Zephyr Energy Plc Annual Report 2019

Plain-text annual report

Rose Petroleum plc Rose Petroleum plc Annual Report and Financial Statements For the year ended 31 December 2019 Contents Directors, Advisers and Oﬃcers Chairman’s Statement Strategic Report Directors’ Report Corporate Governance Statement Statement of Directors' Responsibili7es 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 Important informa7on regarding the Annual General Mee7ng No7ce of Annual General Mee7ng 02 03 06 16 18 19 20 26 27 28 29 30 31 32 33 34 72 73 Annual Report and Accounts for the year ended 31 December 2019 01 Rose Petroleum plc Directors, Advisers and Oﬃcers Non-Execu&ve Chairman Non-Execu&ve Director Non-Execu&ve Director Chief Execu&ve Oﬃcer Chief Financial Oﬃcer Directors RL Grant TH Reynolds GB Stein JC Harrington CJ Eadie Secretary CJ Eadie Registered Oﬃce 20-22 Wenlock Road London N1 7GU Auditor RSM UK Audit LLP Central Square, 5th Floor 29 Wellington Street Leeds LS1 4DL Registrars Link Asset Services 34 Beckenham Road Beckenham Kent BR3 4TU Bankers Barclays Bank Plc Level 27 1 Churchill Place London E14 5HP Solicitors Memery Crystal LLP 165 Fleet Street London EC4A 2DY Nominated Adviser Allenby Capital Limited 5 St Helen’s Place London EC3A 6AB Broker Turner Pope Investments Ltd Becket House 36 Old Jewry London EC2R 8DD 02 Annual Report and Financial Statements for the year ended 31 December 2019 Chairman’s Statement Overview During these very challenging 7mes, I would ﬁrst of all like to reiterate that the primary concern of the Company’s Board of Directors (“Board”) is the safety of all the Group’s stakeholders and employees. We truly hope for good health for all. While the period under review was dominated by a restructuring of the Group, our more recent focus, as a result of the current global turmoil, has been to protect the Group, safeguard its exis7ng asset base and posi7on it for a8rac7ve growth opportuni7es that we expect will arise from the current environment. As part of this process, we have implemented comprehensive cost reduc7ons which will enable the Group to con7nue trading eﬀec7vely. With the con7nued ﬁnancial support of our brokers and major Shareholder we can now focus our eﬀorts and a8en7on on implemen7ng our growth strategy. The Group has no debt, very low ﬁxed costs and no near-term capital commitments, and it is my ﬁrm belief that the Group is now well posi7oned for the future despite the tremendous economic and ﬁnancial shockwaves caused by the dual impact of the coronavirus pandemic and the oil price vola7lity. These factors have already inﬂicted considerable distress to the U.S. natural resource landscape, but I also believe this distress has created signiﬁcant opportunity for the Group, as demonstrated by numerous Chapter 11 ﬁlings, increased asset sale ac7vity and more a8rac7ve valua7on entry points. Even in this challenging environment we believe that a8rac7ve, value-addi7ve acquisi7ons exist. A disciplined focus on cash genera7on, sustainable and responsible growth, and value to Shareholders will be central to our decision-making. Group Restructuring and Revised Strategy The key objec7ves of the Group restructuring were to augment the Board with highly experienced individuals, to reduce the Group’s opera7onal cost base, and to deﬁne and implement a new strategy to ensure the Group is op7mally posi7oned for success. The restructuring resulted in the closure of subsidiaries related to legacy ventures in Cuba, Mexico, Germany and the U.S.A. We also conducted an overhaul of our exis7ng asset in the Paradox Basin (the “Paradox”, “Paradox acreage” or “Paradox project”) in order to reposi7on the asset in such a way as to maximise value for Shareholders over the medium to longer term. In September 2019, we unveiled the Group’s new strategy, which in addi7on to developing the Paradox project, focuses solely on the upstream sector in the Rocky Mountain region of the U.S.A., an area with a signiﬁcant number of produc7on and development acquisi7on opportuni7es of a scale suited to our strengths and size. Our goal is to produce a 7ght, cost-eﬀec7ve path to near-term cash ﬂow, and we are well underway with eﬀorts to execute this strategy. In November 2019, the Group announced that it had nego7ated an op7on to acquire a working interest in the 317-acre McCoy lease located in the Denver-Julesburg Basin (“DJ Basin”) in Weld County, Colorado, U.S.A. (“McCoy” or “McCoy acquisi7on”). The op7on has since been extended through to the end of December 2020 at no cost to the Group. Annual Report and Financial Statements for the year ended 31 December 2019 03 Rose Petroleum plc Chairman’s Statement continued The DJ Basin is a world-class, liquids-rich resource play with over 4,000 horizontal wells drilled to date. There is signiﬁcant infrastructure in place with available capacity and ready access to service providers and contractors. The Group’s management team, together with that of our opera7ng partner, has signiﬁcant experience delivering produc7on from horizontal development in close proximity to the McCoy project. The McCoy project is a low-risk development opportunity and the Board believes that it would complement and balance the Paradox project in the Group’s por6olio. Although commodity prices in the spring of 2020 did not support the development of the McCoy project as originally envisaged, rapidly falling capex costs combined with a stabilised oil price will prove beneﬁcial to the development of the project. We believe Great Western Petroleum, the operator of the project, will elect to move forward with drilling in the coming months, and the Group will likely seek to maximise its par7cipa7on in the project if the economics are suppor7ve and appropriate funding can be secured. In addi7on, the Board believes the current market turmoil should deliver mul7ple a8rac7ve investment opportuni7es within our area of focus, and we are working with both industry and ﬁnancial partners to iden7fy high value targets which might be added to our por6olio. Board and Management Changes Since the last Annual Report, we have made further changes to the structure of the Group’s Board to ensure we have the team necessary to deliver our new strategy. In September 2019, Colin Harrington became the Group’s full 7me Chief Execu7ve Oﬃcer at which point I moved to the posi7on of non-execu7ve Chairman. In addi7on, the Group appointed two new independent non-execu7ve Directors to the Board, and Ma8hew Idiens stepped down from the Board in August 2019. Tom Reynolds was appointed as a Director in April 2019. Tom is a Chartered Engineer with over twenty-ﬁve years’ experience in the energy sector and specialises in strategic planning, investment management and cross-border merger and acquisi7on transac7ons in the oil and gas, energy and infrastructure sectors. Gordon Stein joined the Board in September 2019. Gordon has over 26 years of interna7onal experience in the oil and gas sector and has a signiﬁcant track record of working with AIM quoted natural resources businesses. Gordon’s ﬁnancial experience and long-standing rela7onships in the sector will be invaluable over the coming months as the Group completes its transforma7on into a geographically-focused upstream par7cipant. As part of the Group’s inten7on to bolster its governance framework, Gordon has taken on the roles of Chairman of the Audit and Remunera7on Commi8ees. I have been delighted by the dynamism and cohesiveness of the new Board and I believe we now have a Board structure that meets all our key criteria: • • • • • • longstanding rela7onships and exper7se in the geographical areas of focus (DJ Basin and the wider Rockies area); signiﬁcant experience with company turnarounds and special situa7ons (with mul7ple successful exits); successful track record of building and managing both small and large cap companies; a Board that is aligned with our Shareholders (the Board’s combined shareholding is over 25% of the Company’s issued share capital); access to capital and proven fundraising ability (including non-tradi7onal funding sources); and a strong background in ESG and corporate governance adherence. 04 Annual Report and Financial Statements for the year ended 31 December 2019 Chairman’s Statement continued Company Vision and Rebranding Following the comprehensive restructuring and refocusing of the Group over the period, the Board has also used this period of transi7on to kick oﬀ the rebranding and reposi7oning of the Group. Not only has the Group changed its management team, strategy and restructured its exis7ng asset base, it has also undergone a fundamental process of reviewing the Group’s objec7ves and values in order to deﬁne how the Group wishes to operate in the future. I will ensure that the Group puts its corporate and social responsibili7es at the heart of everything it does, and we will be commi9ng to benchmark ourselves against the highest Environmental, Social and Governance (“ESG”) standards. As part of this eﬀort, we are highly focused on (i) broadening partnerships within the local communi7es in which we work, (ii) evalua7ng our larger impact on the environment and (iii) more ac7vely suppor7ng organisa7ons involved with land conserva7on and /or restora7on of grasslands and wetlands in the areas in which we work. Over the coming weeks, the Group will complete the development of an opera7onal framework which will be used to achieve this and which will be announced in due course. As part of this rebranding, we are proposing to change the Group’s name to Zephyr Energy plc (“Zephyr”) and Shareholders will be asked to approve this name change at the forthcoming Annual General Mee7ng. I want Zephyr to be a group of which all its stakeholders can be proud, one focused on delivering strong economic returns as well as being a responsible steward of its surrounding environment. I want Zephyr to stand for excellence not only in its opera7ons but also in its pursuit of responsible growth. Outlook Rose is now posi7oned as a clean, low-overhead, unlevered and value-focused vehicle from which to build. I believe we have the team, strategy and value set to deliver on all of our ambi7ous objec7ves, and I look forward to the future with cau7ous op7mism. We con7nue to follow the most up-to-date Government advice in respect of COVID-19. To date, thankfully, the Group’s ac7vi7es have con7nued in line with plans and the impact of the virus has been minimal on exis7ng opera7ons. We will con7nue to monitor the situa7on very closely. Finally, I want to thank our Shareholders, employees and advisers for their con7nued support – we welcome and take seriously the opportunity to grow the value of your investment alongside ours. RL Grant 29 June 2020 Annual Report and Financial Statements for the year ended 31 December 2019 05 Rose Petroleum plc Strategic Report The Directors present their Strategic Report on the Group for the year ended 31 December 2019. Principal Objec0ves and Strategies Rose Petroleum plc is an Oil & Gas (“O&G”) explora7on company. The key objec7ve is to deliver sustainable Shareholder returns through responsible development of its exis7ng assets and through future acquisi7ons. To achieve this objec7ve, the Group has priori7sed: • • • • • • • • building a Board consis7ng of professionals with signiﬁcant experience in the O&G sector, with a par7cular focus on opera7ons, development, governance, ﬁnance, merger and acquisi7on (“M&A”) and turnaround experience; a sharpening of focus – we are 100% focused on responsible Explora7on and Produc7on (“E&P”) investment in the Rocky Mountain region; the redoubling ESG eﬀorts, including broadening board level talent and corporate governance compliance; the building of a technology led acquisi7on process designed to rapidly assess and acquire distressed E&P assets, guided by a focus on geologically advantaged loca7ons; the op7misa7on of the exis7ng asset base (including a major Paradox restructuring); the leveraging of partnerships (such as the U.S. Department of Energy, experienced operators in the DJ Basin, and private equity investors); the poten7al addi7on of further interests through acquisi7on, farm-in agreements or joint venture arrangements; and 7ght ﬁnancial control and cash conserva7on. Review of Opera0ons and Future Developments Background Since I joined as Chairman just over twelve months ago, I have worked with the team to restructure the Group and transform the exis7ng asset base, both in my capacity as a Director and also as the Group’s major Shareholder. We have implemented a new strategy to diversify the Group through acquisi7on in order to deliver near-term value for the Group’s Shareholders. While the impacts of both coronavirus and the prevailing market price of oil are undoubtedly having a signiﬁcant eﬀect on our opera7ng landscape, I remain conﬁdent that the recent restructuring and clear forward vision have posi7oned the Group for future growth and proﬁtability. This new strategy, as outlined in the Chairman’s Statement, focuses solely on the upstream sector in the Rocky Mountain region of the U.S.A., a region in which the team has had past success and which oﬀers a plethora of opportuni7es for the Group. In light of the opportuni7es presented by the current market and economic condi7ons, and as a direct result of the considerable experience of the new Board in opera7ng in the new area of geographical focus, the Group is moving forward with its eﬀorts to deliver a more balanced por6olio of produc7on, development and explora7on assets. 06 Annual Report and Financial Statements for the year ended 31 December 2019 Strategic Report continued Over the coming months, the Group will con7nue to be focused on two fronts: • • the acquisi7on of addi7onal near-term, low risk produc7on and development projects in the states of Colorado, Utah and Wyoming; and the crea7on of longer-term value from the Group’s high poten7al appraisal project in the Paradox Basin. Acquisi0on Ra0onale and Criteria The Board believes that strong ﬁnancial returns can be generated from the highly fragmented smaller end of the U.S.A. oil explora7on and produc7on sector, and we have restructured the Group so that it can be a stable public growth vehicle targe7ng this part of the market. The Board also believes that the construc7on of a balanced por6olio, exhibi7ng both free cash ﬂow and long-term development opportuni7es, is core to successful growth. The Board’s vision for a balanced por6olio includes: • • • produc7on assets acquired at compelling valua7ons; near-term, lower-risk yet highly economic development opportuni7es located in core acreage posi7ons in established basins. In par7cular, we will target inﬁll horizontal development drilling opportuni7es in basins long established through ver7cal produc7on; and longer-term, high-poten7al appraisal and explora7on projects designed to add signiﬁcant scale, such as the current opportunity in the Paradox. The Board believes that the Group already has signiﬁcant long-term appraisal and explora7on exposure through its restructured Paradox Basin asset, and as such will concentrate Group acquisi7on eﬀorts on near-term development and produc7on opportuni7es. As part of this process, the Board has implemented the following high-level methodology for screening poten7al acquisi7ons based on the following factors, and all acquisi7ons will need to be consistent with the criteria listed below: Geographic criteria: Utah, Colorado or Wyoming (the “Rocky Mountain Region”) Por6olio criteria: Near term development (“PUD”) or accre7ve producing (“PDP”) opportuni7es Exper7se criteria: Prior management experience of opera7ng such an asset or similar assets Cash ﬂow criteria: Cash ﬂow genera7ve within 12 months of acquisi7on Entry criteria: Proprietary acquisi7on angle (such as via land strategy, rela7onship, or unique view on upside opportunity) or uncommonly good value Partner valida7on: Strategic ﬁnancial or industry partner valida7on Running room: Growth poten7al for future development on the asset acquired or via op7ons for addi7onal acreage acquisi7on In addi7on to this screening criteria, and in an eﬀort to build increased predictability, accuracy and eﬃciency into our project screening and valua7on process, management has developed a series of proprietary tools for use in evalua7ng assets in our region of focus. Annual Report and Financial Statements for the year ended 31 December 2019 07 Rose Petroleum plc Strategic Report continued Led by the Group’s technical team, and building from datasets compiled by independent analy7cs providers, we are crea7ng a comprehensive geological basin model which allows the Group to quickly review and rank operators, loca7ons and wells in order to focus on targets perceived as having the highest value. This technology-led strategy has already proven useful, both as a deal iden7ﬁca7on and rapid screening tool, and in demonstra7ng the value which the Group brings to poten7al investor and industry partnerships. It is an ini7a7ve that will add signiﬁcant value to the Group as we move forward. The Board also believes that this technology-led approach gives the Group an advantage over other local market par7cipants, and we have already seen the beneﬁts while appraising new opportuni7es. Our technological edge, combined with the network and experience of the Board, has allowed us to ﬁnd and screen many poten7al investment opportuni7es in a highly eﬃcient manner. Our combined technology and rela7onship approach is encompassed within the proposed investment in the McCoy project, announced in November 2019. Proposed McCoy Acquisi0on In November 2019, the Group announced that it had entered into a Le8er of Intent (“LOI”) with Cap7va Energy Holdings II, LLC (“CEH”) for the proposed acquisi7on of an ini7al 10% of CEH’s 89.5% net working interest in the 317-acre McCoy lease located in the Denver-Julesburg Basin (“DJ Basin”) in Weld County, Colorado, U.S.A. In addi7on, the Group has an op7on to acquire, at its sole discre7on, up to a further 80% of CEH’s 89.5% working interest in the McCoy lease (“Op7on”). This Op7on will expire at the end of December 2020. The Board believes that the proposed McCoy acquisi7on will provide the Group with near-term, low-risk horizontal development drilling exposure in the proliﬁc Niobrara shale play, and on acreage con7guous to other major DJ Basin operators including Occidental Petroleum Corpora7on, Great Western Opera7ng Company LLC, (a subsidiary of Great Western Petroleum), and Crestone Peak Resources. The DJ Basin is a mature oil basin currently undergoing a resurgence as ver7cal produc7on is replaced with successful one and two-mile horizontal well developments. The McCoy lease is located in an ac7ve part of the DJ Basin and a horizontal redevelopment of the exis7ng produc7ve lease is proposed, with a forecast commencement date in the ﬁrst half of 2021, for an ini7al 12 well drilling programme with two-mile long laterals. The McCoy acquisi7on has mul7ple commercial beneﬁts for the Group: • • • a low risk development opportunity alongside Great Western Petroleum, one of the most ac7ve developers in the DJ Basin, and one with a long track record of successful horizontal development in the immediate area; near-term produc7on programme proposed, with drilling an7cipated in the ﬁrst half of 2021; and op7onality to acquire up to a further 80% of CEH’s working interest in the McCoy lease at the Group’s sole discre7on. The acquisi7on will give the Group access to prime acreage within the proliﬁc DJ Basin Niobrara shale play with op7onality to signiﬁcantly increase its working interest posi7on. It also marks the beginning of a partner rela7onship with CEH and its opera7ng aﬃliate Cap7va Energy Partners (“CEP”). This partnership will provide further deal ﬂow, access to proven competence and a wealth of experience in the Rocky Mountain region. The deal ﬁts well with the stated strategy of the Group, targe7ng low-risk, low-entry cost acquisi7ons which can deliver near-term produc7on to balance the Group’s asset por6olio currently comprised of the longer-term Paradox Basin appraisal asset. 