oil and gas company with a portfolio of production,
development, exploration and appraisal assets that underpin our
growth ambitions.
Our performance during an extremely challenging year has been
exemplary and gives the Board and I great confidence about the
capability of our team, our assets and our planned strategy for
future growth.
As part of the transaction, the seller Rockhopper Exploration
plc acquired an 18.3% interest in United, which was then very
successfully placed later in the year with new institutional investors.
In August, as a result of determined efforts on the part of our
executives, the Group was awarded operatorship and 100%
ownership of the high impact Walton Morant exploration licence
in Jamaica and secured an extension to the exploration phase,
allowing more time to evaluate the prospectivity of the licence and
to seek potential joint venture partners.
The Group was also awarded further blocks containing discoveries
in the UK’s latest offshore licencing round.
Key Activities in 2020
The year began with completion of the Rockhopper Egypt
acquisition, including a successful equity placing, and the re-
admission of the enlarged group to AIM. The drilling success that
was achieved at ASH-2 at the end of 2019, was followed by further
success at ES-5, increasing our production and reserves, validating
our original assessment of the significant upside potential of the
assets. Our technical team continue to play a very important role
in working closely with the operator in maximising the returns from
these assets and their potential.
Business development opportunities across the full cycle
continued to be offered to and assessed by the team in the
course of 2020, and a number of such opportunities are still under
consideration. However, only the most attractive ones consistent
with our strategy will be taken forward.
Strengthening of our Board and Governance
As the Company has grown, we have recognised the need for
an increased range of skills, experience and diversity among the
non-executive directors to support and challenge management in
8
United Oil & Gas plcStrategic Report "Our performance during
an extremely challenging
year has seen has been
exemplary."
the execution of United’s strategy. We believe we have more than
achieved this as a result of the appointments during the period
of Iman Hill and Tom Hickey, both bring considerable additional
technical, operational, financial and commercial experience to
the Board.
Further, to drive forward our commitment to operating sustainably,
the Board established an Environmental, Social and Governance
Committee, chaired by Iman, and also appointed Tom to chair
the Audit Committee whilst I remain chair of the Remuneration
Committee and the AIM Rules Compliance Committee.
In addition to these changes, we approved a Remuneration Policy
for executive remuneration (which is summarised later in this
Report) and made other changes to Board committee composition
to improve Board governance and oversight.
Finally, Alberto Cattaruzza, who had been a director of United
since our re-listing in 2017 and Stewart MacDonald, who joined the
board following completion of the Rockhopper Egypt acquisition,
stepped down from their roles in the Company. I would like to
thank them both again for their valuable service as directors.
Strategy
Our strategy remains clear; continue to grow our full cycle portfolio
of low-risk production, development and exploration assets (as
we have in Egypt, Italy and the UK) complemented by a few higher
risk, low-cost and high impact exploration opportunities.
In addition, we see opportunity to deliver value to shareholders
through timely portfolio management as well as through our
technical expertise and our drilling operations.
Financial Results for 2020
2020 was the first year in which we received revenues, leading
I am very pleased to report to a profit after tax of $0.85m. With
our production and revenues continuing strongly, and with cash
operating costs in 2020 of $5.77 per boe, we entered 2021 with an
asset base resilient to low oil prices and with a strong balance sheet.
Post Year End
There has been further drilling success since the year end with
the ASH-3 well being successfully drilled, tested and brought into
production and the announcement of an exploration discovery
on the ASD-1X exploration well. The ASH Field continues to
outperform our estimates, further demonstrating the significant
growth potential of our Egyptian assets.
Impact to the Company of COVID-19
The human and economic impact of the COVID-19 pandemic
continues to be very significant. The priority of the Group remains
the health and wellbeing of our employees and wider stakeholders
and we are glad to report that all of our employees are safe and well.
In common with every company in the oil and gas industry, and
indeed in all other areas of business, the Company’s activities
have been affected by COVID-19 uncertainty. However, there has
been no impact on our operations in Egypt and the production and
transport of oil and gas has continued uninterrupted.
Dialogue With Shareholders
Shareholders views on the Company, its strategy, remuneration
policy and indeed all aspects of our business and operations are
very important to the Board and we welcome every opportunity
to engage. However, appreciating that physical meetings are not
possible at the moment we would be very happy to hear from
you in whatever manner suits you best. I can be reached via the
Company Secretary at info@uogplc.com
Conclusion
2020 was another very successful year for the company in the
development and pursuit of our strategy and I would like to
record my thanks to our executives and staff for their continued
commitment and energy throughout the year, which was an
especially challenging period, given the COVID-19 pandemic and
commodity price fluctuations.
We look forward very positively to the year ahead. We have a
balanced full cycle portfolio, the cash flow to fund our business
and exciting new opportunities under review.
Graham Martin
Chairman
23 April 2021
9
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices CHIEF EXECUTIVE OFFICER’S REVIEW
2020 was an important year for United. It was the year
in which we achieved our first production acquisition,
a fundamental element of our strategy to become a full
cycle oil and gas company. In a relatively short space of
time, we have developed a balanced portfolio of assets
which delivers production, near term development
potential and the opportunity for significant growth
through exploration.
Rockhopper Egypt Acquisition
A key step forward for United this year was the completion
of the acquisition of Rockhopper’s Egyptian business, a 22%
non-operated working interest in the low-cost Abu Sennan
concession in the prolific Western Desert region. The acquisition
added proven and probable (2P) reserves of 2.64 million barrels
and prospective resources of 6.4 million barrels. Abu Sennan
is a high-quality oil concession with significant development
upside and exploration potential. We plan to utilise this platform
to support further growth not only in Egypt but also the wider
European and Greater Mediterranean region, both organically and
through additional transactions.
Operations
Operations in 2020 have taken place against the background
of sustained low oil prices, driven in large part by the global
pandemic. United and its joint venture partners reacted quickly
and decisively to defer discretionary capital expenditure across our
asset base to protect the value of our assets and stability of our
balance sheet.
Despite the deferral of two of the development wells planned for
2020, Egyptian production increased by over 40% from 1,700 boepd
at the date of completion of the acquisition to over 2,389 boepd at
year end. Post year end we also announced a material uplift in Abu
Sennan reserves relevant to end 2020, with United’s working interest
2P reserves in Egypt now at 3.7 MMboe representing a reserves
replacement ratio of over 190% for the second year in a row.
Jamaica is also a key part of the United portfolio. In August
2020, we were pleased to announce that the previous operator,
Tullow Oil, who had invested significantly in the licences,
assigned their 80% interest to United giving us 100% equity and
operatorship. At the same time United was granted an 18-month
extension to the Initial Exploration Period by the Government of
Jamaica. There has been considerable work undertaken by our
geotechnical team to build on our understanding of this asset
and during 2020 we commissioned an Independent Prospective
Resource Report which covered 11 of the identified prospects
and leads on the licence and which confirmed the potential of
the basins to hold over 2bn barrels of oil. Recent improvements
in the wider market environment have created renewed interest
in world-class exploration opportunities such as this and we are
excited about the formal farm down process which commenced
in early Q2 2021.
Building a Sustainable Business
We recognise the importance of running our business in a
conscientious manner, with a commitment to the sustainable
development of the communities where we are present, with best
practice corporate governance structure in place. The appointment
of Iman Hill has brought an industry leader and expert on
Environmental, Social and Governance ("ESG") issues into our
business. In addition, 2020 saw us establish a Board Committee
on Environmental, Social and Governance, chaired by Iman. With
our ESG Committee in place and together with our joint venture
partners in Egypt, we have made a number of improvements, most
notably the significant reduction in emissions brought about by the
completion of the ASH gas pipeline which reduces gas flaring.
Financial Strength
United’s results for this financial year are the first to include
revenues from our interests in the Abu Sennan concession
in Egypt, acquired on 28 February 2020. The acquisition is a
significant step forward in realising the strategy of becoming a
self-financed full cycle E&P business. The assets have performed
extremely well in a sustained period of challenging oil prices. We
exit the year with $2.2m cash on our balance sheet, growing low-
cost production and a commitment to capital discipline and a fully
funded work programme
10
United Oil & Gas plcStrategic Report "In Egypt, we are growing
production at a time of
increasing oil prices."
to over 3,000 boepd at the end of Q1 2021. 2020 has sown the
seeds of long-term growth for the business and I am confident in
the outlook for the Company.
Acknowledgement
It would be remiss of me not to finish by thanking the United team,
Board, shareholders and our many business partners. In 2020,
we have concluded deals remotely and we have negotiated with
Governments without having the opportunity to meet face to face.
We have not been able to meet our investors as we have normally
done but have spent significant time on online meeting platforms
continuing to tell the United story. Everyone has worked hard
through incredibly challenging circumstances.
United is an excellent business and a great team and I would like
to thank everyone of you for playing your part.
Brian Larkin
Chief Executive Officer
23 April 2021
Board
We were delighted to strengthen our Board over the course
of this year. Iman Hill and Tom Hickey are respected leaders
in this industry who bring global technical, financial and ESG
experience as well as specific experience and relationships in
the markets in which United is seeking to grow. Together with
our Chairman Graham Martin we feel the Board is reflective of
the ambition of the Group. They are already making a significant
impact and I look forward to the contribution they will make in
the years ahead.
Significant Shareholders
The agreement to acquire their Egyptian assets saw Rockhopper
Exploration plc take an 18.3% stake in United on completion of
the acquisition. This shareholding was subject to certain lock-
up conditions for a period of up to 12 months. In August 2020,
United’s management completed an oversubscribed placing
which placed the full Rockhopper shareholding with a group of
institutional investors. This has significantly strengthened our
shareholder register with long term supportive shareholders, some
of whom have increased their position in the short period of time
since coming on board.
United has placed significant focus on Investor Relations and on
ensuring that we continued to communicate effectively in the
pandemic.
Outlook
United enters 2021 in a position of strength. It will be a year of
strong news flow, with a significant number of value triggers to
occur. In Egypt, we are growing production at a time of increasing
oil prices and our low-cost assets are delivering higher production
volumes translating to strong revenue generation. We have
commenced a drilling programme in Egypt which will be funded
from operating cashflow, which has already grown our production
11
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices REVIEW OF OPERATIONS
"We are targeting production and low-risk
development assets in Europe and high-
risk/high-reward exploration in Africa,
South America, and the Caribbean."
Jonathan Leather
Chief Operating Officer
Introduction
Operationally, 2020 has been another successful year for United.
Highlights in Egypt have included drilling success at the safely
completed ASH-2 and ES-5 wells, Group working interest
production of 2,195 boepd for the ten-month post-completion
period, a near 200% reserves replacement ration, and the safe
completion of the ASH gas pipeline.
In Jamaica, an 18-month extension of the Walton Morant
Licence was agreed, including assignment of a further 80%
equity, and since United took operatorship, the completion of
an Independent Prospective Resource report, identifying an
unrisked mean prospective resource estimate of 2.4 billion
barrels of oil across 11 prospects and leads.
United prioritises the health, safety and well-being of our employees and host communities, and it is very
pleasing to note that throughout our operations in 2020 there were no incidents to report.
As a supportive non-operating partner in active operations, United’s role is to provide challenge
to operating partners, and ensure that ESG is at the forefront of any activities. With an ESG Board
Committee now established to provide oversight and focus on the Group’s activities, United’s aim is
to ensure that the Group’s ESG strategy grows and evolves with the Group.
12
United Oil & Gas plcStrategic Report Africa
Egypt
Abu Sennan Licence
Abu Sennan is located in the Western Desert, onshore Egypt, c.200km west of
Cairo. It contains 7 development concessions, and a 644km2 exploration licence.
The Group completed the acquisition of a 22% non-operated interest in the Abu Sennan concession
in the Western Desert on 28 February 2020. The performance of this asset has been exceptional
throughout the year despite the joint venture partners prudent decision to defer the drilling of two
of the four wells due to market conditions. On 1 March 2020, following completion of the deal gross
production levels were 7,770 boepd gross (1,709 boepd net). Group working interest production
averaged 2,195 boepd for the ten months of 2020 post completion of the acquisition. The Group
exited 2020 with working interest production of 2,389 boepd.
13
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices REVIEW OF OPERATIONS (continued)
Gas 0.6
Abu Sennan
2P Resources
WI (MMboe)
3.7
Oil 3.1
Uplift in reserves
at Abu Sennan
(MMboe)
34.7
28.6
16.8
13.5
6.7
4.2
2020
2019
Gross 1P
Reserves
2020
2019
Gross 2P
Reserves
2019
2020
Gross 3P
Reserves
The ASH-2 well, which was drilled in late 2019, came on stream on
2 January 2020. Since then, the well has performed outstandingly,
averaging close to 3,000 bopd in the first half of the year, and upon
the implementation of a larger choke-size, close to 5,000 bopd in H2.
To date the ASH field has produced over two million barrels of oil.
The El Samiya-5 well was spudded on 3 February 2020, targeting
previously undrained reservoirs of the El-Samiya field. The
outcome significantly exceeded pre-drill expectations with net pay
encountered in all of the targeted intervals, totalling in excess of
120m for the well achieving flow rates on test of 4,100 bopd with
a further 18 mmscf/d gas from the Kharita Formation. After the
initial testing, the Kharita reservoir was brought onstream at a
reduced choke size, with second-half production from the well of
2,531 boepd.
In addition to successful drilling, production was also increased
through the development of infrastructure. Completion of the low
capital expenditure gas pipeline project at Al Jahraa led to the
production of additional gas and the elimination of flaring from
the field. The ASH gas pipeline, which links the ASH Field to the
existing gas processing facilities at El Salmiya, within the Abu
Sennan Licence, was completed safely, on time and under budget
in December, and was successfully brought onstream on 27
December 2020. The delivery of the ASH Gas pipeline has not only
increased the environmental efficiency of the Abu Sennan Licence,
but has also improved gas recovery rates across the licence.
The recently announced independent reserves report by Gaffney
Cline and Associates from the end of 2020 identified a significant
uplift in reserves at the Abu Sennan concession, building on
increases reported for 2019.
• 24% increase in Abu Sennan Gross 2P Reserves to 16.8 MMboe
(15% gas) compared to 13.5 MMboe at the end of 2019,
representing a 198% reserves replacement ratio
• Gross 1P Reserves increased by 59% to 6.7 MMboe and gross
3P reserves up by 21% to 34.7 MMboe (from 4.2 MMboe and
28.6 MMboe respectively at the end of 2019)
At the end of 2020, the joint venture partners secured the EDC-50
rig for the re-commencement of drilling in 2021. The 2021 budget
included two firm wells, with the flexibility to add up to two further
wells, subject to well results and the commodity price environment.
The first of the firm 2021 wells, the ASH-3 development well, was
successfully completed in February 2021. It encountered 27.5m of
14
United Oil & Gas plcStrategic Report net pay in the Alam El Bueib (AEB) Formation, and on test, flowed
at a rate of 6,379 bopd and 6.7 mmscf/d on a 64/64” choke. The
well was brought onstream on a 40/64” choke, at initial rates of
3,800 bopd.
The second well in the drilling schedule, the ASD-1X exploration
well, commenced drilling in March and has been a commercial
discovery, with preliminary results indicating over 22m of net pay
across multiple stacked targets. Testing is planned during the
second half of April and if successful, will lead to an application to
EGPC for a development lease over this new discovery.
The joint venture partners have now confirmed that the third well
in the 2021 drilling campaign will be the AJ-8 development well,
targeting multiple stacked reservoirs in an undrained portion of
the Al Jahraa Field. This will be drilled by the EDC-50 rig upon
completion of the ASD-1X well.
Group WI production
2,389
boepd
15
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices REVIEW OF OPERATIONS (continued)
South America and the Caribbean
Offshore Jamaica
Walton Morant Licence
Walton Morant is a 22,400km2 offshore exploration concession, located
to the south of the island of Jamaica.
The Walton Morant Licence in Jamaica is an exploration asset which
has the potential to open up an entirely new hydrocarbon frontier.
With the previous operator, Tullow Oil, making clear its intention
to relinquish its 80% interest in the licence at the end of the Initial
Exploration Period in July 2020, United worked with the Jamaican
Government to map out a plan for a continuing work programme
on the licence. This was designed to build on the extensive work
that had previously been carried out and incorporated feedback
from a limited farm-down process that had been led by Tullow. In
August, it was confirmed that United would assume 100% equity
and full operatorship of the licence, and the Production Sharing
16
United Oil & Gas plcStrategic Report Agreement was amended to extend the Initial Exploration Period
for 18 months. The amended Walton Morant Licence covers an
area of 22,400km2, and has numerous plays and prospects already
identified across three separate basins.
The committed work programme for the extended Initial
Exploration Period was focussed on quantifying the basin-wide
potential in the Walton Morant, and on adding to the existing
evidence for the presence of prolific and active source rocks in
Jamaica and the wider region. Good progress has been made on
this work programme, and based on United’s work, an independent
evaluation of the Prospective Resources was completed by
Gaffney Cline & Associates in December 2020. This resulted in a
significant uplift to the volumes associated with the high-graded
drill-ready Colibri prospect, as well as highlighting the substantial
follow-on potential in the licence:
• Prospective resource potential of over 2.4 billion barrels
identified in the basin
• 406 MMbbls gross unrisked mean Prospective Resource
estimate for the high-graded Colibri Prospect - an uplift of 77%
compared to previous independent report
• First independent review of Morant Basin indicates major
potential including Thunderball lead with mean unrisked
recoverable prospective resources of 603 MMbbls
With the bulk of the committed work programme now complete,
United’s focus in 2021 has shifted towards attracting partners to
join the Company in drilling a well to unlock the potential in this high
impact exploration licence. In February 2021, United appointed Envoi
to manage a formal farm-out process, which is now underway.
Europe
Italy
Selva Malvezzi
The Selva Malvezzi concession, containing the
Selva Gas Field is located 20km to the east of
Bologna, onshore Italy.
During 2020, preliminary development work to prepare for first gas
production continued.
In June 2020, a GPS system was installed to continuously record
subsidence data in accordance with the environmental monitoring
plan. In October 2020, the Podere Gallina exploration licence
received the final decree from the Economic Development Ministry
for the joint venture, confirming the quota transfer of 20% to United
Oil and Gas.
Italy’s new Environmental Technical Commission confirmed
“environmental compatibility” in November 2020 and in
April 2021, it was confirmed that the Environmental Impact
Assessment of Selva Malvezzi is approved and duly signed by
the Ministers of MITE (Ministry of Ecological Transition) and
MIC (Ministry of Culture). Environmental approval paves the way
for the grant of full production licences for both projects and
Po Valley Energy will submit required documentation during the
second quarter of 2021.
17
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices REVIEW OF OPERATIONS (continued)
Europe
UK
Zeta and Maria
Licences P2480 (Zeta) and P2519 (Maria) cover
a combined area of c.725km2 in the Outer Moray
Firth Basin of the UK Central North Sea.
The Zeta licence (P2480) covers four highly prospective blocks in
the Central North Sea with a combined area of 500km2. It includes
the Zeta prospect, which United estimates could contain over
90 million barrels of in-place oil. The Licence, which lies 10km
from United's recently divested Crown Discovery, is close to the
Marigold and Yeoman discoveries, and the substantial Piper,
MacCulloch and Claymore oil fields.
During 2020, the Company purchased a high-quality 3D seismic
dataset covering the Zeta licence, and this data is being worked up
in advance of a likely independent evaluation of the prospects. The
licence includes multiple plays and low risk prospects, the Zeta
prospect being the most promising of these.
In September 2020, United was provisionally awarded 100%
interest in Licence P2519. This contains Blocks 15/18e and
15/19c, and covers an area of c. 225km2, containing multiple
targets. The P2519 licence is in close proximity to Licence P2480
and contains the Maria, Brochel, and Maol discoveries in what is a
highly prospective and active area. The award of the licence was
confirmed in January 2021.
The Maria Discovery in the Forties Sandstone was initially made
in 1976 by Shell/Esso and later appraised by two further wells.
United's internal analysis, completed as part of the application,
suggests that this is likely to contain c. 6 MMboe of recoverable
resources. Analysis suggests that the commercial threshold for
oil developments with proximity to infrastructure in this part of the
North Sea is c. 4-5 MMbbls, indicating that a viable development
should be possible. Indeed, Maria is comparable in size to a
discovery United previously successfully divested in the area.
