Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
ZENITH ENERGY LTD.
ANNUAL REPORT AND FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 2020
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
CONTENTS
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5
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38
COMPANY INFORMATION
CHAIRMAN’S STATEMENT
CEO STATEMENT
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
DIRECTORS' REPORT
GOVERNANCE REPORT
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
COMPANY INFORMATION
Directors
Dr. Jose Ramon Lopez-Portillo (Chairman and Non-Executive Director)
Andrea Cattaneo (Chief Executive Officer & President, Executive Director)
Luigi Regis Milano (Executive Director)
Dario Ezio Sodero (Non-Executive Director)
Erik Larre (Non-Executive Director)
Sergey Borovskiy (Non-Executive Director)
Registered Office
20th Floor, 250 Howe Street
Vancouver, BC V6C 3R8, Canada
Head Office
15th Floor, Bankers Court
850 – 2nd Street S.W., Calgary, Alberta, T2P 0R8 Canada
Telephone Number: +1 (587) 315 9031
Registered Corporation Number
BC0803216
Website
www.zenithenergy.ca
Corporate Broker
Allenby Capital Limited
5 St. Helen’s Place
London
EC3A 6AB, United Kingdom
Independent Auditor
PKF Littlejohn LLP
15 Westferry Circus Canary Wharf
London, E14 4HD, United Kingdom
Principal Bankers
Canadian Western Bank
Calgary Main
606-4 Street S.W.
Calgary Alberta T2P 1T1, Canada
Barclays Bank PLC
1 Churchill Place
Canary Wharf
London
E14 5HP, United Kingdom
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
COMPANY INFORMATION (CONTINUED)
Competent Person
Chapman Petroleum Engineering Ltd
1122 4th Street S.W., Suite 700
Calgary Alberta T2R 1M1, Canada
Depositary and Registrar
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, ON M5J 2Y1, Canada
Computershare Investor Services Plc
The Pavilions Bridgwater Road
Bristol, BS99 6ZZ, United Kingdom
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
CHAIRMAN’S STATEMENT
Introduction
In the year ended March 31, 2020, a number of material changes took place with regards to the Group’s
development strategy and geographic concentration.
The Group is pursuing an ambitious acquisition campaign in Africa by maximizing the use of its financial
resources to enrich its portfolio. This opportunity has arisen as a result of the significant decline in oil prices
caused by the COVID-19 pandemic. The Group has acquired a highly prospective production, development and
exploration assets in the Republic of the Congo and after the year end in Tunisia.
The Board believes this strategy will enable Zenith to develop successfully and, in doing so, create value for all
stakeholders.
New African development strategy
On March 2, 2020, the Company announced that, in view of Zenith's strategic focus on pursuing large-scale oil
production and development opportunities in Africa, it would return the Contract Rehabilitation Area (“CRA”)
to SOCAR.
The Group had difficulties increasing production from the CRA and was unable to satisfy the minimum
production levels which the Group was contractually obligated to meet within a specified time frame in
accordance with the REDPSA, as disclosed in the Prospectus document published in January 2017 for Admission
to the London Stock Exchange and other key documents. The aforementioned, as well as the Group’s future
investment obligations required to increase production from the CRA, led the Board of Directors to
unanimously agree, in the interests of shareholders, that the Group’s future success could be better achieved
in other assets with existing production and near-term development and exploration potential in Africa. These
operations are shown as discontinued within the financial statements.
The low oil price environment has facilitated access to a number of highly attractive acquisition opportunities
as a result of large international oil companies restructuring their portfolios and selling their working interests
in small to medium size assets across the region at advantageous commercial terms.
On April 20, 2020, and on September 8, 2020, Zenith entered into two separate conditional acquisitions in
Tunisia from KUFPEC and CNPC respectively, two world-renowned oil companies, for their respective working
interests in the Sidi El Kilani Concession. Upon completion, conditional upon regulatory approval being granted
by the Comité Consultatif des Hydrocarbures ("CCH") of the Republic of Tunisia, it is expected that Zenith will
have a daily production ranging between 250-300 barrels of oil per day. The Board of Directors is highly
satisfied with the commercial terms agreed for the transaction and is currently exploring further opportunities
of this kind.
The acquisition of Anglo African Oil & Gas Congo S.A.U ("AAOG Congo") from AAOG plc (a company quoted on
the AIM of the London Stock Exchange), the former operator of the highly prospective Tilapia license in the
Republic of the Congo, represents a potentially transformational opportunity for the Group. The Board is
pleased to have been able to renegotiate the initially agreed consideration of £1 million for an 80% interest
(announced on December 27, 2019) to a final consideration of £200,000 for a 100% interest in AAOG Congo
(announced on April 17, 2020). The acquisition of AAOG Congo has not only enabled Zenith to acquire an
existing operator in the Republic of the Congo, but also US$5.3 million in receivables owed to AAOG Congo by
Société Nationale des Pétroles du Congo (“SNPC”), the national oil company of the Republic of the Congo,
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
which will be offset by a US$2 million signature bonus payable to the Republic of the Congo as part the
application for a new licence.
The Tilapia licence expired in July 2020 and the Group has submitted a comprehensive commercial and
technical offer to the Ministry of Hydrocarbons of the Republic of the Congo for the award of a new 25-year
license for the Tilapia oilfield. The Group has established Zenith Energy Congo SA (“Zenith Congo”), at the
request of the Ministry of Hydrocarbons of the Republic of the Congo, for the purpose of participating in the
bid process and it is hoped that it will receive a new 25-year license for the Tilapia oilfield.
We thank shareholders for their support during what have been unprecedented times and we look forward
with enthusiasm to delivering on our publicly announced objectives.
Production activities
During the financial year ended March 31, 2020, the Group:
a) Produced 74,290 bbls of oil from its assets in Azerbaijan, as compared to 85,524 bbls of oil
produced in the 2019 similar period.
b) Sold 70,005 bbls of oil from its assets in Azerbaijan, as compared to 75,913 bbls of oil sold in the
2019 similar period. As of March 31, 2020, inventory consists of CAD $14k (2019 – CAD $nil) of
crude oil that has been produced but not yet sold, and CAD $785k of materials (2019 – CAD $156k).
c) Sold 17,666 mcf of natural gas from its Italian assets, as compared to 10,868 mcf of natural gas in
the 2019 similar period.
d) Sold 10,500 MWh of electricity from its Italian electricity production assets, as compared to 9,433
MWh for the corresponding period of 2019.
e) Sold 214 bbls of condensate from its Italian assets, as compared 628 bbls of condensate in the
2019 similar period.
Financing activities
The Company issued equity during the course of the financial year ended March 31, 2020, raising a combined
net total of CAD$11.5m to finance its operational activities and finance the purchase of key operational
equipment for the development of its operational activities in Azerbaijan. The funding was also used to
finance the Group’s development strategy in Africa.
During the year, 316,645,857 new common shares were issued, as detailed in the financial statements (note
16).
On January 20, 2020, the Company announced the issuance of the following unsecured, multi-currency Euro
Medium Term Notes, governed by Austrian law, at par value (the "Notes"):
• EURO 1,000,000 bearing interest of 10.125 per cent per year (the "EUR-Notes")
• GBP 1,000,000 bearing interest of 10.50 per cent per year (the "GBP-Notes")
• USD 1,000,000 bearing interest of 10.375 per cent per year (the "USD-Notes")
• CHF 1,000,000 bearing interest of 10.00 per cent per year (the "CHF-Notes")
The Notes were issued, and kept in Treasury, under Zenith's EUR 25,000,000 multi-currency Euro Medium
Term Notes Programme, as announced by the Company on November 6, 2019, and will be due on January 27,
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
2024. The Notes were admitted to trading on the Third Market (MTF) of the Vienna Stock Exchange ("Wiener
Borse AG"). As of March 31, 2020, the Company sold Notes for GBP 76,000 and USD$30,000.
The issue of the Notes is aligned with the Company's strategy of diversifying its financing towards non-equity
dilutive funding to support its successful development.
Financial Results
The Group recorded an after-tax loss of CAD$570,309k for the year ended March 31, 2020, compared to a loss
of CAD$9,762k for the year ended March 31, 2019. This result was brought about by the loss from discontinued
operations (CAD$580,633), related to the results of the subsidiary in Azerbaijan, explained in note no. 21 of
these financial statements.
Group production costs for the year were CAD$2,364k, compared to CAD$530k in 2019.
Finance expense for the year was CAD$1,742k (2019: CAD$1,121k expense).
Cash balances of CAD$ 1,220k (2019: CAD$3,058k) were held at the end of the financial year.
Total equity attributable to the ordinary shareholders of the Group was CAD$9,829k as of March 31, 2020,
(2019: CAD$569,081k).
Dr. José Ramón López-Portillo
Chairman
October 28, 2020
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
CEO STATEMENT
Zenith Energy Ltd. (“Zenith” or “the Group”) is an international oil and gas production Group, incorporated in
Canada, listed on the Main Market for listed securities of the London Stock Exchange under the ticker symbol
“ZEN” and on the Merkur Market of the Oslo Børs under the ticker “ZENA:ME”. The Company has also issued
two series of EMTN, that are listed on the third Vienna Stock Exchange Market.
Zenith’s strategic objective is to become a mid-tier, Africa focused hydrocarbon production and exploration
Group. Specific attention is directed towards assets with proven development potential via development
drilling, field rehabilitation, and low-risk exploration activities.
In view of the recent decline in oil prices, as well as macroeconomic developments caused by the COVID-19
pandemic, opportunities have arisen for companies such as Zenith to acquire, at highly commercially
advantageous terms, oil and gas production and exploration assets being divested by many oil majors and
leading oil and gas companies. As a leadership team, we are seeking to maximize this opportunity in order to
ensure Zenith emerges from the current low oil price environment a much stronger and larger entity with
significant future development potential.
We are very pleased to have entered into two separate conditional transactions in relation to an onshore oil
production asset in Tunisia. The first with KUFPEC, a subsidiary of Kuwait Petroleum Corporation, and the
second with CNPC, one of the largest oil and gas corporations in the world, and KUFPEC, to acquire their
respective working interests of 22.5% in the Sidi El Kilani Concession and the North Kairouan permit in Tunisia,
which contain the producing Sidi El Kilani oilfield. We look forward to receiving regulatory approval from
the Comité Consultatif des Hydrocarbures of the Republic of Tunisia in respect of the transfer of ownership for
both acquisitions within the next 60 days.
Similarly, we are delighted to have established a presence in the Republic of the Congo following our
acquisition of Anglo African Oil & Gas Congo S.A.U (“AAOG Congo”), the former Congolese subsidiary of Anglo
African Oil & Gas plc (a company listed on the AIM of the London Stock Exchange) in May 2020. The decline in
oil prices brought about by the COVID-19 pandemic, as well as renegotiations with the seller, enabled Zenith
to acquire, at highly advantageous terms, an interest, albeit brief, in the now expired Tilapia II license (expired
on July 18, 2020), as well as receivables of approximately US$5.3 million dollars owed by SNPC (Société
Nationale des Pétroles du Congo).
As publicly announced, the Company has presented a comprehensive commercial and technical offer (the
“Offer”) to the Ministry of Hydrocarbons of the Republic of the Congo in order to be awarded a new 25-year
license for the Tilapia oilfield (to be named Tilapia II). We are confident that we shall be successful in obtaining
a new 25-year license. In the event our Offer is accepted, the Company will look to deploy its 1,200hp drilling
rig in the Republic of the Congo in order to begin drilling activities in well TLP-103C.
We are aware that the Company’s operational track record in Azerbaijan, and the handover of the Contract
Rehabilitation Area (“CRA”) to SOCAR announced to the market on March 2, 2020, disappointed market
expectations. However, in view of the significant resources deployed to date and the future obligations
required for future development, as well as the underwhelming operational results, the Board of Directors is
firmly of the view that this outcome was in the best interests of shareholders and the future commercial
success of the Company. The operational challenges, as publicly communicated on a number of occasions, was
due, inter alia, to the severely dilapidated condition of the wells from the Soviet era, the unreliability of
historical data, and the highly challenging geology of the field.
The results for the year ended March 31, 2020, (“2020 FY”) reflect the significant changes the Group has
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
undergone during the course of the 2020 Financial Year, specifically in result of the impairment resulting from
the handover of the CRA in Azerbaijan and its associated reserves.
We are very excited about our countercyclical acquisition campaign in Africa in the current low oil price
environment, especially the highly prospective development production potential of the Tilapia oilfield and
the material daily production revenue to be obtained from completion of our acquisitions in Tunisia. Indeed,
we are hopeful to conclude further acquisitions of a similar kind in due course.
I thank shareholders for their loyal support. As is clear, my confidence in Zenith, as well as that of the team,
remains unchanged. We fully believe that our new geographic concentration in Africa, in less geologically
challenging assets acquired at highly advantageous commercial terms, will enable the Group to achieve its
operational objectives and deliver value to our investors.
The Board is committed to sustained growth and exploiting any value accretive opportunities that may present
themselves. We shall continue to evaluate the acquisition of additional energy production opportunities
building on the momentum of our recent progress to further support the Group’s expansion.
Andrea Cattaneo
President, CEO and Director
October 28, 2020
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Directors
Dr. Jose Ramon Lopez-Portillo (Chairman and Non-Executive Director)
Mr. Lopez-Portillo has been managing Director and then Chairman of the Board since 24 September 2007. He
is an economist with a large network of business contacts worldwide, and who previously served as Mexican
Permanent Representative in Rome, Italy. Mr. Lopez- Portillo is a leading researcher in the energy security of
Mexico and acts as Deputy Minister at Mexico’s Planning and Budget Secretariat. Mr. Lopez-Portillo holds a
Doctorate degree in Political Sciences and International Relations from the University of Oxford.
Andrea Cattaneo (Director, President and CEO)
Mr. Cattaneo has been a Director of the Company since 9 December 2008 and has served as President and
CEO of the Group since 2009. He is an energy specialist with a focus on emerging countries and has 30 years’
experience in advising governments in financial, industrial and energy-related matters. Mr. Cattaneo has
strong expertise and experience in structuring and negotiating contracts in the international markets,
specifically the oil industry. He also has significant experience in former socialist countries and arranged the
first US$ loan to Vietnam, the then third poorest county in the world, towards the beginning of his financial
career in 1985. Mr. Cattaneo holds an undergraduate degree in Economics from the University of Genoa and
a postgraduate degree in Taxation Law from the University of Bologna. He currently serves as Non-Executive
Member of the Anglo-Azerbaijan Society, Partner of the Buenos Aires Stock Exchange and Member of the
IADC Caspian Chapter Steering Committee. He is a former member of the Business Advisory Council to the
Great Tumen Initiative, a United Nations project for regional economic cooperation in Northeast Asia. He is
one of Zenith’s founders.
Luigi Regis Milano (Director)
Mr. Regis Milano was appointed as Director of the Company on 24 September 2008 and served as Chief
Financial Officer from 28 November 2012 until 7 March 2016. He is also currently Managing Director of the
Company’s Italian subsidiary, Canoel Italia S.r.l. He has a strong background in petroleum chemistry, having
developed an extensive network of relationships within the European and global oil industry over the course
of more than 60 years’ experience. He has acted as executive director for a large trading company specialising
in crude oil and petroleum products, and also as executive director of a large European refinery. He is
currently a director and part owner of an Italian oil refinery (and has been since 2000).
Dario Ezio Sodero (Non-Executive Director and Chairman of the Audit Committee)
Mr. Sodero was appointed to the Board on 24 June 2009. As an experienced energy industry executive with
47 years of experience in North America, the Sub-Arctic, North Africa and the Middle East, Mr. Sodero has
strong geological, exploration and technical expertise. Mr. Sodero has formerly acted as director and
executive of several other TSX- and TSXV-listed exploration and production companies. Mr. Sodero holds a
Doctorate degree in Geology from the University of Turin, Italy.
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Annual Report & Financial Statements
For the Year Ended March 31, 2020
Erik Larre (Non-Executive Director)
Mr. Larre has been a Director of the Company since 22 March 2011. Mr. Larre specialises in international real
estate development projects and banking. He has served as Deputy Chairman of Sparebanken Nord-Norge,
Member of the Supervisory Board at Sparebanken Vest and currently serves as Deputy Member of the Board
of Directors at SpareBank 1 Nord-Norge. Erik is also the director of several real estate companies in southern
Europe and the Middle East. By training Erik is an engineer and holds a master’s degree in Civil Engineering
from Milan Polytechnic University.
Sergey Borovskiy (Non-Executive Director)
Sergey Borovskiy has over 25 years of experience in business management in China and Hong Kong. He has
lived and worked in China since 1991 and is fluent in Russian, English and Mandarin.
Sergey is CEO of Sanju Environmental Protection (Hong Kong) Limited, overseeing the international projects of
controlling shareholder Sanju Group (sanju.cn), a company specialised
in energy purification and
environmental protection technologies listed on the Shenzen Stock Exchange.
He is CEO and Chairman of General Transactions Inc., an oil & gas consulting, engineering, trading, seismic
research and exploration services company. Sergey also serves as Chairman of the Board of Directors at Petro
Chemical Solutions and South China Heavy Industries Group. Sergey studied in both China and Russia and
holds a degree in economics.
Senior Management
Luca Benedetto (Chief Financial Officer)
Luca Benedetto is an Italian national, trained in Italy as a registered accountant with further education in IFRS
accounting and consolidation at IPSOA Milan. He has more than twenty-five years of accounting, auditing and
financial administration experience. Mr. Benedetto began his professional career as an accountant and
computer programmer responsible for financial software development and worked for the Italian division of
IBM as an internal auditor and accountant as well as providing staff training in these aforementioned fields.
He also served for seven years as a financial and administrative officer in a well-established Italian company
specialising in the construction of fuel and water storage tanks.
He joined the Zenith Energy Ltd. group in 2013 as Chief Financial Officer of the Group's Italian subsidiary,
Canoel Italia S.r.l., and has since progressed to also hold the position of Group Financial Controller. In this
capacity he has been directly involved in the monitoring of business performance, cash flow management,
budgetary oversight, accounts team supervision, accounts preparation and strategic planning. Since January
2016 he has also been responsible for the compiling and reviewing of the quarterly Consolidated Financial
Statements and Management's Discussion and Analysis of the Group.
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
DIRECTORS' REPORT
The Directors present their Annual Report and Financial Statements of the Group for the year ended March
31, 2020.
Delisting from TSX-V
On May 28, 2020, the Company announced that effective at the close of business Friday, May 29, 2020, the
common shares of the Company would be delisted from the TSX-V at Zenith's request.
As announced on April 22, 2020, following the Company's dual listing on the Main Market for listed securities
of the London Stock Exchange ("LSE") in January 2017 and the admission of its entire share capital to the
Merkur Market of the Oslo Stock Exchange ("Merkur Market") in November 2018, the Company has seen its
investor base move increasingly towards the UK and Norway, with limited investor support from the Canadian
market.
Given the aforementioned, and in light of the impact of the COVID-19 pandemic and low oil price environment,
the Company reviewed its corporate structure to maximize cost control and, following this review, elected to
delist from the TSX-V. The benefits of delisting include materially lower administrative costs, greater
operational efficiency and management time savings.
Financial review of activity for the period
The Group issued equity on a number of occasions during the financial year ended March 31, 2020, raising a
combined net total of CAD$11.534m to finance, in the first part of the financial year, its drilling activities and
the purchase of key operational equipment for the development of its assets in Azerbaijan. In the latter part
of the financial year, once the Group reconfigured its development strategy, it deployed the funds raised to
finance its new African development strategy.
During the year, 316,645,857 new Ordinary Shares were issued, as detailed in the financial statements (note
16) and as per the following table.
Number of
Shares
Balance – March 31, 2019
260,427,064
Unit private placement proceeds
Units issued in settlement of debt
Equity sharing agreement
Exercise of stock option
Issue costs
Total for the year
247,323,573
18,011,080
50,000,000
1,311,204
-
316,645,857
Amount
CAD$’000
28,866
9,515
748
1,389
158
(276)
11,534
Balance – March 31, 2020
577,072,921
40,400
Following the issue of the new Ordinary Shares, the Company had 577,072,921 common shares in issue and
admitted to trading on the Mekur Market of the Oslo Bors, as of March 31, 2020.
As of the same date, Zenith had 286,403,856 common shares in issue and admitted to trading on the Main
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Annual Report & Financial Statements
For the Year Ended March 31, 2020
Market of the London Stock Exchange.
Furthermore, to avoid the risk of the excessive dilution of the capital, the Company issued 2 different sets of
EMTN (Bond) accruing interest payable semi-annually and listed on the third Vienna Stock Exchange.
a. Zenith 8% EMTN - ISIN
AT0000A23S79
During the financial year 2019, the Group issued Loan Notes to finance its development activities in
Azerbaijan for a total amount of €3,120k (equivalent to CAD$4,759k), with the duration of 2 years.
During the financial year ended March 31, 2020, the Company issued additional loan Notes for a total
amount of €6,880k (equivalent to CAD$9.8M). The maturity date of the Notes is 20 December 2021, and
they carry an interest charge of 8% per annum, payable at maturity.