08 Annual Report and Financial Statements for the year ended 31 December 2019 Strategic Report continued CEP is managed by Paul Onsager and Bill Hayworth, two professional engineers, each with more than 30 years’ domes7c U.S.A. and interna7onal oil and gas industry experience, with the last ﬁve years focused almost exclusively on the DJ Basin. Since founding CEP in 2016, the team executed a successful horizontal development on farm-out acreage from Anadarko, sold a horizontal development to Great Western Petroleum and purchased CEH’s interest in the McCoy lease from Vanguard Natural Resources. Prior to CEP, Paul and Bill led a DJ Basin horizontal development programme for a Colorado-based private equity backed oil and gas ﬁrm. Paul was VP Opera7ons for the Rockies Asset team at Pioneer Natural Resources, former VP for Reservoir Engineering at Norwest Corp and former Reservoir Engineering team leader at the U.S. Bureau of Land Management. Bill is the former President of PRB/Black Raven Energy and the former VP of Opera7ons at Intoil (both Rocky Mountain-focused oil companies), and he has held senior engineering and opera7ons roles at Unit Corpora7on, Patrick Petroleum and Phillips Petroleum. Both Bill and Paul are registered Professional Engineers in the State of Colorado. Due to the economic crises related to coronavirus and the associated downturn in the oil price since the Group signed the McCoy deal, the McCoy project was not drilled in the ﬁrst half of 2020 as originally planned. However, the Board has been able to extend the Group’s Op7on to proceed with the acquisi7on un7l the end of December 2020. This is expected to give 7me for a recovery in the oil price and in market sen7ment. In addi7on, capital costs to drill two-mile wells in the DJ Basin have been reduced by over 30% over the last three months, signiﬁcantly lowering break even prices on horizontal developments. The Group believes that in the current market with lowered capital costs, the breakeven oil price at McCoy will be below US$30 per barrel of oil equivalent (“BOE”). Subsequent Milestones In February, the Group announced that several key milestones in the acquisi7on process had been reached. Firstly, CEH executed a lease amendment with Weld County Land Investors, Inc. (“WCLI”), the lessor of the McCoy lease, which allows for the pooling of the underlying Niobrara and Codell reservoirs in rela7on to a poten7al two- mile horizontal well development across the McCoy lease. Secondly, on a related front, CEH elected to support Great Western Petroleum’s 1,280-acre Drilling Spacing Unit (“DSU“) permit applica7on (covering Sec7ons 33 and 34, Township 4 North, Range 68 West, 6th P.M.) for a two-mile horizontal development which will include the McCoy lease. Great Western Petroleum has submi8ed permit applica7ons for 26 two-mile horizontal wells to be drilled from the Margil pad in Sec7on 34 and, if drilled, these wells will extend through the McCoy lease. The Group now an7cipates the drilling of 12 of the two-mile long horizontal wells (the “Ini7al Drilling Programme”) taking place in the ﬁrst half of 2021, subject to approval of Great Western Petroleum’s permit applica7ons, funding and general economic condi7ons. Under this development plan, CEH and Great Western Petroleum will each hold a working interest in the proposed DSU in propor7on to its respec7ve net acreage posi7on. Great Western Petroleum will be the operator of the DSU and will own a majority of the working interest. CEH’S McCoy lease will hold an approximate 22.2% working interest in the DSU, and as such, the Group’s proposed ini7al acquisi7on of 10% of CEH’s working interest in the McCoy lease will result in it holding an approximate 2.22% working interest in the DSU, rising to a maximum approximate 20% working interest should the Group’s op7on to acquire up to a further 80% of CEH’s working interest in the DSU be exercised in full. The Board considers the comple7on of the lease amendment and conﬁrma7on of CEH’s par7cipa7on in the DSU to be highly posi7ve steps towards comple7on of the Group’s acquisi7on. The Group’s proposed par7cipa7on in the McCoy lease project is an important part of the Group’s strategy of building a balanced asset por6olio in the U.S.A. Rocky Mountain region. Annual Report and Financial Statements for the year ended 31 December 2019 09 Rose Petroleum plc Strategic Report continued CEH’s work to make the McCoy lease applicable for inclusion into a two-mile development by Great Western Petroleum will enable McCoy working interest owners to share in the resurgence seen across the DJ Basin as ver7cal produc7on is replaced with one and two-mile horizontal well developments. In addi7on, Great Western Petroleum has signiﬁcant horizontal drilling and opera7ons exper7se within the immediate area surrounding the DSU, and as such the Board believes their par7cipa7on will help to ensure the successful development of the ini7al drilling programme. Great Western Opera7ng Company LLC is a subsidiary of Great Western Petroleum, one of the leading private operators in the DJ Basin with exis7ng gross produc7on of over 50,000 barrels of oil equivalent per day (“BOEPD”). The company is a top 100 operator in the United States and the sixth largest producer in the DJ Basin’s Wa8enberg Field, having drilled and operated more than 600 wells in the region. The Group is also pleased that CEH agreed to extend the Group’s Op7on exercise period to 31 December 2020 while the acquisi7on is completed and prepara7ons for the ini7al drilling programme are ﬁnalised. Under the terms of the LOI, in addi7on to the ini7al 10% acquisi7on, the Group received the Op7on, originally valid un7l 28 February 2020 and extendable at the sole discre7on of CEH, to acquire up to a further 80% of CEH’s interest in the McCoy leasehold (excluding ownership of the exis7ng ver7cal wellbores). The Op7on is subject to the Group demonstra7ng suﬃcient means to fund its share of the related McCoy development CAPEX budget for any addi7onal working interest acquired. The Group is in substan7ve discussions with third par7es, including poten7al joint-venture and industry partners, with respect to securing the necessary funding to enable it to exercise the Op7on should it so choose. Key Terms of the McCoy Acquisi)on The considera7on payable by the Group to CEH for its ini7al investment in the McCoy project (the “Ini7al Tranche”) will be calculated based on CEH’s pro-rata por7on of all back costs (including acquisi7on and development costs) associated with the Ini7al Tranche. CEH’s back costs to-date have been US$2.7 million, so the pro-rata por7on net to the Group’s interest is US$0.3 million (approximately £0.2 million) (the “Considera7on”). The Considera7on will be sa7sﬁed by the issue of new ordinary shares in Rose Petroleum plc to CEH, priced at 1.32 pence per share (being calculated as a 20% premium to the most recent Placing share price). During the Op7on period, the Group can acquire any percentage that it chooses, in several tranches and at its sole discre7on up to a further 80% of CEH’s working interest in the McCoy lease. The price for these subsequent tranches in the lease will be calculated on the same basis as the Ini7al Tranche (linked directly to pro-rata back costs, adjusted to reﬂect any subsequent development costs incurred by CEH) and will also be payable in new ordinary shares in Rose Petroleum plc. The number of shares to be issued for exercising the Op7on will be determined by the 60-day volume weighted average price of ordinary shares on the date the Op7on is exercised divided into the pro-rata back costs. In addi7on, the Group will also carry CEH to an equivalent 11.1% of Rose’s CAPEX on the ﬁrst 20 wells drilled on the McCoy lease (the “Carry”). If the Group exercises its Op7on so that it acquires a 50% working interest or greater in the McCoy lease, it will also be responsible for CEH’s propor7onate share of the plugging and abandonment costs of the ﬁve exis7ng ver7cal wellbores prior to horizontal redevelopment, which it is currently es7mated would cost in the region of US$250,000. Paradox Project, Utah Another key priority for the period under review was to complete a major restructuring of the Group’s Paradox project. 10 Annual Report and Financial Statements for the year ended 31 December 2019 Strategic Report continued Background A full review of the Paradox project was undertaken by the new management team, including a detailed look at the historical ac7vity carried out on the project and the farm-in process. The team also reviewed the 7meframe and plan for spudding the ﬁrst project well in line with the expecta7ons of the U.S. Bureau of Land Management (“BLM”), who con7nue to support the development of the project as soon as commercially possible and in spite of the very challenging market condi7ons. The clear conclusion from this review was that the scale and poten7al of the project are of suﬃcient magnitude to jus7fy the Group’s ongoing involvement in the project. The review also concluded that with more favourable posi7oning and be8er market condi7ons, investment from industry and ﬁnancial partners will be achievable. Furthermore, the review illustrated the need to balance the overall scale of the project with the current market backdrop, 7ming obliga7ons to the BLM and ongoing holding costs of the signiﬁcantly sized acreage package. On the basis of all of these factors, the Board elected to pursue a strategy for the project which included: • • • focusing on the most a8rac7ve acreage (as iden7ﬁed by the 3D seismic acquisi7on undertaken by the Group); releasing acreage that the Group believed to be non-prospec7ve or on too short a lease to merit further explora7on work and/or expenditure; and ac7vely acquiring further con7guous acreage in areas the Board considers to have the greatest poten7al. Following this review, the Group entered into discussions with its joint venture partner, Rockies Standard Oil Corpora7on (“RSOC”) to restructure the joint venture in order that the project might be posi7oned and developed in line with this new strategy. New Agreement Following a period of renego7a7on, in October 2019 the Group announced that it had nego7ated a new agreement (the “Agreement”) with RSOC. The Agreement, which superseded all previous arrangements with RSOC, enabled the Group to gain an immediate 75% working interest ownership and operatorship of key acreage, replacing the earn-in structure in the original agreement with RSOC. The Agreement has resulted in a signiﬁcant reduc7on in the Group’s annual lease costs and allows further 7me to develop and market the project, while maintaining a highly valuable acreage posi7on that is drill-ready. Under the terms of the Agreement, the Group will ini7ally focus on the high quality 12,920-acre posi7on of which 5,240 acres have a nine-year lease term remaining (and a 12.75% royalty) and the residual 7,680 acres have a two- year lease extension subject to regulatory approval (and a 20% royalty). These leases are almost en7rely covered by the 3D seismic data previously obtained and contain 21 drilling targets from the base case development, including the fully permi8ed GV22-1 drill loca7on. The gross Es7mated Ul7mate Recovery (“EUR”) from each of the wells targe7ng the Cane Creek reservoir zone is es7mated to be 0.85 million barrels of oil equivalent (“mmboe”). Based on the 2018 Competent Person’s Report (“CPR”) methodology, as applied by Gaﬀney Cline and Associates (“GCA”), the 12,920 acres contain es7mated 2C con7ngent recoverable resources of 8.3 mmboe net to the Group. The resource and valua7on metrics do not include the addi7onal explora7on poten7al contained within a further ﬁve stacked, high-graded prospec7ve zones on the acreage. Successful eﬀorts in these zones may create a mul7- zone play which could add substan7al further value through resource addi7on and from development cost op7misa7ons. Annual Report and Financial Statements for the year ended 31 December 2019 11 Rose Petroleum plc Strategic Report continued In return for this restructuring, the Group maintains the obliga7on from the original earn-in agreement to carry RSOC for a 25% working interest on the ﬁrst well drilled on the project (expected to be circa US$1.9 million). The Group has also agreed to carry RSOC for a 25% working interest for the acquisi7on of speciﬁc targeted leases in and around the core acreage area, in aggregate, up to a total of US$0.5 million, but it is the current view of both the Group and RSOC that the ﬁnal ﬁgure will be considerably lower and any payments would be incurred over an extended period of 7me. If the Group does not drill its ﬁrst project well within a ﬁve-year period, all leases, with the excep7on of the 5,240 leases with nine-year lease terms, will be assigned back to RSOC. Further, the Group has terminated its remaining farm-in rights over less prospec7ve acreage and has reassigned those rights back to RSOC. This re-assignment is consistent with the Group’s intent to focus its eﬀorts on the area covered by the exis7ng 3D seismic data. Subsequent Updates A'er the Group’s announcement on 14 October 2019, the Group has worked with RSOC and the appropriate regulatory bodies to ﬁnalise the restructuring of the project. As part of this process, the Group and RSOC agreed to voluntarily terminate the original Federal Unit Agreement (the Gunnison Valley Unit (“GVU”)). Subsequently, with the GVU agreement terminated and pursuant to U.S.A. Federal Oil and Gas Regula7on 43 CFR 3107.4, the Group announced that a subset of leases located within the project core have been extended for a further two years and added back into the Group’s por6olio of leases. The extension of these further leases, together with the new RSOC Agreement, enables the Group to refocus on a core acreage posi7on of circa 19,900 acres which contains es7mated net 2C Con7ngent Recoverable Resources of circa 9 mmboe associated with 22 drilling targets in the Cane Creek reservoir. The Group also recognises further explora7on poten7al in 5 shallower reservoir targets which could add further value to the project over 7me. With the project restructuring completed and the land posi7on now clariﬁed, the Group plans to recommence the farm-out process for the project in the near term. DOE Partnership and Grant A key part of maximising the value of the Paradox asset is to increase the understanding and visibility of the Paradox Basin to a broader group of market par7cipants. As such, the Group was pleased to announce during the period that, subject to contract, grant funding to the Group from the U.S. Department of Energy (the “DOE”) and the University of Utah is poten7ally available to the Group. The overall study relates to “Improving Produc7on in Utah’s Emerging Northern Paradox Unconven7onal Oil Play” and raising the proﬁle of the northern Paradox Basin. The focus of the grant funding is to fully characterise, quan7fy and interpret the geological, structural, and geomechanical se9ngs of the northern Paradox oil play in order to op7mise produc7on processes. As part of this eﬀort, the DOE project team is planning to drill a ver7cal stra7graphic well in 2020 to gather data to improve the understanding of the play. The well will target the Cane Creek and poten7ally the C18/19 reservoirs, acquiring both core data and a comprehensive well log suite in order to provide a highly valuable new data point in the basin. The loca7on of the well has yet to be ﬁnalised. The ﬁnal amount of the grant funding is s7ll to be agreed. The Company will keep Shareholders fully updated on progress. 12 Annual Report and Financial Statements for the year ended 31 December 2019 Strategic Report continued Financial Review Income Statement The Group reports a net loss a'er tax from con7nuing opera7ons of US$3.0 million or a loss of 1.74 cents per share for the year ended 31 December 2019 (2018: net loss a'er tax from con7nuing opera7ons of US$1.0 million or 0.74 cents per share). Administra7ve costs for the year of US$1.8 million were slightly higher than those in the prior year (2018: US$1.6 million) primarily due to the costs of the Group restructuring. The impact of the current cost reduc7on programme will be reﬂected in the annual results for the year ended 31 December 2020. The Company has made loans to its subsidiary en77es which are denominated in sterling. Foreign exchange losses on the restatement of these loans at 31 December 2019 were US$0.8 million (2018: gain of US$1.1 million). These unrealised losses have a signiﬁcant impact on the total Group net loss a'er tax when compared to the prior year. Balance Sheet Total investment in the Group’s intangible explora7on and evalua7on assets at 31 December 2019 was US$13.5 million (2018: US$13.1 million) reﬂec7ng con7nuing investment in the Paradox project. Cash and cash equivalents at 31 December 2019 were US$1.1 million (2018: US$0.6 million). During the period, the Company raised gross proceeds of US$2.0 million (2018: US$1.3 million) through the placing of new ordinary shares in the Company. During the period the Group disposed of its residual minority shareholdings in Encore Energy Corpora7on and Magellan Gold Corpora7on. These shareholdings were considera7on received from the disposal of the Group’s legacy mining assets. Key Performance Indicators The Board monitors the performance of the Group in delivering its key corporate and opera7onal milestones for a given period. In par7cular, the Board monitors the comple7on of milestones against allocated 7me, resources and budget in respect of its O&G development ac7vi7es. As part of the Group’s ongoing rebranding process, the Board is in the process of developing an appropriate set of key performance indicators (“KPIs”) against which to benchmark how it performs against the ESG standards that will be put in place by the Board. The Board is absolutely commi8ed to ensuring that the Group operates to the highest standards of sustainability and responsibility. The Board will communicate its value set and revised KPIs once the rebranding process is complete. Risks and Uncertain0es and Risk Management There are a number of poten7al risks and uncertain7es 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 uncertain7es that we face are: Non-Financial Risks • Changes in government law or regulatory policy in the U.S.A. could materially aﬀect the rights and 7tle to the interests held by the Group, and the opera7ons and ﬁnancial condi7on of the Group could be adversely aﬀected. • The Group is dependent on the con7nued services and performances of its core management team. The loss of key personnel could have an impact on the Group’s ability to meet its strategic objec7ves. The Remunera7on Commi8ee reviews the employment terms for execu7ves and key opera7onal management with the aim of a8rac7ng, mo7va7ng and retaining key personnel for the Group. Annual Report and Financial Statements for the year ended 31 December 2019 13 Rose Petroleum plc Strategic Report continued 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 explora7on, development and produc7on phases. • • • • The ac7vi7es of the Group are subject to ﬂuctua7ons in prices and demand for commodi7es, which are vola7le and cannot be controlled. Fluctua7ng commodity prices could have a signiﬁcant impact on the Group’s opera7ons. 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 transla7on. 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 access to funding to meet all corporate, development and produc7on obliga7ons and ac7vi7es. The Group manages liquidity risk by maintaining adequate cash reserves and monitoring forecast and actual cash ﬂows. The Board reviews the Group’s cash ﬂow projec7ons and forecasts on a monthly basis. The Group has ﬁnancial and opera7onal obliga7ons 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 por6olio of projects and to keep the projects in good standing there is a risk that underlying leases, licences and permits may expire poten7ally leading to a loss of the underlying assets and a subsequent impairment of the assets in the Group’s ﬁnancial statements. On 31 January 2020, the United Kingdom le' the European Union (“EU”) and entered a transi7on period that will last un7l 31 December 2020. Un7l further details are known regarding the full terms of the UK’s future rela7onship with the EU, the Directors are not able to assess the poten7al impacts 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 the UK’s withdrawal from the EU could result in a deprecia7on in the value of sterling, which could impact the Group’s global purchasing power. Corporate and Social Responsibility Health and Safety It is the objec7ve of the Group to ensure the health and safety of its employees and of any other persons who could be aﬀected by its opera7ons. It is the Group’s policy to provide working environments which are safe and without risk to health and provide informa7on, instruc7on, training and supervision to ensure the health and safety of its employees. The Board is taking all necessary steps to protect its people against the current coronavirus pandemic. Signiﬁcant Rela0onships The Group enjoys good rela7onships with all of its suppliers, professional advisers and opera7onal partners. Statement by the Directors in performance of their Statutory Du0es in accordance with S172(1) Companies Act 2006 The Board of Directors of Rose Petroleum plc, both individually and together, have acted in good faith in a way they consider would be most likely to promote the success of the Company for the beneﬁt of its members as a whole (having regard to the stakeholders and ma8ers set out in S172 of Companies Act 2006). 