Block 15/18e also contains two Jurassic discoveries, Brochel and
Maol, which flowed on test at over 2,000 boepd from two separate
Jurassic reservoirs when it was drilled in 1987.
A further Palaeocene prospect - Dunvegan - has also been identified
straddling the boundary between Blocks 15/18e and 15/19c.
This cluster of highly attractive licences increases the options
for United in this region of the UK North Sea. The committed
work programme is aimed at reducing volumetric uncertainty
through the purchase of good quality 3D seismic data and rock
physics modelling and is already underway. United has already
demonstrated through the Crown transaction the value that active
portfolio management can deliver in this area.
The sale of the Crown licence to Anasuria Hibiscus UK Ltd
(Hibiscus) was completed in December 2019. The transaction
involved an initial payment of $1m ($0.95m net to United), with
further payments expected, including $3m ($2.85m net to United)
due upon approval of a Field Development Plan (“FDP”) by the UK
Oil and Gas Authority (“OGA”). In December, Hibiscus informed
the Company that whilst the FDP was submitted on schedule by
the end of December 2020, the project final investment decision
("FID") which triggers OGA approval of the FDP is now expected
to be during Q2-2021. It is clear that Crown remains an important
and value accretive part of the Marigold Development, and as a
result of this delay and following recent discussions with Anasuria
Hibiscus the US$2.85m payment is now expected to be in the
second quarter of 2021. In the event FDP Approval is not achieved,
Anasuria Hibiscus may, at its discretion, proceed with the US$3
million payment or transfer Licence P2366 back to United and
Swift Exploration at nominal consideration without any further
payment obligation.
18
United Oil & Gas plcStrategic Report Waddock Cross
Licence PL090 containing the Waddock
Cross Field is situated in the onshore
Wessex Basin, UK.
During 2020, independent reservoir modelling work was completed
on Waddock Cross. Initial results from this work indicate that a
new horizontal well on the field could yield commercial oil volumes
(500-800 bopd), albeit at high water cut. Further work is ongoing to
finalise a forward plan for redevelopment of the field, which would
include enhanced produced water handling facilities. Given the
large in place oil volume (c. 34 mmbls STOIIP) this has been high
graded by the Operator (Egdon Resources plc) as planning and
facilities are already in place to test this opportunity.
Following completion of the Egyptian acquisition, the Company
undertook a review of the asset base, and has moved its
focus away from the UK onshore. As a result, United's Wessex
Basin portfolio was deemed non-core and United is reviewing
alternatives for the Waddock Cross asset. Licences P1918,
PEDL330 and PEDL345 were relinquished in January 2021 and
the remaining minor costs associated with these licences that
were not written off in 2019, have been written off in the 2020
financial statements.
Group proved plus probable reserves and contingent resources
Country
Asset
Egypt
Jamaica
Italy
UK
UK
UK
Abu
Sennan 1
Walton
Morant 1
Selva
Malvezzi 2
Maria 4
Zeta 4
Total
Waddock
Cross
Working Interest
22%
100%
20%
100%
100%
26.25%
Net 2P Reserves
(mmboe)
Net 2C Resources
(mmboe)
3.7
-
-
-
Net Prospective Resources 5
(mmboe)
5.7
2,4216
0.4
0.5
3.0
-
6.1
-
-
-
-
0.4 3
4.1
7.0
27.5
2.3 4
2,460
1 GaffneyCline & Associates reserves report, April 2021
2 CGG competent person’s report, December 2019
3 ERCE competent person’s report, December 2019
4 UOG calculated figures
5 Unrisked mean prospective resources
6 Summation of Walton Morant prospective resources completed by United
19
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices FINANCIAL REVIEW
"As the business continues to grow, we
will retain our commitment to investing
and safeguarding capital and delivering
shareholder value and returns."
David Quirke
Chief Financial Officer
United Oil and Gas Financial Strategy
United’s Financial Strategy is founded on three core areas: Capital Structure, Risk
Management and Financial Management.
During 2020, with oil prices at multi-year lows, these three core areas came into sharp focus
and allowed the business to preserve capital and balance sheet strength. We acted early and
decisively by deferring development projects, reducing discretionary expenditure and benefitted
greatly from our oil hedging programme. As the business continues to grow, we will retain our
commitment to investing and safeguarding capital and delivering shareholder value and returns.
Rockhopper Egypt Acquisition and Inclusion in Full Year Results
United’s results for this financial year are the first to include revenues from our interests in the
Abu Sennan concession in Egypt, acquired on 28 February 2020. The acquisition is a significant
step forward in realising the strategy of becoming a self-financed full cycle E&P business. The
Abu Sennan concession has performed very well since completion and creates a platform from
which we can build future growth in Egypt and the Greater Mediterranean area.
The consideration for the transaction was US$16 million and was funded by:
Consideration
Issuance of 114,503,817 Consideration shares at 3 pence to Rockhopper
A prepayment Financing Structure of US$8 million provided by BP
Funds generated by the placing of 150,616,669 shares at 3p
$m
$3.5m
$8m
$4.5m
Operations are accounted for in the Income Statement from the date of control i.e., 28 February
2020 as per the requirements of IFRS 10. All assets and liabilities and movements from the
effective date of the transaction i.e., 1 January 2019 have been brought onto the balance sheet
at fair value.
Group Production and Commodity Prices
Total group working interest for the ten months was 2,195 boepd delivering revenue of $9.1m.
Revenues from the Abu Sennan concession are stated after accounting for government
entitlements. The average realised oil price was $37.76/bbl and the average gas price was
$2.63/mmbtu. Negotiations between the Operator and EGPC have resulted in a significant
reduction in the Western desert discount to Brent from an average of $2.75/bbl in the four
months of H1-2020 to an average of $0.90/bbl in H2-2020.
HIGHLIGHTS1
Net Average
Production Volumes
2,195 boepd
Oil Price Realised
$37.76/bbl
Gas Price Realised
$2.63/mmbtu
Revenue2
$9.1 million
Gross Profit
$2.5 million
Profit After Tax
$0.85 million
Cash Operating Cost3
$5.77/boe
EBITDAX3
$3.5 million
1 From completion of the Rockhopper Egypt
acquisition to period end, 28 February 2020
to 31 December 2020
2 22% interest net of government take
3 See Non-IFRS measure
20
United Oil & Gas plcStrategic Report Group Operating Costs
Group cash operating costs were $3.9m
for the period following completion to the
end of 2020. The operating cost $5.77boe,
indicating the projects resilience and
efficiency even in times of weaker oil price.
Group DD&A and Expenses
Group DD&A associated with producing and
development assets amounted to $2.6m
Administrative expenses for the year
totalled $1.7m. Adjusting for the non-
cash items under IFRS 2 Share Based
Payment and IFRS 16 Leases, the
administrative expense is $1.4m which
included $0.3m on new venture activity
as well as $0.2m for the Egyptian asset
following completion.
Derivative Financial Instrument
The Company’s pre-payment facility
with BP provided downside protection
by effectively hedging a volume of bbls
of oil at $60/bbl per month for a thirty-
month term from March 2020 through
to September 2022. The Company
agreed with BP to defer settlement of
three months volumes in the second
half of 2020 to the final year of the
facility, in response to the lower oil price
in the first half of 2020. The Company
executed additional hedge instruments
in the second half of 2020 to further
protect the Company from adverse oil
price movements. As at 31 December
2020, an unrealised gain of $1.6m has
been recognised as a result of oil price
movements in the period and indicating
the effectiveness of this strategy.
Impairment
There were no material impairment
triggers in the period
Taxation
In Egypt under the terms of the
Production Sharing Agreement all
corporate taxes are paid by EGPC who
receive production entitlements from the
concession. The tax credit in the Income
Statement relates to a reversal of the
accrual for tax due on the disposal of the
Crown asset in 2019.
Profit/Loss Post Tax
The profit for the year from continuing
operations and prior to any exceptional
costs was $0.9m (2019: loss $2.1m).
Cash Flow
Net cashflow from continuing operations
amounted to $4.8m (2019: $1.6m outflow).
Capital Expenditure
Total Capital expenditure (including internal
costs and allocations) on continuing
operations for the year amounted to $4.5m;
with $1.3m incurred on the successful
ES-5 well, $1.9m on other exploration,
development and infrastructure projects in
Abu Sennan (including the ASH pipeline).
The remaining $1.3m was invested in other
assets across the remainder of the portfolio.
Balance Sheet
Intangibles Assets increased during the
period to $7.9m (2019 $5.6m). Of this
$1.1m relates to the addition of Abu
Sennan, $0.8m was spent in Jamaica
on the Walton Morant licence and the
remainder of the movement of $0.4m
on other exploration assets within the
portfolio. The movement in Property,
Plant and Equipment was $13.6m of
which $13.4m relates to the acquisition
and subsequent capital spend on the Abu
Sennan producing assets in Egypt.
Cash and cash equivalents increased
to $2.2m (2019: $1.3m) due to strong
collections of revenue from the offtake
counterparty EGPC. Trade and other
receivables amounted to $5.5m and
included $2.5m of accrued income on oil
and gas sales plus $2.85m relating to the
Crown disposal milestone payment.
Borrowings at year end were $6.2m and
are a result of the acquisition of the
Egyptian company in 2020.
Going Concern
United regularly monitors its business
activities, financial position, cash flows
and liquidity through detailed forecasts.
Scenarios and sensitivities are also
regularly presented to the Board, including
changes in commodity prices and in
production levels from the existing
assets, plus other factors which could
affect the Group’s future performance
and position. The key assumptions and
related sensitivities include a “Reasonable
Worst Case” ("RWC") sensitivity with an
aggregate set of sensitivities; including
a reduction in Brent oil to $50/bbl in
2021 and 2002, a 20% reduction in the
production forecast, a 3 month period
with no revenue receipt and a delay in
the collection of the Crown milestone
payment. In such a scenario, we have
identified appropriate mitigating actions,
including the deferral of additional
uncommitted capital expenditure, further
divestment of the portfolio, restructuring
of debt arrangements and adjustment
of the Group cost base, which would
be available to us and have been
demonstrated as effective strategies in
previous periods of low oil prices.
Our business in Egypt remains robust
given cash operating costs of less
than $6/boe, flexible drilling contracts,
downside price protection on our hedged
volumes and gas contracts that are fixed
price in nature. There are limited capital
commitments in the other assets in our
portfolio. The forecasts outlined above
show that the Group will have sufficient
financial headroom for the 12 months from
the date of approval of the 2020 Accounts.
Based on this analysis, the Directors have
a reasonable expectation that the Group
has adequate resources to continue in
operational existence for the foreseeable
future. Therefore, they continue to use
the going concern basis of accounting in
preparing the annual Financial Statements.
Financial Outlook
United’s financial strategy is founded on
disciplined capital allocation and financial
risk management. Our low cost producing
asset in Egypt have demonstrated their
resilience in a low price oil environment
and is currently benefitting from higher
production and pricing. The Abu Sennan
asset provides a platform for both organic
growth but also a base from which we
can review further growth opportunities in
2021 and beyond.
21
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices PRINCIPAL RISKS AND UNCERTAINTIES
United continuously monitors and assesses the risks faced across the Group. The Audit and Risk Committee has delegated powers from
the Board for oversight of Risk Management including risk management assessment criteria, decision making on how to increase the
effectiveness of risk mitigations and oversight of the Group risk register. The Audit and Risk Committee reports to the Board regarding the
adequacy of Risk Management measures ensuring that the approach to risk is consistent with the Group’s strategy and risk appetite.
The principal risk and their mitigations are detailed below:
STRATEGIC
Risk
Causes
Mitigation
1. Insufficient Capital available to
complete further acquisitions in
line with growth strategy
• Equity and debt markets reducing
investment in oil and gas activities
• Regular review of funding options
• Proactive discussions with equity and debt
• Pressure on capital providers to avoid fossil
providers
fuel projects
• Commodity Prices/Economic Conditions
• Geopolitical risks
• Seek to ensure adequate returns are
generated for investors
2. Health, Safety, Environmental
• HSE risks or environmental and safety
• Better understanding and input into our
("HSE") and Social risk
incidents
• Climate change impacts on the sector
• Preclusion from activity due to
Operator’s health and safety processes and
metrics
• Insurance procured to address insurable
Governmental / Societal view of industry
risks
• Comply with all legislative/regulatory
frameworks where applicable
• Engage more widely to advocate the
continuing importance of the role of oil and
gas in the global energy mix
• ESG Committee of the Board
FINANCIAL
Risk
Causes
Mitigation
1. Commodity Price risk
• Oil and gas market volatility
• Lower long-term prices
2. Liquidity Risk for completion of
planned work programmes and
going concern
• Reduced debt capacity provided by assets
• Reduced capital available for the sector
• Financial Fraud
• Oil hedging framework in place which
complies with lending obligations
• Close monitoring of business activities
and cashflows including downside oil price
scenarios
• Fixed price gas sales
• Capital discipline with focus on progressing
investments that are robust in a low oil price
environment
• Capital Allocation ensuring robust
investments are approved
• Active management of discretionary costs
• Effective cashflow forecasting and liquidity
management
• Maintain effective systems and controls
22
United Oil & Gas plcStrategic Report OPERATIONAL
Risk
Causes
Mitigation
1. Unable to achieve production
targets/recover reserves
• Subsurface uncertainty and inaccurate field
/ reserves modelling
• Engagement of reputable reserves auditors
with focus on consistency and transparency
• Disruption to facilities / equipment (e.g., from
• Appropriate disclosures on reserves
adverse weather, mechanical failure etc)
• Lack of success from development drilling
and field interventions
• Over-reliance on single asset
2. Misalignment of joint venture
• Joint venture partners having different views
on drilling and work programme
movements
• Challenging technical engagement with
Operators of Producing Assets
• Timely production reporting from Operators
• Maintenance of company technical analysis
and understanding of assets
• Adequate technical resources in place
• Expand production base to spread
production across a larger number of assets
• Active participation in joint venture process
• Manage own technical work and asset
partners causing impact on work
programmes and cash flow
REPUTATIONAL
Risk
1. Reputational Damage
• Financial capability of joint venture partners
understanding
• Financial capability assessment on current
and potential joint venture parties
Causes
Mitigation
• Sub-optimal capital allocation
• Activities run by asset operators causing
safety or environmental issues
• High grading opportunities based on clear
financial metrics such as NPV, IRR and
payback
• Seek to maximise influence on operators of
our producing assets
• Maintain a balanced portfolio across both
oil and gas and producing, development and
exploration assets
2. Business Conduct & Bribery
• Present in countries in challenging
• Usage of in country and international
regulatory and political environments
• Transacting with counterparties with sub-
optimal reputational and compliance record
professional advisers
• Ensure adequate due diligence prior to on-
boarding counterparties including external
compliance reports
• Annual training in anti-bribery and corruption
23
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices S172 STATEMENT
In accordance with section 172(1) of the Companies Act 2006. The Directors of the Company have a statutory duty to promote
the success of the Company. The duty under S172(1) is applied in addition to the other duties of a Director. Each Director must
discharge these duties in accordance with the duty of care, skill and diligence both objectively and to a subjective standard. The
Board at United, as individuals and collectively consider that they have acted in a way that would most likely promote the success
of the Company, to deliver the goals and objectives.
The Board of Directors of United recognises the importance of building and sustaining relationships with all of its stakeholders,
considering the long-term consequences of our decisions, and the need to foster a good culture and good business conduct.
The Board of Directors have identified the following stakeholder groups as being important to our success and we set out below
where the responsibility rests internally and the methods by which we engage with them.
Stakeholder
Employees
Internal Responsibility
Communication
Issues Considered
Chief Financial Officer
• Face to face meetings
• Email and Videoconference
• Strategy
• HR Policies
• HSE
• Remuneration Policy
• Anti-bribery and Corruption
• Company News
• Strategy
• Operational and Financial
Performance
• Investment Returns
• Risk Management and
Funding
• Corporate Social
Responsibility
• Environmental Management
• Legal Matters
• Asset Management
• Social Initiatives
• Revenue Collection
• Asset Planning
• Budget Planning
• Billings and cash calls
• Interaction with government
and regulatory agencies
• Funding and Risk
Management
• Operations
• Technical, Regulatory,
Financial and Legal Support
Shareholders
Chief Executive Officer and
Chief Financial Officer
• RNS Announcements
• Shareholder Calls
• Face to face meetings
• Website
• Email
• Third Party Advisors and
Brokers
Local Communities
Chief Operating Officer and
Country Manager
• Telephone
• Email
Governments and Regulatory
Agencies
Chief Executive Officer and
Country Manager
Joint Venture Partners
Chief Operating Officer and
Country Manager
Financing Partners
Chief Financial Officer
Suppliers
Chief Operating Officer and
Country Manager
• Face to face meetings
• Written Communications
• Telephone
• Face to face meetings
• Email
• Telephone
• Written communications
• Face to face meetings
• Email
• Telephone
• Written communications
• Face to face meetings
• Email
• Telephone
• Written communications
24
United Oil & Gas plcStrategic Report Shareholders
2020 was a very active year for the Company seeing 33 RNS Announcements covering all aspects of the business in a very transparent
manner. These included announcements on governance, technical, financial, strategic and portfolio management matters. All shareholders
were invited to participate in shareholder calls hosted by the executive directors in February on completion of the Rockhopper acquisition
and in May and September for the full and half year results respectively.
Employees
United remains a relatively small company in terms of its full time staff of nine employees (including executive directors) in Dublin and a
Country manager supported by a small team in Cairo. Communication is therefore very fluid and the requirement for “town hall” meetings
does not exist at this point in the Company’s cycle. During the pandemic restrictions, including the requirement to work from home, the
directors have hosted a daily call with employees.
Local Communities
The Board established an ESG Committee during 2020 which has responsibility for environmental, social and governance initiatives. The
ESG report can be seen in more detail in the Governance section of the annual report.
Governments and Regulatory Agencies
The Board meets with the Egyptian General Petroleum Corporation ("EGPC") and the Ministry of Petroleum and Mineral Resources each
time an executive director visits Egypt. The country manager maintains an ongoing dialogue, including face to face meetings with both
EGPC and the Ministry. Since taking om operatorship of the Walton Morant licence in Jamaica, travel restrictions have prevented directors
from visiting Jamaica, but instead, monthly videoconferences have taken place with the Ministry for Science, Energy and Technology.
Joint Venture Partners
Operators of our assets host Technical Operating Committees and Operating Finance Committees over the course of the year and the
Chief Operating Officer attends. There are routine interactions over the course of the year on budget, technical and financial matters.
Financing Partners
The Board has maintained its relationship with BP throughout 2020 and regards BP as a highly valued stakeholder which is captured in
the longer-term matching rights on offtake opportunities. During the lower oil price environment BP agreed to adjust the volumes of the
prepayment facility, thereby freeing up liquidity at the time of the lowest oil prices.
Suppliers
United does not require a large network of suppliers due to our position as a non-operator for our producing and development assets
and with limited activities taking place on our exploration and appraisal assets suppliers support the Company predominantly in support
activities. Interaction with suppliers is on an as needs basis and all suppliers are dealt with integrity and respect.
This report was approved by the board on 23 April 2021 and signed on its behalf.
Brian Larkin
Chief Executive Officer
25
2020 Annual Report and Financial Statements Strategic ReportGovernance ReportFinancial ReportAppendices BOARD OF DIRECTORS
Brian Larkin
Chief Executive Officer
Jonathan Leather
Chief Operating Officer
David Quirke
Chief Financial Officer
M
M
M
Brian is the founding director of United
Oil and Gas Limited.
Brian is a Qualified Accountant and has
an MBA from Dublin City University.
Brian has extensive oil and gas industry
experience having worked for both
Tullow Oil Plc (“Tullow”) and Providence
Resources Plc (“Providence”). At Tullow
Oil, Brian held positions in both finance
and commercial, and worked on a
variety of production, development and
exploration projects in South America
and Asia and carried out numerous
investment case recommendations.
At Providence, Brian worked in senior
finance and commercial positions.
During his time with Providence, Brian
worked on a wide portfolio of assets in
regions including the Gulf of Mexico,
offshore Ireland, onshore United
Kingdom, and offshore Nigeria.
