Rose Petroleum plc Rose Petroleum plc Annual Report and Financial Statements For the year ended 31 December 2017 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 No5ce of Annual General Mee5ng 2 3 4 11 14 16 17 21 22 23 24 25 26 27 28 29 62 Annual Report and Accounts for the year ended 31 December 2017 01 Rose Petroleum plc Directors, Advisers and Officers Non-Execu(ve Chairman Non-Execu(ve Director Chief Execu(ve Officer Chief Financial Officer Directors PE Jeffcock KB Sco6 MC Idiens CJ Eadie Secretary IH McNeill Registered Office 20-22 Wenlock Road London N1 7GU Auditor RSM UK Audit LLP Central Square, 5th Floor 29 Wellington Street Leeds LS1 4DL Registrars Link Asset Services 34 Beckenham Road Beckenham Kent BR3 4TU Bankers Barclays Bank Plc Level 27 1 Churchill Place London E14 5HP Solicitors Memery Crystal LLP 44 Southampton Buildings London WC2A 1AP Nominated Adviser and Joint Broker Allenby Capital Limited 5 St Helen’s Place London EC3A 6AB Joint Broker Turner Pope Investments Ltd Becket House 36 Old Jewry London EC2R 8DD 02 Annual Report and Financial Statements for the year ended 31 December 2017 Chairman’s Statement The period under review has been one of significant ac5vity and sustained progress, and the Group remains on track to achieve its key strategic objec5ve of spudding its first well on its acreage in the Paradox Basin, Utah, U.S.A. (“Paradox acreage” or “Paradox”). The Group is currently focusing its efforts and resources into achieving this before the end of 2018. The Group has a 75% working interest in approximately 80,000 acres in the Paradox acreage through its joint venture partnership with Rockies Standard Oil Company (“RSOC”). There is no doubt that the prevailing market condi5ons of the last few years provided the Board with an extremely challenging opera5ng environment, but the decisive ac5on taken during that period to consolidate the Group’s key assets, while reducing liabili5es and opera5onal overheads, was cri5cal. It has given the Group a clear strategic focus and a strong opera5onal foo5ng as market condi5ons have begun to improve. The Group is now moving forward with a clear strategy and 5meline for growth. The period has been one of con5nued restructuring and transforma5on for the Group. Subsequent to the disposal of the Group’s mining opera5ons in Mexico, which completed in December 2017, the strategy became increasingly focused on the Paradox. This restructuring ac5vity was supplemented by the ongoing opera5onal success in the Paradox including the 3D seismic acquisi5on and interpreta5on of the data, the commencement of the permi7ng, well design engineering, development plan and processes to obtain funding that will pave the way for the drilling of the first Paradox well. This ac5vity has been carried out against a backdrop of con5nued cash conserva5on which remains a key priority for the Board. The strategic decision to dispose of the Group’s core mining assets and to focus resources on the Paradox acreage has, to date, proved a successful one. Funds from the disposal of the SDA ore processing mill in Mexico, together with the proceeds from the Company’s fundraise completed in October 2017, were invested in the 3D seismic acquisi5on and, since the comple5on of the seismic acquisi5on in Q4 2017, the Group has been able to assemble a high-quality opera5ons team with basin experience to deliver the Group’s first Paradox well. The Board was delighted by the quality of the data obtained from the 3D seismic acquisi5on which highlighted the significant scale and prospec5vity of the Paradox acreage. To date, circa 60 drill targets have been iden5fied on the Group’s Paradox acreage, including addi5onal acreage recently acquired by the Group. The next key step for the Group will be the comple5on of the funding process for the first Paradox wells. The virtual data room (“VDR”) is now established. The Board is very pleased by the interest shown in the project to date and was especially encouraged by interest shown whilst exhibi5ng at NAPE in Houston. The Group is also awai5ng the updated Competent Persons Report (“CPR”) which will provide an updated resource es5mate for the Paradox acreage, including the recently acquired acreage. It is expected that the updated CPR will provide independent verifica5on of the geological and economic strength of the Paradox project. The next period promises to be a busy one for the Group. The Group acquired its ini5al Paradox acreage in March 2014 and it is very exci5ng to be close to spudding our first well, as we con5nue discussions towards securing the funding required to undertake the drilling programme. It is fair to say that the downturn in the natural resource sector and 5me-consuming permi7ng process for the 3D seismic acquisi5on delayed the 5meline for drilling the first wells, but the Board and management team remain more convinced than ever that the Paradox acreage represents a highly prospec5ve asset and one which can deliver strong returns to shareholders. Furthermore, the con5nued rally in oil prices significantly helps the economics of the project and should make the Paradox acreage even more appealing to funders. I am very much looking forward to the period ahead, and I would like to take this opportunity to thank our shareholders, advisers and employees for their con5nuing support. The Board is looking forward to upda5ng you on progress, and I very much hope the next period will be the one in which Rose makes the paradigm shi% from explorer to producer and one in which our pa5ent shareholders will begin to see a return on their investments. PE Jeffcock 5 June 2018 Annual Report and Financial Statements for the year ended 31 December 2017 03 Rose Petroleum plc Strategic Report The Directors present their strategic report on the Group for the year ended 31 December 2017. Principal Objec0ves and Strategies Rose Petroleum plc is an Oil & Gas (“O&G”) explora5on company with some residual mining 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, financing and financial control of public companies; Employing strong and experienced management teams to maximise returns from the Group’s underlying assets; The poten5al acquisi5on of further interests through acquisi5on, farm-in agreements or joint arrangements to deliver near-term value to stakeholders; Considera5on of the capital and financing required to achieve the Group’s objec5ves and market percep5on; and Tight financial control and cash conserva5on. Review Of Opera0ons Oil & Gas Division Paradox Basin, Utah, U.S.A. The period under review has been one of significant progress as the Group con5nues to earn into a 75% working interest in a total of approximately 80,000 acres in the Paradox Basin. Following the recent comple5on of the successful seismic acquisi5on, ac5vity on the ground con5nues apace, and the Group is on track to secure the permissions required to drill its first Paradox well later this year. Background The Group’s Paradox acreage cons5tutes a project of considerable scale and prospec5vity. According to the resource report prepared by Ryder Sco6 Company LP (“Ryder Sco6”) in 2014, there are poten5al resources of 1.1 billion barrels of oil (“BO”) and 2.2 trillion cubic feet of gas (“TCFG”) on the Group’s Paradox acreage, this included all the exis5ng acreage and all forma5ons (15), but not including the new acreage acquired by the Group in April 2018. The Group has recently commissioned the prepara5on of a revised resource report to take account of both the new acreage acquisi5on and the informa5on and data gathered from the seismic acquisi5on. The report will be specific to the acreage covered by the 3D seismic acquisi5on and also specific to the main target forma5on, being clas5c 21 also known as the Cane Creek Cycle. The Paradox Basin is a natural fracture driven basin, therefore drilling targets “fracture swarms” to enable the natural fracturing to provide the permeability and porosity for commercial flow rates so “hydraulic fracking” is not u5lised. The Paradox has been ac5vely exploited by Fidelity Explora5on and Produc5on Inc. (“Fidelity”), mainly in the Cane Creek Cycle, south of the Group’s main group Paradox lease blocks. Fidelity had been the most ac5ve operator in the Paradox Basin with average Q1 2015 produc5on of 2,100 barrels of oil equivalent 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 these factors which led the Board to make the strategic decision to focus the Group’s ac5vi5es on the Paradox acreage. 04 Annual Report and Financial Statements for the year ended 31 December 2017 Strategic Report con5nued Consistent with the other successful wells drilled within the basin, and as outlined in the Group’s 2016 Annual Report, the Group adopted a strategy to shoot the seismic acquisi5on that would assist in iden5fying and steering drilling targets for the Group’s first wells. 3D Seismic Acquisi0on A%er a process that took almost three years, in August 2017, the Group announced that it had finally received all necessary approvals to shoot its 3D seismic survey. This marked a watershed moment for the Group as the permi7ng process had taken considerably longer than had originally been an5cipated and was essen5al for moving the Paradox project forward. During the la6er stages of the permi7ng process, the Group was working on the op5misa5on for the proposed state of the art survey and, on 31 August 2017, the Group announced that the shoot would be focused on an area of 40 square miles, within the 61 square miles permi6ed area, but in an area that retained the same coverage over the Group’s acreage, only cu7ng out extended areas of the shoot which were not covering the Group’s acreage. The revised shoot was designed with high fold (greater than 35-fold with offsets up to 10,000 feet) wide- azimuth design which the Directors believed were be6er parameters than previous surveys in the area. The shoot was designed to 5e in the State 16-42 (with modern logs) and the Federal 28-11 (Cane Creek producer) wells. On 22 September 2017, the Company announced that it had raised gross proceeds of US$4.0 million (£3.0 million) in order to fund the seismic shoot and, on 5 October 2017, the shoot commenced under the guidance of the Group’s turnkey consultants Dawson Geophysical. The shoot itself was successful and was completed on 5me and within budget. The shoot comprised 6,886 total receiver points and 4,665 total source points. The accelerated 5meline was possible due to the vibrator truck set up change, from two teams of four vibrator trucks, to three teams of three vibrator trucks, enabling an average of 311 source points shot per day. Once completed, the next phase of work was the interpreta5on of the data collected from the shoot. On 29 January 2018, the Group announced that key geological structures targeted by 3D seismic had been found to be present across the shoot area, and following the analysis of the data, mul5ple drilling targets were iden5fied. The structural interpreta5on, which is an ongoing process, had at that date iden5fied 53 well loca5ons in the Cane Creek reservoir zone alone, within the 20 square miles of the Gunnison Valley Unit (“GVU”) lease holding covered by the 3D seismic data. The ini5al internal resource es5mates are consistent with the report prepared by our independent resource analysts, Ryder Sco6, in April 2014 for the Grand Main leasehold area (85 square miles), which includes the GVU acreage. This report suggests that for the 20 square mile area covered by the 3D, the gross resource poten5al is as follows: • Mean unrisked undiscovered Original Hydrocarbon in Place of 450 million barrels of oil equivalent (“mmboe”); and • A mean unrisked Prospec5ve Recoverable Resource of 32.5 mmboe. A further 65 square miles of the Group’s Grand Main leasehold area, and 48 square miles of its Emery Main leasehold area contains addi5onal prospec5vity in the Cane Creek reservoir zone and the other Paradox Forma5on clas5c intervals. Annual Report and Financial Statements for the year ended 31 December 2017 05 Rose Petroleum plc Strategic Report con5nued On 4 April 2018, the Group announced that it had increased its land posi5on in the Paradox Basin with the acquisi5on of some highly prospec5ve new acreage. The Group acquired a 75% working interest in an addi5onal 3,320 gross acres (2,490 net acres) for $36 per gross acre, resul5ng in a total considera5on of approximately US$120,000, which was sa5sfied from the Group’s exis5ng cash resources. The acquisi5on of the new acreage was achieved through careful planning between the Group and RSOC. Following detailed technical analysis and, given its geological poten5al and close proximity to the Joint Venture’s exis5ng acreage, RSOC formally nominated the acreage for auc5on. The Group and RSOC then successfully acquired the acreage at the subsequent Utah Bureau of Land Management (“BLM”) auc5on. Significantly, the new acreage falls within the area covered by the Group’s 3D seismic survey, for which the Group already had the structural interpreta5on. Mul5ple highly a6rac5ve geological structures and poten5al well site loca5ons had already been iden5fied on the new acreage. On the basis of the previous resource reports prepared by Ryder Sco6, the Board believes that there may be unrisked recoverable resources of 5.5 mmboe on the new acreage in the Cane Creek Cycle (clas5c 21) alone. To elaborate, the Paradox Forma5on is made up of approximately 24 clas5c zones, of which the Cane Creek Cycle (clas5c 21) is the primary producing zone of the basin to date. Addi5onal clas5cs, above and below the Cane Creek Cycle, are also thought to be prospec5ve so there are poten5ally resources significantly in excess of the 5.5 mmboe within the acreage. The prospec5vity of the Group’s new acreage is underpinned by the existence of the producing 28-11 well which is only 365 metres to the west of the new acreage. The 28-11 was a ver5cal well, drilled in 2006 without 3D seismic by Delta Petroleum and has produced 141,000 barrels of oil equivalent (“BOE”) from Clas5c 21. These factors give management a high degree of confidence in the poten5al of the Group’s acreage and, as a result, it has been decided to proceed with the permi7ng of a second well loca5on in the new acreage, the 22-1 