14 Annual Report and Financial Statements for the year ended 31 December 2019 Strategic Report continued The Board considers its stakeholders to be its Shareholders, employees, partners, suppliers/creditors and regulatory authori7es in its areas of opera7on. The Company maintains a well-func7oning and balanced board led by the Chairman, ensuring that the Directors have the necessary up-to date experience, skills and capabili7es. The Board promotes a corporate culture that is based on ethical values and behaviour and maintains governance structures and processes that are ﬁt for purpose and support good decision-making. The Board seeks to understand and meet Shareholder needs and expecta7ons. It has established a strategy and business model which it believes will promote long term value to Shareholders. The Company’s details are displayed on its website allowing Shareholders to contact the Company if they so wish. The Board a8aches great importance to providing Shareholders with clear and transparent informa7on on the Group’s ac7vi7es and strategy. Details of all Shareholder communica7ons are provided on the Company’s website, including historical annual reports and governance related material. The Board takes into account wider stakeholder and social responsibili7es and their implica7ons for long term success. Directors and employees adopt a broad view during decision making to take meaningful account of the impact of the business on all key stakeholder groups. The Board recognises that the Group’s long-term success is reliant on the eﬀorts of its employees, customers and suppliers and through maintaining rela7onships with its regulators. The Group operates a system of internal controls designed, to the extent considered appropriate, to safeguard group assets and protect the business from iden7ﬁed risks. Signiﬁcant decisions made During the year, the Directors completed two equity fundraises though the issue of ordinary shares in the Company. Details of these fundraises can be found in the relevant sec7ons of this Annual Report. In arriving at the decision to proceed with these fundraises the Directors considered the cash posi7on of the Company and the dilu7on impact that the respec7ve fundraises would have on the exis7ng Shareholders of the Company. A'er due considera7on, the Directors considered the fundraises to be in the best interests of the Company and its Shareholders. The Company also completed a restructuring of the Paradox project during the year. This was a complex and 7me-consuming process however the Directors believe that the restructuring was very much in the best interests of both the Company and its Shareholders. We would like to thank all Shareholders for their con7nued support. On behalf of the Board JC Harrington Chief Execu&ve Oﬃcer 29 June 2020 Annual Report and Financial Statements for the year ended 31 December 2019 15 Rose Petroleum plc Directors’ Report The Directors present the Annual Report and ﬁnancial statements of the Group for the year ended 31 December 2019. Review of the Business and Future Developments A review of the business, future developments and the principal risks and uncertain7es facing the Group is given in the Strategic Report. Dividends The Directors do not recommend the payment of a dividend for the year ended 31 December 2019 (2018: US$ nil). Directors The Directors who held oﬃce during the year, and since the year end are as follows: JC Harrington (appointed 24 May 2019) RL Grant (appointed 27 June 2019) TH Reynolds (appointed 23 April 2019) GB Stein (appointed 3 September 2019) CJ Eadie MC Idiens (resigned 30 August 2019) PE Jeﬀcock (resigned 11 April 2019) KB Sco8 (resigned 23 April 2019) RJ Bensh (appointed 11 April 2019, resigned 20 May 2019) Directors’ interests in Shares and Share Op0ons The Directors who held oﬃce at 31 December 2019 had the following interests, including family interests, in the Ordinary Shares of the Company as follows: RL Grant JC Harrington TH Reynolds CJ Eadie Number of Ordinary Shares 31 December 2019 1 January 2019 68,636,364(1) 68,636,364(1) 1,000,000 3,425,095 – – – 771,904 (1) JC Harrington is indirectly the controlling Shareholder of Origin Creek Energy LLC which is beneﬁcial owner of these shares. RL Grant is a 26.6% Shareholder of Origin Creek Energy LLC. Directors’ interests in share op7ons of the Company, including family interests, as at 31 December 2019 were as follows: CJ Eadie CJ Eadie CJ Eadie Date of grant/ replacement 13 Feb 2015 24 Mar 2017 6 April 2018 No. of shares 100,000 500,000 1,300,000 Exercise price 182.5p 14.0p 3.5p Op0on exercise period 13/03/16 to 12/03/25 24/04/17 to 23/04/27 06/04/19 to 05/04/28 16 Annual Report and Financial Statements for the year ended 31 December 2019 Directors’ Report continued Third Party Indemnity Provision for Directors The Company currently has in place, and had for the year ended 31 December 2019, Directors and oﬃcers liability insurance for the beneﬁt of all Directors of the Company. Corporate Governance Corporate governance ma8ers are set out on page 18. Substan0al Shareholdings Other than the Directors’ interests shown above, the Company has been no7ﬁed of the following substan7al interests as at 29 June 2020: Jon Fitzpatrick G.P. (Jersey) Limited Flute Investments Post Balance Sheet Events Number of shares Percentage of issued share capital 21,054,885 13,636,364 11,396,940 7.3 4.8 4.0 Events a'er the balance sheet date have been disclosed in note 31 to the ﬁnancial statements. Financial Instruments During the year the Company and its subsidiary undertakings applied ﬁnancial risk management policies as disclosed in note 29 to the ﬁnancial statements. 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 informa7on 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 informa7on and to establish that the Company’s auditor is aware of that informa7on. Auditor The Directors resolved that RSM UK Audit LLP be re-appointed as auditor. RSM UK Audit LLP has indicated its willingness to con7nue in oﬃce. On behalf of the Board CJ Eadie Chief Financial Oﬃcer 29 June 2020 Annual Report and Financial Statements for the year ended 31 December 2019 17 Rose Petroleum plc 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, suppliers and the Governments and regulators of the countries in which we operate. The corporate governance framework which the Company operates, including Board leadership and eﬀec7veness, Board remunera7on, and internal control is based upon prac7ces which the Board believes are propor7onal to the size, risks, complexity and opera7ons of the business and is reﬂec7ve of the Company’s values. Of the two widely recognised formal codes, we 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 explana7on about how they are mee7ng 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 explana7on of the approach taken in rela7on 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” sec7on. Going Concern The Directors have prepared cash ﬂow forecasts for the Group for the period to 30 June 2021 based on their assessment of both the discre7onary and the non-discre7onary cash requirements of the Group during this period. These cash ﬂow forecasts include its normal opera7ng costs for opera7ons together with all commi8ed development expenditure. Whilst the Board remains conﬁdent that the Group will be able to secure the required funding through equity issue or other ﬁnancial instruments to support its ongoing ac7vi7es, the Company does not currently have suﬃcient funding in place to enable it to meet is ﬁnancial liabili7es for the next twelve months. Whilst the Board is conﬁdent of securing necessary funding to meet its liabili7es, there can also be no certainty over the 7ming of this funding or the extent of cash ﬂows arising from the Group’s explora7on ac7vi7es. There is therefore material uncertainty arising in the event that sa7sfactory funding cannot be raised. However, based on the prepared cash forecasts, the Group’s current cash posi7on and the Board’s ongoing discussions with its major Shareholders and brokers, the Directors are conﬁdent that the Group has, or has access to, suﬃcient resources to enable it to con7nue in opera7on for at least the next twelve months. The Directors therefore con7nue 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 prepara7on being inappropriate. JC Harrington Chief Execu&ve Oﬃcer 29 June 2020 18 Annual Report and Financial Statements for the year ended 31 December 2019 Statement of Directors’ Responsibili7es 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 regula7ons. 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 Interna7onal Financial Repor7ng 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 posi7on of the Group and the Company and the ﬁnancial performance of the Group. The Companies Act 2006 provides in rela7on 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 presenta7on. Under company law the Directors must not approve the ﬁnancial statements unless they are sa7sﬁed 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 accoun7ng policies and then apply them consistently; b. make judgements and accoun7ng es7mates 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 con7nue in business. The Directors are responsible for keeping adequate accoun7ng records that are suﬃcient to show and explain the Group’s and the Company’s transac7ons and disclose with reasonable accuracy at any 7me the ﬁnancial posi7on 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 preven7on and detec7on of fraud and other irregulari7es. The Directors are responsible for the maintenance and integrity of the corporate and ﬁnancial informa7on included on the Rose Petroleum plc website. Legisla7on in the United Kingdom governing the prepara7on and dissemina7on of ﬁnancial statements may diﬀer from legisla7on in other jurisdic7ons. Annual Report and Financial Statements for the year ended 31 December 2019 19 Rose Petroleum plc 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 2019 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 accoun7ng policies. The ﬁnancial repor7ng framework that has been applied in their prepara7on is applicable law and Interna7onal Financial Repor7ng 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 2019 and of the Group’s loss for the year then ended; the Group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent company ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for Opinion We conducted our audit in accordance with Interna7onal Standards on Audi7ng (UK) (ISAs (UK)) and applicable law. Our responsibili7es under those standards are further described in the Auditor’s responsibili7es for the audit of the ﬁnancial statements sec7on 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 en77es and we have fulﬁlled our other ethical responsibili7es 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 a8en7on to note 3 in the ﬁnancial statements, which indicates that the Group and Parent company is dependent on raising further funding in the short term to allow it to meet its opera7onal overheads as they fall due. As stated in note 3, these events or condi7ons, along with the other ma8ers as set forth in note 3, indicate that a material uncertainty exists that may cast signiﬁcant doubt on the Group’s and Parent company’s ability to con7nue as a going concern. Our opinion is not modiﬁed in respect of this ma8er. 20 Annual Report and Financial Statements for the year ended 31 December 2019 Independent Auditor’s Report to the members of Rose Petroleum plc con7nued Summary of our Audit Approach Key audit ma1ers Group • Impairment of intangible explora7on and evalua7on assets Materiality Parent Company • Impairment of intercompany receivables Group • Overall materiality: $219,000 • Performance materiality: $164,000 Parent Company • Overall materiality: $82,500 • Performance materiality: $61,800 Scope Our audit procedures covered 100% of total assets and 100% of loss before tax. Key Audit Ma1ers Key audit ma8ers are those ma8ers 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 iden7ﬁed, including those which had the greatest eﬀect on the overall audit strategy, the alloca7on of resources in the audit and direc7ng the eﬀorts of the engagement team. These ma8ers 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 ma8ers. In addi7on to the ma8er described in the Material uncertainty related to going concern sec7on, we have determined the ma8ers described below to be the key audit ma8ers to be communicated in our report. Impairment of intangible explora)on and evalua)on (“E&E”) assets Key audit ma1er descrip0on As explained further in note 16, the Group has capitalised a total carrying amount of US$13.5m at 31 December 2019 in respect of its USA oil and gas E&E assets. In October 2019, the Group signed a new agreement with Rockies Standard Oil Company LLC (“RSOC”) which gave the Group an immediate 75 per cent working interest and focussed the Group’s land interest to the highest poten7al acreage. The Group applies IFRS6 “Explora7on for and evalua7on of mineral resources” and has determined policies for capitalisa7on of relevant costs and subsequent monitoring for impairment. Given the changes arising from the new agreement with RSOC, we considered poten7al impairment of these assets to be one of the ma8ers of most signiﬁcance to our audit in the current period. Annual Report and Financial Statements for the year ended 31 December 2019 21 Rose Petroleum plc Independent Auditor’s Report to the members of Rose Petroleum plc con7nued How the ma1er was addressed in the audit We reviewed managements considera7on and challenged them on whether there were any indicators of impairment of the E&E assets under IFRS 6 and whether facts and circumstances indicate that a full impairment test was required under the standard. We performed work as follows: • Discussed with management their latest intended plans for developing the assets (including funding) and considered these plans in light of the remaining lease term on relevant acreage. • Conﬁrmed that the lease interests held by the Group on their lease register were included within the new RSOC agreement and were supported by evidence from the Bureau of Land Management (as lessor). • Reviewed the conclusion of the Competent Persons Report (“CPR”) to understand the extent of commercially viable quan77es of oil and gas resources. • Conﬁrmed that the lease interests held by the Group relate to the land assessed in the CPR. Key observa0ons We concurred with management that a full impairment test of the E&E assets was not required at 31 December 2019. Impairment of intercompany receivables Key audit ma1er descrip0on The Parent company has receivable balances from subsidiary undertakings that are currently loss making. The receivables are repayable on demand and the subsidiary undertakings do not have suﬃcient liquid assets to make repayment should the parent company call in the receivable balance. One of the most signiﬁcant ma8ers in the current year audit of the Parent company is the extent to which these receivable balances are impaired and management are required to calculate an expected credit loss (“ECL”) provision in accordance with IFRS9 Financial Instruments. The calcula7on of ECLs involves a signiﬁcant degree of judgement as management have to make assump7ons about future cash genera7on and consider mul7ple scenarios through which the balances may be recovered. Given the magnitude of these receivable balances and the poten7al for impairment we considered this ma8er to be one of the ma8ers of most signiﬁcance in the current year audit. At the 31 December 2019, the carrying value of amounts due from group undertakings amounted to US$15.2m a'er recording a cumula7ve ECL provision of US$31.2m (see note 18). 22 Annual Report and Financial Statements for the year ended 31 December 2019 Independent Auditor’s Report to the members of Rose Petroleum plc con7nued How the ma1er was addressed in the audit We obtained management’s calcula7on of the ECL and the underlying calcula7ons prepared to support the carrying value of the balance and performed work as follows: • • • Assessed the reasonableness of the scenarios considered by management and the probabili7es assigned to each. Considered the appropriateness of the ﬁnancial outcome for each scenario. Recalculated the computa7on of the ECL. Key observa0ons As a result of our work we concurred with management’s calculated ECL and we ensured that the key es7mates within the calcula7on were adequately disclosed within the cri7cal es7mates at note 4. Our Applica0on of Materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, 7ming and extent of our audit procedures. When evalua7ng 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 qualita7ve nature and the size of the misstatements. Based on our professional judgement, we determined materiality as follows: Overall materiality Basis for determining overall materiality Group US$219,000 1.5% of net assets Ra0onale for benchmark applied Net assets are considered to be the appropriate benchmark for a pre- revenue explora7on business. Parent company US$82,500 0.5% of net assets. The percentage applied to the benchmark has been restricted for the purpose of calcula7ng an appropriate component materiality. Net assets are considered to be the appropriate as the Parent company is purely a holding company and no income statement is presented. Performance materiality US$164,000 US$61,800 Basis for determining performance materiality Repor0ng of misstatements to the Audit Commi1ee 75% of overall materiality 75% of overall materiality Misstatements in excess of US$10,900 and misstatements below that threshold that, in our view, warranted repor7ng on qualita7ve grounds. Misstatements in excess of US$4,120 and misstatements below that threshold that, in our view, warranted repor7ng on qualita7ve grounds. Annual Report and Financial Statements for the year ended 31 December 2019 23 Rose Petroleum plc Independent Auditor’s Report to the members of Rose Petroleum plc con7nued An Overview of the Scope of our Audit The group consists of 7 components, located in the United Kingdom, USA, Mexico and Germany. The coverage achieved by our audit procedures was: Full scope audit Total Number of components 4 4 Total assets 100% 100% Loss on ordinary ac0vi0es before taxa0on 100% 100% Analy7cal procedures at group level were performed for the remaining 3 components. Other Informa0on The Directors are responsible for the other informa7on. The other informa7on comprises the informa7on 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 informa7on and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connec7on with our audit of the ﬁnancial statements, our responsibility is to read the other informa7on and, in doing so, consider whether the other informa7on is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we iden7fy 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 informa7on. If, based on the work we have performed, we conclude that there is a material misstatement of this other informa7on, 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 informa7on 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 iden7ﬁed material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following ma8ers in rela7on to which the Companies Act 2006 requires us to report to you if, in our opinion: • • • • adequate accoun7ng 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 accoun7ng records and returns; or certain disclosures of Directors’ remunera7on speciﬁed by law are not made; or we have not received all the informa7on and explana7ons we require for our audit. 24 Annual Report and Financial Statements for the year ended 31 December 2019 Independent Auditor’s Report to the members of Rose Petroleum plc con7nued Responsibili0es of Directors As explained more fully in the Directors’ responsibili7es statement set out on page 19, the Directors are responsible for the prepara7on of the ﬁnancial statements and for being sa7sﬁed that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the prepara7on 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 con7nue as a going concern, disclosing, as applicable, ma8ers related to going concern and using the going concern basis of accoun7ng unless the Directors either intend to liquidate the Group or the Parent company or to cease opera7ons, or have no realis7c alterna7ve but to do so. Auditor’s Responsibili0es for the Audit of the Financial Statements Our objec7ves 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 descrip7on of our responsibili7es for the audit of the ﬁnancial statements is located on the Financial Repor7ng Council’s website at: h8p://www.frc.org.uk/auditorsresponsibili7es. This descrip7on 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 ma8ers we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permi8ed 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. Michael Thornton (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 29 June 2020 Annual Report and Financial Statements for the year ended 31 December 2019 25 Rose Petroleum plc Consolidated Income Statement For the year ended 31 December 2019 Con0nuing opera0ons Administra7ve expenses Development expenses Foreign exchange (losses)/gains Opera0ng loss Impairment of ﬁnancial assets Fair value loss on investments Finance income Loss on ordinary ac0vi0es before taxa0on Taxa7on charge Loss for the year from con0nuing opera0ons Discon0nued opera0ons Proﬁt from discon7nued opera7ons, net of tax (Loss)/proﬁt for the year a1ributable to owners of the parent company (Loss)/proﬁt per Ordinary Share From con7nuing opera7ons Basic and diluted, cents per share From con7nuing and discon7nued opera7ons Basic and diluted, cents per share Notes 2019 US$’000 Restated 2018 US$’000 (1,601) (178) 1,082 (697) – (284) 3 (978) – (978) (1,785) (206) (819) (2,810) (201) – – (3,011) – (3,011) 1,987 1,077 (1,024) 99 (1.74) (0.74) (0.59) 0.08 6 7 8 9 10 13 14 15 15 The notes on pages 34 to 71 form part of the ﬁnancial statements. 