Jonathan has over 20 years experience
in the oil industry and holds a Geology
degree from Oxford University, a PhD
in Sedimentology from Trinity College,
Dublin, and an MBA from Warwick
University. Jonathan worked for Tullow
Oil from 2007 to 2015, where he held a
number of senior positions, including
membership of the Global Exploration
Leadership Team. Jonathan also
managed Tullow’s Subsurface Technology
Group – a team Jonathan established
and built up to provide specialist
technical input across the company in
both exploration and development. As
part of this, Jonathan worked on global
assets and opportunities ranging from
onshore producing fields to deepwater
frontier exploration.
Prior to Tullow Oil, Jonathan worked
for Shell UK Ltd. During his time there,
Jonathan was involved in a number of
exploration and development projects,
and worked on North Sea, European,
Middle Eastern and Malaysian assets.
David has 18 years of treasury and
corporate finance experience in the
upstream oil and gas sector. David
established and led the Tullow Oil Group
Treasury function for a fifteen-year
period from 2003 to 2017, supporting
a period of transformational growth.
David has extensive experience of the
key exploration & production ("E&P")
debt and equity instruments such as
Reserves Based Lending Facilities,
Acquisition Facilities, Corporate Bonds,
Trade Finance Facilities and Equity
Transactions. More recently, David
acted as a Treasury and Financial
Consultant advising Assala Energy on
their corporate finance and treasury
following the acquisition of Shell’s
onshore assets in Gabon. David has
also supported a number of small E&P
companies in managing their capital
structure and developing financial
strategies. David is a qualified chartered
management accountant. David holds
a BA in Law and Accounting from the
University of Limerick.
26
United Oil & Gas plcGovernance Report Graham Martin
Non-Executive Chairman
Iman Hill
Non-Executive Director
Tom Hickey
Non-Executive Director
C
M
C
C M
M
M M C
Iman was appointed Executive Director
of the International Association of Oil
& Gas Producers ("IOGP") in December
2020. She also serves as non-executive
Independent Board Director of Oil Spill
Response Ltd ("OSRL").
Iman is a Petroleum Engineer with 30
years’ experience in the oil and gas
industry with extensive global expertise
in the technical and commercial
aspects of the petroleum business, in
particular field development, capital
projects and production operations.
Iman’s experience has been gained
in the Middle East, North and West
Africa, South America, the Far East, and
the North Sea in a number of diverse
settings from onshore to ultra-deep
water with companies that include BP,
Shell, BG Group and Dana Gas, where
as well as her role as Technical Director,
GM UAE and President Egypt, she also
ran the one of the Egyptian join ventures
as Managing Director and Board
member of The Egyptian Bahraini Gas
Derivatives Company.
Tom is currently CEO of Boru Energy
Limited (“Boru”), the West African
focussed private oil and gas company,
which is supported by The Carlyle
Group. Tom is known across the oil and
gas industry and beyond as a significant
contributor to the success of Tullow Oil
plc (“Tullow”) in his role as CFO from
2000-08. During this time he was central
to the successful conclusion of major
acquisitions and exploration discoveries
which helped shape that company
into a leading Independent oil and gas
exploration and production company.
He developed and implemented the
financial strategy which saw Tullow grow
from a micro-cap company to a FTSE 100
business valued at $15bn. In addition to
his work with Boru and Tullow, Tom has
served on the Boards of a number of oil
and gas businesses, building experience
in finance and operations in projects
across the globe, including markets in
which United currently participate.
Tom is a Commerce graduate of University
College Dublin and a Fellow of the Irish
Institute of Chartered Accountants.
Graham is an experienced senior natural
resources executive and brings a wealth
of international expertise. From 1997
to 2016 he served as an Executive
Director of Tullow Oil plc, an oil and gas
exploration, development and production
company listed in London, Dublin and
in Ghana. Prior to Tullow, Graham was a
partner at the US energy law firm Vinson
& Elkins LLP, having started his legal
career in Scotland. He is currently also
a Non-Executive Director of Kenmare
Resources plc, one of the leading global
producers of titanium minerals and
zircon listed in London and Dublin.
He holds a degree in Law and Economics
from the University of Edinburgh.
AIM Rules Committee
ESG Committee
Remuneration Committee
Audit Committee
Chair
Member
C
M
27
2020 Annual Report and Financial Statements Governance ReportStrategic ReportFinancial ReportAppendices CORPORATE GOVERNANCE STATEMENT
Corporate Governance
Statement in respect of
United Oil & Gas PLC
The Board recognises the
importance of sound corporate
governance in the management
of the Company and in achieving
its strategic goals. Accordingly, the
Company has adopted the Quoted
Companies Alliance Corporate
Governance Code (the “QCA Code”)
published in April 2018. The QCA
code is tailored to meet the needs
of small and mid-size quoted firms
and the Board believe that this
code provides the most appropriate
framework for a company of our size
and stage of development. The Board
will annually assess its compliance
with the QCA code and will consider
as part of that review, whether the
QCA code continues to remain
the most appropriate code for the
Company to adopt.
Graham Martin
Chairman
Chairman’s Corporate
Governance Statement
As Chairman of United Oil and Gas plc my
role is to lead the Board, ensuring sound
corporate governance and establishing
a strong and sustainable corporate
culture of respect, integrity, honesty, and
transparency. We strongly believe that
sound corporate governance underpins
our business to the benefit of all our
stakeholders. The changes to the Board
in 2020 have facilitated a positive step-
change in governance oversight by the
Board and its committees.
We are focussed on all aspects of ESG
and are committed to ensuring the health
and safety of all who work with us and
are in the communities in which we work.
28
Deliver Growth
Principle 1
Establish a strategy and business model which promotes
long-term value for shareholders
The Board has concluded that the highest medium and long-
term value can be delivered to its shareholders by the adoption
of a strategy to build a fully funded portfolio of production,
development and low-risk appraisal and exploration oil and gas
assets in Europe and the Greater Mediterranean Area, whilst
remaining alert for exceptional growth opportunities on a global
basis, primarily in the Caribbean, Latin America, and Africa.
The Company’s interests currently consist of a multi-stage
portfolio of low- cost producing assets with significant
development and exploration upside in Egypt, a development
asset in Italy, exploration and appraisal assets in the UK and an
exploration asset in Jamaica.
Principle 2
Seek to understand and meet shareholder needs and
expectations
The Company communicates with shareholders primarily via
regular announcements of operational and corporate updates and
semi-annual release of audited financial statements. The investor
section of the Company’s website (www.uogplc.com/investors) is
updated regularly and includes regulatory news announcements
(press releases), annual and interim reports, corporate
presentations, analyst coverage, a list of major shareholders and
the company fact sheet. Shareholders and analysts have the
opportunity to discuss issues and provide feedback at meetings, in
presentations from the Company and on shareholder calls which
are hosted a number of times a year.
The Company, through its public relations firms, attendance
at shareholder events, website, conference calls and its email
address, investor.relations@uogplc.com, seeks to provide multiple
communication lines through which private shareholders can
engage with the Company.
The Company shall include, when relevant, in its Annual Report,
any matters of note arising from the Board Committees.
United Oil & Gas plcGovernance Report
Principle 3
Take into account wider stakeholder and social
responsibilities and their implications for long-term
success
The Board recognises that the long-term success of the Company
is reliant upon maintaining effective working relationships across
a wide range of stakeholder groups. These include the Company’s
host governments and regulatory authorities, employees and
contractors, joint venture partners, suppliers, shareholders and
financing partners. Oversight of stakeholder engagement and the
Company’s social responsibilities is provided by the Environmental,
Social and Governance ("ESG") Committee. The Board values
feedback from all stakeholders and has systems in place to ensure
that there is oversight, accountability and contact with its key
resources and relationships.
Principle 4
Embed effective risk management, considering both
opportunities and threats, throughout the organisation
The Company maintains a principal risks and mitigations register
that is reviewed by the Audit and Risk Committee on an annual
basis. Risks are categorised as Strategic, Financial, Operational and
Reputational and an explanation is given on how these risks are
mitigated to enable the Company to achieve its strategic objectives.
Maintain a Dynamic
Management Framework
Principle 5
Maintain the board as a well-functioning, balanced team
led by the Chair
The Board comprises: an independent Non-Executive Chairman, a
Chief Executive Officer, a Chief Operations Officer, a Chief Financial
Officer and two Non-Executive Directors who are considered by the
Board to be independent. Biographies of the Board appear both on
the Company’s website and in the Annual Report.
Executive and Non-Executive Directors are subject to re-election
at the Company’s Annual General Meeting at intervals of no
more than three years. The service agreements and letters of
appointment of all Directors are available for inspection at the
Company’s registered office during normal business hours.
The Board expects to meet at least six times per annum. It
has established an Audit and Risk Committee, a Remuneration
Committee, an Environmental, Social and Governance Committee
and an AIM Rules Compliance Committee. Full details of the number
of Board and Committee meetings and the attendance record
of each director are set out in the Annual Report. The terms of
reference for each committee are set out on the Company’s website
www.uogplc.com. The Board has agreed that appointments to the
Board at this stage would be made by the Board as a whole and so
has not created a Nominations Committee.
Principle 6
Ensure that between them the directors have the
necessary up to date experience, skills and capabilities.
The Company believes that, at its current stage of development
as an independent upstream oil and gas company, the balance of
skills on the Board as a whole, reflects a sufficiently broad range
of technical, operational, commercial, legal, financial and risk
management experience, together with an in-depth knowledge of
the sector and experience of public markets, that are necessary
to ensure the Company is equipped to deliver its strategy. The
composition of the Board is kept under review to ensure that the
necessary breadth and depth of skills are available to support
the ongoing development of the Company. The directors have
access to the Company’s Nomad, legal advisors, tax advisors
and auditors and are able to seek advice from other professional
advisors as required.
Full Biographies of the Board are available on the Company’s
website www.uogplc.com and in the Annual Report.
Principle 7
Evaluate board performance based on clear and relevant
objectives, seeking continuous improvement
During 2020 the composition of the Board underwent a number
of changes, including the appointment of two new independent
Non-Executive Directors, the appointment and resignation of a
shareholder nominee Non-Executive Director and the resignation
of a Non-Executive Director. Internal evaluation of the Board, the
Committees and individual Directors is undertaken on an annual
basis by way of individual discussions between the Chairman and
each director to determine the effectiveness and performance
of the Board. A Board evaluation was conducted in 2020 and an
overview is provided in the Annual Report.
The results and recommendations from the Board evaluation also
identify the key corporate and personal targets relevant to each
Director. Progress against previous targets shall also be assessed
where relevant.
29
2020 Annual Report and Financial Statements Governance ReportStrategic ReportFinancial ReportAppendices
CORPORATE GOVERNANCE STATEMENT (continued)
Principle 8
Promote a corporate culture that is based on ethical
values and behaviours
The Board recognises that its 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 is very aware that the tone and culture set by the Board
will greatly impact all aspects of the Company as a whole and
the way that employees behave. The corporate culture places a
strong emphasis on conducting business ethically, transparently
and with clear lines of responsibility. The corporate governance
arrangements that the Board has adopted are designed to ensure
that the Company delivers long term value to its shareholders and
that shareholders have the opportunity to express their views and
expectations for the Company in a manner that encourages open
dialogue with the Board.
The Company maintains an open and respectful dialogue with
employees, partners and other stakeholders acknowledging that
sound ethical values and behaviours are crucial to the ability of
the Company to successfully achieve its corporate objectives.
The Board places great import on this aspect of corporate life
and seeks to ensure that this flows through all that the Company
does. The Directors consider that at present the Company has an
open culture facilitating comprehensive dialogue and feedback
thus enabling positive and constructive challenge.
The Company has adopted, with effect from the date on which its
shares were admitted to AIM, a code for Directors’ and employees’
dealings in securities which is appropriate for a company whose
securities are traded on AIM and is in accordance with the
requirements of the Market Abuse Regulation.
Principle 9
Maintain governance structures and processes that are
fit for purpose and support good decision-making by the
board
Ultimate authority for all aspects of the Company’s activities
rests with the Board, the respective responsibilities of the
Non-Executive Chairman and Chief Executive Officer arising as
a consequence of delegation by the Board. The Non-Executive
Chairman is responsible for the effectiveness of the Board
together with the responsibility to oversee the company’s
corporate governance practices. The Board has also established
appropriate Committees as detailed below to oversee the
effectiveness of its operations and governance. Terms of
reference for each Committee are available on the Company’s
website at www.uogplc.com.
Audit Committee
The Audit Committee comprises Tom Hickey (Chair) and Iman
Hill. This Committee has primary responsibility for monitoring
the quality of internal controls and ensuring that the financial
performance of the Company is properly measured and reported
on and for reviewing reports from the Company’s auditors relating
to the Group’s accounting and internal controls. The Committee
is also responsible for making recommendations to the Board on
the appointment of auditors, the audit fee and for ensuring that
the financial performance of the Group is properly monitored and
reported. The Committee will meet no less than three times a year.
Remuneration Committee
The Remuneration Committee comprises Graham Martin (Chair),
Tom Hickey and Iman Hill. This Committee is responsible for
ensuring that executive remuneration is appropriate for this stage
of the Company’s growth. It has established a Remuneration
Policy which outlines the principles on which executive
remuneration will be structured, including an appropriately
benchmarked base salary with bonus and share award
opportunities which reflect the performance of the Company and
take account of the interests and experience of shareholders.
The Remuneration Policy also seeks to ensure that all employees
have an opportunity to share in the Company’s success. The
Remuneration Policy is reviewed annually by the Committee. The
Committee will meet no less than three times a year.
AIM Rules Compliance Committee
The AIM Rules compliance committee comprises Graham Martin
(Chair), Tom Hickey and Brian Larkin and its prime responsibility
is to ensure the Company has sufficient procedures in place to
ensure ongoing compliance with the AIM Rules. The Committee
will meet no less than twice a year.
Environmental, Social and Governance ("ESG") Committee
The ESG committee comprises Iman Hill (Chair), Graham Martin,
David Quirke and Jonathan Leather. Its prime responsibility
is to ensure sufficient oversight in the following areas of key
importance to the Company: the environment, health and safety,
corporate social responsibility, sustainability, reputation, diversity,
equality and inclusion, and community issues. The Committee will
meet no less than three times a year.
Nominations Committee
The Board has agreed that appointments to the Board will
be made by the Board as a whole and so has not created a
Nominations Committee.
30
United Oil & Gas plcGovernance Report Principle 10
Communicate how the company is governed and is
performing by maintaining a dialogue with shareholders
and other relevant stakeholders.
The Board recognises that 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. The Corporate Governance
section of the Annual Report includes disclosure of Board
Committees, their composition and where relevant, any work
undertaken during the year.
The company’s website includes all historic Annual Reports, results
announcement, results presentations and other governance-related
material, including notices of all AGMs over the last six years.
To date, none of the resolutions proposed at United’s AGMs have
resulted in a material proportion of votes (e.g. 20% of independent
votes) having been cast against them, but were this to happen
the Company would announce this in a timely basis, including an
explanation of what actions it intended to take to understand the
reasons behind such a vote result and, where appropriate, any
action it had taken, or would take, as a result of the vote.
Board Evaluation
The Board considers that its effectiveness and the individual performance of its directors is vital to the success of the company and that
regular evaluations of the Board and its directors are essential.
An internal evaluation of Board and individual performance was conducted by the Chairman in late 2020/early 2021 by way of individual
discussions between each director and the Chairman. Each discussion was open, wide ranging and very constructive. The key areas
covered were: strategy, culture, conduct, committees, risks and internal controls. The Chairman summarised the results of the evaluation
and some areas for attention and improvement at the January Board meeting.
There was close alignment of views on each matter with the directors confirming that they each fully supported the strategy, confirmed
that it remains appropriate and in particular that we need to concentrate our resources on geographies we know well. The open,
honest and transparent culture of the company was reflected in the conduct of Board meetings and each director confirmed that the
frequency of meetings, their administration and the delegation of powers to committees worked well. There was a clear understanding
of the principal risks facing the company and no issues raised with internal controls. Each director acknowledged and appreciated
the informal contact that also occurs between the directors outside of formal board meetings, allowing each executive to draw on the
experience of the non-executives.
In terms of areas for improvement, each director would like to be more engaged with our stakeholders and to get to know our shareholder
base better but acknowledged that such interactions have for the most part not been possible with COVID restrictions in place. We will
seek opportunities to encourage such interactions once restrictions are lifted.
Board meetings were held monthly in 2020, principally because of the challenges of completing the Rockhopper Egypt acquisition, the
COVID-19 crisis and the oil price volatility. As these challenges decrease we will move to a less frequent but still regular cycle of Board
meetings while maintaining strong informal contacts between meetings.
31
2020 Annual Report and Financial Statements Governance ReportStrategic ReportFinancial ReportAppendices DIRECTORS’ REPORT
The directors present their report and the audited
Financial Statements of the Group for the year ended
31 December 2020.
Results and Dividends
The profit for the year, after taxation, amounted to $852,661 (2019: loss of $2,139,075). The directors do not recommend payment of a
dividend (2019: $Nil).
Directors
The business of the Company is managed by the Directors who may exercise all powers of the Company subject to the articles of
association of the Company and applicable law. Executive and Non-Executive Directors are subject to re-election at the Company’s annual
general meeting at intervals of no more than three years. No member of the Board had a material interest in any contract of significance
with the Company or any of its subsidiaries at any time during the year, except for the interests in shares and in share option awards under
their service agreements and letters of appointment disclosed in the Directors’ Remuneration report.
The directors who served during the year were:
Director
Brian Larkin
Jonathan Leather
David Quirke
Graham Martin
Iman Hill
Alberto Cattaruzza
Stewart MacDonald
Date of Contract
25 July 2017
25 July 2017
24 June 2019
15 February 2018
7 September 2020
Resigned 31 December 2020
Appointed 12 March 2020 and resigned 27 August 2020
Tom Hickey was appointed to the Board on 23 December 2020 effective 1 January 2021.
Principal Activities
The principal activity of the Company and its subsidiary undertakings (the “Group”) is the production, development and exploration of oil
and gas. The Group's current operations are located in Egypt, Jamaica, United Kingdom and Italy.
Business Review and Future Developments
A review of the business and future developments of the Group is presented the Strategic Report (including the Chairman’s Statement,
Chief Executive Officer’s Review, Review of Operations and Financial Review) all of which together with the Corporate Governance
Statement, are incorporated by reference into this Director’s Report.
Financial Instruments and Risk Management
An explanation of the Group’s financial risk management objectives, policies and strategies and information about the use of financial
instruments by the Group is given in note 22 to the financial statements.
Share Capital
The Company has one class of ordinary shares in issue. Details of the shares in issue are set out in note 16 to the financial statements.
The Company currently has one class of shares in issue, ordinary shares of £0.01, all of which are fully paid.
32
United Oil & Gas plcGovernance Report Events Since the Balance Sheet Date
The events since the balance sheet date are disclosed in note 29.
Directors' Interests
As at 31 December 2020, the beneficial interests of the Directors and their connected persons in the ordinary share capital of the Company
were as follows:
Director
Brian Larkin
Jonathan Leather
David Quirke
Graham Martin
Number of Ordinary Shares
% of Ordinary Share Capital
9,755,691
4,877,810
833,333
3,411,764
1.56%
0.78%
0.13%
0.55%
Tom Hickey appointed to the Board on 1st January 2021 held 3,122,549 shares (0.50% of the Ordinary Share Capital) as at 31 December 2020.
None of the Directors who held office at the end of the financial year had any disclosable interest in the shares of other Group companies.
Rights to subscribe for shares in the Company that were granted during the financial year are disclosed in the Remuneration Report.
Auditor
A resolution to reappoint UHY Hacker Young as auditor will be put to the members at the Annual General Meeting.
Streamlined Energy and Carbon Reporting ("SECR") Disclosure
As the Group has not consumed more than 40,000 kWh of energy in the UK in this reporting period, it qualifies as a low energy user under
these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
Disclosure of Information to Auditors
The directors who were members of the Board at the time of approving the Directors' Report are listed above. So far as each person who
was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor
in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow directors and the Group’s auditor,
each director has taken all steps that he or she is obliged to take as a director in order to make himself or herself aware of any relevant
audit information and to establish the auditor is aware of that information.
