Wag! Group Co
Annual Report 2013

Plain-text annual report

301100 Petrel Cover 24/06/2014 12:56 Page 1 Petrel Resources Plc P e t r e l R e s o u r c e s P l c A n n u a l R e p o r t & A c c o u n t s Y e a r e n d e d 3 1 D e c e m b e r 2 0 1 3 Corporate Office: 162 Clontarf Road, Dublin 3, Ireland. Tel: +353 (0)1 833 2833 Fax: + 353 (0)1 833 3505 Company Registration Number: 92622 www.petrelresources.com Annual Report and Accounts Year ended 31 December 2013 301100 Petrel Cover 24/06/2014 12:56 Page 2 FFrroonntt CCoovveerr Licence Blocks awarded to Petrel Resources in the 2011 Licence Option Round. Stratigraphic column identifying Petrel’s reservoir targets. Directors and Other Information CCUURRRREENNTT DDIIRREECCTTOORRSS SSEECCRREETTAARRYY RREEGGIISSTTEERREEDD OOFFFFIICCEE AAUUDDIITTOORRSS BBAANNKKEERRSS SSOOLLIICCIITTOORRSS NNOOMMIINNAATTEEDD BBRROOKKEERR && AADDVVIISSOORR RREEGGIISSTTRRAATTIIOONN NNUUMMBBEERR AAUUTTHHOORRIISSEEDD CCAAPPIITTAALL J. Teeling (Chairman) D. Horgan (Executive Director) A. Kayablian (appointed 19 August 2013) J. Finn 162 Clontarf Road Dublin 3 Telephone: Fax: E-Mail: Website: 353-1-833 2833 353-1-833 3505 info@petrelresources.com www.petrelresources.com Deloitte & Touche Chartered Accountants and Statutory Audit Firm Deloitte & Touche House Earlsfort Terrace Dublin 2 Allied Irish Bank plc. 140 Lower Drumcondra Road Dublin 9 Commerzbank AG Gallusanlage 60329 Frankfurt McEvoy Partners 27 Hatch Street Lower Dublin 2 Northland Capital Partners Limited 131 Finsbury Pavement London EC2A 1NT 92622 200,000,000 €0.0125 Ordinary Shares CCUURRRREENNTT IISSSSUUEEDD CCAAPPIITTAALL 99,681,992 Ordinary Shares MMAARRKKEETT NNUUMMBBEERR OOFF SSHHAARREEHHOOLLDDEERRSS AIM 1,612 301100 Petrel Report 24/06/2014 12:14 Page 1 Contents Chairman’s Statement Review of Operations Directors’ Report Statement of Directors’ Responsibilities Independent Auditors’ Report Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Company Balance Sheet Consolidated and Company Statement of Changes in Equity Consolidated Cash Flow Statement Company Cash Flow Statement Notes to the Financial Statements Notice of Annual General Meeting 2 5 13 18 19 21 22 23 24 25 26 27 48 Directors and Other Information Inside back cover Petrel Resources Plc Annual Report and Accounts 2013 1 301100 Petrel Report 24/06/2014 12:14 Page 2 Chairman’s Statement This is a tough time to be a junior oil explorer. Despite improvements in the world economy, a high oil price and a rising stock market, junior explorers remain out of favour with investors. Your company was very active in the period under review but failed to persuade investors of the value created. Our flagship project, two hydrocarbon exploration blocks in the Atlantic Ocean’s Porcupine Basin offshore Ireland, had a stellar year. A farm out agreement was concluded in March 2014 with Woodside Petroleum, an Australian independent with a top class exploration record in hydrocarbon discoveries and developments. The agreement provided for repayment of 85% of all costs incurred by Petrel and a significant carry through exploration up to and including one well on each block. We estimate that Woodside could spend up to $200 million on our two blocks before we incur any expenditure. The deal was ratified by the Irish government and the frontier exploration licences held by Petrel became Frontier Exploration Licences operated by Woodside, who have established an office in Dublin. They have completed their review and analysis of available data and are expected to commission a seismic survey for 2015. The plan is, subject to the results of the seismic, to drill in 2016/2017. The importance of a successful oil discovery offshore Ireland cannot be exaggerated. One oil discovery in the Porcupine is likely to be big enough to supply all of Ireland’s oil demand if not more. Ireland currently imports all of its 132,000 barrels a day oil consumption and 95% of its gas needs. Apart from security of supply, the fiscal implications are immense. The wave of investor interest in the Irish offshore which occurred in 2013 has declined significantly in recent times due to a number of factors, some of which are temporary. The Dunquin drilling by ExxonMobil in the South Porcupine Basin in 2013, while finding traces of hydrocarbons was seen by the market as a failure. The fact that this was a wildcat well in an area remote from most other offshore Porcupine blocks was ignored by the market. Secondly it was expected that Cairn would drill the Spanish Point block in the Porcupine Basin in 2014. Due to rig problems, this is not likely. Again, the market took this in a very negative way. The Spanish Point well is an important milestone for explorers in the Porcupine Basin as previous drilling in the early 1980s provided good oil flows. New technology and far higher oil prices make this an attractive target. Petrel has interests close to Spanish Point so we are disappointed by the delay. The third factor has no relevance to the Porcupine Basin in the Atlantic but investors and analysts have not understood this point. Failure by the relevant partners to farm out the Barryroe discovery in the Celtic Sea off the South coast of Ireland has adversely affected attitudes toward offshore Irish exploration in general. It is frustrating to make repeated protestations, which are not accepted, that there is no relationship between Celtic Sea geology and that of the Porcupine Basin in the Atlantic. Drilling success will change this but we will have to wait until 2015 before drilling commences. Additionally, ongoing potential problems with the development of the Corrib field offshore Mayo continue to reflect poorly on the attitudes of some Irish people toward hydrocarbon development. Due to continued agitation from a small minority the development is delayed by a decade and has tripled in capital cost. The Irish government has failed to take decisive action on the issue. Attitudes towards investment are important factors in board room decisions. If investors are not welcome they will go elsewhere. Petrel Resources Plc Annual Report and Accounts 2013 2 301100 Petrel Report 24/06/2014 12:14 Page 3 Chairman’s Statement (continued) Finally, there is concern that the Irish Government is changing the fiscal regime for explorers. Given that there has never been a commercial oil discovery in 44 years of exploration offshore Ireland this may be counterproductive. Oil and gas explorers can invest their scarce funds in over 200 countries in the world. Many countries have better geology than Ireland. Most of them have far lower exploration costs than those in the wild Atlantic ocean (the Dunquin Well cost $200 million). Despite 158 wells Ireland has yet to find any commercial oil discovery. Previous onerous fiscal terms, in the 1970s, and exploration failure, resulted in little exploration in the Porcupine for a generation. It is unfortunate that the government has decided to increase taxes and increase uncertainty before any drilling and before the next licencing round. Royalties and higher taxes reduce the potential rate of return so will reduce the number of wells to be drilled. Of more concern is the uncertainty introduced. There is now a question mark over all Irish hydrocarbon exploration despite the statement of no retrospective changes to existing licences. Successful explorers will need a Development Licence. Certainty is now gone. It is incumbent on the State to offset the weak geology and difficult environment with attractive terms. The Porcupine needs to be drilled. The second Petrel area of activity is Iraq. Petrel has been in Iraq since 1999 with some success in the 2000s. We have held an interest in Block 6 in the Anbar province since 2002 and in 2013 we acquired a 5% carried interest in certain assets of the Amira Group, in Wasit province. Amira, an Iraqi group, have worked with the Iraqi provinces to obtain exploration rights. They have been successful particularly in the Wasit province where they have a joint venture with Oryx, a listed Canadian group, to explore and develop certain highly prospective areas. It was believed that the provincial government would authorise Oryx to commence seismic activities in 2014 followed by drilling. Negotiations continue. Petrel paid $500,000 cash for an effective 5% carry right through to production plus issuing new shares to Amira equal to 20% of the Petrel equity. If they spud a well within 5 years they get an additional 10,526,316 shares. If a discovery is commercial they get a further 10,526,316 shares. The issued shares are locked in and are cancelled in 2018 if milestones are not reached. We were pleased that Arman Kayablian, a director and significant shareholder in the Amira group, joined the board of Petrel. His experience and contacts will be very useful. The situation in Iraq is now very uncertain. War has raged in Anbar province for months. Block 6 is in Anbar. The country as a whole is now on a war footing. Little work is being done or can be done. At the present time it is not possible to predict the results of these events but a fragmentation of the country looks possible. This could mean Block 6 being part of a Sunni dominated area while Wasit is predominantly Shia. We are not giving up on Iraq. Neither are Amira or Oryx. Iraq remains the best source of oil in the world. The geology will not change, but the political situation will change. The third interest held by Petrel is a 30% stake in a licence, Tano 2A, onshore/offshore Ghana. Petrel has held the interest for some years and has undertaken a significant work programme. The expectation was that the signed agreement with the Ghana National Petroleum Company (GNPC) would be submitted to the Ghanaian cabinet for approval followed by parliamentary ratification. This did not happen. Instead Petrel and partners were subjected to a continuous stream of queries and requests culminating in a demand for a $25 million insurance bond on the agreed work programme. This was not part of a signed agreement but we complied. Petrel Resources Plc Annual Report and Accounts 2013 3 301100 Petrel Report 24/06/2014 12:14 Page 4 Chairman’s Statement (continued) Despite ongoing correspondence between the parties, in February/March 2014, the Ministry of Energy awarded an offshore block to a US listed Nigerian controlled company. This block overlapped one third of our licence agreement. We obtained an injunction stopping this in the Ghanaian High Court. Despite the injunction, the parliament ratified the award of the block in early May 2014. Difficulties obtaining exploration licences in Ghana are exacerbated by the rapid increase in activity due to the impressive development of the Ghanaian oil industry. Problems with co-ordinates and overlapping licence awards are part and parcel of international exploration. Often the bureaucrats lack the resources to implement the actions of politicians. Offices are overburdened and mistakes are made. We have maintained lines of communication with the relevant parties in Ghana. Some limited discussions have taken place. To assist the discussions we have suspended the ongoing court case. With goodwill on both sides a satisfactory solution can be found. FFuuttuurree Exploring the Atlantic offshore Ireland will occur in the near future at no cost to Petrel. The Ghanaian situation is coming to a head while we continue to monitor developments in Iraq. We are actively looking at ways to enhance shareholder value. An application for additional blocks offshore Ireland is being prepared and we keep an active discussion ongoing with other parties holding interests in the Irish offshore and elsewhere. With over $2 million in cash we are well funded for the foreseeable future. John Teeling Chairman 24 June 2014 Petrel Resources Plc Annual Report and Accounts 2013 4 301100 Petrel Report 24/06/2014 12:14 Page 5 Review of Operations A time of disruption and opportunity in the oil & gas industry IInnttrroodduuccttiioonn Petrel Resources plc has explored for oil & gas since 1982 (since 1997 under current management) and has been listed on the AIM market of the London Stock exchange since 2000. Petrel is active in the Irish offshore Atlantic Margin, Ghana’s Tano Basin and Iraq. Petrel holds a 15% interest in 1,050km of prospective acreage in the Porcupine Basin of the Irish offshore (FEL 3/14 and 4/14). Petrel is substantially carried by operator Woodside Energy through the technical work programme. Petrel has a 30% interest in a signed Petroleum Agreement in the Ghanaian Tano 2A Block, close to circa 2 billion barrels of recent discoveries. We are in dispute with the Ghanaian authorities. Petrel has an effective 5% carry with Oryx Petroleum on licences with the Wasit Governate in Iraq. Oryx has applied for permits to conduct its seismic survey. Wasit is east of Baghdad in a Shia region and as of June 2014 remains unaffected by disturbances west and north of Baghdad. IIrreellaanndd –– tthhee ooffffsshhoorree ffrroonnttiieerr • • • • • Frontier Exploration Licences 3/14 and 4/14 issued on 1,050km2 of Irish Atlantic acreage 85% of historical expenditure recovered by Petrel Petrel substantially carried through the technical work programme Regional and additional Block data being loaded Several Leads are being worked up The Irish offshore is a play whose time has come: due to a combination of the high oil price, success of frontier plays elsewhere, dramatically improving technology and competitive fiscal terms. But the industry is not yet excited by Irish waters generally: the traditional fairway of the Celtic Sea, with its shallow water and past production, still leaves most industry players cold. Locations beside urban beauty spots excite controversy even where sub-sea completions are likely for any development. The deeper Atlantic is mostly too remote, unknown and expensive. First must come commercial discoveries, then frontiers will be pushed back. Only 5% of Irish waters are licensed in any form. Only 10% has ever been studied. This despite Ireland being now effectively part of the European gas market. Petrel focuses on the most prospective acreage of the Irish Atlantic Margin Porcupine Basin. This is not really a ‘frontier play’, since 31 wells have been drilled – all of which yielded oil and/or gas shows. Though there is as yet no commercial production, the play is tantalising: There is established ssoouurrccee rroocckk in the Jurassic, as well as secondary sources such as Lower Cretaceous. There are established good to excellent rreesseerrvvooiirrss. Past exploration failed on the issue of sseeaall – but many of the traps tested nearly worked. Most Porcupine Basin exploration wells were drilled in the early 1980s. At that time the effective operating limit for 3rd generation semi-submersibles in Atlantic waters was 500 metres water depth. Even 1,000 metres had not been pioneered. They were reliant on 2D seismic or early 3D. This meant they were targeting relatively shallow plays on the northern and eastern fringe of the Porcupine. Taking into account that little was then known about the geology, and that companies were adopting a North Sea like ‘Brent Model’, it is encouraging they had as much success as they did. Petrel Resources Plc Annual Report and Accounts 2013 5 301100 Petrel Report 24/06/2014 12:14 Page 6 Review of Operations (continued) As of 2014, the geological and commercial picture has been