26 Annual Report and Financial Statements for the year ended 31 December 2019 Consolidated Statement of Comprehensive Income For the year ended 31 December 2019 (Loss)/proﬁt for the year a1ributable to owners of the parent company Other comprehensive income Items that may be subsequently reclassiﬁed to proﬁt or loss, net of tax Foreign currency transla7on diﬀerences on foreign opera7ons Total comprehensive (loss)/income for the year a1ributable to owners of the parent company 2019 US$’000 (1,024) 2018 US$’000 99 (1,669) 2,394 (2,693) 2,493 The notes on pages 34 to 71 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2019 27 Rose Petroleum plc Consolidated Balance Sheet As at 31 December 2019 Non-current assets Intangible assets Property, plant and equipment Current assets Investments Trade and other receivables Cash and cash equivalents Total assets Current liabili0es Trade and other payables Lease liabili7es Non-current liabili0es Lease liabili7es Provisions Total liabili0es Net assets Equity Share capital Share premium account Warrant reserve Share-based payment reserve Cumula7ve transla7on reserve Retained deﬁcit Equity a1ributable to owners of the parent company Notes 16 17 18 19 20 21 22 22 24 25 27 26 27 27 27 Company No 04573663 2019 US$’000 13,549 77 13,626 – 112 1,084 1,196 14,822 (442) (45) (487) (8) (57) (65) 2018 US$’000 13,148 22 13,170 464 426 616 1,506 14,676 (387) – (387) – – – (552) 14,270 (387) 14,289 40,688 37,975 568 3,748 (9,972) (58,737) 14,270 40,504 36,472 341 3,645 (8,909) (57,764) 14,289 The ﬁnancial statements on pages 26 to 33 were approved by the Directors and authorised for issue on 29 June 2020 and are signed on its behalf by: CJ Eadie Chief Financial Oﬃcer The notes on pages 34 to 71 form part of the ﬁnancial statements. 28 Annual Report and Financial Statements for the year ended 31 December 2019 Consolidated Statement of Changes in Equity For the year ended 31 December 2019 As at 1 January 2018 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Transfer to warrant reserve Share-based payments Transfer to retained deﬁcit in respect of forfeited op7ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Proﬁt for the year Other comprehensive income: Currency transla7on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla7on diﬀerences on equity at historical rates Recycled foreign currency transla7on diﬀerences on discon7nued opera7ons As at 31 December 2018 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Transfer to warrant reserve Share-based payments Transfer to retained deﬁcit in respect of lapsed warrants Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla7on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla7on diﬀerences on equity at historical rates Recycled foreign currency transla7on diﬀerences on discon7nued opera7ons Share capital US$’000 Share premium account US$’000 Warrant reserve US$’000 Share-based Cumula0ve transla0on reserve US$’000 payment reserve US$’000 Retained deﬁcit US$’000 Total US$’000 40,463 35,657 – 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) (825) – – (3,614) (825) 40,504 36,472 341 3,645 (8,909) (57,764) 14,289 184 – – – – – 1,851 (121) (227) – – – – – 227 – – – – 46 – 100 (51) 8 184 1,503 227 103 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 51 – 51 2,035 (75) – 100 – 8 2,068 (1,024) (1,024) (1,669) (1,669) – – (1,669) (1,669) (1,669) (1,024) (2,693) 2,515 (1,909) – – 2,515 (1,909) As at 31 December 2019 40,688 37,975 568 3,748 (9,972) (58,737) 14,270 The notes on pages 34 to 71 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2019 29 Rose Petroleum plc Consolidated Cash Flow Statement For the year ended 31 December 2019 Opera0ng ac0vi0es Loss before taxa7on from con7nuing opera7ons Proﬁt before taxa7on from discon7nued opera7ons Notes 14 Fair value (gain)/loss on investments Other income Finance income Adjustments for: Deprecia7on of property, plant and equipment Gain on disposal of property, plant and equipment Gain on disposal intangible explora7on and evalua7on assets Impairment of intangible explora7on and evalua7on assets Impairment of ﬁnancial assets Share-based payments Unrealised foreign exchange gain Opera7ng ou6low before movements in working capital Decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash used in opera7ons Income tax recovered Net cash used in opera0ng ac0vi0es Inves0ng ac0vi0es Interest received Purchase of intangible explora7on and evalua7on assets Proceeds on disposal of property, plant and equipment Proceeds on disposal of intangible explora7on and evalua7on assets Proceeds on disposal of investments Net cash inﬂow on disposal of discon7nued opera7ons Loans advanced Net cash from/(used) in inves0ng ac0vi0es Financing ac0vi0es Proceeds from issue of shares Expenses of issue of shares Repayment of lease liabili7es Net cash from ﬁnancing ac0vi0es Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Eﬀect of foreign exchange rate changes Cash and cash equivalents at end of year The notes on pages 34 to 71 form part of the ﬁnancial statements. 2019 US$’000 (3,011) 1,987 (1,024) (27) – – 35 (5) (122) – 201 100 (1,076) (1,918) 119 142 (1,657) – (1,657) – (428) 5 122 502 – – 201 2,035 (75) (38) 1,922 466 616 2 1,084 Restated 2018 US$’000 (978) 1,077 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 30 Annual Report and Financial Statements for the year ended 31 December 2019 Company Balance Sheet As at 31 December 2019 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 Lease liabili7es Non-current liabili0es Lease liabili7es Total liabili0es Net assets Equity Share capital Share premium account Warrant reserve Share-based payment reserve Cumula7ve transla7on reserve Retained deﬁcit Total equity Notes 18 17 18 19 20 21 22 22 25 27 26 27 27 27 2019 US$’000 15,201 67 15,268 – 89 1,070 1,159 16,427 (213) (35) (248) (8) (256) 2018 US$’000 13,394 22 13,416 200 264 598 1,062 14,478 (148) – (148) – (148) 16,171 14,330 40,688 37,975 568 3,748 (8,344) (58,464) 16,171 40,504 36,472 341 3,645 (8,957) (57,675) 14,330 As permi8ed by sec7on 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 2019 is US$0.8 million (2018: US$1.6 million). The ﬁnancial statements on pages 26 to 33 were approved by the Directors and authorised for issue on 29 June 2020 and are signed on its behalf by: CJ Eadie Chief Financial Oﬃcer The notes on pages 34 to 71 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2019 31 Rose Petroleum plc Company Statement of Changes in Equity For the year ended 31 December 2019 As at 1 January 2018 Transac&ons with owners in their capacity as owners: Issue of equity shares Expenses of issue of equity shares Transfer to warrant reserve Share-based payments Transfer to retained deﬁcit in respect of forfeited op7ons Transfer to capital contribu7on in respect of forfeited op7ons Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla7on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla7on diﬀerences on equity at historical rates Share capital US$’000 Share premium account US$’000 Warrant reserve US$’000 Share-based Cumula0ve transla0on reserve US$’000 payment reserve US$’000 Retained deﬁcit US$’000 Total US$’000 40,463 35,657 – 3,687 (8,093) (56,100) 15,614 41 – – – – – – 41 – – – – – 1,304 (148) (341) – – – – 815 – – – – – – – 341 – – – – 341 – – – – – – 67 – 172 (41) (230) (10) (42) – – – – – – – – – – – – – – – – – – 41 – – 1,345 (81) – 172 – (230) (10) 41 (1,616) 1,196 (1,616) 2,750 2,750 – – 2,750 2,750 2,750 (1,616) 1,134 (3,614) – (3,614) As at 31 December 2018 40,504 36,472 341 3,645 (8,957) (57,675) 14,330 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 lapsed warrants Eﬀect of foreign exchange rates Total transac0ons with owners in their capacity as owner Loss for the year Other comprehensive income: Currency transla7on diﬀerences Total other comprehensive income for the year Total comprehensive income for the year Currency transla7on diﬀerences on equity at historical rates 184 – – – – – 1,851 (121) (227) – – – – – 227 – – – – 46 – 100 (51) 8 184 1,503 227 103 – – – – – – – – – – – – – – – – – – – – – – – – – – – – (1,902) (1,902) – – – – 51 – 51 (840) – – 2,035 (75) – 100 – 8 2,068 (840) (1,902) (1,902) (1,902) (840) (2,742) 2,515 – 2,515 As at 31 December 2019 40,688 37,975 568 3,748 (8,344) (58,464) 16,171 The notes on pages 34 to 71 form part of the ﬁnancial statements. 32 Annual Report and Financial Statements for the year ended 31 December 2019 Company Cash Flow Statement For the year ended 31 December 2019 Opera0ng ac0vi0es Loss before taxa7on Fair value loss on investments Finance income Adjustments for: Deprecia7on of property, plant and equipment Impairment of investments in subsidiary undertakings Impairment of ﬁnancial assets Share-based payments Unrealised foreign exchange Opera7ng cash ou6low before movements in working capital (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Net cash used in opera0ng ac0vi0es Inves0ng ac0vi0es Interest received Loans to subsidiary undertakings Proceeds on disposal of investments Loans advanced Net cash used in inves0ng ac0vi0es Financing ac0vi0es Proceeds from the issue of shares Expenses of issue of shares Repayment of lease liabili7es Net cash from ﬁnancing ac0vi0es Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Eﬀect of foreign exchange rate changes Cash and cash equivalents at end of year 2019 US$’000 (840) – (356) 10 152 201 83 79 (671) (31) 65 (637) – (1,040) 200 – (840) 2,035 (75) (13) 1,947 470 598 2 1,070 2018 US$’000 (1,616) 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 The notes on pages 34 to 71 form part of the ﬁnancial statements. Annual Report and Financial Statements for the year ended 31 December 2019 33 Rose Petroleum plc Notes to the Financial Statements For the year ended 31 December 2019 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 opera7ons and its principal ac7vity is the explora7on and development of O&G resources. 2. Adop0on of New and Revised Standards Standards adopted during the year The Group has adopted all of the new or amended Accoun7ng Standards and interpreta7ons issued by the Interna7onal Accoun7ng Standards Board (“IASB”) that are mandatory and relevant to the Group’s ac7vi7es for the current repor7ng period. IFRS 16 – Leases The Group adopted IFRS 16 Leases with eﬀect from 1 January 2019. The Group assessed the impact that ini7al applica7on of IFRS 16 will have on its consolidated ﬁnancial statements, as described below. IFRS 16 eliminates the classiﬁca7on of leases as either opera7ng or ﬁnance leases and introduces a single accoun7ng model requiring lessees to recognise assets and liabili7es for all leases unless the underlying asset has a low value or the lease term is twelve months or less. Lessees are required to recognise on the balance sheet right-of-use assets which represent the right to use underlying assets during the lease term and a lease liability represen7ng the minimum lease payments for all leases. Previously, the Group recognised opera7ng lease expense on a straight-line basis over the term of the lease, and recognised assets and liabili7es only to the extent that there was 7ming diﬀerence between actual lease payments and the expense recognised. The Group has now recognised new assets and liabili7es in respect of its leases of oﬃce facili7es in the UK and U.S.A. The nature of the expense related to those leases will now change because the Group will recognise a deprecia7on charge for right-of-use assets and an interest expense on lease liabili7es. The Group has applied the modiﬁed retrospec7ve approach. The cumula7ve eﬀect of adop7ng IFRS 16 has not been recognised as an adjustment to the opening balance of retained earnings at 1 January 2019 on the basis that it is considered to be immaterial. In accordance with the modiﬁed retrospec7ve approach, there has been no restatement of compara7ve informa7on. The adop7on of IFRS 16 has increased both non-current assets and total liabili7es at 31 December 2019 by US$0.06 million (2018: US$0.04 million) but has not had a material impact on the overall result for the year in the income statement. The Group has applied the recogni7on exemp7on for short-term leases which end within twelve months of the date of ini7al applica7on, and have accounted for these as an opera7ng expense on a straight-line basis over the term of the lease. The Group applied the prac7cal expedient to grandfather the deﬁni7on of a lease on transi7on, applying IFRS 16 to all contracts entered into before 1 January 2019 and iden7ﬁed as leases in accordance with IAS 17 and IFRIC 4. 34 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 2. Adop0on of New and Revised Standards con7nued A number of other new standards are also eﬀec7ve from 1 January 2019, but they do not have a material eﬀect on the Group’s ﬁnancial statements. • • • • • • Amendments to IAS 19 – Employee beneﬁts IFRIC 23 – Uncertainty over income tax treatments Amendments to IAS 28 – Long-term interests in associates and joint ventures Amendments to IFRS 9 – Prepayment features with nega&ve compensa&on Amendments resul7ng from annual improvements to IFRS Standards 2015-2017 Amendments to references to conceptual framework in IFRS Standards Standards issued but not yet eﬀec)ve Any new or amended Accoun7ng Standards or interpreta7ons that are not yet mandatory (and in some cases, had not yet been adopted by the EU) have not been early adopted by the Group for the year ended 31 December 2019. They are as follows: • • • Amendments to IFRS 3 – Deﬁni7on of a business Amendments to IAS 1 and IAS 8 – Deﬁni7on of material Amendments to IAS 1 – Classiﬁca7on of liabili7es as current or non-current The Directors do not expect that the adop7on of these Standards or Interpreta7ons in future periods will have a material impact on the ﬁnancial statements of the Company or the Group. 3. Signiﬁcant Accoun0ng Policies Basis of prepara0on The ﬁnancial statements have been prepared and approved by the Directors in accordance with Interna7onal Financial Repor7ng 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 liabili7es which are stated at their fair value. Historical cost is generally based on the fair value of the considera7on 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 interna7onal commodity markets which are primarily US$ based. All amounts have been rounded to the nearest thousand, unless otherwise indicated. As described below, the Directors con7nue 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 prepara7on being inappropriate. The accoun7ng 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 Discon7nued Opera7ons, the compara7ve income statement has been re-presented so that the disclosures in rela7on to discon7nued opera7ons relate to all opera7ons that have been discon7nued by the balance sheet date. Judgements made by the Directors in the applica7on of these accoun7ng policies that have signiﬁcant impact on the ﬁnancial statements and es7mates with a signiﬁcant risk of material adjustment in the next year, are discussed in note 4. Annual Report and Financial Statements for the year ended 31 December 2019 35 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Going concern As an explora7on group, the Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the explora7on programme and raise addi7onal working capital on an ad hoc basis to support the Group’s ac7vi7es. The Group has no bank facili7es and has been mee7ng its working capital requirements from cash resources. At the year end, the Group had cash and cash equivalents amoun7ng to US$1.1 million (2018: US$0.6 million). The Directors have prepared cash ﬂow forecasts for the Group for the period to June 2021 based on their assessment of both the discre7onary and the non-discre7onary cash requirements of the Group during this period. These cash ﬂow forecasts include its normal opera7ng costs for opera7ons together with all commi8ed development expenditure, and they indicate that the Group does not currently have suﬃcient cash resources to service these costs over the forecast period. Whilst the Board remains conﬁdent that the Group will be able to secure the required funding through equity issue or other ﬁnancial instruments, the 7ming and availability of funding sources is outside of the control of the Board. There can also be no certainty over the 7ming and extent of cash ﬂows arising from the Group’s explora7on ac7vi7es and hence any forecasts prepared by the Board will have inherent uncertain7es. Based on these forecasts, the current cash posi7on 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 con7nue in opera7on for at least the next twelve months. However, given that none of this funding is commi8ed at the date of these ﬁnancial statements this condi7on represents a material uncertainty regarding the use of the going concern basis. Whilst no7ng the material uncertainty above, the Directors con7nue 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 prepara7on 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 en77es 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 en7ty and has the ability to aﬀect those returns through its power over the en7ty. 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 accoun7ng policies used into line with those used by the Group. The Group applies the acquisi7on method to account for business combina7ons. The considera7on for each acquisi7on is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabili7es incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquire. All intra-group transac7ons, balances, income and expenses are eliminated on consolida7on. Investments in subsidiary undertakings Long term investments represen7ng interests in subsidiary undertakings are stated at cost less any provision for impairment in the value of the non-current investment. 36 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Intangible explora0on and evalua0on assets The Group applies the full cost method of accoun7ng for Explora7on and Evalua7on (“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 accoun7ng, costs of exploring for and evalua7ng 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 ac7vi7es that are on-going at the balance sheet date, pending determina7on of whether or not commercial reserves exist and (ii) costs of E&E that, whilst represen7ng part of the E&E ac7vi7es associated with adding to the commercial reserves of an established cost pool, did not result in the discovery of commercial reserves. Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as they are incurred. Explora)on and evalua)on costs All costs of E&E are ini7ally capitalised as E&E assets. Payments to acquire the legal right to explore, costs of technical services and studies, seismic acquisi7on, exploratory drilling and tes7ng are capitalised as intangible E&E assets. Intangible costs include directly a8ributable overheads together with the cost of other materials consumed during the explora7on and evalua7on phases. Treatment of E&E assets at conclusion of appraisal ac)vi)es Intangible E&E assets related to each explora7on licence/project are carried forward un7l 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 produc7on assets. Intangible E&E assets that related to E&E ac7vi7es that are determined not to have resulted in the discovery of commercial reserves remain capitalised as intangible E&E assets at cost less accumulated amor7sa7on, subject to mee7ng a pool-wide impairment test in accordance with the accoun7ng policy for impairment of E&E assets set out below. Such E&E assets are amor7sed on a unit-of-produc7on 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 situa7ons outlined in paragraph 20 of IFRS 6 Explora7on for and Evalua7on of Mineral Resources and include the point at which a determina7on is made as to whether or not commercial reserves exist. Where there are indica7ons 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 produc7on assets associated with that cost pool, as a single cash genera7ng 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 produc7on 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 wri8en oﬀ in full. Annual Report and Financial Statements for the year ended 31 December 2019 37 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued If the recoverable amount of a cash-genera7ng unit is es7mated to be less than its carrying amount, the carrying amount of the cash-genera7ng 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-genera7ng unit is increased to the revised es7mate 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-genera7ng unit in prior years. A reversal of an impairment loss is recognised immediately in proﬁt or loss. The Group considers each area of oil and gas explora7on, 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 deprecia7on and accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any costs directly a8ributable to bringing the asset into use. Deprecia7on 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 The es7mated useful lives, residual value and deprecia7on method are reviewed at the end of each repor7ng period, with the eﬀect of any changes in es7mate accounted for on a prospec7ve basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁts are expected to arise from the con7nued use of the asset. Any gain or loss arising on the disposal or re7rement 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. Leases The Group assesses whether a contract is or contains a lease, at incep7on of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases (deﬁned as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an opera7ng expense on a straight-line basis over the term of the lease. The lease liability is presented as a separate line in the Balance Sheet and is subsequently measured by reducing the carrying amount to reﬂect the lease payments made. The right-of-use assets comprise the ini7al measurement of the corresponding lease liability, lease payments made at or before the commencement day and any ini7al direct costs. They are subsequently measured at cost less accumulated deprecia7on and impairment losses. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. The right-of-use assets are presented within property, plant and equipment in the consolidated and company Balance Sheet. The Group applies IAS 36 Impairment of assets to determine whether a right-of-use asset is impaired. 38 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Foreign currencies For the purpose of the consolidated ﬁnancial statements, the results and ﬁnancial posi7on are expressed in United States dollar, which is the presenta7on currency for both company and consolidated ﬁnancial statements. In preparing the ﬁnancial statements of the individual companies, transac7ons in currencies other than the func7onal currency of each group company (“foreign currencies”) are translated into the func7onal currency at the rates of exchange prevailing on the dates of the transac7ons. At each repor7ng date, monetary assets and liabili7es that are denominated in foreign currencies are retranslated into the func7onal currency at the rates prevailing on the repor7ng date. Non-monetary assets and liabili7es 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 opera7on for which se8lement is neither planned nor likely to occur and which, therefore, form part of the net investment in the foreign opera7on. Foreign exchange diﬀerences arising on the transla7on of the Group’s net investment in foreign opera7ons are recognised as a separate component of Shareholders’ equity via the statement of other comprehensive income. On disposal of foreign opera7ons and foreign en77es, the cumula7ve transla7on diﬀerences are recognised in the income statement as part of the gain or loss on disposal. For the purpose of presen7ng company and consolidated ﬁnancial statements, the assets and liabili7es of the Company, and the Group’s opera7ons which have a func7onal currency other than United States dollar, are translated using exchange rates prevailing at the end of each repor7ng 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 transac7ons 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 transac7ons and foreign exchange diﬀerences arising, if any, are accumulated directly in equity. On the disposal of a foreign opera7on (i.e. a disposal of the Group’s en7re interest in a foreign opera7on, a disposal involving loss of control over a subsidiary that includes a foreign opera7on or loss of joint control over a jointly controlled en7ty that includes a foreign opera7on), all of the accumulated exchange diﬀerences in respect of that opera7on a8ributable to the Group are reclassiﬁed to proﬁt or loss. Where there is no change in the propor7onate percentage interest in an en7ty then there has been no disposal or par7al disposal and accumulated exchange diﬀerences a8ributable to the Group are not reclassiﬁed to proﬁt or loss. Fair value adjustments arising on the acquisi7on of a foreign opera7on are treated as assets and liabili7es of the foreign opera7on and translated at the rate of exchange prevailing at the end of each repor7ng period. Exchange diﬀerences arising are recognised in equity. Re0rement beneﬁts The Group makes contribu7ons 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. Annual Report and Financial Statements for the year ended 31 December 2019 39 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued 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 deduc7ble in other years and items that are never taxable or deduc7ble. The Group’s liability for current tax is calculated using tax rates that have been enacted or substan7vely enacted by the repor7ng date. Deferred tax is recognised on temporary diﬀerences between the carrying amounts of assets and liabili7es in the consolidated ﬁnancial statements and the corresponding tax bases used in the computa7on of taxable proﬁt. Deferred tax liabili7es are generally recognised for all taxable temporary diﬀerences and deferred tax assets are generally recognised for all deduc7ble temporary diﬀerences to the extent that it is probable that taxable proﬁts will be available against which those deduc7ble temporary diﬀerences can be u7lised. Such deferred tax assets and liabili7es are not recognised if the temporary diﬀerence arises from goodwill or from the ini7al recogni7on (other than in a business combina7on) of other assets and liabili7es in a transac7on which aﬀects neither the taxable proﬁt nor the accoun7ng proﬁt. Deferred tax liabili7es 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 deduc7ble 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 u7lise 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 repor7ng 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 liabili7es and assets are measured at the tax rates that are expected to apply in the period in which the liability is se8led or the asset realised, based on tax rates that have been enacted or substan7vely enacted at the repor7ng date. Current and deferred tax are recognised in proﬁt or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respec7vely. Where current tax or deferred tax arises from the ini7al accoun7ng for a business combina7on, the tax eﬀect is included in the accoun7ng for the business combina7on. Deferred tax assets and liabili7es are oﬀset when there is a legally enforceable right to set oﬀ current tax assets against current tax liabili7es and when they relate to income taxes levied by the same taxa7on authority and the Group intends to se8le its current tax assets and liabili7es on a net basis. Discon0nued opera0ons A discon7nued opera7on 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 opera7ons, is part of a single co- ordinated plan to dispose of such a line of business area or opera7on, or is a subsidiary acquired exclusively with a view to resale. Classiﬁca7on of a discon7nued opera7on occurs at the earlier of disposal or when the opera7on meets the criteria to be classiﬁed as held for sale. 40 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued The results of discon7nued opera7ons are presented separately on the face of the income statement and other comprehensive income. The compara7ve statement of proﬁt or loss and other comprehensive income is re-presented as if the opera7ons had been discon7nued from the start of the compara7ve year. Investments and other ﬁnancial instruments Recogni)on of ﬁnancial assets and ﬁnancial liabili)es Financial assets and ﬁnancial liabili7es are recognised on the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instrument, and are ini7ally measured at fair value. Transac7on costs are included as part of the ini7al measurement, except for ﬁnancial assets at fair value through proﬁt or loss. Investments and other ﬁnancial assets are subsequently measured at either amor7sed cost or fair value depending on their classiﬁca7on. Classiﬁca7on is determined based on both the business model within which such assets are held and the contractual cash ﬂow characteris7cs of the ﬁnancial asset unless an accoun7ng mismatch is being avoided. Financial liabili7es are subsequently measured at either amor7sed cost or fair value. Derecogni)on of ﬁnancial assets and ﬁnancial liabili)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 substan7ally all the risks and rewards of ownership of the asset to another en7ty. If the Group neither transfers nor retains substan7ally all the risks and rewards of ownership and con7nues 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 substan7ally all the risks and rewards of ownership of a transferred ﬁnancial asset, the Group con7nues to recognise the ﬁnancial asset and also recognises a collateralised borrowing for the proceeds received. On derecogni7on of a ﬁnancial asset and ﬁnancial liability a gain or loss is recognised in proﬁt or loss. Financial assets at fair value through proﬁt or loss Financial assets not measured at amor7sed 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 inten7on 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 amor7sed cost. The measurement of the loss allowance depends upon the Group’s assessment at the end of each repor7ng period as to whether the ﬁnancial instrument’s credit risk has increased signiﬁcantly since ini7al recogni7on, based on reasonable and supportable informa7on that is available without undue cost or eﬀort to obtain. Where there has not been a signiﬁcant increase in exposure to credit risk since ini7al recogni7on, a 12-month expected credit loss allowance is es7mated. This represents a por7on of the asset’s life7me expected credit losses that is a8ributable 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 life7me expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of an7cipated cash shor6alls over the life of the instrument discounted at the original eﬀec7ve 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. Annual Report and Financial Statements for the year ended 31 December 2019 41 Rose Petroleum plc Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Trade and other receivables Trade and other receivables are measured at ini7al recogni7on at fair value, and are subsequently measured at amor7sed cost using the eﬀec7ve interest method, less any allowance for expected credit losses. The Group has applied the simpliﬁed approach to measuring expected credit losses which uses a life7me 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 ini7ally measured at their fair value, and are subsequently measured at amor7sed cost using the eﬀec7ve interest rate method. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group a'er deduc7ng all of its liabili7es. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. The costs of an equity transac7on are accounted for as a deduc7on from equity to the extent they are incremental costs directly a8ributable to the equity transac7on that would otherwise have been avoided. Provisions Provisions are recognised when the Group has a legal or construc7ve obliga7on, as a result of past events, for which it is probable that an ou6low of economic resources will result and that ou6low can be reliably measured. The amount recognised as a provision is the best es7mate of the considera7on required to se8le the present obliga7on at the end of the repor7ng period, considering the risks and uncertain7es surrounding the obliga7on. When a provision is measured using the cash ﬂow es7mated to se8le the present obliga7on, its carrying amount is the present value of those cash ﬂows. Decommissioning Provision for decommissioning is recognised in full when the related assets 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 life of the asset. 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 deprecia7on of property, plant and equipment or for impairment of intangible explora7on and evalua7on assets, depending upon the stage of the assets at the 7me of re7rement. Periodic charges for changes in the net present value of the decommissioning provision arising from discoun7ng 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 transac7on between market par7cipants at the measurement date, and assumes that the transac7ons will take place either, in the principal market, or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assump7ons that market par7cipants 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. Valua7on 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. 42 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 3. Signiﬁcant Accoun0ng Policies con7nued Assets and liabili7es measured 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. Classiﬁca7ons are measured at each repor7ng 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-se8led share op7on plan and a share-based compensa7on plan in respect of certain Directors, employees and consultants. Equity-se8led share-based payments are measured at fair value (excluding the eﬀect of non-market based ves7ng condi7ons) at the date of grant. The fair value of the service received in exchange for the grant of op7ons and equity is recognised as an expense. The fair value determined at the grant date of equity-se8led share-based payment is expensed on a straight-line basis over the ves7ng period, based on the Group’s es7mate of shares that will eventually vest and adjusted for the eﬀect of non-market based ves7ng condi7ons. Fair value of op7on grants is measured by use of the Black Scholes model for non-performance-based op7ons. The expected life used in the model has been adjusted, based on management’s best es7mate, for the eﬀect of non- transferability, exercise restric7ons and behavioural considera7ons. The grant by the Company of op7ons and share-based compensa7on plans over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribu7on. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the ves7ng period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent en7ty 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 explora7on project are expensed directly to the income statement and included as opera7ng expenses. Development expenses Costs incurred by the Group in respect of the assessment and pursuit of poten7al new projects are expensed directly to the income statement and included as development expenses. Material expenses rela7ng to a speciﬁc project are disclosed on a separate line in the income statement. Segmental repor0ng Opera7ng segments are reported in a manner consistent with the internal repor7ng provided to the chief opera7ng decision maker. The chief opera7ng decision maker, who is responsible for alloca7ng resources and assessing performance of the opera7ng segments and making strategic decisions, has been iden7ﬁed as the Board of Directors. 4. Cri0cal Accoun0ng Judgements and Key Sources of Es0ma0on Uncertainty In the applica7on of the Group’s accoun7ng policies, which are described in note 3, the Directors are required to make judgements, es7mates and assump7ons about the carrying amounts of the assets and liabili7es that are not readily apparent from other sources. The es7mates and associated assump7ons are based on historical experience and other factors that are considered to be relevant. Actual results may diﬀer from these es7mates. Annual Report and Financial Statements for the year ended 31 December 2019 43 Rose Petroleum plc Notes to the Financial Statements con7nued 4. Cri0cal Accoun0ng Judgements and Key Sources of Es0ma0on Uncertainty con7nued The es7mates and underlying assump7ons are reviewed on an on-going basis. Revisions to accoun7ng es7mates are recognised in the period in which the es7mate 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 cri7cal judgements and es7ma7ons that the Directors have made in the process of applying the Group’s and Company’s accoun7ng policies and that have the most signiﬁcant eﬀect on the amounts recognised in the ﬁnancial statements: Recoverability of intangible explora0on and evalua0on assets – Group Determining whether an explora7on and evalua7on asset is impaired requires an assessment of whether there are any indicators of impairment, including by reference to speciﬁc impairment indicators prescribed in IFRS 6 Explora&on for and Evalua&on of Mineral Resources. If there is any indica7on of poten7al impairment, an impairment test is required based on the recoverable amount of the asset. The value in use calcula7on requires the en7ty to es7mate the future cash ﬂows expected to arise from the cash-genera7ng unit and a suitable discount rate in order to calculate present value. At 31 December 2019, the Directors considered the indicators of impairment as set out in IFRS 6 and have sa7sﬁed themselves that there was no requirement to perform an impairment test. During the year ended 31 December 2019, the Group completed a restructure of the Paradox project and entered into a new agreement with its partner RSOC. The agreement enables the Group to focus on a poten7ally highly economic core acreage posi7on which contains mul7ple high-priority drilling targets whilst also allowing the Group to reduce the overall cost of maintaining the project. The Group is now focusing on this core acreage whilst also recognising further explora7on poten7al in ﬁve shallower reservoir targets which could add even further value to the project over 7me. The Board believes that the restructured project is a highly a8rac7ve investment opportunity and ensures that the project will remain a central part of the Group’s future focus and ac7vity. The carrying amount of intangible explora7on and evalua7on assets at the balance sheet date was US$13.5 million (2018: US$13.1 million) and the Directors did not consider that it was appropriate to make a provision for impairment in respect of these assets at 31 December 2019. Recoverability of loans to subsidiary undertakings – Company only 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 ac7vity 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 un7l such 7me as the subsidiaries are in a posi7on to se8le. However, there is a risk that the indirectly held subsidiaries will not commence revenue- genera7ng ac7vi7es and that the carrying amount of the Company’s investment will, therefore, exceed the recoverable amount. In accordance with IFRS 9 Financial instruments, as the subsidiary undertakings cannot repay the loans at the repor7ng date, the Board has made an assessment of expected credit losses (“ECL”). Having considered mul7ple scenarios on the manner, 7ming, quantum and probability of recovery of the receivables, a cumula7ve life7me ECL of US$31.2 million has been recognised at 31 December 2019 (2018: US$30.2 million). 44 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 4. Cri0cal Accoun0ng Judgements and Key Sources of Es0ma0on Uncertainty con7nued The calcula7on of the allowance for life7me ECL requires a signiﬁcant degree of es7ma7on and judgement, in par7cular in determining the probability weighted likely outcome for each scenario considered. The Directors assessment of ECL included repayment through future cash ﬂows over 7me (which are inherently diﬃcult to forecast for the Group at its current stage of development), the amount that could be realised through an immediate sale of the subsidiary undertakings or its underlying assets and the loss that would arise should commercial extrac7on not occur. The Directors’ assessment of repayment through future cash ﬂows included a scenario where the loan was not recovered in full. The Directors’ allocated a probability weigh7ng of 65% to scenarios where recovery would be repayment over 7me, 10% to the scenario where immediate sale of the subsidiary undertaking or its underlying assets was contemplated, and 25% to the scenario where no extrac7on would occur. At 31 December 2019, the Company has total loans in its directly held subsidiaries of US$46.4 million (2018: US$43.2 million) See note 18. The outcome of any assessment is materially sensi7ve to the key assump7ons inherent in the calcula7on and any downside in these es7mates would result in an addi7onal impairment of the underlying loans. 