On behalf of the Board
Brian Larkin
Chief Executive Officer
23 April 2021
33
2020 Annual Report and Financial Statements Governance ReportStrategic ReportFinancial ReportAppendices REMUNERATION COMMITTEE REPORT
The Remuneration Committee (the
“Committee”) is a standing committee
of the Board comprising Graham Martin
(Chairman), Iman Hill and Tom Hickey.
The purpose of the Committee is to
assist the Board in discharging its
oversight responsibilities relating to the
attraction, compensation, evaluation
and retention of its executive directors
and senior management. The
Committee aims to ensure that fair and
competitive compensation is awarded
to the executives with appropriate
performance and share acquisition
incentives.
Remuneration Committee
From top:
Graham Martin (Chairman)
Iman Hill
Tom Hickey
34
United Oil & Gas plcGovernance Report In 2020 the Committee recommended the adoption of a Remuneration Policy to the Board setting out the principles of remuneration for
the executive directors, which was subsequently revised in early 2021, and can be summarised as follows:
• an appropriately benchmarked salary;
• a 10% pension contribution;
• an annual bonus opportunity of 100% of salary, based 50% on Key Performance Indicators (“KPIs”) which are set annually by the
Remuneration Committee and for 2020 included balance sheet management, asset performance, portfolio management and share register
consolidation, 25% on an absolute total shareholder return (“TSR”) metric and 25% on relative TSR against a peer group of companies;
•
the Committee has discretion to adjust the formulaic outcome of the bonus scorecard if considered appropriate taking into account all
relevant factors affecting the company and its performance in the year;
• should the bonus outcome exceed 40% of salary, the excess shall be paid in shares until certain personal shareholding targets of each
executive is met, thereafter the excess over 50% shall be paid in shares;
• a regular annual award of share options provided that the aggregate of all outstanding employee share options does not ordinarily
exceed 10% of the company’s issued share capital in any rolling 10-year period; and
• appropriate minimum shareholding targets for each executive, recognising their different respective tenures with the company.
The Remuneration Policy also sets out the fees payable to the non-executive directors and confirms that non-executives shall no longer be
eligible for share awards of any type.
The Remuneration Policy will be review annually by the Committee.
Summary of the Work of the Committee in 2020 and Early 2021
•
reviewed the performance of the executives in 2019 and recommended the payment of a cash bonus of 50% of 2019 salary to each
executive, awarded retrospectively, relating to the Rockhopper Egypt acquisition;
• agreed a Remuneration Policy which was revised in early 2021 and which is summarised above;
• monitored the 2020 executive KPI scorecard and provided regular feedback to the executives;
• benchmarked executive salaries and recommended an increase in respect of 2020, and conducted a further such exercise in respect of
2021, recommending a further increase;
• benchmarked and reviewed the fees payable to the Chairman and the other non-executive directors, recommending an increase for the
non-executives but not the Chairman in respect of 2021; and
• Reviewed the service contracts of the executives, recommending that they be updated and standardised.
Performance and Reward for 2020
As noted above, the base salaries of the executive directors were benchmarked in early 2020 and increased following completion of the
Rockhopper Egypt acquisition. We also initiated the executives’ 100% bonus opportunity under the newly adopted Remuneration Policy.
As per the Policy, the bonus opportunity was based 50% on the TSR performance of the company and 50% on KPIs. The KPIs set for 2020
related to: the financing position of the business (10%); divestment of non-core assets (10%); increased and sustained production (10%);
portfolio development (10%) and share register consolidation (10%).
The TSR components of the bonus were not met but the Committee determined that four of the five KPIs were met in full resulting in a 40%
bonus outcome payable in cash. The KPI relating to divestment of non-core assets was not met.
35
2020 Annual Report and Financial Statements Governance ReportStrategic ReportFinancial ReportAppendices REMUNERATION COMMITTEE REPORT (continued)
Executive Director Service Contracts
The executive directors’ service contracts, the respective dates of which are shown in the Director’s Report, were entered into at different
times and had slightly different terms, although not materially so. We took the opportunity earlier this year to standardise their contracts
and bring them up to date. We are now in the process of finalising the individual contracts and hope to have them signed in the coming
weeks. The notice period in each case is 6 months to be given by each of the executive and the company.
Executive Remuneration 2020
Salary
Annual bonus 2020
Annual bonus 2019 (deferred)
Pension
Benefits
Total 2020
Total 2019
Brian Larkin
US$
Jonathan Leather
US$
David Quirke
US$
206,856
183,102
180,362
96,752
78,911
19,370
7,938
409,828
155,724
82,342
75,623
17,050
10,483
368,600
149,235
82,342
72,335
16,831
6,669
358,539
74,118
The benefits received by the Executive Directors include private medical insurance, permanent health assurance, life assurance cover and a
subscription to a sports club.
All executive director’s remuneration is converted from EUR to USD at an average exchange rate for 2020 of 1.14. In 2019 the comparative
exchange rate was 1.12.
Executive Directors’ Remuneration 2021
The salaries of the executive directors for 2021 are:
Brian Larkin
Jonathan Leather
David Quirke
Euro
250,000
200,000
200,000
2021 Bonus scheme
As per the Remuneration Policy, the executive directors are entitled to a 100% bonus opportunity in 2021, 50% of which is based on two
TSR metrics, and 50% against the following KPIs: Production and reserves (10%); Corporate activity (10%); Portfolio management (10%);
Financial (10%); and ESG (10%). Details of performance against these metrics will be disclosed in the 2021 Annual Report.
Non-Executive Director Remuneration 2020
Salary/fees
Total 2020
Total 2019
Graham Martin
US$
Iman Hill
US$
Alberto Cattaruza
US$
Stewart Macdonald
US$
51,533
51,533
51,908
6,144
6,144
19,465
19,325
19,325
-
9,662
9,662
-
Non executive directors are paid in GBP and the average exchange rates were 1.29 and 1.30 for 2020 and 2019 years, respectively.
36
United Oil & Gas plcGovernance Report
Non-Executive Director Remuneration 2021
The fees payable to the non-executive directors in 2021, subject to a mid-year review, are:
Graham Martin
Iman Hill
Tom Hickey
No non–executive director is entitled to an additional fee for chairing any committee.
Share Option Awards
The following share option awards to directors were in place as at 31 December 2020:
GBP
40,000
25,000
25,000
Director
Brian Larkin
Jonathan Leather
David Quirke
Graham Martin
Iman Hill
Options
Option Price
Award Date
Vesting Date
Expiry Date
4,235,294
4,817,500
4,058,824
4,100,000
3,666,667
4,100,000
1,176,471
1,000,000
1,481,481
4.25p
4.00p
4.25p
4.00p
3.00p
4.00p
4.25p
4.00p
2.70p
02-Aug-2018
01-Aug-2021
30-Jul-2028
17-Jun-2020
17-Jun-2023
16-Jun-2030
02-Aug-2018
01-Aug-2021
30-Jul-2028
17-Jun-2020
17-Jun-2023
16-Jun-2030
24-Jun-2019
23-Jun-2022
21-Jun-2029
17-Jun-2020
17-Jun-2023
16-Jun-2030
02-Aug-2018
01-Aug-2021
30-Jul-2028
17-Jun-2020
17-Jun-2023
16-Jun-2030
29-Sep-2020
29-Sep-2023
28-Sep-2030
Share options totalling 18,131,454 have been awarded to previous non-executive directors and current and previous staff of the Company and
the aggregate number of options awarded at 31 December 2020 is 46,767,691 which is 7.48% of the issued Share Capital of the Company.
Tom Hickey appointed to the Board on 1 January 2021 was awarded 1,342,282 share options on 5 January 2021
Warrants
As at 31 December 2020, the beneficial interests of the Directors and their connected persons in warrants for ordinary share capital of the
Company were as follows:
Director
Brian Larkin
Jonathan Leather
The warrants are exercisable at 1.42857p per share and expire on 31 July 2022.
Number of Warrants
9,755,690
4,877,810
37
2020 Annual Report and Financial Statements Governance ReportStrategic ReportFinancial ReportAppendices AUDIT & RISK COMMITTEE REPORT
Overview
The general purpose of the Audit and Risk Committee is to:
• Appoint, oversee, and replace if necessary, the independent auditor.
• Provide oversight on behalf of and to the Board in relation to the Group’s Financial Reporting, Internal Controls and External Audit activities.
• Ensure the integrity of the financial statements of the Company.
The Audit and Risk Committee is also responsible for overseeing the relationship with the external auditor, including ongoing assessment
of their independence and objectivity. During the year, the Committee met twice and the members attendance record is set out in the
Corporate Governance section of the report.
Responsibilities
The key responsibilities of the Committee are as follows:
• Monitor the integrity of the financial statements of the Company including its annual and half yearly reports and any other
announcements relating to its financial performance.
• Review and report to the board on significant financial reporting issues and judgements contained in the reports and announcements
having regard to matters communicated to it by the auditor.
• Review and challenge the methods used to account for significant transactions.
• Keep under review the Company’s internal financial control systems.
• Consider and make recommendations to the board, to be put to shareholders for approval at the annual general meeting, in relation to
the appointment, re-appointment and removal of the company’s external auditor.
• Oversee the relationship and terms of engagement with the external auditor including fees for audit and non-audit services.
• Review the findings of the audit with the external auditor including a discussion on the major issues which arose during the audit, key
accounting judgements and the auditors view of their interactions with senior management.
External Auditor
UHY Hacker Young were appointed in 2017 and no tender has been conducted to date, in line with best practice (which is at least once
every ten years typically). The external audit fees for 2020 were $60,000. There were no non-audit fees in 2020. All non-audit services are
pre-approved by the Committee. The Committee has decided that the size and scale of the Group’s activities does not justify an Internal
Audit function.
Key judgments and Estimates in Financial Reporting
Key Judgements & Estimates in Financial
Reporting
Audit & Risk
Committee Review
Outcomes
Impairment of exploration licences
Fair Value of consideration for Crown asset
disposal
Reserves estimates
Purchase price allocation
Impairment of Property, plant & equipment
Yes
Yes
Yes
Yes
Yes
No Impairment indicators present (Note 10)
Account as a current receivable in the Balance Sheet
(Note 4)
Reserves numbers and subsequent impacts on the
financial statements reflect independently audited
reserves by Gaffney Cline & Associates.
Accounted at fair value. (Note 12)
No Impairment indicators present (Note 11)
38
United Oil & Gas plcGovernance Report 39
2020 Annual Report and Financial Statements Governance ReportStrategic ReportFinancial ReportAppendices ESG COMMITTEE REPORT
It is fundamentally important to the Board that
the business is run ethically, in a transparent
manner with a deliberate focus on the sustainable
development of the communities in which we
operate.
Introduction
Despite the current limited footprint of United as an operator, the Board and management are fully aligned on the need to
also ensure that we are working with the operator to consistently reduce the environmental footprint of our operations. The
establishment of the Environmental, Social and Governance ("ESG") Committee in September 2020 is the first step in aligning the
company with best practice corporate governance. Further, the development of an ESG scorecard that is linked to management
reward drives accountability and focus on moving forward with activities such as emissions measurement and reduction and the
development of a structured corporate social responsibility plan.
The ESG committee will meet at least four times per year. The terms of reference for the committee have been adopted with the key
responsibilities of the Committee being:
• have oversight of the ESG Strategy;
• have oversight of the Company’s ESG targets and key performance indicators;
• have oversight of the Company’s ESG budget, as well as major ad hoc pieces of spending related to ESG;
• have oversight of third-party partnerships entered in relation to the ESG Strategy; and
• have oversight of how the ESG Strategy is communicated internally and externally.
40
United Oil & Gas plcGovernance Report Environmental
The Group seeks to minimise its impact on climate change by exploring for and producing hydrocarbons with the lowest possible
environmental footprint and in compliance with regulatory requirements. This includes reduction of greenhouse gas emissions, energy
efficiency and the reduction and management of waste and applies to operated and non-operated assets. We will, therefore, seek to
influence the operators of our non-operated assets to reduce flaring and intend to report measure and emissions across the producing
assets in Egypt.
Social
The Company is committed to managing its relationships with its workforce, the societies in which it operates, and host Governments in
line with the highest standards of corporate governance. At its core this means full compliance with the Health, Safety and Environmental
("HSE") management system, the implementation of workplace policies, e.g., employee relations and engagement, diversity, equality,
inclusivity and non-discrimination and a conscious focus on the well-being of staff. In addition, United seeks to ensure respect of human
rights and appropriate labour standards in the supply chain. The company understands that good integration with local communities is
fundamentally important to its ‘social licence’ to operate.
Governance
The Group is committed to the ethical conduct of the Group’s business including its corporate governance framework and is guided by the
10 principles set out in the QCA code. We will promote a culture based on ethical values and behaviours with embedded risk management.
Board Committees have been established for EAG, Audit and Risk, Remuneration and AIM Rules Compliance.
ESG KPI’s
The ESG KPI’s account for 20% of the Executive KPI’s and flow through to Executive Compensation. The ESG KPI’s for 2021 have been
assessed by the ESG Committee and approved by the Remuneration Committee in early 2021 and are as follows:
Area
ESG
E
S
G
Metric
Weighting
Target (50%)
Stretch
EHS Corporate
Management
System
Emissions
Monitoring and
Reduction
2.5%
2.5%
CSR Policy
2.5%
Risk Matrix
2.5%
Fit-for-purpose policy that is
understandable and agreed is in
place
Evidence that the policy has been
followed throughout the year, and is
used as a decision-making tool
Provide operator with guidelines
for measurement and reduction of
emissions
Plan in place with operators to
measure and reduce emissions on
producing assets
Fit-for-purpose policy that is
understandable and agreed is in
place
As per target, plus at least one CSR
project in Egypt implemented
Corporate risk matrix in place by end
of May
Corporate risk matrix in place with at
least one agreed risk-factor moved
to a lower quadrant by year-end
41
2020 Annual Report and Financial Statements Governance ReportStrategic ReportFinancial ReportAppendices Financial Report
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF UNITED OIL & GAS PLC
For the year-ended 31 December 2020
OPINION
We have audited the financial statements of United Oil & Gas Plc (the "Parent Company") and its subsidiaries (the “Group”)
for the year ended 31 December 2020 which comprise the Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated Balance sheet, the Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flow and the notes to the consolidated financial statements including significant accounting policies, the
Parent Company Balance sheet, the Parent Company Statement of Changes in Equity and the notes to the parent company
financial statements, including significant accounting policies.
The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable
law and International Financial Reporting Standards as adopted by the European Union ("IFRSs"). The financial reporting
framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United
Kingdom Accounting Standards, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (United Kingdom
Generally Accepted Accounting Practice).
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31
December 2020 and of the Group’s profit for the year then ended;
•
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
•
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the Group and Parent Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to
listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the
preparation of the financial statement is appropriate.
Our evaluation of the director’s assessment of the entity’s ability to continue to adopt the going concern basis of accounting included:
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United Oil & Gas plc
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Evaluation of management assessment
Management have prepared detailed consolidated cash flow forecasts incorporating all entities within the Group covering the
period to 31 December 2022. These are based on their expectation of future costs, including budgeted operating and capital
expenditure on all licence areas and expectations of future oil and gas production levels and commodity price.
The key assumptions are considered to be the forecast production rates, the commodity price, the timing of receipt of trade
and other receivables.
Management have considered the key assumptions to the forecasts and sensitivities have been prepared sensitivities as follows:
• Sensitivity A - a reduction in forecast production rates of 20% and the Crown disposal proceeds not being received during the
forecast period.
• Sensitivity B – the oil price reducing to$50/barrel and the Crown disposal proceeds not being received during the forecast period.
• Sensitivity C – the oil price reducing to $45/barrel and the Crown disposal proceeds not being received during the forecast period.
• Sensitivity D – a scenario with significant aggregated downside including a reduction in forecast production rates of 20%, a fall in
the forecast oil price to $50/barrel, the Crown disposal proceeds not being received during the forecast period along with a three
month period with no cash receipt from trade receivables.
Our review included:
• Assessing the transparency and the completeness and accuracy of the matters covered in the going concern disclosure by
evaluating management's cash flow projections for the forecast period and the underlying assumptions;
• Review of the cash flow forecasts, the methodology behind these and ensuring they are arithmetically correct and
challenging the assumptions;
• Obtaining post year end management information and comparing these to budget to ensure budgeting is reasonable and
results are in line with expectations;
• Reviewing management’s sensitivity analysis on the cash flow forecasts provided to assess the number of factors that
it would take to occur in tandem before the Group was pushed into a cash negative position along with considering the
mitigating actions available to management in such circumstances; and
• Discussing with management plans for the Group going forward, ensuring these had been incorporated into the budgeting
and would not have an impact on the going concern status of the Group.
Key observations
The base case cash flow forecast demonstrates that the Group will have a cash flow surplus throughout the forecast period.
These incorporated all budgeted and committed capital expenditure and the current expected production rates on the Abu
Sennan concession, which is consistent with current production levels. The forecast uses the forward price of oil being
between $58/barrel and $60/ barrel.
Sensitivity A becomes cash negative during the forecast period becoming cash positive again during 2022. Management have
demonstrated that mitigating actions may be taken in such a scenario to ensure that cash remains positive throughout the
forecast period, such as delaying the timing for certain discretionary exploration activity and the reduction of certain flexible
administrative expenses.
Sensitivity B shows a cash surplus throughout the forecast period.
Sensitivity C becomes cash negative during the forecast period becoming cash positive again during 2022. The application of
appropriate mitigating actions by management demonstrate that the cash may remain positive throughout the period.
Sensitivity D represents Managements perceived worst case scenario due to the aggregation of many downside sensitivities.
In this scenario there is a deficit which would require mitigating actions in addition to delayed expenditure such as divesting
certain exploration projects, further reducing administrate expenses and/or raising additional funding through either debt or
equity. The likelihood of all of these downside sensitivities taking place simultaneously and lasting for the entire forecast period
is considered by the Directors to be remote and in such circumstances consider sufficient mitigating actions to be available to
continue as a going concern.
2020 Annual Report and Financial Statements
43
Financial Report
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF UNITED OIL & GAS PLC (continued)
For the year-ended 31 December 2020
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the entity’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
EMPHASIS OF MATTER – CONSIDERATION RELATING TO THE CROWN ASSET IN PRIOR PERIOD
We draw attention to note 4 of the financial statements which describes management’s review and the key assumptions used
when assessing the appropriate value of the consideration to be received in respect of the disposal of the Crown asset that
occurred in the prior year. The final instalment of $2.85m is dependent on the final investment decision of Anasuaria Hibiscus’s
field development plan which was submitted to the Oil & Gas Authority in the UK towards the end of 2020. The Board remain
confident that the final investment decision will be successful and are therefore expecting to receive this instalment of $2.85m by
30 June 2021. As at the year-end, receipt of these funds is therefore considered probable and we are satisfied that this has been
appropriately recognised in these financial statements. However there is an inherent uncertainty due to the fact that the receipt is
reliant on the final investment decision being in Hibiscus’s favour and them progressing with the project accordingly. The financial
statements do not include the receivable impairment adjustment that would result if the required approvals are not obtained.
Our opinion is not modified in respect of this matter.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant section of
this report.
OUR APPROACH TO THE AUDIT
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account an understanding of the structure of the Parent Company and the Group, their
activities, the accounting processes and controls, and the industry in which they operate. Our planned audit testing was directed
accordingly and was focused on areas where we assessed there to be the highest risk of material misstatement.
Our Group audit scope includes all of the group companies. At the Parent Company level, we also tested the consolidation
procedures. The audit team communicated regularly throughout the audit with the finance team in order to ensure we had a
good knowledge of the business of the Group. During the audit, we reassessed and re-evaluated audit risks and tailored our
approach accordingly.
The audit testing included substantive testing on significant transactions, balances and disclosures, the extent of which was based
on various factors such as our overall assessment of the control environment, the effectiveness of controls and the management
of specific risk.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant findings, including any significant deficiencies in internal control that we identify during the audit
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified during our
audit. Going concern is a significant key audit matter and is described above. In arriving at our audit opinion above, the other key
audit matters were as follows:
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United Oil & Gas plc
Key Audit Matters
How Our Scope Addressed These Matters
Impairment of exploration and evaluation assets in the
Group.
The Group has capitalised costs in respect of the Group’s
licence interests in accordance with IFRS 6 ‘Exploration for
and Evaluation of Mineral Resources’ (IFRS 6). The Directors
need to assess the exploration assets for indicators of
impairment and where they exist to undertake a full review
to assess the need for impairment charge. This involves
significant judgements and assumptions such as the timing
and extent and probability of future cash flow.
