Zephyr Energy Plc Annual Report 2015

Plain-text annual report

Rose Petroleum plc Rose Petroleum plc Annual Report and Financial Statements For the year ended 31 December 2015 Contents Directors, Advisers and Oﬃcers Chairman’s Statement Strategic Report Directors’ Report Corporate Governance Statement Statement of Directors' Responsibili5es Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Company Balance Sheet Company Statement of Changes in Equity Company Cash Flow Statement Notes to the Financial Statements 02 03 04 11 14 16 17 19 20 21 22 23 24 25 26 27 Annual Report and Accounts for the year ended 31 December 2015 01 Rose Petroleum plc Directors, Advisers and Oﬃcers Non-Execu&ve Chairman Non-Execu&ve Director Chief Execu&ve Oﬃcer Chief Opera&ng Oﬃcer Mining Chief Financial Oﬃcer Directors PE Jeﬀcock KB Sco6 MC Idiens KK He%on CJ Eadie Secretary IH McNeill Registered Oﬃce 145-157 St John Street London EC1V 4PW Auditor KPMG LLP 15 Canada Square London E14 5GL Registrars Capita Asset Services 34 Beckenham Road Beckenham Kent BR3 4TU Financial Public Rela2ons IFC Advisory Limited 73 Watling Street London EC4M 9BJ Solicitors Memery Crystal LLP 44 Southampton Buildings London WC2A 1AP Nominated Adviser and Broker Allenby Capital Limited 3 St Helen’s Place London EC3A 6AB Bankers Barclays Bank Plc Level 27 1 Churchill Place London E14 5HP 02 Annual Report and Financial Statements for the year ended 31 December 2015 Chairman’s Statement The period under review has been a 5me of restructuring, consolida5on and transforma5on for the Company as the Board looks to adapt the strategy and direc5on of the Company to reﬂect current market condi5ons and ensure its future growth and development. The Board believes that the Company is now be6er posi5oned, not only to survive the current market shakeup, but also to be in a posi5on to take advantage of opportuni5es that may arise both before and a%er a recovery in the sector. As outlined in the Company's Interim ﬁnancial results, which were released in September 2015, the prevailing market condi5ons have provided the Board with an extremely challenging backdrop against which to operate. As a consequence, the Board has taken decisive ac5on during the period that have de-risked and safeguarded the exis5ng asset por4olio, reduced liabili5es and which have materially reduced opera5onal costs to conserve exis5ng cash resources. In addi5on the Board has been ﬂexible and proac5ve in iden5fying poten5al opportuni5es. Despite the post period end withdrawal from its Mancos and Cisco Dome acreage, the Board believes that its oil and gas por4olio is s5ll of a scale and quality to deliver long term shareholder value. The Paradox assets were acquired due to their prospec5vity, size, loca5on, and rela5vely low breakeven price, and despite the downturn in the oil sector, all these factors s5ll apply. However, by reducing the size of the Company’s acreage, the Board has achieved the twin objec5ve of both retaining the core part of its Oil and Gas por4olio and also signiﬁcantly reducing costs and liabili5es. While the cost cu7ng across the Group to date has been radical and far-reaching, the Board has ensured that it has retained an opera5onal capability suﬃcient to meet its commitments for the foreseeable future. As well as protec5ng the exis5ng asset base and posi5oning the Group for the eventual upturn, the Board is also conﬁdent that the Company can take advantage of poten5al acquisi5on opportuni5es that will inevitably arise. We have reviewed numerous poten5al opportuni5es since the downturn in the oil price, looking to create shareholder value ahead of the recovery of the oil sector, and I was delighted that we have recently secured an investment in the Company which will enable us to pursue some very exci5ng prospects in Cuba. We believe that a transac5on in this space would complement our exis5ng asset por4olio, and that the investment demonstrates conﬁdence in the Company’s management team to deliver on the project. The overall economic and poli5cal changes taking place in Cuba present a striking opportunity, with direct foreign investment now being a priority, to realise the country’s an5cipated growth. In the tourism industry alone, the planned expansion of hotel developments from both domes5c and interna5onal brands is considerable. While there is no certainty that any transac5on will complete, we have had, and con5nue to be in direct discussions with, both a Cuban Government owned company and the relevant ministries in Havana about a poten5al transac5on. In summary, the strategy of the Company is clear and the next phase of ac5vity is clearly deﬁned; the mining and Oil and Gas asset por4olio is de-risked, secure and is well posi5oned for recovery, costs and liabili5es have been reduced to ensure the longevity of the Company and we will con5nue to whole-heartedly pursue the Cuban opportunity and any other projects that will deliver value near-term to our shareholders. I would like to take this opportunity to thank the Rt Hon Earl of Kilmorey PC for his commitment and support during his 5me as Chairman, and to our investors, advisers and employees for their con5nuing support during this challenging period. The Board is looking forward to upda5ng you on progress throughout the rest of 2016, which promises to be an exci5ng period in the Company’s ongoing evolu5on. PE Jeﬀcock 6 June 2016 Annual Report and Financial Statements for the year ended 31 December 2015 03 Rose Petroleum plc Strategic Report The Directors present their strategic report on the Group for the year ended 31 December 2015. Principal Objec2ves and Strategies Rose Petroleum plc is a diversiﬁed Oil & Gas (“O&G”) and Mining Company with both explora5on and produc5on assets. The key strategic objec5ve is to deliver shareholder returns through the enhancement of these assets. This key objec5ve will be achieved by various strategies: • • • • • con5nuing development of a Board consis5ng of highly experienced professionals covering O&G, mineral explora5on, mine development, ﬁnancing and ﬁnancial control of public companies; strong and experienced management teams to maximise returns from the Company’s underlying O&G and Mining assets; the poten5al acquisi5on of further interests through acquisi5on, farm-in agreements and joint arrangements to deliver near-term value to stakeholders; considera5on of the capital and ﬁnancing required to achieve our objec5ves and market percep5on; and 5ght ﬁnancial control and cash conserva5on. Review of Opera2ons Oil & Gas Division U.S.A. During the strong oil price environment of 2014 and early 2015, the Group entered into agreements under which it was able to earn into a 75% working interest in approximately 263,000 gross acres in Utah. The area of focus of the acreage is on two unconven5onal oil and gas basins: the Uinta Basin, which targets the Mancos Shale at a maximum depth of approximately 3,200%, and the Paradox Basin that targets the Paradox Clas5cs at a maximum depth of approximately 10,500%. Under the terms of the original agreement, the Group was to carry the seller of the acreage, Rockies Standard Oil Company LLC (“RSOC”), which was to retain a 25% working interest in the leasehold, for the ﬁrst US$17 million expenditure on the projects: US$9.5 million in the Uinta Basin and US$7.5 million in the Paradox Basin. Part of the Group’s land posi5on was secured through the acquisi5on, in October 2014, of the Cisco Dome Field, adjacent to the Mancos acreage, which included 76 miles of a mid-stream gathering system, a gas processing plant, a compressor sta5on and main pipeline tap and meter into Williams’ 26” natural gas pipeline. The Cisco Dome ﬁeld also contained over ﬁ%y historical conven5onal wells. During 2014, and subsequent to the acquisi5on of the Cisco Dome ﬁeld, Ryder Sco6 Company LP (“Ryder Sco6”) completed a reserve report on the Utah leasehold. Based on that reserve report, the Group’s Mean Un-Risked Recoverable Prospec5ve Resources across its total acreage were es5mated to be 1.8 billion barrels of oil (“BO”) and 6.45 trillion cubic feet of gas (“TCFG”), see Table 1 below. Of these total resources, it was es5mated by Ryder Sco6 that the Paradox acreage contained over 1.1 billion BO (61% of the total BO resources es5mated) and circa 2.2 TCFG (34% of the total gas resources es5mated), whilst the Mancos acreage contained circa 710 million BO (39% of the total BO resources es5mated) and circa 4,260 TCFG (66% of the total gas resources es5mated). 04 Annual Report and Financial Statements for the year ended 31 December 2015 Strategic Report con5nued Table 1: Es5mated 100% Gross Volumes Unrisked Prospec5ve Recoverable Hydrocarbon Resources (Es5mated Ul5mate Recoverable Reserves -EUR) in the Mancos Shale (Uinta Basin) and Paradox Forma5on (Paradox Basin): Prospect/ Forma2on EUR Oil/Condensate – MMBO EUR Gas – BCFG Low Best High Mean Low Best High Mean Mancos Totals 178.20 517.79 1,465.79 709.78 1,054.6 3,090.86 8,810.70 4,260.41 Paradox Totals 452.27 966.37 1,994.50 1,115.29 874.43 1,888.46 3,913.55 2,187.46 (MMBO = million barrels of oil, BCFG = billion cubic feet gas) (Full Report available on the website: www.rosepetroleum.com) In the report, Ryder Sco6 also gave an opinion on the chance of success in the Paradox and Mancos acreage and concluded that the chance of success within the Paradox leases was up to 56%, compared with 30% in the Mancos leases. During the la6er part of 2014 and during 2015, the Group concentrated its eﬀorts on the Mancos due to the rela5ve ease of drilling with its shallow depth, low drilling costs, and good infrastructure. The Board was hopeful that a demonstra5on of the prospec5vity of the Mancos could be achieved in quick 5me and that a successful drilling campaign would provide the catalyst of cashﬂow that would enable the commencement of the Paradox ac5vity. Although the ini5al analy5cal results from the core taken at the State 1-34 well within the Mancos acreage were encouraging, the Group’s follow up work, which was designed to further de-risk the opportunity, was not as convincing as was hoped and it led the Board to conclude, as part of its strategic review, that the Mancos, due to its depth in the loca5on of the Group’s acreage, may have had insuﬃcient pressure/energy to be commercial and therefore represents too high a risk proﬁle to merit further work at that stage. The Board concluded that the Paradox basin presents a lower risk opportunity, with greater poten5al and a higher chance of success. The Paradox Basin has been ac5vely exploited by Fidelity Explora5on and Produc5on (“Fidelity”), mainly in the Cane Creek Forma5on, 18 to 27 miles south-south east of the main group Paradox lease blocks. Fidelity has been the most ac5ve operator in the Paradox basin over the past two years with average Q1 2015 produc5on of 2,100 barrels of oil per day (“boepd”). In addi5on to Fidelity’s success, mul5ple wells in the area of the Group’s leases have produced oil and gas to surface from various forma5ons, and it is a combina5on of all these factors that led the Board to the conclusion that it should focus on its Paradox Basin acreage. Revised agreement with RSOC Having considered all of the above, the Board announced in April 2016 that it had entered into an agreement with RSOC to terminate its earn-in rights to the Mancos acreage and dispose of the Cisco Dome ﬁeld, wells, pipelines, gas tap, gas plant, and all the associated equipment and liabili5es. As part of the revised agreement with RSOC, the Group agreed to cover the cost of the exis5ng plug and abandonment (“P&A”) liability of the four wells already scheduled for P&A with the authori5es, which was calculated to be US$0.3 million. The Group also agreed to leave the exis5ng operator bonds in place with the State of Utah and Bureau of Land Management (“BLM”). RSOC, in turn, agreed to reduce the Group’s carry obliga5on to earn the 75% working interest in the Paradox acreage by US$2 million to US$5.5 million. The Group also gained the exclusive op5on to acquire 100% of RSOC’s interest (as opposed to the earn-in to 75% of RSOC’s interest) in the Paradox acreage for a one-5me payment of US$1.0 million at any 5me prior to 30 June 2016. Annual Report and Financial Statements for the year ended 31 December 2015 05 Rose Petroleum plc Strategic Report con5nued The reassignment of the Mancos assets will signiﬁcantly reduce the future expenses the Group would have had to pay on this acreage including lease rental/minimum royalty payments associated to the Mancos leasehold. Further, and poten5ally more importantly, the Group will no longer be liable for the P&A liability of the ﬁ%y plus wells in the Cisco Dome ﬁeld. This reduc5on of acreage has also led to a reduc5on of headcount in the O&G Denver oﬃce and there is now only one full-5me employee managing the Paradox acreage. Next steps The Group is currently in the process of obtaining permits for a 61 square mile 3D seismic shoot in the Paradox which we an5cipate will be granted in Q4 2016. It is hoped that posi5ve results from this seismic will provide a suﬃcient base on which to secure a funding partner to enable the Group to drill its ﬁrst Paradox well. The Board feels that its strategy to unlock value from the Paradox should be the same as that used by Fidelity, namely a 3D seismic shoot for target iden5ﬁca5on followed by drilling. Mining Division Gold and Silver Mining Opera2ons, Mexico The Group’s mining projects in Mexico con5nue to be operated by its wholly owned subsidiary, Minerales VANE S.A. de C.V. (“MV”), which is headquartered in Acaponeta, Nayarit. Mill produc5on is carried out at its nearby mill in San Dieguito de Arriba (“SDA”) where it also operates an analy5cal facility. Mine produc5on from the Mina Charay Mine located in northern Sinaloa commenced in late December 2014 and con5nued un5l November 2015. Produc5on ramped up as the mine was developed and by the end of June, ore produc5on had reached the forecasted rate of 100 tonnes/day. A total of approximately 23,500 tonnes of ore were mined from Mina Charay during 2015, and these tonnes were processed by the SDA mill. This tonnage yielded 3,391 ounces (“oz “) of gold and 26,736 oz of silver. The average mill head grade for period averaged 6.03 grammes per tonne (“g/T”) gold and 61.4 g/T silver. Recoveries for the period averaged 71.7% for gold and 54.4% for silver. These recoveries were slightly lower than had been forecasted due to oxide ore being encountered while developing the mine in the upper part of the vein where there was no drill coverage. Unfortunately, the posi5ve opera5onal eﬀorts were overshadowed by the con5nued decline in metals prices. This, combined with the lower than expected recoveries put a strain on the opera5on and the Board took the decision to suspend opera5ons, a decision which was announced to the market on 9 December 2015. The Company is now focusing on toll milling third party ore at the SDA mill while it searches for new joint produc5on opportuni5es. The processing of third party ore has already commenced and further ore has been iden5ﬁed which will enable the Company to keep the mill opera5ng and is expected to more than cover the direct opera5ng costs of the mill. Base and Precious Metal Explora2on, Mexico During 2014, the Group added the Tango project to its por4olio, consis5ng of the Tango, Tango 2, Tango 3 and Tango 5 concessions located in southern Sinaloa. The Tango property covers what appears to be a classic base and precious metals porphyry system. The property hosts two porphyries, one containing copper and the other, molybdenum mineraliza5on as well as several historic high-grade, narrow-vein gold and silver mines on the margin of and associated with the porphyries which could provide near-term produc5on to SDA. Minera Camargo had completed signiﬁcant explora5on on the property and brought the program to the drilling stage. MV veriﬁed the work and the project was entered into by means of a proﬁt share and op5on agreement with Minera Camargo S.A. de C.V. (“Camargo”). The four Tango concessions cover 3,954 hectares (39.54km²). 