well, which is planned to be a horizontal well. Since year end, the Company has raised gross proceeds of US$1.3 million (£1.0 million) by way of an equity fundraise which, in part, will help to fund the Group’s planned ac5vi5es in the Paradox Basin. Current Status Following the comple5on of the seismic acquisi5on and the subsequent interpreta5on, current ac5vity is now focused on the well design, permi7ng and funding for the first Paradox wells. Key to the future success of the project, the Group has assembled a highly experienced subsurface and surface opera5onal team with extensive experience and a successful track record in the Paradox Basin. The team designed, managed and implemented a nine-well drilling programme in the Paradox Basin for Fidelity directly to the south of the Group’s acreage. Eight of these wells were commercial and produc5on grew from circa 100 barrels of oil per day (“BOPD”) to over 3,500 BOPD from 2012 to 2014. Our opera5onal team has now largely completed the subsurface assessment, well loca5on selec5on and basic well design and engineering for the Group’s first proposed horizontal well, the GVU 29-1. The Applica5on for Permit to Drill (“APD”) process for GVU 29-1 is well underway. The No5ce of Staking, which is the first requirement for the APD, was lodged and accepted by the BLM in April 2018 and the Group had an onsite inspec5on of the proposed well loca5on in May 2018. It is currently expected that the APD will be granted in Q3 2018, which will permit the Group to commence drilling opera5ons soon therea%er. Following the comple5on of the first phase of the well design work, the new opera5onal team has also completed 5me/cost es5mates for the ini5al well. It is currently expected that the total cost of the well (including comple5on, tes5ng and 5e-in costs) will be in the range of US$7-8 million, which is well below the previous budgeted forecast of up to US$10 million. It is expected that forecast will reduce further during the development phase as opera5ons 06 Annual Report and Financial Statements for the year ended 31 December 2017 Strategic Report con5nued increase. Discussions with industry and financial partners to fund the drilling programme are underway and, as previously announced, the Board is commi6ed to avoiding dilu5on to exis5ng shareholders wherever possible. Mining Division Disposal of SDA Mill, Mexico The key event in the mining division during the period under review was the successful disposal of the Group’s ore processing mill in San Dieguito de Arriba, State of Nayarit, Mexico, together with its associated assets, licences and agreements (together, the “SDA Mill”) to Magellan Gold Corpora5on (“Magellan”) (OTCQB:MAGE). The Group had operated the SDA Mill for over ten years and had previously carried out mill produc5on for the Group’s gold and silver mining opera5ons at the Mina Charay mine in Mexico (“Mina Charay”). In December 2015, it was decided to cease opera5ons at Mina Charay due to high transporta5on costs and depressed commodity prices. As a result, the SDA Mill was instead u5lised for custom milling of third party ore whilst the Group aimed to iden5fy joint-venture opportuni5es which would generate be6er returns than custom milling. The focus of these efforts was to iden5fy advanced-stage projects located in the vicinity of the SDA Mill which met several criteria including minimum produc5on levels. Having assessed the opportuni5es presented, the Board determined that the proposed disposal of the SDA Mill was the best course of ac5on for the Group. The disposal dovetailed into the Group’s decision to focus its resources on the Paradox Basin and proceeds from the sale of the SDA Mill were allocated towards the cost of the 3D seismic survey. The transac5on was completed on 1 December 2017, with a total considera5on of US$1.5 million, US$1.0 million payable in cash (which has been received) and US$0.5 million equivalent in Magellan shares. The US$0.5 million was met by the issue of 14,200,834 restricted common stock (shares) in Magellan. The considera5on shares represent approximately 15 per cent of Magellan’s enlarged share capital. Under SEC regula5ons, the Magellan stock will not be freely tradeable for a period of twelve months post issue. In order to facilitate the disposal of these shares, the Group agreed to grant Magellan an op5on to acquire these shares for US$0.5 million within the six-month period following the comple5on of the disposal, or to acquire them for US$0.55 million in the period from six months following the comple5on of the disposal to the expiry of the op5on. This op5on expires one year and five business days a%er the comple5on date. If the op5on is not exercised during the op5on period, the shares will be freely tradeable with no restric5ons. Copper explora0on, southwest U.S.A. 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, Arizona. Burde6 assumed control of the claims and is the operator of the project and has commenced explora5on work. Burde6 has recently carried out a two-hole drill programme on the project and the Group is awai5ng the assay results. Uranium explora0on, U.S.A. The majority of the Group’s uranium assets were held in a joint venture with Anfield Resources Inc. (TSXV: ARY) covering property holdings in the breccia pipe district of northern Arizona. The joint venture has now expired and the proper5es held have now reverted to their original owners. The Group also owns 100% of the North Wash project in Utah. The Group’s land holdings in Arizona consist of a number of drill-proven breccia pipes, some containing mineraliza5on, and breccia pipe targets. The North Wash project in Utah contains a resource of uranium and vanadium. These holdings are being held on care and maintenance while management reviews its op5ons to develop the projects further. Annual Report and Financial Statements for the year ended 31 December 2017 07 Rose Petroleum plc Strategic Report con5nued Financial Review Income Statement Total revenue for the year ended 31 December 2017, was US$0.3 million (2016: US$0.9 million), arising from the Group’s milling opera5ons in Mexico, and is reported within discon5nued opera5ons. (see note 14). The decrease in revenues was the result of the suspension of milling ac5vi5es pending the disposal of the SDA Mill to Magellan. The Group reports a net loss a%er tax from con5nuing opera5ons of US$3.5 million or 6.23 cents per share for the year ended 31 December 2017 (2016: net profit a%er tax US$0.3 million or 1.03 cents per share). Due to the ongoing cash conserva5on programme, administra5ve costs for the year of US$2.1 million were consistent with those in the prior year (2016: US$2.1 million). As the Group directed its focus to the Paradox project, there has been a significant reduc5on in opera5ng and development expenditure and project development expenditure during the year from US$1.0 million in 2016 to US$0.2 million in the year ended 31 December 2017. Foreign exchange losses on the restatement of the Company’s loans to its subsidiaries were US$1.4 million (2016: gain of US$2.5 million). This has had a significant impact on the results for the year and can be a6ributed to the strength of sterling against the US dollar at the year-end. Balance Sheet Total investment in the Group’s intangible explora5on and evalua5on assets at 31 December 2017 was US$12.1 million (2016: US$10.1 million) reflec5ng investment in the Utah O&G assets. The carrying value of property, plant and equipment at 31 December 2017 was US$0.03 million (2016: US$0.3 million) reflec5ng the disposal of the SDA ore processing mill. Cash and cash equivalents at 31 December 2017 were US$2.2 million (2016: US$1.3 million). During the period, the Company raised gross proceeds of US$4.0 million (£3.0 million) through the placing of the Company’s Ordinary Shares. Going Concern The Directors have set out in note 3 to the financial statements their considera5on of the future financing requirements of the Group. The Directors con5nue to adopt the going concern basis in preparing the consolidated 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 Board monitors the performance of the Group in delivering its key corporate and opera5onal milestones for a given period. In par5cular, the Board monitors the comple5on of milestones against allocated 5me, resources and budget in respect of its O&G development ac5vi5es. 08 Annual Report and Financial Statements for the year ended 31 December 2017 Strategic Report con5nued Risks and Uncertain0es 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 • Na5onal or local 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 geographic loca5ons of the Group’s opera5ons can present environmental and logis5cal difficul5es to the ac5vi5es of the business. The Group is dependent on the con5nued services and performances of its core management team and the Remunera5on Commi6ee reviews the employment terms for execu5ves and key opera5onal management with the aim of a6rac5ng, mo5va5ng and retaining key personnel for the Group. 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. 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.A. legisla5on may affect future opera5ons. Funds are maintained by the Group in GBP, and USD. There is a risk that purchasing power in the U.S.A. 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. On 23 June 2016, the UK electorate voted to discon5nue its membership of the EU. Un5l further details are known regarding the terms on which the UK will exit, the Directors are not able to assess the impact on the Company and the Group, or what impact the wider regulatory and legal consequences of the UK leaving the EU would be on the Company and the Group. The Board has concerns that discon5nued membership of the EU could result in a deprecia5on in the value of sterling, which could impact the Group’s global purchasing power. Annual Report and Financial Statements for the year ended 31 December 2017 09 Rose Petroleum plc Strategic Report con5nued Corporate Social Responsibility 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 Rela0onships 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 operate the Group’s exis5ng O&G assets and will con5nue to look to enhance the value from these, par5cularly through the drilling of the first Paradox wells. In addi5on, the Group con5nues to inves5gate and evaluate new opportuni5es to increase shareholder value. We would like to thank all shareholders for their con5nued support. On behalf of the board MC Idiens Chief Execu(ve Officer 5 June 2018 10 Annual Report and Financial Statements for the year ended 31 December 2017 Directors’ Report The Directors present the Annual Report and financial statements of the Group for the year ended 31 December 2017. 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 the payment of a dividend for the year ended 31 December 2017 (2016: US$nil). Directors The following were Directors during the year and held office throughout the year, unless otherwise indicated: MC Idiens KK He%on (resigned 31 July 2017) PE Jeffcock KB Sco6 CJ Eadie Directors’ interests in shares and share op0ons The Directors who held office at 31 December 2017 had the following interests, including family interests, in the Ordinary Shares of the Company as follows: MC Idiens KK He%on PE Jeffcock KB Sco6 CJ Eadie Number of Ordinary Shares 31 December 2017 1 January 2017 820,257 – 208,333(1) – 347,189 220,257 4,160 208,333(1) – 944 (1) Beneficial interest held through the Glenville Discre5onary Trust. Since 31 December 2017, MC Idiens and CJ Eadie have increased their shareholdings, and at the date of signing of these financial statements their shareholdings were as follow: MC Idiens CJ Eadie 1,620,257 771,904 Annual Report and Financial Statements for the year ended 31 December 2017 11 Rose Petroleum plc Directors’ Report con5nued Directors’ interests in share op5ons of the Company, including family interests, as at 31 December 2017 were as follows: MC Idiens MC Idiens MC Idiens KB Sco6 MC Idiens CJ Eadie MC Idiens CJ Eadie K Sco6 Date of grant/ replacement 28 Sep 2011 30 Sep 2011 3 Sep 2013 3 Sep 2013 10 Oct 2014 13 Feb 2015 24 Mar 2017 24 Mar 2017 24 Mar 2017 No. of shares 52,000 8,000 158,000 109,333 200,000 100,000 700,000 500,000 150,000 Exercise price 112.5p 112.5p 112.5p 47.5p 342.5p 182.5p 14.0p 14.0p 14.0p Op0on exercise period 28/09/11 to 30/09/21 01/09/12 to 29/09/21 03/09/14 to 01/09/23 03/09/14 to 01/09/23 10/10/15 to 09/10/24 13/03/16 to 12/03/25 24/04/17 to 23/04/27 24/04/17 to 23/04/27 24/04/17 to 23/04/27 Third party indemnity provision for Directors The Company currently has in place, and had for the year ended 31 December 2017, Directors and officers liability insurance for the benefit of all Directors of the Company. Corporate Governance Corporate governance ma6ers are set out on pages 14 and 15. Substan0al shareholdings Other than the Directors’ interests shown above, the Company has been no5fied of the following substan5al interests as at 4 June 2018: City Financial Flute Investments Hawk Investment Holdings Limited Post balance sheet events Number of shares Percentage of issued share capital 16,500,000 4,711,626 4,615,385 11.51% 3.29% 3.22% Events a%er the balance sheet date have been disclosed in note 31 to the financial statements. Financial instruments During the year the Company and its subsidiary undertakings applied financial risk management policies as disclosed in note 29 to the financial statements. 