We therefore identified the impairment of exploration and
evaluation assets as a key audit matter, which was one of the
most significant assessed risks of material misstatement.
Impairment of investments and loans due from subsidiary
companies in United Oil & Gas Plc.
Under International Accounting Standard 36 ‘Impairment of
Assets’ (IAS 36), companies are required to assess whether
there is any indication that an asset may be impaired at each
reporting date.
Management assessment involves significant judgements
and assumptions such as the timing and extent and
probability of future cash flow.
The Parent Company has investments in its subsidiaries
of £16.1m (2019: £1.5m) and loans due from subsidiary
companies of £5.7m (2019: £4.9m). The investments and
loans represent the primary balances on the Company
balance sheet and there is a risk they could be impaired and
that intragroup loans may not be recoverable.
We therefore identified the impairment of investments in
subsidiaries and loans due from subsidiary companies as a
key audit matter in the Parent Company financial statements,
which was one of the most significant assessed risks of
material misstatement.
Our audit work included, but was not restricted to:
• Obtaining and discussing each of the licences with
management and evaluating their assessment regarding
potential indicators of impairment in conjunction with the
Competent Person’s Reports available for each exploration
project.
• We reviewed the future plans of the projects in respect
of funding, viability and development to further assess
whether there were any indicators of impairment and
reviewed available information to assess whether the
licences remain in good standing.
Key observations:
The treatment of the exploration asset balances across the
group at year-end is considered to be materially correct.
We obtained evidence that all the licences remain valid and
are in good standing. No indicators of impairment were
identified in respect of the carrying values of exploration and
evaluation assets at the year end.
Our audit work included, but was not restricted to:
• Reviewing the investments balances for indicators of
impairment in accordance with IAS 36;
• Assessing the appropriateness of the methodology applied
by management in their assessment of the recoverable
amount of intragroup loans by comparing it to the Group’s
accounting policy and IAS 36;
• Assessing management‘s evaluation of the recoverable
amounts of intragroup loans including review the
impairment provisions and net asset values of
components that have intercompany debt;
• Checking that intragroup loans have been reconciled and
confirming that there are no material differences.
Key observations:
The majority of the investment balances correlate with the
exploration assets held by that subsidiary and our impairment
review was therefore linked to our assessment of indicators
of impairment on the corresponding exploration licences.
An additional impairment provision of £18,716 was
recognised in the parent company following the impairment
of the Colter licence at the prior year-end. No further
indications of impairment were identified.
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2020 Annual Report and Financial Statements
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Financial Report
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF UNITED OIL & GAS PLC (continued)
For the year-ended 31 December 2020
Revenue recognition within UOG Egypt Pty Limited.
Our audit work included, but was not restricted to:
Under International Financial Reporting Standard 15 Revenue
Recognition, revenue depicts the transfer of goods or services
to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those
goods or services.
As this was the first year of producing revenue within
the Group, the recognition of revenue and its cut off was
considered a risk area.
We therefore identified the completeness and cut off of the
revenue within UOG Egypt as a key audit matter in the Group
financial statements, which was one of the most significant
assessed risks of material misstatement.
• Documenting our understanding of management’s process
for evaluating revenue recognition and assessing the
design effectiveness of related key controls
• Assessing the appropriateness of the recognition policies
applied by management in their assessment of the
revenue recognised for the year by comparing it to the
Group’s accounting policy and IFRS 15;
• Agreeing whether revenue has been recognised in
accordance with these policies.
• Performing a proof-in-total which traces the monthly
production reports from the date of acquisition to the year
end of invoices issued in relation to the Abu Sennan oil field;
• Ensuring cut-off is accurate to confirm that all income relating
to the year ended 31 December 2020 has been accrued for.
Key observations:
As a result of the audit procedures we performed we have
concluded that revenue recognition is materially accurate and
recognised on an appropriate basis.
Accounting and valuation of the acquisition of UOG Egypt
Pty Limited.
Our audit work included, but was not restricted to:
• Review the signed purchase agreement to assess
During the year United Oil & Gas Plc acquired Rockhopper
Egypt Pty Limited (and subsequently renamed it UOG Egypt
Pty Limited). This is a one-off material transaction which
raises the risk in itself that the accounting and valuation of
the acquisition has not been treated correctly.
management’s identification of the assets and liabilities
acquired as well as corroborate their fair value at the date
of acquisition and to agree shares issued and to be issued
as part of the purchased consideration;
• Assessing the appropriateness of the recognition policies
The equity of Rockhopper Egypt Pty Limited was acquired for
$18.7m, comprising shares of $5.5m and cash of $13.2m.
applied by management in their assessment of the fair value
of UOG Egypt Pty Limited against the requirements of IFRS 3;
IFRS 3 Business Combinations (IFRS 3) iterates the
requirement that acquisitions must be accounted for using
the ‘acquisition method’, which generally requires assets
acquired and liabilities assumed to be measure at their fair
values at the acquisition date.
The determination of the value of acquired intangible assets
of $18.7m involve significant judgements and could, if
performed inaccurately, lead to a material misstatement.
We therefore identified accounting and valuation of the
acquisition of UOG Egypt Pty Limited as a key audit matter in
the parent company financial statements, which was one of
the most significant assessed risks of material misstatement.
• Evaluating management’s methodology including key
assumptions used against the requirements of IFRS 3.
• Consideration of whether any additional intangible assets
should be recognised on the acquisition including an a
review of managements consideration of whether the
acquisition constituted a bargain purchase;
• Performing a review of the consolidation entries,
adjustments and accounting estimates to ensure the
entity had been recognised and consolidated within the
group appropriately.
• Evaluate the related disclosures included in the financial
statements for compliance with IFRS 3.
Key observations:
As a result of the audit procedures we performed and, after
considering management’s assessments, we have concluded
that the acquisition of UOG Egypt Pty Limited is materially
accurate and has been accounted for in line with the
recognition criteria of IFRS 3.
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United Oil & Gas plc
Valuation of the loan and embedded derivative obtained to
finance the acquisition of Rockhopper Egypt Pty Limited.
During the year, the Parent Company obtained a loan from
Britannic Trading Limited with the purpose of financing the
acquisition of Rockhopper Egypt Pty Limited. The loan has a
derivative element attached which falls under the scope of
IFRS 9 Financial Instruments.
Our audit work included, but was not restricted to:
• Assessing the appropriateness of the methodology
applied by management in their assessment of the
accounting treatment and valuation of the loan and
embedded derivatives by comparing them to the Group’s
accounting policy and IFRS 9;
• Reviewing the loan agreement and derivative
There is a risk that the loan and the associated embedded
derivatives are not appropriately valued.
documentation to confirm the value and terms and
conditions of the repayment period;
We identified valuation of the loan and embedded derivatives
as a key audit matter in the parent company and Group
financial statements and was one of the most significant
assessed risks of material misstatement.
• Reviewing the net present value calculations on the loan
and derivatives at inception of the loan and subsequently
re-calculating to confirm the accuracy of the loan
calculations at the balance sheet date;
• Reviewing the valuation of the embedded derivative a the
balance sheet date and assessing its fair value;
• Agreeing the monthly repayments to the bank and the
accounting for the unwinding of finance charges;
• Checking that any re-negotiations on the repayment terms
have been considered in the calculations and confirming
that there are no material differences.
Key observations:
As a result of the audit procedures we performed and, after
considering management’s disclosures of the judgements
applied by them, we have concluded that the valuations
of the BP Loan and embedded derivatives are materially
accurate and has been accounted for in line with appropriate
recognition criteria.
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2020 Annual Report and Financial Statements
47
Financial Report
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF UNITED OIL & GAS PLC (continued)
For the year-ended 31 December 2020
OUR APPLICATION OF MATERIALITY
The scope and focus of our audit was influenced by our assessment and application of materiality. We apply the concept of
materiality both in planning and performing our audit, and in evaluating the effect of misstatements on our audit and on the
financial statements.
We define financial statement materiality as the magnitude by which misstatements, including omissions, could reasonably be
expected to influence the economic decisions taken on the basis of the financial statements by reasonable users.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent of testing needed. 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.
Materiality Measure
Group
Parent
Overall materiality
We determined materiality for the financial statements to be:
$393,000 (2019: $182,000)
$275,000 (2019: $146,000)
How we determine it
Based on the main key indicator, being 2%
of net assets of the Group.
2% of net assets of the Parent Company
exceeded the Group materiality amount
therefore this was capped at 70% of Group
materiality.
Rationale for benchmarks
applied
Performance materiality
Reporting threshold
We believe that net assets are the most appropriate benchmark due to the size and stage
of development of the Company and Group. Although the Group is now generating revenue,
the exploration and extraction and production asset balances are still deemed to be the key
performance indicators for stakeholders.
On the basis of our risk assessment, together with our assessment of the Group and
Company’s control environment, our judgement is that performance materiality for the
financial statements should be 75% of materiality being:
$294,895 (2019: $136,500)
$206,250 (2019: $109,500)
We agreed with the Audit Committee that we would report to them all misstatements over
5% of Group and company materiality identified during the audit as set out below, as well as
differences below that threshold that, in our view, warrant reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
$19,650 (2019: $9,000)
$13,750 (2019: $7,500)
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United Oil & Gas plc
OTHER INFORMATION
The other information comprises the information included in the annual report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information contained within the annual report. 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.
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 course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial statements themselves.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are
required to report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
•
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY ExCEPTION
In the light of the knowledge and understanding of the Group and Parent 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 Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the Parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
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2020 Annual Report and Financial Statements
49
Financial Report
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF UNITED OIL & GAS PLC (continued)
For the year-ended 31 December 2020
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the statement of directors’ responsibilities, 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 Group’s and the Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or Parent Company or to cease operations, or have no realistic
alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below:
Based on our understanding of the Group and the industry in which it operates, we identified that the principal risks of non-compliance
with laws and regulations related to the acts by the Group which were contrary to applicable laws and regulations including fraud
and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered
those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of
override of controls), and determined that the principal risks were related to inflated revenue and profit.
Audit procedures performed included: review of the financial statement disclosures to underlying supporting documentation,
review of correspondence with legal advisors, enquiries of management, and testing of journals and evaluating whether there was
evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
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.
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United Oil & Gas plc
USE OF OUR REPORT
This report is made solely to the Parent Company’s members, as a body, in accordance with part 3 of Chapter 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the Parent 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 Parent Company and the Parent Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Daniel Hutson (Senior Statutory Auditor)
For and on behalf of
UHY Hacker Young
Chartered Accountants and Statutory Auditor
UHY Hacker Young
4 Thomas More Square
London
E1W 1YW
23 April 2021
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2020 Annual Report and Financial Statements
51
CONSOLIDATED INCOME STATEMENT
For the year-ended 31 December 2020
Revenue
Cost of sales
Gross profit / (loss)
Administrative expenses:
Other administrative expenses
Exploration expenses written off
Gain on disposal of intangible assets
Acquisition and AIM expenses
Total administrative expenses
Operating profit / (loss)
Finance income
Finance expense
Profit / (loss) before taxation
Taxation
Profit / (loss) for the financial year attributable to the Company’s equity
shareholders
Earnings / (loss) per share from continuing operations
expressed in pence per share:
Basic
Diluted
31 December
2020
$
31 December
2019
$
Note
1
2
4
3
6
6
7
8
9,053,657
(6,505,011)
2,548,646
-
-
-
(1,707,168)
(1,516,035)
(37,161)
(2,111,319)
-
-
2,881,976
(1,202,586)
(1,744,329)
(1,947,964)
804,317
(1,947,964)
1,572,706
(1,580,842)
796,181
56,480
-
(4,841)
(1,952,805)
(186,270)
852,661
(2,139,075)
0.15
0.14
(0.62)
(0.62)
52
United Oil & Gas plcFinancial Report CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year-ended 31 December 2020
Profit / (loss) for the financial year
Foreign exchange (losses) / gains
Total comprehensive income / (loss) for the financial year attributable to the
Company’s equity shareholders
31 December
2020
$
31 December
2019
$
852,661
(2,139,075)
(337,713)
405,954
514,948
(1,733,121)
53
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices CONSOLIDATED BALANCE SHEET
For the year-ended 31 December 2020
Assets:
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Current liabilities:
Trade and other payables
Derivative financial instruments
Borrowings
Lease liabilities
Current tax payable
Non-current liabilities:
Borrowings
Derivative financial instruments
Lease liabilities
Net assets
Equity and liabilities:
Capital and reserves
Share capital
Share premium
Share-based payment reserve
Merger reserve
Translation reserve
Retained earnings
Shareholders’ funds
31 December
2020
$
31 December
2019
$
Note
10
11
13
14
15
18
21
21
20
21
21
20
16
16
17
7,891,743
5,580,864
13,607,167
21,498,910
35,729
5,454,307
2,188,902
7,678,938
26,722
5,607,586
-
3,524,655
1,275,537
4,800,192
(2,996,115)
(1,085,701)
(992,681)
(2,133,655)
(94,050)
(135,388)
-
-
(26,030)
(190,446)
(6,351,889)
(1,302,177)
(2,422,146)
(647,376)
(96,787)
(3,166,309)
-
-
-
-
19,659,650
9,105,601
8,138,619
16,047,975
1,922,090
4,564,787
9,912,988
1,591,808
(2,697,357)
(2,697,357)
(348,940)
(11,227)
(3,402,737)
(4,255,398)
19,659,650
9,105,601
The financial statements were approved by the Board of Directors and authorised for their issue on 23 April 2021 and were signed on its behalf by:
Brian Larkin
Chief Executive Officer
54
Registered number: 09624969
United Oil & Gas plcFinancial Report
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year-ended 31 December 2020
Share
capital
$
Share
premium
$
Share-
based
payments
reserve
$
Retained
earnings
$
Translation
reserve
$
Merger
reserve
$
Total
$
For the year ended
31 December 2020
Balance at 1 January 2020
4,564,787
9,912,988
1,591,808
(4,255,398)
(11,227)
(2,697,357)
9,105,601
Loss for the year
Foreign exchange difference
Total comprehensive income
-
-
-
-
-
-
Shares issued
3,573,832
6,640,081
-
-
-
-
Share issue expenses
Share based payments
-
-
(505,094)
62,516
-
267,766
852,661
-
-
(337,713)
852,661
(337,713)
-
-
-
-
-
-
-
-
-
-
-
-
852,661
(337,713)
514,948
10,213,913
(442,578)
267,766
Balance at 31 December 2020
8,138,619
16,047,975
1,922,090
(3,402,737)
(348,940)
(2,697,357)
19,659,650
For the year ended
31 December 2019
Balance at 1 January 2019
4,564,787
9,912,988
1,465,036
(2,116,323)
(417,181)
(2,697,357)
10,711,950
Loss for the year
Foreign exchange difference
Total comprehensive income
Share-based payments
-
-
-
-
-
-
-
-
-
-
-
(2,139,075)
-
-
405,954
(2,139,075)
405,954
126,772
-
-
-
-
-
-
(2,139,075)
405,954
(1,733,121)
126,772
Balance at 31 December 2019
4,564,787
9,912,988
1,591,808
(4,255,398)
(11,227)
(2,697,357)
9,105,601
55
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices CONSOLIDATED STATEMENT OF CASH FLOWS
For the year-ended 31 December 2020
Cash flow from operating activities
Loss for the financial year before tax
Share-based payments
Depreciation
Amortisation
Fair value gain on derivatives
Impairment of intangible assets
Gain on disposal of intangible assets
Gain on disposal of property, plant and equipment
Interest expense
Foreign exchange movements
Changes in working capital
Decrease in inventory
Decrease / (increase) in trade and other receivables
(Decrease) / increase in trade and other payables
Cash inflow / (outflow) from operating activities
Cash outflow from investing activities
Cash outflows on business combination
Cash acquired in business combination
Disposal of intangible assets
Purchase of property, plant & equipment
Spend on exploration activities
Net cash used in investing activities
Cash flow from financing activities
Issue of ordinary shares net of expenses
Proceeds on issue of oil swap financing arrangement
Repayments on oil swap financing arrangement
Payments on oil price derivatives
Capital payments on lease
Interest paid on lease
Net cash generated / (used in) from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Effects of exchange rate changes
Cash and cash equivalents at end of financial year
56
31 December
2020
$
31 December
2019
$
796,181
267,766
2,628,990
3,862
(1,572,706)
37,161
31,307
42,318
1,580,842
(189,918)
(1,952,805)
126,772
94,026
-
-
2,111,319
(2,881,976)
-
4,841
268,159
3,625,803
(2,229,664)
64,433
2,530,065
(1,390,182)
-
(61,527)
677,689
4,830,119
(1,613,502)
(11,200,000)
46,543
-
(2,816,460)
-
-
950,000
(1,637)
(1,457,307)
(3,097,401)
(15,427,224)
(2,149,038)
5,835,834
7,760,288
(1,666,116)
(70,431)
(73,183)
(5,753)
11,780,639
1,183,534
1,275,537
-
-
-
-
(88,387)
(4,841)
(93,228)
(3,855,768)
5,149,907
(270,169)
(18,602)
2,188,902
1,275,537
United Oil & Gas plcFinancial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year-ended 31 December 2020
PRINCIPAL ACCOUNTING POLICIES
Company Information
United Oil & Gas plc is a public limited company incorporated and domiciled in the United Kingdom.
Basis of Preparation
The consolidated financial statements of United Oil & Gas plc and its subsidiaries (together “the Group” or “United Oil & Gas”) have been
prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, IFRIC interpretations,
and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The Group accounts are presented in USD.
IFRS is subject to amendment and interpretation by the IASB and the IFRS Interpretations Committee, and there is an on-going 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 2020.
The principal accounting policies set out below have been consistently applied to all periods presented.
Basis of Consolidation
The financial statements for the year ended 31 December 2020 incorporate the results of United Oil & Gas plc (“the Company”) and entities
controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its activities.
All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Group.
Going Concern
The Group’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.
United regularly monitors its business activities, financial position, cash flows and liquidity through detailed forecasts. Scenarios and
sensitivities are also regularly presented to the Board, including changes in commodity prices and in production levels from the existing
assets, plus other factors which could affect the Group’s future performance and position. The key assumptions and related sensitivities
include a “Reasonable Worst Case” ("RWC") sensitivity with an aggregate set of sensitivities; including a reduction in Brent oil to $50/bbl
in 2021 and 2002, a 20% reduction in the production forecast, a 3 month period with no revenue receipt and a delay in the collection of
the Crown milestone payment. In such a scenario, we have identified appropriate mitigating actions, including the deferral of additional
uncommitted capital expenditure, further divestment of the portfolio, restructuring of debt arrangements and adjustment of the Group cost
base, which would be available to us and have been demonstrated as effective strategies in previous periods of low oil prices.
Our business in Egypt remains robust given cash operating costs of less than $6/boe, flexible drilling contracts, downside price protection
on our hedged volumes and gas contracts that are fixed price in nature. There are limited capital commitments in the other assets in our
portfolio. The forecasts outlined above show that the Group will have sufficient financial headroom for the 12 months from the date of
approval of the 2020 Accounts. Based on this analysis, the Directors have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future. Therefore, they continue to use the going concern basis of accounting in
preparing the annual Financial Statements.
Revenue
Revenue comprises invoiced sales of hydrocarbons to customers, excluding value added and similar taxes. Also disclosed within revenue
is tariff income recognised, excluding value added and similar taxes, for gas transportation facilities provided to third parties.
Revenue is recognised at a point in time as control passes to the customer, which is typically the point of delivery of hydrocarbons. The
Group does not have performance obligations subsequent to delivery.
57
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Foreign Currency
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated at the rate of exchange ruling at the year-end date. All differences are taken to the Income Statement.
Assets and liabilities of subsidiaries that have a functional currency different from the presentation currency (US dollar), if any, are
translated at the closing rate at the date of each balance sheet presented. Income and expenses are translated at average exchange rates.
All resulting exchange differences are recognised in other comprehensive income (loss), if any.
Finance Income and Costs
Interest is recognised using the effective interest method which calculates the amortised cost of a financial asset or liability and allocates
the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
receipts or payments through the expected life of the financial asset or liability to the net carrying amount of the financial asset or liability.