During the year ended March 31, 2020, the Company sold €1,837k (equivalent to CAD$2,617k) (2019 - €620k
(equivalent to CAD$883k)) of Zenith 8% EMTN – ISIN AT0000A23S79 and at March 31, 2020 had in treasury
€7,543k (equivalent to CAD$11,030k), ready to be sold.
b. Zenith EMTN Programme up to Euro 25+M
On January 20, 2020, the Company announced the issuance of the following unsecured, multi-currency Euro
Medium Term Notes, governed by Austrian law, at par value (the "Notes"):
• EURO 1,000,000 bearing interest of 10.125 per cent per year (the "EUR-Notes")
• GBP 1,000,000 bearing interest of 10.50 per cent per year (the "GBP-Notes")
• USD 1,000,000 bearing interest of 10.375 per cent per year (the "USD-Notes")
• CHF 1,000,000 bearing interest of 10.00 per cent per year (the "CHF-Notes")
The Notes were issued, and kept in Treasury, under Zenith's EUR 25,000,000 multi-currency Euro Medium
Term Notes Programme, as announced by the Company on November 6, 2019, and will be due on January
27, 2024. The Notes were admitted to trading on the Third Market (MTF) of the Vienna Stock
Exchange ("Wiener Borse AG"). As of March 31, 2020, the Company sold Notes for GBP76k (equivalent to
CAD$128k) and USD$30k (equivalent to CAD$40k). The balance of the Notes issued were kept in Treasury,
ready to be sold, at that date.
The issue of the Notes is aligned with the Group’s strategy of diversifying its financing towards non-equity
dilutive funding to support its successful development.
The EMTN Programme, created with the primary purpose of financing the Company’s development activities
in Azerbaijan, with the related Prospectus being approved on November 6, 2019. Since its strategic
reconfiguration, the Company has been using the EMTN Programme to finance its activities in the Republic of
the Congo, Tunisia and Italy.The Company chose the Vienna Stock Exchange as it was viewed as a highly
accessible market in terms of simplicity of process and listing costs.
On 30 June 2020, the Company announced that it had fully paid the semi-annual interest in relation to the
Notes. The most recent interest payment in relation to the Notes is the third such payment, with previous
interest payments having taken place during the months of June 2019 and December 2019 respectively.
On March 2, 2020, the Company announced that, in view of Zenith's strategic focus on pursuing large-scale oil
production and development opportunities in Africa, it would return the Contract Rehabilitation Area (“CRA”)
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Annual Report & Financial Statements
For the Year Ended March 31, 2020
to SOCAR. This return of the CRA to SOCAR resulted in the termination of the Group’s oil production operations
in Azerbaijan, and the consequent removal of the related economic and financial effects. This has had a
significant impact on the financial situation of the Group, specifically as the oil production revenues in
Azerbaijan are no longer available.
The Group’s yearly loss was mostly impacted by the loss from discontinued operations, related to the results
of write-off of the producing operations in Azerbaijan, better explained at note no. 21 of this document.
During the year the Group incurred Production costs of CAD$2,364k (2019 – CAD $530) and General and
Administrative costs of CAD$6,991k (2019 – CAD $6,429k). The comparative amounts contained the results
of the Azeri operations which was included within discontinued operations in the year ended March 31, 2020.
Cash flow
Cash used in investing activities totalled CAD$1,242k (2019 - CAD $4,827k). The cash from financing activities
in 2020 totalled CAD$11,465k (2019 - CAD $12,142k), due to the share placings, issue of convertible loans and
issue of bonds.
Closing cash
As of March 31, 2020, the Group held CAD$1,220k in cash (2019 - CAD $3,058k).
Position of Group’s business at the year end
The Group refocused the geographic area of its investment plans. In fact, on March 2, 2020, the Company
announced that, in view of Zenith's strategic focus on pursuing large-scale oil production and development
opportunities in Africa, it will hand over the Contract Rehabilitation Area to SOCAR.
The handover of the Contract Rehabilitation Area (“CRA”) was effectively concluded in June 2020. The Group
continued to operate the CRA from March 2020 until June 2020 when the handover of the CRA was completed.
The Group achieved a near total reduction of operating expenses in Azerbaijan upon completion of the
handover of the Contract Rehabilitation Area.
The Group explained this decision stating that initially in 2015, it viewed the Azeri acquisition as an important
opportunity and its main asset, which was acquired with no consideration because of the then-ongoing oil
crisis. This acquisition greatly helped the Group gain credibility and presence whilst it was preparing for
Admission to the London Stock Exchange Main Market.
However, after several years and more than US$5 million invested, the Company decided to abandon the
operations in Azerbaijan due to the challenging geology of the oilfield and its production reservoirs, the
unreliability of historical field data rendering the planning and execution of well interventions significantly
more difficult, as well as the poor condition of many of the Soviet-era wells. These were the contributing
factors which prevented the Group from achieving the minimum production levels which they were
contractually obligated to meet. The Group’s inability to meet these levels within a specified time period
resulted in a material breach of the contract. The Group entered into discussions with SOCAR and reached
agreement in March 2020 to handover the CRA and assets after a 3-month transition period. In addition, with
the environment of the country rapidly changing, the Company decided to reconfigure its strategy, having
deliberated that Zenith’s financial resources would be best deployed in new assets with less complex geological
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Annual Report & Financial Statements
For the Year Ended March 31, 2020
and technical profiles. This decision was additionally influenced by the Company’s success in establishing high-
level relationships in French speaking African countries. The CEO of the Group, as well as other Directors, are
French speaking individuals who have long-established professional relationships in Africa. Further, the Group
has established a network of advisors in Africa in support of its development strategy.
At the year end the Group's Statement of Financial Position shows current assets totaling CAD$15,943k (2019
– CAD$8,627k) and non-current assets totaling CAD$34,318k (2019 – CAD$ 1,080,061k).
Business strategy
As of the date of this report the Company’s primary activity is that of being an international oil and gas
production, development and exploration business. The Company has a portfolio of oil and gas assets in Italy
and Africa. The Group’s principal assets are held through: (i) its wholly-owned subsidiary, Zenith Energy
Netherlands BV (“Zenith Netherlands”), which entered into a conditional agreement to acquire a 22.5%
interest in the Sidi El Kilani Concession in Tunisia from KUFPEC (announced to the market April 20, 2020) which
is subject to the regulatory approval of Comité Consultatif des Hydrocarbures of the Republic of Tunisia; (ii)
Zenith Netherlands entered into a second conditional agreement to acquire a 22.5% interest in the Sidi El Kilani
Concession in Tunisia from CNPC International (Tunisia) Ltd (announced to the market on September 8, 2020)
(iii) its wholly-owned subsidiary, Anglo African Oil e Gas Congo SAU (“AAOGC”) which is expected to hold a 56%
majority interest in, and be the operator of, the Tilapia oilfield in the Republic of the Congo upon acceptance
of the comprehensive commercial and technical offer to the Ministry of Hydrocarbons by the Republic of the
Congo in order to be awarded a new 25-year license for the Tilapia oilfield; and (iv) Canoel Italia S.r.l. (in which
the Company has a 98.64% shareholding), which holds various working interests in 13 onshore exploration and
production properties in Italy.
The Company’s strategy is, among other things, to (i) grow through international acquisitions; (ii) increase the
production and reserves from its international inventory of oil and gas assets; (iii) target its operations at areas
with advantageous access points for its exploration activities with a reasonably stable economic and business
environment; (iv) develop a balanced portfolio of short, medium and long-term opportunities; (v) seek
innovative ways to unlock value; (vi) achieve and maintain a robust, well-funded business with the financial
flexibility to fund high-impact exploration, appraisal and development programmes; and (vii) unlock oil and
gas reserves still unexploited in old and marginal oil and gas fields through the use of new technology.
Principal risks and uncertainties
The Group operates in an uncertain environment and is subject to a number of risk factors. The Directors
consider the following risk factors are of particular relevance to the Group's activities and to any investment
in the Group. It should be noted that the list is not exhaustive and that other risk factors not presently known
or currently deemed immaterial may apply. The risk factors are summarised below:
The impact of global oil prices on the Company
Demand for oil and gas is closely related to the health of the world economy while supply is determined more
by political matters. The price of oil and gas is set at a global level with small variances for local conditions.
Zenith is a very small producer and the price it receives for the oil and gas it produces is determined by global
supply and demand factors beyond its control.
Oil and gas prices depend on numerous factors over which the Group does not have any control, including
global supply, international economic trends (such as the current downturn caused by COVID-19), currency
exchange fluctuations, inflation, consumption patterns and global or regional political events.
15
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
The Group’s financial performance may therefore be substantially impacted both positively and negatively by
factors. Changes in global prices for oil and gas may result in the Group no longer being able to produce oil
and/or gas on a profitable basis. Historically, international crude oil and natural gas prices have fluctuated
widely. A material decline in the price of crude oil or natural gas would have a material adverse effect on the
Group’s financial results and reserves estimates.
A substantial portion of the Group’s assets and operations outside of Europe are exposed to political and
economic risks, and future disruptions may have a material adverse effect on THE GROUP’s business
A significant portion of the Group’s oil and gas assets and of the Group’s supply sources is located in countries
outside of the European Union – with developing economies or unstable political environments. As a result, a
significant portion of the Group’s revenue is derived from, or is dependent on, countries in which the Group’s
operations are exposed to economic and political risks, including expropriation and nationalisation of property,
civil strife and acts of war or terrorism. In addition, in certain countries in which the Group is active, it may be
difficult to repatriate investment and profits. If it is perceived that the Group is not respecting or advancing the
economic and social progress of the communities in which it operates, its reputation and shareholder value
could be damaged. Any future disruptions may have a material adverse effect on the Group’s business, results
of operations and financial condition.
Activities in the oil and gas sectors can be dangerous, posing health, safety and environmental risks
Oil and natural gas exploration, development and production operations are subject to all the risks and hazards
typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour
gas releases and spills, each of which could result in substantial damage to oil and natural gas wells, production
facilities, other property as well as the environment or personal injury.
In particular, the Group may produce sour natural gas in certain areas. An unintentional leak of sour natural
gas could result in personal injury, loss of life or damage to property and may necessitate an evacuation of
populated areas, all of which could result in a liability to the Group.
In accordance with industry practice, the Group is not fully insured against all of these risks, nor are all such
risks insurable. Although the Group maintains liability insurance (in respect of its Italian operations only) in an
amount that it considers consistent with industry practice, the nature of these risks is such that liabilities could
exceed policy limits, in which event the Group could incur significant costs. Oil and natural gas production
operations are also subject to all the risks typically associated with such operations, including encountering
unexpected formations or pressures, premature decline of reservoirs and the invasion of water into producing
formations.
Losses resulting from the occurrence of any of these risks may have a material adverse effect on the Group's
business, financial condition, results of operations and prospects.
Risks relating to the Group's business strategy
The Group is dependent on the ability of the Directors to identify suitable investment opportunities and to
implement the Group's strategy. There is no assurance that the Group's activities will be successful in
implementing its strategy or acquiring a suitable investment that will ultimately be developed.
16
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Environmental and other regulatory requirements
The event of a breach with any environmental or regulatory requirements may give rise to reputational,
financial or other sanctions against the Group, and therefore the Board considers these risks seriously and
designs, maintains and reviews its policies and processes so as to mitigate or avoid these risks. Whilst the
Board has a good record of compliance, there is no assurance that the Group's activities will always be
compliant.
Government intervention and regulation may have a material adverse effect on Zenith’s business. Zenith
might not be able to comply with its obligations under licences.
The oil and gas industry is subject to regulation and intervention by governments, in particular in matters such
as the award of exploration and production interests, restrictions on production and exports, environmental
measures, control over the development and abandonment of fields and installations, the nationalization or
renationalization of assets, imposition of specific drilling obligations, environmental and health and safety
protection controls and other risks relating to changes in local government regimes and policies.
In addition, Zenith has to comply with conditions contained in licenses, such as operating permits. A failure by
Zenith to comply with substantial conditions might lead to governmental intervention. Any violations of
substantial conditions may therefore have a material adverse effect on Zenith’s business, results of operations
and financial condition.
Zenith buys, sells and trades oil and gas products in certain regulated commodity markets. The oil industry is
also subject to the payment of royalties and taxation, which tend to be high compared with those payable in
respect of other commercial activities, and operates in certain tax jurisdictions that feature a degree of
uncertainty relating to the interpretation of, and changes to, tax law. As a result of new laws and regulations
or government interventions, Zenith could be required to curtail or cease certain operations, or Zenith could
incur additional costs, all of which may have a material adverse effect on Zenith’s business, results of
operations and financial condition.
Lack of diversification of the Company’s business activity
The Company is currently only involved in oil production in Africa and natural gas and electricity production in
Italy. Therefore any legal, regulatory or other change of the framework conditions in one of those national
industries may have a substantial negative effect on the financial situation of the whole Group, since it will
likely not be able to compensate negative effects that appear in one field of business with its business activities
in another area of operations.
Financing
The Board are seeking to grow and acknowledge that financing could depend upon the Group's ability to
obtain financing primarily through a further raising of new equity capital. The Group's ability to raise further
funds may be affected by the success of its investments both in terms of both in terms of acquisitions and
developing its asset base. The Group may not be successful in procuring the requisite funds on terms which
are acceptable to it (or at all) and, if such funding is unavailable, the Group may be required to reduce the
scope of its operations. Further, Shareholders' holdings of Ordinary Shares may be materially diluted if debt
financing is not available.
17
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Brexit
The Group does not foresee any material issues with Brexit at this stage and indeed would not look to
conclude any transaction where the possibility of a detrimental effect caused by Brexit would be likely. There
may be issues raising funds from investors in the short term however investor markets in the UK have
continued to be strong and it remains too early to say if there will be any direct impact. The Directors continue
to monitor events and as the Directors receive more information from the Government and the EU, they will
assess the impact to the Group and take appropriate steps as required.
COVID-19
The recent global health crisis brought about by the COVID-19 pandemic has affected the Group’s business
operations in a very limited manner. More particularly, only its operations in Italy were affected to a limited
degree because third-party employees working on the concessions were working a reduced regime as per
government guidelines.
However, it should be underlined that the crisis has proven favourable for the Group’s acquisition campaign in
Africa. Specifically, the Group has been able to obtain favourable commercial terms in its conditional
agreement for the acquisition of onshore production acreages in Tunisia and an acquisition in the Republic of
the Congo. The decline in oil prices caused by the COVID-19 pandemic has therefore been beneficial to the
Group in pursuing its acquisition activities.
In addition, management has taken significant steps during 2020 to reduce the Group's cost base to help the
Group navigate a more challenging macro-economic environment as a result of the COVID-19 pandemic. While
significant cost savings have been identified and implemented, additional funds will still need to be raised to
enable the Group to remain in operation for the foreseeable future. At the date of preparing these financial
statements, this funding has not been secured. This represents a material uncertainty regarding the ability of
the Group to continue as a going concern.
Market conditions
Market conditions, including general economic conditions and their effect on exchange rates, interest rates
and inflations rates, may impact the ultimate value of the Group regardless of its operating performance. The
Group also faces competition from other organizations, some of which may have greater resources or be more
established in a particular territory. The Board considers and reviews all market conditions to try and mitigate
any risks that may arise from these.
18
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Substantial shareholders
As of October 23, 2020, the total number of issued Ordinary Shares with voting rights in the Company was:
Class of share
Total number of
shares
Number of
voting rights
per share
Total number of voting
rights per class of share
Common Shares in issue and admitted
to trading on the Main Market of the
London Stock Exchange
Common Shares in issue and admitted
to trading on the Merkur Market of the
Oslo Børs - representing the total
outstanding common share capital of
the Company
313,400,824
1,042,072,921
1
1
313,400,824
1,042,072,921
Zenith holds 25,395,828 Common Shares in treasury. The above figure for total number of Common Shares
may be used by shareholders in the Company as the denominator for the calculations by which they will
determine if they are required to notify their interest in, or a change to their interest in, the Company under
the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.
Directors interest
This table represents the Directors interests in the Company, as of the date of publication of this report:
PARTY NAME
ANDREA CATTANEO
ERIK LARRE (1)
LUIGI REGIS MILANO (2)
SERGEY BOROWSKIY
DARIO SODERO (3)
JOSE RAMON LOPEZ-PORTILLO
2020
2019
NUMBER OF
ORDINARY
SHARES
57,984,115
4,334,068
10,813,674
3,849,289
77,500
48,000
% OF SHARE
CAPITAL
5.56
0.42
1.04
0.37
0.01
0.01
NUMBER OF
ORDINARY SHARES
21,007,911
4,334,068
8,662,963
-
77,500
48,000
% OF SHARE
CAPITAL
6.72
1.39
2.77
-
0.02
0.01
1) Mr. Larre controls no. 4,334,068 Common Shares of the Company in indirect ownership. The 4,334,068 Common Shares in which
Erik Larre has a beneficial interest are held by Tonsenhagen Forretningssentrum, a company controlled by Mr. Larre. Mr. Larre
owns 100% of the share capital of Tonsenhagen Forretningssentrum.
2) Mr. Regis Milano controls 2,150,711 Common Shares of the Company in direct ownership and 8,662,963 Common Shares in
19
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
indirect ownership.
The 8,662,963 Common Shares stated for Luigi Regis Milano are held by Pole Position SRL, a company controlled by members of
Mr. Regis Milano’s immediate family. The relevant members of Mr. Regis Milano’s immediate family own 100% of the share capital
of Pole Position SRL. Mr. Regis Milano is also the sole director of Pole Position SRL
3) Mr. Sodero controls 77,500 Common Shares of the Company in indirect ownership. The 77,500 Common Shares in which Dario
Sodero has a beneficial interest are held by Planaval Resources Ltd., a company controlled by Mr. Sodero. Mr. Sodero owns 100%
of the share capital of Planaval Resources Ltd.
The Company has been notified of the following interests of 3 per cent or more in its issued share capital as at
the date of approval of this report.
2020
2019
PARTY NAME
NUMBER OF
ORDINARY
SHARES
57,984,115
ANDREA CATTANEO
46,500,000
DEAN ANTONY CLARK
MITON UK MICROCAP TRUST PLC 19,848,312
11,556,167
MIRABAUD & CIE SA
% OF SHARE
CAPITAL
NUMBER OF ORDINARY
SHARES
5.56
4.46
1.90
1.11
21,007,911
28,000,000
13,848,312
11,556,167
% OF SHARE
CAPITAL
6.72
8.96
4.43
3.70
Dividends
The Directors do not propose a dividend in respect of the year ended March 31, 2020 (March 31, 2019: nil).
Events subsequent to the year end
Details of events subsequent to the year-end are set out in note 31.
Going concern
The Group's business activities, together with facts likely to affect its future operations and financial and
liquidity positions are set out in the Chairman's Statement. In addition, note 26 to the financial statements
discloses the Group's financial risk management policy and note 2 details out further considerations made by
the Director in respect of going concern. Their consideration has included a review of forecasts and an
assessment as to whether the Tilapia Oilfield licence will be granted to the Group.
The Directors therefore have made an informed judgment, at the time of approving the financial statements,
that there is a reasonable expectation that the Group has access to adequate resources to continue in
operational existence for the foreseeable future. As a result, the Directors have adopted the going concern
basis of accounting in the preparation of the annual financial statements. Further details on assumptions and
conclusions drawn on going concern are included in the statement of going concern included in note 2 to the
financial statements.
The auditors have made reference to going concern by way of a material uncertainty in their audit report.
20
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Auditors
The auditors, PKF Littlejohn LLP, have expressed their willingness to continue in office and a resolution to
reappoint them will be proposed at the Annual General Meeting.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with
applicable law and regulations.
The Directors are required to prepare financial statements for each financial year. The Directors have elected
to prepare the consolidated financial statements in accordance with International Financial Reporting
Standards (IFRSs) as issued by the International Accounting Standards Board (“IASB”). The Directors must not
approve the financial statements unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and of the profit or loss of the Group for that year. In preparing these financial statements,
the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgments and accounting estimates that are reasonable and prudent;
• State whether applicable IFRSs as issued by the IASB have been followed, subject to any material
departures disclosed and explained in the financial statements; and
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that
the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group.
They are also responsible for safeguarding the assets of the Group, 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 Group's website.
Disclosure of information to auditors
So far as the Directors are aware, there is no relevant audit information of which the Group's auditors are
unaware, and each Director has taken all the steps that he ought to have taken as a Director in order to make
himself aware of any relevant audit information and to establish that the Group's auditors are aware of that
information.
Approved by the Board dated on October 28, 2020
Signed .................................................
Jose Ramon Lopez-Portillo Chairman
21
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
GOVERNANCE REPORT
General
As Zenith Energy Ltd has a standard listing within the United Kingdom, it is not required to comply with the
Financial Conduct Authority’s requirements report on compliance with, and application of, the UK Corporate
Governance Code. The disclosures below, however, are required by Disclosure Guidance & Transparency Rules
and NI 58-101 Disclosure of Corporate Governance Practices. The board of directors (the “Board”) of Zenith
Energy Ltd. (the “Company”) has not adopted a Governance Code as the size of the Company and the number
of staff at the parent Company does not warrant the adoption of such code, however, the Board recognizes
that good corporate governance is of fundamental importance to the success of the Group and procedures are
in place in operating entities.
The Group’s governance practices are the responsibility of the Board.
Leadership
The Group is headed by an effective Board which is collectively responsible for the long-term success of the
Group. The role of the Board is to oversee the activity of management and to decide the strategy going
forward. The role of the Non-Executive Directors is to review and monitor the activity of the Directors and
managers that are involved in the operations of the Group. Acquisitions and disposals, borrowing facilities,
equity issuances and any other major decisions out of the ordinary course of business are specifically reserved
for the Board.