5. Segmental Informa0on Subsequent to the discon7nuance of the Group’s uranium and copper opera7ons during the year (the ‘discon7nued opera7ons’) the Group has one main opera7ng segment, the explora7on and development of O&G resources, which is primarily based in U.S.A. This division is the basis on which the Group reports its segmental informa7on. Segmental informa7on about this division is presented below. Income statement Segmental results O&G Total segmental results Unallocated results Loss a'er taxa7on from con7nuing opera7ons Discon7nued opera7ons, net of tax (Loss)/proﬁt a'er taxa7on 2019 US$’000 (1,294) (1,294) (1,717) (3,011) 1,987 (1,024) Restated 2018 US$’000 687 687 (1,665) (978) 1,077 99 The unallocated results of US$1.7 million (2018: US$1.7 million) include costs associated with the development of new projects, Directors remunera7on and other general and administra7ve costs incurred by the Company only. Annual Report and Financial Statements for the year ended 31 December 2019 45 Rose Petroleum plc Notes to the Financial Statements con7nued 5. Segmental Informa0on con7nued Deprecia0on O&G Unallocated results Net foreign exchange (gains)/losses O&G Unallocated Discon7nued opera7ons 2019 US$’000 2018 US$’000 24 11 35 2019 US$’000 795 24 (1,912) (1,093) 5 – 5 Restated 2018 US$’000 (1,065) (17) 895 (187) Employees The average numbers of employees for the year for each of the Group’s principal divisions were as follows: O&G Discon7nued opera7ons Total segmental employees Unallocated employees Total employees Balance Sheet Segment assets O&G Total segmental assets Unallocated assets including cash and cash equivalents Con7nuing opera7ons Discon7nued opera7ons Total assets 2019 Number Restated 2018 Number 1 – 1 2 3 2019 US$’000 13,586 13,586 1,236 14,822 – 14,822 1 1 2 2 4 Restated 2018 US$’000 13,244 13,244 1,089 14,333 343 14,676 46 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 5. Segmental Informa0on con7nued Segmental liabili0es O&G Total segmental liabili7es Unallocated liabili7es Con7nuing opera7ons Discon7nued opera7ons Total liabili7es Segmental net assets O&G Total segmental net assets Unallocated net assets including cash and cash equivalents Discon7nued opera7ons Total net assets Addi0ons to intangible assets O&G Discon7nued opera7ons 6. Development Expenses U.S.A. 2019 US$’000 Restated 2018 US$’000 171 171 381 552 – 552 13,415 13,415 855 – 14,270 2019 US$’000 401 – 401 219 219 154 373 14 387 13,025 13,025 935 329 14,289 Restated 2018 US$’000 1,050 4 1,054 Con0nuing 2019 US$’000 206 Con0nuing 2018 US$’000 178 Development expenses represent material expenditure incurred by the Group in respect of the assessment and pursuit of speciﬁc projects. Annual Report and Financial Statements for the year ended 31 December 2019 47 Rose Petroleum plc Notes to the Financial Statements con7nued 7. Impairment of Financial Assets Other receivables Con0nuing 2019 US$’000 201 Con0nuing 2018 US$’000 – At 31 December 2018, classiﬁed within other receivables, the Group’s balance sheet included the sum of US$0.2 million, in respect of a loan made to Magellan Gold Corpora7on (“Magellan”). The loan was made to facilitate comple7on of the sale of its Mexico assets, is non-interest bearing and due for repayment when Magellan recovers indirect tax incurred in Mexico upon acquisi7on of the Group’s ore processing mill in the year ended 31 December 2017. See note 14. In accordance with IFRS 9 Financial instruments, whilst the Board intends to pursue repayment of the loan in full, it has assessed expected credit losses (“ECL”) and, having considered the current trading posi7on of Magellan within Mexico, a cumula7ve life7me ECL of US$ 0.2 million has been recognised at 31 December 2019 (2018: nil). 8. Fair Value Loss on Investments Change in fair value of investments Con0nuing 2019 US$’000 – Con0nuing 2018 US$’000 284 On 9 September 2017, the Group entered into a Stock Purchase Agreement with Magellan, which resulted in the disposal of the majority of the Group’s ore processing mill in Mexico, together with its associated assets, licences and agreements. See note 14. The considera7on for the transac7on, 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 considered that the fair value of the stock at 31 December 2018 was US$0.2 million, which approximated to its market value at that date of US$0.31 million. This resulted in a charge of US$0.3 million in respect of the change in fair value during the year ended 31 December 2018. The Group completed the sale of its holding in Magellan during the year ended 31 December 2019. See note 18. 9. Finance Income Interest on bank deposits Con0nuing 2019 US$’000 – Con0nuing 2018 US$’000 3 48 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 10. Loss before Taxa0on The loss before taxa7on for the year has been arrived at a'er charging/(credi7ng): Other income Impairment of receivables Deprecia7on of property, plant and equipment Deprecia7on of right-of-use assets Staﬀ costs excluding share-based payments Share-based payments Opera7ng leases – land and buildings Expense rela7ng to short-term leases Net foreign exchange losses/(gains) 11. Auditor’s Remunera0on Con0nuing 2019 US$’000 (20) 201 5 30 747 100 – 19 819 Restated Con0nuing 2018 US$’000 – – 5 – 526 172 24 – (1,082) Amounts payable to the external auditors and their associates in respect of both audit and non-audit services: Audit of these ﬁnancial statements Amounts receivable by the Company’s auditor and its associates in respect of: Audit of ﬁnancial statements of subsidiaries of the Company Taxa7on services – compliance 12. Staﬀ Costs The average monthly number of employees (including Execu7ve Directors) was: Con0nuing 2019 US$’000 Con0nuing 2018 US$’000 46 5 11 62 54 10 6 70 Oﬃce and management Opera7ons Group Company Con0nuing 2019 Number 2 1 3 Restated Con0nuing 2018 Number 2 1 3 Con0nuing 2019 Number Con0nuing 2018 Number 2 1 3 2 1 3 Annual Report and Financial Statements for the year ended 31 December 2019 49 Rose Petroleum plc Notes to the Financial Statements con7nued 12. Staﬀ Costs con7nued Their aggregate remunera7on comprised: Wages and salaries Social security costs Other pension costs Share-based payments Group Company Con0nuing 2019 US$’000 Restated Con0nuing 2018 US$’000 Con0nuing 2019 US$’000 Con0nuing 2018 US$’000 688 73 30 62 853(1) 512 60 36 118 726 553 64 30 62 709 483 58 36 83 660 (1) A propor7on of staﬀ costs were deferred during the year. See note 30. Included within Group wages and salaries is US$0.04 million (2018: US$0.08 million) capitalised to intangible explora7on and evalua7on assets. Included within Company wages and salaries is US$0.2 million (2018: US$0.1 million) which was recharged to other Group en77es. Included within both Group and Company wages and salaries are the sums of US$0.06 million in respect of pay in lieu of no7ce and US$0.03 million in respect of an ex-gra7a payment made to a former Director. The remunera7on of certain Company Directors is paid through a subsidiary en7ty and is therefore not included in the Company only aggregate remunera7on. Refer to note 30 for details regarding the remunera7on of the highest paid Director. 13. Taxa0on Current tax: Current year Deferred tax: Origina7on and reversal of temporary diﬀerences Tax charge on loss for the year 2019 US$’000 2018 US$’000 – – – – – – 50 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 13. Taxa0on con7nued The charge for the year can be reconciled to the loss per the income statement as follows: Loss before tax Loss mul7plied by the rate of corpora7on tax for UK companies of 19% (2018: 19%) Eﬀects of: Expenses/(income) not deduc7ble/chargeable for tax purposes Share-based payments Unrelieved tax losses carried forward Tax charge on loss for the year Con0nuing 2019 US$’000 (3,011) (572) 38 19 515 – Restated Con0nuing 2018 US$’000 (978) (186) (19) 33 172 – There has been no impact due to changes in UK taxa7on 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 u7lised in rela7on to the same opera7ons. 14. Discon0nued Opera0ons Mexico Mining Opera0ons On 9 September 2017, the Group entered into a Stock Purchase Agreement with 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. The transac7on completed on 1 December 2017. The Mexico opera7ons were treated as discon7nued opera7ons in the year ended 31 December 2018, and together with addi7onal winding up costs related to the disposal incurred during the year ended 31 December 2019, have been shown within a single amount on the face of the consolidated income statement. U.S.A. Uranium and Copper Explora0on Whilst all remaining licences rela7ng to the Group’s U.S.A. copper projects had previously been relinquished, AVEN Associates LLC, the Group’s U.S.A. copper explora7on company ﬁnally ceased all ac7vity and was closed during the year ended 31 December 2018. During the year ended 31 December 2019, the Group further relinquished its remaining uranium projects and VANE Minerals (US) LLC, the Group’s U.S.A. uranium explora7on company ceased all ac7vity and was closed. In accordance with IAS 21, all cumula7ve transla7on reserves rela7ng to the en7ty have been recycled to the proﬁt or loss, and the results have been disclosed as a single amount within the results of discon7nued opera7ons for the year ended 31 December 2019. The income statement for the prior period has been restated to conform to this presenta7on. Annual Report and Financial Statements for the year ended 31 December 2019 51 Rose Petroleum plc Notes to the Financial Statements con7nued 14. Discon0nued Opera0ons con7nued Loss from discon0nued opera0ons, net of tax The results of the discon7nued opera7ons, which have been included in the consolidated income statement were as follows: 2019 US$’000 2018 US$’000 Mexico Mining Opera0ons Expenses Gain on disposal of property, plant and equipment Foreign exchange gains Recycled currency transla7on diﬀerences, net of tax Loss from discon7nued opera7ons, net of tax U.S.A. Uranium and Copper Explora0on Other income Expenses Impairment of intangible explora7on and evalua7on assets Gain on disposal of property, plant and equipment Gain on disposal of intangible explora7on and evalua7on assets Fair value gain on investments Foreign exchange (losses)/gains Recycled currency transla7on diﬀerences, net of tax Proﬁt from discon7nued opera7ons, net of tax Total Discon0nued Opera0ons Loss from Mexico mining opera7ons Proﬁt from U.S.A. uranium and copper explora7on Proﬁt from discon7nued opera7ons, net of tax (55) – 11 – (44) 2019 US$’000 – (24) – 5 122 27 (8) 1,909 2,031 2019 US$’000 (44) 2,031 1,987 2019 US$’000 (36) 6 – 11 (19) Restated 2018 US$’000 264 (48) (4) – – – 70 814 1,096 Restated 2018 US$’000 (19) 1,096 1,077 Restated 2018 US$’000 Proﬁt per Ordinary Share Basic and diluted, cents per share 1.15 0.82 During the year, the discon7nued opera7ons contributed US$0.1 million ou6low (2018: US$0.05 million ou6low) to the Group’s net cash ou6low from opera7ng ac7vi7es, US$0.4 million inﬂow (2018: US$0.05 million inﬂow) to inﬂow from inves7ng ac7vi7es and US$ nil (2018: US$ nil) to net cash inﬂow from ﬁnancing ac7vi7es. 52 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 15. (Loss)/Proﬁt per Ordinary Share Basic (loss)/proﬁt per Ordinary Share is calculated by dividing the net (loss)/proﬁt for the year a8ributable to owners of the parent company by the weighted average number of Ordinary Shares in issue during the year. The calcula7on of the basic and diluted (loss)/proﬁt per Ordinary Share is based on the following data: Con0nuing opera0ons 2019 US$’000 Con0nuing and discon0nued opera0ons 2019 US$’000 Restated Con0nuing opera0ons 2018 US$’000 Con0nuing and discon0nued opera0ons 2018 US$’000 (Losses)/proﬁts (Losses)/proﬁts for the purpose of basic proﬁt/(loss) per Ordinary Share being net (loss)/proﬁt a8ributable to owners of the parent company Number of shares Weighted average number of shares for the purpose of basic (loss)/proﬁt per Ordinary Share (Loss)/proﬁt per Ordinary Share (3,011) (1,024) (978) 99 Number ’000 Number ’000 Number ’000 Number ’000 172,550 172,550 131,814 131,814 Basic and diluted, cents per share (1.74) (0.59) (0.74) 0.08 Due to the losses incurred from con7nuing opera7ons in the years reported, there is no dilu7ve eﬀect from the exis7ng share op7ons, share based compensa7on plan or warrants. Annual Report and Financial Statements for the year ended 31 December 2019 53 Rose Petroleum plc Notes to the Financial Statements con7nued 16. Intangible Assets Cost At 1 January 2018 Addi7ons Exchange diﬀerences At 1 January 2019 Addi7ons Disposals – discon7nued opera7ons At 31 December 2019 Impairment At 1 January 2018 Impairment charge Exchange diﬀerences At 1 January 2019 Disposals – discon7nued opera7ons At 31 December 2019 Carrying amount At 31 December 2019 At 31 December 2018 At 1 January 2018 Explora0on and evalua0on assets US$’000 17,863 1,054 1 18,918 401 (5,770) 13,549 5,765 4 1 5,770 (5,770) – 13,549 13,148 12,098 Rockies Standard 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 Coun7es, Utah, from Rockies Standard Oil Company LLC (“RSOC”), which retained the remaining 25 per cent working interest. In October 2019, the Group signed a new agreement with RSOC which gave it an immediate 75 per cent working interest ownership and operatorship of key acreage. This agreement replaced the earn-in structure of the original agreement and gave the Group immediate ownership of the highest poten7al 12,920 lease acres. The Group has terminated its remaining farm-in rights over less prospec7ve acreage and has reassigned those rights back to RSOC. The Group retains its obliga7ons under the original earn-in agreement to carry RSOC for a 25 per cent working interest on the ﬁrst well drilled on the project and has also agreed to carry RSOC for a 25 per cent working interest for the acquisi7on of speciﬁed targeted leases in and around the core acreage area, in aggregate, up to a total of US$0.5 million. It is the current view of both the Group and RSOC that the ﬁnal ﬁgure will be considerably lower and any payments would be incurred over an extended period of 7me. Costs incurred by the Group under both the original farm-in agreement and the revised agreement are accounted for as required by the relevant accoun7ng standards, including the capitalisa7on of intangible explora7on and evalua7on assets in accordance with IFRS 6. 54 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 16. Intangible Assets con7nued The Group’s total expenditure in respect of its U.S.A. O&G assets, included within intangible explora7on and evalua7on assets, as at 31 December 2019 is US$13.5 million (2018: US$13.1 million). U.S.A. Uranium Projects The US$5.5 million carrying value of the Group’s U.S.A. uranium projects was impaired in full at 31 December 2018. During the year ended 31 December 2019, the Group agreed the sale of its Eastern Star property and relinquished its interest in all other assets. These have now been classiﬁed as discon7nued opera7ons. See note 14. 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 explora7on. No expenditure on this project has been incurred in either of the years presented and the US$0.3 million carrying value of these assets was impaired in full at 31 December 2018. During the year ended 31 December 2019, the Group relinquished its interest in these assets which have now been classiﬁed as discon7nued opera7ons. See note 14. U.S.A. Copper Projects On 2 March 2016, the Group entered into an agreement with Burde8 Gold LLC (“Burde8”) to conduct explora7on drilling on the Ardmore copper project. The terms included a cash payment of US$5,350 and the Group retained a 15 per cent net proﬁt interest in the Ardmore project and any other claims that Burde8 might acquire within a three-mile area. No payments have been received in respect of the project in either of the years presented. Impairment of Intangible Explora0on and Evalua0on Assets At 31 December 2019, the Directors considered the indicators of impairment as set out in IFRS 6 and have sa7sﬁed themselves that there was no requirement to perform an impairment test. During the year ended 31 December 2019, the Group completed a restructure of the Paradox project and entered into a new agreement with its partner RSOC. The agreement enables the Group to focus on a poten7ally highly economic core acreage posi7on which contains mul7ple high-priority drilling targets whilst also allowing the Group to reduce the overall cost of maintaining the project. The Group is now focusing on this core acreage whilst also recognising further explora7on poten7al in ﬁve shallower reservoir targets which could add even further value to the project over 7me. The Board believes that the restructured project Is a highly a8rac7ve investment opportunity and ensures that the project will remain a central part of the Group’s future focus and ac7vity. As a result, the Directors did not consider that it was appropriate to make a provision for impairment in respect of these assets at 31 December 2019. Annual Report and Financial Statements for the year ended 31 December 2019 55 Rose Petroleum plc Notes to the Financial Statements con7nued 17. Property, Plant and Equipment Plant and machinery US$’000 Group Right-of-use assets US$’000 Total US$’000 Plant and machinery US$’000 Company Right-of-use assets US$’000 Total US$’000 Cost At 1 January 2018 Group transfer Disposals – discon7nued opera7ons Derecogni7on At 31 December 2018 Recogni7on of right-of-use assets on ini7al applica7on of IFRS 16 Addi7ons – right-of-use assets 183 – (21) (3) 159 – – At 31 December 2019 159 Accumulated deprecia0on At 1 January 2018 Charge for the year Disposals – discon7nued opera7ons Derecogni7on At 1 January 2019 Charge for the year At 31 December 2019 Carrying amount At 31 December 2019 At 31 December 2018 At 1 January 2018 156 5 (21) (3) 137 5 142 17 22 27 – – – – – 35 55 90 – – – – – 30 30 60 – – 183 – (21) (3) 159 35 55 249 156 5 (21) (3) 137 35 172 77 22 27 – 22 – – 22 – – 22 – – – – – 5 5 17 22 – – – – – – – 55 55 – – – – – 5 5 50 – – – 22 – – 22 – 55 77 – – – – – 10 10 67 22 – The Group deprecia7on charge has been allocated to the income statement as follows: Administra7ve expenses Con0nuing 2019 US$’000 35 Con0nuing 2018 US$’000 5 56 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 17. Property, Plant and Equipment con7nued Leases under IFRS 16 The Group applied IFRS 16 on 1 January 2019, and has now recognised new assets and liabili7es in respect of leased oﬃce premises in the UK and U.S.A. Un7l 1 January 2019, leases of property, plant and equipment were classiﬁed as opera7ng leases but on applica7on of IFRS 16 are now recognised as right-of-use assets with corresponding lease liabili7es. The nature of the expense related to those leases will now change because the Group will recognise a deprecia7on charge for right-of-use assets and an interest expense on lease liabili7es, where appropriate. In accordance with the modiﬁed retrospec7ve approach, there has been no restatement of compara7ve informa7on. The Group has applied the recogni7on exemp7on for short-term leases which end within twelve months of the date of ini7al applica7on. Accordingly, at 1 January 2019, the Group did not recognise one of its UK oﬃce leases under IFRS 16 as the remaining lease term was less than twelve months and have accounted for this as an opera7ng expense on a straight-line basis over the term of the lease. A new lease was entered into during the year and has been accounted for under IFRS 16. Diﬀerences between the opera7ng lease commitments disclosed at 31 December 2018 under IAS 17 and lease liabili7es recognised at 1 January 2019 are explained below: Minimum opera7ng lease commitments disclosed at 31 December 2018 Lease omi8ed from prior year disclosure Exclude opera7ng leases exempt under IFRS 16 Lease liability recognised at 1 January 2019 Group US$’000 Company US$’000 69 35 (69) 35 69 – (69) – Annual Report and Financial Statements for the year ended 31 December 2019 57 Rose Petroleum plc Notes to the Financial Statements con7nued 18. Investments Group Investment carried at fair value US$’000 Company Investment carried at fair value US$’000 Shares in subsidiary undertakings US$’000 Loans to subsidiary undertakings US$’000 Cost At 1 January 2018 Addi7ons Change in fair value Capital contribu7on Exchange diﬀerences At 1 January 2019 Addi7ons Disposals – con7nuing opera7ons Disposals – discon7nued opera7ons Change in fair value Capital contribu7on Exchange diﬀerences At 31 December 2019 Impairment At 1 January 2018 Impairment charge Exchange diﬀerences At 1 January 2019 Impairment charge Exchange diﬀerences At 31 December 2019 Carrying amount Non-current assets At 31 December 2019 Carrying amount Non-current assets Current assets At 31 December 2018 500 264 (284) – (16) 464 – (200) (302) 27 – 11 – – – – – – – – – – 500 – (284) – (16) 200 – (200) – – – – – – – – – – – – – – – 464 464 – 200 200 5,256 – – – (294) 4,962 – – – – – 199 5,161 5,002 (136) (274) 4,592 370 198 5,160 1 1 370 – 370 Total US$’000 49,052 2,565 (284) (197) (2,763) 48,373 1,397 (200) – – 18 1,943 51,531 35,500 1,323 (2,044) 34,779 152 1,399 36,330 43,296 2,565 – (197) (2,453) 43,211 1,397 – – – 18 1,744 46,370 30,498 1,459 (1,770) 30,187 (218) 1,201 31,170 15,200 15,200 15,201 15,201 13,024 – 13,024 13,394 200 13,594 Group On 9 September 2017, the Group entered into a Stock Purchase Agreement with Magellan, which resulted in the disposal of the majority of the Group’s ore processing mill in Mexico, together with its associated assets, licences and agreements. See note 14. The considera7on for the transac7on, 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 considered that the fair value of the stock at 31 December 2018 was US$0.2 million, which approximated to its market value at that date of US$0.31 million. This resulted in a charge of US$0.3 million in respect of the change in fair value during the year ended 31 December 2018. The Group completed the sale of its holding in Magellan during the year ended 31 December 2019 for US$0.2 million. 58 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 18. Investments con7nued On 27 November 2018, the Group announced that it had entered into an agreement with enCore Energy Corpora7on (“ENCORE”) in respect of its U.S.A. uranium explora7on project database. The agreement gave ENCORE exclusive access to the Group’s database for an ini7al term of ﬁve years to enable them to iden7fy explora7on projects which could be developed into commercial opera7ons. 