06 Annual Report and Financial Statements for the year ended 31 December 2015 Strategic Report con5nued Under the terms of the agreement, MV will operate all mining ac5vi5es and gross margin from the precious metals veins would be allocated on the basis of a 50:50 proﬁt split. In addi5on, MV holds an op5on to earn a 75% ownership of the base metals (the porphyries) by inves5ng US$5 million in work expenditures over a period of ﬁve years. During 2015, the Group was ac5ve in preparing permit applica5ons and all permits required to commence drilling at the project have now been received. The Board is now reviewing op5ons for the commencement of a drilling programme. These permits will also cover drilling the high-grade vein structure at the San Agus5n gold and silver mine. It is hoped that, when drilled, this mine will, due to its close proximity, provide ore for the Company’s SDA mill, which is located considerably closer to the mill than the Mina Charay Mine. Due to current market condi5ons, there have not yet been suﬃcient funds available to commence drilling at the Tango project. The Board is now considering a number of diﬀerent op5ons for advancing the project and will keep the market updated on progress. Copper Explora2on, Southwest U.S.A. The Group’s U.S. porphyry copper programme is operated by its wholly owned subsidiary AVEN Associates LLC located in Tucson, Arizona. The copper explora5on programme con5nues on a care and maintenance basis with the property posi5ons being kept current while third-party ﬁnancing is sought to con5nue the programme. AVEN met with a number of interested par5es during the year and interest con5nued through the end of the year and into 2016. In April 2016, the Group announced that it had entered into an agreement with privately held Burde6 Gold LLC to conduct explora5on drilling on the Ardmore copper project which consists of 18 unpatented mining claims located north of Tucson. The terms included a US$5,350 cash payment to the Group and a retained 15% carried interest on the claims as well as any property that Burde6 acquires which is located within a 3-mile area of interest. Burde6 will be responsible for opera5ons and the Group is released from all costs and liabili5es. Burde6 has received the drilling permit and commenced drilling during April. Uranium Explora2on, U.S.A. The Group’s uranium assets con5nue to be held and managed in its wholly owned subsidiary VANE Minerals (US) LLC (“VANE”), and the programme is led by the joint opera5on with Anﬁeld Resources Inc. (“Anﬁeld”). During 2015, Anﬁeld acquired the 50% interest in the joint opera5on previously held by Uranium One Americas Inc. The most signiﬁcant asset was the Wate Project located on State of Arizona lands and operated under Wate Mining Company LLC. (“Wate”), and in February 2015, the Board disposed of the Group’s 50% interest in Wate project to EFR Arizona Strip LLC. (“EFR”), a subsidiary of Energy Fuels Resources. A total considera5on of US$1.75 million was agreed, consis5ng of an immediate cash payment of US$0.25 million, a US$0.5 million non-interest bearing promissory note, payable in two equal instalments of US$0.25 million on each of the ﬁrst and second anniversaries of Closing, a further US$0.5 million condi5onal cash, and a 2% produc5on royalty on EFR’s stake in the project. A further US$0.25 million tranche of considera5on was due to be paid to the Group in Q1 2016. The Group was informed by EFR that it is having delays with the State of Arizona over obtaining the Mineral Lease on the project due to the State’s unusual condi5on that EFR obtain access rights to the project over private land that surrounds the State parcel. Consequently, EFR proposed an addendum to the agreement terms whereby they would pay US$0.05 million of the US$0.25 million due in Q1 2016 and defer the rest of the payment un5l the commencement of commercial produc5on. The only real alterna5ve was for EFR to default on the agreement and return the Group’s 50% interest in the project. Given EFR’s scale and presence in this market, the Group felt that it was in the best interests of shareholders to accept the US$0.05 million and agree to the addendum to the original Annual Report and Financial Statements for the year ended 31 December 2015 07 Rose Petroleum plc Strategic Report con5nued contract. Therefore, by the end of February 2016, EFR had paid US$0.3 million of its contractual considera5on payments. EFR is ac5vely engaged in securing access to, as well as the environmental permi7ng, on the project. Cuba Gypsum Opportunity In May 2016, the Group announced that it has raised gross proceeds of US$1.2 million (£800,000), primarily to further develop opportuni5es that have arisen in Cuba and speciﬁcally around the processing and manufacturing of gypsum and associated building materials. As men5oned in the Chairman’s Statement, the Board believes that there are signiﬁcant near term opportuni5es in the Cuban construc5on industry, which would complement the exis5ng asset base and enable the Group to seek to create value in this rapidly expanding market. The overall economic and poli5cal changes taking place in Cuba present a signiﬁcant opportunity, with direct foreign investment now being a priority to realise the country’s an5cipated growth. In the tourism industry alone the planned expansion of hotel developments from both domes5c and interna5onal brands is considerable. The Group could be well posi5oned to beneﬁt from this should we successfully complete our nego5a5ons. It is worth no5ng that, at present, there is no domes5c supply or produc5on of gypsum panels or wallboard for the construc5on of internal walls within Cuba, and providing domes5c sources is naturally very important for Cuba and its development. Cuban authori5es have stated that there are signiﬁcant gypsum resources within Cuba that can support manufacturing and have allowed Group representa5ves to visit one of the deposits. The Board will keep the market fully updated on progress. Financial Review Income Statement Revenue for the year was generated primarily from the Group’s precious metals mining and milling opera5ons in Mexico. The Income Statement reports total revenue for the year ended 31 December 2015 of US$4.3 million (2014: US$3.1 million). The increase in revenues was primarily the result of having a near full year of produc5on from the Mina Charay gold/silver project which was not the case in 2014. Opera5ons at Mina Charay ceased in December 2015 and the Group is currently focusing on toll milling third party ore at the SDA mill while it explores new opportuni5es. The Group reports a net loss a%er tax of US$9.1 million or 0.45 cents per share for the year ended 31 December 2015 (2014: net loss a%er tax of US$5.9 million or 0.55 cents per share). The net loss for 2015 includes a non-cash charge of US$1.5 million (2014: US$0.8 million) rela5ng to share-based payments. An impairment of part of the Group’s intangible explora5on and evalua5on assets resulted in a charge of US$3.7 million (2014: US$1.0 million) during the year. Balance Sheet Total investment in intangible assets at 31 December 2015 was US$10.2 million (2014: US$9.9 million) primarily reﬂec5ng investment into the Utah O&G assets. Property, plant and equipment at 31 December 2015 was US$0.6 million (2014: US$0.8 million) reﬂec5ng the con5nued deprecia5on of the ore processing mill. Trade and other receivables of US$1.5 million (2014: US$1.0 million) represent amounts due in rela5on to trade and other receivables and VAT recoverable. VAT and tax recoverable in Mexico make up US$1.0 million of the current outstanding. 08 Annual Report and Financial Statements for the year ended 31 December 2015 Strategic Report con5nued Cash and cash equivalents at 31 December 2015 were US$2.4 million (2014: US$8.4 million). During the year the Company raised gross proceeds of US$3.1 million through the placing of the Company’s Ordinary Shares. Signiﬁcant Equity Events In May 2015, the Company raised gross proceeds of US$3.1 million by way of a condi5onal placing and a subscrip5on of 1,040,000,007 Ordinary Shares of 0.1p each at a price of 0.3p per share. In May 2016, post period end, the Company raised gross proceeds of US$ 1.2 million (£0.8 million) by way of an uncondi5onal placing of 500,000,000 Ordinary Shares of 0.1p each at a price of 0.16p per share. Going Concern The Directors have set out in note 3 to the ﬁnancial statements their considera5on of the future ﬁnancing requirements of the Group and, having made appropriate enquiries and having examined the major areas which could aﬀect the Group’s ﬁnancial posi5on, the Directors are sa5sﬁed that the Group has adequate resources to con5nue in opera5on for the foreseeable future. For this reason, they consider it appropriate to adopt the going concern basis in preparing the ﬁnancial statements. This assessment has been carried out in the light of the guidance issued to the Directors by the Financial Repor5ng Council. Key Performance Indicators The Group measures its progress against a number of key performance indicators (“KPIs”) which are reviewed regularly by the Board. These are set out below: • • • 5ght cost control and monitoring of actual expenditure versus budget; opera5onal eﬃciencies at the Group’s milling opera5on including monitoring gold recoveries from ore; CAPEX controls including the monitoring of overall costs of drilling wells in the Paradox Basins; and • monitoring of G&A expenditure versus budget and peer group. Risks and Uncertain2es and Risk Management There are a number of poten5al risks and uncertain5es which could have a material impact on the Group’s long term performance and could cause actual results to diﬀer from expected and historical results. The principal risks and uncertain5es that we face are: Non-Financial Risks • Overseas territories experience varying degrees of poli5cal instability. There can be no assurance that poli5cal stability will con5nue in those countries where the Group currently has, or in future will have, opera5ons. Poli5cal instability or changes in government law or policies could materially aﬀect the rights and 5tle to the interests held by the Group, and the opera5ons and ﬁnancial condi5on of the Group could be adversely aﬀected. • • The U.S.A. Department of Interior has issued a 20-year withdrawal from mineral entry on approximately 1 million acres in the northern Arizona’s uranium breccia pipe district. This order prevents work on our claims located on Federal lands. State of Arizona lands, on which the Group is now focusing its eﬀorts, are unaﬀected by this withdrawal. The geographic loca5ons of the Group’s opera5ons can present logis5cal diﬃcul5es in the installa5on, opera5on and maintenance of equipment related to the ac5vi5es of the business. The Group currently generates its income from mining ac5vi5es operated by contractors and is at risk of any disrup5on to mining or milling ac5vi5es for reasons beyond the Group’s control. The Group has excellent rela5onships with mining contractors opera5ng at the mine and has access to alterna5ve contractors if required. Annual Report and Financial Statements for the year ended 31 December 2015 09 Rose Petroleum plc Strategic Report con5nued • • The Group’s opera5ons are such that minor and major injuries as well as fatali5es could occur which could result in the temporary closure of the Group’s opera5ons. In certain overseas territories the Group might be unable to obtain the comprehensive level of insurance cover that would be available in the United Kingdom. Financial Risks • There is a risk that the carrying value of the Group’s assets will not be recovered through future revenues, leading to signiﬁcant impairment losses. The Group manages the recoverability of its assets and assesses the economic viability throughout the explora5on, development and produc5on phases. • • • • The ac5vi5es of the Group are subject to ﬂuctua5ons in prices and demand for commodi5es, which are vola5le and cannot be controlled. Changes in U.S. legisla5on may aﬀect future opera5ons in that royal5es on minerals extracted from federal lands may be imposed. Funds are maintained by the Group in GBP, MXN and USD. There is a risk that purchasing power in Mexico and the U.S. is lost through foreign exchange transla5on. The Group considers its foreign exchange risk to be a normal and acceptable business exposure and does not hedge against the risk. There is a risk that there will be insuﬃcient funds to meet all corporate, development and produc5on obliga5ons and ac5vi5es and con5nue as a going concern into the foreseeable future. The Group manages liquidity risk by maintaining adequate cash reserves and monitoring forecast and actual cash ﬂows. Management regularly reviews the Group’s cash ﬂow projec5ons and forecasts. Corporate Social Responsibility Employee Recruitment and Reten2on Although the Group had no quan5ta5ve target for the number of employees it needs or retains, this metric is closely monitored. The Group has an excellent record of retaining key staﬀ. Health and Safety It is the objec5ve of the Group to ensure the health and safety of its employees and of any other persons who could be aﬀected by its opera5ons. It is the Group’s policy to provide working environments which are safe and without risk to health and provide informa5on, instruc5on, training and supervision to ensure the health and safety of its employees. Signiﬁcant Rela2onships The Group enjoys good rela5onships with all of its suppliers, professional advisers and opera5onal partners. Future Developments Your Board, management and dedicated teams con5nue to inves5gate and evaluate new opportuni5es to increase shareholder value. The Company will con5nue to operate its exis5ng O&G and Mining assets and will con5nue to look to enhance the value from these. We would like to thank all shareholders for their con5nued support. By order of the board MC Idiens Chief Execu&ve Oﬃcer 6 June 2016 10 Annual Report and Financial Statements for the year ended 31 December 2015 Directors’ Report The Directors present the Annual Report and ﬁnancial statements of the Group for the year ended 31 December 2015. Review of the Business A review of the business, future developments and the principal risks and uncertain5es facing the Group is given in the Strategic Report. The key performance indicators, which the Directors consider to be eﬀec5ve in managing the business, are included in the Strategic Report. Dividends The Directors do not recommend a dividend for the year ended 31 December 2015 (2014: US$nil). Directors The following were Directors during the year and held oﬃce throughout the year, unless otherwise indicated: MC Idiens KK He%on PE Jeﬀcock KB Sco6 CJ Eadie – appointed 12 February 2015 JM Blair – resigned 22 April 2015 Rt Hon Earl of Kilmorey PC – resigned 31 December 2015 Directors’ Interests in Shares and Share Op2ons The Directors who held oﬃce at 31 December 2015 had the following interests, including family interests, in the Ordinary Shares of the Company as follows: Rt Hon Earl of Kilmorey PC MC Idiens KK He%on PE Jeﬀcock KB Sco6 CJ Eadie (1) Beneﬁcial interest held through the Glenville Discre5onary Trust. There have been no changes in these shareholdings since 31 December 2015. Number of Ordinary Shares 31 December 2015 1 January 2015 2,096,666 20,139,213 416,000 20,833,333(1) – 94,402 2,096,666 20,139,213 416,000 20,833,333(1) – 94,402 Annual Report and Financial Statements for the year ended 31 December 2015 11 Rose Petroleum plc Directors’ Report con5nued Directors’ interests in share op5ons of the Company, including family interests, as at 31 December 2015 were as follows: Date of replacement/ grant MC Idiens KK He%on Rt Hon Earl of Kilmorey PC KK He%on Rt Hon Earl of Kilmorey PC MC Idiens Rt Hon Earl of Kilmorey PC MC Idiens KB Sco6 MC Idiens KK He%on CJ Eadie 28 Sep 2011 28 Sep 2011 28 Sep 2011 30 Sep 2011 30 Sep 2011 30 Sep 2011 3 Sep 2013 3 Sep 2013 3 Sep 2013 10 Oct 2014 10 Oct 2014 13 Feb 2015 No. of shares 5,200,000 4,400,000 500,000 1,600,000 250,000 800,000 5,000,000 15,800,000 10,933,333 20,000,000 10,000,000 10,000,000 Exercise price 1.125p 1.125p 1.125p 1.125p 1.125p 1.125p 1.125p 1.125p 0.475p 3.425p 3.425p 1.825p Op2on exercise period 28/09/11 to 30/09/21 28/09/11 to 30/09/21 28/09/11 to 30/09/21 01/09/12 to 29/09/21 01/09/12 to 29/09/21 01/09/12 to 29/09/21 03/09/14 to 01/09/23 03/09/14 to 01/09/23 03/09/14 to 01/09/23 10/10/15 to 09/10/24 10/10/15 to 09/10/24 13/03/16 to 12/03/25 The market price of the shares at 31 December 2015 and 31 December 2014 was 0.11p and 2.1p respec5vely and the average during the year was 0.71p. Third Party Indemnity Provision For Directors The Company currently has in place, and had for the year ended 31 December 2015, Directors and oﬃcers liability insurance for the beneﬁt of all Directors of the Company. Substan2al Shareholdings Other than the Directors’ interests shown above, the Company has been no5ﬁed of the following substan5al interests as at 1 June 2015: Percentage of Number of shares issued share capital RG Williams 221,162,668 8.6% Post Balance Sheet Events Events a%er the balance sheet date have been disclosed in the Strategic Report and in note 36 to the ﬁnancial statements. Financial Instruments During the year the Company and its subsidiary undertakings applied ﬁnancial risk management policies as disclosed in note 34 to the ﬁnancial statements. 