The Board is formed by a highly incentivized and committed group of indviduals, including founders of the
Group with significant interest in the common share capital of the Group, that understand and believe in the
Group’s strategy, providing their support even without an effective remuneration, waiting for the desired
development to lead to financial conditions such that the recognition of a fee does not divert funds from
investments.
Mr Borowskiy was unable to attend certain Board meetings due to other professional commitments and time
zone differences. However, he has provided consistent support and constant interaction with the Company’s
management, specifically in relation to the Company’s fruitful new relationship with CNPC.
Mr. Larre has been heavily engaged in his own important investment projects and, during the year, was unable
to attend Board meetings. It is expected that Mr. Larre will stand down as a Non-Executive Director at the next
AGM.
22
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
The Directors attendance to meetings up to the date of this report was as follows:
Date of Board
Meeting
29/07/2019 (AC)
29/08/2019 (B)
11/11/2019 (AC)
11/11/2019 (B)
11/02/2020 (B)
12/02/2020 (AC)
13/04/2020 (B)
Jose
Ramon
Lopez-
Portillo
✔
✔
✔
✔
✔
Andrea
Cattaneo
Luigi Regis
Milano
Dario Ezio
Sodero
Erik Larre
Sergey
Borowskiy
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
AC: Audit Committee Meeting – B: Board Meeting
23
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
The Board
The Board is ultimately responsible for the effectiveness of the Group’s system of internal controls. The Board
verifies the implementation and effectiveness of the system that the top and middle management have
implemented in the Group to prevent losses, fraud, corruption and missuse of assets, human resources and
cash. Its key strategy has been to establish financial reporting procedures that provide the Board of Directors
with a reasonable basis to make judgements as to the financial position and prospects of the Group.
Executive directors and non-executive directors have been appointed by the Board to assist with the
implementation of this strategy and report progress to the Board. All the non-executive directors are
considered independent from executive directors and management.
The Group’s board of directors consists of six members namely
•
•
•
•
•
•
Jose Ramon Lopez-Portillo (Chairman and Non-Executive Director)
Andrea Cattaneo (President, CEO and Director)
Luigi Regis Milano (Director)
Dario Ezio Sodero (Non-Executive Director)
Erik Larre (Non-Executive Director)
Sergey Borowskiy (Non-Executive Director)
As demonstrated by the background of the directors and managers, the Board present a large diversity in
citizenship, age, education, profession and religion. The Board is committed to equal opportunities and intends
to appoint a female Non-Executive Director in the near future.
Directorships and partnerships
In addition to their respective roles and directorships at the Group, the Directors are members of the
administrative, management or supervisory bodies (the “directorships”) or partners of the following
companies or partnerships:
Name
Jose Ramon Lopez-Portillo
Current directorships/partnerships
Hybridair Ltd
World SkyCat Ltd
Luigi Regis Milano
DP Lubrificanti S.r.l.
Pole Position S.r.l.
Andrea Cattaneo
–
Dario Ezio Sodero
Planaval Resources Ltd
Erik Larre
Sergey Borovskiy
Black Sea Property EME Int. Ltd
German Property AS TF Italia Srl
Tonsenhagen Forrenthingssentrum AS
Tonsenhagen Forrenthingssentrum 2
Sanju Environmental Protection (Hong Kong) Limited
General Transactions Inc.
Petro Chemical Solutions
South China Heavy Industries Group
24
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Orientation and continuing education
The Board is responsible for the orientation and education of new members of the board of directors and all
new directors are provided with copies of the Group’s board and committee mandates and policies, the
Group’s by-laws, documents from recent Board meetings and other reference materials relating to the duties
and obligations of directors, the business and operations of the Group. New directors are also provided with
opportunities for meeting and discussions with senior management and other directors.
Prior to joining the board, each new director will meet with the Chief Executive Officer of the Group. Such
officer is responsible for outlining the business and prospects of the Group, both positive and negative, with a
view to ensuring that the new director is properly informed to commence his duties as a director.
Each new director is also given the opportunity to meet with the auditors and counsel to the Group. As part of
the annual Board of Directors’ assessment process, the Board of Directors determines whether any additional
education and training is required for its members.
Ethical business conduct
The directors encourage and promote a culture of ethical business conduct through communication and
supervision as part of their overall stewardship responsibility. In addition, the Group has adopted a Code of
Conduct which addresses the Group’s continuing commitment to integrity and ethical behavior. The Code of
Conduct establishes procedures that allow directors, officers and employees of the Group to confidentially
submit their concerns to the Chief Executive Officer or the Chairman of the Board regarding questionable
ethical, moral, accounting or auditing matters, without fear of retaliation. To the Group’s knowledge there
have been no departures from this Code of Conduct that would necessitate the filing of a material change
report.
A copy of the Code of Conduct is available to review at the head office of the Group during business hours.
Nomination of Directors
The Board as a whole is responsible for identifying suitable candidates to be recommended for election to the
Board by the shareholders of the Group, with the goal of ensuring that the Board consists of an appropriate
number of directors who collectively possess the competencies identified as being appropriate to the
effectiveness of the Board as a whole.
Remuneration
The Remuneration Committee is responsible for reviewing the Group’s overall compensation strategy, as well
as being responsible for reviewing and recommending for approval the salaries and compensation of the
Group’s executive officers.
The Remuneration Committee also reviews the compensation of the outside directors on an annual basis,
taking into account such matters as time commitment, responsibility and compensation provided by
comparable organizations.
The remuneration for key management personnel, specifically those persons having authority and
responsibility for planning, directing and controlling the activities of the Group, either directly or indirectly, are
detailed in the following note 7-b) Key management compensation
25
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Board Committees
The Group’s Board of Directors has three committees, the Audit Committee, the Remuneration Committee
and the Corporate Governance Committee.
(a)
Audit Committee
The Audit Committee comprises Jose Ramon Lopez-Portillo, Dario Sodero and Erik Larre and is chaired
by Dario Sodero. The Audit Committee meets at least three times a year and otherwise as required. It
has responsibility for ensuring that the financial performance of the Company is properly reported on
and reviewed, and its role includes monitoring the integrity of the financial statements of the Group
(including annual and interim accounts and results announcements), reviewing the effectiveness of the
Group’s internal control review function and risk management systems, reviewing any changes to
accounting policies, reviewing and monitoring the extent of the non-audit services undertaken by
external auditors and advising on the appointment of external auditors. The Audit Committee has
unrestricted access to the Group’s external auditors. The ultimate responsibility for reviewing and
approving the annual reports and accounts and the interim reports remains with the Board. The Audit
Committee gives due consideration to laws and regulations and the requirements of the Listing Rules.
The Group has an Audit Committee Charter.
(b)
Remuneration Committee
The Remuneration Committee comprises Jose Ramon Lopez-Portillo, Dario Sodero and Erik Larre and is
chaired by Jose Ramon Lopez-Portillo. The Remuneration Committee has not met during the year ended
31 March 2020. The Remuneration Committee has responsibility for determining the Group’s policy on
the remuneration packages of the Group’s chief executive, the chairman, the executive and non-
executive directors and other senior executives. The Remuneration Committee also has responsibility
for (i) recommending to the Board a compensation policy for directors and executives and monitoring
its implementation; (ii) approving and recommending to the Board and the Group’s Shareholders the
total individual remuneration package of the chairman, each executive and non-executive director and
the chief executive officer (including bonuses, incentive payments and share options or other share
awards); and (iii) approving and recommending to the Board the total individual remuneration package
of all other senior executives (including bonuses, incentive payments and share options or other share
awards), in each case within the terms of the Group’s remuneration policy and in consultation with the
chairman of the Board and/or the chief executive officer. No Director or manager may be involved in
any discussions as to their own remuneration.
(c)
Corporate Governance Committee
The Corporate Governance Committee comprises Sergey Borovskiy, Dario Sodero and Jose Ramon
Lopez-Portillo and is chaired by Sergey Borovskiy. The Corporate Governance Committee has not met
during the year ended 31 March 2020. The Corporate Governance Committee ensures that the Group
has in place sufficient procedures, resources and controls to enable it to comply with its continuing
obligations as a company admitted to the Standard Segment of the Official List. The Corporate
Governance Committee also monitors the Group’s procedures to approve (a) announcements to ensure
that the information disclosed by the Group is timely, accurate, comprehensive and relevant to the
business of the Group and (b) any share dealings by directors or employees or announcements made by
the Group to ensure compliance with the Group’s policies, the Market Abuse Regulation, the Disclosure
Guidance and Transparency Rules and the Listing Rules and such other regulations to which the Group
is subject from time to time.
26
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Assessments
The Remuneration Committee is responsible for developing an annual assessment of the overall performance
of the Board and its committees.
The objective of this review is to contribute to a process of continuous improvement in the Board’s execution
of its responsibilities. To date, the Remuneration Committee and the Board have not put into place a formal
process for assessing the effectiveness of the Board as a whole, its committees or individual directors, but will
consider implementing one in the future should circumstances warrant. Based on the Group’s size, its stage of
development and the number of individuals on the Board of Directors, the Remuneration Committee and the
Board consider a formal assessment process to be inappropriate at this time. The Remuneration Committee
and the Board plan to continue evaluating the Board’s effectiveness on an ad hoc basis.
27
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ZENITH ENERGY
LIMITED
Opinion
We have audited the financial statements of Zenith Energy Ltd (‘the group’) for the year ended 31 March 2020
which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows
and notes to the financial statements, including a summary of significant accounting policies. The financial
reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the International Accounting Standards Board (IASB).
In our opinion, the group financial statements:
• give a true and fair view of the state of the group’s affairs as of 31 March 2020 and of its loss for the
year then ended; and
• have been properly prepared in accordance with IFRSs as adopted by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. In addition, for the purposes of the group’s regulatory filing requirements as a reporting issuer in Canada,
we have also conducted our audit in accordance with International Standards on Auditing as issued by the
International Auditing and Assurance Standards Board (ISAs (IAASB)). Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section
of our report.
We are independent of the group in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and the
International Ethics Standards Board for Accountants’ Code of Ethics, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to note 2 in the financial statements, which indicates that the Group is required to
raise additional funds within the going concern period in order to continue developing its oil and gas
projects and to simultaneously satisfy loan repayments which are due within the going concern period.
The Group has not secured these funds at the date of this report. As stated in note 2, these events or
conditions indicate that a material uncertainty exists that may cast significant doubt on the Group’s
ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Our application of materiality
Group materiality 2020
Group materiality 2019
Basis for materiality
CAD$530k
CAD$10,800k
4% of net assets excluding net assets
acquired on business combination
28
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
The basis of materiality represents a change from that used to calculate the materiality in 2019 which was 1%
of gross assets. We considered net assets excluding those acquired in the business combination during the
year to be the most relevant consideration of the group’s financial performance as the group focuses on a new
geographical strategy. We consider this is likely to be the most stable metric at a time when the structure of
the group is changing significantly.
Whilst materiality for the financial statements as a whole was CAD$530k, each significant component of the
group was audited to a level of materiality ranging between CAD$120k – CAD$400k. We applied the concept
of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
agreed with the audit committee that we would report to the committee all individual audit differences
identified during the course of our audit in excess of CAD$26.5k (2019: CAD$540k). There were no
misstatements identified during the course of our audit that were individually, or in aggregate, considered to
be material.
An overview of the scope of our audit
In designing our audit, we determined materiality, as above, and assessed the risks of material misstatement
in the financial statements. In particular, we looked at areas involving significant accounting estimates and
judgements by the directors and considered future events that are inherently uncertain. These include the Key
Audit Matters, including going concern. We also addressed the risk of management override of internal
controls, including among other matters consideration of whether there was evidence of bias that represented
a risk of material misstatement due to fraud. Of the ten reporting components of the group, an audit was
performed on the financial information of six components. The other four components were not deemed to
be significant but two of them had material balances and were subject to limited review procedures. The
remaining two components were deemed not significant or material and as such these components were
subject to analytical review procedures at group level.
Of the six reporting components subject to an audit of the financial information, one was located in Azerbaijan
and we had oversight of, and regular communication with, the component auditor who was operating under
our instructions. A further component was located in The Republic of the Congo and we had oversight of, and
regular communication with, the component auditor who was operating under our instructions. The audit of
the remaining four components subject to an audit of their financial information was carried out by ourselves
along with the limited review procedures and analytical review procedures on the non-significant components.
An audit file review of the non-PKF component auditors were performed by members of the Group audit team.
This, in conjunction with additional procedures performed, gave us sufficient appropriate evidence for our
audit opinion on the Group financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on:
the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the Material uncertainty related to going concern section we have
determined the matters described below to be the key audit matters to be communicated in our report.
29
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Key Audit Matter
How the scope of our audit responded to the key audit matter
Carrying value of Property, Plant and
Equipment (“PPE”) (refer to notes 4 and 11)
The carrying value of PPE in the financial
statements is CAD$34.3m which represents
67% of the Group’s total assets.
Included within PPE is CAD$20.1m of assets
which were acquired in the business
combination of AAOG for which a purchase
price allocation (“PPA”) is not yet available. The
carrying value also includes CAD$14.2 million
of PPE in respect of the Group’s producing
assets in Italy and its Dubai entity. The Group
has fully impaired the PPE in Azerbaijan
resulting in a charge to the statement of
comprehensive income of CAD$1,065m.
Management are required to use their
estimation and judgement in assessing the
carrying value of PPE for impairment and for
this reason, we consider the carrying value of
PPE to be a key audit matter.
In addition, the following external indications
of impairment existed at 31 March 2020:
• The carrying amount of the Group’s
net assets exceed the market
capitalisation; and
• Global oil and gas prices have been
impacted as a result of COVID-19 as
well as other factors and these will
directly impact the value in use
calculation.
Our work in this area included:
• Obtaining the board approved impairment
assessment paper and challenging the key
assumptions and estimations therein;
• Reviewing management’s assessment of recoverable
amount (likely a VIU calculation) and critically
assessing all inputs;
• Reviewing the underlying economic models used in the
Comptent Persons Report (“CPR”) from which the
valuation arises and challenging the key assumptions
therein including:
o Ensuring that the Competent Person had the
relevant expertise to perform their work to the
appropriate level of skill;
o Comparing commodity price assumptions to future
prices;
o Challenging key inputs into the models including
the discount rates used and benchmarking them
where appropriate;
o Reviewing the CPR for mathematical accuracy and
performing sensitivity analysis of the various
underlying assumptions;
o Assessing the carrying value by considering the
range of valuations indicated by the differing
scenarios;
o Considering the ability of the group to perform the
required site development to ensure the site can
meet production levels included in and underlying
the CPR valuation and to have access to the capital
resources
projects
to
successfully;
required
develop
o A review of historical forecasts/budgets against
actual to assess the ability of management and
their experts to accurately forecast; and
30
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Key Audit Matter
How the scope of our audit responded to the key audit matter
• Reviewing the work performed by the component
auditors and requesting additional procedures where
required.
We draw attention to note 4 and note 11 of the financial
statements which explains that the Tilapia licence, which
is central to generating returns from the AAOG
acquisition, expired in July 2020 and the Group is waiting
to hear on the outcome of a competitive tender process.
An unsuccessful outcome may result in the impairment of
the related PPE which would likely have a material impact
on the financial statements.
Our opinion is not modified in this respect.
Key Audit Matter
How the scope of our audit responded to the key audit matter
Business combination and fair value
accounting (refer to notes 4 and 6)
During the period under review management
undertook a material transaction in respect of
the acquisition of AAOG. Management have
not completed a purchase price allocation
(“PPA”) in respect of the business combination
and have used provisional values to account for
the transaction as at 31 March 2020.
Management have undertaken to engage a top
10 accounting firm to complete the PPA but
this exercise has not been started at the date
of this report.
In the absence of a formal PPA, management
have used their estimation and judgement in
accounting for the acquisition of AAOG in line
with IFRS 3 Business combinations including
their provisional assessment of the fair values
of the net assets acquired. We consider the
business combination accounting to be a key
audit matter.
Our work in this area included:
• Obtaining and reviewing the terms within the
acquisition agreement and assessing them in
accordance with the control criteria in IFRS 3 to
ascertain if a business combination had taken
place;
• Critically reviewing Management’s assessment of
the timing that the business combination took
place;
• Reviewing management’s assessment of fair value
and challenging all judgements and estimations
within that assessment;
• Obtaining and reviewing the latest CPR for
indication of impairment including direct
discussion with the preparer to discuss their
report;
• Reviewing the CPR for mathematical accuracy and
performing sensitivity analysis on the key inputs
and assumptions;
• Reviewing the CPR against performance to date
and budgeted performance including challenging
how management will meet the levels within the
CPR;
31
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Key Audit Matter
How the scope of our audit responded to the key audit matter
• Consideration of management’s ability to have
access to the capital resources to meet the
minimum required levels within the CPR; and
• Reviewing the work performed by the component
auditors and requesting additional procedures
where required.
We draw attention to note 4 and note 6 of the financial
statements which explains that management have
employed a third party to perform a PPA exercise in
respect of the acquisition of AAOG. This exercise remains
incomplete as at the date of signing the financial
statements therefore the amount included within these
financial statements represents managements best
provisional estimate but may be subject to change
following the external PPA exercise. The process
undertaken by management is in accordance with IFRS 3
“Business Combinations” which allows for up to one year
from the date of acquisition, being the measurement
period, for the completion of such an exercise.
The Tilapia licence, which is central to generating returns
from the AAOG acquisition, expired in July 2020 and the
Group is waiting to hear on the outcome of a competitive
tender process. An unsuccessful outcome may result in
the impairment of the fair valued acquired assets and
negatively impact the Group’s African expansion, as well
as the result of the third party PPA exercise.
The acquisition of AAOG resulted in Zenith obtaining a
receivable of US$5.3 million from the Congolese
government. The outcome of the competitive tender
process may impact the valuation and recoverability of
this balance.
Our opinion is not modified in this respect.
Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information. Our
opinion on the group financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that
32
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
fact.
We have nothing to report in this regard.
Responsibilities of Directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the
preparation of the group financial statements and for being satisfied that they give a true and fair view, and
for such internal control as the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the group financial statements, the directors are responsible for assessing the group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) or ISA (IAASB) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Joseph Archer (Engagement Partner)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
Date:
28 October 2020
15 Westferry Circus
Canary Wharf
London E14 4HD
33
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
Continuing operations
Revenue
Cost of sales
Production costs
Depletion and depreciation
Gross loss
Administrative expenses
Operating loss
Gain on business combination
Other gains and losses
Finance expense
Gain/(loss) for the year before taxation
Financial year ended
March 31,
2020
CAD $’000
735
March 31,
2019
CAD $’000
834
(2,364)
(846)
(2,475)
(6,991)
(9,466)
20,111
1,425
(1,742)
10,328
(530)
(425)
(121)
(6,429)
(6,550)
-
-
(1,121)
(7,671)
Note
11
5
6
8
9
Taxation
Gain/(loss) for the year from continuing operations
attributable to owners of the parent
10
(4)
(1)
10,324
(7,672)
Loss from discontinued operations (attributable to owners of
the parent)
21
Loss for the year attributable to owners of the parent
(580,633)
(570,309)
(2,090)
(9,762)
Other comprehensive income
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translating foreign operations, net
of tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to
owners of the parent
Earnings per share
Loss for the year - basic
Loss for the year – diluted
From continuing operations - basic
From continuing operations - diluted
From discontinued operations - basic and diluted
The notes on pages 38 to 87 form part of the Financial Statements.
34
23
(651)
(651)
(132)
(132)
(570,960)
(9,894)
CAD $
(1.42)
(1.42)
0.03
0.03
(1.45)
CAD $
(0.04)
(0.04)
(0.03)
(0.03)
(0.01)
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
Non-current assets
Property, plant and equipment
Financial assets at amortised cost
Current assets
Inventory
Trade and other receivables
Director’s loan account
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital
Share warrants & option reserve
Contributed surplus
Retained earnings
Total equity
Non-current liabilities
Loans
Non-convertible bonds
Deferred consideration payable
Deferred tax liabilities
Decommissioning provision
Retirement provision
Total non-current liabilities
Note
11
12
13
14
7, 14
16
17
19
20
21
21
22
Current Liabilities
Trade and other payables
Loans
Non-convertible bonds
Deferred consideration payable
Total current liabilities
TOTAL EQUITY AND LIABILITIES
Approved by the Board dated on October 28, 2020
Signed .................................................