transformed. It is now understood that the geology is quite different from the North Sea. More relevant are the west African type plays, in the Cretaceous age sedimentary rocks, which have transformed the prospectivity of Ghana and other formerly by-passed regions. Other plays that have worked in Australia and elsewhere have also possible application to the wide-open Irish Atlantic play. It is a time for new thinking, new players and new ideas. Up to 1,000 metre water depth (typical of much of our acreage) is now routine. Wells have been drilled in as much as 3,650 metre water depth offshore Brazil. There have been developments in comparably harsh environments, such as eastern Canadian ‘Hibernia’ and the Norwegian Barents Sea – albeit not yet at great depths (1,000 metres+). Petrel Resources plc has worked intensively on potential oil and gas plays in the Irish Atlantic Margin Porcupine Basin since 2011. We were awarded 1,400km2 of acreage under two Licence Options in 2011. This work was successfully completed on schedule in 2013. We started with Tertiary type plays, which did not work. But deeper Cretaceous and Jurassic plays were enhanced by our data reprocessing and reinterpretation. This work was subjected to ‘a trial by fire’ in a farm-out process in 2013. Our work was analysed by some of the world’s leading technical companies. We were greatly heartened by the clear interest and believe that there will be increased participation in future Irish bid rounds. But we can only choose one partner, so we picked the best. We did not want partners with the negative baggage of having tried and failed in Irish waters for 44 years. We avoided companies who had had difficult experiences or whose corporate structures might not work smoothly. We wanted an expert, environmentally sensitive player who had delivered technically demanding projects safely, profitably and quickly. We brought in Woodside Energy as operator and 85% partner, and jointly applied to convert the maximum possible portion of this acreage to full Frontier Exploration Licences. This application was successful, and Frontier Exploration Licences 3/14 and 4/14 were awarded in January 2014. Under applicable rules, when converting Licence Options, the applicants can retain up to 75% of the original acreage. Hence our Frontier Exploration Licences cover 1,050km2. We were able to retain most of the early leads that Petrel had been working on. This acreage is quite densely populated with leads. An aggressive work programme has been agreed and is proceeding on schedule. All available Block and relevant regional data has or is being acquired and reprocessing is underway. Required or appropriate environmental work is underway, in cooperation with the Marine Institute and other official bodies. We expect a high specification 3D seismic programme to commence as soon as all permits are in order. Several leads have already been worked up showing structures and stratigraphic traps of commercial potential. If high quality 3D seismic confirms and de-risks one or more such leads, we expect that drilling will be recommended to the licence holders. The most likely initial targets are probably in up to 800 metres water depth, which should be reasonable in terms of logistics, technical challenges and cost. Petrel will be substantially carried on this work. FFrroonnttiieerr EExxpplloorraattiioonn LLiicceenncceess In January 2014 the Department of Communications, Energy and Natural Resources, awarded Frontier Exploration Licences 3/14 and 4/14 in the Irish Atlantic's Porcupine Basin. The acreage licensed collectively covers approximately 1,050km2 or 75% of the 1,400km2 previously held under Licensing Options 11/4 and 11/6. In August 2013, Petrel farmed out 85% of its interest in, and operatorship of, the Licensing Options to Woodside Energy (Ireland) Pty Ltd (Woodside). The recent (2014) Irish review of fiscal terms has no bearing on our current Frontier Exploration Licences. Applicable tax rules on our FELs are those established under the 2007 Regulations. Proposed changes in fiscal terms will, however, impact any future Licence Options or Frontier Exploration Licences we apply for. The main changes are an “effective 5% royalty”, which will operate as effectively a Petroleum Profits Tax-prepayment. Accordingly it will be set against Petroleum Profits Taxes due, if any, and is of course only payable on production. The 25% corporate tax rate remains unchanged, but is now Petrel Resources Plc Annual Report and Accounts 2013 6 301100 Petrel Report 24/06/2014 12:14 Page 7 Review of Operations (continued) levied after – rather than before – the extra tax. The additional Petroleum Profits Tax (PPT) rates increase from previous practice, with a maximum overall rate increasing from 40% of the profits to a total, effective 55% on a high ‘R factor’ of 4.5x. The ‘R factor’ is an industry standard that divides total revenues by total allowable capital and operating costs. The ‘R factor’ will be calculated on the basis of the licence in which the field is situation (and not the company’s entire expenditure). The proposed changes do not formally alter the ‘R factor’ bands, but they are now calculated pre-corporate tax, rather than post-corporate tax, which effectively means that they kick in 25% earlier. The maximum state take will shortly be 55% in the event of a bonanza – which is not onerous by international standards. There is a danger that the manner of these changes, for largely political rather than economic reasons, might confuse the industry and reduce likely participation in future bid rounds. Twice before, in the 1970s and 1980s, Ireland was considered a ‘hot’ exploration province. On each occasion the opportunity was squandered before major oil discoveries: in the 1970s the culprit was misconceived government policy based on a flawed grasp of risk. The evaporation of interest after 1985 was mainly due to a collapsed oil price. Wise policy-makers will learn from these mistakes. The Frontier Exploration Licences are split into logical phases under best international practice, facilitating orderly permitting and progress. The Frontier Exploration Licences are valid for 15 years, with an initial 3 year phase, followed by three phases of 4 years each. The main elements of the first phase are reprocessing of historic 3D seismic, environmental studies and, subject to regulatory rules and permits, may include the acquisition of new, state-of-the-art 3D seismic. Preparatory technical and environmental work is underway. Petrel is 100% carried through phase one of the work programme, which covers the next three years. The main element of the second phase, should the parties elect to enter it, would be the drilling of a well on each Frontier Exploration Licence, for which Petrel would be substantially carried. Petrel’s strategy in the Irish offshore was to identify, acquire and work up acreage with high potential albeit geologically risky plays. Individual wells may be $50 to $200 million, depending on water depth, rock depth and drilling conditions. As oil and gas prices have risen so have operating costs – though not as dramatically. Rig and boat availability can also be an issue. Accordingly it was part of Petrel’s strategy to launch a farm-out process with the objective of finding the best partner with the vision as well as technical and financial resources and strategic intent to pioneer new hydrocarbon plays in an under-explored, deep-water frontier basin. It quickly became apparent that many of the traditional players seem jaded by past failures to find big oil early. We concluded that both Petrel and Irish exploration generally needed new players with new approaches and new sources of risk capital. The Woodside transaction and Licence awards represent the successful conclusion of this process. We expect that there will be more intense interest, involving larger companies, in the next (September 2015) bid round compared to the 2011 bid round. Some of the industry enthusiasm might be dampened by confusing recent fiscal terms changes as well as the failure so far to discover new in broadly comparable Moroccan plays. Nonetheless, there is little doubt that the Porcupine plays, particularly the Cretaceous ‘west African’ play, is very alive in the minds of many explorers. The main reason for renewed interest in the Irish Atlantic Margin is that it has demonstrated hydrocarbons but is lightly explored. It includes one of the largest continental shelves with source rock and reservoir that remain unexplored worldwide. Of course, not all Ireland’s 700,008 km2 of territorial waters are sedimentary basins with hydrocarbon potential. But there are very extensive, unexplored areas – particularly in Rockall, which combines promise with uncertainty. Petrel Resources Plc Annual Report and Accounts 2013 7 301100 Petrel Report 24/06/2014 12:14 Page 8 Review of Operations (continued) Ironically much of the logic for this renewed interest is based on what has been learnt from similar plays elsewhere, particularly offshore West Africa. One of the most successful players in the African offshore Cretaceous age plays is the Texan company Kosmos Energy. Following the success of its Ghanaian plays, Kosmos sought similar geology elsewhere, and now operates 3 FELs, on which it has shot extensive 3D seismic during 2013. From public comments from companies involved we understand that the quality of this recent seismic is good, that initial models appear to have been confirmed and that new plays are being worked up as a consequence. The expected date for wells is 2016. Only 31 wells have ever been drilled in the Porcupine Basin, of which 22 were drilled between 1977 and 1982. Historically, exploration in the Porcupine Basin was in pursuit of tilted Jurassic fault block targets, similar to those in the northern North Sea. Failure to locate Jurassic reservoirs to match those of the North Sea province, combined with a prolonged period of low oil prices, meant that, despite evidence of proven working petroleum systems, exploration activity declined. As a result, only 3 wells have been drilled since 1989, of which two were appraisal of a past discovery. Because most historic wells targeted large Jurassic structures - easily visible on the seismic - they necessarily missed the more interesting Cretaceous-age reservoirs which tend to infill the hollows between the Jurassic humps. Oil explorers often speak of “closeology”, but a shallow well that does not penetrate a deeper reservoir cannot tell us much about the latter’s prospectivity. Likewise it is rarely possible to investigate subtle Cretaceous stratigraphy by drilling “North Sea” type Jurassic targets. While not a commercial discovery, the 2013 Exxon-Mobil operated wildcat well on the Dunquin structure in Quadrant 44, which neighbours and is about 30km from Petrel’s Quadrant 45 acreage (FEL 4/14), confirmed that the south-west part of the Porcupine is also oil-bearing. Petrel’s geologists suspect that the primary source might be Jurassic with perhaps Lower Cretaceous oil as a secondary source. The rest of the Irish Atlantic Margin is even more neglected than the Porcupine Basin: only 21 wells have been drilled outside the Porcupine in a vast area (greater than 250,000 km2). Past exploration elsewhere in Irish Atlantic Margin was also generally based on assumed “North Sea type” geology. The Atlantic has the potential for subtle structures and giant stratigraphic traps. Ghanaian success shows how a by-passed region can be transformed by new thinking and modern technology. A consortium operated by Cairn Energy had planned to drill an exploration well on the Spanish Point condensate discovery, originally found in 1981. This well was originally planned to be drilled in mid-2014, but which appears to have been delayed, mainly we believe for mechanical reasons associated with the rig. Given the early stage of Irish Atlantic oil development it is probably wise to be especially cautious with safety. We expect this well to be drilled in 2015, with an outside chance of a 2014 well with a different rig than originally planned. Petrel Resources was formed in 1982 to explore offshore Ireland. The then stringent fiscal terms, challenging waters and unfamiliar geology were barriers to exploration success. At that time major oil companies were seeking large, simple, clear structures similar to the bonanza Jurassic plays in the North Sea. It was then impossible to convince major oil company management to drill the type of stratigraphic trap play which is most interesting in those waters. Technical work over the past two years by Petrel has identified significant prospects at three levels within the Lower Cretaceous and Lower Tertiary of the Petrel Quad 45 option blocks (Option 11/6). The prospect at the lowermost Cretaceous level may hold several hundred million barrels of in-place oil, with the possibility of stacked targets at Aptian-Albian and other levels. Petrel Resources Plc Annual Report and Accounts 2013 8 301100 Petrel Report 24/06/2014 12:14 Page 9 Review of Operations (continued) On the Quad 35 blocks (FEL 3/14) high potential prospects have also been mapped in mounded Lower Cretaceous fan sandstones, with internal closures up to 15 km2, and in Eocene shelf clinoform sheet sands. The Eocene sands are anticipated to have excellent reservoir properties and are seen as having the potential to host large volumes of oil. GGhhaannaa Petrel Resources holds a 30% interest in Pan Andean Resources Limited (60% Clontarf Energy) which holds a 90% interest in the Tano 2A onshore/offshore block in Ghana. The company has already conducted extensive work and spent, with its partners, a total of circa $2 million on exploring this prospective acreage. We intend to continue this work as soon as the legal situation is confirmed and parliamentary ratification completed. We are also open to an equitable alternative that properly recognises the rights under our signed Petroleum Agreement. Pan Andean Resources Limited signed a Petroleum Agreement on the 1,532km2 onshore / shallow offshore Tano 2A Block in 2008. To facilitate clarifications requested by GNPC and an optimal work programme, Pan Andean Resources Limited then signed a revised Petroleum Agreement on the Tano 2A Block in 2010. Since then, Pan Andean Resources Limited has in good faith invested $2 million in purchasing seismic and other data from GNPC, and working up leads and prospects. A serious issue has arisen threatening the Petroleum Agreement signed on Tano 2A Block by Pan Andean Resources Limited. It was with surprise that we learnt that the Ghanaian authorities had submitted a conflicting licence proposal from Camac Energy Ghana Limited, Base Energy and GNPC Explore Co. to Parliament on or about 27th February 2014. On 26th March 2014 Camac Energy Inc. announced that “Camac Energy Ghana Limited holds 60% of the interest” in a new Ghanaian Block which overlaps our block. On 22nd April 2014 Camac Energy Inc., an NYSE listed company, announced that they hold 30% of the Block, as technical operator. This is held by “an indirect 50%-owned subsidiary of the company”. The shareholding of the remaining shareholding of its subsidiary Camac Energy Ghana Limited is unclear. BBaacckkggrroouunndd:: International investors are a major contributor to the exploration and development of Ghana’s oil industry. An important foundation