Zephyr Energy Plc Annual Report 2018

Plain-text annual report

Rose Petroleum plc Rose Petroleum plc Annual Report and Financial Statements For the year ended 31 December 2018 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 02 03 05 12 15 16 17 22 23 24 25 26 27 28 29 30 68 Annual Report and Accounts for the year ended 31 December 2018 01 Rose Petroleum plc Directors, Advisers and Oﬃcers Execu&ve Chairman Non-Execu&ve Director Non-Execu&ve Director Chief Execu&ve Oﬃcer Chief Financial Oﬃcer Directors JC Harrington TH Reynolds RL Grant 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 Joint Broker Novum Securi5es 18 Grosvenor Gardens London SW1W 0DH Solicitors Memery Crystal LLP 165 Fleet Street London EC4A 2DY Nominated Adviser 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 Joint Broker Cantor Fitzgerald Europe 1 Churchill Place London E14 5EF 02 Annual Report and Financial Statements for the year ended 31 December 2018 Chairman’s Statement Introduc0on This is my ﬁrst Chairman’s statement since being appointed as Execu5ve Chairman in May 2019. While this Annual Report technically covers the twelve months to 31 December 2018, there have been important developments in the period since. As such, I would like to take this opportunity to detail management and Board changes, as well as set out the restructured Board’s vision for the future of the Group. I will also outline my opinion of how the Group is currently posi5oned, as I believe Rose has strong prospects for growth, both from its exis5ng por4olio and from the poten5al of carefully targeted acquisi5ons. Board and Management Changes It is my key ini5al challenge to put together a team best posi5oned to deliver long awaited value to our pa5ent Shareholders. As part of this eﬀort, I am delighted to announce the appointment of Rick Grant as a non-execu5ve Board member. In addi5on to being a co-founder of Origin Creek Energy (“OCE”), Rick has a 40-year track record of success in the oil and gas industry. Prior to OCE, Rick was CEO of Suez North America LNG and then served as CEO of Suez Global LNG (“Suez LNG”). During his tenure, Suez LNG grew from an ini5al US$680 million acquisi5on of Cabot LNG (where Rick previously served as President), into the world’s third largest liqueﬁed natural gas (“LNG”) business, one ac5ve across the en5re global natural gas chain from upstream produc5on through to distribu5on to end-users. Before his 5me at Cabot, Rick was President of Mountaineer Gas, the largest natural gas distribu5on company in West Virginia (which also held a sizable upstream por4olio). During his career, Rick has had signiﬁcant success managing mul5-billion dollar organisa5ons and developments, and has been involved in a number of highly proﬁtable corporate exits. I know he will bring a wealth of sector experience, knowledge and rela5onships to the Rose Board. The Board con5nues to evaluate roles and needs at the execu5ve and Board levels. Related to this eﬀort, Ma6hew Idiens has informed the Company of his inten5on to step down as a Board member and CEO a%er assis5ng through a transi5on period to an updated management team. We expect to make addi5onal announcements about changes to the execu5ve team during the next quarter. Exis0ng Opera0ons The headway achieved by the Group during 2018 was made against the backdrop of challenging market condi5ons that saw vola5lity in oil prices, par5cularly towards the end of the year. In spite of this, Rose made progress with con5nued prepara5ons for the start of drilling at its primary asset in the Paradox Basin, Utah, U.S.A. (“Paradox acreage” or “Paradox”). The Group is earning into a 75% working interest in approximately 80,000 acres in the Paradox acreage through its joint venture partnership with Rockies Standard Oil Company (“RSOC”). U5lising the results of the 3D seismic shoot completed in 2017, a Competent Person’s Report (“CPR”) completed in June 2018 by Gaﬀney Cline & Associates (“GCA”) conﬁrmed the scale and prospec5vity of the Paradox project. The Group is now opera5onally in a posi5on to deliver value with the successful drilling of an ini5al well, and such drilling would complete the earn-in obliga5on at the Paradox. Discussions with poten5al farm-in, ﬁnancial and strategic partners in regard to funding drilling of the ﬁrst Paradox well con5nue, and based on the scale and prospec5vity of the Paradox asset, I am hopeful that this key funding objec5ve can be met prior to the end of this calendar year. Annual Report and Financial Statements for the year ended 31 December 2018 03 Rose Petroleum plc Chairman’s Statement continued Future Opera0ons By way of background, it may be helpful to remind readers that I also serve as Chief Execu5ve of OCE, an investment ﬁrm focused on upstream oil and gas opportuni5es in the U.S.A. OCE subscribed US$ 0.4 million (£0.3 million) in the Company’s shares in May 2019 and has a 14.84% shareholding in the Company. Our newest Board member, Rick Grant, also serves as Chairman of OCE. OCE’s principals have signiﬁcant experience genera5ng value from the highly fragmented small-cap end of the U.S.A. explora5on and produc5on sector, and we believe it is a segment of the market where outsize investment returns can be achieved. To access these returns, however, we believe it is cri5cal to align with strong opera5onal management teams – groups with a high degree of focus and experience within speciﬁc geographic basins. We also believe in the value of construc5ng a balanced por4olio, one with a mix of: • • • Current produc5on acquired at compelling valua5ons; Access to near-term, lower risk, yet highly economic development opportuni5es located in core acreage posi5ons in established basins. We par5cularly like inﬁll, horizontal development drilling opportuni5es in basins long established through ver5cal produc5on; and Longer term high upside explora5on projects designed to add signiﬁcant scale, such as the current opportunity in the Paradox. The Group has already laid a strong founda5on for developing scale from the Paradox. Apart from our plans to develop that asset, we expect to see the Group focus on near-term opportuni5es to acquire accre5ve produc5on and development projects, par5cularly in established basins nearby. Longer term, we will seek to execute transac5ons and developments that build a balanced por4olio of produc5on, development and explora5on, focused solely on basins where our growing opera5ons team has the deepest experience, with a par5cular emphasis on the Rocky Mountains region. Vision and Alignment The decision to invest in Rose was made a%er signiﬁcant evalua5on. OCE takes a long-term view on its investments and has had success with its por4olio to date. Aligning OCE with an AIM quoted partner such as Rose was a logical step for the business. OCE and our opera5ng partners have considerable experience with upstream opera5ons, explora5on, drilling, produc5on and corporate turnarounds. We have longstanding rela5onships with a large network of industry partners and investors in the U.S.A. explora5on and produc5on sector, rela5onships which we will u5lise for the beneﬁt of all Shareholders. A point worth reinforcing is that as a 14.8% Shareholder, OCE is highly aligned with the Group’s other Shareholders as we seek to build value from our collec5ve investments in Rose. As I men5oned earlier, a key part of my role is to con5nue to review the resourcing of the Group to ensure we have the right blend of team to help deliver the strategy outlined above. Cash conserva5on will remain a priority. Conclusion In conclusion, I am excited to have joined the Group at this pivotal stage in its development and look forward to providing further updates as we deliver on key milestones in the transforma5on of the Group. Most importantly, I want to thank our Shareholders, employees and advisers for their con5nued support – we welcome and take seriously the opportunity to grow the value of your investment alongside ours. JC Harrington 27 June 2019 04 Annual Report and Financial Statements for the year ended 31 December 2018 Strategic Report The Directors present their strategic report on the Group for the year ended 31 December 2018. 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 addi5on 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 The period under review was one of sustained ac5vity as the Group worked towards delivering on its key strategic objec5ve of spudding its ﬁrst well on its Paradox acreage. Following on from the successful 3D seismic acquisi5on in late 2017, the key opera5onal milestones achieved during the period, and since, have been: • • • • • • • • the assembling of a high quality opera5ons team with extensive Paradox Basin experience to deliver the Paradox project; the comple5on of the interpreta5on of the 3D data; comple5on of an updated CPR on the resources within Clas5c 21 in the area covered by the 3D acquisi5on; U.S. Bureau of Land Management (“BLM”) approval of Applica5on for Permit to Drill (“APD”) for the GV22-1 which will be the Group’s ﬁrst Paradox well; well design engineering and detailed cos5ngs of GV22-1 completed; the acquisi5on of further highly prospec5ve new acreage that falls within the 3D shoot area; the engagement with ﬁnancial and industry partners with a view to obtaining funding for the drilling of the ﬁrst Paradox well and overall development of the project; and Schlumberger were engaged to provide a third party veriﬁca5on on the fracture characterisa5on on the Paradox acreage. The work carried out during the period and since, and par5cularly the interpreta5on and resource update work, has con5nued to highlight the substan5al scale, value and geological poten5al of the Paradox project. Annual Report and Financial Statements for the year ended 31 December 2018 05 Rose Petroleum plc Strategic Report continued Following the comple5on of the 3D seismic acquisi5on and interpreta5on, and to quan5fy and highlight the poten5al of the Paradox, GCA were engaged to prepare a CPR on the acreage of the 3D seismic acquisi5on held by the Group (the “3D area”), being approximately 17,250 acres of the total acreage held by the Group in Utah. This CPR focused solely on a single reservoir, the Cane Creek reservoir (the “CCR” or “Clas5c 21”), of the mul5ple prospec5ve reservoirs within the Paradox Forma5on. The CPR upgraded the resource classiﬁca5on from Prospec5ve Resources to Con5ngent Resources within the 3D seismic acquisi5on area, and reported, net to the Group, a 2C Con5ngent Resource of 9.25 million barrels of oil (“MBO”) and 18.50 billion standard cubic feet (“Bscf”) of gas and an unrisked pre-tax NPV10 of US$122 million. For a full summary of the CPR, please refer to the Group’s announcement on 22 June 2018. The CPR clearly demonstrates the signiﬁcant poten5al upside of the Paradox acreage. 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. Up to ﬁve addi5onal clas5cs, above the Cane Creek Cycle, are also thought to be prospec5ve. The CPR covered only a por5on of the Group’s total acreage posi5on which is covered by the 3D acquisi5on, providing the opportunity to signiﬁcantly increase resource numbers on the Paradox project in the future, with addi5onal acquisi5on of further seismic coverage. The Board believes that the CPR ra5ﬁes the proposed appraisal plans for the Paradox acreage, which will be the ﬁrst combina5on of horizontal drilling steered by high quality 3D seismic data in the Paradox acreage. A similar approach has proved very successful in the development of the Cane Creek Field analogue directly south of the Group’s acreage. Further, we con5nue to evaluate the remaining Clas5c 21 poten5al outside the 3D area and shallower prospec5ve zones both within the 3D area and outside it, which represent further upside opportuni5es within the Group’s acreage footprint. In a further show of its conﬁdence in the Paradox, the Group announced in April 2018 that it had increased its land posi5on in the Paradox Basin with the acquisi5on of some highly prospec5ve new acreage. The Joint Venture acquired an addi5onal 3,320 gross acres (2,490 net acres) (the “New Acreage”) for US$36 per gross acre, resul5ng in a total considera5on of approximately US$120,000. The acquisi5on of the New Acreage, which is con5nuous with the joint venture’s exis5ng acreage and is in close proximity to the producing 28-11 well, was achieved following detailed technical analysis of its geological poten5al. The New Acreage is covered by the Group’s 3D seismic survey, which was acquired in late 2017, which shows mul5ple highly a6rac5ve geological structures and poten5al well site loca5ons. In addi5on to the 28-11 well, three other ver5cal wells have been drilled within the 3D seismic areal extent and all show the presence of moveable oil within the reservoir matrix. These factors give the Board a high degree of conﬁdence in respect to the Group’s acreage and, as a result, it was decided to proceed to apply for an APD permit for an addi5onal well loca5on in the New Acreage, the GV22-1 well. The APD for the GV22-1 was approved by the BLM in the fourth quarter of 2018 and was announced on 1 November 2018. The GV22-1 will be a horizontal well which the Group’s management consider has a poten5al Es5mated Ul5mate Recovery (“EUR”) of 894,000 barrels of oil equivalent (“BOE”), consistent with the GCA’s CPR. As already men5oned, the poten5al of the GV22-1 well is supported by its close analogy to highly produc5ve structures (>1mmboe EUR) within the nearby Cane Creek Field (12 miles south) and locally by its close proximity to the producing 28-11. This well produces from the porous and permeable fracture network within Clas5c 21 and can be 5ed to the GV22-1 loca5on within the 3D seismic data set. The 28-11 is a ver5cal well that was drilled by Delta Petroleum in 2006 without the beneﬁt of 3D seismic. It has produced 141,000 BOE, and represents a key piece of 06 Annual Report and Financial Statements for the year ended 31 December 2018 Strategic Report continued evidence for