Jose Ramon Lopez-Portillo Chairman
The notes on pages 38 to 87 form part of the Financial Statements
18
19
20
21
35
Financial year ended
March 31,
2020
CAD $’000
March 31,
2019
CAD $’000
34,305
13
34,318
799
14,386
360
1,220
16,765
51,083
40,400
1,010
4,320
(35,901)
9,829
2,260
4,273
-
-
13,543
50
20,126
18,832
2,210
86
-
21,128
51,083
1,079,639
422
1,080,061
156
5,249
164
3,058
8,627
1,088,688
28,866
1,147
4,125
534,943
569,081
3,417
4,759
483,178
2,398
9,089
-
502,841
12,115
3,776
199
676
16,766
1,088,688
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
Balance as at 1 April 2018
Loss for the year
Other comprehensive income
Total comprehensive income
Share issue net of costs – debt settlement
Share issue net of costs - private placement
Value of warrants issued
Issue of options
Fair value of options expired
Warrants expired
Total transactions with owners recognised
directly in equity
Balance as at March 31, 2019
Loss for the year
Other comprehensive income
Total comprehensive income
Share issue net of costs – debt settlement
Share issue net of costs - private placement
Value of warrants issued
Exercise of options
Warrants expired
Total transactions with owners recognised
directly in equity
Balance as at March 31, 2020
Attributable to owners of the parent
Share
capital
Share
warrants
& option
reserve
Contributed
surplus
Retained
earnings
CAD $'000 CAD $'000
CAD $'000 CAD$'000
Total
CAD
$'000
22,792
-
-
-
371
5,703
-
-
-
-
6,074
28,866
-
-
-
748
10,628
-
158
-
11,534
40,400
875
-
-
-
-
-
167
928
(401)
(422)
272
1,147
-
-
-
-
-
174
(116)
(195)
(137)
1,010
3,390
544,837
571,894
-
-
-
-
-
-
-
313
422
735
(9,762)
(132)
(9,894)
-
-
-
-
-
-
(9,762)
(132)
(9,894)
371
5,703
167
928
(88)
-
-
7,081
4,125
534,943
569,081
-
-
-
-
-
-
-
195
195
(570,309)
(651)
(570,960)
-
-
-
116
-
(570,309)
(651)
(570,960)
748
10,628
174
158
-
116
11,708
4,320
(35,901)
9,829
Reserve
Share capital
Share warrants &
option reserve
Contributed surplus
Retained earnings
Description and purpose
Amount subscribed for share capital
Relates to increase in equity for services received – equity settled
share transactions
Expired share options and warrants issued in previous years
Cumulative net gains and losses recognised in the consolidated
statement of comprehensive income.
The notes on pages 38 to 87 form part of the Financial Statements
36
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
CONSOLIDATED STATEMENT OF CASH FLOWS
Financial year ended
March 31, 2020 March 31, 2019
CAD $’000
(9,761)
371
1,007
(441)
-
2,283
-
-
1,188
(1,401)
(6,754)
CAD $’000
(570,305)
-
174
(1,266)
(20,111)
846
578,104
(1,425)
1,742
180
(12,061)
105
(1,347)
-
(1,242)
10,689
158
(830)
(3,420)
2,004
3,058
(194)
-
11,465
(1,838)
3,058
1,220
(2,528)
(696)
-
(3,224)
-
(5,205)
378
(4,827)
5,703
-
-
(208)
2,109
1,099
(375)
3,814
12,142
561
2,497
3,058
(484)
(719)
3
(1,200)
OPERATING ACTIVITIES
Loss for the year before taxation
Shares issued for services
Options/warrants charge
Foreign exchange
Gain on business combination
Depletion and depreciation
Discontinued operations
Other gains and losses
Finance expense
Change in working capital
Net cash used in operating activities
INVESTING ACTIVITIES
Cash acquired on business combination
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash used in investing activities
FINANCING ACTIVITIES
Proceeds from issue of shares, net of transaction costs
Proceeds from exercise of options
Finance Expense
Repayments of loans
Proceeds from loans
Proceeds from issue of bonds
Repayment of bonds
Proceeds from bonds in treasury
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
17
11
21
8
9
15
6
11
11
9
19
19
20
20
The cash transactions from discontinued operations included above are as follows:
Operating activities
Investing activities
Financing activities
Net cash used in discontinued operations
37
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Notes to the financial statements
1. Corporate and Group information
The consolidated financial statements of Zenith Energy Ltd. and its subsidiaries (collectively, the “Group”)
have been prepared on the basis set out below. Zenith Energy Ltd are exempt from preparing separate
parent company financial statements for the year ended 31 March 2020 in line with the Canada Business
Corporations Act.
Zenith Energy Ltd. (“Zenith” or the “Group”) was incorporated pursuant to the provisions of the British
Columbia Business Corporations Act on September 20, 2007 and is domiciled in Canada. The address of
the Group’s registered office is 20th Floor, 250 Howe Street, Vancouver, BC. VC6 3R8, Canada and its
business address is 15th Floor, 850 - 2nd Street S.W., Calgary, Alberta T2P 0R8, Canada. The Group’s
primary business activity is the international development of oil and gas production and development
assets. As publicly reported, the Group is currently in the process of seeking to complete a number of
acquisitions in Africa.
The Company's website is www.zenithenergy.ca.
Zenith is a public company listed on the Main Market of the London Stock Exchange under the ticker
“ZEN”, and with its entire common share capital admitted to trading on the Merkur Market of the Oslo
Børs under the ticker “ZENA-ME”.
2. Basis of preparation
The consolidated financial statements presented in this document have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”).
The financial statements have been prepared under the historical cost convention except for financial
instruments which are measured at fair value through profit or loss. The financial statements are
presented in Canadian Dollars (CAD$) and have been rounded to the nearest thousand (CAD$’000) except
where otherwise indicated.
The Board has reviewed the accounting policies set out below, which have been applied consistently, and
considers them to be the most appropriate to the Group’s business activities.
Presentation and functional currency
The presentation currency of the Group is the Canadian dollar (“CAD$”).
Functional currency is the currency of the primary economic environment in which a company operates.
The functional currency of the Group’s subsidiaries are; United States (“US$”) dollars for the subsidiaries
in Dubai, British Virgin Islands (including Azerbaijan operations) and Democratic Republic of Congo, Euros
(“EUR”) for the subsidiary in Italy, Sterling (“GBP”) for the subsidiary in the United Kingdom, Swiss Francs
(“CHF”) for the subsidiary in Switzerland and Norwegian Krone (“NOK”) for the subsidiary in Norway.
The functional currency is determined by the Directors by looking at a number of relevant factors including
the currency in which Group entities usually generate and spend cash and in which business transactions
are normally denominated.
38
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
All of the transactions that are not in the functional currency are treated as foreign and indicate currency
transactions.
The factors that have determined the adoption of the CAD $ as presentation currency include:
• mainly affects the prices at which the goods or services are consolidated;
• Canada is the country whose regulations, market conditions and competitive forces mainly
affect the pricing policy of the entity;
influences the costs and expenses of the entity;
the funds are usually generated in that currency; and
the receipts from operating activities are retained in that currency.
•
•
•
Going concern
These financial statements have been prepared on a going concern basis which presumes that the Group
will continue its operations in the normal course of business for the foreseeable future. In assessing
whether going concern assumption is appropriate, the Directors have taken into account all relevant
available information about the current and future position of the Group. As part of their assessment, the
Directors have also taken into account the ability to raise additional funding whilst maintaining sufficient
cash resources to meet all commitments.
The Directors have reviewed the cash flow forecasts prepared by management up to and including
November 2021, which are prepared on the basis that the Group continues to hold title to the African oil
and gas asset and which takes into account the fund raises completed post year end, as well as loan
repayments which fall due within 12 months of the date of the signing of the financial statements. The
cashflow forecasts also include the investments in respect of well interventions in Tunisia and Congo,
which the Group believe will be covered by a combination of funding generated by operations, funds
raised post year end, funds to be received from the national oil company of the Republic of the Congo
(SNPC), as well as further planned fund raises within the going concern period. The Directors believe that
the planned fund raises via the various sources of capital available to the Group will be successful. The
Group’s ability to raise funds has been demonstrated in the year ended March 31, 2020. However, as at
the date of approval of the financial statements, these funds have not been secured. At present the Group
believes that there should be no significant material disruption to its operations from COVID-19 in the
near term, but the Board continues to monitor these risks and the Group’s business continuity plans.
Having prepared cash flow forecasts based on current and expected future resources, the Directors
therefore have made an informed judgment, at the time of approving the financial statements, that there
is a reasonable expectation that the Group will continue to have adequate resources to continue in
operational existence for the foreseeable future. As a result, the Directors have adopted the going concern
basis of accounting in the preparation of the financial statements. The financial statements do not include
the adjustments that would be required should the going concern basis of preparation no longer be
appropriate.
The Auditors have made reference to going concern by way of a Material Uncertainty within their audit
report.
39
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
New standards and interpretations
a. Adoption of new and revised standards
The following IFRSs or IFRIC interpretations are those that were effective for the first time for the financial
year beginning April 1, 2019 and relevant to the entity:
Standard /
Interpretation/Amendments
IFRS 16
IAS 28 (long-term interests)
IFRIC 23
Annual Improvements to IFRS
Standards 2015–2017 Cycle
Leases
Long-term Interests in Associates and Joint Ventures
to clarify that an entity applies IFRS 9 'Financial Instru-
ments' to long-term interests in an associate or joint
venture that form part of the net investment in the
associate or joint venture but to which the equity
method is not applied.
Uncertainty over Income Tax Treatments.
Amendments to IAS 12 “Income Taxes”, IAS 23
“Borrowing Costs”, IFRS 3 “Business Combinations”
and IFRS 11 “Joint Arrangements” as result of the
IASB's annual improvements project.
The adoption of these new and revised Standards and Interpretations has not resulted in significant
changes to the Group’s accounting policies that have affected the amounts reported for the current or
prior years.
b. New standards and interpretations in issue but not yet effective
At the date of authorization of these financial statements, the Group has not applied the following new
and revised IFRSs that have been issued but are not yet effective:
Standard /
Interpretation
IFRS 3
IAS 1 and IAS 8
(amendments)
IAS 1 (amendments)
Annual Improve-
ments to IFRS
Standards 2018–
2020 Cycle
impact on initial application
effective date
Definition of a business
Definition of material
Classification of Liabilities as Current or
Non-Current
Amendments to IFRS 1, IFRS 9 , IFRS 16
and IAS 41
1 January 2020
1 January 2020
1 January 2022
1 January 2022
The Directors do not expect that the adoption of the Standards listed above will have a material impact
on the financial statements of the Group in future periods.
3. Significant accounting policies
Consolidation
The following entities have been consolidated within the Group’s financial statements:
40
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Name
Country of
incorporation and
place of business
Proportion of
ownership interest
Principal activity
Canoel Italia S.r.l. (1)
Genova, Italy
98.6%
Gas, electricity and
condensate
production
Ingenieria Petrolera del
Rio de la Plata S.r.l.
Zenith Aran Oil
Company Limited
Aran Oil Operating
Company Limited
Argentina
100%
Not trading
British Virgin Islands
100%
Oil production
British Virgin Islands
80% owned subsidiary
of Zenith Aran Oil
Company Limited
Oil production
Zenith Energy (O&G)
Ltd
United Kingdom
Zena Drilling Limited
Incorporated in UAE
Place of business:
Azerbaijan
Altasol SA
Switzerland
Zenith Norway AS (2)
Norway
Anglo African Oil & Gas
Congo S.A.U. (3)
Democratic Republic of
the Congo
100%
100%
100%
100%
100%
Administrative
services
Oil and gas drilling
Oil trading
Holding Company
Oil production
(1) Zenith Energy Ltd. has 100% control over Canoel Italia S.r.l. The Group granted 1.4% to the Director
managing the Italian subsidiary in order to limit the risk of any liability to that entity. Therefore, no
non-controlling interest arises from the consolidation of this subsidiary.
(2) On January 30, 2020, the Company announced the establishment of its fully owned Norwegian
subsidiary, Zenith Energy AS ("Zenith Norway"), to be used as a vehicle for intended participation in
future licensing bids to be organized by the Norwegian Ministry of Petroleum and Energy, as well as
to actively pursue the potential acquisition of working interests in mature energy production assets
across Northern Europe.
(3) On January 13, 2020, the Company announced the passing of a resolution by the shareholders of
Anglo African Oil & Gas plc to approve the share purchase agreement, signed between the parties on
December 27, 2019, for the acquisition of its fully owned subsidiary in the Republic of the Congo,
Anglo African Oil & Gas Congo S.A.U.
41
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Subsidiaries are entities over which the Group has control. The Group controls an entity when it is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control commences until the date on which
control ceases. Adjustments are made to the results of subsidiaries to bring the accounting policies used
by them, with those used by the Group.
Intercompany balances and transactions are eliminated on consolidation, and any unrealized income and
expenses arising from intercompany transactions are eliminated in preparing the consolidated financial
statements.
The following entities have not been consolidated within the Group’s financial statements because they
are considered to be immaterial to the Group:
Name
Leonardo Energy
Consulting S.r.l.
Zenith Energy
Netherlands BV
Country of
incorporation and
place of business
Proportion of
ownership interest
Principal activity
Genova, Italy
48%
Dormant
Netherlands
100%
Dormant
Discontinued operations
A discontinued operation is a component of the entity that represents a separate major line of business
or geographical area of operations that has been disposed of, is held for sale or has been abandoned. The
Group classifies operations as discontinued based on the criteria within IFRS 5. When an operation is
classified as discontinued, the results of discontinued operations are presented separately in the
Statement of Comprehensive Income and also reclassifies the equivalent amounts from the comparative
amounts in order for the financial statements to be comparable.
Property, plant and equipment
Development and production expenditures
Development and production (“D&P”) assets include costs incurred in developing commercial reserves
and bringing them into production. Items of property and equipment, including D&P assets, are carried
at cost less accumulated depletion and depreciation and accumulated impairment losses.
When significant parts of D&P assets have different useful lives, they are accounted for as separate items
(major components).
Gains and losses on disposal of D&P assets are determined by comparing the proceeds of disposal with
the carrying amount of the item and are recognised in profit or loss.
42
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Business combinations
The acquisition method of accounting is used to account for acquisitions of subsidiaries and assets that
meet the definition of a business under IFRS. The cost of an acquisition is measured as the fair value of
the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.
The consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration agreement.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at fair value at the acquisition date. The excess of the cost of acquisition over the fair
value of the identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. If the
cost of an acquisition is less than the fair value of the net assets of the subsidiary acquired, a bargain
purchase gain is recognised immediately in the consolidated statement of comprehensive income.
Transaction costs that are incurred in connection with a business combination other than those associated
with the issue of debt or equity instruments are expensed as incurred.
Intercompany balances and transactions, are eliminated on consolidation, and any unrealised income and
expenses arising from intercompany transactions are eliminated in preparing the consolidated financial
statements.
Subsequent costs
Costs incurred subsequent to the determination of technical feasibility and commercial viability, costs of
replacing parts of property and equipment and work-overs of property and equipment are recognised
only if they increase the economic benefits of the assets to which they relate. All other expenditures are
recognised in profit or loss when incurred. The carrying amounts of previous inspections or any replaced
or sold components are derecognized. The costs of day-to-day servicing of an item of property and
equipment are recognised in profit or loss as incurred.
Depletion and depreciation
The net book value of producing assets are depleted on a field-by-field basis using the unit of production
method with reference to the ratio of production in the year to the related proved and probable reserves,
as determined by an independent reserve engineer, taking into account estimated future development
costs necessary to bring those reserves into production. For purposes of these calculations, relative
volumes of natural gas production and reserves are converted at the energy equivalent conversion rate
of six thousand cubic feet of natural gas to one barrel of crude oil.
Impairment
At the end of each reporting period, the Group reviews the D&P assets for circumstances that indicate
the assets may be impaired. Assets are grouped together into cash-generating units (“CGUs”) for the
purpose of impairment testing.
If any such indication of impairment exists, the Group makes an estimate of its recoverable amount. A
CGUs recoverable amount is the higher of its fair value less costs to sell and its value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the
asset. Value in use is generally computed by reference to the present value of future cash flows expected
to be derived from the production of proved and probable reserves.
Fair value less costs to sell is determined as the amount that would be obtained from the sale of a CGU in
an arm’s length transaction between knowledgeable and willing parties. The fair value less cost to sell of
43
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
D&P assets is generally determined as the net present value of the estimated future cash flows expected
to arise from the continued use of the CGU, including any expansion prospects, and its eventual disposal,
using assumptions that an independent market participant may take into account.
These cash flows are discounted by an appropriate discount rate which would be applied by such a market
participant to arrive at a net present value of the CGU. When the recoverable amount is less than the
carrying amount, the asset or CGU is impaired. For impairment losses identified on a CGU, the loss is
allocated on a pro rata basis to the assets within the CGU. The impairment loss is recognised as an expense
in profit or loss.
At the end of each subsequent reporting period, these impairments are assessed for indicators of reversal.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased
to the revised estimate of its recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss have been
recognised for the asset or CGU in prior periods.
A reversal of an impairment loss is recognised in profit or loss.
Decommissioning provision
The Group recognizes a decommissioning obligation in the period in which a well is drilled or acquired and
a reasonable estimate of the future costs associated with removal, site restoration and asset retirement
can be made. The estimated decommissioning provision is recorded with a corresponding increase in the
carrying amount of the related cost center.
Decommissioning provisions are measured at the present value of management’s best estimate of the
expenditures required to settle the present obligation at the statement of financial position date.
Subsequent to the initial measurement, the provision is adjusted at the end of each period to reflect the
unwinding of discount and changes in the estimated future cash flows underlying the obligation. The
increase in the provision due to the unwinding of discount is recognised as finance expenses. Actual costs
incurred upon settlement of the decommissioning obligations are charged against the provision to the
extent the provision was established.
Cash and cash equivalents
Cash and cash equivalents consist of cash deposits in bank accounts and cash in hand.
Inventory
Inventory consists of crude oil which is recorded at the lower of cost and net realisable value. The cost of
producing crude oil is accounted on a weighted average basis. This cost includes all costs incurred in the
normal course of business in bringing each product to its present location and condition. The cost of crude
oil is the producing cost, including royalties. Net realisable value of crude oil and refined products is based
on estimated selling price in the ordinary course of business less any expected selling costs.
Financial instruments
Financial assets and financial liabilities are recognized in the Group’s statement of financial position when
the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial
liabilities are initially measured at fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit
or loss are recognized immediately in profit or loss.
44
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date
basis. All recognized financial assets are measured subsequently in their entirety at either amortized cost
or fair value, depending on the classification of the financial assets.
Classification of financial assets
Debt instruments that meet the following conditions are measured subsequently at amortized cost using
the effective interest method:
•
•
the financial asset is held within a business model whose objective is to hold financial assets in order
to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are measured subsequently at fair value through
other comprehensive income (FVTOCI):
•
•
the financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling the financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
By default, all other financial assets are measured subsequently at fair value through profit or loss
(FVTPL).
Despite the foregoing, the Group may make the following irrevocable election/designation at initial
recognition of a financial asset:
•
•
the Group may irrevocably elect to present subsequent changes in fair value of an equity investment
in other comprehensive income if certain criteria are met; and
the Group may irrevocably designate a debt investment that meets the amortized cost or FVTOCI
criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.
Impairment of financial assets
The Group applies the expected credit loss model to financial assets measured at amortized cost or at
fair value through other comprehensive income. There are no financial assets other than trade
receivables.
De-recognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows from the
asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity.
45
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Financial liabilities and equity
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangements and the definitions of a financial liability and an equity
instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds
received, net of direct issue costs.
Repurchase of the Group’s own equity instruments is recognised and deducted directly in equity. No gain
or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity
instruments.
Financial liabilities
All financial liabilities are measured subsequently at amortised cost using the effective interest method.
Compound financial instruments
Compound financial instruments include convertible notes which can be converted into a fixed number
of common shares for a fixed amount of consideration. The compound financial instrument is bifurcated
and recorded with a liability and equity component. The liability component is initially recognised as the
fair value of the liability without the conversion feature, which is calculated using inputs that fall within
level 1 of the fair value hierarchy of IFRS 13. The equity component is recognised as the difference
between the fair value of the convertible debt and the fair value of the liability component.
Transaction costs are proportionately allocated between the components. Subsequently, the liability
component is measured at amortised cost using the effective interest method and accretes up to the
principal balance at maturity.
The equity component is not re-measured after initial recognition. Upon conversion, the liability
component is reclassified to equity and no gain or loss is recognised. If the number of common shares to
which the loan can be converted is not fixed then the loan is recorded as a liability with no debt / equity
split.
De-recognition of financial liabilities
The Group removes a financial liability (or a part of a financial liability) from its statement of financial
position when, and only when, it is extinguished-i.e.. when the obligation specified in the contract is
discharged or cancelled or expires.
Amortized cost and effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument and of
allocating interest income over the relevant period. For financial assets other than purchased or
originated credit-impaired financial assets (i.e. assets that are credit-impaired on initial recognition), the
effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees
and points paid or received that form an integral part of the effective interest rate, transaction costs and
other premiums or discounts) excluding expected credit losses, through the expected life of the debt
46
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument
on initial recognition.
The amortized cost of a financial asset is the amount at which the financial asset is measured at initial
recognition minus the principal repayments, plus the cumulative amortization using the effective interest
method of any difference between that initial amount and the maturity amount, adjusted for any loss
allowance. The gross carrying amount of a financial asset is the amortized cost of a financial asset before
adjusting for any loss allowance.
Interest income is recognized using the effective interest method for debt instruments measured
subsequently at amortized cost. For financial assets, interest income is calculated by applying the
effective interest rate to the gross carrying amount of a financial asset, except for financial assets that
have subsequently become credit-impaired. For financial assets that have subsequently become credit-
impaired, interest income is recognized by applying the effective interest rate to the amortized cost of
the financial asset. If, in subsequent reporting periods, the credit risk on the credit-impaired financial
instrument improves so that the financial asset is no longer credit-impaired, interest income is recognized
by applying the effective interest rate to the gross carrying amount of the financial asset.
The Group’s financial assets were classified as financial assets measured subsequently at amortized cost.
The Group’s financial liabilities were classified as financial liabilities measured subsequently at amortized
cost. The Group does not choose to classify any financial liabilities as measured at fair value through profit
or loss.