12 Annual Report and Financial Statements for the year ended 31 December 2017 Directors’ Report con5nued Disclosure of informa0on to the auditor The Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit informa5on of which the Company’s auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit informa5on and to establish that the Company’s auditor is aware of that informa5on. Auditor During the year RSM UK Audit LLP was appointed as the Company’s external auditor. The Directors resolved that RSM UK Audit LLP be re-appointed as auditor. RSM UK Audit LLP has indicated its willingness to con5nue in office. The Strategic Report, Corporate Governance Statement and the Directors’ Report were approved by the Board on 5 June 2018. By order of the Board IH McNeill Company Secretary 5 June 2018 Annual Report and Financial Statements for the year ended 31 December 2017 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 Quoted Companies Alliance (“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 commi1ees 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 two 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. The remunera5on of non-execu5ve Directors is determined by the Board. Communica0on 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 clear 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 Group is available on the Company’s website www.rosepetroleum.com. 14 Annual Report and Financial Statements for the year ended 31 December 2017 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. MC Idiens Chief Execu(ve Officer 5 June 2018 Annual Report and Financial Statements for the year ended 31 December 2017 15 Rose Petroleum plc Statement of Directors’ Responsibili5es The Directors are responsible for preparing the Strategic Report and the Directors’ Report and the financial statements in accordance with applicable law and regula5ons. Company law requires the Directors to prepare group and company financial statements for each financial year. The Directors are required by the AIM Rules of the London Stock Exchange to prepare group financial statements in accordance with Interna5onal Financial Repor5ng Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected under company law to prepare the Company financial statements in accordance with IFRS as adopted by the EU. The financial statements are required by law and IFRS adopted by the EU to present fairly the financial posi5on of the Group and the Company and the financial performance of the Group. The Companies Act 2006 provides in rela5on to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presenta5on. 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 the Company and of the profit or loss of the Group for that period. In preparing each of the Group and Company financial statements, the Directors are required to: a. select suitable accoun5ng policies and then apply them consistently; b. make judgements and accoun5ng es5mates that are reasonable and prudent; c. d. state whether they have been prepared in accordance with IFRSs adopted by the EU; 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 Group’s and the Company’s transac5ons and disclose with reasonable accuracy at any 5me the financial posi5on of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the preven5on and detec5on of fraud and other irregulari5es. The Directors are responsible for the maintenance and integrity of the corporate and financial informa5on included on the Rose Petroleum plc website. Legisla5on in the United Kingdom 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 2017 Independent Auditor’s Report to the members of Rose Petroleum plc We have audited the financial statements of Rose Petroleum Plc (the “parent company”) and its subsidiaries (the “Group”) for the year ended 31 December 2017 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement, the Company Balance Sheet, the Company Statement of Changes in Equity, the Company Cash Flow Statement and notes to the financial statements, including a summary of significant accoun5ng policies. The financial repor5ng framework that has been applied in their prepara5on is applicable law and Interna5onal Financial Repor5ng Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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 2017 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 European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for Opinion We conducted our audit in accordance with Interna5onal Standards on Audi5ng (UK) (ISAs (UK)) and applicable law. Our responsibili5es under those standards are further described in the Auditor’s responsibili5es for the audit of the financial statements sec5on of our report. We are independent of the Group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed en55es and we have fulfilled our other ethical responsibili5es in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions Rela0ng to Going Concern We have nothing to report in respect of the following ma6ers in rela5on to which the ISAs (UK) require us to report to you where: • • the Directors’ use of the going concern basis of accoun5ng in the prepara5on of the financial statements is not appropriate; or the Directors have not disclosed in the financial statements any iden5fied material uncertain5es that may cast significant doubt about the Group’s or the parent company’s ability to con5nue to adopt the going concern basis of accoun5ng for a period of at least twelve months from the date when the financial statements are authorised for issue. Annual Report and Financial Statements for the year ended 31 December 2017 17 Rose Petroleum plc Independent Auditor’s Report to the members of Rose Petroleum plc con5nued Key Audit Ma1ers Key audit ma6ers are those ma6ers that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we iden5fied, including those which had the greatest effect on the overall audit strategy, the alloca5on of resources in the audit and direc5ng the efforts of the engagement team. These ma6ers were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these ma6ers. Intangible explora0on and evalua0on assets The Group has significant explora5on and evalua5on ac5vi5es in a number of geographical loca5ons. The performance of these ac5vi5es is dependent on the grant (and ongoing maintenance) of appropriate licences and permits which may be subject to limita5ons and restric5ons. The Group applies IFRS6 “Explora5on for and evalua5on of mineral resources” and has determined policies for capitalisa5on of relevant costs and subsequent monitoring for impairment. Management provided us with an analysis of the explora5on and evalua5on assets held by the Group by pool of asset (being the smallest subset of asset held) together with their considera5ons as to the impairment of these assets. We performed audit work for each pool of asset as follows: • Agreed that licences and/or other similar agreements such as the Rockies Standard Earn-In Agreement were held by the Group during the financial year and at the year end and whether the nature of the agreements in place were such that there were specific ongoing requirements of the Group as licence holder to be complied with; • With specific regard to the Rockies Standard Earn-In Agreement we have reviewed the evidence held by the Group to support that Rockies Standard were the ul5mate licence holder both during the period and at the period end; • Reviewed the considera5on made by management and discussed with them their assessment of whether there were any indicators of impairment of the licence areas arising under IFRS6 and whether facts and circumstances were such that a formal impairment assessment was required under the requirements of this standard. Our work included, but was not restricted to, reviewing the licence agreements to assess the remaining period of opera5on, reviewing the third party commissioned reports and challenging management’s assessment of the results, and reviewing management’s forecasts, plans and external communica5ons as to whether these provided an indicator of impairment; and • Considered management’s ongoing assessment of the Group’s ability to meet the licence requirements and reviewed the cash flow forecasts prepared by management to support their ability to do this. Our Applica0on of Materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, 5ming and extent of our audit procedures and to evaluate the effects of misstatements, both individually and on the financial statements as a whole. During planning we determined a magnitude of uncorrected misstatements that we judge would be material for the financial statements as a whole (FSM). During planning FSM was calculated as US$224,000, which was not changed during the course of our audit. We agreed with the Audit Commi6ee that we would report to them all unadjusted differences in excess of US$10,000, as well as differences below those thresholds that, in our view, warranted repor5ng on qualita5ve grounds. 18 Annual Report and Financial Statements for the year ended 31 December 2017 Independent Auditor’s Report to the members of Rose Petroleum plc con5nued An overview of the Scope of Our Audit Our audit was a risk-based approach founded on a thorough understanding of the Group’s business, its’ environment and risk profile and in par5cular included: • • • • Documen5ng the processes and controls covering all of the Key Audit Ma6ers; The Group has components across North America, Central America and Europe. We have assessed the risk of material misstatement for each of these components to conclude which are in scope for full scope audit procedures using component materiality (including local statutory audit requirements) and which will be subject to reduced scope review procedures; Our full scope audit procedures covered 100% of group revenues, 99% of group loss before tax and 75% of group Gross Assets; Our reduced scope review procedures included analy5cal review procedures and targeted substan5ve tes5ng. The audit was scoped to support our audit opinion on the company and group financial statements of Rose Petroleum plc and was based on group materiality and an assessment of risk at group level. Other Informa0on The Directors are responsible for the other informa5on. The other informa5on comprises the informa5on included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other informa5on and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connec5on with our audit of the financial statements, our responsibility is to read the other informa5on and, in doing so, consider whether the other informa5on is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we iden5fy such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other informa5on. If, based on the work we have performed, we conclude that there is a material misstatement of this other informa5on, we are required to report that fact. We have nothing to report in this regard. Opinions On Other Ma1ers Prescribed By The Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • • 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; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Ma1ers on which we are required to report by excep0on In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the course of the audit, we have not iden5fied material misstatements in the Strategic Report or the Directors’ Report. Annual Report and Financial Statements for the year ended 31 December 2017 19 Rose Petroleum plc Independent Auditor’s Report to the members of Rose Petroleum plc con5nued We have nothing to report in respect of the following ma6ers in rela5on to which 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. Responsibili0es of Directors 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, and for such internal control as the Directors determine is necessary to enable the prepara5on of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent company’s ability to con5nue as a going concern, disclosing, as applicable, ma6ers related to going concern and using the going concern basis of accoun5ng unless the Directors either intend to liquidate the Group or the parent company or to cease opera5ons, or have no realis5c alterna5ve but to do so. Auditor’s responsibili0es for the audit of the financial statements Our objec5ves are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further descrip5on of our responsibili5es for the audit of the financial statements is located on the Financial Repor5ng Council’s website at: h6p://www.frc.org.uk/auditorsresponsibili5es. This descrip5on forms part of our auditor’s report. Use of our Report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those 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. Andrew Allchin (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants Central Square, 5th Floor 29 Wellington Street Leeds LS1 4DL 5 June 2018 20 Annual Report and Financial Statements for the year ended 31 December 2017 Consolidated Income Statement For the year ended 31 December 2017 Notes 2017 US$’000 2016 US$’000 Con0nuing opera0ons Opera5ng and development expenses Administra5ve expenses Cuba development expenses Impairment of intangible explora5on and evalua5on assets Foreign exchange (losses)/gains Opera0ng loss Finance income Loss on ordinary ac0vi0es before taxa0on Taxa5on (charge)/credit (Loss)/profit for the year from con0nuing opera0ons Discon0nued opera0ons Profit/(loss) from discon5nued opera5ons, net of tax Loss for the year a1ributable to owners of the parent company (Loss)/profit per Ordinary Share From con5nuing opera5ons Basic and diluted, cents per share From con5nuing and discon5nued opera5ons Basic and diluted, cents per share 6 7 8 9 10 13 14 15 15 – (2,065) (154) 82 (1,378) (3,515) 1 (3,514) (1) (3,515) 384 (3,131) (405) (2,058) (580) (360) 2,578 (825) 9 (816) 1,127 311 (461) (150) (6.23) 1.03 (5.54) (0.50) The notes on pages 29 to 61 form part of the financial statements. Annual Report and Financial Statements for the year ended 31 December 2017 21 Rose Petroleum plc Consolidated Statement of Comprehensive Income For the year ended 31 December 2017 Loss for the year a1ributable to owners of the parent company Other comprehensive income Items that may be subsequently reclassified to profit or loss, net of tax Foreign currency transla5on differences on foreign opera5ons Total comprehensive income for the year a1ributable to owners of the parent company 2017 US$’000 (3,131) 2016 US$’000 (150) (3,671) 6,498 (6,802) 6,348 The notes on pages 29 to 61 form part of the financial statements. 