the presence of hydrocarbons and of a greater fracture network across the area covered by the 3D seismic. These factors give the Board a high degree of conﬁdence in the poten5al of the GV22-1 well, and it was for these reasons that the Group decided to priori5se the GV22-1 loca5on as its ﬁrst well. The selec5on of the GV22-1 well as the ﬁrst well was also validated by the fracture characterisa5on study undertaken by Schlumberger on behalf of the Group, the results of which were announced in January 2019. In Schlumberger’s detailed analysis of the GV22-1, the models of the combined fracture sets developed in the study show that the well is situated op5mally to capture the fold and fault related fractures. The study also states that it is expected that both fault and fold related fracture sets are viable from the geomechanical modeling. Targe5ng both fracture sets maximises poten5al produc5vity from a successful well. The Group is now working with the BLM to include the New Acreage, and therefore the GV22-1 proposed well site, within the Gunnison Valley Unit (“GVU”), where the Group’s opera5onal ac5vity has been focused. The addi5on of the New Acreage within the GVU will give the Group more op5ons in terms of the future drilling programme. These discussions with the BLM are being carried out in tandem with ongoing work to manage the exis5ng acreage posi5on and the GVU itself which requires careful oversight, par5cularly when taking into account the more proac5ve approach of the BLM towards land usage under the new poli5cal administra5on. If the BLM approves the proposed plan to include the New Acreage within the GVU, then the Group will be able to propose the GV22-1 as the next obliga5on well. The GVU, which covers approximately 60,000 acres, presently requires four obliga5on wells; the ﬁrst obliga5on well has already been completed (GVU22-9) by Anadarko. The ongoing discussions with the BLM in respect of the GVU reshape are expected to coincide with the Group’s 5meline to spud the GV22-1 well before the end of the year. The next obliga5on well for the GVU is required to be drilled within six months of comple5on of opera5ons at GV22-1. To support the proposed drilling ac5vi5es, 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 Explora5on and Produc5on Inc., 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. As the Group progressed through the well selec5on and permi7ng processes for the ﬁrst Paradox well, the Group is already realising the beneﬁts of having such a ﬁrst class team. In conclusion, the technical work required ahead of the spudding the GV22-1 has all now been completed, the well has been permi6ed and the ﬁnal step in the process is securing the ﬁnancing to complete the well. Discussions with industry partners con5nue albeit that the recent oil price vola5lity and investors focus on the established oil producing basins in the U.S.A, has meant that these discussions, and the subsequent nego5a5ons, have taken longer than might have otherwise been hoped. The Board remains conﬁdent that it will be in a posi5on to spud the GV22-1 before the end of this calendar year. Poten5al farm-in partners who have reviewed the data related to the projects have consistently commented on the high quality of the technical assessment of the project. As the Group’s ac5vity in the Paradox basin has intensiﬁed, it has been approached by a number of third par5es about poten5al partnering and investment opportuni5es in the region. While the Group remains wholly focused on the Paradox, the Directors believe that they should appraise any addi5onal opportuni5es further, par5cularly those comprising producing or near-term producing assets, to see if there may be commercial synergies with the exis5ng Paradox opera5ons and whether they might add value to the Group’s por4olio. The Paradox ac5vity will remain the absolute priority, and there are no guarantees that any opportuni5es reviewed will develop further. Annual Report and Financial Statements for the year ended 31 December 2018 07 Rose Petroleum plc Strategic Report continued Mining Division Copper explora0on, southwest U.S.A. In April 2016, the Group announced that it had entered into an agreement with privately owned Burde6 Gold LLC (“Burde6”), 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 is currently undertaking a 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. A number of the proper5es fall within the area covered by the U.S.A. Government moratorium on uranium explora5on. There is specula5on that the moratorium may soon be li%ed meaning that the licence areas may be reinstated. This may result in the Group being able to derive value from these licences whether through disposal or poten5ally through compensa5on claims. In November 2018, the Group announced that it had entered into an agreement with enCore Energy Corpora5on (“ENCORE”) (TSX.V:EU) with respect to the Group’s uranium explora5on project database (the “Agreement”). The database is comprised of geological, geophysical, aerial photography, drilling, and evalua5on data on the uranium breccia pipe district of northern Arizona, speciﬁcally the region south of the Colorado River where a number of discoveries have been made. In return for the Group providing exclusive access to its uranium project database, ENCORE issued the Group 3,000,000 ordinary shares in ENCORE. The ini5al term of the agreement is ﬁve-years, and ENCORE will seek, at its own cost, to use the database to generate explora5on prospects and to subsequently develop these prospects into commercial opera5ons. If any of the prospects reach the development stage, the Group will have a one-oﬀ opportunity to par5cipate in these projects. The Group will be able to par5cipate up to a maximum 25% interest in any developed projects, at its sole discre5on. The purchase price for the Group’s interest, at the development stage, will be 250% of the pro- rata explora5on costs incurred on the project to advance it to the development stage. From the point at which the Group acquires an equity interest in any project it will be responsible for the development expenditure for its speciﬁc por5on of its interest. If the Group does not elect to par5cipate in the projects in accordance with the Agreement it will have no further rights in respect of that par5cular project. Should the Group seek to develop any of its eight exis5ng breccia pipe uranium projects on which it currently controls the mineral rights, which are currently held on care and maintenance, ENCORE will have the opportunity to par5cipate in these projects on the same terms that the Group can par5cipate in the ENCORE projects. Under the terms of the Agreement, ENCORE will have a ﬁrst right of refusal to acquire any mineral rights on these eight projects that the Group chooses to dispose of during the term of the Agreement. As part of the Agreement with ENCORE, the Group excluded its 100% owned North Wash stratabound vanadium/uranium project in Garﬁeld County, Utah from the transac5on. With respect to the North Wash project, as previously announced the Group contracted an independent mining pre-scoping study in May 2012, upon the Group’s comple5on of a two-year drilling programme. This study was prepared to determine the mining method and development costs in an eﬀort to assess the general feasibility of the project. Due to the recent strength of the present vanadium market, interest in the North Wash project signiﬁcantly improved. The report covered preliminary design engineering suﬃcient to gain an indica5ve es5mate of capital and opera5ng costs, manpower requirements and a preliminary development and produc5on schedule, and highlights that it has the poten5al to be developed into a commercial project. The Group will con5nue to review all of its op5ons in respect of the project and will keep Shareholders updated on any progress. 08 Annual Report and Financial Statements for the year ended 31 December 2018 Strategic Report continued Financial Review Income Statement The Group reports a net loss a%er tax from con5nuing opera5ons of US$0.8 million or a loss 0.58 cents per share for the year ended 31 December 2018 (2017: net loss a%er tax from con5nuing opera5ons of US$3.5 million or 6.22 cents per share). Due to the ongoing cash conserva5on programme, administra5ve costs for the year of US$1.6 million were materially lower than those in the prior year (2017: US$2.1 million). Foreign exchange gains on the restatement of the Company’s loans to its subsidiaries were US$1.1 million (2017: losses of US$1.4 million). Balance Sheet Total investment in the Group’s intangible explora5on and evalua5on assets at 31 December 2018 was US$13.1 million (2017: US$12.1 million) reﬂec5ng con5nuing investment in the Utah O&G assets. Cash and cash equivalents at 31 December 2018 were US$0.6 million (2017: US$2.2 million). During the period, the Company raised gross proceeds of US$1.3 million (2017: US$4.0 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. 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 • 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. Annual Report and Financial Statements for the year ended 31 December 2018 09 Rose Petroleum plc Strategic Report continued • • 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. The farm-in agreement into the Paradox acreage includes both a ﬁnancial carry obliga5on of US$5.5 million and also, the drilling of the second GVU obliga5on well. The well is required to retain the GVU in good standing and should the well not be drilled and the GVU expires, then the farm-in could terminate. Financial Risks • There is a risk that the carrying value of the Group’s assets will not be recovered through future revenues, leading to signiﬁcant impairment losses. The Group manages the recoverability of its assets and assesses the economic viability throughout the explora5on, development and produc5on phases. • • • • The ac5vi5es of the Group are subject to ﬂuctua5ons in prices and demand for commodi5es, which are vola5le and cannot be controlled. Funds are maintained by the Group in GBP, and US$. 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. The Group has ﬁnancial and opera5onal obliga5ons in order to keep licences, leases and permits related to its projects in good standing. If the Group does not have suﬃcient funds to develop its por4olio of projects and to keep the projects in good standing there is a risk that underlying leases, licences and permits may expire poten5ally leading to a loss of the underlying assets and a subsequent impairment of the assets in the Group’s ﬁnancial statements. 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. 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. 10 Annual Report and Financial Statements for the year ended 31 December 2018 Strategic Report continued 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 27 June 2019 Annual Report and Financial Statements for the year ended 31 December 2018 11 Rose Petroleum plc Directors’ Report The Directors present the Annual Report and ﬁnancial statements of the Group for the year ended 31 December 2018. 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 2018 (2017: US$ nil). Directors The Directors who held oﬃce during the year, and since the year end are as follows: MC Idiens PE Jeﬀcock (resigned 11 April 2019) KB Sco6 (resigned 23 April 2019) CJ Eadie TH Reynolds (appointed 23 April 2019) JC Harrington (appointed 24 May 2019) RJ Bensh (appointed 11 April 2019. resigned 20 May 2019) RL Grant (appointed 27 June 2019) Directors’ interests in shares and share op0ons The Directors who held oﬃce at 31 December 2018 had the following interests, including family interests, in the Ordinary Shares of the Company as follows: MC Idiens PE Jeﬀcock KB Sco6 CJ Eadie Number of Ordinary Shares 31 December 2018 1 January 2018 1,620,257 208,333(1) – 771,904 820,257 208,333(1) – 347,189 (1) Beneﬁcial interest held through the Glenville Discre5onary Trust. Since 31 December 2018, 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 3,620,257 1,717,504 12 Annual Report and Financial Statements for the year ended 31 December 2018 Directors’ Report continued Directors’ interests in share op5ons of the Company, including family interests, as at 31 December 2018 were as follows: MC Idiens MC Idiens MC Idiens KB Sco6 MC Idiens CJ Eadie MC Idiens CJ Eadie KB Sco6 MC Idiens CJ Eadie PE Jeﬀcock KB 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 6 April 2018 6 April 2018 6 April 2018 6 April 2018 No. of shares 52,000 8,000 158,000 109,333 200,000 100,000 700,000 500,000 150,000 2,000,000 1,300,000 500,000 500,000 Exercise price 112.5p 112.5p 112.5p 47.5p 342.5p 182.5p 14.0p 14.0p 14.0p 3.5p 3.5p 3.5p 3.5p 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 06/04/19 to 05/04/28 06/04/19 to 05/04/28 06/04/19 to 05/04/28 06/04/19 to 05/04/28 Share op5ons held by K Sco6 remain in place subsequent to his resigna5on. Share op5ons held by P Jeﬀcock, which had vested at the date of his resigna5on, can be exercised for a period of 2 years from the date of his resigna5on. Third party indemnity provision for Directors The Company currently has in place, and had for the year ended 31 December 2018, Directors and oﬃcers liability insurance for the beneﬁt of all Directors of the Company. Corporate Governance Corporate governance ma6ers are set out on page 15. Substan0al shareholdings Other than the Directors’ interests shown above, the Company has been no5ﬁed of the following substan5al interests as at 27 June 2019: Origin Creek Energy LLC Flute Investments Post balance sheet events Number of shares Percentage of issued share capital 25,000,000 5,942,419 14.84% 3.5% Events a%er the balance sheet date have been disclosed in note 33 to the ﬁnancial statements. Financial instruments During the year the Company and its subsidiary undertakings applied ﬁnancial risk management policies as disclosed in note 31 to the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2018 13 Rose Petroleum plc Directors’ Report continued 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 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 27 June 2019. On behalf of the Board CJ Eadie Chief Financial Oﬃcer 27 June 2019 14 Annual Report and Financial Statements for the year ended 31 December 2018 Corporate Governance Statement All members of the Board believe strongly in the value and importance of good corporate governance and in our accountability to all of Rose Petroleum plc stakeholders, including Shareholders, staﬀ, clients and suppliers. Changes to AIM rules on 30 March 2018 required AIM companies to disclose details of the recognised corporate governance code the Company has decided to apply by 28 September 2018. The corporate governance framework which the Company operates, including Board leadership and eﬀec5veness, Board remunera5on, and internal control is based upon prac5ces which the Board believes are propor5onal to the size, risks, complexity and opera5ons of the business and is reﬂec5ve of the Company’s values. Of the two widely recognised formal codes, we have therefore decided to adhere to The QCA Corporate Governance Code as published by the Quoted Companies Alliance (“The QCA Code”). The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA Code states what it considers to be appropriate arrangements for growing companies and asks companies to provide an explana5on about how they are mee5ng the principles through the prescribed disclosures. We have considered how we apply each principle to the extent that the Board judges these to be appropriate in the circumstances, and we provide an explana5on of the approach taken in rela5on to each principle on our website. Full details of our corporate governance approach and how we comply with The QCA Code can be found on our website www.rosepetroleum.com in the investors area. Going Concern The Directors have prepared cash ﬂow forecasts for the Group for the period to June 2020 based on their assessment of both the discre5onary and the non-discre5onary cash requirements of the Group during this period. These cash ﬂow forecasts include its normal opera5ng costs for opera5ons together with all commi6ed development expenditure. The Board have been working to secure the ﬁnancing for the spudding of the ﬁrst well in the Paradox Basin throughout the year and since the year end. Discussions with industry partners con5nue albeit that the recent oil price vola5lity and investors focus on the established oil producing basins in the U.S.A. has meant that these discussions, and the subsequent nego5a5ons, have taken longer than might otherwise have been hoped. Whilst the Board remains conﬁdent that the Group will be able to secure the required funding through equity issue, farm in arrangements or other mechanisms, the 5ming and availability of funding sources is outside of the control of the Board. There can also be no certainty over the 5ming and extent of cash ﬂows arising from the Group’s explora5on ac5vi5es and hence any forecasts prepared by the Board will have inherent uncertain5es. Based on these forecasts, the current cash posi5on and from their ongoing discussions with its major Shareholders and brokers, the Directors are conﬁdent that the Group has, or has access to, 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. JC Harrington Chairman 27 June 2019 Annual Report and Financial Statements for the year ended 31 December 2018 15 Rose Petroleum plc Statement of Directors’ Responsibili5es in respect of the Strategic Report, the Directors’ Report and the Financial Statements 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; and prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will con5nue in business. The Directors are responsible for keeping adequate accoun5ng records that are suﬃcient to show and explain the 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 2018 Independent Auditor’s Report to the members of Rose Petroleum plc Opinion We have audited the ﬁnancial statements of Rose Petroleum Plc (the “parent company”) and its subsidiaries (the “Group”) for the year ended 31 December 2018 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 2018 and of the Group’s proﬁt for the year then ended; the Group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent company ﬁnancial statements have been properly prepared in accordance with 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. Material uncertainty related to Going Concern We draw a6en5on to Note 3 in the ﬁnancial statements, which indicates that the Group is dependent on raising further funding in the short term to allow it to meet its opera5onal overheads as they fall due. As stated in Note 3, these events or condi5ons, along with the other ma6ers as set forth in Note 3, indicate that a material uncertainty exists that may cast signiﬁcant doubt on the Group’s ability to con5nue as a going concern. Our opinion is not modiﬁed in respect of this ma6er. Annual Report and Financial Statements for the year ended 31 December 2018 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 Group and parent company 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 Group and parent company ﬁnancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these ma6ers. In addi5on to the ma6er described in the Material uncertainty related to going concern sec5on we have determined the ma6ers described below to be the key audit ma6ers to be communicated in our report. Group key audit ma1ers • Intangible explora(cid:31)on and evalua(cid:31)on assets (Note 17) 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 regard to the addi5onal acreage acquired during the period we have reviewed the acquisi5on documents and acquired licences to assess the rights and obliga5ons under these and the ongoing requirements of Rose/the Licence Holder; • 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. Parent company key audit ma1ers • Carrying value of investments (Note 19) Included in the Parent Company Balance Sheet set out on page 27 of these ﬁnancial statements are investments in subsidiary undertakings which are included at an impaired amor5sed cost of US$13.4 million. The investments in subsidiary undertakings comprise both investments in the equity and long-term loan funding advanced to the subsidiaries to fund their respec5ve Explora5on & Evalua5on ac5vi5es and represent signiﬁcantly all of the net assets included in the Parent Company Balance Sheet. 18 Annual Report and Financial Statements for the year ended 31 December 2018 Independent Auditor’s Report to the members of Rose Petroleum plc con5nued Substan5ally all of the impaired amor5sed cost of US$13.4 million is represented by loans advanced by the Parent to fund the underlying investment in Explora5on & Evalua5on Assets held by the subsidiary undertakings. In assessing whether the exis5ng level of impairment provision (which had been calculated by reference to the underlying net asset value of the capitalised Explora5on & Evalua5on Assets) remains appropriate, management have considered the poten5al future cashﬂows arising from these underlying assets. These poten5al future cash ﬂows have been calculated by reference to the data provided by the Competent Person’s Report (“CPR”) on the underlying assets and the expected credit loss model in assessing whether any change in the level of impairment provision was required. We challenged management on the assump5ons underlying their model and reviewed the documents suppor5ng the calcula5ons. 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. When evalua5ng whether the eﬀects of misstatements, both individually and on the ﬁnancial statements as a whole, could reasonably inﬂuence the economic decisions of the users we take into account the qualita5ve nature and the size of the misstatements. During planning materiality for the Group ﬁnancial statements as a whole was calculated as US$148,000, which was not signiﬁcantly changed during the course of our audit. Materiality for the Parent company ﬁnancial statements as a whole was calculated as US$75,000 which was not signiﬁcantly 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$5,000, as well as diﬀerences below those thresholds that, in our view, warranted repor5ng on qualita5ve grounds. 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 91% of group gross assets; and 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. Annual Report and Financial Statements for the year ended 31 December 2018 19 Rose Petroleum plc Independent Auditor’s Report to the members of Rose Petroleum plc con5nued 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. 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. 20 Annual Report and Financial Statements for the year ended 31 December 2018 Independent Auditor’s Report to the members of Rose Petroleum plc con5nued 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 27 June 2019 Annual Report and Financial Statements for the year ended 31 December 2018 21 Rose Petroleum plc Consolidated Income Statement For the year ended 31 December 2018 Con0nuing opera0ons Administra5ve expenses Development expenses Impairment of intangible explora5on and evalua5on assets Foreign exchange gains/(losses) Opera0ng loss Fair value loss on investments Other income Finance income Loss on ordinary ac0vi0es before taxa0on Taxa5on charge Loss for the year from con0nuing opera0ons Discon0nued opera0ons Proﬁt from discon5nued opera5ons, net of tax Proﬁt/(loss) for the year a1ributable to owners of the parent company Proﬁt/(loss) per Ordinary Share From con5nuing opera5ons Basic and diluted, cents per share From con5nuing and discon5nued opera5ons Basic and diluted, cents per share Notes 6 7 8 9 10 11 14 15 16 16 2018 US$’000 (1,646) (178) (4) 1,084 (744) (284) 264 3 (761) – (761) 860 99 Restated 2017 US$’000 (2,063) (154) 82 (1,378) (3,513) – – 1 (3,512) (1) (3,513) 382 (3,131) (0.58) (6.22) 0.08 (5.54) The notes on pages 30 to 67 form part of the ﬁnancial statements. 22 Annual Report and Financial Statements for the year ended 31 December 2018 Consolidated Statement of Comprehensive Income For the year ended 31 December 2018 Proﬁt/(loss) for the year a1ributable to owners of the parent company Other comprehensive income Items that may be subsequently reclassiﬁed to proﬁt or loss, net of tax Foreign currency transla5on diﬀerences on foreign opera5ons Total comprehensive income for the year a1ributable to owners of the parent company 2018 US$’000 99 Restated 2017 US$’000 (3,131) 2,394 (3,671) 2,493 (6,802) The notes on pages 30 to 67 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2018 23 Rose Petroleum plc Consolidated Balance Sheet As at 31 December 2018 Non-current assets Investments Intangible assets Property, plant and equipment Current assets Investments Trade and other receivables Cash and cash equivalents Total assets Current liabili0es Trade and other payables Total liabili0es Net assets Equity Share capital Share premium account Warrant reserve Share-based payment reserve Cumula5ve transla5on reserve Retained deﬁcit Equity a1ributable to owners of the parent company Notes 19 17 18 19 21 22 23 26 28 27 28 28 28 Company No 04573663 2018 US$’000 – 13,148 22 13,170 464 426 616 1,506 14,676 2017 US$’000 500 12,098 27 12,625 – 583 2,185 2,768 15,393 (387) (387) (584) (584) 14,289 14,809 40,504 36,472 341 3,645 (8,909) (57,764) 14,289 40,463 35,657 – 3,687 (6,864) (58,134) 14,809 The ﬁnancial statements on pages 22 to 67 were approved by the Directors and authorised for issue on 27 June 2019 and are signed on its behalf by: CJ Eadie Chief Financial Oﬃcer The notes on pages 30 to 67 form part of the ﬁnancial statements. 24 Annual Report and Financial Statements for the year ended 31 December 2018 Consolidated Statement of Changes in Equity For the year ended 31 December 2018 As at 1 January 2017 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to retained deﬁcit in respect of forfeited op5ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla5on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on diﬀerences on equity at historical rates As at 31 December 2017 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Transfer to warrant reserve Share-based payments Transfer to retained deﬁcit in respect of forfeited op5ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Proﬁt for the year Other comprehensive income: Currency transla5on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on diﬀerences on equity at historical rates Recycled foreign currency transla5on diﬀerences on discon5nued opera5ons As at 31 December 2018 Share capital US$’000 Share premium account US$’000 40,362 32,183 101 – – – – 3,918 (250) (194) – – 101 3,474 – – – – – – – – – – 40,463 35,657 Warrant reserve US$’000 Share-based Cumula0ve transla0on reserve US$’000 payment reserve US$’000 Retained deﬁcit US$’000 Total US$’000 – – – – – – – – – – – – – 3,028 (8,376) (54,869) 12,328 – – 508 134 17 659 – – – – – – – – – – – – – – – (134) – 4,019 (250) 314 – 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 3,687 (6,864) (58,134) 14,809 41 – – – – – 41 – – – – – 1,304 (148) (341) – – – – – 341 – – – – 67 – 172 (271) (10) 815 341 (42) – – – – – – – – – – – – – – – – – – – – – – – 2,394 2,394 – – – – 271 – 271 99 – – 1,345 (81) – 172 – (10) 1,426 99 2,394 2,394 2,394 99 2,493 (3,614) – (3,614) – 40,504 – 36,472 – 341 – 3,645 (825) (8,909) – (57,764) (825) 14,289 The notes on pages 30 to 67 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2018 25 Rose Petroleum plc Consolidated Cash Flow Statement For the year ended 31 December 2018 Opera0ng ac0vi0es Loss before taxa5on from con5nuing opera5ons Proﬁt before taxa5on from discon5nued opera5ons Fair value loss on investments Other income Finance income Adjustments for: Deprecia5on of property, plant and equipment Proﬁt 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 (gain)/loss Opera5ng ou4low before movements in working capital Decrease in trade and other receivables (Decrease)/Increase 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 Net cash inﬂow on disposal of discon5nued opera5ons Loans advanced Net cash used in inves0ng ac0vi0es Financing ac0vi0es Proceeds from issue of shares Expenses of issue of shares Net cash from ﬁnancing ac0vi0es Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Eﬀect of foreign exchange rate changes Cash and cash equivalents at end of year Notes 15 2018 US$’000 Restated 2017 US$’000 (761) 860 99 284 (264) (3) 5 (6) – 4 – 172 (2,023) (1,732) 260 (204) (1,676) – (1,676) 3 (1,002) 6 53 (195) (1,135) 1,345 (81) 1,264 (1,547) 2,185 (22) 616 (3,512) 402 (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 The notes on pages 30 to 67 form part of the ﬁnancial statements. 