Share capital
Share capital is classified as equity if it is non-redeemable and any dividends are discretionary, or is
redeemable but only at the Group's option. Dividends on share capital classified as equity are recognised
as distributions within equity. Non-equity share capital is classified as a liability if it is redeemable on a
specific date or at the option of the shareholders or if dividend payments are not discretionary. Dividends
thereon are recognised in the consolidated income statement as a financial expense.
Incremental costs directly attributable to the issue of common shares are recognised as a deduction from
equity.
Share-based payments
The cost of providing share-based payments to employees is charged to the statement of comprehensive
income (or treated as a share issue cost) over the vesting period of the related share options or share
allocations. The cost is based on the fair values of the options, which is determined using the Black Scholes
method. The values of the charge is adjusted to reflect expected and actual level of vesting. Charges are
not adjusted for market related conditions that are not achieved. Where equity instruments are granted
to persons other than Directors or employees the consolidated statement of comprehensive income is
charged with the fair value of the related goods or services received.
Earnings per share
The Group presents basic and diluted earnings per share for its common shares. Basic earnings per share
amounts are calculated by dividing the profit or loss attributable to common shareholders of the Group
by the weighted average number of common shares outstanding during the period. Diluted earnings per
share amounts are determined by adjusting the profit or loss attributable to common shareholders and
the weighted average number of common shares outstanding, adjusted, for the effects of all dilutive
potential common shares.
47
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Revenue from contracts with customers
The Group enters into contracts for the sale of oil and gas. Revenue is recognised when the price is
determinable, the product has been delivered in accordance with the terms of the contract, the significant
risks and rewards or ownership have been transferred to the customer and collection of the sales price is
reasonably assured. The performance obligation is identified to be the delivery of oil and gas to the
customer, and the transaction price is allocated to the amount of oil and gas delivered. These criteria for
performance obligation are assessed to have occurred once the product has been delivered to the
customer.
Foreign currency translation
Foreign currency transactions are translated into the respective functional currencies of the Group and
its subsidiaries using the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation at period end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
consolidated statement of comprehensive income.
The financial results and position of foreign operations whose functional currency is different from the
presentation currency are translated as follows:
• Assets and liabilities are translated at period-end exchange rates prevailing at that reporting
date; and,
•
Income and expenses are translated at average exchange rates for the period.
Exchange differences arising on translation of foreign operations are transferred directly to the Group’s
exchange difference on translating foreign operations on the statement of comprehensive income and
are reported as a separate component of shareholders’ equity. These differences are recognised in profit
or loss in the period in which the operation is disposed.
Finance expense
Finance expense is comprised of interest on debt, accretion of the decommissioning obligation, accretion
of convertible notes and other miscellaneous interest charges.
Taxation
Income tax expense is comprised of current and deferred tax and is recognised in profit or loss except to
the extent that it relates to items recognised in other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at period end, adjusted for amendments to tax payable with regards to previous
years.
Deferred tax is recorded, using the asset and liability method, on temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes. However,
deferred tax is not recorded on taxable temporary differences arising on the initial recognition of goodwill
or on the initial recognition of assets and liabilities in a transaction other than a business combination that
affect neither accounting nor taxable profit or loss. The amount of deferred tax provided is based on the
expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax
rates enacted or substantively enacted at the statement of financial position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised. The carrying amount of deferred tax assets is reviewed
at each reporting date and reduced to the extent that it is no longer probable that sufficient future taxable
48
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognized deferred
tax assets are reassessed at each reporting date and are recognised to the extent that it has become
probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Interest-Bearing Loans and Borrowings
Interest-bearing loans and borrowings are initially recognised at fair value, which equates to the value of
proceeds received net of any directly attributable arrangement costs. Subsequent to initial recognition
these borrowings are stated at amortised cost using the effective interest rate method.
4. Critical accounting estimates and judgements
Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The Group makes estimates and assumptions about the future. The relating accounting estimates will by
definition, seldom equal to related achieved result. The estimates and judgements that have significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are addressed below:
Going concern
Management have prepared the financial statements on a going concern basis of accounting which, as
stated in note 2, is dependent on the group being able to raise additional funding as required. This is
considered to be a critical accounting judgement.
Property, plant and equipment
Management reviews the Group’s property, plant and equipment annually for impairment indicators.
The determination of recoverable amounts in any resulting impairment test requires judgement around
key assumptions. Key assumptions in the impairment models include those related to prices that are
based on forward curves and long-term corporate assumptions thereafter, discount rates, that are risked
to reflect conditions specific to individual assets, future costs, both capital and operating that are based
on management’s estimates having regard to past experience and the known characteristics of the
individual assets, reserves and future production, which are discussed further on note 11. The carrying
value of property, plant and equipment as of March 31, 2020 was CAD $34,305k (2019 – CAD
$1,079,639k).
Proved and probable reserves and contingent resources
The volume of proved and probable oil and gas reserves is an estimate that affects the unit of production
depreciation of producing oil and gas property, plant and equipment as well as being a significant estimate
affecting decommissioning provisions, impairment calculations and the valuation of oil and gas properties
in business combinations. Contingent resources affect the valuation of exploration and exploration assets
acquired in business combinations and the estimation of the recoverable value of those assets in
impairment tests.
Proved and probable reserves and contingent resources are estimated using standard recognised
49
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
evaluation techniques. Estimates are reviewed at least annually and are regularly estimated by
independent consultants. Future development costs are estimated taking into account the level of
development required to produce the reserves by reference to operators, where applicable, and internal
engineers.
The Group’s reserves are evaluated and reported on by independent reserve engineers at least annually.
The engineers issue a Competent Person’s Report (“CPR”) and the latest version was issued on September
22, 2020 in relation to the Group’s Italian and Congolese assets. Reserve estimation is based on a variety
of factors including engineering data, geological and geophysical data, projected future rates of
production, commodity pricing and timing of future expenditures, all of which are subject to significant
judgement and interpretation.
Decommissioning costs
Most of these decommissioning events are many years in the future and the precise requirements that
will have to be met when the removal event occurs are uncertain. Decommissioning technologies and
costs are constantly changing, as well as political, environmental, safety and public expectations.
The estimated cost of decommissioning at the end of the producing lives of fields is reviewed periodically
and is based on forecast price levels and technology at the Statement of Financial Position date. Provision
is made for the estimated cost at the Statement of Financial Position date, using a discounted cash flow
methodology and a risk-free rate of return. Details of the Group’s decommissioning costs are disclosed in
note 22. The carrying value of the decommissioning costs as of March 31, 2020 is CAD $13,543k (2019 –
CAD $9,089k).
Provisional fair values used in business combination accounting
As disclosed in note 6 the Group has applied the provisions within IFRS 3 to use provisional fair values in
the business combination accounting in respect of the acquisition of AAOG. Management has elected to
recognise the assets and liabilities at their book value, without any adjustment for fair value at the date
of acquisition which is considered to be the most prudent approach while an exercise to complete a formal
purchase price allocation is undertaken. Once the purchase price allocation has been completed
management will update the provisional accounting to their fair values where there are material
differences.
Recoverability of other receivables
Trade receivables qualify as financial assets and would be considered impaired if its carrying amount
exceeds its recoverable amount. An impairment loss should be regarded as incurred if there is objective
evidence of impairment as a result of one or more events that occurred after initial recognition.
Equity Sharing Agreement (ESA)
As of March 31, 2020, the Company identified a trade receivable, that could be impaired due to the
conditions of the contract.
On February 14, 2020, the Company announced that it has entered into an equity sharing agreement,
with a consortium of institutional investors, for a total amount of NOK 9,700k (approximately
CAD$1,389k), by a subscription for 50,000,000 new common shares, an issue price of NOK 0.194 per share.
As at March 31, 2020, the current share price was lower than the benchmark price and the Board made
calculations to estimate value of the receivable as of March 31, 2020. It resulted in an impairment of the
facility of CAD$700k. If the share price continues to remain lower than the benchmark price within the
50
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
contract, further impairments may arise.
Congo – receivable from SNPC
As part of the business combination of AAOG, the Group acquired an other receivable due from SNPC, of
approximately US$5.3 million (equivalent to CAD$7.5M) as a result of the work conducted to date on the
License. Zenith has met with SNPC and expects to obtain the full repayment of the aforementioned
amount. In addition, it is expected that the signature bonus of US$2 million that will become payable
should the Group be successful in its tender for a new license will be offset from the receivable which
would further demonstrate the recoverability of the amount.
Management has therefore not recognised an impairment in respect of this receivable.
5. Administrative expenses
During the year ended March 31, 2020, the Group incurred CAD$ 6,991k (2019 - CAD$ 6,429k) of
administrative expenses. Furthermore, during the same period the Group incurred CAD$ 2,970k (2019 -
CAD$ 2,706k) of non-recurring expenses which relate to the cost of raising funds, negotiation costs for
the potential acquisition of producing assets and share based payments costs, which is a non-cash item.
Year ended
March 31, 2020
March 31, 2019
CAD$’000
CAD$’000
Auditors remuneration - audit fees Group
Accounting and bookkeeping
Consultancy fees
Legal
Office
Administrative expenses
Foreign exchange gain
Salaries
Travel
General and administrative expenses
Non-recurring expenses
Bond issue costs
Listing costs (Norway and UK)
Negotiation costs for acquisitions
Aborted Transaction Costs
Share based payments (see note 17)
Impairments from expected from credit losses (see note
14)
Release of prepaid insurance (see note 12)
Total non-recurring expenses
Total general and administrative expenses
51
161
23
629
45
733
255
(268)
2,018
425
4,021
44
763
870
-
174
700
419
2,970
6,991
129
30
990
163
627
237
(314)
1,294
567
3,723
127
1,167
-
405
1,007
-
-
2,706
6,429
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
6. Business combinations
On December 29, 2019, the Group obtained a controlling interest in Anglo African Oil & Gas Congo S.A.U
(“AAOG Congo”) from AIM quoted Anglo African Oil & Gas plc ( the “Seller”) upon signing a conditional
share purchase agreement (“SPA”). Management consider that it obtained control over AAOG because
the Group was fully funding and controlling the operations, including the application for renewal of the
Tilapia licence. At the time of the acquisition, AAOG Congo had a 56 percent majority interest in, and was
the operator of, the Tilapia oilfield in the Republic of the Congo. On April 17, 2020, the Group finalised
the share purchase agreement with AAOG for the acquisition of a 100 per cent interest in AAOG Congo
for total consideration of £200,000 (equivalent to CAD$351k).
This was the Company’s first acquisition in Africa as part of its new African development strategy targeting
oil & gas development, production and exploration opportunities in the continent.
The Group has consolidated the net assets and operations of AAOG from December 29, 2019, the date on
which it obtained control. The Group has recognised a gain on bargain purchase in the statement of
comprehensive income, as shown in the table below.
Cash consideration
Provisional fair value of net assets acquired on
business combination
Gain on business combination
Provisional fair value of net assets acquired
CAD$’000
351
(20,462)
(20,111)
Property, plant and equipment
Other net assets
Decommissioning Obligations
Provisional fair value of net assets acquired on business
combination
Book values Adjustments
CAD$’000
-
-
-
-
CAD$’000
20,184
5,839
(5,561)
20,462
Fair value
CAD$’000
20,184
5,839
(5,561)
20,462
The provisional fair values may change as a result of initialising a formal purchase price allocation and
would also be impacted in the event that Zenith did not receive a new license in relation to the oil and gas
assets owned by AAOG Congo at the time of the acquisition.
Summarised income statement
Revenue
Loss after tax
Post acquisition
CAD$’000
94
(3,199)
Full year
CAD$’000
544
(1,704)
52
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
7. Staff cost
(a) Employee compensation cost
During the year the Group had an average of 192 (2019: 207) full time employees based in its offices in
London in the UK, Baku in Azerbaijan, Pointe Noire in Congo and Genoa in Italy.
The following table details the amounts of total employee compensation included in the consolidated
statement of comprehensive income:
Operating
General and administrative
Share based payments
Total employee compensation cost
(b) Key management compensation
2020
CAD $’000
611
2,018
174
2,803
2019
CAD $’000
-
1,294
1,007
2,301
Key management personnel are those people having authority and responsibility for planning,
directing and controlling the activities of an entity, either directly or indirectly. The following table
summarizes annual compensation and long-term compensation of the Group's "Named Executive
Officers" for the two most recently completed financial years that ended on March 31, 2020. The
named executive officers equate to key management personnel:
Name
Year(2)
Andrea
Cattaneo
(1)
Luigi Regis
Milano (2)
Jose Ramon
Lopez-Portillo
Dario Ezio
Sodero(3)
Erik Larre
Sergey
Borovskiy
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
Other
short-
term
benefits
CAD
$’000
Other
long-
term
benefits
CAD
$’000
Short term
employee
benefit
CAD $’000
Share
based
payments
CAD $’000
Other
benefits
CAD
$’000
Total
CAD $’000
667
567
60
61
-
-
8
19
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53
-
-
-
-
-
-
-
-
-
-
-
-
462
-
36
-
22
-
18
-
62
-
62
-
419
724
17
31
-
31
-
31
-
-
-
31
1,548
1,291
113
92
22
31
26
50
62
-
62
31
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Other
short-
term
benefits
CAD
$’000
Other
long-
term
benefits
CAD
$’000
Short term
employee
benefit
CAD $’000
Share
based
payments
CAD $’000
Other
benefits
CAD
$’000
Total
CAD $’000
199
231
-
-
-
-
116
-
23
38
338
269
Name
Luca (4)
Benedetto
Year(2)
2019
2020
Notes:
1. Andrea Cattaneo was appointed President and Chief Executive Officer effective 01 January 2009. As
proposed by the Compensation Committee, Mr. Cattaneo’s annual consulting fee payment is
approximately £210k (CAD $367k), payable in equal monthly instalments, plus an annual bonus
compensation of CAD$200k from the parent Company.
In addition, Andrea Cattaneo also received other benefits for the year ended March 31, 2020 of
CAD$724k which comprised CAD$181k for accommodation and health insurance and CAD$543k in
respect of an additional bonus relating to a gain arising during the year from settlement of the JFI loan
for an amount lower than the carrying value (see sub note 5 below for more details).
In addition, Andrea Cattaneo received advanced cash payments of general, travelling and
administrative expenditures for business activities conducted in Africa made on behalf of the Group
using personal means, and for which Board approval has been obtained at the time of publication of
these results. The amounts are advanced interest free and at the year end, Andrea Cattaneo owed the
Group CAD$360k. Further details of this transaction can be found in note 24.
2. Mr. Luigi Regis Milano had a yearly compensation of CAD$61k from subsidiary undertakings for the year
ended March 31, 2020
3. Mr. Sodero received a fee for professional consulting services of approximately CAD$19k during the
year ended March 31, 2020.
4. Mr. Luca Benedetto was appointed as Chief Financial Officer from April 2017 and received
compensation of CAD$168k from the parent Company and CAD$63k from subsidiary undertakings, and
other benefits for CAD$7k, during the year ended March 31, 2020.
5. On August 28, 2019, the Board unanimously approved the split of the “paper profit” of US$1.1 million,
through the settlement agreed with the Chinese lender, as follows: the “paper profit” portions of Zenith
Energy Ltd (55%), and the balance between Mr. Cattaneo (35%) and the Directors and the CFO who
were present at the meeting (10%). Andrea Cattaneo has already been paid for the portion of this
bonus. The amounts due to the other directors will be paid if and when the financial conditions of Zenith
will allow it. These amounts to be received are included in the column “other benefits” in the table
above.
54
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
8. Other gains and losses
Interest and debt waived
2020
CAD $’000
1,425
1,425
2019
CAD $’000
-
-
Other gains and losses represent the credit recognised in profit or loss in respect of loans which were
settled for an amount lower than the carrying value during the year. See note 19(a) for further details.
9. Finance expense
Interest expense
Accretion of decommissioning provision
Effective interest on financial liabilities held at amortised cost
10. Taxation
Current tax
Deferred tax
Total tax charge for the year
2020
CAD $’000
884
434
424
1,742
2019
CAD $’000
402
363
356
1,121
2020
CAD $’000
2019
CAD $’000
4
-
4
1
-
1
The difference between tax expense for the year and expected income taxes based on the statutory tax rate
arises as follows:
Loss before taxation
Expected tax at 27%
Differences on tax rates attributable to other jurisdictions
Non-deductible expenses
Changes in enacted rates and other
Temporary differences
Tax losses carried forward
Under(over)provided in prior years
Tax charge
2020
CAD $’000
(570,305)
(153,982)
39,942
110,045
-
(108,238)
112,229
(4)
2019
CAD $’000
(9,761)
(2,635)
85
272
(48)
(30)
2,355
-
(1)
The tax charge for the year ended March 31, 2020 comprised CAD $4k (2019 – CAD $1k) of current tax
expense and CAD $Nil deferred tax expense (2019 – CAD $Nil deferred tax expense).
Recognised deferred tax liabilities are attributable to the following:
Property and equipment
Decommissioning obligation
Non-capital loss carryforwards
Recognised deferred tax liabilities
55
2020
CAD $’000
(2,109)
1,751
358
-
2019
CAD $’000
(2,554)
47
109
(2,398)
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Deferred tax assets have not been recognised in respect of the following temporary differences as it is not
certain when the timing of producing sufficient taxable income will allow the deferred tax assets to be
utilized and recovered:
Property and equipment
Non-capital loss carryforwards
Share issuance costs
Decommissioning obligations
Capital losses
Other
Unrecognized deferred tax assets
2020
CAD $’000
9,218
607,361
603
1,827
1,467
76
620,552
2019
CAD $’000
-
64,980
156
-
3,408
978
69,522
As of March 31, 2020, the Group has accumulated non-capital losses in Canada totaling CAD $607,273
(2019 - CAD $638,484k) which expire in varying amounts between 2022 and 2040 and CAD $2,295k (2019
– CAD $795k) of non-capital losses with no expiry date.
11.
Property, plant and equipment
Carrying amount at March 31, 2018
Additions
Disposals
Depletion and depreciation
Depletion and depreciation from discontinued operations
Compensatory oil delivered
Foreign exchange differences
Carrying amount at March 31, 2019
Additions
Acquired on business combination (see note 6)
Depletion and depreciation
Impairment – Discontinued operations (note 21)
Other impairment charges
Foreign exchange differences
Carrying amount at March 31, 2020
D&P Assets
CAD $’000
1,077,445
5,205
(378)
(425)
(1,858)
(347)
(3)
1,079,639
1,347
20,184
(846)
(1,065,075)
(615)
(329)
34,305
Impairment test for property, plant and equipment
As of March 31, 2020, a review was undertaken of the carrying amounts of property , plant and equipment
to determine whether there was any indication of a trigger that may have led to these assets suffering an
impairment loss. Following this review impairment triggers were noted in relation to the Azerbaijan assets
following the Group’s agreement with SOCAR to handover the Contract Rehabilitation Area.
As there is no readily available market for the Group’s oil and gas properties, fair value is derived as the
net present value of the estimated future cash flows arising from the continued use of the assets,
incorporating assumptions that a typical market participant would take into account. The value in use of
an oil and gas property is generally lower than its Fair Value Less Costs of Disposal (‘FVLCD’) as value in
use reflects only those cash flows expected to be derived from the asset in its current condition. FVLCD
includes appraisal and development expenditure that a market participant would consider likely to
56
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
enhance the productive capacity of an asset and optimize future cash flows. Consequently, the Group
determines recoverable amount based on FVLCD using a Discounted Cash Flow (‘DCF’) methodology.
The DCF was derived by estimating discounted after-tax cash flows for each CGU based on estimates that
a typical market participant would use in valuing such assets. The impairment tests compared the
recoverable amount of the respective CGUs noted below to the respective carrying values of their
associated assets. The estimates of FVLCD meet the definition of level three fair value measurements as
they are determined from unobservable inputs.
Italian Cash Generating Unit
Key assumptions:
• Production profiles: these were based on the latest available information from management.
• Capital and operating costs: these were based on the current operating and capital costs in Italy.
• Gas price: An average 2020 gas price of $4.944/Mscf based on information from the World Bank
European gas price forecast and information provided by management.
• Discount rate: The estimated fair value less costs to sell of the Italian CGU was based on 15%
(2019 – 15%). This was based on a Weighted Average Cost of Capital analysis consistent with that
used in previous impairment reviews.
Based on the key assumptions set out above:
• The estimated recoverable amount of the Italian CGU on March 31, 2020 was higher than its
carrying amount by CAD$8m, therefore, no impairment was recognised in the year ended March
31, 2020 (2019 - CAD $nil) in the consolidated statement of comprehensive income. A rise in the
discount rate to 20% would reduce the excess of the recoverable amount by CAD$5m.
Congo Cash Generating Unit
The assets in Congo were acquired during the last quarter of the year. The carrying amount is that of the
audited financial statements as at March 31, 2020. Management is still waiting to receive news on the
renewal of the license. It therefore does not consider that an assessment of impairment losses is require
at this time.
The Group controlled the local audit results, the balance sheet amounts and asset register
correspondence, checking the historical amounts and the related depreciations, determining the
carrying value of the Congolese subsidiary plant and equipment, acquired as a business combination.
The Group believes there is a strong probability that the Tilapia licence will be renewed and considers
that the field infrastructure, geological data and associated equipment that are owned by the Group in
the Republic of the Congo, as of March 31, 2020, had a fair value amount not less than the carrying
amount recoverable at the same date. As a result, no impairment was recognised in the year ended
March 31, 2020 (2019 – N/A) in the consolidated statement of comprehensive income. The Group
considers the licence renewal to be a key estimate in considering its carrying value as without the licence
the asset may be impaired.