22 Annual Report and Financial Statements for the year ended 31 December 2017 Consolidated Balance Sheet At 31 December 2017 Company No 04573663 Non-current assets Investments Intangible assets Property, plant and equipment Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabili0es Trade and other payables Provisions Taxa5on payable Total liabili0es Net assets Equity Share capital Share premium account Share-based payment reserve Cumula5ve transla5on reserve Retained deficit Equity a1ributable to owners of the parent company Notes 18 16 17 20 21 22 24 25 26 26 26 26 2017 US$’000 500 12,098 27 12,625 583 2,185 2,768 15,393 (584) – – (584) (584) 2016 US$’000 – 10,117 337 10,454 1,236 1,273 2,509 12,963 (524) (110) (1) (635) (635) 14,809 12,328 40,463 35,657 3,687 (6,864) (58,134) 14,809 40,362 32,183 3,028 (8,376) (54,869) 12,328 The financial statements on pages 21 to 61 were approved by the Directors and authorised for issue on 5 June 2018 and are signed on its behalf by: CJ Eadie Chief Financial Officer The notes on pages 29 to 61 form part of the financial statements. Annual Report and Financial Statements for the year ended 31 December 2017 23 Rose Petroleum plc Consolidated Statement of Changes in Equity For the year ended 31 December 2017 Share Share capital US$’000 premium payment reserve US$’000 account US$’000 Share- based Cumula0ve transla0on reserves US$’000 Retained deficit US$’000 Total US$’000 As at 1 January 2016 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 deficit in respect of forfeit op5ons Effect of foreign exchange rates Total transac0ons 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 38,765 31,471 2,899 (4,384) (54,887) 13,864 1,597 – – – – 783 (71) – – – – – 326 (168) (29) 1,597 712 129 – – – – – – – – – – – – – – – – – – – – – – – – – 168 – 2,380 (71) 326 – (29) 168 (150) 2,606 (150) 6,498 6,498 6,498 – – (150) 6,498 6,498 6,348 (10,490) – (10,490) As at 1 January 2017 40,362 32,183 3,028 (8,376) (54,869) 12,328 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 deficit in respect of forfeit op5ons Effect of foreign exchange rates Total transac0ons 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 101 – – – – 3,918 (250) (194) – – – – 508 134 17 101 3,474 659 – – – – – – – – – – – – – – – – – – – – – – – – – 4,019 (250) 314 (134) – – 17 (134) 4,100 (3,131) (3,131) (3,671) (3,671) – – (3,671) (3,671) (3,671) (3,131) (6,802) 5,183 – 5,183 As at 31 December 2017 40,463 35,657 3,687 (6,864) (58,134) 14,809 The notes on pages 29 to 61 form part of the financial statements. 24 Annual Report and Financial Statements for the year ended 31 December 2017 Consolidated Cash Flow Statement For the year ended 31 December 2017 Opera0ng ac0vi0es Loss before taxa5on from con5nuing opera5ons Profit/(loss) before taxa5on from discon5nued opera5ons Finance income Adjustments for: Deprecia5on of property, plant and equipment Loss on disposal of property, plant and equipment Gain on disposal of discon5nued opera5ons Impairment of Intangible explora5on and evalua5on assets Provision for non-recoverable taxes Share-based payments Unrealised foreign exchange loss/(gain) Opera5ng ou4low before movements in working capital Decrease in inventories Decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash used in opera5ons Income tax recovered Net cash used in opera0ng ac0vi0es Inves0ng ac0vi0es Interest received Purchase of intangible explora5on and evalua5on assets Proceeds on disposal of property, plant and equipment Proceeds on disposal of intangible assets Net cash inflow on disposal of discon5nued opera5ons Proceeds from disposal of assets held for sale Net cash used in inves0ng ac0vi0es Financing ac0vi0es Proceeds from issue of shares Expenses of issue of shares Net cash from financing ac0vi0es Net increase/(decrease) 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 2017 US$’000 2016 US$’000 (3,514) 404 (3,110) (42) 54 – (1,339) (82) 197 314 1,388 (2,620) – 419 93 (2,108) 143 (1,965) 42 (1,990) – – 950 – (998) 4,019 (250) 3,769 806 1,273 106 2,185 (816) (454) (1,270) (9) 201 17 – 360 – 326 (2,626) (3,001) 19 100 (163) (3,045) – (3,045) 4 (272) 9 5 – 50 (204) 2,380 (71) 2,309 (940) 2,399 (186) 1,273 The notes on pages 29 to 61 form part of the financial statements. Annual Report and Financial Statements for the year ended 31 December 2017 25 Rose Petroleum plc Company Balance Sheet As at 31 December 2017 Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabili0es Trade and other payables Total liabili0es Net assets Equity Share capital Share premium account Share op5on reserve Cumula5ve transla5on reserve Retained deficit Total equity Company No 04573663 Notes 2017 US$’000 2016 US$’000 18 20 21 22 25 26 26 26 26 13,552 15,063 81 2,156 2,237 15,789 (175) (175) 69 1,185 1,254 16,317 (164) (164) 15,614 16,153 40,463 35,657 3,687 (8,093) (56,100) 15,614 40,362 32,183 3,028 (9,368) (50,052) 16,153 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 2017 is US$6.0 million (2016: US$2.2 million). The financial statements on pages 21 to 61 were approved by the Directors and authorised for issue on 5 June 2018 and are signed on its behalf by: CJ Eadie Chief Financial Officer The notes on pages 29 to 61 form part of the financial statements. 26 Annual Report and Financial Statements for the year ended 31 December 2017 Company Statement of Changes in Equity For the year ended 31 December 2017 As at 1 January 2016 Transac(ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to retained deficit/capital contribu5on in respect of forfeit op5ons Effect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla5on differences Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on differences on equity at historical rates Share capital US$’000 Share premium account US$’000 Share Cumula0ve op0on transla0on reserves reserve US$’000 US$’000 Retained deficit US$’000 Total US$’000 38,765 31,471 2,899 (6,232) (47,810) 19,093 1,597 – – – – 783 (71) – – – – – 327 (168) (30) 1,597 712 129 – – – – – – – – – – – – – – – – – – – – – – – – – (13) – 2,380 (71) 327 (181) (30) (13) 2,425 (2,229) (2,229) 7,354 7,354 7,354 – – (2,229) 7,354 7,354 5,125 (10,490) – (10,490) As at 1 January 2017 40,362 32,183 3,028 (9,368) (50,052) 16,153 Transac(ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to capital contribu5on in respect of forfeit op5ons Effect of foreign exchange rates Total transac0ons 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 101 – – – – 3,918 (250) (194) – – – – 508 134 17 101 3,474 659 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,019 (250) 314 134 17 4,234 (6,048) (6,048) (3,908) (3,908) – – (3,908) (3,908) (3,908) (6,048) (9,956) 5,183 – 5,183 As at 31 December 2017 40,463 35,657 3,687 (8,093) (56,100) 15,614 The notes on pages 29 to 61 form part of the financial statements. Annual Report and Financial Statements for the year ended 31 December 2017 27 Rose Petroleum plc Company Cash Flow Statement For the year ended 31 December 2017 Opera0ng ac0vi0es Loss before taxa5on Finance income Adjustments for: Impairment of investments in subsidiary undertakings Share-based payments Unrealised foreign exchange Opera5ng cash ou4low before movements in working capital (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Net cash used in opera0ng ac0vi0es Inves0ng ac0vi0es Interest received Loans to subsidiary undertakings Net cash used in inves0ng ac0vi0es Financing ac0vi0es Proceeds from the issue of shares Expenses of issue of shares Net cash from financing ac0vi0es Net Increase/(decrease) 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 2017 US$’000 (6,048) (502) 5,753 200 1 (596) (12) 10 (598) 1 (2,308) (2,307) 4,019 (250) 3,769 864 1,185 107 2,156 2016 US$’000 (2,229) (542) 1,522 342 (182) (1,089) 254 (40) (875) 3 (1,654) (1,651) 2,380 (71) 2,309 (217) 1,582 (180) 1,185 The notes on pages 29 to 61 form part of the financial statements. 28 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 1. Corporate Informa0on 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 and is limited by shares. The address of the registered office is 20-22 Wenlock Road, London, N1 7GU. The nature of the Group’s opera5ons and its principal ac5vity is the explora5on and development of O&G resources. 2. Adop0on of New and Revised Standards Standards affec0ng presenta0on 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 12 Amendments to IAS 7 Recogni(on of deferred tax assets for unrealised losses Statement of cash flows – disclosure ini(a(ve 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): Amendments to IFRS 2 IFRS 9 IFRS 15 IFRS 16 IFRIC 22 IFRIC 23 Share-based payments Financial instruments Revenue from contracts with customers Leases Foreign currency transac(ons and advance transac(ons Uncertainty over income tax treatments Amendments to IAS 28 Long term interests in associates and joint ventures Annual improvements to IFRS standards 2015-2017 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. 3. Significant Accoun0ng Policies Basis of prepara0on The financial statements have been prepared and approved by the Directors in accordance with Interna5onal Financial Repor5ng Standards as adopted by the EU (“Adopted IFRSs”). The financial statements have been prepared on the historical cost basis, other than available for sale investments which are measured at fair value. Historical cost is generally based on the fair value of the considera5on given in exchange for assets. The financial statements are presented in United States dollars (“US$”) as the Group’s business is influenced by pricing in interna5onal commodity markets which are primarily US$ based. 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. Annual Report and Financial Statements for the year ended 31 December 2017 29 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Significant Accoun0ng Policies con5nued The accoun5ng policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. In accordance with IFRS 5 Non-current Assets Held for Sale and Discon(nued Opera(ons, the compara5ve income statement has been re-presented so that the disclosures in rela5on to discon5nued opera5ons relate to all opera5ons that have been discon5nued by the balance sheet date. Judgements made by the Directors in the applica5on of these accoun5ng policies that have significant impact on the financial statements and es5mates with a significant risk of material adjustment in the next year, are discussed in note 4. Going Concern As an explora5on group, the Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the explora5on programme and raise addi5onal working capital on an ad hoc basis to support the Group’s ac5vi5es. The Group has no bank facili5es and has been mee5ng its working capital requirements from cash resources. At the year end, the Group had cash and cash equivalents amoun5ng to US$2.2 million (2016: US$1.3 million). The Directors have prepared cash flow forecasts for the Group for the period to June 2019 based on their assessment of the non-discre5onary cash requirements of the Group during this period. These cash flow forecasts include its normal opera5ng costs for opera5ons together with any commi6ed development expenditure. Based on these forecasts, the Directors are confident that the Group has sufficient resources to con5nue in opera5on for at least the next twelve months. 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. Basis of Consolida0on 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. All intra-group transac5ons, balances, income and expenses are eliminated on consolida5on. Investments in Subsidiary Undertakings 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. 30 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 3. Significant Accoun0ng Policies con5nued Intangible Explora0on and Evalua0on 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. 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. Explora0on and Evalua0on 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 ac0vi0es 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 Explora0on and Evalua0on 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. Annual Report and Financial Statements for the year ended 31 December 2017 31 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Significant Accoun0ng Policies con5nued 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. 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 over the life of the mill Plant and machinery over 5 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. Revenue Recogni0on Revenue 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. 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. Opera0ng 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. 32 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 3. Significant Accoun0ng Policies con5nued Development Expenses Costs incurred by the Group in respect of the assessment and pursuit of poten5al new projects are expensed directly to the income statement and included as development expenses. Material expenses rela5ng to a specific project are disclosed on a separate line in the income statement. 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. 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 accumulated 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. Annual Report and Financial Statements for the year ended 31 December 2017 33 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Significant Accoun0ng Policies con5nued Re0rement 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. Taxa0on 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. 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 probable 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. 34 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 3. Significant Accoun0ng Policies con5nued Financial Instruments Recogni(cid:28)on of financial assets and financial liabili(cid:28)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:28)on of financial assets and financial liabili(cid:28)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 Investments Listed shares held by the Group are classified as being available for sale (“AFS”) and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in the income statement. 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. Financial liabili(cid:28)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. Annual Report and Financial Statements for the year ended 31 December 2017 35 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Significant Accoun0ng Policies con5nued 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. 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. Equity-se6led share-based payments are measured at fair value (excluding the effect of non-market based ves5ng condi5ons) at the date of grant. The fair value of the service received in exchange for the grant of op5ons and equity is recognised as an expense. 