26 Annual Report and Financial Statements for the year ended 31 December 2018 Company Balance Sheet As at 31 December 2018 Company No 04573663 Non-current assets Investments Property, plant and equipment Current assets Investments 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 Warrant reserve Share-based payment reserve Cumula5ve transla5on reserve Retained deﬁcit Total equity Notes 19 18 19 21 22 23 26 28 27 28 28 28 2018 US$’000 13,394 22 13,416 200 264 598 1,062 14,478 2017 US$’000 13,552 – 13,552 – 81 2,156 2,237 15,789 (148) (148) (175) (175) 14,330 15,614 40,504 36,472 341 3,645 (8,957) (57,675) 14,330 40,463 35,657 – 3,687 (8,093) (56,100) 15,614 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 2018 is US$1.6 million (2017: US$6.0 million). The ﬁnancial statements on pages 22 to 67 were approved by the Directors and authorised for issue on 27 June 2019 and are signed on its behalf by: CJ Eadie Chief Financial Oﬃcer The notes on pages 30 to 67 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2018 27 Rose Petroleum plc Company Statement of Changes in Equity For the year ended 31 December 2018 As at 1 January 2017 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Share-based payments Transfer to capital contribu5on in respect of forfeited op5ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla5on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on diﬀerences on equity at historical rates As at 31 December 2017 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Transfer to warrant reserve Share-based payments Transfer to retained deﬁcit in respect of forfeited op5ons Transfer to capital contribu5on in respect of forfeited op5ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla5on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla5on diﬀerences on equity at historical rates As at 31 December 2018 Share capital US$’000 Share premium account US$’000 40,362 32,183 101 – – – – 3,918 (250) (194) – – 101 3,474 – – – – – – – – – – 40,463 35,657 Warrant reserve US$’000 Share-based Cumula0ve transla0on reserve US$’000 payment reserve US$’000 Retained deﬁcit US$’000 Total US$’000 – – – – – – – – – – – – – 3,028 (9,368) (50,052) 16,153 – – 508 134 17 659 – – – – – – – – – – – – – – – – – – 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 3,687 (8,093) (56,100) 15,614 41 – – – – – – 1,304 (148) (341) – – – – – – 341 – – – – – 67 – 172 (41) (230) (10) 41 815 341 (42) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 41 – – 1,345 (81) – 172 – (230) (10) 41 1,196 (1,616) (1,616) 2,750 2,750 – – 2,750 2,750 2,750 (1,616) 1,134 (3,614) – (3,614) 40,504 36,472 341 3,645 (8,957) (57,675) 14,330 The notes on pages 30 to 67 form part of the ﬁnancial statements. 28 Annual Report and Financial Statements for the year ended 31 December 2018 Company Cash Flow Statement For the year ended 31 December 2018 Opera0ng ac0vi0es Loss before taxa5on Fair value loss on investments Finance income Adjustments for: Impairment of investments in subsidiary undertakings Share-based payments Unrealised foreign exchange Opera5ng cash ou4low before movements in working capital Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Net cash used in opera0ng ac0vi0es Inves0ng ac0vi0es Interest received Loans to subsidiary undertakings Loans advanced 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 (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Eﬀect of foreign exchange rate changes Cash and cash equivalents at end of year 2018 US$’000 2017 US$’000 (1,616) (6,048) 284 (688) 1,323 138 (132) (691) 12 (26) (705) 3 (1,901) (195) (2,093) 1,345 (81) 1,264 (1,534) 2,156 (24) 598 – (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 The notes on pages 30 to 67 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2018 29 Rose Petroleum plc Notes to the Financial Statements For the year ended 31 December 2018 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 The Group has adopted all of the new or amended Accoun5ng Standards and interpreta5ons issued by the Interna5onal Accoun5ng Standards Board (“IASB”) that are mandatory and relevant to the Group’s ac5vi5es for the current repor5ng period. The Group has applied IFRS 9 Financial instruments from 1 January 2018. A number of other new standards are also eﬀec5ve from 1 January 2018, including IFRS 15 Revenue from contracts with customers, but they do not have a material eﬀect on the Group’s ﬁnancial statements. IFRS 9 Financial instruments IFRS 9 introduced new classiﬁca5on and measurement models for ﬁnancial assets, ﬁnancial liabili5es and some contracts to buy or sell non-ﬁnancial items. As a result of the adop5on of IFRS 9 the Group has adopted consequen5al amendments to IAS 1 Presenta&on of ﬁnancial statements, which requires impairment of ﬁnancial assets to be presented in a separate line item in the statement of proﬁt or loss and other comprehensive income. Previously the Group’s approach was to include the impairment of trade receivables in other expenses. Addi5onally, the Group has adopted consequen5al amendments to IFRS 7 Financial instruments: disclosures that are applied to disclosures about 2018 but have not been generally applied to compara5ve informa5on. There has been no impact of transi5on to IFRS 9 on the opening balance of reserves and retained earnings at 1 January 2018. Under IFRS 9, ﬁnancial assets shall be measured at amor5sed cost if it is held within a business model whose objec5ve is to hold assets in order to collect contractual cash ﬂows which arise on speciﬁed dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objec5ve is to both hold assets in order to collect contractual cash ﬂows which arise on speciﬁed dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other ﬁnancial assets are classiﬁed and measured at fair value through proﬁt or loss unless the Group makes an irrevocable elec5on on ini5al recogni5on to present gains and losses on equity instruments (that are not held-for-trading or con5ngent considera5on recognised in a business combina5on) in other comprehensive income. Despite these requirements, a ﬁnancial asset may be irrevocably designated as measured at fair value through proﬁt or loss to reduce the eﬀect of, or eliminate, an accoun5ng mismatch. For ﬁnancial liabili5es designated at fair value through proﬁt or loss, the standard requires the por5on of the change in fair value that relates to the Group’s own credit risk to be presented in other comprehensive income (unless it would create an accoun5ng mismatch). New simpler hedge accoun5ng requirements are intended to more closely align the accoun5ng treatment with the risk management ac5vi5es of the Group. New impairment requirements use an ‘expected credit loss’ (“ECL”) model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a ﬁnancial instrument has increased signiﬁcantly since ini5al recogni5on, in which case, the life5me ECL method is adopted. For receivables, a simpliﬁed approach to measuring expected credit losses using a life5me expected loss allowance is available. There has been no impact of transi5on to IFRS 9 on the Group’s classiﬁca5on and measurement of ﬁnancial assets and ﬁnancial liabili5es, nor its accoun5ng policies related to ﬁnancial liabili5es at 1 January 2018. 30 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 2. Adop0on of New and Revised Standards con5nued The Group has determined that transi5on to IFRS 9 did not result in an addi5onal provision for impairment and there was no impact on the opening balance of reserves or retained earnings at 1 January 2018, in respect of either the Group or the Company. Standards issued but not yet eﬀec0ve Any new or amended Accoun5ng Standards or interpreta5ons that are not yet mandatory have not been early adopted by the Group for the year ended 31 December 2018. The assessment of the impact of these new or amended Accoun5ng Standards and interpreta5ons, most relevant to the Group are set out below. IFRS 16 – Leases • The Group is required to adopt IFRS 16 Leases from 1 January 2019. The Group has assessed the es5mated impact that ini5al applica5on of IFRS 16 will have on its consolidated ﬁnancial statements, as described below. The actual impact of adop5ng the standard on 1 January 2019 may change because the new accoun5ng policies are subject to change un5l the Group presents its ﬁrst ﬁnancial statements that include the date of ini5al applica5on. IFRS 16 introduces a single, on-balance sheet lease accoun5ng model for lessees. A lessee recognises a right-of- use asset represen5ng its right to use the underlying asset and a lease liability represen5ng its obliga5on to make lease payments. There are recogni5on exemp5ons for short-term leases and leases of low-value items. Lessor accoun5ng remains similar to the current standard and the Group does not undertake any transac5ons as a lessor. Leases in which the Group is a lessee The Group will recognise new assets and liabili5es for its opera5ng leases of oﬃce facili5es. The nature of the expense related to those leases will now change because the Group will recognise a deprecia5on charge for right- of-use assets and interest expense on lease liabili5es. Previously, the Group recognised opera5ng lease expense on a straight-line basis over the term of the lease, and recognised assets and liabili5es only to the extent that there was 5ming diﬀerence between actual lease payments and the expense recognised. The Group plans to apply IFRS 16 ini5ally on 1 January 2019, using the modiﬁed retrospec5ve approach. Therefore, the cumula5ve eﬀect of adop5ng IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of compara5ve informa5on. The Group do not an5cipate that there will be a material impact on adop5on of IFRS 16. The Group plans to apply the prac5cal expedient to grandfather the deﬁni5on of a lease on transi5on. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and iden5ﬁed as leases in accordance with IAS 17 and IFRIC 4. • • • • • IAS 19 – Employee beneﬁts IFRIC 23 – Uncertainty over income tax treatments Amendments to IAS 28 – Long-term interests in associates and joint ventures Amendments resul5ng from annual improvements to IFRS Standards 2015-2017 Amendments to references to conceptual framework in IFRS Standards The Directors do not expect that the adop5on of these Standards or Interpreta5ons in future periods will have a material impact on the ﬁnancial statements of the Company or the Group. Annual Report and Financial Statements for the year ended 31 December 2018 31 Rose Petroleum plc Notes to the Financial Statements con5nued 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 certain ﬁnancial assets and liabili5es which are stated at their 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. All amounts have been rounded to the nearest thousand, unless otherwise indicated. The Directors con5nue to adopt the going concern basis in preparing the consolidated ﬁnancial statements. The ﬁnancial statements do not include any adjustment that would result from the basis of prepara5on being inappropriate. The 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$0.6 million (2017: US$2.2 million). The Directors have prepared cash ﬂow forecasts for the Group for the period to June 2020 based on their assessment of both the discre5onary and the non-discre5onary cash requirements of the Group during this period. These cash ﬂow forecasts include its normal opera5ng costs for opera5ons together with all commi6ed development expenditure. The Board have been working to secure the ﬁnancing for the spudding of the ﬁrst well in the Paradox Basin throughout the year and since the year end. Discussions with industry partners con5nue albeit that the recent oil price vola5lity and investors focus on the established oil producing basins in the U.S.A. has meant that these discussions, and the subsequent nego5a5ons, have taken longer than might otherwise have been hoped. Whilst the Board remains conﬁdent that the Group will be able to secure the required funding through equity issue, farm in arrangements or other mechanisms, the 5ming and availability of funding sources is outside of the control of the Board. There can also be no certainty over the 5ming and extent of cash ﬂows arising from the Group’s explora5on ac5vi5es and hence any forecasts prepared by the Board will have inherent uncertain5es. Based on these forecasts, the current cash posi5on and from their ongoing discussions with its major Shareholders and brokers, the Directors are conﬁdent that the Group has, or has access to, suﬃcient resources to con5nue in opera5on for at least the next twelve months. 32 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun0ng Policies con5nued 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. 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. Annual Report and Financial Statements for the year ended 31 December 2018 33 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun0ng Policies con5nued 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. 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, 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. 34 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun0ng Policies con5nued Deprecia5on is recognised so as to write oﬀ the cost of assets less their residual values over their useful lives at the following rates: Plant and machinery over 5 years Oﬃce equipment 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 or loss. 