12 Annual Report and Financial Statements for the year ended 31 December 2015 Directors’ Report con5nued Statement as to disclosure of informa2on to the Auditor The Directors who were in oﬃce on the date of approval of these ﬁnancial statements have conﬁrmed that, as far as they are aware, there is no relevant audit informa5on of which the auditor is unaware. Each of the Directors has conﬁrmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit informa5on and to establish that it has been communicated to the auditor. Auditor The Directors resolved that KPMG LLP be re-appointed as auditor. KPMG LLP has indicated its willingness to con5nue in oﬃce. By order of the board IH McNeill Company Secretary 6 June 2016 Annual Report and Financial Statements for the year ended 31 December 2015 13 Rose Petroleum plc Corporate Governance Statement The policy of the Board is to manage the aﬀairs of the Group using the principles of the QCA Guidance as best prac5ce. This statement describes how the principles of corporate governance are applied to the Group to the extent that the Board considers is appropriate for a group of its size, nature and stage of development. The Board and its Commi3ees Board mee5ngs are scheduled every month with contact between mee5ngs as required. The mee5ngs are held to set and monitor strategy, review explora5on and trading performance, examine acquisi5on possibili5es and cash forecasts and approve reports to shareholders. The ma6ers reserved for the Board include, amongst others, approval of the Group’s long term objec5ves, policies and budgets, changes rela5ng to the Group’s management structure, approval of the Group’s ﬁnancial statements and ensuring maintenance of good systems of internal control. Procedures are established to ensure that appropriate informa5on is communicated to the Board in a 5mely manner to enable it to fulﬁl its du5es. Details of Directors who served during the year are set out in the Directors’ Report. The Board is currently comprised of three execu5ve Directors and two non-execu5ve Directors, one of whom acts as Chairman. There are separate roles for the Chairman and the Chief Execu5ve Oﬃcer. The Board has established an Audit Commi6ee, which comprises of a non-execu5ve Director, PE Jeﬀcock. The structure of the Audit Commi6ee is currently being reviewed. The Audit Commi6ee meets twice a year and the external auditor is invited to mee5ngs where appropriate. The main responsibili5es of the Audit Commi6ee are to review and report to the Board on ma6ers rela5ng to: • • • • • the integrity of the ﬁnancial statements of the Group, including its annual and interim accounts; the eﬀec5veness of the Group’s internal controls and risk management systems; the accoun5ng policies and prac5ces of the Group; audit plans and auditor’s report, including any signiﬁcant concerns the external auditor may have arising from their audit work; and the terms of appointment, remunera5on and independence of the auditor. The Board has established a Remunera5on Commi6ee, which comprises a non-execu5ve Director, PE Jeﬀcock. The structure of the Remunera5on Commi6ee is currently being reviewed. The Remunera5on Commi6ee meets twice a year and reviews the performance of the execu5ve Directors and the scale and structure of their remunera5on having due regard to the interests of the shareholders. The Commi6ee is also responsible for awards under the share op5on plan. No Director is involved in any decision rela5ng to his own remunera5on. Communica2on with Shareholders The Board encourages regular dialogue with shareholders. All shareholders are invited to the AGM at which Directors are available for ques5oning. The no5ce of AGM is sent to all shareholders at least 21 working days before the mee5ng. The number of proxy votes received for and against each resolu5on is disclosed at the AGM and a separate resolu5on is proposed on each item. Financial and other informa5on about the Company is available on the Company’s website www.rosepetroleum.com. 14 Annual Report and Financial Statements for the year ended 31 December 2015 Corporate Governance Statement con5nued Internal Controls The Board is responsible for establishing the Group’s system of internal controls and for reviewing its eﬀec5veness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objec5ves, and can only provide the Board with reasonable and not absolute assurance against material misstatement or loss. The key procedures that have been established, and which are designed to provide eﬀec5ve internal control are as follows: • • • • each of the Group’s subsidiaries is managed by an execu5ve Director and there is a management repor5ng process in place to enable the Board to monitor the performance of the Group on a regular basis; an annual forecast is prepared and formally adopted by the Board. This is reviewed on a regular basis and actual performance against forecast is closely monitored; the Board reviews the major business risks faced by the Group and determines the appropriate course of ac5ons required to manage those risks; the Board approves proposals for the acquisi5on of new businesses and sets guidelines for the development of new proper5es. Capital expenditure is regulated and wri6en proposals must be submi6ed to the Board for any expenditure above speciﬁed levels; and • consolidated management informa5on is prepared on a regular basis. The Board reviews the eﬀec5veness of the system of internal controls and the control environment. No signiﬁcant control deﬁciencies were reported during the year and no weaknesses in internal controls have resulted in any material losses, con5ngencies or uncertainty which would require disclosure as recommended by the guidance for Directors on repor5ng on internal controls. The Board has reviewed the need for an independent internal audit func5on and has concluded that the Group is not large enough to warrant this at the present 5me. Annual Report and Financial Statements for the year ended 31 December 2015 15 Rose Petroleum plc Statement of Directors’ Responsibili5es The Directors are responsible for preparing the Annual Report and the ﬁnancial statements in accordance with applicable law and regula5ons. Company law requires the Directors to prepare group and parent company ﬁnancial statements for each ﬁnancial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group ﬁnancial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company ﬁnancial statements on the same basis. Under company law the Directors must not approve the ﬁnancial statements unless they are sa5sﬁed that they give a true and fair view of the state of aﬀairs of the Group and parent company and of their proﬁt or loss for that period. In preparing each of the Group and parent company ﬁnancial statements, the Directors are required to: • select suitable accoun5ng policies and then apply them consistently; • make judgements and es5mates that are reasonable and prudent; • • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will con5nue in business. The Directors are responsible for keeping adequate accoun5ng records that are suﬃcient to show and explain the Parent Company’s transac5ons and disclose with reasonable accuracy at any 5me the ﬁnancial posi5on of the Parent Company and enable them to ensure that its ﬁnancial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregulari5es. The Directors are responsible for the maintenance and integrity of the corporate and ﬁnancial informa5on included on the Company’s website. Legisla5on in the UK governing the prepara5on and dissemina5on of ﬁnancial statements may diﬀer from legisla5on in other jurisdic5ons. 16 Annual Report and Financial Statements for the year ended 31 December 2015 Independent Auditor’s Report to the members of Rose Petroleum plc We have audited the ﬁnancial statements of Rose Petroleum plc for the year ended 31 December 2015 set out on pages 19 to 63. The ﬁnancial repor5ng framework that has been applied in their prepara5on is applicable law and Interna5onal Financial Repor5ng Standards (IFRSs) as adopted by the EU and, as regards the parent company ﬁnancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those ma6ers we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permi6ed by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respec2ve Responsibili2es of Directors and Auditor As explained more fully in the Directors’ Responsibili5es Statement set out on page 16, the Directors are responsible for the prepara5on of the ﬁnancial statements and for being sa5sﬁed that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the ﬁnancial statements in accordance with applicable law and Interna5onal Standards on Audi5ng (UK and Ireland). Those standards require us to comply with the Audi5ng Prac5ces Board’s Ethical Standards for Auditors. Scope of the audit of the Financial Statements A descrip5on of the scope of an audit of ﬁnancial statements is provided on the Financial Repor5ng Council’s website at h6p://www.frc.org.uk/auditscopeukprivate Opinion on Financial Statements In our opinion • • • • the ﬁnancial statements give a true and fair view of the state of the Group’s and of the parent company’s aﬀairs as at 31 December 2015 and of the Group’s loss for the year then ended; the Group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other ma3ers prescribed by the Companies Act 2006 In our opinion the informa5on given in the Strategic Report and the Directors’ Report for the ﬁnancial year for which the ﬁnancial statements are prepared is consistent with the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2015 17 Independent Auditor’s Report to the members of Rose Petroleum plc con5nued Ma3ers on which we are required to report by excep2on We have nothing to report in respect of the following ma6ers where the Companies Act 2006 requires us to report to you if, in our opinion: • • • • adequate accoun5ng records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company ﬁnancial statements are not in agreement with the accoun5ng records and returns; or certain disclosures of Directors’ remunera5on speciﬁed by law are not made; or we have not received all the informa5on and explana5ons we require for our audit. Ashley Rees (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 6 June 2016 18 Annual Report and Financial Statements for the year ended 31 December 2015 Consolidated Income Statement For the year ended 31 December 2015 Con2nuing opera2ons Revenue Cost of sales Proﬁt share payments Gross proﬁt/(loss) Opera5ng and development expenses Administra5ve expenses Impairment of intangible explora5on & evalua5on assets Loss on disposal of assets held for sale Opera2ng loss Finance income Finance costs Loss before taxa2on Taxa5on Loss for the year a3ributable to owners of the parent company 2015 Notes US$’000 2014 Restated US$’000 5 7 8 9 25 10 11 12 15 4,320 (3,806) – 514 (1,522) (4,685) (3,694) (485) (9,872) 13 (5) (9,864) 797 (9,067) 3,097 (3,052) (490) (445) (756) (3,612) (969) – (5,782) 8 (91) (5,865) (13) (5,878) Loss per Ordinary Share Basic and diluted, cents per share 16 (0.45c) (0.55c) The notes on pages 27 to 63 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2015 19 Rose Petroleum plc Consolidated Statement of Comprehensive Income For the year ended 31 December 2015 Loss for the year a3ributable to owners of the parent company Other comprehensive income Items that may be subsequently reclassiﬁed to proﬁt or loss, net of tax Foreign currency transla5on diﬀerences on foreign opera5ons Net (loss)/gain on hedge of net investment in foreign opera5ons 2015 US$’000 (9,067) 1,228 (324) 904 2014 Restated US$’000 (5,878) 1,455 1,535 2,990 Total comprehensive income for the year a3ributable to owners of the parent company (8,163) (2,888) The notes on pages 27 to 63 form part of the ﬁnancial statements. 20 Annual Report and Financial Statements for the year ended 31 December 2015 Consolidated Balance Sheet At 31 December 2015 Company No 04573663 Non-current assets Intangible assets Property, plant and equipment Deferred tax asset Current assets Inventories Trade and other receivables Cash and cash equivalents Assets held for sale Total assets Current liabili2es Trade and other payables Taxa5on payable Non-current liabili2es Conver5ble loan notes Deferred tax liabili5es Provisions Total liabili2es Net assets Equity Share capital Share premium account Share op5on reserve Other reserves Cumula5ve transla5on reserves Retained deﬁcit Equity a3ributable to owners of the parent company 2015 Notes US$’000 17 18 28 22 23 24 25 26 27 29 30 31 10,221 620 – 10,841 19 1,484 2,399 – 3,902 14,743 (684) (3) (687) – – (192) (192) (879) 13,864 38,765 31,471 2,899 – (4,384) (54,887) 13,864 2014 Restated US$’000 9,947 823 405 11,175 57 1,006 8,408 785 10,256 21,431 (2,377) (56) (2,433) – – (52) (52) (2,485) 18,946 37,130 28,471 1,540 – (2,258) (45,937) 18,946 As at 1 January 2014 Restated US$’000 3,939 1,013 – 4,952 904 2,366 1,944 – 5,214 10,166 (1,294) (5) (1,299) (1,405) (53) (78) (1,536) (2,835) 7,331 35,937 11,954 827 462 (1,548) (40,301) 7,331 The ﬁnancial statements on pages 19 to 63 were approved by the Directors and authorised for issue on 6 June 2016 and are signed on its behalf by: CJ Eadie, Chief Financial Oﬃcer The notes on pages 27 to 63 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2015 21 Rose Petroleum plc Consolidated Statement of Changes in Equity For the year ended 31 December 2015 Share capital US$’000 Share premium account US$’000 Share op2on reserve US$’000 Other Cumula2ve Reserves transla2on reserves (note 31) US$’000 US$’000 Retained deﬁcit US$’000 Total US$’000 35,937 11,954 827 462 (1,548) (40,301) 7,331 As at 1 January 2014 (restated) Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Conversion of conver5ble loan notes Share-based payments Transfer to retained earnings in respect of forfeit op5ons Eﬀect of foreign exchange rates Total transac2ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla5on diﬀerences Net gain on hedge of net investment in foreign opera5ons Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on diﬀerences on equity at historical rates 1,057 – 136 – – – 15,685 (731) 1,563 – – – – – – 763 (6) (44) – – (462) – – – 1,193 16,517 713 (462) – – – – – – – – – – – – – – – – – – As at 1 January 2015 (restated) 37,130 28,471 1,540 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to retained earnings in respect of forfeit op5ons Eﬀect of foreign exchange rates Total transac2ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla5on diﬀerences Net loss on hedge of net investment in foreign opera5ons Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on diﬀerences on equity at historical rates 1,635 – – – – 3,271 (271) – – – – – 1,523 (117) (47) 1,635 3,000 1,359 – – – – – – – – – – – – – – – – – – As at 31 December 2015 38,765 31,471 2,899 The notes on pages 27 to 63 form part of the ﬁnancial statements. – – – – – – – – 1,455 1,535 2,990 2,990 – – 236 – 6 – 16,742 (731) 1,473 763 – (44) 242 18,203 (5,878) (5,878) – – – 1,455 1,535 2,990 (5,878) (2,888) (3,700) – (3,700) (2,258) (45,937) 18,946 – – – – – – – 1,228 (324) 904 – – – 117 – 4,906 (271) 1,523 – (47) 117 6,111 (9,067) (9,067) – – – 1,228 (324) 904 904 (9,067) (8,163) (3,030) – (3,030) (4,384) (54,887) 13,864 – – – – – – – – – – – – – – – – – – – – 22 Annual Report and Financial Statements for the year ended 31 December 2015 Consolidated Cash Flow Statement For the year ended 31 December 2015 Opera2ng ac2vi2es Loss before taxa5on Finance income Finance costs Adjustments for: Deprecia5on of property, plant and equipment Release of decommissioning provision Impairment of Intangible explora5on and evalua5on assets Loss on disposal of assets held for sale Share-based payments Unrealised foreign exchange Opera5ng ou4low before movements in working capital Decrease in inventories (Increase)/decrease in trade and other receivables Decrease in trade and other payables Cash used in opera5ons Income tax paid Interest paid Net cash used in opera2ng ac2vi2es Inves2ng ac2vi2es Interest received Purchase of property, plant and equipment Purchase of intangible explora5on and evalua5on assets Decommissioning provision u5lised Acquisi5on of subsidiaries Proceeds from disposal of assets held for sale Net cash used in inves2ng ac2vi2es Financing ac2vi2es Proceeds from issue of shares Expenses of issue of shares Net cash from ﬁnancing ac2vi2es Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Eﬀect of foreign exchange rate changes Cash and cash equivalents at end of year 2015 US$’000 2014 Restated US$’000 (9,864) (5,865) (13) 5 234 – 3,694 485 1,523 (725) (4,661) 38 (514) (171) (5,308) (10) – (5,318) 13 (67) (5,433) – – 250 (5,237) 4,906 (302) 4,604 (5,951) 8,408 (58) 2,399 (8) 91 220 (18) 969 – 763 (977) (4,825) 847 973 (650) (3,655) (13) (98) (3,766) 8 (124) (5,327) (1) (105) – (5,549) 16,542 (700) 15,842 6,527 1,944 (63) 8,408 The notes on pages 27 to 63 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2015 23 Rose Petroleum plc Company Balance Sheet As at 31 December 2015 Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabili2es Trade and other payables Non-current liabili2es Conver5ble loan notes Total liabili2es Net assets Equity Share capital Share premium account Share op5on reserve Other reserves Cumula5ve transla5on reserves Retained deﬁcit Total equity Company No 04573663 2015 Restated US$’000 2014 Restated US$’000 As at 1 January 2014 Restated US$’000 17,393 16,508 7,370 322 1,582 1,904 19,297 (204) – (204) 442 6,229 6,671 23,179 (228) – (228) 19,093 22,951 38,765 31,471 2,899 – (6,232) (47,810) 19,093 37,130 28,471 1,540 – (5,161) (39,029) 22,951 417 955 1,372 8,742 (204) (1,405) (1,609) 7,133 35,937 11,954 827 462 (3,703) (38,344) 7,133 19 23 24 26 27 30 31 The ﬁnancial statements on pages 19 to 63 were approved by the Directors and authorised for issue on 6 June 2016 and are signed on its behalf by: CJ Eadie, Chief Financial Oﬃcer The notes on pages 27 to 63 form part of the ﬁnancial statements. 24 Annual Report and Financial Statements for the year ended 31 December 2015 Company Statement of Changes in Equity For the year ended 31 December 2015 Share capital US$’000 Share premium account US$’000 Share op2on reserve US$’000 Other Cumula2ve Reserves transla2on reserves (note 31) US$’000 US$’000 Retained deﬁcit US$’000 Total US$’000 35,937 11,954 827 462 (3,703) (38,344) 7,133 As at 1 January 2014 (restated) Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Conversion of conver5ble loan notes Share-based payments Transfer to retained earnings in respect of forfeit op5ons Eﬀect of foreign exchange rates Total transac2ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla5on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on diﬀerences on equity at historical rates 1,057 – 136 – – – 15,685 (731) 1,563 – – – – – – 763 (6) (44) – – (462) – – – 1,193 16,517 713 (462) – – – – – – – – – – – – – – – As at 1 January 2015 (restated) 37,130 28,471 1,540 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to retained earnings in respect of forfeit op5ons Eﬀect of foreign exchange rates Total transac2ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla5on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on diﬀerences on equity at historical rates 1,635 – – – – 3,271 (271) – – – – – 1,523 (117) (47) 1,635 3,000 1,359 – – – – – – – – – – – – – – – As at 31 December 2015 38,765 31,471 2,899 – – – – – – – – 2,242 2,242 2,242 – – 236 – 6 – 16,742 (731) 1,473 763 – (44) 242 (927) 18,203 (927) – – (927) 2,242 2,242 1,315 (3,700) – (3,700) (5,161) (39,029) 22,951 – – – – – – – – – – 117 – 4,906 (271) 1,523 – (47) 117 6,111 (8,898) (8,898) 1,959 1,959 – – 1,959 1,959 1,959 (8,898) (6,939) (3,030) – (3,030) (6,232) (47,810) 19,093 – – – – – – – – – – – – – – – – – – The notes on pages 27 to 63 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2015 25 Rose Petroleum plc Company Cash Flow Statement For the year ended 31 December 2015 Opera2ng ac2vi2es Loss before taxa5on Finance income Finance costs Adjustments for: Impairment of investments in subsidiary undertakings Share-based payments Unrealised foreign exchange Opera5ng cash ou4low before movements in working capital Decrease/(increase) in trade and other receivables Increase in trade and other payables Cash used in opera5ons Interest paid Net cash used in opera2ng ac2vi2es Inves2ng ac2vi2es Interest received Loans to subsidiary undertakings Net cash used in inves2ng ac2vi2es Financing ac2vi2es Proceeds from the issue of shares Expenses of issue of shares Net cash from ﬁnancing ac2vi2es Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Eﬀect of foreign exchange rate changes Cash and cash equivalents at end of year 2015 US$’000 2014 Restated US$’000 (8,898) (589) – 8,186 701 (504) (1,104) 120 7 (977) – (977) 10 (8,232) (8,222) 4,906 (302) 4,604 (4,595) 6,229 (52) 1,582 (927) (432) 91 720 209 (959) (1,298) (25) 26 (1,297) (98) (1,395) 7 (9,128) (9,121) 16,542 (700) 15,842 5,326 955 (52) 6,229 The notes on pages 27 to 63 form part of the ﬁnancial statements. 