for this investment is a transparent licensing system, under which Petroleum Agreements are signed by GNPC and ratified in good faith by Parliament. Without sanctity of contracts and protection of property rights the international investment community would not be positive on Ghana. We are keen that this investment and technology transfer is maintained and expanded. We understand from the leading Non-Governmental Organisation, the Africa Centre for Energy Policy (ACEP), as well as press reports that this conflicting licence proposal was rushed through Parliament on or about 21st March 2014. From these press reports and a Stock Exchange statement of 26th March 2014, the conflicting licence proposal ingresses 529km2 into the 1,532km2 onshore / shallow offshore Tano 2A Block, by purporting to take a section of the shallow water acreage already assigned to Tano 2A Block. This purported action is clearly in breach of an existing Petroleum Agreement which remains valid, as confirmed by correspondence from the Ministry of Energy dated 4th March 2014, and despatched by the Ministry of Energy to Pan Andean Resources Limited on 27th March 2014. As a result of these actions by GNPC and the Ministry Of Energy we submitted a High Court writ on the 27th March 2014, and an interlocutory injunction was put in place as of the 7th April 2014 against GNPC (and, following the 30 day notice period, the Government of Ghana). In accordance with Ghanaian law, no further lawful action can take place by any of the parties put on notice until the issue is resolved. We are concerned for our shareholders’ rights but also for Ghana, as this process has breached the stated Ghanaian standards of transparency, accountability, and rule of law. Petrel Resources Plc Annual Report and Accounts 2013 9 301100 Petrel Report 24/06/2014 12:14 Page 10 Review of Operations (continued) EExxhhiibbiitt 11 –– PPaann AAnnddeeaann RReessoouurrcceess TTaannoo 22AA BBlloocckk wwiitthh CCaammaacc AAwwaarrdd oovveerrllaaiidd.. This Ghanaian company negotiated and signed first a Memorandum of Understanding and then a Petroleum Agreement with the Ghanaian authorities in 2008. The Ghanaian authorities conducted normal due diligence on our group prior to this signature. Following a Ghanaian election, and major discoveries in the Tano Basin by Tullow Oil and Kosmos Energy, the Ghanaian State wished to clarify and enhance state rights, including Pre-Emption Rights and also requirements for more comprehensive state approvals of future corporate transactions involving the Block. At the same time, our technical team wished to clarify and improve the work programme that had originally been agreed in 2008. This was necessary because initial studies and surveys showed that some of the most interesting acreage was under a shallow water surf zone, mangrove swamp or close to human habitation. Accordingly, the agreed work programme was optimised so as to make it more appropriate and technically feasible. Accordingly, we negotiated a revised Petroleum Agreement with the Ghanaian authorities in 2010. The Ghanaian authorities conducted additional due diligence on our group prior to this signature of the revised Petroleum Agreement. As part of this process, we first met the full GNPC Board, then Acting for both itself and the Ghanaian Ministry of Energy, and subsequently met a GNPC Sub-Committee during which we were subjected to vigorous “technical and financial examination” which we passed with distinction. The Petroleum Agreement creates rights and obligations even before full ratification, including in Articles 26.2 and 26.3, where the Ghanaian Ministry of Energy and GNPC warranted that: “26.2 The State, its departments and agencies, shall support this Agreement and shall take no action which prevents or impedes the due exercise and performance of rights and obligations of the Parties hereunder. 26.3 This Agreement and the rights and obligations specified herein may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the Parties.” By contrast, Petrel Resources plc and its partners have fulfilled all our obligations under these agreements. We bought and collected all available data on the block. We incurred further expense in consolidating and integrating the GNPC data with our regional database in order to expedite and effectively focus the exploration work programme. Included in our work was preparation of digital base maps for both the onshore and offshore areas by incorporating seismic lines and well data, together with all available topographic data. All the available data was consolidated within a multi-level GIS System, with satellite images covering both the Licence Petrel Resources Plc Annual Report and Accounts 2013 10 301100 Petrel Report 24/06/2014 12:14 Page 11 Review of Operations (continued) Area and surrounding region – all of which have been duly processed. In turn, these images have been interpreted for elements of structural Geology and have also been used to Geo-rectify the Base Maps. Arising out of this technical work, initial leads have been worked up. We have had initial discussions with prospective partners which encourage our belief that this acreage is prospective. We await only full ratification in order to organise funding partners and conduct field work. In addition, we have, without prejudice, given very extensive comfort on financial and technical capability to perform its initial 3 year work programme. The comfort provided goes well beyond what is industry norms or the extensive experience of our group over 30 years. Nonetheless, the Ghanaian authorities have yet to ratify our contract. Instead, since 2010 there have been a series of arbitrarily changing and inconsistent requests. When these were fulfilled there were new requests. As of June 2014 we are in discussions which hopefully will resolve these issues on an equitable basis. IIrraaqq Highlights: • • • The Iraqi oil industry has experienced an extended period of insecurity and legal uncertainty since 2003. Production has increased slightly to c. 3.3 million barrels daily. Given the delays and difficulties of dealing with the Federal authorities, Petrel Resources plc broadened its Iraqi investment through acquiring a 20 per cent shareholding in Amira Hydrocarbons Wasit B.V. This deal gives Petrel an immediate effective 5 per cent carried interest through to production in exploration and production licences operated by Oryx Petroleum in Wasit. Oryx had allocated $27 million to seismic acquisition and other work on this Wasit project during 2014. Due to administrative delays with permitting, the acquisition programme and related budget was rolled forward. As of June 2014, these required permits had not yet been granted. Accordingly, our partner has reduced its estimated Wasit project expenditure for 2014 to $5 million, and rolled the planned seismic campaign forward. So far, the Wasit Governate has not been materially impacted by June 2014 disturbances west and north of Baghdad. This strategic partnership seeks to strengthen Petrel's position in Iraq, where it has had a presence since 1999, and allows Petrel to benefit from Amira Industries' reputation and local capability. Amira Industries has been at the forefront of licence acquisitions in the Iraqi provinces and was the first oil company to sign oil and gas exploration and production contracts with the provincial governments of Salah ad Din and Wasit. Arman Kayablian, COO of Amira Industries N.V., joined the board of Petrel as a non-executive director. Arman has over 10 years' experience in project finance and development operations in the energy, utilities and telecommunications industries. The acquisition is in line with Petrel's strategy of reinforcing its interests in Iraq. The shareholding in Amira's assets expands Petrel's programme scheduled for the next 18 months, with the potential to drill one or two additional wells. The investment in Amira is essentially a US$500,000 option price. The initial consideration comprised an up-front cash payment of US$500,000 and the issue of locked in 18,947,368 shares in Petrel. A further 10,526,316 shares in Petrel will be issued when the first conventional oil well spuds. When a well is spudded these initial shares become tradeable. A second tranche of 10,526,316 shares will be issued when there is a commercial discovery. If no drilling takes place within 5 years the deal expires and all share agreements cease. Petrel Resources Plc Annual Report and Accounts 2013 11 301100 Petrel Report 24/06/2014 12:14 Page 12 Review of Operations (continued) Petrel is also given a right of first refusal to participate or acquire an operated interest in any future exploration and production licences that Amira Industries secures in the Iraqi provinces of Muthanna, Karbala, Babil and Najaf. The terms of Petrel's participation in such licences are likely to be similar to Amira Industries' arrangement with Oryx Petroleum in respect of the Wasit licences. WWaassiitt OOvveerrvviieeww Wasit is a large, relatively underexplored province in east central Iraq close to the giant East Baghdad field. Amira holds a 25 per cent carried interest in three contracts with the Wasit Provincial Government to explore and develop hydrocarbons in the Wasit province: an Asphalt Exploration Contract, Seismic Option Agreement and Risk Exploration Contract. The Wasit Government has a back-in right in respect of the licences which, if exercised in full, will reduce Amira's interest to 20 per cent (equivalent to a 4 per cent carried interest for Petrel). The operator of the Wasit Licence is Oryx Petroleum Corporation Ltd, a Canadian E&P independent listed on the TSX with a market capitalisation of US$1.4 billion. To date, Oryx has identified five principal leads in the province containing 1,010 million barrels of unrisked prospective oil resources. Amira's interest in the Wasit Licence is carried to production by Oryx. Oryx plans to commence a seismic data acquisition programme as soon as permits are in place and to drill an exploration well early in the following year, as soon as the seismic data has been processed and evaluated. Accordingly, Petrel has been in initial discussions that may lead to the negotiation of local authority licences in Iraq. We have always been careful to conduct discussions in accordance with applicable laws and will continue to do so. There remains considerable legal uncertainty in Iraq but there has been some movement in recent years: we believe that some smaller and medium-sized prospects and fields may now become available outside the Ministry of Oil’s preferred Technical Service Agreements system. If so, Petrel should be well placed to negotiate such agreements: we will undertake work commitments after confirmation that adequate institutional funding is available. Past fundings and valuations suggest that there is international institutional interest in such projects. Iraqi production increases have been slow to come through: for much of the past year, production fluctuated between 3 and 4 million barrels daily of which about 2.5 million barrels were exported. This falls well short of long-standing plans, which were to export at 8.5 million barrels daily by now, with longer-term plans to rival Saudi Arabia with over 12 million barrels daily. In is increasingly clear that while limited progress is being made, a great leap forward in Iraqi oil development requires restructuring of the fiscal terms available. The experience of slow oil field development in Iraq and neighbouring Iran over recent decades shows that investors require a reasonable, risk-adjusted rate of return in order to invest the required capital, effort and technology to make major projects work. Petrel retains its interest in the Western Desert Block 6 exploration & development contract, as well as the Technical Cooperation Agreement on the Merjan oil-field. Petrel has shown that it can operate under prevailing circumstances. As of June 2014, Anbar Governate is effectively under the control of Sunni militia. The political and security situation in Iraq has again been challenging over the past year, with events in neighbouring countries further complicating Iraqi business. Internal Iraqi political differences have so far impeded consensus on Hydrocarbon Laws and Revenue- Sharing Agreements. Petrel Resources Plc Annual Report and Accounts 2013 12 301100 Petrel Accounts 23/06/2014 16:21 Page 13 Directors’ Report The directors present their annual report and the audited financial statements for the year ended 31 December 2013. PPRRIINNCCIIPPAALL AACCTTIIVVIITTIIEESS AANNDD FFUUTTUURREE DDEEVVEELLOOPPMMEENNTTSS The main activity of Petrel Resources plc and its subsidiaries (the Group) is oil and gas exploration. The Group has exploration interests in Iraq, Ghana and Ireland. Further information concerning the activities of the Group during the year and its future prospects is contained in the Chairman’s Statement and Review of Operations. RREESSUULLTTSS FFOORR TTHHEE YYEEAARR The consolidated loss after taxation for the year, transferred to reserves, amounted to €526,783 (2012: loss of €469,767). The total exchange difference transferred to reserves is €218,452 (2012: €107,378) The directors do not recommend that a dividend be declared for the year ended 31 December 2013 (2012: €Nil). PPEERRFFOORRMMAANNCCEE RREEVVIIEEWW The performance review is set out in the Chairman’s Statement and Review of Operations. RRIISSKKSS AANNDD UUNNCCEERRTTAAIINNTTIIEESS The Group is subject to a number of potential risks and uncertainties, which could have a material impact on the long-term performance of the Group and could cause actual results to differ materially from expectation. The management of risk is the collective responsibility of the Board of Directors and the Group has developed a range of internal controls and procedures in order to manage risk. The following risk factors, which are not exhaustive, are the principal risks relevant to the Group’s activities: RRiisskk NNaattuurree ooff rriisskk aanndd mmiittiiggaattiioonn Licence obligations Operations must be carried out in accordance with the terms of each licence agreed with the relevant ministry for natural resources in the host country. Typically, the law provides that operations may be suspended, amended or terminated if a contractor fails to comply with its obligations under such licences or fails to make timely payments of relevant levies and taxes. The Group has regular communication and meetings with relevant government bodies to discuss future work plans and receive feedback from those bodies. Country Managers in each jurisdiction monitor compliance with licence obligations and changes to legislation applicable to the company and reports as necessary to the Board. Petrel Resources Plc Annual Report and Accounts 2013 1133 301100 Petrel Accounts 23/06/2014 16:21 Page 14 Directors’ Report (continued) Requirement for further funding The Group may require additional funding to implement its exploration and development plans as well as finance its operational and administrative expenses. There is no guarantee that future market conditions will permit the raising of the necessary funds by way of issue of new equity, debt financing or farming out of interests. If unsuccessful, this may significantly affect the Group’s ability to execute its long-term growth strategy. The Board regularly