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. 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 Repor0ng 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. Cri0cal accoun0ng judgements and key sources of es0ma0on 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. 36 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 4. Cri0cal accoun0ng judgements and key sources of es0ma0on uncertainty con5nued 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 Loans to Subsidiary Undertakings The Company has outstanding loans from its directly held subsidiaries which have then made a number of loans to indirectly held 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 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. At 31 December 2017, the Company has total investments and loans in its directly held subsidiaries of US$48.6 million and the Board has assessed the recoverability of these based on the net assets of those subsidiary en55es at 31 December 2017. Based on this assessment the Directors consider that, in considera5on of the losses currently being generated, the impairment of the Group’s intangible explora5on and evalua5on assets, and the discon5nuance of opera5ons in Mexico, a provision of US$5.8 million (2016: US$1.5 million) should be recognised by the Company in the year to 31 December 2017. At 31 December 2017, there is a total impairment provision in respect of the investments and loans to subsidiaries of US$35.5 million. See note 18. 5. Segmental Informa0on Prior to the sale of the Groups milling assets (“discon5nued opera5ons”), for management purposes the Group was organised into three opera5ng divisions based on its principal ac5vi5es of gold and silver mining, research and evalua5on of poten5al uranium and copper proper5es and the explora5on and development of O&G resources. Subsequent to the discon5nuance of opera5ons in Mexico the Group now has two main opera5ng segments, research and evalua5on of poten5al uranium and copper proper5es and the explora5on and development of O&G resources, which are all based in the U.S.A. These divisions are the basis on which the Group reports its segment informa5on. Annual Report and Financial Statements for the year ended 31 December 2017 37 Rose Petroleum plc Notes to the Financial Statements con5nued 5. Segmental Informa0on con5nued Segment informa5on about these divisions is presented below. Income statement Revenue Discon5nued opera5ons Segmental results Uranium and copper O&G Total segment results Unallocated results Current and deferred tax Loss a%er taxa5on from con5nuing opera5ons Discon5nued opera5ons, net of tax Loss a%er taxa5on 2017 US$’000 2016 US$’000 304 898 (139) (1,677) (1,816) (1,698) (1) (3,515) 384 (3,131) (483) 1,544 1,061 (1,877) 1,127 311 (461) (150) The unallocated results of US$1.7 million (2016: US$1.9 million) include costs associated with the Cuba project (refer to note 7), Directors remunera5on and other general and administra5ve costs incurred by the Company only. Deprecia0on Uranium and copper O&G Discon5nued opera5ons Impairment Uranium and copper O&G 2017 US$’000 2016 US$’000 – 27 27 54 2 35 164 201 2017 US$’000 2016 US$’000 43 (125) (82) 344 16 360 Employees The average numbers of employees for the year for each of the Group’s principal divisions were as follows: Uranium and copper Discon5nued opera5ons O&G Total segment employees Unallocated employees Total employees 2017 Number 2016 Number 1 27 1 29 3 32 1 36 2 39 2 41 38 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 5. Segmental Informa0on con5nued Balance Sheet Segment assets Uranium and copper O&G Total segment assets Unallocated assets including cash and cash equivalents Con5nuing opera5ons Discon5nued opera5ons Total assets Segment liabili0es Uranium and copper O&G Total segment liabili5es Unallocated liabili5es Current and deferred tax Con5nuing opera5ons Discon5nued opera5ons Total liabili5es Segment net assets Uranium and copper O&G Total segment net assets Unallocated net assets including cash and cash equivalents Discon5nued opera5ons Total net assets 6. Opera0ng and Development Expenses 2017 US$’000 2016 US$’000 23 12,205 12,228 2,738 14,966 427 15,393 50 85 135 297 – 432 152 584 (27) 12,120 12,093 2,441 275 14,809 60 10,237 10,297 1,256 11,553 1,410 12,963 5 105 110 332 1 443 192 635 55 10,132 10,187 924 1,217 12,328 Opera5ng expenses – milling Opera5ng expenses – O&G Development expenses Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 – – – – 364 – 9 373 – 405 – 405 162 – 33 195 Development expenses represent expenditure incurred by the Group in respect of poten5al new projects prior to the commencement of produc5on. Annual Report and Financial Statements for the year ended 31 December 2017 39 Rose Petroleum plc Notes to the Financial Statements con5nued 7. Cuba Development Expenses Development expenses Con0nuing 2017 US$’000 154 Discon0nued 2017 US$’000 – Con0nuing 2016 US$’000 580 Discon0nued 2016 US$’000 – Cuba development expenses represent material expenditure incurred by the Group in respect of the assessment and pursuit of a specific project. 8. Impairment of Intangible Expora0on and Evalua0on Assets Uranium and copper assets O&G assets Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 43 (125) (82) – – – 344 16 360 – – – At 31 December 2017, there were indicators of impairment of both the Group’s intangible uranium assets held in the U.S.A. and its intangible copper assets held in Mexico. The Directors consider that there is reasonable uncertainty that the Group will recover the carrying value of these assets and as a result an impairment charge of US$0.04 (2016: US$0.3 million) has been recognised in the year. At 31 December 2015, the Group had relinquished, and ceased to recognise its interest in two hydrocarbon licences in south-western Germany. The original recogni5on of these assets included an accrual for outstanding licence du5es due to the German licencing authori5es. During the year ended 31 December 2017, a reduc5on in the poten5al liability was agreed with the authori5es and as a result, the previous impairment rela5ng to the relinquished assets in respect of this cost has been reversed and has resulted in a credit in impairment of US$0.1 million. The Group has con5nued to recognise the remaining poten5al liability although it con5nues to nego5ate further reduc5ons with the German licencing authori5es. The remaining intangible explora5on and evalua5on assets have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. These assets are not amor5sed un5l technical feasibility and commercial viability is established. 9. Finance income Interest on bank deposits Other interest received Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 1 – 1 – 41 41 4 5 9 – – – 40 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 10. Loss before taxa0on The loss before taxa5on for the year has been arrived at a%er charging/(credi5ng): Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 Other income Deprecia5on of property, plant and equipment Loss/(gain) on disposal of property, plant and equipment Gain on disposal of discon5nued opera5ons Staff costs excluding share-based payments Share-based payments Opera5ng leases – land and buildings Provision for VAT not recovered Net foreign exchange losses/(gains) – 27 – – 792 314 90 – 1,378 (50) 27 – (1,339) 648 – – 197 74 – 37 26 – 793 326 166 – (2,578) – 164 (9) – 616 – – – 82 11. Auditor’s remunera0on Amounts payable to the external auditors and their associates in respect of both audit and non-audit services: Audit of these financial statements Amounts receivable by the Company’s auditor and its associates in respect of: Audit of financial statements of subsidiaries of the Company Taxa5on services – compliance Taxa5on services – advisory RSM UK Audit LLP Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 KPMG LLP Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 45 10 11 – 66 – – – 6 6 23 41 – – 64 – – – – – Annual Report and Financial Statements for the year ended 31 December 2017 41 Rose Petroleum plc Notes to the Financial Statements con5nued 12. Staff Costs The average monthly number of employees (including Execu5ve Directors) was: Office and management Opera5ons Their aggregate remunera5on comprised: Wages and salaries Social security costs Other pension costs Redundancy costs Share-based payments Office and management Their aggregate remunera5on comprised: Wages and salaries Social security costs Other pension costs Share-based payments Group Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 3 2 5 – 27 27 Group 2 3 5 – 36 36 Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 658 61 75 – 265 1,059 463 88 – 97 – 648 685 80 29 – 210 1,004 519 97 – – – 616 Company Con0nuing 2017 US$’000 3 Discon0nued 2017 US$’000 – Con0nuing 2016 US$’000 2 Discon0nued 2016 US$’000 – Company Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 379 44 60 164 647 – – – – – 302 34 26 60 422 – – – – – Refer to note 30 for details regarding the remunera5on of the highest paid Director. 42 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 13. Taxa0on Current tax: Current year Deferred tax: Origina5on and reversal of temporary differences Tax charge/(credit) on (loss)/profit for the year Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 1 1 – – 1 20 20 – – 20 1 1 (1,128) (1,128) (1,127) 7 7 – – 7 The charge/(credit) for the year can be reconciled to the (loss)/profit per the income statement as follows: (Loss)/profit before tax (Loss)/profit mul5plied by the rate of corpora5on tax for UK companies of 19.25% (2016: 20%) Effects of: Expenses not deduc5ble for tax purposes Temporary differences Share-based payments Unrelieved tax losses carried forward Differences in foreign tax rates Tax charge/(credit) on (loss)/profit for the year Con0nuing 2017 US$’000 (3,514) Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 404 (816) (454) (676) (236) – 60 853 – 1 78 (51) (31) – 17 7 20 (163) 142 (605) 65 (43) (523) (1,127) (91) 11 – – 85 2 7 There has been no impact due to changes in UK taxa5on rates during the years reported. Unrelieved tax losses carried forward, as detailed in note 23, have not been recognised as a deferred tax asset, as there is currently insufficient evidence that the asset will be recoverable in the foreseeable future. The losses must be u5lised in rela5on to the same opera5ons. Income tax charge included in other comprehensive income during the year is: Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 Deferred foreign tax on net investment in foreign opera5ons – – 1,128 – Annual Report and Financial Statements for the year ended 31 December 2017 43 Rose Petroleum plc Notes to the Financial Statements con5nued 14. Discon0nued opera0ons On 3 March 2017, the Group entered into a Memorandum of Understanding (“MOU”) with Magellan Gold Corpora5on (“Magellan”) for the poten5al disposal of the Group’s ore processing mill in Mexico, together with its associated assets, licences and agreements. Under the terms of the agreement Magellan was granted a 90-day op5on period, for a non-refundable deposit of US$50,000 which has been presented as other income, within discon5nued opera5ons. On 9 September 2017, the Group signed a Stock Purchase Agreement (“SPA”) with Magellan and the transac5on completed on 1 December 2017. The considera5on for the transac5on was US$1.5 million, US$1.0 million in cash and US$0.5 million in restricted common stock in Magellan. See note 18. The cash considera5on was subject to the reten5on of US$50,000 by Magellan, which fell due for payment by 10 March 2018 and which was actually se6led on 13 April 2018. Although the SPA referred to the sale of stock, the substance of the transac5on was the disposal of property, plant and equipment in Minerales VANE S.A. de C.V. and as a result the transac5on has been accounted for as a disposal of property, plant and equipment. At the same 5me, the Group also agreed the sale of its wholly-owned subsidiary, Minerales VANE Operaciones S.A de C.V. (“MVO”) for US$2,500, which was paid on 13 April 2018. Under the terms of the agreement the Group is liable for payment of the net liabili5es of MVO and other payables includes the sum of US$51,547 in respect of these liabili5es. See note 22. The Mexico opera5ons have been treated as discon5nued opera5ons in the year ended 31 December 2017 and is shown as a single amount on the face of the consolidated income statement. The income statement for the prior period has been restated to conform to this presenta5on. Loss from discon0nued opera0ons, net of tax The results of the discon5nued opera5ons, which have been included in the consolidated income statement were as follows: Revenue Cost of sales Margin Other income Opera5ng and development costs Expenses Gain on disposal of property, plant and equipment Finance income Loss before taxa5on Taxa5on charge Loss a6ributable to discon5nued opera5ons Gain on disposal of discon5nued opera5ons Gain/(loss) from discon5nued opera5ons, net of tax Profit/(loss) per Ordinary Share Basic and diluted, cents per share 2017 US$’000 2016 US$’000 304 (259) 45 50 (373) (698) (976) – 41 (935) (20) (955) 1,339 384 898 (820) 78 – (204) (337) (463) 9 – (454) (7) (461) – (461) 0.68 (1.53) 44 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 14. Discon0nued opera0ons con5nued Gain on disposal of discon0nued opera0ons Property, plant and equipment Decommissioning provision Considera5on on disposal of discon5nued opera5ons Gain on disposal of discon5nued opera5ons Considera0on on disposal of discon0nued opera0ons Considera5on on disposal of property, plant and equipment Considera5on on disposal of MVO Total considera5on on disposal of discon5nued opera5ons Considera5on se6led in restricted common stock Deferred considera5on Net cash inflow 15. (Loss)/profit per ordinary share US$’000 (283) 120 (163) 1,502 1,339 1,500 2 1,502 (500) (52) 950 Basic (loss)/profit per Ordinary Share is calculated by dividing the net (loss)/profit 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)/profit per Ordinary Share is based on the following data: Con0nuing opera0ons 2017 US$’000 Con0nuing and discon0nued opera0ons 2017 US$’000 Con0nuing