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. Annual Report and Financial Statements for the year ended 31 December 2018 35 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun0ng Policies con5nued 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 or 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. 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. 36 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun0ng Policies con5nued 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. Discon0nued Opera0ons A discon5nued opera5on is a component of the Group that has been disposed of or is classiﬁed as held for sale and that represents a separate major line of business or geographical area of opera5ons, is part of a single co- ordinated plan to dispose of such a line of business area or opera5on, or is a subsidiary acquired exclusively with a view to resale. Classiﬁca5on of a discon5nued opera5on occurs at the earlier of disposal or when the opera5on meets the criteria to be classiﬁed as held for sale. The results of discon5nued opera5ons are presented separately on the face of the income statement and other comprehensive income. The compara5ve statement of proﬁt or loss and other comprehensive income Is re- presented as if the opera5ons had been discon5nued from the start of the compara5ve year. Investments And Other Financial Instruments Recogni(cid:31)on of ﬁnancial assets and ﬁnancial liabili(cid:31)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, and are ini5ally measured at fair value. Transac5on costs are included as part of the ini5al measurement, except for ﬁnancial assets at fair value through proﬁt or loss. Investments and other ﬁnancial assets are subsequently measured at either amor5sed cost or fair value depending on their classiﬁca5on. Classiﬁca5on is determined based on both the business model within which such assets are held and the contractual cash ﬂow characteris5cs of the ﬁnancial asset unless an accoun5ng mismatch is being avoided. Financial liabili5es are subsequently measured at either amor5sed cost or fair value. Derecogni(cid:31)on of ﬁnancial assets and ﬁnancial liabili(cid:31)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. On derecogni5on of a ﬁnancial asset and ﬁnancial liability a gain or loss is recognised in proﬁt or loss. Annual Report and Financial Statements for the year ended 31 December 2018 37 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun0ng Policies con5nued Financial assets at fair value through proﬁt or loss Financial assets not measured at amor5sed cost or at fair value through other comprehensive income are classiﬁed as ﬁnancial assets at fair value through proﬁt or loss. Typically, such ﬁnancial assets will be held for trading, where they are acquired for the purpose of selling in the short term with an inten5on of making a proﬁt. Gains and losses arising from changes in fair value are recognised directly in proﬁt or loss. Impairment of ﬁnancial assets The Group recognises a loss allowance for expected credit losses on ﬁnancial assets which are measured at amor5sed cost. The measurement of the loss allowance depends upon the Group’s assessment at the end of each repor5ng period as to whether the ﬁnancial instrument’s credit risk has increased signiﬁcantly since ini5al recogni5on, based on reasonable and supportable informa5on that is available without undue cost or eﬀort to obtain. Where there has not been a signiﬁcant increase in exposure to credit risk since ini5al recogni5on, a 12-month expected credit loss allowance is es5mated. This represents a por5on of the asset’s life5me expected credit losses that is a6ributable to a default event that is possible within the next 12 months. Where a ﬁnancial asset has become credit impaired or where it is determined that credit risk has increased signiﬁcantly, the loss allowance is based on the asset’s life5me expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of an5cipated cash shor4alls over the life of the instrument discounted at the original eﬀec5ve interest rate. For ﬁnancial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in proﬁt or loss. Trade and other receivables Trade and other receivables are measured at ini5al recogni5on at fair value, and are subsequently measured at amor5sed cost using the eﬀec5ve interest method, less any allowance for expected credit losses. The Group has applied the simpliﬁed approach to measuring expected credit losses which uses a life5me expected loss allowance. To measure the expected credit losses, trade receivables are grouped on the basis of days overdue. Cash and cash equivalents Cash and cash equivalents comprise cash-in-hand and on-demand deposits. 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. 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. 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. 38 Annual Report and Financial Statements for the year ended 31 December 2018 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, considering 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. Periodic charges for changes in the net present value of the decommissioning provision arising from discoun5ng are included in ﬁnance costs. Fair Value Measurement Measurement of fair value is based on the price that would be received to sell an asset, or paid to transfer a liability in an orderly transac5on between market par5cipants at the measurement date, and assumes that the transac5ons will take place either, in the principal market, or in the absence of a principal market, in the most advantageous market. Fair value is measure using the assump5ons that market par5cipants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-ﬁnancial assets, the fair value measurement is based on its highest and best use. Valua5on techniques that are appropriate in the circumstances and for which suﬃcient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabili5es measure at fair value are classiﬁed into three levels, using a fair value hierarchy that reﬂects the signiﬁcance of the inputs used in making the measurements. Classiﬁca5ons are measured at each repor5ng date and transfers between levels are determined based on a reassessment of the lowest level of input that is signiﬁcant to the fair value measurement. 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. Annual Report and Financial Statements for the year ended 31 December 2018 39 Rose Petroleum plc Notes to the Financial Statements con5nued 3. Signiﬁcant Accoun0ng Policies con5nued 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. 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. 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. 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. 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. 40 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 4. Cri0cal Accoun0ng Judgements and Key Sources of Es0ma0on Uncertainty con5nued At 31 December 2018, the Company has total investments and loans in its directly held subsidiaries of US$48.2 million and the Board has assessed the recoverability of these based on the expected future cash ﬂows arising to the Company from its subsidiary en55es. Based on this assessment the Directors consider that, in considera5on of the losses currently being generated and the impairment of the Group’s intangible explora5on and evalua5on assets a provision of US$1.3 million (2017: US$5.8 million) should be recognised by the Company in the year to 31 December 2018. At 31 December 2018, there is a total impairment provision in respect of the investments and loans to subsidiaries of US$34.8 million. See note 19. Further sensi5vity analysis prepared by management on the recoverability of the Company’s investments and loans is based on the performance of the underlying opera5ons. Any downside in these es5mates would result in an addi5onal impairment of the underlying investments. 5. Segmental Informa0on Prior to the sale of the Group’s milling assets (“discon5nued opera5ons”) in the year ended 31 December 2017, for management purposes the Group was organised into three opera5ng divisions based on its principal ac5vi5es of gold and silver mining, research and evalua5on of poten5al uranium and copper proper5es and the explora5on and development of O&G resources. Subsequent to the discon5nuance of opera5ons in Mexico the Group has two main opera5ng segments, research and evalua5on of poten5al uranium and copper proper5es and the explora5on and development of O&G resources, which are primarily based in U.S.A. These divisions are the basis on which the Group reports its segmental informa5on. Segmental informa5on about these divisions is presented below. Income statement Revenue Discon5nued opera5ons Segmental results Uranium and copper O&G Total segmental results Unallocated results Current and deferred tax Loss a%er taxa5on from con5nuing opera5ons Discon5nued opera5ons, net of tax Proﬁt/(loss) a%er taxa5on 2018 US$’000 – 222 682 904 (1,665) – (761) 860 99 Restated 2017 US$’000 304 (137) (1,677) (1,814) (1,698) (1) (3,513) 382 (3,131) The unallocated results of US$1.7 million (2017: US$1.7 million) include costs associated with the development of new projects (refer to note 6), Directors remunera5on and other general and administra5ve costs incurred by the Company only. Annual Report and Financial Statements for the year ended 31 December 2018 41 Rose Petroleum plc Notes to the Financial Statements con5nued 5. Segmental Informa0on con5nued Deprecia0on O&G Discon5nued opera5ons Impairment Uranium and copper O&G Net foreign exchange (gains)/losses O&G Unallocated Discon5nued opera5ons 2018 US$’000 2017 US$’000 5 – 5 27 27 54 2018 US$’000 2017 US$’000 4 – 4 43 (125) (82) 2018 US$’000 2017 US$’000 (1,067) (17) 892 (192) 1,333 45 – 1,378 Employees The average numbers of employees for the year for each of the Group’s principal divisions were as follows: Uranium and copper O&G Discon5nued opera5ons Total segmental employees Unallocated employees Total employees 2018 Number 2017 Number 1 1 – 2 2 4 1 1 27 29 3 32 42 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 5. Segmental Informa0on con5nued Balance Sheet Segment assets Uranium and copper O&G Total segmental assets Unallocated assets including cash and cash equivalents Con5nuing opera5ons Discon5nued opera5ons Total assets Segmental liabili0es Uranium and copper O&G Total segmental liabili5es Unallocated liabili5es Con5nuing opera5ons Discon5nued opera5ons Total liabili5es Segmental net assets Uranium and copper O&G Total segmental net assets Unallocated net assets including cash and cash equivalents Discon5nued opera5ons Total net assets Addi0ons to investments Unallocated O&G Addi0ons to intangible assets Uranium and copper O&G 2018 US$’000 2017 US$’000 275 13,244 13,519 1,089 14,608 68 14,676 1 219 220 154 374 13 387 274 13,025 13,299 935 55 14,289 2018 US$’000 – 264 264 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 2017 US$’000 500 – 500 2018 US$’000 2017 US$’000 4 1,050 1,054 43 1,980 2,023 Annual Report and Financial Statements for the year ended 31 December 2018 43 Rose Petroleum plc Notes to the Financial Statements con5nued 6. Development Expenses Cuba U.S.A. Con0nuing 2018 US$’000 Con0nuing 2017 US$’000 – 178 178 154 – 154 Development expenses represent material expenditure incurred by the Group in respect of the assessment and pursuit of speciﬁc projects. 7. Impairment of Intangible Expora0on and Evalua0on Assets Uranium and copper assets O&G assets Con0nuing 2018 US$’000 Con0nuing 2017 US$’000 4 – 4 43 (125) (82) At 31 December 2018, 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 accordingly the intangible copper assets held in Mexico remain fully impaired. An impairment charge of US$4,292 (2017: US$42,896) has been recognised in the year in respect of the Group’s intangible uranium assets, with the result that these assets have been impaired in full at 31 December 2018. 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 was reversed and resulted in a credit in impairment of US$0.1 million. The Group has con5nued to recognise the remaining poten5al liability although it con5nues to nego5ate further reduc5ons with the German licencing authori5es. See note 23. The remaining intangible explora5on and evalua5on assets have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. These assets are not amor5sed un5l technical feasibility and commercial viability is established. 8. Fair Value Loss on Investments Change in fair value of investments Con0nuing 2018 US$’000 284 Con0nuing 2017 US$’000 – 44 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 8. Fair Value Loss on Investments con5nued 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 15. The considera5on for the transac5on, which completed on 1 December 2017, included US$0.5 million in restricted common stock in Magellan. By reference to the quoted price of Magellan stock, the Directors consider that the fair value of the stock at 31 December 2018 was US$0.2 million, which approximates to its market value at that date of US$0.31 million. This has resulted in a charge of US$0.3 million in respect of the change in fair value during the year ended 31 December 2018. 9. Other Income enCore Energy Corpora5on Con0nuing 2018 US$’000 264 Con0nuing 2017 US$’000 – On 27 November 2018, the Group announced that it had entered into an agreement with enCore Energy Corpora5on (‘ENCORE’) in respect of its U.S.A. uranium explora5on project database. The agreement gave ENCORE exclusive access to the Group’s database for an ini5al term of ﬁve years to enable them to iden5fy explora5on projects which could be developed into commercial opera5ons. Under the terms of the agreement ENCORE issued 3 million Ordinary Shares to the Group’s wholly owned subsidiary, VANE Minerals (US) LLC, which represented approximately 2.1% of the exis5ng share capital of ENCORE. See note 19. The Group has recognised the ENCORE shares as investments at fair value through the proﬁt or loss, with a corresponding credit to other income during the year ended 31 December 2018. 