Further, the Company commissioned a Competent Person’s Report (“CPR”) for the Tilapia licence
in compliance with Canadian securities laws, specifically the COGE Handbook and National Instrument
51-101 - Standards of Disclosure for Oil and Gas Activities. The fair value included in the CPR exceeds the
carrying value which also supports the Group’s position that no impairment is required. The field
estimates of the reserves held can be found at www.zenithenergy.com.
57
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
12. Non-current financial assets held at amortised cost
Italian prepaid insurance
Other assets acquired on business
combination
March 31, 2020
CAD $’000
-
13
March 31, 2019
CAD $’000
422
-
13
422
Upon the change of ownership of the assets acquired in Italy in the year 2016, the Group obtained an
insurance policy for its Italian oil and gas operations. The policy has a five-year term for which the Group
paid the total premium of EUR 567k (CAD $868k), of which CAD $419k (2019 – CAD $nil) has been
recognised as an expense. The outstanding balance of CAD $nil (2019 - CAD $422k) is included in long-
term assets. During the year 2016 the Group received the news that the insurance company was in
default. The Directors decided to expense the full amount on the prepaid insurance as there is uncertainty
that they will receive the reimbursement promised by the State of Romania, where the insurance
company was based.
13. Inventory
As of March 31, 2020, inventory consists of CAD $14k (2019 – CAD $nil) of crude oil that has been produced
but not yet sold, and CAD $785k of materials (2019 – CAD $156k) . The amount of inventory recognised
in the statement of comprehensive income is CAD $167k (2019 - CAD $220k).
Congo
Congo - materials
Azerbaijan - materials
Dubai – materials
Italy
14. Trade and other receivables
Trade receivables
Other receivables
Directors loan account
Total trade and other receivables
2020
CAD $’000
14
765
-
12
8
799
2019
CAD $’000
-
-
148
-
8
156
2019
CAD $’000
1,362
3,887
164
5,413
2020
CAD $’000
2,692
11,694
360
14,746
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime
expected credit loss provision for trade receivables. To measure expected credit losses on a collective
basis, trade receivables are grouped based on similar credit risk and ageing. The Group’s customer base
is of a similar bracket and share the same characteristics, as such these have been treated as one
population. The Group’s customers are all State customers, therefore, the lifetime expected losses are
considered to be CAD$ nil.
58
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
In respect of other receivables, the Group has recognised an expected credit loss of CAD$700k on a
specific contract known as an equity sharing agreement.
15. Change in working capital
Trade and other receivables
Inventory
Prepaid expenses
Prepaid property and equipment insurance
Trade and other payables
Total change in working capital
16. Share Capital
2020
CAD $’000
(242)
(136)
(46)
(422)
1,026
180
2019
CAD $’000
(3,510)
21
5
19
2,064
(1,401)
Zenith is authorised to issue an unlimited number of Common Shares, of which 316,645,857 were issued
at no par value and fully paid during the year ended March 31, 2020 (2019 – 101,628,366). All Common
Shares have the right to vote and the right to receive dividends. Zenith is authorised to issue an unlimited
number of preferred shares, issuable in series, of which none have been issued as of the date of these
Financial Statements. The Directors of the Group may by resolution fix the rights, privileges, restrictions
and conditions of the preferred shares of each series.
Following the issue of the new Ordinary Shares, the Company had 577,072,921 common shares in issue
and admitted to trading on the Mekur Market of the Oslo Bors, as of March 31, 2020.
As of the same date, Zenith had 286,403,856 common shares in issue and admitted to trading on the
Main Market of the London Stock Exchange.
Issued
Balance – April 1, 2018
Settlement of debt
Non-brokered unit private placement
Issue costs
Balance – June 30, 2018
Issue costs
Balance – September 30, 2018
Settlement of debt
Non-brokered unit private placement
Non-brokered unit private placement
Issue costs
Balance – December 31, 2018
Non-brokered unit private placement
Non-brokered unit private placement
Issue costs
Number of
common shares
Amount
CAD $’000
158,798,698
1,123,068
54,172,451
-
214,094,217
-
214,094,217
2,225,941
20,782,429
2,857,143
-
239,959,730
10,364,640
10,102,694
-
22,792
185
3,694
(187)
26,484
(5)
26,479
186
1,141
157
(107)
27,856
517
519
(26)
59
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Balance – 31 March 2019
Non-brokered unit private placement (i)
Issue costs
Non-brokered unit private placement (i)
Issue costs
Non-brokered unit private placement (ii)
Issue costs
Balance – 30 June 2019
Exercise of stock option (iii)
Exercise of stock option (iv)
Non-brokered unit private placement (v)
Issue costs
Settlement of debts (vi)
Balance – 30 September 2019
Settlement of debts (vii)
Non-brokered unit private placement (viii)
Issue costs
Non-brokered unit private placement (ix)
Balance – 31 December 2019
Non-brokered unit private placement (x)
Non-brokered unit private placement (xi)
Equity sharing agreement (xii)
Non-brokered unit private placement (xii)
Balance – 31 March 2020
260,427,064
20,000,000
-
17,647,059
-
14,334,602
-
312,408,725
622,407
688,797
47,812,500
-
6,589,678
368,122,107
11,421,402
37,000,000
35,000,000
451,543,509
55,529,412
9,000,000
50,000,000
11,000,000
577,072,921
28,866
1,000
(40)
794
(63)
702
(42)
31,217
75
83
1,913
(34)
303
33,557
445
1,857
(97)
1,124
36,886
1,610
232
1,389
283
40,400
i)
On April 2, 2019, the Group announced that it had completed two offerings with a consortium
of private and institutional investors and raised an aggregate total amount of approximately
£1,020k (approximately CAD$1,794k).
Canadian Financing
Zenith issued a total of 20,000,000 common shares of no-par value in the capital of the Group
("Common Shares") at a price of CAD$0.05 in connection with the Canadian Financing to raise
gross proceeds of CAD$1,000k (approximately £570k). The Company also paid related Issue
costs for CAD$40k.
UK Financing
Zenith issued a total of 17,647,059 Common Shares of no-par value in the capital of the Group
at a price of £0.0255 (approximately CAD$0.045) in connection with the UK Financing and
raised gross proceeds of £450k (approximately CAD$794k). The Company also paid related
Issue costs for CAD$63k.
ii)
On May 3, 2019 the Group announced that it had completed a placing of new common shares
of no-par value in the capital of the Group ("Common Shares") in the United Kingdom (the
"Financing").
60
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
iii)
iv)
v)
vi)
vii)
viii)
ix)
x)
xi)
Zenith issued a total of 14,334,602 Common Shares at a price of £0.028 (approximately
CAD$0.049) in connection with the Financing to raise gross proceeds of £401k (approximately
CAD$702k). The Company also paid related Issue costs for CAD$42k.
On July 3, 2019, the Chief Executive Officer & President of the Company, Mr. Andrea Cattaneo
exercised stock options to acquire 622,407 common shares of no-par value in the capital of
the Company, at an exercise price of CAD$0.12 per New Share.
On July 4, 2019 the Chief Executive Officer & President of the Company, Mr. Andrea Cattaneo,
exercised stock options to acquire 688,797 common shares of no-par value in the capital of
the Company, at an exercise price of CAD$0.12 per New Share.
On August 2, 2019, the Company completed a placing in Canada issuing a total of 47,812,500
Common Shares, at a price of CAD$0.04 per unit, consisting of one common share of no par
value in the capital of the Company ("Common Shares") and one full common share purchase
warrant ("Warrants"), exercisable within 12 months at an exercise price of CAD$0.10, raising
gross proceeds of CAD$1,912,500 (approximately £1,195,000 or NOK 12,856,000). The
Company paid Issue costs for CAD$34k.
On September 17, 2019 the Company has agreed to issue 6,589,678 common shares at an
average price of CAD$0.05 per common share, to settle debts of CAD$303k owed by the
Company.
On October 24, 2019, the Company announced that It had received three Conversion Notices
("Conversion") from the consortium of lenders (the "Lenders") for the US$1,500,000
Convertible Loan Facility ("Convertible Loan") announced on September 5, 2018. A total of
11,421,402 Conversion Shares, equivalent to a total amount of US$340,000, were issued.
On November 1, 2019, the Company announced the fully closing of the private placing on the
Merkur Market of the Oslo Børs. The aggregate number of common shares issued as part of
the private placement was 37,000,000 and the private placement was completed at a
subscription price of NOK 0.35 per share (£0.03 or CAD$0.02). The Company also paid Issue
costs for CAD$97k.
On December 17, 2019, the Company announced a Private Placement on the Merkur Market
of the Oslo Børs. The Company has successfully raised gross proceeds of NOK 7,700,000
(approximately £638,000 or CAD$1,123,430) to subscribe for 35,000,000 common shares of
no-par value in the capital of the Company ("New Common Shares") at a price of NOK 0.22 per
New Common Share (approximately £0.02 or CAD$0.03)
On January 29, 2020, the Company successfully raised gross proceeds of NOK 11,105,882
(approximately £935,000 or CAD$1,610,000) to subscribe for 55,529,412 common shares of
no-par value in the capital of the Company at a price of NOK 0.20 per New Common Share
(approximately £0.02 or CAD$0.03)
On February 14, 2020, the Company completed an offering in the United Kingdom with a
significant existing institutional shareholder, as well as a selection of high net-worth private
investors, to issue 9,000,000 new common shares in the capital of the company to raise gross
proceeds of £135,000 (approximately CAD$232,000). The issue price of the UK Financing is
£0.015, representing a premium of 5.26% over the closing mid-market price of Zenith's
common shares admitted to trading on the London Stock Exchange on February 13, 2020.
61
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
xii)
xiii)
On February 14, 2020, the Company announced that it has entered into an equity sharing
agreement, with a consortium of institutional investors, for a total amount of NOK 9,700,000
(approximately £810,000 or US$1,051,000), by a subscription for 50,000,000 new common
shares, an issue price of NOK 0.194 per share, (approximately £0.02 or CAD$0.03)
On February 17, 2020, the Company issued 11,000,000 new common shares in Norway at a
price of NOK 0.18. to raise gross proceeds of NOK 1,980,000 (approximately CAD$284,000 or
£165,000)
62
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
17. Warrants and options
Number of
options
Number of warrants
Balance – April 1, 2018
4,100,000
27,027,644
Weighted
average
exercise price
0.19
Options issued
Options expired
Warrants issued
Warrants expired
10,500,000
(3,500,000)
-
-
Balance – March 31,
2019
Warrants issued
Options exercised
Options expired
Warrants expired
Balance – March 31,
2020
11,100,000
-
(1,311,204)
(703,571)
-
9,085,225
-
19,616,368
(26,847,644)
19,796,378
54,290,234
-
(18,422,628)
55,663,984
0.12
0.15
0.07
0.18
0.12
0.10
0.12
0.12
0.14
0.12
Amount
CAD$’000
875
927
(400)
167
(422)
1,147
174
(116)
(62)
(133)
1,010
During the year ended March 31,2020, the Company issued 54,290,234 warrants (2019 – 19,616,368) and
18,422,628 (2019 - 26,847,644) warrants expired.
As of March 31, 2020, the Group had 55,663,984 (2019 – 19,796,378) warrants outstanding (relating to
55,663,984 shares) and exercisable at a weighted average exercise price of CAD$0.10 per share with a
weighted average life remaining of 0.42 years.
There were no options in the money as of March 31, 2020.
The issue of 54,290,234 (2019 – 19,616,368) warrants during the year, originated a fair value amount of
CAD$174k (2019 – CAD$167k) that was debited as share-based payment, non cash-item cost, in the P&L.
The expiry of 18,422,628 (2019 – 26,847,644) warrants during the year was recognised in the contributed
surplus amount of Equity section.
March 31, 2020
March 31, 2019
Grant Date
Number of options
Exercise price
per unit CAD$
Number
options
of
Exercise price
per unit CAD$
Expiry Date
November 2016
1,100,000
November 2017
April 2018
500,000
7,485,225
9,085,225
0.10
0.18
0.12
1,100,000
0.10 November 2021
500,000
0.18 November 2022
9,500,000
0.12
April 2023
0.12
11,100,000
0.12
63
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Options
The Group has a stock options plan (the "Plan") for its directors, employees and consultants. The maximum
number of shares available under the Plan is limited to 10% of the issued and outstanding common shares at
the time of granting options. Granted options are fully vested on the date of grant, at which time all related
share-based payment expense is recognised in the consolidated statement of comprehensive income. Share
options expire five years from the date of granting.
The table below represent the movement of the options during the FY 2020, and the comparative period 2019.
Balance – April 1, 2018
Options issued
Options expired
Balance – March 31, 2019
Options exercised
Options expired
Balance – March 31, 2020
Number of options
4,100,000
10,500,000
(3,500,000)
11,100,000
(1,311,204)
(703,571)
9,085,225
As of March 31, 2020, the Group had 9,085,225 (2019 – 11,100,000) stock options outstanding (relating to
9,085,225 shares) and exercisable at a weighted average exercise price of CAD$ 0.12 (2019 – CAD$ 0.12) per
share with a weighted average life remaining of 2.73 years.
The fair value of the options was calculated using the Black-Scholes pricing model calculations based on the
following significant assumptions:
Risk-free interest rate
Expected volatility
Expected life
Dividends
0.50% - 0.70%
100%
5 years
Nil
Granting of options
On April 3, 2018, the Board of Directors resolved to grant its directors, certain employees and consultants a
total of 10,500,000 stock options (the "Options"), in accordance with the Company's Stock Option Plan. The
exercise price of the Options was equivalent to the Company's TSXV closing price of March 26, 2018, being
CAD$0.12 (approximately £0.067). The Options are fully vested and have an expiry date of five years from the
date of granting.
Exercise of options
• On July 3, 2019, the Chief Executive Officer & President of the Company, Mr. Andrea Cattaneo, exercised
stock options to acquire 622,407 common shares of no-par value in the capital of the Company, at an
exercise price of CAD$0.12 per New Share.
• On July 4, 2019, the Chief Executive Officer & President of the Company, Mr. Andrea Cattaneo, exercised
stock options and acquire 688,797 common shares of no-par value in the capital of the Company, at an
exercise price of CAD$0.12 per New Share.
64
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Expiry of options
A director, who had been granted share options, left the Group in previous quarters and, as stipulated in the
stock option agreement, these options expired upon the elapsing of three months from the date of leaving.
During the quarter ending December 31, 2019, 703,571 (2018 - 3,500,000) stock options expired.
Type
Warrants
Warrants
Warrants
Warrants
Warrants
Warrants
Grant Date
January-18
April-18
Number of
Warrants
180,000
93,750
Price per unit
CAD$
0.16
0.40
Expiry
Date
January-20
May-21
June-18
1,280,000
0.07
June-21
Septeber-18
6,977,988
0.05 February-20
February-19
10,364,640
February 19
900,000
0.10 February-20
0.10 February 20
Total warrants at 31 March 2019
19,796,378
Warrants
Warrants
Warrants
Warrants
April-19
June-19
August 19
October-19
Total warrants at 31 March 2020
93,750
1,280,000
47,812,500
6,477,734
55,663,984
May-21
0.40
June-21
0.07
0.10
August 20
0.06 October-22
As of March 31, 2020, the Group had 55,663,984 warrants outstanding (relating to 55,663,984 shares)
and exercisable at a weighted average exercise price of CAD$0.10 per share with a weighted average life
remaining of 0.42 year.
The fair value of the warrants was calculated using the Black-Scholes pricing model calculations based
on the following significant assumptions:
Risk-free interest rate
Expected volatility
Expected life
Dividends
18. Trade and other payables
Trade payables
Other payables
Accrued interest
Total trade and other payables
0.50% - 0.70%
75-100%
2 years
Nil
2020
CAD $’000
16,278
2,554
-
18,832
2019
CAD $’000
10,990
290
835
12,115
65
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
19. Loans
Loans
Loan payable - current
Loan payable – non-current
Total
Loans – current
As at 1 April
Transfer from non-current
Loan receipt
Loan waived
Repayments
Foreign exchange
As at 31 March
Loans – non current
As at 1 April
Loan receipt
Transfer to current
Foreign exchange
As at 31 March
a) USD loan payable
2020
CAD $’000
2,210
2,260
4,470
2020
CAD $’000
3,776
1,253
2,004
(584)
(4,107)
(132)
2,210
2020
CAD $’000
3,417
-
(1,253)
96
2,260
2019
CAD $’000
3,776
3,417
7,193
2019
CAD $’000
237
3,747
-
-
(208)
-
3,776
2019
CAD $’000
4,949
2,109
(3,747)
106
3,417
As of March 31, 2020, the Group was indebted to a third party lender for a USD$180k (CAD$233) (March
31, 2019 - USD$1,485k (CAD$1,982k)) loan payable which no longer bears interest (March 31, 2019-
bearing fixed interest at 10% per annum).
On September 17, 2019, the Company entered negotiations with the lender to settle the liability at a
significant discount, and, on October 1, 2019, the Company confirmed that, following negotiations with
the lender, it had successfully agreed to settle the aforementioned liability for a total amount of
US$1,000,000.
As of March 31, 2020, CAD$233k (March 31, 2019 – CAD$1,485) of principal is classified as a current
liability (March 31, 2019 non-current liability) and CAD$nil (March 31, 2019 – CAD$733k) of accrued
interest is included in trade and other payables.
b) Euro bank debt
On August 6, 2015, the Group obtained a €220k loan (CAD$349k) from the GBM Banca of Rome. The
loan is unsecured, bears fixed interest at 7% per annum and is repayable in 60 monthly payments of
principal and interest until August 6, 2020.
As of March 31, 2020, the principal balance of the loan was €35k (CAD$55k) (March 31, 2019 - €98k
(CAD$147k)) which is classified as a current liability.
66
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
c)
Euro bank debt
On December 17, 2015, the Group obtained a €200k loan (CAD$318k) from Credito Valtellinese Bank
of Tortona. The loan is unsecured, bears fixed interest at 4.5% per annum and is repayable in 42
monthly payments of principal and interest until July 17, 2019. This loan was completely repaid in the
year.
As of March 31, 2020, the principal balance of the loan was €nil (CAD$nil) (March 31, 2019 - €20k
(CAD$31k)).
d) USD $320,000 General line of credit agreement
On April 5, 2017, the Group’s wholly-owned subsidiary, Zenith Aran Oil Company Limited, entered into
a general line of credit agreement with Rabitabank Open Joint Stock Company (“Rabitabank”) up to an
amount of US$320k (CAD$436k), for industrial and production purposes. The loan drawn down in one
tranche and as of April 6, 2017, it was fully drawn down. Rabitabank can postpone or suspend the facility
if there is a decline in oil production under the REDPSA of more than 30% from production levels as at
the date of first drawdown, or if the REDPSA is terminated.
This Credit Agreement bears interest at a rate of 11% per annum. The loan is guaranteed by the Group.
The loan granted for one-year period. The 25% of the principal amount should be paid on quarterly
basis. The amount of interest to be paid on monthly basis.
On July 6, 2017, the terms of the repayment of the US$320k (CAD$436k) credit agreement were
amended and the first repayment of the principal of US$80k was postponed to the end of July.
On July 31, 2017 US$20k (CAD$21k) was repaid and the balance of US$60k (CAD$63k) was agreed to be
repaid on September 1, 2017. On July 31, 2018, US$40k (CAD$52k) was repaid. A subsequent credit
committee decision taken in September 2017 amended the payment terms of the loan. Zenith Aran Oil
Company Limited will pay interest on a monthly basis and the principal total amount of US$40k has been
paid on September 30, 2018. The balance of the principal amount will be repaid at a new maturity date
of April 6, 2019. Based on credit committee decision taken on 18th of April 2019 the payment of principal
amount US$280K postponed for one year until 6th of April 2020. Based on credit committee decision in
May 2020 payment of principal amount has been prolonged until 30 December 2020 and weekly
repayments of 8,000 USD will be made.
As of March 31, 2020, the outstanding principal amount was US$287K (CAD$404k) (March 31, 2019 -
USD$282K (CAD$376k)) and it was classified as a current liability.
e) USD $200,000 General line of credit agreement
On April 12, 2017, Zenith Aran entered into a general line of credit agreement with Rabitabank up to
US$200k (CAD$272k). This Credit Agreement bears interest at a rate of 10% per annum. The loan was
granted for one-year period and the principal amount of the loan will be paid at the end of the period.
The amount of interest is repayable monthly. The loan is guaranteed by the Group. In March 2018, the
repayment of the principal amount (US$200k) was extended by 15 months until July 12, 2019 and then
the credit committee made the decision to roll-over the loan for another year with maturity date on July
12, 2020. Based on credit committee decision in May 2020 payment of principal amount has been
prolonged until 30 December 2020 and weekly repayments of 8,000 USD will be made.
As of March 31, 2020, the amount of US$202k (CAD$256k) (March 31, 2019 - USD$187k (CAD$249k))
was classified as a current liability.
67
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
f)
Swiss loan CHF 837,500
On March 30, 2017, the Group acquired the Swiss based company Altasol SA, and assumed a loan
subscribed for the former owner on December 21, 2015 for the initial amount of CHF838k (CAD$1,161k).
The loan bears interest at a rate of 2.32% per annum. The loan is repayable in anticipated quarterly
tranches of CHF13k (plus accrued interest) (CAD$17k) and the maturity date is July 7, 2022.