26 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements For the year ended 31 December 2015 1. General Informa2on Rose Petroleum plc (the “Company” and, together with its subsidiaries, the “Group”) is domiciled and incorporated in the United Kingdom under the Companies Act 2006. The address of the registered oﬃce is 145-157 St John Street, London, EC1V 4PW. The nature of the Group’s opera5ons and its principal ac5vi5es are the explora5on and development of O&G resources together with the evalua5on and acquisi5on of other mineral explora5on targets, principally gold, silver, uranium and copper, and the development and opera5on of mines in Mexico. As permi6ed by sec5on 408 of the Companies Act 2006, the parent company’s income statement and statement of other comprehensive income have not been included in these ﬁnancial statements. The loss for the Company for the year ended 31 December 2015 is US$8.9 million (2014: US$0.9 million). 2. Adop2on of New and Revised Standards Standards aﬀec2ng presenta2on and disclosure In the current year, the following new and revised Standards have been adopted but have not had any material impact on the amounts reported in these ﬁnancial statements: Amendments to IAS 19 IFRIC 21 Deﬁned beneﬁt plan: employee contribu&ons Levies Annual improvements to IFRSs 2010-2012 cycle Annual improvements to IFRSs 2011-2013 cycle At the date of authorisa5on of the ﬁnancial statements, the following Standards and Interpreta5ons which have not been applied in the ﬁnancial statements were in issue but not yet eﬀec5ve (and in some cases had not yet been adopted by the EU): IFRS 9 IFRS 14 IFRS 15 IFRS 16 Financial instruments Regulatory deferral accounts Revenue from contracts with customers Leases Amendments to IFRS 10 and IAS 28 Sale of contribu&on of assets between an investor and its associates or joint venture Amendments to IFRS 10, IFRS 12 and IAS 28 Investment en&&es: applying the consolida&on excep&on Amendments to IFRS 11 Amendments of IAS 1 Amendments of IAS 7 Amendments of IAS 12 Amendments to IAS 16 and IAS 38 Accoun&ng for acquisi&ons of interests in joint opera&ons Presenta&on of ﬁnancial statements – disclosure ini&a&ve Statement of cash ﬂows – disclosure ini&a&ve Recogni&on of deferred tax assets for unrealised losses Clariﬁca&on of acceptable methods of deprecia&on and amor&sa&on Amendments to IAS 27 Equity method in separate ﬁnancial statements Annual improvements to IFRSs 2012-2014 cycle The Directors do not expect that the adop5on of these Standards or Interpreta5ons in future periods will have a material impact on the ﬁnancial statements of the Company or the Group. Annual Report and Financial Statements for the year ended 31 December 2015 27 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies Basis of Accoun2ng The ﬁnancial statements have been prepared in accordance with Interna5onal Financial Repor5ng Standards (“IFRS”) as issued by the Interna5onal Accoun5ng Standards Board (“IASB”) and as adopted by the European Union (“EU”). The ﬁnancial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the considera5on given in exchange for assets. For these reasons, the Directors con5nue to adopt the going concern basis in preparing the consolidated ﬁnancial statements. The ﬁnancial statements do not include any adjustment that would result from the basis of prepara5on being inappropriate. The principal accoun5ng policies adopted are set out below. Restatement With eﬀect from 1 January 2015, the Company and the Group’s presenta5on currency changed from pounds sterling (“£”) to United States dollar (“US$”) as the Directors considered the US$ to be more representa5ve of the sector in which the Group primarily operates. In accordance with Interna5onal Accoun5ng Standards, this change has been applied retrospec5vely and compara5ves for the year ended 31 December 2014 were translated, for all balance sheet items except equity, using US$: £ exchange spot rate at that date, being US$ 1.5532, for the income statement using the average US$: £ exchange rate during the year being US$1.6476, and for the opening balances as at 1 January 2014, except equity, using the US$: £ spot rate on that date being US$1.6488. Share capital, share premium and other reserves were translated at the historic rates prevailing at the dates of transac5ons, and assets and liabili5es of Group en55es, where the func5onal currency is other than US$, were translated into US$ at the relevant closing rates of exchange. Trading results were translated into US$ at the relevant average rates of exchange. Historical diﬀerences arising from the retransla5on to US$ up to 1 January 2014 have been taken directly to the foreign currency transla5on reserve. Foreign opera5ons are included in accordance with the policies set out in note 3. Going Concern These ﬁnancial statements have been prepared on the going concern basis. The Group currently generates small amounts of cash through its third party toll milling opera5ons in Mexico which the Group intends to con5nue for the foreseeable future. The Group has no bank facili5es and meets its working capital requirements from cash resources. At the year end, the Group had cash and cash equivalents amoun5ng to US$2.4 million. The Directors have prepared cash ﬂow forecasts for the Group for the period to June 2017 based on their assessment of the prospects of the Group’s opera5ons. The cash ﬂow forecast includes US$1.2 million from an uncondi5onal share placing of 500,000,000 Ordinary Shares of 0.1p each, which the Company completed in May 2016. These cash ﬂow forecasts, which include the Group’s expected opera5ng costs for all opera5ons, including the necessary and speciﬁc expenditure to meet the minimum O&G opera5onal and explora5on licence expenditure, indicate that the Group has suﬃcient funding to meet its minimum obliga5ons as they fall due. For these reasons, the Directors con5nue to adopt the going concern basis in preparing the consolidated ﬁnancial statements. The ﬁnancial statements do not include any adjustment that would result from the basis of prepara5on being inappropriate. 28 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued The Directors acknowledge that if the Group chooses to con5nue into the development stage it will require the Group to raise addi5onal funds. Despite challenging capital markets, the Company and Group have been successful historically in raising equity ﬁnance and consider that they have reasonable grounds for believing these past successes will, if required, and based on opera5onal progress, con5nue and so enable the Group to expand development and/or take advantage of any new explora5on opportuni5es that arise. In preparing these ﬁnancial statements the Directors have given considera5on to the above ma6ers and on that basis they believe that it remains appropriate to prepare the ﬁnancial statements on a going concern basis. Basis of Consolida2on The consolidated ﬁnancial statements incorporate the ﬁnancial statements of the Company and its subsidiary undertakings (together, ‘the Group’) made up to 31 December each year. Subsidiary undertakings are those en55es controlled directly or indirectly by the Company. Control is achieved when the Company is exposed to, or has rights to, variable returns from its involvement with the en5ty and has the ability to aﬀect those returns through its power over the en5ty. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date on which control is transferred to the Group or, up to the date that control ceases, as appropriate. Where necessary, adjustments are made to the ﬁnancial statements of subsidiaries to bring accoun5ng policies used into line with those used by the Group. The Group applies the acquisi5on method to account for business combina5ons. The considera5on for each acquisi5on is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabili5es incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquire. Where applicable, the considera5on for the acquisi5on includes any asset or liability resul5ng from a con5ngent considera5on arrangement, measured at its acquisi5on-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisi5on where they qualify as measurement period adjustments. All other subsequent changes in the fair value of con5ngent considera5on classiﬁed as an asset or liability are accounted for in accordance with relevant IFRSs. Con5ngent considera5on that is classiﬁed as equity is not re-measured, and its subsequent se6lement is accounted for within equity. Acquisi5on-related costs are recognised in proﬁt or loss as incurred. On acquisi5on, the assets and liabili5es and con5ngent liabili5es of a subsidiary are measured at their fair values at the date of acquisi5on. Any excess of the cost of the acquisi5on over the fair values of the iden5ﬁable net assets acquired is recognised as goodwill. Any deﬁciency of the cost of acquisi5on below the fair values of the iden5ﬁable net assets acquired (i.e. discount on acquisi5on) is credited to the income statement in the period of acquisi5on. Where a business combina5on is achieved in stages, the Group’s previously-held interests in the acquired en5ty are re-measured at fair value at the acquisi5on date and the resul5ng gain or loss, if any, is recognised in proﬁt or loss. Amounts arising from interests in the acquiree prior to the acquisi5on date that have previously been recognised in other comprehensive income are reclassiﬁed to proﬁt or loss, where such treatment would be appropriate if that interest were disposed of. All intra-group transac5ons, balances, income and expenses are eliminated on consolida5on. Annual Report and Financial Statements for the year ended 31 December 2015 29 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued Joint Arrangements The Group iden5ﬁes joint arrangements as those arrangements in which two or more par5es have joint control, where joint control is evidenced by the contractually agreed sharing of control of an arrangement, which exists where the decisions about the relevant ac5vi5es require the unanimous consent of the par5es sharing control. Investments in joint arrangements are classiﬁed as either joint opera5ons or joint ventures depending on the contractual rights and obliga5ons of each investor. Joint opera5ons are iden5ﬁed as those agreements whereby the par5es have rights to the assets and obliga5ons for liabili5es rela5ng to the arrangement. Joint opera5ons are accounted for by recognising the operator’s relevant share of assets, liabili5es, revenues and expenses. Joint ventures are iden5ﬁed as those agreements whereby the par5es have rights to the net assets of the arrangement and are accounted for using equity accoun5ng in accordance with IAS 28. Interest in joint ventures are ini5ally recognised at cost and adjusted therea%er to recognise the Group’s share of the post-acquisi5on proﬁts or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obliga5ons or made payments on behalf of the joint venture. The Group has assessed the nature of its joint arrangements and determined them to be joint opera5ons. The Group’s share of the assets, liabili5es, income and expenses of jointly controlled en55es is combined with the equivalent items in the consolidated ﬁnancial statements on a line-by-line basis. Non-Current Assets Held For Sale Non-current assets (and disposal groups) classiﬁed as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classiﬁed as held for sale if their carrying amount will be recovered through a sale transac5on rather than through con5nuing use. This condi5on is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condi5on. Management must be commi6ed to the sale which should be expected to qualify for recogni5on as a completed sale within one year from the date of classiﬁca5on. When the Group is commi6ed to a sale plan involving loss of control of a subsidiary, all of the assets and liabili5es of that subsidiary are classiﬁed as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary a%er the sale. Investments Long term investments represen5ng interests in subsidiary undertakings are stated at cost less any provision for impairment in the value of the non-current investment. Intangible Explora2on and Evalua2on Assets The Group applies the full cost method of accoun5ng for Explora5on and Evalua5on (“E&E”) costs, having regard to the requirements of IFRS 6 Explora&on for and Evalua&on of Mineral Resources. Under the full cost method of accoun5ng, costs of exploring for and evalua5ng mineral resources are accumulated by reference to appropriate cost centres being the appropriate licence area, but are tested for impairment on a cost pool basis as described below. 30 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued E&E assets comprise costs of (i) E&E ac5vi5es that are on-going at the balance sheet date, pending determina5on of whether or not commercial reserves exist and (ii) costs of E&E that, whilst represen5ng part of the E&E ac5vi5es associated with adding to the commercial reserves of an established cost pool, did not result in the discovery of commercial reserves. Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as they are incurred. Explora(cid:27)on and evalua(cid:27)on costs All costs of E&E are ini5ally capitalised as E&E assets. Payments to acquire the legal right to explore, costs of technical services and studies, seismic acquisi5on, exploratory drilling and tes5ng are capitalised as intangible E&E assets. Intangible costs include directly a6ributable overheads together with the cost of other materials consumed during the explora5on and evalua5on phases. Treatment of E&E assets at conclusion of appraisal ac(cid:27)vi(cid:27)es Intangible E&E assets related to each explora5on licence/project are carried forward un5l the existence (or otherwise) of commercial reserves has been determined. If commercial reserves have been discovered, the related E&E asset are assessed for impairment on a cost pool basis as set out below and any impairment is recognised in the income statement. The carrying value, a%er any impairment loss, of the relevant E&E assets is then reclassiﬁed as development and produc5on assets. Intangible E&E assets that related to E&E ac5vi5es that are determined not to have resulted in the discovery of commercial reserves remain capitalised as intangible E&E assets at cost less accumulated amor5sa5on, subject to mee5ng a pool-wide impairment test in accordance with the accoun5ng policy for impairment of E&E assets set out below. Such E&E assets are amor5sed on a unit-of-produc5on basis over the life of the commercial reserves of the pool to which they relate. Impairment of Intangible Explora2on and Evalua2on Assets E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such indicators include, but are not limited to, those situa5ons outlined in paragraph 20 of IFRS 6 Explora&on for and Evalua&on of Mineral Resources and include the point at which a determina5on is made as to whether or not commercial reserves exist. Where there are indica5ons of impairment, the E&E assets concerned are tested for impairment. Where the E&E assets concerned fall within the scope of an established full cost pool, the E&E assets are tested for impairment together with all development and produc5on assets associated with that cost pool, as a single cash genera5ng unit. The aggregate carrying value is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash ﬂow expected to be derived from produc5on of commercial reserves. Where the E&E assets to be tested fall outside the scope of any established cost pool, there will generally be no commercial reserves and the E&E assets concerned will generally be wri6en oﬀ in full. If the recoverable amount of a cash-genera5ng unit is es5mated to be less than its carrying amount, the carrying amount of the cash-genera5ng unit is reduced to its recoverable amount. An impairment loss is recognised immediately in proﬁt or loss. Annual Report and Financial Statements for the year ended 31 December 2015 31 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued When an impairment loss subsequently reverses, the carrying amount of the cash-genera5ng unit is increased to the revised es5mate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the cash- genera5ng unit in prior years. A reversal of an impairment loss is recognised immediately in proﬁt or loss. The Group considers each area of explora5on, gold and silver, uranium, copper and oil & gas on a geographical basis to be a separate cost pool and therefore aggregates all speciﬁc assets for the purposes of determining whether impairment of E&E assets has occurred. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated deprecia5on and accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any costs directly a6ributable to bringing the asset into use. Deprecia5on is recognised so as to write oﬀ the cost of assets less their residual values over their useful lives at the following rates: Ore processing mill Plant and machinery over the life of the mill over 5 to 10 years The es5mated useful lives, residual value and deprecia5on method are reviewed at the end of each repor5ng period, with the eﬀect of any changes in es5mate accounted for on a prospec5ve basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁts are expected to arise from the con5nued use of the asset. Any gain or loss arising on the disposal or re5rement of an item of property, plant and equipment is determined as the diﬀerence between the sales proceeds and the carrying amount of the asset and is recognised in proﬁt and loss. Impairment of Property, Plant and Equipment At each repor5ng date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets with ﬁnite lives to determine whether there is any indica5on that those assets have suﬀered an impairment loss. If any such indica5on exists, the recoverable amount of the asset is es5mated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash ﬂows that are independent from other assets, the Group es5mates the recoverable amount of the cash genera5ng unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the es5mated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the 5me value of money and the risks speciﬁc to the asset for which the es5mates of future cash ﬂows have been adjusted. If the recoverable amount of an asset (or cash-genera5ng unit) is es5mated to be less than its carrying amount, the carrying amount of the asset (cash-genera5ng unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-genera5ng unit) is increased to the revised es5mate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-genera5ng unit) in prior years. A reversal of an impairment loss is recognised as income immediately. 32 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued Inventories Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present loca5on and condi5on. Cost is calculated using the weighted average method. Net realisable value represents the es5mated selling price for inventories less all es5mated costs of comple5on and costs to be incurred in marke5ng, selling and distribu5on. Revenue Recogni2on Revenue from the sale of minerals and oil and gas products is recognised when persuasive evidence of an arrangement exists, usually in the form of an executed sales agreement, indica5ng that there has been a transfer of risks and rewards to the customer, no further work or processing is required by the Group, the quan5ty and quality of the goods has been determined with reasonable accuracy and the goods have been delivered. This is when 5tle is determined to pass. Revenue is measured at the fair value of the considera5on received or receivable. Royalty payments are recognised as a cost of sale when the related produc5on revenue is recognised. Interest income from a ﬁnancial asset is recognised when it is probable that the economic beneﬁts will ﬂow to the Group and the amount of income can be measured reliably. Interest income is accrued on a 5me basis, by reference to the principal outstanding and at the eﬀec5ve interest rate applicable. Opera2ng Expenses Costs incurred prior to obtaining the legal rights to explore an area together with any costs which cannot be allocated to a speciﬁc explora5on project are expensed directly to the income statement and included as opera5ng expenses. Opera5ng expenses in respect of oil and gas ac5vi5es include lease opera5ng expenses, produc5on taxes, general and administra5ve expenses and oil and gas deprecia5on, deple5on and amor5sa5on. Lease opera(cid:27)ng expenses Costs incurred in respect of maintaining and opera5ng property and equipment on a producing oil and gas lease are included as lease opera5ng expenses. Development Expenses Costs incurred in respect of mining ac5vi5es, prior to the commencement of produc5on, are expensed directly to the income statement and included as development expenses. Leasing Rentals payable under opera5ng leases are charged to income on a straight-line basis over the term of the relevant lease. Lease incen5ves received are recognised in the income statement as an integral part of the total lease expense. Foreign Currencies For the purpose of the consolidated ﬁnancial statements, the results and ﬁnancial posi5on are expressed in United States dollar, which is the presenta5on currency for both company and consolidated ﬁnancial statements. In preparing the ﬁnancial statements of the individual companies, transac5ons in currencies other than the func5onal currency of each group company (“foreign currencies”) are translated into the func5onal currency at the rates of exchange prevailing on the dates of the transac5ons. At each repor5ng date, monetary assets and liabili5es that are denominated in foreign currencies are retranslated into the func5onal currency at the rates prevailing on the repor5ng date. Non-monetary assets and liabili5es carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Annual Report and Financial Statements for the year ended 31 December 2015 33 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued Foreign exchange diﬀerences are recognised in the proﬁt or loss in the period in which they arise, except for foreign exchange diﬀerences on monetary items receivable from or payable to a foreign opera5on for which se6lement is neither planned nor likely to occur and which, therefore, form part of the net investment in the foreign opera5on. Foreign exchange diﬀerences arising on the transla5on of the Group’s net investment in foreign opera5ons are recognised as a separate component of shareholders’ equity via the statement of other comprehensive income. On disposal of foreign opera5ons and foreign en55es, the cumula5ve transla5on diﬀerences are recognised in the income statement as part of the gain or loss on disposal. For the purpose of presen5ng company and consolidated ﬁnancial statements, the assets and liabili5es of the Company, and the Group’s opera5ons which have a func5onal currency other than United States dollar, are translated using exchange rates prevailing at the end of each repor5ng period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates ﬂuctuate signiﬁcantly during that period, in which case the exchange rates at the date of transac5ons are used. Foreign exchange diﬀerences arising, if any, are recognised in other comprehensive income and accumulated in equity. Equity items are translated at the exchange rates at the date of transac5ons and foreign exchange diﬀerences arising, if any, are accumulate directly in equity. On the disposal of a foreign opera5on (i.e. a disposal of the Group’s en5re interest in a foreign opera5on, a disposal involving loss of control over a subsidiary that includes a foreign opera5on or loss of joint control over a jointly controlled en5ty that includes a foreign opera5on), all of the accumulated exchange diﬀerences in respect of that opera5on a6ributable to the Group are reclassiﬁed to proﬁt or loss. Where there is no change in the propor5onate percentage interest in an en5ty then there has been no disposal or par5al disposal and accumulated exchange diﬀerences a6ributable to the Group are not reclassiﬁed to proﬁt and loss. Fair value adjustments arising on the acquisi5on of a foreign opera5on are treated as assets and liabili5es of the foreign opera5on and translated at the rate of exchange prevailing at the end of each repor5ng period. Exchange diﬀerences arising are recognised in equity. Re2rement Beneﬁts The Group makes contribu5ons to the personal pension schemes for some of its employees and Directors. Payments to these schemes are charged as an expense in the income statement in respect of pension costs payable in the year. There were no unpaid contribu5ons at the period end. Taxa2on The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable proﬁt for the year. Taxable proﬁt diﬀers from proﬁt as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deduc5ble in other years and items that are never taxable or deduc5ble. The Group’s liability for current tax is calculated using tax rates that have been enacted or substan5vely enacted by the repor5ng date. Deferred tax is recognised on temporary diﬀerences between the carrying amounts of assets and liabili5es in the consolidated ﬁnancial statements and the corresponding tax bases used in the computa5on of taxable proﬁt. Deferred tax liabili5es are generally recognised for all taxable temporary diﬀerences and deferred tax assets are generally recognised for all deduc5ble temporary diﬀerences to the extent that it is probable that taxable proﬁts will be available against which those deduc5ble temporary diﬀerences can be u5lised. Such deferred tax assets and liabili5es are not recognised if the temporary diﬀerence arises from goodwill or from the ini5al recogni5on (other than in a business combina5on) of other assets and liabili5es in a transac5on which aﬀects neither the taxable proﬁt nor the accoun5ng proﬁt. 34 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued Deferred tax liabili5es are recognised for taxable temporary diﬀerences associated with investments in subsidiaries and interests in joint ventures, except where the Group is able to control the reversal of the temporary diﬀerence and it is probably that the temporary diﬀerence will not reverse in the foreseeable future. Deferred tax assets arising from deduc5ble temporary diﬀerences associated with such investments and interest are only recognised to the extent that it is probable that there will be suﬃcient taxable proﬁts against which to u5lise the beneﬁts of the temporary diﬀerences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each repor5ng date and reduced to the extent that it is no longer probable that suﬃcient taxable proﬁts will be available to allow all or part of the assets to be recovered. Deferred tax liabili5es and assets are measured at the tax rates that are expected to apply in the period in which the liability is se6led or the asset realised, based on tax rates that have been enacted or substan5vely enacted at the repor5ng date. Current and deferred tax are recognised in proﬁt or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respec5vely. Where current tax or deferred tax arises from the ini5al accoun5ng for a business combina5on, the tax eﬀect is included in the accoun5ng for the business combina5on. Deferred tax assets and liabili5es are oﬀset when there is a legally enforceable right to set oﬀ current tax assets against current tax liabili5es and when they relate to income taxes levied by the same taxa5on authority and the Group intends to se6le its current tax assets and liabili5es on a net basis. Financial Instruments Recogni(cid:27)on of ﬁnancial assets and ﬁnancial liabili(cid:27)es Financial assets and ﬁnancial liabili5es are recognised on the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. Derecogni(cid:27)on of ﬁnancial assets and ﬁnancial liabili(cid:27)es The Group derecognises a ﬁnancial asset only when the contractual rights to cash ﬂows from the asset expire, or it transfers the ﬁnancial asset and substan5ally all the risks and rewards of ownership of the asset to another en5ty. If the Group neither transfers nor retains substan5ally all the risks and rewards of ownership and con5nues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Group retains substan5ally all the risks and rewards of ownership of a transferred ﬁnancial asset, the Group con5nues to recognise the ﬁnancial asset and also recognises a collateralised borrowing for the proceeds received. The Group derecognises ﬁnancial liabili5es when the Group’s obliga5ons are discharged, cancelled or expired. Financial Assets Trade and other receivables Trade and other receivables are measured at ini5al recogni5on at fair value, and are subsequently measured at amor5sed cost less any provision for impairment. Cash and cash equivalents Cash and cash equivalents comprise cash-in-hand and on-demand deposits and other short-term highly liquid investments that are readily conver5ble to a known amount of cash with three months or less remaining to maturity and are subject to an insigniﬁcant risk of changes in value. Annual Report and Financial Statements for the year ended 31 December 2015 35 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued Financial liabili(cid:27)es and equity instruments Financial arrangements entered into. liabili5es and equity instruments are classiﬁed according to the substance of the contractual Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group a%er deduc5ng all of its liabili5es. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. The costs of an equity transac5on are accounted for as a deduc5on from equity to the extent they are incremental costs directly a6ributable to the equity transac5on that would otherwise have been avoided. Trade and other payables Trade and other payables are ini5ally measured at their fair value, and are subsequently measured at amor5sed cost using the eﬀec5ve interest rate method. Provisions Provisions are recognised when the Group has a legal or construc5ve obliga5on, as a result of past events, for which it is probable that an ou4low of economic resources will result and that ou4low can be reliably measured. The amount recognised as a provision is the best es5mate of the considera5on required to se6le the present obliga5on at the end of the repor5ng period, taking into account the risks and uncertain5es surrounding the obliga5on. When a provision is measured using the cash ﬂow es5mated to se6le the present obliga5on, its carrying amount is the present value of those cash ﬂows. When some or all of the economic beneﬁts required to se6le a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receipt can be measured reliably. Decommissioning Provision for decommissioning is recognised in full when the related facili5es are installed. The decommissioning provision is calculated as the net present value of the Group’s share of the expenditure expected to be incurred at the end of the producing life of the facility in the removal and decommissioning of the produc5on, storage and transporta5on facili5es currently in place. The cost of recognising the decommissioning provision is included as part of the cost of the relevant asset and is thus charged to the income statement in accordance with the Group’s policy for deprecia5on of property, plant and equipment. Period charges for changes in the net present value of the decommissioning provision arising from discoun5ng are included in ﬁnance costs. Share-Based Payments The Group has applied the requirements of IFRS 2 Share-based Payment for all grants of equity instruments. The Group operates an equity-se6led share op5on plan and a share-based compensa5on plan in respect of certain Directors, employees and consultants. The fair value of the service received in exchange for the grant of op5ons and equity is recognised as an expense. Equity-se6led share-based payments are measured at fair value (excluding the eﬀect non-market based ves5ng condi5ons) at the date of grant. The fair value determined at the grant date of equity-se6led share-based payment is expensed on a straight-line basis over the ves5ng period, based on the Group’s es5mate of shares that will eventually vest and adjusted for the eﬀect of non-market based ves5ng condi5ons. 36 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun2ng Policies con5nued Fair value of op5on grants is measured by use of the Black Scholes model for non-performance based op5ons. The expected life used in the model has been adjusted, based on management’s best es5mate, for the eﬀect of non- transferability, exercise restric5ons and behavioural considera5ons. The grant by the Company of op5ons and share-based compensa5on plans over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribu5on. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the ves5ng period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent en5ty accounts. Segmental Repor2ng Opera5ng segments are reported in a manner consistent with the internal repor5ng provided to the chief opera5ng decision maker. The chief opera5ng decision maker, who is responsible for alloca5ng resources and assessing performance of the opera5ng segments and making strategic decisions, has been iden5ﬁed as the Board of Directors. 