opera0ons 2016 US$’000 Con0nuing and discon0nued opera0ons 2016 US$’000 (Losses)/profits (Losses)/profits for the purpose of basic (loss)/profit per Ordinary Share being net (loss)/profit a6ributable to owners of the parent company Number of shares Weighted average number of shares for the purpose of basic (loss)/profit per Ordinary Share (Loss)/profit per Ordinary Share (3,515) (3,131) 311 (150) Number ’000 Number ’000 Number ’000 Number ’000 56,467 56,467 30,088 30,088 Basic and diluted, cents per share (6.23) (5.54) 1.03 (0.50) Due to the losses incurred in the years reported, there is no dilu5ve effect from the exis5ng share op5ons, share based compensa5on plan or warrants. The informa5on shown above has been restated to reflect the share consolida5on which took place on 18 September 2017. See note 25. Annual Report and Financial Statements for the year ended 31 December 2017 45 Rose Petroleum plc Notes to the Financial Statements con5nued 16. Intangible Assets Cost At 1 January 2016 Addi5ons Disposals Relinquishment of licences Exchange differences At 1 January 2017 Addi5ons Exchange differences At 31 December 2017 Impairment At 1 January 2016 Impairment charge Disposals Relinquishment of licences Exchange differences At 1 January 2017 Impairment charge Exchange differences At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 Explora0on and evalua0on assets US$’000 18,511 276 (607) (2,303) (54) 15,823 2,023 17 17,863 8,290 360 (602) (2,303) (39) 5,706 43 16 5,765 12,098 10,117 Rockies Standard Earn-in Agreement In March 2014, the Group signed an agreement under which its subsidiary, Rose Petroleum (Utah) LLC (“Rose Utah”), acquired the right to commence earning into a 75 per cent working interest 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. Farm-in costs incurred by the Group are accounted for as required by the relevant accoun5ng standards including the capitalisa5on of intangible explora5on and evalua5on assets in accordance with IFRS 6. In April 2016, the Group entered into a revised agreement with RSOC to cease earning into 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, and this obliga5on was se6led during the year ended 31 December 2016. The Group also agreed to leave the exis5ng operator bonds in place with the State of Utah and Bureau of Land Management, which are now refundable to RSOC rather than the Group. The Group did not recognise any disposal of its intangible explora5on and evalua5on assets, other than the bonds, during the year ended 31 December 2016, as it considers its total expenditure on the project as one cost pool whose carrying value is supported by the remaining acreage in the Paradox. 46 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 16. Intangible Assets con5nued RSOC agreed to reduce the Group’s carry obliga5on to earn the 75 per cent working interest in the Paradox acreage by US$2.0 million to US$5.5 million. Under the terms of the agreement, the obliga5on is not contractually commi6ed and therefore no liability or con5ngent liability has been recognised in these financial statements. 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 2017 is US$12.1 million (2016: US$10.1 million). Tango Project On 25 August 2014, Minerales VANE S.A. de C.V., a wholly owned subsidiary of the Group, entered into an 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 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 has the op5on to earn a 75 per cent ownership of the base metals (porphyries) by inves5ng US$5.0 million in work expenditures over a period of 5 years. Under the terms of the agreement, the op5on to earn-in is not contractually commi6ed and therefore no liability or con5ngent liability has been recognised in these financial statements. The Directors consider that there is reasonable uncertainty that the Group will recover the carrying value of these assets and as a result they were impaired in full at 31 December 2016. No further expenditure has been incurred during the year ended 31 December 2017. German Licences During 2016, the Group relinquished its interest in its hydrocarbon licences in the Weiden Basin, located in the State of Bavaria, southeast German, and ceased to recognise them at 31 December 2016. U.S.A. Copper Projects On 2 March 2016, the Group entered into an agreement with Burde6 Gold LLC (“Burde6”) to conduct explora5on drilling on the Ardmore copper project. The terms included a cash payment of US$5,350 and the Group retained a 15 per cent net profit interest in the Ardmore project and any other claims that Burde6 might acquire within a three-mile area. In May 2016, the Group assigned its interest in the Bouse copper project to a third party. No compensa5on was received in respect of this assignment. All remaining licences rela5ng to U.S.A. copper projects were relinquished during the year and ceased to be recognised at 31 December 2016. Annual Report and Financial Statements for the year ended 31 December 2017 47 Rose Petroleum plc Notes to the Financial Statements con5nued 17. Property, Plant and Equipment Cost At 1 January 2016 Addi5ons Disposals Exchange differences At 1 January 2017 Discon5nued opera5ons Exchange differences At 31 December 2017 Accumulated deprecia0on At 1 January 2016 Charge for the year Disposals Exchange differences At 1 January 2017 Charge for the year Discon5nued opera5ons Exchange differences At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 Ore processing mill US$’000 Plant and machinery US$’000 734 10 – (120) 624 (684) 60 – 534 93 – (96) 531 17 (599) 51 – – 93 879 – (64) (110) 705 (573) 51 183 459 108 (38) (68) 461 37 (375) 33 156 27 244 Total US$’000 1,613 10 (64) (230) 1,329 (1,257) 111 183 993 201 (38) (164) 992 54 (974) 84 156 27 337 The deprecia5on has been charged to the income statement as follows: Cost of sales Opera5ng and development expenses Administra5ve expenses Con0nuing 2017 US$’000 Discon0nued 2017 US$’000 Con0nuing 2016 US$’000 Discon0nued 2016 US$’000 – – 27 27 25 2 – 27 – – 37 37 124 38 2 164 48 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 18. Investments Group and Company Company Investment carried at fair value US$’000 Shares in subsidiary undertakings US$’000 Loans to subsidiary undertakings US$’000 Cost At 1 January 2016 Addi5ons Capital contribu5on Exchange differences At 1 January 2017 Addi5ons Capital contribu5on Exchange differences At 31 December 2017 Impairment At 1 January 2016 Impairment charge Exchange differences At 1 January 2017 Impairment charge Exchange differences At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 – – – – – 500 – – 500 – – – – – – – 500 – 5,757 – – (958) 4,799 – – 457 5,256 – 3,572 (320) 3,252 1,373 377 5,002 254 1,547 42,246 2,194 (195) (7,079) 37,166 2,308 254 3,568 43,296 30,610 (2,050) (4,910) 23,650 4,380 2,468 30,498 12,798 13,516 Total US$’000 48,003 2,194 (195) (8,037) 41,965 2,808 254 4,025 49,052 30,610 1,522 (5,230) 26,902 5,753 2,845 35,500 13,552 15,063 On 9 September 2017, the Group entered into a Stock Purchase Agreement with Magellan Gold Corpora5on (‘Magellan”), which resulted in the disposal of the majority of the Group’s ore processing mill in Mexico, together with its associated assets, licences and agreements. See note 14. The considera5on for the transac5on, which completed on 1 December 2017, was US$1.5 million, US$1.0 million in cash and US$0.5 million in restricted common stock in Magellan. On 1 November 2017, an addi5onal agreement gave Magellan the sole and exclusive right and op5on to purchase the stock. Under the term of the agreement, if the op5on is exercised on or before the six-month anniversary of closing the exercise price is US$0.5 million. If the op5on is exercised a%er the six- month anniversary and within five days following the first anniversary of the closing the exercise price is US$0.55 million. By reference to the quoted price of Magellan stock, the Directors consider that the fair value of the stock at 31 December 2017 was US$0.5 million, which approximates to its market value at that date of US$0.375 million. 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$5.8 million (2016: US$1.5 million) should be recognised in the period. Annual Report and Financial Statements for the year ended 31 December 2017 49 Rose Petroleum plc Notes to the Financial Statements con5nued 18. Investments con5nued The Company had investments in the following subsidiary undertakings as at 31 December 2017: Directly owned: VANE Minerals (UK) Limited Rose Petroleum (UK) Limited Rose Cuba Limited Rose Resources Limited Indirectly owned: AVEN Associates LLC VANE Minerals (US) LLC Minerales VANE S.A. de C.V. Naab Energie GmbH Rose Petroleum (US) LLC Rose Petroleum (Utah) LLC Rose Gypsum Limited Place of incorpora0on (or registra0on) and opera0on Propor0on of ownership interest Propor0on of vo0ng power held UK UK UK UK U.S.A. U.S.A. Mexico Germany U.S.A. U.S.A. UK 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Principal ac0vity Holding company Holding company Holding company Holding company Explora5on Explora5on Mining Explora5on Holding company Explora5on Holding company During the year ended 31 December 2017, the Group disposed of its ore processing mill in Mexico, together with its associated assets, licences and agreement, held by Minerales VANE S.A. de C.V. At the same 5me the Group disposed of its interest in Minerales VANE Operaciones S.A. de. C.V. The opera5ng ac5vi5es of both en55es have been classified as discon5nued opera5ons. See note 14. The registered office address of all companies incorporated in the United Kingdom is 20-22 Wenlock Road, London, N1 7GU. The registered office address for AVEN Associates LLC and VANE Minerals (US) LLC is 8987 E. Tanque Verde Road, Tucson, Arizona 85749. The registered office address for Minerales VANE S.A. de C.V. is Humboldt No. 121, Colonia del Valle, C.P. 78200, San Luis Potosi, S.L.P. The registered office address for Naab Energie GmbH is Merzhauser Strasse 4, D-79100 Freiburg, Germany. The registered office address for Rose (US) LLC and Rose Petroleum (Utah) LLC is 383 Inverness Parkway, Ste 330, Englewood, CO 80112. 19. Joint Opera0ons 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. 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. 50 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 19. Joint Opera0ons con5nued 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 Mining Venture Agreement was amended on 15 July 2013 to extend the terms of the agreement to 31 December 2017. Since 31 December 2017, the JVA has not been extended and each party has been reassigned the assets originally contributed to the joint venture. The aggregate amounts related to the joint opera5on included within the consolidated accounts are: Net assets Expenses 20. Trade and Other Receivables Trade receivables Amounts owed by joint arrangement partners VAT recoverable Tax recoverable Other receivables Prepayments & accrued income Group 2017 US$’000 246 – 55 92 107 83 583 2016 US$’000 – 35 608 263 35 295 1,236 2017 US$’000 15 (4) 2016 US$’000 47 (3) Company 2017 US$’000 2016 US$’000 – – 23 – – 58 81 – – 25 – 3 41 69 At 31 December 2017, other receivables include the sum of US$52,500 in respect of the disposal of property, plant and equipment and the sale of Minerales VANE Operaciones S.A. de C.V. See note 14. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Trade receivables disclosed above do not include any amounts which are past due or impaired. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. 21. Cash and Cash Equivalents Cash and cash equivalents held by the Group and the Company as at 31 December 2017 were US$2.2 million and US$2.2 million respec5vely (2016: US$1.3 million, US$1.2 million). The Directors consider that the carrying amount of these assets approximate to their fair value. Annual Report and Financial Statements for the year ended 31 December 2017 51 Rose Petroleum plc Notes to the Financial Statements con5nued 22. Trade and other payables Trade payables VAT payable Taxes and social security Other payables Accruals Group 2017 US$’000 2016 US$’000 Company 2017 US$’000 2016 US$’000 141 – 30 82 331 584 102 7 40 – 375 524 43 – 31 – 101 175 55 – 17 – 92 164 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 (2016: 30 days). The Group has financial risk management policies to ensure that all payables are paid within the credit 5me frame. On 8 January 2018, the Group entered into an agreement with Magellan for the sale of its wholly-owned subsidiary, Minerales VANE Operaciones S.A de C.V. (“MVO”). There was an effec5ve change of control on 1 December 2017 and therefore, the disposal has been treated as discon5nued opera5ons during the year ended 31 December 2017. Under the terms of the agreement the Group is liable for payment of the net liabili5es of MVO as at 31 December 2017, and other payables includes the sum of US$51,547 in respect of these liabili5es. The Directors consider that the carrying amount of trade and other payables approximates to their fair value. No interest is generally charged on balances outstanding. 23. Deferred tax There are unrecognised deferred tax assets in rela5on to: UK tax losses U.S.A. tax losses Mexican tax losses 2017 US$’000 5,398 18,189 332 23,919 2016 US$’000 5,252 15,952 2,271 23,475 A reduc5on in the UK corpora5on tax rate from 21% to 20% (effec5ve from 1 April 2015) was substan5vely enacted on 2 July 2013. Further reduc5ons to 19% (effec5ve from 1 April 2017) and to 18% (effec5ve 1 April 2020) were substan5vely enacted on 26 October 2015, and an addi5onal reduc5on to 17% (effec5ve 1 April 2020) was substan5vely enacted on 6 September 2016. This will reduce the Group’s future current tax charge accordingly. 52 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 24. Provisions At 1 January Addi5ons On disposal Unwinding of discount Discon5nued opera5ons Foreign exchange At 31 December Current provision Group decommissioning 2017 US$’000 2016 US$’000 110 – – – (120) 10 – – 192 10 (87) (5) – – 110 110 In accordance with the Group’s environmental policy and applicable legal requirements, the Group expects to restore sites where it has carried on ac5vi5es, following final conclusion of those ac5vi5es. As a result of the disposal of the Group’s ore processing mill the Group no longer has any obliga5on in respect of decommissioning costs. See note 14. Under the terms of the revised agreement with RSOC, the Group no longer has any restora5on obliga5ons in respect of its O&G assets. See note 16. 