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 exis7ng share capital of ENCORE. The Group 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, now presented within discon7nued opera7ons. The Group disposed of its en7re holding in ENCORE during the year ended 31 December 2019 for US$0.3 million, with a fair value gain being recognised within discon7nued opera7ons. See note 15. Company The Company investment at fair value in the prior year relates to the Magellan Stock Purchase Agreement described above. The Company has outstanding loans made to its subsidiaries which incur interest at a commercial rate, according to the Group’s inter-company loan policy. The loans are due for repayment once the subsidiaries commence revenue-genera7ng ac7vi7es which is not an7cipated within the next twelve months and, therefore the loans are presented within non-current assets. 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 en77es and consider that a provision of US$0.15 million (2018: US$1.3 million) should be recognised in the period. The Company had investments in the following subsidiary undertakings as at 31 December 2019: Place of incorpora0on (or registra0on) and opera0on Propor0on of ownership interest Propor0on of vo0ng power held Principal ac0vity Directly owned: VANE Minerals (UK) Limited Rose Petroleum (UK) Limited Indirectly owned: Minerales VANE S.A. de C.V. Rose Petroleum (US) LLC Rose Petroleum (Utah) LLC UK UK Mexico U.S.A. U.S.A. 100% 100% 100% 100% 100% 100% 100% Holding company Holding company 100% 100% 100% Mining Holding company Explora7on During the year ended 31 December 2019, the Group closed VANE Minerals (US) LLC, which previously held the Group’s U.S.A. uranium assets. Expenditure incurred has been classiﬁed as discon7nued opera7ons, and primarily comprises costs of cessa7on and recycling of foreign currency reserves through proﬁt or loss. See note 14. During the year ended 31 December 2019, Naab Energie GmbH which previously held the Group’s German licences was legally dissolved. The Group also closed Rose Cuba Limited, Rose Resources Limited and Rose Gypsum Limited, companies which had been dormant since incorpora7on. Annual Report and Financial Statements for the year ended 31 December 2019 59 Rose Petroleum plc Notes to the Financial Statements con7nued 18. Investments con7nued The registered oﬃce address of all companies incorporated in the United Kingdom is 20-22 Wenlock Road, London, N1 7GU. The registered oﬃce address for Minerales VANE S.A. de C.V. is Humboldt No. 121, Colonia del Valle, C.P. 78200, San Luis Potosi, S.L.P. The registered oﬃce address for Rose Petroleum (US) LLC and Rose Petroleum (Utah) LLC is 383 Inverness Parkway, Ste 330, Englewood, CO 80112. 19. Trade and Other Receivables VAT recoverable Tax recoverable Other receivables Prepayments & accrued income Group 2019 US$’000 2018 US$’000 Company 2019 US$’000 2018 US$’000 29 – 2 81 112 28 48 267 83 426 29 – – 60 89 17 – 195 52 264 At 31 December 2018, other receivables included the sum of US$0.2 million in respect of a loan made to Magellan. The loan was made to facilitate comple7on of the sale of its Mexico assets, is non-interest bearing and due for repayment when Magellan recovers indirect tax incurred in Mexico upon acquisi7on of the Group’s ore processing mill in the year ended 31 December 2017. In accordance with IFRS 9 Financial instruments, whilst the Board intends to pursue repayment of the loan in full, it has assessed expected credit losses (“ECL”) and, having considered the current trading posi7on of Magellan within Mexico, a cumula7ve life7me ECL of US$ 0.2 million has been recognised at 31 December 2019 (2018: nil). See note 7. 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. 20. Cash and Cash Equivalents Cash and cash equivalents held by the Group and the Company as at 31 December 2019 were US$1.1 million and US$1.1 million respec7vely (2018: US$0.6 million, US$0.6 million). The Directors consider that the carrying amount of these assets approximate to their fair value. 21. Trade and Other Payables Trade payables Taxes and social security Other payables Accruals Group 2019 US$’000 2018 US$’000 Company 2019 US$’000 2018 US$’000 84 17 115 226 442 160 22 116 89 387 73 17 1 122 213 39 22 – 87 148 Trade payables and accruals principally comprise amounts outstanding for trade purchases and on-going costs. 60 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 21. Trade and Other Payables con7nued Other payables primarily represent the poten7al liability due to the German licencing authori7es in respect of the relinquished hydrocarbon licences in south-western Germany. The Group has con7nued to recognise the remaining poten7al liability although it con7nues to nego7ate further reduc7ons with the German licencing authori7es. No interest is generally charged on balances outstanding. The Group has ﬁnancial risk management policies to ensure that all payables are paid within the credit 7me frame. The Directors consider that the carrying amount of trade and other payables approximates to their fair value. 22. Lease Liabili0es The Group applied IFRS 16 on 1 January 2019, and has now recognised new assets and liabili7es in respect of its leases of oﬃce facili7es. See note 17. The Group has applied the recogni7on exemp7on for short-term leases which end within twelve months of the date of ini7al applica7on, and have accounted for these as an opera7ng expense on a straight-line basis over the term of the lease. Current Non-current Maturity analysis Amounts due within one year Amounts due in 2-5 years Group 2019 US$’000 2018 US$’000 Company 2019 US$’000 2018 US$’000 45 8 53 – – – 35 8 43 – – – Group 2019 US$’000 2018 US$’000 Company 2019 US$’000 2018 US$’000 45 8 53 – – – 35 8 43 – – – The Group does not face a signiﬁcant liquidity risk with regard to lease liabili7es. Annual Report and Financial Statements for the year ended 31 December 2019 61 Rose Petroleum plc Notes to the Financial Statements con7nued 23. Deferred Tax There are unrecognised deferred tax assets in rela7on to: UK tax losses U.S.A. tax losses Mexican tax losses 2019 US$’000 5,372 7,173 337 12,882 2018 US$’000 5,178 16,367 511 22,056 Reduc7ons to the UK corpora7on tax rates were substan7vely enacted as part of the Finance Bill 2016 on 6 September 2016 which would reduce the main rate to 17% from 1 April 2020. However, in a pre-elec7on manifesto Boris Johnson pledged to put the reduc7on from 19% to 17% on hold if the Conserva7ves won the elec7on and having done so, the freeze in rate was substan7vely enacted during the 2020 Budget. A deferred tax asset has not been provided in respect of these losses as there is currently insuﬃcient evidence that the asset will be recoverable in the foreseeable future. 24. Provisions At 1 January Addi7ons At 31 December Non-current provision Group decommissioning 2019 US$’000 2018 US$’000 – 57 57 57 – – – – In accordance with the Group’s environmental policy and applicable legal requirements, the Group expects to restore sites where it has carried on ac7vi7es, following ﬁnal conclusion of those ac7vi7es. Under the terms of the revised agreement with RSOC, the Group acquired ownership of the State 16-42 well including all restora7on obliga7ons in respect of this asset. Restora7on is not expected to take place within the next twelve months. 25. Share Capital Authorised Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Allo1ed, issued and fully paid Ordinary Shares of 0.1p each Deferred Shares of 9.9p each Group and Company 2019 Number ‘000 7,779,297 227,753 8,007,050 287,112 227,753 514,865 US$’000 10,323 29,921 40,244 383 40,305 40,688 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 62 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 25. Share Capital con7nued The Deferred Shares are not listed on AIM, do not give the holders any right to receive no7ce of, or to a8end or vote at, any general mee7ngs, have no en7tlement to receive a dividend or other distribu7on or any en7tlement to receive a repayment of nominal amount paid up on a return of assets on a winding up nor to receive or par7cipate in any property or assets of the Company. The Company may, at its op7on, at any 7me 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’ no7ce in wri7ng. Issued ordinary share capital 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). On 30 May 2019, the Company issued 25,000,000 Ordinary Shares of 0.1p each at a price of 1.2p per share, raising gross proceeds of US$0.4 million (£0.3 million). On 28 August 2019, the Company issued 2,500,000 Ordinary Shares of 0.1p each at a price of 0.6p per share, raising gross proceeds of US$0.018 million (£0.015 million). On 8 November 2019, the Company issued 31,182,780 Ordinary Shares of 0.1p each at a price of 1.1p per share, raising gross proceeds of US$0.4 million (£0.35 million). On 22 November 2019, the Company issued 82,453,584 Ordinary Shares of 0.1p each at a price of 1.1p per share, raising gross proceeds of US$1.2 million (£0.9 million). On 22 November 2019, the Company issued 1,325,757 Ordinary Shares of 0.1p each at a price of 1.1p per share, raising gross proceeds of US$0.019 million (£0.015 million). On 9 December 2019, the Company issued 1,235,545 Ordinary Shares of 0.1p each at a price of 1.1p per share, raising gross proceeds of US$0.018 million (£0.014 million). At 1 January 2018 Allotment of shares At 1 January 2019 Allotment of shares At 31 December 2019 Ordinary Shares Number ‘000 Deferred Shares Number ‘000 112,645 30,769 143,414 143,698 287,112 227,753 – 227,753 – 227,753 Annual Report and Financial Statements for the year ended 31 December 2019 63 Rose Petroleum plc Notes to the Financial Statements con7nued 26. Warrant Reserve In May 2018, the Company issued 30,769,231 Ordinary Shares of 0.1p each. In addi7on to the placing shares, subscribers were issued warrants to subscribe for 30,769,231 new Ordinary Shares, represen7ng one warrant for each placing share. The warrants are exercisable at a price of 6.5 pence per Ordinary Share for a period of two years from the date of issue. In November 2019, the Company undertook a fundraise which resulted in the issue of 31,182,780 Ordinary Shares of 0.1p each on 8 November followed by a further 82,453,584 Ordinary Shares of 0.1p each on 22 November 2019, resul7ng in the total issue of 113,636,364 Ordinary Shares. See note 25. In respect of this par7cular share issue, subscribers were also issued warrants to subscribe for 56,818,182 new Ordinary Shares, represen7ng one warrant for every two placing shares. The warrants are exercisable at a price of 2 pence per Ordinary Share for a period of two years from the date of issue. At 1 January 2018 Granted At 1 January 2019 Granted At 31 December 2019 Warrants Number ‘000 3,572 30,769 34,341 56,818 91,159 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 valua7on were as follows: Exercise price (pence) Expected vola7lity (%) Expected life (years) Risk free rates (%) Expected dividends Performance condi7on Issued in year 56,818,182 warrants 2 78 2 0.53 – None Expected vola7lity 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$0.2 million (2018: US$0.3 million), and this has been recognised out of gross proceeds as a warrant reserve within equity. 27. Reserves The share premium account represents the sum paid, in excess of the nominal value, of shares allo8ed, net of the costs of issue. The warrant reserve represents accumulated charges made in respect of the issue of warrants to Shareholders. See note 26. The share-based payment reserve represents accumulated charges made under IFRS 2 in respect of share-based payments. 64 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 27. Reserves con7nued The cumula7ve transla7on reserve represents foreign exchange diﬀerences arising on the transla7on of foreign opera7ons and any net gain/(loss) on the hedge of net investment in foreign subsidiaries. The cumula7ve transla7on reserve also represents the net eﬀect of the fact that the func7onal currency of the parent undertaking is GBP, whilst its repor7ng currency is US$, resul7ng in exchange diﬀerences on transla7on of the parent undertakings equity. The retained deﬁcit includes all current and prior period retained losses. 28. Share-Based Payments Equity Se1led Share Op0on Plan The Company has a Share Op7on Plan, 2013 Share Op7on Plan Part A (employees) and 2013 Share Op7on Plan Part B (non-employees), under which op7ons to subscribe for the Company’s shares have been granted to certain Directors and to selected employees and consultants. On 6 April 2018, the Company issued 7.9 million share op7ons with an exercise price of 3.5 pence per Ordinary Share, which vest in three equal tranches on 6 April 2019, 2020 and 2021. The op7ons can be exercised up un7l the tenth anniversary of the grant date. At 31 December 2019, 11.3 million share op7ons had been granted under the terms of the Share Op7on Plans and not exercised. The Company has no legal or construc7ve obliga7on to repurchase or se8le the op7ons in cash. The latest date for exercise of the op7ons is 6 April 2028 and, unless otherwise agreed, the op7ons are forfeited if the employee or consultant leaves the Group before the op7ons vest, or if those op7ons which have vested are not exercised within three months of leaving. Details of the share op7ons 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 11,267 – – 11,267 5,300 2019 Weighted average exercise price 2018 Number of op0ons ‘000 Weighted average exercise price 25.75p – – 25.75p 49.4p 3,799 7,900 (432) 11,267 1,967 189.0p 3.5p 60.65p 25.75p 120.82p The op7ons outstanding and not yet vested at 31 December 2019 had an es7mated weighted average remaining contractual life of 8 years (2018: 9 years), with an exercise price ranging between 3.5p and 14p. The fair value of the op7ons granted during the year ended 31 December 2018 was US$0.2 million. In the year ended 31 December 2019, the Company recognised a total expense of US$0.1 million (2018: US$0.2 million) in respect of the Share Op7on Plan. Annual Report and Financial Statements for the year ended 31 December 2019 65 Rose Petroleum plc Notes to the Financial Statements con7nued 28. Share-based payments con7nued Warrants On 22 May 2018, the Company issued 1,538,461 warrants to TPI, in respect of broker services provided by them in rela7on 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 7me un7l 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. On 22 November 2019, the Company issued 2,727,273 warrants to TPI, in respect of broker services provided by them in rela7on to the placing of the Company’s shares. The warrants permit the holder to subscribe for one new Ordinary Share at a price of 1.32 pence per share and are exercisable at any 7me un7l 22 November 2022. 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 26 October 2019, 428,571 warrants issued in previous years lapsed without being exercised. The fair value of the warrants previously recognised was US$0.05 million and has been recognised as a transfer between equity reserves. The fair value of the warrants issued during the year was US$0.05 million (2018: US$ 0.06 million). In accordance with the Group’s accoun7ng policy, the costs of an equity transac7on are accounted for as a deduc7on from equity to the extent that they are incremental costs directly a8ributable to the equity transac7on 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 2019. Details of the warrants included in share-based payments and outstanding at the end of the year were as follow: At 1 January 2018 Granted At 1 January 2019 Granted lapsed At 31 December 2019 29. Financial Instruments Warrants Number ‘000 4,054 1,538 5,592 2,727 (428) 7,891 Financial Risk Management Objec0ves Management provides services to the business, co-ordinates access to domes7c and interna7onal ﬁnancial markets and monitors and manages the ﬁnancial risks rela7ng to the opera7ons 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 deriva7ve ﬁnancial instruments, for specula7ve purposes. 66 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 29. Financial Instruments con7nued Capital Risk Management The Group manages its capital to ensure that en77es in the Group will be able to con7nue as going concerns, while maximising the return to Shareholders through the op7misa7on of the debt and equity balance. The Group’s overall strategy remains unchanged from 2018. The capital structure of the Group consists of cash and cash equivalents and equity a8ributable 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 accoun7ng policies and methods adopted, including the criteria for recogni7on, the basis of measurement, the basis on which income and expenses are recognised, in respect of each class of ﬁnancial asset, ﬁnancial liability and equity instrument are disclosed in note 3. Categories of ﬁnancial instruments Financial assets measured at amor0sed cost Cash and cash equivalents 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 Lease liabili7es Accruals Group 2019 US$’000 2018 US$’000 1,084 2 – 1,086 616 267 – 883 Group 2019 US$’000 2018 US$’000 2019 US$’000 1,070 – 13,300 14,370 2019 US$’000 Company Company 2018 US$’000 598 195 13,024 13,817 2018 US$’000 – 464 – 200 Group 2019 US$’000 2018 US$’000 Company 2019 US$’000 2018 US$’000 84 115 53 226 478 160 116 – 89 365 73 1 43 122 239 39 – – 87 126 Annual Report and Financial Statements for the year ended 31 December 2019 67 Rose Petroleum plc Notes to the Financial Statements con7nued 29. Financial Instruments con7nued 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 transac7ons denominated in foreign currencies, with the result that exposure to exchange rate ﬂuctua7ons 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 obliga7on to spend in the same denomina7on. 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 func7onal currency is diﬀerent to presenta7on currency. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabili7es at the repor7ng date are as follows: GBP Liabili0es Assets 2019 US$’000 114 2018 US$’000 116 2019 US$’000 535 2018 US$’000 354 Foreign Currency Sensi0vity Analysis The func7onal currencies of the Group are Pound Sterling (GBP), US dollars (US$) and Mexican Peso (MXN). The ﬁnancial statements of the Group’s foreign subsidiaries are denominated in foreign currencies. The Group is exposed primarily to movements in US$ in respect of foreign currency risk arising from recognised assets. Sensi7vity 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 posi7ve sensi7vity when compared to historical movements over a three to ﬁve-year 7meframe. The sensi7vity analysis includes only outstanding foreign currency denominated monetary items and adjusts their transla7on at the period end for a ﬁve per cent change in foreign currency rates. The table below details the Group’s sensi7vity to a ﬁve per cent decrease in US$ against GBP. A posi7ve 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 nega7ve. Income statement 2019 US$’000 (1,090) 2018 US$’000 (988) 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 substan7al exposure to ﬂuctua7ng interest rates on its liabili7es. The Group has no liabili7es which a8ract interest charges at 31 December 2018. 68 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 29. Financial instruments con7nued Liquidity Risk Management Ul7mate 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 con7nuously monitoring forecast and actual cash ﬂow. Credit Risk Management Credit risk refers to the risk that a counterparty will default on its contractual obliga7ons resul7ng in ﬁnancial loss to the Group. The Group does not have any signiﬁcant credit risk exposure on trade and other receivables. The maximum exposure to credit risk at the repor7ng 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 wri8en oﬀ when there is no reasonable expecta7on of recovery. The credit risk on liquid funds (cash) is considered to be limited because the counterpar7es are ﬁnancial ins7tu7ons with high and good credit ra7ngs assigned by interna7onal credit-ra7ng agencies. 