reviews Group cash flow projections and considers different sources of funds. The Group regularly meets with shareholders and the investor community and communicates through their website and regulatory reporting. Geological and development risks Exploration activities are speculative and capital intensive and there is no guarantee of identifying commercially recoverable reserves. The Group activities in Ghana, Iraq and Ireland are in proven resource basins. The Group uses a range of techniques to minimise risk prior to drilling and utilises independent experts to assess the results of exploration activity. Title to assets Title to oil and gas assets in Ghana and Iraq can be complex. The Directors monitor any threats to the Group’s interest in its licences and employ the services of experienced and competent lawyers in relevant jurisdictions to defend those interests, where appropriate. Exchange rate risk The Group’s expenses, which are primarily to contractors on exploration and development, are incurred primarily in US Dollars but also in Sterling and Euros. The Group’s policy is to conduct and manage its operations in US Dollars and therefore it is exposed to fluctuations in the relative values of the Euro and Sterling. The Group seeks to minimise its exposure to currency risk by closely monitoring exchange rates and maintaining a level of cash in foreign denominated currencies sufficient to meet planned expenditure in that currency. Political risk The Group holds assets in Ghana, Iraq and Ireland and therefore the Group is exposed to country specific risks such as the political, social and economic stability of these countries. The countries in which the Group operates are encouraging foreign investment. Petrel Resources Plc Annual Report and Accounts 2013 1144 301100 Petrel Accounts 23/06/2014 16:21 Page 15 Directors’ Report (continued) Political risk (continued) The Group’s projects are longstanding and we have established strong relationships with local and national government which enable the Group to monitor the political and regulatory environment. Financial risk management Details of the Group’s financial risk management policies are set out in Note 19. In addition to the above there can be no assurance that current exploration programmes will result in profitable operations. The recoverability of the carrying value of exploration and evaluation assets is dependent upon the successful discovery of economically recoverable reserves, the achievement of profitable operations, and the ability of the Group to raise additional financing, if necessary, or alternatively upon the Group’s and company’s ability to dispose of its interests on an advantageous basis. Changes in future conditions could require material write down of the carrying values of the Group’s assets. KKEEYY PPEERRFFOORRMMAANNCCEE IINNDDIICCAATTOORRSS The Group reviews expenditure incurred on exploration projects and successes thereon, ongoing operating costs and availability of finance. DDIIRREECCTTOORRSS The current directors are listed on the inside back cover. Guy Delbes resigned as director on 3 January 2013. Arman Kayablian was appointed director on 19 August 2013. DDIIRREECCTTOORRSS’’ AANNDD SSEECCRREETTAARRYY’’SS IINNTTEERREESSTTSS IINN SSHHAARREESS The directors and secretary holding office at 31 December 2013 held the following beneficial interests in the shares of the company: 3311//1122//22001133 OOrrddiinnaarryy SShhaarreess ooff €00..00112255 NNuummbbeerr 55,,441155,,000000 44,,221155,,338844 11,,778855,,338844 3311//1122//22001133 OOppttiioonnss -- OOrrddiinnaarryy SShhaarreess ooff €00..00112255 NNuummbbeerr 110000,,000000 115500,,000000 110000,,000000 1/1/2013 Ordinary Shares of €0.0125 Number 3,615,000 2,715,384 1,015,384 1/1/2013 Options - Ordinary Shares of €0.0125 Number 1,900,000 1,650,000 870,000 J. Teeling D. Horgan J. Finn (Secretary) A. Kayablian*** ***(A. Kayablian is a director of Amira International Holdings Limited) There have been no changes to the directors’ interests between the year end and the date of this report. Petrel Resources Plc Annual Report and Accounts 2013 1155 301100 Petrel Accounts 23/06/2014 16:21 Page 16 Directors’ Report (continued) SSUUBBSSTTAANNTTIIAALL SSHHAARREEHHOOLLDDIINNGGSS The share register records that, in addition to the directors, the following shareholders held 3% or more of the issued share capital as at 31 December 2013 and 31 May 2014: 3311 DDeecceemmbbeerr 22001133 NNuummbbeerr ooff OOrrddiinnaarryy SShhaarreess 1166,,114477,,336688 88,,996699,,227799 55,,445555,,661100 44,,445544,,775522 33,,883388,,998899 33,,553377,,880044 3311 MMaayy 22001144 NNuummbbeerr ooff OOrrddiinnaarryy SShhaarreess 16,147,368 9,864,568 5,492,927 4,332,119 3,585,731 3,782,241 %% 16.20 9.00 5.47 4.47 3.85 3.55 %% 16.20% 9.90% 5.51% 4.35% 3.60% 3.79% Amira International Holdings Limited*** Citibank Nominees (Ireland) Limited (CLRLUX) TD Direct Investing Nominee (Europe) Limited L. R. Nominees Limited HSDL Nominees Limited Barclayshare Nominees Limited ***(A. Kayablian is a director of Amira International Holdings Limited) FFIINNAANNCCIIAALL RRIISSKK MMAANNAAGGEEMMEENNTT Details of the Group’s financial risk management policies are set out in Note 19 to the financial statements. GGOOIINNGG CCOONNCCEERRNN Information in relation to going concern is outlined in Note 3. CCOORRPPOORRAATTEE GGOOVVEERRNNAANNCCEE AANNDD SSOOCCIIAALL RREESSPPOONNSSIIBBIILLIITTYY The Board is committed to maintaining high standards of corporate governance and to managing the company in an honest and ethical manner. The Board approves the Group’s strategy, investment plans and regularly reviews operational and financial performance, risk management, and Health, Safety, Environment and Community (HSEC) matters. The Chairman is responsible for the leadership of the Board, whilst the Executive Directors are responsible for formulating strategy and delivery once agreed by the Board. The Group aims to maximise use of natural resources, such as energy and water, and is committed to full investment as part of its environmental obligations where applicable. The Group works toward positive and constructive relationships with government, neighbours and the public, ensuring fair treatment of those affected by the Group’s operations. In particular, the Group aims to provide employees with a healthy and safe working environment whilst receiving payment, that enables them to maintain a reasonable lifestyle for themselves and their families. Petrel Resources Plc Annual Report and Accounts 2013 1166 301100 Petrel Accounts 23/06/2014 16:21 Page 17 Directors’ Report (continued) SSUUBBSSIIDDIIAARRIIEESS Details of the company’s significant subsidiaries are set out in Note 14 to the financial statements. CCHHAARRIITTAABBLLEE AANNDD PPOOLLIITTIICCAALL DDOONNAATTIIOONNSS The company made no political or charitable contributions during the year. BBOOOOKKSS OOFF AACCCCOOUUNNTT To ensure that proper books and accounting records are kept in accordance with Section 202 of the Companies Act, 1990, the directors have involved appropriately qualified accounting personnel and have maintained appropriate computerised accounting systems. The books of account are located at the company’s office at 162 Clontarf Road, Dublin 3. SSUUBBSSEEQQUUEENNTT EEVVEENNTTSS Details of significant subsequent events are outlined in Note 25. AAUUDDIITTOORRSS Deloitte & Touche, Chartered Accountants and Statutory Audit Firm, continue in office as auditors in accordance with Section 160(2) of the Companies Act 1963. Signed on behalf of the Board: John Teeling Director 24 June 2014 David Horgan Director Petrel Resources Plc Annual Report and Accounts 2013 1177 301100 Petrel Accounts 23/06/2014 16:21 Page 18 Statement of Directors’ Responsibilities Irish company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. In preparing those financial statements, the directors are required to: • • • select suitable accounting policies for the group and the parent company financial statements and then apply them consistently; make judgments and estimates that are reasonable and prudent; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and comply with Irish statute comprising the Companies Acts, 1963 to 2013. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Petrel Resources Plc Annual Report and Accounts 2013 1188 301100 Petrel Accounts 23/06/2014 16:21 Page 19 Independent Auditors’ Report To the Members of Petrel Resources Plc We have audited the financial statements of Petrel Resources Plc for the year ended 31 December 2013 which comprise the Group Financial Statements: the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Group Statement of Changes in Equity and the Consolidated Cash Flow Statement and the Company Financial Statements: the Company Balance Sheet, the Company Statement of Changes in Equity, the Company Cash Flow Statement and the related notes 1 to 26. The financial reporting framework that has been applied in the preparation of the financial statements is Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and in the case of the parent company as applied in accordance with the provision of the Companies Acts 1963 to 2013. This report is made solely to the company's members, as a body, in accordance with Section 193 of the Companies Act, 1990. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. RReessppeeccttiivvee rreessppoonnssiibbiilliittiieess ooff ddiirreeccttoorrss aanndd aauuddiittoorrss As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial statements giving a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. SSccooppee ooff tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non- financial information in the Reports and Consolidated Financial Statements for the year ended 31 December 2013 to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OOppiinniioonn oonn ffiinnaanncciiaall ssttaatteemmeennttss In our opinion: • • • the group’s financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2013 and of its loss for the year then ended; the parent company balance sheet gives a true and fair view, in accordance with IFRSs, as adopted by the European Union as applied in accordance with the provisions of the Companies Acts, 1963 to 2013, of the state of the parent company’s affairs as at 31 December 2013; and the financial statements have been properly prepared in accordance with the requirements of the Companies Acts, 1963 to 2013. Petrel Resources Plc Annual Report and Accounts 2013 1199 301100 Petrel Accounts 23/06/2014 16:21 Page 20 Independent Auditors’ Report (continued) To the Members of Petrel Resources Plc Emphasis of matter – Realisation of assets In forming our opinion on the financial statements, which is not modified, we draw your attention to Notes 12, 13, 14 and 15 to the financial statements concerning the realisation of intangible assets, financial assets, investments in subsidiaries and amounts due from subsidiaries. The realisation of intangible assets of €4,017,982 and financial assets of €4,211,123 included in the consolidated balance sheet and intangible assets of €4,006,745, investments in subsidiaries of €15,019 and amounts due from subsidiaries of €4,207,341 included in the company balance sheet is dependent on the discovery and successful development of economic mineral reserves including the ability of the Group to raise sufficient finance to develop these projects. The ultimate outcome of these uncertainties cannot, at present, be determined. MMaatttteerrss oonn wwhhiicchh wwee aarree rreeqquuiirreedd ttoo rreeppoorrtt bbyy tthhee CCoommppaanniieess AAccttss,, 11996633 ttoo 22001133 • • • • • We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion proper books of accounts have been kept by the parent company. The parent company balance sheet is in agreement with the books of account. In our opinion the information given in the directors’ report is consistent with the financial statements. The net assets of the parent company, as stated in the parent company balance sheet are more than half of the amount of its called up share capital and, in our opinion, on that basis there did not exist at 31 December 2013 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the parent company. MMaatttteerrss oonn wwhhiicchh wwee aarree rreeqquuiirreedd ttoo rreeppoorrtt bbyy eexxcceeppttiioonn We have nothing to report in respect of the provisions in the Companies Acts, 1963 to 2013 which require us to report to you if, in our opinion the disclosures of directors’ remuneration and transactions specified by law are not made. Ciarán O’Brien For and on behalf of Deloitte & Touche Chartered Accountants and Statutory Audit Firm Dublin 24 June 2014 Petrel Resources Plc Annual Report and Accounts 2013 2200 301100 Petrel Accounts 23/06/2014 16:21 Page 21 Consolidated Statement of Comprehensive Income For the Year Ended 31 December 2013 CCOONNTTIINNUUIINNGG OOPPEERRAATTIIOONNSS Administrative expenses OOPPEERRAATTIINNGG LLOOSSSS Investment revenue LLOOSSSS BBEEFFOORREE TTAAXXAATTIIOONN Income tax expense LLOOSSSS FFOORR TTHHEE YYEEAARR:: all attributable to equity holders of the parent OOtthheerr ccoommpprreehheennssiivvee ((eexxppeennssee)) IInnccoommee IItteemmss tthhaatt aarree oorr mmaayy bbee rreeccllaassssiiffiieedd ssuubbsseeqquueennttllyy ttoo pprrooffiitt oorr lloossss Exchange differences TTOOTTAALL CCOOMMPPRREEHHEENNSSIIVVEE LLOOSSSS FFOORR TTHHEE YYEEAARR Loss per share – basic and diluted Notes 22001133 € 2012 € 5 4 5 10 ((552288,,559977)) –––––––––––––– ((552288,,559977)) (481,427) –––––––––––––– (481,427) 11,,881144 –––––––––––––– ((552266,,778833)) 11,660 –––––––––––––– (469,767) - –––––––––––––– ((552266,,778833)) - –––––––––––––– (469,767) ((221188,,445522)) –––––––––––––– ((774455,,223355)) –––––––––––––– –––––––––––––– (107,378) –––––––––––––– (577,145) –––––––––––––– –––––––––––––– 11 ((00..6633cc)) –––––––––––––– –––––––––––––– (0.61c) –––––––––––––– –––––––––––––– The financial statements were approved by the Board of Directors on 24 June 2014 and signed on its behalf by: John Teeling Director David Horgan Director Petrel Resources Plc Annual Report and Accounts 2013 2211 301100 Petrel Accounts 23/06/2014 16:21 Page 22 Consolidated Balance Sheet As at 31 December 2013 AASSSSEETTSS NNOONN--CCUURRRREENNTT AASSSSEETTSS Financial asset Intangible assets CCUURRRREENNTT AASSSSEETTSS Trade and other receivables Cash and cash equivalents TTOOTTAALL AASSSSEETTSS CCUURRRREENNTT LLIIAABBIILLIITTIIEESS Trade and other payables NNEETT CCUURRRREENNTT AASSSSEETTSS NNEETT AASSSSEETTSS EEQQUUIITTYY Called-up share capital Capital conversion reserve fund Share premium Share based payment reserve Translation reserve Retained deficit TTOOTTAALL EEQQUUIITTYY Notes 22001133 € 2012 € 12 13 15 16 17 20 21 44,,221111,,112233 44,,001177,,998822 –––––––––––––– 88,,222299,,110055 –––––––––––––– - 3,424,049 –––––––––––––– 3,424,049 –––––––––––––– 3344,,004444 11,,442255,,002255 –––––––––––––– 11,,445599,,006699 –––––––––––––– 99,,668888,,117744 –––––––––––––– 43,466 3,015,858 –––––––––––––– 3,059,324 –––––––––––––– 6,483,373 –––––––––––––– ((441100,,882266)) –––––––––––––– 11,,004488,,224433 –––––––––––––– 99,,227777,,334488 –––––––––––––– –––––––––––––– (407,195) –––––––––––––– 2,652,129 –––––––––––––– 6,076,178 –––––––––––––– –––––––––––––– 11,,224466,,002255 77,,669944 2211,,441166,,008855 2266,,887711 ((115522,,115500)) ((1133,,226677,,117777)) –––––––––––––– 99,,227777,,334488 –––––––––––––– –––––––––––––– 958,308 7,694 17,784,268 - 66,302 (12,740,394) –––––––––––––– 6,076,178 –––––––––––––– –––––––––––––– The financial statements were approved by the Board of Directors on 24 June 2014 and signed on its behalf by: John Teeling Director David Horgan Director Petrel Resources Plc Annual Report and Accounts 2013 2222 301100 Petrel Accounts 23/06/2014 16:21 Page 23 Company Balance Sheet As at 31 December 2013 AASSSSEETTSS NNOONN--CCUURRRREENNTT AASSSSEETTSS Intangible assets Investment in subsidiaries CCUURRRREENNTT AASSSSEETTSS Trade and other receivables Cash and cash equivalents TTOOTTAALL AASSSSEETTSS CCUURRRREENNTT LLIIAABBIILLIITTIIEESS Trade and other payables NNEETT CCUURRRREENNTT AASSSSEETTSS NNEETT AASSSSEETTSS EEQQUUIITTYY Called-up share capital Capital conversion reserve fund Share premium Share based payment reserve Translation reserve Retained deficit TTOOTTAALL EEQQUUIITTYY Notes 22001133 € 2012 € 13 14 15 16 17 20 21 44,,000066,,774455 1155,,001199 –––––––––––––– 44,,002211,,776644 –––––––––––––– 3,412,812 11,237 –––––––––––––– 3,424,049 –––––––––––––– 44,,224411,,338855 11,,442255,,002255 –––––––––––––– 55,,666666,,441100 –––––––––––––– 99,,668888,,117744 –––––––––––––– 43,466 3,015,858 –––––––––––––– 3,059,324 –––––––––––––– 6,483,373 –––––––––––––– ((441100,,882266)) –––––––––––––– 11,,004488,,224433 –––––––––––––– 99,,227777,,334488 –––––––––––––– –––––––––––––– (407,195) –––––––––––––– 2,652,129 –––––––––––––– 6,076,178 –––––––––––––– –––––––––––––– 11,,224466,,002255 77,,669944 2211,,441166,,008855 2266,,887711 ((115522,,115500)) ((1133,,226677,,117777)) –––––––––––––– 99,,227777,,334488 –––––––––––––– –––––––––––––– 958,308 7,694 17,784,268 - 66,302 (12,740,394) –––––––––––––– 6,076,178 –––––––––––––– –––––––––––––– The financial statements were approved by the Board of Directors on 24 June 2014 and signed on its behalf by: John Teeling Director David Horgan Director Petrel Resources Plc Annual Report and Accounts 2013 2233 301100 Petrel Accounts 23/06/2014 16:21 Page 24 Consolidated and Company Statements of Changes in Equity For the Year Ended 31 December 2013 GGrroouupp aanndd ccoommppaannyy At 1 January 2012 Share options forfeited Total comprehensive income for the year At 31 December 2012 Shares issued Share options granted Total comprehensive income for the year AAtt 3311 DDeecceemmbbeerr 22001133 SShhaarree pprreemmiiuumm SShhaarree CCaappiittaall € SShhaarree PPrreemmiiuumm € 958,308 - 17,784,268 - CCaappiittaall CCoonnvveerrssiioonn RReesseerrvvee FFuunndd € 7,694 - SShhaarree BBaasseedd PPaayymmeenntt RReesseerrvvee € 205,971 (205,971) TTrraannssllaattiioonn RReesseerrvvee € RReettaaiinneedd DDeeffiicciitt € TToottaall € 173,680 - (12,476,598) 205,971 6,653,323 - - –––––––––– 958,308 - –––––––––– 17,784,268 - –––––––––– 7,694 - –––––––––– - (107,378) –––––––––– 66,302 (469,767) –––––––––– (12,740,394) (577,145) –––––––––– 6,076,178 287,717 - 3,631,817 - - - - 26,871 - - - - 3,919,534 26,871 - –––––––––– 11,,224466,,002255 –––––––––– –––––––––– - –––––––––– 2211,,441166,,008855 –––––––––– –––––––––– - –––––––––– 77,,669944 –––––––––– –––––––––– - –––––––––– 2266,,887711 –––––––––– –––––––––– (218,452) –––––––––– ((115522,,115500)) –––––––––– –––––––––– (526,783) –––––––––– ((1133,,226677,,117777)) –––––––––– –––––––––– (745,235) –––––––––– 99,,227777,,334488 –––––––––– –––––––––– Share premium comprises of the excess of monies received in respect of the issue of share capital over the nominal value of shares issued. CCaappiittaall ccoonnvveerrssiioonn rreesseerrvvee ffuunndd The ordinary shares of the company were renominalised from €0.0126774 each to €0.0125 each in 2001 and the amount by which the issued share capital of the company was reduced was transferred to the capital conversion reserve fund. SShhaarree bbaasseedd ppaayymmeenntt rreesseerrvvee The share based payment reserve represents share options granted which are not yet exercised and issued as shares. TTrraannssllaattiioonn RReesseerrvvee The translation reserve comprises of foreign exchange movement on translation from US Dollars (functional currency) to Euro (presentation currency). RReettaaiinneedd ddeeffiicciitt Retained deficit comprises accumulated losses in the current year and prior years. Petrel Resources Plc Annual Report and Accounts 2013 2244 301100 Petrel Accounts 23/06/2014 16:21 Page 25 Consolidated Cash Flow Statement For the Year Ended 31 December 2013 Notes 22001133 € 2012 € CCAASSHH FFLLOOWW FFRROOMM OOPPEERRAATTIINNGG AACCTTIIVVIITTIIEESS Loss for the year Impairment charge Share based payments Investment revenue recognised in loss OOPPEERRAATTIINNGG CCAASSHHFFLLOOWW BBEEFFOORREE MMOOVVEEMMEENNTTSS IINN WWOORRKKIINNGG CCAAPPIITTAALL Movements in working capital: Increase in trade and other payables (Increase)/decrease in trade and other receivables CCAASSHH UUSSEEDD IINN OOPPEERRAATTIIOONNSS Investment revenue NNEETT CCAASSHH UUSSEEDD IINN OOPPEERRAATTIINNGG AACCTTIIVVIITTIIEESS IINNVVEESSTTIINNGG AACCTTIIVVIITTIIEESS Payments for exploration and evaluation assets Payments for investments NNEETT CCAASSHH UUSSEEDD IINN IINNVVEESSTTIINNGG AACCTTIIVVIITTIIEESS FFIINNAANNCCIINNGG AACCTTIIVVIITTIIEESS Proceeds from share issue NNEETT CCAASSHH GGEENNEERRAATTEEDD FFRROOMM FFIINNAANNCCIINNGG AACCTTIIVVIITTIIEESS NNEETT DDEECCRREEAASSEE IINN CCAASSHH AANNDD CCAASSHH EEQQUUIIVVAALLEENNTTSS ((552266,,778833)) 1199,,665588 1133,,443355 ((11,,881144)) –––––––––––––– ((449955,,550044)) (469,767) 20,066 - (11,660) –––––––––––––– (461,361) 33,,663311 99,,442222 –––––––––––––– ((448822,,445511)) 176,435 (10,992) –––––––––––––– (295,918) 11,,881144 –––––––––––––– ((448800,,663377)) –––––––––––––– 11,660 –––––––––––––– (284,258) –––––––––––––– ((774477,,117722)) ((442211,,664499)) –––––––––––––– ((11,,116688,,882211)) –––––––––––––– (793,475) - –––––––––––––– (793,475) –––––––––––––– 113300,,006600 –––––––––––––– 113300,,006600 –––––––––––––– ((11,,551199,,339988)) - –––––––––––––– - –––––––––––––– (1,077,733) Cash and cash equivalents at beginning of financial year 33,,001155,,885588 4,150,649 Effect of exchange rate changes on cash held in foreign currencies Cash and cash equivalents at end of financial year ((7711,,443355)) –––––––––––––– 11,,442255,,002255 –––––––––––––– –––––––––––––– (57,058) –––––––––––––– 3,015,858 –––––––––––––– –––––––––––––– 16 Petrel Resources Plc Annual Report and Accounts 2013 2255 301100 Petrel Accounts 23/06/2014 16:21 Page 26 Company Cash Flow Statement For the Year Ended 31 December 2013 Notes 22001133 € 2012 € CCAASSHH FFLLOOWW FFRROOMM OOPPEERRAATTIINNGG AACCTTIIVVIITTIIEESS Loss for the year Impairment charge Share based payment Investment revenue recognised in loss OOPPEERRAATTIINNGG CCAASSHHFFLLOOWW BBEEFFOORREE MMOOVVEEMMEENNTTSS IINN WWOORRKKIINNGG CCAAPPIITTAALL Movements in working capital: Increase in trade and other payables Decrease in trade and other receivables CCAASSHH UUSSEEDD IINN OOPPEERRAATTIIOONNSS Investment revenue NNEETT CCAASSHH UUSSEEDD IINN OOPPEERRAATTIINNGG AACCTTIIVVIITTIIEESS IINNVVEESSTTIINNGG AACCTTIIVVIITTIIEESS Payments for exploration and evaluation assets Payments for investments NNEETT CCAASSHH UUSSEEDD IINN IINNVVEESSTTIINNGG AACCTTIIVVIITTIIEESS FFIINNAANNCCIINNGG AACCTTIIVVIITTIIEESS Proceeds from share issue NNEETT CCAASSHH GGEENNEERRAATTEEDD FFRROOMM FFIINNAANNCCIINNGG AACCTTIIVVIITTIIEESS NNEETT DDEECCRREEAASSEE IINN CCAASSHH AANNDD CCAASSHH EEQQUUIIVVAALLEENNTTSS ((552266,,778833)) 1199,,665588 1133,,443355 ((11,,881144)) –––––––––––––– ((449955,,550044)) (469,767) 20,066 - (11,660) –––––––––––––– (461,361) 33,,663311 ((440088,,444466)) –––––––––––––– ((990000,,331199)) 176,435 (10,992) –––––––––––––– (295,918) 11,,881144 –––––––––––––– ((889988,,550055)) –––––––––––––– 11,660 –––––––––––––– (284,258) –––––––––––––– ((774477,,117722)) ((33,,778822)) –––––––––––––– ((775500,,995533)) –––––––––––––– (793,475) - –––––––––––––– (793,475) –––––––––––––– 113300,,006600 –––––––––––––– 113300,,006600 –––––––––––––– ((11,,551199,,339988)) - –––––––––––––– - –––––––––––––– (1,077,733) Cash and cash equivalents at beginning of financial year 33,,001155,,88558 4,150,649 Effect of exchange rate changes on cash held in foreign currencies Cash and cash equivalents at end of financial year ((7711,,443355)) –––––––––––––– 11,,442255,,002255 –––––––––––––– –––––––––––––– (57,058) –––––––––––––– 3,015,858 –––––––––––––– –––––––––––––– 16 Petrel Resources Plc Annual Report and Accounts 2013 2266 301100 Petrel Accounts 23/06/2014 16:21 Page 27 Notes To The Financial Statements For the Year Ended 31 December 2013 11.. PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS TThhee ssiiggnniiffiiccaanntt aaccccoouunnttiinngg ppoolliicciieess aaddoopptteedd bbyy tthhee GGrroouupp aanndd ccoommppaannyy aarree aass ffoolllloowwss:: ((ii)) BBaassiiss ooff pprreeppaarraattiioonn The financial statements are prepared under the historical cost convention. The consolidated financial statements are presented in Euro. ((iiii)) SSttaatteemmeenntt ooff ccoommpplliiaannccee The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee (IFRIC) as adopted by the European Union. The financial statements are prepared under the Companies Acts, 1963 to 2013. ((iiiiii)) BBaassiiss ooff ccoonnssoolliiddaattiioonn The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. 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 or is exposed, or has any right to, variable return from its involvement with the investee. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. ((iivv)) IInnvveessttmmeenntt iinn ssuubbssiiddiiaarriieess Investments in subsidiaries are stated at cost less any allowance for impairment. ((vv)) IInnttaannggiibbllee aasssseettss EExxpplloorraattiioonn aanndd eevvaalluuaattiioonn aasssseettss Exploration expenditure relates to the initial search for mineral deposits with economic potential in Iraq, Ireland and Ghana. Evaluation expenditure arises from a detailed assessment of deposits that have been identified as having economic potential. The costs of exploration assets, which include the cost of acquiring prospective properties and exploration rights and costs incurred in exploration and evaluation activities, are capitalised as intangible assets as part of exploration and evaluation assets. Exploration costs are capitalised as an intangible asset until technical feasibility and commercial viability of extraction of reserves are demonstrable, when the capitalised exploration costs are re-classed to property, plant and equipment. Exploration costs include an allocation of administration and salary costs (including share based payments) as determined by management, where they relate to specific projects. Prior to reclassification to property, plant and equipment exploration and evaluation assets are assessed for impairment and any impairment loss is recognised immediately in the statement of comprehensive income. Petrel Resources Plc Annual Report and Accounts 2013 2277 301100 Petrel Accounts 23/06/2014 16:21 Page 28 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 11.. PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((ccoonnttiinnuueedd)) ((vv)) IInnttaannggiibbllee aasssseettss ((ccoonnttiinnuueedd)) IImmppaaiirrmmeenntt ooff iinnttaannggiibbllee aasssseettss Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. The Company reviews and tests for impairment on an ongoing basis and specifically if any of the following occurs: a) b) c) d) the period for which the group has a right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; substantive expenditure on further exploration for and evaluation of oil or gas resources in the specific area is neither budgeted nor planned; exploration for an evaluation of resources in the specific area have not led to the discovery of commercially viable quantities of oil or gas resources and the group has decided to discontinue such activities in the specific area; and sufficient data exists to indicate that although a development in the specific area is likely to proceed the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. ((vvii)) FFoorreeiiggnn ccuurrrreenncciieess The financial statements of the Company are maintained in the currency of the primary economic environment in which it operates (its functional currency). The functional currency of the company is US Dollars. However, for the purpose of the consolidated financial statements, the results and financial position of the Company and Group are expressed in Euro (the presentation currency). This is for the benefit of the Company and Group’s shareholders, the majority of whom reside in the Eurozone. In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was re- determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the statement of comprehensive income for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the statement of comprehensive income for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company and Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. All resulting exchange differences are recognised in other comprehensive income. Petrel Resources Plc Annual Report and Accounts 2013 2288 301100 Petrel Accounts 23/06/2014 16:21 Page 29 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 11.. PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((ccoonnttiinnuueedd)) ((vviiii)) TTaaxxaattiioonn The tax expense represents the sum of the tax currently payable and deferred tax. Current tax is based on the taxable result for the year. Taxable result differs from net loss as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable result, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses to the extent that it is probable that taxable profits will be available against which deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Unrecognised deferral tax assets are reassessed at each balance sheet date and are recognised to the event that it has become probable that future taxable projects will allow the deferred tax asset to be recovered. ((vviiiiii)) SShhaarree--bbaasseedd ppaayymmeennttss The Group and Company have applied the requirements of IFRS 2 “Share-Based Payments”. In accordance with the transitional provisions, IFRS 2 has been applied to all equity instruments vesting after 1 January 2006. Equity settled share-based payments are measured at fair value at the date of grant. The fair value excludes the effect of non-market based vesting conditions. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period based on the Group and Company’s estimate of shares that will eventually vest. At the balance sheet date the Group reviews its estimate of the nature of equity instruments expected to vest as a result of the effect of non-market based vesting conditions. Where the value of the goods or services received in exchange for the share-based payment cannot be reliably estimated the fair value is measured by use of a Black-Scholes model. Petrel Resources Plc Annual Report and Accounts 2013 2299 301100 Petrel Accounts 23/06/2014 16:21 Page 30 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 11.. PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((ccoonnttiinnuueedd)) ((iixx)) OOppeerraattiinngg lloossss Operating loss comprises general administrative costs incurred by the Company. Operating loss is stated before finance income, finance costs and other gains and losses. ((xx)) FFiinnaanncciiaall iinnssttrruummeennttss Financial assets and financial liabilities are recognised in the Group and Company balance sheet when the Group and Company becomes a party to the contractual provisions of the instrument. FFiinnaanncciiaall AAsssseettss Financial assets are initially recognised at fair value. Subsequent measurement is at cost for equity instruments for which no quoted price exists on an active market and for which fair value cannot be reliably measured. If the recoverable amount falls below the carrying amount an impairment loss is recognised. Such losses are not reversed. TTrraaddee aanndd ootthheerr rreecceeiivvaabblleess Trade and other receivables are measured at initial recognition at invoice value, which approximates to fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the statement of comprehensive income when there is objective evidence that the carrying value of the asset exceeds the recoverable amount. Subsequently, trade and other receivables are classified as loans and receivables which are measured at amortised cost, using the effective interest method. CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss Cash and cash equivalents comprise cash held by the Group and Company and short-term bank deposits with a maturity of three months or less from the date of placement. FFiinnaanncciiaall lliiaabbiilliittiieess Financial liabilities are classified according to the substance of the contractual arrangements entered into. TTrraaddee ppaayyaabblleess Trade payables are classified as financial liabilities, are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method. EEqquuiittyy iinnssttrruummeennttss Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. ((xxii)) CCrriittiiccaall aaccccoouunnttiinngg jjuuddggmmeennttss aanndd kkeeyy ssoouurrcceess ooff eessttiimmaattiioonn uunncceerrttaaiinnttyy CCrriittiiccaall jjuuddggmmeennttss iinn aappppllyyiinngg tthhee GGrroouupp aanndd CCoommppaannyy aaccccoouunnttiinngg ppoolliicciieess In the process of applying the Group and Company accounting policies above, management has identified the judgmental areas as those that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below): Petrel Resources Plc Annual Report and Accounts 2013 3300 301100 Petrel Accounts 23/06/2014 16:21 Page 31 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 11.. PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((ccoonnttiinnuueedd)) ((xxii)) CCrriittiiccaall aaccccoouunnttiinngg jjuuddggmmeennttss aanndd kkeeyy ssoouurrcceess ooff eessttiimmaattiioonn uunncceerrttaaiinnttyy ((ccoonnttiinnuueedd)) EExxpplloorraattiioonn aanndd eevvaalluuaattiioonn The assessment of whether general administration costs and salary costs are capitalised or expensed involves judgement. Management considers the nature of each cost incurred and whether it is deemed appropriate to capitalise it within intangible assets. Costs which can be demonstrated as project related are included within exploration and evaluation assets. Exploration and evaluation assets relate to exploration and related expenditure in Ireland, Iraq and Ghana. The Group and Company’s exploration activities are subject to a number of significant and potential risks including: • • • • Licence obligations; Funding requirements; Political and legal risks, including title to licence, profit sharing and taxation; and Geological and development risks: The recoverability of these exploration and evaluation assets is dependent on the discovery and successful development of economic reserves, including the ability to raise finance to develop future projects. Should this prove unsuccessful, the value included in the balance sheet would be written off as an impairment to the statement of comprehensive income. IImmppaaiirrmmeenntt ooff iinnttaannggiibbllee aasssseettss The assessment of intangible assets for any indications of impairment involves judgement. If an indication of impairment exists, a formal estimate of recoverable amount is performed and an impairment loss recognised to the extent that the carrying amount exceeds the recoverable amount. Recoverable amount is determined as the higher of fair value less costs to sell and value in use. The assessment requires judgements as to the likely future commerciality of the assets and when such commerciality should be determined, future revenue and operating costs and the discount rate to be applied to such revenues and costs. DDeeffeerrrreedd ttaaxx aasssseettss The assessment of availability of future taxable profits involves judgement. A deferred tax asset is recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised. GGooiinngg CCoonncceerrnn The preparation of financial statements requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on finance being available for the continuing working capital requirements of the Group and Company and finance for the development of the Group’s projects. Petrel Resources Plc Annual Report and Accounts 2013 3311 301100 Petrel Accounts 23/06/2014 16:21 Page 32 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 11.. PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((ccoonnttiinnuueedd)) ((xxii)) CCrriittiiccaall aaccccoouunnttiinngg jjuuddggmmeennttss aanndd kkeeyy ssoouurrcceess ooff eessttiimmaattiioonn uunncceerrttaaiinnttyy ((ccoonnttiinnuueedd)) KKeeyy ssoouurrcceess ooff eessttiimmaattiioonn uunncceerrttaaiinnttyy The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities at the balance sheet date and the amounts reported in the statement of comprehensive income for the year. The nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The assessment of intangible assets for any indication of impairment involves uncertainty. There is uncertainty as to whether the exploration activity will yield any economically viable discovery. Aspects of uncertainty surrounding the group’s intangible assets include the amount of potential reserves, ability to be awarded exploration licences, and the ability to raise sufficient finance to develop the group’s projects. 22.. IINNTTEERRNNAATTIIOONNAALL FFIINNAANNCCIIAALL RREEPPOORRTTIINNGG SSTTAANNDDAARRDDSS The Group did not adopt any new International Financial Reporting Standards (IFRS) or Interpretations in the year that had a material impact on the Group’s Financial Statements. The following IFRS became effective since the last Annual Report but had no material impact on the Financial Statements: IFRS 1 (amendment) IFRS 7 (amendment) IAS 32 (amendment) IFRS 7 (amendment) IAS 1 (amendment) IFRS 13 IFRIC 20 IAS 16 (amendment) IAS 34 (amendment) IAS 19 (amendment) First-time adoption of International Financial Reporting Standards Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments Financial Instruments: Presentation Disclosures about Financial Instruments Presentation of Financial Statements Fair Value Measurement Stripping Costs in the Production Phase of a Surface Mine Property, Plant and Equipment Interim Financial Reporting Employee Benefits EEffffeeccttiivvee ddaattee 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 July 2012 and 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 Petrel Resources Plc Annual Report and Accounts 2013 3322 301100 Petrel Accounts 23/06/2014 16:21 Page 33 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 22.. IINNTTEERRNNAATTIIOONNAALL FFIINNAANNCCIIAALL RREEPPOORRTTIINNGG SSTTAANNDDAARRDDSS ((ccoonnttiinnuueedd)) At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective: EEffffeeccttiivvee ddaattee IFRS 7 (amendment) IFRS 12 (amendment) IFRS 11 (amendment) IFRS 10 (amendment) IAS 28 (amendment) IAS 27 (amendment) IFRS 7 (amendment) IFRS 9 Annual improvements to IFRS 2009-2011 cycle IFRS 14 IAS 32 (amendment) IAS 36 IAS 39 Disclosures Offsetting Financial Assets and Financial Liabilities Disclosure of Interests in Other Entities Joint Arrangements Consolidated Financial Statements Investments in Associates and Joint Ventures Consolidated and Separate Financial Statements Disclosures – Initial Application of IFRS 9 Financial Instruments 1 January 2015 1 January 2014 1 January 2014 & 1 January 2016 1 January 2014 1 January 2014 1 January 2014 1 January 2018 1 January 2017 1 January 2014 1 January 2016 1 January 2014 1 January 2014 Regulatory Deferral Accounts Financial instruments presentation Impairment of Assets Financial Instruments Recognition and Measurement Defined Benefit Plans: Employment Contributions Levies Revenue from Contracts with Customers 1 January 2014 & 2015 1 July 2014 1 January 2014 1 January 2017 IAS 19 IFRIC21 IFRS15 The Directors are currently assessing the impact in relation to the adoption of these Standards and Interpretations for future periods of the Group, however, at this point they do not believe they will have a significant impact on the financial statements of the Group in the period of initial application. 33.. GGOOIINNGG CCOONNCCEERRNN The Group and Company incurred a loss for the year of €526,783 (2012: loss of €469,767) and had a retained earnings deficit of €13,267,177 (2012: deficit of €12,740,394), at the balance sheet date leading to doubt about the Group and Company’s ability to continue as a going concern. The Group and Company had a cash balance of €1,425,025 at the balance sheet date. Cash flow projections prepared by the directors indicate that the funds available are sufficient to meet the obligations of the Group and Company for a period of at least twelve months from the date of approval of these financial statements. Accordingly the directors are satisfied that it is appropriate to continue to prepare the financial statements of the Group and Company on a going concern basis. The financial statements do not include any adjustment to the carrying amount, or classification of assets and liabilities, which would be required if the Group or Company was unable to continue as a going concern. Petrel Resources Plc Annual Report and Accounts 2013 3333 301100 Petrel Accounts 23/06/2014 16:21 Page 34 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 44.. IINNVVEESSTTMMEENNTT RREEVVEENNUUEE Interest on bank deposits 55.. LLOOSSSS BBEEFFOORREE TTAAXXAATTIIOONN The loss before taxation is stated after charging the following items: Administrative expenses: Professional fees Staff costs - salaries - payroll taxes Other administration expenses Impairment of exploration and evaluation expenditure Share based payments 22001133 € 2012 € 11,,881144 –––––––––––––– –––––––––––––– 11,660 –––––––––––––– –––––––––––––– 22001133 € 2012 € 228844,,338833 9988,,660066 1166,,661188 9955,,889966 1199,,665588 1133,,443355 –––––––––––––– 552288,,559966 –––––––––––––– –––––––––––––– 204,519 177,930 12,792 66,120 20,066 - –––––––––––––– 481,427 –––––––––––––– –––––––––––––– Details of auditors’ and directors’ remuneration are set out in Notes 6 and 7 respectively 66.. AAUUDDIITTOORRSS’’ RREEMMUUNNEERRAATTIIOONN Auditors’ remuneration for work carried out for the Group and Company in respect of the financial year is as follows: GGrroouupp Audit of Group accounts Other assurance services Tax advisory services Other non-audit services Total 22001133 € 2012 € 1199,,000000 11,,000000 11,,000000 - –––––––––––––– 2211,,000000 –––––––––––––– –––––––––––––– 19,000 1,000 1,000 - –––––––––––––– 21,000 –––––––––––––– –––––––––––––– Petrel Resources Plc Annual Report and Accounts 2013 3344 301100 Petrel Accounts 23/06/2014 16:21 Page 35 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 66.. AAUUDDIITTOORRSS’’ RREEMMUUNNEERRAATTIIOONN ((ccoonnttiinnuueedd)) 22001133 € 2012 € 99,,550000 99,,550000 11,,000000 - –––––––––––––– 2200,,000000 –––––––––––––– –––––––––––––– 9,500 9,500 1,000 - –––––––––––––– 20,000 –––––––––––––– –––––––––––––– CCoommppaannyy Audit of individual company accounts Other assurance services Tax advisory services Other non-audit services Total 77.. RREELLAATTEEDD PPAARRTTYY AANNDD OOTTHHEERR TTRRAANNSSAACCTTIIOONNSS GGrroouupp aanndd CCoommppaannyy DDiirreeccttoorrss’’ rreemmuunneerraattiioonn The remuneration of the directors is as follows: 22001133 FFeeeess –– sseerrvviicceess aass ddiirreeccttoorrss € 22001133 FFeeeess –– ootthheerr sseerrvviicceess € 22001133 TToottaall € 2012 Fees – services as directors € 2012 Fees – other services € 2012 Total € 55,,000000 55,,000000 –––––––––––– 1100,,000000 –––––––––––– –––––––––––– 9955,,000000 114455,,000000 –––––––––––– 224400,,000000 –––––––––––– –––––––––––– 110000,,000000 115500,,000000 –––––––––––– 225500,,000000 –––––––––––– –––––––––––– 5,000 5,000 –––––––––––– 10,000 –––––––––––– –––––––––––– 95,000 145,000 –––––––––––– 240,000 –––––––––––– –––––––––––– 100,000 150,000 –––––––––––– 250,000 –––––––––––– –––––––––––– John Teeling David Horgan The number of directors to whom retirement benefits are accruing is nil. There were no entitlements to pension schemes or retirement benefits. The aggregate amount of the gains made by directors on the exercise of share options during the year was €354,968. Details of directors’ interests in the shares of the company are set out in the Directors’ Report. Directors’ remuneration of €175,000 (2012: €150,000) was capitalised as exploration and evaluation expenditure as set out in Note 13 KKeeyy mmaannaaggeemmeenntt ccoommppeennssaattiioonn Key management personnel are deemed to be John Teeling (Chairman), David Horgan (Director), and James Finn (Chief Financial Officer). The total compensation expense comprising solely of short-term benefits in respect of key management personnel was as follows: Short-term employee benefits 22001133 € 2012 € 335500,,000000 –––––––––––––– –––––––––––––– 350,000 –––––––––––––– –––––––––––––– Petrel Resources Plc Annual Report and Accounts 2013 3355 301100 Petrel Accounts 23/06/2014 16:21 Page 36 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 77.. RREELLAATTEEDD PPAARRTTYY AANNDD OOTTHHEERR TTRRAANNSSAACCTTIIOONNSS ((ccoonnttiinnuueedd)) OOtthheerr Petrel Resources plc shares offices and overheads with a number of companies also based at 162 Clontarf Road. These companies have some common directors. Transactions with these companies during the year are set out below: BBoottsswwaannaa DDiiaammoonnddss ppllcc € CClloonnttaarrff EEnneerrggyy ppllcc € CCoonnnneemmaarraa MMiinniinngg ppllcc € HHyyddrrooccaarrbboonn EExxpplloorraattiioonn LLiimmiitteedd € TToottaall € Balance at 1 January 2012 5,009 6,577 3,739 (4,012) 11,313 Office and overhead costs recharged Exploration and evaluation expenditure recharged by Petrel Exploration and evaluation expenditure recharged to Petrel Repayments Balance at 31 December 2012 Balance at 1 January 2013 Office and overhead costs recharged Repayments BBaallaannccee aatt 3311 DDeecceemmbbeerr 22001133 (33,770) 10,663 60,297 - 12,079 - - - 37,190 12,079 - 28,761 –––––––––––– - –––––––––––– –––––––––––– (82,988) 54,643 –––––––––––– 974 –––––––––––– –––––––––––– - (64,036) –––––––––––– - –––––––––––– –––––––––––– - 4,012 –––––––––––– - –––––––––––– –––––––––––– (82,988) 23,380 –––––––––––– 974 –––––––––––– –––––––––––– - 4,042 (4,042) –––––––––––– - –––––––––––– –––––––––––– 974 - (974) –––––––––––– - –––––––––––– –––––––––––– - 66,947 (66,947) –––––––––––– - –––––––––––– –––––––––––– - - –––––––––––– - –––––––––––– –––––––––––– 974 70,989 (71,963) –––––––––––– - –––––––––––– –––––––––––– CCoommppaannyy At 31 December the following amount was due to the company by its subsidiary: Amounts due from Petrel Resources (TCI Limited) 22001133 € 2012 € 44,,220077,,334411 –––––––––––––– –––––––––––––– - –––––––––––––– –––––––––––––– The amount due is non-interest bearing, unsecured and repayable on demand. The recoverability of the amount due is dependent on the discovery and successful development of economic mineral reserves which is subject to a number of risks as set out in Note 1(xi). 