25. Share Capital Authorised Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Allo1ed, issued and fully paid Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Group and Company 2017 Number ‘000 7,779,297 227,753 8,007,050 112,645 227,753 340,398 US$’000 10,514 30,473 40,987 158 40,305 40,463 2016 Number ‘000 7,779,297 190,108 7,969,405 3,764,471 190,108 3,954,579 US$’000 9,599 23,223 32,822 5,722 34,640 40,362 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. Annual Report and Financial Statements for the year ended 31 December 2017 53 Rose Petroleum plc Notes to the Financial Statements con5nued 25. Share Capital con5nued On 18 September 2017, the Company consolidated every 100 Ordinary Shares at 0.1p each into one ‘consolidated share’. Immediately following the consolida5on each ‘consolidated’ share was sub-divided into one New Ordinary Share and one New Deferred Share. The sub-division was structured in such a way that each of the New Ordinary Shares retained the nominal value of 0.1p each. The New Ordinary and Deferred Shares have the same rights as the exis5ng Ordinary and Deferred shares. Issued Ordinary Share Capital On 28 September 2017, the Company issued 60,000,000 Ordinary Shares of 0.1p each at a price of 0.4p per share, raising gross proceeds of US$3.2 million (£2.4 million). On 10 October 2017, the Company issued 15,000,000 Ordinary Shares of 0.1p each at a price of 0.4p per share, raising gross proceeds of US$0.8 million (£0.6 million). At 1 January 2016 Allotment of shares At 1 January 2017 Share consolida5on Allotment of shares At 31 December 2017 Ordinary Shares Number ‘000 Deferred Shares Number ‘000 2,550,185 1,214,286 3,764,471 37,645 75,000 112,645 190,108 – 190,108 37,645 – 227,753 The informa5on shown above has been restated to reflect the share consolida5on that took place on 18 September 2017. 26. Reserves The share premium account represents the sum paid, in excess of the nominal value, of shares allo6ed, net of the costs of issue. The share-based payment reserve represents accumulated charges made under IFRS 2 in respect of share-based payments. The cumula5ve transla5on reserve represents foreign exchange differences arising on the transla5on of foreign opera5ons and any net gain/(loss) on the hedge of net investment in foreign subsidiaries. The cumula5ve transla5on reserve also represents the net effect of the fact that the func5onal currency of the parent undertaking is GBP, whilst its repor5ng currency is USD, resul5ng in exchange differences on transla5on of the parent undertakings equity. The retained deficit includes all current and prior period retained losses. 27. Share-Based Payments Equity Se1led Share Op0on Plan The Company has a Share Op5on Plan under which op5ons to subscribe for the Company’s shares have 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, and in August 2013, was replaced by the adop5on of the 2013 Share Op5on Plan Part A (employees) and 2013 Share Op5on Plan Part B (non-employees). 54 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 27. Share-Based Payments con5nued On 24 March 2017, the Company issued 2.45 million share op5ons with an exercise price of 14p, which vest in three equal tranches on 24 March 2018, 2019 and 2020. At 31 December 2017, 3.8 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 24 March 2028 and, unless otherwise agreed, 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. 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 op0ons ‘000 2017 Weighted average exercise price 1,308 2,450 41 3,799 1,299 184.3p 14p 319.0p 76.0p 189.0p Number of op0ons ‘000 1,555 (247) 1,308 1,049 2016 Weighted average exercise price 193.8p – 243.7p 184.3p 161.5p The op5ons outstanding and not yet vested at 31 December 2017 had an es5mated weighted average remaining contractual life of 1.23 years (2016: 0.7 years), with an exercise price ranging between 14.0p and 342.5p. 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 Grants in year 2,450,000 Share op0ons 14p 96-98 5.5-6.5 0.58-0.73 – None Expected vola5lity was calculated considering Rose Petroleum plc share price movements over a period commensurate with the expected term immediately prior to the grant date. The fair value of the op5ons granted during the year was US$0.2 million (2016: nil). Share-Based Compensa0on 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 was recognised in full in the year ended 31 December 2015. Annual Report and Financial Statements for the year ended 31 December 2017 55 Rose Petroleum plc Notes to the Financial Statements con5nued 27. Share-Based Payments con5nued Warrants On 26 October 2016, the Company issued 42,857,142 warrants to Turner Pope Investments (“TPI”), in respect of broker services provided by them in rela5on to the placing of the Company’s shares which took place on the same date. The warrants permit the holder to subscribe for one new Ordinary Share at a price of 0.25 pence per share and are exercisable at any 5me un5l October 2019. On 18 September 2017, the Company issued 3,625,000 warrants to TPI, in respect of broker services provided by them in rela5on to the placing of the Company’s shares. The warrants permit the holder to subscribe for one new Ordinary Share at a price of 7.125 pence per share and are exercisable at any 5me un5l 18 September 2020. The fair value of the services provided to the Company can be measured directly and, therefore, the fair value of the warrants issued during the year to TPI has been made with reference to the terms of the agreement which stated that the number of warrants issued should be based on 5 per cent of the equity proceeds raised by TPI. The fair value of the warrants issued during the year was US$0.15 million (2016: US$ 0.05 million). In accordance with the Group’s accoun5ng policy, the costs of an equity transac5on are accounted for as a deduc5on from equity to the extent that they are incremental costs directly a6ributable to the equity transac5on that would otherwise have been avoided. As a result, there is no impact on the Group’s income statement during the year ended 31 December 2017. In the year ended 31 December 2017, the Company recognised a total expense of US$0.3 million (2016: US$0.32 million) related to equity-se6led share-based payment transac5ons. This represented US$0.3 million (2016: US$0.27 million) in respect of the Share Op5on Plan, US$ nil (2016: US$0.05 million) in respect of warrants. 28. Commitments under Opera0ng Leases The Group has entered into commercial leases on certain proper5es. The future minimum rentals payable under non-cancellable opera5ng leases are as follows: Land and buildings Amounts due within one year Amounts due in 2-5 years Group 2017 US$’000 2016 US$’000 Company 2017 US$’000 2016 US$’000 24 73 97 74 83 157 24 73 97 6 83 89 None of the opera5ng leases above have any con5ngency rent, renewal or purchases op5ons, escala5on clauses nor have any restric5ons rela5ng to addi5onal debt or further leasing. 29. Financial Instruments Capital Risk Management The Group manages its capital to ensure that en55es in the Group will be able to con5nue as going concerns, while maximising the return to shareholders through the op5misa5on of the debt and equity balance. The capital structure of the Group consists of cash and cash equivalents and equity a6ributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group is not subject to externally imposed capital requirements. 56 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 29. Financial Instruments con5nued The Group plans its capital requirements on a regular basis and as part of this review the Directors consider the cost of capital and the risks associated with each class of capital. Significant Accoun0ng Policies Details of the significant accoun5ng policies and methods adopted, including the criteria for recogni5on, the basis of measurement, the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3. Categories of Financial Instruments Financial assets measured at amor0sed cost Cash and cash equivalents Trade receivables Amounts owed by joint arrangement partners Other receivables Loans to subsidiary undertakings Financial assets measured at fair value Investments Hierarchy, Level 1 Financial liabili0es measured at amor0sed cost Trade payables Other payables Group 2017 US$’000 2016 US$’000 2,185 246 – 107 – 2,538 1,273 – 35 35 – 1,343 Group 2017 US$’000 2016 US$’000 2017 US$’000 2,156 – – – 18,250 20,406 2017 US$’000 Company Company 2016 US$’000 1,185 – – 3 13,599 14,787 2016 US$’000 500 – 500 – Group 2017 US$’000 2016 US$’000 Company 2017 US$’000 2016 US$’000 194 29 223 102 – 102 43 – 43 55 – 55 Fair Value of Financial Instruments The Directors consider that the carrying amount of its financial instruments approximates to their fair value. Financial Risk Management Objec0ves Management provides services to the business, co-ordinates access to domes5c and interna5onal financial markets and monitors and manages the financial risks rela5ng to the opera5ons of the Group. These risks include foreign currency risk, credit risk, liquidity risk and cash flow interest rate risk. The policies for managing these risks are regularly reviewed and agreed by the Board. The Group does not enter into or trade financial instruments, including deriva5ve financial instruments, for specula5ve purposes. Annual Report and Financial Statements for the year ended 31 December 2017 57 Rose Petroleum plc Notes to the Financial Statements con5nued 29. Financial Instruments con5nued Foreign Exchange Risk and Foreign Currency Risk Management The Group undertakes certain transac5ons denominated in foreign currencies, with the result that exposure to exchange rate fluctua5ons arise. The Group does not normally hedge against the effects of movements in exchange rates. The Group policy is not to repatriate any currency where there is the requirement or obliga5on to spend in the same denomina5on. When foreign exchange is required the Group purchases using the best spot rate available. As a result, there is limited currency risk within the Group other than cash and cash equivalents whose func5onal currency is different to presenta5on currency. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabili5es at the repor5ng date are as follows: GBP Liabili0es Assets 2017 US$’000 – 2016 US$’000 – 2017 US$’000 1,266 2016 US$’000 694 Foreign Currency Sensi0vity Analysis The func5onal currencies of the Group are Pound Sterling (GBP), US dollars (USD), Euro (EUR) and Mexican Peso (MXN). The financial statements of the Group’s foreign subsidiaries are denominated in foreign currencies. The Group is exposed primarily to movements in USD in respect of foreign currency risk arising from recognised assets. Sensi5vity analysis has been performed to indicate how the profit or loss would have been affected by changes in the exchange rate between GBP and USD. The analysis is based on the weakening and strengthening of USD by five per cent. A movement of 5 per cent reflects a reasonably posi5ve sensi5vity when compared to historical movements over a three to five-year 5meframe. The sensi5vity analysis includes only outstanding foreign currency denominated monetary items and adjusts their transla5on at the period end for a five per cent change in foreign currency rates. The table below details the Group’s sensi5vity to a five per cent decrease in USD against GBP. A posi5ve number below indicates an increase in profit where USD weakens five per cent against GBP. For a five per cent strengthening of USD there would be an equal and opposite impact on the profit, and the balance below would be nega5ve. Income statement 2017 US$’000 879 2016 US$’000 660 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. The Group has no liabili5es which a6ract interest charges at 31 December 2017. 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. 58 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 29. Financial Instruments con5nued 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. 30. Related Party Transac0ons Amounts due from subsidiaries Group 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. Company 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 Transac0ons in the year US$’000 1,050 723 500 254 2017 2016 Amounts owing US$’000 33,675 3,806 4,591 1,223 Transac0ons in the year US$’000 1,092 562 539 (195) Amounts owing US$’000 29,787 2,783 3,712 884 During the year, Group companies entered into the following transac5ons with related par5es who are not members of the Group: Accommoda5on and office rent 2017 2016 Transac0ons in the year US$’000 – Amounts owing US$’000 – Transac0ons in the year US$’000 10 Amounts owing US$’000 4 The related party is a rela5ve of a Director of the Company. Annual Report and Financial Statements for the year ended 31 December 2017 59 Rose Petroleum plc Notes to the Financial Statements con5nued 30. Related Party Transac0ons con5nued Remunera0on of Key Management Personnel The remunera5on of key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Short-term employee benefits Consultancy payments Post-employment benefits Share-based payments 2017 2016 Purchase of services US$’000 Amounts owing US$’000 Purchase of services US$’000 Amounts owing US$’000 447 16 57 274 794 – 1 11 – 12 473 1 29 324 827 – 1 8 – 9 The amounts outstanding are unsecured and will be se6led in cash. No guarantees have been given or received. All transac5ons with related par5es have been conducted on an arm’s length basis. Directors’ emoluments Remunera5on paid to Directors during the year was as follows: Execu0ve Directors MC Idiens KK He%on KB Sco6 CJ Eadie Non-execu0ve Directors PE Jeffcock 2017 Emoluments en0tlement US$’000 Emoluments1 taken US$’000 Pension US$’000 Total US$’000 193 542 16 118 24 405 200 54 16 124 24 418 46 2 – 9 – 57 246 56 16 133 24 475 1 Emoluments include benefits-in-kind which are not included in emoluments en5tlement 2 Emolument to the date of resigna5on on 1 July 2017 Execu0ve Directors MC Idiens KK He%on KB Sco6 CJ Eadie Non-execu0ve Directors PE Jeffcock Emoluments en0tlement US$’000 Emoluments1 taken US$’000 2016 Bonus US$’000 Pension US$’000 Total US$’000 164 78 382 92 452 417 171 108 1 97 17 394 34 – – – – 34 16 4 – 9 – 29 221 112 1 106 17 457 2 PE Jeffcock and KB Sco6 waived their rights to certain emoluments during the year 1 Emoluments include benefits-in-kind which are not included in emoluments en5tlement 60 Annual Report and Financial Statements for the year ended 31 December 2017 Notes to the Financial Statements con5nued 30. Related Party Transac0ons con5nued The remunera5on of Directors and key execu5ves is decided by the remunera5on commi6ee having regard to comparable market sta5s5cs. Directors share op5ons are detailed in the Directors Report. Directors’ Pensions The number of Directors to whom re5rement benefits are accruing under money purchase schemes was 2017 No. 2 2016 No. 2 31. Post Balance Sheet Events Equity Fundraise On 22 May 2018, the Company raised gross proceeds of US$1.3 million (£1.0 million) by way of a placing of 30,769,231 Ordinary Shares of 0.1p each at a price of 3.25p per share. In addi5on, warrants to subscribe for 30,769,231 new Ordinary Shares were issued to the subscribers, represen5ng one warrant for each placing share. The warrants are exercisable at a price of 6.5p per Ordinary Share. Warrants to subscribe for 1,538,461 new Ordinary Shares were issued to Turner Pope as part of the fees for undertaking the placing. The warrants are exercisable at a price of 6.5p per Ordinary Share. Annual Report and Financial Statements for the year ended 31 December 2017 61 Rose Petroleum plc No5ce of Annual General Mee5ng No5ce is hereby given that the Annual General Mee5ng of Rose Petroleum plc (“the Company”) will be held at the offices of Allenby Capital Limited, 3 St Helen’s Place, London EC3A 6AB on 28 June 2018 at 11.00 AM at which the following ma6ers will be dealt with: Ordinary Business 1. 