As of March 31, 2020, the principal balance of the loan was CHF675k (CAD$993k) (March 31, 2019 -
CHF687.5k (CAD$922k)).
g)
Swiss loan CHF 1,000,000
On March 30, 2017, the Group acquired the Swiss based company Altasol SA, and assumed a loan
subscribed by the former owner on December 21, 2015 for the initial amount of CHF1,000k. The loan
bears interest at a rate of 2.2% per annum. The loan was repayable July 02, 2019 (plus accrued interest).
As of March 31, 2020, the principal balance of the loan was CHF nil (CAD$nil) (March 31, 2019 -
CHF1,000k (CAD$1,350)).
h) Convertible loan USD 1,500,000
On September 5, 2018, the Company entered into a US$1,500,000 unsecured convertible loan facility
with a term of 18 months starting from August 30, 2018. Zenith shall pay interest on the outstanding
amount of the convertible loans at the rate of 0% per annum. The Facility includes an initial immediate
advance of US$1,300,000 and a further advance of US$200,000, to be provided at a later time and only
at the discretion of the Lenders.
i)
Convertible loan GBP 1,000,000
On January 7, 2019, the Company entered into a new unsecured convertible loan facility for an
aggregate total amount of up to £1 million with a consortium of lenders. The loan facility has a term of
24 months and the Company shall pay interest on the outstanding amount of the loan facility at the rate
of 8% per annum. The loan facility is repayable on January 15, 2021.
j) Overdraft
The group has an overdrawn balance in one bank account of CAD$ nil (March 31, 2019 – CAD$ 39k). .
20.
Non-convertible bonds
Non-convertible bonds
Current
Non-current
Total
2020
CAD $’000
86
4,273
4,359
2019
CAD $’000
199
4,759
4,958
68
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
Non-convertible bonds
Balance – March 31, 2018
Interest
Issue of notes
Loan notes
Repayment of bonds
Balance – March 31, 2019
Interest
Loan notes
Bonds in treasury de-recognised
Repayment of bonds
Foreign exchange
Balance – March 31, 2020
Loan Notes
CAD $’000
407
14
153
4,759
(375)
4,958
82
3,058
(3,814)
(194)
269
4,359
To avoid the risk of the excessive dilution of the capital, the Company issued two different sets of
EMTN (Bond) accruing interest payable semi-annually and listed on European Stock Exchanges.
a. Zenith 8% EMTN - ISIN
AT0000A23S79
During the financial year 2019, the Group issued Loan Notes to finance its development activities
in Azerbaijan for a total amount of €3,120k (equivalent to CAD$4,759k), with the duration of 2
years. During the financial year ended March 31, 2020, the Company issued additional loan
Notes for a total amount of €6,880k (equivalent to CAD$9.8M). The maturity date of the Notes is
20 December 2021, and they carry an interest charge of 8% per annum, payable at maturity.
During the year ended March 31, 2020, the Company sold €1,837k (equivalent to CAD$2,617k) (2019
- €620k (equivalent to CAD$883k)) of Zenith 8% EMTN – ISIN AT0000A23S79 and at March 31, 2020
had in treasury €7,543k (equivalent to CAD$11,030k), ready to be sold.
b. Zenith EMTN Programme up to Euro 25+M
On January 20, 2020, the Company announced the issuance of the following unsecured, multi-currency
Euro Medium Term Notes, governed by Austrian law, at par value (the "Notes"):
• EURO 1,000,000 bearing interest of 10.125 per cent per year (the "EUR-Notes")
• GBP 1,000,000 bearing interest of 10.50 per cent per year (the "GBP-Notes")
• USD 1,000,000 bearing interest of 10.375 per cent per year (the "USD-Notes")
• CHF 1,000,000 bearing interest of 10.00 per cent per year (the "CHF-Notes")
The Notes were issued, and kept in Treasury, under Zenith's EUR 25,000,000 multi-currency Euro
Medium Term Notes Programme, as announced by the Company on November 6, 2019, and will be
due on January 27, 2024. The Notes were admitted to trading on the Third Market (MTF) of the Vienna
Stock Exchange ("Wiener Borse AG"). As of March 31, 2020, the Company sold Notes for GBP76k
(equivalent to CAD$128k) and USD$30k (equivalent to CAD$40k). The balance of the Notes issued were
69
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
kept in Treasury, ready to be sold, at that date.
The issue of the Notes is aligned with the Group’s strategy of diversifying its financing towards non-
equity dilutive funding to support its successful development.
The EMTN Programme, created with the primary purpose of financing the Company’s development
activities in Azerbaijan, with the related Prospectus being approved on November 6, 2019. Since its
strategic reconfiguration, the Company has been using the EMTN Programme to finance its activities
in the Republic of the Congo, Tunisia and Italy.The Company chose the Vienna Stock Exchange as it
was viewed as a highly accessible market in terms of simplicity of process and listing costs.
On 30 June 2020, the Company announced that it had fully paid the semi-annual interest in relation to
the Notes. The most recent interest payment in relation to the Notes is the third such payment, with
previous interest payments having taken place during the months of June 2019 and December 2019
respectively.
c. Revolving facility
On October 18, 2019, the Company entered into a credit line facility with Linear Investments Limited,
for the amount of Euro 200,000 (CAD$ 294k) for a duration of 18 months. The facility is secured by a
corresponding EMTN Zenith 8%, 2021 value.
d. Accounting situation as of March 31, 2020
At the year ended March 31, 2020, CAD$82k (March 31, 2019 - CAD$14k) is classified as a current
liability and CAD$4,273k (March 31, 2019 - CAD$4,759k) is classified as long-term.
70
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
21. Loss from discontinued operations
The Group has re-focused the geographic area of its activities. On March 2, 2020, the Company
announced that, in view of Zenith's strategic focus on pursuing large-scale oil production and
development opportunities in Africa, it would return the Contract Rehabilitation Area to SOCAR.
The handover of the Contract Rehabilitation Area (“CRA”) was effectively concluded in June 2020. As
publicly announced, the Group continued to operate the CRA from March 2020 until June 2020 when
the handover of the CRA was completed. The Group achieved a near total reduction of operating
expenses in Azerbaijan upon completion of the handover of the Contract Rehabilitation Area.
As per the REDPSA agreement with SOCAR, Zenith does not have to pay any kind of compensation fee
as a result of the termination thereof. In addition, there are no decommissioning fees to be borne by
Zenith. The Group has received a payment post year end for oil production of approximately US$508,000
from SOCAR corresponding to material revenues for the months of April, May and part of June 2020.
The costs associated with the termination of the Group’s operations in Azerbaijan are approximately
USD 0.5 million which are related to the transportation costs due to the relocation of the rig which was
previously installed in Azerbaijan to its operations in Congo.
As a result of this decision, the results of the subsidiary in Azerbaijan have been included in the loss
from discontinued operations in the statement of comprehensive income and they are comprised as
follows:
Revenue
Operating expenses
Depletion and depreciation
Administrative expenses
Finance expenses
Loss from operations in the year
Impairment of property, plant and
equipment
Impairment of inventories
Impairment of assets acquired from
Zena Drilling
Write back of deferred
consideration payable
Write back of decommissioning
provision
Write back of well abandonment
obligations
Write back of deferred tax
Total
2020
CAD$’000
4,074
(3,041)
(1,118)
(2,383)
(61)
(2,529)
(1,065,075)
(747)
(615)
483,690
1,790
60
2,793
(580,633)
71
2019
CAD$000
5,733
(4,370)
(1,857)
(1,528)
(68)
(2,090)
-
-
-
-
-
-
-
(2,090)
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
22. Decommissioning provision
The following table presents the reconciliation of the carrying amount of the obligation associated with
the reclamation and abandonment of the Group’s oil and gas properties:
Balance – beginning of year
Accretion
On acquisition of subsidiary (note 6)
Eliminated on discontinued operations (Note 21)
Foreign currency translation
Balance – end of year
2020
CAD $’000
9,089
714
5,561
(1,790)
(31)
13,543
2019
CAD $’000
9,140
363
-
-
(414)
9,089
The provision has been made by estimating the decommissioning cost at current prices using existing
technology. The following significant weighted average assumptions were used to estimate the
decommissioning obligation:
Italy
Undiscounted cash flows – uninflated
Undiscounted cash flows - inflated
Risk free rate
Inflation rate
Expected timing of cash flows
Congo
Undiscounted cash flows – uninflated
Undiscounted cash flows - inflated
Risk free rate
Inflation rate
Expected timing of cash flows
2019
CAD $8 million
CAD $8 million
3.4%
1.4%
14.5 years
2020
CAD $8 million
CAD $8 million
3.4%
1.4%
13.5 years
2020
CAD $8.5 million
CAD $11.5 million
3%
1.5%
15 years
The timings of the cash flows depend on the capital expenditure incurred and the development of assets
in each concession. Each concession has a license for a set number of years; however, the licenses could
be extended for longer periods if the operator incurs capital expenditure and develops the area. The
application process starts after a license is not extended or when the reserves of a particular concession
have been fully extracted.
72
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
23. Earnings per share
2020
CAD $’000
2019
CAD $’000
Net loss for the year
(580,633)
Net profit/(loss) from continuing operations
10,324
Net loss from discontinued operations
(570,309)
Basic weighted average number of shares
Potential dilutive effect on shares issuable under warrants
Potential diluted weighted average number of shares
Net earnings per share – basic and diluted (1) $
From continuing operations – basic and diluted $
From discontinued operations - basic and diluted $
401,617
n/a
n/a
(1.42)
0.03
(1.45)
$
$
$
(9,762)
(7,672)
(2,090)
227,509
n/a
n/a
(0.04)
(0.03)
(0.01)
(1) The Group did not have any in-the-money convertible notes, warrants and stock options during
the years ended March 31, 2020 and 2019.
24. Related party transactions
Related party transactions are considered to be in the normal course of operations and are initially
recognized at fair value. The related party transactions during the year ended March 31, 2020 and 2019
not disclosed elsewhere in these consolidated financial statements are as follows:
a) During the year ended March 31, 2020, the Company’s Chief Executive Officer and President, Mr.
Andrea Cattaneo:
Purchased a total amount of common shares of no-par value in
the capital of the Company
47,923,289
Subscription of common shares from exercise of stock options
Common shares sold
1,311,204
(19,860,000)
Transferred common shares as a gift to a family member for nil
consideration
Total increase during the FY ended March 31, 2020
Balance March 31, 2019
Balance March 31, 2020
(4,000,000)
25,374,493
19,609,622
44,984,115
b) Following the aforementioned dealings, as of March 31, 2020, Mr. Cattaneo was directly
beneficially interested in a total of 44,984,115 (March 31, 2019 – 19,609,622) Common Shares in
the capital of the Company, representing 7.80 per cent of the total issued and outstanding
common share capital of the Company.
73
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
c) As of March 31, 2020, Mr. Cattaneo is also indirectly interested in a total of 480,000 Common
Shares, today representing 0.08 per cent of the Company's issued and outstanding common share
capital.
d) During the year ended March 31, 2020, Mr. Cattaneo has granted bank guarantees (the
"Guarantees") in favor of the Zenith as listed below:
I.
Surety guarantee provided on 29 August 2016 in favor of Jui Feng for the total amount of
USD 2,185,336.70 (att. 1); subsequently in the month of February 2017 the amount of this
Guarantee, decreased to USD 1,485,337 as a result of the Company partially repaying its debt
and, from the October 1, 2019 the amount of this Guarantee decreased further to USD
1,000,000 following the Company’s agreement with the debtor to settle the liability at this
amount;
II.
III.
IV.
Surety guarantee in favour of Rabitabank (Azerbaijan), to support the credit facility of Zenith
Aran Oil the 100% owned subsidiary, for the amount of USD 320,000;
Surety guarantee in favour of Rabitabank (Azerbaijan), to support the credit facility of Zenith
Aran Oil the 100% owned subsidiary, for the amount of USD 200,000;
Surety guarantee provided on 20 December 2019 in favour of a lender, for the total amount
of GPB 250,000 represented by a financial collateral of no. 6,666,667 shares of the price of
GBP 0.0225 per each (as of December 2019 quote).
The Board defined the remuneration for Guarantees in favor of Mr. Cattaneo in the measure of 2% of
the total guarantees being £30k (equivalent to CAD$53k), and the associated terms and procedures
for the payment, calculated as follows:
Guarantee
From
To
Days
Currency
Original
Amount
GBP equivalent
Yearly
Rate
Remuneration
fee
I
01/04/2019
30/09/2019
182 USD
$ 1,485,337
£ 1,208,000
2%
£ 12,047
30/09/2019
31/03/2020
183 USD
$ 1,000,000
£ 813,036
2%
£ 8,153
II
III
IV
01/04/2019
31/03/2020
365 USD
$ 320,000
£ 260,171
2%
£ 5,203
01/04/2019
31/03/2020
365 USD
$ 200,000
£ 162,607
2%
£ 3,252
20/12/2019
31/03/2020
102 £
n/a
£ 250,000
2%
£ 1,397
£ 30,052
e) On May 15, 2019, Mr. Andrea Cattaneo, granted a call option on May 13, 2019 over 1,000,000
common shares of no-par value in the capital of the Company, owned by himself, at an exercise
price of CAD$0.10 per Common Share (approximately £0.057) that can be exercised between
July 1, 2019 and April 4, 2020.
f) Mr. Cattaneo has an overdrawn directors loan account which is used to make advances from the
Group and to settle amounts that become payable to him.During the year, Mr Cattaneo received
total advances of CAD$2,180k (2019: CAD$1,717k) from the Group which were used to settle
remuneration and reimburse general, travelling and administrative expenditures for business
activities conducted in Africa made on behalf of the Group using personal means, and for which
Board approval has been obtained at the time of publication of these results, which amounted
to CAD$1,984k (2019: CAD$1,475). At March 31, 2020 Mr Cattaneo owed the Group CAD$360k
74
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
(2019: CAD$ 164k)
The amount left at year end bears no interest, and it the total repayment is expected within the
Financial Year ending March 31, 2021.
g) General Transaction Inc., represented by its Chief Executive Officer and Chairman Mr. Sergey
Borovskiy, a Director of the Company, granted Zenith during past years a loan of CAD$127,878.
The maturity date of the loan, plus accrued interest at the yearly rate of 15%, is July 31, 2021.
The balance outstanding on March 31, 2020, is CAD$28,758 (2019 - CAD$127,878).
h) On February 17, 2020, Mr. Sergey Borovskiy, a Non-Executive Director of Zenith subscribed for a
total of 3,849,289 Norwegian Financing Shares, at a price of NOK 0.18 per share.
Following the aforementioned dealing, Mr. Borovskiy is directly beneficially interested in a total
of 3,849,289 Common Shares in the capital of the Company.
i) On February 17, 2020, Mr. Luigi Regis Milano, Executive Director of the Company, subscribed for
a total of 1,150,711 Norwegian Financing Shares, at a price of NOK 0.18 per share.
Following the aforementioned dealing, Mr. Luigi Regis Milano, is directly beneficially interested
in a total of 2,150,711 Common Shares in the capital of the Company. He is also indirectly
interested in a total of 8,662,963 Common Shares.
j) Mr. Erik Larre, a Director of the Company, granted during past year Zenith a loan of Euro 20,000
(CAD$31,598). The principal is repayable upon request and accrued no interest. The balance
outstanding on March 31, 2020 is CAD$31,598 (2019 - CAD$31,598).
k)
In the year ended March 31, 2020, Zenith granted Leonardo Energy Consulting S.r.l., an entity
where Zenith holds a 48% interest on its share capital, a loan of CAD$nil (2019 - CAD$5,393), to
develop its activities. The loan is unsecured, interest free and repayable on demand. The balance
outstanding on March 31, 2020 is CAD$24,921 (2019 – CAD$24,921).
l) On November 7, 2018, the Board granted Mr. Cattaneo a guarantee for the monthly payment
of his salary, with a further guarantee that his employment could not be terminated. This
decision was taken as a result of a a dispute which has arisen with a Chinese investor who
had loaned money to Zenith and that had filed a claim against Mr. Cattaneo, who has agreed
to act as first ranking guarantor in relation to the liability and against whom the Chinese
investor sought to take action. During the year ended March 31, 2020, the loan was repaid,
and all disputes were settled. As a result, Mr. Cattaneo repaid the guarantee for the
outstanding amount of CA$585,281.00.
m) During the financial year ended March 31, 2020 the Company paid to Mr, Saadallah Al-Fathy,
a former Non-Executive Director of the Group, the amount of GBP 10k (CAD$17k) relating to
Directors compensation granted in past exercises.
25. Commitments and contingencies
Asset Purchase commitments
The Company acquired the Congolese asset for a consideration of GBP 200,000, that was fully paid in May
2020.
On April 20, 2020, and on September 8, 2020, Zenith entered into two separate conditional acquisitions
in Tunisia from KUFPEC and CNPC, two world-renowned oil companies, for their respective working
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
interests in the Sidi El Kilani Concession. Upon completion, conditional upon regulatory approval being
granted by the Comité Consultatif des Hydrocarbures ("CCH") of the Republic of Tunisia, it is expected
that Zenith will have a daily production ranging between 250-300 barrels of oil per day.
The acquisition from Kupfec was agreed for a consideration of USD 500,000, of which USD 250,000 was
paid in June 2020, as per the terms of the conditional share purchase agreement in relation to this
transaction. The balance of the purchase price is due upon completion of the acquisition, which is
expected to be obtained during the month of November 2020.
The acquisition from CNPC was agreed for a consideration of USD 350,000, as per the terms of the
conditional share purchase agreement in relation to this transaction. The payment of the purchase price
is due upon completion of the acquisition.
26. Financial risk management and financial instruments
Financial assets at amortised cost
Non-current financial assets at amortised cost
Trade and other receivables
Director’s loan account
Cash and cash equivalents
Total financial assets
Financial liabilities at amortised cost
Trade and other payables
Loans
Non-convertible bond and notes
Deferred consideration
Total financial liabilities
March 31, 2020
CAD $’000
13
14,386
360
1,220
15,979
March 31, 2020
CAD $’000
18,832
4,470
4,359
-
27,661
March 31, 2019
CAD $’000
422
5,249
164
3,058
8,893
March 31, 2019
CAD $’000
12,115
7,193
4,958
483,854
508,120
Zenith finances its operations through a mixture of equity, debt and retained earnings. Finance
requirements are reviewed by the Board when funds are required for acquisition, exploration and
development of projects.
Zenith’s policy is to maintain an appropriate financial position to sustain future development of the
business. There were no changes to the Group’s capital management approach during the year ended
March 31, 2020.
Zenith’s treasury functions, which are managed by the board, are responsible for managing fund
requirements and investments which include banking, cash flow management, interest and foreign
exchange exposure to ensure adequate liquidity to meet cash requirements.
Zenith’s principal financial instruments are cash and deposits, and also trade and other receivables.
These instruments are used for meeting the Group’s requirement for operations.
Zenith’s main financial risks are foreign currency risk, liquidity risk, interest rate risk, commodity price
risk and credit risks. Set out below are policies that are used to manage such risks:
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
a) Credit risk
Credit risk is the risk of an unexpected loss if a customer or counter party to a financial instrument fails
to meet its commercial obligations. The Group’s maximum credit risk exposure is limited to the carrying
amount cash of CAD $1,220k (2019 – CAD $3,058k) and trade and other receivables of CAD $14,835k
(2019 – CAD $5,413k).
Deposits are, as a general rule, placed with banks and financial institutions that have credit rating of
not less than AA or equivalent which are verified before placing the deposits.
The composition of trade and other receivables is summarized in the following table:
Oil and natural gas sales
Goods and services tax
Other
March 31,
2020
CAD $’000
2,394
-
12,352
14,746
March 31, 2019
CAD $’000
1,321
41
4,051
5,413
The receivables related to the sale of oil and natural gas are due from large companies who participate in the
oil and natural gas industry in Argentina and Italy. Oil and natural gas sales receivables are typically collected
in the month following the sales month. No expected credit losses have been recognized in respect of trade
receivables of this nature.
The Group’s receivables are aged as follows:
Current
90 + days
b) Liquidity risk
March 31, 2020
CAD $’000
2,394
-
2,394
March 31, 2019
CAD $’000
1,238
124
1,362
Liquidity risk is the risk that the Group will incur difficulties meeting its financial obligations as they are
due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have
sufficient liquidity to meet its liabilities when due, under both normal and distressed conditions
without incurring unacceptable losses or risking harm to the Group’s reputation.
The Directors have considered the recoverability of the outstanding debts of the Group and do not
consider there to be any impairment necessary.