10. Finance Income Interest on bank deposits 11. Loss before Taxa0on The loss before taxa5on for the year has been arrived at a%er charging/(credi5ng): Other income Deprecia5on of property, plant and equipment Staﬀ costs excluding share-based payments Share-based payments Opera5ng leases – land and buildings Net foreign exchange (gains)/losses Con0nuing 2018 US$’000 3 Con0nuing 2017 US$’000 1 Con0nuing 2018 US$’000 Con0nuing 2017 US$’000 (264) 5 553 172 24 (1,084) – 27 792 314 90 1,378 Annual Report and Financial Statements for the year ended 31 December 2018 45 Rose Petroleum plc Notes to the Financial Statements con5nued 12. Auditor’s Remunera0on Amounts payable to the external auditors and their associates in respect of both audit and non-audit services: Audit of these ﬁnancial statements Amounts receivable by the Company’s auditor and its associates in respect of: Audit of ﬁnancial statements of subsidiaries of the Company Taxa5on services – compliance 13. Staﬀ Costs The average monthly number of employees (including Execu5ve Directors) was: Oﬃce and management Opera5ons Their aggregate remunera5on comprised: Wages and salaries Social security costs Other pension costs Share-based payments Con0nuing 2018 US$’000 Con0nuing 2017 US$’000 54 10 6 70 45 10 11 66 Group Con0nuing 2018 Number Con0nuing 2017 Number 2 2 4 3 2 5 Group Con0nuing 2018 US$’000 Con0nuing 2017 US$’000 536 63 36 118 753 658 61 75 265 1,059 Included within wages and salaries is US$0.08 million (2017: nil) capitalised to intangible explora5on and evalua5on assets. Oﬃce and management Opera5ons Company Con0nuing 2018 Number Con0nuing 2017 Number 2 1 3 3 – 3 46 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 13. Staﬀ Costs con5nued Their aggregate remunera5on comprised: Wages and salaries Social security costs Other pension costs Share-based payments Company Con0nuing 2018 US$’000 Con0nuing 2017 US$’000 483 58 36 83 660 379 44 60 164 647 Included within wages and salaries is US$0.1 million (2017: nil) which was recharged to other Group en55es during the year ended 31 December 2018. Refer to note 32 for details regarding the remunera5on of the highest paid Director. 14. Taxa0on Current tax: Current year Deferred tax: Origina5on and reversal of temporary diﬀerences Tax charge on loss for the year Con0nuing 2018 US$’000 Con0nuing 2017 US$’000 – – – – – 1 1 – – 1 The charge for the year can be reconciled to the loss per the income statement as follows: Loss before tax Loss mul5plied by the rate of corpora5on tax for UK companies of 19% (2017: 19.25%) Eﬀects of: Expenses/income not deduc5ble/chargeable for tax purposes Share-based payments Unrelieved tax losses carried forward Tax charge on loss for the year Con0nuing 2018 US$’000 Restated Con0nuing 2017 US$’000 (761) (3,512) (145) (676) (68) 33 180 – (236) 60 853 1 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 24, 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. Annual Report and Financial Statements for the year ended 31 December 2018 47 Rose Petroleum plc Notes to the Financial Statements con5nued 15. Discon0nued Opera0ons Mexico Mining 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 was 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 19. 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 was 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$2,500, which was paid on 13 April 2018. The Mexico opera5ons were treated as discon5nued opera5ons in the year ended 31 December 2017, and together with addi5onal costs incurred during the year ended 31 December 2018, have been shown within a single amount on the face of the consolidated income statement. U.S.A. Copper Explora0on Whilst all remaining licences rela5ng to the Group’s U.S.A. copper projects had previously been relinquished, AVEN Associates LLC, the Group’s U.S.A. copper explora5on company ﬁnally ceased all ac5vity and was closed during the year ended 31 December 2018. In accordance with IAS 21, all cumula5ve transla5on reserves rela5ng to the en5ty have been recycled to the proﬁt or loss and has been shown within a single amount on the face of the consolidated income statement for the year ended 31 December 2018. The income statement for the prior period has been restated to conform to this presenta5on. 48 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 15. Discon0nued Opera0ons con5nued Loss from discon0nued opera0ons, net of tax The results of the discon5nued opera5ons, which have been included in the consolidated income statement were as follows: 2018 US$’000 2017 US$’000 Mexico Mining Opera0ons Revenue Cost of sales Margin Other income Opera5ng and development costs Expenses Recycled currency transla5on diﬀerences, net of tax Gain on disposal of property, plant and equipment Finance income Loss before taxa5on Taxa5on charge Loss a6ributable to discon5nued opera5ons Gain on disposal of discon5nued opera5ons (Loss)/proﬁt from discon5nued opera5ons, net of tax Gain on disposal of discon0nued opera0ons Property, plant and equipment Decommissioning provision Considera5on on disposal of discon5nued opera5ons Gain on disposal of discon5nued opera5ons Considera0on on disposal of discon0nued opera0ons Considera5on on disposal of property, plant and equipment Considera5on on disposal of MVO Total considera5on on disposal of discon5nued opera5ons Considera5on se6led in restricted common stock Deferred considera5on Net cash inﬂow – – – – – (36) 11 (25) 6 – (19) – (19) – (19) 2018 US$’000 – – – – – 304 (259) 45 50 (373) (698) – (976) – 41 (935) (20) (955) 1,339 384 2017 US$’000 (283) 120 (163) 1,502 1,339 1,500 2 1,502 (500) (52) 950 Annual Report and Financial Statements for the year ended 31 December 2018 49 Rose Petroleum plc Notes to the Financial Statements con5nued 15. Discon0nued Opera0ons con5nued U.S.A. Copper Explora0on Expenses Loss a6ributable to discon5nued opera5ons Foreign currency exchange Recycled currency transla5on diﬀerences, net of tax Gain/(loss) from discon5nued opera5ons, net of tax Total discon0nued opera0ons (Loss)/proﬁt before taxa5on: Mexico mining opera5ons Proﬁt/(loss) before taxa5on: U.S.A. copper explora5on Proﬁt before taxa5on from discon5nued opera5ons Taxa5on charge: Mexico mining opera5ons Proﬁt from discon5nued opera5ons, net of tax Proﬁt per Ordinary Share Basic and diluted, cents per share 16. Proﬁt/(Loss) Per Ordinary Share 2018 US$’000 Restated 2017 US$’000 (2) (2) 67 814 879 (19) 879 860 – 860 (2) (2) – – (2) 404 (2) 402 (20) 382 0.66 0.68 Basic proﬁt/(loss) per Ordinary Share is calculated by dividing the net proﬁt/(loss) for the year a6ributable to owners of the parent company by the weighted average number of Ordinary Shares in issue during the year. The calcula5on of the basic and diluted proﬁt/(loss) per Ordinary Share is based on the following data: Con0nuing opera0ons 2018 US$’000 Con0nuing and discon0nued opera0ons 2018 US$’000 Restated Con0nuing opera0ons 2017 US$’000 Con0nuing and discon0nued opera0ons 2017 US$’000 Proﬁts/(losses) Proﬁts/(losses) for the purpose of basic proﬁt/(loss) per Ordinary Share being net proﬁt/(loss) a6ributable to owners of the parent company Number of shares Weighted average number of shares for the purpose of basic proﬁt/(loss) per Ordinary Share Proﬁt/(loss) per Ordinary Share (761) 99 (3,513) (3,131) Number ’000 Number ’000 Number ’000 Number ’000 131,814 131,814 56,467 56,467 Basic and diluted, cents per share (0.58) 0.08 (6.22) (5.54) Due to the losses incurred from con5nuing opera5ons in the years reported, there is no dilu5ve eﬀect from the exis5ng share op5ons, share based compensa5on plan or warrants. 50 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 17. Intangible Assets Cost At 1 January 2017 Addi5ons Exchange diﬀerences At 1 January 2018 Addi5ons Exchange diﬀerences At 31 December 2018 Impairment At 1 January 2017 Impairment charge Exchange diﬀerences At 1 January 2018 Impairment charge Exchange diﬀerences At 31 December 2018 Carrying amount At 31 December 2018 At 31 December 2017 At 1 January 2017 Explora0on and evalua0on assets US$’000 15,823 2,023 17 17,863 1,054 1 18,918 5,706 43 16 5,765 4 1 5,770 13,148 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, 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 2018 is US$13.1 million (2017: US$12.1 million). Annual Report and Financial Statements for the year ended 31 December 2018 51 Rose Petroleum plc Notes to the Financial Statements con5nued 17. Intangible Assets con5nued 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. No expenditure has been incurred in either of the years presented. 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 2018. 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$5,350 and the Group retained a 15 per cent net proﬁt interest in the Ardmore project and any other claims that Burde6 might acquire within a three-mile area. No payments have been received in respect of the project in either of the years presented. 52 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 18. Property, Plant And Equipment Ore processing mill US$’000 Group Plant and machinery US$’000 Cost At 1 January 2017 Discon5nued opera5ons Exchange diﬀerences At 1 January 2018 Group transfer Discon5nued opera5ons Derecogni5on At 31 December 2018 Accumulated deprecia0on At 1 January 2017 Charge for the year Discon5nued opera5ons Exchange diﬀerences At 1 January 2018 Charge for the year Discon5nued opera5ons Derecogni5on At 31 December 2018 Carrying amount At 31 December 2018 At 31 December 2017 At 1 January 2017 624 (684) 60 – – – – – 531 17 (599) 51 – – – – – – – 93 705 (573) 51 183 – (21) (3) 159 461 37 (375) 33 156 5 (21) (3) 137 22 27 244 Total US$’000 1,329 (1,257) 111 183 – (21) (3) 159 992 54 (974) 84 156 5 (21) (3) 137 22 27 337 Company Oﬃce Equipment US$’000 – – – – 22 – – 22 – – – – – – – – – 22 – – The Group deprecia5on charge has been allocated to the income statement as follows: Administra5ve expenses Con0nuing 2018 US$’000 5 Con0nuing 2017 US$’000 27 Annual Report and Financial Statements for the year ended 31 December 2018 53 Rose Petroleum plc Notes to the Financial Statements con5nued 19. Investments Cost At 1 January 2017 Addi5ons Capital contribu5on Exchange diﬀerences At 1 January 2018 Addi5ons Change in fair value Capital contribu5on Exchange diﬀerences At 31 December 2018 Impairment At 1 January 2017 Impairment charge Exchange diﬀerences At 1 January 2018 Impairment charge Exchange diﬀerences At 31 December 2018 Carrying amount Non-current assets Current assets At 31 December 2018 Carrying amount Non-current assets Current assets At 31 December 2017 Group Investment carried at fair value US$’000 Company Investment carried at fair value US$’000 Shares in subsidiary undertakings US$’000 Loans to subsidiary undertakings US$’000 – 500 – – 500 264 (284) – (16) 464 – – – – – – – – 464 464 500 – 500 – 500 – – 500 – (284) – (16) 200 – – – – – – – – 200 200 500 – 500 4,799 – – 457 5,256 – – – (294) 4,962 3,252 1,373 377 5,002 (136) (274) 4,592 370 – 370 254 – 254 37,166 2,308 254 3,568 43,296 2,565 – (197) (2,453) 43,211 23,650 4,380 2,468 30,498 1,459 (1,770) 30,187 13,024 – 13,024 12,798 – 12,798 Total US$’000 41,965 2,808 254 4,025 49,052 2,565 (284) (197) (2,763) 48,373 26,902 5,753 2,845 35,500 1,323 (2,044) 34,779 13,394 200 13,594 13,552 – 13,552 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 15. The considera5on for the transac5on, which completed on 1 December 2017, included US$0.5 million in restricted common stock in Magellan. By reference to the quoted price of Magellan stock, the Directors consider that the fair value of the stock at 31 December 2018 was US$0.2 million, which approximates to its market value at that date of US$0.31 million. 54 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 19. Investments con5nued On 27 November 2018, the Group announced that it had entered into an agreement with enCore Energy Corpora5on (‘ENCORE’) in respect of its U.S.A. uranium explora5on project database. The database is comprised of geological, geophysical and evalua5on data on the uranium breccia pipe district of northern Arizona. The agreement gave ENCORE exclusive access to the Group’s database for an ini5al term of ﬁve years to enable them to iden5fy explora5on projects which could be developed into commercial opera5ons. Under the terms of the agreement ENCORE issued 3 million Ordinary Shares to the Group’s wholly owned subsidiary, VANE Minerals (US) LLC, which represented approximately 2.1% of the exis5ng share capital of ENCORE. In addi5on, should any prospects iden5ﬁed by ENCORE reach development stage, the Group will have an opportunity to par5cipate in the project up to a maximum 25% interest. The purchase price for this par5cipa5on will be 250% of the pro-rata explora5on costs incurred on the project to advance it to the development stage and the Group would then be responsible for the development expenditure rela5ng to its speciﬁc percentage interest. If the Group does not elect to par5cipate in the projects in accordance with the agreement it will have no further rights in respect of that par5cular project. Should the Group develop any of its exis5ng breccia pipe uranium projects, excluding the North Wash project in Utah, which are currently held on care and maintenance, ENCORE would have the right to par5cipate in these projects on the same terms that the Group can par5cipate in the ENCORE projects. In addi5on, ENCORE will have the right of ﬁrst refusal to acquire any of the projects the Group chooses to dispose of during the term of the agreement. By reference to the quoted price of Encore stock, the Directors consider that the fair value of the stock at 31 December 2018 was US$0.26 million, which has been recognised as other income during the year ended 31 December 2018. See note 9. 