2. 3. To receive the Reports of the Directors and Auditors and the Financial Statements for the year ended 31 December 2017. To re-elect Christopher Eadie, who re5res by rota5on, as a Director of the Company. To re-appoint RSM UK Audit LLP as auditors of the Company to hold office from the conclusion of this mee5ng un5l the conclusion of the next Annual General Mee5ng at which the requirements of sec5on 437 and 438 of the Companies Act 2006 (“2006 Act”) are complied with. 4. To authorise the Directors of the Company to agree the remunera5on of the auditors. Special Business As Special Business to consider and, if thought fit, to pass the following resolu5ons, of which resolu5on number 5 will be proposed as an ordinary resolu5on and resolu5on number 6 will be proposed as a special resolu5on: 5. THAT the Directors of the Company be and are hereby generally and uncondi5onally authorised for the purposes of sec5on 551 of the 2006 Act, to issue and allot ordinary shares of 0.1 pence each in the share capital of the Company (“Ordinary Shares”) or grant rights to subscribe for or to convert any security into shares in the Company (together “Rights”) up to a maximum nominal amount of £47,326 to such persons at such 5mes and on such terms as they think proper, provided that this authority shall expire on the date falling 15 months from the date of passing of this resolu5on, or if earlier, on the date of the next Annual General Mee5ng of the Company to be held a%er the passing of this resolu5on (unless renewed, varied or revoked by the Company prior to or on that date), save that the Company may make an offer or agreement before the expiry of this authority which would or might require Ordinary Shares to be allo6ed or Rights to be granted a%er such expiry and the Directors may allot Ordinary Shares or grant Rights pursuant to any such offer or agreement as if the authority conferred by this resolu5on had not expired. This authority is in subs5tu5on for all previous authori5es conferred on the Directors in accordance with sec5on 551 of the 2006 Act. 6. THAT, subject to and condi5onal upon the passing of resolu5on 6 above, in accordance with sec5on 570 of the 2006 Act, the Directors be and are hereby generally empowered to allot for cash or otherwise equity securi5es (as defined in sec5on 560 of the 2006 Act) of the Company pursuant to the authority conferred by resolu5on 5 above (as varied from 5me to 5me by the Company in general mee5ng) as if sec5on 561 of the 2006 Act did not apply to such allotment provided that this power shall be limited to: a. the allotment of equity securi5es in connec5on with any other offer (whether by way of rights issue, open offer or otherwise) to holders of Ordinary Shares in the capital of the Company in propor5on (as nearly as may be) to their exis5ng holdings of such shares, subject only to any exclusions or other arrangements which the Directors may deem necessary or expedient to deal with frac5onal en5tlements, legal or prac5cal problems arising in any overseas territory or the requirements of any regulatory body or stock exchange in any territory; 62 Annual Report and Financial Statements for the year ended 31 December 2017 No5ce of Annual General Mee5ng con5nued b. c. the allotment of equity securi5es pursuant to the terms of any share schemes for Directors and employees of the Company or any of its subsidiaries; and the allotment otherwise than pursuant to subparagraphs (a) to (b) (inclusive) above of equity securi5es not exceeding in aggregate the nominal amount of £25,000, and provided that this power shall expire at the conclusion of the next Annual General Mee5ng of the Company a%er the passing of this resolu5on or, if earlier, the date falling 15 months from the date of passing this resolu5on (unless renewed, varied or revoked by the Company prior to or on that date), save that the Company may make an offer or agreement before the expiry of this power which would or might require equity securi5es to be allo6ed for cash a%er such expiry and the Directors may allot equity securi5es for cash pursuant to any such offer or agreement as if the power conferred by this resolu5on had not expired. This authority is in subs5tu5on for all previous authori5es conferred on the Directors in accordance with sec5on 570 of the 2006 Act. By Order of the Board 5 June 2018 Ian McNeill Company Secretary Rose Petroleum plc 20-22 Wenlock Road London N1 7GU Annual Report and Financial Statements for the year ended 31 December 2017 63 Rose Petroleum plc No5ce of Annual General Mee5ng con5nued Notes: En0tlement to a1end and vote 1 Only those members registered on the Company’s register of members at: • • close of business on 26 June 2018; or, if this annual general mee5ng is adjourned, as at close of business on the day two days prior to the adjourned mee5ng, shall be en5tled to a6end and vote at the annual general mee5ng. Appointment of proxies 2 A member is en5tled to a6end, speak and vote at the above mee5ng and is en5tled to appoint one or more proxies to a6end, speak and vote in his stead. A proxy need not be a member of the Company. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. If you wish your proxy to speak on your behalf at the annual general mee5ng you will need to appoint your own choice of proxy (not the Chairman) and give your instruc5ons directly to them. 3 4 5 6 7 8 9 10 You may appoint more than one proxy provided each proxy is appointed to exercise rights a6ached to different shares. You may not appoint more than one proxy to exercise rights a6ached to any one share. To appoint more than one proxy, each different proxy appointment form must be received by Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU not less than 48 hours before the 5me appointed for the mee5ng. A vote withheld is not a vote in law which means that the vote will not be counted in the calcula5on of votes for or against the resolu5on. If no vo5ng indica5on is given, your proxy will vote or abstain from vo5ng at his or her discre5on. Your proxy will vote (or abstain from vo5ng) as he or she thinks fit in rela5on to any other ma6er which is put before the annual general mee5ng. A prepaid form of proxy is enclosed. To be valid any form of proxy and power of a6orney or other authority under which it is signed or a notarially cer5fied or office copy of such power of authority must be lodged with the Company’s Registrars: Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU so as to be received not less than 48 hours before the 5me appointed for the mee5ng or any adjourned mee5ng. The return of a form of proxy will not preclude a member from a6ending and vo5ng at the mee5ng in person should he subsequently decide to do so. CREST members who wish to appoint a proxy or proxies by u5lising the CREST electronic proxy appointment service may do so for the annual general mee5ng and any adjournment(s) thereof by u5lising the procedures described in the CREST manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a vo5ng service provider(s), should refer to their CREST sponsor or vo5ng service provider(s), who will be able to take the appropriate ac5on on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruc5on) must be properly authen5cated in accordance with Euroclear UK & Ireland Limited’s (EUI) specifica5ons and must contain the informa5on required for such instruc5ons, as described in the CREST manual. The message must be transmi6ed so as to be received by the issuer’s agent (Link Asset Service, ID RA10) not less than 48 hours before the 5me appointed for the mee5ng. For this purpose, the 5me of receipt will be taken to be the 5me (as determined by the 5mestamp applied to the message by the CREST applica5ons host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. CREST members and, where applicable, their CREST sponsors or vo5ng service providers should note that EUI does not make available special procedures in CREST for any par5cular messages. Normal system 5mings and limita5ons will therefore apply in rela5on to the input of CREST proxy instruc5ons. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a vo5ng service provider(s), to procure that his CREST sponsor or vo5ng service provider(s) take(s)) such ac5on as shall be necessary to ensure that a message is transmi6ed by means of the CREST system by any par5cular 5me. In this connec5on, CREST members and, where applicable, their CREST sponsors or vo5ng service providers are referred, in par5cular, to those sec5ons of the CREST manual concerning prac5cal limita5ons of the CREST system and 5mings. The Company may treat as invalid a CREST proxy instruc5on in the circumstances set out in Regula5on 35(5)(a) of the Uncer5ficated Securi5es Regula5ons 2001. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submi6ed by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). 64 Annual Report and Financial Statements for the year ended 31 December 2017 No5ce of Annual General Mee5ng con5nued Changing proxy instruc0ons 11 To change your proxy instruc5ons simply submit a new proxy appointment using the methods set out above. Note that the cut-off 5me for receipt of proxy appointments (see above) also apply in rela5on to amended instruc5ons; any amended proxy appointment received a%er the relevant cut-off 5me will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instruc5ons using another hard-copy proxy form, please contact Link Asset Services on 0871 664 0300. Calls cost 12p per minute plus your phone company’s access charge. If you are outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable interna5onal rate. We are open between 9.00 am – 5.30 pm, Monday to Friday excluding public holidays in England and Wales. If you submit more than one valid proxy appointment, the appointment received last before the latest 5me for the receipt of proxies will take precedence. Termina0on of proxy appointments 12 In order to revoke a proxy instruc5on you will need to inform the Company by sending a signed hard copy no5ce clearly sta5ng your inten5on to revoke your proxy appointment to Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. In the case of a member which is a company, the revoca5on no5ce must be executed under its common seal or signed on its behalf by an officer of the Company or an a6orney for the Company. Any power of a6orney or any other authority under which the revoca5on no5ce is signed (or a duly cer5fied copy of such power or authority) must be included with the revoca5on no5ce. The revoca5on no5ce must be received by Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU no later than 48 hours prior to the mee5ng. If you a6empt to revoke your proxy appointment but the revoca5on is received a%er the 5me specified then, subject to the paragraph directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from a6ending the annual general mee5ng and vo5ng in person. If you have appointed a proxy and a6end the annual general mee5ng in person, your proxy appointment will automa5cally be terminated. Corporate representa0ves 13 A corpora5on which is a member can appoint one or more corporate representa5ves who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representa5ve exercises powers over the same share. Issued shares and total vo0ng rights 14 As at 6:00 pm on 4 June 2018, the Company’s issued share capital comprised 143,413,940 Ordinary Shares of 0.1p each. Each Ordinary Share carries the right to one vote at a general mee5ng of the Company and, therefore, the total number of vo5ng rights in the Company as at close of business on 4 June 2018 is 143,413,940. Communica0on Except as provided above, members who have general queries about the annual general mee5ng should contact the Company Secretary at Rose Petroleum plc 145-157 St John Street, London, EC1V 4PW or on +44 (0) 207 225 4590 (no other methods of communica5on will be accepted). You may not use any electronic address provided either: • • in this no5ce of annual general mee5ng; or any related documents (including the Chairman’s le6er and proxy form), to communicate with the Company for any purposes other than those expressly stated. Annual Report and Financial Statements for the year ended 31 December 2017 65 Printed by Michael Searle & Son Limited Rose Petroleum plc Head Office: First Floor Newmarket House Market Street Newbury Berkshire RG14 5DP www.rosepetroleum.com