Exploration and Evaluation Assets
The group accounts for oil and gas expenditure under the full cost method of accounting.
Costs (other than payments to acquire the legal right to explore) incurred prior to acquiring the rights to explore are charged directly to the
profit and loss account. All costs incurred after the rights to explore an area have been obtained, such as geological, geophysical, data costs
and other direct costs of exploration and appraisal are accumulated and capitalised as intangible exploration and evaluation ("E&E") assets.
E&E costs are not amortised prior to the conclusion of appraisal activities. At the completion of appraisal activities if technical feasibility is
demonstrated and commercial reserves are discovered, then following development sanction, the carrying value of the relevant E&E asset
will be reclassified as a development and production asset within tangible fixed assets.
If after completion of appraisal activities in an area, it is not possible to determine technical feasibility or commercial viability, then the
costs of such unsuccessful exploration and evaluation are impaired to the Income Statement. The costs associated with any wells which
are abandoned are fully amortised when the abandonment decision is taken.
Development and production assets are accumulated generally on a field by-field basis and represent the costs of developing the
commercial reserves discovered and bringing them into production, together with the E&E expenditures incurred in finding commercial
reserves which have been transferred from intangible E&E assets.
The net book values of development and production assets are depreciated generally on a field-by- field basis using the unit of production
method based on the commercial proven and probable reserves. Assets are not depreciated until production commences.
Depreciation of Production Assets
Production assets are accumulated into cash generating units ("CGUs") and the net book values are depreciated on a prospective basis
using the unit-of-production method by reference to the ratio of production in the year and the related economic commercial reserves,
taking into account future development expenditures necessary to bring those reserves into production.
The gain or loss arising on disposal or scrapping of an asset is determined as the difference between the sales proceeds, net of selling
costs, and the carrying amount of the asset and is recognised in the income statement.
Each asset’s estimated useful life has been assessed with regard to both its own physical life limitations and the present assessment
of economically recoverable reserves of the oil and gas asset at which the item is located, and to possible future variations in those
assessments. Estimates of remaining useful lives are made on a regular basis for all oil and gas assets, machinery and equipment, with
annual reassessments for major items. Changes in estimates which affect unit production calculations are accounted for prospectively.
58
United Oil & Gas plcFinancial Report Other Intangible Assets
Other intangible assets acquired separately from a business combination are capitalised at cost.
Intangible assets are amortised on a straight-line basis over their useful lives as follows:
Computer software 33%
The carrying value of intangible assets is assessed annually and any impairment is charged to the income statement.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less depreciation. Depreciation is provided on a straight-line basis at rates calculated
to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is the
estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition
expected at the end of its useful life.
The annual rate of depreciation for each class of depreciable asset is:
Computer equipment 33%
The carrying value of property plant and equipment is assessed annually and any impairment is charged to the income statement.
Impairment of Non-financial Assets
At each balance sheet date, the Directors review the carrying amounts of the Group’s tangible and intangible assets, other than goodwill, to
determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows
that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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 which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the
asset or cash-generating unit is reduced to its recoverable amount. If the recoverable amount of a cash-generating unit is less than its
carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro rata based on the carrying amount of each asset in the unit.
An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in subsequent periods.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset or cash-generating unit in prior periods. A reversal of an impairment
loss is recognised in the Income Statement immediately.
59
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Financial Instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Group 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 15, 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"); and
•
fair value through other comprehensive income ("FVOCI").
In the periods presented the Group does not have any financial assets categorised as FVOCI or FVTPL.
The classification is determined by both:
•
the entity’s business model for managing the financial asset; and
•
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; 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.
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 Group’s cash and cash equivalents, trade and other receivables fall into this category of financial instruments.
60
United Oil & Gas plcFinancial Report 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 Group 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 Group to recognise a loss allowance for expected credit losses on trade receivables.
In particular, IFRS 9 requires the Group 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 Group is required to measure the loss allowance for that financial instrument at an
amount equal to 12 months ECL.
Classification and measurement of financial liabilities
The Group’s financial liabilities include borrowings, trade and other payables and embedded derivative financial instruments.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a
financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial
liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss.
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within
finance costs or fair value gains/(losses) on derivative financial instruments.
Embedded derivative financial instruments
A borrowing arrangement structured as a prepaid commodity swap with monthly repayments over 30 months has embedded in it a
derivative that is indexed to the price of the commodity. This is considered to be a separable embedded derivative of a loan instrument.
At the date of issue, the fair value of the embedded derivative is estimated by considering the derivative as a series of forward contracts
with modelling of the fixed and floating legs to determine a repayment schedule and derive a net present value for the forward contract
embedded derivative.
This amount is recognised separately as a financial liability or financial asset and measured at fair value through the income statement.
The residual amount of the loan is then recorded as a liability on an amortised cost basis using the effective interest method until
extinguished upon conversion or at the instrument’s maturity date.
61
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with
original maturities of three months or less.
Leases
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and
a corresponding lease liability with respect to all lease arrangements in which it is the lessee.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.
The lease liability is presented as a separate line in the statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• The lease term has changed in which case the lease liability is remeasured by discounting the revised lease payments using a revised
discount rate.
• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in
which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the
lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at
the effective date of the modification.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, prepayments made on the lease at or before
the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset.
The depreciation starts at the commencement date of the lease.
Taxation
Current taxation for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate enacted or
substantively enacted at the balance sheet date and includes adjustments to tax payable or recoverable in respect of previous periods.
Deferred Taxation
Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. However, if the deferred tax arises from the initial recognition of an asset or liability
in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss,
it is not accounted for. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance
sheet date and are expected to apply when the related deferred tax asset is realised, or the deferred tax liability is settled.
Deferred tax liabilities are provided in full.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised.
62
United Oil & Gas plcFinancial Report Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Income Statement, except where they relate
to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable
entity or different taxable entities where there is an intention to settle the balances on a net basis.
Share-based Payments
Where share-based payments (warrants and options) have been granted, IFRS 2 has been applied whereby the fair value of the share-
based payments is measured at the grant date and spread over the period during which they vest. A valuation model is used to assess the
fair value, taking into account the terms and conditions attached to the share-based payments. The fair value at grant date is determined
including the effect of market-based vesting conditions, to the extent such vesting conditions have a material impact.
The cost of equity settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the holders become fully entitled to the award (“the
vesting date”).
The cumulative expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which
the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.
Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been
modified. An additional expense is recognised for any modification, which increases the total fair value of the share-based payment
arrangement or is otherwise beneficial to the employee, as measured at the date of modification.
Where an equity-settled award (share options) is cancelled, it is treated as if it had vested on the date of cancellation if it had not yet
fully vested, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the
cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they
were a modification of the original award, as described in the previous paragraph.
Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the Income
Statement. Upon expiry of an equity-settled award, the cumulative charge expensed is transferred from the Share-based payment reserve
to retained earnings.
Equity
Equity comprises the following:
•
“Share capital” represents amounts subscribed for shares at nominal value.
•
“Share premium” represents amounts subscribed for share capital, net of issue costs, in excess of nominal value.
•
“Share-based payment reserve” represents the accumulated value of share-based payments.
•
“Retained earnings” represents the accumulated profits and losses attributable to equity shareholders.
•
“Translation reserve” represents the exchange differences arising from the translation of the financial statements of subsidiaries into
the Group’s presentational currency.
•
“Merger reserve” represents amounts arising from statutory merger relief arising on business combinations.
63
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
New and Amended International Financial Reporting Standards Adopted by the Group
The Group 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/Revised International Financial
Reporting Standards
IAS 1
Amendments to IAS 1 and IAS 8: Definition of Material
IFRS 3
Amendment to IFRS 3 Business Combinations
IFRS 9
Amendments to IFRS 9, IAS 39 and IFRS17: Interest Rate Benchmark
Reform
EU adopted
Yes
Yes
Yes
Impact on
the Group
No material impact
No material impact
No material impact
International Financial Reporting Standards in Issue But Not Yet Effective
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 Group. For the next reporting period, applicable International Financial
Reporting Standards will be those endorsed by the UK Endorsement Board ("UKEB").
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 Group’s financial statements going forward:
New/Revised International Financial
Reporting Standards
IAS 1
Various
Amendments to IAS 1: Classification of Liabilities as Current or Non-
current and Classification of Liabilities as Current or Non-current
Amendments to IFRS 3 Business Combinations; IAS 16 Property,
Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and
Contingent Assets; Annual Improvements 2018-2020
Effective Date;
annual periods
beginning on or after
1 January 2023
1 January 2022
EU adopted
No
No
Various
Amendments to IFRS 9; IAS 39; IFRS 7; IFRS 4 and IFRS 16 Interest
Rate Benchmark Reform – Phase 2
1 January 2021
Yes
New / revised International Financial Reporting Standards which are not considered to potentially have a material impact on the Group’s
financial statements going forwards have been excluded from the above.
Management anticipates that all relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning
after the effective date of the pronouncement. New standards, interpretations and amendments not listed above are not expected to have
a material impact on the Group's financial statements.
64
United Oil & Gas plcFinancial Report Critical Accounting Judgements and Key Sources of Estimation Uncertainty
The preparation of financial statements in conformity with generally accepted accounting practice requires management to make
estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
The following are the key estimates used in applying the accounting policies of the Group that have the most significant effect on the
financial statements:
Reserve Estimates
Reserves are estimates of the amount of product that can be economically and legally extracted from the Group’s properties. In
order to calculate the reserves, estimates and assumptions are required about a range of geological, technical and economic factors,
including quantities, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices
and exchange rates.
Estimating the quantity and/or grade of reserves requires the size, shape and depth of fields to be determined by analysing geological data
such as drilling samples. This process may require complex and difficult geological judgements and calculations to interpret the data.
Given that the economic assumptions used to estimate reserves change from year to year, and because additional geological data is
generated during the course of operations, estimates of reserves may change from year to year. Changes in reported reserves may affect
the Group’s financial results and financial position in a number of ways, including the following:
• Asset carrying values may be affected by possible impairment due to adverse changes in estimated future cash flows;
• Depreciation, depletion and amortisation charged in the Income Statement may change where such charges are determined by the
units of production basis, or where the useful economic lives of assets change.
Purchase price allocation
In the current year Management have used valuation techniques when determining the fair value of assets transferred and liabilities acquired
in business combinations and the allocation of the purchase price thereto, which includes estimates to determine the valuation of assets.
Valuations prepared by an independent consultant taking into account risks involved in the business acquired have been used to inform the
purchase price allocation for the business combination in 2020.
Information regarding the purchase price allocations is disclosed in note 12.
Impairment of property, plant and equipment
The Group assesses at each reporting date whether there is any indication that these assets may be impaired. If such indication exists, the
Group 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 Group 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.
65
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Valuation of embedded derivatives within financial liability and standalone derivatives
In determining the value of both the embedded derivatives and standalone derivatives, the Group makes assumptions about future events
and market conditions. The fair value is determined using a valuation model which is dependent on further estimates.
Such assumptions are based on publicly available information and are detailed further in note 21. Different assumptions about these
factors to those made by the Group could materially affect the reported value of the embedded derivative liability.
As the financial liability is computed as the residual amount after deduction of the embedded derivative valuation, any material difference
in the value of the embedded derivative liability on initial recognition would materially reduce (or increase) the loan financial liability thus
increasing (or decreasing) the effective interest rate applicable.
The following are the significant judgements used in applying the accounting policies of the Group that have the most significant effect on
the financial statements:
Impairment of exploration licences
Management reviews intangible exploration assets for indicators of impairment under IFRS 6 – Exploration for and Evaluation of Mineral
Resources at the end of each reporting period. This review of assets for potential indicators of impairment requires judgement including
whether renewal of licences is planned, interpretation of the results of exploration activity and the extent to which the Group plans to
continue substantive expenditure on the assets. In determining whether substantive expenditure remains in the Group’s plan, management
considers factors including future oil prices, plans to develop or renew licences and future exploration plans. If impairment indicators exist
the assets are tested for impairment and carried at the lower of the estimated recoverable amount and net book value.
Fair value of consideration in relation to Crown disposal
Management have applied judgement in determining the consideration recognised for the Crown disposal, including a receivable for
milestone payment of $2.85m. In the event of non-payment of the milestone payment the Group would retain the asset which has been
attributed a fair value of $3.8m as a result of the disposal.
66
United Oil & Gas plcFinancial Report 1. SEGMENTAL REPORTING
Operating Segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The
chief operating decision maker, who is responsible for allocating resources, assessing the performance of the operating segment and
making strategic decision, has been identified as the Board of Directors.
The Group operates in four geographic areas – the UK, Europe and greater Mediterranean, Latin America and Egypt. The Group’s revenue
from external customers and information about its non-current assets (other than financial instruments, investments accounted for using
the equity method, deferred tax assets and post-employment benefit assets) by geographical location are detailed below.
2020
Revenue
UK
$
-
Other EU
$
Latin America
$
Egypt
$
Total
$
-
-
9,053,657
9,053,657
Non-current assets
779,323
2,833,287
3,602,178
14,284,122
21,498,910
2019
Revenue
-
-
-
Non-current assets
511,009
2,336,837
2,759,740
2. COST OF SALES
Production costs
Depreciation, depletion & amortisation
3. OPerATINg PrOFIT / (LOSS)
-
-
-
5,607,586
31 December
2020
$
31 December
2019
$
3,941,743
2,563,268
6,505,011
-
-
-
31 December
2020
$
31 December
2019
$
Operating loss is stated after charging/(crediting):
Fees payable to the Company’s auditors for the audit of the annual financial statements
60,000
40,000
Fees payable to the Company’s auditors and its associates for other services to the Group:
Reporting accountant services
-
90,000
67
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. DISPOSAL OF CROWN ASSET IN PRIOR PERIOD
On 12 December 2019, United announced the completion of the sale of its 95% share in the North Sea Blocks 12/18d and 15/19b (licence
P2366) to Anasuria Hibiscus UK limited. The disposal was of the aforementioned licence only, and the UOG Crown Limited subsidiary
company is retained in the group.
Under the deal for this disposal of the Crown licence, United received $950,000 in 2019 on completion, with a further receivable of
$2,850,000 which is contingent upon approval of an FDP, the latter amount being reflected in current receivables in the balance sheet. In the
event of non-payment of the latter amount, the Group would retain ownership of the licence asset.
Having acquired the licence in 2018 and incurred costs on a work programme, some in-house technical work, and the costs of disposal the
Group reported a profit on disposal before tax in its 2019 Income Statement of $2,881,976.
5. DIRECTORS AND EMPLOYEES
The aggregate payroll costs of the employees, including Executive Directors and Non-Executive directors, were as follows:
Staff costs
Wages and salaries
Share-based payments
Pension
Social security
Average monthly number of persons employed by the Group during the year was as follows:
By activity
Administrative
Directors
Remuneration of Directors
Emoluments and fees for qualifying services
Share-based payments
Pension
Social security
Key management personnel are identified as the Executive Directors.
No share warrants have been exercised by any of the directors.
68
31 December
2020
$
31 December
2019
$
1,700,487
267,766
135,059
60,640
2,163,952
675,928
126,772
-
31,958
834,658
2020
2019
6
6
12
3
5
8
31 December
2020
$
31 December
2019
$
1,149,729
229,040
53,251
21,743
1,453,763
450,450
112,015
-
13,881
576,346
United Oil & Gas plcFinancial Report 6. FINANCE INCOME AND ExPENSE
Finance income
Fair value gain on derivatives
Finance expense
Effective interest on borrowings
Interest expense on lease liabilities
7. TAxATION
Profit/(Loss) before tax
Loss on ordinary activities multiplied by standard rate of corporation tax in the
UK of 19% (2019: 19%)
Tax effects of:
Utilisation of tax losses
Adjustment to previous period
Unrelieved tax losses carried forward
Corporation tax (credit) / charge
31 December
2020
$
31 December
2019
$
1,572,706
1,572,706
-
-
31 December
2020
$
31 December
2019
$
1,576,607
4,235
1,580,842
-
4,841
4,841
31 December
2020
$
31 December
2019
$
796,181
(1,952,805)
151,274
(371,033)
(151,274)
(56,480)
-
(56,480)
-
-
557,303
186,270
The Group has accumulated tax losses of approximately $8m (2019: $2m). No deferred tax asset was recognised in respect of these
accumulated tax losses as there is insufficient evidence that the amount will be recovered in future years.
69
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. eArNINgS / (LOSS) Per ShAre
The Group has issued share warrants and options over Ordinary shares which could potentially dilute basic earnings per share in the
future. Further details are given in note 17.
Basic earnings / (loss) per share is calculated by dividing the profit / (loss) attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year.
Due to the losses incurred during the prior year, a diluted loss per share has not been calculated as this would serve to reduce the basic
loss per share. There were 130,510,730 (2019: 93,329,853) share warrants and options outstanding at the end of the year that could
potentially dilute basic earnings per share in the future.
Basic and diluted earnings / (loss) per share
Basic earnings / (loss) per share from continuing operations
Diluted earnings / (loss) per share from continuing operations
2020
Cents
0.15
0.14
2019
Cents
(0.62)
(0.62)
The profit / (loss) and weighted average number of ordinary shares used in the calculation of basic earnings / (loss) per share are as follows:
Profit / (loss) used in the calculation of total basic and diluted loss per share
852,661
(2,139,075)
2020
$
2019
$
Number of shares
Weighted average number of ordinary shares for the purposes of basic
earnings / (loss) per share
Dilutive shares
Weighted average number of ordinary shares for the purposes of diluted
earnings / (loss) per share
2020
2019
578,248,726
345,613,985
23,207,377
-
601,456,103
345,613,985
70
United Oil & Gas plcFinancial Report 9. SUBSIDIARIES
Details of the Group’s subsidiaries in 2020 are as follows:
Name and address of subsidiary
Principal
activity
Class of
shares
Place of
incorporation
UOG Holdings plc
200 Strand, London, WC2R 1DJ
UOG Ireland Limited 1
9 Upper Pembroke Street, Dublin 2, Ireland
Intermediate
holding company
Intermediate
holding company
Ordinary
England and
Wales
Ordinary
Ireland
UOG PL090 Ltd 1
200 Strand, London, WC2R 1DJ
UOG Italia Srl 1
Viale Gioacchino Rossini 9, 00198, Rome, Italy
UOG Jamaica Ltd 1
200 Strand, London, WC2R 1DJ
UOG Crown Ltd 1
200 Strand, London, WC2R 1DJ
UOG Colter Ltd 1
200 Strand, London, WC2R 1DJ
UOG Egypt Pty
Sydney 2000, New South Wales, Australia
1 Held indirectly by United Oil & Gas Plc
Oil and gas
exploration
Oil and gas
exploration
Oil and gas
exploration
Oil and gas
exploration
Oil and gas
exploration
Oil and gas
exploration
Ordinary
England and
Wales
Ordinary
Italy
Ordinary
Ordinary
Ordinary
England and
Wales
England and
Wales
England and
Wales
Ordinary
Australia
% ownership held
by the Group
2020
2019
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
71
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Exploration
and Evaluation
assets $
Computer
software
$
5,226,219
3,086,027
(792,033)
207,925
7,728,138
3,181,362
1,457,307
(2,538,981)
(31,307)
335,459
10,131,978
-
-
2,111,319
47,329
2,158,648
-
37,161
52,722
-
11,374
-
-
11,374
-
-
-
-
1,070
12,444
-
-
-
-
-
3,862
-
286
Total
$
5,226,219
3,097,401
(792,033)
207,925
7,739,512
3,181,362
1,457,307
(2,538,981)
(31,307)
336,529
10,144,422
-
-
2,111,319
47,329
2,158,648
3,862
37,161
53,008
2,248,531
4,148
2,252,679
7,883,447
5,569,490
8,296
11,374
7,891,743
5,580,864
10. INTANGIBLE ASSETS
Cost
At 1 January 2019
Additions
Disposals
Foreign exchange differences
At 31 December 2019
Acquired in business combinations
Additions
Transfer to production assets
Disposals
Foreign exchange differences
At 31 December 2020
Amortisation and impairment
At 1 January 2019
Charge for the year
Impairment
Foreign exchange differences
At 31 December 2019
Charge for the year
Impairment
Foreign exchange differences
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
72
United Oil & Gas plcFinancial Report At 31 December 2020 the Group’s E&E carrying values of $7.9m related to our exploration prospects in Abu Sennan in Egypt, gas
development Selva asset in Italy, our high impact exploration activity in Jamaica, and the UK North Sea and Wessex basin exploration/
development work programmes. During the year we completed the acquisition of Rockhopper Egypt Pty which came with a portfolio of
exploration prospects and commitments, successfully applied and were awarded the Maria field in the OGA 32nd North Sea licencing
round, gained full 100% operatorship of our Jamaican high impact exploration licence after Tullow Jamaica Limited relinquished their 80%
share, and have made the decision to write down remaining expenditure on the Colter wells after they were relinquished in January 2021.