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. For years beginning a%er 1 January 2018, changes to measurement techniques on intercompany loans came into eﬀect under IFRS 9. These changes require that intercompany loans be recognised based on the recoverability of the discounted value of future cash ﬂows with eﬀec5ve interest taken to the income statement and that any impairment should be recognised. The Board has assessed the recoverability of the loans and investments based on the expected future cash ﬂows arising to the Company from its subsidiary en55es and consider that a provision of US$1.3 million (2017: US$5.8 million) should be recognised in the period. The Company had investments in the following subsidiary undertakings as at 31 December 2018: Directly owned: VANE Minerals (UK) Limited Rose Petroleum (UK) Limited Rose Cuba Limited Rose Resources Limited Indirectly owned: 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. 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% Principal ac0vity Holding company Holding company Holding company Holding company Explora5on Mining Explora5on Holding company Explora5on Holding company Annual Report and Financial Statements for the year ended 31 December 2018 55 Rose Petroleum plc Notes to the Financial Statements con5nued 19. Investments con5nued During the year ended 31 December 2018, the Group closed AVEN Associates LLC, which previously held the Group’s U.S.A. copper assets. Expenditure incurred has been classiﬁed as discon5nued opera5ons, and primarily comprise costs of cessa5on and recycling of foreign currency reserves through proﬁt or loss. See note 15. 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 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 Petroleum (US) LLC and Rose Petroleum (Utah) LLC is 383 Inverness Parkway, Ste 330, Englewood, CO 80112. 20. 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, who later sold their interest to Anﬁeld Resources Inc. (“Anﬁeld”), with each partner holding a 50 per cent interest. The par5es have rights to the assets and obliga5ons for liabili5es rela5ng to the arrangement and the JVA had, therefore, been accounted for as a joint opera5on recognising the Group’s relevant share of assets, liabili5es, revenues and expenses as appropriate. The JVA combined interests in over 60 breccia pipe targets, including 10 known mineralised pipes, in northern Arizona and also secured access to U1’s Ticaboo Mill in Utah for ore developed on JV proper5es. The 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 Group’s interest in these assets is now held within its wholly owned subsidiary, VANE Minerals (US) LLC. The aggregate amounts related to the joint opera5on included within the consolidated accounts are: Net assets Expenses 2018 US$’000 – (3) 2017 US$’000 15 (4) 56 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 21. Trade and Other Receivables Trade receivables VAT recoverable Tax recoverable Other receivables Prepayments & accrued income Group 2018 US$’000 2017 US$’000 Company 2018 US$’000 2017 US$’000 – 28 48 267 83 426 246 55 92 107 83 583 – 17 – 195 52 264 – 23 – – 58 81 At 31 December 2018, other receivables include the sum of US$0.2 million in respect of a loan made to Magellan, which is non-interest bearing and is due for repayment when Magellan recovers indirect tax incurred in Mexico upon acquisi5on of the Group’s ore processing mill in the year ended 31 December 2017. The Directors an5cipate that the loan will be repaid within 12 months, and was made to facilitate comple5on of the sale of its Mexico assets. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value, and represents the Group’s maximum exposure to credit risk. Receivables disclosed above do not include any amounts which are past due or impaired, and the Group has not recognised a loss in proﬁt or loss in respect of expected credit losses for the year ended 31 December 2018. 22. Cash and Cash Equivalents Cash and cash equivalents held by the Group and the Company as at 31 December 2018 were US$0.6 million and US$0.6 million respec5vely (2017: US$2.2 million, US$2.2 million). The Directors consider that the carrying amount of these assets approximate to their fair value. 23. Trade and Other Payables Trade payables Taxes and social security Other payables Accruals Group 2018 US$’000 2017 US$’000 Company 2018 US$’000 2017 US$’000 160 22 116 89 387 141 30 82 331 584 39 22 – 87 148 43 31 – 101 175 Trade payables and accruals principally comprise amounts outstanding for trade purchases and on-going costs. At 31 December 2018, other payables (2017: included within accruals, US$0.1 million) represents the poten5al liability due to the German licencing authori5es in respect of the relinquished hydrocarbon licences in south- western Germany. The Group has con5nued to recognise the remaining poten5al liability although it con5nues to nego5ate further reduc5ons with the German licencing authori5es. No interest is generally charged on balances outstanding. The Group has ﬁnancial risk management policies to ensure that all payables are paid within the credit 5me frame. The Directors consider that the carrying amount of trade and other payables approximates to their fair value. Annual Report and Financial Statements for the year ended 31 December 2018 57 Rose Petroleum plc Notes to the Financial Statements con5nued 24. Deferred Tax There are unrecognised deferred tax assets in rela5on to: UK tax losses U.S.A. tax losses Mexican tax losses 2018 US$’000 5,178 16,367 511 22,056 2017 US$’000 5,398 18,189 332 23,919 A reduc5on in the UK corpora5on tax rate from 21% to 20% (eﬀec5ve from 1 April 2015) was substan5vely enacted on 2 July 2013. Further reduc5ons to 19% (eﬀec5ve from 1 April 2017) and to 18% (eﬀec5ve 1 April 2020) were substan5vely enacted on 26 October 2015, and an addi5onal reduc5on to 17% (eﬀec5ve 1 April 2020) was substan5vely enacted on 6 September 2016. This will reduce the Group’s future current tax charge accordingly. 25. Provisions At 1 January Discon5nued opera5ons Foreign exchange At 31 December Current provision Group decommissioning 2018 US$’000 2017 US$’000 – – – – – 110 (120) 10 – – In accordance with the Group’s environmental policy and applicable legal requirements, the Group expects to restore sites where it has carried on ac5vi5es, following ﬁnal conclusion of those ac5vi5es. As a result of the disposal of the Group’s ore processing mill the Group no longer has any obliga5on in respect of decommissioning costs. See note 15. Under the terms of the revised agreement with RSOC, the Group no longer has any restora5on obliga5ons in respect of its O&G assets. See note 17. 58 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 26. Share Capital Authorised Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Allo1ed, issued and fully paid Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Group and Company 2018 Number ‘000 7,779,297 227,753 8,007,050 143,414 227,753 371,167 US$’000 9,926 28,768 38,694 199 40,305 40,504 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 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. 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 New 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 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 4p per share, raising gross proceeds of US$0.8 million (£0.6 million). On 10 May 2018, the Company issued 11,264,000 Ordinary Shares of 0.1p each at a price of 3.25p per share, raising gross proceeds of US$0.5 million (£0.4 million). On 22 May 2018, the Company issued 19,505,231 Ordinary Shares of 0.1p each at a price of 3.25p per share, raising gross proceeds of US$0.8 million (£0.6 million). At 1 January 2017 Share consolida5on Allotment of shares At 1 January 2018 Allotment of shares At 31 December 2018 Ordinary Shares Number ‘000 Deferred Shares Number ‘000 3,764,471 37,645 75,000 112,645 30,769 143,414 190,108 37,645 – 227,753 – 227,753 Annual Report and Financial Statements for the year ended 31 December 2018 59 Rose Petroleum plc Notes to the Financial Statements con5nued 27. Warrant Reserve In May 2018, the Company issued 30,769,231 Ordinary Shares of 0.1 each. See note 26. In addi5on to the placing shares, subscribers were issued warrants to subscribe for 30,769,231 new Ordinary Shares, represen5ng one warrant for each placing share. The warrants are exercisable at a price of 6.5p per Ordinary Share for a period of two years from the date of issue. The fair value of the subscriber warrants 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 Issued in year 30,769,231 warrants 6.5p 82 2 0.74-0.76 – 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 warrants granted to subscribers during the year was US$0.3 million (2017: nil), and this has been recognised out of gross proceeds as a warrant reserve within equity. 28. Reserves The share premium account represents the sum paid, in excess of the nominal value, of shares allo6ed, net of the costs of issue. The warrant reserve represents accumulated charges made in respect of the issue of warrants to Shareholders. See note 27. The share-based payment reserve represents accumulated charges made under IFRS 2 in respect of share-based payments. The cumula5ve transla5on reserve represents foreign exchange diﬀerences arising on the transla5on of foreign opera5ons and any net gain/(loss) on the hedge of net investment in foreign subsidiaries. The cumula5ve transla5on reserve also represents the net eﬀect of the fact that the func5onal currency of the parent undertaking is GBP, whilst its repor5ng currency is US$, resul5ng in exchange diﬀerences on transla5on of the parent undertakings equity. The retained deﬁcit includes all current and prior period retained losses. 60 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 29. Share-Based Payments Equity Se1led Share Op0on Plan The Company has a Share Op5on Plan, 2013 Share Op5on Plan Part A (employees) and 2013 Share Op5on Plan Part B (non-employees), under which op5ons to subscribe for the Company’s shares have been granted to certain Directors and to selected employees and consultants. On 24 March 2017, the Company issued 2.45 million share op5ons with an exercise price of 14p per Ordinary Share, which vest in three equal tranches on 24 March 2018, 2019 and 2020. On 6 April 2018, the Company issued 7.9 million share op5ons with an exercise price of 3.5p per Ordinary Share, which vest in three equal tranches on 6 April 2019, 2020 and 2021. The op5ons can be exercised up un5l the tenth anniversary of the grant date. At 31 December 2018, 11.3 million share 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 3,799 7,900 (432) 11,267 1,967 2018 Weighted average exercise price 2017 Number of op0ons ‘000 Weighted average exercise price 189.0p 3.5p 60.65p 25.75p 120.82p 1,308 2,450 41 3,799 1,299 184.3p 14.0p 319.0p 76.0p 189.0p The op5ons outstanding and not yet vested at 31 December 2018 had an es5mated weighted average remaining contractual life of 1.17 years (2017: 1.23 years), with an exercise price ranging between 3.25p and 14p. 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 7,900,000 Share op0ons 3.5p 98-103 5.5-6.5 1.12-1.2 – 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 (2017: US$0.2 million). Annual Report and Financial Statements for the year ended 31 December 2018 61 Rose Petroleum plc Notes to the Financial Statements con5nued 29. Share-Based Payments con5nued In the year ended 31 December 2018, the Company recognised a total expense of US$0.2 million (2017: US$0.3 million) in respect of the Share Op5on Plan. 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. Warrants 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. On 22 May 2018, the Company issued 1,538,461 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 6.5 pence per share and are exercisable at any 5me un5l 22 May 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$0.06 million (2017: US$ 0.2 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 2018. Details of the warrants included in share-based payments and outstanding at the end of the year were as follow: At 1 January 2017 At 1 January 2017 share consolida5on (see note 26) Granted At 1 January 2018 Granted At 31 December 2018 Number of warrants 42,857,142 428,571 3,625,000 4,053,571 1,538,461 5,592,032 62 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 30. 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 2018 US$’000 2017 US$’000 Company 2018 US$’000 2017 US$’000 23 46 69 24 73 97 23 46 69 24 73 97 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. 31. Financial Instruments 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. Capital Risk Management The Group manages its capital to ensure that en55es in the Group will be able to con5nue as going concerns, while maximising the return to Shareholders through the op5misa5on of the debt and equity balance. The Group’s overall strategy remains unchanged from 2017. The capital structure of the Group consists of cash and cash equivalents and equity a6ributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group is not subject to externally imposed capital requirements. The Group plans its capital requirements on a regular basis and as part of this review the Directors consider the cost of capital and the risks associated with each class of capital. Signiﬁcant 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. Annual Report and Financial Statements for the year ended 31 December 2018 63 Rose Petroleum plc Notes to the Financial Statements con5nued 31. Financial Instruments con5nued Categories of Financial Instruments Financial assets measured at amor0sed cost Cash and cash equivalents Trade receivables 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 2018 US$’000 2017 US$’000 616 – 267 – 883 2,185 246 107 – 2,538 Group 2018 US$’000 2017 US$’000 2018 US$’000 598 – 195 13,024 13,817 2018 US$’000 Company Company 2017 US$’000 2,156 – – 18,250 20,406 2017 US$’000 464 500 200 500 Group 2018 US$’000 2017 US$’000 Company 2018 US$’000 2017 US$’000 160 116 276 141 82 223 39 – 39 43 – 55 Fair Value of Financial Instruments The Directors consider that the carrying amount of its ﬁnancial instruments approximates to their fair value. 