4. Cri2cal Accoun2ng Judgements and Key Sources of Es2ma2on Uncertainty In the applica5on of the Group’s accoun5ng policies, which are described in note 3, the Directors are required to make judgements, es5mates and assump5ons about the carrying amounts of the assets and liabili5es that are not readily apparent from other sources. The es5mates and associated assump5ons are based on historical experience and other factors that are considered to be relevant. Actual results may diﬀer from these es5mates. The es5mates and underlying assump5ons are reviewed on an on-going basis. Revisions to accoun5ng es5mates are recognised in the period in which the es5mate is revised if the revision aﬀects only that period or in the period of the revision and future periods if the revision aﬀects both the current and future periods. The following are the cri5cal judgements and es5ma5ons that the Directors have made in the process of applying the Group’s accoun5ng policies and that have the most signiﬁcant eﬀect on the amounts recognised in the ﬁnancial statements: Recoverability of Intangible Explora2on and Evalua2on Assets Determining whether an explora5on and evalua5on asset is impaired requires an assessment of whether there are any indicators of impairment, including by reference to speciﬁc impairment indicators prescribed in IFRS 6 Explora&on for and Evalua&on of Mineral Resources. If there is any indica5on of poten5al impairment, an impairment test is required based on the recoverable amount of the asset. The value in use calcula5on requires the en5ty to es5mate the future cash ﬂows expected to arise from the cash-genera5ng unit and a suitable discount rate in order to calculate present value. At 31 December 2015, the Directors determined that there were indicators of impairment in respect of the Group’s intangible O&G explora5on and evalua5on assets held in Germany and of the Group’s uranium and copper explora5on and evalua5on assets held in U.S.A, on the basis that the carrying amount of these assets may not be recovered in full. The Directors therefore considered that it was appropriate to make a provision for impairment in respect of these assets at the year end. The carrying amount of intangible explora5on and evalua5on assets at the balance sheet date was US$10.2 million (2014: US$9.9 million) and an impairment of US$3.7 million (2014: US$1.0 million) was iden5ﬁed and recognised in the year to 31 December 2015. Recoverability of Loans to Subsidiary Undertakings The Company has outstanding loans from its directly held subsidiaries which have then made a number of loans to their own subsidiaries as the primary method of ﬁnancing the ac5vity of those subsidiaries. The principal loans are shown in the Company balance sheet on the basis that the loans incur interest at a commercial rate according to the Group’s inter-company loan policy, which is being rolled up un5l such 5me as the subsidiaries are in a Annual Report and Financial Statements for the year ended 31 December 2015 37 Rose Petroleum plc Notes to the Financial Statements con5nued 4. Cri2cal Accoun2ng Judgements and Key Sources of Es2ma2on Uncertainty con5nued posi5on to se6le. However, there is a risk that the indirectly held subsidiaries will not commence revenue- genera5ng ac5vi5es and that the carrying amount of the Company’s investment will, therefore, exceed the recoverable amount. The Board have assessed the recoverability of its loans based on this risk and the Directors consider that, in considera5on of the losses currently being generated and the impairment of the Group’s intangible explora5on and evalua5on assets which was recognised at 31 December 2015, a provision of US$8.2 million (2014: US$0.7 million) should be recognised by the Company in the year to 31 December 2015. Provision for Decommissioning As a result of explora5on ac5vi5es, the Group is required to make a provision for decommissioning. Signiﬁcant uncertainty exists as to the amount of decommissioning obliga5ons which may be incurred due to the impact of possible changes in environmental legisla5on. The Board assessed the likely obliga5on for decommissioning in respect of the Mill and its O&G assets in U.S.A. Accordingly, a provision of US$0.1 million has been made in respect of the Mill, and an obliga5on of US$0.1 million, calculated using an es5mated discount rate of 4.5 per cent, has been made in respect of O&G assets at 31 December 2015. 5. Revenue The external revenue of the Group arises from the sale of precious minerals arising from ac5vi5es in Mexico and sales of oil and gas from its ac5vi5es in U.S.A. 6. Segmental Informa2on For management purposes, the Group is organised into three opera5ng divisions based on its principal ac5vi5es of gold and silver mining, research and evalua5on of poten5al uranium and copper proper5es and the explora5on and development of O&G resources. These divisions are the basis on which the Group reports its segment informa5on. Segment informa5on about these divisions is presented below. Income statement Revenue Gold and silver O&G Segmental results Uranium and copper Gold and silver O&G Total segment results Loss on disposal of assets held for sale Unallocated results Current and deferred tax Loss a%er taxa5on 2015 US$’000 2014 Restated US$’000 4,129 191 4,320 (3,470) (698) (1,975) (6,143) (485) (3,236) 797 (9,067) 3,097 – 3,097 (326) (1,429) (1,448) (3,203) – (2,662) (13) (5,878) 38 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 6. Segmental Informa2on con5nued Deprecia2on Uranium and copper Gold and silver O&G Impairment Uranium and copper O&G 2015 US$’000 2014 Restated US$’000 2 182 50 234 2015 US$’000 3,141 553 3,694 2 218 – 220 2014 Restated US$’000 – 969 969 Employees The average numbers of employees for the year for each of the Group’s principal divisions were as follows: Uranium and copper Gold and silver O&G Total segment employees Unallocated employees Total employees 2015 Number 2014 Number 2 41 9 52 2 54 2 42 8 52 3 55 Annual Report and Financial Statements for the year ended 31 December 2015 39 Rose Petroleum plc Notes to the Financial Statements con5nued 6. Segmental Informa2on con5nued Balance Sheet Segment assets Uranium and copper Gold and silver O&G Total segment assets Assets rela5ng to held for sale assets Unallocated assets including cash and cash equivalents Deferred tax asset Total assets Segment liabili2es Uranium and copper Gold and silver O&G Total segment liabili5es Unallocated liabili5es Current and deferred tax Total liabili5es Capital addi2ons Uranium and copper Gold and silver O&G Net assets Uranium and copper Gold and silver O&G Total segment net assets Assets rela5ng to held for sale assets Unallocated net assets including cash and cash equivalents Total net assets 2015 US$’000 467 2,318 10,289 13,074 – 1,669 – 14,743 3 306 163 472 404 3 879 2015 US$’000 152 61 3,919 4,132 2015 US$’000 464 2,009 10,126 12,599 – 1,265 13,864 2014 Restated US$’000 3,562 1,802 8,532 13,896 785 6,345 405 21,431 11 341 1,855 2,207 222 56 2,485 2014 Restated US$’000 174 20 7,654 7,848 2014 Restated US$’000 4,066 1,295 6,677 12,038 785 6,123 18,946 40 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 7. Proﬁt Share Payments Met-Sin 2015 US$’000 – – 2014 Restated US$’000 490 490 The Group enters into proﬁt sharing arrangements whereby it undertakes mining ac5vi5es on behalf of a third party licence holder. The Group recognises in full, all mining costs and associated revenues along with the agreed proﬁt share payment to the third party as determined under the agreement. Proﬁt share agreements are not deemed joint arrangements under IFRS 11. Met-Sin The Group is party to a proﬁt share agreement, through its wholly owned subsidiary Minerales Vane S.A. de C.A. (“MV”), in respect of gold and silver mining ac5vi5es in Mexico. The original agreement commenced in 2010 and under the terms of the agreement MV have the right to operate mining ac5vi5es at concessions owned by their partners, Met-Sin. MV provides the capital necessary to explore and develop the mining projects and, once a property becomes opera5onal the gross margin earned is allocated in accordance with the agreement. The proﬁt share alloca5on was on an equal basis un5l February 2014, when it was amended to be 65 per cent to MV and 35 per cent to Met-Sin. Mining ac5vi5es under the the Met-Sin agreement ceased during the year and no liability for proﬁt share payments has been reported for the current year. Minera Pafex On 29 August 2014, MV entered into a proﬁt share agreement with Minera Pafex S.A. de C.V. (“Pafex”) in respect of gold and silver mining ac5vi5es in Mexico. Under the terms of the agreement MV have the right to operate mining ac5vi5es at the Charay and San Luis concessions owned by Pafex. MV provided the capital necessary to explore and develop the projects and, once a property becomes opera5onal the gross margin earned is allocated on the basis of 60 per cent to MV and 40 per cent to Pafex. As a result of the development costs incurred by the Group there have been no proﬁt share payments in respect of the Minera Pafex agreement in either of the years reported. Tango Project On 25 August 2014, MV entered into a proﬁt share and op5on agreement with Minera Camargo S.A de C.V. (“Camargo”), in respect of both gold and silver, and base metal explora5on. Under the terms of the proﬁt share agreement MV has the right to operate gold and silver mining ac5vi5es at concessions owned by Camargo with gross margin earned to be allocated on the basis of 50 per cent to MV and 50 per cent to Camargo. In addi5on, MV holds an op5on to earn a 75 per cent ownership of the base metals (porphyries) by inves5ng US$5 million in work expenditures over a period of 5 years. There have been no proﬁt share payments in respect of the Tango agreement in either of the years reported. During the year ended 31 December 2015, the Group has capitalised the sum of US$0.1 million (2014: US$0.2 million) as intangible explora5on and evalua5on assets in respect of the Tango project, op5on earn-in agreement. The total amount capitalised at 31 December 2015 is US$0.3 million (2014: US$0.2 million) and of this amount US$0.1 million is recoverable against future revenues prior to any proﬁt share payments being made to Camargo. Annual Report and Financial Statements for the year ended 31 December 2015 41 Rose Petroleum plc Notes to the Financial Statements con5nued 8. Opera2ng and Development Expenses Opera5ng expenses – mining Opera5ng expenses – O&G Development expenses 2015 US$’000 364 818 340 1,522 2014 Restated US$’000 428 7 321 756 Development expenses represent expenditure incurred by the Group in respect of mining ac5vi5es prior to the commencement of produc5on. The expenditure recognised in the current year relates primarily to the Pafex proﬁt share agreement. 9. Impairment of Intangible Expora2on and Evalua2on Assets Uranium and copper assets O&G assets 2015 US$’000 3,141 553 3,694 2014 Restated US$’000 – 969 969 During 2014, the poli5cal situa5on for exploring unconven5onal hydrocarbons in Germany became increasingly unclear and it was considered that with only 15 months remaining on the Group’s licences in south-western Germany, acquired on the acquisi5on of Parkyn Energy Holdings plc, there would be insuﬃcient 5me to complete the required work programme. The Directors therefore considered it was appropriate to make a provision for impairment in respect of these assets at 31 December 2014. During 2015, the situa5on has remained unchanged and the Directors consider that this is likely to remain the case for the foreseeable future. As a result, the Directors now consider it appropriate to make a further provision for impairment in respect of its concession in the Weiden Basin, located in the State of Bavaria, south-eastern Germany. Accordingly, a further provision of US$0.1 million has been made in respect of these licences at 31 December 2015. At 31 December 2015, there were indicators of impairment of the Group’s intangible uranium and copper assets and the Directors consider that there is reasonable uncertainty that the Group will recover the carrying value of these assets. As a result, a provision of US$3.2 million has been made in respect of these assets at 31 December 2015. In April 2016, the Board announced that it had entered into an agreement with Rockies Standard to terminate its earn-in rights to the Mancos acreage and dispose of the Cisco Dome ﬁeld and related assets. The Group has a number of operator bonds in place with the State of Utah and Bureau of Land Management (“BLM”), and under the terms of this agreement the Group agreed to leave these bonds in place for the beneﬁt of Rockies Standard. As a result, the Board determined that it was appropriate to make a provision for impairment In respect of these bonds for the sum of US$0.4 million, at 31 December 2015. The remaining intangible explora5on and evalua5on assets have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. These assets are not amor5sed un5l technical feasibility and commercial viability is established. 42 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 10. Finance Income Interest on bank deposits 11. Finance Costs Interest on conver5ble loan notes Interest on shareholder loans Unwinding of discount on provisions 12. Loss before Taxa2on The loss for the year has been arrived at a%er charging/(credi5ng): Deprecia5on of property, plant and equipment Staﬀ costs excluding share-based payments Share-based payments Opera5ng leases – land and buildings Release of decommissioning provision Net foreign exchange gains 13. Auditor’s Remunera2on 2015 US$’000 13 2015 US$’000 – – 5 5 2015 US$’000 234 2,788 1,523 284 – (438) 2014 Restated US$’000 8 2014 Restated US$’000 88 3 – 91 2014 Restated US$’000 220 1,900 763 91 (18) (599) Amounts payable to the external auditors and their associates in respect of both audit and non-audit services: Audit of these ﬁnancial statements Amounts receivable by the Company’s auditor and its associates in respect of: Audit of ﬁnancial statements of subsidiaries of the Company 14. Staﬀ Costs The average monthly number of employees (including Execu5ve Directors) was: Oﬃce and management Opera5ons 2015 US$’000 2014 Restated US$’000 23 46 69 25 57 82 2015 Number 2014 Number 6 48 54 7 48 55 Annual Report and Financial Statements for the year ended 31 December 2015 43 Rose Petroleum plc Notes to the Financial Statements con5nued 14. Staﬀ Costs con5nued Their aggregate remunera5on comprised: Wages and salaries Social security costs Other pension costs Share-based payments 2015 US$’000 3,079 294 129 1,398 4,900 2014 Restated US$’000 2,180 271 109 711 3,271 Included within wages and salaries is the sum of US$0.7 million (2014: US$0.6 million) capitalised to intangible explora5on and evalua5on assets. The remunera5on of the highest paid Director was US$0.3 million (2014: US$0.5 million). 15. Taxa2on Current tax: Current year Total current tax Deferred tax: Origina5on and reversal of temporary diﬀerences Total deferred tax Tax (credit)/charge on loss for the year 2015 US$’000 2014 Restated US$’000 10 10 (807) (807) (797) 66 66 (53) (53) 13 The credit charge for the year can be reconciled to the loss per the income statement as follows: Loss before tax Loss mul5plied by rate of corpora5on tax for UK companies of 20.25% (2014: 21.5%) Eﬀects of: Expenses not deduc5ble for tax purposes Foreign tax withheld Temporary diﬀerences Share-based payments Unrelieved tax losses carried forward Diﬀerence in foreign tax rates Tax (credit)/charge on loss for the year 9,864 5,865 (1,998) (1,261) 960 – (407) 309 734 (395) (797) 230 53 330 164 506 (9) 13 44 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 15. Taxa2on con5nued Unrelieved tax losses carried forward, as detailed in note 28, have not been recognised as a deferred tax asset, as there is currently insuﬃcient evidence that the asset will be recoverable in the foreseeable future. The losses must be u5lised in rela5on to the same opera5ons. Tax for other jurisdic5ons is provided at rates prevailing in those countries. Income tax charge/(credit) included in other comprehensive income during the year is: Foreign tax on hedge of net investment in foreign opera5ons 16. Loss Per Ordinary Share 2015 US$’000 1,212 2014 Restated US$’000 (405) Basic loss per Ordinary Share is calculated by dividing the net loss for the year a6ributable to owners of the parent company by the weighted average number of Ordinary Shares in issue during the year. The calcula5on of the basic and diluted loss per Ordinary Share is based on the following data: Losses Losses for the purpose of basic loss per Ordinary Share being net loss a6ributable to owners of the parent company Number of shares Weighted average number of shares for the purpose of basic loss per Ordinary Share Loss per Ordinary Share Basic and diluted, cents per share 2015 US$’000 2014 Restated US$’000 (9,067) (5,878) Number ’000 Number ’000 2,037,308 1,074,448 (0.45c) Restated (0.55c) Due to the losses incurred in the years reported, there is no dilu5ve eﬀect from the exis5ng share op5ons, share based compensa5on plan or conver5ble loan notes. Annual Report and Financial Statements for the year ended 31 December 2015 45 Rose Petroleum plc Notes to the Financial Statements con5nued 17. Intangible Assets Cost At 1 January 2014 (restated) Addi5ons Acquired on acquisi5on of a subsidiary Reclassiﬁed as held for sale Exchange diﬀerences At 1 January 2015 (restated) Addi5ons Relinquishment of licences Exchange diﬀerences At 31 December 2015 Impairment At 1 January 2014 (restated) Impairment charge Exchange diﬀerences At 1 January 2015 (restated) Impairment charge Relinquishment of licences Exchange diﬀerences At 31 December 2015 Carrying amount At 31 December 2015 At 31 December 2014 (restated) Explora2on and evalua2on assets US$’000 8,538 7,182 542 (785) (44) 15,433 4,010 (887) (45) 18,511 4,599 969 (82) 5,486 3,694 (887) (3) 8,290 10,221 9,947 Rockies Standard Farm-In Agreement In March 2014, the Group signed a farm-in agreement under which its subsidiary, Rose Petroleum (Utah) LLC (“Rose Utah”) acquired the right to acquire 75 per cent of certain oil, gas and hydrocarbon leases in Grand and Emery Coun5es, Utah, from Rockies Standard Oil Company LLC (“RSOC”), which retains the remaining 25 per cent working interest. Rose Utah is the designated operator and will account for its share of the assets, liabili5es and income and expenditure as required by relevant accoun5ng standards. On 3 September 2014, a further agreement was signed which gave RSOC the right to request se6lement of each of the outstanding periodic payments at that date, to be sa5sﬁed in part, by the issue of a variable number of Ordinary Shares in the Company, to a maximum of US$0.7 million. In respect of the periodic payment due on 16 September 2014, 4,178,152 Ordinary Shares were issued in se6lement of US$0.2 million, the remainder having been se6led in cash. At 31 December 2014 there was an outstanding liability of US$1.0 million and any further issues of Ordinary Shares were to be at an agreed price of 3.175p per Ordinary Share. See notes 26 and 30. During the year ended 31 December 2015 the outstanding liability of US$1 million was se6led in cash on the agreed dates and no further issues of Ordinary Shares was made in respect of the agreement. 