Our Italian development at the Selva field continued to make progress in 2020. Factoring in the impact of Covid-19, we are now targeting
first production by mid- 2022. Formal technical environmental approval from the Italian Environmental Ministry was granted in January 2020
and preliminary work has commenced on the development programme preparing for first gas. Testing has previously indicated rates of
150,000scm/day with UOG’s economic interest being 20%. At the Balance Sheet date $2,659,922 had been capitalised for our Italian asset.
In August 2020, the Group was assigned Tullow Jamaica Ltd.’s 80% equity in the Walton Morant licence meaning United now operate
100%. The initial exploration period was extended until 31 January 2022 when an initial drill-or-drop decision is required. The Group has
commenced a work programme to further de-risk the high-graded Colibri prospect and perform detailed interpretation of the numerous
follow-on targets. This work will have an impact on the continuing farm-down process. As at 31 December 2020 the Group are carrying
$3,602,178 for Jamaica in its Intangibles assets.
In the UK North Sea, Licence P2519, containing two blocks including the Palaeocene Maria discovery, was acquired in the OGA’s 32nd
licensing round which is only 10km from our previously awarded acreage in the 31st licencing round. Together with the awards in the
31st round United has an exciting work programme in place and costs to date on the balance sheet of $214,082 are capitalised. The work
programme continues on the Waddock Cross development with current capitalised costs at yearend of $565,241. In the Wessex Basin
United decided with its partners to relinquish the PEDL licences, effective 31 January 2021. As a result costs remaining capitalised of
$37,161 were written down.
A key achievement in 2020 was the completion of the acquisition of Rockhopper Egypt Pty Limited which came with valuable exploration
licences. Several exploration opportunities and prospects exist within the Abu Sennan licence and an exploration commitment ASD 1X
well was drilled during early 2021 leading to a discovery. As at the Balance Sheet date United had $842,024 capitalised as E&E in UOG
Egypt Pty Limited.
Management reviews the intangible exploration assets for indications of impairment at each balance sheet date based on IFRS 6 criteria.
Commercial reserves have not yet been established and the evaluation and exploration work is ongoing. The Directors believe the only
impairment indicators relate to Colter (as described above) and have impaired all associated costs to date accordingly, with all remaining
assets described continuing to be carried at cost.
73
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. PROPERTY, PLANT AND EQUIPMENT
Production
assets
$
Computer
equipment
$
Fixtures and
fittings
$
Right of use
asset
$
-
-
-
-
-
-
Total
$
6,952
72,453
43,497
462
-
72,453
41,860
462
114,775
123,364
61,127
10,692,071
2,538,981
2,971
204,763
3,021,223
-
-
(186,700)
(186,700)
10,799
9,161
2,971
204,764
16,198,100
-
-
-
-
231
-
17
248
-
90,464
366
2,235
94,026
381
90,830
96,642
62,322
2,628,990
(144,382)
(144,382)
11,331
9,683
20,101
2,590,933
2,723
184,663
13,607,167
-
23,945
26,722
Cost
At 1 January 2019
Transition to IFRS 16
Additions
Foreign exchange differences
At 31 December 2019
Acquired in business combinations
Transfer from E&E assets
Additions
Disposals
Foreign exchange differences
At 31 December 2020
Depreciation
At 1 January 2019
Charge for the year
Foreign exchange differences
At 31 December 2019
Charge for the year
Disposals
Foreign exchange differences
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
-
-
-
-
-
10,630,944
2,538,981
2,806,734
-
-
15,976,659
-
-
-
-
2,563,268
-
-
2,563,268
13,413,391
-
6,952
-
1,637
-
8,589
-
-
6,755
-
(1,638)
13,706
2,235
3,562
15
5,812
3,169
-
(1,665)
7,316
6,390
2,777
Depreciation is recognised within administrative expenses.
74
United Oil & Gas plcFinancial Report 12. BUSINESS COMBINATIONS
On 28 February 2020, the Company announced that it had completed the acquisition of 100% of the equity share capital of UOG Egypt Pty
Ltd (formerly Rockhopper Egypt Pty Ltd). from Rockhopper Exploration plc (“Rockhopper”). The acquisition was transformational for the
Group delivering a solid production base and transitioning the company to a full cycle E&P company.
The Acquisition, which had an effective date of 1 January 2019, included a 22% non-operating interest in the producing Abu Sennan
concession, onshore Egypt. The consideration payable to Rockhopper for the acquisition was US$16 million which was funded by:
•
the issue to Rockhopper of 114,503,817 Consideration Shares at 3 pence per Ordinary Share representing 18.5% of the Company's
Enlarged Ordinary Share Capital,
• a pre-payment financing structure of US$8 million provided by BP ('the BP Facility') and
•
the issue of 150,616,669 Placing Shares at 3 pence per share with certain existing and new investors and 8,419,498 Subscription
Shares also at 3 pence per share.
No goodwill has been recognised on the acquisition because the fair value of the identifiable net assets was the same as the fair value of
the consideration transferred, as shown in the table below.
Fair value of consideration transferred
Cash
Liabilities assumed
Shares issued
Recognised amounts of identifiable net assets
Intangible assets
Property, plant and equipment
Total non-current assets
Inventory
Trade and other receivables
Cash at bank and in hand
Total current assets
Trade and other payables
Lease liabilities
Total current liabilities
Fair value of net assets acquired
$
11,500,000
3,259,090
3,933,276
18,692,366
3,181,362
10,692,071
13,873,433
100,162
4,759,717
46,543
4,906,422
(25,337)
(62,152)
(87,489)
18,692,366
75
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of acquired receivables was equal to the contractual amounts receivable and all cash flows were collected.
Net cash outflow on acquisition of subsidiary
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Total
$
11,500,000
(46,543)
11,453,457
Post-acquisition Contribution
The acquisition of UOG Egypt contributed $9,053,657 revenue and $2,136,680 profit to the Group’s results for the year acquired.
If UOG Egypt had been acquired on 1 January 2020, revenue of the Group for the year would have been $11,192,276 and profit for the year
would have been $5,754,327.
13. INVENTORY
Oil in tanks
14. TRADE AND OTHER RECEIVABLES
Other tax receivables
Prepayments
Accrued income
Crown disposal proceeds due
2020
$
35,729
35,729
2020
$
77,529
7,984
2,518,794
2,850,000
5,454,307
2019
$
-
-
2019
$
334,636
340,019
-
2,850,000
3,524,655
The Directors consider that the carrying values of trade and other receivables are approximate to their fair values.
No expected credit losses exist in relation to the Group’s receivables as at 31 December 2020 (2019: $nil).
Accrued Income relates to two months Oil & Gas invoices for the Abu Sennan producing assets in Egypt under the receivable terms of the
agreement with EGPC.
Prepayments and deposits relate to monies paid in advance in relation to the Rockhopper acquisition completed after the balance sheet
date, and 2 months advance rent on the office.
Crown disposal proceeds due are being carried at the full value expected to be received (see note 3).
76
United Oil & Gas plcFinancial Report 15. CASH AND CASH EQUIVALENTS
Cash at bank (GBP)
Cash at bank (EUR)
Cash at bank (USD)
Cash at bank (EGY)
2020
$
132,913
25,561
16,980
2,013,448
2,188,902
2019
$
263,536
21,465
990,536
-
1,275,537
At 31 December 2020 and 2019 all significant cash and cash equivalents were deposited in creditworthy financial institutions in UK, Ireland
and Egypt.
16. SHARE CAPITAL AND SHARE PREMIUM
Allotted, issued, and fully paid:
Ordinary shares of £0.01 each
At 1 January 2020
Allotments:
Shares issued in consideration for business combination
Shares issued for cash
Shares issued for cash (exercise of warrants)
Share issue expenses
At 31 December 2020
Ordinary shares of £0.01 each
At 1 January and 31 December 2019
Number
Share capital
$
2020
Share premium
$
345,613,985
4,564,787
9,912,988
114,503,817
159,036,167
6,000,000
-
1,463,002
2,031,987
78,843
-
2,470,274
4,051,541
118,266
(505,094)
625,153,969
8,138,619
16,047,975
Number
Share capital
$
2019
Share premium
$
345,613,985
4,564,787
9,912,988
As regards income and capital distributions, all categories of shares rank pari passu as if the same constituted one class of share.
77
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. SHARE-BASED PAYMENTS
Options
Details of the number of share options and the weighted average exercise price ("WAEP") outstanding during the year are as follows:
2020
Outstanding at the beginning of the year
Issued
Outstanding at the year end
Number vested and exercisable at 31 December 2020
2019
Outstanding at the beginning of the year
Issued
Outstanding at the year end
Number vested and exercisable at 31 December 2019
Number of
Options
11,117,647
35,650,043
46,767,690
-
Number of
Options
11,117,647
-
11,117,647
-
WAEP
£
0.05
0.04
0.04
-
WAEP
£
0.05
-
0.05
-
The fair values of share options issued in the current financial year were calculated using the Black Scholes model as follows:
Date of grant
Number granted
Share price at date of grant
Exercise price
Expected volatility
Share
options
27 Oct
2020
Share
options
29 Sep
2020
Share
options
1 July
2020
Share
options
17 June
2020
Share
options
20 March
2020
Share
options
24 June
2019
1,481,481
1,565,741
6,107,843
14,767,500
8,060,811
3,666,667
£0.03
£0.03
£0.03
£0.03
£0.03
£0.03
£0.03
£0.04
£0.01
£0.04
£0.04
£0.03
85.31%
85.27%
82.66%
82.01%
65.31%
45.95%
Expected life from date of grant (years)
6.5
6.5
6.5
6.5
6.5
6.5
Risk free rate
-0.0384%
-0.0821%
-0.0280%
-0.0322%
0.2543%
0.5769%
Expected dividend yield
Fair value at date of grant
Earliest vesting date
Expiry date
0%
£0.018
27 Oct
2023
27 Oct
2030
0%
£0.019
29 Sep
2023
29 Sep
2030
0%
£0.018
1 July
2023
1 July
2030
0%
£0.019
17 June
2023
17 June
2030
0%
£0.004
20 March
2023
20 March
2030
0%
£0.021
24 June
2022
24 June
2029
Expected volatility was determined based on the historic volatility of the Company’s shares for a period averaging 1 year. The expected life
used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations.
The Group recognised total expenses of $267,766 (2019: $126,772) in the income statement in relation to share options accounted for as
equity-settled share-based payment transactions during the year.
78
United Oil & Gas plcFinancial Report Warrants
Details of the number of share warrants and the weighted average exercise price ("WAEP") outstanding during the year are as follows:
2020
Outstanding at the beginning of the year
Issued
Exercised
Outstanding at the year end
Number vested and exercisable at 31 December 2020
2019
Outstanding at the beginning of the year
Outstanding at the year end
Number vested and exercisable at 31 December 2019
Number of
Options
82,212,206
7,530,834
(6,000,000)
83,743,040
83,743,040
Number of
Options
82,212,206
82,212,206
82,212,206
WAEP
£
0.04
0.03
0.03
0.04
0.04
WAEP
£
0.04
0.04
0.04
The fair values of share warrants issued or extended in the current financial year were calculated using the Black Scholes model as follows:
Date of grant
Number granted
Share price at date of grant
Exercise price
Expected volatility
Expected life from date of grant (years)
Risk free rate
Expected dividend yield
Fair value / incremental fair value at date of grant
Earliest vesting date
Share warrants
28 Feb 2020
7,530,834
£0.03
£0.03
49.57%
1.5
0.2813%
0%
£0.0064
28 Feb 2020
Expected volatility was determined based on the historic volatility of a comparable company’s shares for a period averaging 1 year. The
expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The Group recognised total expenses of $62,516 (2019: $nil) in relation to share warrants accounted for as equity-settled share-based
payment transactions during the year in relation. These were recognised as follows:
$62,516 (2019: $nil) as a deduction from share premium related to share warrants accounted for as equity-settled share-based payment
transactions during the year.
79
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. TRADE AND OTHER PAYABLES
Trade payables
Tax and social security
Other payables
Deferred shares (note 19)
Accruals
2020
$
836,759
-
1,431,078
40,739
687,539
2019
$
403,816
26,151
200,074
39,804
415,856
2,996,115
1,085,701
19. DEFERRED SHARES
On 12 October 2015, the Company issued 30,000 Deferred Shares of £1 for £30,000 to the founder, which have an entitlement to a non-
cumulative annual dividend at a fixed rate of 0.1 per cent of their nominal value. The Deferred Shares have no voting rights attached to
them and may be redeemed in their entirety by the Company for an aggregate redemption payment of £1.
20. LEASES
Right of Use Assets
The Group used leasing arrangements relating to property, plant and equipment. As the Group has the right of use of the asset for the
duration of the lease arrangement, a “right of use” asset is recognised within property, plant and equipment.
When a lease begins, a liability and right of use asset are recognised based on the present value of future lease payments.
Interest expense on lease liabilities
Total cash outflow for leases
Additions to right-of-use assets
Disposals from right-of-use assets
Depreciation charge – right of use assets
Foreign exchange movement on right of use assets
Right of use assets - carrying amount at the beginning of the year:
Carrying amount at the end of the year:
Lease liabilities
Current
Non-current
80
2020
$
4,235
(78,936)
265,890
(42,318)
(62,322)
(532)
23,945
184,663
2020
$
94,050
96,787
190,837
2019
$
4,841
(93,228)
114,313
-
(90,464)
96
-
23,945
2019
$
26,030
-
26,030
United Oil & Gas plcFinancial Report 21. BORROWINGS AND DERIVATIVES
Amounts payable on borrowings held by the Group falling due within one year and in more than one year are:
Secured – at amortised cost
Other loans
Current
Non-current
The assets of the Group are held as security against the loan.
Separated embedded derivative
Loan derivative liability (current)
Loan derivative liability (non-current)
Other derivative financial instruments
Hedge derivative liability (current)
2020
$
2019
$
4,555,801
2,133,655
2,422,146
4,555,801
-
-
-
-
2020
$
2019
$
904,702
647,376
1,552,078
87,979
-
-
-
-
Summary of Borrowing Arrangements
In February 2020, the Group entered into a prepaid commodity swap arrangement for $8 million to part-finance the acquisition of Rockhopper
Egypt Pty Ltd. The funds will be repaid through 30 monthly repayments which are structured as a fixed notional amount with variations based
on movements in oil prices. Due to the price structure, the arrangement includes an embedded derivative (a forward contract). For financial
reporting purposes, this must be separately accounted for at fair value at each balance sheet date. The balance of proceeds that did not relate
to the derivative were treated as the opening carrying amount of the loan which will then be measured at amortised cost over its life, with
finance charges recognised to give an even return over the loan life and repayments of capital allocated appropriately.
As at 31 December 2020, a fair value gain has been recognised (as finance income) as a result of oil price movements in the period and on
forward price rates.
During the year modifications were agreed to the loan whereby there was a three-month period where payments were suspended and the
deferred amounts will be rolled into payments in the final 12 months of the loan.
Further put option hedging contracts were entered into in the second half of the year to manage oil price risk. Each of these contracts is a
standalone derivative and those that were outstanding at the end of the year were measured at fair value, with gains and losses in the income
statement. Some arrangements are still in place, extending to June 2021.
The valuations of the host debt and derivative on initial recognition and valuation of the remaining embedded derivative as at 31 December
2020 were undertaken using data provided by independent third parties.
The fair value of the contracts has been estimated using a valuation technique that maximises the use of observable market inputs. These are
classified as Level 2 in the fair value hierarchy (see note 22).
81
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reconciliation of liabilities arising from financing activities
Loan
Embedded derivative
Derivative
At 1
January
2020
$
-
-
-
-
Cash
received
$
Interest
accrued
$
Repaid in
cash
$
Fair value
movements
$
FX
movements
$
At 31
December
2020
$
4,853,381
1,576,607
(1,866,712)
-
(7,475)
4,555,801
2,906,907
-
-
-
200,596
(1,731,116)
175,691
1,552,078
(70,431)
158,410
-
87,979
7,760,288
1,576,607
(1,736,547)
(1,572,706)
168,216
6,195,858
Fair value movements are recognised in finance income (see note 6).
22. FINANCIAL INSTRUMENTS
Classification 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 only financial instruments measured at fair value in the balance sheet are the embedded derivatives and standalone derivatives which
are classified as Level 2 according to the above definitions. There were no transfers in or out of Level 2 in the year.
There are no financial instruments classified at Level 1 or Level 3 in the years presented.
The tables below set out the Group’s accounting classification of each class of its financial assets and liabilities.
Financial assets measured at amortised cost
Accrued income (note 14)
Crown disposal proceeds due (note 14)
Cash and cash equivalents (note 15)
2020
$
2,518,794
2,850,000
2,188,902
7,557,696
2019
$
-
2,850,000
1,275,537
4,125,537
All of the above financial assets’ carrying values are approximate to their fair values, as at 31 December 2020 and 2019.
82
United Oil & Gas plcFinancial Report Financial liabilities
Measured at amortised cost
Trade payables (note 18)
Other payables (note 18)
Lease liabilities (note 20)
Borrowings (note 21)
Accruals (note 18)
2020
$
836,759
1,431,078
190,837
4,555,801
687,539
2019
$
403,816
200,074
26,030
-
415,856
7,702,014
1,045,776
In the view of management, all of the above financial liabilities’ carrying values approximate to their fair values as at 31 December 2020
and 2019.
Financial liabilities
Derivative financial instruments (note 21)
Measured at fair value through
profit or loss
2020
$
1,640,057
1,640,057
2019
$
-
-
Fair Value Measurements
This note provides information about how the Group determines fair values of various financial assets and financial liabilities.
Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis
The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial
statements approximate their fair values (due to their nature and short times to maturity).
Fair value of financial liabilities that are measured at fair value on a recurring basis
The fair value of derivative financial instruments has been estimated using a valuation technique that maximises the use of observable
market inputs.
83
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
23. FINANCIAL INSTRUMENT RISK ExPOSURE AND MANAGEMENT
The Group’s operations expose it to degrees of financial risk that include liquidity risk, credit risk, interest rate risk.
This note describes the Group’s objectives, policies and process for managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented in notes 14, 15, 18, 20, 21, 22 and 24.
Liquidity Risk
Liquidity risk is dealt with in note 24 of these financial statements.
Credit Risk
The Group’s credit risk is primarily attributable to its cash balances.
The credit risk on liquid funds is limited because the third parties are large international banks with a minimum investment grade credit rating.
The Group’s total credit risk amounts to the total of other receivables and cash and cash equivalents. Credit assessments are routinely
reviewed on all of the Group’s joint venture partners and other counterparties.
Interest Rate Risk
The Group’s only exposure to interest rate risk is the interest received on the cash held on deposit, which is immaterial. The Group’s
borrowings outstanding at 31 December 2020 are structured in such a way that the notional interest charge is fixed and therefore there is
no interest rate risk. There were no borrowings as at 31 December 2019.
Price Risk
The Group manages its exposure to commodity price risk on an ongoing basis. As described in note 18, the loan for the acquisition of
Rockhopper Egypt also involved a derivative arrangement to manage the exposure arising from having the loan payments based on oil
quantities rather than a fixed cash price. Further arrangements were initiated and closed during the reporting period, and others remain
outstanding and will be settled based on contract timing into 2021. The combined put and call arrangements provide the Group with
protection against price movements on either side of a protected corridor.
Foreign Exchange Risk
The Group is exposed to foreign exchange movements on monetary assets and liabilities denominated in currencies other than USD. The
Group's transactions are carried out in GBP, EUR and USD. Equity funding transactions are carried out in GBP. Operational transactions are
carried out predominantly in USD but also in GBP and EUR.
The monetary assets and liabilities denominated in currencies other than USD are relatively immaterial (see notes 14 and 15) and
transactional risk is considered manageable.