88.. SSTTAAFFFF NNUUMMBBEERRSS The average number of persons employed by the group (including directors and secretary) during the year was: Management and administration 22001133 NNuummbbeerr 2012 Number 5 –––––––––––––– –––––––––––––– 5 –––––––––––––– –––––––––––––– Petrel Resources Plc Annual Report and Accounts 2013 3366 301100 Petrel Accounts 23/06/2014 16:21 Page 37 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 88.. SSTTAAFFFF NNUUMMBBEERRSS ((ccoonnttiinnuueedd)) Staff costs for the above persons were: Wages and salaries Social welfare costs Pension costs 99.. SSEEGGMMEENNTTAALL AANNAALLYYSSIISS 22001133 € 2012 € 443333,,660066 1166,,661188 - –––––––––––––– 445500,,222244 –––––––––––––– –––––––––––––– 437,930 12,792 - –––––––––––––– 450,722 –––––––––––––– –––––––––––––– The Group adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about the Group that are regularly reviewed by the chief operating decision maker. The Board is deemed the chief operating decision maker within the Group. For management purposes, the Group has one class of business: oil exploration and development. This is analysed on a geographical basis. 99AA.. SSeeggmmeenntt RReessuullttss CCoonnttiinnuuiinngg OOppeerraattiioonnss Iraq Africa Ireland Total for continuing operations Unallocated head office 22001133 € 2012 € - ((1199,,665588)) - –––––––––––––– ((1199,,665588)) ((550077,,112255)) –––––––––––––– ((552266,,778833)) –––––––––––––– –––––––––––––– - (20,066) - –––––––––––––– (20,066) (449,701) –––––––––––––– (469,767) –––––––––––––– –––––––––––––– There was no revenue earned during the year (2012: €Nil). 99BB.. SSeeggmmeenntt AAsssseettss aanndd LLiiaabbiilliittiieess Iraq Africa Ireland Total for continuing operations Unallocated Head Office AAsssseettss 22001133 € 2012 € LLiiaabbiilliittiieess 22001133 € 2012 € 66,,559977,,00990 666622,,994433 997722,,885544 –––––––––––– 88,,223322,,888877 11,,445555,,228877 –––––––––––– 99,,668888,,117744 –––––––––––– –––––––––––– 2,292,050 607,134 524,865 –––––––––––– 3,424,049 3,059,324 –––––––––––– 6,483,373 –––––––––––– –––––––––––– - ((88,,116644)) ((44,,884422)) –––––––––––– ((1133,,000066)) ((339977,,882200)) –––––––––––– ((441100,,882266)) –––––––––––– –––––––––––– - - (41,729) –––––––––––– (41,729) (365,466) –––––––––––– (407,195) –––––––––––– –––––––––––– Petrel Resources Plc Annual Report and Accounts 2013 3377 301100 Petrel Accounts 23/06/2014 16:21 Page 38 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 99.. SSEEGGMMEENNTTAALL AANNAALLYYSSIISS ((ccoonnttiinnuueedd)) 99BB.. SSeeggmmeenntt AAsssseettss aanndd LLiiaabbiilliittiieess ((ccoonnttiinnuueedd)) AAddddiittiioonnss ttoo nnoonn--ccuurrrreenntt aasssseettss ((GGrroouupp aanndd CCoommppaannyy)) Iraq Africa Ireland Total for continuing operations Unallocated head office 1100.. IINNCCOOMMEE TTAAXX EEXXPPEENNSSEE FFaaccttoorrss aaffffeeccttiinngg tthhee ttaaxx eexxppeennssee:: Loss on ordinary activities before tax Income tax calculated @ 12.5% EEffffeeccttss ooff:: Expenses not allowable Tax losses carried forward Income taxed at higher rate Tax charge 22001133 € 2012 € 44,,330011,,225588 7755,,446677 444477,,998899 –––––––––––––– 44,,880055,,005566 - –––––––––––––– 44,,880055,,005566 –––––––––––––– –––––––––––––– 266,736 215,675 311,064 –––––––––––––– 793,475 - –––––––––––––– 793,475 –––––––––––––– –––––––––––––– 22001133 € 2012 € ((552288,,559977)) –––––––––––––– ((6666,,007755)) (481,427) –––––––––––––– (60,178) 1122,,330000 5533,,555544 222211 –––––––––––––– - –––––––––––––– –––––––––––––– 3,487 55,234 1,457 –––––––––––––– - –––––––––––––– –––––––––––––– No corporation tax charge arises in the current year or the prior year due to losses brought forward. At the balance sheet date, the Group had unused tax losses of €5,090,900 (2012: €4,662,472) which equates to a deferred tax asset of €636,363 (2012: €582,809). No deferred tax asset has been recognised due to the unpredictability of the future profit streams. Losses may be carried forward indefinitely. 1111.. LLOOSSSS PPEERR SSHHAARREE Loss per share - basic and diluted 22001133 € 2012 € ((00..6633cc)) –––––––––––––– –––––––––––––– (0.61c) –––––––––––––– –––––––––––––– Petrel Resources Plc Annual Report and Accounts 2013 3388 301100 Petrel Accounts 23/06/2014 16:21 Page 39 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 1111.. LLOOSSSS PPEERR SSHHAARREE ((ccoonnttiinnuueedd)) BBaassiicc lloossss ppeerr sshhaarree The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows: Loss for the year attributable to equity holders Weighted average number of ordinary shares for the purpose of basic earnings per share 22001133 € 2012 € ((552266,,778833)) –––––––––––––– –––––––––––––– (469,767) –––––––––––––– –––––––––––––– 22001133 NNuummbbeerr 2012 Number 8844,,008888,,221177 –––––––––––––– –––––––––––––– 76,664,624 –––––––––––––– –––––––––––––– Basic and diluted loss per share are the same as the effect of the outstanding share options is anti-dilutive. 1122.. FFIINNAANNCCIIAALL AASSSSEETT IInnvveessttmmeenntt GGrroouupp At the beginning of the year Additions At the end of the year 22001133 € 2012 € - 44,,221111,,112233 –––––––––––––– - - –––––––––––––– 44,,221111,,112233 –––––––––––––– - –––––––––––––– On 14 August 2013 the company announced that through its wholly owned subsidiary, Petrel Resources (TCI) Limited, it had acquired a 20 per cent shareholding in Amira Hydrocarbons Wasit B.V.(“Amira”) from Amira Petroleum N.V. Amira is a special purpose vehicle which holds a 25 per cent carried to production interest in an early stage oil opportunity in the large, underexplored and underdeveloped province of Wasit. Although the company owns 20 per cent of Amira, it does not have significant influence over Amira. Petrel does not have any representation on the Board of Amira. It does not have the right to participate in any financial or operating policy decisions. As a result Amira does not meet the definition of an associate and is treated as an investment. The consideration for the Acquisition comprised an up-front cash payment of US$500,000 and the issue of 18,947,368 shares in Petrel (“Initial Consideration Shares”), representing 19.82 per cent of the enlarged issued share capital of Petrel. The Initial Consideration Shares are locked-in until the spudding of the first conventional oil well in respect of Amira’s interest in the Wasit province. If the Spudding Date has not occurred by 19 August 2018, Petrel may, amongst other things, elect to re-acquire the Initial Consideration Shares for a nominal amount. Petrel Resources Plc Annual Report and Accounts 2013 3399 301100 Petrel Accounts 23/06/2014 16:21 Page 40 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 1122.. FFIINNAANNCCIIAALL AASSSSEETT ((ccoonnttiinnuueedd)) Following completion of the Acquisition, a further 21,052,632 shares in Petrel may be issued in two tranches upon the occurrence of certain events (“Deferred Consideration Shares”). The first tranche of 10,526,316 Deferred Consideration Shares is to be issued upon the Spudding of the first conventional oil well. The second tranche of 10,526,316 Deferred Consideration Shares is to be issued upon notification of a discovery in respect of Amira’s interest in the Wasit Province. As part of the Acquisition, Arman Kayablian, COO of Amira Industries, joined the board of Petrel as a non-executive director with effect from 19 August 2013. Under the terms of the Acquisition agreement, Petrel is also given a right of first refusal to participate or acquire an operated interest in any future exploration and production licences that Amira Industries secures in the Iraqi provinces of Muthanna, Karbala, Babil and Najaf, which are currently being pursued by Amira Industries. The terms of Petrel’s participation in such licence are subject to agreement between the parties but are likely to be similar to Amira Industries’ arrangement with Oryx Petroleum (“Oryx”) in respect of the Wasit licences. Fair value information for the investment in Amira has not been disclosed as its fair value cannot be reliably measured. As a result the investment is carried at amortised cost. Fair value cannot be reliably measured as the investment is held in a private company. The company’s equity instruments do not have a quoted price in an active market. The recoverability of the group’s financial asset is dependent on the discovery and successful development of the economic reserves which is subject to a number of risks as outlined in Note 1 (xi). 1133.. IINNTTAANNGGIIBBLLEE AASSSSEETTSS EExxpplloorraattiioonn aanndd eevvaalluuaattiioonn aasssseettss:: CCoosstt:: Opening balance Additions Impairment charge Exchange translation adjustment Closing balance SSeeggmmeennttaall AAnnaallyyssiiss Iraq Ghana Ireland Petrel Resources Plc Annual Report and Accounts 2013 4400 GGrroouupp 22001133 € 2012 € CCoommppaannyy 22001133 € 2012 € 33,,442244,,004499 776600,,660088 ((1199,,665588)) ((114477,,001177)) –––––––––––– 44,,001177,,998822 –––––––––––– –––––––––––– 2,700,960 793,475 (20,066) (50,320) –––––––––––– 3,424,049 –––––––––––– –––––––––––– 33,,441122,,881122 776600,,660088 ((1199,,665588)) ((114477,,001177)) –––––––––––– 44,,000066,,774455 –––––––––––– –––––––––––– 2,689,723 793,475 (20,066) (50,320) –––––––––––– 3,412,812 –––––––––––– –––––––––––– GGrroouupp 22001133 € 22,,338822,,118855 666622,,994433 997722,,885544 –––––––––––– 44,,001177,,998822 –––––––––––– –––––––––––– Group 2012 € 2,292,050 607,134 524,865 –––––––––––– 3,424,049 –––––––––––– –––––––––––– 301100 Petrel Accounts 23/06/2014 16:21 Page 41 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 1133.. IINNTTAANNGGIIBBLLEE AASSSSEETTSS ((ccoonnttiinnuueedd)) Exploration and evaluation assets at 31 December 2013 represent exploration and related expenditure in respect of projects in Ireland, Iraq and Ghana. The directors are aware that by its nature there is an inherent uncertainty in relation to the recoverability of amounts capitalised on the exploration projects. In addition, the current economic and political situation in Iraq is uncertain. During the year the group incurred expenditure of €19,658 on minor projects in Africa. These projects were terminated during 2013 and the assets were impaired to nil. In 2012, the directors decided to impair in full the Morocco and Guinea exploration and evaluation assets to nil, amounting to a total impairment charge of €20,066. The decision was taken as the projects were terminated during the year and the assets were impaired to nil. Relating to the remaining exploration and evaluation assets at the year end, the directors believe there were no facts or circumstances indicating that the carrying value of the intangible assets may exceed their recoverable amount and thus no impairment review was deemed necessary by the directors. The realisation of these intangible assets is dependent on the successful discovery and development of economic reserves and is subject to a number of significant potential risks, as set out in Note 1 (xi). The Group is currently seeking clarification from the Ghanaian authorities that a petroleum agreement in the Tano Basin block ratified by the Ghanaian parliarment in March 2014 does not relate to an area covered by the licence held by Petrel Resources plc. The Group has been granted an interlocutory injunction and interim order protecting the Group’s rights in the Tano Basin block. Further details are set out in Note 25. Directors’ remuneration of €175,000 (2012: €150,000), salaries of €110,000 (2012: €110,000) and share based payments of €13,436 (2012: €Nil) were capitalised as exploration and evaluation expenditure during the year. 1144.. IINNVVEESSTTMMEENNTT IINN SSUUBBSSIIDDIIAARRIIEESS CCoommppaannyy At beginning of the year Additions At end of the year 22001133 € 2012 € 1111,,223377 33,,778822 –––––––––––––– 1155,,001199 –––––––––––––– –––––––––––––– 11,237 - –––––––––––––– 11,237 –––––––––––––– –––––––––––––– On 6 August 2013 the company acquired 5,000 shares of US$1 each in Petrel Resources (TCI) Limited, being 100% of that company’s issued share capital. Petrel Resources (TCI) Limited was formed to acquire the 20% shareholding in Amira Hydrocarbons Wasit B.V. Details of the acquisition are provided in Note 12 above. The directors are satisfied that the carrying value of the investment is not impaired. The realisation of the investment in subsidiaries is dependent on the discovery and successful development of economic reserves and is subject to a number of significant potential risks, as set out in Note 1 (xi). Petrel Resources Plc Annual Report and Accounts 2013 4411 301100 Petrel Accounts 23/06/2014 16:21 Page 42 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 1144.. IINNVVEESSTTMMEENNTT IINN SSUUBBSSIIDDIIAARRIIEESS ((ccoonnttiinnuueedd)) The Group consisted of the parent company and the following wholly owned subsidiaries as at 31 December 2013: NNaammee NNaattuurree ooff BBuussiinneessss RReeggiisstteerreedd OOffffiiccee Petrel Industries Limited Dormant 162 Clontarf Road, Dublin 3, Ireland Petrel Resources of the Middle East Offshore S.A.L. Dormant Damascus Street Beirut, Lebanon Petrel Resources (TCI) Limited Holding Duke Street, Grand Turk, Turks & Caicos Island SShhaarree 100% 100% 100% The company also holds a 30% interest in Pan Andean Resources Limited, an early stage exploration company incorporated in Ghana. Pan Andean Resources Limited has not traded since incorporation. 1155.. TTRRAADDEE AANNDD OOTTHHEERR RREECCEEIIVVAABBLLEESS VAT refund due Other receivables Due by subsidiaries (Note 7) GGrroouupp 22001133 € Group 2012 € CCoommppaannyy 22001133 € Company 2012 € 2299,,991199 44,,112255 - –––––––––––– 3344,,004444 –––––––––––– –––––––––––– 24,634 18,832 - –––––––––––– 43,466 –––––––––––– –––––––––––– 2299,,991199 44,,112255 44,,220077,,334411 –––––––––––– 44,,224411,,338855 –––––––––––– –––––––––––– 24,634 18,832 - –––––––––––– 43,466 –––––––––––– –––––––––––– The carrying value of trade and other receivables approximates to their fair value. The realisation of amounts due by subsidiaries is dependent on the discovery and successful development of economic reserves and is subject to a number of significant potential risks, as set out in Note 1 (xi). 1166.. CCAASSHH AANNDD CCAASSHH EEQQUUIIVVAALLEENNTTSS GGrroouupp 22001133 € Group 2012 € CCoommppaannyy 22001133 € Company 2012 € Cash and cash equivalents 11,,442255,,002255 –––––––––––– –––––––––––– 3,015,858 –––––––––––– –––––––––––– 11,,442255,,002255 –––––––––––– –––––––––––– 3,015,858 –––––––––––– –––––––––––– Cash at bank earns interest at floating rates on daily bank rates. The fair value for cash and cash equivalents is €1,425,025 (2012: €3,015,858) for Group and €1,425,025 (2012: €3,015,858) for Company. The Group and Company only deposits cash surpluses with major banks. Petrel Resources Plc Annual Report and Accounts 2013 4422 301100 Petrel Accounts 23/06/2014 16:21 Page 43 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 1177.. TTRRAADDEE AANNDD OOTTHHEERR PPAAYYAABBLLEESS Accruals Other payables GGrroouupp 22001133 € Group 2012 € CCoommppaannyy 22001133 € Company 2012 € 291,518 119,308 –––––––––––– 410,826 –––––––––––– –––––––––––– 269,959 137,236 –––––––––––– 407,195 –––––––––––– –––––––––––– 291,518 119,308 –––––––––––– 410,826 –––––––––––– –––––––––––– 269,959 137,236 –––––––––––– 407,195 –––––––––––– –––––––––––– It is the Group’s normal practice to agree terms of transactions, including payment terms, with suppliers. It is the Group’s policy that payments are made between 30 - 45 days and suppliers are required to perform in accordance with the agreed terms. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. The carrying value of trade and other payables approximates to their fair value. 1188.. FFIINNAANNCCIIAALL IINNSSTTRRUUMMEENNTTSS The Group and Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The Group and Company holds cash as a liquid resource to fund the obligations of the Group. The Group’s cash balances are held in Euro, Sterling and in US dollar. The Group’s strategy for managing cash is to maximise interest income whilst ensuring its availability to match the profile of the Group’s expenditure. This is achieved by regular monitoring of interest rates and monthly review of expenditure. The Group and Company has a policy of not hedging due to no significant dealings in currencies other than euro and dollar denominated transactions and therefore takes market rates in respect of foreign exchange risk; however, it does review its currency exposures on an ad hoc basis. The Group and Company has relied upon equity funding to finance operations. The directors are confident that adequate cash resources exist to finance operations for future exploration but expenditure is carefully managed and controlled. The carrying amounts of the Group and Company's foreign currency denominated monetary assets and monetary liabilities at the reporting dates are as follows: GGRROOUUPP AANNDD CCOOMMPPAANNYY Sterling US Dollar 1199.. FFIINNAANNCCIIAALL RRIISSKK MMAANNAAGGEEMMEENNTT AAsssseettss 22001133 € Assets 2012 € LLiiaabbiilliittiieess 22001133 € Liabilities 2012 € 199,163 1,221,141 –––––––––––– –––––––––––– 3,325 3,012,289 –––––––––––– –––––––––––– 8,275 1,969 –––––––––––– –––––––––––– 50,297 32,159 –––––––––––– –––––––––––– The Group’s financial instruments comprise cash balances and various items such as trade receivables and trade payables which arise directly from exploration and evaluation activities. The main purpose of these financial instruments is to provide working capital to finance Group operations. Petrel Resources Plc Annual Report and Accounts 2013 4433 301100 Petrel Accounts 23/06/2014 16:21 Page 44 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 1199.. FFIINNAANNCCIIAALL RRIISSKK MMAANNAAGGEEMMEENNTT ((ccoonnttiinnuueedd)) The Group and Company do not enter into any derivative transactions, and it is the Group's policy that no trading in financial instruments shall be undertaken. The main financial risk arising from the Group’s financial instruments is currency risk. The board reviews and agrees policies for managing financial risks and they are summarised below. Interest rate risk profile of financial assets and financial liabilities The Group finances its operations through the issue of equity shares, and had no exposure to interest rate agreements at the year end date. LLiiqquuiiddiittyy RRiisskk As regards liquidity, the Group’s policy is to ensure continuity of funding primarily through fresh issues of shares. Short-term funding is achieved through utilizing and optimising the management of working capital. All financial liabilities are due within 1 year from the year end. The directors are confident that adequate cash resources exist to finance operations in the short term, including exploration and development expenditure. FFoorreeiiggnn CCuurrrreennccyy RRiisskk The Group has transactional currency exposures. Such exposures arise from expenses incurred by the Group in currencies other than the functional currency. The Group seeks to minimise its exposure to currency risk by closely monitoring exchange rates, and maintaining a level of cash in foreign denominated currencies sufficient to meet planned expenditure in that currency. Foreign currency denominated assets and liabilities are set out in Note 18. CCrreeddiitt rriisskk The maximum credit exposure of the group and company at 31 December 2013 amounted to €1,459,069 and €5,666,411 respectively relating to cash and cash equivalents and receivables. The directors believe there is limited exposure to credit risk on the group and company’s cash and cash equivalents as they are held with major financial institutions. The credit risk on receivables is significant and their recoverability is dependent on the discovery and successful development of economic reserves by those subsidiary undertakings. Given the nature of the group’s business significant amounts are required to be invested in exploration and evaluation activities at various locations. The directors manage this risk by reviewing expenditure plans in relation to projects before any monies are advanced. CCaappiittaall MMaannaaggeemmeenntt The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. The Group does not hold any external debt and is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes during the years ended 31 December 2013 and 31 December 2012. 2200.. SSHHAARREE CCAAPPIITTAALL AAuutthhoorriisseedd:: 200,000,000 ordinary shares of €0.0125 Petrel Resources Plc Annual Report and Accounts 2013 4444 GGrroouupp aanndd CCoommppaannyy 22001133 € 2012 € 22,,550000,,000000 –––––––––––––– –––––––––––––– 2,500,000 –––––––––––––– –––––––––––––– 301100 Petrel Accounts 23/06/2014 16:21 Page 45 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 2200.. SSHHAARREE CCAAPPIITTAALL ((ccoonnttiinnuueedd)) AAllllootttteedd,, ccaalllleedd--uupp aanndd ffuullllyy ppaaiidd:: At 31 December 2012 and 1 January 2013 Issued during the year At 31 December 2013 NNuummbbeerr SShhaarree CCaappiittaall € SShhaarree PPrreemmiiuumm € 958,308 287,717 76,664,624 23,017,368 17,784,268 3,631,817 –––––––––––––– –––––––––––––– –––––––––––––– 2211,,441166,,008855 –––––––––––––– –––––––––––––– –––––––––––––– –––––––––––––– –––––––––––––– –––––––––––––– 9999,,668811,,999922 11,,224466,,002255 MMoovveemmeennttss iinn sshhaarree ccaappiittaall On 13 August 2013 the company issued 18,947,368 new ordinary shares to Amira Petroleum N.V. at a price of 20c per share as part consideration for the acquisition of a 20 per cent shareholding in Amira Hydrocarbons Wasit B.V. Details of this acquisition are provided in Note 12. On 17 December 2013 the directors of the company exercised 4,070,000 options at exercise prices ranging from 2.5p to 5p. 2211.. SSHHAARREE BBAASSEEDD PPAAYYMMEENNTT The Group issues equity-settled share-based payments to certain directors and individuals who have performed services for the Group. Equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured by the use of a Black-Scholes model. OOppttiioonnss The Group plan provides for a grant price equal to the average quoted market price of the ordinary shares on the date of grant. The options vest immediately. OOppttiioonnss Year ended YYeeaarr eennddeedd YYeeaarr eennddeedd Year ended 3311//1122//22001133 3311//1122//22001133 31/12/2012 31/12/2012 Weighted average exercise price in cent WWeeiigghhtteedd aavveerraaggee eexxeerrcciissee pprriiccee iinn ppeennccee Options Outstanding at beginning of year Granted during the year Forfeited during the year Outstanding and exercisable at the end of year - 550000,,000000 - –––––––––––– 550000,,000000 –––––––––––– –––––––––––– - 1100..5500 - –––––––––––– 1100..5500 –––––––––––– –––––––––––– 200,000 - (200,000) –––––––––––– - –––––––––––– –––––––––––– 178 - (178) –––––––––––– - –––––––––––– –––––––––––– The options outstanding at 31 December 2013 had a weighted average exercise price of 10.50p, and a weighted average remaining contractual life of 6.97 years. During the year ended 31 December 2013, 500,000 options were granted with a fair value of €26,870. These fair values were calculated using the Black-Scholes valuation model. Petrel Resources Plc Annual Report and Accounts 2013 4455 301100 Petrel Accounts 23/06/2014 16:21 Page 46 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 2211.. SSHHAARREE BBAASSEEDD PPAAYYMMEENNTT ((ccoonnttiinnuueedd)) The inputs into the Black-Scholes valuation model were as follows: GGrraanntt 2211 DDeecceemmbbeerr 22001133 Weighted average share price at date of grant (in pence) Weighted average exercise price (in pence) Expected volatility Expected life Risk free rate Expected dividends 10.50p 10.50p 41.5% 7 years 0.5% none Expected volatility was determined by management based on their cumulative experience of the movement in share prices over the year. The terms of the options granted do not contain any market conditions within the meaning of IFRS 2. The group capitalised expenses of €13,436 relating to equity-settled share-based payment transactions during the year. At 31 December 2013, there were 350,000 (2012: 4,420,000) options in existence which are not accounted for under IFRS2 as the options were granted after 7 November 2002 and had vested by 1 January 2006 (date of transition to IFRS). 2222.. PPRROOFFIITT AATTTTRRIIBBUUTTAABBLLEE TTOO PPEETTRREELL RREESSOOUURRCCEESS PPLLCC In accordance with Section 148 (8) of the Companies Act, 1963 and Section 7 (1A) of the Companies (Amendment) Act, 1986, the company is availing of the exemption from presenting its individual profit and loss account to the Annual General Meeting and from filing it with the Registrar of Companies. The total comprehensive loss for the year in the parent company was €745,235 (2012: €577,145) which includes exchange loss on translation of €218,452 (2012: loss of €107,378). 2233.. NNOONN--CCAASSHH TTRRAANNSSAACCTTIIOONNSS On 13 August 2013 the company issued 18,947,368 new ordinary shares to Amira Petroleum N.V. at a price of 20c per share as part consideration for the acquisition of a 20 per cent shareholding in Amira Hydrocarbons Wasit B.V. Details of this acquisition are provided in Note 12. 2244.. CCAAPPIITTAALL CCOOMMMMIITTMMEENNTTSS There were no capital commitments at the balance sheet date. Petrel Resources Plc Annual Report and Accounts 2013 46 301100 Petrel Accounts 23/06/2014 16:21 Page 47 Notes To The Financial Statements (continued) For the Year Ended 31 December 2013 2255.. PPOOSSTT BBAALLAANNCCEE SSHHEEEETT EEVVEENNTTSS On 4 March 2014 the company announced that it had finalised an 85% farm-out agreement with Woodside, Australia on its offshore Ireland acreage. The agreement covers all of Petrel’s participating interest in Licensing Option 11/6 (comprising offshore blocks 45/6, 45/11 and 45/16) and Licensing Option 11/4 (comprising offshore blocks 35/23, 35/24 and the western half of 35/25). Woodside will be operator of the licensing options. Petrel had a carrying value of €972,854 in relation to its Irish licenses at the balance sheet date. On 25 March 2014 the Group noted press reports and speculation regarding the ratification by the Ghanaian Parliament of a petroleum agreement in the Tano Basin block. The Group holds a 30 per cent interest in the Tano 2A Block. As a precautionary measure the Group applied for injunctive relief to prevent the award of any part of the Tano 2A Block to a third party, while they seek clarification that the ratification does not relate to an area covered by the Tano 2A Block. On 8 April 2014 the High Court of Ghana granted an interlocutory injunction and also an interim order for the protection of the Group’s rights in the Tano 2A Block. On 4 June 2014 the legal proceedings being pursured by the Group were temporarily adjourned while dicussions take place with the Ghanaian authorities. 2266.. CCOONNTTIINNGGEENNTT LLIIAABBIILLIITTIIEESS There are no contingent liabilities (2012:€Nil) other than those disclosed in Note 12. Petrel Resources Plc Annual Report and Accounts 2013 47 301100 Petrel Accounts 23/06/2014 16:21 Page 48 Notice of Annual General Meeting Notice is hereby given that an Annual General Meeting of Petrel Resources plc will be held on 31 July 2014 in the Westbury Hotel, Grafton Street, at 11 am for the following purposes: OOrrddiinnaarryy BBuussiinneessss 1. To receive and consider the Directors Report, Audited Accounts and Auditors Report for the year ended December 31, 2013. 2. 3. 4. 5. To re-appoint director: David Horgan retires in accordance with Article 95 and seeks re-election. To elect director: Arman Kayablian retires in accordance with Article 101 and seeks election. To re-appoint Deloitte & Touche as auditors and to authorise the directors to fix their remuneration. To transact any other ordinary business of an annual general meeting. By order of the Board: James Finn Secretary 24 June 2014 Registered Office: 162 Clontarf Road, Dublin 3. Note: A member of the company who is unable to attend and vote at the above Annual General Meeting is entitled to appoint a proxy to attend, speak and vote in his stead. A proxy need not be a member of the Company. To be effective, the Form of Proxy duly signed, together with the power of attorney (if any) under which it is signed, must be deposited at the Company’s Registrars, Computershare Investor Services (Ireland) Ltd., Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, not less than forty- eight hours before the time appointed for the Meeting or any adjournment thereof at which the person named in the Form of Proxy is to vote. Petrel Resources Plc Annual Report and Accounts 2013 48 301100 Petrel Cover 24/06/2014 12:56 Page 2 FFrroonntt CCoovveerr Licence Blocks awarded to Petrel Resources in the 2011 Licence Option Round. Stratigraphic column identifying Petrel’s reservoir targets. Directors and Other Information CCUURRRREENNTT DDIIRREECCTTOORRSS SSEECCRREETTAARRYY RREEGGIISSTTEERREEDD OOFFFFIICCEE AAUUDDIITTOORRSS BBAANNKKEERRSS SSOOLLIICCIITTOORRSS NNOOMMIINNAATTEEDD BBRROOKKEERR && AADDVVIISSOORR RREEGGIISSTTRRAATTIIOONN NNUUMMBBEERR AAUUTTHHOORRIISSEEDD CCAAPPIITTAALL J. Teeling (Chairman) D. Horgan (Executive Director) A. Kayablian (appointed 19 August 2013) J. Finn 162 Clontarf Road Dublin 3 Telephone: Fax: E-Mail: Website: 353-1-833 2833 353-1-833 3505 info@petrelresources.com www.petrelresources.com Deloitte & Touche Chartered Accountants and Statutory Audit Firm Deloitte & Touche House Earlsfort Terrace Dublin 2 Allied Irish Bank plc. 140 Lower Drumcondra Road Dublin 9 Commerzbank AG Gallusanlage 60329 Frankfurt McEvoy Partners 27 Hatch Street Lower Dublin 2 Northland Capital Partners Limited 131 Finsbury Pavement London EC2A 1NT 92622 200,000,000 €0.0125 Ordinary Shares CCUURRRREENNTT IISSSSUUEEDD CCAAPPIITTAALL 99,681,992 Ordinary Shares MMAARRKKEETT NNUUMMBBEERR OOFF SSHHAARREEHHOOLLDDEERRSS AIM 1,612 301100 Petrel Cover 24/06/2014 12:56 Page 1 Petrel Resources Plc P e t r e l R e s o u r c e s P l c A n n u a l R e p o r t & A c c o u n t s Y e a r e n d e d 3 1 D e c e m b e r 2 0 1 3 Corporate Office: 162 Clontarf Road, Dublin 3, Ireland. Tel: +353 (0)1 833 2833 Fax: + 353 (0)1 833 3505 Company Registration Number: 92622 www.petrelresources.com Annual Report and Accounts Year ended 31 December 2013 

Continue reading text version or see original annual report in PDF format above