46 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 17. Intangible Assets con5nued In April 2016, the Group entered into a revised agreement with RSOC. See note 36 The Group’s total expenditure in respect of its U.S.A. O&G assets, included within intangible explora5on and evalua5on assets, as at 31 December 2015 is US$9.9 million (2014: US$6.5 million). German Licences On 20 January 2014, the Group completed the acquisi5on of Parkyn Energy Holdings plc and its subsidiary Parkyn Energy (Germany) Limited, the sole owner of two hydrocarbon licenses in south-western Germany, covering approximately 635,000 acres. During 2014, the poli5cal situa5on for exploring unconven5onal hydrocarbons in Germany became increasingly unclear and the Directors considered that this was likely remain the case for the foreseeable future. The Directors therefore considered it was appropriate to make a provision for impairment in respect of these assets at 31 December 2014. The Group has now fully relinquished its interest in these licences and ceased to recognise them at 31 December 2015. 18. Property, Plant and Equipment Cost At 1 January 2014 (restated) Addi5ons Exchange diﬀerences At 1 January 2015 (restated) Addi5ons De-recogni5on Exchange diﬀerences At 31 December 2015 Accumulated deprecia2on At 1 January 2014 (restated) Charge for the year Exchange diﬀerences At 1 January 2015 (restated) Charge for the year De-recogni5on Exchange diﬀerences At 31 December 2015 Carrying amount At 31 December 2015 At 31 December 2014 (restated) Diablito mine US$’000 Ore processing mill US$’000 Plant and machinery US$’000 7,229 – (477) 6,752 – (6,343) (409) – 7,229 – (477) 6,752 – (6,343) (409) – – – 900 – (103) 797 56 – (119) 734 518 94 (69) 543 79 – (88) 534 200 254 906 124 (100) 930 66 – (117) 879 275 126 (40) 361 155 – (57) 459 420 569 Total US$’000 9,035 124 (680) 8,479 122 (6,343) (645) 1,613 8,022 220 (586) 7,656 234 (6,343) (554) 993 620 823 Annual Report and Financial Statements for the year ended 31 December 2015 47 Rose Petroleum plc Notes to the Financial Statements con5nued 18. Property, Plant and Equipment con5nued The deprecia5on has been charged in the income statement as follows: Cost of sales Opera5ng and development expenses Administra5ve expenses 19. Investments Cost At 1 January 2014 (restated) Addi5ons Capital contribu5on Exchange diﬀerences At 1 January 2015 (restated) Addi5ons Capital contribu5on Exchange diﬀerences At 31 December 2015 Impairment At 1 January 2014 (restated) Impairment charge Exchange diﬀerences At 1 January 2015 (restated) Impairment charge Exchange diﬀerences At 31 December 2015 Carrying amount At 31 December 2015 At 31 December 2014 (restated) 2015 US$’000 110 69 55 234 Shares in subsidiary undertakings US$’000 Company Loans to subsidiary undertakings US$’000 6,412 – – (372) 6,040 – – (283) 5,757 – – – – – – – 5,757 6,040 25,502 9,754 523 (1,511) 34,268 8,810 797 (1,629) 42,246 24,544 720 (1,464) 23,800 8,186 (1,376) 30,610 11,636 10,468 2014 Restated US$’000 160 55 5 220 Total US$’000 31,914 9,754 523 (1,883) 40,308 8,810 797 (1,912) 48,003 24,544 720 (1,464) 23,800 8,186 (1,376) 30,610 17,393 16,508 The Company has a number of loans made to its subsidiaries which incur interest at a commercial rate, according to the Group’s inter-company loan policy. However, there is a risk that the subsidiaries will not commence revenue-genera5ng ac5vi5es and that the carrying amount of the investments exceed the recoverable amount. The Board have assessed the recoverability of these loans and consider that a provision of US$8.2 million (2014: US$0.7 million) should be recognised in the period. 48 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 19. Investments con5nued The Company had investments in the following subsidiary undertakings as at 31 December 2015 which principally aﬀected the losses and net assets of the Group: Place of incorpora2on (or registra2on) and opera2on Propor2on of ownership interest Propor2on of vo2ng power held Principal ac2vity Directly owned: VANE Minerals (UK) Limited Rose Petroleum (UK) Limited UK UK Indirectly owned: AVEN Associates LLC VANE Minerals (US) LLC Minerales VANE S.A. de C.V. Minerales VANE Operaciones S.A. de C.V. Naab Energie GmbH Parkyn Energy (Holdings) plc Parkyn Energy (Germany) Ltd Rose Petroleum (US) LLC Rose Petroleum (Utah) LLC U.S.A. U.S.A. Mexico Mexico Germany Isle of Man Republic of Ireland U.S.A. U.S.A. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Holding company Holding company 100% 100% 100% 100% 100% 100% 100% 100% 100% Explora5on Explora5on Mining Mining Explora5on Holding company Explora5on Holding company Explora5on Parkyn Energy Germany GmbH, a wholly owned subsidiary of Rose Petroleum (UK) Ltd, was dissolved on 11 August 2015 and is currently in liquida5on under the terms of German tax regula5ons. This period of liquida5on will be completed on 31 December 2016. 20. Joint Opera2ons Arizona Project On 1 September 2008, the Group entered into a Mining Venture Agreement with Uranium One Americas Inc. (“U1”). The terms of this agreement created a Joint Venture Agreement (“JVA”) between VANE Minerals (US) LLC (“VANE”) and U1, with each partner holding a 50 per cent interest. The Mining Venture Agreement was amended on 15 July 2013 to extend the terms of the agreement to 31 December 2017. During the year ended 31 December 2015, U1 sold its 50 per cent interest to Anﬁeld Resources Inc. (“Anﬁeld”). The JVA established an agreed sharing of control with decisions about the relevant ac5vi5es requiring the unanimous consent of VANE and Anﬁeld. The par5es have rights to the assets and obliga5ons for liabili5es rela5ng to the arrangement and the JVA has, therefore, been accounted for as a joint opera5on recognising the Group’s relevant share of assets, liabili5es, revenues and expenses as appropriate. The JVA combined interests in over 60 breccia pipe targets, including 10 known mineralised pipes, in northern Arizona and also secured access to U1’s Ticaboo Mill in Utah for ore developed on JV proper5es. The aggregate amounts related to the joint opera5on included within the consolidated accounts are: Non-current assets Current assets Expenses 2015 US$’000 – 53 (3) 2014 Restated US$’000 1,865 57 (3) Annual Report and Financial Statements for the year ended 31 December 2015 49 Rose Petroleum plc Notes to the Financial Statements con5nued 21. Acquisi2on of Subsidiary On 20 January 2014, the Group acquired 100 per cent of the issued share capital of Parkyn Energy (Holdings) plc, obtaining control of Parkyn Energy (Holdings) plc and its 100 per cent owned subsidiary Parkyn Energy (Germany) Limited. Parkyn Energy (Germany) Limited is an explora5on company which was acquired because it was the sole owner of two hydrocarbon licences in south-western Germany, covering over 635,000 acres. The amounts recognised in respect of the iden5ﬁable assets acquired and liabili5es assumed are as set out in the table below. Intangible explora5on and evalua5on assets Financial liabili5es Total iden5ﬁable assets and considera5on Sa5sﬁed by: Cash Restated US$’000 542 (13) 529 529 Of the total considera5on, US$0.4 million was paid during the year ended 31 December 2013 and the remainder was paid in January 2014. 22. Inventories Work in progress 23. Trade and Other Receivables 2015 US$’000 19 Group 2014 Restated US$’000 57 Group Company 2015 US$’000 2014 Restated US$’000 2015 US$’000 2014 Restated US$’000 Trade receivables Amounts owed by Group companies Amounts owed by joint arrangement partners VAT recoverable Tax recoverable Other receivables Prepayments & accrued income 12 – 35 683 311 161 282 3 – 35 353 365 114 136 1,484 1,006 – 242 – 16 – 15 49 322 – 340 – 27 – 16 59 442 Trade receivables principally comprise amounts receivable in respect of O&G sales. The average credit period for trade receivables is 23 days (2014: 15 days). No interest is charged on trade receivables. Other receivables include the sum of US$0.05 million in respect of the disposal of assets held for sale. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. 50 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 24. Cash and Cash Equivalents Cash and cash equivalents held by the Group and the Company as at 31 December 2015 were US$2.4 million and US$1.6 million respec5vely (2014: US$8.4 million, US$6.2 million). The Directors consider that the carrying amount of these assets approximate to their fair value. Included in cash and cash equivalents at 31 December 2014 was the sum of US$1.0 million which was held in a money market account in a subsidiary en5ty. This was deposited against a line of credit for an equivalent value. The line of credit could be reduced by the Group at any 5me without an undue period of no5ce and there was no risk of change in value. The Board, therefore, believed that it was appropriate to include the sum in cash and cash equivalents. There are no such deposits at 31 December 2015. 25. Assets Held For Sale At 31 December 2014, the Board had resolved to dispose of the Group’s interest in Wate Mining Company LLC and these opera5ons were classiﬁed as non-current assets held for sale and presented separately in the balance sheet. The major classes of assets and liabili5es comprising the opera5ons classiﬁed as held for sale were as follows: Intangible explora5on and evalua5on assets 2015 US$’000 – 2014 Restated US$’000 785 On 17 February 2015 (the “closing”), the Company completed the sale of its 50 per cent interest in Wate Mining Company LLC (“Wate”) to EFR Arizona Strip LLC (“EFR”). As considera5on for the 50 per cent interest EFR agreed to pay a total of US$1.75 million, consis5ng of an immediate cash payment of US$0.25 million, a US$0.5 million non-interest bearing promissory note, payable in two equal instalments of US$0.25 million on each of the ﬁrst and second anniversaries of the closing, a further US$0.5 million condi5onal cash, and 2 per cent produc5on royalty on EFR’s stake in the project. The royalty can be purchased by EFR upon payment to the Company of an addi5onal sum of US$0.75 million, less any royal5es previously paid. The Company received the immediate cash payment of US$0.25 million on closing, however, prior to payment of the ﬁrst instalment of the non-interest bearing promissory note due, an addendum to the terms of the original agreement was agreed with EFR. Under the terms of this addendum it was agreed that EFR would make a payment of US$0.05 million in respect of the US$0.25 million due on 17 February 2016 and defer the remainder of all payments due under the non-interest bearing promissory note un5l the commencement of commercial produc5on. Due to the uncertainty surrounding the commencement of commercial produc5on and receipt of further funds the Company has only recognised those funds of which there was certainty, when calcula5ng the loss on disposal of Wate. The net assets of Wate at the date of disposal were: Intangible explora5on and evalua5on assets Loss on disposal Proceeds on disposal 17 February 2015 US$’000 785 (485) 300 Wate Mining Company LLC did not contribute to the Group’s net opera5ng cash ﬂows during the year ended 31 December 2015. Annual Report and Financial Statements for the year ended 31 December 2015 51 Rose Petroleum plc Notes to the Financial Statements con5nued 26. Trade and Other Payables Trade payables Amounts owed to Group companies VAT payable Taxes and social security Other payables Accruals Group Company 2015 US$’000 134 – 14 38 – 498 684 2014 Restated US$’000 617 – 13 78 1,000 669 2,377 2015 US$’000 2014 Restated US$’000 58 31 – 16 – 99 204 75 5 – 38 – 110 228 Trade payables and accruals principally comprise amounts outstanding for trade purchases and on-going costs. The average credit period taken for trade purchases is 30 days (2014: 37 days). The Group has ﬁnancial risk management policies to ensure that all payables are paid within the credit 5me frame. At 31 December 2014, other payables included the sum of US$1.0 million in respect of outstanding periodic payments due under the O&G farm-in agreement. This sum was se6led in cash on the agreed dates. See note 17. The Directors consider that the carrying amount of trade and other payables approximates to their fair value. No interest is generally charged on balances outstanding. 27. Conver2ble Loan Notes The Company had in issue, conver5ble loan notes totalling US$1.0 million which were conver5ble into Ordinary Shares of the Company at any 5me up to the maturity date of 31 May 2017. The exercise price was 1.25p per share and the holders of the loan notes were en5tled to convert the notes at any 5me up to the 31 May 2017. In addi5on, if at any 5me prior to the redemp5on date the volume weighted average price of the Ordinary Shares on AIM (“VWAP”) (for any consecu5ve period of 15 business days a%er 31 May 2012) exceeds twice the conversion price; or (b) at any 5me a%er 31 May 2015, but prior to the redemp5on date, the VWAP exceeds the conversion price, then the Company can serve an Early Redemp5on No5ce. The Company shall pay to the note holder the sum which is equal to the par value of the notes being redeemed divided by the conversion price and mul5plied by the VWAP set out in the Early Redemp5on No5ce, together with any interest accrued. In June 2014, the holders of the conver5ble loan notes gave no5ce of their inten5on to convert the outstanding loan notes, and on 14 June 2014, the Company issued 80 million Ordinary Shares of 0.1p each at a price of 1.25p. The amount previously recognised in equity has been transferred directly between reserves. See note 31. Liability component at 1 January Interest charged Interest paid Conversion Exchange diﬀerences Liability component at 31 December US$’000 – – – – – – Group and Company 2015 2014 Restated US$’000 1,405 88 (61) (1,473) 41 – The interest expensed for the year ended 31 December 2014 was calculated by applying an eﬀec5ve interest rate to the liability component and the eﬀec5ve interest rate on the loans in issue was 13.73%. 52 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 28. Deferred Tax The movement in the deferred tax balance was as follows: Deferred tax asset 2015 US$’000 405 – (405) – – 2014 Restated US$’000 – – 405 405 405 At 1 January Release to income for the year Charge to statement of changes in equity At 31 December The analysis of the deferred tax balance is as follows: Foreign exchange temporary diﬀerences There are unrecognised deferred tax assets in rela5on to: UK tax losses U.S.A. tax losses German tax losses Mexican tax losses Republic of Ireland tax losses Deferred tax liabili2es 2015 US$’000 – – – – – 2015 US$’000 5,428 17,355 57 1,953 41 24,834 2014 Restated US$’000 53 (53) – – – 2014 Restated US$’000 5,693 14,732 46 1,246 28 21,745 The unrecognised deferred tax asset in rela5on to tax losses in the Company at 31 December 2015 was US$0.5 million (2014: US$0.5 million). 29. Provisions At 1 January U5lised in the year Addi5ons Unwinding of discount Exchange diﬀerences At 31 December Group Decommissioning 2015 US$’000 2014 Restated US$’000 52 – 143 5 (8) 192 78 (1) (18) – (7) 52 Annual Report and Financial Statements for the year ended 31 December 2015 53 Rose Petroleum plc Notes to the Financial Statements con5nued 29. Provisions con5nued Non-current provision At 31 December Group Decommissioning 2015 US$’000 192 192 2014 Restated US$’000 52 52 In accordance with the Group’s environmental policy and applicable legal requirements, the Group expects to restore sites where it has carried on ac5vi5es, following ﬁnal conclusion of those ac5vi5es. Accordingly, a provision is required to cover the decommissioning costs for the ore processing mill and opera5ng mines and the Groups O&G assets. Restora5on of the opera5ng mines was completed at 31 December 2014 and the Directors’ assump5ons are that restora5on of the Mill will not take place for at least a further twelve months. Restora5on in respect of the O&G assets has been calculated on the basis that this will not take place un5l 2034, using a risk free rate of 4 per cent. 30. Share Capital Authorised Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Allo3ed, issued and fully paid Ordinary Shares of 0.1p each Deferred Shares of 9.9p each 2015 Number ‘000 7,779,297 190,108 7,969,405 2,550,185 190,108 2,740,293 Group and Company 2014 Number ‘000 7,779,297 190,108 7,969,405 1,510,185 190,108 1,700,293 Restated US$’000 12,083 29,232 41,315 2,490 34,640 37,130 US$’000 11,515 27,858 39,373 4,125 34,640 38,765 The Deferred Shares are not listed on AIM, do not give the holders any right to receive no5ce of, or to a6end or vote at, any general mee5ngs, have no en5tlement to receive a dividend or other distribu5on or any en5tlement to receive a repayment of nominal amount paid up on a return of assets on a winding up nor to receive or par5cipate in any property or assets of the Company. The Company may, at its op5on, at any 5me redeem all of the Deferred Shares then in issue at a price not exceeding £0.01 from all shareholders upon giving not less than 28 days’ no5ce in wri5ng. 54 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 30. Share Capital con5nued Issued Ordinary Share Capital On 30 June 2015, the Company issued 1,040,000,007 Ordinary Shares of 0.1p each at a price of 3.0p per share, raising gross proceeds of US$4.9 million (£3.1 million). At 1 January 2014 Allotment of shares At 1 January 2015 Allotment of shares At 31 December 2015 31. Other Reserves Ordinary Shares Number ‘000 792,674 717,511 1,510,185 1,040,000 2,550,185 At 1 January Reclassiﬁca5on of equity component of conver5ble loan notes At 31 December US$’000 – – – Group and Company 2015 2014 Restated US$’000 462 (462) – This reserve represents the equity component of the issued conver5ble loan notes (see note 27). The reclassiﬁca5on of equity component represents the movement between reserves on conversion of conver5ble loan notes. 