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 2018 US$’000 116 2017 US$’000 – 2018 US$’000 354 2017 US$’000 1,266 64 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 31. Financial Instruments con5nued Foreign currency sensi0vity analysis The func5onal currencies of the Group are Pound Sterling (GBP), US dollars (US$), Euro (EUR) and Mexican Peso (MXN). The ﬁnancial statements of the Group’s foreign subsidiaries are denominated in foreign currencies. The Group is exposed primarily to movements in US$ 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 US$. The analysis is based on the weakening and strengthening of US$ by ﬁve per cent. A movement of ﬁve 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 US$ against GBP. A posi5ve number below indicates an increase in proﬁt where US$ strengthens ﬁve per cent against GBP. For a ﬁve per cent weakening of US$ there would be an equal and opposite impact on the proﬁt, and the balance below would be nega5ve. Income statement 2018 US$’000 (988) 2017 US$’000 879 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 2018. Liquidity Risk Management Ul5mate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long- term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate cash reserves and by con5nuously monitoring forecast and actual cash ﬂow. Credit Risk Management Credit risk refers to the risk that a counterparty will default on its contractual obliga5ons resul5ng in ﬁnancial loss to the Group. The Group does not have any signiﬁcant credit risk exposure on trade and other receivables. The Group has adopted a life5me expected loss allowance in es5ma5ng expected credit losses to trade receivables through the use of a provisions matrix using ﬁxed rates of credit loss provisioning. These provisions are considered representa5ve across all customers of the Group based on recent sales experience, historical collec5on rates and forward-looking informa5on that is available. Generally, trade receivables are wri6en oﬀ when there is no reasonable expecta5on of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan and a failure to make contractual payments for a period greater than one year. Annual Report and Financial Statements for the year ended 31 December 2018 65 Rose Petroleum plc Notes to the Financial Statements con5nued 31. Financial Instruments con5nued The maximum exposure to credit risk at the repor5ng date to recognised ﬁnancial assets is the carrying amount, net of any provisions for impairment of those assets. The Group does not hold any collateral. Generally, ﬁnancial assets are wri6en oﬀ when there is no reasonable expecta5on of recovery. 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. 32. 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% to 1.75%) Capital contribu5on 2018 2017 Transac0ons in the year US$’000 1,164 749 685 (197) Amounts owing US$’000 32,956 4,309 4,989 957 Transac0ons in the year US$’000 1,050 723 500 254 Amounts owing US$’000 33,675 3,806 4,591 1,223 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 2018 2017 Purchase of services US$’000 Amounts owing US$’000 Purchase of services US$’000 Amounts owing US$’000 444 54 34 107 639 – 6 2 – 8 447 16 57 274 794 – 1 11 – 12 The amounts outstanding are unsecured and will be se6led in cash. No guarantees have been given or received. All transac5ons with related par5es have been conducted on an arm’s length basis. 66 Annual Report and Financial Statements for the year ended 31 December 2018 Notes to the Financial Statements con5nued 32. Related Party Transac0ons con5nued Directors’ Emoluments Remunera5on paid to Directors during the year was as follows: Execu0ve Directors MC Idiens KB Sco6 CJ Eadie Non-execu0ve Directors PE Jeﬀcock Emoluments en0tlement US$’000 Emoluments1 taken US$’000 Consultancy US$’000 Pension US$’000 Total US$’000 2018 200 13 136 34 383 208 13 143 34 398 – 54 – – 54 20 – 14 – 34 228 67 157 34 486 1 Emoluments include beneﬁts-in-kind which are not included in emoluments en5tlement Execu0ve Directors MC Idiens KK He%on KB Sco6 CJ Eadie Non-execu0ve Directors PE Jeﬀcock Emoluments en0tlement US$’000 2017 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 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 2018 No. 3 2017 No. 2 33. Post Balance Sheet Events Equity Fundraise On 24 May 2019, the Company raised gross proceeds of US$0.4 million (£0.3 million) by way of a placing of 25 million Ordinary Shares of 0.1p each at a price of 1.2 pence per share. Annual Report and Financial Statements for the year ended 31 December 2018 67 Rose Petroleum plc No5ce of Annual General Mee5ng NOTICE IS HEREBY GIVEN that the Annual General Mee5ng of Rose Petroleum plc (“Company”) will be held at the oﬃces of Allenby Capital Limited, 5 St Helen’s Place, London EC3A 6AB on 30 July 2019 at 12 noon to consider and, if thought ﬁt, pass the following resolu5ons (“Resolu0ons” and each a “Resolu0on”), of which Resolu5ons 1 to 7 (inclusive) will be proposed as ordinary resolu5ons and Resolu5on 8 will be proposed as a special resolu5on. Ordinary Resolu0ons 1. 2. 3. 4. 5. 6. 7. To receive and adopt the annual report and accounts for the year ended 31 December 2018, together with the reports of the Directors and the auditor thereon. To re-elect Mr Ma6hew Charles Idiens, who re5res by rota5on, as a Director. To re-elect Mr John Colin Harrington as a Director. To re-elect Mr Thomas Hamilton Reynolds as a Director. To re-elect Mr Richard Lee Grant as a Director. To re-appoint RSM UK Audit LLP as auditor to act as such un5l the conclusion of the next annual general mee5ng of the Company at which the requirements of sec5on 437 of the Companies Act 2006 (“CA 2006”) are complied with and to authorise the Directors of the Company to ﬁx its remunera5on. That the Directors be generally and uncondi5onally authorised in accordance with sec5on 551 of the CA 2006 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 £84,206.97 (represen5ng approximately 50 per cent. of the issued share capital of the Company), to such persons at such 5mes and on such terms as they think proper, provided that this authority shall, unless renewed, varied or revoked by the Company in general mee5ng, expire on the date falling 15 months from the date of the passing of this Resolu5on, or if earlier, at the conclusion of the annual general mee5ng of the Company in 2020, save that the Company may at any 5me before such expiry make an oﬀer or agreement which 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 in pursuance of such oﬀer or agreement notwithstanding that the authority hereby conferred has expired. This authority is in subs5tu5on for all previous authori5es conferred on the Directors in accordance with sec5on 551 of the CA 2006. Special Resolu0on 8. That, subject to and condi5onal upon the passing of Resolu5on 7 above, the Directors be generally empowered pursuant to sec5on 570 of the CA 2006 to allot equity securi5es (as deﬁned in sec5on 560 of the CA 2006) for cash as if sec5on 561(1) of the CA 2006 did not apply to any such allotment pursuant to the general authority conferred on them by Resolu5on 7 above (as varied from 5me to 5me by the Company in general mee5ng) PROVIDED THAT such power shall be limited to:- (a) the allotment of equity securi5es in connec5on with a rights issue or any other oﬀer to holders of Ordinary Shares in propor5on (as nearly as may be prac5cable) to their respec5ve holdings and to holders of other equity securi5es as required by the rights of those securi5es or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in rela5on to treasury shares, frac5onal en5tlements, record dates, legal or prac5cal problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange in any territory; 68 Annual Report and Financial Statements for the year ended 31 December 2018 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 sub paragraph (a) to (b) (inclusive) above of equity securi5es up to an aggregate nominal amount of £33,682.78 represen5ng approximately 20 per cent of the issued share capital of the Company, and the power hereby conferred shall operate in subs5tu5on for and to the exclusion of any previous power given to the Directors pursuant to sec5on 570 of the CA 2006 and shall expire on whichever is the earlier of the conclusion of the annual general mee5ng of the Company in 2020 or the date falling 15 months from the date of the passing of this Resolu5on (unless renewed varied or revoked by the Company prior to or on that date) save that the Company may before such expiry make an oﬀer or agreement which would or might require equity securi5es to be allo6ed a%er such expiry and the Directors may allot equity securi5es in pursuance of such oﬀer or agreement notwithstanding that the power conferred by this Resolu5on has expired. Registered Oﬃce 20- 22 Wenlock Road London N1 7GU On behalf of the Board CJ Eadie Chief Financial Oﬃcer Annual Report and Financial Statements for the year ended 31 December 2018 69 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 July 2019; 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, The Registry, 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, The Registry, 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. 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 Services, 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). 70 Annual Report and Financial Statements for the year ended 31 December 2018 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. 12 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 in the UK (Calls cost 12p per minute plus your phone company’s access charge). If calling from overseas please call +44 (0) 371 664 0300 between 9.00 a.m. – 5:30 p.m., Monday to Friday excluding public holidays in England and Wales. Calls outside the United Kingdom will be charged at the applicable interna5onal rate. 13 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 14 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, The Registry, 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, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 48 hours prior to the mee5ng. 15 16 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 17 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 18 As at 6:00 p.m. on 25 June 2019, the Company’s issued share capital comprised 168,413,940 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 6:00 p.m. on 25 June 2019 is 168,413,940. Communica0on Except as provided above, members who have general queries about the annual general mee5ng should contact the Company Secretary at Rose Petroleum plc, 20-22 Wenlock Road, London N1 7GU 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 2018 71 Rose Petroleum plc No5ce of Annual General Mee5ng con5nued Appendix 1 Explanatory Notes to the No0ce of Annual General Mee0ng The notes on the following pages give an explana5on of the proposed Resolu5ons. Resolu5ons 1 to 7 are proposed as ordinary resolu5ons. This means that for each of those Resolu5ons to be passed, more than half of the votes cast in person or by proxy must be in favour of the Resolu5on. Resolu5on 8 is proposed as a special resolu5on. This means that for this Resolu5on to be passed, at least three-quarters of the votes cast must be in favour of the Resolu5on. Resolu0on 1 This Resolu5on is to receive and adopt the Directors’ reports and accounts for the year ended 31 December 2018, which accompany this document. Resolu0ons 2 to 5 Mr Ma6hew Charles Idiens is re5ring as a Director by rota5on at the annual general mee5ng in accordance with the provisions of the Company’s ar5cles of associa5on and is standing for re-appointment. Mr John Colin Harrington, Mr Thomas Hamilton Reynolds and Mr Richard Lee Grant are also re5ring as Directors at the annual general mee5ng and are each standing for re-appointment. If each of these Resolu5ons are separately passed, the respec5ve individual will be re-appointed as a Director of the Company. Resolu0on 6 This is a Resolu5on to appoint RSM UK Audit LLP as auditor of the Company for the ﬁnancial year ending 31 December 2019 and to authorise the Directors to ﬁx their remunera5on. Resolu0on 7 This Resolu5on, if passed, would authorise the Directors to allot Ordinary Shares or grant Rights to subscribe for or convert any securi5es into Ordinary Shares up to an aggregate nominal amount of £84,206.97, represen5ng approximately 50 per cent of the current issued share capital. The authority being sought in Resolu5on 7 replaces the authority granted on 21 May 2018. The authority will expire on the earlier of 15 months from the date the Resolu5on is passed or the conclusion of the Company’s annual general mee5ng in 2020. Resolu0on 8 This Resolu5on, which is condi5onal upon Resolu5on 7 being passed, would give the Directors the authority to allot Ordinary Shares (or sell any Ordinary Shares which the Company elects to hold in treasury) for cash without ﬁrst oﬀering them to exis5ng Shareholders in propor5on to their exis5ng shareholding. This authority would be limited to an aggregate nominal amount of £33,682.78 (represen5ng approximately 20 per cent. of the issued ordinary share capital of the Company as at 27 June 2019, being the latest prac5cal date prior to the publica5on of the no5ce of the annual general mee5ng). As with Resolu5on 7, the authority being sought pursuant to Resolu5on 8, replaces the authority granted on 21 May 2018. The authority and power pursuant to Resolu5on 8 will expire on the earlier of 15 months from the date of Resolu5on 8 being passed or the conclusion of the Company’s annual general mee5ng in 2020. 72 Printed by Michael Searle & Son Limited Annual Report and Financial Statements for the year ended 31 December 2018 Rose Petroleum plc Head Oﬃce: First Floor Newmarket House Market Street Newbury Berkshire RG14 5DP www.rosepetroleum.com

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