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
As of March 31, 2020, the contractual cash flows, including estimated future interest, of current and
non-current financial assets mature as follows:
Non-current financial assets at
amortised cost
Trade and other receivables
Director’s loan account
Cash and cash equivalents
Due on or
before 31
March
Contractual
2022
cash flow
CAD $’000 CAD $’000 CAD $’000
Due on or
before
31 March
2021
Carrying
Amount
CAD $’000
Due after 31
March 2022
CAD $’000
13
14,386
360
1,220
15,966
13
14,386
360
1,220
15,966
13
14,386
360
1,220
15,966
-
-
-
-
-
-
As of March 31, 2020, the contractual cash flows, including estimated future interest, of current and
non-current financial liabilities mature as follows:
Due on or
before
31 March
2021
Due on or
before 31
March
Contractual
2022
cash flow
CAD $’000 CAD $’000 CAD $’000
-
-
7,001
18,832
3,607
680
18,832
4,653
7,882
Carrying
Amount
CAD $’000
18,832
4,470
4,273
Due after 31
March 2022
CAD $’000
-
1,046
201
27,575
31,367
23,119
7,001
1,247
Trade and other payables
Loans
Non-convertible bond
c) Foreign currency risk
Foreign currency exchange risk is the risk that the fair value of future cash flows will fluctuate as a
result of changes in foreign exchange rates. Foreign exchange rates to Canadian dollars for the noted
dates and periods are as follows:
Closing rate
Average rate
US dollars
Euro
Swiss Franc
British Pound
Norwegian Crown
2020
1.4170
1.5586
1.4714
1.7532
0.1351
2019
1.3347
1.4971
1.3408
1.7382
-
2020
1.3360
1.4865
1.3542
1.6857
0.1399
2019
1.3120
1.5186
1.3245
1.7218
-
The following represents the estimated impact on net (loss)/income of a 10% change in the closing
rates as of March 31, 2020 and 2019 on foreign denominated financial instruments held by the Group,
with other variables such as interest rates and commodity prices held constant:
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
US dollars
Euro
Swiss Franc
d) Commodity price risk
March 31,
2020
CAD $’000
69
6
99
174
March 31,
2019
CAD $’000
63
18
226
307
Commodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of
changes in commodity prices.
As at March 31, 2020, a 5% change in the price of natural gas produced in Italy would represent a
change in net loss for the year ended March 31, 2020 of approximately CAD $5k (2019 – CAD $7k) and
a 5% change in the price of electricity produced in Italy would represent a change in net loss for the
year ended March 31, 2020 of approximately CAD $27k (2019 – CAD $35k).
e) Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest
rates. The Group has fixed interest on notes payable, loans payable and convertible notes and
therefore is not currently exposed to interest rate risk.
27. Capital management
The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going
concern, so that it can continue to explore and develop its projects to provide returns for shareholders
and benefits for other stakeholders. The Group manages its working capital deficiency, long-term debt,
and shareholders’ equity as capital.
Working capital
Long-term debt
Shareholders’ equity
March 31, 2020
CAD $’000
180
1,266
9,829
March 31, 2019
CAD $’000
(1,401)
3,417
569,081
The Group’s cash flows from its Italian operations will be needed in the near term to finance the
operations and repay vendor loans. Once the acquisition in Tunisia will be completed and the license in
Congo will be renewed, it will be required to match the same goals. Zenith’s principal source of funds will
therefore remain the issuance of equity. The Group’s ability to raise future capital through equity is
subject to uncertainty and the inability to raise such capital may have an adverse impact on the Group’s
ability to continue as a going concern. The Group is not subject to any externally imposed capital
requirements.
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
28. Net debt reconciliation
This section sets out an analysis of net debt and the movements in net debt for each of the periods
presented.
Cash and cash equivalents
Loans – repayable within
one year
Loans – repayable after one
year
Non-convertible bond –
repayable within one year
Non-convertible bond –
repayable after one year
March 31, 2020
CAD $’000
1,220
(2,210)
March 31, 2019
CAD $’000
3,058
(3,776)
(2,260)
(86)
(4,273)
(7,609)
(3,417)
(199)
(4,759)
(9,093)
Cash
Loans due
within
one year
Loans due
after one
year
Non-convertible
bond due within
one year
CAD $’000 CAD $’000 CAD $’000
(4,949)
2,497
(237)
CAD $’000
(407)
Non-
convertible
bond due after
one year
CAD $’000
-
Total
CAD $’000
(3,096)
1,099
-
-
(375)
-
-
-
-
-
-
-
-
-
-
(3,747)
3,747
-
(2,109)
(208)
208
-
-
45
3,058
-
-
(3,776)
(106)
-
(3,417)
80
(154)
(945)
-
(13)
-
375
-
-
-
-
-
(199)
-
(3,814)
(13)
(3,814)
-
-
-
-
-
-
(4,759)
-
-
(2,109)
-
(106)
45
(9,093)
Net debt
April 1, 2018
Issue of non-
convertibles
bonds
Interest on
non-convertible
bonds
Bonds in
treasury
Repayment of
non-convertible
bonds
Transfer from
current to non-
current
Issue of
convertible
loans
Repayment of
loans
Foreign
exchange
Net cash flow
March 31, 2019
3,058
(3,776)
(3,417)
(199)
(4,759)
(9,093)
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
March 31, 2019
Issue of non-
convertibles
bonds
Interest on non-
convertible
bonds
De-recognition
of bonds held in
treasury
Repayment of
non-convertible
bonds
from
Transfer
non-current to
current
Loan waived
(net
of
expenses)
Repayment of
loans
Foreign
exchange
3,328
-
-
(194)
-
-
-
-
-
-
-
-
(1,253)
1,253
-
-
-
-
584
(4,107)
4,107
-
132
(96)
Issue of loans
2,004
(2,004)
-
(3,328)
(81)
-
-
(81)
-
3,814
3,814
194
-
-
-
-
-
-
-
-
-
-
-
-
-
-
584
-
36
Net cash flow
(2,869)
March 31, 2020
1,220
-
(2,210)
-
(2,260)
-
(86)
-
(4,273)
(2,869)
(7,609)
29. Operating segments
The Group’s operations are conducted in one business sector, the oil and natural gas industry.
Geographical areas are used to identify Group’s reportable segments. A geographic segment is considered
a reportable segment once its activities are regularly reviewed by the Board of the Directors.
The Group has three reportable segments which are as follows:
Italy, which commenced gas operations following the acquisition of assets in June 2013;
•
• The Republic of the Congo, which was acquired during the 2020 FY
• Other, which includes corporate assets and the operations in the Canadian, Swiss, Argentinian
and Norwegian entities.
Azerbaijan, which was acquired during the FY 2017 and divested during FY 2020, is mentioned only for
comparative purposes with the past financial year. The results for Azerbaijan as of March 31, 2020 are
included in the “Discontinued Operations” (note 21).
81
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
YEAR 2019
Property and equipment
Other assets
Total liabilities
Capital Expenditures
Revenue
Operating and transportation
General and Administrative
Depletion and depreciation
Loss on discontinued operations
Finance and other expenses
Taxation
Segment loss
Azerbaijan
CAD $000
1,064,988
1,058
492,921
719
-
-
-
-
(2,090)
-
-
(2,090)
Italy
CAD $000
8,369
1,025
8,401
74
834
(210)
(405)
(375)
-
(380)
-
(536)
Other
CAD $000
6,281
6,966
18,285
4,412
-
(320)
(6,024)
(50)
-
(741)
(1)
(7,136)
Total
CAD $000
1,079,638
9,049
519,607
5,205
834
(530)
(6,429)
(425)
(2,090)
(1,121)
(1)
(9,762)
YEAR 2020
Property and equipment
Other assets
Total liabilities
Capital Expenditures
Revenue
Operating and transportation
General and Administrative
Depletion and depreciation
Loss on discontinued
operations
Gain on business
combination
Other gains
Finance and other expenses
Taxation
Segment loss
Azerbaijan
CAD $000
-
1,318
5,330
696
-
-
-
-
Congo
CAD $000
20,171
10,531
11,303
60
94
(131)
(294)
(33)
Italy
CAD $000
8,437
1,316
9,462
60
641
(376)
(807)
(284)
(580,633)
-
-
20,111
-
-
-
-
(580,633)
-
(4)
19,743
(449)
(1,275)
Other
CAD $000
5,697
3,613
15,159
531
-
(1,857)
(5,890)
(529)
Total
CAD $000
34,305
16,778
41,254
1,347
735
(2,364)
(6,991)
(846)
-
(580,633)
-
20,111
1,425
(1,293)
-
(8,144)
1,425
(1,742)
(4)
(570,309)
The following customers combined have 10% or more of the Group’s revenue:
Customer A
2020
2019
CAD $000
CAD $000
544
691
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
30. Controlling party
At as of the end of the financial year ending March 31, 2020, the Directors do not consider there to be
a controlling party.
31.
Events subsequent to the year end
• On April 8, 2020, the Company completed an offering in the United Kingdom, and an offering in Norway
(the "Financings"). Zenith raised an aggregate total amount of approximately £525k or NOK 6,750k or
CAD$921k, issuing 75,000,000 new Common shares at a price of £0.007 (0.7 pence), CAD$0.012 or NOK
0.09.
• On April 17, 2020, the Company announced that it has successfully renegotiated the terms for the
acquisition from AIM listed Anglo African Oil & Gas plc ("AAOG") of its fully owned subsidiary in the
Republic of the Congo, Anglo African Oil & Gas Congo S.A.U, ("AAOG Congo") which has a 56 per cent.
majority interest in, and is the operator of, the Tilapia oilfield in the Republic of the Congo (the "License").
The Company has entered into a new conditional Deed of Variation (the " Deed of Variation") which now
includes the acquisition of a 100 per cent. interest in AAOG Congo and related intercompany loans (the
"Acquisition") for a revised total consideration of £200,000 (equivalent to CAD$349k) (“Revised
Consideration”).
• On April 20, 2020, the Company announced that its newly created wholly owned subsidiary Zenith Energy
Netherlands B.V. (“Zenith Netherlands”) has signed a conditional sale and purchase agreement (“SPA”)
with KUFPEC (Tunisia) Limited (“Seller”), a 100% subsidiary of Kuwait Foreign Petroleum Exploration
Company K.S.C.C, a subsidiary of the State of Kuwait’s national oil company, for the acquisition of a
working interest in, inter alia, the North Kairouan permit and the Sidi El Kilani Concession (the “ Tunisian
Acquisition “), which contains the Sidi El Kilani oilfield (“SLK”).
The Seller holds an undivided 22.5% interest in the Tunisian Acquisition, together with 25 Class B shares in
Compagnie Tuniso-Koweito-Chinoise de Pétrole (CTKCP), the operator, representing 22.5% of the issued
share capital of the company.
Zenith’s partners in the Tunisian Acquisition will include the national oil company of Tunisia, Entreprise
Tunisienne d’Activités Pétrolières (ETAP) with a 55% interest and CNPC, China National Petroleum
Corporation with a 22.5 % interest.
The Seller has agreed to sell, assign and transfer to Zenith Netherlands the Tunisian Acquisition on the
terms and subject to the conditions set out in the SPA.
The consideration payable by Zenith Netherlands under the SPA is US$500,000 (equivalent to CAD$700k).
• On April 22, 2020, the Company announced:
•
its intention to delist from the TSX Venture Exchange (“TSX-V”)
• confirmed the full repayment of its largest outstanding liability.
Delisting from TSXV
Following the Company’s dual listing on the Main Market for listed securities of the London Stock Exchange
(“LSE”) in January 2017 and the admission of its entire share capital to the Merkur Market of the Oslo Børs
(“Merkur Market”) in November 2018, the Company has seen its investor base move increasingly towards
the UK and Norway, with limited investor support from the Canadian market. The Company has found UK
and Norwegian investors to be more receptive to and interested in junior production and exploration
83
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
companies, and therefore more suited to support companies such as Zenith. The Company intends on
maintaining such listings and as such will provide continued trading liquidity of common shares in the
capital of Zenith (“Common Shares”) to its public shareholders.
Repayment of Loan Facility for US$1,485,000 and accrued interest
The amount of the principal, and related accrued interest, of the Loan Facility is represented and
accounted as a liability in the audited Annual Financial Report of the Company as of March 31, 2019, and
in the unaudited Q2 Financial Statements as of September 30, 2019, for an aggregate amount of
US$2,080,523 (equivalent to CAD$2,755k).
On October 1, 2019, the Company announced that, following negotiations with the lender, it had
successfully agreed to settle the aforementioned liability for a reduced amount of US$1,000,000
(equivalent to CAD$1,324k), representing a gain of US$1,080,523 (equivalent to CAD$1,431k).
The Company confirmed that the liability has been settled in full.
• On April 23, 2020, the Company confirmed that its Azerbaijan subsidiary received two payments for a total
of approximately US$350,000 (equivalent to CAD$496k)from SOCAR.
• On April 30, 2020, the Company announced the issue of 60,000,000 new common shares, raising gross
proceeds of approximately £540k or NOK 6,600k or CAD$900k (the "Private Placement"). The issue price
of the new common shares issued under the Private Placement is £0.009 (0.90 pence), NOK0.11 or
CAD$0.015.
• On May 5, 2020, the Company announced the successful completion of the acquisition from AIM listed
Anglo African Oil & Gas plc ("AAOG") of a 100 percent interest in its fully owned subsidiary in the Republic
of the Congo, Anglo African Oil & Gas Congo S.A.U ("AAOG Congo"), which has a 56 percent majority
interest in, and is the operator of, the Tilapia oilfield.
In accordance with the terms of the amended share purchase agreement, completion ("Completion") has
taken place within one business day of AAOG shareholder approval being obtained at the AAOG general
meeting heldon May 4, 2020.
• On May 28, 2020, the Company announced the TSX Venture Exchange ("TSX-V") had confirmed that
effective at the close of business Friday, May 29, 2020, the common shares of the Company will be delisted
from the TSX-V at Zenith's request.
• On June 9, 2020, the Company announced that it had completed a private placement in Norway, to raise
an aggregate total amount of approximately NOK 7,600k (approximately £645k or CAD$1,098k), issuing a
total of 80,000,000 common shares of no-par value in the capital of the Company at an issue price of NOK
0.095, equivalent to approximately £0.008 (0.8 pence) or CAD$0.013.
• On June 11, 2020, the Company announced that it has made payment for a total of US$250,000
(approximately CAD$350k) to Kuwait Foreign Petroleum Exploration Company K.S.C.C ("KUFPEC"), a
subsidiary of the State of Kuwait's national oil company, in relation to the acquisition of a 22.5% working
interest in the North Kairouan permit and the Sidi El Kilani Concession (the "Tunisian Acquisition"), which
contains the Sidi El Kilani oilfield ("SLK").
Completion of the Tunisian Acquisition remains conditional on approval being granted by the Comité
Consultatif des Hydrocarbures of the Republic of Tunisia in respect of the transfer of the Seller's right,
title and interest in and under the Tunisian Acquisition to Zenith Netherlands. Zenith has initiated the
84
Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
necessary formalities in relation to the aforementioned approval process, and that a decision is expected
in due course.
• On June 25, 2020, the Company announced it completed the handover process (the "Handover") of the
Contract Rehabilitation Area to SOCAR in the Republic of Azerbaijan. As a result of the Handover, Zenith
has ceased all oil production operations in Azerbaijan and all field production personnel, approximately
170 employees, have been transferred to a division of SOCAR.
• On June 30, 2020, the Company announced that it has fully paid the semi-annual interest in relation to
the following debt instrument "ZENITH ENERGY LTD 8% NOTES - 2021". The most recent interest payment
in relation to the Notes is the third such payment, with previous interest payments having taken place
during the months of June 2019 and December 2019 respectively.
• On July 7, 2020, the Company announced that it has entered into a joint venture agreement (the
"Agreement") with a local oil & gas company in the Republic of the Congo.
The primary objective of the Agreement is the potential acquisition of an onshore oil production licence
(the "Potential Acquisition"), last producing at a rate of approximately 300 barrels of oil per day from the
regionally proven Mengo formation as recently as 2019. Production has currently been suspended
pending the assignation of a new licence.
The Potential Acquisition is located in the Kouilou region of the Republic of the Congo in proximity of
Pointe-Noire, the country's second largest city, and is also in the vicinity of Tilapia, the Company's recently
acquired oil production asset with transformational production potential.
Under the terms of the Agreement, the Company and its local partner will jointly submit an application
to the relevant authorities in the Republic of the Congo, including the Ministry of Hydrocarbons, for the
award of a new licence in relation to the Potential Acquisition.
Further, in accordance with the Agreement, it is stipulated that Zenith shall have the role of joint operator
and majority partner in the event that a new licence is successfully obtained in relation to the Potential
Acquisition.
Following preliminary technical analysis of the Potential Acquisition, as part of the due diligence activities
conducted prior to entering into the Agreement, Zenith is confident that profitable oil production
operations can be achieved following the reactivation of the Potential Acquisition and the performance
of targeted, low-intensity workover activities.
• On July 10, 2020, the Company announced that it has completed a private placement in Norway, to raise
an aggregate total amount of approximately NOK 3,120k (approximately £260k or CAD$449k), issuing a
total of 60,000,000 common shares of no-par value in the capital of the Company at an issue price of NOK
0.08, equivalent to approximately £0.007 (0.7 pence) or CAD$0.012 per share.
• On July 31, 2020, the Company announced that its Italian subsidiary has received approval to be
awarded a legally binding loan facility (the "Loan") for an amount of approximately EUR 300k
(approximately CAD$474k) from an Italian governmental entity. The Loan attracts an interest rate of
0.85 per cent, has a grace period of 24 months during which only the interest will be payable, normal
financial covenants, and a duration of six years. Under the terms of the Loan, all funds to be disbursed
are to be utilised for the purpose of the establishment of commercial activities in Africa, specifically
in the Republic of Congo and the broader West Africa region.
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
• On July 31, 2020, the Company announced the termination, by mutual agreement between the parties,
of the sale and purchase agreement entered into with Coro Energy plc ("Coro") relating to the proposed
acquisition by Zenith of Coro's entire Italian natural gas production and exploration portfolio.
• On August 6, 2020, the Company announced that it has completed a private placement in Norway, to
raise an aggregate total amount of approximately NOK 7,200k (approximately £604k or CAD$1,060k).
The issue price of the Financing was NOK 0.08 per common share of no-par value in the capital of the
Company (“Common Shares”), equivalent to approximately £0.007 (0.7 pence) or CAD$0.012.
Zenith has issued a total of 90,000,000 new Common Share units ("Units"). Each Unit comprises 1
Common Share and half a warrant. The Company therefore issued 90,000,000 new Common Shares in
connection with the Financing and 45,000,000 Common Share purchase warrants (the "Warrants")
exercisable within 12 months at an exercise price of NOK 0.15 (approximately CAD$0.022).
• On August 7, 2020, the Company announced it had extended the duration of the non-binding Letter of
Intent signed with an Arab consortium of strategic institutional investors focused on African
development opportunities and to provide an investment of US$2 million in Zenith's share capital for a
period of 90 days (the “Strategic Investment”). The Strategic Investment is conditional and subject to a
number of conditions, including the successful completion of the publicly announced Tunisian
Acquisition, as well as the successful acquisition of two oil production licenses currently being
negotiated with a national oil authority in West Africa. In addition, the Strategic Investment is also
conditional on the appointment of a director proposed by the investors to Zenith's Board.
• On August 10, 2020, the Company announced it had incorporated Zenith Energy Congo SA (“Zenith
Congo”), a fully owned subsidiary of the Company, created under the laws of the Republic of Condo.
Zenith Congo has been established at the request of the Ministry of Hydrocarbons for the purpose of
receiving a new 25-year licence following the submission of a comprehensive commercial and technical
offer (the “Offer”) to the Ministry of Hydrocarbons of the Republic of the Congo for the award of a new
25-year licence for the Tilapia oilfield to be named "Tilapia II". As a result, and in agreement with the
Ministry of Hydrocarbons, the Company has terminated the Plan for the Continuation of Activities, first
announced to the market on July 20, 2020, and returned operatorship of the Tilapia licence from AAOG
Congo to a subsidiary of SNPC. It is planned that, in the event the Offer is accepted by the Ministry of
Hydrocarbons of the Republic of the Congo, the new operator of Tilapia II will be Zenith Congo.
• On August 26, 2020, the Company announced that BCRA Credit Rating Agency AD ("BCRA") has assigned
Zenith a "B-" with Stable Outlook long-term debt issuer credit rating.
• On September 8, 2020, the Company announced that its wholly owned subsidiary Zenith Energy
Netherlands B.V. ("Zenith Netherlands") has signed a conditional sale and purchase agreement ("SPA")
with CNPC International (Tunisia) Ltd., ("Seller"), a 100% subsidiary of CNPCI, CNPC International Ltd., f
or the acquisition of a working interest in, inter alia, the North Kairouan permit and the Sidi El Kilani
Concession (the " Tunisian Acquisition "), which contains the Sidi El Kilani oilfield ("SLK").
• The Seller holds an undivided 22.5% interest in the Tunisian Acquisition, together with 25 Class B shares
in Compagnie Tuniso-Koweito-Chinoise de Pétrole (CTKCP), the operator, representing 25% of the issued
share capital of the company.
The Seller has agreed to sell, assign and transfer to Zenith Netherlands the Tunisian Acquisition on the
terms and subject to the conditions set out in the SPA.
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Zenith Energy Ltd.
Annual Report & Financial Statements
For the Year Ended March 31, 2020
The consideration payable by Zenith Netherlands under the terms of the SPA is US$300,000 (the
"Consideration").
Completion of the SPA is conditional on approval being granted by the Comité Consultatif des
Hydrocarbures ("CCH") of the Republic of Tunisia in respect of the transfer of the Seller's right, title and
interest in and under the SLK Concession to Zenith Netherlands ("Completion").
• On September 25, 2020, the Company announced that it has completed a private placement in Norway,
to raise an aggregate total amount of approximately NOK 4,520k (approximately £409k or CAS$ 635k),
issuing a total of 100,000,000 common shares of no-par value in the capital of the Company at an issue
price of NOK 0.045, equivalent to approximately £0.004 (0.4 pence) or CAD$0.01 per share.
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