30. Related Party Transac0ons Amounts due from Subsidiaries Group Balances and transac7ons between the Company and its subsidiaries which are related par7es, have been eliminated on consolida7on and are not disclosed in this note. Company The Company has entered into a number of unsecured related party transac7ons with subsidiary undertakings. The most signiﬁcant transac7ons 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 transac7ons are as follows: Loans Management charges Interest (1.75%) Capital contribu7on Transac0ons in the year US$’000 386 630 356 18 2019 2018 Amounts owing US$’000 34,662 5,137 5,558 1,013 Transac0ons in the year US$’000 1,164 749 685 (197) Amounts owing US$’000 32,956 4,309 4,989 957 Annual Report and Financial Statements for the year ended 31 December 2019 69 Rose Petroleum plc Notes to the Financial Statements con7nued 30. Related Party Transac0ons con7nued Remunera0on of Key Management Personnel The remunera7on 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 Ex-gra7a payment Consultancy payments Post-employment beneﬁts Share-based payments 2019 2018 Purchase of services US$’000 Amounts owing US$’000 Purchase of services US$’000 Amounts owing US$’000 622 32 20 26 59 759 125 – – 9 – 134 444 – 54 34 107 639 – – 6 2 – 8 The amounts outstanding are unsecured and will be se8led in cash. No guarantees have been given or received. All transac7ons with related par7es have been conducted on an arm’s length basis. Directors’ emoluments Remunera7on paid to Directors during the year was as follows: 2019 Emoluments Emoluments(1) Emoluments(1) en0tlement US$’000 taken US$’000 not taken Consultancy US$’000 US$’000 Ex-gra0a US$’000 Pension US$’000 Total US$’000 Execu0ve Directors JC Harrington MC Idiens CJ Eadie KB Sco8 Non-execu0ve Directors PE Jeﬀcock RL Grant TH Reynolds GB Stein 325 192 130 13 32 65 46 46 54(2) 197(3) 137 17(5) 11(6) 20(7) 8(8) 80(2) – – – – 19(6) 12(7) 7(8) 849 444 118 – – – 4(4) – – – – 4 – 32 – – – – – – 32 – 13 13 – – – – – 134 242 150 4 17 30 32 15 26 624 (1) Emoluments include beneﬁts-in-kind which are not included in emoluments en7tlement (2) Emolument from the date of appointment on 24 May 2019 (3) Emolument to the date of resigna7on on 30 August 2019, including pay in lieu of no7ce (4) Emolument to the date of resigna7on on 23 April 2019 (5) Emolument to the date of resigna7on on 11 April 2019 (6) Emolument from the date of appointment on 27 June 2019 (7) Emolument from the date of appointment on 23 April 2019 (8) Emolument from the date of appointment on 3 September 2019 70 Annual Report and Financial Statements for the year ended 31 December 2019 Notes to the Financial Statements con7nued 30. Related party Transac0ons con7nued Execu0ve Directors MC Idiens KB Sco8 CJ Eadie Non-execu0ve Directors PE Jeﬀcock Emoluments en0tlement US$’000 Emoluments(1) 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 en7tlement The remunera7on of Directors and key execu7ves is decided by the remunera7on commi8ee having regard to comparable market sta7s7cs. Directors’ share op7ons are detailed in the Directors Report. Directors’ pensions The number of Directors to whom re7rement beneﬁts are accruing under money purchase schemes was 2019 No. 2 2018 No. 3 31. Post Balance Sheet Events Following the year end, and the outbreak of Coronavirus (COVID-19), the priority of the Board has been on the health and safety of its employees and technical staﬀ. Like many organisa7ons, plans have been implemented and ac7ve measures have been taken to mi7gate risk, such as no one-to-one contact and a move to virtual mee7ngs. The Board is also in frequent contact with the Group’s partners and technical team to assess any poten7al impact on the Group’s assets. We con7nue to follow the most up-to-date Government advice and engage with the regulatory bodies and stakeholders. To date the Group’s ac7vi7es have con7nued in line with plans and with minimal impact from COVID-19. However, the Board recognises COVID-19 and associated geo-poli7cal factors have created uncertainty around the price and demand for oil. The long-term dynamics of the Group’s intangible explora7on and evalua7on assets held in the U.S.A. remain strong and the Board does not consider that any impairment of these assets is likely as a result of COVID-19. However, the Board con7nues to monitor the situa7on closely and will, through consulta7on with its stakeholders, make any appropriate adjustments as and when required. Annual Report and Financial Statements for the year ended 31 December 2019 71 Rose Petroleum plc Important informa7on regarding the Annual General Mee7ng In the lead up to the annual general mee7ng, we are closely monitoring the impact of the COVID-19 virus in the United Kingdom. Currently, Shareholders are strongly advised to not a8end the annual general mee7ng given the Stay at Home Measures currently in force to limit the spread of COVID-19. Shareholders who do seek to a8end the general mee7ng will not be admi8ed to the mee7ng. Although this is an unusual step we will be minimising contact between Shareholders and our Board members. We are planning to conduct the mee7ng with the minimum necessary quorum of two Shareholders present in person or by proxy. Social distancing measures will be in place. Shareholders are therefore encouraged to submit a form of proxy accompanying this no7ce (“Form of Proxy”) by following the instruc7ons in the Notes to the annual general mee7ng. Proxy votes must be received by Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not less than 48 hours before the 7me appointed for the mee7ng. Shareholders are urged to appoint the Chair of the mee7ng as his or her proxy in light of the COVID-19 virus. Shareholders and their proxies will (other than the chairperson) not be allowed to a8end the mee7ng in person. The Board understands that beyond vo7ng on the formal business of the mee7ng, the general mee7ng also serves as a forum for Shareholders to raise ques7ons and comments to the Board. Therefore, if Shareholders do have any ques7ons or comments rela7ng to the business of the mee7ng that they would like to ask the Board then they are asked to submit those ques7ons in wri7ng via email to chris.eadie@rosepetroleum.com no later than 2 p.m. on 27 June 2020. The Board will publish a summary of any ques7ons received which are of common interest, together with a wri8en response on the Company’s website as soon as prac7cable a'er the conclusion of the annual general mee7ng. Only ques7ons from registered Shareholders of the Company will be accepted. If you need help with comple7ng the Form of Proxy, please contact Chris Eadie by email – chris.eadie@rosepetroleum.com. 72 Annual Report and Financial Statements for the year ended 31 December 2019 No7ce of Annual General Mee7ng NOTICE IS HEREBY GIVEN that the Annual General Mee7ng of Rose Petroleum plc (“Company”) will be held at the oﬃces of the Company at First Floor, Newmarket House, Market Street, Newbury, Berks, RG14 5DP, United Kingdom on 29 July 2020 at 2 p.m. to consider and, if thought ﬁt, pass the following resolu7ons (“Resolu0ons” and each a “Resolu0on”), of which Resolu7ons 1 to 5 (inclusive) will be proposed as ordinary resolu7ons and Resolu7ons 6 and 7 will be proposed as special resolu7ons. Ordinary Resolu0ons 1. 2. 3. 4. 5. To receive and adopt the annual report and accounts for the year ended 31 December 2019, together with the reports of the Directors and the auditor thereon. To re-elect Mr Christopher John Eadie, who re7res by rota7on, as a Director. To re-elect Mr Gordon Bowman Stein as a Director who was appointed since the previous annual general mee7ng of the Company. To re-appoint RSM UK Audit LLP as auditor to act as such un7l the conclusion of the next annual general mee7ng of the Company at which the requirements of sec7on 437 of the Companies Act 2006 (“CA 2006”) are complied with and to authorise the Directors of the Company to ﬁx its remunera7on. That the Directors be generally and uncondi7onally authorised in accordance with sec7on 551 of the CA 2006 to issue and allot ordinary shares of £0.001 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 £200,000 (represen7ng approximately 69.9 per cent. of the issued share capital of the Company), to such persons at such 7mes and on such terms as they think proper, provided that this authority shall, unless renewed, varied or revoked by the Company in general mee7ng, expire on the date falling 15 months from the date of the passing of this Resolu7on, or if earlier, at the conclusion of the annual general mee7ng of the Company in 2021, save that the Company may at any 7me before such expiry make an oﬀer or agreement which might require Ordinary Shares to be allo8ed 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 subs7tu7on for all previous authori7es conferred on the Directors in accordance with sec7on 551 of the CA 2006. Special Resolu0ons 6. That, subject to and condi7onal upon the passing of Resolu7on 5 above, the Directors be generally empowered pursuant to sec7on 570 of the CA 2006 to allot equity securi7es (as deﬁned in sec7on 560 of the CA 2006) for cash as if sec7on 561(1) of the CA 2006 did not apply to any such allotment pursuant to the general authority conferred on them by Resolu7on 5 above (as varied from 7me to 7me by the Company in general mee7ng) PROVIDED THAT such power shall be limited to:- (a) the allotment of equity securi7es in connec7on with a rights issue or any other oﬀer to holders of Ordinary Shares in propor7on (as nearly as may be prac7cable) to their respec7ve holdings and to holders of other equity securi7es as required by the rights of those securi7es or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in rela7on to treasury shares, frac7onal en7tlements, record dates, legal or prac7cal problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange in any territory; (b) the allotment of equity securi7es pursuant to the terms of any share schemes for Directors and employees of the Company or any of its subsidiaries; and Annual Report and Financial Statements for the year ended 31 December 2019 73 Rose Petroleum plc No7ce of Annual General Mee7ng con7nued (c) the allotment otherwise than pursuant to sub paragraph (a) to (b) (inclusive) above of equity securi7es up to an aggregate nominal amount of £200,000 represen7ng approximately 69.9 per cent of the issued share capital of the Company, and the power hereby conferred shall operate in subs7tu7on for and to the exclusion of any previous power given to the Directors pursuant to sec7on 570 of the CA 2006 and shall expire on whichever is the earlier of the conclusion of the annual general mee7ng of the Company in 2021 or the date falling 15 months from the date of the passing of this Resolu7on (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 securi7es to be allo8ed a'er such expiry and the Directors may allot equity securi7es in pursuance of such oﬀer or agreement notwithstanding that the power conferred by this Resolu7on has expired. 7. That the registered name of the Company be changed to Zephyr Energy PLC. Registered Oﬃce 20- 22 Wenlock Road London N1 7GU 29 June 2020 On behalf of the Board CJ Eadie Company Secretary 74 Annual Report and Financial Statements for the year ended 31 December 2019 No7ce of Annual General Mee7ng con7nued Notes: The following notes explain your general rights as a Shareholder and your right to a8end and vote at this mee7ng or appoint someone to vote on your behalf. These notes need to be considered subject to the UK Government’s measures that are currently in force to limit the spread of COVID-19. En0tlement to a1end and vote 1 Only those members registered on the Company’s register of members at: • • 6.00 p.m. 27 July 2020; or, if this annual general mee7ng is adjourned, as at 6.00 p.m. on the day two days prior to the adjourned mee7ng, shall be en7tled to a8end and vote at the annual general mee7ng. Appointment of proxies 2 A member is ordinarily en7tled to appoint another person as his or her proxy to exercise all or any of his or her rights to a8end and to speak and vote at the mee7ng. A proxy need not be a member of the Company. However, Shareholders are urged to appoint the Chair of the mee7ng as his or her proxy in light of the COVID-19 virus, as Shareholders and their proxies will not be allowed to a8end the mee7ng in person. 3 4 5 6 7 8 9 10 11 Your 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 7me appointed for the mee7ng. A vote withheld is not a vote in law which means that the vote will not be counted in the calcula7on of votes for or against the Resolu7on. If no vo7ng indica7on is given, your proxy will vote or abstain from vo7ng at his or her discre7on. Your proxy will vote (or abstain from vo7ng) as he or she thinks ﬁt in rela7on to any other ma8er which is put before the annual general mee7ng. A prepaid form of proxy is enclosed. To be valid any form of proxy and power of a8orney or other authority under which it is signed or a notarially cer7ﬁed 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 7me appointed for the mee7ng or any adjourned mee7ng. Under the Company’s ar7cles of associa7on, the return of a form of proxy or any CREST Proxy Instruc7on (as described in note 7 below) will not preclude a member from a8ending and vo7ng at the mee7ng in person if he/she wishes to do so. However, in light of the COVID-19 virus situa7on, Shareholders and their proxies will not be allowed to enter the mee7ng. Shareholders are urged to appoint the Chair of the mee7ng as his or her proxy. CREST members who wish to appoint a proxy or proxies by u7lising the CREST electronic proxy appointment service may do so for the annual general mee7ng and any adjournment(s) thereof by u7lising the procedures described in the CREST manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a vo7ng service provider(s), should refer to their CREST sponsor or vo7ng service provider(s), who will be able to take the appropriate ac7on on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruc7on) must be properly authen7cated in accordance with Euroclear UK & Ireland Limited’s (EUI) speciﬁca7ons and must contain the informa7on required for such instruc7ons, as described in the CREST manual. The message must be transmi8ed so as to be received by the issuer’s agent (Link Asset Services, ID RA10) not less than 48 hours before the 7me appointed for the mee7ng. For this purpose, the 7me of receipt will be taken to be the 7me (as determined by the 7mestamp applied to the message by the CREST applica7ons 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 vo7ng service providers should note that EUI does not make available special procedures in CREST for any par7cular messages. Normal system 7mings and limita7ons will therefore apply in rela7on to the input of CREST proxy instruc7ons. 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 vo7ng service provider(s), to procure that his CREST sponsor or vo7ng service provider(s) take(s)) such ac7on as shall be necessary to ensure that a message is transmi8ed by means of the CREST system by any par7cular 7me. In this connec7on, CREST members and, where applicable, their CREST sponsors or vo7ng service providers are referred, in par7cular, to those sec7ons of the CREST manual concerning prac7cal limita7ons of the CREST system and 7mings. The Company may treat as invalid a CREST proxy instruc7on in the circumstances set out in Regula7on 35(5)(a) of the Uncer7ﬁcated Securi7es Regula7ons 2001. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submi8ed 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). Annual Report and Financial Statements for the year ended 31 December 2019 75 Rose Petroleum plc No7ce of Annual General Mee7ng con7nued Changing proxy instruc0ons 12 To change your proxy instruc7ons simply submit a new proxy appointment using the methods set out above. Note that the cut-oﬀ 7me for receipt of proxy appointments (see above) also apply in rela7on to amended instruc7ons; any amended proxy appointment received a'er the relevant cut-oﬀ 7me will be disregarded. 13 Where you have appointed a proxy using the hard-copy proxy form and would like to change the instruc7ons using another hard-copy proxy form, please contact Link Asset Services on 0371 664 0391 if calling from the United Kingdom, or +44 (0) 371 664 0391 if calling from outside of the United Kingdom. Calls will be charged at local rate. Calls outside the United Kingdom will be charged at the applicable interna7onal rate. The lines are open between 9.00 a.m. and 5.30 p.m., Monday to Friday, excluding public holidays in England and Wales. 14 If you submit more than one valid proxy appointment, the appointment received last before the latest 7me for the receipt of proxies will take precedence. Termina0on of proxy appointments 15 In order to revoke a proxy instruc7on, you will need to inform the Company by sending a signed hard copy no7ce clearly sta7ng your inten7on 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 revoca7on no7ce must be executed under its common seal or signed on its behalf by an oﬃcer of the Company or an a8orney for the Company. Any power of a8orney or any other authority under which the revoca7on no7ce is signed (or a duly cer7ﬁed copy of such power or authority) must be included with the revoca7on no7ce. The revoca7on no7ce must be received by Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 48 hours prior to the mee7ng. 16 17 If you a8empt to revoke your proxy appointment but the revoca7on is received a'er the 7me speciﬁed then, subject to the paragraph directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from a8ending the annual general mee7ng and vo7ng in person. If you have appointed a proxy and a8end the annual general mee7ng in person, your proxy appointment will automa7cally be terminated. Corporate representa0ves 18 A corpora7on which is a member can appoint one or more corporate representa7ves who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representa7ve exercises powers over the same share. Issued shares and total vo0ng rights 19 As at 6:00 p.m. on 29 June 2020 the Company’s issued share capital comprised 287,111,606 Ordinary Shares of £0.001p each. Each Ordinary Share carries the right to one vote at a general mee7ng of the Company and, therefore, the total number of vo7ng rights in the Company as at 6:00 p.m. on 29 June 2020 is 287,111,606. Communica0on Except as provided above, members who have general queries about the annual general mee7ng 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 communica7on will be accepted). You may not use any electronic address provided either: • • in this no7ce of annual general mee7ng; or any related documents (including the Chairman’s le8er and proxy form), to communicate with the Company for any purposes other than those expressly stated. 76 Annual Report and Financial Statements for the year ended 31 December 2019 No7ce of Annual General Mee7ng con7nued Appendix 1 Explanatory notes to the No0ce of Annual General Mee0ng The notes on the following pages give an explana7on of the proposed Resolu7ons. Resolu7ons 1 to 5 are proposed as ordinary resolu7ons. This means that for each of those Resolu7ons to be passed, more than half of the votes cast in person or by proxy must be in favour of the Resolu7on. Resolu7ons 6 and 7 are proposed as special resolu7ons. This means that for this Resolu7on to be passed, at least three-quarters of the votes cast must be in favour of the Resolu7ons. Resolu0on 1 This Resolu7on is to receive and adopt the Directors’ reports and accounts for the year ended 31 December 2019, which accompany this document. Resolu0ons 2 to 3 Mr Christopher John Eadie is re7ring as a Director by rota7on at the annual general mee7ng in accordance with the provisions of the Company’s ar7cles of associa7on and is standing for re-appointment. Mr Gordon Bowman Stein who was appointed since the previous annual general mee7ng of the Company, is also re7ring as a Director at the annual general mee7ng and is standing for re-appointment. If each of these Resolu7ons are separately passed, the respec7ve individual will be re-appointed as a Director of the Company. Resolu0on 4 This is a Resolu7on to appoint RSM UK Audit LLP as auditor of the Company for the ﬁnancial year ending 31 December 2020 and to authorise the Directors to ﬁx their remunera7on. Resolu0on 5 This Resolu7on, if passed, would authorise the Directors to allot Ordinary Shares or grant Rights to subscribe for or convert any securi7es into Ordinary Shares up to an aggregate nominal amount of £200,000, represen7ng approximately 69.9 per cent of the current issued share capital. The authority being sought in Resolu7on 5 replaces the authority granted on 21 November 2019. The authority will expire on the earlier of 15 months from the date the Resolu7on is passed or the conclusion of the Company’s annual general mee7ng in 2021. Resolu0on 6 This Resolu7on, which is condi7onal upon Resolu7on 5 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 exis7ng Shareholders in propor7on to their exis7ng shareholding. This authority would be limited to an aggregate nominal amount of £200,000 (represen7ng approximately 69.9 per cent of the issued ordinary share capital of the Company as at 29 June 2020, being the latest prac7cal date prior to the publica7on of the no7ce of the annual general mee7ng). In order to progress the Group’s plans, the Company will need con7nued access to capital markets and therefore the Directors believe that it is prudent and in the best interests of the Group to obtain this level of share issue authority to provide greater ﬁnancial and opera7onal ﬂexibility. Annual Report and Financial Statements for the year ended 31 December 2019 77 Rose Petroleum plc No7ce of Annual General Mee7ng con7nued As with Resolu7on 5, the authority being sought pursuant to Resolu7on 6, replaces the authority granted on 21 November 2019. The authority and power pursuant to Resolu7on 6 will expire on the earlier of 15 months from the date of Resolu7on 6 being passed or the conclusion of the Company’s annual general mee7ng in 2021. Resolu0on 7 This is a Resolu7on to change the registered name of the Company from Rose Petroleum PLC to Zephyr Energy PLC. 78 Annual Report and Financial Statements for the year ended 31 December 2019 For your notes Annual Report and Financial Statements for the year ended 31 December 2019 79 Printed by Michael Searle & Son Limited Rose Petroleum plc Head Oﬃce: First Floor Newmarket House Market Street Newbury Berkshire RG14 5DP www.rosepetroleum.com

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