32. Share-Based Payments Equity Se3led Share Op2on Plan The Company had a Share Op5on Plan under which op5ons to subscribe for the Company’s shares had been granted to certain Directors and to selected employees and consultants. The Rose Petroleum plc Share Op5on Plan was originally adopted by the Company on 25 May 2004. On 28 September 2011, the Share Op5on Plan was amended by a resolu5on of the Remunera5on Commi6ee by which the exis5ng op5ons (“old op5ons”) were cancelled and replaced with new op5ons (“replacement op5ons”). These op5ons were granted with a new exercise price based on the market value of each Ordinary Share in the Company and were deemed to vest immediately. On 30 September 2011, the Company issued a further 11.6 million share op5ons: • • 2.1 million share op5ons which vested on 1 September 2012; and 9.5 million share op5ons of which 3.2 million vested on 1 September 2012 and the remainder vest in two equal tranches on 1 September 2013 and 2014. In August 2013, the 2004 Share Op5on Plan was replaced by the adop5on of the 2013 Share Op5on Plan Part A (employees) and 2013 Share Op5on Plan Part B (non-employees). Annual Report and Financial Statements for the year ended 31 December 2015 55 Rose Petroleum plc Notes to the Financial Statements con5nued 32. Share-Based Payments con5nued On 3 September 2013, the Company issued 70.4 million share op5ons which vest in three equal tranches on 3 September 2014, 2015 and 2016. Of these, 23.3 million were granted with an exercise price of 1.125p and 47.1 million with an exercise price of 0.475p. On 15 January 2014, the Company issued 23.7 million share op5ons with an exercise price of 0.4p, which vest in three equal tranches on 15 January 2015, 2016 and 2017. On 25 August 2014, the Company issued 6.5 million share op5ons with an exercise price of 3.28p, which vest in three equal tranches on 25 August 2015, 2016 and 2017. On 1 September 2014, the Company issued 10 million share op5ons with an exercise price of 3.375p, which vest in three equal tranches on 1 September 2015, 2016 and 2017. On 10 September 2014, the Company issued 1.5 million share op5ons with an exercise price of 3.425p, which vest in three equal tranches on 10 September 2015, 2016 and 2017. On 15 September 2014, the Company issued 7.5 million share op5ons with an exercise price of 3.125p, which vest in three equal tranches on 15 September 2015, 2016 and 2017. On 10 October 2014, the Company issued 43.5 million share op5ons with an exercise price of 3.425p, which vest in three equal tranches on 10 October 2015, 2016 and 2017. On 1 November 2014, the Company issued 1.5 million share op5ons with an exercise price of 2.925p, which vest in three equal tranches on 1 November 2015, 2016 and 2017. On 4 February 2015, the Company issued 5.0 million share op5ons with an exercise price of 1.925p, which vest in three equal tranches on 4 February 2016, 2017 and 2018. On 13 February 2015, the Company issued 10.0 million share op5ons with an exercise price of 1.825p, which vest in three equal tranches on 13 February 2016, 2017 and 2018. On 16 March 2015, the Company issued 5.0 million share op5ons with an exercise price of 1.625p, which vest in three equal tranches on 16 March 2016, 2017 and 2018. At 31 December 2015, 155.5 million op5ons had been granted under the terms of the Share Op5on Plans and not exercised. The Company has no legal or construc5ve obliga5on to repurchase or se6le the op5ons in cash. The latest date for exercise of the op5ons is 15 March 2015 and the op5ons are forfeited if the employee or consultant leaves the Group before the op5ons vest, or if those op5ons which have vested are not exercised within three months of leaving. 56 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 32. Share-Based Payments con5nued Details of the share op5ons outstanding at the end of the year were as follow: Outstanding at 1 January Granted Forfeited/cancelled Outstanding at 31 December Exercisable at 31 December Number of op2ons ‘000 183,200 20,000 (47,667) 155,533 71,967 2015 Weighted average exercise price 1.725p 1.800p 1.062p 1.938p 1.596p Number of op2ons ‘000 89,600 94,200 (600) 183,200 42,067 2014 Weighted average exercise price 0.783p 2.617p 1.125p 1.725p 0.882p The op5ons outstanding at 31 December 2015 had an es5mated weighted average remaining contractual life of 1 year (2014: 1.4 years), with an exercise price ranging between 0.4p and 3.425p. The fair value of the op5ons issued during the year has been calculated using the Black-Scholes model. The signiﬁcant inputs into the model for the IFRS 2 valua5on were as follows: Exercise price (pence) Expected vola5lity (%) Expected life (years) Risk free rates (%) Expected dividends Performance condi5on Weighted average share price (pence) Grants in year 20 million share op2ons 1.625-1.925 92-94 5.5-6.5 1.15-1.4 – None 1.8 Expected vola5lity was calculated considering Rose Petroleum plc share price movements over a period commensurate with the expected term immediately prior to grant date. The fair value of the op5ons granted during the year was US$0.3 million (2014: US$1.9 million). Share- Based Compensa2on Under the terms of a contract of employment the Company agreed to issue Ordinary Shares in the Company to a Director in return for services provided. The fair value of the services provided can be measured directly, and accordingly, an expense of US$0.05 million (2014: US$0.05 million) has been recognised in the year ended 31 December 2015. In the year ended 31 December 2015 the Company recognised a total expense of US$1.5 million (2014: US$0.8 million) related to equity-se6led share-based payment transac5ons, US$1.45 million (2014: US$0.75 million) in respect of the Share Op5on Plan and US$0.05 million (2014: US$0.05 million) in respect of share-based compensa5on. Annual Report and Financial Statements for the year ended 31 December 2015 57 Rose Petroleum plc Notes to the Financial Statements con5nued 33. Commitments under Opera2ng Leases Opera5ng lease payments represent total rentals payable by the Group for certain of its mining sites. Group Company 2015 US$’000 2014 Restated US$’000 2015 US$’000 2014 Restated US$’000 126 232 – 358 199 463 8 670 59 163 – 222 62 233 – 295 Land and buildings Amounts due within one year Amounts due in 2-5 years Amounts due over 5 years 34. Financial Instruments Capital Risk Management The Group manages its capital to ensure that en55es in the Group will be able to con5nue as going concerns, while maximising the return to shareholders through the op5misa5on of the debt and equity balance. The Group’s overall strategy remains unchanged from 2014. The capital structure of the Group consists of cash and cash equivalents and equity a6ributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group is not subject to externally imposed capital requirements. The Group plans its capital requirements on a regular basis and as part of this review the Directors consider the cost of capital and the risks associated with each class of capital. Signiﬁcant Accoun2ng Policies Details of the signiﬁcant accoun5ng policies and methods adopted, including the criteria for recogni5on, the basis of measurement, the basis on which income and expenses are recognised, in respect of each class of ﬁnancial asset, ﬁnancial liability and equity instrument are disclosed in note 3. Categories of Financial Instruments Group Company Financial assets measured at amor5sed cost Cash and cash equivalents Trade receivables Amounts owed by joint arrangement partners Other receivables Loans to subsidiary undertakings 2015 US$’000 2,399 12 35 161 – 2,607 2014 Restated US$’000 8,408 3 35 114 – 8,560 2015 US$’000 1,582 242 – 15 11,636 13,475 2014 Restated US$’000 6,229 340 – 16 10,468 17,053 58 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 34. Financial Instruments con5nued Financial liabili5es measured at amor5sed cost Trade payables Other payables Group Company 2015 US$’000 134 – 134 2014 Restated US$’000 617 1,000 1,617 2015 US$’000 2014 Restated US$’000 89 – 89 80 – 80 Fair Value of Financial Instruments The Directors consider that the carrying amount of its ﬁnancial instruments approximates their fair value. Financial Risk Management Objec2ves Management provides services to the business, co-ordinates access to domes5c and interna5onal ﬁnancial markets and monitors and manages the ﬁnancial risks rela5ng to the opera5ons of the Group. These risks include foreign currency risk, credit risk, liquidity risk and cash ﬂow interest rate risk. The policies for managing these risks are regularly reviewed and agreed by the Board. The Group does not enter into or trade ﬁnancial instruments, including deriva5ve ﬁnancial instruments, for specula5ve purposes. Foreign Exchange Risk and Foreign Currency Risk Management The Group undertakes certain transac5ons denominated in foreign currencies, with the result that exposure to exchange rate ﬂuctua5ons arise. The Group does not normally hedge against the eﬀects of movements in exchange rates. The Group policy is not to repatriate any currency where there is the requirement or obliga5on to spend in the same denomina5on. When foreign exchange is required the Company purchases using the best spot rate available. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabili5es at the repor5ng date are as follows: US dollars Euro Liabili2es Assets 2015 US$’000 – 7 2014 Restated US$’000 27 – 2015 US$’000 1,231 – 2014 Restated US$’000 3,732 6 Foreign currency sensi2vity analysis The func5onal currencies of the Group companies are Pound Sterling (GBP), US dollars (USD), Euro (EUR) and Mexican Pesos (MXN). The ﬁnancial statements of the Group’s foreign subsidiaries are denominated in foreign currencies. The Group is exposed primarily to movements in USD, the currency in which the Group receives its revenue, against other currencies, in which the Group incurs liabili5es and expenditure. The Group is exposed to foreign currency risk arising from recognised assets and liabili5es as well as commitments arising from future trading transac5ons. Annual Report and Financial Statements for the year ended 31 December 2015 59 Rose Petroleum plc Notes to the Financial Statements con5nued 34. Financial Instruments con5nued Sensi5vity analyses have been performed to indicate how the proﬁt or loss would have been aﬀected by changes in the exchange rate between GBP, MXN, EUR and USD. The analysis is based on a weakening and strengthening of USD, in which the Group has signiﬁcant assets and liabili5es at the end of each respec5ve period, by ten per cent against GBP and MXN. A movement of ten per cent reﬂects a reasonably posi5ve sensi5vity when compared to historical movements over a three to ﬁve year 5meframe. The sensi5vity analysis includes only outstanding foreign currency denominated monetary items and adjusts their transla5on at the period end for a ten per cent change in foreign currency rates. The table below details the Group’s sensi5vity to a ten per cent decrease in USD against GBP and MXN. A posi5ve number below indicates an increase in proﬁt where USD weakens ten per cent against GBP and USD. For a ten per cent strengthening of USD there would be an equal and opposite impact on the proﬁt, and the balance below would be nega5ve. Income statement 2015 US$’000 129 2014 Restated US$’000 418 The Group’s sensi5vity to movements in exchange rates has decreased at 31 December 2015 because the Group is holding less of its cash and cash equivalents in USD. Interest Rate Risk Management The Group’s policy on interest rate management is agreed at Board level and is reviewed on an on-going basis. The Group has no substan5al exposure to ﬂuctua5ng interest rates on its liabili5es. At 31 December 2015 the Group has no liabili5es which a6ract interest charges. Liquidity Risk Management Ul5mate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long- term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate cash reserves and by con5nuously monitoring forecast and actual cash ﬂow. Credit Risk Management Credit risk refers to the risk that a counterparty will default on its contractual obliga5ons resul5ng in ﬁnancial loss to the Group. The Group does not have any signiﬁcant credit risk exposure on trade receivables. The Group makes allowances for impairment of receivables where there is an iden5ﬁed event which, based on previous experience, is evidence of a reduc5on in the recoverability of cash ﬂows. The credit risk on liquid funds (cash) is considered to be limited because the counterpar5es are ﬁnancial ins5tu5ons with high and good credit ra5ngs assigned by interna5onal credit-ra5ng agencies. The carrying amount of ﬁnancial assets recorded in the ﬁnancial statements represents the Group’s maximum exposure to credit risk. 60 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 35. Related Party Transac2ons Amounts due from Subsidiaries Balances and transac5ons between the Company and its subsidiaries which are related par5es, have been eliminated on consolida5on and are not disclosed in this note. The Company has entered into a number of unsecured related party transac5ons with subsidiary undertakings. The most signiﬁcant transac5ons carried out between the Company and their subsidiary undertakings are management charges for services provided to the subsidiary company and long-term ﬁnancing. Details of these transac5ons are as follows: Loans Management charges Interest (1.5%) Capital contribu5on Transac2ons in the year US$’000 7,162 1,070 578 797 2015 2014 Amounts owing US$’000 34,422 2,664 3,865 1,295 Transac2ons in the year US$’000 7,999 1,330 425 523 Amounts owing US$’000 28,604 1,673 3,468 523 A provision of US$8.2 million (2014: US$0.7 million) has been made in respect of the amounts owed by the subsidiary company. The total provision at 31 December 2015 is US$30.6 million (2014: US$23.8 million). Remunera2on of Key Management Personnel The remunera5on of key management personnel of the Group is set out below in aggregate for each of the categories speciﬁed in IAS 24 Related Party Disclosures. Short-term employee beneﬁts Consultancy payments Post-employment beneﬁts Share-based payments 2015 2014 Purchase of services US$’000 Amounts Owing US$’000 Purchase of services US$’000 Amounts Owing US$’000 867 34 52 850 1,803 – – 2 – 2 964 240 87 408 1,699 – 9 3 – 12 The amounts outstanding are unsecured and will be se6led in cash. No guarantees have been given or received. All transac5ons with related par5es have been conducted on an arm’s length basis. Included in the amounts for the year ended 31 December 2015 is the sum of US$159,989 paid to JM Blair under the terms of his termina5on agreement. Annual Report and Financial Statements for the year ended 31 December 2015 61 Rose Petroleum plc Notes to the Financial Statements con5nued 35. Related Party Transac2ons con5nued Directors’ Emoluments Remunera5on paid to Directors during the year was as follows: Emoluments en2tlement US$’000 Emoluments1 taken US$’000 Bonus US$’000 Consultancy US$’000 Pension US$’000 Total US$’000 2015 Execu2ve Directors MC Idiens KK He%on KB Sco6 JM Blair CJ Eadie Non-execu2ve Directors Rt Hon Earl of Kilmorey PC PE Jeﬀcock 306 157 46 632 206 69 53 900 274 164 – 67 189 52 40 786 – – – – – – – – – – 34 – – – – 34 26 7 – – 18 – – 51 300 171 34 67 207 52 40 871 1 Emoluments include beneﬁts-in-kind which are not included in emoluments en5tlement 2 Emolument to the date of resigna5on on 22 April 2015 Emoluments en2tlement US$’000 Emoluments1 taken US$’000 Bonus US$’000 Consultancy US$’000 Pension US$’000 Total US$’000 2014 Restated Execu2ve Directors SD Van Nort LC Arnold MC Idiens KK He%on KB Sco6 JM Blair Non-execu2ve Directors Rt Hon Earl of Kilmorey PC PE Jeﬀcock – – 330 173 49 250 74 58 934 – – 275 181 12 93 62 45 668 – – 198 – – – – – 198 6 4 – – 115 115 – – 240 – – 74 9 – 4 – – 87 6 4 547 190 127 212 62 45 1,193 1 Emoluments include beneﬁts-in-kind which are not included in emoluments en5tlement The remunera5on of Directors and key execu5ves is decided by the remunera5on commi6ee having regard to comparable market sta5s5cs. SD Van Nort and LC Arnold waived their annual salary en5tlement in the prior year to aid the cash ﬂow of the Group. Certain Directors operate in the capacity of consultant as described above. Directors share op5ons are detailed in the Directors Report. 62 Annual Report and Financial Statements for the year ended 31 December 2015 Notes to the Financial Statements con5nued 35. Related Party Transac2ons con5nued Directors’ pensions The number of Directors to whom re5rement beneﬁts are accruing under money purchase schemes was 36. Post Balance Sheet Events 2015 No 2 2014 No 1 Rockies Standard In April 2016, the Board announced that it had entered into an agreement with RSOC to terminate its earn-in rights to the Mancos acreage and dispose of the Cisco Dome ﬁeld, wells, pipelines, gas tap, gas plant and all the associated equipment and liabili5es. As part of the revised agreement the Group agreed to cover the cost of the exis5ng plug and abandonment liability of the four wells already scheduled with the authori5es for the sum of US$0.3 million. The Group has also agreed to leave the exis5ng operator bonds in place with the State of Utah and Bureau of Land Management. RSOC has, in turn, agreed to reduce the Group’s carry obliga5on to earn the 75 per cent working interest in the Paradox acreage by US$2 million to US$5.5 million. The Group has also gained an exclusive op5on to acquire RCOS 25 per cent interest in the Paradox acreage for a one-5me payment of US$1.0 million at any 5me prior to 30 June 2016. PROPOSED EQUITY FUNDRAISE In May 2016, the Company raised gross proceeds of US$1.2 million (£0.8 million) by way of an uncondi5onal placing of 500,000,000 Ordinary Shares of 0.1p each at a price of 0.16 per share. Annual Report and Financial Statements for the year ended 31 December 2015 63 Printed by Michael Searle & Son Limited Rose Petroleum plc Head Oﬃce: 4th Floor 3 Shepherd Street London W1J 7HL www.rosepetroleum.com

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