The Group does not hold material non-domestic balances and currently does not consider it necessary to take any action to mitigate
foreign exchange risk due to the immateriality of that risk.
84
United Oil & Gas plcFinancial Report 24. LIQUIDITY RISK
Prudent liquidity risk management includes maintaining sufficient cash balances to ensure the Group can meet liabilities as they fall due.
In managing liquidity risk, the main objective of the Group is therefore to ensure that it has the ability to pay all of its liabilities as they
fall due. The Group 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 / Group’s financial liabilities as at 31 December 2020 and 2019, on the basis of their
earliest possible contractual maturity.
Payable on
demand
$
Total
$
Within 2
months
$
Within
2 -6
months
$
Within
6 – 12
months
$
Within
1-2
years
$
Within
2-5
years
$
836,759
-
836,759
1,431,078
1,431,078
-
-
-
-
-
-
-
-
-
210,007
6,288,305
-
-
-
-
22,081
31,937
54,630
93,963
7,396
533,346
1,066,692
1,918,320
2,769,947
-
-
-
87,980
687,539
-
-
-
-
-
-
At 31 December 2020
Trade payables
Other payables
Lease liabilities
Borrowings
Derivative financial instruments
87,980
Accruals
687,539
9,541,668
1,431,078
1,392,186
1,786,168
2,060,930
2,863,910
7,396
At 31 December 2019
Trade payables
Other payables
Lease liabilities
Accruals
403,816
-
403,816
200,074
200,074
-
-
-
26,446
415,856
-
-
17,631
8,815
-
415,856
1,046,192
200,074
421,447
424,671
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25. CAPITAL MANAGEMENT
The Group’s capital management objectives are:
• To provide long-term returns to shareholders
• To ensure the Group’s ability to continue as a going concern
The Group defines and monitors capital on the basis of the carrying amount of equity plus borrowings less cash and cash equivalents as
presented on the face of the balance sheet and as follows:
Equity
Borrowings
Cash and cash equivalents
2020
$
2019
$
19,659,650
9,105,601
4,555,801
-
(2,188,902)
(1,275,537)
22,026,549
7,830,064
85
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Board of Directors monitors the level of capital as compared to the Group’s commitments and adjusts the level of capital as is
determined to be necessary by issuing new shares. The Group is not subject to any externally imposed capital requirements.
These policies have not changed in the year. The Directors believe that they have been able to meet their objectives in managing the capital
of the Group.
26. RELATED PARTY TRANSACTIONS
Key management personnel are identified as the Executive Directors, and their remuneration is disclosed in note 5.
27. FINANCIAL COMMITMENTS
As at 31 December 2020, the Group’s commitments comprise their producing assets and exploration expenditure in Egypt, exploration
expenditure interests in Waddock Cross, Crown, and the Walton Morant licence, and development expenditure in Italy. These commitments
have been summarised below:
Exploration/Production Licence
Abu Sennan
Crown
Colter
Walton Morant
Selva Malvezzi
Waddock Cross
31 December
2020
$
31 December
2021
$
-
9,952
6,774
103,407
177,883
47,314
345,330
4,629,900
140,000
-
402,500
82,564
47,198
5,302,162
28. ULTIMATE CONTROLLING PARTY
The directors do not consider there to be an ultimate controlling party.
29. EVENTS AFTER THE BALANCE SHEET DATE
i. ASH-3 Well Test Update
On the 23 February 2021 the company announced an update on the testing of the ASH-3 development well in the Abu Sennan
concession, onshore Egypt. The ASH-3 well was spudded on 4 January 2021, reached a total depth ("TD") of 4,087 metres on the
8 February 2021 which was ahead of schedule and under budget. Gross hydrocarbons indicates a column of 59m in the primary AEB
reservoir target, 27.5m of which is estimated to be net pay.
The well was immediately brought onstream through the existing ASH facilities and is producing at an average of over 4,000 boepd
(880 boepd net) since coming onstream on 5 March 2021, of which United holds a 22% non-operating interest.
ii. Discovery at ASD-1x Well, Abu Sennan Concession, Egypt
On the 6 April 2021 United announced the preliminary results of the ASD-1X exploration well discovery, which encountered a total of
at least 22m net oil pay across a number of reservoirs. Well testing is ongoing, and if successful, will be followed by an application to
Egyptian General Petroleum Company ("EGPC") for a development lease over this new discovery. The ASD-1X exploration well, located
12km to the north-east of the producing Al Jahraa Field, safely reached TD of 3,750 MD on 30 March 2021, several days ahead of
schedule and under-budget.
86
United Oil & Gas plcFinancial Report GLOSSARY
Non-IFRS Measures
The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting
principles.
Cash-operating Costs Per Barrel
Cash operating costs are defined as cost of sales less depreciation, depletion and amortisation, production based taxes, movements in
inventories and certain other immaterial cost of sales.
Cash operating costs are then divided by barrels of oil equivalent produced to demonstrate the cash cost incurred to producing oil and gas
from the Group’s producing assets.
Cost of Sales
Less
Depreciation, depletion and amortisation
Inventories
Cash operating costs
Production (boepd)
Cash Operating Cost BOE ($)
31 December
2020
$
6,505,011
(2,563,268)
(64,433)
3,877,310
2,195
5.77
EBITDAx
EBITDAX is earnings from continuing activities before interest, tax, depreciation, amortisation, reversal of impairment, and exploration
expenditure and exceptional items in the current year.
Operating Income (Loss)
Depreciation, Depletion & Amortisation
Exploration Expense
31 December
2020
$
804,318
2,628,990
37,161
3,470,469
87
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices COMPANY BALANCE SHEET
For the year-ended 31 December 2020
Assets:
Non-current assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Total Assets
Equity and liabilities:
Capital and reserves
Share capital
Share premium
Share-based payment reserve
Retained earnings:
Opening retained earnings
Loss for the year
Total retained earnings
Shareholders’ funds
Current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Current tax payable
Deferred shares
Current liabilities
Borrowings
Derivative financial instruments
Total liabilities
Total equity and liabilities
31 December
2020
£
31 December
2019
£
Note
2
3
4
8
8
5
7
7
7
7
16,127,081
1,554,810
7,808,453
105,907
7,914,360
24,041,441
7,353,155
854,670
9,762,635
9,762,635
6,251,540
12,288,252
1,468,691
3,456,140
7,486,946
1,212,326
(3,576,132)
(519,134)
(1,664,378)
(1,911,754)
(4,095,266)
(3,576,132)
15,913,217
8,579,280
3,435,895
1,571,224
731,010
99,699
30,000
1,009,816
-
-
143,539
30,000
5,867,828
1,183,355
1,783,668
476,728
2,260,396
8,128,224
24,041,441
-
-
-
1,183,355
9,762,635
The financial statements were approved by the Board of Directors and authorised for their issue on 23 April 2021 and were signed on its behalf by:
Brian Larkin
Chief Executive Officer
88
Registered number: 09624969
United Oil & Gas plcFinancial Report
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year-ended 31 December 2020
For the year ended 31 December 2020
Balance at 1 January 2020
Loss for the financial year
Total comprehensive income
Transactions with owners:
Share based payments
Shares issued
Share issue expenses
Share
capital
£
Share
premium
£
Share-based
payments
reserve
£
Retained
earnings
£
Total
£
3,456,140
7,486,946
1,212,326
(3,576,132)
8,579,280
-
-
(519,134)
(519,134)
(519,134)
(519,134)
-
-
-
-
-
-
2,795,400
5,210,292
207,840
-
-
(408,986)
48,525
-
-
-
-
207,840
8,005,692
(360,461)
7,853,071
Total transactions with owners
2,795,400
4,801,306
256,365
Balance at 31 December 2020
6,251,540
12,288,252
1,468,691
(4,095,266)
15,913,217
For the year ended 31 December 2019
Balance at 1 January 2019
Loss for the financial year
Total comprehensive income
Transactions with owners:
Share based payments
3,456,140
7,486,946
1,114,636
(1,664,378)
10,393,344
-
-
-
-
-
-
-
-
(1,911,754)
(1,911,754)
(1,911,754)
(1,911,754)
97,690
-
97,690
Balance at 31 December 2019
3,456,140
7,486,946
1,212,326
(3,576,132)
8,579,280
The notes to these financial statements form an integral part of these financial statements.
89
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year-ended 31 December 2020
1. ACCOUNTING POLICIES
Basis of Preparation
The annual financial statements of United Oil & Gas (the Parent Company financial statements) have been prepared in accordance with
Financial Reporting Standard 100 Application of Financial Reporting Requirements ("FRS 100") and Financial Reporting Standard 101
Reduced Disclosure Framework ("FRS 101").
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore,
these financial statements do not include:
• certain disclosures regarding the company's capital;
• a statement of cash flows;
•
the effect of future accounting standards not yet adopted;
•
the disclosure of the remuneration of key management personnel; and
• disclosure of related party transactions with the Company’s wholly owned subsidiaries.
In addition, and in accordance with FRS 101 further disclosure exemptions have been adopted because equivalent disclosures are included
in the Company’s Consolidated Financial Statements. These financial statements do not include certain disclosures in respect of:
• Financial instruments (other than certain disclosures required as a result of recording financial instruments at fair value)
• Fair value measurement (other than certain disclosures required as a result of recording financial instruments at fair value)
• Related party transactions
• Share-based payments
As permitted by section 408 of Companies Act 2006, a separate Income Statement for the Company has not been included in these
financial statements. The Company’s loss for the year ended 31 December 2020 was £519,134 (2019: £1,911,754).
Going Concern
The Group’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.
United regularly monitors its business activities, financial position, cash flows and liquidity through detailed forecasts. Scenarios and
sensitivities are also regularly presented to the Board, including changes in commodity prices and in production levels from the existing
assets, plus other factors which could affect the Group’s future performance and position. The key assumptions and related sensitivities
include a “Reasonable Worst Case” ("RWC") sensitivity with an aggregate set of sensitivities; including a reduction in Brent oil to $50/bbl
in 2021 and 2002, a 20% reduction in the production forecast, a 3 month delay in receivables collection and a delay in the collection of
the Crown milestone payment. In such a scenario, we have identified appropriate mitigating actions, including the deferral of additional
uncommitted capital expenditure, further divestment of the portfolio, restructuring of debt arrangements and adjustment of the Group cost
base, which would be available to us and have been demonstrated as effective strategies in previous periods of low oil prices.
90
United Oil & Gas plcFinancial Report Our business in Egypt remains robust given cash operating costs of less than $6/boe, flexible drilling contracts, downside price protection
on our hedged volumes and gas contracts that are fixed price in nature. There are limited capital commitments in the other assets in our
portfolio. The forecasts outlined above show that the Group will have sufficient financial headroom for the 12 months from the date of
approval of the 2020 Accounts. Based on this analysis, the Directors have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future. Therefore, they continue to use the going concern basis of accounting in
preparing the annual Financial Statements.
Investments
Fixed asset investments are stated at cost. Investments are tested for impairment when circumstances indicate that the carrying value
may be impaired.
Impairment of Non-financial Assets
At each balance sheet date, the Directors review the carrying amounts of the Company’s tangible and intangible assets, other than
goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not
generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit
to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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 which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the
asset or cash-generating unit is reduced to its recoverable amount. If the recoverable amount of a cash-generating unit is less than its
carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro rata based on the carrying amount of each asset in the unit.
An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in subsequent periods.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset or cash-generating unit in prior periods. A reversal of an impairment
loss is recognised in the Income Statement immediately.
91
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS (continued)
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 15, 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 FVOCI or 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
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 other receivables fall into this category of financial instruments.
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.
92
United Oil & Gas plcFinancial Report Classification and measurement of financial liabilities
The Company’s financial liabilities include trade and other payables, borrowings and derivatives.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Company
designated a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method.
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within
finance costs or finance income.
Embedded derivative financial instruments
A borrowing arrangement structured as a prepaid commodity swap with monthly repayments over 30 months has embedded in it a
derivative that is indexed to the price of the commodity. This is considered to be a separable embedded derivative of a loan instrument.
At the date of issue, the fair value of the embedded derivative is estimated by considering the derivative as a series of forward contracts
with modelling of the fixed and floating legs to determine a repayment schedule and derive a net present value for the forward contract
embedded derivative.
This amount is recognised separately as a financial liability or financial asset and measured at fair value through the income statement.
The residual amount of the loan is then recorded as a liability on an amortised cost basis using the effective interest method until
extinguished upon conversion or at the instrument’s maturity date.
Current Taxation
Current taxation is based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the balance sheet
date and includes adjustments to tax payable or recoverable in respect of previous periods.
Deferred Taxation
Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. However, if the deferred tax arises from the initial recognition of an asset or liability
in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss,
it is not accounted for. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance
sheet date and are expected to apply when the related deferred tax asset is realised, or the deferred tax liability is settled.
Deferred tax liabilities are provided in full.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to
items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable
entity or different taxable entities where there is an intention to settle the balances on a net basis.
Foreign Currency
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated at the rate of exchange ruling at the year-end date. All differences are taken to the Income Statement.
93
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS (continued)
Share-based Payments
Where share-based payments (warrants and options) have been issued, IFRS 2 has been applied whereby the fair value of the share-based
payment is measured at the grant date and spread over the vesting period. A valuation model is used to assess the fair value, taking into
account the terms and conditions attached to the share-based payments. The fair value at grant date is determined including the effect of
market based vesting conditions, to the extent such vesting conditions have a material impact.
The cost of equity¬-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award
(“the vesting date”).
The cumulative expense recognised for equity¬-settled transactions at each reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest.
The charge or credit for a period to the income statement represents the movement in cumulative expense recognised as at the beginning
and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,
which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or
service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense
as if the terms had not been modified. An additional expense is recognised for any modification, which increases the total fair value of the
share-based payment arrangement or is otherwise beneficial to the recipient as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised
for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement
award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as
described in the previous paragraph.
Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the income statement.
Equity
Equity comprises the following:
•
“Share capital” represents amounts subscribed for shares at nominal value.
•
“Share premium” represents amounts subscribed for share capital, net of issue costs, in excess of nominal value.
•
“Share-based payment reserve” represents amounts credited to equity as part of the accounting for share-based payments.
•
“Retained earnings” represents the accumulated profits and losses attributable to equity shareholders.
94
United Oil & Gas plcFinancial Report 2. INVESTMENTS
Cost
As at 1 January 2019
Additions
As at 31 December 2019
Additions
As at 31 December 2020
Investments in
Subsidiaries
£
1,554,810
-
1,554,810
14,572,271
16,127,081
The Company’s subsidiaries are detailed in note 8 to the consolidated financial statements, which details the acquisition of UOG Egypt Pty
Limited that gave rise to the increase in investments.
3. TRADE AND OTHER RECEIVABLES
Amounts due from group undertakings
Crown disposal proceeds due
Other tax receivables
Prepayments
4. CASH AND CASH EQUIVALENTS
Cash at bank
5. TRADE AND OTHER PAYABLES
Trade payables
Amounts due to group undertakings
Other payables
Accruals
2020
£
5,694,313
2,098,740
15,400
-
2019
£
4,912,536
2,148,045
46,983
245,591
7,808,453
7,353,155
2020
£
105,907
105,907
2020
£
402,588
2,499,717
486,090
47,500
2019
£
854,670
854,670
2019
£
165,527
453,501
142,315
248,473
3,435,895
1,009,816
95
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS (continued)
6. DEFERRED SHARES
On 12 October 2015, the Company issued 30,000 Deferred Shares of £1 for £30,000 to the Founder, which have an entitlement to a non-
cumulative annual dividend at a fixed rate of 0.1 per cent of their nominal value. The Deferred Shares have no voting rights attached to
them and may be redeemed in their entirety by the Company for an aggregate redemption payment of £1.
7. BORROWINGS AND DERIVATIVES
Secured – at amortised cost
Other loans
Current
Non-current
Separated embedded derivative
Loan derivative liability (current)
Loan derivative liability (non-current)
Other derivative financial instruments
Hedge derivative liability (current)
Details of borrowings and derivatives are given in note 21 of the group financial statements.
2020
£
2019
£
3,354,892
1,571,224
1,783,668
3,354,892
-
-
-
-
2020
£
2019
£
666,222
476,728
1,142,950
64,788
-
-
-
-
96
United Oil & Gas plcFinancial Report 8. SHARE CAPITAL
Allotted, issued, and fully paid:
Ordinary shares of £0.01 each
At 1 January and 31 December 2019
Allotments:
Date of
issue
Number
Share
capital
£
2020
Share
premium
£
345,613,985
3,456,140
7,486,946
Shares issued in consideration for business combination
28-Feb-20
114,503,817
1,590,362
3,196,628
Shares issued for cash
28-Feb-20
159,036,167
1,145,038
1,923,664
Shares issued for cash (exercise of warrants)
05-Aug-20
6,000,000
60,000
90,000
Share issue expenses
At 31 December 2020
-
-
(408,986)
625,153,969
6,251,540
12,288,252
The Company has one class of ordinary shares which carry no fixed right to income.
9. EVENTS AFTER THE BALANCE SHEET DATE
See note 29 of the Notes to the Consolidated Financial Statements.
97
2020 Annual Report and Financial Statements Financial ReportStrategic ReportGovernance ReportAppendices COMPANY INFORMATION
Directors
Company Secretary
Registered Number
Registered Office
Nominated Advisor
Broker
Independent Auditors
Legal Advisers
Principal Bankers
Registrars
98
Graham Martin (Chairman)
Brian Larkin
David Quirke
Jonathan Leather
Iman Hill
Tom Hickey
David Quirke
09624969
200 Strand
London
WC2R 1DJ
Beaumont Cornish Ltd
Building 3
566 Chiswick High Road
London
W4 5YA
Optiva Securities Ltd
49 Berkeley Square
Mayfair
London
W1J 5AZ
UHY Hacker Young
Chartered Accountants & Registered Auditors
Quadrant House
4 Thomas More Square
London
E1W 1YW
Armstrong Teasdale LLP
200 Strand
London
WC2R 1DJ
Bank of Ireland
Raheny
Dublin 5
Barclays Bank plc
1 Churchill Place
London
E14 5HP
Share Registrars Limited
The Courtyard
17 West Street
Farnham
GU9 7DR
United Oil & Gas plcAppendices scf
ss
stb
Standard cubic feet
Sub sea
Stock tank barrel
STOIIP
Stock tank oil initially in place
TVD
True vertical depth
WI
%
1C
2C
3C
2D
3D
1P
2P
3P
1U
2U
3U
Working Interest
Percentage
Low estimate of Contingent Resources
Best estimate of Contingent Resources
High estimate of Contingent Resources
Two-dimensional
Three-dimensional
Proved Reserves
Proved plus Probable Reserves
Proved plus Probable plus Possible Reserves
Low estimate of Prospective Resources
Best estimate of Prospective Resources
High estimate of Prospective Resources
GLOSSARY
B
Bbl
/Bbl
bopd
bpd
bwpd
Bscf
DST
EGPC
GIIP
GOR
ft
Billion (109)
Barrels
Per barrel
Barrels of oil per day
Barrels per day
Barrels of water per day
Billion standard cubic feet
Drill Stem Test
Egyptian General Petroleum Corporation
Gas initially in place
Gas oil ratio
Foot or feet
HCIIP
Hydrocarbon initially in place
HSE
km
km2
m
M
Health, safety and environment
Kilometres
Square kilometres
Metres
Thousand
MBbl
Thousand barrels
Mbopd
Thousands of barrels of oil per day
MM
Million
MMBbl
Million barrels
MMBTU
Million British thermal units
MMscf
Million standard cubic feet
MMscfd
Million standard cubic feet per day
Mscf
NPV
OPEX
OWC
p.a.
Pg
PSC
psia
Thousand standard cubic feet
Net Present Value
Operating expenditure
Oil-water contact
Per annum
Chance of Geologic Success
Production Sharing Contract
Pounds per square inch absolute
DESIGNED AND PRODUCED BY:
99
2020 Annual Report and Financial Statements AppendicesStrategic ReportGovernance ReportFinancial Report United Oil & Gas
Dublin Office
128 Lower Baggot Street
Dublin
D02 A430
Ireland
London Office
200 Strand
London
WC2R 1DJ
United Kingdom
Tel: +44 (0)20 7539 7272
info@uogplc.com